PAINEWEBBER PACE SELECT ADVISORS TRUST, N-14AE, 2000-11-22

PAINEWEBBER PACE SELECT ADVISORS TRUST
N-14AE, 2000-11-22

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<PAGE>

As filed with the Securities and Exchange Commission on November 22, 2000

1933 Act Registration No. 333-___

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-14

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

[ ] Pre-Effective Amendment No.______ [ ] Post-Effective Amendment No.______

PAINEWEBBER PACE SELECT ADVISORS TRUST
(Exact name of registrant as specified in charter)
51 West 52nd Street
New York, New York 10019-6114
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 713-2000

AMY R. DOBERMAN, ESQ.
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas, 18th Floor
New York, New York 10019
(Name and address of agent for service)

Copies to:

JON S. RAND, ESQ. ARTHUR J. BROWN, ESQ.
Willkie Farr & Gallagher Kirkpatrick & Lockhart LLP
787 Seventh Avenue 1800 Massachusetts Avenue, N.W., 2nd Floor
New York, New York 10019-6099 Washington D.C. 20036
Telephone: (212) 821-8256 Telephone: (202) 778-9000

Approximate Date of Proposed Public Offering: as soon as practicable after this
Registration Statement becomes effective under the Securities Act of 1933.

It is proposed that this filing will become effective on the 30th day after
filing pursuant to Rule 488.

Title of securities being registered: Class A, Class B, Class C and Class Y
shares of beneficial interest in the series of the Registrant designated PACE
International Emerging Markets Equity Investments.

No filing fee is due because the Registrant is relying on Section 24(f) of the
Investment Company Act of 1940, as amended, pursuant to which it has previously
registered an indefinite number of securities.
<PAGE>

PAINEWEBBER EMERGING MARKETS EQUITY FUND
(THE SOLE SERIES OF PAINEWEBBER INVESTMENT TRUST II)
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019-6114

December [ ], 2000

Dear Shareholder,

The enclosed proxy statement and prospectus asks for your vote on a
proposal that will determine the future of PaineWebber Emerging Markets Equity
Fund.

We are seeking shareholder approval to merge Emerging Markets Equity Fund
into PACE International Emerging Markets Equity Investments ("PACE Fund"). If
the merger is approved, you will receive shares of the corresponding class of
shares of the PACE Fund in exchange for your Emerging Markets Equity Fund
shares, and Emerging Markets Equity Fund will cease operations. The expenses
of each class of shares of the PACE Fund following the merger would be lower
than the current expenses of the corresponding class of Emerging Markets
Equity Fund.

Mitchell Hutchins is the investment manager for both Funds and has retained
Schroder Investment Management North America Inc., an unaffiliated firm, to
manage each Fund's assets. The two Funds have very similar investment
objectives and policies. Each Fund seeks capital appreciation and pursues this
objective by investing primarily in stocks of companies in emerging market
countries.

The enclosed document describes the proposed merger more fully and compares
the investment strategies and policies, risk characteristics, operating
expenses and performance histories of the two Funds in more detail. Please
read this document carefully. We have included a "Question and Answer" section
that we believe will be helpful to most investors.

YOUR VOTE IS VERY IMPORTANT. After reviewing the enclosed document, please
complete, date and sign your proxy card and return it TODAY in the enclosed
postage-paid return envelope. Or you may vote your shares by telephone or the
internet. Voting your shares early will avoid costly follow-up mail and
telephone solicitation.

THE BOARD UNANIMOUSLY URGES THAT YOU VOTE "FOR" THE PROPOSED MERGER.

Sincerely,

Brian M. Storms
President
<PAGE>

PAINEWEBBER EMERGING MARKETS EQUITY FUND PROPOSED MERGER
QUESTIONS AND ANSWERS

On October 6, 2000, the Board of Trustees of PaineWebber Investment Trust
II ("Investment Trust II"), on behalf of its sole series, PaineWebber Emerging
Markets Equity Fund ("Emerging Markets Equity Fund"), unanimously approved the
merger of Emerging Markets Equity Fund into PACE International Emerging
Markets Equity Investments ("PACE International Emerging Markets Equity
Fund"), a series of PaineWebber PACE Select Advisors Trust ("PACE Trust").
This merger, however, can only occur if Emerging Markets Equity Fund's
shareholders approve the transaction. Here are answers to some of the most
commonly asked questions.

WHAT IS A MERGER?

A fund is said to merge with another fund when it transfers its assets and
liabilities to that other fund; subsequently, the old fund ceases to operate.
Shareholders of the old fund become shareholders of the new fund.

WHY IS THIS MERGER BEING PROPOSED?

Emerging Markets Equity Fund's assets have generally declined over the last
five years to the point where the Fund has less than $8 million in assets. As
a result of these low asset levels, the Fund's expenses have increased and it
has become more difficult to manage efficiently. Emerging Markets Equity Fund
and PACE International Emerging Markets Equity Fund have very similar
investment objectives and policies. PACE International Emerging Markets Equity
Fund seeks capital appreciation, while Emerging Markets Equity Fund seeks
long-term capital appreciation. Each Fund pursues this objective by investing
primarily in stocks of companies domiciled in emerging market countries. Both
Funds define emerging market countries as countries that are not included in
the Morgan Stanley Capital International ("MSCI") World Index of major world
economies. (See "Comparison of the Funds" on page [ ] of the Combined Proxy
Statement/Prospectus for more information on the investment policies and risks
of each Fund.)

Schroder Investment Management North America Inc., ("SIMNA") an investment
adviser that is not affiliated with Mitchell Hutchins, has served as the sub-
adviser for PACE International Emerging Markets Equity Fund since the Fund's
inception in August 1995 and for Emerging Markets Equity Fund since February
1997. SIMNA uses the same basic investment strategy for both Funds. As a
result, the two Funds are managed in a similar manner.

Mitchell Hutchins and Investment Trust II's Board believe that Emerging
Markets Equity Fund's shareholders will benefit from the merger because the
combined Fund would have a larger asset base to invest, which should provide
greater opportunities for diversifying investments and realizing economies of
scale.

HOW MANY SHARES WILL I RECEIVE AT THE TIME OF THE MERGER?

If the merger is approved, you will receive shares full and fractional
shares of the corresponding class of PACE International Emerging Markets
Equity Fund having a total value equal to the total value of your Emerging
Markets Equity Fund shares at the time of the merger. Although the two Funds
will have different net asset values per share, each class of shares of PACE
International Emerging Markets Equity Fund issued in the merger will otherwise
have characteristics that are substantially identical to the corresponding
class of shares of Emerging Markets Equity Fund.

IF I CURRENTLY ELECT TO RECEIVE MY EMERGING MARKETS EQUITY FUND DIVIDEND AS
CASH OR IF I HAVE THE DIVIDEND AUTOMATICALLY REINVESTED INTO THE FUND, WILL MY
DISTRIBUTION CHOICE REMAIN THE SAME FOR MY PACE INTERNATIONAL EMERGING MARKETS
EQUITY FUND SHARES AFTER THE MERGER?
<PAGE>

Yes, your distribution choice will remain the same after the merger.

WILL I HAVE TO PAY TAXES AS A RESULT OF THE MERGER?

The merger has been structured as a tax-free transaction, which means that
no gain or loss will be recognized by either Fund as a direct result of the
merger. This means that you will not realize any gain or loss on your receipt
of PACE International Emerging Markets Equity Fund shares, and that your basis
for the PACE International Emerging Markets Equity Fund shares you receive in
the merger will be the same as the basis for your Emerging Markets Equity Fund
shares.

Immediately prior to the merger, Emerging Markets Equity Fund will have to
distribute all of its previously undistributed income and net capital gain, if
any, to its shareholders, and that distribution will be taxable to Emerging
Markets Equity Fund shareholders. You should note, however, that both Funds
expect to distribute their ordinary income for the calendar year and net gain,
if any, for the one year period ended October 31, 2000. This distribution will
be made regardless of whether the merger takes place because of the tax
requirements applicable to all mutual funds. This means that if you remain a
shareholder of Emerging Markets Equity Fund, if the merger takes place, you
may receive two distributions of ordinary income and net capital gain, if any,
within a short period of time.

HOW WILL THE MERGER AFFECT FUND EXPENSES?

The post-merger combined Fund is expected to have overall operating
expenses that are lower than the current operating expenses of Emerging
Markets Equity Fund due to economies of scale and a lower management fee paid
by PACE International Emerging Markets Equity Fund to Mitchell Hutchins. The
overall operating expenses of the PACE International Emerging Markets Equity
Fund are also subject to a written management fee waiver and expense
reimbursement agreement between the Fund and Mitchell Hutchins, which will
remain in effect through December 1, 2002. Even absent that agreement,
however, it is expected that the overall operating expenses of the combined
Fund would be lower than the current operating expenses of Emerging Markets
Equity Fund. (For more details about fees and expenses of each class of
shares, see "Comparative Fee Table" on page [ ] of the Combined Proxy
Statement/Prospectus.)

HOW HAVE PACE INTERNATIONAL EMERGING MARKETS EQUITY FUND AND EMERGING MARKETS
EQUITY FUND PERFORMED?

The following tables show the average annual total returns over several
time periods for each class of shares of Emerging Markets Equity Fund and the
Class P shares of PACE International Emerging Markets Equity Fund (the only
outstanding class of shares during the periods shown). A Fund's past
performance does not necessarily indicate how it will perform in the future.
The table for Emerging Markets Equity Fund reflects sales charges on its Class
A, B and C shares and the higher expenses for these classes due to the fees
paid under their Rule 12b-1 plans. The table for PACE International Emerging
Markets Equity Fund does not reflect the maximum PaineWebber PACE SM Select
Advisors Program fee of 1.50% (which does not apply to shares received in the
merger). The Class Y shares of Emerging Markets Equity Fund and the Class P
shares of PACE International Emerging Markets Equity Fund are not subject to
any sales charges or 12b-1 fees. The tables also compare each Fund's returns
to returns of a broad-based market index. The comparative index is unmanaged
and, therefore, does not reflect the deduction of any sales charges or
expenses.

PACE INTERNATIONAL EMERGING MARKETS EQUITY FUND
AVERAGE ANNUAL TOTAL RETURNS
(as of December 31, 1999)

<TABLE>
<CAPTION>
CLASS CLASS P MSCI EMERGING
(INCEPTION DATE) (8/24/95) MARKETS FREE INDEX
---------------- --------- ------------------
<S> <C> <C>
One Year........................................... 61.85% 66.41%
Life of Class...................................... 5.08% 3.14%
</TABLE>

2
<PAGE>

EMERGING MARKETS EQUITY FUND
AVERAGE ANNUAL TOTAL RETURNS
(as of December 31, 1999)

<TABLE>
<CAPTION>
MSCI
EMERGING
MARKETS
CLASS CLASS A CLASS B CLASS C CLASS Y FREE
(INCEPTION DATE) (1/19/94) (12/5/95) (1/19/94) (1/19/94) INDEX
---------------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
One Year....................... 54.20 % 55.06% 58.85 % 61.92 % 66.41%
Five Years..................... 0.17 % N/A 0.26 % 1.31 % 2.00%
Life of Class.................. (2.10)% 3.43% (2.13)% (1.12)% *
</TABLE>
----------------

* Average annual total returns for the MSCI Emerging Markets Free Index for
the life of each class were as follows: Class A -- 0.08%; Class B -- 4.92%;
Class C -- 0.08%; and Class Y -- 0.08%.

WHEN WILL THE PROPOSED MERGER OCCUR?

The Funds expect to merge in February 2001, assuming Emerging Markets
Equity Fund shareholder approval at the special meeting scheduled to be held
on January 25, 2001.

CAN I SELL OR EXCHANGE MY EMERGING MARKETS EQUITY FUND SHARES BEFORE THE
MERGER?

If you do not wish to receive shares of PACE International Emerging Markets
Equity Fund, you are free to sell or exchange your Emerging Markets Equity
Fund shares at any time prior to the merger. You will be subject to any
applicable contingent deferred sales charges and taxes if you sell your
Emerging Markets Equity Fund shares. If you elect to exchange your shares
prior to the merger, you may be subject to taxes. Consult your tax adviser for
the tax implications of an exchange. Please call your Financial Advisor to
discuss your investment options or with any questions.

WHAT IS THE BOARD'S RECOMMENDATION ON THE MERGER?

Your Board of Trustees unanimously recommends a vote "FOR" the merger.

3
<PAGE>

PAINEWEBBER EMERGING MARKETS EQUITY FUND
(THE SOLE SERIES OF PAINEWEBBER INVESTMENT TRUST II)
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019-6114

----------------

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
JANUARY 25, 2001

----------------

To the Shareholders:

Notice is Hereby Given that a Special Meeting of Shareholders ("Meeting")
of PaineWebber Emerging Markets Equity Fund ("Emerging Markets Equity Fund"),
the sole series of PaineWebber Investment Trust II ("Investment Trust II"),
will be held on January 25, 2001, at 1285 Avenue of the Americas, 14th Floor,
New York, New York, 10019-6028, at 10:00 a.m., Eastern time, for the following
purpose:

To approve or disapprove the Agreement and Plan of Reorganization and
Termination ("Plan") that provides for the reorganization of Emerging
Markets Equity Fund into PACE International Emerging Markets Equity
Investments ("PACE International Emerging Markets Equity Fund"), a
series of PaineWebber PACE Select Advisors Trust ("PACE Trust").
Pursuant to the Plan, Emerging Markets Equity Fund will transfer all its
assets to PACE International Emerging Markets Equity Fund, which will
assume all the stated liabilities of Emerging Markets Equity Fund, and
PACE Trust will issue to each Emerging Markets Equity Fund shareholder
the number of full and fractional shares of the applicable class of PACE
International Emerging Markets Equity Fund having an aggregate net asset
value that, on the effective date of the reorganization, is equal to the
aggregate net asset value of the shareholder's shares in Emerging
Markets Equity Fund.

Shareholders of record as of the close of business on November 21, 2000,
are entitled to notice of, and to vote at, the Meeting or any adjournment
thereof.

Please execute and return promptly in the enclosed envelope the
accompanying proxy, which is being solicited by the Board of Trustees of
Investment Trust II, or vote your shares by telephone or the internet.
Returning your proxy promptly is important to ensure a quorum at the Meeting.
You may revoke your proxy at any time before it is exercised by the subsequent
execution and submission of a revised proxy, by giving written notice of
revocation to Investment Trust II or by voting in person at the Meeting.

By Order of the Board of Trustees,

Dianne E. O'Donnell
Secretary

December [ ], 2000
51 West 52nd Street
New York, New York 10019-6114
<PAGE>

YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN.

Please indicate your voting instructions on the enclosed proxy card,
sign and date the card and return it in the envelope provided. IF YOU
SIGN, DATE AND RETURN THE PROXY CARD BUT GIVE NO VOTING INSTRUCTIONS, YOUR
SHARES WILL BE VOTED "FOR" THE PROPOSAL DESCRIBED ABOVE. In order to avoid
the additional expense of further solicitation, we ask your cooperation in
mailing your proxy card promptly. As an alternative to using the paper
proxy card to vote, you may vote shares that are registered in your name,
as well as shares held in "street name" through a broker, via the internet
or telephone. To vote in this manner, you will need the 14-digit "control"
number(s) that appear on your proxy card(s).

To vote via the internet, please access [insert web address] on the
World Wide Web and follow the on-screen instructions.

You may also call [1-888 ] and vote by telephone.

If we do not receive your completed proxy cards after several weeks,
our proxy solicitor, [ ], may contact you. Our proxy solicitor will
remind you to vote your shares or will record your vote over the phone if
you choose to vote in that manner.

INSTRUCTIONS FOR SIGNING PROXY CARDS

The following general rules for signing proxy cards may be of assistance to
you and avoid the time and expense involved in validating your vote if you
fail to sign your proxy card properly.

1. Individual Accounts: Sign your name exactly as it appears in the
registration on the proxy card.

2. Joint Accounts: Either party may sign, but the name of the party signing
should conform exactly to the name shown in the registration on the proxy
card.

3. All Other Accounts: The capacity of the individual signing the proxy
card should be indicated unless it is reflected in the form of registration.
For example:

<TABLE>
<CAPTION>
REGISTRATION VALID SIGNATURE
------------ ---------------
<S> <C>
Corporate Accounts
(1) ABC Corp. ................................ ABC Corp.
John Doe, Treasurer
(2) ABC Corp. ................................ John Doe, Treasurer
(3) ABC Corp. c/o John Doe, Treasurer......... John Doe
(4) ABC Corp. Profit Sharing Plan............. John Doe, Trustee
Partnership Accounts
(1) The XYZ Partnership....................... Jane B. Smith, Partner
(2) Smith and Jones, Limited Partnership...... Jane B. Smith, General Partner
Trust Accounts
(1) ABC Trust Account......................... Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee u/t/d 12/28/78....... Jane B. Doe
Custodial or Estate Accounts
(1) John B. Smith, Cust. f/b/o
John B. Smith, Jr.,
UGMA/UTMA................................. John B. Smith
(2) Estate of John B. Smith................... John B. Smith, Jr., Executor
</TABLE>

2
<PAGE>

PAINEWEBBER EMERGING MARKETS EQUITY FUND
(THE SOLE SERIES OF PAINEWEBBER INVESTMENT TRUST II)
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019-6114
1-800-647-1568

PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS
(A SERIES OF PAINEWEBBER PACE SELECT ADVISORS TRUST)
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019-6114
1-800-647-1568

----------------

COMBINED PROXY STATEMENT AND PROSPECTUS
DATED: DECEMBER [ ], 2000

----------------

This Combined Proxy Statement and Prospectus ("Proxy Statement/Prospectus")
is being furnished in connection with a Special Meeting of Shareholders of
PaineWebber Emerging Markets Equity Fund ("Emerging Markets Equity Fund"), the
sole series of PaineWebber Investment Trust II ("Investment Trust II"), a
Massachusetts business trust, to be held on January 25, 2001, at 1285 Avenue
of the Americas, 14th Floor, New York, New York, 10019-6028, at 10:00 a.m.,
Eastern time (such meeting and any adjournments thereof are referred to
collectively as the "Meeting"). At the Meeting, the shareholders of Emerging
Markets Equity Fund are being asked to consider and approve the following
proposal:

A form of the Plan is attached as Appendix A to this Proxy
Statement/Prospectus. THE BOARD OF TRUSTEES OF INVESTMENT TRUST II HAS
UNANIMOUSLY APPROVED THE PLAN AS BEING IN THE BEST INTERESTS OF EMERGING
MARKETS EQUITY FUND AND ITS SHAREHOLDERS. (Emerging Markets Equity Fund and
PACE International Emerging Markets Equity Fund sometimes are referred to
individually as a "Fund" and together as "Funds.")

Pursuant to the Plan, Emerging Markets Equity Fund will transfer all its
assets to PACE International Emerging Markets Equity Fund, which will assume
all the stated liabilities of Emerging Markets Equity Fund, and PACE Trust
will issue to each Emerging Markets Equity Fund shareholder the number of full
and fractional shares of beneficial interest of the applicable class of PACE
International Emerging Markets Equity Fund having an aggregate net asset value
("NAV") that, on the effective date of the reorganization, is equal to the
aggregate NAV of the shareholder's shares of beneficial interest in the
corresponding class of Emerging Markets Equity Fund (the "Reorganization").
The value of each Emerging Markets Equity Fund shareholder's account with PACE
International Emerging Markets Equity Fund immediately after the
Reorganization will be the same as the value of such shareholder's account
with Emerging Markets Equity Fund immediately prior to the Reorganization. As
a result of the Reorganization, shareholders of each class of shares of
Emerging Markets Equity Fund will become shareholders of the corresponding
class of shares of PACE International Emerging Markets Equity Fund. No sales
charges will be assessed on the shares of PACE International Emerging Markets
Equity Fund issued in connection with the Reorganization.
<PAGE>

PACE International Emerging Markets Equity Fund is a diversified series of
PACE Trust, which is an open-end management investment company currently
comprised of twelve series. PACE International Emerging Markets Equity Fund's
investment objective is capital appreciation. PACE International Emerging
Markets Equity Fund pursues its objective by investing primarily in stocks of
companies domiciled in emerging market countries. The Fund generally defines
emerging market countries as countries that are not included in the Morgan
Stanley Capital International ("MSCI") World Index of major world economies.

This Proxy Statement/Prospectus sets forth the information that a
shareholder of Emerging Markets Equity Fund should know before voting on the
proposal. It should be read carefully and retained for future reference.

A Statement of Additional Information ("SAI") dated December [ ], 2000,
containing additional information about the Reorganization, including
historical financial statements, has been filed with the Securities and
Exchange Commission ("SEC") and is hereby incorporated by reference in its
entirety into this Proxy Statement/Prospectus. PACE International Emerging
Markets Equity Fund's Annual Report to Shareholders for the fiscal year ended
July 31, 2000, has been filed with the SEC and is incorporated by reference in
the SAI. Information about Emerging Markets Equity Fund is included in its
current Prospectus and SAI, each dated March 1, 2000, as supplemented, which
are on file with the SEC and are hereby incorporated by reference into this
Proxy Statement/Prospectus. Copies of the other referenced documents, as well
as Emerging Markets Equity Fund's Semi-Annual Report to Shareholders for the
six months ended April 30, 2000, and its Annual Report to Shareholders for the
fiscal year ended October 31, 1999, are available without charge by writing
either Emerging Markets Equity Fund or PACE International Emerging Markets
Equity Fund at the address shown above, or by calling (800) 647-1568. The SEC
maintains an internet web site at http://www.sec.gov that contains information
regarding PACE Trust and Investment Trust II, and other registrants that file
electronically with the SEC. Copies of such material may also be obtained,
after paying a duplicating fee, from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission,
Washington, DC, 20549, or by electronic request at the following e-mail
address: [email protected]. Additional information about the Funds also may
be obtained on the Web at http://www.painewebber.com.

AS WITH ALL OTHER MUTUAL FUND SECURITIES, THE SEC HAS NOT APPROVED OR
DISAPPROVED THESE SECURITIES OR DETERMINED WHETHER THE INFORMATION IN THIS
PROXY STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANYONE WHO TELLS YOU
OTHERWISE IS COMMITTING A CRIME.

ii
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
SECTION TITLE PAGE
------------- ----
<S> <C>
INTRODUCTION............................................................. 1
PROPOSAL: TO APPROVE OR DISAPPROVE THE AGREEMENT AND PLAN OF
REORGANIZATION AND TERMINATION.......................................... 2
SYNOPSIS................................................................. 2
The Proposed Reorganization............................................. 2
Comparative Fee Table................................................... 2
Summary Comparison of the Funds......................................... 4
COMPARISON OF PRINCIPAL RISK FACTORS..................................... 5
Primary Difference in the Investment Risks of the Funds................. 5
COMPARISON OF THE FUNDS.................................................. 6
Investment Objectives................................................... 6
Investment Policies..................................................... 6
Operations of PACE International Emerging Markets Equity Fund Following
the Reorganization..................................................... 7
Performance............................................................. 7
Sales Charges........................................................... 9
Dividends and Other Distributions....................................... 9
Taxes................................................................... 9
FLEXIBLE PRICING: BUYING, SELLING AND EXCHANGING SHARES OF PACE
INTERNATIONAL EMERGING MARKETS EQUITY FUND.............................. 10
Flexible Pricing........................................................ 10
Buying Shares........................................................... 14
Selling Shares.......................................................... 14
Exchanging Shares....................................................... 15
Pricing and Valuation................................................... 16
MANAGEMENT............................................................... 17
Investment Manager and Investment Adviser............................... 17
Sub-Adviser............................................................. 17
Advisory Fees and Fund Expenses......................................... 18
ADDITIONAL INFORMATION ABOUT THE REORGANIZATION.......................... 18
Reasons for the Reorganization.......................................... 18
Terms of the Reorganization............................................. 20
Description of Securities to be Issued.................................. 21
Temporary Waiver of Investment Restrictions............................. 21
Federal Income Tax Considerations....................................... 21
Required Vote........................................................... 22
ORGANIZATION OF THE FUNDS................................................ 22
FINANCIAL HIGHLIGHTS..................................................... 23
CAPITALIZATION........................................................... 24
LEGAL MATTERS............................................................ 24
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION............ 25
EXPERTS.................................................................. 25
OTHER INFORMATION........................................................ 25
APPENDIX A: Form of Agreement and Plan of Reorganization and
Termination............................................................. A-1
APPENDIX B: Security Ownership of Certain Beneficial Owners.............. B-1
APPENDIX C: Management's Discussion of PACE International Emerging
Markets
Equity Fund's Performance............................................... C-1
</TABLE>

iii
<PAGE>

INTRODUCTION

This Proxy Statement/Prospectus is being furnished to shareholders of
Emerging Markets Equity Fund, a series of Investment Trust II, in connection
with the solicitation of proxies by the Board for use at the Meeting. All
properly executed and unrevoked proxies received in time for the Meeting will
be voted as instructed by shareholders. Approval of the proposal requires the
affirmative vote of the lesser of (1) 67% or more of the shares of Emerging
Markets Equity Fund present at the Meeting, if more than 50% of the
outstanding shares are represented at the Meeting in person or by proxy, or
(2) more than 50% of the outstanding shares entitled to vote at the Meeting.
If you execute your proxy but give no voting instructions, your shares that
are represented by proxies will be voted "FOR" the proposal described in this
Proxy Statement/Prospectus. The presence in person or by proxy of 30% of the
shares of beneficial interest of Emerging Markets Equity Fund will constitute
a quorum. If a quorum is not present at the Meeting or a quorum is present but
sufficient votes to approve the proposal are not received, the persons named
as proxies may propose one or more adjournments of the Meeting to permit
further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of the shares represented at the Meeting in
person or by proxy. The persons named as proxies will vote those proxies that
they are entitled to vote "FOR" the proposal in favor of such an adjournment
and will vote those proxies required to be voted "AGAINST" the proposal
against such adjournment.

Broker non-votes are shares held in "street name" for which the broker
indicates that instructions have not been received from the beneficial owners
or other persons entitled to vote and for which the broker does not have
discretionary voting authority. Abstentions and broker non-votes will be
counted as shares present at the Meeting for quorum purposes but will not be
(i) considered votes cast at the Meeting or (ii) voted for or against any
adjournment or proposal. Abstentions and broker non-votes are effectively
votes against the proposal.

Any person giving a proxy has the power to revoke it at any time prior to
its exercise by executing a superseding proxy or by submitting a written
notice of revocation to the Secretary of Investment Trust II ("Secretary"). To
be effective, such revocation must be received by the Secretary prior to the
Meeting. In addition, although mere attendance at the Meeting will not revoke
a proxy, a shareholder present at the Meeting may withdraw his or her proxy by
voting in person.

Mitchell Hutchins (not the Funds) will bear the expenses of the
Reorganization. Investment Trust II intends to first mail this Proxy
Statement/Prospectus and the accompanying proxy card on or about December [ ],
2000. Shareholders of record as of the close of business on November 21, 2000
("Record Date"), are entitled to vote at the Meeting. On the Record Date,
Emerging Markets Equity Fund had [ ] shares issued and outstanding,
consisting of [ ] Class A shares, [ ] Class B shares, [ ] Class C
shares, and [ ] Class Y shares. Shareholders are entitled to one vote for
each full share held and a fractional vote for each fractional share held.
[Except as set forth in Appendix B,] as of the Record Date, Mitchell Hutchins,
the investment manager, administrator and distributor of both Funds, does not
know of any person who owns beneficially or of record 5% or more of any class
of shares of either Fund. [As of that same date, the Trustees and officers, as
a group, owned less than 1% of any class of either Fund's outstanding shares.]

Investment Trust II has engaged the services of [ ] to assist it in the
solicitation of proxies for the Meeting. Investment Trust II expects to
solicit proxies by mail, telephone and via the internet. Investment Trust II
officers and employees of Mitchell Hutchins who assist in the proxy
solicitation will not receive any additional or special compensation for any
such efforts. [ ] will be paid approximately [$ ] for proxy solicitation
services. Investment Trust II will request broker/dealer firms, custodians,
nominees and fiduciaries to forward proxy materials to the beneficial owners
of the shares held of record by such persons. Mitchell Hutchins may reimburse
such broker/dealer firms, custodians, nominees and fiduciaries for their
reasonable expenses incurred in connection with such proxy solicitation.
<PAGE>

PROPOSAL: TO APPROVE OR DISAPPROVE THE AGREEMENT AND PLAN OF REORGANIZATION
AND TERMINATION.

SYNOPSIS

The following is a summary of certain information contained elsewhere in
this Proxy Statement/Prospectus, the Statement of Additional Information, and
the Plan. As discussed more fully below, Investment Trust II's Board believes
that the proposed Reorganization will benefit Emerging Markets Equity Fund's
shareholders.

THE PROPOSED REORGANIZATION

The Boards of PACE Trust and Investment Trust II, including their
respective Trustees who are not "interested persons," as that term is defined
in the Investment Company Act of 1940, as amended ("1940 Act") ("Independent
Trustees"), considered and approved the Plan at meetings held on September 13,
2000 and October 6, 2000, respectively. The Plan provides for the acquisition
by PACE International Emerging Markets Equity Fund of all of Emerging Markets
Equity Fund's assets in exchange for PACE International Emerging Markets
Equity Fund shares and the assumption by PACE International Emerging Markets
Equity Fund of all of Emerging Markets Equity Fund's stated liabilities.
Emerging Markets Equity Fund will then distribute the PACE International
Emerging Markets Equity Fund shares to Emerging Markets Equity Fund's
shareholders, by class, so that each Emerging Markets Equity Fund shareholder
will receive the number of full and fractional shares of the corresponding
class of PACE International Emerging Markets Equity Fund equal in aggregate
value to the aggregate value of the shares of Emerging Markets Equity Fund
that the shareholder held at the time of the Reorganization. These
transactions are scheduled to occur as of 4:00 p.m., Eastern time, on February
9, 2001, or on such later date as the conditions to consummation of the
Reorganization are satisfied ("Closing Date"). Emerging Markets Equity Fund
will be terminated as soon as is practicable after the Closing Date. See
"Additional Information About the Reorganization," below.

Investment Trust II and PACE Trust will each receive an opinion of
Kirkpatrick & Lockhart LLP to the effect that the Reorganization will
constitute a tax-free reorganization within the meaning of section
368(a)(1)(C) of the Internal Revenue Code of 1986, as amended ("Code").
Accordingly, neither Fund nor any of its shareholders will recognize any gain
or loss for federal income tax purposes as a direct result of the
Reorganization. Emerging Markets Equity Fund expects to sell securities prior
to the Closing Date and anticipates recognizing net gains or losses. Any such
net recognized gains would increase the amount of any distribution made to
shareholders of Emerging Markets Equity Fund prior to the Closing Date. See
"Additional Information About the Reorganization -- Federal Income Tax
Considerations," below.

For the reasons set forth below under "Additional Information About the
Reorganization -- Reasons for the Reorganization," the Board of Investment
Trust II has determined that the Reorganization is in the best interests of
Emerging Markets Equity Fund and that the interests of existing Emerging
Markets Equity Fund shareholders will not be diluted as a result of the
Reorganization. ACCORDINGLY, INVESTMENT TRUST II'S BOARD UNANIMOUSLY
RECOMMENDS APPROVAL OF THE TRANSACTION.

COMPARATIVE FEE TABLE

The table below describes the fees and expenses that you would pay if you
buy and hold Emerging Markets Equity Fund shares or PACE International
Emerging Markets Equity Fund shares before the Reorganization and PACE
International Emerging Markets Equity Fund shares after the Reorganization.
The "Annual Fund Operating Expenses" set forth below are based on the fees and
expenses for the fiscal year ended July 31, 2000 for PACE International
Emerging Markets Equity Fund and for the six months ended April 30, 2000
(annualized) for Emerging Markets Equity Fund. The pro forma information
reflects the anticipated effects of the Reorganization as well as the proposed
reorganization of PaineWebber Asia Pacific Growth Fund with PACE International
Emerging Markets Equity Fund, which is expected to occur at approximately the
same time as the Reorganization.

2
<PAGE>

<TABLE>
<CAPTION>
COMBINED PACE
PACE INTERNATIONAL INTERNATIONAL EMERGING
EMERGING MARKETS EQUITY EMERGING MARKETS EQUITY MARKETS EQUITY FUND PRO
FUND FUND FORMA*
----------------------------- ----------------------------- -----------------------------
CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS
A B C Y A B C Y A B C Y
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES (fees paid
directly from your
investment)
Maximum Sales Charge
(load) Imposed on
Purchases (as a
percentage of
offering price).... 4.5% None None None 4.5% None None None 4.5% None None None
Maximum Deferred
Sales Charge (load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever
is less)........... None 5% 1% None None 5% 1% None None 5% 1% None
Exchange Fee........ None None None None None None None None None None None None
ANNUAL FUND
OPERATING EXPENSES
(fees that are
deducted from fund
assets)
Management Fees**... 1.20% 1.20% 1.20% 1.20% 1.10% 1.10% 1.10% 1.10% 1.10% 1.10% 1.10% 1.10%
Distribution and/or
Service (12b-1)
Fees............... 0.25% 1.00% 1.00% None 0.25% 1.00% 1.00% None 0.25% 1.00% 1.00% None
Other Expenses***... 2.22% 2.29% 2.28% 2.28% 0.66% 0.68% 0.67% 0.65% 0.61% 0.63% 0.62% 0.60%
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Annual Fund
Operating
Expenses........... 3.67% 4.49% 4.48% 3.48% 2.01% 2.78% 2.77% 1.75% 1.96% 2.73% 2.72% 1.70%
===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Management Fee
Waiver/Expense
Reimbursements+.... (1.23)% (1.30)% (1.29)% (1.29)% (0.25)% (0.25)% (0.25)% (0.25)% (0.21)% (0.20)% (0.20)% (0.20)%
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net Expenses+....... 2.44% 3.19% 3.19% 2.19% 1.76% 2.53% 2.52% 1.50% 1.75% 2.53% 2.52% 1.50%
===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
----------------
* The pro forma expense information assumes that shareholders of Emerging
Markets Equity Fund and PaineWebber Asia Pacific Growth Fund approve the
proposed reorganizations. If shareholders of Emerging Markets Equity Fund
approve the Reorganization and shareholders of PaineWebber Asia Pacific
Growth Fund do not approve its reorganization, the pro forma "Net Expenses"
for each class of shares of the combined Fund would be the same as shown
above due to the management fee waiver and expense reimbursement
arrangement in effect for the PACE International Emerging Markets Equity
Fund.

** For both Funds, "Management Fees" include fees paid to Mitchell Hutchins
for administrative services.

*** "Other Expenses" for PACE International Emerging Markets Equity Fund are
estimated based on the "other expenses" of the Fund's outstanding Class P
shares for the fiscal year ended July 31, 2000, as adjusted to reflect
estimated transfer agency expenses for each class. "Other Expenses" for
each class of the combined Fund are based on the combined assets of
Emerging Markets Equity Fund and PaineWebber Asia Pacific Growth Fund.

+ Investment Trust II and Mitchell Hutchins have entered into a written
expense reimbursement agreement with respect to Emerging Markets Equity Fund
under which Mitchell Hutchins is contractually obligated to reimburse the
Fund to the extent that the Fund's total expenses through March 1, 2001
otherwise would exceed the "Net Expenses" rates for each class as shown
above. The Fund has agreed to repay Mitchell Hutchins for any reimbursed
expenses if it can do so over the following three years without causing the
Fund's expenses in any of those years to exceed those "Net Expenses" rates.

PACE Trust and Mitchell Hutchins have entered into a written agreement with
respect to PACE International Emerging Markets Equity Fund under which
Mitchell Hutchins is contractually obligated to waive its management fees
and/or reimburse the Fund to the extent that the total operating expenses of
each class through December 1, 2002 otherwise would exceed the sum of 1.50%
(the expense cap for the Fund's Class P shares) plus the 12b-1 fees, if any,
and any higher transfer agency fees applicable to the class. The Fund has
agreed to repay Mitchell Hutchins for any reimbursed expenses if it can do
so over the following three fiscal years without causing the Fund's expenses
in any of those three years to exceed these expense caps.

3
<PAGE>

The example below is intended to help you compare the costs of investing in
each Fund, both before and after the Reorganization.

The example below assumes that you invest $10,000 in each Fund (including
the combined Fund) for the time periods indicated and then sell all of your
shares at the end of those periods. The example also assumes that your
investments each have a 5% return each year and that each Fund's operating
expenses remain the same, except for the periods when each Fund's and the
combined Fund's expenses are lower due to the agreement with Mitchell
Hutchins. Although your actual returns and 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> <C>
EMERGING MARKETS EQUITY FUND
Class A....................................... $686 $1,293 $2,041 $4,000
Class B (assuming sale of all shares at end of
period)...................................... 822 1,408 2,236 4,078
Class B (assuming no sale of shares).......... 322 1,108 2,036 4,078
Class C (assuming sale of all shares at end of
period)...................................... 422 1,107 2,034 4,393
Class C (assuming no sale of shares).......... 322 1,107 2,034 4,393
Class Y....................................... 222 815 1,564 3,537
PACE INTERNATIONAL EMERGING MARKETS EQUITY
FUND
Class A....................................... $621 $1,005 $1,439 $2,643
Class B (assuming sale of all shares at end of
period)...................................... 756 1,114 1,624 2,717
Class B (assuming no sale of shares).......... 256 814 1,424 2,717
Class C (assuming sale of all shares at end of
period)...................................... 355 811 1,419 3,062
Class C (assuming no sale of shares).......... 255 811 1,419 3,062
Class Y....................................... 153 501 901 2,020
PRO FORMA PACE INTERNATIONAL EMERGING MARKETS
EQUITY FUND
Class A....................................... $620 $ 998 $1,422 $2,599
Class B (assuming sale of all shares at end of
period)...................................... 756 1,108 1,608 2,675
Class B (assuming no sale of shares).......... 256 808 1,408 2,675
Class C (assuming sale of all shares at end of
period)...................................... 355 805 1,403 3,021
Class C (assuming no sale of shares).......... 255 805 1,403 3,021
Class Y....................................... 153 496 884 1,974
</TABLE>

SUMMARY COMPARISON OF THE FUNDS

Investment Objectives and Policies

The Funds have very similar investment objectives, policies and overall
risk characteristics. PACE International Emerging Markets Equity Fund seeks
capital appreciation, while Emerging Markets Equity Fund seeks long-term
capital appreciation. Each Fund pursues this objective by investing primarily
in stocks of companies in emerging market countries. Both Funds generally
define emerging market countries as countries that are not included in the
MSCI World Index of major world economies.

Investment Advisory Services

Mitchell Hutchins has served as investment manager and administrator for
PACE International Emerging Markets Equity Fund since its inception in August
1995. As investment manager for the Fund, Mitchell Hutchins provides portfolio
management oversight rather than directly managing the Fund's investments.
Mitchell Hutchins provides portfolio management oversight principally by
performing initial reviews of prospective sub-advisers and supervising and
monitoring the performance of the sub-advisers thereafter. Mitchell Hutchins
also recommends to the Board of PACE Trust whether agreements with sub-
advisers should be renewed, modified or terminated. The Fund's current sub-
adviser -- Schroder Investment Management North America Inc. ("SIMNA") -- has
managed the Fund's investment portfolio since its inception.

4
<PAGE>

Mitchell Hutchins has served as investment adviser and administrator for
Emerging Markets Equity Fund since [February] 1995. Effective February 25,
1997, the Board of Investment Trust II appointed SIMNA to serve as the Fund's
sub-adviser. Prior to that date, a different sub-adviser managed the Fund's
assets.

Purchase and Redemption Procedures

Funds in the PaineWebber Flexible PricingSM System generally offer Class A,
Class B, Class C and Class Y shares. PACE International Emerging Markets
Equity Fund did not offer Class A, Class B, Class C and Class Y shares to the
public prior to November [ ], 2000. The purchase and redemption procedures for
PACE International Emerging Markets Equity Fund's Class A, Class B, Class C
and Class Y shares would be the same as those currently in effect for the
corresponding classes of shares of Emerging Markets Equity Fund. You may
exchange Class A, Class B or Class C shares of PACE International Emerging
Markets Equity Fund for shares of the same class of most other PACE funds.
Exchanges between PaineWebber funds and PACE funds will not be activated until
on or around March 1, 2001. You may not exchange Class Y shares.

COMPARISON OF PRINCIPAL RISK FACTORS

Both Funds are subject to very similar risk factors associated with their
investments in foreign equities. An investment in either Fund is not
guaranteed; an investor may lose money by investing in either Fund. The
principal risks presented by the Funds are:

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 Investing and Emerging Markets Risks -- Foreign investing involves
risks relating to political, social and economic developments abroad to a
greater extent than investing in the securities of U.S. issuers. In addition,
there are differences between U.S. and foreign regulatory requirements and
market practices. Foreign investments denominated in foreign currencies are
subject to the risk that the value of a foreign currency will fall in relation
to the U.S. dollar. Currency exchange rates can be volatile and can be
affected by, among other factors, the general economics of a country, the
actions of U.S. and foreign governments or central banks, the imposition of
currency controls and speculation.

Securities of issuers located in emerging market countries are subject to
all of the risks of other foreign securities. However, the level of those
risks often is higher due to the fact that social, political, legal and
economic systems in emerging market countries may be less fully developed and
less stable than those in developed countries. Emerging market securities also
may be subject to additional risks, such as lower liquidity and larger or more
rapid changes in value.

Derivatives Risk -- The value of "derivatives" -- so-called because their
value "derives" from the value of an underlying asset, reference rate or
index -- may rise or fall more rapidly than other investments. For some
derivatives, it is possible for a Fund to lose more than the amount it
invested in the derivative. Options, futures contracts and forward currency
contracts are examples of derivatives. A Fund's use of derivatives may not
succeed for various reasons, including unexpected changes in the value of the
derivatives or the assets underlying them. Also, if a Fund uses derivatives to
adjust or "hedge" the overall risk of the portfolio, the hedge may not succeed
if changes in the values of the derivatives are not matched by opposite
changes in the values of the assets being hedged.

PRIMARY DIFFERENCE IN THE INVESTMENT RISKS OF THE FUNDS

Geographic Concentration Risk -- PACE International Emerging Markets Equity
Fund will not necessarily seek to diversify its investments on a geographic
basis within the emerging markets category. To the extent the Fund
concentrates its investments in issuers located in one country or area, it is
more susceptible to factors adversely affecting that country or area.

5
<PAGE>

COMPARISON OF THE FUNDS

INVESTMENT OBJECTIVES

The Funds have very similar investment objectives. PACE International
Emerging Markets Equity Fund's investment objective is capital appreciation,
while Emerging Markets Equity Fund's investment objective is long-term capital
appreciation.

INVESTMENT POLICIES

The Funds also have very similar investment policies. Both Funds invest
primarily in stocks of companies in emerging market countries. Each Fund
generally defines emerging market countries as countries that are not included
in the MSCI World Index of major world economies. Countries included in this
index may be considered emerging markets based on current political and
economic factors. For example, SIMNA has determined, based on an analysis of
current economic and political factors pertaining to Hong Kong SAR, that Hong
Kong SAR should be considered as an emerging market country for purposes of
each Fund's eligible investments.

Unlike Emerging Markets Equity Fund, PACE International Emerging Markets
Equity Fund may not always diversify its investments on a geographic basis
among emerging market countries. Each Fund may invest in the securities of
other investment companies, including investment companies that invest in
emerging markets.

In selecting investments for each Fund, SIMNA focuses on companies that it
believes have a sustainable competitive advantage and growth potential that is
undervalued by other investors. SIMNA allocates each Fund's assets among
emerging market countries based on its assessment of the likelihood that those
countries will have favorable long-term business environments. In deciding
which securities within a country to buy or sell for each Fund, SIMNA analyzes
historical growth rates and future growth prospects, management capability and
profit margins. SIMNA's evaluation of securities reflects information
available from the extensive network of locally based analysts maintained by
SIMNA and its affiliates. SIMNA generally sells securities when either the
country or the issuer no longer meets these selection criteria or when it
identifies more attractive investment opportunities.

Debt Securities. PACE International Emerging Market Fund may invest, to a
limited extent, in bonds, including up to 10% of its total assets in bonds
that are below investment grade. Below investment grade securities are
commonly known as "junk bonds."

Derivatives. The Funds have identical policies with respect to the use of
options, futures contracts, forward currency contracts and other derivatives.
Each Fund may (but is not required to) use options, futures contracts, forward
currency contracts and other derivatives as part of its investment strategy or
to help manage portfolio risks.

Temporary Defensive Positions; Cash Reserves. Each Fund may take a
defensive position that is different from its normal investment strategy to
protect itself from adverse market conditions. This means that each Fund may
temporarily invest a larger-than-normal part, or even all, of its assets in
cash or money market instruments. In addition, each Fund may increase its cash
reserves to facilitate the transition to the investment style and strategies
of a new sub-adviser. Because these investments provide relatively low income,
a defensive or transitional position may not be consistent with achieving a
Fund's investment objective. PACE International Emerging Markets Equity Fund
is normally fully invested in accordance with its investment objective and
policies. However, with the concurrence of Mitchell Hutchins, PACE
International Emerging Markets Equity Fund may take a defensive position that
is different from its normal investment strategy.

Each Fund may invest to a limited extent in money market instruments as a
cash reserve for liquidity or other purposes.

6
<PAGE>

Other Investment Policies. Each Fund may invest up to 15% of its net assets
in illiquid securities. Each 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. PACE International Emerging Markets Equity Fund and
Emerging Markets Equity Fund may borrow money from banks or through reverse
repurchase agreements for temporary or emergency purposes, but not in excess
of 10% and 33 1/3% of each Fund's respective total assets. Neither Fund may
purchase securities while borrowings in excess of 5% of its total assets are
outstanding. Both Funds may sell short "against the box."

Portfolio Turnover. Each Fund may engage in frequent trading to achieve its
investment objectives. Frequent trading may result in portfolio turnover of
100% or more (high portfolio turnover). Frequent trading may increase the
portion of a Fund's capital gains that is realized for tax purposes in any
given year, which may increase the Fund's taxable distributions in that year.
Frequent trading also may increase the portion of a Fund's realized capital
gains that are considered "short-term" for tax purposes. Shareholders will pay
higher taxes on distributions that represent net short-term capital gains than
they would pay on distributions that represent net long-term capital gains.
Frequent trading also may result in higher Fund expenses due to transaction
costs. Neither Fund restricts the frequency of trading to limit expenses or
the tax effect that its distributions may have on shareholders. The portfolio
turnover rates for Emerging Markets Equity Fund for the last two fiscal years
ended October 31, 1999 and 1998, were 80% and 64%, respectively, while the
portfolio turnover rates for PACE International Emerging Markets Equity Fund's
last two fiscal years ended July 31, 2000 and 1999, were 115% and 66%,
respectively.

OPERATIONS OF PACE INTERNATIONAL EMERGING MARKETS EQUITY FUND FOLLOWING THE
REORGANIZATION

It is not expected that PACE International Emerging Markets Equity Fund
will revise any of its policies following the Reorganization to reflect those
of Emerging Markets Equity Fund. SIMNA has reviewed Emerging Markets Equity
Fund's current portfolio and determined that Emerging Markets Equity Fund's
holdings generally are substantially compatible with PACE International
Emerging Markets Equity Fund's portfolio. However, Emerging Markets Equity
Fund holds securities of companies in countries that do not permit ownership
of securities to be transferred from one fund to another as part of a
reorganization (including Brazil, Greece, India, Korea, Malaysia, Poland and
Taiwan). If shareholders of Emerging Markets Equity Fund approve the
Reorganization, these securities will be liquidated in an orderly manner in
connection with the Reorganization, and the proceeds of these sales held in
temporary investments. As of October 31, 2000, Emerging Markets Equity Fund's
investments in such countries represented approximately 37% of its total
portfolio. The relative portion of Emerging Markets Equity Fund's assets
represented by these investments may change depending on changes in market
conditions. The need for Emerging Markets Equity Fund to dispose of assets in
connection with the Reorganization may result in the Fund's selling securities
at a disadvantageous time, and could result in the Emerging Markets Equity
Fund's realizing gains (or losses) that would not otherwise have been
realized. It is also expected that some of Emerging Markets Equity Fund's
holdings may not remain at the time of the Reorganization due to normal
portfolio turnover.

PERFORMANCE

The following bar chart and table provide information about the performance
of PACE International Emerging Markets Equity Fund Class P shares and thus
give some indication of the risks of an investment in the Fund. The Fund's
Class P shares were the only outstanding class of shares during the periods
shown.

The bar chart shows how PACE International Emerging Markets Equity Fund's
performance has varied from year to year. The bar chart does not reflect the
maximum annual PACE SM Select Advisors Program fee of 1.50% (which does not
apply to shares received in the Reorganization) or the effect of sales charges
or the higher expenses of PACE International Emerging Markets Equity Fund's
Class A, Class B and Class C shares; if it did, the total returns shown would
be lower.

7
<PAGE>

The first table that follows the bar chart shows the average annual returns
over several time periods for the Fund's Class P shares. Class P shares are
not subject to the sales charges applicable to the Fund's Class A, Class B and
Class C shares or the higher expenses of these shares. However, because all
classes of shares invest in the same portfolio of securities, their annual
returns would differ only to the extent of the different sales charges or
expenses. The table also does not reflect the maximum annual PACE SM Select
Advisors Program fee applicable only to Class P shares.

The second table that follows the bar chart shows the average annual total
returns over several time periods for Emerging Markets Equity Fund's Class A,
Class B, Class C and Class Y shares. This table reflects sales charges and
12b-1 fees for Class A, Class B and Class C shares of the Fund. The Fund's
Class Y shares are not subject to any sales charges or 12b-1 fees and thus are
most comparable to the Class P shares of PACE International Emerging Markets
Equity Fund.

The tables also compare each Fund's returns to returns of a broad-based
market index -- the MSCI Emerging Markets Free Index -- that is unmanaged and,
therefore, does not reflect the deduction of any fees or expenses.

Each Fund's past performance does not necessarily indicate how it will
perform in the future. This may be particularly true for Emerging Markets
Equity Fund because prior to February 25, 1997, a different sub-adviser
managed its assets.

PACE INTERNATIONAL EMERGING MARKETS EQUITY FUND -- TOTAL RETURN ON CLASS P
SHARES (1996 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS)

[GRAPH]

Calendar Year Total Return
1996 8.52%
1997 -4.72%
1998 -24.43%
1999 61.85%

Total return January 1 to September 30, 2000 -- (24.35)%

Best quarter during years shown: 4th quarter, 1999 -- 27.14%
Worst quarter during years shown: 3rd quarter, 1998 -- (21.52)%

PACE INTERNATIONAL EMERGING MARKETS EQUITY FUND
AVERAGE ANNUAL TOTAL RETURNS
(as of December 31, 1999)

8
<PAGE>

EMERGING MARKETS EQUITY FUND
AVERAGE ANNUAL TOTAL RETURNS
(as of December 31, 1999)

<TABLE>
<CAPTION>
MSCI EMERGING
CLASS CLASS A CLASS B CLASS C CLASS Y MARKETS
(INCEPTION DATE) (1/19/94) (12/5/95) (1/19/94) (1/19/94) FREE INDEX
---------------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
One Year.................. 54.20% 55.06% 58.85% 61.92% 66.41%
Five Years................ 0.17% N/A 0.26% 1.31% 2.00%
Life of Class............. (2.10)% 3.43% (2.13)% (1.12)% *
</TABLE>
----------------
* Average annual total returns for the MSCI Emerging Markets Free Index for
the life of each class were as follows: Class A -- 0.08%; Class B -- 4.92%;
Class C -- 0.08%; and Class Y -- 0.08%.

SALES CHARGES

No sales charges apply when Emerging Markets Equity Fund shareholders
receive shares of PACE International Emerging Markets Equity Fund in
connection with the Reorganization.

DIVIDENDS AND OTHER DISTRIBUTIONS

Each Fund normally declares and pays dividends and distributes
substantially all of its gains, if any, annually. Classes with higher expenses
are expected to have lower dividends. For example, Class B and Class C shares
are expected to have the lowest dividends of any class of a Fund's shares,
while Class Y shares (and, for PACE International Emerging Markets Equity
Fund, Class P shares) would have the highest dividends.

As a shareholder of PACE International Emerging Markets Equity Fund, you
will receive dividends in additional shares of the Fund unless you elect to
receive them in cash. Your current dividend distribution election for Emerging
Markets Equity Fund will remain the same after the Reorganization. Contact
your Financial Advisor at PaineWebber if you prefer to receive dividends in
cash.

On or before the Closing Date, Emerging Markets Equity Fund will distribute
substantially all of its undistributed net investment income, net capital
gain, net short-term capital gain and net gains from foreign currency
transactions, if any, in order to continue to maintain its tax status as a
regulated investment company.

TAXES

The dividends that you receive from either Fund generally are subject to
federal income tax regardless of whether you receive them in additional Fund
shares or in cash. 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.

When you sell Fund shares, you generally will be subject to federal income
tax on any gain you realize. If you exchange any Fund's shares for shares of
another PaineWebber mutual fund, the transaction will be treated as a sale of
the first fund's shares, and any gain will be subject to federal income tax.

Any distribution of capital gains may be taxed at a lower rate than
ordinary income, depending on whether the Fund held the assets that generated
the gains for more than 12 months. A Fund will tell you annually how you
should treat its dividends for tax purposes.

9
<PAGE>

FLEXIBLE PRICING: BUYING, SELLING AND EXCHANGING
SHARES OF PACE INTERNATIONAL EMERGING MARKETS EQUITY FUND

FLEXIBLE PRICING

PACE International Emerging Markets Equity Fund offers four new classes of
shares -- Class A, Class B, Class C and Class Y -- established prior to the
Reorganization. The four new classes of shares of PACE International Emerging
Markets Equity Fund and the procedures for buying, selling and exchanging
these shares, as described below, are substantially identical to the
corresponding classes of shares and related procedures of Emerging Markets
Equity Fund. Prior to November [ ], 2000, PACE International Emerging Markets
Equity Fund offered only Class P shares, which are available only to
participants in the PaineWebber PACESM Select Advisors Program.

No sales charges apply when Emerging Markets Equity Fund shareholders
receive Class A, Class B, Class C or Class Y shares of PACE International
Emerging Markets Equity Fund as part of the Reorganization. PACE International
Emerging Markets Equity Fund is expected to offer its four new classes of
shares to the general public prior to the Reorganization. Class Y shares are
only available to certain types of investors. Class A, Class B and Class C
shares purchased other than as part of the Reorganization will be subject to
the sales charges described below. In addition, each class has different
ongoing expenses.

PACE International Emerging Markets Equity Fund has adopted a plan under
Rule 12b-1 governing its Class A, Class B and Class C shares that allows it to
pay service fees for providing services to shareholders and (for Class B and
Class C shares) distribution fees for the sale of its shares. The terms of
these plans are substantially identical to the terms of the corresponding
plans now in place for Emerging Markets Equity Fund's Class A, Class B and
Class C shares. Because the 12b-1 distribution fees for Class B and Class C
shares are paid out of the Fund's assets on an ongoing basis, over time they
will increase the cost of your investment and may cost you more than if you
paid a front-end sales charge.

CLASS A SHARES

Class A shares have a front-end sales charge that is included in the
offering price of the Class A shares. This sales charge is not invested in the
Fund. Class A shares pay an annual 12b-1 service fee of 0.25% of average net
assets, but they pay no 12b-1 distribution fees. The ongoing expenses for
Class A shares are lower than for Class B and Class C shares.

The Class A sales charges are described in the following table.

<TABLE>
<CAPTION>
REALLOWANCE TO SELECTED
CLASS A SALES CHARGES SALES CHARGE AS A PERCENTAGE OF: DEALERS AS PERCENTAGE OF
AMOUNT OF INVESTMENT OFFERING PRICE NET AMOUNT INVESTED OFFERING PRICE*
--------------------- -------------- ------------------- ------------------------
<S> <C> <C> <C>
Less than $50,000....... 4.50% 4.71% 4.25%
$50,000 to $99,999...... 4.00 4.17 3.75
$100,000 to $249,999.... 3.50 3.63 3.25
$250,000 to $499,999.... 2.50 2.56 2.25
$500,000 to $999,999.... 1.75 1.78 1.50
$1,000,000 and over(1).. None None 1.00(2)
</TABLE>
----------------
(1) A contingent deferred sales charge of 1% of the shares' offering price or
the net asset value at the time of sale by the shareholder, whichever is
less, is charged on sales of shares made within one year of the purchase
date. Class A shares representing reinvestment of dividends are not
subject to this 1% charge. Withdrawals in the first year after purchase
of up to 12% of the value of the fund account under the Fund's Systematic
Withdrawal Plan are not subject to this charge.

(2) Mitchell Hutchins pays 1% to the dealer.

* For an initial period ending on or about December 29, 2000, Mitchell
Hutchins will reallow the full amount of the sales charge to selected
dealers.

10
<PAGE>

Sales Charge Reductions and Waivers. You may qualify for a lower sales
charge if you already own Class A shares of a PaineWebber or PaineWebber PACE
mutual fund. You can combine the value of Class A shares that you own in other
PaineWebber or PaineWebber PACE funds and the purchase amount of the Class A
shares of the PaineWebber fund that you are buying.

You may also qualify for a lower sales charge if you combine your purchases
with those of:

. your spouse, parents or children under age 21;

. your Individual Retirement Accounts (IRAs);

. certain employee benefit plans, including 401(k) plans;

. a company that you control;

. a trust that you created;

. Uniform Gifts to Minors Act/Uniform Transfers to Minors Act accounts
created by you or by a group of investors for your children; or

. accounts with the same adviser.

You may qualify for a complete waiver of the sales charge if you:

. Are an employee of PaineWebber or its affiliates or the spouse, parent
or child under age 21 of a PaineWebber employee;

. Buy these shares through a PaineWebber Financial Advisor who was
formerly employed as an investment executive with a competing brokerage
firm that was registered as a broker-dealer with the SEC, and

-- you were the Financial Advisor"s client at the competing brokerage
firm;

-- within 90 days of buying shares in a fund, you sell shares of one or
more mutual funds that were principally underwritten by the competing
brokerage firm or its affiliates, and you either paid a sales charge
to buy those shares, pay a contingent deferred sales charge when
selling them or held those shares until the contingent deferred sales
charge was waived; and

-- you purchase an amount that does not exceed the total amount of money
you received from the sale of the other mutual fund;

. Acquire these shares through the reinvestment of dividends of a
PaineWebber unit investment trust;

. Are a 401(k) or 403(b) qualified employee benefit plan with 50 or more
eligible employees in the plan or at least $1 million in assets;

. Are a participant in the PaineWebber Members OnlySM Program. For
investments made pursuant to this waiver, Mitchell Hutchins may make
payments out of its own resources to PaineWebber and to participating
membership organizations in a total amount not to exceed 1% of the
amount invested; or

. Acquire these shares through a PaineWebber InsightOneSM Program
brokerage account.

11
<PAGE>

CLASS B SHARES

Class B shares have a contingent deferred sales charge. When you purchase
Class B shares, we invest 100% of your purchase in Fund shares. However, you
may have to pay the deferred sales charge when you sell your Fund shares,
depending on how long you own the shares.

Class B shares pay an annual 12b-1 distribution fee of 0.75% of average net
assets, as well as an annual 12b-1 service fee of 0.25% of average net assets.
If you hold your Class B shares for six years, they will automatically convert
to Class A shares, which have lower ongoing expenses.

If you sell Class B shares before the end of six years, you will pay a
deferred sales charge. We calculate the deferred sales charge by multiplying
the lesser of the net asset value of the Class B shares at the time of
purchase or the net asset value at the time of sale by the percentage shown
below:

<TABLE>
<CAPTION>
PERCENTAGE BY WHICH
IF YOU SELL THE SHARES' NET ASSET
SHARES WITHIN: VALUE IS MULTIPLIED:
-------------- ---------------------
<S> <C>
1st year since purchase................................... 5%
2nd year since purchase................................... 4
3rd year since purchase................................... 3
4th year since purchase................................... 2
5th year since purchase................................... 2
6th year since purchase................................... 1
7th year since purchase................................... None
</TABLE>

We will not impose the deferred sales charge on Class B shares representing
reinvestment of dividends or on withdrawals in any year of up to 12% of the
value of your Class B shares under the Systematic Withdrawal Plan.

For purposes of determining your deferred sales charge and when to convert
your Class B shares to Class A shares, the holding period for the Class B
shares of PACE International Emerging Markets Equity Fund that you receive in
connection with the Reorganization will include the period for which you held
the corresponding Class B shares of Emerging Markets Equity Fund and any other
PaineWebber fund whose shares you exchanged for Class B shares of Emerging
Markets Equity Fund.

To minimize your deferred sales charge, we will assume that you are
selling:

. First, Class B shares representing reinvested dividends, and

. Second, Class B shares that you have owned the longest.

Sales Charge Waivers. You may qualify for a waiver of the deferred sales
charge on a sale of shares if:

. You participate in the Systematic Withdrawal Plan;

. You are older than 59 1/2 and are selling shares to take a distribution
from certain types of retirement plans;

. You receive a tax-free return of an excess IRA contribution;

. You receive a tax-qualified retirement plan distribution following
retirement;

. The shares are sold within one year of your death and you owned the
shares either (1) as the sole shareholder or (2) with your spouse as a
joint tenant with the right of survivorship; or

. The shares are held in trust and the death of the trustee requires
liquidation of the trust.

12
<PAGE>

CLASS C SHARES

Class C shares have a level load sales charge in the form of ongoing 12b-1
distribution fees. When you purchase Class C shares, we will invest 100% of
your purchase in Fund shares.

Class C shares pay an annual 12b-1 distribution fee of 0.75% of average net
assets, as well as an annual 12b-1 service fee of 0.25% of average net assets.
Class C shares do not convert to another class of shares. This means that you
will pay the 12b-1 fees for as long as you own your shares.

Class C shares also have a contingent deferred sales charge. You may have
to pay the deferred sales charge if you sell your shares within one year of
the date you purchased them. We calculate the deferred sales charge on sales
of Class C shares by multiplying 1.00% by the lesser of the net asset value of
the Class C shares at the time of purchase or the net asset value at the time
of sale. We will not impose the deferred sales charge on Class C shares
representing reinvestment of dividends or on withdrawals in the first year
after purchase, of up to 12% of the value of your Class C shares under the
Systematic Withdrawal Plan.

For purposes of determining your deferred sales charge, the holding period
for the Class C shares of PACE International Emerging Markets Equity Fund that
you receive in connection with the Reorganization will include the period for
which you held the corresponding Class C shares of Emerging Markets Equity
Fund and any other PaineWebber fund whose shares you exchanged for Class C
shares of Emerging Markets Equity Fund.

You may be eligible to sell your shares without paying a contingent
deferred sales charge if you are a 401(k) or 403(b) qualified employee benefit
plan with 50 or more eligible employees in the plan or at least $1 million in
assets.

NOTE ON SALES CHARGE WAIVERS FOR CLASS A, CLASS B AND CLASS C SHARES:

If you think that you qualify for any of these sales charge waivers
described above, you will need to provide documentation to PaineWebber or the
Fund. For more information, you should contact your PaineWebber Financial
Advisor or correspondent firm or call 1-800-647-1568. If you want information
on the Fund's Systematic Withdrawal Plan, see the SAI or contact your
PaineWebber Financial Advisor or correspondent firm.

CLASS Y SHARES

Class Y shares have no sales charge. Only specific types of investors can
purchase Class Y shares. You may be eligible to purchase Class Y shares if
you:

. Buy shares through PaineWebber's PACESM Multi-Advisor Program;

. Buy $10 million or more of PaineWebber fund shares at any one time;

. Are a qualified retirement plan with 5,000 or more eligible employees or
$50 million in assets;

. Are a corporation, bank, trust company, insurance company, pension fund,
employee benefit plan, professional firm, trust, estate or educational,
religious or charitable organization with 5,000 or more employees or
with over $50 million in investable assets; or

. Are an investment company advised by PaineWebber or an affiliate of
PaineWebber.

The trustee of PaineWebber's 401(k) Plus Plan for its employees is also
eligible to purchase Class Y shares.

Class Y shares do not pay ongoing distribution or service fees or sales
charges. The ongoing expenses for Class Y shares are the lowest for all the
classes.

13
<PAGE>

BUYING SHARES

If you are a PaineWebber client, or a client of a PaineWebber correspondent
firm, you can purchase fund shares through your Financial Advisor. Otherwise,
you can invest in the Fund through the Fund's transfer agent, PFPC Inc. You
can obtain an application by calling 1-800-647-1568. You must complete and
sign the application and mail it, along with a check, to:

PFPC Inc.
Attn.: PaineWebber Mutual Funds
P.O. Box 8950
Wilmington, DE 19899.

If you wish to invest in other PaineWebber funds, you can do so by:

. Contacting your Financial Advisor (if you have an account at PaineWebber
or at a PaineWebber correspondent firm);

. Mailing an application with a check; or

. Opening an account by exchanging shares from another PaineWebber fund.

You do not have to complete an application when you make additional
investments in the same fund.

The Fund and Mitchell Hutchins reserve the right to reject a purchase order
or suspend the offering of shares.

MINIMUM INVESTMENTS

<TABLE>
<S> <C>
To open an account....................................................... $1,000
To add to an account..................................................... $ 100
</TABLE>

The Fund may waive or reduce these amounts for:

. Employees of PaineWebber or its affiliates; or

. Participants in certain pension plans, retirement accounts, unaffiliated
investment programs or the Fund's automatic investment plans.

Frequent Trading. The interests of a Fund's long-term shareholders and its
ability to manage its investments may be adversely affected when its shares
are repeatedly bought and sold in response to short-term market fluctuations--
also known as "market timing." When large dollar amounts are involved, the
Fund may have difficulty implementing long-term investment strategies, because
it cannot predict how much cash it will have to invest. Market timing also may
force the Fund to sell portfolio securities at disadvantageous times to raise
the cash needed to buy a market timer's Fund shares. These factors may hurt
the Fund's performance and its shareholders. When Mitchell Hutchins believes
frequent trading would have a disruptive effect on the Fund's ability to
manage its investments, Mitchell Hutchins and the Fund may reject purchase
orders and exchanges into the Fund by any person, group or account that
Mitchell Hutchins believes to be a market timer. The Fund may notify the
market timer that a purchase order or an exchange has been rejected after the
day the order is placed.

SELLING SHARES

You can sell your Fund shares at any time. If you own more than one class
of shares, you should specify which class you want to sell. If you do not, the
Fund will assume that you want to sell shares in the following order: Class A,
then Class C, then Class B and last, Class Y.

14
<PAGE>

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.

If you have an account with PaineWebber or a PaineWebber correspondent
firm, you can sell shares by contacting your Financial Advisor.

If you do not have an account at PaineWebber or a correspondent firm, and
you bought your shares through the transfer agent, you can sell your shares by
writing to the Fund's transfer agent. Your letter must include:

. Your name and address;

. The Fund's name;

. The Fund 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 will not accept signature guarantees that are
not a part of these programs.

Mail the letter to:

PFPC Inc.
Attn.: PaineWebber Mutual Funds
P.O. Box 8950
Wilmington, DE 19899.

If you sell Class A shares and then repurchase Class A shares of the same
fund within 365 days of the sale, you can reinstate your account without
paying a sales charge.

It costs the Fund money to maintain shareholder accounts. Therefore, the
Fund reserves the right to repurchase all shares in any account that has a net
asset value of less than $500. If the Fund elects to do this with your
account, it will notify you that you can increase the amount invested to $500
or more within 60 days. The Fund will not repurchase shares in accounts that
fall below $500 solely because of a decrease in the Fund's net asset value.

EXCHANGING SHARES

You may exchange Class A, Class B or Class C shares of the Fund for shares
of the same class of the other PACE funds or of PaineWebber Money Market Fund.
(It is expected that shareholders will also be able to exchange Class A, Class
B or Class C shares of a PACE fund for shares of the same class of certain
other PaineWebber mutual funds beginning on or about March 1, 2001.) You may
not exchange Class Y shares.

You will not pay either a front-end sales charge or a deferred sales charge
when you exchange shares. However, you may have to pay a deferred sales charge
if you later sell the shares you acquired in the exchange. The Fund will use
the date that you purchased the shares in the first fund to determine whether
you must pay a deferred sales charge when you sell the shares in the acquired
fund.

You may not be able to exchange your shares if your exchange is not as
large as the minimum investment amount in that other fund.

15
<PAGE>

You may exchange shares of one fund for shares of another fund only after
the first purchase has settled and the first fund has received your payment.

PaineWebber and Correspondent Firm Clients. If you bought your shares through
PaineWebber or a correspondent firm, you may exchange your shares by placing
an order with your Financial Advisor.

Other Investors. If you are not a PaineWebber or correspondent firm client,
you may exchange your shares by writing to the Fund's transfer agent. You must
include:

. Your name and address;

. The name of the fund whose shares you are selling and the name of the
fund whose shares you want to buy;

. Your account number;

. How much you are exchanging (by dollar amount or by number of shares to
be sold); and

. A guarantee of your signature. (See "Selling Shares" for information on
obtaining a signature guarantee.)

Mail the letter to:

PFPC Inc.
Attn.: PaineWebber Mutual Funds
P.O. Box 8950
Wilmington, DE 19899.

The Fund may modify or terminate the exchange privilege at any time.

PRICING AND VALUATION

The price at which you may buy, sell or exchange Fund shares is based on
net asset value per share. The Fund calculates net asset value on days that
the New York Stock Exchange, Inc. ("NYSE") is open. Each Fund calculates net
asset value separately for each class as of the close of regular trading on
the NYSE (generally, 4:00 p.m., Eastern time). The NYSE normally is not open
on most national holidays and on Good Friday, and the Fund does not price its
shares on these days. 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.

Your price for buying, selling or exchanging shares will be based on the
net asset value that is next calculated after the Fund accepts your order. If
you place your order through PaineWebber, your PaineWebber Financial Advisor
is responsible for making sure that your order is promptly sent to the Fund.

You should keep in mind that a front-end sales charge may be applied to
your purchase if you buy Class A shares. A deferred sales charge may be
applied when you sell Class B or Class C shares.

The Fund calculates its net asset value based on the current market value
for its portfolio securities. The Fund normally obtains market values for its
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 Fund's board. The Fund normally uses 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.

16
<PAGE>

The Fund calculates the U.S. dollar value of investments that are
denominated in foreign currencies daily, based on current exchange rates. The
Fund may own securities, including some securities that trade primarily in
foreign markets, that trade on weekends or other days on which the Fund does
not calculate net asset value. As a result, the Fund's net asset value may
change on days when you will not be able to buy and sell Fund shares. If the
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.

MANAGEMENT

INVESTMENT MANAGER AND INVESTMENT ADVISER

Mitchell Hutchins serves as the investment manager or investment adviser
and as administrator of both Funds. 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 a wholly owned
indirect subsidiary of UBS AG, an internationally diversified organization
with headquarters in Zurich, Switzerland and operations in many areas of the
financial services industry. On September 30, 2000, Mitchell Hutchins was
adviser or sub-adviser of 31 investment companies with 75 separate portfolios
and aggregate assets of approximately $57.9 billion.

As investment manager for PACE International Emerging Markets Equity Fund,
Mitchell Hutchins recommends sub-advisers to the Board of PACE Trust to manage
the Fund's investments and monitors and reviews the performance of those sub-
advisers. PACE Trust has received an exemptive order from the SEC to permit
Mitchell Hutchins (subject to Board approval) to select and replace sub-
advisers and to amend the sub-advisory contracts between Mitchell Hutchins and
the sub-advisers without obtaining shareholder approval.

As investment adviser for Emerging Markets Equity Fund, Mitchell Hutchins
recommends sub-advisers to the Board of Investment Trust II and monitors and
reviews the performance of those sub-advisers.

SUB-ADVISER

SIMNA manages the assets of each Fund. SIMNA is located at 787 Seventh
Avenue, New York, New York 10019. SIMNA and its affiliates have developed an
expertise in emerging markets investments. As of June 30, 2000, SIMNA had
approximately $46 billion in assets under management. As of the same date,
SIMNA's ultimate parent, Schroders plc, and its affiliates collectively had
approximately $217 billion in assets under management.

All investment decisions for each Fund are made by SIMNA's emerging markets
investment committee. The investment committee consists of investment
professionals with specific geographic or regional expertise, as well as
members responsible for economic analysis and strategy and global stock and
sector selection.

ADVISORY FEES AND FUND EXPENSES

PACE International Emerging Markets Equity Fund pays fees to Mitchell
Hutchins for management and administrative services at the combined annual
contract rate of 1.10% of average daily net assets. This combined fee includes
an annual contract rate of 0.90% for investment management services and 0.20%
for administrative services, both expressed as a percentage of the Fund's
average daily net assets. During the fiscal year ended July 31, 2000, PACE
International Emerging Markets Equity Fund paid Mitchell Hutchins at the lower
effective rate of 0.85% of the Fund's average daily net assets because
Mitchell Hutchins waived a portion of its fee. Emerging Markets Equity Fund
paid fees to Mitchell Hutchins for investment advisory and administrative
services for the Fund's most recent fiscal year at the annual rate of 1.20% of
the Fund's average daily net assets.

17
<PAGE>

Mitchell Hutchins anticipates that shareholders of each class of shares of
Emerging Markets Equity Fund who will become shareholders of the corresponding
class of shares of PACE International Emerging Markets Equity Fund will be
subject to total annual operating expenses that are lower than the expenses
they currently pay as shareholders of Emerging Markets Equity Fund due to
economies of scale and the lower management fee paid by PACE International
Emerging Markets Equity Fund to Mitchell Hutchins. The overall operating
expenses of PACE International Emerging Markets Equity Fund are also subject
to a written management fee waiver and expense reimbursement agreement between
the Fund and Mitchell Hutchins, which will remain in effect through December
1, 2002. Even absent that agreement, however, it is expected that the overall
operating expenses for each class of shares of the combined Fund would be
lower than the current expenses of the corresponding class of shares of
Emerging Markets Equity Fund.

ADDITIONAL INFORMATION ABOUT THE REORGANIZATION

REASONS FOR THE REORGANIZATION

Investment Trust II's Board approved the proposed Reorganization of
Emerging Markets Equity Fund into PACE International Emerging Markets Equity
Fund at a meeting held on October 6, 2000. At that meeting and in a series of
prior meetings and presentations, Mitchell Hutchins explained to the Board
that it had undertaken an extensive review of whether the best interests of
shareholders of a number of PaineWebber funds, including Emerging Markets
Equity Fund, would be served by continuing to operate the Funds under their
current arrangements. For Emerging Markets Equity Fund, Mitchell Hutchins'
review included a possible reorganization into another PaineWebber fund.

Mitchell Hutchins noted that Emerging Markets Equity Fund's assets have
generally declined over the last five years to the point where the Fund has
less than $8 million in assets. As a result of these low asset levels, the
Fund's expenses have increased and it has become more difficult to manage
efficiently. Mitchell Hutchins also noted that PACE International Emerging
Markets Equity Fund has a very similar investment objective and, like Emerging
Markets Equity Fund, invests primarily in stocks of companies in emerging
market countries. In addition, the same sub-adviser manages the assets of each
Fund and uses the same basic investment strategy for both Funds. As a result,
the two Funds are managed in a similar manner. (See "Comparison of the Funds"
above for more information about the investment objectives, policies and risks
of each Fund.)

Mitchell Hutchins stated its belief that the reorganization of Emerging
Markets Equity Fund into PACE International Emerging Markets Equity Fund would
likely benefit Emerging Markets Equity Fund's shareholders because the larger
asset base of the combined Fund could give the combined Fund greater
opportunities to diversify investments and realize economies of scale.
Mitchell Hutchins noted that the investment management and administration fee
currently paid by PACE International Emerging Markets Equity Fund is less than
that currently paid by Emerging Markets Equity Fund. In addition, Mitchell
Hutchins informed the Board that it anticipated that current shareholders of
each class of shares of Emerging Markets Equity Fund who will become
shareholders of the combined Fund if the Reorganization is approved will be
subject to total annual operating expenses that are lower than the expenses
they currently pay as shareholders of Emerging Markets Equity Fund due to
economies of scale and the lower management fee paid by PACE International
Emerging Markets Equity Fund to Mitchell Hutchins. Mitchell Hutchins also
informed the Board that the overall operating expenses of PACE International
Emerging Markets Equity Fund are subject to a written management fee waiver
and expense reimbursement agreement between the Fund and Mitchell Hutchins,
which will remain in effect through December 1, 2002. Mitchell Hutchins noted,
however, that even absent that agreement, it is expected that the overall
operating expenses of the combined Fund would be lower than the current
expenses of Emerging Markets Equity Fund. (See "Comparative Fee Table" above
for a more complete description of the fees and expenses of the Funds, both
before and after the Reorganization.)

Mitchell Hutchins also noted its belief that operating two funds that offer
similar investments and management would result in higher expenses and less
efficient operations than operating a single fund that

18
<PAGE>

combines the assets of the two original funds. Mitchell Hutchins also stated
its belief that it would not be desirable from a marketing or administrative
perspective to maintain and to continue to distribute shares for two similar
funds. Mitchell Hutchins noted, moreover, that PACE International Emerging
Markets Equity Fund has the additional flexibility to change its sub-adviser
or add additional sub-advisers when Mitchell Hutchins and the Board of PACE
Trust decide, without the cost or delay of needing first to obtain approval by
a vote of the shareholders of PACE International Emerging Markets Equity Fund.

Finally, Mitchell Hutchins reviewed with the Board of Investment Trust II
the principal terms of the Plan. Mitchell Hutchins informed the Board that the
Reorganization would be tax-free to Emerging Markets Equity Fund and its
shareholders, that shareholders of the combined Fund after the Reorganization
could continue to exchange into other PaineWebber open-end funds without
having to pay an additional sales load should their investment priorities
change, and that no sales charges would be imposed on any PACE International
Emerging Markets Equity Fund shares issued in connection with the
Reorganization. Furthermore, Mitchell Hutchins informed the Board of
Investment Trust II that, for purposes of calculating the contingent deferred
sales charge, the holding period for the Class B and Class C shares
distributed to Class B and Class C shareholders of Emerging Markets Equity
Fund will include the holding period for the shares of Emerging Markets Equity
Fund and any other PaineWebber fund shares of the same class that were
exchanged for shares of Emerging Markets Equity Fund.

As part of its considerations, the Board of Investment Trust II examined a
number of factors with respect to the Reorganization, including: (1) the
compatibility of the Funds' investment objectives, policies and restrictions;
(2) the Funds' respective investment performances; (3) the likely impact of
the Reorganization on the expense ratio of PACE International Emerging Markets
Equity Fund and that expense ratio relative to Emerging Markets Equity Fund's
current expense ratio; (4) that Mitchell Hutchins would bear the costs of the
Reorganization; (5) the compatibility of the Funds' portfolio holdings and the
effect on Emerging Markets Equity Fund and its shareholders of any realignment
of its portfolio in connection with the Reorganization; (6) the tax
consequences of the Reorganization; (7) the potential benefits of the
Reorganization to other persons, including Mitchell Hutchins and its
affiliates; (8) Mitchell Hutchins' assessment that the proposed Reorganization
will be beneficial to the shareholders of Emerging Markets Equity Fund and
will not dilute their interests; (9) the advisory arrangements in place for
the Funds and the level and quality of investment advisory services provided
or to be provided by Mitchell Hutchins and SIMNA; and (10) the terms of the
proposed Plan.

On the basis of the information provided to it and its evaluation of that
information, the Board of Investment Trust II, including a majority of its
Independent Trustees, determined that the Reorganization would be in the best
interests of Emerging Markets Equity Fund and that the interests of existing
Emerging Markets Equity Fund shareholders will not be diluted as a result of
the Reorganization. THEREFORE, THE BOARD OF INVESTMENT TRUST II UNANIMOUSLY
APPROVED THE REORGANIZATION AND RECOMMENDED THE APPROVAL OF THE PLAN BY THE
SHAREHOLDERS OF EMERGING MARKETS EQUITY FUND AT THE MEETING.

TERMS OF THE REORGANIZATION

The terms and conditions under which the Reorganization may be consummated
are set forth in the Plan. Significant provisions of the Plan are summarized
below; however, this summary is qualified in its entirety by reference to the
Plan. A copy of the form of Agreement and Plan of Reorganization and
Termination is attached as Appendix A to this Proxy Statement/Prospectus.

The Plan contemplates (1) PACE International Emerging Markets Equity Fund's
acquiring on the Closing Date all the assets of Emerging Markets Equity Fund
in exchange solely for PACE International Emerging Markets Equity Fund shares
and PACE International Emerging Markets Equity Fund's assumption of all of
Emerging Markets Equity Fund's stated liabilities and (2) the distribution of
those shares to Emerging Markets Equity Fund shareholders. Emerging Markets
Equity Fund's assets include all cash, cash equivalents, securities,
receivables (including interest and dividends receivable), claims and rights
of action, rights to register shares under applicable securities laws, books
and records, deferred and prepaid expenses shown as assets on its books

19
<PAGE>

and other property owned by it as of the close of business on the Closing Date
("Effective Time") (collectively, the "Assets"). PACE International Emerging
Markets Equity Fund will assume from Emerging Markets Equity Fund all its
stated liabilities, debts, obligations and duties of whatever kind or nature,
whether absolute, accrued, contingent, or otherwise, whether or not arising in
the ordinary course of business, and whether or not specifically referred to
in the Plan, but only to the extent disclosed or provided for in Emerging
Markets Equity Fund's most recent annual and semi-annual financial statements,
or incurred by Emerging Markets Equity Fund subsequent to the date of those
financial statements and disclosed in writing to and accepted by PACE Trust
(collectively, the "Liabilities"); provided, however, that Emerging Markets
Equity Fund will use its best efforts to discharge all of its known
Liabilities prior to the Effective Time. PACE International Emerging Markets
Equity Fund will deliver its shares to Emerging Markets Equity Fund, which
then will be distributed to Emerging Markets Equity Fund's shareholders.

The value of the Assets to be acquired, and the amount of the Liabilities
to be assumed, by PACE International Emerging Markets Equity Fund and the NAV
of a PACE International Emerging Markets Equity Fund share will be determined
as of the close of regular trading on the NYSE on the Closing Date ("Valuation
Time"), using the applicable valuation procedures described in PACE
International Emerging Markets Equity Fund's then-current Prospectus and SAI.
These procedures are identical to those used by Emerging Markets Equity Fund
and described in its Prospectus and SAI. Emerging Markets Equity Fund's net
asset value will be the value of its assets to be acquired by PACE
International Emerging Markets Equity Fund, less the amount of Emerging
Markets Equity Fund's Liabilities, as of the Valuation Time.

On, or as soon as practicable after, the Closing Date, Emerging Markets
Equity Fund will distribute to its shareholders of record as of the Effective
Time the PACE International Emerging Markets Equity Fund shares it receives,
by class, so that each Emerging Markets Equity Fund shareholder will receive
the number of full and fractional shares of the corresponding class of PACE
International Emerging Markets Equity Fund equal in aggregate NAV to the
shareholder's shares in Emerging Markets Equity Fund. That distribution will
be accomplished by opening accounts on the books of PACE International
Emerging Markets Equity Fund in the names of Emerging Markets Equity Fund's
shareholders and crediting those accounts with PACE International Emerging
Markets Equity Fund shares equal in aggregate NAV to the shareholders' shares
in Emerging Markets Equity Fund. Fractional shares of PACE International
Emerging Markets Equity Fund will be rounded to the third decimal place.

Immediately after the Reorganization, each former shareholder of Emerging
Markets Equity Fund will own shares of the class of PACE International
Emerging Markets Equity Fund equal in aggregate NAV to the aggregate NAV of
that shareholder's shares of the corresponding class of Emerging Markets
Equity Fund immediately prior to the Reorganization. The NAV per share of PACE
International Emerging Markets Equity Fund will not change as a result of the
Reorganization. Thus, the Reorganization will not result in a dilution of the
interest of any shareholder of either Fund. In addition, Mitchell Hutchins
(not the Funds) will bear the expenses of the Reorganization. Emerging Markets
Equity Fund will be terminated after the Reorganization.

The consummation of the Reorganization is subject to a number of conditions
set forth in the Plan, some of which may be waived by either Fund. In
addition, the Plan may be amended in any mutually agreeable manner, except
that no amendment may be made subsequent to the Meeting that would have a
material adverse effect on the interests of Emerging Markets Equity Fund
shareholders. If the Reorganization is not approved by shareholders at the
Meeting, Emerging Markets Equity Fund will continue to operate as a series of
Investment Trust II, and its Board will then consider other options and
alternatives for the future of the Fund, including the liquidation of the
Fund, resubmitting this proposal for shareholder approval or other appropriate
action.

DESCRIPTION OF SECURITIES TO BE ISSUED

PACE International Emerging Markets Equity Fund is authorized to issue an
unlimited amount of shares of beneficial interest, par value $0.001 per share.
The Fund's shares are divided into five classes, designated Class A, Class B,
Class C, Class Y and Class P shares. Class P shares are not involved in the
Reorganization. A share

20
<PAGE>

of each class of PACE International Emerging Markets Equity Fund represents an
identical interest in the Fund's investment portfolio and has the same rights,
privileges and preferences. Each share of the Fund is entitled to participate
equally in dividends and other distributions of the Fund, except that
dividends and distributions shall appropriately reflect expenses allocated to
a particular class. Shares of the Fund entitle their holders to one vote per
full share and fractional votes for fractional shares held. PACE Trust does
not hold annual meetings. Shares of the Fund generally are voted together,
except that only the shareholders of a particular class of the Fund may vote
on matters affecting only that class, such as the terms of a Rule 12b-1 Plan
as it relates to the class. Shares of each series of PACE Trust will be voted
separately, except when an aggregate vote of all the series is required by
law.

TEMPORARY WAIVER OF INVESTMENT RESTRICTIONS

Certain fundamental investment restrictions of Emerging Markets Equity
Fund, which prohibit it from acquiring more than a stated percentage of
ownership of another company, might be construed as restricting its ability to
carry out the Reorganization. By approving the Plan, you agree to waive, only
for the purpose of the Reorganization, those fundamental investment
restrictions that could prohibit or otherwise impede the transaction.

FEDERAL INCOME TAX CONSIDERATIONS

The Reorganization is intended to be a tax-free reorganization within the
meaning of section 368(a)(1)(C) of the Code. Investment Trust II and PACE
Trust will each receive an opinion of Kirkpatrick & Lockhart LLP, counsel to
Investment Trust II and tax counsel to PACE Trust, substantially to the
following effect:

(1) PACE International Emerging Markets Equity Fund's acquisition of the
Assets in exchange solely for PACE International Emerging Markets Equity
Fund shares and PACE International Emerging Markets Equity Fund's
assumption of the Liabilities, followed by Emerging Markets Equity Fund's
distribution of those shares pro rata to its shareholders constructively in
exchange for their Emerging Markets Equity Fund shares, will qualify as a
reorganization within the meaning of section 368(a)(1)(C) of the Code, and
each Fund will be "a party to a reorganization" within the meaning of
section 368(b) of the Code;

(2) Emerging Markets Equity Fund will recognize no gain or loss on its
transfer of the Assets to PACE International Emerging Markets Equity Fund
in exchange solely for PACE International Emerging Markets Equity Fund
shares and PACE International Emerging Markets Equity Fund's assumption of
the Liabilities or on the subsequent distribution of those shares to
Emerging Markets Equity Fund's shareholders in constructive exchange for
their Emerging Markets Equity Fund shares;

(3) PACE International Emerging Markets Equity Fund will recognize no
gain or loss on its receipt of the Assets in exchange solely for PACE
International Emerging Markets Equity Fund shares and its assumption of the
Liabilities;

(4) PACE International Emerging Markets Equity Fund's basis for the
Assets will be the same as Emerging Markets Equity Fund's basis therefor
immediately before the Reorganization, and PACE International Emerging
Markets Equity Fund's holding period for the Assets will include Emerging
Markets Equity Fund's holding period therefor;

(5) An Emerging Markets Equity Fund shareholder will recognize no gain
or loss on the constructive exchange of all its Emerging Markets Equity
Fund shares solely for PACE International Emerging Markets Equity Fund
shares pursuant to the Reorganization; and

(6) An Emerging Markets Equity Fund shareholder's aggregate basis for
the PACE International Emerging Markets Equity Fund shares to be received
by it in the Reorganization will be the same as the aggregate basis for its
Emerging Markets Equity Fund shares to be constructively surrendered in
exchange

21
<PAGE>

for those PACE International Emerging Markets Equity Fund shares, and its
holding period for those PACE International Emerging Markets Equity Fund
shares will include its holding period for those Emerging Markets Equity
Fund shares, provided the shareholder holds them as capital assets on the
Closing Date.

The opinion may state that no opinion is expressed as to the effect of the
Reorganization on the Funds or any shareholder with respect to any asset as to
which any unrealized gain or loss is required to be recognized for federal
income tax purposes at the end of a taxable year (or on the termination or
transfer thereof) under a mark-to-market system of accounting.

Utilization by PACE International Emerging Markets Equity Fund after the
Reorganization of any pre-Reorganization capital losses realized by Emerging
Markets Equity Fund could be subject to limitation in future years under the
Code.

You should consult your tax adviser regarding the effect, if any, of the
Reorganization in light of your individual circumstances. Because the
foregoing discussion only relates to the federal income tax consequences of
the Reorganization, you also should consult your tax adviser as to state and
local tax consequences, if any, of the Reorganization.

REQUIRED VOTE

The proposal to approve the Plan requires the affirmative vote of the
lesser of (1) 67% or more of the shares of Emerging Markets Equity Fund
present at the Meeting, if more than 50% of the outstanding shares are
represented at the Meeting in person or by proxy, or (2) more than 50% of the
outstanding shares entitled to vote at the Meeting.

THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL.

----------------

ORGANIZATION OF THE FUNDS

PACE International Emerging Markets Equity Fund commenced operations on
August 24, 1995 as a diversified series of PACE Trust. PACE Trust was
organized as a Delaware business trust on September 9, 1994, and is registered
under the 1940 Act as an open-end management investment company. The
operations of PACE Trust, as a Delaware business trust, are governed by its
Trust Instrument, By-Laws and Delaware law.

Emerging Markets Equity Fund commenced operations on January 19, 1994 and
is a diversified series of Investment Trust II. Investment Trust II was
organized as a Massachusetts business trust on August 10, 1992 under the name
"Kidder, Peabody Investment Trust II," and is registered under the 1940 Act as
an open-end management investment company. The operations of Investment Trust
II, as a Massachusetts business trust, are governed by its Amended and
Restated Declaration of Trust, Amended and Restated By-Laws and Massachusetts
law.

22
<PAGE>

FINANCIAL HIGHLIGHTS

The following financial highlights table is intended to help you understand
PACE International Emerging Markets Equity Fund's financial performance for
the periods shown. The table shows information for the Fund's Class P shares
because they were the only class of shares outstanding during 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 and distributions. This information has been
audited by Ernst & Young LLP, independent auditors for PACE International
Emerging Markets Equity Fund, whose report, along with the Fund's financial
statements, is included in the Fund's Annual Report to Shareholders, dated
July 31, 2000, which may be obtained without charge by calling 1-800-647-1568.

<TABLE>
<CAPTION>
PACE
INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS
---------------------------------------------------------------
FOR THE YEARS ENDED JULY 31, FOR THE PERIOD
-------------------------------------------- ENDED
2000 1999 1998 1997 JULY 31, 1996+
--------- --------- --------- --------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 12.05 $ 10.41 $ 15.60 $ 12.49 $ 12.00
--------- --------- --------- --------- ---------
Net investment income
(loss)................. (0.01) 0.09 0.09 0.06 0.07
Net realized and
unrealized gains
(losses) from
investments and foreign
currency............... 0.02 1.62 (5.23) 3.09 0.44
--------- --------- --------- --------- ---------
Net increase (decrease)
from investment
operations............. 0.01 1.71 (5.14) 3.15 0.51
--------- --------- --------- --------- ---------
Dividends from net
investment income...... (0.10) (0.07) (0.05) (0.04) (0.02)
--------- --------- --------- --------- ---------
Net asset value, end of
period................. $ 11.96 $ 12.05 $ 10.41 $ 15.60 $ 12.49
========= ========= ========= ========= =========
Total investment
return(1).............. (0.02)% 16.66% (32.99)% 25.31% 4.23%
========= ========= ========= ========= =========
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $ 82,179 $ 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% 1.50%*
Expenses to average net
assets, before fee
waivers and expense
reimbursements......... 1.75% 1.79% 1.79% 2.09% 2.35%*
Net investment income
(loss) to average net
assets, net of fee
waivers and expense
reimbursements......... (0.08)% 1.05% 0.98% 0.63% 0.94%*
Net investment income
(loss) to average net
assets, before fee
waivers and expense
reimbursements......... (0.33)% 0.76% 0.69% 0.04% 0.08%*
Portfolio turnover...... 115% 66% 51% 39% 22%
</TABLE>
----------------
+ For the period August 24, 1995 (commencement of operations) through July
31, 1996.

* Annualized.

(1) Total investment return is calculated assuming a $10,000 investment on the
first day of each period reported, reinvestment of all dividends and
distributions at net asset value on the payable dates, and a sale at net
asset value on the last day of each period reported. The figures do not
include any applicable sales charges or program fees; results would be
lower if they were included. Total investment return for period of less
than one year has not been annualized.

23
<PAGE>

CAPITALIZATION

The following table shows the capitalization of each of Emerging Markets
Equity Fund and PACE International Emerging Markets Equity Fund as of July 31,
2000, and the pro forma capitalization as of the same date, assuming that
shareholders of Emerging Markets Equity Fund and PaineWebber Asia Pacific
Growth Fund approve the reorganizations with PACE International Emerging
Markets Equity Fund:

<TABLE>
<CAPTION>
PACE INTERNATIONAL PRO FORMA CLASS A
EMERGING MARKETS EMERGING MARKETS COMBINED PACE
EQUITY FUND: EQUITY FUND: INTERNATIONAL EMERGING
CLASS A CLASS A MARKETS EQUITY FUND
---------------- ------------------ ----------------------
<S> <C> <C> <C>
Net Assets.............. $4,112,654 $ 0 $15,529,960
Shares Outstanding...... 449,466 0 1,298,204
Net Asset Value Per
Share.................. $ 9.15 $ 0 $ 11.96

<CAPTION>
PACE INTERNATIONAL PRO FORMA CLASS B
EMERGING MARKETS EMERGING MARKETS COMBINED PACE
EQUITY FUND: EQUITY FUND: INTERNATIONAL EMERGING
CLASS B CLASS B MARKETS EQUITY FUND
---------------- ------------------ ----------------------
<S> <C> <C> <C>
Net Assets.............. $ 792,874 $ 0 $13,517,544
Shares Outstanding...... 89,845 0 1,129,958
Net Asset Value Per
Share.................. $ 8.82 $ 0 $ 11.96

<CAPTION>
PACE INTERNATIONAL PRO FORMA CLASS C
EMERGING MARKETS EMERGING MARKETS COMBINED PACE
EQUITY FUND: EQUITY FUND: INTERNATIONAL EMERGING
CLASS C CLASS C MARKETS EQUITY FUND
---------------- ------------------ ----------------------
<S> <C> <C> <C>
Net Assets.............. $1,897,880 $ 0 $ 7,834,434
Shares Outstanding...... 217,198 0 654,823
Net Asset Value Per
Share.................. $ 8.73 $ 0 $ 11.96

<CAPTION>
PACE INTERNATIONAL PRO FORMA CLASS Y
EMERGING MARKETS EMERGING MARKETS COMBINED PACE
EQUITY FUND: EQUITY FUND: INTERNATIONAL EMERGING
CLASS Y CLASS Y MARKETS EQUITY FUND
---------------- ------------------ ----------------------
<S> <C> <C> <C>
Net Assets.............. $ 742,850 $ 0 $ 961,589
Shares Outstanding...... 80,114 0 80,387
Net Asset Value Per
Share.................. $ 9.27 $ 0 $ 11.96
<CAPTION>
PACE INTERNATIONAL PRO FORMA CLASS P
EMERGING MARKETS EMERGING MARKETS COMBINED PACE
EQUITY FUND: EQUITY FUND: INTERNATIONAL EMERGING
CLASS P CLASS P MARKETS EQUITY FUND
---------------- ------------------ ----------------------
<S> <C> <C> <C>
Net Assets.............. $ 0 $82,178,513 $82,178,513
Shares Outstanding...... 0 6,869,421 6,869,421
Net Asset Value Per
Share.................. $ 0 $ 11.96 $ 11.96
</TABLE>

LEGAL MATTERS

Certain legal matters concerning the issuance of PACE International
Emerging Markets Equity Fund shares as part of the Reorganization will be
passed upon by Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New
York 10019-6099, counsel to PACE Trust. Certain legal matters concerning the
tax consequences of the Reorganization will be passed upon by Kirkpatrick &
Lockhart LLP, 1800 Massachusetts Avenue, N.W., Second Floor, Washington, D.C.
20036-1800.

24
<PAGE>

INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

PACE Trust and Investment Trust II are each subject to the information
requirements of the Securities Exchange Act of 1934 and the 1940 Act and in
accordance therewith each files reports and other information with the SEC.
Reports, proxy statements, registration statements and other information may
be inspected without charge and copied at the Public Reference Room maintained
by the SEC at 450 Fifth Street, N.W., Washington, DC 20549, and at the
following regional offices of the SEC: 7 World Trade Center, Suite 1300, New
York, NY 10048, and 500 West Madison Street, 14th floor, Chicago, IL 60661.
Information on the operation of the Public Reference Room may be obtained by
calling the SEC at 1-202-942-8090. The SEC maintains an internet web site at
http://www.sec.gov that contains information regarding PACE Trust and
Investment Trust II, and other registrants that file electronically with the
SEC. Copies of such material may also be obtained, after paying a duplicating
fee, from the Public Reference Branch, Office of Consumer Affairs and
Information Services, Securities and Exchange Commission, Washington, DC,
20549, or by electronic request at the following e-mail address:
[email protected].

EXPERTS

The audited financial statements of Emerging Markets Equity Fund
incorporated by reference in the SAI have been audited by Ernst & Young LLP,
independent auditors, whose report thereon is included in Emerging Markets
Equity Fund's Annual Report to Shareholders for the fiscal year ended October
31, 1999. The audited financial statements of PACE International Emerging
Markets Equity Fund incorporated by reference in the SAI for the fiscal year
ended July 31, 2000, have been audited by Ernst & Young LLP, independent
auditors, whose report thereon is included in PACE International Emerging
Markets Equity Fund's Annual Report to Shareholders for the fiscal year ended
July 31, 2000. The financial statements audited by Ernst & Young LLP have been
incorporated by reference in the SAI in reliance on its report given on its
authority as experts in auditing and accounting.

OTHER INFORMATION

Shareholder Proposals. As a general matter, Investment Trust II does not
hold regular annual or other meetings of shareholders. Any shareholder who
wishes to submit proposals to be considered at a special meeting of Emerging
Markets Equity Fund's shareholders should send such proposals to Emerging
Markets Equity Fund at 51 West 52nd Street, New York, New York 10019-6114.
Proposals must be received a reasonable period of time prior to any meeting to
be included in the proxy materials. Moreover, inclusion of such proposals is
subject to limitations under the federal securities laws. Persons named as
proxies for any subsequent shareholders' meeting will vote in their discretion
with respect to proposals submitted on an untimely basis.

Other Business. Investment Trust II's management knows of no other business
to be presented to the Meeting other than the matters set forth in this Proxy
Statement/Prospectus, but should any other matter requiring a vote of Emerging
Markets Equity Fund's shareholders arise, the proxies will vote thereon
according to their best judgment in the interests of the Fund.

25
<PAGE>

APPENDIX A

AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION

THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION ("Agreement") is
made as of , 2000, by and among PaineWebber PACE Select Advisors Trust, a
Delaware business trust ("PACE Trust"), on behalf of PACE International
Emerging Markets Equity Investments, a segregated portfolio of assets
("series") thereof ("Acquiring Fund"), PaineWebber Investment Trust II, a
Massachusetts business trust ("Target Trust"), on behalf of PaineWebber
Emerging Markets Equity Fund, a series thereof ("Target"), and solely for
purposes of paragraph 7.2 hereof, Mitchell Hutchins Asset Management Inc.
("Mitchell Hutchins"). (Acquiring Fund and Target are sometimes referred to
herein individually as a "Fund" and collectively as the "Funds," and PACE
Trust and Target Trust are sometimes referred to herein individually as an
"Investment Company" and collectively as the "Investment Companies.") All
agreements, representations, actions, and obligations described herein made or
to be taken or undertaken by Acquiring Fund or Target are made and shall be
taken or undertaken by PACE Trust or Target Trust, respectively.

The Investment Companies wish to effect a reorganization described in
section 368(a)(1) of the Internal Revenue Code of 1986, as amended ("Code"),
and intend this Agreement to be, and adopt it as, a "plan of reorganization"
within the meaning of the regulations under section 368 of the Code
("Regulations"). The reorganization will involve the transfer of Target's
assets to Acquiring Fund in exchange solely for voting shares of beneficial
interest in Acquiring Fund and the assumption by Acquiring Fund of Target's
stated liabilities, followed by the constructive distribution of those shares
pro rata to the holders of shares of beneficial interest in Target ("Target
Shares") in exchange therefor, all on the terms and conditions set forth
herein. The foregoing transactions are referred to herein collectively as the
"Reorganization."

The Target Shares are divided into four classes, designated Class A, Class
B, Class C, and Class Y shares ("Class A Target Shares," "Class B Target
Shares," "Class C Target Shares," and "Class Y Target Shares," respectively).
Acquiring Fund's shares are divided into five classes, four of which also are
designated Class A, Class B, Class C, and Class Y shares ("Class A Acquiring
Fund Shares," "Class B Acquiring Fund Shares," "Class C Acquiring Fund
Shares," and "Class Y Acquiring Fund Shares," respectively, and collectively
"Acquiring Fund Shares"). Each class of Acquiring Fund Shares is substantially
similar to the identically designated class of Target Shares.

In consideration of the mutual promises contained herein, the parties agree
as follows:

1. PLAN OF REORGANIZATION AND TERMINATION

1.1. Target agrees to assign, sell, convey, transfer, and deliver all of
its assets described in paragraph 1.2 ("Assets") to Acquiring Fund. Acquiring
Fund agrees in exchange therefor--

(a) to issue and deliver to Target the number of full and fractional
(rounded to the third decimal place) (i) Class A Acquiring Fund Shares
determined by dividing the net value of Target (computed as set forth
in paragraph 2.1) ("Target Value") attributable to the Class A Target
Shares by the net asset value ("NAV") of a Class A Acquiring Fund Share
(computed as set forth in paragraph 2.2), (ii) Class B Acquiring Fund
Shares determined by dividing the Target Value attributable to the
Class B Target Shares by the NAV of a Class B Acquiring Fund Share (as
so computed), (iii) Class C Acquiring Fund Shares determined by
dividing the Target Value attributable to the Class C Target Shares by
the NAV of a Class C Acquiring Fund Share (as so computed), and (iv)
Class Y Acquiring Fund Shares determined by dividing the Target Value
attributable to the Class Y Target Shares by the NAV of a Class Y
Acquiring Fund Share (as so computed), and

(b) to assume all of Target's stated liabilities described in paragraph 1.3
("Liabilities").

Such transactions shall take place at the Closing (as defined in paragraph
3.1).

A-1
<PAGE>

1.2. The Assets shall include all cash, cash equivalents, securities,
receivables (including interest and dividends receivable), claims and rights
of action, rights to register shares under applicable securities laws, books
and records, deferred and prepaid expenses shown as assets on Target's books,
and other property owned by Target at the Effective Time (as defined in
paragraph 3.1).

1.3. The Liabilities shall include all of Target's liabilities, debts,
obligations, and duties of whatever kind or nature, whether absolute, accrued,
contingent, or otherwise, whether or not arising in the ordinary course of
business, and whether or not specifically referred to in this Agreement, but
only to the extent disclosed or provided for in Target Trust's financial
statements referred to in paragraph 4.1.18, or otherwise disclosed in writing
to and accepted by PACE Trust. Notwithstanding the foregoing, Target agrees to
use its best efforts to discharge all its Liabilities before the Effective
Time.

1.4. At or immediately before the Effective Time, Target shall declare and
pay to its shareholders a dividend and/or other distribution in an amount
large enough so that it will have distributed substantially all (and in any
event not less than 90%) of its investment company taxable income (computed
without regard to any deduction for dividends paid) and substantially all of
its realized net capital gain, if any, for its current taxable year through
the Effective Time.

1.5. At the Effective Time (or as soon thereafter as is reasonably
practicable), Target shall distribute the Acquiring Fund Shares received by it
pursuant to paragraph 1.1 to Target's shareholders of record, determined as of
the Effective Time (each a "Shareholder" and collectively "Shareholders"), in
constructive exchange for their Target Shares. Such distribution shall be
accomplished by PACE Trust's transfer agent's opening accounts on Acquiring
Fund's share transfer books in the Shareholders' names and transferring such
Acquiring Fund Shares thereto. Each Shareholder's account shall be credited
with the respective pro rata number of full and fractional (rounded to the
third decimal place) Acquiring Fund Shares due that Shareholder, by class
(i.e., the account for a Shareholder of Class A Target Shares shall be
credited with the respective pro rata number of Class A Acquiring Fund Shares
due that Shareholder; the account for a Shareholder of Class B Target Shares
shall be credited with the respective pro rata number of Class B Acquiring
Fund Shares due that Shareholder; the account for a Shareholder of Class C
Target Shares shall be credited with the respective pro rata number of Class C
Acquiring Fund Shares due that Shareholder; and the account for a Shareholder
of Class Y Target Shares shall be credited with the respective pro rata number
of Class Y Acquiring Fund Shares due that Shareholder). All outstanding Target
Shares, including any represented by certificates, shall simultaneously be
canceled on Target's share transfer books. Acquiring Fund shall not issue
certificates representing the Acquiring Fund Shares issued in connection with
the Reorganization.

1.6. As soon as reasonably practicable after distribution of the Acquiring
Fund Shares pursuant to paragraph 1.5, but in all events within six months
after the Effective Time, Target shall be terminated as a series of Target
Trust and any further actions shall be taken in connection therewith as
required by applicable law.

1.7. Any reporting responsibility of Target to a public authority is and
shall remain its responsibility up to and including the date on which it is
terminated.

1.8. Any transfer taxes payable on issuance of Acquiring Fund Shares in a
name other than that of the registered holder on Target's books of the Target
Shares constructively exchanged therefor shall be paid by the person to whom
such Acquiring Fund Shares are to be issued, as a condition of such transfer.

2. VALUATION

2.1. For purposes of paragraph 1.1(a), Target's net value shall be (a) the
value of the Assets computed as of the close of regular trading on the New
York Stock Exchange ("NYSE") on the date of the Closing ("Valuation Time"),
using the valuation procedures set forth in Acquiring Fund's then-current
prospectus and statement of additional information ("SAI"), less (b) the
amount of the Liabilities as of the Valuation Time.

A-2
<PAGE>

2.2. For purposes of paragraph 1.1(a), the NAV of each class of Acquiring
Fund Shares shall be computed as of the Valuation Time, using the valuation
procedures set forth in Acquiring Fund's then-current prospectus and SAI.

2.3. All computations pursuant to paragraphs 2.1 and 2.2 shall be made by
or under the direction of Mitchell Hutchins.

3. CLOSING AND EFFECTIVE TIME

3.1. The Reorganization, together with related acts necessary to
consummate the same ("Closing"), shall occur at the Funds' principal office on
or about February , 2001, or at such other place and/or on such other date as
to which the Investment Companies may agree. All acts taking place at the
Closing shall be deemed to take place simultaneously as of the close of
business on the date thereof or at such other time as to which the Investment
Companies may agree ("Effective Time"). If, immediately before the Valuation
Time, (a) the NYSE is closed to trading or trading thereon is restricted or
(b) trading or the reporting of trading on the NYSE or elsewhere is disrupted,
so that accurate appraisal of the Target Value and the NAV of each class of
Acquiring Fund Shares is impracticable, the Effective Time shall be postponed
until the first business day after the day when such trading shall have been
fully resumed and such reporting shall have been restored.

3.2. Target Trust's fund accounting and pricing agent shall deliver at the
Closing a certificate of an authorized officer verifying that the information
(including adjusted basis and holding period, by lot) concerning the Assets,
including all portfolio securities, transferred by Target to Acquiring Fund,
as reflected on Acquiring Fund's books immediately after the Closing, does or
will conform to such information on Target's books immediately before the
Closing. Target Trust's custodian shall deliver at the Closing a certificate
of an authorized officer stating that the Assets held by the custodian will be
transferred to Acquiring Fund at, or arrangements for the transfer thereof to
Acquiring Fund will have been made on or before, the Effective Time.

3.3. Target Trust shall deliver to PACE Trust at the Closing a list of the
names and addresses of the Shareholders and the number of outstanding Target
Shares (by class) owned by each Shareholder (rounded to the third decimal
place), all as of the Effective Time, certified by Target Trust's Secretary or
an Assistant Secretary thereof. PACE Trust's transfer agent shall deliver at
the Closing a certificate as to the opening on Acquiring Fund's share transfer
books of accounts in the Shareholders' names. PACE Trust shall issue and
deliver a confirmation to Target Trust evidencing the Acquiring Fund Shares to
be credited to Target at the Effective Time or provide evidence satisfactory
to Target Trust that such Acquiring Fund Shares have been credited to Target's
account on Acquiring Fund's books. At the Closing, each Investment Company
shall deliver to the other bills of sale, checks, assignments, stock
certificates, receipts, or other documents the other Investment Company or its
counsel reasonably requests.

3.4. Each Investment Company shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipient and dated the Effective Time, to
the effect that the representations and warranties it made in this Agreement
are true and correct at the Effective Time except as they may be affected by
the transactions contemplated by this Agreement.

4. REPRESENTATIONS AND WARRANTIES

4.1. Target represents and warrants to PACE Trust, on behalf of Acquiring
Fund, as follows:

4.1.1. Target Trust is a trust operating under a written declaration of
trust, the beneficial interest in which is divided into transferable shares
("Business Trust"), that is duly organized and validly existing under the
laws of the Commonwealth of Massachusetts; and a copy of its Amended and
Restated Declaration of Trust ("Declaration of Trust") is on file with the
Secretary of the Commonwealth of Massachusetts;

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4.1.2. Target Trust is duly registered as an open-end management
investment company under the Investment Company Act of 1940, as amended
("1940 Act"), and such registration will be in full force and effect at the
Effective Time;

4.1.3. Target is a duly established and designated series of Target
Trust;

4.1.4. At the Closing, Target will have good and marketable title to the
Assets and full right, power, and authority to sell, assign, transfer, and
deliver the Assets free of any liens or other encumbrances (except
securities that are subject to "securities loans" as referred to in section
851(b)(2) of the Code); and on delivery and payment for the Assets,
Acquiring Fund will acquire good and marketable title thereto;

4.1.5. Target's current prospectus and SAI conform in all material
respects to the applicable requirements of the Securities Act of 1933, as
amended ("1933 Act"), and the 1940 Act and the rules and regulations
thereunder and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading;

4.1.6. Target is not in violation of, and the execution and delivery of
this Agreement and consummation of the transactions contemplated hereby
will not conflict with or violate, Massachusetts law or any provision of
the Declaration of Trust or Target Trust's By-Laws or of any agreement,
instrument, lease, or other undertaking to which Target is a party or by
which it is bound or result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, judgment, or decree to
which Target is a party or by which it is bound, except as otherwise
disclosed in writing to and accepted by PACE Trust;

4.1.7. Except as otherwise disclosed in writing to and accepted by PACE
Trust, all material contracts and other commitments of or applicable to
Target (other than this Agreement and investment contracts, including
options, futures, and forward contracts) will be terminated, or provision
for discharge of any liabilities of Target thereunder will be made, at or
prior to the Effective Time, without either Fund's incurring any liability
or penalty with respect thereto and without diminishing or releasing any
rights Target may have had with respect to actions taken or omitted or to
be taken by any other party thereto prior to the Closing;

4.1.8. Except as otherwise disclosed in writing to and accepted by PACE
Trust, no litigation, administrative proceeding, or investigation of or
before any court or governmental body is presently pending or (to Target
Trust's knowledge) threatened against Target Trust with respect to Target
or any of its properties or assets that, if adversely determined, would
materially and adversely affect Target's financial condition or the conduct
of its business; and Target Trust knows of no facts that might form the
basis for the institution of any such litigation, proceeding, or
investigation and is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that
materially or adversely affects its business or its ability to consummate
the transactions contemplated hereby;

4.1.9. The execution, delivery, and performance of this Agreement have
been duly authorized as of the date hereof by all necessary action on the
part of Target Trust's board of trustees, which has made the determinations
required by Rule 17a-8(a) under the 1940 Act; and, subject to approval by
Target's shareholders, this Agreement constitutes a valid and legally
binding obligation of Target, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, and laws of general applicability relating to or affecting
creditors' rights and to general principles of equity;

4.1.10. At the Effective Time, the performance of this Agreement shall
have been duly authorized by all necessary action by Target's shareholders;

4.1.11. No governmental consents, approvals, authorizations, or filings
are required under the 1933 Act, the Securities Exchange Act of 1934, as
amended ("1934 Act"), or the 1940 Act for the execution or

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performance of this Agreement by Target Trust, except for (a) the filing
with the Securities and Exchange Commission ("SEC") of a registration
statement by PACE Trust on Form N-14 relating to the Acquiring Fund Shares
issuable hereunder, and any supplement or amendment thereto ("Registration
Statement"), including therein a prospectus/proxy statement ("Proxy
Statement"), and (b) such consents, approvals, authorizations, and filings
as have been made or received or as may be required subsequent to the
Effective Time;

4.1.12. On the effective date of the Registration Statement, at the time
of the Meeting (as defined in paragraph 5.2), and at the Effective Time,
the Proxy Statement will (a) comply in all material respects with the
applicable provisions of the 1933 Act, the 1934 Act, and the 1940 Act and
the rules and regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements in or omissions
from the Proxy Statement made in reliance on and in conformity with
information furnished by PACE Trust for use therein;

4.1.13. The Liabilities were incurred by Target in the ordinary course
of its business; and there are no Liabilities other than liabilities
disclosed or provided for in Target Trust's financial statements referred
to in paragraph 4.1.18, or otherwise disclosed to and accepted by PACE
Trust, none of which has been materially adverse to the business, assets,
or results of Target's operations;

4.1.14. Target is a "fund" as defined in section 851(g)(2) of the Code;
it qualified for treatment as a regulated investment company under
Subchapter M of the Code ("RIC") for each past taxable year since it
commenced operations and will continue to meet all the requirements for
such qualification for its current taxable year; the Assets will be
invested at all times through the Effective Time in a manner that ensures
compliance with the foregoing; and Target has no earnings and profits
accumulated in any taxable year in which the provisions of Subchapter M did
not apply to it;

4.1.15. Target is not under the jurisdiction of a court in a "title 11
or similar case" (within the meaning of section 368(a)(3)(A) of the Code);

4.1.16. Not more than 25% of the value of Target's total assets
(excluding cash, cash items, and U.S. government securities) is invested in
the stock and securities of any one issuer, and not more than 50% of the
value of such assets is invested in the stock and securities of five or
fewer issuers;

4.1.17. Target's federal income tax returns, and all applicable state
and local tax returns, for all taxable years through and including the
taxable year ended October 31, 1999, have been timely filed and all taxes
payable pursuant to such returns have been timely paid;

4.1.18. Target Trust's audited financial statements for the year ended
October 31, 1999, and unaudited financial statements for the six months
ended April 30, 2000, to be delivered to PACE Trust, fairly represent
Target's financial position as of each such date and the results of its
operations and changes in its net assets for the period then ended; and

4.1.19. Target's management (a) is unaware of any plan or intention of
Shareholders to redeem, sell, or otherwise dispose of (i) any portion of
their Target Shares before the Reorganization to any person "related"
(within the meaning of section 1.368-1(e)(3) of the Regulations) to either
Fund or (ii) any portion of the Acquiring Fund Shares to be received by
them in the Reorganization to any person related (within such meaning) to
Acquiring Fund, (b) does not anticipate dispositions of those Acquiring
Fund Shares at the time of or soon after the Reorganization to exceed the
usual rate and frequency of dispositions of shares of Target as a series of
an open-end investment company, (c) expects that the percentage of
Shareholder interests, if any, that will be disposed of as a result of or
at the time of the Reorganization will be de minimis, and (d) does not
anticipate that there will be extraordinary redemptions of Acquiring Fund
Shares immediately following the Reorganization.

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<PAGE>

4.2. Acquiring Fund represents and warrants to Target Trust, on behalf of
Target, as follows:

4.2.1. PACE Trust is a business trust duly organized, validly existing,
and in good standing under the laws of the State of Delaware; and its
Certificate of Trust, including any amendments thereto ("Certificate of
Trust"), has been duly filed in the office of the Secretary of State
thereof;

4.2.2. PACE Trust is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be in
full force and effect at the Effective Time;

4.2.3. Acquiring Fund is a duly established and designated series of
PACE Trust;

4.2.4. No consideration other than Acquiring Fund Shares (and Acquiring
Fund's assumption of the Liabilities) will be issued in exchange for the
Assets in the Reorganization;

4.2.5. The Acquiring Fund Shares to be issued and delivered to Target
hereunder will, at the Effective Time, have been duly authorized and, when
issued and delivered as provided herein, including the receipt of
consideration in exchange therefor in excess of the par value thereof, will
be duly and validly issued and outstanding shares of Acquiring Fund, fully
paid and non-assessable;

4.2.6. Acquiring Fund's current prospectus and SAI conform in all
material respects to the applicable requirements of the 1933 Act and the
1940 Act and the rules and regulations thereunder and do not include any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;

4.2.7. Acquiring Fund is not in violation of, and the execution and
delivery of this Agreement and consummation of the transactions
contemplated hereby will not conflict with or violate, Delaware law or any
provision of PACE Trust's Certificate of Trust, Trust Instrument (including
any amendments thereto) ("Trust Instrument"), or By-Laws or of any
provision of any agreement, instrument, lease, or other undertaking to
which Acquiring Fund is a party or by which it is bound or result in the
acceleration of any obligation, or the imposition of any penalty, under any
agreement, judgment, or decree to which Acquiring Fund is a party or by
which it is bound, except as otherwise disclosed in writing to and accepted
by Target Trust;

4.2.8. Except as otherwise disclosed in writing to and accepted by
Target Trust, no litigation, administrative proceeding, or investigation of
or before any court or governmental body is presently pending or (to PACE
Trust's knowledge) threatened against PACE Trust with respect to Acquiring
Fund or any of its properties or assets that, if adversely determined,
would materially and adversely affect Acquiring Fund's financial condition
or the conduct of its business; and PACE Trust knows of no facts that might
form the basis for the institution of any such litigation, proceeding, or
investigation and is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that
materially or adversely affects its business or its ability to consummate
the transactions contemplated hereby;

4.2.9. The execution, delivery, and performance of this Agreement have
been duly authorized as of the date hereof by all necessary action on the
part of PACE Trust's board of trustees (together with Target Trust's board
of trustees, the "Boards"), which has made the determinations required by
Rule 17a-8(a) under the 1940 Act; and this Agreement constitutes a valid
and legally binding obligation of Acquiring Fund, enforceable in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, and laws of general applicability relating to
or affecting creditors' rights and to general principles of equity;

4.2.10. No governmental consents, approvals, authorizations, or filings
are required under the 1933 Act, the 1934 Act, or the 1940 Act for the
execution or performance of this Agreement by PACE Trust,

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<PAGE>

except for (a) the filing with the SEC of the Registration Statement and
(b) such consents, approvals, authorizations, and filings as have been made
or received or as may be required subsequent to the Effective Time;

4.2.11. On the effective date of the Registration Statement, at the time
of the Meeting, and at the Effective Time, the Proxy Statement will (a)
comply in all material respects with the applicable provisions of the 1933
Act, the 1934 Act, and the 1940 Act and the rules and regulations
thereunder and (b) not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which such
statements were made, not misleading; provided that the foregoing shall not
apply to statements in or omissions from the Proxy Statement made in
reliance on and in conformity with information furnished by Target Trust
for use therein;

4.2.12. Acquiring Fund is a "fund" as defined in section 851(g)(2) of
the Code; it qualified for treatment as a RIC for each past taxable year
since it commenced operations and will continue to meet all the
requirements for such qualification for its current taxable year; Acquiring
Fund intends to continue to meet all such requirements for the next taxable
year; and it has no earnings and profits accumulated in any taxable year in
which the provisions of Subchapter M of the Code did not apply to it;

4.2.13. Acquiring Fund has no plan or intention to issue additional
Acquiring Fund Shares following the Reorganization except for shares issued
in the ordinary course of its business as a series of an open-end
investment company; nor does Acquiring Fund or any person "related" (within
the meaning of section 1.368-1(e)(3) of the Regulations) thereto have any
plan or intention to redeem or otherwise reacquire any Acquiring Fund
Shares issued to the Shareholders pursuant to the Reorganization, except to
the extent it is required by the 1940 Act to redeem any of its shares
presented for redemption at NAV in the ordinary course of that business;

4.2.14. Following the Reorganization, Acquiring Fund (a) will continue
Target's "historic business" (within the meaning of section 1.368-1(d)(2)
of the Regulations) and (b) will use a significant portion of Target's
"historic business assets" (within the meaning of section 1.368-1(d)(3) of
the Regulations) in a business; in addition, Acquiring Fund (c) has no plan
or intention to sell or otherwise dispose of any of the Assets, except for
dispositions made in the ordinary course of that business and dispositions
necessary to maintain its status as a RIC and (d) expects to retain
substantially all the Assets in the same form as it receives them in the
Reorganization, unless and until subsequent investment circumstances
suggest the desirability of change or it becomes necessary to make
dispositions thereof to maintain such status;

4.2.15. There is no plan or intention for Acquiring Fund to be dissolved
or merged into another business trust or a corporation or any "fund"
thereof (within the meaning of section 851(g)(2) of the Code) following the
Reorganization;

4.2.16. Immediately after the Reorganization, (a) not more than 25% of
the value of Acquiring Fund's total assets (excluding cash, cash items, and
U.S. government securities) will be invested in the stock and securities of
any one issuer and (b) not more than 50% of the value of such assets will
be invested in the stock and securities of five or fewer issuers;

4.2.17. Acquiring Fund does not directly or indirectly own, nor at the
Effective Time will it directly or indirectly own, nor has it directly or
indirectly owned at any time during the past five years, any shares of
Target;

4.2.18. Acquiring Fund's federal income tax returns, and all applicable
state and local tax returns, for all taxable years through and including
the taxable year ended July 31, 1999, have been timely filed and all taxes
payable pursuant to such returns have been timely paid; and

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<PAGE>

4.2.19. PACE Trust's audited financial statements for the year ended
July 31, 2000, to be delivered to Target Trust, fairly represent Acquiring
Fund's financial position as of that date and the results of its operations
and changes in its net assets for the year then ended.

4.3. Each Fund represents and warrants to the Trust of which the other Fund
is a series, on behalf of such other Fund, as follows:

4.3.1. The fair market value of the Acquiring Fund Shares received by
each Shareholder will be approximately equal to the fair market value of
its Target Shares constructively surrendered in exchange therefor;

4.3.2. The Shareholders will pay their own expenses, if any, incurred in
connection with the Reorganization;

4.3.3. The fair market value of the Assets on a going concern basis will
equal or exceed the Liabilities to be assumed by Acquiring Fund and those
to which the Assets are subject;

4.3.4. There is no intercompany indebtedness between the Funds that was
issued or acquired, or will be settled, at a discount;

4.3.5. Pursuant to the Reorganization, Target will transfer to Acquiring
Fund, and Acquiring Fund will acquire, at least 90% of the fair market
value of the net assets, and at least 70% of the fair market value of the
gross assets, held by Target immediately before the Reorganization. For the
purposes of this representation, any amounts used by Target to pay its
Reorganization expenses and to make redemptions and distributions
immediately before the Reorganization (except (a) redemptions in the
ordinary course of its business required by section 22(e) of the 1940 Act
and (b) regular, normal dividend distributions made to conform to its
policy of distributing all or substantially all of its income and gains to
avoid the obligation to pay federal income tax and/or the excise tax under
section 4982 of the Code) after the date of this Agreement will be included
as assets held thereby immediately before the Reorganization;

4.3.6. None of the compensation received by any Shareholder who is an
employee of or service provider to Target will be separate consideration
for, or allocable to, any of the Target Shares held by such Shareholder;
none of the Acquiring Fund Shares received by any such Shareholder will be
separate consideration for, or allocable to, any employment agreement,
investment advisory agreement, or other service agreement; and the
consideration paid to any such Shareholder will be for services actually
rendered and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services;

4.3.7. Immediately after the Reorganization, the Shareholders will not
own shares constituting "control" (within the meaning of section 304(c) of
the Code) of Acquiring Fund; and

4.3.8. Neither Fund will be reimbursed for any expenses incurred by it
or on its behalf in connection with the Reorganization unless those
expenses are solely and directly related to the Reorganization (determined
in accordance with the guidelines set forth in Rev. Rul. 73-54, 1973-1 C.B.
187).

5. COVENANTS

5.1. Each Fund covenants to operate its respective business in the ordinary
course between the date hereof and the Closing, it being understood that--

(a) such ordinary course will include declaring and paying customary
dividends and other distributions and changes in operations
contemplated by each Fund's normal business activities, and

(b) each Fund will retain exclusive control of the composition of its
portfolio until the Closing; provided that if Target's shareholders
approve this Agreement (and the transactions contemplated hereby),
then

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<PAGE>

between the date of such approval and the Closing, the Funds shall
coordinate their respective portfolios so that the transfer of the
Assets to Acquiring Fund will not cause it to fail to be in compliance
with any of its investment policies and restrictions immediately after
the Closing.

5.2. Target covenants to call a shareholders' meeting to consider and act
on this Agreement and to take all other action necessary to obtain approval of
the transactions contemplated hereby ("Meeting").

5.3. Target covenants that the Acquiring Fund Shares to be delivered
hereunder are not being acquired for the purpose of making any distribution
thereof, other than in accordance with the terms hereof.

5.4. Target covenants that it will assist PACE Trust in obtaining
information PACE Trust reasonably requests concerning the beneficial ownership
of Target Shares.

5.5. Target covenants that its books and records (including all books and
records required to be maintained under the 1940 Act and the rules and
regulations thereunder) will be turned over to PACE Trust at the Closing.

5.6. Each Fund covenants to cooperate in preparing the Proxy Statement in
compliance with applicable federal and state securities laws.

5.7. Each Fund covenants that it will, from time to time, as and when
requested by the other Fund, execute and deliver or cause to be executed and
delivered all assignments and other instruments, and will take or cause to be
taken further action, the other Fund may deem necessary or desirable in order
to vest in, and confirm to, (a) Acquiring Fund, title to and possession of all
the Assets, and (b) Target, title to and possession of the Acquiring Fund
Shares to be delivered hereunder, and otherwise to carry out the intent and
purpose hereof.

5.8. Acquiring Fund covenants to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act, and state
securities laws it deems appropriate to continue its operations after the
Effective Time.

5.9. Subject to this Agreement, each Fund covenants to take or cause to be
taken all actions, and to do or cause to be done all things, reasonably
necessary, proper, or advisable to consummate and effectuate the transactions
contemplated hereby.

6. CONDITIONS PRECEDENT

Each Fund's obligations hereunder shall be subject to (a) performance by
the other Fund of all its obligations to be performed hereunder at or before
the Effective Time, (b) all representations and warranties of the other Fund
contained herein being true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated hereby, as of the Effective Time, with the same force and effect
as if made at and as of the Effective Time, and (c) the following further
conditions that, at or before the Effective Time:

6.1. This Agreement and the transactions contemplated hereby shall have
been duly adopted and approved by each Board and shall have been approved by
Target's shareholders in accordance with the Declaration of Trust and Target
Trust's By-Laws and applicable law.

6.2. All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall have been received
that any other or further action is required to permit the parties to carry
out the transactions contemplated hereby. The Registration Statement shall
have become effective under the 1933 Act, no stop orders suspending the
effectiveness thereof shall have been issued, and the SEC shall not have
issued an unfavorable report with respect to the Reorganization under section
25(b) of the 1940 Act nor instituted any proceedings seeking to enjoin
consummation of the transactions contemplated hereby under section 25(c) of
the 1940 Act. All consents, orders, and permits of federal, state, and local
regulatory authorities (including the SEC and state securities authorities)
deemed necessary by either Investment Company to permit consummation, in all

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<PAGE>

material respects, of the transactions contemplated hereby shall have been
obtained, except where failure to obtain same would not involve a risk of a
material adverse effect on either Fund's assets or properties, provided that
either Investment Company may for itself waive any of such conditions.

6.3. At the Effective Time, no action, suit, or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or to obtain damages or other relief in connection with,
the transactions contemplated hereby.

6.4. Target Trust shall have received an opinion of Willkie Farr &
Gallagher ("Willkie Farr") substantially to the effect that:

6.4.1. Acquiring Fund is a duly established series of PACE Trust, a
business trust duly organized, validly existing, and in good standing under
the laws of the State of Delaware, with power under its Certificate of
Trust and Trust Instrument to own all its properties and assets and, to the
knowledge of Willkie Farr, to carry on its business as presently conducted;

6.4.2. This Agreement (a) has been duly authorized, executed, and
delivered by PACE Trust on behalf of Acquiring Fund and (b) assuming due
authorization, execution, and delivery of this Agreement by Target Trust on
behalf of Target, is a valid and legally binding obligation of PACE Trust
with respect to Acquiring Fund, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, and laws of general applicability relating to or affecting
creditors' rights and to general principles of equity;

6.4.3. The Acquiring Fund Shares to be issued and distributed to the
Shareholders under this Agreement, assuming their due delivery as
contemplated by this Agreement and the receipt of consideration in exchange
therefor in excess of the par value thereof, will be duly authorized,
validly issued and outstanding, and fully paid and non-assessable;

6.4.4. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, materially
violate PACE Trust's Certificate of Trust, Trust Instrument, or By-Laws or
any provision of any agreement (known to Willkie Farr, without any
independent inquiry or investigation) to which PACE Trust (with respect to
Acquiring Fund) is a party or by which it is bound or (to the knowledge of
Willkie Farr, without any independent inquiry or investigation) result in
the acceleration of any obligation, or the imposition of any penalty, under
any agreement, judgment, or decree to which PACE Trust (with respect to
Acquiring Fund) is a party or by which it is bound, except as set forth in
such opinion or as otherwise disclosed in writing to and accepted by Target
Trust;

6.4.5. To the knowledge of Willkie Farr (without any independent inquiry
or investigation), no consent, approval, authorization, or order of any
court or governmental authority is required for the consummation by PACE
Trust on behalf of Acquiring Fund of the transactions contemplated herein,
except those obtained under the 1933 Act, the 1934 Act, and the 1940 Act
and those that may be required under state securities laws;

6.4.6. PACE Trust is registered with the SEC as an investment company,
and to the knowledge of Willkie Farr no order has been issued or proceeding
instituted to suspend such registration; and

6.4.7. To the knowledge of Willkie Farr (without any independent inquiry
or investigation), (a) no litigation, administrative proceeding, or
investigation of or before any court or governmental body is pending or
threatened as to PACE Trust (with respect to Acquiring Fund) or any of its
properties or assets attributable or allocable to Acquiring Fund and (b)
PACE Trust (with respect to Acquiring Fund) is not a party to or subject to
the provisions of any order, decree, or judgment of any court or
governmental body that materially and adversely affects Acquiring Fund's
business, except as set forth in such opinion or as otherwise disclosed in
writing to and accepted by Target Trust.

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<PAGE>

In rendering such opinion, Willkie Farr may (1) rely (i) as to matters
governed by the laws of the State of Delaware, on an opinion of competent
Delaware counsel, and (ii) as to certain factual matters, on a certificate of
PACE Trust, (2) make assumptions regarding the authenticity, genuineness,
and/or conformity of documents and copies thereof without independent
verification thereof, (3) limit such opinion to applicable federal and state
law, and (4) define the word "knowledge" and related terms to mean the
knowledge of attorneys then with Willkie Farr who have devoted substantive
attention to matters directly related to this Agreement and the
Reorganization.

6.5. PACE Trust shall have received an opinion of Kirkpatrick & Lockhart
LLP ("K&L") substantially to the effect that:

6.5.1. Target is a duly established series of Target Trust, a Business
Trust duly organized and validly existing under the laws of the
Commonwealth of Massachusetts with power under the Declaration of Trust to
own all its properties and assets and, to the knowledge of K&L, to carry on
its business as presently conducted;

6.5.2. This Agreement (a) has been duly authorized, executed, and
delivered by Target Trust on behalf of Target and (b) assuming due
authorization, execution, and delivery of this Agreement by PACE Trust on
behalf of Acquiring Fund, is a valid and legally binding obligation of
Target Trust with respect to Target, enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, and laws of general applicability relating to
or affecting creditors' rights and to general principles of equity;

6.5.3. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, materially
violate the Declaration of Trust or Target Trust's By-Laws or any provision
of any agreement (known to K&L, without any independent inquiry or
investigation) to which Target Trust (with respect to Target) is a party or
by which it is bound or (to the knowledge of K&L, without any independent
inquiry or investigation) result in the acceleration of any obligation, or
the imposition of any penalty, under any agreement, judgment, or decree to
which Target Trust (with respect to Target) is a party or by which it is
bound, except as set forth in such opinion or as otherwise disclosed in
writing to and accepted by PACE Trust;

6.5.4. To the knowledge of K&L (without any independent inquiry or
investigation), no consent, approval, authorization, or order of any court
or governmental authority is required for the consummation by Target Trust
on behalf of Target of the transactions contemplated herein, except those
obtained under the 1933 Act, the 1934 Act, and the 1940 Act and those that
may be required under state securities laws;

6.5.5. Target Trust is registered with the SEC as an investment company,
and to the knowledge of K&L no order has been issued or proceeding
instituted to suspend such registration; and

6.5.6. To the knowledge of K&L (without any independent inquiry or
investigation), (a) no litigation, administrative proceeding, or
investigation of or before any court or governmental body is pending or
threatened as to Target Trust (with respect to Target) or any of its
properties or assets attributable or allocable to Target and (b) Target
Trust (with respect to Target) is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental
body that materially and adversely affects Target's business, except as set
forth in such opinion or as otherwise disclosed in writing to and accepted
by PACE Trust.

In rendering such opinion, K&L may (1) make assumptions regarding the
authenticity, genuineness, and/or conformity of documents and copies thereof
without independent verification thereof, (2) limit such opinion to applicable
federal and state law, and (3) define the word "knowledge" and related terms
to mean the knowledge of attorneys then with K&L who have devoted substantive
attention to matters directly related to this Agreement and the
Reorganization.

A-11
<PAGE>

6.6. Each Investment Company shall have received an opinion of K&L,
addressed to and in form and substance satisfactory to it, as to the federal
income tax consequences mentioned below ("Tax Opinion"). In rendering the Tax
Opinion, K&L may rely as to factual matters, exclusively and without
independent verification, on the representations made in this Agreement, which
K&L may treat as representations made to it, or in separate letters addressed
to K&L and the certificates delivered pursuant to paragraph 3.4. The Tax
Opinion shall be substantially to the effect that, based on the facts and
assumptions stated therein and conditioned on consummation of the
Reorganization in accordance with this Agreement, for federal income tax
purposes:

6.6.1. Acquiring Fund's acquisition of the Assets in exchange solely for
Acquiring Fund Shares and Acquiring Fund's assumption of the Liabilities,
followed by Target's distribution of those shares pro rata to the
Shareholders constructively in exchange for their Target Shares, will
qualify as a reorganization within the meaning of section 368(a)(1) of the
Code, and each Fund will be "a party to a reorganization" within the
meaning of section 368(b) of the Code;

6.6.2. Target will recognize no gain or loss on the transfer of the
Assets to Acquiring Fund in exchange solely for Acquiring Fund Shares and
Acquiring Fund's assumption of the Liabilities or on the subsequent
distribution of those shares to the Shareholders in constructive exchange
for their Target Shares;

6.6.3. Acquiring Fund will recognize no gain or loss on its receipt of
the Assets in exchange solely for Acquiring Fund Shares and its assumption
of the Liabilities;

6.6.4. Acquiring Fund's basis in the Assets will be the same as Target's
basis therein immediately before the Reorganization, and Acquiring Fund's
holding period for the Assets will include Target's holding period
therefor;

6.6.5. A Shareholder will recognize no gain or loss on the constructive
exchange of all its Target Shares solely for Acquiring Fund Shares pursuant
to the Reorganization; and

6.6.6. A Shareholder's aggregate basis in the Acquiring Fund Shares to
be received by it in the Reorganization will be the same as the aggregate
basis in its Target Shares to be constructively surrendered in exchange for
those Acquiring Fund Shares, and its holding period for those Acquiring
Fund Shares will include its holding period for those Target Shares,
provided the Shareholder held them as capital assets at the Effective Time.

Notwithstanding subparagraphs 6.6.2 and 6.6.4, the Tax Opinion may state that
no opinion is expressed as to the effect of the Reorganization on the Funds or
any Shareholder with respect to any Asset as to which any unrealized gain or
loss is required to be recognized for federal income tax purposes at the end
of a taxable year (or on the termination or transfer thereof) under a mark-to-
market system of accounting.

At any time before the Closing, either Investment Company may waive any of
the foregoing conditions (except that set forth in paragraph 6.1) if, in the
judgment of its Board, such waiver will not have a material adverse effect on
its Fund's shareholders' interests.

7. BROKERAGE FEES AND EXPENSES

7.1. Each Investment Company represents and warrants to the other that
there are no brokers or finders entitled to receive any payments in
connection with the transactions provided for herein.

7.2. Expenses of the Reorganization that relate to the Acquiring Fund
and Target will be borne by Mitchell Hutchins. Any such expenses which are
so borne by Mitchell Hutchins will be solely and directly related to the
Reorganization.

A-12
<PAGE>

8. ENTIRE AGREEMENT; NO SURVIVAL

Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties. The representations, warranties, and covenants contained herein or in
any document delivered pursuant hereto or in connection herewith shall not
survive the Closing.

9. TERMINATION OF AGREEMENT

This Agreement may be terminated at any time at or before the Effective
Time, whether before or after approval by Target's shareholders:

9.1. By either Fund (a) in the event of the other Fund's material breach
of any representation, warranty, or covenant contained herein to be
performed at or before the Effective Time, (b) if a condition to its
obligations has not been met and it reasonably appears that such condition
will not or cannot be met, or (c) if the Closing has not occurred on or
before , 2001; or

9.2. By the parties' mutual agreement.

In the event of termination under paragraphs 9.1(c) or 9.2, there shall be no
liability for damages on the part of either Fund, or the trustees or officers
of either Investment Company, to the other Fund.

10. AMENDMENT

This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Target's shareholders, in any manner
mutually agreed on in writing by the parties; provided that following such
approval no such amendment shall have a material adverse effect on the
Shareholders' interests.

11. MISCELLANEOUS

11.1. This Agreement shall be governed by and construed in accordance
with the internal laws of the State of New York; provided that, in the case
of any conflict between such laws and the federal securities laws, the
latter shall govern.

11.2. Nothing expressed or implied herein is intended or shall be
construed to confer upon or give any person, firm, trust, or corporation
other than the parties and their respective successors and assigns any
rights or remedies under or by reason of this Agreement.

11.3. PACE Trust acknowledges that Target Trust is a Business Trust.
This Agreement is executed by Target Trust on behalf of Target and by its
trustees and/or officers in their capacities as such, and not individually.
Target Trust's obligations under this Agreement are not binding on or
enforceable against any of its trustees, officers, or shareholders but are
only binding on and enforceable against Target's assets and property; and a
trustee of Target Trust shall not be personally liable hereunder to PACE
Trust or its trustees or shareholders for any act, omission, or obligation
of Target Trust or any other trustee thereof. PACE Trust agrees that, in
asserting any rights or claims under this Agreement on behalf of Acquiring
Fund, it shall look only to Target's assets and property in settlement of
such rights or claims and not to such trustees, officers, or shareholders.

11.4. A trustee of PACE Trust shall not be personally liable hereunder
to Target Trust or its trustees or shareholders for any act, omission, or
obligation of PACE Trust or any other trustee thereof. Target Trust agrees
that, in asserting any claim against PACE Trust or its trustees, it shall
look only to Acquiring Fund's assets for payment under such claim; and
neither the shareholders nor the trustees of PACE Trust, nor any of their
agents, whether past, present, or future, shall be personally liable
therefor.

A-13
<PAGE>

11.5. This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been executed by each
Investment Company and delivered to the other party hereto. The headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.

IN WITNESS WHEREOF, each party has caused this Agreement to be executed and
delivered by its duly authorized officers as of the day and year first written
above.

PaineWebber Investment Trust II,
acting on behalf of its series,
PaineWebber Emerging Markets Equity
Fund

By: _________________________________

PaineWebber PACE Select Advisors
Trust, acting on behalf of its
series, PACE International Emerging
Markets Equity Investments

By: _________________________________

Solely with respect to paragraph
7.2. hereof:

Mitchell Hutchins Asset Management
Inc.

By: _________________________________

A-14
<PAGE>

APPENDIX B

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

As of the Record Date, the following entities owned beneficially or of
record 5% or more of the Class [ ] shares of Emerging Markets Equity Fund or
PACE International Emerging Markets Equity Fund. Mitchell Hutchins did not
know of any other person who owned beneficially or of record 5% or more of any
other class of either Fund's outstanding equity securities as of the Record
Date.

EMERGING MARKETS EQUITY FUND

<TABLE>
<CAPTION>
PERCENT BENEFICIAL
OWNERSHIP OF
PERCENT BENEFICIAL COMBINED PACE
OWNERSHIP OF EMERGING INTERNATIONAL EMERGING
SHAREHOLDER'S NAME/ADDRESS MARKETS EQUITY FUND MARKETS EQUITY FUND
-------------------------- --------------------- ----------------------
<S> <C> <C>
[ ] % %
c/o Mitchell Hutchins Asset
Management Inc.
51 West 52nd Street
New York, New York 10019-6114
</TABLE>

PACE INTERNATIONAL EMERGING MARKETS EQUITY FUND

<TABLE>
<CAPTION>
PERCENT BENEFICIAL PERCENT BENEFICIAL
OWNERSHIP OF PACE OWNERSHIP OF
INTERNATIONAL COMBINED PACE
EMERGING MARKETS INTERNATIONAL EMERGING
SHAREHOLDER'S NAME/ADDRESS EQUITY FUND MARKETS EQUITY FUND
-------------------------- ------------------ ----------------------
<S> <C> <C>
[ ] % %
c/o Mitchell Hutchins Asset
Management Inc.
51 West 52nd Street
New York, New York 10019-6114
</TABLE>

B-1
<PAGE>

APPENDIX C

MANAGEMENT'S DISCUSSION OF PACE INTERNATIONAL EMERGING MARKETS EQUITY FUND'S
PERFORMANCE

THE DISCUSSION BELOW WAS TAKEN FROM PACE INTERNATIONAL EMERGING MARKETS
EQUITY FUND'S ANNUAL REPORT FOR ITS FISCAL YEAR ENDING JULY 31, 2000. THIS
DISCUSSION HAS NOT BEEN REVISED TO REFLECT SUBSEQUENT CHANGES, WHICH ARE
DISCUSSED ABOVE IN THE PROXY STATEMENT/PROSPECTUS.

Adviser: Schroder Investment Management North America Inc.

Portfolio Managers: John Troiano, Heather Crighton and Mark Bridgeman

Objective: Capital appreciation

Investment Process: The Portfolio invests primarily in stocks of companies
domiciled in emerging market countries. The adviser's network of regional
specialists and analysts in 24 countries supports an intensive program of
proprietary emerging markets research. Schroder uses its proprietary research
network to identify attractively valued companies in emerging markets that it
believes can leverage off the growth opportunities in these faster growing
economies.

AVERAGE ANNUAL TOTAL RETURNS, PERIODS ENDED 7/31/00

<TABLE>
<CAPTION>
SINCE
1 3 INCEPTION
6 MONTHS YEAR YEARS 8/24/95
-------- ----- ----- ---------
<S> <C> <C> <C> <C>
With PACE program fee*......................... -16.99% -1.51% -9.26% -1.08%
Without PACE program fee....................... -16.36% -0.02% -7.89% 0.42%
MSCI EMF Ex-Malaysia Index..................... -13.24% 6.74% -7.08% -0.04%
Lipper Emerging Markets Funds Median........... -12.30% 10.93% -7.07% 0.82%
</TABLE>
----------------
* The maximum annual PACE program fee is 1.5% of the value of PACE assets.

Past performance does not predict future performance. The 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. Performance
results assume reinvestment of all dividends and capital gains. Total returns
for periods of one year or less are cumulative.

C-1
<PAGE>

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE PORTFOLIO AND
THE MSCI EMF EX-MALAYSIA INDEX

[GRAPH]

MSCI EMF
Portfolio Portfolio Ex-Malaysia
Without fee With Fee Index

Jul-95
Aug-95 $10,017 $10,013 $10,000
Sep-95 9,900 9,884 9,981
Oct-95 9,517 9,490 9,633
Nov-95 9,475 9,436 9,424
Dec-95 9,814 9,761 9,816
Jan-96 10,765 10,694 10,581
Feb-96 10,481 10,399 10,304
Mar-96 10,623 10,527 10,265
Apr-96 10,965 10,853 10,648
May-96 11,057 10,930 10,681
Jun-96 11,074 10,933 10,752
Jul-96 10,423 10,277 10,001
Aug-96 10,581 10,420 10,195
Sep-96 10,581 10,407 10,267
Oct-96 10,106 9,927 9,904
Nov-96 10,348 10,152 10,024
Dec-96 10,649 10,435 10,059
Jan-97 11,202 10,963 10,849
Feb-97 11,629 11,366 11,311
Mar-97 11,478 11,205 11,077
Apr-97 11,629 11,338 11,326
May-97 12,190 11,870 11,665
Jun-97 12,826 12,474 12,439
Jul-97 13,061 12,686 12,827
Aug-97 11,654 11,306 11,480
Sep-97 12,190 11,811 11,916
Oct-97 10,206 9,876 10,009
Nov-97 10,005 9,669 9,789
Dec-97 10,147 9,795 10,044
Jan-98 9,609 9,264 9,280
Feb-98 10,231 9,851 10,023
Mar-98 10,601 10,195 10,514
Apr-98 10,660 10,238 10,525
May-98 9,248 8,871 9,104
Jun-98 8,399 8,046 8,221
Jul-98 8,752 8,374 8,541
Aug-98 6,280 6,002 6,067
Sep-98 6,591 6,291 6,485
Oct-98 7,289 6,948 7,166
Nov-98 7,625 7,260 7,718
Dec-98 7,668 7,291 7,606
Jan-99 7,693 7,306 7,484
Feb-99 7,643 7,249 7,556
Mar-99 8,524 8,075 8,552
Apr-99 9,498 8,987 9,610
May-99 9,363 8,847 9,555
Jun-99 10,523 9,932 10,639
Jul-99 10,210 9,624 10,350
Aug-99 10,235 9,636 10,444
Sep-99 9,761 9,178 10,091
Oct-99 9,939 9,333 10,306
Nov-99 10,803 10,132 11,230
Dec-99 12,410 11,625 12,659
Jan-00 12,205 11,419 12,735
Feb-00 12,146 11,349 12,903
Mar-00 12,316 11,494 12,966
Apr-00 10,917 10,175 11,737
May-00 10,430 9,709 11,252
Jun-00 10,831 10,070 11,648
Jul-00 10,208 9,479 11,049

The graph depicts the performance of PACE International Emerging Markets
Equity Investments versus the MSCI EMF ex-Malaysia Index. It is important to
note that PACE International Emerging Markets Equity Investments is a
professionally managed portfolio while the Index is not available for
investment and is unmanaged. The comparison is shown for illustrative purposes
only.

ADVISER'S COMMENTS

Over the fiscal year ended July 31, 2000, the Portfolio underperformed the
MSCI EMF Index. This underperformance can be attributed primarily to stock
selection in Asia, particularly in Korean and Taiwanese technology stocks.
Stock selection in Latin America (Argentina) and Europe, Middle East and
Africa (EMEA) (Turkey) also detracted from performance. The Portfolio's
underperformance was offset slightly by overweighted positions in Mexico and
Brazil along with an overweighted position in Malaysia prior to that country's
reinstatement in the MSCI EMF Index.

Recent performance of emerging markets has been driven by perceptions about
the direction of the U.S. economy and U.S. interest rates. Market volatility
in the developed markets--notably in the U.S. NASDAQ Composite Index--also
affected the emerging markets, not because of the high proportion of
technology stocks in emerging markets, but because in times of uncertainty
higher risk assets tend to suffer. As a result, emerging markets
underperformed developed markets during the second quarter of 2000, even
though economic and earnings data continued to improve. Recent emerging market
performance has improved, as U.S. economic data have suggested that the U.S.
economy is slowing and may achieve a soft landing. Falling interest rates and
compelling valuations make Brazil our favorite Latin American market. We have
increased the Portfolio's exposure to Asia through purchases of hardware
stocks in Taiwan and Korea. Within EMEA, the Portfolio is underweighted in
Greece and South Africa.

The short-term direction of the emerging markets will continue to depend on
perceptions about the global economy and investor attitudes toward risk. It is
hard to envision significant outperformance in emerging markets while there
are doubts as to whether or not the U.S. economy will suffer a hard landing.
However, we believe that ongoing structural improvements within emerging
markets will limit any underperformance and provide a platform for renewed
strength once the outlook for the U.S. becomes clearer. Although recent data
have dampened fears of a hard landing for the U.S. economy, sentiment toward
Latin America remains fragile due to

C-2
<PAGE>

the belief that it would be the hardest hit region in the event of a U.S.
economic downturn. The impact of a U.S. hard landing would affect both direct
trade links (mainly impacting Mexico) and the availability of capital via
interest rates (more significant for Brazil). Given our core scenario for a
soft landing, we believe that the capital flows issue has been exaggerated.

PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS--PORTFOLIO STATISTICS

<TABLE>
<CAPTION>
CHARACTERISTICS* 7/31/00 REGIONAL ALLOCATION* 7/31/00
<S> <C> <C> <C>
--------------------------------------------------------------------------------------
Net Assets ($MM).................... $82.2 Asia............................. 48.2%
Number of Securities................ 181 Latin America.................... 25.2
Equities (common and preferred
stocks, Europe/Mid East/Africa........... 23.3
warrants and rights)................ 96.7% Cash & Equivalents............... 3.3
-----
Cash & Equivalents.................. 3.3% Total............................ 100.0%
--------------------------------------------------------------------------------------
<CAPTION>
TOP FIVE COUNTRIES* 7/31/00 TOP TEN STOCKS* 7/31/00
<S> <C> <C> <C>
--------------------------------------------------------------------------------------
Taiwan.............................. 13.0% Telefonos de Mexico.............. 4.1%
Korea............................... 11.7 Samsung Electronics.............. 3.7
Brazil.............................. 11.0 China Telecom Hong Kong.......... 2.6
Mexico.............................. 10.6 Infosys Technologies............. 2.5
Hong Kong/China..................... 7.4 China Unicom..................... 2.4
-----
Total............................... 53.7% Korea Telecom.................... 2.3
Taiwan Semiconductor............. 2.2
United Microelectronics.......... 2.1
Korea Electric Power............. 2.0
Compeq Manufacturing............. 1.8
--------------------------------------------------------------------------------------
Total............................ 25.7%
</TABLE>
----------------
* Weightings represent percentages of net assets as of July 31, 2000. The
Portfolio is actively managed and all holdings are subject to change.

C-3
<PAGE>

EVERY SHAREHOLDER'S VOTE IS IMPORTANT

PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY

Please detach at perforation before mailing.

PROXY PAINEWEBBER EMERGING MARKETS EQUITY FUND PROXY
(the sole series of PaineWebber Investment Trust II)

Special Meeting of Shareholders - January 25, 2001

This proxy is being solicited for the Board of Trustees of PaineWebber
Investment Trust II ("Trust") on behalf of PaineWebber Emerging Markets Equity
Fund, the sole series of the Trust. The undersigned hereby appoints as proxies
[________] and [_______], and each of them (with the power of substitution) to
vote for the undersigned all shares of beneficial interest of the undersigned in
PaineWebber Emerging Markets Equity Fund, the sole series of the Trust, at the
above referenced meeting and any adjournment thereof, with all the power the
undersigned would have if personally present. The shares represented by this
proxy will be voted as instructed on the reverse side of this proxy card. Unless
indicated to the contrary, this proxy shall be deemed to grant authority to vote
"FOR" the proposal relating to PaineWebber Emerging Markets Equity Fund.

VOTE VIA THE INTERNET: http://
VOTE VIA TELEPHONE:
CONTROL NUMBER: [999 9999 9999 999]

If shares are held by an individual,
sign your name exactly as it appears on
this card.

If shares are held jointly, either party
may sign, but the name of the party
signing should conform exactly to the
name shown on this proxy card. If shares
are held by a corporation, partnership
or similar account, the name and the
capacity of the individual signing the
proxy card should be indicated - for
example: "ABC Corp., John Doe,
Treasurer."

________________________________________
Signature

________________________________________
Signature (if held jointly)

__________________________________, 200_
Date

Please mark your vote on the reverse side of this card.
<PAGE>

EVERY SHAREHOLDER'S VOTE IS IMPORTANT

PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY

Please detach at perforation before mailing.

The Board of Trustees recommends a vote "FOR" the Proposal. Please indicate your
vote by filling in the box completely. EXAMPLE: [Black Box]

FOR AGAINST ABSTAIN
1. Approval of the Agreement and Plan of Reorganization
and Termination that provides for the reorganization
of PaineWebber Emerging Markets Equity Fund, the [_] [_] [_]
sole series of PaineWebber Investment Trust II, into
PACE International Emerging Markets Equity Investments,
a series of PaineWebber PACE Select Advisors Trust.

Please date and sign the reverse side of this card.
<PAGE>

PAINEWEBBER PACE SELECT ADVISORS TRUST
(ON BEHALF OF PACE INTERNATIONAL EMERGING MARKETS EQUITY
INVESTMENTS)

PAINEWEBBER INVESTMENT TRUST II
(ON BEHALF OF PAINEWEBBER EMERGING MARKETS EQUITY FUND)

51 West 52/nd/ Street
New York, New York 10019-6114

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information relates specifically to the
proposed Reorganization whereby PACE International Emerging Markets Equity
Investments ("PACE International Emerging Markets Equity Fund"), a series of
PaineWebber PACE Select Advisors Trust ("PACE Trust"), would acquire all of the
assets of PaineWebber Emerging Markets Equity Fund ("Emerging Markets Equity
Fund"), the sole series of PaineWebber Investment Trust II, in exchange solely
for shares of PACE International Emerging Markets Equity Fund and the assumption
by PACE International Emerging Markets Equity Fund of all of Emerging Markets
Equity Fund's stated liabilities. This Statement of Additional Information
consists of this cover page and the following described documents, each of which
is incorporated by reference herein and accompanies this Statement of Additional
Information:

(1) The combined Statement of Additional Information of PACE Trust,
which includes information relating to PACE International Emerging Markets
Equity Fund, dated November __, 2000;

(2) The combined Annual Report to Shareholders of PACE Trust, which
includes information relating to PACE International Emerging Markets Equity Fund
for the fiscal year ended July 31, 2000 (Incorporated by reference from N-30D,
SEC File Number 811-08764, filed October 6, 2000, accession number
0000912057-00-043979);

(3) The Semi-Annual Report to Shareholders of Emerging Markets Equity
Fund, dated April 30, 2000 (Incorporated by reference from N-30D, SEC File
Number 811-07104, filed July 7, 2000, accession number 0000912057-00-031151);

(4) The Annual Report to Shareholders of Emerging Markets Equity Fund
for the fiscal year ended October 31, 1999 (Incorporated by reference from
N-30D, SEC File Number 811-07104, filed January 6, 2000, accession number
0000912057-00-000341).

This Statement of Additional Information is not a prospectus and should
be read only in conjunction with the Prospectus/Proxy Statement dated November
__, 2000 relating to the proposed Reorganization. A copy of the Prospectus/Proxy
Statement may be obtained without charge by calling toll-free 1-800-647-1568.
This Statement of Additional Information is dated November __, 2000.

PRO FORMA FINANCIAL STATEMENTS

In accordance with Item 14(a), Instruction 2 of Form N-14, no pro forma
financial statements are required because the net asset value of Emerging
Markets Equity Fund as of October 31, 2000 did not exceed 10% of the net asset
value of PACE International Emerging Markets Equity Fund.
<PAGE>

PaineWebber PACE Select Advisors Trust
51 West 52nd Street
New York, New York 10019-6114

STATEMENT OF ADDITIONAL INFORMATION dated November __, 2000

The following funds are series of PaineWebber PACE Select Advisors Trust
("Trust"), a professionally managed open-end investment company.

<TABLE>
<CAPTION>
<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 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 without charge by calling toll-free 1-800-647-1568.

This SAI is not a prospectus and should be read only in conjunction with the
funds' current Prospectus, dated November _____, 2000. 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 November ____, 2000.

<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
--------
<S> <C>
The Funds and Their Investment Policies.................................................... 2
The Funds' Investments, Related Risks and Limitations...................................... 9
Strategies Using Derivative Instruments.................................................... 33
Organization of Trust; Trustees and Officers; Principal Holders and Management Ownership of
Securities............................................................................. 42
Investment Advisory, Administration and Distribution Arrangements.......................... 46
Portfolio Transactions..................................................................... 57
Reduced Sales Charges, Additional Exchange and Redemption Information And Other Services... 61
Conversion of Class B Shares............................................................... 67
Valuation of Shares........................................................................ 67
Performance Information.................................................................... 69
Taxes...................................................................................... 75
Other Information.......................................................................... 80
Financial Statements....................................................................... 81
Appendix................................................................................... A-1
</TABLE>
<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 obligations of U.S. and foreign
corporations, partnerships, trusts and similar entities, (4) repurchase
agreements and (5) investment company securities. Money market instruments also
include longer term bonds that have variable interest rates or other special
features that give them the financial characteristics of short-term debt. The
fund may purchase participation interests in any of the securities in which it
is permitted to invest. Participation interests are pro rata interests in
securities held by others. The fund maintains a dollar-weighted average
portfolio maturity of 90 days or less.

PACE Money Market Investments may invest in obligations (including
certificates of deposit, bankers' acceptances, time deposits and similar
obligations) of U.S. and foreign banks only if the institution has total assets
at the time of purchase in excess of $1.5 billion. The fund's investments in
non-negotiable time deposits of these institutions will be considered illiquid
if they have maturities greater than seven calendar days.

PACE Money Market Investments may purchase only those obligations that
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"). First Tier Securities include U.S. government securities and securities
of other registered investment companies that are money market funds. Other
First Tier Securities are either (1) rated in the highest short-term rating
category by at least two nationally recognized statistical rating organizations
("rating agencies"), (2) rated in the highest short-term rating category by a
single rating agency if only that rating agency has assigned the obligation a
short-term rating, (3) issued by an issuer that has received such a short-term
rating with respect to a security that is comparable in priority and security,
(4) subject to a guarantee rated in the highest short-term rating category or
issued by a guarantor that has received the highest short-term rating for a
comparable debt obligation or (5) unrated, but determined by 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 397 calendar days issued by
U.S. government agencies or instrumentalities or guaranteed by the U.S.
government. In addition, the fund may purchase variable and floating rate
securities of other issuers. The yields on these securities are adjusted in
relation to changes in specific rates, such as the prime rate, and different
securities may have different adjustment rates. Certain of these obligations
carry a demand feature that gives the fund the right to tender them back to a
specified party, usually the issuer or a remarketing agent, prior to maturity.
The fund's investment in these securities must comply with conditions
established by the Securities and Exchange Commission ("SEC") under which they
may be considered to have remaining maturities of 397 calendar days or less.
The fund will purchase variable and floating rate securities of non-U.S.
government issuers that have remaining maturities of more than 397 calendar days
only if the securities are subject to a demand feature exercisable within 397
calendar days or less. See "The Funds' Investments, Related Risks and
Limitations - Credit and Liquidity Enhancements."

Generally, PACE Money Market Investments may exercise demand features (1)
upon a default under the terms of the underlying security, (2) to maintain its
portfolio in accordance with its investment objective and policies or applicable
legal or regulatory requirements or (3) as needed to provide liquidity to the
fund in order to meet redemption requests. The ability of a bank or other
financial institutional to fulfill its obligations under a letter of credit,
guarantee or other liquidity arrangement might be affected by possible financial
difficulties of its borrowers, adverse interest rate or economic conditions,
regulatory limitations or other factors. The interest rate on floating rate or
variable rate securities
<PAGE>

ordinarily is readjusted on the basis of the prime rate of the bank that
originated the financing or some other index or published rate, such as the 90-
day U.S. Treasury bill rate, or is otherwise reset to reflect market rates of
interest. Generally, these interest rate adjustments cause the market value of
floating rate and variable rate securities to fluctuate less than the market
value of fixed rate securities.

Variable rate securities include variable amount master demand notes, which
are unsecured redeemable obligations that permit investment of varying amounts
at fluctuating interest rates under a direct agreement between PACE Money Market
Investments and an issuer. The principal amount of these notes may be increased
from time to time by the parties (subject to specified maximums) or decreased by
the fund or the issuer. These notes are payable on demand (subject to any
applicable advance notice provisions) and may or may not be rated.

PACE Money Market Investments generally may invest no more than 5% of its
total assets in the securities of a single issuer (other than U.S. government
securities), except that the fund may invest up to 25% of its total assets in
First Tier Securities of a single issuer for a period of up to three business
days. The fund may purchase only U.S. dollar denominated obligations of foreign
issuers.

PACE Money Market Investments may invest up to 10% of its net assets in
illiquid securities. The fund may purchase securities on a when-issued or
delayed delivery basis. The fund may lend its portfolio securities to qualified
broker-dealers or institutional investors in an amount up to 33 1/3% of its
total assets. The fund may borrow from banks and through reverse repurchase
agreements for temporary or emergency purposes, but not in excess of 10% of its
total assets. The costs associated with borrowing may reduce the fund's net
income.

PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS has an investment
objective of current income. Pacific Investment Management Company LLC ("PIMCO")
serves as the fund's investment 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- or asset-backed
securities.

PACE Government Securities Fixed Income Investments may invest up to 15% of
its net assets in illiquid securities. The fund may purchase securities on a
when-issued or delayed delivery basis. The fund may lend its portfolio
securities to qualified broker-dealers or institutional investors in an amount
up to 33 1/3% of its total assets. The fund may engage in dollar rolls and
reverse repurchase agreements involving up to an aggregate of not more than 5%
of its total assets for investment purposes to enhance its return. These
transactions are considered borrowings. The fund may also borrow from banks and
through reverse repurchase agreements for temporary or emergency purposes, but
not in excess of 10% of its total assets. The costs associated with borrowing
may reduce the fund's net income. The fund may invest in loan participations
and assignments. These investments are generally subject to the fund's overall
limitation on investments in illiquid securities. The fund may invest in the
securities of other investment companies and may sell short "against the box."

PACE INTERMEDIATE FIXED INCOME INVESTMENTS has an investment objective of
current income, consistent with reasonable stability of principal. Metropolitan
West Asset Management, LLC ("MWAM") serves as the fund's

3
<PAGE>

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- or asset-backed securities.

PACE Intermediate Fixed Income Investments may invest up to 15% of its net
assets in illiquid securities. The fund may purchase securities on a when-
issued or delayed delivery basis. The fund may lend its portfolio securities to
qualified broker-dealers or institutional investors in an amount up to 33 1/3%
of its total assets. The fund may borrow from banks and through reverse
repurchase agreements for temporary or emergency purposes, but not in excess of
10% of its total assets. The costs associated with borrowing may reduce the
fund's net income. The fund may invest in the securities of other investment
companies and may sell short "against the box."

PACE STRATEGIC FIXED INCOME INVESTMENTS has an investment objective of
total return consisting of income and capital appreciation. Pacific Investment
Management Company LLC ("PIMCO") serves as the fund's investment 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- 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 15% of its net
assets in illiquid securities. The fund may purchase securities on a when-
issued or delayed delivery basis. The fund may lend its portfolio securities to
qualified broker-dealers or institutional investors in an amount up to 33 1/3%
of its total assets. The fund may engage in dollar rolls and reverse repurchase
agreements involving up to an aggregate of not more than 5% of its total assets
for investment purposes to enhance the fund's return. These transactions are
considered borrowings. The fund may also borrow from banks and through reverse
repurchase agreements for temporary or emergency purposes, but not in excess of
10% of its total assets. The costs associated with borrowing may reduce the
fund's net income. The fund may invest in loan participations and assignments.
These investments are generally subject to the fund's overall limitation on
investments in illiquid securities. The fund may invest in the securities of
other investment companies and may sell short "against the box."

PACE MUNICIPAL FIXED INCOME INVESTMENTS has an investment objective of high
current income exempt from federal income tax. Standish, Ayer & Wood, 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

4
<PAGE>

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") (sometimes referred to as a "tax
preference item"), although the fund will endeavor to manage its portfolio so
that no more than 25% of its interest income will be a tax preference item.

PACE Municipal Fixed Income Investments may not invest more than 25% of its
total assets in municipal obligations whose issuers are located in the same
state. The fund also may not invest more than 25% of its total assets in
municipal obligations that are secured by revenues from a particular industry,
except that it may invest up to 50% of its total assets in municipal bonds that
are secured by revenues from public housing authorities and state and local
housing finance authorities, including bonds backed by the U.S. Treasury or
other U.S. government-guaranteed securities. The fund may invest without limit
in private activity bonds, including private activity bonds that are
collateralized by letters of credit issued by banks having stockholders' equity
in excess of $100 million as of the date of their most recently published
statement of financial condition. The fund may not invest more than 5% of its
net assets in municipal leases.

PACE Municipal Fixed Income Investments may invest up to 15% of its net
assets in illiquid securities. The fund may purchase securities on a when-
issued or delayed delivery basis. The fund may lend its portfolio securities to
qualified broker-dealers or institutional investors in an amount up to 33 1/3%
of its total assets. The fund may borrow from banks and through reverse
repurchase agreements for temporary or emergency purposes, but not in excess of
10% of its total assets. The costs associated with borrowing may reduce the
fund's net income. The fund may invest up to 20% of its total assets in certain
taxable securities to maintain liquidity. The fund may invest in the securities
of other investment companies.

PACE GLOBAL FIXED INCOME INVESTMENTS has an investment objective of high
total return. Rogge Global Partners plc and Fischer Francis Trees & Watts, Inc.
and its affiliates ("FFTW") serve as the fund's investment advisers. Mitchell
Hutchins allocates the fund's assets between the two investment advisers. The
fund invests primarily in high-grade bonds, denominated in foreign currencies or
U.S. dollars, of governmental and private issuers in the United States and
developed foreign countries. The fund's investments may include mortgage-backed
and asset-backed securities. The fund invests in bonds of varying maturities but
normally maintains a dollar-weighted average portfolio duration of between four
and eight years. Under normal circumstances, the fund invests at least 65% of
its total assets in U.S. government bonds, foreign government bonds (including
bonds issued by supranational organizations and quasi-governmental entities) and
bonds of U.S. or foreign private issuers. The fund normally invests in a
minimum of four countries, one of which may be the United States. Debt
securities are considered high grade if they are rated A or better by S&P or
Moody's or another rating agency or, if unrated, determined by the fund's
investment 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. 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.

PACE Global Fixed Income Investments may invest up to 15% of its net assets
in illiquid securities. The fund may lend its portfolio securities to qualified
broker-dealers or institutional investors in an amount up to 33 1/3% of its
total assets. The fund may borrow from banks and through reverse repurchase
agreements for temporary or emergency purposes, but not in excess of 10% of its
total assets. The costs associated with borrowing may reduce the fund's net
income. The fund may invest in structured foreign investments and loan
participations and assignments. These investments are generally subject to the
fund's overall limitation on investments in illiquid

5
<PAGE>

securities, and in no event may the fund's investments in loan participations
and assignments exceed 10% of its total assets. The fund may invest in the
securities of other investment companies and may sell short "against the box."

PACE LARGE COMPANY VALUE EQUITY INVESTMENTS has an investment objective of
capital appreciation and dividend income. Institutional Capital Corporation
("ICAP"), Westwood Management Corporation and State Street Global Advisors
("SSgA") serve as the fund's investment advisers. Mitchell Hutchins allocates
the fund's assets among the three investment advisers. The fund invests
primarily in equity securities of U.S. companies that are believed to be
undervalued. The fund's investments may include both large and medium
capitalization companies. However, under normal circumstances, the fund invests
at least 65% of its total assets in common stocks of companies with a total
market capitalization of $4.0 billion or greater at the time of purchase. The
term "market capitalization" means the market value of a company's outstanding
common stock. The fund seeks income primarily from dividend paying stocks.

ICAP and Westwood use active stock selection strategies to invest their
share of the fund's assets. In managing its share of the fund's assets, SSgA
seeks to outperform the Russell 1000 Value Index (before fees and expenses).
SSgA uses several independent valuation measures to identify investment
opportunities within a large cap value universe and combines factors to produce
an overall rank. Comprehensive research determines the optimal weighting of
these perspectives to arrive at strategies that vary by industry. SSgA ranks all
companies within the investable universe initially from top to bottom based on
their relative attractiveness. SSgA constructs the fund's portfolio by
selecting the highest-ranked stocks from the universe and managing deviations
from the benchmark to maximize the risk/reward trade-off. The resulting
portfolio has characteristics similar to the Russell 1000 Value Index.

PACE Large Company Value Equity Investments may invest up to 10% of its
total assets in convertible bonds that are not investment grade, but these
securities must be rated at least BB by S&P, Ba by Moody's or, if unrated,
determined to be of comparable quality by its investment 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 10% of its total assets in
U.S. dollar-denominated foreign securities that are traded on recognized U.S.
exchanges or in the U.S. over-the-counter market. The fund also may invest in
U.S. government bonds and investment grade corporate bonds.

Pace Large Company Value Equity Investments may invest up to 15% of its net
assets in illiquid securities. The fund may purchase securities on a when-
issued or delayed delivery basis. The fund may lend its portfolio securities to
qualified broker-dealers or institutional investors in an amount up to 33 1/3%
of its total assets. The fund may borrow from banks and through reverse
repurchase agreements for temporary or emergency purposes, but not in excess of
10% of its total assets. The costs associated with borrowing may reduce the
fund's net income. The fund may invest in the securities of other investment
companies and may sell short "against the box."

PACE LARGE COMPANY GROWTH EQUITY INVESTMENTS has an investment objective of
capital appreciation. Alliance Capital Management L.P. ("Alliance Capital") and
State Street Global Advisors ("SSgA") 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 that are believed to
have substantial potential for capital growth. Dividend income is an
incidental consideration in the investment advisers' 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.

Alliance Capital uses an active stock selection strategy to invest its
share of the fund's assets. In managing its share of the fund's assets, SSgA
seeks to outperform the Russell 1000 Growth Index (before fees and expenses).
SSgA uses several independent valuation measures to identify investment
opportunities within a large cap growth universe and combines factors to produce
an overall rank. Comprehensive research determines the optimal weighting of
these perspectives to arrive at strategies that vary by industry. SSgA ranks all
companies within the investable universe are ranked from top to bottom based on
their relative attractiveness. SSgA constructs the fund's portfolio by
selecting the highest-ranked stocks from the universe and manages deviations
from the benchmark to

6
<PAGE>

maximize the risk/reward trade-off. The resulting portfolio has characteristics
similar to the Russell 1000 Growth Index.

Subject to its 65% investment requirement, PACE Large Company Growth Equity
Investments may invest in a broad range of equity securities of U.S. issuers.
The fund may invest up to 10% of its total assets in U.S. dollar-denominated
foreign securities that are traded on recognized U.S. exchanges or in the U.S.
over-the-counter market. The fund also may invest in U.S. government bonds and
investment grade corporate bonds.

PACE Large Company Growth Equity Investments may invest up to 15% of its
net assets in illiquid securities. The fund may purchase securities on a when-
issued or delayed delivery basis. The fund may lend its portfolio securities to
qualified broker-dealers or institutional investors in an amount up to 33 1/3%
of its total assets. The fund may borrow from banks and through reverse
repurchase agreements for temporary or emergency purposes, but not in excess of
10% of its total assets. The costs associated with borrowing may reduce the
fund's net income. The fund may invest in the securities of other investment
companies and may sell short "against the box."

PACE SMALL/MEDIUM COMPANY VALUE EQUITY INVESTMENTS has an investment
objective of capital appreciation. Ariel Capital Management, Inc. and ICM 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 marketplace. Although the fund may invest in a
broad range of equity securities, including securities convertible into common
stocks, under normal market conditions the fund invests at least 65% of its
total assets in common stocks of companies with total market capitalization of
less than $4.0 billion at the time of purchase. The term "market
capitalization" means the market value of a company's outstanding common stock.
The fund invests in equity securities that generally have price-to-earnings
("P/E") ratios that are below the market average. The fund invests in the
equity securities of companies only if they have common stock that is traded on
a major stock exchange or in the over-the-counter market. Subject to its 65%
investment requirement, the fund may invest in U.S. government bonds and
investment grade corporate bonds.

PACE Small/Medium Company Value Equity Investments may invest up to 15% of
its net assets in illiquid securities. The fund may purchase securities on a
when-issued or delayed delivery basis. The fund may lend its portfolio
securities to qualified broker-dealers or institutional investors in an amount
up to 33 1/3% of its total assets. The fund may borrow from banks and through
reverse repurchase agreements for temporary or emergency purposes, but not in
excess of 10% of its total assets. The costs associated with borrowing may
reduce the fund's net income. The fund may invest in the securities of other
investment companies and may sell short "against the box."

PACE SMALL/MEDIUM COMPANY GROWTH EQUITY INVESTMENTS has an investment
objective of capital appreciation. Delaware Management Company 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.
The term "market capitalization" means the market value of a company's
outstanding common stock. 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 15% of
its net assets in illiquid securities. The fund may purchase securities on a
when-issued or delayed delivery basis. The fund may lend its portfolio
securities to qualified broker-dealers or institutional investors in an amount
up to 33 1/3% of its total assets. The fund may borrow from banks and through
reverse repurchase agreements for temporary or emergency purposes, but not in
excess of 10% of its total assets. The costs associated with borrowing may
reduce the fund's net income. The fund may invest in the securities of other
investment companies and may sell short "against the box."

7
<PAGE>

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) that derive a significant proportion (at least 50%) of
their revenues or profits from goods produced or sold, investments made or
services performed in the respective country or that have at least 50% of their
assets situated in such a country.

PACE International Equity Investments normally invests in the securities of
issuers from three or more countries outside the United States, and, under
normal market conditions, its investments involve securities principally traded
in at least 10 different countries. The fund's investment 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. 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 costs associated with borrowing may reduce the
fund's net income. The fund may invest in structured foreign investments. The
fund may invest in the securities of other investment companies, including
closed-end funds that invest in foreign markets, and may sell short "against the
box."

PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS has an investment
objective of capital appreciation. Schroder Investment Management North America
Inc. ("SIMNA") serves as the fund's investment 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) that derive a significant proportion (at least 50%) of their revenues or
profits from goods produced or sold, investments made or services performed in
the respective country or that have at least 50% of their assets situated in
such a country. The fund considers "emerging market countries" to be those
countries not included in the Morgan Stanley Capital International World Index
of major world economies. SIMNA may at times determine, based on its own
analysis, that an economy included in the MSCI World Index should nonetheless be
considered an emerging market country, in which case, that country would
constitute an emerging market country for purposes of the fund's investments.
Based on current political and economic factors, SIMNA considers Hong Kong SAR
to be such a country. The fund normally invests in the securities of issuers
from three or more emerging market countries.

PACE International Emerging Markets Equity Investments may invest up to 35%
of its total assets in bonds, including U.S. government bonds, foreign
government bonds and bonds of private U.S. and foreign issuers, including
convertible bonds. The fund's investments may include Brady Bonds. The fund's
investments in bonds of private issuers are rated at the time of purchase at
least A by S&P or Moody's or, if unrated, determined by the investment adviser
to be of comparable quality, except that up to 10% of the fund's total assets
may be invested in

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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.

SIMNA believes that one of its key strengths is the worldwide network of
local research offices, many long established, in emerging market countries,
that is maintained by SIMNA and its affiliates. Each year, these companies
research and conduct on-site visits in emerging market countries. During 1999,
SIMNA and its affiliates made 1425 exclusive company visits. As a result of
these visits, SIMNA and its affiliates further develop extensive management
contacts with, and produce independent forecasts of earnings estimates for,
approximately 525 out of a total universe of 900 companies. SIMNA's analysis
involves researching companies across the full capitalization spectrum.

PACE International Emerging Markets Equity Investments may invest up to 15%
of its net assets in illiquid securities. The fund may lend its portfolio
securities to qualified broker-dealers or institutional investors in an amount
up to 33 1/3% of its total assets. The fund may borrow from banks and through
reverse repurchase agreements for temporary or emergency purposes, but not in
excess of 10% of its total assets. The costs associated with borrowing may
reduce the fund's net income. The fund may invest in structured foreign
investments and loan participations and assignments. These investments are
generally subject to the fund's overall limitation on investments in illiquid
securities, and in no event may the fund's investments in loan participations
and assignments exceed 10% of its total assets. The fund may invest in the
securities of other investment companies, including closed-end funds that invest
in foreign markets, and may sell short "against the box."

THE FUNDS' INVESTMENTS, RELATED RISKS AND LIMITATIONS

The following supplements the information contained in the Prospectus and
above concerning the funds' investments, related risks and limitations. Except
as otherwise indicated in the Prospectus or SAI, the funds have established no
policy limitations on their ability to use the investments or techniques
discussed in these documents.

EQUITY SECURITIES. Equity securities include common stocks, most preferred
stocks and securities that are convertible into them, including common stock
purchase warrants and rights, equity interests in trusts, partnerships, joint
ventures or similar enterprises and depositary receipts. Common stocks, the
most familiar type, represent an equity (ownership) interest in a corporation.

Preferred stock has certain fixed income features, like a bond, but
actually it is an equity security that is senior to a company's common stock.
Convertible bonds may include debentures and notes that may be converted into or
exchanged for a prescribed amount of common stock of the same or a different
issuer within a particular period of time at a specified price or formula. Some
preferred stock also may be converted into or exchanged for common stock.
Depositary receipts typically are issued by banks or trust companies and
evidence ownership of underlying equity securities.

While past performance does not guarantee future results, equity securities
historically have provided the greatest long-term growth potential in a company.
However, their prices generally fluctuate more than other securities and reflect
changes in a company's financial condition and in overall market and economic
conditions. Common stocks generally represent the riskiest investment in a
company. It is possible that a fund may experience a substantial or complete
loss on an individual equity investment. While this is possible with bonds, it
is less likely.

BONDS. Bonds are fixed or variable rate debt obligations, including bills,
notes, debentures, money market instruments and similar instruments and
securities. Mortgage- and asset-backed securities are types of bonds, and
certain types of income-producing, non-convertible preferred stocks may be
treated as bonds for investment purposes. Bonds generally are used by
corporations, governments and other issuers to borrow money from investors. The
issuer pays the investor a fixed or variable rate of interest and normally must
repay the amount borrowed on or before maturity. Many preferred stocks and some
bonds are "perpetual" in that they have no maturity date.

Bonds are subject to interest rate risk and credit risk. Interest rate
risk is the risk that interest rates will rise and that, as a result, bond
prices will fall, lowering the value of a fund's investments in bonds. In
general, bonds

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<PAGE>

having longer durations are more sensitive to interest rate changes than are
bonds with shorter durations. Credit risk is the risk that an issuer may be
unable or unwilling to pay interest and/or principal on the bond. Credit risk
can be affected by many factors, including adverse changes in the issuer's own
financial condition or in economic conditions.

CREDIT RATINGS; NON-INVESTMENT GRADE BONDS. Moody's, S&P and other rating
agencies are private services that provide ratings of the credit quality of
bonds, including municipal bonds, and certain other securities. A description
of the ratings assigned to corporate bonds by Moody's and S&P is included in the
Appendix to this SAI. The process by which Moody's and S&P determine ratings
for mortgage-backed securities includes consideration of the likelihood of the
receipt by security holders of all distributions, the nature of the underlying
assets, the credit quality of the guarantor, if any, and the structural, legal
and tax aspects associated with these securities. Not even the highest such
rating represents an assessment of the likelihood that principal prepayments
will be made by obligors on the underlying assets or the degree to which such
prepayments may differ from that originally anticipated, nor do such ratings
address the possibility that investors may suffer a lower than anticipated yield
or that investors in such securities may fail to recoup fully their initial
investment due to prepayments.

Credit ratings attempt to evaluate the safety of principal and interest
payments, but they do not evaluate the volatility of a bond's value or its
liquidity and do not guarantee the performance of the issuer. Rating agencies
may fail to make timely changes in credit ratings in response to subsequent
events, so that an issuer's current financial condition may be better or worse
than the rating indicates. There is a risk that rating agencies may downgrade a
bond's rating. Subsequent to a bond's purchase by a fund, it may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the fund. The funds may use these ratings in determining whether to
purchase, sell or hold a security. It should be emphasized, however, that
ratings are general and are not absolute standards of quality. Consequently,
bonds with the same maturity, interest rate and rating may have different market
prices.

In addition to ratings assigned to individual bond issues, the applicable
investment 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 this SAI include bonds that are not rated by a rating
agency but that the applicable investment adviser determines to be of comparable
quality.

Non-investment grade bonds (commonly known as "junk bonds" and sometimes
referred to as "high yield bonds") are rated Ba or lower by Moody's, BB or lower
by S&P, comparably rated by another rating agency or, if unrated, determined by
a fund's investment 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, which are sometimes referred to as
"high yield bonds," are considered predominantly speculative with respect to the
issuer's ability to pay interest and repay principal and may involve significant
risk exposure to adverse conditions. Non-investment grade bonds generally offer
a higher current yield than that available for investment grade issues; however,
they involve greater risks, in that they are especially sensitive to adverse
changes in general economic conditions and in the industries in which the
issuers are engaged, to changes in the financial condition of the issuers

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<PAGE>

and to price fluctuations in response to changes in interest rates. During
periods of economic downturn or rising interest rates, highly leveraged issuers
may experience financial stress that could adversely affect their ability to
make payments of interest and principal and increase the possibility of default.
In addition, such issuers may not have more traditional methods of financing
available to them and may be unable to repay debt at maturity by refinancing.
The risk of loss due to default by such issuers is significantly greater because
such securities frequently are unsecured by collateral and will not receive
payment until more senior claims are paid in full.

The market for non-investment grade bonds, especially those of foreign
issuers, has expanded rapidly in recent years, which has been a period of
generally expanding growth and lower inflation. These securities will be
susceptible to greater risk when economic growth slows or reverses and when
inflation increases or deflation occurs. This has been reflected in recent
volatility in emerging market securities. In the past, many lower rated bonds
experienced substantial price declines reflecting an expectation that many
issuers of such securities might experience financial difficulties. As a result,
the yields on lower rated bonds rose dramatically. However, those higher yields
did not reflect the value of the income stream that holders of such securities
expected. Rather, they reflected the risk that holders of such securities could
lose a substantial portion of their value due to financial restructurings or
defaults by the issuers. There can be no assurance that those declines will not
recur.

The market for non-investment grade bonds generally is thinner and less
active than that for higher quality securities, which may limit a fund's ability
to sell such securities at fair value in response to changes in the economy or
financial markets. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may also decrease the values and liquidity of
non-investment grade bonds, especially in a thinly traded market.

Opinions relating to the validity of municipal bonds and to the exemption
of interest thereon from federal income tax and (when available) from treatment
as a tax preference item, are rendered by bond counsel to the respective issuing
authorities at the time of issuance. Neither PACE Municipal Fixed Income
Investments, its investment adviser or Mitchell Hutchins reviews the proceedings
relating to the issuance of municipal bonds or the basis for such opinions. An
issuer's obligations under its municipal bonds are subject to the bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors (such
as the federal bankruptcy laws) and federal, state and local laws that may be
enacted that adversely affect the tax-exempt status of interest on the municipal
bonds held by the fund or the exempt-interest dividends received by its
shareholders, extend the time for payment of principal or interest, or both, or
impose other constraints upon enforcement of such obligations. There is also
the possibility that, as a result of litigation or other conditions, the power
or ability of issuers to meet their obligations for the payment of principal of
and interest on their municipal bonds may be materially and adversely affected.

U.S. GOVERNMENT SECURITIES. U.S. government securities include direct
obligations of the U.S. Treasury (such as Treasury bills, notes or bonds) and
obligations issued or guaranteed as to principal and interest (but not as to
market value) by the U.S. government, its agencies or its instrumentalities.
U.S. government securities include mortgage-backed securities issued or
guaranteed by government agencies or government-sponsored enterprises. Other
U.S. government securities may be backed by the full faith and credit of the
U.S. government or supported primarily or solely by the creditworthiness of the
government-related issuer or, in the case of mortgage-backed securities, by
pools of assets.

U.S. government securities also include separately traded principal and
interest components of securities issued or guaranteed by the U.S. Treasury,
which are traded independently under the Separate Trading of Registered Interest
and Principal of Securities ("STRIPS") program. Under the STRIPS program, the
principal and interest components are individually numbered and separately
issued by the U.S. Treasury.

Treasury inflation-protected securities ("TIPS") (also known as "inflation-
indexed securities") 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. See "Taxes
-- Other Information," below.

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<PAGE>

ASSET-BACKED SECURITIES. Asset-backed securities have structural
characteristics similar to mortgage-backed securities, as discussed in more
detail below. However, the underlying assets are not first lien mortgage loans
or interests therein but include assets such as motor vehicle installment sales
contracts, other installment sales contracts, home equity loans, leases of
various types of real and personal property and receivables from revolving
credit (credit card) agreements. Such assets are securitized through the use of
trusts or special purpose corporations. Payments or distributions of principal
and interest may be guaranteed up to a certain amount and for a certain time
period by a letter of credit or pool insurance policy issued by a financial
institution unaffiliated with the issuer, or other credit enhancements may be
present. See "The Funds' Investments, Related Risks and Limitations -- Credit
and Liquidity Enhancements."

MORTGAGE-BACKED SECURITIES. Mortgage-backed securities represent direct or
indirect interests in pools of underlying mortgage loans that are secured by
real property. U.S. government mortgage-backed securities are issued or
guaranteed as to the payment of principal and interest (but not as to market
value) by Ginnie Mae (also known as the Government National Mortgage
Association), Fannie Mae (also known as the Federal National Mortgage
Association), Freddie Mac (also known as the Federal Home Loan Mortgage
Corporation) or other government sponsored enterprises. Other domestic
mortgage-backed securities are sponsored or issued by private entities,
generally originators of and investors in mortgage loans, including savings
associations, mortgage bankers, commercial banks, investment bankers and special
purposes entities (collectively, "Private Mortgage Lenders"). Payments of
principal and interest (but not the market value) of such private mortgage-
backed securities may be supported by pools of mortgage loans or other mortgage-
backed securities that are guaranteed, directly or indirectly, by the U.S.
government or one of its agencies or instrumentalities, or they may be issued
without any government guarantee of the underlying mortgage assets but with some
form of non-government credit enhancement. Foreign mortgage-backed securities
may be issued by mortgage banks and other private or governmental entities
outside the United States and are supported by interests in foreign real estate.

Mortgage-backed securities may be composed of one or more classes and may
be structured either as pass-through securities or collateralized debt
obligations. Multiple-class mortgage-backed securities are referred to herein
as "CMOs." Some CMOs are directly supported by other CMOs, which in turn are
supported by mortgage pools. Investors typically receive payments out of the
interest and principal on the underlying mortgages. The portions of these
payments that investors receive, as well as the priority of their rights to
receive payments, are determined by the specific terms of the CMO class. CMOs
involve special risk and evaluating them requires special knowledge.

A major difference between mortgage-backed securities and traditional bonds
is that interest and principal payments are made more frequently (usually
monthly) and that principal may be repaid at any time because the underlying
mortgage loans may be prepaid at any time. When interest rates go down and
homeowners refinance their mortgages, mortgage-backed securities may be paid off
more quickly than investors expect. When interest rates rise, mortgage-backed
securities may be paid off more slowly than originally expected. Changes in the
rate or "speed" of these prepayments can cause the value of mortgage-backed
securities to fluctuate rapidly.

Mortgage-backed securities also may decrease in value as a result of
increases in interest rates and, because of prepayments, may benefit less than
other bonds from declining interest rates. Reinvestments of prepayments may
occur at lower interest rates than the original investment, thus adversely
affecting a fund's yield. Actual 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.

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<PAGE>

Certain classes of CMOs and other mortgage-backed securities are structured
in a manner that makes them extremely sensitive to changes in prepayment rates.
Interest-only ("IO") and principal-only ("PO") classes are examples of this.
IOs are entitled to receive all or a portion of the interest, but none (or only
a nominal amount) of the principal payments, from the underlying mortgage
assets. If the mortgage assets underlying an IO experience greater than
anticipated principal prepayments, then the total amount of interest payments
allocable to the IO class, and therefore the yield to investors, generally will
be reduced. In some instances, an investor in an IO may fail to recoup all of
his or her initial investment, even if the security is government issued or
guaranteed or is rated AAA or the equivalent. Conversely, PO classes are
entitled to receive all or a portion of the principal payments, but none of the
interest, from the underlying mortgage assets. PO classes are purchased at
substantial discounts from par, and the yield to investors will be reduced if
principal payments are slower than expected. Some IOs and POs, as well as other
CMO classes, are structured to have special protections against the effects of
prepayments. These structural protections, however, normally are effective only
within certain ranges of prepayment rates and thus will not protect investors in
all circumstances. Inverse floating rate CMO classes also may be extremely
volatile. These classes pay interest at a rate that decreases when a specified
index of market rates increases and vice versa.

The market for privately issued mortgage-backed securities is smaller and
less liquid than the market for U.S. government mortgage-backed securities.
Foreign mortgage-backed securities markets are substantially smaller than U.S.
markets but have been established in several countries, including Germany,
Denmark, Sweden, Canada and Australia, and may be developed elsewhere. Foreign
mortgage-backed securities generally are structured differently than domestic
mortgage-backed securities, but they normally present substantially similar
investment risks as well as the other risks normally associated with foreign
securities.

During 1994, the value and liquidity of many mortgage-backed securities
declined sharply due primarily to increases in interest rates. There can be no
assurance that such declines will not recur. The market value of certain
mortgage-backed securities, including IO and PO classes of mortgage-backed
securities, can be extremely volatile, and these securities may become illiquid.
A fund's investment 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

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<PAGE>

and owed on the underlying pools. Fannie Mae guarantees timely payment of
interest and principal on Fannie Mae certificates. The Fannie Mae guarantee is
not backed by the full faith and credit of the U.S. government.

FREDDIE MAC CERTIFICATES -- Freddie Mac also facilitates a national
secondary market for conventional residential and U.S. government-insured
mortgage loans through its mortgage purchase and mortgage-backed securities
sales activities. Freddie Mac issues two types of mortgage pass-through
securities: mortgage participation certificates ("PCs") and guaranteed mortgage
certificates ("GMCs"). Each PC represents a pro rata share of all interest and
principal payments made and owed on the underlying pool. Freddie Mac generally
guarantees timely monthly payment of interest on PCs and the ultimate payment of
principal, but it also has a PC program under which it guarantees timely payment
of both principal and interest. GMCs also represent a pro rata interest in a
pool of mortgages. These instruments, however, pay interest semi-annually and
return principal once a year in guaranteed minimum payments. The Freddie Mac
guarantee is not backed by the full faith and credit of the U.S. government.

PRIVATE MORTGAGE-BACKED SECURITIES -- Mortgage-backed securities issued by
Private Mortgage Lenders are structured similarly to CMOs issued or guaranteed
by Ginnie Mae, Fannie Mae and Freddie Mac. Such mortgage-backed securities may
be supported by pools of U.S. government or agency insured or guaranteed
mortgage loans or by other mortgage-backed securities issued by a government
agency or instrumentality, but they generally are supported by pools of
conventional (i.e., non-government guaranteed or insured) mortgage loans. Since
such mortgage-backed securities normally are not guaranteed by an entity having
the credit standing of Ginnie Mae, Fannie Mae and Freddie Mac, they normally are
structured with one or more types of credit enhancement. See "The Funds'
Investments, Related Risks and Limitations -- Mortgage-Backed Securities --
Types of Credit Enhancement." These credit enhancements do not protect investors
from changes in market value.

COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS MORTGAGE PASS-THROUGHS
-- CMOs are debt obligations that are collateralized by mortgage loans or
mortgage pass-through securities (collectively, "Mortgage Assets"). CMOs may be
issued by Private Mortgage Lenders or by government entities such as Fannie Mae
or Freddie Mac. Multi-class mortgage pass-through securities are interests in
trusts that are comprised of Mortgage Assets and that have multiple classes
similar to those in CMOs. Unless the context indicates otherwise, references
herein to CMOs include multi-class mortgage pass-through securities. Payments of
principal of, and interest on, the Mortgage Assets (and in the case of CMOs, any
reinvestment income thereon) provide the funds to pay the debt service on the
CMOs or to make scheduled distributions on the multi-class mortgage pass-through
securities.

In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMO, also referred to as a "tranche," is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrued on all classes of a CMO (other than any principal-
only or "PO" class) on a monthly, quarterly or semi-annual basis. The principal
and interest on the Mortgage Assets may be allocated among the several classes
of a CMO in many ways. In one structure, payments of principal, including any
principal prepayments, on the Mortgage Assets are applied to the classes of 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

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<PAGE>

market value of such securities generally is more volatile than that of a fixed
rate obligation. Such interest rate formulas may be combined with other CMO
characteristics. For example, a CMO class may be an inverse IO class, on which
the holders are entitled to receive no payments of principal and are entitled to
receive interest at a rate that will vary inversely with a specified index or a
multiple thereof.

TYPES OF CREDIT ENHANCEMENT -- To lessen the effect of failures by obligors
on Mortgage Assets to make payments, mortgage-backed securities may contain
elements of credit enhancement. Such credit enhancement falls into two
categories: (1) liquidity protection and (2) loss protection. Loss protection
relates to losses resulting after default by an obligor on the underlying assets
and collection of all amounts recoverable directly from the obligor and through
liquidation of the collateral. Liquidity protection refers to the provision of
advances, generally by the entity administering the pool of assets (usually the
bank, savings association or mortgage banker that transferred the underlying
loans to the issuer of the security), to ensure that the receipt of payments on
the underlying pool occurs in a timely fashion. Loss protection ensures
ultimate payment of the obligations on at least a portion of the assets in the
pool. Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor, from third parties, through
various means of structuring the transaction or through a combination of such
approaches. A fund will not pay any additional fees for such credit
enhancement, although the existence of credit enhancement may increase the price
of a security. Credit enhancements do not provide protection against changes in
the market value of the security. Examples of credit enhancement arising out of
the structure of the transaction include "senior-subordinated securities"
(multiple class securities with one or more classes subordinate to other classes
as to the payment of principal thereof and interest thereon, with the result
that defaults on the underlying assets are borne first by the holders of the
subordinated class), creation of "spread accounts" or "reserve funds" (where
cash or investments, sometimes funded from a portion of the payments on the
underlying assets, are held in reserve against future losses) and "over-
collateralization" (where the scheduled payments on, or the principal amount of,
the underlying assets exceed that required to make payment of the securities and
pay any servicing or other fees). The degree of credit enhancement provided for
each issue generally is based on historical information regarding the level of
credit risk associated with the underlying assets. Delinquency or loss in
excess of that anticipated could adversely affect the return on an investment in
such a security.

SPECIAL CHARACTERISTICS OF MORTGAGE- AND ASSET-BACKED SECURITIES -- The
yield characteristics of mortgage- and asset-backed securities differ from those
of 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

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or early payments of principal on the underlying mortgages. Because prepayment
rates of individual pools vary widely, it is not possible to predict accurately
the average life of a particular pool. In the past, a common industry practice
was to assume that prepayments on pools of fixed rate 30-year mortgages would
result in a 12-year average life for the pool. At present, mortgage pools,
particularly those with loans with other maturities or different
characteristics, are priced on an assumption of average life determined for each
pool. In periods of declining interest rates, the rate of prepayment tends to
increase, thereby shortening the actual average life of a pool of mortgage-
related securities. Conversely, in periods of rising interest rates, the rate of
prepayment tends to decrease, thereby lengthening the actual average life of the
pool. However, these effects may not be present, or may differ in degree, if the
mortgage loans in the pools have adjustable interest rates or other special
payment terms, such as a prepayment charge. Actual prepayment experience may
cause the yield of mortgage-backed securities to differ from the assumed average
life yield. Reinvestment of prepayments may occur at lower interest rates than
the original investment, thus adversely affecting a fund's yield.

ADJUSTABLE RATE MORTGAGE AND FLOATING RATE MORTGAGE-BACKED SECURITIES --
Adjustable rate mortgage ("ARM") securities are mortgage-backed securities
(sometimes referred to as "ARMs") that represent a right to receive interest
payments at a rate that is adjusted to reflect the interest earned on a pool of
mortgage loans bearing variable or adjustable rates of interest. Floating rate
mortgage-backed securities are classes of mortgage-backed securities that have
been structured to represent the right to receive interest payments at rates
that fluctuate in accordance with an index but that generally are supported by
pools comprised of fixed-rate mortgage loans. Because the interest rates on ARM
and floating rate mortgage-backed securities are reset in response to changes in
a specified market index, the values of such securities tend to be less
sensitive to interest rate fluctuations than the values of fixed-rate
securities. As a result, during periods of rising interest rates, ARMs
generally do not decrease in value as much as fixed rate securities.
Conversely, during periods of declining rates, ARMs generally do not increase in
value as much as fixed rate securities. ARMs represent a right to receive
interest payments at a rate that is adjusted to reflect the interest earned on a
pool of ARM loans. These mortgage loans generally specify that the borrower's
mortgage interest rate may not be adjusted above a specified lifetime maximum
rate or, in some cases, below a minimum lifetime rate. In addition, certain ARM
loans specify limitations on the maximum amount by which the mortgage interest
rate may adjust for any single adjustment period. These mortgage loans also may
limit changes in the maximum amount by which the borrower's monthly payment may
adjust for any single adjustment period. If a monthly payment is not sufficient
to pay the interest accruing on the ARM, any such excess interest is added to
the mortgage loan ("negative amortization"), which is repaid through future
payments. If the monthly payment exceeds the sum of the interest accrued at the
applicable mortgage interest rate and the principal payment that would have been
necessary to amortize the outstanding principal balance over the remaining term
of the loan, the excess reduces the principal balance of the ARM loan.
Borrowers under these mortgage loans experiencing negative amortization may take
longer to build up their equity in the underlying property and may be more
likely to default.

ARM loans also may be subject to a greater rate of prepayments in a
declining interest rate environment. For example, during a period of declining
interest rates, prepayments on these mortgage loans could increase because the
availability of fixed mortgage loans at competitive interest rates may encourage
mortgagors to "lock-in" at a lower interest rate. Conversely, during a period
of rising interest rates, prepayments on ARM loans might decrease. The rate of
prepayments with respect to ARM loans has fluctuated in recent years.

The rates of interest payable on certain ARM loans, and therefore on
certain ARM securities, are based on indices, such as the one-year constant
maturity Treasury rate, that reflect changes in market interest rates. Others
are based on indices, such as the 11th District Federal Home Loan Bank Cost of
Funds Index ("COFI"), that tend to lag behind changes in market interest rates.
The values of ARM securities supported by ARM loans that adjust based on lagging
indices tend to be somewhat more sensitive to interest rate fluctuations than
those reflecting current interest rate levels, although the values of such ARM
securities still tend to be less sensitive to interest rate fluctuations than
fixed-rate securities.

Floating rate mortgage-backed securities are classes of mortgage-backed
securities that have been structured to represent the right to receive interest
payments at rates that fluctuate in accordance with an index but that generally
are supported by pools comprised of fixed-rate mortgage loans. As with ARM
securities, interest rate adjustments on floating rate mortgage-backed
securities may be based on indices that lag behind market interest rates.
Interest rates on floating rate mortgage-backed securities generally are
adjusted monthly. Floating rate

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mortgage-backed securities are subject to lifetime interest rate caps, but they
generally are not subject to limitations on monthly or other periodic changes in
interest rates or monthly payments.

CREDIT AND LIQUIDITY ENHANCEMENTS. A fund may invest in securities that
have credit or liquidity enhancements or may purchase these types of
enhancements in the secondary market. Such enhancements may be structured as
demand features that permit the fund to sell the instrument at designated times
and prices. These credit and liquidity enhancements may be backed by letters of
credit or other instruments provided by banks or other financial institutions
whose credit standing affects the credit quality of the underlying obligation.
Changes in the credit quality of these financial institutions could cause losses
to a fund and affect its share price. The credit and liquidity enhancements may
have conditions that limit the ability of a fund to use them when the fund
wishes to do so.

INVESTING IN FOREIGN SECURITIES. Investing in foreign securities may
involve more risks than investing in U.S. securities. The value of foreign
securities is subject to economic and political developments in the countries
where the issuers operate and to changes in foreign currency values.
Investments in foreign securities involve risks relating to political, social
and economic developments abroad, as well as risks resulting from the
differences between the regulations to which U.S. and foreign issuers and
markets are subject. These risks may include expropriation, confiscatory
taxation, withholding taxes on interest and/or dividends, limitations on the use
of or transfer of fund assets and political or social instability or diplomatic
developments. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position. In those European countries that are using the
Euro as a common currency unit, individual national economies may be adversely
affected by the inability of national governments to use monetary policy to
address their own economic or political concerns.

Securities of foreign issuers may not be registered with the SEC, and the
issuers thereof may not be subject to its reporting requirements. Accordingly,
there may be less publicly available information concerning foreign issuers of
securities held by a fund than is available concerning U.S. companies. Foreign
companies are not generally subject to uniform accounting, auditing and
financial reporting standards or to other regulatory requirements comparable to
those applicable to U.S. companies.

Securities of many foreign companies may be less liquid and their prices
more volatile than securities of comparable U.S. companies. From time to time
foreign securities may be difficult to liquidate rapidly without significantly
depressing the price of such securities. Foreign markets have different
clearance and settlement procedures, and in certain markets there have been
times when settlements have failed to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when some of a fund's assets are
uninvested and no return is earned thereon. The inability of a fund to make
intended security purchases due to settlement problems could cause the fund to
miss attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems could result either in losses to the fund
due to subsequent declines in the value of such portfolio security or, if the
fund has entered into a contract to sell the security, could result in possible
liability to the purchaser. Foreign securities trading practices, including
those involving securities settlement where fund assets may be released prior to
receipt of payment, may expose a fund to increased risk in the event of a failed
trade or the insolvency of a foreign broker-dealer. Legal remedies for defaults
and disputes may have to be pursued in foreign courts, whose procedures differ
substantially from those of U.S. courts.

The costs of investing outside the United States frequently are higher than
those attributable to investing in the United States. This is particularly true
with respect to emerging capital markets. For example, the cost of maintaining
custody of foreign securities exceeds custodian costs for domestic securities,
and transaction and settlement costs of foreign investing frequently are higher
than those attributable to domestic investing. Costs associated with the
exchange of currencies also make foreign investing more expensive than domestic
investing.

A fund may invest in foreign securities by purchasing depositary receipts,
including American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs") and Global Depositary Receipts ("GDRs"), or other securities
convertible into securities of issuers based in foreign countries. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically

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<PAGE>

issued by a U.S. bank or trust company evidencing ownership of the underlying
securities. They generally are in registered form, are denominated in U.S.
dollars and are designed for use in the U.S. securities markets. EDRs are
European receipts evidencing a similar arrangement, may be denominated in other
currencies and are designed for use in European securities markets. GDRs are
similar to EDRs and are designed for use in several international financial
markets. For purposes of each fund's investment policies, depositary receipts
generally are deemed to have the same classification as the underlying
securities they represent. Thus, a depositary receipt representing ownership of
common stock will be treated as common stock.

ADRs are publicly traded on exchanges or over-the-counter in the United
States and are issued through "sponsored" or "unsponsored" arrangements. In a
sponsored ADR arrangement, the foreign issuer assumes the obligation to pay some
or all of the depositary's transaction fees, whereas under an unsponsored
arrangement, the foreign issuer assumes no obligations and the depositary's
transaction fees are paid directly by the ADR holders. In addition, less
information is available in the United States about an unsponsored ADR than
about a sponsored ADR.

Eurodollar bonds and Yankee bonds are types of U.S. dollar denominated
foreign securities. Eurodollar bonds are U.S. dollar denominated bonds that are
held outside the United States, primarily in Europe. Yankee bonds are U.S.
dollar denominated bonds of foreign issuers that are sold primarily in the
United States.

The funds that invest outside the United States anticipate that their
brokerage transactions involving foreign securities of companies headquartered
in countries other than the United States will be conducted primarily on the
principal exchanges of such countries. Although each fund will endeavor to
achieve the best net results in effecting its portfolio transactions,
transactions on foreign exchanges are usually subject to fixed commissions that
are generally higher than negotiated commissions on U.S. transactions. There is
generally less government supervision and regulation of exchanges and brokers in
foreign countries than in the United States.

Investment income and gains on certain foreign securities in which the
funds may invest may be subject to foreign withholding or other taxes that could
reduce the return on these securities. Tax 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 those fund investments will
decrease. These changes may have a significant impact on the value of fund
shares. In some instances, a fund may use derivative strategies to hedge
against changes in foreign currency value. (See "Strategies Using Derivative
Instruments," below.) However, opportunities to hedge against currency risk may
not exist in certain markets, particularly with respect to emerging market
currencies, and even when appropriate hedging opportunities are available, a
fund may choose not to hedge against currency risk.

Generally, currency exchange rates are determined by supply and demand in
the foreign exchange markets and the relative merits of investments in different
countries. In the case of those European countries that use the Euro as a
common currency unit, the relative merits of investments in the common market in
which they participate, rather than the merits of investments in the individual
country, will be a determinant of currency exchange rates. Currency exchange
rates also can be affected by the intervention of the U.S. and foreign
governments or central banks, the imposition of currency controls, speculation,
devaluation or other political or economic developments inside and outside the
United States.

Each fund values its assets daily in U.S. dollars, and funds that hold
foreign currencies do not intend to convert them to U.S. dollars on a daily
basis. These funds may convert foreign currency to U.S. dollars from time to
time. From time to time a fund's foreign currencies may be held as "foreign
currency call accounts" at foreign branches of foreign or domestic banks. These
accounts bear interest at negotiated rates and are payable upon relatively short
demand periods. If a bank became insolvent, a fund could suffer a loss of some
or all of the amounts deposited. A fund may convert foreign currency to U.S.
dollars from time to time.

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The value of the assets of a fund as measured in U.S. dollars may be
affected favorably or unfavorably by fluctuations in currency rates and exchange
control regulations. Further, a fund may incur costs in connection with
conversions between various currencies. Currency exchange dealers realize a
profit based on the difference between the prices at which they are buying and
selling various currencies. Thus, a dealer normally will offer to sell a foreign
currency to a fund at one rate, while offering a lesser rate of exchange should
a fund desire immediately to resell that currency to the dealer. A fund
conducts its currency exchange transactions either on a spot (i.e., cash) basis
at the spot rate prevailing in the foreign currency exchange market, or through
entering into forward, futures or options contracts to purchase or sell foreign
currencies.

SPECIAL CHARACTERISTICS OF EMERGING MARKET SECURITIES AND SOVEREIGN DEBT

EMERGING MARKET INVESTMENTS. The special risks of investing in foreign
securities are heightened in emerging markets. For example, many emerging
market currencies have experienced significant devaluations relative to the U.S.
dollar in recent years. Emerging market countries typically have economic and
political systems that are less fully developed and can be expected to be less
stable than those of developed countries. Emerging market countries may have
policies that restrict investment by foreigners, and there is a higher risk of
government expropriation or nationalization of private property. The
possibility of low or nonexistent trading volume in the securities of companies
in emerging markets also may result in a lack of liquidity and in price
volatility. Issuers in emerging markets typically are subject to a greater
degree of change in earnings and business prospects than are companies in more
developed markets.

INVESTMENT AND REPATRIATION RESTRICTIONS -- Foreign investment in the
securities markets of several emerging market countries is restricted or
controlled to varying degrees. These restrictions may limit a fund's investment
in these countries and may increase its expenses. For example, certain countries
may require governmental approval prior to investments by foreign persons in a
particular company or industry sector or limit investment by foreign persons to
only a specific class of securities of a company, which may have less
advantageous terms (including price) than securities of the company available
for purchase by nationals. Certain countries may restrict or prohibit investment
opportunities in issuers or industries deemed important to national interests.
In addition, the repatriation of both investment income and capital from some
emerging market countries is subject to restrictions, such as the need for
certain government consents. Even where there is no outright restriction on
repatriation of capital, the mechanics of repatriation may affect certain
aspects of a fund's operations. These restrictions may in the future make it
undesirable to invest in the countries to which they apply. In addition, if
there is a deterioration in a country's balance of payments or for other
reasons, a country may impose restrictions on foreign capital remittances
abroad. A fund could be adversely affected by delays in, or a refusal to grant,
any required governmental approval for repatriation, as well as by the
application to it of other restrictions on investments.

If, because of restrictions on repatriation or conversion, a fund were
unable to distribute substantially all of its net investment income and capital
gains within applicable time periods, the fund would be subject to federal
income and/or excise taxes that would not otherwise be incurred and could cease
to qualify for the favorable tax treatment afforded to regulated investment
companies under the Internal Revenue Code. If it did cease to qualify for that
treatment, it would become subject to federal income tax on all of its income
and net gains. See "Taxes -- Qualification as a Regulated Investment Company,"
below.

DIFFERENCES BETWEEN THE U.S. AND EMERGING MARKET SECURITIES MARKETS. Most
of the securities markets of emerging market countries have substantially less
volume than the New York Stock Exchange, and equity securities of most companies
in emerging market countries are less liquid and more volatile than equity
securities of U.S. companies of comparable size. Some of the stock exchanges in
emerging market countries are in the earliest stages of their development. As a
result, security settlements may in some instances be subject to delays and
related administrative uncertainties. Many companies traded on securities
markets in emerging market countries are smaller, newer and less seasoned than
companies whose securities are traded on securities markets in the United
States. Investments in smaller companies involve greater risk than is
customarily associated with investing in larger companies. Smaller companies may
have limited product lines, markets or financial or managerial resources and may
be more susceptible to losses and risks of bankruptcy. Additionally, market-
making and arbitrage activities are generally less extensive in such markets,
which may contribute to increased volatility and reduced liquidity of such
markets. Accordingly, each of these markets may be subject to greater influence
by adverse events generally

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affecting the market, and by large investors trading significant blocks of
securities, than is usual in the United States. To the extent that an emerging
market country experiences rapid increases in its money supply and investment in
equity securities for speculative purposes, the equity securities traded in that
country may trade at price-earnings multiples higher than those of comparable
companies trading on securities markets in the United States, which may not be
sustainable.

GOVERNMENT SUPERVISION OF EMERGING MARKET SECURITIES MARKETS; LEGAL
SYSTEMS. There is also less government supervision and regulation of securities
exchanges, listed companies and brokers in emerging market countries than exists
in the United States. Therefore, less information may be available to a fund
than with respect to investments in the United States. Further, in certain
countries, less information may be available to a fund than to local market
participants. Brokers in other countries may not be as well capitalized as those
in the United States, so that they are more susceptible to financial failure in
times of market, political or economic stress. In addition, existing laws and
regulations are often inconsistently applied. As legal systems in some of the
emerging market countries develop, foreign investors may be adversely affected
by new laws and regulations, changes to existing laws and regulations and
preemption of local laws and regulations by national laws. In circumstances
where adequate laws exist, it may not be possible to obtain swift and equitable
enforcement of the law.

SOCIAL, POLITICAL AND ECONOMIC FACTORS -- Many emerging market countries
may be subject to a greater degree of social, political and economic instability
than is the case in the United States. Any change in the leadership or policies
of these countries may halt the expansion of or reverse any liberalization of
foreign investment policies now occurring. Such instability may result from,
among other things, the following: (1) authoritarian governments or military
involvement in political and economic decision making, and changes in government
through extra-constitutional means; (2) popular unrest associated with demands
for improved political, economic and social conditions; (3) internal
insurgencies; (4) hostile relations with neighboring countries; and (5) ethnic,
religious and racial disaffection. Such social, political and economic
instability could significantly disrupt the financial markets in those countries
and elsewhere and could adversely affect the value of a fund's assets. In
addition, there may be the possibility of asset expropriations or future
confiscatory levels of taxation affecting a fund.

The economies of many emerging markets are heavily dependent upon
international trade and are accordingly affected by protective trade barriers
and the economic conditions of their trading partners, principally the United
States, Japan, China and the European Union. The enactment by the United States
or other principal trading partners of protectionist trade legislation,
reduction of foreign investment in the local economies and general declines in
the international securities markets could have a significant adverse effect
upon the securities markets of these countries. In addition, the economies of
some countries are vulnerable to weakness in world prices for their commodity
exports, including crude oil. A country whose exports are concentrated in a few
commodities could be vulnerable to a decline in the international price of such
commodities.

FINANCIAL INFORMATION AND LEGAL STANDARDS -- Issuers in emerging market
countries generally are subject to accounting, auditing and financial standards
and requirements that differ, in some cases significantly, from those applicable
to U.S. issuers. In particular, the assets and profits appearing on the
financial statements of an emerging market issuer may not reflect its financial
position or results of operations in the way they would be reflected had the
financial statements been prepared in accordance with U.S. generally accepted
accounting principles. In addition, for an issuer that keeps accounting records
in local currency, inflation accounting rules may require, for both tax and
accounting purposes, that certain assets and liabilities be restated on the
issuer's balance sheet in order to express items in terms of currency of
constant purchasing power. Inflation accounting may indirectly generate losses
or profits. Consequently, financial data may be materially affected by
restatements for inflation and may not accurately reflect the real condition of
those issuers and securities markets. Also, securities brokers and dealers in
other countries may not be as well capitalized as those in the United States, so
that they are more susceptible to financial failure in times of market,
political or economic stress.

In addition, existing laws and regulations are often inconsistently
applied. As legal systems in some of the emerging market countries develop,
foreign investors may be adversely affected by new laws and regulations, changes
to existing laws and regulations and preemption of local laws and regulations by
national laws. In circumstances where adequate laws exist, it may not be
possible to obtain swift and equitable enforcement of the law.

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FOREIGN SOVEREIGN DEBT. Sovereign debt includes bonds that are issued by
foreign governments or their agencies, instrumentalities or political
subdivisions or by foreign central banks. Sovereign debt also may be issued by
quasi-governmental entities that are owned by foreign governments but are not
backed by their full faith and credit or general taxing powers. Investment in
sovereign debt involves special risks. The issuer of the debt or the
governmental authorities that control the repayment of the debt may be unable or
unwilling to repay principal and/or interest when due in accordance with the
terms of such debt, and the funds may have limited legal recourse in the event
of a default.

Sovereign debt differs from debt obligations issued by private entities in
that, generally, remedies for defaults must be pursued in the courts of the
defaulting party. Legal recourse is therefore somewhat diminished. Political
conditions, especially a sovereign entity's willingness to meet the terms of its
debt obligations, are of considerable significance. Also, there can be no
assurance that the holders of commercial bank debt issued by the same sovereign
entity may not contest payments to the holders of sovereign debt in the event of
default under commercial bank loan agreements.

A sovereign debtor's willingness or ability to repay principal and interest
due in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
principal international lenders and the political constraints to which a
sovereign debtor may be subject. A country whose exports are concentrated in a
few commodities could be vulnerable to a decline in the international price of
such commodities. Increased protectionism on the part of a country's trading
partners, or political changes in those countries, could also adversely affect
its exports. Such events could diminish a country's trade account surplus, if
any, or the credit standing of a particular local government or agency. Another
factor bearing on the ability of a country to repay sovereign debt is the level
of the country's international reserves. Fluctuations in the level of these
reserves can affect the amount of foreign exchange readily available for
external debt payments and, thus, could have a bearing on the capacity of the
country to make payments on its sovereign debt.

The occurrence of political, social or diplomatic changes in one or more of
the countries issuing sovereign debt could adversely affect the funds'
investments. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their sovereign debt.

With respect to sovereign debt of emerging market issuers, investors should
be aware that certain emerging market countries are among the largest debtors to
commercial banks and foreign governments. Some emerging market countries have
from time to time declared moratoria on the payment of principal and interest on
external debt.

Some emerging market countries have experienced difficulty in servicing
their sovereign debt on a timely basis which led to defaults on certain
obligations and the restructuring of certain indebtedness. Restructuring
arrangements have included, among other things, reducing and rescheduling
interest and principal payments by negotiating new or amended credit agreements
or converting outstanding principal and unpaid interest to Brady Bonds
(discussed below), and obtaining new credit to finance interest payments.
Holders of sovereign debt, including the funds, may be requested to participate
in the rescheduling of such debt and to extend further loans to sovereign
debtors. The interests of holders of sovereign debt could be adversely affected
in the course of 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

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rights than the classes available for purchase by domiciliaries of the countries
or impose additional taxes on foreign investors. Certain issuers may require
governmental approval for the repatriation of investment income, capital or the
proceeds of sales of securities by foreign investors. In addition, if a
deterioration occurs in a country's balance of payments the country could impose
temporary restrictions on foreign capital remittances. A fund could be adversely
affected by delays in, or a refusal to grant, any required governmental approval
for repatriation of capital, as well as by the application to the fund of any
restrictions on investments. Investing in local markets may require a fund to
adopt special procedures, seek local government approvals or take other actions,
each of which may involve additional costs to the fund.

Brady Bonds -- Brady Bonds are sovereign bonds issued under the framework
of the Brady Plan, an initiative announced by former U.S. Treasury Secretary
Nicholas F. Brady in 1989 as a mechanism for debtor nations to restructure their
outstanding external commercial bank indebtedness. In restructuring its external
debt under the Brady Plan framework, a debtor nation negotiates with its
existing bank lenders as well as multilateral institutions such as the
International Monetary Fund ("IMF"). The Brady Plan framework, as it has
developed, contemplates the exchange of commercial bank debt for newly issued
Brady Bonds. Brady Bonds may also be issued in respect of new money being
advanced by existing lenders in connection with the debt restructuring. The
World Bank and the IMF support the restructuring by providing funds pursuant to
loan agreements or other arrangements which enable the debtor nation to
collateralize the new Brady Bonds or to repurchase outstanding bank debt at a
discount.

Brady Bonds have been issued only in recent years, and accordingly do not
have a long payment history. Agreements implemented under the Brady Plan to date
are designed to achieve debt and debt-service reduction through specific options
negotiated by a debtor nation with its creditors. As a result, the financial
packages offered by each country differ. The types of options have included the
exchange of outstanding commercial bank debt for bonds issued at 100% of face
value of such debt, which carry a below-market stated rate of interest
(generally known as par bonds), bonds issued at a discount from the face value
of such debt (generally known as discount bonds), bonds bearing an interest rate
which increases over time and bonds issued in exchange for the advancement of
new money by existing lenders. Regardless of the stated face amount and stated
interest rate of the various types of Brady Bonds, a fund will purchase Brady
Bonds in which the price and yield to the investor reflect market conditions at
the time of purchase.

Certain Brady Bonds have been collateralized as to principal due at
maturity by U.S. Treasury zero coupon bonds with maturities equal to the final
maturity of such Brady Bonds. Collateral purchases are financed by the IMF, the
World Bank and the debtor nations' reserves. In the event of a default with
respect to collateralized Brady Bonds as a result of which the payment
obligations of the issuer are accelerated, the U.S. Treasury zero coupon
obligations held as collateral for the payment of principal will not be
distributed to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held by the collateral agent until the
scheduled maturity of the defaulted Brady Bonds, which will continue to be
outstanding, at which time the face amount of the collateral will equal the
principal payments that would have then been due on the Brady Bonds in the
normal course. Interest payments on Brady Bonds may be wholly uncollateralized
or may be collateralized by cash or high grade securities in amounts that
typically represent between 12 and 18 months of interest accruals on these
instruments, with the balance of the interest accruals being uncollateralized.

Brady Bonds are often viewed as having several valuation components: (1)
the collateralized repayment of principal, if any, at final maturity, (2) the
collateralized interest payments, if any, (3) the uncollateralized interest
payments and (4) any uncollateralized repayment of principal at maturity (these
uncollateralized amounts constitute the "residual risk"). In light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative. A fund may purchase Brady Bonds with no or limited
collateralization and will be relying for payment of interest and (except in the
case of principal collateralized Brady Bonds) repayment of principal primarily
on the willingness and ability of the foreign government to make payment in
accordance with the terms of the Brady Bonds.

STRUCTURED FOREIGN INVESTMENTS. This term generally refers to interests in
U.S. and foreign entities organized and operated solely for the purpose of
securitizing or restructuring the investment characteristics of foreign
securities. This type of securitization or restructuring usually involves the
deposit with or purchase by a U.S.

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or foreign entity, such as a corporation or trust, of specified instruments
(such as commercial bank loans or Brady Bonds) and the issuance by that entity
of one or more classes of securities backed by, or representing interests in,
the underlying instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued structured foreign investments to create
securities with different investment characteristics such as varying maturities,
payment priorities and interest rate provisions, and the extent of the payments
made with respect to structured foreign investments is often dependent on the
extent of the cash flow on the underlying instruments.

Structured foreign investments frequently involve no credit enhancement.
Accordingly, their credit risk generally will be equivalent to that of the
underlying instruments. In addition, classes of structured foreign investments
may be subordinated to the right of payment of another class. Subordinated
structured foreign investments typically have higher yields and present greater
risks than unsubordinated structured foreign investments. Structured foreign
investments are typically sold in private placement transactions, and there
currently is no active trading market for structured foreign investments.

CURRENCY-LINKED INVESTMENTS. The principal amount of securities that are
indexed to specific foreign currency exchange rates may be adjusted up or down
(but not below zero) at maturity to reflect changes in the exchange rate between
two currencies. A fund may experience loss of principal due to these
adjustments.

ZERO COUPON AND OTHER OID SECURITIES; PIK SECURITIES. Zero coupon
securities are securities on which no periodic interest payments are made but
instead are sold at a deep discount from their face value. The buyer of these
securities receives a rate of return by the gradual appreciation of the
security, which results from the fact that it will be paid at face value on a
specified maturity date. There are many types of zero coupon securities. Some
are issued in zero coupon form, including Treasury bills, notes and bonds that
have been stripped of (separated from) their unmatured interest coupons
(unmatured interest payments) and receipts or certificates representing
interests in such stripped debt obligations and coupons. Others are created by
brokerage firms that strip the coupons from interest-paying bonds and sell the
principal and the coupons separately.

Other securities that are sold with original issue discount ("OID") (i.e.,
the difference between the issue price and the value at maturity) may provide
for some interest to be paid prior to maturity. In addition, payment-in-kind
("PIK") securities pay interest in additional securities, not in cash. OID and
PIK securities usually trade at a discount from their face value.

Zero coupon securities are generally more sensitive to changes in interest
rates than debt obligations of comparable maturities that make current interest
payments. This means that when interest rates fall, the value of zero coupon
securities rises more rapidly than securities paying interest on a current
basis. However, when interest rates rise, their value falls more dramatically.
Other OID securities and PIK securities also are subject to greater fluctuations
in market value in response to changing interest rates than bonds of comparable
maturities that make current distributions of interest in cash.

Because federal tax law requires that accrued OID and "interest" on PIK
securities be included currently in a fund's income (see "Taxes," below), a fund
might be required to distribute as a dividend an amount that is greater than the
total amount of cash it actually receives. These distributions would have to be
made from the fund's cash assets or, if necessary, from the proceeds of sales of
portfolio securities. A fund would not be able to purchase additional
securities with cash used to make these distributions, and its current income
and the value of its shares would ultimately be reduced as a result.

Certain zero coupon securities are U.S. Treasury notes and bonds that have
been stripped of their unmatured interest coupon receipts or interests in such
U.S. Treasury securities or coupons. The staff of the SEC 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

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<PAGE>

have unique investment characteristics in that they generally (1) have higher
yields than common stocks, but lower yields than comparable non-convertible
securities, (2) are less subject to fluctuation in value than the underlying
stock because they have fixed income characteristics and (3) provide the
potential for capital appreciation if the market price of the underlying common
stock increases. While no securities investment is without some risk,
investments in convertible securities generally entail less risk than the
issuer's common stock. However, the extent to which such risk is reduced depends
in large measure upon the degree to which the convertible security sells above
its value as a fixed income security.

A convertible security may be subject to redemption at the option of the
issuer at a price established in the convertible security's governing
instrument. If a convertible security held by a fund is called for redemption,
the fund will be required to permit the issuer to redeem the security, convert
it into underlying common stock or sell it to a third party.

WARRANTS. Warrants are securities permitting, but not obligating, holders
to subscribe for other securities. Warrants do not carry with them the right to
dividends or voting rights with respect to the securities that they entitle
their holder to purchase, and they do not represent any rights in the assets of
the issuer. As a result, warrants may be considered more speculative than
certain other types of investments. In addition, the value of a warrant does not
necessarily change with the value of the underlying securities, and a warrant
ceases to have value if it is not exercised prior to its expiration date.

LOAN PARTICIPATIONS AND ASSIGNMENTS. Investments in secured or unsecured
fixed or floating rate loans ("Loans") arranged through private negotiations
between a borrowing corporation, government or other entity and one or more
financial institutions ("Lenders") may be in the form of participations
("Participations") in Loans or assignments ("Assignments") of all or a portion
of Loans from third parties. Participations typically result in the fund's
having a contractual relationship only with the Lender, not with the borrower.
A fund has the right to receive payments of principal, interest and any fees to
which it is entitled only from the Lender selling the Participation and only
upon receipt by the Lender of the payments from the borrower. In connection
with purchasing Participations, a fund generally has no direct right to enforce
compliance by the borrower with the terms of the loan agreement relating to the
Loan, nor any rights of set-off against the borrower, and a fund may not
directly benefit from any collateral supporting the Loan in which it has
purchased the Participation. As a result, a fund assumes the credit risk of both
the borrower and the Lender that is selling the Participation. In the event of
the insolvency of the selling Lender, the fund may be treated as a general
creditor of that Lender and may not benefit from any set-off between the Lender
and the borrower. A fund will acquire Participations only if its investment
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 of 1933, as amended ("Securities Act"), and thus may be subject
to a fund's limitation on investment in illiquid securities. Because there may
be no liquid market for such securities, such securities may be sold only to a
limited number of institutional investors. The lack of a liquid secondary
market could have an adverse impact on the value of such securities and on a
fund's ability to dispose of particular Assignments or Participations when
necessary to meet the fund's liquidity needs or in response to a specific
economic event, such as a deterioration in the creditworthiness of the borrower.

TEMPORARY AND DEFENSIVE INVESTMENTS; MONEY MARKET INVESTMENTS. Each fund
may invest in money market investments for temporary or defensive purposes, to
reinvest cash collateral from its securities lending activities or as part of
its normal investment program. 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

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<PAGE>

one or more foreign governments or any of their foreign political subdivisions,
agencies or instrumentalities, including obligations of supranational entities,
(6) bonds issued by foreign issuers, (7) repurchase agreements and (8)
securities of other investment companies that invest exclusively in money market
instruments and similar private investment vehicles. Only those funds that may
trade outside the United States may invest in money market instruments that are
denominated in foreign currencies.

INVESTMENTS IN OTHER INVESTMENT COMPANIES. Each fund may invest in
securities of other investment companies, subject to limitations under the
Investment Company Act of 1940, as amended ("Investment Company Act"). Among
other things, these limitations currently restrict a fund's aggregate
investments in other investment companies to no more than 10% of its total
assets. A fund's investments in certain private investment vehicles are not
subject to this restriction. The shares of other investment companies are
subject to the management fees and other expenses of those companies, and the
purchase of shares of some investment companies requires the payment of sales
loads and (in the case of closed-end investment companies) sometimes substantial
premiums above the value of such companies' portfolio securities. At the same
time, a fund would continue to pay its own management fees and expenses with
respect to all its investments, including shares of other investment companies.
Each fund may invest in the shares of other investment companies when, in the
judgment of its investment adviser, the potential benefits of the investment
outweigh the payment of any management fees and expenses and, where applicable,
premium or sales load.

From time to time, investments in other investment companies may be the
most effective available means for a fund to invest a portion of its assets. In
some cases, investment in another investment company may be the most practical
way for a fund to invest in securities of issuers in certain countries. These
investments may include World Equity Benchmark Sharessm (commonly known as
"WEBS"), which are exchange-traded shares of series of an investment company
that are designed to replicate the composition and performance of publicly
traded issuers in particular foreign countries. A fund's investment in another
investment company is subject to the risks of that investment company's
underlying portfolio securities. Shares of exchange-traded investment companies
also can trade at substantial discounts below the value of the companies'
portfolio securities.

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 fund's liquidity. The other funds may
invest in the securities of money market funds for similar reasons.

ILLIQUID SECURITIES. The term "illiquid securities" means securities that
cannot be disposed of within seven days in the ordinary course of business at
approximately the amount at which a fund has valued the securities and includes,
among other things, purchased over-the-counter options, repurchase agreements
maturing in more than seven days and restricted securities other than those its
investment adviser has determined are liquid pursuant to guidelines established
by the board. The assets used as cover for over-the-counter options written by
a fund will be considered illiquid unless the over-the-counter options are sold
to qualified dealers who agree that the fund may repurchase 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. A fund may not be able to readily liquidate its investment in
illiquid securities and may have to sell other investments if necessary to raise
cash to meet its obligations. The lack of a liquid secondary market for
illiquid securities may make it more difficult for a fund to assign a value to
those securities for purposes of valuing its portfolio and calculating its net
asset value.

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

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<PAGE>

a security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, a fund might obtain a less favorable
price than prevailed when it decided to sell.

Not all restricted securities are illiquid. For funds that are authorized
to trade outside the United States, foreign securities are freely tradeable in
the country in which they are principally traded generally are not considered
illiquid, even if they are restricted in the United States. A large
institutional market has developed for many U.S. and foreign securities that are
not registered under the Securities Act. Institutional investors generally will
not seek to sell these instruments to the general public but instead will often
depend either on an efficient institutional market in which such unregistered
securities can be readily resold or on an issuer's ability to honor a demand for
repayment. Therefore, the fact that there are contractual or legal restrictions
on resale to the general public or certain institutions is not dispositive of
the liquidity of such investments.

Institutional markets for restricted securities also have developed as a
result of Rule 144A under the Securities Act, which establishes a "safe harbor"
from the registration requirements of the Securities Act for resales of certain
securities to qualified institutional buyers. Such markets include automated
systems for the trading, clearance and settlement of unregistered securities of
domestic and foreign issuers, such as the PORTAL System sponsored by the
National Association of Securities Dealers, Inc. An insufficient number of
qualified institutional buyers interested in purchasing Rule 144A-eligible
restricted securities held by a fund, however, could affect adversely the
marketability of such portfolio securities, and the fund might be unable to
dispose of them promptly or at favorable prices.

The board has delegated the function of making day-to-day determinations of
liquidity to each fund's investment 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 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.

Mitchell Hutchins and (where applicable) the fund's investment adviser
monitor each fund's overall holdings of illiquid securities. If a fund's
holdings of illiquid securities exceed its limitation on investments in illiquid
securities for any reason (such as a particular security becoming illiquid,
changes in the relative market values of liquid and illiquid portfolio
securities or shareholder redemptions), Mitchell Hutchins and the applicable
investment adviser will consider what action would be in the best interests of a
fund and its shareholders. Such action may include engaging in an orderly
disposition of securities to reduce the fund's holdings of illiquid securities.
However, a fund is not required to dispose of illiquid securities under these
circumstances.

REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which a
fund purchases securities or other obligations from a bank or securities dealer
(or its affiliate) and simultaneously commits to resell them to the counterparty
at an agreed-upon date or upon demand and at a price reflecting a market rate of
interest unrelated to the coupon rate or maturity of the purchased obligations.
A fund maintains custody of the underlying obligations prior to their
repurchase, either through its regular custodian or through a special "tri-
party" custodian or sub-custodian that maintains separate accounts for both the
fund and its counterparty. Thus, the obligation of the counterparty to pay the
repurchase price on the date agreed to or upon demand is, in effect, secured by
such obligations.

Repurchase agreements carry certain risks not associated with direct
investments in securities, including a possible decline in the market value of
the underlying obligations. If their value becomes less than the repurchase

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<PAGE>

price, plus any agreed-upon additional amount, the counterparty must provide
additional collateral so that at all times the collateral is at least equal to
the repurchase price plus any agreed-upon additional amount. The difference
between the total amount to be received upon repurchase of the obligations and
the price that was paid by a fund upon acquisition is accrued as interest and
included in its net investment income. Repurchase agreements involving
obligations other than U.S. government securities (such as commercial paper and
corporate bonds) may be subject to special risks and may not have the benefit of
certain protections in the event of the counterparty's insolvency. If the seller
or guarantor becomes insolvent, the fund may suffer delays, costs and possible
losses in connection with the disposition of collateral. Each fund intends to
enter into repurchase agreements only in transactions with counterparties
believed by Mitchell Hutchins to present minimum credit risks.

REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements involve the
sale of securities held by a fund subject to its agreement to repurchase the
securities at an agreed-upon date or upon demand and at a price reflecting a
market rate of interest. Reverse repurchase agreements are subject to each
fund's limitation on borrowings and may be entered into only with banks or
securities dealers or their affiliates. While a reverse repurchase agreement is
outstanding, a fund will 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. See "The Funds'
Investments, Related Risks and Limitations -- Segregated Accounts."

Reverse repurchase agreements involve the risk that the buyer of the
securities sold by a fund might be unable to deliver them when that fund seeks
to repurchase. If the buyer of securities under a reverse repurchase agreement
files for bankruptcy or becomes insolvent, the buyer or trustee or receiver may
receive an extension of time to determine whether to enforce a fund's obligation
to repurchase the securities, and the fund's use of the proceeds of the reverse
repurchase agreement may effectively be restricted pending such decision.

DOLLAR ROLLS. In a dollar roll, a fund sells mortgage-backed or other
securities for delivery on the next regular settlement date for those securities
and, simultaneously, contracts to purchase substantially similar securities for
delivery on a later settlement date. Dollar rolls also are subject to a fund's
limitation on borrowings.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each fund may purchase
securities on a "when-issued" basis or may purchase or sell securities for
delayed delivery, i.e., for issuance or delivery to the fund later than the
normal settlement date for such securities at a stated price and yield. When-
issued securities include TBA ("to be announced") securities. TBA securities,
which are usually mortgage-backed securities, are purchased on a forward
commitment basis with an approximate principal amount and no defined maturity
date. The actual principal amount and maturity date are determined upon
settlement when the specific mortgage pools are assigned. A fund generally
would not pay for such securities or start earning interest on them until they
are received. However, when a fund undertakes a when-issued or delayed-delivery
obligation, it immediately assumes the risks of ownership, including the risks
of price fluctuation. Failure of the issuer to deliver a security purchased by
a fund on a when-issued or delayed-delivery basis may result in the fund's
incurring 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. See "The Funds' Investments, Related Risks and
Limitations -- Segregated Accounts." A fund's when-issued and delayed delivery
purchase commitments could cause its net asset value per share to be more
volatile. A fund may sell the right to acquire the security prior to delivery
if its investment adviser deems it advantageous to do so, which may result in a
gain or loss to the fund.

PACE MUNICIPAL FIXED INCOME INVESTMENTS -- TYPES OF MUNICIPAL BONDS. The
fund may invest in a variety of municipal bonds, as described below:

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

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

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

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

INDUSTRIAL DEVELOPMENT BONDS ("IDBS") AND PRIVATE ACTIVITY BONDS ("PABS") -
- IDBs and PABs are issued by or on behalf of public authorities to finance
various privately operated facilities, such as airport or pollution control
facilities. These obligations are considered municipal bonds if the interest
paid thereon is exempt from 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

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<PAGE>

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.

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.

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INVERSE FLOATERS -- The fund may invest in municipal bonds on which the
rate of interest varies inversely with interest rates on other municipal bonds
or an index. Such obligations include components of securities on which
interest is paid in two separate parts - an auction component, which pays
interest at a market rate that is set periodically through an auction process or
other method, and a residual component, or "inverse floater," which pays
interest at a rate equal to the difference between the rate that the issuer
would have paid on a fixed-rate obligation at the time of issuance and the rate
paid on the auction component. The market value of an inverse floater will be
more volatile than that of a fixed-rate obligation and, like most debt
obligations, will vary inversely with changes in interest rates.

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

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

STANDBY COMMITMENTS -- The fund may acquire standby commitments pursuant to
which a bank or other municipal bond dealer agrees to purchase securities that
are held in the fund's portfolio or that are being purchased by the fund at a
price equal to (1) the acquisition cost (excluding any accrued interest paid on
acquisition), less any amortized market premium or plus any accrued market or
original issue discount, plus (2) all interest accrued on the securities since
the last interest payment date or the date the securities were purchased by the
fund, whichever is later. Although the fund does not currently intend to
acquire standby commitments with respect to municipal bonds held in its
portfolio, the fund may acquire such commitments under unusual market conditions
to facilitate portfolio liquidity.

The fund would enter into standby commitments only with those banks or
other dealers that, in the opinion of its investment 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 bond on a
present value basis. Duration incorporates the bond's yield, coupon interest
payments, final maturity and call features into one measure and is one of the
fundamental tools used by the applicable investment adviser in portfolio
selection and yield curve positioning of a fund's investments in bonds.
Duration was developed as a more precise alternative to the concept "term to
maturity." Traditionally, a bond's "term to maturity" has been used as a proxy
for the sensitivity of the security's price to changes in interest rates (which
is the "interest rate risk" or "volatility" of the security). However, "term to
maturity" measures only the time until the scheduled final payment on the bond,
taking no account of the pattern of payments prior to maturity.

Duration takes the length of the time intervals between the present time
and the time that the interest and principal payments are scheduled or, in the
case of a callable bond, expected to be made, and weights them by the

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

Duration allows an investment 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 bonds. For example, when the level of interest rates
increases by 1%, a debt security having a positive duration of three years
generally will decrease by approximately 3%. Thus, if an investment 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.

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 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, including other investment
companies. A fund also may reinvest cash collateral in private investment
vehicles similar to money market funds, including one managed by Mitchell
Hutchins. 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

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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
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 investment limitations cannot be
changed for a fund without the affirmative vote of the lesser of (a) more than
50% of its outstanding shares or (b) 67% or more of the shares present at a
shareholders' meeting if more than 50% of its outstanding shares are represented
at the meeting in person or by proxy. If a percentage restriction is adhered to
at the time of an investment or transaction, a later increase or decrease in
percentage resulting from changing values of portfolio securities or amount of
total assets will not be considered a violation of any of the following
limitations. With regard to the borrowings limitation in fundamental limitation
number 4, the funds will comply with the applicable restrictions of Section 18
of the Investment Company Act.

Under the investment restrictions adopted by the funds:

(1) A fund, other than PACE Intermediate Fixed Income Investments and PACE
Global Fixed Income Investments, may not purchase securities (other than U.S.
government securities) of any issuer if, as a result of the purchase, more than
5% of the value of the fund's total assets would be invested in such issuer,
except that up to 25% of the value of the fund's total assets may be invested
without regard to this 5% limitation.

(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.

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(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 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. If a percentage restriction is adhered to at the time of an
investment or transaction, a later increase or decrease in percentage resulting
from a change in values of portfolio securities or amount of total assets will
not be considered a violation of any of the following limitations.

(1) A fund may not purchase securities of other investment companies,
except to the extent permitted by the Investment Company Act in the open market
at no more than customary brokerage commission rates. This limitation does not
apply to securities received or acquired as dividends, through offers of
exchange or as a result of reorganization, consolidation or merger.

(2) A fund will not purchase portfolio securities while borrowings in
excess of 5% of its total assets are outstanding.

STRATEGIES USING DERIVATIVE INSTRUMENTS

GENERAL DESCRIPTION OF DERIVATIVE INSTRUMENTS. Each fund other than PACE
Money Market Investments is authorized to use a variety of financial instruments
("Derivative Instruments"), including certain options, futures contracts
(sometimes referred to as "futures"), options on futures contracts and swap
transactions. For funds that are permitted to trade outside the United States,
the applicable investment adviser also may use forward currency

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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.

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. A fund may
use Derivative Instruments to attempt to hedge its portfolio and also to attempt
to enhance income or return or realize gains and to

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manage the duration of its bond portfolio. In addition, a fund may use
Derivative Instruments to adjust its exposure to different asset classes or to
maintain exposure to stocks or bonds while maintaining a cash balance for fund
management purposes (such as to provide liquidity to meet anticipated
shareholder sales of fund shares and for fund operating expenses).

Hedging strategies can be broadly categorized as "short hedges" and "long
hedges." A short hedge is a purchase or sale of a Derivative Instrument intended
partially or fully to offset potential declines in the value of one or more
investments held in a fund's portfolio. Thus, in a short hedge a fund takes a
position in a Derivative Instrument whose price is expected to move in the
opposite direction of the price of the investment being hedged. For example, a
fund might purchase a put option on a security to hedge against a potential
decline in the value of that security. If the price of the security declined
below the exercise price of the put, a fund could exercise the put and thus
limit its loss below the exercise price to the premium paid plus transaction
costs. In the alternative, because the value of the put option can be expected
to increase as the value of the underlying security declines, a fund might be
able to close out the put option and realize a gain to offset the decline in the
value of the security.

Conversely, a long hedge is a purchase or sale of a Derivative Instrument
intended partially or fully to offset potential increases in the acquisition
cost of one or more investments that a fund intends to acquire. Thus, in a long
hedge, a fund takes a position in a Derivative Instrument whose price is
expected to move in the same direction as the price of the prospective
investment being hedged. For example, a fund might purchase a call option on a
security it intends to purchase in order to hedge against an increase in the
cost of the security. If the price of the security increased above the exercise
price of the call, a fund could exercise the call and thus limit its acquisition
cost to the exercise price plus the premium paid and transactions costs.
Alternatively, a fund might be able to offset the price increase by closing out
an appreciated call option and realizing a gain.

A fund may purchase and write (sell) straddles on securities or indices of
securities. A long straddle is a combination of a call and a put option
purchased on the same security or on the same futures contract, where 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 use these opportunities for a fund to the extent that
they are consistent with the fund's investment objective and permitted by its
investment limitations and applicable regulatory authorities. The funds'

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Prospectus or this 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.

(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.

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OPTIONS. The funds may purchase put and call options, and write (sell)
covered put or call options on securities in which they invest and related
indices. Funds that may invest outside the United States also may purchase put
and call options and write covered options on foreign currencies. The purchase
of call options may serve as a long hedge, and the purchase of put options may
serve as a short hedge. In addition, a fund may also use options to attempt to
enhance return or realize gains by increasing or reducing its exposure to an
asset class without purchasing or selling the underlying securities. Writing
covered put or call options can enable a fund to enhance income by reason of the
premiums paid by the purchasers of such options. Writing covered call options
serves as a limited short hedge, because declines in the value of the hedged
investment would be offset to the extent of the premium received for writing the
option. However, if the security appreciates to a price higher than the
exercise price of the call option, it can be expected that the option will be
exercised and the affected fund will be obligated to sell the security at less
than its market value. Writing covered put options serves as a limited long
hedge because increases in the value of the hedged investment would be offset to
the extent of the premium received for writing the option. However, if the
security depreciates to a price lower than the exercise price of the put option,
it can be expected that the put option will be exercised and the fund will be
obligated to purchase the security at more than its market value. The
securities or other assets used as cover for over-the-counter options written by
a fund would be considered illiquid to the extent described under "The Funds'
Investment Policies, Related Risks and Restrictions -- Illiquid Securities."

The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options normally have expiration
dates of up to nine months. Generally, over-the-counter options on bonds are
European-style options. This means that the option can only be exercised
immediately prior to its expiration. This is in contrast to American-style
options that may be exercised at any time. There are also other types of
options that may be exercised on certain specified dates before expiration.
Options that expire unexercised have no value.

A fund may effectively terminate its right or obligation under an option by
entering into a closing transaction. For example, a fund may terminate its
obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, a fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a closing
sale transaction. Closing transactions permit a fund to realize profits or
limit losses on an option position prior to its exercise or expiration.

The funds may purchase and write both exchange-traded and over-the-counter
options. Currently, many options on equity securities are exchange-traded.
Exchange markets for options on bonds and foreign currencies exist but are
relatively new, and these instruments are primarily traded on the over-the-
counter market. Exchange-traded options in the United States are issued by a
clearing organization affiliated with the exchange on which the option is listed
that, in effect, guarantees completion of every exchange-traded option
transaction. In contrast, over-the-counter options are contracts between a fund
and its counterparty (usually a securities dealer or a bank) with no clearing
organization guarantee. Thus, when a fund purchases or writes an over-the-
counter option, it relies on the counterparty to make or take delivery of the
underlying investment upon exercise of the option. Failure by the counterparty
to do so would result in the loss of any premium paid by the fund as well as the
loss of any expected benefit of the transaction.

The funds' ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. The funds intend to
purchase or write only those exchange-traded options for which there appears to
be a liquid secondary market. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for
over-the-counter options only by negotiating directly with the counterparty, or
by a transaction in the secondary market if any such market exists. Although the
funds will enter into over-the-counter options only with counterparties that are
expected to be capable of entering into closing transactions with the funds,
there is no assurance that a fund will in fact be able to close out an over-the-
counter option position at a favorable price prior to expiration. In the event
of insolvency of the counterparty, a fund might be unable to close out an over-
the-counter option position at any time prior to its expiration.

If a fund were unable to effect a closing transaction for an option it had
purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered put

37
<PAGE>

or call option written by the fund could cause material losses because the fund
would be unable to sell the investment used as cover for the written option
until the option expires or is exercised.

A fund may purchase and write put and call options on indices in much the
same manner as the more traditional options discussed above, except the index
options may serve as a hedge against overall fluctuations in a securities market
(or market sector) rather than anticipated increases or decreases in the value
of a particular security.

LIMITATIONS ON THE USE OF OPTIONS. The funds' use of options is governed
by the following guidelines, which can be changed by the board without
shareholder vote:

(1) A fund may purchase a put or call option, including any straddle or
spread, only if the value of its premium, when aggregated with the premiums on
all other options held by the fund, does not exceed 5% of its total assets.

(2) The aggregate value of securities underlying put options written by a
fund, determined as of the date the put options are written, will not exceed 50%
of its net assets.

(3) The aggregate premiums paid on all options (including options on
securities, foreign currencies and stock or bond indices and options on futures
contracts) purchased by a fund that are held at any time will not exceed 20% of
the fund's net assets.

FUTURES. The funds may purchase and sell securities index futures
contracts, interest rate futures contracts, debt security index futures
contracts and (for those funds that invest outside the United States) foreign
currency futures contracts. A fund may also purchase put and call options, and
write covered put and call options, on futures in which it is allowed to invest.
The purchase of futures or call options thereon can serve as a long hedge, and
the sale of futures or the purchase of put options thereon can serve as a short
hedge. Writing covered call options on futures contracts can serve as a limited
short hedge, and writing covered put options on futures contracts can serve as a
limited long hedge, using a strategy similar to that used for writing covered
options on securities or indices. In addition, a fund may purchase or sell
futures contracts or purchase options thereon to increase or reduce its exposure
to an asset class without purchasing or selling the underlying securities,
either as a hedge or to enhance return or realize gains.

Futures strategies also can be used to manage the average duration of a
fund's bond portfolio. If a fund's investment 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 bond
portfolio, the fund may buy a futures contract or a call option thereon, or sell
a put option thereon.

A fund may also write put options on futures contracts while at the same
time purchasing call options on the same futures contracts in order
synthetically to create a long futures contract position. Such options would
have the same strike prices and expiration dates. A fund will engage in this
strategy only when it is more advantageous to a fund than is purchasing the
futures contract.

No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract a fund is required to deposit in a segregated
account with its custodian, in the name of the futures broker through whom the
transaction was effected, "initial margin" consisting of cash, obligations of
the United States or obligations fully guaranteed as to principal and interest
by the United States, in an amount generally equal to 10% or less of the
contract value. Margin must also be deposited when writing a call option on a
futures contract, in accordance with applicable exchange rules. Unlike margin in
securities transactions, initial margin on futures contracts does not represent
a borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to a fund at the termination of the transaction if all
contractual obligations have been satisfied. Under certain circumstances, such
as periods of high volatility, a fund may be required by an exchange to increase
the level of its initial margin payment, and initial margin requirements might
be increased generally in the future by regulatory action.

38
<PAGE>

Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking to market." Variation margin does not involve borrowing, but rather
represents a daily settlement of each fund's obligations to or from a futures
broker. When a fund purchases an option on a futures contract, the premium paid
plus transaction costs is all that is at risk. In contrast, when a fund
purchases or sells a futures contract or writes a call option thereon, it is
subject to daily variation margin calls that could be substantial in the event
of adverse price movements. If a fund has insufficient cash to meet daily
variation margin requirements, it might need to sell securities at a time when
such sales are disadvantageous.

Holders and writers of futures contracts and options on futures can enter
into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument held or written. Positions in futures and options on futures may be
closed only on an exchange or board of trade that provides a secondary market.
The funds intend to enter into futures transactions only on exchanges or boards
of trade where there appears to be a liquid secondary market. However, there can
be no assurance that such a market will exist for a particular contract at a
particular time.

Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a future or related option can vary from the
previous day's settlement price; once that limit is reached, no trades may be
made that day at a price beyond the limit. Daily price limits do not limit
potential losses because prices could move to the daily limit for several
consecutive days with little or no trading, thereby preventing liquidation of
unfavorable positions.

If a fund were unable to liquidate a futures or related options position
due to the absence of a liquid secondary market or the imposition of price
limits, it could incur substantial losses. A fund would continue to be subject
to market risk with respect to the position. In addition, except in the case of
purchased options, a fund would continue to be required to make daily variation
margin payments and might be required to maintain the position being hedged by
the future or option or to maintain cash or securities in a segregated account.

Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or related options might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the futures and related options
markets are subject to daily variation margin calls and might be compelled to
liquidate futures or related options positions whose prices are moving
unfavorably to avoid being subject to further calls. These liquidations could
increase price volatility of the instruments and distort the normal price
relationship between the futures or options and the investments being hedged.
Also, because initial margin deposit requirements in the futures market are less
onerous than margin requirements in the securities markets, there might be
increased participation by speculators in the futures markets. This
participation also might cause temporary price distortions. In addition,
activities of large traders in both the futures and securities markets involving
arbitrage, "program trading" and other investment strategies might result in
temporary price distortions.

LIMITATIONS ON THE USE OF FUTURES AND RELATED OPTIONS. The funds' use of
futures and related options is governed by the following guidelines, which can
be changed by the board without shareholder vote:

(1) The aggregate initial margin and premiums on futures contracts,
options on futures contracts and options on foreign currencies traded on a CFTC-
regulated exchange that are not for bona fide hedging purposes (as defined by
the CFTC), excluding the amount by which options are "in-the-money," may not
exceed 5% of a fund's net assets.

(2) The aggregate premiums paid on all options (including options on
securities, foreign currencies and stock or bond indices and options on futures
contracts) purchased by a fund that are held at any time will not exceed 20% of
the fund's net assets.

(3) The aggregate margin deposits on all futures contracts and options
thereon held at any time by a fund will not exceed 5% of the fund's total
assets.

FOREIGN CURRENCY HEDGING STRATEGIES--SPECIAL CONSIDERATIONS. Each fund
that may invest outside the United States may use options and futures on foreign
currencies, as described above, and forward currency

39
<PAGE>

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 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

40
<PAGE>

contracts, with the result that closing transactions generally can be made for
forward currency contracts only by negotiating directly with the counterparty.
Thus, there can be no assurance that a fund will in fact be able to close out a
forward currency contract at a favorable price prior to maturity. In addition,
in the event of insolvency of the counterparty, a fund might be unable to close
out a forward currency contract at any time prior to maturity. In either event,
the fund would continue to be subject to market risk with respect to the
position and would continue to be required to maintain a position in the
securities or currencies that are the subject of the hedge or to maintain cash
or securities in a segregated account.

The precise matching of forward currency contract amounts and the value of
the securities involved generally will not be possible because the value of such
securities, measured in the foreign currency, will change after the foreign
currency contract has been established. Thus, a fund might need to purchase or
sell foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward contracts. The projection of short-term
currency market movements is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain.

LIMITATIONS ON THE USE OF FORWARD CURRENCY CONTRACTS. A fund that may
invest outside the United States may enter into forward currency contracts or
maintain a net exposure to such contracts only if (1) the consummation of the
contracts would not obligate the fund to deliver an amount of foreign currency
in excess of the value of the position being hedged by such contracts or (2) the
fund segregates with its custodian cash or liquid securities in an amount not
less than the value of its total assets committed to the consummation of the
contract 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 the fund receiving or paying, as the case may be,
only the net amount of the two payments. Because segregated accounts will be
established with respect to these transactions, 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 board. If there is a

41
<PAGE>

default by the other party to such a transaction, a fund will have to rely on
its contractual remedies (which may be limited by bankruptcy, insolvency or
similar laws) pursuant to the agreements related to the transaction.

ORGANIZATION OF TRUST; TRUSTEES AND OFFICERS;
PRINCIPAL HOLDERS AND MANAGEMENT OWNERSHIP 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*+; 53 Trustee 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 a director
or trustee of 30 investment companies for which Mitchell
Hutchins, PaineWebber or one of their affiliates serves as
investment adviser.

David J. Beaubien; 66 Trustee Mr. Beaubien is chairman of Yankee Environmental Systems, Inc.,
101 Industrial Road a manufacturer of meteorological measuring systems. Prior to
Turner Falls, MA 03176 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.** +; 74 Trustee Mr. Bewkes is a director of Paine Webber Group Inc. ("PW
Group") (holding company of PaineWebber and Mitchell Hutchins).
Prior to 1996, he was a consultant to PW Group. He serves as a
consultant to PaineWebber (since May 1999). Prior to 1988, he
was chairman of the board, president and chief executive
officer of American Bakeries Company. Mr. Bewkes is a director
of Interstate Bakeries Corporation. Mr. Bewkes is a director or
trustee of 40 investment companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates serves as investment
adviser.
</TABLE>

42
<PAGE>

<TABLE>
<CAPTION>
NAME AND ADDRESS; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
--------------------- ------------------- ----------------------------------------
<S> <C> <C>
William W. Hewitt, Jr.; 72 Trustee Mr. Hewitt is retired. Since 1988, he has served as a director
P.O. Box 2359 or trustee on the boards of the Guardian Life Insurance Company
Princeton, NJ 08543-2359 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; 70 Trustee Mr. Janklow is senior partner of Janklow & Nesbit Associates,
598 Madison Avenue an international literary agency representing leading authors
New York, NY 10022 in their 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. (cosmetics). Mr. Janklow is a trustee of one
investment company for which Mitchell Hutchins, PaineWebber or
one of their affiliates serves as investment adviser.

Brian M. Storms*+; 46 Trustee and President Mr. Storms is president and chief operating officer of Mitchell
Hutchins (since March 1999). Mr. Storms was president of
Prudential Investments (1996-1999). Prior to joining
Prudential he was a managing director at Fidelity Investments.
Mr. Storms is president and a director or trustee of 30
investment companies for which Mitchell Hutchins, PaineWebber
or one of their affiliates serves as investment adviser.

William D. White; 66 Trustee Mr. White is retired. From February 1989 through March 1994,
P.O. Box 199 he was president of the National League of Professional
Upper Black Eddy, PA 10017 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 a
trustee of one investment company for which Mitchell Hutchins,
PaineWebber or one of their affiliates serves as investment
adviser.

Thomas Disbrow***;34 Vice President and Mr. Disbrow is a first vice president and a senior manager of
Assistant Treasurer the mutual fund finance department of Mitchell Hutchins. Prior
to November 1999, he was a vice president of Zweig/Glaser
Advisers. Mr. Disbrow is a vice president and assistant
treasurer of 30 investment companies for which Mitchell
Hutchins, PaineWebber or one of their affiliates serves as
investment adviser.
</TABLE>

43
<PAGE>

<TABLE>
<CAPTION>
NAME AND ADDRESS; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
--------------------- ------------------- ----------------------------------------
<S> <C> <C>
Amy R. Doberman**; 38 Vice President and Ms. Doberman is a senior vice president and general counsel of
Secretary Mitchell Hutchins. From December 1996 through July 2000, she
was general counsel of Aeltus Investment Management, Inc.
Prior to working at Aeltus, Ms. Doberman was a Division of
Investment Management Assistant Chief Counsel at the SEC. Ms.
Doberman is a vice president of 29 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.

Joanne M. Kilkeary***; 32 Vice President and Ms. Kilkeary is a vice president and a manager of the mutual
Assistant Treasurer 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.

John J. Lee***; 32 Vice President and Mr. Lee is a vice president and a manager of the mutual fund
Assistant Treasurer 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 30 investment companies for which
Mitchell Hutchins, PaineWebber or one of their affiliates
serves as investment adviser.

Kevin J. Mahoney***; 35 Vice President and Mr. Mahoney is a first vice president and a senior manager of
Assistant Treasurer the mutual fund finance department of Mitchell Hutchins. From
August 1996 through March 1999, he was the manager of the
mutual fund internal control group of Salomon Smith Barney.
Prior to August 1996, he was an associate and assistant
treasurer of BlackRock Financial Management L.P. Mr. Mahoney
is a vice president and assistant treasurer of 30 investment
companies for which Mitchell Hutchins, PaineWebber or one of
their affiliates serves as investment adviser.

Ann E. Moran***; 43 Vice President and Ms. Moran is a vice president and a manager of the mutual fund
Assistant Treasurer finance department of Mitchell Hutchins. Ms. Moran is a vice
president and assistant treasurer of 30 investment companies
for which Mitchell Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.

Dianne E. O'Donnell**; 48 Vice President and Ms. O'Donnell is a senior vice president and deputy general
Assistant Secretary counsel of Mitchell Hutchins. Ms. O'Donnell is a vice president
and secretary of 29 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.

Paul H. Schubert***; 37 Vice President and Mr. Schubert is a senior vice president and the director of the
Treasurer mutual fund finance department of Mitchell Hutchins. Mr.
Schubert is a vice president and treasurer of 30 investment
companies for which Mitchell Hutchins, PaineWebber or one of
their affiliates serves as investment adviser.
</TABLE>

44
<PAGE>

<TABLE>
<CAPTION>
NAME AND ADDRESS; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
--------------------- ------------------- ----------------------------------------
<S> <C> <C>
Barney A. Taglialatela***; Vice President and Mr. Taglialatela is a vice president and a manager of the
39 Assistant Treasurer mutual fund finance department of Mitchell Hutchins. Mr.
Taglialatela is a vice president and assistant treasurer of 30
investment companies for which Mitchell Hutchins, PaineWebber
or one of their affiliates serves as investment adviser.

Keith A. Weller**; 39 Vice President and Mr. Weller is a first vice president and senior associate
Assistant Secretary general counsel of Mitchell Hutchins. Mr. Weller is a vice
president and assistant secretary of 30 investment companies
for which Mitchell Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.

</TABLE>

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

** This person's business address is 1285 Avenue of the Americas, New York,
New York 10019-6028.

*** This person's business address is Newport Center III, 499 Washington Blvd.,
14/th/ Floor, Jersey City, New Jersey 07310-1998.

+ Messrs. Bewkes and Storms and Mrs. Alexander are "interested persons" of
the Trust as defined in the Investment Company Act by virtue of their
positions with 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 for attending a 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. 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 periods indicated.

COMPENSATION TABLE+

45
<PAGE>

<TABLE>
<CAPTION>
TOTAL COMPENSATION FROM
AGGREGATE COMPENSATION FROM THE TRUST AND THE PAINEWEBBER FUND
NAME OF PERSON, POSITION THE TRUST * COMPLEX**
------------------------ ------------ ---------
<S> <C> <C>
William W. Hewitt,
Trustee.......................... $78,750 $78,750
Morton L. Janklow,
Trustee.......................... $68,750 $68,750
William D. White,
Trustee.......................... $68,750 $68,750
M. Cabell Woodward, Jr.,
Trustee.......................... $68,750 $68,750
</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 from the PaineWebber
funds.

* Represents fees paid to each trustee during the fiscal year ended July 31,
2000. During the fiscal year ended July 31, 2000, 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.

** No fund within the PaineWebber fund complex has a bonus, pension, profit
sharing or retirement plan.

PRINCIPAL HOLDERS AND MANAGEMENT OWNERSHIP OF SECURITIES. As of November
1, 2000, trustees and officers owned in the aggregate less than 1% of the
outstanding shares of any class of each fund. As of October 31, 2000, the
following shareholders were shown in the Trust's records as owning more than 5%
of any class of a fund's shares:

<TABLE>
<CAPTION>
PERCENTAGE
OF CLASS P SHARES BENEFICIALLY OWNED
SHAREHOLDER NAME AND ADDRESS* AS OF OCTOBER 31, 2000
----------------------------- ----------------------
<S> <C>
PACE INTERMEDIATE FIXED INCOME INVESTMENTS
------------------------------------------

Chesapeake Hospital Authority Int. Bond Fund
Chesapeake General Hospital 6.76%

PACE STRATEGIC FIXED INCOME INVESTMENTS
---------------------------------------
CHA Foundation
Chesapeake General Hospital 5.39%
OBICI Foundation
Attn: William A. Carpenter 10.90%
</TABLE>

______________________

* The shareholders listed may be contacted c/o Mitchell Hutchins Asset
Management Inc., 51 West 52nd Street, New York, NY 10019-6114.

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"). 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

46
<PAGE>

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 AND ADMINISTRATION FEES EARNED (OR ADVISORY AND ADMINISTRATION FEES WAIVED
ACCRUED) BY
BY MITCHELL HUTCHINS MITCHELL HUTCHINS
FOR FISCAL YEARS ENDED JULY 31, FOR FISCAL YEARS ENDED JULY 31,
-------------------------------------- -----------------------------------------
PORTFOLIO 2000 1999 1998 2000 1999 1998
--------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
PACE Money Market Investments.. $ 210,048 $ 114,410 $ 76,176 $210,048 $114,410 $ 76,176
PACE Government Securities
Fixed Income Investments...... 1,380,076 1,277,768 916,670 83,618 102,428 135,366

PACE Intermediate Fixed Income
Investments................... 828,218 740,117 504,134 13,758 1,460 5,372

PACE Strategic Fixed Income
Investments................... 1,596,218 1,302,736 697,639 84,075 70,795 91,847

PACE Municipal Fixed Income
Investments................... 329,466 337,795 259,431 23,718 24,086 35,977

PACE Global Fixed Income
Investments................... 821,382 805,390 599,606 240,342 220,842 209,982

PACE Large Company Value
Equity Investments............ 2,800,505 2,581,440 1,786,641 16,771 1,732 --

PACE Large Company Growth
Equity Investments............ 3,458,178 2,593,183 1,672,807 22,200 3,823 45,136

PACE Small/Medium Company
Value Equity Investments...... 1,574,930 1,458,785 1,384,807 32,450 25,179 11,273

PACE Small/Medium Company
Growth Equity Investments..... 2,495,426 1,704,803 1,328,874 17,105 15,569 43,813

PACE International Equity
Investments................... 2,227,716 1,615,444 1,163,135 7,642 834 --

PACE International Emerging
Markets Equity Investments.... 991,438 751,091 623,343 222,127 195,575 161,872
</TABLE>

For PACE Money Market Investments, in addition to the advisory and
administration fee waiver in the foregoing table, Mitchell Hutchins reimbursed
the fund for $59,723 in other expenses.

In connection with its management of the business affairs of the Trust,
Mitchell Hutchins bears the following expenses:

47
<PAGE>

(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.

The following table shows the approximate net assets as of September 30,
2000, 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)......................................................... $ 9,028.0
Global.................................................................................... 4,731.0
Equity/Balanced........................................................................... 9,581.4
Fixed Income (excluding Money Market)..................................................... 4,177.6
Taxable Fixed Income................................................................. 2,771.5
Tax-Free Fixed Income................................................................ 1,406.1
Money Market Funds........................................................................ 44,187.4
</TABLE>

48
<PAGE>

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.

PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS AND PACE STRATEGIC FIXED
INCOME INVESTMENTS

Under the Advisory Agreements for these funds with Pacific Investment
Management Company LLC ("PIMCO"), Mitchell Hutchins (not the fund) pays PIMCO
for its services a fee in the annual amount of 0.225% of the average daily net
assets of PACE Government Securities Fixed Income Investments (0.25% prior to
October 10, 2000) and 0.25% of the average daily net assets of PACE Strategic
Fixed Income Investments. For the fiscal years ended July 31, 2000, July 31,
1999 and July 31, 1998, Mitchell Hutchins paid or accrued investment advisory
fees to PIMCO of $492,884, $456,345 and $327,708, respectively for PACE
Government Securities Fixed Income Investments and $570,078, $465,263 and
$249,156, respectively for PACE Strategic Fixed Income Investments.

PIMCO, a Delaware limited liability company, is a subsidiary of PIMCO
Advisors L.P. ("PIMCO Advisors"). PIMCO Advisors was organized as a limited
partnership under Delaware law in 1987. PIMCO Advisors' sole general partner
is Pacific-Allianz Partners LLC. Pacific-Allianz Partners LLC is a Delaware
limited liability company with two members, Allianz GP Sub LLC, a Delaware
limited liability company and Pacific Asset Management LLC, a Delaware limited
liability company. Allianz GP Sub LLC is a wholly owned subsidiary of Allianz
of America, Inc., which is wholly owned by Allianz AG. Pacific Asset Management
LLC is a wholly owned subsidiary of Pacific Life Insurance Company, which is a
wholly owned subsidiary of Pacific Mutual Holding Company.

On May 5, 2000 the general partners of PIMCO Advisors closed the
transactions contemplated by the Implementation and Merger Agreement dated as of
October 31, 1999 ("Implementation Agreement"), as amended March 3, 2000, with
Allianz of America, Inc., Pacific Asset Management LLC, PIMCO Partners, LLC,
PIMCO Holding LLC, PIMCO Partners, G.P., and other parties to the Implementation
Agreement. As a result of completing these transactions, PIMCO Advisors is now
majority-owned indirectly by Allianz AG, with subsidiaries of Pacific Life
Insurance Company retaining a significant minority interest. Allianz AG is a
German based insurer. Pacific Life Insurance Company is a Newport Beach,
California based insurer.

49
<PAGE>

In connection with the closing, Allianz of America entered into a put/call
arrangement for the possible disposition of Pacific Life's indirect interest in
PIMCO Advisors. The put option held by Pacific Life will allow it to require
Allianz of America, on the last business day of each calendar quarter following
the closing, to purchase at a formula-based price all of the PIMCO Advisors'
units owned directly or indirectly by Pacific Life. The call option held by
Allianz of America will allow it, beginning January 31, 2003 or upon a change in
control of Pacific Life, to require Pacific Life to sell or cause to be sold to
Allianz of America, at the same formula-based price, all of the PIMCO Advisors'
units owned directly or indirectly by Pacific Life. Allianz AG's address is
Koniginstrasse 28, D-80802, Munich, Germany.

Allianz AG, the parent of Allianz of America, is a publicly traded German
company which, together with its subsidiaries, comprises the world's second
largest insurance company as measured by premium income. Allianz AG is a
leading provider of financial services, particularly in Europe, and is
represented in 68 countries world-wide through subsidiaries, branch and
representative offices, and other affiliated entities. As of June 30, 2000, the
Allianz Group (including PIMCO) had assets under management of more than $650
billion, and in its last fiscal year wrote approximately $50 billion in gross
insurance premiums.

Significant institutional shareholders of Allianz AG currently include
Dresdner Bank AG, Deutsche Bank AG, Munich Reinsurance and HypoVereinsbank. BNP
Paribas, Credit Lyonnais, Munich Reinsurance, HypoVereinsbank, Dresdner Bank AG
and Deutsche Bank AG, as well as certain broker-dealers that might be controlled
by or affiliated with these entities, such as DB Alex. Brown LLC, Deutsche Bank
Securities, Inc. and Dresdner Klienwort Benson North America LLC (collectively,
the "Affiliated Brokers"), may be considered to be affiliated persons of PIMCO.
Absent an SEC exemption or other relief, PACE Government Fixed Income
Investments and PACE Strategic Fixed Income Investments generally are precluded
from effecting principal transactions with the Affiliated Brokers, and its
ability to purchase securities being underwritten by an Affiliated Broker or to
utilize the Affiliated Brokers for agency transactions is subject to
restrictions. PIMCO does not believe that the restrictions on transactions with
the Affiliated Brokers described above materially adversely affect its ability
to provide services to the funds, the funds' ability to take advantage of market
opportunities, or the funds' overall performance.

PACE INTERMEDIATE FIXED INCOME INVESTMENTS

Under the Advisory Agreement for this fund with Metropolitan West Asset
Management, LLC ("MWAM"), Mitchell Hutchins (not the fund) pays MWAM a fee in
the annual amount of 0.20% of the fund's average daily net assets up to and
including $200 million and 0.12% of the fund's average daily net assets above
$200 million. Prior to October 10, 2000, Pacific Income Advisers, Inc. was the
fund's investment adviser. For the fiscal years ended July 31, 2000, July 31,
1999 and July 31, 1998, Mitchell Hutchins paid or accrued investment advisory
fees to the prior investment adviser of $276,073, $246,706, and $168,045,
respectively. MWAM is majority-owned by its key executives, with an
approximately 40% minority ownership stake held by Metropolitan West Financial,
Inc. ("MWF"), a registered investment adviser.

PACE MUNICIPAL FIXED INCOME INVESTMENTS

Under the Advisory Agreement for this fund with Standish, Ayer & Wood, Inc.
("Standish"), Mitchell Hutchins (not the fund) pays Standish a fee in the annual
amount of 0.20% of the fund's average daily net assets up to and including $60
million and 0.15% of the fund's average daily net assets in excess of $60
million. Prior to June 1, 2000, Deutsche Asset Management, Inc. was the fund's
investment adviser. For the fiscal years ended July 31, 2000, July 31, 1999 and
July 31, 1998, Mitchell Hutchins paid or accrued investment advisory fees to
Standish and the prior investment adviser of $109,822, $112,598 and $86,574,
respectively.

Standish is a privately held investment management firm founded in 1933.
Edward H. Ladd is the Chairman of the Board of Directors of Standish. Richard
S. Wood is President, Chief Executive Officer and a Managing Director of
Standish. George W. Noyes is the Vice Chairman and a Managing Director of
Standish. Austin C. Smith is the Treasurer of Standish. The following
constitute all of the Directors of Standish: Caleb F. Aldrich, David H. Cameron,
Maria D. Furman, Raymond J. Kubiak, George W. Noyes, Howard B. Rubin, Thomas P.
Sorbo, Ralph S. Tate and Richard S. Wood. All of the outstanding stock of
Standish is owned by SAW Trust, a Massachusetts business trust. SAW Trust is
owned entirely by its twenty-two trustees, all of whom are officers of

50
<PAGE>

Standish. Nine of the twenty-two trustees are the Directors of Standish listed
above. The remaining thirteen trustee/shareholders are: Karen K. Chandor,
Lavinia B. Chase, W. Charles Cook, Joseph M. Corrado, Richard C. Doll, Dolores
S. Driscoll, James E. Hollis III, Edward H. Ladd, Laurence A. Manchester,
Catherine A. Powers, Austin C. Smith, David C. Stuehr and Michael W. Thompson.
All of the trustee/shareholders of SAW Trust are Standish controlling persons.

PACE GLOBAL FIXED INCOME INVESTMENTS

Under the current Advisory Agreements for this fund with Rogge Global
Partners plc and Fischer Francis Trees & Watts, Inc. and its affiliates,
Mitchell Hutchins (not the fund) pays Rogge Global Partners a fee in the annual
amount of 0.25% of the portion of the fund's average annual net assets that it
manages and pays FFTW a fee in the annual amount of 0.25% of the portion of the
fund's average daily net assets that it manages up to and including $400 million
and 0.20% of the average daily net assets that it manages in excess of $400
million. Prior to October 10, 2000, Rogge Global Partners managed all the
fund's assets and was paid by Mitchell Hutchins (not the fund) an annual fee of
0.35% of the fund's average daily net assets. For the fiscal years ended July
31, 2000, July 31, 1999 and July 31, 1998, Mitchell Hutchins paid or accrued
investment advisory fees to Rogge Global Partners of $359,355, $352,679 and
$262,596, 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 Partners. During the third
quarter of 2000, eleven of Rogge Global Partners' senior employees began the
process of buying back 30.5% in the aggregate of the firm from UAM, based on a
valuation date of December 31, 1999. Those eleven employees, including all six
portfolio managers, will initially buy back 18% of Rogge's shares from UAM. An
additional 12.5% will be available through an option scheme that ties in the key
executives for 7 years (until 2007).

On June 16, 2000, Old Mutual and OM Acquisition Corp., a Delaware
corporation that was formed solely to effect the proposed acquisition of UAM,
entered into an Agreement and Plan of Merger ("Merger Agreement") with UAM.
Pursuant to the Merger Agreement, which was unanimously approved by the boards
of directors of Old Mutual and UAM, OM Acquisition Corp. commenced a tender
offer to acquire all of the issued and outstanding common stock of UAM.

To initiate the transaction, Old Mutual and OM Acquisition Corp. filed a
tender offer statement and UAM filed a solicitation/recommendation statement
with the SEC. The tender offer price was set at $25 per share in cash and is
subject to downward adjustment in certain circumstances, including should UAM's
revenues from assets under management decline below a specified level prior to
consummation of the offer. Consummation of the tender offer also was subject to
customary conditions, including acceptances by holders of a majority of UAM's
outstanding shares and receipt of regulatory and client approvals. On September
26, 2000, Old Mutual announced the closure of its tender offer for UAM.

Following completion of the tender offer, OM Acquisition Corp. will be
merged with and into UAM. Thereafter, OM Acquisition Corp. will cease to exist,
and UAM will continue as the surviving corporation and become a direct and
wholly owned subsidiary of Old Mutual.

Old Mutual is a 155-year old international financial services firm that was
founded in Cape Town, South Africa, and is now headquartered in London, England.
Old Mutual was founded in 1845 principally to provide life insurance policies in
South Africa. Today, Old Mutual provides a broad array of financial services to
clients in the United Kingdom, in South Africa and other countries in southern
Africa, and in other locations principally outside of the United States. Old
Mutual, which was founded as a mutual organization, has been a publicly held
stock company since the middle of 1999.

Fischer Francis Trees & Watts, Inc. ("FFTW") is a New York corporation
organized in 1972 and is directly owned by Charter Atlantic Corporation, a
holding company organized as a New York corporation. The affiliates of FFTW are
Fischer Francis Trees & Watts, a corporate partnership organized under the laws
of the United Kingdom (sometimes referred to as "FFTW UK"), Fischer Francis
Trees & Watts, pte Ltd (Singapore), a Singapore

51
<PAGE>

corporation (sometimes referred to as "FFTW (Singapore)") and Fischer Francis
Trees & Watts, Ltd Kabushiki Kaisha (Japan), a Japanese corporation (sometimes
referred to as "FFTW (Japan)"). FFTW (Singapore) and FFTW (Japan) are wholly
owned subsidiaries of FFTW. FFTW UK is 99% owned by FFTW and 1% owned by Fischer
Francis Trees & Watts Ltd. which in turn is owned by Charter Atlantic
Corporation. FFTW (Japan) will not assume duties as sub-adviser to the fund
until it has completed its registration as a registered investment adviser with
the SEC.

PACE LARGE COMPANY VALUE EQUITY INVESTMENTS

Under the current Advisory Agreements for this fund with Institutional
Capital Corporation ("ICAP"), Westwood Management Corporation ("Westwood") and
State Street Global Advisors ("SSgA"), Mitchell Hutchins (not the fund) pays
each investment adviser a fee in the annual amount of 0.30% (0.15% for SSgA) of
the fund's average daily net assets that it manages. Prior to July 1, 2000,
Brinson Partners, Inc. was the fund's sole investment adviser. ICAP and
Westwood assumed their fund responsibilities on July 1, 2000 and SSgA assumed
its fund responsibilities on October 10, 2000. For the fiscal years ended July
31, 2000, July 31, 1999 and July 31, 1998, Mitchell Hutchins paid or accrued
aggregate investment advisory fees to ICAP, Westwood and the fund's previous
investment adviser of $1,024,189, $968,040, and $670,717, respectively. Robert
H. Lyon, who serves as president, chief investment officer and a director of
ICAP owns a 51% controlling interest in ICAP. Westwood is a wholly owned
subsidiary of Southwest Securities Group, Inc., a Dallas-based securities firm.
SSgA is the investment management division of State Street Bank and Trust
Company, which is a wholly owned subsidiary of State Street Corporation, a
publicly held bank holding company.

PACE LARGE COMPANY GROWTH EQUITY INVESTMENTS

Under the current Advisory Agreements for this fund with Alliance Capital
Management L.P. ("Alliance Capital") and State Street Global Advisors ("SSgA"),
Mitchell Hutchins (not the fund) pays Alliance a fee in the annual amount of
0.30% and SSgA a fee in the annual amount of 0.15% of the fund's average daily
net assets that it manages. Alliance Capital assumed its fund responsibilities
on November 10, 1997 and SSgA assumed its fund responsibilities on October 10,
2000. Prior to November 10, 1997, Chancellor LGT Asset Management, Inc. was the
fund's sole investment adviser. For the fiscal years ended July 31, 2000, July
31, 1999 and July 31, 1998, Mitchell Hutchins paid or accrued investment
advisory fees to Alliance Capital and the prior investment adviser, of
$1,296,816, $972,444 and $628,243, respectively.

SSgA is the investment management division of State Street Bank and Trust
Company, which is a wholly owned subsidiary of State Street Corporation, a
publicly held bank holding company.

In October 1999, Alliance Capital Management Holding L.P. ("Alliance
Holding"), reorganized by transferring its business and assets to Alliance
Capital Management L.P. ("Alliance Capital"), in exchange for all of the
Alliance Capital Units ("Reorganization"). Since the Reorganization, Alliance
Capital has conducted the diversified investment management services business
conducted by Alliance Holding prior to the Reorganization and Alliance Holding's
business has consisted of holding Alliance Capital Units and engaging in related
activities. The Alliance Holding Units trade publicly on the New York Stock
Exchange while the Alliance Capital Units do not trade publicly and are subject
to significant restrictions on transfer.

Alliance Capital Management L.P. ("ACMLP"), a Delaware limited partnership,
is registered as an investment adviser under the Investment Advisers Act of
1940, as amended. Alliance Capital Management Corporation ("ACMC"), an indirect
wholly-owned subsidiary of AXA Financial, Inc. ("AXF"), is the general partner
of ACMLP. As of October 2, 2000, AXF, together with ACMC and certain of its
other wholly-owned subsidiaries, beneficially owned approximately 53% of the
outstanding units of limited partnership interest in ACMLP ("ACMLP Units").
Approximately 29% of the ACMLP Units were beneficially owned by the public and
approximately 18% were beneficially owned by employees. AXA, which has
operations in approximately 60 countries, holds a 60% interest in AXF.

52
<PAGE>

PACE SMALL/MEDIUM COMPANY VALUE EQUITY INVESTMENTS

Under the current Advisory Agreements for this fund with Ariel Capital
Management, Inc. ("Ariel") and ICM Asset Management, Inc. ("ICM"), Mitchell
Hutchins (not the fund) pays each of these investment advisers a fee in the
annual amount of 0.30% of the fund's average daily net assets that it manages.
Prior to October 10, 2000, Ariel and Brandywine Asset Management, Inc. served as
investment advisers for the fund's assets and, prior to October 4, 1999,
Brandywine was the fund's sole investment adviser. For the fiscal years ended
July 31, 2000, July 31, 1999 and July 31, 1998, Mitchell Hutchins paid or
accrued aggregate investment advisory fees to Ariel and Brandywine of $590,599,
$547,044 and $519,732, respectively. Ariel is an independent subchapter S
corporation with a majority of ownership held by its employees. ICM also is an
independent subchapter S corporation with a majority of ownership held by its
employees. James M. Simmons, founder and chief investment officer of ICM, owns
more than 25% of ICM's voting stock.

PACE SMALL/MEDIUM COMPANY GROWTH EQUITY INVESTMENTS

Under the current Advisory Agreement for this fund with Delaware Management
Company, Mitchell Hutchins (not the fund) pays Delaware Management Company 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, 2000, July 31, 1999 and
July 31, 1998, Mitchell Hutchins paid or accrued aggregate investment advisory
fees to Delaware Management Company and to the prior investment adviser, of
$1,247,713, $852,402, and $664,437, respectively. Delaware Management Company
is a series of Delaware Management Business Trust, a Delaware business trust.
It 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.

PACE INTERNATIONAL EQUITY INVESTMENTS

Under the current Advisory Agreement for this fund with Martin Currie Inc.,
Mitchell Hutchins (not the fund) pays Martin Currie Inc. a fee in the annual
amount of 0.35% of the fund's average daily net assets up to and including $150
million, 0.30% of the fund's average daily net assets above $150 million up to
and including $250 million, 0.25% of the fund's average daily net assets above
$250 million up to and including $350 million, and 0.20% of the fund's average
daily net assets above $350 million. Prior to October 10, 2000, Mitchell
Hutchins (not the fund) paid Martin Currie Inc. a fee for its services under the
Advisory Agreement at the annual rate of 0.40% of the fund's average daily net
assets. For the fiscal years ended July 31, 2000, July 31, 1999 and July 31,
1998, Mitchell Hutchins paid or accrued investment advisory fees to Martin
Currie Inc. of $990,097, $717,975 and $517,629, respectively. Martin Currie
Inc. is a wholly owned subsidiary of Martin Currie Limited, a holding company.

PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS

Under the current Advisory Agreement for this fund with Schroder Investment
Management North America Inc. ("SIMNA"), Mitchell Hutchins (not the fund) pays
SIMNA a fee in the annual amount of 0.50% of the fund's average daily net
assets. SIMNA is a wholly owned subsidiary of Schroder U.S. Holdings Inc.,
which engages through its subsidiary firms in the asset management business.
SIMNA was the surviving company in a merger with Schroder Capital Management
International Inc. (the fund's investment adviser prior to July 1, 1999 and
another wholly owned subsidiary of Schroder U.S. Holdings Inc.). For the fiscal
years ended July 31, 2000, July 31, 1999 and July 31, 1998, Mitchell Hutchins
paid or accrued investment advisory fees to SIMNA and its predecessor of
$450,653, $341,405 and $283,338, respectively. Schroder U.S. Holdings Inc. is a
wholly owned subsidiary of Schroders plc., a publicly owned holding company
organized under the laws of England. Schroders plc and its affiliates currently
engage in asset management businesses. In May 2000, Schroders plc sold its
worldwide investment banking business to Salomon Smith Barney. Schroders plc
retained its asset management business.

PROCESS FOR SELECTION OF INVESTMENT ADVISERS. In selecting investment
advisers for the PACE Portfolios, Mitchell Hutchins, together with PaineWebber,
looks for those firms who they believe are best positioned to deliver

53
<PAGE>

strong, consistent performance in a particular investment style or market
capitalization range, while managing risk appropriately.

After a thorough initial review of potential advisers, the selection
process includes quantitative and qualitative analysis to narrow the list of
candidates. The rigorous review, using stringent qualifying standards,
incorporates statistical measures of performance, including:

. Investment returns over short- and long-term periods
. Risk-adjusted performance
. Performance relative to the market index that serves as the
benchmark for the investment style

The next phase includes office visits and extensive interviews. On the
qualitative side, the following areas are examined:

. Investment philosophy and discipline
. Adherence to investment style
. Experience and continuity of key personnel
. Client service capabilities
. Size and financial stability

In some instances, it is determined that more competitive and
consistent returns can be better achieved by hiring multiple investment advisers
for an individual portfolio, each specializing in a particular market segment
and management style.

The final phase is the ongoing monitoring of investment adviser
performance to ensure that the standards set by the initial phases remain intact
throughout the life of the portfolio. PACE portfolio investment advisers can be
considered for replacement if they are judged to no longer meet the standards
that led to their original selection. The result of this comprehensive approach
is access to an exclusive group of investment advisers, many of whose services
would not otherwise be available to investors with less than $10 million to
invest.

SECURITIES LENDING. For the fiscal year ended July 31, 2000,
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........................... 158
PACE Intermediate Fixed Income Investments.................................... 54,662
PACE Strategic Fixed Income Investments....................................... 4,240
PACE Municipal Fixed Income Investments....................................... 0
PACE Global Fixed Income Investments.......................................... 11,024
PACE Large Company Value Equity Investments................................... 20,527
PACE Large Company Growth Equity Investments.................................. 26,547
PACE Small/Medium Company Value Equity Investments............................ 15,171
PACE Small/Medium Company Growth Equity Investments........................... 83,313
PACE International Equity Investments......................................... 34,989
PACE International Emerging Markets Equity Investments........................ 8,171
</TABLE>

PERSONAL TRADING POLICIES. The funds and Mitchell Hutchins (investment
manager and principal underwriter for the funds) each have adopted a code of
ethics under rule 17j-1 of the Investment Company Act, which permits personnel
covered by the rule to invest in securities that may be purchased or held by a
fund but prohibits fraudulent, deceptive or manipulative conduct in connection
with that personal investing. Each investment adviser also has adopted a code
of ethics under rule 17j-1.

54
<PAGE>

DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of
each class of shares of each fund under a distribution contract with the Trust
("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 relating to each class of shares of the funds
("PW Dealer Agreement"), PaineWebber and its correspondent firms sell the funds'
shares. Mitchell Hutchins is located at 51 West 52/nd/ Street, New York, New
York 10019-6114 and PaineWebber is located at 1285 Avenue of the Americas, New
York, New York 10019-6028. PACE Money Market Investments has only Class P shares
established. The other funds have Class A, Class B, Class C, Class Y and Class P
shares established.

Under separate plans of distribution pertaining to the Class A, Class B and
Class C shares of each fund adopted by the Trust in the manner prescribed under
Rule 12b-1 under the Investment Company Act (each, respectively, a "Class A
Plan," "Class B Plan" and "Class C Plan," and collectively, "Plans"), each fund
pays Mitchell Hutchins a service fee, accrued daily and payable monthly, at the
annual rate of 0.25% of the average daily net assets of each class of shares.
Under the Class B Plan, each fund pays Mitchell Hutchins a distribution fee,
accrued daily and payable monthly, at the annual rate of 0.75% of the average
daily net assets of the Class B shares. Under the Class C Plan, each fund pays
Mitchell Hutchins a distribution fee, accrued daily and payable monthly, at the
annual rate of 0.75% (0.50% for fixed income funds) of the average daily net
assets of the Class C shares. There is no distribution plan with respect to the
funds' Class P or Class Y shares and the funds pay no service or distribution
fees with respect to these classes of shares.

Mitchell Hutchins uses the service fees under the Plans for Class A, Class
B and Class C shares primarily to pay PaineWebber for shareholder servicing,
currently at the annual rate of 0.25% of the aggregate investment amounts
maintained in each fund by PaineWebber clients. PaineWebber then compensates
its Financial Advisors for shareholder servicing that they perform and offsets
its own expenses in servicing and maintaining shareholder accounts, including
related overhead expenses.

Mitchell Hutchins uses the distribution fees under the Class B and Class C
Plans to:

. Offset the commissions it pays to PaineWebber for selling each fund's
Class B and Class C shares, respectively.

. Offset each fund's marketing costs attributable to such classes, such as
preparation, printing and distribution of sales literature, advertising
and prospectuses to prospective investors and related overhead expenses,
such as employee salaries and bonuses.

PaineWebber compensates Financial Advisors when Class B and Class C shares
are bought by investors, as well as on an ongoing basis. Mitchell Hutchins
receives no special compensation from any of the funds or investors at the time
Class B or C shares are bought.

Mitchell Hutchins receives the proceeds of the initial sales charge paid
when Class A shares are bought and of the contingent deferred sales charge paid
upon sales of shares. These proceeds may be used to cover distribution
expenses.

The Plans for Class A, Class B and Class C shares and the Distribution
Contract specify that each fund must pay service and distribution fees to
Mitchell Hutchins as compensation for its service- and distribution-related
activities, not as reimbursement for specific expenses incurred. Therefore,
even if Mitchell Hutchins' expenses for a fund exceed the service or
distribution fees it receives, the fund will not be obligated to pay more than
those fees. On the other hand, if Mitchell Hutchins' expenses are less than
such fees, it will retain its full fees and realize a profit. Expenses in
excess of service and distribution fees received or accrued through the
termination date of any Plan will be Mitchell Hutchins' sole responsibility and
not that of the funds. Annually, the board reviews the Plans and Mitchell
Hutchins' corresponding expenses for each class of shares of a fund separately
from the Plans and expenses of the other classes of shares of that fund.

Among other things, each Plan provides that (1) Mitchell Hutchins will
submit to the board at least quarterly, and the board members will review,
reports regarding all amounts expended under the Plan and the

55
<PAGE>

purposes for which such expenditures were made, (2) the Plan will continue in
effect only so long as it is approved at least annually, and any material
amendment thereto is approved, by the board, including those board members who
are not "interested persons" of the Trust and who have no direct or indirect
financial interest in the operation of the Plan or any agreement related to the
Plan, acting in person at a meeting called for that purpose, (3) payments by a
fund under the Plan shall not be materially increased without the affirmative
vote of the holders of a majority of the outstanding shares of the relevant
class of the fund and (4) while the Plan remains in effect, the selection and
nomination of board members who are not "interested persons" of the Trust shall
be committed to the discretion of the board members who are not "interested
persons" of the Trust.

In reporting amounts expended under the Plans to the board members,
Mitchell Hutchins allocates expenses attributable to the sale of each class of a
fund's shares to such class based on the ratio of sales of shares of such class
to the sales of all other classes of shares. The fees paid by one class of a
fund's shares will not be used to subsidize the sale of any other class of fund
shares.

In approving the overall Flexible Pricing(SM) system of distribution for
each fund, the board considered several factors, including that implementation
of Flexible Pricing would permit sales of fund shares outside the PACE Program
and would (1) enable investors to choose the purchasing option best suited to
their individual situation, thereby encouraging current shareholders to make
additional investments in the fund and attracting new investors and assets to
the fund to the benefit of the fund and its shareholders, (2) facilitate
distribution of the funds' shares and (3) maintain the competitive position of
the fund in relation to other funds that have implemented or are seeking to
implement similar distribution arrangements.

In approving the Class A Plan, the board considered all the features of the
distribution system, including (1) the conditions under which initial sales
charges would be imposed and the amount of such charges, (2) Mitchell Hutchins'
belief that the initial sales charge combined with a service fee would be
attractive to PaineWebber Financial Advisors and correspondent firms, resulting
in greater growth of the fund than might otherwise be the case, (3) the
advantages to the shareholders of economies of scale resulting from growth in
the fund's assets and potential continued growth, (4) the services provided to
the fund and its shareholders by Mitchell Hutchins, (5) the services provided by
PaineWebber pursuant to the PW Dealer Agreement with Mitchell Hutchins and (6)
Mitchell Hutchins' shareholder service-related expenses and costs.

In approving the Class B Plan, the board considered all the features of the
distribution system, including (1) the conditions under which contingent
deferred sales charges would be imposed and the amount of such charges, (2) the
advantage to investors in having no initial sales charges deducted from fund
purchase payments and instead having the entire amount of their purchase
payments immediately invested in fund shares, (3) Mitchell Hutchins' belief that
the ability of PaineWebber Financial Advisors and correspondent firms to receive
sales commissions when Class B shares are sold and continuing service fees
thereafter while their customers invest their entire purchase payments
immediately in Class B shares would prove attractive to the Financial Advisors
and correspondent firms, resulting in greater growth of the fund than might
otherwise be the case, (4) the advantages to the shareholders of economies of
scale resulting from growth in the fund's assets and potential continued growth,
(5) the services provided to the fund and its shareholders by Mitchell Hutchins,
(6) the services provided by PaineWebber pursuant to the PW Dealer Agreement
with Mitchell Hutchins and (7) Mitchell Hutchins' shareholder service- and
distribution-related expenses and costs. The board members also recognized that
Mitchell Hutchins' willingness to compensate PaineWebber and its Financial
Advisors, without the concomitant receipt by Mitchell Hutchins of initial sales
charges, was conditioned upon its expectation of being compensated under the
Class B Plan.

In approving the Class C Plan, the board considered all the features of the
distribution system, including (1) the advantage to investors of having no
initial sales charges deducted from fund purchase payments and instead having
the entire amount of such purchase payments immediately invested in fund shares,
(2) the advantage to investors in being free from contingent deferred sales
charges upon redemption for shares held more than one year and paying for
distribution on an ongoing basis, (3) Mitchell Hutchins' belief that the ability
of PaineWebber Financial Advisors and correspondent firms to receive sales
compensation for their sales of Class C shares on an ongoing basis, along with
continuing service fees, while their customers invest their entire purchase
payments immediately in Class C shares and generally do not face contingent
deferred sales charges, would prove attractive to the Financial Advisors and
correspondent firms, resulting in greater growth to the fund than might
otherwise be the case, (4) the advantages to the shareholders of economies of
scale resulting from growth in the fund's assets and

56
<PAGE>

potential continued growth, (5) the services provided to the fund and its
shareholders by Mitchell Hutchins, (6) the services provided by PaineWebber
pursuant to the PW Dealer Agreement with Mitchell Hutchins and (7) Mitchell
Hutchins' shareholder service- and distribution-related expenses and costs. The
board members also recognized that Mitchell Hutchins' willingness to compensate
PaineWebber and its Financial Advisors after Class C shares have been held more
than one year without the concomitant receipt by Mitchell Hutchins of initial
sales charges or contingent deferred sales charges upon redemption after one
year following purchase was conditioned upon its expectation of being
compensated under the Class C Plan.

With respect to each Plan, the board considered all compensation that
Mitchell Hutchins would receive under the Plan and the Distribution Contract,
including service fees and, as applicable, initial sales charges, distribution
fees and contingent deferred sales charges. The board also considered the
benefits that would accrue to Mitchell Hutchins under each Plan in that Mitchell
Hutchins would receive service, distribution and management and administration
fees that are calculated based upon a percentage of the average net assets of a
fund, which fees would increase if the Plan were successful and the fund
attained and maintained significant asset levels.

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.

57
<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 2000 1999 1998
---- --------- --------- -----------
<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............................ 7,221 4,297 17,292
PACE Municipal Fixed Income Investments............................ 0 0 0
PACE Global Fixed Income Investments............................... 0 0 0
PACE Large Company Value Equity Investments........................ 839,338 336,042 191,304
PACE Large Company Growth Equity Investments....................... 406,265 289,045 422,526
PACE Small/Medium Company Value Equity Investments................. 741,513 715,933 491,524
PACE Small/Medium Company Growth Equity Investments................ 147,922 296,609 303,695
PACE International Equity Investments.............................. 724,608 722,215 441,600
PACE International Emerging Markets Equity Investments............. 611,340 361,372 286,220
</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 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 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

58
<PAGE>

personal meetings with securities analysts, economists, corporate and industry
spokespersons and government representatives.

For the fiscal year ended July 31, 2000, the funds directed portfolio
transactions to brokers chosen because they provide research and analysis as
indicated below, for which the funds paid the following in brokerage
commissions:

<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............... 0 0
PACE Intermediate Fixed Income Investments........................ 1,676,965 307
PACE Strategic Fixed Income Investments........................... 7,800,000 851
PACE Municipal Fixed Income Investments........................... 0 0
PACE Global Fixed Income Investments.............................. 0 0
PACE Large Company Value Equity Investments....................... 389,875,806 166,846
PACE Large Company Growth Equity Investments...................... 35,934,994 27,439
PACE Small/Medium Company Value Equity Investments................ 63,281,970 166,846
PACE Small/Medium Company Growth Equity Investments............... 4,828,196 7,044
PACE International Equity Investments............................. 0 0
PACE International Emerging Markets Equity Investments............ 0 0
</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 in a manner deemed equitable to the fund
and the other account(s). While in some cases this practice could have a
detrimental effect upon the price or value of the security as far as a fund is
concerned, or upon its ability to complete its entire order, in other cases it
is believed that simultaneous transactions and the ability to participate in
volume transactions will benefit the fund.

The funds will not purchase securities that are offered in underwritings in
which 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

59
<PAGE>

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, 2000, 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: Commercial paper of Goldman Sachs Group, Inc.
($986,172); Short-term corporate obligations of Merrill Lynch & Co., Inc.
($1,999,892) and Morgan Stanley Dean Witter & Co. ($2,000,000).

PACE Government Securities Fixed Income Investments: Corporate obligations of
Lehman Brothers Holdings Inc. ($2,007,542) and Morgan Stanley Dean Witter & Co.
($1,000,699); repurchase agreement with State Street Bank & Trust Co.
($16,093,000).

PACE Intermediate Fixed Income Investments: Repurchase agreement with State
Street Bank & Trust Co. ($2,844,000).

PACE Strategic Fixed Income Investments: Corporate obligations of Goldman Sachs
Group, Inc. ($3,251,661), Lehman Brothers Holdings Inc. ($2,308,673) and Morgan
Stanley Dean Witter & Co. ($4,497,143); repurchase agreement with State Street
Bank & Trust Co. ($2,822,000).

PACE Municipal Fixed Income Investments: None

PACE Global Fixed Income Investments: None

PACE Large Company Value Equity Investments: Common stock of Chase Manhattan
Corp. ($5,033,344); repurchase agreement with State Street Bank & Trust Co.
($804,000).

PACE Large Company Growth Equity Investments: Common stock of Chase Manhattan
Corp. ($9,122,625), Merrill Lynch & Co., Inc. ($2,068,000) and Morgan Stanley
Dean Witter & Co. ($13,486,750).

PACE Small/Medium Company Value Equity Investments: Repurchase agreement with
State Street Bank & Trust Co. ($11,103,000).

PACE Small/Medium Company Growth Equity Investments: Repurchase agreement with
State Street Bank & Trust Co. ($12,966,000).

PACE International Equity Investments: Repurchase agreement with State Street
Bank & Trust Co. ($7,214,000).

PACE International Emerging Markets Equity Investments: Repurchase agreement
with State Street Bank & Trust Co ($558,000).

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
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

60
<PAGE>

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. PACE Large Company Value Equity Investments
experienced an increase in portfolio turnover during the fiscal year ended July
31, 2000 due to the restructuring of the portfolio to reflect the investment
styles of the fund's new investment advisers.

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, 2000 JULY 31, 1999
----- ------------------- ---------------------
<S> <C> <C>
PACE Money Market Investments N/A N/A
PACE Government Securities Fixed Income Investments...................... 585% 418%
PACE Intermediate Fixed Income Investments............................... 88% 89%
PACE Strategic Fixed Income Investments.................................. 391% 202%
PACE Municipal Fixed Income Investments.................................. 33% 11%
PACE Global Fixed Income Investments..................................... 170% 226%
PACE Large Company Value Equity Investments.............................. 195% 40%
PACE Large Company Growth Equity Investments............................. 59% 43%
PACE Small/Medium Company Value Equity Investments....................... 83% 57%
PACE Small/Medium Company Growth Equity Investments...................... 81% 102%
PACE International Equity Investments.................................... 72% 89%
PACE International Emerging Markets Equity Investments................... 115% 66%
</TABLE>

REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND REDEMPTION
INFORMATION AND OTHER SERVICES

WAIVERS OF SALES CHARGES/CONTINGENT DEFERRED SALES CHARGES -- CLASS A
SHARES. The following additional sales charge waivers are available for Class A
shares if you:

. Purchase shares through a variable annuity offered only to qualified
plans. For investments made pursuant to this waiver, Mitchell Hutchins
may make payments out of its own resources to PaineWebber and to the
variable annuity's sponsor, adviser or distributor in a total amount not
to exceed l% of the amount invested;

. Acquire shares through an investment program that is not sponsored by
PaineWebber or its affiliates and that charges participants a fee for
program services, provided that the program sponsor has entered into a
written agreement with PaineWebber permitting the sale of shares at net
asset value to that program. For investments made pursuant to this
waiver, Mitchell Hutchins may make a payment to PaineWebber out of its
own resources in an amount not to exceed 1% of the amount invested. For

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subsequent investments or exchanges made to implement a rebalancing
feature of such an investment program, the minimum subsequent investment
requirement is also waived;

. Acquire shares in connection with a reorganization pursuant to which a
fund acquires substantially all of the assets and liabilities of another
fund in exchange solely for shares of the acquiring fund; or

. Acquire shares in connection with the disposition of proceeds from the
sale of shares of Managed High Yield Plus Fund Inc. that were acquired
during that fund's initial public offering of shares and that meet
certain other conditions described in its prospectus.

In addition, reduced sales charges on Class A shares are available through
the combined purchase plan or through rights of accumulation described below.
Class A share purchases of $1 million or more are not subject to an initial
sales charge; however, if a shareholder sells these shares within one year after
purchase, a contingent deferred sales charge of 1% of the offering price or the
net asset value of the shares at the time of sale by the shareholder, whichever
is less, is imposed.

COMBINED PURCHASE PRIVILEGE -- CLASS A SHARES. Investors and eligible
groups of related fund investors may combine purchases of Class A shares of the
funds with concurrent purchases of Class A shares of any other PaineWebber
mutual fund and thus take advantage of the reduced sales charges indicated in
the tables of sales charges for Class A shares in the Prospectus. The sales
charge payable on the purchase of Class A shares of the funds and Class A shares
of such other funds will be at the rates applicable to the total amount of the
combined concurrent purchases.

An "eligible group of related fund investors" can consist of any
combination of the following:

(a) an individual, that individual's spouse, parents and
children;

(b) an individual and his or her individual retirement account
("IRA");

(c) an individual (or eligible group of individuals) and any
company controlled by the individual(s) (a person, entity or
group that holds 25% or more of the outstanding voting
securities of a corporation will be deemed to control the
corporation, and a partnership will be deemed to be
controlled by each of its general partners);

(d) an individual (or eligible group of individuals) and one or
more employee benefit plans of a company controlled by the
individual(s);

(e) an individual (or eligible group of individuals) and a trust
created by the individual(s), the beneficiaries of which are
the individual and/or the individual's spouse, parents or
children;

(f) an individual and a Uniform Gifts to Minors Act/Uniform
Transfers to Minors Act account created by the individual or
the individual's spouse;

(g) an employer (or group of related employers) and one or more
qualified retirement plans of such employer or employers (an
employer controlling, controlled by or under common control
with another employer is deemed related to that other
employer); or

(h) individual accounts related together under one registered
investment adviser having full discretion and control over
the accounts. The registered investment adviser must
communicate at least quarterly through a newsletter or
investment update establishing a relationship with all of
the accounts.

RIGHTS OF ACCUMULATION -- CLASS A SHARES. Reduced sales charges are
available through a right of accumulation, under which investors and eligible
groups of related fund investors (as defined above) are permitted

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to purchase Class A shares of the funds among related accounts at the offering
price applicable to the total of (1) the dollar amount then being purchased plus
(2) an amount equal to the then-current net asset value of the purchaser's
combined holdings of Class A fund shares and Class A shares of any other
PaineWebber mutual fund. The purchaser must provide sufficient information to
permit confirmation of his or her holdings, and the acceptance of the purchase
order is subject to such confirmation. The right of accumulation may be amended
or terminated at any time.

REINSTATEMENT PRIVILEGE -- CLASS A SHARES. Shareholders who have redeemed
Class A shares of a fund may reinstate their account without a sales charge by
notifying the transfer agent of such desire and forwarding a check for the
amount to be purchased within 365 days after the date of redemption. The
reinstatement will be made at the net asset value per share next computed after
the notice of reinstatement and check are received. The amount of a purchase
under this reinstatement privilege cannot exceed the amount of the redemption
proceeds. Gain on a redemption is taxable regardless of whether the
reinstatement privilege is exercised, although a loss arising out of a
redemption will not be deductible to the extent the reinstatement privilege is
exercised within 30 days after redemption, in which event an adjustment will be
made to the shareholder's tax basis for shares acquired pursuant to the
reinstatement privilege. Gain or loss on a redemption also will be readjusted
for federal income tax purposes by the amount of any sales charge paid on Class
A shares, under the circumstances and to the extent described in "Taxes --
Special Rule for Class A Shareholders," below.

WAIVERS OF CONTINGENT DEFERRED SALES CHARGES -- CLASS B SHARES. The
maximum 5% contingent deferred sales charge applies to sales of shares during
the first year after purchase. The charge generally declines by 1% annually,
reaching zero after six years. Among other circumstances, the contingent
deferred sales charge on Class B shares is waived where a total or partial
redemption is made within one year following the death of the shareholder. The
contingent deferred sales charge waiver is available where the decedent is
either the sole shareholder or owns the shares with his or her spouse as a joint
tenant with right of survivorship. This waiver applies only to redemption of
shares held at the time of death.

PURCHASES OF CLASS A SHARES THROUGH THE PAINEWEBBER INSIGHTONE(SM) PROGRAM.
Investors who purchase shares through the PaineWebber InsightOne(SM) Program are
eligible to purchase Class A shares without a sales load. The PaineWebber
InsightOne(SM) Program offers a nondiscretionary brokerage account to investors
for an asset-based fee at an annual rate of up to 1.50% of the assets in the
account. Account holders may purchase or sell certain investment products
without paying commissions or other markups/markdowns.

PURCHASES OF CLASS Y SHARES THROUGH THE PACE(SM) MULTI ADVISOR PROGRAM. An
investor who participates in the PACE(SM) Multi Advisor Program is eligible to
purchase Class Y shares. The PACE(SM) Multi Advisor Program is an advisory
program sponsored by PaineWebber that provides comprehensive investment
services, including investor profiling, a personalized asset allocation strategy
using an appropriate combination of funds, and a quarterly investment
performance review. Participation in the PACE(SM) Multi Advisor Program is
subject to payment of an advisory fee at the effective maximum annual rate of
1.5% of assets. Employees of PaineWebber and its affiliates are entitled to a
waiver of this fee. Please contact your PaineWebber Financial Advisor or
PaineWebber's correspondent firms for more information concerning mutual funds
that are available through the PACE(SM) Multi Advisor Program.

ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION. As discussed in the
Prospectus, eligible shares of a PACE fund may be exchanged for shares of the
corresponding class of other PACE funds. Class P and Class Y shares are not
eligible for exchange. Shareholders will receive at least 60 days' notice of any
termination or material modification of the exchange offer, except no notice
need be given if, under extraordinary circumstances, either redemptions are
suspended under the circumstances described below or a fund temporarily delays
or ceases the sales of its shares because it is unable to invest amounts
effectively in accordance with the fund's investment objective, policies and
restrictions.

If conditions exist that make cash payments undesirable, each fund reserves
the right to honor any request for redemption by making payment in whole or in
part in securities chosen by the fund and valued in the same way as they would
be valued for purposes of computing the fund's net asset value. Any such
redemption in kind will be made with readily marketable securities, to the
extent available. If payment is made in securities, a shareholder may incur
brokerage expenses in converting these securities into cash. Each fund has
elected, however, to be governed

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by Rule 18f-1 under the Investment Company Act, under which it is obligated to
redeem shares solely in cash up to the lesser of $250,000 or 1% of its net asset
value during any 90-day period for one shareholder. This election is irrevocable
unless the SEC permits its withdrawal.

The funds may suspend redemption privileges or postpone the date of payment
during any period (1) when the New York Stock Exchange 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 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.

SERVICE ORGANIZATIONS. A fund may authorize service organizations, and
their agents, to accept on its behalf purchase and redemption orders that are in
"good form" in accordance with the policies of those service organizations. A
fund will be deemed to have received these purchase and redemption orders when a
service organization or its agent accepts them. Like all customer orders, these
orders will be priced based on the fund's net asset value next computed after
receipt of the order by the service organizations or their agents. Service
organizations may include retirement plan service providers who aggregate
purchase and redemption instructions received from numerous retirement plans or
plan participants.

AUTOMATIC INVESTMENT PLAN. PaineWebber offers an automatic investment plan
with a minimum initial investment of $1,000 through which a fund will deduct $50
or more on a monthly, quarterly, semi-annual or annual basis from the investor's
bank account to invest directly in the funds' Class A, Class B or Class C
shares. For Class P shares, an automatic investment plan is available to
certain shareholders who may authorized PaineWebber to place a purchase order
each month or quarter for fund shares in an amount not less than $500 per month
or quarter.

For Class P shareholders, the purchase price is paid automatically from
cash held in the shareholder's 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 Resource Management Account(R) ("RMA(R)") 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(R) Multi Advisor Program, amounts invested through the automatic
investment plan will be invested in accordance with the participant's benchmark
allocation. If sufficient funds are not available in the participant's account
on the trade date to purchase the full amount specified by the participant, no
purchase will be made.

In addition to providing a convenient and disciplined manner of investing,
participation in an automatic investment plan enables an investor to use the
technique of "dollar cost averaging." When a shareholder invests the same
amount each month, the shareholder will purchase more shares when a fund's net
asset value per share is low and fewer shares when the net asset value per share
is high. Using this technique, a shareholder's average purchase price per share
over any given period will usually be lower than if the shareholder purchased a
fixed number of shares on a monthly basis during the period. Of course,
investing through the automatic investment plan does not assure a profit or
protect against loss in declining markets. Additionally, since an automatic
investment plan involves continuous investing regardless of price levels, an
investor should consider his or her financial ability to continue purchases
through periods of low price levels. An investor should also consider whether a
single, large investment in Class B or Class C shares would qualify for Class A
sales load reductions.

For further information about an automatic investment plan, the RMA account
or the automatic funds transfer service, shareholders should contact their
PaineWebber Financial Advisor.

AUTOMATIC REDEMPTION PLAN -- CLASS P SHARES. Investors in Class P shares
may have PaineWebber redeem a portion of their shares in the PACE Program (or
the PACE(R) 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

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plan shareholders, special limitations apply. For further information regarding
the automatic redemption plan, shareholders should contact their PaineWebber
Financial Advisors.

SYSTEMATIC WITHDRAWAL PLAN -- CLASS A, CLASS B AND CLASS C SHARES. The
systematic withdrawal plan allows investors to set up monthly, quarterly (March,
June, September and December), semi-annual (June and December) or annual
(December) withdrawals from their PaineWebber Mutual Fund accounts. Minimum
balances and withdrawals vary according to the class of shares:

. Class A and Class C shares. Minimum value of fund shares is $5,000;
minimum withdrawals of $100.

. Class B shares. Minimum value of fund shares is $10,000; minimum
monthly, quarterly, and semi-annual and annual withdrawals of $100,
$200, $300 and $400, respectively.

Withdrawals under the systematic withdrawal plan will not be subject to a
contingent deferred sales charge if the investor withdraws no more than 12% of
the value of the fund account when the investor signed up for the Plan (for
Class B shares, annually; for Class A and Class C shares, during the first year
under the Plan). Shareholders who elect to receive dividends or other
distributions in cash may not participate in this plan.

An investor's participation in the systematic withdrawal plan will
terminate automatically if the "Initial Account Balance" (a term that means the
value of the fund account at the time the investor elects to participate in the
systematic withdrawal plan), less aggregate redemptions made other than pursuant
to the systematic withdrawal plan, is less than the minimum values specified
above. Purchases of additional shares of a fund concurrent with withdrawals are
ordinarily disadvantageous to shareholders because of tax liabilities and, for
Class A shares, initial sales charges. On or about the 20th of a month for
monthly, quarterly, semi-annual and annual plans, PaineWebber will arrange for
redemption by the funds of sufficient fund shares to provide the withdrawal
payments specified by participants in the funds' systematic withdrawal plan.
The payments generally are mailed approximately five Business Days (defined
under "Valuation of Shares") after the redemption date. Withdrawal payments
should not be considered dividends, but redemption proceeds. If periodic
withdrawals continually exceed reinvested dividends and other distributions, a
shareholder's investment may be correspondingly reduced. A shareholder may
change the amount of the systematic withdrawal or terminate participation in the
systematic withdrawal plan at any time without charge or penalty by written
instructions with signatures guaranteed to PaineWebber or PFPC Inc.
Instructions to participate in the plan, change the withdrawal amount or
terminate participation in the plan will not be effective until five days after
written instructions with signatures guaranteed are received by PFPC.
Shareholders may request the forms needed to establish a systematic withdrawal
plan from their PaineWebber Financial Advisors, correspondent firms or PFPC at
1-800-647-1568.

TRANSFER OF ACCOUNTS. If investors holding Class A, Class B, Class C or
Class Y shares of a fund in a PaineWebber brokerage account transfer their
brokerage accounts to another firm, the fund shares will be moved to an account
with PFPC. However, if the other firm has entered into a selected dealer
agreement with Mitchell Hutchins relating to the fund, the shareholder may be
able to hold fund shares in an account with the other firm.

INDIVIDUAL RETIREMENT ACCOUNTS. A Self-Directed IRA is available through
PaineWebber through which investments may be made in Class P shares of the
funds, as well as in other investments available through PaineWebber. The
minimum initial investment in this IRA is $10,000. Investors considering
establishing an IRA should review applicable tax laws and should consult their
tax advisers.

PAINEWEBBER RMA RESOURCE ACCUMULATION PLAN(SM);

PAINEWEBBER RESOURCE MANAGEMENT ACCOUNT(R) (RMA)(R)

Class A, Class B, Class C and Class Y shares of PaineWebber mutual funds,
including the PACE funds (each a "PW Fund" and, collectively, the "PW Funds"),
are available for purchase through the RMA Resource Accumulation Plan ("Plan")
by customers of PaineWebber and its correspondent firms who maintain Resource
Management Accounts ("RMA accountholders"). The Plan allows an RMA
accountholder to continually invest in one or more of the PW Funds at regular
intervals, with payment for shares purchased automatically deducted from

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the client's RMA account. The client may elect to invest at monthly or quarterly
intervals and may elect either to invest a fixed dollar amount (minimum $100 per
period) or to purchase a fixed number of shares. A client can elect to have Plan
purchases executed on the first or fifteenth day of the month. Settlement occurs
three Business Days (defined under "Valuation of Shares") after the trade date,
and the purchase price of the shares is withdrawn from the investor's RMA
account on the settlement date from the following sources and in the following
order: uninvested cash balances, balances in RMA money market funds, or margin
borrowing power, if applicable to the account.

To participate in the Plan, an investor must be an RMA accountholder, must
have made an initial purchase of the shares of each PW Fund selected for
investment under the Plan (meeting applicable minimum investment requirements)
and must complete and submit the RMA Resource Accumulation Plan Client Agreement
and Instruction Form available from PaineWebber. The investor must have
received a current prospectus for each PW Fund selected prior to enrolling in
the Plan. Information about mutual fund positions and outstanding instructions
under the Plan are noted on the RMA accountholder's account statement.
Instructions under the Plan may be changed at any time, but may take up to two
weeks to become effective.

The terms of the Plan, or an RMA accountholder's participation in the Plan,
may be modified or terminated at any time. It is anticipated that, in the
future, shares of other PW Funds and/or mutual funds other than the PW Funds may
be offered through the Plan.

PERIODIC INVESTING AND DOLLAR COST AVERAGING. Periodic investing in the PW
Funds or other mutual funds, whether through the Plan or otherwise, helps
investors establish and maintain a disciplined approach to accumulating assets
over time, de-emphasizing the importance of timing the market's highs and lows.
Periodic investing also permits an investor to take advantage of "dollar cost
averaging." By investing a fixed amount in mutual fund shares at established
intervals, an investor purchases more shares when the price is lower and fewer
shares when the price is higher, thereby increasing his or her earning
potential. Of course, dollar cost averaging does not guarantee a profit or
protect against a loss in a declining market, and an investor should consider
his or her financial ability to continue investing through periods of both low
and high share prices. However, over time, dollar cost averaging generally
results in a lower average original investment cost than if an investor invested
a larger dollar amount in a mutual fund at one time. An investor should also
consider whether a single, large investment in Class B or Class C shares would
qualify for Class A sales load reductions.

PAINEWEBBER'S RESOURCE MANAGEMENT ACCOUNT. In order to enroll in the Plan,
an investor must have opened an RMA account with PaineWebber or one of its
correspondent firms. The RMA account is PaineWebber's comprehensive asset
management account and offers investors a number of features, including the
following:

. monthly Premier account statements that itemize all account activity,
including investment transactions, checking activity and Platinum
MasterCard(R) transactions during the period, and provide unrealized and
realized gain and loss estimates for most securities held in the
account;

. comprehensive year-end summary statements that provide information on
account activity for use in tax planning and tax return preparation;

. automatic "sweep" of uninvested cash into the RMA accountholder's choice
of one of the six RMA money market funds-RMA Money Market Portfolio, RMA
U.S. Government Portfolio, RMA Tax-Free Fund, RMA California Municipal
Money Fund, RMA New Jersey Municipal Money Fund and RMA New York
Municipal Money Fund. An investment in a money market fund is not
insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency. Although a money market fund seeks to
preserve the value of your investment at $1.00 per share, it is possible
to lose money by investing in a money market fund.

. check writing, with no per-check usage charge, no minimum amount on
checks and no maximum number of checks that can be written. RMA
accountholders can code their checks to classify expenditures. All
canceled checks are returned each month;

. Platinum MasterCard(R), with or without a line of credit, which provides
RMA accountholders with direct access to their accounts and can be used
with automatic teller machines worldwide.

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Purchases on the Platinum MasterCard(R) are debited to the RMA account
once monthly, permitting accountholders to remain invested for a longer
period of time;

unlimited electronic funds transfers and a bill payment service for an
additional fee;

. 24-hour access to account information through toll-free numbers, and
more detailed personal assistance during business hours from the RMA
Service Center;

. expanded account protection for the net equity securities balance in the
event of the liquidation of PaineWebber. This protection does not apply
to shares of funds that are held at PFPC and not through PaineWebber;
and

. automatic direct deposit of checks into your RMA account and automatic
withdrawals from the account.

The annual account fee for an RMA account is $85, which includes the
Platinum MasterCard(R), with an additional fee of $40 if the investor selects an
optional line of credit with the Platinum MasterCard(R).

CONVERSION OF CLASS B SHARES

Class B shares of a fund will automatically convert to Class A shares of
that fund, based on the relative net asset values per share of the two classes,
as of the close of business on the first Business Day (as defined under
"Valuation of Shares") of the month in which the sixth anniversary of the
initial issuance of such Class B shares occurs. For the purpose of calculating
the holding period required for conversion of Class B shares, the date of
initial issuance shall mean (1) the date on which such Class B shares were
issued or (2) for Class B shares obtained through an exchange, or a series of
exchanges, the date on which the original Class B shares were issued. For
purposes of conversion to Class A shares, Class B shares purchased through the
reinvestment of dividends and other distributions paid in respect of Class B
shares will be held in a separate sub-account. Each time any Class B shares in
the shareholder's regular account (other than those in the sub-account) convert
to Class A shares, a pro rata portion of the Class B shares in the sub-account
will also convert to Class A shares. The portion will be determined by the ratio
that the shareholder's Class B shares converting to Class A shares bears to the
shareholder's total Class B shares not acquired through dividends and other
distributions.

The conversion feature is subject to the continuing availability of an
opinion of counsel to the effect that the dividends and other distributions paid
on Class A and Class B shares will not result in "preferential dividends" under
the Internal Revenue Code and that the conversion of shares does not constitute
a taxable event. If the conversion feature ceased to be available, the Class B
shares would not be converted and would continue to be subject to the higher
ongoing expenses beyond six years from the date of purchase. Mitchell Hutchins
has no reason to believe that this condition will not continue to be met.

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
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.

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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 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 397
calendar days (as calculated under Rule 2a-7) and except that securities subject
to repurchase agreements may have maturities in excess of 397 calendar days.
PACE Money Market Investments will limit portfolio investments, including
repurchase agreements, to those U.S. dollar denominated instruments that are of
high quality and that the trustees determine present minimal credit risks as
advised by 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

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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:

P(1 + T)/n/ = ERV
where: P = a hypothetical initial payment of $1,000 to purchase
shares of a fund
T = average annual total return of shares of that fund
N = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment at the beginning of that period.

Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the Performance
Advertisements for publication. Total return, or "T" in the formula above, is
computed by finding the average annual change in the value of an initial $1,000
investment over the period. In calculating the ending redeemable value for Class
A shares, the maximum sales charge of 4.5% (4.0% for fixed income funds) is
deducted from the initial $1,000 payment and, for Class B and Class C shares,
the applicable contingent deferred sales charge imposed on a redemption of Class
B or Class C shares held for the period is deducted. All dividends and other
distributions are assumed to have been reinvested at net asset value.

Each fund also may refer in Performance Advertisements to total return
performance data that are not calculated according to the formula set forth
above ("Non-Standardized Return"). A fund calculates Non-Standardized Return for
specified periods of time by assuming an investment of $1,000 in fund shares and
assuming the reinvestment of all dividends and other distributions. The rate of
return is determined by subtracting the initial value of the investment from the
ending value and by dividing the remainder by the initial value. Neither initial
nor contingent deferred sales charges are taken into account in calculating Non-
Standardized Return; the inclusion of those charges would reduce the return.

The following tables show performance information for Class P shares of the
funds outstanding during the periods indicated. All returns for periods of more
than one year are expressed as an average total return. The standardized return
for Class P shares reflects the maximum annual program fee of 1.50% for
participants in the PACE Select Advisors program.

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<PAGE>

PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS

CLASS CLASS P
----- -------
(INCEPTION DATE) (08/24/95)
---------------- ----------

Year ended July 31, 2000:
Standardized Return............... 4.77%
Non-Standardized Return........... 6.36%
Inception to July 31, 2000:
Standardized Return............... 4.56%
Non-Standardized Return........... 6.14%

PACE INTERMEDIATE FIXED INCOME INVESTMENTS

CLASS CLASS P
----- -------
(INCEPTION DATE) (08/24/95)
---------------- ---------
Year ended July 31, 2000:
Standardized Return............... 3.18%
Non-Standardized Return........... 4.74%
Inception to July 31, 2000:
Standardized Return............... 3.62%
Non-Standardized Return........... 5.18%

PACE STRATEGIC FIXED INCOME INVESTMENTS

CLASS CLASS P
----- -------
(INCEPTION DATE) (08/24/95)
---------------- ---------
Year ended July 31, 2000:
Standardized Return............... 3.52%
Non-Standardized Return........... 5.08%
Inception to July 31, 2000:
Standardized Return............... 5.11%
Non-Standardized Return........... 6.70%

PACE MUNICIPAL FIXED INCOME INVESTMENTS

CLASS CLASS P
----- -------
(INCEPTION DATE) (08/24/95)
---------------- ---------
Year ended July 31, 2000:
Standardized Return............... 0.85%
Non-Standardized Return........... 2.37%
Inception to July 31, 2000:
Standardized Return............... 3.33%
Non-Standardized Return........... 4.89%

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<PAGE>

PACE GLOBAL FIXED INCOME INVESTMENTS

CLASS CLASS P
----- -------
(INCEPTION DATE) (08/24/95)
---------------- ---------
Year ended July 31, 2000:
Standardized Return............... (6.39)%
Non-Standardized Return........... (4.97)%
Inception to July 31, 2000:
Standardized Return............... 1.73%
Non-Standardized Return........... 3.27%

PACE LARGE COMPANY VALUE EQUITY INVESTMENTS

CLASS CLASS P
----- -------
(INCEPTION DATE) (08/24/95)
---------------- ---------
Year ended July 31, 2000:
Standardized Return............... (16.01)%
Non-Standardized Return........... (14.74)%
Inception to July 31, 2000:
Standardized Return............... 11.67%
Non-Standardized Return........... 13.36%

PACE LARGE COMPANY GROWTH EQUITY INVESTMENTS

CLASS CLASS P
----- -------
(INCEPTION DATE) (08/24/95)
---------------- ---------
Year ended July 31, 2000:
Standardized Return............... 16.00%
Non-Standardized Return........... 17.76%
Inception to July 31, 2000:
Standardized Return............... 21.96%
Non-Standardized Return........... 23.80%

PACE SMALL/MEDIUM COMPANY VALUE EQUITY INVESTMENTS

CLASS CLASS P
----- -------
(INCEPTION DATE) (08/24/95)
---------------- ---------
Year ended July 31, 2000:
Standardized Return............... (11.92)%
Non-Standardized Return........... (10.59)%
Inception to July 31, 2000:
Standardized Return............... 6.37%
Non-Standardized Return........... 7.98%

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<PAGE>

PACE SMALL/MEDIUM COMPANY GROWTH EQUITY INVESTMENTS

CLASS CLASS P
----- -------
(INCEPTION DATE) (08/24/95)
---------------- ---------
Year ended July 31, 2000:
Standardized Return............... 59.89%
Non-Standardized Return........... 62.30%
Inception to July 31, 2000:
Standardized Return............... 22.95%
Non-Standardized Return........... 24.81%

PACE INTERNATIONAL EQUITY INVESTMENTS

CLASS CLASS P
----- -------
(INCEPTION DATE) (08/24/95)
---------------- ---------
Year ended July 31, 2000:
Standardized Return............... 13.20%
Non-Standardized Return........... 14.91%
Inception to July 31, 2000:
Standardized Return............... 10.87%
Non-Standardized Return........... 12.55%

PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS

CLASS CLASS P
----- -------
(INCEPTION DATE) (08/24/95)
---------------- ---------
Year ended July 31, 2000:
Standardized Return............... (1.51)%
Non-Standardized Return........... (0.02)%
Inception to July 31, 2000:
Standardized Return............... (1.08)%
Non-Standardized Return........... 0.42%

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:

YIELD = 2 [( a-b/cd +1 )/6/ - 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

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<PAGE>

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. With respect to Class A shares, in calculating the maximum
offering price per share at the end of the Period (variable "d" in the above
formula), the fund's current maximum 4.5% (4.0% for fixed income funds) initial
sales charge on Class A shares is included.

The following table shows the yield for Class P shares of certain funds for
the 30-day period ended July 31, 2000:

FUND YIELD
---- -----

PACE Government Securities Fixed Income Investments......... 6.51%
PACE Intermediate Fixed Income Investments.................. 5.91%
PACE Strategic Fixed Income Investments..................... 5.97%
PACE Municipal Fixed Income Investments..................... 4.53%
PACE Global Fixed Income Investments........................ 3.94%

PACE Money Market Investments computes its 7-day current yield and its 7-
day effective yield quotations using standardized methods required by the SEC.
Each fund from time to time advertises (1) its current yield based on a recently
ended seven-day period, computed by determining the net change, exclusive of
capital changes, in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from that shareholder account, dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return and then multiplying the base period return by
(365/7), with the resulting yield figure carried to at least the nearest
hundredth of one percent; and (2) its effective yield based on the same seven-
day period by compounding the base period return by adding 1, raising the sum to
a power equal to (365/7), and subtracting 1 from the result, according to the
following formula:

EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)/365/7/] - 1

PACE Municipal Fixed Income Investments from time to time also advertises
its tax-equivalent yield and tax-equivalent effective yield, also based on a
recently ended seven-day period. These quotations are calculated by dividing
that portion of the fund's yield (or effective yield, as the case may be) that
is tax-exempt by 1 minus a stated income tax rate and adding the product to that
portion, if any, of the fund's yield that is not tax-exempt, according to the
following formula:

TAX EQUIVALENT YIELD = { E }
----- + t
1 - P

E = tax-exempt yield of a class of shares

p = stated income tax rate

t = taxable yield of a Class of shares

Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yield of each fund fluctuates, it cannot be compared
with yields on savings accounts or other investment alternatives that provide an
agreed to or guaranteed fixed yield for a stated period of time. However, yield
information may be useful to an investor considering temporary investments in
money market instruments. In comparing the yield of one money market fund to
another, consideration should be given to each fund's investment policies,
including the types

73
<PAGE>

of investments made, the average maturity of the portfolio securities and
whether there are any special account charges that may reduce the yield. The
funds may also advertise non-standardized yields calculated in a manner similar
to that described above, but for different time periods (e.g., one-day yield,
30-day yield).

PACE Money Market Investments' yield and effective yield for the seven-day
period ended July 31, 2000 were 6.16% and 6.35%, respectively.

OTHER INFORMATION. In Performance Advertisement, each fund may compare its
Standardized Return and/or Non-Standardized Return with data published by Lipper
Analytical Services, Inc. ("Lipper"), CDA Investment Technologies, Inc. ("CDA"),
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 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 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. Comparisons
in Performance Advertisements may be in graphic form.

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.

The funds may also compare their performance with the performance of bank
certificates of deposit (CDs) as measured by the CDA Certificate of Deposit
Index, the Bank Rate Monitor National Index and the averages of yields of CDs of
major banks published by Banxquote(R) Money Markets. In comparing the funds'
performance to CD performance, investors should keep in mind that bank CDs are
insured in whole or in part by an agency of the U.S. government and offer fixed
principal and fixed or variable rates of interest, and that bank CD yields may
vary depending on the financial institution offering the CD and prevailing
interest rates. Shares of the funds are not insured or guaranteed by the U.S.
government and returns and net asset values will fluctuate. The debt securities
held by the funds generally have longer maturities than most CDs and may reflect
interest rate fluctuations for longer term debt securities. An investment in any
fund involves greater risks than an investment in a CD, and an investment in any
fund other than PACE Money Market Investments involves greater risks than an
investment in a money market fund.

Each fund may also compare its performance to general trends in the stock
and bond markets, as illustrated by the following graph prepared by Ibbotson
Associates, Chicago.

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<PAGE>

IBBOTSON CHART PLOT POINTS

Chart showing performance of S&P 500, long-term U.S. goverment bonds,
Treasury Bills and inflation from 1925 through 1999

<TABLE>
<CAPTION>
YEAR COMMON STOCKS LONG-TERM GOV'T BONDS INFLATION/CPI TREASURY BILLS
<S> <C> <C> <C> <C>
1925 $ 10,000 $ 10,000 $ 10,000 $ 10,000
1926 $ 11,162 $ 10,777 $ 9,85 1 $ 10,327
1927 $ 15,347 $ 11,739 $ 9,646 $ 10,649
1928 $ 22,040 $ 11,751 $ 9,553 $ 11,028
1929 $ 20,185 $ 12,153 $ 9,572 $ 11,552
1930 $ 15,159 $ 12,719 $ 8,994 $ 11,830
1931 $ 8,590 $ 12,044 $ 8,138 $ 11,957
1932 $ 7,886 $ 14,073 $ 7,300 $ 12,072
1933 $ 12,144 $ 14,062 $ 7,337 $ 12,108
1934 $ 11,969 $ 15,472 $ 7,486 $ 12,128
1935 $ 17,674 $ 16,243 $ 7,710 $ 12,148
1936 $ 23,669 $ 17,464 $ 7,803 $ 12,170
1937 $ 15,379 $ 17,504 $ 8,045 $ 12,207
1938 $ 20,165 $ 18,473 $ 7,821 $ 12,205
1939 $ 20,082 $ 19,570 $ 7,784 $ 12,208
1940 $ 18,117 $ 20,761 $ 7,859 $ 12,208
1941 $ 16,017 $ 20,955 $ 8,622 $ 12,216
1942 $ 19,275 $ 21,629 $ 9,423 $ 12,248
1943 $ 24,267 $ 22,080 $ 9,721 $ 12,291
1944 $ 29,060 $ 22,702 $ 9,926 $ 12,332
1945 $ 39,649 $ 25,139 $ 10,149 $ 12,372
1946 $ 36,449 $ 25,113 $ 11,993 $ 12,416
1947 $ 38,529 $ 24,454 $ 13,073 $ 12,478
1948 $ 40,649 $ 25,285 $ 13,426 $ 12,580
1949 $ 48,287 $ 26,916 $ 13,184 $ 12,718
1950 $ 63,601 $ 26,932 $ 13,948 $ 12,870
1951 $ 78,875 $ 25,873 $ 4,767 $ 13,063
1952 $ 93,363 $ 26,173 $ 14,898 $ 13,279
1953 $ 92,439 $ 27,125 $ 14,991 $ 13,521
1954 $ 141,084 $ 29,075 $ 14,916 $ 13,638
1955 $ 185,614 $ 28,699 $ 14,972 $ 13,852
1956 $ 197,783 $ 27,096 $ 15,400 $ 14,193
1957 $ 176,457 $ 29,117 $ 15,866 $ 14,639
1958 $ 252,975 $ 27,342 $ 16,145 $ 14,864
1959 $ 283,219 $ 26,725 $ 16,387 $ 15,303
1960 $ 284,549 $ 30,407 $ 16,629 $ 15,711
1961 $ 361,060 $ 30,703 $ 16,741 $ 16,045
1962 $ 329,545 $ 32,818 $ 6,946 $ 16,483
1963 $ 404,685 $ 33,216 $ 17,225 $ 16,997
1964 $ 471,388 $ 34,381 $ 17,430 $ 17,598
1965 $ 530,081 $ 34,625 $ 17,765 $ 18,289
1966 $ 476,737 $ 35,889 $ 18,361 $ 19,159
1967 $ 591,038 $ 32,594 $ 18,920 $ 19,966
1968 $ 656,415 $ 32,509 $ 19,814 $ 21,005
1969 $ 600,590 $ 30,860 $ 21,024 $ 22,388
1970 $ 624,653 $ 34,596 $ 22,179 $ 23,849
1971 $ 714,058 $ 39,173 $ 22,924 $ 24,895
1972 $ 849,559 $ 41,400 $ 23,706 $ 25,851
1973 $ 725,003 $ 40,942 $ 25,792 $ 27,643
1974 $ 533,110 $ 42,725 $ 28,939 $ 29,855
1975 $ 731,443 $ 46,653 $ 30,969 $ 31,588
1976 $ 905,842 $ 54,470 $ 32,458 $ 33,193
1977 $ 840,766 $ 54,095 $ 34,656 $ 34,893
1978 $ 895,922 $ 53,458 $ 37,784 $ 37,398
1979 $ 1,061,126 $ 52,799 $ 42,812 $ 41,279
1980 $ 1,405,137 $ 50,715 $ 48,120 $ 45,917
1981 $ 1,336,161 $ 51,657 $ 52,421 $ 52,671
1982 $ 1,622,226 $ 72,507 $ 54,451 $ 58,224
1983 $ 1,987,451 $ 72,979 $ 56,518 $ 63,347
1984 $ 2,111,991 $ 84,274 $ 58,753 $ 69,586
1985 $ 2,791,166 $ 110,371 $ 60,968 $ 74,960
1986 $ 3,306,709 $ 137,446 $ 61,657 $ 79,580
1987 $ 3,479,675 $ 133,716 $ 64,376 $ 83,929
1988 $ 4,064,583 $ 146,650 $ 67,221 $ 89,257
1989 $ 5,344,555 $ 173,215 $ 70,345 $ 96,728
1990 $ 5,174,990 $ 183,924 $ 74,640 $ 104,286
1991 $ 6,755,922 $ 219,420 $ 76,927 $ 110,121
1992 $ 7,274,115 $ 237,092 $ 79,159 $ 113,982
1993 $ 8,000,785 $ 280,339 $ 81,334 $ 117,284
1994 $ 8,105,379 $ 258,556 $ 83,510 $ 121,862
1995 $11,139,184 $ 340,435 $ 85,630 $ 128,680
1996 $13,709,459 $ 337,265 $ 88,475 $ 135,381
1997 $18,272,762 $ 390,735 $ 89,897 $ 142,496
1998 $23,495,420 $ 41,777 $ 91,513 $ 149,416
1999 $28,456,286 $ 402,177 $ 93,998 $ 156,414
</TABLE>

______________________
Source: Stocks, Bonds, Bills and Inflation 1999 Yearbook(TM) Ibbotson Assoc.,
Chi. (annual updates work by Roger G. Ibbotson & Rex A. Sinquefield).

The chart is shown for illustrative purposes only and does not represent any
fund's performance. These returns consist of income and capital appreciation (or
depreciation) and should not be considered an indication or guarantee of future
investment results. Year-to-year fluctuations in certain markets have been
significant and negative returns have been experienced in certain markets from
time to time. Stocks are measured by the S&P 500 Index, an unmanaged weighted
index comprising 500 widely held common stocks and varying in composition.
Unlike investors in bonds and U.S. Treasury bills, common stock investors do not
receive fixed income payments and are not entitled to repayment of principal.
These differences contribute to investment risk. Returns shown for long-term
government bonds are based on U.S. Treasury bonds with 20-year maturities.
Inflation is measured by the Consumer Price Index. The indexes are unmanaged and
are not available for investment.

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 fund
shares may result in a taxable gain or loss, depending on whether the
shareholder receives more or less than his or her adjusted basis 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.

CLASS A SHAREHOLDERS. A special tax rule applies when a shareholder sells
or exchanges Class A shares within 90 days of purchase and subsequently acquires
Class A shares of the same or another PaineWebber mutual fund without paying a
sales charge due to the 365-day reinstatement privilege or the exchange
privilege. In these

75
<PAGE>

cases, any gain on the sale or exchange of the original Class A shares would be
increased, or any loss would be decreased, by the amount of the sales charge
paid when those shares were bought, and that amount would increase the basis of
the PaineWebber mutual fund shares subsequently acquired.

CONVERSION OF CLASS B SHARES. A shareholder will recognize no gain or loss
as a result of a conversion from Class B shares to Class A shares.

QUALIFICATION AS A REGULATED INVESTMENT COMPANY. Each fund intends to
continue to qualify for treatment as a regulated investment company ("RIC")
under the Internal Revenue Code. To so qualify, a fund must distribute to its
shareholders for each taxable year at least 90% of its investment company income
(consisting generally of net investment income, net short-term capital gain and,
for some funds, net gain from certain foreign currency transactions). (PACE
Municipal Fixed Income Investments must distribute to its shareholders for each
taxable year at least 90% of the sum of its investment company taxable income
(consisting generally of taxable net investment income and net short-term
capital gain) and its net interest income excludable from gross income under
section 103(a) of the Internal Revenue Code.) In addition to this "Distribution
Requirement," a fund 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 forward currency contracts) derived with respect to its business of
investing in securities or those currencies ("Income Requirement"); (2) at the
close of each quarter of the fund's taxable year, at least 50% of the value of
its total assets must be represented by cash and cash items, U.S. government
securities, securities of other RICs and other securities that are limited, in
respect of any one issuer, to an amount that does not exceed 5% of the value of
the fund's total assets and that does not represent more than 10% of the
issuer's outstanding voting securities; and (3) at the close of each quarter of
the fund's taxable year, not more than 25% of the value of its total assets may
be invested in securities (other than U.S. government securities or the
securities of other RICs) of any one issuer. If a fund failed to qualify for
treatment as a RIC for any taxable year, (1) it would be taxed as an ordinary
corporation on its taxable income for that year without being able to deduct the
distributions it makes to its shareholders and (2) the shareholders would treat
all those distributions, including distributions that otherwise would be
"exempt-interest dividends" as described below under "Taxes -- Information about
PACE Municipal Fixed Income Investments" and distributions of net capital gain
(the excess of net long-term capital gain over net short-term capital loss), as
taxable dividends (that is, ordinary income) to the extent of the fund's
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 the fund declares in
October, November or December of any year that are 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 fund
pays the distributions during the following January.

A portion of the dividends (whether paid in cash or in additional fund
shares) from the investment company taxable income of funds that invest in
equity securities of corporations may be eligible for the dividends-received
deduction allowed to corporations. The eligible portion for a fund may not
exceed the aggregate dividends received by the 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 taxable dividend or capital gain distribution, the shareholder will pay full
price for the shares and receive some portion of the price back as a taxable
distribution.

Each fund will be subject to a nondeductible 4% excise tax ("Excise Tax")
to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for the calendar year and capital gain
net income for the one-year period ending on October 31 of that year, plus
certain other amounts.

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<PAGE>

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 may invest in the stock of "passive foreign investment companies"
("PFICs") if that stock is a permissible investment. A PFIC is any foreign
corporation (with certain exceptions) that, in general, meets either of the
following tests: (1) at least 75% of its gross income is passive or (2) an
average of at least 50% of its assets produce, or are held for the production
of, passive income. Under certain circumstances, a fund will be subject to
federal income tax on a portion of any "excess distribution" received on the
stock of a PFIC or of any gain from disposition of that stock (collectively
"PFIC income"), plus interest thereon, even if the fund distributes the PFIC
income as a taxable dividend to its shareholders. The balance of the PFIC income
will be included in the fund's investment company taxable income and,
accordingly, will not be taxable to it to the extent it distributes that income
to its shareholders.

If a fund invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund" ("QEF"), then in lieu of the foregoing tax and interest
obligation, the fund will be required to include in income each year its pro
rata share of the QEF's annual ordinary earnings and net capital gain (which it
may have to distribute to satisfy the Distribution Requirement and avoid
imposition of the Excise Tax) even if the QEF does not distribute those earnings
and gain to the fund. In most instances it will be very difficult, if not
impossible, to make this election because of certain of its requirements.

Each fund may elect to "mark to market" its stock in any PFIC. "Marking-to-
market," in this context, means including in ordinary income each taxable year
the excess, if any, of the fair market value of a PFIC's stock over a fund's
adjusted basis therein as of the end of that year. Pursuant to the election, a
fund also would be allowed to deduct (as an ordinary, not capital, loss) the
excess, if any, of its adjusted basis in PFIC stock over the fair market value
thereof as of the taxable year-end, but only to the extent of any net mark-to-
market gains with respect to that stock included by the fund for prior taxable
years under the election (and under regulations proposed in 1992 that provided a
similar election with respect to the stock of certain PFICs). A fund's adjusted
basis in each PFIC's stock with respect to which it has made this election will
be adjusted to reflect the amounts of income included and deductions taken
thereunder.

The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts and entering into forward currency contracts,
involves complex rules that will determine for income tax purposes the amount,
character and timing of recognition of the gains and losses a fund realizes in
connection therewith. Gains from the disposition of foreign currencies (except
certain gains that may be excluded by future regulations), and gains from
options, futures and forward currency contracts derived by a fund with respect
to its business of investing in securities or foreign currencies, will be
treated as qualifying income under the Income Requirement.

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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 will be
treated as ordinary income or loss. These gains, referred to under the Code as
"section 988" gains or losses, will increase or decrease the amount of a fund's
investment company taxable income available to be distributed to its
shareholders as ordinary income, rather than increasing or decreasing the amount
of its net capital gain. If section 988 losses exceed other investment company
taxable income during a taxable year, a fund would not be able to distribute any
dividends, and any distributions made during that year before the losses were
realized would be recharacterized as a return of capital to shareholders, rather
than as a dividend, thereby reducing each shareholder's basis in his or her fund
shares.

Offsetting positions in any actively traded security, option, futures or
forward 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 will
realize a short-term capital gain equal to the amount of the premium it received
for writing the option. When a fund terminates its obligations under such an
option by entering into a closing transaction, it will realize a short-term
capital gain (or loss), depending on whether the cost of the closing transaction
is less (or more) than the premium it received when it wrote the option. When a
covered call option written by a fund is exercised, the fund will be treated as
having sold the underlying security, producing long-term or short-term capital
gain or loss, depending on the holding period of the underlying security and
whether the sum of the option price received on the exercise plus the premium
received when it wrote the option is more or less than the 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

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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 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 will qualify as "exempt-interest
dividends," and thus will be excludable from gross income for federal income tax
purposes by its shareholders, if the fund satisfies the requirement that, at the
close of each quarter of its taxable year, at least 50% of the value of its
total assets consists of securities the interest on which is excludable from
gross income under section 103(a); the fund intends to continue to satisfy this
requirement. The aggregate dividends designated as exempt-interest dividends for
any year by the fund may not exceed its net tax-exempt income for the year.
Shareholders' treatment of dividends from the fund under state and local income
tax laws may differ from the treatment thereof under the Internal Revenue Code.
Investors should consult their tax 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 the 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

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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
fund acquired the bond, then no market discount is considered to exist. Gain on
the disposition of a municipal market discount bond purchased by the fund after
April 30, 1993 (other than a bond with a fixed maturity date within one year
from its issuance), generally is treated as ordinary (taxable) income, rather
than capital gain, to the extent of the bond's accrued market discount at the
time of disposition. Market discount on such a bond generally is accrued
ratably, on a daily basis, over the period from the acquisition date to the date
of maturity. In lieu of treating the disposition gain as above, the fund may
elect to include market discount in its gross income currently, for each taxable
year to which it is attributable.

OTHER INFORMATION

DELAWARE BUSINESS TRUST. The Trust is an entity of the type commonly known
as a Delaware business trust. Although Delaware law statutorily limits the
potential liabilities of a Delaware business trust's shareholders to the same
extent as it limits the potential liabilities of a Delaware corporation,
shareholders of a fund could, under certain conflicts of laws jurisprudence in
various states, be held personally liable for the obligations of the Trust or a
fund. However, the trust instrument of the Trust disclaims shareholder liability
for acts or obligations of the Trust or its series (the funds) 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.

CLASSES OF SHARES. A share of each class of a fund represents an identical
interest in that fund's investment portfolio and has the same rights, privileges
and preferences. However, each class may differ with respect to sales charges,
if any, distribution and/or service fees, if any, other expenses allocable
exclusively to each class, voting rights on matters exclusively affecting that
class, and its exchange privilege, if any. The different sales charges and other
expenses applicable to the different classes of shares of the funds will affect
the performance of those classes. Each share of a fund is entitled to
participate equally in dividends, other distributions and the proceeds of any
liquidation of that fund. However, due to the differing expenses of the classes,
dividends and liquidation proceeds on Class A, B, C, P and Y shares will differ.

VOTING RIGHTS. Shareholders of each fund are entitled to one vote for each
full share held and fractional votes for fractional shares held. Voting rights
are not cumulative and, as a result, the holders of more than 50% of all the
shares of the 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.

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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.

CLASS-SPECIFIC EXPENSES. Each fund may determine to allocate certain of its
expenses (in addition to service and distribution fees) to the specific classes
of its shares to which those expenses are attributable. For example, Class B and
Class C shares bear higher transfer agency fees per shareholder account than
those borne by Class A, Class P or Class Y shares. The higher fee is imposed due
to the higher costs incurred by the transfer agent in tracking shares subject to
a contingent deferred sales charge because, upon redemption, the duration of the
shareholder's investment must be determined in order to determine the applicable
charge. Although the transfer agency fee will differ on a per account basis as
stated above, the specific extent to which the transfer agency fees will differ
between the classes as a percentage of net assets is not certain, because the
fee as a percentage of net assets will be affected by the number of shareholder
accounts in each class and the relative amounts of net assets in each class.

PRIOR 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 1776 Heritage Drive, North Quincy,
Massachusetts 02171, serves as custodian and recordkeeping agent for each fund
and employs foreign sub-custodians approved by the board in accordance with
applicable requirements under the Investment Company Act to provide custody of
the funds' foreign assets. PFPC, a subsidiary of PNC Bank, N.A., 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 10019 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.

FINANCIAL STATEMENTS

The Trust's Annual Report to Shareholders for its fiscal year ended July
31, 2000 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.

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APPENDIX

RATINGS INFORMATION

DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS

AAA. Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues; AA. Bonds which are rated Aa
are judged to be of high quality by all standards. Together with the Aaa group
they comprise what are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risk appear
somewhat larger than in Aaa securities; A. Bonds which are rated A possess many
favorable investment attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future; BAA. Bonds which are rated Baa are considered
as medium-grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payment and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well; Ba. Bonds
which are rated Ba are judged to have speculative elements; their future cannot
be considered as well-assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class; B. Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small; CAA. Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest; CA. Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings; C. Bonds which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.

NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic
rating classification from AA through CAA. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category, the modifier
2 indicates a mid-range ranking, and the modifier 3 indicates a ranking in the
lower end of that generic rating category.

DESCRIPTION OF S&P CORPORATE DEBT RATINGS

AAA. An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong; AA. An obligation rated AA differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong; A. An obligation rated A is
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than obligations in higher rated categories. However, the
obligor's capacity to meet its financial commitment on the obligation is still
strong; BBB. An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation; BB, B, CCC, CC, C. Obligations rated BB, B, CCC, CC and C are
regarded as having significant speculative characteristics. BB indicates the
least degree of speculation and C the highest. While such obligations will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions; BB. An
obligation rated BB is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation; B. An
obligation rated B is more vulnerable to nonpayment than obligations rated BB,
but the obligor currently has the capacity to meet its financial commitment on
the obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation; CCC. An obligation rated CCC is
<PAGE>

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-2
<PAGE>

the obligation. C. A short-term obligation rated C is currently vulnerable to
nonpayment and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
D. A short-term obligation rated D is in payment default. The D rating category
is used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.

DESCRIPTION OF MOODY'S MUNICIPAL BOND RATINGS

AAA. Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues; AA. Bonds which are rated Aa
are judged to be of high quality by all standards. Together with the Aaa group
they comprise what are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risk appear
somewhat larger than in Aaa securities; A. Bonds which are rated A possess many
favorable investment attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future; BAA. Bonds which are rated Baa are considered
as medium-grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payment and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well; BA. Bonds
which are rated Ba are judged to have speculative elements; their future cannot
be considered as well-assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class; B. Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small; CAA. Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest; CA. Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings; C. Bonds which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.

Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through CAA. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category, the modifier
2 indicates a mid-range ranking, and the modifier 3 indicates a ranking in the
lower end of that generic rating category.

Description of S&P Municipal Debt Ratings

AAA. An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong; AA. An obligation rated AA differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong; A. An obligation rated A is
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than obligations in higher rated categories. However, the
obligor's capacity to meet its financial commitment on the obligation is still
strong; BBB. An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation; BB, B, CCC, CC, C, D. Obligations rated BB, B, CCC, CC and C
are regarded as having significant speculative characteristics. BB indicates the
least degree of speculation and C the highest. While such obligations will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions; BB. An
obligation rated BB is less vulnerable to nonpayment than other 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

A-3
<PAGE>

more vulnerable to nonpayment than obligations rated BB, but the obligor
currently has the capacity to meet its financial commitment on the obligation.
Adverse business, financial, or economic conditions will likely impair the
obligor's capacity or willingness to meet its financial commitment on the
obligation; CCC. An obligation rated CCC is currently vulnerable to nonpayment
and is dependent upon favorable business, financial and economic conditions for
the obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation; CC. An
obligation rated CC is currently highly vulnerable to nonpayment; C. The C
rating may be used to cover a situation where a bankruptcy petition has been
filed or similar action has been taken, but payments on this obligation are
being continued; D. An obligation rated D is in payment default. The D rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.

CI. The rating CI is reserved for income bonds on which no interest is
being paid.

Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.

DESCRIPTION OF MOODY'S RATINGS OF SHORT-TERM OBLIGATIONS

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

In the case of variable rate demand obligations (VRDOs), a two-component rating
is assigned. The first element represents an evaluation of the degree of risk
associated with scheduled principal and interest payments, and the other
represents an evaluation of the degree of risk associated with the demand
feature. The short-term rating assigned to the demand feature of a VRDO is
designated as VMIG. When either the long- or short-term aspect of a VRDO is not
rated, that piece is designated NR, e.g. Aaa/NR or NR/VMIG 1.

MIG ratings terminate at the retirement of the obligation, while a VMIG rating
expiration will be a function of each issue's specific structural or credit
features.

MIG-1/VMIG-1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing. MIG-2/VMIG-2. This designation
denotes high quality. Margins of protection are ample although not so large as
in the preceding group. MIG-3/VMIG-3. This designation denotes favorable
quality. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established. SG. This designation denotes
speculative quality. Debt Instruments in this category lack margins of
protection.

DESCRIPTION OF S&P'S RATINGS OF STATE AND MUNICIPAL NOTES AND OTHER SHORT-TERM
LOANS:

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

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

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

SP-1. Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation. SP-2.
Satisfactory capacity to pay principal and interest with some vulnerability to

A-4
<PAGE>

adverse financial and economic changes over the term of the notes. SP-3.
Speculative capacity to pay principal and interest.

DESCRIPTION OF SHORT-TERM DEBT COMMERCIAL PAPER RATINGS

Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted.

Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:

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

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

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

NOT PRIME. Issuers assigned this rating do not fall within any of the Prime
rating categories.

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

A-1. A short-term obligation rated A-1 is rated in the highest category by
S&P. The obligor's capacity to meet its financial commitment on the obligation
is strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong. A-2. A short-term
obligation rated A-2 is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory. A-3. A short-term obligation
rated A-3 exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation. B.
A short-term obligation rated B is regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitments on the obligation. C. A short-term obligation rated C is currently
vulnerable to nonpayment and is dependent upon favorable business, financial and
economic conditions for the obligor to meet its financial commitment on the
obligation. D. A short-term obligation rated D is in payment default. The D
rating category is used when payments on an obligation are not made on the date
due even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The D rating also will
be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.

A-5
<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 ARE 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
November , 2000
__________________________________________
<PAGE>

PART C. OTHER INFORMATION
-------------------------

Item 15. Indemnification
---------------

Article IX, Section 2 of the Amended and Restated Trust Instrument of
PaineWebber PACE Select Advisors Trust ("Trust Instrument") provides that the
Registrant will indemnify its trustees, officers, employees, investment managers
and administrators and investment 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(d) of the Trust
Instrument also provides that the Registrant may maintain insurance policies
covering such rights of indemnification.

Article IX, Section 1 of the Trust Instrument provides that the
trustees and officers of the Registrant (i) shall not be personally liable to
any person contracting with, or having a claim against, the Trust, and (ii)
shall not be liable for neglect or wrongdoing by them or any officer, agent,
employee or investment 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.

Article X, Section 2 of the Trust Instrument provides that, subject to
the provisions of Article IX, the trustees shall not be liable for (i) errors of
judgment or mistakes of fact or law or (ii) any act or omission made in
accordance with advice of counsel or other experts, or (iii) failure to follow
such advice, with respect to the meaning and operation of the Trust Instrument.

Registrant undertakes to carry out all indemnification provisions of
its Trust Instrument and By-laws in accordance with Investment Company Act
Release No. 11330 (September 4, 1980) and successor releases.

Section 9 of the Investment Management and Administration Agreement
("Management Agreement") with Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins") provides that Mitchell Hutchins shall not be liable for any error of
judgment or mistake of law or for any loss suffered by any series of the
Registrant in connection with the matters to which the Management Agreement
relates, except for a loss resulting from the willful misfeasance, bad faith, or
gross negligence of Mitchell Hutchins in the performance of its duties or from
its reckless disregard of its obligations and duties under the Management
Agreement. Section 10 of the Management Agreement provides that the Trustees and
shareholders shall not be liable for any obligations of the Registrant or any
series under the Management Agreement and that Mitchell Hutchins shall look only
to the assets and property of the Registrant in

C-1
<PAGE>

settlement of such right or claim and not to the assets and property of the
Trustees or shareholders.

Section 6 of the Sub-Advisory Agreement provides that 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 Registrant or its shareholders or by Mitchell
Hutchins in connection with the matters to which the Sub-Advisory Agreement
relates, except for a loss resulting from the willful misfeasance, bad faith, or
gross negligence on its part in the performance of its duties or from its
reckless disregard of its obligations and duties under the Management Agreement.

Section 9 of the Distribution Contract provides that the Registrant
will indemnify Mitchell Hutchins and its officers, directors and controlling
persons against all liabilities arising from any alleged untrue statement of
material fact in the Registration Statement or from any alleged omission to
state in the Registration Statement a material fact required to be stated in it
or necessary to make the statements in it, in light of the circumstances under
which they were made, not misleading, except insofar as liability arises from
untrue statements or omissions made in reliance upon and in conformity with
information furnished by Mitchell Hutchins to the Registrant for use in the
Registration Statement; and provided that this indemnity agreement shall not
protect any such persons against liabilities arising by reason of their bad
faith, gross negligence or willful misfeasance; and shall not inure to the
benefit of any such persons unless a court of competent jurisdiction or
controlling precedent determines that such result is not against public policy
as expressed in the Securities Act of 1933. Section 9 of the Distribution
Contract also provides that Mitchell Hutchins agrees to indemnify, defend and
hold the Registrant, its officers and Trustees free and harmless of any claims
arising out of any alleged untrue statement or any alleged omission of material
fact contained in information furnished by Mitchell Hutchins for use in the
Registration Statement or arising out of an agreement between Mitchell Hutchins
and any retail dealer, or arising out of supplementary literature or advertising
used by Mitchell Hutchins in connection with the Contract.

Section 9 of the Dealer Agreement contains provisions similar to
Section 9 of the Distribution Contract, with respect to PaineWebber Incorporated
("PaineWebber").

Section 15 of the Distribution Contract contains provisions similar to
Section 10 of the Management Agreement.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be provided to trustees, officers and controlling
persons of the Trust, pursuant to the foregoing provisions or otherwise, the
Trust has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Trust of expenses
incurred or paid by a trustee, officer or controlling person of the Trust in
connection with the successful defense of any action, suit or proceeding or
payment pursuant to any insurance policy) is asserted against the Trust by such
trustee, officer or controlling person in connection with the securities being
registered, the Trust will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

Item 16. Exhibits
--------

(1) (a) Certificate of Business Trust effective September 9, 1994 1/
-
(b) Amended and Restated Trust Instrument 2/
-

C-2
<PAGE>

(2) Amended and Restated By-Laws 2/
-

(3) Copies of any voting trust agreement - none

(4) A copy of the Agreement and Plan of Reorganization and Termination
is included in the Combined Proxy Statement/Prospectus as Appendix
A thereto and incorporated by reference.

(5) Instruments defining the rights of holders of Registrant's shares
of beneficial interest 3/
-

(6) (a) Investment Management and Administration Agreement 4/
-

(b) Sub-Advisory Agreement with Pacific Investment Management
Company LLC with respect to PACE Government Securities Fixed
Income Investments dated as of October 10, 2000 2/
-

(c) Sub-Advisory Agreement with Metropolitan West Asset
Management LLC with respect to PACE Intermediate Fixed
Income Investments dated as of October 10, 2000 2/
-

(d) Sub-Advisory Agreement with Pacific Investment Management
Company LLC with respect to PACE Strategic Fixed Income
Investments dated as of May 5, 2000 2/
-

(e) Sub-Advisory Agreement with Standish, Ayer & Wood, Inc.
with respect to PACE Municipal Fixed Income Investments
dated as of October 10, 2000 2/
-

(f) Sub-Advisory Agreement with Rogge Global Partners plc with
respect to PACE Global Fixed Income Investments dated as of
October 10, 2000 2/
-

(g) Sub-Advisory Agreement with Fischer Francis Trees &
Watts, Inc. with respect to PACE Global Fixed Income
Investments dated as of October 10, 2000 2/
-

(h) Sub-Advisory Agreement with State Street Global Advisors
with respect to PACE Large Company Value Equity Investments
dated as of October 10, 2000 2/
-

(i) Sub-Advisory Agreement with Institutional Capital
Corporation with respect to PACE Large Company Value Equity
Investments dated as of July 1, 2000 2/
-

(j) Sub-Advisory Agreement with Westwood Management Corporation
with respect to PACE Large Company Value Equity Investments
dated as of July 1, 2000 2/
-

(k) Sub-Advisory Agreement with Alliance Capital Management
L.P. with respect to PACE Large Company Growth Equity
Investments dated as of October 10, 2000 2/
-

(l) Sub-Advisory Agreement with State Street Global Advisors
with respect to PACE Large Company Growth Equity Investments
dated as of October 10, 2000 2/
-

(m) Sub-Advisory Agreement with Ariel Capital Management,
Inc. with respect to PACE Small/Medium Company Value
Equity Investments dated as of October 4, 1999 1/
-

(n) Sub-Advisory Agreement with ICM Asset Management, Inc.
with respect to PACE Small/Medium Company Value Equity
Investments dated as of October 10, 2000 2/
-

(o) Sub-Advisory Agreement with Delaware Management Company with
respect to PACE Small/Medium Company Growth Equity
Investments dated as of December 16, 1996 5/
-

C-3
<PAGE>

(p) Sub-Advisory Agreement with Martin Currie Inc. with respect
to PACE International Equity Investments dated as of
October 10, 2000 6/
-

(q) Sub-Advisory Agreement with Schroder Investment
Management North America Inc. with respect to PACE
International Emerging Markets Equity Investments dated
as of June 15, 1995 4/
-
(7) (a) Distribution Contract 2/
-

(b) Dealer Agreement 2/
-

(8) Bonus, profit sharing or pension plans - none

(9) Custodian Agreement 1/
-

(10) Plan pursuant to Rule 12b-1

(a) Plan of Distribution pursuant to Rule 12b-1 with respect to
Class A shares 2/
-

(b) Plan of Distribution pursuant to Rule 12b-1 with respect to
Class B shares 2/
-

(d) Plan pursuant to Rule 18f-3 7/
-

(11) Opinion and consent of Counsel on legality of shares (filed
herewith)

(12) Opinion and consent of Counsel on tax matters (to be filed)

(13) Transfer Agency Agreement 8/
-

(14) Auditors' consent (filed herewith)

(15) Financial Statements omitted from prospectus - none

(16) (a) Powers of Attorney for Ms. Alexander and Messrs. Beaubien,
Bewkes, Hewitt, Janklow, White and Woodward 9/
-
(b) Power of Attorney for Mr. Storms 10/
--

(17) Additional Exhibits - none

-----------------

1/ Incorporated by reference from Post-Effective Amendment No. 8 to
-
registration statement, SEC File No. 33-87254, filed December 1, 1999.

2/ Incorporated by reference from Registrant's N-14 registration
-
statement, SEC File No. 333-49052, filed November 1, 2000.

3/ Incorporated by reference from Articles IV, VI, IX and X of
-
Registrant's Trust Instrument and from Articles V and IX of
Registrant's By-Laws.

4/ Incorporated by reference from Post-Effective Amendment No. 1 to
-
registration statement, SEC File No. 33-87254, filed February 23, 1996.

5/ Incorporated by reference from Post-Effective Amendment No. 4 to
-
registration statement, SEC File No. 33-87254, filed November 13, 1997.

C-4
<PAGE>

6/ Incorporated by reference from Post-Effective Amendment No. 10 to
-
registration statement, SEC File No. 33-87254, filed November 9, 2000.

7/ Incorporated by reference from Registrant's N-14 registration
-
statement, SEC File No. 333-49850, filed November 13, 2000.

8/ Incorporated by reference from Post-Effective Amendment No. 2 to
-
registration statement, SEC File No. 33-87254, filed October 16, 1996.

9/ Incorporated by reference from Post-Effective Amendment No. 9 to
-
registration statement, SEC File No. 33-87254, filed September 29,
2000.

10/ Incorporated by reference from Registrant's N-14 registration
--
statement, SEC File No. 333-50238, filed November 17, 2000.

Item 17. Undertakings
------------

(1) The undersigned Registrant agrees that prior to any public
re-offering of the securities registered through the use of a prospectus which
is a part of this Registration Statement by any person or party who is deemed to
be an underwriter within the meaning of Rule 145(c) of the Securities Act of
1933, the re-offering prospectus will contain the information called for by the
applicable registration form for re-offerings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.

(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new Registration Statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.

C-5
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement 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 15th day of November, 2000.

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
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:

Signature Title Date
--------- ----- ----

/s/ Brian M. Storms President and Trustee November 15, 2000
------------------- (Chief Executive Officer)
Brian M. Storms**

/s/ David J. Beaubien Trustee and Chairman November 15, 2000
--------------------- of the Board of Trustees
David J. Beaubien*

/s/ Margo N. Alexander Trustee November 15, 2000
----------------------
Margo N. Alexander*

/s/ E. Garrett Bewkes, Jr. Trustee November 15, 2000
--------------------------
E. Garrett Bewkes, Jr.*

/s/ William W. Hewitt, Jr. Trustee November 15, 2000
--------------------------
William W. Hewitt, Jr.*

/s/ Morton L. Janklow Trustee November 15, 2000
---------------------
Morton L. Janklow*

/s/ William D. White Trustee November 15, 2000
--------------------
William D. White*

/s/ M. Cabell Woodward, Jr. Trustee November 15, 2000
---------------------------
M. Cabell Woodward, Jr.*

/s/ Paul H. Schubert Vice President and Treasurer November 15, 2000
-------------------- (Chief Financial and
Paul H. Schubert Accounting Officer)

* Signature affixed by Elinor W. Gammon pursuant to power of attorney
dated September 12, 2000 and incorporated by reference from Exhibit 16
to Post-Effective Amendment No. 9 to the Registration Statement on Form
N-1A of PaineWebber PACE Select Advisors Trust, SEC File 33-87254, filed
September 29, 2000.

** Signature affixed by Elinor W. Gammon pursuant to power of attorney
dated November 13, 2000 and incorporated by reference from Exhibit 16(b)
to Registrant's Registration Statement on Form N-14, SEC File No. 333-
50238, filed November 17, 2000.

<PAGE>

PAINEWEBBER PACE SELECT ADVISORS TRUST

EXHIBIT INDEX
-------------

Exhibit
Number
------

(1) (a) Certificate of Business Trust effective September 9, 1994 1/
(b) Amended and Restated Trust Instrument 2/
-