-----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, Mw1ifsw5sK14v7aOd32KvH/TiZ0dKlwKzBNLAyxeEeX8k9eJ6jHrNgM4BQ+8HrwJ t49E8t9VTQYuKwzAUOtLKQ== 0000912057-01-537524.txt : 20030429 0000912057-01-537524.hdr.sgml : 20030429 20011102162123 ACCESSION NUMBER: 0000912057-01-537524 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 20 FILED AS OF DATE: 20011102 EFFECTIVENESS DATE: 20011102 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAINEWEBBER PACE SELECT ADVISORS TRUST CENTRAL INDEX KEY: 0000930007 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-87254 FILM NUMBER: 01774146 BUSINESS ADDRESS: STREET 1: C/O UBS GLOBAL ASSET MANAGEMENT (US) INC STREET 2: 51 WEST 52ND ST CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 212 882 5575 MAIL ADDRESS: STREET 1: C/O UBS GLOBAL ASSET MANAGEMENT (US) INC STREET 2: 51 WEST 52ND ST CITY: NEW YORK STATE: NY ZIP: 10019 FORMER COMPANY: FORMER CONFORMED NAME: PAINEWEBBER CONSULTING FUND PRODUCT DATE OF NAME CHANGE: 19940914 FORMER COMPANY: FORMER CONFORMED NAME: MANAGED ACCOUNTS SERVICES PORTFOLIO TRUST DATE OF NAME CHANGE: 19941212 FORMER COMPANY: FORMER CONFORMED NAME: PAINEWEBBER PACE SELECT ADVISORS TRUST DATE OF NAME CHANGE: 19980212 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAINEWEBBER PACE SELECT ADVISORS TRUST CENTRAL INDEX KEY: 0000930007 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-08764 FILM NUMBER: 01774147 BUSINESS ADDRESS: STREET 1: C/O UBS GLOBAL ASSET MANAGEMENT (US) INC STREET 2: 51 WEST 52ND ST CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 212 882 5575 MAIL ADDRESS: STREET 1: C/O UBS GLOBAL ASSET MANAGEMENT (US) INC STREET 2: 51 WEST 52ND ST CITY: NEW YORK STATE: NY ZIP: 10019 FORMER COMPANY: FORMER CONFORMED NAME: PAINEWEBBER CONSULTING FUND PRODUCT DATE OF NAME CHANGE: 19940914 FORMER COMPANY: FORMER CONFORMED NAME: MANAGED ACCOUNTS SERVICES PORTFOLIO TRUST DATE OF NAME CHANGE: 19941212 FORMER COMPANY: FORMER CONFORMED NAME: PAINEWEBBER PACE SELECT ADVISORS TRUST DATE OF NAME CHANGE: 19980212 485BPOS 1 a2059133z485bpos.txt 485BPOS As filed with the Securities and Exchange Commission on November 2, 2001 1933 Act Registration No. 33-87254 1940 Act Registration No. 811-8764 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-lA REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ] --- Pre-Effective Amendment No. [ ] ---- --- Post-Effective Amendment No. 14 [ X ] ---- --- and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ] --- Amendment No. 16 [ X ] --- --- (Check appropriate box or boxes.) PAINEWEBBER PACE SELECT ADVISORS TRUST (Exact Name of Registrant as Specified in Charter) 51 West 52nd Street New York, New York 10019-6114 (Address of Principal Executive Offices) Registrant's Telephone Number, including Area Code: (212) 713-2000 AMY R. DOBERMAN, ESQ. Brinson Advisors, Inc. 1285 Avenue of the Americas New York, New York 10019-6028 (Name and Address of Agent for Service) Copies to : JON S. RAND, ESQ. Willkie Farr & Gallagher 787 Seventh Avenue New York, New York 10019-6099 Telephone: (212) 728-8000 Approximate Date of Proposed Public Offering: Effective Date of this Post-Effective Amendment. It is proposed that this filing will become effective (check appropriate box): [ ] immediately upon filing pursuant to paragraph (b) [ X ] on November 5, 2001 pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(1) [ ] on (date) pursuant to paragraph (a)(1) [ ] 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. PACE-SM- Money Market Investments -------------------- PROSPECTUS NOVEMBER 5, 2001 ---------------------------------- This Prospectus offers shares of PACE Money Market Investments, a series of PaineWebber PACE-SM- Select Advisors Trust, to participants in the PaineWebber PACE-SM- Multi Advisor Program. The PaineWebber PACE-SM- Multi Advisor Program is designed to assist you in devising an asset allocation strategy to meet your individual needs. As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved the fund's shares or determined whether this prospectus is complete or accurate. To state otherwise is a crime. Not FDIC insured. May lose value. No bank guarantee. - -------------------------------------------------------------------------------- PaineWebber PACE Money Market Investments CONTENTS THE FUND - -------------------------------------------------------------------------------- What every investor 3 Investment Objective, Strategies and Risks should know about the fund 4 Performance 5 Expenses and Fee Tables 6 More About Risks and Investment Strategies
YOUR INVESTMENT - -------------------------------------------------------------------------------- Information for 7 Investing in the Fund managing your fund --Buying Shares account --The PaineWebber PACE-SM- Multi Advisor Program --Selling Shares 8 --Pricing and Valuation
ADDITIONAL INFORMATION - -------------------------------------------------------------------------------- Additional important 9 Management information about the fund 10 Dividends and Taxes 11 Financial Highlights
- -------------------------------------------------------------------------------- Where to learn more Back Cover about the fund
--------------------------------- The fund is not a complete or balanced investment program. --------------------------------- - -------------------------------------------------------------------------------- Prospectus Page 2 - -------------------------------------------------------------------------------- PaineWebber PACE Money Market Investments PACE MONEY MARKET INVESTMENTS INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE Current income consistent with preservation of capital and liquidity. PRINCIPAL INVESTMENT STRATEGIES The fund is a money market mutual fund and seeks to maintain a stable price of $1.00 per share. To do this, the fund invests in a diversified portfolio of high quality money market instruments of governmental and private issuers. Money market instruments are short-term debt obligations and similar securities. They also include longer term bonds that have variable interest rates or other special features that give them the financial characteristics of short-term debt. The fund invests in foreign money market instruments only if they are denominated in U.S. dollars. Brinson Advisors, Inc., the fund's manager and investment advisor, selects money market instruments for the fund based on its assessment of relative values and changes in market and economic conditions. Brinson Advisors considers safety of principal and liquidity in selecting securities for the fund and thus may not buy securities that pay the highest yield. PRINCIPAL RISKS An investment in the fund is not a bank deposit and is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. While the fund seeks to maintain the value of your investment at $1.00 per share, you may lose money by investing in the fund. Money market instruments generally have a low risk of loss, but they are not risk-free. The principal risks presented by an investment in the fund are: CREDIT RISK -- Issuers of money market instruments may fail to make payments when due, or they may become less willing or less able to do so. INTEREST RATE RISK -- The value of the fund's investments generally will fall when short term interest rates rise, and its yield will tend to lag behind prevailing rates. FOREIGN INVESTING RISK -- The value of the fund's investments in foreign securities may fall due to adverse political, social and economic developments abroad. However, because the fund's foreign investments must be denominated in U.S. dollars, it generally is not subject to the risk of changes in currency valuations. More information about risks of an investment in the fund is provided below in "More About Risks and Investment Strategies." - -------------------------------------------------------------------------------- Prospectus Page 3 - -------------------------------------------------------------------------------- PaineWebber PACE Money Market Investments PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart and table provide information about the fund's performance and thus give some indication of the risks of an investment in the fund. The bar chart shows how the fund's performance has varied from year to year. The bar chart does not reflect the annual PACE-SM- Multi Advisor Program fee; if it did, the total returns shown would be lower. The table that follows the bar chart shows the average annual returns over several time periods. The table does reflect the annual PACE-SM- Multi Advisor Program fee. The fund's past performance does not necessarily indicate how the fund will perform in the future. TOTAL RETURN (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC TOTAL RETURN 1996 5.05% 1997 5.27% 1998 5.21% 1999 4.82% 2000 6.08%
CALENDAR YEAR Total Return January 1 to September 30, 2001 -- 3.33% Best quarter during calendar years shown: 4th quarter, 2000 -- 1.57% Worst quarter during calendar years shown: 1st quarter, 1999 -- 1.12% AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2000
CLASS P -------- One Year.................................................... 4.50% Five Years.................................................. 3.72 Life of Fund (Inception Date 8/24/95)....................... 3.72%
- -------------------------------------------------------------------------------- Prospectus Page 4 - -------------------------------------------------------------------------------- PaineWebber PACE Money Market Investments EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy and hold shares of the fund. SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment) Maximum Sales Charge (Load) Imposed on Purchases (as a % of offering price).................................................................. None Maximum Deferred Sales Charge (Load) (as a % of offering price)........... None Maximum Annual Account Fee for PaineWebber PACE-SM- Multi Advisor Program (as a % of average value of shares held on the last calendar day of the previous quarter)....................................................... 1.50% ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets) Management Fees........................................................... 0.15% Distribution and/or Service (12b-1) Fees.................................. None Other Expenses*........................................................... 0.85% ---- Total Annual Fund Operating Expenses...................................... 1.00% ==== Expense Reimbursements**.................................................. 0.50% ---- Net Expenses**............................................................ 0.50% ====
- --------- * Includes an administration fee of 0.20% paid by the fund to Brinson Advisors. ** The fund and Brinson Advisors have entered into a written agreement under which Brinson Advisors is contractually obligated to reimburse the fund so that the fund's expenses through December 1, 2002 would not exceed 0.50%. The fund has agreed to repay Brinson Advisors for any reimbursed expenses to the extent that it can do so over the following three fiscal years without causing the fund's expenses in any of those three years to exceed this expense cap. 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. This 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. The example includes the maximum annual fee for the PACE-SM- Multi Advisor Program and also assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same, except for the two year period when the fund's expenses are lower due to its reimbursement agreement with Brinson Advisors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS - ------ -------- -------- -------- $203 $731 $1,286 $2,798
- -------------------------------------------------------------------------------- Prospectus Page 5 - -------------------------------------------------------------------------------- PaineWebber PACE Money Market Investments MORE ABOUT RISKS AND INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- PRINCIPAL RISKS The main risks of investing in the fund are described below. Other risks of investing in the fund, along with further details about some of the risks described below, are discussed in the fund's Statement of Additional Information ("SAI"). Information on how you can obtain the SAI is on the back cover of this prospectus. CREDIT RISK. Credit risk is the risk that the issuer of a money market instrument will not make principal or interest payments when they are due. Even if an issuer does not default on a payment, a money market instrument's value may decline if the market believes that the issuer has become less able, or less willing, to make payments on time. Even high quality money market instruments are subject to some credit risk. INTEREST RATE RISK. The value of money market instruments generally can be expected to fall when interest rates rise and to rise when interest rates fall. Interest rate risk is the risk that interest rates will rise, so that the value of the fund's investments in money market instruments will fall. Also, the fund's yield will tend to lag behind changes in prevailing short-term interest rates. This means that the fund's income will tend to rise more slowly than increases in short-term interest rates. Similarly, when short-term interest rates are falling, the fund's income generally will tend to fall more slowly. FOREIGN INVESTING RISK. Foreign investing involves risks relating to political, social and economic developments abroad to a greater extent than investing in the securities of U.S. issuers. In addition, there are differences between U.S. and foreign regulatory requirements and market practices. ADDITIONAL RISK STRUCTURED SECURITY RISK. The fund may purchase securities representing interests in underlying assets, but structured to provide certain advantages not inherent in those assets (E.G., enhanced liquidity, yields linked to short-term interests rates). If those securities behaved in a way that Brinson Advisors did not anticipate, or if the security structures encountered unexpected difficulties, the fund could suffer a loss. ADDITIONAL INVESTMENT STRATEGIES Like all money market funds, the fund is subject to maturity, quality and diversification requirements designed to help it maintain a stable price of $1.00 per share. Brinson Advisors may use a number of professional money management techniques to respond to changing economic and money market conditions and to shifts in fiscal and monetary policy. These techniques include varying the fund's composition and weighted average maturity based on an assessment of the relative values of various money market instruments and future interest rate patterns. Brinson Advisors also may buy or sell money market instruments to take advantage of yield differences. - -------------------------------------------------------------------------------- Prospectus Page 6 - -------------------------------------------------------------------------------- PaineWebber PACE Money Market Investments INVESTING IN THE FUND - -------------------------------------------------------------------------------- BUYING SHARES If you are a participant in the PaineWebber PACE-SM- Multi Advisor Program, you may buy shares of the fund through a managed account maintained with UBS PaineWebber Inc. ("UBS PaineWebber-SM-(*)"). Payment for investments made through the PACE-SM- Multi Advisor Program is made by debiting this account. Your payment for fund shares is due no later than the first business day after the order is placed. You may place an order only after you have executed the necessary PACE-SM- Multi Advisor Program documentation and made an asset allocation decision. Your Financial Advisor is responsible for promptly forwarding your order to UBS PaineWebber's headquarters. The fund and UBS PaineWebber reserve the right to reject a purchase order or suspend the offering of fund shares. THE PAINEWEBBER PACE-SM- MULTI ADVISOR PROGRAM The PACE-SM- Multi Advisor Program is described in detail in the PACE-SM- Multi Advisor Disclosure Document, the PACE-SM- Multi Advisor Investment Advisory Agreement and other Program documents. The description of the PACE-SM- Multi Advisor Program in this Prospectus is only a brief summary of certain features of the Program and is not intended as a complete description. The PaineWebber PACE-SM- Multi Advisor Program is an advisory program sponsored by UBS PaineWebber that includes comprehensive investment services, including investor profiling, a personalized asset allocation strategy using an appropriate combination of shares in no-load, low-load and load-waived funds and a quarterly investment performance review. UBS PaineWebber has no investment discretion over your PACE-SM- Multi Advisor Program account except to the extent required to permit automatic rebalancing of your account if you elect that service. Otherwise, you will make all the investment decisions. The fund is one of several funds used as vehicles to implement the long-term asset allocation strategies recommended through the PACE-SM- Multi Advisor Program based on an evaluation of your investment objectives and risk tolerances. The minimum initial aggregate investment in the PACE-SM- Multi Advisor Program is $10,000 and is subject to the minimum investment requirements of the funds in the Program. Any subsequent investment in the Program must be at least $500 if invested proportionately among the funds. It is possible that UBS PaineWebber's periodic recommendations for adjustments in the allocation of your assets among different funds may not be successful or may not be developed, transmitted and acted upon quickly enough to avoid market shifts, which can be sudden and substantial. You are urged to consider carefully UBS PaineWebber's asset allocation recommendations in light of your investment needs and to act promptly upon any recommended reallocation of assets. PAINEWEBBER PACE-SM- MULTI ADVISOR PROGRAM FEE For the services provided to you under the PACE-SM- Multi Advisor Program, you will pay UBS PaineWebber a quarterly Program Fee at an annual rate of up to 1.50% of the value of the shares of the funds held in your account under the Program. This quarterly fee is generally charged to your UBS PaineWebber account. Employees of UBS PaineWebber and its affiliates may participate in the PACE-SM- Multi Advisor Program at a reduced fee or for no fee. UBS PaineWebber Financial Advisors receive a portion of the PACE-SM- Program Fee for the services they provide to participants. As a PACE-SM- Multi Advisor Program participant, you may incur greater total fees and expenses than investors purchasing shares of similar funds without the benefit of these professional asset allocation recommendations. SELLING SHARES You can sell your fund shares at any time. You may sell your shares by contacting your Financial Advisor in - ------------ (*)UBS PaineWebber is a service mark of UBS AG. - -------------------------------------------------------------------------------- Prospectus Page 7 - -------------------------------------------------------------------------------- PaineWebber PACE Money Market Investments person or by telephone or mail. Your Financial Advisor is responsible for promptly forwarding your request to UBS PaineWebber's headquarters. After it receives and accepts your request, UBS PaineWebber repurchases your fund shares. You generally will receive the proceeds of the sale within the first business day after UBS PaineWebber receives the order. UBS PaineWebber reserves the right not to repurchase your shares. In that case, UBS PaineWebber forwards your request to sell your shares to the fund's transfer agent. The transfer agent will sell your shares after you provide it with the following information in writing: Your name and address; The fund's name; Your account number; The dollar amount or number of shares you want to sell; and A guarantee of each registered owner's signature. A signature guarantee may be obtained from a financial institution, broker, dealer or clearing agency that is a participant in one of the medallion programs recognized by the Securities Transfer Agents Association. These are: Securities Transfer Agents Medallion Program (STAMP), Stock Exchanges Medallion Program (SEMP) and the New York Stock Exchange Medallion Signature Program (MSP). The fund and the transfer agent will not accept signature guarantees that are not a part of these programs. Sales through the transfer agent may also need to include additional supporting documents for sales by estates, trusts, guardianships, custodianships, partnerships and corporations. UBS PaineWebber may terminate your participation in the PACE-SM- Multi Advisor Program if the value of your assets in the Program declines or is reduced to less than $7,500. If UBS PaineWebber elects to do this with your account, it will notify you that you can increase the amount invested to the account minimum or more within 30 days. This notice may appear on your account statement. UBS PaineWebber will not terminate your participation in the Program if the value of your account falls below $7,500 solely as a result of a reduction in net asset value per share of the funds or redemptions to pay Program fees. 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 purchased shares by check, this can take up to 15 days. PRICING AND VALUATION The price at which you may buy or sell the fund's shares is based on the next net asset value per share calculated after your order is placed. The fund calculates its net asset value on days that the New York Stock Exchange ("NYSE") is open 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. If trading on the NYSE is halted for the day before 4:00 p.m., Eastern time, the fund's net asset value per share will be calculated as of the time trading was halted. The fund's net asset value per share is expected to be $1.00 per share, although this value is not guaranteed. The fund values its securities at their amortized cost. This method uses a constant amortization to maturity of the difference between the cost of the instrument to the fund and the amount due at maturity. - -------------------------------------------------------------------------------- Prospectus Page 8 - -------------------------------------------------------------------------------- PaineWebber PACE Money Market Investments MANAGEMENT - -------------------------------------------------------------------------------- MANAGER AND INVESTMENT ADVISOR Brinson Advisors, Inc. is the fund's manager and administrator and also provides investment advisory services. Brinson Advisors is located at 51 West 52nd Street, New York, New York 10019-6114, and is a wholly owned asset management subsidiary of UBS AG. UBS AG is an internationally diversified organization with headquarters in Zurich, Switzerland and operations in many areas of the financial services industry. On September 30, 2001 Brinson Advisors was investment advisor, sub-advisor or manager to 24 investment companies with 58 separate portfolios and aggregate assets of approximately $66.3 billion. The fund has received an exemptive order from the SEC to permit the board to select and replace investment advisers and to amend the sub-advisory contracts between Brinson Advisors and the investment advisors without obtaining shareholder approval. ADVISORY AND ADMINISTRATION FEES The fund pays fees to Brinson Advisors for administrative services and advisory services at the annual contract rates of 0.20% and 0.15%, respectively, of the fund's average daily net assets. During the fiscal year ended July 31, 2001, Brinson Advisors waived all its administrative and advisory fees. PORTFOLIO MANAGER Susan P. Ryan, an executive director of Brinson Advisors, is primarily responsible for the day-to-day management of the fund's portfolio. She has held her fund responsibilities since its inception. - -------------------------------------------------------------------------------- Prospectus Page 9 - -------------------------------------------------------------------------------- PaineWebber PACE Money Market Investments DIVIDENDS AND TAXES - -------------------------------------------------------------------------------- DIVIDENDS The fund normally declares dividends daily and pays them monthly. Shares of the fund earn dividends on the day they are sold but do not earn dividends on the day they are purchased. You will receive dividends in additional shares of the fund unless you elect to receive them in cash. Contact your Financial Advisor at UBS PaineWebber if you prefer to receive dividends in cash. TAXES The dividends that you receive from the fund generally are subject to federal income tax regardless of whether you receive them in additional fund shares or in cash. The fund expects that its dividends will be taxed as ordinary income. If you hold fund shares through a tax-exempt account or plan, such as an IRA or 401(k) plan, dividends on your shares generally will not be subject to tax. The fund will tell you annually how you should treat its dividends for tax purposes. You will not recognize any gain on the sale of fund shares so long as the fund maintains a share price of $1.00. As noted above, shareholders will pay the PACE-SM- Multi Advisor Program Fee. For individual shareholders, this fee will be treated as a "miscellaneous itemized deduction" for federal income tax purposes. See the SAI for a more detailed discussion. Prospective shareholders are urged to consult their tax advisors. - -------------------------------------------------------------------------------- Prospectus Page 10 - -------------------------------------------------------------------------------- PaineWebber PACE Money Market Investments FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The following financial highlights table is intended to help you understand the fund's financial performance for the periods shown. Certain information reflects financial results for a single fund share. In the tables, "total investment return" represents the rate that an investor would have earned (or lost) on an investment in the fund, assuming reinvestment of all dividends. This information has been audited by Ernst & Young LLP, independent auditors, whose report, along with the fund's financial statements, is included in the fund's Annual Report to Shareholders. The Annual Report may be obtained without charge by calling toll free 1-800-647-1568.
FOR THE YEARS ENDED JULY 31, ------------------------------------------- 2001 2000 1999 1998 1997 ------- ------- ------- ------- ------- Net asset value, beginning of year...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------- ------- ------- ------- ------- Net investment income................... 0.05 0.05 0.05 0.05 0.05 ------- ------- ------- ------- ------- Dividends from net investment income.... (0.05) (0.05) (0.05) (0.05) (0.05) ------- ------- ------- ------- ------- Net asset value, end of year............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======= ======= ======= ======= ======= Total investment return (1)............. 5.44% 5.53% 4.85% 5.32% 5.13% ======= ======= ======= ======= ======= Ratios/Supplemental Data: Net assets, end of year (000's)......... $76,657 $65,521 $47,174 $25,493 $16,070 Expenses to average net assets, net of fee waivers and expense reimbursements.......................... 0.50% 0.50% 0.50% 0.50% 0.50% Expenses to average net assets, before fee waivers and expense reimbursements...................... 1.00% 0.95% 1.07% 1.20% 1.89% Net investment income to average net assets, net of fee waivers and expense reimbursements...................... 5.26% 5.46% 4.70% 5.20% 5.04% Net investment income to average net assets, before fee waivers and expense reimbursements...................... 4.76% 5.01% 4.13% 4.50% 3.65%
- ----------- (1) Total investment return is calculated assuming a $10,000 investment on the first day of each year reported, reinvestment of all dividends at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each year reported. The figures do not include program fees; results would be lower if this fee was included. - -------------------------------------------------------------------------------- Prospectus Page 11 - -------------------------------------------------------------------------------- PaineWebber PACE Money Market Investments TICKER SYMBOL PACE Money Market Investments PCEXX
If you want more information about the fund, the following documents are available free upon request: ANNUAL/SEMI-ANNUAL REPORTS Additional information about the fund's investments is available in its annual and semi-annual reports to shareholders. STATEMENT OF ADDITIONAL INFORMATION (SAI) The SAI provides more detailed information about the fund and is incorporated by reference into this prospectus. You may discuss your questions about the fund by contacting your Financial Advisor. You may obtain free copies of the fund's annual and semi-annual reports and its SAI by contacting the fund directly at 1-800-647-1568. You may review and copy information about the fund, including shareholder reports and the SAI, at the Public Reference Room of the Securities and Exchange Commission. You may obtain information about the operations of the SEC's Public Reference Room by calling the SEC at 1-202-942-8090. You can get copies of reports and other information about the fund: - -For a fee, by electronic request at publicinfo@sec.gov or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102; or Free from the EDGAR Database on the SEC's Internet website at: http://www.sec.gov PaineWebber PACE Select Advisors Trust Investment Company Act File No. 811-8764 - -C- 2001 Brinson Advisors. All rights reserved. - -------------------------------------------------------------------------------- PaineWebber PACE-SM- Select Advisors Trust PACE Government Securities Fixed Income Investments PACE Intermediate Fixed Income Investments PACE Strategic Fixed Income Investments PACE Municipal Fixed Income Investments PACE Global Fixed Income Investments PACE Large Company Value Equity Investments PACE Large Company Growth Equity Investments PACE Small/Medium Company Value Equity Investments PACE Small/Medium Company Growth Equity Investments PACE International Equity Investments PACE International Emerging Markets Equity Investments -------------------- PROSPECTUS NOVEMBER 5, 2001 ---------------------------------- This prospectus offers Class A, Class B, Class C and Class Y shares in the eleven funds listed above. Each class has different sales charges and ongoing expenses. You can choose the class that is best for you based on how much you plan to invest and how long you plan to hold your fund shares. Class Y shares are available only to certain types of investors. As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved any fund's shares or determined whether this prospectus is complete or accurate. To state otherwise is a crime. Not FDIC insured. May lose value. No bank guarantee. - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust CONTENTS THE FUNDS - -------------------------------------------------------------------------------- What every investor PACE Government Securities Fixed Income Investments should know about 4 Investment Objective, Strategies and Risks the funds 5 Performance 6 Expenses and Fee Tables PACE Intermediate Fixed Income Investments 7 Investment Objective, Strategies and Risks 8 Performance 9 Expenses and Fee Tables PACE Strategic Fixed Income Investments 10 Investment Objective, Strategies and Risks 11 Performance 12 Expenses and Fee Tables PACE Municipal Fixed Income Investments 13 Investment Objective, Strategies and Risks 14 Performance 15 Expenses and Fee Tables PACE Global Fixed Income Investments 16 Investment Objective, Strategies and Risks 18 Performance 19 Expenses and Fee Tables PACE Large Company Value Equity Investments 20 Investment Objectives, Strategies and Risks 21 Performance 22 Expenses and Fee Tables PACE Large Company Growth Equity Investments 24 Investment Objective, Strategies and Risks 25 Performance 26 Expenses and Fee Tables PACE Small/Medium Company Value Equity Investments 28 Investment Objective, Strategies and Risks 29 Performance 30 Expenses and Fee Tables PACE Small/Medium Company Growth Equity Investments 31 Investment Objective, Strategies and Risks 32 Performance 33 Expenses and Fee Tables PACE International Equity Investments 34 Investment Objective, Strategies and Risks 35 Performance 36 Expenses and Fee Tables PACE International Emerging Markets Equity Investments 37 Investment Objective, Strategies and Risks 38 Performance 39 Expenses and Fee Tables 40 More About Risks and Investment Strategies
- -------------------------------------------------------------------------------- Prospectus Page 2 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust YOUR INVESTMENT - -------------------------------------------------------------------------------- Information for 43 Managing Your Fund Account managing your fund --Flexible Pricing account --Buying Shares --Selling Shares --Exchanging Shares --Transfer Agent --Pricing and Valuation
ADDITIONAL INFORMATION - -------------------------------------------------------------------------------- Additional important 49 Management information about 54 Dividends and Taxes the funds 55 Financial Highlights
- -------------------------------------------------------------------------------- Where to learn more Back Cover about these funds
------------------------------- The funds are not complete or balanced investment programs. ------------------------------- - -------------------------------------------------------------------------------- Prospectus Page 3 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Government Securities Fixed Income Investments PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE Current income. PRINCIPAL INVESTMENT STRATEGIES The fund invests in U.S. government bonds and other bonds of varying maturities, but normally limits its portfolio "duration" to between one and seven years. "Duration" is a measure of the fund's exposure to interest rate risk. A longer duration means that changes in market interest rates are likely to have a larger effect on the value of the assets in a portfolio. The fund invests primarily in mortgage-backed securities issued or guaranteed by U.S. government agencies and in other U.S. government securities. The fund also invests, to a lesser extent, in investment grade bonds of private issuers, including those backed by mortgages or other assets. These privately issued bonds generally have one of the two highest credit ratings, although the fund may invest to a limited extent in privately issued bonds with the third highest credit rating (or unrated bonds of equivalent quality). The fund may invest in when-issued or delayed delivery bonds to increase its return, giving rise to a form of leverage. The fund may (but is not required to) use options, futures and other derivatives as part of its investment strategy or to help manage portfolio risks. Brinson Advisors, Inc., the fund's manager, has selected Pacific Investment Management Company LLC ("PIMCO") to serve as the fund's investment advisor. PIMCO establishes duration targets for the fund's portfolio based on its expectations for changes in interest rates and then positions the fund to take advantage of yield curve shifts. PIMCO decides to buy or sell specific bonds based on an analysis of their values relative to other similar bonds. PIMCO monitors the prepayment experience of the fund's mortgage-backed bonds and will also buy and sell securities to adjust the fund's average portfolio duration, credit quality, yield curve and sector and prepayment exposure, as appropriate. PRINCIPAL RISKS An investment in the fund is not guaranteed; you may lose money by investing in the fund. The principal risks presented by an investment in the fund are: INTEREST RATE RISK -- The value of the fund's investments generally will fall when interest rates rise. Some corporate bonds provide that the issuer may repay them earlier than the maturity date. When interest rates are falling, bond issuers may exercise this right more often, and the fund may have to reinvest these repayments at lower interest rates. PREPAYMENT RISK -- The fund's mortgage- and asset-backed securities may be prepaid more rapidly than expected, especially when interest rates are falling, and the fund may have to reinvest those prepayments at lower interest rates. When interest rates are rising, slower prepayments may extend the duration of the securities and may reduce their value. LEVERAGE RISK -- Leverage magnifies the effect of changes in market values. While leverage can increase the fund's income and potential for gain, it also can increase expenses and the risk of loss. The fund attempts to limit the magnifying effect of its leverage by managing its portfolio duration. CREDIT RISK -- Bond issuers may fail to make payments when due, or they may become less willing or less able to do so. DERIVATIVES RISK -- The fund's investments in derivatives may rise or fall more rapidly than other investments. An investment in the fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. More information about risks of an investment in the fund is provided below in "More About Risks and Investment Strategies." - -------------------------------------------------------------------------------- Prospectus Page 4 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Government Securities Fixed Income Investments PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart and table give some indication of the risks of an investment in the fund based on the performance of the fund's Class P shares, the only shares outstanding for at least one calendar year. The Class P shares are offered pursuant to a separate prospectus and may be purchased only by participants in the PACE Select Advisors Program, who are subject to a maximum annual program fee of 1.50%. The Class A, Class B, Class C and Class Y shares offered pursuant to this prospectus are not part of the PACE Select Advisors Program and are not subject to the annual PACE Select Advisors Program fee. The bar chart shows how the fund's performance has varied from year to year. The bar chart does not reflect the maximum annual PACE Select Advisors Program fee, nor does it reflect the sales charges or higher expenses of the fund's Class A, Class B and Class C shares. If it did, the total returns shown would be lower. The table that follows the bar chart shows average annual returns of the fund's Class P shares over several time periods. The table does reflect the maximum annual PACE Select Advisors Program fee. The table does not reflect the sales charges or higher expenses of the fund's Class A, Class B and Class C shares. However, because all classes of shares invest in the same portfolio of securities, their annual returns would differ only to the extent of the different sales charges or expenses. The table compares fund returns to returns on a broad-based market index that is unmanaged and that, therefore, does not include any fees or expenses. The fund's past performance does not necessarily indicate how the fund will perform in the future. TOTAL RETURN OF CLASS P SHARES (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC CALENDAR YEAR TOTAL RETURN 1996 4.26% 1997 9.04% 1998 6.42% 1999 1.01% 2000 11.49%
Total Return January 1 to September 30, 2001 -- 9.62% Best quarter during calendar years shown: 4th quarter, 2000 -- 4.01% Worst quarter during calendar years shown: 1st quarter, 1996 -- (1.33)% AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2000
LEHMAN BROTHERS MORTGAGE-BACKED CLASS P SECURITIES INDEX ------- ---------------- One Year.................................................. 9.83% 11.16% Five Years................................................ 4.80% 6.91% Life of Fund (Inception Date -- 8/24/95).................. 5.30% 7.30%
- -------------------------------------------------------------------------------- Prospectus Page 5 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Government Securities Fixed Income Investments EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy and hold shares of the fund. SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment at the time of a purchase or sale)
CLASS A CLASS B CLASS C CLASS Y ------- ------- ------- ------- Maximum Sales Charge (Load)................................. 4.5% 5% 1.75% None Maximum Sales Charge (Load) Imposed on Purchases (as a % of offering price)............................... 4.5% None 1% None Maximum Deferred Sales Charge (Load) (as a % of offering price)............................... None 5% 0.75% None Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
CLASS A CLASS B CLASS C CLASS Y ------- ------- ------- ------- Management Fees............................................. 0.50% 0.50% 0.50% 0.50% Distribution and/or Service (12b-1) Fees.................... 0.25 1.00 0.75 None Other Expenses*............................................. 0.39 0.40 0.45 0.34 ---- ---- ---- ---- Total Annual Fund Operating Expenses........................ 1.14%+ 1.90%+ 1.70%+ 0.84%+ ==== ==== ==== ==== Management Fee Waiver/Expense Reimbursements**.............. 0.16% 0.11% 0.20% 0.18% ---- ---- ---- ---- Net Expenses**.............................................. 0.98%+ 1.79%+ 1.50%+ 0.66%+ ==== ==== ==== ====
- --------- * "Other expenses" include an administration fee of 0.20% paid by the fund to Brinson Advisors. ** The fund and Brinson Advisors have entered into a written agreement under which Brinson Advisors is contractually obligated to waive its management fees and/or reimburse the fund so that the total operating expenses of each class through December 1, 2002 (excluding interest expense) would not exceed 0.97% for Class A, 1.78% for Class B, 1.49% for Class C, and 0.65% for Class Y. The fund has agreed to repay Brinson Advisors for any reimbursed expenses to the extent that it can do so over the following three fiscal years without causing the fund's expenses in any of those three years to exceed these expense caps. + Includes 0.01% of interest expense related to reverse repurchase agreements during the period ended July 31, 2001. EXAMPLE This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then sell all of your shares at the end of those periods unless otherwise stated. The example also assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same, except for the period when the fund's expenses are lower due to its agreement with Brinson Advisors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS -------- -------- -------- -------- Class A..................................................... $545 $781 $1,035 $1,760 Class B (assuming sale of all shares at end of period)...... 682 886 1,216 1,833 Class B (assuming no sale of shares)........................ 182 586 1,016 1,833 Class C (assuming sale of all shares at end of period)...... 326 611 995 2,072 Class C (assuming no sale of shares)........................ 251 611 995 2,072 Class Y..................................................... 67 250 448 1,020
- -------------------------------------------------------------------------------- Prospectus Page 6 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Intermediate Fixed Income Investments PACE INTERMEDIATE FIXED INCOME INVESTMENTS INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE Current income, consistent with reasonable stability of principal. PRINCIPAL INVESTMENT STRATEGIES The fund invests in bonds of varying maturities, but normally limits its overall portfolio "duration" to between two and four and one-half years. "Duration" is a measure of the fund's exposure to interest rate risk. A longer duration means that changes in market interest rates are likely to have a larger effect on the value of the assets in a portfolio. The fund invests primarily in U.S. and foreign government bonds, U.S. and foreign corporate bonds and bonds that are backed by mortgages or other assets. The fund limits its investments to bonds that are investment grade at the time of purchase. The fund also may invest in preferred stocks. The fund's investments in securities of foreign issuers may include, to a limited extent, securities that are denominated in foreign currencies of developed countries. The fund may (but is not required to) use forward currency contracts, options, futures and other derivatives as part of its investment strategy or to help manage portfolio risks. Brinson Advisors, Inc., the fund's manager, has selected Metropolitan West Asset Management, LLC ("MWAM") to serve as the fund's investment advisor. MWAM decides to buy specific bonds for the fund based on its value added strategies, with the goal of outperforming the Lehman Brothers Intermediate Government/Credit Index while maintaining below average volatility. These strategies are anchored by MWAM's long-term economic outlook and include managing interest rate risk through limited duration shifts, yield curve management, diversifying the fund's investments across all permitted investment sectors while overweighting the most attractive sectors, identifying undervalued securities and aggressive execution. MWAM generally sells securities that no longer meet these selection criteria or when it identifies more attractive investment opportunities and may also sell securities to adjust the average duration of the fund's portfolio. PRINCIPAL RISKS An investment in the fund is not guaranteed; you may lose money by investing in the fund. The principal risks presented by an investment in the fund are: INTEREST RATE RISK -- The value of the fund's investments generally will fall when interest rates rise. Some corporate bonds provide that the issuer may repay them earlier than the maturity date. When interest rates are falling, bond issuers may exercise this right more often, and the fund may have to reinvest these repayments at lower interest rates. CREDIT RISK -- Bond issuers may fail to make payments when due, or they may become less willing or less able to do so. PREPAYMENT RISK -- The fund's mortgage- and asset-backed securities may be prepaid more rapidly than expected, especially when interest rates are falling, and the fund may have to reinvest those prepayments at lower interest rates. When interest rates are rising, slower prepayments may extend the duration of the securities and may reduce their value. SINGLE ISSUER CONCENTRATION RISK -- Because the fund is non-diversified, it can invest more of its assets in a single issuer than a diversified fund can. As a result, changes in the market value of a single issuer can have a greater effect on the fund's performance and share price than it would for a more diversified fund. FOREIGN INVESTING RISK -- The value of the fund's investments in foreign securities may fall due to adverse political, social and economic developments abroad and due to decreases in foreign currency values relative to the U.S. dollar. DERIVATIVES RISK -- The fund's investments in derivatives may rise or fall more rapidly than other investments. An investment in the fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. More information about risks of an investment in the fund is provided below in "More About Risks and Investment Strategies." - -------------------------------------------------------------------------------- Prospectus Page 7 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Intermediate Fixed Income Investments PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart and table give some indication of the risks of an investment in the fund based on the performance of the fund's Class P shares, the only shares outstanding for at least one calendar year. The Class P shares are offered pursuant to a separate prospectus and may be purchased only by participants in the PACE Select Advisors Program, who are subject to a maximum annual program fee of 1.50%. The Class A, Class B, Class C and Class Y shares offered pursuant to this prospectus are not part of the PACE Select Advisors Program and are not subject to the annual PACE Select Advisors Program fee. The bar chart shows how the fund's performance has varied from year to year. The bar chart does not reflect the maximum annual PACE Select Advisors Program fee, nor does it reflect the sales charges or higher expenses of the fund's Class A, Class B and Class C shares. If it did, the total returns shown would be lower. The table that follows the bar chart shows average annual returns of the fund's Class P shares over several time periods. The table does reflect the maximum annual PACE Select Advisors Program fee. The table does not reflect the sales charges or higher expenses of the fund's Class A, Class B and Class C shares. However, because all classes of shares invest in the same portfolio of securities, their annual returns would differ only to the extent of the different sales charges or expenses. The table compares fund returns to returns on a broad-based market index that is unmanaged and that, therefore, does not include any fees or expenses. The fund's past performance does not necessarily indicate how the fund will perform in the future. This may be particularly true for the period prior to October 10, 2000, which is the date on which MWAM assumed day-to-day management of the fund's assets. Prior to that date, another investment adviser was responsible for managing the fund's assets. TOTAL RETURN OF CLASS P SHARES (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC CALENDAR YEAR TOTAL RETURN 1996 3.14% 1997 7.45% 1998 7.36% 1999 (0.11)% 2000 9.02%
Total Return January 1 to September 30, 2001 -- 7.06% Best quarter during calendar years shown: 3rd quarter, 1998 -- 4.17% Worst quarter during calendar years shown: 1st quarter, 1996 -- (1.13)% AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2000
LEHMAN BROTHERS INTERMEDIATE CLASS P GOVERNMENT/CREDIT INDEX -------- ----------------------- One Year................................................... 7.40% 10.12% Five Years................................................. 3.75% 6.11% Life of Fund (Inception Date 8/24/95)...................... 4.14% 6.55%
- -------------------------------------------------------------------------------- Prospectus Page 8 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Intermediate Fixed Income Investments EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy and hold shares of the fund. SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment at the time of a purchase or sale)
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Maximum Sales Charge (Load)................................. 4.5% 5% 1.75% None Maximum Sales Charge (Load) Imposed on Purchases (as a % of offering price).............................. 4.5% None 1% None Maximum Deferred Sales Charge (Load) (as a % of offering price).............................. None 5% 0.75% None Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Management Fees............................................. 0.40% 0.40% 0.40% 0.40% Distribution and/or Service (12b-1) Fees.................... 0.25 1.00 0.75 None Other Expenses*............................................. 0.38 0.38 0.39 0.39 ---- ---- ---- ---- Total Annual Fund Operating Expenses........................ 1.03% 1.78% 1.54% 0.79% ==== ==== ==== ==== Management Fee Waiver/Expense Reimbursements**.............. 0.06% 0.03% 0.06% 0.08% ---- ---- ---- ---- Net Expenses**.............................................. 0.97% 1.75% 1.48% 0.71% ==== ==== ==== ====
- --------- * "Other expenses" include an administration fee of 0.20% paid by the fund to Brinson Advisors. ** The fund and Brinson Advisors have entered into a written agreement under which Brinson Advisors is contractually obligated to waive its management fees and/or reimburse the fund so that the total operating expenses of each class through December 1, 2002 would not exceed 0.97% for Class A, 1.75% for Class B, 1.48% for Class C, and 0.71% for Class Y. The fund has agreed to repay Brinson Advisors for any reimbursed expenses to the extent that it can do so over the following three fiscal years without causing the fund's expenses in any of those three years to exceed these expense caps. EXAMPLE This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then sell all of your shares at the end of those periods unless otherwise stated. The example also assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same, except for the period when the fund's expenses are lower due to its agreement with Brinson Advisors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS -------- -------- -------- -------- Class A..................................................... $545 $757 $ 987 $1,648 Class B (assuming sale of all shares at end of period)...... 678 857 1,162 1,713 Class B (assuming no sale of shares)........................ 178 557 962 1,713 Class C (assuming sale of all shares at end of period)...... 324 576 925 1,911 Class C (assuming no sale of shares)........................ 249 576 925 1,911 Class Y..................................................... 73 244 431 970
- -------------------------------------------------------------------------------- Prospectus Page 9 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Strategic Fixed Income Investments PACE STRATEGIC FIXED INCOME INVESTMENTS INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE Total return consisting of income and capital appreciation. PRINCIPAL INVESTMENT STRATEGIES The fund invests in bonds of varying maturities, but normally limits its portfolio "duration" to between three and eight years. "Duration" is a measure of the fund's exposure to interest rate risk. A longer duration means that changes in market interest rates are likely to have a larger effect on the value of the assets in a portfolio. The fund invests primarily in investment grade bonds of governmental and private issuers in the United States and foreign countries, including bonds that are backed by mortgages or other assets, and in bonds that are convertible into common stock. The fund's investments in securities of foreign issuers may include, to a limited extent, securities that are denominated in foreign currencies. The fund also invests, to a limited extent, in bonds that are below investment grade. Securities rated below investment grade (or unrated bonds of equivalent quality) are commonly known as "junk bonds." The fund may invest in when-issued or delayed delivery bonds to increase its return, giving rise to a form of leverage. The fund may (but is not required to) use forward currency contracts, options, futures and other derivatives as part of its investment strategy or to help manage portfolio risks. Brinson Advisors, Inc., the fund's manager, has selected Pacific Investment Management Company LLC ("PIMCO") to serve as the fund's investment advisor. PIMCO seeks to invest the fund's assets in those areas of the bond market that it considers undervalued, based on such factors as quality, sector, coupon and maturity. PIMCO establishes duration targets for the fund's portfolio based on its expectations for changes in interest rates and then positions the fund to take advantage of yield curve shifts. PIMCO decides to buy or sell specific bonds based on an analysis of their values relative to other similar bonds. PIMCO monitors the prepayment experience of the fund's mortgage-backed bonds and will also buy and sell securities to adjust the fund's average portfolio duration, credit quality, yield curve, sector and prepayment exposure, as appropriate. PRINCIPAL RISKS An investment in the fund is not guaranteed; you may lose money by investing in the fund. The principal risks presented by an investment in the fund are: INTEREST RATE RISK -- The value of the fund's investments generally will fall when interest rates rise. Some corporate bonds provide that the issuer may repay them earlier than the maturity date. When interest rates are falling, bond issuers may exercise this right more often, and the fund may have to reinvest these repayments at lower interest rates. PREPAYMENT RISK -- The fund's mortgage- and asset-backed securities may be prepaid more rapidly than expected, especially when interest rates are falling, and the fund may have to reinvest those prepayments at lower interest rates. When interest rates are rising, slower prepayments may extend the duration of the securities and may reduce their value. CREDIT RISK -- Bond issuers may fail to make payments when due, or they may become less willing or less able to do so. This risk is greater for lower quality bonds than for bonds that are investment grade. FOREIGN INVESTING RISK -- The value of the fund's investments in foreign securities may fall due to adverse political, social and economic developments abroad and due to decreases in foreign currency values relative to the U.S. dollar. Investments in foreign government bonds involve special risks because the fund may have limited legal recourse in the event of default. LEVERAGE RISK -- Leverage magnifies the effect of changes in market values. While leverage can increase the fund's income and potential for gain, it also can increase expenses and the risk of loss. The fund attempts to limit the magnifying effect of its leverage by managing its portfolio duration. DERIVATIVES RISK -- The fund's investments in derivatives may rise or fall more rapidly than other investments. An investment in the fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. More information about risks of an investment in the fund is provided below in "More About Risks and Investment Strategies." - -------------------------------------------------------------------------------- Prospectus Page 10 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Strategic Fixed Income Investments PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart and table give some indication of the risks of an investment in the fund based on the performance of the fund's Class P shares, the only shares outstanding for at least one calendar year. The Class P shares are offered pursuant to a separate prospectus and may be purchased only by participants in the PACE Select Advisors Program, who are subject to a maximum annual program fee of 1.50%. The Class A, Class B, Class C and Class Y shares offered pursuant to this prospectus are not part of the PACE Select Advisors Program and are not subject to the annual PACE Select Advisors Program fee. The bar chart shows how the fund's performance has varied from year to year. The bar chart does not reflect the maximum annual PACE Select Advisors Program fee, nor does it reflect the sales charges or higher expenses of the fund's Class A, Class B and Class C shares. If it did, the total returns shown would be lower. The table that follows the bar chart shows average annual returns over several time periods. The table does reflect the maximum annual PACE Select Advisors Program fee. The table does not reflect the sales charges or higher expenses of the fund's Class A, Class B and Class C shares. However, because all classes of shares invest in the same portfolio of securities, their annual returns would differ only to the extent of the different sales charges or expenses. The table compares fund returns to returns on a broad-based market index that is unmanaged and that, therefore, does not include any fees or expenses. The fund's past performance does not necessarily indicate how the fund will perform in the future. TOTAL RETURN OF CLASS P SHARES (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC CALENDAR YEAR TOTAL RETURN 1996 3.22% 1997 10.19% 1998 8.22% 1999 (2.74)% 2000 11.59%
Total Return January 1 to September 30, 2001 -- 8.94% Best quarter during calendar years shown: 4th quarter, 2000 -- 4.96% Worst quarter during calendar years shown: 1st quarter, 1996 -- (2.21)% AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2000
LEHMAN BROTHERS GOVERNMENT/ CREDIT CLASS P INDEX -------- --------------- One Year.................................................... 9.92% 11.85% Five Years.................................................. 4.38% 6.24% Life of Fund (Inception Date -- 8/24/95).................... 5.88% 6.95%
- -------------------------------------------------------------------------------- Prospectus Page 11 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Strategic Fixed Income Investments EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy and hold shares of the fund. SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment at the time of a purchase or sale)
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Maximum Sales Charge (Load)................................. 4.5% 5% 1.75% None Maximum Sales Charge (Load) Imposed on Purchases (as a % of offering price).............................. 4.5% None 1% None Maximum Deferred Sales Charge (Load) (as a % of offering price).............................. None 5% 0.75% None Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Management Fees............................................. 0.50% 0.50% 0.50% 0.50% Distribution and/or Service (12b-1) Fees.................... 0.25 1.00 0.75 None Other Expenses*............................................. 0.46 0.46 0.46 0.47 ---- ---- ---- ---- Total Annual Fund Operating Expenses........................ 1.21%+ 1.96%+ 1.71%+ 0.97%+ ==== ==== ==== ==== Management Fee Waiver/Expense Reimbursements**.............. 0.07% 0.05% 0.06% 0.09% ---- ---- ---- ---- Net Expenses**.............................................. 1.14%+ 1.91%+ 1.65%+ 0.88%+ ==== ==== ==== ====
- --------- * "Other expenses" include an administration fee of 0.20% paid by the fund to Brinson Advisors. ** The fund and Brinson Advisors have entered into a written agreement under which Brinson Advisors is contractually obligated to waive its management fees and/or reimburse the fund to the extent that the total operating expenses of Class A, Class B, Class C or Class Y shares through December 1, 2002 (excluding interest expense) otherwise would exceed the sum of 0.85% (the expense cap for the fund's Class P shares) plus the 12b-1 fees, if any, and any higher transfer agency fees applicable to the particular class. The fund has agreed to repay Brinson Advisors for any reimbursed expenses to the extent that it can do so over the following three fiscal years without causing the fund's expenses in any of those three years to exceed these expense caps. + Includes 0.03% of interest expense related to reverse repurchase agreements during the period ended July 31, 2001. EXAMPLE This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then sell all of your shares at the end of those periods unless otherwise stated. The example also assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same, except for the period when the fund's expenses are lower due to its agreement with Brinson Advisors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- Class A..................................................... $561 $810 $1,079 $1,844 Class B (assuming sale of all shares at end of period)...... 694 910 1,253 1,909 Class B (assuming no sale of shares)........................ 194 610 1,053 1,909 Class C (assuming sale of all shares at end of period)...... 341 628 1,013 2,094 Class C (assuming no sale of shares)........................ 266 628 1,013 2,094 Class Y..................................................... 90 300 528 1,182
- -------------------------------------------------------------------------------- Prospectus Page 12 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Municipal Fixed Income Investments PACE MUNICIPAL FIXED INCOME INVESTMENTS INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE High current income exempt from federal income tax. PRINCIPAL INVESTMENT STRATEGIES The fund invests substantially all of its assets in investment grade municipal bonds of varying maturities. These are bonds and similar securities that are exempt from regular federal income tax. Normally, the fund limits its investments in municipal bonds that are subject to the federal alternative minimum tax (AMT) so that not more than 25% of its interest income will be subject to the AMT. The fund invests in municipal bonds that are subject to the AMT when its investment advisor believes that they offer attractive yields relative to municipal bonds that have similar investment characteristics but are not subject to the AMT. The fund normally limits its portfolio "duration" to between three and seven years. "Duration" is a measure of the fund's exposure to interest rate risk. A longer duration means that changes in market interest rates are likely to have a larger effect on the value of the assets in a portfolio. The fund may invest up to 50% of its total assets in municipal bonds that are secured by revenues from public housing authorities and state and local housing finance authorities, including bonds that are secured or backed by the U.S. Treasury or other U.S. government guaranteed securities. The fund limits its investments in municipal bonds with the lowest investment grade rating (or unrated bonds of equivalent quality) to 15% of its total assets at the time the bonds are purchased. The fund may (but is not required to) use options, futures and other derivatives as part of its investment strategy or to help manage its portfolio duration. Brinson Advisors, Inc., the fund's manager, has selected Standish Mellon Asset Management Company LLC ("Standish Mellon") to serve as the fund's investment advisor. In deciding which securities to buy for the fund, Standish Mellon seeks to identify undervalued sectors or geographical regions of the municipal market or undervalued individual securities. To do this, Standish Mellon uses credit research and valuation analysis and monitors the relationship of the municipal yield curve to the treasury yield curve. Standish Mellon also uses credit quality assessments from its in-house analysts to identify potential rating changes, undervalued issues and macro trends with regard to market sectors and geographical regions. Standish Mellon may make modest duration adjustments based on economic analyses and interest rate forecasts. Standish Mellon generally sells securities if it identifies more attractive investment opportunities within its investment criteria and doing so may improve the fund's return. Standish Mellon also may sell securities with weakening credit profiles or to adjust the average duration of the fund's portfolio. PRINCIPAL RISKS An investment in the fund is not guaranteed; you may lose money by investing in the fund. The principal risks presented by an investment in the fund are: INTEREST RATE RISK -- The value of the fund's investments generally will fall when interest rates rise. Some municipal bonds provide that the issuer may repay them earlier than the maturity date. When interest rates are falling, bond issuers may exercise this right more often, and the fund may have to reinvest these repayments at lower interest rates. CREDIT RISK -- Bond issuers may fail to make payments when due, or they may become less willing or less able to do so. POLITICAL RISK -- The fund's investments may be significantly affected by political changes, including legislative proposals which may make municipal bonds less attractive in comparison to taxable bonds. RELATED SECURITIES CONCENTRATION RISK -- Because the fund may invest more than 25% of its total assets in municipal bonds that are issued to finance similar projects, changes that affect one type of municipal bond may have a significant impact on the value of the fund. DERIVATIVES RISK -- The fund's investments in derivatives may rise or fall more rapidly than other investments. An investment in the fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. More information about risks of an investment in the fund is provided below in "More About Risks and Investment Strategies." - -------------------------------------------------------------------------------- Prospectus Page 13 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Municipal Fixed Income Investments PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart and table give some indication of the risks of an investment in the fund based on the performance of the fund's Class P shares, the only shares outstanding for at least one calendar year. The Class P shares are offered pursuant to a separate prospectus and may be purchased only by participants in the PACE Select Advisors Program, who are subject to a maximum annual program fee of 1.50%. The Class A, Class B, Class C and Class Y shares offered pursuant to this prospectus are not part of the PACE Select Advisors Program and are not subject to the annual PACE Select Advisors Program fee. The bar chart shows how the fund's performance has varied from year to year. The bar chart does not reflect the maximum annual PACE Select Advisors Program fee, nor does it reflect the sales charges or higher expenses of the fund's Class A, Class B and Class C shares. If it did, the total returns shown would be lower. The table that follows the bar chart shows average annual returns of the fund's Class P shares over several time periods. The table does reflect the maximum annual PACE Select Advisors Program fee. The table does not reflect the sales charges or higher expenses of the fund's Class A, Class B and Class C shares. However, because all classes of shares invest in the same portfolio of securities, their annual returns would differ only to the extent of the different sales charges or expenses. The table compares fund returns to returns on a broad-based market index that is unmanaged and that, therefore, does not include any fees or expenses. The fund's past performance does not necessarily indicate how the fund will perform in the future. This may be particularly true for the period prior to June 1, 2000, which is the date on which Standish Mellon's predecessor assumed day-to-day management of the fund's assets. Prior to that date, another investment adviser was responsible for managing the fund's assets. TOTAL RETURN OF CLASS P SHARES (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC CALENDAR YEAR TOTAL RETURN 1996 4.86% 1997 7.01% 1998 5.39% 1999 (2.14)% 2000 8.27%
Total Return January 1 to September 30, 2001 -- 5.66% Best quarter during calendar years shown: 4th quarter, 2000 -- 2.92% Worst quarter during calendar years shown: 2nd quarter, 1999 -- (1.21)% AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2000
LEHMAN BROTHERS MUNICIPAL FIVE-YEAR CLASS P INDEX -------- ------------------- One Year.................................................... 6.66% 7.72% Five Years.................................................. 3.05% 4.95% Life of Fund (Inception Date: 8/24/95)...................... 3.69% 5.08%
- -------------------------------------------------------------------------------- Prospectus Page 14 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Municipal Fixed Income Investments EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy and hold shares of the fund. SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment at the time of a purchase or sale)
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Maximum Sales Charge (Load)................................. 4.5% 5% 1.75% None Maximum Sales Charge (Load) Imposed on Purchases (as a % of offering price).............................. 4.5% None 1% None Maximum Deferred Sales Charge (Load) (as a % of offering price).............................. None 5% 0.75% None Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Management Fees............................................. 0.40% 0.40% 0.40% 0.40% Distribution and/or Service (12b-1) Fees.................... 0.25 1.00 0.75 None Other Expenses*............................................. 0.36 0.36 0.38 0.43 ---- ---- ---- ---- Total Annual Fund Operating Expenses........................ 1.01% 1.76% 1.53% 0.83% ==== ==== ==== ==== Management Fee Waiver/Expense Reimbursements**.............. 0.13% 0.13% 0.13% 0.19% ---- ---- ---- ---- Net Expenses**.............................................. 0.88% 1.63% 1.40% 0.64% ==== ==== ==== ====
- --------- * "Other Expenses" include an administration fee of 0.20% paid by the fund to Brinson Advisors. ** The fund and Brinson Advisors have entered into a written agreement under which Brinson Advisors is contractually obligated to waive its management fees and/or reimburse the fund so that the total operating expenses of each class through December 1, 2002 would not exceed 0.88% for Class A, 1.63% for Class B, 1.40% for Class C, and 0.64% for Class Y. The fund has agreed to repay Brinson Advisors for any reimbursed expenses to the extent that it can do so over the following three fiscal years without causing the fund's expenses in any of those three years to exceed these expense caps. EXAMPLE This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then sell all of your shares at the end of those periods unless otherwise stated. The example also assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same, except for the period when the fund's expenses are lower due to its agreement with Brinson Advisors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS -------- -------- -------- -------- Class A..................................................... $536 $745 $ 971 $1,619 Class B (assuming sale of all shares at end of period)...... 666 841 1,142 1,682 Class B (assuming no sale of shares)........................ 166 541 942 1,682 Class C (assuming sale of all shares at end of period)...... 316 566 914 1,894 Class C (assuming no sale of shares)........................ 241 566 914 1,894 Class Y..................................................... 65 246 442 1,008
- -------------------------------------------------------------------------------- Prospectus Page 15 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Global Fixed Income Investments PACE GLOBAL FIXED INCOME INVESTMENTS INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE High total return. PRINCIPAL INVESTMENT STRATEGIES The fund invests primarily in high-grade bonds of governmental and private issuers in the United States and developed foreign countries. These high-grade bonds are rated in one of the three highest rating categories or are of comparable quality. The fund invests, to a limited extent, in lower rated bonds of governmental and private issuers, including bonds that are rated below investment grade and emerging market securities. The fund invests in bonds of varying maturities, but normally limits its portfolio "duration" to between four and eight years. "Duration" is a measure of the fund's exposure to interest rate risk. A longer duration means that changes in market interest rates are likely to have a larger effect on the value of the assets in a portfolio. A portion of the fund's assets normally is invested in bonds of U.S. government and private issuers. The balance of the fund's assets is allocated among bonds of governmental and private issuers in various foreign countries. The fund's investments may include mortgage-and asset-backed securities. The fund may (but is not required to) use forward currency contracts, options, futures and other derivatives as part of its investment strategy or to help manage portfolio risks. Brinson Advisors, Inc., the fund's manager, has selected Rogge Global Partners plc and Fischer Francis Trees & Watts, Inc. and its affiliates ("FFTW") to serve as the fund's investment advisors. Brinson Advisors allocates the fund's assets between the two investment advisors and may change the allocation at any time. The relative values of each investment advisor's share of the fund's assets also may change over time. Rogge Global Partners seeks to invest the fund assets it manages in bonds of issuers in financially healthy countries because it believes that these investments produce the highest bond and currency returns over time. In deciding which bonds to buy for the fund, Rogge Global Partners uses a top-down analysis to find value across countries and to forecast interest and currency-exchange rates over a one-year horizon in those countries. Rogge Global Partners also uses an optimization model to help determine country, currency and duration positions for the fund. Rogge Global Partners generally sells securities that no longer meet these selection criteria or when it identifies more attractive investment opportunities and may also sell securities to adjust the average duration of the fund assets it manages. For its share of the fund's assets, FFTW seeks to outperform a benchmark, the Lehman Global Aggregate Index (Unhedged), through an active bond selection process that relies on (1) constructing diversified portfolios, (2) identifying the most attractive sectors and the most attractive individual securities within those sectors and (3) monitoring portfolio risk with risk management tools. FFTW divides the investment universe into three major blocs (Europe, the United States and Japan), plus emerging markets, and analyzes trends in economic growth, inflation, monetary and fiscal policies. FFTW decides which securities to buy for the fund by looking for investment opportunities where its opinions on the current economic environment of a bloc or country differ from those it judges to be reflected in current market valuations. FFTW generally sells securities when it has identified more attractive investment opportunities. PRINCIPAL RISKS An investment in the fund is not guaranteed; you may lose money by investing in the fund. The principal risks presented by an investment in the fund are: INTEREST RATE RISK -- The value of the fund's investments generally will fall when interest rates rise. Some corporate bonds provide that the issuer may repay them earlier than the maturity date. When interest rates are falling, bond issuers may exercise this right more often, and the fund may have to reinvest these repayments at lower interest rates. FOREIGN INVESTING AND EMERGING MARKETS RISKS -- The value of the fund's investments in foreign securities may fall due to adverse political, social and economic developments abroad and due to decreases in foreign currency values relative to the U.S. dollar. These risks - -------------------------------------------------------------------------------- Prospectus Page 16 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Global Fixed Income Investments are greater for investments in emerging market issuers. Investments in foreign government bonds involve special risks because the fund may have limited legal recourse in the event of default. CREDIT RISK -- Bond issuers may fail to make payments when due, or they may become less willing or less able to do so. This risk is greater for lower quality bonds than for bonds that are investment grade. SINGLE ISSUER CONCENTRATION RISK -- Because the fund is non-diversified, it can invest more of its assets in a single issuer than a diversified fund can. As a result, changes in the market value of a single issuer can have a greater effect on the fund's performance and share price than it would for a more diversified fund. PREPAYMENT RISK -- The fund's mortgage- and asset-backed securities may be prepaid more rapidly than expected, especially when interest rates are falling, and the fund may have to reinvest those prepayments at lower interest rates. When interest rates are rising, slower prepayments may extend the duration of the securities and may reduce their value. DERIVATIVES RISK -- The fund's investments in derivatives may rise or fall more rapidly than other investments. An investment in the fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. More information about risks of an investment in the fund is provided below in "More About Risks and Investment Strategies." - -------------------------------------------------------------------------------- Prospectus Page 17 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Global Fixed Income Investments PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart and table give some indication of the risks of an investment in the fund based on the performance of the fund's Class P shares, the only shares outstanding for at least one calendar year. The Class P shares are offered pursuant to a separate prospectus and may be purchased only by participants in the PACE Select Advisors Program, who are subject to a maximum annual program fee of 1.50%. The Class A, Class B, Class C and Class Y shares offered pursuant to this prospectus are not part of the PACE Select Advisors Program and are not subject to the annual PACE Select Advisors Program fee. The bar chart shows how the fund's performance has varied from year to year. The bar chart does not reflect the maximum annual PACE Select Advisors Program fee, nor does it reflect the sales charges or higher expenses of the fund's Class A, Class B and Class C shares. If it did, the total returns shown would be lower. The table that follows the bar chart shows average annual returns of the fund's Class P shares over several time periods. The table does reflect the maximum annual PACE Select Advisors Program fee. The table does not reflect the sales charges or higher expenses of the fund's Class A, Class B and Class C shares. However, because all classes of shares invest in the same portfolio of securities, their annual returns would differ only to the extent of the different sales charges or expenses. The table compares fund returns to returns on a broad-based market index that is unmanaged and that, therefore, does not include any fees or expenses. The fund's past performance does not necessarily indicate how the fund will perform in the future. This may be particularly true for the period prior to October 10, 2000, which is the date on which FFTW assumed day-to-day management of a portion of the fund's assets. Prior to that date, Rogge Global Partners was responsible for managing all the fund's assets. TOTAL RETURN OF CLASS P SHARES (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC CALENDAR YEAR TOTAL RETURN 1996 4.59% 1997 1.00% 1998 18.60% 1999 (8.52)% 2000 (1.26)%
Total Return January 1 to September 30, 2001 -- 1.70% Best quarter during calendar years shown: 3rd quarter, 1998 -- 8.60% Worst quarter during calendar years shown: 1st quarter, 1999 -- (4.83)% AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2000
SALOMON SMITH BARNEY WORLD GOVERNMENT BOND INDEX CLASS P (UNHEDGED) -------- -------------------- One Year................................................... (2.74)% 1.59% Five Years................................................. 0.98% 3.10% Life of Fund (Inception Date -- 8/24/95)................... 1.99% 3.89%
- -------------------------------------------------------------------------------- Prospectus Page 18 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Global Fixed Income Investments EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy and hold shares of the fund. SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment at the time of a purchase or sale)
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Maximum Sales Charge (Load)................................. 4.5% 5% 1.75% None Maximum Sales Charge (Load) Imposed on Purchases (as a % of offering price).............................. 4.5% None 1% None Maximum Deferred Sales Charge (Load) (as a % of offering price).............................. None 5% 0.75% None Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Management Fees............................................. 0.60% 0.60% 0.60% 0.60% Distribution and/or Service (12b-1) Fees.................... 0.25 1.00 0.75 None Other Expenses*............................................. 0.56 0.95 0.55 0.48 ---- ---- ---- ---- Total Annual Fund Operating Expenses........................ 1.41% 2.55% 1.90% 1.08% ==== ==== ==== ==== Management Fee Waivers/Expense Reimbursements**............. 0.20% 0.57% 0.18% 0.13% ---- ---- ---- ---- Net Expenses**.............................................. 1.21% 1.98% 1.72% 0.95% ==== ==== ==== ====
- --------- * "Other Expenses" include an administration fee of 0.20% paid by the fund to Brinson Advisors. ** The fund and Brinson Advisors have entered into a written agreement under which Brinson Advisors is contractually obligated to waive its management fees and/or reimburse the fund to the extent that the total operating expenses of Class A, Class B, Class C or Class Y shares through December 1, 2002 otherwise would exceed the sum of 0.95% (the expense cap for the fund's Class P shares) plus the 12b-1 fees, if any, and any higher transfer agency fees applicable to the particular class. The fund has agreed to repay Brinson Advisors for any reimbursed expenses to the extent that it can do so over the following three fiscal years without causing the fund's expenses in any of those three years to exceed these expense caps. EXAMPLE This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then sell all of your shares at the end of those periods unless otherwise stated. The example also assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same, except for the period when the fund's expenses are lower due to its agreement with Brinson Advisors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS -------- -------- -------- -------- Class A.................................................... $568 $ 857 $1,168 $2,048 Class B (assuming sale of all shares at end of period)..... 701 1,039 1,504 2,302 Class B (assuming no sale of shares)....................... 201 739 1,304 2,302 Class C (assuming sale of all shares at end of period)..... 348 674 1,100 2,285 Class C (assuming no sale of shares)....................... 273 674 1,100 2,285 Class Y.................................................... 97 331 583 1,305
- -------------------------------------------------------------------------------- Prospectus Page 19 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Large Company Value Equity Investments PACE LARGE COMPANY VALUE EQUITY INVESTMENTS INVESTMENT OBJECTIVES, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVES Capital appreciation and dividend income. PRINCIPAL INVESTMENT STRATEGIES The fund invests primarily in stocks of U.S. companies that are believed to be undervalued and that have total market capitalizations of $4.0 billion or greater at the time of purchase. The fund seeks income primarily from dividend paying stocks. The fund may invest, to a limited extent, in other securities, including stocks of companies with smaller total market capitalizations and convertible bonds that are rated below investment grade. The fund may invest up to 10% of its total assets in U.S. dollar denominated foreign securities. The fund also may (but is not required to) use options, futures and other derivatives as part of its investment strategy or to help manage portfolio risks. The fund's manager, Brinson Advisors, Inc., has selected Institutional Capital Corporation ("ICAP"), Westwood Management Corporation ("Westwood") and SSgA Funds Management, Inc. ("SSgA") to serve as the fund's investment advisors. Brinson Advisors allocates the fund's assets among the three investment advisors and has initially allocated approximately 50% of the fund's assets to SSgA and approximately 25% each to ICAP and Westwood. Brinson Advisors may change this allocation at any time. The relative value of each investment advisor's share of the fund's assets also may change over time. In managing its share of the fund's assets, ICAP uses its proprietary valuation model to identify large-capitalization companies that ICAP believes offer the best relative values because they sell below the price-to-earnings ratio warranted by their prospects. ICAP looks for companies where a catalyst for a positive change is about to occur with potential to produce stock appreciation of 15% or more relative to the market over a 12 to 18 month period. The catalyst can be thematic (E.G., global economic recovery) or company specific (E.G., a corporate restructuring or a new product). ICAP also uses internally generated research to evaluate the financial condition and business prospects of every company it considers. ICAP monitors each stock purchased and sells the stock when its target price is achieved, the catalyst becomes inoperative or ICAP identifies another stock with greater opportunity for appreciation. In managing its share of the fund's assets, Westwood maintains a list of securities that it believes have proven records and potential for above-average earnings growth. It considers purchasing a security on such list if Westwood's forecast for growth rates and earnings estimates exceeds Wall Street expectations or Westwood's forecasted price/earnings ratio is less than the forecasted growth rate. Westwood monitors companies and will sell a stock if Westwood expects limited future price appreciation or the projected price/earnings ratio exceeds the three-year growth rate. In managing its share of the fund's assets, SSgA seeks to outperform the Russell 1000 Value Index (before fees and expenses). SSgA uses several independent valuation measures to identify investment opportunities within a large cap value universe and combines factors to produce an overall rank. Comprehensive research determines the optimal weighting of these perspectives to arrive at strategies that vary by industry. SSgA ranks all companies within the investable universe initially from top to bottom based on their relative attractiveness. SSgA constructs the fund's portfolio by selecting the highest-ranked stocks from the universe and manages deviations from the benchmark to maximize the risk/reward trade-off. The resulting portfolio has characteristics similar to the Russell 1000 Value Index. SSgA generally sells stocks that no longer meet its selection criteria or that it believes otherwise may adversely affect the fund's performance relative to that of the index. PRINCIPAL RISKS An investment in the fund is not guaranteed; you may lose money by investing in the fund. The principal risks presented by an investment in the fund are: EQUITY RISK -- Stocks and other equity securities generally fluctuate in value more than bonds. The fund could lose all of its investment in a company's stock. LIMITED CAPITALIZATION RISK -- Equity risk is greater for the common stocks of mid and small cap companies (in which the fund may invest to a limited extent) because they generally are more vulnerable than larger companies to adverse business or economic developments and they may have more limited resources. In general, these risks are greater for small cap companies than for mid cap companies. INDEX STRATEGY RISK -- SSgA's proprietary strategy may not result in outperformance of the designated index and may even result in underperformance. DERIVATIVES RISK -- The fund's investments in derivatives may rise or fall more rapidly than other investments. An investment in the fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. More information about risks of an investment in the fund is provided below in "More About Risks and Investment Strategies." - -------------------------------------------------------------------------------- Prospectus Page 20 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Large Company Value Equity Investments PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart and table give some indication of the risks of an investment in the fund based on the performance of the fund's Class P shares, the only shares outstanding for at least one calendar year. The Class P shares are offered pursuant to a separate prospectus and may be purchased only by participants in the PACE Select Advisors Program, who are subject to a maximum annual program fee of 1.50%. The Class A, Class B, Class C and Class Y shares offered pursuant to this prospectus are not part of the PACE Select Advisors Program and are not subject to the annual PACE Select Advisors Program fee. The bar chart shows how the fund's performance has varied from year to year. The bar chart does not reflect the maximum annual PACE Select Advisors Program fee, nor does it reflect the sales charges or higher expenses of the fund's Class A, Class B and Class C shares. If it did, the total returns shown would be lower. The table that follows the bar chart shows average annual returns of the fund's Class P shares over several time periods. The table does reflect the maximum annual PACE Select Advisors Program fee. The table does not reflect the sales charges or higher expenses of the fund's Class A, Class B and Class C shares. However, because all classes of shares invest in the same portfolio of securities, their annual returns would differ only to the extent of the different sales charges or expenses. The table compares fund returns to returns on a broad-based market index that is unmanaged and that, therefore, does not include any fees or expenses. The fund's past performance does not necessarily indicate how the fund will perform in the future. This may be particularly true for the period prior to July 1, 2000, when another investment adviser was responsible for managing all the fund's assets. ICAP and Westwood each assumed day-to-day management of a portion of the fund's assets on July 1, 2000 and SSgA assumed day-to-day management of a portion of the fund's assets on October 10, 2000. TOTAL RETURN OF CLASS P SHARES (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC CALENDAR YEAR TOTAL RETURN 1996 25.11% 1997 24.75% 1998 18.36% 1999 (4.14)% 2000 2.48%
Total Return January 1 to September 30, 2001 -- (11.33)% Best quarter during calendar years shown: 4th quarter, 1998 -- 16.26% Worst quarter during calendar years shown: 3rd quarter, 1999 -- (14.40)% AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2000
RUSSELL 1000 CLASS P VALUE INDEX -------- ------------ One Year.................................................... 0.95% 7.01% Five Years.................................................. 10.98% 16.91% Life of Fund (Inception Date--8/24/95)...................... 12.39% 17.96%
- -------------------------------------------------------------------------------- Prospectus Page 21 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Large Company Value Equity Investments EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy and hold shares of the fund. SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment at the time of a purchase or sale)
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Maximum Sales Charge (Load)................................. 5.5% 5% 2% None Maximum Sales Charge (Load) Imposed on Purchases (as a % of offering price)............................... 5.5% None 1% None Maximum Deferred Sales Charge (Load) (as a % of offering price)............................... None 5% 1% None Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Management Fees............................................. 0.60% 0.60% 0.60% 0.60% Distribution and/or Service (12b-1) Fees.................... 0.25 1.00 1.00 None Other Expenses*............................................. 0.40 0.44 0.44 0.33 ---- ---- ---- ---- Total Annual Fund Operating Expenses........................ 1.25% 2.04% 2.04% 0.93% ==== ==== ==== ==== Management Fee Waiver/Expense Reimbursements**.............. 0.10% 0.09% 0.10% 0.08% ---- ---- ---- ---- Net Expenses**.............................................. 1.15% 1.95% 1.94% 0.85% ==== ==== ==== ====
- --------- * "Other expenses" include an administration fee of 0.20% paid by the fund to Brinson Advisors. ** The fund and Brinson Advisors have entered into a written agreement under which Brinson Advisors is contractually obligated to waive its management fees through December 1, 2002 to the extent necessary to reflect the lower overall fees paid to the fund's investment advisors as a result of the lower sub-advisory fee paid by Brinson Advisors to SSgA. The fund and Brinson Advisors have entered into an additional written agreement under which Brinson Advisors is contractually obligated to waive its management fees and/or reimburse the fund so that the total operating expenses of each class through December 1, 2002 would not exceed 1.15% for Class A, 1.95% for Class B, 1.94% for Class C, and 0.85% for Class Y. The fund has agreed to repay Brinson Advisors for any reimbursed expenses to the extent that it can do so over the following three fiscal years without causing the fund's expenses in any of those three years to exceed these expense caps. EXAMPLE This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then sell all of your shares at the end of those periods unless otherwise stated. The example also assumes that your investment has a 5% return each - -------------------------------------------------------------------------------- Prospectus Page 22 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Large Company Value Equity Investments year and that the fund's operating expenses remain the same, except for the period when the fund's expenses are lower due to its agreements with Brinson Advisors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS -------- -------- -------- -------- Class A..................................................... $661 $915 $1,189 $1,970 Class B (assuming sale of all shares at end of period)...... 698 931 1,290 1,972 Class B (assuming no sale of shares)........................ 198 631 1,090 1,972 Class C (assuming sale of all shares at end of period)...... 395 724 1,178 2,437 Class C (assuming no sale of shares)........................ 295 724 1,178 2,437 Class Y..................................................... 87 288 507 1,136
- -------------------------------------------------------------------------------- Prospectus Page 23 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Large Company Growth Equity Investments PACE LARGE COMPANY GROWTH EQUITY INVESTMENTS INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE Capital appreciation. PRINCIPAL INVESTMENT STRATEGIES The fund invests primarily in stocks of companies that are believed to have substantial potential for capital growth and that have total market capitalizations of $4.0 billion or greater at the time of purchase. Dividend income is an incidental consideration in the investment advisors' selection of stocks for the fund. The fund may from time to time invest a significant portion of its assets in the stocks of companies in various economic sectors, such as healthcare or technology. The fund may invest, to a limited extent, in other securities, including securities convertible into stocks and stocks of companies with smaller total market capitalizations. The fund may invest up to 10% of its total assets in U.S. dollar denominated foreign securities. The fund also may (but is not required to) use options, futures and other derivatives as part of its investment strategy or to help manage portfolio risks. The fund's manager, Brinson Advisors, Inc., has selected Alliance Capital Management L.P. ("Alliance Capital") and SSgA Funds Management, Inc. ("SSgA") to serve as the fund's investment advisors. Brinson Advisors allocates the fund's assets between the two investment advisors and has initially allocated approximately 60% of the fund's assets to Alliance Capital and approximately 40% to SSgA. Brinson Advisors may change this allocation at any time. The relative values of each investment advisor's share of the fund's assets also may change over time. In managing its share of the fund's assets, Alliance Capital follows its "disciplined growth" strategy in seeking to identify the best combinations of earnings growth and reasonable valuation in selecting stocks for the fund. Alliance Capital ranks each stock in its investment universe based on its analysts' assessments and fundamental research that includes six measures of earnings growth and valuation. The fund normally invests in stocks that rank in the top 30% of this research universe and generally sells stocks that rank in the bottom half. In managing its share of the fund's assets, SSgA seeks to outperform the Russell 1000 Growth Index (before fees and expenses). SSgA uses several independent valuation measures to identify investment opportunities within a large cap growth universe and combines factors to produce an overall rank. Comprehensive research determines the optimal weighting of these perspectives to arrive at strategies that vary by industry. SSgA ranks all companies within the investable universe from top to bottom based on their relative attractiveness. SSgA constructs the fund's portfolio by selecting the highest-ranked stocks from the universe and manages deviations from the benchmark to maximize the risk/reward trade-off. The resulting portfolio has characteristics similar to the Russell 1000 Growth Index. SSgA generally sells stocks that no longer meet its selection criteria or that it believes otherwise may adversely affect the fund's performance relative to that of the index. PRINCIPAL RISKS An investment in the fund is not guaranteed; you may lose money by investing in the fund. The principal risks presented by an investment in the fund are: EQUITY RISK -- Stocks and other equity securities generally fluctuate in value more than bonds. The fund could lose all of its investment in a company's stock. LIMITED CAPITALIZATION RISK -- Equity risk is greater for the common stocks of mid and small cap companies (in which the fund may invest to a limited extent) because they generally are more vulnerable than larger companies to adverse business or economic developments and they may have more limited resources. In general, these risks are greater for small cap companies than for mid cap companies. INDEX STRATEGY RISK -- SSgA's proprietary strategy may not result in outperformance of the designated index and may even result in underperformance. SECTOR RISK -- Because the fund may invest a significant portion of its assets in the stocks of companies in particular economic sectors, economic changes adversely affecting such a sector may have more of an impact on the fund's performance than another fund having a broader range of investments. DERIVATIVES RISK -- The fund's investments in derivatives may rise or fall more rapidly than other investments. An investment in the fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. More information about risks of an investment in the fund is provided below in "More About Risks and Investment Strategies." - -------------------------------------------------------------------------------- Prospectus Page 24 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Large Company Growth Equity Investments PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart and table give some indication of the risks of an investment in the fund based on the performance of the fund's Class P shares, the only shares outstanding for at least one calendar year. The Class P shares are offered pursuant to a separate prospectus and may be purchased only by participants in the PACE Select Advisors Program, who are subject to a maximum annual program fee of 1.50%. The Class A, Class B, Class C and Class Y shares offered pursuant to this prospectus are not part of the PACE Select Advisors Program and are not subject to the annual PACE Select Advisors Program fee. The bar chart shows how the fund's performance has varied from year to year. The bar chart does not reflect the maximum annual PACE Select Advisors Program fee, nor does it reflect the sales charges or higher expenses of the fund's Class A, Class B and Class C shares. If it did, the total returns shown would be lower. The table that follows the bar chart shows average annual returns of the fund's Class P shares over several time periods. The table does reflect the maximum annual PACE Select Advisors Program fee. The table does not reflect the sales charges or higher expenses of the fund's Class A, Class B and Class C shares. However, because all classes of shares invest in the same portfolio of securities, their annual returns would differ only to the extent of the different sales charges or expenses. The table compares fund returns to returns on a broad-based market index that is unmanaged and that, therefore, does not include any fees or expenses. The fund's past performance does not necessarily indicate how the fund will perform in the future. Prior to November 10, 1997, another investment manager was responsible for managing all the fund's assets. Alliance Capital assumed day-to-day management of the fund's assets on November 10, 1997, and SSgA assumed day-to-day management of a portion of the fund's assets on October 10, 2000. TOTAL RETURN OF CLASS P SHARES (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC CALENDAR YEAR TOTAL RETURN 1996 21.24% 1997 24.79% 1998 40.05% 1999 25.25% 2000 (20.07)%
Total Return January 1 to September 30, 2001 -- (32.28)% Best quarter during calendar years shown: 4th quarter, 1998 -- 31.80% Worst quarter during calendar years shown: 4th quarter, 2000 -- (19.04)% AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2000
RUSSELL 1000 CLASS P GROWTH INDEX -------- ------------ One Year.................................................... (21.26)% (22.42)% Five Years.................................................. 14.50% 18.15% Life of Fund (Inception Date -- 8/24/95).................... 14.72% 18.90%
- -------------------------------------------------------------------------------- Prospectus Page 25 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Large Company Growth Equity Investments EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy and hold shares of the fund. SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment at the time of a purchase or sale)
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Maximum Sales Charge (Load)................................. 5.5% 5% 2% None Maximum Sales Charge (Load) Imposed on Purchases (as a % of offering price)............................... 5.5% None 1% None Maximum Deferred Sales Charge (Load) (as a % of offering price)............................... None 5% 1% None Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Management Fees............................................. 0.60% 0.60% 0.60% 0.60% Distribution and/or Service (12b-1) Fees.................... 0.25 1.00 1.00 None Other Expenses*............................................. 0.40 0.49 0.47 0.31 ---- ---- ---- ---- Total Annual Fund Operating Expenses........................ 1.25% 2.09% 2.07% 0.91% ==== ==== ==== ==== Management Fee Waiver/Expense Reimbursements**.............. 0.09% 0.12% 0.13% 0.06% ---- ---- ---- ---- Net Expenses**.............................................. 1.16% 1.97% 1.94% 0.85% ==== ==== ==== ====
- --------- * "Other Expenses" include an administration fee of 0.20% paid by the fund to Brinson Advisors. ** The fund and Brinson Advisors have entered into a written agreement under which Brinson Advisors is contractually obligated to waive its management fees through December 1, 2002 to the extent necessary to reflect the lower overall fees paid to the fund's investment advisors as a result of the lower sub-advisory fee paid by Brinson Advisors to SSgA. The fund and Brinson Advisors have entered into an additional written agreement under which Brinson Advisors is contractually obligated to waive its management fees and/or reimburse the fund so that the total operating expenses of each class through December 1, 2002 would not exceed 1.16% for Class A, 1.97% for Class B, 1.94% for Class C, and 0.86% for Class Y. The fund has agreed to repay Brinson Advisors for any reimbursed expenses to the extent that it can do so over the following three fiscal years without causing the fund's expenses in any of those three years to exceed these expense caps. EXAMPLE This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then sell all of your shares at the end of those periods unless otherwise stated. The example also assumes that your investment has a 5% return each - -------------------------------------------------------------------------------- Prospectus Page 26 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Large Company Growth Equity Investments year and that the fund's operating expenses remain the same, except for the period when the fund's expenses are lower due to its agreements with Brinson Advisors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS -------- -------- -------- -------- Class A..................................................... $662 $916 $1,190 $1,971 Class B (assuming sale of all shares at end of period)...... 700 943 1,313 1,998 Class B (assuming no sale of shares)........................ 200 643 1,113 1,998 Class C (assuming sale of all shares at end of period)...... 395 730 1,191 2,466 Class C (assuming no sale of shares)........................ 295 730 1,191 2,466 Class Y..................................................... 87 284 498 1,114
- -------------------------------------------------------------------------------- Prospectus Page 27 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Small/Medium Company Value Equity Investments PACE SMALL/MEDIUM COMPANY VALUE EQUITY INVESTMENTS INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE Capital appreciation. PRINCIPAL INVESTMENT STRATEGIES The fund invests primarily in stocks of companies that are believed to be undervalued or overlooked in the marketplace and that have total market capitalizations of less than $4.0 billion at the time of purchase. These stocks also generally have price-to-earnings (P/E) ratios below the market average. The fund invests only in stocks that are traded on major exchanges or the over- the-counter market. The fund may invest, to a limited extent, in stocks of companies with larger total market capitalizations and other securities, including securities convertible into stocks. The fund also may (but is not required to) use options, futures and other derivatives as part of its investment strategy or to help manage portfolio risks. Brinson Advisors, Inc., the fund's manager, has selected Ariel Capital Management, Inc. ("Ariel") and ICM Asset Management, Inc. ("ICM") to serve as the fund's investment advisors. Brinson Advisors allocates the fund's assets between the two investment advisors and may change the allocation at any time. The relative values of each investment advisor's share of the fund's assets also may change over time. In managing its share of the fund's assets, Ariel invests in stocks of companies that it believes are misunderstood or undervalued. It seeks to identify companies in consistent industries with distinct market niches and excellent management teams. It focuses on value stocks, which it defines as stocks that have a low P/E ratio based on forward earnings and that trade at a significant discount to the private market value that Ariel calculates for each stock. Ariel generally sells stocks that cease to meet these criteria or that are at risk for fundamental deterioration. In managing its share of the fund's assets, ICM invests primarily in common stocks of companies believed to offer good relative value that have either fallen into disfavor among investors or are under-researched. In deciding which stocks to buy for the fund, ICM uses a top-down analysis to identify broad sectors of the market believed to offer good relative value and then seeks to identify individual companies within those sectors that meet ICM's investment criteria. ICM also performs a bottom-up analysis to attempt to discover inefficiently priced stocks in a broad range of sectors, including those not identified in the top-down analysis. These two approaches are combined in various proportions depending on market conditions. Regardless of which approach is used to identify stock candidates, ICM also applies fundamental research analysis. ICM generally sells stocks that meet price objectives, no longer meet its selection criteria, are at risk for fundamental deterioration or when it identifies more attractive investment opportunities. PRINCIPAL RISKS An investment in the fund is not guaranteed; you may lose money by investing in the fund. The principal risks presented by an investment in the fund are: EQUITY RISK -- Stocks and other equity securities generally fluctuate in value more than bonds. The fund could lose all of its investment in a company's stock. LIMITED CAPITALIZATION RISK -- Equity risk is greater for the common stocks of mid and small cap companies because they generally are more vulnerable than larger companies to adverse business or economic developments and they may have more limited resources. In general, these risks are greater for small cap companies than for mid cap companies. DERIVATIVES RISK -- The fund's investments in derivatives may rise or fall more rapidly than other investments. An investment in the fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. More information about risks of an investment in the fund is provided below in "More About Risks and Investment Strategies." - -------------------------------------------------------------------------------- Prospectus Page 28 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Small/Medium Company Value Equity Investments PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart and table give some indication of the risks of an investment in the fund based on the performance of the fund's Class P shares, the only shares outstanding for at least one calendar year. The Class P shares are offered pursuant to a separate prospectus and may be purchased only by participants in the PACE Select Advisors Program, who are subject to a maximum annual program fee of 1.50%. The Class A, Class B, Class C and Class Y shares offered pursuant to this prospectus are not part of the PACE Select Advisors Program and are not subject to the annual PACE Select Advisors Program fee. The bar chart shows how the fund's performance has varied from year to year. The bar chart does not reflect the maximum annual PACE Select Advisors Program fee, nor does it reflect the sales charges or higher expenses of the fund's Class A, Class B and Class C shares. If it did, the total returns shown would be lower. The table that follows the bar chart shows average annual returns of the fund's Class P shares over several time periods. The table does reflect the maximum annual PACE Select Advisors Program fee. The table does not reflect the sales charges or higher expenses of the fund's Class A, Class B and Class C shares. However, because all classes of shares invest in the same portfolio of securities, their annual returns would differ only to the extent of the different sales charges or expenses. The table compares fund returns to returns on a broad-based market index that is unmanaged and that, therefore, does not include any fees or expenses. The fund's past performance does not necessarily indicate how the fund will perform in the future. This may be particularly true for the period prior to October 4, 1999, when another investment adviser was responsible for managing all the fund's assets. Ariel assumed day-to-day management of a portion of the fund's assets on October 4, 1999, and ICM assumed responsibility for managing a portion of the fund's assets on October 10, 2000. TOTAL RETURN OF CLASS P SHARES (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC CALENDAR YEAR TOTAL RETURN 1996 22.35% 1997 37.26% 1998 (9.34)% 1999 (2.79)% 2000 11.76%
Total Return January 1 to September 30, 2001 -- 1.95% Best quarter during calendar years shown: 2nd quarter, 1999 -- 21.25% Worst quarter during calendar years shown: 3rd quarter, 1998 -- (20.00)% AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2000
RUSSELL 2500 CLASS P VALUE INDEX -------- ------------ One Year.................................................... 10.10% 20.79% Five Years.................................................. 8.94% 14.36% Life of Fund (Inception Date -- 8/24/95).................... 8.19% 14.54%
- -------------------------------------------------------------------------------- Prospectus Page 29 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Small/Medium Company Value Equity Investments EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy and hold shares of the fund. SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment at the time of a purchase or sale)
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Maximum Sales Charge (Load)................................. 5.5% 5% 2% None Maximum Sales Charge (Load) Imposed on Purchases (as a % of offering price).............................. 5.5% None 1% None Maximum Deferred Sales Charge (Load) (as a % of offering price).............................. None 5% 1% None Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Management Fees............................................. 0.60% 0.60% 0.60% 0.60% Distribution and/or Service (12b-1) Fees.................... 0.25 1.00 1.00 None Other Expenses*............................................. 0.43 0.45 0.46 0.43 ---- ---- ---- ---- Total Annual Fund Operating Expenses........................ 1.28% 2.05% 2.06% 1.03% ==== ==== ==== ==== Management Fee Waiver/Expense Reimbursements**.............. 0.02% 0.02% 0.04% 0.03% ---- ---- ---- ---- Net Expenses**.............................................. 1.26% 2.03% 2.02% 1.00% ==== ==== ==== ====
- --------- * "Other Expenses" include an administration fee of 0.20% paid by the fund to Brinson Advisors. ** The fund and Brinson Advisors have entered into a written agreement under which Brinson Advisors is contractually obligated to waive its management fees and/or reimburse the fund to the extent that the total operating expenses of Class A, Class B, Class C or Class Y shares through December 1, 2002 otherwise would exceed the sum of 1.00% (the expense cap for the fund's Class P shares) plus the 12b-1 fees, if any, and any higher transfer agency fees applicable to the particular class. The fund has agreed to repay Brinson Advisors for any reimbursed expenses to the extent that it can do so over the following three fiscal years without causing the fund's expenses in any of those three years to exceed these expense caps. EXAMPLE This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then sell all of your shares at the end of those periods unless otherwise stated. The example also assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same, except for the period when the fund's expenses are lower due to its agreement with Brinson Advisors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS -------- -------- -------- -------- Class A..................................................... $671 $932 $1,212 $2,009 Class B (assuming sale of all shares at end of period)...... 706 941 1,301 1,999 Class B (assuming no sale of shares)........................ 206 641 1,101 1,999 Class C (assuming sale of all shares at end of period)...... 409 735 1,194 2,463 Class C (assuming no sale of shares)........................ 303 735 1,194 2,463 Class Y..................................................... 102 325 566 1,257
- -------------------------------------------------------------------------------- Prospectus Page 30 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Small/Medium Company Growth Equity Investments PACE SMALL/MEDIUM COMPANY GROWTH EQUITY INVESTMENTS INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE Capital appreciation. PRINCIPAL INVESTMENT STRATEGIES The fund invests primarily in stocks of "emerging growth" companies that are believed to have potential for high future earnings growth relative to the overall market and that have total market capitalizations of less than $4.0 billion at the time of purchase. Dividend income is an incidental consideration in the investment advisor's selection of stocks for the fund. The fund may from time to time invest a significant portion of its assets in the stocks of companies in various economic sectors, such as healthcare or technology. The fund may invest, to a limited extent, in stocks of companies with larger total market capitalizations and other securities, including securities convertible into stocks. The fund also may (but is not required to) use options, futures and other derivatives as part of its investment strategy or to help manage portfolio risks. Brinson Advisors, Inc., the fund's manager, has selected Delaware Management Company, a series of Delaware Management Business Trust, to serve as the fund's investment advisor. In deciding which stocks to buy for the fund, Delaware Management Company employs a bottom-up, fundamental analysis to identify companies that have substantially above average earnings growth because of management changes, new products, growth of established products or structural changes in the economy. Delaware Management Company also considers the quality of a company's management team and the strength of its finances and internal controls in selecting stocks for the fund. Although Delaware Management Company follows companies in a full range of market sectors, it may focus on a limited number of attractive industries. Delaware Management Company generally sells stocks that no longer meet its selection criteria, are at risk for fundamental deterioration or when it identifies more attractive investment opportunities. PRINCIPAL RISKS An investment in the fund is not guaranteed; you may lose money by investing in the fund. The principal risks presented by an investment in the fund are: EQUITY RISK -- Stocks and other equity securities generally fluctuate in value more than bonds. The fund could lose all of its investment in a company's stock. LIMITED CAPITALIZATION RISK -- Equity risk is greater for the common stocks of mid and small cap companies because they generally are more vulnerable than larger companies to adverse business or economic developments and they may have more limited resources. In general, these risks are greater for small cap companies than for mid cap companies. SECTOR RISK -- Because the fund may invest a significant portion of its assets in the stocks of companies in particular economic sectors, economic changes adversely affecting such a sector may have more of an impact on the fund's performance than another fund having a broader range of investments. DERIVATIVES RISK -- The fund's investments in derivatives may rise or fall more rapidly than other investments. An investment in the fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. More information about risks of an investment in the fund is provided below in "More About Risks and Investment Strategies." - -------------------------------------------------------------------------------- Prospectus Page 31 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Small/Medium Company Growth Equity Investments PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart and table give some indication of the risks of an investment in the fund based on the performance of the fund's Class P shares, the only shares outstanding for at least one calendar year. The Class P shares are offered pursuant to a separate prospectus and may be purchased only by participants in the PACE Select Advisors Program, who are subject to a maximum annual program fee of 1.50%. The Class A, Class B, Class C and Class Y shares offered pursuant to this prospectus are not part of the PACE Select Advisors Program and are not subject to the annual PACE Select Advisors Program fee. The bar chart shows how the fund's performance has varied from year to year. The bar chart does not reflect the maximum annual PACE Select Advisors Program fee, nor does it reflect the sales charges or higher expenses of the fund's Class A, Class B and Class C shares. If it did, the total returns shown would be lower. The table that follows the bar chart shows average annual returns of the fund's Class P shares over several time periods. The table does reflect the maximum annual PACE Select Advisors Program fee. The table does not reflect the sales charges or higher expenses of the fund's Class A, Class B and Class C shares. However, because all classes of shares invest in the same portfolio of securities, their annual returns would differ only to the extent of the different sales charges or expenses. The table compares fund returns to returns on a broad-based market index that is unmanaged and that, therefore, does not include any fees or expenses. The fund's past performance does not necessarily indicate how the fund will perform in the future. This may be particularly true for the period prior to December 17, 1996, which is the date on which Delaware Management Company assumed day-to-day management of the fund's assets. Prior to that date, another investment adviser was responsible for managing the fund's assets. TOTAL RETURN OF CLASS P SHARES (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC CALENDAR YEAR TOTAL RETURN 1996 7.36% 1997 21.73% 1998 14.86% 1999 78.75% 2000 (8.09)%
Total Return January 1 to September 30, 2001 -- (32.55)% Best quarter during calendar years shown: 4th quarter, 1999 -- 38.15% Worst quarter during calendar years shown: 4th quarter, 2000 -- (24.00)% AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2000
RUSSELL 2500 CLASS P GROWTH INDEX -------- ------------ One Year.................................................... (9.46)% (16.09)% Five Years.................................................. 18.00% 12.18% Life of Fund (Inception Date -- 8/24/95).................... 16.28% 12.18%
- -------------------------------------------------------------------------------- Prospectus Page 32 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Small/Medium Company Growth Equity Investments EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy and hold shares of the fund. SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment at the time of a purchase or sale)
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Maximum Sales Charge (Load)................................. 5.5% 5% 2% None Maximum Sales Charge (Load) Imposed on Purchases (as a % of offering price).............................. 5.5% None 1% None Maximum Deferred Sales Charge (Load) (as a % of offering price).............................. None 5% 1% None Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Management Fees............................................. 0.60% 0.60% 0.60% 0.60% Distribution and/or Service (12b-1) Fees.................... 0.25 1.00 1.00 None Other Expenses*............................................. 0.44 0.52 0.49 0.53 ---- ---- ---- ---- Total Annual Fund Operating Expenses........................ 1.29% 2.12% 2.09% 1.13% ==== ==== ==== ==== Management Fee Waiver/Expense Reimbursements**.............. 0.03% 0.09% 0.07% 0.13% ---- ---- ---- ---- Net Expenses**.............................................. 1.26% 2.03% 2.02% 1.00% ==== ==== ==== ====
- --------- * "Other expenses" include an administration fee of 0.20% paid by the fund to Brinson Advisors. ** The fund and Brinson Advisors have entered into a written agreement under which Brinson Advisors is contractually obligated to waive its management fees and/or reimburse the fund to the extent that the total operating expenses of Class A, Class B, Class C or Class Y shares through December 1, 2002 otherwise would exceed the sum of 1.00% (the expense cap for the fund's Class P shares) plus the 12b-1 fees, if any, and any higher transfer agency fees applicable to the particular class. The fund has agreed to repay Brinson Advisors for any reimbursed expenses to the extent that it can do so over the following three fiscal years without causing the fund's expenses in any of those three years to exceed these expense caps. EXAMPLE This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then sell all of your shares at the end of those periods unless otherwise stated. The example also assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same, except for the period when the fund's expenses are lower due to its agreement with Brinson Advisors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS -------- -------- -------- -------- Class A..................................................... $671 $934 $1,216 $2,018 Class B (assuming sale of all shares at end of period)...... 706 955 1,331 2,038 Class B (assuming no sale of shares)........................ 206 655 1,131 2,038 Class C (assuming sale of all shares at end of period)...... 403 742 1,206 2,491 Class C (assuming no sale of shares)........................ 303 742 1,206 2,491 Class Y..................................................... 102 346 610 1,363
- -------------------------------------------------------------------------------- Prospectus Page 33 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE International Equity Investments PACE INTERNATIONAL EQUITY INVESTMENTS INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE Capital appreciation. PRINCIPAL INVESTMENT STRATEGIES The fund invests primarily in stocks of companies that are domiciled in developed foreign countries and principally traded in Japanese, European, Pacific and Australian securities markets or traded in U.S. securities markets. The fund may invest, to a limited extent, in stocks of companies in emerging markets, including Asia, Latin America and other regions where markets may not yet fully reflect the potential of the developing economy. The fund may also invest, to a limited extent, in securities of other investment companies that invest in foreign markets and securities convertible into stocks, including convertible bonds that are below investment grade. The fund may (but is not required to) use forward currency contracts, options, futures and other derivatives as part of its investment strategy or to help manage portfolio risks. Brinson Advisors, Inc., the fund's manager, has selected Martin Currie Inc. to serve as the fund's investment advisor. Martin Currie Inc. looks for companies that exhibit strong fundamentals and attractive valuations based on estimates of future earnings. In making country allocation decisions, Martin Currie Inc. considers such factors as economic and political stability, breadth and liquidity of the market, the nature of local investors, the currency outlook, valuation and the settlement system. Martin Currie Inc. generally sells securities when either the country or the issuer no longer meets these selection criteria or when it identifies more attractive investment opportunities. PRINCIPAL RISKS An investment in the fund is not guaranteed; you may lose money by investing in the fund. The principal risks presented by an investment in the fund are: EQUITY RISK -- Stocks and other equity securities generally fluctuate in value more than bonds. The fund could lose all of its investment in a company's stock. FOREIGN INVESTING AND EMERGING MARKETS RISKS -- The value of the fund's investments in foreign securities may fall due to adverse political, social and economic developments abroad and due to decreases in foreign currency values relative to the U.S. dollar. These risks are greater for investments in emerging market issuers than for issuers in more developed countries. DERIVATIVES RISK -- The fund's investments in derivatives may rise or fall more rapidly than other investments. An investment in the fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. More information about risks of an investment in the fund is provided below in "More About Risks and Investment Strategies." - -------------------------------------------------------------------------------- Prospectus Page 34 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE International Equity Investments PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart and table give some indication of the risks of an investment in the fund based on the performance of the fund's Class P shares, the only shares outstanding for at least one calendar year. The Class P shares are offered pursuant to a separate prospectus and may be purchased only by participants in the PACE Select Advisors Program, who are subject to a maximum annual program fee of 1.50%. The Class A, Class B, Class C and Class Y shares offered pursuant to this prospectus are not part of the PACE Select Advisors Program and are not subject to the annual PACE Select Advisors Program fee. The bar chart shows how the fund's performance has varied from year to year. The bar chart does not reflect the maximum annual PACE Select Advisors Program fee, nor does it reflect the sales charges or higher expenses of the fund's Class A, Class B and Class C shares. If it did, the total returns shown would be lower. The table that follows the bar chart shows average annual returns of the fund's Class P shares over several time periods. The table does reflect the maximum annual PACE Select Advisors Program fee. The table does not reflect the sales charges or higher expenses of the fund's Class A, Class B and Class C shares. However, because all classes of shares invest in the same portfolio of securities, their annual returns would differ only to the extent of the different sales charges or expenses. The table compares fund returns to returns on a broad-based market index that is unmanaged and that, therefore, does not include any fees or expenses. The fund's past performance does not necessarily indicate how the fund will perform in the future. TOTAL RETURN OF CLASS P SHARES (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC CALENDAR YEAR TOTAL RETURN 1996 10.30% 1997 9.46% 1998 16.34% 1999 35.65% 2000 (20.33)%
Total Return January 1 to September 30, 2001 -- (27.00)% Best quarter during calendar years shown: 4th quarter, 1999 -- 24.39% Worst quarter during calendar years shown: 3rd quarter, 1998 -- (14.64)% AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2000
MSCI EUROPE, AUSTRALASIA AND CLASS P FAR EAST INDEX -------- -------------- One Year.................................................... (21.52)% (13.96)% Five Years.................................................. 7.09% 7.43% Life of Fund (Inception Date -- 8/24/95).................... 7.18% 8.16%
- -------------------------------------------------------------------------------- Prospectus Page 35 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE International Equity Investments EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy and hold shares of the fund. SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment at the time of a purchase or sale)
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Maximum Sales Charge (Load)................................. 5.5% 5% 2% None Maximum Sales Charge (Load) Imposed on Purchases (as a % of offering price).............................. 5.5% None 1% None Maximum Deferred Sales Charge (Load) (as a % of offering price).............................. None 5% 1% None Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Management Fees............................................. 0.70% 0.70% 0.70% 0.70% Distribution and/or Service (12b-1) Fees.................... 0.25 1.00 1.00 None Other Expenses*............................................. 0.55 0.73 0.61 0.49 ---- ---- ---- ---- Total Annual Fund Operating Expenses........................ 1.50% 2.43% 2.31% 1.19% ==== ==== ==== ====
- --------- * "Other Expenses" include an administration fee of 0.20% paid by the fund to Brinson Advisors. EXAMPLE This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then sell all of your shares at the end of those periods unless otherwise stated. The example also assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS -------- -------- -------- -------- Class A.................................................... $694 $ 998 $1,323 $2,242 Class B (assuming sale of all shares at end of period)..... 746 1,058 1,496 2,324 Class B (assuming no sale of shares)....................... 246 758 1,296 2,324 Class C (assuming sale of all shares at end of period)..... 432 814 1,323 2,719 Class C (assuming no sale of shares)....................... 332 814 1,323 2,719 Class Y.................................................... 121 378 654 1,443
- -------------------------------------------------------------------------------- Prospectus Page 36 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE International Emerging Markets Equity Investments PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS INVESTMENT OBJECTIVE, STRATEGIES AND RISK - -------------------------------------------------------------------------------- FUND OBJECTIVE Capital appreciation. PRINCIPAL INVESTMENT STRATEGIES The fund invests primarily in stocks of companies domiciled in emerging market countries. The fund generally defines emerging market countries as countries that are not included in the MSCI World Index of major world economies. However, countries included in this index may be considered emerging markets based on current political and economic factors. For example, the fund's investment advisor has determined, based on an analysis of current economic and political factors pertaining to Hong Kong SAR, that Hong Kong SAR should be considered an emerging market country for purposes of the fund's eligible investments. The fund may not always diversify its investments on a geographic basis among emerging market countries. The fund may invest, to a limited extent, in bonds, including up to 10% of its total assets in bonds that are below investment grade. Below investment grade securities are commonly known as "junk bonds." The fund may also invest, to a limited extent, in securities of other investment companies that invest in emerging markets. The fund may (but is not required to) use forward currency contracts, options, futures and other derivatives as part of its investment strategy or to help manage portfolio risks. Brinson Advisors, Inc., the fund's manager, has selected Schroder Investment Management North America Inc. ("SIMNA") to serve as the fund's investment advisor. SIMNA focuses on companies that it believes have a sustainable competitive advantage and growth potential that is undervalued by other investors. SIMNA allocates the fund's assets among emerging market countries based on its assessment of the likelihood that those countries will have favorable long-term business environments. In deciding which securities within a country to buy for the fund, SIMNA analyzes historical growth rates and future growth prospects, management capability and profit margins. SIMNA's evaluation of securities reflects information available from the extensive network of locally based analysts maintained by SIMNA and its affiliates. SIMNA generally sells securities when either the country or the issuer no longer meets these selection criteria or when it identifies more attractive investment opportunities. PRINCIPAL RISKS An investment in the fund is not guaranteed; you may lose money by investing in the fund. The principal risks presented by an investment in the fund are: EQUITY RISK -- Stocks and other equity securities generally fluctuate in value more than bonds. The fund could lose all of its investment in a company's stock. FOREIGN INVESTING AND EMERGING MARKETS RISKS -- The value of the fund's investments in foreign securities may fall due to adverse political, social and economic developments abroad and due to decreases in foreign currency values relative to the U.S. dollar. These risks are greater for investments in emerging market issuers. GEOGRAPHIC CONCENTRATION RISK -- To the extent the fund invests a significant portion of its assets in one geographic area, it will be more susceptible to factors adversely affecting that area. CREDIT RISK -- Bond issuers may fail to make payments when due, or they may become less willing or less able to do so. DERIVATIVES RISK -- The fund's investments in derivatives may rise or fall more rapidly than other investments. An investment in the fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. More information about risks of an investment in the fund is provided below in "More About Risks and Investment Strategies." - -------------------------------------------------------------------------------- Prospectus Page 37 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE International Emerging Markets Equity Investments PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart and table give some indication of the risks of an investment in the fund based on the performance of the fund's Class P shares, the only shares outstanding for at least one calendar year. The Class P shares are offered pursuant to a separate prospectus and may be purchased only by participants in the PACE Select Advisors Program, who are subject to a maximum annual program fee of 1.50%. The Class A, Class B, Class C and Class Y shares offered pursuant to this prospectus are not part of the PACE Select Advisors Program and are not subject to the annual PACE Select Advisors Program fee. The bar chart shows how the fund's performance has varied from year to year. The bar chart does not reflect the maximum annual PACE Select Advisors Program fee, nor does it reflect the sales charges or higher expenses of the fund's Class A, Class B and Class C shares. If it did, the total returns shown would be lower. The table that follows the bar chart shows average annual returns of the fund's Class P shares over several time periods. The table does reflect the maximum annual PACE Select Advisors Program fee. The table does not reflect the sales charges or higher expenses of the fund's Class A, Class B and Class C shares. However, because all classes of shares invest in the same portfolio of securities, their annual returns would differ only to the extent of the different sales charges or expenses. The table compares fund returns to returns on a broad-based market index that is unmanaged and that, therefore, does not include any fees or expenses. The fund's past performance does not necessarily indicate how the fund will perform in the future. TOTAL RETURN OF CLASS P SHARES (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC CALENDAR YEAR TOTAL RETURN 1996 8.52% 1997 (4.72)% 1998 (24.43)% 1999 61.85% 2000 (36.45)%
Total Return January 1 to September 30, 2001 -- (28.14)% Best quarter during calendar years shown: 4th quarter, 1999 -- 27.14% Worst quarter during calendar years shown: 3rd quarter, 1998 -- (21.52)% AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2000
MSCI EMERGING MARKETS FREE CLASS P INDEX -------- -------- One Year.................................................... (37.40)% (30.61)% Five Year................................................... (5.70)% (4.17)% Life of Fund (Inception Date -- 8/24/95).................... (5.76)% (4.24)%
- -------------------------------------------------------------------------------- Prospectus Page 38 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE International Emerging Markets Equity Investments EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy and hold shares of the fund. SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment at the time of a purchase or sale)
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Maximum Sales Charge (Load)................................. 5.5% 5% 2% None Maximum Sales Charge (Load) Imposed on Purchases (as a % of offering price)............................... 5.5% None 1% None Maximum Deferred Sales Charge (Load) (as a % of offering price)............................... None 5% 1% None Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Management Fees............................................. 0.90% 0.90% 0.90% 0.90% Distribution and/or Service (12b-1) Fees.................... 0.25 1.00 1.00 None Other Expenses*............................................. 0.91% 0.95% 1.02% 1.03% ---- ---- ---- ---- Total Annual Fund Operating Expenses........................ 2.06% 2.85% 2.92% 1.93% ==== ==== ==== ==== Management Fee Waiver/Expense Reimbursements**.............. 0.30% 0.32% 0.40% 0.43% ---- ---- ---- ---- Net Expenses**.............................................. 1.76% 2.53% 2.52% 1.50% ==== ==== ==== ====
- --------- * "Other Expenses" include an administration fee of 0.20% paid by the fund to Brinson Advisors. ** The fund and Brinson Advisors have entered into a written agreement under which Brinson Advisors is contractually obligated to waive its management fees and/or reimburse the fund to the extent that the total operating expenses of Class A, Class B, Class C or Class Y shares through December 1, 2002 otherwise would exceed the sum of 1.50% (the expense cap for the fund's Class P shares) plus the 12b-1 fees, if any, and any higher transfer agency fees applicable to the particular class. The fund has agreed to repay Brinson Advisors for any reimbursed expenses to the extent that it can do so over the following three fiscal years without causing the fund's expenses in any of those three years to exceed these expense caps. EXAMPLE This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then sell all of your shares at the end of those periods unless otherwise stated. The example also assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same, except for the period when the fund's expenses are lower due to its agreement with Brinson Advisors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------------- -------- --------------- --------------- Class A................................................... $ 719 $1,133 $ 1,571 $ 2,786 Class B (assuming sale of all shares at end of period).... 756 1,153 1,675 2,793 Class B (assuming no sale of shares)...................... 256 853 1,475 2,793 Class C (assuming sale of all shares at end of period).... 453 957 1,588 3,282 Class C (assuming no sale of shares)...................... 353 957 1,588 3,282 Class Y................................................... 153 565 1,002 2,219
- -------------------------------------------------------------------------------- Prospectus Page 39 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust MORE ABOUT RISKS AND INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- PRINCIPAL RISKS The main risks of investing in the funds are described below. Not all of these risks apply to each fund. You can find a list of the main risks that apply to a particular fund by looking under the "Investment Objective, Strategies and Risks" heading for that fund. Other risks of investing in a fund, along with further details about some of the risks described below, are discussed in the funds' Statement of Additional Information ("SAI"). Information on how you can obtain the SAI is on the back cover of this prospectus. CREDIT RISK. Credit risk is the risk that the issuer of a bond will not make principal or interest payments when they are due. Even if an issuer does not default on a payment, a bond's value may decline if the market believes that the issuer has become less able, or less willing, to make payments on time. Even high quality bonds are subject to some credit risk. However, credit risk is greater for lower quality bonds. Bonds that are not investment grade involve high credit risk and are considered speculative. Some of these low quality bonds may be in default when purchased by a fund. Low quality bonds may fluctuate in value more than higher quality bonds and, during periods of market volatility, may be more difficult to sell at the time and price a fund desires. DERIVATIVES RISK. The value of "derivatives" -- so-called because their value "derives" from the value of an underlying asset, reference rate or index -- may rise or fall more rapidly than other investments. For some derivatives, it is possible for a fund to lose more than the amount it invested in the derivative. Options, futures contracts and forward currency contracts are examples of derivatives. A fund's use of derivatives may not succeed for various reasons, including unexpected changes in the values of the derivatives or the assets underlying them. Also, if a fund uses derivatives to adjust or "hedge" the overall risk of its portfolio, the hedge may not succeed if changes in the values of the derivatives are not matched by opposite changes in the values of the assets being hedged. EQUITY RISK. The prices of common stocks and other equity securities generally fluctuate more than those of other investments. They reflect changes in the issuing company's financial condition and changes in the overall market. Common stocks generally represent the riskiest investment in a company. A fund may lose a substantial part, or even all, of its investment in a company's stock. Growth stocks may be more volatile than value stocks. FOREIGN INVESTING AND EMERGING MARKETS RISKS. Foreign investing involves risks relating to political, social and economic developments abroad to a greater extent than investing in the securities of U.S. issuers. In addition, there are differences between U.S. and foreign regulatory requirements and market practices. Foreign investments denominated in foreign currencies are subject to the risk that the value of a foreign currency will fall in relation to the U.S. dollar. Currency exchange rates can be volatile and can be affected by, among other factors, the general economics of a country, the actions of U.S. and foreign governments or central banks, the imposition of currency controls and speculation. Investments in foreign government bonds involve special risks because the investors may have limited legal recourse in the event of default. Political conditions, especially a country's willingness to meet the terms of its debt obligations, can be of considerable significance. Securities of issuers located in emerging market countries are subject to all of the risks of other foreign securities. However, the level of those risks often is higher due to the fact that social, political, legal and economic systems in emerging market countries may be less fully developed and less stable than those in developed countries. Emerging market securities also may be subject to additional risks, such as lower liquidity and larger or more rapid changes in value. GEOGRAPHIC CONCENTRATION RISK. PACE International Emerging Markets Equity Investments will not necessarily seek to diversify its investments on a geographic basis within the emerging markets category. To the extent the fund concentrates its investments in issuers located in one country or area, it is more susceptible to factors adversely affecting that country or area. - -------------------------------------------------------------------------------- Prospectus Page 40 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust INDEX STRATEGY RISK. Performance of the portions of PACE Large Company Value Equity Investments and PACE Large Company Growth Equity Investments managed by SSgA may deviate from that of an index because of shareholder purchases and sales of shares, which can occur daily, and because of fees and expenses borne by a fund. INTEREST RATE RISK. The value of bonds generally can be expected to fall when interest rates rise and to rise when interest rates fall. Interest rate risk is the risk that interest rates will rise, so that the value of a fund's investments in bonds will fall. Interest rate risk is the primary source of risk for U.S. government and usually for other very high quality bonds. The impact of changes in the general level of interest rates on lower quality bonds may be greater or less than the impact on higher quality bonds. Some corporate and municipal bonds, particularly those issued at relatively high interest rates, provide that the issuer may repay them earlier than the maturity date. The issuers of these bonds are most likely to exercise these "call" provisions if prevailing interest rates are lower than they were when the bonds were issued. A fund then may have to reinvest the repayments at lower interest rates. Bonds subject to call provisions also may not benefit fully from the rise in value that generally occurs for bonds when interest rates fall. LEVERAGE RISK. Leverage involves increasing the total assets in which a fund can invest beyond the level of its net assets. Because leverage increases the amount of a fund's assets, it can magnify the effect on the fund of changes in market values. As a result, while leverage can increase a fund's income and potential for gain, it also can increase expenses and the risk of loss. PACE Government Securities Fixed Income Investments and PACE Strategic Fixed Income Investments, which use leverage by investing in when-issued and delayed delivery bonds, attempt to limit the potential magnifying effect of the leverage by managing their portfolio duration. LIMITED CAPITALIZATION RISK. Securities of mid and small capitalization companies generally involve greater risk than securities of larger capitalization companies because they may be more vulnerable to adverse business or economic developments. Mid and small capitalization companies also may have limited product lines, markets or financial resources, and they may be dependent on a relatively small management group. Securities of mid and small cap companies may be less liquid and more volatile than securities of larger capitalization companies or the market averages in general. In addition, small cap companies may not be well known to the investing public, may not have institutional ownership and may have only cyclical, static or moderate growth prospects. In general, all of these risks are greater for small cap companies than for mid cap companies. POLITICAL RISK. The municipal bond market can 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 municipal bond 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. Legislatures also may fail to appropriate funds needed to pay municipal bond obligations. These events could cause the value of the municipal bonds held by PACE Municipal Fixed Income Investments 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 can become volatile. PREPAYMENT RISK. Payments on bonds that are backed by mortgage loans or similar assets may be received earlier or later than expected due to changes in the rate at which the underlying loans are prepaid. Faster prepayments often happen when market interest rates are falling. As a result, a fund may need to reinvest these early payments at those lower interest rates, thus reducing its income. Conversely, when interest rates rise, prepayments may happen more slowly, causing the underlying loans to be outstanding for a longer time than anticipated. This can cause the market value of the security to fall because the market may view its interest rate as too low for a longer term investment. RELATED SECURITIES CONCENTRATION RISK. PACE Municipal Fixed Income Investments may invest more than 25% of its total assets in municipal bonds that are issued by public housing authorities and state and local housing finance authorities. Economic, business or political developments or changes that affect one municipal bond in this sector also may affect other municipal bonds in the same sector. As a result, the fund is subject to greater risk than a fund that does not follow this practice. SECTOR RISK. PACE Large Company Growth Equity Investments and PACE Small/Medium Company Growth Equity Investments each may invest a significant portion of its assets in the stocks of companies in various economic sectors. During the past year, each had significant portions of its assets in stocks of companies in the technology and/or healthcare sectors. Because each of these funds may invest a significant portion of its assets - -------------------------------------------------------------------------------- Prospectus Page 41 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust in the stocks of companies in particular economic sectors, economic changes adversely affecting such a sector may have more of an impact on the fund's performance than another fund having a broader range of investments. For example, individual issuers within the technology sector, as well as the technology sector as a whole, can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits and competition from new market entrants. SINGLE ISSUER CONCENTRATION RISK. PACE Intermediate Fixed Income Investments and PACE Global Fixed Income Investments are non-diversified. A non-diversified fund may invest more than 5% of its total assets in securities of a single issuer to a greater extent than a diversified fund. When a fund holds a large position in the securities of one issuer, changes in the financial condition or in the market's assessment of that issuer may cause larger changes in the fund's total return and in the price of its shares than it would for a diversified fund. ADDITIONAL RISK STRUCTURED SECURITY RISK. The funds may purchase securities representing interests in underlying assets, but structured to provide certain advantages not inherent in those assets (E.G., enhanced liquidity, yields linked to short-term interests rates). If those securities behaved in a way that a fund's investment advisor(s) did not anticipate, or if the security structures encountered unexpected difficulties, the fund could suffer a loss. ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES CASH RESERVES; DEFENSIVE POSITIONS. Each fund may invest to a limited extent in money market instruments as a cash reserve for liquidity or other purposes. PACE Municipal Fixed Income Investments may invest to a limited extent in taxable money market instruments for liquidity purposes when suitable municipal money market instruments are not available. As vehicles to implement long-term investment strategies, each fund is normally fully invested in accordance with its investment objective and policies. However, with the concurrence of Brinson Advisors, a fund may take a defensive position that is different from its normal investment strategy to protect itself from adverse market conditions. This means that a fund may temporarily invest a larger-than-normal part, or even all, of its assets in cash or money market instruments, including (for funds that are authorized to invest outside the United States) money market instruments that are denominated in foreign currencies. In addition, each fund may increase its cash reserves to facilitate the transition of the investment style and strategies of a new investment advisor. Because these investments provide relatively low income, a defensive or transition position may not be consistent with achieving a fund's investment objective. In addition, the funds listed below may make the following temporary investments for defensive purposes: PACE Municipal Fixed Income Investments may invest without limit in certain taxable securities. PACE Global Fixed Income Investments may invest in securities of only one country, including the United States. PACE International Equity Investments may invest without limit in bonds that are traded in the United States and in foreign markets. PORTFOLIO TURNOVER. Each fund may engage in frequent trading to achieve its investment objective. Frequent trading can result in portfolio turnover in excess of 100% (high portfolio turnover). Frequent trading may increase the portion of a fund's capital gains that are realized for tax purposes in any given year. This may increase the fund's taxable distributions that year. Frequent trading also may increase the portion of a fund's realized capital gains that are considered "short-term" for tax purposes. Shareholders will pay higher taxes on distributions that represent short-term capital gains than they would pay on distributions that represent long-term capital gains. Frequent trading also may result in higher fund expenses due to transaction costs and may negatively impact fund performance. The funds do not restrict the frequency of trading to limit expenses or to minimize the tax effect that a fund's distributions may have on shareholders. - -------------------------------------------------------------------------------- Prospectus Page 42 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust MANAGING YOUR FUND ACCOUNT - -------------------------------------------------------------------------------- FLEXIBLE PRICING The funds offer four classes of shares - Class A, Class B, Class C and Class Y. Each class has different sales charges and ongoing expenses. You can choose the class that is best for you, based on how much you plan to invest and how long you plan to hold your fund shares. Class Y shares are only available to certain types of investors. Each fund has adopted a rule 12b-1 plan for its Class A, Class B and Class C shares that allows it to pay service and (for Class B and Class C shares) distribution fees for the sale of its shares and services provided to shareholders. Because the 12b-1 distribution fees for Class B and Class C shares are paid out of a fund's assets on an ongoing basis, over time they will increase the cost of your investment and may cost you more than if you paid 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, Class B and Class C shares. See "Sales Charge Waivers for Class A, Class B and Class C Shares" below. You may also qualify for a reduced sales charge on Class A shares. See "Sales Charge Reductions for Class A Shares" below. CLASS A SHARES Class A shares have a front-end sales charge that is included in the offering price of the Class A shares. This sales charge is paid at the time of purchase and is not invested in the fund. Class A shares pay an annual 12b-1 service fee of 0.25% of average net assets, but they pay no 12b-1 distribution fees. The ongoing expenses for Class A shares are lower than for Class B and Class C shares. The Class A sales charges for each fund are described in the following table. CLASS A SALES CHARGES - PACE Government Securities Fixed Income Investments, PACE Intermediate Fixed Income Investments, PACE Strategic Fixed Income Investments, PACE Municipal Fixed Income Investments and PACE Global Fixed Income Investments.
REALLOWANCE TO SALES CHARGE AS A PERCENTAGE OF: SELECTED DEALERS AS AMOUNT OF INVESTMENT OFFERING PRICE NET AMOUNT INVESTED PERCENTAGE OF OFFERING PRICE - -------------------- -------------- ------------------- ---------------------------- Less than $100,000............................ 4.50% 4.71% 4.00% $100,000 to $249,999.......................... 3.50 3.63 3.00 $250,000 to $499,999.......................... 2.50 2.56 2.00 $500,000 to $999,999.......................... 2.00 2.04 1.75 $1,000,000 and over(1)........................ None None 1.00(2)
CLASS A SALES CHARGES - PACE Large Company Value Equity Investments, PACE Large Company Growth Equity Investments, PACE Small/Medium Company Value Equity Investments, PACE Small/Medium Company Growth Equity Investments, PACE International Equity Investments and PACE International Emerging Markets Equity Investments.
REALLOWANCE TO SELECTED SALES CHARGE AS A PERCENTAGE OF: DEALERS AS AMOUNT OF INVESTMENT OFFERING PRICE NET AMOUNT INVESTED PERCENTAGE OF OFFERING PRICE - -------------------- -------------- ------------------- ---------------------------- Less than $50,000............................. 5.50% 5.82% 5.00% $50,000 to $99,999............................ 4.50 4.71 4.00 $100,000 to $249,999.......................... 3.50 3.63 3.00 $250,000 to $499,999.......................... 2.50 2.56 2.00 $500,000 to $999,999.......................... 2.00 2.04 1.75 $1,000,000 and over(1)........................ None None Up to 1.00(2)
- --------- (1) A deferred sales charge of 1% of the lower of the shares' offering price or the net asset value at the time of sale by the shareholder is charged on sales of shares made within one year of the purchase date. Class A shares representing reinvestment of dividends are not subject to this 1% charge. Withdrawals in the first year after purchase of up to 12% of the value of the fund account under the funds' Automatic Cash Withdrawal Plan are not subject to this charge. (2) Brinson Advisors pays 1% to the dealer for sales of greater than $1 million but less than $3 million, 0.75% for sales of at least $3 million but less than $5 million, 0.50% for sales of at least $5 million but less than $50 million and 0.25% for sales of $50 million or more. - -------------------------------------------------------------------------------- Prospectus Page 43 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust CLASS B SHARES Class B shares have a deferred sales charge. When you purchase Class B shares, we invest 100% of your purchase in fund shares. However, you may have to pay a deferred sales charge when you sell your fund shares, depending on how long you own the shares. Class B shares pay an annual 12b-1 distribution fee of 0.75% of average net assets, as well as an annual 12b-1 service fee of 0.25% of average net assets. If you hold your Class B shares for the period specified below, they will automatically convert to Class A shares, which have lower ongoing expenses. If you sell Class B shares before the end of the specified period, you will pay a deferred sales charge. We calculate the deferred sales charge by multiplying the lesser of the net asset value of the Class B shares at the time of purchase or the net asset value at the time of sale by the percentage shown below:
PERCENTAGE (BASED ON AMOUNT OF INVESTMENT) BY WHICH THE SHARES' NET ASSET VALUE IS MULTIPLIED: --------------------------------- LESS $100,000 $250,000 $500,000 IF YOU SELL THAN TO TO TO SHARES WITHIN: $100,000+ $249,999 $499,999 $999,999 - -------------- --------- --------- --------- -------- 1st year since purchase........... 5% 3% 3% 2% 2nd year since purchase........... 4% 2% 2% 1% 3rd year since purchase........... 3% 2% 1% None 4th year since purchase........... 2% 1% None None 5th year since purchase........... 2% None None None 6th year since purchase........... 1% None None None 7th year since purchase........... None None None None
IF YOU ARE ELIGIBLE FOR A COMPLETE WAIVER OF THE SALES CHARGE ON CLASS A SHARES BECAUSE YOU ARE INVESTING $1 MILLION OR MORE, YOU SHOULD PURCHASE CLASS A SHARES, WHICH HAVE LOWER ONGOING EXPENSES. Class B shares automatically convert to Class A shares after the end of the sixth year if you purchase less than $100,000, after the end of the fourth year if you purchase at least $100,000 but less than $250,000, after the end of the third year if you purchase at least $250,000 but less than $500,000, and after the end of the second year if you purchase $500,000 or more but less than $1 million. TO QUALIFY FOR THE LOWER DEFERRED SALES CHARGE AND SHORTER CONVERSION SCHEDULE, YOU MUST MAKE THE INDICATED INVESTMENT AS A SINGLE PURCHASE. We will not impose the deferred sales charge on Class B shares purchased by reinvesting dividends or on withdrawals in any year of up to 12% of the value of your Class B shares under the Automatic Cash Withdrawal Plan. + These percentages also apply to purchases made prior to November 5, 2001, regardless of the amount of Class B shares purchased. To minimize your deferred sales charge, we will assume that you are selling: First, Class B shares representing reinvested dividends, and Second, Class B shares that you have owned the longest. CLASS C SHARES Class C shares have a front-end sales charge that is included in the offering price of the Class C shares, as described in the following table. This sales charge is paid at the time of the purchase and is not invested in the fund.
SALES CHARGE AS A PERCENTAGE OF REALLOWANCE TO - ------------------------------------- SELECTED DEALERS NET AMOUNT AS PERCENTAGE OF OFFERING PRICE INVESTED OFFERING PRICE - --------------------- -------------- ---------------- 1.00% 1.01% 1.00%
(This front-end sales charge does not apply to Class C shares purchased prior to November 5, 2001.) Class C shares pay an annual 12b-1 distribution fee of 0.50% of average net assets for fixed income funds and 0.75% of average net assets for equity funds, as well as an annual 12b-1 service fee of 0.25% of average net 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 deferred sales charge of 1% for equity funds and 0.75% for fixed income funds applicable if you sell your shares within one year of the date you purchased them. We calculate the deferred sales charge on sales of Class C shares by multiplying 1.00% for equity funds and 0.75% for fixed income funds by the lesser of the net asset value of the Class C shares at the time of purchase or the net asset value at the time of sale. - -------------------------------------------------------------------------------- Prospectus Page 44 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust SALES CHARGE WAIVERS FOR CLASS A, CLASS B AND CLASS C SHARES CLASS A FRONT-END SALES CHARGE WAIVERS. Front-end sales charges will be waived if you buy Class A shares with proceeds from the following sources: 1. Redemptions from any registered mutual fund for which Brinson Advisors or any of its affiliates serve as principal underwriter if you: - Originally paid a front-end sales charge on the shares; and - Reinvest the money within 60 days of the redemption date. The fund's front-end sales charges will also not apply to Class A purchases by or through: 2. Employees of UBS AG and its subsidiaries and members of the employees' immediate families; and members of the Board of Directors/Trustees of any investment company for which Brinson Advisors or any of its affiliates serve as principal underwriter. 3. Trust companies and bank trust departments investing on behalf of their clients if clients pay the bank or trust company an asset-based fee for trust or asset management services. 4. Retirement plans and deferred compensation plans that have assets of at least $1 million or at least 25 eligible employees. 5. Broker-dealers and other financial institutions (including registered investment advisors and financial planners) that have entered into a selling agreement with Brinson Advisors (or otherwise have an arrangement with a broker-dealer or other financial institution with respect to sales of fund shares), on behalf of clients participating in a fund supermarket, wrap program, or other program in which clients pay a fee for advisory services, executing transactions in fund shares, or for otherwise participating in the program. 6. Employees of broker-dealers and other financial institutions (including registered investment advisors and financial planners) that have entered into a selling agreement with Brinson Advisors (or otherwise having an arrangement with a broker-dealer or other financial institution with respect to sales of fund shares), and their immediate family members, as allowed by the internal policies of their employer. 7. Insurance company separate accounts. 8. Shareholders of the Class N shares of any Brinson fund who held such shares at the time they were redesignated as Class A shares. 9. Reinvestment of capital gains distributions and dividends. 10. College savings plans qualified under Section 529 of the Internal Revenue Code whose sponsors or administrators have entered into an agreement with Brinson Advisors or any of its affiliates to perform advisory or administrative services. 11. A UBS PaineWebber Financial Advisor who was formerly employed as an investment executive with a competing brokerage firm, and - you were the Financial Advisor's client at the competing brokerage firm; - within 90 days of buying shares in the fund, you sell shares of one or more mutual funds that were principally underwritten by the competing brokerage firm or its affiliates, and you either paid a sales charge to buy those shares, pay a deferred sales charge when selling them or held those shares until the deferred sales charge was waived; and - you purchase an amount that does not exceed the total amount of money you received from the sale of the other mutual fund. CLASS C FRONT-END SALES CHARGE WAIVERS. Front-end sales charges will be waived if you buy Class C shares through a UBS PaineWebber Financial Advisor who was formerly employed as an investment executive with a competing brokerage firm, and - you were the Financial Advisor's client at the competing brokerage firm; - within 90 days of buying shares in the fund, you sell shares of one or more mutual funds that were principally underwritten by the competing brokerage firm or its affiliates, and you either paid a sales charge to buy those shares, pay a deferred sales charge when selling them or held those shares until the deferred sales charge was waived; and - you purchase an amount that does not exceed the total amount of money you received from the sale of the other mutual fund. CLASS A, CLASS B AND CLASS C SHARES DEFERRED SALES CHARGE WAIVERS. The deferred sales charge will be waived for: Redemptions of Class A shares by former holders of Class N shares; - -------------------------------------------------------------------------------- Prospectus Page 45 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust Exchanges between funds for which Brinson Advisors or one of its affiliates serves as principal underwriter, if purchasing the same class of shares; Redemptions following the death or disability of the shareholder or beneficial owner; Tax-free returns of excess contributions from employee benefit plans; Distributions from employee benefit plans, including those due to plan termination or plan transfer; Redemptions made in connection with the Automatic Cash Withdrawal Plan, provided that such redemptions: - are limited annually to no more than 12% of the original account value; - are made in equal monthly amounts, not to exceed 1% per month; and - the minimum account value at the time the Automatic Cash Withdrawal Plan was initiated was no less than $5,000; and - Redemptions of shares purchased through retirement plans. SALES CHARGE REDUCTIONS FOR CLASS A SHARES (RIGHT OF ACCUMULATION/CUMULATIVE QUANTITY DISCOUNT) A purchaser of Class A shares may qualify for a cumulative quantity discount by combining a current purchase with certain other Class A shares of Family Funds already owned ("Family Funds" include other PACE Select funds, Brinson Funds and other funds for which Brinson Advisors or any of its affiliates serves as principal underwriter). To determine if you qualify for a reduced front-end sales charge, the amount of your current purchase is added to the cost or current value, whichever is higher, of your other Class A shares as well as those Class A shares of your spouse and children under the age of 21. If you are the sole owner of a company, you may also add any company accounts, including retirement plan accounts invested in Class A shares of the Family Funds. Companies with one or more retirement plans may add together the total plan assets invested in Class A shares of the Family Funds to determine the front-end sales charge that applies. To qualify for the cumulative quantity discount on a purchase through a financial institution, when each purchase is made the investor or institution must provide Brinson Advisors with sufficient information to verify that the purchase qualifies for the privilege or discount. NOTE ON SALES CHARGE WAIVERS FOR CLASS A, CLASS B AND CLASS C SHARES If you think you qualify for any of the sales charge waivers described above, you will need to provide documentation to Brinson Advisors or the funds. For more information, you should contact your investment professional or call 1-800-647-1568. If you want information on the funds' Automatic Cash Withdrawal Plan, see the SAI or contact your investment professional. CLASS Y SHARES Class Y shares have no sales charge. Only specific types of investors can purchase Class Y shares. The following are eligible to purchase Class Y shares: Shareholders of the Class I shares of any Brinson fund who held such shares as of the date the shares were redesignated Class Y shares; Retirement plan with 5,000 or more eligible employees or $100 million or more in plan assets; Retirement plan platforms/programs that include Fund shares if the platform/program covers plan assets of at least $100 million; Trust companies and bank trust departments purchasing shares on behalf of their client in a fiduciary capacity; Other investors as approved by the fund's Board; Banks, registered investment advisors and other financial institutions purchasing fund shares for their clients as part of a discretionary asset allocation model portfolio; and Shareholders who owned Class Y shares of a fund through the PACE-SM- Multi-Advisor Program as of November 15, 2001, will be eligible to continue to purchase Class Y shares of that fund through the Program. Class Y shares do not pay ongoing distribution or service fees. The ongoing expenses for Class Y shares are the lowest of all the classes. BUYING SHARES You can buy fund shares through your investment professional at a broker-dealer or other financial institution with which Brinson Advisors has a dealer agreement or through the funds' transfer agent as described below. - -------------------------------------------------------------------------------- Prospectus Page 46 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust If you wish to invest in other Family Funds, you can do so by: Contacting your investment professional (if you have an account at UBS PaineWebber or at another financial institution that has entered into a dealer agreement with Brinson Advisors); Buying shares through the transfer agent as described below; or Opening an account by exchanging shares from another Family Fund. The funds and Brinson Advisors reserve the right to reject a purchase order or suspend the offering of shares.
MINIMUM INVESTMENTS: To open an account........... $1,000 To add to an account......... $ 100
Each fund may waive or reduce these amounts for: Employees of Brinson Advisors or its affiliates; or Participants in certain pension plans, retirement accounts, unaffiliated investment programs or the funds' automatic investment plans. MARKET TIMERS. The interests of a fund's long-term shareholders and its ability to manage its investments may be adversely affected when its shares are repeatedly bought and sold in response to short-term market fluctuations - also known as "market timing." When large dollar amounts are involved, the fund may have difficulty implementing long-term investment strategies, because it cannot predict how much cash it will have to invest. Market timing also may force the fund to sell portfolio securities at disadvantageous times to raise the cash needed to buy a market timer's fund shares. These factors may hurt the fund's performance and its shareholders. When Brinson Advisors believes frequent trading would have a disruptive effect on a fund's ability to manage its investments, Brinson Advisors and the fund may reject purchase orders and exchanges into the fund by any person, group or account that Brinson Advisors believes to be a market timer. SELLING SHARES You can sell your fund shares at any time. If you own more than one class of shares, you should specify which class you want to sell. If you do not, the fund will assume that you want to sell shares in the following order: Class A, then Class C, then Class B and last, Class Y. If you want to sell shares that you purchased recently, the fund may delay payment until it verifies that it has received good payment. If you hold your shares at a financial institution, you can sell shares by contacting your investment professional. If you purchased shares through the funds' transfer agent, you may sell them as explained below. If you sell Class A shares and then repurchase Class A shares of the same fund within 365 days of the sale, you can reinstate your account without paying a sales charge. It costs each fund money to maintain shareholder accounts. Therefore, the funds reserve the right to repurchase all shares in any account that has a net asset value of less than $500. If a fund elects to do this with your account, it will notify you that you can increase the amount invested to $500 or more within 60 days. A fund will not repurchase shares in accounts that fall below $500 solely because of a decrease in the fund's net asset value. EXCHANGING SHARES You may exchange Class A, Class B or Class C shares of each 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. However, you may have to pay a deferred sales charge if you later sell the shares you acquired in the exchange. Each fund will use the date of your original purchase to determine whether you must pay a deferred sales charge when you sell the shares of the fund acquired in the exchange. Other Family Funds may have different minimum investment amounts. You may not be able to exchange your shares if your exchange is not as large as the minimum investment amount in that other fund. You may exchange shares of one fund for shares of another fund only after the first purchase has settled and the first fund has received your payment. If you hold your fund shares through a financial institution, you may exchange your shares by placing an order with that institution. If you hold your fund shares through the funds' transfer agent, you may exchange your shares as explained below. A fund may modify or terminate the exchange privilege at any time. TRANSFER AGENT If you wish to invest in any of the Family Funds through the funds' transfer agent, PFPC Inc., you can obtain an - -------------------------------------------------------------------------------- Prospectus Page 47 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust 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: Your name and address; Your account number; The name of the fund whose shares you are selling, and if exchanging shares, the name of the fund whose shares you want to buy; The dollar amount or number of shares you want to sell and/or exchange; and A guarantee of each registered owner's signature. A signature guarantee may be obtained from a financial institution, broker, dealer or clearing agency that is a participant in one of the medallion programs recognized by the Securities Transfer Agents Association. These are: Securities Transfer Agents Medallion Program (STAMP), Stock Exchanges Medallion Program (SEMP) and the New York Stock Exchange Medallion Signature Program (MSP). The funds will not accept signature guarantees that are not part of these programs. Applications to purchase shares (along with a check), and letters requesting redemptions of shares or exchanges of shares through the transfer agent, should be mailed to: PFPC Inc. Attn.: Brinson Mutual Funds P.O. Box 8950 Wilmington, DE 19899. You do not have to complete an application when you make additional investments in the same fund. PRICING AND VALUATION The price at which you may buy, sell or exchange each fund's shares is based on net asset value per share. Each fund calculates its net asset value on days that the New York Stock Exchange (NYSE) is open. A 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 funds do not price their shares, on most national holidays and on Good Friday. If trading on the NYSE is halted for the day before 4:00 p.m., Eastern time, each fund's net asset value per share will be calculated as of the time trading was halted. Your price for buying, selling or exchanging shares will be based on the net asset value (adjusted for any applicable sales charges) that is next calculated after the fund accepts your order. If you place your order through a financial institution, your investment professional is responsible for making sure that your order is promptly sent to the fund. Each fund calculates its net asset value based on the current market value for its portfolio securities. The funds normally obtain market values for their securities from independent pricing services that use reported last sales prices, current market quotations or valuations from computerized "matrix" systems that derive values based on comparable securities. If a market value is not available from an independent pricing source for a particular security, that security is valued at a fair value determined by or under the direction of the Trust's board of trustees. The funds normally use the amortized cost method to value bonds that will mature in 60 days or less. Judgment plays a greater role in valuing thinly traded securities, including many lower-rated bonds, because there is less reliable, objective data available. The funds calculate the U.S. dollar value of investments that are denominated in foreign currencies daily, based on current exchange rates. A fund may own securities, including some securities that trade primarily in foreign markets, that trade on weekends or other days on which a fund does not calculate market value. As a result, a fund's net asset value may change on days when you will not be able to buy and sell fund shares. If a fund concludes that a material change in the value of a foreign security has occurred after the close of trading in its principal foreign market but before the close of trading on the NYSE, the fund may use fair value methods to reflect those changes. This policy is intended to assure that the fund's net asset value fairly reflects security values as of the time of pricing. - -------------------------------------------------------------------------------- Prospectus Page 48 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust MANAGEMENT - -------------------------------------------------------------------------------- MANAGER AND INVESTMENT ADVISORS Brinson Advisors is the manager and administrator of each fund. Brinson Advisors is located at 51 West 52nd Street, New York, New York 10019-6114, and is an indirect wholly owned asset management subsidiary of UBS AG. UBS AG is an internationally diversified organization with headquarters in Zurich, Switzerland and operations in many areas of the financial services industry. On September 30, 2001, Brinson Advisors was the investment advisor, sub-advisor or manager of 24 investment companies with 58 separate portfolios and aggregate assets of approximately $66.3 billion. Brinson Advisors selects investment advisors for the funds, subject to approval of the board, and reviews the performance of those investment advisors. The funds have received an exemptive order from the SEC to permit the board to select and replace investment advisors and to amend the sub-advisory contracts between Brinson Advisors and the investment advisors without obtaining shareholder approval. MANAGEMENT AND ADMINISTRATION FEES Each fund pays fees to Brinson Advisors for management and administrative services. The annual contract rate for management services varies from 0.40% to 0.90% of a fund's average daily net assets. The annual contract rate for administrative services is 0.20% of each fund's average daily net assets. The following table shows the combined annual fee rate for management and administrative services for each fund: PACE Government Securities Fixed Income Investments.......................... 0.70% PACE Intermediate Fixed Income Investments.......................... 0.60% PACE Strategic Fixed Income Investments.......................... 0.70% PACE Municipal Fixed Income Investments.......................... 0.60% PACE Global Fixed Income Investments... 0.80% PACE Large Company Value Equity Investments.......................... 0.80% PACE Large Company Growth Equity Investments.......................... 0.80% PACE Small/Medium Company Value Equity Investments.......................... 0.80% PACE Small/Medium Company Growth Equity Investments.......................... 0.80% PACE International Equity Investments.......................... 0.90% PACE International Emerging Markets Equity Investments................... 1.10%
During the fiscal year ended July 31, 2001, some of the funds paid Brinson Advisors at the lower effective rate shown below because Brinson Advisors waived a portion of its fees: PACE Government Securities Fixed Income Investments.......................... 0.39% PACE Intermediate Fixed Income Investments.......................... 0.44% PACE Strategic Fixed Income Investments.......................... 0.63% PACE Municipal Fixed Income Investments.......................... 0.31% PACE Global Fixed Income Investments... 0.45% PACE Large Company Value Equity Investments.......................... 0.57% PACE Large Company Growth Equity Investments.......................... 0.63% PACE Small/Medium Company Value Equity Investments.......................... 0.73% PACE Small/Medium Company Growth Equity Investments.......................... 0.70% PACE International Equity Investments.......................... 0.72% PACE International Emerging Markets Equity Investments................... 0.72%
INVESTMENT ADVISORS AND PORTFOLIO MANAGERS PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS AND PACE STRATEGIC FIXED INCOME INVESTMENTS. Pacific Investment Management Company LLC ("PIMCO") serves as investment advisor for these funds. PIMCO is located at 840 Newport Center Drive, Suite 300, Newport Beach, California 92660. On September 30, 2001, PIMCO had approximately $234.9 billion in assets under management. PIMCO is one of the largest fixed income management firms in the nation. Included among PIMCO's institutional clients are many "Fortune 500" companies. Pasi Hamalainen, a managing director of PIMCO, has been primarily responsible for the day-to-day portfolio management for PACE Government Securities Fixed Income Investments since November 5, 2001. - -------------------------------------------------------------------------------- Prospectus Page 49 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust Mr. Hamalainen is a generalist portfolio manager and a member of PIMCO's investment committee. Previously, he served as PIMCO's Head of Fixed Income portfolio management in Europe and as the director of portfolio analytics and the co-head of the firm's mortgage team in Newport Beach. Mr. Hamalainen joined the firm in 1994, having previously held a fellowship at The Wharton School. He has eight years of investment experience and holds bachelor's degrees in both electrical engineering and finance from the University of Pennsylvania and a master's in finance from The Wharton School at the University of Pennsylvania. Since July 1997, William C. Powers, a managing director of PIMCO, has been primarily responsible for the day-to-day portfolio management for PACE Strategic Fixed Income Investments. Mr. Powers has been associated with PIMCO since 1991 as a senior member of the fixed income portfolio management group. PACE INTERMEDIATE FIXED INCOME INVESTMENTS. Metropolitan West Asset Management, LLC ("MWAM") serves as investment advisor for PACE Intermediate Fixed Income Investments. MWAM is located at 11766 Wilshire Blvd., Suite 1580, Los Angeles, California 90025. MWAM was formed in 1996 and, as of September 30, 2001, had over $14.5 billion in fixed income investments under management. MWAM uses a team approach in advising PACE Intermediate Fixed Income Investments. The team members are Stephen Kane, Laird R. Landmann, Tad Rivelle and Brian H. Loo. All team members have held their fund responsibilities since October 10, 2000. Mr. Kane, CFA has been a portfolio manager with MWAM since August 1996. From November 1995 until July 1996, he was a portfolio manager with Hotchkis and Wiley in Los Angeles, California. Before then, Mr. Kane was an account manager with PIMCO in Newport Beach, California. Mr. Landmann has been a managing director and portfolio manager with MWAM since August 1996. From November 1992 until July 1996, he was a principal and co-director of fixed income with Hotchkis and Wiley in Los Angeles, California. Before then, he was a portfolio manager with PIMCO in Newport Beach, California. Mr. Rivelle has been the chief investment officer and a managing director with MWAM since August 1996. From November 1992 until July 1996, he was a principal and co-director of fixed income with Hotchkis and Wiley in Los Angeles, California. Before then, he was a portfolio manager with PIMCO in Newport Beach, California. Mr. Loo, CFA has been a portfolio manager and analyst with MWAM since August 1996. From June 1996 until July 1996, Mr. Loo worked as an analyst with Hotchkis and Wiley in Los Angeles, California. Before then, he worked as an analyst with Trust Company of the West (starting in May 1994 while completing a graduate finance degree at Carnegie Mellon University). PACE MUNICIPAL FIXED INCOME INVESTMENTS. Standish Mellon Asset Management Company LLC ("Standish Mellon") serves as investment advisor for PACE Municipal Fixed Income Investments. Standish Mellon is located at One Financial Center, Boston, Massachusetts 02111. Standish Mellon assumed management of the fund on August 1, 2001. Standish Mellon's predecessor was founded in 1933 and, as of September 30, 2001, Standish Mellon had over $40.6 billion in assets under management. Christine L. Todd is primarily responsible for the day-to-day management of the fund. She has held her fund responsibilities with either Standish Mellon or its predecessor since June 1, 2000. Ms. Todd is a director of Standish Mellon. She joined Standish Mellon's predecessor in 1995 from Gannett, Welsh & Kotler, where she was a vice president responsible for municipal bond research and trading. PACE GLOBAL FIXED INCOME INVESTMENTS. Rogge Global Partners plc and Fischer Francis Trees & Watts, Inc. and its affiliates serve as investment advisors for PACE Global Fixed Income Investments. Rogge Global Partners is located at Sion Hall, 56 Victoria Embankment, London, EC4Y ODZ, England. Rogge Global Partners was organized in 1984 and specializes in global fixed income management. As of September 30, 2001, it had approximately $6.9 billion in assets under management. Rogge Global Partners uses a team approach in managing the fund's portfolio. The team is led by Olaf Rogge, the chief investment officer of Rogge Global Partners. Mr. Rogge, who founded Rogge Global Partners in 1984, has been managing global investments for more than 25 years and has held his fund responsibilities since the fund's inception in August 1995. Other members of the team are John Graham, Richard Bell, Adrian James, Malie Conway and Richard Gray. These team members have held their fund responsibilities since August 1995 except for Ms. Conway, who has held her responsibilities since August 1998, and Mr. Gray, who has held his fund responsibilities since April 1999. - -------------------------------------------------------------------------------- Prospectus Page 50 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust Mr. Graham joined Rogge Global Partners in February 1994 and is currently a director, portfolio manager and analyst. Prior to that time, he served as a senior manager of the multi-currency fixed income investment team at JP Morgan. Mr. Bell joined Rogge Global Partners in June 1990 and serves as a director, portfolio manager and analyst. Mr. James joined Rogge Global Partners in April 1995 and serves as a director, portfolio manager and analyst. From October 1987 through April 1995, Mr. James worked for NatWest Capital Markets, where he was a director and functioned as the international bond economist. Ms. Conway joined Rogge Global Partners in 1998 as a portfolio manager in charge of global credit. She was previously a senior portfolio manager at Rothschild Asset Management managing U.S., global and short-term mandates. Before joining Rothschild, she spent seven years at JP Morgan where she also managed U.S., global and short-term mandates. Richard Gray joined Rogge Global Partners in April 1999 and serves as a portfolio manager and head of emerging markets. He was previously a vice president, emerging debt research of Bank of America (1995-1999) and director, emerging debt research for Nomura International (1994-1995). Fischer Francis Trees & Watts, Inc. ("FFTW (NY)") is located at 200 Park Avenue, 46th Floor, New York, New York 10166. The addresses for its affiliates are Royal Exchange, London, EC 3V 3RA for Fischer Francis Trees & Watts (UK); 50 Raffles Place, #22-01 Singapore Land Tower, Singapore 048623 for Fischer Francis Trees & Watts Pte Ltd (Singapore); and Fukoku Seimei Building 21F, 2-2, Uchisaiwaicho 2-chome, Chiyoda-Ku Tokyo 100, for Fischer Francis Trees & Watts KK (Japan). The affiliates are either wholly owned subsidiaries of FFTW (NY) or, in the case of FFTW (UK), is a partnership majority owned by FFTW (NY) and minority owned by FFTW Ltd., a UK corporation or are owned jointly by FFTW (NY) and its parent corporation. FFTW (NY) and its affiliates are referred to collectively as "FFTW." As of September 30, 2001, FFTW and its affiliates had approximately $32 billion in assets under management. FFTW uses a team approach in which a specific portfolio manager is responsible for managing FFTW's share of the fund's assets and determines the broad risk parameters under which these investments operate, but relies on specialist investment teams to determine specific fund investments. The portfolio manager is David Marmon, a managing director of FFTW. Key members of the team are Liaquat Ahamed, president, chief executive officer and chief investment officer of FFTW, and Adnan Akant, Stewart Russell, Richard Williams and Simon Hard, all of whom are managing directors of FFTW. These individuals have held their fund responsibilities since October 10, 2000. Mr. Marmon joined FFTW in 1990 from Yamaichi International (America) where he was head of futures and options research. His responsibilities at Yamaichi included generating trade ideas, daily analysis of market opportunities and preparing research reports. He was previously a financial analyst and strategist at the First Boston Corporation, where he developed hedging programs for financial institutions and industrial firms. He also performed historical and scenario analyses of the futures and options markets for traders and clients. Mr. Marmon began his career in finance as a research analyst on Chase Manhattan's arbitrage and municipal trading desks. Mr. Ahamed came to FFTW in 1988 after nine years with the World Bank, where he was in charge of the bank's investments in all non-dollar government bond markets. Before assuming responsibility for the management of the non-dollar portfolios, he was responsible for investment and trading in each of the markets, including pounds sterling, Deutsche mark, Japanese yen, Canadian dollars and Australian dollars. In addition, he was involved in providing technical advice to numerous central banks on reserve and liability management. Mr. Ahamed worked initially as an economist at the World Bank, providing economic advice and analyses to senior government officials in numerous developing countries including the Philippines, Korea, Bangladesh and Kenya. Mr. Akant joined FFTW in 1984 after six years with the World Bank, where he served initially as a project financial analyst in Europe and the Middle East area before joining the treasurer's staff as an investment officer in 1979. Over the next five years, as a member of the investment department, he was responsible for investment and trading of each of the major sectors of the bank's actively managed liquidity portfolio. He was a member of the investment strategy committee and shares responsibility for formulating and implementing the bank's trading and investment strategy. In 1982, Mr. Akant was promoted to senior investment officer and was the division's deputy in charge of the U.S. dollar portfolio. Mr. Russell joined FFTW in 1992 from the short-term proprietary trading desk in the global markets area of J.P. Morgan. His primary responsibilities included proprietary - -------------------------------------------------------------------------------- Prospectus Page 51 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust positioning of U.S. and non-U.S. government obligations, corporate bonds and asset-backed securities. Prior to that, Mr. Russell managed J.P. Morgan's short- term interest rate risk group, coordinating a $10 billion book of assets and liabilities. Mr. Williams joined FFTW in 1995 from Deutsche Morgan Grenfell, where he worked as an analyst in the fixed-income research department. Mr. Hard joined FFTW's affiliate in London in 1989 from Mercury Asset Management, the investment management affiliate of S.G. Warburg & Co., LTD (now Warburg Dillon Read). His responsibilities there included the formulation of global bond and currency investment policies, and the management of interest rate and currency exposures of the firm's specialist non-dollar bond portfolios. He was previously first vice president and London branch manager of Julius Baer Investment Management, Inc. PACE LARGE COMPANY VALUE EQUITY INVESTMENTS. Institutional Capital Corporation ("ICAP"), Westwood Management Corporation ("Westwood") and SSgA Funds Management, Inc. ("SSgA") serve as investment advisors for PACE Large Company Value Equity Investments. ICAP is located at 225 West Wacker Drive, Suite 2400, Chicago, Illinois 60606-1229, and has been in the investment management business since 1970. As of September 30, 2001, ICAP had approximately $12 billion in assets under management. ICAP uses a team approach in the day-to-day management of its share of the fund's assets and has held its fund responsibilities since July 1, 2000. Westwood is located at 300 Crescent Court, Suite 1300, Dallas, Texas 75201, and has been in the investment management business since 1983. As of September 30, 2001, Westwood had approximately $3.4 billion in assets under management. Susan M. Byrne, president of Westwood since 1983, is primarily responsible for the day-to-day management of Westwood's share of the fund's assets. Ms. Byrne has held her fund responsibilities since July 1, 2000. SSgA is located at Two International Place, Boston, Massachusetts 02110, and is an affiliate of State Street Bank and Trust Company. As of September 30, 2001, SSgA had approximately $51 billion in assets under management and is part of a group of companies that manages approximately $758 billion. SSgA uses a team approach in the day-to-day management of its share of the fund's assets. SSgA and its predecessor, an affiliate, have held their fund responsibilities since October 10, 2000. PACE LARGE COMPANY GROWTH EQUITY INVESTMENTS. Alliance Capital Management L.P. ("Alliance Capital") and SSgA serve as investment advisors for PACE Large Company Growth Equity Investments. Alliance Capital is located at 1345 Avenue of the Americas, New York, New York 10105. It is a leading international investment manager supervising client accounts with assets as of June 30, 2001 of approximately $465 billion. Jane Mack Gould is primarily responsible for the day-to-day management of the fund's assets allocated to Alliance Capital and has held her fund responsibilities since November 1997. Ms. Gould is a senior vice president and portfolio manager and has been with Alliance Capital since 1971. SSgA is located at Two International Place, Boston, Massachusetts 02110, and is an affiliate of State Street Bank and Trust Company. As of September 30, 2001, SSgA had approximately $51 billion in assets under management and is part of a group of companies that manages approximately $758 billion. SSgA uses a team approach in the day-to-day management of its share of the fund's assets. SSgA and its predecessor, an affiliate, have held their fund responsibilities since October 10, 2000. PACE SMALL/MEDIUM COMPANY VALUE EQUITY INVESTMENTS. Ariel Capital Management, Inc. ("Ariel") and ICM Asset Management, Inc. ("ICM") serve as investment advisors for PACE Small/Medium Company Value Equity Investments. Ariel is located at 200 East Randolph Drive, Suite 2900, Chicago, Illinois 60601. It is an investment manager with approximately $6.2 billion in assets under management as of September 30, 2001. Eric T. McKissack is primarily responsible for the day-to-day management of the fund's assets allocated to Ariel and held his fund responsibilities since October 1999. He has been with Ariel since 1986 and is currently its vice chair and co-chief investment officer. ICM is located at 601 W. Main Avenue, Suite 600, Spokane, WA 99201. Although ICM has been registered as an investment advisor since 1982, it had not previously advised mutual funds before October 2000. As of September 30, 2001, it had approximately $1.9 billion in assets under management. ICM uses a team approach in the day-to-day management of its share of the fund's assets and has held its fund responsibilities since October 10, 2000. ICM's team is led by Kevin A. Jones, CFA, and James M. Simmons, CFA. Five experienced analysts round out the research team led by Messrs Simmons and Jones. Mr. Simmons is the founder and chief investment officer of ICM. Mr. Jones is a senior portfolio manager with ICM and has managed small- and mid-cap portfolios - -------------------------------------------------------------------------------- Prospectus Page 52 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust since 1997. Prior to his appointment as senior portfolio manager in October 1998, Mr. Jones covered numerous industries as a research analyst. Before joining ICM, Mr. Jones spent time as a portfolio analyst for another Northwest investment adviser and as a financial consultant for two major brokerage firms. He has over 13 years experience in the securities industry. PACE SMALL/MEDIUM COMPANY GROWTH EQUITY INVESTMENTS. Delaware Management Company, a series of Delaware Management Business Trust, serves as investment advisor for PACE Small/Medium Company Growth Equity Investments. Delaware Management is located at One Commerce Square, Philadelphia, PA 19103. Delaware Management Company and its predecessors have been managing funds for affiliated organizations in the financial services industry, including insurance and investment management, since 1938. As of September 30, 2001, Delaware Management Company and its investment advisory affiliates had over $80 billion in assets under management. Gerald S. Frey is primarily responsible for the fund's day-to-day portfolio management and has held his fund responsibilities since December 1996. Mr. Frey is Managing Director/Chief Investment Officer, Growth Investing of Delaware Management Company. Prior to joining the group of companies of which Delaware Management Company is a part in 1996, Mr. Frey was a senior director with Morgan Grenfell Capital Management, Incorporated in New York. He has 22 years of experience in the money management business. In making investment decisions for the fund, Mr. Frey regularly consults with other members of the Delaware Management team: John A. Heffern, Marshall T. Bassett, Jeffrey W. Hynoski, Steven Lampe, Lori P. Wachs and Francis J. Houghton, Jr. Mr. Heffern joined Delaware Management Company in 1997 and serves as a vice president and portfolio manager. Previously, he was a senior vice president, equity research at NatWest Securities Corporation's Specialty Financial Services unit. Prior to that, he was a principal and senior regional bank analyst at Alex. Brown & Sons. Mr. Bassett joined Delaware Management Company in 1997 and serves as a vice president and portfolio manager. Previously, he was employed by Morgan Stanley Asset Management's Emerging Growth Group, most recently as a vice president, where he analyzed small cap growth companies. Prior to that, he was a trust officer at Sovran Bank and Trust Company. Mr. Hynoski joined Delaware Management Company in 1998 and serves as a vice president and portfolio manager. Previously, he held the position of vice president with Bessemer Trust Company. Prior to that, he served as an analyst for Lord Abbett & Co. and Cowen Asset Management. Mr. Lampe joined Delaware Management Company in 1995 and serves as a vice president and portfolio manager. Previously, he was a tax/audit manager at Price Waterhouse. Ms. Wachs joined Delaware Management Company in 1992 and serves as a vice president and portfolio manager. Previously, she was an equity analyst at Goldman Sachs for two years. Mr. Houghton joined Delaware Management Company in 2000 and serves as a vice president and senior portfolio manager. Previously, he was president and a portfolio manager of Lynch & Mayer, Inc., a Delaware affiliate, since 1990. PACE INTERNATIONAL EQUITY INVESTMENTS. Martin Currie Inc. serves as investment advisor for this fund. Martin Currie Inc. is located at Saltire Court, 20 Castle Terrace, Edinburgh, Scotland EHI 2ES. Martin Currie Inc. and its affiliates are part of one of Scotland's leading independent investment management companies which, since its founding in 1881, has developed an expertise in equity investments. As of September 30, 2001, Martin Currie Inc. and its affiliates had over $8 billion in assets under management. Martin Currie Inc. uses a team approach in the management of the fund's portfolio. The team is led by James Fairweather, who has served as chief investment officer of Martin Currie Inc. since 1997. Mr. Fairweather joined Martin Currie Inc. in 1984 and has served in various investment management capacities since then. He has held his fund responsibilities since its inception in August 1995. PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS. Schroder Investment Management North America Inc. serves as investment advisor for this fund. SIMNA is located at 787 Seventh Avenue, New York, New York 10019. SIMNA and its affiliates have developed an expertise in emerging markets investments. As of June 30, 2001, SIMNA had approximately $23.3 billion in assets under management. As of the same date, SIMNA's ultimate parent, Schroders plc, and its affiliates collectively had approximately $172.4 billion in assets under management. All investment decisions for the fund are made by SIMNA's emerging markets investment committee. The investment committee consists of investment professionals with specific geographic or regional expertise, as well as members responsible for economic analysis and strategy and global stock and sector selection. - -------------------------------------------------------------------------------- Prospectus Page 53 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust DIVIDENDS AND TAXES - -------------------------------------------------------------------------------- DIVIDENDS PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS, PACE INTERMEDIATE FIXED INCOME INVESTMENTS, PACE STRATEGIC FIXED INCOME INVESTMENTS, PACE MUNICIPAL FIXED INCOME INVESTMENTS AND PACE GLOBAL FIXED INCOME INVESTMENTS normally declare and pay dividends monthly. These funds distribute substantially all of their gains, if any, annually. PACE LARGE COMPANY VALUE EQUITY INVESTMENTS, PACE LARGE COMPANY GROWTH EQUITY INVESTMENTS, PACE SMALL/ MEDIUM COMPANY VALUE EQUITY INVESTMENTS, PACE SMALL/ MEDIUM COMPANY GROWTH EQUITY INVESTMENTS, PACE INTERNATIONAL EQUITY INVESTMENTS AND PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS normally declare and pay dividends annually. These funds distribute substantially all of their gains, if any, annually. Classes with higher expenses are expected to have lower dividends. For example, Class B and Class C shares are expected to have the lowest dividends of any class of the fund's shares, while Class Y shares are expected to have the highest. You will receive dividends in additional shares of the same fund unless you elect to receive them in cash. Contact your investment professional if you prefer to receive dividends in cash. TAXES PACE MUNICIPAL FIXED INCOME INVESTMENTS seeks to pay dividends that are exempt from regular federal income tax. However, all or a portion of its dividends may be subject to state income taxes and its distributions of gains generally will be subject to both federal and state income taxes whether you receive them in additional fund shares or in cash. The fund also may pay dividends that are subject to the federal alternative minimum tax. The dividends that you receive from the other funds generally are subject to federal income tax regardless of whether you receive them in additional fund shares or in cash. If you hold shares of these funds through a tax-exempt account or plan, such as an IRA or 401(k) plan, dividends on your shares generally will not be subject to tax. When you sell fund shares, you generally will be subject to federal income tax on any gain you realize. If you exchange a fund's shares for shares of another Family Fund, the transaction will be treated as a sale of the first fund's shares, and any gain will be subject to federal income tax. Any distribution of capital gains may be taxed at a lower rate than ordinary income, depending on whether the fund held the assets that generated the gains for more than 12 months. Your fund will tell you annually how you should treat its dividends for tax purposes. See the SAI for a more detailed discussion. Prospective shareholders are urged to consult their tax advisors. - -------------------------------------------------------------------------------- Prospectus Page 54 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The following financial highlights tables are intended to help you understand each fund's financial performance for the periods shown. Certain information reflects financial results for a single fund share. In the tables, "total investment return" represents the rate that an investor would have earned (or lost) on an investment in a fund (assuming reinvestment of all dividends). This information has been audited by Ernst & Young LLP, independent auditors, whose report, along with the funds' financial statements, is included in the funds' Annual Report to Shareholders. The Annual Report may be obtained without charge by calling toll free 1-800-647-1568.
PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS --------------------------------------------------------------- CLASS A CLASS B CLASS C CLASS Y --------- --------- --------- --------- FOR THE FOR THE FOR THE FOR THE PERIOD PERIOD PERIOD PERIOD ENDED ENDED ENDED ENDED JULY 31, JULY 31, JULY 31, JULY 31, 2001(A) 2001(B) 2001(C) 2001(D) --------- --------- --------- --------- Net asset value, beginning of period.............................. $ 12.65 $ 12.47 $ 12.33 $ 12.65 --------- --------- --------- --------- Net investment income............... 0.39 0.47 0.49 0.39 Net realized and unrealized gains from investment activities, options and futures......................... 0.18 0.37 0.51 0.20 --------- --------- --------- --------- Net increase from investment operations.......................... 0.57 0.84 1.00 0.59 --------- --------- --------- --------- Dividends from net investment income.............................. (0.38) (0.48) (0.49) (0.40) --------- --------- --------- --------- Net asset value, end of period...... $ 12.84 $ 12.83 $ 12.84 $ 12.84 ========= ========= ========= ========= Total investment return (1)......... 4.61% 6.96% 8.26% 4.77% ========= ========= ========= ========= Ratios/Supplemental Data: Net assets, end of period (000's)... $ 224,837 $ 13,175 $ 57,745 $ 133,649 Expenses to average net assets, net of fee waivers and expense reimbursements...................... 0.98%++++* 1.75%++++* 1.49%++++* 0.66%++++* Expenses to average net assets, before fee waivers and expense reimbursements...................... 1.14%++++* 1.90%++++* 1.70%++++* 0.84%++++* Net investment income to average net assets, net of fee waivers and expense reimbursements.............. 6.09%* 5.31%* 5.59%* 6.50%* Net investment income to average net assets, before fee waivers and expense reimbursements.............. 5.93%* 5.16%* 5.38%* 6.32%* Portfolio turnover.................. 631% 631% 631% 631%
- ----------- * Annualized. ++++ Includes 0.01% of interest expense related to reverse repurchase agreements during the period ended July 31, 2001. (1) Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges or program fees; results would be lower if they were included. Total investment return for periods of less than one year has not been annualized. (a) For the period January 31, 2001 (reissuance of shares) through July 31, 2001. (b) For the period December 18, 2000 (commencement of issuance) through July 31, 2001. (c) For the period December 4, 2000 (commencement of issuance) through July 31, 2001. (d) For the period February 2, 2001 (commencement of issuance) through July 31, 2001. - -------------------------------------------------------------------------------- Prospectus Page 55 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
PACE INTERMEDIATE FIXED INCOME INVESTMENTS ------------------------------------------------ CLASS A CLASS B CLASS C CLASS Y --------- --------- --------- --------- FOR THE FOR THE FOR THE FOR THE PERIOD PERIOD PERIOD PERIOD ENDED ENDED ENDED ENDED JULY 31, JULY 31, JULY 31, JULY 31, 2001(A) 2001(B) 2001(C) 2001(D) --------- --------- --------- --------- Net asset value, beginning of period.............................. $ 12.16 $ 12.03 $ 11.92 $ 12.16 --------- --------- --------- --------- Net investment income............... 0.35 0.41 0.44 0.36 Net realized and unrealized gains from investment activities.......... 0.16 0.30 0.41 0.17 --------- --------- --------- --------- Net increase from investment operations.......................... 0.51 0.71 0.85 0.53 --------- --------- --------- --------- Dividends from net investment income.............................. (0.35) (0.41) (0.44) (0.36) --------- --------- --------- --------- Net asset value, end of period...... $ 12.32 $ 12.33 $ 12.33 $ 12.33 ========= ========= ========= ========= Total investment return (1)......... 4.24% 6.04% 7.20% 4.45% ========= ========= ========= ========= Ratios/Supplemental Data: Net assets, end of period (000's)... $ 157,341 $ 15,168 $ 19,529 $ 3,613 Expenses to average net assets, net of fee waivers and expense reimbursements...................... 0.97%* 1.74%* 1.48%* 0.71%* Expenses to average net assets, before fee waivers and expense reimbursements...................... 1.03%* 1.78%* 1.54%* 0.79%* Net investment income to average net assets, net of fee waivers and expense reimbursements.............. 5.77%* 4.99%* 5.26%* 5.96%* Net investment income to average net assets, before fee waivers and expense reimbursements.............. 5.71%* 4.95%* 5.20%* 5.88%* Portfolio turnover.................. 82% 82% 82% 82%
- ----------- * Annualized. (1) Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions at net value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges or program fees; results would be lower if they were included. Total investment return for periods of less than one year has not been annualized. (a) For the period January 31, 2001 (reissuance of shares) through July 31, 2001. (b) For the period December 14, 2000 (commencement of issuance) through July 31, 2001. (c) For the period December 1, 2000 (commencement of issuance) through July 31, 2001. (d) For the period February 2, 2001 (commencement of issuance) through July 31, 2001. - -------------------------------------------------------------------------------- Prospectus Page 56 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
PACE STRATEGIC FIXED INCOME INVESTMENTS --------------------------------------------------------------- CLASS A CLASS B CLASS C CLASS Y --------- --------- --------- --------- FOR THE FOR THE FOR THE FOR THE PERIOD PERIOD PERIOD PERIOD ENDED ENDED ENDED ENDED JULY 31, JULY 31, JULY 31, JULY 31, 2001(A) 2001(B) 2001(C) 2001(D) --------- --------- --------- --------- Net asset value, beginning of period.............................. $ 12.53 $ 12.66 $ 12.43 $ 12.77 --------- --------- --------- --------- Net investment income............... 0.47 0.30 0.43 0.36 Net realized and unrealized gains from investment activities, futures, swaps, options and foreign currency............................ 0.38 0.25 0.48 0.14 --------- --------- --------- --------- Net increase from investment operations.......................... 0.85 0.55 0.91 0.50 --------- --------- --------- --------- Dividends from net investment income.............................. (0.47) (0.30) (0.43) (0.36) --------- --------- --------- --------- Net asset value, end of period...... $ 12.91 $ 12.91 $ 12.91 $ 12.91 ========= ========= ========= ========= Total investment return (1)......... 6.93% 4.38% 7.43% 3.98% ========= ========= ========= ========= Ratios/Supplemental Data: Net assets, end of period (000's)... $ 29,899 $ 17,078 $ 16,743 $ 613 Expenses to average net assets, net of fee waivers and expense reimbursements...................... 1.14%++++* 1.91%++++* 1.65%++++* 0.88%++++* Expenses to average net assets, before fee waivers and expense reimbursements...................... 1.21%++++* 1.96%++++* 1.71%++++* 0.97%++++* Net investment income to average net assets, net of fee waivers and expense reimbursements.............. 5.52%* 4.73%* 5.00%* 5.74%* Net investment income to average net assets, before fee waivers and expense reimbursements.............. 5.45%* 4.68%* 4.94%* 5.65%* Portfolio turnover.................. 519% 519% 519% 519%
- ----------- * Annualized. ++++ Includes 0.03% of interest expense related to reverse repurchase agreements during the period ended July 31, 2001. (1) Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges or program fees; results would be lower if they were included. Total investment return for periods of less than one year has not been annualized. (a) For the period December 11, 2000 (commencement of issuance) through July 31, 2001. (b) For the period January 30, 2001 (reissuance of shares) through July 31, 2001. (c) For the period December 1, 2000 (commencement of issuance) through July 31, 2001. (d) For the period February 2, 2001 (commencement of issuance) through July 31, 2001. - -------------------------------------------------------------------------------- Prospectus Page 57 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
PACE MUNICIPAL FIXED INCOME INVESTMENTS ------------------------------------------------ CLASS A CLASS B CLASS C CLASS Y --------- --------- --------- --------- FOR THE FOR THE FOR THE FOR THE PERIOD PERIOD PERIOD PERIOD ENDED ENDED ENDED ENDED JULY 31, JULY 31, JULY 31, JULY 31, 2001(A) 2001(C) 2001(B) 2001(C) --------- --------- --------- --------- Net asset value, beginning of period.............................. $ 12.43 $ 12.42 $ 12.19 $ 12.42 --------- --------- --------- --------- Net investment income............... 0.26 0.19 0.31 0.24 Net realized and unrealized gains from investment activities.......... 0.09 0.10 0.33 0.10 --------- --------- --------- --------- Net increase from investment operations.......................... 0.35 0.29 0.64 0.34 --------- --------- --------- --------- Dividends from net investment income.............................. (0.26) (0.19) (0.31) (0.24) --------- --------- --------- --------- Net asset value, end of period...... $ 12.52 $ 12.52 $ 12.52 $ 12.52 ========= ========= ========= ========= Total investment return (1)......... 2.86% 2.32% 5.33% 2.72% ========= ========= ========= ========= Ratios/Supplemental Data: Net assets, end of period (000's)... $ 178,299 $ 14,518 $ 32,075 $ 399 Expenses to average net assets, net of fee waivers and expense reimbursements...................... 0.88%* 1.63%* 1.40%* 0.64%* Expenses to average net assets, before fee waivers and expense reimbursements...................... 1.01%* 1.76%* 1.53%* 0.83%* Net investment income to average net assets, net of fee waivers and expense reimbursements.............. 4.16%* 3.41%* 3.65%* 4.40%* Net investment income to average net assets, before fee waivers and expense reimbursements.............. 4.03%* 3.28%* 3.52%* 4.21%* Portfolio turnover.................. 68% 68% 68% 68%
- ----------- * Annualized. (1) Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges or program fees; results would be lower if they were included. Total investment return for periods of less than one year has not been annualized. (a) For the period January 23, 2001 (commencement of issuance) through July 31, 2001. (b) For the period December 4, 2000 (commencement of issuance) through July 31, 2001. (c) For the period February 23, 2001 (commencement of issuance) through July 31, 2001. - -------------------------------------------------------------------------------- Prospectus Page 58 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
PACE GLOBAL FIXED INCOME INVESTMENTS ------------------------------------------------ CLASS A CLASS B CLASS C CLASS Y --------- --------- --------- --------- FOR THE FOR THE FOR THE FOR THE PERIOD PERIOD PERIOD PERIOD ENDED ENDED ENDED ENDED JULY 31, JULY 31, JULY 31, JULY 31, 2001(A) 2001(B) 2001(C) 2001(D) --------- --------- --------- --------- Net asset value, beginning of period............................ $ 10.45 $ 10.81 $ 10.38 $ 10.73 --------- --------- --------- --------- Net investment income............... 0.30 0.18 0.26 0.27 Net realized and unrealized losses from investment activities, futures and foreign currency...... (0.18) (0.54) (0.11) (0.46) --------- --------- --------- --------- Net increase (decrease) from investment operations............. 0.12 (0.36) 0.15 (0.19) --------- --------- --------- --------- Dividends from net investment income............................ (0.30) (0.17) (0.26) (0.27) --------- --------- --------- --------- Net asset value, end of period...... $ 10.27 $ 10.28 $ 10.27 $ 10.27 ========= ========= ========= ========= Total investment return (1)......... 1.09% (3.34)% 1.45% (1.76)% ========= ========= ========= ========= Ratios/Supplemental Data: Net assets, end of period (000's)... $ 190,838 $ 2,381 $ 13,632 $ 4,825 Expenses to average net assets, net of fee waivers and expense reimbursements.................... 1.21%* 1.98%* 1.72%* 0.95%* Expenses to average net assets, before fee waivers and expense reimbursements.................... 1.41%* 2.55%* 1.90%* 1.08%* Net investment income to average net assets, net of fee waivers and expense reimbursements............ 4.42%* 3.61%* 3.91%* 4.69%* Net investment income to average net assets, before fee waivers and expense reimbursements............ 4.22%* 3.04%* 3.73%* 4.56%* Portfolio turnover.................. 270% 270% 270% 270%
- ----------- * Annualized. (1) Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charge or program fees; results would be lower if they were included. Total investment return for periods of less than one year has not been annualized. (a) For the period December 11, 2000 (commencement of issuance) through July 31, 2001. (b) For the period February 5, 2001 (reissuance of shares) through July 31, 2001. (c) For the period December 1, 2000 (commencement of issuance) through July 31, 2001. (d) For the period January 16, 2001 (commencement of issuance) through July 31, 2001. - -------------------------------------------------------------------------------- Prospectus Page 59 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
PACE LARGE COMPANY VALUE EQUITY INVESTMENTS ------------------------------------------------ CLASS A CLASS B CLASS C CLASS Y --------- --------- --------- --------- FOR THE FOR THE FOR THE FOR THE PERIOD PERIOD PERIOD PERIOD ENDED ENDED ENDED ENDED JULY 31, JULY 31, JULY 31, JULY 31, 2001(A) 2001(A) 2001(A) 2001(B) --------- --------- --------- --------- Net asset value, beginning of period............................ $ 16.76 $ 16.76 $ 16.76 $ 17.15 --------- --------- --------- --------- Net investment income (loss)........ 0.04 (0.02) (0.02) 0.06 Net realized and unrealized gains from investment activities and futures........................... 0.72 0.72 0.72 0.33 --------- --------- --------- --------- Net increase from investment operations........................ 0.76 0.70 0.70 0.39 --------- --------- --------- --------- Net asset value, end of period...... $ 17.52 $ 17.46 $ 17.46 $ 17.54 ========= ========= ========= ========= Total investment return (1)......... 4.53% 4.18% 4.18% 2.27% ========= ========= ========= ========= Ratios/Supplemental Data: Net assets, end of period (000's)... $ 447,486 $ 131,700 $ 76,977 $ 39,612 Expenses to average net assets, net of fee waivers and expense reimbursements.................... 1.13%* 1.90%* 1.89%* 0.85%* Expenses to average net assets, before fee waivers and expense reimbursements.................... 1.25%* 2.04%* 2.04%* 0.93%* Net investment income (loss) to average net assets, net of fee waivers and expense reimbursements.................... 0.54%* (0.22)%* (0.21)%* 0.80%* Net investment income (loss) to average net assets, before fee waivers and expense reimbursements.................... 0.42%* (0.38)%* (0.38)%* 0.72%* Portfolio turnover.................. 148% 148% 148% 148%
- ----------- * Annualized. (1) Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges or program fees; results would be lower if they were included. Total investment return for periods of less than one year has not been annualized. (a) For the period November 27, 2000 (commencement of issuance) through July 31, 2001. (b) For the period January 19, 2001 (commencement of issuance) through July 31, 2001. - -------------------------------------------------------------------------------- Prospectus Page 60 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
PACE LARGE COMPANY GROWTH EQUITY INVESTMENTS ------------------------------------------------ CLASS A CLASS B CLASS C CLASS Y --------- --------- --------- --------- FOR THE FOR THE FOR THE FOR THE PERIOD PERIOD PERIOD PERIOD ENDED ENDED ENDED ENDED JULY 31, JULY 31, JULY 31, JULY 31, 2001(A) 2001(A) 2001(A) 2001(B) --------- --------- --------- --------- Net asset value, beginning of period.............................. $ 21.61 $ 21.61 $ 21.61 $ 20.02 --------- --------- --------- --------- Net investment loss................. (0.05) (0.15) (0.14) (0.02) Net realized and unrealized losses from investment activities.......... (4.70) (4.66) (4.66) (3.12) --------- --------- --------- --------- Net decrease from investment operations.......................... (4.75) (4.81) (4.80) (3.14) --------- --------- --------- --------- Net asset value, end of period...... $ 16.86 $ 16.80 $ 16.81 $ 16.88 ========= ========= ========= ========= Total investment return (1)......... (21.98)% (22.26)% (22.21)% (15.63)% ========= ========= ========= ========= Ratios/Supplemental Data: Net assets, end of period (000's)... $ 208,102 $ 29,814 $ 25,005 $ 29,634 Expenses to average net assets, net of fee waivers and expense reimbursements...................... 1.11%* 1.88%* 1.87%* 0.85%* Expenses to average net assets, before fee waivers and expense reimbursements...................... 1.25%* 2.09%* 2.07%* 0.91%* Net investment loss to average net assets, net of fee waivers and expense reimbursements.............. (0.54)%* (1.32)%* (1.31)%* (0.27)%* Net investment loss to average net assets, before fee waivers and expense reimbursements.............. (0.68)%* (1.53)%* (1.51)%* (0.33)%* Portfolio turnover.................. 64% 64% 64% 64%
- ----------- * Annualized. (1) Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges or program fees; results would be lower if they were included. Total investment return for periods of less than one year has not been annualized. (a) For the period November 27, 2000 (commencement of issuance) through July 31, 2001. (b) For the period February 23, 2001 (reissuance of shares) through July 31, 2001. - -------------------------------------------------------------------------------- Prospectus Page 61 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
PACE SMALL/MEDIUM COMPANY VALUE EQUITY INVESTMENTS ------------------------------------------------ CLASS A CLASS B CLASS C CLASS Y --------- --------- --------- --------- FOR THE FOR THE FOR THE FOR THE PERIOD PERIOD PERIOD PERIOD ENDED ENDED ENDED ENDED JULY 31, JULY 31, JULY 31, JULY 31, 2001(A) 2001(B) 2001(A) 2001(C) --------- --------- --------- --------- Net asset value, beginning of period.............................. $ 13.91 $ 13.86 $ 13.91 $ 13.69 --------- --------- --------- --------- Net investment income (loss)........ 0.03 (0.03) (0.03) 0.05 Net realized and unrealized gains from investment activities.......... 3.06 3.11 3.06 3.28 --------- --------- --------- --------- Net increase from investment operations.......................... 3.09 3.08 3.03 3.33 --------- --------- --------- --------- Net asset value, end of period...... $ 17.00 $ 16.94 $ 16.94 $ 17.02 ========= ========= ========= ========= Total investment return (1)......... 22.21% 22.22% 21.78% 24.32% ========= ========= ========= ========= Ratios/Supplemental Data: Net assets, end of period (000's)... $ 46,241 $ 12,811 $ 13,741 $ 1,699 Expenses to average net assets, net of fee waivers and expense reimbursements...................... 1.26%* 2.03%* 2.02%* 1.00%* Expenses to average net assets, before fee waivers and expense reimbursements...................... 1.28%* 2.05%* 2.06%* 1.03%* Net investment income (loss) to average net assets, net of fee waivers and expense reimbursements.. 0.41%* (0.37)%* (0.36)%* 0.67%* Net investment income (loss) to average net assets, before fee waivers and expense reimbursements...................... 0.39%* (0.39)%* (0.40)%* 0.64%* Portfolio turnover.................. 72% 72% 72% 72%
- ----------- * Annualized. (1) Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges or program fees; results would be lower if they were included. Total investment return for periods of less than one year has not been annualized. (a) For the period November 27, 2000 (commencement of issuance) through July 31, 2001. (b) For the period November 28, 2000 (commencement of issuance) through July 31, 2001. (c) For the period December 20, 2000 (commencement of issuance) through July 31, 2001. - -------------------------------------------------------------------------------- Prospectus Page 62 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
PACE SMALL/MEDIUM COMPANY GROWTH EQUITY INVESTMENTS ------------------------------------------------ CLASS A CLASS B CLASS C CLASS Y --------- --------- --------- --------- FOR THE FOR THE FOR THE FOR THE PERIOD PERIOD PERIOD PERIOD ENDED ENDED ENDED ENDED JULY 31, JULY 31, JULY 31, JULY 31, 2001(A) 2001(A) 2001(A) 2001(B) --------- --------- --------- --------- Net asset value, beginning of period.............................. $ 17.19 $ 17.19 $ 17.19 $ 14.93 --------- --------- --------- --------- Net investment loss................. (0.04) (0.09) (0.09) (0.02) Net realized and unrealized losses from investment activities.......... (3.50) (3.50) (3.50) (1.23) --------- --------- --------- --------- Net decrease from investment operations.......................... (3.54) (3.59) (3.59) (1.25) --------- --------- --------- --------- Net asset value, end of period...... $ 13.65 $ 13.60 $ 13.60 $ 13.68 ========= ========= ========= ========= Total investment return (1)......... (20.59)% (20.88)% (20.88)% (8.37)% ========= ========= ========= ========= Ratios/Supplemental Data: Net assets, end of period (000's)... $ 89,283 $ 16,620 $ 13,654 $ 390 Expenses to average net assets, net of fee waivers and expense reimbursements...................... 1.21%* 1.98%* 1.97%* 0.95%* Expenses to average net assets, before fee waivers and expense reimbursements...................... 1.29%* 2.12%* 2.09%* 1.13%* Net investment loss to average net assets, net of fee waivers and expense reimbursements.............. (0.56)%* (1.24)%* (1.24)%* (0.26)%* Net investment loss to average net assets, before fee waivers and expense reimbursements.............. (0.64)%* (1.38)%* (1.36)%* (0.44)%* Portfolio turnover.................. 68% 68% 68% 68%
- ----------- * Annualized. (1) Total investment return is calculated assuming assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges or program fees; results would be lower if they were included. Total investment return for periods of less than one year has not been annualized. (a) For the period November 27, 2000 (commencement of issuance) through July 31, 2001. (b) For the period February 12, 2001 (commencement of issuance) through July 31, 2001. - -------------------------------------------------------------------------------- Prospectus Page 63 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
PACE INTERNATIONAL EQUITY INVESTMENTS ------------------------------------------------ CLASS A CLASS B CLASS C CLASS Y --------- --------- --------- --------- FOR THE FOR THE FOR THE FOR THE PERIOD PERIOD PERIOD PERIOD ENDED ENDED ENDED ENDED JULY 31, JULY 31, JULY 31, JULY 31, 2001(A) 2001(A) 2001(A) 2001(B) --------- --------- --------- --------- Net asset value, beginning of period.............................. $ 15.25 $ 15.25 $ 15.25 $ 14.96 --------- --------- --------- --------- Net investment income............... 0.08 0.02 0.02 0.04 Net realized and unrealized losses from investment activities and foreign currency.................... (2.75) (2.74) (2.74) (2.41) --------- --------- --------- --------- Net decrease from investment operations.......................... (2.67) (2.72) (2.72) (2.37) --------- --------- --------- --------- Net asset value, end of period...... $ 12.58 $ 12.53 $ 12.53 $ 12.59 ========= ========= ========= ========= Total investment return (1)......... (17.51)% (17.84)% (17.84)% (15.84)% ========= ========= ========= ========= Ratios/Supplemental Data: Net assets, end of period (000's)... $ 143,163 $ 4,630 $ 13,304 $ 45,414 Expenses to average net assets, net of fee waivers and expense reimbursements...................... 1.40%* 2.17%* 2.16%* 1.14%* Expenses to average net assets, before fee waivers and expense reimbursements...................... 1.50%* 2.43%* 2.31%* 1.19%* Net investment income to average net assets, net of fee waivers and expense reimbursements.............. 1.10%* 0.29%* 0.34%* 1.11%* Net investment income to average net assets, before fee waivers and expense reimbursements.............. 1.00%* 0.03%* 0.19%* 1.06%* Portfolio turnover.................. 60% 60% 60% 60%
- ----------- * Annualized. (1) Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges or program fees; results would be lower if they were included. Total investment return for periods of less than one year has not been annualized. If not for the sub-advisor's capital contribution of approximately $0.05 per share, Class P's total return for the year ended July 31, 2000 would have been 14.60%. (a) For the period November 27, 2000 (commencement of issuance) through July 31, 2001. (b) For the period January 17, 2001 (commencement of issuance) through July 31, 2001. - -------------------------------------------------------------------------------- Prospectus Page 64 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS ------------------------------------------------ CLASS A CLASS B CLASS C CLASS Y --------- --------- --------- --------- FOR THE FOR THE FOR THE FOR THE PERIOD PERIOD PERIOD PERIOD ENDED ENDED ENDED ENDED JULY 31, JULY 31, JULY 31, JULY 31, 2001(A) 2001(B) 2001(C) 2001(D) --------- --------- --------- --------- Net asset value, beginning of period.............................. $ 9.82 $ 9.14 $ 9.13 $ 10.00 --------- --------- --------- --------- Net investment income............... 0.04 0.01 0.01 0.05 Net realized and unrealized losses from investment activities and foreign currency.................... (1.85) (1.17) (1.16) (2.03) --------- --------- --------- --------- Net decrease from investment operations.......................... (1.81) (1.16) (1.15) (1.98) --------- --------- --------- --------- Net asset value, end of period...... $ 8.01 $ 7.98 $ 7.98 $ 8.02 ========= ========= ========= ========= Total investment return (1)......... (18.43)% (12.69)% (12.60)% (19.80)% ========= ========= ========= ========= Ratios/Supplemental Data: Net assets, end of period (000's)... $ 8,219 $ 7,310 $ 4,105 $ 549 Expenses to average net assets, net of fee waivers and expense reimbursements...................... 1.76%* 2.53%* 2.52%* 1.50%* Expenses to average net assets, before fee waivers and expense reimbursements...................... 2.06%* 2.85%* 2.92%* 1.93%* Net investment income to average net assets, net of fee waivers and expense reimbursements.............. 0.87%* 0.11%* 0.16%* 1.11%* Net investment income (loss) to average net assets, before fee waivers and expense reimbursements...................... 0.57%* (0.21)%* (0.24)%* 0.68%* Portfolio turnover.................. 121% 121% 121% 121%
- ----------- * Annualized. (1) Total investment return is calculated assuming a $10,000 investment on the first day of each period reported, reinvestment of all dividends and distributions at net asset value on the payable dates, and a sale at net asset value on the last day of each period reported. The figures do not include any applicable sales charges or program fees; results would be lower if they were included. Total investment return for period of less than one year has not been annualized. (a) For the period December 11, 2000 (commencement of issuance) through July 31, 2001. (b) For the period December 22, 2000 (commencement of issuance) through July 31, 2001. (c) For the period December 1, 2000 (commencement of issuance) through July 31, 2001. (d) For the period February 9, 2001 (commencement of issuance) through July 31, 2001. - -------------------------------------------------------------------------------- Prospectus Page 65 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust TICKER SYMBOLS PACE Government Securities Fixed Income Investments Class: A: PFXAX B: PFXBX C: PFXCX Y: PFXYX PACE Intermediate Fixed Income Investments Class: A: PIFAX B: PIFBX C: PIICX Y: PIFYX PACE Strategic Fixed Income Investments Class: A: PBNAX B: PBNBX C: PBNCX Y: PSFYX PACE Municipal Fixed Income Investments Class: A: PMUAX B: PFIBX C: PMUCX Y: PMUYX PACE Global Fixed Income Investments Class: A: PWFAX B: PWFBX C: PWFCX Y: PWFYX PACE Large Company Value Equity Investments Class: A: PCPAX B: PCPBX C: PLVCX Y: PLVYX PACE Large Company Growth Equity Investments Class: A: PLAAX B: PLABX C: PLACX Y: PLAYX PACE Small/Medium Company Value Equity Investments Class: A: PEVAX B: PEVBX C: PEVCX Y: PVEYX PACE Small/Medium Company Growth Equity Investments Class: A: PQUAX B: PUMBX C: PUMCX Y: PUMYX PACE International Equity Investments Class: A: PWGAX B: PWGBX C: PWGCX Y: PWIYX PACE International Emerging Markets Equity Investments Class: A: PWEAX B: PWEBX C: PWECX Y: PWEYX
If you want more information about the funds, the following documents are available free upon request: ANNUAL/SEMI-ANNUAL REPORTS: Additional information about the funds' investments is available in the funds' annual and semi-annual reports to shareholders. In the funds' annual reports, you will find a discussion of the market conditions and investment strategies that significantly affected the funds' performance during the last fiscal year. STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed information about the funds and is incorporated by reference into this prospectus. You may discuss your questions about the funds by contacting your investment professional. You may obtain free copies of the funds' annual and semi-annual reports and the SAI by contacting the funds directly at 1-800-647-1568. You may review and copy information about the funds, including shareholder reports and the SAI, at the Public Reference Room of the Securities and Exchange Commission. You may obtain information about the operations of the SEC's Public Reference Room by calling the SEC at 1-202-942-8090. You can get copies of reports and other information about the funds: For a fee, by electronic request at publicinfo@sec.gov or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102; or Free from the EDGAR Database on the SEC's Internet website at: http://www.sec.gov PaineWebber PACE Select Advisors Trust Investment Company Act File No. 811-8764 - -C- 2001 Brinson Advisors, Inc. All rights reserved. --------------- - -------------------------------------------------------------------------------- PaineWebber PACE-SM- Select Advisors Trust PACE Money Market Investments PACE Government Securities Fixed Income Investments PACE Intermediate Fixed Income Investments PACE Strategic Fixed Income Investments PACE Municipal Fixed Income Investments PACE Global Fixed Income Investments PACE Large Company Value Equity Investments PACE Large Company Growth Equity Investments PACE Small/Medium Company Value Equity Investments PACE Small/Medium Company Growth Equity Investments PACE International Equity Investments PACE International Emerging Markets Equity Investments -------------------- PROSPECTUS NOVEMBER 5, 2001 ---------------------------------- This prospectus offers Class P shares of the twelve funds in the Trust to participants in the PaineWebber PACE-SM- Select Advisors Program. The PACE Select Advisors Program and these funds are designed to assist you in devising an asset allocation strategy to meet your individual needs. As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved any fund's shares or determined whether this prospectus is complete or accurate. To state otherwise is a crime. Not FDIC insured. May lose value. No bank guarantee. - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust CONTENTS THE FUNDS - -------------------------------------------------------------------------------- What every investor PACE Money Market Investments should know about 4 Investment Objective, Strategies and Risks the funds 5 Performance 6 Expenses and Fee Tables PACE Government Securities Fixed Income Investments 7 Investment Objective, Strategies and Risks 8 Performance 9 Expenses and Fee Tables PACE Intermediate Fixed Income Investments 10 Investment Objective, Strategies and Risks 11 Performance 12 Expenses and Fee Tables PACE Strategic Fixed Income Investments 13 Investment Objective, Strategies and Risks 14 Performance 15 Expenses and Fee Tables PACE Municipal Fixed Income Investments 16 Investment Objective, Strategies and Risks 17 Performance 18 Expenses and Fee Tables PACE Global Fixed Income Investments 19 Investment Objective, Strategies and Risks 21 Performance 22 Expenses and Fee Tables PACE Large Company Value Equity Investments 23 Investment Objectives, Strategies and Risks 24 Performance 25 Expenses and Fee Tables PACE Large Company Growth Equity Investments 26 Investment Objective, Strategies and Risks 27 Performance 28 Expenses and Fee Tables PACE Small/Medium Company Value Equity Investments 29 Investment Objective, Strategies and Risks 30 Performance 31 Expenses and Fee Tables PACE Small/Medium Company Growth Equity Investments 32 Investment Objective, Strategies and Risks 33 Performance 34 Expenses and Fee Tables PACE International Equity Investments 35 Investment Objective, Strategies and Risks 36 Performance 37 Expenses and Fee Tables PACE International Emerging Markets Equity Investments 38 Investment Objective, Strategies and Risks 39 Performance 40 Expenses and Fee Tables 41 More About Risks and Investment Strategies
- -------------------------------------------------------------------------------- Prospectus Page 2 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust YOUR INVESTMENT - -------------------------------------------------------------------------------- Information for 44 Investing in the Funds managing your fund --Buying Shares account --The PaineWebber PACE-SM- Select Advisors Program --Selling Shares --Pricing and Valuation
ADDITIONAL INFORMATION - -------------------------------------------------------------------------------- Additional important 46 Management information about 51 Dividends and Taxes the funds 52 Financial Highlights A-1 Appendix A
- -------------------------------------------------------------------------------- Where to learn more Back Cover about these funds
----------------------------- The funds are not complete or balanced investment programs. ----------------------------- - -------------------------------------------------------------------------------- Prospectus Page 3 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Money Market Investments PACE MONEY MARKET INVESTMENTS INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE Current income consistent with preservation of capital and liquidity. PRINCIPAL INVESTMENT STRATEGIES The fund is a money market mutual fund and seeks to maintain a stable price of $1.00 per share. To do this, the fund invests in a diversified portfolio of high quality money market instruments of governmental and private issuers. Money market instruments are short-term debt obligations and similar securities. They also include longer term bonds that have variable interest rates or other special features that give them the financial characteristics of short-term debt. The fund invests in foreign money market instruments only if they are denominated in U.S. dollars. Brinson Advisors, Inc., the fund's manager and investment advisor, selects money market instruments for the fund based on its assessment of relative values and changes in market and economic conditions. Brinson Advisors considers safety of principal and liquidity in selecting securities for the fund and thus may not buy securities that pay the highest yield. PRINCIPAL RISKS An investment in the fund is not a bank deposit and is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. While the fund seeks to maintain the value of your investment at $1.00 per share, you may lose money by investing in the fund. Money market instruments generally have a low risk of loss, but they are not risk-free. The principal risks presented by an investment in the fund are: CREDIT RISK -- Issuers of money market instruments may fail to make payments when due, or they may become less willing or less able to do so. INTEREST RATE RISK -- The value of the fund's investments generally will fall when short term interest rates rise, and its yield will tend to lag behind prevailing rates. FOREIGN INVESTING RISK -- The value of the fund's investments in foreign securities may fall due to adverse political, social and economic developments abroad. However, because the fund's foreign investments must be denominated in U.S. dollars, it generally is not subject to the risk of changes in currency valuations. More information about risks of an investment in the fund is provided below in "More About Risks and Investment Strategies." - -------------------------------------------------------------------------------- Prospectus Page 4 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Money Market Investments PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart and table provide information about the fund's performance and thus give some indication of the risks of an investment in the fund. The bar chart shows how the fund's performance has varied from year to year. The bar chart does not reflect the annual PACE Select Advisors Program fee; if it did, the total returns shown would be lower. The table that follows the bar chart shows the average annual returns over several time periods. The table does reflect the annual PACE Select Advisors Program fee. The fund's past performance does not necessarily indicate how the fund will perform in the future. TOTAL RETURN (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN 1996 5.05% 1997 5.27% 1998 5.21% 1999 4.82% 2000 6.08%
Total Return January 1 to September 30, 2001 -- 3.33% Best quarter during calendar years shown: 4th quarter, 2000 -- 1.57% Worst quarter during calendar years shown: 1st quarter, 1999 -- 1.12% AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2000
CLASS P -------- One Year.................................................... 4.50% Five Years.................................................. 3.72% Life of Fund (Inception Date 8/24/95)....................... 3.72%
- -------------------------------------------------------------------------------- Prospectus Page 5 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Money Market Investments EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy and hold shares of the fund. SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment) Maximum Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ None Maximum Deferred Sales Charge (Load) (as a % of offering price)................................ None Maximum Annual Account Fee for PaineWebber PACE Select Advisors Program (as a % of average value of shares held on the last calendar day of the previous quarter)..................... 1.50% ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets) Management Fees............................................. 0.15% Distribution and/or Service (12b-1) Fees.................... None Other Expenses*............................................. 0.85% ---- Total Annual Fund Operating Expenses........................ 1.00% ==== Expense Reimbursements**.................................... 0.50% ---- Net Expenses**.............................................. 0.50% ====
- --------- * Includes an administration fee of 0.20% paid by the fund to Brinson Advisors. ** The fund and Brinson Advisors have entered into a written agreement under which Brinson Advisors is contractually obligated to reimburse the fund so that the fund's expenses through December 1, 2002 would not exceed 0.50%. The fund has agreed to repay Brinson Advisors for any reimbursed expenses to the extent that it can do so over the following three fiscal years without causing the fund's expenses in any of those three years to exceed this expense cap. 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. This 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. The example includes the maximum annual fee for the PACE Select Advisors Program and also assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same, except for the period when the fund's expenses are lower due to its reimbursement agreement with Brinson Advisors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS - ------ -------- -------- -------- $203 $731 $1,286 $2,798
- -------------------------------------------------------------------------------- Prospectus Page 6 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Government Securities Fixed Income Investments PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE Current income. PRINCIPAL INVESTMENT STRATEGIES The fund invests in U.S. government bonds and other bonds of varying maturities, but normally limits its portfolio "duration" to between one and seven years. "Duration" is a measure of the fund's exposure to interest rate risk. A longer duration means that changes in market interest rates are likely to have a larger effect on the value of the assets in a portfolio. The fund invests primarily in mortgage-backed securities issued or guaranteed by U.S. government agencies and in other U.S. government securities. The fund also invests, to a lesser extent, in investment grade bonds of private issuers, including those backed by mortgages or other assets. These privately issued bonds generally have one of the two highest credit ratings, although the fund may invest to a limited extent in privately issued bonds with the third highest credit rating (or unrated bonds of equivalent quality). The fund may invest in when-issued or delayed delivery bonds to increase its return, giving rise to a form of leverage. The fund may (but is not required to) use options, futures and other derivatives as part of its investment strategy or to help manage portfolio risks. Brinson Advisors, Inc., the fund's manager, has selected Pacific Investment Management Company LLC ("PIMCO") to serve as the fund's investment advisor. PIMCO establishes duration targets for the fund's portfolio based on its expectations for changes in interest rates and then positions the fund to take advantage of yield curve shifts. PIMCO decides to buy or sell specific bonds based on an analysis of their values relative to other similar bonds. PIMCO monitors the prepayment experience of the fund's mortgage-backed bonds and will also buy and sell securities to adjust the fund's average portfolio duration, credit quality, yield curve and sector and prepayment exposure, as appropriate. PRINCIPAL RISKS An investment in the fund is not guaranteed; you may lose money by investing in the fund. The principal risks presented by an investment in the fund are: INTEREST RATE RISK -- The value of the fund's investments generally will fall when interest rates rise. Some corporate bonds provide that the issuer may repay them earlier than the maturity date. When interest rates are falling, bond issuers may exercise this right more often, and the fund may have to reinvest these repayments at lower interest rates. PREPAYMENT RISK -- The fund's mortgage- and asset-backed securities may be prepaid more rapidly than expected, especially when interest rates are falling, and the fund may have to reinvest those prepayments at lower interest rates. When interest rates are rising, slower prepayments may extend the duration of the securities and may reduce their value. LEVERAGE RISK -- Leverage magnifies the effect of changes in market values. While leverage can increase the fund's income and potential for gain, it also can increase expenses and the risk of loss. The fund attempts to limit the magnifying effect of its leverage by managing its portfolio duration. CREDIT RISK -- Bond issuers may fail to make payments when due, or they may become less willing or less able to do so. DERIVATIVES RISK -- The fund's investments in derivatives may rise or fall more rapidly than other investments. More information about risks of an investment in the fund is provided below in "More About Risks and Investment Strategies." - -------------------------------------------------------------------------------- Prospectus Page 7 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Government Securities Fixed Income Investments PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart and table provide information about the fund's performance and thus give some indication of the risks of an investment in the fund. The bar chart shows how the fund's performance has varied from year to year. The bar chart does not reflect the maximum annual PACE Select Advisors Program fee; if it did, the total returns shown would be lower. The table that follows the bar chart shows the average annual returns over several time periods. The table does reflect the maximum annual PACE Select Advisors Program fee. The table compares fund returns to returns on a broad-based market index that is unmanaged and that, therefore, does not include any fees or expenses. The fund's past performance does not necessarily indicate how the fund will perform in the future. TOTAL RETURN (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN 1996 4.26% 1997 9.04% 1998 6.42% 1999 1.01% 2000 11.49%
Total Return January 1 to September 30, 2001 -- 9.62% Best quarter during calendar years shown: 4th quarter, 2000 -- 4.01% Worst quarter during calendar years shown: 1st quarter, 1996 -- (1.33)% AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2000
LEHMAN BROTHERS MORTGAGE-BACKED CLASS P SECURITIES INDEX ------- ---------------- One Year.................................................... 9.83% 11.16% Five Years.................................................. 4.80% 6.91% Life of Fund (Inception Date 8/24/95)....................... 5.30% 7.30%
- -------------------------------------------------------------------------------- Prospectus Page 8 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Government Securities Fixed Income Investments EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy and hold shares of the fund. SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment) Maximum Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ None Maximum Deferred Sales Charge (Load) (as a % of offering price)................................ None Maximum Annual Account Fee for PaineWebber PACE Select Advisors Program (as a % of average value of shares held on the last calendar day of the previous quarter)..................... 1.50% ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets) Management Fees............................................. 0.50% Distribution and/or Service (12b-1) Fees.................... None Other Expenses*............................................. 0.37% ----- Total Annual Fund Operating Expenses........................ 0.87%+ ===== Management Fee Waiver/Expense Reimbursements**.............. (0.19)% ----- Net Expenses**.............................................. 0.68%+ =====
- --------- * Includes an administration fee of 0.20% paid by the fund to Brinson Advisors. ** The fund and Brinson Advisors have entered into a written agreement under which Brinson Advisors is contractually obligated to waive its management fees and/or reimburse the fund so that the fund's expenses through December 1, 2002 (excluding interest expense) would not exceed 0.65%, plus any higher transfer agency fees paid by the fund's Class P shares over the transfer agency fees paid by the fund's Class Y shares. The fund has agreed to repay Brinson Advisors for any reimbursed expenses to the extent that it can do so over the following three fiscal years without causing the fund's expenses in any of those three years to exceed this expense cap. + Includes 0.03% of interest expense related to reverse repurchase agreements during the year ended July 31, 2001. 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. This 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. The example includes the maximum annual fee for the PACE Select Advisors Program and also assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same, except for the period when the fund's expenses are lower due to its agreement with Brinson Advisors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS - ------ -------- -------- -------- $221 $721 $1,248 $2,692
- -------------------------------------------------------------------------------- Prospectus Page 9 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Intermediate Fixed Income Investments PACE INTERMEDIATE FIXED INCOME INVESTMENTS INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE Current income, consistent with reasonable stability of principal. PRINCIPAL INVESTMENT STRATEGIES The fund invests in bonds of varying maturities, but normally limits its overall portfolio "duration" to between two and four and one-half years. "Duration" is a measure of the fund's exposure to interest rate risk. A longer duration means that changes in market interest rates are likely to have a larger effect on the value of the assets in a portfolio. The fund invests primarily in U.S. and foreign government bonds, U.S. and foreign corporate bonds and bonds that are backed by mortgages or other assets. The fund limits its investments to bonds that are investment grade at the time of purchase. The fund also may invest in preferred stocks. The fund's investments in securities of foreign issuers may include, to a limited extent, securities that are denominated in foreign currencies of developed countries. The fund may (but is not required to) use forward currency contracts, options, futures and other derivatives as part of its investment strategy or to help manage portfolio risks. Brinson Advisors, Inc., the fund's manager, has selected Metropolitan West Asset Management, LLC ("MWAM") to serve as the fund's investment advisor. MWAM decides to buy specific bonds for the fund based on its value added strategies, with the goal of outperforming the Lehman Brothers Intermediate Government/Credit Index while maintaining below average volatility. These strategies are anchored by MWAM's long-term economic outlook and include managing interest rate risk through limited duration shifts, yield curve management, diversifying the fund's investments across all permitted investment sectors while overweighting the most attractive sectors, identifying undervalued securities and aggressive execution. MWAM generally sells securities that no longer meet these selection criteria or when it identifies more attractive investment opportunities and may also sell securities to adjust the average duration of the fund's portfolio. PRINCIPAL RISKS An investment in the fund is not guaranteed; you may lose money by investing in the fund. The principal risks presented by or investment in the fund are: INTEREST RATE RISK -- The value of the fund's investments generally will fall when interest rates rise. Some corporate bonds provide that the issuer may repay them earlier than the maturity date. When interest rates are falling, bond issuers may exercise this right more often, and the fund may have to reinvest these repayments at lower interest rates. CREDIT RISK -- Bond issuers may fail to make payments when due, or they may become less willing or less able to do so. PREPAYMENT RISK -- The fund's mortgage- and asset-backed securities may be prepaid more rapidly than expected, especially when interest rates are falling, and the fund may have to reinvest those prepayments at lower interest rates. When interest rates are rising, slower prepayments may extend the duration of the securities and may reduce their value. SINGLE ISSUER CONCENTRATION RISK -- Because the fund is non-diversified, it can invest more of its assets in a single issuer than a diversified fund can. As a result, changes in the market value of a single issuer can have a greater effect on the fund's performance and share price than it would for a more diversified fund. FOREIGN INVESTING RISK -- The value of the fund's investments in foreign securities may fall due to adverse political, social and economic developments abroad and due to decreases in foreign currency values relative to the U.S. dollar. DERIVATIVES RISK -- The fund's investments in derivatives may rise or fall more rapidly than other investments. More information about risks of an investment in the fund is provided below in "More About Risks and Investment Strategies." - -------------------------------------------------------------------------------- Prospectus Page 10 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Intermediate Fixed Income Investments PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart and table provide information about the fund's performance and thus give some indication of the risks of an investment in the fund. The bar chart shows how the fund's performance has varied from year to year. The bar chart does not reflect the maximum annual PACE Select Advisors Program fee; if it did, the total returns shown would be lower. The table that follows the bar chart shows the average annual returns over several time periods. The table does reflect the maximum annual PACE Select Advisors Program fee. The table compares fund returns to returns on a broad-based market index that is unmanaged and that, therefore, does not include any fees or expenses. The fund's past performance does not necessarily indicate how the fund will perform in the future. This may be particularly true for the period prior to October 10, 2000, which is the date on which MWAM assumed day-to-day management of the fund's assets. Prior to that date, another investment advisor was responsible for managing the fund's assets. TOTAL RETURN (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN 1996 3.14% 1997 7.45% 1998 7.36% 1999 (0.11)% 2000 9.02%
Total Return January 1 to September 30, 2001 -- 7.06% Best quarter during calendar years shown: 3rd quarter, 1998 -- 4.17% Worst quarter during calendar years shown: 1st quarter, 1996 -- (1.13)% AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2000
LEHMAN BROTHERS INTERMEDIATE CLASS P GOVERNMENT/CREDIT INDEX -------- ----------------------- One Year................................................. 7.40% 10.12% Five Years............................................... 3.75% 6.11% Life of Fund (Inception Date 8/24/95).................... 4.14% 6.55%
- -------------------------------------------------------------------------------- Prospectus Page 11 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Intermediate Fixed Income Investments EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy and hold shares of the fund. SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment) Maximum Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ None Maximum Deferred Sales Charge (Load) (as a % of offering price)................................ None Maximum Annual Account Fee for PaineWebber PACE Select Advisors Program (as a % of average value of shares held on the last calendar day of the previous quarter)..................... 1.50% ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets) Management Fees............................................. 0.40% Distribution and/or Service (12b-1) Fees.................... None Other Expenses*............................................. 0.37% ---- Total Annual Fund Operating Expenses........................ 0.77% ==== Management Fee Waiver/Expense Reimbursements**.............. 0.06% ---- Net Expenses**.............................................. 0.71% ====
- --------- * Includes an administration fee of 0.20% paid by the fund to Brinson Advisors. ** The fund and Brinson Advisors have entered into a written agreement under which Brinson Advisors is contractually obligated to waive its management fees and/or reimburse the fund so that the fund's expenses through December 1, 2002 would not exceed 0.71%, plus any higher transfer agency fees paid by the fund's Class P shares over the transfer agency fees paid by the fund's Class Y shares. The fund has agreed to repay Brinson Advisors for any reimbursed expenses to the extent that it can do so over the following three fiscal years without causing the fund's expenses in any of those three years to exceed this expense cap. 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. This 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. The example includes the maximum annual fee for the PACE Select Advisors Program and also assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same, except for the period when the fund's expenses are lower due to its agreement with Brinson Advisors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS - ------- -------- -------- -------- $224 $704 $1,210 $2,601
- -------------------------------------------------------------------------------- Prospectus Page 12 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Strategic Fixed Income Investments PACE STRATEGIC FIXED INCOME INVESTMENTS INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE Total return consisting of income and capital appreciation. PRINCIPAL INVESTMENT STRATEGIES The fund invests in bonds of varying maturities, but normally limits its portfolio "duration" to between three and eight years. "Duration" is a measure of the fund's exposure to interest rate risk. A longer duration means that changes in market interest rates are likely to have a larger effect on the value of the assets in a portfolio. The fund invests primarily in investment grade bonds of governmental and private issuers in the United States and foreign countries, including bonds that are backed by mortgages or other assets, and in bonds that are convertible into common stock. The fund's investments in securities of foreign issuers may include, to a limited extent, securities that are denominated in foreign currencies. The fund also invests, to a limited extent, in bonds that are below investment grade. Securities rated below investment grade (or unrated bonds of equivalent quality) are commonly known as "junk bonds." The fund may invest in when-issued or delayed delivery bonds to increase its return, giving rise to a form of leverage. The fund may (but is not required to) use forward currency contracts, options, futures and other derivatives as part of its investment strategy or to help manage portfolio risks. Brinson Advisors, Inc., the fund's manager, has selected Pacific Investment Management Company LLC ("PIMCO") to serve as the fund's investment advisor. PIMCO seeks to invest the fund's assets in those areas of the bond market that it considers undervalued, based on such factors as quality, sector, coupon and maturity. PIMCO establishes duration targets for the fund's portfolio based on its expectations for changes in interest rates and then positions the fund to take advantage of yield curve shifts. PIMCO decides to buy or sell specific bonds based on an analysis of their values relative to other similar bonds. PIMCO monitors the prepayment experience of the fund's mortgage-backed bonds and will also buy and sell securities to adjust the fund's average portfolio duration, credit quality, yield curve, sector and prepayment exposure, as appropriate. PRINCIPAL RISKS An investment in the fund is not guaranteed; you may lose money by investing in the fund. The principal risks presented by an investment in the fund are: INTEREST RATE RISK -- The value of the fund's investments generally will fall when interest rates rise. Some corporate bonds provide that the issuer may repay them earlier than the maturity date. When interest rates are falling, bond issuers may exercise this right more often, and the fund may have to reinvest these repayments at lower interest rates. PREPAYMENT RISK -- The fund's mortgage- and asset-backed securities may be prepaid more rapidly than expected, especially when interest rates are falling, and the fund may have to reinvest those prepayments at lower interest rates. When interest rates are rising, slower prepayments may extend the duration of the securities and may reduce their value. CREDIT RISK -- Bond issuers may fail to make payments when due, or they may become less willing or less able to do so. This risk is greater for lower quality bonds than for bonds that are investment grade FOREIGN INVESTING RISK -- The value of the fund's investments in foreign securities may fall due to adverse political, social and economic developments abroad and due to decreases in foreign currency values relative to the U.S. dollar. Investments in foreign government bonds involve special risks because the fund may have limited legal recourse in the event of default. LEVERAGE RISK -- Leverage magnifies the effect of changes in market values. While leverage can increase the fund's income and potential for gain, it also can increase expenses and the risk of loss. The fund attempts to limit the magnifying effect of its leverage by managing its portfolio duration. DERIVATIVES RISK -- The fund's investments in derivatives may rise or fall more rapidly than other investments. More information about risks of an investment in the fund is provided below in "More About Risks and Investment Strategies." - -------------------------------------------------------------------------------- Prospectus Page 13 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Strategic Fixed Income Investments PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart and table provide information about the fund's performance and thus give some indication of the risks of an investment in the fund. The bar chart shows how the fund's performance has varied from year to year. The bar chart does not reflect the maximum annual PACE Select Advisors Program fee; if it did, the total returns shown would be lower. The table that follows the bar chart shows the average annual returns over several time periods. The table does reflect the maximum annual PACE Select Advisors Program fee. The table compares fund returns to returns on a broad-based market index that is unmanaged and that, therefore, does not include any fees or expenses. The fund's past performance does not necessarily indicate how the fund will perform in the future. TOTAL RETURN (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN 1996 3.22% 1997 10.19% 1998 8.22% 1999 (2.74)% 2000 11.59%
Total Return January 1 to September 30, 2001 -- 8.94% Best quarter during calendar years shown: 4th quarter, 2000 -- 4.96% Worst quarter during calendar years shown: 1st quarter, 1996 -- (2.21)% AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2000
LEHMAN BROTHERS GOVERNMENT/CREDIT CLASS P INDEX -------- ----------------- One Year................................................... 9.92% 11.85% Five Years................................................. 4.38% 6.24% Life of Fund (Inception Date 8/24/95)...................... 5.88% 6.95%
- -------------------------------------------------------------------------------- Prospectus Page 14 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Strategic Fixed Income Investments EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy and hold shares of the fund. SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment) Maximum Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ None Maximum Deferred Sales Charge (Load) (as a % of offering price)................................ None Maximum Annual Account Fee for PaineWebber PACE Select Advisors Program (as a % of average value of shares held on the last calendar day of the previous quarter)..................... 1.50% ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets) Management Fees............................................. 0.50% Distribution and/or Service (12b-1) Fees.................... None Other Expenses*............................................. 0.43% ---- Total Annual Fund Operating Expenses........................ 0.93%+ ==== Management Fee Waiver/Expense Reimbursements**.............. 0.02% ---- Net Expenses**.............................................. 0.91%+ ====
- --------- * Includes an administration fee of 0.20% paid by the fund to Brinson Advisors. ** The fund and Brinson Advisors have entered into a written agreement under which Brinson Advisors is contractually obligated to waive its management fees and/or reimburse the fund so that the fund's expenses through December 1, 2002 (excluding interest expense) would not exceed 0.85%. The fund has agreed to repay Brinson Advisors for any reimbursed expenses to the extent that it can do so over the following three fiscal years without causing the fund's expenses in any of those three years to exceed this expense cap. + Includes 0.06% of interest expense related to reverse repurchase agreements during the year ended July 31, 2001. 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. This 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. The example includes the maximum annual fee for the PACE Select Advisors Program and also assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same, except for the period when the fund's expenses are lower due to its agreement with Brinson Advisors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS - ------ -------- -------- -------- $244 $756 $1,294 $2,765
- -------------------------------------------------------------------------------- Prospectus Page 15 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Municipal Fixed Income Investments PACE MUNICIPAL FIXED INCOME INVESTMENTS INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE High current income exempt from federal income tax. PRINCIPAL INVESTMENT STRATEGIES The fund invests substantially all of its assets in investment grade municipal bonds of varying maturities. These are bonds and similar securities that are exempt from regular federal income tax. Normally, the fund limits its investments in municipal bonds that are subject to the federal alternative minimum tax (AMT) so that not more than 25% of its interest income will be subject to the AMT. The fund invests in municipal bonds that are subject to the AMT when its investment advisor believes that they offer attractive yields relative to municipal bonds that have similar investment characteristics but are not subject to the AMT. The fund normally limits its portfolio "duration" to between three and seven years. "Duration" is a measure of the fund's exposure to interest rate risk. A longer duration means that changes in market interest rates are likely to have a larger effect on the value of the assets in a portfolio. The fund may invest up to 50% of its total assets in municipal bonds that are secured by revenues from public housing authorities and state and local housing finance authorities, including bonds that are secured or backed by the U.S. Treasury or other U.S. government guaranteed securities. The fund limits its investments in municipal bonds with the lowest investment grade rating (or unrated bonds of equivalent quality) to 15% of its total assets at the time the bonds are purchased. The fund may (but is not required to) use options, futures and other derivatives as part of its investment strategy or to help manage its portfolio duration. Brinson Advisors, Inc., the fund's manager, has selected Standish Mellon Asset Management Company LLC ("Standish Mellon") to serve as the fund's investment advisor. In deciding which securities to buy for the fund, Standish Mellon seeks to identify undervalued sectors or geographical regions of the municipal market or undervalued individual securities. To do this, Standish Mellon uses credit research and valuation analysis and monitors the relationship of the municipal yield curve to the treasury yield curve. Standish Mellon also uses credit quality assessments from its in-house analysts to identify potential rating changes, undervalued issues and macro trends with regard to market sectors and geographical regions. Standish Mellon may make modest duration adjustments based on economic analyses and interest rate forecasts. Standish Mellon generally sells securities if it identifies more attractive investment opportunities within its investment criteria and doing so may improve the fund's return. Standish Mellon also may sell securities with weakening credit profiles or to adjust the average duration of the fund's portfolio. PRINCIPAL RISKS An investment in the fund is not guaranteed; you may lose money by investing in the fund. The principal risks presented by an investment in the fund are: INTEREST RATE RISK -- The value of the fund's investments generally will fall when interest rates rise. Some municipal bonds provide that the issuer may repay them earlier than the maturity date. When interest rates are falling, bond issuers may exercise this right more often, and the fund may have to reinvest these repayments at lower interest rates. CREDIT RISK -- Bond issuers may fail to make payments when due, or they may become less willing or less able to do so. POLITICAL RISK -- The fund's investments may be significantly affected by political changes, including legislative proposals which may make municipal bonds less attractive in comparison to taxable bonds. RELATED SECURITIES CONCENTRATION RISK -- Because the fund may invest more than 25% of its total assets in municipal bonds that are issued to finance similar projects, changes that affect one type of municipal bond may have a significant impact on the value of the fund. DERIVATIVES RISK -- The fund's investments in derivatives may rise or fall more rapidly than other investments. More information about risks of an investment in the fund is provided below in "More About Risks and Investment Strategies." - -------------------------------------------------------------------------------- Prospectus Page 16 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Municipal Fixed Income Investments PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart and table provide information about the fund's performance and thus give some indication of the risks of an investment in the fund. The bar chart shows how the fund's performance has varied from year to year. The bar chart does not reflect the maximum annual PACE Select Advisors Program fee; if it did, the total returns shown would be lower. The table that follows the bar chart shows the average annual returns over several time periods. The table does reflect the maximum annual PACE Select Advisors Program fee. The table compares fund returns to returns on a broad-based market index that is unmanaged and that, therefore, does not include any fees or expenses. The fund's past performance does not necessarily indicate how the fund will perform in the future. This may be particularly true for the period prior to June 1, 2000, which is the date on which Standish Mellon's predecessor assumed day-to-day management of the fund's assets. Prior to that date, another investment advisor was responsible for managing the fund's assets. TOTAL RETURN (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN 1996 4.86% 1997 7.01% 1998 5.39% 1999 (2.14)% 2000 8.27%
Total Return January 1 to September 30, 2001 -- 5.66% Best quarter during calendar years shown: 4th quarter, 2000 -- 2.92% Worst quarter during calendar years shown: 2nd quarter, 1999 -- (1.21)% AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2000
LEHMAN BROTHERS MUNICIPAL FIVE-YEAR CLASS P INDEX -------- ------------------- One Year.................................................... 6.66% 7.72% Five Years.................................................. 3.05% 4.95% Life of Fund (Inception Date 8/24/95)....................... 3.69% 5.08%
- -------------------------------------------------------------------------------- Prospectus Page 17 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Municipal Fixed Income Investments EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy and hold shares of the fund. SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment) Maximum Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ None Maximum Deferred Sales Charge (Load) (as a % of offering price)................................ None Maximum Annual Account Fee for PaineWebber PACE Select Advisors Program (as a % of average value of shares held on the last calendar day of the previous quarter)..................... 1.50% ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets) Management Fees............................................. 0.40% Distribution and/or Service (12b-1) Fees.................... None Other Expenses*............................................. 0.42% ---- Total Annual Fund Operating Expenses........................ 0.82% ==== Management Fee Waiver/Expense Reimbursements**.............. 0.18% ---- Net Expenses**.............................................. 0.64% ====
- --------- * Includes an administration fee of 0.20% paid by the fund to Brinson Advisors. ** The fund and Brinson Advisors have entered into a written agreement under which Brinson Advisors is contractually obligated to waive its management fees and/or reimburse the fund so that the fund's expenses through December 1, 2002 would not exceed 0.64%, plus any higher transfer agency fees paid by the fund's Class P shares over the transfer agency fees paid by the fund's Class Y shares. The fund has agreed to repay Brinson Advisors for any reimbursed expenses to the extent that it can do so over the following three fiscal years without causing the fund's expenses in any of those three years to exceed this expense cap. 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. This 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. The example includes the maximum annual fee for the PACE Select Advisors Program and also assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same, except for the period when the fund's expenses are lower due to its agreement with Brinson Advisors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS - ------ -------- -------- -------- $217 $707 $1,224 $2,642
- -------------------------------------------------------------------------------- Prospectus Page 18 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Global Fixed Income Investments PACE GLOBAL FIXED INCOME INVESTMENTS INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE High total return. PRINCIPAL INVESTMENT STRATEGIES The fund invests primarily in high-grade bonds of governmental and private issuers in the United States and developed foreign countries. These high-grade bonds are rated in one of the three highest rating categories or are of comparable quality. The fund invests, to a limited extent, in lower rated bonds of governmental and private issuers, including bonds that are rated below investment grade and emerging market securities. The fund invests in bonds of varying maturities, but normally limits its portfolio "duration" to between four and eight years. "Duration" is a measure of the fund's exposure to interest rate risk. A longer duration means that changes in market interest rates are likely to have a larger effect on the value of the assets in a portfolio. A portion of the fund's assets normally is invested in bonds of U.S. government and private issuers. The balance of the fund's assets is allocated among bonds of governmental and private issuers in various foreign countries. The fund's investments may include mortgage-and asset-backed securities. The fund may (but is not required to) use forward currency contracts, options, futures and other derivatives as part of its investment strategy or to help manage portfolio risks. Brinson Advisors, Inc., the fund's manager, has selected Rogge Global Partners plc and Fischer Francis Trees & Watts, Inc. and its affiliates ("FFTW") to serve as the fund's investment advisors. Brinson Advisors allocates the fund's assets between the two investment advisors and may change the allocation at any time. The relative values of each investment advisor's share of the fund's assets also may change over time. Rogge Global Partners seeks to invest the fund assets it manages in bonds of issuers in financially healthy countries because it believes that these investments produce the highest bond and currency returns over time. In deciding which bonds to buy for the fund, Rogge Global Partners uses a top-down analysis to find value across countries and to forecast interest and currency-exchange rates over a one-year horizon. Rogge Global Partners also uses an optimization model to help determine country, currency and duration positions for the fund. Rogge Global Partners generally sells securities that no longer meet these selection criteria or when it identifies more attractive investment opportunities and may also sell securities to adjust the average duration of the fund assets it manages. For its share of the fund's assets, FFTW seeks to outperform a benchmark, the Lehman Global Aggregate Index (Unhedged), through an active bond selection process that relies on (1) constructing diversified portfolios, (2) identifying the most attractive sectors and the most attractive individual securities within those sectors and (3) monitoring portfolio risk with risk management tools. FFTW divides the investment universe into three major blocs (Europe, the United States, and Japan), plus emerging markets, and analyzes trends in economic growth, inflation, monetary and fiscal policies. FFTW decides which securities to buy for the fund by looking for investment opportunities where its opinions on the current economic environment of a bloc or country differ from those it judges to be reflected in current market valuations. FFTW generally sells securities when it has identified more attractive investment opportunities. PRINCIPAL RISKS An investment in the fund is not guaranteed; you may lose money by investing in the fund. The principal risks presented by an investment in the fund are: INTEREST RATE RISK -- The value of the fund's investments generally will fall when interest rates rise. Some corporate bonds provide that the issuer may repay them earlier than the maturity date. When interest rates are falling, bond issuers may exercise this right more often, and the fund may have to reinvest these repayments at lower interest rates. FOREIGN INVESTING AND EMERGING MARKETS RISKS -- The value of the fund's investments in foreign securities may fall due to adverse political, social and economic developments abroad and due to decreases in foreign currency values relative to the U.S. dollar. These risks - -------------------------------------------------------------------------------- Prospectus Page 19 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Global Fixed Income Investments are greater for investments in emerging market issuers. Investments in foreign government bonds involve special risks because the fund may have limited legal recourse in the event of default. CREDIT RISK -- Bond issuers may fail to make payments when due, or they may become less willing or less able to do so. This risk is greater for lower quality bonds than for bonds that are investment grade. SINGLE ISSUER CONCENTRATION RISK -- Because the fund is non-diversified, it can invest more of its assets in a single issuer than a diversified fund can. As a result, changes in the market value of a single issuer can have a greater effect on the fund's performance and share price than it would for a more diversified fund. PREPAYMENT RISK -- The fund's mortgage- and asset-backed securities may be prepaid more rapidly than expected, especially when interest rates are falling, and the fund may have to reinvest those prepayments at lower interest rates. When interest rates are rising, slower prepayments may extend the duration of the securities and may reduce their value. DERIVATIVES RISK -- The fund's investments in derivatives may rise or fall more rapidly than other investments. More information about risks of an investment in the fund is provided below in "More About Risks and Investment Strategies." - -------------------------------------------------------------------------------- Prospectus Page 20 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Global Fixed Income Investments PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart and table provide information about the fund's performance and thus give some indication of the risks of an investment in the fund. The bar chart shows how the fund's performance has varied from year to year. The bar chart does not reflect the maximum annual PACE Select Advisors Program fee; if it did, the total returns shown would be lower. The table that follows the bar chart shows the average annual returns over several time periods. The table does reflect the maximum annual PACE Select Advisors Program fee. The table compares fund returns to returns on a broad-based market index that is unmanaged and that, therefore, does not include any fees or expenses. The fund's past performance does not necessarily indicate how the fund will perform in the future. This may be particularly true for the period prior to October 10, 2000, which is the date on which FFTW assumed day-to-day management of a portion of the fund's assets. Prior to that date, Rogge Global Partners was responsible for managing all the fund's assets. TOTAL RETURN (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN 1996 4.59% 1997 1.00% 1998 18.60% 1999 (8.52)% 2000 (1.26)%
Total Return January 1 to September 30, 2001 -- 1.70% Best quarter during calendar years shown: 3rd quarter, 1998 -- 8.60% Worst quarter during calendar years shown: 1st quarter, 1999 -- (4.83)% AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2000
SALOMON SMITH BARNEY WORLD GOVERNMENT BOND INDEX CLASS P (UNHEDGED) -------- -------------------- One Year................................................... (2.74)% 1.59% Five Years................................................. 0.98% 3.10% Life of Fund (Inception Date 8/24/95)...................... 1.99% 3.89%
- -------------------------------------------------------------------------------- Prospectus Page 21 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Global Fixed Income Investments EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy and hold shares of the fund. SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment) Maximum Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ None Maximum Deferred Sales Charge (Load) (as a % of offering price)................................ None Maximum Annual Account Fee for PaineWebber PACE Select Advisors Program (as a % of average value of shares held on the last calendar day of the previous quarter)..................... 1.50% ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets) Management Fees............................................. 0.60% Distribution and/or Service (12b-1) Fees.................... None Other Expenses*............................................. 0.57% ---- Total Annual Fund Operating Expenses........................ 1.17% ==== Management Fee Waiver/Expense Reimbursements**.............. 0.22% ---- Net Expenses**.............................................. 0.95% ====
- --------- * Includes an administration fee of 0.20% paid by the fund to Brinson Advisors. ** The fund and Brinson Advisors have entered into a written agreement under which Brinson Advisors is contractually obligated to waive its management fees and/or reimburse the fund so that the fund's expenses through December 1, 2002 would not exceed 0.95%. The fund has agreed to repay Brinson Advisors for any reimbursed expenses to the extent that it can do so over the following three fiscal years without causing the fund's expenses in any of those three years to exceed this expense cap. 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. This 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. The example includes the maximum annual fee for the PACE Select Advisors Program and also assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same, except for the period when the fund's expenses are lower due to its agreement with Brinson Advisors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS - ------ -------- -------- -------- $248 $809 $1,395 $2,987
- -------------------------------------------------------------------------------- Prospectus Page 22 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Large Company Value Equity Investments PACE LARGE COMPANY VALUE EQUITY INVESTMENTS INVESTMENT OBJECTIVES, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVES Capital appreciation and dividend income. PRINCIPAL INVESTMENT STRATEGIES The fund invests primarily in stocks of U.S. companies that are believed to be undervalued and that have total market capitalizations of $4.0 billion or greater at the time of purchase. The fund seeks income primarily from dividend paying stocks. The fund may invest, to a limited extent, in other securities, including stocks of companies with smaller total market capitalizations and convertible bonds that are rated below investment grade. The fund may invest up to 10% of its total assets in U.S. dollar denominated foreign securities. The fund also may (but is not required to) use options, futures and other derivatives as part of its investment strategy or to help manage portfolio risks. The fund's manager, Brinson Advisors, Inc., has selected Institutional Capital Corporation ("ICAP"), Westwood Management Corporation ("Westwood") and SSgA Funds Management, Inc. ("SSgA") to serve as the fund's investment advisors. Brinson Advisors allocates the fund's assets among the three investment advisors and has initially allocated approximately 50% of the fund's assets to SSgA and approximately 25% each to ICAP and Westwood. Brinson Advisors may change this allocation at any time. The relative value of each investment advisor's share of the fund's assets also may change over time. In managing its share of the fund's assets, ICAP uses its proprietary valuation model to identify large-capitalization companies that ICAP believes offer the best relative values because they sell below the price-to-earnings ratio warranted by their prospects. ICAP looks for companies where a catalyst for a positive change is about to occur with potential to produce stock appreciation of 15% or more relative to the market over a 12 to 18 month period. The catalyst can be thematic (E.G., global economic recovery) or company specific (E.G., a corporate restructuring or a new product). ICAP also uses internally generated research to evaluate the financial condition and business prospects of every company it considers. ICAP monitors each stock purchased and sells the stock when its target price is achieved, the catalyst becomes inoperative or ICAP identifies another stock with greater opportunity for appreciation. In managing its share of the fund's assets, Westwood maintains a list of securities that it believes have proven records and potential for above-average earnings growth. It considers purchasing a security on such list if Westwood's forecast for growth rates and earnings estimates exceeds Wall Street expectations, or Westwood's forecasted price/earnings ratio is less than the forecasted growth rate. Westwood monitors companies and will sell a stock if Westwood expects limited future price appreciation or the projected price/earnings ratio exceeds the three-year growth rate. In managing its share of the fund's assets, SSgA seeks to outperform the Russell 1000 Value Index (before fees and expenses). SSgA uses several independent valuation measures to identify investment opportunities within a large cap value universe and combines factors to produce an overall rank. Comprehensive research determines the optimal weighting of these perspectives to arrive at strategies that vary by industry. SSgA ranks all companies within the investable universe initially from top to bottom based on their relative attractiveness. SSgA constructs the fund's portfolio by selecting the highest-ranked stocks from the universe and manages deviations from the benchmark to maximize the risk/reward trade-off. The resulting portfolio has characteristics similar to the Russell 1000 Value Index. SSgA generally sells stocks that no longer meet its selection criteria or that it believes otherwise may adversely affect the fund's performance relative to that of the index. PRINCIPAL RISKS An investment in the fund is not guaranteed; you may lose money by investing in the fund. The principal risks presented by an investment in the fund are: EQUITY RISK -- Stocks and other equity securities generally fluctuate in value more than bonds. The fund could lose all of its investment in a company's stock. LIMITED CAPITALIZATION RISK -- Equity risk is greater for the common stocks of mid and small cap companies (in which the fund may invest to a limited extent) because they generally are more vulnerable than larger companies to adverse business or economic developments and they may have more limited resources. In general, these risks are greater for small cap companies than for mid cap companies. INDEX STRATEGY RISK -- SSgA's proprietary strategy may not result in outperformance of the designated index and may even result in underperformance. DERIVATIVES RISK -- The fund's investments in derivatives may rise or fall more rapidly than other investments. More information about risks of an investment in the fund is provided below in "More About Risks and Investment Strategies." - -------------------------------------------------------------------------------- Prospectus Page 23 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Large Company Value Equity Investments PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart and table provide information about the fund's performance and thus give some indication of the risks of an investment in the fund. The bar chart shows how the fund's performance has varied from year to year. The bar chart does not reflect the maximum annual PACE Select Advisors Program fee; if it did, the total returns shown would be lower. The table that follows the bar chart shows the average annual returns over several time periods. The table does reflect the maximum annual PACE Select Advisors Program fee. The table compares fund returns to returns on a broad-based market index that is unmanaged and that, therefore, does not include any fees or expenses. The fund's past performance does not necessarily indicate how the fund will perform in the future. This may be particularly true for the period prior to July 1, 2000, when another investment advisor was responsible for managing all the fund's assets. ICAP and Westwood each assumed day-to-day management of a portion of the fund's assets on July 1, 2000 and SSgA also assumed day-to-day management of a portion of the fund's assets on October 10, 2000. TOTAL RETURN (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN 1996 25.11% 1997 24.75% 1998 18.36% 1999 (4.14)% 2000 2.48%
Total Return January 1 to September 30, 2001 -- (11.33)% Best quarter during calendar years shown: 4th quarter, 1998 -- 16.26% Worst quarter during calendar years shown: 3rd quarter, 1999 -- (14.40)% AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2000
RUSSELL 1000 CLASS P VALUE INDEX -------- ------------ One Year.................................................... 0.95% 7.01% Five Years.................................................. 10.98% 16.91% Life of Fund (Inception Date 8/24/95)....................... 12.39% 17.96%
- -------------------------------------------------------------------------------- Prospectus Page 24 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Large Company Value Equity Investments EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy and hold shares of the fund. SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment) Maximum Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ None Maximum Deferred Sales Charge (Load) (as a % of offering price)................................ None Maximum Annual Account Fee for PaineWebber PACE Select Advisors Program (as a % of average value of shares held on the last calendar day of the previous quarter)..................... 1.50% ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets) Management Fees............................................. 0.60% Distribution and/or Service (12b-1) Fees.................... None Other Expenses*............................................. 0.34% ---- Total Annual Fund Operating Expenses........................ 0.94% ==== Management Fee Waiver/Expense Reimbursement**............... 0.09% ---- Net Expenses**.............................................. 0.85% ====
- --------- * Includes an administration fee of 0.20% paid by the fund to Brinson Advisors. ** The fund and Brinson Advisors have entered into a written agreement under which Brinson Advisors is contractually obligated to waive its management fees through December 1, 2002 to the extent necessary to reflect the lower overall fees paid to the fund's investment advisors as a result of the lower sub-advisory fees paid by Brinson Advisors to SSgA. The fund and Brinson Advisors have entered into an additional written agreement under which Brinson Advisors is contractually obligated to waive its management fees and/or reimburse the fund so that the fund's expenses through December 1, 2002 would not exceed 0.85%, plus any higher transfer agency fees paid by the fund's Class P shares over the transfer agency fees paid by the fund's Class Y shares. The fund has agreed to repay Brinson Advisors for any reimbursed expenses to the extent that it can do so over the following three fiscal years without causing the fund's expenses in any of those three years to exceed these expense caps. 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. This 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. The example includes the maximum annual fee for the PACE Select Advisors Program and also assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same, except for the period when the fund's expenses are lower due to its agreements with Brinson Advisors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS - ------ -------- -------- -------- $238 $752 $1,292 $2,769
- -------------------------------------------------------------------------------- Prospectus Page 25 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Large Company Growth Equity Investments PACE LARGE COMPANY GROWTH EQUITY INVESTMENTS INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE Capital appreciation. PRINCIPAL INVESTMENT STRATEGIES The fund invests primarily in stocks of companies that are believed to have substantial potential for capital growth and that have total market capitalizations of $4.0 billion or greater at the time of purchase. Dividend income is an incidental consideration in the investment advisors' selection of stocks for the fund. The fund may from time to time invest a significant portion of its assets in the stocks of companies in various economic sectors, such as healthcare or technology. The fund may invest, to a limited extent, in other securities, including securities convertible into stocks and stocks of companies with smaller total market capitalizations. The fund may invest up to 10% of its total assets in U.S. dollar denominated foreign securities. The fund also may (but is not required to) use options, futures and other derivatives as part of its investment strategy or to help manage portfolio risks. The fund's manager, Brinson Advisors, Inc., has selected Alliance Capital Management L.P. ("Alliance Capital") and SSgA Funds Management, Inc. ("SSgA") to serve as the fund's investment advisors. Brinson Advisors allocates the fund's assets between the two investment advisors and has initially allocated approximately 60% of the fund's assets to Alliance Capital and approximately 40% to SSgA. Brinson Advisors may change this allocation at any time. The relative values of each investment advisor's share of the fund's assets also may change over time. In managing its share of the fund's assets, Alliance Capital follows its "disciplined growth" strategy in seeking to identify the best combinations of earnings growth and reasonable valuation in selecting stocks for the fund. Alliance Capital ranks each stock in its investment universe based on its analysts' assessments and fundamental research that includes six measures of earnings growth and valuation. The fund normally invests in stocks that rank in the top 30% of this research universe and generally sells stocks that rank in the bottom half. In managing its share of the fund's assets, SSgA seeks to outperform the Russell 1000 Growth Index (before fees and expenses). SSgA uses several independent valuation measures to identify investment opportunities within a large cap growth universe and combines factors to produce an overall rank. Comprehensive research determines the optimal weighting of these perspectives to arrive at strategies that vary by industry. SSgA ranks all companies within the investable universe from top to bottom based on their relative attractiveness. SSgA constructs the fund's portfolio by selecting the highest-ranked stocks from the universe and manages deviations from the benchmark to maximize the risk/reward trade-off. The resulting portfolio has characteristics similar to the Russell 1000 Growth Index. SSgA generally sells stocks that no longer meet its selection criteria or that it believes otherwise may adversely affect the fund's performance relative to that of the index. PRINCIPAL RISKS An investment in the fund is not guaranteed; you may lose money by investing in the fund. The principal risks presented by an investment in the fund are: EQUITY RISK -- Stocks and other equity securities generally fluctuate in value more than bonds. The fund could lose all of its investment in a company's stock. LIMITED CAPITALIZATION RISK -- Equity risk is greater for the common stocks of mid and small cap companies (in which the fund may invest to a limited extent) because they generally are more vulnerable than larger companies to adverse business or economic developments and they may have more limited resources. In general, these risks are greater for small cap companies than for mid cap companies. INDEX STRATEGY RISK -- SSgA's proprietary strategy may not result in outperformance of the designated index and may even result in underperformance. SECTOR RISK -- Because the fund may invest a significant portion of its assets in the stocks of companies in particular economic sectors, economic changes adversely affecting such a sector may have more of an impact on the fund's performance than another fund having a broader range of investments. DERIVATIVES RISK -- The fund's investments in derivatives may rise or fall more rapidly than other investments. More information about risks of an investment in the fund is provided below in "More About Risks and Investment Strategies." - -------------------------------------------------------------------------------- Prospectus Page 26 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Large Company Growth Equity Investments PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart and table provide information about the fund's performance and thus give some indication of the risks of an investment in the fund. The bar chart shows how the fund's performance has varied from year to year. The bar chart does not reflect the maximum annual PACE Select Advisors Program fee; if it did, the total returns shown would be lower. The table that follows the bar chart shows the average annual returns over several time periods. The table does reflect the maximum annual PACE Select Advisors Program fee. The table compares fund returns to returns on a broad-based market index that is unmanaged and that, therefore, does not include any fees or expenses. The fund's past performance does not necessarily indicate how the fund will perform in the future. Prior to November 10, 1997, another investment advisor was responsible for managing all the fund's assets. Alliance Capital assumed day-to-day management of the fund's assets on November 10, 1997 and SSgA assumed day-to-day management of a portion of the fund's assets on October 10, 2000. TOTAL RETURN (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN 1996 21.24% 1997 24.79% 1998 40.05% 1999 25.25% 2000 (20.07)%
Total Return January 1 to September 30, 2001 -- (32.28)% Best quarter during calendar years shown: 4th quarter, 1998 -- 31.80% Worst quarter during calendar years shown: 4th quarter, 2000 -- (19.04)% AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2000
RUSSELL 1000 CLASS P GROWTH INDEX -------- ------------ One Year.................................................... (21.26)% (22.42)% Five Years.................................................. 14.50% 18.15% Life of Fund (Inception Date 8/24/95)....................... 14.72% 18.90%
- -------------------------------------------------------------------------------- Prospectus Page 27 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Large Company Growth Equity Investments EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy and hold shares of the fund. SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment) Maximum Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ None Maximum Deferred Sales Charge (Load) (as a % of offering price)................................ None Maximum Annual Account Fee for PaineWebber PACE Select Advisors Program (as a % of average value of shares held on the last calendar day of the previous quarter)..................... 1.50% ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets) Management Fees............................................. 0.60% Distribution and/or Service (12b-1) Fees.................... None Other Expenses*............................................. 0.34% ---- Total Annual Fund Operating Expenses........................ 0.94% ==== Management Fee Waiver/Expense Reimbursements**.............. 0.09% ---- Net Expenses**.............................................. 0.85% ====
- --------- * Includes an administration fee of 0.20% paid by the fund to Brinson Advisors. ** The fund and Brinson Advisors have entered into a written agreement under which Brinson Advisors is contractually obligated to waive its management fees through December 1, 2002 to the extent necessary to reflect the lower overall fees paid to the fund's investment advisors as a result of the lower sub-advisory fees paid to SSgA. The fund and Brinson Advisors have entered into an additional written agreement under which Brinson Advisors is contractually obligated to waive its management fees and/or reimburse the fund so that the fund's expenses through December 1, 2002 would not exceed 0.85%, plus any higher transfer agency fees paid by the fund's Class P shares over the transfer agency fees paid by the fund's Class Y shares. The fund has agreed to repay Brinson Advisors for any reimbursed expenses to the extent that it can do so over the following three fiscal years without causing the fund's expenses in any of those three years to exceed these expense caps. 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. This 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. The example includes the maximum annual fee for the PACE Select Advisors Program and also assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same, except for the period when the fund's expenses are lower due to its agreements with Brinson Advisors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS - ------ -------- -------- -------- $238 $752 $1,292 $2,769
- -------------------------------------------------------------------------------- Prospectus Page 28 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Small/Medium Company Value Equity Investments PACE SMALL/MEDIUM COMPANY VALUE EQUITY INVESTMENTS INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE Capital appreciation. PRINCIPAL INVESTMENT STRATEGIES The fund invests primarily in stocks of companies that are believed to be undervalued or overlooked in the marketplace and that have total market capitalizations of less than $4.0 billion at the time of purchase. These stocks also generally have price-to-earnings (P/E) ratios below the market average. The fund invests only in stocks that are traded on major exchanges or the over- the-counter market. The fund may invest, to a limited extent, in stocks of companies with larger total market capitalizations and other securities, including securities convertible into stocks. The fund also may (but is not required to) use options, futures and other derivatives as part of its investment strategy or to help manage portfolio risks. Brinson Advisors, Inc., the fund's manager, has selected Ariel Capital Management, Inc. ("Ariel") and ICM Asset Management, Inc. ("ICM") to serve as the fund's investment advisors. Brinson Advisors allocates the fund's assets between the two investment advisors and may change the allocation at any time. The relative values of each investment advisor's share of the fund's assets also may change over time. In managing its share of the fund's assets, Ariel invests in stocks of companies that it believes are misunderstood or undervalued. It seeks to identify companies in consistent industries with distinct market niches and excellent management teams. It focuses on value stocks, which it defines as stocks that have a low P/E ratio based on forward earnings and that trade at a significant discount to the private market value that Ariel calculates for each stock. Ariel generally sells stocks that cease to meet these criteria or that are at risk for fundamental deterioration. In managing its share of the fund's assets, ICM invests primarily in common stocks of companies believed to offer good relative value that have either fallen into disfavor among investors or are under-researched. In deciding which stocks to buy for the fund, ICM uses a top-down analysis to identify broad sectors of the market believed to offer good relative value and then seeks to identify individual companies within those sectors that meet ICM's investment criteria. ICM also performs a bottom-up analysis to attempt to discover inefficiently priced stocks in a broad range of sectors, including those not identified in the top-down analysis. These two approaches are combined in various proportions depending on market conditions. Regardless of which approach is used to identify stock candidates, ICM also applies fundamental research analysis. ICM generally sells stocks that meet price objectives, no longer meet its selection criteria, are at risk for fundamental deterioration or when it identifies more attractive investment opportunities. PRINCIPAL RISKS An investment in the fund is not guaranteed; you may lose money by investing in the fund. The principal risks presented by an investment in the fund are: EQUITY RISK -- Stocks and other equity securities generally fluctuate in value more than bonds. The fund could lose all of its investment in a company's stock. LIMITED CAPITALIZATION RISK -- Equity risk is greater for the common stocks of mid and small cap companies because they generally are more vulnerable than larger companies to adverse business or economic developments and they may have more limited resources. In general, these risks are greater for small cap companies than for mid cap companies. DERIVATIVES RISK -- The fund's investments in derivatives may rise or fall more rapidly than other investments. More information about risks of an investment in the fund is provided below in "More About Risks and Investment Strategies." - -------------------------------------------------------------------------------- Prospectus Page 29 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Small/Medium Company Value Equity Investments PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart and table provide information about the fund's performance and thus give some indication of the risks of an investment in the fund. The bar chart shows how the fund's performance has varied from year to year. The bar chart does not reflect the maximum annual PACE Select Advisors Program fee; if it did, the total returns shown would be lower. The table that follows the bar chart shows the average annual returns over several time periods. The table does reflect the maximum annual PACE Select Advisors Program fee. The table compares fund returns to returns on a broad-based market index that is unmanaged and that, therefore, does not include any fees or expenses. The fund's past performance does not necessarily indicate how the fund will perform in the future. This may be particularly true for the period prior to October 4, 1999, when another investment advisor was responsible for managing all the fund's assets. Ariel assumed day-to-day management of a portion of the fund's assets on October 4, 1999 and ICM assumed responsibility for managing a portion of the fund's assets on October 10, 2000. TOTAL RETURN (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN 1996 22.35% 1997 37.26% 1998 (9.34)% 1999 (2.79)% 2000 11.76%
Total Return January 1 to September 30, 2001 -- 1.95% Best quarter during calendar years shown: 2nd quarter, 1999 -- 21.25% Worst quarter during calendar years shown: 3rd quarter, 1998 -- (20.00)% AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2000
RUSSELL 2500 CLASS P VALUE INDEX -------- ------------ One Year.................................................... 10.10% 20.79% Five Years.................................................. 8.94% 14.36% Life of Fund (Inception Date 8/24/95)....................... 8.19% 14.54%
- -------------------------------------------------------------------------------- Prospectus Page 30 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Small/Medium Company Value Equity Investments EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy and hold shares of the fund. SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment) Maximum Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ None Maximum Deferred Sales Charge (Load) (as a % of offering price)................................ None Maximum Annual Account Fee for PaineWebber PACE Select Advisors Program (as a % of average value of shares held on the last calendar day of the previous quarter)..................... 1.50% ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets) Management Fees............................................. 0.60% Distribution and/or Service (12b-1) Fees.................... None Other Expenses*............................................. 0.39% ---- Total Annual Fund Operating Expenses........................ 0.99% ====
- --------- * Includes an administration fee of 0.20% paid by the fund to Brinson Advisors. 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. This 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. The example includes the maximum annual fee for the PACE Select Advisors Program and also assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS - ------ -------- -------- -------- $252 $776 $1,326 $2,826
- -------------------------------------------------------------------------------- Prospectus Page 31 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Small/Medium Company Growth Equity Investments PACE SMALL/MEDIUM COMPANY GROWTH EQUITY INVESTMENTS INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE Capital appreciation. PRINCIPAL INVESTMENT STRATEGIES The fund invests primarily in stocks of "emerging growth" companies that are believed to have potential for high future earnings growth relative to the overall market and that have total market capitalizations of less than $4.0 billion at the time of purchase. Dividend income is an incidental consideration in the investment advisor's selection of stocks for the fund. The fund may from time to time invest a significant portion of its assets in the stocks of companies in various economic sectors, such as healthcare or technology. The fund may invest, to a limited extent, in stocks of companies with larger total market capitalizations and other securities, including securities convertible into stocks. The fund also may (but is not required to) use options, futures and other derivatives as part of its investment strategy or to help manage portfolio risks. Brinson Advisors, Inc., the fund's manager, has selected Delaware Management Company, a series of Delaware Management Business Trust, to serve as the fund's investment advisor. In deciding which stocks to buy for the fund, Delaware Management Company employs a bottom-up, fundamental analysis to identify companies that have substantially above average earnings growth because of management changes, new products, growth of established products or structural changes in the economy. Delaware Management Company also considers the quality of a company's management team and the strength of its finances and internal controls in selecting stocks for the fund. Although Delaware Management Company follows companies in a full range of market sectors, it may focus on a limited number of attractive industries. Delaware Management Company generally sells stocks that no longer meet its selection criteria, are at risk for fundamental deterioration or when it identifies more attractive investment opportunities. PRINCIPAL RISKS An investment in the fund is not guaranteed; you may lose money by investing in the fund. The principal risks presented by an investment in the fund are: EQUITY RISK -- Stocks and other equity securities generally fluctuate in value more than bonds. The fund could lose all of its investment in a company's stock. LIMITED CAPITALIZATION RISK -- Equity risk is greater for the common stocks of mid and small cap companies because they generally are more vulnerable than larger companies to adverse business or economic developments and they may have more limited resources. In general, these risks are greater for small cap companies than for mid cap companies. SECTOR RISK -- Because the fund may invest a significant portion of its assets in the stocks of companies in particular economic sectors, economic changes adversely affecting such a sector may have more of an impact on the fund's performance than another fund having a broader range of investments. DERIVATIVES RISK -- The fund's investments in derivatives may rise or fall more rapidly than other investments. More information about risks of an investment in the fund is provided below in "More About Risks and Investment Strategies." - -------------------------------------------------------------------------------- Prospectus Page 32 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Small/Medium Company Growth Equity Investments PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart and table provide information about the fund's performance and thus give some indication of the risks of an investment in the fund. The bar chart shows how the fund's performance has varied from year to year. The bar chart does not reflect the maximum annual PACE Select Advisors Program fee; if it did, the total returns shown would be lower. The table that follows the bar chart shows the average annual returns over several time periods. The table does reflect the maximum annual PACE Select Advisors Program fee. The table compares fund returns to returns on a broad-based market index that is unmanaged and that, therefore, does not include any fees or expenses. The fund's past performance does not necessarily indicate how the fund will perform in the future. This may be particularly true for the period prior to December 17, 1996, which is the date on which Delaware Management Company assumed day-to-day management of the fund's assets. Prior to that date, another investment advisor was responsible for managing the fund's assets. TOTAL RETURN (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN 1996 7.36% 1997 21.73% 1998 14.86% 1999 78.75% 2000 (8.09)%
Total Return January 1 to September 30, 2001 -- (32.55)% Best quarter during calendar years shown: 4th quarter, 1999 -- 38.15% Worst quarter during calendar years shown: 4th quarter, 2000 -- (24.00)% AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2000
RUSSELL 2500 CLASS P GROWTH INDEX -------- ------------ One Year.................................................... (9.46)% (16.09)% Five Years.................................................. 18.00% 12.18% Life of Fund (Inception Date 8/24/95)....................... 16.28% 12.18%
- -------------------------------------------------------------------------------- Prospectus Page 33 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Small/Medium Company Growth Equity Investments EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy and hold shares of the fund. SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment) Maximum Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ None Maximum Deferred Sales Charge (Load) (as a % of offering price)................................ None Maximum Annual Account Fee for PaineWebber PACE Select Advisors Program (as a % of average value of shares held on the last calendar day of the previous quarter)..................... 1.50% ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets) Management Fees............................................. 0.60% Distribution and/or Service (12b-1) Fees.................... None Other Expenses*............................................. 0.37% ---- Total Annual Fund Operating Expenses........................ 0.97% ====
- --------- * Includes an administration fee of 0.20% paid by the fund to Brinson Advisors. 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. This 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. The example includes the maximum annual fee for the PACE Select Advisors Program and also assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS - ------ -------- -------- -------- $250 $770 $1,316 $2,806
- -------------------------------------------------------------------------------- Prospectus Page 34 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE International Equity Investments PACE INTERNATIONAL EQUITY INVESTMENTS INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE Capital appreciation. PRINCIPAL INVESTMENT STRATEGIES The fund invests primarily in stocks of companies that are domiciled in developed foreign countries and principally traded in Japanese, European, Pacific and Australian securities markets or traded in U.S. securities markets. The fund may invest, to a limited extent, in stocks of companies in emerging markets, including Asia, Latin America and other regions where markets may not yet fully reflect the potential of the developing economy. The fund may also invest, to a limited extent, in securities of other investment companies that invest in foreign markets and securities convertible into stocks, including convertible bonds that are below investment grade. The fund may (but is not required to) use forward currency contracts, options, futures and other derivatives as part of its investment strategy or to help manage portfolio risks. Brinson Advisors, Inc., the fund's manager, has selected Martin Currie Inc. to serve as the fund's investment advisor. Martin Currie Inc. looks for companies that exhibit strong fundamentals and attractive valuations based on estimates of future earnings. In making country allocation decisions, Martin Currie Inc. considers such factors as economic and political stability, breadth and liquidity of the market, the nature of local investors, the currency outlook, valuation and the settlement system. Martin Currie Inc. generally sells securities when either the country or the issuer no longer meets these selection criteria or when it identifies more attractive investment opportunities. PRINCIPAL RISKS An investment in the fund is not guaranteed; you may lose money by investing in the fund. The principal risks presented by an investment in the fund are: EQUITY RISK -- Stocks and other equity securities generally fluctuate in value more than bonds. The fund could lose all of its investment in a company's stock. FOREIGN INVESTING AND EMERGING MARKETS RISKS -- The value of the fund's investments in foreign securities may fall due to adverse political, social and economic developments abroad and due to decreases in foreign currency values relative to the U.S. dollar. These risks are greater for investments in emerging market issuers than for issuers in more developed countries. DERIVATIVES RISK -- The fund's investments in derivatives may rise or fall more rapidly than other investments. More information about risks of an investment in the fund is provided below in "More About Risks and Investment Strategies." - -------------------------------------------------------------------------------- Prospectus Page 35 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE International Equity Investments PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart and table provide information about the fund's performance and thus give some indication of the risks of an investment in the fund. The bar chart shows how the fund's performance has varied from year to year. The bar chart does not reflect the maximum annual PACE Select Advisors Program fee; if it did, the total returns shown would be lower. The table that follows the bar chart shows the average annual returns over several time periods. The table does reflect the maximum annual PACE Select Advisors Program fee. The table compares fund returns to returns on a broad-based market index that is unmanaged and that, therefore, does not include any fees or expenses. The fund's past performance does not necessarily indicate how the fund will perform in the future. TOTAL RETURN (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN 1996 10.30% 1997 9.46% 1998 16.34% 1999 35.65% 2000 (20.33)%
Total Return January 1 to September 30, 2001 -- (27.00)% Best quarter during calendar years shown: 4th quarter, 1999 -- 24.39% Worst quarter during calendar years shown: 3rd quarter, 1998 -- (14.64)% AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2000
MSCI EUROPE, AUSTRALASIA AND CLASS P FAR EAST INDEX -------- -------------- One Year.................................................... (21.52)% (13.96)% Five years.................................................. 7.09% 7.43% Life of Fund (Inception Date 8/24/95)....................... 7.18% 8.16%
- -------------------------------------------------------------------------------- Prospectus Page 36 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE International Equity Investments EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy and hold shares of the fund. SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment) Maximum Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ None Maximum Deferred Sales Charge (Load) (as a % of offering price)................................ None Maximum Annual Account Fee for PaineWebber PACE Select Advisors Program (as a % of average value of shares held on the last calendar day of the previous quarter)..................... 1.50% ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets) Management Fees............................................. 0.70% Distribution and/or Service (12b-1) Fees.................... None Other Expenses*............................................. 0.47% ---- Total Annual Fund Operating Expenses........................ 1.17% ====
- --------- * Includes an administration fee of 0.20% paid by the fund to Brinson Advisors. 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. This 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. The example includes the maximum annual fee for the PACE Select Advisors Program and also assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS - ------ -------- -------- -------- $323 $986 $1,674 $3,503
- -------------------------------------------------------------------------------- Prospectus Page 37 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE International Emerging Markets Equity Investments PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS INVESTMENT OBJECTIVE, STRATEGIES AND RISK - -------------------------------------------------------------------------------- FUND OBJECTIVE Capital appreciation. PRINCIPAL INVESTMENT STRATEGIES The fund invests primarily in stocks of companies domiciled in emerging market countries. The fund generally defines emerging market countries as countries that are not included in the MSCI World Index of major world economies. However, countries included in this index may be considered emerging markets based on current political and economic factors. For example, the fund's investment advisor has determined, based on an analysis of current economic and political factors pertaining to Hong Kong SAR, that Hong Kong SAR should be considered as an emerging market country for purposes of the Fund's eligible investments. The fund may not always diversify its investments on a geographic basis among emerging market countries. The fund may invest, to a limited extent, in bonds, including up to 10% of its total assets in bonds that are below investment grade. Below investment grade securities are commonly known as "junk bonds." The fund may also invest, to a limited extent, in securities of other investment companies that invest in emerging markets. The fund may (but is not required to) use forward currency contracts, options, futures and other derivatives as part of its investment strategy or to help manage portfolio risks. Brinson Advisors, Inc., the fund's manager, has selected Schroder Investment Management North America Inc. ("SIMNA") to serve as the fund's investment advisor. SIMNA focuses on companies that it believes have a sustainable competitive advantage and growth potential that is undervalued by other investors. SIMNA allocates the fund's assets among emerging market countries based on its assessment of the likelihood that those countries will have favorable long-term business environments. In deciding which securities within a country to buy for the fund, SIMNA analyzes historical growth rates and future growth prospects, management capability and profit margins. SIMNA's evaluation of securities reflects information available from the extensive network of locally based analysts maintained by SIMNA and its affiliates. SIMNA generally sells securities when either the country or the issuer no longer meets these selection criteria or when it identifies more attractive investment opportunities. PRINCIPAL RISKS An investment in the fund is not guaranteed; you may lose money by investing in the fund. The principal risks presented by an investment in the fund are: EQUITY RISK -- Stocks and other equity securities generally fluctuate in value more than bonds. The fund could lose all of its investment in a company's stock. FOREIGN INVESTING AND EMERGING MARKETS RISKS -- The value of the fund's investments in foreign securities may fall due to adverse political, social and economic developments abroad and due to decreases in foreign currency values relative to the U.S. dollar. These risks are greater for investments in emerging market issuers. GEOGRAPHIC CONCENTRATION RISK -- To the extent the fund invests a significant portion of its assets in one geographic area, it will be more susceptible to factors adversely affecting that area. CREDIT RISK -- Bond issuers may fail to make payments when due, or they may become less willing or less able to do so. DERIVATIVES RISK -- The fund's investments in derivatives may rise or fall more rapidly than other investments. More information about risks of an investment in the fund is provided below in "More About Risks and Investment Strategies." - -------------------------------------------------------------------------------- Prospectus Page 38 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE International Emerging Markets Equity Investments PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart and table provide information about the fund's performance and thus give some indication of the risks of an investment in the fund. The bar chart shows how the fund's performance has varied from year to year. The bar chart does not reflect the maximum annual PACE Select Advisors Program fee; if it did, the total returns shown would be lower. The table that follows the bar chart shows the average annual returns over several time periods. The table does reflect the maximum annual PACE Select Advisors Program fee. The table compares fund returns to returns on a broad-based market index that is unmanaged and that, therefore, does not include any fees or expenses. The fund's past performance does not necessarily indicate how the fund will perform in the future. TOTAL RETURN (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN 1996 8.52% 1997 (4.72)% 1998 (24.43)% 1999 61.85% 2000 (36.45)%
Total Return January 1 to September 30, 2001 -- (28.14)% Best quarter during calendar years shown: 4th quarter, 1999 -- 27.14% Worst quarter during calendar years shown: 3rd quarter, 1998 -- (21.52)% AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2000
MSCI EMERGING MARKETS FREE CLASS P INDEX -------- -------- One Year.................................................... (37.40)% (30.61)% Five Years.................................................. (5.70)% (4.17)% Life of Fund (Inception Date 8/24/95)....................... (5.76)% (4.24)%
- -------------------------------------------------------------------------------- Prospectus Page 39 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE International Emerging Markets Equity Investments EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy and hold shares of the fund. SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment) Maximum Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ None Maximum Deferred Sales Charge (Load) (as a % of offering price)................................ None Maximum Annual Account Fee for PaineWebber PACE Select Advisors Program (as a % of average value of shares held on the last calendar day of the previous quarter)..................... 1.50% ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets) Management Fees............................................. 0.90% Distribution and/or Service (12b-1) Fees.................... None Other Expenses*............................................. 0.92% ---- Total Annual Fund Operating Expenses........................ 1.82% ==== Management Fee Waiver/Expense Reimbursements**.............. 0.32% ---- Net Expenses**.............................................. 1.50% ====
- --------- * Includes an administration fee of 0.20% paid by the fund to Brinson Advisors. ** The fund and Brinson Advisors have entered into a written agreement under which Brinson Advisors is contractually obligated to waive its management fees and/or reimburse the fund so that the fund's expenses through December 1, 2002 would not exceed 1.50%. The fund has agreed to repay Brinson Advisors for any reimbursed expenses to the extent that it can do so over the following three fiscal years without causing the fund's expenses in any of those three years to exceed this expense cap. 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. This 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. The example includes the maximum annual fee for the PACE Select Advisors Program and also assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same, except for the period when the fund's expenses are lower due to its agreement with Brinson Advisors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS - ------ -------- -------- -------- $303 $992 $1,704 $3,591
- -------------------------------------------------------------------------------- Prospectus Page 40 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust MORE ABOUT RISKS AND INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- PRINCIPAL RISKS The main risks of investing in the funds are described below. Not all of these risks apply to each fund. You can find a list of the main risks that apply to a particular fund by looking under the "Investment Objective, Strategies and Risks" heading for that fund. Other risks of investing in a fund, along with further details about some of the risks described below, are discussed in the funds' Statement of Additional Information ("SAI"). Information on how you can obtain the SAI is on the back cover of this prospectus. CREDIT RISK. Credit risk is the risk that the issuer of a bond will not make principal or interest payments when they are due. Even if an issuer does not default on a payment, a bond's value may decline if the market believes that the issuer has become less able, or less willing, to make payments on time. Even high quality bonds are subject to some credit risk. However, credit risk is greater for lower quality bonds. Bonds that are not investment grade involve high credit risk and are considered speculative. Some of these low quality bonds may be in default when purchased by a fund. Low quality bonds may fluctuate in value more than higher quality bonds and, during periods of market volatility, may be more difficult to sell at the time and price a fund desires. DERIVATIVES RISK. The value of "derivatives" -- so-called because their value "derives" from the value of an underlying asset, reference rate or index -- may rise or fall more rapidly than other investments. For some derivatives, it is possible for a fund to lose more than the amount it invested in the derivative. Options, futures contracts and forward currency contracts are examples of derivatives. A fund's use of derivatives may not succeed for various reasons, including unexpected changes in the values of the derivatives or the assets underlying them. Also, if a fund uses derivatives to adjust or "hedge" the overall risk of its portfolio, the hedge may not succeed if changes in the values of the derivatives are not matched by opposite changes in the values of the assets being hedged. EQUITY RISK. The prices of common stocks and other equity securities generally fluctuate more than those of other investments. They reflect changes in the issuing company's financial condition and changes in the overall market. Common stocks generally represent the riskiest investment in a company. A fund may lose a substantial part, or even all, of its investment in a company's stock. Growth stocks may be more volatile than value stocks. FOREIGN INVESTING AND EMERGING MARKETS RISKS. Foreign investing involves risks relating to political, social and economic developments abroad to a greater extent than investing in the securities of U.S. issuers. In addition, there are differences between U.S. and foreign regulatory requirements and market practices. Foreign investments denominated in foreign currencies are subject to the risk that the value of a foreign currency will fall in relation to the U.S. dollar. Currency exchange rates can be volatile and can be affected by, among other factors, the general economics of a country, the actions of U.S. and foreign governments or central banks, the imposition of currency controls and speculation. Investments in foreign government bonds involve special risks because the investors may have limited legal recourse in the event of default. Political conditions, especially a country's willingness to meet the terms of its debt obligations, can be of considerable significance. Securities of issuers located in emerging market countries are subject to all of the risks of other foreign securities. However, the level of those risks often is higher due to the fact that social, political, legal and economic systems in emerging market countries may be less fully developed and less stable than those in developed countries. Emerging market securities also may be subject to additional risks, such as lower liquidity and larger or more rapid changes in value. GEOGRAPHIC CONCENTRATION RISK. PACE International Emerging Markets Equity Investments will not necessarily seek to diversify its investments on a geographic basis within the emerging markets category. To the extent the fund concentrates its investments in issuers located in one country or area, it is more susceptible to factors adversely affecting that country or area. - -------------------------------------------------------------------------------- Prospectus Page 41 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust INDEX STRATEGY RISK. Performance of the portions of PACE Large Company Value Equity Investments and PACE Large Company Growth Equity Investments managed by SSgA may deviate from that of an index because of shareholder purchases and sales of shares, which can occur daily, and because of fees and expenses borne by a fund. INTEREST RATE RISK. The value of bonds generally can be expected to fall when interest rates rise and to rise when interest rates fall. Interest rate risk is the risk that interest rates will rise, so that the value of a fund's investments in bonds will fall. Interest rate risk is the primary source of risk for U.S. government and usually for other very high quality bonds. The impact of changes in the general level of interest rates on lower quality bonds may be greater or less than the impact on higher quality bonds. Some corporate and municipal bonds, particularly those issued at relatively high interest rates, provide that the issuer may repay them earlier than the maturity date. The issuers of these bonds are most likely to exercise these "call" provisions if prevailing interest rates are lower than they were when the bonds were issued. A fund then may have to reinvest the repayments at lower interest rates. Bonds subject to call provisions also may not benefit fully from the rise in value that generally occurs for bonds when interest rates fall. LEVERAGE RISK. Leverage involves increasing the total assets in which a fund can invest beyond the level of its net assets. Because leverage increases the amount of a fund's assets, it can magnify the effect on the fund of changes in market values. As a result, while leverage can increase a fund's income and potential for gain, it also can increase expenses and the risk of loss. PACE Government Securities Fixed Income Investments and PACE Strategic Fixed Income Investments, which use leverage by investing in when-issued and delayed delivery bonds, attempt to limit the potential magnifying effect of the leverage by managing their portfolio duration. LIMITED CAPITALIZATION RISK. Securities of mid and small capitalization companies generally involve greater risk than securities of larger capitalization companies because they may be more vulnerable to adverse business or economic developments. Mid and small capitalization companies also may have limited product lines, markets or financial resources, and they may be dependent on a relatively small management group. Securities of mid and small cap companies may be less liquid and more volatile than securities of larger capitalization companies or the market averages in general. In addition, small cap companies may not be well known to the investing public, may not have institutional ownership and may have only cyclical, static or moderate growth prospects. In general, all of these risks are greater for small cap companies than for mid cap companies. POLITICAL RISK. The municipal bond market can 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 municipal bond 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. Legislatures also may fail to appropriate funds needed to pay municipal bond obligations. These events could cause the value of the municipal bonds held by PACE Municipal Fixed Income Investments 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 can become volatile. PREPAYMENT RISK. Payments on bonds that are backed by mortgage loans or similar assets may be received earlier or later than expected due to changes in the rate at which the underlying loans are prepaid. Faster prepayments often happen when market interest rates are falling. As a result, a fund may need to reinvest these early payments at those lower interest rates, thus reducing its income. Conversely, when interest rates rise, prepayments may happen more slowly, causing the underlying loans to be outstanding for a longer time than anticipated. This can cause the market value of the security to fall because the market may view its interest rate as too low for a longer term investment. RELATED SECURITIES CONCENTRATION RISK. PACE Municipal Fixed Income Investments may invest more than 25% of its total assets in municipal bonds that are issued by public housing authorities and state and local housing finance authorities. Economic, business or political developments or changes that affect one municipal bond in this sector also may affect other municipal bonds in the same sector. As a result, the fund is subject to greater risk than a fund that does not follow this practice. SECTOR RISK. PACE Large Company Growth Equity Investments and PACE Small/Medium Company Growth Equity Investments each may invest a significant portion of its assets in the stocks of companies in various economic sectors. During the past year, each had significant portions of its assets in stocks of companies in the technology and/or healthcare sectors. Because each of these funds may invest a significant portion of its assets in the stocks of companies in particular economic sectors, economic changes adversely affecting such a sector may - -------------------------------------------------------------------------------- Prospectus Page 42 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust have more of an impact on the fund's performance than another fund having a broader range of investments. For example, individual issuers within the technology sector, as well as the techology sector as a whole, can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits and competition from new market entrants. SINGLE ISSUER CONCENTRATION RISK. PACE Intermediate Fixed Income Investments and PACE Global Fixed Income Investments are non-diversified. A non-diversified fund may invest more than 5% of its total assets in securities of a single issuer to a greater extent than a diversified fund. When a fund holds a large position in the securities of one issuer, changes in the financial condition or in the market's assessment of that issuer may cause larger changes in the fund's total return and in the price of its shares than it would for a diversified fund. ADDITIONAL RISK STRUCTURED SECURITY RISK. The funds, including PACE Money Market Investments, may purchase securities representing interests in underlying assets, but structured to provide certain advantages not inherent in those assets (E.G., enhanced liquidity, yields linked to short-term interest rates). If those securities behaved in a way that a fund's investment advisor(s) did not anticipate, or if the security structures encountered unexpected difficulties, the fund could suffer a loss. ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES CASH RESERVES; DEFENSIVE POSITIONS. PACE Money Market Investments invests exclusively in money market instruments. Each of the other funds may invest to a limited extent in money market instruments as a cash reserve for liquidity or other purposes. PACE Municipal Fixed Income Investments may invest to a limited extent in taxable money market instruments for liquidity purposes when suitable municipal money market instruments are not available. As vehicles to implement long-term investment strategies, each fund is normally fully invested in accordance with its investment objective and policies. However, with the concurrence of Brinson Advisors, a fund may take a defensive position that is different from its normal investment strategy to protect itself from adverse market conditions. This means that a fund may temporarily invest a larger-than-normal part, or even all, of its assets in cash or money market instruments, including (for funds that are authorized to invest outside the United States) money market instruments that are denominated in foreign currencies. In addition, each fund may increase its cash reserves to facilitate the transition to the investment style and strategies of a new investment advisor. Because these investments provide relatively low income, a defensive or transition position may not be consistent with achieving a fund's investment objective. In addition, the funds listed below may make the following temporary investments for defensive purposes: PACE Municipal Fixed Income Investments may invest without limit in certain taxable securities. PACE Global Fixed Income Investments may invest in securities of only one country, including the United States. PACE International Equity Investments may invest without limit in bonds that are traded in the United States and in foreign markets. PORTFOLIO TURNOVER. Each fund (other than PACE Money Market Investments) may engage in frequent trading to achieve its investment objective. Frequent trading can result in portfolio turnover in excess of 100% (high portfolio turnover). Frequent trading may increase the portion of a fund's capital gains that are realized for tax purposes in any given year. This may increase the fund's taxable distributions in that year. Frequent trading also may increase the portion of a fund's realized capital gains that are considered "short-term" for tax purposes. Shareholders will pay higher taxes on distributions that represent short-term capital gains than they would pay on distributions that represent long-term capital gains. Frequent trading also may result in higher fund expenses due to transaction costs and may negatively impact fund performance. The funds do not restrict the frequency of trading to limit expenses or to minimize the tax effect that a fund's distributions may have on shareholders. PACE MONEY MARKET INVESTMENTS. Like all money market funds, PACE Money Market Investments is subject to maturity, quality and diversification requirements designed to help it maintain a stable price of $1.00 per share. Brinson Advisors may use a number of professional money management techniques to respond to changing economic and money market conditions and to shifts in fiscal and monetary policy. These techniques include varying the fund's composition and weighted average maturity based on its assessment of the relative values of various money market instruments and future interest rate patterns. Brinson Advisors also may buy or sell money market instruments to take advantage of yield differences. - -------------------------------------------------------------------------------- Prospectus Page 43 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust INVESTING IN THE FUNDS - -------------------------------------------------------------------------------- BUYING SHARES If you are a participant in the PaineWebber PACE-SM- Select Advisors Program, you may buy Class P shares of the funds through a managed account maintained with UBS PaineWebber Inc. ("UBS PaineWebber-SM-*") You must make payment for fund shares by check made payable to UBS PaineWebber. Your payment is due no later than the first business day after the order is placed. You may not place an order until you have completed the Investor Profile Questionnaire for the PACE Select Advisors Program (described below), reviewed the resulting analysis, made the asset allocation decision and executed the necessary PACE Select Advisors Program documentation. Your Financial Advisor is responsible for promptly forwarding your order to UBS PaineWebber's headquarters. The Trust and UBS PaineWebber reserve the right to reject a purchase order or suspend the offering of fund shares. The minimum initial aggregate investment in the Trust is $10,000. Any subsequent investment in the Trust must be at least $500. The Trust may vary these minimums. THE PAINEWEBBER PACE-SM- SELECT ADVISORS PROGRAM The PaineWebber PACE-SM- Select Advisors Program is an investment advisory service pursuant to which UBS PaineWebber provides you with personalized investment allocation recommendations. UBS PaineWebber does not have any investment discretion over your PACE Select Advisors Program account. You will make all the investment decisions. Under the PACE Select Advisors Program, your Financial Advisor assists you in identifying your financial characteristics, including your risk tolerance and investment objectives; and completing an Investor Profile Questionnaire, which you may update from time to time with your Financial Advisor's assistance. UBS PaineWebber uses an investment profile evaluation and asset allocation methodology to translate this information into a suggested allocation of your assets among different funds. Your Financial Advisor presents the recommended allocation to you initially and reviews the PACE Select Advisors Program account with you at least annually. Your Financial Advisor also may, if you so request, review with you the monthly account statements and other information, such as quarterly performance data. Your Financial Advisor also monitors any changes in your financial characteristics that you identify through a revised Investor Profile Questionnaire and communicates these changes to UBS PaineWebber for reevaluation of your investment profile. You may direct your Financial Advisor to automatically rebalance your PACE Select Advisors Program account on a quarterly basis to assure that any deviation from the designated allocation among the funds does not exceed a specified threshold. PACE PROGRAM FEE For the services provided to you under the PACE Select Advisors Program, you will pay UBS PaineWebber a quarterly Program Fee at an annual rate of up to 1.50% of the value of the shares of the funds held in your account under the PACE Select Advisors Program. This quarterly fee is generally charged to your UBS PaineWebber account. The Program Fee may be reduced for certain Individual Retirement Accounts, retirement plans for self-employed individuals and employee benefit plans that are subject to the Employee Retirement Security Act of 1974. For these participants, UBS PaineWebber may provide different services than those described above and may charge different fees. These participants also may make arrangements to pay the quarterly fee separately. In addition, Trustees of the Trust, employees of Brinson Advisors and UBS PaineWebber and their family members who maintain an "employee-related" account at UBS PaineWebber, and trustees or directors of other UBS PaineWebber mutual funds may participate in the PACE Select Advisors Program at a reduced fee or for no fee. Program Fees also may be subject to negotiation and may differ based upon the type of account, the size of the account, the amount of PACE Select Advisors Program assets in the account and the number or range of supplementary advisory services to be provided by Financial Advisors, among other factors. Financial Advisors receive a portion of the PACE Select Advisors Program Fee for the services they provide to participants. - --------- * UBS PaineWebber is a service mark of UBS AG. - -------------------------------------------------------------------------------- Prospectus Page 44 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust Investors who are fiduciaries for a retirement or employee benefit plan should consider, in a prudent manner, the relationship of the fees to be paid by the plan and the level of services to be provided by UBS PaineWebber. As a PACE Select Advisors Program participant, you may incur greater total fees and expenses than investors purchasing shares of this or similar investment companies without the benefit of these professional asset allocation recommendations. SELLING SHARES You can sell your fund shares at any time. You may sell your shares by contacting your Financial Advisor in person or by telephone or mail. Your Financial Advisor is responsible for promptly forwarding your request to UBS PaineWebber's headquarters. After it receives and accepts your request, UBS PaineWebber repurchases your fund shares. You generally will receive the proceeds of the sale within the first business day after UBS PaineWebber receives the order. UBS PaineWebber reserves the right not to repurchase your shares. In that case, UBS PaineWebber forwards your request to sell your shares to the funds' transfer agent. The transfer agent will sell your shares after you provide it with the following information in writing: Your name and address; The fund's name; Your account number; The dollar amount or number of shares you want to sell; and A guarantee of each registered owner's signature. A signature guarantee may be obtained from a financial institution, broker, dealer or clearing agency that is a participant in one of the medallion programs recognized by the Securities Transfer Agents Association. These are: Securities Transfer Agents Medallion Program (STAMP), Stock Exchanges Medallion Program (SEMP) and the New York Stock Exchange Medallion Signature Program (MSP). The Trust and the transfer agent will not accept signature guarantees that are not a part of these programs. Sales through the transfer agent may also need to include additional supporting documents for sales by estates, trusts, guardianships, custodianships, partnerships and corporations. It costs the Trust money to maintain shareholder accounts. Therefore, the Trust reserves the right to repurchase all fund shares in any PACE Select Advisors Program account that has a net asset value of less than $7,500. If the Trust elects to do this with your account, it will notify you that you can increase the amount invested to the account minimum in effect at the time the PACE Select Advisors Program account was originally opened or more within 30 days. This notice may appear on your account statement. If you want to sell shares that you purchased recently, the Trust may delay payment until it verifies that it has received good payment. If you purchased shares by check, this can take up to 15 days. PRICING AND VALUATION The price at which you may buy, sell or exchange each fund's shares is based on the next net asset value per share. Each fund calculates its net asset value on days that the New York Stock Exchange (NYSE) is open 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 funds do not price their shares, on most national holidays and on Good Friday. If trading on the NYSE is halted for the day before 4:00 p.m., Eastern time, each fund's net asset value per share will be calculated as of the time trading was halted. PACE MONEY MARKET INVESTMENTS' net asset value per share is expected to be $1.00 per share, although this value is not guaranteed. PACE Money Market Investments values its securities at their amortized cost. This method uses a constant amortization to maturity of the difference between the cost of the instrument to the fund and the amount due at maturity. OTHER FUNDS. Each other fund calculates its net asset value based on the current market value for its portfolio securities. The funds normally obtain market values for their securities from independent pricing services that use reported last sales prices, current market quotations or valuations from computerized "matrix" systems that derive values based on comparable securities. If a market value is not available from an independent pricing source for a particular security, that security is valued at a fair value determined by or under the direction of the Trust's board of trustees. The funds normally use the amortized cost method to value bonds that will mature in 60 days or less. Judgment plays a greater role in valuing thinly traded securities, including many lower-rated bonds, because there is less reliable, objective data available. The funds calculate the U.S. dollar value of investments that are denominated in foreign currencies daily, based on current exchange rates. A fund may own securities, including some securities that trade primarily in foreign markets, that trade on weekends or other days on which a fund does not calculate net asset value. As a result, a fund's net asset value may change on days when you will not be able to buy or sell fund shares. If a fund concludes that a material change in the value of a foreign security has occurred after the close of trading in the principal foreign market but before the close of the NYSE, the fund may use fair value methods to reflect those changes. This policy is intended to assure that the fund's net asset value fairly reflects security values as of the time of pricing. - -------------------------------------------------------------------------------- Prospectus Page 45 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust MANAGEMENT - -------------------------------------------------------------------------------- MANAGER AND INVESTMENT ADVISORS Brinson Advisors is the manager and administrator of each fund. Brinson Advisors is located at 51 West 52nd Street, New York, New York 10019-6114, and is an indirect wholly owned asset management subsidiary of UBS AG. UBS AG is an internationally diversified organization with headquarters in Zurich, Switzerland and operations in many areas of the financial services industry. On September 30, 2001, Brinson Advisors was the investment advisor, sub-advisor or manager of 24 investment companies with 58 separate portfolios and aggregate assets of approximately $66.3 billion. Brinson Advisors provides investment advisory services for PACE Money Market Investments. Brinson Advisors selects investment advisors for the other funds, subject to approval of the board, and reviews the performance of those investment advisors. The funds have received an exemptive order from the SEC to permit the board to select and replace investment advisors and to amend the sub-advisory contracts between Brinson Advisors and the investment advisors without obtaining shareholder approval. MANAGEMENT AND ADMINISTRATION FEES Each fund pays fees to Brinson Advisors for management and administrative services. The annual contract rate for management services varies from 0.15% to 0.90% of a fund's average daily net assets. The annual contract rate for administrative services is 0.20% of each fund's average daily net assets. The following table shows the combined annual fee rate for management and administrative services for each fund: PACE Money Market Investments.......... 0.35% PACE Government Securities Fixed Income Investments.......................... 0.70% PACE Intermediate Fixed Income Investments.......................... 0.60% PACE Strategic Fixed Income Investments.......................... 0.70% PACE Municipal Fixed Income Investments.......................... 0.60% PACE Global Fixed Income Investments... 0.80% PACE Large Company Value Equity Investments.......................... 0.80% PACE Large Company Growth Equity Investments.......................... 0.80% PACE Small/Medium Company Value Equity Investments.......................... 0.80% PACE Small/Medium Company Growth Equity Investments.......................... 0.80% PACE International Equity Investments.......................... 0.90% PACE International Emerging Markets Equity Investments................... 1.10%
During the fiscal year ended July 31, 2001, some of the funds paid Brinson Advisors at the lower effective rate shown below because Brinson Advisors waived a portion of its fees: PACE Money Market Investments.......... 0.00% PACE Government Securities Fixed Income Investments.......................... 0.39% PACE Intermediate Fixed Income Investments.......................... 0.44% PACE Strategic Fixed Income Investments.......................... 0.63% PACE Municipal Fixed Income Investments.......................... 0.31% PACE Global Fixed Income Investments... 0.45% PACE Large Company Value Equity Investments.......................... 0.57% PACE Large Company Growth Equity Investments.......................... 0.63% PACE Small/Medium Company Value Equity Investments.......................... 0.73% PACE Small/Medium Company Growth Equity Investments.......................... 0.70% PACE International Equity Investments.......................... 0.72% PACE International Emerging Markets Equity Investments................... 0.72%
INVESTMENT ADVISORS AND PORTFOLIO MANAGERS PACE MONEY MARKET INVESTMENTS. Brinson Advisors provides all investment advisory services for this fund. Susan P. Ryan, an executive director of Brinson Advisors, is primarily responsible for the fund's day-to-day portfolio management. She has held her fund responsibilities since its inception. PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS AND PACE STRATEGIC FIXED INCOME INVESTMENTS. Pacific Investment Management Company LLC ("PIMCO") serves as investment advisor for these funds. PIMCO is located at 840 Newport Center Drive, Suite 300, Newport Beach, California 92660. On September 30, 2001, PIMCO had approximately $234.9 billion in assets under management. PIMCO is one of the largest fixed - -------------------------------------------------------------------------------- Prospectus Page 46 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust income management firms in the nation. Included among PIMCO's institutional clients are many "Fortune 500" companies. Pasi Hamalainen, a managing director of PIMCO, has been primarily responsible for the day-to-day portfolio management for PACE Government Securities Fixed Income Investments since November 5, 2001. Mr. Hamalainen is a generalist portfolio manager and a member of PIMCO's investment committee. Previously, he has served as PIMCO's Head of Fixed Income portfolio management in Europe and as the director of portfolio analytics and the co-head of the firm's mortgage team in Newport Beach. Mr. Hamalainen joined the firm in 1994, having previously held a fellowship at The Wharton School. He has eight years of investment experience and holds bachelor's degrees in both electrical engineering and finance from the University of Pennsylvania and a master's in finance from The Wharton School at the University of Pennsylvania. Since July 1997, William C. Powers, a managing director of PIMCO, has been primarily responsible for the day-to-day portfolio management for PACE Strategic Fixed Income Investments. Mr. Powers has been associated with PIMCO since 1991 as a senior member of the fixed income portfolio management group. PACE INTERMEDIATE FIXED INCOME INVESTMENTS. Metropolitan West Asset Management, LLC ("MWAM") serves as investment advisor for PACE Intermediate Fixed Income Investments. MWAM is located at 11766 Wilshire Blvd., Suite 1580, Los Angeles, California 90025. MWAM was formed in 1996 and, as of September 30, 2001, had over $14.5 billion in fixed income investments under management. MWAM uses a team approach in advising PACE Intermediate Fixed Income Investments. The team members are Stephen Kane, Laird R. Landmann, Tad Rivelle and Brian H. Loo. All team members have held their fund responsibilities since October 10, 2000. Mr. Kane, CFA has been a portfolio manager with MWAM since August 1996. From November 1995 until July 1996, he was a portfolio manager with Hotchkis and Wiley in Los Angeles, California. Before then, Mr. Kane was an account manager with PIMCO in Newport Beach, California. Mr. Landmann has been a managing director and portfolio manager with MWAM since August 1996. From November 1992 until July 1996, he was a principal and co-director of fixed income with Hotchkis and Wiley in Los Angeles, California. Before then, he was a portfolio manager with PIMCO in Newport Beach, California. Mr. Rivelle has been the chief investment officer and a managing director with MWAM since August 1996. From November 1992 until July 1996, he was a principal and co-director of fixed income with Hotchkis and Wiley in Los Angeles, California. Before then, he was a portfolio manager with PIMCO in Newport Beach, California. Mr. Loo, CFA has been a portfolio manager and analyst with MWAM since August 1996. From June 1996 until July 1996, Mr. Loo worked as an analyst with Hotchkis and Wiley in Los Angeles, California. Before then, he worked as an analyst with Trust Company of the West (starting in May 1994 while completing a graduate finance degree at Carnegie Mellon University). PACE MUNICIPAL FIXED INCOME INVESTMENTS. Standish Mellon Asset Management Company LLC ("Standish Mellon") serves as investment advisor for PACE Municipal Fixed Income Investments. Standish Mellon is located at One Financial Center, Boston, Massachusetts 02111. Standish Mellon assumed management of the fund on August 1, 2001. Standish Mellon's predecessor was founded in 1933 and, as of September 30, 2001, Standish Mellon had over $40.6 billion in assets under management. Christine L. Todd is primarily responsible for the day-to-day management of the fund. She has held her fund responsibilities with either Standish Mellon or its predecessor since June 1, 2000. Ms. Todd is a director of Standish Mellon. She joined Standish Mellon's predecessor in 1995 from Gannett, Welsh & Kotler, where she was a vice president responsible for municipal bond research and trading. PACE GLOBAL FIXED INCOME INVESTMENTS. Rogge Global Partners plc and Fischer Francis Trees & Watts, Inc. and its affiliates serve as investment advisors for PACE Global Fixed Income Investments. Rogge Global Partners is located at Sion Hall, 56 Victoria Embankment, London, EC4Y ODZ, England. Rogge Global Partners was organized in 1984 and specializes in global fixed income management. As of September 30, 2001, it had approximately $6.9 billion in assets under management. Rogge Global Partners uses a team approach in managing the fund's portfolio. The team is led by Olaf Rogge, the chief investment officer of Rogge Global Partners. Mr. Rogge, who founded Rogge Global Partners in 1984, has been managing global investments for more than 25 years and has held his fund responsibilities since the fund's inception in August 1995. - -------------------------------------------------------------------------------- Prospectus Page 47 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust Other members of the team are John Graham, Richard Bell, Adrian James, Malie Conway and Richard Gray. These team members have held their fund responsibilities since August 1995 except for Ms. Conway, who has held her responsibilities since August 1998, and Mr. Gray, who has held his fund responsibilities since April 1999. Mr. Graham joined Rogge Global Partners in February 1994 and is currently a director, portfolio manager and analyst. Prior to that time, he served as a senior manager of the multi-currency fixed income investment team at JP Morgan. Mr. Bell joined Rogge Global Partners in June 1990 and serves as a director, portfolio manager and analyst. Mr. James joined Rogge Global Partners in April 1995 and serves as a director, portfolio manager and analyst. From October 1987 through April 1995, Mr. James worked for NatWest Capital Markets, where he was a director and functioned as the international bond economist. Ms. Conway joined Rogge Global Partners in 1998 as a portfolio manager in charge of global credit. She was previously a senior portfolio manager at Rothschild Asset Management managing U.S., global and short-term mandates. Before joining Rothschild, she spent seven years at JP Morgan where she also managed U.S., global and short-term mandates. Richard Gray joined Rogge Global Partners in April 1999 and serves as a portfolio manager and head of emerging markets. He was previously a vice president, emerging debt research of Bank of America (1995-1999) and director, emerging debt research for Nomura International (1994-1995). Fischer Francis Trees & Watts, Inc. ("FFTW (NY)") is located at 200 Park Avenue, 46th Floor, New York, New York 10166. The addresses for its affiliates are Royal Exchange, London, EC 3V 3RA for Fischer Francis Trees & Watts (UK); 50 Raffles Place, #22-01 Singapore Land Tower, Singapore 048623 for Fischer Francis Trees & Watts Pte Ltd (Singapore); and Fukoku Seimei Building 21F, 2-2, Uchisaiwaicho 2-chome, Chiyoda-Ku Tokyo 100, for Fischer Francis Trees & Watts KK (Japan). The affiliates are either wholly owned subsidiaries of FFTW (NY) or, in the case of FFTW (UK), is a partnership majority owned by FFTW (NY) and minority owned by FFTW Ltd., a UK corporation. FFTW (NY) and its affiliates are referred to collectively as "FFTW." As of September 30, 2001, FFTW and its affiliates had approximately $32 billion in assets under management. FFTW uses a team approach in which a specific portfolio manager is responsible for managing FFTW's share of the fund's assets and determines the broad risk parameters under which these investments operate, but relies on specialist investment teams to determine specific fund investments. The portfolio manager is David Marmon, a managing director of FFTW. Key members of the team are Liaquat Ahamed, president, chief executive officer and chief investment officer of FFTW, and Adnan Akant, Stewart Russell, Richard Williams and Simon Hard, all of whom are managing directors of FFTW. These individuals have held their fund responsibilities since October 10, 2000. Mr. Marmon joined FFTW in 1990 from Yamaichi International (America) where he was head of futures and options research. His responsibilities at Yamaichi included generating trade ideas, daily analysis of market opportunities and preparing research reports. He was previously a financial analyst and strategist at the First Boston Corporation, where he developed hedging programs for financial institutions and industrial firms. He also performed historical and scenario analyses of the futures and options markets for traders and clients. Mr. Marmon began his career in finance as a research analyst on Chase Manhattan's arbitrage and municipal trading desks. Mr. Ahamed came to FFTW in 1988 after nine years with the World Bank, where he was in charge of the bank's investments in all non-dollar government bond markets. Before assuming responsibility for the management of the non-dollar portfolios, he was responsible for investment and trading in each of the markets, including pounds sterling, Deutsche mark, Japanese yen, Canadian dollars and Australian dollars. In addition, he was involved in providing technical advice to numerous central banks on reserve and liability management. Mr. Ahamed worked initially as an economist at the World Bank, providing economic advice and analyses to senior government officials in numerous developing countries including the Philippines, Korea, Bangladesh and Kenya. Mr. Akant joined FFTW in 1984 after six years with the World Bank, where he served initially as a project financial analyst in Europe and the Middle East area before joining the treasurer's staff as an investment officer in 1979. Over the next five years, as a member of the investment department, he was responsible for investment and trading of each of the major sectors of the bank's actively managed liquidity portfolio. He was a member of the investment strategy committee and shares responsibility for formulating and implementing the bank's trading and investment strategy. In 1982, Mr. Akant was promoted to senior investment officer and was the division's deputy in charge of the U.S. dollar portfolio. - -------------------------------------------------------------------------------- Prospectus Page 48 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust Mr. Russell joined FFTW in 1992 from the short-term proprietary trading desk in the global markets area of J.P. Morgan. His primary responsibilities included proprietary positioning of U.S. and non-U.S. government obligations, corporate bonds and asset-backed securities. Prior to that, Mr. Russell managed J.P. Morgan's short-term interest rate risk group, coordinating a $10 billion book of assets and liabilities. Mr. Williams joined FFTW in 1995 from Deutsche Morgan Grenfell, where he worked as an analyst in the fixed-income research department. Mr. Hard joined FFTW's affiliate in London in 1989 from Mercury Asset Management, the investment management affiliate of S.G. Warburg & Co., LTD (now Warburg Dillon Read). His responsibilities there included the formulation of global bond and currency investment policies, and the management of interest rate and currency exposures of the firm's specialist non-dollar bond portfolios. He was previously first vice president and London branch manager of Julius Baer Investment Management, Inc. PACE LARGE COMPANY VALUE EQUITY INVESTMENTS. Institutional Capital Corporation ("ICAP"), Westwood Management Corporation ("Westwood") and SSgA Funds Management, Inc. ("SSgA") serve as investment advisors for PACE Large Company Value Equity Investments. ICAP is located at 225 West Wacker Drive, Suite 2400, Chicago, Illinois 60606-1229, and has been in the investment management business since 1970. As of September 30, 2001, ICAP had approximately $12 billion in assets under management. ICAP uses a team approach in the day-to-day management of its share of the fund's assets and has held its fund responsibilities since July 1, 2000. Westwood is located at 300 Crescent Court, Suite 1300, Dallas, Texas 75201, and has been in the investment management business since 1983. As of September 30, 2001, Westwood had approximately $3.4 billion in assets under management. Susan M. Byrne, president of Westwood since 1983, is primarily responsible for the day-to-day management of Westwood's share of the fund's assets. Ms. Byrne has held her fund responsibilities since July 1, 2000. SSgA is located at Two International Place, Boston, Massachusetts 02110, and is an affiliate of State Street Bank and Trust Company. As of September 30, 2001, SSgA had approximately $51 billion in assets under management and is part of a group of companies that manages approximately $758 billion. SSgA uses a team approach in the day-to-day management of its share of the fund's assets. SSgA and its predecessor, an affiliate, have held their fund responsibilities since October 10, 2000. PACE LARGE COMPANY GROWTH EQUITY INVESTMENTS. Alliance Capital Management L.P. ("Alliance Capital") and SSgA serve as investment advisors for PACE Large Company Growth Equity Investments. Alliance Capital is located at 1345 Avenue of the Americas, New York, New York 10105. It is a leading international investment manager supervising client accounts with assets as of June 30, 2001, of approximately $465 billion. Jane Mack Gould is primarily responsible for the day-to-day management of the fund's assets allocated to Alliance Capital and has held her fund responsibilities since November 1997. Ms. Gould is a senior vice president and portfolio manager and has been with Alliance Capital since 1971. SSgA is located at Two International Place, Boston, Massachusetts 02110, and is an affiliate of State Street Bank and Trust Company. As of September 30, 2001, SSgA had approximately $51 billion in assets under management and is part of a group of companies that manages approximately $758 billion. SSgA uses a team approach in the day-to-day management of its share of the fund's assets. SSgA and its predecessor, an affiliate, have held their fund responsibilities since October 10, 2000. PACE SMALL/MEDIUM COMPANY VALUE EQUITY INVESTMENTS. Ariel Capital Management, Inc. ("Ariel") and ICM Asset Management, Inc. ("ICM") serve as investment advisors for PACE Small/Medium Company Value Equity Investments. Ariel is located at 200 East Randolph Drive, Suite 2900, Chicago, Illinois 60601. It is an investment manager with approximately $6.2 billion in assets under management as of September 30, 2001. Eric T. McKissack is primarily responsible for the day-to-day management of the fund's assets allocated to Ariel and held his fund responsibilities since October 1999. He has been with Ariel since 1986 and is currently its vice chair and co-chief investment officer. ICM is located at 601 W. Main Avenue, Suite 600, Spokane, WA 99201. Although ICM has been registered as an investment advisor since 1982, it had not previously advised mutual funds before October 2000. As of September 30, 2001, it had approximately $1.9 billion in assets under management. ICM uses a team approach in the day-to-day management of its share of the fund's assets and has held its fund responsibilities since October 10, 2000. ICM's team is led by Kevin A. Jones, CFA, and James M. Simmons, CFA. Five experienced analysts round out the research team led by Messrs. Simmons and Jones. - -------------------------------------------------------------------------------- Prospectus Page 49 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust Mr. Simmons is the founder and chief investment officer of ICM. Mr. Jones is a senior portfolio manager with ICM and has managed small- and mid-cap portfolios since 1997. Prior to his appointment as senior portfolio manager in October 1998, Mr. Jones covered numerous industries as a research analyst. Before joining ICM, Mr. Jones spent time as a portfolio analyst for another Northwest investment advisor and as a financial consultant for two major brokerage firms. He has over 13 years experience in the securities industry. PACE SMALL/MEDIUM COMPANY GROWTH EQUITY INVESTMENTS. Delaware Management Company, a series of Delaware Management Business Trust, serves as investment advisor for PACE Small/Medium Company Growth Equity Investments. Delaware Management Company is located at One Commerce Square, Philadelphia, PA 19103. Delaware Management Company and its predecessors have been managing funds for affiliated organizations in the financial services industry, including insurance and investment management, since 1938. As of September 30, 2001, Delaware Management Company and its investment advisory affiliates had over $80 billion in assets under management. Gerald S. Frey is primarily responsible for the fund's day-to-day portfolio management and has held his fund responsibilities since December 1996. Mr. Frey is Managing Director/Chief Investment Officer, Growth Investing of Delaware Management Company. Prior to joining the group of companies of which Delaware Management Company is a part in 1996, Mr. Frey was a senior director with Morgan Grenfell Capital Management, Incorporated in New York. He has 22 years of experience in the money management business. In making investment decisions for the fund, Mr. Frey regularly consults with other members of the Delaware Management Company team: John A. Heffern, Marshall T. Bassett, Jeffrey W. Hynoski, Steven Lampe, Lori P. Wachs and Francis J. Houghton, Jr. Mr. Heffern joined Delaware Management Company in 1997 and serves as a vice president and portfolio manager. Previously, he was a senior vice president, equity research at NatWest Securities Corporation's Specialty Financial Services unit. Prior to that, he was a principal and senior regional bank analyst at Alex. Brown & Sons. Mr. Bassett joined Delaware Management Company in 1997 and serves as a vice president and portfolio manager. Previously, he was employed by Morgan Stanley Asset Management's Emerging Growth Group, most recently as a vice president, where he analyzed small cap growth companies. Prior to that, he was a trust officer at Sovran Bank and Trust Company. Mr. Hynoski joined Delaware Management Company in 1998 and serves as a vice president and portfolio manager. Previously, he held the position of vice president with Bessemer Trust Company. Prior to that, he served as an analyst for Lord Abbett & Co. and Cowen Asset Management. Mr. Lampe joined Delaware Management Company in 1995 and serves as a vice president and portfolio manager. Previously, he was a tax/audit manager at Price Waterhouse. Ms. Wachs joined Delaware Management Company in 1992 and serves as a vice president and portfolio manager. Previously, she was an equity analyst at Goldman Sachs for two years. Mr. Houghton joined Delaware Management Company in 2000 and serves as a vice president and senior portfolio manager. Previously, he was president and a portfolio manager of Lynch & Mayer, Inc., a Delaware affiliate, since 1990. PACE INTERNATIONAL EQUITY INVESTMENTS. Martin Currie Inc. serves as investment advisor for this fund. Martin Currie Inc. is located at Saltire Court, 20 Castle Terrace, Edinburgh, Scotland EHI 2ES. Martin Currie Inc. and its affiliates are part of one of Scotland's leading independent investment management companies which, since its founding in 1881, has developed an expertise in equity investments. As of September 30, 2001, Martin Currie Inc. and its affiliates had over $8 billion in assets under management. Martin Currie Inc. uses a team approach in the management of the fund's portfolio. The team is led by James Fairweather, who has served as chief investment officer of Martin Currie Inc. since 1997. Mr. Fairweather joined Martin Currie Inc. in 1984 and has served in various investment management capacities since then. He has held his fund responsibilities since its inception in August 1995. PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS. Schroder Investment Management North America Inc. serves as investment advisor for this fund. SIMNA is located at 787 Seventh Avenue, New York, New York 10019. SIMNA and its affiliates have developed an expertise in emerging markets investments. As of June 30, 2001, SIMNA had approximately $23.3 billion in assets under management. As of the same date, SIMNA's ultimate parent, Schroders plc, and its affiliates collectively had approximately $172.4 billion in assets under management. All investment decisions for the fund are made by SIMNA's emerging markets investment committee. The investment committee consists of investment professionals with specific geographic or regional expertise, as well as members responsible for economic analysis and strategy and global stock and sector selection. - -------------------------------------------------------------------------------- Prospectus Page 50 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust DIVIDENDS AND TAXES - -------------------------------------------------------------------------------- DIVIDENDS PACE MONEY MARKET INVESTMENTS normally declares dividends daily and pays them monthly. Shares of this fund earn dividends on the day they are sold but do not earn dividends on the day they are purchased. PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS, PACE INTERMEDIATE FIXED INCOME INVESTMENTS, PACE STRATEGIC FIXED INCOME INVESTMENTS, PACE MUNICIPAL FIXED INCOME INVESTMENTS AND PACE GLOBAL FIXED INCOME INVESTMENTS normally declare and pay dividends monthly. These funds distribute substantially all of their gains, if any, annually. PACE LARGE COMPANY VALUE EQUITY INVESTMENTS, PACE LARGE COMPANY GROWTH EQUITY INVESTMENTS, PACE SMALL/ MEDIUM COMPANY VALUE EQUITY INVESTMENTS, PACE SMALL/ MEDIUM COMPANY GROWTH EQUITY INVESTMENTS, PACE INTERNATIONAL EQUITY INVESTMENTS AND PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS normally declare and pay dividends annually. These funds distribute substantially all of their gains, if any, annually. You will receive dividends in additional shares of the same fund unless you elect to receive them in cash. Contact your Financial Advisor at UBS PaineWebber if you prefer to receive dividends in cash. TAXES PACE MUNICIPAL FIXED INCOME INVESTMENTS seeks to pay dividends that are exempt from regular federal income tax. However, all or a portion of its dividends may be subject to state income taxes and its distributions of gains generally will be subject to both federal and state income taxes whether you receive them in additional fund shares or in cash. The fund also may pay dividends that are subject to the federal alternative minimum tax. The dividends that you receive from the other funds generally are subject to federal income tax regardless of whether you receive them in additional fund shares or in cash. If you hold shares of these funds through a tax-exempt account or plan, such as an IRA or 401(k) plan, dividends on your shares generally will not be subject to tax. When you sell fund shares, you generally will be subject to federal income tax on any gain you realize. If you exchange a fund's shares (except PACE Money Market Investments) for shares of another Family Fund, the transaction will be treated as a sale of the first fund's shares, and any gain will be subject to federal income tax. However, you will not recognize any gain on the sale of your shares in PACE MONEY MARKET INVESTMENTS so long as it maintains a share price of $1.00. Any distribution of capital gains may be taxed at a lower rate than ordinary income, depending on whether the fund held the assets that generated the gains for more than 12 months. Your fund will tell you how you should treat its dividends for tax purposes. As noted above, shareholders will pay the PACE Select Advisors Program Fee. For individual shareholders, this fee will be treated as a "miscellaneous itemized deduction" for federal income tax purposes. See the SAI for a more detailed discussion. Prospective shareholders are urged to consult their tax advisors. - -------------------------------------------------------------------------------- Prospectus Page 51 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The following financial highlights tables are intended to help you understand each fund's financial performance for the periods shown. Certain information reflects financial results for a single fund share. In the tables, "total investment return" represents the rate that an investor would have earned (or lost) on an investment in a fund, assuming reinvestment of all dividends. This information has been audited by Ernst & Young LLP, independent auditors, whose report, along with the funds' financial statements, is included in the funds' Annual Report to Shareholders. The Annual Report may be obtained without charge by calling toll free 1-800-986-0088.
PACE MONEY MARKET INVESTMENTS ------------------------------------------------------------- FOR THE YEARS ENDED JULY 31, ------------------------------------------------------------- 2001 2000 1999 1998 1997 --------- --------- --------- --------- --------- Net asset value, beginning of year................................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 --------- --------- --------- --------- --------- Net investment income............... 0.05 0.05 0.05 0.05 0.05 --------- --------- --------- --------- --------- Dividends from net investment income.............................. (0.05) (0.05) (0.05) (0.05) (0.05) --------- --------- --------- --------- --------- Net asset value, end of year........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ========= ========= ========= ========= ========= Total investment return (1)......... 5.44% 5.53% 4.85% 5.32% 5.13% ========= ========= ========= ========= ========= Ratios/Supplemental Data: Net assets, end of year (000's)..... $ 76,657 $ 65,521 $ 47,174 $ 25,493 $ 16,070 Expenses to average net assets, net of fee waivers and expense reimbursements...................... 0.50% 0.50% 0.50% 0.50% 0.50% Expenses to average net assets, before fee waivers and expense reimbursements...................... 1.00% 0.95% 1.07% 1.20% 1.89% Net investment income to average net assets, net of fee waivers and expense reimbursements.............. 5.26% 5.46% 4.70% 5.20% 5.04% Net investment income to average net assets, before fee waivers and expense reimbursements.............. 4.76% 5.01% 4.13% 4.50% 3.65%
- ----------- (1) Total investment return is calculated assuming a $10,000 investment on the first day of each year reported, reinvestment of all dividends at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each year reported. The figures do not include program fees; results would be lower if this fee was included. - -------------------------------------------------------------------------------- Prospectus Page 52 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS ------------------------------------------------------------- FOR THE YEARS ENDED JULY 31, ------------------------------------------------------------- 2001 2000 1999 1998 1997 --------- --------- --------- --------- --------- Net asset value, beginning of year................................ $ 12.09 $ 12.10 $ 12.59 $ 12.61 $ 12.07 --------- --------- --------- --------- --------- Net investment income............... 0.84 0.73 0.68 0.72 0.64 Net realized and unrealized gains (losses) from investment, options and futures......................... 0.82 0.01 (0.43) 0.18 0.58 --------- --------- --------- --------- --------- Net increase from investment operations.......................... 1.66 0.74 0.25 0.90 1.22 --------- --------- --------- --------- --------- Dividends from net investment income.............................. (0.91) (0.75) (0.71) (0.72) (0.63) Distributions from net realized gains from investment activities.... -- -- (0.03) (0.20) (0.05) --------- --------- --------- --------- --------- Total dividends and distributions... (0.91) (0.75) (0.74) (0.92) (0.68) --------- --------- --------- --------- --------- Net asset value, end of year........ $ 12.84 $ 12.09 $ 12.10 $ 12.59 $ 12.61 ========= ========= ========= ========= ========= Total investment return (1)......... 14.21% 6.36% 2.02% 7.39% 10.42% ========= ========= ========= ========= ========= Ratios/Supplemental Data: Net assets, end of year (000's)..... $ 195,546 $ 198,918 $ 191,719 $ 162,119 $ 101,606 Expenses to average net assets, net of fee waivers and expense reimbursements...................... 0.78%++ 0.87%++ 0.87%++ 0.85% 1.57%++ Expenses to average net assets, before fee waivers and expense reimbursements...................... 0.87%++ 0.91%++ 0.93%++ 0.95% 1.70%++ Net investment income to average net assets, net of fee waivers and expense reimbursements............ 6.69% 6.12%++ 5.49%++ 5.90% 5.44%++ Net investment income to average net assets, before fee waivers and expense reimbursements............ 6.60% 6.08%++ 5.43%++ 5.80% 5.31%++ Portfolio turnover.................. 631% 585% 418% 353% 712%
- ----------- ++ Includes 0.03%, 0.02%, 0.01%, and 0.72% of interest expense related to reverse repurchase agreements during the years ended July 31, 2001, July 31, 2000, July 31, 1999, and July 31, 1997, respectively. (1) Total investment return is calculated assuming a $10,000 investment on the first day of each year reported, reinvestment of all dividends and distributions at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each year reported. The figures do not include any applicable sales charges or program fees; results would be lower if they were included. - -------------------------------------------------------------------------------- Prospectus Page 53 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
PACE INTERMEDIATE FIXED INCOME INVESTMENTS ------------------------------------------------------------- FOR THE YEARS ENDED JULY 31, ------------------------------------------------------------- 2001# 2000 1999 1998 1997 --------- --------- --------- --------- --------- Net asset value, beginning of year................................ $ 11.82 $ 11.98 $ 12.35 $ 12.23 $ 11.95 --------- --------- --------- --------- --------- Net investment income............... 0.74 0.70 0.63 0.67 0.66 Net realized and unrealized gains (losses) from investment activities.......................... 0.56 (0.16) (0.28) 0.09 0.28 --------- --------- --------- --------- --------- Net increase from investment operations.......................... 1.30 0.54 0.35 0.76 0.94 --------- --------- --------- --------- --------- Dividends from net investment income.............................. (0.79) (0.70) (0.64) (0.64) (0.66) Distributions from net realized gains from investment activities.... -- 0.00++ (0.08) -- -- --------- --------- --------- --------- --------- Total dividends and distributions... (0.79) (0.70) (0.72) (0.64) (0.66) --------- --------- --------- --------- --------- Net asset value, end of year........ $ 12.33 $ 11.82 $ 11.98 $ 12.35 $ 12.23 ========= ========= ========= ========= ========= Total investment return (1)......... 11.39% 4.74% 2.81% 6.41% 8.14% ========= ========= ========= ========= ========= Ratios/Supplemental Data: Net assets, end of year (000's)..... $ 127,718 $ 134,102 $ 139,043 $ 99,690 $ 66,751 Expenses to average net assets, net of fee waivers and expense reimbursements...................... 0.75% 0.78% 0.80% 0.84% 0.85% Expenses to average net assets, before fee waivers and expense reimbursements.................... 0.77% 0.79% 0.80% 0.84% 0.99% Net investment income to average net assets, net of fee waivers and expense reimbursements............ 6.07% 5.95% 5.26% 5.60% 5.70% Net investment income to average net assets, before fee waivers and expense reimbursements............ 6.05% 5.94% 5.26% 5.60% 5.56% Portfolio turnover.................. 82% 88% 89% 111% 67%
- ----------- ++ The fund made a distribution of less than $0.005 during the period. # Investment advisory functions were transferred from Pacific Income Advisors, Inc. to Metropolitan West Asset Management, LLC on October 10, 2000. (1) Total investment return is calculated assuming a $10,000 investment on the first day of each year reported, reinvestment of all dividends and distributions at net value on the ex-dividend dates, and a sale at net asset value on the last day of each year reported. The figures do not include any applicable sales charges or program fees; results would be lower if they were included. - -------------------------------------------------------------------------------- Prospectus Page 54 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
PACE STRATEGIC FIXED INCOME INVESTMENTS ------------------------------------------------------------- FOR THE YEARS ENDED JULY 31, ------------------------------------------------------------- 2001 2000 1999 1998 1997 --------- --------- --------- --------- --------- Net asset value, beginning of year................................ $ 12.21 $ 12.33 $ 13.32 $ 13.04 $ 12.44 --------- --------- --------- --------- --------- Net investment income............... 0.73 0.73 0.69 0.69 0.67 Net realized and unrealized gains (losses) from investment activities, futures, swaps, options and foreign currency............................ 0.78 (0.13) (0.64) 0.40 0.70 --------- --------- --------- --------- --------- Net increase from investment operations.......................... 1.51 0.60 0.05 1.09 1.37 --------- --------- --------- --------- --------- Dividends from net investment income.............................. (0.81) (0.72) (0.70) (0.69) (0.67) Distributions from net realized gains from investment activities.... -- -- (0.34) (0.12) (0.10) --------- --------- --------- --------- --------- Total dividends and distributions... (0.81) (0.72) (1.04) (0.81) (0.77) --------- --------- --------- --------- --------- Net asset value, end of year........ $ 12.91 $ 12.21 $ 12.33 $ 13.32 $ 13.04 ========= ========= ========= ========= ========= Total investment return (1)......... 12.74% 5.08% 0.21% 8.66% 11.35% ========= ========= ========= ========= ========= Ratios/Supplemental Data: Net assets, end of year (000's)..... $ 210,444 $ 234,748 $ 222,214 $ 126,880 $ 75,174 Expenses to average net assets, net of fee waivers and expense reimbursements...................... 0.91%++ 0.85% 0.88%++ 0.85% 0.85% Expenses to average net assets, before fee waivers and expense reimbursements...................... 0.93%++ 0.89% 0.92%++ 0.94% 1.10% Net investment income to average net assets, net of fee waivers and expense reimbursements............ 6.09% 6.04% 5.51% 5.49% 5.69% Net investment income to average net assets, before fee waivers and expense reimbursements............ 6.07% 6.00% 5.47% 5.40% 5.44% Portfolio turnover.................. 519% 391% 202% 234% 357%
- ----------- ++ Includes 0.06% and 0.03% of interest expense related to reverse repurchase agreements during the years ended July 31, 2001 and July 31, 1999, respectively. (1) Total investment return is calculated assuming a $10,000 investment on the first day of each year reported, reinvestment of all dividends and distributions at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each year reported. The figures do not include any applicable sales charges or program fees; results would be lower if they were included. - -------------------------------------------------------------------------------- Prospectus Page 55 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
PACE MUNICIPAL FIXED INCOME INVESTMENTS ------------------------------------------------------------- FOR THE YEARS ENDED JULY 31, ------------------------------------------------------------- 2001 2000# 1999 1998 1997 --------- --------- --------- --------- --------- Net asset value, beginning of year................................ $ 12.15 $ 12.44 $ 12.70 $ 12.67 $ 12.32 --------- --------- --------- --------- --------- Net investment income............... 0.55 0.57 0.56 0.58 0.61 Net realized and unrealized gains (losses) from investment activities.......................... 0.42 (0.29) (0.26) 0.02 0.38 --------- --------- --------- --------- --------- Net increase from investment operations.......................... 0.97 0.28 0.30 0.60 0.99 --------- --------- --------- --------- --------- Dividends from net investment income.............................. (0.60) (0.57) (0.56) (0.57) (0.61) Distributions from net realized gains from investment activities.... -- -- -- -- (0.03) --------- --------- --------- --------- --------- Total dividends and distributions... (0.60) (0.57) (0.56) (0.57) (0.64) --------- --------- --------- --------- --------- Net asset value, end of year........ $ 12.52 $ 12.15 $ 12.44 $ 12.70 $ 12.67 ========= ========= ========= ========= ========= Total investment return (1)......... 8.20% 2.37% 2.34% 4.87% 8.30% ========= ========= ========= ========= ========= Ratios/Supplemental Data: Net assets, end of year (000's)..... $ 49,110 $ 53,594 $ 56,659 $ 51,638 $ 34,292 Expenses to average net assets, net of fee waivers and expense reimbursements...................... 0.76% 0.85% 0.85% 0.85% 0.85% Expenses to average net assets, before fee waivers and expense reimbursements...................... 0.82% 0.89% 0.89% 0.93% 1.40% Net investment income to average net assets, net of fee waivers and expense reimbursements.............. 4.44% 4.68% 4.42% 4.67% 5.08% Net investment income to average net assets, before fee waivers and expense reimbursements.............. 4.38% 4.64% 4.38% 4.59% 4.53% Portfolio turnover.................. 68% 33% 11% 34% 15%
- ----------- # Investment advisory functions for this fund were transferred from Deutsche Asset Management, Inc. to Standish Mellon Asset Management Company LLC's predecessor on June 1, 2000. (1) Total investment return is calculated assuming a $10,000 investment on the first day of each year reported, reinvestment of all dividends and distributions at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each year reported. The figures do not include any applicable sales charges or program fees; results would be lower if they were included. - -------------------------------------------------------------------------------- Prospectus Page 56 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
PACE GLOBAL FIXED INCOME INVESTMENTS ------------------------------------------------------------- FOR THE YEARS ENDED JULY 31, ------------------------------------------------------------- 2001# 2000 1999 1998 1997 --------- --------- --------- --------- --------- Net asset value, beginning of year.............................. $ 10.68 $ 11.82 $ 12.25 $ 12.17 $ 12.33 --------- --------- --------- --------- --------- Net investment income............... 0.43 0.53 0.65 0.62 0.64 Net realized and unrealized gains (losses) from investment activities, futures and foreign currency.......................... (0.35) (1.10) 0.20 (0.03) (0.21) --------- --------- --------- --------- --------- Net increase (decrease) from investment operations............. 0.08 (0.57) 0.85 0.59 0.43 --------- --------- --------- --------- --------- Dividends from net investment income............................ (0.49) (0.42) (0.81) (0.40) (0.51) Distributions from net realized gains from investment activities........................ -- (0.09) (0.47) (0.11) (0.08) Dividends from paid in capital...... -- (0.06) -- -- -- --------- --------- --------- --------- --------- Total dividends and distributions... (0.49) (0.57) (1.28) (0.51) (0.59) --------- --------- --------- --------- --------- Net asset value, end of year........ $ 10.27 $ 10.68 $ 11.82 $ 12.25 $ 12.17 ========= ========= ========= ========= ========= Total investment return (1)......... 0.71% (4.97)% 6.49% 4.88% 3.54% ========= ========= ========= ========= ========= Ratios/Supplemental Data: Net assets, end of year (000's)..... $ 94,085 $ 100,831 $ 101,143 $ 88,838 $ 60,279 Expenses to average net assets, net of fee waivers and expense reimbursements.................... 0.95% 0.95% 0.95% 0.95% 0.95% Expenses to average net assets, before fee waivers and expense reimbursements.................... 1.17% 1.18% 1.17% 1.23% 1.29% Net investment income to average net assets, net of fee waivers and expense reimbursements............ 4.23% 4.50% 4.57% 5.10% 5.36% Net investment income to average net assets, before fee waivers and expense reimbursements............ 4.01% 4.27% 4.35% 4.82% 5.02% Portfolio turnover.................. 270% 170% 226% 125% 270%
- ----------- # A portion of the investment advisory function for this fund was transferred from Rogge Global Partners plc to Fischer Francis Trees & Watts, Inc. (and its affiliates) on October 10, 2000. (1) Total investment return is calculated assuming a $10,000 investment on the first day of each year reported, reinvestment of all dividends and distributions at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each year reported. The figures do not include any applicable sales charge or program fees; results would be lower if they were included. - -------------------------------------------------------------------------------- Prospectus Page 57 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
PACE LARGE COMPANY VALUE EQUITY INVESTMENTS ------------------------------------------------------------- FOR THE YEARS ENDED JULY 31, ------------------------------------------------------------- 2001# 2000# 1999 1998 1997 --------- --------- --------- --------- --------- Net asset value, beginning of year.............................. $ 16.35 $ 21.14 $ 20.27 $ 20.03 $ 14.07 --------- --------- --------- --------- --------- Net investment income............... 0.17 0.15 0.13 0.14 0.11 Net realized and unrealized gains (losses) from investment activities and futures............ 1.18 (3.17) 2.34 1.63 6.61 --------- --------- --------- --------- --------- Net increase (decrease) from investment operations............. 1.35 (3.02) 2.47 1.77 6.72 --------- --------- --------- --------- --------- Dividends from net investment income............................ (0.16) (0.14) (0.14) (0.14) (0.11) Distributions from net realized gains from investment activities........................ -- (1.63) (1.46) (1.39) (0.65) --------- --------- --------- --------- --------- Total dividends and distributions... (0.16) (1.77) (1.60) (1.53) (0.76) --------- --------- --------- --------- --------- Net asset value, end of year........ $ 17.54 $ 16.35 $ 21.14 $ 20.27 $ 20.03 ========= ========= ========= ========= ========= Total investment return (1)......... 8.32% (14.74)% 12.82% 9.89% 49.13% ========= ========= ========= ========= ========= Ratios/Supplemental Data: Net assets, end of year (000's)..... $ 348,068 $ 335,294 $ 375,465 $ 266,354 $ 180,807 Expenses to average net assets, net of fee waivers and expense reimbursements.................... 0.88% 0.96% 0.96% 0.98% 1.00% Expenses to average net assets, before fee waivers and expense reimbursements.................... 0.94% 0.96% 0.96% 0.98% 1.06% Net investment income to average net assets, net of fee waivers and expense reimbursements............ 0.99% 0.85% 0.71% 0.82% 0.81% Net investment income to average net assets, before fee waivers and expense reimbursements............ 0.93% 0.85% 0.71% 0.82% 0.75% Portfolio turnover.................. 148% 195% 40% 34% 46%
- ----------- # Investment advisory functions for this fund were transferred from Brinson Partners, Inc. to Institutional Capital Corp. and Westwood Management Corp. on July 1, 2000. SSgA Funds Management, Inc. assumed investment advisory functions with respect to a portion of the fund on October 10, 2000. (1) Total investment return is calculated assuming a $10,000 investment on the first day of each year reported, reinvestment of all dividends and distributions at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each year reported. The figures do not include any applicable sales charges or program fees; results would be lower if they were included. - -------------------------------------------------------------------------------- Prospectus Page 58 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
PACE LARGE COMPANY GROWTH EQUITY INVESTMENTS ------------------------------------------------------------- FOR THE YEARS ENDED JULY 31, ------------------------------------------------------------- 2001+ 2000 1999 1998# 1997 --------- --------- --------- --------- --------- Net asset value, beginning of year................................ $ 29.70 $ 25.88 $ 22.99 $ 19.28 $ 13.27 --------- --------- --------- --------- --------- Net investment income (loss)........ (0.07) (0.12) (0.05) (0.03) 0.03 Net realized and unrealized gains (losses) from investment activities.......................... (9.42) 4.69 4.44 4.79 6.01 --------- --------- --------- --------- --------- Net increase (decrease) from investment operations............... (9.49) 4.57 4.39 4.76 6.04 --------- --------- --------- --------- --------- Dividends from net investment income.............................. -- -- -- (0.01) (0.03) Distributions from net realized gains from investment activities.... (3.33) (0.75) (1.50) (1.04) -- --------- --------- --------- --------- --------- Total dividends and distributions... (3.33) (0.75) (1.50) (1.05) (0.03) --------- --------- --------- --------- --------- Net asset value, end of year........ $ 16.88 $ 29.70 $ 25.88 $ 22.99 $ 19.28 ========= ========= ========= ========= ========= Total investment return (1)......... (34.17)% 17.76% 19.66% 26.40% 45.61% ========= ========= ========= ========= ========= Ratios/Supplemental Data: Net assets, end of year (000's)..... $ 333,003 $ 436,806 $ 379,988 $ 275,461 $ 160,334 Expenses to average net assets, net of fee waivers and expense reimbursements...................... 0.89% 0.94% 0.97% 1.00% 1.00% Expenses to average net assets, before fee waivers and expense reimbursements...................... 0.94% 0.94% 0.97% 1.02% 1.05% Net investment income (loss) to average net assets, net of fee waivers and expense reimbursements.................... (0.36)% (0.42)% (0.24)% (0.14)% 0.22% Net investment income (loss) to average net assets, before fee waivers and expense reimbursements.................... (0.41)% (0.42)% (0.24)% (0.16)% 0.17% Portfolio turnover.................. 64% 59% 43% 102% 73%
- ----------- # Investment advisory functions for this fund were transferred from Chancellor LGT Asset Management, Inc. to Alliance Capital Management L.P. on November 10, 1997. + A portion of the investment advisory function for this fund was transferred from Alliance Capital Management L.P. to SSgA Funds Management, Inc. on October 10, 2000. (1) Total investment return is calculated assuming a $10,000 investment on the first day of each year reported, reinvestment of all dividends and distributions at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each year reported. The figures do not include any applicable sales charges or program fees; results would be lower if they were included. - -------------------------------------------------------------------------------- Prospectus Page 59 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
PACE SMALL/MEDIUM COMPANY VALUE EQUITY INVESTMENTS ------------------------------------------------------------- FOR THE YEARS ENDED JULY 31, ------------------------------------------------------------- 2001# 2000# 1999 1998 1997 --------- --------- --------- --------- --------- Net asset value, beginning of year................................ $ 13.33 $ 15.75 $ 17.39 $ 17.52 $ 12.29 --------- --------- --------- --------- --------- Net investment income............... 0.14 0.10 0.06 0.10 0.12 Net realized and unrealized gains (losses) from investment activities.......................... 3.71 (1.79) (0.06) 1.14 5.55 --------- --------- --------- --------- --------- Net increase (decrease) from investment operations............... 3.85 (1.69) 0.00 1.24 5.67 --------- --------- --------- --------- --------- Dividends from net investment income.............................. (0.16) (0.06) (0.09) (0.13) (0.10) Distributions from net realized gains from investment activities.... -- (0.67) (1.55) (1.24) (0.34) --------- --------- --------- --------- --------- Total dividends and distributions... (0.16) (0.73) (1.64) (1.37) (0.44) --------- --------- --------- --------- --------- Net asset value, end of year........ $ 17.02 $ 13.33 $ 15.75 $ 17.39 $ 17.52 ========= ========= ========= ========= ========= Total investment return (1)......... 29.20% (10.59)% 1.16% 6.97% 46.99% ========= ========= ========= ========= ========= Ratios/Supplemental Data: Net assets, end of year (000's)..... $ 224,026 $ 213,749 $ 206,131 $ 183,558 $ 135,047 Expenses to average net assets, net of fee waivers and expense reimbursements.................... 0.97% 1.00% 1.00% 0.99% 1.00% Expenses to average net assets, before fee waivers and expense reimbursements.................... 0.99% 1.01% 1.01% 1.00% 1.12% Net investment income to average net assets, net of fee waivers and expense reimbursements............ 0.98% 0.77% 0.42% 0.61% 1.00% Net investment income to average net assets, before fee waivers and expense reimbursements............ 0.96% 0.76% 0.41% 0.60% 0.88% Portfolio turnover.................. 72% 83% 57% 42% 39%
- ----------- # Prior to October 4, 1999, Brandywine Asset Management, Inc. ("Brandywine") served as investment advisor. From October 4, 1999 to October 9, 2000, Brandywine and Ariel Capital Management, Inc. ("Ariel") served as investment advisors. On October 10, 2000, ICM Asset Management, Inc. joined Ariel as an investment advisor, replacing Brandywine. (1) Total investment return is calculated assuming a $10,000 investment on the first day of each year reported, reinvestment of all dividends and distributions at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each year reported. The figures do not include any applicable sales charges or program fees; results would be lower if they were included. - -------------------------------------------------------------------------------- Prospectus Page 60 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
PACE SMALL/MEDIUM COMPANY GROWTH EQUITY INVESTMENTS ------------------------------------------------------------- FOR THE YEARS ENDED JULY 31, ------------------------------------------------------------- 2001 2000 1999 1998 1997# --------- --------- --------- --------- --------- Net asset value, beginning of year................................ $ 30.27 $ 20.62 $ 15.80 $ 14.44 $ 11.20 --------- --------- --------- --------- --------- Net investment loss................. (0.07) (0.19) (0.08) (0.03) (0.02) Net realized and unrealized gains (losses) from investment activities.......................... (8.06) 12.58 5.28 2.03 3.26 --------- --------- --------- --------- --------- Net increase (decrease) from investment operations............. (8.13) 12.39 5.20 2.00 3.24 --------- --------- --------- --------- --------- Distributions from net realized gains from investment activities.... (8.47) (2.74) (0.38) (0.64) -- --------- --------- --------- --------- --------- Net asset value, end of year........ $ 13.67 $ 30.27 $ 20.62 $ 15.80 $ 14.44 ========= ========= ========= ========= ========= Total investment return (1)......... (30.93)% 62.30% 33.62% 14.44% 28.93% ========= ========= ========= ========= ========= Ratios/Supplemental Data: Net assets, end of year (000's)..... $ 244,247 $ 319,571 $ 265,405 $ 198,855 $ 125,609 Expenses to average net assets, net of fee waivers and expense reimbursements...................... 0.94% 0.95% 1.00% 1.00% 1.00% Expenses to average net assets, before fee waivers and expense reimbursements...................... 0.97% 0.96% 1.01% 1.03% 1.08% Net investment loss to average net assets, net of fee waivers and expense reimbursements............ (0.48)% (0.64)% (0.48)% (0.20)% (0.21)% Net investment loss to average net assets, before fee waivers and expense reimbursements............ (0.51)% (0.65)% (0.49)% (0.23)% (0.29)% Portfolio turnover.................. 68% 81% 102% 131% 247%
- ----------- # Investment advisory functions for this portfolio were transferred from Westfield Capital Management Company, Inc. to Delaware Management Company on December 17, 1996. (1) Total investment return is calculated assuming a $10,000 investment on the first day of each year reported, reinvestment of all dividends and distributions at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each year reported. The figures do not include any applicable sales charges or program fees; results would be lower if they were included. - -------------------------------------------------------------------------------- Prospectus Page 61 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
PACE INTERNATIONAL EQUITY INVESTMENTS ------------------------------------------------------------- FOR THE YEARS ENDED JULY 31, ------------------------------------------------------------- 2001 2000 1999 1998 1997 --------- --------- --------- --------- --------- Net asset value, beginning of year................................ $ 18.67 $ 17.18 $ 16.54 $ 15.66 $ 12.79 --------- --------- --------- --------- --------- Net investment income............... 0.06 0.07 0.07 0.16 0.10 Net realized and unrealized gains (losses) from investment activities and foreign currency................ (4.88) 2.51 1.10 1.20 2.97 --------- --------- --------- --------- --------- Net increase (decrease) from investment operations............... (4.82) 2.58 1.17 1.36 3.07 --------- --------- --------- --------- --------- Dividends from net investment income.............................. (0.04) (0.12) (0.19) (0.16) (0.13) Distributions from net realized gains from investment activities.... (1.22) (1.02) (0.34) (0.32) (0.07) --------- --------- --------- --------- --------- Total dividends and distributions... (1.26) (1.14) (0.53) (0.48) (0.20) --------- --------- --------- --------- --------- Capital contribution from Sub-Advisor......................... --@ 0.05 -- -- -- --------- --------- --------- --------- --------- Net asset value, end of year........ $ 12.59 $ 18.67 $ 17.18 $ 16.54 $ 15.66 ========= ========= ========= ========= ========= Total investment return (1)......... (26.97)% 14.91% 7.33% 9.27% 24.30% ========= ========= ========= ========= ========= Ratios/Supplemental Data: Net assets, end of year (000's)..... $ 198,643 $ 246,452 $ 214,017 $ 164,477 $ 102,979 Expenses to average net assets, net of fee waivers and expense reimbursements...................... 1.13% 1.16% 1.22% 1.21% 1.35% Expenses to average net assets, before fee waivers and expense reimbursements...................... 1.17% 1.16% 1.22% 1.21% 1.35% Net investment income to average net assets, net of fee waivers and expense reimbursements............ 0.36% 0.37% 0.53% 1.14% 0.95% Net investment income to average net assets, before fee waivers and expense reimbursements............ 0.32% 0.37% 0.53% 1.14% 0.95% Portfolio turnover.................. 60% 72% 89% 56% 55%
- ----------- @ Amount is less than $0.005 per share. (1) Total investment return is calculated assuming a $10,000 investment on the first day of each year reported, reinvestment of all dividends and distributions at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each year reported. The figures do not include any applicable sales charges or program fees; results would be lower if they were included. If not for the sub-advisor's capital contribution of approximately $0.05 per share, Class P's total return for the year ended July 31, 2000 would have been 14.60%. - -------------------------------------------------------------------------------- Prospectus Page 62 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS ------------------------------------------------------------- FOR THE YEARS ENDED JULY 31, ------------------------------------------------------------- 2001 2000 1999 1998 1997 --------- --------- --------- --------- --------- Net asset value, beginning of year................................ $ 11.96 $ 12.05 $ 10.41 $ 15.60 $ 12.49 --------- --------- --------- --------- --------- Net investment income (loss)........ 0.02 (0.01) 0.09 0.09 0.06 Net realized and unrealized gains (losses) from investment activities and foreign currency................ (3.96) 0.02 1.62 (5.23) 3.09 --------- --------- --------- --------- --------- Net increase (decrease) from investment operations............... (3.94) 0.01 1.71 (5.14) 3.15 --------- --------- --------- --------- --------- Dividends from net investment income.............................. -- (0.10) (0.07) (0.05) (0.04) --------- --------- --------- --------- --------- Net asset value, end of year........ $ 8.02 $ 11.96 $ 12.05 $ 10.41 $ 15.60 ========= ========= ========= ========= ========= Total investment return (1)......... (32.94)% (0.02)% 16.66% (32.99)% 25.31% ========= ========= ========= ========= ========= Ratios/Supplemental Data: Net assets, end of year (000's)..... $ 65,703 $ 82,179 $ 88,497 $ 63,237 $ 54,759 Expenses to average net assets, net of fee waivers and expense reimbursements...................... 1.50% 1.50% 1.50% 1.50% 1.50% Expenses to average net assets, before fee waivers and expense reimbursements...................... 1.82% 1.75% 1.79% 1.79% 2.09% Net investment income (loss) to average net assets, net of fee waivers and expense reimbursements...................... 0.24% (0.08)% 1.05% 0.98% 0.63% Net investment income (loss) to average net assets, before fee waivers and expense reimbursements...................... (0.08)% (0.33)% 0.76% 0.69% 0.04% Portfolio turnover.................. 121% 115% 66% 51% 39%
- ----------- (1) Total investment return is calculated assuming a $10,000 investment on the first day of each year reported, reinvestment of all dividends and distributions at net asset value on the ex-dividend dates, and a sale at net asset value on the last day of each year reported. The figures do not include any applicable sales charges or program fees; results would be lower if they were included. - -------------------------------------------------------------------------------- Prospectus Page 63 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust APPENDIX A INTRODUCTORY NOTE: THIS APPENDIX IS PROVIDED FOR ERISA ACCOUNTS PURSUANT TO CONDITIONS IMPOSED BY A GRANT OF INDIVIDUAL EXEMPTIONS BY THE DEPARTMENT OF LABOR. THE NOTICE OF PROPOSED EXEMPTION AND RELATED GRANT OF INDIVIDUAL EXEMPTIONS REPRODUCED BELOW DATE FROM 1996. THE FACTUAL INFORMATION CONTAINED THEREIN WAS ACCURATE AS OF THAT TIME; HOWEVER, THE FUNDS HAVE CHANGED OVER THE YEARS. THE INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS IS MORE CURRENT AND SHOULD BE RELIED UPON WHERE THERE ARE DIFFERENCES. FOR EXAMPLE: THE NAME OF THE TRUST WAS CHANGED FROM MANAGED ACCOUNTS SERVICES PORTFOLIO TRUST TO PAINEWEBBER PACE SELECT ADVISORS TRUST; PAINEWEBBER MANAGED ACCOUNTS SERVICES (PMAS) IS NOW KNOWN AS UBS PAINEWEBBER'S INVESTMENT CONSULTING SERVICES (ICS); AND CERTAIN FEE ARRANGEMENTS HAVE CHANGED AND A NUMBER OF SUB-ADVISERS HAVE BEEN REPLACED. THIS DOCUMENT HAS BEEN PREPARED BY PAINEWEBBER INCORPORATED AS A COPY OF THE NOTICE THAT APPEARED IN THE FEDERAL REGISTER ON FRIDAY, MARCH 22, 1996 (VOL. 61, N0. 57 AT 11882). PAINEWEBBER INCORPORATED (PAINEWEBBER) LOCATED IN NEW YORK, NY [Application No. D-09818] PROPOSED EXEMPTION Based on the facts and representations set forth in the application, the Department is considering granting an exemption under the authority of section 408(a) of the Act and section 4975(c)(2) of the Code and in accordance with the procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, August 10, 1990).(1) Section I. Covered Transactions If the exemption is granted, the restrictions of section 406(a) of the Act and the sanctions resulting from the application of section 4975 of the Code, by reason of section 4975(c)(1) (A) through (D) of the Code, shall not apply, effective August 18, 1995, to the purchase or redemption of shares by an employee benefit plan, an individual retirement account (the IRA) or a retirement plan for a self-employed individual (the Keogh Plan) (collectively referred to herein as the Plans) in the PaineWebber Managed Accounts Services Portfolio Trust (the Trust) established in connection with such Plans' participation in the PaineWebber PACE Program (the PACE Program). In addition, the restrictions of section 406(b) of the Act and the sanctions resulting from the application of section 4975 of the Code, by reason of section 4975(c)(1) (E) and (F) of the Code, shall not apply, effective August 18, 1995, to (a) the provision, by PaineWebber Managed Accounts Services (PMAS), a division of PaineWebber, of asset allocation and related services to an independent fiduciary of a Plan (the Independent Fiduciary) or to a directing participant (the Directing Participant) in a Plan that is covered under the provisions of section 404(c) of the Act (the Section 404(c) Plan), which may result in the selection by the Independent Fiduciary or the Directing Participant of portfolios of the Trust (the Portfolios) in the PACE Program for the investment of Plan assets; and (b) the provision of investment management services by Mitchell Hutchins Asset Management, Inc. (Mitchell Hutchins) to the PACE Money Market Investments Portfolio of the Trust. This proposed exemption is subject to the conditions set forth below in Section II. Section II. General Conditions (a) The participation of each Plan in the PACE Program is approved by an Independent Fiduciary or, if applicable, Directing Participant. (b) As to each Plan, the total fees paid to PMAS and its affiliates constitute no more than reasonable compensation and do not include the receipt of fees pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the '40 Act) by PMAS and its affiliates in connection with the transactions. (c) No Plan pays a fee or commission by reason of the acquisition or redemption of shares in the Trust. (d) The terms of each purchase or redemption of Trust shares remain at least as favorable to an investing Plan as those obtainable in an arm's length transaction with an unrelated party. (e) PMAS provides written documentation to an Independent Fiduciary or a Directing Participant of its recommendations or evaluations based upon objective criteria. (f) Any recommendation or evaluation made by PMAS to an Independent Fiduciary or Directing Participant is implemented only at the express direction of such fiduciary or participant. (g) PMAS provides investment advice in writing to an Independent Fiduciary or Directing Participant with respect to all available Portfolios. - ---------------------------------- (1) For purposes of this proposed exemption, reference to provisions of Title I of the Act, unless otherwise specified, refer also to the corresponding provisions of the Code. - -------------------------------------------------------------------------------- Prospectus Page A-1 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust (h) With the exception of the PACE Money Market Investments Portfolio, any sub-adviser (the Sub-Adviser) appointed by Mitchell Hutchins to exercise investment discretion with respect to a Portfolio is independent of PaineWebber and its affiliates. (i) The quarterly fee that is paid by a Plan to PMAS for asset allocation and related services rendered to such Plan under the PACE Program (i.e., the outside fee) is offset by such amount as is necessary to assure that Mitchell Hutchins retains 20 basis points as a management fee from any Portfolio (with the exception of the PACE Money Market Investments Portfolio from which Mitchell Hutchins retains an investment management fee of 15 basis points) containing investments attributable to the Plan investor. However, the quarterly fee of 20 basis points that is paid to Mitchell Hutchins for administrative services is retained by Mitchell Hutchins and is not offset against the outside fee. (j) With respect to its participation in the PACE Program prior to purchasing Trust shares, (1) Each Independent Fiduciary receives the following written or oral disclosures from PaineWebber: (A) A copy of the prospectus (the Prospectus) for the Trust discussing the investment objectives of the Portfolios comprising the Trust; the policies employed to achieve these objectives; the corporate affiliation existing between PaineWebber, PMAS, Mitchell Hutchins and their affiliates; the compensation paid to such entities; any additional information explaining the risks of investing in the Trust; and sufficient and understandable disclosures relating to rebalancing of investor accounts. (B) Upon written or oral request to PaineWebber, a Statement of Additional Information supplementing the Prospectus, which describes the types of securities and other instruments in which the Portfolios may invest, the investment policies and strategies that the Portfolios may utilize and certain risks attendant to those investments, policies and strategies. (C) An investor questionnaire. (D) A written analysis of PMAS's asset allocation decision and recommendation of specific Portfolios. (E) A copy of the agreement between PMAS and such Plan relating to participation in the PACE Program. (F) Upon written request to Mitchell Hutchins, a copy of the respective investment advisory agreement between Mitchell Hutchins and the Sub-Advisers. (G) Copies of the proposed exemption and grant notice describing the exemptive relief provided herein. (2) In the case of a Section 404(c) Plan, the Independent Fiduciary will-- (A) Make copies of the foregoing documents available to Directing Participants. (B) Allow Directing Participants to interact with PaineWebber Investment Executives and receive information relative to the services offered under the PACE Program, including the rebalancing feature, and the operation and objectives of the Portfolios. (3) If accepted as an investor in the PACE Program, an Independent Fiduciary of an IRA or Keogh Plan, is required to acknowledge, in writing to PMAS, prior to purchasing Trust shares that such fiduciary has received copies of the documents described in paragraph (j)(l) of this Section II. (4) With respect to a Section 404(c) Plan, written acknowledgement of the receipt of such documents is provided by the Independent Fiduciary (i.e., the Plan administrator, trustee, investment manager or named fiduciary, as the recordholder of Trust shares). Such Independent Fiduciary will be required to represent in writing to PMAS that such fiduciary is-- (A) Independent of PaineWebber and its affiliates; (B) Knowledgeable with respect to the Plan in administrative matters and funding matters related thereto, and; (C) Able to make an informed decision concerning participation in the PACE Program. (5) With respect to a Plan that is covered under Title I of the Act, where investment decisions are made by a trustee, investment manager or a named fiduciary, such Independent Fiduciary is required to acknowledge, in writing, receipt of such documents and represent to PMAS that such fiduciary is-- (A) Independent of PMAS and its affiliates; (B) Capable of making an independent decision regarding the investment of Plan assets; (C) Knowledgeable with respect to the Plan in administrative matters and funding matters related thereto; and (D) Able to make an informed decision concerning participation in the PACE Program. - -------------------------------------------------------------------------------- Prospectus Page A-2 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust (k) As applicable, subsequent to its participation in the PACE Program, each Independent Fiduciary receives the following written or oral disclosures with respect to its ongoing participation in the PACE Program: (1) Written confirmations of each purchase or redemption transaction by the Plan with respect to a Portfolio. (2) Telephone quotations from PaineWebber of such Plan's account balance. (3) A monthly statement of account from PaineWebber specifying the net asset value of the Plan's investment in such account. Such statement is also anticipated to include cash flow and transaction activity during the month, unrealized gains or losses on Portfolio shares held; and a summary of total earnings and capital returns on the Plan's PACE Portfolio for the month and year-to-date. (4) The Trust's semi-annual and annual report which will include financial statements for the Trust and investment management fees paid by each Portfolio. (5) A written quarterly monitoring report that includes a record of the Plan's PACE Program portfolio for the quarter and since inception, showing the rates of return relative to comparative market indices (illustrated in a manner that reflects the effect of any fees for participation in the PACE Program actually incurred during the period); an investment outlook summary containing market commentary; and the Plan's actual PACE Program portfolio with a breakdown, in both dollars and percentages, of the holdings in each portfolio. The quarterly monitoring report will also contain an analysis and an evaluation of a Plan investor's account to ascertain whether the Plan's investment objectives have been met and recommending, if required, changes in Portfolio allocations. (6) A statement, furnished at least quarterly or annually, specifying-- (A) The total, expressed in dollars, of each Portfolio's brokerage commissions that are paid to PaineWebber and its affiliates; (B) The total, expressed in dollars, of each Portfolio's brokerage commissions that are paid to unrelated brokerage firms; (C) The average brokerage commissions per share by the Trust to brokers affiliated with PaineWebber, expressed as cents per share; and (D) The average brokerage commissions per share by the Trust to brokers unrelated to PaineWebber and its affiliates, expressed as cents per share for any year in which brokerage commissions are paid to PaineWebber by the Trust Portfolios in which a Plan's assets are invested. (7) Periodic meetings with a PaineWebber Investment Executive by Independent Fiduciaries to discuss the quarterly monitoring report or any other questions that may arise. (l) In the case of a Section 404(c) Plan where the Independent Fiduciary has established an omnibus account in the name of the Plan (the Undisclosed Account) with PaineWebber, the information noted above in subparagraphs (k)(1) through (k)(7) of this Section II may be provided directly by PaineWebber to the Directing Participants or to the Independent Fiduciary for dissemination to the Directing Participants, depending upon the arrangement negotiated by the Independent Fiduciary with PMAS. (m) If previously authorized in writing by the Independent Fiduciary, the Plan investor's account is automatically rebalanced on a periodic basis to the asset allocation previously prescribed by the Plan or participant, as applicable, if the quarterly screening reveals that one or more Portfolio allocations deviates from the allocation prescribed by the investor by the agreed-upon formula threshold. (n) The books and records of the Trust are audited annually by independent, certified public accountants and all investors receive copies of an audited financial report no later than 60 days after the close of each Trust fiscal year. (o) PaineWebber maintains, for a period of six years, the records necessary to enable the persons described in paragraph (p) of this Section II to determine whether the conditions of this exemption have been met, except that-- (1) A prohibited transaction will not be considered to have occurred if, due to circumstances beyond the control of PaineWebber and/or its affiliates, the records are lost or destroyed prior to the end of the six year period; and (2) No party in interest other than PaineWebber shall be subject to the civil penalty that may be assessed under section 502(i) of the Act, or to the taxes imposed by section 4975(a) and (b) of the Code, if the records are not maintained, or are not available for examination as required by paragraph (p)(1) of this Section II below. (p) (1) Except as provided in subparagraph (p)(2) of this paragraph and notwithstanding any provisions of subsections (a)(2) and (b) of section 504 of the Act, the records referred to in paragraph (o) of this Section II are unconditionally available at their customary location during normal business hours by: (A) Any duly authorized employee or representative of the Department, the Internal - -------------------------------------------------------------------------------- Prospectus Page A-3 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust Revenue Service (the Service) or the Securities and Exchange Commission (the SEC); (B) Any fiduciary of a participating Plan or any duly authorized representative of such fiduciary; (C) Any contributing employer to any participating Plan or any duly authorized employee representative of such employer; and (D) Any participant or beneficiary of any participating Plan, or any duly authorized representative of such participant or beneficiary. (p) (2) None of the persons described above in paragraphs (p)(l)(B)-(p)(l)(D) of this paragraph (P) are authorized to examine the trade secrets of PaineWebber or Mitchell Hutchins or commercial or financial information which is privileged or confidential. Section III. Definitions For purposes of this proposed exemption: (a) The term "PaineWebber" means PaineWebber Incorporated and any affiliate of PaineWebber, as defined in paragraph (b) of this Section III. (b) An "affiliate" of PaineWebber includes-- (1) Any person directly or indirectly through one or more intermediaries, controlling, controlled by, or under common control with PaineWebber. (2) Any officer, director or partner in such person, and (3) Any corporation or partnership of which such person is an officer, director or a 5 percent partner or owner. (c) The term "control" means the power to exercise a controlling influence over the management or policies of a person other than an individual. (d) The term "Independent Fiduciary" means a Plan fiduciary which is independent of PaineWebber and its affiliates and is either (1) A Plan administrator, trustee, investment manager or named fiduciary, as the recordholder of Trust shares of a Section 404(c) Plan; (2) A participant in a Keogh Plan; (3) An individual covered under a self-directed IRA which invests in Trust shares; (4) An employee, officer or director of PaineWebber and/or its affiliates covered by an IRA not subject to Title I of the Act; (5) A trustee, Plan administrator, investment manager or named fiduciary responsible for investment decisions in the case of a Title I Plan that does not permit individual direction as contemplated by Section 404(c) of the Act; or (e) The term "Directing Participant" means a participant in a Plan covered under the provisions of section 404(c) of the Act, who is permitted under the terms of the Plan to direct, and who elects to so direct, the investment of the assets of his or her account in such Plan. (f) The term "Plan" means a pension plan described in 29 CFR 2510.3-2, a welfare benefit plan described in 29 CFR 2510.3-1, a plan described in section 4975(e)(1) of the Code, and in the case of a Section 404(c) Plan, the individual account of a Directing Participant. Effective Date: If granted, this proposed exemption will be effective as of August 18, 1995. SUMMARY OF FACTS AND REPRESENTATIONS 1. The parties to the transactions are as follows: (a) PAINEWEBBER GROUP (PAINE WEBBER GROUP), located in New York, New York, is the parent of PaineWebber. Paine Webber Group is one of the leading full-line securities firms servicing institutions, governments and individual investors in the United States and throughout the world. Paine Webber Group conducts its businesses in part through PMAS, a division of PaineWebber and Mitchell Hutchins, a wholly owned subsidiary of PaineWebber. Paine Webber Group is a member of all principal securities and commodities exchanges in the United States and the National Association of Securities Dealers, Inc. In addition, it holds memberships or associate memberships on several principal foreign securities and commodities exchanges. Although Paine Webber Group is not an operating company and, as such, maintains no assets under management, as of September 30, 1994, Paine Webber Group and its subsidiaries rendered investment advisory services with respect to $36.1 billion in assets. (b) PAINEWEBBER, whose principal executive offices are located in New York, New York, provides investment advisory services to individuals, banks, thrift institutions, investment companies, pension and profit sharing plans, trusts, estates, charitable organizations, corporations and other business and government entities. PaineWebber is also responsible for securities underwriting, investment and merchant banking services and securities and commodities trading as principal and agent. PaineWebber serves as the dealer of Trust shares described herein. (c) PMAS, located in Weehawken, New Jersey is responsible for individual investor account management and investor consulting services. PMAS provides such services to the investors involved in various PaineWebber investment - -------------------------------------------------------------------------------- Prospectus Page A-4 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust programs by providing asset allocation recommendations and related services with respect to their investments. PMAS provides investment consulting and advisory services to more than 40,000 accounts, with account sizes ranging from institutional accounts in excess of $650 million in assets to individual accounts with $100,000 minimum investments. PMAS provides investors in the Trust with asset allocation recommendations and related services with respect to investments in the Trust Portfolios. (d) MITCHELL HUTCHINS, which is located in New York, New York, is a registered investment adviser under the Investment Adviser's Act of 1940 (the Advisers Act) and a wholly owned subsidiary of PaineWebber. Mitchell Hutchins provides investment advisory and asset management services to investors and develops and distributes investment products, including mutual funds and limited partnerships. Mitchell Hutchins also provides financial services to over $24.8 billion in client assets representing twenty-eight investment companies with fifty-five separate portfolios. Mitchell Hutchins is providing investment management and administrative services with respect to the Trust and investment advisory services with respect to one of the Trust's Portfolios. (e) STATE STREET BANK AND TRUST COMPANY (STATE STREET), located in North Quincy, Massachusetts, serves as the custodian of assets for the Trust. State Street is not affiliated with PaineWebber and its affiliates. It provides a full array of integrated banking products, focusing on servicing financial assets (i.e., asset custody, cash management, securities lending, multi-currency accounting and foreign exchange), managing assets and commercial lending. As of September 30, 1994, State Street rendered custodian services with respect to approximately $1.6 trillion in assets and provided investment management services to approximately $155 billion in assets. (f) PFPC, INC. (PFPC), a subsidiary of PNC Bank, National Association, and whose principal address is in Wilmington, Delaware, serves as the Trust's transfer and dividend disbursing agent. PFPC is not affiliated with PaineWebber and its affiliates. PFPC provides a complete range of mutual fund administration and accounting services to a diverse product base of domestic and international investment portfolios. PFPC is also one of the nation's leading providers of transfer and shareholder servicing services to mutual funds and asset management accounts. As of September 30, 1994, PFPC rendered accounting and administration services to over 400 mutual funds and provided transfer agency, dividend disbursing and/or shareholder servicing services with respect to more than 3.1 million shareholder accounts. 2. The Trust is a no load, open-end, diversified management investment company registered under the '40 Act. The Trust was organized as a Delaware business trust on September 9, 1994 and it has an indefinite duration. As of November 6, 1995, the Trust had $184 million in net assets. The Trust presently consists of twelve different portfolios which will pay dividends to investors. The composition of the Portfolios will cover a spectrum of investments ranging from foreign and U.S. Government-related securities to equity and debt securities issued by foreign and domestic corporations. Although a Portfolio of the Trust is permitted to invest its assets in securities issued by PaineWebber and/or its affiliates, the percentage of that Portfolio's net assets invested in such securities will never exceed one percent. With the exception of the PACE Money Market Investments Portfolio, shares in each of the Portfolios are being initially offered to the public at a net asset value of $10 per share. Shares in the PACE Money Market Investments Portfolio are being initially offered to the public at a net asset value of $1.00 per share. 3. Mitchell Hutchins serves as the distributor of Trust shares and PaineWebber serves as the dealer with respect to shares of the Portfolios.(2) Such shares are being offered by PaineWebber at no load, to participants in the PACE Program. The PACE Program is an investment service pursuant to which PMAS provides participants in the PACE Program with asset allocation recommendations and related services with respect to the Portfolios based on an evaluation of an investor's investment objectives and risk tolerances. As stated above, State Street will serve as the custodian of each Portfolio's assets and PFPC serves as the Portfolio's transfer and dividend disbursing agent. To participate in the PACE Program, each investor must open a brokerage account with PaineWebber.(3) The minimum initial investment in the PACE Program is $10,000. Although PaineWebber anticipates that investors in the Trust will initially consist of institutions and - ---------------------------------- (2) As distributor or principal underwriter for the Trust, Mitchell Hutchins will use its best efforts, consistent with its other businesses, to sell shares of the Portfolios. Pursuant to a separate dealer agreement with Mitchell Hutchins, PaineWebber will sell Trust shares to investors. However, neither Mitchell Hutchins nor PaineWebber will receive any compensation for their services as distributor or dealer of Trust shares. According to the applicants, Mitchell Hutchins and PaineWebber may be regarded as having an indirect economic incentive by virtue of the fact that Mitchell Hutchins and PaineWebber will be paid for the services they provide to the Trust in their respective capacities as investment manager and administrator of the Trust (Mitchell Hutchins) and as the provider of asset allocation and related services (PaineWebber, through PMAS). (3) According to the Statement of Additional Information that accompanies the Prospectus for the PACE Program, shares in the Trust are not certificated for reasons of economy and convenience. However, PFPC maintains a record of each investor's ownership of shares. Although Trust shares are transferable and accord voting rights to their owners, they do not confer pre-emptive rights (i.e., the privilege of a shareholder to maintain a proportionate share of ownership of a company by purchasing a proportionate share of any new stock issues). PaineWebber represents that in the context of an open-end investment company that continuously issues and redeems shares, a pre-emptive right would make the normal operations of the Trust impossible. - -------------------------------------------------------------------------------- Prospectus Page A-5 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust individuals, it is proposed that prospective investors will include Plans for which PaineWebber may or may not currently maintain investment accounts. A majority of these Plans may be IRAs or Keogh Plans. In addition, it is proposed that Plans for which PaineWebber or an affiliate serves as a prototype sponsor and/or a nondiscretionary trustee or custodian be permitted to invest in the Trust.(4) The applicants represent that the initial purchase of shares in the Trust by a Plan participating in the PACE Program may give rise to a prohibited transaction where PaineWebber, or an affiliate thereof, is a party in interest with respect to the Plan. PaineWebber also acknowledges that a prohibited transaction could arise upon a subsequent purchase or redemption of shares in the Trust by a participating Plan inasmuch as the party in interest relationship between PaineWebber and the Plan may have been established at that point. Accordingly, the applicants have requested retroactive exemptive relief from the Department with respect to the purchase and redemption of shares in the Trust by a Plan participating in the PACE Program where PaineWebber does not (a) sponsor the Plan (other than as prototype sponsor) or (b) have discretionary authority over such Plan's assets.(5) No commissions or fees will be paid by a Plan with respect to the sale and redemption transactions or a Plan's exchange of shares in a Portfolio for shares of another Portfolio. If granted, the proposed exemption will be effective as of August 18, 1995. 4. Overall responsibility for the management and supervision of the Trust and the Portfolios rests with the Trust's Board of Trustees (the Trustees). The Trustees will approve all significant agreements involving the Trust and the persons and companies that provide services to the Trust and the Portfolios. 5. Mitchell Hutchins also serves as the investment manager to each Portfolio. Under its investment management and administration agreement with the Trust, Mitchell Hutchins will provide certain investment management and administrative services to the Trust and the Portfolios that, in part, involve calculating each Portfolio's net asset value(6) and, with the exception of the PACE Money Market Investments Portfolio (for which Mitchell Hutchins will exercise investment discretion), making recommendations to the Board of Trustees of the Trust regarding (a) the investment policies of each Portfolio and (b) the selection and retention of the Sub-Advisers who will exercise investment discretion with respect to the assets of each Portfolio.(7) The Sub-Advisers will provide discretionary advisory services with respect to the investment of the assets of the respective Portfolios (other than the PACE Money Market Investments Portfolio) on the basis of their performance in their respective areas of expertise in asset management. With the exception of the PACE Money Market Investments Portfolio which will be advised by Mitchell Hutchins, PaineWebber represents that all of the Sub-Advisers, will be independent of, and will remain independent of PaineWebber and/or its affiliates. The Sub-Advisers will be registered investment advisers under the Advisers Act and maintain their principal executive offices in various regions of the United States. The administrative services for which Mitchell Hutchins will be responsible include the following: (a) supervising all aspects of the operations of the Trust and each Portfolio (e.g., oversight of transfer agency, custodial, legal and accounting services; (b) providing the Trust and each Portfolio with corporate, administrative and clerical personnel as well as maintaining books and records for the Trust and each Portfolio; (c) arranging for the periodic preparation, updating, filing and dissemination of the Trust's Registration Statement, proxy materials, tax returns and required reports to each Portfolio's shareholders and the SEC, as well as other federal or state regulatory authorities; (d) providing the Trust and each Portfolio with, and obtaining for it, office space, equipment and - ---------------------------------- As for voting rights, PaineWebber states that they are accorded to recordholders of Trust shares. PaineWebber notes that a recordholder of Trust shares may determine to seek the submission of proxies by Plan participants and vote Trust shares accordingly. In the case of individual account plans such as Section 404(c) Plans, PaineWebber believes that most Plans will pass the vote through to Directing Participants on a pro-rata basis. (4) The Department notes that the general standards of fiduciary conduct promulgated under the Act would apply to the participation in the PACE Program by an Independent Fiduciary. Section 404 of the Act requires that a fiduciary discharge his duties respecting a plan solely in the interest of the plan's participants and beneficiaries and in a prudent fashion. Accordingly, an Independent Fiduciary must act prudently with respect to the decision to enter into the PACE Program with PMAS as well as with respect to the negotiation of services that will be performed thereunder and the compensation that will be paid to PaineWebber and its affiliates. The Department expects an Independent Fiduciary, prior to entering into the PACE Program, to understand fully all aspects of such arrangement following disclosure by PMAS of all relevant information. (5) PaineWebber represents that to the extent employee benefit plans that are maintained by PaineWebber purchase or redeem shares in the Trust, such transactions will meet the provisions of Prohibited Transaction Exemption (PTE) 77-3 (42 FR 18734, April 8, 1977). PaineWebber further represents that, although the exemptive relief proposed above would not permit PaineWebber or an affiliate (while serving as a Plan fiduciary with discretionary authority over the management of a Plan's assets) to invest those assets over which it exercises discretionary authority in Trust shares, a purchase or redemption of Trust shares under such circumstances would be permissible if made in compliance with the terms and conditions of PTE 77-4 (42 FR 18732, April 8, 1977). The Department expresses no opinion herein as to whether such transactions will comply with the terms and conditions of PTEs 77-3 and 77-4. (6) The net asset value of each Portfolio's shares, except for the PACE Money Market Investments Portfolio, fluctuates and is determined as of the close of regular trading on the New York Stock Exchange (the NYSE) (currently, 4:00 p.m. Eastern Time) each business day. The net asset value of shares in the PACE Money Market Investments Portfolio is determined as of 12:00 p.m. each business day. Each Portfolio's net asset value per share is determined by dividing the value of the securities held by the Portfolio plus any cash or other assets minus all liabilities by the total number of Portfolio shares outstanding. (7) Subject to the supervision and direction of the Trustees, Mitchell Hutchins will provide to the Trust investment management evaluation services principally by performing initial review on prospective Sub-Advisers for each Portfolio and thereafter monitoring each Sub-Adviser's performance. In evaluating prospective Sub-Advisers, Mitchell Hutchins will consider, among other factors, each Sub-Adviser's level of expertise, consistency of performance and investment discipline or philosophy. Mitchell Hutchins will have the responsibility for communicating performance expectations and evaluations to the Sub-Advisers and ultimately recommending to the Trustees whether a Sub-Adviser's contract should be continued. - -------------------------------------------------------------------------------- Prospectus Page A-6 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust services; (e) providing the Trustees with economic and investment analyses and reports, and making available to the Trustees, upon request, any economic, statistical and investment services. These administrative services do not include any management services that might be performed by Mitchell Hutchins. As noted in Representations 17 and 18, Mitchell Hutchins is separately compensated for management services rendered to the Trust. 6. Through the PACE Program, PMAS is providing a Plan investor with non-binding, asset allocation recommendations with respect to such investor's investments in the Portfolios. In order to make these evaluations, PMAS will furnish copies of an investor questionnaire, designed to elicit information about the specific investment needs, objectives and expectations of the investor, to an Independent Fiduciary of a Title I Plan that does not permit individually-directed investments, to an Independent Fiduciary of an IRA or a Keogh Plan, or to a Directing Participant of a Section 404(c) Plan. Although the contents of the questionnaire may vary somewhat depending upon the type of Plan investing in the PACE Program, for a particular Plan, the same questionnaire will be given to each participant. In the case of a Section 404(c) Plan where an Independent Fiduciary has established an Undisclosed Account with PaineWebber in the name of the Plan, PMAS will provide investor questionnaires to each Directing Participant through PaineWebber Investment Executives (who are registered representatives of PaineWebber), via the Plan's benefits personnel or independent recordkeeper (the Recordkeeper), or by other means requested by the Independent Fiduciary. The applicants recognize that Section 404(c) Plans typically employ a Recordkeeper to assist the Independent Fiduciary with maintaining Plan-related data which is used to generate benefit status reports, regulatory compliance reports and participant- and Plan-level investment performance reports. Therefore, the Undisclosed Account arrangement is intended to coordinate with the functions traditionally provided to Section 404(c) Plans by their Recordkeepers.(8) 7. Based upon data obtained from the investor questionnaire, PMAS will evaluate the investor's risk tolerances and investment objectives. PMAS will then recommend, in writing, an appropriate allocation of assets among suitable Portfolios that conforms to these tolerances and objectives. PaineWebber represents that PMAS will not have any discretionary authority or control with respect to the allocation of an investor's assets among the Portfolios. In the case of an IRA or Keogh Plan, PaineWebber represents that all of PMAS's recommendations and evaluations will be presented to the Independent Fiduciary and will be implemented only if accepted and acted upon by such fiduciary. In the case of a Section 404(c) Plan, PaineWebber represents that Directing Participants in such Plan will be presented with recommendations and evaluations that aretailored to the responses provided by that Directing Participant in his or her questionnaire. PMAS's recommendations will be disseminated to Directing Participants in accordance with procedures established for the Plan. After receipt of PMAS's initial recommendations, which may or may not be adopted, the Independent Fiduciary or Directing Participant, as applicable, will select the specific Portfolios. PMAS will continue to recommend to Independent Fiduciaries or Directing Participants asset allocations among the selected Portfolios. 8. Aside from the investor questionnaire, in order for a Plan to participate in the PACE Program, PaineWebber or PMAS will provide an Independent Fiduciary with a copy of the Trust Prospectus discussing (a) the investment objectives of the Portfolios comprising the Trust, (b) the policies employed to achieve these objectives, (c) the corporate affiliation existing between PaineWebber, PMAS, Mitchell Hutchins and their subsidiaries, and (d) the compensation paid to such entities by the Trust and information explaining the risks attendant to investing in the Trust. In addition, upon written or oral request to PaineWebber, the Independent Fiduciary will be given a Statement of Additional Information supplementing the Prospectus which describes, in further detail, the types of securities and other instruments in which the Portfolios may invest, the investment policies and strategies that the Portfolios may utilize and certain risks attendant to those investments, policies and strategies. Further, each Independent Fiduciary will be given a copy of the investment advisory agreement between PMAS and such Plan relating to participation in the PACE Program, including copies of the notice of proposed exemption and grant notice for the exemptive relief provided herein. Upon oral or written request to the Trust, PaineWebber will also provide an Independent - ---------------------------------- (8) The applicants wish to emphasize that the PACE Program can currently be provided to participants in Section 404(c) Plans on either an Undisclosed Account or a disclosed account (the Disclosed Account) basis (i.e., where the Independent Fiduciary opens a separate PACE Program account with PaineWebber for each Directing Participant). In this regard, the applicants note that PaineWebber presently offers the PACE Program on a Disclosed Account arrangement to IRAs and Keogh Plans. However, for other Section 404(c) Plans such as those that are covered under the provisions of section 401(k) of the Code, PaineWebber prefers not to establish Disclosed Accounts for individual participants because of servicing and other administrative matters typically undertaken by such Plan's Recordkeepers. The applicants note that from the participant's perspective, there is no difference in the nature of the services provided under the PACE Program regardless of whether the participant's investment is held through a "Disclosed" or "Undisclosed" Account arrangement. The applicants state that these designations are primarily internal distinctions relating to whether the participant's name appears in the account set-up and reflects differences in the applicable sub-accounting functions. Notwithstanding the above, the Department wishes to point out that, regardless of the arrangement negotiated with PaineWebber, an Independent Fiduciary of a Section 404(c) Plan has the responsibility to disseminate all information it receives to each Directing Participant investing in the PACE Program. - -------------------------------------------------------------------------------- Prospectus Page A-7 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust Fiduciary with a copy of the respective investment advisory agreements between Mitchell Hutchins and the Sub-Advisers. In the case of a Section 404(c) Plan, depending on the arrangement negotiated with the Independent Fiduciary, PaineWebber represents that the Independent Fiduciary will make available copies of the foregoing documents to Directing Participants. In addition, Independent Fiduciaries and, if applicable, Directing Participants, will receive introductory documentation regarding the PACE Program in marketing materials and in other communications. Further, depending upon the arrangement negotiated between PMAS and the Independent Fiduciary, a PaineWebber Investment Executive will meet with a Directing Participant, upon oral or written request, to discuss the services offered under the PACE Program, including the rebalancing feature described in Representation 12, as well as the operation and objectives of the Portfolios.(9) 9. If accepted as an investor in the PACE Program, an Independent Fiduciary will be required by PMAS to acknowledge, in writing, prior to purchasing Trust shares, that such fiduciary has received copies of the documents referred to in Representation 8. With respect to a Plan that is covered by Title I of the Act (e.g., a defined contribution plan), where investment decisions will be made by a trustee, investment manager or a named fiduciary, PMAS will require that such Independent Fiduciary acknowledge in writing receipt of such documents and represent to PaineWebber that such fiduciary is (a) independent of PaineWebber and its affiliates, (b) capable of making an independent decision regarding the investment of Plan assets, (c) knowledgeable with respect to the Plan in administrative matters and funding matters related thereto, and (d) able to make an informed decision concerning participation in the PACE Program. With respect to a Section 404(c) Plan, written acknowledgement of the receipt of such documents will be provided by the Independent Fiduciary (i.e., the Plan administrator, trustee, investment manager or named fiduciary, as the recordholder of Trust shares). Such Independent Fiduciary will be required to represent, in writing, to PMAS that such fiduciary is (a) independent of PaineWebber and its affiliates, (b) knowledgeable with respect to the Plan in administrative matters and funding matters related thereto, and (c) able to make an informed decision concerning participation in the PACE Program. 10. After the selection of specific Portfolios by an Independent Fiduciary or a Directing Participant,(10) PMAS will continue to provide recommendations to such persons relating to asset allocations among the selected Portfolios. However, with respect to a Section 404(c) Plan in which at least three Portfolios may be selected by the Independent Fiduciary, PMAS's initial asset allocation recommendation to Directing Participants will be limited to fthe suggested Portfolios offered under the Plan. PMAS anticipates that it may also work with the Independent Fiduciary of a Section 404(c) Plan to assist the fiduciary in (a) identifying and drafting investment objectives, (b) selecting suitable investment categories or actual Portfolios to be offered to Directing Participants or (c) recommending appropriate long-term investment allocations to a Directing Participant, if this individual receives such advice. An Independent Fiduciary or a Directing Participant will be permitted to change his or her investment allocation by specifying the new allocation in writing or by other means authorized by the Plan (e.g., by use of a kiosk). Although PaineWebber currently imposes no limitation on the frequency with which an Independent Fiduciary or a Directing Participant may change his or her prescribed asset allocation, PaineWebber reserves the right to impose reasonable limitations. 11. Depending on the arrangement negotiated with PMAS, PaineWebber will provide each Independent Fiduciary with the following information: (a) Written confirmations of each purchase and redemption of shares of a Portfolio; (b) daily telephone quotations of such Plan's account balance; (c) a monthly statement of account specifying the net asset value of a Plan's assets that are invested in such account; and (d) a quarterly, written investment performance monitoring report. The monthly account statement will include, among other information: (a) cash flow and transaction activity during the month, including purchase, sale and exchange activity and dividends paid or reinvested; (b) unrealized gains or losses on Portfolio shares held; and (c) a summary of total earnings and capital returns on the Plan's PACE Program Portfolio for the month and year-to-date. The quarterly investment performance report will include, among other information, the following: (a) a record of the performance of the Plan's PACE Program portfolio for the quarter and since inception showing rates of return relative to comparative market indices (illustrated in a manner that reflects the effect of any fees for participation in the PACE Program actually incurred during the period)(11); (b) an investment outlook summary containing market commentary; and (c) the Plan's actual PACE Program portfolio with a breakdown, in both dollars and percentages, of the holdings in each Portfolio. In addition, to the extent required by the arrangement negotiated with the Independent Fiduciary, the quarterly performance monitoring report will (a) contain an analysis and an evaluation of a Plan investor's account to assist the investor to ascertain whether the investment objectives are being met, and - ---------------------------------- (9) The Department is expressing no opinion as to whether the information provided under the PACE Program is sufficient to enable a Directing Participant to exercise independent control over assets in his or her account as contemplated by Section 404(c) of the Act. (10) In the case of a Section 404(c) Plan, PMAS will receive electronically from the Recordkeeper each participant's investment selections. (11) The comparative index is a blended index of the individual Portfolio indices that are weighted by the allocation percentages corresponding to those holdings that make up the investor's total investment in the PACE Program. - -------------------------------------------------------------------------------- Prospectus Page A-8 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust (b) recommend, from time to time, changes in Portfolio allocations. The quarterly performance monitoring report is described in the summary of the PACE Program contained in the Trust Prospectus. With respect to a Section 404(c) Plan, the quarterly investment performance report transmitted to the Independent Fiduciary will include the following aggregate information relative to the Undisclosed Account as well as market commentary: (a) a record of the performance of the Plan's assets and rates of return as compared to several appropriate market indices (illustrated in a manner that reflects the effect of any fees for participation in the PACE Program actually incurred during the period); and (b) the Plan's actual investment portfolio with a breakdown of investments made in each Portfolio. As to each Directing Participant, PMAS will provide information to be contained in the quarterly performance monitoring report to such participants. In addition, on both a quarterly and annual basis, commencing with the first quarterly report due after this notice of proposed exemption is issued, PaineWebber will provide, as applicable, an Independent Fiduciary or a Directing Participant with written disclosures of (a) the total, expressed in dollars, of each Portfolio's brokerage commissions that are paid to PaineWebber and its affiliates; (b) the total, expressed in dollars, of each Portfolio's brokerage commissions that are paid to unrelated brokerage firms; (c) the average brokerage commissions per share by the Trust to brokers affiliated with the PaineWebber, expressed as cents per share; and (d) the average brokerage commissions per share by the Trust to brokers unrelated to the PaineWebber and its affiliates, expressed as cents per share for any year in which brokerage commissions are paid to PaineWebber by the Trust Portfolios in which a Plan's assets are invested. Further, the Independent Fiduciary or Directing Participant, as applicable, will have access to a PaineWebber Investment Executive for the discussion of the quarterly performance monitoring reports, the rebalancing feature described below in Representation 12 or any questions that may arise. 12. Depending on the arrangement negotiated with PMAS, for any investor who so directs PMAS, the investor's Trust holdings will be automatically rebalanced on a periodic basis to maintain the investor's designated allocation among the Portfolios. PMAS will receive no additional compensation to provide this service. At both the Independent Fiduciary and Directing Participant levels, the rebalancing election will be made in writing or in any manner permitted by the Plan (e.g., in the case of a Section 404(c) Plan, electronic transmissionby the Recordkeeper to PMAS of the Directing Participant's election). The election will be accompanied by a disclosure that is designed to provide the Independent Fiduciary and the Directing Participant, as applicable, with an understanding of the rebalancing feature. Disclosure of the rebalancing feature is included in the Prospectus for the PACE Program which will be provided to each Independent Fiduciary and Directing Participant. It is currently anticipated that screening will be performed quarterly with respect to the PACE Program accounts for which the investor has elected the rebalancing service and that rebalancing will be performed for each such account where any Portfolio allocation deviates from the allocation prescribed by the investor by the agreed-upon uniform threshold.(12) The threshold for triggering rebalancing is a percentage (presently, 2 1/2 percent) that has been established by PaineWebber and is applied uniformly to all accounts subject to rebalancing. If PaineWebber were, in the future, to determine that this uniform threshold should be changed, PMAS would notify all investors (including Independent Fiduciaries and Directing Participants) who had elected the rebalancing feature. Then, in order to continue to provide this service, PMAS would need to obtain the consent of each such investor. The applicants note that rebalancing is a feature that an investor chooses to apply indefinitely until the investor notifies PaineWebber that it wishes to have this service discontinued. After rebalancing has been discontinued, an investor may reactivate the rebalancing service by notifying PaineWebber in writing. 13. PaineWebber notes that not all of the services described above will be provided to every Plan. The services that will be provided will depend on what is decided upon by the Independent Fiduciary. Assuming the Independent Fiduciary requests a reduction in the level of services, there will be no corresponding reduction in the fee that the fiduciary pays PMAS. This is due to the bundled nature of the services provided in the PACE Program. For example, if the Independent Fiduciary were to limit the number of Portfolios available as investment options for its Plan participants, this might be deemed a reduction in the services available under the PACE Program that would not result in any reduction in the applicable Program fee. Similarly, under the PACE Program, an Independent Fiduciary of a Section 404(c) Plan may decide for its own reasons not to make the automatic rebalancing service available to Directing Participants. Under such - ---------------------------------- (12) Currently, with regard to investors who have elected the rebalancing feature, rebalancing is effected by an automated, mechanical system that, as to each account: (a) Calculates the current allocation for each Portfolio based on the quarter-end net asset value; (b) compares the current allocation for each Portfolio with the allocation prescribed by the investor; (c) identifies for rebalancing all accounts with one or more Portfolios whose current allocation deviates by the agreed-upon threshold from the allocation prescribed by the investor; and (d) for each account which has been identified for rebalancing pursuant to (a)-(c), (1) calculates the dollar difference between the current allocation and the allocation prescribed by the investor, (2) reduces each Portfolio whose current allocation exceeds the allocation prescribed by the investor by an amount equal to the dollar difference between the two allocations, and (3) increases each Portfolio whose current allocation is less than the allocation prescribed by the investor by an amount equal to the dollar difference between the two allocations. This rebalancing is accomplished by automatically exchanging, in the order of the Portfolio's respective CUSIP numbers, a dollar-equivalent number of shares of each Portfolio to be reduced for the corresponding number of shares of a Portfolio to be increased until the current allocation is equal to the allocation prescribed by the investor. Valuation of the Portfolios is done as of the close of regular trading on the NYSE each business day. - -------------------------------------------------------------------------------- Prospectus Page A-9 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust circumstances, PMAS will not reduce its fees to reflect the absence of the provision of rebalancing services to the Plan. Further, under the particular arrangement which it has negotiated with PMAS, the Independent Fiduciary may or may not request PaineWebber Investment Executives to make presentations or be available to meet with Directing Participants. Thus, an Independent Fiduciary may choose all, some or none of the PACE Program's optional services. If an Independent Fiduciary selects all of these services, the Plan will incur no greater an annual fee than had that Independent Fiduciary selected some or none of these services. The absence of a reduction in fees in the event not all services are requested is an issue that should be considered by the Independent Fiduciary.(13) Nonetheless, the Applicants represent that the reduction in the types of services provided will not cause the fees paid to PaineWebber by a Plan under the PACE Program to violate section 408(b)(2) of the Act. 14. Plans wishing to redeem their Trust shares may communicate their requests in writing or by telephone to PMAS. Redemption requests received in proper form prior to the close of trading on the NYSE will be effected at the net asset value per share determined on that day. Redemption requests received after the close of regular trading on the NYSE will be effected at the net asset value at the close of business of the next day, except on weekends or holidays when the NYSE is closed. A Portfolio will be required to transmit redemption proceeds for credit to an investor's account with PaineWebber within 5 business days after receipt of the redemption request.(14) In the case of an IRA or Keogh Plan investor, PaineWebber will not hold redemption proceeds as free credit balances and will, in the absence of receiving investment instructions, place all such assets in a money market fund (other than the PACE Money Market Investments Portfolio) that may be affiliated with PaineWebber.(15) In the case of Plans that are covered by Title I of the Act, the redemption proceeds will be invested by PaineWebber in accordance with the investment directions of the Independent Fiduciary responsible for the management of the Plan's assets. With respect to a Section 404(c) Plan, the treatment of such investment will depend upon the arrangement for participant investment instructions selected by the Plan sponsor. In the event that the Independent Fiduciary does not give other investment directions, such assets will be swept into a no-load money market fund that may be affiliated with PaineWebber. No brokerage charge or commission is charged to the participant for this service. Due to the high costs of maintaining small PACE Program (Plan) accounts, the Trusts may redeem all Trust shares held in a PACE Program account in which the Trust shares have a current value of $7,500 or less after the investor has been given at least thirty days in which to purchase additional Trust shares to increase the value of the account to more than the $7,500 amount. Proceeds of an involuntary redemption will be deposited in the investor's brokerage account unless PaineWebber is otherwise instructed.(16) 15. Through the PACE Program, shares of a Portfolio may be exchanged by an investor for shares of another Portfolio at their respective net asset values and without the payment of an exchange fee. However, Portfolio shares are not exchangeable with shares of other PaineWebber group of funds or portfolio families. With respect to brokerage transactions that are entered into under the PACE Program for a Portfolio, such transactions may be executed through PaineWebber and other affiliated broker-dealers, if in the judgment of Mitchell Hutchins or the Sub-Adviser, as applicable, the use of such broker-dealer is likely to result in price and execution at least as favorable, and at a commission charge comparable to those of other qualified broker-dealers. 16. Each Portfolio will bear its own expenses, which generally include all costs that are not specifically borne by PaineWebber, Mitchell Hutchins or the Sub-Advisers. Included among a Portfolio's expenses will be costs incurred in connection with the Portfolio's organization, investment management and administration fees, fees for necessary professional and brokerage services, fees for any pricing service, the costs of regulatory compliance and costs associated with maintaining the Trust's legal existence and shareholder relations. No Portfolio, however, will impose sales charges on purchases, reinvested dividends, deferred sales charges, redemption fees; nor will any Portfolio incur distribution expenses. Investment management fees payable to Mitchell Hutchins and the Sub-Advisers will be disclosed in the Trust Prospectus. 17. As to each Plan, the total fees that are paid to PMAS and its affiliates will constitute no more than reasonable compensation.(17) In this regard, for its services under - ---------------------------------- (13) In this regard, the Department emphasizes that it expects the Independent Fiduciary to consider prudently the relationship of the fees to be paid by the Plan to the level of services to be provided by PaineWebber. In response to the Department's concern over this matter, PaineWebber represents that it will amend the Trust Prospectus to include the following statement: "Investors who are fiduciaries or otherwise, in the process of making investment decisions with respect to Plans, should consider, in a prudent manner, the relationship of the fees to be paid by the Plan along with the level of services provided by PaineWebber." (14) PaineWebber will provide clearance (on a fully disclosed basis), settlement and other back office services to other broker-dealers. (15) The applicants are not requesting, nor is the Department proposing, exemptive relief with respect to the investment, by PaineWebber, of redemption proceeds in an affiliated money market fund and where the Plan investor has not given investment instructions. The applicants represent that to the extent PaineWebber is considered a fiduciary, such investments will comply with the terms and conditions of PTE 77-4. However, the Department expresses no opinion herein on whether such transactions are covered by this class exemption. (16) The thirty day limit does not restrict a Plan's ability to redeem its interest in the Trust. The thirty day notice period is provided to give a Plan an opportunity to increase the value of the assets in its Plan account with PaineWebber to an amount in excess of $7,500. If desired, the Plan may still follow the redemption guidelines described above. (17) The applicants represent that PMAS and its affiliates will not receive 12b-1 Fees in connection with the transactions. - -------------------------------------------------------------------------------- Prospectus Page A-10 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust the PACE Program, PMAS charges an investor a quarterly fee for asset allocation and related services. This "outside fee", will not be more than 1.50 percent on an annual basis of the maximum annual value of the assets in the investor's PACE Program account. Such fee may be paid either from the assets in the account or by separate check. A smaller outside fee may be charged depending on such factors as the size of the PACE Program account (e.g., PACE Program accounts in excess of $100,000), the number of Plan participants or the number of PACE Program accounts. The outside fee is charged directly to an investor and is neither affected by the allocation of assets among the Portfolios nor by whether an investor follows or ignores PMAS's advice.(18) In the case of Plans, the outside fee may be paid by the Plan or the Plan sponsor or, in the case of IRAs only, the fee may be paid by the IRA owner directly. For Plan investors, the outside fee will be payable in full within five business days (or such other period as may be required under applicable law or regulation) after the trade date for the initial investment in the Portfolios and will be based on the value of assets in the PACE Program on the trade date of the initial investment. The initial fee payment will cover the period from the initial investment trade date through the last calendar day of the subsequent calendar quarter, and the fee will be pro-rated accordingly. Thereafter, the quarterly fee will cover the period from the first calendar day through the last calendar day of the current calendar quarter. The quarterly fee will be based on the value of assets in the PACE Program measured as of the last calendar day of the previous quarter, and will be payable on the fifth business day of the current quarter. If additional funds are invested in the Portfolios during any quarter, the applicable fee, pro-rated for the number of calendar days then remaining in the quarter and covering the amount of such additional funds, shall be charged and be payable five business days later. In the case of redemptions during a quarter, the fee shall be reduced accordingly, pro-rated for the number of calendar days then remaining in the quarter. If the net fee increase or decrease to an investor for additional purchases and/or redemptions during any one quarter is less than $20, the fee increase or decrease will be waived. In addition, for investment management and administrative services provided to the Trust, Mitchell Hutchins will be paid, from each Portfolio, a fee which is computed daily and paid monthly at an annual rate ranging from .35 percent to 1.10 percent, of which the management fee component ranges from .15 percent to .90 percent on an annual basis, of each Portfolio's average daily net assets depending upon the Portfolio's objective.(19) From these management fees, Mitchell Hutchins will compensate the applicable Sub-Adviser. This "inside fee," which is the difference between the individual Portfolio's total management fee and the fee paid by Mitchell Hutchins to the Sub-Adviser, will vary from the annual rate of .15 percent to .40 percent depending on the Portfolio. With the exception of the PACE Money Market Investments Portfolio from which Mitchell Hutchins is paid a management fee of 15 basis points, Mitchell Hutchins is retaining 20 basis points as a management fee from each remaining single Portfolio on investment assets attributable to the Plans. Pursuant to Transfer Agency and Service Agreements with the Trust, PFPC and State Street will be paid annual fees of $350,000 and $650,000, respectively, for transfer agent and custodial services. 18. The management fees that are paid at the Portfolio level to Mitchell Hutchins and the Sub-Advisers are set forth in the following table. For purposes of the table, Mitchell Hutchins and a Sub-Adviser are referred to as "MH" and "SA," respectively. As noted in the table, the sum of the management fees retained by Mitchell Hutchins and the Sub-Adviser with respect to a Portfolio will equal the total management fee paid by that Portfolio.
MH MH MANAGEMENT SA RETAINED RETAINED FEE PORTFOLIO FEE (PERCENT) FEE (PERCENT) (PERCENT) - --------- --------------- --------------- --------------- PACE Money Market Investments............................. .15 .00 .15 PACE Government Securities Fixed Income Investments....... .50 .25 .25 PACE Intermediate Fixed Income Investments................ .40 .20 .20 PACE Strategic Fixed Income Investments................... .50 .25 .25 PACE Municipal Fixed Income Investments................... .40 .20 .20 PACE Global Fixed Income Investments...................... .60 .35 .25 PACE Large Company Value Equity Investments............... .60 .30 .30 PACE Large Company Growth Equity Investments.............. .60 .30 .30 PACE Small/Medium Company Value Equity Investments........ .60 .30 .30 PACE Small/Medium Company Growth Equity Investments....... .60 .30 .30 PACE International Equity Investments..................... .70 .40 .30 PACE International Emerging Markets Investments........... .90 .50 .40
- ---------------------------------- (18) PaineWebber represents that the outside fee will not be imposed on the accounts of the PaineWebber Group and its subsidiaries, including PaineWebber, PMAS, Mitchell Hutchins or their subsidiaries, accounts of their immediate families and IRAs and certain employee pension benefit plans for these persons. The applicants state that this fee will be waived to encourage employees to invest in PaineWebber, although PaineWebber reserves the right to impose such fees. However, with respect to IRAs or Plans maintained by PaineWebber or its affiliates for their employees, the applicants assert that such waiver would be required by PTE 77-3. (19) The fees payable to Mitchell Hutchins under its investment management and administration agreement with the Trust are comprised of two components. One component is for administrative services provided to each Portfolio at the annual rate of .20 percent of each Portfolio's net assets. The second component is for investment management and related services provided to each Portfolio. The annualized fee range here is from .15 percent to .90 percent of the Portfolio's average daily net assets. - -------------------------------------------------------------------------------- Prospectus Page A-11 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust PMAS is offsetting, quarterly, against the outside fee such amounts as is necessary to ensure that Mitchell Hutchins retains no more than 20 basis points as a management fee from any Portfolio on investment assets attributable to any Plan.(20) The administrative services fee payable to Mitchell Hutchins is not being offset against the outside fee. Instead, that fee is being retained by Mitchell Hutchins. 19. The following example demonstrates the operation of the fee offset mechanism, the calculation of the net inside fee, and the calculation of the total of a Plan investor's net outside fee and share of the investment management fees paid by the Portfolios in a given calendar quarter or year: Assume that as of September 30, 1995, the net asset value of Trust Portfolio shares held by a Plan investor was $1,000. Investment assets attributable to the Plan were distributed among five Trust Portfolios: (1) PACE Money Market Investments in which the Plan made a $50 investment and from which Mitchell Hutchins would retain an inside fee of .15 percent; (2) PACE Intermediate Fixed Income Investments in which the Plan made a $200 investment and from which Mitchell Hutchins would retain an inside fee of .20 percent; (3) PACE Large Company Value Equity Investments in which the Plan made a $250 investment and Mitchell Hutchins would retain an inside fee of .30 percent; (4) PACE Small/Medium Company Growth Equity Investments in which the Plan made a $250 investment and Mitchell Hutchins would be entitled to receive an inside fee of .30 percent; and (5) PACE International Equity Investments in which the Plan made a $250 investment and Mitchell Hutchins would be entitled to receive an inside fee of .30 percent. Assume that the Plan investor pays an outside fee of 1.50 percent so that the total outside fee for the calendar quarter October 1 through December 31, prior to the fee offset, would be as follows:
MAXIMUM OUTSIDE AMOUNT OUTSIDE QUARTERLY PORTFOLIO INVESTED QUARTERLY FEE FEE - --------- --------------- ---------------- --------------- PACE Money Market Investments........................... $ 50 1.50% (.25) $0.1875 PACE Intermediate Fixed Income Investments.............. 200 1.50% (.25) .7500 PACE Large Company Value Equity Investments............. 250 1.50% (.25) .9375 PACE Small/Medium Company Growth Equity Investments..... 250 1.50% (.25) .9375 PACE International Equity Investments................... 250 1.50% (.25) .9375 ----- -------------- ------- Total Outside Fee Per Quarter........................... 1,000 -- 3.7500
Under the proposed fee offset, the outside fee charged to the Plan must be reduced by a Reduction Factor to ensure that Mitchell Hutchins retains an inside fee of no more than 20 basis points from each of the Portfolios on investment assets attributable to the Plan. The following table shows the Reduction Factor as applied to each of the Portfolios comprising the Trust:
MH MAXIMUM REDUCTION RETAINED FEE MH FEE FACTOR PORTFOLIO (PERCENT) (PERCENT) (PERCENT) - --------- --------------- --------------- --------------- PACE Money Market Investments........................... .15 .15 .00 PACE Government Securities Fixed Income Investments..... .25 .20 .05 PACE Intermediate Fixed Income Investments.............. .20 .20 .00 PACE Strategic Fixed Income Investments................. .25 .20 .05 PACE Municipal Fixed Income Investments................. .20 .20 .00 PACE Global Fixed Income Investments.................... .25 .20 .05 PACE Large Company Value Equity Investments............. .30 .20 .10 PACE Large Company Growth Equity Investments............ .30 .20 .10 PACE Small/Medium Company Value Equity Investments...... .30 .20 .10 PACE Small/Medium Company Growth Equity Investments..... .30 .20 .10 PACE International Equity Investments................... .30 .20 .10 PACE International Emerging Markets Investments......... .40 .20 .20
Under the proposed fee offset, a Reduction Factor of .10 percent is applied against the quarterly outside fee with respect to the value of Plan assets that have been invested in PACE Large Company Value Equity Investments, PACE Small/Medium Company Growth Equity Investments and PACE International Equity Investments. As noted above, the PACE Money Market Investments Portfolio and the PACE Intermediate Fixed Income Investments Portfolio do not require the application of a Reduction Factor because the management fee retained by Mitchell Hutchins for managing these Portfolios does not exceed 20 basis points. Therefore, the quarterly offset for the plan investor is computed as follows: (.25)[($250).10% + ($250).10% + ($250).10%] = $0.1875 or $.19. In the foregoing example, if the Plan investor elects to receive an invoice directly, the Plan investor would be mailed a statement for its PACE Program account on or about October 15, 1995. This statement would show the outside fee to be charged for the calendar quarter October 1 through December 31, as adjusted by subtracting the quarterly offset from the quarterly outside fee as determined above. The net quarterly outside fee that would be paid to PMAS would be determined as follows: $3.75 - $.19 = $3.56. The Plan investor that elects to receive an invoice directly would be asked to pay the outside fee for that quarter within 30 days of the date on which the statement was mailed (e.g., November 15, 1995). If the outside fee were not paid by that date, PMAS would debit the account of the Plan investor (as with other investors) for the amount - ---------------------------------- (20) PaineWebber asserts that it chose 20 basis points as the maximum net fee retained for management services rendered to the Portfolios because this amount represents the lowest percentage management fee charged by PaineWebber among the Portfolios (excluding the PACE Money Market Investments Portfolio for which a fee of 15 basis points will be charged). - -------------------------------------------------------------------------------- Prospectus Page A-12 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust of the outside fee (pursuant to the authorization contained in the PACE Program Investment Advisory Agreement, and as described in the PACE Program Description appended to the Prospectus).(21) A Plan investor that elects to have the outside fee debited from its account would receive, in November, a statement as of October 31 reflecting the outside fee and the quarterly offset therefrom. Assuming the Plan investor's investment in and allocation among the Portfolios remains constant throughout the quarter, (a) the Plan investor's fees for the quarter for asset allocation and related services provided by PMAS (net outside fee) and (b) the fees paid by the Portfolios for investment management services provided by Mitchell Hutchins (inside fee) would be as follows: $3.56 (net outside fee)+(.25) [($50+$200+$250+$250+$250).20%] (administrative services fee)+(.25) [($50).15% + ($200).20% + ($250 + $250 + $250).30%] (inside fee) = $4.74. Assuming the Plan investor's investment in and allocation among the Portfolios remains constant throughout the year, the total net outside fee and inside fee borne by the Plan investor for the year would be as follows: 4 (($4.74) = $18.96 or 1.89% per $1,000 invested. 20. PaineWebber notes that a potential conflict may exist by reason of the variance in retained inside fees between the different Portfolios. For example, Mitchell Hutchins will retain a lower inside fee with respect to assets invested in the PACE Money Market Investments Portfolio than all other Portfolios. PaineWebber recognizes that this factor could result in the recommendation of a higher fee-generating Portfolio to an investing Plan. Nonetheless, PMAS will be subject to and intends to comply fully with the standards of fiduciary duty that require that it act solely in the best interest of the Plan when making investment recommendations. 21. The books of the Trust will be audited annually by independent, certified public accountants selected by the Trustees and approved by the investors. All investors will receive copies of an audited financial report no later than sixty days after the close of each Trust fiscal year. All Trust financial statements will be prepared in accordance with generally accepted accounting principles and relevant provisions of the federal securities laws. The books and financial records of the Trust will be open for inspection by any investor, including the Department, the Service and SEC, at all times during regular business hours. 22. In summary, it is represented that the transactions will satisfy the statutory criteria for an exemption under section 408(a) of the Act because: (a) The investment of a Plan's assets in the PACE Program will be made and approved by a Plan fiduciary or participant that is independent of PaineWebber and its affiliates such that the Independent Fiduciary or Directing Participant will maintain complete discretion with respect to participating in the PACE Program. (b) An Independent Fiduciary or Directing Participant will have full discretion to redeem his or her shares in the Trust. (c) No Plan will pay a fee or commission by reason of the acquisition or redemption of shares in the Trust and PMAS nor will its affiliates receive 12b-1 Fees in connection with the transactions. (d) Prior to making an investment in the PACE Program, each Independent Fiduciary or Directing Participant will receive offering materials and disclosures from PMAS which disclose all material facts concerning the purpose, fees, structure, operation, risks and participation in the PACE Program. (e) PMAS will provide written documentation to an Independent Fiduciary or Directing Participant of its recommendations or evaluations based upon objective criteria. (f) With the exception of Mitchell Hutchins which will manage the PACE Money Market Investments Portfolio, any Sub-Adviser appointed to exercise investment discretion over a Portfolio will always be independent of PaineWebber and its affiliates. (g) The quarterly investment advisory fee that is paid by a Plan to PMAS for investment advisory services rendered to such Plan will be offset by such amount as is necessary to assure that Mitchell Hutchins retains 20 basis points from any Portfolio (with the exception of the PACE Money Market Investments Portfolio) on investment assets attributable to the Plan investor. However, the quarterly fee paid to Mitchell Hutchins for administrative services will be retained by Mitchell Hutchins and will not be offset against the outside fee. (h) Each participating Plan will receive copies of the Trust's semi-annual and annual report which will include financial statements for the Trust that have been prepared by independent, certified public accountants and investment management fees paid by each Portfolio. (i) On a quarterly and annual basis, PaineWebber will provide written disclosures to an Independent Fiduciary or, if applicable, Directing Participant, with respect to (1) the total, expressed in dollars, - ---------------------------------- (21) PaineWebber explains that the foregoing example illustrates the fact that Plan investors will get the benefit of the fee offset contemporaneously upon the payment of the outside fee. Because the inside fee is paid monthly and the fee offset is computed quarterly, the applicants also explain that PMAS does not receive the benefit of a "float" as a result of such calculations because the fee offset will always be realized no later than the time that the outside fee is paid. Since the inside fee is paid at the end of each calendar month, the applicants further explain that Plan investors will realize the full benefit of the offset before the time that the inside fee is paid for the second and third months of the calendar quarter. - -------------------------------------------------------------------------------- Prospectus Page A-13 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust of each Portfolio's brokerage commissions that are paid to PaineWebber and its affiliates; (2) the total, expressed in dollars, of each Portfolio's brokerage commissions that are paid to unrelated brokerage firms; (3) the average brokerage commissions per share by the Trust to brokers affiliated with the PaineWebber, expressed as cents per share; and (4) the average brokerage commissions per share by the Trust to brokers unrelated to the PaineWebber and its affiliates, expressed as cents per share for any year in which brokerage commissions are paid to PaineWebber by the Trust Portfolios in which a Plan's assets are invested. For Further Information Contact: Ms. Jan D. Broady of the Department, telephone (202) 219-8881. (This is not a toll-free number.) 40000-40004 FEDERAL REGISTER VOL. 61, NO. 148 WEDNESDAY, JULY 31, 1996 [PROHIBITED TRANSACTION EXEMPTION 96-59; EXEMPTION APPLICATION NO. D-09818, ET AL.] NOTICES GRANT OF INDIVIDUAL EXEMPTIONS; PAINEWEBBER INCORPORATED AGENCY: Pension and Welfare Benefits Administration, Labor. ACTION: GRANT OF INDIVIDUAL EXEMPTIONS. - -------------------------------------------------------------------------------- SUMMARY: This document contains exemptions issued by the Department of Labor (the Department) from certain of the prohibited transaction restrictions of the Employee Retirement Income Security Act of 1974 (the Act) and/or the Internal Revenue Code of 1986 (the Code). Notices were published in the FEDERAL REGISTER of the pendency before the Department of proposals to grant such exemptions. The notices set forth a summary of facts and representations contained in each application for exemption and referred interested persons to the respective applications for a complete statement of the facts and representations. The applications have been available for public inspection at the Department in Washington, D.C. The notices also invited interested persons to submit comments on the requested exemptions to the Department. In addition the notices stated that any interested person might submit a written request that a public hearing be held (where appropriate). The applicants have represented that they have complied with the requirements of the notification to interested persons. No public comments and no requests for a hearing, unless otherwise stated, were received by the Department. The notices of proposed exemption were issued and the exemptions are being granted solely by the Department because, effective December 31, 1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR 47713, October 17, 1978) transferred the authority of the Secretary of the Treasury to issue exemptions of the type proposed to the Secretary of Labor. STATUTORY FINDINGS In accordance with section 408(a) of the Act and/or section 4975(c)(2) of the Code and the procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon the entire record, the Department makes the following findings: (a) The exemptions are administratively feasible; (b) They are in the interests of the plans and their participants and beneficiaries; and (c) They are protective of the rights of the participants and beneficiaries of the plans. PAINEWEBBER INCORPORATED (PAINEWEBBER), LOCATED IN NEW YORK, NY [Prohibited Transaction Exemption 96-59; Exemption Application No. D-09818] EXEMPTION Section I. Covered Transactions The restrictions of section 406(a) of the Act and the sanctions resulting from the application of section 4975 of the Code, by reason of section 4975(c)(1)(A) through (D) of the Code, shall not apply, effective August 18, 1995, to the purchase or redemption of shares by an employee benefit plan, a plan described in section 403(b) of the Code (the Section 403(b) Plan), an individual retirement account (the IRA) or a retirement plan for a self-employed individual (the Keogh Plan) (collectively referred to herein as the Plans) in the PaineWebber Managed Accounts Services Portfolio Trust (the Trust) established in connection with such Plans' participation in the PaineWebber PACE Program (the PACE Program). In addition, the restrictions of section 406(b) of the Act and the sanctions resulting from the application of section 4975 of the Code, by reason of section 4975(c)(1)(E) and (F) of the Code, shall not apply, effective August 18, 1995, to (a) the provision, by PaineWebber Managed Accounts Services (PMAS), a division of PaineWebber, of assetallocation and related services to an independent fiduciary of a Plan (the Independent Fiduciary) or to a directing participant (the Directing Participant) in a Plan that is covered under and permits participant selection as contemplated by the provisions of section 404(c) of the Act (the Section 404(c) Plan), which may result in the selection by the Independent Fiduciary or the Directing Participant of portfolios of the Trust (the Portfolios) in the PACE Program for the investment of Plan assets; and (b) the provision of investment management services by Mitchell Hutchins Asset Management, Inc. (Mitchell Hutchins) to the PACE Money Market Investments Portfolio of the Trust. This exemption is subject to the conditions set forth below in Section II. Section II. General Conditions (a) The participation of each Plan in the PACE Program is approved by an Independent Fiduciary or, if applicable, Directing Participant. - -------------------------------------------------------------------------------- Prospectus Page A-14 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust (b) As to each Plan, the total fees paid to PMAS and its affiliates constitute no more than reasonable compensation and do not include the receipt of fees pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the '40 Act) by PMAS and its affiliates in connection with the transactions. (c) No Plan pays a fee or commission by reason of the acquisition or redemption of shares in the Trust. (d) The terms of each purchase or redemption of Trust shares remain at least as favorable to an investing Plan as those obtainable in an arm's length transaction with an unrelated party. (e) PMAS provides written documentation to an Independent Fiduciary or a Directing Participant of its recommendations or evaluations based upon objective criteria. (f) Any recommendation or evaluation made by PMAS to an Independent Fiduciary or Directing Participant is implemented only at the express direction of such fiduciary or participant. (g) PMAS provides investment advice in writing to an Independent Fiduciary or Directing Participant with respect to all Portfolios made available under the Plan. (h) With the exception of the PACE Money Market Investments Portfolio, any sub-adviser (the Sub-Adviser) appointed by Mitchell Hutchins to exercise investment discretion with respect to a Portfolio is independent of PaineWebber and its affiliates. (i) The quarterly fee that is paid by a Plan to PMAS for asset allocation and related services rendered to such Plan under the PACE Program (i.e., the outside fee) is offset by such amount as is necessary to assure that Mitchell Hutchins retains 20 basis points as a management fee from any Portfolio (with the exception of the PACE Money Market Investments Portfolio from which Mitchell Hutchins retains an investment management fee of 15 basis points) containing investments attributable to the Plan investor. However, the quarterly fee of 20 basis points that is paid to Mitchell Hutchins for administrative services is retained by Mitchell Hutchins and is not offset against the outside fee. (j) With respect to its participation in the PACE Program prior to purchasing Trust shares, (1) Each Independent Fiduciary receives the following written or oral disclosures from PaineWebber: (A) A copy of the prospectus (the Prospectus) for the Trust discussing the investment objectives of the Portfolios comprising the Trust; the policies employed to achieve these objectives; the corporate affiliation existing between PaineWebber, PMAS, Mitchell Hutchins and their affiliates; the compensation paid to such entities; any additional information explaining the risks of investing in the Trust; and sufficient and understandable disclosures relating to rebalancing of investor accounts. (B) Upon written or oral request to PaineWebber, a Statement of Additional Information supplementing the Prospectus, which describes the types of securities and other instruments in which the Portfolios may invest, the investment policies and strategies that the Portfolios may utilize and certain risks attendant to those investments, policies and strategies. (C) An investor questionnaire. (D) A written analysis of PMAS's asset allocation recommendation of specific Portfolios. (E) A copy of the agreement between PMAS and such Plan relating to participation in the PACE Program. (F) Upon written request to Mitchell Hutchins, a copy of the respective investment advisory agreements between Mitchell Hutchins and the Sub-Advisers. (G) Copies of the proposed exemption and grant notice describing the exemptive relief provided herein. (2) In the case of a Section 404(c) Plan, the Independent Fiduciary will-- (A) Make copies of the foregoing documents available to Directing Participants. (B) Allow Directing Participants to interact with PaineWebber Investment Executives and receive information relative to the services offered under the PACE Program, including the rebalancing feature, and the operation and objectives of the Portfolios. (3) If accepted as an investor in the PACE Program, an Independent Fiduciary of a Section 403(b) Plan, an IRA or a Keogh Plan, is required to acknowledge, in writing to PMAS, prior to purchasing Trust shares that such fiduciary has received copies of the documents described in paragraph (j)(1) of this Section II. (4) With respect to a Section 404(c) Plan, written acknowledgment of the receipt of such documents is provided by the Independent Fiduciary (i.e., the Plan administrator, trustee, investment manager or named fiduciary). Such Independent Fiduciary will be required to represent in writing to PMAS that such fiduciary is-- (A) Independent of PaineWebber and its affiliates; (B) Knowledgeable with respect to the Plan in administrative matters and funding matters related thereto, and; - -------------------------------------------------------------------------------- Prospectus Page A-15 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust (C) Able to make an informed decision concerning participation in the PACE Program. (5) With respect to a Plan that is covered under Title I of the Act, where investment decisions are made by a trustee, investment manager or a named fiduciary, such Independent Fiduciary is required to acknowledge, in writing, receipt of such documents and represent to PMAS that such fiduciary is (A) Independent of PMAS and its affiliates; (B) Capable of making an independent decision regarding the investment of Plan assets; (C) Knowledgeable with respect to the Plan in administrative matters and funding matters related thereto; and (D) Able to make an informed decision concerning participation in the PACE Program. (k) As applicable, subsequent to its participation in the PACE Program, each Independent Fiduciary receives the following written or oral disclosures with respect to its ongoing participation in the PACE Program: (1) Written confirmations of each purchase or redemption transaction by the Plan with respect to a Portfolio. (2) Telephone access to quotations from PaineWebber of such Plan's account balance. (3) A monthly statement of account from PaineWebber specifying the net asset value of the Plan's investment in such account. Such statement is also anticipated to include cash flow and transaction activity during the month, unrealized gains or losses on Portfolio shares held; and a summary of total earnings and capital returns on the Plan's PACE Portfolio for the month and year-to-date. (4) The Trust's semi-annual and annual report which will include financial statements for the Trust and investment management fees paid by each Portfolio. (5) A written quarterly monitoring report that includes (a) a record of the Plan's PACE Program portfolio for the quarter and since inception, showing the rates of return relative to comparative market indices (illustrated in a manner that reflects the effect of any fees for participation in the PACE Program actually incurred during the period); (b) an investment outlook summary containing market commentary; and (c) the Plan's actual PACE Program portfolio with a breakdown, in both dollars and percentages, of the holdings in each portfolio. The quarterly monitoring report will also contain an analysis and an evaluation of a Plan investor's account to assist the investor to ascertain whether the Plan's investment objectives have been met and recommending, if required, changes in Portfolio allocations. (6) A statement, furnished at least quarterly or annually, specifying-- (A) The total, expressed in dollars, of each Portfolio's brokerage commissions that are paid to PaineWebber and its affiliates; (B) The total, expressed in dollars, of each Portfolio's brokerage commissions that are paid to unrelated brokerage firms; (C) The average brokerage commissions per share that are paid by the Trust to brokers affiliated with PaineWebber, expressed as cents per share; and (D) The average brokerage commissions per share that are paid by the Trust to brokers unrelated to PaineWebber and its affiliates, expressed as cents per share for any year in which brokerage commissions are paid to PaineWebber by the Trust Portfolios in which a Plan's assets are invested. (7) Periodic meetings with a PaineWebber Investment Executive (or the appropriate PaineWebber representative) by Independent Fiduciaries to discuss the quarterly monitoring report or any other questions that may arise. (1) In the case of a Section 404(c) Plan where the Independent Fiduciary has established an omnibus account in the name of the Plan (the Undisclosed Account) with PaineWebber, depending upon the arrangement negotiated by the Independent Fiduciary with PMAS, certain of the information noted above in subparagraphs (k)(1) through (k)(7) of this Section II may be provided by PaineWebber to the Directing Participants or to the Independent Fiduciary for dissemination to the Directing Participants. (m) If previously authorized in writing by the Independent Fiduciary, the Plan investor's account is automatically rebalanced on a periodic basis to the asset allocation previously prescribed by the Plan or participant, as applicable, if the quarterly screening reveals that one or more Portfolio allocations deviates from the allocation prescribed by the investor by the agreed-upon formula threshold. (n) The books and records of the Trust are audited annually by independent, certified public accountants and all investors are sent copies of an audited financial report no later than 60 days after the close of each Trust fiscal year. (o) PaineWebber maintains, for a period of six years, the records necessary to enable the persons described in - -------------------------------------------------------------------------------- Prospectus Page A-16 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust paragraph (p) of this Section II to determine whether the conditions of this exemption have been met, except that-- (1) A prohibited transaction will not be considered to have occurred if, due to circumstances beyond the control of PaineWebber and/or its affiliates, the records are lost or destroyed prior to the end of the six year period; and (2) No party in interest other than PaineWebber shall be subject to the civil penalty that may be assessed under section 502(i) of the Act, or to the taxes imposed by section 4975 (a) and (b) of the Code, if the records are not maintained, or are not available for examination as required by paragraph (p)(l) of this Section II below. (p) (1) Except as provided in subparagraph (p)(2) of this paragraph and notwithstanding any provisions of subsections (a)(2) and (b) of section 504 of the Act, the records referred to in paragraph (o) of this Section II are unconditionally available at their customary location during normal business hours by: (A) Any duly authorized employee or representative of the Department, the Internal Revenue Service (the Service) or the Securities and Exchange Commission (the SEC); (B) Any fiduciary of a participating Plan or any duly authorized representative of such fiduciary; (C) Any contributing employer to any participating Plan or any duly authorized employee representative of such employer; and (D) Any participant or beneficiary of any participating Plan, or any duly authorized representative of such participant or beneficiary. (p) (2) None of the persons described above in paragraphs (p)(1)(B)-(p)(1)(D) of this paragraph (p) are authorized to examine the trade secrets of PaineWebber or Mitchell Hutchins or commercial or financial information which is privileged or confidential. Section III. Definitions For purposes of this exemption: (a) The term "PaineWebber" means PaineWebber Incorporated and any affiliate of PaineWebber, as defined in paragraph (b) of this Section III. (b) An "affiliate" of PaineWebber includes-- (1) Any person directly or indirectly through one or more intermediaries, controlling, controlled by, or under common control with PaineWebber. (2) Any officer, director or partner in such person, and (3) Any corporation or partnership of which such person is an officer, director or a 5 percent partner or owner. (c) The term "control" means the power to exercise a controlling influence over the management or policies of a person other than an individual. (d) The term "Independent Fiduciary" means a Plan fiduciary which is independent of PaineWebber and its affiliates and is either (1) A Plan administrator, trustee, investment manager or named fiduciary of a Section 404(c) Plan or a Section 403(b) Plan; (2) A participant in a Keogh Plan; (3) An individual covered under a self-directed IRA which invests in Trust shares; (4) An employee, officer or director of PaineWebber and/or its affiliates covered by an IRA not subject to Title I of the Act; (5) A trustee, Plan administrator, investment manager or named fiduciary responsible for investment decisions in the case of a Title I Plan that does not permit individual direction as contemplated by Section 404(c) of the Act; or (e) The term "Directing Participant" means a participant in a Plan covered under the provisions of section 404(c) of the Act, who is permitted under the terms of the Plan to direct, and who elects to so direct, the investment of the assets of his or her account in such Plan. (f) The term "Plan" means a pension plan described in 29 CFR 2510.3-2, a welfare benefit plan described in 29 CFR 2510.3-1, a plan described in section 4975(e)(1) of the Code, and in the case of a Section 404(c) Plan, the individual account of a Directing Participant. EFFECTIVE DATE: This exemption will be effective as of August 18, 1995. For a more complete statement of the facts and representations supporting the Department's decision to grant this exemption, refer to the notice of proposed exemption (the Notice) published on March 22, 1996 at 61 FR 11882. WRITTEN COMMENTS The Department received one written comment with respect to the Notice and no requests for a public hearing. The comment was submitted by PaineWebber, PMAS and Mitchell Hutchins (collectively, the Applicants). Their comment is broken down into the areas discussed below. (1) SECTION 403(b) PLAN PARTICIPATION. In addition to IRAs, Keogh Plans, Section 404(c) Plans and other types of employee benefit plans that will participate in the PACE Program, the Applicants represent that they wish to offer shares in the Trust to Plans that are described in section 403(b) of the Code. Therefore, the Applicants have requested that the Department include references to Section 403(b) Plans in the exemptive language set forth in Section I, in the conditional - -------------------------------------------------------------------------------- Prospectus Page A-17 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust language set forth in Sections II(j)(3) and III(d)(1) and in Representation 6 of the Summary of Facts and Representations (the Summary). The Department has revised the Notice accordingly. (2) AVAILABLE PORTFOLIOS. Section II(g) of the Notice states that PMAS will provide investment advice in writing to an Independent Fiduciary or a Directing Participant with respect to all available Portfolios offered by the Trust. The Applicants note, however, that, in the case of a Section 404(c) Plan, an Independent Fiduciary will determine the initial array of Portfolios among which the Directing Participants may allocate Plan assets, and that such fiduciary may decide to include less than all of the Portfolios in that array. Therefore, the Applicants have requested that the Department revise Section II(g) of the Notice as follows to make it clear that "available" Portfolios are those that will be selected by the Independent Fiduciary under such circumstances: (g) PMAS provides investment advice in writing to an Independent Fiduciary or Directing Participant with respect to all Portfolios made available under the Plan. The Department has made the change requested by the Applicants. (3) INDEPENDENT FIDUCIARY ROLE. With respect to a Section 404(c) Plan, Section II(j)(4) of the Notice states that written acknowledgement of the receipt of initial disclosures from PaineWebber will be provided by the Independent Fiduciary who may be the Plan administrator, trustee, investment manager or the named fiduciary, as the record holder of Trust shares. The Applicants wish to clarify that because the trustee of a trust is generally the legal owner of trust assets, the Plan trustee rather than the Independent Fiduciary is the actual recordholder of Trust shares. Therefore, the Applicants request that the Department revise Section II(j)(4) of the Notice to read as follows: (4) With respect to a Section 404(c) Plan, written acknowledgement of the receipt of such documents is provided by the Independent Fiduciary (i.e., the Plan administrator, trustee, investment manager or named fiduciary). The Department has amended the Notice in this regard. (4) DIRECTING PARTICIPANT DISCLOSURE. Section II(1) of the Notice states, in relevant part, that if an Independent Fiduciary of a Section 404(c) Plan has established an Undisclosed Account with PaineWebber, certain disclosures will be provided by PaineWebber to the Directing Participants or to the Independent Fiduciary for dissemination to the Directing Participants, depending upon the arrangement negotiated with PMAS. In an effort to reflect the manner in which that information will be distributed or made available to Directing Participants and/or to the Independent Fiduciaries of Section 404(c) Plans, the Applicants request that the Department modify Section II(l) of the Notice. The Department has amended Section II(1) of the Notice to read as follows: (1) In the case of a Section 404(c) Plan where the Independent Fiduciary has established an omnibus account in the name of the Plan (the Undisclosed Account) with PaineWebber, depending upon the arrangement negotiated by the Independent Fiduciary with PMAS, certain of the information noted above in subparagraphs (k)(1) through (k)(7) of this Section II may be provided by PaineWebber to the Directing Participants or to the Independent Fiduciary for dissemination to the Directing Participants. (5) DESCRIPTION OF PAINEWEBBER GROUP AND PAINEWEBBER. Representation 1(a) of the Summary, states, in part, that the PaineWebber Group is a member of all principal securities and commodities exchanges in the United States and the National Association of Securities Dealers, Inc. It is also represented that PaineWebber Group holds memberships or associate memberships on several principal foreign securities and commodities exchanges. Although the Applicants furnished this information to the Department, they wish to clarify that these representations pertain to PaineWebber rather than to the Paine Webber Group. Therefore, they request that the Department make appropriate changes to the Summary. The Department has revised the language in Representation 1(b) of the Summary as follows: PaineWebber is a member of all principal securities and commodities exchanges in the United States and the National Association of Securities Dealers, Inc. It also holds memberships or associate memberships on several principal foreign securities and commodities exchanges. (6) NET ASSET VALUE PER SHARE. In pertinent part, Representation 2 of the Summary states that with the exception of the PACE Money Market Investments Portfolio, shares in the Trust were initially offered to the public by PaineWebber at a net asset value of $10 per share and that shares in the PACE Money Market Investments Portfolio are being offered to the public at a net asset value of $1.00 per share. The Applicants wish to clarify that with the exception of the PACE Money Market Investments Portfolio in which shares are offered to the public at a net asset value of $1.00 per share, shares in the other Portfolios were initially offered to the public at a net asset value of $12 per share. Accordingly, the Department has revised the sixth and seventh sentences of Representation 2 to read as follows: With the exception of the PACE Money Market Investments Portfolio, shares in each of the Portfolios were initially offered to the public at a net asset value of $12 per share. Shares in the PACE Money Market Investments Portfolio are offered to the public at a net asset value of $1.00 per share. - -------------------------------------------------------------------------------- Prospectus Page A-18 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust (7) MINIMUM INVESTMENTS. The second paragraph of Representation 3 of the Summary states, in part, that the minimum initial investment for a prospective investor in the PACE Program is $10,000. The Applicants note, however, that the minimum initial investment threshold for an investor is currently $25,000 and not $10,000. For Plan investors and Uniform Gift or Transfer to Minors Accounts, the Applicants wish to clarify that the minimum initial investment is presently $10,000. The Department has revised part of Representation 3 to read as follows: *** The minimum initial investment in the PACE Program currently is $25,000 (except for Plans and Uniform Gift or Transfer to Minors Accounts, for which the minimum initial investment is currently $10,000). (8) VALUATION OF PORTFOLIO SHARES. Footnote 10 of the Summary states, in part, that the net asset value of shares in the PACE Money Market Investments Portfolio is determined as of 12 p.m. each business day. To indicate that the net asset value of all Portfolio shares, including shares of the PACE Money Market Investments Portfolio, is being determined as of the close of regular trading on the New York Stock Exchange (currently 4 p.m., Eastern Time) each business day, the Applicants request that the Department modify Footnote 10 of the Summary. The Department has modified Footnote 10 to read as follows: The net asset value of each Portfolio's shares is determined as of the close of regular trading on the New York Stock Exchange (the NYSE) (currently, 4 p.m., Eastern Time) each business day. Each Portfolio's net asset value per share is determined by dividing the value of the securities held by the Portfolio plus any cash or other assets minus all liabilities by the total number of Portfolio shares outstanding. In addition, the Applicants have requested that Footnote 16 of the Summary be revised to incorporate the following language: *** The net asset value of each Portfolio's shares is determined as of the close of regular trading on the NYSE (currently, 4 p.m. Eastern Time) each business day. PaineWebber may, in the future, impose a minimum dollar threshold on rebalancing transactions in order to avoid DE MINIMUS transactions. (9) PAYMENT OF REDEMPTION PROCEEDS. Representation 14 of the Summary states, in part, that a Portfolio will be required to transmit redemption proceeds for credit to an investor's account within 5 business days after receipt. Similarly, Representation 17 of the Summary sets forth the same time frame for the payment of the outside fee as well as the applicable fee if additional funds are invested during a calendar quarter. Because Federal Securities laws currently require PaineWebber to settle its obligations within three business days, the Applicants have requested that the Department revise the Summary to reflect the current timing of such payments. The Department does not object to these necessary revisions and has deleted references to the five business day requirement and inserted the phrase "three business days" in the fourth sentence of paragraph one of Representation 14, in the first sentence of paragraph two of Representation 17 and in the first sentence of paragraph three of Representation 17. (10) BROKERAGE COMMISSION INFORMATION. Representation 22(i) of the Summary states, in part, that on a quarterly and annual basis, PaineWebber will provide written disclosures to an Independent Fiduciary or, if applicable, a Directing Participant regarding brokerage commissions that are paid to PaineWebber and/or its affiliates or to unrelated parties. The Applicants have requested that the Department revise this representation to reflect that brokerage commission information will be provided to the Independent Fiduciary and, depending on the arrangement negotiated between the Independent Fiduciary of a Section 404(c) Plan and PMAS, to a Directing Participant. The Applicants state that the language set forth in the Summary appears to indicate that PaineWebber will provide such information under all circumstances to Independent Fiduciaries and where applicable, to Directing Participants only. The Department has revised paragraph (i) of Representation 22 to read, in part, as follows: (i) On a quarterly and annual basis, PaineWebber will provide written disclosures to an Independent Fiduciary and, depending on the arrangement negotiated with PMAS, a Directing Participant, with respect to (1) the total, expressed in dollars, of each Portfolio's brokerage commissions that are paid to PaineWebber and its affiliates;*** After giving full consideration to the entire record, the Department has decided to grant the exemption subject to the modifications or clarifications described above. The Applicants' comment letter has been included as part of the public record of the exemption application. The complete application file, including all supplemental submissions received by the Department, is made available for public inspection in the Public Documents Room of the Pension and Welfare Benefits Administration, Room N-5638, U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC 20210. FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department, telephone (202) 219-8881. (This is not a toll-free number.) - -------------------------------------------------------------------------------- Prospectus Page A-19 - -------------------------------------------------------------------------------- ------------------------ PaineWebber PACE Select Advisors Trust TICKER SYMBOLS PACE Money Market Investments PCEXX PACE Government Securities Fixed Income Investments PCGTX PACE Intermediate Fixed Income Investments PCIFX PACE Strategic Fixed Income Investments PCSIX PACE Municipal Fixed Income Investments PCMNX PACE Global Fixed Income Investments PCGLX PACE Large Company Value Equity Investments PCLVX PACE Large Company Growth Equity Investments PCLCX PACE Small/Medium Company Value Equity Investments PCSVX PACE Small/Medium Company Growth Equity Investments PCSGX PACE International Equity Investments PCIEX PACE International Emerging Markets Equity Investments PCEMX
If you want more information about the funds, the following documents are available free upon request: ANNUAL/SEMI-ANNUAL REPORTS: Additional information about the funds' investments is available in the funds' annual and semi-annual reports to shareholders. In the funds' annual reports, you will find a discussion of the market conditions and investment strategies that significantly affected the funds' performance during the last fiscal year. STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed information about the funds and is incorporated by reference into this prospectus. You may discuss your questions about the funds by contacting your Financial Advisor. You may obtain free copies of the funds' annual and semi-annual reports and the SAI by contacting the funds directly at 1-800-647-1568. You may review and copy information about the funds, including shareholder reports and the SAI, at the Public Reference Room of the Securities and Exchange Commission. You may obtain information about the operations of the SEC's Public Reference Room by calling the SEC at 1-202-942-8090. You can get copies of reports and other information about the funds: For a fee, by electronic request at publicinfo@sec.gov or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102; or Free from the EDGAR Database on the SEC's Internet website at: http://www.sec.gov PaineWebber PACE Select Advisors Trust Investment Company Act File No. 811-8764 - -C- 2001 Brinson Advisors, Inc. All rights reserved. --------------- - -------------------------------------------------------------------------------- PAINEWEBBER PACE-SM- SELECT ADVISORS TRUST 51 WEST 52ND STREET NEW YORK, NEW YORK 10019-6114 STATEMENT OF ADDITIONAL INFORMATION The following funds are series of PaineWebber PACE Select Advisors Trust ("Trust"), a professionally managed open-end investment company. PACE Money Market Investments PACE Large Company Value Equity Investments PACE Government Securities Fixed Income Investments PACE Large Company Growth Equity Investments PACE Intermediate Fixed Income Investments PACE Small/Medium Company Value Equity Investments PACE Strategic Fixed Income Investments PACE Small/Medium Company Growth Equity Investments PACE Municipal Fixed Income Investments PACE International Equity Investments PACE Global Fixed Income Investments PACE International Emerging Markets Equity Investments
PACE Intermediate Fixed Income Investments and PACE Global Fixed Income Investments are non-diversified series of the Trust. The other funds are diversified series. Brinson Advisors, Inc. ("Brinson Advisors") serves as the manager and administrator for each fund and also as the investment advisor for PACE Money Market Investments. Brinson Advisors selects and monitors unaffiliated investment advisors who provide advisory services for the other funds. Brinson Advisors is an indirect wholly owned asset management subsidiary of UBS AG. Brinson Advisors also serves as the fund's principal underwriter and selects dealers for the sale of fund shares. Portions of the funds' Annual Report to Shareholders are incorporated by reference into this Statement of Additional Information ("SAI"). The Annual Report accompanies this SAI. You may obtain additional copies of the funds' Annual Report without charge by calling toll-free 1-800-647-1568. This SAI is not a prospectus and should be read only in conjunction with the funds' current Prospectus, dated November 5, 2001. Different classes of shares and/or funds are offered by separate Prospectuses. A copy of the relevant Prospectus may be obtained by calling your investment professional or by calling toll-free 1-800-647-1568. The Prospectus contains more complete information about the funds. You should read it carefully before investing. This SAI is dated November 5, 2001. TABLE OF CONTENTS
PAGE -------- The Funds and Their Investment Policies..................... 2 The Funds' Investments, Related Risks and Limitations....... 9 Strategies Using Derivative Instruments..................... 34 Organization of the Trust; Trustees and Officers; Principal Holders and Management Ownership of Securities............ 42 Investment Management, Administration and Principal Underwriting Arrangements................................. 52 Portfolio Transactions...................................... 67 Reduced Sales Charges, Additional Exchange and Redemption Information and Other Services............................ 72 Conversion of Class B Shares................................ 75 Valuation of Shares......................................... 75 Performance Information..................................... 77 Taxes....................................................... 82 Other Information........................................... 87 Financial Statements........................................ 88 Appendix.................................................... A-1
THE FUNDS AND THEIR INVESTMENT POLICIES No fund's investment objective may be changed without shareholder approval. Except where noted, the other investment policies of each fund may be changed by the board without shareholder approval. As with other mutual funds, there is no assurance that a fund will achieve its investment objective. PACE MONEY MARKET INVESTMENTS has an investment objective of current income consistent with preservation of capital and liquidity. The fund invests in high quality money market instruments that have, or are deemed to have, remaining maturities of 13 months or less. Money market instruments are short-term debt obligations and similar securities. These instruments include (1) U.S. and foreign government securities, (2) obligations of U.S. and foreign banks, (3) commercial paper and other short-term obligations of U.S. and foreign corporations, partnerships, trusts and similar entities, (4) repurchase agreements and (5) investment company securities. Money market instruments also include longer term bonds that have variable interest rates or other special features that give them the financial characteristics of short-term debt. The fund may purchase participation interests in any of the securities in which it is permitted to invest. Participation interests are pro rata interests in securities held by others. The fund maintains a dollar-weighted average portfolio maturity of 90 days or less. PACE Money Market Investments may invest in obligations (including certificates of deposit, bankers' acceptances, time deposits and similar obligations) of U.S. and foreign banks only if the institution has total assets at the time of purchase in excess of $1.5 billion. The fund's investments in non-negotiable time deposits of these institutions will be considered illiquid if they have maturities greater than seven calendar days. PACE Money Market Investments may purchase only those obligations that Brinson Advisors determines, pursuant to procedures adopted by the board, present minimal credit risks and are "First Tier Securities" as defined in Rule 2a-7 under the Investment Company Act of 1940, as amended ("Investment Company Act"). First Tier Securities include U.S. government securities and securities of other registered investment companies that are money market funds. Other First Tier Securities are either (1) rated in the highest short-term rating category by at least two nationally recognized statistical rating organizations ("rating agencies"), (2) rated in the highest short-term rating category by a single rating agency if only that rating agency has assigned the obligation a short-term rating, (3) issued by an issuer that has received such a short-term rating with respect to a security that is comparable in priority and security, (4) subject to a guarantee rated in the highest short-term rating category or issued by a guarantor that has received the highest short-term rating for a comparable debt obligation or (5) unrated, but determined by Brinson Advisors to be of comparable quality. If a security in the fund's portfolio ceases to be a First Tier Security (as defined above) or Brinson Advisors becomes aware that a security has received a rating below the second highest rating by any rating agency, Brinson Advisors and, in certain cases, the board, will consider whether the fund should continue to hold the obligation. A First Tier Security rated in the highest short-term category at the time of purchase that subsequently receives a rating below the highest rating category from a different rating agency may continue to be considered a First Tier Security. PACE Money Market Investments may purchase variable and floating rate securities with remaining maturities in excess of 397 calendar days issued by U.S. government agencies or instrumentalities or guaranteed by the U.S. government. In addition, the fund may purchase variable and floating rate securities of other issuers. The yields on these securities are adjusted in relation to changes in specific rates, such as the prime rate, and different securities may have different adjustment rates. Certain of these obligations carry a demand feature that gives the fund the right to tender them back to a specified party, usually the issuer or a remarketing agent, prior to maturity. The fund's investment in these securities must comply with conditions established by the Securities and Exchange Commission ("SEC") under which they may be considered to have remaining maturities of 397 calendar days or less. The fund will purchase variable and floating rate securities of non-U.S. government issuers that have remaining maturities of more than 397 calendar days only if the securities are subject to a demand feature exercisable within 397 calendar days or less. See "The Funds' Investments, Related Risks and Limitations -- Credit and Liquidity Enhancements." Generally, PACE Money Market Investments may exercise demand features (1) upon a default under the terms of the underlying security, (2) to maintain its portfolio in accordance with its investment objective and policies or applicable legal or regulatory requirements or (3) as needed to provide liquidity to the fund in order to meet redemption requests. The ability of a bank or other financial institutional to fulfill its obligations under a 2 letter of credit, guarantee or other liquidity arrangement might be affected by possible financial difficulties of its borrowers, adverse interest rate or economic conditions, regulatory limitations or other factors. 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 U.S. 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 securities to fluctuate less than the market value of fixed rate securities. Variable rate securities include variable amount master demand notes, which are unsecured redeemable obligations that permit investment of varying amounts at fluctuating interest rates under a direct agreement between PACE Money Market Investments and an issuer. The principal amount of these notes may be increased from time to time by the parties (subject to specified maximums) or decreased by the fund or the issuer. These notes are payable on demand (subject to any applicable advance notice provisions) and may or may not be rated. PACE Money Market Investments generally may invest no more than 5% of its total assets in the securities of a single issuer (other than U.S. government securities), except that the fund may invest up to 25% of its total assets in First Tier Securities of a single issuer for a period of up to three business days. The fund may purchase only U.S. dollar denominated obligations of foreign issuers. PACE Money Market Investments may invest up to 10% of its net assets in illiquid securities. The fund may purchase securities on a when-issued or delayed delivery basis. The fund may lend its portfolio securities to qualified broker-dealers or institutional investors in an amount up to 33 1/3% of its total assets. The fund may borrow from banks and through reverse repurchase agreements for temporary or emergency purposes, but not in excess of 10% of its total assets. The costs associated with borrowing may reduce the fund's net income. PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS has an investment objective of current income. Pacific Investment Management Company LLC ("PIMCO") serves as the fund's investment advisor. The fund invests in U.S. government bonds and other bonds of varying maturities but normally maintains a dollar- weighted average portfolio duration of between one and seven years. Under normal circumstances, the fund invests at least 65% of its total assets in U.S. government bonds, including those backed by mortgages, and related repurchase agreements. The fund may invest up to 35% of its total assets in corporate bonds, including mortgage- and asset-backed securities of private issuers. These investments are limited to bonds that are rated at least A by Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"), or Moody's Investors Service, Inc. ("Moody's"), except that the fund may not acquire a bond if, as a result, more than 25% of its total assets would be invested in bonds rated below AAA or if more than 10% of its total assets would be invested in bonds rated A. The fund may invest in bonds that are assigned comparable ratings by another rating agency and unrated bonds that its investment advisor determines are of comparable quality to rated securities in which the fund may invest. PACE Government Securities Fixed Income Investments may invest in certain zero coupon securities that are U.S. Treasury notes and bonds that have been stripped of their unmatured interest coupon receipts. The SEC staff currently takes the position that "stripped" U.S. government securities that are not issued through the U.S. Treasury are not U.S. government securities. As long as the SEC staff takes this position, the fund will not consider these stripped U.S. government securities to be U.S. government securities for purposes of its 65% investment requirement. The fund may not invest more than 5% of its net assets in any combination of interest-only, principal-only and inverse floating rate securities, including those that are not mortgage- or asset-backed securities. PACE Government Securities Fixed Income Investments may invest up to 15% of its net assets in illiquid securities. The fund may purchase securities on a when-issued or delayed delivery basis. The fund may lend its portfolio securities to qualified broker-dealers or institutional investors in an amount up to 33 1/3% of its total assets. The fund may engage in dollar rolls and reverse repurchase agreements involving up to an aggregate of not more than 5% of its total assets for investment purposes to enhance its return. These transactions are considered borrowings. The fund may also borrow from banks and through reverse repurchase agreements for temporary or emergency purposes, but not in excess of 10% of its total assets. The costs associated with borrowing may reduce the fund's net income. The fund may invest in loan participations and assignments. These investments are generally subject to the fund's overall limitation on investments in illiquid securities. The fund may invest in the securities of other investment companies and may sell short "against the box." 3 PACE INTERMEDIATE FIXED INCOME INVESTMENTS has an investment objective of current income, consistent with reasonable stability of principal. Metropolitan West Asset Management, LLC ("MWAM") serves as the fund's investment advisor. The fund invests in bonds of varying maturities but normally maintains a dollar-weighted average portfolio duration of between two and four and one-half years. Under normal circumstances, the fund invests at least 65% of its total assets in U.S. government and foreign government bonds (including bonds issued by supranational and quasi-governmental entities and mortgage-backed securities), corporate bonds (including mortgage- and asset-backed securities of private issuers, Eurodollar certificates of deposit, Eurodollar bonds and Yankee bonds) and preferred stocks. The fund limits its investments to securities which are investment grade at the time of purchase. The fund may invest up to 10% of its total assets in securities denominated in foreign currencies of developed countries. The fund's investments may include certain zero coupon securities that are U.S. Treasury notes and bonds that have been stripped of their unmatured interest coupon receipts. The fund may not invest more than 5% of its net assets in any combination of interest-only, principal-only and inverse floating rate securities, including those that are not mortgage- or asset-backed securities. PACE Intermediate Fixed Income Investments may invest up to 15% of its net assets in illiquid securities. The fund may purchase securities on a when-issued or delayed delivery basis. The fund may lend its portfolio securities to qualified broker-dealers or institutional investors in an amount up to 33 1/3% of its total assets. The fund may borrow from banks and through reverse repurchase agreements for temporary or emergency purposes, but not in excess of 10% of its total assets. The costs associated with borrowing may reduce the fund's net income. The fund may invest in the securities of other investment companies and may sell short "against the box." PACE STRATEGIC FIXED INCOME INVESTMENTS has an investment objective of total return consisting of income and capital appreciation. Pacific Investment Management Company LLC ("PIMCO") serves as the fund's investment advisor. The fund invests in bonds of varying maturities but normally maintains a dollar-weighted average portfolio duration of between three and eight years. Under normal circumstances, the fund invests at least 65% of its total assets in U.S. government bonds, bonds (including convertible bonds) of U.S. and foreign private issuers, foreign government bonds (including bonds issued by supranational and quasi-governmental entities), foreign currency exchange-related securities, loan participations and assignments and money market instruments (including commercial paper and certificates of deposit). These investments include mortgage- and asset-backed securities, although the fund's investments in mortgage-backed securities of private issuers are limited to 35% of its total assets. The fund may not invest more than 5% of its net assets in any combination of interest-only, principal-only and inverse floating rate securities, including those that are not mortgage- or asset-backed securities. PACE Strategic Fixed Income Investments invests primarily in investment grade bonds but may invest up to 20% of its total assets in securities, including convertible securities, that are not investment grade but are rated at least B by S&P or Moody's, assigned a comparable rating by another rating agency or, if unrated, determined by its investment advisor to be of comparable quality. The fund may invest up to 20% of its total assets in a combination of Yankee bonds, Eurodollar bonds and bonds denominated in foreign currencies, except that not more than 10% of the fund's total assets may be invested in bonds denominated in foreign currencies. The fund's investments may include Brady Bonds. The fund's investments also may include certain zero coupon securities that are U.S. Treasury notes and bonds that have been stripped of their unmatured interest coupon receipts, other debt securities sold with a discount and payment-in-kind securities. PACE Strategic Fixed Income Investments may invest up to 15% of its net assets in illiquid securities. The fund may purchase securities on a when-issued or delayed delivery basis. The fund may lend its portfolio securities to qualified broker-dealers or institutional investors in an amount up to 33 1/3% of its total assets. The fund may engage in dollar rolls and reverse repurchase agreements involving up to an aggregate of not more than 5% of its total assets for investment purposes to enhance the fund's return. These transactions are considered borrowings. The fund may also borrow from banks and through reverse repurchase agreements for temporary or emergency purposes, but not in excess of 10% of its total assets. The costs associated with borrowing may reduce the fund's net income. The fund may invest in loan participations and assignments. These investments are generally subject to the fund's overall limitation on investments in illiquid securities. The fund may invest in the securities of other investment companies and may sell short "against the box." 4 PACE MUNICIPAL FIXED INCOME INVESTMENTS has an investment objective of high current income exempt from regular federal income taxes. Standish Mellon Asset Management Company, LLC ("Standish") serves as the fund's investment advisor. Under normal conditions, the fund invests at least 80% of its total assets in municipal bonds, the interest on which, in the opinion of counsel to the issuers, is exempt from regular federal income taxes. The fund invests in bonds of varying maturities but normally maintains a dollar-weighted average portfolio duration of between three and seven years. The fund invests in municipal bonds rated at the time of purchase at least A, MIG-2 or Prime-2 by Moody's or A, SP-2 or A-2 by S&P or, if unrated, determined to be of comparable quality by its investment advisor, except that the fund may invest up to 15% of its total assets in municipal bonds that at the time of purchase are rated Baa by Moody's, BBB by S&P or, if unrated, are determined to be of comparable quality by its investment advisor. The fund also may invest without limit in private activity bonds and other municipal bonds that pay interest that is an item of tax preference (sometimes referred to as a "tax preference item") for purposes of the federal alternative minimum tax ("AMT"), although the fund will endeavor to manage its portfolio so that no more than 25% of its interest income will be a tax preference item. PACE Municipal Fixed Income Investments may not invest more than 25% of its total assets in municipal obligations whose issuers are located in the same state. The fund also may not invest more than 25% of its total assets in municipal obligations that are secured by revenues from a particular industry, except that it may invest up to 50% of its total assets in municipal bonds that are secured by revenues from public housing authorities and state and local housing finance authorities, including bonds backed by the U.S. Treasury or other U.S. government-guaranteed securities. The fund may invest without limit in private activity bonds, including private activity bonds that are collateralized by letters of credit issued by banks having stockholders' equity in excess of $100 million as of the date of their most recently published statement of financial condition. The fund may not invest more than 5% of its net assets in municipal leases. PACE Municipal Fixed Income Investments may invest up to 15% of its net assets in illiquid securities. The fund may purchase securities on a when-issued or delayed delivery basis. The fund may lend its portfolio securities to qualified broker-dealers or institutional investors in an amount up to 33 1/3% of its total assets. The fund may borrow from banks and through reverse repurchase agreements for temporary or emergency purposes, but not in excess of 10% of its total assets. The costs associated with borrowing may reduce the fund's net income. The fund may invest up to 20% of its total assets in certain taxable securities to maintain liquidity. The fund may invest in the securities of other investment companies. PACE GLOBAL FIXED INCOME INVESTMENTS has an investment objective of high total return. Rogge Global Partners plc and Fischer Francis Trees & Watts, Inc. and its affiliates ("FFTW") serve as the fund's investment advisors. Brinson Advisors allocates the fund's assets between the two investment advisors. The fund invests primarily in high-grade bonds, denominated in foreign currencies or U.S. dollars, of governmental and private issuers in the United States and developed foreign countries. The fund's investments may include mortgage- and asset-backed securities. The fund invests in bonds of varying maturities but normally maintains a dollar-weighted average portfolio duration of between four and eight years. Under normal circumstances, the fund invests at least 65% of its total assets in U.S. government bonds, foreign government bonds (including bonds issued by supranational organizations and quasi-governmental entities) and bonds of U.S. or foreign private issuers. The fund normally invests in a minimum of four countries, one of which may be the United States. Debt securities are considered high grade if they are rated A or better by S&P or Moody's or another rating agency or, if unrated, determined by the fund's investment advisor to be of comparable quality. PACE Global Fixed Income Investments may invest up to 20% of its total assets in bonds that are rated below A by Moody's or S&P (or are unrated but deemed to be of comparable quality), provided that (1) with respect to bonds of issuers of developed countries, the bonds must be rated at least Baa by Moody's or BBB by S&P (or, if unrated, determined to be of comparable quality); and (2) with respect to bonds of issuers of emerging market countries, both (a) the bonds must be rated at least Ba by Moody's or BB by S&P (or, if unrated, determined to be of comparable quality) and (b) no more than 10% of the fund's total assets may be invested in emerging market bonds. The fund considers "emerging market countries" to be those countries not included in the Morgan Stanley Capital International World Index of major world economies. The fund's investments may include Brady Bonds. The fund's investments also may include certain zero coupon securities that are U.S. Treasury notes and bonds that have been stripped of their unmatured interest coupon receipts. 5 PACE Global Fixed Income Investments may invest up to 15% of its net assets in illiquid securities. The fund may lend its portfolio securities to qualified broker-dealers or institutional investors in an amount up to 33 1/3% of its total assets. The fund may borrow from banks and through reverse repurchase agreements for temporary or emergency purposes, but not in excess of 10% of its total assets. The costs associated with borrowing may reduce the fund's net income. The fund may invest in structured foreign investments and loan participations and assignments. These investments are generally subject to the fund's overall limitation on investments in illiquid securities, and in no event may the fund's investments in loan participations and assignments exceed 10% of its total assets. The fund may invest in the securities of other investment companies and may sell short "against the box." PACE LARGE COMPANY VALUE EQUITY INVESTMENTS has an investment objective of capital appreciation and dividend income. Institutional Capital Corporation ("ICAP"), Westwood Management Corporation ("Westwood") and SSgA Funds Management, Inc. ("SSgA") serve as the fund's investment advisors. Brinson Advisors allocates the fund's assets among the three investment advisors. The fund invests primarily in equity securities of U.S. companies that are believed to be undervalued. The fund's investments may include both large and medium capitalization companies. However, under normal circumstances, the fund invests at least 65% of its total assets in common stocks of companies with a total market capitalization of $4.0 billion or greater at the time of purchase. The term "market capitalization" means the market value of a company's outstanding common stock. The fund seeks income primarily from dividend paying stocks. ICAP and Westwood each use active stock selection strategies to invest its share of the fund's assets. In managing its share of the fund's assets, SSgA seeks to outperform the Russell 1000 Value Index (before fees and expenses). SSgA uses several independent valuation measures to identify investment opportunities within a large cap value universe and combines factors to produce an overall rank. Comprehensive research determines the optimal weighting of these perspectives to arrive at strategies that vary by industry. SSgA ranks all companies within the investable universe initially from top to bottom based on their relative attractiveness. SSgA constructs the fund's portfolio by selecting the highest-ranked stocks from the universe and managing deviations from the benchmark to maximize the risk/reward trade-off. The resulting portfolio has characteristics similar to the Russell 1000 Value Index. PACE Large Company Value Equity Investments may invest up to 10% of its total assets in convertible bonds that are not investment grade, but these securities must be rated at least BB by S&P, Ba by Moody's or, if unrated, determined to be of comparable quality by its investment advisor. Subject to its 65% investment requirement, the fund may invest in a broad range of equity securities of U.S. issuers that are traded on major stock exchanges or in the over-the-counter market. The fund may invest up to 10% of its total assets in U.S. dollar-denominated foreign securities that are traded on recognized U.S. exchanges or in the U.S. over-the-counter market. The fund also may invest in U.S. government bonds and investment grade corporate bonds. PACE Large Company Value Equity Investments may invest up to 15% of its net assets in illiquid securities. The fund may purchase securities on a when-issued or delayed delivery basis. The fund may lend its portfolio securities to qualified broker-dealers or institutional investors in an amount up to 33 1/3% of its total assets. The fund may borrow from banks and through reverse repurchase agreements for temporary or emergency purposes, but not in excess of 10% of its total assets. The costs associated with borrowing may reduce the fund's net income. The fund may invest in the securities of other investment companies and may sell short "against the box." PACE LARGE COMPANY GROWTH EQUITY INVESTMENTS has an investment objective of capital appreciation. Alliance Capital Management L.P. ("Alliance Capital") and SSgA Funds Management, Inc. ("SSgA") serve as the fund's investment advisors. Brinson Advisors allocates the fund's assets between the two investment advisors. The fund invests primarily in equity securities that are believed to have substantial potential for capital growth. Dividend income is an incidental consideration in the investment advisors' selection of investments for the fund. Although the fund may invest in a broad range of equity securities, including securities convertible into common stocks, under normal circumstances it invests at least 65% of its total assets in common stocks of companies with total market capitalization of $4.0 billion or greater at the time of purchase. The term "market capitalization" means the market value of a company's outstanding common stock. 6 Alliance Capital uses an active stock selection strategy to invest its share of the fund's assets. In managing its share of the fund's assets, SSgA seeks to outperform the Russell 1000 Growth Index (before fees and expenses). SSgA uses several independent valuation measures to identify investment opportunities within a large cap growth universe and combines factors to produce an overall rank. Comprehensive research determines the optimal weighting of these perspectives to arrive at strategies that vary by industry. SSgA ranks all companies within the investable universe initially from top to bottom based on their relative attractiveness. SSgA constructs the fund's portfolio by selecting the highest-ranked stocks from the universe and manages deviations from the benchmark to maximize the risk/reward trade-off. The resulting portfolio has characteristics similar to the Russell 1000 Growth Index. Subject to its 65% investment requirement, PACE Large Company Growth Equity Investments may invest in a broad range of equity securities of U.S. issuers. The fund may invest up to 10% of its total assets in U.S. dollar denominated foreign securities that are traded on recognized U.S. exchanges or in the U.S. over-the-counter market. The fund also may invest in U.S. government bonds and investment grade corporate bonds. PACE Large Company Growth Equity Investments may invest up to 15% of its net assets in illiquid securities. The fund may purchase securities on a when-issued or delayed delivery basis. The fund may lend its portfolio securities to qualified broker-dealers or institutional investors in an amount up to 33 1/3% of its total assets. The fund may borrow from banks and through reverse repurchase agreements for temporary or emergency purposes, but not in excess of 10% of its total assets. The costs associated with borrowing may reduce the fund's net income. The fund may invest in the securities of other investment companies and may sell short "against the box." PACE SMALL/MEDIUM COMPANY VALUE EQUITY INVESTMENTS has an investment objective of capital appreciation. Ariel Capital Management, Inc. ("Ariel") and ICM Asset Management, Inc. ("ICM") serve as the fund's investment advisors. Brinson Advisors allocates the fund's assets between the two investment advisors. The fund invests primarily in equity securities of companies that are believed to be undervalued or overlooked in the marketplace. Although the fund may invest in a broad range of equity securities, including securities convertible into common stocks, under normal market conditions the fund invests at least 65% of its total assets in common stocks of companies with total market capitalization of less than $4.0 billion at the time of purchase. The term "market capitalization" means the market value of a company's outstanding common stock. The fund invests in equity securities that generally have price-to-earnings ("P/E") ratios that are below the market average. The fund invests in the equity securities of companies only if they have common stock that is traded on a major stock exchange or in the over-the-counter market. Subject to its 65% investment requirement, the fund may invest in U.S. government bonds and investment grade corporate bonds. PACE Small/Medium Company Value Equity Investments may invest up to 15% of its net assets in illiquid securities. The fund may purchase securities on a when-issued or delayed delivery basis. The fund may lend its portfolio securities to qualified broker-dealers or institutional investors in an amount up to 33 1/3% of its total assets. The fund may borrow from banks and through reverse repurchase agreements for temporary or emergency purposes, but not in excess of 10% of its total assets. The costs associated with borrowing may reduce the fund's net income. The fund may invest in the securities of other investment companies and may sell short "against the box." PACE SMALL/MEDIUM COMPANY GROWTH EQUITY INVESTMENTS has an investment objective of capital appreciation. Delaware Management Company, a series of Delaware Management Business Trust, serves as the fund's investment advisor. The fund invests primarily in the stocks of companies that are characterized by above-average earnings growth rates and total market capitalization of less than $4.0 billion at the time of purchase. The term "market capitalization" means the market value of a company's outstanding common stock. Dividend income is an incidental consideration in the investment advisor's selection of investments for the fund. Although the fund may invest in a broad range of equity securities, including securities convertible into common stocks, under normal circumstances it invests at least 65% of its total assets in common stocks of issuers with total market capitalization of less than $4.0 billion at the time of purchase that exhibit the potential for high future earnings growth relative to the overall market. Subject to its 65% investment requirement, the fund may invest in U.S. government bonds and investment grade corporate bonds. The fund may invest up to 5% of its total 7 assets in U.S. dollar denominated foreign securities that are traded on recognized U.S. exchanges or in the U.S. over-the-counter market. PACE Small/Medium Company Growth Equity Investments may invest up to 15% of its net assets in illiquid securities. The fund may purchase securities on a when-issued or delayed delivery basis. The fund may lend its portfolio securities to qualified broker-dealers or institutional investors in an amount up to 33 1/3% of its total assets. The fund may borrow from banks and through reverse repurchase agreements for temporary or emergency purposes, but not in excess of 10% of its total assets. The costs associated with borrowing may reduce the fund's net income. The fund may invest in the securities of other investment companies and may sell short "against the box." PACE INTERNATIONAL EQUITY INVESTMENTS has an investment objective of capital appreciation. Martin Currie Inc. serves as the fund's investment advisor. The fund invests primarily in equity securities of companies domiciled outside the United States, and a large part of its investments is usually denominated in foreign currencies. Under normal circumstances, the fund invests at least 65% of its total assets in common stocks, which may or may not pay dividends, and securities convertible into common stocks, of companies domiciled outside the United States. "Domiciled," for these purposes, means companies (1) that are organized under the laws of a country other than the United States, (2) for which the principal securities trading market is in a country other than the United States or (3) that derive a significant proportion (at least 50%) of their revenues or profits from goods produced or sold, investments made or services performed in the respective country or that have at least 50% of their assets situated in such a country. PACE International Equity Investments normally invests in the securities of issuers from three or more countries outside the United States, and, under normal market conditions, its investments involve securities principally traded in at least 10 different countries. The fund's investment advisor gives particular consideration to investments that are principally traded in Japanese, European, Pacific and Australian securities markets and to securities of foreign companies that are traded on U.S. securities markets. The fund may also invest in the securities of companies in emerging markets, including Asia, Latin America and other regions where the markets may not yet fully reflect the potential of the developing economies. The fund considers "emerging market countries" to be those countries not included in the Morgan Stanley Capital International World Index of major world economies. The fund invests only in those markets where the investment advisor considers there to be an acceptable framework of market regulation and sufficient liquidity. The fund may also invest in non-investment grade convertible securities. These non-investment grade convertible securities may not be rated lower than B by S&P or Moody's or, if unrated, determined by the fund's investment advisor to be of comparable quality. The fund's investments in emerging market securities and non-investment grade convertible securities, in the aggregate, may not exceed 10% of its total assets at the time of purchase. Subject to its 65% investment requirement, the fund also may invest in U.S. government bonds and investment grade bonds of U.S. and foreign issuers. PACE International Equity Investments may invest up to 15% of its net assets in illiquid securities. The fund may lend its portfolio securities to qualified broker-dealers or institutional investors in an amount up to 33 1/3% of its total assets. The fund may borrow from banks and through reverse repurchase agreements for temporary or emergency purposes, but not in excess of 10% of its total assets. The costs associated with borrowing may reduce the fund's net income. The fund may invest in structured foreign investments. The fund may invest in the securities of other investment companies, including closed-end funds that invest in foreign markets, and may sell short "against the box." PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS has an investment objective of capital appreciation. Schroder Investment Management North America Inc. ("SIMNA") serves as the fund's investment advisor. The fund invests at least 65% of its total assets in equity securities issued by companies domiciled in emerging market countries. "Domiciled," for these purposes, means companies (1) that are organized under the laws of an emerging market country, (2) for which the principal securities trading market is in an emerging market country, (3) that derive a significant proportion (at least 50%) of their revenues or profits from goods produced or sold, investments made or services performed in the respective country, or (4) that have at least 50% of their assets situated in such a country. The fund considers "emerging market countries" to be those countries not included in the Morgan Stanley Capital International World Index of major world economies. 8 SIMNA may at times determine, based on its own analysis, that an economy included in the MSCI World Index should nonetheless be considered an emerging market country, in which case, that country would constitute an emerging market country for purposes of the fund's investments. Based on current political and economic factors, SIMNA considers Hong Kong SAR to be such a country. The fund normally invests in the securities of issuers from three or more emerging market countries. PACE International Emerging Markets Equity Investments may invest up to 35% of its total assets in bonds, including U.S. government bonds, foreign government bonds and bonds of private U.S. and foreign issuers, including convertible bonds. The fund's investments may include Brady Bonds. The fund's investments in bonds of private issuers are rated at the time of purchase at least A by S&P or Moody's or, if unrated, determined by the investment advisor to be of comparable quality, except that up to 10% of the fund's total assets may be invested in lower quality bonds, including convertible bonds. These lower quality bonds must, at the time of purchase, be rated at least C by S&P or determined by the investment advisor to be of comparable quality. SIMNA believes that one of its key strengths is the worldwide network of local research offices, many long established, in emerging market countries, that is maintained by SIMNA and its affiliates. Each year, these companies research and conduct on-site visits in emerging market countries. During 2000, SIMNA and its affiliates made approximately 1350 exclusive company visits. As a result of these visits, SIMNA and its affiliates further develop extensive management contacts with, and produce independent forecasts of earnings estimates for, approximately 400 out of an investable universe of approximately 800 companies. SIMNA's analysis involves researching companies across the full capitalization spectrum. PACE International Emerging Markets Equity Investments may invest up to 15% of its net assets in illiquid securities. The fund may lend its portfolio securities to qualified broker-dealers or institutional investors in an amount up to 33 1/3% of its total assets. The fund may borrow from banks and through reverse repurchase agreements for temporary or emergency purposes, but not in excess of 10% of its total assets. The costs associated with borrowing may reduce the fund's net income. The fund may invest in structured foreign investments and loan participations and assignments. These investments are generally subject to the fund's overall limitation on investments in illiquid securities, and in no event may the fund's investments in loan participations and assignments exceed 10% of its total assets. The fund may invest in the securities of other investment companies, including closed-end funds that invest in foreign markets, and may sell short "against the box." THE FUNDS' INVESTMENTS, RELATED RISKS AND LIMITATIONS The following supplements the information contained in the Prospectus and above concerning the funds' investments, related risks and limitations. Except as otherwise indicated in the Prospectus or SAI, the funds have established no policy limitations on their ability to use the investments or techniques discussed in these documents. EQUITY SECURITIES. Equity securities include common stocks, most preferred stocks and securities that are convertible into them, including common stock purchase warrants and rights, equity interests in trusts, partnerships, joint ventures or similar enterprises and depositary receipts. Common stocks, the most familiar type, represent an equity (ownership) interest in a corporation. Preferred stock has certain fixed income features, like a bond, but actually it is an equity security that is senior to a company's common stock. Convertible bonds may include debentures and notes that may be converted into or exchanged for a prescribed amount of common stock of the same or a different issuer within a particular period of time at a specified price or formula. Some preferred stock also may be converted into or exchanged for common stock. Depositary receipts typically are issued by banks or trust companies and evidence ownership of underlying equity securities. While past performance does not guarantee future results, equity securities historically have provided the greatest long-term growth potential in a company. However, their prices generally fluctuate more than other securities and reflect changes in a company's financial condition and in overall market and economic conditions. Common stocks generally represent the riskiest investment in a company. It is possible that a fund may 9 experience a substantial or complete loss on an individual equity investment. While this is possible with bonds, it is less likely. BONDS. Bonds are fixed or variable rate debt obligations, including bills, notes, debentures, money market instruments and similar instruments and securities. Mortgage- and asset-backed securities are types of bonds, and certain types of income-producing, non-convertible preferred stocks may be treated as bonds for investment purposes. Bonds generally are used by corporations, governments and other issuers to borrow money from investors. The issuer pays the investor a fixed or variable rate of interest and normally must repay the amount borrowed on or before maturity. Many preferred stocks and some bonds are "perpetual" in that they have no maturity date. Bonds are subject to interest rate risk and credit risk. Interest rate risk is the risk that interest rates will rise and that, as a result, bond prices will fall, lowering the value of a fund's investments in bonds. In general, bonds having longer durations are more sensitive to interest rate changes than are bonds with shorter durations. Credit risk is the risk that an issuer may be unable or unwilling to pay interest and/or principal on the bond. Credit risk can be affected by many factors, including adverse changes in the issuer's own financial condition or in economic conditions. CREDIT RATINGS; NON-INVESTMENT GRADE BONDS. Moody's, S&P and other rating agencies are private services that provide ratings of the credit quality of bonds, including municipal bonds, and certain other securities. A description of the ratings assigned to corporate bonds by Moody's and S&P is included in the Appendix to this SAI. The process by which Moody's and S&P determine ratings for mortgage-backed securities includes consideration of the likelihood of the receipt by security holders of all distributions, the nature of the underlying assets, the credit quality of the guarantor, if any, and the structural, legal and tax aspects associated with these securities. Not even the highest such rating represents an assessment of the likelihood that principal prepayments will be made by obligors on the underlying assets or the degree to which such prepayments may differ from that originally anticipated, nor do such ratings address the possibility that investors may suffer a lower than anticipated yield or that investors in such securities may fail to recoup fully their initial investment due to prepayments. 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 a fund, it may cease to be rated or its rating may be reduced below the minimum rating required for purchase by the fund. The funds 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, bonds with the same maturity, interest rate and rating may have different market prices. In addition to ratings assigned to individual bond issues, the applicable investment advisor will analyze interest rate trends and developments that may affect individual issuers, including factors such as liquidity, profitability and asset quality. The yields on bonds are dependent on a variety of factors, including general money market conditions, general conditions in the bond market, the financial condition of the issuer, the size of the offering, the maturity of the obligation and its rating. There is a wide variation in the quality of bonds, both within a particular classification and between classifications. An issuer's obligations under its bonds are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of bond holders or other creditors of an issuer; litigation or other conditions may also adversely affect the power or ability of issuers to meet their obligations for the payment of interest and principal on their bonds. Investment grade bonds are rated in one of the four highest rating categories by Moody's or S&P, comparably rated by another rating agency or, if unrated, determined by the applicable investment advisor 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 debt securities. Bonds rated D by S&P are in payment default or such rating is assigned upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized. Bonds rated C 10 by Moody's are in the lowest rated class and can be regarded as having extremely poor prospects of attaining any real investment standing. References to rated bonds in the Prospectus or this SAI include bonds that are not rated by a rating agency but that the applicable investment advisor determines to be of comparable quality. Non-investment grade bonds (commonly known as "junk bonds" and sometimes referred to as "high yield, high risk bonds") are rated Ba or lower by Moody's, BB or lower by S&P, comparably rated by another rating agency or, if unrated, determined by a fund's investment advisor to be of comparable quality. A fund's investments in non-investment grade bonds entail greater risk than its investments in higher rated bonds. Non-investment grade bonds are considered predominantly speculative with respect to the issuer's ability to pay interest and repay principal and may involve significant risk exposure to adverse conditions. Non-investment grade bonds generally offer a higher current yield than that available for investment grade issues; however, they involve greater risks, in that they are especially sensitive to adverse changes in general economic conditions and in the industries in which the issuers are engaged, to changes in the financial condition of the issuers and to price fluctuations in response to changes in interest rates. During periods of economic downturn or rising interest rates, highly leveraged issuers may experience financial stress that could adversely affect their ability to make payments of interest and principal and increase the possibility of default. In addition, such issuers may not have more traditional methods of financing available to them and may be unable to repay debt at maturity by refinancing. The risk of loss due to default by such issuers is significantly greater because such securities frequently are unsecured by collateral and will not receive payment until more senior claims are paid in full. The market for non-investment grade bonds, especially those of foreign issuers, has expanded rapidly in recent years, which has been a period of generally expanding growth and lower inflation. These securities will be susceptible to greater risk when economic growth slows or reverses and when inflation increases or deflation occurs. This has been reflected in recent volatility in emerging market securities. In the past, many lower rated bonds experienced substantial price declines reflecting an expectation that many issuers of such securities might experience financial difficulties. As a result, the yields on lower rated bonds rose dramatically. However, those higher yields did not reflect the value of the income stream that holders of such securities expected. Rather, they reflected the risk that holders of such securities could lose a substantial portion of their value due to financial restructurings or defaults by the issuers. There can be no assurance that those declines will not recur. The market for non-investment grade bonds generally is thinner and less active than that for higher quality securities, which may limit a fund's ability to sell such securities at fair value in response to changes in the economy or financial markets. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may also decrease the values and liquidity of non-investment grade bonds, especially in a thinly traded market. Opinions relating to the validity of municipal bonds and to the exemption of interest thereon from federal income tax and (when available) from treatment as a tax preference item are rendered by bond counsel to the respective issuing authorities at the time of issuance. Neither PACE Municipal Fixed Income Investments, its investment advisor nor Brinson Advisors 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 its 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. U.S. GOVERNMENT SECURITIES. U.S. government securities include direct obligations of the U.S. Treasury (such as Treasury bills, notes or bonds) and obligations issued or guaranteed as to principal and interest (but not as to market value) by the U.S. government, its agencies or its instrumentalities. U.S. government securities include mortgage-backed securities issued or guaranteed by government agencies or government-sponsored enterprises. Other U.S. government securities may be backed by the full faith and credit of the U.S. government or supported primarily or solely by the creditworthiness of the government-related issuer or, in the case of mortgage-backed securities, by pools of assets. 11 U.S. government securities also include separately traded principal and interest components of securities issued or guaranteed by the U.S. Treasury, which are traded independently under the Separate Trading of Registered Interest and Principal of Securities ("STRIPS") program. Under the STRIPS program, the principal and interest components are individually numbered and separately issued by the U.S. Treasury. Treasury inflation-indexed securities ("TIIS") are Treasury bonds on which the principal value is adjusted daily in accordance with changes in the Consumer Price Index. Interest on TIIS is payable semi-annually on the adjusted principal value. The principal value of TIIS would decline during periods of deflation, but the principal amount payable at maturity would not be less than the original par amount. If inflation is lower than expected while a fund holds TIIS, the fund may earn less on the TIIS than it would on conventional Treasury bonds. Any increase in the principal value of TIIS is taxable in the year the increase occurs, even though holders do not receive cash representing the increase at that time. See "Taxes -- Other Information" below. ASSET-BACKED SECURITIES. Asset-backed securities have structural characteristics similar to mortgage-backed securities, as discussed in more detail below. However, the underlying assets are not first lien mortgage loans or interests therein but include assets such as motor vehicle installment sales contracts, other installment sales contracts, home equity loans, leases of various types of real and personal property and receivables from revolving credit (credit card) agreements. Such assets are securitized through the use of trusts or special purpose corporations. Payments or distributions of principal and interest may be guaranteed up to a certain amount and for a certain time period by a letter of credit or pool insurance policy issued by a financial institution unaffiliated with the issuer, or other credit enhancements may be present. See "The Funds' Investments, Related Risks and Limitations -- Credit and Liquidity Enhancements." MORTGAGE-BACKED SECURITIES. Mortgage-backed securities represent direct or indirect interests in pools of underlying mortgage loans that are secured by real property. U.S. government mortgage-backed securities are issued or guaranteed as to the payment of principal and interest (but not as to market value) by Ginnie Mae (also known as the Government National Mortgage Association), Fannie Mae (also known as the Federal National Mortgage Association), Freddie Mac (also known as the Federal Home Loan Mortgage Corporation) or other government sponsored enterprises. Other domestic mortgage-backed securities are sponsored or issued by private entities, generally originators of and investors in mortgage loans, including savings associations, mortgage bankers, commercial banks, investment bankers and special purposes entities (collectively, "Private Mortgage Lenders"). Payments of principal and interest (but not the market value) of such private mortgage- backed securities may be supported by pools of mortgage loans or other mortgage-backed securities that are guaranteed, directly or indirectly, by the U.S. government or one of its agencies or instrumentalities, or they may be issued without any government guarantee of the underlying mortgage assets but with some form of non-government credit enhancement. Foreign mortgage-backed securities may be issued by mortgage banks and other private or governmental entities outside the United States and are supported by interests in foreign real estate. Mortgage-backed securities may be composed of one or more classes and may be structured either as pass-through securities or collateralized debt obligations. Multiple-class mortgage-backed securities are referred to herein as "CMOs." Some CMOs are directly supported by other CMOs, which in turn are supported by mortgage pools. Investors typically receive payments out of the interest and principal on the underlying mortgages. The portions of these payments that investors receive, as well as the priority of their rights to receive payments, are determined by the specific terms of the CMO class. CMOs involve special risk and evaluating them requires special knowledge. A major difference between mortgage-backed securities and traditional bonds is that interest and principal payments are made more frequently (usually monthly) and that principal may be repaid at any time because the underlying mortgage loans may be prepaid at any time. When interest rates go down and homeowners refinance their mortgages, mortgage-backed securities may be paid off more quickly than investors expect. When interest rates rise, mortgage-backed securities may be paid off more slowly than originally expected. Changes in the rate or "speed" of these prepayments can cause the value of mortgage-backed securities to fluctuate rapidly. Mortgage-backed securities also may decrease in value as a result of increases in interest rates and, because of prepayments, may benefit less than other bonds from declining interest rates. Reinvestments of prepayments may occur at lower interest rates than the original investment, thus adversely affecting a fund's yield. Actual 12 prepayment experience may cause the yield of a mortgage-backed security to differ from what was assumed when the fund purchased the security. Prepayments at a slower rate than expected may lengthen the effective life of a mortgage-backed security. The value of securities with longer effective lives generally fluctuates more widely in response to changes in interest rates than the value of securities with shorter effective lives. CMO classes may be specially structured in a manner that provides any of a wide variety of investment characteristics, such as yield, effective maturity and interest rate sensitivity. As market conditions change, however, and particularly during periods of rapid or unanticipated changes in market interest rates, the attractiveness of the CMO classes and the ability of the structure to provide the anticipated investment characteristics may be significantly reduced. These changes can result in volatility in the market value, and in some instances reduced liquidity, of the CMO class. Certain classes of CMOs and other mortgage-backed securities are structured in a manner that makes them extremely sensitive to changes in prepayment rates. Interest-only ("IO") and principal-only ("PO") classes are examples of this. IOs are entitled to receive all or a portion of the interest, but none (or only a nominal amount) of the principal payments, from the underlying mortgage assets. If the mortgage assets underlying an IO experience greater than anticipated principal prepayments, then the total amount of interest payments allocable to the IO class, and therefore the yield to investors, generally will be reduced. In some instances, an investor in an IO may fail to recoup all of his or her initial investment, even if the security is government issued or guaranteed or is rated AAA or the equivalent. Conversely, PO classes are entitled to receive all or a portion of the principal payments, but none of the interest, from the underlying mortgage assets. PO classes are purchased at substantial discounts from par, and the yield to investors will be reduced if principal payments are slower than expected. Some IOs and POs, as well as other CMO classes, are structured to have special protections against the effects of prepayments. These structural protections, however, normally are effective only within certain ranges of prepayment rates and thus will not protect investors in all circumstances. Inverse floating rate CMO classes also may be extremely volatile. These classes pay interest at a rate that decreases when a specified index of market rates increases and vice versa. The market for privately issued mortgage-backed securities is smaller and less liquid than the market for U.S. government mortgage-backed securities. Foreign mortgage-backed securities markets are substantially smaller than U.S. markets but have been established in several countries, including Germany, Denmark, Sweden, Canada and Australia, and may be developed elsewhere. Foreign mortgage-backed securities generally are structured differently than domestic mortgage-backed securities, but they normally present substantially similar investment risks as well as the other risks normally associated with foreign securities. During 1994, the value and liquidity of many mortgage-backed securities declined sharply due primarily to increases in interest rates. There can be no assurance that such declines will not recur. The market value of certain mortgage-backed securities, including IO and PO classes of mortgage-backed securities, can be extremely volatile, and these securities may become illiquid. A fund's investment advisor seeks to manage its investments in mortgage-backed securities so that the volatility of its portfolio, taken as a whole, is consistent with its investment objective. Management of portfolio duration is an important part of this. However, computing the duration of mortgage-backed securities is complex. See, "The Funds' Investments, Related Risks and Limitations -- Duration." If a fund's investment advisor does not compute the duration of mortgage-backed securities correctly, the value of its portfolio may be either more or less sensitive to changes in market interest rates than intended. In addition, if market interest rates or other factors that affect the volatility of securities held by a fund change in ways that its investment advisor does not anticipate, the fund's ability to meet its investment objective may be reduced. More information concerning these mortgage-backed securities and the related risks of investments therein is set forth below. New types of mortgage-backed securities are developed and marketed from time to time and, consistent with its investment limitations, a fund expects to invest in those new types of mortgage-backed securities that its investment advisor believes may assist it in achieving its investment objective. Similarly, a fund may invest in mortgage-backed securities issued by new or existing governmental or private issuers other than those identified herein. GINNIE MAE CERTIFICATES -- Ginnie Mae guarantees certain mortgage pass-through certificates ("Ginnie Mae certificates") that are issued by Private Mortgage Lenders and that represent ownership interests in individual 13 pools of residential mortgage loans. These securities are designed to provide monthly payments of interest and principal to the investor. Timely payment of interest and principal is backed by the full faith and credit of the U.S. government. Each mortgagor's monthly payments to his lending institution on his residential mortgage are "passed through" to certificateholders such as the funds. Mortgage pools consist of whole mortgage loans or participations in loans. The terms and characteristics of the mortgage instruments are generally uniform within a pool but may vary among pools. Lending institutions that originate mortgages for the pools are subject to certain standards, including credit and other underwriting criteria for individual mortgages included in the pools. FANNIE MAE CERTIFICATES -- Fannie Mae facilitates a national secondary market in residential mortgage loans insured or guaranteed by U.S. government agencies and in privately insured or uninsured residential mortgage loans (sometimes referred to as "conventional mortgage loans" or "conventional loans") through its mortgage purchase and mortgage-backed securities sales activities. Fannie Mae issues guaranteed mortgage pass-through certificates ("Fannie Mae certificates"), which represent pro rata shares of all interest and principal payments made and owed on the underlying pools. Fannie Mae guarantees timely payment of interest and principal on Fannie Mae certificates. The Fannie Mae guarantee is not backed by the full faith and credit of the U.S. government. FREDDIE MAC CERTIFICATES -- Freddie Mac also facilitates a national secondary market for conventional residential and U.S. government-insured mortgage loans through its mortgage purchase and mortgage-backed securities sales activities. Freddie Mac issues two types of mortgage pass-through securities: mortgage participation certificates ("PCs") and guaranteed mortgage certificates ("GMCs"). Each PC represents a pro rata share of all interest and principal payments made and owed on the underlying pool. Freddie Mac generally guarantees timely monthly payment of interest on PCs and the ultimate payment of principal, but it also has a PC program under which it guarantees timely payment of both principal and interest. GMCs also represent a pro rata interest in a pool of mortgages. These instruments, however, pay interest semi-annually and return principal once a year in guaranteed minimum payments. The Freddie Mac guarantee is not backed by the full faith and credit of the U.S. government. PRIVATE MORTGAGE-BACKED SECURITIES -- Mortgage-backed securities issued by Private Mortgage Lenders are structured similarly to CMOs issued or guaranteed by Ginnie Mae, Fannie Mae and Freddie Mac. Such mortgage-backed securities may be supported by pools of U.S. government or agency insured or guaranteed mortgage loans or by other mortgage-backed securities issued by a government agency or instrumentality, but they generally are supported by pools of conventional (I.E., non-government guaranteed or insured) mortgage loans. Since such mortgage-backed securities normally are not guaranteed by an entity having the credit standing of Ginnie Mae, Fannie Mae and Freddie Mac, they normally are structured with one or more types of credit enhancement. See "The Funds' Investments, Related Risks and Limitations -- Mortgage-Backed Securities -- TYPES OF CREDIT ENHANCEMENT." These credit enhancements do not protect investors from changes in market value. COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS MORTGAGE PASS-THROUGHS -- CMOs are debt obligations that are collateralized by mortgage loans or mortgage pass-through securities (collectively, "Mortgage Assets"). CMOs may be issued by Private Mortgage Lenders or by government entities such as Fannie Mae or Freddie Mac. Multi-class mortgage pass-through securities are interests in trusts that are comprised of Mortgage Assets and that have multiple classes similar to those in CMOs. Unless the context indicates otherwise, references herein to CMOs include multi-class mortgage pass-through securities. Payments of principal of, and interest on, the Mortgage Assets (and in the case of CMOs, any reinvestment income thereon) provide the funds to pay the debt service on the CMOs or to make scheduled distributions on the multi-class mortgage pass-through securities. In a CMO, a series of bonds or certificates is issued in multiple classes. Each class of CMO, also referred to as a "tranche," is issued at a specific fixed or floating coupon rate and has a stated maturity or final distribution date. Principal prepayments on the Mortgage Assets may cause CMOs to be retired substantially earlier than their stated maturities or final distribution dates. Interest is paid or accrued on all classes of a CMO (other than any principal-only or "PO" class) on a monthly, quarterly or semi-annual basis. The principal and interest on the Mortgage Assets may be allocated among the several classes of a CMO in many ways. In one structure, payments of principal, including any principal prepayments, on the Mortgage Assets are applied to the classes of 14 a CMO in the order of their respective stated maturities or final distribution dates so that no payment of principal will be made on any class of the CMO until all other classes having an earlier stated maturity or final distribution date have been paid in full. In some CMO structures, all or a portion of the interest attributable to one or more of the CMO classes may be added to the principal amounts attributable to such classes, rather than passed through to certificateholders on a current basis, until other classes of the CMO are paid in full. Parallel pay CMOs are structured to provide payments of principal on each payment date to more than one class. These simultaneous payments are taken into account in calculating the stated maturity date or final distribution date of each class, which, as with other CMO structures, must be retired by its stated maturity date or final distribution date but may be retired earlier. Some CMO classes are structured to pay interest at rates that are adjusted in accordance with a formula, such as a multiple or fraction of the change in a specified interest rate index, so as to pay at a rate that will be attractive in certain interest rate environments but not in others. For example, an inverse floating rate CMO class pays interest at a rate that increases as a specified interest rate index decreases but decreases as that index increases. For other CMO classes, the yield may move in the same direction as market interest rates -- I.E., the yield may increase as rates increase and decrease as rates decrease -- but may do so more rapidly or to a greater degree. The market value of such securities generally is more volatile than that of a fixed rate obligation. Such interest rate formulas may be combined with other CMO characteristics. For example, a CMO class may be an inverse IO class, on which the holders are entitled to receive no payments of principal and are entitled to receive interest at a rate that will vary inversely with a specified index or a multiple thereof. TYPES OF CREDIT ENHANCEMENT -- To lessen the effect of failures by obligors on Mortgage Assets to make payments, mortgage-backed securities may contain elements of credit enhancement. Such credit enhancement falls into two categories: (1) liquidity protection and (2) loss protection. Loss protection relates to losses resulting after default by an obligor on the underlying assets and collection of all amounts recoverable directly from the obligor and through liquidation of the collateral. Liquidity protection refers to the provision of advances, generally by the entity administering the pool of assets (usually the bank, savings association or mortgage banker that transferred the underlying loans to the issuer of the security), to ensure that the receipt of payments on the underlying pool occurs in a timely fashion. Loss protection ensures ultimate payment of the obligations on at least a portion of the assets in the pool. Such protection may be provided through guarantees, insurance policies or letters of credit obtained by the issuer or sponsor, from third parties, through various means of structuring the transaction or through a combination of such approaches. A fund will not pay any additional fees for such credit enhancement, although the existence of credit enhancement may increase the price of a security. Credit enhancements do not provide protection against changes in the market value of the security. Examples of credit enhancement arising out of the structure of the transaction include "senior-subordinated securities" (multiple class securities with one or more classes subordinate to other classes as to the payment of principal thereof and interest thereon, with the result that defaults on the underlying assets are borne first by the holders of the subordinated class), creation of "spread accounts" or "reserve funds" (where cash or investments, sometimes funded from a portion of the payments on the underlying assets, are held in reserve against future losses) and "over-collateralization" (where the scheduled payments on, or the principal amount of, the underlying assets exceed that required to make payment of the securities and pay any servicing or other fees). The degree of credit enhancement provided for each issue generally is based on historical information regarding the level of credit risk associated with the underlying assets. Delinquency or loss in excess of that anticipated could adversely affect the return on an investment in such a security. SPECIAL CHARACTERISTICS OF MORTGAGE- AND ASSET-BACKED SECURITIES -- The yield characteristics of mortgage- and asset-backed securities differ from those of traditional debt securities. Among the major differences are that interest and principal payments are made more frequently, usually monthly, and that principal may be prepaid at any time because the underlying mortgage loans or other obligations generally may be prepaid at any time. Prepayments on a pool of mortgage loans are influenced by a variety of economic, geographic, social and other factors, including changes in mortgagors' housing needs, job transfers, unemployment, mortgagors' net equity in the mortgaged properties and servicing decisions. Generally, however, prepayments on fixed-rate mortgage loans will increase during a period of falling interest rates and decrease during a period of rising interest rates. Similar factors apply to prepayments on asset-backed securities, but the receivables underlying asset-backed securities generally are of a shorter maturity and thus are less likely to experience substantial prepayments. Such 15 securities, however, often provide that for a specified time period the issuers will replace receivables in the pool that are repaid with comparable obligations. If the issuer is unable to do so, repayment of principal on the asset-backed securities may commence at an earlier date. Mortgage- and asset-backed securities may decrease in value as a result of increases in interest rates and may benefit less than other fixed-income securities from declining interest rates because of the risk of prepayment. The rate of interest on mortgage-backed securities is lower than the interest rates paid on the mortgages included in the underlying pool due to the annual fees paid to the servicer of the mortgage pool for passing through monthly payments to certificateholders and to any guarantor, and due to any yield retained by the issuer. Actual yield to the holder may vary from the coupon rate, even if adjustable, if the mortgage-backed securities are purchased or traded in the secondary market at a premium or discount. In addition, there is normally some delay between the time the issuer receives mortgage payments from the servicer and the time the issuer makes the payments on the mortgage-backed securities, and this delay reduces the effective yield to the holder of such securities. Yields on pass-through securities are typically quoted by investment dealers and vendors based on the maturity of the underlying instruments and the associated average life assumption. The average life of pass-through pools varies with the maturities of the underlying mortgage loans. A pool's term may be shortened by unscheduled or early payments of principal on the underlying mortgages. Because prepayment rates of individual pools vary widely, it is not possible to predict accurately the average life of a particular pool. In the past, a common industry practice was to assume that prepayments on pools of fixed rate 30-year mortgages would result in a 12-year average life for the pool. At present, mortgage pools, particularly those with loans with other maturities or different characteristics, are priced on an assumption of average life determined for each pool. In periods of declining interest rates, the rate of prepayment tends to increase, thereby shortening the actual average life of a pool of mortgage-related securities. Conversely, in periods of rising interest rates, the rate of prepayment tends to decrease, thereby lengthening the actual average life of the pool. However, these effects may not be present, or may differ in degree, if the mortgage loans in the pools have adjustable interest rates or other special payment terms, such as a prepayment charge. Actual prepayment experience may cause the yield of mortgage-backed securities to differ from the assumed average life yield. Reinvestment of prepayments may occur at lower interest rates than the original investment, thus adversely affecting a fund's yield. ADJUSTABLE RATE MORTGAGE AND FLOATING RATE MORTGAGE-BACKED SECURITIES -- Adjustable rate mortgage ("ARM") securities are mortgage-backed securities (sometimes referred to as "ARMs") that represent a right to receive interest payments at a rate that is adjusted to reflect the interest earned on a pool of mortgage loans bearing variable or adjustable rates of interest. Floating rate mortgage-backed securities are classes of mortgage-backed securities that have been structured to represent the right to receive interest payments at rates that fluctuate in accordance with an index but that generally are supported by pools comprised of fixed-rate mortgage loans. Because the interest rates on ARM and floating rate mortgage-backed securities are reset in response to changes in a specified market index, the values of such securities tend to be less sensitive to interest rate fluctuations than the values of fixed-rate securities. As a result, during periods of rising interest rates, ARMs generally do not decrease in value as much as fixed rate securities. Conversely, during periods of declining rates, ARMs generally do not increase in value as much as fixed rate securities. ARMs represent a right to receive interest payments at a rate that is adjusted to reflect the interest earned on a pool of ARM loans. These mortgage loans generally specify that the borrower's mortgage interest rate may not be adjusted above a specified lifetime maximum rate or, in some cases, below a minimum lifetime rate. In addition, certain ARM loans specify limitations on the maximum amount by which the mortgage interest rate may adjust for any single adjustment period. These mortgage loans also may limit changes in the maximum amount by which the borrower's monthly payment may adjust for any single adjustment period. If a monthly payment is not sufficient to pay the interest accruing on the ARM, any such excess interest is added to the mortgage loan ("negative amortization"), which is repaid through future payments. If the monthly payment exceeds the sum of the interest accrued at the applicable mortgage interest rate and the principal payment that would have been necessary to amortize the outstanding principal balance over the remaining term of the loan, the excess reduces the principal balance of the ARM loan. Borrowers under these mortgage loans experiencing negative amortization may take longer to build up their equity in the underlying property and may be more likely to default. 16 ARM loans also may be subject to a greater rate of prepayments in a declining interest rate environment. For example, during a period of declining interest rates, prepayments on these mortgage loans could increase because the availability of fixed mortgage loans at competitive interest rates may encourage mortgagors to "lock-in" at a lower interest rate. Conversely, during a period of rising interest rates, prepayments on ARM loans might decrease. The rate of prepayments with respect to ARM loans has fluctuated in recent years. The rates of interest payable on certain ARM loans, and therefore on certain ARM securities, are based on indices, such as the one-year constant maturity Treasury rate, that reflect changes in market interest rates. Others are based on indices, such as the 11th District Federal Home Loan Bank Cost of Funds Index, that tend to lag behind changes in market interest rates. The values of ARM securities supported by ARM loans that adjust based on lagging indices tend to be somewhat more sensitive to interest rate fluctuations than those reflecting current interest rate levels, although the values of such ARM securities still tend to be less sensitive to interest rate fluctuations than fixed-rate securities. Floating rate mortgage-backed securities are classes of mortgage-backed securities that have been structured to represent the right to receive interest payments at rates that fluctuate in accordance with an index but that generally are supported by pools comprised of fixed-rate mortgage loans. As with ARM securities, interest rate adjustments on floating rate mortgage-backed securities may be based on indices that lag behind market interest rates. Interest rates on floating rate mortgage-backed securities generally are adjusted monthly. Floating rate mortgage-backed securities are subject to lifetime interest rate caps, but they generally are not subject to limitations on monthly or other periodic changes in interest rates or monthly payments. CREDIT AND LIQUIDITY ENHANCEMENTS. A fund may invest in securities that have credit or liquidity enhancements or may purchase these types of enhancements in the secondary market. Such enhancements may be structured as demand features that permit the fund to sell the instrument at designated times and prices. These credit and liquidity enhancements may be backed by letters of credit or other instruments provided by banks or other financial institutions whose credit standing affects the credit quality of the underlying obligation. Changes in the credit quality of these financial institutions could cause losses to a fund and affect its share price. The credit and liquidity enhancements may have conditions that limit the ability of a fund to use them when the fund wishes to do so. INVESTING IN FOREIGN SECURITIES. Investing in foreign securities may involve more risks than investing in U.S. securities. The value of foreign securities is subject to economic and political developments in the countries where the issuers operate and to changes in foreign currency values. Investments in foreign securities involve risks relating to political, social and economic developments abroad, as well as risks resulting from the differences between the regulations to which U.S. and foreign issuers and markets are subject. These risks may include expropriation, confiscatory taxation, withholding taxes on interest and/or dividends, limitations on the use of or transfer of fund assets and political or social instability or diplomatic developments. Moreover, individual foreign economies may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position. In those European countries that are using the Euro as a common currency unit, individual national economies may be adversely affected by the inability of national governments to use monetary policy to address their own economic or political concerns. Securities of foreign issuers may not be registered with the SEC, and the issuers thereof may not be subject to its reporting requirements. Accordingly, there may be less publicly available information concerning foreign issuers of securities held by a fund than is available concerning U.S. companies. Foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards or to other regulatory requirements comparable to those applicable to U.S. companies. Securities of many foreign companies may be less liquid and their prices more volatile than securities of comparable U.S. companies. From time to time foreign securities may be difficult to liquidate rapidly without significantly depressing the price of such securities. Foreign markets have different clearance and settlement procedures, and in certain markets there have been times when settlements have failed to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays in settlement could result in temporary periods when some of a fund's assets are uninvested and no return is earned thereon. The inability of a fund to make intended security purchases due to settlement problems could cause the fund to miss attractive investment opportunities. Inability to dispose of a portfolio security due to settlement problems could 17 result either in losses to the fund due to subsequent declines in the value of such portfolio security or, if the fund has entered into a contract to sell the security, could result in possible liability to the purchaser. Foreign securities trading practices, including those involving securities settlement where fund assets may be released prior to receipt of payment, may expose a fund to increased risk in the event of a failed trade or the insolvency of a foreign broker-dealer. Legal remedies for defaults and disputes may have to be pursued in foreign courts, whose procedures differ substantially from those of U.S. courts. The costs of investing outside the United States frequently are higher than those attributable to investing in the United States. This is particularly true with respect to emerging capital markets. For example, the cost of maintaining custody of foreign securities exceeds custodian costs for domestic securities, and transaction and settlement costs of foreign investing frequently are higher than those attributable to domestic investing. Costs associated with the exchange of currencies also make foreign investing more expensive than domestic investing. A fund may invest in foreign securities by purchasing depositary receipts, including American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and Global Depositary Receipts ("GDRs"), or other securities convertible into securities of issuers based in foreign countries. These securities may not necessarily be denominated in the same currency as the securities into which they may be converted. ADRs are receipts typically issued by a U.S. bank or trust company evidencing ownership of the underlying securities. They generally are in registered form, are denominated in U.S. dollars and are designed for use in the U.S. securities markets. EDRs are European receipts evidencing a similar arrangement, may be denominated in other currencies and are designed for use in European securities markets. GDRs are similar to EDRs and are designed for use in several international financial markets. For purposes of each fund's investment policies, depositary receipts generally are deemed to have the same classification as the underlying securities they represent. Thus, a depositary receipt representing ownership of common stock will be treated as common stock. ADRs are publicly traded on exchanges or over-the-counter in the United States and are issued through "sponsored" or "unsponsored" arrangements. In a sponsored ADR arrangement, the foreign issuer assumes the obligation to pay some or all of the depositary's transaction fees, whereas under an unsponsored arrangement, the foreign issuer assumes no obligations and the depositary's transaction fees are paid directly by the ADR holders. In addition, less information is available in the United States about an unsponsored ADR than about a sponsored ADR. Eurodollar bonds and Yankee bonds are types of U.S. dollar denominated foreign securities. Eurodollar bonds are U.S. dollar denominated bonds that are held outside the United States, primarily in Europe. Yankee bonds are U.S. dollar denominated bonds of foreign issuers that are sold primarily in the United States. The funds that invest outside the United States anticipate that their brokerage transactions involving foreign securities of companies headquartered in countries other than the United States will be conducted primarily on the principal exchanges of such countries. Although each fund will endeavor to achieve the best net results in effecting its portfolio transactions, transactions on foreign exchanges are usually subject to fixed commissions that are generally higher than negotiated commissions on U.S. transactions. There is generally less government supervision and regulation of exchanges and brokers in foreign countries than in the United States. Investment income and gains on certain foreign securities in which the funds may invest may be subject to foreign withholding or other taxes that could reduce the return on these securities. Tax conventions between the United States and certain foreign countries, however, may reduce or eliminate the amount of foreign taxes to which the funds would be subject. In addition, substantial limitations may exist in certain countries with respect to the funds' ability to repatriate investment capital or the proceeds of sales of securities. FOREIGN CURRENCY RISKS. Currency risk is the risk that changes in foreign exchange rates may reduce the U.S. dollar value of a fund's foreign investments. If the value of a foreign currency rises against the value of the U.S. dollar, the value of a fund's investments that are denominated in, or linked to, that currency will increase. Conversely, if the value of a foreign currency declines against the value of the U.S. dollar, the value of those fund investments will decrease. These changes may have a significant impact on the value of fund shares. In some instances, a fund may use derivative strategies to hedge against changes in foreign currency value. (See "Strategies Using Derivative Instruments," below.) However, opportunities to hedge against currency risk may not exist in certain markets, particularly with respect to emerging market currencies, and even when appropriate hedging opportunities are available, a fund may choose not to hedge against currency risk. 18 Generally, currency exchange rates are determined by supply and demand in the foreign exchange markets and the relative merits of investments in different countries. In the case of those European countries that use the Euro as a common currency unit, the relative merits of investments in the common market in which they participate, rather than the merits of investments in the individual country, will be a determinant of currency exchange rates. Currency exchange rates also can be affected by the intervention of the U.S. and foreign governments or central banks, the imposition of currency controls, speculation, devaluation or other political or economic developments inside and outside the United States. Each fund values its assets daily in U.S. dollars, and funds that hold foreign currencies do not intend to convert them to U.S. dollars on a daily basis. These funds may convert foreign currency to U.S. dollars from time to time. From time to time a fund's foreign currencies may be held as "foreign currency call accounts" at foreign branches of foreign or domestic banks. These accounts bear interest at negotiated rates and are payable upon relatively short demand periods. If a bank became insolvent, a fund could suffer a loss of some or all of the amounts deposited. A fund may convert foreign currency to U.S. dollars from time to time. The value of the assets of a fund as measured in U.S. dollars may be affected favorably or unfavorably by fluctuations in currency rates and exchange control regulations. Further, a fund may incur costs in connection with conversions between various currencies. Currency exchange dealers realize a profit based on the difference between the prices at which they are buying and selling various currencies. Thus, a dealer normally will offer to sell a foreign currency to a fund at one rate, while offering a lesser rate of exchange should a fund desire immediately to resell that currency to the dealer. A fund conducts its currency exchange transactions either on a spot (I.E., cash) basis at the spot rate prevailing in the foreign currency exchange market, or through entering into forward, futures or options contracts to purchase or sell foreign currencies. SPECIAL CHARACTERISTICS OF EMERGING MARKET SECURITIES AND SOVEREIGN DEBT EMERGING MARKET INVESTMENTS. The special risks of investing in foreign securities are heightened in emerging markets. For example, many emerging market currencies have experienced significant devaluations relative to the U.S. dollar in recent years. Emerging market countries typically have economic and political systems that are less fully developed and can be expected to be less stable than those of developed countries. Emerging market countries may have policies that restrict investment by foreigners, and there is a higher risk of government expropriation or nationalization of private property. The possibility of low or nonexistent trading volume in the securities of companies in emerging markets also may result in a lack of liquidity and in price volatility. Issuers in emerging markets typically are subject to a greater degree of change in earnings and business prospects than are companies in more developed markets. INVESTMENT AND REPATRIATION RESTRICTIONS -- Foreign investment in the securities markets of several emerging market countries is restricted or controlled to varying degrees. These restrictions may limit a fund's investment in these countries and may increase its expenses. For example, certain countries may require governmental approval prior to investments by foreign persons in a particular company or industry sector or limit investment by foreign persons to only a specific class of securities of a company, which may have less advantageous terms (including price) than securities of the company available for purchase by nationals. Certain countries may restrict or prohibit investment opportunities in issuers or industries deemed important to national interests. In addition, the repatriation of both investment income and capital from some emerging market countries is subject to restrictions, such as the need for certain government consents. Even where there is no outright restriction on repatriation of capital, the mechanics of repatriation may affect certain aspects of a fund's operations. These restrictions may in the future make it undesirable to invest in the countries to which they apply. In addition, if there is a deterioration in a country's balance of payments or for other reasons, a country may impose restrictions on foreign capital remittances abroad. A fund could be adversely affected by delays in, or a refusal to grant, any required governmental approval for repatriation, as well as by the application to it of other restrictions on investments. If, because of restrictions on repatriation or conversion, a fund were unable to distribute substantially all of its net investment income and capital gains within applicable time periods, the fund would be subject to federal income and/or excise taxes that would not otherwise be incurred and could cease to qualify for the favorable tax treatment afforded to regulated investment companies under the Internal Revenue Code. If it did cease to qualify for that treatment, it would become subject to federal income tax on all of its income and net gains. See "Taxes -- Qualification as a Regulated Investment Company," below. 19 DIFFERENCES BETWEEN THE U.S. AND EMERGING MARKET SECURITIES MARKETS -- Most of the securities markets of emerging market countries have substantially less volume than the New York Stock Exchange, and equity securities of most companies in emerging market countries are less liquid and more volatile than equity securities of U.S. companies of comparable size. Some of the stock exchanges in emerging market countries are in the earliest stages of their development. As a result, security settlements may in some instances be subject to delays and related administrative uncertainties. Many companies traded on securities markets in emerging market countries are smaller, newer and less seasoned than companies whose securities are traded on securities markets in the United States. Investments in smaller companies involve greater risk than is customarily associated with investing in larger companies. Smaller companies may have limited product lines, markets or financial or managerial resources and may be more susceptible to losses and risks of bankruptcy. Additionally, market-making and arbitrage activities are generally less extensive in such markets, which may contribute to increased volatility and reduced liquidity of such markets. Accordingly, each of these markets may be subject to greater influence by adverse events generally affecting the market, and by large investors trading significant blocks of securities, than is usual in the United States. To the extent that an emerging market country experiences rapid increases in its money supply and investment in equity securities for speculative purposes, the equity securities traded in that country may trade at price-earnings multiples higher than those of comparable companies trading on securities markets in the United States, which may not be sustainable. GOVERNMENT SUPERVISION OF EMERGING MARKET SECURITIES MARKETS; LEGAL SYSTEMS -- There is also less government supervision and regulation of securities exchanges, listed companies and brokers in emerging market countries than exists in the United States. Therefore, less information may be available to a fund than with respect to investments in the United States. Further, in certain countries, less information may be available to a fund than to local market participants. Brokers in other countries may not be as well capitalized as those in the United States, so that they are more susceptible to financial failure in times of market, political or economic stress. In addition, existing laws and regulations are often inconsistently applied. As legal systems in some of the emerging market countries develop, foreign investors may be adversely affected by new laws and regulations, changes to existing laws and regulations and preemption of local laws and regulations by national laws. In circumstances where adequate laws exist, it may not be possible to obtain swift and equitable enforcement of the law. SOCIAL, POLITICAL AND ECONOMIC FACTORS -- Many emerging market countries may be subject to a greater degree of social, political and economic instability than is the case in the United States. Any change in the leadership or policies of these countries may halt the expansion of or reverse any liberalization of foreign investment policies now occurring. Such instability may result from, among other things, the following: (1) authoritarian governments or military involvement in political and economic decision making, and changes in government through extra-constitutional means; (2) popular unrest associated with demands for improved political, economic and social conditions; (3) internal insurgencies; (4) hostile relations with neighboring countries; and (5) ethnic, religious and racial disaffection. Such social, political and economic instability could significantly disrupt the financial markets in those countries and elsewhere and could adversely affect the value of a fund's assets. In addition, there may be the possibility of asset expropriations or future confiscatory levels of taxation affecting a fund. The economies of many emerging markets are heavily dependent upon international trade and are accordingly affected by protective trade barriers and the economic conditions of their trading partners, principally the United States, Japan, China and the European Union. The enactment by the United States or other principal trading partners of protectionist trade legislation, reduction of foreign investment in the local economies and general declines in the international securities markets could have a significant adverse effect upon the securities markets of these countries. In addition, the economies of some countries are vulnerable to weakness in world prices for their commodity exports, including crude oil. A country whose exports are concentrated in a few commodities could be vulnerable to a decline in the international price of such commodities. FINANCIAL INFORMATION AND LEGAL STANDARDS -- Issuers in emerging market countries generally are subject to accounting, auditing and financial standards and requirements that differ, in some cases significantly, from those applicable to U.S. issuers. In particular, the assets and profits appearing on the financial statements of an emerging market issuer may not reflect its financial position or results of operations in the way they would be reflected had the financial statements been prepared in accordance with U.S. generally accepted accounting 20 principles. In addition, for an issuer that keeps accounting records in local currency, inflation accounting rules may require, for both tax and accounting purposes, that certain assets and liabilities be restated on the issuer's balance sheet in order to express items in terms of currency of constant purchasing power. Inflation accounting may indirectly generate losses or profits. Consequently, financial data may be materially affected by restatements for inflation and may not accurately reflect the real condition of those issuers and securities markets. Also, securities brokers and dealers in other countries may not be as well capitalized as those in the United States, so that they are more susceptible to financial failure in times of market, political or economic stress. In addition, existing laws and regulations are often inconsistently applied. As legal systems in some of the emerging market countries develop, foreign investors may be adversely affected by new laws and regulations, changes to existing laws and regulations and preemption of local laws and regulations by national laws. In circumstances where adequate laws exist, it may not be possible to obtain swift and equitable enforcement of the law. FOREIGN SOVEREIGN DEBT. Sovereign debt includes bonds that are issued by foreign governments or their agencies, instrumentalities or political subdivisions or by foreign central banks. Sovereign debt also may be issued by quasi-governmental entities that are owned by foreign governments but are not backed by their full faith and credit or general taxing powers. Investment in sovereign debt involves special risks. The issuer of the debt or the governmental authorities that control the repayment of the debt may be unable or unwilling to repay principal and/or interest when due in accordance with the terms of such debt, and the funds may have limited legal recourse in the event of a default. Sovereign debt differs from debt obligations issued by private entities in that, generally, remedies for defaults must be pursued in the courts of the defaulting party. Legal recourse is therefore somewhat diminished. Political conditions, especially a sovereign entity's willingness to meet the terms of its debt obligations, are of considerable significance. Also, there can be no assurance that the holders of commercial bank debt issued by the same sovereign entity may not contest payments to the holders of sovereign debt in the event of default under commercial bank loan agreements. A sovereign debtor's willingness or ability to repay principal and interest due in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its foreign reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, the sovereign debtor's policy toward principal international lenders and the political constraints to which a sovereign debtor may be subject. A country whose exports are concentrated in a few commodities could be vulnerable to a decline in the international price of such commodities. Increased protectionism on the part of a country's trading partners, or political changes in those countries, could also adversely affect its exports. Such events could diminish a country's trade account surplus, if any, or the credit standing of a particular local government or agency. Another factor bearing on the ability of a country to repay sovereign debt is the level of the country's international reserves. Fluctuations in the level of these reserves can affect the amount of foreign exchange readily available for external debt payments and, thus, could have a bearing on the capacity of the country to make payments on its sovereign debt. The occurrence of political, social or diplomatic changes in one or more of the countries issuing sovereign debt could adversely affect the funds' investments. Political changes or a deterioration of a country's domestic economy or balance of trade may affect the willingness of countries to service their sovereign debt. With respect to sovereign debt of emerging market issuers, investors should be aware that certain emerging market countries are among the largest debtors to commercial banks and foreign governments. Some emerging market countries have from time to time declared moratoria on the payment of principal and interest on external debt. Some emerging market countries have experienced difficulty in servicing their sovereign debt on a timely basis which led to defaults on certain obligations and the restructuring of certain indebtedness. Restructuring arrangements have included, among other things, reducing and rescheduling interest and principal payments by negotiating new or amended credit agreements or converting outstanding principal and unpaid interest to Brady Bonds (discussed below), and obtaining new credit to finance interest payments. Holders of sovereign debt, including the funds, may be requested to participate in the rescheduling of such debt and to extend further loans to sovereign debtors. The interests of holders of sovereign debt could be adversely affected in the course of 21 restructuring arrangements or by certain other factors referred to below. Furthermore, some of the participants in the secondary market for sovereign debt may also be directly involved in negotiating the terms of these arrangements and may, therefore, have access to information not available to other market participants. Obligations arising from past restructuring agreements may affect the economic performance and political and social stability of certain issuers of sovereign debt. There is no bankruptcy proceeding by which sovereign debt on which a sovereign has defaulted may be collected in whole or in part. Foreign investment in certain sovereign debt is restricted or controlled to varying degrees. These restrictions or controls may at times limit or preclude foreign investment in such sovereign debt and increase the costs and expenses of a fund. Certain countries in which a fund may invest require governmental approval prior to investments by foreign persons, limit the amount of investment by foreign persons in a particular issuer, limit the investment by foreign persons only to a specific class of securities of an issuer that may have less advantageous rights than the classes available for purchase by domiciliaries of the countries or impose additional taxes on foreign investors. Certain issuers may require governmental approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, if a deterioration occurs in a country's balance of payments the country could impose temporary restrictions on foreign capital remittances. A fund could be adversely affected by delays in, or a refusal to grant, any required governmental approval for repatriation of capital, as well as by the application to the fund of any restrictions on investments. Investing in local markets may require a fund to adopt special procedures, seek local government approvals or take other actions, each of which may involve additional costs to the fund. BRADY BONDS -- Brady Bonds are sovereign bonds issued under the framework of the Brady Plan, an initiative announced by former U.S. Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to restructure their outstanding external commercial bank indebtedness. In restructuring its external debt under the Brady Plan framework, a debtor nation negotiates with its existing bank lenders as well as multilateral institutions such as the International Monetary Fund ("IMF"). The Brady Plan framework, as it has developed, contemplates the exchange of commercial bank debt for newly issued Brady Bonds. Brady Bonds may also be issued in respect of new money being advanced by existing lenders in connection with the debt restructuring. The World Bank and the IMF support the restructuring by providing funds pursuant to loan agreements or other arrangements which enable the debtor nation to collateralize the new Brady Bonds or to repurchase outstanding bank debt at a discount. Brady Bonds have been issued only in recent years, and accordingly do not have a long payment history. Agreements implemented under the Brady Plan to date are designed to achieve debt and debt-service reduction through specific options negotiated by a debtor nation with its creditors. As a result, the financial packages offered by each country differ. The types of options have included the exchange of outstanding commercial bank debt for bonds issued at 100% of face value of such debt, which carry a below-market stated rate of interest (generally known as par bonds), bonds issued at a discount from the face value of such debt (generally known as discount bonds), bonds bearing an interest rate which increases over time and bonds issued in exchange for the advancement of new money by existing lenders. Regardless of the stated face amount and stated interest rate of the various types of Brady Bonds, a fund will purchase Brady Bonds in which the price and yield to the investor reflect market conditions at the time of purchase. Certain Brady Bonds have been collateralized as to principal due at maturity by U.S. Treasury zero coupon bonds with maturities equal to the final maturity of such Brady Bonds. Collateral purchases are financed by the IMF, the World Bank and the debtor nations' reserves. In the event of a default with respect to collateralized Brady Bonds as a result of which the payment obligations of the issuer are accelerated, the U.S. Treasury zero coupon obligations held as collateral for the payment of principal will not be distributed to investors, nor will such obligations be sold and the proceeds distributed. The collateral will be held by the collateral agent until the scheduled maturity of the defaulted Brady Bonds, which will continue to be outstanding, at which time the face amount of the collateral will equal the principal payments that would have then been due on the Brady Bonds in the normal course. Interest payments on Brady Bonds may be wholly uncollateralized or may be collateralized by cash or high grade securities in amounts that typically represent between 12 and 18 months of interest accruals on these instruments, with the balance of the interest accruals being uncollateralized. Brady Bonds are often viewed as having several valuation components: (1) the collateralized repayment of principal, if any, at final maturity, (2) the collateralized interest payments, if any, (3) the uncollateralized interest payments and (4) any uncollateralized repayment of principal at maturity (these uncollateralized amounts 22 constitute the "residual risk"). In light of the residual risk of Brady Bonds and, among other factors, the history of defaults with respect to commercial bank loans by public and private entities of countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as speculative. A fund may purchase Brady Bonds with no or limited collateralization and will be relying for payment of interest and (except in the case of principal collateralized Brady Bonds) repayment of principal primarily on the willingness and ability of the foreign government to make payment in accordance with the terms of the Brady Bonds. STRUCTURED FOREIGN INVESTMENTS. This term generally refers to interests in U.S. and foreign entities organized and operated solely for the purpose of securitizing or restructuring the investment characteristics of foreign securities. This type of securitization or restructuring usually involves the deposit with or purchase by a U.S. or foreign entity, such as a corporation or trust, of specified instruments (such as commercial bank loans or Brady Bonds) and the issuance by that entity of one or more classes of securities backed by, or representing interests in, the underlying instruments. The cash flow on the underlying instruments may be apportioned among the newly issued structured foreign investments to create securities with different investment characteristics such as varying maturities, payment priorities and interest rate provisions, and the extent of the payments made with respect to structured foreign investments is often dependent on the extent of the cash flow on the underlying instruments. Structured foreign investments frequently involve no credit enhancement. Accordingly, their credit risk generally will be equivalent to that of the underlying instruments. In addition, classes of structured foreign investments may be subordinated to the right of payment of another class. Subordinated structured foreign investments typically have higher yields and present greater risks than unsubordinated structured foreign investments. Structured foreign investments are typically sold in private placement transactions, and there currently is no active trading market for structured foreign investments. CURRENCY-LINKED INVESTMENTS. The principal amount of securities that are indexed to specific foreign currency exchange rates may be adjusted up or down (but not below zero) at maturity to reflect changes in the exchange rate between two currencies. A fund may experience loss of principal due to these adjustments. ZERO COUPON AND OTHER OID SECURITIES; PIK SECURITIES. Zero coupon securities are securities on which no periodic interest payments are made but instead are sold at a deep discount from their face value. The buyer of these securities receives a rate of return by the gradual appreciation of the security, which results from the fact that it will be paid at face value on a specified maturity date. There are many types of zero coupon securities. Some are issued in zero coupon form, including Treasury bills, notes and bonds that have been stripped of (separated from) their unmatured interest coupons (unmatured interest payments) and receipts or certificates representing interests in such stripped debt obligations and coupons. Others are created by brokerage firms that strip the coupons from interest-paying bonds and sell the principal and the coupons separately. Other securities that are sold with original issue discount ("OID") (I.E., the difference between the issue price and the value at maturity) may provide for some interest to be paid prior to maturity. In addition, payment-in-kind ("PIK") securities pay interest in additional securities, not in cash. OID and PIK securities usually trade at a discount from their face value. Zero coupon securities are generally more sensitive to changes in interest rates than debt obligations of comparable maturities that make current interest payments. This means that when interest rates fall, the value of zero coupon securities rises more rapidly than securities paying interest on a current basis. However, when interest rates rise, their value falls more dramatically. Other OID securities and PIK securities also are subject to greater fluctuations in market value in response to changing interest rates than bonds of comparable maturities that make current distributions of interest in cash. Because federal tax law requires that accrued OID and "interest" on PIK securities be included currently in a fund's income (see "Taxes -- Other Information" below), a fund might be required to distribute as a dividend an amount that is greater than the total amount of cash it actually receives. These distributions would have to be made from the fund's cash assets or, if necessary, from the proceeds of sales of portfolio securities. A fund would not be able to purchase additional securities with cash used to make these distributions, and its current income and the value of its shares would ultimately be reduced as a result. Certain zero coupon securities are U.S. Treasury notes and bonds that have been stripped of their unmatured interest coupon receipts or interests in such U.S. Treasury securities or coupons. The staff of the SEC 23 currently takes the position that "stripped" U.S. government securities that are not issued through the U.S. Treasury are not U.S. government securities. This technique is frequently used with U.S. Treasury bonds to create CATS (Certificate of Accrual Treasury Securities), TIGRs (Treasury Income Growth Receipts) and similar securities. CONVERTIBLE SECURITIES. A convertible security is a bond, preferred stock or other security that may be converted into or exchanged for a prescribed amount of common stock of the same or a different issuer within a particular period of time at a specified price or formula. A convertible security entitles the holder to receive interest or dividends until the convertible security matures or is redeemed, converted or exchanged. Convertible securities have unique investment characteristics in that they generally (1) have higher yields than common stocks, but lower yields than comparable non-convertible securities, (2) are less subject to fluctuation in value than the underlying stock because they have fixed income characteristics and (3) provide the potential for capital appreciation if the market price of the underlying common stock increases. While no securities investment is without some risk, investments in convertible securities generally entail less risk than the issuer's common stock. However, the extent to which such risk is reduced depends in large measure upon the degree to which the convertible security sells above its value as a fixed income security. A convertible security may be subject to redemption at the option of the issuer at a price established in the convertible security's governing instrument. If a convertible security held by a fund is called for redemption, the fund will be required to permit the issuer to redeem the security, convert it into underlying common stock or sell it to a third party. WARRANTS. Warrants are securities permitting, but not obligating, holders to subscribe for other securities. Warrants do not carry with them the right to dividends or voting rights with respect to the securities that they entitle their holder to purchase, and they do not represent any rights in the assets of the issuer. As a result, warrants may be considered more speculative than certain other types of investments. In addition, the value of a warrant does not necessarily change with the value of the underlying securities, and a warrant ceases to have value if it is not exercised prior to its expiration date. LOAN PARTICIPATIONS AND ASSIGNMENTS. Investments in secured or unsecured fixed or floating rate loans ("Loans") arranged through private negotiations between a borrowing corporation, government or other entity and one or more financial institutions ("Lenders") may be in the form of participations ("Participations") in Loans or assignments ("Assignments") of all or a portion of Loans from third parties. Participations typically result in the fund's having a contractual relationship only with the Lender, not with the borrower. A fund has the right to receive payments of principal, interest and any fees to which it is entitled only from the Lender selling the Participation and only upon receipt by the Lender of the payments from the borrower. In connection with purchasing Participations, a fund generally has no direct right to enforce compliance by the borrower with the terms of the loan agreement relating to the Loan, nor any rights of set-off against the borrower, and a fund may not directly benefit from any collateral supporting the Loan in which it has purchased the Participation. As a result, a fund assumes the credit risk of both the borrower and the Lender that is selling the Participation. In the event of the insolvency of the selling Lender, the fund may be treated as a general creditor of that Lender and may not benefit from any set-off between the Lender and the borrower. A fund will acquire Participations only if its investment advisor determines that the selling Lender is creditworthy. When a fund purchases Assignments from Lenders, it acquires direct rights against the borrower on the Loan. In an Assignment, the fund is entitled to receive payments directly from the borrower and, therefore, does not depend on the selling bank to pass these payments onto the fund. However, because Assignments are arranged through private negotiations between potential assignees and assignors, the rights and obligations acquired by the fund as the purchaser of an Assignment may differ from, and be more limited than, those held by the assigning Lender. Assignments and Participations are generally not registered under the Securities Act of 1933, as amended ("Securities Act"), and thus may be subject to a fund's limitation on investment in illiquid securities. Because there may be no liquid market for such securities, such securities may be sold only to a limited number of institutional investors. The lack of a liquid secondary market could have an adverse impact on the value of such securities and on a fund's ability to dispose of particular Assignments or Participations when necessary to meet the fund's liquidity needs or in response to a specific economic event, such as a deterioration in the creditworthiness of the borrower. 24 TEMPORARY AND DEFENSIVE INVESTMENTS; MONEY MARKET INVESTMENTS. Each fund may invest in money market investments for temporary or defensive purposes, to reinvest cash collateral from its securities lending activities or as part of its normal investment program. In addition, if Brinson Advisors selects a new investment advisor to manage all or part of a fund's investments, the fund may increase its money market investments to facilitate the transition to the investment style and strategies of the new investment advisor. Money market investments include, among other things, (1) securities issued or guaranteed by the U.S. government or one of its agencies or instrumentalities, (2) debt obligations of banks, savings and loan institutions, insurance companies and mortgage bankers, (3) commercial paper and notes, including those with variable and floating rates of interest, (4) debt obligations of foreign branches of U.S. banks, U.S. branches of foreign banks, and foreign branches of foreign banks, (5) debt obligations issued or guaranteed by one or more foreign governments or any of their foreign political subdivisions, agencies or instrumentalities, including obligations of supranational entities, (6) bonds issued by foreign issuers, (7) repurchase agreements and (8) securities of other investment companies that invest exclusively in money market instruments and similar private investment vehicles. Only those funds that may trade outside the United States may invest in money market instruments that are denominated in foreign currencies. INVESTMENTS IN OTHER INVESTMENT COMPANIES. Each fund may invest in securities of other investment companies, subject to limitations imposed by the Investment Company Act. Among other things, these limitations currently restrict a fund's aggregate investments in other investment companies to no more than 10% of its total assets. A fund's investments in certain private investment vehicles are not subject to this restriction. The shares of other investment companies are subject to the management fees and other expenses of those companies, and the purchase of shares of some investment companies requires the payment of sales loads and (in the case of closed-end investment companies) sometimes substantial premiums above the value of such companies' portfolio securities. At the same time, a fund would continue to pay its own management fees and expenses with respect to all its investments, including shares of other investment companies. Each fund may invest in the shares of other investment companies when, in the judgment of its investment advisor, the potential benefits of the investment outweigh the payment of any management fees and expenses and, where applicable, premium or sales load. From time to time, investments in other investment companies may be the most effective available means for a fund to invest a portion of its assets. In some cases, investment in another investment company may be the most practical way for a fund to invest in securities of issuers in certain countries. PACE Money Market Investments may invest in the securities of other money market funds when Brinson Advisors believes that (1) the amounts to be invested are too small or are available too late in the day to be effectively invested in money market instruments, (2) shares of other money market funds otherwise would provide a better return than direct investment in money market instruments or (3) such investments would enhance the fund's liquidity. The other funds may invest in the securities of money market funds for similar reasons. 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 a fund has valued the securities and includes, among other things, purchased over-the-counter options, repurchase agreements maturing in more than seven days and restricted securities other than those its investment advisor has determined are liquid pursuant to guidelines established by the board. The assets used as cover for over-the-counter options written by a fund will be considered illiquid unless the over-the-counter options are sold to qualified dealers who agree that the fund may repurchase them 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. Under current SEC guidelines, interest-only and principal-only classes of mortgage-backed securities generally are considered illiquid. However, interest-only and principal-only classes of fixed-rate mortgage-backed securities issued by the U.S. government or one of its agencies or instrumentalities will not be considered illiquid if the fund's investment advisor has determined that they are liquid pursuant to guidelines established by the board. A fund may not be able to readily liquidate its investment 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 a fund to assign a value to those securities for purposes of valuing its portfolio and calculating its net asset value. 25 Restricted securities are not registered under the Securities Act and may be sold only in privately negotiated or other exempted transactions or after a Securities Act registration statement has become effective. Where registration is required, a fund may be obligated to pay all or part of the registration expenses and a considerable period may elapse between the time of the decision to sell and the time a fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, a fund might obtain a less favorable price than prevailed when it decided to sell. Not all restricted securities are illiquid. For funds that are authorized to trade outside the United States, foreign securities that are freely tradeable in the country in which they are principally traded generally are not considered illiquid, even if they are restricted in the United States. A large institutional market has developed for many U.S. and foreign securities that are not registered under the Securities Act. Institutional investors generally will not seek to sell these instruments to the general public but instead will often depend either on an efficient institutional market in which such unregistered securities can be readily resold or on an issuer's ability to honor a demand for repayment. Therefore, the fact that there are contractual or legal restrictions on resale to the general public or certain institutions is not dispositive of the liquidity of such investments. Institutional markets for restricted securities also have developed as a result of Rule 144A under the Securities Act, which establishes a "safe harbor" from the registration requirements of the Securities Act for resales of certain securities to qualified institutional buyers. Such markets include automated systems for the trading, clearance and settlement of unregistered securities of domestic and foreign issuers, such as the PORTAL System sponsored by the National Association of Securities Dealers, Inc. An insufficient number of qualified institutional buyers interested in purchasing Rule 144A-eligible restricted securities held by a fund, however, could affect adversely the marketability of such portfolio securities, and the fund might be unable to dispose of them promptly or at favorable prices. The board has delegated the function of making day-to-day determinations of liquidity to each fund's investment advisor pursuant to guidelines approved by the board. An investment advisor takes into account a number of factors in reaching liquidity decisions, including (1) the frequency of trades for the security, (2) the number of dealers that make quotes for the security, (3) the number of dealers that have undertaken to make a market in the security, (4) the number of other potential purchasers, (5) the nature of the security and how trading is effected (E.G., the time needed to sell the security, how bids are solicited and the mechanics of transfer) and (6) the existence of demand features or similar liquidity enhancements. A fund's investment advisor monitors the liquidity of restricted securities in its portfolio and reports periodically on such decisions to the board. In making determinations as to the liquidity of municipal lease obligations purchased by PACE Municipal Fixed Income Investments, the investment advisor distinguishes 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, the investment advisor does not believe that investing in such securities presents the same liquidity issues as direct investments in municipal lease obligations. Brinson Advisors and (where applicable) the fund's investment advisor monitor each fund's overall holdings of illiquid securities. If a 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 the relative market values of liquid and illiquid portfolio securities or shareholder redemptions), Brinson Advisors and the applicable investment advisor will consider what action would be in the best interests of a 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, a fund is not required to dispose of illiquid securities under these circumstances. REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which a fund purchases securities or other obligations from a bank or securities dealer (or its affiliate) and simultaneously commits to resell them to the counterparty at an agreed-upon date or upon demand and at a price reflecting a market rate of interest unrelated to the coupon rate or maturity of the purchased obligations. A fund maintains custody of the underlying obligations prior to their repurchase, either through its regular custodian or through a special "tri- party" custodian or sub-custodian that maintains separate accounts for both the fund and its counterparty. Thus, 26 the obligation of the counterparty to pay the repurchase price on the date agreed to or upon demand is, in effect, secured by such obligations. Repurchase agreements carry certain risks not associated with direct investments in securities, including a possible decline in the market value of the underlying obligations. If their value becomes less than the repurchase price, plus any agreed-upon additional amount, the counterparty must provide additional collateral so that at all times the collateral is at least equal to the repurchase price plus any agreed-upon additional amount. The difference between the total amount to be received upon repurchase of the obligations and the price that was paid by a fund upon acquisition is accrued as interest and included in its net investment income. Repurchase agreements involving obligations other than U.S. government securities (such as commercial paper and corporate bonds) may be subject to special risks and may not have the benefit of certain protections in the event of the counterparty's insolvency. If the seller or guarantor becomes insolvent, the fund may suffer delays, costs and possible losses in connection with the disposition of collateral. Each fund intends to enter into repurchase agreements only in transactions with counterparties believed by Brinson Advisors to present minimum credit risks. REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements involve the sale of securities held by a fund subject to its agreement to repurchase the securities at an agreed-upon date or upon demand and at a price reflecting a market rate of interest. Reverse repurchase agreements are subject to each fund's limitation on borrowings and may be entered into only with banks or securities dealers or their affiliates. While a reverse repurchase agreement is outstanding, a fund will designate cash or liquid securities on the books of its custodian, marked to market daily, in an amount at least equal to its obligations under the reverse repurchase agreement. Reverse repurchase agreements involve the risk that the buyer of the securities sold by a fund might be unable to deliver them when that fund seeks to repurchase. If the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, the buyer or trustee or receiver may receive an extension of time to determine whether to enforce a fund's obligation to repurchase the securities, and the fund's use of the proceeds of the reverse repurchase agreement may effectively be restricted pending such decision. COUNTERPARTY RISK. Each fund is subject to the risk that an entity which has entered into a transaction or agreement with the fund will default or become unable or unwilling to honor an obligation to a fund. This may result in a fund incurring a loss or missing an opportunity that would otherwise have been available to it. To help lessen this risk, an investment advisor monitors and evaluates the creditworthiness of the parties with which a fund does business. OPERATIONS RISK. Each fund is subject to the risk that a fund may not be able to complete a transaction in the manner or at the time desired because of difficulties with the settlement process or other functions related to the processing of securities transactions. DOLLAR ROLLS. In a dollar roll, a fund sells mortgage-backed or other securities for delivery on the next regular settlement date for those securities and, simultaneously, contracts to purchase substantially similar securities for delivery on a later settlement date. Dollar rolls also are subject to a fund's limitation on borrowings. WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each fund may purchase securities on a "when-issued" basis or may purchase or sell securities for delayed delivery, I.E., for issuance or delivery to the fund later than the normal settlement date for such securities at a stated price and yield. When-issued securities include TBA ("to be announced") securities. TBA securities, which are usually mortgage-backed securities, are purchased on a forward commitment basis with an approximate principal amount and no defined maturity date. The actual principal amount and maturity date are determined upon settlement when the specific mortgage pools are assigned. A fund generally would not pay for such securities or start earning interest on them until they are received. However, when a fund undertakes a when-issued or delayed delivery obligation, it immediately assumes the risks of ownership, including the risks of price fluctuation. Failure of the issuer to deliver a security purchased by a fund on a when-issued or delayed delivery basis may result in the fund's incurring a loss or missing an opportunity to make an alternative investment. 27 A security purchased on a when-issued or delayed delivery basis is recorded as an asset on the commitment date and is subject to changes in market value, generally based upon changes in the level of interest rates. Thus, fluctuation in the value of the security from the time of the commitment date will affect a fund's net asset value. When a fund commits to purchase securities on a when-issued or delayed-delivery basis, it will designate cash or liquid securities on the books of its custodian, marked to market daily, in an amount at least equal to its obligations under the commitment. A fund's when-issued and delayed delivery purchase commitments could cause its net asset value per share to be more volatile. A fund may sell the right to acquire the security prior to delivery if its investment advisor deems it advantageous to do so, which may result in a gain or loss to the fund. PACE MUNICIPAL FIXED INCOME INVESTMENTS -- TYPES OF MUNICIPAL BONDS. The fund may invest in a variety of municipal bonds, as described below: MUNICIPAL BONDS -- Municipal bonds are obligations that are issued by states, municipalities, public authorities or other issuers and that pay interest that is exempt from federal income tax in the opinion of issuer's counsel. 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 regular federal income taxes 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 -- Information About PACE Municipal Fixed Income Investments" below. The fund may invest more than 25% of its net assets in IDBs and PABs. 28 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 U.S. 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. 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," 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 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 credit standing of such bank affects the credit quality of the participation interests. A participation interest gives the fund an undivided interest in a municipal bond owned by a bank. The fund has the right to sell the instruments back to the bank. Such right generally is backed by the bank's irrevocable letter of credit or guarantee and 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 fund's investment advisor will 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 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 bi-weekly to semi-annually, 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 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. 29 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 its investment advisor, 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 a 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. 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 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. STANDBY COMMITMENTS -- The fund may acquire standby 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. Although the fund does not currently intend to acquire standby commitments with respect to municipal bonds held in its portfolio, the fund may acquire such commitments under unusual market conditions to facilitate portfolio liquidity. The fund would enter into standby commitments only with those banks or other dealers that, in the opinion of its investment advisor, present minimal credit risk. The fund's right to exercise standby commitments would be unconditional and unqualified. A standby commitment would not be transferable by the fund, although it could sell the underlying securities to a third party at any time. The fund may pay for standby 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 standby commitment would not ordinarily affect the valuation or maturity of the underlying municipal bonds. Standby 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. 30 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 the applicable investment advisor in portfolio selection and yield curve positioning of a fund's investments in bonds. Duration was developed as a more precise alternative to the concept "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 an investment advisor to make certain predictions as to the effect that changes in the level of interest rates will have on the value of a fund's portfolio of bonds. For example, when the level of interest rates increases by 1%, a debt security having a positive duration of three years generally will decrease by approximately 3%. Thus, if an investment advisor calculates the duration of a 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 a 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, an investment advisor 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. LENDING OF PORTFOLIO SECURITIES. Each fund is authorized to lend its portfolio securities to broker-dealers or institutional investors that Brinson Advisors deems qualified. Lending securities enables a fund to earn additional income but could result in a loss or delay in recovering these securities. The borrower of a fund's portfolio securities must maintain acceptable collateral with that fund's custodian in an amount, marked to market daily, at least equal to the market value of the securities loaned, plus accrued interest and dividends. Acceptable collateral is limited to cash, U.S. government securities and irrevocable letters of credit that meet certain guidelines established by Brinson Advisors. Each fund may reinvest any cash collateral in money market investments or other short-term liquid investments, including other investment companies. A fund also may reinvest cash collateral in private investment vehicles similar to money market funds, including one managed by Brinson Advisors. In determining whether to lend securities to a particular broker-dealer or institutional 31 investor, Brinson Advisor will consider, and during the period of the loan will monitor, all relevant facts and circumstances, including the creditworthiness of the borrower. Each fund will retain authority to terminate any of its loans at any time. Each fund may pay reasonable fees in connection with a loan and may pay the borrower or placing broker a negotiated portion of the interest earned on the reinvestment of cash held as collateral. A fund will receive amounts equivalent to any dividends, interest or other distributions on the securities loaned. Each fund will regain record ownership of loaned securities to exercise beneficial rights, such as voting and subscription rights, when regaining such rights is considered to be in the fund's interest. Pursuant to procedures adopted by the board governing each fund's securities lending program, UBS PaineWebber Inc. ("UBS PaineWebber-SM-*"), another wholly owned indirect subsidiary of UBS AG, has been retained to serve as lending agent for each fund. The board also has authorized the payment of fees (including fees calculated as a percentage of invested cash collateral) to UBS PaineWebber for these services. The board periodically reviews all portfolio securities loan transactions for which UBS PaineWebber acted as lending agent. UBS PaineWebber also has been approved as a borrower under each fund's securities lending program. SHORT SALES "AGAINST THE BOX." Each fund (other than PACE Money Market Investments and PACE Municipal Fixed Income Investments) may engage in short sales of securities it owns or has the right to acquire at no added cost through conversion or exchange of other securities it owns (short sales "against the box"). To make delivery to the purchaser in a short sale, the executing broker borrows the securities being sold short on behalf of a fund, and that fund is obligated to replace the securities borrowed at a date in the future. When a fund sells short, it establishes a margin account with the broker effecting the short sale and deposits collateral with the broker. In addition, the fund maintains, in a segregated account with its custodian, the securities that could be used to cover the short sale. Each fund incurs transaction costs, including interest expense, in connection with opening, maintaining and closing short sales "against the box." A fund might make a short sale "against the box" to hedge against market risks when its investment advisor believes that the price of a security may decline, thereby causing a decline in the value of a security owned by the fund or a security convertible into or exchangeable for a security owned by the fund. In such case, any loss in the fund's long position after the short sale should be reduced by a corresponding gain in the short position. Conversely, any gain in the long position after the short sale should be reduced by a corresponding loss in the short position. The extent to which gains or losses in the long position are reduced will depend upon the amount of the securities sold short relative to the amount of the securities a fund owns, either directly or indirectly, and in the case where the fund owns convertible securities, changes in the investment values or conversion premiums of such securities. COVERING OBLIGATIONS. When a fund enters into certain transactions that involve obligations to make future payments to third parties, including the purchase of securities on a when-issued or delayed delivery basis, or reverse repurchase agreements, it will designate cash or liquid securities, marked to market daily, in an amount at least equal to the fund's obligation or commitment under such transactions. As described below under "Strategies Using Derivative Instruments," such designation may also be required in connection with certain transactions involving options, futures or forward currency contracts and swaps. INVESTMENT LIMITATIONS OF THE FUNDS FUNDAMENTAL LIMITATIONS. The following investment limitations cannot be changed for a fund without the affirmative vote of the lesser of (a) more than 50% of its outstanding shares or (b) 67% or more of the shares present at a shareholders' meeting if more than 50% of its outstanding shares are represented at the meeting in person or by proxy. If a percentage restriction is adhered to at the time of an investment or transaction, a later increase or decrease in percentage resulting from changing values of portfolio securities or amount of total assets will not be considered a violation of any of the following limitations. With regard to the borrowings limitation in fundamental limitation number 4, the funds will comply with the applicable restrictions of Section 18 of the Investment Company Act. - -------------------------- *UBS PaineWebber is a service mark of UBS AG. 32 Under the investment restrictions adopted by the funds: (1) A fund, other than PACE Intermediate Fixed Income Investments and PACE Global Fixed Income Investments, may not purchase securities (other than U.S. government securities) of any issuer if, as a result of the purchase, more than 5% of the value of the fund's total assets would be invested in such issuer, except that up to 25% of the value of the fund's total assets may be invested without regard to this 5% limitation. The following interpretation applies to, but is not a part of, this fundamental restriction: mortgage- and asset-backed securities will not be considered to have been issued by the same issuer by reason of the securities having the same sponsor, and mortgage- and asset-backed securities issued by a finance or other special purpose subsidiary that are not guaranteed by the parent company will be considered to be issued by a separate issuer from the parent company. (2) A fund will not purchase more than 10% of the outstanding voting securities of any one issuer, except that this limitation is not applicable to the fund's investments in U.S. government securities and up to 25% of the fund's assets may be invested without regard to these limitations. (3) A fund, other than PACE Municipal Fixed Income Investments, will invest no more than 25% of the value of its total assets in securities of issuers in any one industry, the term industry being deemed to include the government of a particular country other than the United States. This limitation is not applicable to a fund's investments in U.S. government securities. The following interpretation applies to, but is not a part of, this fundamental restriction: A fund will not purchase any security if, as a result of that purchase, 25% or more of the fund's total assets would be invested in securities of issuers having their principal business activities in the same industry, except that this limitation does not apply to securities issued or guaranteed by the U.S. government, its agencies and instrumentalities or to municipal securities. In addition, (a) domestic and foreign banking will be considered to be different industries; and (b) asset-backed securities will be grouped in industries based upon their underlying assets and not treated as constituting a single, separate industry. This restriction is also interpreted with respect to PACE Money Market Investments so as not to apply to that fund's investments in certificates of deposit and bankers' acceptances of domestic branches of U.S. banks. (4) A fund will not issue senior securities (including borrowing money from banks and other entities and through reverse repurchase agreements and mortgage dollar rolls) in excess of 33 1/3% of its total assets (including the amount of senior securities issued, but reduced by any liabilities and indebtedness not constituting senior securities), except that a fund may borrow up to an additional 5% of its total assets (not including the amount borrowed) for extraordinary or emergency purposes. (5) A fund will not pledge, hypothecate, mortgage, or otherwise encumber its assets, except to secure permitted borrowings or in connection with its use of forward contracts, futures contracts, options, swaps, caps, collars and floors. (6) A fund will not lend any funds or other assets, except through purchasing debt obligations, lending portfolio securities and entering into repurchase agreements consistent with the fund's investment objective and policies. The following interpretation applies to, but is not part of, this fundamental restriction: The fund's investments in master notes and similar instruments will not be considered to be the making of a loan. (7) A fund will not purchase securities on margin, except that a fund may obtain any short-term credits necessary for the clearance of purchases and sales of securities. For purposes of this restriction, the deposit or payment of initial or variation margin in connection with futures contracts or options on futures contracts will not be deemed to be a purchase of securities on margin. (8) A fund will not make short sales of securities or maintain a short position, unless at all times when a short position is open it owns an equal amount of the securities or securities convertible into or exchangeable for, without payment of any further consideration, securities of the same issue as, and equal in amount to, the securities sold short ("short sales against the box"), and unless not more than 10% of the fund's net assets (taken at market value) is held as collateral for such sales at any one time. 33 (9) A fund will not purchase or sell real estate or real estate limited partnership interests, except that it may purchase and sell mortgage related securities and securities of companies that deal in real estate or interests therein. (10) A fund will not purchase or sell commodities or commodity contracts (except currencies, forward currency contracts, futures contracts and options and other similar contracts). (11) A fund will not act as an underwriter of securities, except that a fund may acquire restricted securities under circumstances in which, if the securities were sold, the fund might be deemed to be an underwriter for purposes of the Securities Act. NON-FUNDAMENTAL LIMITATIONS. The following investment restrictions are non-fundamental and may be changed by the vote of the board without shareholder approval. If a percentage restriction is adhered to at the time of an investment or transaction, a later increase or decrease in percentage resulting from a change in values of portfolio securities or amount of total assets will not be considered a violation of any of the following limitations. (1) A fund may not purchase securities of other investment companies, except to the extent permitted by the Investment Company Act in the open market at no more than customary brokerage commission rates. This limitation does not apply to securities received or acquired as dividends, through offers of exchange or as a result of reorganization, consolidation or merger. (2) A fund will not purchase portfolio securities while borrowings in excess of 5% of its total assets are outstanding. STRATEGIES USING DERIVATIVE INSTRUMENTS GENERAL DESCRIPTION OF DERIVATIVE INSTRUMENTS. Each fund other than PACE Money Market Investments is authorized to use a variety of financial instruments ("Derivative Instruments"), including certain options, futures contracts (sometimes referred to as "futures"), options on futures contracts and swap transactions. For funds that are permitted to trade outside the United States, the applicable investment advisor also may use forward currency contracts, foreign currency options and futures and options on foreign currency futures. A fund may enter into transactions involving one or more types of Derivative Instruments under which the full value of its portfolio is at risk. Under normal circumstances, however, each fund's use of these instruments will place at risk a much smaller portion of its assets. The particular Derivative Instruments used by the funds are described below. A fund might not use any derivative instruments or strategies, and there can be no assurance that using any strategy will succeed. If an investment advisor is incorrect in its judgment on market values, interest rates or other economic factors in using a derivative instrument or strategy, a fund may have lower net income and a net loss on the investment. OPTIONS ON SECURITIES AND FOREIGN CURRENCIES -- A call option is a short-term contract pursuant to which the purchaser of the option, in return for a premium, has the right to buy the security or currency underlying the option at a specified price at any time during the term of the option or at specified times or at the expiration of the option, depending on the type of option involved. The writer of the call option, who receives the premium, has the obligation, upon exercise of the option during the option term, to deliver the underlying security or currency against payment of the exercise price. A put option is a similar contract that gives its purchaser, in return for a premium, the right to sell the underlying security or currency at a specified price during the option term or at specified times or at the expiration of the option, depending on the type of option involved. The writer of the put option, who receives the premium, has the obligation, upon exercise of the option during the option term, to buy the underlying security or currency at the exercise price. OPTIONS ON SECURITIES INDICES -- A securities index assigns relative values to the securities included in the index and fluctuates with changes in the market values of those securities. A securities index option operates in the same way as a more traditional securities option, except that exercise of a securities index option is effected with cash payment and does not involve delivery of securities. Thus, upon exercise of a securities index option, 34 the purchaser will realize, and the writer will pay, an amount based on the difference between the exercise price and the closing price of the securities index. SECURITIES INDEX FUTURES CONTRACTS -- A securities 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. INTEREST RATE AND FOREIGN CURRENCY FUTURES CONTRACTS -- Interest rate and foreign currency 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 or currency at a specified future time and at a specified price. Although such futures contracts by their terms call for actual delivery or acceptance of bonds or currency, in most cases the contracts are closed out before the settlement date without the making or taking of delivery. OPTIONS ON FUTURES CONTRACTS -- Options on futures contracts are similar to options on securities or currency, 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 or currency, at a specified price at any time during the option term. 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. FORWARD CURRENCY CONTRACTS -- A forward currency contract involves an obligation to purchase or sell a specific currency at a specified future date, which may be any fixed number of days from the contract date agreed upon by the parties, at a price set at the time the contract is entered into. GENERAL DESCRIPTION OF STRATEGIES USING DERIVATIVE INSTRUMENTS. A fund may use Derivative Instruments to attempt to hedge its portfolio and also to attempt to enhance income or return or realize gains and to manage the duration of its bond portfolio. In addition, a fund may use Derivative Instruments to adjust its exposure to different asset classes or to maintain exposure to stocks or bonds while maintaining a cash balance for fund management purposes (such as to provide liquidity to meet anticipated shareholder sales of fund shares and for fund operating expenses). Hedging strategies can be broadly categorized as "short hedges" and "long hedges." A short hedge is a purchase or sale of a Derivative Instrument intended partially or fully to offset potential declines in the value of one or more investments held in a fund's portfolio. Thus, in a short hedge a fund takes a position in a Derivative Instrument whose price is expected to move in the opposite direction of the price of the investment being hedged. For example, a fund might purchase a put option on a security to hedge against a potential decline in the value of that security. If the price of the security declined below the exercise price of the put, a fund could exercise the put and thus limit its loss below the exercise price to the premium paid plus transaction costs. In the alternative, because the value of the put option can be expected to increase as the value of the underlying security declines, a fund might be able to close out the put option and realize a gain to offset the decline in the value of the security. Conversely, a long hedge is a purchase or sale of a Derivative Instrument intended partially or fully to offset potential increases in the acquisition cost of one or more investments that a fund intends to acquire. Thus, in a long hedge, a fund takes a position in a Derivative Instrument whose price is expected to move in the same direction as the price of the prospective investment being hedged. For example, a fund might purchase a call option on a security it intends to purchase in order to hedge against an increase in the cost of the security. If the price of the security increased above the exercise price of the call, a fund could exercise the call and thus limit its acquisition cost to the exercise price plus the premium paid and transactions costs. Alternatively, a fund might be able to offset the price increase by closing out an appreciated call option and realizing a gain. A fund may purchase and write (sell) straddles on securities or indices of securities. A long straddle is a combination of a call and a put option purchased on the same security or on the same futures contract, where 35 the exercise price of the put is equal to the exercise price of the call. A fund might enter into a long straddle when its investment advisor believes it likely that the prices of the securities will be more volatile during the term of the option than the option pricing implies. A short straddle is a combination of a call and a put written on the same security where the exercise price of the put is equal to the exercise price of the call. A fund might enter into a short straddle when its investment advisor believes it unlikely that the prices of the securities will be as volatile during the term of the option as the option pricing implies. Derivative Instruments on securities generally are used to hedge against price movements in one or more particular securities positions that a fund owns or intends to acquire. Derivative Instruments on stock indices, in contrast, generally are used to hedge against price movements in broad equity market sectors in which a fund has invested or expects to invest. Derivative Instruments on bonds may be used to hedge either individual securities or broad fixed income market sectors. Income strategies using Derivative Instruments may include the writing of covered options to obtain the related option premiums. Income strategies using Derivative Instruments may include the writing of covered options to obtain the related option premiums. Return or gain strategies may include using Derivative Instruments to increase or decrease a fund's exposure to different asset classes without buying or selling the underlying instruments. A fund also may use derivatives to simulate full investment by the fund while maintaining a cash balance for fund management purposes (such as to provide liquidity to meet anticipated shareholder sales of fund shares and for fund operating expenses). The use of Derivative Instruments is subject to applicable regulations of the SEC, the several options and futures exchanges upon which they are traded and the Commodity Futures Trading Commission ("CFTC"). In addition, a fund's ability to use Derivative Instruments may be limited by tax considerations. See "Taxes -- Other Information." In addition to the products, strategies and risks described below and in the Prospectus, a fund's investment advisor may discover additional opportunities in connection with Derivative Instruments and with hedging, income, return and gain strategies. These new opportunities may become available as regulatory authorities broaden the range of permitted transactions and as new Derivative Instruments and techniques are developed. The applicable investment advisor may use these opportunities for a fund to the extent that they are consistent with the fund's investment objective and permitted by its investment limitations and applicable regulatory authorities. The funds' Prospectus or SAI will be supplemented to the extent that new products or techniques involve materially different risks than those described below or in the Prospectus. SPECIAL RISKS OF STRATEGIES USING DERIVATIVE INSTRUMENTS. The use of Derivative Instruments involves special considerations and risks, as described below. Risks pertaining to particular Derivative Instruments are described in the sections that follow. (1) Successful use of most Derivative Instruments depends upon the ability of a fund's investment advisor to predict movements of the overall securities, interest rate or currency exchange markets, which requires different skills than predicting changes in the prices of individual securities. While the applicable investment advisors are experienced in the use of Derivative Instruments, there can be no assurance that any particular strategy adopted will succeed. (2) There might be imperfect correlation, or even no correlation, between price movements of a Derivative Instrument and price movements of the investments that are being hedged. For example, if the value of a Derivative Instrument used in a short hedge increased by less than the decline in value of the hedged investment, the hedge would not be fully successful. Such a lack of correlation might occur due to factors affecting the markets in which Derivative Instruments are traded, rather than the value of the investments being hedged. The effectiveness of hedges using Derivative Instruments on indices will depend on the degree of correlation between price movements in the index and price movements in the securities being hedged. (3) Hedging strategies, if successful, can reduce risk of loss by wholly or partially offsetting the negative effect of unfavorable price movements in the investments being hedged. However, hedging strategies can also reduce opportunity for gain by offsetting the positive effect of favorable price movements in the hedged investments. For example, if a fund entered into a short hedge because the applicable investment advisor projected a decline in the price of a security in that fund's portfolio, and the price of that security increased 36 instead, the gain from that increase might be wholly or partially offset by a decline in the price of the Derivative Instrument. Moreover, if the price of the Derivative Instrument declined by more than the increase in the price of the security, the fund could suffer a loss. In either such case, the fund would have been in a better position had it not hedged at all. (4) As described below, a fund might be required to maintain assets as "cover," maintain segregated accounts or make margin payments when it takes positions in Derivative Instruments involving obligations to third parties (I.E., Derivative Instruments other than purchased options). If the fund was unable to close out its positions in such Derivative Instruments, it might be required to continue to maintain such assets or accounts or make such payments until the positions expired or matured. These requirements might impair a fund's ability to sell a portfolio security or make an investment at a time when it would otherwise be favorable to do so, or require that the fund sell a portfolio security at a disadvantageous time. A fund's ability to close out a position in a Derivative Instrument prior to expiration or maturity depends on the existence of a liquid secondary market or, in the absence of such a market, the ability and willingness of a counterparty to enter into a transaction closing out the position. Therefore, there is no assurance that any hedging position can be closed out at a time and price that is favorable to a fund. COVER FOR STRATEGIES USING DERIVATIVE INSTRUMENTS. Transactions using Derivative Instruments, other than purchased options, expose the funds to an obligation to another party. A fund will not enter into any such transactions unless it owns either (1) an offsetting ("covered") position in securities, currencies or other options or futures contracts or (2) cash or liquid securities, with a value sufficient at all times to cover its potential obligations to the extent not covered as provided in (1) above. Each fund will comply with SEC guidelines regarding cover for such transactions and will, if the guidelines so require, set aside cash or liquid securities in a segregated account with its custodian in the prescribed amount. Assets used as cover or held in a segregated account cannot be sold while the position in the corresponding Derivative Instrument is open, unless they are replaced with similar assets. As a result, committing a large portion of a fund's assets to cover positions or to segregated accounts could impede portfolio management or the fund's ability to meet redemption requests or other current obligations. OPTIONS. The funds may purchase put and call options, and write (sell) covered put or call options on securities in which they invest and related indices. Funds that may invest outside the United States also may purchase put and call options and write covered options on foreign currencies. The purchase of call options may serve as a long hedge, and the purchase of put options may serve as a short hedge. In addition, a fund may also use options to attempt to enhance return or realize gains by increasing or reducing its exposure to an asset class without purchasing or selling the underlying securities. Writing covered put or call options can enable a fund to enhance income by reason of the premiums paid by the purchasers of such options. Writing covered call options serves as a limited short hedge, because declines in the value of the hedged investment would be offset to the extent of the premium received for writing the option. However, if the security appreciates to a price higher than the exercise price of the call option, it can be expected that the option will be exercised and the affected fund will be obligated to sell the security at less than its market value. Writing covered put options serves as a limited long hedge because increases in the value of the hedged investment would be offset to the extent of the premium received for writing the option. However, if the security depreciates to a price lower than the exercise price of the put option, it can be expected that the put option will be exercised and the fund will be obligated to purchase the security at more than its market value. The securities or other assets used as cover for over-the-counter options written by a fund would be considered illiquid to the extent described under "The Funds' Investment Policies, Related Risks and Restrictions -- Illiquid Securities." The value of an option position will reflect, among other things, the current market value of the underlying investment, the time remaining until expiration, the relationship of the exercise price to the market price of the underlying investment, the historical price volatility of the underlying investment and general market conditions. Options normally have expiration dates of up to nine months. Generally, over-the-counter options on bonds are European-style options. This means that the option can only be exercised immediately prior to its expiration. This is in contrast to American-style options that may be exercised at any time. There are also other types of options that may be exercised on certain specified dates before expiration. Options that expire unexercised have no value. 37 A fund may effectively terminate its right or obligation under an option by entering into a closing transaction. For example, a fund may terminate its obligation under a call or put option that it had written by purchasing an identical call or put option; this is known as a closing purchase transaction. Conversely, a fund may terminate a position in a put or call option it had purchased by writing an identical put or call option; this is known as a closing sale transaction. Closing transactions permit a fund to realize profits or limit losses on an option position prior to its exercise or expiration. The funds may purchase and write both exchange-traded and over-the-counter options. Currently, many options on equity securities are exchange-traded. Exchange markets for options on bonds and foreign currencies exist but are relatively new, and these instruments are primarily traded on the over-the-counter market. Exchange-traded options in the United States are issued by a clearing organization affiliated with the exchange on which the option is listed that, in effect, guarantees completion of every exchange-traded option transaction. In contrast, over-the-counter options are contracts between a fund and its counterparty (usually a securities dealer or a bank) with no clearing organization guarantee. Thus, when a fund purchases or writes an over-the- counter option, it relies on the counterparty to make or take delivery of the underlying investment upon exercise of the option. Failure by the counterparty to do so would result in the loss of any premium paid by the fund as well as the loss of any expected benefit of the transaction. The funds' ability to establish and close out positions in exchange-listed options depends on the existence of a liquid market. The funds intend to purchase or write only those exchange-traded options for which there appears to be a liquid secondary market. However, there can be no assurance that such a market will exist at any particular time. Closing transactions can be made for over-the-counter options only by negotiating directly with the counterparty, or by a transaction in the secondary market if any such market exists. Although the funds will enter into over-the-counter options only with counterparties that are expected to be capable of entering into closing transactions with the funds, there is no assurance that a fund will in fact be able to close out an over-the- counter option position at a favorable price prior to expiration. In the event of insolvency of the counterparty, a fund might be unable to close out an over-the-counter option position at any time prior to its expiration. If a fund were unable to effect a closing transaction for an option it had purchased, it would have to exercise the option to realize any profit. The inability to enter into a closing purchase transaction for a covered put or call option written by the fund could cause material losses because the fund would be unable to sell the investment used as cover for the written option until the option expires or is exercised. A fund may purchase and write put and call options on indices in much the same manner as the more traditional options discussed above, except the index options may serve as a hedge against overall fluctuations in a securities market (or market sector) rather than anticipated increases or decreases in the value of a particular security. LIMITATIONS ON THE USE OF OPTIONS. The funds' use of options is governed by the following guidelines, which can be changed by the board without shareholder vote: (1) A fund may purchase a put or call option, including any straddle or spread, only if the value of its premium, when aggregated with the premiums on all other options held by the fund, does not exceed 5% of its total assets. (2) The aggregate value of securities underlying put options written by a fund, determined as of the date the put options are written, will not exceed 50% of its net assets. (3) The aggregate premiums paid on all options (including options on securities, foreign currencies and stock or bond indices and options on futures contracts) purchased by a fund that are held at any time will not exceed 20% of the fund's net assets. FUTURES. The funds may purchase and sell securities index futures contracts, interest rate futures contracts, debt security index futures contracts and (for those funds that invest outside the United States) foreign currency futures contracts. A fund may also purchase put and call options, and write covered put and call options, on futures in which it is allowed to invest. The purchase of futures or call options thereon can serve as a long hedge, and the sale of futures or the purchase of put options thereon can serve as a short hedge. Writing covered call options on futures contracts can serve as a limited short hedge, and writing covered put options on 38 futures contracts can serve as a limited long hedge, using a strategy similar to that used for writing covered options on securities or indices. In addition, a fund may purchase or sell futures contracts or purchase options thereon to increase or reduce its exposure to an asset class without purchasing or selling the underlying securities, either as a hedge or to enhance return or realize gains. Futures strategies also can be used to manage the average duration of a fund's bond portfolio. If a fund's investment advisor wishes to shorten the average duration of its portfolio, the fund may sell a futures contract or a call option thereon, or purchase a put option on that futures contract. If a fund's investment advisor wishes to lengthen the average duration of its bond portfolio, the fund may buy a futures contract or a call option thereon, or sell a put option thereon. A fund may also write put options on futures contracts while at the same time purchasing call options on the same futures contracts in order synthetically to create a long futures contract position. Such options would have the same strike prices and expiration dates. A fund will engage in this strategy only when it is more advantageous to a fund than is purchasing the futures contract. No price is paid upon entering into a futures contract. Instead, at the inception of a futures contract a fund is required to deposit in a segregated account with its custodian, in the name of the futures broker through whom the transaction was effected, "initial margin" consisting of cash, obligations of the United States or obligations fully guaranteed as to principal and interest by the United States, in an amount generally equal to 10% or less of the contract value. Margin must also be deposited when writing a call option on a futures contract, in accordance with applicable exchange rules. Unlike margin in securities transactions, initial margin on futures contracts does not represent a borrowing, but rather is in the nature of a performance bond or good-faith deposit that is returned to a fund at the termination of the transaction if all contractual obligations have been satisfied. Under certain circumstances, such as periods of high volatility, a fund may be required by an exchange to increase the level of its initial margin payment, and initial margin requirements might be increased generally in the future by regulatory action. Subsequent "variation margin" payments are made to and from the futures broker daily as the value of the futures position varies, a process known as "marking to market." Variation margin does not involve borrowing, but rather represents a daily settlement of each fund's obligations to or from a futures broker. When a fund purchases an option on a futures contract, the premium paid plus transaction costs is all that is at risk. In contrast, when a fund purchases or sells a futures contract or writes a call option thereon, it is subject to daily variation margin calls that could be substantial in the event of adverse price movements. If a fund has insufficient cash to meet daily variation margin requirements, it might need to sell securities at a time when such sales are disadvantageous. Holders and writers of futures contracts and options on futures can enter into offsetting closing transactions, similar to closing transactions on options, by selling or purchasing, respectively, an instrument identical to the instrument held or written. Positions in futures and options on futures may be closed only on an exchange or board of trade that provides a secondary market. The funds intend to enter into futures transactions only on exchanges or boards of trade where there appears to be a liquid secondary market. However, there can be no assurance that such a market will exist for a particular contract at a particular time. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a future or related option can vary from the previous day's settlement price; once that limit is reached, no trades may be made that day at a price beyond the limit. Daily price limits do not limit potential losses because prices could move to the daily limit for several consecutive days with little or no trading, thereby preventing liquidation of unfavorable positions. If a fund were unable to liquidate a futures or related options position due to the absence of a liquid secondary market or the imposition of price limits, it could incur substantial losses. A fund would continue to be subject to market risk with respect to the position. In addition, except in the case of purchased options, a fund would continue to be required to make daily variation margin payments and might be required to maintain the position being hedged by the future or option or to maintain cash or securities in a segregated account. Certain characteristics of the futures market might increase the risk that movements in the prices of futures contracts or related options might not correlate perfectly with movements in the prices of the investments being 39 hedged. For example, all participants in the futures and related options markets are subject to daily variation margin calls and might be compelled to liquidate futures or related options positions whose prices are moving unfavorably to avoid being subject to further calls. These liquidations could increase price volatility of the instruments and distort the normal price relationship between the futures or options and the investments being hedged. Also, because initial margin deposit requirements in the futures market are less onerous than margin requirements in the securities markets, there might be increased participation by speculators in the futures markets. This participation also might cause temporary price distortions. In addition, activities of large traders in both the futures and securities markets involving arbitrage, "program trading" and other investment strategies might result in temporary price distortions. LIMITATIONS ON THE USE OF FUTURES AND RELATED OPTIONS. The funds' use of futures and related options is governed by the following guidelines, which can be changed by the board without shareholder vote: (1) The aggregate initial margin and premiums on futures contracts, options on futures contracts and options on foreign currencies traded on a CFTC-regulated exchange that are not for bona fide hedging purposes (as defined by the CFTC), excluding the amount by which options are 'in-the-money,' may not exceed 5% of a fund's net assets. (2) The aggregate premiums paid on all options (including options on securities, foreign currencies and stock or bond indices and options on futures contracts) purchased by a fund that are held at any time will not exceed 20% of the fund's net assets. (3) The aggregate margin deposits on all futures contracts and options thereon held at any time by a fund will not exceed 5% of the fund's total assets. FOREIGN CURRENCY HEDGING STRATEGIES -- SPECIAL CONSIDERATIONS. Each fund that may invest outside the United States may use options and futures on foreign currencies, as described above, and forward currency contracts, as described below, to hedge against movements in the values of the foreign currencies in which the fund's securities are denominated. In addition, these funds may use these strategies to adjust exposure to different currencies or to maintain an exposure to foreign currencies while maintaining a cash balance for fund management purposes (or in anticipation of future investments). Such currency hedges can protect against price movements in a security a fund owns or intends to acquire that are attributable to changes in the value of the currency in which it is denominated. Such hedges do not, however, protect against price movements in the securities that are attributable to other causes. A fund might seek to hedge against changes in the value of a particular currency when no Derivative Instruments on that currency are available or such Derivative Instruments are considered expensive. In such cases, the fund may hedge against price movements in that currency by entering into transactions using Derivative Instruments on another currency or a basket of currencies, the value of which its investment advisor believes will have a positive correlation to the value of the currency being hedged. In addition, a fund may use forward currency contracts to shift exposure to foreign currency fluctuations from one country to another. For example, if a fund owned securities denominated in a foreign currency and its investment advisor believed that currency would decline relative to another currency, it might enter into a forward contract to sell an appropriate amount of the first foreign currency, with payment to be made in the second foreign currency. Transactions that use two foreign currencies are sometimes referred to as "cross hedging." Use of a different foreign currency magnifies the risk that movements in the price of the Derivative Instrument will not correlate or will correlate unfavorably with the foreign currency being hedged. The value of Derivative Instruments on foreign currencies depends on the value of the underlying currency relative to the U.S. dollar. Because foreign currency transactions occurring in the interbank market might involve substantially larger amounts than those involved in the use of such Derivative Instruments, a fund could be disadvantaged by having to deal in the odd-lot market (generally consisting of transactions of less than $1 million) for the underlying foreign currencies at prices that are less favorable than for round lots. There is no systematic reporting of last sale information for foreign currencies or any regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Quotation information generally is representative of very large transactions in the interbank market and thus might not reflect odd-lot transactions where rates might be less favorable. The interbank market in foreign 40 currencies is a global, round-the-clock market. To the extent the U.S. options or futures markets are closed while the markets for the underlying currencies remain open, significant price and rate movements might take place in the underlying markets that cannot be reflected in the markets for the Derivative Instruments until they reopen. Settlement of Derivative Instruments involving foreign currencies might be required to take place within the country issuing the underlying currency. Thus, a fund might be required to accept or make delivery of the underlying foreign currency in accordance with any U.S. or foreign regulations regarding the maintenance of foreign banking arrangements by U.S. residents and might be required to pay any fees, taxes and charges associated with such delivery assessed in the issuing country. FORWARD CURRENCY CONTRACTS. Each fund that invests outside the United States may enter into forward currency contracts to purchase or sell foreign currencies for a fixed amount of U.S. dollars or another foreign currency. Such transactions may serve as long hedges -- for example, a fund may purchase a forward currency contract to lock in the U.S. dollar price of a security denominated in a foreign currency that the fund intends to acquire. Forward currency contract transactions may also serve as short hedges -- for example, a fund may sell a forward currency contract to lock in the U.S. dollar equivalent of the proceeds from the anticipated sale of a security denominated in a foreign currency. The cost to a fund of engaging in forward currency contracts varies with factors such as the currency involved, the length of the contract period and the market conditions then prevailing. Because forward currency contracts are usually entered into on a principal basis, no fees or commissions are involved. When a fund enters into a forward currency contract, it relies on the counterparty to make or take delivery of the underlying currency at the maturity of the contract. Failure by the counterparty to do so would result in the loss of any expected benefit of the transaction. As is the case with futures contracts, parties to forward currency contracts can enter into offsetting closing transactions, similar to closing transactions on futures, by entering into an instrument identical to the instrument purchased or sold, but in the opposite direction. Secondary markets generally do not exist for forward currency contracts, with the result that closing transactions generally can be made for forward currency contracts only by negotiating directly with the counterparty. Thus, there can be no assurance that a fund will in fact be able to close out a forward currency contract at a favorable price prior to maturity. In addition, in the event of insolvency of the counterparty, a fund might be unable to close out a forward currency contract at any time prior to maturity. In either event, the fund would continue to be subject to market risk with respect to the position and would continue to be required to maintain a position in the securities or currencies that are the subject of the hedge or to maintain cash or securities in a segregated account. The precise matching of forward currency contract amounts and the value of the securities involved generally will not be possible because the value of such securities, measured in the foreign currency, will change after the foreign currency contract has been established. Thus, a fund might need to purchase or sell foreign currencies in the spot (cash) market to the extent such foreign currencies are not covered by forward contracts. The projection of short-term currency market movements is extremely difficult, and the successful execution of a short-term hedging strategy is highly uncertain. LIMITATIONS ON THE USE OF FORWARD CURRENCY CONTRACTS. A fund that may invest outside the United States may enter into forward currency contracts or maintain a net exposure to such contracts only if (1) the consummation of the contracts would not obligate the fund to deliver an amount of foreign currency in excess of the value of the position being hedged by such contracts or (2) the fund segregates with its custodian cash or liquid securities in an amount not less than the value of its total assets committed to the consummation of the contract covered as provided in (1) above, as marked to market daily. SWAP TRANSACTIONS. A fund may enter into swap transactions, which include swaps, caps, floors and collars relating to interest rates, currencies, securities or other instruments. Interest rate swaps involve an agreement between two parties to exchange payments that are based, for example, on variable and fixed rates of interest and that are calculated on the basis of a specified amount of principal (the "notional principal amount") for a specified period of time. Interest rate cap and floor transactions involve an agreement between two parties in which the first party agrees to make payments to the counterparty when a designated market interest rate goes above (in the case of a cap) or below (in the case of a floor) a designated level on predetermined dates or during 41 a specified time period. Interest rate collar transactions involve an agreement between two parties in which payments are made when a designated market interest rate either goes above a designated ceiling level or goes below a designated floor level on predetermined dates or during a specified time period. Currency swaps, caps, floors and collars are similar to interest rate swaps, caps, floors and collars, but they are based on currency exchange rates rather than interest rates. Equity swaps or other swaps relating to securities or other instruments are also similar, but they are based on changes in the value of the underlying securities or instruments. For example, an equity swap might involve an exchange of the value of a particular security or securities index in a certain notional amount for the value of another security or index or for the value of interest on that notional amount at a specified fixed or variable rate. A fund may enter into interest rate swap transactions to preserve a return or spread on a particular investment or portion of its portfolio or to protect against any increase in the price of securities it anticipates purchasing at a later date. A fund may use interest rate swaps, caps, floors and collars as a hedge on either an asset-based or liability-based basis, depending on whether it is hedging its assets or its liabilities. Interest rate swap transactions are subject to risks comparable to those described above with respect to other hedging strategies. A fund will usually enter into swaps on a net basis, I.E., the two payment streams are netted out, with the fund receiving or paying, as the case may be, only the net amount of the two payments. Because segregated accounts will be established with respect to these transactions, Brinson Advisors and the investment advisors believe these obligations do not constitute senior securities and, accordingly, will not treat them as being subject to a fund's borrowing restrictions. The net amount of the excess, if any, of a fund's obligations over its entitlements with respect to each rate swap will be accrued on a daily basis, and appropriate fund assets having an aggregate net asset value at least equal to the accrued excess will be maintained in a segregated account as described above in "Investment Policies and Restrictions -- Segregated Accounts." A fund also will establish and maintain such segregated accounts with respect to its total obligations under any swaps that are not entered into on a net basis. A fund will enter into swap transactions only with banks and recognized securities dealers believed by its investment advisor to present minimal credit risk in accordance with guidelines established by the board. If there is a default by the other party to such a transaction, a fund will have to rely on its contractual remedies (which may be limited by bankruptcy, insolvency or similar laws) pursuant to the agreements related to the transaction. ORGANIZATION OF THE TRUST; TRUSTEES AND OFFICERS; PRINCIPAL HOLDERS AND MANAGEMENT OWNERSHIP OF SECURITIES The Trust was organized on September 9, 1994 as a business trust under the laws of the State of Delaware and currently has twelve operating series. The Trust has authority to establish additional series and to issue an unlimited number of shares of beneficial interest of each existing or future series, par value $0.001 per share. The Trust is governed by a board of trustees, which oversees each fund's operations. The trustees (sometimes referred to as "board members") and executive officers of the Trust, their ages, business addresses and principal occupations during the past five years are:
NAME AND ADDRESS; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS --------------------- ------------------- ---------------------------------------- Margo N. Alexander*+; 54 Trustee Mrs. Alexander is an executive vice president and director of UBS PaineWebber (since March 1984). She was the chief executive officer of Brinson Advisors from January 1995 to October 2000, a director (from January 1995 to September 2001) and chairman (from March 1999 to September 2001) of Brinson Advisors. Mrs. Alexander is a director or trustee of 22 investment companies for which Brinson Advisors, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager.
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NAME AND ADDRESS; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS --------------------- ------------------- ---------------------------------------- Richard Q. Armstrong; 66 Trustee Mr. Armstrong is chairman and principal R.Q.A. Enterprises of R.Q.A. Enterprises (management One Old Church Road consulting firm) (since April 1991 and Unit # 6 principal occupation since March 1995). Greenwich, CT 06830 He is also a director of AlFresh Beverages Canada, Inc. (a Canadian Beverage subsidiary of AlFresh Foods Inc.) (since October 2000). Mr. Armstrong was chairman of the board, chief executive officer and co-owner of Adirondack Beverages (producer and distributor of soft drinks and sparkling/still waters) (October 1993-March 1995). He was a partner of The New England Consulting Group (management consulting firm) (December 1992-September 1993). He was managing director of LVMH U.S. Corporation (U.S. subsidiary of the French luxury goods conglomerate, Louis Vuitton Moet Hennessey Corporation) (1987-1991) and chairman of its wine and spirits subsidiary, Schieffelin & Somerset Company (1987-1991). Mr. Armstrong is a director or trustee of 22 investment companies for which Brinson Advisors, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager. David J. Beaubien; 67 Trustee Mr. Beaubien is chairman of Yankee 84 Doane Road Environmental Systems, Inc., a Ware, MA 01082 manufacturer of meteorological measuring systems. Prior to January 1991, he was senior vice president of EG&G, Inc., a company which makes and provides a variety of scientific and technically oriented products and services. He is also a director of IEC Electronics, Inc., a manufacturer of electronic assemblies. From 1985 to January 1995, Mr. Beaubien served as a director or trustee on the boards of the Kidder, Peabody & Co. Incorporated mutual funds. Mr. Beaubien is a director or trustee of 22 investment companies for which Brinson Advisors, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager. E. Garrett Bewkes, Jr.* +; 75 Trustee and Chairman of the Mr. Bewkes serves as a consultant to Board of Trustees UBS PaineWebber (since May 1999). Prior to November 2000, he was a director of Paine Webber Group, Inc. ("PW Group," formerly the holding company of UBS PaineWebber and Brinson Advisors) and prior to 1996, he was a consultant to PW Group. Prior to 1988, he was chairman of the board, president and chief executive officer of American Bakeries Company. Mr. Bewkes is a director of Interstate Bakeries Corporation. Mr. Bewkes is a director or trustee of 32 investment companies for which Brinson Advisors, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager.
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NAME AND ADDRESS; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS --------------------- ------------------- ---------------------------------------- Richard R. Burt; 54 Trustee Mr. Burt is chairman of IEP Advisors, 1275 Pennsylvania Ave., N.W. LLP (international investments and Washington, D.C. 20004 consulting firm) (since March 1994) and a partner of McKinsey & Company (management consulting firm) (since 1991). He is also a director of Archer-Daniels-Midland Company (agricultural commodities), Hollinger International Company (publishing), six investment companies in the Deutsche Bank family of funds, nine investment companies in the Flag Investors family of funds, The Central European Fund, Inc. and The Germany Fund, Inc., vice chairman of Anchor Gaming (provides technology to gaming and wagering industry) (since July 1999) and chairman of Weirton Steel Corp. (makes and finishes steel products) (since April 1996). He was the chief negotiator in the Strategic Arms Reduction Talks with the former Soviet Union (1989-1991) and the U.S. Ambassador to the Federal Republic of Germany (1985-1989). Mr. Burt is a director or trustee of 22 investment companies for which Brinson Advisors, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager. Meyer Feldberg; 59 Trustee Mr. Feldberg is Dean and Professor of Columbia University Management of the Graduate School of 101 Uris Hall Business, Columbia University. Prior to New York, New York 10027 1989, he was president of the Illinois Institute of Technology. Dean Feldberg is also a director of Primedia Inc. (publishing), Federated Department Stores, Inc. (operator of department stores), Revlon, Inc. (cosmetics) and Select Medical Inc. (healthcare services). Dean Feldberg is a director or trustee of 30 investment companies for which Brinson Advisors, UBS PaineWebber or one of their affiliates serves as investment advisor, sub- advisor or manager. George W. Gowen; 72 Trustee Mr. Gowen is a partner in the law firm 666 Third Avenue of Dunnington, Bartholow & Miller. Prior New York, New York 10017 to May 1994, he was a partner in the law firm of Fryer, Ross & Gowen. Mr. Gowen is a director or trustee of 30 investment companies for which Brinson Advisors, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager.
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NAME AND ADDRESS; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS --------------------- ------------------- ---------------------------------------- William W. Hewitt, Jr.***; 73 Trustee Mr. Hewitt is retired. Since 1988, he c/o Brinson Advisors, Inc. has served as a director or trustee on 51 West 52nd Street the boards of the Guardian Life New York, NY 10019-6114 Insurance Company mutual funds. From 1990 to January 1995, Mr. Hewitt served as a director or trustee on the boards of the Kidder, Peabody & Co. Incorporated mutual funds. From 1986-1988, he was an executive vice president and director of mutual funds, insurance and trust services of Shearson Lehman Brothers Inc. From 1976-1986, he was president of Merrill Lynch Funds Distributor, Inc. Mr. Hewitt is a director or trustee of 22 investment companies for which Brinson Advisors, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager. Morton L. Janklow; 71 Trustee Mr. Janklow is senior partner of 445 Park Avenue Janklow & Nesbit Associates, an New York, NY 10022 international literary agency representing leading authors in their relationships with publishers and motion picture, television and multi-media companies, and of counsel to the law firm of Janklow & Ashley. Mr. Janklow is a director or trustee of 22 investment companies for which Brinson Advisors, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager. Frederic V. Malek; 64 Trustee Mr. Malek is chairman of Thayer Capital 1455 Pennsylvania Avenue, N.W. Partners (merchant bank) and chairman of Suite 350 Thayer Hotel Investors III, Thayer Hotel Washington, D.C. 20004 Investors II and Lodging Opportunities Fund (hotel investment partnerships). From January 1992 to November 1992, he was campaign manager of Bush-Quayle '92. From 1990 to 1992, he was vice chairman and, from 1989 to 1990, he was president of Northwest Airlines Inc. and NWA Inc. (holding company of Northwest Airlines Inc.). Prior to 1989, he was employed by the Marriott Corporation (hotels, restaurants, airline catering and contract feeding), where he most recently was an executive vice president and president of Marriott Hotels and Resorts. Mr. Malek is also a director of Aegis Communications, Inc. (tele- services), American Management Systems, Inc. (management consulting and computer related services), Automatic Data Processing, Inc., (computing services), CB Richard Ellis, Inc. (real estate services), FPL Group, Inc. (electric services), Classic Vacation Group (packaged vacations), Manor Care, Inc. (health care), and Northwest Airlines Inc. Mr. Malek is a director or trustee of 22 investment companies for which Brinson Advisors, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager.
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NAME AND ADDRESS; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS --------------------- ------------------- ---------------------------------------- Carl W. Schafer; 65 Trustee Mr. Schafer is president of the Atlantic 66 Witherspoon Street, #1100 Foundation (charitable foundation). He Princeton, NJ 08542 is a director of Labor Ready, Inc. (temporary employment), Roadway Express, Inc. (trucking), The Guardian Group of Mutual Funds, the Harding, Loevner Funds, E.I.I. Realty Trust (investment company), Electronic Clearing House, Inc. (financial transactions processing), Frontier Oil Corporation and Nutraceutix, Inc. (biotechnology company). Prior to January 1993, he was chairman of the Investment Advisory Committee of the Howard Hughes Medical Institute. Mr. Schafer is a director or trustee of 22 investment companies for which Brinson Advisors, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager. William D. White; 67 Trustee Mr. White is retired. From February 1989 P.O. Box 199 through March 1994, he was president of Upper Black Eddy, PA 18972 the National League of Professional Baseball Clubs. Prior to 1989, he was a television sportscaster for WPIX-TV, New York. Mr. White served on the Board of Directors of Centel from 1989 to 1993 and until recently on the Board of Directors of Jefferson Banks Incorporated, Philadelphia, PA. Mr. White is a director or trustee of 22 investment companies for which Brinson Advisors, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager. Thomas Disbrow****; 35 Vice President and Mr. Disbrow is a director and a senior Assistant Treasurer manager of the mutual fund finance department of Brinson Advisors. Prior to November 1999, he was a vice president of Zweig/Glaser Advisers. Mr. Disbrow is a vice president and assistant treasurer of 22 investment companies for which Brinson Advisors, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager. Amy R. Doberman**; 39 Vice President and Ms. Doberman is an executive director Secretary and the general counsel of Brinson Advisors. From December 1996 through July 2000, she was general counsel of Aeltus Investment Management, Inc. Prior to working at Aeltus, Ms. Doberman was a Division of Investment Management Assistant Chief Counsel at the SEC. Ms. Doberman is a vice president and secretary of 22 investment companies and secretary of two investment companies for which Brinson Advisors, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager.
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NAME AND ADDRESS; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS --------------------- ------------------- ---------------------------------------- Joanne M. Kilkeary****; 33 Vice President and Ms. Kilkeary is an associate director Assistant Treasurer and a manager of the mutual fund finance department of Brinson Advisors. Ms. Kilkeary is a vice president and assistant treasurer of one investment company for which Brinson Advisors, UBS PaineWebber or one of their affiliates serves as investment advisor, sub- advisor or manager. Kevin J. Mahoney****; 36 Vice President and Mr. Mahoney is a director and a senior Assistant Treasurer manager of the mutual fund finance department of Brinson Advisors. From August 1996 through March 1999, he was the manager of the mutual fund internal control group of Salomon Smith Barney. Mr. Mahoney is a vice president and assistant treasurer of 22 investment companies for which Brinson Advisors, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager. Michael H. Markowitz*****; 36 Vice President Mr. Markowitz is an executive director, portfolio manager and head of U.S. short duration fixed income of Brinson Advisors. He is also an executive director and portfolio manager of Brinson Partners, Inc., an affiliate of Brinson Advisors. Mr. Markowitz is a vice president of 10 investment companies for which Brinson Advisors, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager. Emil Polito*; 41 Vice President Mr. Polito is an executive director and head of investment support and mutual fund services of Brinson Advisors. From July 2000 to October 2000, he was a senior manager of investment systems at Dreyfus Corp. Prior to July 2000, Mr. Polito was a senior vice president and director of operations and control for Brinson Advisors. Mr. Polito is a vice president of 22 investment companies for which Brinson Advisors, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager. Paul H. Schubert****; 38 Vice President and Mr. Schubert is an executive director, Treasurer and head of the mutual fund finance department of Brinson Advisors. Mr. Schubert is a vice president and treasurer of 22 investment companies and principal accounting officer of 2 investment companies for which Brinson Advisors, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager.
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NAME AND ADDRESS; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS --------------------- ------------------- ---------------------------------------- Brian M. Storms*; 47 President Mr. Storms is chief executive officer (since September 2001) and president of Brinson Advisors (since March 1999). Mr. Storms was chief executive officer of Brinson Advisors from October 2000 to September 2001. He was president of Prudential Investments (1996-1999). Prior to joining Prudential Investments he was a managing director at Fidelity Investments. Mr. Storms is president of 22 investment companies and president and trustee of 2 investment companies for which Brinson Advisors, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager. Keith A. Weller**; 40 Vice President and Mr. Weller is a director and senior Assistant Secretary associate general counsel of Brinson Advisors. Mr. Weller is a vice president and assistant secretary of 22 investment companies for which Brinson Advisors, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager.
- -------------------------- * This person's business address is 51 West 52nd Street, New York, New York 10019-6114. ** This person's business address is 1285 Avenue of the Americas, New York, New York 10019-6028. *** Address for mailing purposes only. ****This person's business address is Newport Center III, 499 Washington Blvd., 14th Floor, Jersey City, New Jersey 07310-1998. *****This person's business address is 209 South LaSalle Street, Chicago, Illinois 60604-1295. + Messrs. Bewkes and Storms and Mrs. Alexander are "interested persons" of the Trust as defined in the Investment Company Act by virtue of their positions with Brinson Advisors and/or UBS PaineWebber. Each board member who is not an "interested person" receives, in the aggregate from the Trust and other Brinson mutual funds, an annual retainer of $50,000, and a $10,000 fee for each regular board meeting (and each in-person special board meeting) actually attended. Each such board member is also entitled to a $2,000 fee for each special telephone meeting attended. The chairperson and vice chairperson of the Audit and Contract Review Committee receives annually $12,500 and $7,500, respectively. The chairperson of the Nominating Committee receives annually $5,000. The foregoing fees will be allocated among all such mutual funds (or each relevant mutual fund in the case of a special meeting) PRO RATA based on the mutual funds' relative net assets at the end of the calendar quarter preceding the date of payment. No officer, director or employee of Brinson Advisors or one of its affiliates presently receives any compensation from the Trust for acting as a board member or officer. The table below includes certain information relating to the compensation of the Trust's current board members and the compensation of those board members from all funds for which Brinson Advisors or UBS PaineWebber served as an investment advisor, sub-advisor or manager during the periods indicated. 48 COMPENSATION TABLE+
AGGREGATE TOTAL COMPENSATION FROM COMPENSATION THE TRUST AND THE NAME OF PERSON, POSITION FROM THE TRUST* FUND COMPLEX** ------------------------ --------------- ----------------------- Richard Q. Armstrong, Trustee***............................ $ 0 $108,232 David J. Beaubien, Trustee............................... 60,000 65,000 Richard R. Burt, Trustee***............................ 0 108,232 Meyer Feldberg, Trustee***............................ 0 173,982 George W. Gowen, Trustee***............................ 0 173,982 William W. Hewitt, Trustee............................... 75,000 75,000 Morton L. Janklow, Trustee............................... 53,750 65,000 Frederic V. Malek, Trustee***............................ 0 108,232 Carl W. Schafer, Trustee***............................ 0 106,372 William D. White, Trustee............................... 60,000 65,000
- -------------------------- + Only Independent Trustees are compensated by the funds for which Brinson Advisors or UBS PaineWebber serves as investment advisor, sub-advisor or manager; board members who are "interested persons," as defined in the Investment Company Act, do not receive compensation from these funds. * Represents fees paid to each board member for the fiscal year ended July 31, 2001. During this period Brinson Advisors waived a portion of its management fee and subsidized certain operating expenses, including the payment of trustees' fees, with respect to some funds in order to lower the overall expenses of those funds to certain designated levels. ** Represents fees paid during the calendar year ended December 31, 2000 to each board member by: (a) 33 investment companies in the case of Messrs. Armstrong, Burt, Malek and Schafer; (b) 37 investment companies in the case of Messrs. Feldberg and Gowen; and (c) one investment company in the case of Messrs. Beaubien, Hewitt, Janklow and White for which Brinson Advisors, UBS PaineWebber or one of their affiliates served as investment advisor, sub-advisor, or manager. None of these funds has a bonus, pension, profit sharing or retirement plan. *** This person did not commence serving on the Trust's board until September 2001 and therefore did not receive compensation from the Trust during the fiscal year ended July 31, 2001. 49 PRINCIPAL HOLDERS AND MANAGEMENT OWNERSHIP OF SECURITIES. As of October 15, 2001, trustees and officers owned in the aggregate less than 1% of the outstanding shares of any class of each fund. As of October 15, 2001, the following shareholders were shown in the Trust's records as owning more than 5% of any class of a fund's shares:
PERCENTAGE OF SHARES BENEFICIALLY OWNED AS OF OCTOBER 15, FUND NAME AND ADDRESS* 2001 - ---- ----------------- -------------------- PACE Government Securities Chestnut III 88.85% Fixed Income Investments - Attn: Michael W. Kanzler Class Y c/o TY Inc. Northern Trust Company as Trustee 6.72% FBO PaineWebber 401K Plan PACE Intermediate Fixed PaineWebber Cust. 10.12% Income Investments - Marshall B. Marlowe Class Y PaineWebber Cust. 5.31% Jerome N. Jones PACE Strategic Fixed OBICI Foundation 9.57% Income Investments - Attn: William A. Carpenter Class P CHA Foundation 5.12% Chesapeake General Hospital PACE Strategic Fixed Anne L. Solnit Trustee 13.49% Income Investments - of the Anne L. Solnit Trust Class Y Dtd. 5/6/97 PaineWebber Cust. 7.24% PaineWebber CDN FBO Paula S. Bradnan PACE Municipal Fixed George T. Westwood 10.03% Income Investments - Trustee Class B PACE Municipal Fixed Edith M. Buss Trustee 22.08% Income Investments - FBO Buss Family Class Y Revocable Trust PACE Account Gilbert C. Powers & 18.23% Pamela M. Powers Com. Prop. Sol Shurkin 16.48% Harriet Charkatz JTWROS Charlsia L. Brown Trustee 6.13% for Sam R. Brown Irrevocable Trust U/A/D 2/28/1994 James C. Wiley & 5.49% Lynn Wiley JT. Ten. Donald A. Illuzzi 5.33% PACE Global Fixed Income PaineWebber Cust. 9.02% Investments - Jon B. Bannister Class B Dr. Nate J. Rogers 5.71%
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PERCENTAGE OF SHARES BENEFICIALLY OWNED AS OF OCTOBER 15, FUND NAME AND ADDRESS* 2001 - ---- ----------------- -------------------- PACE Global Fixed Income John M. Freese ADM 16.87% Investments - e/o Dorothy M. Freese Class C John Markham Freese 7.83% Exec. e/o M. Lloyd Freese PACE Global Fixed Income Northern Trust Company as 70.31% Investments - Trustee Class Y FBO PaineWebber 401K Plan PACE Large Company Value Northern Trust Company as 91.96% Equity Investments - Trustee Class Y FBO PaineWebber 401K Plan PACE Large Company Growth Northern Trust Company as 98.42% Equity Investments - Trustee Class Y FBO PaineWebber 401K Plan PACE Small/Medium Company Bishop Institutional Advisors 17.26% Value Equity Investments - c/o Millenium Class A PACE Small/Medium Company Joyce Straus Special 6.24% Value Equity Investments - Class Y Golden State Carpet Service 5.07% Money Purchase Plan Michael Hansen Trustee PACE Small/Medium Company Gray Keithley & 5.54% Growth Equity Investments - Arlene Keithley Class Y Trustees FBO Dtd. 11/20/85 PACE International Equity Northern Trust Company as 94.95% Investments - Trustee Class Y FBO PaineWebber 401K Plan PACE International Emerging The Fletcher Jones Foundation 15.49% Markets Equity Investments - Attn.: John Smythe Class A PACE International Emerging PaineWebber Cust. 9.60% Markets Equity Investments - J. Darwin King Class Y Rollover IRA Account Dr. John Stumbo & 5.33% Helen Rhea Stumbo JT. Ten PACE Multi
- -------------------------- * The shareholders listed may be contacted c/o Brinson Advisors, Inc., Compliance Department, 51 West 52nd Street, New York, NY 10019-6114. 51 INVESTMENT MANAGEMENT, ADMINISTRATION AND PRINCIPAL UNDERWRITING ARRANGEMENTS INVESTMENT MANAGEMENT AND ADMINISTRATION ARRANGEMENTS. Brinson Advisors acts as the investment manager and administrator to the Trust pursuant to an Investment Management and Administration Agreement with the Trust ("Management Agreement"). Under the Management Agreement, Brinson Advisors, subject to the supervision of the Trust's board and in conformity with the stated policies of the Trust, manages both the investment operations of the Trust and the composition of the funds, including the purchase, retention, disposition and lending of securities. Brinson Advisors is authorized to enter into advisory agreements for investment advisory services ("Advisory Agreements") in connection with the management of the funds. Brinson Advisors is responsible for monitoring the investment advisory services furnished pursuant to the Advisory Agreements. Brinson Advisors reviews the performance of all investment advisors and makes recommendations to the board with respect to the retention and renewal of Advisory Agreements. In connection therewith, Brinson Advisors keeps certain books and records of the Trust. Brinson Advisors also administers the Trust's business affairs and, in connection therewith, furnishes the Trust with office facilities, together with those ordinary clerical and bookkeeping services that are not furnished by the Trust's custodian and its transfer and dividend disbursing agent. The management services of Brinson Advisors under the Management Agreement are not exclusive to the Trust, and Brinson Advisors is free to, and does, render management services to others. The following table shows the fees earned (or accrued) by Brinson Advisors under the Management Agreement and the portions of those fees waived by Brinson Advisors for the periods indicated.
MANAGEMENT AND MANAGEMENT AND ADMINISTRATION FEES ADMINISTRATION FEES EARNED (OR ACCRUED) BY WAIVED BY BRINSON ADVISORS FOR FISCAL BRINSON ADVISORS FOR FISCAL YEARS ENDED JULY 31, YEARS ENDED JULY 31, ------------------------------------ ------------------------------ FUND 2001 2000 1999 2001 2000 1999 - ---- ---- ---- ---- ---- ---- ---- PACE Money Market Investments.... $ 262,307 $ 210,048 $ 114,410 $262,307 $210,048 $114,410 PACE Government Securities Fixed Income Investments............. 2,853,177 1,380,076 1,277,768 536,253 83,618 102,428 PACE Intermediate Fixed Income Investments.................... 1,377,675 828,218 740,117 89,730 13,758 1,460 PACE Strategic Fixed Income Investments.................... 1,808,178 1,596,218 1,302,736 48,767 84,075 70,795 PACE Municipal Fixed Income Investments.................... 900,824 329,466 337,795 165,663 23,718 24,086 PACE Global Fixed Income Investments.................... 1,615,165 821,382 805,390 433,200 240,342 220,842 PACE Large Company Value Equity Investments.................... 5,377,912 2,800,505 2,581,440 627,716 16,771 1,732 PACE Large Company Growth Equity Investments.................... 4,011,313 3,458,178 2,593,183 369,989 22,200 3,823 PACE Small/Medium Company Value Equity Investments............. 2,045,158 1,574,930 1,458,785 69,535 32,450 25,179 PACE Small/Medium Company Growth Equity Investments............. 2,608,144 2,495,426 1,704,803 123,371 17,105 15,569 PACE International Equity Investments.................... 2,876,910 2,227,716 1,615,444 201,075 7,642 834 PACE International Emerging Markets Equity Investments..... 926,092 991,438 751,091 268,679 222,127 195,575
For PACE Money Market Investments, in addition to the management and administration fee waiver in the foregoing table, Brinson Advisors reimbursed the fund for $113,646 in other expenses. 52 In connection with its management of the business affairs of the Trust, Brinson Advisors bears the following expenses: (1) the salaries and expenses of all of its and the Trust's personnel except the fees and expenses of trustees who are not affiliated persons of Brinson Advisors or the Trust's investment advisors; (2) all expenses incurred, by Brinson Advisors or by the Trust in connection with managing the ordinary course of the Trust's business, other than those assumed by the Trust as described below; and (3) the fees payable to each investment advisor (other than Brinson Advisors) pursuant to the Advisory Agreements. Under the terms of the Management Agreement, each fund bears all expenses incurred in its operation that are not specifically assumed by Brinson Advisors or the fund's investment advisor. General expenses of the Trust not readily identifiable as belonging to a fund or to the Trust's other series are allocated among series by or under the direction of the board in such manner as the board deems to be fair and equitable. Expenses borne by each fund include the following (or a fund's share of the following): (1) the cost (including brokerage commissions) of securities purchased or sold by a fund and any losses incurred in connection therewith, (2) fees payable to and expenses incurred on behalf of a fund by Brinson Advisors, (3) organizational expenses, (4) filing fees and expenses relating to the registration and qualification of a fund's shares and the Trust under federal and state securities laws and maintenance of such registration and qualifications, (5) fees and salaries payable to trustees who are not interested persons (as defined in the Investment Company Act) of the Trust, Brinson Advisors or the investment advisors, (6) all expenses incurred in connection with trustees' services, including travel expenses, (7) taxes (including any income or franchise taxes) and governmental fees, (8) costs of any liability, uncollectible items of deposit and other insurance or fidelity bonds, (9) any costs, expenses or losses arising out of a liability of or claim for damages or other relief asserted against the Trust or a fund for violation of any law, (10) legal, accounting and auditing expenses, including legal fees of special counsel for the independent trustees, (11) charges of custodians, transfer agents and other agents, (12) costs of preparing share certificates, (13) expenses of setting in type and printing prospectuses and supplements thereto, statements of additional information and supplements thereto, reports and proxy materials for existing shareholders, and costs of mailing such materials to existing shareholders, (14) any extraordinary expenses (including fees and disbursements of counsel) incurred by the Trust or a fund, (15) fees, voluntary assessments and other expenses incurred in connection with membership in investment company organizations, (16) costs of mailing and tabulating proxies and costs of meetings of shareholders, the board and any committees thereof, (17) the cost of investment company literature and other publications provided to trustees and officers and (18) costs of mailing, stationery and communications equipment. Under the Management Agreement, Brinson Advisors will not be liable for any error of judgment or mistake of law or for any loss suffered by a fund in connection with the performance of the contract, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of Brinson Advisors in the performance of its duties or from reckless disregard of its duties and obligations thereunder. The Management Agreement terminates automatically upon its assignment and is terminable at any time without penalty by the board or by vote of the holders of a majority of a fund's outstanding voting securities, on 60 days' written notice to Brinson Advisors or by Brinson Advisors on 60 days' written notice to the fund. INVESTMENT ADVISORY ARRANGEMENTS. As noted in the Prospectus, subject to the monitoring of Brinson Advisors and, ultimately, the board, each investment advisor manages the securities held by the fund it serves in accordance with the fund's stated investment objective and policies, makes investment decisions for the fund and places orders to purchase and sell securities on behalf of the fund. Each Advisory Agreement provides that it will terminate in the event of its assignment (as defined in the Investment Company Act) or upon the termination of the Management Agreement. Each Advisory Agreement may be terminated by the Trust upon not more than 60 days' written notice. Each Advisory Agreement may be terminated by Brinson Advisors or the investment advisor upon not more than 120 days' written notice. Each Advisory Agreement provides that it will continue in effect for a period of more than two years from its execution only so long as such continuance is specifically approved at least annually in accordance with the requirements of the Investment Company Act. 53 Under the Advisory Agreements, the investment advisors will not be liable for any error or judgment or mistake of law or for any loss suffered by a fund in connection with the performance of the contract, except a loss resulting from willful misfeasance, bad faith, or gross negligence on the part of the investment advisors in the performance of their duties or from reckless disregard of their duties and obligations thereunder. Each investment advisor has agreed to its fees as described herein and which are generally lower than the fees it charges to institutional accounts for which it serves as investment advisor and performs all administrative functions associated with serving in that capacity in recognition of the reduced administrative responsibilities it has undertaken with respect to the fund. By virtue of the management, monitoring and administrative functions performed by Brinson Advisors, and the fact that investment advisors are not required to make decisions regarding the allocation of assets among the major sectors of the securities markets, each investment advisor serves in a subadvisory capacity to the fund. Subject to the monitoring by Brinson Advisors and, ultimately, the board, each investment advisor's responsibilities are limited to managing the securities held by the fund it serves in accordance with the fund's stated investment objective and policies, making investment decisions for the fund and placing orders to purchase and sell securities on behalf of the fund. PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS AND PACE STRATEGIC FIXED INCOME INVESTMENTS Under the Advisory Agreements for these funds with Pacific Investment Management Company LLC ("PIMCO"), Brinson Advisors (not the fund) pays PIMCO for its services a fee in the annual amount of 0.225% of the average daily net assets of PACE Government Securities Fixed Income Investments (0.25% prior to October 10, 2000) and 0.25% of the average daily net assets of PACE Strategic Fixed Income Investments. For the fiscal years ended July 31, 2001, July 31, 2000 and July 31, 1999, Brinson Advisors paid or accrued investment advisory fees to PIMCO of $926,049, $492,884 and $456,345, respectively for PACE Government Securities Fixed Income Investments and $642,622, $570,078 and $465,263, respectively for PACE Strategic Fixed Income Investments. PIMCO, a Delaware limited liability company, is a subsidiary of PIMCO Advisors L.P. ("PIMCO Advisors"). PIMCO Advisors was organized as a limited partnership under Delaware law in 1987. PIMCO Advisors' sole general partner is Pacific-Allianz Partners LLC. Pacific-Allianz Partners LLC is a Delaware limited liability company with two members, Allianz GP Sub LLC, a Delaware limited liability company, and Pacific Asset Management LLC, a Delaware limited liability company. Allianz GP Sub LLC is a wholly owned subsidiary of Allianz of America, Inc., which is wholly owned by Allianz AG. Pacific Asset Management LLC is a wholly owned subsidiary of Pacific Life Insurance Company, which is a wholly owned subsidiary of Pacific Mutual Holding Company. On May 5, 2000 the general partners of PIMCO Advisors closed the transactions contemplated by the Implementation and Merger Agreement dated as of October 31, 1999 ("Implementation Agreement"), as amended March 3, 2000, with Allianz of America, Inc., Pacific Asset Management LLC, PIMCO Partners, LLC, PIMCO Holding LLC, PIMCO Partners, G.P., and other parties to the Implementation Agreement. As a result of completing these transactions, PIMCO Advisors is now indirectly majority owned by Allianz AG, with subsidiaries of Pacific Life Insurance Company retaining a significant minority interest. Allianz AG is a German based insurer. Pacific Life Insurance Company is a Newport Beach, California based insurer. In connection with the closing, Allianz of America, Inc., entered into a put/call arrangement for the possible disposition of Pacific Life's indirect interest in PIMCO Advisors. The put option held by Pacific Life will allow it to require Allianz of America, Inc., on the last business day of each calendar quarter following the closing, to purchase at a formula-based price all of the PIMCO Advisors' units owned directly or indirectly by Pacific Life. The call option held by Allianz of America, Inc., will allow it, beginning January 31, 2003 or upon a change in control of Pacific Life, to require Pacific Life to sell or cause to be sold to Allianz of America, Inc., at the same formula-based price, all of the PIMCO Advisors' units owned directly or indirectly by Pacific Life. Allianz AG's address is Koniginstrasse 28, D-80802, Munich, Germany. Allianz AG, the parent of Allianz of America, Inc., is a publicly traded German company which, together with its subsidiaries, comprises the world's second largest insurance company as measured by premium income. Allianz AG is a leading provider of financial services, particularly in Europe, and is represented in 68 countries world-wide through subsidiaries, branch and representative offices, and other affiliated entities. As of , 54 2001, the Allianz Group (including PIMCO) had assets under management of more than $ billion, and in its last fiscal year wrote approximately $ billion in gross insurance premiums. Significant institutional shareholders of Allianz AG as of September 2001 include Munchener Ruckversicherungs-Gesellschaft AG ("Munich Re"), Bayerische Hypo-und Vereinsbank AG ("HypoVereinsbank") and Deutsche Bank AG. Recently, Allianz AG acquired Dresdner Bank AG whose broker dealer subsidiaries include Dresdner Kleinwort Benson, Dresdner Kleinwort Wasserstein and Grantchester Securities. Such broker-dealers as well as others including Deutsche Securities, Deutsche Alex Brown, Deutsche Morgan Grenfell, Credit Lyonnais SA, HVB Capital Markets, NALAC Financial Plans LLC, National Discount Brokers Group, Inc., NDB Capital Markets, Belle Haven Investments, L.P., and UniCredit Banca Mobiliare S.p.A. that might be controlled by or affiliated with Allianz AG or these entities (collectively, the "Affiliated Brokers"), may be considered to be affiliated persons of PIMCO. Absent a SEC exemption or other relief, the funds generally are precluded from effecting principal transactions with the Affiliated Brokers, and their ability to purchase securities being underwritten by an Affiliated Broker or to utilize the Affiliated Brokers for agency transactions is subject to restrictions. PIMCO does not believe that the restrictions on transactions with the Affiliated Brokers described above materially adversely affect its ability to provide services to the funds, the funds' ability to take advantage of market opportunities, or the funds' overall performance. PACE INTERMEDIATE FIXED INCOME INVESTMENTS Under the Advisory Agreement for this fund with Metropolitan West Asset Management, LLC ("MWAM"), Brinson Advisors (not the fund) pays MWAM a fee in the annual amount of 0.20% of the fund's average daily net assets up to and including $200 million and 0.12% of the fund's average daily net assets above $200 million. Prior to October 10, 2000, Pacific Income Advisers, Inc. was the fund's investment advisor. For the fiscal years ended July 31, 2001, July 31, 2000 and July 31, 1999, Brinson Advisors paid or accrued investment advisory fees to MWAM and the prior investment advisor of $459,159, $276,073 and $246,706, respectively. Founded in 1996, MWAM is a California Limited Liability Company and is majority-owned by its key executives, with an approximately 40% minority ownership stake held by Metropolitan West Financial, Inc. ("MWF"), a registered investment advisor. PACE MUNICIPAL FIXED INCOME INVESTMENTS Under the Advisory Agreement for this fund with Standish Mellon Asset Management Company, LLC ("Standish Mellon"), Brinson Advisors (not the fund) pays Standish Mellon a fee in the annual amount of 0.20% of the fund's average daily net assets up to and including $60 million and 0.15% of the fund's average daily net assets in excess of $60 million. Prior to June 1, 2000, Deutsche Asset Management, Inc. ("DeAM") was the fund's investment advisor. For the fiscal years ended July 31, 2001, July 31, 2000 and July 31, 1999, Brinson Advisors paid or accrued investment advisory fees to Standish Mellon, Standish Mellon's predecessor and DeAM of $248,297, $109,822 and $112,598, respectively. Standish Mellon resulted from the acquisition of Standish, Ayer & Wood, Inc. ("SAW") by Mellon Financial Corporation ("Mellon") on July 31, 2001. SAW was the fund's investment advisor from June 1, 2000, until its acquisition by Mellon. Standish Mellon is a wholly owned subsidiary of Mellon, a global financial services company. PACE GLOBAL FIXED INCOME INVESTMENTS Under the current Advisory Agreements for this fund with Rogge Global Partners plc and Fischer Francis Trees & Watts, Inc. and its affiliates (collectively, "FFTW"), Brinson Advisors (not the fund) pays Rogge Global Partners a fee in the annual amount of 0.25% of the portion of the fund's average annual net assets that it manages and pays FFTW a fee in the annual amount of 0.25% of the portion of the fund's average daily net assets that it manages up to and including $400 million and 0.20% of the average daily net assets that it manages in excess of $400 million. Prior to October 10, 2000, Rogge Global Partners managed all the fund's assets and was paid by Brinson Advisors (not the fund) an annual fee of 0.35% of the fund's average daily net assets. For the fiscal years ended July 31, 2001, July 31, 2000 and July 31, 1999, Brinson Advisors paid or accrued investment advisory fees to FFTW and Rogge Global Partners of $553,800, $359,355 and $352,679, respectively. 55 Rogge Global Partners is a wholly owned subsidiary of United Asset Management Corporation ("UAM"), a wholly owned subsidiary of Old Mutual, an international financial services firm headquartered in London, England. UAM is principally engaged through affiliated firms in the United States and abroad in providing institutional investment management services and acquiring institutional management firms like Rogge Global Partners. Fischer Francis Trees & Watts, Inc. ("FFTW (NY)") is a New York corporation organized in 1972 and is directly owned by Charter Atlantic Corporation, a holding company organized as a New York corporation. The affiliates of FFTW (NY) are Fischer Francis Trees & Watts, a corporate partnership organized under the laws of the United Kingdom (sometimes referred to as "FFTW (UK)"), Fischer Francis Trees & Watts, pte Ltd (Singapore), a Singapore corporation (sometimes referred to as "FFTW (Singapore)") and Fischer Francis Trees & Watts, Ltd Kabushiki Kaisha, a Japanese corporation (sometimes referred to as "FFTW (Japan)"). FFTW-Singapore and FFTW (Japan) are wholly owned subsidiaries of FFTW (NY). FFTW (UK) is 99% owned by FFTW (NY) and 1% owned by Fischer Francis Trees & Watts Ltd. which in turn is owned by Charter Atlantic Corporation ("CAC"). BNP Paribas owns 100% of the Class B Common Stock of CAC, which represents a 24.9% voting equity interest and a 60% profit participation in CAC. The employee stockholders of CAC as a group own 100% of the Class A Common Stock of CAC, which represents a 75.1% voting equity interest and a 40% profit participation in CAC. BNP Paribas is a publicly owned limited liability banking corporation organized under the laws of the Republic of France. PACE LARGE COMPANY VALUE EQUITY INVESTMENTS Under the current Advisory Agreements for this fund with Institutional Capital Corporation ("ICAP"), Westwood Management Corporation ("Westwood") and SSgA Funds Management, Inc. ("SSgA"), Brinson Advisors (not the fund) pays each investment advisor a fee in the annual amount of 0.30% (0.15% for SSgA) of the fund's average daily net assets that it manages. Prior to July 1, 2000, Brinson Partners, Inc. was the fund's sole investment advisor. ICAP and Westwood assumed their fund responsibilities on July 1, 2000, and SSgA assumed its fund responsibilities on October 10, 2000. For the fiscal years ended July 31, 2001, July 31, 2000 and July 31, 1999, Brinson Advisors paid or accrued aggregate investment advisory fees to ICAP, Westwood, SSgA (and its predecessor) and the fund's previous investment advisor of $2,059,738, $1,024,189 and $968,040, respectively. Robert H. Lyon, who serves as president, chief investment officer and a director of ICAP owns a 51% controlling interest in ICAP. Westwood is a wholly owned subsidiary of SWS Group, Inc., a Dallas-based securities firm. SSgA is an affiliate of State Street Bank and Trust Company, which is a wholly owned subsidiary of State Street Corporation, a publicly held bank holding company. PACE LARGE COMPANY GROWTH EQUITY INVESTMENTS Under the current Advisory Agreements for this fund with Alliance Capital Management L.P. ("Alliance Capital") and SSgA Funds Management, Inc. ("SSgA"), Brinson Advisors (not the fund) pays Alliance a fee in the annual amount of 0.30% and SSgA a fee in the annual amount of 0.15% of the fund's average daily net assets that it manages. Alliance Capital assumed its fund responsibilities on November 10, 1997, and SSgA assumed its fund responsibilities on October 10, 2000. For the fiscal years ended July 31, 2001, July 31, 2000 and July 31, 1999, Brinson Advisors paid or accrued investment advisory fees to Alliance Capital and SSgA of $1,369,153, $1,296,816 and $972,444, respectively. SSgA is an affiliate of State Street Bank and Trust Company, which is a wholly owned subsidiary of State Street Corporation, a publicly held bank holding company. Alliance Capital, an investment advisor registered under the Investment Advisers Act of 1940, as amended, is a Delaware limited partnership of which Alliance Capital Management Corporation ("ACMC"), an indirect wholly owned subsidiary of AXA Financial, Inc. ("AXA Financial"), is the general partner. As of June 30, 2001, Alliance Capital Management Holding L.P. ("Alliance Holding") owned approximately 29.9% of the outstanding units of limited partnership interest in Alliance Capital ("Alliance Units"). ACMC is the general partner of Alliance Holding, whose equity interests are traded on the New York Stock Exchange, Inc. ("NYSE") in the form of units ("Alliance Holding Units"). As of June 30, 2001, AXA Financial, together with certain of its 56 wholly-owned subsidiaries including ACMC, beneficially owned approximately 2.1% of the outstanding Alliance Holding Units and 51.8% of the outstanding Alliance Units. AXA Financial, a Delaware corporation is a wholly-owned subsidiary of AXA, a French company. Sanford C. Bernstein & Co., LLC ("Bernstein"), a registered broker-dealer and investment advisor, is a Delaware limited liability company located at 767 Fifth Avenue, New York, New York 10153, and an indirect wholly owned subsidiary of Alliance Capital. In addition, Bernstein manages value oriented investment portfolios through and with the assistance of the Bernstein Investment Research and Management Unit (the "Bernstein Unit") of Alliance Capital. The Bernstein Unit services the former investment research and management business of Sanford C. Bernstein & Co., Inc., which was acquired by Alliance Capital in October 2000. PACE SMALL/MEDIUM COMPANY VALUE EQUITY INVESTMENTS Under the current Advisory Agreements for this fund with Ariel Capital Management, Inc. ("Ariel") and ICM Asset Management, Inc. ("ICM"), Brinson Advisors (not the fund) pays each of these investment advisors a fee in the annual amount of 0.30% of the fund's average daily net assets that it manages. Prior to October 10, 2000, Ariel and Brandywine Asset Management, Inc. served as investment advisors for the fund's assets and, prior to October 4, 1999, Brandywine was the fund's sole investment advisor. For the fiscal years ended July 31, 2001, July 31, 2000 and July 31, 1999, Brinson Advisors paid or accrued aggregate investment advisory fees to ICM, Ariel and Brandywine of $766,934, $590,599 and $547,044, respectively. Ariel is an independent subchapter S corporation with a majority of ownership held by its employees. Founded in 1981, ICM also is an independent subchapter S corporation and is entirely owned by its employees/family members. James M. Simmons, founder and chief investment officer of ICM, owns more than 25% of ICM's voting stock. PACE SMALL/MEDIUM COMPANY GROWTH EQUITY INVESTMENTS Under the current Advisory Agreement for this fund with Delaware Management Company, Brinson Advisors (not the fund) pays Delaware Management Company a fee in the annual amount of 0.40% of the fund's average daily net assets. For the fiscal years ended July 31, 2001, July 31, 2000 and July 31, 1999, Brinson Advisors paid or accrued aggregate investment advisory fees to Delaware Management Company and to the prior investment advisor, of $1,417,582, $1,247,713 and $852,402, respectively. Delaware Management Company is a series of Delaware Management Business Trust, a Delaware business trust, and is a wholly owned subsidiary of Delaware Management Holdings, Inc. ("DMH"). Delaware Management Company and DMH are indirect, wholly owned subsidiaries, and subject to ultimate control, of Lincoln National Corporation ("Lincoln National"). Lincoln National, with headquarters in Philadelphia, Pennsylvania, is a diversified organization with operations in many aspects of the financial services industry, including insurance and investment management. PACE INTERNATIONAL EQUITY INVESTMENTS Under the current Advisory Agreement for this fund with Martin Currie Inc., Brinson Advisors (not the fund) pays Martin Currie Inc. a fee in the annual amount of 0.35% of the fund's average daily net assets up to and including $150 million, 0.30% of the fund's average daily net assets above $150 million up to and including $250 million, 0.25% of the fund's average daily net assets above $250 million up to and including $350 million, and 0.20% of the fund's average daily net assets above $350 million. Prior to October 10, 2000, Brinson Advisors (not the fund) paid Martin Currie Inc. a fee for its services under the Advisory Agreement at the annual rate of 0.40% of the fund's average daily net assets. For the fiscal years ended July 31, 2001, July 31, 2000 and July 31, 1999, Brinson Advisors paid or accrued investment advisory fees to Martin Currie Inc. of $976,229, $990,097 and $717,975, respectively. Martin Currie Inc. is a wholly owned subsidiary of Martin Currie Limited, a holding company. PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS Under the current Advisory Agreement for this fund with Schroder Investment Management North America Inc. ("SIMNA"), Brinson Advisors (not the fund) pays SIMNA a fee in the annual amount of 0.50% of the fund's average daily net assets. SIMNA is a wholly owned subsidiary of Schroder U.S. Holdings Inc., which 57 engages through its subsidiary firms in the asset management business. SIMNA was the surviving company in a merger with Schroder Capital Management International Inc. (the fund's investment advisor prior to July 1, 1999 and another wholly owned subsidiary of Schroder U.S. Holdings Inc.). For the fiscal years ended July 31, 2001, July 31, 2000 and July 31, 1999, Brinson Advisors paid or accrued investment advisory fees to SIMNA and its predecessor of $842,932, $450,653 and $341,405, respectively. Schroder U.S. Holdings Inc. is a wholly owned subsidiary of Schroders plc., a publicly owned holding company organized under the laws of England. Schroders plc and its affiliates currently engage in asset management businesses. PROCESS FOR SELECTION OF INVESTMENT ADVISORS. In selecting investment advisors for the funds, Brinson Advisors, together with UBS PaineWebber, looks for those firms who they believe are best positioned to deliver strong, consistent performance in a particular investment style or market capitalization range, while managing risk appropriately. After a thorough initial review of potential advisors, the selection process includes quantitative and qualitative analysis to narrow the list of candidates. The rigorous review, using stringent qualifying standards, incorporates statistical measures of performance, including: - Investment returns over short- and long-term periods - Risk-adjusted performance - Performance relative to the market index that serves as the benchmark for the investment style The next phase includes office visits and extensive interviews. On the qualitative side, the following areas are examined: - Investment philosophy and discipline - Adherence to investment style - Experience and continuity of key personnel - Client service capabilities - Size and financial stability In some instances, it is determined that more competitive and consistent returns can be better achieved by hiring multiple investment advisors for an individual fund, each specializing in a particular market segment and management style. The final phase is the ongoing monitoring of investment advisor performance to ensure that the standards set by the initial phases remain intact throughout the life of the fund. PACE fund investment advisors can be considered for replacement if they are judged to no longer meet the standards that led to their original selection. The result of this comprehensive approach is access to an exclusive group of investment advisors, many of whose services would not otherwise be available to investors with less than $10 million to invest. PRINCIPAL UNDERWRITING ARRANGEMENTS. Brinson Advisors acts as the principal underwriter of each class of shares of the funds pursuant to a principal underwriting contract with the Trust ("Principal Underwriting Contract") which requires Brinson Advisors to use its best efforts, consistent with its other businesses, to sell shares of the funds. Shares of the funds are offered continuously. Brinson Advisors enters into dealer agreements with other broker-dealers (affiliated and non-affiliated) and with other financial institutions to authorize them to sell the funds' shares. PACE Money Market Investments has only Class P shares established. The other funds have Class A, Class B, Class C, Class Y and Class P shares established. Under separate plans of distribution pertaining to the Class A, Class B and Class C shares of each fund adopted by the Trust in the manner prescribed by Rule 12b-1 under the Investment Company Act (each, respectively, a "Class A Plan," "Class B Plan" and "Class C Plan," and collectively, "Plans"), each fund pays Brinson Advisors a service fee, accrued daily and payable monthly, at the annual rate of 0.25% of the average daily net assets of each class of shares. Under the Class B and the Class C Plans, each fund pays Brinson Advisors a distribution fee, accrued daily and payable monthly, at the annual rate of 0.75% (0.50% for Class C shares of fixed income funds) of the average daily net assets of the applicable class of shares. There is no 58 distribution plan with respect to the funds' Class P or Class Y shares and the funds pay no service or distribution fees with respect to these classes of shares. Brinson Advisors uses the service fees under the Plans for Class A, Class B and Class C shares primarily to pay dealers for shareholder servicing, currently at the annual rate of 0.25% of the aggregate investment amounts maintained in each fund by each dealer. Each dealer then compensates its investment professionals for shareholder servicing that they perform and offsets its own expenses in servicing and maintaining shareholder accounts, including related overhead expenses. Brinson Advisors uses the distribution fees under the Class B and Class C Plans to offset the commissions it pays to dealers for selling each fund's Class B and Class C shares, respectively, and to offset its marketing costs attributable to such classes, such as preparation, printing and distribution of sales literature, advertising and other shareholder materials to prospective investors. Brinson Advisors also may use distribution fees to pay additional compensation to dealers and to offset other costs allocated to Brinson Advisors' distribution activities. Brinson Advisors compensates investment professionals when Class B and Class C shares are bought by investors, as well as on an ongoing basis. Brinson Advisors receives the proceeds of the initial sales charge paid when Class A and Class C shares are bought and of the deferred sales charge paid upon sales of Classes A, B and C shares. These proceeds also may be used to cover distribution expenses. The Plans and the Principal Underwriting Contract specify that each fund must pay service and distribution fees to Brinson Advisors for its service- and distribution-related activities, not as reimbursement for specific expenses incurred. Therefore, even if Brinson Advisors' expenses for a 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 Brinson Advisors' expenses are less than such fees, it will retain its full fees and realize a profit. Annually, the board reviews the Plans and Brinson Advisors' corresponding expenses for each class of shares of a fund separately from the Plans and expenses attributable to the other classes of shares of the funds. Among other things, each Plan provides that (1) Brinson Advisors will submit to the board at least quarterly, and the board members will review, reports regarding all amounts expended under the Plan and the purposes for which such expenditures were made, (2) the Plan will continue in effect only so long as it is approved at least annually, and any material amendment thereto is approved, by the board, including those board members who are not "interested persons" of the Trust and who have no direct or indirect financial interest in the operation of the Plan or any agreement related to the Plan, acting in person at a meeting called for that purpose, (3) payments by a fund under the Plan shall not be materially increased without the affirmative vote of the holders of a majority of the outstanding shares 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, Brinson Advisors allocates expenses attributable to the sale of each class of a fund's shares to such class based on the ratio of sales of shares of such class to the sales of all other classes of shares. The fees paid by one class of a fund's shares will not be used to subsidize the sale of any other class of fund shares. 59 The funds paid (or accrued) the following service and/or distribution fees to Brinson Advisors under the Class A, Class B and Class C Plans during the fiscal period ended July 31, 2001:
CLASS A CLASS B CLASS C -------- -------- -------- PACE Government Securities Fixed Income Investments... $281,799 $ 60,304 $217,686 PACE Intermediate Fixed Income Investments............ 199,803 77,672 73,353 PACE Strategic Fixed Income Investments............... 36,960 81,357 62,372 PACE Municipal Fixed Income Investments............... 196,186 66,358 106,695 PACE Global Fixed Income Investments.................. 237,904 13,415 50,880 PACE Large Company Value Equity Investments........... 505,942 599,343 346,151 PACE Large Company Growth Equity Investments.......... 239,489 139,152 113,491 PACE Small/Medium Company Value Equity Investments.... 52,953 56,058 64,158 PACE Small/Medium Company Growth Equity Investments... 103,823 82,246 64,032 PACE International Equity Investments................. 187,176 22,710 70,039 PACE International Emerging Markets Equity Investments......................................... 11,099 39,755 21,900
Brinson Advisors estimates that it and an affiliate, UBS PaineWebber, incurred the following shareholder service-related and distribution-related expenses with respect to the funds during the fiscal period ended July 31, 2001: PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS CLASS A Marketing and advertising................................... $227,664 Amortization of commissions................................. 0 Printing of prospectuses and SAIs........................... 598 Branch network costs allocated and interest expense......... 473,213 Service fees paid to investment professionals............... 107,080 CLASS B Marketing and advertising................................... $ 12,387 Amortization of commissions................................. 29,841 Printing of prospectuses and SAIs........................... 35 Branch network costs allocated and interest expense......... 27,328 Service fees paid to investment professionals............... 5,730 CLASS C Marketing and advertising................................... $ 58,495 Amortization of commissions................................. 55,154 Printing of prospectuses and SAIs........................... 154 Branch network costs allocated and interest expense......... 122,453 Service fees paid to investment professionals............... 27,577
60 PACE INTERMEDIATE FIXED INCOME INVESTMENTS CLASS A Marketing and advertising................................... $116,871 Amortization of commissions................................. 0 Printing of prospectuses and SAIs........................... 324 Branch network costs allocated and interest expense......... 201,116 Service fees paid to investment professionals............... 75,925 CLASS B Marketing and advertising................................... $ 14,009 Amortization of commissions................................. 38,188 Printing of prospectuses and SAIs........................... 31 Branch network costs allocated and interest expense......... 31,577 Service fees paid to investment professionals............... 7,419 CLASS C Marketing and advertising................................... $ 21,575 Amortization of commissions................................. 18,683 Printing of prospectuses and SAIs........................... 40 Branch network costs allocated and interest expense......... 36,670 Service fees paid to investment professionals............... 9,341 PACE STRATEGIC FIXED INCOME INVESTMENTS CLASS A Marketing and advertising................................... $ 88,222 Amortization of commissions................................. 0 Printing of prospectuses and SAIs........................... 378 Branch network costs allocated and interest expense......... 61,448 Service fees paid to investment professionals............... 14,045 CLASS B Marketing and advertising................................... $ 44,152 Amortization of commissions................................. 40,082 Printing of prospectuses and SAIs........................... 216 Branch network costs allocated and interest expense......... 36,295 Service fees paid to investment professionals............... 7,729 CLASS C Marketing and advertising................................... $ 61,735 Amortization of commissions................................. 15,801 Printing of prospectuses and SAIs........................... 212 Branch network costs allocated and interest expense......... 36,291 Service fees paid to investment professionals............... 7,901
61 PACE MUNICIPAL FIXED INCOME INVESTMENTS CLASS A Marketing and advertising................................... $109,585 Amortization of commissions................................. 0 Printing of prospectuses and SAIs........................... 113 Branch network costs allocated and interest expense......... 246,392 Service fees paid to investment professionals............... 74,551 CLASS B Marketing and advertising................................... $ 10,717 Amortization of commissions................................. 37,398 Printing of prospectuses and SAIs........................... 11 Branch network costs allocated and interest expense......... 27,459 Service fees paid to investment professionals............... 6,304 CLASS C Marketing and advertising................................... $ 34,177 Amortization of commissions................................. 27,029 Printing of prospectuses and SAIs........................... 35 Branch network costs allocated and interest expense......... 45,958 Service fees paid to investment professionals............... 13,515 PACE GLOBAL FIXED INCOME INVESTMENTS CLASS A Marketing and advertising................................... $166,104 Amortization of commissions................................. 0 Printing of prospectuses and SAIs........................... 832 Branch network costs allocated and interest expense......... 245,860 Service fees paid to investment professionals............... 121,429 CLASS B Marketing and advertising................................... $ 3,176 Amortization of commissions................................. 6,982 Printing of prospectuses and SAIs........................... 10 Branch network costs allocated and interest expense......... 4,985 Service fees paid to investment professionals............... 1,232 CLASS C Marketing and advertising................................... $ 44,844 Amortization of commissions................................. 12,936 Printing of prospectuses and SAIs........................... 59 Branch network costs allocated and interest expense......... 29,399 Service fees paid to investment professionals............... 6,468
62 PACE LARGE COMPANY VALUE EQUITY INVESTMENTS CLASS A Marketing and advertising................................... $192,304 Amortization of commissions................................. 0 Printing of prospectuses and SAIs........................... 926 Branch network costs allocated and interest expense......... 319,107 Service fees paid to investment professionals............... 192,214 CLASS B Marketing and advertising................................... $137,158 Amortization of commissions................................. 336,000 Printing of prospectuses and SAIs........................... 273 Branch network costs allocated and interest expense......... 284,492 Service fees paid to investment professionals............... 56,926 CLASS C Marketing and advertising................................... $ 83,737 Amortization of commissions................................. 98,635 Printing of prospectuses and SAIs........................... 159 Branch network costs allocated and interest expense......... 155,779 Service fees paid to investment professionals............... 32,878 PACE LARGE COMPANY GROWTH EQUITY INVESTMENTS CLASS A Marketing and advertising................................... $109,217 Amortization of commissions................................. 0 Printing of prospectuses and SAIs........................... 1,090 Branch network costs allocated and interest expense......... 361,189 Service fees paid to investment professionals............... 91,005 CLASS B Marketing and advertising................................... $ 26,577 Amortization of commissions................................. 38,304 Printing of prospectuses and SAIs........................... 156 Branch network costs allocated and interest expense......... 82,070 Service fees paid to investment professionals............... 13,220 CLASS C Marketing and advertising................................... $ 25,821 Amortization of commissions................................. 32,344 Printing of prospectuses and SAIs........................... 131 Branch network costs allocated and interest expense......... 73,684 Service fees paid to investment professionals............... 10,782
63 PACE SMALL/MEDIUM COMPANY VALUE EQUITY INVESTMENTS CLASS A Marketing and advertising................................... $104,705 Amortization of commissions................................. 0 Printing of prospectuses and SAIs........................... 794 Branch network costs allocated and interest expense......... 67,685 Service fees paid to investment professionals............... 20,122 CLASS B Marketing and advertising................................... $ 27,622 Amortization of commissions................................. 28,813 Printing of prospectuses and SAIs........................... 209 Branch network costs allocated and interest expense......... 18,526 Service fees paid to investment professionals............... 5,325 CLASS C Marketing and advertising................................... $ 37,630 Amortization of commissions................................. 18,285 Printing of prospectuses and SAIs........................... 286 Branch network costs allocated and interest expense......... 19,936 Service fees paid to investment professionals............... 6,096 PACE SMALL/MEDIUM COMPANY GROWTH EQUITY INVESTMENTS CLASS A Marketing and advertising................................... $135,456 Amortization of commissions................................. 0 Printing of prospectuses and SAIs........................... 996 Branch network costs allocated and interest expense......... 124,368 Service fees paid to investment professionals............... 39,452 CLASS B Marketing and advertising................................... $ 29,148 Amortization of commissions................................. 21,142 Printing of prospectuses and SAIs........................... 185 Branch network costs allocated and interest expense......... 30,344 Service fees paid to investment professionals............... 7,813 CLASS C Marketing and advertising................................... $ 28,522 Amortization of commissions................................. 18,265 Printing of prospectuses and SAIs........................... 152 Branch network costs allocated and interest expense......... 25,876 Service fees paid to investment professionals............... 6,088
64 PACE INTERNATIONAL EQUITY INVESTMENTS CLASS A Marketing and advertising................................... $333,557 Amortization of commissions................................. 0 Printing of prospectuses and SAIs........................... 1,051 Branch network costs allocated and interest expense......... 342,554 Service fees paid to investment professionals............... 71,127 CLASS B Marketing and advertising................................... $ 11,238 Amortization of commissions................................. 12,190 Printing of prospectuses and SAIs........................... 35 Branch network costs allocated and interest expense......... 11,054 Service fees paid to investment professionals............... 2,157 CLASS C Marketing and advertising................................... $ 42,983 Amortization of commissions................................. 19,961 Printing of prospectuses and SAIs........................... 136 Branch network costs allocated and interest expense......... 34,364 Service fees paid to investment professionals............... 6,654 PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS CLASS A Marketing and advertising................................... $ 55,486 Amortization of commissions................................. 0 Printing of prospectuses and SAIs........................... 461 Branch network costs allocated and interest expense......... 23,287 Service fees paid to investment professionals............... 4,216 CLASS B Marketing and advertising................................... $ 52,170 Amortization of commissions................................. 20,128 Printing of prospectuses and SAIs........................... 410 Branch network costs allocated and interest expense......... 22,454 Service fees paid to investment professionals............... 3,775 CLASS C Marketing and advertising................................... $ 33,825 Amortization of commissions................................. 6,368 Printing of prospectuses and SAIs........................... 230 Branch network costs allocated and interest expense......... 12,182 Service fees paid to investment professionals............... 2,123
65 "Marketing and advertising" includes various internal costs allocated by Brinson Advisors to its effort at distributing the funds shares. These internal costs encompass office rent, salaries and other overhead expenses of various departments and areas of operations of Brinson Advisors. "Branch network costs allocated and interest expense" consist of an allocated portion of the expenses of various departments involved in the distribution of the funds shares, including the retail branch system of UBS PaineWebber, the sole dealer for the funds' shares during this period, and "service fees paid to investment professionals" represents compensation paid by UBS PaineWebber to its financial advisors. In approving the overall system of distribution for each fund, the board considered several factors, including that the multiple class structure would permit sales of fund shares outside the PACE Program and would (1) enable investors to choose the purchasing option best suited to their individual situation, thereby encouraging current shareholders to make additional investments in the fund and attracting new investors and assets to the fund to the benefit of the fund and its shareholders, (2) facilitate distribution of the funds' shares and (3) maintain the competitive position of the fund in relation to other funds that have implemented or are seeking to implement similar distribution arrangements. In approving the Class A Plan, the Class B Plan and the Class C Plan, the board considered all the features of the distribution system and the anticipated benefits to the funds and its shareholders. With regard to each Plan, the board considered (1) the conditions under which different combinations of initial sales charges, deferred sales charges, service fees and distribution fees and/or deferred sales charges would be imposed and the amount of such charges, (2) Brinson Advisors' belief that the different combinations of initial sales charges, deferred sales charges, service fees and distribution fees would be attractive to dealers and investment professionals, resulting in greater growth of the fund than might otherwise be the case, (3) the advantages to the shareholders of economies of scale resulting from growth in the fund's assets and potential continued growth, (4) the services provided to the fund and its shareholders by Brinson Advisors, (5) the services provided by dealers pursuant to each dealer agreement with Brinson Advisors and (6) Brinson Advisors' shareholder service-related and where applicable, distribution-related expenses and costs. With respect to the Class B Plan, the board members also recognized that Brinson Advisors' willingness to compensate dealers without the concomitant receipt by Brinson Advisors of initial sales charges was conditioned upon its expectation of being compensated under the Class B Plan. With respect to each Plan, the board considered all compensation that Brinson Advisors would receive under the Plan and the Principal Underwriting Contract, including service fees and, as applicable, initial sales charges, distribution fees and deferred sales charges. The board also considered the benefits that would accrue to Brinson Advisors under each Plan in that Brinson Advisors would receive service, distribution, management and administration fees that are calculated based upon a percentage of the average net assets of a fund, which fees would increase if the Plan were successful and the fund attained and maintained significant asset levels. Under the Principal Underwriting Contract between the Trust and Brinson Advisors for the Class A shares for the fiscal period ended July 31, 2001, Brinson Advisors earned the following approximate amounts of sales charges and retained the following approximate amounts, net of concessions to UBS PaineWebber as a dealer:
EARNED RETAINED -------- -------- PACE Government Securities Fixed Income Investments......... $37,892 $ 3,610 PACE Intermediate Fixed Income Investments.................. 21,188 436 PACE Strategic Fixed Income Investments..................... 8,159 0 PACE Municipal Fixed Income Investments..................... 19,897 2,217 PACE Global Fixed Income Investments........................ 1,840 513 PACE Large Company Value Equity Investments................. 97,441 6,212 PACE Large Company Growth Equity Investments................ 41,111 3,133 PACE Small/Medium Company Value Equity Investments.......... 13,855 468 PACE Small/Medium Company Growth Equity Investments......... 18,930 863 PACE International Equity Investments....................... 4,022 1,588 PACE International Emerging Markets Equity Investments...... 621 27
66 Brinson Advisors earned and retained the following contingent deferred sales charges paid upon certain redemptions of shares for the fiscal period ended July 31, 2001:
CLASS A CLASS B CLASS C -------- -------- -------- PACE Government Securities Fixed Income Investments... $ 0 $ 19,641 $ 425 PACE Intermediate Fixed Income Investments............ 0 30,864 158 PACE Strategic Fixed Income Investments............... 0 15,209 176 PACE Municipal Fixed Income Investments............... 0 44,458 2 PACE Global Fixed Income Investments.................. 0 1,548 103 PACE Large Company Value Equity Investments........... 0 200,949 1,100 PACE Large Company Growth Equity Investments.......... 0 30,051 419 PACE Small/Medium Company Value Equity Investments.... 0 14,208 1,288 PACE Small/Medium Company Growth Equity Investments... 0 23,242 2,487 PACE International Equity Investments................. 0 2,121 279 PACE International Emerging Markets Equity Investments......................................... 0 8,947 0
SECURITIES LENDING. For the fiscal year ended July 31, 2001, UBS PaineWebber, acting as the funds' lending agent, received compensation from the funds as follows:
FUND COMPENSATION - ---- ------------ PACE Money Market Investments............................... $ 0 PACE Government Securities Fixed Income Investments......... 5,042 PACE Intermediate Fixed Income Investments.................. 23,571 PACE Strategic Fixed Income Investments..................... 3,323 PACE Municipal Fixed Income Investments..................... 0 PACE Global Fixed Income Investments........................ 22,476 PACE Large Company Value Equity Investments................. 25,941 PACE Large Company Growth Equity Investments................ 31,708 PACE Small/Medium Company Value Equity Investments.......... 11,500 PACE Small/Medium Company Growth Equity Investments......... 89,405 PACE International Equity Investments....................... 77,356 PACE International Emerging Markets Equity Investments...... 7,007
PERSONAL TRADING POLICIES. The funds, Brinson Advisors (investment manager and principal underwriter for the funds) and the investment advisors each has adopted a code of ethics under Investment Company Act Rule 17j-1, which permits personnel covered by the rule to invest in securities that may be purchased or held by a fund but prohibits fraudulent, deceptive or manipulative conduct in connection with that personal investing. PORTFOLIO TRANSACTIONS Decisions to buy and sell securities for a fund other than PACE Money Market Investments are made by the fund's investment advisor, subject to the overall review of Brinson Advisors and the board of trustees. Decisions to buy and sell securities for PACE Money Market Investments are made by Brinson Advisors as that fund's investment advisor, subject to the overall review of the board of trustees. Although investment decisions for a fund are made independently from those of the other accounts managed by its investment advisor, investments of the type that the fund may make also may be made by those other accounts. When a fund and one or more other accounts managed by its investment advisor are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the investment advisor to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by a fund or the size of the position obtained or disposed of by a fund. Transactions on U.S. stock exchanges and some foreign stock exchanges involve the payment of negotiated brokerage commissions. On exchanges on which commissions are negotiated, the cost of transactions may vary among different brokers. On most foreign exchanges, commissions are generally fixed. No stated commission is 67 generally applicable to securities traded in U.S. over-the-counter markets, but the prices of those securities include undisclosed commissions or mark-ups. The cost of securities purchased from underwriters include an underwriting commission or concession and the prices at which securities are purchased from and sold to dealers include a dealer's mark-up or mark-down. U.S. government securities generally are purchased from underwriters or dealers, although certain newly issued U.S. government securities may be purchased directly from the U.S. Treasury or from the issuing agency or instrumentality. For the periods indicated, the funds paid the brokerage commissions set forth below:
TOTAL BROKERAGE COMMISSIONS ------------------------------ FISCAL YEAR ENDED JULY 31, ------------------------------ FUND 2001 2000 1999 - ---- -------- -------- -------- PACE Money Market Investments............................... $ 0 $ 0 $ 0 PACE Government Securities Fixed Income Investments......... 0 0 0 PACE Intermediate Fixed Income Investments.................. 0 0 0 PACE Strategic Fixed Income Investments..................... 6,566 7,221 4,297 PACE Municipal Fixed Income Investments..................... 0 0 0 PACE Global Fixed Income Investments........................ 0 0 0 PACE Large Company Value Equity Investments................. 919,948 839,338 336,042 PACE Large Company Growth Equity Investments................ 670,285 406,265 289,045 PACE Small/Medium Company Value Equity Investments.......... 996,655 741,513 715,933 PACE Small/Medium Company Growth Equity Investments......... 261,700 147,922 296,609 PACE International Equity Investments....................... 857,123 724,608 722,215 PACE International Emerging Markets Equity Investments...... 609,756 611,340 361,372
The funds have no obligation to deal with any broker or group of brokers in the execution of portfolio transactions. The funds contemplate that, consistent with the policy of obtaining the best net results, brokerage transactions may be conducted through affiliates of the investment advisor and Brinson Advisors, including UBS PaineWebber. The board has adopted procedures in conformity with Rule 17e-1 under the Investment Company Act to ensure that all brokerage commissions paid to any other broker are reasonable and fair. Specific provisions in the Management Agreement and Advisory Agreements authorize Brinson Advisors and any of its affiliates that is a member of a national securities exchange, to effect portfolio transactions for the funds on such exchange and to retain compensation in connection with such transactions. Any such transactions will be effected and related compensation paid only in accordance with applicable SEC regulations. During the fiscal years indicated, the funds paid brokerage commissions to UBS PaineWebber or a brokerage affiliate of an investment advisor as follows.
FOR THE FISCAL YEAR ENDED JULY 31, ------------------------------ FUND 2001 2000 1999 - ---- -------- -------- -------- PACE Money Market Investments............................... $ 0 $0 $ 0 PACE Government Securities Fixed Income Investments......... 0 0 0 PACE Intermediate Fixed Income Investments.................. 0 0 0 PACE Strategic Fixed Income Investments..................... 0 0 0 PACE Municipal Fixed Income Investments..................... 0 0 0 PACE Global Fixed Income Investments........................ 0 0 0 PACE Large Company Value Equity Investments................. 9,695 0 0 PACE Large Company Growth Equity Investments................ 3,330 0 215 PACE Small/Medium Company Value Equity Investments.......... 0 0 0 PACE Small/Medium Company Growth Equity Investments......... 132 0 0 PACE International Equity Investments....................... 14,257 0 0 PACE International Emerging Markets Equity Investments...... 34,111 0 0
68 More information about brokerage commissions paid to affiliates of UBS PaineWebber or a brokerage affiliate of an investment advisor during the fiscal year ended July 31, 2001 is set forth below. - PACE Large Company Value Equity Investments paid $9,695 in brokerage commissions to UBS Warburg LLC. These brokerage commissions represented 0.65% of the total brokerage commissions paid by the fund during the fiscal year and 0.51% of the dollar amount of transactions involving the payment of brokerage commissions. - PACE Large Company Growth Equity Investments paid $3,330 in brokerage commissions to UBS Warburg LLC. These brokerage commissions represented 0.50% of the total brokerage commissions paid by the fund during the fiscal year and 0.49% of the dollar amount of transactions involving the payment of brokerage commissions. - PACE Small/Medium Company Growth Equity Investments paid $132 in brokerage commissions to UBS PaineWebber Inc. These brokerage commissions represented 0.05% of the total brokerage commissions paid by the fund during the fiscal year and 0.07% of the dollar amount of transactions involving the payment of brokerage commissions. - PACE International Equity Investments paid $14,257 in brokerage commissions to UBS Warburg LLC. These brokerage commissions represented 1.66% of the total brokerage commissions paid by the fund during the fiscal year and 1.24% of the dollar amount of transactions involving the payment of brokerage commissions. - PACE International Emerging Markets Equity Investments paid $19,132 in brokerage commissions to UBS AG and $14,979 to UBS Warburg LLC. These brokerage commissions represented 3.14% and 2.46%, respectively, of the total brokerage commissions paid by the fund during the fiscal year and 3.27% and 2.43%, respectively, of the dollar amount of transactions involving the payment of brokerage commissions. Transactions in futures contracts are executed through futures commission merchants ("FCMs") who receive brokerage commissions for their services. The funds' procedures in selecting FCMs to execute transactions in futures contracts, including procedures permitting the use of affiliates of Brinson Advisors and the investment advisor, are similar to those in effect with respect to brokerage transactions in securities. In selecting brokers for a fund, its investment advisor will consider the full range and quality of a broker's services. Consistent with the interests of the funds and subject to the review of the board, Brinson Advisors or the applicable investment advisor may cause a fund to purchase and sell portfolio securities through brokers that provide Brinson Advisors or the investment advisor with brokerage or research services. The funds may pay those brokers a higher commission than may be charged by other brokers, provided that Brinson Advisors or the investment advisor, as applicable, determines in good faith that the commission is reasonable in terms either of that particular transaction or of the overall responsibility of Brinson Advisors or the investment advisor to that fund and its other clients. Research services obtained from brokers may include written reports, pricing and appraisal services, analysis of issues raised in proxy statements, educational seminars, subscriptions, portfolio attribution and monitoring services, and computer hardware, software and access charges which are directly related to investment research. Research services may be received in the form of written reports, online services, telephone contacts and personal meetings with securities analysts, economists, corporate and industry spokespersons and government representatives. 69 For the fiscal year ended July 31, 2001, the funds directed portfolio transactions to brokers chosen because they provide research and analysis as indicated below, for which the funds paid the following in brokerage commissions:
AMOUNT OF PORTFOLIO BROKERAGE FUND TRANSACTIONS COMMISSIONS PAID - ---- ------------------- ---------------- PACE Money Market Investments............................. $ 0 $ 0 PACE Government Securities Fixed Income Investments....... 0 0 PACE Intermediate Fixed Income Investments................ 0 0 PACE Strategic Fixed Income Investments................... 0 0 PACE Municipal Fixed Income Investments................... 0 0 PACE Global Fixed Income Investments...................... 0 0 PACE Large Company Value Equity Investments............... 372,507,172 264,134 PACE Large Company Growth Equity Investments.............. 12,951,949 13,831 PACE Small/Medium Company Value Equity Investments........ 222,562,554 446,699 PACE Small/Medium Company Growth Equity Investments....... 30,163,692 55,950 PACE International Equity Investments..................... 0 0 PACE International Emerging Markets Equity Investments.... 226,018,853 1,106.10
For purchases or sales with broker-dealer firms that act as principal, Brinson Advisors or a fund's investment advisor seeks best execution. Although Brinson Advisors or a fund's investment advisor may receive certain research or execution services in connection with the transactions, it will not purchase securities at a higher price or sell securities at a lower price than would otherwise be paid if no weight was attributed to the services provided by the executing dealer. Brinson Advisors or a fund's investment advisor may consider the sale of shares of the funds or other funds it advises as a factor in the selection of brokers or dealers to effect transactions for the funds, subject to Brinson Advisors' duty to seek best execution. Brinson Advisors or a fund's investment advisor may engage in agency transactions in over-the-counter equity and debt securities in return for research and execution services. These transactions are entered into only pursuant to procedures that are designed to ensure that the transaction (including commissions) is at least as favorable as it would have been if effected directly with a market-maker that did not provide research or execution services. Research services and information received from brokers or dealers are supplemental to the research efforts of Brinson Advisors and a fund's investment advisor and, when utilized, are subject to internal analysis before being incorporated into their investment processes. Information and research services furnished by brokers or dealers through which or with which a fund effects securities transactions may be used by Brinson Advisors or the fund's investment advisor in advising other funds or accounts and, conversely, research services furnished to Brinson Advisors or a fund's investment advisor by brokers or dealers in connection with other funds or accounts that either of them advises may be used in advising a fund. Investment decisions for a fund and for other investment accounts managed by Brinson Advisors or the applicable investment advisor are made independently of each other in light of differing considerations for the various accounts. However, the same investment decision may occasionally be made for a fund and one or more accounts. In those cases, simultaneous transactions are inevitable. Purchases or sales are then averaged as to price and allocated between that fund and the other account(s) as to amount in a manner deemed equitable to the fund and the other account(s). While in some cases this practice could have a detrimental effect upon the price or value of the security as far as a fund is concerned, or upon its ability to complete its entire order, in other cases it is believed that simultaneous transactions and the ability to participate in volume transactions will benefit the fund. The funds will not purchase securities that are offered in underwritings in which an affiliate of the investment advisor or Brinson Advisors is a member of the underwriting or selling group, except pursuant to procedures adopted by the board pursuant to Rule 10f-3 under the Investment Company Act. Among other things, these procedures require that the spread or commission paid in connection with such a purchase be reasonable and fair, the purchase be at not more than the public offering price prior to the end of the first business day after the date of the public offering and that no affiliate of the investment advisor or Brinson Advisors participate in or benefit from the sale to the funds. 70 As of July 31, 2001, the funds owned securities issued by their regular broker-dealers (as defined in Rule 10b-1 under the Investment Company Act) as follows: PACE Money Market Investments: Short-Term Corporate Obligations of Bear Stearns Cos. Inc. ($1,000,000); Short-Term Corporate Obligations of CS First Boston, Inc. ($2,000,000); Short-Term Corporate Obligations of Merrill Lynch & Co., Inc. ($1,699,988); Short-Term Corporate Obligations of Morgan Stanley Dean Witter & Co. ($2,000,000). PACE Government Securities Fixed Income Investments: Collateralized Mortgage Obligations of Bear Stearns Mortgage Securities, Inc. ($2,122,617); Collateralized Mortgage Obligations of CS First Boston Mortgage Securities Corp. ($7,073,833). PACE Intermediate Fixed Income Investments: Collateralized Mortgage Obligations of Credit Suisse First Boston Mortgage Securities Corp. ($5,073,856); Collateralized Mortgage Obligations of DLJ Mortgage Acceptance Corp. ($718,727); Collateralized Mortgage Obligations of Salomon Brothers Mortgage Securities Inc. ($772,887); Corporate Notes of Goldman Sachs Group, Inc. ($4,649,087) and Corporate Notes of Lehman Brothers Holdings Inc. ($7,058,706). PACE Strategic Fixed Income Investments: Collateralized Mortgage Obligations of Bear Stearns Cos. Inc. ($3,466,296); Asset Backed Securities of CS First Boston, Inc. ($685,407); Corporate Bonds of Morgan Stanley Dean Witter & Co. ($1,200,071); and Corporate Bonds of Bear Stearns Cos. Inc. ($4,496,908). PACE Municipal Fixed Income Investments: None PACE Global Fixed Income Investments: Long-Term Debt Securities of Credit Suisse First Boston Inc. ($3,014,274) and Long-Term Debt Securities of Morgan Stanley Dean Witter & Co. ($936,339). PACE Large Company Value Equity Investments: Common Stock of Merrill Lynch & Co., Inc. ($2,712,000) and Common Stock of Morgan Stanley Dean Witter & Co. ($3,170,460). PACE Large Company Growth Equity Investments: Common Stock of Morgan Stanley Dean Witter & Co. ($7,441,608). PACE Small/Medium Company Value Equity Investments: None PACE Small/Medium Company Growth Equity Investments: None PACE International Equity Investments: None PACE International Emerging Markets Equity Investments: None PORTFOLIO TURNOVER. PACE Money Market Investments may attempt to increase yields by trading to take advantage of short-term market variations, which results in high portfolio turnover. Because purchases and sales of money market instruments are usually effected as principal transactions, this policy does not result in high brokerage commissions to the fund. The other funds do not intend to seek profits through short-term trading. Nevertheless, the funds will not consider portfolio turnover rate as a limiting factor in making investment decisions. Portfolio turnover rates may vary greatly from year to year as well as within a particular year and may be affected by cash requirements for redemptions of a fund's shares as well as by requirements that enable the fund to receive favorable tax treatment. Many of the funds experienced an increase in portfolio turnover during the fiscal year ended July 31, 2001 due to the restructuring of the portfolio to reflect the investment styles of the funds' new investment advisors. 71 The following table sets forth the portfolio turnover rates for each fund for the periods indicated:
PORTFOLIO TURNOVER RATES ------------------------- FISCAL YEAR FISCAL YEAR ENDED ENDED JULY 31, JULY 31, FUND 2001 2000 - ---- ----------- ----------- PACE Money Market Investments............................... N/A N/A PACE Government Securities Fixed Income Investments......... 631% 585% PACE Intermediate Fixed Income Investments.................. 82% 88% PACE Strategic Fixed Income Investments..................... 519% 391% PACE Municipal Fixed Income Investments..................... 68% 33% PACE Global Fixed Income Investments........................ 270% 170% PACE Large Company Value Equity Investments................. 148% 195% PACE Large Company Growth Equity Investments................ 64% 59% PACE Small/Medium Company Value Equity Investments.......... 72% 83% PACE Small/Medium Company Growth Equity Investments......... 68% 81% PACE International Equity Investments....................... 60% 72% PACE International Emerging Markets Equity Investments...... 121% 115%
REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION AND OTHER SERVICES WAIVERS OF SALES CHARGES -- CLASS A SHARES. The following additional sales charge waivers are available for Class A shares if you: - Acquire shares in connection with a reorganization pursuant to which a fund acquires substantially all of the assets and liabilities of another fund in exchange solely for shares of the acquiring fund; or - 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. REINSTATEMENT PRIVILEGE -- CLASS A SHARES. Shareholders who have redeemed Class A shares of a fund may reinstate their account without a sales charge by notifying the transfer agent, PFPC Inc. ("PFPC"), 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 is 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 in 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. See "Taxes" below. PURCHASES OF CLASS A SHARES THROUGH THE UBS PAINEWEBBER INSIGHTONE-SM- PROGRAM. Investors who purchase shares through the UBS PaineWebber InsightOne-SM- Program are eligible to purchase Class A shares without a sales load. The UBS PaineWebber InsightOne-SM- Program offers a nondiscretionary brokerage account to investors 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 CLASS A AND CLASS Y 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 of Brinson or PACE mutual funds without paying a sales load. In addition, an investor who owned Class Y shares of a fund through that program as of November 15, 2001, will be eligible to continue to purchase Class Y shares of that fund through the program. The PACE-SM- Multi Advisor Program is an advisory program sponsored by UBS PaineWebber that provides comprehensive investment services, including investor profiling, a personalized asset allocation strategy using an appropriate combination of funds, and a quarterly investment performance review. Participation in the PACE-SM- Multi Advisor Program is subject to payment of an advisory fee at the effective maximum annual rate of 1.5% of assets. Employees of UBS PaineWebber and its affiliates are entitled to a 72 waiver of this fee. Please contact your UBS PaineWebber Financial Advisor or UBS PaineWebber's correspondent firms for more information concerning mutual funds that are available through the PACE-SM- Multi Advisor Program. PAYMENTS BY BRINSON ADVISORS -- CLASS B SHARES. For purchases of Class B shares in amounts less than $99,000, your broker is paid an up-front commission equal to 4% of the amount sold. For purchases of Class B shares in amounts of $100,000 up to $249,999, your broker is paid an up-front commission of 3.25%, and for purchases in amounts of $250,000 to $499,999, your broker is paid an up-front commission equal to 2.5% of the amount sold. For purchases of Class B shares in amounts of $500,000 to $999,999, your broker is paid an up-front commission equal to 1.75% of the amount sold. PAYMENTS BY BRINSON ADVISORS -- CLASS Y SHARES. Class Y shares are sold without sales charges and do not pay ongoing 12b-1 distribution or service fees. As principal underwriter of the Class Y shares, Brinson Advisors may, from time to time, make payments out of its own resources to dealers who sell Class Y shares of the Family Funds ("Family Funds" include other funds of the Trust, Brinson Funds and other funds for which Brinson Advisors or any of its affiliates serve as principal underwriter) to shareholders who buy $10 million or more at any one time. PURCHASES AND SALES OF CLASS Y SHARES FOR PARTICIPANTS IN UBS PW 401(k) PLUS PLAN. The trustee of the UBS PW 401(k) Plus Plan, a defined contribution plan for employees of UBS PaineWebber and certain of its affiliates, buys and sells Class Y shares of the funds that are included as investment options under the Plan to implement the investment choices of individual participants with respect to their Plan contributions. Individual Plan participants should consult the Summary Plan Description and other plan material of the UBS PW 401(k) Plus Plan (collectively, "Plan Documents") for a description of the procedures and limitations applicable to making and changing investment choices. Copies of the Plan Documents are available from the Benefits Connection, 100 Halfday Road, Lincolnshire, IL 60069 or by calling 1-888-PWEBBER (1-888-793-2237). As described in the Plan Documents, the price at which Class Y shares are bought and sold by the trustee of UBS PW 401(k) Plus Plan might be more or less than the price per share at the time the participants made their investment choices. ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION. As discussed in the Prospectus, eligible shares of a fund may be exchanged for shares of the corresponding class of other Family Funds. Class P and Class Y shares are not eligible for exchange. Shareholders will receive at least 60 days' notice of any termination or material modification of the exchange offer, except no notice need be given if, under extraordinary circumstances, either redemptions are suspended under the circumstances described below or a fund temporarily delays or ceases the sales of its shares because it is unable to invest amounts effectively in accordance with the fund's investment objective, policies and restrictions. If conditions exist that make cash payments undesirable, each fund reserves the right to honor any request for redemption by making payment in whole or in part in securities chosen by the fund and valued in the same way as they would be valued for purposes of computing the fund's net asset value. Any such redemption in kind will be made with readily marketable securities, to the extent available. If payment is made in securities, a shareholder may incur brokerage expenses in converting these securities into cash. Each fund has elected, however, to be governed by Rule 18f-1 under the Investment Company Act, under which it is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of its net asset value during any 90-day period for one shareholder. This election is irrevocable unless the SEC permits its withdrawal. The funds 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 a fund to dispose of securities owned by it or fairly to determine the value of its assets or (3) as the SEC may otherwise permit. The redemption price may be more or less than the shareholder's cost, depending on the market value of a fund's portfolio at the time. FINANCIAL INSTITUTIONS. A fund may authorize financial institutions or their agents to accept on its behalf purchase and redemption orders that are in "good form" in accordance with the policies of those institutions. A fund will be deemed to have received these purchase and redemption orders when an institution or its delegate or 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 73 include retirement plan service providers who aggregate purchase and redemption instructions received from numerous retirement plans or plan participants. AUTOMATIC INVESTMENT PLAN -- CLASS A, CLASS B, CLASS C AND CLASS P SHARES. Brinson Advisors or your investment professional may offer an automatic investment plan with a minimum initial investment of $1,000 through which a fund will deduct $50 or more on a monthly, quarterly, semi-annual or annual basis from the investor's bank account to invest directly in the funds' Class A, Class B or Class C shares. For Class P shares, an automatic investment plan is available to certain shareholders who may authorize UBS PaineWebber to place a purchase order each month or quarter for fund shares in an amount not less than $500 per month or quarter. For Class P shareholders, the purchase price is paid automatically from cash held in the shareholder's UBS PaineWebber brokerage account through the automatic redemption of the shareholder's shares of a UBS PaineWebber money market fund or through the liquidation of other securities held in the investor's UBS PaineWebber brokerage account. If the PACE Program assets are held in a UBS PaineWebber Resource Management Account-Registered Trademark- ("RMA-Registered Trademark-") account, the shareholder may arrange for preauthorized automatic fund transfer on a regular basis, from the shareholder's bank account to the shareholder's RMA account. Shareholders may utilize this service in conjunction with the automatic investment plan to facilitate regular PACE investments. This automatic fund transfer service, however, is not available for retirement plan shareholders. For participants in the PACE-SM- Multi Advisor Program, amounts invested through the automatic investment plan will be invested in accordance with the participant's benchmark allocation. If sufficient funds are not available in the participant's account on the trade date to purchase the full amount specified by the participant, no purchase will be made. In addition to providing a convenient and disciplined manner of investing, participation in an automatic investment plan enables an investor to use the technique of "dollar cost averaging." When a shareholder invests the same amount each month, the shareholder will purchase more shares when a 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 usually 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, since an 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 low price levels. An investor should also consider whether a single, large investment in Class B or Class C shares would qualify for Class A sales load reductions. AUTOMATIC REDEMPTION PLAN -- CLASS P SHARES. Investors in Class P shares may have UBS PaineWebber redeem a portion of their shares in the PACE Program monthly or quarterly under the automatic redemption plan. Quarterly redemptions are made in March, June, September and December. The amount to be redeemed must be at least $500 per month or quarter. Purchases of additional shares of a fund concurrent with redemption are ordinarily disadvantageous to shareholders because of tax liabilities. For retirement plan shareholders, special limitations apply. For further information regarding the automatic redemption plan, shareholders should contact their UBS PaineWebber Financial Advisors. AUTOMATIC CASH WITHDRAWAL PLAN -- CLASS A, CLASS B AND CLASS C SHARES. The automatic cash withdrawal plan allows investors to set up monthly, quarterly (March, June, September and December), semi-annual (June and December) or annual (December) withdrawals from their Family Funds' accounts. Minimum balances and withdrawals vary according to the class of shares: - Class A and Class C shares. Minimum value of fund shares is $5,000; minimum withdrawals of $100. - Class B shares. Minimum value of fund shares is $10,000; minimum monthly, quarterly, and semi-annual and annual withdrawals of $100, $200, $300 and $400, respectively. Withdrawals under the automatic cash withdrawal plan will not be subject to a deferred sales charge if the investor withdraws no more than 12% of the value of the fund account when the investor signed up for the Plan (for Class B shares, annually; for Class A and Class C shares, during the first year under the Plan). Shareholders who elect to receive dividends or other distributions in cash may not participate in this 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 investor elects to participate in the automatic cash withdrawal plan), less aggregate redemptions made other than pursuant to the automatic 74 cash withdrawal plan, is less than the minimum values specified above. Purchases of additional shares of a fund concurrent with withdrawals are ordinarily disadvantageous to shareholders because of tax liabilities and, for Class A shares, initial sales charges. On or about the 20th of a month for monthly, quarterly, semi-annual and annual plans, your investment professional will arrange for redemption by the funds of sufficient fund shares to provide the withdrawal payments specified by participants in the funds' automatic cash withdrawal plan. The payments generally are mailed approximately five Business Days (defined under "Valuation of Shares") 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 a automatic cash withdrawal plan from their investment professionals or PFPC at 1-800-647-1568. INDIVIDUAL RETIREMENT ACCOUNTS. Self-Directed IRAs may be available through your investment professional through which investments may be made in shares of the funds, as well as in other investments. The minimum initial investment in this IRA is $10,000. Investors considering establishing an IRA should review applicable tax laws and should consult their tax advisors. TRANSFER OF ACCOUNTS. If investors holding Class A, Class B, Class C or Class Y shares of a fund in a brokerage account transfer their brokerage accounts to another firm, the fund shares will be moved to an account with PFPC. However, if the other firm has entered into a dealer agreement with Brinson Advisors relating to the fund, the shareholder may be able to hold fund shares in an account with the other firm. CONVERSION OF CLASS B SHARES Class B shares of a fund will automatically convert to Class A shares of that fund, based on the relative net asset values per share of each class, as of the close of business on the first Business Day (as defined under "Valuation of Shares") of the month in which the sixth, fourth, third or second anniversary (depending on the amount of shares purchased) of the initial issuance of those Class B shares. For the purpose of calculating the holding period required for conversion of Class B shares, the date of initial issuance means (1) the date on which the Class B shares were issued or (2) for Class B shares obtained through an exchange, or a series of exchanges, the date on which the original Class B shares were issued. For purposes of conversion to Class A shares, Class B shares purchased through the reinvestment of dividends and other distributions paid in respect of Class B shares will be held in a separate sub-account. Each time any Class B shares in the shareholder's regular account (other than those in the sub-account) convert to Class A shares, a pro rata portion of the Class B shares in the sub-account will also convert to Class A shares. The portion will be determined by the ratio that the shareholder's Class B shares converting to Class A shares bears to the shareholder's total Class B shares not acquired through dividends and other distributions. VALUATION OF SHARES Each fund determines its net asset value per share separately for each class of shares, normally as of the close of regular trading (usually 4:00 p.m., Eastern time) on the NYSE on each Monday through Friday 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 closed on the observance of 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 that 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 a fund's investment advisor as the primary market. Securities traded in the over-the-counter market and listed on The Nasdaq Stock Market ("Nasdaq") normally are valued at the last available sale price on Nasdaq prior to valuation; other over-the-counter securities are valued at the last bid price available prior to valuation (other than short-term investments that mature in 60 days or less, which are valued as described further below). 75 Where market quotations are readily available, bonds held by the funds (other than PACE Money Market Investments) are valued based upon market quotations, provided those quotations adequately reflect, in the judgment of a fund's investment advisor, the fair value of the securities. Where those market quotations are not readily available, bonds are valued based upon appraisals received from a pricing service using a computerized matrix system or based upon appraisals derived from information concerning the security or similar securities received from recognized dealers in those securities. The amortized cost method of valuation generally is used to value debt obligations with 60 days or less remaining until maturity, unless the board determines that this does not represent fair value. It should be recognized that judgment often plays a greater role in valuing thinly traded securities and 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. 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 a fund's custodian. Foreign currency exchange rates are generally determined prior to the close of regular trading on the NYSE. Occasionally events affecting the value of foreign investments and such exchange rates occur between the time at which they are determined and the close of trading on the NYSE, which events would not be reflected in the computation of a fund's net asset value on that day. If events materially affecting the value of such investments or currency exchange rates occur during such time period, the investments will be valued at their fair value as determined in good faith by or under the direction of the board. The foreign currency exchange transactions of the funds 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. Under normal market conditions this rate differs from the prevailing exchange rate by less than one-tenth of one percent due to the costs of converting from one currency to another. Market value for securities may also include 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 securities being valued at a price different from the price that would have been determined had the matrix or formula method not been used. Securities also may be valued based upon appraisals derived from information concerning the security or similar securities received from recognized dealers in those securities. All cash, receivables and current payables are carried at their face value. All other securities and other assets are valued at fair value as determined in good faith by or under the direction of the board. PACE MONEY MARKET INVESTMENTS. PACE Money Market Investments values its portfolio securities in accordance with the amortized cost method of valuation under Rule 2a-7 under the Investment Company Act. To use amortized cost to value its portfolio securities, the fund must adhere to certain conditions under that Rule relating to its investments. Amortized cost is an approximation of market value, whereby the difference between acquisition cost and value at maturity is amortized on a straight-line basis over the remaining life of the instrument. The effect of changes in the market value of a security as a result of fluctuating interest rates is not taken into account and thus the amortized cost method of valuation may result in the value of a security being higher or lower than its actual market value. In the event that a large number of redemptions takes place at a time when interest rates have increased, the fund might have to sell portfolio securities prior to maturity and at a price that might not be as desirable as the value at maturity. The board has established procedures for the purpose of maintaining a constant net asset value of $1.00 per share for PACE Money Market Investments, which include a review of the extent of any deviation of net asset value per share, based on available market quotations, from the $1.00 amortized cost per share. Should that deviation exceed 1/2 of 1%, the trustees will promptly consider whether any action should be initiated to eliminate or reduce material dilution or other unfair results to shareholders. Such action may include redeeming shares in kind, selling portfolio securities prior to maturity, reducing or withholding dividends and utilizing a net asset value per share as determined by using available market quotations. PACE Money Market Investments will maintain a dollar weighted average portfolio maturity of 90 days or less and will not purchase any instrument with a remaining maturity greater than 397 calendar days (as calculated under Rule 2a-7) and except that securities subject to repurchase agreements may have maturities in excess of 397 calendar days. PACE Money Market Investments will limit portfolio investments, including repurchase agreements, to those U.S. dollar denominated instruments that are of high quality and that the trustees determine present minimal credit risks as advised by Brinson Advisors and will comply with certain reporting and recordkeeping procedures. There is no 76 assurance that constant net asset value per share will be maintained. In the event amortized cost ceases to represent fair value, the board will take appropriate action. PERFORMANCE INFORMATION Each fund's performance data quoted in advertising and other promotional materials ("Performance Advertisements") represent past performance and are not intended to indicate future performance. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. TOTAL RETURN CALCULATIONS. Average annual total return quotes ("Standardized Return") used in a fund's Performance Advertisements are calculated according to the following formula: P(1 + T)to the power of n = ERV where: P = a hypothetical initial payment of $1,000 to purchase shares of a fund T = average annual total return of shares of that fund n = number of years ERV = ending redeemable value of a hypothetical $1,000 payment at the beginning of that period.
Under the foregoing formula, the time periods used in Performance Advertisements will be based on rolling calendar quarters, updated to the last day of the most recent quarter prior to submission of the Performance Advertisements for publication. Total return, or "T" in the formula above, is computed by finding the average annual change in the value of an initial $1,000 investment over the period. In calculating the ending redeemable value for Class A and Class C shares, the maximum sales charge of 5.5% (4.5% for fixed income funds) and 1%, respectively, is deducted from the initial $1,000 payment and, for Class B and Class C shares, the maximum applicable deferred sales charge imposed on a redemption of Class B or Class C shares held for the period is deducted. All dividends and other distributions are assumed to have been reinvested at net asset value. Each fund also may refer in Performance Advertisements to total return performance data that are not calculated according to the formula set forth above ("Non-Standardized Return"). A fund calculates Non-Standardized Return for specified periods of time by assuming an investment of $1,000 in fund shares and assuming the reinvestment of all dividends and other distributions. The rate of return is determined by subtracting the initial value of the investment from the ending value and by dividing the remainder by the initial value. Neither initial nor deferred sales charges are taken into account in calculating Non-Standardized Return; the inclusion of those charges would reduce the return. The following tables show performance information for each class of the funds' shares outstanding for the periods indicated. All returns for periods of more than one year are expressed as an average total return. The standardized return for Class P shares reflects the maximum annual program fee of 1.50% for participants in the PACE Select Advisors program. PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS
CLASS CLASS A CLASS B CLASS C CLASS Y CLASS P (INCEPTION/REISSUANCE DATE) (01/31/01) (12/18/00) (12/04/00) (02/02/01) (08/24/95) --------------------------- ---------- ---------- ---------- ---------- ---------- Year ended July 31, 2001: Standardized Return*............. N/A% N/A% N/A% N/A% 12.51% Non-Standardized Return.......... N/A% N/A% N/A% N/A% 14.21% Five Years ended July 31, 2001: Standardized Return*............. N/A% N/A% N/A% N/A% 6.40% Non-Standardized Return.......... N/A% N/A% N/A% N/A% 8.00% Inception to July 31, 2001: Standardized Return*............. (0.13)% 1.96% 6.46% 4.77% 5.86% Non-Standardized Return.......... 4.61% 6.96% 8.26% 4.77% 7.46%
77 PACE INTERMEDIATE FIXED INCOME INVESTMENTS
CLASS CLASS A CLASS B CLASS C CLASS Y CLASS P (INCEPTION/REISSUANCE DATE) (01/31/01) (12/14/00) (12/01/00) (02/02/01) (08/24/95) --------------------------- ---------- ---------- ---------- ---------- ---------- Year ended July 31, 2001: Standardized Return*............. N/A% N/A% N/A% N/A% 9.73% Non-Standardized Return.......... N/A% N/A% N/A% N/A% 11.39% Five Years ended July 31, 2001: Standardized Return*............. N/A% N/A% N/A% N/A% 5.07% Non-Standardized Return.......... N/A% N/A% N/A% N/A% 6.66% Inception to July 31, 2001: Standardized Return*............. (0.43)% 1.04% 5.38% 4.45% 4.62% Non-Standardized Return.......... 4.24% 6.04% 7.20% 4.45% 6.20%
PACE STRATEGIC FIXED INCOME INVESTMENTS
CLASS CLASS A CLASS B CLASS C CLASS Y CLASS P (INCEPTION/REISSUANCE DATE) (12/11/00) (01/30/01) (12/01/00) (02/02/01) (08/24/95) --------------------------- ---------- ---------- ---------- ---------- ---------- Year ended July 31, 2001: Standardized Return*............. N/A% N/A% N/A% N/A% 11.06% Non-Standardized Return.......... N/A% N/A% N/A% N/A% 12.74% Five Years ended July 31, 2001: Standardized Return*............. N/A% N/A% N/A% N/A% 5.91% Non-Standardized Return.......... N/A% N/A% N/A% N/A% 7.51% Inception to July 31, 2001: Standardized Return*............. 2.12% (0.62)% 5.57% 3.98% 6.09% Non-Standardized Return.......... 6.93% 4.38% 7.43% 3.98% 7.69%
PACE MUNICIPAL FIXED INCOME INVESTMENTS
CLASS CLASS A CLASS B CLASS C CLASS Y CLASS P (INCEPTION DATE) (01/23/01) (2/23/01) (12/04/00) (02/23/01) (08/24/95) ---------------- ---------- --------- ---------- ---------- ---------- Year ended July 31, 2001: Standardized Return*............ N/A% N/A% N/A% N/A% 6.58% Non-Standardized Return......... N/A% N/A% N/A% N/A% 8.20% Five Years ended July 31, 2001: Standardized Return*............ N/A% N/A% N/A% N/A% 3.62% Non-Standardized Return......... N/A% N/A% N/A% N/A% 5.18% Inception to July 31, 2001: Standardized Return*............ (1.80)% (2.68)% 3.55% 2.72% 3.87% Non-Standardized Return......... 2.86% 2.32% 5.33% 2.72% 5.44%
PACE GLOBAL FIXED INCOME INVESTMENTS
CLASS CLASS A CLASS B CLASS C CLASS Y CLASS P (INCEPTION/REISSUANCE DATE) (12/11/00) (02/05/01) (12/01/00) (01/16/01) (08/24/95) --------------------------- ---------- ---------- ---------- ---------- ---------- Year ended July 31, 2001: Standardized Return*........ N/A% N/A% N/A% N/A% (0.79)% Non-Standardized Return..... N/A% N/A% N/A% N/A% 0.71% Five Years ended July 31, 2001: Standardized Return*........ N/A% N/A% N/A% N/A% 0.53% Non-Standardized Return..... N/A% N/A% N/A% N/A% 2.05% Inception to July 31, 2001: Standardized Return*........ (3.44)% (8.10)% (0.26)% (1.76)% 1.30% Non-Standardized Return..... 1.09% (3.34)% 1.45% (1.76)% 2.84%
78 PACE LARGE COMPANY VALUE EQUITY INVESTMENTS
CLASS CLASS A CLASS B CLASS C CLASS Y CLASS P (INCEPTION DATE) (11/27/00) (11/27/00) (11/27/00) (01/19/01) (08/24/95) ---------------- ---------- ---------- ---------- ---------- ---------- Year ended July 31, 2001: Standardized Return*............ N/A% N/A% N/A% N/A% 6.71% Non-Standardized Return......... N/A% N/A% N/A% N/A% 8.32% Five Years ended July 31, 2001: Standardized Return*............ N/A% N/A% N/A% N/A% 9.64% Non-Standardized Return......... N/A% N/A% N/A% N/A% 11.29% Inception to July 31, 2001: Standardized Return*............ (1.24)% (0.82)% 2.13% 2.27% 10.82% Non-Standardized Return......... 4.53% 4.18% 4.18% 2.27% 12.50%
PACE LARGE COMPANY GROWTH EQUITY INVESTMENTS
CLASS CLASS A CLASS B CLASS C CLASS Y CLASS P (INCEPTION/REISSUANCE DATE) (11/27/00) (11/27/00) (11/27/00) (02/23/01) (08/24/95) --------------------------- ---------- ---------- ---------- ---------- ---------- Year ended July 31, 2001: Standardized Return*........ N/A% N/A% N/A% N/A% (35.15)% Non-Standardized Return..... N/A% N/A% N/A% N/A% (34.17)% Five Years ended July 31, 2001: Standardized Return*........ N/A% N/A% N/A% N/A% 9.63% Non-Standardized Return..... N/A% N/A% N/A% N/A% 11.29% Inception to July 31, 2001: Standardized Return*........ (26.28)% (26.15)% (23.77)% (15.63)% 9.66% Non-Standardized Return..... (21.98)% (22.26)% (22.21)% (15.63)% 11.32%
PACE SMALL/MEDIUM COMPANY VALUE EQUITY INVESTMENTS
CLASS CLASS A CLASS B CLASS C CLASS Y CLASS P (INCEPTION DATE) (11/27/00) (11/28/00) (11/27/00) (12/20/00) (08/24/95) ---------------- ---------- ---------- ---------- ---------- ---------- Year ended July 31, 2001: Standardized Return*.............. N/A% N/A% N/A% N/A% 27.27% Non-Standardized Return........... N/A% N/A% N/A% N/A% 29.20% Five Years ended July 31, 2001: Standardized Return*.............. N/A% N/A% N/A% N/A% 11.26% Non-Standardized Return........... N/A% N/A% N/A% N/A% 12.94% Inception to July 31, 2001: Standardized Return*.............. 15.49% 17.22% 19.57% 24.32% 9.63% Non-Standardized Return........... 22.21% 22.22% 21.78% 24.32% 11.29%
PACE SMALL/MEDIUM COMPANY GROWTH EQUITY INVESTMENTS
CLASS CLASS A CLASS B CLASS C CLASS Y CLASS P (INCEPTION DATE) (11/27/00) (11/27/00) (11/27/00) (02/12/01) (08/24/95) ---------------- ---------- ---------- ---------- ---------- ---------- Year ended July 31, 2001: Standardized Return*........ N/A% N/A% N/A% N/A% (31.96)% Non-Standardized Return..... N/A% N/A% N/A% N/A% (30.93)% Five Years ended July 31, 2001: Standardized Return*........ N/A% N/A% N/A% N/A% 15.44% Non-Standardized Return..... N/A% N/A% N/A% N/A% 17.19% Inception to July 31, 2001: Standardized Return*........ (24.96)% (24.84)% (22.45)% (8.37)% 11.30% Non-Standardized Return..... (20.59)% (20.88)% (20.88)% (8.37)% 12.98%
79 PACE INTERNATIONAL EQUITY INVESTMENTS
CLASS CLASS A CLASS B CLASS C CLASS Y CLASS P (INCEPTION DATE) (11/27/00) (11/27/00) (11/27/00) (01/17/01) (08/24/95) ---------------- ---------- ---------- ---------- ---------- ---------- Year ended July 31, 2001: Standardized Return*........ N/A% N/A% N/A% N/A% (28.06)% Non-Standardized Return..... N/A% N/A% N/A% N/A% (26.97)% Five Years ended July 31, 2001: Standardized Return*........ N/A% N/A% N/A% N/A% 2.56% Non-Standardized Return..... N/A% N/A% N/A% N/A% 4.11% Inception to July 31, 2001: Standardized Return*........ (22.06)% (21.94)% (19.46)% (15.84)% 3.09% Non-Standardized Return..... (17.51)% (17.84)% (17.84)% (15.84)% 4.65%
PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS
CLASS CLASS A CLASS B CLASS C CLASS Y CLASS P (INCEPTION DATE) (12/11/00) (12/22/00) (12/01/00) (02/09/01) (08/24/95) ---------------- ---------- ---------- ---------- ---------- ---------- Year ended July 31, 2001: Standardized Return*........ N/A% N/A% N/A% N/A% (33.94)% Non-Standardized Return..... N/A% N/A% N/A% N/A% (32.94)% Five Years ended July 31, 2001: Standardized Return*........ N/A% N/A% N/A% N/A% (9.43)% Non-Standardized Return..... N/A% N/A% N/A% N/A% (8.07)% Inception to July 31, 2001: Standardized Return*........ (22.91)% (17.06)% (14.32)% (19.80)% (7.58)% Non-Standardized Return..... (18.43)% (12.69)% (12.60)% (19.80)% (6.18)%
- ------------------------ * All Standardized Return figures for Class A shares and Class C shares reflect deduction of the current maximum sales charge of 5.5% (4.5% for fixed income funds) and 1%, respectively. All Standardized Return figures for Class B and Class C shares reflect deduction of the maximum applicable contingent deferred sales charge imposed on a redemption of shares held for the period. All Standardized Return figures for Class P shares reflect the maximum annual program fee of 1.50% for participants in the PACE Select Advisors program. Class Y shares do not impose an initial or deferred sales charge; therefore, no non-standardized returns are included for that class. YIELD. Yields used in a fund's Performance Advertisements, except for those given for PACE Money Market Investments, are calculated by dividing the fund's interest and dividend income attributable to the fund's shares for a 30-day period ("Period"), net of expenses attributable to such fund, by the average number of shares of such fund entitled to receive dividends during the Period and expressing the result as an annualized percentage (assuming semi-annual compounding) of the net asset value per share at the end of the Period. Yield quotations are calculated according to the following formula: a-b YIELD = 2 [ ( ---- +1 ) to the power of 6 -1 ] cd where: a = interest earned during the Period attributable to a class of shares b = expenses accrued for the Period attributable to a class of shares (net of reimbursements) c = the average daily number of shares of a class outstanding during the Period that were entitled to receive dividends d = the maximum offering price per share (in the case of Class A and Class C shares) or the net asset value per share (in the case of Class B shares) on the last day of the Period. Except as noted below, in determining interest and dividend income earned during the Period (a variable in the above formula), a fund calculates interest earned on each debt obligation held by it during the Period by (1) computing the obligation's yield to maturity, based on the market value of the obligation (including actual 80 accrued interest) on the last business day of the Period or, if the obligation was purchased during the Period, the purchase price plus accrued interest and (2) dividing the yield to maturity by 360, and multiplying the resulting quotient by the market value of the obligation (including actual accrued interest) to determine the interest income on the obligation for each day of the period that the obligation is in the fund. Once interest earned is calculated in this fashion for each debt obligation held by the fund, interest earned during the Period is then determined by totaling the interest earned on all debt obligations. For purposes of these calculations, the maturity of an obligation with one or more call provisions is assumed to be the next date on which the obligation reasonably can be expected to be called or, if none, the maturity date. With respect to Class A and Class C shares, in calculating the maximum offering price per share at the end of the Period (variable "d" in the above formula), the fund's current maximum 5.5% (4.5% for fixed income funds) and 1%, respectively, initial sales charge on Class A and Class C shares is included. The following table shows the yield for each class of shares of fixed income funds (excluding PACE Money Market Investments) for the 30-day period ended July 31, 2001:
FUND CLASS A CLASS B CLASS C CLASS Y CLASS P - ---- -------- -------- -------- -------- -------- PACE Government Securities Fixed Income Investments................................. 5.80% 5.28% 5.54% 6.37% 6.37% PACE Intermediate Fixed Income Investments... 5.45% 4.90% 5.17% 5.94% 5.94% PACE Strategic Fixed Income Investments...... 5.02% 4.47% 4.73% 5.49% 5.49% PACE Municipal Fixed Income Investments...... 3.83% 3.24% 3.47% 4.23% 4.23% PACE Global Fixed Income Investments......... 4.32% 3.73% 4.00% 4.77% 4.77%
PACE Money Market Investments computes its 7-day current yield and its 7-day effective yield quotations using standardized methods required by the SEC. Each fund from time to time advertises (1) its current yield based on a recently ended seven-day period, computed by determining the net change, exclusive of capital changes, in the value of a hypothetical pre-existing account having a balance of one share at the beginning of the period, subtracting a hypothetical charge reflecting deductions from that shareholder account, dividing the difference by the value of the account at the beginning of the base period to obtain the base period return and then multiplying the base period return by (365/7), with the resulting yield figure carried to at least the nearest hundredth of one percent; and (2) its effective yield based on the same seven-day period by compounding the base period return by adding 1, raising the sum to a power equal to (365/7), and subtracting 1 from the result, according to the following formula: EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)to the power of 365/7] - 1 PACE Municipal Fixed Income Investments from time to time also advertises its tax-equivalent yield and tax-equivalent effective yield, also based on a recently ended 30-day period. These quotations are calculated by dividing that portion of the fund's yield (or effective yield, as the case may be) that is tax-exempt by 1 minus a stated income tax rate and adding the product to that portion, if any, of the fund's yield that is not tax-exempt, according to the following formula: E TAX EQUIVALENT YIELD = ( --- ) +t 1-p E = tax-exempt yield of a class of shares p = stated income tax rate t = taxable yield of a Class of shares Yield may fluctuate daily and does not provide a basis for determining future yields. Because the yield of each fund fluctuates, it cannot be compared with yields on savings accounts or other investment alternatives that provide an agreed to or guaranteed fixed yield for a stated period of time. However, yield information may be useful to an investor considering temporary investments in fixed income instruments. In comparing the yield of one fund to another, consideration should be given to each fund's investment policies, including the types of investments made, the average maturity of the portfolio securities and whether there are any special account charges that may reduce the yield. The funds may also advertise non-standardized yields calculated in a manner similar to that described above, but for different time periods (E.G., one-day yield). 81 PACE Money Market Investments' yield and effective yield for the seven-day period ended July 31, 2001 were 3.60% and 3.66%, respectively. OTHER INFORMATION. In Performance Advertisement, each fund may compare its Standardized Return and/ or Non-Standardized Return with data published by Lipper Analytical Services, Inc. ("Lipper"), CDA Investment Technologies, Inc. ("CDA"), iMoneyNet, Inc. ("iMoneyNet"), Wiesenberger Investment Companies Services ("Wiesenberger"), Investment Company Data, Inc. ("ICD") or Morningstar Mutual Funds ("Morningstar") or with the performance of recognized stock, bond and other indices and changes in the Consumer Price Index as published by the U.S. Department of Commerce. The fund also may refer in such materials to mutual fund performance rankings and other data, such as comparative asset, expense and fee levels, published by Lipper, CDA, iMoneyNet, Wiesenberger, ICD or Morningstar. Performance Advertisements also may refer to discussions of a fund and comparative mutual fund data and ratings reported in independent periodicals. Comparisons in Performance Advertisements may be in graphic form. The funds may also compare their performance with the performance of bank certificates of deposit (CDs) as measured by the CDA Certificate of Deposit Index, the Bank Rate Monitor National Index and the averages of yields of CDs of major banks published by Banxquote-Registered Trademark- Money Markets. Ratings may include criteria relating to portfolio characteristics in addition to performance information. In connection with a ranking, a fund may also provide additional information with respect to the ranking, such as the particular category to which it relates, the number of funds in the category, the criteria on which the ranking is based, and the effect of sales charges, fee waivers and/or expense reimbursements. TAXES BACKUP WITHHOLDING. Each fund is required to withhold up to 30.5% (30% in 2002) of all taxable dividends, capital gain distributions and redemption proceeds payable to individuals and certain other non-corporate shareholders who do not provide the fund or Brinson Advisors or the applicable dealer with a correct taxpayer identification number. Withholding at that rate also is required from taxable dividends and capital gain distributions payable to those shareholders who otherwise are subject to backup withholding. SALE OR EXCHANGE OF FUND SHARES. A shareholder's sale (redemption) of fund shares may result in a taxable gain or loss, depending on whether the shareholder receives more or less than his or her adjusted basis in the shares. An exchange of the fund's shares for shares of another Family Fund generally will have similar tax consequences. In addition, if a fund's shares are bought within 30 days before or after selling other shares of the fund at a loss, all or a portion of that loss will not be deductible and will increase the basis in the newly purchased shares. SPECIAL RULE FOR CLASS A SHAREHOLDERS. A special tax rule applies when a shareholder sells or exchanges Class A shares within 90 days of purchase and subsequently acquires Class A shares of the same or another Family Fund without paying a sales charge due to the 365-day reinstatement privilege or the exchange privilege. In these cases, any gain on the sale or exchange of the original Class A shares would be increased, or any loss would be decreased, by the amount of the sales charge paid when those shares were bought, and that amount would increase the basis of the Family Fund shares subsequently acquired. CONVERSION OF CLASS B SHARES. A shareholder will recognize no gain or loss as a result of a conversion from Class B shares to Class A shares. QUALIFICATION AS A REGULATED INVESTMENT COMPANY. Each fund intends to continue to qualify for treatment as a regulated investment company ("RIC") under the Internal Revenue Code. To so qualify, a fund must distribute to its shareholders for each taxable year at least 90% of its investment company taxable income (consisting generally of taxable net investment income, net short-term capital gain and, for some funds, net gain from certain foreign currency transactions). (PACE Municipal Fixed Income Investments must distribute to its shareholders for each taxable year at least 90% of the sum of its investment company taxable income (consisting generally of taxable net investment income and net short-term capital gain, if any, determined without regard to any deduction for dividends paid) and its net interest income excludable from gross income under section 103(a) of the Internal Revenue Code.) In addition to this requirement ("Distribution Requirement"), each fund must meet several additional requirements, including the following: (1) the fund must derive at least 90% of its 82 gross income each taxable year from dividends, interest, payments with respect to securities loans and gains from the sale or other disposition of securities or foreign currencies, or other income (including gains from options, futures or forward currency contracts) derived with respect to its business of investing in securities or those currencies ("Income Requirement"); (2) at the close of each quarter of the fund's taxable year, at least 50% of the value of its total assets must be represented by cash and cash items, U.S. government securities, securities of other RICs and other securities that are limited, in respect of any one issuer, to an amount that does not exceed 5% of the value of the fund's total assets and that does not represent more than 10% of the issuer's outstanding voting securities; and (3) at the close of each quarter of the fund's taxable year, not more than 25% of the value of its total assets may be invested in securities (other than U.S. government securities or the securities of other RICs) of any one issuer. By qualifying for treatment as a RIC, a fund (but not its shareholders) will be relieved of federal income tax on the part of its investment company taxable income that it distributes to shareholders. If a fund failed to qualify for treatment as a RIC for any taxable year, (1) it would be taxed as an ordinary corporation on its taxable income for that year without being able to deduct the distributions it makes to its shareholders and (2) the shareholders would treat all those distributions, including distributions that otherwise would be "exempt-interest dividends" (as described below under "Taxes -- Information about PACE Municipal Fixed Income Investments") and distributions of net capital gain (the excess of net long-term capital gain over net short-term capital loss), as taxable dividends (that is, ordinary income) to the extent of the fund's current or accumulated earnings and profits. In addition, the fund could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before requalifying for RIC treatment. OTHER INFORMATION. Dividends and other distributions a fund declares in October, November or December of any year that are payable to its shareholders of record on a date in any of those months will be deemed to have been paid by the fund and received by the shareholders on December 31 of that year if the fund pays the distributions during the following January. A portion of the dividends (whether paid in cash or in additional fund shares) from the investment company taxable income of a fund that invests in equity securities of corporations may be eligible for the dividends-received deduction allowed to corporations. The eligible portion for a fund may not exceed the aggregate dividends it receives from U.S. corporations (and capital gain distributions thus are not eligible for the deduction). However, dividends received by a corporate shareholder and deducted by it pursuant to the dividends-received deduction are subject indirectly to the federal alternative minimum tax. If fund shares are sold at a loss after being held for six months or less, the loss will be treated as long-term, instead of short-term, capital loss to the extent of any capital gain distributions received thereon. Investors also should be aware that if shares are purchased shortly before the record date for a taxable dividend or capital gain distribution, the shareholder will pay full price for the shares and receive some portion of the price back as a taxable distribution. Each fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to the extent it fails to distribute by the end of any calendar year substantially all of its ordinary income for the calendar year and capital gain net income for the one-year period ending on October 31 of that year, plus certain other amounts. Dividends and interest received, and gains realized, by a fund on foreign securities may be subject to income, withholding or other taxes imposed by foreign countries and U.S. possessions (collectively "foreign taxes") that would reduce the return on its securities. Tax conventions between certain countries and the United States, however, may reduce or eliminate foreign taxes, and many foreign countries do not impose taxes on capital gains in respect of investments by foreign investors. If more than 50% of the value of a fund's total assets at the close of its taxable year consists of securities of foreign corporations, it will be eligible to, and may, file an election with the Internal Revenue Service that will enable its shareholders, in effect, to receive the benefit of the foreign tax credit with respect to any foreign taxes it paid. Pursuant to the election, the fund would treat those taxes as dividends paid to its shareholders and each shareholder (1) would be required to include in gross income, and treat as paid by him or her, his or her proportionate share of those taxes, (2) would be required to treat his or her share of those taxes and of any dividend paid by the fund that represents income from foreign or U.S. possessions sources as his or her own income from those sources and (3) could either deduct the foreign taxes deemed paid by him or her in computing his or her taxable income or, alternatively, use the foregoing 83 information in calculating the foreign tax credit against his or her federal income tax. A fund will report to its shareholders shortly after each taxable year their respective shares of foreign taxes paid to, and the income from sources within, foreign countries and U.S. possessions if it makes this election. Individuals who have no more than $300 ($600 for married persons filing jointly) of creditable foreign taxes included on Forms 1099 and all of whose foreign source income is "qualified passive income" may elect each year to be exempt from the extremely complicated foreign tax credit limitation, in which event they would be able to claim a foreign tax credit without having to file the detailed Form 1116 that otherwise is required. Each fund may invest in the stock of "passive foreign investment companies" ("PFICs") if that stock is a permissible investment. A PFIC is any foreign corporation (with certain exceptions) that, in general, meets either of the following tests: (1) at least 75% of its gross income is passive or (2) an average of at least 50% of its assets produce, or are held for the production of, passive income. Under certain circumstances, a fund will be subject to federal income tax on a portion of any "excess distribution" received on the stock of a PFIC or of any gain from disposition of that stock (collectively "PFIC income"), plus interest thereon, even if the fund distributes the PFIC income as a taxable dividend to its shareholders. The balance of the PFIC income will be included in the fund's investment company taxable income and, accordingly, will not be taxable to it to the extent it distributes that income to its shareholders. If a fund invests in a PFIC and elects to treat the PFIC as a "qualified electing fund" ("QEF"), then in lieu of the foregoing tax and interest obligation, the fund will be required to include in income each year its pro rata share of the QEF's annual ordinary earnings and net capital gain (which it may have to distribute to satisfy the Distribution Requirement and avoid imposition of the Excise Tax), even if the QEF does not distribute those earnings and gain to the fund. In most instances it will be very difficult, if not impossible, to make this election because of certain of its requirements. Each fund may elect to "mark to market" its stock in any PFIC. "Marking-to-market," in this context, means including in ordinary income each taxable year the excess, if any, of the fair market value of a PFIC's stock over a fund's adjusted basis therein as of the end of that year. Pursuant to the election, a fund also would be allowed to deduct (as an ordinary, not capital, loss) the excess, if any, of its adjusted basis in PFIC stock over the fair market value thereof as of the taxable year-end, but only to the extent of any net mark-to-market gains with respect to that stock included by the fund for prior taxable years under the election (and under regulations proposed in 1992 that provided a similar election with respect to the stock of certain PFICs). A fund's adjusted basis in each PFIC's stock with respect to which it has made this election will be adjusted to reflect the amounts of income included and deductions taken thereunder. The use of hedging strategies, such as writing (selling) and purchasing options and futures contracts and entering into forward currency contracts, involves complex rules that will determine for income tax purposes the amount, character and timing of recognition of the gains and losses a fund realizes in connection therewith. Gains from the disposition of foreign currencies (except certain gains that may be excluded by future regulations), and gains from options, futures and forward currency contracts a fund derives with respect to its business of investing in securities or foreign currencies, will be treated as qualifying income under the Income Requirement. Certain futures, foreign currency contracts and listed nonequity options (such as those on a securities index) in which a fund may invest may be subject to section 1256 of the Code ("section 1256 contracts"). Any section 1256 contracts a fund holds at the end of each taxable year generally must be "marked-to-market" (that is, treated as having been sold at that time for their fair market value) for federal income tax purposes, with the result that unrealized gains or losses will be treated as though they were realized. Sixty percent of any net gain or loss recognized on these deemed sales, and 60% of any net realized gain or loss from any actual sales of section 1256 contracts, will be treated as long-term capital gain or loss, and the balance will be treated as short-term capital gain or loss. These rules may operate to increase the amount that a fund must distribute to satisfy the Distribution Requirement (I.E., with respect to the portion treated as short-term capital gain), which will be taxable to the shareholders as ordinary income, and to increase the net capital gain a fund recognizes, without in either case increasing the cash available to the fund. A fund may elect not to have the foregoing rules apply to any "mixed straddle" (that is, a straddle, clearly identified by the fund in accordance with the regulations, at least one (but not all) of the positions of which are section 1256 contracts), although doing so may have the 84 effect of increasing the relative proportion of net short-term capital gain (taxable as ordinary income) and thus increasing the amount of dividends that must be distributed. Gains or losses (1) from the disposition of foreign currencies, including forward currency contracts, (2) on the disposition of each foreign-currency-denominated debt security that are attributable to fluctuations in the value of the foreign currency between the dates of acquisition and disposition of the security and (3) that are attributable to exchange rate fluctuations between the time a fund accrues interest, dividends or other receivables, or expenses or other liabilities, denominated in a foreign currency and the time the fund actually collects the receivables or pays the liabilities, generally will be treated as ordinary income or loss. These gains, referred to under the Code as "section 988" gains or losses, will increase or decrease the amount of a fund's investment company taxable income available to be distributed to its shareholders as ordinary income, rather than increasing or decreasing the amount of its net capital gain. If section 988 losses exceed other investment company taxable income during a taxable year, a fund would not be able to distribute any dividends, and any distributions made during that year before the losses were realized would be recharacterized as a return of capital to shareholders, rather than as a dividend, thereby reducing each shareholder's basis in his or her fund shares. Offsetting positions in any actively traded security, option, futures or forward currency contract entered into or held by a fund may constitute a "straddle" for federal income tax purposes. Straddles are subject to certain rules that may affect the amount, character and timing of a fund's gains and losses with respect to positions of the straddle by requiring, among other things, that (1) loss realized on disposition of one position of a straddle be deferred to the extent of any unrealized gain in an offsetting position until the latter position is disposed of, (2) the fund's holding period in certain straddle positions not begin until the straddle is terminated (possibly resulting in gain being treated as short-term rather than long-term capital gain) and (3) losses recognized with respect to certain straddle positions, that otherwise would constitute short-term capital losses, be treated as long-term capital losses. Applicable regulations also provide certain "wash sale" rules, which apply to transactions where a position is sold at a loss and a new offsetting position is acquired within a prescribed period, and "short sale" rules applicable to straddles. Different elections are available to the funds, which may mitigate the effects of the straddle rules, particularly with respect to "mixed straddles" (I.E., a straddle of which at least one, but not all, positions are section 1256 contracts). When a covered call option written (sold) by a fund expires, the fund will realize a short-term capital gain equal to the amount of the premium it received for writing the option. When a fund terminates its obligations under such an option by entering into a closing transaction, it will realize a short-term capital gain (or loss), depending on whether the cost of the closing transaction is less (or more) than the premium it received when it wrote the option. When a covered call option written by a fund is exercised, the fund will be treated as having sold the underlying security, producing long-term or short-term capital gain or loss, depending on the holding period of the underlying security and whether the sum of the option price received on the exercise plus the premium received when it wrote the option is more or less than the underlying security's basis. If a fund has an "appreciated financial position" -- generally, an interest (including an interest through an option, futures or forward currency contract or short sale) with respect to any stock, debt instrument (other than "straight debt") or partnership interest the fair market value of which exceeds its adjusted basis -- and enters into a "constructive sale" of the position, the fund will be treated as having made an actual sale thereof, with the result that gain will be recognized at that time. A constructive sale generally consists of a short sale, an offsetting notional principal contract or a futures or forward currency contract entered into by a fund or a related person with respect to the same or substantially identical property. In addition, if the appreciated financial position is itself a short sale or such a contract, acquisition of the underlying property or substantially identical property will be deemed a constructive sale. The foregoing will not apply, however, to a fund's transaction during any taxable year that otherwise would be treated as a constructive sale if the transaction is closed within 30 days after the end of that year and the fund holds the appreciated financial position unhedged for 60 days after that closing (I.E., at no time during that 60-day period is the fund's risk of loss regarding that position reduced by reason of certain specified transactions with respect to substantially identical or related property, such as having an option to sell, being contractually obligated to sell, making a short sale or granting an option to buy substantially identical stock or securities). 85 A fund that acquires zero coupon or other securities issued with original issue discount ("OID") and/or Treasury inflation-indexed securities ("TIIS"), on which principal is adjusted based on changes in the Consumer Price Index, must include in its gross income the OID that accrues on those securities, and the amount of any principal increases on TIIS, during the taxable year, even if the fund receives no corresponding payment on them during the year. Similarly, a fund that invests in payment-in-kind ("PIK") securities must include in its gross income securities it receives as "interest" on those securities. Each fund has elected similar treatment with respect to securities purchased at a discount from their face value ("market discount"). Because a fund annually must distribute substantially all of its investment company taxable income, including any accrued OID, market discount and other non-cash income, to satisfy the Distribution Requirement and avoid imposition of the Excise Tax, it may be required in a particular year to distribute as a dividend an amount that is greater than the total amount of cash it actually receives. Those distributions would have to be made from the fund's cash assets or from the proceeds of sales of portfolio securities, if necessary. The fund might realize capital gains or losses from those sales, which would increase or decrease its investment company taxable income and/or net capital gain. The foregoing is only a general summary of some of the important federal tax considerations generally affecting the funds and their shareholders. No attempt is made to present a complete explanation of the federal tax treatment of the funds' activities, and this discussion is not intended as a substitute for careful tax planning. Accordingly, potential investors are urged to consult their own tax advisors for detailed information and for information regarding any state, local or foreign taxes applicable to the funds and to dividends and other distributions therefrom. INFORMATION ABOUT PACE MUNICIPAL FIXED INCOME INVESTMENTS. Dividends paid by PACE Municipal Fixed Income Investments will qualify as "exempt-interest dividends," and thus will be excludable from gross income for federal income tax purposes by its shareholders, if the fund satisfies the requirement that, at the close of each quarter of its taxable year, at least 50% of the value of its total assets consists of securities the interest on which is excludable from gross income under section 103(a); the fund intends to continue to satisfy this requirement. The aggregate dividends designated as exempt-interest dividends for any year by the fund may not exceed its net tax-exempt income for the year. Shareholders' treatment of dividends from the fund under state and local income tax laws may differ from the treatment thereof under the Internal Revenue Code. Investors should consult their tax advisors concerning this matter. Entities or persons who are "substantial users" (or persons related to "substantial users") of facilities financed by IDBs or PABs should consult their tax advisors before purchasing fund shares because, for users of certain of these facilities, the interest on those bonds is not exempt from federal income tax. For these purposes, "substantial user" is defined to include a "non-exempt person" who regularly uses in a trade or business a part of a facility financed from the proceeds of IDBs or PABs. Up to 85% of social security and railroad retirement benefits may be included in taxable income for recipients whose adjusted gross income (including income from tax-exempt sources such as the fund) plus 50% of their benefits exceeds certain base amounts. Exempt-interest dividends from the fund still would be exempt from regular federal income taxes to the extent described above; they would only be included in the calculation of whether a recipient's income exceeded the established amounts. If fund shares are sold at a loss after being held for six months or less, the loss will be disallowed to the extent of any exempt-interest dividends received on those shares, and any loss not disallowed will be treated as long-term, instead of short-term, capital loss to the extent of any capital gain distributions received thereon. Investors also should be aware that if shares are purchased shortly before the record date for a capital gain distribution, the shareholder will pay full price for the shares and receive some portion of the price back as a taxable distribution. If the fund invests in instruments that generate taxable interest income, under the circumstances described in the Prospectus and in the discussion of municipal market discount bonds below, the portion of any fund dividend attributable to such taxable interest income will be taxable to the fund's shareholders as ordinary income to the extent of its current and accumulated earnings and profits, and only the remaining portion will qualify as an exempt-interest dividend. The respective portions will be determined by the "actual earned" method, under which the portion of any dividend that qualifies as an exempt-interest dividend may vary, depending on the relative proportions of tax-exempt and taxable interest earned during the dividend period. 86 Moreover, if the fund realizes capital gain as a result of market transactions, any distributions of the gain will be taxable to its shareholders. The fund may invest in municipal bonds that are purchased, generally not on their original issue, with market discount (that is, at a price less than the principal amount of the bond or, in the case of a bond that was issued with original issue discount, a price less than the amount of the issue price plus accrued original issue discount) ("municipal market discount bonds"). If a bond's market discount is less that the product of (1) 0.25% of the redemption price at maturity times (2) the number of complete years to maturity after the fund acquired the bond, then no market discount is considered to exist. Gain on the disposition of a municipal market discount bond purchased by the fund after April 30, 1993 (other than a bond with a fixed maturity date within one year from its issuance), generally is treated as ordinary (taxable) income, rather than capital gain, to the extent of the bond's accrued market discount at the time of disposition. Market discount on such a bond generally is accrued ratably, on a daily basis, over the period from the acquisition date to the date of maturity. In lieu of treating the disposition gain as above, the fund may elect to include market discount in its gross income currently, for each taxable year to which it is attributable. OTHER INFORMATION DELAWARE BUSINESS TRUST. The Trust is an entity of the type commonly known as a Delaware business trust. Although Delaware law statutorily limits the potential liabilities of a Delaware business trust's shareholders to the same extent as it limits the potential liabilities of a Delaware corporation, shareholders of a fund could, under certain conflicts of laws jurisprudence in various states, be held personally liable for the obligations of the Trust or a fund. However, the trust instrument of the Trust disclaims shareholder liability for acts or obligations of the Trust or its series (the funds). The trust instrument provides for indemnification from a fund's property for all losses and expenses of any fund shareholder held personally liable for the obligations of the fund. Thus, the risk of a shareholder's incurring financial loss on account of shareholder liability is limited to circumstances in which a fund itself would be unable to meet its obligations, a possibility that Brinson Advisors believes is remote and not material. Upon payment of any liability incurred by a shareholder solely by reason of being or having been a shareholder of a fund, the shareholder paying such liability will be entitled to reimbursement from the general assets of the fund. The trustees intend to conduct the operations of the funds in such a way as to avoid, as far as possible, ultimate liability of the shareholders for liabilities of the funds. CLASSES OF SHARES. Each fund (other than PACE Money Market Investments) consists of Class A shares, Class B shares, Class C shares, Class P shares and Class Y shares. Class B shares include Sub-Class B-1 shares, Sub-Class B-2 shares, Sub-Class B-3 and Sub-Class B-4 shares. PACE Money Market Investments consists of Class P shares. A share of each class of a fund represents an identical interest in that fund's investment portfolio and has the same rights, privileges and preferences. However, each class may differ with respect to sales charges, if any, distribution and/or service fees, if any, other expenses allocable exclusively to each class, voting rights on matters exclusively affecting that class, and its exchange privilege, if any. The different sales charges and expenses applicable to the different classes of shares of the funds will affect the performance of those classes. Each share of a fund is entitled to participate equally in dividends, other distributions and the proceeds of any liquidation of that fund. However, due to the differing expenses of the classes, dividends and liquidation proceeds on Class A, Class B, Class C, Class P and Class Y shares will differ. VOTING RIGHTS. Shareholders of each fund are entitled to one vote for each full share held and fractional votes for fractional shares held. Voting rights are not cumulative and, as a result, the holders of more than 50% of all the shares of the Trust may elect all of the trustees of the Trust. The shares of a fund will be voted together, except that only the shareholders of a particular class of a fund may vote on matters affecting only that class, such as the terms of a Rule 12b-1 Plan as it relates to the class. The shares of each series of the Trust will be voted separately, except when an aggregate vote of all the series of the Trust is required by law. The Trust does not hold annual meetings. Shareholders of record of no less than two-thirds of the outstanding shares of the Trust may remove a trustee through a declaration in writing or by vote cast in person or by proxy at a meeting called for that purpose. A meeting will be called to vote on the removal of a trustee at the written request of holders of 10% of the outstanding shares of the Trust. 87 CLASS-SPECIFIC EXPENSES. Each fund may determine to allocate certain of its expenses (in addition to service and distribution fees) to the specific classes of its shares to which those expenses are attributable. For example, Class B and Class C shares bear higher transfer agency fees per shareholder account than those borne by Class A, Class P or Class Y shares. The higher fee is imposed due to the higher costs incurred by the transfer agent in tracking shares subject to a deferred sales charge because, upon redemption, the duration of the shareholder's investment must be determined in order to determine the applicable charge. Although the transfer agency fee will differ on a per account basis as stated above, the specific extent to which the transfer agency fees will differ between the classes as a percentage of net assets is not certain, because the fee as a percentage of net assets will be affected by the number of shareholder accounts in each class and the relative amounts of net assets in each class. PRIOR NAME. Prior to December 1, 1997, the Trust's name was "Managed Accounts Services Portfolio Trust." CUSTODIAN AND RECORDKEEPING AGENT; TRANSFER AND DIVIDEND AGENT. State Street Bank and Trust Company, located at 1776 Heritage Drive, North Quincy, Massachusetts 02171, serves as custodian and recordkeeping agent for each fund and employs foreign sub-custodians approved by the board in accordance with applicable requirements under the Investment Company Act to provide custody of the funds' foreign assets. PFPC, a subsidiary of PNC Bank, N.A., located at 400 Bellevue Parkway, Wilmington, DE 19809, serves as each fund's transfer and dividend disbursing agent. UBS PaineWebber provides transfer agency related services to the funds pursuant to a delegation of authority from PFPC and is compensated for the services by PFPC, not the funds. COUNSEL. The law firm of Dechert, 1775 Eye Street, N.W., Washington, D.C. 2006 serves as counsel to the Trust. Willkie Farr & Gallagher, 787 Seventh Avenue, New York, NY 10019, serves as independent counsel to the Independent Trustees. AUDITORS. Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, serves as independent auditors for the Trust. FINANCIAL STATEMENTS The Trust's Annual Report to Shareholders for its fiscal year ended July 31, 2001 is a separate document supplied with this SAI, and the financial statements, accompanying notes and report of independent auditors appearing therein are incorporated by this reference into the SAI. 88 APPENDIX RATINGS INFORMATION DESCRIPTION OF MOODY'S CORPORATE 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 bonds. 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 applies numerical modifiers, 1, 2 and 3 in each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category, the modifier 2 indicates a mid-range ranking, and the modifier 3 indicates a ranking in the lower end of that generic rating category. DESCRIPTION OF S&P CORPORATE 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. 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 A-1 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. r. This symbol is attached to the ratings of instruments with significant noncredit risks. It highlights risks to principal or volatility of expected returns which are not addressed in the credit rating. Examples include: obligations linked or indexed to equities, currencies, or commodities; obligations exposed to severe prepayment risk--such as interest-only or principal-only mortgage securities; and obligations with unusually risky interest terms, such as inverse floaters. DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS PRIME-1. Issuers 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 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 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. DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS 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 A-2 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. 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 bonds. 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 applies numerical modifiers, 1, 2 and 3 in each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category, the modifier 2 indicates a mid-range ranking, and the modifier 3 indicates a ranking in the lower end of that generic 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 A-3 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 of 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 of 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 A-4 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. A-5 YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR REFERRED TO IN THE PROSPECTUS AND THIS STATEMENT OF ADDITIONAL INFORMATION. THE FUNDS AND THEIR 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 FUNDS IN ANY JURISDICTION WHERE THE FUNDS OR THEIR PRINCIPAL UNDERWRITER MAY NOT LAWFULLY SELL THOSE SHARES. ---------- PaineWebber PACE Select Advisors Trust ----------------------------------- Statement of Additional Information November 5, 2001 ----------------------------------- - -C-2001 Brinson Advisors, Inc. All rights reserved. - ------------------------- PART C. OTHER INFORMATION Item 23. EXHIBITS (1) (a) Certificate of Business Trust effective September 9, 1994 1/ - (b) Amended and Restated Trust Instrument 2/ - (c) Amendment No. 1 to Amended and Restated Trust Instrument (filed herewith) (2) (a) Amended and Restated By-Laws 2/ - (b) Certificate of Amendment to Amended and Restated By-Laws (filed herewith) (3) Instruments defining the rights of holders of Registrant's shares of beneficial interest 3/ - (4) (a) Investment Management and Administration Agreement 4/ - (b) Sub-Advisory Agreement with Pacific Investment Management Company LLC with respect to PACE Government Securities Fixed Income Investments dated as of October 10, 2000 2/ (c) Sub-Advisory Agreement with Metropolitan West Asset Management LLC with respect to PACE Intermediate Fixed Income Investments dated as of October 10, 2000 2/ (d) Sub-Advisory Agreement with Pacific Investment Management Company LLC with respect to PACE Strategic Fixed Income Investments dated as of May 5, 2000 2/ (e) Sub-Advisory Agreement with Standish Mellon Asset Management Company LLC with respect to PACE Municipal Fixed Income Investments dated as of August 1, 2001 (filed herewith) (f) Sub-Advisory Agreement with Rogge Global Partners plc with respect to PACE Global Fixed Income Investments dated as of October 10, 2000 2/ - (g) Sub-Advisory Agreement with Fischer Francis Trees & Watts, Inc. and its affiliates with respect to PACE Global Fixed Income Investments dated as of November 13, 2000 14/ -- (h) Sub-Advisory Agreement with SSgA Funds Management, Inc. with respect to PACE Large Company Value Equity Investments dated as of May 1, 2001 and related Parent Guarantee dated as of April 30, 2001 14/ -- (i) Sub-Advisory Agreement with Institutional Capital Corporation with respect to PACE Large Company Value Equity Investments dated as of July 1, 2000 2/ - (j) Sub-Advisory Agreement with Westwood Management Corporation with respect to PACE Large Company Value Equity Investments dated as of July 1, 2000 2/ - (k) Sub-Advisory Agreement with Alliance Capital Management L.P. with respect to PACE Large Company Growth Equity Investments dated as of October 10, 2000 2/ - (l) Sub-Advisory Agreement with SSgA Funds Management, Inc. with respect to PACE Large Company Growth Equity Investments dated as of May 1, 2001 and related Parent Guarantee dated as of April 30, 2001 14/ -- (m) Sub-Advisory Agreement with Ariel Capital Management, Inc. with respect to PACE Small/Medium Company Value Equity Investments dated as of October 4, 1999 1/ - (n) Sub-Advisory Agreement with ICM Asset Management, Inc. with respect to PACE Small/Medium Company Value Equity Investments dated as of October 10, 2000 2/ - (o) Sub-Advisory Agreement with Delaware Management Company with respect to PACE Small/Medium Company Growth Equity Investments dated as of December 16, 1996 5/ - C-1 (p) Sub-Advisory Agreement with Martin Currie Inc. with respect to PACE International Equity Investments dated as of October 10, 2000 10/ -- (q) Sub-Advisory Agreement with Schroder Investment Management North America Inc. with respect to PACE International Emerging Markets Equity Investments dated as of June 15, 1995 4/ - (5) (a) Principal Underwriting Contract (filed herewith) (b) Dealer Agreement with UBS PaineWebber Inc. (filed herewith) (c) Form of Selected Dealer Agreement (filed herewith) (6) Bonus, profit sharing or pension plans - none (7) (a) Custodian Agreement 1/ - (b) Amendment to Custody Contract dated August 3, 1999 (filed herewith) (c) Amendment to Custodian Contract dated February 15, 2001 (filed herewith) (8) (a) Transfer Agency Agreement dated as of August 18, 1995 (Class P shares) 16/ -- (b) Amendment to Transfer Agency Agreement dated as of November 27, 2000 (Class P shares) (filed herewith) (c) Form of Transfer Agency - Related Services Delegation Agreement dated as of February 13, 2001 (Class P shares) (filed herewith) (d) Transfer Agency and Related Services Agreement dated as of November 27, 2000 (Class A, B, C and Y shares) (filed herewith) (e) Transfer Agency - Related Services Delegation Agreement dated as of November 27, 2000 (Class A, B, C and Y shares) (filed herewith) (9) Opinions and consents of Counsel on legality of shares (filed herewith) (10) Other opinions, appraisals, rulings and consents: Auditors' consent (filed herewith) (11) Financial Statements omitted from prospectus - none (12) Letter of investment intent 6/ - (13) Plan pursuant to Rule 12b-1 (a) Plan of Distribution pursuant to Rule 12b-1 with respect to Class A shares (filed herewith) (b) Plan of Distribution pursuant to Rule 12b-1 with respect to Class B shares (filed herewith) (c) Plan of Distribution pursuant to Rule 12b-1 with respect to Class C shares (filed herewith) (14) Plan pursuant to Rule 18f-3 (filed herewith) (15) Code of Ethics (a) Code of Ethics for Registrant and Brinson Advisors, Inc. (manager and principal underwriter) 7/ - (b) Code of Ethics for Pacific Investment Management Company LLC 8/ - (c) Code of Ethics for Metropolitan West Asset Management LLC 9/ - (d) Code of Ethics for Standish, Ayer & Wood, Inc. 10/ -- (e) Code of Ethics for Rogge Global Partners plc 10/ -- (f) Code of Ethics for Fischer Francis Trees & Watts, Inc. and its affiliates 14/ -- (g) Code of Ethics for SSgA Funds Management, Inc. 14/ -- (h) Code of Ethics for Institutional Capital Corporation 11/ -- (i) Code of Ethics for Westwood Management Corporation 11/ -- C-2 (j) Code of Ethics for Alliance Capital Management L.P. 14/ -- (k) Code of Ethics for Ariel Capital Management, Inc. 14/ -- (l) Code of Ethics for ICM Asset Management, Inc. 8/ - (m) Code of Ethics for Delaware Management Company 12/ -- (n) Code of Ethics for Martin Currie Inc. 10/ -- (o) Code of Ethics for Schroder Investment Management North America Inc. (filed herewith) (16) Power of Attorney for Ms. Alexander and Messrs. Armstrong, Beaubien, Bewkes, Burt, Feldberg, Gowen, Hewitt, Janklow, Schafer, Storms and White 15/ -- (17) Power of Attorney for Mr. Malek 17/ -- ---------------------------------------------------------------------- 1/ Incorporated by reference from Post-Effective Amendment No. 8 to registration statement, SEC File No. 33-87254, filed December 1, 1999. 2/ Incorporated by reference from Registrant's N-14 registration statement for the series designated PACE Intermediate Fixed Income Investments, SEC File No. 333-49052, filed November 1, 2000. 3/ Incorporated by reference from Articles IV, VI, IX and X of Registrant's Trust Instrument and from Articles V and IX of Registrant's By-Laws. 4/ Incorporated by reference from Post-Effective Amendment No. 1 to registration statement, SEC File No. 33-87254, filed February 23, 1996. 5/ Incorporated by reference from Post-Effective Amendment No. 4 to registration statement, SEC File No. 33-87254, filed November 13, 1997. 6/ Incorporated by reference from Registrant's N-1A registration statement, SEC File No. 33-87254, filed June 19, 1995. 7/ Incorporated by reference from Post-Effective Amendment No. 29 to registration statement of PaineWebber Mutual Fund Trust, SEC File No. 2-98149, filed June 27, 2000. 8/ Incorporated by reference from Post-Effective Amendment No. 27 to the registration statement of PaineWebber Securities Trust, SEC File No. 33-55374, filed October 31, 2000. 9/ Incorporated by reference from Post-Effective Amendment No. 68 to the registration statement of PaineWebber Managed Investments Trust, SEC File No. 2-91362, filed October 31, 2000. 10/ Incorporated by reference from Post-Effective Amendment No. 10 to the - -- registration statement, SEC File No. 33-87254, filed November 9, 2000. 11/ Incorporated by reference from Post-Effective Amendment No. 46 to the - -- registration statement of PaineWebber America Fund, SEC File No. 2-78626, filed October 31, 2000. 12/ Incorporated by reference from Post-Effective Amendment No. 16 to the - -- registration statement of PaineWebber Managed Assets Trust, SEC File No. 33-42160, filed October 31, 2000. 13/ Incorporated by reference from Post-Effective Amendment No. 9 to the - -- registration statement, SEC File No. 33-87254, filed September 29, 2000. 14/ Incorporated by reference from Post-Effective Amendment No. 11 to the - -- registration statement, SEC File No. 33-87254, filed on July 31, 2001. 15/ Incorporated by reference from Post-Effective Amendment No. 12 to the - -- registration statement, SEC File No. 33-87254, filed on September 27, 2001. C-3 16/ Incorporated by reference from Post-Effective Amendment No. 2 to - -- registration statement, SEC File No. 33-87254, filed October 16, 1996. 17/ Incorporated by reference from Post-Effective Amendment No. 13 to the - -- registration statement, SEC File No. 33-87254, filed on October 25, 2001. Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT None. Item 25. INDEMNIFICATION Article IX, Section 2 of the Amended and Restated Trust Instrument of PaineWebber PACE Select Advisors Trust ("Trust Instrument") provides that the Registrant will indemnify its trustees, officers, employees, investment managers and administrators and investment advisors to the fullest extent permitted by law against claims and expenses asserted against or incurred by them by virtue of being or having been a trustee, officer, employee, investment manager and administrator or investment advisor; provided that (i) no such person shall be indemnified where there has been an adjudication or other determination, as described in Article IX, that such person is liable to the Registrant or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office, or did not act in good faith in the reasonable belief that his or her action was in the best interest of the Registrant, or (ii) no such person shall be indemnified where there has been a settlement, unless there has been a determination that such person did not engage in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office; such determination shall be made (A) by the court or other body approving the Settlement, (B) by the vote of at least a majority of those trustees who are neither Interested Persons of the trust nor are parties to the proceeding based upon a review of readily available facts (as opposed to a full trial-type inquiry), or (C) by written opinion of independent legal counsel based upon a review of readily available facts (as opposed to a full trial-type inquiry). "Interested Person" has the meaning provided in the Investment Company Act of 1940, as amended from time to time. Article IX, Section 2(d) of the Trust Instrument also provides that the Registrant may maintain insurance policies covering such rights of indemnification. Article IX, Section 1 of the Trust Instrument provides that the trustees and officers of the Registrant (i) shall not be personally liable to any person contracting with, or having a claim against, the Trust, and (ii) shall not be liable for neglect or wrongdoing by them or any officer, agent, employee or investment advisor of the Registrant, provided they have exercised reasonable care and have acted under the reasonable belief that their actions are in the best interest of the Registrant. Article X, Section 2 of the Trust Instrument provides that, subject to the provisions of Article IX, the trustees shall not be liable for (i) errors of judgment or mistakes of fact or law or (ii) any act or omission made in accordance with advice of counsel or other experts, or (iii) failure to follow such advice, with respect to the meaning and operation of the Trust Instrument. Registrant undertakes to carry out all indemnification provisions of its Trust Instrument and By-laws in accordance with Investment Company Act Release No. 11330 (September 4, 1980) and successor releases. Section 9 of the Investment Management and Administration Agreement ("Management Agreement") with Brinson Advisors, Inc. ("Brinson Advisors") (formerly, Mitchell Hutchins Asset Management Inc.) provides that Brinson Advisors shall not be liable for any error of judgment or mistake of law or for any loss suffered by any series of the Registrant in connection with the matters to which the Management Agreement relates, except for a loss resulting from the willful misfeasance, bad faith, or gross negligence of Brinson Advisors in the performance of its duties or from its reckless disregard of its obligations and duties under the Management Agreement. Section 10 of the Management Agreement provides that the Trustees and shareholders shall not be liable for any obligations of the Registrant or any series under the Management Agreement and that Brinson Advisors shall look only to the assets and property of the Registrant in settlement of such right or claim and not to the assets and property of the Trustees or shareholders. Section 6 of each Sub-Advisory Agreement provides that the applicable Sub-Advisor shall not be liable for any error of judgment or mistake of law or for any loss suffered by the portfolio, the Registrant or its shareholders or by Brinson Advisors in connection with the matters to which such Sub-Advisory Agreement relates, except for a C-4 loss resulting from the willful misfeasance, bad faith, or gross negligence on its part in the performance of its duties or from its reckless disregard of its obligations and duties under the Management Agreement. Section 9 of the Principal Underwriting Contract provides that the Registrant will indemnify Brinson Advisors and its officers, directors and controlling persons against all liabilities arising from any alleged untrue statement of material fact in the Registration Statement or from any alleged omission to state in the Registration Statement a material fact required to be stated in it or necessary to make the statements in it, in light of the circumstances under which they were made, not misleading, except insofar as liability arises from untrue statements or omissions made in reliance upon and in conformity with information furnished by Brinson Advisors to the Registrant for use in the Registration Statement; and provided that this indemnity agreement shall not protect any such persons against liabilities arising by reason of their bad faith, gross negligence or willful misfeasance; and shall not inure to the benefit of any such persons unless a court of competent jurisdiction or controlling precedent determines that such result is not against public policy as expressed in the Securities Act of 1933. Section 9 of the Principal Underwriting Contract also provides that Brinson Advisors agrees to indemnify, defend and hold the Registrant, its officers and Trustees free and harmless of any claims arising out of any alleged untrue statement or any alleged omission of material fact contained in information furnished by Brinson Advisors for use in the Registration Statement or arising out of an agreement between Brinson Advisors and any retail dealer, or arising out of supplementary literature or advertising used by Brinson Advisors in connection with the Principal Underwriting Contract. Section 9 of the Dealer Agreement with UBS PaineWebber Inc. ("UBS PaineWebber") (formerly, PaineWebber Incorporated) contains provisions similar to Section 9 of the Principal Underwriting Contract, with respect to UBS PaineWebber. Section 13 of the Selected Dealer Agreement also contains provisions similar to Section 9 of the Principal Underwriting Contract, with respect to the applicable dealer. Section 15 of the Principal Underwriting Contract contains provisions similar to Section 10 of the Management Agreement. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be provided to trustees, officers and controlling persons of the Trust, pursuant to the foregoing provisions or otherwise, the Trust has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Trust of expenses incurred or paid by a trustee, officer or controlling person of the Trust in connection with the successful defense of any action, suit or proceeding or payment pursuant to any insurance policy) is asserted against the Trust by such trustee, officer or controlling person in connection with the securities being registered, the Trust will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR Brinson Advisors is a registered investment advisor and serves as manager for all series of the Trust and investment advisor for PACE Money Market Investments. Brinson Advisors is primarily engaged in the investment management and financial services business. Information on the officers and directors of Brinson Advisors is included in its Form ADV filed with the Securities and Exchange Commission (registration number 801-13219) and is incorporated herein by reference. Brinson Advisors, with the approval of the Registrant's board of trustees, selects investment advisors for each series of the Registrant other than PACE Money Market Investments. The following companies, all of which are registered investment advisors, serve as investment advisors for the other series. Pacific Investment Management Company LLC ("PIMCO") serves as investment advisor for PACE Government Securities Fixed Income Investments and PACE Strategic Fixed Income Investments. PIMCO is primarily engaged in the investment management business. Information on the officers and directors of PIMCO is included in its Form ADV filed with the Securities and Exchange Commission (registration number 801-7260) and is incorporated herein by reference. Metropolitan West Asset Management, LLC ("MWAM") serves as investment advisor for PACE Intermediate Fixed Income Investments. MWAM is primarily engaged in the investment management business. Information on the officers and directors of MWAM is included in its Form ADV filed with the Securities and Exchange Commission (registration number 801-53332) and is incorporated herein by reference. C-5 Standish Mellon Asset Management Company LLC ("Standish Mellon") serves as investment advisor for PACE Municipal Fixed Income Investments. Standish Mellon is primarily engaged in the investment management business. Information on the officers and directors of Standish Mellon is included in its Form ADV filed with the Securities and Exchange Commission (registration number 801-60527) and is incorporated herein by reference. Rogge Global Partners plc serves as an investment advisor for PACE Global Fixed Income Investments. Rogge Global Partners is primarily engaged in the investment management business. Information on the officers and directors of Rogge Global Partners is included in its Form ADV filed with the Securities and Exchange Commission (registration number 801-25482) and is incorporated herein by reference. Fischer Francis Trees & Watts, Inc. ("FFTW(NY)") and its affiliates serve as investment advisors for PACE Global Fixed Income Investments. FFTW(NY) and its affiliates are primarily engaged in the investment management business. Information on the officers and directors of FFTW(NY) is included in its Form ADV filed with the Securities and Exchange Commission (registration number 801-10577) and is incorporated herein by reference. Information about the affiliates of FFTW(NY) is included in their Form ADVs filed with the SEC and is incorporated herein by reference. The registration number for Fisher Francis Trees & Watts (United Kingdom) is 801-37205, the registration number for Fischer Francis Trees & Watts Pte Ltd (Singapore) is 801-56491 and the registration number for Fischer Francis Trees & Watts, Ltd. Kabushiki Kaisha is 801-58057. SSgA Funds Management, Inc. ("SSgA") serves as an investment advisor for PACE Large Company Value Equity Investments and PACE Large Company Growth Equity Investments. Information on the officers and directors of SSgA is included in its Form ADV filed with the Securities and Exchange Commission (registration number 801-60103) and is incorporated herein by reference. Institutional Capital Corporation ("ICAP") serves as an investment advisor for PACE Large Company Value Equity Investments. ICAP is primarily engaged in the investment management business. Information on the officers and directors of ICAP is included in its Form ADV filed with the Securities and Exchange Commission (registration number 801-40779) and is incorporated herein by reference. Westwood Management Corporation ("Westwood") serves as an investment advisor for PACE Large Company Value Equity Investments. Westwood is primarily engaged in the investment management business. Information on the officers and directors of Westwood is included in its Form ADV filed with the Securities and Exchange Commission (registration number 801-18727) and is incorporated herein by reference. Alliance Capital Management L.P. ("Alliance Capital") serves as an investment advisor for PACE Large Company Growth Equity Investments. Alliance Capital is primarily engaged in the investment management business. Information on the officers and directors of Alliance Capital is included in its Form ADV filed with the Securities and Exchange Commission (registration number 801-32361) and is incorporated herein by reference. Ariel Capital Management, Inc. ("Ariel") serves as an investment advisor for PACE Small/Medium Company Value Equity Investments. Ariel is primarily engaged in the investment management business. Information on the officers and directors of Ariel is included in its Form ADV filed with the Securities and Exchange Commission (registration number 801-18767) and is incorporated herein by reference. ICM Asset Management, Inc. ("ICM") serves as an investment advisor for PACE Small/Medium Company Value Equity Investments. ICM is primarily engaged in the investment management business. Information on the officers and directors of ICM is included in its Form ADV filed with the Securities and Exchange Commission (registration number 801-16670) and is incorporated herein by reference. Delaware Management Company serves as investment advisor for PACE Small/Medium Company Growth Equity Investments. Delaware Management Company is primarily engaged in the investment management business. Information on the officers and directors of Delaware is included in its Form ADV filed with the Securities and Exchange Commission (registration number 801-32108) and is incorporated herein by reference. C-6 Martin Currie Inc. serves as investment advisor for PACE International Equity Investments. Martin Currie Inc. is primarily engaged in the investment management business. Information on the officers and directors of Martin Currie Inc. is included in its Form ADV filed with the Securities and Exchange Commission (registration number 801-14261) and is incorporated herein by reference. Schroder Investment Management North America Inc. ("SIMNA") serves as investment advisor for PACE International Emerging Markets Equity Investments. SIMNA is primarily engaged in the investment management business. Information on the officers and directors of SIMNA is included in its Form ADV filed with the Securities and Exchange Commission (registration number 801-15834) and is incorporated herein by reference. Item 27. PRINCIPAL UNDERWRITERS (a) Brinson Advisors serves as principal underwriter and/or investment advisor for the following other investment companies: ALL-AMERICAN TERM TRUST, INC. BRINSON FINANCIAL SERVICES GROWTH FUND, INC. BRINSON INDEX TRUST BRINSON INVESTMENT TRUST BRINSON MANAGED INVESTMENTS TRUST BRINSON MASTER SERIES, INC. BRINSON MONEY SERIES BRINSON SECURITIES TRUST BRINSON SERIES TRUST GLOBAL HIGH INCOME DOLLAR FUND, INC. INSURED MUNICIPAL INCOME FUND, INC. INVESTMENT GRADE MUNICIPAL INCOME FUND, INC. LIQUID INSTITUTIONAL RESERVES MANAGED HIGH YIELD PLUS FUND INC. STRATEGIC GLOBAL INCOME FUND, INC. 2002 TARGET TERM TRUST, INC. UBS PAINEWEBBER CASHFUND, INC. UBS PAINEWEBBER MANAGED MUNICIPAL TRUST UBS PAINEWEBBER MUNICIPAL MONEY MARKET SERIES UBS PAINEWEBBER RMA MONEY FUND, INC. UBS PAINEWEBBER RMA TAX-FREE FUND, INC. (b) Brinson Advisors is the principal underwriter for the Registrant. UBS PaineWebber acts as a dealer for the shares of the Registrant. The directors and officers of Brinson Advisors, their principal business addresses and their positions and offices with Brinson Advisors are identified in its Form ADV, as filed with the Securities and Exchange Commission (registration number 801-13219). The directors and officers of UBS PaineWebber, their principal business addresses and their positions and offices with UBS PaineWebber are identified in its Form ADV, as filed with the Securities and Exchange Commission (registration number 801-7163). The foregoing information is hereby incorporated by reference. The information set forth below is furnished for those directors and officers of Brinson Advisors or UBS PaineWebber who also serve as trustees or officers of the Registrant.
NAME POSITION WITH REGISTRANT POSITION AND OFFICES WITH PRINCIPAL - ---- ------------------------ ----------------------------------- UNDERWRITER AND/OR DEALER ------------------------- Margo N. Alexander* Trustee Executive Vice President and a Director of UBS PaineWebber Brian M. Storms* President President and Chief Operating Officer of Brinson Advisors Thomas Disbrow*** Vice President and Assistant Director and a Senior Manager of the Treasurer Mutual Fund Finance Department of Brinson Advisors Amy R. Doberman** Vice President and Secretary Executive Director and the General Counsel of Brinson Advisors
C-7
NAME POSITION WITH REGISTRANT POSITION AND OFFICES WITH PRINCIPAL - ---- ------------------------ ----------------------------------- UNDERWRITER AND/OR DEALER ------------------------- Joanne M. Kilkeary*** Vice President and Assistant Assistant Director and a Manager of the Treasurer Mutual Fund Finance Department of Brinson Advisors Kevin J. Mahoney*** Vice President and Assistant Director and a Senior Manager of the Treasurer Mutual Fund Finance Department of Brinson Advisors Michael H. Markowitz*** Vice President Executive Director, Portfolio Manager and Head of U.S. Short Duration Fixed Income of Brinson Advisors in the Short-Term Strategies Group of Brinson Advisors Emil Polito* Vice President Executive Director and Head of Investment Support and Mutual Fund Services of Brinson Advisors Paul H. Schubert*** Vice President and Treasurer Executive Director and Head of the Mutual Fund Finance Department of Brinson Advisors Keith A. Weller** Vice President and Assistant Director and Senior Associate General Secretary Counsel of Brinson Advisors - ------------------------------------------------------------------------------------------------------------------
* This person's business address is 51 West 52nd Street, New York, New York 10019-6114. ** This person's business address is 1285 Avenue of the Americas, New York, New York 10019-6028. *** This person's business address is Newport Center III, 499 Washington Blvd., 14th Floor, Jersey City, New Jersey 07310-1998. (c) None. Item 28. LOCATION OF ACCOUNTS AND RECORDS The books and other documents required by paragraphs (b)(4), (c) and (d) of Rule 31a-1 under the Investment Company Act of 1940 are maintained in the physical possession of Brinson Advisors at 1285 Avenue of the Americas, New York, New York 10019-6028 and 51 West 52nd Street, New York, New York 10019-6114. All other accounts, books and documents required by Rule 31a-1 are maintained in the physical possession of Registrant's transfer agent and custodian. Item 29. MANAGEMENT SERVICES Not applicable. Item 30. UNDERTAKINGS None. C-8 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all the requirements for effectiveness of this Post-Effective Amendment to its Registration Statement under Rule 485(b) of the Securities Act of 1933 and has duly caused this Post-Effective Amendment to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York and State of New York, on the 2nd day of November, 2001. PAINEWEBBER PACE SELECT ADVISORS TRUST By: /s/ Keith A. Weller --------------------------------------------- Keith A. Weller Vice President and Assistant Secretary Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment has been signed below by the following persons in the capacities and on the dates indicated: SIGNATURE TITLE DATE /s/ Brian M. Storms President November 2, 2001 - -------------------------- (Chief Executive Officer) Brian M. Storms* /s/ E. Garrett Bewkes, Jr. Trustee and Chairman November 2, 2001 - -------------------------- of the Board of Trustees E. Garrett Bewkes, Jr.** /s/ Margo N. Alexander Trustee November 2, 2001 - -------------------------- Margo N. Alexander** /s/ Richard Q. Armstrong Trustee November 2, 2001 - -------------------------- Richard Q. Armstrong** /s/ David J. Beaubien Trustee November 2, 2001 - -------------------------- David J. Beaubien** /s/ Richard R. Burt Trustee November 2, 2001 - -------------------------- Richard R. Burt** /s/ Meyer Feldberg Trustee November 2, 2001 - -------------------------- Meyer Feldberg** /s/ George W. Gowen Trustee November 2, 2001 - -------------------------- George W. Gowen** /s/ William W. Hewitt, Jr. Trustee November 2, 2001 - -------------------------- William W. Hewitt, Jr.** /s/ Morton L. Janklow Trustee November 2, 2001 - -------------------------- Morton L. Janklow** /s/ Frederic V. Malek Trustee November 2, 2001 - -------------------------- Frederic V. Malek*** /s/ Carl W. Schafer Trustee November 2, 2001 - -------------------------- Carl W. Schafer** /s/ William D. White Trustee November 2, 2001 - -------------------------- William D. White** /s/ Paul H. Schubert Vice President and Treasurer (Chief November 2, 2001 - -------------------------- Financial and Accounting Officer) Paul H. Schubert C-9 SIGNATURES (CONTINUED) * Signature affixed by Keith A. Weller pursuant to power of attorney dated September 25, 2001 and incorporated by reference from Exhibit 16 to Post-Effective Amendment No. 12 of the Registrant, SEC file No. 33-87254, filed September 27, 2001. ** Signatures affixed by Keith A. Weller pursuant to powers of attorney dated September 20, 2001 and incorporated by reference from Exhibit 16 to Post-Effective Amendment No. 12 of the Registrant, SEC file No. 33-87254, filed September 27, 2001. *** Signature affixed by Keith A. Weller pursuant to power of attorney dated September 20, 2001 and incorporated by reference from Exhibit 17 to Post-Effective Amendment No. 13 of the Registrant, SEC File No. 33-87254, filed October 25, 2001. C-10 PAINEWEBBER PACE SELECT ADVISORS TRUST EXHIBIT INDEX EXHIBIT NUMBER (1) (a) Certificate of Business Trust effective September 9, 1994 1/ - (b) Amended and Restated Trust Instrument 2/ - (c) Amendment No. 1 to Amended and Restated Trust Instrument (filed herewith) (2) (a) Amended and Restated By-Laws 2/ - (b) Certificate of Amendment to Amended and Restated By-Laws (filed herewith) (3) Instruments defining the rights of holders of Registrant's shares of beneficial interest 3/ - (4) (a) Investment Management and Administration Agreement 4/ - (b) Sub-Advisory Agreement with Pacific Investment Management Company LLC with respect to PACE Government Securities Fixed Income Investments dated as of October 10, 2000 2/ - (c) Sub-Advisory Agreement with Metropolitan West Asset Management LLC with respect to PACE Intermediate Fixed Income Investments dated as of October 10, 2000 2/ - (d) Sub-Advisory Agreement with Pacific Investment Management Company LLC with respect to PACE Strategic Fixed Income Investments dated as of May 5, 2000 2/ - (e) Sub-Advisory Agreement with Standish Mellon Asset Management Company LLC with respect to PACE Municipal Fixed Income Investments dated as of August 1, 2001 (filed herewith) (f) Sub-Advisory Agreement with Rogge Global Partners plc with respect to PACE Global Fixed Income Investments dated as of October 10, 2000 2/ - (g) Sub-Advisory Agreement with Fischer Francis Trees & Watts, Inc. and its affiliates with respect to PACE Global Fixed Income Investments dated as of November 13, 2000 14/ -- (h) Sub-Advisory Agreement with SSgA Funds Management, Inc. with respect to PACE Large Company Value Equity Investments dated as of May 1, 2001 and related Parent Guarantee dated as of April 30, 2001 14/ -- (i) Sub-Advisory Agreement with Institutional Capital Corporation with respect to PACE Large Company Value Equity Investments dated as of July 1, 2000 2/ - (j) Sub-Advisory Agreement with Westwood Management Corporation with respect to PACE Large Company Value Equity Investments dated as of July 1, 2000 2/ - (k) Sub-Advisory Agreement with Alliance Capital Management L.P. with respect to PACE Large Company Growth Equity Investments dated as of October 10, 2000 2/ - (l) Sub-Advisory Agreement with SSgA Funds Management, Inc. with respect to PACE Large Company Growth Equity Investments dated as of May 1, 2001 and related Parent Guarantee dated as of April 30, 2001 14/ -- (m) Sub-Advisory Agreement with Ariel Capital Management, Inc. with respect to PACE Small/Medium Company Value Equity Investments dated as of October 4, 1999 1/ - (n) Sub-Advisory Agreement with ICM Asset Management, Inc. with respect to PACE Small/Medium Company Value Equity Investments dated as of October 10, 2000 2/ - (o) Sub-Advisory Agreement with Delaware Management Company with respect to PACE Small/Medium Company Growth Equity Investments dated as of December 16, 1996 5/ - (p) Sub-Advisory Agreement with Martin Currie Inc. with respect to PACE International Equity Investments dated as of October 10, 2000 10/ -- (q) Sub-Advisory Agreement with Schroder Investment Management North America Inc. with respect to PACE International Emerging Markets Equity Investments dated as of June 15, 1995 4/ - (5) (a) Principal Underwriting Contract (filed herewith) (b) Dealer Agreement with UBS PaineWebber Inc. (filed herewith) (c) Form of Selected Dealer Agreement (filed herewith) (6) Bonus, profit sharing or pension plans - none (7) (a) Custodian Agreement 1/ - (b) Amendment to Custody Contract dated August 3, 1999 (filed herewith) (c) Amendment to Custodian Contract dated February 15, 2001 (filed herewith) (8) (a) Transfer Agency Agreement dated as of August 18, 1995 (Class P shares) 16/ -- (b) Amendment to Transfer Agency Agreement dated as of November 27, 2000 (Class P shares) (filed herewith) (c) Form of Transfer Agency - Related Services Delegation Agreement dated as of February 13, 2001 (Class P shares) (filed herewith) (d) Transfer Agency and Related Services Agreement dated as of November 27, 2000 (Class A, B, C and Y shares) (filed herewith) (e) Transfer Agency - Related Services Delegation Agreement dated as of November 27, 2000 (Class A, B, C and Y shares) (filed herewith) (9) Opinions and consents of Counsel on legality of shares (filed herewith) (10) Other opinions, appraisals, rulings and consents: Auditors' consent (filed herewith) (11) Financial Statements omitted from prospectus - none (12) Letter of investment intent 6/ - (13) Plan pursuant to Rule 12b-1 (a) Plan of Distribution pursuant to Rule 12b-1 with respect to Class A shares (filed herewith) (b) Plan of Distribution pursuant to Rule 12b-1 with respect to Class B shares (filed herewith) (c) Plan of Distribution pursuant to Rule 12b-1 with respect to Class C shares (filed herewith) (14) Plan pursuant to Rule 18f-3 (filed herewith) (15) Code of Ethics (a) Code of Ethics for Registrant and Brinson Advisors, Inc. (manager and principal underwriter) 7/ - (b) Code of Ethics for Pacific Investment Management Company LLC 8/ - (c) Code of Ethics for Metropolitan West Asset Management LLC 9/ - (d) Code of Ethics for Standish, Ayer & Wood, Inc. 10/ -- (e) Code of Ethics for Rogge Global Partners plc 10/ -- (f) Code of Ethics for Fischer Francis Trees & Watts, Inc. and its affiliates 14/ -- (g) Code of Ethics for SSgA Funds Management, Inc. 14/ -- (h) Code of Ethics for Institutional Capital Corporation 11/ -- (i) Code of Ethics for Westwood Management Corporation 11/ -- (j) Code of Ethics for Alliance Capital Management L.P. 14/ -- (k) Code of Ethics for Ariel Capital Management, Inc. 14/ -- (l) Code of Ethics for ICM Asset Management, Inc. 8/ - (m) Code of Ethics for Delaware Management Company 12/ -- (n) Code of Ethics for Martin Currie Inc. 10/ -- (o) Code of Ethics for Schroder Investment Management North America Inc. (filed herewith) (16) Power of Attorney for Ms. Alexander and Messrs. Armstrong, Beaubien, Bewkes, Burt, Feldberg, Gowen, Hewitt, Janklow, Schafer, Storms and White 15/ -- (17) Power of Attorney for Mr. Malek 17/ -- - ------------------------------------------------------------------------------- 1/ Incorporated by reference from Post-Effective Amendment No. 8 to registration statement, SEC File No. 33-87254, filed December 1, 1999. 2/ Incorporated by reference from Registrant's N-14 registration statement for the series designated PACE Intermediate Fixed Income Investments, SEC File No. 333-49052, filed November 1, 2000. 3/ Incorporated by reference from Articles IV, VI, IX and X of Registrant's Trust Instrument and from Articles V and IX of Registrant's By-Laws. 4/ Incorporated by reference from Post-Effective Amendment No. 1 to registration statement, SEC File No. 33-87254, filed February 23, 1996. 5/ Incorporated by reference from Post-Effective Amendment No. 4 to registration statement, SEC File No. 33-87254, filed November 13, 1997. 6/ Incorporated by reference from Registrant's N-1A registration statement, SEC File No. 33-87254, filed June 19, 1995. 7/ Incorporated by reference from Post-Effective Amendment No. 29 to registration statement of PaineWebber Mutual Fund Trust, SEC File No. 2-98149, filed June 27, 2000. 8/ Incorporated by reference from Post-Effective Amendment No. 27 to the registration statement of PaineWebber Securities Trust, SEC File No. 33-55374, filed October 31, 2000. 9/ Incorporated by reference from Post-Effective Amendment No. 68 to the registration statement of PaineWebber Managed Investments Trust, SEC File No. 2-91362, filed October 31, 2000. 10/ Incorporated by reference from Post-Effective Amendment No. 10 to the - -- registration statement, SEC File No. 33-87254, filed November 9, 2000. 11/ Incorporated by reference from Post-Effective Amendment No. 46 to the - -- registration statement of PaineWebber America Fund, SEC File No. 2-78626, filed October 31, 2000. 12/ Incorporated by reference from Post-Effective Amendment No. 16 to the - -- registration statement of PaineWebber Managed Assets Trust, SEC File No. 33-42160, filed October 31, 2000. 13/ Incorporated by reference from Post-Effective Amendment No. 9 to the - -- registration statement, SEC File No. 33-87254, filed September 29, 2000. 14/ Incorporated by reference from Post-Effective Amendment No. 11 to the - -- registration statement, SEC File No. 33-87254, filed on July 31, 2001. 15/ Incorporated by reference from Post-Effective Amendment No. 12 to the - -- registration statement, SEC File No. 33-87254, filed on September 27, 2001. 16/ Incorporated by reference from Post-Effective Amendment No. 2 to - -- registration statement, SEC File No. 33-87254, filed October 16, 1996. 17/ Incorporated by reference from Post-Effective Amendment No. 13 to the - -- registration statement, SEC File No. 33-87254, filed on October 25, 2001. EX-1.(C) 3 a2059133zex-1_c.txt EXHIBIT 1(C) Exhibit 1(c) AMENDMENT NO. 1 TO AMENDED AND RESTATED TRUST INSTRUMENT OF PAINEWEBBER PACE SELECT ADVISORS TRUST THIS AMENDMENT NO. 1 (this "Amendment"), to the Amended and Restated Trust Instrument of PaineWebber PACE Select Advisors Trust, a Delaware business trust (the "Trust"), dated September 13, 2000 (the "Trust Instrument"), by and among the trustees of the Trust and the holders, from time to time, of undivided beneficial interests in the assets of the Trust or a series of the Trust (each, a "Shareholder" and collectively, the "Shareholders"), is effective as of November 5, 2001. WHEREAS, at a duly noticed meeting of the trustees on September 20, 2001, pursuant to Article X, Section 8 and Article II, Section 7 of the Trust Instrument, the trustees of the Trust duly approved amendments to the Trust Instrument as set forth in this Amendment No. 1 without the necessity of their execution thereof; and WHEREAS, the trustees of the Trust determined that the amendments to the Trust Instrument set forth below do not require the vote of Shareholders pursuant to Article X, Section 8 of the Trust Instrument. NOW THEREFORE, the trustees of the Trust hereby agree as follows: 1. AMENDMENT TO ARTICLE IV, SECTION 1. Article IV, Section 1 of the Trust Instrument is hereby amended in its entirety to read as follows: "Section 1. ESTABLISHMENT OF SERIES, CLASS OR OTHER SUBDIVISION. The Trust shall consist of one or more separate and distinct Series. Each additional Series shall be established by the adoption of a resolution by the Trustees. The Trustees may designate the relative rights and preferences of the Shares of each Series. The Trustees may divide the Shares of any Series into Classes or other subdivisions thereof, and may divide the Shares of any Classes into further subdivisions thereof, including subclasses. The current Series, Classes, subclasses and other subdivisions of Shares are listed on Schedule A hereto. Each additional Class or other subdivision of Shares shall be established by the adoption of a resolution by the Trustees and shall be effective upon the date stated therein (or if no such date is stated, upon the date of such adoption). Each Class or other subdivision of a Series shall represent a proportional beneficial interest in the assets of that Series. The Trust shall maintain separate and distinct records for each Series and hold and account for the assets thereof separately from the other assets of the Trust or of any other Series. Any number of Shares may be issued with respect to each Series. Each Share of a Series will represent an equal beneficial interest in the net assets of such Series. Each holder of Shares of a Series shall be entitled to receive his or her pro rata share of all distributions made with respect to such Series, provided that, if Classes, or other subdivisions of a Series or a Class, have been established, each holder of Shares of a Class, or other subdivision of a Series or a Class, shall be entitled to receive his or her pro rata share of all distributions made with respect to such Class, or other subdivision of the Series or the Class, as the case may be. Upon redemption of his or her Shares, such Shareholder shall be paid solely out of the assets and property of such Series." 2. AMENDMENT TO ARTICLE IV, SECTION 2. Article IV, Section 2 of the Trust Instrument is hereby amended in its entirety to read as follows: "Section 2. SHARES. The beneficial interest in the Trust shall be divided into Shares of one or more Series, Classes, or other subdivisions of Series or Classes, in accordance with Article IV, Section 1 above. The number of Shares of the Trust and of each Series, Class, or other subdivision of a Series or Class, is unlimited and each Share shall have a par value of $0.001 per Share. All Shares issued hereunder, including Shares issued in connection with a distribution of Shares or a split or reverse split of Shares, shall be fully paid and nonassessable. Shareholders shall have no preemptive or other right to subscribe to any additional Shares or other securities issued by the Trust. Notwithstanding anything to the contrary contained in this Trust Instrument, the Trustees shall have full power and authority, in their sole discretion and without obtaining Shareholder approval: to issue original or additional Shares and fractional Shares at such times and on such terms and conditions as they deem appropriate; to establish and to change in any manner Shares of any Series, Class, or other subdivision of any Series or Class, with such preferences, terms of conversion, voting powers, rights and privileges as the Trustees may determine (but the Trustees may not change Outstanding Shares in a manner materially adverse to the Shareholders of such Shares); to divide or combine the Shares of any Series, Class, or other subdivision of any Series or Class, into a greater or lesser number; to classify or reclassify any unissued Shares of any Series, Class, or other subdivision of any Series or Class, into Shares of one or more Series, Classes, or other subdivisions of Series or Classes; to abolish Shares of any one or more Series, Class, or other subdivision of any Series or Class; to issue Shares to acquire other assets (including assets subject to, and in connection with, the assumption of liabilities) and businesses; and to take such other action with respect to the Shares as the Trustees may deem desirable." 3. AMENDMENT TO SCHEDULE A. Schedule A of the Trust Instrument is hereby amended in its entirety as set forth on EXHIBIT 1 hereto. 4. RECLASSIFICATION OF OUTSTANDING CLASS B SHARES. All Class B Shares of each Series of the Trust issued and outstanding on the effective date of this Amendment No. 1 shall be reclassified as Sub-Class B-1 Shares (as defined on Schedule A of the Trust Instrument as amended and set forth on EXHIBIT 1 hereto) of such Series of the Trust. 5. EFFECT OF AMENDMENT. This Amendment No. 1 shall be effective and the Trust Instrument shall be deemed to be modified and amended in accordance herewith as of the date of this Amendment No. 1. Except as hereby amended, the Trust Instrument shall remain in full force and effect. 6. CAPITALIZED TERMS. Capitalized terms used and not defined herein have the meanings set forth in the Trust Instrument. 7. GOVERNING LAW. This Amendment No. 1 shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to principles of conflicts of law thereof. EXHIBIT 1 SCHEDULE A TO AMENDED AND RESTATED TRUST INSTRUMENT OF PAINEWEBBER PACE SELECT ADVISORS TRUST (AS AMENDED AND RESTATED EFFECTIVE NOVEMBER 5, 2001) SERIES OF THE TRUST PACE Money Market Investments PACE Government Securities Fixed Income Investments PACE Intermediate Fixed Income Investments PACE Strategic Fixed Income Investments PACE Municipal Fixed Income Investments PACE Global Fixed Income Investments PACE Large Company Value Equity Investments PACE Large Company Growth Equity Investments PACE Small/Medium Company Value Equity Investments PACE Small/Medium Company Growth Equity Investments PACE International Equity Investments PACE International Emerging Markets Equity Investments CLASSES OF SHARES OF EACH SERIES An unlimited number of shares of beneficial interest has been established by the Board as Class P shares of the Series designated as PACE Money Market Investments. An unlimited number of shares of beneficial interest have been established by the Board as Class A shares, Class B shares, Class C shares, Class P shares and Class Y shares of each of the other Series listed above. The Class B shares of each Series consist of an unlimited number of Sub-Class B-1 shares, Sub-Class B-2 shares, Sub-Class B-3 shares and Sub-Class B-4 shares. Each of the Class A shares, Class B shares, Class C shares, Class P shares and Class Y shares of a Series represents interests in the assets of only that Series and has the same preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of shares, except as provided in the Trust's Trust Instrument and as set forth below with respect to the Class B shares of the Series: 1. Each Sub-Class B-1 share of a Series, other than a share purchased through the reinvestment of a dividend or a distribution with respect to the Sub-Class B-1 share, shall be converted automatically, and without any action or choice on the part of the holder thereof, into Class A shares of the same Series, based on the relative net asset value of each such class at the time of the calculation of the net asset value of such class of shares on the date that is the first Business Day (as defined in the Series' prospectus and/or statement of additional information) of the month in which the sixth anniversary of the issuance of such Sub-Class B-1 shares occurs (which, for the purpose of calculating the holding period required for conversion, shall mean (i) the date on which the issuance of such Sub-Class B-1 shares occurred or (ii) for Sub-Class B-1 shares obtained through an exchange, the date on which the issuance of the Sub-Class B-1 shares of an eligible Brinson fund occurred, if such shares were exchanged directly or through a series of exchanges for the Series' Sub-Class B-1 shares (the "Sub-Class B-1 Conversion Date")). 2. Each Sub-Class B-2 share of a Series, other than a share purchased through the reinvestment of a dividend or a distribution with respect to the Sub-Class B-2 share, shall be converted automatically, and without any action or choice on the part of the holder thereof, into Class A shares of the same Series, based on the relative net asset value of each such class at the time of the calculation of the net asset value of such class of shares on the date that is the first Business Day (as defined in the Series' prospectus and/or statement of additional information) of the month in which the fourth anniversary of the issuance of such Sub-Class B-2 shares occurs (which, for the purpose of calculating the holding period required for conversion, shall mean (i) the date on which the issuance of such Sub-Class B-2 shares occurred or (ii) for Sub-Class B-2 shares obtained through an exchange, the date on which the issuance of the Sub-Class B-2 shares of an eligible Brinson fund occurred, if such shares were exchanged directly or through a series of exchanges for the Series' Sub-Class B-2 shares (the "Class B-2 Conversion Date")). 3. Each Sub-Class B-3 share of a Series, other than a share purchased through the reinvestment of a dividend or a distribution with respect to the Sub-Class B-3 share, shall be converted automatically, and without any action or choice on the part of the holder thereof, into Class A shares of the same Series, based on the relative net asset value of each such class at the time of the calculation of the net asset value of such class of shares on the date that is the first Business Day (as defined in the Series' prospectus and/or statement of additional information) of the month in which the third anniversary of the issuance of such Sub-Class B-3 shares occurs (which, for the purpose of calculating the holding period required for conversion, shall mean (i) the date on which the issuance of such Sub-Class B-3 shares occurred or (ii) for Sub-Class B-3 shares obtained through an exchange, the date on which the issuance of the Sub-Class B-3 shares of an eligible Brinson fund occurred, if such shares were exchanged directly or through a series of exchanges for the Series' Sub-Class B-3 shares (the "Class B-3 Conversion Date")). 4. Each Sub-Class B-4 share of a Series, other than a share purchased through the reinvestment of a dividend or a distribution with respect to the Sub-Class B-4 share, shall be converted automatically, and without any action or choice on the part of the holder thereof, into Class A shares of the same Series, based on the relative net asset value of each such class at the time of the calculation of the net asset value of such class of shares on the date that is the first Business Day (as defined in the Series' prospectus and/or statement of additional information) of the month in which the second anniversary of the issuance of such Sub-Class B-4 shares occurs (which, for the purpose of calculating the holding period required for conversion, shall mean (i) the date on which the issuance of such Sub-Class B-4 shares occurred or (ii) for Sub-Class B-4 shares obtained through an exchange, the date on which the issuance of the Sub-Class B-4 shares of an eligible Brinson fund occurred, if such shares were exchanged directly or through a series of exchanges for the Series' Sub-Class B-4 shares (the "Class B-4 Conversion Date")). 5. Each Sub-Class B-1, Sub-Class B-2, Sub-Class B-3 or Sub-Class B-4 share of a Series (which may be referred to collectively as "Class B shares") purchased through the reinvestment of a dividend or a distribution with respect to the corresponding sub-class of shares and the dividends and distributions on such shares shall be segregated in a separate sub-account on the stock records of the Series for each of the holders of record thereof. On any Class B-1 Conversion Date, Class B-2 Conversion Date, Class B-3 Conversion Date or Class B-4 Conversion Date (hereinafter referred to as a "Conversion Date"), a number of the shares held in the sub-account of the holder of record of the corresponding Class B shares being converted, calculated in accordance with the next following sentence, shall be converted automatically, and without any action or choice on the part of the holder thereof, into Class A shares of the same Series. The number of Class B shares in the holder's sub-account so converted shall bear the same relation to the total number of corresponding Class B shares maintained in the sub-account on the Conversion Date as the number of Class B shares of the holder converted on the Conversion Date bears to the total number of the corresponding Class B shares of the holder on the Conversion Date not purchased through the automatic reinvestment of dividends or distributions with respect to the Class B shares. 6. The number of Class A shares into which Class B shares are converted shall equal the number (including for this purpose fractions of a share) obtained by dividing the net asset value per share of the Class B shares for purposes of sales and redemptions thereof at the time of the calculation of the net asset value on the Conversion Date by the net asset value per share of the Class A shares for purposes of sales and redemptions thereof at the time of the calculation of the net asset value on the Conversion Date. 7. On the Conversion Date, the Class B shares converted into Class A shares will cease to accrue dividends and will no longer be outstanding and the rights of the holders thereof will cease (except the right to receive declared but unpaid dividends to the Conversion Date). For purposes of the foregoing, the term "eligible Brinson fund" includes any and all mutual funds for which Brinson Advisors, Inc. or an affiliate of Brinson Advisors, Inc. serves as investment adviser, investment manager or principal underwriter that offer shares that (i) have a contingent deferred sales charge imposed upon certain redemptions of such shares and (ii) are exchangeable with the Class B shares of the Series. EX-2.(B) 4 a2059133zex-2_b.txt EXHIBIT 2(B) Exhibit No. 2(b) CERTIFICATE OF AMENDMENT TO AMENDED AND RESTATED BY-LAWS OF PAINEWEBBER PACE SELECT ADVISORS TRUST The undersigned, being Vice President and Assistant Secretary of PaineWebber PACE Select Advisors Trust ("Trust"), hereby certifies that the Trustees of the Trust duly adopted the following amendment to the Amended and Restated By-Laws of the Trust dated September 13, 2000 (the "By-Laws") in the manner provided in the By-Laws, at a meeting held on September 20, 2001, and that such amendment became effective as of that date: Article II, Section 2 of the By-Laws was deleted in its entirety and replaced by the following: "SECTION 2. RETIREMENT OF TRUSTEES. Each Trustee who has attained the age of seventy-two (72) years shall retire from service as a Trustee on the later of (a) the last day of the month in which he or she attains such age or (b) June 30, 2003. Notwithstanding anything in this Section, a Trustee may retire at any time as provided for in the governing instrument of the Trust." Dated: October 29, 2001 By: /s/ Keith A. Weller -------------------------- Name: Keith A. Weller Title: Vice President and Assistant Secretary New York, New York (ss) On this 29th day of October 2001, before me personally appeared Keith A. Weller, to me personally known, who, being by me duly sworn, did say that he is Vice President and Assistant Secretary of the above-referenced Trust and acknowledged that he executed the foregoing instrument as his free act and deed. /s/ Victoria A. Drake ----------------------------------- Notary Public EX-4.(E) 5 a2059133zex-4_e.txt EXHIBIT 4(E) Exhibit No. 4(e) SUB-ADVISORY AGREEMENT Agreement made as of August 1, 2001 between BRINSON ADVISORS, INC. ("Brinson Advisors," formerly known as Mitchell Hutchins Asset Management Inc.), a Delaware corporation, and STANDISH MELLON ASSET MANAGEMENT COMPANY LLC ("Sub-Adviser"), a limited liability company (the "Agreement"). RECITALS (1) Brinson Advisors has entered into a Management Agreement dated June 15, 1995 ("Management Agreement") with PaineWebber PACE Select Advisors Trust (formerly known as Managed Accounts Services Portfolio Trust ("Trust")), an open-end management investment company registered under the Investment Company Act of 1940, as amended ("1940 Act"), with respect to PACE MUNICIPAL FIXED INCOME INVESTMENTS ("Portfolio"); (2) Brinson Advisors entered into a Sub-Advisory Agreement dated as of October 10, 2000 (the "Old Sub-Advisory Agreement") with Standish, Ayer & Wood, Inc. ("Standish") with respect to the Portfolio, pursuant to which Standish agreed to furnish certain investment advisory services; (3) Effective August 1, 2001, Standish merged into the Sub-Adviser, a direct wholly owned subsidiary of Mellon Financial Corporation, and as a result of this transaction, the Old Sub-Advisory Agreement between Brinson Advisors and Standish automatically terminated; and (4) Brinson Advisors and the Sub-Adviser wish to enter into a new Sub-Advisory Agreement embodying substantially the same terms and provisions as the Old Sub-Advisory Agreement. NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, Brinson Advisors and the Sub-Adviser agree as follows: 1. APPOINTMENT. Brinson Advisors hereby appoints the Sub-Adviser as an investment sub-adviser with respect to the Portfolio for the period and on the terms set forth in this Agreement. The Sub-Adviser accepts that appointment and agrees to render the services herein set forth, for the compensation herein provided. 2. DUTIES AS SUB-ADVISER. (a) Subject to the supervision and direction of the Trust's Board of Trustees (the "Board") and review by Brinson Advisors, and any written guidelines adopted by the Board or Brinson Advisors, the Sub-Adviser will provide a continuous investment program for all or a designated portion of the assets ("Segment") of the Portfolio, including investment research and discretionary management with respect to all securities and investments and cash equivalents in the Portfolio or 1 Segment. The Sub-Adviser may from time to time seek research assistance and may rely upon resources available to it through its affiliated companies to the extent such actions would not constitute an "assignment" for purposes of the 1940 Act but in no case shall such assistance and/or reliance relieve the Sub-Adviser of any of its obligations hereunder, nor shall the Portfolio or Segment or Brinson Advisors be responsible for any additional fees or expenses hereunder as a result. The Sub-Adviser will determine from time to time what investments will be purchased, retained or sold by the Portfolio or Segment. The Sub-Adviser will be responsible for placing purchase and sell orders for investments and for other related transactions for the Portfolio or Segment. The Sub-Adviser will be responsible for voting proxies of issuers of securities held by the Portfolio or Segment. The Sub-Adviser understands that the Portfolio's assets need to be managed so as to permit the Portfolio to qualify or to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code, as amended ("Code"). The Sub-Adviser will provide services under this Agreement in accordance with the Portfolio's investment objective, policies and restrictions as stated in the Trust's currently effective registration statement under the 1940 Act, and any amendments or supplements thereto ("Registration Statement"). (b) The Sub-Adviser agrees that, in placing orders with brokers, it will obtain the best net result in terms of price and execution; provided that, on behalf of the Portfolio, the Sub-Adviser may, in its discretion, use brokers that provide the Sub-Adviser with research, analysis, advice and similar services to execute portfolio transactions on behalf of the Portfolio, and the Sub-Adviser may pay to those brokers in return for brokerage and research services a higher commission than may be charged by other brokers, subject to the Sub-Adviser's determination in good faith that such commission is reasonable in terms either of the particular transaction or of the overall responsibility of the Sub-Adviser to the Portfolio and its other clients and that the total commissions paid by the Portfolio or Segment will be reasonable in relation to the benefits to the Portfolio over the long term. In no instance will portfolio securities be purchased from or sold to Brinson Advisors or the Sub-Adviser, or any affiliated person thereof, except in accordance with the federal securities laws and the rules and regulations thereunder. The Sub-Adviser may aggregate sales and purchase orders with respect to the assets of the Portfolio or Segment with similar orders being made simultaneously for other accounts advised by the Sub-Adviser or its affiliates. Whenever the Sub-Adviser simultaneously places orders to purchase or sell the same security on behalf of the Portfolio and one or more other accounts advised by the Sub-Adviser, the orders will be allocated as to price and amount among all such accounts in a manner believed to be equitable over time to each account. Brinson Advisors recognizes that in some cases this procedure may adversely affect the results obtained for the Portfolio or Segment. (c) The Sub-Adviser will maintain all books and records required to be maintained pursuant to the 1940 Act and the rules and regulations promulgated thereunder with respect to transactions by the Sub-Adviser on behalf of the Portfolio or Segment, and will furnish the Board and Brinson Advisors with such periodic and special reports as the Board or Brinson Advisors reasonably may request. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Sub-Adviser hereby agrees that all records which it maintains for the Portfolio are the property of the Trust, agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act any records that it maintains for the Portfolio and that are required to be maintained by Rule 31a-1 under the 1940 Act, and further 2 agrees to surrender promptly to the Trust any records which it maintains for the Portfolio upon request by the Trust. (d) At such times as shall be reasonably requested by the Board or Brinson Advisors, the Sub-Adviser will provide the Board and Brinson Advisors with economic and investment analyses and reports as well as quarterly reports setting forth the performance of the Portfolio or Segment and make available to the Board and Brinson Advisors any economic, statistical and investment services that the Sub-Adviser normally makes available to its institutional or other customers. (e) In accordance with procedures adopted by the Board, as amended from time to time, the Sub-Adviser is responsible for assisting in the fair valuation of all portfolio securities in the Portfolio or Segment and will use its reasonable efforts to arrange for the provision of a price or prices from one or more parties independent of the Sub-Adviser for each portfolio security for which the custodian does not obtain prices in the ordinary course of business from an automated pricing service. 3. FURTHER DUTIES. In all matters relating to the performance of this Agreement, the Sub-Adviser will seek to act in conformity with the Trust's Trust Instrument, By-Laws and Registration Statement and with the written instructions and written directions of the Board and Brinson Advisors; and will comply with the requirements of the 1940 Act, and the Investment Advisers Act of 1940, as amended ("Advisers Act"), and the rules under each, the Code, and all other federal and state laws and regulations applicable to the Trust and the Portfolio. Brinson Advisors agrees to provide to the Sub-Adviser copies of the Trust's Trust Instrument, By-Laws, Registration Statement, written instructions and directions of the Board and Brinson Advisors, and any amendments or supplements to any of these materials as soon as practicable after such materials become available; and further agrees to identify to the Sub-Adviser in writing any broker-dealers that are affiliated with Brinson Advisors (other than UBS PaineWebber Inc. and Brinson Advisors itself). 4. EXPENSES. During the term of this Agreement, the Sub-Adviser will bear all expenses incurred by it in connection with its services under this Agreement. The Sub-Adviser shall not be responsible for any expenses incurred by the Trust, the Portfolio or Brinson Advisors. 5. COMPENSATION. (a) For the services provided and the expenses assumed by the Sub-Adviser pursuant to this Agreement, Brinson Advisors, not the Portfolio, will pay to the Sub-Adviser a fee, computed daily and payable monthly, at an annual rate of 0.20% of the average daily net assets up to and including $60 million and 0.15% of the average daily net assets in excess of $60 million of the Portfolio or Segment allocated to its management (computed in the manner specified in the Management Agreement), and will provide the Sub-Adviser with a schedule showing the manner in which the fee was computed. If the Sub-Adviser is managing a Segment, its fees will be based on the value of the assets of the Portfolio within the Sub-Adviser's Segment. (b) The fee shall be accrued daily and payable monthly to the Sub-Adviser on or before the last business day of the next succeeding calendar month. 3 (c) If this Agreement becomes effective or terminates before the end of any month, the fee for the period from the effective date to the end of the month or from the beginning of such month to the date of termination, as the case may be, shall be pro-rated according to the proportion which such period bears to the full month in that such effectiveness or termination occurs. 6. LIMITATION OF LIABILITY. (a) The Sub-Adviser shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Portfolio, the Trust or its shareholders or by Brinson Advisors in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under this Agreement. (b) In no event will the Sub-Adviser have any responsibility for any other series of the Trust, for any portion of the Portfolio not managed by the Sub-Adviser or for the acts or omissions of any other sub-adviser to the Trust or Portfolio, the Trust's custodian, administrator, distributor or any broker-dealer selected with due care by the Sub-Adviser to effect transactions for the Portfolio. In particular, in the event the Sub-Adviser shall manage only a portion of the Portfolio's investments, the Sub-Adviser shall have no responsibility for the Portfolio's being in violation of any applicable law or regulation or investment policy or restriction applicable to the Portfolio as a whole or for the Portfolio's failing to qualify as a regulated investment company under the Code, if the securities and other holdings of the Segment of the Portfolio managed by the Sub-Adviser are such that such Segment would not be in such violation or fail to so qualify if such Segment were deemed a separate series of the Trust or a separate "regulated investment company" under the Code. Nothing in this section shall be deemed a limitation or waiver of any obligation or duty that may not by law be limited or waived. 7. REPRESENTATIONS OF SUB-ADVISER. The Sub-Adviser represents, warrants and agrees as follows: (a) The Sub-Adviser (i) is registered as an investment adviser under the Advisers Act and will continue to be so registered for so long as this Agreement remains in effect; (ii) is not prohibited by the 1940 Act or the Advisers Act from performing the services contemplated by this Agreement; (iii) has met, and will seek to continue to meet for so long as this Agreement remains in effect, any other applicable federal or state requirements, or the applicable requirements of any regulatory or industry self-regulatory agency, necessary to be met in order to perform the services contemplated by this Agreement; (iv) has the authority to enter into and perform the services contemplated by this Agreement; and (v) will promptly notify Brinson Advisors of the occurrence of any event that would disqualify the Sub-Adviser from serving as an investment adviser of an investment company pursuant to Section 9(a) of the 1940 Act or otherwise. (b) The Sub-Adviser has adopted a written code of ethics complying with the requirements of Rule 17j-1 under the 1940 Act and will provide Brinson Advisors and the Board with a copy of such code of ethics, together with evidence of its adoption. Within fifteen days of the end of 4 the last calendar quarter of each year that this Agreement is in effect, the president or a vice-president of the Sub-Adviser shall certify to Brinson Advisors that the Sub-Adviser has complied with the requirements of Rule 17j-1 during the previous year and that there has been no material violation of the Sub-Adviser's code of ethics or, if such a violation has occurred, that appropriate action was taken in response to such violation. Upon the written request of Brinson Advisors, the Sub-Adviser shall permit Brinson Advisors, its employees or its agents to examine the reports required to be made by the Sub-Adviser pursuant to Rule 17j-1 and all other records relevant to the Sub-Adviser's code of ethics. (c) The Sub-Adviser has provided Brinson Advisors with a copy of its Form ADV, as most recently filed with the Securities and Exchange Commission ("SEC"), and promptly will furnish a copy of all amendments to Brinson Advisors at least annually. (d) The Sub-Adviser will notify Brinson Advisors of any change of control of the Sub-Adviser, including any change of its general partners or 25% shareholders or 25% limited partners, as applicable, and any changes in the key personnel who are either the portfolio manager(s) of the Portfolio or senior management of the Sub-Adviser, in each case prior to or promptly after such change. (e) The Sub-Adviser agrees that neither it, nor any of its affiliates, will in any way refer directly or indirectly to its relationship with the Trust, the Portfolio, Brinson Advisors or any of their respective affiliates in offering, marketing or other promotional materials without the express written consent of Brinson Advisors. 8. SERVICES NOT EXCLUSIVE. The services furnished by the Sub-Adviser hereunder are not to be deemed exclusive, and except as the Sub-Adviser may otherwise agree in writing, the Sub-Adviser shall be free to furnish similar services to others so long as its services under this Agreement are not impaired thereby. Nothing in this Agreement shall limit or restrict the right of any director, officer or employee of the Sub-Adviser, who may also be a trustee, officer or employee of the Trust, to engage in any other business or to devote his or her time and attention in part to the management or other aspects of any other business, whether of a similar nature or a dissimilar nature. 9. DURATION AND TERMINATION. (a) This Agreement shall become effective upon the date first above written, provided that this Agreement shall not take effect unless it has first been approved (i) 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 ("Independent Trustees"), cast in person at a meeting called for the purpose of voting on such approval, and (ii) by vote of a majority of the Portfolio's outstanding voting securities, unless Brinson Advisors has authority to enter into this Agreement pursuant to exemptive relief from the SEC without a vote of the Portfolio's outstanding voting securities. (b) Unless sooner terminated as provided herein, this Agreement shall continue in effect for two years from its effective date. Thereafter, if not terminated, this Agreement shall continue automatically for successive periods of twelve months each, provided that such continuance is specifically approved at least annually (i) by a vote of a majority of the Independent Trustees, cast in 5 person at a meeting called for the purpose of voting on such approval, and (ii) by the Board or by vote of a majority of the outstanding voting securities of the Portfolio. (c) Notwithstanding the foregoing, this Agreement may be terminated at any time, without the payment of any penalty, by vote of the Board or by a vote of a majority of the outstanding voting securities of the Portfolio on 60 days' written notice to the Sub-Adviser. This Agreement may also be terminated, without the payment of any penalty, by Brinson Advisors: (i) upon 120 days' written notice to the Sub-Adviser; (ii) upon material breach by the Sub-Adviser of any of the representations, warranties and agreements set forth in Paragraph 7 of this Agreement; or (iii) immediately if, in the reasonable judgment of Brinson Advisors, the Sub-Adviser becomes unable to discharge its duties and obligations under this Agreement, including circumstances such as financial insolvency of the Sub-Adviser or other circumstances that could adversely affect the Portfolio. The Sub-Adviser may terminate this Agreement at any time, without the payment of any penalty, on 120 days' written notice to Brinson Advisors. This Agreement will terminate automatically in the event of its assignment or upon termination of the Management Agreement, as it relates to this Portfolio. 10. 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 whom enforcement of the change, waiver, discharge or termination is sought. To the extent required by applicable law, no amendment of this Agreement shall be effective until approved (i) by a vote of a majority of the Independent Trustees, and (ii) if the terms of this Agreement shall have changed, by a vote of a majority of the Portfolio's outstanding voting securities (except in the case of (ii), pursuant to the terms and conditions of the SEC order permitting it to modify the Agreement without such vote). 11. GOVERNING LAW. This Agreement shall be construed in accordance with the 1940 Act and the laws of the State of New York, without giving effect to the conflicts of laws principles thereof. To the extent that the applicable laws of the State of New York conflict with the applicable provisions of the 1940 Act, the latter shall control. 12. MISCELLANEOUS. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors. As used in this Agreement, the terms "majority of the outstanding voting securities," "affiliated person," "interested person," "assignment," "broker," "investment adviser," "net assets," "sale," "sell" and "security" shall have the same meanings as such terms have in the 1940 Act, subject to such exemption as may be granted by the SEC by any rule, regulation or order. Where the effect of a requirement of the federal securities laws reflected in any provision of this Agreement is made less restrictive by a rule, regulation or order of the SEC, whether of special or general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. This Agreement may be signed in counterpart. 6 13. NOTICES. Any notice herein required is to be in writing and is deemed to have been given to the Sub-Adviser or Brinson Advisors upon receipt of the same at their respective addresses set forth below. All written notices required or permitted to be given under this Agreement will be delivered by personal service, by postage mail return receipt requested or by facsimile machine or a similar means of same delivery which provides evidence of receipt (with a confirming copy by mail as set forth herein). All notices provided to Brinson Advisors will be sent to the attention of the General Counsel. All notices provided to the Sub-Adviser will be sent to the attention of the Compliance Officer. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their duly authorized signatories as of the date and year first above written. BRINSON ADVISORS, INC. 51 West 52nd Street New York, New York 10019-6114 Attest: By: /s/ Keith A. Weller By: /s/ Amy R. Doberman -------------------------- ---------------------------- Name: Keith A. Weller Name: Amy R. Doberman Title: Director Title: Executive Director STANDISH MELLON ASSET MANAGEMENT COMPANY LLC One Financial Center Attest: Boston, MA 02111 By: /s/ Diostenes Medina By: /s/ Paul G. Martins -------------------------- ---------------------------- Name: Diostenes Medina Name: Paul G. Martins Title: Compliance Officer Title: Treasurer 7 EX-5.(A) 6 a2059133zex-5_a.txt EXHIBIT 5(A) Exhibit No. 5(a) PAINEWEBBER PACE SELECT ADVISORS TRUST PRINCIPAL UNDERWRITING CONTRACT CONTRACT made as of July 24, 2001, between PAINEWEBBER PACE SELECT ADVISORS TRUST, a Delaware business trust, ("Fund") and BRINSON ADVISORS, INC., a Delaware corporation, ("Brinson Advisors"). WHEREAS the Fund is registered under the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end management investment company and currently offers distinct series of shares of beneficial interest ("Series"), which correspond to distinct portfolios and for which the Fund's board of trustees ("Board") has established shares of beneficial interest as Class A shares, Class B shares, Class C shares, Class P shares and/or Class Y shares (referred to collectively as "Shares"); and WHEREAS the Fund desires to retain Brinson Advisors as principal underwriter in connection with the offering and sale of the Shares of the above-referenced Series and of such other Series as may hereafter be designated by the Board and have one or more classes of Class A shares, Class B shares, Class C shares, Class P shares and/or Class Y shares established and has adopted separate Plans of Distribution pursuant to Rule 12b-1 under the 1940 Act for its Class A shares, Class B shares and Class C shares (respectively, "Class A Plan", "Class B Plan" and "Class C Plan"); and WHEREAS Brinson Advisors is willing to act as principal underwriter of the Shares of each such Series on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is agreed between the parties hereto as follows: 1. APPOINTMENT. The Fund hereby appoints Brinson Advisors as its exclusive agent to be the principal underwriter to sell and to arrange for the sale of the Shares on the terms and for the period set forth in this Contract. Brinson Advisors hereby accepts such appointment and agrees to act hereunder. It is understood, however, that this appointment does not preclude sales of the Shares directly through the Fund's transfer agent in the manner set forth in the Registration Statement. As used in this Contract, the term "Registration Statement" shall mean the currently effective registration statement of the Fund, and any supplements thereto, under the Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act. 2. SERVICES AND DUTIES OF BRINSON ADVISORS. (a) Brinson Advisors agrees to sell Shares on a best efforts basis from time to time during the term of this Contract as agent for the Fund and upon the terms described in the Registration Statement. (b) Upon the later of the date of this Contract or the initial offering of Shares to the public by a Series, Brinson Advisors will hold itself available to receive purchase orders, satisfactory to Brinson Advisors, for Shares of that Series and will accept such orders on behalf of the Fund as of the time of receipt of such orders and promptly transmit such orders as are accepted to the Fund's transfer agent. Purchase orders shall be deemed effective at the time and in the manner set forth in the Registration Statement. (c) Brinson Advisors in its discretion may enter into agreements to sell Shares to such registered and qualified retail dealers as it may select. In making agreements with such dealers, Brinson Advisors shall act only as principal and not as agent for the Fund. (d) The offering price of the Shares shall be the net asset value per share as next determined by the Fund following receipt of an order at Brinson Advisors' principal office plus the applicable initial sales charge, if any, computed as set forth in the Registration Statement. The Fund shall promptly furnish Brinson Advisors with a statement of each computation of net asset value. (e) Brinson Advisors shall not be obligated to sell any certain number of Shares. (f) To facilitate redemption of Shares by shareholders directly or through dealers, Brinson Advisors is authorized but not required on behalf of the Fund to repurchase Shares presented to it by shareholders and dealers at the price determined in accordance with, and in the manner set forth in, the Registration Statement. Such price shall reflect the subtraction of the contingent deferred sales charge, if any, computed in accordance with and in the manner set forth in the Registration Statement. (g) Brinson Advisors shall provide ongoing shareholder services, which include responding to shareholder inquiries, providing shareholders with information on their investments in the Shares and any other services now or hereafter deemed to be appropriate activities for the payment of "service fees" under Rule 2830 of the Conduct Rules of the National Association of Securities Dealers, Inc. ("NASD") (collectively, "service activities"). (h) Brinson Advisors shall have the right to use any list of shareholders of the Fund or any other list of investors which it obtains in connection with its provision of services under this Contract; provided, however, that Brinson Advisors shall not sell or knowingly provide such list or lists to any unaffiliated person. 3. AUTHORIZATION TO ENTER INTO DEALER AGREEMENTS AND TO DELEGATE DUTIES AS PRINCIPAL UNDERWRITER. With respect to the Shares of any or all Series, Brinson Advisors may enter into dealer agreements with any registered and qualified dealer with respect to sales of Shares or the provision of service activities. In a separate contract or as part of any such dealer agreement, Brinson Advisors also may delegate to any registered and qualified dealer any or all of its duties specified in this Contract, provided that such separate contract or dealer agreement imposes on the counterparty bound thereby all applicable duties and conditions to which Brinson Advisors is subject under this Contract. 4. SERVICES NOT EXCLUSIVE. The services furnished by Brinson Advisors hereunder are not to be deemed exclusive and Brinson Advisors shall be free to furnish similar services to others so long as its services under this Contract are not impaired thereby. Nothing in this Contract shall limit or restrict the right of any director, officer or employee of Brinson Advisors, who may also be a Board member, officer or employee of the Fund, to engage in any other business or to devote his or her time and attention in part to the management or other aspects of any other business, whether of a similar or a dissimilar nature. 2 5. COMPENSATION. (a) As compensation for its service activities under this contract with respect to Class A, B and C shares, Brinson Advisors shall receive from the Fund a service fee at the rate and under the terms and conditions of the Class A Plan, Class B Plan and Class C Plan, respectively, as amended from time to time, and subject to any further limitations on such fee as the Board may impose. (b) As compensation for its activities under this contract with respect to the distribution of the Class B and C shares, Brinson Advisors shall receive from the Fund a distribution fee at the rate and under the terms and conditions of the Class B Plan and Class C Plan, respectively, as amended from time to time, and subject to any further limitations on such fee as the Board may impose. (c) As compensation for its activities under this contract with respect to the distribution of Shares, Brinson Advisors shall retain the initial sales charge, if any, on purchases of Shares as set forth in the Registration Statement. Brinson Advisors is authorized to collect the gross proceeds derived from the sale of Shares, remit the net asset value thereof to the Fund upon receipt of the proceeds and retain the initial sales charge, if any. (d) As compensation for its activities under this contract with respect to the distribution of Shares, Brinson Advisors shall receive all contingent deferred sales charges imposed on redemptions of Shares. Whether and at what rate a contingent deferred sales charge will be imposed with respect to a redemption shall be determined in accordance with, and in the manner set forth in, the Registration Statement. (e) Brinson Advisors may reallow any or all of the initial sales charges, contingent deferred sales charges, distribution fees or service fees which it is paid under this Contract to such dealers as Brinson Advisors may from time to time determine. 6. DUTIES OF THE FUND. (a) The Fund reserves the right at any time to withdraw offering any class or classes of Shares of any or all Series by written notice to Brinson Advisors at its principal office. (b) The Fund shall keep Brinson Advisors fully informed of its affairs and shall make available to Brinson Advisors copies of all information, financial statements, and other documents which Brinson Advisors may reasonably request for use in connection with the distribution of Shares, including, without limitation, certified copies of any financial statements prepared for the Fund by its independent public accountant and such reasonable number of copies of the most current prospectus, statement of additional information, and annual and interim reports of any Series as Brinson Advisors may request, and the Fund shall cooperate fully in the efforts of Brinson Advisors to sell and arrange for the sale of the Shares of the Series and in the performance of Brinson Advisors under this Contract. (c) The Fund shall take, from time to time, all necessary action, including payment of the related filing fee, as may be necessary to register its Shares under the 1933 Act to the end that there will be available for sale such number of Shares as Brinson Advisors may be expected to sell. The Fund agrees to file, from time to time, such amendments, reports, and other documents as may be necessary in order that there will be no untrue statement of a material fact 3 in the Registration Statement, nor any omission of a material fact which omission would make the statements therein misleading. (d) The Fund shall use its best efforts to qualify and maintain the qualification of an appropriate number of Shares of each Series for sale under the securities laws of such states or other jurisdictions as Brinson Advisors and the Fund may approve, provided that the Fund shall not be required to amend its Trust Instrument or By-Laws to comply with the laws of any jurisdiction, to maintain an office in any jurisdiction, to change the terms of the offering of the Shares in any jurisdiction from the terms set forth in its Registration Statement, to qualify as a foreign corporation in any jurisdiction, or to consent to service of process in any jurisdiction other than with respect to claims arising out of the offering of the Shares. Brinson Advisors shall furnish such information and other material relating to its affairs and activities as may be required by the Fund in connection with such qualifications. 7. EXPENSES OF THE FUND. The Fund shall bear all costs and expenses of registering the Shares with the Securities and Exchange Commission ("Commission") and qualifying the Shares for offer and sale with state and other regulatory bodies, and shall assume expenses related to communications with shareholders of each Series, including (i) fees and disbursements of its counsel and independent public accountant; (ii) the preparation, filing and printing of registration statements and/or prospectuses or statements of additional information required under the federal securities laws; (iii) the preparation and mailing of annual and interim reports, prospectuses, statements of additional information and proxy materials to shareholders; and (iv) the qualifications of Shares for sale under the securities laws of such jurisdictions as shall be selected by the Fund and Brinson Advisors pursuant to Paragraph 6(d) hereof, and the costs and expenses payable to each such jurisdiction for continuing qualification therein. 8. EXPENSES OF BRINSON ADVISORS. Brinson Advisors shall bear all costs and expenses of (i) preparing, printing and distributing any materials not prepared by the Fund and other materials used by Brinson Advisors in connection with the sale of Shares under this Contract, including the additional cost of printing copies of prospectuses, statements of additional information, and annual and interim shareholder reports other than copies thereof required for distribution to existing shareholders or for filing with any federal or state securities authorities; (ii) any expenses of advertising incurred by Brinson Advisors in connection with such offering; (iii) the expenses of registration or qualification of Brinson Advisors as a broker or dealer under federal or state laws and the expenses of continuing such registration or qualification; and (iv) all compensation paid to Brinson Advisors' employees and others for selling Shares, and all expenses of Brinson Advisors, its employees and others who engage in or support the sale of Shares as may be incurred in connection with their sales efforts. 9. INDEMNIFICATION. (a) The Fund agrees to indemnify, defend and hold Brinson Advisors, its officers and directors, and any person who controls Brinson Advisors within the meaning of Section 15 of the 1933 Act, free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending such claims, demands or liabilities and any counsel fees incurred in connection therewith) which Brinson Advisors, its officers, directors or any such controlling person may incur under the 1933 Act, or under common law or otherwise, arising out of or based upon any alleged untrue statement of a material fact contained in the Registration Statement or arising out of or based upon any alleged omission to state a material fact required to be stated in the Registration Statement or necessary to make the 4 statements therein not misleading, except insofar as such claims, demands, liabilities or expenses arise out of or are based upon any such untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information furnished in writing by Brinson Advisors to the Fund for use in the Registration Statement; provided, however, that this indemnity agreement shall not inure to the benefit of any person who is also an officer or Board member of the Fund or who controls the Fund within the meaning of Section 15 of the 1933 Act, unless a court of competent jurisdiction shall determine, or it shall have been determined by controlling precedent, that such result would not be against public policy as expressed in the 1933 Act; and further provided, that in no event shall anything contained herein be so construed as to protect Brinson Advisors against any liability to the Fund or to the shareholders of any Series to which Brinson Advisors would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of its reckless disregard of its obligations under this Contract. The Fund shall not be liable to Brinson Advisors under this indemnity agreement with respect to any claim made against Brinson Advisors or any person indemnified unless Brinson Advisors or other such person shall have notified the Fund in writing of the claim within a reasonable time after the summons or other first written notification giving information of the nature of the claim shall have been served upon Brinson Advisors or such other person (or after Brinson Advisors or the person shall have received notice of service on any designated agent). However, failure to notify the Fund of any claim shall not relieve the Fund from any liability which it may have to Brinson Advisors or any person against whom such action is brought otherwise than on account of this indemnity agreement. The Fund shall be entitled to participate at its own expense in the defense or, if it so elects, to assume the defense of any suit brought to enforce any claims subject to this indemnity agreement. If the Fund elects to assume the defense of any such claim, the defense shall be conducted by counsel chosen by the Fund and satisfactory to indemnified defendants in the suit whose approval shall not be unreasonably withheld. In the event that the Fund elects to assume the defense of any suit and retain counsel, the indemnified defendants shall bear the fees and expenses of any additional counsel retained by them. If the Fund does not elect to assume the defense of a suit, it will reimburse the indemnified defendants for the reasonable fees and expenses of any counsel retained by the indemnified defendants. The Fund agrees to notify Brinson Advisors promptly of the commencement of any litigation or proceedings against it or any of its officers or Board members in connection with the issuance or sale of any of its Shares. (b) Brinson Advisors agrees to indemnify, defend, and hold the Fund, its officers and Board members and any person who controls the Fund within the meaning of Section 15 of the 1933 Act, free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending against such claims, demands or liabilities and any counsel fees incurred in connection therewith) which the Fund, its Board members or officers, or any such controlling person may incur under the 1933 Act or under common law or otherwise arising out of or based upon any alleged untrue statement of a material fact contained in information furnished by Brinson Advisors to the Fund for use in the Registration Statement, arising out of or based upon any alleged omission to state a material fact in connection with such information required to be stated in the Registration Statement necessary to make such information not misleading, or arising out of any agreement between Brinson Advisors and any retail dealer, or arising out of any supplemental sales literature or advertising used by Brinson Advisors in connection with its duties under this Contract. Brinson Advisors shall be entitled to participate, at its own expense, in the defense or, if it so elects, to assume the defense of any suit brought to enforce the claim, but if Brinson Advisors elects to assume the defense, the defense shall be conducted by counsel chosen by Brinson Advisors and satisfactory 5 to the indemnified defendants whose approval shall not be unreasonably withheld. In the event that Brinson Advisors elects to assume the defense of any suit and retain counsel, the defendants in the suit shall bear the fees and expenses of any additional counsel retained by them. If Brinson Advisors does not elect to assume the defense of any suit, it will reimburse the indemnified defendants in the suit for the reasonable fees and expenses of any counsel retained by them. 10. SERVICES PROVIDED TO THE FUND BY EMPLOYEES OF BRINSON ADVISORS. Any person, even though also an officer, director, employee or agent of Brinson Advisors, who may be or become an officer, Board member, employee or agent of the Fund, shall be deemed, when rendering services to the Fund or acting in any business of the Fund, to be rendering such services to or acting solely for the Fund and not as an officer, director, employee or agent or one under the control or direction of Brinson Advisors even though paid by Brinson Advisors. 11. DURATION AND TERMINATION. (a) This Contract shall become effective upon the date written above, provided that, with respect to any class of Shares of a Series, this Contract shall not take effect unless such action has first been approved by vote of a majority of the Board and by vote of a majority of those Board members who are not interested persons of the Fund and, for a class of Shares for which a Plan of Distribution has been adopted, also have no direct or indirect financial interest in the operation of the Plan of Distribution or in any agreements related thereto (all such Board members collectively being referred to herein as the "Independent Board Members"), cast in person at a meeting called for the purpose of voting on such action. (b) Unless sooner terminated as provided herein, this Contract shall continue in effect for two years from the above written date. Thereafter, if not terminated, this Contract shall continue automatically for successive periods of twelve months each, provided that such continuance is specifically approved at least annually (i) by a vote of a majority of the Independent Board Members, cast in person at a meeting called for the purpose of voting on such approval, and (ii) by the Board or with respect to a class of Shares of any given Series by vote of a majority of the outstanding voting securities of that class of Shares of such Series. (c) Notwithstanding the foregoing, with respect to a class of Shares of a Series, this Contract may be terminated at any time, without the payment of any penalty, by vote of the Board, by vote of a majority of the Independent Board Members or by vote of a majority of the outstanding voting securities of that class of Shares of the Series on sixty days' written notice to Brinson Advisors or by Brinson Advisors at any time, without the payment of any penalty, on sixty days' written notice to the Fund or such Series. This Contract will automatically terminate in the event of its assignment. (d) Termination of this Contract with respect to a class of Shares of any given Series shall in no way affect the continued validity of this Contract or the performance thereunder with respect to any other classes of Shares of that Series or any classes of Shares of any other Series. 12. AMENDMENT OF THIS CONTRACT. No provision of this Contract may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 6 13. NOTICE. Any notice required or permitted to be given by either party to the other shall be deemed sufficient upon receipt in writing at the other party's principal offices. 14. GOVERNING LAW. This Contract shall be construed in accordance with the laws of the State of New York, without giving effect to the conflicts of laws principles thereof, and in accordance with the 1940 Act, provided however that Section 15 below will be construed in accordance with the laws of the State of Delaware. To the extent that the applicable laws of the State of New York or the State of Delaware conflict with the applicable provisions of the 1940 Act, the latter shall control. As used in this Contract, the terms "majority of the outstanding voting securities," "interested person" and "assignment" shall have the same meaning as such terms have in the 1940 Act, subject to any exemption or interpretation as may be issued by the Commission by any rule, regulation or order or contained in any no-action or interpretive positions taken by the Commission staff. Where the effect of a requirement of the 1940 Act reflected in any provision of this Contract is revised by a rule, regulation, order or interpretation of the Commission or the Commission staff, whether of special or general application, such provision shall be deemed to incorporate the effect of such rule, regulation, order or interpretation. 15. LIMITATION OF LIABILITY OF THE BOARD MEMBERS AND SHAREHOLDERS OF THE FUND. The Board members and the shareholders of the Fund shall not be liable for any obligations of the Fund or any Series under this Contract, and Brinson Advisors agrees that, in asserting any rights or claims under this Contract, it shall look only to the assets and property of the Fund or the particular Series in settlement of such right or claims, and not to such Board members or shareholders. 16. MISCELLANEOUS. The captions in this Contract are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. If any provision of this Contract shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Contract shall not be affected thereby. This Contract shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors. 7 IN WITNESS WHEREOF, the parties hereto have caused this Contract to be executed by their officers designated as of the day and year first above written. PAINEWEBBER PACE SELECT PAINEWEBBER PACE SELECT ADVISORS TRUST ADVISORS TRUST By: /s/ Keith A. Weller By: /s/ Amy R. Doberman ------------------------------- ------------------------------- Name: Keith A. Weller Name: Amy R. Doberman Title: Vice President and Assistant Title: Vice President and Secretary Secretary BRINSON ADVISORS, INC. BRINSON ADVISORS, INC. By: /s/ Edward W. Janeczek, Jr. By: /s/ Robert P. Wolfangel ------------------------------- ------------------------------- Name: Edward W. Janeczek, Jr. Name: Robert P. Wolfangel Title: Executive Director Title: Chief Financial Officer 8 EX-5.(B) 7 a2059133zex-5_b.txt EXHIBIT 5(B) Exhibit No. 5(b) DEALER AGREEMENT PAINEWEBBER PACE SELECT ADVISORS TRUST AGREEMENT made as of July 24, 2001, between Brinson Advisors, Inc. ("Brinson Advisors"), a Delaware corporation, and UBS PaineWebber Inc. ("UBS PaineWebber"), a Delaware corporation. WHEREAS PaineWebber PACE Select Advisors Trust ("Fund") is a Delaware business trust registered under the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end management investment company; and WHEREAS the Fund currently offers distinct series of shares of beneficial interest ("Series"), which correspond to distinct portfolios and for which the Fund's board of trustees ("Board") has established shares of beneficial interest as Class A shares, Class B shares, Class C shares, Class P shares and/or Class Y shares (referred to collectively as "Shares"); and WHEREAS Brinson Advisors has entered into a Principal Underwriting Contract with the Fund ("Underwriting Contract") pursuant to which Brinson Advisors serves as principal underwriter in connection with the offering and sale of the Shares of the above-referenced Series and of such other Series as may hereafter be designated by the Board and have one or more classes of Shares established and has adopted separate Plans of Distribution pursuant to Rule 12b-1 under the 1940 Act for its Class A shares, Class B shares and Class C shares (respectively, "Class A Plan," "Class B Plan" and "Class C Plan") with respect to the Class A shares, Class B shares and Class C shares of the above-referenced Series and of such other Series as may hereafter be designated by the Board and have Class A shares, Class B shares or Class C shares established; and WHEREAS Brinson Advisors desires to retain UBS PaineWebber as its agent in connection with the offering and sale of the Shares of each Series and to delegate to UBS PaineWebber performance of certain of the services which Brinson Advisors provides to the Fund under the Underwriting Contract; and WHEREAS UBS PaineWebber is willing to act as Brinson Advisors' agent in connection with the offering and sale of such Shares and to perform such services on the terms and conditions hereinafter set forth; NOW THEREFORE, in consideration of the premises and the mutual covenants contained herein, Brinson Advisors and UBS PaineWebber agree as follows: 1. APPOINTMENT. Brinson Advisors hereby appoints UBS PaineWebber as its agent to sell and to arrange for the sale of the Shares on the terms and for the period set forth in this Agreement. Brinson Advisors also appoints UBS PaineWebber as its agent for the performance of certain other services set forth herein, which Brinson Advisors provides to the Fund under the Underwriting Contract. UBS PaineWebber hereby accepts such appointments and agrees to act hereunder. It is understood, however, that these appointments do not preclude Brinson Advisors from entering into agreements with other registered and qualified retail dealers for the sale of Shares or preclude sales of the Shares directly through the Fund's transfer agent in the manner set forth in the Registration Statement. As used in this Agreement, the term "Registration Statement" shall mean the currently effective Registration Statement of the Fund, and any supplements thereto, under the Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act. 2. SERVICES, DUTIES AND REPRESENTATIONS OF UBS PAINEWEBBER. (a) UBS PaineWebber agrees to sell the Shares on a best efforts basis from time to time during the term of this Agreement as agent for Brinson Advisors and upon the terms described in this Agreement and the Registration Statement. (b) Upon the later of the date of this Agreement or the initial offering of Shares by a Series to the public, UBS PaineWebber will hold itself available to receive orders, satisfactory to UBS PaineWebber and Brinson Advisors, for the purchase of Shares and will accept such orders on behalf of Brinson Advisors and the Fund as of the time of receipt of such orders and will promptly transmit such orders as are accepted to the Fund's transfer agent. Purchase orders shall be deemed effective at the time and in the manner set forth in the Registration Statement. (c) UBS PaineWebber in its discretion may sell Shares to (i) its correspondent firms and customers of such firms and (ii) such other registered and qualified retail dealers as it may select, subject to the approval of Brinson Advisors. In making agreements with such dealers, UBS PaineWebber shall act only as principal and not as agent for Brinson Advisors or the Fund. (d) The offering price of the Shares shall be the net asset value per share as next determined by the Fund following receipt of an order at UBS PaineWebber's principal office, plus the applicable initial sales charge, if any, as set forth in the Registration Statement. Brinson Advisors shall promptly furnish or arrange for the furnishing to UBS PaineWebber from the Fund of a statement of each computation of net asset value. (e) UBS PaineWebber shall not be obligated to sell any certain number of Shares. (f) To facilitate redemption of Shares by shareholders directly or through dealers, UBS PaineWebber is authorized but not required on behalf of Brinson Advisors and the Fund to repurchase Shares presented to it by shareholders, its correspondent firms and other dealers at the price determined in accordance with, and in the manner set forth in, the Registration Statement. Such price shall reflect the subtraction of the applicable contingent deferred sales charge, if any, computed in accordance with and in the manner set forth in the Registration Statement. (g) UBS PaineWebber shall provide ongoing shareholder services, which include responding to shareholder inquiries, providing shareholders with information on their investments in the Shares and any other services now or hereafter deemed to be appropriate activities for the payment of "service fees" under Rule 2830 of the Conduct Rules of the National Association of Securities Dealers, Inc. ("NASD") (collectively, "service activities"). (h) UBS PaineWebber represents and warrants that: (i) it is a member in good standing of the NASD and agrees to abide by the Conduct Rules of the NASD; (ii) it is registered 2 as a broker-dealer with the Securities and Exchange Commission ("Commission"); (iii) it will maintain any filings and licenses required by federal and state laws to conduct the business contemplated under this Agreement; and (iv) it will comply with all federal and state laws and regulations applicable to the offer and sale of the Shares. (i) UBS PaineWebber shall not incur any debts or obligations on behalf of Brinson Advisors or the Fund. UBS PaineWebber shall bear all costs that it incurs in selling the Shares and in complying with the terms and conditions of this Agreement as more specifically set forth in paragraph 8. (j) UBS PaineWebber shall not permit any employee or agent to offer or sell Shares to the public unless such person is duly licensed under applicable federal and state laws and regulations. (k) UBS PaineWebber shall not (i) furnish any information or make any representations concerning the Shares other than those contained in the Registration Statement or in sales literature or advertising that has been prepared or approved by Brinson Advisors as provided in paragraph 6 or (ii) offer or sell the Shares in jurisdictions in which they have not been approved for offer and sale. 3. SERVICES NOT EXCLUSIVE. The services furnished by UBS PaineWebber hereunder are not to be deemed exclusive and UBS PaineWebber shall be free to furnish similar services to others so long as its services under this Agreement are not impaired thereby. Nothing in this Agreement shall limit or restrict the right of any director, officer or employee of UBS PaineWebber who may also be a director, Board member, officer or employee of Brinson Advisors or the Fund, to engage in any other business or to devote his or her time and attention in part to the management or other aspects of any other business, whether of a similar or a dissimilar nature. 4. COMPENSATION. (a) As compensation for its service activities under this Agreement with respect to the Class A, B and C shares, Brinson Advisors shall pay to UBS PaineWebber service fees with respect to Class A, B and C shares maintained in shareholder accounts serviced by UBS PaineWebber employees, correspondent firms and other dealers in such amounts as Brinson Advisors and UBS PaineWebber may from time to time agree upon. (b) As compensation for its activities under this Agreement with respect to the distribution of Shares sold with an initial sales charge, UBS PaineWebber shall retain that portion of the offering price constituting the Discount to Selected Dealers ("Discount"), if any, set forth in the Registration Statement. UBS PaineWebber is authorized to collect the gross proceeds derived from the sale of such Shares; remit the net asset value thereof to the Fund's Transfer Agent; remit to Brinson Advisors the difference between the offering price of the Shares and the applicable Discount; and retain said Discount. Whether the offering price of any Shares includes an initial sales charge out of which UBS PaineWebber may retain a Discount shall be determined in accordance with the Registration Statement. 3 (c) Also as compensation for its activities under this Agreement, Brinson Advisors shall pay to UBS PaineWebber such commissions and other compensation as Brinson Advisors and UBS PaineWebber may from time to time agree upon. (d) UBS PaineWebber may reallow all or any part of the service fees, commissions or other compensation which it is paid under this Agreement to its correspondent firms or other dealers, in such amounts as UBS PaineWebber may from time to time determine. (e) Brinson Advisors' obligation to pay compensation to UBS PaineWebber as agreed upon pursuant to this paragraph 4 is not contingent upon receipt by Brinson Advisors of any compensation from the Fund or Series. Brinson Advisors shall advise the Board of any agreements or revised agreements as to compensation to be paid by Brinson Advisors to UBS PaineWebber but shall not be required to obtain prior approval for such agreements from the Board. 5. DUTIES OF BRINSON ADVISORS. (a) It is understood that the Fund reserves the right at any time to withdraw all offerings of any class or classes of Shares of any or all Series by written notice to Brinson Advisors. (b) Brinson Advisors shall keep UBS PaineWebber fully informed of the Fund's affairs and shall make available to UBS PaineWebber copies of all information, financial statements and other papers which UBS PaineWebber may reasonably request for use in connection with the distribution of Shares, including, without limitation, certified copies of any financial statements prepared for the Fund by its independent public accountant and such reasonable number of copies of the most current prospectus, statement of additional information, and annual and interim reports of any Series as UBS PaineWebber may request, and Brinson Advisors shall cooperate fully in the efforts of UBS PaineWebber to sell and arrange for the sale of Shares and in the performance of UBS PaineWebber under this Agreement. (c) Brinson Advisors shall comply with all state and federal laws and regulations applicable to an underwriter of the Shares. (d) Brinson Advisors shall promptly notify UBS PaineWebber if the Fund's Registration Statement ceases to be effective. (e) Brinson Advisors represents and warrants that as of the date hereof and throughout the term of this Agreement the Shares of the Fund are qualified for sale under or are exempt from the requirements of the respective securities laws of the states and jurisdictions listed on Schedule A of this Agreement. Brinson Advisors shall promptly notify UBS PaineWebber in the event Shares of the Fund cease to be qualified for sale under or cease to qualify for an exemption from the requirements of the respective securities laws of the states and jurisdictions listed on Schedule A. 6. ADVERTISING. Brinson Advisors agrees to make available such sales and advertising materials relating to the Shares as Brinson Advisors in its discretion determines appropriate. UBS PaineWebber agrees to submit all sales and advertising materials developed 4 by it relating to the Shares to Brinson Advisors for approval. UBS PaineWebber agrees not to publish or distribute such materials to the public without first receiving such approval in writing. Brinson Advisors shall assist UBS PaineWebber in obtaining any regulatory approvals of such materials that may be required of or desired by UBS PaineWebber. 7. RECORDS. UBS PaineWebber agrees to maintain all records required by applicable state and federal laws and regulations relating to the offer and sale of the Shares. Brinson Advisors and its representatives shall have access to such records during normal business hours for review or copying. 8. EXPENSES OF UBS PAINEWEBBER. UBS PaineWebber shall bear all costs and expenses of (i) preparing, printing, and distributing any materials not prepared by the Fund or Brinson Advisors and other materials used by UBS PaineWebber in connection with its offering of the Shares for sale to the public; (ii) any expenses of advertising incurred by UBS PaineWebber in connection with such offering; (iii) the expenses of registration or qualification of UBS PaineWebber as a dealer or broker under federal or state laws and the expenses of continuing such registration or qualification; and (iv) all compensation paid to UBS PaineWebber's Financial Advisors or other employees and others for selling Shares, and all expenses of UBS PaineWebber, its Financial Advisors and employees and others who engage in or support the sale of Shares as may be incurred in connection with their sales efforts. UBS PaineWebber shall bear such additional costs and expenses as it and Brinson Advisors may agree upon in writing. Brinson Advisors shall advise the Board of any such agreement as to additional costs and expenses borne by UBS PaineWebber but shall not be required to obtain prior approval for such agreements from the Board. 9. INDEMNIFICATION. (a) Brinson Advisors agrees to indemnify, defend, and hold UBS PaineWebber, its officers and directors, and any person who controls UBS PaineWebber within the meaning of Section 15 of the 1933 Act, free and harmless from and against any and all claims, demands, liabilities, and expenses (including the cost of investigating or defending such claims, demands, or liabilities and any counsel fees incurred in connection therewith) which UBS PaineWebber, its officers, directors, or any such controlling person may incur under the 1933 Act, under common law or otherwise, arising out of or based upon any alleged untrue statement of a material fact contained in the Registration Statement; arising out of or based upon any alleged omission to state a material fact required to be stated in the Registration Statement thereof or necessary to make the statements in the Registration Statement thereof not misleading; or arising out of any sales or advertising materials with respect to the Shares provided by Brinson Advisors to UBS PaineWebber. However, this indemnity agreement shall not apply to any claims, demands, liabilities, or expenses that arise out of or are based upon any such untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information furnished in writing by UBS PaineWebber to Brinson Advisors or the Fund for use in the Registration Statement or in any sales or advertising material; and further provided, that in no event shall anything contained herein be so construed as to protect UBS PaineWebber against any liability to Brinson Advisors or the Fund or to the shareholders of any Series to which UBS PaineWebber would otherwise be subject by reason of willful misfeasance, bad faith, or gross 5 negligence in the performance of its duties, or by reason of its reckless disregard of its obligations under this Agreement. (b) UBS PaineWebber agrees to indemnify, defend, and hold Brinson Advisors and its officers and directors, the Fund, its officers and Board members, and any person who controls Brinson Advisors or the Fund within the meaning of Section 15 of the 1933 Act, free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending against such claims, demands or liabilities and any counsel fees incurred in connection therewith) which Brinson Advisors or its officers or directors or the Fund, its officers or Board members, or any such controlling person may incur under the 1933 Act, under common law or otherwise arising out of or based upon any alleged breach by UBS PaineWebber of its duties or obligations under this Agreement. 10. DURATION AND TERMINATION. (a) This Agreement shall become effective upon the date written above, provided that, with respect to any class of Shares of a Series, this Contract shall not take effect unless such action has first been approved by vote of a majority of the Board and by vote of a majority of those Board members who are not interested persons of the Fund and, for a class of Shares for which a Plan of Distribution has been adopted, who also have no direct or indirect financial interest in the operation of the Plan of Distribution or in any agreements related thereto (all such Board members collectively being referred to herein as the "Independent Board Members"), cast in person at a meeting called for the purpose of voting on such action. (b) Unless sooner terminated as provided herein, this Agreement shall continue in effect for two years from the above written date. Thereafter, if not terminated, this Agreement shall continue automatically for successive periods of twelve months each, provided that such continuance is specifically approved at least annually (i) by a vote of a majority of the Independent Board Members, cast in person at a meeting called for the purpose of voting on such approval, and (ii) by the Board or with respect to a class of Shares of any given Series by vote of a majority of the outstanding voting securities of that class of Shares of such Series. (c) Notwithstanding the foregoing, with respect to a class of Shares of any Series this Agreement may be terminated at any time, without the payment of any penalty, by either party, upon the giving of 30 days' written notice. Such notice shall be deemed to have been given on the date it is received in writing by the other party or any officer thereof. This Agreement may also be terminated at any time, without the payment of any penalty, by vote of the Board, by vote of a majority of the Independent Board Members or, with respect to a class of Shares of a Series, by vote of a majority of the outstanding voting securities of that class of Shares on 30 days' written notice to Brinson Advisors and UBS PaineWebber. (d) Termination of this Agreement with respect to a class of Shares of any given Series shall in no way affect the continued validity of this Agreement or the performance thereunder with respect to any other classes of Shares of that Series or any classes of Shares of any other Series. This Agreement will automatically terminate in the event of its assignment or in the event that the Underwriting Contract is terminated. 6 (e) Notwithstanding the foregoing, Brinson Advisors may terminate this Agreement with respect to a class of Shares of a Series without penalty, such termination to be effective upon the giving of written notice to UBS PaineWebber in the event that the Plan of Distribution relating to that class of Shares is terminated or is amended to reduce the compensation payable to Brinson Advisors thereunder or in the event that the Registration Statement is amended so as to reduce the amount of compensation payable to Brinson Advisors with respect to that class of Shares under the Underwriting Contract, provided that Brinson Advisors gives notice of termination pursuant to this provision within 90 days of such amendment or termination of the Plan of Distribution or amendment of the Registration Statement. 11. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be amended, 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. 12. USE OF UBS PAINEWEBBER NAME. UBS PaineWebber hereby authorizes Brinson Advisors to use the name "UBS PaineWebber Incorporated" or any name derived therefrom in any sales or advertising materials prepared and/or used by Brinson Advisors in connection with its duties as underwriter of the Shares, but only for so long as this Agreement or any extension, renewal or amendment hereof remains in effect, including any similar agreement with any organization which shall have succeeded to the business of UBS PaineWebber. 13. GOVERNING LAW. This Agreement shall be construed in accordance with the laws of the State of New York and the 1940 Act. To the extent that the applicable laws of the State of New York conflict with the applicable provisions of the 1940 Act, the latter shall control. As used in this Agreement, the terms "majority of the outstanding voting securities," "interested person" and "assignment" shall have the same meaning as such terms have in the 1940 Act, subject to any exemption or interpretation as may be issued by the Commission by any rule, regulation or order or contained in any no-action or interpretive positions taken by the Commission staff. Where the effect of a requirement of the 1940 Act reflected in any provision of this Contract is revised by a rule, regulation, order or interpretation of the Commission or the Commission staff, whether of special or general application, such provision shall be deemed to incorporate the effect of such rule, regulation, order or interpretation. 14. MISCELLANEOUS. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors. 7 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated as of the day and year first written above. BRINSON ADVISORS, INC. BRINSON ADVISORS, INC. By: /s/ Edward W. Janeczek, Jr. By: /s/ Robert P. Wolfangel --------------------------- --------------------------- Name: Edward W. Janeczek, Jr. Name: Robert P. Wolfangel Title: Executive Director Title: Executive Director UBS PAINEWEBBER INC. UBS PAINEWEBBER INC. By: /s/ Brendon Boyle By: /s/ Bruce Bursey --------------------------- --------------------------- Name: Brendon Boyle Name: Bruce Bursey Title: Sr. Vice President Title: Sr. Vice President 8 SCHEDULE A All fifty (50) states District of Columbia Puerto Rico Virgin Islands 9 EX-5.(C) 8 a2059133zex-5_c.txt EXHIBIT 5(C) Exhibit No. 5(c) SELECTED DEALER AGREEMENT This Selected Dealer Agreement ("Agreement") is entered into as of __________, 2001, by and between Brinson Advisors, Inc. ("We" or "Us") and ________________________ ("You"). We are the exclusive national distributor of the shares ("Shares") of the investment companies listed on Schedule A hereto ("Funds"), each of which is registered under the Investment Company Act of 1940, as amended ("1940 Act") or is a series of a registered investment company. We understand that you wish to act as a Selected Dealer with respect to the Shares. You have represented that you are either a broker-dealer registered with the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934, as amended ("1934 Act") and a member in good standing of the National Association of Securities Dealers, Inc. ("NASD"), or a "bank" as defined in Section 3(a)(6) of the 1934 Act ("Bank") and are not required to register as a broker-dealer under the 1934 Act, at the time of each transaction subject to this Agreement. In consideration of the mutual covenants stated below, you and we hereby agree as follows: 1. SALE OF SHARES. Sales of Shares through you will be at the public offering price of such Shares (the net asset value of the Shares plus any sales charge applicable to such Shares ("Sales Charge")), as determined in accordance with the then effective prospectus or statement of additional information used in connection with the offer and sale of Shares (collectively, the "Prospectus"), which public offering price may reflect scheduled variations in, or the elimination of, the Sales Charge on sales of the Shares either generally to the public or in connection with special purchase plans, as described in the Prospectus. You agree that you will apply any scheduled variation in, or elimination of, the Sales Charge uniformly to all offerees in the class specified in the Prospectus. 2. ORDERS. (a) You agree to purchase Shares solely through us and only for the purpose of covering purchase orders already received from customers or for your own bona fide investment. You also agree not to withhold any customer order so as to profit therefrom. (b) The procedures relating to the handling of orders shall be subject to instructions which we will forward from time to time to all selected dealers with whom we have entered into Selected Dealer Agreements. The minimum initial order for each Fund shall be specified in the Fund's then current Prospectus. All purchase orders are subject to acceptance of such orders by us. We and the applicable Funds reserve the right in our sole discretion to reject any order or to suspend the offering of Shares. (c) You shall be solely responsible for the accuracy, timeliness and completeness of any orders transmitted by you on behalf of your customers by wire or telephone for purchases, exchanges or redemptions, and shall indemnify us against any claims by your customers as a result of your failure to properly transmit their instructions. You are also solely responsible for ensuring that orders are placed only by properly authorized persons. 3. TRANSACTIONS IN SHARES. (a) You agree that your transactions in Shares of the Funds will be limited to (i) the purchase of Shares from us for resale to your customers at the public offering price then in effect or for your own bona fide investment, (ii) exchanges of Shares between Funds, as permitted by the Funds' then current Prospectuses and in accordance with procedures as they may be modified by us from time to time, and (iii) transactions involving the redemption of Shares by a Fund. Redemptions by a Fund will be effected in the manner and upon the terms described in the Prospectus and pursuant to any procedures that we provide to you from time to time. We will, upon your request, assist you in processing such orders for redemptions. (b) You have entered into a separate written agreement to facilitate the transmission of information regarding customer accounts through the NETWORKING system of the National Securities Clearing Corporation ("NSCC"). You agree that each such account will be maintained through the NSCC's NETWORKING system at matrix level 3. (c) If you are a Bank, with respect to any and all transactions in Shares of the Funds pursuant to this Agreement, it is understood and agreed in each case that unless otherwise agreed to by us in writing: (i) you shall be acting solely as agent for the account of your customer; (ii) each transaction shall be initiated solely upon the order of your customer; (iii) we shall execute transactions only upon receiving instructions from you acting as agent for your customer; (iv) as between you and your customer, your customer will have full beneficial ownership of all Shares; (v) each transaction shall be for the account of your customer and not for your account; and (vi) we will serve as a clearing broker for you on a fully disclosed basis, and you shall serve as the introducing agent for your customers' accounts. 4. OFFERING PRICE. We shall accept orders only on the basis of the then current offering price. You agree to place orders in respect of Shares immediately upon the receipt of orders from your customers for the same number of Shares. Orders which you receive from your customers prior to the time at which the applicable Fund prices its shares shall be deemed received by us at that time if transmitted to us in accordance with procedures that we provide to you from time to time. We will not accept from you a conditional order on any basis. All orders shall be subject to confirmation by us. 5. SUITABILITY AND MULTIPLE CLASSES OF SHARES. (a) The Funds are generally offered in more than one class of Shares in accordance with each Fund's Prospectus. You are responsible for determining whether a Fund is suitable for your client and also for determining which class of that Fund's shares is suitable for your client. Certain investors that are affiliated with us and their families may have special purchase rights. Certain classes of Shares may be available only to certain groups of purchasers. Information concerning the availability of each class of Shares is found in the currently effective Prospectus for each Fund. 2 (b) If you are a Bank, you further represent and warrant to us that you will use your best efforts to ensure that any purchase of Shares by your customers constitutes a suitable investment for such customers. You shall not effect any transaction in, or induce any purchase or sale of, any Shares by means of any manipulative, deceptive or other fraudulent device or contrivance and shall otherwise deal equitably and fairly with your customers with respect to transactions in Shares. 6. SHAREHOLDER COMMUNICATIONS. You agree to furnish the following shareholder communications material to your customers after receipt from us of sufficient quantities to allow mailing thereof to all of your customers who are beneficial owners of any Shares: (a) a prospectus prior to or at the time such customer purchases Shares; (b) for any customer who so requests, a copy of the statement of additional information within the time dictated by regulatory requirements; (c) all proxy or information statements prepared for circulation to shareholders of record; (d) annual and semi-annual reports of the Funds; and (e) all updated prospectuses, supplements, and amendments thereto. It is your obligation to ensure that all such information and materials are distributed to your customers who purchase or own Shares, in accordance with securities (and, if applicable, banking) laws, rules and regulations. 7. COMPENSATION. (a) Any sales charges and commissions will be as set forth in the current Prospectus of each Fund and on Schedule B attached hereto or as might otherwise be agreed to in writing by the parties. (b) Where payment is due hereunder, we agree to send payment for commissions and service fees to your address as it appears on our records. You must notify us of address changes and promptly negotiate any disagreements with respect to such payments. Any such payments that remain outstanding for 12 months shall be void and the obligation represented thereby shall be extinguished. (c) With respect to shares of Funds that impose a contingent deferred sales charge ("CDSC"), we agree to compensate you at a specified rate as disclosed in Schedule B only on purchase payments for those that are subject to a CDSC at the time of investment. You understand that we are entitled to retain any CDSC deducted from redemption proceeds. (d) We reserve the right to modify all CDSC waivers at any time. We will promptly notify you of any modification thereto. We reserve the right to reclaim any commission payment from you if we determine that a CDSC waiver applied at the time of payment. (e) You are responsible for applying the correct sales charge to your customers, as detailed in the current Prospectus for each Fund attached hereto or as might otherwise be agreed to in writing by the parties. (f) There are no sales charges or commissions payable on the reinvestment of dividends and distributions. (g) You agree that you will not combine customer orders to reach breakpoints in commissions for any purpose whatsoever unless authorized by the Prospectus or by us in writing. 3 8. SETTLEMENT. Unless otherwise agreed, settlement shall be made at the offices of the Funds' transfer agent within three (3) business days after our acceptance of the order. If payment is not so received within ten (10) business days of our acceptance of the order, we reserve the right to cancel the sale or, at our option, to sell the Shares to the applicable Funds at the then prevailing net asset value. In this event, or in the event that you cancel the trade for any reason, you agree to be responsible for any loss resulting to the Funds or to us from your failure to make payments as aforesaid. You shall not be entitled to any gains generated thereby. 9. SUSPENSION OF SALES; AMENDMENTS TO SCHEDULES. We reserve the right in our discretion without notice to you to suspend sales or withdraw any offering of Shares entirely, to change the offering prices as provided in the Prospectus or, upon notice to you, to amend or cancel the Schedules to this Agreement. You agree that any order to purchase Shares placed by you, after notice of any amendment to the Schedules to this Agreement has been sent to you, shall constitute your agreement to any such amendment. 10. NO AGENCY. You have no authority whatsoever to act as our agent or, except as noted below, as agent for the Funds, any other Selected Dealer or the Funds' transfer agent and nothing in this Agreement shall serve to appoint you as an agent of any of the foregoing in connection with transactions with your customers or otherwise. Notwithstanding the foregoing, you may act as agent on behalf of the Funds for the limited purpose of receiving orders from your customers for the purchase or redemption of Fund shares. In that event, the time of receipt of a customer order for purposes of rule 22c-1 under the Investment Company Act will be the time you accept the order. 11. REPRESENTATIONS CONCERNING FUNDS; LIABILITY. No person is authorized to make any representations concerning the Funds or their Shares except those contained in the relevant Prospectus and any such information as may be released by us as information supplemental to the Prospectus. Further, no advertising or sales literature, as such terms are defined by the NASD, of any kind whatsoever will be used by you with respect to the Funds or us unless first provided to you by us or unless you have obtained our prior written approval. If you should make any such unauthorized representation, you agree to indemnify the Funds and us from and against any and all claims, liability, expense or loss in any way arising out of or in any way connected with such representation. 12. WARRANTIES. You make the following representations and warranties and agree to indemnify and hold us, and each Fund, harmless against every loss, cost, damage or expense (including reasonable attorney's fees and expenses) incurred by us as a result of your breach of such representations and warranties: (a) You are either (i) registered as a broker-dealer under the 1934 Act, and are licensed and qualified as a broker-dealer or otherwise authorized to offer and sell Shares under the laws of the jurisdictions in which the Shares will be offered and sold by you or (ii) you are a Bank; 4 (b) If you are registered as a broker-dealer under the 1934 Act, you are a member in good standing with the NASD and agree to maintain such membership in good standing; (c) In selling Shares you will comply with all applicable laws, rules and regulations, including the applicable provisions of the Securities Act of 1933, as amended, the 1934 Act, and the 1940 Act, the applicable rules and regulations of the NASD, any applicable banking laws, rules and regulations, and the applicable rules and regulations of the jurisdictions in which you sell any Shares directly or indirectly; (d) You will offer to sell Shares only to purchasers meeting the applicable eligibility requirements set forth in the Prospectus; (e) You agree not to offer for sale or sell Shares in any jurisdictions in which Shares are not qualified for sale or in which you are not qualified under the laws, rules and regulations of the jurisdiction to sell the Shares. We will inform you as to the states in which shares of the Funds have been qualified for sale under, or are exempt from the requirements of, applicable state securities laws; (f) If you are a Bank, you are not in violation of any banking law, rule or regulations as to which you are subject and that the transactions contemplated by this Agreement will not result in any violations of any banking law, rule or regulation; and (g) If you are a Bank, you will not make shares of any Fund available to your customers, including your fiduciary customers, or accept any fees or compensation hereunder except in compliance with all federal and state laws, rules and regulations of regulatory agencies or authorities applicable to you, or any of your affiliates engaging in such activity, including without limitation ERISA and regulated rules, regulations and interpretations, which may affect your business practices. 13. INDEMNIFICATION. (a) We will indemnify and hold harmless you, each of your directors, officers, employees, and agents, and each person who is or may be deemed to be controlling, controlled by or under common control with you, from and against any and all direct and indirect claims, damages, losses, liabilities, or expenses (including the reasonable costs of investigation and reasonable attorney's fees) resulting from (i) our willful misconduct or negligence, or that of our agents and employees, as measured by industry standards, in the performance of, or failure to perform, our obligations under this Agreement; (ii) any violation of any law, rule, or regulation relating to the registration or qualification of shares of a Fund; or (iii) any untrue statement, or alleged untrue statement, of a material fact contained in any Fund's registration statement or any offering documents, sales literature, or marketing materials that we, a Fund or any of our affiliates provide to you, or any omission, or alleged omission, to state a material fact required to be stated therein or necessary to make the statements therein not misleading; PROVIDED, HOWEVER, that we will not be liable for indemnification hereunder to the extent that any claim, damage, loss, liability, or expense results from the willful misconduct or negligence, as measured by industry standards, of you or your affiliates. Such right of indemnification will survive the termination of this Agreement. 5 (b) You will indemnify and hold harmless us, each of our directors, officers, employees, and agents, and each person who is or may be deemed to be controlling, controlled by or under common control with us, from and against any and all direct and indirect claims, damages, losses, liabilities, or expenses (including the reasonable costs of investigation and reasonable attorney's fees) resulting from (i) your willful misconduct or negligence, as measured by industry standards, and that of your agents and employees, in the performance of, or failure to perform, your obligations under this Agreement; or (ii) any untrue statement, or alleged untrue statement, of a material fact contained in offering documents, sales literature, or marketing materials that you or any of your affiliates produce and provide to customers, or any omission, or alleged omission in such documents, to state a material fact required to be stated therein or necessary to make the statements therein not misleading; PROVIDED, HOWEVER, that you will not be liable for indemnification hereunder to the extent that any claim, damage, loss, liability, or expense results from the willful misconduct or negligence, as measured by industry standards, of us or our affiliates. This right of indemnification will survive the termination of this Agreement. (c) If any action, suit, or proceeding is initiated against any party indemnified hereunder ("Indemnified Party") with respect to which such party intends to seek indemnification, the Indemnified Party will notify the other party ("Indemnifying Party") of such action, suit, or proceeding promptly after service of the summons or other first legal process. Such notice will be given by a means of prompt delivery that provides confirmation of receipt to the address detailed below under Section 17. The failure of the Indemnified Party so to notify the Indemnifying Party will relieve the Indemnifying Party of its indemnity obligation with respect to that action, suit, or proceeding to the extent that such omission results in the forfeiture of substantive rights or defenses by the Indemnifying Party; failure to give prompt notice will not relieve the Indemnifying Party of any liability that it otherwise may have to the Indemnified Party. The Indemnifying Party will be entitled to assume the defense of such action, suit, or proceeding. If the Indemnifying Party elects to assume the defense thereof and retains counsel, the Indemnified Party will bear the fees and expenses of any additional counsel retained by it, unless (1) the employment of counsel by the Indemnified Party has been authorized in writing by the Indemnifying Party, (2) the Indemnified Party has reasonably concluded that there may be legal defenses available to it or other Indemnified Parties that are different from, or in addition to those available to the Indemnifying Party (in which case the Indemnifying Party will not have the right to direct the defense of such action on behalf of the Indemnified Party) or (3) the Indemnifying Party has not in fact employed counsel to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees and expenses of counsel will be at the expense of the Indemnifying Party or Parties. All such fees and expenses will be reimbursed promptly as they are incurred. An Indemnifying Party will not be liable for any settlement of any action or claim effected without its written consent, or, in connection with any proceeding or related proceeding in the same jurisdiction, for the fees and expenses of more than one separate counsel for all indemnified parties, except to the extent provided herein. The Indemnifying Party will keep the Indemnified Party informed of all material developments and events relating to such action, suit, or proceeding. If the Indemnifying Party does not elect to assume the defense, the Indemnifying Party will reimburse the Indemnified Party for the reasonable fees and expenses of any counsel 6 retained by it, which fees and expenses will be payable to the Indemnified Party at such intervals as the parties may determine or upon the Indemnifying Party's receipt of a bill related thereto. 14. EXPENSES. All expenses incurred in connection with your activities under this Agreement shall be borne by you. 15. TERMINATION; ASSIGNMENT. This Agreement will continue in effect unless terminated as provided herein. A party may terminate this Agreement without cause by giving the other party thirty (30) days' written notice of its intention to terminate. Your expulsion from the NASD will automatically terminate this Agreement without notice. Your suspension from the NASD or a violation by you of applicable state and federal laws and rules and regulations of authorized regulatory agencies will terminate this Agreement effective upon notice received by you from us. This Agreement shall not be assignable by either party without the advance written consent of the other party, and your assignment without such consent shall result in the termination of this Agreement upon notice received by you from us. Failure of any party to terminate the Agreement for any of the causes set forth in this Agreement will not constitute a waiver of that party's right to terminate this Agreement at a later time for any of these causes. 16. CHOICE OF LAW; ARBITRATION. This Agreement shall be construed in accordance with the laws of the State of New York. In the event of a dispute with respect to this Agreement that the parties are unable to resolve themselves, such dispute will be settled by arbitration before arbitrators sitting in the Borough of Manhattan, New York, New York in accordance with the then existing NASD Code of Arbitration Procedure ("NASD Code"). The arbitrators will act by majority decision, and their award may allocate attorneys' fees and arbitration costs between the parties. Their award will be final and binding between the parties, and such award may be entered as a judgment in any court of competent jurisdiction. The parties agree that, to the extent permitted by the NASD Code, the arbitrators will be selected from the securities industry. 17. NOTICES. Any notice to you or to us shall be duly given if mailed or telefaxed to the respective addresses set forth below: Brinson Advisors, Inc. [Name of Selected Dealer] 51 West 52nd Street [Address] New York, NY 10019-6114 [Attn: ] Attn: ___________________ 18. SEVERABILITY. Should any provision of this Agreement be held unenforceable, those provisions not affected by the determination of unenforceability shall remain in full force and effect. 19. COMPLETE AGREEMENT. This Agreement constitutes the entire agreement between the undersigned and supersedes all prior oral or written agreements between the parties hereto. 7 IN WITNESS WHEREOF, this Agreement has been executed as of the date set forth above by a duly authorized representative of the parties hereto. BRINSON ADVISORS, INC. Date: By: -------------------------- ------------------------------------ The undersigned accepts your invitation to become a Selected Dealer and agrees to abide by the foregoing terms and conditions. [NAME OF SELECTED DEALER] Date: By: -------------------------- ------------------------------------ Signature ------------------------------------ Print Name Title ------------------------------------ Address ------------------------------------ City State Zip 8 SCHEDULE A ---------- LIST OF FUNDS SCHEDULE B ---------- COMMISSION AND SERVICE FEE INFORMATION CLASS A SHARES Commission: Discount to Selected Dealers as set forth in each Fund's current Prospectus. No commission will be paid on sales of Class A Shares without a sales charge, except as indicated in the Prospectus for sales of $1 million or more. Service Fees: 0.25% per annum based on the daily net assets of the Shares [beginning in the __ quarter of year __ after the Share purchase] for services provided to shareholders and/or the maintenance of shareholder accounts. These amounts will be paid to you only as and to the extent that we receive the payments from the applicable Funds. [Add minimum aggregate amount before payments start?] CLASS B SHARES Commission: Marketing Fee of __% on sales of Shares. Service Fees: 0.25% per annum based on the daily net assets of the Shares [beginning in the __ quarter of year __ after the Share purchase] for services provided to shareholders and/or the maintenance of shareholder accounts. These amounts will be paid to you only as and to the extent that we receive the payments from the applicable Funds. [Add minimum aggregate amount before payments start?] CLASS C SHARES Commission: Marketing Fee of __% on sales of Shares. Service Fees: 0.25% per annum based on the daily net assets of the Shares [beginning in the __ quarter of year __ after the Share purchase] for services provided to shareholders and/or the maintenance of shareholder accounts. These amounts will be paid to you only as and to the extent that we receive the payments from the applicable Funds. [Add minimum aggregate amount before payments start?] CLASS Y SHARES [Add description of compensation for Class Y Shares fees.] 10 EX-7.(B) 9 a2059133zex-7_b.txt EXHIBIT 7(B) Exhibit No. 7(b) AMENDMENT TO CUSTODY CONTRACT Amendment dated August 3, 1999, to the custody contract, dated August 18, 1995, as amended, by and between State Street Bank and Trust Company (the "Custodian") and PaineWebber PACE Select Advisors Trust (formerly Managed Accounts Services Portfolio Trust), on behalf of each Portfolio/Series listed on Attachment I hereto (each a "Fund") (the "Custody Contract"). WHEREAS the Custodian serves as the custodian of each Fund's assets pursuant to the Custody Contract; WHEREAS the Funds may appoint one or more banks identified on Schedule A to this Amendment, as amended from time to time, to serve as additional custodians for the Funds (each, a "Repo Custodian") for the purpose of the Funds' engaging in tri-party repurchase agreement transactions ("Tri-Party Repos"); WHEREAS the Funds may direct the Custodian to make "free delivery" to one or more Repo Custodians of cash or other assets maintained in custody by the Custodian for the Funds pursuant to the Custody Contract for purposes of engaging in Tri-Party Repos; and WHEREAS the Custodian and the Funds desire to amend the Custody Contract to permit the Custodian to make "free delivery" of cash and other assets of the Funds to Repo Custodians from time to time; NOW THEREFORE, the Custodian and the Fund hereby agree to amend the Custody Contract by adding the following provisions thereto: 1. Notwithstanding anything to the contrary in the Custody Contract, upon receipt of Proper Instructions (as defined in the Custody Contract), the Custodian shall deliver cash and/or other assets of the Funds to any account maintained for the Funds by a Repo Custodian listed on Schedule A, which delivery may be made without contemporaneous receipt by the Custodian of cash or other assets in exchange therefor. Upon such delivery of cash or other assets in accordance with such Proper Instructions, the Custodian shall have no further responsibility or obligation to the Funds as a custodian of the Funds with respect to the cash or assets so delivered. In preparing reports of monies received or paid out of the Fund or of assets comprising the Fund, the Custodian shall be entitled to rely upon information received from time to time from the Repo Custodian and shall not be responsible for the accuracy or completeness of such information included in the Custodian's reports until such assets are received by the Custodian. 2. The Funds may amend Schedule A from time to time to add or delete a Repo Custodian for the Funds by delivering Special Instructions (as defined herein) to the Custodian. The term Special Instructions shall mean written instructions executed by at least two officers of the Funds holding the office of Vice President or higher. In all other respects, each Custody Contract shall remain in full force and effect and the Custodian and the Funds shall perform their respective obligations in accordance with the terms thereof. EXECUTED to be effective as of the date set forth above. PAINEWEBBER PACE SELECT ADVISORS TRUST On Behalf of Funds Listed on Attachment I By: /s/ Dianne E. O'Donnell ---------------------------------------- Name: Dianne E. O'Donnell Title: Assistant Secretary and Vice President STATE STREET BANK AND TRUST COMPANY By: /s/ Ronald E. Logue ---------------------------------------- Name: Ronald E. Logue Title: Vice Chairman 2 ATTACHMENT I Dated: August 3, 1999 --------------------------- to Amendment dated August 3, 1999, to Custody Contract Of August 18, 1995, between State Street Bank and Trust Company and PaineWebber PACE Select Advisors Trust
PORTFOLIO/SERIES DATE OF CUSTODY - ---------------- ---------------- PACE Money Market Investments 08/18/95 PACE Government Securities Fixed Income Investments 08/18/95 PACE Intermediate Fixed Income Investments 08/18/95 PACE Strategic Fixed Income Investments 08/18/95 PACE Municipal Fixed Income Investments 08/18/95 PACE Global Fixed Income Investments 08/18/95 PACE Large Company Value Equity Investments 08/18/95 PACE Large Company Growth Equity Investments 08/18/95 PACE Small/Medium Company Value Equity Investments 08/18/95 PACE Small/Medium Company Growth Equity Investments 08/18/95 PACE International Equity Investments 08/18/95 PACE International Emerging Markets Equity Investments 08/18/95
3 SCHEDULE A ---------- Dated: August 3, 1999 --------------------------- to Amendment dated August 3, 1999, to Custody Contract Of August 18, 1995, between State Street Bank and Trust Company and PaineWebber PACE Select Advisors Trust On Behalf of Funds Listed on Attachment I TRI-PARTY REPO CUSTODIAN BANKS - ------------------------------ The Bank of New York Chase Manhattan Bank Authorized Signatures: By: /s/ Dianne E. O'Donnell By: /s/ Andrew S. Novak -------------------------------- ----------------------------- Title: Secretary and Vice President Title: Vice President and ----------------------------- Assistant Secretary -------------------------- Date: As of August 3, 1999 Date: As of August 3, 1999 ------------------------------ --------------------------- 4 EX-7.(C) 10 a2059133zex-7_c.txt EXHIBIT 7(C) Exhibit 7(c) AMENDMENT TO CUSTODIAN CONTRACT This Amendment to the Custodian Contract is made as of the fifteenth day of February, 2001 by and between PaineWebber PACE Select Advisors Trust (formerly Managed Accounts Services Portfolio Trust, hereinafter the "Fund") and State Street Bank and Trust Company (the "Custodian"). Capitalized terms used in this Amendment without definition shall have the respective meanings given to such terms in the Custodian Contract referred to below. WHEREAS, the Fund and the Custodian entered into a Custodian Contract dated as of August 18, 1995 (as amended and in effect from time to time, the "Contract"); WHEREAS, the Fund is authorized to issue shares in separate series, with each such series representing interests in a separate portfolio of securities and other assets, and the Fund has made twelve series listed on Attachment I attached hereto subject to the Contract (each such series, together with all other series subsequently established by the Fund and made subject to the Contract in accordance with the terms thereof, shall be referred to as a "Portfolio", and, collectively, the "Portfolios"); WHEREAS, the Fund and the Custodian desire to amend certain provisions of the Contract to reflect revisions to Rule 17f-5 ("Rule 17f-5") and the adoption of Rule 17f-7 ("Rule 17f-7") promulgated under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Fund and the Custodian desire to amend and restate certain other provisions of the Contract relating to the custody of assets of each of the Portfolios held outside of the United States. NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter contained, the parties hereby agree to amend the Contract, pursuant to the terms thereof, as follows: I. Article 3 of the Contract is hereby deleted, and Articles 4 through 27 of the Contract are hereby renumbered, as of the effective date of this Amendment, as Articles 5 through 28, respectively. II. New Articles 3 and 4 of the Contract are hereby added, as of the effective date of this Amendment, as set forth below. 3. PROVISIONS RELATING TO RULES 17f-5 AND 17f-7 3.1. DEFINITIONS. Capitalized terms in this Amendment shall have the following meanings: "Country Risk" means all factors reasonably related to the systemic risk of holding Foreign Assets in a particular country including, but not limited to, such country's political environment, economic and financial infrastructure (including any Eligible Securities Depository operating in the country), prevailing or developing custody and settlement practices, and laws and regulations applicable to the safekeeping and recovery of Foreign Assets held in custody in that country. "Eligible Foreign Custodian" has the meaning set forth in section (a)(1) of Rule 17f-5, including a majority-owned or indirect subsidiary of a U.S. Bank (as defined in Rule 17f-5), a bank holding company meeting the requirements of an Eligible Foreign Custodian (as set forth in Rule 17f-5 or by other appropriate action of the U.S. Securities and Exchange Commission (the "SEC")), or a foreign branch of a Bank (as defined in Section 2(a)(5) of the 1940 Act) meeting the requirements of a custodian under Section 17(f) of the 1940 Act; the term does not include any Eligible Securities Depository. "Eligible Securities Depository" has the meaning set forth in section (b)(1) of Rule 17f-7. "Foreign Assets" means any of the Fund's investments (including foreign currencies) for which the primary market is outside the United States and such cash and cash equivalents as are reasonably necessary to effect the Fund's transactions in such investments. "Foreign Custody Manager" has the meaning set forth in section (a)(3) of Rule 17f-5. 3.2. THE CUSTODIAN AS FOREIGN CUSTODY MANAGER. 3.2.1 DELEGATION TO THE CUSTODIAN AS FOREIGN CUSTODY MANAGER. The Fund, by resolution adopted by its Board of Trustees (the "Board"), hereby delegates to the Custodian, subject to Section (b) of Rule 17f-5, the responsibilities set forth in this Section 3.2 with respect to Foreign Assets held outside the United States, and the Custodian hereby accepts such delegation as Foreign Custody Manager of the Fund. 3.2.2 COUNTRIES COVERED. The Foreign Custody Manager shall be responsible for performing the delegated responsibilities defined below only with respect to the countries and custody arrangements for each such country listed on Schedule A to this Contract, which list of countries may be amended from time to time by the Fund with the agreement of the Foreign Custody Manager. The Foreign Custody Manager shall list on Schedule A the Eligible Foreign Custodians selected by the Foreign Custody Manager to maintain the Fund's assets, which list of Eligible Foreign Custodians may be amended from time to time in the sole discretion of the Foreign Custody Manager. The Foreign Custody Manager will provide amended versions of Schedule A in accordance with Section 3.2.5 hereof. Upon the receipt by the Foreign Custody Manager of Proper Instructions to open an account or to place or maintain Foreign Assets in a country listed on Schedule A, and the fulfillment by the Fund of the applicable account opening requirements for such country, 2 the Foreign Custody Manager shall be deemed to have been delegated by the Board responsibility as Foreign Custody Manager with respect to that country and to have accepted such delegation. Execution of this Amendment by the Fund shall be deemed to be a Proper Instruction to open an account, or to place or maintain Foreign Assets, in each country listed on Schedule A in which the Custodian has previously placed or currently maintains Foreign Assets pursuant to the terms of the Contract. Following the receipt of Proper Instructions directing the Foreign Custody Manager to close the account of the Fund with the Eligible Foreign Custodian selected by the Foreign Custody Manager in a designated country, the delegation by the Board to the Custodian as Foreign Custody Manager for that country shall be deemed to have been withdrawn and the Custodian shall immediately cease to be the Foreign Custody Manager of the Fund with respect to that country. The Foreign Custody Manager may withdraw its acceptance of delegated responsibilities with respect to a designated country upon written notice to the Fund. Thirty days (or such longer period to which the parties agree in writing) after receipt of any such notice by the Fund, the Custodian shall have no further responsibility in its capacity as Foreign Custody Manager to the Fund with respect to the country as to which the Custodian's acceptance of delegation is withdrawn. 3.2.3 SCOPE OF DELEGATED RESPONSIBILITIES: (a) SELECTION OF ELIGIBLE FOREIGN CUSTODIANS. Subject to the provisions of this Section 3.2, the Foreign Custody Manager may place and maintain the Foreign Assets in the care of the Eligible Foreign Custodian selected by the Foreign Custody Manager in each country listed on Schedule A, as amended from time to time. In performing its delegated responsibilities as Foreign Custody Manager to place or maintain Foreign Assets with an Eligible Foreign Custodian, the Foreign Custody Manager shall determine that the Foreign Assets will be subject to reasonable care, based on the standards applicable to custodians in the country in which the Foreign Assets will be held by that Eligible Foreign Custodian, after considering all factors relevant to the safekeeping of such assets, including, without limitation the factors specified in Rule 17f-5(c)(1). (b) CONTRACTS WITH ELIGIBLE FOREIGN CUSTODIANS. The Foreign Custody Manager shall determine that the contract governing the foreign custody arrangements with each Eligible Foreign Custodian selected by the Foreign Custody Manager will satisfy the requirements of Rule 17f-5(c)(2). (c) MONITORING. In each case in which the Foreign Custody Manager maintains Foreign Assets with an Eligible Foreign Custodian selected by the Foreign Custody Manager, the Foreign Custody Manager shall establish a system to monitor, in accordance with 17f-5(c)(3), (i) the appropriateness of maintaining the Foreign Assets with such Eligible Foreign Custodian and (ii) the contract governing the custody arrangements established by the Foreign Custody Manager with the Eligible Foreign 3 Custodian. In the event the Foreign Custody Manager determines that the custody arrangements with an Eligible Foreign Custodian it has selected are no longer appropriate, the Foreign Custody Manager shall notify the Board in accordance with Section 3.2.5 hereunder. 3.2.4 GUIDELINES FOR THE EXERCISE OF DELEGATED AUTHORITY. For purposes of this Section 3.2, the Board shall be deemed to have considered and determined to accept such Country Risk as is incurred by placing and maintaining the Foreign Assets in each country for which the Custodian is serving as Foreign Custody Manager of the Fund. 3.2.5 REPORTING REQUIREMENTS. The Foreign Custody Manager shall report the withdrawal of the Foreign Assets from an Eligible Foreign Custodian and the placement of such Foreign Assets with another Eligible Foreign Custodian by providing to the Board an amended Schedule A at the end of the calendar quarter in which an amendment to such Schedule has occurred. The Foreign Custody Manager shall make written reports notifying the Board of any other material change in the foreign custody arrangements of the Fund described in this Section 3.2 after the occurrence of the material change. 3.2.6 STANDARD OF CARE AS FOREIGN CUSTODY MANAGER OF THE FUND. In performing the responsibilities delegated to it, the Foreign Custody Manager agrees to exercise reasonable care, prudence and diligence such as a person having responsibility for the safekeeping of assets of management investment companies registered under the 1940 Act would exercise. 3.2.7 REPRESENTATIONS WITH RESPECT TO RULE 17f-5. The Foreign Custody Manager represents to the Fund that it is a U.S. Bank as defined in section (a)(7) of Rule 17f-5. The Fund represents to the Custodian that the Board has determined that it is reasonable for the Board to rely on the Custodian to perform the responsibilities delegated pursuant to this Contract to the Custodian as the Foreign Custody Manager of the Fund. 3.2.8 EFFECTIVE DATE AND TERMINATION OF THE CUSTODIAN AS FOREIGN CUSTODY MANAGER. The Board's delegation to the Custodian as Foreign Custody Manager of the Fund shall be effective as of the date hereof and shall remain in effect until terminated at any time, without penalty, by written notice from the terminating party to the non-terminating party. Termination will become effective thirty (30) days after receipt by the non-terminating party of such notice. The provisions of Section 3.2.2 hereof shall govern the delegation to and termination of the Custodian as Foreign Custody Manager of the Fund with respect to designated countries. 3.3 ELIGIBLE SECURITIES DEPOSITORIES. 3.3.1 ANALYSIS AND MONITORING. The Custodian shall (a) provide the Fund (or its duly-authorized investment manager or investment adviser) with an analysis of the custody risks associated with maintaining assets with the Eligible Securities Depositories 4 set forth on Schedule B hereto in accordance with section (a)(1)(i)(A) of Rule 17f-7, and (b) monitor such risks on a continuing basis, and promptly notify the Fund (or its duly-authorized investment manager or investment adviser) of any material change in such risks, in accordance with section (a)(1)(i)(B) of Rule 17f-7. 3.3.2 STANDARD OF CARE. The Custodian agrees to exercise reasonable care, prudence and diligence in performing the duties set forth in Section 3.3.1. 4. DUTIES OF THE CUSTODIAN WITH RESPECT TO FUND PROPERTY HELD OUTSIDE THE UNITED STATES. 4.1 DEFINITIONS. Capitalized terms in this Article 4 shall have the following meanings: "Foreign Securities System" means an Eligible Securities Depository listed on Schedule B hereto. "Foreign Sub-Custodian" means a foreign banking institution serving as an Eligible Foreign Custodian. 4.2. HOLDING SECURITIES. The Custodian shall identify on its books as belonging to the Fund the foreign securities held by each Foreign Sub-Custodian or Foreign Securities System. The Custodian may hold foreign securities for all of its customers, including the Fund, with any Foreign Sub-Custodian in an account that is identified as belonging to the Custodian for the benefit of its customers, provided however, that (i) the records of the Custodian with respect to foreign securities of the Fund which are maintained in such account shall identify those securities as belonging to the Fund and (ii), to the extent permitted and customary in the market in which the account is maintained, the Custodian shall require that securities so held by the Foreign Sub-Custodian be held separately from any assets of such Foreign Sub-Custodian or of other customers of such Foreign Sub-Custodian. 4.3. FOREIGN SECURITIES SYSTEMS. Foreign securities shall be maintained in a Foreign Securities System in a designated country through arrangements implemented by the Custodian or a Foreign Sub-Custodian, as applicable, in such country. 4.4. TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. 4.4.1. DELIVERY OF FOREIGN ASSETS. The Custodian or a Foreign Sub-Custodian shall release and deliver foreign securities of the Fund held by the Custodian or such Foreign Sub-Custodian, or in a Foreign Securities System account, only upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases: (i) upon the sale of such foreign securities for the Fund in accordance with 5 commercially reasonable market practice in the country where such foreign securities are held or traded, including, without limitation: (A) delivery against expectation of receiving later payment; or (B) in the case of a sale effected through a Foreign Securities System, in accordance with the rules governing the operation of the Foreign Securities System; (ii) in connection with any repurchase agreement related to foreign securities; (iii) to the depository agent in connection with tender or other similar offers for foreign securities of the Fund; (iv) to the issuer thereof or its agent when such foreign securities are called, redeemed, retired or otherwise become payable; (v) to the issuer thereof, or its agent, for transfer into the name of the Custodian (or the name of the respective Foreign Sub-Custodian or of any nominee of the Custodian or such Foreign Sub-Custodian) or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; (vi) to brokers, clearing banks or other clearing agents for examination or trade execution in accordance with market custom; provided that in any such case the Foreign Sub-Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Foreign Sub-Custodian's own negligence or willful misconduct; (vii) for exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement; (viii) in the case of warrants, rights or similar foreign securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities; (ix) for delivery as security in connection with any borrowing by the Fund requiring a pledge of assets by the Fund; (x) in connection with trading in options and futures contracts, including delivery as original margin and variation margin; (xi) in connection with the lending of foreign securities; and 6 (xii) for any other purpose, but only upon receipt of Proper Instructions specifying the foreign securities to be delivered and naming the person or persons to whom delivery of such securities shall be made. 4.4.2. PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out, or direct the respective Foreign Sub-Custodian or the respective Foreign Securities System to pay out, monies of the Fund in the following cases only: (i) upon the purchase of foreign securities for the Fund, unless otherwise directed by Proper Instructions, by (A) delivering money to the seller thereof or to a dealer therefor (or an agent for such seller or dealer) against expectation of receiving later delivery of such foreign securities; or (B) in the case of a purchase effected through a Foreign Securities System, in accordance with the rules governing the operation of such Foreign Securities System; (ii) in connection with the conversion, exchange or surrender of foreign securities of the Fund; (iii) for the payment of any expense or liability of the Fund, including but not limited to the following payments: interest, taxes, investment advisory fees, transfer agency fees, fees under this Contract, legal fees, accounting fees, and other operating expenses; (iv) for the purchase or sale of foreign exchange or foreign exchange contracts for the Fund, including transactions executed with or through the Custodian or its Foreign Sub-Custodians; (v) in connection with trading in options and futures contracts, including delivery as original margin and variation margin; (vi) for payment of part or all of the dividends received in respect of securities sold short; (vii) in connection with the borrowing or lending of foreign securities; and (viii) for any other purpose, but only upon receipt of Proper Instructions specifying the amount of such payment and naming the person or persons to whom such payment is to be made. 4.4.3. MARKET CONDITIONS. Notwithstanding any provision of this Contract to the contrary, settlement and payment for Foreign Assets received for the account of the Fund and delivery of Foreign Assets maintained for the account of the Fund may be effected in accordance with the customary established securities trading or processing 7 practices and procedures in the country or market in which the transaction occurs, including, without limitation, delivering Foreign Assets to the purchaser thereof or to a dealer therefor (or an agent for such purchaser or dealer) with the expectation of receiving later payment for such Foreign Assets from such purchaser or dealer. The Custodian shall provide to the Board the information with respect to custody and settlement practices in countries in which the Custodian employs a Foreign Sub-Custodian described on Schedule C hereto at the time or times set forth on such Schedule. The Custodian may revise Schedule C from time to time, provided that no such revision shall result in the Board being provided with substantively less information than had been previously provided hereunder. 4.5. REGISTRATION OF FOREIGN SECURITIES. The foreign securities maintained in the custody of a Foreign Sub-Custodian (other than bearer securities) shall be registered in the name of the Fund or in the name of the Custodian or in the name of any Foreign Sub-Custodian or in the name of any nominee of the foregoing, and the Fund agrees to hold any such nominee harmless from any liability as a holder of record of such foreign securities. The Custodian or a Foreign Sub-Custodian shall not be obligated to accept securities on behalf of the Fund under the terms of this Contract unless the form of such securities and the manner in which they are delivered are in accordance with reasonable market practice. 4.6 BANK ACCOUNTS. The Custodian shall identify on its books as belonging to the Fund cash (including cash denominated in foreign currencies) deposited with the Custodian. Where the Custodian is unable to maintain, or market practice does not facilitate the maintenance of, cash on the books of the Custodian, a bank account or bank accounts shall be opened and maintained outside the United States on behalf of the Fund with a Foreign Sub-Custodian. All accounts referred to in this Section shall be subject only to draft or order by the Custodian (or, if applicable, such Foreign Sub-Custodian) acting pursuant to the terms of this Agreement to hold cash received by or from or for the account of the Fund. Cash maintained on the books of the Custodian (including its branches, subsidiaries and affiliates), regardless of currency denomination, is maintained in bank accounts established under, and subject to the laws of, The Commonwealth of Massachusetts. 4.7. COLLECTION OF INCOME. The Custodian shall use reasonable commercial efforts to collect all income and other payments with respect to the Foreign Assets held hereunder to which the Fund shall be entitled and shall credit such income, as collected, to the Fund. In the event that extraordinary measures are required to collect such income, the Fund and the Custodian shall consult as to such measures and as to the compensation and expenses of the Custodian relating to such measures. 4.8 SHAREHOLDER RIGHTS. With respect to the foreign securities held pursuant to this Article 4, the Custodian will use reasonable commercial efforts to facilitate the exercise of voting and other shareholder rights, subject always to the laws, regulations and 8 practical constraints that may exist in the country where such securities are issued. The Fund acknowledges that local conditions, including lack of regulation, onerous procedural obligations, lack of notice and other factors may have the effect of severely limiting the ability of the Fund to exercise shareholder rights. 4.9. COMMUNICATIONS RELATING TO FOREIGN SECURITIES. The Custodian shall transmit promptly to the Fund written information with respect to materials received by the Custodian via the Foreign Sub-Custodians from issuers of the foreign securities being held for the account of the Fund (including, without limitation, pendency of calls and maturities of foreign securities and expirations of rights in connection therewith). With respect to tender or exchange offers, the Custodian shall transmit promptly to the Fund written information with respect to materials so received by the Custodian from issuers of the foreign securities whose tender or exchange is sought or from the party (or its agents) making the tender or exchange offer. The Custodian shall not be liable for any untimely exercise of any tender, exchange or other right or power in connection with foreign securities or other property of the Fund at any time held by it unless (i) the Custodian or the respective Foreign Sub-Custodian is in actual possession of such foreign securities or property and (ii) the Custodian receives Proper Instructions with regard to the exercise of any such right or power, and both (i) and (ii) occur at least three business days prior to the date on which the Custodian is to take action to exercise such right or power. 4.10. LIABILITY OF FOREIGN SUB-CUSTODIANS. Each agreement pursuant to which the Custodian employs a Foreign Sub-Custodian shall require the Foreign Sub-Custodian to exercise reasonable care in the performance of its duties and, to the extent possible, to indemnify and hold harmless the Custodian from and against any loss, damage, cost, expense, liability or claim arising out of or in connection with the Foreign Sub-Custodian's performance of such obligations. At the election of the Fund, the Fund shall be entitled to be subrogated to the rights of the Custodian with respect to any claims against a Foreign Sub-Custodian as a consequence of any such loss, damage, cost, expense, liability or claim if and to the extent that the Fund has not been made whole for any such loss, damage, cost, expense, liability or claim. 4.11 TAX LAW. The Custodian shall have no responsibility or liability for any obligations now or hereafter imposed on the Fund, or the Custodian as custodian of the Fund, by the tax law of the United States or of any state or political subdivision thereof. It shall be the responsibility of the Fund to notify the Custodian of the obligations imposed on the Fund, or the Custodian as custodian of the Fund, by the tax law of countries other than the United States, including responsibility for withholding and other taxes, assessments or other governmental charges, certifications and governmental reporting. The sole responsibility of the Custodian with regard to such tax law shall be to use reasonable efforts to assist the Fund with respect to any claim for exemption or refund under the tax law of countries for which the Fund has provided such information. 4.12. LIABILITY OF CUSTODIAN. Except as may arise from the Custodian's own negligence or willful misconduct, or the negligence or willful misconduct of a sub- 9 custodian, the Custodian shall be without liability to the Fund for any loss, liability, claim or expense resulting from or caused by anything which is part of Country Risk. The Custodian shall have no more or less responsibility or liability to the Fund on account of any actions or omissions of any sub-custodian employed by the Custodian pursuant to Proper Instructions hereunder than any such sub-custodian has to the Custodian. The Custodian shall be liable for the acts or omissions of a Foreign Sub-Custodian to the same extent as set forth with respect to sub-custodians generally in the Contract and, regardless of whether assets are maintained in the custody of a Foreign Sub-Custodian or a Foreign Securities System, the Custodian shall not be liable for any loss, damage, cost, expense, liability or claim resulting from nationalization, expropriation, currency restrictions, or acts of war or terrorism, or any other loss where the Foreign Sub-Custodian has otherwise acted with reasonable care. III Except as specifically superseded or modified herein, the terms and provisions of the Contract shall continue to apply with full force and effect. In the event of any conflict between the terms of the Contract prior to this Amendment and this Amendment, the terms of this Amendment shall prevail. If the Custodian is delegated the responsibilities of Foreign Custody Manager pursuant to the terms of Article 3 hereof, in the event of any conflict between the provisions of Articles 3 and 4 hereof, the provisions of Article 3 shall prevail. [Remainder of page intentionally left blank.] 10 IN WITNESS WHEREOF, each of the parties has caused this Amendment to be executed in its name and behalf by its duly authorized representative as of the date first above written. WITNESSED BY: STATE STREET BANK and TRUST COMPANY /s/ Raelene S. LaPlante By: /s/ Ronald E. Logue - ----------------------- ------------------------------------------- Raelene S. LaPlante Name: Ronald E. Logue V.P. & Assoc. Counsel Title: Vice Chairman and Chief Operating Officer WITNESSED BY: PAINEWEBBER PACE SELECT ADVISORS TRUST /s/ Cristina Paradiso By: /s/ Dianne E. O'Donnell - ---------------------- ------------------------------------------- Cristina Paradiso Name: Dianne E. O'Donnell Assistant Secretary Title: Vice President and Assistant Secretary 11 ATTACHMENT I Dated: February 15, 2001 to Amendment dated February 15, 2001 to Custody Contract of August 18, 1995 between Paine Webber PACE Select Advisors Trust and State Street Bank and Trust Company PORTFOLIO/SERIES DATE OF CUSTODY PACE Money Market Investments 8/18/95 PACE Government Securities Fixed Income Investments 8/18/95 PACE Intermediate Fixed Income Investments 8/18/95 PACE Strategic Fixed Income Investments 8/18/95 PACE Municipal Fixed Income Investments 8/18/95 PACE Global Fixed Income Investments 8/18/95 PACE Large Company Value Equity Investments 8/18/95 PACE Large Company Growth Equity Investments 8/18/95 PACE Small/Medium Company Value Equity Investments 8/18/95 PACE Small/Medium Company Growth Equity Investments 8/18/95 PACE International Equity Investments 8/18/95 PACE International Emerging Markets Equity Investments 8/18/95 EX-8.(B) 11 a2059133zex-8_b.txt EXHIBIT 8(B) Exhibit No. 8(b) AMENDMENT TO TRANSFER AGENCY AND RELATED SERVICES AGREEMENT AMENDMENT entered into as of this 27th day of November, 2000 to the Transfer Agency and Related Services Agreement by and between PFPC INC., a Delaware corporation, and PAINEWEBBER PACE SELECT ADVISORS TRUST (formerly known as Managed Accounts Services Portfolio Trust), a Delaware business trust ("Agreement). WHEREAS, all of the outstanding shares of PAINEWEBBER PACE SELECT ADVISORS TRUST as of the date of this amendment have been re-designated as Class P shares, the parties agree as follows: 1. The first introductory paragraph of the Agreement is amended to change the reference from "Maryland corporation" to "Delaware business trust. " 2. The second introductory paragraph of the Agreement is amended to add the words "Class P shares of" after the word "for". 3. Paragraph 2 of the Agreement is amended to add the words "with respect to the Class P shares of" following the words "shareholder servicing agent". The word "to" which currently follows the words "shareholder servicing agent" is hereby deleted. 4. Paragraph 16 of the Agreement is amended to add the words "with respect to such Portfolio's Class P shares" following the word "Portfolio". 5. Paragraph 16(c) of the Agreement is amended to add the words "Class P" to follow the word "Portfolio's". Except as amended above, the parties agree that the Agreement shall remain in full force and effect and in all other respects shall remain unchanged. IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first set forth above. PFPC INC. /s/ Stephen M. Wynn - ---------------------------------------- Executive Vice President PAINEWEBBER PACE SELECT ADVISORS TRUST /s/ Paul H. Schubert - ---------------------------------------- Vice President and Treasurer EX-8.(C) 12 a2059133zex-8_c.txt EXHIBIT 8(C) Exhibit No. 8(c) TRANSFER AGENCY - RELATED SERVICES DELEGATION AGREEMENT THIS AGREEMENT is made as of February 13, 2001 by and between PFPC INC., a Massachusetts corporation ("PFPC") and UBS PAINEWEBBER INC., a Delaware corporation ("UBS PaineWebber"). WHEREAS, PFPC has entered into a Transfer Agency Services and Shareholder Services Agreement dated as of August 18, 1995, as amended ("Transfer Agency Services and Shareholder Services Agreement"), to provide transfer agency and related services with respect to the Class P shares of series of PaineWebber PACE Select Advisors Trust (the "Fund"); and WHEREAS, under the Transfer Agency Services and Shareholder Services Agreement PFPC is authorized to delegate to UBS PaineWebber its obligation to perform services thereunder with respect to UBS PaineWebber brokerage clients who are also shareholders of the Fund; and WHEREAS, subject to the terms and conditions hereof, PFPC wishes to delegate to UBS PaineWebber, and UBS PaineWebber wishes to perform, certain of the transfer agency-related services that PFPC is obligated to perform under the Transfer Agency Services and Shareholder Services Agreement; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, and intending to be legally bound, PFPC and UBS PaineWebber hereby agree as follows: 1. DELEGATION. PFPC hereby delegates to UBS PaineWebber its duty and obligation under the Transfer Agency Services and Shareholder Services Agreement to perform those services specified in Exhibit A hereto (the "Delegated Services"), and UBS PaineWebber hereby agrees to perform the Delegated Services in accordance with the terms and conditions hereof. In the event that PFPC determines to delegate, and UBS PaineWebber agrees in writing to perform, additional services now or hereafter required to be performed by PFPC under the Transfer Agency Services and Shareholder Services Agreement, such additional services shall constitute Delegated Services hereunder, provided, however, that UBS PaineWebber shall receive such additional compensation for the performance of those additional services as shall be agreed upon between the parties. 2. RESPONSIBILITIES OF UBS PAINEWEBBER. UBS PaineWebber shall perform the Delegated Services in accordance with the terms and conditions of the Transfer Agency Services and Shareholder Services Agreement. UBS PaineWebber undertakes to comply with all applicable requirements of the Securities Laws and any laws, rules and regulations of governmental authorities having jurisdiction with respect to the duties to be performed by UBS PaineWebber hereunder. Except as specifically set forth herein, UBS PaineWebber assumes no responsibility for such compliance by the Fund or any of its Portfolios. 1 UBS PaineWebber shall prepare and maintain in complete and accurate form all books and records necessary for it to perform the Delegated Services including (a) all those records required to be prepared and maintained by the Fund under the Investment Company Act of 1940, as amended, by other applicable Securities Laws, rules and regulations and by state laws and (b) such books and records as are necessary for UBS PaineWebber to perform all of the services it agrees to provide in this Agreement and the Exhibits attached hereto. The books and records pertaining to the Fund, which are in the possession or under the control of UBS PaineWebber, shall be the property of the Fund. The Fund and Authorized Persons shall have access to such books and records in the possession or under the control of UBS PaineWebber at all times during UBS PaineWebber's normal business hours. Upon the reasonable request of the Fund, copies of any such books and records in the possession or under the control of UBS PaineWebber shall be provided by UBS PaineWebber to the Fund or to an Authorized Person. Upon reasonable notice by the Fund, UBS PaineWebber shall make available during regular business hours its facilities and premises employed in connection with its performance of this Agreement for reasonable visits by the Fund, any agent or person designated by the Fund or any regulatory agency having authority over the Fund. In performing the Delegated Services, UBS PaineWebber shall be subject to the same record keeping and other responsibilities, duties and standards of care and shall have the same rights, benefits (other than compensation), liabilities and limitations as are applicable to PFPC under the Transfer Agency Services and Shareholder Services Agreement with respect to the performance of the same services. 3. COMPENSATION. As compensation for performance of the Delegated Services, PFPC will pay to UBS PaineWebber the fees and expense reimbursements set forth in Exhibit B hereto, together with such other amounts as may be agreed from time to time in writing by PFPC and UBS PaineWebber, provided that PFPC shall not be obligated to pay such compensation to UBS PaineWebber with respect to any invoice for which PFPC has not received payment from the Fund pursuant to the Transfer Agency Services and Shareholder Services Agreement. 4. DURATION AND TERMINATION. This Agreement shall be effective upon the date first above written and, unless sooner terminated as set forth herein, shall continue with respect to the Transfer Agency Services and Shareholder Services Agreement for so long as such Transfer Agency Services and Shareholder Services Agreement remains in effect. This Agreement may be terminated for cause upon at least thirty (30) days prior written notice. For purposes of this paragraph, "cause" shall mean: (a) in the case of a termination by UBS PaineWebber, the failure of PFPC to timely pay the compensation to UBS PaineWebber that is provided for hereunder; and (b) in the case of a termination by PFPC, (i) UBS PaineWebber's material breach of this Agreement causing it to fail to substantially perform its duties under this Agreement, provided that UBS PaineWebber has received written notice from PFPC specifying the material breach and has not corrected such breach within a 15-day period; (ii) financial difficulties of UBS PaineWebber evidenced by the authorization or commencement of a voluntary or involuntary bankruptcy under 3 the U.S. Bankruptcy Code or any applicable bankruptcy or similar law, or under any applicable law of any jurisdiction relating to the liquidation or reorganization of debt, the appointment of a receiver or to the modification or alleviation of the rights of creditors; and (iii) issuance of an administrative or court order against UBS PaineWebber with regard to the material violation or alleged material violation of the Securities Laws or other applicable laws related to the performance of transfer agency-related services. 5. MISCELLANEOUS. (a) Unless the context otherwise requires, all capitalized terms not otherwise defined herein shall have the same meanings as in the Transfer Agency Services and Shareholder Services Agreement attached as Exhibit 1 hereto. (b) It is understood and agreed that all Delegated Services performed by UBS PaineWebber under this Agreement will be as an independent contractor and not as an employee or agent of PFPC or the Fund. (c ) This Agreement embodies the entire agreement and understanding between the parties and supersedes all prior agreements and understandings relating to the subject matter hereof. (d) The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. (e) This Agreement shall be deemed to be a contract made in Delaware and governed by Delaware law without regard to principles of conflicts of law. (f) If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. (g) This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. (h) The facsimile signature of any party to this Agreement shall constitute the valid and binding execution hereof by such party. (i) This Agreement, or any term thereof, may be changed or waived only by a written amendment, signed by the party against whom enforcement of such change or waiver is sought. 4 IN WITNESS WHEREOF, PFPC and UBS PaineWebber have caused this Agreement to be executed by their duly authorized representatives as of the date first above written. PFPC INC. By: Stephen M. Wynn ----------------------- Title: Executive Vice President UBS PAINEWEBBER INC. By: ---------------------------------------- Title: ------------------------------------- EXHIBIT A DELEGATED SERVICES The following transfer agency-related services that are required to be performed under the Transfer Agency Services and Shareholder Services Agreement are delegated by PFPC to UBS PaineWebber: a. Establish and maintain a dedicated service center with sufficient facilities, equipment and skilled personnel to address all shareholder inquiries received by telephone, mail or in-person regarding the Fund and their accounts; b. Provide timely execution of redemptions, exchanges and non-financial transactions directed to UBS PaineWebber Financial Advisors and specifically requested by Fund shareholders; c. Issue checks from proceeds of Fund share redemptions to shareholders as directed by the shareholders or their agents; d. Process and maintain shareholder account registration information; e. With respect to customer accounts maintained through UBS PaineWebber Inc., review new applications and correspond with shareholders to complete or correct information; f. Prepare and mail monthly or quarterly consolidated account statements that reflect PACE Fund balances and transactions (such information to be combined with other activity and holdings in investors' brokerage accounts); g. Establish and maintain a dedicated service center with sufficient facilities, equipment and skilled personnel to address all branch inquiries regarding operational issues and performance; h. Capture, process and mail required tax information to shareholders and report this information to the Internal Revenue Service; i. Provide the capability to margin PACE Funds held within the client's brokerage account; j. Prepare and provide shareholder registrations for mailing of proxies, reports and other communications to shareholders; k. Develop, maintain and issue checks from the UBS PaineWebber systematic withdrawal plan offered within the client's brokerage account; 6 l. Maintain duplicate shareholder records and reconcile those records with those at the transfer agent; m. Process and mail duplicate UBS PaineWebber monthly or quarterly statements to UBS PaineWebber Financial Advisors; n. Establish and maintain shareholder distribution options (i.e., election to have dividends paid in cash, rather than reinvested in Fund shares); o. Process and mail purchase, redemption and exchange confirmations to Fund shareholders and UBS PaineWebber Financial Advisors; p. Issue dividend checks to shareholders that select cash distributions to their brokerage account; q. Develop and maintain the automatic investment plan offered within the client's brokerage account; and r. Provide bank-to-bank wire transfer capabilities related to transactions in Fund shares. 7 EX-8.(D) 13 a2059133zex-8_d.txt EXHIBIT 8(D) Exhibit No. 8(d) TRANSFER AGENCY AND RELATED SERVICES AGREEMENT THIS AGREEMENT is made as of November 27, 2000 by and between PFPC INC., a Massachusetts corporation ("PFPC"), and PAINEWEBBER PACE SELECT ADVISORS TRUST, a Delaware business trust (the "Fund"). W I T N E S S E T H: WHEREAS, the Fund is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Fund wishes to retain PFPC to serve as transfer agent, registrar, dividend disbursing agent and related services agent with respect to the Retail Share Classes (as hereinafter defined) to the Fund's Portfolios (as hereinafter defined) and PFPC wishes to furnish such services. NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: 1. DEFINITIONS. AS USED IN THIS AGREEMENT: (a) "1933 ACT" means the Securities Act of 1933, as amended. (b) "1934 ACT" means the Securities Exchange Act of 1934, as amended. (c) "AUTHORIZED PERSON" means any officer of the Fund and any other person duly authorized by the Fund's Board of Trustees ("Board") to give Oral Instructions and Written Instructions on behalf of the Fund and listed on the Authorized Persons Appendix attached hereto and made a part hereof or any amendment thereto as may be received by PFPC. An Authorized 1 Person's scope of authority may be limited by the Fund by setting forth such limitation in the Authorized Persons Appendix. (d) "CEA" means the Commodities Exchange Act, as amended. (e) "ORAL INSTRUCTIONS" mean oral instructions received by PFPC from an Authorized Person or from a person reasonably believed by PFPC to be an Authorized Person. PFPC may, in its sole discretion in each separate instance, consider and rely upon instructions it receives from an Authorized Person via electronic mail as Oral Instructions. (f) "PORTFOLIO" means a series or investment portfolio of the Fund identified on Exhibit A hereto, as the same may from time to time be amended. (g) "RETAIL SHARE CLASSES" mean Class A, B, C and Y share classes of a Portfolio. (h) "SEC" means the Securities and Exchange Commission. (i) "SECURITIES LAWS" mean the 1933 Act, the 1934 Act, the 1940 Act and the CEA. (j) "SHARES" mean the shares of common stock or beneficial interest of any series or class of the Fund. (k) "WRITTEN INSTRUCTIONS" mean (i) written instructions signed by an Authorized Person and received by PFPC or (ii) trade instructions transmitted (and received by PFPC) by means of an electronic transaction reporting system access to which requires use of a password or other authorized identifier. The instructions may be delivered by hand, mail, tested telegram, cable, telex or facsimile sending device. 2. APPOINTMENT. The Fund hereby appoints PFPC to serve as transfer agent, registrar, dividend disbursing agent and related services agent to the Fund with respect to the Retail Share 2 Classes of each Portfolio in accordance with the terms set forth in this Agreement. PFPC accepts such appointment and agrees to furnish such services. 3. DELIVERY OF DOCUMENTS. The Fund (or a particular Portfolio, as appropriate) has provided or, where applicable, will provide PFPC with the following: (a) Certified or authenticated copies of the resolutions of the Fund's Board approving the appointment of PFPC to provide services to the Fund and approving this Agreement; (b) A copy of each executed broker-dealer agreement with respect to each Fund; and (c) Copies (certified or authenticated if requested by PFPC) of any post-effective amendment to the Fund's registration statement, advisory agreement, distribution agreement, shareholder servicing agreement and all amendments or supplements to the foregoing upon request. 4. COMPLIANCE WITH RULES AND REGULATIONS. PFPC undertakes to comply with all applicable requirements of the Securities Laws and any laws, rules and regulations of governmental authorities having jurisdiction with respect to the duties to be performed by PFPC hereunder. Except as specifically set forth herein, PFPC assumes no responsibility for such compliance by the Fund or any of its Portfolios. 5. INSTRUCTIONS. (a) Unless otherwise provided in this Agreement, PFPC shall act only upon Oral Instructions and Written Instructions. (b) PFPC shall be entitled to rely upon any Oral Instructions and Written Instructions it receives from an Authorized Person pursuant to this Agreement. PFPC may assume that any Oral Instruction or Written Instruction received hereunder is not in any way inconsistent 3 with the provisions of organizational documents or of any vote, resolution or proceeding of the Fund's Board or of the Fund's shareholders, unless and until PFPC receives Written Instructions to the contrary. (c) The Fund agrees to forward to PFPC Written Instructions confirming Oral Instructions so that PFPC receives the Written Instructions by the close of business on the next day after such Oral Instructions are received. The fact that such confirming Written Instructions are not received by PFPC shall in no way invalidate the transactions or enforceability of the transactions authorized by the Oral Instructions. Where Oral Instructions or Written Instructions reasonably appear to have been received from an Authorized Person, PFPC shall incur no liability to the Fund in acting upon such Oral Instructions or Written Instructions provided that PFPC's actions comply with the other provisions of this Agreement. 6. RIGHT TO RECEIVE ADVICE. (a) ADVICE OF THE FUND. If PFPC is in doubt as to any action it should or should not take, PFPC may request directions or advice, including Oral Instructions or Written Instructions, from the Fund. (b) ADVICE OF COUNSEL. If PFPC shall be in doubt as to any question of law pertaining to any action it should or should not take, PFPC may request advice at its own cost from such counsel of its own choosing (who may be counsel for the Fund, the Fund's investment adviser or PFPC, at the option of PFPC). (c) CONFLICTING ADVICE. In the event of a conflict between directions, advice or Oral Instructions or Written Instructions PFPC receives from the Fund, and the advice it receives from counsel, PFPC may rely upon and follow the advice of counsel. In the event PFPC so relies 4 on the advice of counsel, PFPC remains liable for any action or omission on the part of PFPC which constitutes willful misfeasance, bad faith, negligence or reckless disregard by PFPC of any duties, obligations or responsibilities set forth in this Agreement. (d) PROTECTION OF PFPC. PFPC shall be protected in any action it takes or does not take in reliance upon directions, advice or Oral Instructions or Written Instructions it receives from the Fund or from counsel and which PFPC believes, in good faith, to be consistent with those directions, advice or Oral Instructions or Written Instructions. Nothing in this section shall be construed so as to impose an obligation upon PFPC (i) to seek such directions, advice or Oral Instructions or Written Instructions, or (ii) to act in accordance with such directions, advice or Oral Instructions or Written Instructions unless, under the terms of other provisions of this Agreement, the same is a condition of PFPC's properly taking or not taking such action. Nothing in this Subparagraph shall excuse PFPC when an action or omission on the part of PFPC constitutes willful misfeasance, bad faith, negligence or reckless disregard by PFPC of any duties, obligations or responsibilities set forth in this Agreement. 7. RECORDS; VISITS. PFPC shall prepare and maintain in complete and accurate form all books and records necessary for it to serve as transfer agent, registrar, dividend disbursing agent and related services agent to each Portfolio, including (a) all those records required to be prepared and maintained by the Fund under the 1940 Act, by other applicable Securities Laws, rules and regulations and by state laws and (b) such books and records as are necessary for PFPC to perform all of the services it agrees to provide in this Agreement and any appendices attached hereto, including but not limited to the books and records necessary to effect the conversion of Class B shares, the calculation of any contingent deferred sales charges and the calculation of front-end sales 5 charges. The books and records pertaining to the Fund, which are in the possession or under the control of PFPC, shall be the property of the Fund. The Fund and Authorized Persons shall have access to such books and records in the possession or under the control of PFPC at all times during PFPC's normal business hours. Upon the reasonable request of the Fund, copies of any such books and records in the possession or under the control of PFPC shall be provided by PFPC to the Fund or to an Authorized Person. Upon reasonable notice by the Fund, PFPC shall make available during regular business hours its facilities and premises employed in connection with its performance of this Agreement for reasonable visits by the Fund, any agent or person designated by the Fund or any regulatory agency having authority over the Fund. 8. CONFIDENTIALITY. PFPC agrees to keep confidential all records of the Fund and information relating to the Fund and its shareholders (past, present and future), its investment adviser and its principal underwriter, unless the release of such records or information is otherwise consented to, in writing, by the Fund prior to its release. The Fund agrees that such consent shall not be unreasonably withheld and may not be withheld where PFPC may be exposed to civil or criminal contempt proceedings or when required to divulge such information or records to duly constituted authorities. 9. COOPERATION WITH ACCOUNTANTS. PFPC shall cooperate with the Fund's independent public accountants and shall take all reasonable actions in the performance of its obligations under this Agreement to ensure that the necessary information is made available to such accountants for the expression of their opinion, as required by the Fund. 10. DISASTER RECOVERY. PFPC shall enter into and shall maintain in effect with appropriate parties one or more agreements making reasonable provisions for periodic backup of 6 computer files and data with respect to the Fund and emergency use of electronic data processing equipment. In the event of equipment failures, PFPC shall, at no additional expense to the Fund, take reasonable steps to minimize service interruptions. PFPC shall have no liability with respect to the loss of data or service interruptions caused by equipment failure, provided such loss or interruption is not caused by PFPC's own willful misfeasance, bad faith, negligence or reckless disregard of its duties or obligations under this Agreement and provided further that PFPC has complied with the provisions of this Paragraph 10. 11. COMPENSATION. As compensation for services rendered by PFPC during the term of this Agreement, the Fund will pay to PFPC a fee or fees as may be agreed to from time to time in writing by the Fund and PFPC. 12. INDEMNIFICATION. (a) The Fund agrees to indemnify and hold harmless PFPC and its affiliates from all taxes, charges, expenses, assessments, penalties, claims and liabilities (including, without limitation, liabilities arising under the Securities Laws and any state and foreign securities and blue sky laws, and amendments thereto), and expenses, including (without limitation) reasonable attorneys' fees and disbursements, arising directly or indirectly from (i) any action or omission to act which PFPC takes (a) at the request or on the direction of or in reliance on the advice of the Fund or (b) upon Oral Instructions or Written Instructions or (ii) the acceptance, processing and/or negotiation of checks or other methods utilized for the purchase of Shares. Neither PFPC, nor any of its affiliates, shall be indemnified against any liability (or any expenses incident to such liability) arising out of PFPC's or its affiliates' own willful misfeasance, bad faith, negligence or reckless disregard of its duties and obligations under this Agreement. The Fund's liability to PFPC for 7 PFPC's acceptance, processing and/or negotiation of checks or other methods utilized for the purchase of Shares shall be limited to the extent of the Fund's policy(ies) of insurance that provide for coverage of such liability, and the Fund's insurance coverage shall take precedence over any obligations or liability incurred under this Agreement. (b) PFPC agrees to indemnify and hold harmless the Fund from all taxes, charges, expenses, assessments, penalties, claims and liabilities arising from PFPC's obligations pursuant to this Agreement (including, without limitation, liabilities arising under the Securities Laws, and any state and foreign securities and blue sky laws, and amendments thereto) and expenses, including (without limitation) reasonable attorneys' fees and disbursements arising directly or indirectly out of PFPC's or its nominee's own willful misfeasance, bad faith, negligence or reckless disregard of its duties and obligations under this Agreement. (c) In order that the indemnification provisions contained in this Paragraph 12 shall apply, upon the assertion of a claim for which either party may be required to indemnify the other, the party seeking indemnification shall promptly notify the other party of such assertion, and shall keep the other party advised with respect to all developments concerning such claim. The party who may be required to indemnify shall have the option to participate with the party seeking indemnification in the defense of such claim. The party seeking indemnification shall in no case confess any claim or make any compromise in any case in which the other party may be required to indemnify it except with the other party's prior written consent. (d) The members of the Board of the Fund, its officers and Shareholders, or of any Portfolio thereof, shall not be liable for any obligations of the Fund, or any such Portfolio, under this Agreement, and PFPC agrees that in asserting any rights or claims under this Agreement, it shall 8 look only to the assets and property of the Fund or the particular Portfolio in settlement of such rights or claims and not to such members of the Board, its officers or Shareholders. PFPC further agrees that it will look only to the assets and property of a particular Portfolio of the Fund, should the Fund have established separate series, in asserting any rights or claims under this Agreement with respect to services rendered with respect to that Portfolio and will not seek to obtain settlement of such rights or claims from the assets of any other Portfolio of the Fund. 13. INSURANCE. PFPC shall maintain insurance of the types and in the amounts deemed by it to be appropriate. To the extent that policies of insurance may provide for coverage of claims for liability or indemnity by the parties set forth in this Agreement, the contracts of insurance shall take precedence, and no provision of this Agreement shall be construed to relieve an insurer of any obligation to pay claims to the Fund, PFPC or other insured party which would otherwise be a covered claim in the absence of any provision of this Agreement. 14. SECURITY. PFPC represents and warrants that, to the best of its knowledge, the various procedures and systems which PFPC has implemented with regard to the safeguarding from loss or damage attributable to fire, theft or any other cause (including provision for twenty-four hours a day restricted access) of the Fund's blank checks, records and other data and PFPC's equipment, facilities and other property used in the performance of its obligations hereunder are adequate, and that it will make such changes therein from time to time as in its judgment are required for the secure performance of its obligations hereunder. PFPC shall review such systems and procedures on a periodic basis, and the Fund shall have reasonable access to review these systems and procedures. 9 15. RESPONSIBILITY OF PFPC. (a) PFPC shall be under no duty to take any action on behalf of the Fund except as specifically set forth herein or as may be specifically agreed to by PFPC in writing. PFPC shall be obligated to exercise care and diligence in the performance of its duties hereunder, to act in good faith and to use its best efforts in performing services provided for under this Agreement. PFPC shall be liable for any damages arising out of PFPC's failure to perform its duties under this Agreement to the extent such damages arise out of PFPC's willful misfeasance, bad faith, negligence or reckless disregard of such duties. (b) Without limiting the generality of the foregoing or of any other provision of this Agreement, PFPC shall not be under any duty or obligation to inquire into and shall not be liable for (A) the validity or invalidity or authority or lack thereof of any Oral Instruction or Written Instruction, notice or other instrument which conforms to the applicable requirements of this Agreement, and which PFPC reasonably believes to be genuine; or (B) subject to Paragraph 10, delays or errors or loss of data occurring by reason of circumstances beyond PFPC's control, including acts of civil or military authority, national emergencies, labor difficulties, fire, flood, catastrophe, acts of God, insurrection, war, riots or failure of the mails, transportation, communication or power supply. (c) Notwithstanding anything in this Agreement to the contrary, neither PFPC nor its affiliates shall be liable to the Fund for any consequential, special or indirect losses or damages which the Fund may incur or suffer by or as a consequence of PFPC's or its affiliates' performance of the services provided hereunder, whether or not the likelihood of such losses or damages was known by PFPC or its affiliates. 10 (d) Notwithstanding anything in this Agreement to the contrary, the Fund shall not be liable to PFPC nor its affiliates for any consequential, special or indirect losses or damages which PFPC or its affiliates may incur or suffer by or as a consequence of PFPC's performance of the services provided hereunder, whether or not the likelihood of such losses or damages was known by the Fund. 16. DESCRIPTION OF SERVICES. (a) SERVICES PROVIDED ON AN ONGOING BASIS, IF APPLICABLE. (i) Calculate 12b-1 payments to financial intermediaries, including brokers, and financial intermediary trail commissions; (ii) Develop, monitor and maintain, in consultation with the Fund, all systems necessary to implement and operate the four-tier distribution system, including Class B conversion feature, as described in the registration statement and related documents of the Fund, as they may be amended from time to time; (iii) Calculate contingent deferred sales charge amounts upon redemption of Fund shares and deduct such amounts from redemption proceeds; (iv) Calculate front-end sales load amounts at time of purchase of shares; (v) Determine dates of Class B conversion and effect the same; (vi) Establish and maintain proper shareholder registrations; (vii) Review new applications and correspond with shareholders to complete or correct information; (viii) Direct payment processing of checks or wires; (ix) Prepare and certify stockholder lists in conjunction with proxy solicitations; (x) Prepare and mail to shareholders confirmation of activity; 11 (xi) Provide toll-free lines for direct shareholder use, plus customer liaison staff for on-line inquiry response; (xii) Send duplicate confirmations to broker-dealers of their clients' activity, whether executed through the broker-dealer or directly with PFPC; (xiii) Provide periodic shareholder lists, outstanding share calculations and related statistics to the Fund; (xiv) Provide detailed data for underwriter/broker confirmations; (xv) Prepare and mail required calendar and taxable year-end tax and statement information (including forms 1099-DIV and 1099-B and accompanying statements); (xvi) Notify on a daily basis the investment adviser, accounting agent, and custodian of fund activity; (xvii) Perform, itself or through a delegate, all of the services, whether or not included within the scope of another paragraph of this Paragraph 16(a), specified on Exhibit B hereto; and (xviii) Perform other participating broker-dealer shareholder services as may be agreed upon from time to time. (b) SERVICES PROVIDED BY PFPC UNDER ORAL INSTRUCTIONS OR WRITTEN INSTRUCTIONS. (i) Accept and post daily Fund and class purchases and redemptions; (ii) Accept, post and perform shareholder transfers and exchanges; (iii) Pay dividends and other distributions; and (iv) Solicit and tabulate proxies. (c) PURCHASE OF SHARES. PFPC shall issue and credit an account of an investor, in the manner described in the Fund's prospectus, once it receives: (i) A purchase order; (ii) Proper information to establish a shareholder account; and 12 (iii) Confirmation of receipt or crediting of funds for such order to the Fund's custodian. (d) REDEMPTION OF SHARES. PFPC shall redeem Shares only if that function is properly authorized by the Fund's organizational documents or resolutions of the Fund's Board. Shares shall be redeemed and payment therefor shall be made in accordance with the Fund's or Portfolio's prospectus. (i) BROKER-DEALER ACCOUNTS. When a broker-dealer notifies PFPC of a redemption desired by a customer, and the Fund's custodian (the "Custodian") has provided PFPC with funds, PFPC shall (a) transfer by Fedwire or other agreed upon electronic means such redemption payment to the broker-dealer for the credit to, and for the benefit of, the customer's account or (b) shall prepare and send a redemption check to the broker-dealer, made payable to the broker-dealer on behalf of its customer. (ii) FUND-ONLY ACCOUNTS. If Shares (or appropriate instructions) are received in proper form, at the Fund's request Shares may be redeemed before the funds are provided to PFPC from the Custodian. If the recordholder has not directed that redemption proceeds be wired, when the Custodian provides PFPC with funds, the redemption check shall be sent to and made payable to the recordholder, unless transfer authorizations are signed by the recordholder when Shares are 13 held in book-entry form. (e) DIVIDENDS AND DISTRIBUTIONS. Upon receipt of a resolution of the Fund's Board authorizing the declaration and payment of dividends and distributions, PFPC shall issue dividends and distributions declared by the Fund in Shares, or, upon shareholder election, pay such dividends and distributions in cash, if provided for in the appropriate Fund's or Portfolio's prospectus. Such issuance or payment, as well as payments upon redemption as described above, shall be made after deduction and payment of the required amount of funds to be withheld in accordance with any applicable tax law or other laws, rules or regulations. PFPC shall mail to the Fund's shareholders and the IRS and other appropriate taxing authorities such tax forms, or permissible substitute forms, and other information relating to dividends and distributions paid by the Fund (including designations of the portions of distributions of net capital gain that are 20% rate gain distributions and 28% rate gain distributions pursuant to IRS Notice 97-64) as are required to be filed and mailed by applicable law, rule or regulation within the time required thereby. PFPC shall prepare, maintain and file with the IRS and other appropriate taxing authorities reports relating to all dividends above a stipulated amount paid by the Fund to its shareholders as required by tax or other law, rule or regulation. (f) SHAREHOLDER ACCOUNT SERVICES. (i) PFPC will arrange, in accordance with the appropriate Fund's or Portfolio's prospectus, for issuance of Shares obtained through: - The transfer of funds from shareholders' accounts at financial institutions, provided PFPC receives advance Oral or Written Instruction of such transfer; - Any pre-authorized check plan; and - Direct purchases through broker wire orders, checks and 14 applications. (ii) PFPC will arrange, in accordance with the appropriate Fund's or Portfolio's prospectus, for a shareholder's: - Exchange of Shares for shares of another fund with which the Fund has exchange privileges; - Automatic redemption from an account where that shareholder participates in a systematic withdrawal plan; and/or - Redemption of Shares from an account with a checkwriting privilege. (g) COMMUNICATIONS TO SHAREHOLDERS. Upon timely Written Instructions, PFPC shall mail all communications by the Fund to its shareholders, including: (i) Reports to shareholders; (ii) Confirmations of purchases and sales of Fund shares; (iii) Monthly or quarterly statements; (iv) Dividend and distribution notices; (v) Proxy material; and (vi) Tax forms (including substitute forms) and accompanying information containing the information required by paragraph 16(e). If requested by the Fund, PFPC will receive and tabulate the proxy cards for the meetings of the Fund's shareholders and supply personnel to serve as inspectors of election. (h) RECORDS. PFPC shall maintain those records required by the Securities Laws and any laws, rules and regulations of governmental authorities having jurisdiction with respect to the duties to be performed by PFPC hereunder with respect to shareholder accounts or by transfer agents generally, including records of the accounts for each shareholder showing the following information: 15 (i) Name, address and United States Taxpayer Identification or Social Security number; (ii) Number and class of Shares held; (iii) Historical information regarding the account of each shareholder, including dividends and distributions paid, their character (e.g. ordinary income, net capital gain (including 20% rate gain and 28% rate gain), exempt-interest, foreign tax-credit and dividends received deduction eligible) for federal income tax purposes and the date and price for all transactions on a shareholder's account; (iv) Any stop or restraining order placed against a shareholder's account; (v) Any correspondence relating to the current maintenance of a shareholder's account; (vi) Information with respect to withholdings; and (vii) Any information required in order for the transfer agent to perform any calculations contemplated or required by this Agreement. (i) SHAREHOLDER INSPECTION OF STOCK RECORDS. Upon a request from any Fund shareholder to inspect stock records, PFPC will notify the Fund, and the Fund will issue instructions granting or denying each such request. Unless PFPC has acted contrary to the Fund's instructions, the Fund agrees and does hereby release PFPC from any liability for refusal of permission for a particular shareholder to inspect the Fund's shareholder records. 17. DURATION AND TERMINATION. (a) This Agreement shall be effective on the date first written above and shall continue for a period of three (3) years (the "Initial Term"). Upon the expiration of the Initial Term, this Agreement shall automatically renew for successive terms of one (1) year ("Renewal Terms") each provided that it may be terminated by either party during a Renewal Term upon written notice 16 given at least ninety (90) days prior to termination. During either the Initial Term or the Renewal Terms, this Agreement may also be terminated on an earlier date by either party for cause. (b) With respect to the Fund, cause includes, but is not limited to, (i) PFPC's material breach of this Agreement causing it to fail to substantially perform its duties under this Agreement. In order for such material breach to constitute "cause" under this Paragraph, PFPC must receive written notice from the Fund specifying the material breach and PFPC shall not have corrected such breach within a 15-day period; (ii) financial difficulties of PFPC evidenced by the authorization or commencement of a voluntary or involuntary bankruptcy under the U.S. Bankruptcy Code or any applicable bankruptcy or similar law, or under any applicable law of any jurisdiction relating to the liquidation or reorganization of debt, the appointment of a receiver or to the modification or alleviation of the rights of creditors; and (iii) issuance of an administrative or court order against PFPC with regard to the material violation or alleged material violation of the Securities Laws or other applicable laws related to its business of performing transfer agency services; (c) With respect to PFPC, cause includes, but is not limited to, the failure of the Fund to pay the compensation set forth in writing pursuant to Paragraph 11 of this Agreement. (d) Any notice of termination for cause in conformity with subparagraphs (a), (b) and (c) of this Paragraph by the Fund shall be effective thirty (30) days from the date of any such notice. Any notice of termination for cause by PFPC shall be effective 90 days from the date of such notice. (e) Upon the termination hereof, the Fund shall pay to PFPC such compensation as may be due for the period prior to the date of such termination. In the event that the Fund 17 designates a successor to any of PFPC's obligations under this Agreement, PFPC shall, at the direction and expense of the Fund, transfer to such successor all relevant books, records and other data established or maintained by PFPC hereunder including, a certified list of the shareholders of the Fund or any Portfolio thereof with name, address, and if provided, taxpayer identification or Social Security number, and a complete record of the account of each shareholder. To the extent that PFPC incurs expenses related to a transfer of responsibilities to a successor, other than expenses involved in PFPC's providing the Fund's books and records described in the preceding sentence to the successors, PFPC shall be entitled to be reimbursed for such extraordinary expenses, including any out-of-pocket expenses reasonably incurred by PFPC in connection with the transfer. (f) Any termination effected pursuant to this Paragraph shall not affect the rights and obligations of the parties under Paragraph 12 hereof. (g) Notwithstanding the foregoing, this Agreement shall terminate with respect to the Fund or any Portfolio or Retail Share Class upon the liquidation, merger, or other dissolution of the Fund or Portfolio or Retail Share Class or upon the Fund's ceasing to be a registered investment company. 18. REGISTRATION AS A TRANSFER AGENT. PFPC represents that it is currently registered with the appropriate federal agency for the registration of transfer agents, or is otherwise permitted to lawfully conduct its activities without such registration and that it will remain so registered or able to so conduct such activities for the duration of this Agreement. PFPC agrees that it will promptly notify the Fund in the event of any material change in its status as a registered transfer agent. Should PFPC fail to be registered with the SEC as a transfer agent at any time during this Agreement, and such failure to register does not permit PFPC to lawfully conduct its activities, the Fund may, on 18 written notice to PFPC, terminate this Agreement upon five days written notice to PFPC. 19. NOTICES. All notices and other communications, including Written Instructions, shall be in writing or by confirming telegram, cable, telex or facsimile sending device. Notices shall be addressed (a) if to PFPC, at 400 Bellevue Parkway, Wilmington, Delaware 19809; (b) if to the Fund, at the address of the Fund or (c) if to neither of the foregoing, at such other address as shall have been given by like notice to the sender of any such notice or other communication by the other party. If notice is sent by confirming telegram, cable, telex or facsimile sending device during regular business hours, it shall be deemed to have been given immediately; if sent at a time other than regular business hours, such notice shall be deemed to have been given at the opening of the next business day. If notice is sent by first-class mail, it shall be deemed to have been given three days after it has been mailed. If notice is sent by messenger, it shall be deemed to have been given on the day it is delivered. All postage, cable, telegram, telex and facsimile sending device charges arising from the sending of a notice hereunder shall be paid by the sender. 20. AMENDMENTS. This Agreement, or any term thereof, may be changed or waived only by a written amendment, signed by the party against whom enforcement of such change or waiver is sought. 21. ADDITIONAL PORTFOLIOS. In the event that the Fund establishes one or more investment series in addition to and with respect to which it desires to have PFPC render services as transfer agent, registrar, dividend disbursing agent and related services agent under the terms set forth in this Agreement, it shall so notify PFPC in writing, and PFPC shall agree in writing to provide such services, and such investment series shall become a Portfolio hereunder, subject to such additional terms, fees and conditions as are agreed to by the parties. 19 22. DELEGATION; ASSIGNMENT. (a) PFPC may, at its own expense, assign its rights and delegate its duties hereunder to any wholly-owned direct or indirect subsidiary of The PNC Financial Services Group, Inc., provided that (i) PFPC gives the Fund thirty (30) days' prior written notice; (ii) the delegate (or assignee) agrees with PFPC and the Fund to comply with all relevant provisions of the Securities Laws; and (iii) PFPC and such delegate (or assignee) promptly provide such information as the Fund may request, and respond to such questions as the Fund may ask, relative to the delegation (or assignment), including (without limitation) the capabilities of the delegate (or assignee). The assignment and delegation of any of PFPC's duties under this subparagraph (a) shall not relieve PFPC of any of its responsibilities or liabilities under this Agreement. (b) PFPC may delegate to PaineWebber Incorporated with respect to PaineWebber brokerage clients who are also Fund shareholders its obligation to perform the services described on Exhibit B hereto. In addition, PFPC may assign its rights and delegate its other duties hereunder to PaineWebber Incorporated or Mitchell Hutchins Asset Management Inc. or an affiliated person of either, provided that (i) PFPC gives the Fund thirty (30) days' prior written notice; (ii) the delegate (or assignee) agrees with PFPC and the Fund to comply with all relevant provisions of the Securities Laws; and (iii) PFPC and such delegate (or assignee) promptly provide such information as the Fund may request, and respond to such questions as the Fund may ask, relative to the delegation (or assignment), including (without limitation) the capabilities of the delegate (or assignee). In assigning its rights and delegating its duties under this Subparagraph, PFPC may impose such conditions or limitations as it determines appropriate including the condition that PFPC be retained as a sub-transfer agent. 20 (c) In the event that PFPC assigns its rights and delegates its duties under this Subparagraph, no amendment of the terms of this Agreement shall become effective without the written consent of PFPC. 23. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 24. FURTHER ACTIONS. Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof. 25. MISCELLANEOUS. (a) ENTIRE AGREEMENT. This Agreement embodies the entire agreement and understanding between the parties and supersedes all prior agreements and understandings relating to the subject matter hereof, provided that the parties may embody in one or more separate documents their agreement, if any, with respect to services to be performed and fees payable under this Agreement. (b) CAPTIONS. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. (c) GOVERNING LAW. This Agreement shall be deemed to be a contract made in Delaware and governed by Delaware law, without regard to principles of conflicts of law. (d) PARTIAL INVALIDITY. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. 21 (e) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. (f) FACSIMILE SIGNATURES. The facsimile signature of any party to this Agreement shall constitute the valid and binding execution hereof by such party. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written. PFPC INC. By:/s/ Stephen M. Wynn ---------------------- Title: Executive Vice President PAINEWEBBER PACE SELECT ADVISORS TRUST By:/s/ Paul H. Schubert ---------------------- Title: VP & Treasurer 22 AUTHORIZED PERSONS APPENDIX NAME (TYPE) SIGNATURE - --------------------------------- --------------------------------- - --------------------------------- --------------------------------- - --------------------------------- --------------------------------- - --------------------------------- --------------------------------- - --------------------------------- --------------------------------- - --------------------------------- --------------------------------- - --------------------------------- --------------------------------- 23 EXHIBIT A PACE Government Securities Fixed Income Investments PACE Intermediate Fixed Income Investments PACE Strategic Fixed Income Investments PACE Municipal Fixed Income Investments PACE Global Fixed Income Investments PACE Large Company Value Equity Investments PACE Large Company Growth Equity Investments PACE Small/Medium Company Value Equity Investments PACE Small/Medium Company Growth Equity Investments PACE International Equity Investments PACE International Emerging Markets Equity Investments 24 EXHIBIT B DELEGATED SERVICES a. Establish and maintain a dedicated service center with sufficient facilities, equipment and skilled personnel to address all shareholder inquiries received by telephone, mail or in-person regarding the Funds and their accounts; b. Provide timely execution of redemptions, exchanges and non-financial transactions directed to PaineWebber Financial Advisors and specifically requested by Fund shareholders; c. Issue checks from proceeds of Fund share redemptions to shareholders as directed by the shareholders or their agents; d. Process and maintain shareholder account registration information; e. With respect to customer accounts maintained through PaineWebber Incorporated, review new applications and correspond with shareholders to complete or correct information; f. Prepare and mail monthly or quarterly consolidated account statements that reflect PACE Fund balances and transactions (such information to be combined with other activity and holdings in investors' brokerage accounts); g. Establish and maintain a dedicated service center with sufficient facilities, equipment and skilled personnel to address all branch inquiries regarding operational issues and performance; h. Capture, process and mail required tax information to shareholders and report this information to the Internal Revenue Service; i. Provide the capability to margin PACE Funds held within the client's brokerage account; j. Prepare and provide shareholder registrations for mailing of proxies, reports and other communications to shareholders; k. Develop, maintain and issue checks from the PaineWebber systematic withdrawal plan offered within the client's brokerage account; l. Maintain duplicate shareholder records and reconcile those records with those at the transfer agent; m. Process and mail duplicate PaineWebber monthly or quarterly statements to PaineWebber Financial Advisors; 25 n. Establish and maintain shareholder distribution options (i.e., election to have dividends paid in cash, rather than reinvested in Fund shares); o. Process and mail purchase, redemption and exchange confirmations to Fund shareholders and PaineWebber Financial Advisors; p. Issue dividend checks to shareholders that select cash distributions to their brokerage account; q. Develop and maintain the automatic investment plan offered within the client's brokerage account; and r. Provide bank-to-bank wire transfer capabilities related to transactions in Fund shares. EX-8.(E) 14 a2059133zex-8_e.txt EXHIBIT 8(E) Exhibit No. 8(e) TRANSFER AGENCY - RELATED SERVICES DELEGATION AGREEMENT THIS AGREEMENT is made as of November 27, 2000 by and between PFPC INC., a Massachusetts corporation ("PFPC") and PAINEWEBBER INCORPORATED, a Delaware corporation ("PaineWebber"). WHEREAS, PFPC has entered into a Transfer Agency and Related Services Agreement ("Transfer Agency and Related Services Agreement") to provide transfer agency and related services with respect to the Retail Share Class of certain series of PaineWebber PACE Select Advisors Trust (the "Fund"); and WHEREAS, under the Transfer Agency and Related Services Agreement PFPC is authorized to delegate to PaineWebber its obligation to perform services thereunder with respect to PaineWebber brokerage clients who are also shareholders of the Fund; and WHEREAS, subject to the terms and conditions hereof, PFPC wishes to delegate to PaineWebber, and PaineWebber wishes to perform, certain of the transfer agency-related services that PFPC is obligated to perform under the Transfer Agency and Related Services Agreement; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, and intending to be legally bound, PFPC and PaineWebber hereby agree as follows: 1. DELEGATION. PFPC hereby delegates to PaineWebber its duty and obligation under the Transfer Agency and Related Services Agreement to perform those services specified in Exhibit A hereto (the "Delegated Services"), and PaineWebber hereby agrees to perform the Delegated Services in accordance with the terms and conditions hereof. In the event that PFPC determines to delegate, and PaineWebber agrees in writing to perform, additional services now or hereafter required to be performed by PFPC under the Transfer Agency and Related Services Agreement, such additional services shall constitute Delegated Services hereunder, provided, however, that PaineWebber shall receive such additional compensation for the performance of those additional services as shall be agreed upon between the parties. 2. RESPONSIBILITIES OF PAINEWEBBER. PaineWebber shall perform the Delegated Services in accordance with the terms and conditions of the Transfer Agency and Related Services Agreement. PaineWebber undertakes to comply with all applicable requirements of the Securities Laws and any laws, rules and regulations of governmental authorities having jurisdiction with respect to the duties to be performed by PaineWebber hereunder. Except as specifically set forth herein, PaineWebber assumes no responsibility for such compliance by the Fund or any of its Portfolios. 1 PaineWebber shall prepare and maintain in complete and accurate form all books and records necessary for it to perform the Delegated Services including (a) all those records required to be prepared and maintained by the Fund under the Investment Company Act of 1940, as amended, by other applicable Securities Laws, rules and regulations and by state laws and (b) such books and records as are necessary for PaineWebber to perform all of the services it agrees to provide in this Agreement and the Exhibits attached hereto. The books and records pertaining to the Fund, which are in the possession or under the control of PaineWebber, shall be the property of the Fund. The Fund and Authorized Persons shall have access to such books and records in the possession or under the control of PaineWebber at all times during PaineWebber's normal business hours. Upon the reasonable request of the Fund, copies of any such books and records in the possession or under the control of PaineWebber shall be provided by PaineWebber to the Fund or to an Authorized Person. Upon reasonable notice by the Fund, PaineWebber shall make available during regular business hours its facilities and premises employed in connection with its performance of this Agreement for reasonable visits by the Fund, any agent or person designated by the Fund or any regulatory agency having authority over the Fund. In performing the Delegated Services, PaineWebber shall be subject to the same record keeping and other responsibilities, duties and standards of care and shall have the same rights, benefits (other than compensation), liabilities and limitations as are applicable to PFPC under the Transfer Agency and Related Services Agreement with respect to the performance of the same services. 3. COMPENSATION. As compensation for performance of the Delegated Services, PFPC will pay to PaineWebber the fees and expense reimbursements set forth in Exhibit B hereto, together with such other amounts as may be agreed from time to time in writing by PFPC and PaineWebber, provided that PFPC shall not be obligated to pay such compensation to PaineWebber with respect to any invoice for which PFPC has not received payment from the Fund pursuant to the Transfer Agency and Related Services Agreement. 4. DURATION AND TERMINATION. This Agreement shall be effective upon the date first above written and, unless sooner terminated as set forth herein, shall continue with respect to the Transfer Agency and Related Services Agreement for so long as such Transfer Agency and Related Services Agreement remains in effect. This Agreement may be terminated for cause upon at least thirty (30) days prior written notice. For purposes of this paragraph, "cause" shall mean: (a) in the case of a termination by PaineWebber, the failure of PFPC to timely pay the compensation to PaineWebber that is provided for hereunder; and (b) in the case of a termination by PFPC, (i) PaineWebber's material breach of this Agreement causing it to fail to substantially perform its duties under this Agreement, provided that PaineWebber has received written notice from PFPC specifying the material breach and has not corrected such breach within a 15-day period; (ii) financial difficulties of PaineWebber evidenced by the authorization or commencement of a voluntary or involuntary bankruptcy under the U.S. Bankruptcy Code or any applicable bankruptcy or similar law, or under any applicable law of any 2 jurisdiction relating to the liquidation or reorganization of debt, the appointment of a receiver or to the modification or alleviation of the rights of creditors; and (iii) issuance of an administrative or court order against PaineWebber with regard to the material violation or alleged material violation of the Securities Laws or other applicable laws related to the performance of transfer agency-related services. 5. MISCELLANEOUS. (a) Unless the context otherwise requires, all capitalized terms not otherwise defined herein shall have the same meanings as in the Transfer Agency and Related Services Agreement attached as Exhibit 1 hereto. (b) It is understood and agreed that all Delegated Services performed by PaineWebber under this Agreement will be as an independent contractor and not as an employee or agent of PFPC or the Fund. (c) This Agreement embodies the entire agreement and understanding between the parties and supersedes all prior agreements and understandings relating to the subject matter hereof. (d) The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. (e) This Agreement shall be deemed to be a contract made in Delaware and governed by Delaware law without regard to principles of conflicts of law. (f) If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. (g) This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. (h) The facsimile signature of any party to this Agreement shall constitute the valid and binding execution hereof by such party. (i) This Agreement, or any term thereof, may be changed or waived only by a written amendment, signed by the party against whom enforcement of such change or waiver is sought. 3 IN WITNESS WHEREOF, PFPC and PaineWebber have caused this Agreement to be executed by their duly authorized representatives as of the date first above written. PFPC INC. By:/s/ Stephen M. Wynn ------------------------- Title: Executive Vice President PAINEWEBBER INCORPORATED By:/s/ Paul H. Schubert ------------------------- Title: Vice President and Treasurer 4 EXHIBIT A DELEGATED SERVICES The following transfer agency-related services that are required to be performed under the Transfer Agency and Related Services Agreement are delegated by PFPC to PaineWebber: a. Establish and maintain a dedicated service center with sufficient facilities, equipment and skilled personnel to address all shareholder inquiries received by telephone, mail or in-person regarding the Fund and their accounts; b. Provide timely execution of redemptions, exchanges and non-financial transactions directed to PaineWebber Financial Advisors and specifically requested by Fund shareholders; c. Issue checks from proceeds of Fund share redemptions to shareholders as directed by the Shareholders or their agents; d. Process and maintain shareholder account registration information; e. With respect to customer accounts maintained through PaineWebber Incorporated, review new applications and correspond with shareholders to complete or correct information; f. Prepare and mail monthly or quarterly consolidated account statements that reflect PACE Fund balances and transactions (such information to be combined with other activity and holdings in investors' brokerage accounts); g. Establish and maintain a dedicated service center with sufficient facilities, equipment and skilled personnel to address all branch inquiries regarding operational issues and performance; h. Capture, process and mail required tax information to shareholders and report this information to the Internal Revenue Service; i. Provide the capability to margin PACE Funds held within the client's brokerage account; j. Prepare and provide shareholder registrations for mailing of proxies, reports and other communications to shareholders; k. Develop, maintain and issue checks from the PaineWebber systematic withdrawal plan offered within the client's brokerage account; l. Maintain duplicate shareholder records and reconcile those records with those at the transfer 5 agent; m. Process and mail duplicate PaineWebber monthly or quarterly statements to PaineWebber Financial Advisors; n. Establish and maintain shareholder distribution options (i.e., election to have dividends paid in cash, rather than reinvested in Fund shares); o. Process and mail purchase, redemption and exchange confirmations to Fund shareholders and PaineWebber Financial Advisors; p. Issue dividend checks to shareholders that select cash distributions to their brokerage account; q. Develop and maintain the automatic investment plan offered within the client's brokerage account; and r. Provide bank-to-bank wire transfer capabilities related to transactions in Fund shares. 6 EX-9 15 a2059133zex-9.txt EXHIBIT 9 Exhibit 9 RICHARDS, LAYTON & FINGER A PROFESSIONAL ASSOCIATION ONE RODNEY SQUARE P.O. BOX 551 WILMINGTON, DELAWARE 19899 TELEPHONE: (302) 651-7700 TELECOPIER: (302) 651-7701 WEBSITE: www.RLF.com November 2, 2001 PaineWebber PACE Select Advisors Trust 51 West 52nd Street New York, NY 10019-6114 Re: PaineWebber PACE Select Advisors Trust -------------------------------------- Ladies and Gentlemen: We have acted as special Delaware counsel for PaineWebber PACE Select Advisors Trust, a Delaware business trust (the "Trust"), and PACE Money Market Investments (the "Money Market Series"), PACE Government Securities Fixed Income Investments, PACE Intermediate Fixed Income Investments, PACE Strategic Fixed Income Investments, PACE Municipal Fixed Income Investments, PACE Global Fixed Income Investments, PACE Large Company Value Equity Investments, PACE Large Company Growth Equity Investments, PACE Small/Medium Company Value Equity Investments, PACE Small/Medium Company Growth Equity Investments, PACE International Equity Investments, and PACE International Emerging Markets Equity Investments, each a series of the Trust (collectively, the "Series"), in connection with the matters set forth herein. At your request, this opinion is being furnished to you. For purposes of giving the opinions hereinafter set forth, our examination of documents has been limited to the examination of copies of the following: (a) The Certificate of Trust of the Trust, dated September 9, 1994, as filed in the office of the Secretary of State of the State of Delaware (the "Secretary of State") on September 9, 1994, as amended by the Certificate of Amendment thereto, dated December 5, 1994, as filed in the office of the Secretary of State on December 9, 1994, as further amended by the Certificate of Amendment thereto, dated November 26, 1997, as filed in the office of the Secretary of State on December 1, 1997, as further amended by the Certificate of Amendment thereto, dated December 11, 1998, as filed in the office of the Secretary of State on December 17, 1998 (as so amended, the "Certificate"); PaineWebber PACE Select Advisors Trust November 2, 2001 Page 2 (b) The Trust Instrument of the Trust, dated as of September 9, 1994, by and among the trustees of the Trust named therein and the holders, from time to time, of undivided beneficial interests in the assets of the Trust or a series of the Trust, as amended on June 9, 1995; (c) The Amended and Restated Trust Instrument of the Trust (including Schedule A thereto), dated September 13, 2000, by and among the Trustees and the holders, from time to time, of undivided beneficial interests in the assets of the Trust or a series of the Trust, as amended by Amendment No. 1 thereto, effective as of November 5, 2001, by the Trustees (as so amended, the "Trust Instrument"); (d) The By-Laws of the Trust, dated September 9, 1994, as amended on June 9, 1995; (e) The Amended and Restated By-Laws of the Trust, dated September 13, 2000, as amended by the Trustees on September 20, 2001 (as so amended, the "By-Laws"); (f) Prospectuses relating to the Class A, Class B (including the Sub-Class B-1, Sub-Class B-2, Sub-Class B-3 and Sub-Class B-4), Class C and Class Y shares in the Series other than the Money Market Series, and the Class P shares in the Series, representing undivided beneficial interests in the assets of a Series (each, a "Share" and collectively, the "Shares"), as proposed to be filed by the Trust and each applicable Series with the Securities and Exchange Commission as part of Post-Effective Amendment No. 14 to their Registration Statement on Form N-1A (as amended, the "Registration Statement") on or about November 1, 2001, and to become effective on November 5, 2001; and (g) A certificate of the assistant secretary of the Trust, dated as of November 2, 2001, as to certain matters. Capitalized terms used herein and not otherwise defined are used as defined in the Trust Instrument. For purposes of this opinion, we have not reviewed any documents other than the documents listed in paragraphs (a) through (g) above. In particular, we have not reviewed any document (other than the documents listed in paragraphs (a) through (g) above) that is referred to in or incorporated by reference into the documents reviewed by us. We have assumed that there exists no provision in any document that we have not reviewed that is inconsistent with the opinions stated herein. We have conducted no independent factual investigation of our own but rather have relied solely upon the foregoing documents, the statements and information set forth therein and the additional matters recited or assumed herein, all of which we have assumed to be true, complete and accurate in all material respects. PaineWebber PACE Select Advisors Trust November 2, 2001 Page 3 With respect to all documents examined by us, we have assumed (i) the authenticity of all documents submitted to us as authentic originals, (ii) the conformity with the originals of all documents submitted to us as copies or forms, and (iii) the genuineness of all signatures. For purposes of this opinion, we have assumed (i) that the Trust Instrument and the By-Laws constitute the entire agreement among the parties thereto with respect to the subject matter thereof, including with respect to the creation, operation, and termination of the Trust, and that the Trust Instrument, the By-Laws and the Certificate are in full force and effect and have not been amended, (ii) that any amendment or restatement of any document reviewed by us has been accomplished in accordance with, and was permitted by, the relevant provisions of said document prior to its amendment or restatement from time to time, (iii) the legal capacity of each natural person who is a party to the documents examined by us, (iv) that each of the parties to the documents examined by us has the power and authority to execute and deliver, and to perform its obligations under, such documents, (v) that each of the parties to the documents examined by us has duly authorized, executed and delivered such documents, (vi) the payment by each person or entity to whom a Share is to be issued by the Trust (collectively, the "Shareholders") for the Share acquired by it, in accordance with the Trust Instrument and the Registration Statement, (vii) that the Shares are issued and sold to the Shareholders in accordance with the Trust Instrument and the Registration Statement, and (viii) that no certificates evidencing the Shares have been or will be issued by the Trust. This opinion is limited to the laws of the State of Delaware (excluding the securities or blue sky laws of the State of Delaware), and we have not considered and express no opinion on the laws of any other jurisdiction, including federal laws and rules and regulations relating thereto. Our opinions are rendered only with respect to Delaware laws and rules, regulations and orders thereunder that are currently in effect. Based upon the foregoing, and upon our examination of such questions of law and statutes of the State of Delaware as we have considered necessary or appropriate, and subject to the assumptions, qualifications, limitations and exceptions set forth herein, we are of the opinion that the Shares have been duly authorized under the Trust Instrument and the By-Laws and, when issued and delivered against payment therefore, the Shares will be validly issued and (subject to the qualifications set forth in this paragraph) fully paid and nonassessable undivided beneficial interests in the assets of a Series. We note that the Shareholders, as beneficial owners of the Trust or a Series, may be obligated, pursuant to the Trust Instrument, to (i) pay sales charges in connection with an investment in any Series or Class, and (ii) pay charges in connection with the redemption of Shares (as defined in the Trust Instrument). We consent to your relying as to matters of Delaware law upon this opinion. We also consent to the filing of this opinion with the Securities and Exchange Commission as an exhibit to the Registration Statement. In giving the foregoing consents, we do not thereby admit PaineWebber PACE Select Advisors Trust November 2, 2001 Page 4 that we come within the category of persons or entities whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder. Except as stated above, without our prior written consent, this opinion may not be furnished or quoted to, or relied upon by, any other person or entity for any purpose. Very truly yours, /s/ Richards, Layton & Finger, P.A. BJK/MVP EX-10 16 a2059133zex-10.txt EXHIBIT 10 Exhibit No. 10 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Financial Highlights" in the Prospectuses and "Auditors" in the Statement of Additional Information and to the incorporation by reference of our reports on PACE Money Market Investments, PACE Government Securities Fixed Income Investments, PACE Intermediate Fixed Income Investments, PACE Strategic Fixed Income Investments, PACE Municipal Fixed Income Investments, PACE Global Fixed Income Investments, PACE Large Company Value Equity Investments, PACE Large Company Growth Equity Investments, PACE Small/Medium Company Value Equity Investments, PACE Small/Medium Company Growth Equity Investments, PACE International Equity Investments and PACE International Emerging Markets Equity Investments dated September 7, 2001 in this Registration Statement (Form N-1A No. 033-87254) of PaineWebber PACE Select Advisors Trust. /s/ ERNST & YOUNG LLP New York, New York October 29, 2001 EX-13.(A) 17 a2059133zex-13_a.txt EXHIBIT 13(A) Exhibit No. 13(a) PAINEWEBBER PACE SELECT ADVISORS TRUST - CLASS A SHARES PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1 UNDER THE INVESTMENT COMPANY ACT OF 1940 WHEREAS, PaineWebber PACE Select Advisors Trust ("Fund") is registered under the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end management investment company and offers separate series of shares of beneficial interest ("Series"), which correspond to distinct portfolios; and WHEREAS, the Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act with respect to the Class A shares of the Series for which the Fund's board of trustees ("Board") has established Class A shares and desires to replace it with this amended Plan of Distribution ("Plan") with respect to the Class A shares of the Series for which the Board has established Class A shares and of such other Series as may hereafter be designated by the Board and have Class A shares established; and WHEREAS, the Fund has entered into a Principal Underwriting Contract ("Contract") with Brinson Advisors, Inc. ("Principal Underwriter") pursuant to which the Principal Underwriter has agreed to serve as principal underwriter of the Class A shares of each such Series; NOW, THEREFORE, the Fund hereby adopts this Plan with respect to the Class A shares of each such Series in accordance with Rule 12b-1 under the 1940 Act. 1. A. Each Series is authorized to pay to the Principal Underwriter, as compensation for its services as principal underwriter of the Series' Class A shares, a service fee at the rate of 0.25% on an annualized basis of the average daily net assets of the Series' Class A shares. Such fee shall be calculated and accrued daily and paid monthly or at such other intervals as the Board shall determine. B. Any Series may pay a service fee to the Principal Underwriter at a lesser rate than the fee specified in Paragraph 1A of this Plan, as agreed upon by the Board and the Principal Underwriter and as approved in the manner specified in Paragraph 4 of this Plan. 2. As principal underwriter of the Class A shares of each Series, the Principal Underwriter may spend such amounts as it deems appropriate on any activities or expenses primarily intended to result in the sale of the Class A shares of the Series or the servicing and maintenance of shareholder accounts, including, but not limited to, compensation to employees of the Principal Underwriter; compensation to and expenses, including overhead and telephone and other communication expenses, of the Principal Underwriter, and other dealers who engage in or support the distribution of shares or who service shareholder accounts; the printing of prospectuses, statements of additional information, and reports for other than existing shareholders; and the preparation, printing and distribution of sales literature and advertising materials. 3. If adopted with respect to Class A shares of a Series after any public offering of those shares, this Plan shall not take effect with respect to those shares unless it has first been approved by a vote of a majority of the voting securities of the Class A shares of that Series. This provision does not apply to adoption as an amended Plan of Distribution where the prior Plan of Distribution either was approved by a vote of a majority of the voting securities of the Class A shares of the applicable Series or such approval was not required under Rule 12b-1. 4. This Plan shall not take effect with respect to the Class A shares of any Series unless it first has been approved, together with any related agreements, by votes of a majority of both (a) the Board and (b) those Board members of the Fund who are not "interested persons" of the Fund and have no direct or indirect financial interest in the operation of this Plan or any agreements related thereto ("Independent Board Members"), cast in person at a meeting (or meetings) called for the purpose of voting on such approval; and until the Board members who approve the Plan's taking effect with respect to such Series' Class A shares have reached the conclusion required by Rule 12b-1(e) under the 1940 Act. 5. After approval as set forth in Paragraph 3 (if applicable) and Paragraph 4, this Plan shall take effect and continue in full force and effect for so long as such continuance is specifically approved at least annually in the manner provided for approval of this Plan in Paragraph 4. 6. The Principal Underwriter shall provide to the Board and the Board shall review, at least quarterly, a written report of the amounts expended with respect to the Class A shares of each Series by the Principal Underwriter under this Plan and the Contract and the purposes for which such expenditures were made. The Principal Underwriter shall submit only information regarding amounts expended for "service activities," as defined in this Paragraph 6, to the Board in support of the service fee payable hereunder. For purposes of this Plan, "service activities" shall mean activities in connection with the provision by the Principal Underwriter or by a dealer of personal, continuing services to investors in the Class A shares of the Series; provided, however, that if the National Association of Securities Dealers, Inc. ("NASD") adopts a definition of "service fee" for purposes of Section 2830(b)(9) of the NASD Conduct Rules that differs from the definition of "service activities" hereunder, or if the NASD adopts a related definition intended to define the same concept, the definition of "service activities" in this Paragraph shall be automatically amended, without further action of the parties, to conform to such NASD definition. Overhead and other expenses of the Principal Underwriter or a dealer related to their "service activities," including telephone and other communications expenses, may be included in the information regarding amounts expended for such activities. 7. This Plan may be terminated with respect to the Class A shares of any Series at any time by vote of the Board, by vote of a majority of the Independent Board Members, or by vote of a majority of the outstanding voting securities of the Class A shares of that Series. 8. This Plan may not be amended to increase materially the amount of service fees provided for in Paragraph 1A hereof unless such amendment is approved by a majority of the outstanding voting securities of the Class A shares of the affected Series, and no material 2 amendment to the Plan shall be made unless approved in the manner provided for initial approval in Paragraph 4 hereof. 9. The amount of the service fees payable by any Series to the Principal Underwriter under Paragraph 1A hereof and the Contract is not related directly to expenses incurred by the Principal Underwriter on behalf of such Series in serving as principal underwriter of the Class A shares, and Paragraph 2 hereof and the Contract do not obligate the Series to reimburse the Principal Underwriter for such expenses. The service fees set forth in Paragraph 1A hereof will be paid by the Series to the Principal Underwriter until either the Plan or the Contract is terminated or not renewed. If either the Plan or the Contract is terminated or not renewed with respect to the Class A shares of any Series, any service-related expenses incurred by the Principal Underwriter on behalf of the Class A shares of the Series in excess of payments of the service fees specified in Paragraph 1A hereof and the Contract which the Principal Underwriter has received or accrued through the termination date are the sole responsibility and liability of the Principal Underwriter, and are not obligations of the Series. 10. While this Plan is in effect, the selection and nomination of the Board members who are not interested persons of the Fund shall be committed to the discretion of the Board members who are not interested persons of the Fund. 11. As used in this Plan, the terms "majority of the outstanding voting securities" and "interested person" shall have the same meaning as those terms have in the 1940 Act. 12. The Fund shall preserve copies of this Plan (including any amendments thereto) and any related agreements and all reports made pursuant to Paragraph 6 hereof for a period of not less than six years from the date of this Plan, the first two years in an easily accessible place. 13. The Board members of the Fund and the shareholders of each Series shall not be liable for any obligations of the Fund or any Series under this Plan, and the Principal Underwriter or any other person, in asserting any rights or claims under this Plan, shall look only to the assets and property of the Fund or such Series in settlement of such right or claim, and not to such Board members or shareholders. IN WITNESS WHEREOF, the Fund has executed this Plan of Distribution on the day and year set forth below in New York, New York. Date: July 24, 2001 ATTEST: PAINEWEBBER PACE SELECT ADVISORS TRUST By: /s/ Keith A. Weller By: /s/ Amy R. Doberman - ---------------------------------- ------------------------------------- Name: Keith A. Weller Name: Amy R. Doberman Title: Vice President and Title: Vice President and Secretary Assistant Secretary 3 EX-13.(B) 18 a2059133zex-13_b.txt EXHIBIT 13(B) Exhibit No. 13(b) PAINEWEBBER PACE SELECT ADVISORS TRUST - CLASS B SHARES PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1 UNDER THE INVESTMENT COMPANY ACT OF 1940 WHEREAS, PaineWebber PACE Select Advisors Trust ("Fund") is registered under the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end management investment company and offers separate series of shares of beneficial interest ("Series"), which correspond to distinct portfolios; and WHEREAS, the Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act with respect to the Class B shares of the Series for which the Fund's board of trustees ("Board") has established Class B shares and of such other Series for which the Board may hereafter establish Class B shares and desires to replace it with this amended Plan of Distribution ("Plan") with respect to the Class B shares of the Series for which the Board has established Class B shares and of such other Series as may hereafter be designated by the Board and have Class B shares established; and WHEREAS the Fund has entered into a Principal Underwriting Contract ("Contract") with Brinson Advisors, Inc. ("Principal Underwriter") pursuant to which the Principal Underwriter has agreed to serve as principal underwriter of the Class B shares of each such Series; NOW, THEREFORE, the Fund hereby adopts this Plan with respect to the Class B shares of each such Series in accordance with Rule 12b-1 under the 1940 Act. 1. A. Each Series for which Class B shares have been established is authorized to pay to the Principal Underwriter, as compensation for the Principal Underwriter's services as principal underwriter of the Series' Class B shares, a distribution fee at the rate of 0.75%, on an annualized basis, of the average daily net assets of the Series' Class B shares. B. Any Series for which Class B shares are hereafter established is authorized to pay to the Principal Underwriter, as compensation for the Principal Underwriter's services as principal underwriter of the Series Class B shares, a distribution fee at the rate of 0.75%, on an annualized basis, of the average daily net assets of the Series Class B shares or in a different amount as reflected in a written distribution fee addendum to this Plan ("Distribution Fee Addendum") executed by the Fund on behalf of such Series. All such Distribution Fee Addenda shall provide that they are subject to all terms and conditions of this Plan. C. Each Series is authorized to pay to the Principal Underwriter, as compensation for the Principal Underwriter's services as principal underwriter of the Series' Class B shares, a service fee at the rate of 0.25%, on an annualized basis, of the average daily net assets of the Series' Class B shares. Such fee shall be calculated and accrued daily and paid monthly or at such other intervals as the Board shall determine. D. Any Series may pay a distribution or service fee to the Principal Underwriter at a lesser rate than the fees specified above, as agreed upon by the Board and the Principal Underwriter and as approved in the manner specified in Paragraph 4 of this Plan. 2. As principal underwriter of the Class B shares of each Series, the Principal Underwriter may spend such amounts as it deems appropriate on any activities or expenses primarily intended to result in the sale of the Class B shares of the Series or the servicing and maintenance of shareholder accounts, including, but not limited to, compensation to employees of the Principal Underwriter; compensation to and expenses, including overhead and telephone and other communication expenses, of the Principal Underwriter and other dealers who engage in or support the distribution of shares or who service shareholder accounts; the printing of prospectuses, statements of additional information and reports for other than existing shareholders; and the preparation, printing and distribution of sales literature and advertising materials; and any costs, including interest expense, of financing the compensation paid to dealers for selling Class B shares. 3. If adopted with respect to Class B shares of a Series after any public offering of those shares, this Plan shall not take effect with respect to those shares unless it has first been approved by a majority of the voting securities of the Class B shares of that Series. This provision does not apply to adoption as an amended Plan of Distribution where the prior Plan of Distribution either was approved by a majority of the voting securities of the Class B shares of the applicable Series or such approval was not required under Rule 12b-1. 4. This Plan shall not take effect with respect to the Class B shares of any Series unless it first has been approved, together with any related agreements, by votes of a majority of both (a) the Board and (b) those Board members of the Fund who are not "interested persons" of the Fund and have no direct or indirect financial interest in the operation of this Plan or any agreements related thereto ("Independent Board Members"), cast in person at a meeting (or meetings) called for the purpose of voting on such approval; and until the Board members who approve the Plan's taking effect with respect to such Series' Class B shares have reached the conclusion required by Rule 12b-1(e) under the 1940 Act. 5. After approval as set forth in Paragraph 3 (if applicable) and Paragraph 4, this Plan shall take effect and continue in full force and effect for so long as such continuance is specifically approved at least annually in the manner provided for approval of this Plan in Paragraph 4. 6. The Principal Underwriter shall provide to the Board and the Board shall review, at least quarterly, a written report of the amounts expended with respect to the Class B shares of each Series by the Principal Underwriter under this Plan and the Contract and the purposes for which such expenditures were made. The Principal Underwriter shall submit only information regarding amounts expended for "distribution activities," as defined in this Paragraph 6, to the Board in support of the distribution fee payable hereunder and shall submit only information regarding amounts expended for "service activities," as defined in this Paragraph 6, to the Board in support of the service fee payable hereunder. For purposes of this Plan, "distribution activities" shall mean any activities in connection with the Principal Underwriter's performance of its obligations under this Plan or the Contract that are not deemed "service activities." "Service activities" shall mean activities in connection with the provision by the Principal Underwriter or a dealer of personal, continuing services to investors in the Class B shares of the Series; provided, however, that if the National 2 Association of Securities Dealers, Inc. ("NASD") adopts a definition of "service fee" for purposes of Section 2830(b)(9) of the NASD Conduct Rules that differs from the definition of "service activities" hereunder, or if the NASD adopts a related definition intended to define the same concept, the definition of "service activities" in this Paragraph shall be automatically amended, without further action of the parties, to conform to such NASD definition. Overhead and other expenses of the Principal Underwriter and a dealer related to their "distribution activities" or "service activities," including telephone and other communications expenses, may be included in the information regarding amounts expended for such activities. 7. This Plan may be terminated with respect to the Class B shares of any Series at any time by vote of the Board, by vote of a majority of the Independent Board Members, or by vote of a majority of the outstanding voting securities of the Class B shares of that Series. 8. This Plan may not be amended to increase materially the amount of distribution fees provided for in Paragraphs 1A or 1B hereof or the amount of service fees provided for in Paragraph 1C hereof unless such amendment is approved by a majority of the outstanding voting securities of the Class B shares of the affected Series and no material amendment to the Plan shall be made unless approved in the manner provided for initial approval in Paragraph 4 hereof. 9. The amount of the distribution and service fees payable by any Series to the Principal Underwriter under Paragraphs 1A, 1B and 1C hereof and the Contract is not related directly to expenses incurred by the Principal Underwriter on behalf of such Series in serving as principal underwriter of the Class B shares, and Paragraph 2 hereof and the Contract do not obligate the Series to reimburse the Principal Underwriter for such expenses. The distribution and service fees set forth in Paragraphs 1A, 1B and 1C hereof will be paid by the Series to the Principal Underwriter until either the Plan or the Contract is terminated or not renewed. If either the Plan or the Contract is terminated or not renewed with respect to the Class B shares of any Series, any distribution expenses incurred by the Principal Underwriter on behalf of the Class B shares of the Series in excess of payments of the distribution and service fees specified in Paragraphs 1A, 1B and 1C hereof and the Contract which the Principal Underwriter has received or accrued through the termination date are the sole responsibility and liability of the Principal Underwriter, and are not obligations of the Series. 10. While this Plan is in effect, the selection and nomination of the Board members who are not interested persons of the Fund shall be committed to the discretion of the Board members who are not interested persons of the Fund. 11. As used in this Plan, the terms "majority of the outstanding voting securities" and "interested person" shall have the same meaning as those terms have in the 1940 Act. 12. The Fund shall preserve copies of this Plan (including any amendments thereto) and any related agreements and all reports made pursuant to Paragraph 6 hereof for a period of not less than six years from the date of this Plan, the first two years in an easily accessible place. 13. The Board members of the Fund and the shareholders of each Series shall not be liable for any obligations of the Fund or any Series under this Plan, and the Principal Underwriter or any other person, in asserting any rights or claims under this Plan, shall look only 3 to the assets and property of the Fund or such Series in settlement of such right or claim, and not to such Board members or shareholders. IN WITNESS WHEREOF, the Fund has executed this Plan of Distribution on the day and year set forth below in New York, New York. Date: July 24, 2001 ATTEST: PAINEWEBBER PACE SELECT ADVISORS TRUST By: /s/ Keith A. Weller By: /s/ Amy R. Doberman - ------------------------ ------------------------------- Name: Keith A. Weller Name: Amy R. Doberman Title: Vice President and Title: Vice President and Secretary Assistant Secretary 4 EX-13.(C) 19 a2059133zex-13_c.txt EXHIBIT 13(C) Exhibit No. 13(c) PAINEWEBBER PACE SELECT ADVISORS TRUST - CLASS C SHARES PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1 UNDER THE INVESTMENT COMPANY ACT OF 1940 WHEREAS, PaineWebber PACE Select Advisors Trust ("Fund") is registered under the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end management investment company and currently offers separate series of shares of beneficial interest ("Series"), which correspond to distinct portfolios; and WHEREAS, the Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act with respect to the Class C shares of the Series for which the Fund's board of trustees ("Board") has established Class C shares and desires to replace it with this amended Plan of Distribution ("Plan") with respect to the Class C shares of the Series for which the Board has established Class C shares and of such other Series as may hereafter be designated by the Board and have Class C shares established; and WHEREAS, the Fund has entered into a Principal Underwriting Contract ("Contract") with Brinson Advisors, Inc. ("Principal Underwriter") pursuant to which the Principal Underwriter has agreed to serve as principal underwriter of the Class C shares of each such Series; NOW, THEREFORE, the Fund hereby adopts this Plan with respect to the Class C shares of each such Series in accordance with Rule 12b-1 under the 1940 Act. 1. A. Each Series listed below is authorized to pay to the Principal Underwriter, as compensation for the Principal Underwriter's services as principal underwriter of the Series' Class C shares, a distribution fee at the rates, on an annualized basis, set forth below 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. PACE Government Securities Fixed Income Investments 0.50% PACE Intermediate Fixed Income Investments 0.50% PACE Strategic Fixed Income Investments 0.50% PACE Municipal Fixed Income Investments 0.50% PACE Global Fixed Income Investments 0.50% PACE Large Company Value Equity Investments 0.75% PACE Large Company Growth Equity Investments 0.75% PACE Small/Medium Company Value Equity Investments 0.75% PACE Small/Medium Company Growth Equity Investments 0.75% PACE International Equity Investments 0.75% PACE International Emerging Markets Equity Investments 0.75% B. Any Series for which Class C shares are hereafter established is authorized to pay to the Principal Underwriter, as compensation for the Principal Underwriter's services as principal underwriter of the Series Class C shares, a distribution fee in the amount to be agreed upon in a written distribution fee addendum to this Plan ("Distribution Fee Addendum") executed by the Fund on behalf of such Series. All such Distribution Fee Addenda shall provide that they are subject to all terms and conditions of this Plan. C. Each Series is authorized to pay to the Principal Underwriter, as compensation for the Principal Underwriter'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. D. Any Series may pay a distribution or service fee to the Principal Underwriter at a lesser rate than the fees specified above, as agreed upon by the Board and the Principal Underwriter and as approved in the manner specified in Paragraph 4 of this Plan. 2. As principal underwriter of the Class C shares of each Series, the Principal Underwriter may spend such amounts as it deems appropriate on any activities or expenses primarily intended to result in the sale of the Class C shares of the Series or the servicing and maintenance of shareholder accounts, including, but not limited to, compensation to employees of the Principal Underwriter; compensation to and expenses, including overhead and telephone and other communication expenses, of the Principal Underwriter and other dealers who engage in or support the distribution of shares or who service shareholder accounts; the printing of prospectuses, statements of additional information, and reports for other than existing shareholders; and the preparation, printing and distribution of sales literature and advertising materials. 3. If adopted with respect to Class C shares of a Series after any public offering of those shares, this Plan shall not take effect with respect to those shares unless it has first been approved by a majority of the voting securities of the Class C shares of that Series. This provision does not apply to adoption as an amended Plan of Distribution where the prior Plan of Distribution either was approved by a vote of a majority of the voting securities of the Class C shares of the applicable Series or such approval was not required under Rule 12b-1. 4. This Plan shall not take effect with respect to the Class C shares of any Series unless it first has been approved, together with any related agreements, by votes of a majority of both (a) the Board and (b) those Board members of the Fund who are not "interested persons" of the Fund and have no direct or indirect financial interest in the operation of this Plan or any agreements related thereto ("Independent Board Members"), cast in person at a meeting (or meetings) called for the purpose of voting on such approval; and until the Board members who approve the Plan's taking effect with respect to such Series' Class C shares have reached the conclusion required by Rule 12b-1(e) under the 1940 Act. 5. After approval as set forth in Paragraph 3 (if applicable) and Paragraph 4, this Plan shall take effect and continue in full force and effect for so long as such continuance is specifically approved at least annually in the manner provided for approval of this Plan in Paragraph 4. 2 6. The Principal Underwriter shall provide to the Board and the Board shall review, at least quarterly, a written report of the amounts expended with respect to the Class C shares of each Series by the Principal Underwriter under this Plan and the Contract and the purposes for which such expenditures were made. The Principal Underwriter shall submit only information regarding amounts expended for "distribution activities," as defined in this Paragraph 6, to the Board in support of the distribution fee payable hereunder and shall submit only information regarding amounts expended for "service activities," as defined in this Paragraph 6, to the Board in support of the service fee payable hereunder. For purposes of this Plan, "distribution activities" shall mean any activities in connection with the Principal Underwriter's performance of its obligations under this Plan or the Contract that are not deemed "service activities." "Service activities" shall mean activities in connection with the provision by the Principal Underwriter or a dealer of personal, continuing services to investors in the Class C shares of the Series; provided, however, that if the National Association of Securities Dealers, Inc. ("NASD") adopts a definition of "service fee" for purposes of Section 2830(b)(9) of the NASD Conduct Rules that differs from the definition of "service activities" hereunder, or if the NASD adopts a related definition intended to define the same concept, the definition of "service activities" in this Paragraph shall be automatically amended, without further action of the parties, to conform to such NASD definition. Overhead and other expenses of the Principal Underwriter and a dealer related to their "distribution activities" or "service activities," including telephone and other communications expenses, may be included in the information regarding amounts expended for such activities. 7. This Plan may be terminated with respect to the Class C shares of any Series at any time by vote of the Board, by vote of a majority of the Independent Board Members, or by vote of a majority of the outstanding voting securities of the Class C shares of that Series. 8. This Plan may not be amended to increase materially the amount of distribution fees provided for in Paragraph 1A or Paragraph 1B hereof or the amount of service fees provided for in Paragraph 1C hereof unless such amendment is approved by a majority of the outstanding voting securities of the Class C shares of the affected Series and no material amendment to the Plan shall be made unless approved in the manner provided for initial approval in Paragraph 4 hereof. 9. The amount of the distribution and service fees payable by any Series to the Principal Underwriter under Paragraphs 1A, 1B and 1C hereof and the Contract is not related directly to expenses incurred by the Principal Underwriter on behalf of such Series in serving as principal underwriter of the Class C shares, and Paragraph 2 hereof and the Contract do not obligate the Series to reimburse the Principal Underwriter for such expenses. The distribution and service fees set forth in Paragraphs 1A, 1B and 1C hereof will be paid by the Series to the Principal Underwriter until either the Plan or the Contract is terminated or not renewed. If either the Plan or the Contract is terminated or not renewed with respect to the Class C shares of any Series, any distribution expenses incurred by the Principal Underwriter on behalf of the Class C shares of the Series in excess of payments of the distribution and service fees specified in Paragraphs 1A, 1B and 1C hereof and the Contract which the Principal Underwriter has received 3 or accrued through the termination date are the sole responsibility and liability of the Principal Underwriter, and are not obligations of the Series. 10. While this Plan is in effect, the selection and nomination of the Board members who are not interested persons of the Fund shall be committed to the discretion of the Board members who are not interested persons of the Fund. 11. As used in this Plan, the terms "majority of the outstanding voting securities" and "interested person" shall have the same meaning as those terms have in the 1940 Act. 12. The Fund shall preserve copies of this Plan (including any amendments thereto) and any related agreements and all reports made pursuant to Paragraph 6 hereof for a period of not less than six years from the date of this Plan, the first two years in an easily accessible place. 13. The Board members of the Fund and the shareholders of each Series shall not be liable for any obligations of the Fund or any Series under this Plan, and the Principal Underwriter 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 caused this Plan of Distribution to be executed on the day and year set forth below in New York, New York. Date: July 24, 2001 ATTEST: PAINEWEBBER PACE SELECT ADVISORS TRUST By: /s/ Keith A. Weller By: /s/ Amy R. Doberman - -------------------------------- -------------------------------------- Name: Keith A. Weller Name: Amy R. Doberman Title: Vice President and Title: Vice President and Secretary Assistant Secretary 4 EX-14 20 a2059133zex-14.txt EXHIBIT 14 Exhibit No. 14 PAINEWEBBER PACE SELECT ADVISORS TRUST MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3 PaineWebber PACE Select Advisors Trust ("Fund") hereby adopts this Multiple Class Plan pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended ("1940 Act"), on behalf of its current series (each referred to hereinafter as a "Series") for which the board of trustees ("Board") has established Class A, Class B, Class C, Class P and/or Class Y shares and any series for which the Board in the future establishes Class A, Class B, Class C, Class P and/or Class Y shares. A. GENERAL DESCRIPTION OF CLASSES THAT ARE OFFERED. Class A, Class B, Class C, Class P and Class Y shares have the general characteristics described below. Each class of shares is described in greater detail in the Fund's Registration Statement. The term "Registration Statement" shall mean the currently effective Registration Statement of the Fund, and any supplements thereto, under the Securities Act of 1933, as amended, and the 1940 Act, as such Registration Statement may be amended or supplemented from time to time. The description below sets out the maximum initial sales charges, contingent deferred sales charges ("CDSCs"), 12b-1 service fees and 12b-1 distribution fees for each class of shares. These charges and fees may be lower for types of Series or individual Series, as described in the Registration Statement. Initial sales charges and CDSCs will be waived or reduced for the types of investors or under the circumstances described in the Registration Statement. 1. CLASS A SHARES. Class A shares are sold to the general public subject to an initial sales charge. The maximum initial sales charge is 5.5% of the public offering price. Class A shares are subject to a service fee at the annual rate of up to 0.25% of their average daily net assets, paid pursuant to a plan of distribution adopted in accordance with Rule 12b-1 under the 1940 Act. Class A shares held less than one year are subject to a CDSC upon redemption if the Class A shares were purchased without an initial sales charge due to an initial sales charge waiver for large purchases. The maximum Class A CDSC is equal to 1% of the lower of: (i) the net asset value of the shares at the time of purchase or (ii) the net asset value of the shares at the time of redemption. Class A shares held one year or more or acquired through reinvestment of dividends or capital gains distributions are not subject to the CDSC. 2. CLASS B SHARES. Class B shares consist of Sub-Class B-1, Sub-Class B-2, Sub-Class B-3 and Sub-Class B-4 shares. Class B shares are sold to the general public subject to a CDSC, but without imposition of an initial sales charge. Individual Sub-Classes may be subject to eligibility standards, as described in the Registration Statement of individual Series. All Class B shares are subject to a service fee at the annual rate of up to 0.25% of their average daily net assets and a distribution fee at the annual rate of up to 0.75% of their average daily net assets. These service and distribution fees are paid pursuant to a plan of distribution adopted in accordance with Rule 12b-1 under the 1940 Act. SUB-CLASS B-1 SHARES. The maximum CDSC for Sub-Class B-1 shares is equal to 5% of the lower of: (i) the net asset value of the shares at the time of purchase or (ii) the net asset value of the shares at the time of redemption. Sub-Class B-1 shares held for the time specified in the Registration Statement (usually six years or longer) and Sub-Class B-1 shares acquired through reinvestment of dividends or capital gains distributions are not subject to the CDSC. Sub-Class B-1 shares of a Series convert to Class A shares of the same Series approximately six years after issuance at their relative net asset values. SUB-CLASS B-2 SHARES. The maximum CDSC for Sub-Class B-2 shares is equal to 3% of the lower of: (i) the net asset value of the shares at the time of purchase or (ii) the net asset value of the shares at the time of redemption. Sub-Class B-2 shares held for the time specified in the Registration Statement (usually four years or longer) and Sub-Class B-2 shares acquired through reinvestment of dividends or capital gains distributions are not subject to the CDSC. Sub-Class B-2 shares of a Series convert to Class A shares of the same Series approximately four years after issuance at their relative net asset values. SUB-CLASS B-3 SHARES. The maximum CDSC for Sub-Class B-3 shares is equal to 3% of the lower of: (i) the net asset value of the shares at the time of purchase or (ii) the net asset value of the shares at the time of redemption. Sub-Class B-3 shares held for the time specified in the Registration Statement (usually three years or longer) and Sub-Class B-3 shares acquired through reinvestment of dividends or capital gains distributions are not subject to the CDSC. Sub-Class B-3 shares of a Series convert to Class A shares of the same Series approximately three years after issuance at their relative net asset values. SUB-CLASS B-4 SHARES. The maximum CDSC for Sub-Class B-4 shares is equal to 2% of the lower of: (i) the net asset value of the shares at the time of purchase or (ii) the net asset value of the shares at the time of redemption. Sub-Class B-4 shares held for the time specified in the Registration Statement (usually two years or longer) and Sub-Class B-4 shares acquired through reinvestment of dividends or capital gains distributions are not subject to the CDSC. Sub-Class B-4 shares of a Series convert to Class A shares of the same Series approximately two years after issuance at their relative net asset values. 3. CLASS C SHARES. Class C shares are sold to the general public subject to an initial sales charge. The maximum initial sales charge is 1.0% of the public offering price. Class C shares held less than one year are subject to a CDSC upon redemption. The maximum CDSC for Class C shares is equal to 1% for equity funds (0.75% for fixed income funds) of the lower of: (i) the net asset value of the shares at the time of purchase or (ii) the net asset value of the shares at the time of redemption. Class C shares held for one year or more or acquired through reinvestment of dividends or capital gains distributions are not subject to the CDSC. Class C shares are subject to a service fee at the annual rate of up to 0.25% of their average daily net assets and a distribution fee at the annual rate of up to 0.75% of their average daily net assets. These service and distribution fees are paid pursuant to a plan of distribution adopted in accordance with Rule 12b-1 under the 1940 Act. 2 4. CLASS P SHARES. Class P shares are sold without imposition of an initial sales charge or CDSC and are not subject to any service or distribution fees. Class P shares are available for purchase only by participants in the PaineWebber PACE(SM) Program and to other types of investors described in the Registration Statement. 5. CLASS Y SHARES. Class Y shares are sold without imposition of an initial sales charge or CDSC and are not subject to any service or distribution fees. Class Y shares are available for purchase only by the types of investors described in the Registration Statement. B. EXPENSE ALLOCATIONS OF EACH CLASS: Certain expenses of a Series may be attributable to a particular class of its shares ("Class Expenses"). Class Expenses are charged directly to the net assets of that class and, thus, are borne on a pro rata basis by the outstanding shares of that class. In addition to the distribution and service fees described above, each class may also pay a different amount of the following other expenses: (1) printing and postage expenses related to preparing and distributing materials such as shareholder reports, prospectuses, and proxies to current shareholders of a specific class; (2) Blue Sky fees incurred by a specific class of shares; (3) SEC registration fees incurred by a specific class of shares; (4) expenses of administrative personnel and services required to support the shareholders of a specific class of shares; (5) Board members' fees incurred as a result of issues relating to a specific class of shares; (6) litigation expenses or other legal expenses relating to a specific class of shares; and (7) transfer agent fees identified as being attributable to a specific class. C. EXCHANGE PRIVILEGES: Class A, Class B, Class C and Class P shares of a Series may be exchanged for the corresponding class or sub-class of shares of other participating Family Funds or may be acquired through an exchange of shares of the corresponding class of those funds. ("Family Funds" include other Series of the Fund, Brinson Funds and other funds for which Brinson Advisors, Inc. or any of its affiliates serves as principal underwriter.) Class Y shares are not exchangeable. Shares of one class may be exchanged for shares of another class of the same Series under the circumstances described in the Registration Statement. 3 These exchange privileges may be modified or terminated by a Series, and exchanges may only be made into Family Funds that are legally registered for sale in the investor's state of residence. D. CLASS DESIGNATION: Subject to approval by the Board, a Series may alter the nomenclature for the designations of one or more of its classes of shares. E. ADDITIONAL INFORMATION: This Multiple Class Plan is qualified by and subject to the terms of the Fund's Registration Statement; provided, however, that none of the terms set forth in the Registration Statement shall be inconsistent with the terms of the classes contained in this Plan. The Registration Statement contains additional information about the classes and each Series' multiple class structure. F. DATE OF EFFECTIVENESS: This Multiple Class Plan is effective as of November 5, 2001, provided that this Plan shall not become effective with respect to any Series unless such action has first been approved by the vote of a majority of the Board and by vote of a majority of those Board members who are not interested persons of the Fund. September 20, 2001 4 EX-15.(O) 21 a2059133zex-15_o.txt EXHIBIT 15(O) Exhibit No. 15(o) CODE OF ETHICS SCOPE AND PURPOSE This Code of Ethics (the "Code") applies to:
*- all officers, directors and employees of: } - Schroder Investment Management North America Inc., } Collectively } - Schroder Investment Management North America Limited } "SIM NA" } - Schroder Fund Advisors Inc., ("SFA") } } *- New York based employees of Schroder US Holdings Inc. ("SUSHI") } } Collectively *- all persons employed by any subsidiary of Schroders plc } The "US ("Schroders") who are Access Persons (as defined below) of any } Schroder registered investment company managed by SIM NA } } Group" *- Schroder Series Trust, Schroder Series Trust II and Schroder } Collectively } Capital Funds (Delaware) } "Schroder Funds" } } *- all officers and directors of Schroder Series Trust, Schroder } Series Trust II and Schroder Capital Funds (Delaware). } } } } } }
Set forth below is the Code of Ethics (the "Code") for the US Schroder Group, as required by Rule 17j-1 under the Investment Company Act of 1940 (the "Investment Company Act"), Section 204A of the Investment Advisers Act of 1940 (the "Advisers Act"), Rule 204-2(a)(12) under the Advisers Act and Section 20A of the Securities Exchange Act of 1934 (the "Exchange Act"). The Code applies to every officer, director and employee (full- and part-time) of the US Schroder Group. The objective of the Code is to ensure that all business dealings and securities transactions undertaken by employees, whether for clients or for personal purposes, are subject to the highest ethical standards. Incorporated within the Code are an Insider Trading Policy and a Personal Securities Transactions Policy, which contain procedures that must be followed by all personnel. The Code contains additional restrictions and requirements for Access Persons (as defined below), including all US Schroder Group portfolio managers, investment analysts, traders, and those employees who, in connection with their duties, are aware of securities under consideration for purchase or sale on behalf of clients. Persons employed as dealers by affiliates of the US Schroder Group who place trades on behalf of SIM NA clients are also subject to this Code. Such persons will be notified in writing of their status. These restrictions are designed to prevent any conflict or the appearance of any conflict of interest between trading for their personal accounts and securities transactions initiated or recommended for clients. STATEMENT OF POLICIES (a) CONFIDENTIALITY Personnel are expected to honor the confidential nature of company and client affairs. Information designated as confidential shall not be communicated outside of the US Schroder Group or other affiliated companies of Schroders other than to advisers consulted on a confidential basis, and shall only be communicated within Schroders on a "need to know" basis or as otherwise authorized by management in conformity with the Code. Personnel must also avoid making unnecessary disclosure of ANY internal information concerning Schroders and its business relationships and must use such information in a prudent and proper manner in the best interests of Schroders and its clients. (b) LEVEL OF CARE Personnel are expected to represent the interests of Schroders and its clients in an ethical manner and to exercise due skill, care, prudence and diligence in all business dealings, including but not limited to compliance with all applicable regulations and laws, and to avoid illegal activities and other conduct specifically prohibited to its personnel by the respective policies of any of the US Schroder Group companies in relation to which a person is a director, officer or employee. (c) FIDUCIARY DUTIES All personnel have fiduciary duties: (i) at all times to place the interests of their clients before their own and not to take inappropriate advantage of their position, and (ii) to conduct themselves in a manner which will avoid any actual or potential conflict of interest or any abuse of a position of trust and responsibility. 2 (d) REQUIREMENTS (i) Personnel are required to comply with the Insider Trading Policy and Personal Securities Transactions Policy incorporated herein. Personnel are prohibited from serving on the board of directors of any publicly listed or traded company or of any company whose securities are held in any client portfolio, except with the prior authorization of the Chairman or Chief Executive of SIM NA or, in their absence, a majority of the Management Committee, based upon a determination that the board service would be consistent with the interests of Schroders' clients. If permission to serve as a director is given, the company will be placed permanently on Section Two of the US Schroder Group Restricted List. Transactions in that company's securities for client and personal securities accounts will only be authorized when certification has been obtained from that company's Secretary or similar officer that its directors are not in possession of material price sensitive information with respect to its securities. COMPLIANCE The Compliance Departments (US and London) are responsible for ensuring that a copy of the Code is delivered to all persons at the time of the commencement of their employment with any US Schroder Group. As a condition of continuing employment, each employee is required to acknowledge in writing receipt of a copy of the Code and that he or she has understood the obligations and responsibilities hereunder and on an annual basis to certify compliance with it on the form provided. The Compliance Departments (US and London) are responsible for maintaining the records and filings required under the Code and making appropriate reports to the Boards of all funds managed by a US Schroder Group company in compliance with Rule 17j-1 under the Investment Company Act. QUESTIONS All questions about an individual's responsibilities and obligations under the Code of Ethics should be referred to the Chief Compliance Officer in New York or London. 3 INSIDER TRADING POLICY THE SCOPE AND PURPOSE OF THE POLICY It is a violation of United States federal law and a serious breach of Schroders' policies for any employee to trade in, or recommend trading in, the securities of a company, either for his/her personal gain or on behalf of the firm or its clients, while in possession of material, nonpublic information ("inside information") which may come into his/her possession either in the course of performing his/her duties, or through personal contacts. Such violations could subject you, Schroders, and our parent organizations, to significant civil as well as criminal liability, including the imposition of monetary penalties, and could also result in irreparable harm to the reputation of Schroders. Tippees (I.E., persons who receive material, nonpublic information) also may be held liable if they trade or pass along such information to others. The US Insider Trading and Securities Fraud Enforcement Act of 1988 ("ITSFEA") requires all broker-dealers and investment advisers to establish and enforce written policies and procedures reasonably designed to prevent misuse of MATERIAL, NON-PUBLIC information. Although ITSFEA itself does not define "insider trading", the US Supreme Court has previously characterized it as the purchase or sale of securities (which include debt instruments and put and call options) while in possession of information which is both MATERIAL and NON-PUBLIC, I.E., information not available to the general public about the securities or related securities, the issuer and in some cases the markets for the securities. The provisions of ITSFEA apply both to trading while in possession of such information and to communicating such information to others who might trade on it improperly. MATERIALITY Inside information is generally understood as material information about an issuer of publicly-traded securities that has not been made known to either the professional investment community or to the public at large. Inside information is material if it would be likely to have an effect on the price of the issuer's securities or if a reasonable investor would be likely to consider it important in making his/her investment decision. Such information usually originates from the issuer itself and could include, among other things, knowledge of a company's earnings or dividends, a significant change in the value of assets, changes in key personnel or plans for a merger or acquisition. For example, a portfolio manager or analyst may receive information about an issuer's earnings or a new product in a private communication with the issuer. Such information is usually considered material and is generally inside 4 information because it has not been effectively disseminated to the public at large. As a general rule, any information received from an issuer that has not been made public in a press release or a public filing will be considered inside information. Upon learning the information, the employee may not purchase or sell securities of the issuer for him/herself or for any account under management until the information is effectively disseminated to the public. If an employee has received information regarding an issuer and he/she believes that the information given has not been given in breach of fiduciary duties, then that person may retain and act upon the information. Market information which emanates from outside the corporation but affects the market price of an issuer's securities can also be inside information. For example, inside information can also originate within Schroders itself. This would include knowledge of activities or plans of an affiliate, or knowledge of securities transactions that are being considered or executed on behalf of clients. Inside information can also be obtained from knowledge about a client that an employee has discovered in his/her dealings with that client. Inside information pertaining to a particular issuer could also involve another company that has a material relationship to the issuer, such as a major supplier's decision to increase its prices. In addition, Rule 14e-3 under the Exchange Act makes it unlawful to buy or sell securities while in possession of material information relating to a tender offer, if the person buying or selling the securities knows or has reason to know that the information is nonpublic and has been acquired, directly or indirectly from the person making or planning to make the tender offer, from the target company, or from any officer, director, partner or employee or other person acting on behalf of either the bidder or the target company. This rule prohibits not only trading, but also the communication of material, nonpublic information relating to a tender offer to another person in circumstances under which it is reasonably foreseeable that the communication will result in a trade by someone in possession of the material, nonpublic information. PROCEDURES AND RESPONSIBILITIES OF EMPLOYEES 1. Personnel who acquire NON-PUBLIC information (that may possibly be material) about a company are immediately prohibited from: (a) trading in the securities of that company or related securities and financial instruments (as defined below) whether for client accounts or for any personal accounts, and (b) communicating the information either inside or outside Schroders except as provided below. 5 2. Personnel who acquired non-public information should report the matter to Compliance (US or London, as appropriate). 3. After Compliance has reviewed the issue, you will be instructed to either continue the prohibitions against trading and communicating or the restrictions on trading and communicating the information will be lifted. PENALTIES Penalties for trading on or communicating material, nonpublic information are severe, both for the individuals involved in such unlawful conduct and their employers. Under the law, a person can be subject to some or all of the penalties below, even if s/he does not personally benefit from the violation. Penalties include: 1) civil injunctions; 2) disgorgement of profits; 3) treble damages - fines for the access person who committed the violation, of up to 3 times the profit gained or loss avoided, whether or not the person actually benefited; 4) fines for the employer or other controlling person of up to the greater of $1,000,000, or 3 times the profit gained or loss avoided; and 5) jail sentences. SPECIAL PROVISIONS FOR TRADING IN THE SECURITIES OF SCHRODERS Plc Special restrictions apply to dealing in the securities of Schroders plc because staff, by virtue of their employment, may be deemed to have Inside Information: 1. Securities of Schroders plc will not be purchased for any client account without the permission of that client, and then only if permitted by applicable law. 2. Personal securities transactions in the securities of Schroders plc are subject to blackout periods and other restrictions which are outlined in the UK Staff Dealing Rules which can be found on Group Compliance's intranet website. US SCHRODER GROUP RESTRICTED LIST The US Schroder Group Restricted List is circulated only to those employees responsible for placing securities trades. 6 SECTION ONE: No personnel may place trades in any securities, which term includes options, warrants, debentures, futures, etc., on such securities, of any company on Section One of the US Schroder Group Restricted List for any account whatsoever, including client accounts or personal accounts at any time. SECTION TWO: Trades in the securities or related securities of any company on Section Two of the US Schroder Group Restricted List (which contains those companies that have an officer of a US Schroder Group Company on their board of directors, or where a US Schroder Group Company manages a part of their balance sheet assets, i.e., corporate cash rather than pension fund assets) may only be undertaken with the written permission of Compliance. No approval to trade will be given: (i) for any securities of a company currently on Section One of the US Schroder Group Restricted List; (ii) for any security of a company on Section Two of the US Schroder Group Restricted List because an officer of a US Schroder Group Company serves as a director of that company unless confirmation from that company's Secretary or similar officer is obtained that its directors are not in possession of material price sensitive information with respect to its securities. Permission to trade in the securities of any company on Section Two of the US Schroder Group Restricted List because a US Schroder Group Company manages balance sheet assets for that company (as opposed to pension fund assets) will only be given if confirmation is obtained from the portfolio manager responsible for that client that no US Schroder Group Company holds any price sensitive information with respect to that company. Permission will not, in any event, be given to any personnel personally involved in the management of that client's account. 7 PERSONAL SECURITIES TRANSACTIONS POLICY SUMMARY All employees of the US Schroder Group are subject to the restrictions contained in this Personal Securities Transactions Policy (the "Policy") with respect to their securities transactions. The following serves as a summary of the most common restrictions. Please refer to specific sections that follow this summary for more detail, including definitions of persons covered by this Policy, accounts covered by this Policy ("Covered Accounts"), securities covered by this Policy ("Covered Securities"), reports required by this Policy and the procedures for compliance with this Policy. ALL PURCHASES OR SALES OF COVERED SECURITIES (GENERALLY, STOCKS AND BONDS) BY EMPLOYEES, AND CERTAIN OF THEIR FAMILY MEMBERS, MUST BE PRECLEARED, EXCEPT AS NOTED BELOW. ALL US-BASED EMPLOYEES (EXCEPT SAN FRANCISCO-BASED EMPLOYEES) MUST EXECUTE THEIR TRANSACTIONS IN COVERED SECURITIES EITHER THROUGH CHARLES SCHWAB OR SALOMON SMITH BARNEY. ALL LONDON-BASED AND SAN FRANCISCO-BASED PERSONNEL MUST HAVE DUPLICATE CONFIRMATIONS OF TRADES SENT TO COMPLIANCE IN LONDON. ACCESS PERSONS (AS DEFINED BELOW) ARE PROHIBITED FROM PURCHASING OR SELLING A COVERED SECURITY, WITHIN SEVEN CALENDAR DAYS BEFORE OR after A CLIENT HAS TRADED IN THE SAME (OR A RELATED) SECURITY UNLESS A DE MINIMIS EXCEPTION APPLIES. DE MINIMIS EXCEPTIONS: FOR NORTH AMERICA-BASED PERSONNEL (EXCEPT SAN FRANCISCO-BASED EMPLOYEES), THERE IS A DE MINIMIS EXCEPTION PERTAINING TO TRANSACTIONS OF UP TO 500 SHARES PER WEEK OF A LARGE CAP US EQUITY. FOR LONDON-BASED AND SAN FRANCISCO-BASED PERSONNEL, THERE IS A DE MINIMIS EXCEPTION FOR TRANSACTIONS IN MAINSTREAM (E.G., FTSE 100) SECURITIES UP TO L7,000 PER MONTH. ACCESS PERSONS ARE PROHIBITED FROM PROFITING FROM THE PURCHASE AND SALE OR SALE AND PURCHASE OF A COVERED SECURITY, OR A RELATED SECURITY, WITHIN 60 CALENDAR DAYS. ANY EMPLOYEE WISHING TO BUY U.S. SECURITIES IN AN INITIAL PUBLIC OFFERING OR A PRIVATE PLACEMENT MUST RECEIVE PRIOR PERMISSION FROM THE CHIEF COMPLIANCE OFFICER IN NEW YORK. 8 ACCESS PERSON means any director, officer or employee of SIM NA, SFA, SUSHI or the Schroder Funds who is an Advisory Person. Persons employed as dealers by affiliates of SIM NA who place trades on behalf of SIM NA clients are deemed Access Persons. ADVISORY PERSON is any employee of the US Schroder Group who, in connection with his/her regular functions or duties, makes, participates in, or obtains information regarding the purchase or sale of a security on behalf of any US advisory client or information regarding securities under consideration for purchase or sale on behalf of such clients or whose functions relate to the making of any recommendations with respect to such purchases or sales. COVERED SECURITIES Securities, such as stocks, bonds and options, are covered by this Policy. The same limitations pertain to transactions in a security related to a Covered Security, such as an option to purchase or sell a Covered Security and any security convertible into or exchangeable for a Covered Security. NOT COVERED BY THIS POLICY ARE: shares or units in any open-end US registered investment company (mutual fund or unit investment trust), including Exchange Traded Funds ("ETFs"), SPDRs, HLDRS, etc. shares of any UK authorized unit trust, recognized funds and OEICS securities which are direct obligations of the U.S. Government (I.E., Treasuries) any debt security directly guaranteed by any OECD member Government bankers' acceptances, bank certificates of deposit, commercial paper, repurchase agreements and other high quality short-term debt instruments(1) IF A SECURITY IS NOT COVERED BY THIS POLICY, YOU MAY PURCHASE OR SELL IT WITHOUT OBTAINING PRECLEARANCE AND YOU DO NOT HAVE TO REPORT IT. COVERED ACCOUNTS An account covered by this Policy is an account in which Covered Securities are owned by you. This includes IRA accounts. Under the Policy, accounts held by your spouse (including his/her IRA accounts), minor children and other members of your immediate family (children, stepchildren, grandchildren, parents, step parents, grandparents, siblings, in-laws and adoptive relationships) who share your household are also considered your accounts. In addition, accounts - ----------- (1) High quality short-term debt instruments means any instrument having a maturity at issuance of less than 366 days and which is rated in one of the highest two rating categories by a Nationally Recognized Statistical Rating Organization, or which is unrated but is of comparable quality. 9 maintained by your domestic partner (an unrelated adult with whom you share your home and contribute to each other's support) are considered your accounts under this Policy. IF YOU ARE IN ANY DOUBT AS TO WHETHER AN ACCOUNT FALLS WITHIN THIS DEFINITION OF COVERED ACCOUNT, PLEASE SEE COMPLIANCE. FURTHER, IF YOU BELIEVE THAT THERE IS A REASON THAT YOU ARE UNABLE TO COMPLY WITH THE POLICY, FOR EXAMPLE, YOUR SPOUSE WORKS FOR ANOTHER REGULATED FIRM, YOU MAKE SEEK A WAIVER FROM COMPLIANCE. BLACK OUT PERIODS - ACCESS PERSONS ONLY In order to prevent employees from buying or selling securities in competition with orders for clients, or from taking advantage of knowledge of securities being considered for purchase or sale for clients,(2) Access Persons will not be able to execute a trade in a Covered Security within seven calendar days before or after a client has traded in the same (or a related) security unless a DE MINIMIS exception applies. DE MINIMIS EXCEPTION - US: Transactions involving shares in certain companies traded on US stock exchanges or the NASDAQ will be approved regardless of whether there are outstanding client orders unless there is a large outstanding order for the purchase or sale of such securities by clients. A large order will generally occur if the US equity large cap model has been revised. Other than an adjustment in the model, outstanding orders for wrap fee or managed accounts or to re-balance institutional or private accounts, will not preclude clearance for a DE MINIMIS transaction. The exception applies to transactions involving no more than 500 shares per issuer per week in the aggregate for an employee's Covered Accounts, in securities of companies with market capitalizations of $5 billion or more. In the case of options, an employee may purchase or sell up to 5 option contracts per week to control up to 500 shares in the underlying security of such large cap company. Preclearance is required for all US DE MINIMIS transactions. DE MINIMIS EXCEPTION - LONDON: Transactions in readily marketable securities listed on a recognized exchange and part of an internationally recognized index (e.g., FTSE 100) of L7,000 or less per month, per security. Preclearance is not required for London DE MINIMIS transactions nor are they subject to the 60 day holding period described below. Duplicate contract notes must be sent to Compliance in accordance with The Schroder Group UK Staff Dealing Rules ("The Rules"), which are incorporated by reference. - --------------- (2) A security is "being considered for purchase or sale" when a recommendation to purchase or sell a security has been made or communicated and, with respect to the person making the recommendation, when such person seriously considers making such a recommendation. 10 HOLDING PERIODS Short Term Trading: All personnel are strongly advised against short-term trading. Any personnel who appear to have established a pattern of short term trading may be subject to additional restrictions or penalties including, but not limited to, a limit or ban on future personal trading activity and a requirement to disgorge profits on short-term trades. ACCESS PERSONS CANNOT PURCHASE OR SELL THE SAME COVERED SECURITY WITHIN 60 DAYS IF SUCH TRANSACTIONS WILL RESULT IN A PROFIT. THE SHORT TERM TRADING PROHIBITION SHALL NOT PERTAIN TO THE EXERCISE OF A CALL SOLD BY AN EMPLOYEE TO COVER A LONG POSITION. HOWEVER, ALTHOUGH AN ACCESS PERSON MAY PURCHASE A PUT TO COVER A LONG POSITION, THE EXERCISE OF SUCH PUT WILL ONLY BE APPROVED IF THE UNDERLYING SECURITY WAS HELD FOR THE MINIMUM REQUIRED PERIOD (60 DAYS). THE EXERCISE OF A COVERED PUT IS SUBJECT TO THE SAME PRECLEARANCE AND REPORTING REQUIREMENTS AS THE UNDERLYING SECURITY. PERSONAL TRADING/DEALING The following section addresses how to obtain preclearance, when you may trade and how to establish an account. The procedures vary in detail, depending upon where you work, but do not vary in principle. For ease of understanding, this section is divided according to geographic area. IF AN EMPLOYEE FAILS TO PRECLEAR A COVERED TRANSACTION, S/HE MAY BE MONETARILY PENALIZED, BY FINE OR DISGORGEMENT OF PROFITS OR AVOIDANCE OF LOSS. VIOLATIONS OF THIS POLICY WILL RESULT IN REPRIMANDS AND COULD ALSO AFFECT THE PERSON'S EMPLOYMENT AT SCHRODERS. US-Based Personnel All US-based personnel are required to maintain their Covered Accounts at either Charles Schwab or Salomon Smith Barney. Personnel on secondment from London may apply to Compliance for a waiver of the requirement to maintain their Covered Accounts at Schwab or SSB. However, any seconded employee wishing to trade in US securities must follow the procedures as set forth for US-based personnel unless waived by Compliance. Seconded employees who do not maintain Covered Accounts in the US are required to follow the procedures set forth in The Rules and obtain the appropriate clearance from London. Preclearance is obtained by completing a Request to Trade Form. Clearance must be obtained from the appropriate asset class manager and 11 then from Compliance. Attached to this Policy is a list of the personnel who may preclear a trade. Preclearance is valid until close of business on the next business day following receipt of preclearance. If the transaction has not been executed within that timeframe, a new preclearance must be obtained. Please be sure to give the original Request to Trade Form to Compliance and keep a copy for yourself. IF YOU WISH TO PURCHASE AN INITIAL PUBLIC OFFERING(3) OR SECURITIES IN A PRIVATE PLACEMENT(4) YOU MUST OBTAIN PERMISSION FROM THE CHIEF COMPLIANCE OFFICER. THE FOLLOWING TRANSACTIONS DO NOT REQUIRE PRE-CLEARANCE: Transactions in a Covered Account over which the employee has no direct or indirect influence or control such as where investment discretion is delegated in writing to an independent fiduciary. Compliance must receive evidence of the delegation. Transactions which are non-volitional on the part of the employee (I.E., the receipt of securities pursuant to a stock dividend or merger, a gift or inheritance). However, the sale of securities acquired in a non-volitional manner is treated as any other transaction and subject to pre-clearance. Purchases of the stock of a company pursuant to an automatic dividend reinvestment plan, automatic direct stock purchase plan, dividend reinvestment plan or employee stock purchase plan sponsored by such company. If the deductions are on an automatic, regular (I.E., weekly, monthly, etc.) basis from either a paycheck or a bank or money market account, need not be pre-cleared. The receipt or exercise of rights issued by a company on a PRO RATA basis to all holders of a class of security and the sale of such rights. However, if you purchase the rights from a third-party, the transaction must be pre-cleared. Likewise, the sale of such rights must be pre-cleared. - ----------------- (3) An IPO is an offering of securities registered under the Securities Act, the issuer of which, immediately before the registration, was not subject to reporting requirements under the federal securities laws. (4) A private placement is an offering of securities that are not registered under the Securities Act because the offering qualified for an exemption from the registration provisions. 12 London-based Personnel All London-based personnel are required to comply with the requirements of The Rules, which can be found on Compliance's intranet site (in the Compliance Manual). SAN FRANCISCO BASED EMPLOYEES ARE SUBJECT TO THE RULES. Upon establishing an account, London-based personnel are required to make arrangements for copies of all contracts and confirmations to be sent to Compliance in London. In addition to the dealers' sign-off, approval must be obtained from the senior asset class manager, unless the transaction is covered under the DE MINIMIS exception. A list of such dealers and managers can be found in The Rules. Preclearance is valid until close of business on the next business day following receipt of preclearance. If the transaction has not been executed within that timeframe, a new preclearance procedure must be followed. PURCHASES OF NON-US SECURITIES IN THE RETAIL TRANCHE OF A NEW ISSUE ARE PERMITTED WHERE THE SECURITIES ARE ACQUIRED THROUGH A RETAIL APPLICATION FORM WHICH DOES NOT DISCLOSE, AND WHERE ALLOTMENT IS NOT DEPENDENT ON, THE APPLICANT'S AFFILIATION WITH SCHRODERS. TORONTO AND MEXICO CITY BASED EMPLOYEES All Toronto and Mexico City based SIM NA personnel may maintain Covered Accounts at the brokerage firm of their choosing, provided that Compliance (New York) is notified. These employees are required to provide Compliance with copies of monthly/periodic account statements and trade confirmations. Preclearance is obtained in the same manner as for US-based personnel. Once you have obtained preclearance, you must complete the transaction by the close of the following business day. Please be sure to send the original Request to Trade Form to Compliance in New York and to keep a copy for yourself. ALL OTHER ACCESS PERSONS All other persons who are deemed Access Persons, wherever geographically situated, are subject to their local policies and procedures relating to personal securities transactions. Records of such Access Persons' personal transactions will be maintained in accordance with Rule 204-2(a)(12) under the Advisers Act 13 and made available to representatives of the US Securities and Exchange Commission upon request. REPORTING REQUIREMENTS All personnel are required to report their transactions in Covered Securities as follows. Reports of Each Transaction in a Covered Security Personnel are required to report to Compliance, no later than at the opening of business on the business day following the day of execution of a trade for a Personal Account the following information: name of security nature of transaction (purchase, sale, etc.) number of shares/units or principal amount price of transaction date of trade name of broker SSB and Schwab provide the New York Compliance Department with a daily report of the above information with respect to any personal securities transactions executed by US-based personnel. Toronto and Mexico based personnel may discharge these obligations by arranging in advance for copies of contract notes/confirmations for all their transactions to be sent automatically to Compliance in New York. The reporting obligation of London-based and San Francisco-based personnel may be discharged by brokers sending copies of contract notes/confirmations for all transactions to Compliance in London. Any personnel seconded from London to New York who are granted a waiver from the requirement to maintain personal accounts at SSB or Schwab shall, within ten days after the end of each calendar quarter, provide Compliance in New York with copies of all preclearance forms and contract notes for transactions executed during the preceding quarter. INITIAL EMPLOYMENT No later than 10 days after initial employment with a US Schroder Group Company, each employee must provide Compliance (New York or London, as appropriate) with a list of each Covered Security s/he owns (as defined above). The information provided must include the title of the security, number of shares owned, and principal amount, as well as a of list of all 14 Covered Accounts where Covered Securities are held. The employee must sign and date the report. QUARTERLY REPORTS No later than 10 days after the end of each calendar quarter, each employee will provide Compliance (New York or London, as appropriate) with a report of all transactions in Covered Securities in the quarter, including the name of the Covered Security, the number of shares and principal amount, whether it was a buy or sell, the price and the name of the broker through whom effected. Report of any new Covered Accounts established during the quarter, including the name of the broker/dealer and the date the Covered Account was established, must also be made. The report must be signed and dated by the employee. ANNUAL REPORTS Within 30 days after the end of the calendar year, each employee must report all his/her holdings in Covered Securities as at December 31, including the title, number of shares and principal amount of each Covered Security the employee owns (as defined above) and the names of all Covered Accounts. The employee must sign and date the report. EXCEPTIONS: A director of a Schroder Fund who is not an "interested person"(5) is not required to make initial, quarterly or annual reports provided that s/he did not know, nor in the ordinary course of fulfilling his/her duties as a director, s/he should not have known, that during the 15 day period immediately before or after his/her transaction in a Covered Security, the Fund purchased or sold the Covered Security or that the Covered Security was considered for purchase or sale by the Fund. The information on personal securities transactions received and recorded will be deemed to satisfy the obligations contained in Rule 204-2(a)(12) under the Advisers Act and Rule17j-1 under the Investment Company Act. Such reports may, where appropriate, contain a statement to the effect that the reporting of the transaction is not to be construed as an admission that the person has any direct or indirect beneficial interest or ownership in the security. ADMINISTRATION OF THE CODE At least annually, the Chief Compliance Officer in New York, on behalf of SIMNA, will furnish to the board of the Schroder Funds and any other US - -------------------- (5) As defined in Section 2(a)(19) of the Investment Company Act. 15 registered investment companies to which SIM NA acts as adviser or subadviser, a written report that: (i) Describes any issues arising under the Code or this Policy since the last report to the board, including, but not limited to, information about material violations of the Code or this Policy and sanctions imposed in response to the material violations; and (ii) Certifies that the SIM NA has adopted procedures reasonably necessary to prevent Access Persons from violating the Code or this Policy. Adopted: October 1, 1995 Amended: May 15, 1996 May 1, 1997 June 12, 1998 June 2, 1999 March 14, 2000 August 14, 2001 16 APPENDIX The following members of the Compliance Department are authorized to preclear personal transactions for persons subject to the US rules: Barbara Brooke Manning Evett Lawrence Brian Murphy The following portfolio managers are authorized to preclear personal transactions: New York: US Large Cap: Andrew Smethurst, Timothy Pettee US Small Cap: Ira Unschuld US Fixed Income: Steven Lear Non-US: Michael Perelstein, Deborah Chaplin, Shigemi Takagi Boston: US Small Cap: Nancy Tooke 17 -----END PRIVACY-ENHANCED MESSAGE-----