PAINEWEBBER PACE SELECT ADVISORS TRUST
497, 1998-07-23
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                     PAINEWEBBER PACE SELECT ADVISORS TRUST
             1285 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10019
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                       PROSPECTUS DATED DECEMBER 1, 1997
                           AS REVISED, JULY 20, 1998
 
    PaineWebber PACE Select Advisors Trust (the "Trust") is an open-end,
management investment company currently composed of twelve separate no-load
investment portfolios (each a "Portfolio") managed by Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins" or the "Manager"), a wholly owned asset
management subsidiary of PaineWebber Incorporated ("PaineWebber"). Shares of the
Portfolios currently are available only to participants in the PaineWebber
PACE-SM- Program ("PACE Program"). The PACE Program and the Trust are designed
to assist you in devising an asset allocation strategy to meet your individual
needs. PaineWebber, through the PACE Program, provides investment advisory
services in connection with the allocation of assets among the Portfolios by:
identifying your risk tolerances and investment objectives based on information
provided by you; identifying and recommending, in writing, a suggested
allocation of assets among the Portfolios that conforms to those tolerances and
objectives; providing a monthly account statement; providing performance data on
a quarterly basis; and providing a quarterly (optional) rebalancing service. See
"Purchases--General--The PACE Program."
 
    For each Portfolio other than PACE Money Market Investments, investment
advisory services are provided by an investment adviser (each an "Adviser")
monitored and compensated by, and unaffiliated with, the Manager. For PACE Money
Market Investments, investment advisory services are provided by Mitchell
Hutchins. The Trust consists of the following twelve Portfolios:
 
    / /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
 
    AN INVESTMENT IN PACE MONEY MARKET INVESTMENTS IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. WHILE PACE MONEY MARKET INVESTMENTS SEEKS TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE, THERE CAN BE NO ASSURANCE
THAT IT WILL BE ABLE TO DO SO.
 
    Under the PACE Program, you will pay PaineWebber a quarterly program fee
("Program Fee") at an annual rate of up to 1.50% of the value of shares of the
Portfolios held in your PaineWebber account. Certain participants are eligible
for a reduction of the Program Fee. See "Purchases." As a PACE Program
participant, you may incur greater total fees and expenses than investors
purchasing shares of similar investment companies without the benefit of these
professional asset allocation recommendations.
 
    This Prospectus concisely sets forth information about the Trust that you
should know before investing. Please retain this Prospectus for future
reference. A Statement of Additional Information ("SAI"), dated December 1, 1997
(which information is incorporated by reference herein), is on file with the
Securities and Exchange Commission ("SEC"). You can obtain a free copy of the
SAI by calling toll-free at 1-800-647-1568, and further inquiries can be made by
contacting your PaineWebber investment executive. In addition, the SEC maintains
a website (http://www.sec.gov) that contains the Statement of Additional
Information, material incorporated by reference, and other information regarding
registrants that file electronically with the SEC.
 
INVESTORS SHOULD RELY ON THE INFORMATION CONTAINED OR REFERRED TO IN THIS
PROSPECTUS. THE PORTFOLIOS AND THEIR DISTRIBUTOR HAVE NOT AUTHORIZED ANYONE TO
PROVIDE INVESTORS WITH INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS IS NOT AN
OFFER TO SELL SHARES OF THE PORTFOLIOS IN ANY JURISDICTION WHERE THE PORTFOLIOS
OR THEIR DISTRIBUTOR MAY NOT LAWFULLY SELL THOSE SHARES.
 
  THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
     EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
       OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
                                CONTRARY IS A CRIMINAL OFFENSE.
 
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                               TABLE OF CONTENTS
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<TABLE>
<CAPTION>
                                           Page
                                         ---------
 
<S>                                      <C>
Prospectus Summary.....................          3
 
Trust Expenses.........................          8
 
Financial Highlights...................         12
 
Investment Objectives and Policies of
 the Portfolios and Risk Factors.......         16
 
Other Investment Policies and Risk
 Factors...............................         25
 
Management.............................         43
 
Valuation of Shares....................         49
 
Purchases..............................         49
 
Redemptions............................         51
 
Other Services and Information.........         51
 
Exchanges..............................         52
 
Dividends and Taxes....................         52
 
Performance Information................         54
 
General Information....................         55
 
Appendix A.............................         56
 
Appendix B ............................         57
</TABLE>
 
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                                       2
<PAGE>
                               PROSPECTUS SUMMARY
 
    This section summarizes certain terms and provisions of the PACE Program and
the Portfolios of the Trust. Please read the rest of this Prospectus for
additional important information.
 
    PACE PROGRAM.  The PACE Program is an investment advisory service pursuant
to which PaineWebber provides to you personalized asset allocation
recommendations and related services based on an evaluation of your investment
objectives and risk tolerances. For the services provided to you under the PACE
Program, you pay PaineWebber a quarterly Program Fee at an annual rate of up to
1.50% of the value of the shares of the Portfolios held in your PaineWebber
account. Certain participants are eligible for a reduction of the Program Fee.
See "Purchases."
 
    THE TRUST.  The Trust is a mutual fund which provides a convenient means of
investing in a number of professionally managed portfolios. The Trust currently
consists of twelve separate no-load Portfolios. The following is a summary of
important features of the Portfolios.
 
<TABLE>
<CAPTION>
                                     INVESTMENT                 CORE PORTFOLIO                 INVESTMENT
      PACE PORTFOLIO                  OBJECTIVE                   INVESTMENTS                    ADVISER
- ---------------------------  ---------------------------  ---------------------------  ---------------------------
<S>                          <C>                          <C>                          <C>
PACE MONEY MARKET            Current income consistent    High quality money market    Mitchell Hutchins Asset
INVESTMENTS                  with preservation of         instruments                  Management Inc.
                             capital and liquidity
 
PACE GOVERNMENT SECURITIES   Current income               Primarily U.S. government    Pacific Investment
FIXED INCOME INVESTMENTS                                  and agency securities of     Management Company
                                                          varying maturities, as well
                                                          as mortgage-backed
                                                          securities, with a
                                                          dollar-weighted average
                                                          portfolio duration of
                                                          between two and seven years
 
PACE INTERMEDIATE FIXED      Current income, consistent   Fixed income securities      Pacific Income Advisers,
INCOME INVESTMENTS           with reasonable stability    with a dollar-weighted       Inc.
                             of principal                 average portfolio duration
                                                          of between two and four and
                                                          one-half years
 
PACE STRATEGIC FIXED INCOME  Total return consisting of   Fixed income securities of   Pacific Investment
INVESTMENTS                  income and capital           varying maturities with a    Management Company
                             appreciation                 dollar-weighted average
                                                          portfolio duration of
                                                          between three and eight
                                                          years
 
PACE MUNICIPAL FIXED INCOME  High current income exempt   General obligation, revenue  Morgan Grenfell Capital
INVESTMENTS                  from federal income tax      and private activity bonds   Management, Incorporated
                                                          and notes, the interest on
                                                          which is exempt from
                                                          federal income tax, with a
                                                          dollar-weighted average
                                                          portfolio duration of
                                                          between three and seven
                                                          years
 
PACE GLOBAL FIXED INCOME     High total return            High-grade fixed income      Rogge Global Partners plc
INVESTMENTS                                               securities issued by
                                                          domestic and foreign
                                                          governments and
                                                          supranational entities and
                                                          private issuers located
                                                          overseas, with a dollar-
                                                          weighted average portfolio
                                                          duration of between four
                                                          and eight years
</TABLE>
 
                                       3
<PAGE>
 
<TABLE>
<CAPTION>
                                     INVESTMENT                 CORE PORTFOLIO                 INVESTMENT
      PACE PORTFOLIO                  OBJECTIVE                   INVESTMENTS                    ADVISER
- ---------------------------  ---------------------------  ---------------------------  ---------------------------
<S>                          <C>                          <C>                          <C>
PACE LARGE COMPANY VALUE     Capital appreciation and     Equity securities with the   Brinson Partners, Inc.
EQUITY INVESTMENTS           dividend income              majority of the Portfolio
                                                          invested in common stocks
                                                          of companies with total
                                                          market capitalization
                                                          (i.e., market value of
                                                          common stock outstanding)
                                                          of at least $2.5 billion
 
PACE LARGE COMPANY GROWTH    Capital appreciation         Equity securities with the   Alliance Capital Management
EQUITY INVESTMENTS                                        majority of the Portfolio    L.P.
                                                          invested in common stocks
                                                          of companies characterized
                                                          by an earnings growth rate
                                                          which is faster than that
                                                          of the S&P 500 Composite
                                                          Stock Price Index and with
                                                          total market capitalization
                                                          (i.e., market value of
                                                          common stock outstanding)
                                                          of at least $2.5 billion
 
PACE SMALL/MEDIUM COMPANY    Capital appreciation         Equity securities with the   Brandywine Asset
VALUE EQUITY INVESTMENTS                                  majority of the Portfolio    Management, Inc.
                                                          invested in common stocks
                                                          of companies that have
                                                          below-market average
                                                          price/earnings ratios and
                                                          with total market
                                                          capitalization (i.e.,
                                                          market value of common
                                                          stock outstanding) of less
                                                          than $2.5 billion
 
PACE SMALL/MEDIUM COMPANY    Capital appreciation         Equity securities with the   Delaware Management
GROWTH EQUITY INVESTMENTS                                 majority of the Portfolio    Company, Inc.
                                                          invested in common stocks
                                                          of companies characterized
                                                          by above-average growth of
                                                          earnings rates with total
                                                          market capitalization
                                                          (i.e., market value of
                                                          common stock outstanding)
                                                          of less than $2.5 billion
 
PACE INTERNATIONAL EQUITY    Capital appreciation         Equity securities of         Martin Currie Inc.
INVESTMENTS                                               issuers domiciled outside
                                                          the United States
 
PACE INTERNATIONAL EMERGING  Capital appreciation         Equity securities of         Schroder Capital Management
MARKETS EQUITY INVESTMENTS                                issuers domiciled or doing   International Inc.
                                                          business in emerging
                                                          markets
</TABLE>
 
    MANAGEMENT.  Mitchell Hutchins acts as the Manager for each Portfolio and
also as the investment adviser for PACE MONEY MARKET INVESTMENTS. All other
Portfolios are advised by an Adviser monitored and compensated by, and
unaffiliated with, the Manager. See "Management."
 
    RISK FACTORS AND SPECIAL CONSIDERATIONS.  No assurance can be given that any
Portfolio will achieve its investment objective. Investing in a Portfolio that
invests in securities of companies and governments of foreign countries,
particularly emerging market countries, involves risks that go beyond the usual
risks inherent in a Portfolio that limits its holdings to domestic investments.
A substantial
 
                                       4
<PAGE>
portion of the assets of certain Portfolios may be held in securities
denominated in one or more foreign currencies, which will result in these
Portfolios bearing the risk that those currencies may lose value in relation to
the U.S. dollar. See "Other Investment Policies and Risk Factors."
 
    Certain Portfolios may use derivative instruments as well as investment
techniques and strategies such as entering into forward currency contracts,
repurchase agreements and interest rate protection transactions and purchasing
and selling (writing) options, futures contracts and options on futures
contracts, that can increase a Portfolio's risks. See "Other Investment Policies
and Risk Factors."
 
    PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS, PACE INTERMEDIATE FIXED
INCOME INVESTMENTS and PACE STRATEGIC FIXED INCOME INVESTMENTS may invest in
U.S. government stripped mortgage-related securities and zero coupon securities,
which, due to changes in interest rates, are more speculative and subject to
greater fluctuations in value than securities that pay interest currently. See
"Other Investment Policies and Risk Factors."
 
    PACE INTERMEDIATE FIXED INCOME INVESTMENTS and PACE GLOBAL FIXED INCOME
INVESTMENTS each are "non-diversified" as that term is defined in the Investment
Company Act of 1940 ("1940 Act"). To the extent that a Portfolio at times may
include the securities of a smaller number of issuers than if it were
"diversified" (as defined in the 1940 Act), that Portfolio will be subject to
greater risk with respect to its portfolio securities than if it had invested in
a broader range of securities, because changes in the financial condition or
market assessment of a single issuer may cause greater fluctuation in the
Portfolio's total return and the price of its shares. See "Other Investment
Policies and Risk Factors."
 
    In addition, PACE STRATEGIC FIXED INCOME INVESTMENTS may invest
significantly in high yield, high risk securities (commonly known as "junk
bonds") that are predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal. See "Other Investment Policies and Risk
Factors."
 
    PaineWebber provides advisory services to you as a participant in the PACE
Program, for which you pay a fee that does not vary based on the Portfolios
recommended for your investments. At the same time, Mitchell Hutchins, a wholly
owned asset management subsidiary of PaineWebber, serves as the Trust's Manager,
which has responsibility for monitoring and compensating each Adviser. As
Manager, Mitchell Hutchins receives a fee from each Portfolio and retains all or
a portion of that fee, the amount of which depends on the Portfolio involved.
Consequently, PaineWebber, when making asset allocation recommendations for you,
may have a conflict of interest as to the specific Portfolios recommended for
investment. PaineWebber, however, is required by applicable standards of
fiduciary duty to act solely in your best interest when making investment
recommendations for you. You also should be aware that the Manager may have
various conflicts of interest when making decisions regarding the retention and
compensation of particular Advisers. However, the Manager's compensation and
decisions, including the specific amount of the Manager's compensation to be
paid to the Adviser, are subject to review and approval by the Trust's board of
trustees and separately by the trustees who are not affiliated with the Manager,
any of the Advisers or any of their affiliates. See "Management--Manager" and
"Purchases--General--The PACE Program."
 
    The Portfolios are intended as vehicles for the implementation of long-term
asset allocation strategies rendered through the PACE Program that are based on
an evaluation of your investment objectives and risk tolerances. Because these
asset allocation strategies are designed to spread investment risk across the
various segments of the securities markets through investment in a number of
Portfolios, each individual Portfolio generally intends to be fully invested in
accordance with its investment objective and policies during most market
conditions. Although the Adviser of a Portfolio may, upon the concurrence of the
Manager, take a temporary defensive position when the Adviser believes adverse
market conditions so warrant, it can be expected that a defensive posture will
be adopted less frequently than would be the case for other mutual funds. This
policy may impede an Adviser's ability to protect a Portfolio's capital during
declines in the particular segment of the market
 
                                       5
<PAGE>
to which the Portfolio's assets are committed. Consequently, no single Portfolio
should be considered a complete investment program, and an investment among the
Portfolios should be regarded as a long-term investment that should be held
through several market cycles.
 
    There can also be no assurance that PaineWebber's periodic recommendations
for adjustments in the allocation of assets among Portfolios will be successful
or can be developed, transmitted and acted upon in a manner sufficiently timely
to avoid market shifts, which can be sudden and substantial. You are urged to
consider carefully PaineWebber's asset allocation recommendations in light of
your investment needs and to act promptly upon any recommended reallocation of
assets among the Portfolios. See "Exchanges."
 
    PURCHASE AND REDEMPTION OF SHARES.  You may purchase shares of the
Portfolios only if you are a participant in the PACE Program. The minimum
initial investment in the Trust is $25,000 and any subsequent investment in the
Trust must be at a minimum of $500. The minimum initial investment in an
individual retirement account is $10,000. Shares of the Portfolios are offered
for purchase and redemption at their respective net asset values next determined
after receipt. You do not pay a sales charge in connection with purchases or
redemptions. As stated above under "PACE Program," for services provided to you
under the PACE Program, you pay PaineWebber a quarterly Program Fee at an annual
rate of up to 1.50% of the value of the shares of the Portfolios held in your
PaineWebber account. Certain participants are eligible for a reduction in the
Program Fee. See "Purchases" and "Redemptions."
 
    DIVIDENDS AND TAXES.  Dividends from the net investment income of PACE MONEY
MARKET INVESTMENTS are declared daily and paid monthly. Dividends from the net
investment income of 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
are declared and paid monthly and may be accompanied by distributions of net
realized short-term capital gains and net realized gains from foreign currency
transactions, if any. Dividends from the net investment income of the six equity
Portfolios are declared and paid annually. Distributions of any undistributed
net realized gains from foreign currency transactions, net capital gain (the
excess of net long-term capital gain over net short-term capital loss) and
undistributed net realized short-term capital gain, if any, earned by a
Portfolio will be made annually. See "Dividends and Taxes."
 
    CUSTODIAN AND TRANSFER AGENT.  State Street Bank and Trust Company is
custodian of each Portfolio's assets and employs foreign sub-custodians to
provide custody of any Portfolio's foreign assets. PFPC Inc. is each Portfolio's
transfer and dividend disbursing agent (the "Transfer Agent").
 
                                       6
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                                       7
<PAGE>
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                                 TRUST EXPENSES
 
    The following table lists the costs and expenses, including the separate
fees for the PACE Program, that you will incur either directly or indirectly as
a shareholder of each Portfolio based on the Portfolio's operating expenses for
the fiscal year ended July 31, 1997.
 
<TABLE>
<CAPTION>
                                                     PACE
                                                  GOVERNMENT      PACE         PACE         PACE         PACE
                                                  SECURITIES   INTERMEDIATE STRATEGIC    MUNICIPAL      GLOBAL
                                     PACE MONEY     FIXED        FIXED        FIXED        FIXED        FIXED
                                       MARKET       INCOME       INCOME       INCOME       INCOME       INCOME
                                     INVESTMENTS  INVESTMENTS  INVESTMENTS  INVESTMENTS  INVESTMENTS  INVESTMENTS
                                     ----------   ----------   ----------   ----------   ----------   ----------
<S>                                  <C>          <C>          <C>          <C>          <C>          <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Annual Program Fee (as a
  percentage of average value of
  Portfolio shares held on the last
  calendar day of the previous
  quarter).........................     1.50%        1.50%        1.50%        1.50%        1.50%        1.50%
                                         ---          ---          ---          ---          ---          ---
                                         ---          ---          ---          ---          ---          ---
ANNUAL PORTFOLIO OPERATING
  EXPENSES*
  (as a percentage of average net
  assets)
Management Fees (Before Fee
  Waivers)**.......................     0.15%        0.50%        0.40%        0.50%        0.40%        0.60%
Distribution (Rule 12b-1)
  Expenses.........................     None         None         None         None         None         None
Other Expenses (Before Expense
  Reimbursements)+.................     1.74%        1.20%(1)     0.59%        0.60%        1.00%        0.69%
                                         ---          ---          ---          ---          ---          ---
Total Portfolio Operating Expenses
  (Net of Fee Waivers and Expense
  Reimbursements)***...............     0.50%        1.57%(1)     0.85%        0.85%        0.85%        0.95%
                                         ---          ---          ---          ---          ---          ---
                                         ---          ---          ---          ---          ---          ---
</TABLE>
 
- ----------
 
  * Does not include the Program Fee.
 
 ** "Management Fees" is the total amount paid by the Portfolio including the
    amounts paid by Mitchell Hutchins to the Adviser for each Portfolio.
 
*** Mitchell Hutchins has voluntarily agreed to waive all or a portion of its
    management fees and reimburse certain operating expenses with respect to the
    Portfolios through July 31, 1998, which will lower the overall expenses of
    the Portfolios to the levels noted above. For the fiscal year ended July 31,
    1997, without such waivers and reimbursements, "Total Portfolio Operating
    Expenses," including an administration fee of 0.20% payable to Mitchell
    Hutchins by each Portfolio, for each Portfolio would have been 1.89%, 1.70%,
    0.99%, 1.10%, 1.40%, 1.29%, 1.06%, 1.05%, 1.12%, 1.08%, 1.35% and 2.09%,
    respectively.
 
  + Includes an administration fee of 0.20% payable to Mitchell Hutchins by each
    Portfolio.
 
 (1)Includes 0.72% of interest expense related to the reverse repurchase
    agreement transactions entered into during the fiscal year. Without such
    interest expense, "Total Portfolio Operating Expenses," net of fee waivers
    and expense reimbursements, would have been 0.85%. See "Management--Fee
    Waivers and Subsidies."
 
                                       8
<PAGE>
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<TABLE>
<CAPTION>
                                                                  PACE         PACE
                                                     PACE        SMALL/       SMALL/                     PACE
                                     PACE LARGE     LARGE        MEDIUM       MEDIUM                  INTERNATIONAL
                                      COMPANY      COMPANY      COMPANY      COMPANY        PACE       EMERGING
                                       VALUE        GROWTH       VALUE        GROWTH     INTERNATIONAL  MARKETS
                                       EQUITY       EQUITY       EQUITY       EQUITY       EQUITY       EQUITY
                                     INVESTMENTS  INVESTMENTS  INVESTMENTS  INVESTMENTS  INVESTMENTS  INVESTMENTS
                                     ----------   ----------   ----------   ----------   ----------   ----------
<S>                                  <C>          <C>          <C>          <C>          <C>          <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Annual Program Fee (as a
  percentage of average value of
  Portfolio shares held on the last
  calendar day of the previous
  quarter).........................     1.50%        1.50%        1.50%        1.50%        1.50%        1.50%
                                         ---          ---          ---          ---          ---          ---
                                         ---          ---          ---          ---          ---          ---
ANNUAL PORTFOLIO OPERATING
  EXPENSES*
  (as a percentage of average net
  assets)
Management Fees (Before Fee
  Waivers)**.......................     0.60%        0.60%        0.60%        0.60%        0.70%        0.90%
Distribution (Rule 12b-1)
  Expenses.........................     None         None         None         None         None         None
Other Expenses (Before Expense
  Reimbursements)+.................     0.46%        0.45%        0.52%        0.48%        0.65%        1.19%
                                         ---          ---          ---          ---          ---          ---
Total Portfolio Operating Expenses
  (Net of Fee Waivers and Expense
  Reimbursements)***...............     1.00%        1.00%        1.00%        1.00%        1.35%        1.50%
                                         ---          ---          ---          ---          ---          ---
                                         ---          ---          ---          ---          ---          ---
</TABLE>
 
- ----------
 
See footnotes on previous page.
 
                                       9
<PAGE>
    MANAGEMENT AND ADMINISTRATION FEES; EXPENSES.  Each Portfolio pays the
Manager a fee for its services that is computed daily and paid monthly at an
annual rate ranging among the Portfolios from 0.15% to 0.90% of the value of the
average daily net assets of the Portfolio. The fees of each Adviser are paid by
the Manager. Each Portfolio also pays Mitchell Hutchins an administration fee
that is computed daily and paid monthly at an annual rate of 0.20% of the value
of the average daily net assets of the Portfolio. The nature of the services
provided to, and the aggregate management and administration fees paid by, each
Portfolio are described under "Management." "Other Expenses" include the
administration fee and estimated fees for shareholder services, custodial fees,
legal and accounting fees, printing costs, registration fees, the costs of
regulatory compliance, and a Portfolio's allocated portion of the costs
associated with maintaining the Trust's legal existence and the costs involved
in the Trust's communications with shareholders. Through July 31, 1998, the
Manager has voluntarily agreed to waive all or a portion of the fees otherwise
payable to it and reimburse certain operating expenses of a Portfolio, in order
to have the Portfolios operate at the expense ratios indicated in the Expense
Table above.
 
EXAMPLE.
 
    The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in the Portfolios through the PACE Program. These
amounts, which include the maximum fees for the PACE Program, are based upon (i)
payment by the Portfolios of operating expenses (net of fee waivers and expense
reimbursements) at the levels set forth in the Expense Table above (except PACE
GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS for which payment assumes
operating expenses of 0.85%) and (ii) the specific assumptions stated below.
 
    A shareholder would pay the following expenses on a $1,000 investment,
assuming (i) a 5% annual return and (ii) redemption at the end of each time
period:
 
<TABLE>
<CAPTION>
       PACE MONEY MARKET          PACE GOVERNMENT SECURITIES      PACE INTERMEDIATE FIXED
          INVESTMENTS              FIXED INCOME INVESTMENTS          INCOME INVESTMENTS
  ----------------------------   ----------------------------   ----------------------------
   1       3       5      10      1       3       5      10      1       3       5      10
  YEAR   YEARS   YEARS   YEARS   YEAR   YEARS   YEARS   YEARS   YEAR   YEARS   YEARS   YEARS
  ----   -----   -----   -----   ----   -----   -----   -----   ----   -----   -----   -----
  <S>    <C>     <C>     <C>     <C>    <C>     <C>     <C>     <C>    <C>     <C>     <C>
  $20     $63    $108    $233    $24     $73    $126    $269    $24     $73    $126    $269
</TABLE>
 
<TABLE>
<CAPTION>
      PACE STRATEGIC FIXED           PACE MUNICIPAL FIXED            PACE GLOBAL FIXED
       INCOME INVESTMENTS             INCOME INVESTMENTS             INCOME INVESTMENTS
  ----------------------------   ----------------------------   ----------------------------
   1       3       5      10      1       3       5      10      1       3       5      10
  YEAR   YEARS   YEARS   YEARS   YEAR   YEARS   YEARS   YEARS   YEAR   YEARS   YEARS   YEARS
  ----   -----   -----   -----   ----   -----   -----   -----   ----   -----   -----   -----
  <S>    <C>     <C>     <C>     <C>    <C>     <C>     <C>     <C>    <C>     <C>     <C>
  $24     $73    $126    $269    $24     $73    $126    $269    $25     $76    $131    $279
</TABLE>
 
<TABLE>
<CAPTION>
                                                                        PACE SMALL/
    PACE LARGE COMPANY VALUE      PACE LARGE COMPANY GROWTH         MEDIUM COMPANY VALUE
       EQUITY INVESTMENTS             EQUITY INVESTMENTS             EQUITY INVESTMENTS
  ----------------------------   ----------------------------   ----------------------------
   1       3       5      10      1       3       5      10      1       3       5      10
  YEAR   YEARS   YEARS   YEARS   YEAR   YEARS   YEARS   YEARS   YEAR   YEARS   YEARS   YEARS
  ----   -----   -----   -----   ----   -----   -----   -----   ----   -----   -----   -----
  <S>    <C>     <C>     <C>     <C>    <C>     <C>     <C>     <C>    <C>     <C>     <C>
  $25     $78    $133    $284    $25     $78    $133    $284    $25     $78    $133    $284
</TABLE>
 
<TABLE>
<CAPTION>
          PACE SMALL/
  MEDIUM COMPANY GROWTH EQUITY    PACE INTERNATIONAL EQUITY     PACE INTERNATIONAL EMERGING
          INVESTMENTS                    INVESTMENTS             MARKETS EQUITY INVESTMENTS
  ----------------------------   ----------------------------   ----------------------------
   1       3       5      10      1       3       5      10      1       3       5      10
  YEAR   YEARS   YEARS   YEARS   YEAR   YEARS   YEARS   YEARS   YEAR   YEARS   YEARS   YEARS
  ----   -----   -----   -----   ----   -----   -----   -----   ----   -----   -----   -----
  <S>    <C>     <C>     <C>     <C>    <C>     <C>     <C>     <C>    <C>     <C>     <C>
  $25     $78    $133    $284    $29     $88    $150    $318    $30     $93    $158    $332
</TABLE>
 
                                       10
<PAGE>
    This Example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Portfolio
Operating Expenses remain the same in the years shown. It also assumes payment
of the maximum PACE Program Fee of 1.50% of the value of the shares of the
Portfolios held in your PaineWebber account each year. The above tables and the
assumption in the Example of a 5% annual return are required by regulations of
the SEC applicable to all mutual funds; the assumed 5% annual return is not a
prediction of, and does not represent, the projected or actual performance of
the Portfolios' shares.
 
    THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND A PORTFOLIO'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN. The actual expenses attributable to each Portfolio's shares will depend
upon, among other things, the level of average net assets, the extent to which a
Portfolio incurs variable expenses, such as transfer agency costs, and whether
the Manager reimburses all or a portion of the Portfolio's expenses and/or
waives all or a portion of its management and administration fees.
 
                                       11
<PAGE>
- --------------------------------------------------------------------------------
                              FINANCIAL HIGHLIGHTS
 
    The table below provides selected per share data and ratios for a share of
beneficial interest for the period shown. This information is supplemented by
the financial statements, accompanying notes, and the report of Ernst & Young
LLP, independent auditors, which appear in the Trust's Annual Report to
Shareholders for the fiscal year ended July 31, 1997 and are incorporated by
reference into the Statement of Additional Information. The financial statements
and notes, as well as the financial information in the table below, have been
audited by Ernst & Young LLP. Further information about the Trust's performance
is also included in the Annual Report to Shareholders, which may be obtained
without charge by calling 1-800-647-1568.
 
<TABLE>
<CAPTION>
                                                           PACE                                    PACE
                                                       MONEY MARKET                        GOVERNMENT SECURITIES
                                                        INVESTMENTS                      FIXED INCOME INVESTMENTS
                                          ---------------------------------------   -----------------------------------
                                                                 FOR THE PERIOD                         FOR THE PERIOD
                                             FOR THE YEAR       AUGUST 24, 1995+      FOR THE YEAR     AUGUST 24, 1995+
                                                ENDED               THROUGH              ENDED             THROUGH
                                            JULY 31, 1997        JULY 31, 1996       JULY 31, 1997      JULY 31, 1996
                                          ------------------   ------------------   ----------------   ----------------
<S>                                       <C>                  <C>                  <C>                <C>
Net asset value, beginning of period....  $       1.00         $     1.00           $    12.07         $    12.00
                                               -------            -------             --------            -------
Net investment income...................          0.05               0.05                 0.64               0.49
Net realized and unrealized gains
 (losses) from investments, futures
 contracts and foreign currency.........            --                 --                 0.58               0.03
                                               -------            -------             --------            -------
Net increase from investment
 operations.............................          0.05               0.05                 1.22               0.52
                                               -------            -------             --------            -------
Dividends from net investment income....         (0.05)             (0.05)               (0.63)             (0.44)
Distributions from net realized gains...            --                 --                (0.05)             (0.01)
                                               -------            -------             --------            -------
Total dividends and distributions.......         (0.05)             (0.05)               (0.68)             (0.45)
                                               -------            -------             --------            -------
Net asset value, end of period..........  $       1.00         $     1.00           $    12.61         $    12.07
                                               -------            -------             --------            -------
                                               -------            -------             --------            -------
Total investment return (1).............          5.13%              4.75%               10.42%              4.35%
                                               -------            -------             --------            -------
                                               -------            -------             --------            -------
Ratios/Supplemental Data:
Net assets, end of period (000's).......  $     16,070         $   10,221           $  101,606         $   58,752
Ratio of:
Expenses to average net assets, net of
 fee waivers and expense
 reimbursements.........................          0.50%              0.50%*               1.57%**            0.85%*
Expenses to average net assets, before
 fee waivers and expense
 reimbursements.........................          1.89%              2.40%*               1.70%**            1.15%*
Net investment income to average net
 assets, net of fee waivers and expense
 reimbursements.........................          5.04%              4.93%*               5.44%**            5.09%*
Net investment income to average net
 assets, before fee waivers and expense
 reimbursements.........................          3.65%              3.03%*               5.31%**            4.79%*
Portfolio turnover......................            --                 --                  712%++             978%
</TABLE>
 
- ------------
 
 + Commencement of operations
 
 ++ See "Portfolio Turnover" for discussion of the portfolio turnover.
 
 * Annualized
 
 ** Includes 0.72% of interest expense related to the reverse repurchase
    agreement transactions entered into during the fiscal year.
 
(1) Total investment return is calculated assuming a $1,000 investment on the
    first day of each period reported, reinvestment of all dividends 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 the PACE Program
    Fee; results would be lower if this fee was included. Total investment
    return for period of less than one year has not been annualized.
 
                                       12
<PAGE>
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                PACE                        PACE                        PACE                        PACE
                     INTERMEDIATE FIXED INCOME     STRATEGIC FIXED INCOME      MUNICIPAL FIXED INCOME       GLOBAL FIXED INCOME
                            INVESTMENTS                 INVESTMENTS                 INVESTMENTS                 INVESTMENTS
                     --------------------------  --------------------------  --------------------------  --------------------------
                                     FOR THE                     FOR THE                     FOR THE                     FOR THE
                                      PERIOD                      PERIOD                      PERIOD                      PERIOD
                                    AUGUST 24,                  AUGUST 24,                  AUGUST 24,                  AUGUST 24,
                     FOR THE YEAR     1995+      FOR THE YEAR     1995+      FOR THE YEAR     1995+      FOR THE YEAR     1995+
                        ENDED        THROUGH        ENDED        THROUGH        ENDED        THROUGH        ENDED        THROUGH
                       JULY 31,      JULY 31,      JULY 31,      JULY 31,      JULY 31,      JULY 31,      JULY 31,      JULY 31,
                         1997          1996          1997          1996          1997          1996          1997          1996
                     ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------
<S>                  <C>           <C>           <C>           <C>           <C>           <C>           <C>           <C>
Net asset value,
beginning of
period..............   $ 11.95       $ 12.00       $ 12.44       $ 12.00       $ 12.32       $ 12.00       $ 12.33       $ 12.00
                     ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------
Net investment
income..............      0.66          0.53          0.67          0.59          0.61          0.49          0.64          0.53
Net realized and
unrealized gains
(losses) from
investments, futures
contracts and
foreign currency
transactions........      0.28         (0.09)         0.70          0.38          0.38          0.27         (0.21)         0.27
                     ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------
Net increase
(decrease) from
investment
operations..........      0.94          0.44          1.37          0.97          0.99          0.76          0.43          0.80
                     ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------
Dividends from net
investment income...     (0.66)        (0.48)        (0.67)        (0.52)        (0.61)        (0.43)        (0.51)        (0.46)
Distributions from
net realized
gains...............        --         (0.01)        (0.10)        (0.01)        (0.03)        (0.01)        (0.08)        (0.01)
                     ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------
Total dividends and
distributions.......     (0.66)        (0.49)        (0.77)        (0.53)        (0.64)        (0.44)        (0.59)        (0.47)
                     ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------
Net asset value, end
of period...........   $ 12.23       $ 11.95       $ 13.04       $ 12.44       $ 12.67       $ 12.32       $ 12.17       $ 12.33
                     ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------
                     ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------
Total investment
return (1)..........      8.14%         3.59%        11.35%         8.15%         8.30%         6.38%         3.54%         6.68%
                     ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------
                     ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------
Ratios/Supplemental
Data:
Net assets, end of
period (000's)         $66,751       $41,273       $75,174       $42,550       $34,292       $17,765       $60,279       $38,296
Ratio of:
Expenses to average
net assets, net of
fee waivers and
expense
reimbursements......      0.85%         0.85%*        0.85%         0.85%*        0.85%         0.85%*        0.95%         0.95%*
Expenses to average
net assets, before
fee waivers and
expense
reimbursements......      0.99%         1.23%*        1.10%         1.40%*        1.40%         1.74%*        1.29%         1.61%*
Net investment
income to average
net assets, net of
fee waivers and
expense
reimbursements......      5.70%         5.56%*        5.69%         5.85%*        5.08%         4.95%*        5.36%         5.24%*
Net investment
income to average
net assets, before
fee waivers and
expense
reimbursements......      5.56%         5.18%*        5.44%         5.30%*        4.53%         4.07%*        5.02%         4.58%*
Portfolio
turnover............        67%           36%          357%++        166%           15%           78%          270%++        197%
</TABLE>
 
                                       13
<PAGE>
- --------------------------------------------------------------------------------
                        FINANCIAL HIGHLIGHTS (CONTINUED)
 
<TABLE>
<CAPTION>
                                                                                          PACE
                                                    PACE                       LARGE COMPANY GROWTH EQUITY
                                             LARGE COMPANY VALUE
                                             EQUITY INVESTMENTS                        INVESTMENTS
                                     -----------------------------------   -----------------------------------
                                                         FOR THE PERIOD                        FOR THE PERIOD
                                       FOR THE YEAR     AUGUST 24, 1995+     FOR THE YEAR     AUGUST 24, 1995+
                                          ENDED             THROUGH             ENDED             THROUGH
                                      JULY 31, 1997      JULY 31, 1996      JULY 31, 1997      JULY 31, 1996
                                     ----------------   ----------------   ----------------   ----------------
 
<S>                                  <C>                <C>                <C>                <C>
Net asset value, beginning of
  period...........................  $    14.07         $    12.00         $    13.27         $    12.00
                                       --------            -------           --------            -------
Net investment income..............        0.11               0.12               0.03               0.03
Net realized and unrealized gains
  (losses) from investments,
  futures contracts and foreign
  currency.........................        6.61               2.02               6.01               1.26
                                       --------            -------           --------            -------
Net increase (decrease) from
  investment operations............        6.72               2.14               6.04               1.29
                                       --------            -------           --------            -------
Dividends from net investment
  income...........................       (0.11)             (0.05)             (0.03)             (0.02)
Distributions from net realized
  gains............................       (0.65)             (0.02)                --                 --
                                       --------            -------           --------            -------
Total dividends and
  distributions....................       (0.76)             (0.07)             (0.03)             (0.02)
                                       --------            -------           --------            -------
Net asset value, end of period.....  $    20.03         $    14.07         $    19.28         $    13.27
                                       --------            -------           --------            -------
                                       --------            -------           --------            -------
Total investment return (1)........       49.13%             17.90%             45.61%             10.76%
                                       --------            -------           --------            -------
                                       --------            -------           --------            -------
Ratios/Supplemental Data:
Net assets, end of period
  (000's)..........................  $  180,807         $   80,897         $  160,334         $   69,248
Ratio of:
Expenses to average net assets, net
  of fee waivers and expense
  reimbursements...................        1.00%              1.00%*             1.00%              1.00%*
Expenses to average net assets,
  before fee waivers and expense
  reimbursements...................        1.06%              1.40%*             1.05%              1.33%*
Net investment income (loss) to
  average net assets, net of fee
  waivers and expense
  reimbursements...................        0.81%              1.22%*             0.22%              0.33%*
Net investment income (loss) to
  average net assets, before fee
  waivers and expense
  reimbursements...................        0.75%              0.82%*             0.17%             (0.01)%*
Portfolio turnover.................          46%                38%                73%                65%
Average commission rate paid (2)...  $   0.0455                 --         $   0.0498                 --
</TABLE>
 
- ------------------------
 + Commencement of operations
 
 ++ See "Portfolio Turnover" for discussion of the portfolio turnover.
 
 * Annualized
 
 # Investment advisory functions for this Portfolio were transferred from
    Westfield Capital Management Company, Inc. to Delaware Investment Advisers
    on December 17, 1996.
 
(1) Total investment return is calculated assuming a $1,000 investment on the
    first day of each period reported, reinvestment of all dividends and
    distributions, if any, 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 the PACE Program Fee; results for each Portfolio would be lower
    if this fee was included. Total investment returns for periods of less than
    one year have not been annualized.
 
(2) Effective for fiscal years beginning on or after September 1, 1995, certain
    Portfolios are required to disclose the average commission rate paid per
    share of common stock investments purchased or sold.
 
                                       14
<PAGE>
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                PACE                        PACE                        PACE                        PACE
                     SMALL/MEDIUM COMPANY VALUE     SMALL/MEDIUM COMPANY        INTERNATIONAL EQUITY       INTERNATIONAL EMERGING
                         EQUITY INVESTMENTS      GROWTH EQUITY INVESTMENTS          INVESTMENTS          MARKETS EQUITY INVESTMENTS
                     --------------------------  --------------------------  --------------------------  --------------------------
                                     FOR THE                     FOR THE                     FOR THE                     FOR THE
                                      PERIOD                      PERIOD                      PERIOD                      PERIOD
                                    AUGUST 24,                  AUGUST 24,                  AUGUST 24,                  AUGUST 24,
                     FOR THE YEAR     1995+      FOR THE YEAR     1995+      FOR THE YEAR     1995+      FOR THE YEAR     1995+
                        ENDED        THROUGH        ENDED        THROUGH        ENDED        THROUGH        ENDED        THROUGH
                       JULY 31,      JULY 31,      JULY 31,      JULY 31,      JULY 31,      JULY 31,      JULY 31,      JULY 31,
                         1997          1996         1997#          1996          1997          1996          1997          1996
                     ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------
 
<S>                  <C>           <C>           <C>           <C>           <C>           <C>           <C>           <C>
Net asset value,
beginning of
period..............   $ 12.29       $ 12.00       $ 11.20       $ 12.00       $ 12.79       $ 12.00       $ 12.49       $ 12.00
                     ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------
Net investment
income..............      0.12          0.10         (0.02)         0.00          0.10          0.12          0.06          0.07
Net realized and
unrealized gains
(losses) from
investments, futures
contracts and
foreign currency
transactions........      5.55          0.23          3.26         (0.78)         2.97          0.73          3.09          0.44
                     ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------
Net increase
(decrease) from
investment
operations..........      5.67          0.33          3.24         (0.78)         3.07          0.85          3.15          0.51
                     ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------
Dividends from net
investment income...     (0.10)        (0.04)           --         (0.02)        (0.13)        (0.06)        (0.04)        (0.02)
Distributions from
net realized
gains...............     (0.34)           --            --            --         (0.07)           --            --            --
                     ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------
Total dividends and
distributions.......     (0.44)        (0.04)           --         (0.02)        (0.20)        (0.06)        (0.04)        (0.02)
                     ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------
Net asset value, end
of period...........   $ 17.52       $ 12.29       $ 14.44       $ 11.20       $ 15.66       $ 12.79       $ 15.60       $ 12.49
                     ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------
                     ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------
Total investment
return (1)..........     46.99%         2.76%        28.93%        (6.55)%       24.30%         7.08%        25.31%         4.23%
                     ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------
                     ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------
Ratios/Supplemental
Data:
Net assets, end of
period (000's)         $135,047      $63,894       $125,609      $63,364       $102,979      $45,331       $54,759       $25,481
Ratio of:
Expenses to average
net assets, net of
fee waivers and
expense
reimbursements......      1.00%         1.00%*        1.00%         1.00%*        1.35%         1.50%*        1.50%         1.50%*
Expenses to average
net assets, before
fee waivers and
expense
reimbursements......      1.12%         1.51%*        1.08%         1.27%*        1.35%         1.81%*        2.09%         2.35%*
Net investment
income (loss) to
average net assets,
net of fee waivers
and expense
reimbursements......      1.00%         1.07%*       (0.21)%       (0.14)%*       0.95%         1.35%*        0.63%         0.94%*
Net investment
income (loss) to
average net assets,
before fee waivers
and expense
reimbursements......      0.88%         0.56%*       (0.29)%       (0.41)%*       0.95%         1.04%*        0.04%         0.08%*
Portfolio
turnover............        39%           30%          247%++        115%           55%           25%           39%           22%
Average commission
rate paid (2).......   $0.0492            --       $0.0532            --       $0.0183            --       $0.0011            --
</TABLE>
 
                                       15
<PAGE>
     INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS AND RISK FACTORS
 
    A description of the investment objective and policies of each Portfolio
follows. There can be no assurance that a Portfolio will achieve its investment
objective. The investment objective of a Portfolio is a fundamental policy and
may not be changed without the approval by vote of the shareholders of that
Portfolio. See the SAI for a further definition of approval by vote of the
shareholders. Unless otherwise specified, the other investment policies of a
Portfolio are not fundamental and can be changed by the board of trustees acting
alone. Further information about the investment policies of each Portfolio,
including a list of those restrictions on its investment activities that cannot
be changed without shareholder approval, appears in the "Investment Policies and
Restrictions" section of the SAI.
 
PACE MONEY MARKET INVESTMENTS
 
    Adviser: Mitchell Hutchins Asset
Management Inc.
 
    Objective: Current income consistent with preservation of capital and
liquidity
 
    PACE MONEY MARKET INVESTMENTS seeks to achieve its investment objective by
investing in high quality money market instruments including (1) U.S. government
securities, (2) obligations of U.S. and foreign banks, (3) commercial paper and
other short-term obligations of U.S. and foreign companies, governments and
similar entities, including variable and floating rate securities, and (4)
repurchase agreements involving any of the foregoing. The Portfolio may also
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 (i.e., banks or brokers). The Portfolio invests only
in U.S. dollar-denominated securities that have remaining maturities of 397 days
or less at the time of purchase. The Portfolio maintains a dollar-weighted
average portfolio maturity of 90 days or less.
 
    The Portfolio may invest in obligations (including certificates of deposit,
bankers' acceptances, time deposits, and similar obligations) of U.S and foreign
banks having total assets at the time of purchase in excess of $1.5 billion. The
Portfolio may also make interest-bearing savings deposits in U.S. commercial and
savings banks having total assets of $1.5 billion or less, in principal amounts
at each such bank not greater than are insured by the Federal Deposit Insurance
Corporation, provided that the aggregate amount of such deposits (plus interest
earned) does not exceed 5% of the value of the Portfolio's assets.
 
    The commercial paper and other short-term obligations purchased by the
Portfolio consist only of obligations that are "First Tier Securities" as
defined in Rule 2a-7 under the 1940 Act. As so defined, First Tier Securities
include securities that are rated in the highest short-term rating category by
at least two nationally recognized statistical rating organizations ("NRSROs")
or by one NRSRO if only one NRSRO has assigned the obligation a short-term
rating. First Tier Securities also include unrated securities if Mitchell
Hutchins has determined the obligations to be of comparable quality to rated
securities that so qualify. The Portfolio generally may invest no more than 5%
of its total assets in the securities of a single issuer (other than securities
issued by the U.S. government, its agencies or instrumentalities).
 
    The Portfolio follows these policies to maintain a constant net asset value
of $1.00 per share, although there can be no assurance it will be able to do so.
The yield and value of Portfolio shares and the yield and value of Portfolio
securities are also not insured or guaranteed by the U.S. government. The yield
attained by the Portfolio may not be as high as that of other funds that invest
in lower quality or longer term securities. See "Other Investment Policies and
Risk Factors" for other investment policies of the Portfolio.
 
PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS
 
    Adviser: Pacific Investment Management Company
 
    Objective: Current income
 
    PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS seeks to achieve its
investment objective by investing primarily in U.S. government and agency
securities of varying maturities, as well as mortgage-backed
 
                                       16
<PAGE>
securities, with a dollar-weighted average portfolio duration of between two and
seven years. Under normal conditions, the Portfolio invests at least 65% of its
total assets in U.S. government Fixed Income Securities, which include U.S.
Treasury obligations and obligations issued or guaranteed by U.S. government
agencies or instrumentalities and repurchase agreements with respect to these
securities. "Fixed Income Securities" include debt instruments the interest
payment on which may be fixed, variable or floating and also includes zero
coupon securities which pay no interest until maturity.
 
    The Portfolio may invest in U.S. government securities that are backed by
the full faith and credit of the U.S. government, such as Government National
Mortgage Association mortgage-backed securities ("GNMA certificates"),
securities that are supported primarily or solely by the creditworthiness of the
issuer, such as securities issued by the Resolution Funding Corporation ("RFC")
and the Tennessee Valley Authority ("TVA"), and securities that are supported
primarily or solely by specific pools of assets and the creditworthiness of a
U.S. government-related issuer, such as mortgage-backed securities issued by the
Federal National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage
Corporation ("FHLMC") or the Resolution Trust Corporation ("RTC").
 
    The Portfolio also 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 or interests in such U.S. Treasury securities or
coupons, including Certificates of Accrual Treasury Securities ("CATS") and
Treasury Income Growth Receipts ("TIGRs"). The SEC staff currently takes the
position that "stripped" U.S. government securities that are not issued through
the U.S. Treasury STRIPS program are not U.S. government securities. As long as
the SEC takes this position, CATS and TIGRs will not be considered U.S.
government securities for purposes of the 65% investment requirement. See "Other
Investment Policies and Risk Factors--Risks of Mortgage- and Asset-Backed
Securities" for further discussion of the mortgage- and asset-backed securities
in which the Portfolio may invest.
 
    The Portfolio may invest up to 35% of its total assets in mortgage-backed
securities that are issued by private issuers and in debt securities of other
corporate issuers. In an effort to maintain a dollar-weighted average portfolio
duration of between two and seven years, the Adviser monitors the prepayment
experience of the underlying mortgage pools of the Portfolio's mortgage-related
securities and will purchase and sell securities in the Portfolio to shorten or
lengthen the average duration of the Portfolio, as appropriate.
 
    The Portfolio's investments in Fixed Income Securities are limited to those
that are rated at least A by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P") (or, if
unrated, determined by the Adviser to be of comparable quality). See the
Appendix to the SAI for a description of Moody's and S&P's ratings. In addition,
the Portfolio will not acquire a security if, as a result, more than 25% of the
Portfolio's total assets would be invested in securities rated below AAA, or if
more than 10% of the Portfolio's total assets would be invested in securities
rated A.
 
    The Portfolio may use options, futures contracts, options on futures
contracts and interest rate protection transactions for hedging and income and
return enhancement purposes. See "Other Investment Policies and Risk Factors"
for further discussion of hedging and related strategies and other investment
policies of the Portfolio.
 
PACE INTERMEDIATE FIXED INCOME INVESTMENTS
 
    Adviser: Pacific Income Advisers, Inc.
 
    Objective: Current income, consistent with reasonable stability of principal
 
    PACE INTERMEDIATE FIXED INCOME INVESTMENTS seeks to achieve its objectives
through investment in Fixed Income Securities with a dollar-weighted average
portfolio duration of between two and four and one-half years. Under normal
conditions, the Portfolio invests at least 65% of its total assets in U.S.
government securities, corporate bonds, debentures, non-convertible Fixed Income
Securities, preferred stocks, mortgage-related securities, Eurodollar
certificates of deposit, Eurodollar bonds and Yankee bonds. The Portfolio also
may invest up to 10% of its total
 
                                       17
<PAGE>
assets in securities denominated in foreign currencies of developed countries.
The Portfolio limits its investments to investment grade securities, which are
securities rated within the four highest categories established by at least one
NRSRO (e.g., Moody's or S&P) and unrated securities determined by the Adviser to
be of comparable quality. Securities in the lowest of those four categories,
i.e., rated Baa by Moody's or BBB by S&P, have speculative characteristics and
are subject to greater risks. See the Appendix to the SAI for a description of
Moody's and S&P ratings and "Other Investment Policies and Risk Factors--Debt
Securities" for a description of certain risks associated with securities in the
fourth highest rating category. The Portfolio may use options, futures contracts
and options on futures contracts for hedging and income and return enhancement
purposes. See "Other Investment Policies and Risk Factors" for further
discussion of hedging and related strategies and other investment policies of
the Portfolio.
 
    In an effort to maintain a dollar-weighted average portfolio duration of
between two and four and one-half years, the Adviser monitors the prepayment
experience of the underlying mortgage pools of the Portfolio's mortgage-related
securities and will purchase and sell securities in the Portfolio to shorten or
lengthen the duration of the Portfolio, as appropriate.
 
PACE STRATEGIC FIXED INCOME INVESTMENTS
 
    Adviser: Pacific Investment Management Company
 
    Objective: Total return consisting of income and capital appreciation
 
    PACE STRATEGIC FIXED INCOME INVESTMENTS seeks to achieve its investment
objective by investing in a portfolio of Fixed Income Securities of varying
maturities with a dollar-weighted average portfolio duration of between three
and eight years. Portfolio holdings will be invested in areas of the bond market
(based on quality, sector, coupon or maturity) which the Adviser believes to be
relatively undervalued.
 
    Under normal conditions, the Portfolio invests at least 65% of its assets in
Fixed Income Securities which include obligations issued or guaranteed by the
U.S. government, its agencies and instrumentalities, corporate and other debt
obligations, convertible securities, mortgage-and asset-backed securities,
obligations of foreign governments or their subdivisions, agencies or
instrumentalities, obligations of supranational and quasi-governmental entities,
commercial paper, certificates of deposit, money market instruments, foreign
currency exchange-related securities and loan participations and assignments.
The Portfolio may invest up to 35% of its total assets in privately issued
mortgage-related securities. All of the securities purchased for the Portfolio
will be investment grade (rated at least Baa by Moody's or BBB by S&P, or, if
unrated, determined by the Adviser to be of comparable quality), except that the
Portfolio may invest up to 20% of its total assets in securities rated below
investment grade, but rated at least B by Moody's or 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 20% of the Portfolio's total
assets is held in securities rated below investment grade 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.
 
    The Portfolio may invest up to 20% of its total assets in a combination of
U.S. dollar-denominated debt of any foreign issuer, Yankee bonds, Eurodollar
bonds and debt securities denominated in foreign currencies, except that not
more than 10% of the Portfolio's total assets shall be invested in debt
securities denominated in foreign currencies. Yankee bonds are U.S.
dollar-denominated obligations of foreign issuers. Eurodollar bonds are U.S.
dollar-denominated obligations of issuers that are located outside the United
States, primarily in Europe. The Portfolio may use forward currency contracts,
currency options, currency futures and options thereon to hedge against
unfavorable changes in currency exchange rates and for income and return
enhancement purposes. The Portfolio also may use options, futures contracts,
options on futures contracts and interest rate protection transactions for
hedging and income and return enhancement purposes. See "Other
 
                                       18
<PAGE>
Investment Policies and Risk Factors" for further discussion of hedging and
related strategies and other investment policies of the Portfolio.
 
PACE MUNICIPAL FIXED INCOME INVESTMENTS
 
    Adviser: Morgan Grenfell Capital
Management, Incorporated
 
    Objective: High current income exempt from federal income tax
 
    PACE MUNICIPAL FIXED INCOME INVESTMENTS seeks to achieve its investment
objective through investment in general obligation, revenue and private activity
bonds and notes, the interest on which is exempt from federal income tax, with a
dollar-weighted portfolio duration of between three and seven years.
 
    Under normal conditions, the Portfolio invests at least 80% of its total
assets in general obligation, revenue and private activity bonds and notes that
are issued by or on behalf of states, territories and possessions of the United
States and the District of Columbia and their political subdivisions, agencies
and instrumentalities, or multi-state agencies or authorities, the interest on
which, in the opinion of counsel to the issuer of the instrument, is exempt from
federal income tax ("Municipal Obligations"), including municipal bonds,
industrial development bonds ("IDBs"), municipal lease obligations and
certificates of participation therein, put bonds and private activity bonds
("PABs"). The Portfolio also will not invest more than 25% of its total assets
in Municipal Obligations whose issuers are located in the same state or more
than 25% of its total assets in Municipal Obligations that are secured by
revenues from entities in a particular industry category, except that the
Portfolio may invest up to 50% of its total assets in 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. To the extent the Portfolio concentrates its investments
in single family and multi-family housing obligations, the Portfolio will be
subject to the peculiar risks associated with investments in such obligations,
including prepayment risks and the risks of default on housing loans, which may
be affected by economic conditions and other factors relating to such
obligations.
 
    The Portfolio will include Municipal Obligations of varying maturities with
a dollar-weighted average portfolio duration of between three and seven years.
Portfolio composition generally covers a range of maturities with geographic and
issuer diversification. The Portfolio may invest in PABs 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 Portfolio may also invest in variable rate Municipal Obligations,
most of which permit the holder thereof to receive the principal amount on
demand upon seven days' notice. The Portfolio limits its investments to
Municipal Obligations that are rated at least A, MIG-2 or Prime 2 by Moody's or
A, SP-2 or A-2 by S&P at the time of investment or unrated securities determined
to be of comparable quality by the Adviser, except that up to 15% of its total
assets may be invested in municipal bonds that, at the time of purchase, are
rated Baa by Moody's or BBB by S&P, or if unrated, are determined by the Adviser
to be of comparable quality. Municipal Obligations in the lowest investment
grade category are considered medium grade securities and have speculative
characteristics. See "Other Investment Policies and Risk Factors--Debt
Securities" for a discussion of certain risks associated with securities rated
in the fourth highest rating category.
 
    The Portfolio may invest without limit in PABs, although it does not
currently expect to invest more than 25% of its total assets in PABs. Dividends
attributable to interest income on certain types of PABs issued after August 15,
1986 to finance non-governmental activities are a tax preference item for
purposes of the federal alternative minimum tax ("AMT"). Although no assurance
can be given, the Adviser will endeavor to manage the Portfolio so that no more
than 25% of the interest income will be a tax preference item. Dividends derived
from interest income on all Municipal Obligations are a component of the
"current earnings" adjustment for corporations for purposes of the AMT.
 
    Under normal circumstances, the Portfolio may invest up to 20% of its total
assets in certain taxable securities to maintain liquidity. In addition, for
temporary defensive purposes during periods when the Adviser determines that
 
                                       19
<PAGE>
market conditions warrant, the Portfolio may invest without limit in such
taxable securities. See "Other Investment Policies and Risk Factors" for further
discussion of other investment policies of the Portfolio.
 
PACE GLOBAL FIXED INCOME INVESTMENTS
 
    Adviser: Rogge Global Partners plc
 
    Objective: High total return
 
    PACE GLOBAL FIXED INCOME INVESTMENTS seeks to achieve its investment
objective by investing primarily in high-grade Fixed Income Securities issued by
domestic and foreign governments and supranational entities and private issuers
located overseas, with a dollar-weighted average duration of between four and
eight years. Under normal conditions, at least 65% of the value of the
Portfolio's total assets will be invested in domestic and foreign bonds issued
by governments, companies and supranational organizations such as the
International Bank for Reconstruction and Development (commonly known as the
"World Bank"), Asian Development Bank, European Investment Bank and European
Economic Community. Bonds are viewed by the Portfolio to include Fixed Income
Securities of any maturity. Under normal market conditions, investments will be
made in a minimum of four countries, one of which may be the United States. For
temporary defensive purposes, the Portfolio may invest in securities of only one
country, including the United States. The Portfolio may invest in non-U.S.
dollar denominated securities.
 
    The Portfolio will include Fixed Income Securities of varying maturities
with a dollar-weighted average portfolio duration of between four and eight
years. The Portfolio's quality standards limit its investments to those rated
within the three highest grades assigned by Moody's or S&P, or unrated
securities determined by the Adviser to be of comparable quality, except for
bonds issued by companies and governments in emerging markets.
 
    The Portfolio may invest up to 10% of its total assets in bonds issued by
companies and governments in emerging countries that at the time of purchase,
are rated Baa or Ba by Moody's or BBB or BB by S&P or are unrated but determined
to be of comparable quality by the Adviser. For purposes of this Portfolio,
"emerging countries" are those countries not included in the Morgan Stanley
Capital International World Index ("MSCI Index") of major world economies.
Malaysia will be considered an emerging market country for purposes of this
Portfolio.
 
    Bonds 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.
These securities are commonly referred to as "junk bonds." In the event that,
due to a downgrade of one or more debt securities, an amount in excess of 10% of
the total assets of the Portfolio is held in securities rated below investment
grade 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.
 
    The emerging countries in which the Portfolio may invest tend to be in the
less economically developed regions of the world. General characteristics of
emerging countries also include lower degrees of political stability, a high
demand for capital investment, a high dependence on export markets for their
major industries, a need to develop basic economic infra-structures and rapid
economic growth. The Adviser believes that investments in bonds issued in
emerging countries offer the opportunity for significant long-term investment
returns; however, these investments are lower quality than the three highest
rated securities and involve certain risks. See "Other Investment Policies and
Risk Factors--Foreign Securities" and "--Foreign Government Securities."
 
    The Portfolio may use forward currency contracts, currency options, currency
futures and options thereon to hedge against unfavorable changes in currency
exchange rates and for income and return enhancement purposes. The Portfolio
also may use options, futures contracts, and options on futures contracts for
hedging and income and return enhancement purposes. For a more detailed
discussion of the risks in investing in foreign securities, see "Investment
Policies and Restrictions--Special Characteristics of Foreign and Emerging
Market Securities" in the SAI. See "Other Investment Policies and Risk
 
                                       20
<PAGE>
Factors" for further discussion of hedging and related strategies and other
investment policies of the Portfolio.
 
PACE LARGE COMPANY VALUE EQUITY INVESTMENTS
 
    Adviser: Brinson Partners, Inc.
 
    Objective: Capital appreciation and
dividend income
 
    PACE LARGE COMPANY VALUE EQUITY INVESTMENTS seeks to achieve its investment
objective by investing primarily in equity securities that, in the Adviser's
opinion are undervalued. Under normal circumstances, substantially all of the
Portfolio's total assets will be invested in a wide range of equity securities
of companies that are traded on major stock exchanges as well as on the
over-the-counter ("OTC") market. The Portfolio may invest in a broad range of
equity securities of U.S. issuers, including common and preferred stocks, debt
securities convertible into or exchangeable for common stock and securities such
as warrants or rights that are convertible into common stock. Up to 10% of the
Portfolio's total assets may include convertible debt securities rated BB by
Moody's or Ba by S&P or, if unrated, determined to be of comparable quality by
the Adviser. The Portfolio expects its equity investments to encompass both
large and intermediate capitalization companies, but under normal circumstances
at least 65% of the Portfolio's total assets will be invested in common stock of
companies with total market capitalization (i.e., market value of common stock
outstanding) of $2.5 billion or greater at the time of purchase. The Portfolio
may invest up to 5% of its total assets in foreign securities, including
American Depositary Receipts ("ADRs").
 
    The Adviser's approach to investing for the Portfolio is to invest in the
equity securities of U.S. companies believed to be undervalued based upon
internal research and proprietary valuation systems. Investment decisions are
based on fundamental research, internally developed valuation systems and
seasoned judgment. The Adviser's research focuses on several levels of analysis;
first, on understanding wealth shifts that occur within the equity market, and
second, on individual company research. At the company level, the Adviser
quantifies expectations of a company's ability to generate profit and to grow
business into the future. For each stock under analysis, the Adviser discounts
to the present all of the future cash flows that it believes will accrue to the
Portfolio from the investment to calculate a present or intrinsic value. This
value estimate generated by the Adviser's proprietary valuation model is
compared to observed market price and ranked against other stocks accordingly.
The rankings, in combination with the Adviser's investment judgment, determine
which securities are included in the Portfolio.
 
    The Portfolio also may use options, futures contracts and options on futures
contracts for hedging and income and return enhancement purposes. See "Other
Investment Policies and Risk Factors" for further discussion of hedging and
related strategies and other investment policies of the Portfolio.
 
PACE LARGE COMPANY GROWTH EQUITY INVESTMENTS
 
    Adviser: Alliance Capital Management L.P.
 
    Objective: Capital appreciation
 
    PACE LARGE COMPANY GROWTH EQUITY INVESTMENTS seeks to achieve its investment
objective by investing primarily in equity securities of companies that, in the
Adviser's opinion, are characterized by an earnings growth rate which is faster
than that of the average growth rate of the companies included in the Standard &
Poor's 500 Composite Stock Price Index ("S&P 500 Index") and total market
capitalization (i.e., market value of common stock outstanding) of at least $2.5
billion. Dividend income is an incidental consideration in the selection of
investments. The securities held by the Portfolio can be expected generally to
experience greater volatility than those of PACE LARGE COMPANY VALUE EQUITY
INVESTMENTS. The Portfolio may invest in a broad range of equity securities of
U.S. issuers, including common and preferred stocks, debt securities convertible
into or exchangeable for common stock and securities such as warrants or rights
that are convertible into common stock. Under normal conditions, at least 65% of
the Portfolio's total assets will be invested in common stocks of companies with
total market capitalization of $2.5 billion or greater at the time of purchase.
The Portfolio may invest up to 5% of its total
 
                                       21
<PAGE>
assets in foreign securities, including ADRs. See "Other Investment Policies and
Risk Factors" for further discussion of other investment policies of the
Portfolio.
 
    The Adviser follows its "disciplined growth" strategy in managing the
Portfolio. This strategy is based on the Adviser's quantitative scoring system
for stock selection. The Adviser's internal fundamental research team is the
cornerstone of the stock selection process. All portfolio securities are closely
monitored by the Adviser's research analysts, providing necessary independent
investment opinions and financial projections. Each stock in the Adviser's
research universe is ranked based on the analyst's investment opinion and six
measures of fundamental earnings growth and valuation. The Portfolio is normally
concentrated in the top 30% of the research universe as ranked by this stock
selection process. Stocks ranking in the bottom half of this research coverage
generally must be sold. In relying on this process, the Adviser seeks to
identify the best combination of strong relative earnings growth and reasonable
valuation.
 
    Individual holdings and position sizes are determined by the Adviser after
considering their respective investment merits and contribution to portfolio
risk. Style and industry risk are controlled relative to the growth benchmark.
Stock selection is the primary determinant of investment performance relative to
benchmark.
 
PACE SMALL/MEDIUM COMPANY VALUE EQUITY INVESTMENTS
 
    Adviser: Brandywine Asset Management, Inc.
 
    Objective: Capital appreciation
 
    PACE SMALL/MEDIUM COMPANY VALUE EQUITY INVESTMENTS seeks to achieve its
investment objective by investing primarily in equity securities that, in the
Adviser's opinion, are undervalued or overlooked in the marketplace at the time
of purchase, which generally have below-market average price/earnings ("P/E")
ratios and with total market capitalization (i.e., market value of common stock
outstanding) of less than $2.5 billion. The Portfolio will only invest in
companies with common stock traded on the major stock exchanges as well as on
the OTC market. The Portfolio may invest in a broad range of equity securities
of U.S. issuers, including common and preferred stock, debt securities
convertible into or exchangeable for common stock and securities such as
warrants or rights that are convertible into common stock. Under normal
conditions, at least 65% of the Portfolio's total assets will be invested in
common stocks of issuers with total market capitalization of less than $2.5
billion at the time of purchase. The Portfolio defines a low P/E ratio as a P/E
(based on trailing twelve-month earnings) which places an issuer among the
lowest 25% based on P/E ratios for all exchange-traded and OTC stocks with
positive earnings and a capitalization greater than $10 million. See "Other
Investment Policies and Risk Factors" for further discussion of other investment
policies of the Portfolio.
 
    The Adviser performs a qualitative, fundamental review of candidates to
determine that they are appropriate candidates for the Portfolio. This review
identifies and avoids stocks undesirable for investment: First, the Adviser
adjusts all reported earnings for extraordinary gains and losses so as to
consider only true, low P/E stocks for entry into the Portfolio. Second, the
Adviser excludes stocks that have pre-announced significant earnings changes
which when formally reported will raise their P/E ratios. Third, stocks that
have had recent strong price increases, and therefore are not truly undervalued,
are eliminated. Fourth, the fundamental review identifies and removes those
stocks that are suffering a severe or sudden fundamental deterioration.
 
    The Portfolio intends to invest in the common stock only of companies
meeting these criteria. Each stock's weighting in the Portfolio will be
proportional to the stock's capitalization, except that the Portfolio will not
purchase any stock if it would exceed 2% of the Portfolio. The Portfolio may
deviate from strict capitalization weighting in order to invest only in round
lots, for illiquidity considerations, or to block purchases at favorable prices.
 
PACE SMALL/MEDIUM COMPANY GROWTH EQUITY INVESTMENTS
 
    Adviser: Delaware Management Company, Inc.
 
    Objective: Capital appreciation
 
    PACE SMALL/MEDIUM COMPANY GROWTH EQUITY INVESTMENTS seeks to achieve its
investment objective by investing primarily in the
 
                                       22
<PAGE>
common stock of "emerging growth" companies, companies characterized by
above-average earnings growth rates and total market capitalization (i.e.,
market value of common stock outstanding) of less than $2.5 billion. Dividend
income is an incidental consideration in the selection of investments. The
securities held by the Portfolio can be expected generally to experience greater
volatility than those of PACE SMALL/MEDIUM COMPANY VALUE EQUITY INVESTMENTS. The
Portfolio may invest in a broad range of equity securities of U.S. issuers,
including common and preferred stock, debt securities convertible into or
exchangeable for common stock and securities such as warrants or rights that are
convertible into common stock. Under normal conditions, at least 65% of the
Portfolio's total assets will be invested in common stocks of issuers with total
market capitalization of less than $2.5 billion that exhibit the potential for
high future earnings growth relative to the overall market. The Portfolio may
invest up to 5% of its total assets in foreign securities, including ADRs.
 
    The Adviser uses a bottom-up, fundamental approach, including on-site
company visits, to uncover and analyze companies that exhibit the possibility of
accelerating earnings growth because of management changes, new products,
established products exhibiting unit volume growth or structural changes in the
economy. The quality of the management team and the strength of the company's
finances and internal controls are also factors in the investment decision. A 12
to 18 month time horizon is employed in selecting stocks; however, selected
issues may be held for extended periods based on the Adviser's outlook.
 
    The Adviser is exposed to and follows companies constituting a full range of
market sectors; nevertheless, it may focus on a limited number of attractive
industries. The securities of these companies may have limited marketability and
may be subject to more abrupt or erratic market movements than securities of
larger, more established companies or the market averages in general. The
Portfolio also may use options, futures contracts and options on futures
contracts for hedging and income and return enhancement purposes. See "Other
Investment Policies and Risk Factors" for further discussion of hedging and
related strategies and other investment policies of the Portfolio.
 
PACE INTERNATIONAL EQUITY INVESTMENTS
 
    Adviser: Martin Currie Inc.
 
    Objective: Capital appreciation
 
    PACE INTERNATIONAL EQUITY INVESTMENTS seeks to achieve its objective by
investing in equity securities of companies domiciled outside the United States.
Under normal market conditions, at least 65% of the Portfolio's total assets
will be invested in common stocks, which may or may not pay dividends, as well
as convertible bonds, convertible preferred stocks, warrants, rights or other
equity securities of companies domiciled in three or more countries outside the
United States. "Domiciled," for these purposes, means companies (1) which are
organized under the laws of a country other than the United States, (2) for
which the principal securities trading market is in such a country, or (3) which
derive a significant proportion (at least 50 percent) of their revenues or
profits from goods produced or sold, investments made, or services performed in
the eponymous country or which have at least 50 percent of their assets situated
in such a country. The Portfolio also may invest up to 10% of its total assets
in securities of investment companies, such as closed-end investment management
companies which invest in foreign markets.
 
    The Portfolio will normally invest in the securities of three or more
countries outside the United States. Particular consideration will be given to
investments principally traded in Japanese, European, Pacific and Australian
securities markets, and in foreign securities of companies traded on United
States' securities markets. The Portfolio may also invest up to 10% of its total
assets in emerging markets, including Asia, Latin America and other regions,
where markets may not yet fully reflect the potential of the developing economy.
For purposes of this Portfolio, "emerging markets" are markets in countries not
included in the MSCI Index of major world economies. For purposes of this
Portfolio, the market in Malaysia will be considered an emerging market.
 
    In allocating the Portfolio's assets among the various securities markets of
the world, the Adviser will consider such factors as the condition and growth
potential of the various economic and securities markets, currency and taxation
considerations and other pertinent
 
                                       23
<PAGE>
financial, social, national and political factors. Under certain adverse
investment conditions, the Portfolio may restrict the number of securities
markets in which its assets will be invested, although under normal market
circumstances, the Portfolio's investments will involve securities principally
traded in at least ten different countries. The Portfolio will invest only in
markets where, in the judgment of the Adviser, there exists an acceptable
framework of market regulation and sufficient liquidity.
 
    When the Adviser believes that conditions in international securities
markets warrant a defensive investment strategy, the Portfolio temporarily may
invest up to 100% of its assets in domestic debt securities, foreign debt
securities principally traded in the United States, and in foreign debt
securities principally traded outside of the United States, obligations issued
or guaranteed by the U.S. or a foreign government or their respective agencies,
authorities or instrumentalities, corporate bonds and sponsored ADRs.
 
    The Portfolio may use forward currency contracts, currency options, currency
futures and options thereon to hedge against unfavorable changes in currency and
for income and return enhancement purposes. The Portfolio also may use options,
futures contracts and options on futures contracts for hedging and income and
return enhancement purposes. See "Other Investment Policies and Risk Factors"
for further discussion of hedging and related strategies and other investment
policies of the Portfolio. For a more detailed discussion of the risks in
investing in foreign securities, see "Other Investment Policies and Risk
Factors--Foreign Securities," "-- Foreign Government Securities" below and
"Investment Policies and Restrictions--Special Characteristics of Foreign and
Emerging Market Securities" in the SAI.
 
PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS
 
    Adviser: Schroder Capital Management International Inc.
 
    Objective: Capital appreciation
 
    PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS seeks to achieve its
investment objective by investing, under normal conditions, at least 65% of the
Portfolio's total assets in equity securities of issuers domiciled in three or
more emerging market countries. "Domiciled" for these purposes means companies
(1) which are organized under the laws of an emerging market country, (2) for
which the principal securities trading market is in such a country, or (3) which
derive a significant proportion (at least 50 percent) of their revenues or
profits from goods produced or sold, investments made, or services performed in
the eponymous country or which have at least 50 percent of their assets situated
in such a country. For purposes of this Portfolio, "emerging market" countries
are those countries not included in the MSCI Index of major world economies.
Malaysia will be considered an emerging market country for purposes of this
Portfolio. The Portfolio may invest in a broad range of equity securities,
including common and preferred stock, debt securities convertible into or
exchangeable for stock and securities such as warrants or rights that are
convertible into stock. The Portfolio also may invest up to 10% of its total
assets in securities of investment companies, such as closed-end investment
management companies which invest in foreign markets. 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 recent years, many emerging market countries have begun programs of
economic reform: removing import tariffs, dismantling trade barriers,
deregulating foreign investment,
 
                                       24
<PAGE>
privatizing state owned industries, permitting the value of their currencies to
float against the dollar and other major currencies, and generally reducing the
level of state intervention in industry and commerce. Important intra-regional
economic integration also holds the promise of greater trade and growth. At the
same time, significant progress has been made in restructuring the heavy
external debt burden that certain emerging market countries accumulated during
the 1970s and 1980s. While there is no assurance that these trends will
continue, the Adviser will seek out attractive investment opportunities in these
countries.
 
    The Portfolio will not necessarily seek to diversify investments on a
geographic basis within the emerging market category and to the extent the
Portfolio concentrates its investments in issuers located in one country or
area, the Portfolio is more susceptible to factors adversely affecting that
country or area.
 
    The Portfolio may use forward currency contracts, currency options, currency
futures and options thereon to hedge against unfavorable changes in currency
exchange rates and for income and return enhancement purposes. The Portfolio may
acquire emerging market securities that are denominated in currencies other than
a currency of an emerging market country. The Portfolio also may use options,
futures contracts and options on futures contracts for hedging and income and
return enhancement purposes. See "Other Investment Policies and Risk Factors"
for further discussion of hedging and related strategies and other investment
policies of the Portfolio. For a more detailed discussion of the risks in
investing in foreign securities, see "Other Investment Policies and Risk
Factors--Foreign Securities," "--Foreign Government Securities" below and
"Investment Policies and Restrictions-- Special Characteristics of Foreign and
Emerging Market Securities" in the SAI.
 
                         OTHER INVESTMENT POLICIES AND
                                  RISK FACTORS
 
MONEY MARKET INSTRUMENTS
 
    All Portfolios other than PACE MONEY MARKET INVESTMENTS also may invest in
high-grade money market instruments such as commercial paper of a U.S. or
foreign company or foreign government certificates of deposit, bankers'
acceptances and time deposits of domestic and foreign banks, and obligations
issued or guaranteed by the U.S. government, its agencies and instrumentalities.
These obligations generally will be U.S. dollar-denominated. Commercial paper
will be rated, at the time of purchase, at least "Prime-2" by Moody's or "A-2"
by S&P or, if not rated, issued by an entity having an outstanding unsecured
debt issue rated at least "A" or "Prime-2" by Moody's or "A" or "A-2" by S&P.
See the Appendix to the SAI for a description of Moody's and S&P's ratings.
 
U.S. GOVERNMENT SECURITIES
 
    Each Portfolio may invest in some or all of the following U.S. government
securities: securities that are backed by the full faith and credit of the U.S.
government, such as U.S. Treasury obligations (bills, notes and bonds),
securities that are supported primarily or solely by the creditworthiness of the
government-related issuer, such as securities issued by the RFC, the Student
Loan Marketing Association, the Federal Home Loan Banks and the TVA, and
securities that are supported primarily or solely by specific pools of assets
and the creditworthiness of a U.S. government-related issuer, such as U.S.
government mortgage-backed securities. For more information concerning the types
of mortgage-backed securities in which certain Portfolios may invest, see "Other
Investment Policies and Risk Factors--Mortgage-Backed Securities." In addition,
PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS, PACE INTERMEDIATE FIXED
INCOME INVESTMENTS and PACE STRATEGIC FIXED INCOME INVESTMENTS may invest in
certain zero coupon securities that are "stripped" U.S. Treasury notes and
bonds. See "Other Investment Policies and Risk Factors and Risk Factors--Zero
Coupon Securities."
 
DEBT SECURITIES
 
    Each Portfolio may invest in corporate and other debt obligations. The yield
of a Fixed Income Security depends on a variety of factors, including general
Fixed Income Security market conditions, the financial condition of the issuer,
the size of the particular offering, the maturity, credit quality and rating of
the issue and expectations regarding changes in tax rates. Generally, the longer
the maturity of a Fixed Income Security, the higher the rate of interest paid
and the greater the volatility. Furthermore,
 
                                       25
<PAGE>
the value of the securities held by a Portfolio will rise when interest rates
decline. Conversely, when interest rates rise, the value of Fixed Income
Securities may be expected to decline.
 
    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.
 
    Ratings of debt securities represent the rating agencies' opinions regarding
their quality, are not a guarantee of quality and may be reduced after a
Portfolio has acquired the security. The Advisers, and in the case of PACE MONEY
MARKET INVESTMENTS, Mitchell Hutchins, would consider such an event in
determining whether the Portfolio should continue to hold the security but may
not be required to dispose of it. Credit ratings attempt to evaluate the safety
of principal and interest payments and do not evaluate the risks of fluctuations
in market value. Also, rating agencies may fail to make timely changes in credit
ratings in response to subsequent events affecting an issuer, so that an
issuer's current financial condition may be better or worse than the rating
indicates.
 
    Lower rated debt securities generally offer a higher current yield than that
available from higher grade issues, but they involve higher risks in that they
are especially subject 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 fluctuation in response to changes in
interest rates. During periods of economic downturn or rising interest rates,
highly leveraged issuers may experience financial stress, which could adversely
affect their ability to make payments of principal and interest and increase the
possibility of default. In addition, issuers of these securities may not have
more traditional methods of financing available to them and may be unable to
repay debt at
 
                                       26
<PAGE>
maturity by refinancing. The risk of loss due to default by such issuers is
significantly greater, because such securities frequently are unsecured and
subordinated to the prior payment of senior indebtedness.
 
    The market for lower rated securities has expanded in recent years, and its
growth paralleled a long economic expansion. In the past, the prices of many
lower rated debt securities declined substantially, reflecting an expectation
that many issuers of such securities might experience financial difficulties. As
a result, the yields on lower rated debt securities rose dramatically. The
higher yields did not reflect the value of the income stream that holders of
such securities expected, but rather the risk that holders of such securities
could lose a substantial portion of their value as a result of the issuers'
financial restructuring or default. There can be no assurance that such declines
will not recur. The market for lower rated debt securities generally is thinner
and less active than that for higher quality securities, which may limit a
Portfolio's ability to sell the securities at fair value in response to changes
in the economy or the financial markets. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may also decrease the
values and liquidity of lower rated securities, especially in a thinly-traded
market.
 
DURATION
 
    Duration is a measure of the expected life of a fixed income security that
was developed as a more precise alternative to the concept of "term to
maturity." Duration incorporates a bond's yield, coupon interest payments, final
maturity and call features into one measure. Duration is one of the fundamental
tools used by the Adviser in portfolio selection for 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.
 
    Traditionally, a debt security'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 a debt security provides its final
payments, taking no account of the pattern of the security's payments prior to
maturity. Duration is a measure of the expected life of a Fixed Income Security
on a present value basis. 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 received, and
weights them by the present values of the cash to be received at each future
point in time. For any Fixed Income Security with interest payments occurring
prior to the payment of principal, duration is always less than maturity. In
general, all other things being equal, the lower the stated or coupon rate of
interest of a Fixed Income Security, the longer the duration of the security;
conversely, the higher the stated or coupon rate of interest of a Fixed Income
Security, the shorter the duration of the security.
 
    Duration allows an Adviser to make certain predictions regarding how the
value of a portfolio will generally respond to changes in the level of interest
rates. For example, a portfolio consisting entirely of treasury notes with a
remaining maturity of five years would have a duration of 4.5 years. A 1% change
in the level of interest rates would cause a change of approximately 4.5% in the
net asset value of the portfolio. A portfolio consisting entirely of treasury
notes with a remaining maturity of ten years would have a duration of about 7.5
years and a 1% change in the level of interest rates would cause a change of
between 7% and 8% in the net asset value of the portfolio. This example is
intended for demonstration purposes only, however, and is not intended to
approximate how a Portfolio's investment portfolio will respond to changes in
interest rates. A Portfolio's investment portfolio may include securities with
differing maturities and quality levels, and interest rates on those instruments
may not all change by the same amount at the same time as rates rise or fall
generally in the marketplace. Also, the treasury securities described in the
example cannot be retired prior to maturity, while some of the securities in the
Portfolios' investment portfolios can. These factors among others can cause a
Portfolio's investment portfolio to respond somewhat differently to changes in
interest rates than shown in the example.
 
    Futures, options and options on futures have durations which, in general,
are closely related to the duration of the securities which
 
                                       27
<PAGE>
underlie them. Holding long futures or call option positions (backed by a
segregated account of cash and cash equivalents) will lengthen a Portfolio's
duration by approximately the same amount that purchasing an equivalent amount
of the underlying securities would.
 
    Short futures or put option positions 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 that
selling an equivalent amount of the underlying securities would.
 
    There are some situations where even 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 duration is the case of mortgage pass-through securities. The stated
final maturity of such securities is generally 30 years, but current prepayment
rates are more critical in determining the securities' interest rate exposure.
In these and other similar situations, the Adviser will use more sophisticated
analytical techniques that incorporate the economic life of a security into the
determination of its interest rate exposure.
 
MUNICIPAL OBLIGATIONS
 
    Municipal Obligations include, but are not limited to, municipal bonds,
floating rate and variable rate municipal obligations, participation interests
in municipal bonds, tax-exempt commercial paper, tender option bonds and
short-term municipal notes. Municipal bonds include IDBs, municipal lease
obligations and certificates of participation therein, put bonds and PABs.
 
    PACE MUNICIPAL FIXED INCOME INVESTMENTS may invest in a variety of Municipal
Obligations, as described below:
 
    MUNICIPAL BONDS.  Municipal bonds are debt obligations issued to obtain
funds for various public purposes 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.
The term "municipal bonds" also includes "moral obligation" issues, which are
normally issued by special purpose authorities. In the case of such issues, an
express or implied "moral obligation" of a related government unit is pledged to
the payment of the debt service, but is usually subject to annual budget
appropriations. The term "municipal bonds" also includes 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 Portfolio generally invests in municipal lease
obligations through certificates of participation. The Portfolio does not
presently intend to purchase municipal lease obligations, or certificates of
participation therein, that are not rated by Moody's or S&P.
 
    MUNICIPAL LEASES, CERTIFICATES OF PARTICIPATION AND OTHER PARTICIPATION
INTERESTS. A municipal lease is an obligation in the form of a lease or
installment purchase contract which is issued by a state or local government to
acquire equipment and facilities. Income from such obligations is generally
exempt from state and local taxes in the state of issuance (as well as regular
federal income tax). Municipal leases frequently involve special risks not
normally associated with general obligation or revenue bonds. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased asset to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. The debt issuance limitations are deemed to be inapplicable because of
the inclusion in many leases or contracts of "non-appropriation" clauses that
relieve the governmental issuer of any obligation to make future payments under
 
                                       28
<PAGE>
the lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis. Thus, the
Portfolio's investment in municipal leases will be subject to the special risk
that the governmental issuer may not appropriate funds for lease payments.
 
    In addition, such leases or contracts may be subject to the temporary
abatement of payments in the event the issuer is prevented from maintaining
occupancy of the leased premises or utilizing the leased equipment. Although the
obligations may be secured by the leased equipment or facilities, the
disposition of the property in the event of nonappropriation or foreclosure
might prove difficult, time consuming and costly, and result in an
unsatisfactory or delayed recoupment of the Portfolio's original investment.
 
    Certificates of participation represent undivided interests in municipal
leases, installment purchase contracts or other instruments. The certificates
are typically issued by a trust or other entity which has received an assignment
of the payments to be made by the state or political subdivision under such
leases or installment purchase contracts.
 
    Certain municipal lease obligations and certificates of participation may be
deemed illiquid for purposes of the Portfolio's limitations on investments in
illiquid securities. Other municipal lease obligations and certificates of
participation acquired by the Portfolio may be determined by the Adviser,
pursuant to guidelines adopted by the trustees of the Trust, to be liquid
securities for purposes of the Portfolio's limitation on investments in illiquid
securities. In determining the liquidity of municipal lease obligations and
certificates of participation, the Adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades or quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
Adviser will consider factors unique to particular lease obligations and
certificates of participation affecting the marketability thereof. These include
the general creditworthiness of the issuer, the importance to the issuer of the
property covered by the lease and the likelihood that the marketability of the
obligation will be maintained throughout the time the obligation is held by the
Portfolio. The Portfolio may not invest more than 5% of its net assets in
municipal leases.
 
    PACE MUNICIPAL FIXED INCOME INVESTMENTS may purchase participations in
municipal securities held by a commercial bank or other financial institution.
Such participations provide the Portfolio with the right to a pro rata undivided
interest in the underlying municipal securities. In addition, such
participations generally provide the Portfolio with the right to demand payment,
on not more than seven days notice, of all or any part of the Portfolio's
participation interest in the underlying municipal security, plus accrued
interest.
 
    INDUSTRIAL DEVELOPMENT BONDS AND PRIVATE ACTIVITY BONDS.  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, and are
considered to be "municipal bonds" if the interest paid thereon is exempt from
federal income tax in the opinion of the bond issuer's counsel. IDBs and PABs
are in most cases revenue bonds and thus are not payable from the unrestricted
revenues of the issuer. The credit quality of IDBs and PABs is usually directly
related to the credit standing of the user of the facilities being financed.
IDBs issued after August 15, 1986 generally are considered PABs, and, to the
extent the Portfolio invests in such PABs, shareholders generally will be
required to include a portion of their exempt-interest dividends from that
Portfolio in calculating their liability for the AMT. See "Dividends and Taxes."
The Portfolio is authorized to invest more than 25% of its net assets in IDBs
and PABs.
 
    FLOATING RATE AND VARIABLE RATE OBLIGATIONS.  See "Other Investment Policies
and Risk Factors--Floating Rate and Variable Rate Obligations."
 
    PARTICIPATION INTERESTS.  Participation interests are interests in municipal
bonds, including IDBs and PABs, and floating and variable rate obligations, that
are owned by banks. These interests typically 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
 
                                       29
<PAGE>
credit or guarantee of the bank. The credit standing of such bank affects the
credit quality of the participation interests.
 
    TENDER OPTION BONDS.  Tender option bonds are long-term Municipal
Obligations 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 order 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 Obligations. Therefore, the
Portfolio'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 which 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.
 
    TAX-EXEMPT COMMERCIAL PAPER AND SHORT-TERM MUNICIPAL NOTES.  Tax-exempt
commercial paper and short-term municipal notes include 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.
 
    YIELDS AND RISK FACTORS.  The yield of a municipal security depends on a
variety of factors, including general municipal and fixed income security market
conditions, the financial condition of the issuer, the size of the particular
offering, the maturity, credit quality and rating of the issue and expectations
regarding changes in tax rates. Generally, the longer the maturity of a
municipal security, the higher the rate of interest paid and the greater the
volatility. Further, if general market interest rates are increasing, the prices
of Municipal Obligations ordinarily will decrease and, if rates decrease, the
opposite generally will be true. The Portfolio may invest in Municipal
Obligations with a broad range of maturities, based on the Adviser's judgment of
current and future market conditions as well as other factors, such as the
Portfolio's liquidity needs. Accordingly, the average dollar-weighted duration
of the Portfolio's portfolio may vary.
 
    Future federal, state and local laws may adversely affect the tax-exempt
status of interest on the Portfolio's portfolio securities or of the
exempt-interest dividends paid by the Portfolio, extend the time for payment of
principal or interest or otherwise constrain enforcement of such obligations.
Opinions relating to the validity of Municipal Obligations and the tax-exempt
status of interest thereon are rendered by the issuer's bond counsel at the time
of issuance; the Adviser will rely on such opinions without independent
investigation. See "Other Investment Policies and Risk Factors--Debt Securities"
for further discussion of ratings.
 
MORTGAGE-BACKED SECURITIES
 
    PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS, PACE INTERMEDIATE FIXED
INCOME INVESTMENTS and PACE STRATEGIC FIXED INCOME INVESTMENTS each may invest
in mortgage-backed securities. Mortgage-backed securities are securities that
directly or indirectly represent a participation in, or are secured by and
payable from, mortgage loans secured by real property and include single- and
multi-class pass-through securities and collateralized mortgage obligations.
Multi-class pass-through securities and collateralized mortgage obligations are
collectively referred to herein as CMOs.
 
    The U.S. government securities in which these three Portfolios may invest
include mortgage-backed securities issued or guaranteed as to the payment of
principal and interest (but not as to market value) by GNMA, FNMA or the FHLMC.
Other mortgage-backed securities in which these three Portfolios may invest are
issued by private issuers, generally originators of and investors in mortgage
loans, including savings associations, mortgage bankers, commercial banks,
investment bankers and
 
                                       30
<PAGE>
special purpose 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.
 
    GNMA CERTIFICATES.  GNMA guarantees certain mortgage pass-through
certificates ("GNMA certificates") that are issued by Private Mortgage Lenders
and that represent ownership interests in individual 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 Portfolios. 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 which originate mortgages for the
pools are subject to certain standards, including credit and other underwriting
criteria for individual mortgages included in the pools.
 
    FNMA CERTIFICATES.  FNMA 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. FNMA issues
guaranteed mortgage pass-through certificates ("FNMA certificates"), which
represent PRO RATA shares of all interest and principal payments made and owed
on the underlying pools. FNMA guarantees timely payment of interest and
principal on FNMA certificates. The FNMA guarantee is not backed by the full
faith and credit of the U.S. government.
 
    FHLMC CERTIFICATES.  FHLMC 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. FHLMC 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. FHLMC 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 FHLMC guarantee is not backed by the
full faith and credit of the U.S. government.
 
    PRIVATE, RTC AND SIMILAR MORTGAGE-BACKED SECURITIES.  Mortgage-backed
securities issued by Private Mortgage Lenders are structured similarly to the
CMOs or single-class mortgage-backed securities issued or guaranteed by GNMA,
FNMA and the FHLMC. 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 GNMA,
FNMA and the FHLMC, they normally are structured with one or more types of
credit enhancement. See "Other Investment Policies and Risk
Factors--Mortgage-Backed Securities-- Types of Credit Enhancement." Such credit
enhancements do not protect investors from changes in the market value of CMOs.
 
    The RTC, which was organized by the U.S. government in connection with the
savings and loan crisis, holds assets of failed savings associations as either a
conservator or receiver for such associations, or it acquires such assets in its
corporate capacity. These assets include, among other things, single family and
multi-family mortgage loans, as well as commercial
 
                                       31
<PAGE>
mortgage loans. In order to dispose of such assets in an orderly manner, RTC has
established a vehicle registered with the SEC through which it sells
mortgage-backed securities. RTC mortgage-backed securities represent pro rata
interests in pools of mortgage loans that RTC holds or has acquired, as
described above and are supported by one or more of the types of private credit
enhancements used by Private Mortgage Lenders.
 
    COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS MORTGAGE
PASS-THROUGHS.  CMOs are debt obligations that are collateralized by mortgage
loans or mortgage pass-through securities (such collateral collectively being
called "Mortgage Assets"). CMOs may be issued by Private Mortgage Lenders or by
government entities such as FNMA or the FHLMC. 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 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 repayments on the Mortgage Assets may cause CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all classes of a CMO (other than any PO class
(defined below)) 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 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 have an earlier stated maturity or final distribution date
that 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.
 
    ARM AND FLOATING RATE MORTGAGE-BACKED SECURITIES.  ARM mortgage-backed
securities are mortgage-backed securities 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 (such
mortgage loans are referred to as "ARMs"). 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 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. See
"Investment Policies and Restrictions--ARM and Floating Rate Mortgage-Backed
Securities" in the SAI for further information on these securities.
 
    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. Credit enhancement generally falls into two
categories: (1) liquidity protection and (2) protection against 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
 
                                       32
<PAGE>
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.
Protection against losses resulting after default and liquidation 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. The Portfolios will not pay any additional fees for such credit
enhancement, although the existence of credit enhancement may increase the price
of a 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.
 
    SPECIALLY STRUCTURED CMOS AND NEW TYPES OF MORTGAGE-BACKED SECURITIES.  PACE
GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS, PACE INTERMEDIATE FIXED INCOME
INVESTMENTS and PACE STRATEGIC FIXED INCOME INVESTMENTS each may invest in
interest only ("IO"), principal only ("PO") and other specially structured CMO
classes. No Portfolio will invest more than 5% of its net assets in any
combination of IOs, POs and inverse floating rate securities including those
which are not mortgage- and asset-backed securities. See "Other Investment
Policies and Risk Factors--Risks of Mortgage- and Asset-Backed Securities."
 
    New types of mortgage-backed securities are developed and marketed from time
to time and, consistent with their investment limitations, the Portfolios expect
to invest in those new types of mortgage-backed securities that the respective
Portfolio's Adviser believes may assist the Portfolio in achieving its
investment objective. Similarly, the Portfolios may invest in mortgage-backed
securities issued by new or existing governmental or private issuers other than
those identified above.
 
ASSET-BACKED SECURITIES
 
    PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS, PACE INTERMEDIATE FIXED
INCOME INVESTMENTS and PACE STRATEGIC FIXED INCOME INVESTMENTS may each invest
in asset-backed securities. Asset-backed securities have structural
characteristics similar to mortgage-backed securities. However, the underlying
assets are not first lien mortgage loans or interests therein, but include
assets such as motor vehicle installment loan 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 on asset-backed securities may be guaranteed up to
certain amounts and for a certain time period by a letter of credit or a pool
insurance policy issued by a financial institution unaffiliated with the issuer
or other credit enhancements may be present.
 
RISKS OF MORTGAGE- AND ASSET-BACKED SECURITIES
 
    The yield characteristics of the mortgage-and asset-backed securities in
which PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS, PACE INTERMEDIATE
FIXED INCOME INVESTMENTS and PACE STRATEGIC FIXED INCOME INVESTMENTS may invest
differ from those of traditional debt securities. Among the major differences
are that interest and principal payments are made more frequently on mortgage-
and asset-backed securities (usually monthly) and that principal may be prepaid
at any time because the underlying mortgage loans or other assets generally may
be prepaid at any time. As a result,
 
                                       33
<PAGE>
if a Portfolio purchases these securities at a premium, a pre-payment rate that
is faster than expected will reduce yield to maturity, while a prepayment rate
that is slower than expected will have the opposite effect of increasing yield
to maturity. Conversely, if a Portfolio purchases these securities at a discount
faster than expected, prepayments will increase, while slower than expected
prepayments will reduce, yield to maturity. Amounts available for reinvestment
by a Portfolio are likely to be greater during a period of declining interest
rates and, as a result, are likely to be reinvested at lower interest rates than
during a period of rising interest rates. Accelerated prepayments on securities
purchased by a Portfolio at a premium also impose a risk of loss of principal,
because the premium may not have been fully amortized at the time the principal
is prepaid in full. The market for privately issued mortgage-and asset-backed
securities is smaller and less liquid than the market for U.S. government
mortgage-backed securities.
 
    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.
 
    The rate of interest payable on CMO classes may be set at levels that are
either above or below market rates at the time of issuance, so that the
securities will be sold at a substantial premium to, or at a discount from, par
value. In the most extreme case, one class will be entitled to receive all or a
portion of the interest but none of the principal from the underlying mortgage
assets (the interest-only or "IO" class) and one class will be entitled to
receive all or a portion of the principal but none of the interest (the
principal-only or "PO" class). IOs and POs may also be created from
mortgage-backed securities that are not CMOs. The yields on IOs, POs and other
mortgage-backed securities that are purchased at a substantial premium or
discount generally are extremely sensitive to the rate of principal payments
(including prepayments) on the underlying mortgage assets. If the mortgage
assets underlying an IO experience greater than anticipated principal
prepayments, an investor may fail to recoup fully its initial investment even if
the security is government issued or guaranteed or is rated AAA or the
equivalent.
 
    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," 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.
 
    While the market values of particular securities in which a Portfolio
invests may be volatile, or may become volatile under certain conditions, its
Adviser will seek to manage the Portfolio so that the volatility of the
Portfolio, taken as a whole, is consistent with the Portfolio's investment
objective. If the Adviser incorrectly forecasts interest rate changes or other
factors that may affect the volatility of securities held by the Portfolio, the
Portfolio's ability to meet its investment objective may be reduced.
 
CONVERTIBLE SECURITIES
 
    PACE STRATEGIC 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 may invest in convertible
 
                                       34
<PAGE>
securities. A convertible security is a bond, debenture, note, 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 paid or accrued on debt or dividends paid on
preferred stock 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, although 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.
 
LOWER RATED CONVERTIBLE SECURITIES
 
    PACE LARGE COMPANY VALUE EQUITY INVESTMENTS may invest up to 10% of its
total assets in convertible securities that are rated below investment grade but
no lower than B by S&P or Moody's or comparably rated by another
NRSRO, or if not rated by an NRSRO, determined by its Adviser to be of
comparable quality. Convertible securities rated below investment grade are
commonly referred to as "junk bonds" and are deemed by the NRSROs to be
predominantly speculative and may involve significant risk exposure to adverse
conditions.
 
    Lower rated convertible securities generally offer a higher current yield
than that available from higher grade issues, but they involve higher risks, in
that they are especially subject 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, which
could adversely affect their ability to make payments of principal and interest
(or, in the case of convertible preferred stock, dividends) 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 and
subordinated to the prior payment of senior indebtedness.
 
HEDGING AND RELATED INCOME STRATEGIES
 
    Each Portfolio except PACE MONEY MARKET INVESTMENTS, PACE MUNICIPAL FIXED
INCOME INVESTMENTS, PACE LARGE COMPANY GROWTH EQUITY INVESTMENTS and PACE
SMALL/MEDIUM COMPANY VALUE EQUITY INVESTMENTS may use options (both
exchange-traded and OTC) and futures contracts to attempt to enhance income and
return and may attempt to reduce the overall risk of its investments (hedge) by
using options, options on futures contracts and futures contracts. A Portfolio
may use these instruments to enhance income or return--for example, to change
the Portfolio's exposure from one interest rate to another or from one foreign
currency to another. This can be seen as hedging or speculation depending on the
effect of the instrument, because the Portfolio is using these instruments to
change the underlying characteristic(s) of its portfolio or of particular
positions in the portfolio. These strategies may be used by certain Portfolios
in an attempt to manage their foreign currency exposure, the average duration of
PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS, PACE INTERMEDIATE FIXED
INCOME INVESTMENTS, PACE STRATEGIC FIXED INCOME INVESTMENTS AND PACE Global
Fixed Income Investments, and other risks of a Portfolio's investments that can
cause fluctuations in its net asset value. Each Portfolio's ability to use these
strategies may be limited by market conditions, regulatory limits and tax
considerations. The use of options and futures solely to enhance income may be
considered a form of speculation. Appendix A to this Prospectus describes the
hedging instruments that these Portfolios may use, and the SAI contains further
information on these strategies.
 
    PACE STRATEGIC FIXED INCOME INVESTMENTS, PACE GLOBAL FIXED INCOME
INVESTMENTS, PACE
 
                                       35
<PAGE>
INTERNATIONAL EQUITY INVESTMENTS and PACE INTERNATIONAL EMERGING MARKETS EQUITY
INVESTMENTS may each enter into forward currency contracts, buy or sell foreign
currency futures contracts, write (sell) and purchase call or put options on
securities, currencies and securities indices, buy or sell interest rate futures
contracts and (except for PACE STRATEGIC FIXED INCOME INVESTMENTS and PACE
GLOBAL FIXED INCOME INVESTMENTS) stock index futures contracts and purchase put
and call options or write call or put options on such contracts for hedging and
income and return enhancement purposes. Each Portfolio (except PACE MONEY MARKET
INVESTMENTS, PACE MUNICIPAL FIXED INCOME INVESTMENTS, PACE LARGE COMPANY GROWTH
EQUITY INVESTMENTS and PACE SMALL/MEDIUM COMPANY VALUE EQUITY INVESTMENTS) may
enter into options and futures contracts that approximate (but do not exceed)
the full value of the Portfolio. Under normal circumstances, however, a
Portfolio's use of these instruments will place at risk a much smaller portion
of its assets.
 
    PACE STRATEGIC FIXED INCOME INVESTMENTS, PACE GLOBAL FIXED INCOME
INVESTMENTS, PACE INTERNATIONAL EQUITY INVESTMENTS and PACE INTERNATIONAL
EMERGING MARKET EQUITY INVESTMENTS may enter into forward currency contracts for
the purchase or sale of a specified currency at a specified future date either
with respect to specific transactions or with respect to portfolio positions.
For example, when the Adviser anticipates making a currency exchange transaction
in connection with the purchase or sale of a security, a Portfolio may enter
into a forward contract in order to set the exchange rate at which the
transaction will be made. A Portfolio also may enter into a forward contract to
sell an amount of a foreign currency approximating the value of some or all of
the Portfolio's securities denominated in such currency. Each Portfolio may use
forward contracts in one currency or a basket of currencies to hedge against
fluctuations in the value of another currency when the Adviser anticipates there
will be a correlation between the two and may use forward currency contracts to
shift a Portfolio's exposure to foreign currency fluctuations from one country
to another. The primary purpose of entering into these contracts is to minimize
the risk to the Portfolios from adverse changes in the relationship between the
U.S. dollar and foreign currencies.
 
    PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS and PACE STRATEGIC FIXED
INCOME INVESTMENTS may enter into interest rate protection transactions,
including interest rate swaps and interest rate caps, collars and floors for
hedging and income and return enhancement purposes. For example, a Portfolio may
enter into interest rate protection 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 the Portfolio anticipates purchasing at a
later date. A Portfolio will enter into interest rate protection transactions
only with banks and recognized securities dealers believed by its Adviser to
present minimal credit risks in accordance with guidelines established by the
Trust's board of trustees. A Portfolio may enter into interest rate protection
transactions that approximate (but do not exceed) the full value of the
Portfolio.
 
    The Portfolios might not employ any of the strategies described above, and
there can be no assurance that any strategy used will succeed. If its Adviser
incorrectly forecasts interest rates, currency exchange rates, market values or
other economic factors in utilizing a strategy for a Portfolio, the Portfolio
might have been in a better position had it not hedged at all. The use of these
strategies involves certain special risks, including (1) the fact that skills
needed to implement a strategy using hedging instruments are different from
those needed to select the Portfolio's securities, (2) possible imperfect
correlation, or even no correlation, between price movements of hedging
instruments and price movements of the investments being hedged, (3) the fact
that, while hedging strategies can reduce the risk of loss, they can also reduce
the opportunity for gain, or even result in losses, by offsetting favorable
price movements in hedged investments and (4) the possible inability of a
Portfolio to sell a portfolio security at an advantageous time, due to the need
for the Portfolio to maintain "cover" or to segregate securities in connection
with hedging transactions and the possible inability of a Portfolio to close out
or to liquidate its hedged position.
 
    New financial products and risk management techniques continue to be
developed. Each Portfolio may use these instruments and
 
                                       36
<PAGE>
techniques to the extent consistent with its investment objectives and
regulatory and federal tax considerations.
 
FOREIGN SECURITIES
 
    PACE MONEY MARKET INVESTMENTS may invest in U.S. dollar-denominated
securities of foreign issuers, including debt securities of foreign corporations
and foreign governments and obligations of foreign banks, domestic branches of
foreign banks, foreign branches of domestic banks and foreign branches of
foreign banks. PACE STRATEGIC FIXED INCOME INVESTMENTS, PACE GLOBAL FIXED INCOME
INVESTMENTS, PACE INTERNATIONAL EQUITY INVESTMENTS and PACE INTERNATIONAL
EMERGING MARKETS EQUITY INVESTMENTS may each invest in foreign debt securities,
including securities of foreign corporations, obligations of foreign branches of
U.S. banks and securities issued by foreign governments. PACE INTERMEDIATE FIXED
INCOME INVESTMENTS may invest up to 10% of its total assets in securities
denominated in foreign currencies of developed countries. PACE LARGE COMPANY
VALUE EQUITY INVESTMENTS, PACE LARGE COMPANY GROWTH EQUITY INVESTMENTS and PACE
SMALL/MEDIUM COMPANY GROWTH EQUITY INVESTMENTS each may invest up to 5% of its
total assets in foreign securities including ADRs. See "Investment Policies and
Restrictions--Special Characteristics of Foreign and Emerging Market Securities"
in the SAI.
 
    Investments in foreign securities involve risks relating to political and
economic developments abroad, as well as those that result from the differences
between the regulations to which U.S. and foreign issuers and markets are
subject. These risks may include expropriation, confiscatory taxation,
limitations on the use or transfer of Portfolio 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 positions. Securities of many
foreign issuers may be less liquid and their prices more volatile than those of
securities of comparable U.S. companies. These risks are often heightened for
investments in emerging countries.
 
    In addition, substantial limitations may exist in certain countries with
respect to a Portfolio's ability to repatriate investment income, capital or the
proceeds of sales of securities by foreign investors. The Portfolio could be
adversely affected by delays in, or a refusal to grant, any required government
approval for repatriation of capital, as well as by the application to the
Portfolio of any restrictions on investments.
 
    The securities markets of many of the emerging countries in which a
Portfolio may invest are substantially smaller, less developed, less liquid and
more volatile than the securities markets of the United States and other more
developed countries. Disclosure and regulatory standards in many respects are
less stringent than in the U.S. and other major markets. There also may be a
lower level of monitoring and regulation of emerging markets and the activities
of investors in such markets, and enforcement of existing regulations has been
extremely limited.
 
    Many of the foreign securities held by a Portfolio will not be registered
with the SEC, nor will the issuers thereof be subject to SEC reporting
requirements. Accordingly, there may be less publicly available information
concerning foreign issuers of securities held by a Portfolio than is available
concerning U.S. companies. Foreign companies, and in particular, companies in
smaller and emerging countries 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. A Portfolio's net investment
income and/or capital gains from its foreign investment activities may be
subject to non-U.S. withholding taxes that, if not recoverable by a Portfolio,
may reduce the Portfolio's return.
 
    Additionally, because foreign securities ordinarily will be denominated in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates will affect a Portfolio's net asset value, the value of dividends and
interest earned, gains and losses realized on the sale of securities and net
investment income to be distributed to shareholders by a Portfolio. If the value
of a foreign currency rises against the U.S. dollar, the value of Portfolio
assets denominated in such currency will increase; correspondingly, if the value
of a foreign currency declines against the U.S. dollar, the
 
                                       37
<PAGE>
value of Portfolio assets denominated in such currency will decrease. The
exchange rates between the U.S. dollar and other currencies can be volatile and
are determined by factors such as supply and demand in the currency exchange
markets, international balances of payments, government intervention,
speculation and other economic and political conditions. Any of these factors
could affect a Portfolio.
 
    The costs attributable to foreign investing that a Portfolio must bear
frequently are higher than those attributable to domestic investing. For
example, the cost of maintaining custody of foreign securities exceeds custodian
costs for domestic securities, and transaction and settlement costs of foreign
investing also 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. Investment income on certain
foreign securities in which a Portfolio may invest may be subject to foreign
withholding or other government taxes that could reduce the return of these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign tax to which a Portfolio
would be subject. 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 assets of a Portfolio are uninvested and no return is
earned thereon. The inability of a Portfolio to make intended security purchases
due to settlement problems could cause the Portfolio to miss attractive
investment opportunities. Inability to dispose of a portfolio security due to
settlement problems could result either in losses to a Portfolio due to
subsequent declines in the value of such portfolio security or, if a Portfolio
has entered into a contract to sell the security, could result in possible
liability to the purchaser.
 
    In addition to purchasing securities of foreign issuers in foreign markets,
a Portfolio may invest in ADRs, European Depositary Receipts ("EDRs") or other
securities convertible into securities of companies based in foreign countries.
These securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. Generally, ADRs, traded in
registered form, are denominated in U.S. dollars and are designed for use in the
U.S. securities markets, and EDRs, in bearer form, may be denominated in other
currencies and are designed for use in European securities markets. ADRs are
receipts typically issued by a U.S. bank or trust company evidencing ownership
of underlying securities. EDRs are European receipts evidencing a similar
arrangement. For purposes of a Portfolio's investment policies, ADRs and EDRs
are deemed to have the same classification as the underlying securities they
represent. Thus, an ADR or EDR evidencing ownership of common stock will be
treated as common stock.
 
FOREIGN GOVERNMENT SECURITIES
 
    PACE MONEY MARKET INVESTMENTS, PACE INTERMEDIATE FIXED INCOME INVESTMENTS,
PACE STRATEGIC FIXED INCOME INVESTMENTS, PACE GLOBAL FIXED INCOME INVESTMENTS,
PACE INTERNATIONAL EQUITY INVESTMENTS and PACE INTERNATIONAL EMERGING MARKETS
EQUITY INVESTMENTS may each invest in foreign government securities. The foreign
government securities in which the Portfolios may invest generally consist of
obligations supported by national, state or provincial governments or similar
political subdivisions. Foreign government securities also include Brady Bonds
and debt obligations of supranational entities, which include international
organizations designated or supported by governmental entities to promote
economic reconstruction or development, international banking institutions and
related government agencies. Examples include the World Bank, the European Coal
and Steel Community, the Asian Development Bank and the Inter-American
Development Bank. See "Investment Policies and Restrictions--Special
Characteristics of Foreign and Emerging Market Securities--Brady Bonds" in the
SAI for further discussion of risks involved when investing in Brady Bonds.
 
    Foreign government securities also include debt securities of
"quasi-governmental agencies" and debt securities denominated in multinational
currency units of an issuer (including supranational issuers). An example of a
multinational currency unit is the European Currency Unit ("ECU"). An ECU
represents
 
                                       38
<PAGE>
specified amounts of the currencies of certain member states of the European
Community. Debt securities of quasi-governmental agencies are issued by entities
owned by either a national, state or equivalent government or are obligations of
a political unit that is not backed by the national government's full faith and
credit and general taxing powers. Foreign government securities also include
mortgage-related securities issued or guaranteed by national, state or
provincial governmental instrumentalities, including quasi-governmental
agencies.
 
    Investments in foreign government debt securities involve special risks. The
issuer of the debt or the governmental authorities that control the repayment of
the debt may be unable or unwilling to pay interest or repay principal when due
in accordance with the terms of such debt, and the Portfolios may have limited
legal recourse in the event of default. Political conditions, especially a
sovereign entity's willingness to meet the terms of its debt obligations, are of
considerable significance.
 
REPURCHASE AGREEMENTS
 
    Each Portfolio may use repurchase agreements. Repurchase agreements are
transactions in which a Portfolio purchases securities from an approved bank or
securities dealer and simultaneously commits to resell the securities to the
bank or dealer at an agreed-upon date and price reflecting a market rate of
interest unrelated to the coupon rate or maturity of the purchased securities.
Repurchase agreements carry certain risks not associated with direct investments
in securities, including possible decline in the market value of the underlying
securities and delays and costs to each Portfolio if the other party to the
repurchase agreement becomes insolvent. Each Portfolio intends to enter into
repurchase agreements only with banks and dealers in transactions believed by
Mitchell Hutchins to present minimum credit risks in accordance with guidelines
established by the Trust's board of trustees.
 
DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS
 
    PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS and PACE STRATEGIC FIXED
INCOME INVESTMENTS may enter into dollar rolls, in which a Portfolio sells
mortgage-backed or other securities for delivery in the current month and
simultaneously contracts to purchase substantially similar securities on a
specified future date. In the case of dollar rolls involving mortgage-backed
securities, the mortgage-backed securities that are purchased will be of the
same type and will have the same interest rate as those sold, but will be
supported by different pools of mortgages. The Portfolio forgoes principal and
interest paid during the roll period on the securities sold, but the Portfolio
is compensated by the difference between the current sales price and the lower
price for the future purchase as well as by any interest earned on the proceeds
of the securities sold. The Portfolio also could be compensated through the
receipt of fee income equivalent to a lower forward price. At the time a
Portfolio enters into a dollar roll, the Trust's custodian will segregate cash
or liquid securities having a value not less than the forward purchase price.
 
    The Portfolios may also enter into reverse repurchase agreements in which
the Portfolio sells securities to a bank or dealer and agrees to repurchase them
at a mutually agreed date and price. The market value of securities sold under
reverse repurchase agreements typically is greater than the proceeds of the
sale, and, accordingly, the market value of the securities sold is likely to be
greater than the value of the securities in which the Portfolio invests those
proceeds. Thus, reverse repurchase agreements involve the risk that the buyer of
the securities sold by the Portfolio might be unable to deliver them when the
Portfolio seeks to repurchase. In the event the buyer of securities under a
reverse repurchase agreement files for bankruptcy or becomes insolvent, the
buyer or its trustee or receiver may receive an extension of time to determine
whether to enforce the Portfolio's obligation to repurchase the securities, and
the Portfolio's use of the proceeds of the reverse repurchase agreement may
effectively be restricted pending such decision.
 
    The dollar rolls and reverse repurchase agreements entered into by the
Portfolios normally will be arbitrage transactions in which a Portfolio will
maintain an offsetting position in securities or repurchase agreements that
mature on or before the settlement date on the related dollar roll or reverse
repurchase agreement. Since the Portfolio will receive interest on the
securities or repurchase agreements in which it invests the transaction
proceeds, such
 
                                       39
<PAGE>
transactions may involve leverage. However, since these securities or repurchase
agreements will mature on or before the settlement date of the related dollar
roll or reverse repurchase agreement, the Advisers believe that these arbitrage
transactions do not present the risks to the Portfolio that are associated with
other types of leverage.
 
    Dollar rolls and reverse repurchase agreements will be considered to be
borrowings and, accordingly, will be subject to the respective Portfolios'
limitations on borrowings, which will restrict the aggregate of such
transactions (plus any other borrowings) to 33 1/3% of a Portfolio's total
assets. A Portfolio will not enter into dollar rolls or reverse repurchase
agreements other than in arbitrage transactions as described above, in an
aggregate amount in excess of 5% of the Portfolio's total assets. Neither
Portfolio currently intends to enter into dollar rolls other than in such
arbitrage transactions, and neither Portfolio currently intends to enter into
reverse repurchase agreements other than in such arbitrage transactions or for
temporary or emergency purchases. See "Investment Policies and
Restrictions--Reverse Repurchase Agreements" in the SAI.
 
FLOATING RATE AND VARIABLE RATE OBLIGATIONS
 
    Floating rate and variable rate obligations bear interest at rates that are
not fixed, but that vary with changes in specified market rates or indices.
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, the
credit standing of which affects the credit quality of the obligations.
 
ILLIQUID SECURITIES
 
    PACE GLOBAL FIXED INCOME INVESTMENTS, PACE SMALL/MEDIUM COMPANY VALUE EQUITY
INVESTMENTS, PACE INTERNATIONAL EQUITY INVESTMENTS and PACE INTERNATIONAL
EMERGING MARKETS EQUITY INVESTMENTS may each invest up to 15% of its net assets
in illiquid securities; 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 LARGE COMPANY VALUE EQUITY INVESTMENTS, PACE LARGE COMPANY
GROWTH EQUITY INVESTMENTS and PACE SMALL/MEDIUM COMPANY GROWTH EQUITY
INVESTMENTS may each invest up to 10% of its net assets in illiquid securities.
The term "illiquid securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the price at which a Portfolio has valued the securities. Under
current guidelines of the staff of the SEC, IOs and POs are considered illiquid.
However, IO and PO 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 Portfolio's Adviser has determined that they are
liquid pursuant to guidelines established by the Trust's board of trustees.
Illiquid securities also are considered to include, among other things, certain
cover for OTC options, repurchase agreements in excess of seven days,
non-marketable interest bearing time deposits with maturities in excess of seven
days and securities whose disposition is restricted under the federal securities
laws (other than "Rule 144A securities" that the Portfolio's Adviser has
determined to be liquid under procedures approved by the Trust's board of
trustees). Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act of 1933 ("1933 Act"). Institutional markets
for restricted securities have developed as a result of Rule 144A, providing
both readily ascertainable values for restricted securities and the ability to
liquidate an investment to satisfy share redemption orders. An insufficient
number of qualified institutional buyers interested in purchasing Rule 144A
eligible restricted securities held by a Portfolio, however, could affect
adversely the marketability of such portfolio securities, and the Portfolio
might be unable to dispose of such securities promptly or at favorable prices.
See "Investment Policies and Restrictions--Illiquid Securities" in the SAI.
 
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
 
    Each Portfolio may purchase debt securities, including mortgage- and
asset-backed
 
                                       40
<PAGE>
securities, on a "when-issued" basis or may purchase or sell securities on a
"delayed delivery" basis, i.e., for issuance or delivery to the Portfolio later
than the normal settlement date for such securities at a stated price and yield.
The Portfolio generally would not pay for such securities or start earning
interest on them until they are received. However, when a Portfolio undertakes a
when-issued or delayed delivery purchase commitment, it immediately assumes the
risks of ownership, including the risk of price fluctuation. Failure of a
counter party to deliver a security purchased by a Portfolio on a when-issued or
delayed delivery basis may result in the Portfolio's incurring a loss or missing
an opportunity to make an alternative investment. Depending on market
conditions, a Portfolio's when-issued and delayed delivery purchase commitments
could cause its net asset value per share to be more volatile, because these
securities may increase the amount by which the Portfolio's total assets,
including the value of when-issued and delayed delivery securities held by the
Portfolio, exceeds its net assets. See "Investment Policies and
Restrictions--When-Issued and Delayed Delivery Securities" in the SAI.
 
ZERO COUPON SECURITIES
 
    PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS, PACE INTERMEDIATE FIXED
INCOME INVESTMENTS, PACE STRATEGIC FIXED INCOME INVESTMENTS and PACE GLOBAL
FIXED INCOME INVESTMENTS may invest in certain zero coupon securities that are
"stripped" U.S. Treasury notes and bonds. PACE STRATEGIC FIXED INCOME
INVESTMENTS also may invest in zero coupon securities of corporate issuers and
other securities that are issued with original issue discount ("OID") and
payment-in-kind ("PIK") securities. Federal tax law requires that a holder of a
security with OID accrue a portion of the OID as income each year, even though
the holder may receive no interest payment on the security during the year.
Accordingly, although the investing Portfolio will receive no payments on its
zero coupon securities prior to their maturity or disposition, it will have
income attributable to such securities prior to that time. Similarly, while PIK
securities may pay interest in the form of additional securities rather than
cash, that interest must be included in the annual income of PACE STRATEGIC
FIXED INCOME INVESTMENTS.
 
    Companies such as the Portfolios, which seek to qualify for pass-through
federal income tax treatment as regulated investment companies (each, a "RIC"),
must distribute substantially all of their net investment income each year,
including non-cash income. Accordingly, each Portfolio will be required to
include in its dividends an amount equal to the income attributable to its zero
coupon, other OID and PIK securities. Those dividends will be paid from the cash
assets of a Portfolio or by liquidation of portfolio securities, if necessary,
at a time when the Portfolio otherwise might not have done so. Zero coupon and
PIK securities usually trade at a substantial discount from their face or par
value and will be subject to greater fluctuations of market value in response to
changing interest rates than debt obligations of comparable maturities that make
current distributions of interest in cash. See "Taxes" in the SAI.
 
LENDING OF PORTFOLIO SECURITIES
 
    Each Portfolio may lend its securities to qualified broker-dealers or
institutional investors in an amount up to 33 1/3% of its total assets taken at
market value. Lending securities enables a Portfolio to earn additional income
but could result in a loss or delay in recovering the Portfolio's securities.
The borrower must maintain with the Portfolio's custodian collateral in the form
of cash, U.S. government securities or irrevocable letters of credit that meet
certain guidelines established by Mitchell Hutchins in an amount at least equal
to the market value of the securities loaned, plus accrued interest and
dividends, determined on a daily basis and adjusted accordingly. In determining
whether to lend securities to a particular broker-dealer or institutional
investor, the Manager will consider, and during the period of the loan will
monitor, all relevant facts and circumstances, including the creditworthiness of
the borrower. Each Portfolio will retain authority to terminate any loans at any
time. A Portfolio may pay reasonable administrative and custodial fees in
connection with a loan and may pay a negotiated portion of the interest earned
on the cash or money market instruments held as collateral to the borrower or
placing broker. A Portfolio will receive reasonable interest on the loan or a
flat fee from the borrower and amounts equivalent to any dividends, interest or
other distributions on the securities loaned. A Portfolio will regain
 
                                       41
<PAGE>
record ownership of loaned securities to exercise beneficial rights, such as
voting and subscription rights and rights to dividends, interest or other
distributions, when retaining such rights is considered to be in the Portfolio's
interest.
 
DERIVATIVES
 
    Certain Portfolios may invest in instruments or securities that commonly are
referred to as "derivatives," because their value depends on (or "derives" from)
the value of an underlying asset, reference rate or index. Derivative
instruments include options, futures contracts, interest rate protection
contracts and similar instruments that may be used by certain Portfolios in
hedging and related income strategies. There is only limited consensus as to
what constitutes a "derivative" security. However, in the Manager's view, the
derivative securities in which one or more of the Portfolios may invest include
listed options and futures on market indices, interest rates and foreign
currencies, "stripped" securities, such as CATS and TIGRs, and specially
structured types of mortgage- and asset-backed securities, such as IOs, POs and
inverse floaters, and dollar-denominated securities whose value is linked to
foreign currencies. The market value of derivative instruments and securities
sometimes is more volatile than that of other investments, and each type of
derivative instrument may pose its own special risks. An Adviser takes these
risks into account in its management of the Portfolio.
 
PORTFOLIO TURNOVER
 
    The portfolio turnover rates for each Portfolio may vary greatly from year
to year and will not be a limiting factor when an Adviser deems portfolio
changes appropriate. A high portfolio turnover rate (i.e., 100% or more) may
involve correspondingly greater brokerage commissions and other transaction
costs, which will be borne directly by each Portfolio. See "Portfolio
Transactions" in the SAI. In addition, high portfolio turnover may result in
increased short-term capital gains, which when distributed to shareholders, are
treated as ordinary income. See "Dividends and Taxes." PACE MONEY MARKET
INVESTMENTS' portfolio turnover is zero for regulatory reporting purposes. For
the fiscal year ended July 31, 1997, the portfolio turnover rate for each of
PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS, PACE STRATEGIC FIXED INCOME
INVESTMENTS, PACE SMALL/MEDIUM COMPANY GROWTH EQUITY INVESTMENTS and PACE GLOBAL
FIXED INCOME INVESTMENTS were 712%, 357%, 247% and 270%, respectively. The high
portfolio turnover rates for PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS
and PACE STRATEGIC FIXED INCOME INVESTMENTS are attributed primarily to the
Portfolios' use of mortgage dollar rolls. Mortgage dollar rolls involve the
simultaneous sale and repurchase of specific mortgage-backed securities. These
transactions, if executed at attractive levels, allow the Portfolios to invest
the realized proceeds in higher-yielding short-term securities. Such
opportunities occurred repeatedly throughout the fiscal year ended July 31,
1997, resulting in the Portfolios' high portfolio turnover rates. The high
portfolio turnover rate for PACE SMALL/ MEDIUM COMPANY GROWTH EQUITY INVESTMENTS
is attributed primarily to the change in the Adviser of the Portfolio and the
subsequent portfolio transactions in connection with the Adviser's reallocation
of the Portfolio's investments. The high portfolio turnover rate for PACE GLOBAL
FIXED INCOME INVESTMENTS is attributed primarily to the changes in the
Portfolio's allocation to emerging market securities and the portfolio
transactions in connection with the execution of the Portfolio's currency
hedging strategies.
 
TEMPORARY DEFENSIVE INVESTMENTS
 
    When an Adviser believes unusual circumstances warrant a defensive posture,
and with the concurrence of the Manager, each Portfolio temporarily may commit
all or any portion of its assets to cash (U.S. dollars or foreign currencies) or
money market instruments of U.S. or foreign issuers, including repurchase
agreements.
 
    PACE MUNICIPAL FIXED INCOME INVESTMENTS may invest temporarily without limit
in certain taxable securities for defensive purposes. PACE GLOBAL FIXED INCOME
INVESTMENTS may invest temporarily in securities of only one country, including
the United States, for such purposes. PACE INTERNATIONAL EQUITY INVESTMENTS also
may invest temporarily up to 100% of its assets in domestic debt, foreign debt
principally traded in the United States and in foreign securities principally
traded outside of the United States, obligations issued or guaranteed by the
U.S. or a foreign government or their respective agencies, authorities or
instrumentalities, corporate bonds and sponsored ADRs for such purposes.
 
                                       42
<PAGE>
OTHER INVESTMENT POLICIES
 
    The Portfolios (except PACE MONEY MARKET INVESTMENTS and PACE MUNICIPAL
FIXED INCOME INVESTMENTS) also may engage in short sales of securities "against
the box" to defer realization of gains and losses for tax or other purposes.
Each Portfolio may borrow money for temporary or emergency purchases, but not in
excess of 10% of its total assets; however, no Portfolio will purchase
securities when its borrowings exceed 5% of its total assets.
 
    New types of mortgage- and asset-backed securities, derivative securities,
hedging instruments and risk management techniques are developed and marketed
from time to time. Each Portfolio may invest in these securities and instruments
and use these techniques to the extent consistent with its investment objective
and limitations and with disclosure, regulatory and tax considerations.
 
NON-DIVERSIFICATION
 
    PACE INTERMEDIATE FIXED INCOME INVESTMENTS and PACE GLOBAL FIXED INCOME
INVESTMENTS are "non-diversified," as that term is defined in the 1940 Act, but
each intends to qualify as a RIC for federal income tax purposes. See "Dividends
and Taxes." This means, in general, that more than 5% of each Portfolio's total
assets may be invested in securities of one issuer (including a foreign
government), but only if, at the close of each quarter of its taxable year, the
aggregate amount of such holdings does not exceed 50% of the value of its total
assets and no more than 25% of the value of its total assets is invested in the
securities of a single issuer. To the extent that either Portfolio at times may
include the securities of a smaller number of issuers than if it were
"diversified" (as defined in the 1940 Act), the Portfolio will be subject to
greater risk with respect to its portfolio securities than if it had invested in
a broader range of securities, because changes in the financial condition or
market assessment of a single issuer may cause greater fluctuation in the
Portfolio's total return and the price of Portfolio shares.
 
                                   MANAGEMENT
 
    The overall management of the business and affairs of the Trust and the
Portfolios rests with the Trust's board of trustees. The trustees approve all
significant agreements between the Trust and the persons that furnish services
to the Trust and the Portfolios, including the agreements with the Manager, the
Advisers, the Trust's distributor, custodian and transfer agent. As the Trust's
Manager, Mitchell Hutchins is responsible for the day-to-day business operations
of the Trust.
 
MANAGER
 
    Mitchell Hutchins Asset Management Inc., 1285 Avenue of the Americas, New
York, New York 10019, is the Manager of the Trust. Mitchell Hutchins is a wholly
owned asset management subsidiary of PaineWebber, which is a wholly owned
subsidiary of Paine Webber Group Inc. ("PW Group"), a publicly held financial
services holding company. Mitchell Hutchins provides investment advisory and
portfolio management services to investment companies, pension funds and other
institutional, corporate and individual clients. As of October 31, 1997, total
assets under Mitchell Hutchins' management were approximately $47 billion. As of
that date, Mitchell Hutchins served as investment adviser or sub-adviser to 29
registered investment companies with 64 separate portfolios having aggregate
assets of approximately $35.6 billion. See "Management-- Advisers--PACE Money
Market Investments."
 
    Pursuant to an Investment Management and Administration Agreement with the
Trust ("Management Agreement"), Mitchell Hutchins manages the investment
operations of the Trust, administers the Trust's affairs, provides investment
advisory services for PACE MONEY MARKET INVESTMENTS and is responsible for the
selection, subject to review and approval of the trustees, of Advisers for each
of the Portfolios (other than PACE MONEY MARKET INVESTMENTS) and the review of
the Advisers' continued performance. See "Investment Management, Advisory and
Distribution Arrangements-- Investment Management Arrangements" in the SAI.
 
    Pursuant to a separate Sub-Advisory Agreement (the "Advisory Agreement")
between Mitchell Hutchins and each Adviser, the Advisers furnish investment
advisory services in connection with the investment management of the respective
Portfolios other than PACE MONEY MARKET INVESTMENTS. Each Adviser is paid a fee
for its services by the Manager out of the fee it collects from the applicable
Portfolio. No additional fee is paid by the investor.
 
                                       43
<PAGE>
    Subject to the supervision and direction of the trustees, the Manager
provides to the Trust investment management evaluation services principally by
(1) performing initial review of prospective Advisers for each Portfolio other
than PACE MONEY MARKET INVESTMENTS and (2) monitoring Adviser performance. In
evaluating prospective Advisers, the Manager considers, among other factors,
each Adviser's level of expertise, relative performance, consistency of
performance and investment discipline or philosophy. The Manager is responsible
for communicating performance expectations and evaluations to the Advisers and
for ultimately recommending to the trustees whether Advisers' contracts should
be renewed, modified or terminated. The Manager reports to the trustees
regarding the results of its evaluation and monitoring functions. For PACE MONEY
MARKET INVESTMENTS, the Manager is responsible for furnishing investment
advisory services to the Portfolio, subject to the supervision of the trustees.
 
    The Manager is also responsible for conducting the general operation of the
Trust except those functions performed by the Advisers, custodian and transfer
agent. Pursuant to the Management Agreement, each Portfolio pays the Manager a
fee comprised of two components: one, for administrative services provided to
each Portfolio, computed daily and paid monthly at the annual rate of 0.20% of
each Portfolio's average daily net assets; and the other, for investment
management services provided to each Portfolio, computed daily and paid monthly
at the annual rate specified below based on the value of the Portfolio's average
daily net assets. The Manager pays each Adviser, out of the investment
management services fee it receives from the applicable Portfolio, a fee that is
computed daily and paid monthly at the annual rate specified below based on the
value of the Portfolio's average daily net assets:
 
<TABLE>
<CAPTION>
                                                    FEE RATE PAID
                                                     BY PORTFOLIO    FEE RATE PAID BY
                                                    TO THE MANAGER    THE MANAGER TO
                                                      (AS A % OF     THE ADVISER (AS
                                                     AVERAGE NET      A % OF AVERAGE
                    PORTFOLIO                          ASSETS)         NET ASSETS)
- --------------------------------------------------  --------------   ----------------
<S>                                                 <C>              <C>
PACE MONEY MARKET INVESTMENTS.....................      0.15%              N/A
PACE GOVERNMENT SECURITIES FIXED INCOME
 INVESTMENTS......................................      0.50%             0.25%
PACE INTERMEDIATE FIXED INCOME INVESTMENTS........      0.40%             0.20%
PACE STRATEGIC FIXED INCOME INVESTMENTS...........      0.50%             0.25%
PACE MUNICIPAL FIXED INCOME INVESTMENTS...........      0.40%             0.20%
PACE GLOBAL FIXED INCOME INVESTMENTS..............      0.60%             0.35%
PACE LARGE COMPANY VALUE EQUITY INVESTMENTS.......      0.60%             0.30%
PACE LARGE COMPANY GROWTH EQUITY INVESTMENTS......      0.60%             0.30%
PACE SMALL/MEDIUM COMPANY VALUE EQUITY
 INVESTMENTS......................................      0.60%             0.30%
PACE SMALL/MEDIUM COMPANY GROWTH EQUITY
 INVESTMENTS......................................      0.60%             0.40%
PACE INTERNATIONAL EQUITY INVESTMENTS.............      0.70%             0.40%
PACE INTERNATIONAL EMERGING MARKETS EQUITY
 INVESTMENTS......................................      0.90%             0.50%
</TABLE>
 
    Investors should be aware that the Manager may be subject to a conflict of
interest when making decisions regarding the retention and compensation of
particular Advisers. However, the Manager's compensation and the Manager's
decisions, including the identity of an Adviser and the specific amount of the
Manager's compensation to be paid to the Adviser, are subject to review and
approval by the board of trustees and separately by the trustees who are not
affiliated with the Manager, any of the Advisers or any of their affiliates. In
addition, the Manager is subject to certain standards of fiduciary duty required
by law.
 
ADVISERS
 
    The Advisers have agreed to the foregoing fees, which are generally lower
than the fees they charge to institutional accounts for which they serve as
investment adviser, partially in recognition of the reduced administrative and
other responsibilities they have undertaken with respect to the Portfolios.
Subject to the monitoring of the Manager and, ultimately, the supervision and
control of the trustees, each Adviser's responsibilities are focused on making
investment decisions for the Portfolio and placing orders to purchase and sell
securities on behalf of the Portfolio in accordance with the
 
                                       44
<PAGE>
Portfolio's stated investment objective and policies. The Advisers are paid
their fees for management of the Portfolios by Mitchell Hutchins, not the Trust.
 
    The Trust has received an exemptive order from the SEC that permits the
Trust's board of trustees, without the approval of shareholders: (a) to employ a
new Adviser pursuant to the terms of a new Advisory Agreement, either as a
replacement for an existing Adviser or as an additional Adviser; (b) to change
the terms of an Advisory Agreement; and (c) to continue the employment of an
existing Adviser on the same advisory contract terms where a contract has been
assigned because of a change in control of the Adviser. Shareholders would
receive notice of such action, including the information concerning the Adviser
that normally is provided in the Prospectus.
 
    The following sets forth certain information about each of the Advisers:
 
PACE MONEY MARKET INVESTMENTS
 
    Mitchell Hutchins is located at 1285 Avenue of the Americas, New York, New
York 10019. It is a wholly owned asset management subsidiary of PaineWebber,
which is in turn wholly owned by PW Group, a publicly owned financial services
holding company. As of October 31, 1997, Mitchell Hutchins was adviser or
subadviser of   investment companies with 64 separate portfolios having
aggregate assets of approximately $35.6 billion, of which approximately $26
billion consisted of assets in money market funds. Susan Ryan, a senior vice
president of Mitchell Hutchins is primarily responsible for the day-to-day
management of PACE MONEY MARKET INVESTMENTS. Since 1987, Ms. Ryan has been a
portfolio manager at Mitchell Hutchins for taxable money market funds. See
"Management--Manager."
 
PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS AND PACE STRATEGIC FIXED
INCOME INVESTMENTS
 
    Pacific Investment Management Company ("PIMCO") is located at 840 Newport
Center Drive, Suite 360, Newport Beach, California 92660. It is a subsidiary
partnership of PIMCO Advisors L.P. ("PIMCO Advisors"), a publicly held
investment advisory firm. A majority interest in PIMCO Advisors is held by PIMCO
Partners, G.P. ("PIMCO Partners"), a general partnership between Pacific
Financial Asset Management Corporation, an indirect wholly owned subsidiary of
Pacific Mutual Life Insurance Company ("Pacific Mutual"), and PIMCO Partners,
L.P., a limited partnership controlled by the PIMCO Managing Directors. As of
October 31, 1997, PIMCO had over $112.5 billion in assets under management and
was adviser or subadviser of 14 investment companies with 49 portfolios and
aggregate assets of approximately $26.8 billion. It has become, since its
founding in 1971, one of the largest fixed income management firms in the
nation. Since April, 1996, Pasi Hamalainen has been primarily responsible for
the day-to-day management of PACE GOVERNMENT SECURITIES FIXED INCOME
INVESTMENTS. Mr. Hamalainen has been a vice president of PIMCO for over two
years. Prior to joining PIMCO, Mr. Hamalainen held a fellowship at The Wharton
School and assisted in teaching in the MBA program at the Aresty Institute of
Executive Education. Since July, 1997, William C. Powers, a Managing Director of
PIMCO, has been primarily responsible for the day-to-day management of 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. He
was previously associated with Bear Stearns & Co. as Senior Managing Director
specializing in mortgage-backed securities.
 
PACE INTERMEDIATE FIXED INCOME INVESTMENTS
 
    Pacific Income Advisers, Inc. ("PIA") is located at 1299 Ocean Avenue, Suite
210, Santa Monica, California 90401. Lloyd McAdams and Heather U. Baines, who
serve as Chairman and Chief Investment Officer of PIA and President and Chief
Executive Officer, respectively, own PIA's voting securities, which makes each
of them controlling persons of PIA. As of October 31, 1997, PIA had over $5.4
billion in assets under management. Mr. McAdams is primarily responsible for the
day-to-day management of PACE INTERMEDIATE FIXED INCOME INVESTMENTS. Since 1986,
he has served as Chairman and Chief Investment Officer of PIA and Chairman and
Chief Executive Officer of Syndicated Capital, Inc.
 
PACE MUNICIPAL FIXED INCOME INVESTMENTS
 
    Morgan Grenfell Capital Management, Incorporated ("MGCM") is located at 1435
 
                                       45
<PAGE>
Walnut Street, Philadelphia, Pennsylvania 19102. All of the outstanding voting
stock of MGCM is owned by Morgan Grenfell Asset Management, Ltd., which is a
wholly owned subsidiary of Morgan Grenfell Group plc. Morgan Grenfell Group plc
is an indirect wholly owned subsidiary of Deutsche Bank AG, an international
commercial and investment banking group. As of October 31, 1997, MGCM had over
$9.8 billion in assets under management. It has been active in managing
portfolios of securities at MGCM since 1989 and over 20 years experience in the
management of tax-exempt fixed income investment. David W. Baldt is primarily
responsible for the day-to-day management of PACE Municipal Fixed Income
Investments. Since June 1989, Mr. Baldt has been Executive Vice President and
Chief Investment Officer for fixed income at MGCM.
 
PACE GLOBAL FIXED INCOME INVESTMENTS
 
    Rogge Global Partners plc ("Rogge Global") is located at 5-6 St. Andrew's
Hill, London, England EC4V5BY. Rogge Global agreed to be acquired by United
Asset Management Corporation ("UAM") on August 28, 1996; as a result of this
transaction, Rogge Global became a wholly owned subsidiary of UAM. UAM is listed
on the NYSE and is principally engaged through affiliated firms and abroad in
providing institutional investment management services and acquiring
institutional management firms like Rogge Global. As of October 31, 1997, Rogge
Global had over $4.3 billion in assets under management. It was organized in
1984 and specializes in global fixed income management. Rogge Global uses a team
approach in the management of PACE GLOBAL FIXED INCOME INVESTMENTS. The team is
led by Olaf Rogge, Chief Investment Officer of Rogge Global, along with John
Graham, Richard Bell, Adrian James and Nasri Toutoungi. Mr. Rogge, who founded
Rogge Global in 1984, has been managing global investments for approximately
twenty-three years. Mr. Graham joined Rogge Global in February 1994 and is
currently a Director, Portfolio Manager and Analyst. Prior thereto, he served as
a Senior Manager of the Multi-Currency Fixed Income Investment Team at JP
Morgan. Mr. Bell joined Rogge Global in June 1990 and serves as a Director,
Portfolio Manager and Analyst. Mr. James joined Rogge Global in April 1995 and
serves as a Director, Portfolio Manager and Analyst. He has 10 years experience
analyzing international bond markets. 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. Mr. Toutoungi joined Rogge Global in 1997
as a Director, Portfolio Manager and Analyst. During the two previous years he
worked at J.P. Morgan as a Vice President of Fixed Income Sales specializing in
corporate bonds. Before joining J.P. Morgan, he spent seven years at Criterion
Investment Management (now Nicholas Applegate Capital Management) where he
served as a fixed income portfolio manager.
 
PACE LARGE COMPANY VALUE EQUITY INVESTMENTS
 
    Brinson Partners, Inc. ("Brinson Partners") is located at 209 South LaSalle
Street, Chicago, Illinois 60604. Gary P. Brinson is President and Managing
Partner of Brinson Partners. Brinson Partners is an indirect subsidiary wholly
owned by Swiss Bank Corporation ("Swiss Bank"). Swiss Bank, with headquarters in
Basel, Switzerland, is an internationally diversified organization with
operations in many aspects of the financial services industry. As of September
30, 1997, Brinson Partners had approximately $90.4 billion in assets under
management. It and its predecessor entities have managed domestic and
international investment assets since December 31, 1981. Mr. Jeffrey J.
Diermeier, Managing Partner of U.S. Equities, Mr. Robert C. Moore, Partner and
Director of Equity Research, Mr. John C. Leonard, Partner and Equity Portfolio
Strategy Analyst, and Ms. Lydia J. Miller, Partner and Equity Portfolio Strategy
Analyst are the team responsible for the day-to-day management of PACE LARGE
COMPANY VALUE EQUITY INVESTMENTS. Mr. Diermeier was formerly Managing Director
of Asset Allocation. In addition, Mr. Diermeier and Mr. Moore have been working
together for over 20 years and both played a key role in the research, design
and implementation of Brinson Partners' proprietary equity valuation model.
Prior to joining Brinson Partners in 1991, Mr. Leonard worked as a Financial
Advisor with Sheffield Financial Management for 4 years. Ms. Miller, who joined
Brinson Partners in 1995, formerly served as Director of Equities and Portfolio
Manager at SBC Portfolio Management International, Inc. for over four
 
                                       46
<PAGE>
years and as a mutual fund Portfolio Manager at Value Line Asset Management for
over three years.
 
PACE LARGE COMPANY GROWTH EQUITY INVESTMENTS
 
    Alliance Capital Management L.P. ("Alliance") is located at 1345 Avenue of
the Americas, New York, New York 10105. Its sole general partner, Alliance
Capital Management Corporation, is an indirect wholly-owned subsidiary of The
Equitable Life Assurance Society of the United States ("Equitable"), one of the
largest life insurance companies in the United States and a wholly-owned
subsidiary of The Equitable Companies Incorporated ("ECI"). ECI is a holding
company controlled by AXA-UAP, a French holding company for an international
group of insurance and related financial services companies. AXA-UAP is
controlled directly and indirectly by FINAXA, a French holding company, and
FINAXA is controlled directly and indirectly by four French mutual insurance
companies, one of which, AXA Assurances I.A.R.D. Mutuelle, itself controls
directly and indirectly more than 25% of the voting power of FINAXA. As of June
30, 1997, Equitable controlled directly and indirectly approximately 57% of the
issued and outstanding units representing assignments of beneficial ownership of
limited partnership interests in Alliance. Alliance is a leading international
investment manager supervising client accounts with assets as of September 30,
1997 of more than $217 billion (of which more than $81 billion represented the
assets of 54 registered investment companies comprising more than 116 separate
investment portfolios). Jane Mack Gould is primarily responsible for the
day-to-day management of PACE LARGE COMPANY GROWTH EQUITY INVESTMENTS. Ms. Gould
is a Senior Vice President and Portfolio Manager and has been with Alliance
since 1971.
 
PACE SMALL/MEDIUM COMPANY VALUE EQUITY INVESTMENTS
 
    Brandywine Asset Management, Inc. ("Brandywine") is located at Three
Christina Centre, Suite 1200, 201 N. Walnut Street, Wilmington, Delaware 19801.
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 merger 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. As of September 30, 1997, Brandywine had
approximately $7.5 billion in assets under management. It uses a value-oriented
approach when investing in both domestic and international markets. Henry Otto,
a Managing Director of Brandywine, Michael Jamison, a Managing Director of
Brandywine, and Steven Tonkovich, a Vice President of Brandywine, are primarily
responsible for the day-to-day management of PACE SMALL/MEDIUM COMPANY VALUE
EQUITY INVESTMENTS. Mr. Otto is the primary portfolio manager for Brandywine's
small capitalization portfolios and has assisted in designing quantitative
evaluation tools at Brandywine since 1988. Mr. Jamison is Chief Investment
Officer of Brandywine's individual management program, responsible for managing
both equity and balanced portfolios at Brandywine since 1993. From 1988 to 1993,
Mr. Jamison was a managing director of Mitchell Hutchins Asset Management Inc.
Mr. Tonkovich is assistant portfolio manager for Brandywine's low
price/earnings, small capitalization portfolios and is also responsible for the
ongoing development of quantitative tools for value investing since 1989.
 
PACE SMALL/MEDIUM COMPANY GROWTH EQUITY INVESTMENTS
 
    Delaware Management Company, Inc. ("Delaware") is located at One Commerce
Square, Philadelphia, PA 19103. Delaware is a member of The Delaware Group, a
subsidiary of Lincoln National Corporation ("Lincoln National"). Lincoln
National, with headquarters in Fort Wayne, Indiana, is a diversified
organization with operations in many aspects of the financial services industry,
including insurance and investment management. As of October 31, 1997, Delaware
and its affiliates had
 
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over $38 billion in assets under management. Delaware and its predecessors have
been managing funds in The Delaware Group since 1938. Delaware follows a
fundamental, bottom-up approach to small company investing. Gerald S. Frey is
primarily responsible for the day-to-day management of PACE SMALL/MEDIUM COMPANY
GROWTH EQUITY INVESTMENTS. Mr. Frey is a Vice President of Delaware. Prior to
joining the Delaware Group in 1996, Mr. Frey was a Senior Director with Morgan
Grenfell Capital Management in New York. He has 17 years of experience in the
money management business. In making investment decisions for the Portfolio, Mr.
Frey regularly consults with the other members of the team, John A. Heffern,
Marshall T. Bassett and Lori F. Wachs, as well as Wayne A. Stork. Mr. Stork is
the Chairman, President, Chief Executive Officer and Chief Investment Officer of
Delaware. Mr. Stork joined Delaware in 1962 and has served in various executive
capacities within the Delaware organization since then. Mr. Heffern, Vice
President, joined Delaware in 1997. Previously, he was a Senior Vice President,
Equity Research at NatWest Securities Corporation's Specialty Finance Services
unit. Prior to that, he was a Principal and Senior Regional Bank Analyst at
Alex. Brown & Sons. Mr. Bassett, Vice President, joined Delaware in 1997. In his
most recent position, he served as Vice President in Morgan Stanley Asset
Management's Emerging Growth Group, where he analyzed small growth companies.
Prior to that, he was a trust officer at Sovran Bank and Trust Company. Ms.
Wachs is an Assistant Vice President. She joined the Delaware Group in 1992 from
Goldman Sachs & Company where she was an equity analyst for two years.
 
PACE INTERNATIONAL EQUITY INVESTMENTS
 
    Martin Currie Inc. ("Martin Currie") is located at Saltire Court, 20 Castle
Terrace, Edinburgh, Scotland EHI 2ES. It is a wholly owned subsidiary of Martin
Currie Limited. As of October 31, 1997, Martin Currie had over $3.64 billion in
assets under management. It is one of Scotland's leading independent investment
management companies, and, since its founding in 1881, has developed an
expertise in equity investments. Martin Currie uses a team approach in the
management of PACE INTERNATIONAL EQUITY INVESTMENTS. See "Investment Objectives
and Policies of the Portfolios-- PACE International Equity Investments" for a
description of the Adviser's team approach.
 
PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS
 
    Schroder Capital Management International Inc. ("SCMI") is located at 787
Seventh Avenue, New York, New York 10019. It is a wholly owned U.S. subsidiary
of Schroders Incorporated, the wholly owned U.S. holding company subsidiary of
Schroders plc. Schroders plc, which is listed on the London Stock Exchange, is
the holding parent of a large worldwide group of banks and financial services
companies (referred to as the "Schroder Group"), with associated companies and
branch and representative offices located in eighteen countries worldwide. The
financial services companies of the Schroder Group had approximately $175
billion in assets under management as of June 30, 1997. As of September 30,
1997, SCMI, together with its UK affiliate Schroder Capital Management
International Limited, had over $28 billion in assets under management. Since
its founding in 1980, SCMI has developed an expertise in emerging markets
investments. John A. Troiano, Heather Crighton and Mark Bridgeman, with the
assistance of an emerging markets investment committee, are primarily
responsible for the day-to-day management of PACE INTERNATIONAL EMERGING MARKETS
EQUITY INVESTMENTS. Mr. Troiano has been a Managing Director of SCMI since
October 1995, and has been employed by various Schroder Group companies in the
portfolio management area since 1981. Ms. Crighton is a First Vice President of
SCMI and has been employed by SCMI in the investment research and portfolio
management areas since 1992. Mr. Bridgeman, a Vice President of SCMI, has been
employed by various Schroder Group companies in the investment research and
portfolio management areas since 1990.
 
FEE WAIVERS AND SUBSIDIES
 
    Mitchell Hutchins has agreed to waive all or a portion of its management fee
and subsidize certain operating expenses of the Portfolios through July 31, 1998
to the extent necessary to assure competitiveness. See "Trust Expenses." Fee
waivers and/or expense subsidies will
 
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increase a Portfolio's yield or total return. See "Performance Information." Fee
waivers and expense subsidies are not guaranteed to continue in future years.
For the fiscal year ended July 31, 1997 PACE GOVERNMENT SECURITIES FIXED INCOME
INVESTMENTS incurred 0.72% of interest expense related to the reverse repurchase
agreement transactions entered into for tax and other portfolio management
purposes. Such interest expense was not subsidized by Mitchell Hutchins.
 
DISTRIBUTOR
 
    Mitchell Hutchins is the distributor of each Portfolio's shares. PaineWebber
is the exclusive dealer pursuant to a contract with Mitchell Hutchins.
 
PORTFOLIO TRANSACTIONS
 
    PaineWebber, and any of the Advisers or an affiliated person thereof (an
"affiliated broker"), each may act as a broker or futures commission merchant
("FCM") for a Portfolio. In order for an affiliated broker to effect any
portfolio transactions for a Portfolio on an exchange or board of trade, the
commissions, fees or other remuneration received by the affiliated broker must
be reasonable and fair compared to the commissions, fees or other remuneration
paid to other brokers or FCMs in connection with comparable transactions
involving similar securities being purchased or sold on an exchange or board of
trade during a comparable period of time. This standard would allow an
affiliated broker to receive only that remuneration which would be expected to
be received by an unaffiliated broker or FCM in a similar arm's-length
transaction.
 
                              VALUATION OF SHARES
 
    The net asset value of each Portfolio's shares fluctuates and is determined
as of the close of regular trading on the NYSE (currently 4:00 p.m., eastern
time) each Business Day. Each Portfolio's net asset value per share is
determined by dividing the value of the securities plus any cash or other assets
held by the Portfolio less all liabilities by the total number of Portfolio
shares outstanding.
 
    Each Portfolio values its assets based on their current market value when
market quotations are readily available. If this value cannot be established,
assets are valued at fair value as determined in good faith by or under the
direction of the Trust's board of trustees. The amortized cost method of
valuation is used to value all portfolio securities held by PACE MONEY MARKET
INVESTMENTS and short-term dollar-denominated debt obligations of the other
Portfolios with 60 days or less remaining to maturity, unless the board of
trustees determines that this does not represent fair value. All investments
denominated in foreign currencies are valued daily in U.S. dollars based on the
then-prevailing exchange rate. It should be recognized that judgment plays a
greater role in valuing lower rated debt securities and restricted or illiquid
securities held by any of the Portfolios because there is less reliable,
objective data available.
 
                                   PURCHASES
 
GENERAL
 
    Purchases of shares of a Portfolio by a PACE Program participant must be
made through a securities account maintained with PaineWebber. Payment for
Portfolio shares must be made by check made payable to PaineWebber. No brokerage
account or inactivity fee is charged in connection with a brokerage account
through which an investor purchases shares of a Portfolio.
 
    THE PACE PROGRAM.  Shares of the Portfolios currently are available only to
participants in the PACE Program. The PACE Program and the Trust are designed to
assist investors in devising an asset allocation strategy to meet their
individual needs. PaineWebber, through the PACE Program, provides investment
advisory services in connection with allocations of assets among the Portfolios
principally by: identifying the investor's risk tolerances and investment
objectives based on information provided by the investor; identifying and
recommending in writing a suggested allocation of assets among the Portfolios
that conforms to those tolerances and objectives; providing a monthly account
statement; and providing performance data on a quarterly basis. PaineWebber will
not have any investment discretion over the investor's PACE Program account; all
investment decisions ultimately rest with the investor.
 
    Under the PACE Program, PaineWebber investment executives provide services
to the
 
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<PAGE>
investor that include assisting the investor to identify his or her financial
characteristics, including risk tolerances and investment objectives in the
context of the Portfolios, and assisting the investor to complete an Investor
Profile Questionnaire, that can be updated periodically upon the investor's
request. PaineWebber uses an investment profile evaluation and asset allocation
methodology to assist it in translating investor needs, preferences and
attitudes identified from the questionnaire into suggested portfolio
allocations. A PaineWebber investment executive presents the recommended
allocation to the investor initially and may also review later with the investor
monthly account statements and other information such as the performance data
provided on a quarterly basis, monitor identified changes in the investor's
financial characteristics and assist the investor in preparing a revised
questionnaire or otherwise communicating changes to PaineWebber for
reevaluation. In addition, for any investor who so directs his or her
PaineWebber investment executive, the investor's holdings in the PACE Program
will be automatically rebalanced on a periodic basis to maintain the investor's
designated allocation among the Portfolios. Screening will be performed
quarterly with respect to accounts for which the investor has elected the
rebalancing service, and rebalancing will be performed for each such account
where the deviation from the allocation prescribed by the investor exceeds the
uniform threshold. Also, the PACE Program participant and his/her PaineWebber
investment executive will discuss the participant's investments in the PACE
Program at least annually.
 
    PACE Program participants will pay PaineWebber a quarterly Program Fee at an
annual rate of up to 1.50% of the value of the shares of the Portfolios held in
the participant's PaineWebber account. The quarterly fee will be charged to the
participant's securities account. Qualified plans may make arrangements to pay
the quarterly fee separately. The Program Fee may be reduced at various levels
of assets and for participation by certain individual retirement accounts
("IRAs"), retirement plans for self-employed individuals and employee benefit
plans subject to the Employee Retirement Income Security Act of 1974
(collectively "Plans"). For certain Plans, PaineWebber may provide different
services than those described above for different fees. Fees may be subject to
negotiation, and fees may differ based upon a number of factors, including, but
not limited to, the type of account, the size of the account, the amount of PACE
Program assets and the number and range of supplemental advisory services to be
provided by PaineWebber investment executives. PaineWebber investment executives
receive a portion of any PACE Program Fee paid in consideration of providing
services to participants in the PACE Program. 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. The minimum
initial investment in the Trust is $25,000, and any subsequent investment in the
Trust must be at a minimum of $500. The minimum initial investment in the Trust
purchased through an IRA, or purchased for an account established under the
Uniform Gift to Minors Act, is $10,000. The Trust reserves the right at any time
to vary the initial and subsequent investment minimums. See "Other Services and
Information--Individual Retirement Accounts."
 
    Trustees of the Trust, employees of PaineWebber and Mitchell Hutchins and
their subsidiaries, and family members of these persons who maintain an
"employee related" account at PaineWebber and trustees/directors of PaineWebber
mutual funds may participate in the PACE Program at a reduced, or without the
imposition of the, PACE Program Fee.
 
    Payment for shares of the Trust is due at PaineWebber no later than the
first Business Day after the order is placed (the "Settlement Date"). No order
may be placed until the investor has completed a questionnaire, reviewed the
resulting analysis, made the asset allocation decision and executed necessary
PACE Program documentation. Investors who make payment prior to the Settlement
Date will designate a temporary investment (such as a non-PACE PaineWebber money
market fund) for the payment until the Settlement Date.
 
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<PAGE>
                                  REDEMPTIONS
 
REDEMPTIONS IN GENERAL
 
    As described below, Portfolio shares may be redeemed at their net asset
value, and redemption proceeds will be paid within the first Business Day of the
receipt of a redemption request. Investors may redeem shares through
PaineWebber.
 
    Investors may submit redemption requests to their PaineWebber investment
executives in person or by telephone, mail or wire. As each Portfolio's agent,
PaineWebber will honor a redemption request by repurchasing Portfolio shares
from a redeeming shareholder at the shares' net asset value next determined
after receipt of the request by PaineWebber's New York City offices. Within the
first Business Day after receipt of the request, repurchase proceeds will be
credited to the investor's brokerage account or paid by check at the election of
the investor. PaineWebber reserves the right not to honor any redemption
request, in which case PaineWebber promptly will forward the request to the
Transfer Agent for redemption as described below. The redeeming shareholders
will be advised by their account executives if PaineWebber chooses not to honor
a redemption request. PaineWebber investment executives are responsible for
promptly forwarding redemption requests to PaineWebber's New York City offices.
 
    A redemption request will be executed by the Transfer Agent at the net asset
value next computed after it is received in "good order." "Good order" means
that the request must be accompanied by the following: (1) a letter of
instruction or a stock assignment specifying the number of shares or amount of
investment to be redeemed (or that all shares credited to a Portfolio account by
redeemed), signed by all registered owners of the shares in the exact names in
which they are registered, (2) a guarantee of the signature of each registered
owner by an eligible institution acceptable to the Transfer Agent and in
accordance with SEC rules, such as a commercial bank trust company or member of
a recognized stock exchange, (3) other supporting legal documents for estates,
trusts, guardianships, custodianships, partnerships and corporations and (4)
duly endorsed share certificates, if any. Investors are responsible for ensuring
that a request for redemption is received in "good order."
 
ADDITIONAL INFORMATION ON REDEMPTIONS
 
    An investor in the PACE Program may have redemption proceeds of $1 million
or more wired to the investor's PaineWebber brokerage account or a commercial
bank account designated by the investor. Questions about this option, or
redemption requirements generally, should be referred to the investor's
PaineWebber investment executive. If an investor requests redemption of shares
which were purchased recently, the Trust may delay payment until it is assured
that good payment has been received. In the case of purchases by check, this can
take up to 15 days.
 
    Because the Trust incurs certain fixed costs in maintaining shareholder
accounts, the Trust reserves the right to redeem all Portfolio shares in any
PACE Program account of less than $7,500 net asset value. If the Trust elects to
do so, it will notify the investor and provide the investor the opportunity to
increase the amount invested to the account minimum in effect at the time the
account was originally opened or more within 30 days of the notice. The Trust
will not redeem accounts that fall below $7,500 solely as a result of a
reduction in net asset value per share or redemptions to pay PACE Program fees.
Proceeds of an involuntary redemption will be deposited in the investor's
brokerage account unless the PACE Program is instructed to the contrary.
 
                         OTHER SERVICES AND INFORMATION
 
    Investors interested in the services described below should consult their
PaineWebber investment executive.
 
    AUTOMATIC INVESTMENT PLAN.  Certain shareholders may purchase shares of a
Portfolio through an automatic investment plan, under which shareholders may
authorize PaineWebber to place a purchase order each month or quarter for
Portfolio shares in an amount not less than $500 per month or quarter. The
purchase price is paid automatically from cash held in the shareholder's
PaineWebber brokerage account through the automatic redemption of the
shareholder's shares of a PaineWebber money market fund account or through the
liquidation of other securities held in the investor's
 
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<PAGE>
PaineWebber brokerage account. If the PACE Program assets are held in a
PaineWebber RMA 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. In addition to providing a convenient and disciplined manner of
investing, participation in the automatic investment plan enables the investor
to use the technique of "dollar cost averaging." When under the automatic
investment plan a shareholder invests the same dollar amount each month, the
shareholder will purchase more shares when a Portfolio'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 the automatic investment plan involves
continuous investing regardless of price levels, an investor should consider his
or her financial ability to continue purchases through periods of low price
levels.
 
    For further information regarding the automatic investment plan, the RMA
account or the automatic funds transfer service, shareholders should contact
their PaineWebber investment executive.
 
    AUTOMATIC REDEMPTION PLAN.  Shareholders may have 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 Portfolio 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 PaineWebber investment executive.
 
    INDIVIDUAL RETIREMENT ACCOUNTS.  Shares of the Portfolios may be purchased
through IRAs. In addition, a Self-Directed IRA is available through PaineWebber
under which investments may be made in the Portfolios as well as in other
investments available through PaineWebber. The minimum initial investment in an
IRA is $10,000. Investors considering establishing an IRA should review
applicable tax laws and should consult their tax advisers.
 
                                   EXCHANGES
 
    Shares of a Portfolio may be exchanged without payment of any exchange fee
for shares of another Portfolio at their respective net asset values. Portfolio
shares are not exchangeable with shares of other PaineWebber mutual funds.
 
    Whether pursuant to a particular request or automatic rebalancing, an
exchange of shares is treated for federal income tax purposes as a redemption
(sale) of shares given in exchange by the shareholder, and an exchanging
shareholder may, therefore, realize a taxable gain or loss in connection with
the exchange.
 
    For further information regarding the exchange privilege, investors should
contact their PaineWebber investment executive. PaineWebber reserves the right
to reject any exchange request and the exchange privilege may be modified or
terminated after 60 days' written notice to shareholders.
 
                              DIVIDENDS AND TAXES
 
DIVIDENDS
 
    Net investment income, net realized long-and short-term capital gains, and
net realized gains from foreign currency transactions will be determined
separately for each Portfolio. Dividends from the net investment income of PACE
MONEY MARKET INVESTMENTS are declared daily and paid monthly. Shareholders of
this Portfolio receive dividends from the day following the purchase up to and
including the date of redemption. Dividends from the net investment income of
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 are declared
and paid monthly. Dividends from the net investment income of the six equity
Portfolios
 
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are declared and paid annually. Net investment income includes dividends and
accrued interest and discount, less amortization of premium (except for PACE
GLOBAL FIXED INCOME INVESTMENTS) and accrued expenses. Each of PACE STRATEGIC
FIXED INCOME INVESTMENTS, PACE INTERMEDIATE FIXED INCOME INVESTMENTS, PACE
GLOBAL FIXED INCOME INVESTMENTS, PACE INTERNATIONAL EQUITY INVESTMENTS and PACE
INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS may, but is not required to,
distribute with any dividend all or a portion of any net realized gains from
foreign currency transactions. While PACE STRATEGIC FIXED INCOME INVESTMENTS,
PACE INTERMEDIATE FIXED INCOME INVESTMENTS and PACE GLOBAL FIXED INCOME
INVESTMENTS each may accompany dividends with distributions of net realized
short-term capital gains and net realized gains from foreign currency
transactions, it is possible that, due to currency-related losses or short-term
capital losses after such a distribution, all or a portion of its distributions
may be treated as a non-taxable return of capital to shareholders for tax
purposes.
 
    Substantially all of each Portfolio's net capital gain (the excess of net
long-term capital gain over net short-term capital loss) if any, together with
any undistributed net realized short-term capital gain and net realized gains
from foreign currency transactions, is distributed annually. A Portfolio may
make additional distributions if necessary to avoid a 4% excise tax on certain
undistributed income and capital gain.
 
    Each Portfolio's dividends and other distributions are paid in additional
Portfolio shares at net asset value unless the shareholder has requested cash
payments. Shareholders who wish to receive dividends and/or other distributions
in cash, either mailed to the shareholder by check or credited to the
shareholder's PaineWebber account, should contact their PaineWebber investment
executive or complete the appropriate section of the application form.
 
TAXES
 
    Each Portfolio intends to continue to qualify for treatment as a RIC under
the Internal Revenue Code so that it will be relieved of federal income tax on
that part of its investment company taxable income (consisting generally of
taxable net investment income, net gains from certain foreign currency
transactions and net short-term capital gain) and net capital gain (the excess
of net long-term capital gain over net short-term capital loss) that is
distributed to its shareholders.
 
    Dividends from a Portfolio's investment company taxable income (whether paid
in cash or in additional Portfolio shares) generally are taxable to its
shareholders as ordinary income. Distributions of a Portfolio's net capital gain
(whether paid in cash or in additional Portfolio shares), when designated as
such, are taxable to its shareholders as long-term capital gain, regardless of
how long they have held their Portfolio shares. Shareholders not subject to tax
on their income will not be required to pay tax on amounts distributed to them.
 
    Distributions by PACE MUNICIPAL FIXED INCOME INVESTMENTS that it designates
as "exempt-interest dividends" generally may be excluded from gross income by a
shareholder. These dividends constitute the portion of the Portfolio's aggregate
dividends (excluding capital gain distributions) equal to the excess of the
excludable interest over certain amounts disallowed as deductions. In order to
pay exempt-interest dividends to its shareholders, that Portfolio must (and
intends to) satisfy 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 exempt from federal income tax.
 
    Interest on indebtedness incurred or continued by a shareholder to purchase
or carry shares of PACE MUNICIPAL FIXED INCOME INVESTMENTS is not deductible. If
that Portfolio invests in certain PABs, shareholders must include the portion of
their exempt-interest dividends from that Portfolio attributable to those PABs
in calculating their liability for the AMT. Corporate shareholders must include
all of their exempt-interest dividends in calculating their liability for that
tax. If that Portfolio realizes capital gains as a result of market
transactions, any distribution of those gains is taxable to its shareholders.
All or a portion of the exempt-interest dividends paid by that Portfolio also
may be subject to state or local taxes, or both. Moreover, when a shareholder
redeems shares of that Portfolio, the portion of the
 
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redemption proceeds attributable to undistributed excludable interest will lose
its character as such and may be taxable as part of the redemption proceeds (see
below).
 
    The Trust notifies its shareholders following the end of each calendar year
of the amounts of dividends and capital gain distributions paid (or deemed paid)
that year by each Portfolio and of any portion of those dividends that qualifies
for the corporate dividends-received deduction or, in the case of PACE MUNICIPAL
FIXED INCOME INVESTMENTS, any portion thereof that is a tax preference item for
purposes of the AMT. The notice will identify the portion of capital gains
distributions eligible for the 20% maximum capital gains tax rate. Under certain
circumstances, the notice also will specify the shareholder's share of any
foreign taxes paid by the Portfolio, in which event the shareholder would be
required to include in his gross income his pro rata share of those taxes but
might be entitled to claim a credit or deduction for those taxes.
 
    The Trust is required to withhold 31% of all taxable dividends, capital gain
distributions and (except in the case of PACE MONEY MARKET INVESTMENTS)
redemption proceeds payable to any individuals and certain other noncorporate
shareholders who do not provide the Trust with a correct taxpayer identification
number. Withholding at that rate is also required from taxable dividends payable
to such shareholders who otherwise are subject to backup withholding.
 
    A redemption of shares of a Portfolio may result in taxable gain or loss to
the redeeming shareholder, depending upon whether the redemption proceeds
payable to the shareholder are more or less than the shareholder's adjusted
basis for the redeemed shares. An exchange of Portfolio shares for shares of
another Portfolio generally will have similar tax consequences. If shares of a
Portfolio are purchased within 30 days before or after redeeming that
Portfolio's shares at a loss (including receipt of Portfolio shares in payment
of a dividend distribution and acquisition of shares through the automatic
investment plan), all or a portion of that loss will not be deductible and will
increase the basis of the newly purchased shares.
 
    As noted above, shareholders will pay a PACE Program Fee. For most
shareholders who are individuals, this fee will be treated as a "miscellaneous
itemized deduction" for federal income tax purposes. An individual's
miscellaneous itemized deductions for any taxable year are allowable only to the
extent the aggregate of those deductions exceeds 2% of adjusted gross income.
The deductibility of this fee also is subject to the overall limitation on
itemized deductions for individuals having adjusted gross income in excess of
specified levels which vary depending on their filing status.
 
    The foregoing is only a summary of some of the important federal tax
considerations generally affecting each Portfolio and its shareholders; see the
SAI for a further discussion. There may be other federal, state or local tax
considerations applicable to a particular investor. Prospective investors are
urged to consult their tax advisers.
 
                            PERFORMANCE INFORMATION
 
    Each Portfolio performs a standardized computation of annualized total
return and may show this return in advertisements or promotional materials.
Standardized return shows the change in value of an investment in a Portfolio as
a steady compound annual rate of return. Actual year-by-year returns fluctuate
and may be higher or lower than standardized return. Total return calculations
assume reinvestment of dividends and other distributions.
 
    Each Portfolio may use other total return presentations in conjunction with
standardized return. These may cover the same or different periods as those used
for standardized return and may include cumulative returns, average annual
rates, actual year-by-year rates or any combination thereof.
 
    PACE MUNICIPAL FIXED INCOME INVESTMENTS, PACE GOVERNMENT SECURITIES FIXED
INCOME INVESTMENTS, PACE INTERMEDIATE FIXED INCOME INVESTMENTS, PACE STRATEGIC
FIXED INCOME INVESTMENTS and PACE GLOBAL FIXED INCOME INVESTMENTS also may
advertise their yield. Yield (except with regard to PACE MONEY MARKET
INVESTMENTS) reflects investment income net of expenses over a 30-day (or
one-month) period on a Portfolio share, expressed as an annualized percentage of
the net asset value per share at the end of the period. PACE MONEY MARKET
INVESTMENTS may advertise its yield and effective yield. The yield of PACE MONEY
MARKET INVESTMENTS is the income on an investment in
 
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the Portfolio over a specified seven-day period. This income is then
"annualized" (that is, assumed to be earned each week over a 52-week period) and
shown as a percentage of the investment. The effective yield is calculated
similarly but, when annualized, the income earned is assumed to be reinvested.
The effective yield will be higher than the yield because of the compounding
effect of this assumed reinvestment.
 
    In addition to the Portfolio's yield, PACE MUNICIPAL FIXED INCOME
INVESTMENTS may also show tax-equivalent yield. Tax-equivalent yield shows the
yield that would produce the same income after a stated rate of taxes as the
Portfolio tax-exempt yield (yield excluding taxable income), with adjustments
for the portion, if any, of a Portfolio's yield that is not tax-exempt. Yield
computations differ from other accounting methods and therefore may differ from
dividends actually paid or reported net income.
 
    Total return and yield information reflects past performance and does not
necessarily indicate future results. Investment return and principal values will
fluctuate, and proceeds upon redemption may be more or less than
a shareholder's cost. See "Performance Information" in the SAI.
 
                              GENERAL INFORMATION
 
ORGANIZATION
 
    The Trust, PaineWebber PACE Select Advisors Trust (formerly known as Managed
Accounts Services Portfolio Trust), is registered with the SEC as an open-end
management investment company and was organized as a Delaware business trust
under the laws of the State of Delaware by Certificate of Trust dated September
9, 1994. The trustees have authority to issue an unlimited number of shares of
beneficial interest of separate series, par value $.001 per share.
 
    The Trust does not hold annual shareholder meetings. Shareholders of record
holding at least two-thirds of the outstanding shares of the Trust may remove a
trustee by votes cast in person or by proxy at a meeting called for that
purpose. The trustees are required to call a meeting of shareholders for the
purpose of voting upon the question of removal of any trustee when so required
in writing by the shareholders of record holding at least 10% of the Trust's
outstanding shares. Each share of each Portfolio has equal voting rights, except
as noted above. Each share of each Portfolio is entitled to participate equally
in dividends and other distributions and the proceeds of any liquidation. The
shares of each series of the Trust will be voted separately except when an
aggregate vote of all series is required by the 1940 Act.
 
    To avoid additional operating costs and for investor convenience, the
Portfolios will not issue share certificates. Ownership of shares of each
Portfolio is recorded on a stock register by the Transfer Agent and shareholders
have the same rights of ownership with respect to such shares as if certificates
had been issued.
 
CUSTODIAN AND TRANSFER AGENT
 
    State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, is custodian of each Portfolio's assets and employs foreign
sub-custodians approved by the Trust's board of trustees in accordance with
applicable requirements under the 1940 Act, to provide custody of the
Portfolio's foreign assets, if any. PFPC Inc. ("PFPC"), a subsidiary of PNC
Bank, N.A., 400 Bellevue Parkway, Wilmington, Delaware 19809, is the Portfolios'
transfer and dividend disbursing agent. PFPC (not the Funds) pays PaineWebber
for certain Transfer Agency related services that PFPC has delegated to
PaineWebber.
 
CONFIRMATIONS AND STATEMENTS
 
    Shareholders receive confirmations of their purchases and redemptions of
shares of the Portfolios. Participants in the PACE Program will receive a
statement at least monthly that reports all of their Portfolio activity and a
consolidated year-end statement that shows all their Portfolio transactions for
that year. Shareholders also receive audited annual and unaudited semiannual
financial statements of the applicable Portfolios.
 
                                       55
<PAGE>
                                   APPENDIX A
 
    The Portfolios may use some or all of the following instruments:
 
    OPTIONS ON EQUITY AND DEBT 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. 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. 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. An index option operates in the same way as a more
traditional securities option, except that exercise of an index option is
effected with cash payment and does not involve delivery of securities. Thus,
upon exercise of an index option, 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 index.
 
    INDEX FUTURES CONTRACTS--An 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 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 debt securities 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 specified 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.
 
                                       56
<PAGE>
                                   APPENDIX B
          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.
 
(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.
 
- --------------------------
  (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.
 
                                       57
<PAGE>
(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.
 
(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
 
                                       58
<PAGE>
        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 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;
 
                                       59
<PAGE>
        (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 programs by providing asset allocation recommendations and
        related services with respect to their
 
                                       60
<PAGE>
        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
 
- --------------------------
  (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).
 
                                       61
<PAGE>
    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 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
 
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  (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.
    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.
 
                                       62
<PAGE>
    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 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 are tailored 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.
 
- --------------------------
  (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.
 
                                       63
<PAGE>
    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 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.
 
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  (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.
 
                                       64
<PAGE>
    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 (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
    transmission by 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
 
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  (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.
 
                                       65
<PAGE>
    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 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
 
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  (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.
 
  (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.
 
                                       66
<PAGE>
    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 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
 
- --------------------------
  (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.
 
  (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.
 
                                       67
<PAGE>
    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.
 
<TABLE>
<CAPTION>
                       MH MANAGEMENT FEE   SA RETAINED FEE    MH RETAINED FEE
PORTFOLIO                  (PERCENT)          (PERCENT)          (PERCENT)
- ---------------------  -----------------  -----------------  -----------------
<S>                    <C>                <C>                <C>
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
</TABLE>
 
    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
 
- --------------------------
  (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.
 
  (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).
 
                                       68
<PAGE>
    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:
 
<TABLE>
<CAPTION>
                                                   MAXIMUM       OUTSIDE
                                     AMOUNT        OUTSIDE      QUARTERLY
     PORTFOLIO                      INVESTED    QUARTERLY FEE      FEE
- ---------------------------------  -----------  -------------  -----------
<S>                                <C>          <C>            <C>
    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
</TABLE>
 
    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:
<TABLE>
<CAPTION>
                                                                      REDUCTION
                                MH RETAINED FEE   MAXIMUM MH FEE       FACTOR
     PORTFOLIO                     (PERCENT)         (PERCENT)        (PERCENT)
- ------------------------------  ---------------  -----------------  -------------
<S>                             <C>              <C>                <C>
    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
 
<CAPTION>
                                                                      REDUCTION
                                MH RETAINED FEE   MAXIMUM MH FEE       FACTOR
     PORTFOLIO                     (PERCENT)         (PERCENT)        (PERCENT)
- ------------------------------  ---------------  -----------------  -------------
<S>                             <C>              <C>                <C>
 
    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
</TABLE>
 
    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 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
 
- --------------------------
  (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
                                               (FOOTNOTE CONTINUED ON NEXT PAGE)
 
                                       69
<PAGE>
    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, of
        each Portfolio's brokerage commissions
 
- --------------------------
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.
 
                                       70
<PAGE>
        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 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 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.
 
                                       71
<PAGE>
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 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.
 
                                       72
<PAGE>
    (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;
 
        (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.
 
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(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 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.
 
                                       74
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    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 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
 
                                       75
<PAGE>
        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.
 
(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
 
                                       76
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    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.)
 
                                       77
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                     PAINEWEBBER PACE SELECT ADVISORS TRUST
             1285 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10019
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                       PROSPECTUS DATED DECEMBER 1, 1997
                           AS REVISED, JULY 20, 1998
 
- --------------------------------------------------------------------------------
 
- -C- 1997 PaineWebber Incorporated PAINEWEBBER -RECYCLE SYMBOL- RECYCLED PAPER
          ------------------------------------------------------------



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