<PAGE>
PAINEWEBBER PACE SELECT ADVISORS TRUST
(ON BEHALF OF PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS)
PAINEWEBBER MANAGED INVESTMENTS TRUST
(ON BEHALF OF PAINEWEBBER LOW DURATION
U.S. GOVERNMENT 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 Government Securities Fixed Income
Investments ("PACE Government Securities Fixed Income Fund"), a series of
PaineWebber PACE Select Advisors Trust ("PACE Trust"), would acquire all of the
assets of PaineWebber Low Duration U.S. Government Income Fund ("Low Duration
U.S. Government Income Fund"), a series of PaineWebber Managed Investments Trust
("Managed Investments Trust"), in exchange solely for shares of PACE Government
Securities Fixed Income Fund and the assumption by PACE Government Securities
Fixed Income Fund of all of Low Duration U.S. Government Income Fund's stated
liabilities. This Statement of Additional Information consists of this cover
page, the PRO FORMA financial statements of PACE Government Securities 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, dated
November 27, 2000, which includes information relating to PACE Government
Securities Fixed Income Fund and is incorporated by reference from PACE Trust's
Statement of Additional Information as filed on January 8, 2001 under Rule 497,
SEC File Numbers 033-87254 and 811-08764, accession number 0000898432-01-000012;
(2) The combined Annual Report to Shareholders of PACE Trust for the fiscal
year ended July 31, 2000, which includes information relating to PACE Government
Securities Fixed Income Fund and is incorporated by reference from PACE Trust's
Form N-30D, SEC File Number 811-08764, filed October 6, 2000, accession number
0000912057-00-043979;
(3) The Semi-Annual Report to Shareholders of Low Duration U.S. Government
Income Fund, dated May 31, 2000, which is incorporated by reference from Managed
Investments Trust's Form N-30D, SEC File Number 811-04040, filed August 7, 2000,
accession number 0000912057-00-034897; and
(4) The Annual Report to Shareholders of Low Duration U.S. Government
Income Fund for the fiscal year ended November 30, 1999, which is incorporated
by reference from Managed Investments Trust's Form N-30D, SEC File Number
811-04040, filed February 10, 2000, accession number 0000912057-00-005117.
<PAGE>
This Statement of Additional Information is not a prospectus and should be
read only in conjunction with the Combined Proxy Statement/Prospectus dated
December 14, 2000 relating to the proposed Reorganization. A copy of the
Combined Proxy Statement/Prospectus may be obtained without charge by calling
toll-free 1-800-647-1568. This Statement of Additional Information is dated
December 14, 2000.
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
The first three 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 Low Duration U.S. Government Income Fund and PACE Government Securities
Fixed Income Fund as adjusted giving effect to the Reorganization.
The next three 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 PaineWebber
U.S. Government Income Fund, Low Duration U.S. Government Income Fund and PACE
Government Securities Fixed Income Fund as adjusted to show the combined effect
of the Reorganization and the proposed reorganization of PaineWebber U.S.
Government Income Fund into PACE Government Securities Fixed Income Fund, which
are expected to occur at approximately the same time.
The PRO FORMA Portfolio of Investments contains information about the
securities holdings of the Funds as of July 31, 2000, which have changed since
that date due to normal portfolio turnover in response to changes in market
conditions.
It is not expected that any of Low Duration U.S. Government Income Fund's
holdings will be incompatible with PACE Government Securities Fixed Income
Fund's holdings. However, if Low Duration U.S. Government Income Fund's
shareholders approve the Reorganization, some of the Fund's holdings may need to
be liquidated immediately prior to or following the Reorganization to adjust the
duration of the combined Fund. Any portfolio holdings of Low Duration U.S.
Government Income Fund that must be sold for this reason would be liquidated in
an orderly manner and the proceeds held in temporary investments or reinvested
in assets with durations that are consistent with the duration of the combined
Fund. As of November 30, 2000, only a very small percentage of Low Duration U.S.
Government Income Fund's portfolio holdings would have had to be sold to adjust
the portfolio duration of the combined Fund.
The portion of Low Duration U.S. Government Income Fund's assets that will
be sold in connection with the Reorganization will depend on market conditions
and the sub-adviser's continuing assessment of the appropriate portfolio
duration for PACE Government Securities Fixed Income Fund at the approximate
time of the Reorganization. The need for Low Duration U.S. Government Income
Fund to dispose of investments in connection with the Reorganization may result
in its selling securities at a disadvantageous time and could result in its
realizing gains (or losses) that would not otherwise have been realized.
2
<PAGE>
PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES
FOR THE YEAR ENDED JULY 31, 2000
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
PACE GOVERNMENT
PACE GOVERNMENT SECURITIES
SECURITIES FIXED PW LOW DURATION U.S. FIXED INCOME
INCOME INVESTMENTS GOVT. INCOME FUND ADJUSTMENTS INVESTMENTS
-------------------- -------------------- ------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at value
(cost - $330,884,058, $209,625,314,
and $540,509,372, respectively) $ 328,327,261 $ 208,997,696 $ - $ 537,324,957
Receivable for investments sold 3,260 467,063 - 470,323
Receivable for shares of beneficial interest sold 110,435 381 - 110,816
Dividends and interest receivable 1,633,542 1,309,501 - 2,943,043
Deferred organizational expenses 1,025 - - 1,025
Other assets 32,713 19,591 - 52,304
----------------- ----------------- ----------- -------------
Total assets 330,108,236 210,794,232 - 540,902,468
----------------- ----------------- ----------- -------------
LIABILITIES
Payable for investments purchased 130,699,989 48,800,072 - 179,500,061
Payable for shares of beneficial interest repurchased 103,565 434,226 - 537,791
Unrealized depreciation of forward foreign currency
contracts - 214 - 214
Outstanding options written, at value 77,700 - - 77,700
Payable to affiliates 114,807 64,290 - 179,097
Payable to custodian 82,526 - - 82,526
Accrued expenses and other liabilities 111,628 410,824 - 522,452
----------------- ----------------- ----------- -------------
Total liabilities 131,190,215 49,709,626 - 180,899,841
----------------- ----------------- ----------- -------------
NET ASSETS
Beneficial interest shares of $0.001
par value outstanding - 16,458,856, 70,382,925
and 29,787,303, respectively 203,803,263 282,773,545 - 486,576,808
Accumulated undistributed (distributions in excess of)
net investment income (loss) 1,181,552 (42,695) - 1,138,857
Accumulated net realized losses from investment
transactions (3,516,672) (121,018,626) - (124,535,298)
Net unrealized depreciation of investments (2,550,122) (627,618) - (3,177,740)
----------------- ----------------- ----------- -------------
Net assets applicable to shares outstanding $ 198,918,021 $ 161,084,606 $ - $ 360,002,627
================= ================= =========== =============
CLASS P:
Net assets $ 198,918,021 $ - $ - $ 198,918,021
----------------- ----------------- ----------- -------------
Shares outstanding 16,458,856 - - 16,458,856
----------------- ----------------- ----------- -------------
Net asset value and offering price per share $ 12.09 $ - $ - $ 12.09
================= ================= =========== =============
CLASS A:
Net assets $ - $ 106,542,467 $ - $ 106,542,467
----------------- ----------------- ----------- -------------
Shares outstanding - 46,534,977 (37,719,450) 8,815,527
----------------- ----------------- ----------- -------------
Net asset and redemption value per share $ - $ 2.29 $ - $ 12.09
================= ================= =========== =============
Maximum offering price per share (net asset value plus
sales charge of 0%, 3%, and 4%, respectively of
offering price) $ - $ 2.36 $ - $ 12.46
================= ================= =========== =============
CLASS B:
Net assets $ - $ 4,095,236 $ - $ 4,095,236
----------------- ----------------- ----------- -------------
Shares outstanding - 1,791,501 (1,452,653) 338,848
----------------- ----------------- ----------- -------------
Net asset value and offering price per share $ - $ 2.29 $ - $ 12.09
================= ================= =========== =============
CLASS C:
Net assets $ - $ 49,588,743 $ - $ 49,588,743
----------------- ----------------- ----------- -------------
Shares outstanding - 21,682,285 (17,579,218) 4,103,067
----------------- ----------------- ----------- -------------
Net asset value and offering price per share $ - $ 2.29 $ - $ 12.09
================= ================= =========== =============
CLASS Y:
Net assets $ - $ 858,162 $ - $ 858,162
----------------- ----------------- ----------- -------------
Shares outstanding - 374,162 (303,156) 71,006
----------------- ----------------- ----------- -------------
Net asset value and offering price per share $ - $ 2.29 $ - $ 12.09
================= ================= =========== =============
</TABLE>
See accompanying notes to pro forma financial statements
<PAGE>
PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 2000
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
PACE GOVERNMENT
PACE GOVERNMENT PW LOW DURATION SECURITIES
SECURITIES FIXED U.S. GOVERNMENT FIXED INCOME
INCOME INVESTMENTS INCOME FUND ADJUSTMENTS INVESTMENTS
------------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 13,773,465 $ 9,574,775 $ - $ 23,348,240
------------------ -------------- ------------ -------------
13,773,465 9,574,775 - 23,348,240
------------------ -------------- ------------ -------------
EXPENSES:
Investment advisory and administration 1,380,076 747,990 299,197 (a) 2,427,263
Shareholder distribution and servicing fees - 700,716 - 700,716
Transfer agency and service 87,822 131,654 - 219,476
Trustees' fees 26,250 13,500 (13,500) (b) 26,250
Legal and audit 67,927 73,248 (73,248) (b) 67,927
Amortization of organizational expenses 19,032 - - 19,032
Reports and notices to shareholders 37,193 23,790 (19,032) (b) 41,951
Federal and state registration fees 8,935 37,812 (30,249) (b) 16,497
Custody and accounting 120,092 74,799 - 194,891
Interest expense 39,447 - - 39,447
Other expenses 12,281 27,839 - 40,120
------------------ -------------- ------------ -------------
1,799,055 1 ,831,348 163,168 3,793,571
Less: fee waivers and reimbursements from investment adviser (83,618) - (450,778) (c) (534,396)
------------------ -------------- ------------ -------------
Net expenses 1,715,437 1,831,348 (287,610) 3,259,175
------------------ -------------- ------------ -------------
Net investment income (loss) 12,058,028 7,743,427 287,610 20,089,065
------------------ -------------- ------------ -------------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT TRANSACTIONS:
Net realized gains (losses) from investment transactions 15,206 (2,386,961) - (2,371,755)
Net change in unrealized appreciation of investments 114,103 445,962 - 560,065
------------------ -------------- ------------ -------------
Net realized and unrealized gains (losses) from investment
activities 129,309 (1,940,999) - (1,811,690)
------------------ -------------- ------------ -------------
Net increase (decrease) in net assets resulting from operations $ 12,187,337 $ 5,802,428 $ 287,610 $ 18,277,376
================== ============== ============ =============
</TABLE>
--------------
(a) Reflects increase in fees resulting from the higher fee schedule, before
waivers, of PACE Government Securities 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 Government Securities Fixed Income Investments.
See accompanying notes to pro forma financial statements
<PAGE>
PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
PRO FORMA PORTFOLIO OF INVESTMENTS
FOR THE YEAR ENDED JULY 31, 2000
<TABLE>
<CAPTION>
PRO FORMA
COMBINED PACE
GOVERNMENT
COMBINED PACE GOVERNMENT PW LOW DURATION SECURITIES
PRINCIPAL MATURITY INTEREST SECURITIES FIXED U.S. GOVERNMENT FIXED INCOME
AMOUNT (000) DATES RATES INCOME INVESTMENTS INCOME FUND INVESTMENTS
------------------ -------------------- ------------ ------------------ --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AND
AGENCY OBLIGATIONS - 4.98%
$17,852 U.S. Treasury Inflation
Index Notes 07/15/02 3.625% $ 4,821,287 $ 12,963,906 $ 17,785,193
155 U.S. Treasury Notes 08/31/00 5.125 - 154,806 154,806
----------- ------------ ------------
Total U.S. Government and Agency
Obligations (cost - $17,824,041) 4,821,287 13,118,712 17,939,999
----------- ------------ ------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION CERTIFICATES - 60.28%
2,996 GNMA 05/20/30 6.000 - 2,938,992 2,938,992
11,708 GNMA 06/20/22 to 04/20/27 6.375 - 11,743,262 11,743,262
5,001 GNMA 07/15/30 6.500 - 4,952,545 4,952,545
6,479 GNMA 07/20/17 to 08/20/27 6.750 - 6,508,342 6,508,342
4,466 GNMA 07/20/25 to 09/20/26 6.750 4,490,751 - 4,490,751
3,694 GNMA 09/15/01 6.800 3,686,108 - 3,686,108
7,590 GNMA 05/15/02 to 11/20/27 7.000 7,557,891 - 7,557,891
2,606 GNMA 06/16/26 7.040+ 2,585,051 - 2,585,051
1,105 GNMA 11/20/22 7.125 - 1,111,333 1,111,333
4,120 GNMA 11/20/21 to 12/20/27 7.125 4,134,598 - 4,134,598
4,795 GNMA 01/20/18 to 02/20/27 7.375 4,817,913 - 4,817,913
8,523 GNMA 03/20/23 to 02/20/28 7.375 - 8,565,823 8,565,823
1,494 GNMA 05/15/39 7.470 1,474,303 - 1,474,303
2,947 GNMA 06/20/30 7.500 - 2,956,641 2,956,641
1,298 GNMA 07/15/02 to 09/30/29 7.500 1,299,879 - 1,299,879
76 GNMA 02/15/23 8.000 - 76,905 76,905
533 GNMA 12/15/07 to 08/15/09 8.000 542,741 - 542,741
2,885 GNMA 06/20/16 8.500 2,921,257 - 2,921,257
996 GNMA 06/20/30 9.000 - 1,019,237 1,019,237
3,745 GNMA 01/15/16 to 09/15/20 10.500 - 4,023,275 4,023,275
2,217 GNMA 03/15/10 to 05/15/19 11.500 - 2,429,929 2,429,929
3,995 GNMA ARM 05/20/30 6.000 3,918,267 - 3,918,267
22,000 GNMA I 08/23/30 6.500 21,793,750 - 21,793,750
10,000 GNMA I 08/23/30 7.000 9,706,200 - 9,706,200
5,000 GNMA II 04/20/30 6.500 - 4,956,667 4,956,667
1,799 GNMA II 07/20/27 to 04/20/30 6.750 - 1,779,977 1,779,977
21,911 GNMA II 05/20/30 to 07/20/30 7.000 - 21,831,073 21,831,073
480 GNMA II 01/20/28 7.375 - 481,218 481,218
1,500 GNMA II 07/20/30 7.500 - 1,503,225 1,503,225
6,000 GNMA II 08/25/30 8.500 6,093,750 - 6,093,750
2,998 GNMA II 04/20/30 to 07/20/30 9.000 - 3,067,486 3,067,486
998 GNMA II 04/20/30 9.000 1,021,226 - 1,021,226
4,763 GNMA II ARM 04/20/26 6.375 - 4,773,516 4,773,516
332 GNMA II ARM 04/20/18 to 01/20/28 6.375 333,584 - 333,584
24,483 GNMA II ARM 10/20/29 to 08/24/30 7.000 24,428,510 - 24,428,510
1,034 GNMA II ARM 01/20/18 7.375 - 1,040,990 1,040,990
1,500 GNMA II ARM 07/20/30 7.500 1,503,225 - 1,503,225
20,000 GNMA II TBA TBA 5.500 - 19,812,500 19,812,500
5,000 GNMA II TBA TBA 8.500 - 5,078,125 5,078,125
3,000 GNMA II TBA TBA 9.000 - 3,080,615 3,080,615
72 GNMA Project Loan 10/15/40 7.000 62,660 - 62,660
934 GNMA Project Loan 09/30/29 7.500 895,874 - 895,874
----------- ------------ ------------
Total Government National
Mortgage Association Certificates
(cost - $217,950,735) 103,267,538 113,731,676 216,999,214
----------- ------------ ------------
FEDERAL HOME LOAN MORTGAGE
CORPORATION CERTIFICATES - 11.01%
220 FHLMC 08/01/01 6.500 218,001 - 218,001
1,895 FHLMC 09/01/04 7.000 1,878,253 - 1,878,253
1,855 FHLMC 07/01/24 7.270 - 1,892,244 1,892,244
984 FHLMC 05/01/21 7.450 978,511 - 978,511
789 FHLMC 10/01/17 to 11/01/24 7.500 783,984 - 783,984
52 FHLMC 01/01/23 8.000 - 52,130 52,130
876 FHLMC 03/01/13 8.000 881,132 - 881,132
1,569 FHLMC 05/01/16 8.500 - 1,599,247 1,599,247
283 FHLMC 04/01/04 8.500 283,982 - 283,982
179 FHLMC 07/01/09 to 02/01/10 9.000 - 184,272 184,272
499 FHLMC 11/01/16 9.750 - 522,840 522,840
525 FHLMC 10/01/20 to 11/01/20 10.500 - 563,139 563,139
1,659 FHLMC 05/01/11 to 12/01/20 11.000 - 1,795,535 1,795,535
1,074 FHLMC 06/01/04 to 07/01/19 11.500 - 1,174,337 1,174,337
6,511 FHLMC ARM 04/01/29 to 01/01/30 5.930 - 6,585,913 6,585,913
1,858 FHLMC ARM 01/01/30 5.930 1,867,450 - 1,867,450
1,903 FHLMC ARM 01/01/28 6.350 1,883,990 - 1,883,990
2,809 FHLMC ARM 12/01/29 6.468 - 2,837,548 2,837,548
1,873 FHLMC ARM 12/01/29 6.468 1,891,699 - 1,891,699
4,549 FHLMC ARM 11/01/27 6.706 - 4,576,529 4,576,529
565 FHLMC ARM 10/01/29 6.907 - 563,681 563,681
993 FHLMC ARM 10/01/29 6.907 991,777 - 991,777
1,773 FHLMC ARM 07/01/24 7.742 1,808,409 - 1,808,409
3,733 FHLMC ARM 04/01/29 7.907 3,834,577 - 3,834,577
----------- ------------ ------------
Total Federal Home Loan
Mortgage Corporation Certificates
(cost - $39,642,280) 17,301,765 22,347,415 39,649,180
----------- ------------ ------------
FEDERAL HOUSING ADMINISTRATION
CERTIFICATES - 8.04%
11,410 FHA 02/01/20 to 03/01/41 8.375 to 8.800 - 11,038,169 11,038,169
18,662 FHA Project Notes 10/15/04 to 02/01/29 6.850 to 8.500 17,920,086 - 17,920,086
----------- ------------ ------------
Total Federal Housing
Administration Certificates
(cost -- $30,305,917) 17,920,086 11,038,169 28,958,255
----------- ------------ ------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION CERTIFICATES - 35.35%
2,779 FNMA 02/01/29 6.000 - 2,811,312 2,811,312
1,502 FNMA 03/01/04 7.000 1,489,630 - 1,489,630
2,994 FNMA 04/01/07 7.250 - 2,993,884 2,993,884
5,347 FNMA 01/01/07 to 04/01/07 7.250 5,371,925 - 5,371,925
40,200 FNMA 10/01/26 to 08/16/30 7.500 39,626,000 - 39,626,000
3,992 FNMA 03/01/07 7.547 - 4,007,942 4,007,942
1,573 FNMA 07/01/25 to 10/01/29 8.000 1,586,188 - 1,586,188
2,264 FNMA 11/01/02 to 09/01/27 8.500 2,306,023 - 2,306,023
1,087 FNMA 10/01/19 to 02/01/26 9.000 1,121,721 - 1,121,721
2,098 FNMA 04/01/10 to 12/01/15 9.250 - 2,165,047 2,165,047
267 FNMA 03/01/06 to 12/01/09 9.500 - 276,685 276,685
1,683 FNMA 08/01/19 10.000 - 1,784,460 1,784,460
446 FNMA 07/01/10 to 06/01/19 10.250 - 469,710 469,710
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
COMBINED PACE
GOVERNMENT
COMBINED PACE GOVERNMENT PW LOW DURATION SECURITIES
PRINCIPAL MATURITY INTEREST ECURITIES FIXED U.S. GOVERNMENT FIXED INCOME
AMOUNT (000) DATES RATES INCOME INVESTMENTS INCOME FUND INVESTMENTS
------------------ -------------------- ----------- ------------------ --------------- -------------
<S> <C> <C> <C> <C> <C>
926 FNMA 02/01/12 to 04/01/22 10.500 - 1,005,352 1,005,352
4,589 FNMA ARM 02/01/30 6.064 - 4,648,155 4,648,155
1,836 FNMA ARM 02/01/30 6.276 1,859,262 - 1,859,262
1,910 FNMA ARM 02/01/26 6.406 - 1,959,593 1,959,593
1,389 FNMA ARM 02/01/29 6.424 1,405,656 - 1,405,656
1,791 FNMA ARM 09/01/15 6.531 - 1,796,858 1,796,858
1,862 FNMA ARM 12/01/27 6.629 1,852,853 - 1,852,853
3,188 FNMA ARM 03/01/07 6.820 3,201,042 - 3,201,042
2,284 FNMA ARM 09/01/26 7.027 - 2,315,075 2,315,075
4,961 FNMA ARM 07/01/09 7.249 4,947,190 - 4,947,190
1,642 FNMA ARM 03/01/25 7.634 - 1,680,984 1,680,984
1,642 FNMA ARM 03/01/25 7.810 1,680,984 - 1,680,984
1,033 FNMA ARM 02/01/05 9.000 - 1,077,577 1,077,577
1,616 FNMA ARM 07/01/13 to 05/01/20 11.000 - 1,750,317 1,750,317
30,000 FNMA TBA TBA 8.000 30,084,360 - 30,084,360
----------- ----------- ------------
Total Federal National
Mortgage Association Certificates
(cost - $127,348,169) 96,532,834 30,742,951 127,275,785
----------- ----------- ------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 17.21%
136 FHLMC GNMA REMIC, Series 23, Class KZ 11/25/23 6.500 114,123 - 114,123
413 FHLMC REMIC, Series 0159, Class H 09/15/21 4.500 379,392 - 379,392
550 FHLMC REMIC, Series 0185, Class E 08/15/06 9.000 559,620 - 559,620
3,102 FHLMC REMIC, Series 1003, Class H 10/15/20 7.438++ 2,117,058 - 2,117,058
3,666 FHLMC REMIC, Series 1188, Class H 12/15/20 7.500 3,670,156 - 3,670,156
1,971 FHLMC REMIC, Series 1322, Class G 02/15/07 7.500 1,979,886 - 1,979,886
299 FHLMC REMIC, Series 1347, Class HC 12/15/21 4.250 276,467 - 276,467
2,280 FHLMC REMIC, Series 1361, Class D 11/15/05 6.000 2,268,188 - 2,268,188
1,106 FHLMC REMIC, Series 1502, Class PX 04/15/23 7.000 969,396 - 969,396
605 FHLMC REMIC, Series 1534, Class Z 06/15/23 5.000 426,837 - 426,837
1,630 FHLMC REMIC, Series 1542, Class Z 07/15/23 7.000 1,446,932 - 1,446,932
142 FHLMC REMIC, Series 1552, Class EA 01/15/17 5.850 79,186 62,529 141,715
179 FHLMC REMIC, Series 1573, Class PZ 09/15/23 7.000 162,186 - 162,186
255 FHLMC REMIC, Series 1640, Class F 10/15/07 7.088++ 254,690 - 254,690
150 FHLMC REMIC, Series 1658, Class GZ 01/15/24 7.000 135,893 - 135,893
114 FHLMC REMIC, Series 1661, Class PE 11/15/06 6.000 113,810 - 113,810
1,000 FHLMC REMIC, Series 1694, Class Z 03/15/24 6.500 868,568 - 868,568
110 FHLMC REMIC, Series 1775, Class Z 03/15/25 8.500 112,996 - 112,996
3,085 FHLMC REMIC, Series 1869, Class J 12/15/24 8.000 3,109,343 - 3,109,343
1,313 FHLMC REMIC, Series 1933, Class ZA 02/15/27 8.000 1,314,272 - 1,314,272
89 FNMA REMIC, Trust 1992 - 074, Class Z 05/25/22 8.000 89,019 - 89,019
165 FNMA REMIC, Trust 1992 - 129, Class L 07/25/22 6.000 144,528 - 144,528
1,251 FNMA REMIC, Trust 1993 - 037, Class PX 03/25/23 7.000 1,122,227 - 1,122,227
464 FNMA REMIC, Trust 1993 - 040, Class ZA 12/25/23 6.500 401,819 - 401,819
47 FNMA REMIC, Trust 1993 - 162, Class C 08/25/23 3.000@ 46,319 - 46,319
45 FNMA REMIC, Trust 1993 - 240, Class Z 12/25/13 6.250 40,516 - 40,516
1,187 FNMA REMIC, Trust 1993 - 250, Class DZ 12/25/23 7.000 992,139 - 992,139
71 FNMA REMIC, Trust 1993 - 250, Class Z 12/25/23 7.000 65,975 - 65,975
77 FNMA REMIC, Trust 1994- 027, Class CZ 02/25/24 6.500 66,515 - 66,515
876 FNMA REMIC, Trust 1999- 003, Class CZ 02/25/14 6.000 716,987 - 716,987
107 FNMA REMIC, Trust 1999- 043, Class AZ 08/25/29 7.000 92,220 - 92,220
1,105 FNMA REMIC, Trust G92 - 040, Class ZC 07/25/22 7.000 1,077,759 - 1,077,759
148 FNMA REMIC, Trust G94 - 006, Class PJ 05/17/24 8.000 150,586 - 150,586
919 GNMA REMIC, Trust Series 2000 - 009,
Class FH 02/16/30 7.126++ 922,361 - 922,361
1,963 3EWCourt Receivables Asset Trust
Series 1997-1, Class A4 05/20/05 6.193 - 1,944,919 1,944,919
100 Bank of America Mortgage Securities
Series 1999 - 5, Class A-22 05/25/29 6.500 90,863 - 90,863
450 Bank of America Mortgage Securities
Series 1999 - 8, Class A-12 08/25/29 6.750 416,812 - 416,812
207 Bear Stearns Mortgage Securities Inc.
Series 1993 - 8, Class A-5 08/25/24 6.350 206,163 - 206,163
2,379 Bear Stearns Mortgage Securities Inc.
Series 1996 - 4, Class AI-1 09/25/27 8.125 2,401,504 - 2,401,504
1,750 Chase Mortgage Finance Corp. Series
1998 Class IA-8 08/25/28 6.750 1,536,743 - 1,536,743
386 Cityscape Home Equity Loan Trust
Series 1997-B, Class A5 09/25/19 7.480 - 383,885 383,885
1,000 Countrywide Home Loan Inc. 06/15/04 6.850 975,880 - 975,880
1,500 CWMBS Inc. Series 1998 - 13, Class A3 12/25/28 6.500 1,337,805 - 1,337,805
1,500 CWMBS Inc. Series 1998 - 15, Class A8 10/25/28 6.750 1,300,505 - 1,300,505
3,382 Farmer Mac. Series 2002 - Class AA1 04/25/01 7.721 3,380,077 - 3,380,077
530 Green Tree Financial Corp Series 1998,
Class 2 11/01/16 6.240 519,956 - 519,956
686 Headlands Mortgage Security Inc. REMIC
Series 1997 - 1, Class A, II 03/15/12 7.750 689,249 - 689,249
489 Headlands Mortgage Security Inc. REMIC
Series 1997 - 2, Class A, II 05/25/12 7.750 490,697 - 490,697
383 Headlands Mortgage Security Inc. REMIC
Series 1997 - 4, Class A, II 11/25/12 7.250 380,330 - 380,330
1,500 Headlands Mortgage Security Inc. REMIC
Series 1998 - 1, Class A, III 11/25/28 6.500 1,368,570 - 1,368,570
703 Merrill Lynch Mortgage Investors, Inc.
Series 1999, Class H1 03/20/17 6.210++ 698,216 - 698,216
539 Money Store Home Equity Trust
Series 1997-D, Class AF3 11/15/21 6.345 - 534,426 534,426
1,610 Morgan Stanley Capital Inc.
Series 1998 - HF1, Class A1 01/15/07 6.190++ 1,557,497 - 1,557,497
1,639 PNC Mortgage Securities Corp.
Series 1998 - 5, Class 2A5 11/25/28 6.750 1,526,259 - 1,526,259
2,500 PNC Mortgage Securities Corp.
Series 1999 - 5, Class 2A5 07/25/29 6.750 2,322,625 - 2,322,625
436 Prudential Home Mortgage
REMIC 1993 - 29, Class A8 08/25/08 6.750 423,257 - 423,257
2,488 Prudential Securities Trust
Series 18, Class E 09/25/20 7.000 - 2,448,923 2,448,923
4,333 Residential Accredit Loans Inc.
Series 2000-QS3C, Class A1 03/25/30 7.750 - 4,328,718 4,328,718
10 Residential Funding Mortgage
Securities Inc. Series 1993 -
S15, Class A9 04/25/08 7.721++ 92,763 - 92,763
1,500 Residential Funding Mortgage
Securities Inc. Series 1998 -
S12, Class A6 05/25/28 6.750 1,359,461 - 1,359,461
1,428 Residential Funding Mortgage
Securities Inc. Series 1998 -
S20, Class A19 09/25/28 6.750 267,777 - 267,777
1,578 Ryland Mortgage Acceptance Corp.
REMIC Series 76, Class B 08/01/18 9.000 - 1,621,638 1,621,638
990 Small Business Administration
Series 1995 - 10, Class I 03/01/05 7.750 994,061 - 994,061
----------- ----------- -----------
Total Collateralized Mortgage
Obligations (cost - $64,141,286) 50,625,039 11,325,038 61,950,077
----------- ----------- -----------
ASSET BACKED SECURITIES - 1.53%
863 Beneficial Home Equity Loan Trust 04/28/26 6.945++ 862,514 - 862,514
2,000 Conseco Finance Home Loan Trust 06/15/24 9.520 2,003,480 - 2,003,480
688 Student Loan Marketing Association
Series 1996 - 2, Class A1 10/25/04 6.581 686,863 - 686,863
2,000 Student Loan Trust 10/27/25 6.740 1,939,960 - 1,939,960
----------- ----------- -----------
Total Asset Backed Securities
(cost - $5,486,505) 5,492,817 - 5,492,817
----------- ----------- -----------
STRIPPED MORTGAGE-BACKED
SECURITIES - 3.46%
815 FHLMC REMIC Series 0013,
Class B(1)+++ 06/25/23 7.000 466,384 - 466,384
772 FHLMC REMIC Series 1554,
Class I(1)+++ 08/15/08 6.500* 66,078 - 66,078
5,000 FHLMC REMIC Series 1627,
Class PN(1)+++ 09/15/22 6.000 1,055,866 - 1,055,866
1,613 FHLMC REMIC Series 1993 -
138, Class CL(1)+++ 11/25/22 7.000 334,878 - 334,878
4,854 FHLMC REMIC Series 2059,
Class PI(1)+++ 07/15/26 6.500 1,112,681 - 1,112,681
9,033 FHLMC REMIC Series 2080,
Class VK(1)+++ 09/15/05 6.500 1,361,748 - 1,361,748
1,000 FHLMC REMIC Series 2110,
Class PT(1)+++ 07/15/23 6.000 306,780 - 306,780
941 FHLMC REMIC Series 2136,
Class GD(1)+++ 03/15/29 7.000 207,923 - 207,923
3,818 FHLMC REMIC, Series
2178, Class PI(1)+++ 08/15/29 7.500 886,047 - 886,047
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
COMBINED PACE
GOVERNMENT
COMBINED PACE GOVERNMENT PW LOW DURATION SECURITIES
PRINCIPAL MATURITY INTEREST SECURITIES FIXED U.S. GOVERNMENT FIXED INCOME
AMOUNT (000) DATES RATES INCOME INVESTMENTS INCOME FUND INVESTMENTS
------------------ ----------------- ------------ ------------------ ---------------- -------------
<S> <C> <C> <C> <C> <C>
6 FNMA REMIC Trust 1992 -
142, Class KB(1)+++ 08/25/07 11.977 164,618 - 164,618
7 FNMA REMIC Trust 1992 -
157, Class JA(1)+++ 09/25/07 10.146 166,283 - 166,283
616 FNMA REMIC Trust 1992 -
207, Class U(1)+++ 10/25/07 7.500 111,156 - 111,156
2,926 FNMA REMIC Trust 1993 -
116, Class H(1)+++ 07/25/22 7.000 514,564 - 514,564
186 FNMA REMIC Trust 1993 -
161, Class GC(1)+++ 02/25/23 .010* 126,760 - 126,760
794 FNMA REMIC Trust 1994 -
007, Class PK(1)+++ 05/25/08 6.500* 40,883 - 40,883
1,184 FNMA REMIC Trust 1994 -
030, Class IA(1)+++ 11/25/22 6.500* 141,378 - 141,378
7,119 FNMA REMIC Trust 1998 -
013, Class PI(1)+++ 07/18/19 7.000 729,469 - 729,469
3,301 FNMA REMIC Trust 1998 -
024, Class OK(1) 11/18/21 7.000 433,157 - 433,157
1,388 FNMA REMIC Trust 1998 -
044, Class IG(1)+++ 07/18/16 6.500 208,041 - 208,041
6,705 GNMA REMIC Trust
Series 1998 - 001, Class
PG(1)+++ 07/20/24 7.000 1,063,625 - 1,063,625
4,424 Chase Mortgage Finance
Corp. Series 1998 -
S2, Class A4(1)+++ 07/25/28 6.750 536,410 - 536,410
16,000 Conseco Finance
Securitizations(1)+++ 12/15/29 7.000 1,015,000 - 1,015,000
15,096 CWMBS Inc. Series 1998 -
14, Class A2(1)+++ 12/25/13 0.500* 207,564 - 207,564
1,500 Firstplus Home Loan
Owner Trust Series 1998 -
5, Class A1(1)+++ 10/10/00 6.000* 14,297 - 14,297
1,410 Prudential Home Mortgage
REMIC 1993 -
54, Class A19(1)** 01/25/24 6.500 1,188,280 - 1,188,280
------------- ------------- -------------
Total Stripped Mortgage-Backed
Securities (cost - $11,212,501) 12,459,870 - 12,459,870
------------- ------------- -------------
CORPORATE OBLIGATIONS - 0.84%
2,000 Lehman Brothers Holdings Inc. MTN 04/02/02 7.678 2,007,542 - 2,007,542
1,000 Morgan Stanley Dean Witter 01/28/02 6.837@ 1,000,699 - 1,000,699
------------- ------------- -------------
Total Corporate Obligations
(cost -- $3,006,152) 3,008,241 - 3,008,241
------------- ------------- -------------
COMMERCIAL PAPER - 0.19%
700 Dominion Resources MTN(1)
(cost - $699,915) 01/26/01 7.026 699,915 - 699,915
------------- ------------- -------------
SHORT-TERM U.S. GOVERNMENT
OBLIGATIONS - 1.26%
4,500 Federal National Mortgage
Association Discount Notes 10/26/00 6.42 to 6.45 - 4,430,735 4,430,735
105 U.S. Treasury Notes 08/31/00 5.125@ 104,869 - 104,869
------------- ------------- -------------
Total Short-Term U.S.
Government Obligations
(cost - $4,430,949) 104,869 4,430,735 4,535,604
------------- ------------- -------------
REPURCHASE AGREEMENTS - 5.10%
2,263 Repurchase Agreement dated
07/31/00 with State Street
Bank & Trust Co., collateralized
by $2,315,000 U.S. Treasury
Notes, 5.250% due
05/31/01(value--$2,312,106)
proceeds: $2,263,330 08/01/00 5.250 - 2,263,000 2,263,000
16,093 Repurchase Agreement dated
07/31/00 with State
Street Bank & Trust Co.,
collateralized by
$11,995,000 U.S. Treasury
Bond, 8.750% due
08/15/20(value--
$16,418,156) proceeds:
$16,095,347 08/01/00 5.250 16,093,000 - 16,093,000
------------- ------------- -------------
Total Repurchase Agreements
(cost - $18,356,000) 16,093,000 2,263,000 18,356,000
Total Investments
(cost--$540,509,372) - 149.26% 328,327,261 208,997,696 537,324,957
Liabilities in excess of
other assets - (49.26)% (129,409,240) (47,913,090) (177,322,330)
------------- ------------- -------------
Net Assets--100.00% $ 198,918,021 $ 161,084,606 $ 360,002,627
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
COMBINED PACE
GOVERNMENT
COMBINED PACE GOVERNMENT PW LOW DURATION SECURITIES
NUMBER OF STRIKE EXPIRATION SECURITIES FIXED U.S. GOVERNMENT FIXED INCOME
CONTRACTS PRICE DATES INCOME INVESTMENTS INCOME FUND INVESTMENTS
------------------ -------------- ---------------- ------------------ --------------- --------------
<S> <C> <C> <C> <C> <C>
WRITTEN OPTIONS(1)
300 Federal National Mortgage
Association Calls $ 123.75 September 2000 $ 77,700 $ - $ 77,700
================ ============= ==============
</TABLE>
----------------------------------------------
++ Floating rate securities. The interest rates shown are the current rates
as of July 31, 2000.
* Rate reflects annualized yield at date of purchase.
** Principal Only Security. This security entitles the holder to receive
principal payments from an underlying pool of mortgages. High prepayments
return principal faster than expected and cause the yield to increase.
Low prepayments return principal more slowly than expected and cause the
yield to decrease.
+++ Interest Only Security. This security entitles the holder to receive
interest payments from an underlying pool of mortgages. The risk
associated with this security is related to the speed of the principal
paydowns. High prepayments would result in a smaller amount of interest
being received and cause the yield to decrease. Low prepayments would
result in a greater amount of interest being received and cause the yield
to increase.
+ Estimated yield to maturity at July 31, 2000.
@ Interest rate shown is discount rate at date of purchase.
(1) Illiquid securities representing 3.46% of net assets.
ARM Adjustable Rate Mortgage--The interest rates shown are the current rates
as of July 31, 2000.
MTN Medium Term Note.
REMIC Real Estate Mortgage Investment Conduit.
TBA (To Be Assigned) Securities are purchased on a forward commitment with an
approximate principal amount (generally +/- 1.0%) and no definite
maturity date. The actual principal amount and maturity date will be
determined upon settlement when the specific mortgage pools are assigned.
See accompanying notes to pro forma financial statements
<PAGE>
PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS
PAINEWEBBER LOW DURATION U.S. GOVERNMENT 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 Low Duration U.S.
Government Income Fund ("Low Duration"), PACE Government Securities Fixed Income
Investments ("Government Securities") would acquire the assets of Low Duration
in exchange solely for the assumption by Government Securities of Low Duration's
assets and stated liabilities and shares of Government Securities that
correspond to the outstanding shares of Low Duration. The number of shares to be
received would be based on the relative net asset value of Government
Securities' shares on the effective date of the Plan and Low Duration will be
terminated as soon as practicable thereafter.
The PRO FORMA financial statements reflect the financial position of Government
Securities and Low Duration at July 31, 2000 and the combined results of
operations of Government Securities and Low Duration (each a "Fund" and,
together, the "Funds") for the year ended July 31, 2000.
As a result of the Plan, the investment management and administration fee will
increase due to the higher fee schedule, net of waivers, of Government
Securities. However, after anticipated savings in other expenses of the Fund
(due to the elimination of duplicative expenses) and the management fee
waiver/expense reimbursement, shareholders of each class of shares of Low
Duration (except Class A) will not experience an increase in total expenses. Low
Duration currently pays Rule 12b-1 distribution or service fees; as of July 31,
2000, Government Securities 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 costs of
approximately $171,000 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 on 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 each Fund's sub-adviser. If a
<PAGE>
market value is not available from an independent pricing source for a
particular security, that security is 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.
<PAGE>
PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES
FOR THE YEAR ENDED JULY 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PACE GOVERNMENT PW U.S.
SECURITIES FIXED GOVERNMENT
INCOME INVESTMENTS INCOME FUND
----------------------- ----------------
<S> <C> <C>
ASSETS
Investments in securities, at value (cost - $330,884,058,
$327,386,261, $209,625,314 and $867,895,633, respectively) $ 328,327,261 $ 315,138,396
Investment of cash collateral for securities loaned
(cost - $0, $24,520,750, $0 and $24,520,750, respectively) - 24,520,750
Cash - 502
Receivable for investments sold 3,260 -
Receivable for shares of beneficial interest sold 110,435 161
Dividends and interest receivable 1,633,542 3,387,309
Deferred organizational expenses 1,025 -
Other assets 32,713 31,332
---------------------- ---------------
Total assets 330,108,236 343,078,450
---------------------- ---------------
LIABILITIES
Payable for cash collateral for securities loaned - 24,520,750
Payable for investments purchased 130,699,989 79,182,313
Payable for shares of beneficial interest repurchased 103,565 535,616
Unrealized depreciation of forward foreign currency contracts - -
Outstanding options written, at value 77,700 -
Variation margin payable - 90,013
Payable to affiliates 114,807 122,437
Payable to custodian 82,526 -
Accrued expenses and other liabilities 111,628 542,602
---------------------- ---------------
Total liabilities 131,190,215 104,993,731
---------------------- ---------------
NET ASSETS
Beneficial interest shares of $0.001 par value outstanding -
16,458,856, 28,113,730, 70,382,925 and 49,486,887, respectively 203,803,263 344,066,767
Accumulated undistributed (distributions in excess of) net investment 1,181,552 (169,608)
income (loss)
Accumulated net realized losses from investment transactions (3,516,672) (92,151,808)
Net unrealized depreciation of investments (2,550,122) (13,660,632)
---------------------- ---------------
Net assets applicable to shares outstanding $ 198,918,021 $ 238,084,719
====================== ===============
CLASS P:
Net assets $ 198,918,021 $ -
---------------------- ---------------
Shares outstanding 16,458,856 -
---------------------- ---------------
Net asset value and offering price per share $ 12.09 $ -
====================== ===============
CLASS A:
Net assets $ - $ 205,845,006
---------------------- ---------------
Shares outstanding - 24,304,537
---------------------- ---------------
Net asset and redemption value per share $ - $ 8.47
====================== ===============
Maximum offering price per share (net asset value plus sales charge
of 0%, 4%, 3%, and 4%, respectively, of offering price) $ - $ 8.82
---------------------- ---------------
CLASS B:
Net assets $ - $ 7,515,198
---------------------- ---------------
Shares outstanding - 887,146
---------------------- ---------------
Net asset value and offering price per share $ - $ 8.47
====================== ===============
CLASS C:
Net assets $ - $ 15,913,817
---------------------- ---------------
Shares outstanding - 1,880,778
---------------------- ---------------
Net asset value and offering price per share $ - $ 8.46
====================== ===============
CLASS Y:
Net assets $ - $ 8,810,698
---------------------- ---------------
Shares outstanding - 1,041,269
---------------------- ---------------
Net asset value and offering price per share $ - $ 8.46
====================== ===============
</TABLE>
<TABLE>
<CAPTION>
PW LOW DURATION
U.S. GOVERNMENT
INCOME FUND ADJUSTMENTS
----------------------- ------------------------
<S> <C> <C>
ASSETS
Investments in securities, at value (cost - $330,884,058,
$327,386,261, $209,625,314 and $867,895,633, respectively) $ 208,997,696 $ -
Investment of cash collateral for securities loaned
(cost - $0, $24,520,750, $0 and $24,520,750, respectively) - -
Cash - -
Receivable for investments sold 467,063 -
Receivable for shares of beneficial interest sold 381 -
Dividends and interest receivable 1,309,501 -
Deferred organizational expenses - -
Other assets 19,591 -
----------------------- ------------------------
Total assets 210,794,232 -
----------------------- ------------------------
LIABILITIES
Payable for cash collateral for securities loaned - -
Payable for investments purchased 48,800,072 -
Payable for shares of beneficial interest repurchased 434,226 -
Unrealized depreciation of forward foreign currency contracts 214 -
Outstanding options written, at value - -
Variation margin payable - -
Payable to affiliates 64,290 -
Payable to custodian - -
Accrued expenses and other liabilities 410,824 -
----------------------- ------------------------
Total liabilities 49,709,626 -
----------------------- ------------------------
NET ASSETS
Beneficial interest shares of $0.001 par value outstanding -
16,458,856, 28,113,730, 70,382,925 and 49,486,887, respectively 282,773,545 -
Accumulated undistributed (distributions in excess of) net investment (42,695) -
income (loss)
Accumulated net realized losses from investment transactions (121,018,626) -
Net unrealized depreciation of investments (627,618) -
----------------------- ------------------------
Net assets applicable to shares outstanding $ 161,084,606 $ -
======================= ========================
CLASS P:
Net assets $ - $ -
----------------------- ------------------------
Shares outstanding - -
----------------------- ------------------------
Net asset value and offering price per share $ - $ -
======================= ========================
CLASS A:
Net assets $ 106,542,467 $ -
----------------------- ------------------------
Shares outstanding 46,534,977 (44,991,979)
----------------------- ------------------------
Net asset and redemption value per share $ 2.29 $ -
======================= ========================
Maximum offering price per share (net asset value plus sales charge
of 0%, 4%, 3%, and 4%, respectively, of offering price) $ 2.36 $ -
======================= ========================
CLASS B:
Net assets $ 4,095,236 $ -
----------------------- ------------------------
Shares outstanding 1,791,501 (1,717,978)
----------------------- ------------------------
Net asset value and offering price per share $ 2.29 $ -
======================= ========================
CLASS C:
Net assets $ 49,588,743 $ -
----------------------- ------------------------
Shares outstanding 21,682,285 (18,143,256)
----------------------- ------------------------
Net asset value and offering price per share $ 2.29 $ -
======================= ========================
<PAGE>
CLASS Y:
Net assets $ 858,162 $ -
----------------------- ------------------------
Shares outstanding 374,162 (615,411)
----------------------- ------------------------
Net asset value and offering price per share $ 2.29 $ -
======================= ========================
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
PACE GOVERNMENT
SECURITIES
FIXED INCOME
INVESTMENTS
----------------------
<S> <C>
ASSETS
Investments in securities, at value (cost - $330,884,058,
$327,386,261, $209,625,314 and $867,895,633, respectively) $ 852,463,353
Investment of cash collateral for securities loaned
(cost - $0, $24,520,750, $0 and $24,520,750, respectively) 24,520,750
Cash 502
Receivable for investments sold 470,323
Receivable for shares of beneficial interest sold 110,977
Dividends and interest receivable 6,330,352
Deferred organizational expenses 1,025
Other assets 83,636
----------------------
Total assets 883,980,918
----------------------
LIABILITIES
Payable for cash collateral for securities loaned 24,520,750
Payable for investments purchased 258,682,374
Payable for shares of beneficial interest repurchased 1,073,407
Unrealized depreciation of forward foreign currency contracts 214
Outstanding options written, at value 77,700
Variation margin payable 90,013
Payable to affiliates 301,534
Payable to custodian 82,526
Accrued expenses and other liabilities 1,065,054
----------------------
Total liabilities 285,893,572
----------------------
NET ASSETS
Beneficial interest shares of $0.001 par value outstanding -
16,458,856, 28,113,730, 70,382,925 and 49,486,887, respectively 830,643,575
Accumulated undistributed (distributions in excess of) net investment 969,249
income (loss)
Accumulated net realized losses from investment transactions (216,687,106)
Net unrealized depreciation of investments (16,838,372)
----------------------
Net assets applicable to shares outstanding $ 598,087,346
======================
CLASS P:
Net assets $ 198,918,021
----------------------
Shares outstanding 16,458,856
----------------------
Net asset value and offering price per share $ 12.09
======================
CLASS A:
Net assets $ 312,387,473
----------------------
Shares outstanding 25,847,535
----------------------
Net asset and redemption value per share $ 12.09
======================
Maximum offering price per share (net asset value plus sales charge
of 0%, 4%, 3%, and 4%, respectively, of offering price) $ 12.59
======================
CLASS B:
Net assets $ 11,610,434
----------------------
Shares outstanding 960,669
----------------------
Net asset value and offering price per share $ 12.09
======================
CLASS C:
Net assets $ 65,502,560
----------------------
Shares outstanding 5,419,807
----------------------
Net asset value and offering price per share $ 12.09
======================
CLASS Y:
Net assets $ 9,668,860
----------------------
Shares outstanding 800,020
----------------------
Net asset value and offering price per share $ 12.09
======================
</TABLE>
See accompanying notes to pro forma financial statements
<PAGE>
PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
PACE GOVERNMENT
PACE GOVERNMENT PW U.S. PW LOW DURATION SECURITIES
SECURITIES FIXED GOVERNMENT U.S. GOVERNMENT FIXED INCOME
INCOME INVESTMENTS INCOME FUND INCOME FUND ADJUSTMENTS INVESTMENTS
------------------ ------------- --------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of foreign withholding
taxes, if any) $ 13,773,465 $ 18,447,280 $ 9,574,775 $ - $ 32,220,745
-------------- ------------ -------------- ----------- ----------------
13,773,465 18,447,280 9,574,775 - 32,220,745
-------------- ------------ -------------- ----------- ----------------
EXPENSES:
Investment advisory and administration 1,380,076 1,315,199 747,990 825,276 (a) 3,520,551
Shareholder distribution and servicing
fees - 807,378 700,716 - 807,378
Transfer agency fees and expenses 87,822 290,678 131,654 - 378,500
Reports and notices to shareholders 37,193 27,300 23,790 (40,872)(b) 23,621
Legal and audit 67,927 53,190 73,248 (126,438)(b) (5,321)
Trustees' fees 26,250 13,500 13,500 (27,000)(b) 12,750
Federal and state registration fees 8,935 35,540 37,812 (58,681)(b) (14,206)
Amortization of organizational
expenses 18,980 - - - 18,980
Custody and accounting 120,092 131,520 74,799 - 251,612
Interest expense 39,447 - - - 39,447
Other expenses 12,333 55,198 27,839 - 67,531
-------------- ------------ -------------- ----------- ----------------
1,799,055 2,729,503 1,831,348 572,285 5,100,843
Less: fee waivers and reimbursements
from investment adviser (83,618) (19,401) - (792,729)(c) (895,748)
-------------- ------------ -------------- ----------- ----------------
Net expenses 1,715,437 2,710,102 1,831,348 (220,444) 4,205,095
-------------- ------------ -------------- ----------- ----------------
Net investment income 12,058,028 15,737,178 7,743,427 220,444 28,015,650
-------------- ------------ -------------- ----------- ----------------
REALIZED AND UNREALIZED GAINS (LOSSES)
FROM INVESTMENT ACTIVITIES:
Net realized gains (losses) from
investment transactions 15,206 (1,445,402) (2,386,961) - (1,430,196)
Net change in unrealized appreciation
(depreciation) of investments 114,103 (14,764,732) 445,962 - (14,650,629)
-------------- ------------ -------------- ----------- ----------------
Net realized and unrealized gains
(losses) from investment activities 129,309 (16,210,134) (1,940,999) - (16,080,825)
-------------- ------------ -------------- ----------- ----------------
Net increase (decrease) in net
assets resulting from operations $ 12,187,337 $ (472,956) $ 5,802,428 $ 220,444 $ 11,934,825
============== ============ ============== =========== ===============
</TABLE>
---------------------
(a) Reflects increase in fees resulting from the higher fee schedule, before
waivers, of PACE Government Securities 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 Government Securities Fixed Income Investments.
See accompanying notes to pro forma financial statements
<PAGE>
PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
PRO FORMA PORTFOLIO OF INVESTMENTS
FOR THE YEAR ENDED JULY 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
PACE
GOVERNMENT
COMBINED PACE GOVERNMENT PAINE WEBBER PW LOW DURATION SECURITIES
PRINCIPAL MATURITY INTEREST SECURITIES FIXED U.S. GOVERNMENT U.S. GOVERNMENT FIXED INCOME
AMOUNT (000) DATES RATES INCOME INVESTMENTS INCOME FUND INCOME FUND INVESTMENTS
------------------ ----------- ----------- ------------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AND
AGENCY OBLIGATIONS - 21.17%
$19,000 Federal Home Loan Bank 08/09/00 6.390% $ - $ 18,973,020 $ - $ 18,973,020
18,915 FHLMC MTN 03/18/08 6.220 $ - 17,665,721 $ - 17,665,721
12,000 FNMA 04/29/09 6.500 - 11,215,584 $ - 11,215,584
30,230 United States
Treasury Bonds(2) 08/15/13 to 08/15/21 8.125 to
12.000 $ - 39,574,427 $ - 39,574,427
15,400 United States
Treasury Bonds(2) 11/15/14 11.750 $ - 21,218,320 $ - 21,218,320
17,852 U.S. Treasury
Inflation Index Notes 07/15/02 3.625 4,821,287 - 12,963,906 17,785,193
155 U.S. Treasury Notes 08/31/00 5.125 - - 154,806 154,806
----------------- ------------- ------------- ------------
Total U.S. Government and
Agency Obligations
(cost - $133,799,631) 4,821,287 108,647,072 13,118,712 126,587,071
----------------- ------------- ------------- ------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION CERTIFICATES
- 37.77%
2,996 GNMA 05/20/30 6.000 - - 2,938,992 2,938,992
11,708 GNMA 06/20/22 to 04/20/27 6.375 - 11,743,262 11,743,262
5,001 GNMA 07/15/30 6.500 - - 4,952,545 4,952,545
6,479 GNMA 07/20/17 to 08/20/27 6.750 - - 6,508,342 6,508,342
4,466 GNMA 07/20/25 to 09/20/26 6.750 4,490,751 - - 4,490,751
3,694 GNMA 09/15/01 6.800 3,686,108 - - 3,686,108
7,590 GNMA 05/15/02 to 11/20/27 7.000 7,557,891 - - 7,557,891
2,606 GNMA 06/16/26 7.040+ 2,585,051 - - 2,585,051
1,105 GNMA 11/20/22 7.125 - - 1,111,333 1,111,333
4,120 GNMA 11/20/21 to 12/20/27 7.125 4,134,598 - - 4,134,598
4,795 GNMA 01/20/18 to 02/20/27 7.375 4,817,913 - - 4,817,913
8,523 GNMA 03/20/23 to 02/20/28 7.375 - - 8,565,823 8,565,823
1,494 GNMA 05/15/39 7.470 1,474,303 - - 1,474,303
2,947 GNMA 06/20/30 7.500 - - 2,956,641 2,956,641
1,298 GNMA 07/15/02 to 09/30/29 7.500 1,299,879 - - 1,299,879
76 GNMA 02/15/23 8.000 - - 76,905 76,905
533 GNMA 12/15/07 to 08/15/09 8.000 542,741 - - 542,741
4,282 GNMA 04/15/19 8.250 - 4,347,290 - 4,347,290
2,885 GNMA 06/20/16 8.500 2,921,257 - - 2,921,257
996 GNMA 06/20/30 9.000 - - 1,019,237 1,019,237
3,601 GNMA 08/15/09 9.000 - 3,713,725 - 3,713,725
3,745 GNMA 01/15/16 to 09/15/20 10.500 - - 4,023,275 4,023,275
752 GNMA 06/15/11 to 02/15/16 11.000 - 815,655 - 815,655
2,217 GNMA 03/15/10 to 05/15/19 11.500 - - 2,429,929 2,429,929
3,995 GNMA ARM 05/20/30 6.000 3,918,267 - - 3,918,267
22,000 GNMA I 08/23/30 6.500 21,793,750 - - 21,793,750
10,000 GNMA I 08/23/30 7.000 9,706,200 - - 9,706,200
5,000 GNMA II 04/20/30 6.500 - - 4,956,667 4,956,667
1,799 GNMA II 07/20/27 to 04/20/30 6.750 - - 1,779,977 1,779,977
21,911 GNMA II 05/20/30 to 07/20/30 7.000 - - 21,831,073 21,831,073
480 GNMA II 01/20/28 7.375 - - 481,218 481,218
1,500 GNMA II 07/20/30 7.500 - - 1,503,225 1,503,225
6,000 GNMA II 08/25/30 8.500 6,093,750 - - 6,093,750
2,998 GNMA II 04/20/30 to 07/20/30 9.000 - - 3,067,486 3,067,486
998 GNMA II 04/20/30 9.000 1,021,226 - - 1,021,226
4,763 GNMA II ARM 04/20/26 6.375 - - 4,773,516 4,773,516
332 GNMA II ARM 04/20/18 to 01/20/28 6.375 333,584 - - 333,584
24,483 GNMA II ARM 10/20/29 to 08/24/30 7.000 24,428,510 - - 24,428,510
1,034 GNMA II ARM 01/20/18 7.375 - - 1,040,990 1,040,990
1,500 GNMA II ARM 07/20/30 7.500 1,503,225 - - 1,503,225
20,000 GNMA II TBA TBA 5.500 - - 19,812,500 19,812,500
5,000 GNMA II TBA TBA 8.500 - - 5,078,125 5,078,125
3,000 GNMA II TBA TBA 9.000 - - 3,080,615 3,080,615
72 GNMA Project Loan 10/15/40 7.000 62,660 - - 62,660
934 GNMA Project Loan 09/30/29 7.500 895,874 - - 895,874
6 GNMA TBA TBA 11.000 - 7,044 - 7,044
----------------- ------------- ------------- ------------
Total Government
National Mortgage
Association Certificates
(cost - $227,159,313) 103,267,538 8,883,714 113,731,676 225,882,928
----------------- ------------- ------------- ------------
FEDERAL HOME LOAN
MORTGAGE CORPORATION
CERTIFICATES - 14.83%
9,919 FHLMC 06/01/29 to 04/01/30 6.500 - 9,383,143 - 9,383,143
220 FHLMC 08/01/01 6.500 218,001 - - 218,001
6,442 FHLMC 08/01/25 to 03/01/30 7.000 - 6,230,729 - 6,230,729
1,895 FHLMC 09/01/04 7.000 1,878,253 - - 1,878,253
1,855 FHLMC 07/01/24 7.270 - - 1,892,244 1,892,244
984 FHLMC 05/01/21 7.450 978,511 - - 978,511
789 FHLMC 10/01/17 to 11/01/24 7.500 783,984 - - 783,984
52 FHLMC 01/01/23 8.000 - - 52,130 52,130
876 FHLMC 03/01/13 8.000 881,132 - - 881,132
1,569 FHLMC 05/01/16 8.500 - - 1,599,247 1,599,247
283 FHLMC 04/01/04 8.500 283,982 - - 283,982
179 FHLMC 07/01/09 to 02/01/10 9.000 - - 184,272 184,272
5,801 FHLMC 04/01/25 9.000 - 6,025,760 - 6,025,760
499 FHLMC 11/01/16 9.750 - - 522,840 522,840
537 FHLMC 06/01/04 to 12/01/05 10.500 - 567,359 - 567,359
525 FHLMC 10/01/20 to 11/01/20 10.500 - - 563,139 563,139
1,659 FHLMC 05/01/11 to 12/01/20 11.000 - - 1,795,535 1,795,535
2,748 FHLMC 01/01/16 11.000 - 2,943,044 - 2,943,044
1,074 FHLMC 06/01/04 to 07/01/19 11.500 - - 1,174,337 1,174,337
6,511 FHLMC ARM 04/01/29 to 01/01/30 5.930 - - 6,585,913 6,585,913
1,858 FHLMC ARM 01/01/30 5.930 1,867,450 - - 1,867,450
1,903 FHLMC ARM 01/01/28 6.350 1,883,990 - - 1,883,990
2,809 FHLMC ARM 12/01/29 6.468 - - 2,837,548 2,837,548
1,873 FHLMC ARM 12/01/29 6.468 1,891,699 - - 1,891,699
4,549 FHLMC ARM 11/01/27 6.706 - - 4,576,529 4,576,529
565 FHLMC ARM 10/01/29 6.907 - - 563,681 563,681
993 FHLMC ARM 10/01/29 6.907 991,777 - - 991,777
1,773 FHLMC ARM 07/01/24 7.742 1,808,409 - - 1,808,409
3,733 FHLMC ARM 04/01/29 7.907 3,834,577 - - 3,834,577
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
PACE COMBINED
GOVERNMENT PACE
SECURITIES GOVERNMENT
COMBINED FIXED PAINE WEBBER PW LOW DURATION SECURITIES
PRINCIPAL MATURITY INTEREST INCOME U.S. GOVERNMENT U.S. GOVERNMENT FIXED INCOME
AMOUNT (000) DATES RATES INVESTMENTS INCOME FUND INCOME FUND INVESTMENTS
--------------- --------- ------------- ------------- -------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
2,124 FHLMC CMT ARM 10/01/23 7.244 - 2,178,578 - 2,178,578
23,000 FHLMC Gold TBA TBA 6.500 - 21,742,176 - 21,742,176
------------ ------------- ------------ -------------
Total Federal
Home Loan Mortgage
Corporation Certificates
(cost - $88,899,639) 17,301,765 49,070,789 22,347,415 88,719,969
------------ ------------- ------------ -------------
FEDERAL HOUSING
ADMINISTRATION
CERTIFICATES - 4.84%
11,410 FHA 02/01/20 to 03/01/41 8.375 to 8.800 - - 11,038,169 11,038,169
18,662 FHA Project Notes 10/15/04 to 02/01/29 6.850 to 8.500 17,920,086 - - 17,920,086
------------ ------------- ------------ -------------
Total Federal Housing
Administration Certificates
(cost -- $30,305,917) 17,920,086 - 11,038,169 28,958,255
------------ ------------- ------------ -------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION CERTIFICATES
- 36.60%
31,800 FNMA 01/15/09 5.250 - 28,008,359 - 28,008,359
2,779 FNMA 02/01/29 6.000 - - 2,811,312 2,811,312
11,266 FNMA 08/01/25 to 03/01/30 6.000 - 10,358,783 - 10,358,783
9,183 FNMA 04/01/25 6.500 - 8,877,052 - 8,877,052
1,502 FNMA 03/01/04 7.000 1,489,630 - 1,489,630
2,994 FNMA 04/01/07 7.250 - - 2,993,884 2,993,884
5,347 FNMA 01/01/07 to 04/01/07 7.250 5,371,925 - - 5,371,925
2,012 FNMA 06/01/04 to 12/01/05 7.500 - 1,983,465 - 1,983,465
40,200 FNMA 10/01/26 to 08/16/30 7.500 39,626,000 - - 39,626,000
3,992 FNMA 03/01/07 7.547 - - 4,007,942 4,007,942
1,573 FNMA 07/01/25 to 10/01/29 8.000 1,586,188 - - 1,586,188
6,860 FNMA 11/01/02 to 09/01/27 8.500 2,306,023 - - 2,306,023
4,596 FNMA 01/01/16 8.500 - 4,689,317 - 4,689,317
1,087 FNMA 10/01/19 to 02/01/26 9.000 1,121,721 - - 1,121,721
1,337 FNMA 10/01/23 9.000 - 1,371,230 - 1,371,230
2,098 FNMA 04/01/10 to 12/01/15 9.250 - - 2,165,047 2,165,047
267 FNMA 03/01/06 to 12/01/09 9.500 - - 276,685 276,685
1,683 FNMA 08/01/19 10.000 - - 1,784,460 1,784,460
446 FNMA 07/01/10 to 06/01/19 10.250 - - 469,710 469,710
926 FNMA 02/01/12 to 04/01/22 10.500 - - 1,005,352 1,005,352
4,589 FNMA ARM 02/01/30 6.064 - - 4,648,155 4,648,155
1,836 FNMA ARM 02/01/30 6.276 1,859,262 - - 1,859,262
1,910 FNMA ARM 02/01/26 6.406 - - 1,959,593 1,959,593
1,389 FNMA ARM 02/01/29 6.424 1,405,656 - - 1,405,656
1,791 FNMA ARM 09/01/15 6.531 - - 1,796,858 1,796,858
1,862 FNMA ARM 12/01/27 6.629 1,852,853 - - 1,852,853
3,188 FNMA ARM 03/01/07 6.820 3,201,042 - - 3,201,042
2,284 FNMA ARM 09/01/26 7.027 - - 2,315,075 2,315,075
4,961 FNMA ARM 07/01/09 7.249 4,947,190 - - 4,947,190
1,642 FNMA ARM 03/01/25 7.634 - - 1,680,984 1,680,984
1,642 FNMA ARM 03/01/25 7.810 1,680,984 - - 1,680,984
1,033 FNMA ARM 02/01/05 9.000 - - 1,077,577 1,077,577
1,616 FNMA ARM 07/01/13 to 05/01/20 11.000 - - 1,750,317 1,750,317
38,500 FNMA TBA TBA 6.500 - 36,358,437 - 36,358,437
30,000 FNMA TBA TBA 8.000 30,084,360 - - 30,084,360
------------ ------------- ------------ -------------
Total Federal National
Mortgage Association
Certificates (cost -
$221,796,589) 96,532,834 91,646,643 30,742,951 218,922,428
------------ ------------- ------------ -------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 16.07%
1,028 FDIC REMIC Trust, 1996-C1,
Class 1A 05/25/26 6.750 - 1,022,827 - 1,022,827
136 FHLMC GNMA REMIC, Series 23,
Class KZ 11/25/23 6.500 114,123 - - 114,123
413 FHLMC REMIC, Series 0159,
Class H 09/15/21 4.500 379,392 - - 379,392
550 FHLMC REMIC, Series 0185,
Class E 08/15/06 9.000 559,620 - - 559,620
3,102 FHLMC REMIC, Series 1003,
Class H 10/15/20 7.438++ 2,117,058 - - 2,117,058
3,666 FHLMC REMIC, Series 1188,
Class H 12/15/20 7.500 3,670,156 - - 3,670,156
1,971 FHLMC REMIC, Series 1322,
Class G 02/15/07 7.500 1,979,886 - - 1,979,886
299 FHLMC REMIC, Series 1347,
Class HC 12/15/21 4.250 276,467 - - 276,467
2,280 FHLMC REMIC, Series 1361,
Class D 11/15/05 6.000 2,268,188 - - 2,268,188
1,106 FHLMC REMIC, Series 1502,
Class PX 04/15/23 7.000 969,396 - - 969,396
605 FHLMC REMIC, Series 1534,
Class Z 06/15/23 5.000 426,837 - - 426,837
1,630 FHLMC REMIC, Series 1542,
Class Z 7/15/23 7.000 1,446,932 - - 1,446,932
142 FHLMC REMIC, Series 1552,
Class EA 01/15/17 5.850 79,186 - 62,529 141,715
179 FHLMC REMIC, Series 1573,
Class PZ 09/15/23 7.000 162,186 - - 162,186
255 FHLMC REMIC, Series 1640,
Class F 10/15/07 7.088++ 254,690 - - 254,690
150 FHLMC REMIC, Series 1658,
Class GZ 01/15/24 7.000 135,893 - - 135,893
114 FHLMC REMIC, Series 1661,
Class PE 11/15/06 6.000 113,810 - - 113,810
1,000 FHLMC REMIC, Series 1694,
Class Z 03/15/24 6.500 868,568 - - 868,568
110 FHLMC REMIC, Series 1775,
Class Z 03/15/25 8.500 112,996 - - 112,996
3,085 FHLMC REMIC, Series 1869,
Class J 12/15/24 8.000 3,109,343 - - 3,109,343
1,313 FHLMC REMIC, Series 1933,
Class ZA 02/15/27 8.000 1,314,272 - - 1,314,272
3,071 FNMA REMIC, Series 1987-2,
Class Z 11/25/17 11.000 - 3,284,870 - 3,284,870
2,577 FNMA REMIC, Series 1998-7,
Class Z 04/25/18 9.250 - 2,674,831 - 2,674,831
89 FNMA REMIC, Trust 1992 - 074,
Class Z 05/25/22 8.000 89,019 - - 89,019
165 FNMA REMIC, Trust 1992 - 129,
Class L 07/25/22 6.000 144,528 - - 144,528
1,251 FNMA REMIC, Trust 1993 - 037,
Class PX 03/25/23 7.000 1,122,227 - - 1,122,227
464 FNMA REMIC, Trust 1993 - 040,
Class ZA 12/25/23 6.500 401,819 - - 401,819
47 FNMA REMIC, Trust 1993 - 162,
Class C 08/25/23 3.000@ 46,319 - - 46,319
45 FNMA REMIC, Trust 1993 - 240,
Class Z 12/25/13 6.250 40,516 - - 40,516
1,187 FNMA REMIC, Trust 1993 - 250,
Class DZ 12/25/23 7.000 992,139 - - 992,139
71 FNMA REMIC, Trust 1993 - 250,
Class Z 12/25/23 7.000 65,975 - - 65,975
77 FNMA REMIC, Trust 1994 - 027,
Class CZ 02/25/24 6.500 66,515 - - 66,515
876 FNMA REMIC, Trust 1999 - 003,
Class CZ 2/25/14 6.000 716,987 - - 716,987
107 FNMA REMIC, Trust 1999 - 043,
Class AZ 08/25/29 7.000 92,220 - - 92,220
1,105 FNMA REMIC, Trust G92 - 040,
Class ZC 07/25/22 7.000 1,077,759 - - 1,077,759
148 FNMA REMIC, Trust G94 - 006,
Class PJ 05/17/24 8.000 150,586 - - 150,586
919 GNMA REMIC, Trust Series
2000 - 009, Class FH 02/16/30 7.126++ 922,361 - - 922,361
1,963 3EWCourt Receivables Asset
Trust Series 1997-1, Class A4 05/20/05 6.193 - - 1,944,919 1,944,919
100 Bank of America Mortgage
Securities Series 1999 - 5,
Class A-22 05/25/29 6.500 90,863 - - 90,863
450 Bank of America Mortgage
Securities Series 1999 - 8,
Class A-12 08/25/29 6.750 416,812 - - 416,812
207 Bear Stearns Mortgage
Securities Inc.
Series 1993 - 8, Class A-5 08/25/24 6.350 206,163 - - 206,163
2,379 Bear Stearns Mortgage
Securities Inc.
Series 1996 - 4, Class AI-1 09/25/27 8.125 2,401,504 - - 2,401,504
1,750 Chase Mortgage Finance Corp.
Series 1998, Class IA-8 08/25/28 6.750 1,536,743 - - 1,536,743
386 Cityscape Home Equity Loan Trust
Series 1997-B, Class A5 09/25/19 7.480 - - 383,885 383,885
1,000 Countrywide Home Loan Inc. 06/15/04 6.850 975,880 - - 975,880
1,145 CS First Boston Mortgage
Securities Corp., Series
1997-2,
Class A t 06/01/20 7.500 - 1,134,562 - 1,134,562
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
PACE COMBINED
GOVERNMENT PACE
SECURITIES GOVERNMENT
COMBINED FIXED PAINE WEBBER PW LOW DURATION SECURITIES
PRINCIPAL MATURITY INTEREST INCOME U.S. GOVERNMENT U.S. GOVERNMENT FIXED INCOME
AMOUNT (000) DATES RATES INVESTMENTS INCOME FUND INCOME FUND INVESTMENTS
------------ --------- --------- ----------- --------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
5,000 CS First Boston Mortgage Securities
Corp., Series 1998-C2, Class A2 11/15/08 6.300 - 4,624,118 - 4,624,118
1,500 CWMBS Inc. Series 1998 - 13, Class A3 12/25/28 6.500 1,337,805 - - 1,337,805
1,500 CWMBS Inc. Series 1998 - 15, Class A8 10/25/28 6.750 1,300,505 - - 1,300,505
3,586 DLJ Commercial Mortgage Corporation
Series 1998-CF2, Class A1A 11/12/31 5.880 - 3,381,526 - 3,381,526
3,382 Farmer Mac. Series 2002 - Class AA1 04/25/01 7.721 3,380,077 - - 3,380,077
530 Green Tree Financial Corp Series 1998,
Class 2 11/01/16 6.240 519,956 - - 519,956
686 Headlands Mortgage Security Inc.
REMIC Series 1997 - 1, Class A, II 03/15/12 7.750 689,249 - - 689,249
489 Headlands Mortgage Security Inc.
REMIC Series 1997 - 2, Class A, II 05/25/12 7.750 490,697 - - 490,697
383 Headlands Mortgage Security Inc.
REMIC Series 1997 - 4, Class A, II 11/25/12 7.250 380,330 - - 380,330
1,500 Headlands Mortgage Security Inc.
REMIC Series 1998 - 1, Class A, III 11/25/28 6.500 1,368,570 - - 1,368,570
6,346 LB Commercial Conduit Mortgage Trust,
Series 1998-C4, Class A1A 08/15/06 5.870 - 6,042,498 - 6,042,498
703 Merrill Lynch Mortgage Investors, Inc.
Series 1999, Class H1 03/20/17 6.210++ 698,216 - - 698,216
539 Money Store Home Equity Trust Series
1997-D, Class AF3 11/15/21 6.345 - - 534,426 534,426
3,086 Morgan Stanley Capital I, Series
1997-ALIC, Class A1B 11/15/02 6.440 - 3,044,907 - 3,044,907
4,289 Morgan Stanley Capital I, Series
1997-WF1, Class A1 144A 10/15/06 6.830 - 4,236,486 - 4,236,486
1,610 Morgan Stanley Capital Inc. Series
1998 - HF1, Class A1 01/15/07 6.190++ 1,557,497 - - 1,557,497
4,935 Mortgage Capital Funding, Inc.,
Series 1998-MCI, Class A2 01/18/08 6.663 - 4,703,302 - 4,703,302
1,639 PNC Mortgage Securities Corp.
Series 1998 - 5, Class 2A5 11/25/28 6.750 1,526,259 - - 1,526,259
2,500 PNC Mortgage Securities Corp.
Series 1999 - 5, Class 2A5 07/25/29 6.750 2,322,625 - - 2,322,625
436 Prudential Home Mortgage
REMIC 1993 - 29, Class A8 08/25/08 6.750 423,257 - - 423,257
2,488 Prudential Securities Trust
Series 18, Class E 09/25/20 7.000 - - 2,448,923 2,448,923
4,333 Residential Accredit Loans Inc.
Series 2000-QS3C, Class A1 03/25/30 7.750 - - 4,328,718 4,328,718
10 Residential Funding Mortgage
Securities Inc. Series 1993 - S15,
Class A9 04/25/08 7.721++ 92,763 - - 92,763
1,500 Residential Funding Mortgage
Securities Inc. Series 1998 - S12,
Class A6 05/25/28 6.750 1,359,461 - - 1,359,461
1,428 Residential Funding Mortgage
Securities Inc. Series 1998 - S20,
Class A19 09/25/28 6.750 267,777 - - 267,777
1,578 Ryland Mortgage Acceptance Corp.
REMIC Series 76, Class B 08/01/18 9.000 - - 1,621,638 1,621,638
990 Small Business Administration
Series 1995 - 10, Class I 03/01/05 7.750 994,061 - - 994,061
------------ ------------- ------------ -------------
Total Collateralized Mortgage
Obligations (cost - $100,751,562) 50,625,039 34,149,927 11,325,038 96,100,004
------------ ------------- ------------ -------------
ASSET BACKED SECURITIES - 0.92%
863 Beneficial Home Equity Loan Trust 04/28/26 6.945++ 862,514 - - 862,514
2,000 Conseco Finance Home Loan Trust 06/15/24 9.520 2,003,480 - - 2,003,480
688 Student Loan Marketing Association
Series 1996 - 2, Class A1 10/25/04 6.581 686,863 - - 686,863
2,000 Student Loan Trust 10/27/25 6.740 1,939,960 - - 1,939,960
------------ ------------- ------------ -------------
Total Asset Backed Securities
(cost - $5,486,505) 5,492,817 - - 5,492,817
------------ ------------- ------------ -------------
STRIPPED MORTGAGE-BACKED
SECURITIES - 2.08%
815 FHLMC REMIC Series 0013,
Class B(1)+++ 06/25/23 7.000 466,384 - - 466,384
772 FHLMC REMIC Series 1554,
Class I(1)+++ 08/15/08 6.500* 66,078 - - 66,078
5,000 FHLMC REMIC Series 1627,
Class PN(1)+++ 09/15/22 6.000 1,055,866 - - 1,055,866
1,613 FHLMC REMIC Series 1993 -
138, Class CL(1)+++ 11/25/22 7.000 334,878 - - 334,878
4,854 FHLMC REMIC Series 2059,
Class PI(1)+++ 07/15/26 6.500 1,112,681 - - 1,112,681
9,033 FHLMC REMIC Series 2080,
Class VK(1)+++ 09/15/05 6.500 1,361,748 - - 1,361,748
1,000 FHLMC REMIC Series 2110,
Class PT(1)+++ 07/15/23 6.000 306,780 - - 306,780
941 FHLMC REMIC Series 2136,
Class GD(1)+++ 03/15/29 7.000 207,923 - - 207,923
3,818 FHLMC REMIC, Series 2178,
Class PI(1)+++ 08/15/29 7.500 886,047 - - 886,047
6 FNMA REMIC Trust 1992 - 142,
Class KB(1)+++ 08/25/07 11.977 164,618 - - 164,618
7 FNMA REMIC Trust 1992 - 157,
Class JA(1)+++ 09/25/07 10.146 166,283 - - 166,283
616 FNMA REMIC Trust 1992 - 207,
Class U(1)+++ 10/25/07 7.500 111,156 - - 111,156
2,926 FNMA REMIC Trust 1993 - 116,
Class H(1)+++ 07/25/22 7.000 514,564 - - 514,564
186 FNMA REMIC Trust 1993 - 161,
Class GC(1)+++ 02/25/23 .010* 126,760 - - 126,760
794 FNMA REMIC Trust 1994 - 007,
Class PK(1)+++ 05/25/08 6.500* 40,883 - - 40,883
1,184 FNMA REMIC Trust 1994 - 030,
Class IA(1)+++ 11/25/22 6.500* 141,378 - - 141,378
7,119 FNMA REMIC Trust 1998 - 013,
Class PI(1)+++ 07/18/19 7.000 729,469 - - 729,469
3,301 FNMA REMIC Trust 1998 - 024,
Class OK(1) 11/18/21 7.000 433,157 - - 433,157
1,388 FNMA REMIC Trust 1998 - 044,
Class IG(1)+++ 07/18/16 6.500 208,041 - - 208,041
6,705 GNMA REMIC Trust Series 1998
- 001, Class PG(1)+++ 07/20/24 7.000 1,063,625 - - 1,063,625
4,424 Chase Mortgage Finance Corp.
Series 1998 - S2, Class A4(1)+++ 07/25/28 6.750 536,410 - - 536,410
16,000 Conseco Finance Securitizations
(1)+++ 12/15/29 7.000 1,015,000 - - 1,015,000
15,096 CWMBS Inc. Series 1998 - 14,
Class A2(1)+++ 12/25/13 0.500* 207,564 - - 207,564
1,500 Firstplus Home Loan Owner Trust
Series 1998 - 5, Class A1(1)+++ 10/10/00 6.000* 14,297 - - 14,297
1,410 Prudential Home Mortgage
REMIC 1993 - 54, Class A19(1)** 01/25/24 6.500 1,188,280 - - 1,188,280
------------ ------------- ------------ -------------
Total Stripped Mortgage-Backed
Securities (cost - $11,212,501) 12,459,870 - - 12,459,870
------------ ------------- ------------ -------------
CORPORATE OBLIGATIONS - 0.50%
2,000 Lehman Brothers Holdings Inc. MTN 04/02/02 7.678 2,007,542 - - 2,007,542
1,000 Morgan Stanley Dean Witter 01/28/02 6.837@ 1,000,699 - - 1,000,699
------------ ------------- ------------ -------------
Total Corporate Obligations
(cost -- $3,006,152) 3,008,241 - - 3,008,241
------------ ------------- ------------ -------------
COMMERCIAL PAPER - 0.12%
700 Dominion Resources MTN(1)
(cost - $699,915) 01/26/01 7.026 699,915 - - 699,915
------------ ------------- ------------ -------------
SHORT-TERM U.S. GOVERNMENT
OBLIGATIONS - 0.76%
4,500 Federal National Mortgage
Association Discount Notes 10/26/00 6.42 to 6.45 - - 4,430,735 4,430,735
105 U.S. Treasury Notes 08/31/00 5.125@ 104,869 - - 104,869
------------ ------------- ------------ -------------
Total Short-Term U.S.
Government Obligations
(cost - $4,430,949) 104,869 - 4,430,735 4,535,604
------------ ------------- ------------ -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
PACE GOVERNMENT
COMBINED PACE GOVERNMENT PAINE WEBBER PW LOW DURATION SECURITIES
NUMBER SECURITIES FIXED U.S. GOVERNMENT U.S. GOVERNMENT FIXED INCOME
OF SHARES INCOME INVESTMENTS INCOME FUND INCOME FUND INVESTMENTS
------------------- ------------------ -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
MUTUAL FUNDS - 3.51%
14,703 MH Money Market Fund LLC - 14,702,955 - 14,702,955
84 Scudder Institutional Fund - 84,180 - 84,180
6,186 AIM Liquid Assets Portfolio - 6,186,116 - 6,186,116
----------------- -------------- --------------- --------------
Total Mutual Funds (cost - $20,973,251) - 20,973,251 - 20,973,251
----------------- -------------- --------------- --------------
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
PACE
GOVERNMENT
COMBINED PACE GOVERNMENT PAINE WEBBER PW LOW DURATION SECURITIES
PRINCIPAL MATURITY INTEREST SECURITIES FIXED U.S. GOVERNMENT U.S. GOVERNMENT FIXED INCOME
AMOUNT (000) DATES RATES INCOME INVESTMENTS INCOME FUND INCOME FUND INVESTMENTS
------------------------------- --------- --------- ------------------ --------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENTS - 3.36%
$ 1,767 Repurchase Agreement dated 7/31/00
with SG Warburg collateralized by
$1,344,000 U.S. Treasury Bond,
8.750% due 08/15/20
(value -- $1,802,640)
proceeds: $1,767,319 08/01/00 6.500% - 1,767,000 1,767,000
2,263 Repurchase Agreement dated 07/31/00
with State Street Bank & Trust Co.,
collateralized by $2,315,000 U.S.
Treasury Notes, 5.250% due 05/31/01
(value -- $2,312,106)
proceeds: $2,263,330 08/01/00 5.250 - - 2,263,000 2,263,000
16,093 Repurchase Agreement dated 07/31/00
with State Street Bank & Trust Co.,
collateralized by $11,995,000 U.S.
Treasury Bond, 8.750% due 08/15/20
(value -- $16,418,156) proceeds:
$16,095,347 08/01/00 5.250 16,093,000 - - 16,093,000
------------ ------------- ------------- ------------
Total Repurchase Agreements (cost -
$20,123,000) 16,093,000 1,767,000 2,263,000 20,123,000
------------ ------------- ------------- ------------
Total Investments
(cost -- $867,895,633) - 142.53% 328,327,261 315,138,396 208,997,696 852,463,353
Liabilities in excess of other assets -
(42.53)% (129,409,240) (77,053,677) (47,913,090) (254,376,007)
------------ ------------- ------------- ------------
Net Assets -- 100.00% $198,918,021 $ 238,084,719 $ 161,084,606 $598,087,346
============ ============= ============= ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
PACE
GOVERNMENT
COMBINED PACE GOVERNMENT PAINE WEBBER PW LOW DURATION SECURITIES
NUMBER OF STRIKE EXPIRATION SECURITIES FIXED U.S. GOVERNMENT U.S. GOVERNMENT FIXED INCOME
CONTRACTS PRICE DATES INCOME INVESTMENTS INCOME FUND INCOME FUND INVESTMENTS
------------------- --------- ------------ ------------------ ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
WRITTEN OPTIONS(1)
300 Federal National
Mortgage Association Calls $ 123.75 September 2000 $ 77,700 $ - $ - $ 77,700
=============== ============== ============== ==============
</TABLE>
-------------------------------
++ Floating rate securities. The interest rates shown are the current rates
as of July 31, 2000.
* Rate reflects annualized yield at date of purchase.
** Principal Only Security. This security entitles the holder to receive
principal payments from an underlying pool of mortgages. High
prepayments return principal faster than expected and cause the yield to
increase. Low prepayments return principal more slowly than expected and
cause the yield to decrease.
+++ Interest Only Security. This security entitles the holder to receive
interest payments from an underlying pool of mortgages. The risk
associated with this security is related to the speed of the principal
paydowns. High prepayments would result in a smaller amount of interest
being received and cause the yield to decrease. Low prepayments would
result in a greater amount of interest being received and cause the
yield to increase.
+ Estimated yield to maturity at July 31, 2000.
@ Interest rate shown is discount rate at date of purchase.
(1) Illiquid securities representing 2.10% of net assets.
ARM Adjustable Rate Mortgage--The interest rates shown are the current rates
as of July 31, 2000.
MTN Medium Term Note.
REMIC Real Estate Mortgage Investment Conduit.
TBA (To Be Assigned) Securities are purchased on a forward commitment with
an approximate principal amount (generally +/- 1.0%) and no definite
maturity date. The actual principal amount and maturity date will be
determined upon settlement when the specific mortgage pools are
assigned.
(2) Security, or portion thereof, was on loan at July 31, 2000.
See accompanying notes to pro forma financial statements
<PAGE>
PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
PAINEWEBBER LOW DURATION U.S. GOVERNMENT 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 U.S. Government Income
Fund ("U.S. Government Income") and PaineWebber Low Duration U.S. Government
Income ("Low Duration"), PACE Government Securities Fixed Income Investments
("Government Securities") would acquire the assets of U.S. Government Income and
Low Duration in exchange solely for the assumption by Government Securities of
U.S. Government Income's and Low Duration's assets and stated liabilities and
shares of Government Securities that correspond to the outstanding shares of
U.S. Government Income and Low Duration. The number of shares to be received
would be based on the relative net asset value of Government Securities' shares
on the effective date of the Plan and U.S. Government Income and Low Duration
will be terminated as soon as practicable thereafter.
The PRO FORMA financial statements reflect the financial position of Government
Securities, U.S. Government Income and Low Duration at July 31, 2000 and the
combined results of operations of Government Securities, U.S. Government Income
and Low Duration (each a "Fund" and, collectively, the "Funds") for the year
ended July 31, 2000.
As a result of the Plan, the investment management and administration fee will
increase due to the higher fee schedule, net of waivers, of Government
Securities. However, after anticipated savings in other expenses of the Fund
(due to the elimination of duplicative expenses) and the management fee
waiver/expense reimbursement, shareholders of each class of shares of U.S.
Government Income and shareholders of each class of shares of Low Duration
(except Class A) will not experience an increase in total expenses. U.S.
Government Income and Low Duration currently pay Rule 12b-1 distribution or
service fees; as of July 31, 2000, Government Securities 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 costs of approximately $368,000 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 in
connection with 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 on 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
<PAGE>
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 each Fund's sub-adviser. If a market value is not
available from an independent pricing source for a particular security, that
security is 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.
