<PAGE>
As filed with the Securities and Exchange Commission on December 1, 1999
1933 Act Registration No. 33-87254
1940 Act Registration No. 811-8764
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-lA
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 8 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 10 [ X ]
(Check appropriate box or boxes.)
PAINEWEBBER PACE SELECT ADVISORS TRUST
(Exact name of registrant as specified in charter)
51 West 52nd Street
New York, New York 10019-6114
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 713-2000
DIANNE E. O'DONNELL, ESQ.
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
(Name and address of agent for service)
Copies to:
ELINOR W. GAMMON, ESQ.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D.C. 20036-1800
Telephone: (202)778-9000
Approximate Date of Proposed Public Offering: Effective Date of this
Post-Effective Amendment.
It is proposed that this filing will become effective:
[ X ] Immediately upon filing pursuant to Rule 485(b)
[ ] On ____________ pursuant to Rule 485(b)
[ ] 60 days after filing pursuant to Rule 485(a)(1)
[ ] On ____________ pursuant to Rule 485(a)(1)
[ ] 75 days after filing pursuant to Rule 485(a)(2)
[ ] On ____________ pursuant to Rule 485(a)(2)
Title of Securities Being Registered: Shares of Beneficial Interest
<PAGE>
PaineWebber PACE Select Advisors Trust
PACE Money Market Investments
PACE Government Securities Fixed Income Investments
PACE Intermediate Fixed Income Investments
PACE Strategic Fixed Income Investments
PACE Municipal Fixed Income Investments
PACE Global Fixed Income Investments
PACE Large Company Value Equity Investments
PACE Large Company Growth Equity Investments
PACE Small/Medium Company Value Equity Investments
PACE Small/Medium Company Growth Equity Investments
PACE International Equity Investments
PACE International Emerging Markets Equity Investments
--------------------
PROSPECTUS
DECEMBER 1, 1999
----------------------------------
This Prospectus offers shares of the twelve funds in the Trust to participants
in the PaineWebber PACE-SM- Program. The PACE Program and these funds are
designed to assist you in devising an asset allocation strategy to meet your
individual needs.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any fund's shares or determined whether this prospectus
is complete or accurate. To state otherwise is a crime.
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Select Advisors Trust
Contents
THE FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
What every investor 3 PACE Money Market Investments
should know about 6 PACE Government Securities Fixed Income
Investments
the funds 9 PACE Intermediate Fixed Income Investments
12 PACE Strategic Fixed Income Investments
15 PACE Municipal Fixed Income Investments
18 PACE Global Fixed Income Investments
21 PACE Large Company Value Equity Investments
24 PACE Large Company Growth Equity Investments
27 PACE Small/Medium Company Value Equity
Investments
30 PACE Small/Medium Company Growth Equity
Investments
33 PACE International Equity Investments
36 PACE International Emerging Markets Equity
Investments
39 More About Risks and Investment Strategies
</TABLE>
INVESTING IN THE FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Information for 42 Investing in the Funds
managing your fund --Buying Shares
account --The PaineWebber PACE-SM- Program
--Selling Shares
--Pricing and Valuation
</TABLE>
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Additional important 44 Management
information about 48 Dividends and Taxes
the funds 49 Financial Highlights
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Where to learn more Back Cover
about these funds
</TABLE>
The funds are not
complete or
balanced investment
programs.
- --------------------------------------------------------------------------------
Prospectus Page 2
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Money Market Investments
PACE Money Market Investments
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
- --------------------------------------------------------------------------------
FUND OBJECTIVE:
Current income consistent with preservation of capital and liquidity.
PRINCIPAL INVESTMENT STRATEGIES:
The fund is a money market mutual fund and seeks to maintain a stable price of
$1.00 per share. The fund invests in a diversified portfolio of high quality
money market instruments of governmental and private issuers.
Money market instruments are short-term debt obligations and similar securities.
They also include longer term bonds that have variable interest rates or other
special features that give them the financial characteristics of short-term
debt. The fund invests in foreign money market instruments only if they are
denominated in U.S. dollars.
Mitchell Hutchins Asset Management Inc., the fund's manager and investment
adviser, selects money market instruments for the fund based on its assessment
of relative values and changes in market and economic conditions.
PRINCIPAL RISKS:
An investment in the fund is not a bank deposit and is neither insured nor
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. While the fund seeks to maintain the value of your investment at $1.00
per share, it is possible to lose money by investing in the fund.
Money market instruments generally have a low risk of loss, but they are not
risk-free. The fund is subject to credit risk, which is the risk that issuers
may fail, or become less able, to make payments when due. The fund also is
subject to interest rate risk. When short-term interest rates rise, the value of
the fund's investments generally will fall and its yield will tend to lag behind
prevailing rates.
More information about these and other risks of an investment in the fund is
provided below in "More About Risks and Investment Strategies." In particular,
see the following headings:
- - Credit Risk
- - Interest Rate Risk
- - Foreign Securities Risk
INFORMATION ON THE FUND'S RECENT INVESTMENT HOLDINGS CAN BE FOUND IN ITS CURRENT
ANNUAL/SEMI-ANNUAL REPORTS (SEE BACK COVER FOR INFORMATION ON ORDERING THESE
REPORTS).
- --------------------------------------------------------------------------------
Prospectus Page 3
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Money Market Investments
PERFORMANCE
- --------------------------------------------------------------------------------
RISK/RETURN BAR CHART AND TABLE:
The following bar chart and table provide information about the fund's
performance and thus give some indication of the risks of an investment in the
fund.
The bar chart shows how the fund's performance has varied from year to year. The
bar chart does not reflect the annual PACE Program fee; if it did, the total
returns shown would be lower.
The table that follows the bar chart shows the average annual returns over
several time periods for the fund's shares. The table does reflect the annual
PACE Program fee.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
TOTAL RETURN (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERCENTAGES
<S> <C>
1996 5.05%
1997 5.27%
1998 5.21%
CALENDAR YEAR
</TABLE>
Total Return January 1 to September 30, 1999 -- 3.49%
Best quarter during calendar years shown: 4th quarter, 1997 -- 1.33%
Worst quarter during calendar years shown: 4th quarter, 1998 -- 1.22%
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998
<TABLE>
<CAPTION>
INCEPTION DATE (8/24/95)
- -------------- ---------
<S> <C>
One Year.................................................... 3.65%
Life of Fund................................................ 3.64%
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 4
<PAGE>
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------------------------
PaineWebber PACE Money Market Investments
EXPENSES AND FEE TABLES
- --------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your
investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a % of
offering price)........................................... None
Maximum Contingent Deferred Sales Charge (Load) (as a % of
offering price)........................................... None
Maximum Annual Account Fee for PaineWebber PACE Program (as
a % of average value of shares held on the last calendar
day of the previous quarter).............................. 1.50%
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from
fund assets)
Management Fees............................................. 0.15%
Distribution and/or Service (12b-1) Fees.................... None
Other Expenses*............................................. 0.92%
----
Total Annual Fund Operating Expenses........................ 1.07%
====
Expense Reimbursements**.................................... 0.57%
----
Net Expenses**.............................................. 0.50%
====
</TABLE>
- ---------
* Includes an administration fee of 0.20% paid by the fund to Mitchell
Hutchins.
** The fund and Mitchell Hutchins have entered into an expense reimbursement
agreement. Mitchell Hutchins has agreed to reimburse the fund to the extent that
the fund's expenses through the end of the current fiscal year otherwise would
exceed the "Net Expenses" rate shown above. The fund has agreed to repay
Mitchell Hutchins for those reimbursed expenses if it can do so over the
following three years without causing the fund's expenses in any of those three
years to exceed the "Net Expenses" rate.
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example includes the maximum annual fee for the PACE Program and also assumes
that your investment has a 5% return each year and that the fund's operating
expenses remain the same, except for the one year period when the fund's
expenses are lower due to its reimbursement agreement with Mitchell Hutchins.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ -------- -------- --------
<S> <C> <C> <C>
$203 $745 $1,314 $2,863
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 5
<PAGE>
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------------------------
PaineWebber PACE Government Securities Fixed Income Investments
PACE Government Securities Fixed Income Investments
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
- --------------------------------------------------------------------------------
FUND OBJECTIVE:
Current income.
PRINCIPAL INVESTMENT STRATEGIES:
The fund invests in U.S. government bonds and other bonds of varying maturities,
but normally limits its portfolio "duration" to between one and seven years.
"Duration" is a measure of the fund's exposure to interest rate risk. A longer
duration means that changes in market interest rates are likely to have a larger
effect on the value of the assets in a portfolio.
The fund invests primarily in mortgage-backed securities issued or guaranteed by
U.S. government agencies and in other U.S. government securities. The fund also
invests, to a lesser extent, in investment grade bonds of private issuers,
including those backed by mortgages or other assets. These privately issued
bonds generally have one of the two highest credit ratings, although the fund
may invest to a limited extent in privately issued bonds with the third highest
credit rating. The fund may invest in when-issued or delayed delivery bonds to
increase its return, giving rise to a form of leverage. The fund may (but is not
required to) use options, futures and other derivatives as part of its
investment strategy or to help manage portfolio risks.
Mitchell Hutchins Asset Management Inc., the fund's manager, has selected
Pacific Investment Management Company ("PIMCO") to serve as the fund's
investment adviser. PIMCO establishes duration targets for the fund's portfolio
based on its expectations for changes in interest rates and then positions the
fund to take advantage of yield curve shifts. PIMCO decides to buy or sell
specific bonds based on an analysis of their values relative to other similar
bonds. PIMCO monitors the prepayment experience of the fund's mortgage-backed
bonds and will also buy and sell securities to adjust the fund's average
portfolio duration, yield curve and sector and prepayment exposure, as
appropriate.
PRINCIPAL RISKS:
An investment in the fund is not guaranteed; investors may lose money by
investing in the fund.
The fund is subject to interest rate risk, which is the risk that the value of
its investments generally will fall when interest rates rise. Because the fund
invests significantly in mortgage-backed securities, it also is subject to
prepayment risk. When interest rates fall, the underlying mortgages may be paid
earlier than expected and the fund may have to reinvest these prepayments at
lower interest rates. Mortgage prepayments tend to occur more slowly than
expected when interest rates rise, which may extend the duration of
mortgage-backed securities and make their value more volatile. The fund also is
subject to credit risk, which is the risk that issuers may fail, or become less
able, to make principal or interest payments when due.
More information about these and other risks of an investment in the fund is
provided below in "More About Risks and Investment Strategies." In particular,
see the following headings:
- - Interest Rate Risk
- - Prepayment Risk
- - Leverage Risk
- - Credit Risk
- - Derivatives Risk
INFORMATION ON THE FUND'S RECENT INVESTMENT STRATEGIES AND HOLDINGS CAN BE FOUND
IN ITS CURRENT ANNUAL/SEMI-ANNUAL REPORTS (SEE BACK COVER FOR INFORMATION ON
ORDERING THESE REPORTS).
- --------------------------------------------------------------------------------
Prospectus Page 6
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Government Securities Fixed Income Investments
PERFORMANCE
- --------------------------------------------------------------------------------
RISK/RETURN BAR CHART AND TABLE:
The following bar chart and table provide information about the fund's
performance and thus give some indication of the risks of an investment in the
fund.
The bar chart shows how the fund's performance has varied from year to year. The
bar chart does not reflect the annual PACE Program fee; if it did, the total
returns shown would be lower.
The table that follows the bar chart shows the average annual returns over
several time periods for the fund's shares. The table compares fund returns to
returns on a broad-based market index that is unmanaged and that, therefore,
does not include any fees or expenses. The table does reflect the annual PACE
Program fee.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
TOTAL RETURN (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
<S> <C>
1996 4.26%
1997 9.04%
1998 6.42%
Percentages
Calendar Year
</TABLE>
Total Return January 1 to September 30, 1999 -- 0.86%
Best quarter during calendar years shown: 2nd quarter, 1997 -- 3.50%
Worst quarter during calendar years shown: 1st quarter, 1996 -- (1.33)%
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998
<TABLE>
<CAPTION>
LEHMAN BROTHERS
MORTGAGE BACKED
(INCEPTION DATE) (8/24/95) SECURITIES INDEX
- ---------------- --------- ----------------
<S> <C> <C>
One Year.................................................... 4.84% 6.95%
Life of Fund................................................ 5.76% 7.83%
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 7
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Government Securities Fixed Income Investments
EXPENSES AND FEE TABLES
- --------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your
investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a % of
offering price)........................................... None
Maximum Contingent Deferred Sales Charge (Load) (as a % of
offering price)........................................... None
Maximum Annual Account Fee for PaineWebber PACE Program (as
a % of average value of shares held on the last calendar
day of the previous quarter).............................. 1.50%
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from
fund assets)
Management Fees............................................. 0.50%
Distribution and/or Service (12b-1) Fees.................... None
Other Expenses*............................................. 0.43%
----
Total Annual Fund Operating Expenses........................ 0.93%+
====
Expense Reimbursements**.................................... 0.06%
----
Net Expenses**.............................................. 0.87%+
====
</TABLE>
- ---------
* Includes an administration fee of 0.20% paid by the fund to Mitchell
Hutchins.
** The fund and Mitchell Hutchins have entered into an expense reimbursement
agreement. Mitchell Hutchins has agreed to reimburse the fund to the extent that
the fund's expenses through the end of the current fiscal year otherwise would
exceed the "Net Expenses" rate shown above. The fund has agreed to repay
Mitchell Hutchins for those reimbursed expenses if it can do so over the
following three years without causing the fund's expenses in any of those three
years to exceed the "Net Expenses" rate.
+ Includes 0.02% of interest expense related to reverse repurchase agreements
during the year ended July 31, 1999.
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example includes the maximum annual fee for the PACE Program and also assumes
that your investment has a 5% return each year and that the fund's operating
expenses remain the same, except for the one year period when the fund's
expenses are lower due to its reimbursement agreement with Mitchell Hutchins.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ -------- -------- --------
<S> <C> <C> <C>
$240 $752 $1,290 $2,762
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 8
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Intermediate Fixed Income Investments
PACE Intermediate Fixed Income Investments
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
- --------------------------------------------------------------------------------
FUND OBJECTIVE:
Current income, consistent with reasonable stability of principal.
PRINCIPAL INVESTMENT STRATEGIES:
The fund invests in bonds of varying maturities, but normally limits its overall
portfolio "duration" to between two and four and one-half years. "Duration" is a
measure of the fund's exposure to interest rate risk. A longer duration means
that changes in market interest rates are likely to have a larger effect on the
value of the assets in a portfolio.
The fund invests primarily in U.S. and foreign government bonds, U.S. and
foreign corporate bonds and bonds that are backed by mortgages or other assets.
The fund limits its investments to investment grade bonds. The fund also may
invest in preferred stocks.
The fund's investments in securities of foreign issuers may include, to a
limited extent, securities that are denominated in foreign currencies of
developed countries. The fund may (but is not required to) use forward currency
contracts, options, futures and other derivatives as part of its investment
strategy or to help manage portfolio risks.
Mitchell Hutchins Asset Management Inc., the fund's manager, has selected
Pacific Income Advisers, Inc. to serve as the fund's investment adviser. Pacific
Income Advisers seeks to anticipate yield curve shifts and actively rotates the
fund's investments among different fixed income sectors based on its assessment
of the risks and rewards of each sector. Pacific Income Advisers uses a
proprietary risk-adjustment model to identify bonds for purchase that it
believes are undervalued on a risk-adjusted basis. When a bond held in the
portfolio returns to its fair value (as established by the risk-adjustment
model), it is sold and replaced with another undervalued security. Pacific
Income Advisers monitors changes in the prepayment expectations of the fund's
mortgage-backed securities. Pacific Income Advisers also buys and sells
securities to adjust the fund's average portfolio duration as appropriate.
PRINCIPAL RISKS:
An investment in the fund is not guaranteed; investors may lose money by
investing in the fund.
The fund is subject to interest rate risk, which is the risk that the value of
its investments generally will fall when interest rates rise. The fund also is
subject to credit risk, which is the risk that issuers may fail, or become less
able, to make principal or interest payments when due. Because the fund may
invest significantly in mortgage-backed securities, it also can be subject to
prepayment risk. When interest rates fall, the underlying mortgages may be paid
earlier than expected and the fund may have to reinvest these prepayments at
lower interest rates. Mortgage prepayments tend to occur more slowly than
expected when interest rates rise, which may extend the duration of
mortgage-backed securities and make their value more volatile. Because the fund
is non-diversified, it can invest more of its assets in a single issuer than a
diversified fund can. As a result, changes in the market value of a single
issuer can have a greater effect on the fund's performance and share price than
if the fund held a smaller position.
More information about these and other risks of an investment in the fund is
provided below in "More About Risks and Investment Strategies." In particular,
see the following headings:
- - Interest Rate Risk
- - Credit Risk
- - Prepayment Risk
- - Non-Diversified Status Risk
- - Foreign Securities Risk
- - Derivatives Risk
INFORMATION ON THE FUND'S INVESTMENT STRATEGIES AND RECENT HOLDINGS CAN BE FOUND
IN ITS CURRENT ANNUAL/SEMI-ANNUAL REPORTS (SEE BACK COVER FOR INFORMATION ON
ORDERING THESE REPORTS).
- --------------------------------------------------------------------------------
Prospectus Page 9
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Intermediate Fixed Income Investments
PERFORMANCE
- --------------------------------------------------------------------------------
RISK/RETURN BAR CHART AND TABLE:
The following bar chart and table provide information about the fund's
performance and thus give some indication of the risks of an investment in the
fund.
The bar chart shows how the fund's performance has varied from year to year. The
bar chart does not reflect the annual PACE Program fee; if it did, the total
returns shown would be lower.
The table that follows the bar chart shows the average annual returns over
several time periods for the fund's shares. The table compares fund returns to
returns on a broad-based market index that is unmanaged and that, therefore,
does not include any fees or expenses. The table does reflect the annual PACE
Program fee.
The bar chart shows how the fund's performance has varied from year to year.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
TOTAL RETURN (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1996 3.14%
1997 7.45%
1998 7.36%
Percentages
Calendar Year
</TABLE>
Total Return January 1 to September 30, 1999 -- (0.02)%
Best quarter during calendar years shown: 3rd quarter, 1998 -- 4.17%
Worst quarter during calendar years shown: 1st quarter, 1996 -- (1.13)%
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998
<TABLE>
<CAPTION>
LEHMAN BROTHERS
INTERMEDIATE-TERM
GOVERNMENT/CORPORATE
(INCEPTION DATE) (8/24/95) INDEX
- ---------------- --------- --------------------
<S> <C> <C>
One Year................................................... 5.76% 8.44%
Life of Fund............................................... 4.95% 7.41%
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 10
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Intermediate Fixed Income Investments
EXPENSES AND FEE TABLES
- --------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your
investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a % of
offering price)........................................... None
Maximum Contingent Deferred Sales Charge (Load) (as a % of
offering price)........................................... None
Maximum Annual Account Fee for PaineWebber PACE Program (as
a % of average value of shares held on the last calendar
day of the previous quarter).............................. 1.50%
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund
assets)
Management Fees............................................. 0.40%
Distribution and/or Service (12b-1) Fees.................... None
Other Expenses*............................................. 0.40%
----
Total Annual Fund Operating Expenses........................ 0.80%
====
</TABLE>
- ---------
* Includes an administration fee of 0.20% paid by the fund to Mitchell
Hutchins.
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example includes the maximum annual fee for the PACE Program and also assumes
that your investment has a 5% return each year and that the fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- -------- -------- --------
<S> <C> <C> <C>
$233 $718 $1,230 $2,636
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 11
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Strategic Fixed Income Investments
PACE Strategic Fixed Income Investments
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
- --------------------------------------------------------------------------------
FUND OBJECTIVE:
Total return consisting of income and capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES:
The fund invests in bonds of varying maturities, but normally limits its
portfolio "duration" to between three and eight years. "Duration" is a measure
of the fund's exposure to interest rate risk. A longer duration means that
changes in market interest rates are likely to have a larger effect on the value
of the assets in a portfolio.
The fund invests primarily in investment grade bonds of governmental and private
issuers in the United States and foreign countries, including bonds that are
backed by mortgages or other assets, and in bonds that are convertible into
common stock. The fund's investments in securities of foreign issuers may
include, to a limited extent, securities that are denominated in foreign
currencies.
The fund also invests, to a limited extent, in bonds that are below investment
grade. Securities rated below investment grade are commonly known as "junk
bonds." The fund may invest in when-issued or delayed delivery bonds to increase
its return, giving rise to a form of leverage. The fund may (but is not required
to) use forward currency contracts, options, futures and other derivatives as
part of its investment strategy or to help manage portfolio risks.
Mitchell Hutchins Asset Management Inc., the fund's manager, has selected
Pacific Investment Management Company ("PIMCO") to serve as the fund's
investment adviser. PIMCO seeks to invest the fund's assets in those areas of
the bond market that it considers undervalued, based on such factors as quality,
sector, coupon and maturity. PIMCO establishes duration targets for the fund's
portfolio based on its expectations for changes in interest rates and then
positions the fund to take advantage of yield curve shifts. PIMCO decides to buy
or sell specific bonds based on an analysis of their values relative to other
similar bonds. PIMCO monitors the prepayment experience of the fund's
mortgage-backed bonds and will also buy and sell securities to adjust the fund's
average portfolio duration, yield curve and sector and prepayment exposure, as
appropriate.
PRINCIPAL RISKS:
An investment in the fund is not guaranteed; investors may lose money by
investing in the fund.
The fund is subject to interest rate risk, which is the risk that the value of
its investments generally will fall when interest rates rise. Because the fund
invests significantly in mortgage-backed securities, it also is subject to
prepayment risk. When interest rates fall, the underlying mortgages may be paid
earlier than expected and the fund may have to reinvest these prepayments at
lower interest rates. Mortgage prepayments tend to occur more slowly than
expected when interest rates rise, which may extend the duration of
mortgage-backed securities and make their value more volatile. The fund also is
subject to credit risk, which is the risk that issuers may fail, or become less
able, to make principal or interest payments when due. This risk is greater for
bonds that are rated below investment grade. The value of the fund's foreign
investments may fall due to adverse political, social and economic developments
abroad.
More information about these and other risks of an investment in the fund is
provided below in "More About Risks and Investment Strategies." In particular,
see the following headings:
- - Interest Rate Risk
- - Prepayment Risk
- - Credit Risk
- - Foreign Securities Risk
- - Leverage Risk
- - Derivatives Risk
INFORMATION ON THE FUND'S INVESTMENT STRATEGIES AND RECENT HOLDINGS CAN BE FOUND
IN ITS CURRENT ANNUAL/SEMI-ANNUAL REPORTS (SEE BACK COVER FOR INFORMATION ON
ORDERING THESE REPORTS).
- --------------------------------------------------------------------------------
Prospectus Page 12
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Strategic Fixed Income Investments
PERFORMANCE
- --------------------------------------------------------------------------------
RISK/RETURN BAR CHART AND TABLE:
The following bar chart and table provide information about the fund's
performance and thus give some indication of the risks of an investment in the
fund.
The bar chart shows how the fund's performance has varied from year to year. The
bar chart does not reflect the annual PACE Program fee; if it did, the total
returns shown would be lower.
The table that follows the bar chart shows the average annual returns over
several time periods for the fund's shares. The table compares fund returns to
returns on a broad-based market index that is unmanaged and that, therefore,
does not include any fees or expenses. The table does reflect the annual PACE
Program fee.
The table that follows the bar chart shows the average annual returns over
several time periods compared to the return of a broad-based market index.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
TOTAL RETURN (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1996 3.22%
1997 10.19%
1998 8.22%
Percentages
Calendar Year
</TABLE>
Total Return January 1 to September 30, 1999 -- (2.48)%
Best quarter during calendar years shown: 3rd quarter, 1998 -- 4.52%
Worst quarter during calendar years shown: 1st quarter, 1996 -- (2.21)%
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998
<TABLE>
<CAPTION>
LEHMAN BROTHERS
GOVERNMENT/CORPORATE
(INCEPTION DATE) (8/24/95) INDEX
- ---------------- --------- --------------------
<S> <C> <C>
One Year................................................... 6.61% 9.47%
Life of Fund............................................... 7.88% 8.37%
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 13
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Strategic Fixed Income Investments
EXPENSES AND FEE TABLES
- --------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your
investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a % of
offering price)........................................... None
Maximum Contingent Deferred Sales Charge (Load) (as a % of
offering price)........................................... None
Maximum Annual Account Fee for PaineWebber PACE Program (as
a % of average value of shares held on the last calendar
day of the previous quarter).............................. 1.50%
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund
assets)
Management Fees............................................. 0.50%
Distribution and/or Service (12b-1) Fees.................... None
Other Expenses*............................................. 0.42%
----
Total Annual Fund Operating Expenses........................ 0.92%+
====
Expense Reimbursements**.................................... 0.04%
----
Net Expenses**.............................................. 0.88%+
====
</TABLE>
- ---------
* Includes an administration fee of 0.20% paid by the fund to Mitchell
Hutchins.
** The fund and Mitchell Hutchins have entered into an expense reimbursement
agreement. Mitchell Hutchins has agreed to reimburse the fund to the extent that
the fund's expenses through the end of the current fiscal year otherwise would
exceed the "Net Expenses" rate shown above. The fund has agreed to repay
Mitchell Hutchins for those reimbursed expenses if it can do so over the
following three years without causing the fund's expenses in any of those three
years to exceed the "Net Expenses" rate.
+ Includes 0.03% of interest expense related to reverse repurchase agreements
for the year ended July 31, 1999.
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example includes the maximum annual fee for the PACE Program and also assumes
that your investment has a 5% return each year and that the fund's operating
expenses remain the same, except for the one year period when the fund's
expenses are lower due to its reimbursement agreement with Mitchell Hutchins.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ -------- -------- --------
<S> <C> <C> <C>
$241 $751 $1,287 $2,753
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 14
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Municipal Fixed Income Investments
PACE Municipal Fixed Income Investments
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
- --------------------------------------------------------------------------------
FUND OBJECTIVE:
High current income exempt from federal income tax.
PRINCIPAL INVESTMENT STRATEGIES:
The fund invests substantially all of its assets in investment grade municipal
bonds of varying maturities. These are bonds and similar securities that are
exempt from federal income tax. Normally, the fund limits its investments in
municipal bonds that are subject to the federal alternative minimum tax (AMT) so
that not more than 25% of its interest income will be subject to the AMT. The
fund invests in municipal bonds that are subject to the AMT when its investment
adviser believes that they offer attractive yields relative to municipal bonds
that have similar investment characteristics but are not subject to the AMT.
The fund normally limits its portfolio "duration" to between three and seven
years. "Duration" is a measure of the fund's exposure to interest rate risk. A
longer duration means that changes in market interest rates are likely to have a
larger effect on the value of the assets in a portfolio. The fund may invest up
to 50% of its total assets in municipal bonds that are secured by revenues from
public housing authorities and state and local housing finance authorities,
including bonds that are secured or backed by the U.S. Treasury or other U.S.
government guaranteed securities.
The fund limits its investments in municipal bonds with the lowest investment
grade rating to 15% of its total assets at the time the bonds are purchased. The
fund may (but is not required to) use interest rate futures contracts and other
derivatives as part of its investment strategy or to help manage its portfolio
duration.
Mitchell Hutchins Asset Management Inc., the fund's manager, has selected
Deutsche Asset Management, Inc. ("DAM") (formerly known as Morgan Grenfell
Capital Management, Incorporated) to serve as the fund's investment adviser. DAM
employs an issue-oriented relative value municipal bond investment discipline,
rather than using more traditional techniques such as forecasting interest rates
or anticipating credit rating upgrades. DAM believes that the municipal market
is highly inefficient and fragmented, offering opportunities to purchase
high-quality bonds at attractive prices. DAM emphasizes individual bond issues
with intermediate maturities, including federal government or letter of
credit-based securities.
PRINCIPAL RISKS:
An investment in the fund is not guaranteed; investors may lose money by
investing in the fund.
The fund is subject to interest rate risk, which is the risk that the value of
its investments generally will fall when interest rates rise. The fund is also
subject to credit risk, which is the risk that the issuers of municipal bonds
may not make principal or interest payments when due. The fund's ability to
invest more than 25% of its total assets in municipal housing obligations means
that the fund will be subject to greater risk than a fund with less concentrated
investments. The market for municipal bonds can be adversely affected by
legislative proposals to eliminate or limit the tax-exempt status of municipal
bond interest or the fund's dividends.
More information about these and other risks of an investment in the fund is
provided below in "More About Risks and Investment Strategies." In particular,
see the following headings:
- - Interest Rate Risk
- - Credit Risk
- - Related Securities Concentration Risk
- - Political Risk
- - Derivatives Risk
INFORMATION ON THE FUND'S INVESTMENT STRATEGIES AND RECENT HOLDINGS CAN BE FOUND
IN ITS CURRENT ANNUAL/SEMI-ANNUAL REPORTS (SEE BACK COVER FOR INFORMATION ON
ORDERING THESE REPORTS).
- --------------------------------------------------------------------------------
Prospectus Page 15
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Municipal Fixed Income Investments
PERFORMANCE
- --------------------------------------------------------------------------------
RISK/RETURN BAR CHART AND TABLE:
The following bar chart and table provide information about the fund's
performance and thus give some indication of the risks of an investment in the
fund.
The bar chart shows how the fund's performance has varied from year to year. The
bar chart does not reflect the annual PACE Program fee; if it did, the total
returns shown would be lower.
The table that follows the bar chart shows the average annual returns over
several time periods for the fund's shares. The table compares fund returns to
returns on a broad-based market index that is unmanaged and that, therefore,
does not include any fees or expenses. The table does reflect the annual PACE
Program fee.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
TOTAL RETURN (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERCENTAGES
<S> <C>
1996 4.86%
1997 7.01%
1998 5.39%
Calendar Year
</TABLE>
Total Return January 1 to September 30, 1999 -- (1.39)%
Best quarter during calendar years shown: 3rd quarter, 1998 -- 2.52%
Worst quarter during calendar years shown: 1st quarter, 1996 -- (1.13)%
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998
<TABLE>
<CAPTION>
LEHMAN BROTHERS
MUNICIPAL FIVE-YEAR
(INCEPTION DATE) (8/24/95) INDEX
- ---------------- --------- -------------------
<S> <C> <C>
One Year.................................................... 3.82% 5.84%
Life of Fund................................................ 5.08% 5.64%
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 16
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Municipal Fixed Income Investments
EXPENSES AND FEE TABLES
- --------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your
investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a % of
offering price)........................................... None
Maximum Contingent Deferred Sales Charge (Load) (as a % of
offering price)........................................... None
Maximum Annual Account Fee for PaineWebber PACE Program (as
a % of average value of shares held on the last calendar
day of the previous quarter).............................. 1.50%
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from
fund assets)
Management Fees............................................. 0.40%
Distribution and/or Service (12b-1) Fees.................... None
Other Expenses*............................................. 0.49%
----
Total Annual Fund Operating Expenses........................ 0.89%
====
Expense Reimbursements**.................................... 0.04%
----
Net Expenses**.............................................. 0.85%
====
</TABLE>
- ---------
* Includes an administration fee of 0.20% paid by the fund to Mitchell
Hutchins.
** The fund and Mitchell Hutchins have entered into an expense reimbursement
agreement. Mitchell Hutchins has agreed to reimburse the fund to the extent that
the fund's expenses through the end of the current fiscal year otherwise would
exceed the "Net Expenses" rate shown above. The fund has agreed to repay
Mitchell Hutchins for those reimbursed expenses if it can do so over the
following three years without causing the fund's expenses in any of those three
years to exceed the "Net Expenses" rate .
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example includes the maximum annual fee for the PACE Program and also assumes
that your investment has a 5% return each year and that the fund's operating
expenses remain the same, except for the one year period when the fund's
expenses are lower due to its reimbursement agreement with Mitchell Hutchins.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ -------- -------- --------
<S> <C> <C> <C>
$238 $742 $1,272 $2,723
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 17
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Global Fixed Income Investments
PACE Global Fixed Income Investments
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
- --------------------------------------------------------------------------------
FUND OBJECTIVE:
High total return.
PRINCIPAL INVESTMENT STRATEGIES:
The fund invests primarily in high-grade bonds of governmental and private
issuers in the United States and developed foreign countries. These high-grade
bonds are rated in one of the three highest rating categories or are of
comparable quality. The fund invests, to a limited extent, in lower rated bonds
of governmental and private issuers in emerging markets, including bonds that
are rated below investment grade.
The fund invests in bonds of varying maturities, but normally limits its
portfolio "duration" to between four and eight years. "Duration" is a measure of
the fund's exposure to interest rate risk. A longer duration means that changes
in market interest rates are likely to have a larger effect on the value of the
assets in a portfolio.
The fund's assets are normally invested in part in bonds of U.S. government and
private issuers and the balance of its assets is allocated among bonds of
governmental and private issuers in various foreign countries. The fund may (but
is not required to) use forward currency contracts, options, futures and other
derivatives as part of its investment strategy or to help manage portfolio
risks.
Mitchell Hutchins Asset Management Inc., the fund's manager, has selected Rogge
Global Partners plc to serve as the fund's investment adviser. Rogge Global
Partners seeks to invest the fund's assets in bonds of issuers infinancially
healthy countries because it believes that these investments produce the highest
bond and currency returns over time. Rogge Global Partners uses a top-down
analysis to find value across countries and to forecast interest and
currency-exchange rates over a one-year horizon. Rogge Global Partners also uses
an optimization model to help determine country, currency and duration positions
for the fund.
PRINCIPAL RISKS:
An investment in the fund is not guaranteed; investors may lose money by
investing in the fund.
The fund is subject to interest rate risk, which is the risk that the value of
its investments generally will fall when interest rates rise. The value of the
fund's foreign investments also may fall due to adverse political, social and
economic developments abroad. The fund also is subject to credit risk, which is
the risk that issuers may fail, or become less able to make principal or
interest payments when due. This risk is greater for bonds rated below
investment grade. Because the fund is non-diversified, it can invest more of its
assets in a single issuer than a diversified fund can. As a result, changes in
the market value of a single issuer can have a greater effect on the fund's
performance and share price than if the fund held a smaller position.
More information about these and other risks of an investment in the fund is
provided below in "More About Risks and Investment Strategies." In particular,
see the following headings:
- - Interest Rate Risk
- - Foreign Securities Risk
- - Credit Risk
- - Emerging Markets Risk
- - Sovereign Risk
- - Non-Diversified Status Risk
- - Derivatives Risk
INFORMATION ON THE FUND'S INVESTMENT STRATEGIES AND RECENT HOLDINGS CAN BE FOUND
IN ITS CURRENT ANNUAL/SEMI-ANNUAL REPORTS (SEE BACK COVER FOR INFORMATION ON
ORDERING THESE REPORTS).
- --------------------------------------------------------------------------------
Prospectus Page 18
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Global Fixed Income Investments
PERFORMANCE
- --------------------------------------------------------------------------------
RISK/RETURN BAR CHART AND TABLE:
The following bar chart and table provide information about the fund's
performance and thus give some indication of the risks of an investment in the
fund.
The bar chart shows how the fund's performance has varied from year to year. The
bar chart does not reflect the annual PACE Program fee; if it did, the total
returns shown would be lower.
The table that follows the bar chart shows the average annual returns over
several time periods for the fund's shares. The table compares fund returns to
returns on a broad-based market index that is unmanaged and that, therefore,
does not include any fees or expenses. The table does reflect the annual PACE
Program fee.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
TOTAL RETURN (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1996 4.59%
1997 1.00%
1998 18.60%
Percentages
Calendar Year
</TABLE>
Total Return January 1 to September 30, 1999 -- (6.68)%
Best quarter during calendar years shown: 3rd quarter, 1998 -- 8.60%
Worst quarter during calendar years shown: 1st quarter, 1997 -- (3.92)%
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998
<TABLE>
<CAPTION>
SALOMON SMITH BARNEY
WORLD GOVERNMENT
(INCEPTION DATE) (8/24/95) BOND INDEX
- ---------------- --------- --------------------
<S> <C> <C>
One Year................................................... 16.83% 15.31%
Life of Fund............................................... 7.32% 7.19%
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 19
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Global Fixed Income Investments
EXPENSES AND FEE TABLES
- --------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your
investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a % of
offering price)........................................... None
Maximum Contingent Deferred Sales Charge (Load) (as a % of
offering price)........................................... None
Maximum Annual Account Fee for PaineWebber PACE Program (as
a % of average value of shares held on the last calendar
day of the previous quarter).............................. 1.50%
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from
fund assets)
Management Fees............................................. 0.60%
Distribution and/or Service (12b-1) Fees.................... None
Other Expenses*............................................. 0.57%
----
Total Annual Fund Operating Expenses........................ 1.17%
====
Expense Reimbursements**.................................... 0.22%
----
Net Expenses**.............................................. 0.95%
====
</TABLE>
- ---------
* Includes an administration fee of 0.20% paid by the fund to Mitchell
Hutchins.
** The fund and Mitchell Hutchins have entered into an expense reimbursement
agreement. Mitchell Hutchins has agreed to reimburse the fund to the extent that
the fund's expenses through the end of the current fiscal year otherwise would
exceed the "Net Expenses" rate shown above. The fund has agreed to repay
Mitchell Hutchins for those reimbursed expenses if it can do so over the
following three years without causing the fund's expenses in any of those three
years to exceed the "Net Expenses" rate.
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example includes the maximum annual fee for the PACE Program and also assumes
that your investment has a 5% return each year and that the fund's operating
expenses remain the same, except for the one year period when the fund's
expenses are lower due to its reimbursement agreement with Mitchell Hutchins.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ -------- -------- --------
<S> <C> <C> <C>
$248 $809 $1,395 $2,987
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 20
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Large Company Value Equity Investments
PACE Large Company Value Equity Investments
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
- --------------------------------------------------------------------------------
FUND OBJECTIVES:
Capital appreciation and dividend income.
PRINCIPAL INVESTMENT STRATEGIES:
The fund invests primarily in stocks of U.S. companies that are believed to be
undervalued and that have total market capitalizations of $4.0 billion or
greater at the time of purchase.
The fund may invest, to a limited extent, in other securities, including stocks
of companies with smaller total market capitalizations and convertible bonds
that are rated below investment grade. The fund may invest up to 5% of its total
assets in U.S. dollar-denominated foreign securities. The fund also may (but is
not required to) use options, futures and other derivatives as part of its
investment strategy or to help manage portfolio risks.
Mitchell Hutchins Asset Management Inc., the fund's manager, has selected
Brinson Partners, Inc. to serve as the fund's investment adviser. Brinson
Partners looks for undervalued stocks within the context of its macroeconomic
and market outlooks. Its research focuses on several levels of analysis,
including understanding wealth shifts that occur within the equity market and
individual company research. It conducts fundamental research on a universe of
approximately 700 stocks. Brinson Partners quantifies its expectations of a
company's ability to generate profit and grow its business into the future and
discounts to the present all future cash flows to the fund from an investment to
calculate a present or intrinsic value. This value estimate is generated by a
proprietary valuation model and is compared to market price and ranked against
other stocks. Brinson Partners uses these rankings, together with its own
investment judgment, to buy and sell stocks for the fund.
PRINCIPAL RISKS:
An investment in the fund is not guaranteed; investors may lose money by
investing in the fund.
Common stocks, which are the fund's main investment, generally fluctuate in
value more than other investments. The fund could lose all of its investment in
a company's stock.
More information about these and other risks of an investment in the fund is
provided below in "More About Risks and Investment Strategies." In particular,
see the following headings:
- - Equity Risk
- - Foreign Securities Risk
- - Derivatives Risk
INFORMATION ON THE FUND'S RECENT INVESTMENT STRATEGIES AND HOLDINGS CAN BE FOUND
IN ITS CURRENT ANNUAL/SEMI-ANNUAL REPORTS (SEE BACK COVER FOR INFORMATION ON
ORDERING THESE REPORTS).
- --------------------------------------------------------------------------------
Prospectus Page 21
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Large Company Value Equity Investments
PERFORMANCE
- --------------------------------------------------------------------------------
RISK/RETURN BAR CHART AND TABLE:
The following bar chart and table provide information about the fund's
performance and thus give some indication of the risks of an investment in the
fund.
The bar chart shows how the fund's performance has varied from year to year. The
bar chart does not reflect the annual PACE Program fee; if it did, the total
returns shown would be lower.
The table that follows the bar chart shows the average annual returns over
several time periods for the fund's shares. The table compares fund returns to
returns on a broad-based market index that is unmanaged and that, therefore,
does not include any fees or expenses. The table does reflect the annual PACE
Program fee.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
TOTAL RETURN (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERCENTAGES
<S> <C>
1996 25.11%
1997 24.75%
1998 18.36%
Calendar Year
</TABLE>
Total Return January 1 to September 30, 1999 -- (5.50)%
Best quarter during calendar years shown: 4th quarter, 1998 -- 16.26%
Worst quarter during calendar years shown: 3rd quarter, 1998 -- (10.44)%
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998
<TABLE>
<CAPTION>
RUSSELL 1000
(INCEPTION DATE) (8/24/95) VALUE INDEX
- ---------------- --------- ------------
<S> <C> <C>
One Year.................................................... 16.59% 15.63%
Life of Fund................................................ 22.22% 24.95%
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 22
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Large Company Value Equity Investments
EXPENSES AND FEE TABLES
- --------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your
investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a % of
offering price)........................................... None
Maximum Contingent Deferred Sales Charge (Load) (as a % of
offering price)........................................... None
Maximum Annual Account Fee for PaineWebber PACE Program (as
a % of average value of shares held on the last calendar
day of the previous quarter).............................. 1.50%
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from
fund assets)
Management Fees............................................. 0.60%
Distribution and/or Service (12b-1) Fees.................... None
Other Expenses*............................................. 0.36%
----
Total Annual Fund Operating Expenses........................ 0.96%
====
</TABLE>
- ---------
* Includes an administration fee of 0.20% paid by the fund to Mitchell
Hutchins.
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example includes the maximum annual fee for the PACE Program and also assumes
that your investment has a 5% return each year and that the fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ -------- -------- --------
<S> <C> <C> <C>
$249 $767 $1,311 $2,796
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 23
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Large Company Growth Equity Investments
PACE Large Company Growth Equity Investments
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
- --------------------------------------------------------------------------------
FUND OBJECTIVE:
Capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES:
The fund invests primarily in stocks of companies that are believed to have
faster rates of earnings growth than the average rate of companies in the
Standard & Poor's 500 Composite Stock Price Index and that have total market
capitalizations of $4.0 billion or greater at the time of purchase. Dividend
income is an incidental consideration in the investment adviser's selection of
stocks for the fund.
The fund may invest, to a limited extent, in other securities, including
securities convertible into stocks and stocks of companies with smaller total
market capitalizations. The fund may invest up to 5% of its total assets in U.S.
dollar-denominated foreign securities. The fund also may (but is not required
to) use options, futures and other derivatives as part of its investment
strategy or to help manage portfolio risks.
Mitchell Hutchins Asset Management Inc., the fund's manager, has selected
Alliance Capital Management L.P. to serve as the fund's investment adviser.
Alliance Capital Management follows its "disciplined growth" strategy in
managing the fund's investments and seeks to identify the best combinations of
earnings growth and reasonable valuation in selecting stocks for the fund.
Alliance Capital Management ranks each stock in its investment universe based on
its analysts' assessments and fundamental research that includes six measures of
earnings growth and valuation. The fund normally invests in stocks that rank in
the top 30% of this research universe and generally sells stocks that rank in
the bottom half.
PRINCIPAL RISKS:
An investment in the fund is not guaranteed; investors may lose money by
investing in the fund.
Common stocks, which are the fund's main investment, generally fluctuate in
value more than other investments. The fund could lose all of its investment in
a company's stock.
More information about these and other risks of an investment in the fund is
provided below in "More About Risks and Investment Strategies." In particular,
see the following headings:
- - Equity Risk
- - Foreign Securities Risk
- - Derivatives Risk
INFORMATION ON THE FUND'S INVESTMENT STRATEGIES AND RECENT HOLDINGS CAN BE FOUND
IN THE CURRENT ANNUAL/SEMI-ANNUAL REPORTS (SEE BACK COVER FOR INFORMATION ON
ORDERING SUCH REPORTS).
- --------------------------------------------------------------------------------
Prospectus Page 24
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Large Company Growth Equity Investments
PERFORMANCE
- --------------------------------------------------------------------------------
RISK/RETURN BAR CHART AND TABLE:
The following bar chart and table provide information about the fund's
performance and thus give some indication of the risks of an investment in the
fund.
The bar chart shows how the fund's performance has varied from year to year. The
bar chart does not reflect the annual PACE Program fee; if it did, the total
returns shown would be lower.
The table that follows the bar chart shows the average annual returns over
several time periods for the fund's shares. The table compares fund returns to
returns on a broad-based market index that is unmanaged and that, therefore,
does not include any fees or expenses. The table does reflect the annual PACE
Program fee.
The fund's past performance does not necessarily indicate how the fund will
perform in the future. This may be particularly true for the period prior to
November 10, 1997, which is the date on which Alliance Capital Management
assumed day-to-day management of the fund's assets. Prior to that date, another
investment manager was responsible for managing the fund's assets.
TOTAL RETURN (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERCENTAGES
<S> <C>
1996 21.24%
1997 24.79%
1998 40.05%
CALENDAR YEAR
</TABLE>
Total Return January 1 to September 30, 1999 -- 5.88%
Best quarter during calendar years shown: 4th quarter, 1998 -- 31.80%
Worst quarter during calendar years shown: 3rd quarter, 1998 -- (14.42)%
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998
<TABLE>
<CAPTION>
RUSSELL 1000
(INCEPTION DATE) (8/24/95) GROWTH INDEX
- ---------------- --------- ------------
<S> <C> <C>
One Year.................................................... 37.96% 38.70%
Life of Fund................................................ 25.58% 30.64%
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 25
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Large Company Growth Equity Investments
EXPENSES AND FEE TABLES
- --------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your
investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a % of
offering price)........................................... None
Maximum Contingent Deferred Sales Charge (Load) (as a % of
offering price)........................................... None
Maximum Annual Account Fee for PaineWebber PACE Program (as
a % of average value of shares held on the last calendar
day of the previous quarter).............................. 1.50%
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from
fund assets)
Management Fees............................................. 0.60%
Distribution and/or Service (12b-1) Fees.................... None
Other Expenses*............................................. 0.37%
----
Total Annual Fund Operating Expenses........................ 0.97%
====
</TABLE>
- ---------
* Includes an administration fee of 0.20% paid by the fund to Mitchell
Hutchins.
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example includes the maximum annual fee for the PACE Program and also assumes
that your investment has a 5% return each year and that the fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ -------- -------- --------
<S> <C> <C> <C>
$250 $770 $1,316 $2,806
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 26
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Small/Medium Company Value Equity Investments
PACE Small/Medium Company Value Equity Investments
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
- --------------------------------------------------------------------------------
FUND OBJECTIVE:
Capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES:
The fund invests primarily in stocks of companies that are believed to be
undervalued or overlooked in the market place and that have total market
capitalizations of less than $4.0 billion at the time of purchase. These stocks
also generally have price-to-earnings ("P/E") ratios below the market average.
The fund invests only in stocks that are traded on major exchanges or the over-
the-counter market.
The fund may invest, to a limited extent in stocks of companies with larger
total market capitalizations and other securities, including securities
convertible into stocks. The fund also may (but is not required to) use options,
futures and other derivatives as part of its investment strategy or to help
manage portfolio risks.
Mitchell Hutchins Asset Management Inc., the fund's manager, has selected Ariel
Capital Management, Inc. and Brandywine Asset Management, Inc. to serve as the
fund's investment advisers. Mitchell Hutchins allocates the fund's assets
between the two investment advisers.
Ariel Capital Management, Inc. invests its share of the fund's assets primarily
in common stocks of medium size companies that it believes are misunderstood or
undervalued. It seeks to identify companies in consistent industries with
distinct market niches and excellent management teams. It defines value stocks
as those that have a low P/E ratio based on forward earnings and that trade at a
significant discount to the private market value that Ariel calculates for each
stock. Ariel generally sells stocks that cease to meet these criteria or that
are at risk for fundamental deterioration.
Brandywine Asset Management, Inc. invests its share of the fund's assets
primarily in small companies by starting with quantitative analysis that focuses
on stocks with low P/E ratios. Brandywine defines a low P/E ratio (based on
positive trailing 12-month operating earnings) as one that places a company
among the lowest 25% based on P/E ratios for all exchange-traded and
over-the-counter stocks with positive earnings and a capitalization greater than
$10 million. Brandywine then uses fundamental analysis to exclude stocks based
on earnings adjustments that raise P/E above the lowest quartile, pre-announced
earnings changes that are expected to raise P/E when formally announced, strong
recent price gains and severe or sudden fundamental deterioration. Brandywine
also uses this analysis technique in determining when to sell stocks.
PRINCIPAL RISKS:
An investment in the fund is not guaranteed; investors may lose money by
investing in the fund.
Common stocks, which are the fund's main investment, generally fluctuate in
value more than other investments. The fund could lose all of its investment in
a company's stock. This risk is greater for the common stocks of smaller
companies because they are more vulnerable to adverse business or economic
developments and may have more limited resources.
More information about these and other risks of an investment in the fund is
provided below in "More About Risks and Investment Strategies." In particular,
see the following headings:
- - Equity Risk
- - Limited Capitalization Risk
- - Derivatives Risk
INFORMATION ON THE FUND'S INVESTMENT STRATEGIES AND RECENT HOLDINGS CAN BE FOUND
IN ITS CURRENT ANNUAL/SEMI-ANNUAL REPORTS (SEE BACK COVER FOR INFORMATION ON
ORDERING THESE REPORTS).
- --------------------------------------------------------------------------------
Prospectus Page 27
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Small/Medium Company Value Equity Investments
PERFORMANCE
- --------------------------------------------------------------------------------
RISK/RETURN BAR CHART AND TABLE:
The following bar chart and table provide information about the fund's
performance and thus give some indication of the risks of an investment in the
fund.
The bar chart shows how the fund's performance has varied from year to year. The
bar chart does not reflect the annual PACE Program fee; if it did, the total
returns shown would be lower.
The table that follows the bar chart shows the average annual returns over
several time periods for the fund's shares. The table compares fund returns to
returns on a broad-based market index that is unmanaged and that, therefore,
does not include any fees or expenses. The table does reflect the annual PACE
Program fee.
The fund's past performance does not necessarily indicate how the fund will
perform in the future. This may be particularly true for the period prior to
October 1, 1999, which is the date on which Ariel Capital Management, Inc.
assumed day-to-day management of a portion of the fund's assets. Prior to that
date, Brandywine Asset Management, Inc. was responsible for managing all the
fund's assets.
TOTAL RETURN (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERCENTAGES
<S> <C>
1996 22.35%
1997 37.26%
1998 -9.34%
CALENDAR YEAR
</TABLE>
Total Return January 1 to September 30, 1999 -- (1.77)%
Best quarter during calendar years shown: 2nd quarter, 1997 -- 15.64%
Worst quarter during calendar years shown: 3rd quarter, 1998 -- (20.00)%
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998
<TABLE>
<CAPTION>
RUSSELL 2500
(INCEPTION DATE) (8/24/95) VALUE INDEX
- ---------------- --------- ------------
<S> <C> <C>
One Year.................................................... (10.69)% (1.92)%
Life of Fund................................................ 11.62% 16.88%
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 28
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Small/Medium Company Value Equity Investments
EXPENSES AND FEE TABLES
- --------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your
investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a % of
offering price)........................................... None
Maximum Contingent Deferred Sales Charge (Load) (as a % of
offering price)........................................... None
Maximum Annual Account Fee for PaineWebber PACE Program (as
a % of average value of shares held on the last calendar
day of the previous quarter).............................. 1.50%
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from
fund assets)
Management Fees............................................. 0.60%
Distribution and/or Service (12b-1) Fees.................... None
Other Expenses*............................................. 0.41%
----
Total Annual Fund Operating Expenses........................ 1.01%
====
Expense Reimbursements**.................................... 0.01%
----
Net Expenses**.............................................. 1.00%
====
</TABLE>
- ---------
* Includes an administration fee of 0.20% paid by the fund to Mitchell
Hutchins.
** The fund and Mitchell Hutchins have entered into an expense reimbursement
agreement. Mitchell Hutchins has agreed to reimburse the fund to the extent that
the fund's expenses through the end of the current fiscal year otherwise would
exceed the "Net Expenses" rate shown above. The fund has agreed to repay
Mitchell Hutchins for those reimbursed expenses if it can do so over the
following three years without causing the fund's expenses in any of those three
years to exceed the "Net Expenses" rate.
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example includes the maximum annual fee for the PACE Program and also assumes
that your investment has a 5% return each year and that the fund's operating
expenses remain the same, except for the one year period when the fund's
expenses are lower due to its reimbursement agreement with Mitchell Hutchins.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ -------- -------- --------
<S> <C> <C> <C>
$253 $781 $1,335 $2,845
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 29
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Small/Medium Company Growth Equity Investments
PACE Small/Medium Company Growth Equity Investments
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
- --------------------------------------------------------------------------------
FUND OBJECTIVE:
Capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES:
The fund invests primarily in stocks of "emerging growth" companies that are
believed to have potential for high future earnings growth relative to the
overall market and that have total market capitalizations of less than $4.0
billion at the time of purchase. Dividend income is an incidental consideration
in the investment adviser's selection of stocks for the fund.
The fund may invest, to a limited extent, in stocks of companies with larger
total market capitalizations and other securities, including securities
convertible into stocks. The fund may invest up to 5% of its total assets in
U.S. dollar-denominated foreign securities. The fund also may (but is not
required to) use options, futures and other derivatives as part of its
investment strategy or to help manage portfolio risks.
Mitchell Hutchins Asset Management Inc., the fund's manager, has selected
Delaware Management Company, Inc. to serve as the fund's investment adviser.
Delaware Management Company employs a bottom-up, fundamental analysis to
identify companies that have substantially above average earnings growth because
of management changes, new products, growth of established products or
structural changes in the economy. Delaware Management Company also considers a
company's management team quality and the strength of its finances and internal
controls in selecting stocks for the fund. Although Delaware Management Company
follows companies in a full range of market sectors, it may focus on a limited
number of attractive industries.
PRINCIPAL RISKS:
An investment in the fund is not guaranteed; investors may lose money by
investing in the fund.
Common stocks, which are the fund's main investment, generally fluctuate in
value more than other investments. The fund could lose all of its investment in
a company's stock. This risk is greater for the common stocks of smaller
companies because they are more vulnerable to adverse business or economic
developments and may have more limited resources.
More information about these and other risks of an investment in the fund is
provided below in "More About Risks and Investment Strategies." In particular,
see the following headings:
- - Equity Risk
- - Limited Capitalization Risk
- - Derivatives Risk
INFORMATION ON THE FUND'S INVESTMENT STRATEGIES AND RECENT HOLDINGS CAN BE FOUND
IN ITS CURRENT ANNUAL/SEMI-ANNUAL REPORTS (SEE BACK COVER FOR INFORMATION ON
ORDERING THESE REPORTS).
- --------------------------------------------------------------------------------
Prospectus Page 30
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Small/Medium Company Growth Equity Investments
PERFORMANCE
- --------------------------------------------------------------------------------
RISK/RETURN BAR CHART AND TABLE:
The following bar chart and table provide information about the fund's
performance and thus give some indication of the risks of an investment in the
fund.
The bar chart shows how the fund's performance has varied from year to year. The
bar chart does not reflect the annual PACE Program fee; if it did, the total
returns shown would be lower.
The table that follows the bar chart shows the average annual returns over
several time periods for the fund's shares. The table compares fund returns to
returns on a broad-based market index that is unmanaged and that, therefore,
does not include any fees or expenses. The table does reflect the annual PACE
Program fee.
The fund's past performance does not necessarily indicate how the fund will
perform in the future. This may be particularly true for the period prior to
December 17, 1996, which is the date on which Delaware Management Company
assumed day-to-day management of the fund's assets. Prior to that date, another
investment manager was responsible for managing the fund's assets.
TOTAL RETURN (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1996 7.36%
1997 21.73%
1998 14.86%
Percentages
Calendar Year
</TABLE>
Total Return January 1 to September 30, 1999 -- 29.39%
Best quarter during calendar years shown: 4th quarter, 1998 -- 24.38%
Worst quarter during calendar years shown: 3rd quarter, 1998 -- (15.44)%
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998
<TABLE>
<CAPTION>
RUSSELL 2500
(INCEPTION DATE) (8/24/95) GROWTH INDEX
- ---------------- --------- ------------
<S> <C> <C>
One Year.................................................... 13.15% 3.10%
Life of Fund................................................ 10.72% 10.99%
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 31
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Small/Medium Company Growth Equity Investments
EXPENSES AND FEE TABLES
- --------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your
investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a % of
offering price)........................................... None
Maximum Contingent Deferred Sales Charge (Load) (as a % of
offering price)........................................... None
Maximum Annual Account Fee for PaineWebber PACE Program (as
a % of average value of shares held on the last calendar
day of the previous quarter).............................. 1.50%
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from
fund assets)
Management Fees............................................. 0.60%
Distribution and/or Service (12b-1) Fees.................... None
Other Expenses*............................................. 0.41%
----
Total Annual Fund Operating Expenses........................ 1.01%
====
Expense Reimbursements**.................................... 0.01%
----
Net Expenses**.............................................. 1.00%
====
</TABLE>
- ---------
* Includes an administration fee of 0.20% paid by the fund to Mitchell
Hutchins.
** The fund and Mitchell Hutchins have entered into an expense reimbursement
agreement. Mitchell Hutchins has agreed to reimburse the fund to the extent that
the fund's expenses through the end of the current fiscal year otherwise would
exceed the "Net Expenses" rate shown above. The fund has agreed to repay
Mitchell Hutchins for those reimbursed expenses if it can do so over the
following three years without causing the fund's expenses in any of those three
years to exceed the "Net Expenses" rate.
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example includes the maximum annual fee for the PACE Program and also assumes
that your investment has a 5% return each year and that the fund's operating
expenses remain the same, except for the one year period when the fund's
expenses are lower due to its reimbursement agreement with Mitchell Hutchins.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ -------- -------- --------
<S> <C> <C> <C>
$253 $781 $1,335 $2,845
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 32
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE International Equity Investments
PACE International Equity Investments
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
- --------------------------------------------------------------------------------
FUND OBJECTIVE:
Capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES:
The fund invests primarily in stocks of companies that are domiciled in
developed foreign countries and principally traded in Japanese, European,
Pacific and Australian securities markets or traded in U.S. securities markets.
The fund may invest, to a limited extent, in stocks of companies in emerging
markets, including Asia, Latin America and other regions where markets may not
yet fully reflect the potential of the developing economy. The fund may also
invest, to a limited extent, in securities of other investment companies that
invest in foreign markets and securities convertible into stocks, including
convertible bonds that are below investment grade. The fund may (but is not
required to) use forward currency contracts, options, futures and other
derivatives as part of its investment strategy or to help manage portfolio
risks.
Mitchell Hutchins Asset Management Inc., the fund's manager, has selected Martin
Currie, Inc. to serve as the fund's investment adviser. Martin Currie, Inc.
looks for companies that exhibit strong fundamentals and attractive valuations
based on estimates of future earnings. In making country allocation decisions,
Martin Currie, Inc. considers such factors as economic and political stability,
breadth and liquidity of the market, the nature of local investors, the currency
outlook, valuation and the settlement system.
PRINCIPAL RISKS:
An investment in the fund is not guaranteed; investors may lose money by
investing in the fund.
Common stocks, which are the fund's main investment, generally fluctuate in
value more than other investments. The fund could lose all of its investment in
a company's stock. The value of the fund's foreign investments may fall due to
adverse political, social and economic developments abroad. This risk is greater
for the fund's investments in emerging market issuers.
More information about these and other risks of an investment in the fund is
provided below in "More About Risks and Investment Strategies." In particular,
see the following headings:
- - Equity Risk
- - Foreign Securities Risk
- - Emerging Markets Risk
- - Derivatives Risk
INFORMATION ON THE FUND'S INVESTMENT STRATEGIES AND RECENT HOLDINGS CAN BE FOUND
IN ITS CURRENT ANNUAL/SEMI-ANNUAL REPORTS (SEE BACK COVER FOR INFORMATION ON
ORDERING THESE REPORTS).
- --------------------------------------------------------------------------------
Prospectus Page 33
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE International Equity Investments
PERFORMANCE
- --------------------------------------------------------------------------------
RISK/RETURN BAR CHART AND TABLE:
The following bar chart and table provide information about the fund's
performance and thus give some indication of the risks of an investment in the
fund.
The bar chart shows how the fund's performance has varied from year to year. The
bar chart does not reflect the annual PACE Program fee; if it did, the total
returns shown would be lower.
The table that follows the bar chart shows the average annual returns over
several time periods for the fund's shares. The table compares fund returns to
returns on a broad-based market index that is unmanaged and that, therefore,
does not include any fees or expenses. The table does reflect the annual PACE
Program fee.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
TOTAL RETURN (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERCENTAGES
<S> <C>
1996 10.30%
1997 9.46%
1998 16.34%
Calendar Year
</TABLE>
Total Return January 1 to September 30, 1999 -- 9.06%
Best quarter during calendar years shown: 4th quarter, 1998 -- 19.70%
Worst quarter during calendar years shown: 3rd quarter, 1998 -- (14.64)%
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998
<TABLE>
<CAPTION>
MSCI EUROPE,
ASIA AND
(INCEPTION DATE) (8/24/95) FAR EAST INDEX
- ---------------- --------- --------------
<S> <C> <C>
One Year.................................................... 14.60% 20.00%
Life of Fund................................................ 10.14% 10.00%
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 34
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE International Equity Investments
EXPENSES AND FEE TABLES
- --------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your
investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a % of
offering price)........................................... None
Maximum Contingent Deferred Sales Charge (Load) (as a % of
offering price)........................................... None
Maximum Annual Account Fee for PaineWebber PACE Program (as
a % of average value of shares held on the last calendar
day of the previous quarter).............................. 1.50%
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from
fund assets)
Management Fees............................................. 0.70%
Distribution and/or Service (12b-1) Fees.................... None
Other Expenses*............................................. 0.52%
----
Total Annual Fund Operating Expenses........................ 1.22%
====
</TABLE>
- ---------
* Includes an administration fee of 0.20% paid by the fund to Mitchell
Hutchins.
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example includes the maximum annual fee for the PACE Program and also assumes
that your investment has a 5% return each year and that the fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ -------- -------- --------
<S> <C> <C> <C>
$275 $844 $1,440 $3,051
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 35
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE International Emerging Markets Equity Investments
PACE International Emerging Markets Equity Investments
INVESTMENT OBJECTIVE, STRATEGIES AND RISK
- --------------------------------------------------------------------------------
FUND OBJECTIVE:
Capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES:
The fund invests primarily in stocks of companies domiciled in emerging market
companies. The fund defines emerging market countries as countries that are not
included in the MSCI Index of major world economies. The fund may not always
diversify its investments on a geographic basis among emerging market countries.
The fund may invest, to a limited extent, in bonds, including up to 10% of its
total assets in bonds that are below investment grade. Securities rated below
investment grade are commonly known as "junk bonds." The fund may also invest,
to a limited extent, in securities of other investment companies that invest in
emerging markets. The fund may (but is not required to) use forward currency
contracts, options, futures and other derivatives as part of its investment
strategy or to help manage portfolio risks.
Mitchell Hutchins Asset Management Inc., the fund's manager, has selected
Schroder Investment Management North America Inc. to serve as the fund's
investment adviser. Schroder Investment Management's network of regional
specialists and analysts in 13 countries supports an intensive program of
proprietary emerging markets research. Schroder Investment Management uses its
research to identify attractively valued companies in emerging markets that it
believes can leverage off the growth opportunities in these faster growing
economies.
PRINCIPAL RISKS:
An investment in the fund is not guaranteed; investors may lose money by
investing in the fund.
Common stocks, which are the fund's main investment, generally fluctuate in
value more than other investments. The fund could lose all of its investment in
a company's stock. The value of the fund's foreign investments may fall due to
adverse political, social and economic developments abroad. These risks are
greater for the fund's investments in emerging market issuers. To the extent the
fund invests a significant portion of its assets in one geographic area, it will
be more susceptible to factors adversely affecting that area.
More information about these and other risks of an investment in the fund is
provided below in "More About Risks and Investment Strategies." In particular,
see the following headings:
- - Equity Risk
- - Foreign Securities Risk
- - Emerging Markets Risk
- - Geographic Concentration Risk
- - Derivatives Risk
INFORMATION ON THE FUND'S INVESTMENT STRATEGIES AND RECENT HOLDINGS CAN BE FOUND
IN THE CURRENT ANNUAL/SEMI-ANNUAL REPORTS (SEE BACK COVER FOR INFORMATION ON
ORDERING SUCH REPORTS)
- --------------------------------------------------------------------------------
Prospectus Page 36
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE International Emerging Markets Equity Investments
PERFORMANCE
- --------------------------------------------------------------------------------
RISK/RETURN BAR CHART AND TABLE:
The following bar chart and table provide information about the fund's
performance and thus give some indication of the risks of an investment in the
fund.
The bar chart shows how the fund's performance has varied from year to year. The
bar chart does not reflect the annual PACE Program fee; if it did, the total
returns shown would be lower.
The table that follows the bar chart shows the average annual returns over
several time periods for the fund's shares. The table compares fund returns to
returns on a broad-based market index that is unmanaged and that, therefore,
does not include any fees or expenses. The table does reflect the annual PACE
Program fee.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
TOTAL RETURN (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1996 8.52%
1997 -4.72%
1998 -24.43%
PERCENTAGES
CALENDAR YEAR
</TABLE>
Total Return January 1 to September 30, 1999 -- 27.29%
Best quarter during calendar years shown: 4th quarter, 1998 -- 16.34%
Worst quarter during calendar years shown: 3rd quarter, 1998 -- (21.52)%
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998
<TABLE>
<CAPTION>
MSCI EMF
(INCEPTION DATE) (8/24/95) INDEX
- ---------------- --------- --------
<S> <C> <C>
One Year.................................................... (25.56)% (25.34)%
Life of Fund................................................ (8.98)% (10.66)%
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 37
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE International Emerging Markets Equity Investments
EXPENSES AND FEE TABLES
- --------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your
investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a % of
offering price)........................................... None
Maximum Contingent Deferred Sales Charge (Load) (as a % of
offering price)........................................... None
Maximum Annual Account Fee for PaineWebber PACE Program (as
a % of average value of shares held on the last calendar
day of the previous quarter).............................. 1.50%
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from
fund assets)
Management Fees............................................. 0.90%
Distribution and/or Service (12b-1) Fees.................... None
Other Expenses*............................................. 0.89%
----
Total Annual Fund Operating Expenses........................ 1.79%
====
Expense Reimbursements**.................................... 0.29%
----
Net Expenses**.............................................. 1.50%
====
</TABLE>
- ---------
* Includes an administration fee of 0.20% paid by the fund to Mitchell
Hutchins.
** The fund and Mitchell Hutchins have entered into an expense reimbursement
agreement. Mitchell Hutchins has agreed to reimburse the fund to the extent that
the fund's expenses through the end of the current fiscal year otherwise would
exceed the "Net Expenses" rate shown above. The fund has agreed to repay
Mitchell Hutchins for those reimbursed expenses if it can do so over the
following three years without causing the fund's expenses in any of those three
years to exceed the "Net Expenses" rate.
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example includes the maximum annual fee for the PACE Program and also assumes
that your investment has a 5% return each year and that the fund's operating
expenses remain the same, except for the one year period when the fund's
expenses are lower due to its reimbursement agreement with Mitchell Hutchins.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ -------- -------- --------
<S> <C> <C> <C>
$303 $986 $1,692 $3,566
</TABLE>
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Prospectus Page 38
<PAGE>
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PaineWebber PACE Select Advisors Trust
MORE ABOUT RISKS AND INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
PRINCIPAL RISKS
The main risks of investing in the funds are described below. Not all of these
risks apply to each fund. You can find a list of the main risks that apply to a
particular fund by looking under the "Investment Objective, Strategies and
Risks" heading for that fund.
Other risks of investing in a fund, along with further details about some of the
risks described below, are discussed in the funds' Statement of Additional
Information ("SAI"). Information on how you can obtain the SAI is on the back
cover of this prospectus.
CREDIT RISK. Credit risk is the risk that the issuer of a bond will not make
principal or interest payments when they are due. Even if an issuer does not
default on a payment, a bond's value may decline if the market believes that the
issuer has become less able, or less willing, to make payments on time. Even
high quality bonds are subject to some credit risk. However, credit risk is
greater for lower quality bonds. Bonds that are not investment grade involve
high credit risk and are considered speculative. Low quality bonds may fluctuate
in value more than higher quality bonds and may be more difficult to sell during
market downturns at the time and price a fund desires.
DERIVATIVES RISK. The value of "derivatives" -- so-called because their value
"derives" from the value of an underlying asset, reference rate or index -- may
rise or fall more rapidly than other investments. For some derivatives, it is
possible for a fund to lose more than the amount it invested in the derivative.
Options, futures contracts and forward currency contracts are examples of
derivatives. If a fund uses derivatives to adjust or "hedge" the overall risk of
its portfolio, it is possible that the hedge will not succeed. This may happen
for various reasons, including unexpected changes in the value of the
derivatives that are not matched by opposite changes in the value of the rest of
the fund's portfolio.
EMERGING MARKETS RISK. Securities of issuers located in emerging market
countries are subject to all of the risks of other foreign securities (see
below). However, the level of those risks often is higher due to the fact that
political, legal and economic systems in emerging market countries may be less
fully developed and less stable than those in developed countries. Emerging
market securities also may be subject to additional risks, such as lower
liquidity and larger changes in value.
EQUITY RISK. The prices of common stocks and other equity securities generally
fluctuate more than those of other investments. They reflect changes in the
issuing company's financial condition and changes in the overall market. A fund
may lose a substantial part, or even all, of its investment in a company's
stock.
FOREIGN SECURITIES RISK. Foreign securities involve risks that normally are not
associated with securities of U.S. issuers. These include risks relating to
political, social and economic developments abroad and differences between U.S.
and foreign regulatory requirements and market practices. When a fund's
securities are denominated in foreign currencies or it holds foreign currencies,
the fund is also subject to the risk that the value of the foreign currency will
fall in relation to the U.S. dollar.
GEOGRAPHIC CONCENTRATION. PACE International Emerging Markets Equity
Investments will not necessarily seek to diversify its investments on a
geographic basis within the emerging markets category. To the extent the fund
concentrates its investments in issuers located in one country or area, the fund
is more susceptible to factors adversely affecting that country or area.
INTEREST RATE RISK. The value of bonds can be expected to fall when interest
rates rise and to rise when interest rates fall. Interest rate risk is the risk
that interest rates will rise, so that the value of a fund's investments in
bonds will fall. Because interest rate risk is the primary risk presented by
U.S. government bonds and other very high quality bonds, changes in interest
rates may have a greater effect on the value of those bonds than on lower
quality bonds.
LEVERAGE RISK. Leverage involves increasing the total assets in which a fund
can invest beyond the level of its net assets. Because leverage increases the
amount of a fund's assets, it can magnify the effect on the fund of changes in
market values. As a result, while leverage can increase a fund's income and
potential for gain, it also can increase expenses and the risk of loss. PACE
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Prospectus Page 39
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PaineWebber PACE Select Advisors Trust
Government Fixed Income Investments and PACE Strategic Fixed Income Investments,
which may use leverage by investing in when-issued and delayed delivery bonds,
attempt to limit the potential magnifying effect of the leverage by managing
their portfolio duration.
LIMITED CAPITALIZATION RISK. Securities of mid and small capitalization
companies generally involve greater risk than securities of larger
capitalization companies because they may be more vulnerable to adverse business
or economic developments. Mid and small capitalization companies also may have
limited product lines, markets or financial resources, and they may be dependent
on a relatively small management group. Securities of these companies may be
less liquid and more volatile than securities of larger capitalization companies
or the market averages in general. In addition, small capitalization companies
may not be well-known to the investing public, may not have institutional
ownership and may have only cyclical, static or moderate growth prospects. In
general, all of these risks are greater than for larger capitalization
companies.
NON-DIVERSIFIED STATUS RISK. A non-diversified fund is not subject to certain
limitations on its ability to invest more than 5% of its total assets in
securities of a single issuer. When a fund holds a large position in the
securities of one issuer, changes in the financial condition or in the market's
assessment of that issuer may cause larger changes in the fund's total return
and in the price of its shares than if the fund held only a smaller position.
POLITICAL RISK. The municipal bond market can be significantly affected by
political changes, including legislation or proposals at either the state or the
federal level to eliminate or limit the tax-exempt status of municipal bond
interest or the tax-exempt status of a municipal bond fund's dividends.
Similarly, reductions in tax rates may make municipal bonds less attractive in
comparison to taxable bonds. Legislatures also may fail to appropriate funds
needed to pay municipal bond obligations. These events could cause the value of
the municipal bonds held by PACE Municipal Fixed Income Investments to fall and
might adversely affect the tax-exempt status of the fund's investments or of the
dividends that the fund pays. During periods of uncertainty, the prices of
municipal securities can become volatile.
PREPAYMENT RISK. Payments on bonds that are backed by mortgage loans or similar
assets may be received earlier or later than expected due to changes in the rate
at which the underlying loans are prepaid. When interest rates fall, borrowers
often prepay the underlying loans sooner than expected. This can reduce a fund's
income because the fund often must reinvest early payments at the prevailing
lower interest rates. Conversely, when interest rates rise, borrowers may prepay
the underlying loans more slowly so that the loans are outstanding for a longer
time. These slower prepayments tend to extend the duration of mortgage-backed
securities and make them more sensitive to interest rate changes. This can cause
the market value of the security to fall because the market may view its
interest rate to be too low for a longer term investment.
RELATED SECURITIES CONCENTRATION RISK. PACE Municipal Fixed Income Investments
may invest more than 25% of its total assets in municipal bonds that are issued
by public housing authorities and state and local housing finance authorities.
Economic, business or political developments or changes that affect one
municipal bond in this sector also may affect other municipal bonds in the same
sector. As a result, the fund is subject to greater risk than a fund that does
not follow this practice.
SOVEREIGN RISK. Investments in foreign government bonds involve special risks
because the investors may have limited legal recourse in the event of default.
Political conditions, especially a country's willingness to meet the terms of
its debt obligations, can be of considerable significance.
ADDITIONAL RISKS
YEAR 2000 RISK. The funds could be adversely affected by problems relating to
the inability of computer systems used by Mitchell Hutchins the funds'
investment advisers and the funds' other service providers to recognize the year
2000. While year 2000-related computer problems could have a negative effect on
the funds, Mitchell Hutchins is working to avoid these problems with respect to
its own computer systems and to obtain assurances from service providers that
they are taking similar steps.
Similarly, the companies in which the funds invest and trading systems used by
the funds could be adversely affected by this issue. The ability of a company or
trading system to respond successfully to the issue requires both technological
sophistication and diligence, and there can be no assurance that any steps taken
will be sufficient to avoid an adverse impact on the funds. This risk may be
greater with respect to trading systems in foreign countries and, in particular,
in emerging market countries.
ADDITIONAL INVESTMENT STRATEGIES
CASH RESERVES; DEFENSIVE POSITIONS. PACE Money Market Investments invests
exclusively in money market instruments. Each of the other funds may invest to a
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Prospectus Page 40
<PAGE>
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PaineWebber PACE Select Advisors Trust
limited extent in money market instruments as a cash reserve for liquidity or
other purposes. PACE Municipal Fixed Income Investments may invest to a limited
extent in taxable money market instruments for liquidity purposes when suitable
municipal money market instruments are not available.
The funds are intended as vehicles to implement long-term asset allocation
strategies, and each fund is normally fully invested in accordance with its
investment objective and policies. As a result, funds may take a temporary
defensive position less frequently than would be the case for other similar
mutual funds. However, with the concurrence of Mitchell Hutchins Asset
Management Inc., a fund may take a defensive position that is different from its
normal investment strategy to protect itself from adverse market conditions.
This means that a fund may temporarily invest a larger-than-normal part, or even
all, of its assets in cash or money market instruments, including (for funds
that are authorized to invest outside the United States) money market
instruments that are denominated in foreign currencies. Because these
investments provide relatively low income, a defensive position may not be
consistent with achieving a fund's investment objective.
In addition, the funds listed below may make the following temporary investments
for defensive purposes:
- - PACE Municipal Fixed Income Investments may invest without limit in certain
taxable securities.
- - PACE Global Fixed Income Investments may invest in securities of only one
country, including the United States.
- - PACE International Equity Investments may invest without limit in bonds that
are traded in the United States and in foreign markets.
PORTFOLIO TURNOVER. Each fund (other than PACE Money Market Investments) may
engage in frequent trading to achieve its investment objective. Frequent trading
can result in portfolio turnover in excess of 100% (high portfolio turnover).
Frequent trading may increase the portion of a fund's capital gains that are
realized for tax purposes in any given year. This may increase the fund's
taxable dividends in that year. Frequent trading also may increase the portion
of a fund's realized capital gains that are considered "short-term" for tax
purposes. Shareholders will pay higher taxes on dividends that represent short-
term gains than they would pay on dividends that represent long-term gains.
Frequent trading also may result in higher fund expenses due to transaction
costs.
The funds do not restrict the frequency of trading in order to limit expenses or
the tax effect that the fund's dividends may have on shareholders.
PACE MONEY MARKET INVESTMENTS. Like all money market funds, PACE Money Market
Investments is subject to maturity, quality and diversification requirements
designed to help it maintain a stable price of $1.00 per share. Mitchell
Hutchins may use a number of professional money management techniques to respond
to changing economic and money market conditions and to shifts in fiscal and
monetary policy. These techniques include varying the fund's composition and
weighted average maturity based on its assessment of the relative values of
various money market instruments and future interest rate patterns. Mitchell
Hutchins also may buy or sell money market instruments to take advantage of
yield differences.
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Prospectus Page 41
<PAGE>
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PaineWebber PACE Select Advisors Trust
INVESTING IN THE FUNDS
- --------------------------------------------------------------------------------
BUYING SHARES
If you are a participant in the PaineWebber PACE-SM- Program, you may buy shares
of the funds through a managed account maintained with PaineWebber Incorporated.
You must make payment for fund shares by check made payable to PaineWebber. Your
payment is due no later than the first business day after the order is placed.
You may not place an order until you have completed the Investor Profile
Questionnaire for the PACE Program (described below), reviewed the resulting
analysis, made the asset allocation decision and executed the necessary PACE
Program documentation.
The Trust and PaineWebber reserve the right to reject a purchase order or
suspend the offering of fund shares.
The minimum initial aggregate investment in the Trust is $10,000. Any subsequent
investment in the Trust must be at least $500. The Trust may vary these
minimums.
THE PAINEWEBBER PACE-SM- PROGRAM
The PaineWebber PACE-SM- Program is an investment advisory service pursuant to
which PaineWebber Incorporated provides you with personalized investment
allocation recommendations. PaineWebber does not have any investment discretion
over your PACE Program account. You will make all the investment decisions.
Under the PACE Program, your Financial Advisor assists you in
- - identifying your financial characteristics, including your risk tolerance and
investment objectives; and
- - completing an Investor Profile Questionnaire, which you may update from time
to time with your Financial Advisor's assistance.
PaineWebber uses an investment profile evaluation and asset allocation
methodology to translate this information into a suggested allocation of your
assets among different funds. Your Financial Advisor presents the recommended
allocation to you initially and reviews the PACE Program account with you at
least annually. Your Financial Advisor also may, if you so request, review with
you the monthly account statements and other information, such as quarterly
performance data. Your Financial Advisor also monitors any changes in your
financial characteristics that you identify through a revised Investor Profile
Questionnaire and communicates these changes to PaineWebber for reevaluation of
your investment profile.
You may direct your PaineWebber Financial Advisor to automatically rebalance
your PACE Program account on a quarterly basis to assure that any deviation from
the designated allocation among the funds does not exceed a specified threshold.
PACE PROGRAM FEE
For the services provided to you under the PACE Program, you will pay
PaineWebber a quarterly Program Fee at an annual rate of up to 1.50% of the
value of the shares of the funds held in your account under the PACE Program.
This quarterly fee is generally charged to your PaineWebber account. The Program
Fee may be reduced for
- - certain Individual Retirement Accounts,
- - retirement plans for self-employed individuals and
- - employee benefit plans that are subject to the Employee Retirement Security
Act of 1974
For these participants, PaineWebber may provide different services than those
described above and may charge different fees. These participants also may make
arrangements to pay the quarterly fee separately. In addition, Trustees of the
Trust, employees of Mitchell Hutchins and PaineWebber and their family members
who maintain an "employee-related" account at PaineWebber, and trustees or
directors of other PaineWebber mutual funds may participate in the PACE Program
at a reduced fee or for no fee.
Program Fees also may be subject to negotiation and may differ based upon the
type of account, the size of the account, the amount of PACE Program assets in
the account and the number or range of supplementary advisory services to be
provided by Financial Advisors, among other factors.
Financial Advisors receive a portion of the PACE Program Fee for the services
they provide to participants.
Investors who are fiduciaries for a retirement or employee benefit plan should
consider, in a prudent manner, the relationship of the fees to be paid by the
plan and the level of services to be provided by PaineWebber.
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Prospectus Page 42
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PaineWebber PACE Select Advisors Trust
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.
SELLING SHARES
You can sell your fund shares at any time. You may sell your shares by
contacting your Financial Advisor in person or by telephone or mail. Your
Financial Advisor is responsible for promptly forwarding your request to
PaineWebber's New York City offices. After it receives and accepts your request,
PaineWebber repurchases your fund shares. You generally will receive the
proceeds of the sale within the first business day after PaineWebber receives
the order.
PaineWebber reserves the right not to repurchase your shares. In that case,
PaineWebber forwards your request to sell your shares to the funds' transfer
agent. The transfer agent will sell your shares after you provide it with the
following information in writing:
- - Your name and address;
- - The fund's name;
- - Your account number;
- - The dollar amount or number of shares you want to sell; and
- - A guarantee of each registered owner's signature. A signature guarantee may be
obtained from a financial institution, broker, dealer or clearing agency that
is a participant in one of the medallion programs recognized by the Securities
Transfer Agents Association. These are: Securities Transfer Agents Medallion
Program (STAMP), Stock Exchanges Medallion Program (SEMP) and the New York
Stock Exchange Medallion Signature Program (MSP). The Trust and the transfer
agent will not accept signature guarantees that are not a part of these
programs.
Sales through the transfer agent may also need to include additional supporting
documents for sales by estates, trusts, guardianships, custodianships,
partnerships and corporations.
It costs the Trust money to maintain shareholder accounts. Therefore, the Trust
reserves the right to repurchase all fund shares in any PACE Program account
that has a net asset value of less than $7,500. If the Trust elects to do this
with your account, it will notify you that you can increase the amount invested
to the account minimum in effect that the time the PACE Program account was
originally opened or more within 30 days. This notice may appear on your account
statement.
If you want to sell shares that you purchased recently, the Trust may delay
payment until it verifies that it has received good payment. If you purchased
shares by check, this can take up to 15 days.
PRICING AND VALUATION
The price at which you may buy or sell each fund's shares is based on the next
net asset value per share calculated after your order is placed. Each fund
calculates its net asset value on days that the New York Stock Exchange is open
as of the close of regular trading on the NYSE (generally, 4:00 p.m., Eastern
time). The NYSE normally is not open, and the funds do not price their shares,
on most national holidays and on Good Friday. If trading on the NYSE is halted
for the day before 4:00 p.m., Eastern time, each fund's net asset value per
share will be calculated as of the time trading was halted.
PACE MONEY MARKET INVESTMENTS' net asset value per share is expected to be $1.00
per share, although this value is not guaranteed. PACE Money Market Investments
values its securities at their amortized cost. This method uses a constant
amortization to maturity of the difference between the cost of the instrument to
the fund and the amount due at maturity.
OTHER FUNDS. Each other fund calculates its net asset value based on the
current market value for its portfolio securities. The funds normally obtain
market values for their securities from independent pricing services that use
reported last sales prices, current market quotations or valuations from
computerized "matrix" systems that derive values based on comparable securities.
If a market value is not available from an independent pricing source for a
particular security, that security is valued at a fair value determined by or
under the direction of the Trust's board of trustees. The funds normally use the
amortized cost method to value bonds that will mature in 60 days or less.
Judgment plays a greater role in valuing thinly traded securities, including
many lower-rated bonds, because there is less reliable, objective data
available.
The funds calculate the U.S. dollar value of investments that are denominated in
foreign currencies daily, based on current exchange rates. A fund may own
securities, including some securities that trade primarily in foreign markets,
that trade on weekends or other days on which a fund does not calculate net
asset value. As a result, a fund's net asset value may change on days when you
will not be able to buy or sell fund shares. If a fund concludes that a material
change in the value of a foreign security has occurred after the close of
trading in the principal foreign market but before the close of the NYSE, the
fund may use fair value methods to reflect those changes. This policy is
intended to assure that the fund's net asset value fairly reflects security
values as of the time of pricing.
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Prospectus Page 43
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PaineWebber PACE Select Advisors Trust
MANAGEMENT
- --------------------------------------------------------------------------------
MANAGER AND INVESTMENT ADVISERS
Mitchell Hutchins Asset Management Inc. is the manager and administrator of each
fund. Mitchell Hutchins is located at 51 West 52nd Street, New York, New York
10019-6114, and is a wholly owned asset management subsidiary of PaineWebber
Incorporated, which is wholly owned by Paine Webber Group Inc., a publicly owned
financial services holding company. On October 31, 1999, Mitchell Hutchins was
adviser or sub-adviser to 33 investment companies with 76 separate funds and
aggregate assets of approximately $48.9 billion.
Mitchell Hutchins provides investment advisory services for PACE Money Market
Investments. Mitchell Hutchins selects investment advisers for the other funds,
subject to approval of the board, and reviews the performance of those
investment advisers.
The funds have received an exemptive order from the SEC to permit the board to
select and replace investment advisers and to amend the sub-advisory contracts
between Mitchell Hutchins and the investment advisers without obtaining
shareholder approval.
ADVISORY FEES
During the most recent fiscal year, each fund paid fees to Mitchell Hutchins for
administrative services at the annual contract rate of 0.20% of the fund's
average daily net assets. In addition, the funds paid fees to Mitchell Hutchins
for advisory services at the following annual contract rates based on average
daily net assets:
<TABLE>
<S> <C>
PACE Money Market Investments.......... 0.15%
PACE Government Securities Fixed Income
Investments.......................... 0.50%
PACE Intermediate Fixed Income
Investments.......................... 0.40%
PACE Strategic Fixed Income
Investments.......................... 0.50%
PACE Municipal Fixed Income
Investments.......................... 0.40%
PACE Global Fixed Income Investments... 0.60%
PACE Large Company Value Equity
Investments.......................... 0.60%
PACE Large Company Growth Equity
Investments.......................... 0.60%
PACE Small/Medium Company Value Equity
Investments.......................... 0.60%
PACE Small/Medium Company Growth Equity
Investments.......................... 0.60%
PACE International Equity
Investments.......................... 0.70%
PACE International Emerging Markets
Equity Investments................... 0.90%
</TABLE>
INVESTMENT ADVISERS AND PORTFOLIO MANAGERS
PACE MONEY MARKET INVESTMENTS. Mitchell Hutchins provides all investment
advisory services for this fund. Susan Ryan, a senior vice president of Mitchell
Hutchins, is primarily responsible for the day-to-day management of the fund's
portfolio. She has held her fund responsibilities since its inception.
PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS AND PACE STRATEGIC FIXED
INCOME INVESTMENTS. Pacific Investment Management Company serves as investment
adviser for these funds. PIMCO is located at 840 Newport Center Drive, Suite
300, Newport Beach, California 92660. On September 30, 1999, PIMCO had
approximately $181 billion in assets under management.
Since November 1999, Scott Mather, a senior vice president of PIMCO, has been
primarily responsible for the day-to-day management of the portfolio for PACE
Government Securities Fixed Income Investments. Prior to joining PIMCO in 1998,
he was associated with Goldman Sachs where he was a trader in the fixed income
division and specialized in structuring and trading a broad range of
mortgage-backed securities as well as managing a proprietary derivatives
position.
Since July 1997, William C. Powers, a managing director of PIMCO, has been
primarily responsible for the day-to-day management of the portfolio for PACE
Strategic Fixed Income Investments. Mr. Powers has been associated with PIMCO
since 1991 as a senior member of the fixed income portfolio management group.
PACE INTERMEDIATE FIXED INCOME INVESTMENTS. Pacific Income Advisers, Inc.
("PIA") serves as investment adviser for this fund. PIA is located at 1299 Ocean
Avenue, Suite 210, Santa Monica, California 90401. As of October 31, 1999, PIA
had approximately $5 billion in assets under management.
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PaineWebber PACE Select Advisors Trust
Lloyd McAdams has been primarily responsible for the day-to-day management of
the fund's portfolio since its inception in August 1995. Mr. McAdams has served
as chairman and chief investment officer of PIA since 1986. He also serves as
chairman and chief executive officer of Syndicated Capital, Inc.
PACE MUNICIPAL FIXED INCOME INVESTMENTS. Deutsche Asset Management, Inc.
(formerly Morgan Grenfell Capital Management, Incorporated) serves as investment
adviser for this fund. DAM is located at 150 South Independence Square West,
Philadelphia, Pennsylvania 19106. DAM has been active in managing portfolios of
securities since 1989 and the portfolio management team has over 20 years
experience in the management of tax-exempt fixed income investments. As of
September 30, 1999, DAM had over $17,217 billion in assets under management.
David W. Baldt has been primarily responsible for the day-to-day management of
the fund's portfolio since its inception in August 1995. Mr. Baldt has been
executive vice president and chief investment officer for fixed income at DAM
since June 1989.
PACE GLOBAL FIXED INCOME INVESTMENTS. Rogge Global Partners plc serves as
investment adviser for this fund. Rogge Global is located at Sion Hall, 56
Victoria Embankment, London, EC4Y ODZ, England. Rogge Global was organized in
1984 and specializes in global fixed income management. As of October 31, 1999,
it had approximately $6.3 billion in assets under management.
Rogge Global uses a team approach in managing the fund's portfolio. The team is
lead by Olaf Rogge, the chief investment officer of Rogge Global, along with
John Graham, Richard Bell, Adrian James, Malie Okrent and Richard Gray. Mr.
Rogge, who founded Rogge Global in 1984, has been managing global investments
for more than 25 years. Mr. Graham joined Rogge Global in February 1994 and is
currently a director, portfolio manager and analyst. Prior to that time, he
served as a senior manager of the multi-currency fixed income investment team at
JP Morgan. Mr. Bell joined Rogge Global 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. From October 1987 through
April 1995, Mr. James worked for NatWest Capital Markets, where he was a
director and functioned as the international bond economist. Ms. Okrent joined
Rogge Global in 1998 as a portfolio manager in charge of global credit. She was
previously a senior portfolio manager at Rothschild Asset Management managing
U.S., global and short-term mandates. Before joining Rothschild, she spent seven
years at JP Morgan where she also managed U.S., global and short-term mandates.
Richard Gray joined Rogge Global in April 1999 and serves as a portfolio manager
and head of emerging markets. He was previously a vice president, emerging debt
research for Bank of America (1995-1999) and director, emerging debt research
for Nomura International (1994-1995). These individuals have held their fund
responsibilities since its inception in August 1995, except for Ms. Okrent, who
has held her fund responsibilities since August 1998 and Mr. Gray, who has held
his fund responsibilities since April 1999.
PACE LARGE COMPANY VALUE EQUITY INVESTMENTS. Brinson Partners, Inc. serves as
investment adviser for this fund. Brinson Partners is located at 209 South
LaSalle Street, Chicago, Illinois 60604. It and its predecessor entities have
managed domestic and international investment assets since December 31, 1981. As
of September 30, 1999, Brinson Partners had approximately $74.6 billion in
assets under management.
Jeffrey J. Diermeier, Robert C. Moore, John C. Leonard and Lydia J. Miller are
the leaders of the team responsible for the day-to-day management of the fund's
portfolio and have held their fund responsibilities since its inception in
August 1995. Mr. Diermeier serves as managing director of U.S. equities for
Brinson Partners. He formerly was managing director of asset allocation. Mr.
Moore serves as managing director and director of equity research for Brinson
Partners. Messrs. Diermeier and Moore have worked together for over 20 years and
both played a key role in the research, design and implementation of Brinson
Partner's proprietary equity valuation model. Mr. Leonard serves as executive
director and equity portfolio strategy analyst for Brinson Partners. Prior to
joining Brinson Partners in 1991, Mr. Leonard worked as a financial advisor with
Sheffield Financial Management for four years. Ms. Miller serves as director and
equity portfolio strategy analyst for Brinson Partners. Prior to joining Brinson
Partners in 1995, Ms. Miller served as director of equities and portfolio
manager at SBC Portfolio Management International, Inc. for over four 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.
serves as investment adviser for this fund. Alliance Capital is located at 1345
Avenue of the Americas, New York, New York 10105. It
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Prospectus Page 45
<PAGE>
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------------------------
PaineWebber PACE Select Advisors Trust
is a leading international investment manager supervising client accounts with
assets as of September 30, 1999 of approximately $317.3 billion.
Jane Mack Gould is primarily responsible for the day-to-day management of the
fund's portfolio and has held her fund responsibilities since November 1997. Ms.
Gould is a senior vice president and portfolio manager and has been with
Alliance Capital since 1971.
PACE SMALL/MEDIUM COMPANY VALUE EQUITY INVESTMENTS. Ariel Capital Management,
Inc. and Brandywine Asset Management, Inc. serve as investment advisers for this
fund. Ariel is located at 307 North Michigan Avenue, Suite 500, Chicago,
Illinois 60601. It is an investment manager with approximately $3.5 billion in
assets under management as of October 31, 1999. Eric T. McKissack is primarily
responsible for the day-to-day management of the fund's assets allocated to
Ariel and held his fund responsibilities since October 1999. He has been with
Ariel since 1986 and is currently its vice chair and co-chief investment
officer.
Brandywine Asset Management, Inc. is located at Three Christina Centre, Suite
1200, 201 N. Walnut Street, Wilmington, Delaware 19801. As of September 30,
1999, it had approximately $6.7 billion in assets under management. Henry Otto
and Steven Tonkovich are primarily responsible for the day-to-day management of
the fund's assets allocated to Brandywine and have held their fund
responsibilities since its inception in August 1995. Messrs. Otto and Tonkovich
are managing directors of Brandywine. Mr. Otto is the primary portfolio manager
for the firm's small capitalization portfolios and has assisted in designing
quantitative evaluation tools at the firm since 1988. Mr. Tonkovich is 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. serves as investment adviser for this fund. Delaware Management is
located at One Commerce Square, Philadelphia, PA 19103. Delaware Management and
its predecessors have been managing funds for affiliated organizations in the
financial services industry, including insurance and investment management,
since 1938. As of October 31, 1999, Delaware Management and its affiliates had
over $ billion in assets under management.
Gerald S. Frey is primarily responsible for the day-to-day management of the
fund's portfolio and has held his fund responsibilities since December 1996. Mr.
Frey is a vice president of Delaware Management. Prior to joining the group of
companies of which Delaware Management is a part in 1996, Mr. Frey was a senior
director with Morgan Grenfell Capital Management, Inc. in New York. He has 17
years of experience in the money management business.
In making investment decisions for the fund, Mr. Frey regularly consults with
other members of the Delaware Management team: John A. Heffern, Marshall T.
Bassett, Jeffrey Hynoski, Steven Lampe and Lori F. Wachs. Mr. Heffern joined
Delaware Management in 1997 and serves as a vice president. Previously, he was a
senior vice president, equity research at NatWest Securities Corporation's
Specialty Financial Services unit. Prior to that, he was a principal and senior
regional bank analyst at Alex. Brown & Sons. Mr. Bassett joined Delaware
Management in 1997 and serves as a vice president. Previously, he was employed
by Morgan Stanley Asset Management's Emerging Growth Group, most recently as a
vice president, where he analyzed small growth companies. Prior to that, he was
a trust officer at Sovran Bank and Trust Company. Mr. Hynoski joined Delaware
Management in 1998 and serves as a vice president. Previously, he held the
position of vice president with Bessemer Trust since 1993. Prior to that, he
served as an analyst for Lord Abbett and Cowen Asset Management. Prior to that,
he held a manager position with Price Waterhouse servicing the financial
services industry. Ms. Wachs joined Delaware Management in 1992 and serves as an
assistant vice president. Previously, she was an equity analyst at Goldman Sachs
& Company for two years.
PACE INTERNATIONAL EQUITY INVESTMENTS. Martin Currie Inc. serves as investment
adviser for this fund. Martin Currie, Inc. is located at Saltire Court, 20
Castle Terrace, Edinburgh, Scotland EHI 2ES. Martin Currie, Inc. and its
affiliates are part of one of Scotland's leading independent investment
management companies which, since its founding in 1881, has developed an
expertise in equity investments. As of September 30, 1999, Martin Currie, Inc.
and its affiliates had over $9 billion in assets under management.
Martin Currie, Inc. uses a team approach in the management of the fund's
portfolio. The team is led by James Fairweather, who has served as chief
investment officer of Martin Currie, Inc. since 1997. Mr. Fairweather joined
Martin Currie, Inc. in 1984 and has served in various investment management
capacities since then. He has held his fund responsibilities since its inception
in August 1995.
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Prospectus Page 46
<PAGE>
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------------------------
PaineWebber PACE Select Advisors Trust
PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS. Schroder Investment
Management North America Inc. serves as investment adviser for this fund.
Schroder Investment is located at 787 Seventh Avenue, New York, New York 10019.
Schroder Investment and its predecessors have developed an expertise in emerging
markets investments. As of June 30, 1999, Schroder Capital Management
International Inc. and Schroder Capital Management Inc. (the corporate
predecessors to Schroder Investment), together with their UK affiliate, Schroder
Capital Management International Limited, had approximately $36.5 billion in
assets under management.
John A. Troiano, Heather Crighton and Mark Bridgeman, with the assistance of
Schroder Investment's emerging markets investment committee, are primarily
responsible for the day-to-day management of the fund's portfolio. Mr. Troiano
has held his fund responsibilities since its inception in August 1995.
Ms. Crighton and Mr. Bridgeman have held their fund responsibilities since
. Mr. Troiano is chief executive officer and a director of Schroder
Investment and has been employed by Schroder Investment, its predecessor or its
affiliates since 1981 in the portfolio management area. Ms. Crighton is a senior
vice president, and a director of Schroder Investment and has been employed by
Schroder Investment, its predecessor or its affiliates since 1992 in its
investment research and portfolio management areas. Mr. Bridgeman is a first
vice president of Schroder Investment and has been employed by Schroder
Investment, its predecessor or its affiliates since 1990 in the investment
research and portfolio management area.
- --------------------------------------------------------------------------------
Prospectus Page 47
<PAGE>
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------------------------
PaineWebber PACE Select Advisors Trust
DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS
PACE MONEY MARKET INVESTMENTS normally declares dividends daily and pays them
monthly. Shares of this fund earn dividends on the day they are sold but do not
earn dividends on the day they are purchased.
PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS, PACE INTERMEDIATE FIXED
INCOME INVESTMENTS, PACE STRATEGIC FIXED INCOME INVESTMENTS, PACE MUNICIPAL
FIXED INCOME INVESTMENTS AND PACE GLOBAL FIXED INCOME INVESTMENTS normally
declare and pay dividends monthly. These funds distribute substantially all of
their gains, if any, annually.
PACE LARGE COMPANY VALUE EQUITY INVESTMENTS, PACE LARGE COMPANY GROWTH EQUITY
INVESTMENTS, PACE SMALL/ MEDIUM COMPANY VALUE EQUITY INVESTMENTS, PACE SMALL/
MEDIUM COMPANY GROWTH EQUITY INVESTMENTS, PACE INTERNATIONAL EQUITY INVESTMENTS
AND PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS normally declare and
pay dividends annually. These funds distribute substantially all of their gains,
if any, annually.
You will receive dividends in additional shares of the same fund unless you
elect to receive them in cash. Contact your Financial Advisor at PaineWebber if
you prefer to receive dividends in cash.
TAXES
PACE MUNICIPAL FIXED INCOME Investments seeks to pay dividends that are exempt
from federal income tax. However, a portion of this fund's dividends may be
subject to federal and state income taxes whether you receive them in additional
fund shares or in cash. The fund also may pay dividends that are subject to the
federal alternative minimum tax.
The dividends that you receive from the other funds generally are subject to
federal income tax regardless of whether you receive them in additional fund
shares or in cash. If you hold shares of these funds through a tax-exempt
account or plan, such as an IRA or 401(k) plan, dividends on your shares
generally will not be subject to tax.
When you sell fund shares, you generally will be subject to federal income tax
on any gain you realize. However, you will not recognize any gain on the sale of
you shares in PACE MONEY MARKET INVESTMENTS so long as that fund maintains a
share price of $1.00.
Any distribution of capital gains may be taxed at a lower rate than ordinary
income, depending on whether the fund held the assets that generated the gains
for more than 12 months. Your fund will tell you how you should treat its
dividends for tax purposes.
As noted above, shareholders will pay the PACE Program Fee. For individual
shareholders, this fee will be treated as a "miscellaneous itemized deduction"
for federal income tax purposes.
See the SAI for a a more detailed discussion. Prospective shareholders are urged
to consult their tax advisers.
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Prospectus Page 48
<PAGE>
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------------------------
PaineWebber PACE Select Advisors Trust
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following financial highlights tables are intended to help you understand
the funds' financial performance for the periods shown. Certain information
reflects financial results for a single fund share. In the tables, "total
investment return" represents the rate that an investor would have earned (or
lost) on an investment in a fund, assuming reinvestment of all dividends.
This information has been audited by Ernst & Young LLP, independent auditors,
whose report, along with the funds' financial statements, are included in the
funds' Annual Report to Shareholders. The Annual Report may be obtained without
charge by calling 1-800-986-0088.
<TABLE>
<CAPTION>
PACE
MONEY MARKET INVESTMENTS
------------------------------------------------
FOR THE YEARS ENDED
JULY 31, FOR THE PERIOD
----------------------------- ENDED
1999 1998 1997 JULY 31, 1996+
------- ------- ------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------
Net investment income....................................... 0.05 0.05 0.05 0.05
------- ------- ------- -------
Dividends from net investment income........................ (0.05) (0.05) (0.05) (0.05)
------- ------- ------- -------
Net asset value, end of period.............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= =======
Total investment return (1)................................. 4.85% 5.32% 5.13% 4.75%
======= ======= ======= =======
Ratios/Supplemental Data:
Net assets, end of period (000's)........................... $47,174 $25,493 $16,070 $10,221
Expenses to average net assets, net of fee waivers and
expense reimbursements...................................... 0.50% 0.50% 0.50% 0.50%*
Expenses to average net assets, before fee waivers and
expense reimbursements...................................... 1.07% 1.20% 1.89% 2.40%*
Net investment income to average net assets, net of fee
waivers and expense reimbursements.......................... 4.70% 5.20% 5.04% 4.93%*
Net investment income to average net assets, before fee
waivers and expense reimbursements.......................... 4.13% 4.50% 3.65% 3.03%*
</TABLE>
- ------------------------
<TABLE>
<S> <C>
+ For the period August 24, 1995 (commencement of operations)
through July 31, 1996.
* Annualized.
(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.
</TABLE>
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Prospectus Page 49
<PAGE>
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------------------------
PaineWebber PACE Select Advisors Trust
FINANCIAL HIGHLIGHTS
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PACE
GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS
---------------------------------------------------
FOR THE YEARS ENDED
JULY 31, FOR THE PERIOD
-------------------------------- ENDED
1999 1998 1997 JULY 31, 1996+
-------- -------- -------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 12.59 $ 12.61 $ 12.07 $ 12.00
-------- -------- -------- -------
Net investment income....................................... 0.68 0.72 0.64 0.49
Net realized and unrealized gains (losses) from investments
and futures................................................. (0.43) 0.18 0.58 0.03
-------- -------- -------- -------
Net increase from investment operations..................... 0.25 0.90 1.22 0.52
-------- -------- -------- -------
Dividends from net investment income........................ (0.71) (0.72) (0.63) (0.44)
Distributions from net realized gains from investments...... (0.03) (0.20) (0.05) (0.01)
-------- -------- -------- -------
Total dividends and distributions........................... (0.74) (0.92) (0.68) (0.45)
-------- -------- -------- -------
Net asset value, end of period.............................. $ 12.10 $ 12.59 $ 12.61 $ 12.07
======== ======== ======== =======
Total investment return (1)................................. 2.02% 7.39% 10.42% 4.35%
======== ======== ======== =======
Ratios/Supplemental Data:
Net assets, end of period (000's)........................... $191,719 $162,119 $101,606 $58,752
Expenses to average net assets, net of fee waivers and
expense reimbursements...................................... 0.87%++ 0.85% 1.57%++ 0.85%*
Expenses to average net assets, before fee waivers and
expense reimbursements...................................... 0.93%++ 0.95% 1.70%++ 1.15%*
Net investment income to average net assets, net of fee
waivers and expense reimbursements.......................... 5.49%++ 5.90% 5.44%++ 5.09%*
Net investment income to average net assets, before fee
waivers and expense reimbursements.......................... 5.43%++ 5.80% 5.31%++ 4.79%*
Portfolio turnover.......................................... 418% 353% 712% 978%
</TABLE>
- ------------------------
<TABLE>
<S> <C>
+ For the period August 24, 1995 (commencement of operations)
through July 31, 1996.
* Annualized.
++ Includes 0.01% and 0.72% of interest expense related to the
reverse repurchase agreements during the years ended
July 31, 1999 and July 31, 1997, respectively.
(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 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.
</TABLE>
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Prospectus Page 50
<PAGE>
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------------------------
PaineWebber PACE Select Advisors Trust
FINANCIAL HIGHLIGHTS
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PACE
INTERMEDIATE FIXED INCOME INVESTMENTS
-------------------------------------------------
FOR THE YEARS ENDED
JULY 31, FOR THE PERIOD
------------------------------ ENDED
1999 1998 1997 JULY 31, 1996+
-------- ------- ------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 12.35 $ 12.23 $ 11.95 $ 12.00
-------- ------- ------- -------
Net investment income....................................... 0.63 0.67 0.66 0.53
Net realized and unrealized gains (losses) from investments
and foreign currency........................................ (0.28) 0.09 0.28 (0.09)
-------- ------- ------- -------
Net increase from investment operations..................... 0.35 0.76 0.94 0.44
-------- ------- ------- -------
Dividends from net investment income........................ (0.64) (0.64) (0.66) (0.48)
Distributions from net realized gains from investments...... (0.08) -- -- (0.01)
-------- ------- ------- -------
Total dividends and distributions........................... (0.72) (0.64) (0.66) (0.49)
-------- ------- ------- -------
Net asset value, end of period.............................. $ 11.98 $ 12.35 $ 12.23 $ 11.95
======== ======= ======= =======
Total investment return (1)................................. 2.81% 6.41% 8.14% 3.59%
======== ======= ======= =======
Ratios/Supplemental Data:
Net assets, end of period (000's)........................... $139,043 $99,690 $66,751 $41,273
Expenses to average net assets, net of fee waivers and
expense reimbursements...................................... 0.80% 0.84% 0.85% 0.85%*
Expenses to average net assets, before fee waivers and
expense reimbursements...................................... 0.80% 0.84% 0.99% 1.23%*
Net investment income to average net assets, net of fee
waivers and expense reimbursements.......................... 5.26% 5.60% 5.70% 5.56%*
Net investment income to average net assets, before fee
waivers and expense reimbursements.......................... 5.26% 5.60% 5.56% 5.18%*
Portfolio turnover.......................................... 89% 111% 67% 36%
</TABLE>
- ------------------------
<TABLE>
<S> <C>
+ For the period August 24, 1995 (commencement of operations)
through July 31, 1996.
* Annualized.
(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 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.
</TABLE>
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Prospectus Page 51
<PAGE>
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------------------------
PaineWebber PACE Select Advisors Trust
FINANCIAL HIGHLIGHTS
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PACE
STRATEGIC FIXED INCOME INVESTMENTS
--------------------------------------------------
FOR THE YEARS ENDED
JULY 31, FOR THE PERIOD
------------------------------- ENDED
1999 1998 1997 JULY 31, 1996+
-------- -------- ------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 13.32 $ 13.04 $ 12.44 $ 12.00
-------- -------- ------- -------
Net investment income....................................... 0.69 0.69 0.67 0.59
Net realized and unrealized gains (losses) from investments,
futures, options and foreign currency..................... (0.64) 0.40 0.70 0.38
-------- -------- ------- -------
Net increase (decrease) from investment operations.......... 0.05 1.09 1.37 0.97
-------- -------- ------- -------
Dividends from net investment income........................ (0.70) (0.69) (0.67) (0.52)
Distributions from net realized gains from investments...... (0.34) (0.12) (0.10) (0.01)
-------- -------- ------- -------
Total dividends and distributions........................... (1.04) (0.81) (0.77) (0.53)
-------- -------- ------- -------
Net asset value, end of period.............................. $ 12.33 $ 13.32 $ 13.04 $ 12.44
======== ======== ======= =======
Total investment return (1)................................. 0.21% 8.66% 11.35% 8.15%
======== ======== ======= =======
Ratios/Supplemental Data:
Net assets, end of period (000's)........................... $222,214 $126,880 $75,174 $42,550
Expenses to average net assets, net of fee waivers and
expense reimbursements.................................... 0.88%++ 0.85% 0.85% 0.85%*
Expenses to average net assets, before fee waivers and
expense reimbursements.................................... 0.92%++ 0.94% 1.10% 1.40%*
Net investment income to average net assets, net of fee
waivers and expense reimbursements........................ 5.51%++ 5.49% 5.69% 5.85%*
Net investment income to average net assets, before fee
waivers and expense reimbursements........................ 5.47%++ 5.40% 5.44% 5.30%*
Portfolio turnover.......................................... 202% 234% 357% 166%
</TABLE>
- ------------------------
<TABLE>
<S> <C>
+ For the period August 24, 1995 (commencement of operations)
through July 31, 1996.
++ Includes 0.03% of interest expense related to the reverse
repurchase agreements for the year ended July 31, 1999.
* Annualized.
(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 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.
</TABLE>
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Prospectus Page 52
<PAGE>
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------------------------
PaineWebber PACE Select Advisors Trust
FINANCIAL HIGHLIGHTS
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PACE
MUNICIPAL FIXED INCOME INVESTMENTS
------------------------------------------------
FOR THE YEARS ENDED
JULY 31, FOR THE PERIOD
----------------------------- ENDED
1999 1998 1997 JULY 31, 1996+
------- ------- ------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 12.70 $ 12.67 $ 12.32 $ 12.00
------- ------- ------- -------
Net investment income....................................... 0.56 0.58 0.61 0.49
Net realized and unrealized gains (losses) from
investments............................................... (0.26) 0.02 0.38 0.27
------- ------- ------- -------
Net increase from investment operations..................... 0.30 0.60 0.99 0.76
------- ------- ------- -------
Dividends from net investment income........................ (0.56) (0.57) (0.61) (0.43)
Distributions from net realized gains from investments...... -- -- (0.03) (0.01)
------- ------- ------- -------
Total dividends and distributions........................... (0.56) (0.57) (0.64) (0.44)
------- ------- ------- -------
Net asset value, end of period.............................. $ 12.44 $ 12.70 $ 12.67 $ 12.32
======= ======= ======= =======
Total investment return (1)................................. 2.34% 4.87% 8.30% 6.38%
======= ======= ======= =======
Ratios/Supplemental Data:
Net assets, end of period (000's)........................... $56,659 $51,638 $34,292 $17,765
Expenses to average net assets, net of fee waivers and
expense reimbursements.................................... 0.85% 0.85% 0.85% 0.85%*
Expenses to average net assets, before fee waivers and
expense reimbursements.................................... 0.89% 0.93% 1.40% 1.74%*
Net investment income to average net assets, net of
fee waivers and expense reimbursements.................... 4.42% 4.67% 5.08% 4.95%*
Net investment income to average net assets, before
fee waivers and expense reimbursements.................... 4.38% 4.59% 4.53% 4.07%*
Portfolio turnover.......................................... 11% 34% 15% 78%
</TABLE>
- ------------------------
<TABLE>
<S> <C>
+ For the period August 24, 1995 (commencement of operations)
through July 31, 1996.
* Annualized.
(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 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.
</TABLE>
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Prospectus Page 53
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Select Advisors Trust
FINANCIAL HIGHLIGHTS
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PACE
GLOBAL FIXED INCOME INVESTMENTS
-------------------------------------------------
FOR THE YEARS ENDED
JULY 31, FOR THE PERIOD
------------------------------ ENDED
1999 1998 1997 JULY 31, 1996+
-------- ------- ------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 12.25 $ 12.17 $ 12.33 $ 12.00
-------- ------- ------- -------
Net investment income....................................... 0.65 0.62 0.64 0.53
Net realized and unrealized gains (losses) from investments
and foreign currency........................................ 0.20 (0.03) (0.21) 0.27
-------- ------- ------- -------
Net increase from investment operations..................... 0.85 0.59 0.43 0.80
-------- ------- ------- -------
Dividends from net investment income and foreign currency... (0.81) (0.40) (0.51) (0.46)
Distributions from net realized gains from investments...... (0.47) (0.11) (0.08) (0.01)
-------- ------- ------- -------
Total dividends and distributions........................... (1.28) (0.51) (0.59) (0.47)
-------- ------- ------- -------
Net asset value, end of period.............................. $ 11.82 $ 12.25 $ 12.17 $ 12.33
======== ======= ======= =======
Total investment return (1)................................. 6.49% 4.88% 3.54% 6.68%
======== ======= ======= =======
Ratios/Supplemental Data:
Net assets, end of period (000's)........................... $101,143 $88,838 $60,279 $38,296
Expenses to average net assets, net of fee waivers and
expense reimbursements...................................... 0.95% 0.95% 0.95% 0.95%*
Expenses to average net assets, before fee waivers and
expense reimbursements...................................... 1.17% 1.23% 1.29% 1.61%*
Net investment income to average net assets, net of fee
waivers and expense reimbursements.......................... 4.57% 5.10% 5.36% 5.24%*
Net investment income to average net assets, before fee
waivers and expense reimbursements.......................... 4.35% 4.82% 5.02% 4.58%*
Portfolio turnover.......................................... 226% 125% 270% 197%
</TABLE>
- ------------------------
<TABLE>
<S> <C>
+ For the period August 24, 1995 (commencement of operations)
through July 31, 1996.
* Annualized.
(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 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.
</TABLE>
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Prospectus Page 54
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Select Advisors Trust
FINANCIAL HIGHLIGHTS
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PACE
LARGE COMPANY VALUE EQUITY INVESTMENTS
---------------------------------------------------
FOR THE YEARS ENDED
JULY 31, FOR THE PERIOD
-------------------------------- ENDED
1999 1998 1997 JULY 31, 1996+
-------- -------- -------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 20.27 $ 20.03 $ 14.07 $ 12.00
-------- -------- -------- -------
Net investment income....................................... 0.13 0.14 0.11 0.12
Net realized and unrealized gains from investments and
futures..................................................... 2.34 1.63 6.61 2.02
-------- -------- -------- -------
Net increase from investment operations..................... 2.47 1.77 6.72 2.14
-------- -------- -------- -------
Dividends from net investment income........................ (0.14) (0.14) (0.11) (0.05)
Distributions from net realized gains from investments...... (1.46) (1.39) (0.65) (0.02)
-------- -------- -------- -------
Total dividends and distributions........................... (1.60) (1.53) (0.76) (0.07)
-------- -------- -------- -------
Net asset value, end of period.............................. $ 21.14 $ 20.27 $ 20.03 $ 14.07
======== ======== ======== =======
Total investment return (1)................................. 12.82% 9.89% 49.13% 17.90%
======== ======== ======== =======
Ratios/Supplemental Data:
Net assets, end of period (000's)........................... $375,465 $266,354 $180,807 $80,897
Expenses to average net assets, net of fee waivers and
expense reimbursements...................................... 0.96% 0.98% 1.00% 1.00%*
Expenses to average net assets, before fee waivers and
expense reimbursements...................................... 0.96% 0.98% 1.06% 1.40%*
Net investment income to average net assets, net of fee
waivers and expense reimbursements.......................... 0.71% 0.82% 0.81% 1.22%*
Net investment income to average net assets, before fee
waivers and expense reimbursements.......................... 0.71% 0.82% 0.75% 0.82%*
Portfolio turnover.......................................... 40% 34% 46% 38%
</TABLE>
- ------------------------
<TABLE>
<S> <C>
+ For the period August 24, 1995 (commencement of operations)
through July 31, 1996.
* Annualized.
(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 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.
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 55
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Select Advisors Trust
FINANCIAL HIGHLIGHTS
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PACE
LARGE COMPANY GROWTH EQUITY INVESTMENTS
---------------------------------------------------
FOR THE YEARS ENDED
JULY 31, FOR THE PERIOD
-------------------------------- ENDED
1999 1998 1997 JULY 31, 1996+
-------- -------- -------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 22.99 $ 19.28 $ 13.27 $ 12.00
-------- -------- -------- -------
Net investment income (loss)................................ (0.05) (0.03) 0.03 0.03
Net realized and unrealized gains from investments.......... 4.44 4.79 6.01 1.26
-------- -------- -------- -------
Net increase from investment operations..................... 4.39 4.76 6.04 1.29
-------- -------- -------- -------
Dividends from net investment income........................ -- (0.01) (0.03) (0.02)
Distributions from net realized gains from investments...... (1.50) (1.04) -- --
-------- -------- -------- -------
Total dividends and distributions........................... (1.50) (1.05) (0.03) (0.02)
-------- -------- -------- -------
Net asset value, end of period.............................. $ 25.88 $ 22.99 $ 19.28 $ 13.27
======== ======== ======== =======
Total investment return (1)................................. 19.66% 26.40% 45.61% 10.76%
======== ======== ======== =======
Ratios/Supplemental Data:
Net assets, end of period (000's)........................... $379,988 $275,461 $160,334 $69,248
Expenses to average net assets, net of fee waivers and
expense reimbursements...................................... 0.97% 1.00% 1.00% 1.00%*
Expenses to average net assets, before fee waivers and
expense reimbursements...................................... 0.97% 1.02% 1.05% 1.33%*
Net investment income (loss) to average net assets, net of
fee waivers and expense reimbursements...................... (0.24)% (0.14)% 0.22% 0.33%*
Net investment income (loss) to average net assets, before
fee waivers and expense reimbursements...................... (0.24)% (0.16)% 0.17% (0.01)%*
Portfolio turnover.......................................... 43% 102% 73% 65%
</TABLE>
- ------------------------
<TABLE>
<S> <C>
+ For the period August 24, 1995 (commencement of operations)
through July 31, 1996.
* Annualized.
# Sub-Investment advisory functions for this portfolio were
transferred from Chancellor LGT Asset Management, Inc. to
Alliance Capital Management L.P. on November 10, 1997.
(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 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.
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 56
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Select Advisors Trust
FINANCIAL HIGHLIGHTS
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PACE
SMALL/MEDIUM COMPANY VALUE EQUITY INVESTMENTS
---------------------------------------------------
FOR THE YEARS ENDED
JULY 31, FOR THE PERIOD
-------------------------------- ENDED
1999 1998 1997 JULY 31, 1996+
-------- -------- -------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 17.39 $ 17.52 $ 12.29 $ 12.00
-------- -------- -------- -------
Net investment income....................................... 0.06 0.10 0.12 0.10
Net realized and unrealized gains (losses) from
investments................................................. (0.06) 1.14 5.55 0.23
-------- -------- -------- -------
Net increase from investment operations..................... 0.00 1.24 5.67 0.33
-------- -------- -------- -------
Dividends from net investment income........................ (0.09) (0.13) (0.10) (0.04)
Distributions from net realized gains from investments...... (1.55) (1.24) (0.34) --
-------- -------- -------- -------
Total dividends and distributions........................... (1.64) (1.37) (0.44) (0.04)
-------- -------- -------- -------
Net asset value, end of period.............................. $ 15.75 $ 17.39 $ 17.52 $ 12.29
======== ======== ======== =======
Total investment return (1)................................. 1.16% 6.97% 46.99% 2.76%
======== ======== ======== =======
Ratios/Supplemental Data:
Net assets, end of period (000's)........................... $206,131 $183,558 $135,047 $63,894
Expenses to average net assets, net of fee waivers and
expense reimbursements...................................... 1.00% 0.99% 1.00% 1.00%*
Expenses to average net assets, before fee waivers and
expense reimbursements...................................... 1.01% 1.00% 1.12% 1.51%*
Net investment income to average net assets, net of fee
waivers and expense reimbursements.......................... 0.42% 0.61% 1.00% 1.07%*
Net investment income to average net assets, before fee
waivers and expense reimbursements.......................... 0.41% 0.60% 0.88% 0.56%*
Portfolio turnover.......................................... 57% 42% 39% 30%
</TABLE>
- ------------------------
<TABLE>
<S> <C>
+ For the period August 24, 1995 (commencement of operations)
through July 31, 1996.
* Annualized.
(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 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.
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 57
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Select Advisors Trust
FINANCIAL HIGHLIGHTS
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PACE
SMALL/MEDIUM COMPANY GROWTH EQUITY
INVESTMENTS
---------------------------------------------------
FOR THE YEARS ENDED
JULY 31, FOR THE PERIOD
-------------------------------- ENDED
1999 1998 1997 JULY 31, 1996+
-------- -------- -------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 15.80 $ 14.44 $ 11.20 $ 12.00
-------- -------- -------- -------
Net investment income (loss)................................ (0.08) (0.03) (0.02) 0.00**
Net realized and unrealized gains (losses) from
investments................................................. 5.28 2.03 3.26 (0.78)
-------- -------- -------- -------
Net increase (decrease) from investment operations.......... 5.20 2.00 3.24 (0.78)
-------- -------- -------- -------
Dividends from net investment income........................ -- -- -- (0.02)
Distributions from net realized gains from investments...... (0.38) (0.64) -- --
-------- -------- -------- -------
Total dividends and distributions........................... (0.38) (0.64) 0.00 (0.02)
-------- -------- -------- -------
Net asset value, end of period.............................. $ 20.62 $ 15.80 $ 14.44 $ 11.20
======== ======== ======== =======
Total investment return (1)................................. 33.62% 14.44% 28.93% (6.55)%
======== ======== ======== =======
Ratios/Supplemental Data:
Net assets, end of period (000's)........................... $265,405 $198,855 $125,609 $63,364
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...................................... 1.01% 1.03% 1.08% 1.27%*
Net investment loss to average net assets, net of fee
waivers and expense reimbursements.......................... (0.48)% (0.20)% (0.21)% (0.14)%*
Net investment loss to average net assets, before fee
waivers and expense reimbursements.......................... (0.49)% (0.23)% (0.29)% (0.41)%*
Portfolio turnover.......................................... 102% 131% 247% 115%
</TABLE>
- ------------------------
<TABLE>
<S> <C>
+ For the period August 24, 1995 (commencement of operations)
through July 31, 1996.
* Annualized.
** Amount is less than $0.005 per share.
# Sub-Investment advisory functions for this portfolio were
transferred from Westfield Capital Management Company, Inc.
to Delaware Management Company, Inc. 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 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.
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 58
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Select Advisors Trust
FINANCIAL HIGHLIGHTS
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PACE
INTERNATIONAL EQUITY INVESTMENTS
---------------------------------------------------
FOR THE YEARS ENDED
JULY 31, FOR THE PERIOD
-------------------------------- ENDED
1999 1998 1997 JULY 31, 1996+
-------- -------- -------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 16.54 $ 15.66 $ 12.79 $ 12.00
-------- -------- -------- -------
Net investment income....................................... 0.07 0.16 0.10 0.12
Net realized and unrealized gains from investments and
foreign currency............................................ 1.10 1.20 2.97 0.73
-------- -------- -------- -------
Net increase from investment operations..................... 1.17 1.36 3.07 0.85
-------- -------- -------- -------
Dividends from net investment income........................ (0.19) (0.16) (0.13) (0.06)
Distributions from net realized gains from investments...... (0.34) (0.32) (0.07) --
-------- -------- -------- -------
Total dividends and distributions........................... (0.53) (0.48) (0.20) (0.06)
-------- -------- -------- -------
Net asset value, end of period.............................. $ 17.18 $ 16.54 $ 15.66 $ 12.79
======== ======== ======== =======
Total investment return (1)................................. 7.33% 9.27% 24.30% 7.08%
======== ======== ======== =======
Ratios/Supplemental Data:
Net assets, end of period (000's)........................... $214,017 $164,477 $102,979 $45,331
Expenses to average net assets, net of fee waivers and
expense reimbursements...................................... 1.22% 1.21% 1.35% 1.50%*
Expenses to average net assets, before fee waivers and
expense reimbursements...................................... 1.22% 1.21% 1.35% 1.81%*
Net investment income to average net assets, net of fee
waivers and expense reimbursements.......................... 0.53% 1.14% 0.95% 1.35%*
Net investment income to average net assets, before fee
waivers and expense reimbursements.......................... 0.53% 1.14% 0.95% 1.04%*
Portfolio turnover.......................................... 89% 56% 55% 25%
</TABLE>
- ------------------------
<TABLE>
<S> <C>
+ For the period August 24, 1995 (commencement of operations)
through July 31, 1996.
* Annualized.
(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 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.
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 59
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Select Advisors Trust
FINANCIAL HIGHLIGHTS
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PACE
INTERNATIONAL EMERGING MARKETS EQUITY
INVESTMENTS
------------------------------------------------
FOR THE YEARS ENDED
JULY 31, FOR THE PERIOD
----------------------------- ENDED
1999 1998 1997 JULY 31, 1996+
------- ------- ------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 10.41 $ 15.60 $ 12.49 $ 12.00
------- ------- ------- -------
Net investment income....................................... 0.09 0.09 0.06 0.07
Net realized and unrealized gains (losses) from investments
and foreign currency........................................ 1.62 (5.23) 3.09 0.44
------- ------- ------- -------
Net increase (decrease) from investment operations.......... 1.71 (5.14) 3.15 0.51
------- ------- ------- -------
Dividends from net investment income........................ (0.07) (0.05) (0.04) (0.02)
------- ------- ------- -------
Net asset value, end of period.............................. $ 12.05 $ 10.41 $ 15.60 $ 12.49
======= ======= ======= =======
Total investment return (1)................................. 16.66% (32.99)% 25.31% 4.23%
======= ======= ======= =======
Ratios/Supplemental Data:
Net assets, end of period (000's)........................... $88,497 $63,237 $54,759 $25,481
Expenses to average net assets, net of fee waivers and
expense reimbursements...................................... 1.50% 1.50% 1.50% 1.50%*
Expenses to average net assets, before fee waivers and
expense reimbursements...................................... 1.79% 1.79% 2.09% 2.35%*
Net investment income to average net assets, net of fee
waivers and expense reimbursements.......................... 1.05% 0.98% 0.63% 0.94%*
Net investment income to average net assets, before fee
waivers and expense reimbursements.......................... 0.76% 0.69% 0.04% 0.08%*
Portfolio turnover.......................................... 66% 51% 39% 22%
</TABLE>
- ------------------------
<TABLE>
<S> <C>
+ For the period August 24, 1995 (commencement of operations)
through July 31, 1996.
* Annualized.
(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 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.
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 60
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Select Advisors Trust
TICKER SYMBOLS
<TABLE>
<S> <C>
PACE Money Market Investments PCEXX
PACE Government Securities Fixed Income Investments PCGTX
PACE Intermediate Fixed Income Investments PCIFX
PACE Strategic Fixed Income Investments PCSIX
PACE Municipal Fixed Income Investments PCMNX
PACE Global Fixed Income Investments PCGLX
PACE Large Company Value Equity Investments PCLVX
PACE Large Company Growth Equity Investments PCLCX
PACE Small/Medium Company Value Equity Investments PCSVX
PACE Small/Medium Company Growth Equity Investments PCSGX
PACE International Equity Investments PCIEX
PACE International Emerging Markets Equity Investments PCEMX
</TABLE>
If you want more information about the funds, the following documents are
available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS:
Additional information about the funds' investments is available in the funds'
annual and semi-annual reports to shareholders. In the funds' annual reports,
you will find a discussion of the market conditions and investment strategies
that significantly affected the funds' performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI) AND CONTRACT PROSPECTUS:
The SAI provides more detailed information about the funds and is incorporated
by reference into this prospectus. Investors are advised to also read the
applicable contract prospectus.
You may discuss your questions about the funds, obtain free copies of annual and
semi-annual reports and the SAI, or request other information, by contacting the
funds directly at 1-800-647-1568.
You may review and copy information about the funds, including annual and
semi-annual reports and the SAI, at the Public Reference Room of the Securities
and Exchange Commission. You can get text-only copies of reports and other
information about the funds and about the operations of the SEC's Public
Reference Room:
- - For a fee, by writing to or calling the SEC's Public Reference Room,
Washington, D.C. 20549-6009
Telephone: 1-800-SEC-0330
- - Free, from the SEC's Internet website at: http://www.sec.gov
PaineWebber PACE Select Advisors Trust
Investment Company Act File No. 811-8764
- -C-PaineWebber Incorporated. All rights reserved. Member of SIPC
---------------
- --------------------------------------------------------------------------------
<PAGE>
PACE Money Market Investments
--------------------
PROSPECTUS
DECEMBER 1, 1999
----------------------------------
This Prospectus offers shares of PACE Money Market Investments, a series of
PaineWebber PACE-SM- Select Advisors Trust, to participants in the PaineWebber
PACE-SM- Multi Advisor Program. The PaineWebber PACE-SM- Multi Advisor Program
is designed to assist you in devising an asset allocation strategy to meet your
individual needs.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the fund's shares or determined whether this prospectus
is complete or accurate. To state otherwise is a crime.
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Money Market Investments
Contents
THE FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
What every investor 3 PACE Money Market Investments
should know about
the fund 6 More About Risks and Investment Strategies
</TABLE>
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Information for 7 Investing in the Fund
managing your fund --Buying Shares
account --The PaineWebber PACE-SM- Multi Advisor
Program
--Selling Shares
--Pricing and Valuation
</TABLE>
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Additional important 9 Management
information about
the fund 10 Dividends and Taxes
11 Financial Highlights
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Where to learn more Back Cover
about the fund
</TABLE>
The fund is not a
complete or
balanced investment
program.
- --------------------------------------------------------------------------------
Prospectus Page 2
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Money Market Investments
PACE Money Market Investments
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
- --------------------------------------------------------------------------------
FUND OBJECTIVE:
Current income consistent with preservation of capital and liquidity.
PRINCIPAL INVESTMENT STRATEGIES:
The fund is a money market mutual fund and seeks to maintain a stable price of
$1.00 per share. The fund invests in a diversified portfolio of high quality
money market instruments of governmental and private issuers.
Money market instruments are short-term debt obligations and similar securities.
They also include longer term bonds that have variable interest rates or other
special features that give them the financial characteristics of short-term
debt. The fund invests in foreign money market instruments only if they are
denominated in U.S. dollars.
Mitchell Hutchins Asset Management Inc., the fund's manager and investment
adviser, selects money market instruments for the fund based on its assessment
of relative values and changes in market and economic conditions.
PRINCIPAL RISKS:
An investment in the fund is not a bank deposit and is neither insured nor
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. While the fund seeks to maintain the value of your investment at $1.00
per share, it is possible to lose money by investing in the fund.
Money market instruments generally have a low risk of loss, but they are not
risk-free. The fund is subject to credit risk, which is the risk that issuers
may fail, or become less able, to make payments when due. The fund also is
subject to interest rate risk. When short-term interest rates rise, the value of
the fund's investments generally will fall, and its yield will tend to lag
behind prevailing rates.
More information about these and other risks of an investment in the fund is
provided below in "More About Risks and Investment Strategies." In particular,
see the following headings:
- - Credit Risk
- - Interest Rate Risk
- - Foreign Securities Risk
INFORMATION ON THE FUND'S RECENT INVESTMENT HOLDINGS CAN BE FOUND IN ITS CURRENT
ANNUAL/SEMI-ANNUAL REPORTS (SEE BACK COVER FOR INFORMATION ON ORDERING THESE
REPORTS).
- --------------------------------------------------------------------------------
Prospectus Page 3
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Money Market Investments
PERFORMANCE
- --------------------------------------------------------------------------------
RISK/RETURN BAR CHART AND TABLE:
The following bar chart and table provide information about the fund's
performance and thus give some indication of the risks of an investment in the
fund.
The bar chart shows how the fund's performance has varied from year to year. The
bar chart does not reflect the annual PACE-SM- Multi Advisor Program fee; if it
did, the total returns shown would be lower.
The table that follows the bar chart shows the average annual returns over
several time periods for the fund's shares. The table does reflect the annual
PACE-SM- Multi Advisor Program fee.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
TOTAL RETURN (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERCENTAGES
<S> <C>
1996 5.05%
1997 5.27%
1998 5.21%
CALENDAR YEAR
</TABLE>
Total Return January 1 to September 30, 1999 -- 3.49%
Best quarter during calendar years shown: 4th quarter, 1997 -- 1.33%
Worst quarter during calendar years shown: 4th quarter, 1998 -- 1.22%
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998
<TABLE>
<CAPTION>
INCEPTION DATE (8/24/95)
- -------------- ---------
<S> <C>
One Year.................................................... 3.65%
Life of Fund................................................ 3.64%
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 4
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Money Market Investments
EXPENSES AND FEE TABLES
- --------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your
investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a % of
offering price)........................................... None
Maximum Contingent Deferred Sales Charge (Load) (as a % of
offering price)........................................... None
Maximum Annual Account Fee for PaineWebber PACE-SM- Multi
Advisor Program (as a % of average value of shares held on
the last calendar day of the previous quarter)............ 1.50%
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from
fund assets)
Management Fees............................................. 0.15%
Distribution and/or Service (12b-1) Fees.................... None
Other Expenses*............................................. 0.92%
----
Total Annual Fund Operating Expenses........................ 1.07%
====
Expense Reimbursements**.................................... 0.57%
----
Net Expenses**.............................................. 0.50%
====
</TABLE>
- ---------
* Includes an administration fee of 0.20% paid by the fund to Mitchell
Hutchins.
** The fund and Mitchell Hutchins have entered into an expense reimbursement
agreement. Mitchell Hutchins has agreed to reimburse the fund to the extent that
the fund's expenses through the end of the current fiscal year otherwise would
exceed the "Net Expenses" rate shown above. The fund has agreed to repay
Mitchell Hutchins for those reimbursed expenses if it can do so over the
following three years without causing the fund's expenses in any of those three
years to exceed the "Net Expenses" rate.
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example includes the maximum annual fee for the PACE-SM- Multi Advisor Program
and also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same, except for the one year period when
the fund's expenses are lower due to its reimbursement agreement with Mitchell
Hutchins. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ -------- -------- --------
<S> <C> <C> <C>
$203 $745 $1,314 $2,863
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 5
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber PACE Money Market Investments
MORE ABOUT RISKS AND INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
PRINCIPAL RISKS
The main risks of investing in the fund are described below. Other risks of
investing in the fund, along with further details about some of the risks
described below, are discussed in the fund's Statement of Additional Information
("SAI"). Information on how you can obtain the SAI is on the back cover of this
prospectus.
CREDIT RISK. Credit risk is the risk that the issuer of a money market
instrument will not make principal or interest payments when they are due. Even
if an issuer does not default on a payment, a money market instrument's value
may decline if the market believes that the issuer has become less able, or less
willing, to make payments on time. Even high quality money market instruments
are subject to some credit risk.
INTEREST RATE RISK. The value of money market instruments generally can be
expected to fall when interest rates rise and to rise when interest rates fall.
Interest rate risk is the risk that interest rates will rise, so that the value
of the fund's investments in bonds will fall. Also, the fund's yield will tend
to lag behind changes in prevailing short-term interest rates. This means that
the fund's income will tend to rise more slowly than increases in short-term
interest rates. Similarly, when short-term interest rates are falling, the
fund's income will tend to fall more slowly.
FOREIGN SECURITIES RISK. Foreign securities involve risks that normally are not
associated with securities of U.S. issuers. These include risks relating to
political, social and economic developments abroad and differences between U.S.
and foreign regulatory requirements and market practices.
ADDITIONAL RISKS
YEAR 2000 RISK. The fund could be adversely affected by problems relating to
the inability of computer systems used by Mitchell Hutchins and the fund's other
service providers to recognize the year 2000. While year 2000-related computer
problems could have a negative effect on the fund, Mitchell Hutchins is working
to avoid these problems with respect to its own computer systems and to obtain
assurances from service providers that they are taking similar steps. Similarly,
the issuers in which the fund invests and trading systems used by the fund could
be adversely affected by this issue. The ability of an issuer or trading system
to respond successfully to the issue requires both technological sophistication
and diligence, and there can be no assurance that any steps taken will be
sufficient to avoid an adverse impact on the fund.
ADDITIONAL INVESTMENT STRATEGIES
Like all money market funds, the fund is subject to maturity, quality and
diversification requirements designed to help it maintain a stable price of
$1.00 per share. Mitchell Hutchins may use a number of professional money
management techniques to respond to changing economic and money market
conditions and to shifts in fiscal and monetary policy. These techniques include
varying the fund's composition and weighted average maturity based on its
assessment of the relative values of various money market instruments and future
interest rate patterns. Mitchell Hutchins also may buy or sell money market
instruments to take advantage of yield differences.
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Prospectus Page 6
<PAGE>
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------------------------
PaineWebber PACE Money Market Investments
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
BUYING SHARES
If you are a participant in the PaineWebber PACE-SM- Multi Advisor Program, you
may buy shares of the fund through a managed account maintained with PaineWebber
Incorporated. Payment for investments made through the PACE-SM- Multi Advisor
Program is made by debiting this account. Your payment for fund shares is due no
later than the first business day after the order is placed. You may place an
order only after you have executed the necessary PACE-SM- Multi Advisor Program
documentation and made an asset allocation decision.
The fund and PaineWebber reserve the right to reject a purchase order or suspend
the offering of fund shares.
THE PAINEWEBBER PACE-SM- MULTI ADVISOR PROGRAM
The PACE-SM- Multi Advisor Program is described in detail in the PACE-SM- Multi
Advisor Disclosure Document, the PACE-SM- Multi Advisor Investment Advisory
Agreement and other Program documents. The description of the PACE-SM- Multi
Advisor Program in this Prospectus is only a brief summary of certain features
of the Program and is not intended as a complete description.
The PaineWebber PACE-SM- Multi Advisor Program is an advisory program sponsored
by PaineWebber that includes comprehensive investment services, including
investor profiling, a personalized asset allocation strategy using an
appropriate combination of shares in no-load, low-load and load-waived funds and
a quarterly investment performance review. PaineWebber has no investment
discretion over your PACE-SM- Multi Advisor Program account except to the extent
required to permit automatic rebalancing of your account if you elect that
service. Otherwise, you will make all the investment decisions.
The fund is one of several funds used as vehicles to implement the long-term
asset allocation strategies recommended through the PACE-SM- Multi Advisor
Program based on an evaluation of your investment objectives and risk
tolerances.
The minimum initial aggregate investment in the PACE-SM- Multi Advisor Program
is $10,000 and is subject to the minimum investment requirements of the funds in
the Program. Any subsequent investment in the Program must be at least $500 if
invested proportionately among the funds.
It is possible that PaineWebber's periodic recommendations for adjustments in
the allocation of your assets among different funds may not be successful or may
not be developed, transmitted and acted upon quickly enough to avoid market
shifts, which can be sudden and substantial. You are urged to consider carefully
PaineWebber's asset allocation recommendations in light of your investment needs
and to act promptly upon any recommended reallocation of assets.
PAINEWEBBER PACE-SM- MULTI ADVISOR PROGRAM FEE
For the services provided to you under the PACE-SM- Multi Advisor Program, you
will pay PaineWebber a quarterly Program Fee at an annual rate of up to 1.50% of
the value of the shares of the funds held in your account under the Program.
This quarterly fee is generally charged to your PaineWebber account. Employees
of PaineWebber and its affiliates may participate in the PACE-SM- Multi Advisor
Program at a reduced fee or for no fee.
PaineWebber Financial Advisors receive a portion of the PACE-SM- Program Fee for
the services they provide to participants.
As a PACE-SM- Multi Advisor Program participant, you may incur greater total
fees and expenses than investors purchasing shares of similar funds without the
benefit of these professional asset allocation recommendations.
SELLING SHARES
You can sell your fund shares at any time. You may sell your shares by
contacting your PaineWebber Financial Advisor in person or by telephone or mail.
Your Financial Advisor is responsible for promptly forwarding your request to
PaineWebber's New York City offices. After it receives and accepts your request,
PaineWebber repurchases your fund shares. You generally will receive the
proceeds of the sale within the first business day after PaineWebber receives
the order.
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Prospectus Page 7
<PAGE>
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------------------------
PaineWebber PACE Money Market Investments
PaineWebber reserves the right not to repurchase your shares. In that case,
PaineWebber forwards your request to sell your shares to the fund's transfer
agent. The transfer agent will sell your shares after you provide it with the
following information in writing:
- - Your name and address;
- - The fund's name;
- - Your account number;
- - The dollar amount or number of shares you want to sell; and
- - A guarantee of each registered owner's signature. A signature guarantee may be
obtained from a financial institution, broker, dealer or clearing agency that
is a participant in one of the medallion programs recognized by the Securities
Transfer Agents Association. These are: Securities Transfer Agents Medallion
Program (STAMP), Stock Exchanges Medallion Program (SEMP) and the New York
Stock Exchange Medallion Signature Program (MSP). The fund and the transfer
agent will not accept signature guarantees that are not a part of these
programs.
Sales through the transfer agent may also need to include additional supporting
documents for sales by estates, trusts, guardianships, custodianships,
partnerships and corporations.
PaineWebber may terminate your participation in the PACE-SM- Multi Advisor
Program if the value of your assets in the Program declines or is reduced to
less than $7,500. If PaineWebber elects to do this with your account, it will
notify you that you can increase the amount invested to the account minimum or
more within 30 days. This notice may appear on your account statement.
PaineWebber will not terminate your participation in the Program if the value of
your account falls below $7,500 solely as a result of a reduction in net asset
value per share of the funds or redemptions to pay Program fees.
If you want to sell shares that you purchased recently, the fund may delay
payment until it verifies that it has received good payment. If you purchased
shares by check, this can take up to 15 days.
PRICING AND VALUATION
The price at which you may buy or sell the fund's shares is based on the next
net asset value per share calculated after your order is placed. The fund
calculates its net asset value on days that the New York Stock Exchange is open
as of the close of regular trading on the NYSE (generally, 4:00 p.m., Eastern
time). The NYSE normally is not open, and the fund does not price its shares, on
national holidays and on Good Friday. If trading on the NYSE is halted for the
day before 4:00 p.m., Eastern time, the fund's net asset value per share will be
calculated as of the time trading was halted.
The fund's net asset value per share is expected to be $1.00 per share, although
this value is not guaranteed. The fund values its securities at their amortized
cost. This method uses a constant amortization to maturity of the difference
between the cost of the instrument to the fund and the amount due at maturity.
- --------------------------------------------------------------------------------
Prospectus Page 8
<PAGE>
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------------------------
PaineWebber PACE Money Market Investments
MANAGEMENT
- --------------------------------------------------------------------------------
MANAGER AND INVESTMENT ADVISER
Mitchell Hutchins Asset Management Inc. is the fund's manager and administrator
and also provides investment advisory services. Mitchell Hutchins is located at
51 West 52nd Street, New York, New York 10019-6114, and is a wholly owned asset
management subsidiary of PaineWebber Incorporated, which is wholly owned by
Paine Webber Group Inc., a publicly owned financial services holding company. On
October 31, 1999, Mitchell Hutchins was adviser or sub-adviser to 33 investment
companies with 76 separate funds and aggregate assets of approximately $48.9
billion.
The fund has received an exemptive order from the SEC to permit the board to
appoint and replace investment sub-advisers and to amend the sub-advisory
contracts between Mitchell Hutchins and any sub-advisers without obtaining
shareholder approval.
ADVISORY AND ADMINISTRATION FEES
During the most recent fiscal year, the fund paid fees to Mitchell Hutchins for
advisory services at the annual contract rate of 0.15% of its average daily net
assets. In addition, the fund paid fees to Mitchell Hutchins for administrative
services at the annual contract rate of 0.20% of its average daily net assets.
PORTFOLIO MANAGER
Susan Ryan, a senior vice president of Mitchell Hutchins, is primarily
responsible for the day-to-day management of the fund's portfolio. She has held
her fund responsibilities since its inception.
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Prospectus Page 9
<PAGE>
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------------------------
PaineWebber PACE Money Market Investments
DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS
The fund normally declares dividends daily and pays them monthly. Shares of the
fund earn dividends on the day they are sold but do not earn dividends on the
day they are purchased.
You will receive dividends in additional shares of the fund unless you elect to
receive them in cash. Contact your Financial Advisor at PaineWebber if you
prefer to receive dividends in cash.
TAXES
The dividends that you receive from the fund generally are subject to federal
income tax regardless of whether you receive them in additional fund shares or
in cash. The fund expects that its dividends will be taxed as ordinary income.
If you hold fund shares through a tax-exempt account or plan, such as an IRA or
401(k) plan, dividends on your shares generally will not be subject to tax.
The fund will tell you how you should treat its dividends for tax purposes. You
will not recognize any gain on the sale of fund shares so long as that fund
maintains a share price of $1.00.
As noted above, shareholders will pay the PACE-SM- Multi Advisor Program Fee.
For individual shareholders, this fee will be treated as a "miscellaneous
itemized deduction" for federal income tax purposes.
See the SAI for a a more detailed discussion. Prospective shareholders are urged
to consult their tax advisers.
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Prospectus Page 10
<PAGE>
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------------------------
PaineWebber PACE Money Market Investments
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following financial highlights tables are intended to help you understand
the fund's financial performance for the periods shown. Certain information
reflects financial results for a single fund share. In the tables, "total
investment return" represents the rate that an investor would have earned (or
lost) on an investment in the fund, assuming reinvestment of all dividends.
This information has been audited by Ernst & Young LLP, independent auditors,
whose report, along with the fund's financial statements, are included in the
fund's Annual Report to Shareholders. The Annual Report may be obtained without
charge by calling 1-800-647-1568.
<TABLE>
<CAPTION>
PACE
MONEY MARKET INVESTMENTS
------------------------------------------------
FOR THE YEARS ENDED
JULY 31, FOR THE PERIOD
----------------------------- ENDED
1999 1998 1997 JULY 31, 1996+
------- ------- ------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------
Net investment income....................................... 0.05 0.05 0.05 0.05
------- ------- ------- -------
Dividends from net investment income........................ (0.05) (0.05) (0.05) (0.05)
------- ------- ------- -------
Net asset value, end of period.............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= =======
Total investment return (1)................................. 4.85% 5.32% 5.13% 4.75%
======= ======= ======= =======
Ratios/Supplemental Data:
Net assets, end of period (000's)........................... $47,174 $25,493 $16,070 $10,221
Expenses to average net assets, net of fee waivers and
expense reimbursements...................................... 0.50% 0.50% 0.50% 0.50%*
Expenses to average net assets, before fee waivers and
expense reimbursements...................................... 1.07% 1.20% 1.89% 2.40%*
Net investment income to average net assets, net of fee
waivers and expense reimbursements.......................... 4.70% 5.20% 5.04% 4.93%*
Net investment income to average net assets, before fee
waivers and expense reimbursements.......................... 4.13% 4.50% 3.65% 3.03%*
</TABLE>
- ------------------------
<TABLE>
<S> <C>
+ For the period August 24, 1995 (commencement of operations)
through July 31, 1996.
* Annualized.
(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.
</TABLE>
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Prospectus Page 11
<PAGE>
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------------------------
PaineWebber PACE Money Market Investments
TICKER SYMBOL
<TABLE>
<S> <C>
PACE Money Market Investments PCEXX
</TABLE>
If you want more information about the fund, the following documents are
available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS
Additional information about the fund's investments is available in the fund's
annual and semi-annual reports to shareholders.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more detailed information about the fund and is incorporated by
reference into this prospectus.
You may discuss your questions about the fund by contacting your PaineWebber
Financial Advisor. You may obtain free copies of annual and semi-annual reports
and the SAI, by contacting your PaineWebber Financial Advisor or the fund
directly at 1-800-647-1568.
You may review and copy information about the fund, including annual and
semi-annual reports and the SAI, at the Public Reference Room of the Securities
and Exchange Commission. You can get text-only copies of reports and other
information about the funds and about the operations of the SEC's Public
Reference Room:
- - For a fee, by writing to or calling the SEC's Public Reference Room,
Washington, D.C. 20549-6009
Telephone: 1-800-SEC-0330
- - Free, from the SEC's Internet website at: http://www.sec.gov
PaineWebber PACE Select Advisors Trust
Investment Company Act File No. 811-8764
- -C- PaineWebber Incorporated. All rights reserved. Member of SPIC.
---------------
- --------------------------------------------------------------------------------
<PAGE>
PAINEWEBBER PACE SELECT ADVISORS TRUST
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019-6114
STATEMENT OF ADDITIONAL INFORMATION
The following funds are series of PaineWebber PACE Select Advisors
Trust ("Trust"), a professionally managed open-end investment company.
<TABLE>
<S> <C>
PACE Money Market Investments PACE Large Company Value Equity Investments
PACE Government Securities Fixed Income Investments PACE Large Company Growth Equity Investments
PACE Intermediate Fixed Income Investments PACE Small/Medium Company Value Equity Investments
PACE Strategic Fixed Income Investments PACE Small/Medium Company Growth Equity Investments
PACE Municipal Fixed Income Investments PACE International Equity Investments
PACE Global Fixed Income Investments PACE International Emerging Markets Equity Investments
</TABLE>
PACE Intermediate Fixed Income Investments and PACE Global Fixed Income
Investments are non-diversified series of the Trust. The other funds are
diversified series.
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly
owned asset management subsidiary of PaineWebber Incorporated ("PaineWebber"),
serves as the manager and administrator for each fund and also as the investment
adviser for PACE Money Market Investments. Mitchell Hutchins selects and
monitors unaffiliated investment advisers who provide advisory services for the
other funds. As distributor for the funds, Mitchell Hutchins has appointed
PaineWebber to serve as the exclusive dealer for the sale of fund shares.
Portions of the funds' annual report to shareholders are incorporated
by reference into this Statement of Additional Information ("SAI"). The Annual
Report accompanies this SAI. You may obtain additional copies of the funds'
Annual Report by calling toll-free 1-800-647-1568.
This SAI is not a prospectus and should be read only in conjunction
with the funds' current Prospectus, dated December 1, 1999. A copy of the
Prospectus may be obtained by calling any PaineWebber Financial Advisor or by
calling toll-free 1-800-647-1568. The Prospectus contains more complete
information about the funds. You should read it carefully before investing.
This SAI is dated December 1, 1999.
TABLE OF CONTENTS
PAGE
The Funds and Their Investment Policies ................................2
The Funds' Investments, Related Risks and Limitations...................8
Strategies Using Derivative Instruments ...............................33
Organization of Trust; Trustees and Officers and Principal Holders of
Securities .........................................................42
Investment Advisory, Administration and Distribution Arrangements......46
Portfolio Transactions ................................................51
Additional Redemption Information; Other Services .....................55
Valuation of Shares ...................................................56
Performance............................................................58
Taxes..................................................................60
Other Information .....................................................65
Financial Statements ..................................................66
Appendix..............................................................A-1
<PAGE>
THE FUNDS AND THEIR INVESTMENT POLICIES
No fund's investment objective may be changed without shareholder
approval. Except where noted, the other investment policies of each fund may be
changed by the board without shareholder approval. As with other mutual funds,
there is no assurance that a fund will achieve its investment objective.
PACE MONEY MARKET INVESTMENTS has an investment objective of current
income consistent with preservation of capital and liquidity. The fund invests
in high quality money market instruments that have, or are deemed to have,
remaining maturities of 13 months or less. Money market instruments are
short-term debt obligations and similar securities. These instruments include
(1) U.S. and foreign government securities, (2) obligations of U.S. and foreign
banks, (3) commercial paper and other short-term corporate obligations of U.S.
and foreign corporations, partnerships, trusts and similar entities, (4)
repurchase agreements and (5) investment company securities. Money market
instruments also include longer term bonds that have variable interest rates or
other special features that give them the financial characteristics of
short-term debt. The fund may purchase participation interests in any of the
securities in which it is permitted to invest. Participation interests are pro
rata interests in securities held by others. The fund maintains a
dollar-weighted average portfolio maturity of 90 days or less.
PACE Money Market Investments may invest in obligations (including
certificates of deposit, bankers' acceptances, time deposits and similar
obligations) of U.S. and foreign banks only if the institution has total assets
at the time of purchase in excess of $1.5 billion. The fund's investments in
non-negotiable time deposits of these institutions will be considered illiquid
if they have maturities greater than seven days.
PACE Money Market Investments may purchase only those obligations that
Mitchell Hutchins determines, pursuant to procedures adopted by the board,
present minimal credit risks and are "First Tier Securities" as defined in Rule
2a-7 under the Investment Company Act of 1940, as amended ("Investment Company
Act"). A First Tier Security is either (1) rated in the highest short-term
rating category by at least two nationally recognized statistical rating
organizations ("rating agencies"), (2) rated in the highest short-term rating
category by a single rating agency if only that rating agency has assigned the
obligation a short-term rating, (3) issued by an issuer that has received such a
short-term rating with respect to a security that is comparable in priority and
security, (4) subject to a guarantee rated in the highest short-term rating
category or issued by a guarantor that has received the highest short-term
rating for a comparable debt obligation or (5) unrated, but determined by
Mitchell Hutchins to be of comparable quality. If a security in the fund's
portfolio ceases to be a First Tier Security (as defined above) or Mitchell
Hutchins becomes aware that a security has received a rating below the second
highest rating by any rating agency, Mitchell Hutchins and, in certain cases,
the board, will consider whether the fund should continue to hold the
obligation. A First Tier Security rated in the highest short-term category at
the time of purchase that subsequently receives a rating below the highest
rating category from a different rating agency may continue to be considered a
First Tier Security.
PACE Money Market Investments may purchase variable and floating rate
securities with remaining maturities in excess of 13 months issued by U.S.
government agencies or instrumentalities or guaranteed by the U.S. government.
In addition, the fund may purchase variable and floating rate securities of
other issuers with remaining maturities in excess of 13 months. The yields on
these securities are adjusted in relation to changes in specific rates, such as
the prime rate, and different securities may have different adjustment rates.
Certain of these obligations carry a demand feature that gives the fund the
right to tender them back to a specified party, usually the issuer or a
remarketing agent, prior to maturity. The fund's investment in these securities
must comply with conditions established by the Securities and Exchange
Commission ("SEC") under which they may be considered to have remaining
maturities of 13 months or less. The fund will purchase variable and floating
rate securities of non-U.S. government issuers that have remaining maturities of
more than 13 months only if the securities are subject to a demand feature
exercisable within 13 months or less.
Generally, PACE Money Market Investments may exercise demand features
(1) upon a default under the terms of the underlying security, (2) to maintain
its portfolio in accordance with its investment objective and policies or
applicable legal or regulatory requirements or (3) as needed to provide
liquidity to the fund in order to meet redemption requests. The ability of a
bank or other financial institutional to fulfill its obligations under a letter
of credit, guarantee or other liquidity arrangement might be affected by
possible financial difficulties of its borrowers, adverse interest rate
2
<PAGE>
or economic conditions, regulatory limitations or other factors. The interest
rate on floating rate or variable rate securities ordinarily is readjusted on
the basis of the prime rate of the bank that originated the financing or some
other index or published rate, such as the 90-day U.S. Treasury bill rate, or is
otherwise reset to reflect market rates of interest. Generally, these interest
rate adjustments cause the market value of floating rate and variable rate
securities to fluctuate less than the market value of fixed rate securities.
Variable rate securities include variable amount master demand notes,
which are unsecured redeemable obligations that permit investment of varying
amounts at fluctuating interest rates under a direct agreement between PACE
Money Market Investments and an issuer. The principal amount of these notes may
be increased from time to time by the parties (subject to specified maximums) or
decreased by the fund or the issuer.
These notes are payable on demand and may or may not be rated.
PACE Money Market Investments generally may invest no more than 5% of
its total assets in the securities of a single issuer (other than U.S.
government securities), except that the fund may invest up to 25% of its total
assets in First Tier Securities of a single issuer for a period of up to three
business days. The fund may purchase only U.S. dollar-denominated obligations of
foreign issuers.
PACE Money Market Investments may invest up to 10% of its net assets in
illiquid securities. The fund may purchase securities on a when-issued or
delayed delivery basis. The fund may lend its portfolio securities to qualified
broker-dealers or institutional investors in an amount up to 33 1/3% of its
total assets. The fund may borrow from banks [and through reverse repurchase
agreements] for temporary or emergency purposes, but not in excess of 10% of its
total assets.
PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS has an investment
objective of current income. Pacific Investment Management Company serves as the
fund's investment adviser. The fund invests in U.S. government bonds and other
bonds of varying maturities, but normally maintains a dollar-weighted average
portfolio duration of between one and seven years. Under normal circumstances,
the fund invests at least 65% of its total assets in U.S. government bonds,
including those backed by mortgages, and related repurchase agreements. The fund
may invest up to 35% of its total assets in corporate bonds, including mortgage-
and asset-backed securities of private issuers. These investments are limited to
bonds that are rated at least A by Standard & Poor's, a division of The
McGraw-Hill Companies, Inc. ("S&P"), or Moody's Investors Service Inc.
("Moody's"), except that the fund may not acquire a bond if, as a result, more
than 25% of its total assets would be invested in bonds rated below AAA or if
more than 10% of its total assets would be invested in bonds rated A. The fund
may invest in bonds that are assigned comparable ratings by another rating
agency and unrated bonds that its investment adviser determines are of
comparable quality to rated securities in which the fund may invest.
PACE Government Securities Fixed Income Investments may invest in
certain zero coupon securities that are U.S. Treasury notes and bonds that have
been stripped of their unmatured interest coupon receipts. The SEC staff
currently takes the position that "stripped" U.S. government securities that are
not issued through the U.S. Treasury are not U.S. government securities. As long
as the SEC staff takes this position, the fund will not consider these stripped
U.S. government securities to be U.S. government securities for purposes of its
65% investment requirement. The fund may not invest more than 5% of its net
assets in any combination of interest-only, principal-only and inverse floating
rate securities, including those that are not mortgage-backed or asset-backed
securities.
PACE Government Securities Fixed Income Investments may invest up to
10% of its net assets in illiquid securities. The fund may purchase securities
on a when-issued or delayed delivery basis. The fund may lend its portfolio
securities to qualified broker-dealers or institutional investors in an amount
up to 33 1/3% of its total assets. The fund may engage in dollar rolls and
reverse repurchase agreements for investment purposes to enhance the fund's
return. These transactions are considered borrowings. The fund may also borrow
from banks and through reverse repurchase agreements for temporary or emergency
purposes, but not in excess of 10% of its total assets. The fund's total
borrowings may not exceed 33 1/3% of its total assets plus an additional 5% of
its total assets for extraordinary or emergency purposes. The fund will not
enter into dollar rolls or reserve repurchase agreements for investment purposes
in an amount in excess of 5% of its total assets except in arbitraged
transactions where the fund maintains an offsetting position in securities or
repurchase agreements that mature or before the
3
<PAGE>
settlement date on the related dollar roll or reverse repurchase agreement. The
fund may invest in loan participations and assignments. These investments are
generally subject to the fund's overall limitation on investments in illiquid
securities. The fund may invest in the securities of other investment companies
and may sell short "against the box."
PACE INTERMEDIATE FIXED INCOME INVESTMENTS has an investment objective
of current income, consistent with reasonable stability of principal. Pacific
Income Advisers, Inc. serves as the fund's investment adviser. The fund invests
in bonds of varying maturities, but normally maintains a dollar-weighted average
portfolio duration of between two and four and one-half years. Under normal
circumstances, the fund invests at least 65% of its total assets in U.S.
government and foreign government bonds (including bonds issued by supranational
and quasi-governmental entities and mortgage-backed securities), corporate bonds
(including mortgage- and asset-backed securities of private issuers, Eurodollar
certificates of deposit, Eurodollar bonds and Yankee bonds) and preferred
stocks. The fund limits its investments to investment grade securities. The fund
may invest up to 10% of its total assets in securities denominated in foreign
currencies of developed countries. The fund's investments may include certain
zero coupon securities that are U.S. Treasury notes and bonds that have been
stripped of their unmatured interest coupon receipts. The fund may not invest
more than 5% of its net assets in any combination of interest-only,
principal-only and inverse floating rate securities, including those that are
not mortgage-backed or asset-backed securities.
PACE Intermediate Fixed Income Investments may invest up to 10% of its
net assets in illiquid securities. The fund may purchase securities on a
when-issued or delayed delivery basis. The fund may lend its portfolio
securities to qualified broker-dealers or institutional investors in an amount
up to 33 1/3% of its total assets. The fund may borrow from banks and through
reverse repurchase agreements for temporary or emergency purposes, but not in
excess of 10% of its total assets. The fund may invest in the securities of
other investment companies and may sell short "against the box."
PACE STRATEGIC FIXED INCOME INVESTMENTS has an investment objective of
total return consisting of income and capital appreciation. Pacific Investment
Management Company serves as the fund's investment adviser. The fund invests in
bonds of varying maturities, but normally maintains a dollar-weighted average
portfolio duration of between three and eight years. Under normal circumstances,
the fund invests at least 65% of its total assets in U.S. government bonds,
bonds (including convertible bonds) of U.S. and foreign private issuers, foreign
government bonds (including bonds issued by supranational and quasi-governmental
entities), foreign currency exchange-related securities, loan participations and
assignments and money market instruments (including commercial paper and
certificates of deposit). These investments include mortgage- and asset-backed
securities, although the fund's investments in mortgage-backed securities of
private issuers are limited to 35% of its total assets. The fund may not invest
more than 5% of its net assets in any combination of interest-only,
principal-only and inverse floating rate securities, including those that are
not mortgage-backed or asset-backed securities.
PACE Strategic Fixed Income Investments invests primarily in investment
grade bonds but may invest up to 20% of its total assets in securities,
including convertible securities, that are not investment grade but are rated at
least B by S&P or Moody's, assigned a comparable rating by another rating agency
or, if unrated, determined by its investment adviser to be of comparable
quality. The fund may invest up to 20% of its total assets in a combination of
Yankee bonds, Eurodollar bonds and bonds denominated in foreign currencies,
except that not more than 10% of the fund's total assets may be invested in
bonds denominated in foreign currencies. The fund's investments may include
Brady Bonds. The fund's investments also may include certain zero coupon
securities that are U.S. Treasury notes and bonds that have been stripped of
their unmatured interest coupon receipts, other debt securities sold with a
discount and payment-in-kind securities.
PACE Strategic Fixed Income Investments may invest up to 10% of its net
assets in illiquid securities. The fund may purchase securities on a when-issued
or delayed delivery basis. The fund may lend its portfolio securities to
qualified broker-dealers or institutional investors in an amount up to 33 1/3%
of its total assets. The fund may engage in dollar rolls and reverse repurchase
agreements for investment purposes to enhance the fund's return. These
transactions are considered borrowings. The fund may also borrow from banks and
through reverse repurchase agreements for temporary or emergency purposes, but
not in excess of 10% of its total assets. The
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fund's total borrowings may not exceed 33 1/3% of its total assets plus an
additional 5% of its total assets for extraordinary or emergency purposes. The
fund will not enter into dollar rolls or reserve repurchase agreements for
investment purposes in an amount in excess of 5% of its total assets except in
arbitraged transactions where the fund maintains an offsetting position in
securities or repurchase agreements that mature or before the settlement date on
the related dollar roll or reverse repurchase agreement. The fund's investments
in loan participations and assignments are generally subject to the fund's
overall limitation on investments in illiquid securities. The fund may invest in
the securities of other investment companies and may sell short "against the
box."
PACE MUNICIPAL FIXED INCOME INVESTMENTS has an investment objective of
high current income exempt from federal income tax. Deutsche Asset Management,
Inc. serves as the fund's investment adviser. Under normal conditions, the fund
invests at least 80% of its total assets in municipal bonds, the interest on
which, in the opinion of counsel to the issuers, is exempt from federal income
tax. The fund invests in bonds of varying maturities but normally maintains a
dollar-weighted average portfolio duration of between three and seven years. The
fund invests in municipal bonds rated at the time of purchase at least A, MIG-2
or Prime-2 by Moody's or A, SP-2 or A-2 by S&P, or, if unrated, determined to be
of comparable quality by its investment adviser, except that the fund may invest
up to 15% of its total assets in municipal bonds that at the time of purchase
are rated Baa by Moody's, BBB by S&P or, if unrated, are determined to be of
comparable quality by its investment adviser. The fund also may invest without
limit in private activity bonds and other municipal bonds that pay interest that
is an item of tax preference for purposes of the federal alternative minimum tax
("AMT"), although the fund will endeavor to manage its portfolio so that no more
than 25% of its interest income will be a tax preference item.
PACE Municipal Fixed Income Investments may not invest more than 25% of
its total assets in municipal obligations whose issuers are located in the same
state. The fund also may not invest more than 25% of its total assets in
municipal obligations that are secured by revenues from a particular industry,
except that it may invest up to 50% of its total assets in municipal bonds that
are secured by revenues from public housing authorities and state and local
housing finance authorities, including bonds backed by the U.S. Treasury or
other U.S. government-guaranteed securities. The fund may invest without limit
in private activity bonds, including private activity bonds that are
collateralized by letters of credit issued by banks having stockholders' equity
in excess of $100 million as of the date of their most recently published
statement of financial condition. The fund may not invest more than 5% of its
net assets in municipal leases.
PACE Municipal Fixed Income Investments may invest up to 10% of its net
assets in illiquid securities. The fund may purchase securities on a when-issued
or delayed delivery basis. The fund may lend its portfolio securities to
qualified broker-dealers or institutional investors in an amount up to 33 1/3%
of its total assets. The fund may borrow from banks and through reverse
repurchase agreements for temporary or emergency purposes, but not in excess of
10% of its total assets. The fund may invest in the securities of other
investment companies.
PACE GLOBAL FIXED INCOME INVESTMENTS has an investment objective of
high total return. Rogge Global Partners plc serves as the fund's investment
adviser. The fund invests primarily in high-grade bonds, denominated in foreign
currencies or U.S. dollars, of governmental and private issuers in the United
States and developed foreign countries. The fund invests in bonds of varying
maturities, but normally maintains a dollar-weighted average portfolio duration
of between four and eight years. Under normal circumstances, the fund invests at
least 65% of its total assets in U.S. government bonds, foreign government bonds
(including bonds issued by supranational organizations and quasi-governmental
entities) and bonds of U.S. or foreign private issuers. The fund normally
invests in a minimum of four countries, one of which may be the United States.
Debt securities are considered high grade if they are rated A or better by S&P
or Moody's or another rating agency or, if unrated, determined by the fund's
investment adviser to be of comparable quality.
PACE Global Fixed Income Investments may invest up to 10% of its total
assets in bonds issued by companies and governments in emerging market countries
that are rated as low as Ba by Moody's or BB by S&P or, if unrated, determined
by the fund's investment adviser to be of comparable quality. The fund considers
"emerging market countries" to be those countries not included in the [Morgan
Stanley Capital International World Index of major world economies] [J.P. Morgan
Emerging Market Bond Index]. The fund's investments may
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include Brady Bonds. The fund's investments also may include certain zero coupon
securities that are U.S. Treasury notes and bonds that have been stripped of
their unmatured interest coupon receipts.
PACE Global Fixed Income Investments may invest up to 15% of its net
assets in illiquid securities. The fund may lend its portfolio securities to
qualified broker-dealers or institutional investors in an amount up to 33 1/3%
of its total assets. The fund may borrow from banks and through reverse
repurchase agreements for temporary or emergency purposes, but not in excess of
10% of its total assets. The fund may invest in structured foreign investments
and loan participations and assignments. These investments are generally subject
to the fund's overall limitation on investments in illiquid securities and in no
event may the fund's investments in loan participations and assignments exceed
10% of the fund's total assets. The fund may invest in the securities of other
investment companies and may sell short "against the box."
PACE LARGE COMPANY VALUE EQUITY INVESTMENTS has an investment objective
of capital appreciation and dividend income. Brinson Partners, Inc. serves as
the fund's investment adviser. The fund invests primarily in equity securities
of U.S. companies that are believed to be undervalued. The fund's investments
may include both large and medium capitalization companies. However, under
normal circumstances, the fund invests at least 65% of its total assets in
common stocks of companies with a total market capitalization of $4.0 billion or
greater at the time of purchase. The term market capitalization means the market
value of a company's outstanding common stock.
PACE Large Company Value Equity Investments may invest up to 10% of its
total assets in convertible bonds that are not investment grade but these
securities must be rated at least BB by S&P, Ba by Moody's or, if unrated,
determined to be of comparable quality by its investment adviser. Subject to its
65% investment requirement, the fund may invest in a broad range of equity
securities of U.S. issuers that are traded on major stock exchanges or in the
over-the-counter market. The fund may invest up to 5% of its total assets in
U.S. dollar-denominated foreign securities that are traded on recognized U.S.
exchanges or in the U.S. over-the-counter market. The fund also may invest in
U.S. government bonds and investment grade corporate bonds.
PACE Large Company Value Equity Investments may invest up to 10% of its
net assets in illiquid securities. The fund may purchase securities on a
when-issued or delayed delivery basis. The fund may lend its portfolio
securities to qualified broker-dealers or institutional investors in an amount
up to 33 1/3% of its total assets. The fund may borrow from banks and through
reverse repurchase agreements for temporary or emergency purposes, but not in
excess of 10% of its total assets. The fund may invest in the securities of
other investment companies and may sell short "against the box."
PACE LARGE COMPANY GROWTH EQUITY INVESTMENTS has an investment
objective of capital appreciation. Alliance Capital Management L.P. serves as
the fund's investment adviser. The fund invests primarily in equity securities
that are believed to have faster rates of earnings growth than the average rate
of the companies in the Standard & Poor's 500 Composite Stock Price Index.
Dividend income is an incidental consideration in the investment adviser's
selection of investments for the fund. Although the fund may invest in a broad
range of equity securities, including securities convertible into common stocks,
under normal circumstances, it invests at least 65% of its total assets in
common stocks of companies with total market capitalization of $4.0 billion or
greater at the time of purchase. The term market capitalization means the market
value of a company's outstanding common stock.
Subject to its 65% investment requirement, PACE Large Company Growth
Equity Investments may invest in a broad range of equity securities of U.S.
issuers. The fund may invest up to 5% of its total assets in U.S.
dollar-denominated foreign securities that are traded on recognized U.S.
exchanges or in the U.S. over-the-counter market. The fund also may invest in
U.S. government bonds and investment grade corporate bonds.
PACE Large Company Growth Equity Investments may invest up to 10% of
its net assets in illiquid securities. The fund may purchase securities on a
when-issued or delayed delivery basis. The fund may lend its portfolio
securities to qualified broker-dealers or institutional investors in an amount
up to 33 1/3% of its total assets. The fund may borrow from banks and through
reverse repurchase agreements for temporary or emergency
6
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purposes, but not in excess of 10% of its total assets. The fund may invest in
the securities of other investment companies and may sell short "against the
box."
PACE SMALL/MEDIUM COMPANY VALUE EQUITY INVESTMENTS has an investment
objective of capital appreciation. Ariel Capital Management, Inc. and Brandywine
Asset Management, Inc. serve as the fund's investment advisers. Mitchell
Hutchins allocates the fund's assets between the two investment advisers. The
fund invests primarily in equity securities of companies that are believed to be
undervalued or overlooked in the market place. Although the fund may invest in a
broad range of equity securities, including securities convertible into common
stocks, under normal market conditions, the fund invests at least 65% of its
total assets in common stocks of companies with total market capitalization of
less than $4.0 billion at the time of purchase. The term market capitalization
means the market value of a company's outstanding common stock. The fund invests
in equity securities that generally have price-to-earnings ("P/E") ratios that
are below the market average. The fund invests in the equity securities of
companies only if they have common stock that is traded on a major stock
exchange or in the over-the-counter market. Subject to its 65% investment
requirement, the fund may invest in U.S. government bonds and investment grade
corporate bonds.
PACE Small/Medium Company Value Equity Investments may invest up to 15%
of its net assets in illiquid securities. The fund may purchase securities on a
when-issued or delayed delivery basis. The fund may lend its portfolio
securities to qualified broker-dealers or institutional investors in an amount
up to 33 1/3% of its total assets. The fund may borrow from banks and through
reverse repurchase agreements for temporary or emergency purposes, but not in
excess of 10% of its total assets. The fund may invest in the securities of
other investment companies and may sell short "against the box."
PACE SMALL/MEDIUM COMPANY GROWTH EQUITY INVESTMENTS has an investment
objective of capital appreciation. Delaware Management Company, Inc. serves as
the fund's investment adviser . The fund invests primarily in the stocks of
companies that are characterized by above-average earnings growth rates and
total market capitalization of less than $4.0 billion at the time of purchase.
Dividend income is an incidental consideration in the investment adviser's
selection of investments for the fund. Although the fund may invest in a broad
range of equity securities, including securities convertible into common stocks,
under normal circumstances, it invests at least 65% of its total assets in
common stocks of issuers with total market capitalization of less than $4.0
billion that exhibit the potential for high future earnings growth relative to
the overall market. Subject to its 65% investment requirement, the fund may
invest in U.S. government bonds and investment grade corporate bonds. The fund
may invest up to 5% of its total assets in U.S. dollar-denominated foreign
securities that are traded on recognized U.S. exchanges or in the U.S.
over-the-counter market.
PACE Small/Medium Company Growth Equity Investments may invest up to
10% of its net assets in illiquid securities. The fund may purchase securities
on a when-issued or delayed delivery basis. The fund may lend its portfolio
securities to qualified broker-dealers or institutional investors in an amount
up to 33 1/3% of its total assets. The fund may borrow from banks and through
reverse repurchase agreements for temporary or emergency purposes, but not in
excess of 10% of its total assets. The fund may invest in the securities of
other investment companies and may sell short "against the box."
PACE INTERNATIONAL EQUITY INVESTMENTS has an investment objective of
capital appreciation. Martin Currie, Inc. serves as the fund's investment
adviser. The fund invests primarily in equity securities of companies domiciled
outside the United States and a large part of its investments are usually
denominated in foreign currencies. Under normal circumstances, the fund invests
at least 65% of its total assets in common stocks, which may or may not pay
dividends, and securities convertible into common stocks, of companies domiciled
outside the United States. "Domiciled," for these purposes, means companies (1)
that are organized under the laws of a country other than the United States, (2)
for which the principal securities trading market is in a country other than the
United States, or (3) which derive a significant proportion (at least 50%) of
their revenues or profits from goods produced or sold, investments made or
services performed in the respective country or which have at least 50% of their
assets situated in such a country.
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PACE International Equity Investments normally invests in the
securities of issuers from three or more countries outside the United States
and, under normal market conditions, its investments involve securities
principally traded in at least 10 different countries. The fund's investment
adviser gives particular consideration to investments that are principally
traded in Japanese, European, Pacific and Australian securities markets and to
securities of foreign companies that are traded on U.S. securities markets. The
fund may also invest in the securities of companies in emerging markets,
including Asia, Latin America and other regions where the markets may not yet
fully reflect the potential of the developing economies. The fund considers
"emerging market countries" to be those countries not included in the Morgan
Stanley Capital International World Index of major world economies, except that
Malaysia is considered an emerging market country for this purpose. The fund
invests only in those markets where the investment adviser considers there to be
an acceptable framework of market regulation and sufficient liquidity. The fund
may also invest in non-investment grade convertible securities. These
non-investment grade convertible securities may not be rated lower than B by S&P
or Moody's or, if unrated, determined by the fund's investment adviser to be of
comparable quality. The fund's investments in emerging market securities and
non-investment grade convertible securities, in the aggregate, may not exceed
10% of its total assets at the time of purchase. Subject to its 65% investment
requirement, the fund also may invest in U.S. government bonds and investment
grade bonds of U.S. and foreign issuers.
PACE International Equity Investments may invest up to 15% of its net
assets in illiquid securities. The fund may lend its portfolio securities to
qualified broker-dealers or institutional investors in an amount up to 33 1/3%
of its total assets. The fund may borrow from banks and through reverse
repurchase agreements for temporary or emergency purposes, but not in excess of
10% of its total assets. The fund may invest in structured foreign investments.
The fund may invest in the securities of other investment companies, including
closed-end funds that invest in foreign markets, and may sell short "against the
box."
PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS has an
investment objective of capital appreciation. Schroder Investment Management
North America Inc. serves as the fund's investment adviser. The fund invests at
least 65% of its total assets in equity securities issued by companies domiciled
in emerging market countries. "Domiciled," for these purposes, means companies
(1) that are organized under the laws of an emerging market country, (2) for
which the principal securities trading market is in an emerging market country,
or (3) which derive a significant proportion (at least 50%) of their revenues or
profits from goods produced or sold, investments made or services performed in
the respective country or which have at least 50% of their assets situated in
such a country. The fund considers "emerging market countries" to be those
countries not included in the Morgan Stanley Capital International World Index
of major world economies. The fund normally invests in the securities of issuers
from three or more emerging market countries.
PACE International Emerging Markets Equity Investments may invest up to
35% of its total assets in bonds, including U.S. government bonds, foreign
government bonds and bonds of private U.S. and foreign issuers, including
convertible bonds. The fund's investments may include Brady Bonds. The fund's
investments in bonds of private issuers are rated at the time of purchase at
least A by S&P or Moody's or, if unrated, determined by the investment adviser
to be of comparable quality, except that up to 10% of the fund's total assets
may be invested in lower quality bonds, including convertible bonds. These lower
quality bonds must, at the time of purchase, be rated at least C by S&P or
determined by the investment adviser to be of comparable quality.
PACE International Emerging Markets Equity Investments may invest up to
15% of its net assets in illiquid securities. The fund may lend its portfolio
securities to qualified broker-dealers or institutional investors in an amount
up to 33 1/3% of its total assets. The fund may borrow from banks and through
reverse repurchase agreements for temporary or emergency purposes, but not in
excess of 10% of its total assets. The fund may invest in structured foreign
investments and loan participations and assignments. These investments are
generally subject to the fund's overall limitation on investments in illiquid
securities and in no event may the fund's investments in loan participations and
assignments exceed 10% of the fund's total assets. The fund may invest in the
securities of other investment companies, including closed-end funds that invest
in foreign markets, and may sell short "against the box."
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THE FUNDS' INVESTMENTS, RELATED RISKS AND LIMITATIONS
The following supplements the information contained in the Prospectus
and above concerning the funds' investments, related risks and limitations.
Except as otherwise indicated in the Prospectus or the SAI, the funds have
established no policy limitations on their ability to use the investments or
techniques discussed in these documents.
EQUITY SECURITIES. Equity securities include common stocks, most
preferred stocks and securities that are convertible into them, including common
stock purchase warrants and rights, equity interests in trusts, partnerships,
joint ventures or similar enterprises and depository receipts. Common stocks are
the most familiar type of equity security. They represent an equity (ownership)
interest in a corporation.
Preferred stock has certain fixed income features, like a bond, but is
actually equity in a company, like common stock. Convertible securities include
debentures, notes and preferred equity securities, 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.
Depository receipts typically are issued by banks or trust companies and
evidence ownership of underlying equity securities.
While past performance does not guarantee future results, equity
securities historically have provided the greatest long-term growth potential in
a company. However, the prices of equity securities generally fluctuate more
than bonds and reflect changes in a company's financial condition and in overall
market and economic conditions. Common stocks generally represent the riskiest
investment in a company. It is possible that a fund may experience a substantial
or complete loss on an individual equity investment.
While this is possible with bonds, it is less likely.
BONDS are fixed or variable rate debt obligations, including notes,
debentures, and similar instruments and securities, including money market
instruments. Mortgage- and asset-backed securities are types of bonds, and
certain types of income-producing, non-convertible preferred stocks may be
treated as bonds for investment purposes. Bonds generally are used by
corporations, governments and other issuers to borrow money from investors. The
issuer pays the investor a fixed or variable rate of interest and normally must
repay the amount borrowed on or before maturity. Many preferred stocks and some
bonds are "perpetual" in that they have no maturity date.
Bonds are subject to interest rate risk and credit risk, but to varying
degrees. Interest rate risk is the risk that interest rates will rise and that,
as a result, bond prices will fall, lowering the value of a fund's investments
in bonds. In general, bonds having longer durations are more sensitive to
interest rate changes than are bonds with shorter durations. Credit risk is the
risk that an issuer may be unable or unwilling to pay interest and/or principal
on the bond, or that a market may become less confident as to the issuer's
ability or willingness to do so. Credit risk can be affected by many factors,
including adverse changes in the issuer's own financial condition or in economic
conditions.
CREDIT RATINGS; NON-INVESTMENT GRADE BONDS. Moody's, S&P and other
rating agencies are private services that provide ratings of the credit quality
of bonds, including municipal bonds, and certain other securities. A description
of the ratings assigned to corporate bonds by Moody's and S&P is included in the
Appendix to this SAI. The process by which Moody's and S&P determine ratings for
mortgage-backed securities includes consideration of the likelihood of the
receipt by security holders of all distributions, the nature of the underlying
assets, the credit quality of the guarantor, if any, and the structural, legal
and tax aspects associated with these securities. Not even the highest such
ratings represent an assessment of the likelihood that principal prepayments
will be made by obligors on the underlying assets or the degree to which such
prepayments may differ from that originally anticipated, nor do such ratings
address the possibility that investors may suffer a lower than anticipated yield
or that investors in such securities may fail to recoup fully their initial
investment due to prepayments.
Credit ratings attempt to evaluate the safety of principal and interest
payments, but they do not evaluate the volatility of a bond's value or its
liquidity and do not guarantee the performance of the issuer. Rating agencies
may fail to make timely changes in credit ratings in response to subsequent
events, so that an issuer's current financial condition may be better or worse
than the rating indicates. There is a risk that rating agencies may downgrade
the
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rating of a bond. Subsequent to a bond's purchase by a fund, it may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the fund. The funds may use these ratings in determining whether to
purchase, sell or hold a security. It should be emphasized, however, that
ratings are general and are not absolute standards of quality. Consequently,
bonds with the same maturity, interest rate and rating may have different market
prices.
In addition to ratings assigned to individual bond issues, the
applicable investment adviser will analyze interest rate trends and developments
that may affect individual issuers, including factors such as liquidity,
profitability and asset quality. The yields on bonds are dependent on a variety
of factors, including general money market conditions, general conditions in the
bond market, the financial condition of the issuer, the size of the offering,
the maturity of the obligation and its rating. There is a wide variation in the
quality of bonds, both within a particular classification and between
classifications. An issuer's obligations under its bonds are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of bond holders or other creditors of an issuer; litigation or other
conditions may also adversely affect the power or ability of issuers to meet
their obligations for the payment of interest and principal on their bonds.
Investment grade bonds are rated in one of the four highest rating
categories by Moody's or S&P, comparably rated by another rating agency or, if
unrated, determined by the applicable investment adviser to be of comparable
quality. Moody's considers bonds rated Baa (its lowest investment grade rating)
to have speculative characteristics. This means that changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case for higher rated debt
securities. Bonds rated D by S&P are in payment default or such rating is
assigned upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized. Bonds rated C by Moody's
are in the lowest rated class and can be regarded as having extremely poor
prospects of attaining any real investment standing. References to rated bonds
in the Prospectus or SAI include bonds that are not rated by a rating agency but
that the applicable investment adviser determines to be of comparable quality.
High yield bonds (commonly known as "junk bonds") are non-investment
grade bonds. This means they are rated Ba or lower by Moody's, BB or lower by
S&P, comparably rated by another rating agency or determined by a fund's
investment adviser to be of comparable quality. A fund's investments in
non-investment grade bonds entail greater risk than its investments in higher
rated bonds. Non-investment grade bonds are considered predominantly speculative
with respect to the issuer's ability to pay interest and repay principal and may
involve significant risk exposure to adverse conditions. Non-investment grade
bonds generally offer a higher current yield than that available for investment
grade issues; however, they involve higher risks, in that they are especially
sensitive to adverse changes in general economic conditions and in the
industries in which the issuers are engaged, to changes in the financial
condition of the issuers and to price fluctuations in response to changes in
interest rates. During periods of economic downturn or rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to make payments of interest and principal and increase the
possibility of default. In addition, such issuers may not have more traditional
methods of financing available to them and may be unable to repay debt at
maturity by refinancing. The risk of loss due to default by such issuers is
significantly greater because such securities frequently are unsecured by
collateral and will not receive payment until more senior claims are paid in
full.
The market for non-investment grade bonds, especially those of foreign
issuers, has expanded rapidly in recent years, which has been a period of
generally expanding growth and lower inflation. These securities will be
susceptible to greater risk when economic growth slows or reverses and when
inflation increases or deflation occurs. This has been reflected in recent
volatility in emerging market securities. In the past, many lower rated bonds
experienced substantial price declines reflecting an expectation that many
issuers of such securities might experience financial difficulties. As a result,
the yields on lower rated bonds rose dramatically. However, those higher yields
did not reflect the value of the income stream that holders of such securities
expected. Rather, they reflected the risk that holders of such securities could
lose a substantial portion of their value due to the issuers' financial
restructurings or defaults by the issuers. There can be no assurance that those
declines will not recur.
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The market for non-investment grade bonds generally is thinner and less
active than that for higher quality securities, which may limit a fund's ability
to sell such securities at fair value in response to changes in the economy or
financial markets. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may also decrease the values and liquidity of
non-investment grade bonds, especially in a thinly traded market.
Opinions relating to the validity of municipal bonds and to the
exemption of interest thereon from federal income tax and (when available) from
the federal alternative minimum tax, are rendered by bond counsel to the
respective issuing authorities at the time of issuance. Neither the investing
fund, nor Mitchell Hutchins nor the applicable investment adviser reviews the
proceedings relating to the issuance of municipal bonds or the basis for such
opinions. An issuer's obligations under its municipal bonds are subject to the
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors (such as the federal bankruptcy laws) and federal, state and local
laws that may be enacted that adversely affect the tax-exempt status of interest
on the municipal bonds held by a fund or the exempt-interest dividends received
by a fund's shareholders, extend the time for payment of principal or interest,
or both, or impose other constraints upon enforcement of such obligations. There
is also the possibility that, as a result of litigation or other conditions, the
power or ability of issuers to meet their obligations for the payment of
principal of and interest on their municipal bonds may be materially and
adversely affected.
U.S. GOVERNMENT SECURITIES include direct obligations of the U.S.
Treasury (such as Treasury bills, notes or bonds) and obligations issued or
guaranteed as to principal and interest (but not as to market value) by the U.S.
government, its agencies or its instrumentalities. U.S. government securities
include mortgage-backed securities issued or guaranteed by government agencies
or government-sponsored enterprises. Other U.S. government securities may be
backed by the full faith and credit of the U.S. government or supported
primarily or solely by the creditworthiness of the government-related issuer or,
in the case of mortgage-backed securities, by pools of assets.
U.S. government securities also include separately traded principal and
interest components of securities issued or guaranteed by the U.S. Treasury,
which are traded independently under the Separate Trading of Registered Interest
and Principal of Securities ("STRIPS") program. Under the STRIPS programs, the
principal and interest components are individually numbered and separately
issued by the U.S. Treasury.
Treasury inflation-protected securities ("TIPS") are Treasury bonds on
which the principal value is adjusted daily in accordance with changes in the
Consumer Price Index. Interest on TIPS is payable semi-annually on the adjusted
principal value. The principal value of TIPS would decline during periods of
deflation, but the principal amount payable at maturity would not be less than
the original par amount. If inflation is lower than expected while a fund holds
TIPS, the fund may earn less on the TIPS than it would on conventional Treasury
bonds. Any increase in the principal value of TIPS is taxable in the year the
increase occurs, even though holders do not receive cash representing the
increase at that time.
ASSET-BACKED SECURITIES. Asset-backed securities have structural
characteristics similar to mortgage-backed securities, as discussed in more
detail below. However, the underlying assets are not first lien mortgage loans
or interests therein, but include assets such as motor vehicle installment sales
contracts, other installment sales contracts, home equity loans, leases of
various types of real and personal property and receivables from revolving
credit (credit card) agreements. Such assets are securitized through the use of
trusts or special purpose corporations. Payments or distributions of principal
and interest may be guaranteed up to a certain amount and for a certain time
period by a letter of credit or pool insurance policy issued by a financial
institution unaffiliated with the issuer, or other credit enhancements may be
present.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities represent direct
or indirect interests in pools of underlying mortgage loans that are secured by
real property. U.S. government mortgage-backed securities are issued or
guaranteed as to the payment of principal and interest (but not as to market
value) by Ginnie Mae (also known as the Government National Mortgage
Association), Fannie Mae (also known as the Federal National Mortgage
Association), Freddie Mac (also known as the Federal Home Loan Mortgage
Corporation) or other government sponsored enterprises. Other domestic
mortgage-backed securities are sponsored or issued by private entities,
generally originators of and investors in mortgage loans, including savings
associations, mortgage bankers, commercial banks, investment bankers and special
purposes entities (collectively, "Private Mortgage Lenders").
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Payments of principal and interest (but not the market value) of such private
mortgage-backed securities may be supported by pools of mortgage loans or other
mortgage-backed securities that are guaranteed, directly or indirectly, by the
U.S. government or one of its agencies or instrumentalities, or they may be
issued without any government guarantee of the underlying mortgage assets but
with some form of non-government credit enhancement. Foreign mortgage-backed
securities may be issued by mortgage banks and other private or governmental
entities outside the United States and are supported by interests in foreign
real estate.
Mortgage-backed securities may be composed of one or more classes and
may be structured either as pass-through securities or collateralized debt
obligations. Multiple-class mortgage-backed securities are referred to herein as
"CMOs." Some CMOs are directly supported by other CMOs, which in turn are
supported by mortgage pools. Investors typically receive payments out of the
interest and principal on the underlying mortgages. The portions of these
payments that investors receive, as well as the priority of their rights to
receive payments, are determined by the specific terms of the CMO class. CMOs
involve special risk and evaluating them requires special knowledge.
A major difference between mortgage-backed securities and traditional
bonds is that interest and principal payments are made more frequently (usually
monthly) and that principal may be repaid at any time because the underlying
mortgage loans may be prepaid at any time. When interest rates go down and
homeowners refinance their mortgages, mortgage-backed securities may be paid off
more quickly than investors expect. When interest rates rise, mortgage-backed
securities may be paid off more slowly than originally expected. Changes in the
rate or "speed" of these prepayments can cause the value of mortgage-backed
securities to fluctuate rapidly.
Mortgage-backed securities also may decrease in value as a result of
increases in interest rates and, because of prepayments, may benefit less than
other bonds from declining interest rates. Reinvestments of prepayments may
occur at lower interest rates than the original investment, thus adversely
affecting a fund's yield. Actual prepayment experience may cause the yield of a
mortgage-backed security to differ from what was assumed when the fund purchased
the security. Prepayments at a slower rate than expected may lengthen the
effective life of a mortgage-backed security. The value of securities with
longer effective lives generally fluctuates more widely in response to changes
in interest rates than the value of securities with shorter effective lives.
CMO classes may be specially structured in a manner that provides any
of a wide variety of investment characteristics, such as yield, effective
maturity and interest rate sensitivity. As market conditions change, however,
and particularly during periods of rapid or unanticipated changes in market
interest rates, the attractiveness of the CMO classes and the ability of the
structure to provide the anticipated investment characteristics may be
significantly reduced. These changes can result in volatility in the market
value, and in some instances reduced liquidity, of the CMO class.
Certain classes of CMOs and other mortgage-backed securities are
structured in a manner that makes them extremely sensitive to changes in
prepayment rates. Interest-only ("IO") and principal-only ("PO") classes are
examples of this. IOs are entitled to receive all or a portion of the interest,
but none (or only a nominal amount) of the principal payments, from the
underlying mortgage assets. If the mortgage assets underlying an IO experience
greater than anticipated principal prepayments, then the total amount of
interest payments allocable to the IO class, and therefore the yield to
investors, generally will be reduced. In some instances, an investor in an IO
may fail to recoup all of his or her initial investment, even if the security is
government issued or guaranteed or is rated AAA or the equivalent. Conversely,
PO classes are entitled to receive all or a portion of the principal payments,
but none of the interest, from the underlying mortgage assets. PO classes are
purchased at substantial discounts from par, and the yield to investors will be
reduced if principal payments are slower than expected. Some IOs and POs, as
well as other CMO classes, are structured to have special protections against
the effects of prepayments. These structural protections, however, normally are
effective only within certain ranges of prepayment rates and thus will not
protect investors in all circumstances. Inverse floating rate CMO classes also
may be extremely volatile. These classes pay interest at a rate that decreases
when a specified index of market rates increases.
The market for privately issued mortgage-backed securities is smaller
and less liquid than the market for U.S. government mortgage-backed securities.
Foreign mortgage-backed securities markets are substantially smaller
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than U.S. markets, but have been established in several countries, including
Germany, Denmark, Sweden, Canada and Australia, and may be developed elsewhere.
Foreign mortgage-backed securities generally are structured differently than
domestic mortgage-backed securities, but they normally present substantially
similar investment risks as well as the other risks normally associated with
foreign securities.
During 1994, the value and liquidity of many mortgage-backed securities
declined sharply due primarily to increases in interest rates. There can be no
assurance that such declines will not recur. The market value of certain
mortgage-backed securities, including IO and PO classes of mortgage-backed
securities, can be extremely volatile, and these securities may become illiquid.
A fund's investment adviser seeks to manage its investments in mortgage-backed
securities so that the volatility of its portfolio, taken as a whole, is
consistent with its investment objective. Management of portfolio duration is an
important part of this. However, computing the duration of mortgage-backed
securities is complex. See, "The Funds' Investments, Related Risks and
Limitations -- Duration." If a fund's investment adviser does not compute the
duration of mortgage-backed securities correctly, the value of its portfolio may
be either more or less sensitive to changes in market interest rates than
intended. In addition, if market interest rates or other factors that affect the
volatility of securities held by a fund change in ways that its investment
adviser does not anticipate, the fund's ability to meet its investment objective
may be reduced.
More information concerning these mortgage-backed securities and the
related risks of investments therein is set forth below. New types of
mortgage-backed securities are developed and marketed from time to time and,
consistent with its investment limitations, a fund expects to invest in those
new types of mortgage-backed securities that its investment adviser believes may
assist it in achieving its investment objective. Similarly, a fund may invest in
mortgage-backed securities issued by new or existing governmental or private
issuers other than those identified herein.
GINNIE MAE CERTIFICATES -- Ginnie Mae guarantees certain mortgage
pass-through certificates ("Ginnie Mae certificates") that are issued by Private
Mortgage Lenders and that represent ownership interests in individual pools of
residential mortgage loans. These securities are designed to provide monthly
payments of interest and principal to the investor. Timely payment of interest
and principal is backed by the full faith and credit of the U.S. government.
Each mortgagor's monthly payments to his lending institution on his residential
mortgage are "passed through" to certificateholders such as the funds. Mortgage
pools consist of whole mortgage loans or participations in loans. The terms and
characteristics of the mortgage instruments are generally uniform within a pool
but may vary among pools. Lending institutions that originate mortgages for the
pools are subject to certain standards, including credit and other underwriting
criteria for individual mortgages included in the pools.
FANNIE MAE CERTIFICATES -- Fannie Mae facilitates a national secondary
market in residential mortgage loans insured or guaranteed by U.S. government
agencies and in privately insured or uninsured residential mortgage loans
(sometimes referred to as "conventional mortgage loans" or "conventional loans")
through its mortgage purchase and mortgage-backed securities sales activities.
Fannie Mae issues guaranteed mortgage pass-through certificates ("Fannie Mae
certificates"), which represent pro rata shares of all interest and principal
payments made and owed on the underlying pools. Fannie Mae guarantees timely
payment of interest and principal on Fannie Mae certificates. The Fannie Mae
guarantee is not backed by the full faith and credit of the U.S. government.
FREDDIE MAC CERTIFICATES -- Freddie Mac also facilitates a national
secondary market for conventional residential and U.S. government-insured
mortgage loans through its mortgage purchase and mortgage-backed securities
sales activities. Freddie Mac issues two types of mortgage pass-through
securities: mortgage participation certificates ("PCs") and guaranteed mortgage
certificates ("GMCs"). Each PC represents a pro rata share of all interest and
principal payments made and owed on the underlying pool. Freddie Mac generally
guarantees timely monthly payment of interest on PCs and the ultimate payment of
principal, but it also has a PC program under which it guarantees timely payment
of both principal and interest. GMCs also represent a pro rata interest in a
pool of mortgages. These instruments, however, pay interest semi-annually and
return principal once a year in guaranteed minimum payments. The Freddie Mac
guarantee is not backed by the full faith and credit of the U.S. government.
PRIVATE MORTGAGE-BACKED SECURITIES -- Mortgage-backed securities issued
by Private Mortgage Lenders are structured similarly to CMOs issued or
guaranteed by Ginnie Mae, Fannie Mae and Freddie Mac. Such
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mortgage-backed securities may be supported by pools of U.S. government or
agency insured or guaranteed mortgage loans or by other mortgage-backed
securities issued by a government agency or instrumentality, but they generally
are supported by pools of conventional (I.E., non-government guaranteed or
insured) mortgage loans. Since such mortgage-backed securities normally are not
guaranteed by an entity having the credit standing of Ginnie Mae, Fannie Mae and
Freddie Mac, they normally are structured with one or more types of credit
enhancement. See "The Funds' Investments, Related Risks and Limitations --
Mortgage-Backed Securities -- TYPES OF CREDIT ENHANCEMENT." These credit
enhancements do not protect investors from changes in market value.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS MORTGAGE
PASS-THROUGHS -- CMOs are debt obligations that are collateralized by mortgage
loans or mortgage pass-through securities (such collateral collectively being
called "Mortgage Assets"). CMOs may be issued by Private Mortgage Lenders or by
government entities such as Fannie Mae or Freddie Mac. Multi-class mortgage
pass-through securities are interests in trusts that are comprised of Mortgage
Assets and that have multiple classes similar to those in CMOs. Unless the
context indicates otherwise, references herein to CMOs include multi-class
mortgage pass-through securities. Payments of principal of, and interest on, the
Mortgage Assets (and in the case of CMOs, any reinvestment income thereon)
provide the funds to pay the debt service on the CMOs or to make scheduled
distributions on the multi-class mortgage pass-through securities.
In a CMO, a series of bonds or certificates is issued in multiple
classes. Each class of CMO, also referred to as a "tranche," is issued at a
specific fixed or floating coupon rate and has a stated maturity or final
distribution date. Principal prepayments on the Mortgage Assets may cause CMOs
to be retired substantially earlier than their stated maturities or final
distribution dates. Interest is paid or accrued on all classes of a CMO (other
than any principal-only or "PO" class) on a monthly, quarterly or semi-annual
basis. The principal and interest on the Mortgage Assets may be allocated among
the several classes of a CMO in many ways. In one structure, payments of
principal, including any principal prepayments, on the Mortgage Assets are
applied to the classes of a CMO in the order of their respective stated
maturities or final distribution dates so that no payment of principal will be
made on any class of the CMO until all other classes having an earlier stated
maturity or final distribution date have been paid in full. In some CMO
structures, all or a portion of the interest attributable to one or more of the
CMO classes may be added to the principal amounts attributable to such classes,
rather than passed through to certificateholders on a current basis, until other
classes of the CMO are paid in full.
Parallel pay CMOs are structured to provide payments of principal on
each payment date to more than one class. These simultaneous payments are taken
into account in calculating the stated maturity date or final distribution date
of each class, which, as with other CMO structures, must be retired by its
stated maturity date or final distribution date but may be retired earlier.
Some CMO classes are structured to pay interest at rates that are
adjusted in accordance with a formula, such as a multiple or fraction of the
change in a specified interest rate index, so as to pay at a rate that will be
attractive in certain interest rate environments but not in others. For example,
an inverse floating rate CMO class pays interest at a rate that increases as a
specified interest rate index decreases but decreases as that index increases.
For other CMO classes, the yield may move in the same direction as market
interest rates -- I.E., the yield may increase as rates increase and decrease as
rates decrease--but may do so more rapidly or to a greater degree. The market
value of such securities generally is more volatile than that of a fixed rate
obligation. Such interest rate formulas may be combined with other CMO
characteristics. For example, a CMO class may be an inverse interest-only ("IO")
class, on which the holders are entitled to receive no payments of principal and
are entitled to receive interest at a rate that will vary inversely with a
specified index or a multiple thereof.
TYPES OF CREDIT ENHANCEMENT -- To lessen the effect of failures by
obligors on Mortgage Assets to make payments, mortgage-backed securities may
contain elements of credit enhancement. Such credit enhancement falls into two
categories: (1) liquidity protection and (2) loss protection. Loss protection
relates to losses resulting after default by an obligor on the underlying assets
and collection of all amounts recoverable directly from the obligor and through
liquidation of the collateral. Liquidity protection refers to the provision of
advances, generally by the entity administering the pool of assets (usually the
bank, savings association or mortgage banker that transferred the underlying
loans to the issuer of the security), to ensure that the receipt of payments on
the underlying pool occurs
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in a timely fashion. Loss protection ensures ultimate payment of the obligations
on at least a portion of the assets in the pool. Such protection may be provided
through guarantees, insurance policies or letters of credit obtained by the
issuer or sponsor, from third parties, through various means of structuring the
transaction or through a combination of such approaches. A fund will not pay any
additional fees for such credit enhancement, although the existence of credit
enhancement may increase the price of a security. Credit enhancements do not
provide protection against changes in the market value of the security. Examples
of credit enhancement arising out of the structure of the transaction include
"senior-subordinated securities" (multiple class securities with one or more
classes subordinate to other classes as to the payment of principal thereof and
interest thereon, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of "spread
accounts" or "reserve funds" (where cash or investments, sometimes funded from a
portion of the payments on the underlying assets, are held in reserve against
future losses) and "over-collateralization" (where the scheduled payments on, or
the principal amount of, the underlying assets exceed that required to make
payment of the securities and pay any servicing or other fees). The degree of
credit enhancement provided for each issue generally is based on historical
information regarding the level of credit risk associated with the underlying
assets. Delinquency or loss in excess of that anticipated could adversely affect
the return on an investment in such a security.
SPECIAL CHARACTERISTICS OF MORTGAGE- AND ASSET-BACKED SECURITIES -- The
yield characteristics of mortgage- and asset-backed securities differ from those
of traditiona1 debt securities. Among the major differences are that interest
and principal payments are made more frequently, usually monthly, and that
principal may be prepaid at any time because the underlying mortgage loans or
other obligations generally may be prepaid at any time. Prepayments on a pool of
mortgage loans are influenced by a variety of economic, geographic, social and
other factors, including changes in mortgagors' housing needs, job transfers,
unemployment, mortgagors' net equity in the mortgaged properties and servicing
decisions. Generally, however, prepayments on fixed-rate mortgage loans will
increase during a period of falling interest rates and decrease during a period
of rising interest rates. Similar factors apply to prepayments on asset-backed
securities, but the receivables underlying asset-backed securities generally are
of a shorter maturity and thus are less likely to experience substantial
prepayments. Such securities, however, often provide that for a specified time
period the issuers will replace receivables in the pool that are repaid with
comparable obligations. If the issuer is unable to do so, repayment of principal
on the asset-backed securities may commence at an earlier date. Mortgage- and
asset-backed securities may decrease in value as a result of increases in
interest rates and may benefit less than other fixed-income securities from
declining interest rates because of the risk of prepayment.
The rate of interest on mortgage-backed securities is lower than the
interest rates paid on the mortgages included in the underlying pool due to the
annual fees paid to the servicer of the mortgage pool for passing through
monthly payments to certificateholders and to any guarantor, and due to any
yield retained by the issuer. Actual yield to the holder may vary from the
coupon rate, even if adjustable, if the mortgage-backed securities are purchased
or traded in the secondary market at a premium or discount. In addition, there
is normally some delay between the time the issuer receives mortgage payments
from the servicer and the time the issuer makes the payments on the
mortgage-backed securities, and this delay reduces the effective yield to the
holder of such securities.
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption. The average life of pass-through pools
varies with the maturities of the underlying mortgage loans. A pool's term may
be shortened by unscheduled or early payments of principal on the underlying
mortgages. Because prepayment rates of individual pools vary widely, it is not
possible to predict accurately the average life of a particular pool. In the
past, a common industry practice was to assume that prepayments on pools of
fixed rate 30-year mortgages would result in a 12-year average life for the
pool. At present, mortgage pools, particularly those with loans with other
maturities or different characteristics, are priced on an assumption of average
life determined for each pool. In periods of declining interest rates, the rate
of prepayment tends to increase, thereby shortening the actual average life of a
pool of mortgage-related securities. Conversely, in periods of rising interest
rates, the rate of prepayment tends to decrease, thereby lengthening the actual
average life of the pool. However, these effects may not be present, or may
differ in degree, if the mortgage loans in the pools have adjustable interest
rates or other special payment terms, such as a
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prepayment charge. Actual prepayment experience may cause the yield of
mortgage-backed securities to differ from the assumed average life yield.
Reinvestment of prepayments may occur at lower interest rates than the original
investment, thus adversely affecting a fund's yield.
ADJUSTABLE RATE MORTGAGE AND FLOATING RATE MORTGAGE-BACKED
SECURITIES -- Adjustable rate mortgage securities are mortgage-backed securities
(sometimes referred to as ARMs) that represent a right to receive interest
payments at a rate that is adjusted to reflect the interest earned on a pool of
mortgage loans bearing variable or adjustable rates of interest. Floating rate
mortgage-backed securities are classes of mortgage-backed securities that have
been structured to represent the right to receive interest payments at rates
that fluctuate in accordance with an index but that generally are supported by
pools comprised of fixed-rate mortgage loans. Because the interest rates on ARM
and floating rate mortgage-backed securities are reset in response to changes in
a specified market index, the values of such securities tend to be less
sensitive to interest rate fluctuations than the values of fixed-rate
securities. As a result, during periods of rising interest rates, ARMs generally
do not decrease in value as much as fixed rate securities. Conversely, during
periods of declining rates, ARMs generally do not increase in value as much as
fixed rate securities. ARMs represent a right to receive interest payments at a
rate that is adjusted to reflect the interest earned on a pool of adjustable
rate mortgage loans. These mortgage loans generally specify that the borrower's
mortgage interest rate may not be adjusted above a specified lifetime maximum
rate or, in some cases, below a minimum lifetime rate. In addition, certain
adjustable rate mortgage loans specify limitations on the maximum amount by
which the mortgage interest rate may adjust for any single adjustment period.
These mortgage loans also may limit changes in the maximum amount by which the
borrower's monthly payment may adjust for any single adjustment period. In the
event that a monthly payment is not sufficient to pay the interest accruing on
the ARM, any such excess interest is added to the mortgage loan ("negative
amortization"), which is repaid through future payments. If the monthly payment
exceeds the sum of the interest accrued at the applicable mortgage interest rate
and the principal payment that would have been necessary to amortize the
outstanding principal balance over the remaining term of the loan, the excess
reduces the principal balance of the adjustable rate mortgage loan. Borrowers
under these mortgage loans experiencing negative amortization may take longer to
build up their equity in the underlying property and may be more likely to
default.
Adjustable rate mortgage loans also may be subject to a greater rate of
prepayments in a declining interest rate environment. For example, during a
period of declining interest rates, prepayments on these mortgage loans could
increase because the availability of fixed mortgage loans at competitive
interest rates may encourage mortgagors to "lock-in" at a lower interest rate.
Conversely, during a period of rising interest rates, prepayments on adjustable
rate mortgage loans might decrease. The rate of prepayments with respect to
adjustable rate mortgage loans has fluctuated in recent years.
The rates of interest payable on certain adjustable rate mortgage
loans, and therefore on certain ARM securities, are based on indices, such as
the one-year constant maturity Treasury rate, that reflect changes in market
interest rates. Others are based on indices, such as the 11th District Federal
Home Loan Bank Cost of Funds Index ("COFI"), that tend to lag behind changes in
market interest rates. The values of ARM securities supported by adjustable rate
mortgage loans that adjust based on lagging indices tend to be somewhat more
sensitive to interest rate fluctuations than those reflecting current interest
rate levels, although the values of such ARM securities still tend to be less
sensitive to interest rate fluctuations than fixed-rate securities.
Floating rate mortgage-backed securities are classes of mortgage-backed
securities that have been structured to represent the right to receive interest
payments at rates that fluctuate in accordance with an index but that generally
are supported by pools comprised of fixed-rate mortgage loans. As with ARM
securities, interest rate adjustments on floating rate mortgage-backed
securities may be based on indices that lag behind market interest rates.
Interest rates on floating rate mortgage-backed securities generally are
adjusted monthly. Floating rate mortgage-backed securities are subject to
lifetime interest rate caps, but they generally are not subject to limitations
on monthly or other periodic changes in interest rates or monthly payments.
INVESTING IN FOREIGN SECURITIES. Investing in foreign securities
involves more risks than investing in the United States. The value of foreign
securities is subject to economic and political developments in the countries
where the companies operate and to changes in foreign currency values.
Investments in foreign securities involve
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risks relating to political, social and economic developments abroad, as well as
risks resulting from the differences between the regulations to which U.S. and
foreign issuers and markets are subject. These risks may include expropriation,
confiscatory taxation, withholding taxes on interest and/or dividends,
limitations on the use of or transfer of fund assets and political or social
instability or diplomatic developments. Moreover, individual foreign economies
may differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. In those European
countries that have begun using the Euro as a common currency unit, individual
national economies may be adversely affected by the inability of national
governments to use monetary policy to address their own economic or political
concerns.
Securities of foreign issuers may not be registered with the SEC, and
the issuers thereof may not be subject to its reporting requirements.
Accordingly, there may be less publicly available information concerning foreign
issuers of securities held by the funds than is available concerning U.S.
companies. Foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards or to other regulatory requirements
comparable to those applicable to U.S. companies.
Securities of many foreign companies may be less liquid and their
prices more volatile than securities of comparable U.S. companies. From time to
time foreign securities may be difficult to liquidate rapidly without
significantly depressing the price of such securities. Transactions in foreign
securities may be subject to less efficient settlement practices. Foreign
securities trading practices, including those involving securities settlement
where fund assets may be released prior to receipt of payment, may expose a fund
to increased risk in the event of a failed trade or the insolvency of a foreign
broker-dealer. Legal remedies for defaults and disputes may have to be pursued
in foreign courts, whose procedures differ substantially from those of U.S.
courts.
The costs of investing outside the United States frequently are higher
than those attributable to investing in the United States. This is particularly
true with respect to emerging capital markets. For example, the cost of
maintaining custody of foreign securities exceeds custodian costs for domestic
securities, and transaction and settlement costs of foreign investing frequently
are higher than those attributable to domestic investing. Costs associated with
the exchange of currencies also make foreign investing more expensive than
domestic investing.
A fund may invest in foreign securities by purchasing depository
receipts, including American Depository Receipts ("ADRs"), European Depository
Receipts ("EDRs") and Global Depository Receipts ("GDRs"), or other securities
convertible into securities of issuers based in foreign countries. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically issued
by a U.S. bank or trust company evidencing ownership of the underlying
securities. They generally are in registered form, are denominated in U.S.
dollars and are designed for use in the U.S. securities markets. EDRs are
European receipts evidencing a similar arrangement, may be denominated in other
currencies and are designed for use in European securities markets. GDRs are
similar to EDRs and are designed for use in several international financial
markets. For purposes of each fund's investment policies, depository receipts
generally are deemed to have the same classification as the underlying
securities they represent. Thus, a depository receipt representing ownership of
common stock will be treated as common stock.
ADRs are publicly traded on exchanges or over-the-counter in the United
States and are issued through "sponsored" or "unsponsored" arrangements. In a
sponsored ADR arrangement, the foreign issuer assumes the obligation to pay some
or all of the depository's transaction fees, whereas under an unsponsored
arrangement, the foreign issuer assumes no obligations and the depository's
transaction fees are paid directly by the ADR holders. In addition, less
information is available in the United States about an unsponsored ADR than
about a sponsored ADR.
Eurodollar bonds and Yankee bonds are types of U.S. dollar-denominated
foreign securities. Eurodollar bonds are U.S. dollar-denominated bonds that are
held outside the United States, primarily in Europe. Yankee bonds are U.S.
dollar-denominated bonds of foreign issuers that are sold primarily in the
United States.
The funds that invest outside the United States anticipate that their
brokerage transactions involving foreign securities of companies headquartered
in countries other than the United States will be conducted primarily on the
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principal exchanges of such countries. Although each fund will endeavor to
achieve the best net results in effecting its portfolio transactions,
transactions on foreign exchanges are usually subject to fixed commissions that
are generally higher than negotiated commissions on U.S. transactions. There is
generally less government supervision and regulation of exchanges and brokers in
foreign countries than in the United States.
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 fund are uninvested and no return is earned thereon. The inability
of a fund to make intended security purchases due to settlement problems could
cause the fund to miss attractive investment opportunities. Inability to dispose
of a portfolio security due to settlement problems could result either in losses
to the fund due to subsequent declines in the value of such portfolio security
or, if the fund has entered into a contract to sell the security, could result
in possible liability to the purchaser.
Investment income and gains on certain foreign securities in which the
funds may invest may be subject to foreign withholding or other taxes that could
reduce the return on these securities. Tax treaties between the United States
and certain foreign countries, however, may reduce or eliminate the amount of
foreign taxes to which the funds would be subject. In addition, substantial
limitations may exist in certain countries with respect to the funds' ability to
repatriate investment capital or the proceeds of sales of securities.
FOREIGN CURRENCY RISKS. Currency risk is the risk that changes in
foreign exchange rates may reduce the U.S. dollar value of a fund's foreign
investments. If the value of a foreign currency rises against the value of the
U.S. dollar, the value of a fund's investments that are denominated in, or
linked to, that currency will increase. Conversely, if the value of a foreign
currency declines against the value of the U.S. dollar, the value of such fund
investments will decrease. Such changes may have a significant impact on the
value of fund shares. In some instances, a fund may use derivative strategies to
hedge against changes in foreign currency value. (See "Strategies Using
Derivative Instruments" below.) However, opportunities to hedge against currency
risk may not exist in certain markets, particularly with respect to emerging
market currencies, and even when appropriate hedging opportunities are
available, a fund may choose not to hedge against currency risk.
Generally, currency exchange rates are determined by supply and demand
in the foreign exchange markets and the relative merits of investments in
different countries. In the case of those European countries that use the Euro
as a common currency unit, the relative merits of investments in the common
market in which they participate, rather than the merits of investments in the
individual country, will be a determinant of currency exchange rates. Currency
exchange rates also can be affected by the intervention of the U.S. and foreign
governments or central banks, the imposition of currency controls, speculation,
devaluation or other political or economic developments inside and outside the
United States.
Each fund that invests in foreign-currency denominated securities
values its assets daily in U.S. dollars and does not intend to convert its
holdings of foreign currencies to U.S. dollars on a daily basis. From time to
time a fund's foreign currencies may be held as "foreign currency call accounts"
at foreign branches of foreign or domestic banks. These accounts bear interest
at negotiated rates and are payable upon relatively short demand periods. If a
bank became insolvent, a fund could suffer a loss of some or all of the amounts
deposited. A fund may convert foreign currency to U.S. dollars from time to
time.
The value of the assets of a fund as measured in U.S. dollars may be
affected favorably or unfavorably by fluctuations in currency rates and exchange
control regulations. Further, a fund may incur costs in connection with
conversions between various currencies. Currency exchange dealers realize a
profit based on the difference between the prices at which they are buying and
selling various currencies. Thus, a dealer normally will offer to sell a foreign
currency to a fund at one rate, while offering a lesser rate of exchange should
a fund desire immediately to resell that currency to the dealer. A fund conducts
its currency exchange transactions either on a spot (I.E., cash) basis at the
spot rate prevailing in the foreign currency exchange market, or through
entering into forward, futures or options contracts to purchase or sell foreign
currencies.
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SPECIAL CHARACTERISTICS OF EMERGING MARKET SECURITIES AND SOVEREIGN DEBT
EMERGING MARKET INVESTMENTS. The special risks of investing in foreign
securities are heightened when emerging markets are involved. For example, many
emerging market currencies recently have experienced significant devaluations
relative to the U.S. dollar. Emerging market countries typically have economic
and political systems that are less fully developed and can be expected to be
less stable than those of developed countries. Emerging market countries may
have policies that restrict investment by foreigners, and there is a higher risk
of government expropriation or nationalization of private property. The
possibility of low or nonexistent trading volume in the securities of companies
in emerging markets also may result in a lack of liquidity and in price
volatility. Issuers in emerging markets typically are subject to a greater
degree of change in earnings and business prospects than are companies in
developed markets.
INVESTMENT AND REPATRIATION RESTRICTIONS -- Foreign investment in the
securities markets of several emerging market countries is restricted or
controlled to varying degrees. These restrictions may limit a fund's investment
in these countries and may increase its expenses. For example, certain countries
may require governmental approval prior to investments by foreign persons in a
particular company or industry sector or limit investment by foreign persons to
only a specific class of securities of a company, which may have less
advantageous terms (including price) than securities of the company available
for purchase by nationals. Certain countries may restrict or prohibit investment
opportunities in issuers or industries deemed important to national interests.
In addition, the repatriation of both investment income and capital from some
emerging market countries is subject to restrictions, such as the need for
certain government consents. Even where there is no outright restriction on
repatriation of capital, the mechanics of repatriation may affect certain
aspects of a fund's operations. These restrictions may in the future make it
undesirable to invest in the countries to which they apply. In addition, if
there is a deterioration in a country's balance of payments or for other
reasons, a country may impose restrictions on foreign capital remittances
abroad. A fund could be adversely affected by delays in, or a refusal to grant,
any required governmental approval for repatriation, as well as by the
application to it of other restrictions on investments.
If, because of restrictions on repatriation or conversion, a fund were
unable to distribute substantially all of its net investment income and net
short-term and long-term capital gains within applicable time periods, the fund
would be subject to federal income and/or excise taxes that would not otherwise
be incurred and could cease to qualify for the favorable tax treatment afforded
to regulated investment companies under the Internal Revenue Code. In that case,
it would become subject to federal income tax on all of its income and net
gains.
SOCIAL, POLITICAL AND ECONOMIC FACTORS -- Many emerging market
countries may be subject to a greater degree of social, political and economic
instability than is the case in the United States. Any change in the leadership
or policies of these countries may halt the expansion of or reverse any
liberalization of foreign investment policies now occurring. Such instability
may result from, among other things, the following: (i) authoritarian
governments or military involvement in political and economic decision making,
and changes in government through extra-constitutional means; (ii) popular
unrest associated with demands for improved political, economic and social
conditions; (iii) internal insurgencies; (iv) hostile relations with neighboring
countries; and (v) ethnic, religious and racial disaffection. Such social,
political and economic instability could significantly disrupt the financial
markets in those countries and elsewhere and could adversely affect the value of
a fund's assets. In addition, there may be the possibility of asset
expropriations or future confiscatory levels of taxation affecting a fund.
The economies of many emerging markets are heavily dependent upon
international trade and are accordingly affected by protective trade barriers
and the economic conditions of their trading partners, principally the United
States, Japan, China and the European Union. The enactment by the United States
or other principal trading partners of protectionist trade legislation,
reduction of foreign investment in the local economies and general declines in
the international securities markets could have a significant adverse effect
upon the securities markets of these countries. In addition, the economies of
some countries are vulnerable to weakness in world prices for their commodity
exports, including crude oil.
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FINANCIAL INFORMATION AND LEGAL STANDARDS -- Issuers in emerging market
countries generally are subject to accounting, auditing and financial standards
and requirements that differ, in some cases significantly, from those applicable
to U.S. issuers. In particular, the assets and profits appearing on the
financial statements of an emerging market issuer may not reflect its financial
position or results of operations in the way they would be reflected had the
financial statements been prepared in accordance with U.S. generally accepted
accounting principles. In addition, for an issuer that keeps accounting records
in local currency, inflation accounting rules may require, for both tax and
accounting purposes, that certain assets and liabilities be restated on the
issuer's balance sheet in order to express items in terms of currency of
constant purchasing power. Inflation accounting may indirectly generate losses
or profits. Consequently, financial data may be materially affected by
restatements for inflation and may not accurately reflect the real condition of
those issuers and securities markets.
In addition, existing laws and regulations are often inconsistently
applied. As legal systems in some of the emerging market countries develop,
foreign investors may be adversely affected by new laws and regulations, changes
to existing laws and regulations and preemption of local laws and regulations by
national laws. In circumstances where adequate laws exist, it may not be
possible to obtain swift and equitable enforcement of the law.
FOREIGN SOVEREIGN DEBT. Sovereign debt includes bonds that are issued
by foreign governments or their agencies, instrumentalities or political
subdivisions or by foreign central banks. Sovereign debt also may be issued by
quasi-governmental entities that are owned by foreign governments but are not
backed by their full faith and credit or general taxing powers. Investment in
sovereign debt involves special risks. The issuer of the debt or the
governmental authorities that control the repayment of the debt may be unable or
unwilling to repay principal and/or interest when due in accordance with the
terms of such debt, and the funds may have limited legal recourse in the event
of a default.
Sovereign debt differs from debt obligations issued by private entities
in that, generally, remedies for defaults must be pursued in the courts of the
defaulting party. Legal recourse is therefore somewhat diminished. Political
conditions, especially a sovereign entity's willingness to meet the terms of its
debt obligations, are of considerable significance. Also, there can be no
assurance that the holders of commercial bank debt issued by the same sovereign
entity may not contest payments to the holders of sovereign debt in the event of
default under commercial bank loan agreements.
A sovereign debtor's willingness or ability to repay principal and
interest due in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the sovereign debtor's policy
toward principal international lenders and the political constraints to which a
sovereign debtor may be subject. A country whose exports are concentrated in a
few commodities could be vulnerable to a decline in the international price of
such commodities. Increased protectionism on the part of a country's trading
partners, or political changes in those countries, could also adversely affect
its exports. Such events could diminish a country's trade account surplus, if
any, or the credit standing of a particular local government or agency. Another
factor bearing on the ability of a country to repay sovereign debt is the level
of the country's international reserves. Fluctuations in the level of these
reserves can affect the amount of foreign exchange readily available for
external debt payments and, thus, could have a bearing on the capacity of the
country to make payments on its sovereign debt.
The occurrence of political, social or diplomatic changes in one or
more of the countries issuing sovereign debt could adversely affect the funds'
investments. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their sovereign debt.
With respect to sovereign debt of emerging market issuers, investors
should be aware that certain emerging market countries are among the largest
debtors to commercial banks and foreign governments. Some emerging market
countries have from time to time declared moratoria on the payment of principal
and interest on external debt.
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Some emerging market countries have experienced difficulty in servicing
their sovereign debt on a timely basis which led to defaults on certain
obligations and the restructuring of certain indebtedness. Restructuring
arrangements have included, among other things, reducing and rescheduling
interest and principal payments by negotiating new or amended credit agreements
or converting outstanding principal and unpaid interest to Brady Bonds
(discussed below), and obtaining new credit to finance interest payments.
Holders of sovereign debt, including the funds, may be requested to participate
in the rescheduling of such debt and to extend further loans to sovereign
debtors. The interests of holders of sovereign debt could be adversely affected
in the course of restructuring arrangements or by certain other factors referred
to below. Furthermore, some of the participants in the secondary market for
sovereign debt may also be directly involved in negotiating the terms of these
arrangements and may, therefore, have access to information not available to
other market participants. Obligations arising from past restructuring
agreements may affect the economic performance and political and social
stability of certain issuers of sovereign debt. There is no bankruptcy
proceeding by which sovereign debt on which a sovereign has defaulted may be
collected in whole or in part.
Foreign investment in certain sovereign debt is restricted or
controlled to varying degrees. These restrictions or controls may at times limit
or preclude foreign investment in such sovereign debt and increase the costs and
expenses of a fund. Certain countries in which a fund may invest require
governmental approval prior to investments by foreign persons, limit the amount
of investment by foreign persons in a particular issuer, limit the investment by
foreign persons only to a specific class of securities of an issuer that may
have less advantageous rights than the classes available for purchase by
domiciliaries of the countries or impose additional taxes on foreign investors.
Certain issuers may require governmental approval for the repatriation of
investment income, capital or the proceeds of sales of securities by foreign
investors. In addition, if a deterioration occurs in a country's balance of
payments the country could impose temporary restrictions on foreign capital
remittances. A fund could be adversely affected by delays in, or a refusal to
grant, any required governmental approval for repatriation of capital, as well
as by the application to the fund of any restrictions on investments. Investing
in local markets may require a fund to adopt special procedures, seek local
government approvals or take other actions, each of which may involve additional
costs to the fund.
BRADY BONDS -- Brady Bonds are sovereign bonds issued under the
framework of the Brady Plan, an initiative announced by former U.S. Treasury
Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to
restructure their outstanding external commercial bank indebtedness. In
restructuring its external debt under the Brady Plan framework, a debtor nation
negotiates with its existing bank lenders as well as multilateral institutions
such as the International Monetary Fund ("IMF"). The Brady Plan framework, as it
has developed, contemplates the exchange of commercial bank debt for newly
issued Brady Bonds. Brady Bonds may also be issued in respect of new money being
advanced by existing lenders in connection with the debt restructuring. The
World Bank and the IMF support the restructuring by providing funds pursuant to
loan agreements or other arrangements which enable the debtor nation to
collateralize the new Brady Bonds or to repurchase outstanding bank debt at a
discount.
Brady Bonds have been issued only in recent years, and accordingly do
not have a long payment history. Agreements implemented under the Brady Plan to
date are designed to achieve debt and debt-service reduction through specific
options negotiated by a debtor nation with its creditors. As a result, the
financial packages offered by each country differ. The types of options have
included the exchange of outstanding commercial bank debt for bonds issued at
100% of face value of such debt, which carry a below-market stated rate of
interest (generally known as par bonds), bonds issued at a discount from the
face value of such debt (generally known as discount bonds), bonds bearing an
interest rate which increases over time and bonds issued in exchange for the
advancement of new money by existing lenders. Regardless of the stated face
amount and stated interest rate of the various types of Brady Bonds, a fund will
purchase Brady Bonds in which the price and yield to the investor reflect market
conditions at the time of purchase.
Certain Brady Bonds have been collateralized as to principal due at
maturity by U.S. Treasury zero coupon bonds with maturities equal to the final
maturity of such Brady Bonds. Collateral purchases are financed by the IMF, the
World Bank and the debtor nations' reserves. In the event of a default with
respect to collateralized Brady Bonds as a result of which the payment
obligations of the issuer are accelerated, the U.S. Treasury zero coupon
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obligations held as collateral for the payment of principal will not be
distributed to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held by the collateral agent until the
scheduled maturity of the defaulted Brady Bonds, which will continue to be
outstanding, at which time the face amount of the collateral will equal the
principal payments that would have then been due on the Brady Bonds in the
normal course. Interest payments on Brady Bonds may be wholly uncollateralized
or may be collateralized by cash or high grade securities in amounts that
typically represent between 12 and 18 months of interest accruals on these
instruments, with the balance of the interest accruals being uncollateralized.
Brady Bonds are often viewed as having several valuation components:
(1) the collateralized repayment of principal, if any, at final maturity, (2)
the collateralized interest payments, if any, (3) the uncollateralized interest
payments and (4) any uncollateralized repayment of principal at maturity (these
uncollateralized amounts constitute the "residual risk"). In light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative. A fund may purchase Brady Bonds with no or limited
collateralization, and will be relying for payment of interest and (except in
the case of principal collateralized Brady Bonds) repayment of principal
primarily on the willingness and ability of the foreign government to make
payment in accordance with the terms of the Brady Bonds.
STRUCTURED FOREIGN INVESTMENTS. This term refers to interests in U.S.
and foreign entities organized and operated solely for the purpose of
securitizing or restructuring the investment characteristics of foreign
securities. This type of securitization or restructuring involves the deposit
with or purchase by a U.S. or foreign entity, such as a corporation or trust, of
specified instruments (such as commercial bank loans or Brady Bonds) and the
issuance by that entity of one or more classes of securities backed by, or
representing interests in, the underlying instruments. The cash flow on the
underlying instruments may be apportioned among the newly issued structured
foreign investments to create securities with different investment
characteristics such as varying maturities, payment priorities and interest rate
provisions, and the extent of the payments made with respect to structured
foreign investments is dependent on the extent of the cash flow on the
underlying instruments.
Structured foreign investments frequently involve no credit
enhancement. Accordingly, their credit risk generally will be equivalent to that
of the underlying instruments. In addition, classes of structured foreign
investments may be subordinated to the right of payment of another class.
Subordinated structured foreign investments typically have higher yields and
present greater risks that unsubordinated structured foreign investments.
Structured foreign investments are typically sold in private placement
transactions, and there currently is no active trading market for structured
foreign investments.
CURRENCY-LINKED INVESTMENTS. The principal amount of securities that
are indexed to specific foreign currency exchange rates may be adjusted up or
down (but not below zero) at maturity to reflect changes in the exchange rate
between two currencies. A fund may experience loss of principal due to these
adjustments.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. The funds may invest in
securities of other investment companies, subject to Investment Company Act
limitations which at present, among other things, restrict these investments to
no more than 10% of a fund's total assets. The shares of other investment
companies are subject to the management fees and other expenses of those funds,
and the purchase of shares of some investment companies requires the payment of
sales loads and sometimes substantial premiums above the value of such
companies' portfolio securities. At the same time, a fund would continue to pay
its own management fees and expenses with respect to all its investments,
including the securities of other investment companies. Each fund may invest in
the shares of other investment companies when, in the judgment of the applicable
investment adviser, the potential benefits of such investment outweigh the
payment of any management fees and expenses and, where applicable, premium or
sales load.
PACE Money Market Investments may invest in the securities of other
money market funds when Mitchell Hutchins believes that (1) the amounts to be
invested are too small or are available too late in the day to be effectively
invested in money market instruments, (2) shares of other money market funds
otherwise would provide a better return than direct investment in money market
instruments or (3) such investments would enhance the
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fund's liquidity. The other funds may invest in the securities of money market
funds for similar reasons. In addition, from time to time, investments in other
investment companies also may be the most effective available means for a fund
to invest a portion of its assets. In some cases, investment in another
investment company may be the only practical way for a fund to invest in
securities of issuers in certain countries.
ZERO COUPON, OID AND PIK SECURITIES. Zero coupon securities are
securities on which no periodic interest payments are made but instead are sold
at a deep discount from their face value. The buyer of these securities receives
a rate of return by the gradual appreciation of the security, which results from
the fact that it will be paid at face value on a specified maturity date. There
are many types of zero coupon securities. Some are issued in zero coupon form,
including Treasury bills, notes and bonds that have been stripped of (separated
from) their unmatured interest coupons (unmatured interest payments) and
receipts or certificates representing interests in such stripped debt
obligations and coupons. Others are created by brokerage firms that strip the
coupons from interest-paying bonds and sell the principal and the coupons
separately.
Other securities are sold with original issue discount ("OID"), a term
that means the securities are issued at a price that is lower than their value
at maturity, even though interest on the securities may be paid prior to
maturity. In addition, payment-in-kind ("PIK") securities pay interest in
additional securities, not in cash. OID and PIK securities usually trade at a
discount from their face value.
Zero coupon securities are generally more sensitive to changes in
interest rates than debt obligations of comparable maturities that make current
interest payments. This means that when interest rates fall, the value of zero
coupon securities rises more rapidly than securities paying interest on a
current basis. However, when interest rates rise, their value falls more
dramatically. Other OID securities and PIK securities also are subject to
greater fluctuations in market value in response to changing interest rates than
bonds of comparable maturities that make current distributions of interest in
cash.
Federal tax law requires that the holder of a zero coupon security or
other OID security include in gross income each year the OID that accrues on the
security for the year, even though the holder receives no interest payment on
the security during the year. Similarly, while PIK securities may pay interest
in the form of additional securities rather than cash, that interest must be
included in a fund's current income. These distributions would have to be made
from the fund's cash assets or, if necessary, from the proceeds of sales of
portfolio securities. A fund would not be able to purchase additional securities
with cash used to make such distributions and its current income and the value
of its shares would ultimately be reduced as a result.
Certain zero coupon securities are U.S. Treasury notes and bonds that
have been stripped of their unmatured interest coupon receipts or interests in
such U.S. Treasury securities or coupons. The staff of the SEC currently takes
the position that "stripped" U.S. government securities that are not issued
through the U.S. Treasury are not U.S. government securities. This technique is
frequently used with U.S. Treasury bonds to create CATS (Certificate of Accrual
Treasury Securities), TIGRs (Treasury Income Growth Receipts) and similar
securities.
CONVERTIBLE SECURITIES. A convertible security is a bond, preferred
stock or other security that may be converted into or exchanged for a prescribed
amount of common stock of the same or a different issuer within a particular
period of time at a specified price or formula. A convertible security entitles
the holder to receive interest or dividends until the convertible security
matures or is redeemed, converted or exchanged. Convertible securities have
unique investment characteristics in that they generally (1) have higher yields
than common stocks, but lower yields than comparable non-convertible securities,
(2) are less subject to fluctuation in value than the underlying stock because
they have fixed income characteristics and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases. While
no securities investment is without some risk, investments in convertible
securities generally entail less risk than the issuer's common stock. However,
the extent to which such risk is reduced depends in large measure upon the
degree to which the convertible security sells above its value as a fixed income
security.
WARRANTS. Warrants are securities permitting, but not obligating,
holders to subscribe for other securities. Warrants do not carry with them the
right to dividends or voting rights with respect to the securities that they
entitle
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their holder to purchase, and they do not represent any rights in the assets of
the issuer. As a result, warrants may be considered more speculative than
certain other types of investments. In addition, the value of a warrant does not
necessarily change with the value of the underlying securities, and a warrant
ceases to have value if it is not exercised prior to its expiration date.
LOAN PARTICIPATIONS AND ASSIGNMENTS. Investments in secured or
unsecured fixed or floating rate loans ("Loans") arranged through private
negotiations between a borrowing corporation, government or other entity and one
or more financial institutions ("Lenders") may be in the form of participations
("Participations") in Loans or assignments ("Assignments") of all or a portion
of Loans from third parties. Participations typically result in the fund's
having a contractual relationship only with the Lender, not with the borrower. A
fund has the right to receive payments of principal, interest and any fees to
which it is entitled only from the Lender selling the Participation and only
upon receipt by the Lender of the payments from the borrower. In connection with
purchasing Participations, a fund generally has no direct right to enforce
compliance by the borrower with the terms of the loan agreement relating to the
Loan, nor any rights of set-off against the borrower, and a fund may not
directly benefit from any collateral supporting the Loan in which it has
purchased the Participation. As a result, a fund assumes the credit risk of both
the borrower and the Lender that is selling the Participation. In the event of
the insolvency of the selling Lender, the fund may be treated as a general
creditor of that Lender and may not benefit from any set-off between the Lender
and the borrower. A fund will acquire Participations only if its investment
adviser determines that the selling Lender is creditworthy.
When a fund purchases Assignments from Lenders, it acquires direct
rights against the borrower on the Loan. In an Assignment, the fund is entitled
to receive payments directly from the borrower and, therefore, does not depend
on the selling bank to pass these payments onto the fund. However, because
Assignments are arranged through private negotiations between potential
assignees and assignors, the rights and obligations acquired by the fund as the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender.
Assignments and Participations are generally not registered under the
Securities Act and thus may be subject to a fund's limitation on investment in
illiquid securities. Because there may be no liquid market for such securities,
such securities may be sold only to a limited number of institutional investors.
The lack of a liquid secondary market could have an adverse impact on the value
of such securities and on a fund's ability to dispose of particular Assignments
or Participations when necessary to meet the fund's liquidity needs or in
response to a specific economic event, such as a deterioration in the
creditworthiness of the borrower.
TEMPORARY AND DEFENSIVE INVESTMENTS; MONEY MARKET INVESTMENTS. Each
fund may invest in money market investments for temporary or defensive purposes
or as part of its normal investment program. Such investments include, among
other things, (1) securities issued or guaranteed by the U.S. government or one
of its agencies or instrumentalities, (2) debt obligations of banks, savings and
loan institutions, insurance companies and mortgage bankers, (3) commercial
paper and notes, including those with variable and floating rates of interest,
(4) debt obligations of foreign branches of U.S. banks, U.S. branches of foreign
banks, and foreign branches of foreign banks, (5) debt obligations issued or
guaranteed by one or more foreign governments or any of their foreign political
subdivisions, agencies or instrumentalities, including obligations of
supranational entities, (6) bonds issued by foreign issuers, (7) repurchase
agreements and (8) other investment companies that invest exclusively in money
market instruments. Only those funds that may trade outside the United States
may invest in money market instruments that are denominated in foreign
currencies.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. Each fund may invest in
securities of other investment companies, subject to Investment Company Act
limitations. Among other things, these limitations currently restrict a fund's
aggregate investments in other registered investment companies to no more than
10% of its total assets. The shares of other investment companies are subject to
the management fees and other expenses of those companies, and the purchase of
shares of some investment companies requires the payment of sales loads and (in
the case of closed-end investment companies) sometimes substantial premiums
above the value of such companies' portfolio securities. At the same time, a
fund would continue to pay its own management fees and expenses with respect to
all its investments, including shares of other investment companies. Each fund
may invest in the shares of
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other investment companies when, in the judgment of its investment adviser, the
potential benefits of the investment outweigh the payment of any management fees
and expenses and, where applicable, premium or sales load. A fund's investment
in another investment company is subject to the risks of that investment
company's underlying portfolio securities. Shares of closed-end investment
companies also can trade at substantial discounts below the value of the
companies' portfolio securities. A fund that invests in a closed-end investment
company is also subject to the risk that the shares of the closed-end investment
company might trade at a discount to their net asset value.
ILLIQUID SECURITIES. The term "illiquid securities" means securities
that cannot be disposed of within seven days in the ordinary course of business
at approximately the amount at which a fund has valued the securities and
includes, among other things, purchased over-the-counter options, repurchase
agreements maturing in more than seven days and restricted securities other than
those its investment adviser has determined are liquid pursuant to guidelines
established by the board. The assets used as cover for over-the-counter options
written by the funds will be considered illiquid unless the over-the-counter
options are sold to qualified dealers who agree that the funds may repurchase
any over-the-counter options they write at a maximum price to be calculated by a
formula set forth in the option agreements. The cover for an over-the-counter
option written subject to this procedure would be considered illiquid only to
the extent that the maximum repurchase price under the formula exceeds the
intrinsic value of the option. Under current SEC guidelines, interest-only and
principal-only classes of mortgage-backed securities generally are considered
illiquid. However, interest-only and principal-only classes of fixed-rate
mortgage-backed securities issued by the U.S. government or one of its agencies
or instrumentalities will not be considered illiquid if the fund's investment
adviser has determined that they are liquid pursuant to guidelines established
by the board. To the extent a fund invests in illiquid securities, it may not be
able to readily liquidate such investments and may have to sell other
investments if necessary to raise cash to meet its obligations. The lack of a
liquid secondary market for illiquid securities may make it more difficult for a
fund to assign a value to those securities for purposes of valuing its portfolio
and calculating its net asset value.
Restricted securities are not registered under the Securities Act and
may be sold only in privately negotiated or other exempted transactions or after
a Securities Act registration statement has become effective. Where registration
is required, a fund may be obligated to pay all or part of the registration
expenses and a considerable period may elapse between the time of the decision
to sell and the time a fund may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, a fund might obtain a less favorable price than
prevailed when it decided to sell.
However, not all restricted securities are illiquid. For funds that are
authorized to trade outside the United States, foreign securities are freely
tradeable in the country in which they are principally traded generally are not
considered illiquid, even if they are restricted in the United States. A large
institutional market has developed for many U.S. and foreign securities that are
not registered under the Securities Act. Institutional investors generally will
not seek to sell these instruments to the general public, but instead will often
depend either on an efficient institutional market in which such unregistered
securities can be readily resold or on an issuer's ability to honor a demand for
repayment. Therefore, the fact that there are contractual or legal restrictions
on resale to the general public or certain institutions is not dispositive of
the liquidity of such investments.
Institutional markets for restricted securities also have developed as
a result of Rule 144A under the Securities Act, which establishes a "safe
harbor" from the registration requirements of that Act for resales of certain
securities to qualified institutional buyers. Such markets include automated
systems for the trading, clearance and settlement of unregistered securities of
domestic and foreign issuers, such as the PORTAL System sponsored by the
National Association of Securities Dealers, Inc. An insufficient number of
qualified institutional buyers interested in purchasing Rule 144A-eligible
restricted securities held by a fund, however, could affect adversely the
marketability of such portfolio securities, and the fund might be unable to
dispose of such securities promptly or at favorable prices.
The board has delegated the function of making day-to-day
determinations of liquidity to each fund's investment adviser pursuant to
guidelines approved by the board. An investment adviser takes into account a
number of factors in reaching liquidity decisions, including (1) the frequency
of trades for the security, (2) the number of dealers that make quotes for the
security, (3) the number of dealers that have undertaken to make a
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market in the security, (4) the number of other potential purchasers, (5) the
nature of the security and how trading is effected (E.G., the time needed to
sell the security, how bids are solicited and the mechanics of transfer) and (6)
the existence of demand features or similar liquidity enhancements. A fund's
investment adviser monitors the liquidity of restricted securities in its
portfolio and reports periodically on such decisions to the board.
In making determinations as to the liquidity of municipal lease
obligations purchased by PACE Municipal Fixed Income Investments, the investment
adviser distinguishes between direct investments in municipal lease obligations
(or participations therein) and investments in securities that may be supported
by municipal lease obligations or certificates of participation therein. Since
these municipal lease obligation-backed securities are based on a
well-established means of securitization, the investment adviser does not
believe that investing in such securities presents the same liquidity issues as
direct investments in municipal lease obligations.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which
a fund purchases securities or other obligations from a bank or securities
dealer (or its affiliate) and simultaneously commits to resell them to the
counterparty at an agreed-upon date or upon demand and at a price reflecting a
market rate of interest unrelated to the coupon rate or maturity of the
purchased obligations. A fund maintains custody of the underlying obligations
prior to their repurchase, either through its regular custodian or through a
special "tri-party" custodian or sub-custodian that maintains separate accounts
for both the fund and its counterparty. Thus, the obligation of the counterparty
to pay the repurchase price on the date agreed to or upon demand is, in effect,
secured by such obligations.
Repurchase agreements carry certain risks not associated with direct
investments in securities, including a possible decline in the market value of
the underlying obligations. Repurchase agreements involving obligations other
than U.S. government securities (such as commercial paper and corporate bonds)
may be subject to special risks and may not have the benefit of certain
protections in the event of the counterparty's insolvency. If the seller or
guarantor becomes insolvent, the fund may suffer delays, costs and possible
losses in connection with the disposition of collateral. If their value becomes
less than the repurchase price, plus any agreed-upon additional amount, the
counterparty must provide additional collateral so that at all times the
collateral is at least equal to the repurchase price plus any agreed-upon
additional amount. The difference between the total amount to be received upon
repurchase of the obligations and the price that was paid by a fund upon
acquisition is accrued as interest and included in its net investment income.
Each fund intends to enter into repurchase agreements only with counterparties
in transactions believed by Mitchell Hutchins to present minimum credit risks in
accordance with guidelines established by the board.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements involve
the sale of securities held by a fund subject to its agreement to repurchase the
securities at an agreed-upon date or upon demand and at a price reflecting a
market rate of interest. Reverse repurchase agreements are subject to each
fund's limitation on borrowings. While a reverse repurchase agreement is
outstanding, a fund will maintain, in a segregated account with its custodian,
cash or liquid securities, marked to market daily, in an amount at least equal
to its obligations under the reverse repurchase agreement.
Reverse repurchase agreements involve the risk that the buyer of the
securities sold by a fund might be unable to deliver them when that fund seeks
to repurchase. If the buyer of securities under a reverse repurchase agreement
files for bankruptcy or becomes insolvent, such buyer or trustee or receiver may
receive an extension of time to determine whether to enforce that fund's
obligation to repurchase the securities, and the fund's use of the proceeds of
the reverse repurchase agreement may effectively be restricted pending such
decision.
DOLLAR ROLLS. In a dollar roll, a fund sells mortgage-backed or other
securities for delivery on the next regular settlement date for those securities
and, simultaneously, contracts to purchase substantially similar securities for
delivery on a later settlement date. Dollar rolls also are subject to a fund's
limitation on borrowings.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each fund may purchase
securities on a "when-issued" basis or may purchase or sell securities for
delayed delivery, that is, for issuance or delivery to the fund later than the
normal settlement date for such securities at a stated price and yield.
When-issued securities include TBA ("to
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be assigned") securities. TBA securities, which are usually mortgage-backed
securities, are purchased on a forward commitment basis with an approximate
principal amount and no defined maturity date. The actual principal amount and
maturity date are determined upon settlement when the specific mortgage pools
are assigned. A fund generally would not pay for such securities or start
earning interest on them until they are received. However, when a fund
undertakes a when-issued or delayed-delivery obligation, it immediately assumes
the risks of ownership, including the risks of price fluctuation. Failure of the
issuer to deliver a security purchased by a fund on a when-issued or
delayed-delivery basis may result in the fund's incurring or missing an
opportunity to make an alternative investment. Depending on market conditions, a
fund's when-issued and delayed-delivery purchase commitments could cause its net
asset value per share to be more volatile, because such securities may increase
the amount by which the fund's total assets, including the value of when-issued
and delayed-delivery securities held by that fund, exceeds its net assets.
A security purchased on a when-issued or delayed delivery basis is
recorded as an asset on the commitment date and is subject to changes in market
value, generally based upon changes in the level of interest rates. Thus,
fluctuation in the value of the security from the time of the commitment date
will affect a fund's net asset value. When a fund commits to purchase securities
on a when-issued or delayed delivery basis, its custodian segregates assets to
cover the amount of the commitment. A fund may sell the right to acquire the
security prior to delivery if its investment adviser deems it advantageous to do
so, which may result in a gain or loss to the fund.
TYPES OF MUNICIPAL BONDS. PACE Municipal Fixed Income Investments may
invest in a variety of municipal bonds, as described below:
MUNICIPAL BONDS. Municipal bonds are municipal obligations that are
issued by states, municipalities, public authorities or other issuers and that
pay interest that is exempt from federal income tax in the opinion of issuer's
counsel. The two principal classifications of municipal bonds are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Revenue bonds are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue source such as from
the user of the facility being financed. Municipal bonds also include "moral
obligation" bonds, which are normally issued by special purpose authorities. For
these bonds, a government unit is regarded as morally obligated to support
payment of the debt service, which is usually subject to annual budget
appropriations. Various types of municipal bonds are described in the following
sections.
MUNICIPAL LEASE OBLIGATIONS. Municipal bonds include municipal lease
obligations, such as leases, installment purchase contracts and conditional
sales contracts, and certificates of participation therein. Municipal lease
obligations are issued by state and local governments and authorities to
purchase land or various types of equipment or facilities and may be subject to
annual budget appropriations. The fund generally invests in municipal lease
obligations through certificates of participation.
Although municipal lease obligations do not constitute general
obligations of the municipality for which its taxing power is pledged, they
ordinarily are backed by the municipality's covenant to budget for, appropriate
and make the payments due under the lease obligation. The leases underlying
certain municipal lease obligations, however, provide that lease payments are
subject to partial or full abatement if, because of material damage or
destruction of the leased property, there is substantial interference with the
lessee's use or occupancy of such property. This "abatement risk" may be reduced
by the existence of insurance covering the leased property, the maintenance by
the lessee of reserve funds or the provision of credit enhancements such as
letters of credit.
Certain municipal lease obligations contain "non-appropriation"
clauses, which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. Some municipal lease obligations of this type
are insured as to timely payment of principal and interest, even in the event of
a failure by the municipality to appropriate sufficient funds to make payments
under the lease. However, in the case of an uninsured municipal lease
obligation, the fund's ability to recover under the lease in the event of a
non-appropriation or default will be limited solely to the
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repossession of leased property without recourse to the general credit of the
lessee, and disposition of the property in the event of foreclosure might prove
difficult.
INDUSTRIAL DEVELOPMENT BONDS ("IDBS") AND PRIVATE ACTIVITY BONDS
("PABS"). IDBs and PABs are issued by or on behalf of public authorities to
finance various privately operated facilities, such as airport or pollution
control facilities. These obligations are considered municipal bonds if the
interest paid thereon is exempt from federal income tax in the opinion of the
bond issuer's counsel. IDBs and PABs are in most cases revenue bonds and thus
are not payable from the unrestricted revenues of the issuer. The credit quality
of IDBs and PABs is usually directly related to the credit standing of the user
of the facilities being financed. IDBs issued after August 15, 1986 generally
are considered PABs, and to the extent the fund invests in such PABs,
shareholders generally will be required to include a portion of their
exempt-interest dividends from that fund in calculating their liability for the
AMT. See "Taxes" below. The fund may invest more than 25% of its net assets in
IDBs and PABs.
FLOATING RATE AND VARIABLE RATE OBLIGATIONS. Floating rate and variable
rate obligations are municipal bonds that bear interest at rates that are not
fixed, but that vary with changes in specified market rates or indices. The
interest rate on floating rate or variable rate securities ordinarily is
readjusted on the basis of the prime rate of the bank that originated the
financing or some other index or published rate, such as the 90-day U.S.
Treasury bill rate, or is otherwise reset to reflect market rates of interest.
Generally, these interest rate adjustments cause the market value of floating
rate and variable rate municipal securities to fluctuate less than the market
value of fixed rate obligations. Accordingly, as interest rates decrease or
increase, the potential for capital appreciation or capital depreciation is less
than for fixed rate obligations. Floating rate or variable rate obligations
typically permit the holder to demand payment of principal from the issuer or
remarketing agent at par value prior to maturity and may permit the issuer to
prepay principal, plus accrued interest, at its discretion after a specified
notice period. Frequently, floating rate or variable rate obligations and/or the
demand features thereon are secured by letters of credit or other credit support
arrangements provided by banks or other financial institutions, the credit
standing of which affects the credit quality of the obligations. Changes in the
credit quality of these institutions could cause losses to the fund and
adversely affect its share price.
A demand feature gives the fund the right to sell the securities to a
specified party, usually a remarketing agent, on a specified date. A demand
feature is often backed by a letter of credit from a bank or a guarantee or
other liquidity support arrangement from a bank or other financial institution.
As discussed under "Participation Interests," to the extent that payment of an
obligation is backed by a letter of credit, guarantee or other liquidity support
that may be drawn upon demand, such payment may be subject to that institution's
ability to satisfy that commitment.
PARTICIPATION INTERESTS. Participation interests are interests in
municipal bonds, including IDBs, PABs and floating and variable rate
obligations, that are owned by banks. These interests carry a demand feature
permitting the holder to tender them back to the bank, which demand feature
generally is backed by an irrevocable letter of credit or guarantee of the bank.
The credit standing of such bank affects the credit quality of the participation
interests.
A participation interest gives the fund an undivided interest in a
municipal bond owned by a bank. The fund has the right to sell the instruments
back to the bank. Such right generally is backed by the bank's irrevocable
letter of credit or guarantee and permits the fund to draw on the letter of
credit on demand, after specified notice, for all or any part of the principal
amount of the fund's participation interest plus accrued interest. Generally,
the fund expects to exercise the demand under the letters of credit or other
guarantees (1) upon a default under the terms of the underlying bond, (2) to
maintain the fund's portfolio in accordance with its investment objective and
policies or (3) as needed to provide liquidity to the fund in order to meet
redemption requests. The ability of a bank to fulfill its obligations under a
letter of credit or guarantee might be affected by possible financial
difficulties of its borrowers, adverse interest rate or economic conditions,
regulatory limitations or other factors. The fund's investment adviser will
monitor the pricing, quality and liquidity of the participation interests held
by the fund, and the credit standing of banks issuing letters of credit or
guarantees supporting such participation interests on the basis of published
financial information reports of rating services and bank analytical services.
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TENDER OPTION BONDS. Tender option bonds are long-term municipal bonds
sold by a bank subject to a "tender option" that gives the purchaser the right
to tender them to the bank at par plus accrued interest at designated times (the
"tender option"). The tender option may be exercisable at intervals ranging from
bi-weekly to semi-annually, and the interest rate on the bonds is typically
reset at the end of the applicable interval in an attempt to cause the bonds to
have a market value that approximates their par value. The tender option
generally would not be exercisable in the event of a default on, or significant
downgrading of, the underlying municipal bonds. Therefore, the fund's ability to
exercise the tender option will be affected by the credit standing of both the
bank involved and the issuer of the underlying securities.
PUT BONDS. A put bond is a municipal bond that gives the holder the
unconditional right to sell the bond back to the issuer or a remarketing agent
at a specified price and exercise date, which is typically well in advance of
the bond's maturity date. The obligation to purchase the bond on the exercise
date may be supported by a letter of credit or other credit support arrangement
from a bank, insurance company or other financial institution, the credit
standing of which affects the credit quality of the obligation.
If the put is a "one time only" put, the fund ordinarily will either
sell the bond or put the bond, depending upon the more favorable price. If the
bond has a series of puts after the first put, the bond will be held as long as,
in the judgment of its investment adviser, it is in the best interest of the
fund to do so. There is no assurance that the issuer of a put bond acquired by a
fund will be able to repurchase the bond upon the exercise date, if the fund
chooses to exercise its right to put the bond back to the issuer.
TAX-EXEMPT COMMERCIAL PAPER AND SHORT-TERM MUNICIPAL NOTES. Municipal
bonds include tax-exempt commercial paper and short-term municipal notes, such
as tax anticipation notes, bond anticipation notes, revenue anticipation notes
and other forms of short-term loans. Such notes are issued with a short-term
maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements and other revenues.
INVERSE FLOATERS. The fund may invest in municipal bonds on which the
rate of interest varies inversely with interest rates on other municipal bonds
or an index. Such obligations include components of securities on which interest
is paid in two separate parts - an auction component, which pays interest at a
market rate that is set periodically through an auction process or other method,
and a residual component, or "inverse floater," which pays interest at a rate
equal to the difference between the rate that the issuer would have paid on a
fixed-rate obligation at the time of issuance and the rate paid on the auction
component. The market value of an inverse floater will be more volatile than
that of a fixed-rate obligation and, like most debt obligations, will vary
inversely with changes in interest rates.
Because the interest rate paid to holders of inverse floaters is
generally determined by subtracting the interest rate paid to holders of auction
components from a fixed amount, the interest rate paid to holders of inverse
floaters will decrease as market rates increase and increase as market rates
decrease. Moreover, the extent of the increases and decreases in the market
value of inverse floaters may be larger than comparable changes in the market
value of an equal principal amount of a fixed rate municipal bond having similar
credit quality, redemption provisions and maturity. In a declining interest rate
environment, inverse floaters can provide the fund with a means of increasing or
maintaining the level of tax-exempt interest paid to shareholders.
MORTGAGE SUBSIDY BONDS. The fund also may purchase mortgage subsidy
bonds that are normally issued by special purpose public authorities. In some
cases the repayment of such bonds depends upon annual legislative
appropriations; in other cases repayment is a legal obligation of the issuer
and, if the issuer is unable to meet its obligations, repayment becomes a moral
commitment of a related government unit (subject, however, to such
appropriations). The types of municipal bonds identified above and in the
Prospectus may include obligations of issuers whose revenues are primarily
derived from mortgage loans on housing projects for moderate to low income
families.
STANDBY COMMITMENTS. The fund may acquire standby commitments pursuant
to which a bank or other municipal bond dealer agrees to purchase securities
that are held in the fund's portfolio or that are being purchased by the fund at
a price equal to (1) the acquisition cost (excluding any accrued interest paid
on acquisition), less any
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amortized market premium or plus any accrued market or original issue discount,
plus (2) all interest accrued on the securities since the last interest payment
date or the date the securities were purchased by the fund, whichever is later.
Although the fund does not currently intend to acquire standby commitments with
respect to municipal bonds held in its portfolio, the fund may acquire such
commitments under unusual market conditions to facilitate portfolio liquidity.
The fund would enter into standby commitments only with those banks or
other dealers that, in the opinion of its investment adviser, present minimal
credit risk. The fund's right to exercise standby commitments would be
unconditional and unqualified. A standby commitment would not be transferable by
the fund, although it could sell the underlying securities to a third party at
any time. The fund may pay for standby commitments either separately in cash or
by paying a higher price for the securities that are acquired subject to such a
commitment (thus reducing the yield to maturity otherwise available for the same
securities). The acquisition of a standby commitment would not ordinarily affect
the valuation or maturity of the underlying municipal bonds. Standby commitments
acquired by the fund would be valued at zero in determining net asset value.
Whether the fund paid directly or indirectly for a standby commitment, its cost
would be treated as unrealized depreciation and would be amortized over the
period the commitment is held by the fund.
DURATION. Duration is a measure of the expected life of a debt security
on a present value basis. Duration incorporates the debt security's yield,
coupon interest payments, final maturity and call features into one measure and
is one of the fundamental tools used by the applicable investment adviser in
portfolio selection and yield curve positioning a fund's investments in bonds.
Duration was developed as a more precise alternative to the concept "term to
maturity." Traditionally, a bond's "term to maturity" has been used as a proxy
for the sensitivity of the security's price to changes in interest rates (which
is the "interest rate risk" or "volatility" of the security). However, "term to
maturity" measures only the time until a bond provides for a final payment,
taking no account of the pattern of the security's payments prior to maturity.
Duration takes the length of the time intervals between the present
time and the time that the interest and principal payments are scheduled or, in
the case of a callable debt security, expected to be made, and weights them by
the present values of the cash to be received at each future point in time. For
any debt security with interest payments occurring prior to the payment of
principal, duration is always less than maturity. For example, depending on its
coupon and the level of market yields, a Treasury note with a remaining maturity
of five years might have a duration of 4.5 years. For mortgage-backed and other
securities that are subject to prepayments, put or call features or adjustable
coupons, the difference between the remaining stated maturity and the duration
is likely to be much greater.
Duration allows an investment adviser to make certain predictions as to
the effect that changes in the level of interest rates will have on the value of
a fund's portfolio of debt securities. For example, when the level of interest
rates increases by 1%, a debt security having a positive duration of three years
generally will decrease by approximately 3%. Thus, if an investment adviser
calculates the duration of a fund's portfolio of bonds as three years, it
normally would expect the portfolio to change in value by approximately 3% for
every 1% change in the level of interest rates. However, various factors, such
as changes in anticipated prepayment rates, qualitative considerations and
market supply and demand, can cause particular securities to respond somewhat
differently to changes in interest rates than indicated in the above example.
Moreover, in the case of mortgage-backed and other complex securities, duration
calculations are estimates and are not precise. This is particularly true during
periods of market volatility. Accordingly, the net asset value of a fund's
portfolio of bonds may vary in relation to interest rates by a greater or lesser
percentage than indicated by the above example.
Futures, options and options on futures have durations that, in
general, are closely related to the duration of the securities that underlie
them. Holding long futures or call option positions will lengthen portfolio
duration by approximately the same amount as would holding an equivalent amount
of the underlying securities. Short futures or put options have durations
roughly equal to the negative duration of the securities that underlie these
positions, and have the effect of reducing portfolio duration by approximately
the same amount as would selling an equivalent amount of the underlying
securities.
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There are some situations in which the standard duration calculation
does not properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or more
years; however, their interest rate exposure corresponds to the frequency of the
coupon reset. Another example where the interest rate exposure is not properly
captured by the standard duration calculation is the case of mortgage-backed
securities. The stated final maturity of such securities is generally 30 years,
but current prepayment rates are critical in determining the securities'
interest rate exposure. In these and other similar situations, an investment
adviser will use more sophisticated analytical techniques that incorporate the
economic life of a security into the determination of its duration and,
therefore, its interest rate exposure.
LENDING OF PORTFOLIO SECURITIES. Each fund is authorized to lend its
portfolio securities in an amount up to 33 1/3% of its total assets to
broker-dealers or institutional investors that Mitchell Hutchins deems
qualified. Lending securities enables a fund to earn additional income, but
could result in a loss or delay in recovering these securities. The borrower of
a fund's portfolio securities must maintain acceptable collateral with that
fund's custodian in an amount, marked to market daily, at least equal to the
market value of the securities loaned, plus accrued interest and dividends.
Acceptable collateral is limited to cash, U.S. government securities and
irrevocable letters of credit that meet certain guidelines established by
Mitchell Hutchins. Each fund may reinvest any cash collateral in money market
investments or other short-term liquid investments. In determining whether to
lend securities to a particular broker-dealer or institutional investor,
Mitchell Hutchins will consider, and during the period of the loan will monitor,
all relevant facts and circumstances, including the creditworthiness of the
borrower. Each fund will retain authority to terminate any of its loans at any
time. Each fund may pay reasonable fees in connection with a loan and may pay
the borrower or placing broker a negotiated portion of the interest earned on
the reinvestment of cash held as collateral. A fund will receive amounts
equivalent to any dividends, interest or other distributions on the securities
loaned. Each fund will regain record ownership of loaned securities to exercise
beneficial rights, such as voting and subscription rights, when regaining such
rights is considered to be in the fund's interest.
Pursuant to procedures adopted by the board governing each fund's
securities lending program, PaineWebber has been retained to serve as lending
agent for each fund. The board also has authorized the payment of fees
(including fees calculated as a percentage of invested cash collateral) to
PaineWebber for these services. The board periodically reviews all portfolio
securities loan transactions for which PaineWebber acted as lending agent.
PaineWebber also has been approved as a borrower under each fund's securities
lending program.
SHORT SALES "AGAINST THE BOX." Each fund (other than PACE Money Market
Investments and PACE Municipal Fixed Income Investments) may engage in short
sales of securities it owns or has the right to acquire at no added cost through
conversion or exchange of other securities it owns (short sales "against the
box"). To make delivery to the purchaser in a short sale, the executing broker
borrows the securities being sold short on behalf of a fund, and that fund is
obligated to replace the securities borrowed at a date in the future. When a
fund sells short, it establishes a margin account with the broker effecting the
short sale and deposits collateral with the broker. In addition, the fund
maintains, in a segregated account with its custodian, the securities that could
be used to cover the short sale. Each fund incurs transaction costs, including
interest expense, in connection with opening, maintaining and closing short
sales "against the box."
A fund might make a short sale "against the box" to hedge against
market risks when its investment adviser believes that the price of a security
may decline, thereby causing a decline in the value of a security owned by the
fund or a security convertible into or exchangeable for a security owned by the
fund. In such case, any loss in the fund's long position after the short sale
should be reduced by a corresponding gain in the short position. Conversely, any
gain in the long position after the short sale should be reduced by a
corresponding loss in the short position. The extent to which gains or losses in
the long position are reduced will depend upon the amount of the securities sold
short relative to the amount of the securities a fund owns, either directly or
indirectly, and in the case where the fund owns convertible securities, changes
in the investment values or conversion premiums of such securities.
SEGREGATED ACCOUNTS. When a fund enters into certain transactions that
involve obligations to make future payments to third parties, including the
purchase of securities on a when-issued or delayed delivery basis, or reverse
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repurchase agreements, it will maintain with an approved custodian in a
segregated account cash or liquid securities, marked to market daily, in an
amount at least equal to the fund's obligation or commitment under such
transactions. As described below under "Strategies Using Derivative
Instruments," segregated accounts may also be required in connection with
certain transactions involving options, futures or forward currency contracts
and swaps.
INVESTMENT LIMITATIONS OF THE FUNDS
FUNDAMENTAL LIMITATIONS. The following fundamental investment
limitations cannot be changed for a fund without the affirmative vote of the
lesser of (a) more than 50% of the outstanding shares of the fund or (b) 67% or
more of the shares of the fund present at a shareholders' meeting if more than
50% of the outstanding shares are represented at the meeting in person or by
proxy. If a percentage restriction is adhered to at the time of an investment or
transaction, later changes in percentage resulting from a change in values of
portfolio securities or amount of total assets will not be considered a
violation of any of the following limitations, except that with regard to the
borrowings limitation in investment restriction number 4, the funds will comply
with the applicable restrictions of Section 18 of the Investment Company Act.
Under the investment or restrictions adopted by the funds:
(1) A fund, other than PACE Intermediate Fixed Income Investments
and PACE Global Fixed Income Investments, may not purchase securities (other
than U.S. government securities) of any issuer if, as a result of the purchase,
more than 5% of the value of the fund's total assets would be invested in such
issuer, except that up to 25% of the value of the fund's total assets may be
invested without regard to this 5% limitation.
(2) A fund will not purchase more than 10% of the outstanding
voting securities of any one issuer, except that this limitation is not
applicable to the fund's investments in U.S. government securities and up to 25%
of the fund's assets may be invested without regard to these limitations.
(3) A fund, other than PACE Municipal Fixed Income Investments,
will invest no more than 25% of the value of its total assets in securities of
issuers in any one industry, the term industry being deemed to include the
government of a particular country other than the United States. This limitation
is not applicable to a fund's investments in U.S. government securities.
(4) A fund will not issue senior securities (including borrowing
money from banks and other entities and through reverse repurchase agreements
and mortgage dollar rolls) in excess of 33 1/3% of its total assets (including
the amount of senior securities issued, but reduced by any liabilities and
indebtedness not constituting senior securities), except that a fund may borrow
up to an additional 5% of its total assets (not including the amount borrowed)
for extraordinary or emergency purposes.
(5) A fund will not pledge, hypothecate, mortgage, or otherwise
encumber its assets, except to secure permitted borrowings or in connection with
its use of forward contracts, futures contracts, options, swaps, caps, collars
and floors.
(6) A fund will not lend any funds or other assets, except through
purchasing debt obligations, lending portfolio securities and entering into
repurchase agreements consistent with the fund's investment objective and
policies.
(7) A fund will not purchase securities on margin, except that a
fund may obtain any short-term credits necessary for the clearance of purchases
and sales of securities. For purposes of this restriction, the deposit or
payment of initial or variation margin in connection with futures contracts or
options on futures contracts will not be deemed to be a purchase of securities
on margin.
(8) A fund will not make short sales of securities or maintain a
short position, unless at all times when a short position is open it owns an
equal amount of the securities or securities convertible into or exchangeable
for, without payment of any further consideration, securities of the same issue
as, and equal in amount to, the securities
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sold short ("short sales against the box"), and unless not more than 10% of the
fund's net assets (taken at market value) is held as collateral for such sales
at any one time.
(9) A fund will not purchase or sell real estate or real estate
limited partnership interests, except that it may purchase and sell mortgage
related securities and securities of companies that deal in real estate or
interests therein.
(10) A fund will not purchase or sell commodities or commodity
contracts (except currencies, forward currency contracts, futures contracts and
options and other similar contracts).
(11) A fund will not act as an underwriter of securities, except
that a fund may acquire restricted securities under circumstances in which, if
the securities were sold, the fund might be deemed to be an underwriter for
purposes of the Securities Act.
NON-FUNDAMENTAL LIMITATIONS. The following investment restrictions are
non-fundamental and may be changed by the vote of the board without shareholder
approval.
(1) A fund may not purchase securities of other investment
companies, except to the extent permitted by the Investment Company Act in the
open market at no more than customary brokerage commission rates. This
limitation does not apply to securities received or acquired as dividends,
through offers of exchange, or as a result of reorganization, consolidation or
merger.
(2) A fund will not purchase portfolio securities while borrowings
in excess of 5% of its total assets are outstanding.
STRATEGIES USING DERIVATIVE INSTRUMENTS
GENERAL DESCRIPTION OF DERIVATIVE INSTRUMENTS. Each fund other than
PACE Money Market Investments is authorized to use a variety of financial
instruments ("Derivative Instruments"), including certain options, futures
contracts (sometimes referred to as "futures"), options on futures contracts and
swap transactions, to attempt to hedge its portfolio and also to attempt to
enhance income or return or realize gains and to manage the duration of its bond
portfolio. For funds that are permitted to trade outside the United States, the
applicable investment adviser also may use forward currency contracts, foreign
currency options and futures and options on foreign currency futures. A fund may
enter into transactions involving one or more types of Derivative Instruments
under which the full value of its portfolio is at risk. Under normal
circumstances, however, each fund's use of these instruments will place at risk
a much smaller portion of its assets. The particular Derivative Instruments used
by the funds are described below.
A fund might not use any derivative instruments or strategies, and
there can be no assurance that using any strategy will succeed. If an investment
adviser is incorrect in its judgment on market values, interest rates or other
economic factors in using a derivative instrument or strategy, a fund may have
lower net income and a net loss on the investment.
OPTIONS ON SECURITIES AND FOREIGN CURRENCIES--A call option is a
short-term contract pursuant to which the purchaser of the option, in return for
a premium, has the right to buy the security or currency underlying the option
at a specified price at any time during the term of the option or at specified
times or at the expiration of the option, depending on the type of option
involved. The writer of the call option, who receives the premium, has the
obligation, upon exercise of the option during the option term, to deliver the
underlying security or currency against payment of the exercise price. A put
option is a similar contract that gives its purchaser, in return for a premium,
the right to sell the underlying security or currency at a specified price
during the option term or at specified times or at the expiration of the option,
depending on the type of option involved. The writer of the put option, who
receives the premium, has the obligation, upon exercise of the option during the
option term, to buy the underlying security or currency at the exercise price.
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OPTIONS ON SECURITIES INDICES--A securities index assigns relative
values to the securities included in the index and fluctuates with changes in
the market values of those securities. A securities index option operates in the
same way as a more traditional securities option, except that exercise of a
securities index option is effected with cash payment and does not involve
delivery of securities. Thus, upon exercise of a securities index option, the
purchaser will realize, and the writer will pay, an amount based on the
difference between the exercise price and the closing price of the securities
index.
SECURITIES INDEX FUTURES CONTRACTS--A securities index futures contract
is a bilateral agreement pursuant to which one party agrees to accept, and the
other party agrees to make, delivery of an amount of cash equal to a specified
dollar amount times the difference between the securities index value at the
close of trading of the contract and the price at which the futures contract is
originally struck. No physical delivery of the securities comprising the index
is made. Generally, contracts are closed out prior to the expiration date of the
contract.
INTEREST RATE AND FOREIGN CURRENCY FUTURES CONTRACTS--Interest rate and
foreign currency futures contracts are bilateral agreements pursuant to which
one party agrees to make, and the other party agrees to accept, delivery of a
specified type of debt security or currency at a specified future time and at a
specified price. Although such futures contracts by their terms call for actual
delivery or acceptance of bonds or currency, in most cases the contracts are
closed out before the settlement date without the making or taking of delivery.
OPTIONS ON FUTURES CONTRACTS--Options on futures contracts are similar
to options on securities or currency, except that an option on a futures
contract gives the purchaser the right, in return for the premium, to assume a
position in a futures contract (a long position if the option is a call and a
short position if the option is a put), rather than to purchase or sell a
security or currency, at a specified price at any time during the option term.
Upon exercise of the option, the delivery of the futures position to the holder
of the option will be accompanied by delivery of the accumulated balance that
represents the amount by which the market price of the futures contract exceeds,
in the case of a call, or is less than, in the case of a put, the exercise price
of the option on the future. The writer of an option, upon exercise, will assume
a short position in the case of a call and a long position in the case of a put.
FORWARD CURRENCY CONTRACTS--A forward currency contract involves an
obligation to purchase or sell a specific currency at a specified future date,
which may be any fixed number of days from the contract date agreed upon by the
parties, at a price set at the time the contract is entered into.
GENERAL DESCRIPTION OF STRATEGIES USING DERIVATIVE INSTRUMENTS. Hedging
strategies can be broadly categorized as "short hedges" and "long hedges." A
short hedge is a purchase or sale of a Derivative Instrument intended partially
or fully to offset potential declines in the value of one or more investments
held in a fund's portfolio. Thus, in a short hedge a fund takes a position in a
Derivative Instrument whose price is expected to move in the opposite direction
of the price of the investment being hedged. For example, a fund might purchase
a put option on a security to hedge against a potential decline in the value of
that security. If the price of the security declined below the exercise price of
the put, a fund could exercise the put and thus limit its loss below the
exercise price to the premium paid plus transaction costs. In the alternative,
because the value of the put option can be expected to increase as the value of
the underlying security declines, a fund might be able to close out the put
option and realize a gain to offset the decline in the value of the security.
Conversely, a long hedge is a purchase or sale of a Derivative
Instrument intended partially or fully to offset potential increases in the
acquisition cost of one or more investments that a fund intends to acquire.
Thus, in a long hedge, a fund takes a position in a Derivative Instrument whose
price is expected to move in the same direction as the price of the prospective
investment being hedged. For example, a fund might purchase a call option on a
security it intends to purchase in order to hedge against an increase in the
cost of the security. If the price of the security increased above the exercise
price of the call, a fund could exercise the call and thus limit its acquisition
cost to the exercise price plus the premium paid and transactions costs.
Alternatively, a fund might be able to offset the price increase by closing out
an appreciated call option and realizing a gain.
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A fund may purchase and write (sell) straddles on securities or indices
of securities. A long straddle is a combination of a call and a put option
purchased on the same security or on the same futures contract, where the
exercise price of the put is equal to the exercise price of the call. A fund
might enter into a long straddle when its investment adviser believes it likely
that the prices of the securities will be more volatile during the term of the
option than the option pricing implies. A short straddle is a combination of a
call and a put written on the same security where the exercise price of the put
is equal to the exercise price of the call. A fund might enter into a short
straddle when its investment adviser believes it unlikely that the prices of the
securities will be as volatile during the term of the option as the option
pricing implies.
Derivative Instruments on securities generally are used to hedge
against price movements in one or more particular securities positions that a
fund owns or intends to acquire. Derivative Instruments on stock indices, in
contrast, generally are used to hedge against price movements in broad equity
market sectors in which a fund has invested or expects to invest. Derivative
Instruments on bonds may be used to hedge either individual securities or broad
fixed income market sectors.
Income strategies using Derivative Instruments may include the writing
of covered options to obtain the related option premiums. Return or gain
strategies may include using Derivative Instruments to increase or decrease a
fund's exposure to different asset classes without buying or selling the
underlying instruments. A fund also may use derivatives to simulate full
investment by the fund while maintaining a cash balance for fund management
purposes (such as to provide liquidity to meet anticipated shareholder sales of
fund shares and for fund operating expenses).
The use of Derivative Instruments is subject to applicable regulations
of the SEC, the several options and futures exchanges upon which they are traded
and the Commodity Futures Trading Commission ("CFTC"). In addition, a fund's
ability to use Derivative Instruments may be limited by tax considerations.
See "Taxes."
In addition to the products, strategies and risks described below and
in the Prospectus, a fund's investment adviser may discover additional
opportunities in connection with Derivative Instruments and with hedging,
income, return and gain strategies. These new opportunities may become available
as regulatory authorities broaden the range of permitted transactions and as new
Derivative Instruments and techniques are developed. The applicable investment
adviser may utilize these opportunities for a fund to the extent that they are
consistent with the fund's investment objective and permitted by its investment
limitations and applicable regulatory authorities. The funds' Prospectus or SAI
will be supplemented to the extent that new products or techniques involve
materially different risks than those described below or in the Prospectus.
SPECIAL RISKS OF STRATEGIES USING DERIVATIVE INSTRUMENTS. The use of
Derivative Instruments involves special considerations and risks, as described
below. Risks pertaining to particular Derivative Instruments are described in
the sections that follow.
(1) Successful use of most Derivative Instruments depends upon the
ability of a fund's investment adviser to predict movements of the overall
securities, interest rate or currency exchange markets, which requires different
skills than predicting changes in the prices of individual securities. While the
applicable investment advisers are experienced in the use of Derivative
Instruments, there can be no assurance that any particular strategy adopted will
succeed.
(2) There might be imperfect correlation, or even no correlation,
between price movements of a Derivative Instrument and price movements of the
investments that are being hedged. For example, if the value of a Derivative
Instrument used in a short hedge increased by less than the decline in value of
the hedged investment, the hedge would not be fully successful. Such a lack of
correlation might occur due to factors affecting the markets in which Derivative
Instruments are traded, rather than the value of the investments being hedged.
The effectiveness of hedges using Derivative Instruments on indices will depend
on the degree of correlation between price movements in the index and price
movements in the securities being hedged.
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(3) Hedging strategies, if successful, can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies can also
reduce opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if a fund entered into a short
hedge because the applicable investment adviser projected a decline in the price
of a security in that fund's portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by a
decline in the price of the Derivative Instrument. Moreover, if the price of the
Derivative Instrument declined by more than the increase in the price of the
security, the fund could suffer a loss. In either such case, the fund would have
been in a better position had it not hedged at all.
(4) As described below, a fund might be required to maintain
assets as "cover," maintain segregated accounts or make margin payments when it
takes positions in Derivative Instruments involving obligations to third parties
(I.E., Derivative Instruments other than purchased options). If the fund was
unable to close out its positions in such Derivative Instruments, it might be
required to continue to maintain such assets or accounts or make such payments
until the positions expired or matured. These requirements might impair a fund's
ability to sell a portfolio security or make an investment at a time when it
would otherwise be favorable to do so, or require that the fund sell a portfolio
security at a disadvantageous time. A fund's ability to close out a position in
a Derivative Instrument prior to expiration or maturity depends on the existence
of a liquid secondary market or, in the absence of such a market, the ability
and willingness of a counterparty to enter into a transaction closing out the
position. Therefore, there is no assurance that any hedging position can be
closed out at a time and price that is favorable to a fund.
COVER FOR STRATEGIES USING DERIVATIVE INSTRUMENTS. Transactions using
Derivative Instruments, other than purchased options, expose the funds to an
obligation to another party. A fund will not enter into any such transactions
unless it owns either (1) an offsetting ("covered") position in securities,
currencies or other options or futures contracts or (2) cash or liquid
securities, with a value sufficient at all times to cover its potential
obligations to the extent not covered as provided in (1) above. Each fund will
comply with SEC guidelines regarding cover for such transactions and will, if
the guidelines so require, set aside cash or liquid securities in a segregated
account with its custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold
while the position in the corresponding Derivative Instrument is open, unless
they are replaced with similar assets. As a result, committing a large portion
of a fund's assets to cover positions or to segregated accounts could impede
portfolio management or the fund's ability to meet redemption requests or other
current obligations.
OPTIONS. The funds may purchase put and call options, and write (sell)
covered put or call options on securities in which they invest and related
indices. Funds that may invest outside the United States also may purchase put
and call options and write covered options on foreign currencies. The purchase
of call options may serve as a long hedge, and the purchase of put options may
serve as a short hedge. In addition, a fund may also use options to attempt to
enhance return or realize gains by increasing or reducing its exposure to an
asset class without purchasing or selling the underlying securities. Writing
covered put or call options can enable a fund to enhance income by reason of the
premiums paid by the purchasers of such options. Writing covered call options
serves as a limited short hedge, because declines in the value of the hedged
investment would be offset to the extent of the premium received for writing the
option. However, if the security appreciates to a price higher than the exercise
price of the call option, it can be expected that the option will be exercised
and the affected fund will be obligated to sell the security at less than its
market value. Writing covered put options serves as a limited long hedge because
increases in the value of the hedged investment would be offset to the extent of
the premium received for writing the option. However, if the security
depreciates to a price lower than the exercise price of the put option, it can
be expected that the put option will be exercised and the fund will be obligated
to purchase the security at more than its market value. The securities or other
assets used as cover for over-the-counter options written by a fund would be
considered illiquid to the extent described under "The Funds' Investment
Policies, Related Risks and Restrictions--Illiquid Securities."
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
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underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options normally have expiration dates
of up to nine months. Generally, over-the-counter options on bonds are
European-style options. This means that the option can only be exercised
immediately prior to its expiration. This is in contrast to American-style
options that may be exercised at any time. There are also other types of options
that may be exercised on certain specified dates before expiration. Options that
expire unexercised have no value.
A fund may effectively terminate its right or obligation under an
option by entering into a closing transaction. For example, a fund may terminate
its obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, a fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a closing
sale transaction. Closing transactions permit a fund to realize profits or limit
losses on an option position prior to its exercise or expiration.
The funds may purchase and write both exchange-traded and
over-the-counter options. Currently, many options on equity securities are
exchange-traded. Exchange markets for options on bonds and foreign currencies
exist but are relatively new, and these instruments are primarily traded on the
over-the-counter market. Exchange-traded options in the United States are issued
by a clearing organization affiliated with the exchange on which the option is
listed which, in effect, guarantees completion of every exchange-traded option
transaction. In contrast, over-the-counter options are contracts between a fund
and its counterparty (usually a securities dealer or a bank) with no clearing
organization guarantee. Thus, when a fund purchases or writes an
over-the-counter option, it relies on the counterparty to make or take delivery
of the underlying investment upon exercise of the option. Failure by the
counterparty to do so would result in the loss of any premium paid by the fund
as well as the loss of any expected benefit of the transaction.
The funds' ability to establish and close out positions in
exchange-listed options depends on the existence of a liquid market. The funds
intend to purchase or write only those exchange-traded options for which there
appears to be a liquid secondary market. However, there can be no assurance that
such a market will exist at any particular time. Closing transactions can be
made for over-the-counter options only by negotiating directly with the
counterparty, or by a transaction in the secondary market if any such market
exists. Although the funds will enter into over-the-counter options only with
counterparties that are expected to be capable of entering into closing
transactions with the funds, there is no assurance that a fund will in fact be
able to close out an over-the-counter option position at a favorable price prior
to expiration. In the event of insolvency of the counterparty, a fund might be
unable to close out an over-the-counter option position at any time prior to its
expiration.
If a fund were unable to effect a closing transaction for an option it
had purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered put or call
option written by the fund could cause material losses because the fund would be
unable to sell the investment used as cover for the written option until the
option expires or is exercised.
A fund may purchase and write put and call options on indices in much
the same manner as the more traditional options discussed above, except the
index options may serve as a hedge against overall fluctuations in a securities
market (or market sector) rather than anticipated increases or decreases in the
value of a particular security.
LIMITATIONS ON THE USE OF OPTIONS. The funds' use of options is
governed by the following guidelines, which can be changed by the board without
shareholder vote:
(1) A fund may purchase a put or call option, including any
straddle or spread, only if the value of its premium, when aggregated with the
premiums on all other options held by the fund, does not exceed 5% of its total
assets.
(2) The aggregate value of securities underlying put options
written by a fund, determined as of the date the put options are written, will
not exceed 50% of its net assets.
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(3) The aggregate premiums paid on all options (including options
on securities, foreign currencies and stock or bond indices and options on
futures contracts) purchased by the fund that are held at any time will not
exceed 20% of the fund's total net assets.
FUTURES. The funds may purchase and sell securities index futures
contracts, interest rate futures contracts, debt security index futures
contracts and (for those funds that invest outside the United States) foreign
currency futures contracts. A fund may also purchase put and call options, and
write covered put and call options, on futures in which it is allowed to invest.
The purchase of futures or call options thereon can serve as a long hedge, and
the sale of futures or the purchase of put options thereon can serve as a short
hedge. Writing covered call options on futures contracts can serve as a limited
short hedge, and writing covered put options on futures contracts can serve as a
limited long hedge, using a strategy similar to that used for writing covered
options on securities or indices. In addition, a fund may purchase or sell
futures contracts or purchase options thereon to increase or reduce its exposure
to an asset class without purchasing or selling the underlying securities,
either as a hedge or to enhance return or realize gains.
Futures strategies also can be used to manage the average duration of a
fund's portfolio. If a fund's investment adviser wishes to shorten the average
duration of its portfolio, the fund may sell a futures contract or a call option
thereon, or purchase a put option on that futures contract. If a fund's
investment adviser wishes to lengthen the average duration of its portfolio, the
fund may buy a futures contract or a call option thereon, or sell a put option
thereon.
PACE Global Fixed Income Investments may also write put options on
futures contracts while at the same time purchasing call options on the same
futures contracts in order synthetically to create a long futures contract
position. Such options would have the same strike prices and expiration dates.
The fund will engage in this strategy only when it is more advantageous to a
fund than is purchasing the futures contract.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract a fund is required to deposit in a segregated
account with its custodian, in the name of the futures broker through whom the
transaction was effected, "initial margin" consisting of cash, obligations of
the United States or obligations fully guaranteed as to principal and interest
by the United States, in an amount generally equal to 10% or less of the
contract value. Margin must also be deposited when writing a call option on a
futures contract, in accordance with applicable exchange rules. Unlike margin in
securities transactions, initial margin on futures contracts does not represent
a borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to a fund at the termination of the transaction if all
contractual obligations have been satisfied. Under certain circumstances, such
as periods of high volatility, a fund may be required by an exchange to increase
the level of its initial margin payment, and initial margin requirements might
be increased generally in the future by regulatory action.
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking to market." Variation margin does not involve borrowing, but rather
represents a daily settlement of each fund's obligations to or from a futures
broker. When a fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when a fund purchases or
sells a futures contract or writes a call option thereon, it is subject to daily
variation margin calls that could be substantial in the event of adverse price
movements. If a fund has insufficient cash to meet daily variation margin
requirements, it might need to sell securities at a time when such sales are
disadvantageous.
Holders and writers of futures contracts and options on futures can
enter into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument held or written. Positions in futures and options on futures may be
closed only on an exchange or board of trade that provides a secondary market.
The funds intend to enter into futures transactions only on exchanges or boards
of trade where there appears to be a liquid secondary market. However, there can
be no assurance that such a market will exist for a particular contract at a
particular time.
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Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a future or related option can vary from
the previous day's settlement price; once that limit is reached, no trades may
be made that day at a price beyond the limit. Daily price limits do not limit
potential losses because prices could move to the daily limit for several
consecutive days with little or no trading, thereby preventing liquidation of
unfavorable positions.
If a fund were unable to liquidate a futures or related options
position due to the absence of a liquid secondary market or the imposition of
price limits, it could incur substantial losses. A fund would continue to be
subject to market risk with respect to the position. In addition, except in the
case of purchased options, a fund would continue to be required to make daily
variation margin payments and might be required to maintain the position being
hedged by the future or option or to maintain cash or securities in a segregated
account.
Certain characteristics of the futures market might increase the risk
that movements in the prices of futures contracts or related options might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the futures and related options markets
are subject to daily variation margin calls and might be compelled to liquidate
futures or related options positions whose prices are moving unfavorably to
avoid being subject to further calls. These liquidations could increase price
volatility of the instruments and distort the normal price relationship between
the futures or options and the investments being hedged. Also, because initial
margin deposit requirements in the futures market are less onerous than margin
requirements in the securities markets, there might be increased participation
by speculators in the futures markets. This participation also might cause
temporary price distortions. In addition, activities of large traders in both
the futures and securities markets involving arbitrage, "program trading" and
other investment strategies might result in temporary price distortions.
LIMITATIONS ON THE USE OF FUTURES AND RELATED OPTIONS. The funds' use
of futures and related options is governed by the following guidelines, which
can be changed by the board without shareholder vote:
(1) To the extent a fund enters into futures contracts, options on
futures contracts and options on foreign currencies traded on a CFTC-regulated
exchange, in each case that are not for bona fide hedging purposes (as defined
by the CFTC), the aggregate initial margin and premiums on those positions
(excluding the amount by which options are "in-the-money") may not exceed 5% of
the fund's net assets.
(2) The aggregate premiums paid on all options (including options
on securities, foreign currencies and stock or bond indices and options on
futures contracts) purchased by a fund that are held at any time will not exceed
20% of the fund's total net assets.
(3) The aggregate margin deposits on all futures contracts and
options thereon held at any time by a fund will not exceed 5% of the fund's
total assets.
FOREIGN CURRENCY HEDGING STRATEGIES--SPECIAL CONSIDERATIONS. Each fund
that may invest outside the United States may use options and futures on foreign
currencies, as described above, and forward currency contracts, as described
below, to hedge against movements in the values of the foreign currencies in
which the fund's securities are denominated. Such currency hedges can protect
against price movements in a security a fund owns or intends to acquire that are
attributable to changes in the value of the currency in which it is denominated.
Such hedges do not, however, protect against price movements in the securities
that are attributable to other causes.
A fund might seek to hedge against changes in the value of a particular
currency when no Derivative Instruments on that currency are available or such
Derivative Instruments are considered expensive. In such cases, the fund may
hedge against price movements in that currency by entering into transactions
using Derivative Instruments on another currency or a basket of currencies, the
value of which its investment adviser believes will have a positive correlation
to the value of the currency being hedged. In addition, a fund may use forward
currency contracts to shift exposure to foreign currency fluctuations from one
country to another. For example, if a fund owned securities denominated in a
foreign currency and its investment adviser believed that currency would decline
relative to another currency, it might enter into a forward contract to sell an
appropriate amount of the first
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foreign currency, with payment to be made in the second foreign currency.
Transactions that use two foreign currencies are sometimes referred to as "cross
hedging." Use of a different foreign currency magnifies the risk that movements
in the price of the Derivative Instrument will not correlate or will correlate
unfavorably with the foreign currency being hedged.
The value of Derivative Instruments on foreign currencies depends on
the value of the underlying currency relative to the U.S. dollar. Because
foreign currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such Derivative
Instruments, a fund could be disadvantaged by having to deal in the odd-lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the Derivative Instruments until they reopen.
Settlement of Derivative Instruments involving foreign currencies might
be required to take place within the country issuing the underlying currency.
Thus, a fund might be required to accept or make delivery of the underlying
foreign currency in accordance with any U.S. or foreign regulations regarding
the maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
FORWARD CURRENCY CONTRACTS. Each fund that invests outside the United
States may enter into forward currency contracts to purchase or sell foreign
currencies for a fixed amount of U.S. dollars or another foreign currency. Such
transactions may serve as long hedges--for example, a fund may purchase a
forward currency contract to lock in the U.S. dollar price of a security
denominated in a foreign currency that the fund intends to acquire. Forward
currency contract transactions may also serve as short hedges--for example, a
fund may sell a forward currency contract to lock in the U.S. dollar equivalent
of the proceeds from the anticipated sale of a security denominated in a foreign
currency.
The cost to a fund of engaging in forward currency contracts varies
with factors such as the currency involved, the length of the contract period
and the market conditions then prevailing. Because forward currency contracts
are usually entered into on a principal basis, no fees or commissions are
involved. When a fund enters into a forward currency contract, it relies on the
counterparty to make or take delivery of the underlying currency at the maturity
of the contract. Failure by the counterparty to do so would result in the loss
of any expected benefit of the transaction.
As is the case with futures contracts, parties to forward currency
contracts can enter into offsetting closing transactions, similar to closing
transactions on futures, by entering into an instrument identical to the
instrument purchased or sold, but in the opposite direction. Secondary markets
generally do not exist for forward currency contracts, with the result that
closing transactions generally can be made for forward currency contracts only
by negotiating directly with the counterparty. Thus, there can be no assurance
that a fund will in fact be able to close out a forward currency contract at a
favorable price prior to maturity. In addition, in the event of insolvency of
the counterparty, a fund might be unable to close out a forward currency
contract at any time prior to maturity. In either event, the fund would continue
to be subject to market risk with respect to the position, and would continue to
be required to maintain a position in the securities or currencies that are the
subject of the hedge or to maintain cash or securities in a segregated account.
The precise matching of forward currency contract amounts and the value
of the securities involved generally will not be possible because the value of
such securities, measured in the foreign currency, will change after the foreign
currency contract has been established. Thus, a fund might need to purchase or
sell foreign
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currencies in the spot (cash) market to the extent such foreign currencies are
not covered by forward contracts. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain.
LIMITATIONS ON THE USE OF FORWARD CURRENCY CONTRACTS. A fund that may
invest outside the United States may enter into forward currency contracts or
maintain a net exposure to such contracts only if (1) the consummation of the
contracts would not obligate the fund to deliver an amount of foreign currency
in excess of the value of the position being hedged by such contracts or (2) the
fund segregates with its custodian cash or liquid securities in an amount not
less than the value of its total assets committed to the consummation of the
contract and not covered as provided in (1) above, as marked to market daily.
SWAP TRANSACTIONS. A fund may enter into swap transactions, which
include swaps, caps, floors and collars relating to interest rates, currencies,
securities or other instruments. Interest rate swaps involve an agreement
between two parties to exchange payments that are based, for example, on
variable and fixed rates of interest and that are calculated on the basis of a
specified amount of principal (the "notional principal amount") for a specified
period of time. Interest rate cap and floor transactions involve an agreement
between two parties in which the first party agrees to make payments to the
counterparty when a designated market interest rate goes above (in the case of a
cap) or below (in the case of a floor) a designated level on predetermined dates
or during a specified time period. Interest rate collar transactions involve an
agreement between two parties in which payments are made when a designated
market interest rate either goes above a designated ceiling level or goes below
a designated floor level on predetermined dates or during a specified time
period. Currency swaps, caps, floors and collars are similar to interest rate
swaps, caps, floors and collars, but they are based on currency exchange rates
than interest rates. Equity swaps or other swaps relating to securities or other
instruments are also similar, but they are based on changes in the value of the
underlying securities or instruments. For example, an equity swap might involve
an exchange of the value of a particular security or securities index in a
certain notional amount for the value of another security or index or for the
value of interest on that notional amount at a specified fixed or variable rate.
A fund may enter into interest rate swap transactions to preserve a
return or spread on a particular investment or portion of its portfolio or to
protect against any increase in the price of securities it anticipates
purchasing at a later date. A fund may use interest rate swaps, caps, floors and
collars as a hedge on either an asset-based or liability-based basis, depending
on whether it is hedging its assets or its liabilities. Interest rate swap
transactions are subject to risks comparable to those described above with
respect to other hedging strategies.
A fund will usually enter into swaps on a net basis, I.E., the two
payment streams are netted out, with a fund receiving or paying, as the case may
be, only the net amount of the two payments. Because segregated accounts will be
established with respect to these transactions, Mitchell Hutchins and the
investment advisers believe these obligations do not constitute senior
securities and, accordingly, will not treat them as being subject to a fund's
borrowing restrictions. The net amount of the excess, if any, of a fund's
obligations over its entitlements with respect to each rate swap will be accrued
on a daily basis, and appropriate fund assets having an aggregate net asset
value at least equal to the accrued excess will be maintained in a segregated
account as described above in "Investment Policies and Restrictions--Segregated
Accounts." A fund also will establish and maintain such segregated accounts with
respect to its total obligations under any swaps that are not entered into on a
net basis.
A fund will enter into swap transactions only with banks and recognized
securities dealers believed by its investment adviser to present minimal credit
risk in accordance with guidelines established by the fund's board. If there is
a default by the other party to such a transaction, a fund will have to rely on
its contractual remedies (which may be limited by bankruptcy, insolvency or
similar laws) pursuant to the agreements related to the transaction.
41
<PAGE>
ORGANIZATION OF TRUST; TRUSTEES AND OFFICERS
AND PRINCIPAL HOLDERS OF SECURITIES
The Trust was formed on September 9, 1994 as a business trust under the
laws of the State of Delaware and has twelve operating series. The Trust is
governed by a board of trustees, which is authorized to establish additional
series and to issue an unlimited number of shares of beneficial interest of each
existing or future series, par value $0.001 per share. The board oversees each
fund's operations.
The trustees and executive officers of the Trust, their ages, business
addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
NAME AND ADDRESS; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
--------------------- ------------------- ----------------------------------------
<S> <C> <C>
Margo N. Alexander*+; 52 Trustee and President Mrs. Alexander is Chairman (since March
1999), chief executive officer and a
director of Mitchell Hutchins (since January
1995) and an executive vice president and
director of PaineWebber (since March 1984).
Mrs. Alexander is president and a director
or trustee of 32 investment companies for
which Mitchell Hutchins, PaineWebber or one
of their affiliates serves as investment
adviser.
David J. Beaubien; 65 Trustee Mr. Beaubien is chairman of Yankee
101 Industrial Road Environmental Systems, Inc., a manufacturer
Turners Falls, MA 01376 of meteorological measuring systems. Prior
to January 1991, he was senior vice
president of EG&G, Inc., a company which
makes and provides a variety of scientific
and technically oriented products and
services. He is also a director of IEC,
Inc., a manufacturer of electronic
assemblies, and Onix Systems Inc., a
manufacturer of process instrumentation.
From 1985 to January 1995, Mr. Beaubien
served as a director or trustee on the
boards of the Kidder, Peabody & Co.
Incorporated mutual funds. Mr. Beaubien is a
trustee of one investment company for which
Mitchell Hutchins, PaineWebber or one of
their affiliates serves as investment
adviser.
E. Garrett Bewkes, Jr.** +; 73 Trustee Mr. Bewkes is a director of Paine Webber
Group Inc. ("PW Group") (holding company of
PaineWebber and Mitchell Hutchins). Prior to
December 1995, he was a consultant to PW
Group. Prior to 1988, he was chairman of the
board, president and chief executive officer
of American Bakeries Company. Mr. Bewkes is
a director of Interstate Bakeries
Corporation and a director or trustee of 34
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
Bruce A. Bursey**+; 50 Trustee Mr. Bursey is a senior vice president of
PaineWebber and a director of Investment
Consulting Services. He is also a director
of PaineWebber Trust Company. Mr. Bursey is
a trustee of one investment company for
which Mitchell Hutchins, PaineWebber or one
of their affiliates serves as investment
adviser.
42
<PAGE>
<CAPTION>
NAME AND ADDRESS; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
--------------------- ------------------- ----------------------------------------
<S> <C> <C>
William W. Hewitt, Jr.; 71 Trustee Mr. Hewitt is retired. Since 1988, he has
P.O. Box 2359 served as a director or trustee on the
Princeton, New Jersey boards of the Guardian Life Insurance
08543-2359 Company mutual funds. From 1990 to January
1995, Mr. Hewitt served as a director or
trustee on the boards of the Kidder, Peabody
& Co. Incorporated mutual funds. From
1986-1988, he was an executive vice
president and director of mutual funds,
insurance and trust services of Shearson
Lehman Brothers Inc. From 1976-1986, he was
president of Merrill Lynch Funds
Distributor, Inc. Mr. Hewitt is a trustee of
one investment company for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
Morton L. Janklow; 69 Trustee Mr. Janklow is senior partner of Janklow &
598 Madison Avenue Nesbit Associates, an international literary
New York, New York agency representing leading authors in their
10022 relationships with publishers and motion
picture, television and multi-media
companies, and of counsel to the law firm of
Janklow, Newborn & Ashley. Mr. Janklow is a
director of Revlon, Inc. Mr. Janklow is a
trustee of one investment company for which
Mitchell Hutchins, PaineWebber or one of
their affiliates serves as investment
adviser.
J. Richard Sipes**+; 52 Trustee Mr. Sipes is director of Products and
1200 Harbor Boulevard Trading in Private Client Group for
Weehawken, New Jersey PaineWebber. Mr. Sipes is also a director of
07087 PaineWebber Trust Company, PaineWebber
Futures Management Corp., PaineWebber
Properties Inc., and a family of investment
companies organized in Puerto Rico. Mr.
Sipes is a trustee of one investment company
for which Mitchell Hutchins, PaineWebber or
one of their affiliates serves as investment
adviser.
William D. White; 65 Trustee Mr. White is retired. From February 1989
P.O. Box 199 through March 1994, he was president of the
Upper Black Eddy, PA National League of Professional Baseball
Clubs. Prior to 1989, he was a television
sportscaster for WPIX-TV, New York. Mr.
White served on the Board of Directors of
Centel from 1989 to 1993. Presently, Mr.
White is on the board of directors of
Jefferson Banks Incorporated, Philadelphia,
PA. Mr. White is a trustee of one investment
company for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as investment adviser.
M. Cabell Woodward, Jr.; 70 Trustee Mr. Woodward is retired. From July 1985
until his retirement in February 1993, Mr.
Woodward was vice chairman and chief
financial officer of ITT Corporation. Mr.
Woodward is also a director of Black &
Decker Corporation. Mr. Woodward is a
trustee of one investment company for which
Mitchell Hutchins, PaineWebber or one of
their affiliates serves as investment
adviser.
Joanne M. Kilkeary**; 31 Vice President and Ms. Kilkeary is an assistant vice president
Assistant Treasurer of the mutual fund finance department of
Mitchell Hutchins. Ms. Kilkeary is a vice
president and assistant treasurer of one
investment company for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
43
<PAGE>
<CAPTION>
NAME AND ADDRESS; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
--------------------- ------------------- ----------------------------------------
<S> <C> <C>
John J. Lee**; 31 Vice President and Mr. Lee is a vice president and a manager of
Assistant Treasurer the mutual fund finance department of
Mitchell Hutchins. Prior to September 1997,
he was an audit manager in the financial
services practice of Ernst & Young LLP. Mr.
Lee is a vice president and assistant
treasurer of 32 investment companies for
which Mitchell Hutchins, PaineWebber or one
of their affiliates serves as investment
adviser.
Ann E. Moran**; 42 Vice President and Ms. Moran is a vice president and a manager
Assistant Treasurer of the mutual fund finance department of
Mitchell Hutchins. Ms. Moran is a vice
president and assistant treasurer of 32
other investment companies for which
Mitchell Hutchins, PaineWebber or one of
their affiliates serves as investment
adviser.
Andrew S. Novak**; 31 Vice President and Mr. Novak is a vice president and assistant
Assistant Secretary general counsel of Mitchell Hutchins. Prior
to September 1997, he was an attorney in
private practice. Mr. Novak is a vice
president and assistant secretary of one
investment company for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
Dianne E. O'Donnell**; 47 Vice President and Ms. O'Donnell is a senior vice president and
Assistant Secretary deputy general counsel of Mitchell Hutchins.
Ms. O'Donnell is a vice president and
secretary of 31 investment companies and a
vice president and assistant secretary of
one investment company for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
Emil Polito*; 38 Vice President Mr. Polito is a senior vice president and
director of operations and control for
Mitchell Hutchins. Mr. Polito is senior vice
president of 32 investment companies, for
which Mitchell Hutchins, PaineWebber or one
of their affiliates serves as investment
adviser.
Victoria E. Schonfeld**; 48 Vice President and Ms. Schonfeld is a managing director and
Secretary general counsel of Mitchell Hutchins (since
May 1994) and a senior vice president of
PaineWebber Incorporated (since July 1995).
Ms. Schonfeld is a vice president of 31
investment companies and a vice president
and secretary of one investment company for
which Mitchell Hutchins, PaineWebber or one
of their affiliates serves as investment
adviser.
Paul H. Schubert**; 36 Vice President and Mr. Schubert is a senior vice president and
Treasurer the director of the mutual fund finance
department of Mitchell Hutchins. From August
1992 to August 1994, he was a vice president
at BlackRock Financial Management, L.P. Mr.
Schubert is a vice president and treasurer
of 32 other investment companies for which
Mitchell Hutchins, PaineWebber or one of
their affiliates serves as investment
adviser.
Barney A. Taglialatela**; 38 Vice President and Mr. Taglialatela is a vice president and a
Assistant Treasurer manager of the mutual fund finance division
of Mitchell Hutchins. Prior to February
1995, he was a manager of the mutual fund
finance division of Kidder Peabody Asset
Management, Inc. Mr. Taglialatela is a vice
president and assistant treasurer of 32
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
</TABLE>
44
<PAGE>
- -------------
* The business address of this person is 51 West 52nd Street, New York, New
York 10019-6114.
** The business address of this person is 1285 Avenue of the Americas, New York,
New York 10019.
+ Messrs. Bewkes, Bursey and Sipes and Mrs. Alexander are "interested persons"
of the Trust as defined in the Investment Company Act by virtue of their
positions with PaineWebber, PW Group and/or Mitchell Hutchins.
The Trust pays each board member who is not an "interested person" of
the Trust $35,000 annually and $5,000 per meeting of the board or any committee
thereof. Trustees are reimbursed for any expenses incurred in attending
meetings. Trustees of the Trust who are "interested persons" of the Trust as
defined in the Investment Company Act receive no compensation from the Trust.
Trustees and officers of the Trust own in the aggregate less than 1% of the
shares of each fund. Because Mitchell Hutchins, the investment advisers and
PaineWebber perform substantially all of the services necessary for the
operation of the Trust and the funds, the Trust requires no employees. No
officer, director or employee of Mitchell Hutchins, an investment adviser or
PaineWebber presently receives any compensation from the Trust for acting as a
trustee or officer.
The table below includes certain information relating to the
compensation of the current members of the Trust's board who held office with
the Trust during the fiscal year ended July 31, 1999, and the compensation of
those trustees from all PaineWebber funds during that year.
<TABLE>
<CAPTION>
COMPENSATION TABLE
TOTAL COMPENSATION FROM
NAME OF PERSON, POSITION AGGREGATE COMPENSATION THE TRUST AND THE PAINEWEBBER FUND
FROM THE TRUST* COMPLEX+
<S> <C> <C>
David J. Beaubien, Trustee $60,000 $60,000
William W. Hewitt, Trustee 75,000 75,000
Morton L. Janklow, Trustee 60,000 60,000
William D. White, Trustee 60,000 60,000
M. Cabell Woodward, Jr., Trustee 55,000 55,000
</TABLE>
- --------------------
Only independent board members are compensated by the PaineWebber funds and
identified above; trustees who are "interested persons", as defined in the
Investment Company Act, do not receive compensation.
* Represents fees paid to each trustee during the fiscal year ended July 31,
1999. During the fiscal year ended July 31, 1999, Mitchell Hutchins waived a
portion of its management fee and subsidized certain operating expenses,
including the payment of trustees' fees, with respect to some funds in order
to lower the overall expenses of those funds to certain designated levels.
+ Represents total compensation paid to each trustee during the calendar year
ended December 31, 1998; no fund within the complex has a bonus, pension,
profit sharing or retirement plan.
PRINCIPAL HOLDERS OF SECURITIES
As of October 31, 1999, the Trust's records showed no shareholder as
owning of record 5% or more of a fund's shares, and the Trust is not aware of
any shareholder who is the beneficial owner of 5% or more of a fund's shares.
45
<PAGE>
INVESTMENT ADVISORY, ADMINISTRATION AND DISTRIBUTION ARRANGEMENTS
INVESTMENT ADVISORY AND ADMINISTRATION ARRANGEMENTS. Mitchell Hutchins
acts as the investment manager and administrator to the Trust pursuant to an
Investment Management and Administration Agreement with the Trust ("Management
Agreement") dated June 15, 1995. Pursuant to the Management Agreement, Mitchell
Hutchins, subject to the supervision of the Trust's board and in conformity with
the stated policies of the Trust, manages both the investment operations of the
Trust and the composition of the funds, including the purchase, retention,
disposition and lending of securities. Mitchell Hutchins is authorized to enter
into advisory agreements for investment advisory services ("Advisory
Agreements") in connection with the management of the funds. Mitchell Hutchins
is responsible for monitoring the investment advisory services furnished
pursuant to the Advisory Agreements. Mitchell Hutchins reviews the performance
of all investment advisers and makes recommendations to the board with respect
to the retention and renewal of Advisory Agreements. In connection therewith,
Mitchell Hutchins keeps certain books and records of the Trust. Mitchell
Hutchins also administers the Trust's business affairs and, in connection
therewith, furnishes the Trust with office facilities, together with those
ordinary clerical and bookkeeping services that are not furnished by the Trust's
custodian and its transfer and dividend disbursing agent. The management
services of Mitchell Hutchins under the Management Agreement are not exclusive
to the Trust, and Mitchell Hutchins is free to, and does, render management
services to others.
The following table shows the fees earned (or accrued) by Mitchell
Hutchins under the Management Agreement and the portions of those fees waived by
Mitchell Hutchins for the periods indicated.
<TABLE>
<CAPTION>
ADVISORY ADVISORY
AND ADMINISTRATION FEES EARNED AND ADMINISTRATION FEES WAIVED BY
(OR ACCRUED) BY MITCHELL HUTCHINS MITCHELL HUTCHINS
FOR FISCAL YEARS ENDED JULY 31, FOR FISCAL YEARS ENDED JULY 31,
PORTFOLIO 1999 1998 1997 1999 1998 1997
- --------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Pace Money Market Investments... ........................ $114,410 $76,176 $46,463 $114,410 $76,176 $ 46,463
PACE Government Securities Fixed Income Investments...... 1,277,768 916,670 555,050 102,428 135,366 107,156
PACE Intermediate Fixed Income Investments .............. 740,117 504,134 318,727 1,460 5,372 76,200
PACE Strategic Fixed Income Investments.................. 1,302,736 697,639 409,105 70,795 91,847 143,533
PACE Municipal Fixed Income Investments.................. 337,795 259,431 143,239 24,086 35,977 131,476
PACE Global Fixed Income Investments..................... 805,390 599,606 389,067 220,842 209,982 167,565
PACE Large Company Value Equity Investments.............. 2,581,440 1,786,641 1,004,307 1,732 --- 82,199
PACE Large Company Growth Equity Investments............. 2,593,183 1,672,807 875,877 3,823 45,136 50,644
PACE Small/Medium Company Value Equity Investments....... 1,458,785 1,384,807 765,902 25,179 11,273 126,324
PACE Small/Medium Company Growth Equity Investments...... 1,704,803 1,328,874 719,564 15,569 43,813 71,349
PACE International Equity Investments.................... 1,615,444 1,163,135 632,415 834 ---- 1,629
PACE International Emerging Markets Equity Investments .. 751,091 623,343 417,803 195,575 161,872 225,031
</TABLE>
46
<PAGE>
In connection with its management of the business affairs of the Trust,
Mitchell Hutchins bears the following expenses:
(1) the salaries and expenses of all of its and the Trust's
personnel except the fees and expenses of trustees who are not affiliated
persons of Mitchell Hutchins or the Trust's investment advisers;
(2) all expenses incurred, by Mitchell Hutchins or by the Trust in
connection with managing the ordinary course of the Trust's business, other than
those assumed by the Trust as described below; and
(3) the fees payable to each investment adviser (other than
Mitchell Hutchins) pursuant to the Advisory Agreements.
Under the terms of the Management Agreement, each fund bears all
expenses incurred in its operation that are not specifically assumed by Mitchell
Hutchins or the fund's investment adviser. General expenses of the Trust not
readily identifiable as belonging to a fund or to the Trust's other series are
allocated among series by or under the direction of the board in such manner as
the board deems to be fair and equitable. Expenses borne by each fund include
the following (or a fund's share of the following): (1) the cost (including
brokerage commissions) of securities purchased or sold by a fund and any losses
incurred in connection therewith, (2) fees payable to and expenses incurred on
behalf of a fund by Mitchell Hutchins, (3) organizational expenses, (4) filing
fees and expenses relating to the registration and qualification of a fund's
shares and the Trust under federal and state securities laws and maintenance of
such registration and qualifications, (5) fees and salaries payable to trustees
who are not interested persons (as defined in the Investment Company Act) of the
Trust, Mitchell Hutchins or the investment advisers, (6) all expenses incurred
in connection with trustees' services, including travel expenses, (7) taxes
(including any income or franchise taxes) and governmental fees, (8) costs of
any liability, uncollectible items of deposit and other insurance or fidelity
bonds, (9) any costs, expenses or losses arising out of a liability of or claim
for damages or other relief asserted against the Trust or a fund for violation
of any law, (10) legal, accounting and auditing expenses, including legal fees
of special counsel for the independent trustees, (11) charges of custodians,
transfer agents and other agents, (12) costs of preparing share certificates,
(13) expenses of setting in type and printing prospectuses and supplements
thereto, statements of additional information and supplements thereto, reports
and proxy materials for existing shareholders, and costs of mailing such
materials to existing shareholders, (14) any extraordinary expenses (including
fees and disbursements of counsel) incurred by the Trust or a fund, (15) fees,
voluntary assessments and other expenses incurred in connection with membership
in investment company organizations, (16) costs of mailing and tabulating
proxies and costs of meetings of shareholders, the board and any committees
thereof, (17) the cost of investment company literature and other publications
provided to trustees and officers and (18) costs of mailing, stationery and
communications equipment.
Under the Management Agreement, Mitchell Hutchins will not be liable
for any error of judgment or mistake of law or for any loss suffered by a fund
in connection with the performance of the contract, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of Mitchell
Hutchins in the performance of its duties or from reckless disregard of its
duties and obligations thereunder. The Management Agreement terminates
automatically upon its assignment and is terminable at any time without penalty
by the board or by vote of the holders of a majority of a fund's outstanding
voting securities, on 60 days' written notice to Mitchell Hutchins or by
Mitchell Hutchins on 60 days' written notice to the fund.
47
<PAGE>
The following table shows the approximate net assets as of October 31,
1999, sorted by category of investment objective, of the investment companies as
to which Mitchell Hutchins serves as adviser or sub-adviser. An investment
company may fall into more than one of the categories below:
<TABLE>
<CAPTION>
INVESTMENT CATEGORY NET ASSETS
($MIL)
<S> <C>
Domestic (excluding Money Market).......................... $ 7,873.90
Global..................................................... 4,651.40
Equity/Balanced............................................ 7,822.00
Fixed Income (excluding Money Market)...................... 4,703.30
Taxable Fixed Income76..................................... 3,233.70
Tax-Free Fixed Income...................................... 1,469.60
Money Market Funds......................................... 36,069.20
</TABLE>
INVESTMENT ADVISORY ARRANGEMENTS. As noted in the Prospectus, subject
to the monitoring of the Manager and, ultimately, the board, each investment
adviser manages the securities held by the fund it serves in accordance with the
fund's stated investment objective and policies, makes investment decisions for
the fund and places orders to purchase and sell securities on behalf of the
fund.
Each Advisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. Each Advisory Agreement may be
terminated by the Trust upon not more than 60 days' written notice. Each
Advisory Agreement may be terminated by Mitchell Hutchins or the investment
adviser upon not more than 120 days' written notice. Each Advisory Agreement
provides that it will continue in effect for a period of more than two years
from its execution only so long as such continuance is specifically approved at
least annually in accordance with the requirements of the Investment Company
Act.
Under the Advisory Agreements, the investment advisers will not be
liable for any error or judgment or mistake of law or for any loss suffered by a
fund in connection with the performance of the contract, except a loss resulting
from willful misfeasance, bad faith, or gross negligence on the part of the
investment advisers in the performance of their duties or from reckless
disregard of their duties and obligations thereunder. Each investment adviser
has agreed to its fees as described in the Prospectus and which are generally
lower than the fees it charges to institutional accounts for which it serves as
investment adviser and performs all administrative functions associated with
serving in that capacity in recognition of the reduced administrative
responsibilities it has undertaken with respect to the fund. By virtue of the
management, monitoring and administrative functions performed by Mitchell
Hutchins, and the fact that investment advisers are not required to make
decisions regarding the allocation of assets among the major sectors of the
securities markets, each investment adviser serves in a subadvisory capacity to
the fund. Subject to the monitoring by the Manager and, ultimately, the board,
each investment adviser's responsibilities are limited to managing the
securities held by the fund it serves in accordance with the fund's stated
investment objective and policies, making investment decisions for the fund and
placing orders to purchase and sell securities on behalf of the fund.
Under the Advisory Agreements with Pacific Investment Management
Company for PACE GOVERNMENT FIXED INCOME INVESTMENTS and PACE STRATEGIC FIXED
INCOME INVESTMENTS, Mitchell Hutchins (not the fund) pays PIMCO for its services
a fee in the annual amount of 0.25% of the average daily net assets of each
fund. For the fiscal years ended July 31, 1999, July 31, 1998 and July 31, 1997,
Mitchell Hutchins paid or accrued investment advisory fees to PIMCO of $456,345,
$327,708 and $198,232, respectively for PACE Government Fixed Income Investments
and $465,263, $249,156 and $146,108, respectively for PACE Strategic Fixed
Income Investments. PIMCO, a Delaware general partnership, is a registered
investment adviser and a subsidiary partnership of PIMCO Advisors L.P. ("PIMCO
Advisors"). The general partners of PIMCO Advisors are PIMCO Advisors Holding
L.P. ("PAH"), a publicly traded company listed on the New York Stock Exchange
under the symbol "PA", and PIMCO Partners, G.P., a general partnership between
Pacific Life Insurance Company and PIMCO Partners, LLC, a limited
48
<PAGE>
liability company controlled by the PIMCO managing directors. PIMCO is one of
the largest fixed income management firms in the nation. Included among PIMCO's
institutional clients are many "Fortune 500" companies. On October 31 1999,
PIMCO Advisors, PAH and Allianz AG ("Allianz") announced that they had reached a
definitive agreement pursuant to which Allianz will acquire majority ownership
of PIMCO Advisors and its subsidiaries, including PIMCO (the "Allianz
Transaction"). Under the terms of the transaction, Allianz will acquire all of
PAH, the publicly traded general partner of PIMCO Advisors. Pacific Life
Insurance Company will retain an approximate 30% interest in PIMCO Advisors. The
Allianz Transaction is currently expected to be completed by the end of the
first quarter of 2000.
Under the Advisory Agreement with Pacific Income Advisors, Inc. for
PACE INTERMEDIATE FIXED INCOME INVESTMENTS, Mitchell Hutchins (not the fund)
pays Pacific Income Advisors a fee in the annual amount of 0.20% of the fund's
average daily net assets. For the fiscal years ended July 31, 1999, July 31,
1998 and July 31, 1997, Mitchell Hutchins paid or accrued investment advisory
fees to Pacific Income Advisors of $246,706, $168,045 and $106,137,
respectively. Lloyd McAdams and Heather U. Baines, who serve as chairman and
chief investment officer and president and chief executive officer,
respectively, are each a controlling person of Pacific Income Advisors because
each owns more than 25% of Pacific Income Advisors' voting securities.
Under the Advisory Agreement with Deutsche Asset Management, Inc.
(formerly known as Morgan Grenfell Capital Management, Incorporated) for PACE
MUNICIPAL FIXED INCOME INVESTMENTS, Mitchell Hutchins (not the fund) pays
Deutsche Asset Management a fee in the annual amount of 0.20% of the fund's
average daily net assets. For the fiscal years ended July 31, 1999, July 31,
1998 and July 31, 1997, Mitchell Hutchins paid or accrued investment advisory
fees to Deutsche Asset Management of $112,598, $86,574 and $47,400,
respectively. All of the outstanding voting stock of Deutsche Asset Management
is owned by an indirect wholly owned subsidiary of Deutsche Bank AG, an
international commercial and investment banking group.
Under the current Advisory Agreement with Rogge Global Partners plc for
PACE GLOBAL FIXED INCOME INVESTMENTS, Mitchell Hutchins (not the fund) pays
Rogge Global Partners a fee in the annual amount of 0.35% of the fund's average
daily net assets. For the fiscal years ended July 31, 1999, July 31, 1998 and
July 31, 1997, Mitchell Hutchins paid or accrued investment advisory fees to
Rogge Global Partners under the current Advisory Agreement and a substantially
similar prior agreement of $352,679, $262,596 and $170,772, respectively. Rogge
Global Partners is a wholly owned subsidiary of United Asset Management
Corporation ("UAM"), a New York Stock Exchange listed company. UAM is
principally engaged through affiliated firms in the United States and abroad in
providing institutional investment management services and acquiring
institutional management firms like Rogge Global.
Under the current Advisory Agreement with Brinson Partners, Inc. for
PACE LARGE COMPANY VALUE EQUITY INVESTMENTS, Mitchell Hutchins (not the fund)
pays Brinson Partners a fee in the annual amount of 0.30% of the fund's average
daily net assets. For the fiscal years ended July 31, 1999, July 31, 1998 and
July 31, 1997, Mitchell Hutchins paid or accrued investment advisory fees to
Brinson Partners of $968,040, $670,717 and $377,030, respectively. Brinson
Partners is an indirect subsidiary wholly owned by UBS AG. UBS AG, with
headquarters in Zurich, Switzerland, is an internationally diversified
organization with operations in many aspects of the financial services industry.
Under the current Advisory Agreement with Alliance Capital Management
L.P. ("Alliance") for PACE LARGE COMPANY GROWTH EQUITY INVESTMENTS, Mitchell
Hutchins (not the fund) pays Alliance for its services under the Advisory
Agreement a fee in the annual amount of 0.30% of the fund's average daily net
assets. Prior to November 10, 1997, Chancellor LGT Asset Management, Inc. was
the fund's investment adviser. For the fiscal years ended July 31, 1999, July
31, 1998 and July 31, 1997, Mitchell Hutchins paid or accrued investment
advisory fees to Alliance and the prior investment adviser, of $972,444,
$628,243 and $328,454, respectively. Alliance Capital Management Corporation
("ACMC") is a general partner of Alliance and a wholly owned subsidiary of The
Equitable Life Assurance Society of the United States ("Equitable"). As of
November 1, 1999, Equitable and its subsidiaries were the beneficial owners of
an approximately 55.38% partnership interest in Alliance, and Alliance Capital
Management Holding L.P. ("Alliance Holding") owned an approximately 41.87%
partnership interest in Alliance. Equity interests in Alliance Holding are
traded on the New York Stock Exchange in the form of units.
49
<PAGE>
Approximately 98% of Alliance Holding's units are owned by the public and
management or employees of Alliance and approximately 2% are owned by Equitable.
The general partner of Alliance Holding is ACMC. Equitable, a New York life
insurance company, had total assets as at June 30, 1999 of approximately US$93.9
billion and is a wholly owned subsidiary of AXA Financial, Inc. ("AXA
Financial"), a Delaware corporation whose shares are traded on the New York
Stock Exchange. As of June 30, 1999, AXA, a French insurance holding company,
owned approximately 58.2% of the issued and outstanding shares of the common
stock of AXA Financial.
Under the current Advisory Agreements with Brandywine Asset Management,
Inc. and Ariel Capital Management, Inc. for PACE SMALL/MEDIUM COMPANY GROWTH
VALUE INVESTMENTS, Mitchell Hutchins (not the fund) pays each of these
investment advisers a fee in the annual amount of 0.30% of the portion of the
fund's average daily net assets that it manages. For the fiscal years ended July
31, 1999, July 31, 1998 and July 31, 1997, Mitchell Hutchins paid or accrued
investment advisory fees to Brandywine (the fund's sole investment adviser prior
to October 1, 1999) of $547,044, $519,732 and $287,096, respectively. Brandywine
is a wholly owned subsidiary of Legg Mason, Inc. Legg Mason, based in Baltimore,
Maryland, is a holding company that provides securities brokerage, investment
management and investment banking services through its wholly owned
subsidiaries. Ariel is an independent subchapter S corporation with a majority
of ownership held by its employees.
Under the current Advisory Agreement with Delaware Management Company,
Inc. for PACE SMALL/MEDIUM COMPANY GROWTH EQUITY INVESTMENTS, Mitchell Hutchins
(not the fund) pays Delaware Management a fee in the annual amount of 0.40% of
the fund's average daily net assets. Prior to December 16, 1998, Westfield
Capital Management Company, Inc. was the fund's investment adviser. For the
fiscal years ended July 31, 1999, July 31, 1998 and July 31, 1997, Mitchell
Hutchins paid or accrued investment advisory fees to Delaware Management and to
the prior investment adviser, of $852,402, $664,437 and $279,883, respectively.
Delaware Management is a member of Delaware Investments, 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.
Under the current Advisory Agreement with Martin Currie, Inc. for PACE
INTERNATIONAL EQUITY INVESTMENTS, Mitchell Hutchins (not the fund) pays Martin
Currie, Inc. a fee in the annual amount of 0.40% of the fund's average daily net
assets. For the fiscal years ended July 31, 1999, July 31, 1998 and July 31,
1997, Mitchell Hutchins paid or accrued investment advisory fees to Martin
Currie, Inc. of $717,975, $517,629 and $281,074, respectively. Martin Currie,
Inc. is a wholly owned subsidiary of Martin Currie Limited, a holding company.
Under the current Advisory Agreement with Schroder Investment
Management North America Inc. for PACE INTERNATIONAL EMERGING MARKETS EQUITY
INVESTMENTS, Mitchell Hutchins (not the fund) pays Schroder Investment a fee in
the annual amount of 0.50% of the fund's average daily net assets. Schroder
Investment is a wholly owned subsidiary of Schroder U.S. Holdings Inc. and was
the surviving company in a merger with Schroder Capital Management International
Inc. (the fund's investment adviser prior to July 1, 1999 and another wholly
owned subsidiary of Schroder U.S. Holdings Inc. For the fiscal years ended July
31, 1999, July 31, 1998 and July 31, 1997, Mitchell Hutchins paid or accrued
investment advisory fees to Schroder Investment and its predecessor of $341,405,
$283,338 and $189,911, respectively. Schroder Holdings Inc. is a wholly owned
subsidiary of Schroders plc., which is listed on the London Stock Exchange and
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 24 countries worldwide.
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<PAGE>
SECURITIES LENDING. For the fiscal year ended July 31, 1999,
PaineWebber, acting as the funds' lending agent, received compensation from the
funds as follows:
<TABLE>
<CAPTION>
FUND COMPENSATION
---- ------------
<S> <C>
PACE Money Market Investments............................... $0
PACE Government Securities Fixed Income Investments......... 1,509
PACE Intermediate Fixed Income Investments.................. 53,171
PACE Strategic Fixed Income Investments..................... 360
PACE Global Fixed Income Investments........................ 18,241
PACE Large Company Value Equity Investments................. 14,730
PACE Large Company Growth Equity Investments................ 11,998
PACE Small/Medium Company Value Equity Investments.......... 11,326
PACE Small/Medium Company Growth Equity Investments......... 28,352
PACE International Equity Investments....................... 18,210
PACE International Emerging Markets Equity Investments...... 7,978
</TABLE>
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of
the shares of each fund under a distribution contract with the Trust dated June
15, 1995 ("Distribution Contract") that requires Mitchell Hutchins to use its
best efforts, consistent with its other businesses, to sell shares of the funds.
Shares of the funds are offered continuously. Under a dealer agreement between
Mitchell Hutchins and PaineWebber dated June 15, 1995 ("Dealer Agreement"),
PaineWebber sells the funds' shares. PaineWebber and Mitchell Hutchins receive
no compensation under these contracts for their services.
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for a fund other than PACE Money
Market Investments are made by the fund's investment adviser, subject to the
overall review of Mitchell Hutchins and the board of trustees. Decisions to buy
and sell securities for PACE Money Market Investments are made by Mitchell
Hutchins as that fund's investment adviser, subject to the overall review of the
board of trustees. Although investment decisions for a fund are made
independently from those of the other accounts managed by its investment
adviser, investments of the type that the fund may make also may be made by
those other accounts. When a fund and one or more other accounts managed by its
investment adviser are prepared to invest in, or desire to dispose of, the same
security, available investments or opportunities for sales will be allocated in
a manner believed by the investment adviser to be equitable to each. In some
cases, this procedure may adversely affect the price paid or received by a fund
or the size of the position obtained or disposed of by a fund.
Transactions on U.S. stock exchanges and some foreign stock exchanges
involve the payment of negotiated brokerage commissions. On exchanges on which
commissions are negotiated, the cost of transactions may vary among different
brokers. On most foreign exchanges, commissions are generally fixed. No stated
commission is generally applicable to securities traded in U.S. over-the-counter
markets, but the prices of those securities include undisclosed commissions or
mark-ups. The cost of securities purchased from underwriters include an
underwriting commission or concession and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down. U.S.
government securities generally are purchased from underwriters or dealers,
although certain newly issued U.S. government securities may be purchased
directly from the U.S. Treasury or from the issuing agency or instrumentality.
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<PAGE>
For the periods indicated, the funds paid the brokerage commissions set
forth below:
<TABLE>
<CAPTION>
TOTAL BROKERAGE COMMISSIONS
-------------------------------------
FISCAL YEAR ENDED JULY 31,
-------------------------------------
FUND 1999 1998 1997
- ---- ------ ------ -------
<S> <C> <C> <C>
PACE Money Market Investments ................................... $ 0 $ 0 $ 0
PACE Government Securities Fixed Income Investments ............. 0 0 0
PACE Intermediate Fixed Income Investments ...................... 0 0 0
PACE Strategic Fixed Income Investments ......................... 4,297 17,292 169
PACE Municipal Fixed Income Investments ......................... 0 0 0
PACE Global Fixed Income Investments ............................ 0 0 0
PACE Large Company Value Equity Investments ..................... 336,042 191,304 164,051
PACE Large Company Growth Equity Investments..................... 289,045 422,526 153,087
PACE Small/Medium Company Value Equity Investments............... 715,933 491,524 302,226
PACE Small/Medium Company Growth Equity Investments.............. 296,609 303,695 414,380
PACE International Equity Investments ........................... 722,215 441,600 288,930
PACE International Emerging Markets Equity Investments........... 361,556 286,220 201,775
</TABLE>
The funds have no obligation to deal with any broker or group of
brokers in the execution of portfolio transactions. The funds contemplate that,
consistent with the policy of obtaining the best net results, brokerage
transactions may be conducted through Mitchell Hutchins or its affiliates,
including PaineWebber. The board has adopted procedures in conformity with Rule
17e-1 under the Investment Company Act to ensure that all brokerage commissions
paid to PaineWebber are reasonable and fair. Specific provisions in the
Management Agreement and Advisory Agreements authorize Mitchell Hutchins and any
of its affiliates that is a member of a national securities exchange to effect
portfolio transactions for the funds on such exchange and to retain compensation
in connection with such transactions. Any such transactions will be effected and
related compensation paid only in accordance with applicable SEC regulations.
For the last three fiscal years, none of the funds paid any brokerage
commissions to PaineWebber, except as follows: During the fiscal year ended July
31, 1999, PACE Large Company Growth Equity Investments paid $215 in brokerage
commissions to PaineWebber, which represented less than 1% of the total
commissions paid by that fund and less than 1% of the aggregate dollar amount of
the fund's transactions involving commission payments.
Transactions in futures contracts are executed through futures
commission merchants ("FCMs") who receive brokerage commissions for their
services. The funds' procedures in selecting FCMs to execute transactions in
futures contracts, including procedures permitting the use of an affiliated FCM,
including PaineWebber and its affiliates, are similar to those in effect with
respect to brokerage transactions in securities.
In selecting brokers for a fund, its investment adviser will consider
the full range and quality of a broker's services. Consistent with the interests
of the funds and subject to the review of the board, Mitchell Hutchins or the
applicable investment adviser may cause a fund to purchase and sell portfolio
securities through brokers who provide Mitchell Hutchins or the investment
adviser with brokerage or research services. The funds may pay those brokers a
higher commission than may be charged by other brokers, provided that Mitchell
Hutchins or the investment adviser, as applicable, determines in good faith that
the commission is reasonable in terms either of that particular transaction or
of the overall responsibility of Mitchell Hutchins or the investment adviser to
that fund and its other clients.
Research services obtained from brokers may include written reports,
pricing and appraisal services, analysis of issues raised in proxy statements,
educational seminars, subscriptions, portfolio attribution and
52
<PAGE>
monitoring services, and computer hardware, software and access charges which
are directly related to investment research. Research services may be received
in the form of written reports, online services, telephone contacts and personal
meetings with securities analysts, economists, corporate and industry
spokespersons and government representatives.
For the fiscal year ended July 31, 1999, the funds directed portfolio
transactions to brokers chosen because they provide research and analysis, for
which the funds paid the following in brokerage commissions:
<TABLE>
<CAPTION>
AMOUNT OF PORTFOLIO BROKERAGE
FUND TRANSACTIONS COMMISSIONS PAID
- ---- ------------ ----------------
<S> <C> <C>
PACE Money Market Investments ............................. 0 0
PACE Government Securities Fixed Income Investments ....... 998,750 39
PACE Intermediate Fixed Income ............................ 1,373,461 0
PACE Strategic Fixed Income Investments ................... 0 0
PACE Municipal Fixed Income Investments ................... 0 0
PACE Global Fixed Income Investments ...................... 0 o
PACE Large Company Value Equity Investments ............... 47,446,582 58,346
PACE Large Company Growth Equity Investments .............. ???? 26,043
PACE Small/Medium Company Value Equity Investments ........ 12,073,117 63,394
PACE Small/Medium Company Growth Equity Investments ....... 44,250(?) 3,647(?)
PACE International Equity Investments ..................... 0 0
PACE International Emerging Markets Equity Investments .... 292,020,674 5,369
</TABLE>
For purchases or sales with broker-dealer firms that act as principal,
Mitchell Hutchins or a fund's investment adviser seeks best execution. Although
Mitchell Hutchins or a fund's investment adviser may receive certain research or
execution services in connection with the transactions, it will not purchase
securities at a higher price or sell securities at a lower price than would
otherwise be paid if no weight was attributed to the services provided by the
executing dealer. Mitchell Hutchins or a fund's investment adviser may engage in
agency transactions in over-the-counter equity and debt securities in return for
research and execution services. These transactions are entered into only
pursuant to procedures that are designed to ensure that the transaction
(including commissions) is at least as favorable as it would have been if
effected directly with a market-maker that did not provide research or execution
services.
Research services and information received from brokers or dealers are
supplemental to the research efforts of Mitchell Hutchins and a fund's
investment adviser and, when utilized, are subject to internal analysis before
being incorporated into their investment processes. Information and research
services furnished by brokers or dealers through which or with which a fund
effects securities transactions may be used by Mitchell Hutchins or the fund's
investment adviser in advising other funds or accounts and, conversely, research
services furnished to Mitchell Hutchins or a fund's investment adviser by
brokers or dealers in connection with other funds or accounts that either of
them advises may be used in advising a fund.
Investment decisions for a fund and for other investment accounts
managed by Mitchell Hutchins or the applicable investment adviser are made
independently of each other in light of differing considerations for the various
accounts. However, the same investment decision may occasionally be made for a
fund and one or more accounts. In those cases, simultaneous transactions are
inevitable. Purchases or sales are then averaged as to price and allocated
between that fund and the other account(s) as to amount according to a formula
deemed equitable to the fund and the other account(s). While in some cases this
practice could have a detrimental effect upon the price or value of the security
as far as a fund is concerned, or upon its ability to complete its entire order,
in other cases it is believed that simultaneous transactions and the ability to
participate in volume transactions will benefit the fund.
53
<PAGE>
The funds will not purchase securities that are offered in
underwritings in which PaineWebber is a member of the underwriting or selling
group, except pursuant to procedures adopted by the board pursuant to Rule 10f-3
under the Investment Company Act. Among other things, these procedures require
that the spread or commission paid in connection with such a purchase be
reasonable and fair, the purchase be at not more than the public offering price
prior to the end of the first business day after the date of the public offering
and that PaineWebber or any affiliate thereof not participate in or benefit from
the sale to the fund.
As of July 31, 1999, the funds owned securities issued by their regular
broker-dealers (as defined in Rule 10b-1 under the Investment Company Act) as
follows:
PACE Money Market Investments: Short-term corporate obligations of
Goldman Sachs Group L.P. ($200,286).
PACE Government Securities Fixed Income Investments: Repurchase
agreements with State Street Bank and Trust Company ($459,000 and
$71,000).
PACE Intermediate fixed Income Investments: Repurchase agreement with
State Street Bank and Trust Company ($395,000).
PACE Strategic Fixed Income Investments: Corporate obligations of
Goldman Sachs Group L.P. ($3,251,521) and Morgan Stanley Dean Witter
($4,488,476); repurchase agreement with State Street Bank and Trust
Company ($1,943,000).
PACE Municipal Fixed Income Investments: None
PACE Global Fixed Income Investments: None
PACE Large Company Value Equity Investments: Repurchase agreement with
State Street Bank and Trust Company ($14,629,000).
PACE Large Company Growth Equity Investments: Common stock of Morgan
Stanley Dean Witter Discover & Co. ($7,985,075) and repurchase
agreement with State Street Bank and Trust Company ($9,814,000).
PACE Small/Medium Company Value Equity Investments: Repurchase
agreement with State Street Bank and Trust Company ($5,676,000).
PACE Small/Medium Company growth Equity Investments: Repurchase
agreement with State Street Bank and Trust Company ($19,111,000).
PACE International Equity Investments: Repurchase agreement with State
Street Bank and Trust Company ($10,088,000).
PACE International Emerging Markets Equity Investments: Repurchase
agreement with State Street Bank and Trust Company ($1,509,000).
PORTFOLIO TURNOVER. PACE Money Market Investments may attempt to
increase yields by trading to take advantage of short-term market variations,
which results in high portfolio turnover. Because purchases and sales of money
market instruments are usually effected as principal transactions, this policy
does not result in high brokerage commissions to the fund. The other funds do
not intend to seek profits through short-term trading. Nevertheless, the funds
will not consider portfolio turnover rate as a limiting factor in making
investment decisions.
A fund's turnover rate is calculated by dividing the lesser of
purchases or sales of its portfolio securities for the year by the monthly
average value of the portfolio securities. Securities or options with remaining
maturities of
54
<PAGE>
one year or less on the date of acquisition are excluded from the calculation.
Under certain market conditions, a fund authorized to engage in transactions in
options may experience increased portfolio turnover as a result of its
investment strategies. For instance, the exercise of a substantial number of
options written by a fund (due to appreciation of the underlying security in the
case of call options or depreciation of the underlying security in the case of
put options) could result in a turnover rate in excess of 100%. A portfolio
turnover rate of 100% would occur if all of a fund's securities that are
included in the computation of turnover were replaced once during a period of
one year.
Certain other practices that may be employed by a fund also could
result in high portfolio turnover. For example, portfolio securities may be sold
in anticipation of a rise in interest rates (market decline) or purchased in
anticipation of a decline in interest rates (market rise) and later sold. In
addition, a security may be sold and another of comparable quality purchased at
approximately the same time to take advantage of what an investment adviser
believes to be a temporary disparity in the normal yield relationship between
the two securities. These yield disparities may occur for reasons not directly
related to the investment quality of particular issues or the general movement
of interest rates, such as changes in the overall demand for, or supply of,
various types of securities.
Portfolio turnover rates may vary greatly from year to year as well as
within a particular year and may be affected by cash requirements for
redemptions of a fund's shares as well as by requirements that enable the fund
to receive favorable tax treatment.
The following table sets forth the portfolio turnover rates for each
fund for the periods indicated:
<TABLE>
<CAPTION>
PORTFOLIO TURNOVER RATES
-------------------------------------
FISCAL YEAR FISCAL YEAR
ENDED ENDED
FUND JULY 31, 1999 JULY 31, 1998
- ---- ----------------- ------------------
<S> <C> <C>
PACE Money Market Investments.............................................. N/A N/A
PACED Government Securities Fixed Income Investments....................... 418% 353%
PACE Intermediate Fixed Income Investments................................. 89% 111%
PACE Strategic Fixed Income Investments.................................... 202% 234%
PACE Municipal Fixed Income Investments.................................... 11% 34%
PACE Global Fixed Income Investments....................................... 226% 125%
PACE Large Company Value Equity Investments................................ 40% 34%
PACE Large Company Growth Equity Investments............................... 43% 102%
PACE Small/Medium Company Value Equity Investments......................... 57% 42%
PACE Small/Medium Company Growth Equity Investments........................ 102% 131%
PACE International Equity Investments...................................... 89% 56%
PACE International Emerging Markets Equity Investments..................... 66% 51%
</TABLE>
ADDITIONAL REDEMPTION INFORMATION; OTHER SERVICES
ADDITIONAL REDEMPTION INFORMATION. If conditions exist that make cash
payments undesirable, each fund reserves the right to honor any request for
redemption by making payment in whole or in part in securities chosen by the
fund and valued in the same way as they would be valued for purposes of
computing the fund's net asset value. If payment is made in securities, a
shareholder may incur brokerage expenses in converting these securities into
cash. The Trust has elected, however, to be governed by Rule 18f-1 under the
Investment Company Act, under which a fund is obligated to redeem shares solely
in cash up to the lesser of $250,000 or 1% of the net asset value of the fund
during any 90-day period for one shareholder. This election is irrevocable
unless the SEC permits its withdrawal. The funds may suspend redemption
privileges or postpone the date of payment during any period (1) when the New
York Stock Exchange is closed or trading on the New York Stock Exchange is
restricted as determined by the SEC, (2) when an emergency exists, as defined by
the SEC, that makes it not reasonably practicable for a fund to dispose of
securities owned by it or fairly to determine the value of its assets or (3) as
the
55
<PAGE>
SEC may otherwise permit. The redemption price may be more or less than the
shareholder's cost, depending on the market value of a fund's portfolio at the
time.
AUTOMATIC INVESTMENT PLAN. Certain shareholders may purchase shares of
a fund through an automatic investment plan, under which shareholders may
authorize PaineWebber to place a purchase order each month or quarter for fund
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 or through the liquidation of other securities
held in the investor's 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. For participants in the PACE Multi
Advisor Program, amounts invested through the automatic investment plan will be
invested in accordance with the participant's benchmark allocation. If
sufficient funds are not available in the participant's account on the trade
date to purchase the full amount specified by the participant, no purchase will
be made.
In addition to providing a convenient and disciplined manner of
investing, participation in the automatic investment plan enables an investor to
use the technique of "dollar cost averaging." When a shareholder invests the
same amount each month, the shareholder will purchase more shares when a fund's
net asset value per share is low and fewer shares when the net asset value per
share is high. Using this technique, a shareholder's average purchase price per
share over any given period will usually be lower than if the shareholder
purchased a fixed number of shares on a monthly basis during the period. Of
course, investing through the automatic investment plan does not assure a profit
or protect against loss in declining markets. Additionally, since 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 about the automatic investment plan, the RMA
account or the automatic funds transfer service, shareholders should contact
their PaineWebber Financial Advisor.
AUTOMATIC REDEMPTION PLAN. Shareholders may have PaineWebber redeem a
portion of their shares in the PACE Program (or the PACE Multi Advisor Program)
monthly or quarterly under the automatic redemption plan. Quarterly redemptions
are made in March, June, September and December. The amount to be redeemed must
be at least $500 per month or quarter. Purchases of additional shares of a fund
concurrent with redemption are ordinarily disadvantageous to shareholders
because of tax liabilities. For retirement plan shareholders, special
limitations apply. For further information regarding the automatic redemption
plan, shareholders should contact their PaineWebber Financial Advisors.
INDIVIDUAL RETIREMENT ACCOUNTS. A Self-Directed IRA is available
through PaineWebber under which investments may be made in the funds 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.
VALUATION OF SHARES
Each fund normally determines its net asset value per share as of the
close of regular trading (usually 4:00 p.m., Eastern time) on the New York Stock
Exchange on each Monday through Friday when the New York Stock Exchange is open.
Prices will be calculated earlier when the New York Stock Exchange closes early
because trading has been halted for the day. Currently the New York Stock
Exchange is closed on the observance of the following holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Securities that are listed on U.S. and foreign stock exchanges normally
are valued at the last sale price on the day the securities are valued or,
lacking any sales on that day, at the last available bid price. In cases where
56
<PAGE>
securities are traded on more than one exchange, the securities are generally
valued on the exchange considered by a fund's investment adviser as the primary
market. Securities traded in the over-the-counter market and listed on the
Nasdaq Stock Market ("Nasdaq") normally are valued at the last available sale
price on Nasdaq prior to valuation; other over-the-counter securities are valued
at the last bid price available prior to valuation, other than short-term
investments that mature in 60 days or less.
Where market quotations are readily available, bonds held by the funds
(other than PACE Money Market Investments) are valued based upon market
quotations, provided those quotations adequately reflect, in the judgment of a
fund's investment adviser, the fair value of the securities. Where those market
quotations are not readily available, bonds are valued based upon appraisals
received from a pricing service using a computerized matrix system or based upon
appraisals derived from information concerning the security or similar
securities received from recognized dealers in those securities. The amortized
cost method of valuation generally is used to value debt obligations with 60
days or less remaining until maturity, unless the board determines that this
does not represent fair value. All other securities and other assets are valued
at fair value as determined in good faith by or under the direction of the
board.
It should be recognized that judgment often plays a greater role in
valuing thinly traded securities and lower rated bonds than is the case with
respect to securities for which a broader range of dealer quotations and
last-sale information is available.
All investments quoted in foreign currency will be valued daily in U.S.
dollars on the basis of the foreign currency exchange rate prevailing at the
time such valuation is determined by a fund's custodian. Foreign currency
exchange rates are generally determined prior to the close of regular trading on
the NYSE. Occasionally events affecting the value of foreign investments and
such exchange rates occur between the time at which they are determined and the
close of trading on the New York Stock Exchange, which events would not be
reflected in the computation of a fund's net asset value on that day. If events
materially affecting the value of such investments or currency exchange rates
occur during such time period, the investments will be valued at their fair
value as determined in good faith by or under the direction of the board. The
foreign currency exchange transactions of the funds conducted on a spot (that
is, cash) basis are valued at the spot rate for purchasing or selling currency
prevailing on the foreign exchange market. Under normal market conditions this
rate differs from the prevailing exchange rate by less than one-tenth of one
percent due to the costs of converting from one currency to another.
PACE MONEY MARKET INVESTMENTS. PACE Money Market Investments values its
portfolio securities in accordance with the amortized cost method of valuation
under Rule 2a-7 under the Investment Company Act. To use amortized cost to value
its portfolio securities, the fund must adhere to certain conditions under that
Rule relating to its investments. Amortized cost is an approximation of market
value, whereby the difference between acquisition cost and value at maturity is
amortized on a straight-line basis over the remaining life of the instrument.
The effect of changes in the market value of a security as a result of
fluctuating interest rates is not taken into account and thus the amortized cost
method of valuation may result in the value of a security being higher or lower
than its actual market value. In the event that a large number of redemptions
takes place at a time when interest rates have increased, the fund might have to
sell portfolio securities prior to maturity and at a price that might not be as
desirable as the value at maturity.
The board has established procedures for the purpose of maintaining a
constant net asset value of $1.00 per share for PACE Money Market Investments,
which include a review of the extent of any deviation of net asset value per
share, based on available market quotations, from the $1.00 amortized cost per
share. Should that deviation exceed 1/2 of 1%, the trustees will promptly
consider whether any action should bE initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redeeming shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends and utilizing a net asset value per share as
determined by using available market quotations. PACE Money Market Investments
will maintain a dollar weighted average portfolio maturity of 90 days or less
and will not purchase any instrument with a remaining maturity greater than 13
months (as calculated under Rule 2a-7) and except that securities subject to
repurchase agreements may have maturities in excess of 13 months. PACE Money
Market Investments will limit portfolio investments, including repurchase
agreements, to those U.S. dollar-denominated instruments that are of high
quality
57
<PAGE>
and that the trustees determine present minimal credit risks as advised by
Mitchell Hutchins and will comply with certain reporting and recordkeeping
procedures. There is no assurance that constant net asset value per share will
be maintained. In the event amortized cost ceases to represent fair value, the
board will take appropriate action.
In determining the approximate market value of portfolio instruments,
the Trust may employ outside organizations, which may use a matrix or formula
method that takes into consideration market indices, matrices, yield curves and
other specific adjustments. This may result in the securities being valued at a
price different from the price that would have been determined had the matrix or
formula method not been used. All cash, receivables and current payables are
carried at their face value. Other assets, if any, are valued at fair value as
determined in good faith by or under the direction of the board.
PERFORMANCE INFORMATION
Each fund's performance data quoted in advertising and other
promotional materials ("Performance Advertisements") represent past performance
and are not intended to indicate future performance. The investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
TOTAL RETURN CALCULATIONS. Average annual total return quotes
("Standardized Return") used in a fund's Performance Advertisements are
calculated according to the following formula:
n
P(1 + T) = ERV
where: P = a hypothetical initial payment of $1,000 to purchase
shares of a fund
T = average annual total return of shares of that fund
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
at the beginning of that period.
Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the Performance
Advertisements for publication. Total return, or "T" in the formula above, is
computed by finding the average annual change in the value of an initial $1,000
investment over the period. All dividends and other distributions are assumed to
have been reinvested at net asset value.
Each fund also may refer in Performance Advertisements to total return
performance data that are not calculated according to the formula set forth
above ("Non-Standardized Return"). A fund calculates Non-Standardized Return for
specified periods of time by assuming an investment of $1,000 in fund shares and
assuming the reinvestment of all dividends and other distributions. The rate of
return is determined by subtracting the initial value of the investment from the
ending value and by dividing the remainder by the initial value.
YIELD. Yields used in a fund's Performance Advertisements, except for
those given for PACE Money Market Investments, are calculated by dividing the
fund's interest and dividend income attributable to the fund's shares for a
30-day period ("Period"), net of expenses attributable to such fund, by the
average number of shares of such fund entitled to receive dividends during the
Period and expressing the result as an annualized percentage (assuming
semi-annual compounding) of the net asset value per share at the end of the
Period. Yield quotations are calculated according to the following formula:
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6
YIELD = 2[( a-b/cd +1) - 1 ]
where: a = interest earned during the Period attributable to a fund
b = expenses accrued for the Period attributable to a fund (net of
reimbursements)
c = the average daily number of shares of a fund
outstanding during the Period that were entitled to receive
dividends
d = the net asset value per share on the last day of the Period
Except as noted below, in determining interest and dividend income
earned during the Period (a variable in the above formula), a fund calculates
interest earned on each debt obligation held by it during the Period by (1)
computing the obligation's yield to maturity, based on the market value of the
obligation (including actual accrued interest) on the last business day of the
Period or, if the obligation was purchased during the Period, the purchase price
plus accrued interest and (2) dividing the yield to maturity by 360, and
multiplying the resulting quotient by the market value of the obligation
(including actual accrued interest) to determine the interest income on the
obligation for each day of the period that the obligation is in the fund. Once
interest earned is calculated in this fashion for each debt obligation held by
the fund, interest earned during the Period is then determined by totaling the
interest earned on all debt obligations. For purposes of these calculations, the
maturity of an obligation with one or more call provisions is assumed to be the
next date on which the obligation reasonably can be expected to be called or, if
none, the maturity date.
Tax exempt-yield for PACE Municipal Fixed Income Investments is
calculated according to the same formula except the variable "a" equals interest
exempt from federal income tax earned during the Period. This tax-exempt yield
may then be translated into tax-equivalent yield according to the following
formula:
TAX EQUIVALENT YIELD = ( E ) + t
-----
1 - p
E = tax-exempt yield of the fund
p = stated income tax rate
t = taxable yield of the fund
The tax-equivalent yield of PACE Municipal Fixed Income Investments
assumes a 39.6% effective federal tax rate.
PACE Money Market Investments computes its yield and effective yield
quotations using standardized methods required by the SEC. The fund from time to
time advertises (1) its current yield based on a recently ended seven-day
period, computed by determining the net change, exclusive of capital changes, in
the value of a hypothetical pre-existing account having a balance of one share
at the beginning of the period, subtracting a hypothetical charge reflecting
deductions from that shareholder account, dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return, and then multiplying the base period return by (365/7), with the
resulting yield figure carried to at least the nearest hundredth of one percent,
and (2) its effective yield based on the same seven-day period by compounding
the base period return by adding 1, raising the sum to a power equal to (365/7),
and subtracting 1 from the result, according to the following formula:
365/7
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1) ] - 1
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yield of each fund fluctuates, it cannot be compared
with yields on savings accounts or other investment alternatives that provide an
agreed to or guaranteed fixed yield for a stated period of time. However, yield
information may be useful to an investor considering temporary investments in
money market instruments. In comparing the yield of
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one money market fund to another, consideration should be given to each fund's
investment policies, including the types of investments made, the average
maturity of the portfolio securities and whether there are any special account
charges that may reduce the yield.
OTHER INFORMATION. In Performance Advertisement, each fund may compare
its Standardized Return and/or their Non-Standardized Return with data published
by Lipper Analytical Services, Inc. ("Lipper"), CDA Investment Technologies,
Inc. ("CDA"), Wiesenberger Investment Companies Services ("Wiesenberger"),
Investment Company Data, Inc. ("ICD"), or Morningstar Mutual Funds
("Morningstar") or with the performance of appropriate recognized stock and
other indices, including (but not limited to) the Standard & Poor's 500
Composite Stock Price Index, the Dow Jones Industrial Average, the Wilshire 5000
Index, other Wilshire Associates equities indices, Frank Russell Company equity
indices, the Morgan Stanley Capital International Perspective Indices, the
Salomon Smith Barney World Government bond indices, the Lehman Brothers Bond
indices, Municipal Bond Buyers Indices, 90 day Treasury Bills, 30-year and
10-year U.S. Treasury Bonds and changes in the Consumer Price Index as published
by the U.S. Department of Commerce. The fund also may refer in such materials to
mutual fund performance rankings and other data, such as comparative asset,
expense and fee levels, published by Lipper, CDA, Wiesenberger, ICD or
Morningstar. Performance Advertisements also may refer to discussions of a fund
and comparative mutual fund data and ratings reported in independent
periodicals, including (but not limited to) THE WALL STREET JOURNAL, MONEY
MAGAZINE, FORBES, BUSINESS WEEK, FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW
YORK TIMES, THE CHICAGO TRIBUNE, THE WASHINGTON POST AND THE KIPLINGER LETTERS.
Ratings may include criteria relating to portfolio characteristics in addition
to performance information. In connection with a ranking, a fund may also
provide additional information with respect to the ranking, such as the
particular category to which it relates, the number of funds in the category,
the criteria on which the ranking is based, and the effect of sales charges, fee
waivers and/or expense reimbursements. Each fund may include discussions or
illustrations of the effects of compounding in Performance Advertisements.
"Compounding" refers to the fact that, if dividends or other distributions on a
fund investment are reinvested by being paid in additional fund shares, any
future income or capital appreciation of the fund would increase the value, not
only of the original fund investment, but also of the additional fund shares
received through reinvestment. As a result, the value of the fund investment
would increase more quickly than if dividends or other distributions had been
paid in cash.
TAXES
BACKUP WITHHOLDING. Each fund is required to withhold 31% of all
taxable dividends, capital gain distributions and redemption proceeds payable to
individuals and certain other non-corporate shareholders who do not provide the
fund or PaineWebber with a correct taxpayer identification number. Withholding
at that rate also is required from taxable dividends and capital gain
distributions payable to those shareholders who otherwise are subject to backup
withholding.
SALE OR EXCHANGE OF FUND SHARES. A shareholder's sale (redemption) of
shares may result in a taxable gain or loss, depending on whether the
shareholder receives more or less than his or her adjusted basis for the shares.
In addition, if a fund's shares are bought within 30 days before or after
selling other shares of the fund at a loss, all or a portion of that loss will
not be deductible and will increase the basis of the newly purchased shares.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY. To continue to qualify
for treatment as a regulated investment company ("RIC") under the Internal
Revenue Code, a fund must distribute to its shareholders for each taxable year
at least 90% of the sum of its net interest income excludable from gross income
under section 103(a) of the Internal Revenue Code (for PACE Municipal Fixed
Income Investments) and its investment company taxable income (consisting
generally of taxable net investment income and net short-term capital gain) and
must meet several additional requirements. For each fund, these requirements
include the following: (1) the fund must derive at least 90% of its gross income
each taxable year from dividends, interest, payments with respect to securities
loans and gains from the sale or other disposition of securities or foreign
currencies, or other income (including gains from options, futures or foreign
currency contracts) derived with respect to its business of investing in
securities or those currencies ("Income Requirement"); (2) at the close of each
quarter of the fund's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. government securities,
securities of other RICs and other securities that are limited, in respect of
any one issuer, to an amount that does not exceed 5%
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of the value of the fund's total assets and that does not represent more than
10% of the issuer's outstanding voting securities; and (3) at the close of each
quarter of the fund's taxable year, not more than 25% of the value of its total
assets may be invested in securities (other than U.S. government securities or
the securities of other RICs) of any one issuer. If a fund failed to qualify for
treatment as a RIC for any taxable year, (a) it would be taxed as an ordinary
corporation on its taxable income for that year without being able to deduct the
distributions it makes to its shareholders and (b) the shareholders would treat
all those distributions, including distributions of net capital gain (the excess
of net long-term capital gain over net short-term capital loss), as dividends
(that is, ordinary income) to the extent of the fund's earnings and profits. In
addition, the fund could be required to recognize unrealized gains, pay
substantial taxes and interest, and make substantial distributions before
requalifying for RIC treatment.
OTHER INFORMATION. Dividends and other distributions declared by a fund
in October, November or December of any year and payable to shareholders of
record on a date in any of those months will be deemed to have been paid by the
fund and received by the shareholders on December 31 of that year if the
distributions are paid by the fund during the following January. Accordingly,
those distributions will be taxed to shareholders for the year in which that
December 31 falls.
A portion of the dividends from the investment company taxable income
(whether paid in cash or in additional fund shares) of funds that invest in
equity securities corporations may be eligible for the dividends-received
deduction allowed to corporations. The eligible portion may not exceed the
aggregate dividends received by a fund from U.S. corporations. However,
dividends received by a corporate shareholder and deducted by it pursuant to the
dividends-received deduction are subject indirectly to the federal alternative
minimum tax.
If fund shares are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any capital gain distributions received thereon. Investors also
should be aware that if shares are purchased shortly before the record date for
a capital gain distribution, the shareholder will pay full price for the shares
and receive some portion of the price back as a taxable distribution.
Dividends and interest received, and gains realized, by a fund on
foreign securities may be subject to income, withholding or other taxes imposed
by foreign countries and U.S. possessions (collectively "foreign taxes") that
would reduce the return on its securities. Tax conventions between certain
countries and the United States, however, may reduce or eliminate foreign taxes,
and many foreign countries do not impose taxes on capital gains in respect of
investments by foreign investors. If more than 50% of the value of a fund's
total assets at the close of its taxable year consists of securities of foreign
corporations, it will be eligible to, and may, file an election with the
Internal Revenue Service that will enable its shareholders, in effect, to
receive the benefit of the foreign tax credit with respect to any foreign taxes
paid by it. Pursuant to the election, the fund would treat those taxes as
dividends paid to its shareholders and each shareholder (1) would be required to
include in gross income, and treat as paid by him or her, his or her
proportionate share of those taxes, (2) would be required to treat his or her
share of those taxes and of any dividend paid by the fund that represents income
from foreign or U.S. possessions sources as his or her own income from those
sources, and (3) could either deduct the foreign taxes deemed paid by him or her
in computing his or her taxable income or, alternatively, use the foregoing
information in calculating the foreign tax credit against his or her federal
income tax. A fund will report to its shareholders shortly after each taxable
year their respective shares of foreign taxes paid to, and the income from
sources within, foreign countries and U.S. possessions if it makes this
election. Individuals who have no more than $300 ($600 for married persons
filing jointly) of creditable foreign taxes included on Forms 1099 and all of
whose foreign source income is "qualified passive income" may elect each year to
be exempt from the extremely complicated foreign tax credit limitation, in which
event they would be able to claim a foreign tax credit without having to file
the detailed Form 1116 that otherwise is required.
Each fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for the calendar year and capital gain
net income for the one-year period ending on October 31 of that year, plus
certain other amounts.
The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts and entering into forward currency contracts,
involves complex rules that determine for income tax purposes the
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amount, character and timing of recognition of the gains and losses a fund
realizes in connection therewith. Gains from the disposition of foreign
currencies (except certain gains that may be excluded by future regulations),
and gains from options, futures and forward currency contracts derived by a fund
with respect to its business of investing in securities or foreign currencies,
qualify as permissible income under the Income Requirement.
Each fund may invest in the stock of "passive foreign investment
companies" ("PFICs") if that stock is a permissible investment. A PFIC is a
foreign corporation (with certain exceptions) that, in general, meets either of
the following tests: (1) at least 75% of its gross income is passive or (2) an
average of at least 50% of its assets produce, or are held for the production
of, passive income. Under certain circumstances, a fund will be subject to
federal income tax on a portion of any "excess distribution" received on the
stock of a PFIC or of any gain from disposition of such stock (collectively
"PFIC income"), plus interest thereon, even if the fund distributes the PFIC
income as a taxable dividend to its shareholders. The balance of the PFIC income
will be included in the fund's investment company taxable income and,
accordingly, will not be taxable to it to the extent it distributes that income
to its shareholders.
If a fund invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF"), then in lieu of the foregoing tax and
interest obligation, the fund will be required to include in income each year
its pro rata share of the QEF's annual ordinary earnings and net capital gain
(which it may have to distribute to satisfy the Distribution Requirement and
avoid imposition of the Excise Tax) even if the QEF does not distribute those
earnings and gain to the fund. In most instances it will be very difficult, if
not impossible, to make this election because of certain of its requirements.
Each fund may elect to "mark to market" its stock in any PFIC.
"Marking-to-market," in this context, means including in ordinary income each
taxable year the excess, if any, of the fair market value of a PFIC's stock over
a fund's adjusted basis therein as of the end of that year. Pursuant to the
election, a fund also would be allowed to deduct (as an ordinary, not capital,
loss) the excess, if any, of its adjusted basis in PFIC stock over the fair
market value thereof as of the taxable year-end, but only to the extent of any
net mark-to-market gains with respect to that stock included by the fund for
prior taxable years under the election (and under regulations proposed in 1992
that provided a similar election with respect to the stock of certain PFICs). A
fund's adjusted basis in each PFIC's stock with respect to which it has made
this election will be adjusted to reflect the amounts of income included and
deductions taken thereunder.
Certain futures and foreign currency contracts in which a fund may
invest may be subject to section 1256 of the Code ("section 1256 contracts").
Any section 1256 contracts a fund holds at the end of each taxable year
generally must be "marked-to-market" (that is, treated as having been sold at
that time for their fair market value) for federal income tax purposes, with the
result that unrealized gains or losses will be treated as though they were
realized. Sixty percent of any net gain or loss recognized on these deemed
sales, and 60% of any net realized gain or loss from any actual sales of section
1256 contracts, will be treated as long-term capital gain or loss, and the
balance will be treated as short-term capital gain or loss. These rules may
operate to increase the amount that a fund must distribute to satisfy the
Distribution Requirement (I.E., with respect to the portion treated as
short-term capital gain), which will be taxable to the shareholders as ordinary
income, and to increase the net capital gain a fund recognizes, without in
either case increasing the cash available to the fund. A fund may elect not to
have the foregoing rules apply to any "mixed straddle" (that is, a straddle,
clearly identified by the fund in accordance with the regulations, at least one
(but not all) of the positions of which are section 1256 contracts), although
doing so may have the effect of increasing the relative proportion of net
short-term capital gain (taxable as ordinary income) and thus increasing the
amount of dividends that must be distributed.
Gains or losses (1) from the disposition of foreign currencies ,
including forward currency contracts, (2) on the disposition of each
foreign-currency-denominated debt security that are attributable to fluctuations
in the value of the foreign currency between the dates of acquisition and
disposition of the security and (3) that are attributable to exchange rate
fluctuations between the time a fund accrues interest, dividends or other
receivables, or expenses or other liabilities, denominated in a foreign currency
and the time the fund actually collects the receivables or pays the liabilities,
generally are treated as ordinary income or loss. These gains, referred to under
the Code as "section 988" gains or losses, increase or decrease the amount of a
fund's investment company taxable income available to be
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distributed to its shareholders as ordinary income, rather than increasing or
decreasing the amount of its net capital gain. If section 988 losses exceed
other investment company taxable income during a taxable year, a fund would not
be able to distribute any dividends, and any distributions made during that year
before the losses were realized would be recharacterized as a return of capital
to shareholders, rather than as a dividend, thereby reducing each shareholder's
basis in his or her fund shares.
Offsetting positions in any actively traded security, option, futures
or forward contract entered into or held by a fund may constitute a "straddle"
for federal income tax purposes. Straddles are subject to certain rules that may
affect the amount, character and timing of a fund's gains and losses with
respect to positions of the straddle by requiring, among other things, that (1)
loss realized on disposition of one position of a straddle be deferred to the
extent of any unrealized gain in an offsetting position until the latter
position is disposed of, (2) the fund's holding period in certain straddle
positions not begin until the straddle is terminated (possibly resulting in gain
being treated as short-term rather than long-term capital gain) and (3) losses
recognized with respect to certain straddle positions, that otherwise would
constitute short-term capital losses, be treated as long-term capital losses.
Applicable regulations also provide certain "wash sale" rules, which apply to
transactions where a position is sold at a loss and a new offsetting position is
acquired within a prescribed period, and "short sale" rules applicable to
straddles. Different elections are available to the funds, which may mitigate
the effects of the straddle rules, particularly with respect to "mixed
straddles" (I.E., a straddle of which at least one, but not all, positions are
section 1256 contracts).
When a covered call option written (sold) by a fund expires, it
realizes a short-term capital gain equal to the amount of the premium it
received for writing the option. When a fund terminates its obligations under
such an option by entering into a closing transaction, it realizes a short-term
capital gain (or loss), depending on whether the cost of the closing transaction
is less (or more) than the premium it received when it wrote the option. When a
covered call option written by a fund is exercised, the fund is treated as
having sold the underlying security, producing long-term or short-term capital
gain or loss, depending on the holding period of the underlying security and
whether the sum of the option price received on the exercise plus the premium
received when it wrote the option is more or less than the basis of the
underlying security.
If a fund has an "appreciated financial position"-- generally, an
interest (including an interest through an option, futures or forward currency
contract or short sale) with respect to any stock, debt instrument (other than
"straight debt") or partnership interest the fair market value of which exceeds
its adjusted basis--and enters into a "constructive sale" of the position, the
fund will be treated as having made an actual sale thereof, with the result that
gain will be recognized at that time. A constructive sale generally consists of
a short sale, an offsetting notional principal contract or a futures or forward
currency contract entered into by a fund or a related person with respect to the
same or substantially identical property. In addition, if the appreciated
financial position is itself a short sale or such a contract, acquisition of the
underlying property or substantially identical property will be deemed a
constructive sale. The foregoing will not apply, however, to a fund's
transaction during any taxable year that otherwise would be treated as a
constructive sale if the transaction is closed within 30 days after the end of
that year and the fund holds the appreciated financial position unhedged for 60
days after that closing (i.e., at no time during that 60-day period is the
fund's risk of loss regarding that position reduced by reason of certain
specified transactions with respect to substantially identical or related
property, such as having an option to sell, being contractually obligated to
sell, making a short sale or granting an option to buy substantially identical
stock or securities).
A fund that acquires zero coupon or other securities issued with
original issue discount ("OID") and/or Treasury inflation-protected securities
("TIPS"), on which principal is adjusted based on changes in the Consumer Price
Index must include in its gross income the OID that accrues on those securities,
and the amount of any principal increases on TIPS, during the taxable year, even
if the fund receives no corresponding payment on them during the year.
Similarly, a fund that invests in payment-in-kind ("PIK") securities must
include in its gross income securities it receives as "interest" on those
securities. Each fund has elected similar treatment with respect to securities
purchased at a discount from their face value ("market discount"). Because a
fund annually must distribute substantially all of its investment company
taxable income, including any accrued OID, market discount and other non-cash
income, to satisfy the Distribution Requirement and avoid imposition of the
Excise Tax, it may be required in a particular year to distribute as a dividend
an amount that is greater than the total amount of cash it
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actually receives. Those distributions would have to be made from the fund's
cash assets or from the proceeds of sales of portfolio securities, if necessary.
The fund might realize capital gains or losses from those sales, which would
increase or decrease its investment company taxable income and/or net capital
gain.
INFORMATION ABOUT PACE MUNICIPAL FIXED INCOME INVESTMENTS. Dividends
paid by PACE Municipal Fixed Income Investments by will qualify as
"exempt-interest dividends," and thus will be excludable from gross income for
federal income tax purposes by its shareholders, if the fund satisfies the
requirement that, at the close of each quarter of its taxable year, at least 50%
of the value of its total assets consists of securities the interest on which is
excludable from gross income under section 103(a); the fund intends to continue
to satisfy this requirement. The aggregate dividends designated for any year by
the fund as exempt-interest dividends may not exceed its net tax-exempt income
for the year. Shareholders' treatment of dividends from the fund under state and
local income tax laws may differ from the treatment thereof under the Internal
Revenue Code. Investors should consult their tax advisers concerning this
matter.
Entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by IDBs or PABs should consult their
tax advisers before purchasing fund shares because, for users of certain of
these facilities, the interest on those bonds is not exempt from federal income
tax. For these purposes, "substantial user" is defined to include a "non-exempt
person" who regularly uses in a trade or business a part of a facility financed
from the proceeds of IDBs or PABs.
Up to 85% of social security and railroad retirement benefits may be
included in taxable income for recipients whose adjusted gross income (including
income from tax-exempt sources such as the fund) plus 50% of their benefits
exceeds certain base amounts. Exempt-interest dividends from a fund still would
be tax-exempt to the extent described above; they would only be included in the
calculation of whether a recipient's income exceeded the established amounts.
If fund shares are sold at a loss after being held for six months or
less, the loss will be disallowed to the extent of any exempt-interest dividends
received on those shares, and any loss not disallowed will be treated as
long-term, instead of short-term, capital loss to the extent of any capital gain
distributions received thereon. Investors also should be aware that if shares
are purchased shortly before the record date for a capital gain distribution,
the shareholder will pay full price for the shares and receive some portion of
the price back as a taxable distribution.
If the fund invests in instruments that generate taxable interest
income, under the circumstances described in the Prospectus and in the
discussion of municipal market discount bonds below, the portion of any fund
dividend attributable to the interest earned thereon will be taxable to the
fund's shareholders as ordinary income to the extent of its earnings and
profits, and only the remaining portion will qualify as an exempt-interest
dividend. The respective portions will be determined by the "actual earned"
method, under which the portion of any dividend that qualifies as an
exempt-interest dividend may vary, depending on the relative proportions of
tax-exempt and taxable interest earned during the dividend period. Moreover, if
the fund realizes capital gain as a result of market transactions, any
distributions of the gain will be taxable to its shareholders.
The fund may invest in municipal bonds that are purchased, generally
not on their original issue, with market discount (that is, at a price less than
the principal amount of the bond or, in the case of a bond that was issued with
original issue discount, a price less than the amount of the issue price plus
accrued original issue discount) ("municipal market discount bonds"). If a
bond's market discount is less that the product of (1) 0.25% of the redemption
price at maturity times (2) the number of complete years to maturity after the
taxpayer acquired the bond, then no market discount is considered to exist. Gain
on the disposition of a municipal market discount bond purchased by the fund
after April 30, 1993 (other than a bond with a fixed maturity date within one
year from its issuance) generally is treated as ordinary (taxable) income,
rather than capital gain, to the extent of the bond's accrued market discount at
the time of disposition. Market discount on such a bond generally is accrued
ratably, on a daily basis, over the period from the acquisition date to the date
of maturity. In lieu of treating the disposition gain as above, the fund may
elect to include market discount in its gross income currently, for each taxable
year to which it is attributable.
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OTHER INFORMATION
DELAWARE BUSINESS TRUST. The Trust is an entity of the type commonly
known as a Delaware business trust. Although Delaware law statutorily limits the
potential liabilities of a Delaware business trust's shareholders to the same
extent as it limits the potential liabilities of a Delaware corporation,
shareholders of a fund could, under certain conflicts of laws jurisprudence in
various states, be held personally liable for the obligations of the Trust or a
fund. However, the trust instrument of the Trust disclaims shareholder liability
for acts or obligations of the Trust or its series (the funds) and requires that
notice of such disclaimer be given in each written obligation made or issued by
the trustees or by any officers or officer by or on behalf of the Trust, a
series, the trustees or any of them in connection with the Trust. The trust
instrument provides for indemnification from a fund's property for all losses
and expenses of any fund shareholder held personally liable for the obligations
of the fund. Thus, the risk of a shareholder's incurring financial loss on
account of shareholder liability is limited to circumstances in which a fund
itself would be unable to meet its obligations, a possibility that Mitchell
Hutchins believes is remote and not material. Upon payment of any liability
incurred by a shareholder solely by reason of being or having been a shareholder
of a fund, the shareholder paying such liability will be entitled to
reimbursement from the general assets of the fund. The trustees intend to
conduct the operations of the funds in such a way as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the funds.
In the event any of the initial shares of a fund are redeemed during
the five-year amortization period, the redemption proceeds will be reduced by a
pro rata portion of any unamortized deferred organizational expenses in the same
proportion as the number of initial shares being redeemed bears to the number of
initial shares outstanding at the time of redemption.
VOTING RIGHTS. Shareholders of each fund are entitled to one vote for
each full share held and fractional votes for fractional shares held. Voting
rights are not cumulative and, as a result, the holders of more than 50% of all
the shares of the funds as a group may elect all of the trustees of the Trust.
The shares of each series of the Trust will be voted separately, except when an
aggregate vote of all the series of the Trust is required by law.
The Trust does not hold annual meetings. Shareholders of record of no
less than two-thirds of the outstanding shares of the Trust may remove a trustee
through a declaration in writing or by vote cast in person or by proxy at a
meeting called for that purpose. A meeting will be called to vote on the removal
of a trustee at the written request of holders of 10% of the outstanding shares
of the Trust.
PRIOR NAMES. Prior to December 1, 1997, the Trust's name was "Managed
Accounts Services Portfolio Trust."
CUSTODIAN AND RECORDKEEPING AGENT; TRANSFER AND DIVIDEND AGENT. State
Street Bank and Trust Company, located at One Heritage Drive, North Quincy,
Massachusetts 02171, serves as custodian and recordkeeping agent for each fund
and employs foreign sub-custodians approved by the board in accordance with
applicable requirements under the Investment Company Act to provide custody of
the funds' foreign assets. PFPC Inc., a subsidiary of PNC Bank, N.A., serves as
each fund's transfer and dividend disbursing agent. It is located at 400
Bellevue Parkway, Wilmington, DE 19809.
COUNSEL. The law firm Willkie Farr & Gallagher, 787 Seventh Avenue, New
York, New York serves as counsel to the Trust. Willkie Farr & Gallagher also
acts as counsel to PaineWebber and Mitchell Hutchins in connection with other
matters.
AUDITORS. Ernst & Young LLP, 787 Seventh Avenue, New York, New York
10019, serves as independent auditors for the Trust.
65
<PAGE>
FINANCIAL STATEMENTS
The Trust's Annual Report to Shareholders for its last fiscal year is a
separate document supplied with this SAI, and the financial statements,
accompanying notes and report of independent auditors appearing therein are
incorporated by this reference into the SAI.
66
<PAGE>
APPENDIX
RATINGS INFORMATION
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS
Aaa. Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues; Aa.
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risk appear somewhat larger than in Aaa securities; A. Bonds which
are rated A possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future; Baa. Bonds
which are rated Baa are considered as medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payment and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well; Ba. Bonds which are rated Ba are judged to
have speculative elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class; B. Bonds which are
rated B generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small; Caa. Bonds which are rated Caa are of
poor standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest; Ca. Bonds which are rated Ca
represent obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings; C. Bonds which are rated C
are the lowest rated class of bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category, the modifier
2 indicates a mid-range ranking, and the modifier 3 indicates a ranking in the
lower end of that generic rating category.
DESCRIPTION OF S&P CORPORATE DEBT RATINGS
AAA. An obligation rated AAA has the highest rating assigned by S&P.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong; AA. An obligation rated AA differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong; A. An obligation rated A is
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than obligations in higher rated categories. However, the
obligor's capacity to meet its financial commitment on the obligation is still
strong; BBB. An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation; BB, B, CCC, CC, C. Obligations rated BB, B, CCC, CC and C are
regarded as having significant speculative characteristics. BB indicates the
least degree of speculation and C the highest. While such obligations will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions; BB. An
obligation rated BB is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation; B. An
obligation rated B is more vulnerable to nonpayment than obligations rated BB,
but the obligor currently has the capacity to meet its financial
A-1
<PAGE>
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation; CCC. An obligation rated CCC is
currently vulnerable to nonpayment and is dependent upon favorable business,
financial and economic conditions for the obligor to meet its financial
commitment on the obligation. In the event of adverse business, financial, or
economic conditions, the obligor is not likely to have the capacity to meet its
financial commitment on the obligation; CC. An obligation rated CC is currently
highly vulnerable to nonpayment; C. The C rating may be used to cover a
situation where a bankruptcy petition has been filed or similar action has been
taken, but payments on this obligation are being continued; D. An obligation
rated D is in payment default. The D rating category is used when payments on an
obligation are not made on the date due even if the applicable grace period has
not expired, unless S&P believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation are
jeopardized.
CI. The rating CI is reserved for income bonds on which no interest is
being paid.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified
by the addition of a plus or minus sign to show relative standing within the
major rating categories.
r. This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk--such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
PRIME-1. Issuers assigned this highest rating have a superior ability
for repayment of senior short-term debt obligations. Prime-1 repayment ability
will often be evidenced by the following characteristics: Leading market
positions in well established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well established access to
a range of financial markets and assured sources of alternate liquidity.
PRIME-2. Issuers assigned this rating have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
PRIME-3. Issuers assigned this rating have an acceptable capacity for
repayment of senior short-term obligations. The effect of industry
characteristics and market composition may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
NOT PRIME. Issuers assigned this rating do not fall within any of the
Prime rating categories.
DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS
A-1. A short-term obligation rated A-1 is rated in the highest
category by S&P. The obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong. A-2. A short-term
obligation rated A-2 is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory. A-3. A short-term obligation rated
A-3 exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation. B. A
short-term obligation rated B is regarded as having significant speculative
A-2
<PAGE>
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitments on the obligation. C. A short-term obligation rated C is currently
vulnerable to nonpayment and is dependent upon favorable business, financial and
economic conditions for the obligor to meet its financial commitment on the
obligation. D. A short-term obligation rated D is in payment default. The D
rating category is used when payments on an obligation are not made on the date
due even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The D rating also will
be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
DESCRIPTION OF MOODY'S MUNICIPAL BOND RATINGS
Aaa. Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues; Aa.
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risk appear somewhat larger than in Aaa securities; A. Bonds which
are rated A possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future; Baa. Bonds
which are rated Baa are considered as medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payment and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well; Ba. Bonds which are rated Ba are judged to
have speculative elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class; B. Bonds which are
rated B generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small; Caa. Bonds which are rated Caa are of
poor standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest; Ca. Bonds which are rated Ca
represent obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings; C. Bonds which are rated C
are the lowest rated class of bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category, the modifier
2 indicates a mid-range ranking, and the modifier 3 indicates a ranking in the
lower end of that generic rating category.
DESCRIPTION OF S&P MUNICIPAL DEBT RATINGS
AAA. An obligation rated AAA has the highest rating assigned by S&P.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong; AA. An obligation rated AA differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong; A. An obligation rated A is
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than obligations in higher rated categories. However, the
obligor's capacity to meet its financial commitment on the obligation is still
strong; BBB. An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation; BB, B, CCC, CC, C, D.
A-3
<PAGE>
Obligations rated BB, B, CCC, CC and C are regarded as having significant
speculative characteristics. BB indicates the least degree of speculation and C
the highest. While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions; BB. An obligation rated BB is less vulnerable
to nonpayment than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic conditions
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation; B. An obligation rated B is more vulnerable to
nonpayment than obligations rated BB, but the obligor currently has the capacity
to meet its financial commitment on the obligation. Adverse business, financial,
or economic conditions will likely impair the obligor's capacity or willingness
to meet its financial commitment on the obligation; CCC. An obligation rated CCC
is currently vulnerable to nonpayment and is dependent upon favorable business,
financial and economic conditions for the obligor to meet its financial
commitment on the obligation. In the event of adverse business, financial, or
economic conditions, the obligor is not likely to have the capacity to meet its
financial commitment on the obligation; CC. An obligation rated CC is currently
highly vulnerable to nonpayment; C. The C rating may be used to cover a
situation where a bankruptcy petition has been filed or similar action has been
taken, but payments on this obligation are being continued; D. An obligation
rated D is in payment default. The D rating category is used when payments on an
obligation are not made on the date due even if the applicable grace period has
not expired, unless S&P believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation are
jeopardized.
CI. The rating CI is reserved for income bonds on which no interest is
being paid.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified
by the addition of a plus or minus sign to show relative standing within the
major rating categories.
DESCRIPTION OF MOODY'S RATINGS OF SHORT-TERM OBLIGATIONS
There are three categories for short-term obligations that define an investment
grade situation. These are designated Moody's Investment Grade as MIG 1 (best
quality) through MIG-3. Short-term obligations of speculative quality are
designated SG.
In the case of variable rate demand obligations (VRDOs), a two-component rating
is assigned. The first element represents an evaluation of the degree of risk
associated with scheduled principal and interest payments, and the other
represents an evaluation of the degree of risk associated with the demand
feature. The short-term rating assigned to the demand feature of a VRDO is
designated as VMIG. When either the long- or short-term aspect of a VRDO is not
rated, that piece is designated NR, e.g. Aaa/NR or NR/VMIG 1.
MIG ratings terminate at the retirement of the obligation, while a VMIG rating
expiration will be a function of each issue's specific structural or credit
features.
MIG-1/VMIG-1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing. MIG-2/VMIG-2. This designation
denotes high quality. Margins of protection are ample although not so large as
in the preceding group. MIG-3/VMIG-3. This designation denotes favorable
quality. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established. SG. This designation denotes
speculative quality. Debt Instruments in this category lack margins of
protection.
DESCRIPTION OF S&P'S RATINGS OF STATE AND MUNICIPAL NOTES AND OTHER SHORT-TERM
LOANS:
A S&P note rating reflects the liquidity concerns and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating. Notes
maturing beyond 3 years will most likely receive a long-term debt rating. The
following criteria will be used in making the assessment.
- --Amortization schedule (the larger the final maturity relative to other
maturities, the more likely it will be treated as a note).
A-4
<PAGE>
- --Source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
SP-1. Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation. SP-2.
Satisfactory capacity to pay principal and interest with some vulnerability to
adverse financial and economic changes over the term of the notes. SP-3.
Speculative capacity to pay principal and interest.
DESCRIPTION OF SHORT-TERM DEBT COMMERCIAL PAPER RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
PRIME-1. Issuers (or supporting institutions) assigned this highest
rating have a superior ability for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be evidenced by the following
characteristics: Leading market positions in well established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; well
established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2. Issuers (or supporting institutions) assigned this rating
have a strong ability for repayment of senior short-term debt obligations. This
will normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
PRIME-3. Issuers (or supporting institutions) assigned this rating
have an acceptable capacity for repayment of senior short-term obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
NOT PRIME. Issuers assigned this rating do not fall within any of the
Prime rating categories.
Commercial paper rated by S&P have the following characteristics:
A-1. A short-term obligation rated A-1 is rated in the highest category
by S&P. The obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong. A-2. A short-term
obligation rated A-2 is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory. A-3. A short-term obligation rated
A-3 exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation. B. A
short-term obligation rated B is regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitments on the obligation. C. A short-term obligation rated C is currently
vulnerable to nonpayment and is dependent upon favorable business, financial and
economic conditions for the obligor to meet its financial commitment on the
obligation. D. A short-term obligation rated D is in payment default. The D
rating category is used when payments on an obligation are not made on the date
due even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The D rating also will
be
A-5
<PAGE>
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.
A-6
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION
CONTAINED OR REFERRED TO IN THE PROSPECTUS
AND THIS STATEMENT OF ADDITIONAL
INFORMATION. THE FUNDS AND THEIR DISTRIBUTOR
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU
WITH INFORMATION THAT IS DIFFERENT. THE
PROSPECTUS AND THIS STATEMENT OF ADDITIONAL
INFORMATION IS NOT AN OFFER TO SELL SHARES
OF THE FUNDS IN ANY JURISDICTION WHERE THE
FUNDS OR THEIR DISTRIBUTOR MAY NOT LAWFULLY
SELL THOSE SHARES.
------------
PaineWebber PACE
Select Advisors Trust
------------------------------------
Statement of Additional Information
December 1, 1999
-------------------------------------
- -C- PaineWebber Incorporated. All Rights Reserves. Member of SIPC.
<PAGE>
PART C. OTHER INFORMATION
Item 23. EXHIBITS
(1) (a) Certificate of Business Trust effective September 9, 1994
(filed herewith)
(b) Certificate of Amendment effective December 9, 1994 (filed
herewith)
(c) Certificate of Amendment effective December 1, 1997 (filed
herewith)
(d) Trust Instrument as revised June 9, 1995 (filed herewith)
(2) (a) By-Laws as revised June 9, 1995 (filed herewith)
(b) Amendment to By-Laws effective December 31, 1998 (filed herewith)
(3) Instruments defining the rights of holders of Registrant's shares of
beneficial interest 1/
(4) (a) Management Agreement 2/
(b) Sub-Advisory Agreements 2/
(c) Sub-Advisory Agreement with Rogge Global Partners plc dated as of
August 28, 1996 3/
(d) Sub-Advisory Agreement with Chancellor LGT Asset Management, Inc.
dated as of October 31, 1996 4/
(e) Sub-Advisory Agreement with Delaware Management Company, Inc.
dated as of December 16, 1996 4/
(f) Sub-Advisory Agreement with Alliance Capital Management L.P.
dated as of November 10, 1997 5/
(g) Sub-Advisory Agreement with Brandywine Asset Management, Inc.
dated as of October 4, 1999 (filed herewith)
(h) Sub-Advisory Agreement with Ariel Capital Management, Inc. dated
as of October 4, 1999 (filed herewith)
(5) (a) Distribution Agreement 2/
(b) Dealer Agreement 2/
(6) Bonus, profit sharing or pension plans - none
(7) Custodian Agreement (filed herewith)
(8) Transfer Agency Agreement 3/
(9) (a) Opinion and consent of Kirkpatrick & Lockhart LLP (filed
herewith)
(b) Consent of Willkie Farr & Gallagher (filed herewith)
(10) Other opinions, appraisals, rulings and consents: Auditors' consent
(filed herewith)
(11) Financial Statements omitted from prospectus - none
(12) Letter of investment intent 6/
(13) Plan pursuant to Rule 12b-1 - none
(14) and
(27) Financial Data Schedule (not applicable)
(15) Plan pursuant to Rule 18f-3 (not applicable)
- -----------------
C-1
<PAGE>
1/ Incorporated by reference from Articles IV, VI, IX and X of Registrant's
Trust Instrument and from Articles V and IX of Registrant's By-Laws.
2/ Incorporated by reference to Post-Effective Amendment No. 1 to Registration
Statement on Form N-1A, File No. 33-87254, filed February 23, 1996.
3/ Incorporated by reference to Post-Effective Amendment No. 2 to Registration
Statement on Form N-1A, File No. 33-87254, filed October 16, 1996.
4/ Incorporated by reference to Post-Effective Amendment No. 3 to Registration
Statement on Form N-1A, File No. 33-87254, filed October 1, 1997.
5/ Incorporated by reference to Post-Effective Amendment No. 4 to Registration
Statement on Form N-1A, File No. 33-87254, filed November 13, 1997.
6/ Incorporated by reference to Registration Statement on Form N-1A, File No.
33-87254, filed June 19, 1995.
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
Item 25. INDEMNIFICATION
Article IX, Section 2 of the PaineWebber PACE Select Advisors Trust
Trust Instrument ("Trust Instrument") provides that the Registrant will
indemnify its trustees, officers, employees, investment managers and
administrators and investment advisers to the fullest extent permitted by law
against claims and expenses asserted against or incurred by them by virtue of
being or having been a trustee, officer, employee, investment manager and
administrator or investment adviser; provided that (i) no such person shall be
indemnified where there has been an adjudication or other determination, as
described in Article IX, that such person is liable to the Registrant or its
shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office,
or did not act in good faith in the reasonable belief that his or her action was
in the best interest of the Registrant, or (ii) no such person shall be
indemnified where there has been a settlement, unless there has been a
determination that such person did not engage in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office; such determination shall be made (A) by the court or other
body approving the Settlement, (B) by the vote of at least a majority of those
trustees who are neither Interested Persons of the trust nor are parties to the
proceeding based upon a review of readily available facts (as opposed to a full
trial-type inquiry), or (C) by written opinion of independent legal counsel
based upon a review of readily available facts (as opposed to a full trial-type
inquiry).
"Interested Person" has the meaning provided in the Investment Company
Act of 1940, as amended from time to time. Article IX, Section 2(c) of the Trust
Instrument also provides that the Registrant may maintain insurance policies
covering such rights of indemnification.
Article IX, Section 1 of the Trust Instrument provides that the
trustees and officers of the Registrant (i) shall not be personally liable to
any person contracting with, or having a claim against, the Trust, and (ii)
shall not be liable for neglect or wrongdoing by them or any officer, agent,
employee or investment adviser of the Registrant, provided they have exercised
reasonable care and have acted under the reasonable belief that their actions
are in the best interest of the Registrant.
C-2
<PAGE>
Article X, Section 2 of the Trust Instrument provides that, subject to
the provisions of Article IX, the trustees shall not be liable for [ (i) errors
of judgment or mistakes of fact or law or (ii) any act or omission made in
accordance with advice of counsel or other experts, or (iii) failure to follow
such advice, with respect to the meaning and operation of the Trust Instrument.]
Registrant undertakes to carry out all indemnification provisions of
its Trust Instrument and By-laws in accordance with Investment Company Act
Release No. 11330 (September 4, 1980) and successor releases.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be provided to trustees, officers and controlling
persons of the Trust, pursuant to the foregoing provisions or otherwise, the
Trust has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Trust of expenses
incurred or paid by a trustee, officer or controlling person of the Trust in
connection with the successful defense of any action, suit or proceeding or
payment pursuant to any insurance policy) is asserted against the Trust by such
trustee, officer or controlling person in connection with the securities being
registered, the Trust will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") is a
registered investment adviser and serves as manager for all series of the Trust
and investment adviser for PACE MONEY MARKET INVESTMENTS. Mitchell Hutchins is a
wholly owned asset management subsidiary of PaineWebber Incorporated, which is
in turn wholly owned by Paine Webber Group Inc., a publicly owned financial
services holding company. Mitchell Hutchins is primarily engaged in the
investment advisory business. Information on the officers and directors of
Mitchell Hutchins is included in its Form ADV filed with the Securities and
Exchange Commission (registration number 801-13219) and is incorporated herein
by reference. Mitchell Hutchins, with the approval of the Trust's board of
trustees, selects investment advisers for the other series of the Trust. The
following companies, all of which are registered investment advisers, serve as
investment advisers for the other series.
Alliance Capital Management L.P. ("Alliance") serves as investment
adviser for PACE LARGE COMPANY GROWTH EQUITY INVESTMENTS. Alliance Capital
Management Corporation ("ACMC") is a general partner of Alliance and a wholly
owned subsidiary of The Equitable Life Assurance Society of the United States
("Equitable"). As of November 1, 1999, Equitable and its subsidiaries were the
beneficial owners of an approximately 55.38% partnership interest in Alliance,
and Alliance Capital Management Holding L.P. ("Alliance Holding") owned an
approximately 41.87% partnership interest in Alliance. Equity interests in
Alliance Holding are traded on the New York Stock Exchange in the form of units.
Approximately 98% of Alliance Holding's units are owned by the public and
management or employees of Alliance and approximately 2% are owned by Equitable.
The general partner of Alliance Holding is ACMC. Equitable, a New York life
insurance company, had total assets as at June 30, 1999 of approximately US$93.9
billion and is a wholly owned subsidiary of AXA Financial, Inc. ("AXA
Financial"), a Delaware corporation whose shares are traded on the New York
Stock Exchange. As of June 30, 1999, AXA, a French insurance holding company,
owned approximately 58.2% of the issued and outstanding shares of the common
stock of AXA Financial. Information on the officers and directors of Alliance is
included in its Form ADV filed with the Securities and Exchange Commission
(registration number 801-32361) and is incorporated herein by reference.
Ariel Capital Management, Inc. ("Ariel") serves as one of the
investment advisers for PACE SMALL/MEDIUM COMPANY GROWTH VALUE INVESTMENTS.
Ariel is an independent Subchapter S corporation with a majority of the
ownership held by its employees. Information on the officers and directors of
Ariel is included in its Form ADV filed with the Securities and Exchange
Commission (registration number 801-18767) and is incorporated herein by
reference.
C-3
<PAGE>
Brandywine Asset Management, Inc.("Brandywine") also serves as one of
the investment advisers for PACE SMALL/MEDIUM COMPANY GROWTH VALUE INVESTMENTS.
Brandywine is a wholly owned subsidiary of Legg Mason, Inc. Legg Mason, based in
Baltimore, Maryland, is a holding company that provides securities brokerage,
investment management and investment banking services through its wholly owned
subsidiaries. Information on the officers and directors of Brandywine is
included in its Form ADV filed with the Securities and Exchange Commission
(registration number 801-27797) and is incorporated herein by reference.
Brinson Partners, Inc. ("Brinson Partners") serves as investment
adviser for PACE LARGE COMPANY VALUE EQUITY INVESTMENTS. Brinson Partners is an
indirect subsidiary wholly owned by UBS AG. UBS AG, with headquarters in Zurich,
Switzerland, is an internationally diversified organization with operations in
many aspects of the financial services industry. Information on the officers and
directors of Brinson Partners is included in its Form ADV filed with the
Securities and Exchange Commission (registration number 801-34910) and is
incorporated herein by reference.
Delaware Management Company, Inc. ("Delaware") serves as investment
adviser for PACE SMALL/MEDIUM COMPANY GROWTH EQUITY INVESTMENTS. Delaware
Management is a member of Delaware Investments, 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.
Information on the officers and directors of Delaware is included in its Form
ADV filed with the Securities and Exchange Commission (registration number
801-32108) and is incorporated herein by reference.
Deutsche Asset Management, Inc. ("DAM") (formerly known as Morgan
Grenfell Capital Management, Incorporated) serves as investment adviser for PACE
MUNICIPAL FIXED INCOME INVESTMENTS. All of the outstanding voting stock of DAM
is owned by an indirect wholly owned subsidiary of Deutsche Bank AG, an
international commercial and investment banking group. Information on the
officers and directors of DAM is included in its Form ADV filed with the
Securities and Exchange Commission (registration number 801-27291) and is
incorporated herein by reference.
Martin Currie, Inc. serves as investment adviser for PACE
INTERNATIONAL EQUITY INVESTMENTS. Martin Currie, Inc. is a wholly owned
subsidiary of Martin Currie Limited, a holding company. Information on the
officers and directors of Martin Currie is included in its Form ADV filed with
the Securities and Exchange Commission (registration number 801-14261) and is
incorporated herein by reference.
Pacific Income Advisors, Inc. ("PIA") serves as investment adviser for
PACE INTERMEDIATE FIXED INCOME INVESTMENTS. Lloyd McAdams and Heather U. Baines,
who serve as chairman and chief investment officer and president and chief
executive officer, respectively, are each a controlling person of PIA because
each owns more than 25% of PIA's voting securities. Information on the officers
and directors of PIA is included in its Form ADV filed with the Securities and
Exchange Commission (registration number 801-27828) and is incorporated herein
by reference.
Pacific Investment Management Company ("PIMCO") serves as investment
adviser for PACE GOVERNMENT FIXED INCOME INVESTMENTS and PACE STRATEGIC FIXED
INCOME INVESTMENTS. PIMCO, a Delaware general partnership, is a registered
investment adviser and a subsidiary partnership of PIMCO Advisors L.P. ("PIMCO
Advisors"). The general partners of PIMCO Advisors are PIMCO Advisors Holding
L.P., a publicly traded company listed on the New York Stock Exchange under the
symbol "PA", and PIMCO Partners, G.P., a general partnership between Pacific
Life Insurance Company and PIMCO Partners, LLC, a limited liability company
controlled by the PIMCO managing directors. PIMCO is one of the largest fixed
income management firms in the nation. Included among PIMCO's institutional
clients are many "Fortune 500" companies. On October 31 1999, PIMCO Advisors,
PAH and Allianz AG ("Allianz") announced that they had reached a definitive
agreement pursuant to which Allianz will acquire majority ownership of PIMCO
Advisors and its subsidiaries, including PIMCO (the "Allianz Transaction").
Under the terms of the transaction, Allianz will acquire all of PAH, the
publicly traded general partner of PIMCO Advisors. Pacific Life Insurance
Company will retain an approximate 30% interest in PIMCO Advisors. The Allianz
Transaction is currently expected to be completed by the end of the first
quarter of 2000. Information on the officers and directors of PIMCO is included
in its Form ADV filed with the Securities and Exchange Commission (registration
number 801-7260) and is incorporated herein by
C-4
<PAGE>
reference.
Rogge Global Partners plc serves as investment adviser for PACE GLOBAL
FIXED INCOME INVESTMENTS, Rogge Global Partners is a wholly owned subsidiary of
United Asset Management Corporation ("UAM"), a New York Stock Exchange listed
company. UAM is principally engaged through affiliated firms in the United
States and abroad in providing institutional investment management services and
acquiring institutional management firms like Rogge Global. Information on the
officers and directors of Rogge Global is included in its Form ADV filed with
the Securities and Exchange Commission (registration number 801-25482) and is
incorporated herein by reference.
Schroder Investment Management North America Inc. ("Schroder Investment
Management") serves as investment adviser for PACE INTERNATIONAL EMERGING
MARKETS EQUITY INVESTMENTS. Schroder Investment Management is a wholly owned
subsidiary of Schroder U.S. Holdings Inc. Schroder Holdings Inc. is a wholly
owned subsidiary of Schroders plc., which is listed on the London Stock Exchange
and 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 18 countries
worldwide. Information on the officers and directors of Schroder Investment
Management is included in its Form ADV filed with the Securities and Exchange
Commission (registration number 801-15834) and is incorporated herein by
reference.
Item 27. PRINCIPAL UNDERWRITERS
(a) Mitchell Hutchins serves as principal underwriter and/or investment
adviser for the following other investment companies:
ALL-AMERICAN TERM TRUST INC.
GLOBAL HIGH INCOME DOLLAR FUND INC.
GLOBAL SMALL CAP FUND INC.
INSURED MUNICIPAL INCOME FUND INC.
INVESTMENT GRADE MUNICIPAL INCOME FUND INC.
MANAGED HIGH YIELD FUND INC.
MANAGED HIGH YIELD PLUS FUND INC.
MITCHELL HUTCHINS LIR MONEY SERIES
MITCHELL HUTCHINS PORTFOLIOS
MITCHELL HUTCHINS SERIES TRUST
PAINEWEBBER AMERICA FUND
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
PAINEWEBBER INDEX TRUST
PAINEWEBBER INVESTMENT SERIES
PAINEWEBBER INVESTMENT TRUST
PAINEWEBBER INVESTMENT TRUST II
PAINEWEBBER MANAGED ASSETS TRUST
PAINEWEBBER MANAGED INVESTMENTS TRUST
PAINEWEBBER MASTER SERIES, INC.
PAINEWEBBER MUNICIPAL SERIES
PAINEWEBBER MUTUAL FUND TRUST
PAINEWEBBER OLYMPUS FUND
PAINEWEBBER SECURITIES TRUST
STRATEGIC GLOBAL INCOME FUND, INC.
2002 TARGET TERM TRUST INC.
(b) Mitchell Hutchins is the principal underwriter for the Registrant.
PaineWebber acts as dealer for the shares of the Registrant. The directors and
officers of Mitchell Hutchins, their principal business addresses and their
positions and offices with Mitchell Hutchins are identified in its Form ADV, as
filed with the Securities and Exchange Commission (registration number
801-13219). The directors and officers of PaineWebber, their principal
C-5
<PAGE>
business addresses and their positions and offices with PaineWebber are
identified in its Form ADV, as filed with the Securities and Exchange Commission
(registration number 801-7163). The foregoing information is hereby incorporated
by reference. The information set forth below is furnished for those directors
and officers of Mitchell Hutchins or PaineWebber who also serve as trustees or
officers of the Registrant.
<TABLE>
<CAPTION>
Position and Offices With
Name Position With Registrant Underwriter or Exclusive Dealer
- ---- ------------------------ -------------------------------
<S> <C> <C>
Margo N. Alexander* Trustee and President President, Chief Executive Officer and a
Director of Mitchell Hutchins and an
Executive Vice President and a Director
of PaineWebber
Bruce A. Bursey** Trustee Senior Vice President of PaineWebber and
a Director of Managed Accounts Services
J. Richard Sipes** Trustee Director of Products and Trading in the
Private Client Group for PaineWebber.
John J. Lee** Vice President and Assistant Vice President and a Manager of the
Treasurer Mutual Fund Finance Department of
Mitchell Hutchins
Ann E. Moran** Vice President and Assistant Vice President and a Manager of the
Treasurer Mutual Fund Finance Department of
Mitchell Hutchins
Andrew S. Novals** Vice President and Assistant Vice President and Assistant General
Secretary Counsel of Mitchell Hutchins
Dianne E. O'Donnell* Vice President and Assistant Senior Vice President and Deputy General
Secretary Counsel of Mitchell Hutchins
Emil Polito* Vice President Senior Vice President and Director of
Operations and Control of Mitchell
Hutchins
Victoria E. Schonfeld** Vice President and Secretary Managing Director and General Counsel of
Mitchell Hutchins and a Senior Vice
President of PaineWebber
Paul H. Schubert** Vice President and Treasurer Senior Vice President and Director of
the Mutual Fund Finance Department of
Mitchell Hutchins
Barney A. Taglialatela** Vice President and Assistant Vice President and a Manager of the
Treasurer Mutual Fund Finance Department of
Mitchell Hutchins
</TABLE>
- -------
* The business address of this person is 51 West 52nd Street, New York, New
York 10019-6114.
** The business address of this person is 1285 Avenue of the Americas, New
York, New York 10019.
(c) None.
C-6
<PAGE>
Item 28. LOCATION OF ACCOUNTS AND RECORDS
The books and other documents required by paragraphs (b)(4), (c) and
(d) of Rule 31a-1 under the Investment Company Act of 1940 are maintained in the
physical possession of Mitchell Hutchins, 1285 Avenue of the Americas, New York,
New York 10019. All other accounts, books and documents required by Rule 31a-1
are maintained in the physical possession of Registrant's transfer agent and
custodian.
Item 29. MANAGEMENT SERVICES
Not applicable.
Item 30. UNDERTAKINGS
None.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement and has duly caused this Post-Effective Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York and State of New York, on the 30th day of November, 1999.
PAINEWEBBER PACE SELECT ADVISORS TRUST
By: /s/ Dianne E. O'Donnell
-----------------------------
Dianne E. O'Donnell
Vice President and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Margo N. Alexander President and Trustee November 30, 1999
- ---------------------------
Margo N. Alexander * (Chief Executive Officer)
/s/ David J. Beaubien Trustee November 30, 1999
- ---------------------------
David J. Beaubien *
/s/ E. Garrett Bewkes, Jr. Trustee November 30, 1999
- ---------------------------
E. Garrett Bewkes, Jr. *
/s/ Bruce A. Bursey Trustee November 30, 1999
- ---------------------------
Bruce A. Bursey **
/s/ William W. Hewitt, Jr. Trustee November 30, 1999
- ---------------------------
William W. Hewitt, Jr. *
/s/ Morton L. Janklow Trustee November 30, 1999
- ---------------------------
Morton L. Janklow *
/s/ J. Richard Sipes Trustee November 30, 1999
- ---------------------------
J. Richard Sipes *
/s/ William D. White Trustee November 30, 1999
- ---------------------------
William D. White *
/s/ M. Cabell Woodward, Jr. Trustee November 30, 1999
- ---------------------------
M. Cabell Woodward, Jr. *
/s/ Paul H. Schubert Vice President and Treasurer (Chief November 30, 1999
- ---------------------------
Paul H. Schubert Financial and Accounting Officer)
</TABLE>
<PAGE>
SIGNATURES (CONTINUED)
* Signature affixed by Dianne E. O'Donnell pursuant to powers of attorney
dated June 15, 1995 and incorporated by reference from Post-Effective
Amendment No. 6 to the registration statement of PaineWebber PACE
Select Advisors Trust, SEC File 33-87254, filed November 30, 1998.
** Signature affixed by Dianne E. O'Donnell pursuant to powers of attorney
dated February 22, 1995 and incorporated by reference from
Post-Effective Amendment No. 6 to the registration statement of
PaineWebber PACE Select Advisors Trust, SEC File 33-87254, filed
November 30, 1998.
<PAGE>
PAINEWEBBER PACE SELECT ADVISORS TRUST
EXHIBIT INDEX
Exhibit
Number
- -------
(1) (a) Certificate of Business Trust effective September 9, 1994 (filed
herewith)
(b) Certificate of Amendment effective December 9, 1994 (filed
herewith)
(c) Certificate of Amendment effective December 1, 1997 (filed
herewith)
(d) Trust Instrument as revised June 9, 1995 (filed herewith)
(2) (a) By-Laws as revised June 9, 1995 (filed herewith)
(b) Amendment to By-Laws effective December 31, 1998 (filed herewith)
(3) Instruments defining the rights of holders of Registrant's shares of
beneficial interest 1/
(4) (a) Management Agreement 2/
(b) Sub-Advisory Agreements 2/
(c) Sub-Advisory Agreement with Rogge Global Partners plc dated as of
August 28, 1996 3/
(d) Sub-Advisory Agreement with Chancellor LGT Asset Management, Inc.
dated as of October 31, 1996 4/
(e) Sub-Advisory Agreement with Delaware Management Company, Inc.
dated as of December 16, 1996 4/
(f) Sub-Advisory Agreement with Alliance Capital Management L.P.
dated as of November 10, 1997 5/
(g) Sub-Advisory Agreement with Brandywine Asset Management, Inc.
dated as of October 4, 1999 (filed herewith)
(h) Sub-Advisory Agreement with Ariel Capital Management, Inc. dated
as of October 4, 1999 (filed herewith)
(5) (a) Distribution Agreement 2/
(b) Dealer Agreement 2/
(6) Bonus, profit sharing or pension plans - none
(7) Custodian Agreement (filed herewith)
(8) Transfer Agency Agreement 3/
(9) (a) Opinion and consent of Kirkpatrick & Lockhart LLP (filed
herewith)
(b) Consent of Willkie Farr & Gallagher (filed herewith)
(10) Other opinions, appraisals, rulings and consents: Auditors' consent
(filed herewith)
(11) Financial Statements omitted from prospectus - none
(12) Letter of investment intent 6/
(13) Plan pursuant to Rule 12b-1 - none
(14) and
<PAGE>
(27) Financial Data Schedule (not applicable)
(15) Plan pursuant to Rule 18f-3 (not applicable)
- -----------------
1/ Incorporated by reference from Articles IV, VI, IX and X of
Registrant's Trust Instrument and from Articles V and IX of
Registrant's By-Laws.
2/ Incorporated by reference to Post-Effective Amendment No. 1 to
Registration Statement on Form N-1A, File No. 33-87254, filed February
23, 1996.
3/ Incorporated by reference to Post-Effective Amendment No. 2 to
Registration Statement on Form N-1A, File No. 33-87254, filed October
16, 1996.
4/ Incorporated by reference to Post-Effective Amendment No. 3 to
Registration Statement on Form N-1A, File No. 33-87254, filed October
1, 1997.
5/ Incorporated by reference to Post-Effective Amendment No. 4 to
Registration Statement on Form N-1A, File No. 33-87254, filed November
13, 1997.
6/ Incorporated by reference to Registration Statement on Form N-1A, File
No. 33-87254, filed June 19, 1995.
<PAGE>
Exhibit No. 1(a)
CERTIFICATE OF TRUST
OF
PAINEWEBBER CONSULTING FUND PRODUCT
This Certificate of Trust ("Certificate") is filed in accordance with the
provisions of the Delaware Business Trust Act (12 Del. Code Ann. Tit. 12 Section
3801 ET SEQ.) and sets forth the following:
1. The name of the trust is: PaineWebber Consulting Fund Product
("Trust").
2. The business address of the registered office of the Trust and of
the registered agent of the Trust is:
The Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
3. This Certificate is effective upon filing.
4. The Trust is a Delaware business trust registered under the
Investment Company Act of 1940. Notice is hereby given that the Trust shall
consist of one or more series. The debts, liabilities, obligations and expenses
incurred, contracted for or otherwise existing with respect to a particular
series of the Trust shall be enforceable against the assets of such series only,
and not against the assets of the Trust generally or any other series.
IN WITNESS WHEREOF, the undersigned, being the initial Trustees, have
executed this Certificate on this 9th day of September 1994.
/s/ Peter Kennedy
-------------------------------
Peter Kennedy, as
Trustee and not individually
Address: 1200 Harbor Boulevard
Weehawken, NJ 07087
STATE OF NEW JERSEY ss
CITY OF WEEHAWKEN
<PAGE>
Before me this 9th day of September, 1994, personally appeared the
above-named Peter Kennedy, known to me to be the person who executed the
foregoing instrument and who acknowledged that he executed the same.
/s/ Christine Ann Thompson-D'Amico
-----------------------------------
Notary Public
My commission expires:
-----------------
CHRISTINE ANN THOMPSON-D'AMICO
Notary Public, State of New Jersey
No. 2166803
Qualified in Hudson County
Commission Expires June 7, 1999
/s/ Gregory K. Todd
-----------------------------------
Gregory K. Todd, as
Trustee and not individually
Address: 1285 Avenue of the Americas
New York, New York 10019
STATE OF NEW YORK ss
CITY OF NEW YORK
Before me this 9th day of September, 1994, personally appeared the
above-named Gregory K. Todd, known to me to be the person who executed the
foregoing instrument and who acknowledged that he executed the same.
/s/ Ilene Shore
-----------------------------------
Notary Public
My commission expires:
-----------------
ILENE SHORE
Notary Public, State of New York
No. 31-4872108
Qualified in New York County
Commission Expires Sept. 29, 1994
<PAGE>
Exhibit No. 1(b)
CERTIFICATE OF AMENDMENT
OF
PAINEWEBBER CONSULTING FUND PRODUCT
This Certificate of Amendment ("Certificate") is filed in accordance with
the provisions of the Delaware Business Trust Act (12 Del. Code Ann. Tit. 12
Section 3801 ET SEQ.) and sets forth the following:
1. The name of the trust is: PaineWebber Consulting Fund Product
("Trust").
2. The Trust's Certificate of Trust is hereby amended to change the
name of the Trust to Managed Accounts Services Portfolio Trust.
3. This Certificate is effective upon filing.
IN WITNESS WHEREOF, the undersigned, being the initial Trustees, have
executed this Certificate on this 5th day of December, 1994.
/s/ Peter Kennedy
-----------------------------------
Peter Kennedy, as
Trustee and not individually
Address: 1200 Harbor Boulevard
Weehawken, NJ 07087
STATE OF NEW JERSEY ss
CITY OF WEEHAWKEN
Before me this 5th day of December, 1994, personally appeared the
above-named Peter Kennedy, known to me to be the person who executed the
foregoing instrument and who acknowledged that he executed the same.
<PAGE>
/s/ Christine Ann Thompson-D'Amico
-----------------------------------
Notary Public
My commission expires:
-----------------
CHRISTINE ANN THOMPSON-D'AMICO
Notary Public, State of New Jersey
No. 2166803
Qualified in Hudson County
Commission Expires June 7, 1999
/s/ Gregory K. Todd
-----------------------------------
Gregory K. Todd, as
Trustee and not individually
Address: 1285 Avenue of the Americas
New York, New York 10019
STATE OF NEW YORK ss
CITY OF NEW YORK
Before me this 6th day of December, 1994, personally appeared the
above-named Gregory K. Todd, known to me to be the person who executed the
foregoing instrument and who acknowledged that he executed the same.
/s/ Giovanni A. Urena
-----------------------------------
Notary Public
My commission expires: 12-16-95
GIOVANNI A. URENA
Notary Public, State of New York
No. 41-4989837
Qualified in Queens County
Certificate Filed in New York County
Commission Expires 12-16-95
<PAGE>
Exhibit No. 1(c)
CERTIFICATE OF AMENDMENT
OF
MANAGED ACCOUNTS SERVICES PORTFOLIO TRUST
This Certificate of Amendment ("Certificate") is filed in accordance with
the provisions of the Delaware Business Trust Act (12 Del. Code Ann. Tit. 12
Section 3801 ET SEQ.) and sets forth the following:
1. The name of the trust is: Managed Accounts Services Portfolio Trust
("Trust").
2. The Trust's Certificate of Trust is hereby amended to change the
name of the Trust to PaineWebber PACE Select Advisors Trust.
3. This Certificate shall be effective on December 1, 1997.
IN WITNESS WHEREOF, the undersigned, being a Trustee, has executed this
Certificate on this 26th day of November, 1997.
/s/ Margo N. Alexander
-----------------------------------
Margo N. Alexander, as
Trustee and not individually
Address: 1285 Avenue of the Americas
New York, New York 10019
STATE OF NEW YORK ss
CITY OF NEW YORK
Before me this 26th day of November, 1997, personally appeared the
above-named Margo N. Alexander, known to me to be the person who executed the
foregoing instrument and who acknowledged that she executed the same.
/s/ Ilene Shore
-----------------------------------
Notary Public
My commission expires:
-----------------
ILENE SHORE
Notary Public, State of New York
No. 31-4872108
Qualified in New York County
Commission Expires Nov. 28, 1998
<PAGE>
Exhibit No. 1(d)
MANAGED ACCOUNTS SERVICES
PORTFOLIO TRUST
TRUST INSTRUMENT
September 9, 1994
(Revised June 9, 1995)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I DEFINITIONS........................................................1
ARTICLE II TRUSTEES..........................................................2
Section 1. Management of the Trust..................................2
Section 2. Initial Trustees; Number and Election of Trustees........2
Section 3. Term of Office...........................................2
Section 4. Vacancies; Appointment of Trustees.......................2
Section 5. Temporary Vacancy or Absence.............................3
Section 6. Chairman.................................................3
Section 7. Action by the Trustees...................................3
Section 8. Ownership of Trust Property..............................4
Section 9. Effect of Trustees Not Serving...........................4
Section 10. Trustees, etc. as Shareholders..........................4
ARTICLE III POWERS OF THE TRUSTEES...........................................4
Section 1. Powers....................................................4
Section 2. Certain Transactions.....................................7
ARTICLE IV SERIES; CLASSES; SHARES...........................................7
Section 1. Establishment of Series or Class.........................7
Section 2. Shares...................................................7
Section 3. Investment in the Trust..................................8
Section 4. Assets and Liabilities of Series.........................8
Section 5. Ownership and Transfer of Shares.........................9
Section 6. Status of Shares; Limitation of Shareholder Liability....9
ARTICLE V DISTRIBUTIONS AND REDEMPTIONS.....................................10
Section 1. Distributions...........................................10
Section 2. Redemptions.............................................10
Section 3. Determination of Net Asset Value........................10
Section 4. Suspension of Right of Redemption.......................11
Section 5. Redemptions Necessary for Qualification as Regulated
Investment Company......................................11
ARTICLE VI SHAREHOLDERS' VOTING POWERS AND MEETINGS.........................11
Section 1. Voting Powers...........................................11
Section 2. Meetings of Shareholders................................12
Section 3. Quorum; Required Vote...................................12
i
<PAGE>
ARTICLE VII CONTRACTS WITH SERVICE PROVIDERS................................13
Section 1. Investment Adviser......................................13
Section 2. Principal Underwriter...................................13
Section 3. Transfer Agency, Shareholder Services, and
Administration Agreements...............................13
Section 4. Custodian...............................................13
Section 5. Parties to Contracts with Service Providers.............13
ARTICLE VIII EXPENSES OF THE TRUST AND SERIES...............................14
ARTICLE IX LIMITATION OF LIABILITY AND INDEMNIFICATION......................15
Section 1. Limitation of Liability.................................15
Section 2. Indemnification.........................................15
Section 3. Indemnification of Shareholders.........................17
ARTICLE X MISCELLANEOUS.....................................................17
Section 1. Trust Not a Partnership.................................17
Section 2. Trustee Action; Expert Advice; No Bond or Surety........17
Section 3. Record Dates............................................18
Section 4. Termination of the Trust................................18
Section 5. Reorganization..........................................19
Section 6. Trust Instrument........................................19
Section 7. Applicable Law..........................................19
Section 8. Amendments..............................................20
Section 9. Fiscal Year.............................................20
Section 10. Severability...........................................20
</TABLE>
ii
<PAGE>
MANAGED ACCOUNTS SERVICES PORTFOLIO TRUST
TRUST INSTRUMENT
This TRUST INSTRUMENT is made on September 9, 1994, and amended on June 9,
1995, by the Trustees, to establish a business trust for the investment and
reinvestment of funds contributed to the Trust by investors. The Trustees
declare that all money and property contributed to the Trust shall be held and
managed in trust pursuant to this Trust Instrument. The name of the Trust
created by this Trust Instrument is Managed Accounts Services Portfolio Trust.
ARTICLE I
DEFINITIONS
Unless otherwise provided or required by the context:
(a) "By-laws" means the By-laws of the Trust adopted by the Trustees, as
amended from time to time;
(b) "Class" means the class of Shares of a Series established pursuant to
Article IV;
(c) "Commission," "Interested Person," and "Principal Underwriter" have the
meanings provided in the 1940 Act;
(d) "Covered Person" means a person so defined in Article IX, Section 2;
(e) "Delaware Act" means Chapter 38 of Title 12 of the Delaware Code
entitled "Treatment of Delaware Business Trusts," as amended from time to time;
(f) "Majority Shareholder Vote" means "the vote of a majority of the
outstanding voting securities" as defined in the 1940 Act;
(g) "Net Asset Value" means the net asset value of each Series of the
Trust, determined as provided in Article V, Section 3;
(h) "Outstanding Shares" means Shares shown on the books of the Trust or
its transfer agent as then issued and outstanding, but does not include Shares
which have been repurchased or redeemed by the Trust;
(i) "Series" means a series of Shares established pursuant to Article IV;
(j) "Shareholder" means a record owner of Outstanding Shares;
(k) "Shares" means the equal proportionate transferable units of interest
into which the beneficial interest of each Series or Class is divided from time
to time (including whole Shares, and fractions of Shares);
<PAGE>
(1) "Trust" means Managed Accounts Services Portfolio Trust established
hereby, and reference to the Trust, when applicable to one or more Series,
refers to that Series;
(m) "Trustees" means the persons who have signed this Trust Instrument, so
long as they shall continue in office in accordance with the terms hereof, and
all other persons who may from time to time be duly qualified and serving as
Trustees in accordance with Article II, in all cases in their capacities as
Trustees hereunder;
(n) "Trust Property" means any and all property, real or personal, tangible
or intangible, which is owned or held by or for the Trust or any Series or the
Trustees on behalf of the Trust or any Series;
(o) The "1940 Act" means the Investment Company Act of 1940, as amended
from time to time.
ARTICLE II
TRUSTEES
Section 1. MANAGEMENT OF THE TRUST
. The business and affairs of the Trust shall be managed by or under the
direction of the Trustees, and they shall have all powers necessary or desirable
to carry out that responsibility. The Trustees may execute all instruments and
take all action they deem necessary or desirable to promote the interests of the
Trust. Any determination made by the Trustees in good faith as to what is in the
interests of the Trust shall be conclusive.
Section 2. INITIAL TRUSTEES; NUMBER AND ELECTION OF TRUSTEES
. The initial Trustees shall be the persons initially signing this Trust
Instrument. The number of Trustees (other than the initial Trustees) shall be
fixed from time to time by a majority of the Trustees; provided, that there
shall be at least two (2) Trustees. The Shareholders shall elect the Trustees
(other than the initial Trustees) on such dates as the Trustees may fix from
time to time.
Section 3. TERM OF OFFICE
. Each Trustee shall hold office for life or until his or her successor is
elected or the Trust terminates; except that (a) any Trustee may resign by
delivering to the other Trustees or to any Trust officer a written resignation
effective upon such delivery or a later date specified therein; (b) any Trustee
may be removed with or without cause at any time by a written instrument signed
by at least two-thirds of the other Trustees, specifying the effective date of
removal; (c) any Trustee who requests to be retired, or who has become
physically or mentally incapacitated or is otherwise unable to serve, may be
retired by a written instrument signed by a majority of the other Trustees,
specifying the effective date of retirement; and (d) any Trustee may be removed
at any meeting of the Shareholders by a vote of at least two-thirds of the
Outstanding Shares.
Section 4. VACANCIES; APPOINTMENT OF TRUSTEES
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. Whenever a vacancy shall exist in the Board of Trustees, regardless of
the reason for such vacancy, the remaining Trustees shall appoint any person as
they determine in their sole discretion to fill that vacancy, consistent with
the limitations under the 1940 Act. Such appointment shall be made by a written
instrument signed by a majority of the Trustees or by a resolution of the
Trustees, duly adopted and recorded in the records of the Trust, specifying the
effective date of the appointment. The Trustees may appoint a new Trustee as
provided above in anticipation of a vacancy expected to occur because of the
retirement, resignation, or removal of a Trustee, or an increase in number of
Trustees, provided that such appointment shall become effective only at or after
the expected vacancy occurs. As soon as any such Trustee has accepted his or her
appointment in writing, the trust estate shall vest in the new Trustee, together
with the continuing Trustees, without any further act or conveyance, and he or
she shall be deemed a Trustee hereunder. The power of appointment is subject to
Section 16(a) of the 1940 Act.
Section 5. TEMPORARY VACANCY OR ABSENCE
. Whenever a vacancy in the Board of Trustees shall occur, until such
vacancy is filled, or while any Trustee is absent from his or her domicile
(unless that Trustee has made arrangements to be informed about, and to
participate in, the affairs of the Trust during such absence), or is physically
or mentally incapacitated, the remaining Trustees shall have all the powers
hereunder and their certificate as to such vacancy, absence, or incapacity shall
be conclusive. Any Trustee may, by power of attorney, delegate his or her powers
as Trustee for a period not exceeding six (6) months at any one time to any
other Trustee or Trustees.
Section 6. CHAIRMAN
. The Trustees shall appoint one of their number to be Chairman of the
Board of Trustees. The Chairman shall preside at all meetings of the Trustees,
shall be responsible for the execution of policies established by the Trustees
and the administration of the Trust, and may be the chief executive, financial
and/or accounting officer of the Trust.
Section 7. ACTION BY THE TRUSTEES
. The Trustees shall act by majority vote at a meeting duly called
(including at a telephonic meeting, unless the 1940 Act requires that a
particular action be taken only at a meeting of Trustees in person) at which a
quorum is present or by written consent of a majority of Trustees (or such
greater number as may be required by applicable law) without a meeting. A
majority of the Trustees shall constitute a quorum at any meeting. Meetings of
the Trustees may be called orally or in writing by the Chairman of the Board of
Trustees or by any two other Trustees. Notice of the time, date and place of all
Trustees meetings shall be given to each Trustee by telephone, facsimile or
other electronic mechanism sent to his or her home or business address at least
twenty-four hours in advance of the meeting or by written notice mailed to his
or her home or business address at least seventy-two hours in advance of the
meeting. Notice need not be given to any Trustee who attends the meeting without
objecting to the lack of notice or who signs a waiver of notice either before or
after the meeting. Subject to the requirements of the 1940 Act, the Trustees by
majority vote may delegate to any Trustee or Trustees authority to approve
particular matters or take particular actions on behalf of the Trust. Any
written consent or waiver may be provided and delivered to the Trust by
facsimile or other similar electronic mechanism.
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Section 8. OWNERSHIP OF TRUST PROPERTY
. The Trust Property of the Trust and of each Series shall be held separate
and apart from any assets now or hereafter held in any capacity other than as
Trustee hereunder by the Trustees or any successor Trustees. All of the Trust
Property and legal title thereto shall at all times be considered as vested in
the Trustees on behalf of the Trust, except that the Trustees may cause legal
title to any Trust Property to be held by or in the name of the Trust, or in the
name of any person as nominee. No Shareholder shall be deemed to have a
severable ownership in any individual asset of the Trust or of any Series or any
right of partition or possession thereof, but each Shareholder shall have, as
provided in Article IV, a proportionate undivided beneficial interest in the
Trust or Series represented by Shares.
Section 9. EFFECT OF TRUSTEES NOT SERVING
. The death, resignation, retirement, removal, incapacity, or inability or
refusal to serve of the Trustees, or any one of them, shall not operate to annul
the Trust or to revoke any existing agency created pursuant to the terms of this
Trust Instrument.
Section 10. TRUSTEES, ETC. AS SHAREHOLDERS
. Subject to any restrictions in the By-laws, any Trustee, officer, agent
or independent contractor of the Trust may acquire, own and dispose of Shares to
the same extent as any other Shareholder; the Trustees may issue and sell Shares
to and buy Shares from any such person or any firm or company in which such
person is interested, subject only to any general limitations herein.
ARTICLE III
POWERS OF THE TRUSTEES
Section 1. POWERS
. The Trustees in all instances shall act as principals, free of the
control of the Shareholders. The Trustees shall have full power and authority to
take or refrain from taking any action and to execute any contracts and
instruments that they may consider necessary or desirable in the management of
the Trust. The Trustees shall not in any way be bound or limited by current or
future laws or customs applicable to trust investments, but shall have full
power and authority to make any investments which they, in their sole
discretion, deem proper to accomplish the purposes of the Trust. The Trustees
may exercise all of their powers without recourse to any court or other
authority. Subject to any applicable limitation herein or in the By-laws,
operating documents or resolutions of the Trust, the Trustees shall have power
and authority, without limitation:
(a) To invest and reinvest cash and other property, and to hold cash or
other property uninvested, without in any event being bound or limited by any
current or future law or custom concerning investments by trustees, and to sell,
exchange, lend, pledge, mortgage, hypothecate, write options on and lease any or
all of the Trust Property; to invest in obligations and securities of any kind,
and without regard to whether they may mature before the possible termination of
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the Trust; and without limitation to invest all or any part of its cash and
other property in securities issued by a registered investment company or series
thereof, subject to the provisions of the 1940 Act;
(b) To operate as and carry on the business of a registered investment
company, and exercise all the powers necessary and proper to conduct such a
business;
(c) To adopt By-laws not inconsistent with this Trust Instrument providing
for the conduct of the business of the Trust and to amend and repeal them to the
extent such right is not reserved to the Shareholders;
(d) To elect and remove such officers and appoint and terminate such agents
as they deem appropriate;
(e) To employ as custodian of any assets of the Trust, subject to any
provisions herein or in the By-laws, one or more banks, trust companies or
companies that are members of a national securities exchange, or other entities
permitted by the Commission to serve as such;
(f) To retain one or more transfer agents and Shareholder servicing agents,
or both;
(g) To provide for the distribution of Shares either through a Principal
Underwriter as provided herein or by the Trust itself, or both, or pursuant to a
distribution plan of any kind;
(h) To set record dates in the manner provided for herein or in the
By-laws;
(i) To delegate such authority as they consider desirable to any officers
of the Trust and to any agent, independent contractor, manager, investment
adviser, custodian or underwriter;
(j) To sell or exchange any or all of the assets of the Trust, subject to
Article X, Section 4;
(k) To vote or give assent, or exercise any rights of ownership, with
respect to other securities or property; and to execute and deliver powers of
attorney delegating such power to other persons;
(l) To exercise powers and rights of subscription or otherwise which in any
manner arise out of ownership of securities;
(m) To hold any security or other property (i) in a form not indicating any
trust, whether in bearer, book entry, unregistered or other negotiable form, or
(ii) either in the Trust's or Trustees' own name or in the name of a custodian
or a nominee or nominees, subject to safeguards according to the usual practice
of business trusts or investment companies;
(n) To establish separate and distinct Series with separately defined
investment objectives and policies and distinct investment purposes, and with
separate Shares representing beneficial interests in such Series, and to
establish separate Classes, all in accordance with the provisions of Article IV;
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(o) To the full extent permitted by Section 3804 of the Delaware Act, to
allocate assets, liabilities and expenses of the Trust to a particular Series
and liabilities and expenses to a particular Class or to apportion the same
between or among two or more Series or Classes, provided that any liabilities or
expenses incurred by a particular Series or Class shall be payable solely out of
the assets belonging to that Series or Class as provided for in Article IV,
Section 4;
(p) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern whose securities are held
by the Trust; to consent to any contract, lease, mortgage, purchase, or sale of
property by such corporation or concern; and to pay calls or subscriptions with
respect to any security held in the Trust;
(q) To compromise, arbitrate, or otherwise adjust claims in favor of or
against the Trust or any matter in controversy including, but not limited to,
claims for taxes;
(r) To make distributions of income and of capital gains to Shareholders in
the manner hereinafter provided for;
(s) To borrow money;
(t) To establish, from time to time, a minimum total investment for
Shareholders, and to require the redemption of the Shares of any Shareholders
whose investment is less than such minimum upon giving notice to such
Shareholder;
(u) To establish committees for such purposes, with such membership, and
with such responsibilities as the Trustees may consider proper, including a
committee consisting of fewer than all of the Trustees then in office, which may
act for and bind the Trustees and the Trust with respect to the institution,
prosecution, dismissal, settlement, review or investigation of any legal action,
suit or proceeding, pending or threatened;
(v) To issue, sell, repurchase, redeem, cancel, retire, acquire, hold,
resell, reissue, dispose of and otherwise deal in Shares; to establish terms and
conditions regarding the issuance, sale, repurchase, redemption, cancellation,
retirement, acquisition, holding, resale, reissuance, disposition of or dealing
in Shares; and, subject to Articles IV and V, to apply to any such repurchase,
redemption, retirement, cancellation or acquisition of Shares any funds or
property of the Trust or of the particular Series with respect to which such
Shares are issued; and
(w) To carry on any other business in connection with or incidental to any
of the foregoing powers, to do everything necessary or desirable to accomplish
any purpose or to further any of the foregoing powers, and to take every other
action incidental to the foregoing business or purposes, objects or powers.
The clauses above shall be construed as objects and powers, and the
enumeration of specific powers shall not limit in any way the general powers of
the Trustees. Any action by one or more of the Trustees in their capacity as
such hereunder shall be deemed an action on behalf of the Trust or the
applicable Series, and not an action in an individual capacity. No one dealing
with the Trustees shall be under any obligation to make any inquiry concerning
the authority of the Trustees, or to see to the application of any payments made
or property transferred to the
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Trustees or upon their order. In construing this Trust Instrument, the
presumption shall be in favor of a grant of power to the Trustees.
Section 2. CERTAIN TRANSACTIONS
. Except as prohibited by applicable law, the Trustees may, on behalf of
the Trust, buy any securities from or sell any securities to, or lend any assets
of the Trust to, any Trustee or officer of the Trust or any firm of which any
such Trustee or officer is a member acting as principal, or have any such
dealings with any investment adviser, administrator, distributor or transfer
agent for the Trust or with any Interested Person of such person. The Trust may
employ any such person or entity in which such person is an Interested Person,
as broker, legal counsel, registrar, investment adviser, administrator,
distributor, transfer agent, dividend disbursing agent, custodian or in any
other capacity upon customary terms.
ARTICLE IV
SERIES; CLASSES; SHARES
Section 1. ESTABLISHMENT OF SERIES OR CLASS
. The Trust shall consist of one or more Series. The Trustees hereby
establish the Series listed in Schedule A attached hereto and made a part
hereof. Each additional Series shall be established by the adoption of a
resolution by the Trustees. The Trustees may designate the relative rights and
preferences of the Shares of each Series. The Trustees may divide the Shares of
any Series into Classes. In such case each Class of a Series shall represent
interests in the assets of that Series and have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except that
expenses allocated to a Class may be borne solely by such Class as determined by
the Trustees and a Series or Class may have exclusive voting rights with respect
to matters affecting only that Series or Class. The Trust shall maintain
separate and distinct records for each Series and hold and account for the
assets thereof separately from the other assets of the Trust or of any other
Series. A Series may issue any number of Shares and need not issue Shares. Each
Share of a Series shall represent an equal beneficial interest in the net assets
of such Series. Each holder of Shares of a Series shall be entitled to receive
his or her pro rata share of all distributions made with respect to such Series,
provided that, if Classes of a Series are outstanding, each holder of Shares of
a Class shall be entitled to receive his or her pro rata share of all
distributions made with respect to such Class of the Series. Upon redemption of
his or her Shares, such Shareholder shall be paid solely out of the assets and
property of such Series. The Trustees may change the name of the Trust, or any
Series or Class without shareholder approval.
Section 2. SHARES
. The beneficial interest in the Trust shall be divided into Shares of one
or more separate and distinct Series or Classes established by the Trustees. The
number of Shares of the Trust and of each Series and Class is unlimited and each
Share shall have a par value of $0.001 per Share. All Shares issued hereunder
shall be fully paid and nonassessable. Shareholders shall have no preemptive or
other right to subscribe to any additional Shares or other securities issued by
the Trust. The Trustees shall have full power and authority, in their sole
discretion and without
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obtaining Shareholder approval: to issue original or additional Shares and
fractional Shares at such times and on such terms and conditions as they deem
appropriate; to establish and to change in any manner Shares of any Series or
Classes with such preferences, terms of conversion, voting powers, rights and
privileges as the Trustees may determine (but the Trustees may not change
Outstanding Shares in a manner materially adverse to the Shareholders of such
Shares); to divide or combine the Shares of any Series or Classes into a greater
or lesser number; to classify or reclassify any unissued Shares of any Series or
Classes into one or more Series or Classes of Shares; to abolish any one or more
Series or Classes of Shares; to issue Shares to acquire other assets (including
assets subject to, and in connection with, the assumption of liabilities) and
businesses; and to take such other action with respect to the Shares as the
Trustees may deem desirable.
Section 3. INVESTMENT IN THE TRUST
. The Trustees shall accept investments in any Series from such persons and
on such terms as they may from time to time authorize. At the Trustees'
discretion, such investments, subject to applicable law, may be in the form of
cash or securities in which that Series is authorized to invest, valued as
provided in Article V, Section 3. Investments in a Series shall be credited to
each Shareholder's account in the form of full and fractional Shares at the Net
Asset Value per Share next determined after the investment is received or
accepted in good form as may be determined by the Trustees; provided, however,
that the Trustees may, in their sole discretion, (a) impose a sales charge upon
investments in any Series or Class, or (b) determine the Net Asset Value per
Share of the initial capital contribution. The Trustees shall have the right to
refuse to accept investments in any Series at any time without any cause or
reason therefor whatsoever.
Section 4. ASSETS AND LIABILITIES OF SERIES
. All consideration received by the Trust for the issue or sale of Shares
of a particular Series, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits, and proceeds thereof
(including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be), shall be held and accounted for separately
from the other assets of the Trust and every other Series and are referred to as
"assets belonging to" that Series. The assets belonging to a Series shall belong
only to that Series for all purposes, and to no other Series, subject only to
the rights of creditors of that Series. Any assets, income, earnings, profits,
and proceeds thereof, funds, or payments which are not readily identifiable as
belonging to any particular Series shall be allocated by the Trustees between
and among one or more Series as the Trustees deem fair and equitable. Each such
allocation shall be conclusive and binding upon the Shareholders of all Series
for all purposes, and such assets, earnings, income, profits or funds, or
payments and proceeds thereof shall be referred to as assets belonging to that
Series. The assets belonging to a Series shall be so recorded upon the books of
the Trust, and shall be held by the Trustees in trust for the benefit of the
Shareholders of that Series. The assets belonging to a Series shall be charged
with the liabilities of that Series and all expenses, costs, charges and
reserves attributable to that Series, except that liabilities and expenses
allocated solely to a particular Class shall be borne by that Class. Any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular
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Series or Class shall be allocated and charged by the Trustees between or among
any one or more of the Series or Classes in such manner as the Trustees deem
fair and equitable. Each such allocation shall be conclusive and binding upon
the Shareholders of all Series or Classes for all purposes.
Without limiting the foregoing, but subject to the right of the Trustees to
allocate general liabilities, expenses, costs, charges or reserves as herein
provided, the debts, liabilities, obligations and expenses incurred, contracted
for or otherwise existing with respect to a particular Series shall be
enforceable against the assets of such Series only, and not against the assets
of the Trust generally or of any other Series. Notice of this contractual
limitation on liabilities among Series may, in the Trustees' discretion, be set
forth in the certificate of trust of the Trust (whether originally or by
amendment) as filed or to be filed in the Office of the Secretary of State of
the State of Delaware pursuant to the Delaware Act, and upon the giving of such
notice in the certificate of trust, the statutory provisions of Section 3804 of
the Delaware Act relating to limitations on liabilities among Series (and the
statutory effect under Section 3804 of setting forth such notice in the
certificate of trust) shall become applicable to the Trust and each Series. Any
person extending credit to, contracting with or having any claim against any
Series may look only to the assets of that Series to satisfy or enforce any
debt, with respect to that Series. No Shareholder or former Shareholder of any
Series shall have a claim on or any right to any assets allocated or belonging
to any other Series.
Section 5. OWNERSHIP AND TRANSFER OF SHARES
. The Trust shall maintain a register containing the names and addresses of
the Shareholders of each Series and Class thereof, the number of Shares of each
Series and Class held by such Shareholders, and a record of all Share transfers.
The register shall be conclusive as to the identity of Shareholders of record
and the number of Shares held by them from time to time. The Trustees shall not
be required to, but may authorize the issuance of certificates representing
Shares and adopt rules governing their use. The Trustees may make rules
governing the transfer of Shares, whether or not represented by certificates.
Section 6. STATUS OF SHARES; LIMITATION OF SHAREHOLDER LIABILITY
. Shares shall be deemed to be personal property giving Shareholders only
the rights provided in this Trust Instrument. Every Shareholder, by virtue of
having acquired a Share, shall be held expressly to have assented to and agreed
to be bound by the terms of this Trust Instrument and to have become a party
hereto No Shareholder shall be personally liable for the debts, liabilities,
obligations and expenses incurred by, contracted for or otherwise existing with
respect to, the Trust or any Series. Neither the Trust nor the Trustees shall
have any power to bind any Shareholder personally or to demand payment from any
Shareholder for anything, other than as agreed by the Shareholder. Shareholders
shall have the same limitation of personal liability as is extended to
shareholders of a private corporation for profit incorporated in the State of
Delaware. Every written obligation of the Trust or any Series shall contain a
statement to the effect that such obligation may only be enforced against the
assets of the Trust or such Series; however, the omission of such statement
shall not operate to bind or create personal liability for any Shareholder or
Trustee.
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ARTICLE V
DISTRIBUTIONS AND REDEMPTIONS
Section 1. DISTRIBUTIONS
. The Trustees may declare and pay dividends and other distributions,
including dividends on Shares of a particular Series and other distributions
from the assets belonging to that Series. The amount and payment of dividends or
distributions and their form, whether they are in cash, Shares or other Trust
Property, shall be determined by the Trustees. Dividends and other distributions
may be paid pursuant to a standing resolution adopted once or more often as the
Trustees determine. All dividends and other distributions on Shares of a
particular Series shall be distributed pro rata to the Shareholders of that
Series in proportion to the number of Shares of that Series they held on the
record date established for such payment, except that such dividends and
distributions shall appropriately reflect expenses allocated to a particular
Class of such Series. The Trustees may adopt and offer to Shareholders such
dividend reinvestment plans, cash dividend payout plans or similar plans as the
Trustees deem appropriate.
Section 2. REDEMPTIONS
. Each Shareholder of a Series shall have the right at such times as may be
permitted by the Trustees to require the Series to redeem all or any part of his
or her Shares at a redemption price per Share equal to the Net Asset Value per
Share at such time as the Trustees shall have prescribed by resolution. In the
absence of such resolution, the redemption price per Share shall be the Net
Asset Value next determined after receipt by the Series of a request for
redemption in proper form less such charges as are determined by the Trustees
and described in the Trust's Registration Statement for that Series under the
Securities Act of 1933. The Trustees may specify conditions, prices, and places
of redemption, and may specify binding requirements for the proper form or forms
of requests for redemption. Payment of the redemption price may be wholly or
partly in securities or other assets at the value of such securities or assets
used in such determination of Net Asset Value, or may be in cash. Upon
redemption, Shares may be reissued from time to time. The Trustees may require
Shareholders to redeem Shares for any reason under terms set by the Trustees,
including the failure of a Shareholder to supply a personal identification
number if required to do so, or to have the minimum investment required, or to
pay when due for the purchase of Shares issued to him or her. To the extent
permitted by law, the Trustees may retain the proceeds of any redemption of
Shares required by them for payment of amounts due and owing by a Shareholder to
the Trust or any Series or Class. Notwithstanding the foregoing, the Trustees
may postpone payment of the redemption price and may suspend the right of the
Shareholders to require any Series or Class to redeem Shares during any period
of time when and to the extent permissible under the 1940 Act.
Section 3. DETERMINATION OF NET ASSET VALUE
. The Trustees shall cause the Net Asset Value of Shares of each Series or
Class to be determined from time to time in a manner consistent with applicable
laws and regulations. The Trustees may delegate the power and duty to determine
Net Asset Value per Share to one or more Trustees or officers of the Trust or to
an investment manager, administrator or investment adviser, custodian,
depository or other agent appointed for such purpose. The Net Asset Value of
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Shares shall be determined separately for each Series or Class at such times as
may be prescribed by the Trustees or, in the absence of action by the Trustees
as of the close of trading on the New York Stock Exchange on each day for all or
part of which such Exchange is open for unrestricted trading.
Section 4. SUSPENSION OF RIGHT OF REDEMPTION
. If, as referred to in Section 2 of this Article, the Trustees postpone
payment of the redemption price and suspend the right of Shareholders to redeem
their Shares, such suspension shall take effect at the time the Trustees shall
specify, but not later than the close of business on the business day next
following the declaration of suspension. Thereafter Shareholders shall have no
right of redemption or payment until the Trustees declare the end of the
suspension. If the right of redemption is suspended, a Shareholder may either
withdraw his request for redemption or receive payment based on the Net Asset
Value per Share next determined after the suspension terminates.
Section 5. REDEMPTIONS NECESSARY FOR QUALIFICATION AS REGULATED INVESTMENT
COMPANY
. If the Trustees shall determine that direct or indirect ownership of
Shares of any Series has or may become concentrated in any person to an extent
which would disqualify any Series as a regulated investment company under the
Internal Revenue Code, then the Trustees shall have the power (but not the
obligation) by lot or other means they deem equitable to (a) call for redemption
by any such person of a number, or principal amount, of Shares sufficient to
maintain or bring the direct or indirect ownership of Shares into conformity
with the requirements for such qualification and (b) refuse to transfer or issue
Shares to any person whose acquisition of Shares in question would, in the
Trustees' judgment, result in such disqualification. Any such redemption shall
be effected at the redemption price and in the manner provided in this Article.
Shareholders shall upon demand disclose to the Trustees in writing such
information concerning direct and indirect ownership of Shares as the Trustees
deem necessary to comply with the requirements of any taxing authority.
ARTICLE VI
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 1. VOTING POWERS
. The Shareholders shall have power to vote only with respect to (a) the
election of Trustees as provided in Section 2 of this Article; (b) the removal
of Trustees as provided in Article II, Section 3(d); (c) any investment advisory
or management contract as provided in Article VII, Section 1; (d) any
termination of the Trust as provided in Article X, Section 4; (e) the amendment
of this Trust Instrument to the extent and as provided in Article X, Section 8;
and (f) such additional matters relating to the Trust as may be required or
authorized by law, this Trust Instrument, or the By-laws or any registration of
the Trust with the Commission or any State, or as the Trustees may consider
desirable.
On any matter submitted to a vote of the Shareholders, all Shares shall be
voted by individual Series or Class, except (a) when required by the 1940 Act,
Shares shall be voted in
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the aggregate and not by individual Series or Class, and (b) when the Trustees
have determined that the matter affects the interests of more than one Series or
Class, then the Shareholders of all such Series or Classes shall be entitled to
vote thereon. Each whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote, and each fractional Share shall be entitled to a
proportionate fractional vote. There shall be no cumulative voting in the
election of Trustees. Shares may be voted in person or by proxy or in any manner
provided for in the By-laws. The By-laws may provide that proxies may be given
by any electronic or telecommunications device or in any other manner, but if a
proposal by anyone other than the officers or Trustees is submitted to a vote of
the Shareholders of any Series or Class, or if there is a proxy contest or proxy
solicitation or proposal in opposition to any proposal by the officers or
Trustees, Shares may be voted only in person or by written proxy. Until Shares
of a Series are issued, as to that Series the Trustees may exercise all rights
of Shareholders and may take any action required or permitted to be taken by
Shareholders by law, this Trust Instrument or the By-laws.
Section 2. MEETINGS OF SHAREHOLDERS
. The first Shareholders' meeting shall be held to elect Trustees at such
time and place as the Trustees designate. Annual meetings shall not be required.
Special meetings of the Shareholders of any Series or Class may be called by the
Trustees and shall be called by the Trustees upon the written request of
Shareholders owning at least ten percent of the Outstanding Shares of such
Series or Class entitled to vote. Special meetings of Shareholders shall be
held, notice of such meetings shall be delivered and waiver of notice shall
occur according to the provisions of the Trust's By-laws. Any action that may be
taken at a meeting of Shareholders may be taken without a meeting according to
the procedures set forth in the By-laws.
Section 3. QUORUM; REQUIRED VOTE
. One-third of the outstanding Shares of each Series or Class, or one-third
of the Outstanding Shares of the Trust, entitled to vote in person or by proxy
shall be a quorum for the transaction of business at a Shareholders' meeting
with respect to such Series or Class, or with respect to the entire Trust,
respectively. Any lesser number shall be sufficient for adjournments. Any
adjourned session of a Shareholders' meeting may be held within a reasonable
time without further notice. Except when a larger vote is required by law, this
Trust Instrument or the By-laws, a majority of the Outstanding Shares voted in
person or by proxy shall decide any matters to be voted upon with respect to the
entire Trust and a plurality of such outstanding Shares shall elect a Trustee;
provided, that if this Trust Instrument or applicable law permits or requires
that Shares be voted on any matter by individual Series or Classes, then a
majority of the Outstanding Shares of that Series or Class (or, if required or
permitted by law, regulation, Commission order, or no-action letter, a Majority
Shareholder Vote of that Series or Class) voted in person or by proxy voted on
the matter shall decide that matter insofar as that Series or Class is
concerned. Shareholders may act as to the Trust or any Series or Class by the
written consent of a majority (or such greater amount as may be required by
applicable law) of the Outstanding Shares of the Trust or of such Series or
Class, as the case may be.
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ARTICLE VII
CONTRACTS WITH SERVICE PROVIDERS
Section 1. INVESTMENT ADVISER
. Subject to a Majority Shareholder Vote, the Trustees may enter into one
or more investment advisory contracts on behalf of the Trust or any Series,
providing for investment advisory services, statistical and research facilities
and services, and other facilities and services to be furnished to the Trust or
Series on terms and conditions acceptable to the Trustees. Any such contract may
provide for the investment adviser to effect purchases, sales or exchanges of
portfolio securities or other Trust Property on behalf of the Trustees or may
authorize any officer or agent of the Trust to effect such purchases, sales or
exchanges pursuant to recommendations of the investment adviser. The Trustees
may authorize the investment adviser to employ one or more sub-advisers or
servicing agents.
Section 2. PRINCIPAL UNDERWRITER
. The Trustees may enter into contracts on behalf of the Trust or any
Series or Class, providing for the distribution and sale of Shares by the other
party, either directly or as sales agent, on terms and conditions acceptable to
the Trustees. The Trustees may adopt a plan or plans of distribution with
respect to Shares of any Series or Class and enter into any related agreements,
whereby the Series or Class finances directly or indirectly any activity that is
primarily intended to result in sales of its Shares, subject to the requirements
of Section 12 of the 1940 Act, Rule 12b-1 thereunder, and other applicable rules
and regulations.
Section 3. TRANSFER AGENCY, SHAREHOLDER SERVICES, AND ADMINISTRATION
AGREEMENTS
. The Trustees, on behalf of the Trust or any Series or Class, may enter
into transfer agency agreements, Shareholder service agreements, and
administration and management agreements with any party or parties on terms and
conditions acceptable to the Trustees.
Section 4. CUSTODIAN
. The Trustees shall at all times place and maintain the securities and
similar investments of the Trust and of each Series with a custodian meeting the
requirements of Section 17(f) of the 1940 Act and the rules thereunder. The
Trustees, on behalf of the Trust or any Series, may enter into an agreement with
a custodian on terms and conditions acceptable to the Trustees, providing for
the custodian, among other things, to (a) hold the securities owned by the Trust
or any Series and deliver the same upon written order or oral order confirmed in
writing, (b) to receive and receipt for any moneys due to the Trust or any
Series and deposit the same in its own banking department or elsewhere, (c) to
disburse such funds upon orders or vouchers, and (d) to employ one or more
sub-custodians.
Section 5. PARTIES TO CONTRACTS WITH SERVICE PROVIDERS
. The Trustees may enter into any contract referred to in this Article with
any entity, although one or more of the Trustees or officers of the Trust may be
an officer, director, trustee,
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partner, shareholder, or member of such entity and no such contract shall be
invalidated or rendered void or voidable because of such relationship. No person
having such a relationship shall be disqualified from voting on or executing a
contract in his or her capacity as Trustee and/or Shareholder, or be liable
merely by reason of such relationship for any loss or expense to the Trust with
respect to such a contract or accountable for any profit realized directly or
indirectly therefrom; provided, that the contract was reasonable and fair and
not inconsistent with this Trust Instrument or the By-laws.
Any contract referred to in Sections 1 and 2 of this Article shall be
consistent with and subject to the applicable requirements of Section 15 of the
1940 Act and the rules and orders thereunder with respect to its continuance in
effect, its termination, and the method of authorization and approval of such
contract or renewal. No amendment to a contract referred to in Section 1 of this
Article shall be effective unless assented to in a manner consistent with the
requirements of Section 15 of the 1940 Act, and the rules and orders thereunder.
ARTICLE VIII
EXPENSES OF THE TRUST AND SERIES
Subject to Article IV, Section 4, the Trust or a particular Series shall
pay, or shall reimburse the Trustees from the Trust estate or the assets
belonging to the particular Series, for their expenses and disbursements,
including, but not limited to, interest charges, taxes, brokerage fees and
commissions; expenses of issue, repurchase and redemption of Shares; insurance
premiums; applicable fees, interest charges and expenses of third parties,
including the Trust's investment advisers, managers, administrators,
distributors, custodians, transfer agents and fund accountants; fees of pricing,
interest, dividend, credit and other reporting services; costs of membership in
trade associations; telecommunications expenses; funds transmission expenses;
auditing, legal and compliance expenses; costs of forming the Trust and its
Series and maintaining its existence; costs of preparing and printing the
prospectuses of the Trust and each Series, statements of additional information
and reports for Shareholders and delivering them to Shareholders; expenses of
meetings of Shareholders and proxy solicitations therefor (unless otherwise
agreed to by another party); costs of maintaining books and accounts; costs of
reproduction, stationery and supplies; fees and expenses of the Trustees;
compensation of the Trust's officers and employees and costs of other personnel
performing services for the Trust or any Series; costs of Trustee meetings;
Commission registration fees and related expenses; state or foreign securities
laws registration fees and related expenses; and for such non-recurring items as
may arise, including litigation to which the Trust or a Series (or a Trustee or
officer of the Trust acting as such) is a party, and for all losses and
liabilities by them incurred in administering the Trust. The Trustees shall have
a lien on the assets belonging to the appropriate Series, or in the case of an
expense allocable to more than one Series, on the assets of each such Series,
prior to any rights or interests of the Shareholders thereto, for the
reimbursement to them of such expenses, disbursements, losses and liabilities.
ARTICLE IX
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 1. LIMITATION OF LIABILITY
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. All persons contracting with or having any claim against the Trust or a
particular Series shall look only to the assets of the Trust or such Series for
payment under such contract or claim; and neither the Trustees nor any of the
Trust's officers, employees or agents, whether past, present or future, shall be
personally liable therefor. Every written instrument or obligation on behalf of
the Trust or any Series shall contain a statement to the foregoing effect, but
the absence of such statement shall not operate to make any Trustee or officer
of the Trust liable thereunder. Provided they have exercised reasonable care and
have acted under the reasonable belief that their actions are in the best
interest of the Trust, the Trustees and officers of the Trust shall not be
responsible or liable for any act or omission or for neglect or wrongdoing of
them or any officer, agent, employee, investment adviser or independent
contractor of the Trust, but nothing contained in this Trust Instrument or in
the Delaware Act shall protect any Trustee or officer of the Trust against
liability to the Trust or to Shareholders to which he or she would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.
Section 2. INDEMNIFICATION
. (a) Subject to the exceptions and limitations contained in subsections
(b) and (c) below:
(i) every person who is, or has been, a Trustee or an officer,
employee, investment manager and administrator, director, officer of
employer of an investment manager and administrator, investment
adviser or agent of the Trust ("Covered Person") shall be indemnified
by the Trust or the appropriate Series to the fullest extent permitted
by law against liability and against all expenses reasonably incurred
or paid by him or her in connection with any claim, action, suit or
proceeding in which he or she becomes involved as a party or otherwise
by virtue of his or her being or having been a Covered Person and
against amounts paid or incurred by him or her in the settlement
thereof;
(ii) as used herein, the words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions, suits or proceedings
(civil, criminal or other, including appeals), actual or threatened,
and the words "liability" and "expenses" shall include, without
limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person who
is, or has been, an investment manager and administrator, director, officer of
employer of an investment manager and administrator, an investment adviser or an
agent of the Trust and:
(i) who shall have been adjudicated by a court or body before which
the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, negligence
or reckless disregard of the duties involved in the conduct of his or
her office, or (B) not to have acted in good faith in the reasonable
belief that his or her action was in the best interest of the Trust;
or
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<PAGE>
(ii) in the event of a settlement, unless there has been a
determination that such Covered Person did not engage in willful
misfeasance, bad faith, negligence or reckless disregard of the duties
involved in the conduct of his or her office; (A) by the court or
other body approving the settlement; (B) by the vote of at least a
majority of those Trustees who are neither Interested Persons of the
Trust nor are parties to the proceeding based upon a review of readily
available facts (as opposed to a full trial-type inquiry); or (C) by
written opinion of independent legal counsel based upon a review of
readily available facts (as opposed to a full trial-type inquiry).
(c) No indemnification shall be provided hereunder to a Covered Person who
is, or has been, a Trustee or an officer or employee of the Trust, and
(i) who shall have been adjudicated by a court or body before which
the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his or her office, or (B) not to have acted in good faith in the
reasonable belief that his or her action was in the best interest of
the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Covered Person did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office; (A) by the court
or other body approving the settlement; (B) by the vote of at least a
majority of those Trustees who are neither Interested Persons of the
Trust nor are parties to the proceeding based upon a review of readily
available facts (as opposed to a full trial-type inquiry); or (C) by
written opinion of independent legal counsel based upon a review of
readily available facts (as opposed to a full-trial-type inquiry).
(d) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not be exclusive of
or affect any other rights to which any Covered Person may now or hereafter be
entitled, and shall inure to the benefit of the heirs, executors and
administrators of a Covered Person.
(e) To the maximum extent permitted by applicable law, expenses in
connection with the preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in subsection (a) of this
Section may be paid by the Trust or applicable Series from time to time prior to
final disposition thereof upon receipt of an undertaking by or on behalf of such
Covered Person that such amount will be paid over by him or her to the Trust or
applicable Series if it is ultimately determined that he or she is not entitled
to indemnification under this Section; provided, however, that either (i) such
Covered Person shall have provided appropriate security for such undertaking,
(ii) the Trust is insured against losses arising out of any such advance
payments or (iii) either a majority of the Trustees who are neither Interested
Persons of the Trust nor parties to the proceeding, or independent legal counsel
in a written opinion, shall have determined, based upon a review of readily
available facts (as opposed to a full trial-type inquiry) that there is reason
to believe that such Covered Person will not be disqualified from
indemnification under this Section.
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<PAGE>
(f) Any repeal or modification of this Article IX by the Shareholders of
the Trust, or adoption or modification of any other provision of the Trust
Instrument or By-laws inconsistent with this Article, shall be prospective only,
to the extent that such repeal or modification would, if applied
retrospectively, adversely affect any limitation on the liability of any Covered
Person or indemnification available to any Covered Person with respect to any
act or omission which occurred prior to such repeal, modification or adoption.
Section 3. INDEMNIFICATION OF SHAREHOLDERS
. If any Shareholder or former Shareholder of any Series shall be held
personally liable solely by reason of his or her being or having been a
Shareholder and not because of his or her acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representatives or in the case of any entity, its
general successor) shall be entitled out of the assets belonging to the
applicable Series to be held harmless from and indemnified against all loss and
expense arising from such liability. The Trust, on behalf of the affected
Series, shall, upon request by such Shareholder, assume the defense of any claim
made against such Shareholder for any act or obligation of the Series and
satisfy any judgment thereon from the assets of the Series.
ARTICLE X
MISCELLANEOUS
Section 1. TRUST NOT A PARTNERSHIP
. This Trust Instrument creates a trust and not a partnership. No Trustee
shall have any power to bind personally either the Trust's officers or any
Shareholder.
Section 2. TRUSTEE ACTION; EXPERT ADVICE; NO BOND OR SURETY
. The exercise by the Trustees of their powers and discretion hereunder in
good faith and with reasonable care under the circumstances then prevailing
shall be binding upon everyone interested. Subject to the provisions of Article
IX, the Trustees shall not be liable for errors of judgment or mistakes of fact
or law. The Trustees may take advice of counsel or other experts with respect to
the meaning and operation of this Trust Instrument, and subject to the
provisions of Article IX, shall not be liable for any act or omission in
accordance with such advice or for failing to follow such advice. The Trustees
shall not be required to give any bond as such, nor any surety if a bond is
obtained.
Section 3. RECORD DATES
. The Trustees may fix in advance a date up to ninety (90) days before the
date of any Shareholders' meeting, or the date for the payment of any dividends
or other distributions, or the date for the allotment of rights, or the date
when any change or conversion or exchange of Shares shall go into effect as a
record date for the determination of the Shareholders entitled to notice of, and
to vote at, any such meeting, or entitled to receive payment of such dividend or
other distribution, or to receive any such allotment of rights, or to exercise
such rights in respect of any
17
<PAGE>
such change, conversion or exchange of Shares. Record dates for adjourned
meetings of Shareholders shall be set according to the Trust's By-laws.
Section 4. TERMINATION OF THE TRUST
. (a) This Trust shall have perpetual existence. Subject to a Majority
Shareholder Vote of the Trust or of each Series to be affected, the Trustees may
(i) sell and convey all or substantially all of the assets of the
Trust or any affected Series to another Series or to another entity
which is an open-end investment company as defined in the 1940 Act, or
is a series thereof, for adequate consideration, which may include the
assumption of all outstanding obligations, taxes and other
liabilities, accrued or contingent, of the Trust or any affected
Series, and which may include shares of or interests in such Series,
entity, or series, thereof; or
(ii) at any time sell and convert into money all or substantially all
of the assets of the Trust or any affected Series.
Upon making reasonable provision for the payment of all known liabilities of the
Trust or any affected Series in either (i) or (ii), by such assumption or
otherwise, the Trustees shall distribute the remaining proceeds or assets (as
the case may be) ratably among the Shareholders of the Trust or any affected
Series; however, the payment to any particular Class of such Series may be
reduced by any fees, expenses or charges allocated to that Class.
(b) The Trustees may take any of the actions specified in subsection (a)
(i) and (ii) above without obtaining a Majority Shareholder Vote of the Trust or
any Series if a majority of the Trustees determines that the continuation of the
Trust or Series is not in the best interests of the Trust, such Series, or their
respective Shareholders as a result of factors or events adversely affecting the
ability of the Trust or such Series to conduct its business and operations in an
economically viable manner. Such factors and events may include the inability of
the Trust or a Series to maintain its assets at an appropriate size, changes in
laws or regulations governing the Trust or the Series or affecting assets of the
type in which the Trust or Series invests, or economic developments or trends
having a significant adverse impact on the business or operations of the Trust
or such Series.
(c) Upon completion of the distribution of the remaining proceeds or assets
pursuant to subsection (a), the Trust or affected Series shall terminate and the
Trustees and the Trust shall be discharged of any and all further liabilities
and duties hereunder with respect thereto and the right, title and interest of
all parties therein shall be canceled and discharged. Upon termination of the
Trust, following completion of winding up of its business, the Trustees shall
cause a certificate of cancellation of the Trust's certificate of trust to be
filed in accordance with the Delaware Act, which certificate of cancellation may
be signed by any one Trustee.
Section 5. REORGANIZATION
. Notwithstanding anything else herein, to change the Trust's form of
organization the Trustees may, without Shareholder approval, (a) cause the Trust
to merge or consolidate with or
18
<PAGE>
into one or more entities, if the surviving or resulting entity is the Trust or
another open-end management investment company under the 1940 Act, or a series
thereof, that will succeed to or assume the Trust's registration under the 1940
Act, or (b) cause the Trust to incorporate under the laws of Delaware. Any
agreement of merger or consolidation or certificate of merger may be signed by a
majority of Trustees and facsimile signatures conveyed by electronic or
telecommunication means shall be valid.
Pursuant to and in accordance with the provisions of Section 3815(f) of the
Delaware Act, an agreement of merger or consolidation approved by the Trustees
in accordance with this Section 5 may effkp_4ect any amendment to the Trust
Instrument or effect the adoption of a new trust instrument of the Trust if it
is the surviving or resulting trust in the merger or consolidation.
Section 6. TRUST INSTRUMENT
. The original or a copy of this Trust Instrument and of each amendment
hereto or Trust Instrument supplemental shall be kept at the office of the Trust
where it may be inspected by any Shareholder. Anyone dealing with the Trust may
rely on a certificate by a Trustee or an officer of the Trust as to the
authenticity of the Trust Instrument or any such amendments or supplements and
as to any matters in connection with the Trust. The masculine gender herein
shall include the feminine and neuter genders. Headings herein are for
convenience only and shall not affect the construction of this Trust Instrument.
This Trust Instrument may be executed in any number of counterparts, each of
which shall be deemed an original.
Section 7. APPLICABLE LAW
. This Trust Instrument and the Trust created hereunder are governed by and
construed and administered according to the Delaware Act and the applicable laws
of the State of Delaware; provided, however, that there shall not be applicable
to the Trust, the Trustees or this Trust Instrument (a) the provisions of
Section 3540 of Title 12 of the Delaware Code, or (b) any provisions of the laws
(statutory or common) of the State of Delaware (other than the Delaware Act)
pertaining to trusts which relate to or regulate (i) the filing with any court
or governmental body or agency of trustee accounts or schedules of trustee fees
and charges, (ii) affirmative requirements to post bonds for trustees, officers,
agents or employees of a trust, (iii) the necessity for obtaining court or other
governmental approval concerning the acquisition, holding or disposition of real
or personal property, (iv) fees or other sums payable to trustees, officers,
agents or employees of a trust, (v) the allocation of receipts and expenditures
to income or principal, (vi) restrictions or limitations on the permissible
nature, amount or concentration of trust investments or requirements relating to
the titling, storage or other manner of holding of trust assets, or (vii) the
establishment of fiduciary or other standards of responsibilities or limitations
on the acts or powers of trustees, which are inconsistent with the limitations
or liabilities or authorities and powers of the Trustees set forth or referenced
in this Trust Instrument. The Trust shall be of the type commonly called a
Delaware business trust, and, without limiting the provisions hereof, the Trust
may exercise all powers which are ordinarily exercised by such a trust under
Delaware law. The Trust specifically reserves the right to exercise any of the
powers or privileges afforded to trusts or actions that may be engaged in by
trusts under the Delaware Act, and the absence of a specific reference herein to
any such power, privilege or action shall not imply that the Trust may not
exercise such power or privilege or take such actions.
19
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Section 8. AMENDMENTS
. The Trustees may, without any Shareholder vote, amend or otherwise
supplement this Trust Instrument by making an amendment, a Trust Instrument
supplemental hereto or an amended and restated trust instrument; provided, that
Shareholders shall have the right to vote on any amendment (a) which would
affect the voting rights of Shareholders granted in Article VI, Section 1, (b)
to this Section 8, (c) required to be approved by Shareholders by law or by the
Trust's registration statement(s) filed with the Commission, and (d) submitted
to them by the Trustees in their discretion. Any amendment submitted to
Shareholders which the Trustees determine would affect the Shareholders of any
Series shall be authorized by vote of the Shareholders of such Series and no
vote shall be required of Shareholders of a Series not affected. Notwithstanding
anything else herein, any amendment to Article IX which would have the effect of
reducing the indemnification and other rights provided thereby to Trustees,
officers, employees, and agents of the Trust or to Shareholders or former
Shareholders, and any repeal or amendment of this sentence shall each require
the affirmative vote of the holders of two-thirds of the Outstanding Shares of
the Trust entitled to vote thereon.
Section 9. FISCAL YEAR
. The fiscal year of the Trust shall end on a specified date as set forth
in the By-laws. The Trustees may change the fiscal year of the Trust without
Shareholder approval.
Section 10. SEVERABILITY
. The provisions of this Trust Instrument are severable. If the Trustees
determine, with the Internal Revenue Code or with other applicable laws and
regulations, the conflicting provision shall be deemed never to have constituted
a part of this Trust Instrument; provided, however, that such determination
shall not affect any of the remaining provisions of this Trust Instrument or
render invalid or improper any action taken or omitted prior to such
determination. If any provision hereof shall be held invalid or unenforceable in
any jurisdiction, such invalidity or unenforceability shall attach only to such
provision only in such jurisdiction and shall not affect any other provision of
this Trust Instrument.
20
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IN WITNESS WHEREOF, the undersigned, being the initial Trustees, have
executed this Trust Instrument as of the date first above written.
/s/ Peter Kennedy
----------------------------------------
Peter Kennedy, as
Trustee and not individually
Address: 1200 Harbor Boulevard
Weehawken, NJ 07087
STATE OF NEW JERSEY ss
CITY OF WEEHAWKEN
Before me this 13th day of June, 1995, personally appeared the above-named
Peter Kennedy, known to me to be the person who executed the foregoing
instrument and who acknowledged that he executed the same.
/s/ Julie Petrow
----------------------------------------
Notary Public
My commission expires: JULIE PETROW
NOTARY PUBLIC, STATE OF NEW YORK
NO. 02PE5019240
QUALIFIED IN NEW YORK COUNTY
COMMISSION EXPIRES OCTOBER 18, 1995
/s/ Gregory K. Todd
----------------------------------------
Gregory K. Todd, as
Trustee and not individually
Address: 1285 Avenue of the Americas
New York, New York 10019
STATE OF NEW YORK ss
CITY OF NEW YORK
Before me this 13th day of June, 1995, personally appeared the above-named
Gregory K. Todd, known to me to be the person who executed the foregoing
instrument and who acknowledged that he executed the same.
/s/ Joan L. Cohen
----------------------------------------
Notary Public
My commission expires: JOAN L. COHEN
NOTARY PUBLIC, STATE OF NEW YORK
NO. 31-4884475
QUALIFIED IN NEW YORK COUNTY
COMMISSION EXPIRES JANUARY 26, 1997
21
<PAGE>
Exhibit No. 2(a)
MANAGED ACCOUNTS SERVICES
PORTFOLIO TRUST
BY-LAWS
September 9, 1994
(Revised June 9, 1995)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I.........................................................................................................1
PRINCIPAL OFFICE AND SEAL.........................................................................................1
Section 1. Principal Office.............................................................................1
Section 2. Seal.........................................................................................1
ARTICLE II........................................................................................................1
MEETINGS OF TRUSTEES..............................................................................................1
Section 1. Action by Trustees...........................................................................1
Section 2. Compensation of Trustees.....................................................................1
Section 3. Retirement of Trustees.......................................................................1
ARTICLE III.......................................................................................................1
COMMITTEES........................................................................................................1
Section 1. Establishment................................................................................1
Section 2. Proceedings; Quorum; Action..................................................................2
Section 3. Compensation of Committee Members............................................................2
ARTICLE IV........................................................................................................2
OFFICERS..........................................................................................................2
Section 1. General......................................................................................2
Section 2. Election, Tenure and Qualifications of Officers..............................................2
Section 3. Vacancies and Newly Created Offices..........................................................2
Section 4. Removal and Resignation......................................................................2
Section 5. Chairman.....................................................................................3
Section 6. President....................................................................................3
Section 7. Vice President(s)............................................................................3
Section 8. Treasurer and Assistant Treasurer(s).........................................................3
Section 9. Secretary and Assistant Secretaries..........................................................4
Section 10. Compensation of Officers....................................................................4
Section 11. Surety Bond.................................................................................4
ARTICLE V.........................................................................................................4
MEETINGS OF SHAREHOLDERS..........................................................................................4
Section 1. No Annual Meetings...........................................................................4
Section 2. Special Meetings.............................................................................4
Section 3. Notice of Meetings; Waiver...................................................................5
Section 4. Adjourned Meetings...........................................................................5
Section 5. Validity of Proxies..........................................................................5
Section 6. Record Date..................................................................................6
Section 7. Action Without a Meeting.....................................................................6
i
<PAGE>
ARTICLE VI........................................................................................................6
SHARES OF BENEFICIAL INTEREST.....................................................................................6
Section 1. No Share Certificates........................................................................6
Section 2. Transfer of Shares...........................................................................6
ARTICLE VII.......................................................................................................6
CUSTODY OF SECURITIES.............................................................................................6
Section 1. Employment of a Custodian....................................................................6
Section 2. Termination of Custodian Agreement...........................................................6
Section 3. Other Arrangements...........................................................................7
ARTICLE VIII......................................................................................................7
FISCAL YEAR AND ACCOUNTANT........................................................................................7
Section 1. Fiscal Year..................................................................................7
Section 2. Accountant...................................................................................7
ARTICLE IX........................................................................................................7
AMENDMENTS........................................................................................................7
Section 1. General......................................................................................7
Section 2. By Shareholders Only.........................................................................7
ARTICLE X.........................................................................................................7
NET ASSET VALUE...................................................................................................7
ARTICLE XI........................................................................................................8
INVESTMENTS.......................................................................................................8
Section 1. Investment Objectives, Policies and Restrictions.............................................8
Section 2. Amendment of Investment Objectives, Policies and Restrictions................................8
ARTICLE XII.......................................................................................................8
MISCELLANEOUS.....................................................................................................8
Section 1. Inspection of Books..........................................................................8
Section 2. Severability.................................................................................8
Section 3. Headings.....................................................................................9
</TABLE>
ii
<PAGE>
BY-LAWS
OF
MANAGED ACCOUNTS SERVICES PORTFOLIO TRUST
These By-laws of Managed Accounts Services Portfolio Trust (the
"Trust"), a Delaware business trust, are subject to the Trust Instrument of the
Trust dated as of September 9, 1994, as from time to time amended, supplemented
or restated (the "Trust Instrument"). Capitalized terms used herein have the
same meanings as in the Trust Instrument.
ARTICLE I
PRINCIPAL OFFICE AND SEAL
SECTION 1. PRINCIPAL OFFICE. The principal office of the Trust shall be located
in New York, New York, or such other location as the Trustees determine. The
Trust may establish and maintain other offices and places of business as the
Trustees determine.
SECTION 2. SEAL. The Trustees may adopt a seal for the Trust in such form and
with such inscription as the Trustees determine. Any Trustee or officer of the
Trust shall have authority to affix the seal to any document.
ARTICLE II
MEETINGS OF TRUSTEES
SECTION 1. ACTION BY TRUSTEES. Trustees may take actions at meetings held at
such places and times as the Trustees may determine, or without meetings, all as
provided in Article II, Section 7, of the Trust Instrument.
SECTION 2. COMPENSATION OF TRUSTEES. Each Trustee who is neither an employee of
an investment adviser of the Trust or any Series nor an employee of an entity
affiliated with the investment adviser may receive such compensation from the
Trust for services and reimbursement for expenses as the Trustees may determine.
SECTION 3. RETIREMENT OF TRUSTEES. Each Trustee who has attained the age of
seventy-two (72) years as of December 31 of any year shall retire from service
as a Trustee on such date unless that retirement would cause the Trust to be
required to call a meeting of Shareholders to fill the resulting vacancy on the
Board of Trustees. Notwithstanding anything in this Section, a Trustee may
retire at any time as provided for in the Trust Instrument.
ARTICLE III
COMMITTEES
SECTION 1. ESTABLISHMENT. The Trustees may designate one or MORE committees of
the Trustees, which may include an Executive Committee, a Nominating Committee,
and an Audit Committee. The Trustees shall determine the number of members of
each committee and its
<PAGE>
powers and shall appoint its members and its chair. Each committee member shall
serve at the pleasure of the Trustees. The Trustees may abolish any committee at
any time. Each committee shall maintain records of its meetings and report its
actions to the Trustees. The Trustees may rescind any action of any committee,
but such rescission shall not have retroactive effect. The Trustees may delegate
to any committee any of its powers, subject to the limitations of applicable
law.
SECTION 2. PROCEEDINGS; QUORUM; ACTION. Each committee may adopt such rules
governing its proceedings, quorum and manner of acting as it shall deem proper
and desirable. In the absence of such rules, a majority of any committee shall
constitute a quorum, and a committee shall act by the vote of a majority of a
quorum.
SECTION 3. COMPENSATION OF COMMITTEE MEMBERS. Each committee member who is not
an "interested person" of the Trust, as defined in the 1940 Act ("Disinterested
Trustees") may receive such compensation from the Trust for services and
reimbursement for expenses as the Trustees may determine.
ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The officers of the Trust shall be a Chairman, a President,
one or more Vice Presidents, a Treasurer, and a Secretary, and may include one
or more Assistant Treasurers or Assistant Secretaries and such other officers
("Other Officers") as the Trustees may determine.
SECTION 2. ELECTION, TENURE AND QUALIFICATIONS OF OFFICERS. The Trustees shall
elect the officers of the Trust, except those appointed as provided in Section 9
of this Article. Each officer elected by the Trustees shall hold office until
his or her successor shall have been elected and qualified or until his or her
earlier death, inability to serve, or resignation. Any person may hold one or
more offices, except that the Chairman and the Secretary may not be the same
individual. A person who holds more than one office in the Trust may not act in
more than one capacity to execute, acknowledge, or verify an instrument required
by law to be executed, acknowledged, or verified by more than one officer. No
officer other than the Chairman need be a Trustee or Shareholder.
SECTION 3. VACANCIES AND NEWLY CREATED OFFICES. Whenever a vacancy shall occur
in any office or if any new office is created, the Trustees may fill such
vacancy or new office.
SECTION 4. REMOVAL AND RESIGNATION. Officers serve at the pleasure of the
Trustees and may be removed at any time with or without cause. The Trustees may
delegate this power to the Chairman or President with respect to any Other
Officer. Such removal shall be without prejudice to the contract rights, if any,
of the person so removed. Any officer may resign from office at any time by
delivering a written resignation to the Trustees, Chairman, or the President.
Unless otherwise specified therein, such resignation shall take effect upon
delivery.
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SECTION 5. CHAIRMAN. The Chairman shall be the chief executive officer of the
Trust. Subject to the direction of the Trustees, the Chairman shall have general
charge, supervision and control over the Trust's business affairs and shall be
responsible for the management thereof and the execution of policies established
by the Trustees. The Chairman shall preside at any Shareholders' meetings and at
all meetings of the Trustees and shall in general exercise the powers and
perform the duties of the Chairman of the Trustees. Except as the Trustees may
otherwise order, the Chairman shall have the power to grant, issue, execute or
sign such powers of attorney, proxies, agreements or other documents. The
Chairman also shall have the power to employ attorneys, accountants and other
advisers and agents for the Trust. The Chairman shall exercise such other powers
and perform such other duties as the Trustees may assign to the Chairman.
SECTION 6. PRESIDENT. The President shall have such powers and perform such
duties as the Trustees or the Chairman may determine. At the request or in the
absence or disability of the Chairman, the President shall perform all the
duties of the President and, when so acting, shall have all the powers of the
President.
SECTION 7. VICE PRESIDENT(S). The Vice President(s) shall have such powers and
perform such duties as the Trustees or the Chairman may determine. At the
request or in the absence or disability of the President, the Vice President
(or, if there are two or more Vice Presidents, then the senior of the Vice
Presidents present and able to act) shall perform all the duties of the
President and, when so acting, shall have all the powers of the President. The
Trustees may designate a Vice President as the principal financial officer of
the Trust or to serve one or more other functions. If a Vice President is
designated as principal financial officer of the Trust, he or she shall have
general charge of the finances and books of the Trust and shall report to the
Trustees annually regarding the financial condition of each Series as soon as
possible after the close of such Series' fiscal year. The Trustees also may
designate one of the Vice Presidents as Executive Vice President.
SECTION 8. TREASURER AND ASSISTANT TREASURER(S). The Treasurer may be designated
as the principal financial officer or as the principal accounting officer of the
Trust. If designated as principal financial officer, the Treasurer shall have
general charge of the finances and books of the Trust, and shall report to the
Trustees annually regarding the financial condition of each Series as soon as
possible after the close of such Series' fiscal year. The Treasurer shall be
responsible for the delivery of all funds and securities of the Trust to such
company as the Trustees shall retain as Custodian. The Treasurer shall furnish
such reports concerning the financial condition of the Trust as the Trustees may
request. The Treasurer shall perform all acts incidental to the office of
Treasurer, subject to the Trustees' supervision, and shall perform such
additional duties as the Trustees may designate.
Any Assistant Treasurer may perform such duties of the Treasurer as the
Trustees or the Treasurer may assign, and, in the absence of the Treasurer, may
perform all the duties of the Treasurer.
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SECTION 9. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall record all
votes and proceedings of the meetings of Trustees and Shareholders in books to
be kept for that purpose. The Secretary shall be responsible for giving and
serving notices of the Trust. The Secretary shall have custody of any seal of
the Trust and shall be responsible for the records of the Trust, including the
Share register and such other books and documents as may be required by the
Trustees or by law. The Secretary shall perform all acts incidental to the
office of Secretary, subject to the supervision of the Trustees, and shall
perform such additional duties as the Trustees may designate.
Any Assistant Secretary may perform such duties of the Secretary as the
Trustees or the Secretary may assign, and, in the absence of the Secretary, may
perform all the duties of the Secretary.
SECTION 10. COMPENSATION OF OFFICERS. Each officer may receive such compensation
from the Trust for services and reimbursement for expenses as the Trustees may
determine.
SECTION 11. SURETY BOND. The Trustees may require any officer or agent of the
Trust to execute a bond (including, without limitation, any bond required by the
1940 Act and the rules and regulations of the Securities and Exchange Commission
("Commission")) to the Trust in such sum and with such surety or sureties as the
Trustees may determine, conditioned upon the faithful performance of his or her
duties to the Trust, including responsibility for negligence and for the
accounting of any of the Trust's property, funds or securities that may come
into his or her hands.
ARTICLE V
MEETINGS OF SHAREHOLDERS
SECTION 1. NO ANNUAL MEETINGS. There shall be no annual Shareholders' meetings,
unless required by law.
SECTION 2. SPECIAL MEETINGS. The Secretary shall call a special meeting of
Shareholders of any Series or Class whenever ordered by the Trustees.
The Secretary also shall call a special meeting of Shareholders of any
Series or Class upon the written request of Shareholders owning at least ten
percent of the Outstanding Shares of such Series or Class entitled to vote at
such meeting; provided, that (1) such request shall state the purposes of such
meeting and the matters proposed to be acted on, and (2) the Shareholders
requesting such meeting shall have paid to the Trust the reasonably estimated
cost of preparing and mailing the notice thereof, which the Secretary shall
determine and specify to such Shareholders. If the Secretary fails for more than
thirty days to call a special meeting when required to do so, the Trustees or
the Shareholders requesting such a meeting may, in the name of the Secretary,
call the meeting by giving the required notice. The Secretary shall not call a
special meeting upon the request of Shareholders of any Series or Class to
consider any matter that is substantially the same as a matter voted upon at any
special meeting of Shareholders of
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such Series or Class held during the preceding twelve months, unless requested
by the holders of a majority of the Outstanding Shares of such Series or Class
entitled to be voted at such meeting.
A special meeting of Shareholders of any Series or Class shall be held
at such time and place as is determined by the Trustees and stated in the notice
of that meeting.
SECTION 3. NOTICE OF MEETINGS; WAIVER. The Secretary shall call a special
meeting of Shareholders by giving written notice of the place, date, time, and
purposes of that meeting at least fifteen days before the date of such meeting.
The Secretary may deliver or mail, postage prepaid, the written notice of any
meeting to each Shareholder entitled to vote at such meeting. If mailed, notice
shall be deemed to be given when deposited in the United States mail directed to
the Shareholder at his or her address as it appears on the records of the Trust.
SECTION 4. ADJOURNED MEETINGS. A Shareholders' meeting may be adjourned one or
more times for any reason, including the failure of a quorum to attend the
meeting. No notice of adjournment of a meeting to another time or place need be
given to Shareholders if such time and place are announced at the meeting at
which the adjournment is taken or reasonable notice is given to persons present
at the meeting, and if the adjourned meeting is held within a reasonable time
after the date set for the original meeting. Any business that might have been
transacted at the original meeting may be transacted at any adjourned meeting.
If after the adjournment a new record date is fixed for the adjourned meeting,
the Secretary shall give notice of the adjourned meeting to Shareholders of
record entitled to vote at such meeting. Any irregularities in the notice of any
meeting or the nonreceipt of any such notice by any of the Shareholders shall
not invalidate any action otherwise properly taken at any such meeting.
SECTION 5. VALIDITY OF PROXIES. Subject to the provisions of the Trust
Instrument, Shareholders entitled to vote may vote either in person or by proxy;
provided, that either (1) the Shareholder or his or her duly authorized attorney
has signed and dated a written instrument authorizing such proxy to act, or (2)
the Trustees adopt by resolution an electronic, telephonic, computerized or
other alternative to execution of a written instrument authorizing the proxy to
act, but if a proposal by anyone other than the officers or Trustees is
submitted to a vote of the Shareholders of any Series or Class, or if there is a
proxy contest or proxy solicitation or proposal in opposition to any proposal by
the officers or Trustees, Shares may be voted only in person or by written
proxy. Unless the proxy provides otherwise, it shall not be valid for more than
eleven months before the date of the meeting. All proxies shall be delivered to
the Secretary or other person responsible for recording the proceedings before
being voted. A proxy with respect to Shares held in the name of two or more
persons shall be valid if executed by one of them unless at or prior to exercise
of such proxy the Trust receives a specific written notice to the contrary from
any one of them. Unless otherwise specifically limited by their terms, proxies
shall entitle the Shareholder to vote at any adjournment of a Shareholders'
meeting. A proxy purporting to be executed by or on behalf of a Shareholder
shall be deemed valid unless challenged at or prior to its exercise, and the
burden of proving invalidity shall rest on the challenger. At every meeting of
Shareholders, unless the voting is conducted by inspectors, the chairman of the
meeting shall decide all questions concerning the qualifications of voters, the
validity of proxies, and the acceptance or rejection of votes. Subject to the
provisions of the Delaware Business
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Trust Act, the Trust Instrument, or these By-laws, the General Corporation Law
of the State of Delaware relating to proxies, and judicial interpretations
thereunder shall govern all matters concerning the giving, voting or validity of
proxies, as if the Trust were a Delaware corporation and the Shareholders were
shareholders of a Delaware corporation.
SECTION 6. RECORD DATE. The Trustees may fix in advance a date up to ninety days
before the date of any Shareholders' meeting as a record date for the
determination of the Shareholders entitled to notice of, and to vote at, any
such meeting. The Shareholders of record entitled to vote at a Shareholders'
meeting shall be deemed the Shareholders of record at any meeting reconvened
after one or more adjournments, unless the Trustees have fixed a new record
date. If the Shareholders' meeting is adjourned for more than sixty days after
the original date, the Trustees shall establish a new record date.
SECTION 7. ACTION WITHOUT A MEETING. Shareholders may take any action without a
meeting if a majority (or such greater amount as may be required by law) of the
Outstanding Shares entitled to vote on the matter consent to the action in
writing and such written consents are filed with the records of Shareholders'
meetings. Such written consent shall be treated for all purposes as a vote at a
meeting of the Shareholders.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
SECTION 1. NO SHARE CERTIFICATES. Neither the Trust nor any Series or Class
shall issue certificates certifying the ownership of Shares, unless the Trustees
may otherwise specifically authorize such certificates.
SECTION 2. TRANSFER OF SHARES. Shares shall be transferable only by a transfer
recorded on the books of the Trust by the Shareholder of record in person or by
his or her duly authorized attorney or legal representative. Shares may be
freely transferred and the Trustees may, from time to time, adopt rules and
regulations regarding the method of transfer of such Shares.
ARTICLE VII
CUSTODY OF SECURITIES
SECTION 1. EMPLOYMENT OF A CUSTODIAN. The Trust shall at all times place and
maintain all cash, securities and other assets of the Trust and of each Series
in the custody of a custodian meeting the requirements set forth in Article VII,
Section 4 of the Trust Instrument ("Custodian"). The Custodian shall be
appointed from time to time by the Board of Trustees, who shall determine its
remuneration.
SECTION 2. TERMINATION OF CUSTODIAN AGREEMENT. Upon termination of any Custodian
Agreement or the inability of the Custodian to continue to serve as custodian,
in either case with respect to the Trust or any Series, the Board of Trustees
shall (a) use its best efforts to obtain a successor Custodian; and (b) require
that the cash, securities and other assets owned by the Trust or any Series be
delivered directly to the successor Custodian.
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SECTION 3. OTHER ARRANGEMENTS. The Trust may make such other arrangements for
the custody of its assets (including deposit arrangements) as may be required by
any applicable law, rule or regulation.
ARTICLE VIII
FISCAL YEAR AND ACCOUNTANT
SECTION 1. FISCAL YEAR. The fiscal year of the Trust shall end on July 31.
SECTION 2. ACCOUNTANT. The Trust shall employ independent certified public
accountants as its Accountant to examine the accounts of the Trust and to sign
and certify financial statements filed by the Trust. The Accountant's
certificates and reports shall be addressed both to the Trustees and to the
Shareholders. A majority of the Disinterested Trustees shall select the
Accountant at any meeting held within ninety days before or after the beginning
of the fiscal year of the Trust, acting upon the recommendation of the Audit
Committee. The Trust shall submit the selection for ratification or rejection at
the next succeeding Shareholders' meeting, if such a meeting is to be held
within the Trust's fiscal year. If the selection is rejected at that meeting,
the Accountant shall be selected by majority vote of the Trust's outstanding
voting securities, either at the meeting at which the rejection occurred or at a
subsequent meeting of Shareholders called for the purpose of selecting an
Accountant. The employment of the Accountant shall be conditioned upon the right
of the Trust to terminate such employment without any penalty by vote of a
Majority Shareholder Vote at any Shareholders' meeting called for that purpose.
ARTICLE IX
AMENDMENTS
SECTION 1. GENERAL. Except as provided in Section 2 of this Article, these
By-laws may be amended by the Trustees, or by the affirmative vote of a majority
of the Outstanding Shares entitled to vote at any meeting.
SECTION 2. BY SHAREHOLDERS ONLY. After the issue of any Shares, this Article may
only be amended by the affirmative vote of the holders of the lesser of (a) at
least two-thirds of the Outstanding Shares present and entitled to vote at any
meeting, or (b) at least fifty percent of the Outstanding Shares.
ARTICLE X
NET ASSET VALUE
The term "Net Asset Value" of any Series shall mean that amount by
which the assets belonging to that Series exceed its liabilities, all as
determined by or under the direction of the Trustees. Net Asset Value per Share
shall be determined separately for each Series and each Class and shall be
determined on such days and at such times as the Trustees may determine. The
Trustees shall make such determination with respect to securities for which
market quotations are readily available, at the market value of such securities,
and with respect to other
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securities and assets, at the fair value as determined in good faith by the
Trustees; provided, however, that the Trustees, without Shareholder approval,
may alter the method of appraising portfolio securities insofar as permitted
under the 1940 Act and the rules, regulations and interpretations thereof
promulgated or issued by the SEC or insofar as permitted by any order of the SEC
applicable to the Series or to the Class. The Trustees may delegate any of their
powers and duties under this Article X with respect to appraisal of assets and
liabilities. At any time the Trustees may cause the Net Asset Value per Share
last determined to be determined again in a similar manner and may fix the time
when such redetermined values shall become effective.
ARTICLE XI
INVESTMENTS
SECTION 1. INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS. The Trust and/or
each Series shall adhere to the fundamental and nonfundamental investment
objectives, policies and restrictions applicable to the Trust and/or each Series
included in the Trust's current effective registration statement as filed with
the Commission. If a percentage limitation is adhered to at the time of an
investment, a later increase or decrease in the percentage resulting from a
change in the value of the assets of a Series shall not be a violation of such
investment restrictions.
SECTION 2. AMENDMENT OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS. Any
investment objectives, policies and restrictions of the Trust or any Series
which are deemed to be fundamental may not be changed without the approval of
the holders of a majority of the Outstanding Shares of the Trust or of the
Series affected which shall mean the lesser of (i) 67% of the Shares represented
at a meeting at which more than 50% of the Outstanding Shares are present or
represented by proxy or (ii) more than 50% of the Outstanding Shares. Any
investment objectives, policies or restrictions deemed nonfundamental may be
changed by vote of the Board of Trustees.
ARTICLE XII
MISCELLANEOUS
SECTION 1. INSPECTION OF BOOKS. The Board of Trustees shall from time to time
determine whether and to what extent, and at what times and places, and under
what conditions the accounts and books of the Trust or any Series or Class shall
be open to the inspection of Shareholders. No Shareholder shall have any right
to inspect any account or book or document of the Trust except as conferred by
law or otherwise by the Board of Trustees or by resolution of Shareholders.
SECTION 2. SEVERABILITY. The provisions of these By-laws are severable. If the
Board of Trustees determine, with the advice of counsel, that any provision
hereof conflicts with the 1940 Act, the regulated investment company provisions
of the Internal Revenue Code or with other applicable laws and regulations, the
conflicting provision shall be deemed never to have constituted a part of these
By-laws; provided, however, that such determination shall not affect any of the
remaining provisions of these By-laws or render invalid or improper any action
taken or omitted prior to such determination. If any provision hereof shall be
held invalid or unenforceable in any
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jurisdiction, such invalidity or unenforceability shall attach only to such
provision only in such jurisdiction and shall not affect any other provision of
these By-laws.
SECTION 3. HEADINGS. Headings are placed in these By-laws for convenience of
reference only and in case of any conflict, the text of these By-laws rather
than the headings shall control.
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Exhibit No. 2(b)
ACTION BY UNANIMOUS WRITTEN CONSENT
OF THE BOARD OF TRUSTEES
OF
PAINEWEBBER PACE SELECT ADVISORS TRUST
A DELAWARE BUSINESS TRUST
DATED AS OF DECEMBER 31, 1998
The undersigned, being all of the members of the Board of Trustees (the
"Board") of PAINEWEBBER PACE SELECT ADVISORS TRUST, a Delaware business trust
("PACE"), hereby waive the giving of any and all notice of a meeting of the
Board and hereby unanimously consent, pursuant to the provisions of the Delaware
Business Trust Act (12 Del. Code Tit. 12 Section 3801 ET SEQ.) and the
provisions of Article X, Section 8 of PACE's Trust Instrument, to the adoption
of the following resolutions by the Board without a meeting and to the actions
authorized thereby, such actions being deemed effective as of the day and year
first above written:
WHEREAS: The Board has determined that it is in the bests interests of PACE
to amend its By-Laws to include a provision providing for the
retirement of PACE trustees.
NOW, THEREFORE, be it:
RESOLVED: Article II, Section 3 of PACE's By-Laws be, and it hereby is,
adopted in its entirety as follows:
RETIREMENT OF TRUSTEES: Each Trustee who has attained the age of
seventy-two (72) years as of December 31 of any year shall retire
from service as a Trustee on such date unless that retirement
would cause the Trust to be required to call a meeting of
Shareholders to fill the resulting vacancy on the Board of
Trustees; provided, however, that this retirement policy may be
waived on an annual basis for individual Trustees by resolution of
the Board of Trustees. Such waiver (i) may only be recommended for
board action by a Trustee not subject to retirement pursuant to
this Section 3, (ii) must be unanimously approved by all the
Trustees not subject to retirement pursuant to this Section 3 and
(iii) may include a period ending at the close of business on
December 31 of the following year. Notwithstanding anything to
this Section, any such waiver may be made
<PAGE>
for consecutive year(s) by the Board of Trustees and a Trustee may
retire at any time as provided for in the Trust Instrument.
; and further
RESOLVED: That the appropriate officers of PACE be, and each of them hereby
is, authorized and empowered to execute and deliver, in the name
and on behalf of PACE, such other agreements, certificates,
instruments and other documents, and to take all such other
actions, in each case as may be necessary, desirable or
appropriate in connection with the matters approved herein,
including, but not limited to any filings with the State of
Delaware or any other state.
This Action by Unanimous Written Consent may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Action by
Unanimous Written Consent of the Board of Trustees of PAINEWEBBER PACE SELECT
ADVISORS TRUST as of the day and year first above written.
/s/ Margo N. Alexander /s/ David J. Beaubien
- -------------------------------- ------------------------------
Margo N. Alexander David J. Beaubien
/s/ E. Garrett Bewkes, Jr. /s/ Bruce A. Bursey
- -------------------------------- ------------------------------
E. Garrett Bewkes, Jr. Bruce A. Bursey
/s/ William W. Hewitt, Jr. /s/ Morton L. Janklow
- -------------------------------- ------------------------------
William W. Hewitt, Jr. Morton L. Janklow
/s/ WILLIAM D. WHITE
- -------------------------------- ------------------------------
J. Richard Sipes William D. White
/s/ M. Cabell Woodward, Jr.
- --------------------------------
M. Cabell Woodward, Jr.
-2-
<PAGE>
Exhibit No. 4(g)
SUB-ADVISORY AGREEMENT
Agreement made as of October 4, 1999 between MITCHELL HUTCHINS ASSET
MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins"), and BRANDYWINE
ASSET MANAGEMENT, INC., a Delaware corporation ("Sub-Adviser" or "Brandywine")
(the "Agreement").
RECITALS
(1) Mitchell Hutchins has entered into a Management Agreement dated
June 15, 1995 ("Management Agreement") with PaineWebber PACE Select Advisors
Trust (formerly known as Managed Accounts Services Portfolio Trust ("Trust")),
an open-end management investment company registered under the Investment
Company Act of 1940, as amended ("1940 Act"), with respect to the PACE
SMALL/MEDIUM COMPANY VALUE EQUITY INVESTMENTS ("Portfolio") series of the Trust;
(2) Mitchell Hutchins entered into a Sub-Advisory Agreement dated as of
January 16, 1998 (the "Old Sub-Advisory Agreement") with Brandywine with respect
to the Portfolio, pursuant to which Brandywine agreed to furnish certain
investment advisory services;
(3) Mitchell Hutchins desires to allocate the portfolio investments of
the Portfolio between a small capitalization segment (the "small-cap segment")
and a medium capitalization segment, and to retain Brandywine to furnish certain
investment advisory services with respect to the small-cap segment of the
investments of the Portfolio; and
(4) Brandywine is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties agree as follows:
1. APPOINTMENT. Mitchell Hutchins hereby appoints the Sub-Adviser as an
investment sub-adviser with respect to the small-cap segment of the Portfolio's
investments for the period and on the terms set forth in this Agreement. The
Sub-Adviser accepts that appointment and agrees to render the services herein
set forth, for the compensation herein provided.
2. DUTIES AS SUB-ADVISER.
(a) Subject to the supervision and direction of the Trust's Board of
Trustees (the "Board") and review by Mitchell Hutchins, and any written
guidelines adopted by the Board or Mitchell Hutchins, the Sub-Adviser will
provide a continuous investment program with respect to the small-cap segment of
the Portfolio's investments, including investment research and management to all
securities and investments and cash equivalents in the Portfolio allocated by
Mitchell Hutchins to the small-cap segment of the Portfolio's investments. The
Sub-Adviser will determine from time to time what investments will be purchased,
retained or sold by the Portfolio
<PAGE>
in the small-cap segment of the Portfolio's investments. The Sub-Adviser will be
responsible for placing purchase and sell orders for investments and for other
related transactions with respect to the small-cap segment of the Portfolio's
investments. The Sub-Adviser will provide services under this Agreement in
accordance with the Portfolio's investment objective, policies and restrictions
as stated in the Trust's currently effective registration statement under the
1940 Act, and any amendments or supplements thereto ("Registration Statement").
(b) The Sub-Adviser agrees that, in placing orders with brokers, it
will obtain the best net result in terms of price and execution; provided that,
on behalf of the Portfolio, the Sub-Adviser may, in its discretion, use brokers
who provide the Sub-Adviser with research, analysis, advice and similar services
to execute portfolio transactions, and the Sub-Adviser may pay to those brokers
in return for brokerage and research services a higher commission than may be
charged by other brokers, subject to the Sub-Adviser's determining in good faith
that such commission is reasonable in terms either of the particular transaction
or of the overall responsibility of the Sub-Adviser to the Portfolio and its
other clients and that the total commissions paid by the Portfolio will be
reasonable in relation to the benefits to the Portfolio over the long term. In
no instance will portfolio securities be purchased from or sold to the
Sub-Adviser, or any affiliated person thereof, except in accordance with the
federal securities laws and the rules and regulations thereunder. The
Sub-Adviser may aggregate sales and purchase orders of the assets of the
Portfolio with similar orders being made simultaneously for other accounts
advised by the Sub-Adviser or its affiliates. Whenever the Sub-Adviser
simultaneously places orders to purchase or sell the same security on behalf of
the Portfolio and one or more other accounts advised by the Sub-Adviser, the
orders will be allocated as to price and amount among all such accounts in a
manner believed to be equitable over time to each account. Mitchell Hutchins
recognizes that in some cases this procedure may adversely affect the results
obtained for the Portfolio.
(c) The Sub-Adviser will maintain all books and records required to be
maintained pursuant to the 1940 Act and the rules and regulations promulgated
thereunder with respect to transactions by the Sub-Adviser on behalf of the
Portfolio, and will furnish the Board and Mitchell Hutchins with such periodic
and special reports as the Board or Mitchell Hutchins reasonably may request. In
compliance with the requirements of Rule 3la-3 under the 1940 Act, the
Sub-Adviser hereby agrees that all records that it maintains for the Portfolio
are the property of the Trust, agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act any records that it maintains for the Trust and
that are required to be maintained by Rule 3la-1 under the 1940 Act, and further
agrees to surrender promptly to the Trust any records that it maintains for the
Portfolio upon request by the Trust.
(d) At such times as shall be reasonably requested by the Board or
Mitchell Hutchins, the Sub-Adviser will provide the Board and Mitchell Hutchins
with economic and investment analyses and reports as well as quarterly reports
setting forth the performance of the small-cap segment of the Portfolio's
investments and make available to the Board and Mitchell Hutchins any economic,
statistical and investment services that the Sub-Adviser normally makes
available to its institutional or other customers.
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(e) In accordance with procedures adopted by the Board, as amended from
time to time, the Sub-Adviser is responsible for assisting in the fair valuation
of all portfolio securities and will use its reasonable efforts to arrange for
the provision of a price(s) from a party(ies) independent of the Sub-Adviser for
each portfolio security for which the custodian does not obtain prices in the
ordinary course of business from an automated pricing service.
3. FURTHER DUTIES. In all matters relating to the performance of this
Agreement, the Sub-Adviser will act in conformity with the Trust's Trust
Instrument, By-Laws and Registration Statement and with the written instructions
and written directions of the Board and Mitchell Hutchins and will comply with
the applicable requirements of the 1940 Act, the Investment Advisers Act of
1940, as amended ("Advisers Act"), the rules under each, Subchapter M of the
Internal Revenue Code as applicable to regulated investment companies, and all
other applicable federal and state laws and regulations. Mitchell Hutchins
agrees to provide to the Sub-Adviser copies of the Trust's Trust Instrument,
By-Laws, Registration Statement, written instructions and directions of the
Board and Mitchell Hutchins, and any amendments or supplements to any of these
materials as soon as practicable after such materials become available;
PROVIDED, HOWEVER, that the Sub-Adviser's duty under this Agreement to act in
conformity with any document, instruction or guideline produced by the Trust or
Mitchell Hutchins shall not arise until it has been delivered to the
Sub-Adviser. Any changes to the objectives, policies and restrictions will make
due allowance for the time within which the Sub-Adviser shall have to come into
compliance.
4. EXPENSES. During the term of this Agreement, the Sub-Adviser will
bear all expenses incurred by it in connection with its services under this
Agreement. The Sub-Adviser shall not be responsible for any expenses incurred by
the Trust, the Portfolio or Mitchell Hutchins.
5. COMPENSATION.
(a) For the services provided and the expenses assumed by the
Sub-Adviser pursuant to this Agreement, Mitchell Hutchins, not the Portfolio,
will pay to the Sub-Adviser a fee, computed daily and payable monthly, at an
annual rate of .30% of the Portfolio's average daily net assets allocated to its
management (computed in the manner specified in the Management Agreement), and
will provide the Sub-Adviser with a schedule showing the manner in which the fee
was computed. Under this fee arrangement, the Sub- Adviser will receive fees
based on the value of portfolio assets under its management as these assets have
been allocated to it by, Mitchell Hutchins.
(b) The fee shall be computed daily and payable monthly to the
Sub-Adviser on or before the last business day of the next succeeding calendar
month.
(c) For those periods in which Mitchell Hutchins has agreed to waive
all or a portion of its management fee, Mitchell Hutchins may ask the
Sub-Adviser to waive the same proportion of its fees, but the Sub-Adviser is
under no obligation to do so.
3
<PAGE>
(d) If this Agreement becomes effective or terminates before the end of
any month, the fee for the period from the effective date to the end of the
month or from the beginning of such month to the date of termination, as the
case may be, shall be prorated according to the proportion which such period
bears to the full month in which such effectiveness or termination occurs.
6. LIMITATION OF LIABILITY. The Sub-Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Portfolio,
the Trust or its shareholders or by Mitchell Hutchins in connection with the
matters to which this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement. Nothing in this paragraph shall be deemed a limitation or waiver of
any obligation or duty that may not by law be limited or waived.
7. REPRESENTATIONS OF SUB-ADVISER. The Sub-Adviser represents, warrants
and agrees as follows:
(a) The Sub-Adviser (i) is registered as an investment adviser under
the Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect; (ii) is not prohibited by the 1940 Act or the
Advisers Act, from performing the services contemplated by this Agreement; (iii)
has met, and will seek to continue to meet for so long as this Agreement remains
in effect, any other applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency necessary to
be met in order to perform the services contemplated by this Agreement; (iv) has
the authority to enter into and perform the services contemplated by this
Agreement; and (v) will promptly notify Mitchell Hutchins of the occurrence of
any event that would disqualify the Sub-Adviser from serving as an investment
adviser of an investment company pursuant to Section 9(a) of the 1940 Act or
otherwise.
(b) The Sub-Adviser has adopted a written code of ethics complying with
the requirements of Rule 17j-1 under the 1940 Act and will provide Mitchell
Hutchins and the Board with a copy of such code of ethics, together with
evidence of its adoption. Within fifteen days of the end of the last calendar
quarter of each year that this Agreement is in effect, the president or a
vice-president of the Sub-Adviser shall certify to Mitchell Hutchins that the
Sub-Adviser has complied with the requirements of Rule 17j-1 during the previous
year and that there has been no violation of the Sub-Adviser's code of ethics
or, if such a violation has occurred, that appropriate action was taken in
response to such violation. Upon the written request of Mitchell Hutchins, the
Sub-Adviser shall permit Mitchell Hutchins, its employees or its agents or the
appropriate regulatory authority to examine the reports required to be made to
the Sub-Adviser by Rule l7j-1(c) (1) and all other records relevant to the
Sub-Adviser's code of ethics.
(c) The Sub-Adviser has provided Mitchell Hutchins with a copy of its
Form ADV as most recently filed with the Securities and Exchange Commission
("SEC") and promptly will furnish a copy of all amendments to Mitchell Hutchins
at least annually.
4
<PAGE>
(d) The Sub-Adviser will notify Mitchell Hutchins of any change of
control of the Sub-Adviser, including any change of its general partners or 25%
shareholders, as applicable, and any changes in the key personnel who are either
the portfolio manager(s) of the Portfolio or senior management of the
Sub-Adviser, in each case prior to or promptly after such change.
(e) The Sub-Adviser agrees that neither it nor any of its affiliates
will in any way refer directly or indirectly to its relationship with the Trust,
the Portfolio, Mitchell Hutchins or any of their respective affiliates in
offering, marketing or other promotional materials without the express written
consent of Mitchell Hutchins.
8. SERVICES NOT EXCLUSIVE. The Sub-Adviser may act as an investment
adviser to any other person, firm or corporation, and may perform management and
any other services for any other person, association, corporation, firm or other
entity pursuant to any contract or otherwise, and take any action or do anything
in connection therewith or related thereto, except as prohibited by applicable
law; and no such performance of management or other services or taking of any
such action or doing of any such thing shall be in any manner restricted or
otherwise affected by any aspect of any relationship of the Sub-Adviser to or
with the Trust, Portfolio or Mitchell Hutchins or deemed to violate or give rise
to any duty or obligation of the Sub-Adviser to the Trust, Portfolio or Mitchell
Hutchins except as otherwise imposed by law or by this Agreement.
9. DURATION AND TERMINATION.
(a) This Agreement shall become effective upon the date first above
written, provided that this Agreement shall not take effect unless it has first
been approved (i) by a vote of a majority of those trustees of the Trust who are
not parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by vote of a majority of the Portfolio's outstanding voting securities.
(b) Unless sooner terminated as provided herein, this Agreement shall
continue in effect for one year from its effective date. Thereafter, if not
terminated, this Agreement shall continue for successive periods of twelve
months each, provided that such continuance is specifically approved at least
annually (i) by a vote of a majority of those trustees of the Trust who are not
parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Board or by vote of a majority of the outstanding voting securities of
the Portfolio.
(c) Notwithstanding the foregoing, this Agreement may be terminated at
any time, without the payment of any penalty, by vote of the Board or by a vote
of a majority of the outstanding voting securities of the Portfolio on 60 days'
written notice to the Sub-Adviser. This Agreement may also be terminated,
without the payment of any penalty, by Mitchell Hutchins: (i) upon 120 days'
written notice to the Sub-Adviser; (ii) immediately upon material breach by the
Sub-Adviser of any of the representations, warranties and agreements set forth
in Paragraph 7 of this Agreement; or (iii) immediately if, in the reasonable
judgment of Mitchell Hutchins, the Sub-Adviser becomes unable to discharge its
duties and obligations under this Agreement, including circumstances such as
financial insolvency of the Sub-Adviser or other circumstances
5
<PAGE>
that could adversely affect the Portfolio. The Sub-Adviser may terminate this
Agreement at any time, without the payment of any penalty, on 120 days' written
notice to Mitchell Hutchins. This Agreement will terminate automatically in the
event of its assignment or upon termination of the Management Agreement.
10. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No amendment of this Agreement shall be
effective until approved (i) by a vote of a majority of those trustees of the
Trust who are not parties to this Agreement or interested persons of any such
party, and (ii) if the terms of this Agreement shall have changed, by a vote of
a majority of the Portfolio's outstanding voting securities (except in the case
of (ii), pursuant to the terms and conditions of the SEC order permitting it to
modify the Agreement without such vote).
11. GOVERNING LAW. This Agreement shall be construed in accordance with
the 1940 Act and the laws of the State of Delaware, without giving effect to the
conflicts of laws principles thereof. To the extent that the applicable laws of
the State of Delaware conflict with the applicable provisions of the 1940 Act,
the latter shall control.
12. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors. As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"affiliated person," "interested person," "assignment," "broker," "investment
adviser," "net assets," "sale," "sell" and "security" shall have the same
meanings as such terms have in the 1940 Act, subject to such exemption as may be
granted by the SEC by any rule, regulation or order. Where the effect of a
requirement of the federal securities laws reflected in any provision of this
Agreement is made less restrictive by a rule, regulation or order of the SEC,
whether of special or general application, such provision shall be deemed to
incorporate the effect of such rule, regulation or order. This Agreement may be
signed in counterpart.
13. NOTICES. Any written notice herein required to be given to the
Sub-Adviser or Mitchell Hutchins shall be deemed to have been given upon receipt
of the same at their respective addresses set forth below.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized signatories as of the date and year first
above written.
Attest: MITCHELL HUTCHINS ASSET MANAGEMENT INC.
51 West 52nd Street
New York, New York 10019
/s/ Andrew S. Novak By: /s/ Dianne E. O'Donnell
- ------------------------------ ----------------------------
Andrew S. Novak Name: Dianne E. O'Donnell
Vice President Title: Senior Vice President
Attest: BRANDYWINE ASSET MANAGEMENT, INC.
Three Christina Centre
Suite 1200
201 N. Walnut Street
Wilmington, Delaware 19801
By: /s/ Steven M. Tonkovich
---------------------------
Name: Steven M. Tonkovich
Title: Managing Director
7
<PAGE>
Exhibit No. 4(h)
SUB-ADVISORY AGREEMENT
Agreement made as of October 4, 1999 between MITCHELL HUTCHINS ASSET
MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins"), and ARIEL CAPITAL
MANAGEMENT, INC., an Illinois corporation ("Sub-Adviser" or "Ariel") (the
"Agreement").
RECITALS
(1) Mitchell Hutchins has entered into a Management Agreement dated June
15, 1995 ("Management Agreement") with PaineWebber PACE Select Advisors Trust
(formerly known as Managed Accounts Services Portfolio Trust ("Trust"), an
open-end management investment company registered under the Investment Company
Act of 1940, as amended ("1940 Act"), with respect to the PACE SMALL/MEDIUM
COMPANY VALUE EQUITY INVESTMENTS ("Portfolio") series of the Trust;
(2) Mitchell Hutchins desires to allocate the portfolio investments of
the Portfolio between a small capitalization segment and a medium capitalization
segment (the "mid-cap segment"), and to retain the Sub-Adviser to furnish
certain investment advisory services with respect to the mid-cap segment of the
investments of the Portfolio; and
(3) The Sub-Adviser is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties agree as follows:
1. APPOINTMENT. Mitchell Hutchins hereby appoints the Sub-Adviser as an
investment sub-adviser with respect to the mid-cap segment of the Portfolio's
investments for the period and on the terms set forth in this Agreement. The
Sub-Adviser accepts that appointment and agrees to render the services herein
set forth, for the compensation herein provided.
2. DUTIES AS SUB-ADVISER.
(a) Subject to the supervision and direction of the Trust's Board of
Trustees (the "Board") and review by Mitchell Hutchins, and any written
guidelines adopted by the Board or Mitchell Hutchins, the Sub-Adviser will
provide a continuous investment program with respect to the mid-cap segment of
the Portfolio's investments, including investment research and management to all
securities and investments and cash equivalents in the Portfolio allocated by
Mitchell Hutchins to the mid-cap segment of the Portfolio's investments. The
Sub-Adviser will determine from time to time what investments will be purchased,
retained or sold by the Portfolio in the mid-cap segment of the Portfolio's
investments. The Sub-Adviser will be responsible for placing purchase and sell
orders for investments and for other related transactions with respect to the
mid-cap segment of the Portfolio's investments. The Sub-Adviser will
<PAGE>
provide services under this Agreement in accordance with the Portfolio's
investment objective, policies and restrictions as stated in the Trust's
currently effective registration statement under the 1940 Act, and any
amendments or supplements thereto ("Registration Statement").
(b) The Sub-Adviser agrees that, in placing orders with brokers, it
will obtain the best net result in terms of price and execution; provided that,
on behalf of the Portfolio, the Sub-Adviser may, in its discretion, use brokers
who provide the Sub-Adviser with research, analysis, advice and similar services
to execute portfolio transactions, and the Sub-Adviser may pay to those brokers
in return for brokerage and research services a higher commission than may be
charged by other brokers, subject to the Sub-Adviser's determining in good faith
that such commission is reasonable in terms either of the particular transaction
or of the overall responsibility of the Sub-Adviser to the Portfolio and its
other clients and that the total commissions paid by the Portfolio will be
reasonable in relation to the benefits to the Portfolio over the long term. In
no instance will portfolio securities be purchased from or sold to the
Sub-Adviser, or any affiliated person thereof, except in accordance with the
federal securities laws and the rules and regulations thereunder. The
Sub-Adviser may aggregate sales and purchase orders of the assets of the
Portfolio with similar orders being made simultaneously for other accounts
advised by the Sub-Adviser or its affiliates. Whenever the Sub-Adviser
simultaneously places orders to purchase or sell the same security on behalf of
the Portfolio and one or more other accounts advised by the Sub-Adviser, the
orders will be allocated as to price and amount among all such accounts in a
manner believed to be equitable over time to each account. Mitchell Hutchins
recognizes that in some cases this procedure may adversely affect the results
obtained for the Portfolio.
(c) The Sub-Adviser will maintain all books and records required to be
maintained pursuant to the 1940 Act and the rules and regulations promulgated
thereunder with respect to transactions by the Sub-Adviser on behalf of the
Portfolio, and will furnish the Board and Mitchell Hutchins with such periodic
and special reports as the Board or Mitchell Hutchins reasonably may request. In
compliance with the requirements of Rule 3la-3 under the 1940 Act, the
Sub-Adviser hereby agrees that all records that it maintains for the Portfolio
are the property of the Trust, agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act any records that it maintains for the Trust and
that are required to be maintained by Rule 31a-l under the 1940 Act, and further
agrees to surrender promptly to the Trust any records that it maintains for the
Portfolio upon request by the Trust.
(d) At such times as shall be reasonably requested by the Board or
Mitchell Hutchins, the Sub-Adviser will provide the Board and Mitchell Hutchins
with economic and investment analyses and reports as well as quarterly reports
setting forth the performance of the mid-cap segment of the Portfolio's
investments and make available to the Board and Mitchell Hutchins any economic,
statistical and investment services that the Sub-Adviser normally makes
available to its institutional or other customers.
(e) In accordance with procedures adopted by the Board, as amended from
time to time, the Sub-Adviser is responsible for assisting in the fair valuation
of all portfolio securities
-2-
<PAGE>
and will use its reasonable efforts to arrange for the provision of a price(s)
from a party(ies) independent of the Sub-Adviser for each portfolio security for
which the custodian does not obtain prices in the ordinary course of business
from an automated pricing service.
3. FURTHER DUTIES. In all matters relating to the performance of this
Agreement, the Sub-Adviser will act in conformity with the Trust's Trust
Instrument, By-Laws and Registration Statement and with the written instructions
and written directions of the Board and Mitchell Hutchins and will comply with
the applicable requirements of the 1940 Act, the Investment Advisers Act of
1940, as amended ("Advisers Act"), the rules under each, Subchapter M of the
Internal Revenue Code as applicable to regulated investment companies, and all
other applicable federal and state laws and regulations. Mitchell Hutchins
agrees to provide to the Sub-Adviser copies of the Trust's Trust Instrument,
By-Laws, Registration Statement, written instructions and directions of the
Board and Mitchell Hutchins, and any amendments or supplements to any of these
materials as soon as practicable after such materials become available;
PROVIDED, HOWEVER, that the Sub-Adviser's duty under this Agreement to act in
conformity with any document, instruction or guideline produced by the Trust or
Mitchell Hutchins shall not arise until it has been delivered to the
Sub-Adviser. Any changes to the objectives, policies and restrictions will make
due allowance for the time within which the Sub-Adviser shall have to come into
compliance.
4. EXPENSES. During the term of this Agreement, the Sub-Adviser will
bear all expenses incurred by it in connection with its services under this
Agreement. The Sub-Adviser shall not be responsible for any expenses incurred by
the Trust, the Portfolio or Mitchell Hutchins.
5. COMPENSATION.
(a) For the services provided and the expenses assumed by the
Sub-Adviser pursuant to this Agreement, Mitchell Hutchins, not the Portfolio,
will pay to the Sub-Adviser a fee, computed daily and payable monthly, at an
annual rate of .30% of the Portfolio's average daily net assets allocated to its
management (computed in the manner specified in the Management Agreement), and
will provide the Sub-Adviser with a schedule showing the manner in which the fee
was computed. Under this fee arrangement, the Sub-Adviser will receive fees
based on the value of portfolio assets under its management as these assets have
been allocated to it by Mitchell Hutchins.
(b) The fee shall be computed daily and payable monthly to the
Sub-Adviser on or before the last business day of the next succeeding calendar
month.
(c) For those periods in which Mitchell Hutchins has agreed to waive
all or a portion of its management fee, Mitchell Hutchins may ask the
Sub-Adviser to waive the same proportion of its fees, but the Sub-Adviser is
under no obligation to do so.
-3-
<PAGE>
(d) If this Agreement becomes effective or terminates before the end of
any month, the fee for the period from the effective date to the end of the
month or from the beginning of such month to the date of termination, as the
case may be, shall be prorated according to the proportion which such period
bears to the full month in which such effectiveness or termination occurs.
6. LIMITATION OF LIABILITY. The Sub-Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Portfolio,
the Trust or its shareholders or by Mitchell Hutchins in connection with the
matters to which this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement. Nothing in this paragraph shall be deemed a limitation or waiver of
any obligation or duty that may not by law be limited or waived.
7. REPRESENTATIONS OF SUB-ADVISER. The Sub-Adviser represents, warrants
and agrees as follows:
(a) The Sub-Adviser (i) is registered as an investment adviser under
the Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect; (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Agreement; (iii)
has met, and will seek to continue to meet for so long as this Agreement remains
in effect, any other applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency necessary to
be met in order to perform the services contemplated by this Agreement; (iv) has
the authority to enter into and perform the services contemplated by this
Agreement; and (v) will promptly notify Mitchell Hutchins of the occurrence of
any event that would disqualify the Sub-Adviser from serving as an investment
adviser of an investment company pursuant to Section 9(a) of the 1940 Act or
otherwise.
(b) The Sub-Adviser has adopted a written code of ethics complying with
the requirements of Rule 17j-1 under the 1940 Act and will provide Mitchell
Hutchins and the Board with a copy of such code of ethics, together with
evidence of its adoption. Within fifteen days of the end of the last calendar
quarter of each year that this Agreement is in effect, the president or a
vice-president of the Sub-Adviser shall certify to Mitchell Hutchins that the
Sub-Adviser has complied with the requirements of Rule 17j-1 during the previous
year and that there has been no violation of the Sub-Adviser's code of ethics
or, if such a violation has occurred, that appropriate action was taken in
response to such violation. Upon the written request of Mitchell Hutchins, the
Sub-Adviser shall permit Mitchell Hutchins, its employees or its agents or the
appropriate regulatory authority to examine the reports required to be made to
the Sub-Adviser by Rule 17j-1 (c) (1) and all other records relevant to the
Sub-Adviser's code of ethics.
-4-
<PAGE>
(c) The Sub-Adviser has provided Mitchell Hutchins with a copy of its
Form ADV as most recently filed with the Securities and Exchange Commission
("SEC") and promptly will furnish a copy of all amendments to Mitchell Hutchins
at least annually.
(d) The Sub-Adviser will notify Mitchell Hutchins of any change of
control of the Sub-Adviser, including any change of its general partners or 25%
shareholders, as applicable, and any changes in the key personnel who are either
the portfolio manager(s) of the Portfolio or senior management of the
Sub-Adviser, in each case prior to or promptly after such change.
(e) The Sub-Adviser agrees that neither it nor any of its affiliates
will in any way refer directly or indirectly to its relationship with the Trust,
the Portfolio, Mitchell Hutchins or any of their respective affiliates in
offering, marketing or other promotional materials without the express written
consent of Mitchell Hutchins.
8. SERVICES NOT EXCLUSIVE. The Sub-Adviser may act as an investment
adviser to any other person, firm or corporation, and may perform management and
any other services for any other person, association, corporation, firm or other
entity pursuant to any contract or otherwise, and take any action or do anything
in connection therewith or related thereto, except as prohibited by applicable
law; and no such performance of management or other services or taking of any
such action or doing of any such thing shall be in any manner restricted or
otherwise affected by any aspect of any relationship of the Sub-Adviser to or
with the Trust, Portfolio or Mitchell Hutchins or deemed to violate or give rise
to any duty or obligation of the Sub-Adviser to the Trust, Portfolio or Mitchell
Hutchins except as otherwise imposed by law or by this Agreement.
9. DURATION AND TERMINATION.
(a) This Agreement shall become effective upon the date first above
written, provided that this Agreement shall not take effect unless it has first
been approved (i) by a vote of a majority of those trustees of the Trust who are
not parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by vote of a majority of the Portfolio's outstanding voting securities.
(b) Unless sooner terminated as provided herein, this Agreement shall
continue in effect for two years from its effective date. Thereafter, if not
terminated, this Agreement shall continue for successive periods of twelve
months each, provided that such continuance is specifically approved at least
annually (i) by a vote of a majority of those trustees of the Trust who are not
parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Board or by vote of a majority of the outstanding voting securities of
the Portfolio.
(c) Notwithstanding the foregoing, this Agreement may be terminated at
any time, without the payment of any penalty, by vote of the Board or by a vote
of a majority of the
-5-
<PAGE>
outstanding voting securities of the Portfolio on 60 days' written notice to the
Sub-Adviser. This Agreement may also be terminated, without the payment of any
penalty, by Mitchell Hutchins: (i) upon 120 days' written notice to the
Sub-Adviser; (ii) immediately upon material breach by the Sub-Adviser of any of
the representations, warranties and agreements set forth in Paragraph 7 of this
Agreement; or (iii) immediately if, in the reasonable judgment of Mitchell
Hutchins, the Sub-Adviser becomes unable to discharge its duties and obligations
under this Agreement, including circumstances such as financial insolvency of
the Sub-Adviser or other circumstances that could adversely affect the
Portfolio. The Sub-Adviser may terminate this Agreement at any time, without the
payment of any penalty, on 120 days' written notice to Mitchell Hutchins. This
Agreement will terminate automatically in the event of its assignment or upon
termination of the Management Agreement.
10. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No amendment of this Agreement shall be
effective until approved (i) by a vote of a majority of those trustees of the
Trust who are not parties to this Agreement or interested persons of any such
party, and (ii) if the terms of this Agreement shall have changed, by a vote of
a majority of the Portfolio's outstanding voting securities (except in the case
of (ii), pursuant to the terms and conditions of the SEC order permitting it to
modify the Agreement without such vote).
11. GOVERNING LAW. This Agreement shall be construed in accordance with
the 1940 Act and the laws of the State of Delaware, without giving effect to the
conflicts of laws principles thereof. To the extent that the applicable laws of
the State of Delaware conflict with the applicable provisions of the 1940 Act,
the latter shall control.
12. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors. As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"affiliated person," "interested person," "assignment," "broker," "investment
adviser," "net assets," "sale," "sell" and "security" shall have the same
meanings as such terms have in the 1940 Act, subject to such exemption as may be
granted by the SEC by any rule, regulation or order. Where the effect of a
requirement of the federal securities laws reflected in any provision of this
Agreement is made less restrictive by a rule, regulation or order of the SEC,
whether of special or general application, such provision shall be deemed to
incorporate the effect of such rule, regulation or order. This Agreement may be
signed in counterpart.
13. NOTICES. Any written notice herein required to be given to the
Sub-Adviser or Mitchell Hutchins shall be deemed to have been given upon receipt
of the same at their respective addresses set forth below.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized signatories as of the date and year first
above written.
Attest: MITCHELL HUTCHINS ASSET MANAGEMENT INC.
51 West 52nd Street
New York, New York 10019
/s/ Andrew S. Novak By: /s/ Dianne E. O'Donnell
- ---------------------------- --------------------------------
Andrew S. Novak Name: Dianne E. O'Donnell
Vice President Title: Senior Vice President
Attest: ARIEL CAPITAL MANAGEMENT, INC.
307 North Michigan Avenue
Suite 500
Chicago, Illinois 60601
/s/ James W. Atkinson By: /s/ Mellody Hobson
- ---------------------------- --------------------------------
James W. Atkinson Name: Mellody Hobson
Executive Vice President Title: Senior Vice President
-7-
<PAGE>
Exhibit No. 7
CUSTODIAN CONTRACT
Between
MANAGED ACCOUNT SERVICES PORTFOLIO TRUST
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Employment of Custodian and Property to be Held by It....................................................1
2. Duties of the Custodian with Respect to Property of the Fund Held By
the Custodian in the United States.......................................................................2
2.1 Holding Investments.............................................................................2
2.2 Delivery of Securities..........................................................................2
2.3 Registration of Securities......................................................................4
2.4 Bank Accounts...................................................................................4
2.5 Availability of Federal Funds...................................................................5
2.6 Collection of Income............................................................................5
2.7 Payment of Fund Monies..........................................................................5
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.............................7
2.9 Appointment of Agents...........................................................................7
2.10 Deposit of Fund Assets in Securities System.....................................................7
2.11 Fund Assets Held in the Custodian's Direct Paper System.........................................8
2.12 Segregated Account..............................................................................9
2.13 Ownership Certificates for Tax Purposes........................................................10
2.14 Proxies........................................................................................10
2.15 Communications Relating to Portfolio Securities................................................10
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States............................................................................11
3.1 Appointment of Foreign Sub-Custodians..........................................................11
3.2 Assets to be Held..............................................................................11
3.3 Foreign Securities Systems.....................................................................11
3.4 Holding Securities.............................................................................11
3.5 Agreements with Foreign Banking Institutions...................................................12
3.6 Access of Independent Accountants of the Fund..................................................12
3.7 Reports by Custodian...........................................................................12
3.8 Transactions in Foreign Custody Account........................................................12
3.9 Liability of Foreign Sub-Custodians............................................................13
3.10 Liability of Custodian.........................................................................13
3.11 Monitoring Responsibilities....................................................................14
3.12 Branches of U.S. Banks.........................................................................14
3.13 Tax Law........................................................................................14
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund..................................15
5. Proper Instructions.....................................................................................15
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6. Actions Permitted without Express Authority.............................................................16
7. Evidence of Authority...................................................................................16
8. Duties of Custodian With Respect to the Books of Account and Calculation of Net Asset
Value and Net Income....................................................................................17
9. Records.................................................................................................17
10. Opinion of Fund's Independent Accountants...............................................................17
11. Reports to Fund by Independent Public Accountants.......................................................17
12. Compensation of Custodian...............................................................................18
13. Responsibility of Custodian.............................................................................18
14. Mitigation by Custodian.................................................................................19
15. Notification of Litigation; Right to Proceed............................................................19
16. Effective Period, Termination and Amendment.............................................................20
17. Successor Custodian.....................................................................................21
18. Interpretive and Additional Provisions..................................................................21
19. Additional Funds........................................................................................22
20. Massachusetts Law to Apply..............................................................................22
21. Limitation of Trustee, Officer and Shareholder Liability................................................22
22. No Liability of Other Portfolios........................................................................22
23. Confidentiality.........................................................................................22
24. Assignment..............................................................................................22
25. Severability............................................................................................23
26. Prior Contracts.........................................................................................23
27. Shareholder Communications Election.....................................................................23
</TABLE>
<PAGE>
CUSTODIAN CONTRACT
This Contract between Managed Accounts Services Portfolio Trust, a
business trust organized and existing under the laws of Massachusetts, having
its principal place of business at 1285 Avenue of the Americas, New York, New
York, 10019 hereinafter called the "Fund" and State Street Bank and Trust
Company, a Massachusetts trust company, having its principal place of business
at 225 Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian".
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in the twelve
series listed on Schedule A attached hereto (such series together with all other
series subsequently established by the Fund and made subject to this Contract in
accordance with Article 19, being herein referred to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Declaration of
Trust. The Fund on behalf of the Portfolio(s) agrees to deliver to the Custodian
all securities and cash of the Portfolios, and all payments of income, payments
of principal or capital distributions received by it with respect to all
securities owned by the Portfolio(s) from time to time, and the cash
consideration received by it for such new or treasury shares of beneficial
interest of the Fund representing interests in the Portfolios, ("Shares") as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of a Portfolio held or received by the Portfolio and not delivered
to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall on behalf of the applicable Portfolio(s) from time to
time employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Trustees of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule B hereto but only in accordance with the provisions of Article 3.
<PAGE>
2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD BY
THE CUSTODIAN IN THE UNITED STATES
2.1 HOLDING INVESTMENTS. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property, to be held by
it in the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities depository
or in a book-entry system authorized by the U.S. Department of the
Treasury and certain federal agencies, (each, a "U.S. Securities
System") and (b) commercial paper of an issuer for which State Street
Bank and Trust Company acts as issuing and paying agent ("Direct
Paper") which is deposited and/or maintained in the Direct Paper System
of the Custodian (the "Direct Paper System") pursuant to Section 2.11.
2.2 DELIVERY OF SECURITIES. The Custodian shall release and deliver
domestic securities owned by a Portfolio held by the Custodian or in a
Securities System account of the Custodian or in the Custodian's Direct
Paper book entry system account ("Direct Paper System Account") only
upon receipt of Proper Instructions from the Fund on behalf of the
applicable Portfolio, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio
and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or
nominees of the Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.9 or into the name
or nominee name of any sub-custodian appointed pursuant to
Article 1; or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate
face amount or number of units; PROVIDED that, in any such
case, the new securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street
2
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delivery" custom; provided that in any such case, the
Custodian shall have no responsibility or liability for any
loss arising from the delivery of such securities prior to
receiving payment for such securities except as may arise from
the Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Fund on behalf of the Portfolio, BUT ONLY against
receipt of adequate collateral as agreed upon from time to
time by the Custodian and the Fund on behalf of the Portfolio,
which may be in the form of cash or obligations issued by the
United States government, its agencies or instrumentalities,
except that in connection with any loans for which collateral
is to be credited to the Custodian's account in the book-entry
system authorized by the U.S. Department of the Treasury, the
Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Fund on behalf of the Portfolio requiring a pledge of
assets by the Fund on behalf of the Portfolio, BUT ONLY
against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian, and a Futures Commission Merchant registered under
the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or organizations,
regarding account deposits in connection with transactions by
the Portfolio of the Fund;
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14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, as may be described from time to time
in the currently effective prospectus and statement of
additional information of the Fund, related to the Portfolio
("Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
15) For any other proper corporate purpose, BUT ONLY upon receipt
of, in addition to Proper Instructions from the Fund on behalf
of the applicable Portfolio, a certified copy of a resolution
of the Board of Trustees or of the Executive Committee signed
by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities of the
Portfolio to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or persons to
whom delivery of such securities shall be made.
2.3 REGISTRATION OF SECURITIES. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, UNLESS the Fund has authorized
in writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as
the Portfolio, or in the name or nominee name of any agent appointed
pursuant to Section 2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted
by the Custodian on behalf of the Portfolio under the terms of this
Contract shall be in "street name" or other good delivery form. If,
however, the Fund directs the Custodian to maintain securities in
"street name", the Custodian shall utilize its best efforts only to
timely collect income due the Fund on such securities and to notify the
Fund on a best efforts basis only of relevant corporate actions
including, without limitation, pendency of calls, maturities, tender or
exchange offers.
2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, which shall contain only property held by the Custodian as
custodian for the applicable Portfolio, subject only to draft or order
by the Custodian acting pursuant to the terms of this Contract, and
shall hold in such account or accounts, subject to the provisions
hereof, all cash received by it from or for the account of the
Portfolio, other than cash maintained by the Portfolio in a bank
account established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940. Funds held by the Custodian for a
Portfolio may be deposited by it to its credit as Custodian in the
Banking Department of the Custodian or in such other banks or trust
companies as it may in its discretion deem necessary or desirable;
PROVIDED, however, that every such bank or trust company shall be
qualified to act as a custodian under the Investment Company Act of
1940 and that each such bank or trust company and the funds to be
deposited with each such bank or trust company shall on behalf of each
applicable Portfolio be approved by vote of a majority of the Board of
4
<PAGE>
Trustees of the Fund. Such funds shall be deposited by the Custodian in
its capacity as Custodian and shall be withdrawable by the Custodian
only in that capacity.
2.5 AVAILABILITY OF FEDERAL FUNDS. Upon mutual agreement between the Fund
on behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf
of a Portfolio, make federal funds available to such Portfolio as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Shares of
such Portfolio which are deposited into the Portfolio's account.
2.6 COLLECTION OF INCOME. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which
each Portfolio shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely basis all income
and other payments with respect to bearer domestic securities if, on
the date of payment by the issuer, such securities are held by the
Custodian or its agent thereof and shall credit such income, as
collected, to such Portfolio's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring presentation as
and when they become due and shall collect interest when due on
securities held hereunder. Income due each Portfolio on securities
loaned pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of the income to
which the Portfolio is properly entitled.
2.7 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a
Securities System, in accordance with the conditions set forth
in Section 2.10 hereof, (c) in the case of a purchase
involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.11; (d) in the case of
repurchase agreements entered into between the Fund on behalf
of the Portfolio and the Custodian, or another bank, or a
broker-dealer which is a member of
5
<PAGE>
NASD, (i) against delivery of the securities either in
certificate form or through an entry crediting the Custodian's
account at the Federal Reserve Bank with such securities or
(ii) against delivery of the receipt evidencing purchase by
the Portfolio of securities owned by the Custodian along with
written evidence of the agreement by the Custodian to
repurchase such securities from the Portfolio or (e) for
transfer to a time deposit account of the Fund in any bank,
whether domestic or foreign; such transfer may be effected
prior to receipt of a confirmation from a broker and/or the
applicable bank pursuant to Proper Instructions from the Fund
as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including, but not limited to the following
payments for the account of the Portfolio: interest, taxes,
management, accounting, transfer agent and legal fees, and
operating expenses of the Fund whether or not such expenses
are to be in whole or part capitalized or treated as deferred
expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short; and
7) For any other proper purpose, BUT ONLY upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee of the Fund signed by
an officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be
made, declaring such purpose to be a proper purpose, and
naming the person or persons to whom such payment is to be
made.
2.8 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by
the Custodian.
2.9 APPOINTMENT OF AGENTS. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified
6
<PAGE>
under the Investment Company Act of 1940, as amended, to act as a
custodian, as its agent to carry out such of the provisions of this
Article 2 as the Custodian may from time to time direct; PROVIDED,
however, that the appointment of any agent shall not relieve the
Custodian of its responsibilities or liabilities hereunder. In the
event of any loss, damage or expense suffered or incurred by the Fund
or a Portfolio caused by or resulting from the negligence or willful
misconduct of any agent appointed by the Custodian pursuant to this
Section 2.9, the Custodian shall promptly reimburse the Fund or the
applicable Portfolio in the amount of such loss, damage or expense.
2.10 DEPOSIT OF FUND ASSETS IN SECURITIES SYSTEM. The Custodian may deposit
and/or maintain securities owned by a Portfolio in a clearing agency
registered with the Securities and Exchange Commission under Section
17A of the Securities Exchange Act of 1934, which acts as a securities
depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively
referred to herein as "U.S. Securities Systems" in accordance with
applicable Federal Reserve Board and Securities and Exchange Commission
rules and regulations, if any, and subject to the following provisions:
1) The Custodian may keep securities of the Portfolio in a U.S.
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in the
U.S. Securities System which shall not include any assets of
the Custodian other than assets held as a fiduciary, custodian
or otherwise for customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System
shall identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for securities purchased for the
account of the Portfolio upon (i) receipt of advice from the
U.S. Securities System that such securities have been
transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such payment and
transfer for the account of the Portfolio. The Custodian shall
transfer securities sold for the account of the Portfolio upon
(i) receipt of advice from the U.S. Securities System that
payment for such securities has been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account
of the Portfolio. Copies of all advices from the U.S.
Securities System of transfers of securities for the account
of the Portfolio shall identify the Portfolio, be maintained
for the Portfolio by the Custodian and be provided to the Fund
at its request. Upon request, the Custodian shall furnish the
Fund on behalf of the Portfolio confirmation of each transfer
to or from the account of the Portfolio in the form of a
written advice or notice and shall furnish to the Fund on
behalf of the Portfolio copies of daily transaction sheets
reflecting each day's transactions in the U.S. Securities
System for the account of the Portfolio;
7
<PAGE>
4) The Custodian shall provide the Fund for the Portfolio with
any report obtained by the Custodian on the U.S. Securities
System's accounting system, internal accounting control and
procedures for safeguarding securities deposited in the U.S.
Securities System;
5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial certificate required by Article 16
hereof; and
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting
from use of the U.S. Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian or any
of its agents or of any of its or their employees or from
failure of the Custodian or any such agent to enforce
effectively such rights as it may have against the U.S.
Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the U.S. Securities System or any
other person which the Custodian may have as a consequence of
any such loss or damage if and to the extent that the
Portfolio has not been made whole for any such loss or damage.
The Custodian agrees to cooperate with Fund in connection with
the enforcement of the Fund's subrogation rights.
2.11 FUND ASSETS HELD IN THE CUSTODIAN'S DIRECT PAPER SYSTEM. The Custodian
may deposit and/or maintain securities owned by a Portfolio in the
Direct Paper System of the Custodian subject to the following
provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are represented in
an account ("Account") of the Custodian in the Direct Paper
System which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise
for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and transfer
of securities to the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the
Portfolio upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for
the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio, in the form of a written
8
<PAGE>
advice or notice, of Direct Paper on the next business day
following such transfer and shall furnish to the Fund on
behalf of the Portfolio copies of daily transaction sheets
reflecting each day's transaction in the Securities System for
the account of the Portfolio; and
6) The Custodian shall provide the Fund on behalf of the
Portfolio with any report on its system of internal accounting
control as the Fund may reasonably request from time to time.
2.12 SEGREGATED ACCOUNT. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund on
behalf of the Portfolio, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased
or sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act
Release No. 10666, or any subsequent release or releases of the
Securities and Exchange Commission relating to the maintenance of
segregated accounts by registered investment companies and (iv) for
other proper corporate purposes, BUT ONLY, in the case of clause (iv),
upon receipt of, in addition to Proper Instructions from the Fund on
behalf of the applicable Portfolio, a certified copy of a resolution of
the Board of Trustees or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate purposes.
2.13 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held by
it and in connection with transfers of securities.
2.14 PROXIES. The Custodian shall, with respect to the domestic securities
held herunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to be voted,
and shall promptly deliver to the Portfolio such proxies, all proxy
soliciting materials and all notices relating to such securities.
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<PAGE>
2.15 COMMUNICATIONS RELATING TO PORTFOLIO SECURITIES. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund for each Portfolio all written information (including, without
limitation, pendency of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of exercise
of call and put options written by the Fund on behalf of the Portfolio
and the maturity of futures contracts purchased or sold by the
Portfolio) received by the Custodian from issuers of the securities
being held for the Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Portfolio all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Fund on behalf
of the Portfolio desires to take action with respect to any tender
offer, exchange offer or any other similar transaction, the Fund on
behalf of the Portfolio shall notify the Custodian at least three
business days prior to the date on which the Custodian is to take such
action.
3. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD
OUTSIDE OF THE UNITED STATES
3.1 APPOINTMENT OF FOREIGN SUB-CUSTODIANS. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for each
Portfolio's securities and other assets maintained outside the United
States the foreign banking institutions and foreign securities
depositories designated on Schedule B hereto ("foreign
sub-custodians"). Upon receipt of "Proper Instructions", as defined in
Article 5 of this Contract, together with a certified resolution of the
Fund's Board of Trustees, the Custodian and the Fund may agree to amend
Schedule B hereto from time to time to designate additional foreign
banking institutions and foreign securities depositories to act as
sub-custodians. Upon receipt of Proper Instructions, the Fund may
instruct the Custodian to cease the employment of any one or more such
sub-custodians for maintaining custody of a Portfolio's assets.
3.2 ASSETS TO BE HELD. The Custodian shall limit the securities and other
assets maintained in the custody of foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule l7f-5
under the Investment Company Act of 1940, and (b) cash, and cash
equivalents in such amounts as the Custodian or the Fund may determine
to be reasonably necessary to effect the Portfolio's foreign securities
transactions. The Custodian shall identify on its books as belonging to
the Fund, on behalf of each Portfolio, the foreign securities of that
Portfolio held by each foreign sub-custodian.
3.3 FOREIGN SECURITIES SYSTEMS. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Portfolios shall
be maintained in a clearing agency which acts as a securities
depository or in a book-entry system for the central handling of
securities located outside of the United States (each a "Foreign
Securities System") only through arrangements implemented by the
foreign banking institutions serving as sub-custodians pursuant to the
terms hereof (Foreign Securities Systems and U.S. Securities Systems
are collectively referred to herein as the "Securities Systems"). Where
possible,
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such arrangements shall include entry into agreements containing the
provisions set forth in Section 3.5 hereof.
3.4 HOLDING SECURITIES. The Custodian may hold securities and other
non-cash property for all of its customers, including the Portfolios,
with a foreign sub-custodian in a single account that is identified as
belonging to the Custodian for the benefit of its customers, PROVIDED
HOWEVER, that (i) the records of the Custodian with respect to
securities and other non-cash property of each Portfolio which are
maintained in such account shall identify by book-entry those
securities and other non-cash property belonging to each such Portfolio
and (ii) the Custodian shall require that securities and other non-cash
property so held by the Foreign Sub-custodian be held separately from
any assets of the Foreign Sub-custodian or of others.
3.5 AGREEMENTS WITH FOREIGN BANKING INSTITUTIONS. Each agreement with a
foreign banking institution shall provide that: (a) the assets of each
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution
or its creditors or agent, except a claim of payment for their safe
custody or administration; (b) beneficial ownership for the assets of
each Portfolio will be freely transferable without the payment of money
or value other than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to each
applicable Portfolio; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted
under applicable law the independent public accountants for the Fund,
will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the
Custodian; and (e) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian
or its agents.
3.6 ACCESS OF INDEPENDENT ACCOUNTANTS OF THE FUND. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.7 REPORTS BY CUSTODIAN. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Portfolios held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Portfolios' securities and other
assets and advices or notifications of any transfers of securities to
or from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of each applicable Portfolio
indicating, as to securities acquired for a Portfolio, the identity of
the entity having physical possession of such securities.
3.8 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. (a) Except as otherwise
provided in paragraph (b) of this Section 3.8, the provisions of
Sections 2.2 and 2.7 of this Contract shall apply,
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MUTATIS MUTANDIS to the foreign securities of the Fund held outside the
United States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the
account of each applicable Portfolio may be effected in accordance with
the customary established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such
purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may
be maintained in the name of such entity's nominee to the same extent
as set forth in Section 2.3 of this Contract, and the Fund agrees to
hold any such nominee harmless from any liability as a holder of record
of such securities.
3.9 LIABILITY OF FOREIGN SUB-CUSTODIANS. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless,
the Custodian and the Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking
institution as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been made
whole for any such loss, damage, cost, expense, liability or claim.
3.10 LIABILITY OF CUSTODIAN. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract.
Regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository, or a branch of a
U.S. bank, as contemplated by Section 3.12, where the sub-custodian has
otherwise exercised reasonable care the Custodian shall not be liable
for any loss, damage, cost, expense, liability or claim resulting from
(a) nationalization or expropriation, imposition of currency controls
or restrictions, the interruption, suspension or restriction of trading
on or the closure of any securities market, power or other mechanical
or technological failures or interruptions, computer viruses or
communications disruptions, acts of war or terrorism, riots,
revolutions, work stoppages, natural disasters or other similar events
or acts; (b) any delay or failure of any broker, agent, or
intermediary, central bank or other commercially prevalent payment of
clearing system to deliver to the Custodian's sub- custodian or agent
securities purchased or in the remittance or payment made in connection
with securities sold; (c) any delay or failure of any company,
corporation, or other body in charge of registering or transferring
securities in the name of the Custodian, the Fund, the Custodian's
sub-custodians, nominees, or agents or any consequential
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losses arising out of such delay or failure to transfer such securities
including non-receipt of bonus, dividends and rights and other
accretions or benefits; or (d) delays or inability to perform its
duties due to disorder in any market infrastructure with respect to a
particular security or market. Notwithstanding the foregoing provisions
of this section 3.10, in delegating custody duties to State Street
London Ltd., the Custodian shall not be relieved of any responsibility
to the Fund for any loss due to such delegation, except such loss as
may result from (a) political risk (including, but not limited to,
exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or
(b) other losses (excluding bankruptcy or insolvency of State Street
London Ltd. not caused by political risk) due to acts of God, nuclear
incident or other losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.
3.11 MONITORING RESPONSIBILITIES. So long as Rule 17f-5 under the Investment
Company Act so requires the Fund's Board of Trustees or its investment
adviser to review or monitor the Custodian's global custody network,
the Custodian shall (a) furnish annually to the Fund, during the month
of June, information concerning the foreign sub-custodians employed by
the Custodian similar in kind and scope to that furnished to the Fund
in connection with the initial approval of this Contract; (b) promptly
inform the Fund in the event that the Custodian learns of (i) a
material adverse change in the financial condition of a foreign
sub-custodian, (ii) any material loss of the assets of the Fund or
(iii) a foreign sub-custodian not the subject of any exemptive order
from the Securities and Exchange Commission ceasing, or becoming likely
to cease, to meet applicable minimum shareholders' equity requirements.
3.12 BRANCHES OF U.S. BANKS. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of a
Portfolio's assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act of 1940 meeting the qualification set forth in
Section 26(a) of said Act. The appointment of any such branch as a
sub-custodian shall be governed by paragraph 1 of this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom
shall be maintained in an interest bearing account established for the
Fund with the Custodian's London branch, which account shall be subject
to the direction of the Custodian, State Street London Ltd. or both.
3.13 TAX LAW. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of the United States of America
or any state or political subdivision thereof. It shall be the
responsibility of the Custodian to use reasonable efforts and due care
(a) to perform such ministerial steps as are required to collect any
tax refund, (b) to ascertain the appropriate rate of tax withholding
and (c) to provide such documents as may be required to enable the Fund
to receive appropriate tax treatment under applicable tax laws and any
applicable treaty provisions. Unless otherwise informed by the Fund,
the
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Custodian, in performance of its duties under this Section, shall be
entitled to apply categorical treatment of the Fund according to the
nationality of the Fund, the particulars of its organization and other
relevant details that shall be supplied by the Fund. The Custodian
shall be entitled to rely on any information supplied by the Fund on
behalf of the Portfolio. The Custodian may engage reasonable
professional advisors disclosed to the Fund by the Custodian, which may
include attorneys, accountants or financial institutions in the regular
business of investment administration and may rely upon advice received
therefrom. It shall be the duty of the Fund to inform the Custodian of
any change in the organization, domicile or other relevant fact
concerning tax treatment of the Fund and further to inform the
Custodian if the Fund is or becomes the beneficiary of any special
ruling or treatment not applicable to the general nationality and
category or entity of which the Fund is a part under general laws and
treaty provisions.
4. PAYMENTS FOR SALES OR REPURCHASES OR REDEMPTIONS OF SHARES OF THE FUND
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that Portfolio issued or
sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the Transfer Agent
of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of a Portfolio, the Custodian shall honor checks drawn
on the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
5. PROPER INSTRUCTIONS
Proper Instructions as used throughout this Contract means a writing
signed or initialed by two or more persons as the Board of Trustees shall have
from time to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved, including a specific statement of
the purpose for which such action is requested and may be in the form of
standing instructions. Oral instructions will be considered Proper Instructions
if the Custodian reasonably believes them to have been given by a person
authorized to give such instructions with respect to the transaction involved.
The Fund shall cause all oral instructions to be confirmed in writing. Upon
receipt of a certificate of the Secretary or an Assistant Secretary as to the
authorization by the Board of Trustees of the Fund accompanied by a detailed
description of
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procedures approved by the Board of Trustees, Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Board of Trustees and the Custodian are satisfied that
such procedures afford adequate safeguards for the Portfolios' assets. For
purposes of this Section, Proper Instructions shall include instructions
received by the Custodian pursuant to any three - party agreement which requires
a segregated asset account in accordance with Section 2.12.
6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, PROVIDED that all such payments
shall be accounted for to the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Portfolio except as otherwise directed by the Board of
Trustees of the Fund.
7. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the Fund.
The Custodian may receive and accept a certified copy of a vote of the Board of
Trustees of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Trustees pursuant to the Declaration of Trust as described in
such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
8. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND
CALCULATION OF NET ASSET VALUE AND NET INCOME
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Fund to keep
the books of account of each Portfolio and/or compute the net asset value per
share of the outstanding shares of each Portfolio or, if directed in writing to
do so by the Fund on behalf of the Portfolio, shall itself keep such books of
account and/or compute such net asset value per share. If so directed, the
Custodian shall also calculate daily the net income of the Portfolio as
described in the Fund's currently
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effective prospectus related to such Portfolio and shall advise the Fund and the
Transfer Agent daily of the total amounts of such net income and, if instructed
in writing by an officer of the Fund to do so, shall advise the Transfer Agent
periodically of the division of such net income among its various components.
The calculations of the net asset value per share and the daily income of each
Portfolio shall be made at the time or times described from time to time in the
Fund's currently effective prospectus related to such Portfolio.
9. RECORDS
The Custodian shall with respect to each Portfolio create, maintain and
retain all records relating to its activities and obligations under this
Contract in such manner as will meet the obligations of the Fund under the
Investment Company Act of 1940, with particular attention to Section 31 thereof
and Rules 31a-1 and 31a-2 thereunder. All such records shall be the property of
the Fund and shall at all times during the regular business hours of the
Custodian be open for inspection by duly authorized officers, employees or
agents of the Fund, attorneys for and auditors employed by the Fund, and
employees and agents of the Securities and Exchange Commission. The Custodian
shall, at the Fund's request, supply the Fund with a tabulation of securities
owned by each Portfolio and held by the Custodian and shall, when requested to
do so by the Fund and for such compensation as shall be agreed upon between the
Fund and the Custodian, include certificate numbers in such tabulations.
10. OPINION OF FUND'S INDEPENDENT ACCOUNTANTS
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
11. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS
The Custodian shall provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or maintained
in a Securities System, relating to the services provided by the Custodian under
this Contract; such reports, shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Fund to provide reasonable
assurance that any material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, the reports shall so state.
12. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.
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13. RESPONSIBILITY OF CUSTODIAN
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
Except as may arise from the Custodian's own negligence or willful
misconduct, the Custodian shall be without liability to the Fund for any loss,
liability, claim, or expense resulting from or caused by; (i) errors by the Fund
or the Investment Advisor in their instructions to the Custodian; (ii) the
insolvency of or acts or omissions by a Securities System; and (iii) any
provision of any present or future law or regulation or order of the United
States of America, or any state thereof, or any other country, or political
subdivision thereof or of any court of competent jurisdiction. The Custodian's
liability for the acts or omissions of a foreign banking institution acting as a
foreign subcustodian shall be as set forth in Section 3.10 hereof.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange contracts and assumed settlement)
for the benefit of a Portfolio including the purchase or sale of foreign
exchange or of contracts for foreign exchange ("Advance") or in the event that
the Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct ("Liability"),
then in such event property equal in value to not more than 125% of such Advance
and accrued interest on the Advance or the anticipated amount of such Liability,
held at any time for the account of the appropriate Portfolio by the Custodian
or sub-custodian may be held as security for such Liability or for such Advance
and accrued interest on the Advance. The Custodian shall designate the security
or securities constituting security for an Advance or Liability (the "Designated
Securities") by notice in writing to the Fund (which may be sent by tested
telefax or telex). In the event the value of the Designated Securities shall
decline to less than 110% of the amount of such Advance and accrued interest on
the Advance or the anticipated
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amount of such Liability, then the Custodian may designate in the same manner an
additional security for such obligation ("Additional Securities"), but the
aggregate value of the Designated Securities and Additional Securities shall not
be in excess of 125% of the amount of such Advance and the accrued interest on
the Advance or the anticipated amount of such Liability. At the request of the
Fund, on behalf of a Portfolio, the Custodian shall agree to substitution of a
security or securities which have a value equal to the value of the Designated
or Additional Securities which the Fund desires be released from their status as
security, and such release from status as security shall be effective upon the
Custodian and the Fund agreeing in writing as to the identity of the substituted
security or securities, which shall thereupon become Designated Securities.
Notwithstanding the above, the Custodian shall, at the request of the
Fund, on behalf of a Portfolio, immediately release from their status as
security any or all of the Designated Securities or Additional Securities upon
the Custodian's receipt from such Portfolio of cash or cash equivalents in an
amount equal to 100% of the value of the Designated Securities or Additional
Securities that the Fund desires to be released from their status as security
pursuant to this Section. Interest, dividends and other distributions paid or
received on the Designated Securities and Additional Securities, other than
payments of principal or payments upon retirement, redemption or repurchase,
shall remain the property of the Portfolio and shall not be subject to this
Section.
14. MITIGATION BY CUSTODIAN
Upon the occurrence of any event connected with the duties of the
Custodian under this Contract which causes or may cause any loss, damage or
expense to the Fund or any Portfolio, (i) the Custodian shall, and (ii) shall
exercise reasonable efforts to cause any sub-custodian to, use reasonable
efforts and take all reasonable steps under the circumstances to mitigate the
effect of such event and to avoid continuing harm to the Fund and the
Portfolios.
15. NOTIFICATION OF LITIGATION; RIGHT TO PROCEED
The Fund shall not be liable for indemnification under this Contract to
the extent that the Fund's ability to defend against any litigation or
proceeding brought against the Custodian in respect of which indemnity may be
sought under this Contract is prejudiced by the Custodian's failure to give
prompt notice of the commencement of any such litigation or proceeding. With
respect to claims in such litigation or proceeding for which indemnity by the
Fund may be sought and, subject to applicable law and the ruling of any court of
competent jurisdiction, the Fund shall be entitled to participate in any such
litigation or proceeding and, after written notice from the Fund to the
Custodian, the Fund may assume the defense of such litigation or proceeding with
counsel of its choice at its own expense in respect of that portion of the
litigation for which the Fund may be subject to an indemnification obligation;
provided, however, that the Custodian shall be entitled to participate in the
defense of any such litigation or proceeding. If the Fund has acknowledged in
writing its obligation to indemnify the Custodian with respect to such
litigation or proceeding, the Custodian's participation shall be at its own
expense and the Fund shall control the defense of the litigation or proceeding.
If the Fund is not permitted to participate in or
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control such litigation or proceeding under applicable law or by a ruling of a
court of competent jurisdiction, the Custodian shall reasonably prosecute such
litigation or proceeding. The Custodian shall not consent to the entry of any
judgment or enter into any settlement in any such litigation or proceeding
without providing the Fund with adequate notice of any such settlement or
judgment, and without the Fund's prior written consent. The Custodian shall
submit written evidence to the Fund with respect to any cost or expense for
which it is seeking indemnification in such form and detail as the Fund may
reasonably request.
16. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; PROVIDED,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.10 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees of the Fund has
approved the initial use of a particular Securities System by such Portfolio, as
required by Rule 17f-4 under the Investment Company Act of 1940, as amended and
that the Custodian shall not with respect to a Portfolio act under Section 2.11
hereof in the absence of receipt of an initial certificate of the Secretary or
an Assistant Secretary that the Board of Trustees has approved the initial use
of the Direct Paper System by such Portfolio; PROVIDED FURTHER, however, that
the Fund shall not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the Declaration of
Trust, and further provided, that the Fund on behalf of one or more of the
Portfolios may at any time by action of its Board of Trustees (i) substitute
another bank or trust company for the Custodian by giving notice as described
above to the Custodian, or (ii) immediately terminate this Contract in the event
of the appointment of a conservator or receiver for the Custodian by the
Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
17. SUCCESSOR CUSTODIAN
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Trustees of the Fund, the Custodian shall,
upon termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Portfolio held in
a Securities System.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board of
Trustees of the Fund, deliver at the
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office of the Custodian and transfer such securities, funds and other properties
in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to transfer
to an account of such successor custodian all of the securities of each such
Portfolio held in any Securities System. Thereafter, such bank or trust company
shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
18. INTERPRETIVE AND ADDITIONAL PROVISIONS
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios, may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with the general tenor of
this Contract. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, PROVIDED that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Declaration of Trust of the
Fund. No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
19. ADDITIONAL FUNDS
In the event that the Fund establishes one or more series of Shares in
addition to the series listed on Schedule B hereto with respect to which it
desires to have the Custodian render services as custodian under the terms
hereof, it shall so notify the Custodian in writing, and if the Custodian agrees
in writing to provide such services, such series of Shares shall become a
Portfolio hereunder.
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20. MASSACHUSETTS LAW TO APPLY
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
21. LIMITATION OF TRUSTEE, OFFICER AND SHAREHOLDER LIABILITY
It is expressly agreed that the obligations of the Fund and each
Portfolio hereunder shall not be binding upon any of the Trustees, officers,
agents or employees of the Fund or upon the shareholders of any Portfolio
personally, but shall only bind the assets and property of the Fund, as provided
in its Declaration of Trust. The execution and delivery of this Contract have
been authorized by the Trustees of the Fund, and this Contract has been executed
and delivered by an authorized officer of the Fund acting as such; neither such
authorization by such Trustees nor such execution and delivery by such officer
shall be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the assets and property
of the Fund, as provided in its Declaration of Trust.
22. NO LIABILITY OF OTHER PORTFOLIOS
Notwithstanding any other provision of this Contract, the parties agree
that the assets and liabilities of each Portfolio are separate and distinct from
the assets and liabilities of each other Portfolio and that no Portfolio shall
be liable or shall be charged for any debt, obligation or liability of any other
Portfolio, whether arising under this Contract or otherwise.
23. CONFIDENTIALITY
The Custodian agrees that all books records, information and data
pertaining to the business of the Fund which are exchanged or received pursuant
to the negotiation or carrying out of this Contract shall remain confidential,
shall not be voluntarily disclosed to any other person, except as may be
required by law, and shall not be used by the Custodian for any purpose not
directly related to the business of the Fund, except with the Fund's prior
written consent.
24. ASSIGNMENT
Neither the Fund nor the Custodian shall have the right to assign any
of its rights or obligations under this Contract without the prior written
consent of the other party.
21
<PAGE>
25. SEVERABILITY
If any provision of this Contract is held to be unenforceable as a
matter of law, the other terms and provisions of this Contract shall not be
affected thereby and shall remain in full force and effect.
26. PRIOR CONTRACTS
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
27. SHAREHOLDER COMMUNICATIONS ELECTION
Securities and Exchange Commission Rule l4b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position to requesting
companies whose securities the Fund owns. If the Fund tells the Custodian "no",
the Custodian will not provide this information to requesting companies. If the
Fund tells the Custodian "yes" or does not check either "yes" or "no" below, the
Custodian is required by the rule to treat the Fund as consenting to disclosure
of this information for all securities owned by the Fund or any funds or
accounts established by the Fund. For the Fund's protection, the Rule prohibits
the requesting company from using the Fund's name and address for any purpose
other than corporate communications. Please indicate below whether the Fund
consents or objects by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's
name, address, and share positions.
NO [X] The Custodian is not authorized to release the Fund's
name, address, and share positions.
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 18th day of August, 1995.
MANAGED ACCOUNTS SERVICES PORTFOLIO TRUST
By: /s/ Gregory K. Todd
--------------------------------------
Vice President
STATE STREET BANK AND TRUST COMPANY
By: /s/ Ronald E. Logue
--------------------------------------
Executive Vice President
22
<PAGE>
SCHEDULE A
PORTFOLIO NAME:
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
23
<PAGE>
Schedule B
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trustees of Managed Accounts
Services Portfolio Trust for use as sub-custodians for the Fund's securities and
other assets:
Citibank, N.A.-Argentina (Caja de Valores) (Argentina)
Westpac Banking Corp. (Austraclear/RITS) (Australia)
GiroCredit Bank Aktiengesellschaft der Sparkassen (OEKB) (Austria)
Standard Chartered Bank (Bangladesh)
Generale Bank (C.I.K./Banque Nationale de Belgique) (Belgium)
Barclays Bank of Botswana Ltd. (Botswana)
Citibank, N.A.-Brazil (BOVESPA/SELIC) (Brazil)
Canada Trustco Mortgage Company (CDS) (Canada)
Citibank, N.A.-Chile (Chile)
The Hongkong and Shanghai Banking Corporation Limited
(SSCCRC and Shenzhen Securities Registrars Co. Ltd.) (China)
Cititrust Colombia S.A. Sociedad Fiduciaria (Colombia)
Barclays Bank PLC (Cyprus)
Ceskoslovenska Obchodni Banka A.S. (SCP/Czech National Bank)
(Czech Republic)
Den Danske Bank (VP-Centralen) (Denmark)
National Bank of Egypt (Egypt)
Merita Bank Limited (Central Share Register of Finland) (Finland)
Banque Paribas (SICOVAM/Banque de France) (France)
BHF-Bank Aktiengesellschaft (Kassenverein) (Germany)
Barclays Bank of Ghana Ltd. (Ghana)
National Bank of Greece S.A. (Apothetirion Titlon A.E.) (Greece)
Standard Chartered Bank, Hong Kong (CCASS) (Hong Kong)
Citibank Budapest Rt. (KELER, Ltd.) (Hungary)
Deutsche Bank AG and The Hong Kong and Shanghai Banking Corporation
Limited (India)
Standard Chartered Bank, Jakarta (Indonesia)
Bank of Ireland (Central Bank of Ireland, GSO) (Ireland)
Bank Hapoalim B.M. (The Clearing House of the Tel Aviv Stock Exchange)
(Israel)
Morgan Guaranty Trust Company (Monte Titoli S.p.A./Banca d'Italia)
(Italy)
The Daiwa Bank, Limited and Sumitomo Trust & Banking Company, Ltd.
(JASDEC/Bank of Japan) (Japan)
British Bank of the Middle East (Jordan)
Barclays Bank of Kenya Ltd. (Kenya)
Standard Chartered Bank Malaysia Berhad (MCD) (Malaysia)
Hong Kong and Shanghai Banking Corporation Limited (Mauritius)
Citibank Mexico, S.A. (INDEVAL/Banco de Mexico) (Mexico)
Banque Commerciale du Maroc (Morocco)
24
<PAGE>
MeesPierson N.V. (NECIGEF) (the Netherlands)
ANZ Banking Group (NZ) Ltd. (Austraclear NZ) (New Zealand)
Christiania Bank Og Kreditkasse (VPS) (Norway)
Deutsche Bank AG (Pakistan)
Citibank, N.A.-Peru (CAVAL) (Peru)
Standard Chartered Bank-Manila (the Philippines)
Citibank Poland, S.A. (National Depository of Securities) (Poland)
Banco Comercial Portugues (Central de Valores Mobiliarios) (Portugal)
Development Bank of Singapore, Limited (CDP) (Singapore)
Ceskoslovenska Obchodni Banka A.S. (SCP/National Bank of Slovakia) (the
Slovak Republic)
Standard Bank of South Africa Ltd. (South Africa)
SEOULBANK (KSD) (South Korea)
Banco Santander, S.A. (SCLV/Banco de Espana) (Spain)
The Hongkong and Shanghai Banking Corporation Limited (CDS) (Sri Lanka)
Barclays Bank of Swaziland, Ltd. (Swaziland)
Skandinaviska Enskilda Banken (VPC) (Sweden)
Union Bank of Switzerland (SEGA) (Switzerland)
Central Trust of China (TSCD) (Taiwan)
Standard Chartered Bank, Bangkok (TSD) (Thailand)
Citibank, N.A. (Takas ve Saklama A.S.) (Turkey)
State Street Bank and Trust Co. and State Street Bank London Limited
(CGO/CMO) (United Kingdom)
Citibank, N.A.-Uruguay (Uruguay)
Citibank, N.A.-Venezuela (Venezuela)
Barclays Bank of Zambia Ltd. (Zambia)
Barclays Bank of Zimbabwe Ltd. (Zimbabwe)
Cedel Bank societe anonyme
The Euroclear System
Certified:
/s/ Gregory K. Todd
- --------------------------------------------
Fund's Authorized Officer
Date: August 18, 1995
-------------------------------------
25
<PAGE>
Exhibit No. 9(a)
KIRKPATRICK & LOCKHART LLP
1800 MASSACHUSETTS AVENUE, N.W.
2ND FLOOR
WASHINGTON, D.C. 20036-1800
TELEPHONE 202-778-9000
FACSIMILE 202-778-9100
WWW.KL.COM
November 30, 1999
PaineWebber PACE Select Advisors Trust
51 West 52nd Street
New York, New York 10019-6114
Ladies and Gentlemen:
You have requested our opinion, as counsel to PaineWebber PACE Select
Advisors Trust ("Trust"), as to certain matters regarding the issuance of
certain Shares of the Trust. As used in this letter, the term "Shares" means the
shares of beneficial interest of the series of the Trust listed below that may
be issued during the time that Post-Effective Amendment No. 8 to the Trust's
Registration Statement on Form N-1A ("PEA") is effective and has not been
superseded by another post-effective amendment. The series of the Trust are PACE
Global Fixed Income Investments, PACE Government Securities Fixed Income
Investments, PACE Intermediate Fixed Income Investments, PACE International
Emerging Markets Equity Investments, PACE International Equity Investments, PACE
Large Company Growth Equity Investments, PACE Large Company Value Equity
Investments, PACE Money Market Investments, PACE Municipal Fixed Income
Investments, PACE Small/Medium Company Growth Equity Investments, PACE
Small/Medium Company Value Equity Investments and PACE Strategic Fixed Income
Investments.
As such counsel, we have examined certified or other copies, believed
by us to be genuine, of the Trust's Trust Instrument and by-laws and such
resolutions and minutes of meetings of the Trust's Board of Trustees as we have
deemed relevant to our opinion, as set forth herein. Our opinion is limited to
the laws and facts in existence on the date hereof, and it is further limited to
the laws (other than the conflict of law rules) of the State of Delaware that in
our experience are normally applicable to the issuance of shares by investment
companies organized as business trusts in that State and to the Securities Act
of 1933 ("1933 Act"), the Investment Company Act of 1940 ("1940 Act") and the
regulations of the Securities and Exchange Commission ("SEC") thereunder.
Based on the foregoing, we are of the opinion that the issuance of the
Shares has been duly authorized by the Trust and that, when sold in accordance
with the terms contemplated by the PEA, including receipt by the Trust of full
payment for the Shares and compliance with the
<PAGE>
PaineWebber PACE Select Advisors Trust
November 30, 1999
Page 2
1933 Act and the 1940 Act, the Shares will have been validly issued, fully paid
and non-assessable.
We hereby consent to this opinion accompanying the PEA when it is filed
with the SEC.
Very truly yours,
/s/ Kirkpatrick & Lockhart LLP
KIRKPATRICK & LOCKHART LLP
<PAGE>
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references to
our firm under the caption "Other Information - Counsel" included in the
Statement of Additional Information that is included in Post-Effective
Amendment No. 8 to the Registration Statement on Form N-1A under the
Securities Act of 1933, as amended, and Amendment No. 10 to the Registration
Statement on Form N-1A under the Investment Company Act of 1940, as amended
(Nos. 33-87254 and 811-08764), of PaineWebber PACE Select Advisors Trust.
/s/ Willkie Farr & Gallagher
----------------------------
Willkie Farr & Gallagher
November 30, 1999
New York, New York
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" in the Prospectus and "Auditors" in the Statement of Additional
Information and to the incorporation by reference of our report dated
September 20, 1999 in this Registration Statement (Form N-1A No. 33-87254) of
PaineWebber PACE Select Advisors Trust (comprising, respectively, PACE Money
Market Investments, PACE Government Securities Fixed Income Investments, PACE
Intermediate Fixed Income Investments, PACE Strategic Fixed Income
Investments, PACE Municipal Fixed Income Investments, PACE Global Fixed
Income Investments, PACE Large Company Value Equity Investments, PACE Large
Company Growth Equity Investments, PACE Small/Medium Company Value Equity
Investments, PACE Small/Medium Company Growth Equity Investments, PACE
International Equity Investments and PACE International Emerging Markets
Equity Investments).
/s/ ERNST & YOUNG LLP
-----------------------
ERNST & YOUNG LLP
New York, New York
November 30, 1999
