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PRIVATE CLIENT GROUP
MANAGED ACCOUNTS SERVICES
PaineWebber Incorporated
1200 Harbor Blvd.
Weehawken, NJ 07087-6791
[LOGO]
THE FOLLOWING IS A SUPPLEMENT TO THE PROSPECTUS, DATED DECEMBER 1, 1997, OF
PAINEWEBBER PACE SELECT ADVISORS TRUST (THE "PACE TRUST").
March 11, 1998
Dear PaineWebber PACE-SM- Investor:
The purpose of this supplement is to inform you of (1) mergers affecting two of
the sub-advisers (each an "Adviser") of the PACE Trust: Brandywine Asset
Management, Inc. ("Brandywine"), Adviser of PACE SMALL/MEDIUM COMPANY VALUE
EQUITY INVESTMENTS portfolio, and Brinson Partners, Inc. ("Brinson"), Adviser of
PACE LARGE COMPANY VALUE EQUITY INVESTMENTS portfolio, and (2) a change in the
non-fundamental investment policy for PACE INTERNATIONAL EMERGING MARKETS EQUITY
INVESTMENTS portfolio to permit investments in certain non-investment grade debt
securities.
MERGERS AFFECTING BRANDYWINE AND BRINSON
On January 16, 1998, Brandywine was acquired by Legg Mason, Inc. ("Legg Mason")
in an exchange of stock. Legg Mason, based in Baltimore, Maryland, is a holding
company which provides securities brokerage, investment management and
investment banking services through its wholly owned subsidiaries. Prior to
acquiring Brandywine, Legg Mason had approximately $54 billion in assets under
management. As a result of the merger, Brandywine shareholders became
shareholders of Legg Mason, and Brandywine became a wholly owned subsidiary of
Legg Mason. Under the terms of the agreement, Brandywine will continue to be
managed by its senior managers, including its founder and President, W. Anthony
Hitschler, all of whom are expected to remain with the firm under long-term
employment agreements.
During the first week of February, 1998, shareholders of Swiss Bank Corporation
and UBS (Union Bank of Switzerland) approved a proposal to merge the two
entities into a single organization, to be called UBS (United Bank of
Switzerland). As part of this merger, Brinson, an indirect wholly owned
subsidiary of Swiss Bank Corporation, will be combined with UBS Asset Management
to form the Brinson Division. The Brinson Division will become the institutional
asset management division of the new UBS (United Bank of Switzerland), with
approximately $340 billion in assets under management. Gary Brinson, Brinson's
President and Managing Partner, will be the Chief Executive Officer and Chief
Investment Officer of the Brinson Division. Swiss Bank Corporation and UBS
(Union Bank of Switzerland) expect to complete the proposed transaction in the
second quarter of 1998. It is anticipated that as a result of the merger, which
will be effected through a share exchange offer, Swiss Bank Corporation
shareholders will hold 40% and UBS (Union Bank of Switzerland) shareholders will
hold 60% of the share capital of UBS (United Bank of Switzerland).
Established 1879
Member New York Stock Exchange, Inc.
Other Principal Exchanges
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Along with the investment counseling provided by your PaineWebber Investment
Executive, a significant part of the services you receive within the PACE
Program is the ongoing review and due diligence of the PACE Advisers. As you
know, Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") is
responsible for the selection and ongoing review, subject to review and approval
of the Board of Trustees (the "Board") of the PACE Trust, of the Advisers for
the PACE portfolios. Since the announcements of the mergers, Mitchell Hutchins
has been in close contact with both Brandywine and Brinson regarding their
respective transactions. Each of Brandywine and Brinson has assured Mitchell
Hutchins that the same investment professionals and investment process continue
to be in place for the respective PACE portfolio and that no material changes
are expected in the future as a result of the change in the firm's ownership. At
a meeting held on January 13, 1998, the Board approved Brandywine's proposed
merger with Legg Mason and the form of new Sub-Advisory Agreement which was
entered into with Brandywine upon the closing of the merger. With respect to
Brinson, Mitchell Hutchins is continuing to evaluate Brinson's status as the
transaction progresses. Mitchell Hutchins has not recommended that the Board
take any action at this time with respect to Brinson based on the assurances
that Mitchell Hutchins has received from Brinson regarding the current
investment personnel and process. Mitchell Hutchins intends to continue to
monitor both firms closely to ensure that the PACE portfolios are not adversely
impacted.
CHANGE IN THE NON-FUNDAMENTAL INVESTMENT POLICY FOR
PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS
The Board has authorized PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS
to invest up to 10% of its total assets in debt securities rated below A by
Moody's or S&P, but rated at least C by S&P, or determined by the portfolio's
sub-adviser, Schroder Capital Management International Inc., to be of comparable
quality.
THE FOLLOWING IS ADDED TO THE END OF THE FIRST PARAGRAPH OF THE SECTION ENTITLED
"PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS" ON PAGE 24 OF THE PACE
TRUST PROSPECTUS UNDER THE CAPTION ENTITLED "INVESTMENT OBJECTIVES AND POLICIES
OF THE PORTFOLIOS AND RISK FACTORS":
The Portfolio also may invest up to 35% of its total assets in debt securities.
All of the debt securities purchased for the Portfolio will be limited to those
that are rated at least A by Moody's or S&P (or, if unrated, determined by the
Adviser to be of comparable quality), except that the Portfolio may invest up to
10% of its total assets in securities rated below A by Moody's or S&P, but rated
at least C by S&P, or determined by the Adviser to be of comparable quality. In
the event that, due to a downgrade of one or more debt securities, an amount in
excess of 10% of the Portfolio's total assets is held in securities rated below
A by Moody's or S&P and comparable unrated securities, the Adviser will engage
in an orderly disposition of such securities to the extent necessary to reduce
the Portfolio's holdings thereof. Securities rated Baa or lower by Moody's or
BBB or lower by S&P have speculative characteristics and are subject to greater
risks. See "Other Investment Policies and Risk Factors -- Debt Securities" below
and the Appendix in the SAI for a description of Moody's and S&P ratings.
IN ADDITION, THE FOLLOWING REPLACES THE SECOND, THIRD AND FOURTH PARAGRAPHS OF
THE SECTION ENTITLED "DEBT SECURITIES" ON PAGES 25-26 OF THE PACE TRUST
PROSPECTUS UNDER THE CAPTION ENTITLED "OTHER INVESTMENT POLICIES AND RISK
FACTORS":
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Except where otherwise indicated, each Portfolio will invest in securities rated
A or better by any NRSRO or determined by the Adviser to be of comparable
quality. PACE INTERMEDIATE FIXED INCOME INVESTMENTS, PACE STRATEGIC FIXED INCOME
INVESTMENTS, PACE MUNICIPAL FIXED INCOME INVESTMENTS, PACE GLOBAL FIXED INCOME
INVESTMENTS AND PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS may
invest in medium-rated securities (i.e., rated Baa by Moody's or BBB by S&P).
Moody's considers securities rated Baa to have speculative characteristics. PACE
STRATEGIC FIXED INCOME INVESTMENTS, PACE GLOBAL FIXED INCOME INVESTMENTS AND
PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS also may invest in
lower-rated securities (i.e., rated lower than Baa by Moody's or lower than BBB
by S&P). However, PACE STRATEGIC FIXED INCOME INVESTMENTS will not purchase a
security rated lower than B by Moody's or S&P, and PACE GLOBAL FIXED INCOME
INVESTMENTS will not purchase a security rated lower than Ba by Moody's or BB by
S&P. Changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity for such securities to make principal and interest
payments than is the case for higher grade debt securities. In addition, PACE
INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS will not purchase a security
rated lower than C by S&P or another rating assigned by Moody's that the
Portfolio's Adviser determines to be of comparable rating to S&P's C rating.
Debt securities rated below investment grade are deemed by these agencies to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal and may involve major risk exposure to adverse conditions
and, as previously stated, are commonly referred to as "junk bonds."
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 AND PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS
are permitted to purchase debt securities that are not rated by an NRSRO but
that the Portfolio's Adviser determines to be of comparable quality to that of
rated securities in which it may invest. These securities are included in the
computation of any percentage limitations applicable to comparably rated
securities.
Although the relevant Advisers will attempt to minimize the speculative risks
associated with investments in junk bonds through diversification, credit
analysis and attention to current trends in interest rates and other factors, an
investor should carefully review the objectives and policies of PACE STRATEGIC
FIXED INCOME INVESTMENTS and PACE INTERNATIONAL EMERGING MARKETS EQUITY
INVESTMENTS and consider its ability to assume the investment risks involved
before making an investment.
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If you have any questions or would like additional information, please contact
your Investment Executive.
Please retain this supplement with your PACE Trust Prospectus for future
reference.
Sincerely,
/S/ ERIC T. JONES
Eric T. Jones
Senior Vice President
PACE Program Manager
