<PAGE>
As filed with the Securities and Exchange Commission on December 8, 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 Massachussetts 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
Municipal Fixed Income 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 NATIONAL TAX-FREE INCOME FUND
(A SERIES OF PAINEWEBBER MUTUAL FUND TRUST)
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 National Tax-Free Income Fund.
We are seeking shareholder approval to merge National Tax-Free Income Fund
into PACE Municipal Fixed Income 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 National Tax-Free Income Fund shares, and
National Tax-Free Income Fund will cease operations. The expenses of each class
of shares of the PACE Fund following the merger would be no higher than the
current expenses of the corresponding class of National Tax-Free Income Fund.
Mitchell Hutchins is the investment manager for both Funds and has retained
Standish, Ayer & Wood, Inc. ("Standish"), an unaffiliated firm, to manage each
Fund's assets. The two Funds have similar investment objectives and policies.
Both Funds seek high current income exempt from federal income tax. The PACE
Fund pursues its objective by investing substantially all its assets in
investment grade municipal bonds of varying maturities. Similarly, National
Tax-Free Income Fund invests primarily in investment grade municipal bonds, but
may invest, to a lesser extent, in municipal bonds that are not investment
grade.
The attached 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 NATIONAL TAX-FREE INCOME FUND PROPOSED MERGER
QUESTIONS AND ANSWERS
On October 6, 2000, the Board of Trustees of PaineWebber Mutual Fund Trust
("Mutual Fund Trust"), on behalf of its series, PaineWebber National Tax-Free
Income Fund ("National Tax-Free Income Fund"), unanimously approved the merger
of National Tax-Free Income Fund into PACE Municipal Fixed Income Investments
("PACE Municipal Fixed Income Fund"), a series of PaineWebber PACE Select
Advisors Trust ("PACE Trust"). This merger, however, can only occur if National
Tax-Free Income 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 acquiring fund.
WHY IS THIS MERGER BEING PROPOSED?
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") and Mutual
Fund Trust's Board believe that National Tax-Free Income Fund's shareholders
will benefit from the merger with PACE Municipal Fixed Income Fund because the
combined Fund would have a larger asset base, which should provide greater
opportunities for diversifying investments and realizing economies of scale. In
addition, the Board and Mitchell Hutchins believe that operating two funds that
offer significantly similar investments and similar management would result in
higher expenses and less efficient operations than a single fund that combines
the assets of the two original funds.
National Tax-Free Income Fund and PACE Municipal Fixed Income Fund have
similar investment objectives and policies in that each Fund seeks high current
income exempt from federal income tax by investing primarily in investment grade
municipal bonds. PACE Municipal Fixed Income Fund pursues its objective by
investing substantially all its assets in investment grade municipal bonds of
varying maturities. Similarly, National Tax-Free Income Fund pursues its
objective by investing primarily in investment grade municipal bonds, although
it may invest, to a limited extent, in municipal bonds that are not investment
grade. PACE Municipal Fixed Income Fund normally limits its portfolio duration
to between three and seven years, while National Tax-Free Income Fund has no
duration policy and has tended to have a longer portfolio duration. (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.)
Standish Ayer & Wood, Inc. ("Standish"), an investment adviser that is not
affiliated with Mitchell Hutchins, has served as sub-adviser to PACE Municipal
Fixed Income Fund since June 1, 2000. Effective October 10, 2000, Mitchell
Hutchins also retained Standish to serve as sub-adviser for National Tax-Free
Income Fund. Standish uses the same basic investment strategy for both Funds. As
a result, the two Funds are now managed in a similar manner.
HOW MANY SHARES WILL I RECEIVE AT THE TIME OF THE MERGER?
If the merger is approved, you will receive full and fractional shares of
the corresponding class of PACE Municipal Fixed Income Fund having a total value
equal to the total value of your National Tax-Free Income Fund shares at the
time of the merger. Although the two Funds have different net asset values per
share, each class of shares of PACE Municipal Fixed Income Fund issued in the
merger will otherwise have characteristics that are substantially identical to
the corresponding class of shares of National Tax-Free Income Fund.
2
<PAGE>
IF I CURRENTLY ELECT TO RECEIVE MY NATIONAL TAX-FREE INCOME 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 MUNICIPAL FIXED INCOME FUND
SHARES AFTER THE MERGER?
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 Municipal Fixed Income Fund shares, and that your basis for the PACE
Municipal Fixed Income Fund shares you receive in the merger will be the same as
the basis for your National Tax-Free Income Fund shares.
Immediately prior to the merger, National Tax-Free Income Fund will have to
distribute all of its previously undistributed income and net capital gain, if
any, to its shareholders. Any net capital gain so distributed and any portion of
the income so distributed that is not exempt from federal income tax will be
taxable to National Tax-Free Income Fund shareholders. You should note, however,
that both Funds expect to distribute their tax-exempt and taxable 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 tax requirements applicable to all mutual funds. This means
that if you remain a shareholder of National Tax-Free Income Fund, if the merger
takes place, you may receive two distributions of income and net capital gain,
if any, within a short period of time.
HOW WILL THE MERGER AFFECT FUND EXPENSES?
The management fee paid by PACE Municipal Fixed Income Fund to Mitchell
Hutchins is greater than the management fee paid by National Tax-Free Income
Fund. However, the post-merger combined Fund is expected to have overall
operating expenses that are no higher than the current operating expenses of
National Tax-Free Income Fund. The overall operating expenses of the combined
Fund are subject to a written management fee waiver and expense reimbursement
agreement between PACE Municipal Fixed Income Fund and Mitchell Hutchins, which
will remain in effect through December 1, 2002. Absent that agreement, it is
expected that the overall operating expenses of the combined Fund would be
somewhat higher than the current expenses of National Tax-Free Income 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 MUNICIPAL FIXED INCOME FUND AND NATIONAL TAX-FREE INCOME FUND
PERFORMED?
The following tables show the average annual total returns over several time
periods for each class of shares of National Tax-Free Income Fund and the
Class P shares of PACE Municipal Fixed Income 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. This may be particularly
true for both Funds because the current sub-adviser did not manage their assets
during the periods shown. The table for National Tax-Free Income 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
Municipal Fixed Income 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 National Tax-Free Income Fund and the
Class P shares of PACE Municipal Fixed Income 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 indices, which are different for the
two Funds, are unmanaged and, therefore, do not reflect the deduction of any
sales charges or expenses.
3
<PAGE>
PACE MUNICIPAL FIXED INCOME FUND
AVERAGE ANNUAL TOTAL RETURNS
(as of December 31, 1999)
<TABLE>
<CAPTION>
CLASS CLASS P LEHMAN BROTHERS MUNICIPAL
(INCEPTION DATE) (8/24/95) FIVE-YEAR INDEX
---------------- --------- -------------------------
<S> <C> <C>
One Year................................ (2.14)% 0.73%
Life of Class........................... 4.58% 4.49%
</TABLE>
NATIONAL TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURNS
(as of December 31, 1999)
<TABLE>
<CAPTION>
CLASS CLASS A CLASS B* CLASS C CLASS Y LEHMAN BROTHERS
(INCEPTION DATE) (12/3/84) (7/1/91) (7/2/92) (11/3/95) MUNICIPAL BOND INDEX
---------------- --------- -------- -------- --------- --------------------
<S> <C> <C> <C> <C> <C>
One Year................. (7.90)% (9.37)% (5.25)% (3.88)% (2.06)%
Five Years............... 4.78% 4.48% 5.08% N/A 6.91%
Ten Years................ 5.35% N/A N/A N/A 6.89%
Life of Class............ 7.30% 5.01% 4.18% 3.98% **
</TABLE>
-------------------
* Assumes conversion of Class B Shares to Class A shares after six years.
** Average annual total returns for the Lehman Brothers Municipal Bond Index
for the life of each class were as follows: Class A -8.70%; Class B -6.72%;
Class C -6.06%; and Class Y -4.90%.
WHEN WILL THE PROPOSED MERGER OCCUR?
The Funds expect to merge in February 2001, assuming National Tax-Free
Income Fund shareholder approval at the special meeting scheduled to be held on
February 1, 2001.
CAN I SELL OR EXCHANGE MY NATIONAL TAX-FREE INCOME FUND SHARES BEFORE THE
MERGER?
If you do not wish to receive shares of PACE Municipal Fixed Income Fund,
you are free to sell or exchange your National Tax-Free Income 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 National Tax-Free Income 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.
4
<PAGE>
---------------------------
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
(A SERIES OF PAINEWEBBER MUTUAL FUND TRUST)
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019-6114
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
FEBRUARY 1, 2001
-------------------
To the Shareholders:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders ("Meeting") of
PaineWebber National Tax-Free Income Fund ("National Tax-Free Income Fund"), a
series of PaineWebber Mutual Fund Trust ("Mutual Fund Trust"), will be held on
February 1, 2001, at 1285 Avenue of the Americas, 14th Floor, New York, New
York, 10019-6028, at [ ], 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 National
Tax-Free Income Fund into PACE Municipal Fixed Income Investments ("PACE
Municipal Fixed Income Fund"), a series of PaineWebber PACE Select
Advisors Trust ("PACE Trust"). Pursuant to the Plan, National Tax-Free
Income Fund will transfer all its assets to PACE Municipal Fixed Income
Fund, which will assume all the stated liabilities of National Tax-Free
Income Fund, and PACE Trust will issue to each National Tax-Free Income
Fund shareholder the number of full and fractional shares of the
applicable class of PACE Municipal Fixed Income 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
National Tax-Free Income Fund.
Shareholders of record as of the close of business on December 1, 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 Mutual Fund Trust,
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 Mutual Fund Trust 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 https://vote.proxy-direct.com on
the World Wide Web and follow the on-screen instructions.
You may also call 1-800-597-7836 and vote by telephone.
If we do not receive your completed proxy cards after several weeks, our
proxy solicitor, Shareholder Communications Corporation, 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.
ii
<PAGE>
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
------------ ---------------
<C> <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>
iii
<PAGE>
[This page is intentionally left blank.]
iv
<PAGE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
(A SERIES OF PAINEWEBBER MUTUAL FUND TRUST)
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019-6114
1-800-647-1568
PACE MUNICIPAL FIXED INCOME 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 National Tax-Free Income Fund ("National Tax-Free Income Fund"), a
series of PaineWebber Mutual Fund Trust ("Mutual Fund Trust"), a Massachusetts
business trust, to be held on February 1, 2001, at 1285 Avenue of the Americas,
14th Floor, New York, New York, 10019-6028, at [ ], Eastern time (such
meeting and any adjournments thereof are referred to collectively as the
"Meeting"). At the Meeting, the shareholders of National Tax-Free Income Fund
are being asked to consider and approve the following proposal:
To approve or disapprove the Agreement and Plan of Reorganization and
Termination ("Plan") that provides for the reorganization of National
Tax-Free Income Fund into PACE Municipal Fixed Income Investments ("PACE
Municipal Fixed Income Fund"), a series of PaineWebber PACE Select
Advisors Trust ("PACE Trust"). Pursuant to the Plan, National Tax-Free
Income Fund will transfer all its assets to PACE Municipal Fixed Income
Fund, which will assume all the stated liabilities of National Tax-Free
Income Fund, and PACE Trust will issue to each National Tax-Free Income
Fund shareholder the number of full and fractional shares of the
applicable class of PACE Municipal Fixed Income 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
National Tax-Free Income Fund.
A form of the Plan is attached as Appendix A to this Proxy
Statement/Prospectus. THE BOARD OF TRUSTEES OF MUTUAL FUND TRUST HAS UNANIMOUSLY
APPROVED THE PLAN AS BEING IN THE BEST INTERESTS OF NATIONAL TAX-FREE INCOME
FUND AND ITS SHAREHOLDERS. (National Tax-Free Income Fund and PACE Municipal
Fixed Income Fund sometimes are referred to individually as a "Fund" and
together as "Funds.")
Pursuant to the Plan, National Tax-Free Income Fund will transfer all its
assets to PACE Municipal Fixed Income Fund, which will assume all the stated
liabilities of National Tax-Free Income Fund, and PACE Trust will issue to each
National Tax-Free Income Fund shareholder the number of full and fractional
shares of beneficial interest in the applicable class of PACE Municipal Fixed
Income 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 National Tax-Free
Income Fund (the "Reorganization"). The value of each National Tax-Free Income
Fund shareholder's account with PACE Municipal Fixed Income Fund immediately
after the Reorganization will be the same as the value of such shareholder's
account with National Tax-Free Income Fund immediately prior to the
Reorganization. As a result of the Reorganization, shareholders of each class of
shares of National Tax-Free Income Fund will become shareholders of the
corresponding class of shares of PACE Municipal Fixed Income Fund. No sales
charges will be assessed on the shares of PACE Municipal Fixed Income Fund
issued in connection with the Reorganization.
<PAGE>
PACE Municipal Fixed Income Fund is a diversified series of PACE Trust,
which is an open-end management investment company currently comprised of twelve
series. PACE Municipal Fixed Income Fund's investment objective is high current
income exempt from federal income tax. The Fund invests substantially all its
assets in investment grade municipal bonds of varying maturities. The Fund
normally limits its portfolio duration to between three and seven years.
This Proxy Statement/Prospectus sets forth the information that a
shareholder of National Tax-Free Income Fund should know before voting on the
Plan. 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 incorporated by reference in its entirety into this Proxy
Statement/Prospectus. PACE Municipal Fixed Income 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 National
Tax-Free Income Fund is included in its current Prospectus and SAI, each dated
June 30, 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 National Tax-Free Income Fund's
Semi-Annual Report to Shareholders for the six months ended August 31, 2000, and
its Annual Report to Shareholders for the fiscal year ended February 29, 2000,
are available without charge by writing either National Tax-Free Income Fund or
PACE Municipal Fixed Income 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 Mutual Fund Trust, 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........................... 3
Summary Comparison of the Funds................. 4
COMPARISON OF PRINCIPAL RISK FACTORS.............. 5
COMPARISON OF THE FUNDS........................... 6
Investment Objectives........................... 6
Investment Policies............................. 6
Operations of PACE Municipal Fixed Income Fund
Following the Reorganization.................. 8
Performance..................................... 8
Sales Charges................................... 10
Dividends and Other Distributions............... 10
Taxes........................................... 10
FLEXIBLE PRICING: BUYING, SELLING AND EXCHANGING
SHARES OF PACE MUNICIPAL FIXED INCOME FUND...... 11
Flexible Pricing................................ 15
Buying Shares................................... 15
Selling Shares.................................. 15
Exchanging Shares............................... 16
Pricing and Valuation........................... 17
MANAGEMENT........................................ 17
Investment Manager and Investment Adviser....... 17
Sub-Adviser..................................... 18
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.......... 22
Temporary Waiver of Investment Restrictions..... 22
Federal Income Tax Considerations............... 22
Required Vote................................... 23
ORGANIZATION OF THE FUNDS......................... 23
FINANCIAL HIGHLIGHTS.............................. 24
CAPITALIZATION.................................... 25
LEGAL MATTERS..................................... 25
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION...................................... 26
EXPERTS........................................... 26
OTHER INFORMATION................................. 26
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
Municipal Fixed Income Fund's Performance....... C-1
</TABLE>
iii
<PAGE>
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to shareholders of
National Tax-Free Income Fund, a series of Mutual Fund Trust, 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 National Tax-Free Income
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 National Tax-Free Income Fund shareholders
entitled to cast a majority of all the votes entitled to be cast at the Meeting
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 Mutual Fund Trust ("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. Mutual Fund Trust 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 December 1, 2000
("Record Date"), are entitled to vote at the Meeting. On the Record Date,
National Tax-Free Income 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.]
Mutual Fund Trust has engaged the services of Shareholder Communications
Corporation ("SCC") to assist it in the solicitation of proxies for the Meeting.
Mutual Fund Trust expects to solicit proxies by mail, telephone and via the
internet. Mutual Fund Trust officers and employees of Mitchell Hutchins who
assist in the proxy solicitation will not receive any additional or special
compensation for any such efforts. SCC will be paid approximately $13,300 for
proxy solicitation services. Mutual Fund Trust 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.
1
<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, Mutual Fund Trust's Board believes that
the proposed Reorganization will benefit National Tax-Free Income Fund's
shareholders.
THE PROPOSED REORGANIZATION
The Boards of PACE Trust and Mutual Fund Trust, 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 Municipal Fixed Income Fund of all of National Tax-Free Income Fund's
assets in exchange for PACE Municipal Fixed Income Fund shares and the
assumption by PACE Municipal Fixed Income Fund of all of National Tax-Free
Income Fund's stated liabilities. National Tax-Free Income Fund will then
distribute the PACE Municipal Fixed Income Fund shares to its shareholders, by
class, so that each National Tax-Free Income Fund shareholder will receive the
number of full and fractional shares of the corresponding class of PACE
Municipal Fixed Income Fund equal in aggregate NAV to the aggregate NAV of the
shares of National Tax-Free Income 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 23, 2001, or on such later date as the conditions to
consummation of the Reorganization are satisfied ("Closing Date"). National
Tax-Free Income Fund will be terminated as soon as is practicable after the
Closing Date. See "Additional Information About the Reorganization," below.
Mutual Fund Trust 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)(D) 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. To the extent National
Tax-Free Income Fund sells securities prior to the Closing Date, it may
recognize net gains or losses. Any such net recognized gains would increase the
amount of any distribution made to shareholders of National Tax-Free Income 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 Mutual Fund
Trust has determined that the Reorganization is in the best interests of
National Tax-Free Income Fund and that the interests of existing National
Tax-Free Income Fund shareholders will not be diluted as a result of the
Reorganization. ACCORDINGLY, MUTUAL FUND TRUST'S BOARD UNANIMOUSLY RECOMMENDS
APPROVAL OF THE REORGANIZATION.
2
<PAGE>
COMPARATIVE FEE TABLE
The table below describes the fees and expenses that you would pay if you
buy and hold National Tax-Free Income Fund shares or PACE Municipal Fixed Income
Fund shares before the Reorganization and PACE Municipal Fixed Income 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 Municipal Fixed Income Fund and for the six months ended August 31,
2000 (annualized) for National Tax-Free Income Fund. The PRO FORMA information
reflects the anticipated effects of the Reorganization.
<TABLE>
<CAPTION>
COMBINED PACE MUNICIPAL FIXED
NATIONAL TAX-FREE PACE MUNICIPAL FIXED INCOME FUND
INCOME FUND INCOME FUND PRO FORMA
----------------------------------- ----------------------------------- -----------------------------------
CLASS A CLASS B CLASS C CLASS Y CLASS A CLASS B CLASS C CLASS Y CLASS A CLASS B CLASS C CLASS 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% None None None 4% None None None 4% None None None
Maximum Deferred Sales
Charge (load) (AS A
PERCENTAGE OF
ORIGINAL PURCHASE
PRICE OR REDEMPTION
PROCEEDS, WHICHEVER
IS LESS)............ None 5% 0.75% None None 5% 0.75% None None 5% 0.75% 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*...... 0.50% 0.50% 0.50% 0.50% 0.60% 0.60% 0.60% 0.60% 0.60% 0.60% 0.60% 0.60%
Distribution and/or
Service (12b-1)
Fees................ 0.25% 1.00% 0.75% None 0.25% 1.00% 0.75% None 0.25% 1.00% 0.75% None
Other Expenses**...... 0.13% 0.13% 0.15% 0.14% 0.30% 0.32% 0.31% 0.29% 0.13% 0.13% 0.15% 0.14%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Annual Fund
Operating
Expenses............ 0.88% 1.63% 1.40% 0.64% 1.15% 1.92% 1.66% 0.89% 0.98% 1.73% 1.50% 0.74%
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Management Fee
Waiver/Expense
Reimbursements***... N/A N/A N/A N/A (0.04)% (0.04)% (0.04)% (0.04)% (0.10)% (0.10)% (0.10)% (0.10)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Expenses***....... 0.88% 1.63% 1.40% 0.64% 1.11% 1.88% 1.62% 0.85% 0.88% 1.63% 1.40% 0.64%
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
---------------------------
* For both Funds, "Management Fees" include fees paid to Mitchell Hutchins
for administrative services.
** "Other Expenses" for National Tax-Free Income Fund are from the Fund's
semi-annual report to shareholders for the six month period ended
August 31, 2000 and are annualized. "Other Expenses" for PACE Municipal
Fixed Income 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.
*** PACE Trust and Mitchell Hutchins have entered into a written agreement with
respect to PACE Municipal Fixed Income Fund under which Mitchell Hutchins
is contractually obligated to waive its management fee and reimburse the
Fund to the extent that the total expenses of each class through
December 1, 2002 otherwise would exceed the sum of 0.85% (the expense cap
for the Fund's Class P shares) plus the 12b-1 fees, if any, and any higher
transfer agency fees applicable to each class. PACE Municipal Fixed Income
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.
PACE Trust and Mitchell Hutchins have entered into an additional written
agreement with respect to PACE Municipal Fixed Income Fund that becomes
effective if the Reorganization takes place. Under that agreement, 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 current operating
expenses of National Tax-Free Income Fund as shown under "Total Annual Fund
Operating Expenses" and "Net Expenses" above. This is the expense cap
reflected in the "Net Expenses" for the combined Fund. The Fund has agreed
to repay Mitchell Hutchins for any reimbursed expenses under this agreement
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 two-year period when PACE Municipal
Fixed Income 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>
NATIONAL TAX-FREE INCOME FUND
Class A....................... $486 $ 669 $ 868 $1,441
Class B (assuming sale of all
shares at end of period).... 666 814 1,087 1,548
Class B (assuming no sale of
shares)..................... 166 514 887 1,548
Class C (assuming sale of all
shares at end of period).... 218 443 766 1,680
Class C (assuming no sale of
shares)..................... 143 443 766 1,680
Class Y....................... 65 205 357 798
PACE MUNICIPAL FIXED INCOME
FUND
Class A....................... $509 $ 743 $1,000 $1,735
Class B (assuming sale of all
shares at end of period).... 691 895 1,229 1,852
Class B (assuming no sale of
shares)..................... 191 595 1,029 1,852
Class C (assuming sale of all
shares at end of period).... 240 515 894 1,958
Class C (assuming no sale of
shares)..................... 165 515 894 1,958
Class Y....................... 87 276 485 1,089
PRO FORMA PACE MUNICIPAL FIXED
INCOME FUND
Class A....................... $486 $ 680 $ 901 $1,535
Class B (assuming sale of all
shares at end of period).... 666 825 1,119 1,642
Class B (assuming no sale of
shares)..................... 166 525 919 1,642
Class C (assuming sale of all
shares at end of period).... 218 454 799 1,773
Class C (assuming no sale of
shares)..................... 143 454 799 1,773
Class Y....................... 65 216 391 899
</TABLE>
SUMMARY COMPARISON OF THE FUNDS
INVESTMENT OBJECTIVES AND POLICIES
The Funds have similar investment objectives, policies and overall risk
characteristics in that each Fund seeks high current income exempt from federal
income tax by investing primarily in investment grade municipal bonds. PACE
Municipal Fixed Income Fund pursues its objective by investing substantially all
its assets in investment grade municipal bonds of varying maturities. It
normally limits its portfolio duration to between three and seven years.
National Tax-Free Income Fund also pursues its objective by investing primarily
in investment grade municipal bonds, but may invest, to a limited extent, in
municipal bonds that are not investment grade. National Tax-Free Income Fund has
no duration policy and has tended to have a longer portfolio duration than PACE
Municipal Fixed Income Fund.
INVESTMENT ADVISORY SERVICES
Mitchell Hutchins has served as the investment manager and administrator for
PACE Municipal Fixed Income 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. Mitchell Hutchins also
4
<PAGE>
recommends to the Board of PACE Trust whether agreements with sub-advisers
should be renewed, modified or terminated. The Fund's current sub-adviser --
Standish, Ayer & Wood, Inc. ("Standish") -- has managed the Fund's investment
portfolio since July 1, 2000. Prior to July 1, 2000, a different sub-adviser
managed the Fund's investment portfolio.
Mitchell Hutchins has served as investment manager or investment adviser and
as administrator for National Tax-Free Income Fund since its inception on
December 3, 1984. Prior to October 10, 2000, Mitchell Hutchins managed all the
Fund's assets. On that date, the Fund's current sub-adviser -- Standish --
assumed responsibility for managing the assets of the Fund.
PURCHASE AND REDEMPTION PROCEDURES
Funds in the PaineWebber Flexible Pricing-SM- System generally offer
Class A, Class B, Class C and Class Y shares. PACE Municipal Fixed Income Fund
did not offer Class A, Class B, Class C or Class Y shares to the public prior to
November 27, 2000. The purchase and redemption procedures for PACE Municipal
Fixed Income Fund's Class A, Class B, Class C and Class Y shares are the same as
those currently in effect for the corresponding classes of shares of National
Tax-Free Income Fund. Class A, Class B or Class C shares of PACE Municipal Fixed
Income Fund may be exchanged for shares of the same class of most other PACE
funds or of PaineWebber Money Market Fund. Exchanges between other PaineWebber
funds and PACE funds will not be activated until on or around March 1, 2000. You
may not exchange Class Y shares.
COMPARISON OF PRINCIPAL RISK FACTORS
Both Funds are subject to similar risk factors associated with their
investments in municipal bonds. 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:
INTEREST RATE RISK -- The value of municipal bonds generally can be expected
to fall when interest rates rise and to rise when interest rates fall. Interest
rate risk is the risk that interest rates will rise, so that the value of a
Fund's investments in bonds will fall. Interest rate risk is the primary source
of risk for U.S. government and usually for other very high quality bonds. The
impact of changes in the general level of interest rates on lower quality bonds
may be greater or less than the impact on higher quality bonds.
Some municipal bonds, particularly those issued at relatively high interest
rates, provide that the issuer may repay them earlier than the maturity date.
The issuers of these bonds are most likely to exercise these "call" provisions
if prevailing interest rates are lower than they were when the bonds were
issued. A Fund then may have to reinvest the repayments at lower interest rates.
Bonds subject to "call" provisions also may not benefit fully from the rise in
value that generally occurs for bonds when interest rates fall.
CREDIT RISK -- Credit risk is the risk that the issuer of a bond will not
make principal or interest payments when they are due. Even if an issuer does
not default on a payment, a bond's value may decline if the market believes that
the issuer has become less able, or less willing, to make payments on time. Even
high quality bonds are subject to some credit risk. However, credit risk is
greater for lower quality bonds. Bonds that are not investment grade involve
high credit risk and are considered speculative. Some of these low quality bonds
may be in default when purchased by a Fund. Low quality bonds may fluctuate in
value more than higher quality bonds and, during periods of market volatility,
may be more difficult to sell during market downturns at the time and price a
Fund desires.
DERIVATIVES RISK -- The value of "derivatives" -- so-called because their
value "derives" from the value of an underlying asset, reference rate or index
-- may rise or fall more rapidly than other investments. For some derivatives,
it is possible for a Fund to lose more than the amount it invested in the
derivative. Options and futures contracts are examples of derivatives. A Fund's
use of derivatives may not succeed for various reasons, including unexpected
changes in the values of the derivatives or the assets underlying them. Also, if
a Fund uses derivatives to adjust or "hedge" the overall risk of its portfolio,
the
5
<PAGE>
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.
POLITICAL RISK -- The municipal bond market can be significantly affected by
political changes, including legislation or proposals at either the state or
federal level to eliminate or limit the tax-exempt status of municipal bond
interest or the tax-exempt status of a municipal bond's dividends. Similarly,
reductions in tax rates may make municipal bonds less attractive in comparison
to taxable bonds. Legislatures also may fail to appropriate funds needed to pay
municipal bond obligations. These events could cause the value of the municipal
bonds held by the Funds to fall and might adversely affect the tax-exempt status
of the Fund's investments or of the dividends that the Fund pays. During periods
of uncertainty, the prices of municipal securities can become volatile.
RELATED SECURITIES CONCENTRATION RISK -- Both Funds are subject to related
securities concentration risk because each may invest more than 25% of its total
assets in specific types of municipal bonds. As a result, the Funds are subject
to greater risk than a fund that does not follow this practice. The extent and
nature of this risk, however, is different for each Fund. PACE Municipal Fixed
Income Fund may invest up to 50% of its total assets in municipal bonds that are
issued by public housing authorities and state and local housing finance
authorities, but may not otherwise invest more than 25% of its total assets in
municipal bonds that are secured by revenues from a particular industry.
National Tax-Free Income Fund may invest more than 25% of its total assets in
municipal bonds that are issued to finance similar projects, such as those
relating to education, health care, transportation or utilities. Economic,
business or political developments or changes that affect one municipal bond in
one sector or industry also may affect other municipal bonds in the same sector
or industry.
COMPARISON OF THE FUNDS
INVESTMENT OBJECTIVES
The Funds have similar investment objectives. PACE Municipal Fixed Income
Fund seeks high current income exempt from federal income tax. National Tax-Free
Income Fund seeks high current income exempt from federal income tax, consistent
with the preservation of capital and liquidity within the Fund's quality
standards.
INVESTMENT POLICIES
The Funds also have similar investment policies in that each Fund invests
primarily in investment grade municipal bonds. (Municipal bonds are bonds and
similar securities that pay interest that is exempt from federal income tax.)
PACE Municipal Fixed Income Fund invests substantially all its assets in
investment grade municipal bonds of varying maturities. The Fund limits its
investments in municipal bonds with the lowest investment grade rating to 15% of
its total assets at the time the bonds are purchased. PACE Municipal Fixed
Income Fund normally limits its portfolio "duration" to between three and seven
years. "Duration" is a measure of a Fund's exposure to interest rate risk. A
longer duration means that changes in the market interest rates are likely to
have a larger effect on the value of the assets in a portfolio. PACE Municipal
Fixed Income Fund also may invest up to 50% of its total assets in municipal
bonds that are secured by revenues from public housing authorities and state and
local housing finance authorities, including bonds that are secured or backed by
the U.S. Treasury or other U.S. government guaranteed securities.
National Tax-Free Income Fund also normally invests substantially all its
assets in municipal bonds. The Fund invests primarily in municipal bonds that
are investment grade but may invest up to 35% of its total assets in municipal
bonds that are not investment grade. National Tax-Free Income Fund has no
limitation on its investments in municipal bonds with the lowest investment
grade rating. National Tax-Free Income Fund also has no duration policy.
National Tax-Free Income Fund may invest more than 25% of its
6
<PAGE>
total assets in municipal bonds that are issued to finance similar projects,
without limitation as to the type of project or industries.
PACE Municipal Fixed Income Fund has no limitation on its investments in
municipal bonds that are subject to the federal alternative minimum tax (AMT),
although normally it limits its investments in such municipal bonds so that not
more than 25% of its interest income will be subject to the AMT. PACE Municipal
Fixed Income Fund invests in municipal bonds that are subject to the AMT when
its sub-adviser believes that they offer attractive yields relative to municipal
bonds that have similar investment characteristics but are not subject to the
AMT. National Tax-Free Income Fund may invest no more than 20% of its total
assets in municipal bonds that are subject to the AMT.
In selecting investments for each Fund, Standish seeks to identify
undervalued sectors or geographical regions of the municipal market or
undervalued individual securities. To do this, Standish uses credit research and
valuation analysis and monitors the relationship of the municipal yield curve to
the U.S. treasury yield curve. Standish also uses credit quality assessments
from its in-house analysts to identify potential rating changes, undervalued
issues and macro trends with regard to market sectors and geographical regions.
Standish may make modest duration adjustments based on economic analyses and
interest rate forecasts. Standish generally sells securities if it identifies
more attractive investment opportunities within its investment criteria and
doing so may improve a Fund's return. Standish also may sell securities with
weakening credit profiles or to adjust the average duration of a Fund's
portfolio.
DERIVATIVES. The Funds have substantially similar policies with respect to
the use of options, futures, and other derivatives. Each Fund may (but is not
required to) use options, futures and other derivatives as part of its
investment strategy or to help manage its portfolio duration.
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. PACE Municipal Fixed Income Fund may invest without
limit in certain taxable securities for defensive purposes. In addition, PACE
Municipal Fixed Income 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 Municipal Fixed Income Fund is normally fully invested in accordance with
its investment objective and policies. However, with the concurrence of Mitchell
Hutchins, PACE Municipal Fixed Income Fund may take a defensive position that is
different from its normal investment strategy.
Each Fund may invest to a limited extent in taxable money market instruments
for liquidity purposes when suitable municipal money market instruments are not
available.
OTHER INVESTMENT POLICIES. Each Fund may invest up to 15% of its net assets
in illiquid securities. Both Funds may purchase securities on a when-issued
basis or may purchase or sell securities for delayed delivery. Each Fund may
lend up to 33 1/3% of its total assets to qualified broker-dealers or
institutional investors. Each Fund may borrow money from banks or through
reverse repurchase agreements, but not in excess of 10% of its total assets.
Neither Fund may purchase securities while borrowings in excess of 5% of its
total assets are outstanding.
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 is
considered "short-term" for tax purposes. Shareholders will pay higher taxes on
Fund 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
7
<PAGE>
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 National Tax-Free Income Fund for
the last two fiscal years ended February 29, 2000 and February 28, 1999, were
29% and 43%, respectively, while the portfolio turnover rates for PACE Municipal
Fixed Income Fund's last two fiscal years ended July 31, 2000 and 1999, were 33%
and 11%, respectively.
Standish assumed responsibility for managing the investment portfolio of
PACE Municipal Fixed Income Fund on June 1, 2000 and assumed responsibility for
manaing the investment portfolio of National Tax-Free Income Fund on
October 10, 2000. Standish realigned each Fund's portfolio shortly after it
assumed its responsibilities for that Fund to reflect its proprietary investment
strategies. As a result, during this period, each Fund experienced higher
portfolio turnover than normal, which may result in higher overall portfolio
turnover for the current fiscal year.
OPERATIONS OF PACE MUNICIPAL FIXED INCOME FUND FOLLOWING THE REORGANIZATION
It is not expected that PACE Municipal Fixed Income Fund will revise any of
its policies following the Reorganization to reflect those of National Tax-Free
Income Fund. Standish has reviewed National Tax-Free Income Fund's current
portfolio and determined that National Tax-Free Income Fund's holdings generally
are compatible with PACE Municipal Fixed Income Fund's portfolio. As a result,
Mitchell Hutchins believes that, if the Reorganization is approved, a
substantial portion of National Tax-Free Income Fund's assets could be
transferred to and held by PACE Municipal Fixed Income Fund.
It is expected, however, that some of National Tax-Free Income Fund's
holdings may not remain at the time of the Reorganization due to normal
portfolio turnover. It is also expected that if National Tax-Free Income Fund's
shareholders approve the Reorganization, the Fund's holdings that are not
compatible with PACE Municipal Fixed Income Fund's holdings will be liquidated
in an orderly manner in connection with the Reorganization, and the proceeds of
these sales held in temporary investments or reinvested in assets that are
consistent with the holdings of PACE Municipal Fixed Income Fund. As of
November 30, 2000, these assets represented less than 5% of National Tax-Free
Income Fund's portfolio. The portion of National Tax-Free Income Fund's assets
that will be liquidated in connection with the Reorganization will depend on
market conditions and on the sub-adviser's continuing assessment of the
compatibility of National Tax-Free Income Fund's holdings with PACE Municipal
Fixed Income Fund's portfolio composition and its investment objective and
policies at the approximate time of the Reorganization. The need for National
Tax-Free Income Fund to dispose of investments in connection with the
Reorganization may result in the Fund's selling securities at a disadvantageous
time and could result in the Fund's realizing gain (or losses) that would not
otherwise have been realized.
PERFORMANCE
The following bar chart and table provide information about the performance
of PACE Municipal Fixed Income 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 Municipal Fixed Income 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 Municipal Fixed Income Fund's Class A, Class B and Class C
shares; if it did, the total returns shown would be lower.
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.
8
<PAGE>
The second table that follows the bar chart shows the average annual total
returns over several time periods for National Tax-Free Income 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 Municipal Fixed Income Fund.
The tables also compare each Fund's returns to returns of a broad-based
market index that is unmanaged and, therefore, does not reflect the deduction of
any fees or expenses. The two Funds have historically used different indices --
the Lehman Brothers Municipal Five-Year Index for PACE Municipal Fixed Income
Fund and the Lehman Brothers Municipal Bond Index for National Tax-Free Income
Fund. For comparative purposes, the returns of both indices are shown for each
Fund in the tables below.
Each Fund's past performance does not necessarily indicate how it will
perform in the future. This may be particularly true for the Funds because,
during the periods shown, a different sub-adviser managed the assets of PACE
Municipal Fixed Income Fund and Mitchell Hutchins managed the assets of National
Tax-Free Income Fund.
PACE MUNICIPAL FIXED INCOME FUND -- TOTAL RETURN ON CLASS P SHARES (1996 IS THE
FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CALENDAR YEAR TOTAL RETURN
<S> <C>
1996 4.86%
1997 7.01%
1998 5.39%
1999 (2.14)%
</TABLE>
Total return January 1 to September 30, 2000 -- 5.20%
Best quarter during years shown: 3rd quarter, 1998 -- 2.52%
Worst quarter during years shown: 2nd quarter, 1999 -- (1.21)%
PACE MUNICIPAL FIXED INCOME FUND
AVERAGE ANNUAL TOTAL RETURNS
(as of December 31, 1999)
<TABLE>
<CAPTION>
CLASS CLASS P LEHMAN BROTHERS MUNICIPAL LEHMAN BROTHERS
(INCEPTION DATE) (8/24/95) FIVE-YEAR INDEX MUNICIPAL BOND INDEX
---------------- --------- ------------------------- --------------------
<S> <C> <C> <C>
One Year........................... (2.14)% 0.73% (2.06)%
Life of Class...................... 4.58% 4.49% 5.21%
</TABLE>
9
<PAGE>
NATIONAL TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURNS
(as of December 31, 1999)
<TABLE>
<CAPTION>
LEHMAN BROTHERS LEHMAN BROTHERS
CLASS CLASS A CLASS B* CLASS C CLASS Y MUNICIPAL BOND MUNICIPAL FIVE-
(INCEPTION DATE) (12/3/84) (7/1/91) (7/2/92) (11/3/95) INDEX YEAR INDEX
---------------- --------- -------- -------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
One Year................. (7.90)% (9.37)% (5.25)% (3.88)% (2.06)% 0.73%
Five Years............... 4.78% 4.48% 5.08% N/A 6.91% 5.71%
Ten Years................ 5.35% N/A N/A N/A 6.89% 6.23%
Life of Class............ 7.30% 5.01% 4.18% 3.98% ** **
</TABLE>
-------------------
* Assumes conversion of Class B shares to Class A shares after six years.
** Average annual total returns for the Lehman Brothers Municipal Bond Index
and Lehman Brothers Municipal Five-Year Index for the life of each class
(except Class A since the return for the Lehman Brothers Muncipal Five-Year
Index is not available for this period) were as follows: Class A -- 8.70%;
Class B -- 6.72% and 5.94%; Class C -- 6.06% and 5.31%; and Class Y --
4.90% and 4.46%, respectively.
SALES CHARGES
No sales charges apply when National Tax-Free Income Fund shareholders
receive shares of PACE Municipal Fixed Income Fund in connection with the
Reorganization.
DIVIDENDS AND OTHER DISTRIBUTIONS
National Tax-Free Income Fund normally declares dividends daily and pays
them monthly. PACE Municipal Fixed Income Fund normally declares and pays
dividends monthly. Each Fund distributes substantially all 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 Municipal
Fixed Income Fund, Class P shares) would have the highest dividends.
As a shareholder of PACE Municipal Fixed Income 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 National Tax-Free Income
Fund will remain the same after the Reorganization. Contact your Financial
Adviser at PaineWebber if you prefer to receive dividends in cash.
On or before the Closing Date, National Tax-Free Income Fund will distribute
substantially all of its undistributed net investment income, net capital gain
and net short-term capital gain, if any, in order to continue to maintain its
tax status as a regulated investment company.
TAXES
Each Fund seeks to pay dividends that are exempt from federal income tax.
However, a portion of each Fund's dividends may be subject to state income taxes
and its distributions of gain may be subject to both federal and state income
taxes whether you receive them in additional Fund shares or in cash. A Fund also
may pay dividends that are subject to the federal alternative minimum tax.
When you sell Fund shares, you generally will be subject to federal income
tax on any gain you realize. If you exchange a Fund's shares for shares of
another PaineWebber mutual fund, the transaction will be treated as a sale of
the first fund's shares and taxed accordingly.
Any distribution of capital gains may be taxed at a lower rate than ordinary
income, depending on whether the Fund held the assets that generated the gains
for more than 12 months. Your Fund will tell you how you should treat its
dividends for tax purposes.
10
<PAGE>
FLEXIBLE PRICING: BUYING, SELLING AND EXCHANGING SHARES OF
PACE MUNICIPAL FIXED INCOME FUND
FLEXIBLE PRICING
PACE Municipal Fixed Income 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 Municipal Fixed Income
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 National Tax-Free Income Fund. Prior to
November 27, 2000, PACE Municipal Fixed Income Fund offered only Class P shares,
which are available only to participants in the PaineWebber PACE-SM- Select
Advisors Program.
No sales charges apply when National Tax-Free Income Fund shareholders
receive Class A, Class B, Class C or Class Y shares of PACE Municipal Fixed
Income Fund as part of the Reorganization. PACE Municipal Fixed Income Fund is
offering 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 Municipal Fixed Income 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
National Tax-Free Income 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 for each Fund are described in the following
table.
CLASS A SALES CHARGES
<TABLE>
<CAPTION>
REALLOWANCE TO SELECTED
SALES CHARGE AS A PERCENTAGE OF: DEALERS AS PERCENTAGE
AMOUNT OF INVESTMENT OFFERING PRICE NET AMOUNT INVESTED OF OFFERING PRICE*
-------------------- -------------- ------------------- -----------------------
<S> <C> <C> <C>
Less than $100,000................. 4.00% 4.17% 3.75%
$100,000 to $249,999............... 3.00 3.09 2.75
$250,000 to $499,999............... 2.25 2.30 2.00
$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.
11
<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 Transfers to Minors Act/Uniform Gifts 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 Only-SM- 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 InsightOne-SM- Program
brokerage account.
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.
12
<PAGE>
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 purchased
through the 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 Municipal Fixed Income Fund that you receive in connection with the
Reorganization will include the period for which you held the corresponding
Class B shares of National Tax-Free Income Fund and any other PaineWebber fund
whose shares you exchanged for Class B shares of National Tax-Free Income 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.
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 0.50% 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.
13
<PAGE>
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 0.75% 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 purchased
through the 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 Municipal Fixed Income Fund that you receive in
connection with the Reorganization will include the period for which you held
the corresponding Class C shares of National Tax-Free Income Fund and any other
PaineWebber fund whose shares you exchanged for Class B shares of National
Tax-Free Income 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 PACE-SM- 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 on behalf of that Plan.
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.
14
<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.
You do not have to complete an application when you make additional
investments in the 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 the 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.
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;
15
<PAGE>
- 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 Fund
within 365 days of the sale, you can reinstate your account without paying a
sales charge.
It costs each fund money to maintain shareholder accounts. Therefore, the
funds reserve the right to repurchase all shares in any account that has a net
asset value of less than $500. If a fund elects to do this with your account, it
will notify you that you can increase the amount invested to $500 or more within
60 days. A fund will not repurchase shares in accounts that fall below $500
solely because of a decrease in the fund's net asset value.
EXCHANGING SHARES
You may exchange Class A, Class B or Class C shares of 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 and 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.
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;
16
<PAGE>
- 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. The 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 Funds normally obtain market values for their
securities from independent pricing services that use reported last sales
prices, current market quotations or valuations from computerized "matrix"
systems that derive values based on comparable securities. If a market value is
not available from an independent pricing source for a particular security, that
security is valued at a fair value determined by or under the direction of the
Fund's board. The Funds normally use the amortized cost method to value bonds
that will mature in 60 days or less.
MANAGEMENT
INVESTMENT MANAGER AND INVESTMENT ADVISER
Mitchell Hutchins is the investment manager and administrator of each Fund.
Mitchell Hutchins is located at 51 West 52nd Street, New York, New York,
10019-6114, and is a wholly owned asset management subsidiary of PaineWebber
Incorporated, which is a wholly owned indirect subsidiary of UBS AG. UBS AG,
with headquarters in Zurich, Switzerland, is an internationally diversified
organization with operations in many areas of the financial services industry.
On October 31, 2000, Mitchell Hutchins was adviser or sub-adviser of 31
investment companies with 75 separate portfolios and aggregate assets of
approximately $58.3 billion.
As investment manager for PACE Municipal Fixed Income 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.
17
<PAGE>
As investment manager for National Tax-Free Income Fund, Mitchell Hutchins
recommends sub-advisers to the Board of Mutual Fund Trust and monitors and
reviews the performance of those sub-advisers. Since October 10, 2000, Mitchell
Hutchins and Standish have provided investment management services to the Fund
under interim contracts approved by the Board of Mutual Fund Trust. Prior to
October 10, 2000, Mitchell Hutchins managed National Tax-Free Income Fund's
assets directly.
SUB-ADVISER
The same sub-adviser -- Standish -- manages the assets of each Fund.
Standish is located at One Financial Center, Boston, Massachusetts 02111.
Standish was founded in 1933 and, as of September 30, 2000, had over $45 billion
in assets under management. Christine L. Todd, a director of Standish, is
primarily responsible for the day-to-day management of each Fund. She joined
Standish in 1995 from Gannett, Welsh & Kotler, where she was a vice president
responsible for municipal bond research and trading. Standish has held its
responsibilities for PACE Municipal Fixed Income Fund since June 1, 2000 and for
National Tax-Free Income Fund since October 10, 2000.
ADVISORY FEES AND FUND EXPENSES
PACE Municipal Fixed Income Fund pays fees to Mitchell Hutchins for
management and administration services at the combined annual contract rate of
0.60% of average daily net assets. This combined fee includes an annual contract
rate of 0.40% 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 Municipal Fixed Income Fund
paid Mitchell Hutchins at the lower effective rate of 0.56% of the Fund's
average daily net assets because Mitchell Hutchins waived a portion of its fee.
National Tax-Free Income Fund paid fees to Mitchell Hutchins for investment
advisory and administration services for the Fund's most recent fiscal year at
the rate of 0.50% of the Fund's average daily net assets.
The management fee paid by PACE Municipal Fixed Income Fund to Mitchell
Hutchins is greater than the management fee paid by National Tax-Free Income
Fund. However, Mitchell Hutchins anticipates that shareholders of each class of
shares of National Tax-Free Income Fund who will become shareholders of the
corresponding class of shares of PACE Municipal Fixed Income Fund will be
subject to total annual operating expenses that are the same as or lower than
the expenses they currently pay as shareholders of National Tax-Free Income
Fund. The overall operating expenses of the combined Fund are subject to a
written management fee waiver and expense reimbursement agreement between PACE
Municipal Fixed Income Fund and Mitchell Hutchins, which will remain in effect
through December 1, 2002. Absent this agreement, it is expected that the overall
operating expenses of each class of shares of PACE Municipal Fixed Income Fund
immediately following the Reorganization would be somewhat higher than the
current operating expenses of the corresponding class of shares of National
Tax-Free Income Fund.
ADDITIONAL INFORMATION ABOUT THE REORGANIZATION
REASONS FOR THE REORGANIZATION
Mutual Fund Trust's Board approved the proposed Reorganization at a meeting
held on October 6, 2000. For the reasons described more fully below, the Board
and Mitchell Hutchins believe that National Tax-Free Income Fund's shareholders
will benefit from the Reorganization with PACE Municipal Fixed Income Fund
because the combined Fund would have a larger asset base, which should provide
greater opportunities for diversifiying investments and realizing economies of
scale. In addition, the Board and Mitchell Hutchins believe that operating two
funds that offer significantly similar investments and similar management would
result in higher expenses and less efficient operations than operating a single
fund that combines the assets of the two original funds.
At the meeting of Mutual Fund Trust's Board on October 6, 2000 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 National Tax-Free
18
<PAGE>
Income Fund, would be served by continuing to operate the funds under their
current arrangements. For National Tax-Free Income Fund, Mitchell Hutchins'
review included a possible restructuring of the Fund's investment management
arrangements and a possible reorganization into another PaineWebber fund.
Mitchell Hutchins also noted that PACE Municipal Fixed Income Fund has a
similar investment objective and, like National Tax-Free Income Fund, invests
primarily in investment grade municipal bonds. Mitchell Hutchins advised the
Board of Mutual Fund Trust that the investment management arrangements for PACE
Municipal Fixed Income Fund were recently changed. Mitchell Hutchins had
concluded that the former sub-adviser of PACE Municipal Fixed Income Fund had
underperformed over a period of time and had recommended to PACE Trust's Board
that it be replaced. The Board of PACE Trust approved Mitchell Hutchins'
recommendations. A new sub-adviser -- Standish -- started managing PACE
Municipal Fixed Income Fund's assets effective June 1, 2000. (See "Comparison of
the Funds" above for a more complete description of the investment objectives,
policies and risks of the Funds.)
Mitchell Hutchins stated its belief that the Reorganization would likely
benefit National Tax-Free Income Fund's shareholders because the larger asset
base of the combined Fund could give the combined Fund greater opportunities to
diversify investments and realize greater economies of scale. Mitchell Hutchins
noted that the investment management and administration fee currently paid by
PACE Municipal Fixed Income Fund is greater than that currently paid by National
Tax-Free Income Fund. However, Mitchell Hutchins informed the Board that it had
entered into a written management fee waiver and expense reimbursement agreement
with PACE Municipal Fixed Income Fund to waive its management fee and/or
reimburse that Fund to the extent that its total annual operating expenses for
each class of shares through December 1, 2002 would otherwise exceed the current
overall operating expenses of the corresponding class of shares of National
Tax-Free Income Fund. Mitchell Hutchins explained that, as a result, it
anticipated that current shareholders of each class of shares of National
Tax-Free Income Fund who will become shareholders of the combined Fund if the
Reorganization is approved will be subject to total annual operating expenses
that are no higher than the expenses they currently pay as shareholders of
National Tax-Free Income Fund during the period of the waiver/reimbursement.
(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 then proposed immediate changes in the investment
management arrangements for National Tax-Free Income Fund. Mitchell Hutchins
advised the Board of Mutual Fund Trust that the proposed investment management
changes represented its judgment of the best management structure for the Fund
and believed that the changes would be more likely to help National Tax-Free
Income Fund achieve its investment objective. Mitchell Hutchins noted its
experience in selecting and monitoring unaffiliated sub-advisers, particularly
with respect to the various different series of PACE Trust, all but one of which
are managed by sub-advisers. Mitchell Hutchins recommended to the Board of
Mutual Fund Trust that the same sub-adviser that now manages the assets of PACE
Municipal Fixed Income Fund -- Standish -- be retained on an interim basis to
manage the assets of National Tax-Free Income Fund. After consideration of all
the information presented by Mitchell Hutchins, inquiries into the ability and
resources of the proposed sub-adviser to provide appropriate investment
management services for the assets of National Tax-Free Income Fund and
interviews with personnel of the proposed sub-adviser, Mutual Fund Trust's Board
determined to implement the new investment management arrangements effective
October 10, 2000.
To implement the new investment management arrangements for National
Tax-Free Income Fund, the Board of Mutual Fund Trust, effective October 10,
2000, terminated the existing investment advisory and administration contract
between the Fund and Mitchell Hutchins and approved a new interim contract with
Mitchell Hutchins and an interim sub-advisory contract between Mitchell Hutchins
and the sub-adviser. Under the Interim Management and Administration Contract
("Interim Management Contract"), Mitchell Hutchins serves as investment manager
for National Tax-Free Income Fund and provides portfolio management oversight as
opposed to direct management of the Fund's investments. Mitchell Hutchins
provides portfolio management oversight principally by performing initial
reviews of prospective
19
<PAGE>
sub-advisers and supervising and monitoring the performance of the sub-advisers
thereafter. The Interim Management Contract and interim sub-advisory contract
will terminate on the earlier of 150 days from their effective date or the
Closing Date of the Reorganization.
Mitchell Hutchins then reminded the Board that, once the new investment
management arrangements were in place, National Tax-Free Income Fund and PACE
Municipal Fixed Income Fund would be managed in a similar manner. Mitchell
Hutchins noted its belief that operating two funds that offer significantly
similar investments and similar management would result in higher expenses and
less efficient operations than operating a single fund that 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 distribute shares for two similar funds. Mitchell Hutchins noted,
moreover, that PACE Municipal Fixed Income 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 Municipal Fixed Income
Fund.
Finally, Mitchell Hutchins reviewed with the Board of Mutual Fund Trust the
principal terms of the Plan. Mitchell Hutchins informed the Board that the
Reorganization would be tax-free to National Tax-Free Income 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 Municipal Fixed Income Fund
shares issued in connection with the Reorganization. Furthermore, Mitchell
Hutchins informed the Board of Mutual Fund Trust 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
National Tax-Free Income Fund will include the holding period for the shares of
National Tax-Free Income Fund and any other PaineWebber fund shares of the same
class that were exchanged for shares of National Tax-Free Income Fund.
As part of its consideration, the Board of Mutual Fund Trust 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 Municipal Fixed Income Fund and that
expense ratio relative to National Tax-Free Income Fund's current expense ratio;
(4) that Mitchell Hutchins will bear the costs of the Reorganization; (5) the
compatibility of the Funds' portfolio holdings and the effect on National
Tax-Free Income 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 National Tax-Free Income 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 Standish; 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 Mutual Fund Trust, including a majority of its
Independent Trustees, determined that the Reorganization would be in the best
interests of National Tax-Free Income Fund and that the interests of existing
National Tax-Free Income Fund shareholders will not be diluted as a result of
the Reorganization. THEREFORE, THE BOARD OF MUTUAL FUND TRUST UNANIMOUSLY
APPROVED THE REORGANIZATION AND RECOMMENDED THE APPROVAL OF THE PLAN BY THE
SHAREHOLDERS OF NATIONAL TAX-FREE INCOME 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 which is attached as Appendix A to this Proxy
Statement/Prospectus.
20
<PAGE>
The Plan contemplates (1) PACE Municipal Fixed Income Fund's acquiring on
the Closing Date all the assets of National Tax-Free Income Fund in exchange
solely for PACE Municipal Fixed Income Fund shares and PACE Municipal Fixed
Income Fund's assumption of all of National Tax-Free Income Fund's stated
liabilities and (2) the distribution of those shares to National Tax-Free Income
Fund shareholders. National Tax-Free Income 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 and other property owned by it as of the close of
business on the Closing Date ("Effective Time") (collectively, the "Assets").
PACE Municipal Fixed Income Fund will assume from National Tax-Free Income Fund
all its 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 National Tax-Free
Income Fund's most recent annual and semi-annual financial statements, or
incurred by National Tax-Free Income Fund subsequent to the date of those
financial statements and disclosed in writing to and accepted by PACE Trust
(collectively, the "Liabilities"). National Tax-Free Income Fund agreed in the
Plan to use its best efforts to discharge all of its known Liabilities prior to
the Effective Time.
The value of the Assets to be acquired, and the amount of the Liabilities to
be assumed, by PACE Municipal Fixed Income Fund and the NAV per share of each
class of PACE Municipal Fixed Income Fund shares 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 Municipal Fixed
Income Fund's then-current Prospectus and SAI. These procedures are identical to
those used by National Tax-Free Income Fund and described in its current
Prospectus and SAI. National Tax-Free Income Fund's NAV will be the value of the
Assets to be acquired by PACE Municipal Fixed Income Fund, less the amount of
the Liabilities, as of the Valuation Time.
On, or as soon as practicable after, the Closing Date, National Tax-Free
Income Fund will distribute to its shareholders of record as of the Effective
Time the PACE Municipal Fixed Income Fund shares it receives, by class, so that
each National Tax-Free Income Fund shareholder will receive the number of full
and fractional shares of the corresponding class of PACE Municipal Fixed Income
Fund equal in aggregate NAV to the shareholder's shares in National Tax-Free
Income Fund. That distribution will be accomplished by opening accounts on the
books of PACE Municipal Fixed Income Fund in the names of National Tax-Free
Income Fund's shareholders and crediting those accounts with the appropriate
number of PACE Municipal Fixed Income Fund shares. Fractional shares of PACE
Municipal Fixed Income Fund will be rounded to the third decimal place.
The NAV per share of PACE Municipal Fixed Income Fund will not change as a
result of the Reorganization. Thus, the Reorganization will not result in a
dilution of any shareholder interest in either Fund. In addition, Mitchell
Hutchins (not the Funds) will bear the expenses of the Reorganization. National
Tax-Free Income 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 National Tax-Free Income Fund shareholders.
If the Reorganization is not approved by shareholders at the Meeting, National
Tax-Free Income Fund will continue to operate as a series of Mutual Fund Trust,
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 Municipal Fixed Income Fund is authorized to issue an unlimited number
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
21
<PAGE>
Reorganization. A share of each class of PACE Municipal Fixed Income 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 other distributions will 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 National Tax-Free Income
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)(D) of the Code. Mutual Fund Trust and PACE Trust
will each receive an opinion of Kirkpatrick & Lockhart LLP, counsel to Mutual
Fund Trust and tax counsel to PACE Trust, substantially to the following effect:
(1) PACE Municipal Fixed Income Fund's acquisition of the Assets in
exchange solely for its shares and its assumption of the Liabilities,
followed by National Tax-Free Income Fund's distribution of those shares pro
rata to its shareholders constructively in exchange for their National
Tax-Free Income Fund shares, will qualify as a reorganization within the
meaning of section 368(a)(1)(D) of the Code, and each Fund will be "a party
to a reorganization" within the meaning of section 368(b) of the Code;
(2) National Tax-Free Income Fund will recognize no gain or loss on its
transfer of the Assets to PACE Municipal Fixed Income Fund in exchange
solely for PACE Municipal Fixed Income Fund shares and PACE Municipal Fixed
Income Fund's assumption of the Liabilities or on the subsequent
distribution of those shares to National Tax-Free Income Fund's shareholders
in constructive exchange for their National Tax-Free Income Fund shares;
(3) PACE Municipal Fixed Income Fund will recognize no gain or loss on
its receipt of the Assets in exchange solely for its shares and its
assumption of the Liabilities;
(4) PACE Municipal Fixed Income Fund's basis in the Assets will be the
same as National Tax-Free Income Fund's basis therein immediately before the
Reorganization, and PACE Municipal Fixed Income Fund's holding period for
the Assets will include National Tax-Free Income Fund's holding period
therefor;
(5) A National Tax-Free Income Fund shareholder will recognize no gain
or loss on the constructive exchange of all its National Tax-Free Income
Fund shares solely for PACE Municipal Fixed Income Fund shares pursuant to
the Reorganization; and
(6) A National Tax-Free Income Fund shareholder's aggregate basis in
the PACE Municipal Fixed Income Fund shares it receives in the
Reorganization will be the same as the aggregate basis for its National
Tax-Free Income Fund shares it constructively surrenders in exchange for
those PACE Municipal Fixed Income Fund shares, and its holding period for
those PACE Municipal Fixed Income Fund shares will include its holding
period for those National Tax-Free Income Fund shares, provided the
shareholder holds them as capital assets on the Closing Date.
22
<PAGE>
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 Municipal Fixed Income Fund after the Reorganization of
any pre-Reorganization capital losses realized by National Tax-Free Income 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 National Tax-Free Income 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 Municipal Fixed Income Fund commenced operations on August 24, 1995 as
a diversified series of PACE Trust. PACE Trust was formed 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.
National Tax-Free Income Fund is a diversified series of Mutual Fund Trust
and commenced operations on December 3, 1984. Prior to June 30, 1992, National
Tax-Free Income Fund was a series of a different Massachusetts business trust.
Mutual Fund Trust was formed as a Massachusetts business trust on November 21,
1986, and is registered under the 1940 Act as an open-end management investment
company. The operations of Mutual Fund Trust, as a Massachusetts business trust,
are governed by its Declaration of Trust, By-Laws and Massachusetts law.
23
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial highlights table is intended to help you understand
PACE Municipal Fixed Income 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 Municipal Fixed Income 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.
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
PACE
MUNICIPAL FIXED INCOME 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.... $ 12.44 $ 12.70 $ 12.67 $ 12.32 $ 12.00
------- ------- ------- ------- -------
Net investment income.... 0.57 0.56 0.58 0.61 0.49
Net realized and
unrealized gains
(losses) from
investments............ (0.29) (0.26) 0.02 0.38 0.27
------- ------- ------- ------- -------
Net increase from
investment operations.. 0.28 0.30 0.60 0.99 0.76
------- ------- ------- ------- -------
Dividends from net
investment income...... (0.57) (0.56) (0.57) (0.61) (0.43)
Distributions from net
realized gains from
investments............ -- -- -- (0.03) (0.01)
------- ------- ------- ------- -------
Total dividends and
distributions.......... (0.57) (0.56) (0.57) (0.64) (0.44)
------- ------- ------- ------- -------
Net asset value, end of
period................. $ 12.15 $ 12.44 $ 12.70 $ 12.67 $ 12.32
======= ======= ======= ======= =======
Total investment return
(1).................... 2.37% 2.34% 4.87% 8.30% 6.38%
======= ======= ======= ======= =======
Ratios/Supplemental Data:
Net assets, end of
period (000's)......... $53,594 $56,659 $51,638 $34,292 $17,765
Expenses to average net
assets, net of fee
waivers and expense
reimbursements......... 0.85% 0.85% 0.85% 0.85% 0.85%*
Expenses to average net
assets, before fee
waivers and expense
reimbursements......... 0.89% 0.89% 0.93% 1.40% 1.74%*
Net investment income to
average net assets, net
of fee waivers and
expense
reimbursements......... 4.68% 4.42% 4.67% 5.08% 4.95%*
Net investment income to
average net assets,
before fee waivers and
expense
reimbursements......... 4.64% 4.38% 4.59% 4.53% 4.07%*
Portfolio turnover....... 33% 11% 34% 15% 78%
</TABLE>
-------------------
+ For the period August 24, 1995 (commencement of operations) through
July 31, 1996.
* Annualized.
# Sub-investment advisory functions for this portfolio were transferred from
Deutsche Asset Management, Inc. to Standish, Ayer & Wood, Inc. on June 1,
2000.
(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.
24
<PAGE>
CAPITALIZATION
The following table shows the capitalization of each of National Tax-Free
Income Fund and PACE Municipal Fixed Income Fund as of July 31, 2000, and the
PRO FORMA capitalization as of the same date, giving effect to the
Reorganization:
<TABLE>
<CAPTION>
NATIONAL TAX- PRO FORMA CLASS A
FREE PACE MUNICIPAL FIXED COMBINED
INCOME FUND: INCOME FUND: PACE MUNICIPAL FIXED
CLASS A CLASS A INCOME FUND
------------- -------------------- --------------------
<S> <C> <C> <C>
Net Assets......................... $193,341,163 $ 0 $193,341,163
Shares Outstanding................. 17,689,612 0 15,909,397
Net Asset Value Per Share.......... $ 10.93 $ 0 $ 12.15
</TABLE>
<TABLE>
<CAPTION>
NATIONAL TAX- PRO FORMA CLASS B
FREE PACE MUNICIPAL FIXED COMBINED
INCOME FUND: INCOME FUND: PACE MUNICIPAL FIXED
CLASS B CLASS B INCOME FUND
------------- -------------------- --------------------
<S> <C> <C> <C>
Net Assets......................... $ 16,210,472 $ 0 $ 16,210,472
Shares Outstanding................. 1,483,570 0 1,333,905
Net Asset Value Per Share.......... $ 10.93 $ 0 $ 12.15
</TABLE>
<TABLE>
<CAPTION>
NATIONAL TAX- PRO FORMA CLASS C
FREE PACE MUNICIPAL FIXED COMBINED
INCOME FUND: INCOME FUND: PACE MUNICIPAL FIXED
CLASS C CLASS C INCOME FUND
------------- -------------------- --------------------
<S> <C> <C> <C>
Net Assets......................... $ 37,298,149 $ 0 $ 37,298,149
Shares Outstanding................. 3,412,768 0 3,069,140
Net Asset Value Per Share.......... $ 10.93 $ 0 $ 12.15
</TABLE>
<TABLE>
<CAPTION>
NATIONAL TAX- PRO FORMA CLASS Y
FREE PACE MUNICIPAL FIXED COMBINED
INCOME FUND: INCOME FUND: PACE MUNICIPAL FIXED
CLASS Y CLASS Y INCOME FUND
------------- -------------------- --------------------
<S> <C> <C> <C>
Net Assets......................... $ 650,354 $ 0 $ 650,354
Shares Outstanding................. 59,495 0 53,515
Net Asset Value Per Share.......... $ 10.93 $ 0 $ 12.15
</TABLE>
<TABLE>
<CAPTION>
NATIONAL TAX- PRO FORMA CLASS P
FREE PACE MUNICIPAL FIXED COMBINED
INCOME FUND: INCOME FUND: PACE MUNICIPAL FIXED
CLASS P CLASS P INCOME FUND
------------- -------------------- --------------------
<S> <C> <C> <C>
Net Assets......................... $ 0 $53,594,281 $ 53,594,281
Shares Outstanding................. 0 4,410,094 4,410,094
Net Asset Value Per Share.......... $ 0 $ 12.15 $ 12.15
</TABLE>
LEGAL MATTERS
Certain legal matters concerning the issuance of PACE Municipal Fixed Income
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
25
<PAGE>
the Reorganization will be passed upon by Kirkpatrick & Lockhart LLP, 1800
Massachusetts Avenue, NW, Second Floor, Washington, DC 20036-1800.
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PACE Trust and Mutual Fund Trust 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 Mutual Fund Trust, 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 National Tax-Free Income Fund
incorporated by reference in the SAI have been audited by Ernst & Young LLP,
independent auditors, whose report thereon is included in National Tax-Free
Income Fund's Annual Report to Shareholders for the fiscal year ended February
29, 2000. The audited financial statements of PACE Municipal Fixed Income 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 Municipal Fixed Income 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, Mutual Fund Trust 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 National Tax-Free
Income Fund's shareholders should send such proposals to National Tax-Free
Income 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 or presented at the meeting. Moreover, inclusion or
presentation 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 presented on an
untimely basis.
OTHER BUSINESS. Mutual Fund Trust'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 National
Tax-Free Income Fund's shareholders arise, the proxies will vote thereon
according to their best judgment in the interests of the Fund.
26
<PAGE>
APPENDIX A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION ("Agreement") is
made as of , 2001, by and among PaineWebber PACE Select Advisors
Trust, a Delaware business trust ("PACE Trust"), on behalf of PACE Municipal
Fixed Income Investments, a segregated portfolio of assets ("series") thereof
("Acquiring Fund"), PaineWebber Mutual Fund Trust, a Massachusetts business
trust ("Target Trust"), on behalf of PaineWebber National Tax-Free Income 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").
A-1
<PAGE>
Such transactions shall take place at the Closing (as defined in
paragraph 3.1).
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
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and statement of additional information ("SAI"), less (b) the amount of the
Liabilities as of the Valuation Time.
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 23, 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
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Restated Declaration of Trust ("Declaration of Trust") is on file with the
Secretary of the Commonwealth of Massachusetts;
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;
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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 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 August 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
August 31, 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 periods 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,
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(c) expects that the percentage of Shareholder interests, if any, that will
be dis-posed 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.
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;
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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, 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;
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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
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 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).
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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 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
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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 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;
A-10
<PAGE>
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.
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;
A-11
<PAGE>
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.
6.6. Each Investment Company shall have received an opinion of K&L,
addressed to and in form and substance reasonably 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
A-12
<PAGE>
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.
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
A-13
<PAGE>
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.
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.
<TABLE>
<S> <C> <C>
PAINEWEBBER MUTUAL FUND TRUST,
acting on behalf of its series,
PaineWebber National Tax-Free Income Fund
By:
......................................
PAINEWEBBER PACE SELECT ADVISORS TRUST,
acting on behalf of its series, PACE
Municipal Fixed Income Investments
By:
......................................
Solely with respect to paragraph 7.2
hereof:
MITCHELL HUTCHINS ASSET MANAGEMENT INC.
By:
......................................
</TABLE>
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 National Tax-Free Income Fund or
PACE Municipal Fixed Income 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.
NATIONAL TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
PERCENT BENEFICIAL
PERCENT BENEFICIAL OWNERSHIP OF COMBINED
OWNERSHIP OF NATIONAL PACE MUNICIPAL FIXED
SHAREHOLDER'S NAME/ADDRESS TAX-FREE INCOME FUND INCOME FUND
-------------------------- --------------------- ---------------------
<S> <C> <C>
[ ] % %
c/o Mitchell Hutchins Asset Management
Inc.
51 West 52nd Street
New York, New York 10019-6114
</TABLE>
PACE MUNICIPAL FIXED INCOME FUND
<TABLE>
<CAPTION>
PERCENT BENEFICIAL PERCENT BENEFICIAL
OWNERSHIP OF PACE OWNERSHIP OF COMBINED
MUNICIPAL FIXED PACE MUNICIPAL FIXED
SHAREHOLDER'S NAME/ADDRESS INCOME FUND INCOME 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 MUNICIPAL FIXED INCOME FUND'S PERFORMANCE
THE DISCUSSION BELOW WAS TAKEN FROM PACE MUNICIPAL FIXED INCOME FUND'S
ANNUAL REPORT FOR ITS FISCAL YEAR ENDED JULY 31, 2000. THIS DISCUSSION HAS NOT
BEEN REVISED TO REFLECT SUBSEQUENT CHANGES, WHICH ARE DISCUSSED ABOVE IN THE
PROXY STATEMENT/PROSPECTUS.
PACE MUNICIPAL FIXED INCOME INVESTMENTS
ADVISER: Standish, Ayer & Wood, Inc.
PORTFOLIO MANAGER: Christine H. Psyhogeos
OBJECTIVE: High current income exempt from Federal income tax
INVESTMENT PROCESS: The Portfolio invests in revenue, private activity and
general obligation bonds and notes, the interest on which (in the opinion of
counsel to the issuers) is exempt from Federal income tax. The Portfolio
normally maintains a dollar-weighted average duration of between three and seven
years. (Duration is a measure of sensitivity to changes in interest rates.) At
least 80% of the total assets of the Portfolio is invested in municipal
obligations under normal conditions. No more than 25% is invested in municipal
securities whose issuers are located in the same state or are secured by
revenues from entities in a single industry (except for housing authorities in
which up to 50% of total assets may be invested). Investments are limited to
securities rated at least A or the equivalent at the time of purchase, except up
to 15% of assets may be invested in municipal securities rated BBB or the
equivalent at the time of purchase. Up to 10% of net assets may be invested in
illiquid securities.
AVERAGE ANNUAL TOTAL RETURNS, PERIODS ENDED 7/31/00
<TABLE>
<CAPTION>
6 MONTHS 1 YEAR 3 YEARS SINCE INCEPTION 8/24/95
-------- ------ ------- -----------------------
<S> <C> <C> <C> <C>
With PACE program fee*........ 4.07% 0.85% 1.65% 3.33%
Without PACE program fee...... 4.85% 2.37% 3.19% 4.89%
Lehman Brothers Municipal
Five-Year Index............. 3.92% 4.22% 4.17% 4.75%
Lipper Intermediate Municipal
Debt Funds Median........... 4.56% 3.52% 3.49% 4.79%
</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
LEHMAN BROTHERS MUNICIPAL FIVE-YEAR INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PORTFOLIO WITHOUT FEE PORTFOLIO WITH FEE* LEHMAN BROTHERS MUNICIPAL FIVE-YEAR INDEX
<S> <C> <C> <C>
Aug-95 $10,042 $10,038 $10,000
Sep-95 $10,092 $10,076 $10,025
Oct-95 $10,199 $10,170 $10,086
Nov-95 $10,355 $10,313 $10,178
Dec-95 $10,505 $10,449 $10,231
Jan-96 $10,513 $10,444 $10,333
Feb-96 $10,519 $10,437 $10,304
Mar-96 $10,386 $10,292 $10,232
Apr-96 $10,381 $10,274 $10,231
May-96 $10,453 $10,332 $10,227
Jun-96 $10,552 $10,417 $10,288
Jul-96 $10,638 $10,489 $10,363
Aug-96 $10,690 $10,527 $10,373
Sep-96 $10,811 $10,633 $10,458
Oct-96 $10,899 $10,706 $10,549
Nov-96 $11,050 $10,841 $10,686
Dec-96 $11,015 $10,793 $10,666
Jan-97 $11,068 $10,831 $10,702
Feb-97 $11,181 $10,929 $10,780
Mar-97 $11,047 $10,784 $10,663
Apr-97 $11,092 $10,815 $10,708
May-97 $11,184 $10,891 $10,840
Jun-97 $11,277 $10,967 $10,922
Jul-97 $11,522 $11,191 $11,115
Aug-97 $11,425 $11,083 $11,058
Sep-97 $11,540 $11,181 $11,156
Oct-97 $11,649 $11,272 $11,214
Nov-97 $11,684 $11,293 $11,249
Dec-97 $11,787 $11,377 $11,346
Jan-98 $11,861 $11,435 $11,449
Feb-98 $11,887 $11,445 $11,468
Mar-98 $11,924 $11,467 $11,478
Apr-98 $11,884 $11,414 $11,430
May-98 $12,015 $11,525 $11,567
Jun-98 $12,050 $11,544 $11,606
Jul-98 $12,083 $11,562 $11,647
Aug-98 $12,240 $11,697 $11,790
Sep-98 $12,353 $11,791 $11,911
Oct-98 $12,361 $11,783 $11,946
Nov-98 $12,386 $11,793 $11,967
Dec-98 $12,422 $11,812 $12,009
Jan-99 $12,529 $11,899 $12,135
Feb-99 $12,483 $11,841 $12,123
Mar-99 $12,480 $11,823 $12,133
Apr-99 $12,525 $11,850 $12,170
May-99 $12,472 $11,786 $12,120
Jun-99 $12,330 $11,637 $11,983
Jul-99 $12,366 $11,656 $12,057
Aug-99 $12,283 $11,564 $12,052
Sep-99 $12,249 $11,517 $12,096
Oct-99 $12,145 $11,405 $12,065
Nov-99 $12,222 $11,463 $12,137
Dec-99 $12,155 $11,386 $12,096
Jan-00 $12,074 $11,296 $12,092
Feb-00 $12,215 $11,413 $12,132
Mar-00 $12,398 $11,570 $12,242
Apr-00 $12,346 $11,507 $12,214
May-00 $12,275 $11,426 $12,210
Jun-00 $12,510 $11,631 $12,434
Jul-00 $12,660 $11,755 $12,564
</TABLE>
The graph depicts the performance of PACE Municipal Fixed Income
Investments versus the Lehman Brothers Municipal Five-Year Index. It is
important to note that PACE Municipal Fixed Income 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
As of June 1, 2000, Standish, Ayer & Wood, Inc. assumed responsibility for
managing the Portfolio.
The Portfolio underperformed the benchmark and the median for the fiscal
year as a whole, but improved performance considerably in the second six months.
Through the end of 1999 and the beginning of 2000, the bond market experienced
one of its worst years in history. Rising interest rates and fears of inflation
led to a sell-off in the bond market. Performance lagged as the Portfolio had
extended duration during the first half of the year. (Duration is a measure of
sensitivity to interest rate changes.) Performance was enhanced by shortened
duration during the second half and by an emphasis on credit quality.
During the fiscal year, tax-exempt interest rates declined across the yield
curve, from 70 basis points on short maturities to 25 basis points on long
maturities. (A basis point equals 1/100th of one percent.) This was a positive
for the Portfolio, as its lower coupon bonds performed well in this environment.
The Portfolio's underweight to general obligation and insured bonds was a
moderate negative, as these performed slightly better than other sectors. Bonds
from high tax states (CA, NY, MA and double exempt Puerto Rico) performed well
on the strength of demand from wealthy individual investors. In the revenue
sector, hospital bond prices firmed while the Portfolio's heavy exposure to
housing bonds hurt performance.
The Portfolio ended the period with a more neutral duration posture against
the benchmark. Long-term bonds -- including some of the volatile discount
coupons -- were sold in favor of high quality, higher coupon bonds of shorter
duration. We added shorter-term non-callable issues as well as shorter duration
bonds with embedded calls. We sold selected bonds of lesser quality, thereby
strengthening credit quality. Increased exposure to government bonds also
enhanced performance.
The municipal market suffered from poor liquidity during the year, as
institutions pulled back from participation. Mutual funds were net sellers of
munis, while insurance companies, facing lower
C-2
<PAGE>
profitability, cut back on buying. Increased demand from retail investors partly
offset weak institutional demand, as did reduced supply of new issues.
The market has begun to stabilize in expectations that the Federal Reserve
Board will continue decisive strikes against inflation. Recent economic
indicators have been favorable to bonds, which began to rally as this reporting
period drew to a close. Municipal bonds have performed particularly well. Given
the high volatility and still lofty valuations in much of the equity markets,
some investors are returning to the relative stability of bonds -- particularly
given the attractive taxable equivalent yields available from municipals.
Currently, five-year AAA municipals offer 75.2% of Treasury issues, slightly
cheaper than historical norms.
Adding value above the benchmark in this market environment continues to be
a challenge. The municipal yield curve is fairly flat. Quality state and sector
spreads are tight and liquidity makes transactions difficult. The prospects for
economic growth further complicate the interest rate outlook.
In this period of market volatility, we intend to target Portfolio duration
close to that of the benchmark and avoid making bets on the direction of
interest rates. We will continue to emphasize high quality intermediate-term tax
exempt bonds. We also plan to be well diversified across sector, region and call
structure within the municipal bond market, consistent with our aim to deliver
incremental yield in a tax-advantaged, low volatility bond portfolio.
C-3
<PAGE>
PACE MUNICIPAL FIXED INCOME INVESTMENTS -- PORTFOLIO STATISTICS
<TABLE>
<CAPTION>
CHARACTERISTICS* PORTFOLIO INDEX
---------------- --------- -----
<S> <C> <C>
Duration................................ 4.49 yrs 4.12 yrs
Maturity................................ 5.71 yrs 4.96 yrs
Average Coupon.......................... 6.09% 5.49%
Net Assets ($MM)........................ $53.6 --
Bonds................................... 100% 100%
Cash & Equivalents...................... 0% 0%
<CAPTION>
TOP 5 SECTORS* PORTFOLIO INDEX
-------------- --------- -----
<S> <C> <C>
Insured................................. 28.1% 30.2%
Housing................................. 26.1 2.0
ETM Pre-Refunded........................ 22.3 25.7
General Obligation...................... 8.5 28.9
LOC/GIC................................. 3.1 0.0
-------------------------------------------------------------
Total................................... 88.1% 86.8%
<CAPTION>
TOP 5 STATES* PORTFOLIO INDEX
------------- --------- -----
<S> <C> <C>
Texas................................... 18.0% 5.7%
California.............................. 10.4 12.4
Pennsylvania............................ 6.8 3.5
Washington D.C.......................... 6.3 1.2
Illinois................................ 5.0 4.5
-------------------------------------------------------------
Total................................... 46.5% 27.3%
<CAPTION>
QUALITY DIVERSIFICATION* PORTFOLIO INDEX
------------------------ --------- -----
<S> <C> <C>
Government.............................. 22.6% 17.7%
AAA..................................... 46.3 37.5
AA...................................... 17.9 29.0
A....................................... 12.8 11.3
BBB..................................... 0.4 4.5
-------------------------------------------------------------
Total................................... 100.0% 100.0%
</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-4
<PAGE>
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY
Please detach at perforation before mailing.
PROXY PAINEWEBBER NATIONAL TAX-FREE INCOME FUND PROXY
(A SERIES OF PAINEWEBBER MUTUAL FUND TRUST)
SPECIAL MEETING OF SHAREHOLDERS - FEBRUARY 1, 2001
This proxy is being solicited for the Board of Trustees of PaineWebber Mutual
Fund Trust ("Trust") on behalf of PaineWebber National Tax-Free Income Fund, a
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
National Tax-Free Income Fund, a 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 National Tax-Free Income 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 10740/PWU
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: /X/
FOR AGAINST ABSTAIN
1. Approval of the Agreement and Plan of / / / / / /
Reorganization and Termination that provides
for the reorganization of PaineWebber National
Tax-Free Income Fund, a series of PaineWebber
Mutual Fund Trust, into PACE Municipal Fixed
Income Investments, a series of PaineWebber
PACE Select Advisors Trust.
Please date and sign the reverse side of this card.
10740/PWU
<PAGE>
[ARTWORK]
Your Proxy Vote is IMPORTANT!
And now you can Vote your Proxy on the PHONE or on the INTERNET.
It saves Money! Telephone and Internet voting saves postage costs. Savings
which can help to minimize fund expenses.
It saves Time! Telephone and internet voting is instantaneous - 24 hours a
day.
It's Easy! Just follow these simple steps:
1. Read your proxy statement and have it at hand.
2. Call toll-free 1-800-597-7836 for automated instructions, or go to
website: https://vote.proxy-direct.com
3. Enter your 14 digit Control Number from your Proxy Card.
4. Follow the recorded or on-screen directions.
5. Do NOT mail your Proxy Card when you vote by phone or internet.
6. If you have any questions regarding the meeting agenda or the
execution of your proxy, please call Toll Free 1-877-388-2844.
<PAGE>
PAINEWEBBER PACE SELECT ADVISORS TRUST
(ON BEHALF OF PACE MUNICIPAL FIXED INCOME INVESTMENTS)
PAINEWEBBER MUTUAL FUND TRUST
(ON BEHALF OF PAINEWEBBER NATIONAL TAX-FREE INCOME FUND)
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019-6114
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates specifically to the
proposed Reorganization whereby PACE Municipal Fixed Income Investments ("PACE
Municipal Fixed Income Fund"), a series of PaineWebber PACE Select Advisors
Trust ("PACE Trust"), would acquire all of the assets of PaineWebber National
Tax-Free Income Fund ("National Tax-Free Income Fund"), a series of PaineWebber
Mutual Fund Trust, in exchange solely for shares of PACE Municipal Fixed Income
Fund and the assumption by PACE Municipal Fixed Income Fund of all of National
Tax-Free Income Fund's stated liabilities. This Statement of Additional
Information consists of this cover page, the PRO FORMA financial statements of
PACE Municipal Fixed Income Fund (giving effect to the Reorganization) for the
year ended July 31, 2000, 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 Municipal Fixed Income Fund, dated
November __, 2000 (Incorporated by reference from N-1A, SEC File Numbers
033-87254 and 811-08764, filed November 9, 2000, accession number
0000912057-00-048241);
(2) The combined Annual Report to Shareholders of PACE Trust, which
includes information relating to PACE Municipal Fixed Income 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 National Tax-Free Income
Fund, dated August 31, 2000 (Incorporated by reference from N-30D, SEC File
Number 811-04312, filed November 27, 2000, accession number
0000912057-00-051329);
(4) The Annual Report to Shareholders of National Tax-Free Income Fund
for the fiscal year ended February 29, 2000 (Incorporated by reference from
N-30D, SEC File Number 811-04312 filed November 30, 2000, accession number
0000912057-00-051705).
This Statement of Additional Information is not a prospectus and should
be read only in conjunction with the Prospectus/Proxy Statement dated December
__, 2000 relating to the
<PAGE>
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 December __, 2000.
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
The following tables set forth the unaudited pro forma condensed
Statement of Assets and Liabilities as of July 31, 2000, the unaudited pro forma
condensed Statement of Operations for the twelve month period ended July 31,
2000 and the unaudited pro forma Portfolio of Investments as of July 31, 2000
for National Tax-Free Income Fund and PACE Municipal Fixed Income Fund as
adjusted giving effect to the Reorganization.
The pro forma Portfolio of Investments contains information about the
securities holdings of the Funds as of July 31, 2000, which has, and will
continue to, change over time due to normal portfolio turnover in response to
changes in market conditions. It is expected, however, that some of National
Tax-Free Income Fund's holdings may not remain at the time of the Reorganization
due to normal portfolio turnover. It is also expected that if National Tax-Free
Income Fund's shareholders approve the Reorganization, the Fund's holdings that
are not compatible with PACE Municipal Fixed Income Fund's holdings will be
liquidated in an orderly manner in connection with the Reorganization, and the
proceeds of these sales held in temporary investments or reinvested in assets
that are consistent with the holdings of PACE Municipal Fixed Income Fund. As
of November 30, 2000, these assets represented less than 5% of National
Tax-Free Income Fund's portfolio. The portion of National Tax-Free Income Fund's
assets that will be liquidated in connection with the Reorganization will depend
on market conditions and on the sub-adviser's continuing assessment of the
compatibility of National Tax-Free Income Fund's holdings with PACE Municipal
Fixed Income Fund's portfolio composition and its investment objective and
policies at the approximate time of the Reorganization. The need for National
Tax-Free Income Fund to dispose of investments in connection with the
Reorganization may result in the Fund's selling securities at a disadvantageous
time and could result in the Fund's realizing gain (or losses) that would not
otherwise have been realized.
<PAGE>
PACE MUNICIPAL FIXED INCOME INVESTMENTS
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
PROFORMA STATEMENT OF ASSETS AND LIABILITIES
FOR THE YEAR ENDED JULY 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PACE MUNICIPAL PW NATIONAL PRO FORMA COMBINED
FIXED INCOME TAX-FREE PACE MUNICIPAL FIXED
INVESTMENTS INCOME FUND INCOME INVESTMENTS
-------------------- ------------------ --------------------
<S> <C> <C> <C>
ASSETS
Investments in securities, at value (cost -
$54,326,518, $248,495,183 and $302,821,701,
respectively) $ 53,958,591 $ 245,136,708 $ 299,095,299
Cash - 3,714 3,714
Receivable for investments sold 575,314 - 575,314
Receivable for shares of beneficial interests sold 24,569 37,202 61,771
Dividends and interest receivable 824,948 2,960,792 3,785,740
Deferred organizational expenses 1,025 - 1,025
Other assets 15,690 113,031 128,721
-------------------- ------------------ -------------------
Total assets 55,400,137 248,251,447 303,651,584
-------------------- ------------------ -------------------
LIABILITIES
Payable for investments purchased 1,629,457 - 1,629,457
Payable for shares of beneficial interest repurchased 103,206 329,177 432,383
Payable to affiliates 26,102 105,149 131,251
Variation margin payable - 1,094 1,094
Accrued expenses and other liabilities 47,091 315,889 362,980
-------------------- ------------------ -------------------
Total liabilities 1,805,856 751,309 2,557,165
-------------------- ------------------ -------------------
NET ASSETS
Common Stock/Beneficial interest shares of $0.001
par value outstanding - 4,410,094, 22,645,445 and
24,776,051, respectively 55,163,504 251,921,021 307,084,525
Accumulated undistributed (distributions in excess
of) net investment income (loss) 200,660 (2) 200,658
Accumulated net realized losses from investment
transactions (1,401,956) (1,062,406) (2,464,362)
Net unrealized depreciation of investments (367,927) (3,358,475) (3,726,402)
-------------------- ------------------ -------------------
Net assets applicable to shares outstanding $ 53,594,281 $ 247,500,138 $ 301,094,419
==================== ================== ===================
CLASS P:
Net assets $ 53,594,281 $ - $ 53,594,281
-------------------- ------------------ -------------------
Shares outstanding 4,410,094 - 4,410,094
-------------------- ------------------ -------------------
Net asset value and offering price per share $ 12.15 $ - $ 12.15
==================== ================== ===================
CLASS A:
Net assets $ - $ 193,341,163 $ 193,341,163
-------------------- ------------------ -------------------
Shares outstanding - 17,689,612 15,909,397
-------------------- ------------------ -------------------
Net asset and redemption value per share $ - $ 10.93 $ 12.15
==================== ================== ===================
Maximum offering price per share (net asset
value plus sales charge of 4% of offering price) $ - $ 11.39 $ 12.66
==================== ================== ===================
CLASS B:
Net assets $ - $ 16,210,472 $ 16,210,472
-------------------- ------------------ -------------------
Shares outstanding - 1,483,570 1,333,905
-------------------- ------------------ -------------------
Net asset value and offering price per share $ - $ 10.93 $ 12.15
==================== ================== ===================
CLASS C:
Net assets $ - $ 37,298,149 $ 37,298,149
-------------------- ------------------ -------------------
Shares outstanding - 3,412,768 3,069,140
-------------------- ------------------ -------------------
Net asset value and offering price per share $ - $ 10.93 $ 12.15
==================== ================== ===================
CLASS Y:
Net assets $ - $ 650,354 $ 650,354
-------------------- ------------------ -------------------
Shares outstanding - 59,495 53,515
-------------------- ------------------ -------------------
Net asset value and offering price per share $ - $ 10.93 $ 12.15
==================== ================== ===================
</TABLE>
See accompanying notes to proforma financial statements
<PAGE>
PACE MUNICIPAL FIXED INCOME INVESTMENTS
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
PROFORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PACE
MUNICIPAL PW NATIONAL PRO FORMA COMBINED
FIXED INCOME TAX-FREE PACE MUNICIPAL FIXED
INVESTMENTS INCOME FUND ADJUSTMENTS INCOME INVESTMENTS
----------- ------------ ----------- --------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of foreign
withholding taxes, if any) $ 3,036,217 $ 15,535,749 $ - $ 18,571,966
----------- ------------ ---------- ------------
3,036,217 15,535,749 - 18,571,966
----------- ------------ ---------- ------------
EXPENSES:
Investment advisory and
administration 329,466 1,290,535 258,106 (a) 1,878,107
Shareholder distribution
and servicing fees - 976,331 - 976,331
Transfer agency fees and expenses 25,659 94,018 - 119,677
Reports and notices to shareholders 20,820 44,179 (35,343) (b) 29,656
Legal and audit 26,148 46,669 (46,669) (b) 26,148
Trustees' fees 26,250 13,500 (13,500) (b) 26,250
Federal and state registration fees 6,105 22,499 (17,999) (b) 10,605
Amortization of organizational expenses 19,032 - - 19,032
Custody and accounting 35,947 105,293 - 141,240
Other expenses 1,034 49,378 - 50,412
----------- ------------ ---------- ------------
490,461 2,642,402 144,595 3,277,458
Less: fee waivers from adviser (23,718) - (313,018) (c) (336,736)
----------- ------------ ---------- ------------
Net expenses 466,743 2,642,402 (168,423) 2,940,722
----------- ------------ ---------- ------------
Net investment income 2,569,474 12,893,347 168,423 15,631,244
----------- ------------ ---------- ------------
REALIZED AND UNREALIZED LOSSES FROM
INVESTMENT ACTIVITIES:
Net realized losses from investment
transactions (1,121,348) (322,692) - (1,444,040)
Net change in unrealized depreciation
of investments (233,014) (31,981,436) - (32,214,450)
----------- ------------ ---------- ------------
Net realized and unrealized losses from
investment activities (1,354,362) (32,304,128) - (33,658,490)
----------- ------------ ---------- ------------
Net increase (decrease) in net assets
resulting from operations $ 1,215,112 $ (19,410,781) $ 168,423 $ (18,027,246)
=========== ============= ========== =============
</TABLE>
--------------------------
(a) Reflects increase in fees resulting from the higher fee schedule, before
waivers, of PACE Municipal Fixed Income Investments.
(b) Reflects the anticipated savings of the merger.
(c) Reflects decrease in fees resulting from the lower fee schedule, net of
waivers, of PACE Municipal Fixed Income Investments.
See accompanying notes to proforma financial statements
<PAGE>
PACE MUNICIPAL FIXED INCOME INVESTMENTS
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
"PROFORMA PORTFOLIO OF INVESTMENTS
FOR THE YEAR ENDED JULY 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
COMBINED PACE MUNICIPAL PAINEWEBBER PACE MUNICIPAL
PRINCIPAL MATURITY INTEREST FIXED INCOME NATIONAL TAX-FREE FIXED INCOME
AMOUNT (000) DATES RATES INVESTMENTS INCOME FUND INVESTMENTS
-------------------- --------- -------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS AND NOTES - 99.31%
ALABAMA - 1.66%
$ 125 Birmingham Medical Clinic Board
Revenue Baptist Medical Centers
(Escrow to Maturity) 07/01/05 7.300% $ 112,189 $ - $ 112,189
4,090 Birmingham Alabama Series B 06/01/24 5.250 - 3,851,348 3,851,348
1,000 Courtland Industrial Development
Board Industrial Development Reven
Champion International 12/01/13 7.200 - 1,043,430 1,043,430
----------- ------------ ----------
112,189 4,894,778 5,006,967
----------- ------------ ----------
ALASKA - 1.13%
2,055 Alaska Student Loan Corp. Revenue
Series A (AMBAC Insured)* 7/1/06 to 7/1/09 5.350 to 5.550 2,102,005 - 2,102,005
1,460 Alaska Industrial Development &
Export Authority Power Revenue
Upper Lynn Canal Regional Power 01/01/12 5.700 - 1,294,086 1,294,086
----------- ------------ ----------
2,102,005 1,294,086 3,396,091
----------- ------------ ----------
ARIZONA - 2.60%
490 Peoria Water & Sewer Revenue
(FGIC Insured)* 07/01/04 7.500 541,112 - 1,835,198
65 Pima County Hospital Revenue
St. Joseph Hospital Project
(Escrow to Maturity) 01/01/09 7.500 71,315 - 71,315
570 Show Low Industrial Developmental
Authority Revenue Navapache
Regional Medical Center Series A
(ACA Insured) 12/01/06 5.125 573,785 - 573,785
3,700 Phoenix General Obligation 07/01/16 6.250 - 4,091,423 4,091,423
2,500 Tucson Arizona Airport Authority
Lockheed Aermod Center Incorporated 09/01/19 8.700 - 2,560,800 2,560,800
----------- ------------ ----------
1,186,212 6,652,223 7,838,435
----------- ------------ ----------
ARKANSAS - 0.70%
60 Arkansas State Development Finance
Authority (MBIA Insured) 10/01/16 5.100 60,131 - 60,131
35 Pulaski County Residential Housing
Single Family (Escrow to Maturity) 06/01/10 7.250 38,757 - 38,757
92 Springdale Residential Housing
Mortgage Series A (FNMA
Collateralized) 09/01/11 7.650 98,975 - 98,975
2,000 Little Rock Arkansas Capital
Improvement Revenue Parks &
Recreation Projects Series A 01/01/18 5.700 - 1,902,860 1,902,860
----------- ------------ ----------
197,863 1,902,860 2,100,723
----------- ------------ ----------
CALIFORNIA - 9.12%
880 Abaq Finance Authority for
Nonprofit Refunding Sundale Arms
Apartments Project A (FNMA
Collateralized)* 03/01/19 5.100 783,816 - 783,816
170 California Pollution Control
Financing Kaiser Steel
Corporation Project (Escrow
to Maturity) 10/01/08 7.250 184,477 - 184,477
920 California Statewide Community
Development Housing Riverside
Gardens Project Series J (Letter
of Credit)* 10/01/12 5.100 906,660 - 906,660
30 California Statewide Community
Housing Senior Lien (FHA Insured) 09/01/00 5.000 30,008 - 30,008
150 Inglewood Residential Rehabilitation
(Escrow to Maturity) 08/01/10 7.500 168,431 - 168,431
355 Lancaster Redevelopment Agency Multi-
Family Project Housing Refunding
FHA High Valley Apartments Series
A (FHA Insured) 12/01/05 5.250 352,046 - 352,046
470 Los Angeles Community Redevelopment
Agency Refunding Monterey Hills
Redevelopment Project B 12/01/22 8.650 508,084 - 508,084
280 Los Angeles Multi-Family Revenue
Housing Earthquake Rehabilitation
Project Series C (FNMA
Collateralized)* 07/01/07 5.150 280,311 - 280,311
110 Palmdale Residential Mortgage (Escrow
to Maturity) 11/01/12 9.250 136,755 - 136,755
20 Sacramento Utility District Electric
Revenue (Escrow to Maturity) 02/01/11 5.500 20,735 - 20,735
1,055 Sacramento Utility District Electric
Revenue White Rock Project
(Escrow to Maturity) 03/01/10 to 05/01/10 6.750 to 6.800 1,157,246 - 1,157,246
1,000 Vista Multi-Family Housing Pepperwood
Apartments (Mandatory Put
06/01/05 @ 100) (FNMA Collateralized) 06/01/25 5.700 1,016,350 - 1,016,350
160 California State (FGIC Insured) 11/01/12 7.000 - 176,835 176,835
11,500 East Bay California Municipal
Utility District Water Systems
Revenue 06/01/28 4.750 - 10,084,925 10,084,925
2,665 Escondido California Union High
School District Capital
Appreciation R (MBIA Insured) 11/01/13 0.010 - 1,341,188 1,341,188
2,370 Escondido California Union High
School District Capital
Appreciation R (MBIA Insured) 11/01/12 0.010 - 1,272,761 1,272,761
1,920 Long Beach Aquarium of the Pacific
California Revenue 07/01/23 6.125 - 1,815,053 1,815,053
1,000 San Diego County California
Certificates Participation Burnham
Institute 09/01/29 6.250 - 1,003,100 1,003,100
1,500 California Statewide Community
Development Authority Certificates
Participation (1) 11/01/16 7.125 - 1,513,620 1,513,620
4,500 Sacramento Power Authority
Cogeneration Project Revenue 07/01/15 5.875 - 4,718,655 4,718,655
----------- ------------ ----------
5,544,919 21,926,137 27,471,056
----------- ------------ ----------
<PAGE>
PRO FORMA
COMBINED
COMBINED PACE MUNICIPAL PAINEWEBBER PACE MUNICIPAL
PRINCIPAL MATURITY INTEREST FIXED INCOME NATIONAL TAX-FREE FIXED INCOME
AMOUNT (000) DATES RATES INVESTMENTS INCOME FUND INVESTMENTS
-------------------- --------- -------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
COLORADO - 1.37%
440 Colorado Housing Finance Authority
Single Family Program Subordinated* 11/01/04 5.750 436,691 - 436,691
3,150 Black Hawk Colorado Device Tax
Revenue 12/1/12 to 12/1/21 5.500 to 5.625 - 2,790,508 2,790,508
880 Colorado Housing Finance Authority 08/01/23 7.200 - 911,152 911,152
----------- ------------ ----------
436,691 3,701,660 4,138,351
----------- ------------ ----------
CONNECTICUT - 0.48%
1,500 Mashantucket Western Pequot Tribe
Connecticut Special Revenue 09/01/12 5.700 - 1,459,110 1,459,110
----------- ------------ ----------
DISTRICT OF COLUMBIA - 1.12%
505 District of Columbia Housing
Finance Authority Certificate of
Participation (Asset Guaranty
Insured) 06/01/08 4.850 495,809 - 495,809
1,340 District of Colombia Revenue
Refunding Howard University Project
(MBIA Insured) 10/01/02 5.250 1,359,618 - 1,359,618
1,500 District of Columbia Series A (MBIA
Insured) 06/01/08 5.250 1,525,905 - 1,525,905
----------- ------------ ----------
3,381,332 - 3,381,332
----------- ------------ ----------
FLORIDA - 1.99%
250 Alachua County Health Facilities
Authority Shands Hospital at The
University of Florida (MBIA Insured) 12/01/05 6.100 258,020 - 258,020
50 Clearwater Housing Development
Corporation Revenue Refunding
Clearwater Apartments Series A
(FHA Insured) 07/01/01 6.200 50,377 - 50,377
100 Dade County Educational Facilities
Authority Revenue (Line of Credit) 01/01/02 5.150 100,769 - 100,769
165 Palm Beach County Solid Waste
Authority Revenue (Escrow to
Maturity) (MBIA Insured) 12/01/04 10.000 185,234 - 185,234
2,000 Hillsborough County Florida
Industrial Development Authority
Pollution Control Revenue 05/01/22 8.000 - 2,150,700 2,150,700
3,000 Plant City Utility Systems Revenue
(MBIA Insured) 10/01/15 6.000 - 3,233,010 3,233,010
----------- ------------ ----------
594,400 5,383,710 5,978,110
----------- ------------ ----------
GEORGIA - 3.86%
130 Gwinnett County Water & Sewer
Authority (Escrow to Maturity) 10/01/04 9.600 145,830 - 145,830
600 Marietta Housing Authority Multi-
Family Housing Refunding Ridge
Apartments Project A (Mandatory
Put 06/01/05 @ 100) (FNMA
Collateralized) 06/01/25 5.700 611,088 - 611,088
5,000 Conyers Water and Sewage Revenue
(AMBAC Insured) 07/01/15 6.600 - 5,374,650 5,374,650
5,000 Hall County School District (Pre-
refunded with U.S. Government
Sec to 12/01/04 @ 102) (AMBAC
Insured) 12/01/14 6.700 - 5,492,050 5,492,050
----------- ------------ ----------
756,918 10,866,700 11,623,618
----------- ------------ ----------
HAWAII - 0.34%
1,000 Hawaii State Department Budget and
Finance Special Purpose Revenue
(MBIA Insured) 05/01/26 6.200 - 1,020,960 1,020,960
----------- ------------ ----------
IDAHO - 0.30%
870 Idaho Housing Agency (FHA Insured) 07/01/24 7.500 - 898,345 898,345
----------- ------------ ----------
ILLINOIS - 11.20%
315 Belleville St. Clair County (Escrow
to Maturity) 11/01/09 7.250 346,859 - 346,859
350 Greater Peoria Airport Authority
(AMBAC Insured)* 12/01/07 6.700 375,004 - 375,004
500 Illinois Educational Facilities
Authority Revenues Refunding
Northwestern Medical Facility
Foundation (MBIA Insured) 11/15/28 5.125 441,410 - 441,410
710 Illinois Health Facilities
Authority Revenue Ravenswood
Hospital (Escrow to Maturity) 08/01/06 7.250 754,183 - 754,183
250 Palatine Housing Revenue Clover
Ridge (Mandatory Put 12/15/02
@ 100) (Letter of Credit) 12/15/07 4.750 247,615 - 247,615
510 St. Clair County Certificates
Participation Series A (FSA
Insured) 10/01/07 to 10/01/08 4.900 to 5.000 509,562 - 509,562
2,500 Chicago Series A2 (AMBAC
Insured) 01/01/05 6.250 - 2,721,325 2,721,325
14,500 Illinois Board of Education
Chicago School Reform (AMBAC
Insured) 12/1/17 to 12/1/30 5.250 to 5.800 - 13,896,660 13,896,660
4,335 Illinois Development Finance
Authority Citizens Utilities 08/02/20 7.150 - 4,422,524 4,422,524
3,625 Illinois Development Finance
Authority Revenue Refunding 7/1/09 to 7/1/15 5.900 to 6.000 - 3,342,900 3,342,900
Community Rehabilitation
Providers A
1,000 Illinois Educational Facilities
Authority Revenue Augustana
College Refunding 10/01/13 5.000 - 914,030 914,030
660 Illinois Health Facilities
Authority Revenue Evangelical
Hospital 04/15/17 6.750 - 732,903 732,903
2,000 Metropolitan Pier & Exposition
Authority (Illinois) McCormick
Place Convention Complex 07/01/26 7.000 - 2,343,060 2,343,060
1,170 Northern Illinois University
(Pre-refunded with U.S.
Government Securities to 10/1/09
@ 100) 04/01/13 10.400 - 1,572,890 1,572,890
1,000 Regional Transportation Authority
(Pre-refunded with U.S. Government
Securities to 6/1/04 @ 102) (FGIC
Insured) 06/01/14 7.100 - 1,103,660 1,103,660
----------- ------------ ----------
2,674,633 31,049,952 33,724,585
----------- ------------ ----------
INDIANA - 5.44%
200 Fort Wayne Hospital Authority
Revenue (Escrow to Maturity) 01/01/07 6.625 210,762 - 210,762
40 Fort Wayne Hospital Authority
Revenue Lutheran Hospital Project
(Escrow to Maturity) 01/01/02 6.875 40,368 - 40,368
<PAGE>
PRO FORMA
COMBINED
COMBINED PACE MUNICIPAL PAINEWEBBER PACE MUNICIPAL
PRINCIPAL MATURITY INTEREST FIXED INCOME NATIONAL TAX-FREE FIXED INCOME
AMOUNT (000) DATES RATES INVESTMENTS INCOME FUND INVESTMENTS
-------------------- --------- -------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
400 Fort Wayne Hospital Authority
Revenue Parkview Memorial
Hospital (Escrow to Maturity) 01/01/05 6.500 413,580 - 413,580
415 Indianapolis Economic Development
Revenue Knob In The Woods
(Mandatory Put 12/01/04 @ 100)
(FNMA Collateralized)* 12/01/24 6.375 435,796 - 435,796
595 Indianapolis Economic Development
Revenue Refunding Bethany
Series A (GNMA Collateralized)* 04/20/17 5.350 566,285 - 566,285
3,240 Dyer In Redevelopment Authority
Economic 07/15/14 6.875 - 3,435,858 3,435,858
2,550 East Chicago Indiana Mutli School
Building Corporation (AMBAC
Insured) 07/15/14 5.500 - 2,537,658 2,537,658
3,000 Indiana Health Facility Finance
Authority Methodist Hospital of
Indiana 09/01/15 5.750 - 3,113,520 3,113,520
6,000 Indianapolis Indiana Airport
Authority Revenue Special Facility
United Air Lines Project Series A 11/15/31 6.500 - 5,613,240 5,613,240
----------- ------------ ----------
1,666,791 14,700,276 16,367,067
----------- ------------ ----------
IOWA - 0.07%
140 Iowa Finance Authority Multi-Family
Revenue Refunding Housing Forest
Glen Apartments Project A (FNMA
Collateralized) 11/1/03 4.700 138,513 - 138,513
70 Iowa Finance Authority Multi-Family
Revenue Refunding Housing
Hillcrest Series C (FNMA
Collateralized) 11/1/02 4.600 69,556 - 69,556
----------- ------------ ----------
208,069 - 208,069
----------- ------------ ----------
KANSAS - 1.79%
500 Burlington Pollution Control Revenue
Refunding Kansas Gas & Electric
Co. Project (MBIA Insured) 06/01/31 7.000 518,850 - 518,850
35 Wichita Hospital Revenue St. Francis
Hospital & Nursing Senior A (Escrow
to Maturity) 10/01/07 6.750 60,117 - 60,117
4,800 Kansas State Department Transportation
Highway Revenue 03/01/13 5.375 - 4,820,064 4,820,064
----------- ------------ ----------
578,967 4,820,064 5,399,031
----------- ------------ ----------
KENTUCKY - 0.08%
60 Kentucky State Revenue Turnpike
Authority (Escrow to Maturity) 07/01/09 7.200 66,627 - 66,627
155 Kentucky State Revenue Turnpike
Authority Toll Road (Escrow
to Maturity) 07/01/08 5.875 159,782 - 159,782
----------- ------------ ----------
226,409 - 226,409
----------- ------------ ----------
LOUISIANA - 0.80%
410 East Baton Rouge Parish Womans
Hospital Foundation (Escrow to
Maturity) 10/01/08 7.200 445,026 - 445,026
75 East Baton Rouge Single-Family
Mortgage Series C (GNMA/FNMA
Collateralized) 04/01/32 7.000 76,930 - 76,930
500 Jefferson Parish Home Mortgage Single-
Family Housing Revenue Series D-1
(Mandatory Put 8/1/01 @ 100)
(FNMA/GNMA Collateralized) 06/01/10 5.600 503,340 - 503,340
800 Louisiana Public Facilities
Authority and Health Education
Authority A1 (Mandatory Put
06/01/02 @ 100) (AMBAC Insured) 12/01/15 5.000 800,080 - 800,080
540 Louisiana State Health Education
Authority Alton Ochsner Medical
Foundation (Escrow to Maturity) 05/01/05 8.750 590,819 - 590,819
----------- ------------ ----------
2,416,195 - 2,416,195
----------- ------------ ----------
MASSACHUSETTS - 2.37%
520 Massachusetts Bay Transport
Authority General Transportation
Systems Series B (FSA Insured) 03/01/26 5.250 488,670 - 488,670
600 Massachusetts State Development
Finance Agency Biomedical
Research Series C 08/01/02 5.500 604,620 - 604,620
1,005 Massachusetts State Development
Finance Agency Curry College
Series A (ACA Insured) 03/01/19 5.375 933,032 - 933,032
5,680 Massachusetts State Turnpike
Authority Metropolitan Highway
Systems Revenue (MBIA Insured) 01/01/27 5.000 - 5,104,559 5,104,559
----------- ------------ ----------
2,026,322 5,104,559 7,130,881
----------- ------------ ----------
MICHIGAN - 1.11%
115 Michigan State Hospital Finance
Authority Revenue St. Joseph's
Mercy Hospital (Escrow to Maturity) 07/01/03 9.250 123,981 - 123,981
125 Michigan State Housing Development
Authority Series B* 12/01/12 7.650 127,811 - 127,811
195 Michigan State Strategic Limited
Obligation (Escrow to Maturity) 08/15/05 7.875 207,601 - 207,601
900 Michigan State Strategic Fund
Limited Obligation Revenue 08/01/00 4.250 - 900,000 900,000
1,915 Royal Oak Hospital Finance
Authority William Beaumont Hospital 01/01/19 6.625 - 1,994,530 1,994,530
----------- ------------ ----------
459,393 2,894,530 3,353,923
----------- ------------ ----------
MINNESOTA - 0.27%
315 Coon Rapids Hospital Revenue
Health Central Inc. (Escrow to
Maturity) 08/01/08 7.625 422,168 - 422,168
132 Eden Prairie Multi-Family Housing
(GNMA Collateralized) 01/20/06 5.500 125,027 - 125,027
200 Edina Refunding Tax Increment
Series B 02/01/06 5.800 200,222 - 200,222
55 Moorhead Residential Mortgage
(Escrow to Maturity) 08/01/11 7.100 71,974 - 71,974
----------- ------------ ----------
819,391 - 819,391
----------- ------------ ----------
MISSISSIPPI - 1.06%
3,600 Mississippi Business Finance
Corporation Mississippi Pollution
Control Revenue Refunding Systems
Energy Resources Incorporated
Project Utah 05/01/22 5.900 - 3,204,504 3,204,504
----------- ------------ ----------
<PAGE> PRO FORMA
COMBINED
COMBINED PACE MUNICIPAL PAINEWEBBER PACE MUNICIPAL
PRINCIPAL MATURITY INTEREST FIXED INCOME NATIONAL TAX-FREE FIXED INCOME
AMOUNT (000) DATES RATES INVESTMENTS INCOME FUND INVESTMENTS
-------------------- --------- -------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
MISSOURI - 0.52%
1,500 Missouri State Development Finance
Board Recreation Facility YMCA
Greater St. Louis Project Series
A (Letter of Credit) 9/1/06 to 9/01/08 4.600 to 4.800 1,453,201 - 1,453,201
125 St. Louis County Single-Family
Housing (AMBAC Insured) 10/01/16 9.250 111,825 - 111,825
----------- ------------ ----------
1,565,026 - 1,565,026
----------- ------------ ----------
NEBRASKA - 0.08%
250 Nebraska Investment Finance
Authority Multi-Family Housing
Series A (FNMA Collateralized)* 12/01/15 6.000 250,563 - 250,563
----------- ------------ ----------
NEW HAMPSHIRE - 0.60%
1,275 New Hampshire Higher Educational &
Health Facilities Authority
Revenue New Hampshire College 01/01/07 5.950 - 1,275,599 1,275,599
500 New Hampshire Industrial Development
Authority Central Maine Power
Company 05/01/14 7.375 - 521,825 521,825
----------- ------------ ----------
- 1,797,424 1,797,424
----------- ------------ ----------
NEW JERSEY - 5.22%
125 New Jersey Health Care Facilities
Financing St. Barnabas Medical
Center (Escrow to Maturity) 07/01/11 7.000 136,043 - 136,043
2,500 New Jersey Economic Development
Authority Economic Development
Revenue 04/01/18 6.375 - 2,451,750 2,451,750
1,890 New Jersey Housing General
Resolution Series A 11/01/04 6.700 - 1,952,370 1,952,370
10,000 New Jersey State Turnpike
Authority (MBIA Insured) + 01/01/16 6.500 - 11,187,700 11,187,700
----------- ------------ ----------
136,043 15,591,820 15,727,863
----------- ------------ ----------
NEW YORK - 6.74%
200 New York City Housing Authority
Multi-Family Revenue Refunding
Series A 07/01/05 5.250 199,222 - 199,222
300 New York City Housing Authority
Multi-Family Revenue Refunding
Series A (AMBAC Insured) 07/01/08 5.450 302,865 - 302,865
1,030 New York City Municipal Water
Finance Authority Series B 06/15/04 5.125 1,049,652 - 1,049,652
320 New York State Energy Research &
Development Authority Series C 06/01/29 4.250 320,000 - 320,000
195 Onondaga County Industrial
Development Civic Facility Lemoyne
College Project Series A 03/01/04 5.000 191,921 - 191,921
75 Onondaga County Industrial
Development Civic Facility Syracuse
Home Association Project (Letter
of Credit) 12/01/07 4.500 71,301 - 71,301
4,350 Long Island Power Authority New York
Electric Systems Revenue General
Series A 12/01/29 5.500 - 4,073,819 4,073,819
4,500 New York City - Series D 08/01/17 5.375 - 4,433,490 4,433,490
430 New York State Energy Research &
Development Unrefunded Balance
Series B 02/01/22 7.150 - 450,034 450,034
365 New York State Energy Research &
Development Authority Electric
Facilities Revenue Series B 09/01/19 7.150 - 382,005 382,005
2,400 New York State Environmental
Facilities Corporation State
Water Pollution Control 06/15/14 6.875 - 2,587,944 2,587,944
3,100 Triborough Bridge & Tunnel
Authority 01/01/10 7.100 - 3,192,690 3,192,690
1,000 Port Authority of New York &
New Jersey Kennedy International
Airport Cogeneration Project 4th
Installment Project 10/01/11 6.750 - 1,025,070 1,025,070
300 New York City - Series A8 08/01/00 4.200 - 300,000 300,000
1,675 New York City Municipal Water
Finance Authority Water & Sewer
Systems Revenue Series A 06/15/12 7.100 - 1,726,975 1,726,975
----------- ------------ ----------
2,134,961 18,172,027 20,306,988
----------- ------------ ----------
NORTH CAROLINA - 0.33%
980 North Carolina Housing Finance
Agency 03/01/08 6.200 - 986,409 986,409
----------- ------------ ----------
NORTH DAKOTA - 0.11%
325 North Dakota State Housing Finance
Agency Revenue 07/01/16 6.300 - 330,440 330,440
----------- ------------ ----------
OHIO - 4.69%
190 Dayton Hospital Revenue Good
Samaritan (Escrow to Maturity) 12/01/05 6.000 195,979 - 195,979
50 Ohio Housing Finance Agency
Single-Family Mortgage
Series C (GNMA Collateralized)* 09/01/21 7.850 51,059 - 51,059
1,145 Butler County Transportation
Improvement District (FSA Insured) 04/01/11 6.000 - 1,231,837 1,231,837
6,000 Cleveland Airport Special Revenue
Refunding Continental Airlines Inc. 12/01/08 5.500 - 5,548,920 5,548,920
445 Cleveland Ohio Public Power Systems
Revenue Prerefunded Series B
First Mortgage Series B 11/15/17 7.000 - 467,486 467,486
1,805 Cleveland Ohio Public Power
Systems Revenue Unrefunded Series N
First Mortgage Series B 11/15/17 7.000 - 1,889,131 1,889,131
6,000 Ohio State Water Development
Authority Solid Waste Disposal
Revenue Bay Shore Power Project 09/01/20 5.875 - 4,750,620 4,750,620
----------- ------------ ----------
247,038 13,887,994 14,135,032
----------- ------------ ----------
<PAGE>
PRO FORMA
COMBINED
COMBINED PACE MUNICIPAL PAINEWEBBER PACE MUNICIPAL
PRINCIPAL MATURITY INTEREST FIXED INCOME NATIONAL TAX-FREE FIXED INCOME
AMOUNT (000) DATES RATES INVESTMENTS INCOME FUND INVESTMENTS
-------------------- --------- -------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
OKLAHOMA - 0.73%
335 Comanche County Hospital Authority
Revenue Series A (Connie Lee
Insured) 07/01/06 5.100 338,611 - 338,611
425 McAlester Public Works Authority
Revenue (FSA Insured) (Escrow to
Maturity) 12/1/04 8.250 485,635 - 485,635
1,330 Tuls Metropolitan Utility Authority
Revenue 02/01/03 7.000 1,364,460 - 1,364,460
----------- ------------ ----------
2,188,706 - 2,188,706
----------- ------------ ----------
PENNSYLVANIA - 2.77%
140 Allegheny County Residential
Mortgage Revenue Single-Family
Mortgage Series D2 (GNMA Insured)* 05/01/08 4.850 136,097 - 136,097
400 Blair County Hospital Authority
Revenue Hospital Altoona Hospital
Project A (AMBAC Insured) 07/01/06 5.375 410,464 - 410,464
30 Caln Township Municipal Sewer Revenue
(Escrow to Maturity) 01/01/09 5.700 30,695 - 30,695
535 Chester County Health & Education
Jefferson Health Systems Series B
(AMBAC Insured) 5/15/12 5.000 519,196 - 519,196
45 Chester County Hospital Authority
Revenue (Escrow to Maturity) 07/01/09 7.500 49,485 - 49,485
60 Conneaut School District (Escrow to
Maturity) (AMBAC Insured) 05/01/02 9.250 63,324 - 63,324
145 Lancaster County Hospital Authority
Lancaster General Hospital Project
(AMBAC Insured) 07/01/11 4.750 137,067 - 137,067
75 Lancaster Sewer Authority (Escrow to
Maturity) 04/01/12 6.000 79,276 - 79,276
400 Luzerne County Industrial Development
Authority Pennsylvania Gas & Water
Series B* 12/01/22 7.125 423,592 - 423,592
15 Montgomery County Higher Education
Beaver College (Escrow to Maturity) 10/01/00 6.750 15,054 - 15,054
600 Pennsylvania State Finance Authority
Revenue (Investment Agreement - Sun
America) 11/01/09 6.600 637,512 - 637,512
500 Pennsylvania State Higher Education
Facilities Temple University First
Series (MBIA Insured) 04/01/29 5.000 446,940 - 446,940
125 Philadelphia Hospital & Higher
Education Health Systems Jefferson
Health Systems A (MBIA Insured) 05/15/07 5.250 127,564 - 127,564
600 Saucon Valley School District (AMBAC
Insured) 10/15/09 4.650 585,222 - 585,222
3,365 Beaver County Pennsylvania Pollution
Control Revenue 06/01/21 7.000 - 3,490,447 3,490,447
1,245 Philadelphia Pennsylvania Authority
Industrial Development 1st
Mortgage Crime Prevention
Association 04/01/09 6.000 - 1,181,605 1,181,605
----------- ------------ ----------
3,661,488 4,672,052 8,333,540
----------- ------------ ----------
RHODE ISLAND - 0.85%
1,500 Rhode Island Depositors Protection
Corp. Series A (Escrow to Maturity) 08/01/22 6.950 1,598,535 - 1,598,535
1,000 Rhode Island State Turnpike & Bridge
Refunding 12/01/17 5.350 960,200 - 960,200
----------- ------------ ----------
2,558,735 - 2,558,735
----------- ------------ ----------
SOUTH CAROLINA - 2.96%
220 Charleston County Hospital Facility
Roper Hospital (Escrow to Maturity) 10/01/11 7.000 243,349 - 243,349
325 South Carolina Jobs Economic Development
Caterpillar Incorporated Project 06/01/08 5.050 309,998 - 309,998
1,000 Charleston Waterworks & Sewer Revenue
(AMBAC Insured) 01/01/16 6.000 - 1,017,190 1,017,190
7,600 Piedmont Municipal Power Agency
(MBIA Insured) 01/01/23 4.000 - 5,848,276 5,848,276
1,500 South Carolina State Housing Finance
Development Single Family Mortgage
Purchase 07/01/18 5.500 - 1,496,535 1,496,535
----------- ------------ ----------
553,347 8,362,001 8,915,348
----------- ------------ ----------
SOUTH DAKOTA - 0.16%
460 South Dakota State Health &
Educational Revenue St. Lukes
Hospital Project (Escrow to Maturity) 10/01/07 6.800 487,301 - 487,301
----------- ------------ ----------
TENNESSEE - 0.28%
410 Knox County Health Educational &
Housing Facility St. Mary's Medical
Center (Escrow to Maturity) 08/01/03 7.250 435,969 - 435,969
185 La Follette Housing Development
Corporation (FHA/MBIA Insured) 01/01/05 5.400 171,652 - 171,652
185 Metropolitan Government Nashville
Health & Education Southern
Advanatist Hospital Health
Systems (Escrow to Maturity) 10/01/09 8.700 223,396 - 223,396
----------- ------------ ----------
831,017 - 831,017
----------- ------------ ----------
TEXAS - 18.75%
975 De Soto Housing Finance Corporation
Multi-Family Mortgage The
Colonies Apartments Project
(Mandatory Put 10/1/07 @ 100)
(FNMA Collateralized) 10/01/27 5.125 975,799 - 975,799
330 Galena Park Independent School
District 08/15/02 6.250 341,253 - 341,253
265 Galveston County Housing Finance
Corporation Single-Family
Mortgage Revenue 04/01/15 9.750 278,952 - 278,952
100 Grapevine Industrial Development
Corp. Revenue America Airlines
B1 Project (Letter of Credit) 12/24/01 4.400 100,000 - 100,000
400 Hidalgo County Health Services
Corporation Mission Hospital
Project (Pre-Refunded 08/01/00
@ 103) 02/01/25 10.250 412,000 - 412,000
245 Houston Texas Airport Systems
Revenue (Escrow to Maturity) 07/01/10 7.600 276,777 - 276,777
1,000 Lewisville Housing Finance Corporation
Multi-Family Housing Lewisville
Limited Project (FSA Insured)*
Housing Lewisville Limited Project
(FSA Insured)* 12/01/08 5.000 975,330 - 975,330
505 McKinney Independent School
District School Building Revenue 02/15/04 6.000 526,765 - 526,765
<PAGE>
PRO FORMA
COMBINED
COMBINED PACE MUNICIPAL PAINEWEBBER PACE MUNICIPAL
PRINCIPAL MATURITY INTEREST FIXED INCOME NATIONAL TAX-FREE FIXED INCOME
AMOUNT (000) DATES RATES INVESTMENTS INCOME FUND INVESTMENTS
-------------------- --------- -------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
1,285 Mission Consolidated Independent
School District Revenue 02/15/04 6.500 1,362,151 - 1,362,151
645 Odessa Junior College District
Revenue Refunding & Imot Series
A (MBIA Insured) 12/01/09 4.750 631,165 - 631,165
1,015 South Plains Finance Corp. refunding
Mortgage Series C (FMNA/GNMA
Collateralized) 03/01/21 7.400 1,132,192 - 1,132,192
1,500 Southeast Housing Finance Corporation
Series B (Pre-refunded to 12/01/02
@ 36.127) 12/01/16 7.625# 485,475 - 485,475
1,100 Tarrant County Housing Finance
Corporation Refunding Multi-
Family Housing Summit Project A
(Mandatory Put 09/01/07 @ 100)
(FNMA Collateralized) 09/01/27 5.080 1,087,724 - 1,087,724
1,040 Texas State Refunding Series A 10/01/03 5.700 1,074,206 - 1,074,206
5,000 Dallas County Texas Utility and
Reclamation District Series B 02/15/29 5.875 - 5,026,500 5,026,500
5,757 Harris County Lease 5/15/02 to 5/1/14 5.400 to 5.900 - 5,803,423 5,803,423
7,667 Harris County Texas Lease Mulworth
Project 05/01/20 5.625 - 7,259,107 7,259,107
1,315 Hereford Texas Independent School
District Public Facility Corp
School Facility Lease Revenue 08/15/13 5.125 - 1,242,596 1,242,596
4,500 Houston Texas Community College
Systems Participation Ints
Private Placement 06/15/25 7.875 - 4,680,225 4,680,225
5,000 Lower Colorado River Authority
Texas Revenue Refunding Series B 05/15/13 6.000 - 5,291,550 5,291,550
1,500 Port Arthur Texas Navigation District
(AMBAC Insured) 03/01/12 0.010 - 808,260 808,260
1,295 San Antonio Texas Certificate of
Obligation Series A 02/01/15 5.250 - 1,269,268 1,269,268
1,425 San Antonio Texas General Obligation
Series A 02/01/15 5.250 - 1,396,685 1,396,685
355 Texas State Prerefunded Water
Development Board 08/01/18 5.750 - 371,923 371,923
1,245 Texas State Public Property
Finance Corporation Mental Health
Revenue 09/01/03 5.400 - 1,220,424 1,220,424
8,000 Texas State Turnpike Authority
North Thruway Revenue President
George Bush Turnpike (FGIC Insured) 01/01/25 5.000 - 7,217,520 7,217,520
1,085 Texas State Water Development Board 08/01/18 5.750 - 1,094,364 1,094,364
3,510 Texas State Water Financial Assistance 08/01/35 5.500 - 3,381,429 3,381,429
710 Harris County Toll Road Authority
(AMBAC Insured) 08/15/17 6.500 - 746,877 746,877
----------- ------------ ----------
9,659,789 46,810,151 56,469,940
----------- ------------ ----------
UTAH - 0.93%
250 Salt Lake City Hospital Revenue
(Escrow to Maturity) 06/01/09 7.350 272,130 - 272,130
490 Salt Lake County Multi-Family Housing
James Pointe Apartment (Mandatory
Put 10/01/0 @ 100) (Asset Guaranty
Insured) 10/01/25 5.500 492,803 - 492,803
105 Salt Lake County Water Conservation
(Escrow to Maturity) (MBIA Insured) 10/01/02 10.875 112,932 - 112,932
1,000 Utah Associated Municipal Power
Systems revenue San Juan Project 9
(MBIA Insured) 06/01/22 6.375 1,077,720 - 1,077,720
360 Utah State Housing Finance Agency
Single-Family Mortgage Sub A1
(AMBAC Insured) 07/01/08 5.900 372,373 - 372,373
75 Utah State Housing Finance Agency
Single-Family Mortgage Sub G
(AMBAC Insured) 07/01/07 5.650 76,101 - 76,101
50 Utah State Housing Finance Agency
Single-Family Mortgage Sub H1
(AMBAC Insured) 07/01/07 5.650 50,734 - 50,734
345 Utah State Housing Finance Agency
(FHA Insured) 01/01/11 6.450 - 351,493 351,493
----------- ------------ ----------
2,454,793 351,493 2,806,286
----------- ------------ ----------
VIRGINIA - 2.31%
500 Peninsula Ports Authority Virginia
Hospital Facility Revenue
(FHA Insured) 08/01/23 8.700 - 535,000 535,000
4,500 Pittsylvania County Virginia
Industrial Development
Authority Revenue 01/01/10 7.650 - 4,756,005 4,756,005
1,000 Pittsylvania County Virginia
Industrial Development Authority
Revenue 01/01/14 7.500 - 1,033,210 1,033,210
600 Hampton Roads Medical College 11/15/16 6.875 - 626,070 626,070
----------- ------------ ----------
- 6,950,285 6,950,285
----------- ------------ ----------
WASHINGTON - 0.34%
1,000 King County Sewer Revenue Series A 01/01/03 5.800 1,028,260 - 1,028,260
----------- ------------ ----------
WEST VIRGINIA - 0.12%
55 Kanawha County Residential Mortgage
Revenue (Escrow to Maturity) 09/01/10 7.375 60,895 - 60,895
300 Preston County Pollution Control
Revenue Monongahhela Power Services 03/01/03 4.500 295,257 - 295,257
----------- ------------ ----------
356,152 - 356,152
----------- ------------ ----------
WISCONSIN - 0.03%
100 Wisconsin Housing & Economic
Development Series G* 03/01/04 5.250 100,481 - 100,481
----------- ------------ ----------
WYOMING - 1.44%
295 Teton County Hospital District
Refunding Improvement (ACA Insured) 12/01/09 5.100 277,619 - 277,619
4,000 Sweetwater County Solid Waste Disposal
Revenue FMC Corporation Project 06/01/24 7.000 - 4,047,040 4,047,040
----------- ------------ ----------
277,619 4,047,040 4,324,659
----------- ------------ ----------
U.S. VIRGIN ISLANDS - 0.47%
1,525 Virgin Islands Water & Power
Authority Water Systems Revenue 7/1/12 to 7/1/17 5.250 to 5.500 - 1,403,118 1,403,118
----------- ------------ ----------
<PAGE>
PRO FORMA
COMBINED
COMBINED PACE MUNICIPAL PAINEWEBBER PACE MUNICIPAL
PRINCIPAL MATURITY INTEREST FIXED INCOME NATIONAL TAX-FREE FIXED INCOME
AMOUNT (000) DATES RATES INVESTMENTS INCOME FUND INVESTMENTS
-------------------- --------- -------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
TAX FREE MONEY MARKET FUND - 0.03%
79 Seven Seas Money Market Fund 78,573 - 78,573
------------ ------------- ------------
Total Investments (cost - $302,821,701) - 99.34% 53,958,591 245,136,708 299,095,299
(Liabilities) other assets in excess of other assets (liabilities) - 0.66% (364,310) 2,363,430 1,999,120
------------ ------------- ------------
Net Assets - 100.00% $ 53,594,281 $ 247,500,138 $301,094,419
============ ============= ============
</TABLE>
--------------------
* Security subject to Alternative Minimum Tax
# Zero coupon bond, rate represents annualized yield at
date of purchase
AMBAC American Municipal Bond Assurance Corporation
FHA Federal Housing Authority
FNMA Federal National Mortgage Association
FSA Financial Security Assurance
GNMA Government National Mortgage Association
MBIA Municipal Bond Investors Assurance
<PAGE>
PACE Municipal Fixed Income Investments
PaineWebber National Tax-Free Income Fund
Notes to Pro Forma Financial Statements
For the year ended July 31, 2000 (unaudited)
Basis of Presentation:
Subject to the approval of the Agreement and Plan of Reorganization and
Termination ("Plan") by the shareholders of PaineWebber National Tax-Free Income
Fund ("National Tax-Free"), PACE Municipal Fixed Income Investments ("Municipal
Fixed Income") would acquire the assets of National Tax-Free in exchange solely
for the assumption by Municipal Fixed Income of National Tax-Free's assets and
liabilities and shares of Municipal Fixed Income that correspond to the
outstanding shares of National Tax-Free. The number of shares to be received
would be based on the relative net asset value of Municipal Fixed Income's
shares on the effective date of the Plan and National Tax-Free will be
terminated as soon as practicable thereafter.
The pro forma financial statements reflect the financial position of Municipal
Fixed Income and National Tax-Free at July 31, 2000 and the combined results of
operations of Municipal Fixed Income and National Tax-Free (each a "Fund" and,
collectively, the "Funds") for the year ended July 31, 2000.
As a result of the Plan, the investment advisory and administration fee will
increase due to the higher fee schedule of Municipal Fixed Income. However,
after the management fee waiver/expense reimbursement, shareholders of National
Tax-Free will not experience an increase in total expenses. National Tax-Free
currently pays Rule 12b-1 distribution or service fees; Municipal Fixed Income
currently does not. In addition, the pro forma statement of assets and
liabilities has not been adjusted as a result of the proposed transaction
because such adjustment would not be material. The cost of approximately
$167,000 associated with the Reorganization will be paid by Mitchell Hutchins
Asset Management Inc. ("Mitchell Hutchins"), a wholly owned asset management
subsidiary of PaineWebber Incorporated (a wholly owned indirect subsidiary of
UBS AG), so that each Fund bears no expenses of the Reorganization. These costs
are not included in the pro forma statement of operations.
The pro forma financial statements are presented for the information of the
reader and may not necessarily be representative of what the actual combined
financial statements would have been had the Reorganization occurred August 1,
1999. The pro forma financial statements should be read in conjunction with the
historical financial statements of the constituent Funds included in or
incorporated by reference in the applicable statement of additional information.
Significant Accounting Policies:
The Funds' financial statements are prepared in accordance with generally
accepted accounting principles that require the use of management accruals and
estimates. These unaudited financial statements reflect all adjustments, which
are, in the opinion of management, necessary to a fair statement of the results
for the interim period presented. The following is a summary of significant
accounting policies followed by the Funds.
VALUATION OF INVESTMENTS-Each Fund calculates its net asset value based on the
current market value for its portfolio securities. Each Fund normally obtains
market values for its securities from independent pricing sources. Independent
pricing sources may use reported last sale prices, current market quotations or
valuations from computerized "matrix" systems that derive values based on
comparable securities. Securities traded in the over-the-counter ("OTC") market
and listed on The Nasdaq Stock Market, Inc. ("Nasdaq") normally are valued at
the last sale price on Nasdaq prior to valuation. Other OTC securities are
valued at the last bid price available prior to valuation. Securities which 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 such day, at
the last available bid price. In cases where securities are traded on more than
one exchange, the securities are valued on the exchange designated as the
primary market by Mitchell Hutchins, or by the Fund's sub-adviser. If a market
value is not available from an independent pricing source for a particular
security, that security is
<PAGE>
valued at fair value as determined in good faith or under the direction of the
Fund's board of trustees (the "board"). The amortized cost method of valuation,
which approximates market value, generally is used to value short-term debt
instruments with sixty days or less remaining to maturity, unless the board
determines that this does not represent fair value. Each Fund's investments are
valued using the amortized cost method of valuation.
<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/
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<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/
(c) Plan of Distribution pursuant to Rule 12b-1 with
respect to Class C 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.
C-4
<PAGE>
5/ Incorporated by reference from Post-Effective Amendment No. 4 to
registration statement, SEC File No. 33-87254, filed November 13, 1997.
6/ Incorporated by reference from 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.
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<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 4th day of December, 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:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Brian M. Storms President and Trustee December 4, 2000
-------------------- (Chief Executive Officer)
Brian M. Storms **
/s/ David J. Beaubien Trustee and Chairman December 4, 2000
---------------------- of the Board of Trustees
David J. Beaubien *
/s/ Margo N. Alexander Trustee December 4, 2000
----------------------
Margo N. Alexander *
/s/ E. Garrett Bewkes, Jr. Trustee December 4, 2000
--------------------------
E. Garrett Bewkes, Jr. *
/s/ William W. Hewitt, Jr. Trustee December 4, 2000
--------------------------
William W. Hewitt, Jr. *
/s/ Morton L. Janklow Trustee December 4, 2000
----------------------
Morton L. Janklow *
/s/ William D. White Trustee December 4, 2000
---------------------
William D. White *
/s/ M. Cabell Woodward, Jr. Trustee December 4, 2000
---------------------------
M. Cabell Woodward, Jr. *
/s/ Paul H. Schubert Vice President and Treasurer (Chief December 4, 2000
-------------------- Financial and Accounting Officer)
Paul H. Schubert
</TABLE>
<PAGE>
SIGNATURES (CONTINUED)
* 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/
(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/
<PAGE>
(m) Sub-Advisory Agreement with Ariel Capital Management,
Inc. with respect to PACE Small/Medium Company Value
Equity Investments dated as of October 4, 1999 1/
(n) Sub-Advisory Agreement with ICM Asset Management,
Inc. with respect to PACE Small/Medium Company Value
Equity Investments dated as of October 10, 2000 2/
(o) Sub-Advisory Agreement with Delaware Management
Company with respect to PACE Small/Medium Company
Growth Equity Investments dated as of December 16,
1996 5/
(p) Sub-Advisory Agreement with Martin Currie Inc. with
respect to PACE International Equity Investments
dated as of October 10, 2000 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/
(c) Plan of Distribution pursuant to Rule 12b-1 with
respect to Class C 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
<PAGE>
-----------------
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.
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.
