<PAGE>
PAINEWEBBER PACE SELECT ADVISORS TRUST
(ON BEHALF OF PACE SMALL/MEDIUM COMPANY VALUE EQUITY INVESTMENTS)
PAINEWEBBER SECURITIES TRUST
(ON BEHALF OF PAINEWEBBER SMALL CAP 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 Small/Medium Company Value Equity
Investments ("PACE Small/Medium Company Value Fund"), a series of PaineWebber
PACE Select Advisors Trust ("PACE Trust"), would acquire all of the assets of
PaineWebber Small Cap Fund ("Small Cap Fund"), a series of PaineWebber
Securities Trust ("Securities Trust"), in exchange solely for shares of PACE
Small/Medium Company Value Fund and the assumption by PACE Small/Medium Company
Value Fund of all of Small Cap Fund's stated liabilities. This Statement of
Additional Information consists of this cover page, the PRO FORMA financial
statements of PACE Small/Medium Company Value 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
Small/Medium Company Value 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, which
includes information relating to PACE Small/Medium Company Value Fund for the
fiscal year ended July 31, 2000 and is incorporated by reference from PACE
Trust's Form N-30D, SEC File Number 811-08764, filed on October 6, 2000,
accession number 0000912057-00-043979; and
(3) The Annual Report to Shareholders of Small Cap Fund for the fiscal
year ended July 31, 2000, which is incorporated by reference from Securities
Trust's Form N-30D, SEC File Number 811-07374, filed on October 2, 2000,
accession number 0000930413-00-001277.
This Statement of Additional Information is not a prospectus and should
be read only in conjunction with the Combined Proxy Statement/Prospectus dated
December 15, 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 15, 2000.
<PAGE>
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 Small Cap Fund and PACE Small/Medium Company Value 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. The holdings of both Funds
have changed significantly since that date, primarily because one or more new
sub-advisers have realigned their portions of each Fund's portfolio after
October 10, 2000 to reflect their proprietary investment strategies. These
changes are greater for Small Cap Fund because all its assets were allocated
between two new sub-advisers. PACE Small/Medium Company Value Fund replaced
one of its two sub-advisers. That realignment was not complete as of November
30, 2000. Other changes in the two Funds' holdings are due to normal portfolio
turnover in response to changes in market conditions.
It is not expected that any of Small Cap Fund's holdings will be
incompatible with PACE Small/Medium Company Value Fund's holdings. However, if
shareholders of Small Cap Fund approve the Reorganization, it is expected that
some of the Fund's current holdings (less than 20% as of November 30, 2000) may
be sold in the months following the Reorganization to adjust the proportion of
the stocks of companies with smaller total market capitalizations ($1.5 billion
and lower) in the combined Fund's portfolio.
The amount of Small Cap Fund's assets that would be sold by the
post-merger combined Fund for this purpose and the timing of those sales will
depend on market conditions and on the applicable sub-adviser's continuing
assessment of the appropriate proportion of stocks of companies with smaller
total market capitalizations in the combined Fund's portfolio.
2
<PAGE>
PACE SMALL/MEDIUM COMPANY VALUE EQUITY INVESTMENTS
PAINEWEBBER SMALL CAP FUND
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES
FOR THE YEAR ENDED JULY 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION> PRO FORMA COMBINED
PACE SMALL/MEDIUM PACE SMALL/MEDIUM
COMPANY VALUE PW SMALL CAP COMPANY VALUE EQUITY
EQUITY INVESTMENTS FUND ADJUSTMENTS INVESTMENTS
-------------------- ------------- ----------- --------------------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at value
(cost - $229,343,032, $66,005,468,
and $295,348,500, respectively) $ 212,687,610 $ 66,129,386 $ - $ 278,816,996
Investments in cash collateral
received for securities loaned
(cost - $18,674,100, $5,116,400
and $23,790,500, respectively) 18,674,100 5,116,400 - 23,790,500
Cash 843 1,998 - 2,841
Receivable for investments sold 1,286,772 1,725,106 - 3,011,878
Receivable for shares of beneficial interest sold 114,978 25,088 - 140,066
Dividends and interest receivable 120,739 25,178 - 145,917
Deferred organizational expenses 1,025 - - 1,025
Other assets 66,167 5,533 - 71,700
-------------------- ------------- ----------- --------------------
Total assets 232,952,234 73,028,689 - 305,980,923
-------------------- ------------- ----------- --------------------
LIABILITIES
Payable for cash collateral for securities loaned 18,674,100 5,116,400 - 23,790,500
Payable for investments purchased 154,954 999,959 - 1,154,913
Payable for shares of beneficial interest repurchased 99,013 136,776 - 235,789
Payable to affiliates 140,995 89,699 - 230,694
Accrued expenses and other liabilities 134,303 131,669 - 265,972
-------------------- ------------- ----------- --------------------
Total liabilities 19,203,365 6,474,503 - 25,677,868
-------------------- ------------- ----------- --------------------
NET ASSETS
Beneficial interest shares of $0.001 par value
outstanding - 16,034,793, 5,549,996 and 21,027,487,
respectively 230,680,256 67,529,315 - 298,209,571
Accumulated undistributed (distributions in excess of)
net investment income (loss) 1,068,966 (1,121,699) - (52,733)
Accumulated net realized gains (losses)
from investment transactions (1,344,931) 22,652 - (1,322,279)
Net unrealized appreciation (depreciation) of investments (16,655,422) 123,918 - (16,531,504)
-------------------- ------------- ----------- --------------------
Net assets applicable to shares outstanding $ 213,748,869 $ 66,554,186 $ - $ 280,303,055
==================== ============= =========== ====================
CLASS P:
Net assets $ 213,748,869 $ - $ - $ 213,748,869
-------------------- ------------- ----------- --------------------
Shares outstanding 16,034,793 - - 16,034,793
-------------------- ------------- ----------- --------------------
Net asset and redemption value per share $ 13.33 $ - $ - $ 13.33
==================== ============= =========== ====================
CLASS A:
Net assets $ - $ 40,482,113 $ - $ 40,482,113
-------------------- ------------- ----------- --------------------
Shares outstanding - 3,294,688 (257,842) 3,036,846
-------------------- ------------- ----------- --------------------
Net asset and redemption value per share $ - $ 12.29 $ - $ 13.33
==================== ============= =========== ====================
Maximum offering price per share (net asset value plus
sales charge of 4.5% of offering price) $ - $ 12.87 $ - $ 13.96
==================== ============= =========== ====================
CLASS B:
Net assets $ - $ 11,592,905 $ - $ 11,592,905
-------------------- ------------- ----------- --------------------
Shares outstanding - 1,008,312 (138,647) 869,665
-------------------- ------------- ----------- --------------------
Net asset value and offering price per share $ - $ 11.50 $ - $ 13.33
==================== ============= =========== ====================
CLASS C:
Net assets $ - $ 12,648,217 $ - $ 12,648,217
-------------------- ------------- ----------- --------------------
Shares outstanding - 1,099,604 (150,773) 948,831
-------------------- ------------- ----------- --------------------
Net asset value and offering price per share $ - $ 11.50 $ - $ 13.33
==================== ============= =========== ====================
CLASS Y:
Net assets $ - $ 1,830,951 $ - $ 1,830,951
-------------------- ------------- ----------- --------------------
Shares outstanding - 147,392 (10,040) 137,352
-------------------- ------------- ----------- --------------------
Net asset value and offering price per share $ - $ 12.42 $ - $ 13.33
==================== ============= =========== ====================
</TABLE>
See accompanying notes to pro forma financial statements
<PAGE>
PACE SMALL/MEDIUM COMPANY VALUE EQUITY INVESTMENTS
PAINEWEBBER SMALL CAP FUND
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA COMBINED
PACE SMALL/MEDIUM PACE SMALL/MEDIUM
COMPANY VALUE PW SMALL CAP COMPANY VALUE EQUITY
EQUITY INVESTMENTS FUND ADJUSTMENTS INVESTMENTS
--------------------- ------------- ----------- --------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of foreign withholding taxes, if any) $ 505,157 $ 117,212 $ - $ 622,369
Dividends (net of foreign withholding taxes, if any) 2,978,001 162,027 - 3,140,028
--------------------- ------------- ----------- -------------------
3,483,158 279,239 - 3,762,397
--------------------- ------------- ----------- -------------------
EXPENSES:
Investment advisory and administration fees 1,574,930 729,053 (145,815)(a) 2,158,168
Shareholder distribution and servicing fees - 383,508 - 383,508
Transfer agency fees and expenses 110,990 124,884 - 235,874
Reports and notices to shareholders 43,030 49,590 (39,672)(b) 52,948
Legal and audit 57,490 54,415 (54,415)(b) 57,490
Trustees' fees 26,250 13,500 (13,500)(b) 26,250
Federal and state registration fees 36,260 - - 36,260
Amortization of organizational expenses 19,032 - - 19,032
Custody and accounting 118,120 45,823 - 163,943
Other expenses 11,259 2,294 - 13,553
--------------------- ------------- ----------- -------------------
1,997,361 1,403,067 (253,402) 3,147,026
Less: Fee waivers and reimbursements from
investment adviser (32,450) (2,129) - (34,579)
--------------------- ------------- ----------- -------------------
Net expenses 1,964,911 1,400,938 (253,402) 3,112,447
--------------------- ------------- ----------- -------------------
Net investment income (loss) 1,518,247 (1,121,699) 253,402 649,950
--------------------- ------------- ----------- -------------------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM
INVESTMENT ACTIVITIES:
Net realized gains from investment transactions 2,717,494 9,753,603 - 12,471,097
Net change in unrealized depreciation of investments (25,897,124) (1,650,030) - (27,547,154)
--------------------- ------------- ----------- -------------------
Net realized and unrealized gains (losses) from
investment activities (23,179,630) 8,103,573 - (15,076,057)
--------------------- ------------- ----------- -------------------
Net increase (decrease) in net assets resulting
from operations $ (21,661,383) $ 6,981,874 $ 253,402 $ (14,426,107)
===================== ============= =========== ===================
</TABLE>
-------------------------
(a) Reflects decrease in fees resulting from lower fee schedule of PACE
Small/Medium Company Value Equity Investments.
(b) Reflects the anticipated savings of the merger.
See accompanying notes to pro forma financial statements
<PAGE>
PACE SMALL/MEDIUM COMPANY VALUE EQUITY INVESTMENTS
PAINEWEBBER SMALL CAP FUND
PRO FORMA PORTFOLIO OF INVESTMENTS
FOR THE YEAR ENDED JULY 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
COMBINED PACE
COMBINED PACE SMALL/MEDIUM SMALL/MEDIUM
NUMBER OF COMPANY VALUE PAINEWEBBER COMPANY VALUE EQUITY
SHARES EQUITY INVESTMENTS SMALL CAP FUND INVESTMENTS
-------------- ---------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS - 94.53%
Agriculture, Food & Beverage - 4.37%
7,500 Agribrands International, Inc.* $ 281,250 $ - $ 281,250
9,700 Andersons Inc. 84,269 - 84,269
46,700 Cadiz Inc.* - 449,488 449,488
18,200 Canandaigua Wine Inc.*(1) - 898,625 898,625
882,000 Creative Bakeries, Inc.* - 689,062 689,062
1,200 Golden State Vintners, Inc.* 5,550 - 5,550
6,200 International Multifoods Corp. 108,112 - 108,112
132,900 McCormick & Company Inc. 3,895,631 - 3,895,631
13,700 Nash Finch Co. 124,156 - 124,156
55,600 Performance Food Group Co.* - 1,831,325 1,831,325
18,950 Pilgrims Pride Corp., Class A 99,488 - 99,488
37,900 Pilgrims Pride Corp., Class B 274,775 - 274,775
14,600 Sanderson Farms Inc. 93,075 - 93,075
5,500 Suprema Specialties Inc.* 56,719 - 56,719
9,300 Sylvan, Inc.* 90,094 - 90,094
5,900 Todhunter International Inc.* 44,250 - 44,250
209,100 Whitman Corp. 3,123,431 - 3,123,431
20,000 WLR Foods Inc.* 92,500 - 92,500
---------------------------------------------------------------
8,373,300 3,868,500 12,241,800
---------------------------------------------------------------
Airlines - 0.54%
21,000 Alaska Air Group, Inc.* (1) 576,187 - 576,187
44,700 America West Holding Corp.* (1) 717,994 - 717,994
7,100 Amtran Inc.* 93,188 - 93,188
49,600 Hawaiian Airlines Inc.* 114,700 - 114,700
---------------------------------------------------------------
1,502,069 - 1,502,069
---------------------------------------------------------------
Apparel, Retail - 1.28%
17,400 Abercrombie and Fitch Co.* (1) 279,487 - 279,487
35,300 Burlington Coat Factory Warehouse Corp. 414,775 - 414,775
1,900 Cache, Inc.* 5,581 - 5,581
14,400 Finish Line Inc.* 116,100 - 116,100
125,500 Florsheim Group, Inc.* - 223,547 223,547
22,100 Genesco Inc.* 337,025 - 337,025
40,200 Goodys Family Clothing Inc.* 209,794 - 209,794
11,200 J. Baker, Inc. 57,400 - 57,400
8,200 Jos. A. Bank Clothiers, Inc.* 32,800 - 32,800
12,400 One Price Clothing Stores Inc.* 23,250 - 23,250
10,400 Paul Harris Stores Inc.* 30,550 - 30,550
5,700 S & K Famous Brands Inc.* 45,244 - 45,244
7,700 Shoe Carnival, Inc.* 48,125 - 48,125
4,900 Shoe Pavilion, Inc.* 11,025 - 11,025
4,900 The Buckle, Inc.* 66,762 - 66,762
4,900 The Cato Corp., Class A 213,600 - 213,600
3,600 United Retail Group Inc.* 21,038 - 21,038
78,789 Wilsons The Leather Experts Inc.* - 1,447,748 1,447,748
---------------------------------------------------------------
1,912,556 1,671,295 3,583,851
---------------------------------------------------------------
Apparel, Textiles - 1.03%
17,200 Brown Shoe Inc. 244,025 - 244,025
30,000 Burlington Industries Inc.* 48,750 - 48,750
6,700 Culp, Inc. 38,106 - 38,106
8,200 Cutter & Buck Inc.* 70,725 - 70,725
10,700 Dan River Inc.* 48,150 - 48,150
3,832 Decorator Industries, Inc. 16,765 - 16,765
14,700 Dixie Group Inc.* 77,175 - 77,175
6,400 Garan Inc. 140,000 - 140,000
13,400 Gerber Childrenswear Inc.* 69,512 - 69,512
2,500 Haggar Corp. 30,938 - 30,938
1,800 Hallwood Group Inc.* 12,713 - 12,713
4,600 Hampshire Group, Ltd.* 38,238 - 38,238
6,400 K-Swiss, Inc. 108,800 - 108,800
19,600 Kellwood Co. 438,550 - 438,550
10,600 Maxwell Shoe Inc.* 114,612 - 114,612
26,700 Nautica Enterprises Inc.* 290,362 - 290,362
9,600 Oxford Industries Inc. 185,400 - 185,400
8,100 Perry Ellis International Inc.* 78,975 - 78,975
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
COMBINED PACE
COMBINED PACE SMALL/MEDIUM SMALL/MEDIUM
NUMBER OF COMPANY VALUE PAINEWEBBER COMPANY VALUE EQUITY
SHARES EQUITY INVESTMENTS SMALL CAP FUND INVESTMENTS
-------------- ---------------------------------------------------------------
<S> <C> <C> <C>
1,482 Simone Central Holdings Inc.* 2,779 - 2,779
400 Sport Harley Inc.* 1,475 - 1,475
6,900 Tandy Brands Accessories Inc.* 61,237 - 61,237
9,200 Tarrant Apparel Group* 73,600 - 73,600
12,900 The Warnaco Group Inc., Class A 53,213 - 53,213
31,200 Westpoint Stevens Inc. (1) 374,400 - 374,400
3,600 Weyco Group Inc. 90,000 - 90,000
17,700 Wolverine World Wide Inc. (1) 186,956 - 186,956
---------------------------------------------------------------
2,895,456 - 2,895,456
---------------------------------------------------------------
Banks - 1.58%
1,100 American Bank Inc. 20,900 - 20,900
5,200 Arrow Financial Corp. 79,625 - 79,625
3,000 BostonFed Bancorp, Inc. 44,625 - 44,625
1,500 BYL Bancorp 13,406 - 13,406
34,300 Citizens Banking Corp. 686,000 - 686,000
2,700 Columbia Bancorp 26,831 - 26,831
34,900 Commercial Federal Corp. 619,475 - 619,475
3,700 Community Bank Systems, Inc. 81,862 - 81,862
17,500 Corus Bank Shares Inc. 511,875 - 511,875
18,600 Delta Financial Corp.* 25,575 - 25,575
12,800 First Citizens Bancshares, Inc. 780,800 - 780,800
3,200 GBC Bancorp 104,000 - 104,000
3,900 IBERIABANK Corp. 64,350 - 64,350
1,900 Independent Bank Corp. 21,969 - 21,969
3,500 Industrial Bancorp, Inc. 42,000 - 42,000
6,800 Merchants Bancshares Inc. 132,600 - 132,600
10,600 National City Bancorp 155,025 - 155,025
3,130 Northrim Bank Alaska 23,084 - 23,084
2,100 PFF Bancorp, Inc. 36,488 - 36,488
4,000 Republic Bancorp Inc. 32,500 - 32,500
6,000 Sterling Bancorp 96,000 - 96,000
9,700 Sterling Financial Corp.* 108,519 - 108,519
8,050 Three Rivers Bancorp, Inc. 65,909 - 65,909
16,100 U.S. Bancorp, Inc. 79,494 - 79,494
22,700 Webster Financial Corp. 507,912 - 507,912
3,600 West Coast Bancorp 33,075 - 33,075
3,900 Yardville National Bancorp 41,438 - 41,438
---------------------------------------------------------------
4,435,337 - 4,435,337
---------------------------------------------------------------
Chemicals - 3.02%
7,100 A. Schulman, Inc. 89,194 - 89,194
4,100 American Biltrite Inc. 50,738 - 50,738
5,100 American Pacific Corp.* 32,513 - 32,513
3,300 American Vanguard Corp. 26,813 - 26,813
4,800 Ameron, Inc. 180,000 - 180,000
4,700 Associate Materials Inc. 76,963 - 76,963
24,500 Avery Dennison Corp. 1,329,125 - 1,329,125
9,600 Baimco Corp. 69,000 - 69,000
8,100 Brady Corp. - 246,544 246,544
24,200 Carlisle Companies Inc. - 1,095,050 1,095,050
5,900 Chemfab Corp.* 106,937 - 106,937
101,100 Ethyl Corp. 202,200 - 202,200
4,300 Foamex International Inc. 29,025 - 29,025
50,400 Gencorp Inc. 400,050 - 400,050
49,600 International Security Products Inc. 291,400 - 291,400
15,100 Ivex Packaging Corp.* 156,662 - 156,662
9,100 Lydall Inc.* 101,238 - 101,238
15,700 Myers Industries, Inc. 209,987 - 209,987
3,100 NCH Corp. 118,187 - 118,187
61,600 NL Industries Inc. 1,139,600 - 1,139,600
4,100 Oil-Dri Corporation of America 32,800 - 32,800
50,400 Omnova Solutions Inc. 321,300 - 321,300
8,100 Patrick Industries Inc. 55,434 - 55,434
10,800 Quaker Chemical 184,275 - 184,275
5,300 Raven Industries Inc. 79,500 - 79,500
39,700 Spartech Corp. - 1,064,456 1,064,456
11,700 Stepan Chemical Co. 257,400 - 257,400
5,200 Summa Industries* 62,075 - 62,075
46,300 W.R. Grace & Co.* 457,212 - 457,212
---------------------------------------------------------------
6,059,628 2,406,050 8,465,678
---------------------------------------------------------------
Computer Hardware - 1.15%
14,400 Amplicon Inc. 136,800 - 136,800
17,400 Gerber Scientific, Inc. 174,000 - 174,000
4,000 Global Imaging Systems, Inc.* 31,000 - 31,000
9,400 Gradco Systems Inc.* 14,394 - 14,394
4,100 McRae Industries Inc. 21,012 - 21,012
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
COMBINED PACE
COMBINED PACE SMALL/MEDIUM SMALL/MEDIUM
NUMBER OF COMPANY VALUE PAINEWEBBER COMPANY VALUE EQUITY
SHARES EQUITY INVESTMENTS SMALL CAP FUND INVESTMENTS
-------------- ---------------------------------------------------------------
<S> <C> <C> <C>
21,100 Paravant Inc.* 60,662 - 60,662
73,000 Pitney Bowes, Inc. 2,527,625 - 2,527,625
14,400 PSC Inc.* 52,200 - 52,200
18,900 ScanSoft, Inc.* 34,847 - 34,847
43,300 Systemax Inc.* 159,669 - 159,669
---------------------------------------------------------------
3,212,209 - 3,212,209
---------------------------------------------------------------
Computer Software - 0.76%
40,400 Avant Corp.* 631,250 - 631,250
6,900 Bell Industries, Inc. 17,250 - 17,250
9,600 Comdial Corp.* 24,600 - 24,600
2,700 Concentrex, Inc.* 18,394 - 18,394
156,317 Quadramed Corp.* - 371,253 371,253
4,300 Software Spectrum, Inc.* 66,112 - 66,112
46,426 Tecnomatix Technologies Ltd.* - 719,603 719,603
8,900 TTI Team Telecom International Ltd.* - 273,119 273,119
---------------------------------------------------------------
757,606 1,363,975 2,121,581
---------------------------------------------------------------
Construction - 6.07%
10,100 Beazer Homes USA, Inc.* 212,731 - 212,731
8,500 Butler Manufacturing Co. 176,906 - 176,906
4,100 Catalina Lighting, Inc.* 17,425 - 17,425
34,100 Champion Enterprise Inc.* 185,419 - 185,419
90,500 D.R. Horton Inc. 1,196,600 206,150 1,402,750
35,000 Dal-Tile International Inc.* 315,000 - 315,000
6,100 Dominion Homes Inc.* 32,597 - 32,597
24,950 Elcor Corp. - 478,728 478,728
3,500 EMCOR Group, Inc.* 82,031 - 82,031
13,500 Engle Homes Inc. 129,094 - 129,094
33,800 Hovnanian Enterprises Inc.* 202,800 - 202,800
35,100 Kaufman and Broad Home Corp. 686,644 - 686,644
19,900 M.D.C. Holdings, Inc. 398,000 - 398,000
22,700 M/I Schottenstein Homes, Inc. 192,600 216,000 408,600
2,700 Meadow Valley Corp.* 8,269 - 8,269
4,300 Miller Building Systems Inc.* 32,788 - 32,788
13,100 Morrison Knudsen Corp.* 126,087 - 126,087
21,900 NCI Building Systems Inc.* 413,362 - 413,362
170,675 Nobility Homes Inc.* 21,494 943,887 965,381
25,200 NVR Inc.* 813,450 739,500 1,552,950
22,900 Owens Corning 125,950 - 125,950
17,900 Palm Harbor Homes Inc.* 264,025 - 264,025
6,100 Park Ohio Holdings Corp.* 56,425 - 56,425
6,900 Perini Corp. 27,600 - 27,600
33,600 Pulte Corp. 770,700 - 770,700
10,300 Railworks Corp.* 95,275 - 95,275
190,900 Rouse Co. 4,975,331 - 4,975,331
18,000 Ryland Group Inc. 360,000 - 360,000
7,500 Silverleaf Resorts Inc.* 25,313 - 25,313
10,900 Skyline Corp. 220,044 - 220,044
35,900 Standard Pacific Corp. 455,481 - 455,481
44,100 Toll Brothers Inc.* 1,066,669 - 1,066,669
27,100 Trammell Crow Co.* 281,162 - 281,162
5,300 Wabash National Corp. 56,975 56,975
9,400 Washington Homes Inc. 61,100 - 61,100
22,000 Webb Delaware Corp. 335,500 - 335,500
---------------------------------------------------------------
14,420,847 2,584,265 17,005,112
---------------------------------------------------------------
Consumer Durables - 3.88%
12,900 Chromcraft Revington Inc.* 141,900 - 141,900
12,200 Flexsteel Industries Inc. 150,213 - 150,213
50,700 Furniture Brands International, Inc.* 579,169 171,825 750,994
174,900 Herman Miller Inc. 5,487,487 - 5,487,487
8,900 Home Products International Inc.* 26,700 - 26,700
63,900 Interface, Inc. 327,487 - 327,487
188,200 Leggett & Platt, Inc. (1) 3,293,500 - 3,293,500
16,390 Rowe Furniture Corp. 73,755 - 73,755
19,900 Royal Appliance Manufacturing Co.* 104,475 - 104,475
8,600 Stanley Furniture Co., Inc.* 194,575 - 194,575
7,200 The First Years Inc. 78,750 - 78,750
7,900 U.S. Can Corp.* 148,125 - 148,125
6,788 Virco Manufacturing Corp. 86,547 - 86,547
---------------------------------------------------------------
10,692,683 171,825 10,864,508
---------------------------------------------------------------
Defense/Aerospace - 0.78%
5,900 AAR Corp. 70,800 - 70,800
6,900 Ducommun Inc.* 92,287 - 92,287
8,100 EDO Corp. 48,094 - 48,094
6,200 Herley Industries, Inc.* 111,600 - 111,600
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
COMBINED PACE
COMBINED PACE SMALL/MEDIUM SMALL/MEDIUM
NUMBER OF COMPANY VALUE PAINEWEBBER COMPANY VALUE EQUITY
SHARES EQUITY INVESTMENTS SMALL CAP FUND INVESTMENTS
-------------- ---------------------------------------------------------------
<S> <C> <C> <C>
1,900 International Airline Support Inc.* 3,800 - 3,800
6,900 Kellstrom Industries Inc.* 38,812 - 38,812
9,800 Ladish Co., Inc.* 106,575 - 106,575
1,000 LMI Aerospace Inc.* 2,438 - 2,438
6,600 Moog Inc.* 191,400 - 191,400
23,100 Precision Castparts Corp. 1,476,956 - 1,476,956
6,000 SIFCO Industries, Inc. 36,375 - 36,375
---------------------------------------------------------------
2,179,137 - 2,179,137
---------------------------------------------------------------
Diversified Retail - 0.27%
18,500 BonTon Stores Inc.* 43,938 - 43,938
11,800 Elder Beerman Stores Corp.* 51,256 - 51,256
45,900 Homebase Inc.* 111,881 - 111,881
14,100 Jo-Ann Stores, Inc.* 102,225 - 102,225
20,700 RDO Equipment Co.* 90,562 - 90,562
23,600 Shopko Stores, Inc.* 340,725 - 340,725
5,300 Specialty Catalog Corp.* 13,913 - 13,913
---------------------------------------------------------------
754,500 - 754,500
---------------------------------------------------------------
Drugs & Medicine - 1.90%
11,400 Alpharma, Inc. - 746,700 746,700
34,600 Cardinal Health, Inc. (1) 2,543,100 - 2,543,100
5,800 Chattem, Inc.* 71,050 - 71,050
32,004 Herbalife International Inc., Class A 306,038 - 306,038
19,533 Herbalife International Inc., Class B 180,680 - 180,680
5,000 Natrol, Inc.* 11,875 - 11,875
50,771 Noven Pharmaceuticals Inc.* - 1,440,627 1,440,627
7,700 USANA Health Sciences, Inc.* 23,100 - 23,100
---------------------------------------------------------------
3,135,843 2,187,327 5,323,170
---------------------------------------------------------------
Electric Utilities - 0.83%
8,900 Bangor Hydro Electric Co. 208,594 - 208,594
3,100 Central Vermont Public Service Corp. 36,813 - 36,813
14,271 Lennox International Inc. 188,199 - 188,199
400 Maine Public Service Co. 9,450 - 9,450
49,300 Public Service Co. of New Mexico 893,562 - 893,562
43,500 RGS Energy Group Inc. 997,781 - 997,781
---------------------------------------------------------------
2,334,399 - 2,334,399
---------------------------------------------------------------
Electrical Equipment - 2.00%
34,700 Artesyn Technologies Inc.*(1) - 1,179,800 1,179,800
7,700 DSP Group Inc.* - 322,919 322,919
21,500 Orbotech Ltd.*(1) - 1,771,062 1,771,062
4,200 Pioneer-Standard Electronics, Inc. 56,700 - 56,700
36,000 Rogers Corp.* - 1,287,000 1,287,000
4,000 Technitrol Inc.* - 441,000 441,000
18,600 Thermo Ecotek Corp.* - 160,425 160,425
11,600 Xircom, Inc.* - 396,575 396,575
---------------------------------------------------------------
56,700 5,558,781 5,615,481
---------------------------------------------------------------
Electrical Power - 0.54%
10,000 A.O. Smith Corp. 161,250 - 161,250
10,100 Carbide/Graphite Group Inc.* 43,556 - 43,556
28,300 Hughes Supply, Inc. 535,931 - 535,931
10,500 Lamson & Sessions Co.* 182,438 - 182,438
2,800 Lincoln Electric Holdings Inc. 42,350 - 42,350
2,200 LSI Industries Inc. 36,850 - 36,850
10,500 The Alpine Group, Inc.* 69,563 - 69,563
13,400 Woodward Governor Co. 442,200 - 442,200
---------------------------------------------------------------
1,514,138 - 1,514,138
---------------------------------------------------------------
Electronic Components - 0.20%
12,200 SLI, Inc. 131,913 - 131,913
14,200 Triumph Group Inc.* 434,875 - 434,875
---------------------------------------------------------------
566,788 - 566,788
---------------------------------------------------------------
Energy Reserves & Production - 1.36%
20,000 Comstock Resources Inc.* - 138,750 138,750
92,100 Patterson Energy Inc.* - 2,296,744 2,296,744
27,900 Pioneer Natural Resources Co.* - 299,925 299,925
19,000 Remington Oil Gas Corp.* - 116,375 116,375
32,200 Swift Energy Co.* - 706,387 706,387
13,700 Vintage Petroleum Inc. - 246,600 246,600
---------------------------------------------------------------
- 3,804,781 3,804,781
---------------------------------------------------------------
Entertainment - 0.58%
86,400 Carnival Corp. 1,614,600 - 1,614,600
---------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
COMBINED PACE
COMBINED PACE SMALL/MEDIUM SMALL/MEDIUM
NUMBER OF COMPANY VALUE PAINEWEBBER COMPANY VALUE EQUITY
SHARES EQUITY INVESTMENTS SMALL CAP FUND INVESTMENTS
-------------- ---------------------------------------------------------------
<S> <C> <C> <C>
Environmental Services - 1.24%
2,400 ATG Inc.* 5,550 - 5,550
7,100 Exponent Inc.* 63,013 - 63,013
16,500 IT Group, Inc.* 72,188 - 72,188
5,000 Met-Pro Corp. 50,625 - 50,625
94,150 Stericycle Inc.* - 2,353,750 2,353,750
99,800 The ServiceMaster Co. 929,387 - 929,387
27,800 Thermatrix Inc.* - 11,148 11,148
---------------------------------------------------------------
1,120,763 2,364,898 3,485,661
---------------------------------------------------------------
Financial Services - 4.07%
30,700 Advanta Corp. (1) 351,131 - 351,131
2,700 American Business Financial Services, Inc. (1) 36,788 - 36,788
31,700 Americredit Corp.*(1) - 657,775 657,775
28,000 Bluegreen Corp.* 77,000 - 77,000
5,100 CCBT Financial Companies Inc. 80,962 - 80,962
3,800 DeWolfe Companies, Inc. 28,975 - 28,975
11,600 Doral Financial Corp. - 150,800 150,800
11,400 Ezcorp Inc. 16,744 - 16,744
279,500 First Cash Financial Services, Inc.* - 847,234 847,234
11,400 Gallagher (Arthur J.) & Co. 559,312 - 559,312
49,100 H&R Block, Inc. 1,571,200 - 1,571,200
3,800 Hawthorne Financial Corp.* 38,950 - 38,950
9,200 Kaye Group Inc. 57,500 - 57,500
4,100 Main St. & Main Inc.* 10,891 - 10,891
3,900 Matrix Bancorp Inc.* 40,463 - 40,463
132,100 MBNA Corp. 4,408,837 - 4,408,837
72,000 Metris Co., Inc.(1) - 2,110,500 2,110,500
3,700 New Century Financial Corp.* (1) 44,227 - 44,227
4,800 Onyx Acceptance Corp.* 21,900 - 21,900
3,200 Pacific Crest Capital Inc. 39,200 - 39,200
5,900 Refac* 18,806 - 18,806
22,300 Resource Bank Shares Mortgage Group Inc. 91,987 - 91,987
1,300 TFC Enterprises, Inc.* 2,356 - 2,356
3,500 Ugly Duckling Corp.* 24,938 - 24,938
1,700 Union Acceptance Corp.* 10,413 - 10,413
23,000 World Acceptance Corp.* 117,875 - 117,875
---------------------------------------------------------------
7,650,455 3,766,309 11,416,764
---------------------------------------------------------------
Food Retail - 0.67%
52,025 Albertson's Inc. 1,570,504 - 1,570,504
25,000 M & F Worldwide Corp.* 137,500 - 137,500
8,700 Marsh Supermarkets Inc. 130,500 - 130,500
3,650 Schultz Sav-O Stores, Inc. 43,344 - 43,344
---------------------------------------------------------------
1,881,848 - 1,881,848
---------------------------------------------------------------
Forest Products, Paper - 0.70%
3,000 Baltek Corp.* 20,437 - 20,437
6,400 BCT International Inc.* 10,000 - 10,000
9,450 Fibermark Inc.* 112,809 - 112,809
34,400 Graphic Packaging International Corp.* 81,700 - 81,700
44,930 Greif Brothers Corp. Class A - 1,140,099 1,140,099
9,000 Mercer International Inc.* - 77,906 77,906
1,000 Quipp Inc.* 21,000 - 21,000
14,290 Republic Group Inc. 184,877 - 184,877
19,100 Schweitzer Mauduit International Inc. 253,075 - 253,075
4,700 Universal Forest Products, Inc. 59,044 - 59,044
1,100 Wickes Co.* 5,294 - 5,294
---------------------------------------------------------------
748,236 1,218,005 1,966,241
---------------------------------------------------------------
Freight, Air, Sea & Land - 1.29%
7,500 AirNet Systems, Inc.* 35,625 - 35,625
23,800 Arkansas Best Corp.* 337,662 - 337,662
34,900 Arnold Industries Inc. 477,694 - 477,694
4,300 Boyd Brothers Transportation Inc.* 17,200 - 17,200
8,500 CD&L, Inc.* 9,563 - 9,563
10,700 Consolidated Freightways Corp.* 47,147 - 47,147
12,500 Covenant Transport, Inc., Class A* 100,000 - 100,000
5,800 Genesee & Wyoming Inc.* 108,750 - 108,750
3,500 M.S. Carriers, Inc.* 70,219 - 70,219
4,100 Motor Cargo Industries, Inc.* 18,963 - 18,963
14,200 Old Dominion Freight Lines Inc.* 138,450 - 138,450
10,200 PAM Transportation Services Inc.* 93,075 - 93,075
36,500 Roadway Express Inc. 866,875 - 866,875
6,100 Smithway Motor Xpress Corp. 18,681 - 18,681
8,100 Transport Corp. of America* 48,600 - 48,600
17,800 US Xpress Enterprises Inc.* 145,181 - 145,181
11,300 USA Truck Inc.* 74,862 - 74,862
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
COMBINED PACE
COMBINED PACE SMALL/MEDIUM SMALL/MEDIUM
NUMBER OF COMPANY VALUE PAINEWEBBER COMPANY VALUE EQUITY
SHARES EQUITY INVESTMENTS SMALL CAP FUND INVESTMENTS
-------------- ---------------------------------------------------------------
<S> <C> <C> <C>
19,000 USFreightways Corp. 527,250 - 527,250
30,100 Yellow Corp.* 483,481 - 483,481
---------------------------------------------------------------
3,619,278 - 3,619,278
---------------------------------------------------------------
Gas Utility - 0.74%
3,850 Energysouth Inc. 72,188 - 72,188
38,200 Equitable Resources Inc. - 1,988,787 1,988,787
---------------------------------------------------------------
72,188 1,988,787 2,060,975
---------------------------------------------------------------
Heavy Machinery - 0.55%
13,800 Cascade Corp. 175,087 - 175,087
16,400 Columbus McKinnon Corp. 241,900 - 241,900
7,800 Gehl Co.* 106,275 - 106,275
32,000 JLG Industries, Inc. 326,000 - 326,000
9,900 NACCO Industries Inc. 359,494 - 359,494
1,100 Richton International Corp.* 21,175 - 21,175
19,700 Terex Corp.* 325,050 - 325,050
---------------------------------------------------------------
1,554,981 - 1,554,981
---------------------------------------------------------------
Hotels - 0.57%
8,700 Anchor Gaming* 471,431 - 471,431
4,500 Black Hawk Gaming & Development Inc.* 29,250 - 29,250
74,900 Boyd Gaming Corp.* 332,369 - 332,369
12,825 Lakes Gaming Inc.* 115,425 - 115,425
62,500 Prime Hospitality Corp.* 593,750 - 593,750
6,700 Suburban Lodges America Inc.* 47,738 - 47,738
---------------------------------------------------------------
1,589,963 - 1,589,963
---------------------------------------------------------------
Household Products - 3.28%
77,800 Clorox Co. (1) 3,214,112 - 3,214,112
7,500 CPAC Inc. 56,250 - 56,250
2,000 Dixon Ticonderoga Co.* 6,250 - 6,250
70,300 Fortune Brands, Inc. (1) 1,581,750 - 1,581,750
16,700 French Fragrances Inc.* (1) 133,600 - 133,600
24,700 Jason Inc.* 265,525 - 265,525
32,300 National Service Industries, Inc. 660,131 - 660,131
121,700 Newell Rubbermaid, Inc. 3,278,294 - 3,278,294
---------------------------------------------------------------
9,195,912 - 9,195,912
---------------------------------------------------------------
Industrial Parts - 0.71%
17,700 Briggs & Stratton Corp. 622,819 - 622,819
49,500 Manitowoc Co., Inc. - 1,218,938 1,218,938
3,800 Mettler-Toledo International Inc.* ADR - 153,900 153,900
---------------------------------------------------------------
622,819 1,372,838 1,995,657
---------------------------------------------------------------
Industrial Services/Supplies - 4.06%
53,400 AHL Services, Inc.* - 433,875 433,875
16,200 Amerco* 319,950 - 319,950
29,200 ArvinMeritor, Inc. 456,250 - 456,250
37,800 Avis Rental A Car Inc.* 845,775 - 845,775
14,200 Burns International Services Corp.* 188,150 - 188,150
5,300 Butler International Inc.* 38,425 - 38,425
22,000 CDI Corp.* 437,250 - 437,250
7,400 Childrens Comprehensive Services 21,738 - 21,738
27,600 Comfort Systems USA Inc.* 122,475 - 122,475
186,120 Cornell Companies, Inc.* 48,281 1,149,866 1,198,147
38,700 Correctional Services Corp.* 32,375 146,612 178,987
19,200 Dollar Thrifty Automotive Group, Inc.* 361,200 - 361,200
90,300 Harte-Hanks Co. 2,285,719 - 2,285,719
8,500 Headway Corporate Resources Inc.* 24,969 - 24,969
13,350 Healthcare Services Group Inc.* 63,412 - 63,412
5,600 Innotrac Corp.* 28,700 - 28,700
1,200 International Aircraft Investors* 6,300 - 6,300
36,350 Interpool Inc. 415,753 - 415,753
7,900 McGrath Rentcorp. 119,487 - 119,487
16,800 National Equipment Services Inc.* 88,200 - 88,200
10,100 National Technical Systems Inc. 37,875 - 37,875
34,500 Personnel Group of America Inc.* 109,969 - 109,969
12,216 Pittston Brinks Group 146,592 - 146,592
44,700 Rollins Truck Leasing Corp. 318,487 - 318,487
21,800 Simpson Industries, Inc. 177,125 - 177,125
15,300 SOS Staffing Services Inc.* 40,163 - 40,163
3,300 Sterile Recoveries Inc.* 32,175 - 32,175
7,700 Superior Surgical Manufacturing Inc. 60,638 - 60,638
23,900 Unifirst Corp. 224,062 - 224,062
144,882 Wackenhut Corp., Class B* - 1,430,710 1,430,710
31,500 Wallace Computer Series, Inc. 281,531 - 281,531
19,200 Westaff Inc.* 81,600 - 81,600
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
COMBINED PACE
COMBINED PACE SMALL/MEDIUM SMALL/MEDIUM
NUMBER OF COMPANY VALUE PAINEWEBBER COMPANY VALUE EQUITY
SHARES EQUITY INVESTMENTS SMALL CAP FUND INVESTMENTS
-------------- ---------------------------------------------------------------
<S> <C> <C> <C>
28,700 York International Corp. 798,219 - 798,219
680 Zimmerman Sign Co. 2,040 - 2,040
---------------------------------------------------------------
8,214,885 3,161,063 11,375,948
---------------------------------------------------------------
Information & Computer Services - 5.48%
5,400 Amrep Corp.* 27,338 - 27,338
1,580 Avici Systems Inc.* - 155,433 155,433
9,300 Corrpro Companies Inc.* 33,131 - 33,131
167,700 Equifax, Inc. (1) 3,961,912 - 3,961,912
5,800 FTI Consulting, Inc.* 59,812 - 59,812
3,795 General Employment Enterprises* 13,757 - 13,757
23,100 Magellan Health Services Inc.* 37,538 - 37,538
2,900 Marlton Technologies, Inc.* 5,619 - 5,619
49,700 Maximus, Inc.* - 1,186,587 1,186,587
10,400 Navigant Consulting, Co.* 35,100 - 35,100
7,700 OrthAlliance, Inc.* 43,313 - 43,313
137,100 Pomeroy Computer Resources, Inc.* 47,600 2,283,100 2,330,700
140,578 Right Management Consultants, Inc.* 46,000 1,359,780 1,405,780
118,261 Sun Guard Data Systems Inc.* 2,373,887 1,536,117 3,910,004
56,100 The Dun & Bradstreet Corp. 1,658,456 - 1,658,456
1,000 Transport Lux Corp. 4,625 - 4,625
12,400 URS Corp.* 186,000 - 186,000
63,800 US Oncology, Inc.* 319,000 - 319,000
---------------------------------------------------------------
8,853,088 6,521,017 15,374,105
---------------------------------------------------------------
Leisure - 4.25%
6,050 Boston Acoustics Inc. 65,794 - 65,794
6,400 Brass Eagles Inc.* 24,000 - 24,000
8,600 Cannondale Corp.* 35,175 - 35,175
19,200 Department 56 Inc.* 189,600 - 189,600
4,800 Ellett Brothers Inc. 15,900 - 15,900
2,300 Escalade Inc.* 41,688 - 41,688
43,400 GTECH Holdings Corp.* 886,987 - 886,987
269,200 Hasbro, Inc. 3,062,150 - 3,062,150
143,100 International Game Technology* 4,248,281 - 4,248,281
8,000 Johnson Outdoors Inc.* 49,500 - 49,500
20,000 K2 Inc.* 198,750 - 198,750
3,600 Koss Corp.* 68,400 - 68,400
10,900 MarineMax, Inc.* 84,475 - 84,475
5,400 McNaughton Apparel Group Inc.* 68,850 - 68,850
12,900 Oneida Ltd. 233,812 - 233,812
7,600 OroAmerica Inc.* 53,200 - 53,200
9,900 Russ Berrie & Company Inc. 194,288 - 194,288
82,750 SCP Pool Corp.* - 2,178,652 2,178,652
20,900 Sturm Ruger & Co. Inc. 184,181 - 184,181
5,200 Travis Boats & Motors, Inc.* 21,450 - 21,450
---------------------------------------------------------------
9,726,481 2,178,652 11,905,133
---------------------------------------------------------------
Life Insurance - 0.89%
23,800 AmerUs Life Holdings, Inc. 544,425 - 544,425
2,812 Cotton States Life Insurance Co. 25,132 - 25,132
24,881 Delphi Financial Group, Inc.* 957,918 - 957,918
21,400 Great American Financial Resources, Inc. 374,500 - 374,500
5,800 Independence Holding Co. 79,388 - 79,388
4,200 National Western Life Insurance Co.* 308,700 - 308,700
9,200 Penn Treaty American Corp.* 147,200 - 147,200
1,700 Presidential Life Corp. 24,544 - 24,544
9,200 Standard Management Corp.* 34,500 - 34,500
---------------------------------------------------------------
2,496,307 - 2,496,307
---------------------------------------------------------------
Long Distance & Phone Companies - 1.40%
133,700 CenturyTel, Inc. 3,919,081 - 3,919,081
---------------------------------------------------------------
Manufacturing-General - 2.00%
8,100 Alltrista Corp.* 180,225 - 180,225
9,600 Amcast Industrial Corp. 103,200 - 103,200
11,600 Ampco-Pittsburgh Corp. 137,750 - 137,750
6,800 Avteam Inc.* 12,538 - 12,538
27,800 Baldwin Technology Inc.* 53,862 - 53,862
9,000 Ballantyne Omaha Inc.* 19,688 - 19,688
23,000 Barnes Group Inc. 454,250 - 454,250
500 Chicago Rivet Machine Co. 10,625 - 10,625
7,100 CTB International Corp.* 53,250 - 53,250
6,000 Denali Inc.* 7,125 - 7,125
18,500 Detroit Diesel Corp.* 420,875 - 420,875
6,500 Farrel Corp. 9,750 - 9,750
7,900 Featherlite Manufacturing Inc.* 27,650 - 27,650
27,900 Fedders Corp. 144,731 - 144,731
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
COMBINED PACE
COMBINED PACE SMALL/MEDIUM SMALL/MEDIUM
NUMBER OF COMPANY VALUE PAINEWEBBER COMPANY VALUE EQUITY
SHARES EQUITY INVESTMENTS SMALL CAP FUND INVESTMENTS
-------------- ---------------------------------------------------------------
<S> <C> <C> <C>
25,100 Gentek Inc. 288,650 - 288,650
1,800 Graham Corp.* 14,175 - 14,175
9,000 Hardinge, Inc. 119,250 - 119,250
7,200 Hurco Companies Inc.* 27,000 - 27,000
6,500 JLK Direct Distribution Inc.* 46,313 - 46,313
3,600 K Tron International Inc.* 61,200 - 61,200
28,500 Kaman Corp. 356,250 - 356,250
15,400 Media Arts Group Inc.* 60,637 - 60,637
8,700 Mestek, Inc.* 146,269 - 146,269
44,800 Milacron Inc. 644,000 - 644,000
6,800 Nortek, Inc.* 133,450 - 133,450
2,500 P & F Industries Inc.* 21,250 - 21,250
1,000 Peerless Manufacturing Co. 16,250 - 16,250
3,200 Q E P Inc.* 28,400 - 28,400
4,000 Riviera Tool Co.* 13,750 - 13,750
23,400 Specialty Equipment Companies Inc.* 637,650 - 637,650
1,600 SPS Technologies, Inc.* 71,800 - 71,800
1,700 Standard Motor Products Inc. 16,469 - 16,469
8,200 Starrett LS Co. 149,137 - 149,137
8,500 TB Woods Corp. 90,312 - 90,312
15,100 Tecumseh Products Co., Class A 536,050 - 536,050
7,400 Transtechnology Corp. 74,925 - 74,925
41,200 Wabtec Corp. 414,575 - 414,575
---------------------------------------------------------------
5,603,281 - 5,603,281
---------------------------------------------------------------
Manufacturing - High Technology - 1.02%
6,100 Acme Electric Corp.* 52,231 - 52,231
10,100 Applied Signal Technology Inc. 98,475 - 98,475
7,600 Bel Fuse Inc. 209,000 - 209,000
1,300 Bio Rad Laboratories Inc.* 30,713 - 30,713
2,900 Blonder Tongue Labs Inc.* 19,575 - 19,575
8,200 Channell Commercial Corp.* 102,500 - 102,500
7,300 Cobra Electronics Corp.* 45,169 - 45,169
9,300 Delaware Global Technologies Corp.* 84,862 - 84,862
16,600 Esterline Technologies Corp.* 244,850 - 244,850
67,800 Galileo International Inc. (1) 1,305,150 - 1,305,150
30,600 Generale Cable Corp. 263,925 - 263,925
36,800 Griffon Corp.* 230,000 - 230,000
2,200 Lowrance Electronics, Inc.* 7,975 - 7,975
1,300 Napco Security Systems Inc.* 4,956 - 4,956
15,647 Superior TeleCom Inc. 135,933 - 135,933
2,300 Tech/Ops Sevcon, Inc. 21,850 - 21,850
1,100 Thermwood Corp.* 5,638 - 5,638
---------------------------------------------------------------
2,862,802 - 2,862,802
---------------------------------------------------------------
Media - 0.62%
53,600 Tribune Co. 1,742,000 - 1,742,000
---------------------------------------------------------------
Medical Products - 2.92%
11,500 American Medical Technologies Inc. 14,375 - 14,375
28,000 American Science & Engineering, Inc.* - 175,000 175,000
30,200 Biomatrix, Inc.*(1) - 628,537 628,537
3,200 Lakeland Industries, Inc.* 18,800 - 18,800
4,700 Mesa Labs Inc.* 26,437 - 26,437
5,400 Minntech Corp. 37,125 - 37,125
21,300 Natures Sunshine Products Inc. 170,400 - 170,400
25,800 Patterson Dental Co.* - 683,700 683,700
23,300 Pharmaceutical Product Development, Inc.* - 498,037 498,037
18,000 Sola International Inc.* 106,875 - 106,875
161,500 Sybron International Corp.* 3,361,219 - 3,361,219
46,900 Teleflex Inc. - 1,700,125 1,700,125
29,000 Theragenics Corp.* - 215,688 215,688
11,000 Utah Medical Products Inc.* 77,000 - 77,000
23,500 Young Innovations Inc.* - 478,813 478,813
---------------------------------------------------------------
3,812,231 4,379,900 8,192,131
---------------------------------------------------------------
Medical Providers - 1.40%
6,100 Air Methods Corp.* 26,687 - 26,687
25,500 Ameripath Inc.* 323,531 - 323,531
124,000 Beverly Enterprises Inc.* 426,250 - 426,250
23,800 Capital Senior Living Corp.* 71,400 - 71,400
9,400 Carriage Services Inc.* 20,563 - 20,563
7,800 Castle Dental Centers, Inc.* 24,375 - 24,375
5,700 Coast Dental Services Inc.* 9,263 - 9,263
238,700 Counsel Corp.* - 611,669 611,669
1,000 Curative Health Services, Inc.* 6,375 - 6,375
13,900 Healthcare Recoveries Inc.* 54,731 - 54,731
62,000 Hooper Holmes Inc. - 759,500 759,500
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
COMBINED PACE
COMBINED PACE SMALL/MEDIUM SMALL/MEDIUM
NUMBER OF COMPANY VALUE PAINEWEBBER COMPANY VALUE EQUITY
SHARES EQUITY INVESTMENTS SMALL CAP FUND INVESTMENTS
-------------- ---------------------------------------------------------------
<S> <C> <C> <C>
8,300 Horizon Health Corp.* 43,575 - 43,575
14,400 Monarch Dental Corp.* 39,600 - 39,600
16,800 Pediatrix Medical Group* 258,300 - 258,300
10,500 Prime Medical Services, Inc.* 85,312 - 85,312
25,500 Promedco Management Co.* 34,266 - 34,266
10,600 Raytel Medical Corp.* 12,588 - 12,588
15,000 Rehabcare Group Inc.* 533,437 - 533,437
6,200 Rural/Metro Corp.* 11,819 - 11,819
127,000 Service Corporation International 325,437 - 325,437
32,400 Sierra Health Services Inc.* 103,275 - 103,275
64,900 Stewart Enterprises Inc. 141,969 - 141,969
---------------------------------------------------------------
2,552,753 1,371,169 3,923,922
---------------------------------------------------------------
Mining & Metals - 2.16%
2,000 AK Steel Holding Corp. 20,125 - 20,125
9,200 Atchison Casting Corp.* 55,200 - 55,200
23,600 Ball Corp. 818,625 - 818,625
17,300 Bayou Steel Corp.* 38,925 - 38,925
23,500 Centex Construction Products Inc. 575,750 - 575,750
18,400 Chase Industries Inc.* 167,900 - 167,900
17,300 Commercial Metals Co. 508,187 - 508,187
9,000 Consol Energy Inc. - 154,688 154,688
4,400 Eastern Co. 64,350 - 64,350
6,200 Fansteel Inc.* 25,188 - 25,188
9,039 Friedman Industries, Inc. 30,507 - 30,507
21,100 IMCO Recycling Inc. 102,862 - 102,862
30,700 Internet Corp. 222,575 - 222,575
12,500 Lawson Products, Inc. 321,875 - 321,875
7,100 Lindberg Corp. 50,588 - 50,588
46,200 Metals USA Inc.* 199,237 - 199,237
11,300 Niagara Corp.* 49,084 - 49,084
7,800 Northwest Pipe Co.* 99,938 - 99,938
5,800 Oglebay Norton Co. 152,250 - 152,250
6,300 Pitt-Des Moines, Inc. 183,881 - 183,881
20,800 Quanex Corp. 374,400 - 374,400
13,450 Roanoke Electric Steel Corp. 159,719 - 159,719
11,800 Ryerson Tull, Inc. 103,987 - 103,987
5,100 Schuff Steel Co.* 13,388 - 13,388
20,900 Silgan Holdings Inc.* 185,161 - 185,161
13,500 Steel Technologies Inc. 92,813 - 92,813
25,400 Texas Industries, Inc.* 823,912 - 823,912
38,200 USEC Inc. 167,125 - 167,125
16,100 Wolverine Tube Inc.* 279,737 - 279,737
---------------------------------------------------------------
5,887,289 154,688 6,041,977
---------------------------------------------------------------
Motor Vehicles - 1.82%
7,800 Bandag Inc. 201,825 - 201,825
20,100 Coachmen Industries, Inc. 208,538 - 208,538
59,400 Cooper Tire & Rubber Co. 664,537 - 664,537
14,200 Delco Remy International Inc.* 118,925 - 118,925
9,500 Donnelly Corp. 124,688 - 124,688
20,900 Dura Automotive Systems, Inc.* 215,531 - 215,531
6,000 Edelbrock Corp. 58,500 - 58,500
55,900 Federal-Mogul Corp. 510,088 - 510,088
40,300 Fleetwood Enterprises Inc. (1) 521,381 - 521,381
22,400 Hayes Lemmerz International Inc.* 302,400 - 302,400
9,100 Keystone Automotive Industries, Inc.* 55,738 - 55,738
54,200 Mascotech Inc. 623,300 - 623,300
20,100 Modine Manufacturing Co. 542,700 - 542,700
10,100 R & B Inc.* 25,881 - 25,881
3,805 Rexhall Industries, Inc.* 18,549 - 18,549
8,000 Rush Enterprises Inc.* 48,250 - 48,250
16,900 Shiloh Industries Inc.* 111,963 - 111,963
2,900 Standard Automotive Corp.* 16,675 - 16,675
15,823 Supreme Industries, Inc.* 79,115 - 79,115
25,600 TBC Corp.* 118,400 - 118,400
26,300 Tower Automotive, Inc.* (1) 320,531 - 320,531
1,500 Transportation Components Inc.* 2,531 - 2,531
16,800 Winnebago Industries, Inc. 217,350 - 217,350
---------------------------------------------------------------
5,107,396 - 5,107,396
---------------------------------------------------------------
Oil Refining - 0.43%
5,100 Adams Resources & Energy Inc. 68,213 - 68,213
9,300 Castle Energy Corp. 65,681 - 65,681
6,100 Giant Industries Inc.* 42,700 - 42,700
10,000 Holly Corp. 120,000 - 120,000
157,800 Kaneb Services, Inc.* 16,750 644,038 660,788
7,962 Mercury Air Group, Inc.* 50,758 - 50,758
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
COMBINED PACE
COMBINED PACE SMALL/MEDIUM SMALL/MEDIUM
NUMBER OF COMPANY VALUE PAINEWEBBER COMPANY VALUE EQUITY
SHARES EQUITY INVESTMENTS SMALL CAP FUND INVESTMENTS
-------------- ---------------------------------------------------------------
<S> <C> <C> <C>
18,800 Petroleum Development Corp.* 94,000 - 94,000
14,700 World Fuel Services Corp. 116,681 - 116,681
---------------------------------------------------------------
574,783 644,038 1,218,821
---------------------------------------------------------------
Oil Services - 0.07%
28,400 Friede Goldman International Inc.* 182,825 - 182,825
---------------------------------------------------------------
Other Insurance - 5.32%
10,200 Acceptance Insurance Co.* 47,175 - 47,175
10,200 Atlantic American Corp.* 21,038 - 21,038
5,880 Bancinsurance Corp.* 23,152 - 23,152
42,200 Commerce Group Inc. 1,171,050 - 1,171,050
8,733 Donegal Group Inc. 62,223 - 62,223
46,000 Enhance Financial Services Group Inc. 727,375 - 727,375
36,783 Fidelity National Financial, Inc. (1) 650,599 - 650,599
7,500 FPIC Insurance Group Inc.* 89,531 - 89,531
32,500 Harleysville Group Inc. 591,094 - 591,094
2,200 Investors Title Insurance Co. 26,400 - 26,400
18,500 LandAmerica Financial Group Inc. 448,625 - 448,625
94,600 MBIA, Inc. 5,268,037 - 5,268,037
2,100 Midland Co. 55,650 - 55,650
7,300 Philadelphia Consolidated Holding Corp.* (1) 118,169 - 118,169
5,596 Professionals Insurance Co. Management Group* 124,511 - 124,511
15,600 Radian Group, Inc. - 949,650 949,650
15,300 Radiologix Inc.* 61,200 - 61,200
13,875 RLI Corp. 485,625 - 485,625
23,100 State Auto Financial Corp. 264,206 - 264,206
17,400 Stewart Information Services Corp. 230,550 - 230,550
7,600 Unico American Corp. 50,825 - 50,825
8,800 Vesta Insurance Group, Inc. 47,850 - 47,850
51,400 XI Capital Ltd. (1) 3,392,400 - 3,392,400
---------------------------------------------------------------
13,957,285 949,650 14,906,935
---------------------------------------------------------------
Precious Metals - 0.00%
1,900 Michael Anthony Jewelers Inc.* 4,038 - 4,038
---------------------------------------------------------------
Printing-Commercial - 0.02%
6,100 Mail-Well, Inc. 43,081 - 43,081
---------------------------------------------------------------
Publishing - 4.36%
11,400 Cadmus Communications Corp. 92,625 - 92,625
11,000 Consolidated Graphics, Inc.* 117,563 - 117,563
3,400 Courier Corp. 99,450 - 99,450
19,700 Ennis Business Forms Inc. 157,600 - 157,600
96,600 Houghton Mifflin Co. (1) 4,576,425 - 4,576,425
155,400 Lee Enterprises Inc. 4,118,100 - 4,118,100
64,200 McClatchy Co. 2,178,787 - 2,178,787
10,000 New England Business Service, Inc. 207,500 - 207,500
7,900 Primesource Corp. 39,994 - 39,994
21,400 Standard Register 274,187 - 274,187
20,800 Standex International Corp. 358,800 - 358,800
---------------------------------------------------------------
12,221,031 - 12,221,031
---------------------------------------------------------------
Railroads - 0.27%
26,800 Greenbrier Companies, Inc. 222,775 - 222,775
27,400 Trinity Industries, Inc. 527,450 - 527,450
---------------------------------------------------------------
750,225 - 750,225
---------------------------------------------------------------
Real Property - 0.02%
1,300 Crossmann Communities, Inc.* 19,500 - 19,500
2,000 Meritage Corp.* 26,000 - 26,000
---------------------------------------------------------------
45,500 - 45,500
---------------------------------------------------------------
Restaurants - 1.55%
18,000 Applebees International, Inc. - 399,375 399,375
4,000 Arkansas Restaurants Corp.* 37,500 - 37,500
3,500 Benihana Inc.* 45,500 - 45,500
93,400 Bob Evans Farms Inc. 1,494,400 - 1,494,400
63,000 CKE Restaurants, Inc. 185,063 - 185,063
1,700 Dave & Busters Inc.* 10,944 - 10,944
5,200 ELXSI Corp.* 57,850 - 57,850
53,900 Jack in the Box Inc.* - 1,155,481 1,155,481
27,100 Lubys Cafeterias Inc. 220,187 - 220,187
16,300 NPC International, Inc.* 142,625 - 142,625
29,300 Rainforest Cafe Inc.* 62,263 - 62,263
44,900 Ryan's Family Steak Houses, Inc.* 409,712 - 409,712
9,800 Schlotzskys Inc.* 51,450 - 51,450
34,200 Sizzler International Inc.* 64,125 - 64,125
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
COMBINED PACE
COMBINED PACE SMALL/MEDIUM SMALL/MEDIUM
NUMBER OF COMPANY VALUE PAINEWEBBER COMPANY VALUE EQUITY
SHARES EQUITY INVESTMENTS SMALL CAP FUND INVESTMENTS
-------------- ---------------------------------------------------------------
<S> <C> <C> <C>
---------------------------------------------------------------
2,781,619 1,554,856 4,336,475
---------------------------------------------------------------
Securities & Asset Management - 2.75%
31,900 Affiliated Managers Group Inc.* - 1,513,256 1,513,256
7,800 Eaton Vance Corp.* - 404,138 404,138
96,700 Franklin Resources, Inc. 3,469,113 - 3,469,113
5,700 ITLA Capital Corp.* 79,889 - 79,889
21,400 Raymond James Financial, Inc. - 535,000 535,000
8,328 Stifel Financial Corp. 97,854 - 97,854
39,600 T. Rowe Price & Associates Inc. 1,618,650 - 1,618,650
---------------------------------------------------------------
5,265,506 2,452,394 7,717,900
---------------------------------------------------------------
Semiconductor - 0.45%
1,339 Avnet, Inc. 76,240 - 76,240
800 Bell Microproducts Inc.* 18,900 - 18,900
2,600 Katy Industries Inc. 27,300 - 27,300
30,200 Neomagic Corp.* 89,656 - 89,656
3,900 O.I. Corp.* 13,650 - 13,650
68,800 Richardson Electronics Ltd. - 1,032,000 1,032,000
---------------------------------------------------------------
225,746 1,032,000 1,257,746
---------------------------------------------------------------
Specialty Retail - 3.27%
5,900 A.C. Moore Arts & Crafts, Inc.* 49,413 - 49,413
19,600 Barnett Inc.* 242,550 - 242,550
4,100 Bebe Stores, Inc.* 40,744 - 40,744
6,500 Brookstone, Inc.* 76,375 - 76,375
15,300 Building Materials Holding Corp.* 154,912 - 154,912
34,100 Central Garden & Pet Co.* 251,487 - 251,487
20,100 CSK Auto Corp.* 170,850 - 170,850
2,100 Discount Auto Parts Inc.* 17,063 - 17,063
6,100 Duckwall Alto Stores Inc.* 51,088 - 51,088
12,600 Finlay Enterprises Inc.* 162,225 - 162,225
17,400 Friedman's Inc. 100,050 - 100,050
13,700 Hancock Fabrics, Inc. 55,656 - 55,656
16,500 Haverty Furniture Companies, Inc. 190,781 - 190,781
118,100 Intertan, Inc.*(1) - 1,387,675 1,387,675
117,500 Longs Drug Stores Corp. 2,379,375 - 2,379,375
9,500 Movie Gallery Inc.* 35,031 - 35,031
137,200 Musicland Stores Corp.*(1) 344,137 736,312 1,080,449
136,617 Piercing Pagoda, Inc. * 39,825 1,975,276 2,015,101
23,572 REX Stores Corp.*(1) - 412,510 412,510
1,200 Tractor Supply Co.* 17,550 - 17,550
5,100 United Auto Group, Inc.* 39,844 - 39,844
6,400 Wolohan Lumber Co. 70,400 - 70,400
10,800 York Group Inc. 33,750 - 33,750
3,600 Zale Corp.* - 134,550 134,550
---------------------------------------------------------------
4,523,106 4,646,323 9,169,429
---------------------------------------------------------------
Thrift - 1.71%
1,400 Alliance Bancorp of New England, Inc. 11,200 - 11,200
2,700 Bank of the Ozarks, Inc. 40,500 - 40,500
2,100 Bank United Corp. 76,519 - 76,519
50,537 BankAtlantic Bancorp Inc. 170,562 - 170,562
13,500 Bay View Capital Corp. 118,125 - 118,125
10,500 BSB Bancorp, Inc. 224,437 - 224,437
4,100 Camco Financial Corp. 34,338 - 34,338
4,700 Capital Crossing Bank* 35,838 - 35,838
7,500 Dime Community Bancorp Inc. 128,437 - 128,437
34,100 Downey Financial Corp. (1) 1,193,500 - 1,193,500
3,000 First Bell Bancorp Inc. 46,500 - 46,500
4,400 First Essex Bancorp Inc. 69,850 - 69,850
5,500 First Republic Bank* 119,625 - 119,625
2,500 FirstFed America Bancorp, Inc. 33,125 - 33,125
23,400 FirstFed Financial Corp.* 374,400 - 374,400
9,800 Flagstar Bancorp Inc. 113,312 - 113,312
12,200 Hamilton Bancorp Inc.* 219,600 - 219,600
3,100 Klamath First Bancorp Inc. 34,100 - 34,100
18,800 Local Financial Corp.* 159,800 - 159,800
18,400 MAF Bancorp, Inc. 366,850 - 366,850
7,300 Parkvale Financial Corp. 124,100 - 124,100
6,200 PennFed Financial Services, Inc. 81,375 - 81,375
5,000 Quaker City Bancorp Inc.* 83,750 - 83,750
11,400 Republic Security Financial Corp. 49,163 - 49,163
2,300 Southwest Bancorp, Inc. 36,513 - 36,513
37,600 Washington Federal Inc. 705,000 - 705,000
2,000 Westcorp Inc. 26,000 - 26,000
3,100 WesterFed Financial Corp. 45,725 - 45,725
8,000 WSFS Financial Corp. 81,000 - 81,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
COMBINED PACE
COMBINED PACE SMALL/MEDIUM SMALL/MEDIUM
NUMBER OF COMPANY VALUE PAINEWEBBER COMPANY VALUE EQUITY
SHARES EQUITY INVESTMENTS SMALL CAP FUND INVESTMENTS
-------------- ---------------------------------------------------------------
<S> <C> <C> <C>
---------------------------------------------------------------
4,803,244 - 4,803,244
---------------------------------------------------------------
Tobacco - 0.34%
1,700 Holts Cigar Holdings Inc.* 8,500 - 8,500
15,700 Standard Commercial Corp. 76,538 - 76,538
39,200 Universal Corp. 869,750 - 869,750
---------------------------------------------------------------
954,788 - 954,788
---------------------------------------------------------------
Total Common Stocks (cost - $281,489,500) 201,584,610 63,373,386 264,957,996
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
COMBINED COMBINED PACE
PRINCIPAL PACE SMALL/MEDIUM SMALL/MEDIUM
AMOUNT MATURITY INTEREST COMPANY VALUE PAINE WEBBER COMPANY VALUE EQUITY
(000) DATES RATES EQUITY INVESTMENTS SMALL CAP FUND INVESTMENTS
---------- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENTS - 4.94%
$ 2,756 Repurchase Agreement dated 07/31/00 with
Societe Generale, collateralized by $2,118,000
U.S. Treasury Notes, 8.875% due 08/15/17
(value $2,811,645); proceeds: $2,756,498 08/01/00 6.500 $ - $ 2,756,000 $ 2,756,000
11,103 Repurchase Agreement dated 07/31/00 with State
Street Bank & Trust Co., collateralized by
$3,266,232 U.S. Treasury Notes, 6.625% due
03/31/02; (value - $3,349,551) and $6,203,964
U.S. Treasury Bonds, 8.125% due 08/15/19;
(value - $7,814,043); proceeds: $11,104,619 08/01/00 5.250 11,103,000 - 11,103,000
------------------------------------------------------
Total Repurchase Agreements (cost-$13,859,000) 11,103,000 2,756,000 13,859,000
------------------------------------------------------
Total Investments (cost - $295,348,500) -- 99.47% 212,687,610 66,129,386 278,816,996
Other Assets in Excess of Liabilities -- 0.53% 1,061,259 424,800 1,486,059
------------------------------------------------------
Net Assets -- 100.00% $213,748,869 $66,554,186 $280,303,055
======================================================
</TABLE>
---------------
* Non-income producing security.
(1) Security, or portion thereof, was on loan at July 31, 2000.
ADR American Depository Receipt
See accompanying notes to pro forma financial statements.
<PAGE>
PACE Small/Medium Company Value Equity Investments
PaineWebber Small Cap 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 Small Cap Fund ("Small
Cap"), PACE Small/Medium Company Value Equity Investments ("Small/Medium Company
Value") would acquire the assets of Small Cap in exchange solely for the
assumption by Small/Medium Company Value of Small Cap's assets and stated
liabilities and shares of Small/Medium Company Value that correspond to the
outstanding shares of Small Cap. The number of shares to be received would be
based on the relative net asset value of Small/Medium Company Value's shares on
the effective date of the Plan and Small Cap will be terminated as soon as
practicable thereafter.
The PRO FORMA financial statements reflect the financial position of
Small/Medium Company Value and Small Cap at July 31, 2000 and the combined
results of operations of Small/Medium Company Value and Small Cap (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
decrease due to the lower fee schedule, net of waivers, of Small/Medium Company
Value. Small Cap currently pays Rule 12b-1 distribution or service fees; as of
July 31, 2000, Small/Medium Company Value does not. Other fixed expenses will be
reduced due to the elimination of duplicative expenses. 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 $168,000 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 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
<PAGE>
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.