<PAGE>
PAINEWEBBER PACE SELECT ADVISORS TRUST
(ON BEHALF OF PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS)
PAINEWEBBER MANAGED INVESTMENTS TRUST
(ON BEHALF OF PAINEWEBBER 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 U.S. Government Income Fund ("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 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 on October 6, 2000,
accession number 0000912057-00-043979;
(3) The Semi-Annual Report to Shareholders of 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 on August 7,
2000, accession number 0000912057-00-034897; and
(4) The Annual Report to Shareholders of 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 on
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 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 U.S. Government Income Fund, PaineWebber 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 Low Duration 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. The holdings of U.S.
Government Income Fund have changed significantly since that date, primarily
because the Fund's portfolio was realigned by its new sub-adviser after October
10, 2000 to reflect its proprietary investment style and strategies. That
realignment was 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 U.S. Government Income Fund's holdings will
be incompatible with PACE Government Securities Fixed Income Fund's holdings.
However, if 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 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 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 U.S. Government Income Fund's assets that will be sold
in connection with the Reorganization will depend on 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 U.S. Government Income Fund to dispose of investments in connection
with the Reorganization may result in its selling securities at a
2
<PAGE>
disadvantageous time and could result in its realizing gains (or losses) that
would not otherwise have been realized.
3
<PAGE>
PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS
PAINEWEBBER 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 U.S. GOVERNMENT FIXED INCOME
INCOME INVESTMENTS INCOME FUND ADJUSTMENTS INVESTMENTS
------------------ ------------------ ----------- --------------
ASSETS
<S> <C> <C> <C> <C>
Investments in securities, at value (cost - $330,884,058,
$327,386,261, and $658,270,319, respectively) $ 328,327,261 $ 315,138,396 $ - $ 643,465,657
Investment of cash collateral for securities loaned
(cost - $0, $24,520,750 and $24,520,750, respectively) - 24,520,750 - 24,520,750
Cash - 502 - 502
Receivable for investments sold 3,260 - - 3,260
Receivable for shares of beneficial interest sold 110,435 161 - 110,596
Dividends and interest receivable 1,633,542 3,387,309 - 5,020,851
Deferred organizational expenses 1,025 - - 1,025
Other assets 32,713 31,332 - 64,045
------------- ------------- ----------- -------------
Total assets 330,108,236 343,078,450 - 673,186,686
------------- ------------- ----------- -------------
LIABILITIES
Payable for cash collateral for securities loaned - 24,520,750 - 24,520,750
Payable for investments purchased 130,699,989 79,182,313 - 209,882,302
Payable for shares of beneficial interest repurchased 103,565 535,616 - 639,181
Outstanding options written, at value 77,700 - - 77,700
Variation margin payable - 90,013 - 90,013
Payable to affiliates 114,807 122,437 - 237,244
Payable to custodian 82,526 - - 82,526
Accrued expenses and other liabilities 111,628 542,602 - 654,230
------------- ------------- ----------- -------------
Total liabilities 131,190,215 104,993,731 - 236,183,946
------------- ------------- ----------- -------------
NET ASSETS
Beneficial interest shares of $0.001 par value
outstanding - 16,458,856, 28,113,731 and 36,158,439, respectively 203,803,263 344,066,767 - 547,870,030
Accumulated undistributed (distributions in excess of) 1,181,552 (169,608) - 1,011,944
net investment income (loss)
Accumulated net realized losses from investment transactions (3,516,672) (92,151,808) - (95,668,480)
Net unrealized depreciation of investments (2,550,122) (13,660,632) - (16,210,754)
------------- ------------- ----------- --------------
Net assets applicable to shares outstanding $ 198,918,021 $ 238,084,719 $ - $ 437,002,740
============= ============= =========== =============
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 $ - $ 205,845,006 $ - $ 205,845,006
------------- ------------- ----------- -------------
Shares outstanding - 24,304,537 (7,272,529) 17,032,008
------------- ------------- ----------- -------------
Net asset and redemption value per share $ - $ 8.47 $ - $ 12.09
============= ============= =========== =============
Maximum offering price per share (net asset value plus sales $ - $ 8.82 $ - $ 12.59
charge of 4% of offering price) ============= ============= =========== =============
CLASS B:
Net assets $ - $ 7,515,198 $ - $ 7,515,198
------------- ------------- ----------- -------------
Shares outstanding - 887,146 (265,324) 621,822
------------- ------------- ----------- -------------
Net asset value and offering price per share $ - $ 8.47 $ - $ 12.09
============= ============= =========== =============
CLASS C:
Net assets $ - $ 15,913,817 $ - $ 15,913,817
------------- ------------- ----------- -------------
Shares outstanding - 1,880,778 (564,038) 1,316,740
------------- ------------- ----------- -------------
Net asset value and offering price per share $ - $ 8.46 $ - $ 12.09
============= ============= =========== =============
CLASS Y:
Net assets $ - $ 8,810,698 $ - $ 8,810,698
------------- ------------- ----------- -------------
Shares outstanding - 1,041,269 (312,255) 729,014
------------- ------------- ----------- -------------
Net asset value and offering price per share $ - $ 8.46 $ - $ 12.09
============= ============= =========== =============
</TABLE>
See accompanying notes to pro forma financial statements
<PAGE>
PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS
PAINEWEBBER 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 U.S. SECURITIES
SECURITIES FIXED GOVERNMENT FIXED INCOME
INCOME INVESTMENTS INCOME FUND ADJUSTMENTS INVESTMENTS
------------------ ----------- ----------- -----------
INVESTMENT INCOME:
<S> <C> <C> <C> <C>
Interest (net of foreign withholding taxes, if any) $ 13,773,465 $ 18,447,280 $ - $ 32,220,745
------------ ------------ ---------- ------------
13,773,465 18,447,280 - 32,220,745
------------ ------------ ---------- ------------
EXPENSES:
Investment advisory and administration 1,380,076 1,315,199 526,080 (a) 3,221,355
Shareholder distribution and servicing fees - 807,378 - 807,378
Transfer agency fees and expenses 87,822 290,678 - 378,500
Reports and notices to shareholders 37,193 27,300 (21,840)(b) 42,653
Legal and audit 67,927 53,190 (53,190)(b) 67,927
Trustees' fees 26,250 13,500 (13,500)(b) 26,250
Federal and state registration fees 8,935 35,540 (28,432)(b) 16,043
Amortization of organizational expenses 18,980 - - 18,980
Custody and accounting 120,092 131,520 - 251,612
Interest expense 39,447 - - 39,447
Other expenses 12,333 55,198 - 67,531
------------ ------------ ---------- ------------
1,799,055 2,729,503 409,118 4,937,676
Less: fee waivers and reimbursements from investment adviser (83,618) (19,401) (598,252)(c) (701,271)
------------ ------------ ---------- ------------
Net expenses 1,715,437 2,710,102 (189,134) 4,236,405
------------ ------------ ---------- ------------
Net investment income 12,058,028 15,737,178 189,134 27,984,340
------------ ------------ -------- ----------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVITIES:
Net realized gains (losses) from investment transactions 15,206 (1,445,402) - (1,430,196)
------------ ------------ ---------- ----------
Net change in unrealized appreciation (depreciation) of investments 114,103 (14,764,732) - (14,650,629)
------------ ------------ ---------- ------------
Net realized and unrealized gains (losses) from investment activities 129,309 (16,210,134) - (16,080,825)
------------ ------------ ---------- ------------
Net increase (decrease) in net assets resulting from operations $ 12,187,337 $ (472,956) $ 189,134 $ 11,903,515
============ ============ ========= =============
</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
PRO FORMA PORTFOLIO OF INVESTMENTS
FOR THE YEAR ENDED JULY 31, 2000
<TABLE>
<CAPTION>
COMBINED
PRINCIPAL MATURITY INTEREST
AMOUNT (000) DATES RATES
------------ -------------------- ----------------
<S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 25.97%
19,000 Federal Home Loan Bank 08/09/00 6.390%
18,915 FHLMC MTN 03/18/08 6.220
12,000 FNMA 04/29/09 6.500
30,230 United States Treasury Bonds(2) 08/15/13 to 08/15/21 8.125 to 12.000
15,400 United States Treasury Bonds(2) 11/15/14 11.750
4,839 U.S. Treasury Inflation Index Notes 07/15/02 3.625
Total U.S. Government and Agency Obligations
(cost - $120,765,228)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
CERTIFICATES - 25.66%
4,466 GNMA 07/20/25 to 09/20/26 6.750
3,694 GNMA 09/15/01 6.800
7,590 GNMA 05/15/02 to 11/20/27 7.000
2,606 GNMA 06/16/26 7.040
4,120 GNMA 11/20/21 to 12/20/27 7.125
4,795 GNMA 01/20/18 to 02/20/27 7.375
1,494 GNMA 05/15/39 7.470
1,298 GNMA 07/15/02 to 09/30/29 7.500
533 GNMA 12/15/07 to 08/15/09 8.000
4,282 GNMA 04/15/19 8.250
2,885 GNMA 06/20/16 8.500
3,601 GNMA 08/15/09 9.000
752 GNMA 06/15/11 to 02/15/16 11.000
3,995 GNMA ARM 05/20/30 6.000
22,000 GNMA I 08/23/30 6.500
10,000 GNMA I 08/23/30 7.000
6,000 GNMA II 08/25/30 8.500
998 GNMA II 04/20/30 9.000
332 GNMA II ARM 04/20/18 to 01/20/28 6.375
24,483 GNMA II ARM 10/20/29 to 08/24/30 7.000
1,500 GNMA II ARM 07/20/30 7.500
72 GNMA Project Loan 10/15/40 7.000
934 GNMA Project Loan 09/30/29 7.500
6 GNMA TBA TBA 11.000
Total Government National Mortgage
Association Certificates (cost--$113,027,129)
FEDERAL HOME LOAN MORTGAGE CORPORATION
CERTIFICATES - 15.19%
9,919 FHLMC 06/01/29 to 04/01/30 6.500
220 FHLMC 08/01/01 6.500
6,442 FHLMC 08/01/25 to 03/01/30 7.000
1,895 FHLMC 09/01/04 7.000
984 FHLMC 05/01/21 7.450
789 FHLMC 10/01/17 to 11/01/24 7.500
876 FHLMC 03/01/13 8.000
283 FHLMC 04/01/04 8.500
5,801 FHLMC 04/01/25 9.000
537 FHLMC 06/01/04 to 12/01/05 10.500
2,748 FHLMC 01/01/16 11.000
1,858 FHLMC ARM 01/01/30 5.930
1,903 FHLMC ARM 01/01/28 6.350
1,873 FHLMC ARM 12/01/29 6.468
993 FHLMC ARM 10/01/29 6.907
1,773 FHLMC ARM 07/01/24 7.742
3,733 FHLMC ARM 04/01/29 7.907
2,124 FHLMC CMT ARM 10/01/23 7.244
23,000 FHLMC Gold TBA TBA 6.500
Total Federal Home Loan Mortgage Corporation
Certificates (cost--$66,610,643)
FEDERAL HOUSING ADMINISTRATION
CERTIFICATES - 4.10%
18,662 FHA Project Notes 10/15/04 to 02/01/29 6.850 to 8.500
Total Federal Housing Administration
Certificates (cost--$18,802,998)
FEDERAL NATIONAL MORTGAGE ASSOCIATION
CERTIFICATES - 43.06%
31,800 FNMA 01/15/09 5.250
11,266 FNMA 08/01/25 to 03/01/30 6.000
9,183 FNMA 04/01/25 6.500
1,502 FNMA 03/01/04 7.000
5,347 FNMA 01/01/07 to 04/01/07 7.250
2,012 FNMA 06/01/04 to 12/01/05 7.500
40,200 FNMA 10/01/26 to 08/16/30 7.500
1,573 FNMA 07/01/25 to 10/01/29 8.000
4,596 FNMA 01/01/16 8.500
2,264 FNMA 11/01/02 to 09/01/27 8.500
1,337 FNMA 10/01/23 9.000
1,087 FNMA 10/01/19 to 02/01/26 9.000
1,836 FNMA ARM 02/01/30 6.276
1,389 FNMA ARM 02/01/29 6.424
1,862 FNMA ARM 12/01/27 6.629
3,188 FNMA ARM 03/01/07 6.820
4,961 FNMA ARM 07/01/09 7.249
1,642 FNMA ARM 03/01/25 7.810
38,500 FNMA TBA TBA 6.500
30,000 FNMA TBA TBA 8.000
Total Federal National Mortgage Association
Certificates (cost--$191,164,238)
COLLATERALIZED MORTGAGE OBLIGATIONS - 19.40%
1,028 FDIC REMIC Trust, 1996-C1, Class 1A 05/25/26 6.750
136 FHLMC GNMA REMIC, Series 23, Class KZ 11/25/23 6.500
413 FHLMC REMIC, Series 0159, Class H 09/15/21 4.500
550 FHLMC REMIC, Series 0185, Class E 08/15/06 9.000
3,102 FHLMC REMIC, Series 1003, Class H 10/15/20 7.438++
3,666 FHLMC REMIC, Series 1188, Class H 12/15/20 7.500
1,971 FHLMC REMIC, Series 1322, Class G 02/15/07 7.500
299 FHLMC REMIC, Series 1347, Class HC 12/15/21 4.250
2,280 FHLMC REMIC, Series 1361, Class D 11/15/05 6.000
1,106 FHLMC REMIC, Series 1502, Class PX 04/15/23 7.000
<CAPTION>
PRO FORMA
COMBINED PACE
GOVERNMENT
COMBINED PACE GOVERNMENT PAINEWEBBER SECURITIES
PRINCIPAL SECURITIES FIXED U.S. GOVERNMENT FIXED INCOME
AMOUNT (000) INCOME INVESTMENTS INCOME FUND INVESTMENTS
------------ ------------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 25.97%
19,000 Federal Home Loan Bank $ - $ 18,973,020 $ 18,973,020
18,915 FHLMC MTN - 17,665,721 17,665,721
12,000 FNMA - 11,215,584 11,215,584
30,230 United States Treasury Bonds(2) - 39,574,427 39,574,427
15,400 United States Treasury Bonds(2) - 21,218,320 21,218,320
4,839 U.S. Treasury Inflation Index Notes 4,821,287 - 4,821,287
------------------ ------------ ------------
Total U.S. Government and Agency Obligations
(cost - $120,765,228) 4,821,287 108,647,072 113,468,359
------------------ ------------ ------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
CERTIFICATES - 25.66%
4,466 GNMA 4,490,751 - 4,490,751
3,694 GNMA 3,686,108 - 3,686,108
7,590 GNMA 7,557,891 - 7,557,891
2,606 GNMA 2,585,051 - 2,585,051
4,120 GNMA 4,134,598 - 4,134,598
4,795 GNMA 4,817,913 - 4,817,913
1,494 GNMA 1,474,303 - 1,474,303
1,298 GNMA 1,299,879 - 1,299,879
533 GNMA 542,741 - 542,741
4,282 GNMA - 4,347,290 4,347,290
2,885 GNMA 2,921,257 - 2,921,257
3,601 GNMA - 3,713,725 3,713,725
752 GNMA - 815,655 815,655
3,995 GNMA ARM 3,918,267 - 3,918,267
22,000 GNMA I 21,793,750 - 21,793,750
10,000 GNMA I 9,706,200 - 9,706,200
6,000 GNMA II 6,093,750 - 6,093,750
998 GNMA II 1,021,226 - 1,021,226
332 GNMA II ARM 333,584 - 333,584
24,483 GNMA II ARM 24,428,510 - 24,428,510
1,500 GNMA II ARM 1,503,225 - 1,503,225
72 GNMA Project Loan 62,660 - 62,660
934 GNMA Project Loan 895,874 - 895,874
6 GNMA TBA - 7,044 7,044
------------------ ------------ ------------
Total Government National Mortgage
Association Certificates (cost--$113,027,129) 103,267,538 8,883,714 112,151,252
------------------ ------------ ------------
FEDERAL HOME LOAN MORTGAGE CORPORATION
CERTIFICATES - 15.19%
9,919 FHLMC - 9,383,143 9,383,143
220 FHLMC 218,001 - 218,001
6,442 FHLMC - 6,230,729 6,230,729
1,895 FHLMC 1,878,253 - 1,878,253
984 FHLMC 978,511 - 978,511
789 FHLMC 783,984 - 783,984
876 FHLMC 881,132 - 881,132
283 FHLMC 283,982 - 283,982
5,801 FHLMC - 6,025,760 6,025,760
537 FHLMC - 567,359 567,359
2,748 FHLMC - 2,943,044 2,943,044
1,858 FHLMC ARM 1,867,450 - 1,867,450
1,903 FHLMC ARM 1,883,990 - 1,883,990
1,873 FHLMC ARM 1,891,699 - 1,891,699
993 FHLMC ARM 991,777 - 991,777
1,773 FHLMC ARM 1,808,409 - 1,808,409
3,733 FHLMC ARM 3,834,577 - 3,834,577
2,124 FHLMC CMT ARM - 2,178,578 2,178,578
23,000 FHLMC Gold TBA - 21,742,176 21,742,176
------------------ ------------ ------------
Total Federal Home Loan Mortgage Corporation
Certificates (cost--$66,610,643) 17,301,765 49,070,789 66,372,554
------------------ ------------ ------------
FEDERAL HOUSING ADMINISTRATION
CERTIFICATES - 4.10%
18,662 FHA Project Notes 17,920,086 - 17,920,086
------------------ ------------ ------------
Total Federal Housing Administration
Certificates (cost--$18,802,998) 17,920,086 - 17,920,086
------------------ ------------ ------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
CERTIFICATES - 43.06%
31,800 FNMA - 28,008,359 28,008,359
11,266 FNMA - 10,358,783 10,358,783
9,183 FNMA - 8,877,052 8,877,052
1,502 FNMA 1,489,630 - 1,489,630
5,347 FNMA 5,371,925 - 5,371,925
2,012 FNMA - 1,983,465 1,983,465
40,200 FNMA 39,626,000 - 39,626,000
1,573 FNMA 1,586,188 - 1,586,188
4,596 FNMA - 4,689,317 4,689,317
2,264 FNMA 2,306,023 - 2,306,023
1,337 FNMA - 1,371,230 1,371,230
1,087 FNMA 1,121,721 - 1,121,721
1,836 FNMA ARM 1,859,262 - 1,859,262
1,389 FNMA ARM 1,405,656 - 1,405,656
1,862 FNMA ARM 1,852,853 - 1,852,853
3,188 FNMA ARM 3,201,042 - 3,201,042
4,961 FNMA ARM 4,947,190 - 4,947,190
1,642 FNMA ARM 1,680,984 - 1,680,984
38,500 FNMA TBA - 36,358,437 36,358,437
30,000 FNMA TBA 30,084,360 - 30,084,360
------------------ ------------ ------------
Total Federal National Mortgage Association
Certificates (cost--$191,164,238) 96,532,834 91,646,643 188,179,477
------------------ ------------ ------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 19.40%
1,028 FDIC REMIC Trust, 1996-C1, Class 1A - 1,022,827 1,022,827
136 FHLMC GNMA REMIC, Series 23, Class KZ 114,123 - 114,123
413 FHLMC REMIC, Series 0159, Class H 379,392 - 379,392
550 FHLMC REMIC, Series 0185, Class E 559,620 - 559,620
3,102 FHLMC REMIC, Series 1003, Class H 2,117,058 - 2,117,058
3,666 FHLMC REMIC, Series 1188, Class H 3,670,156 - 3,670,156
1,971 FHLMC REMIC, Series 1322, Class G 1,979,886 - 1,979,886
299 FHLMC REMIC, Series 1347, Class HC 276,467 - 276,467
2,280 FHLMC REMIC, Series 1361, Class D 2,268,188 - 2,268,188
1,106 FHLMC REMIC, Series 1502, Class PX 969,396 - 969,396
<PAGE>
<CAPTION>
PRO FORMA
COMBINED PACE
GOVERNMENT
COMBINED PACE GOVERNMENT PAINEWEBBER 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>
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
79 FHLMC REMIC, Series 1552, Class EA 01/15/17 5.850 79,186 - 79,186
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
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
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
5,000 CS First Boston Mortgage Securities Corp.,
Series 1998-C2, Class A2 11/15/08 6.300 - 4,624,118 4,624,118
1,000 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
3,586 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
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
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
990 Small Business Administration Series 1995 - 10,
Class I 03/01/05 7.750 994,061 - 994,061
---------------- ----------- ----------
Total Collateralized Mortgage Obligations
(cost--$88,556,838) 50,625,039 34,149,927 84,774,966
---------------- ----------- ----------
ASSET BACKED SECURITIES - 1.26%
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 - 2.85%
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 - 0.69%
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 - 0.16%
700 Dominion Resources MTN 01/26/01 7.026 699,915 - 699,915
---------------- ----------- ----------
<PAGE>
<CAPTION>
PRO FORMA
COMBINED PACE
GOVERNMENT
COMBINED PACE GOVERNMENT PAINEWEBBER 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>
SHORT-TERM U.S. GOVERNMENT OBLIGATIONS - 0.02%
105 U.S. Treasury Notes 08/31/00 5.125 104,869 - 104,869
----------------- ----------- ----------
<CAPTION>
PRO FORMA
COMBINED PACE
GOVERNMENT
COMBINED PACE GOVERNMENT PAINEWEBBER SECURITIES
NUMBER OF SECURITIES FIXED U.S. GOVERNMENT FIXED INCOME
SHARES INCOME INVESTMENTS INCOME FUND INVESTMENTS
------------ ------------------ ----------- -----------
<S> <C> <C> <C> <C>
MUTUAL FUNDS - 4.80%
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
----------------- ----------- -----------
<CAPTION>
PRO FORMA
COMBINED PACE
GOVERNMENT
COMBINED PACE GOVERNMENT PAINEWEBBER 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>
REPURCHASE AGREEMENTS - 4.09%
$ 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
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 - $17,860,000) 16,093,000 1,767,000 17,860,000
--------------- ----------- ----------
Total Investments (cost--$658,270,319) - 147.25% 328,327,261 315,138,396 643,465,657
Liabilities in excess of other assets - (47.25)% (129,409,240) (77,053,677) (206,462,917)
--------------- ------------- -------------
Net Assets--100.00% $ 198,918,021 $ 238,084,719 $ 437,002,740
=============== ============= =============
<CAPTION>
PRO FORMA
COMBINED PACE
GOVERNMENT
COMBINED PACE GOVERNMENT PAINEWEBBER 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> <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 2.85% of net assets.
ARM Adjustable Rate Mortgage--The interest rates shown are the current
rates as of July 31, 2000.
CMT Constant Maturity Treasury.
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 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"), PACE Government Securities Fixed Income
Investments ("Government Securities") would acquire the assets of U.S.
Government Income in exchange solely for the assumption by Government Securities
of U.S. Government Income's assets and stated liabilities and shares of
Government Securities that correspond to the outstanding shares of U.S.
Government Income. 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 will be terminated as soon as practicable
thereafter.
The PRO FORMA financial statements reflect the financial position of Government
Securities and U.S. Government Income at July 31, 2000 and the combined results
of operations of Government Securities and U.S. Government Income (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 U.S. Government Income will not
experience an increase in total expenses. U.S. Government Income currently pays
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
$197,000 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
<PAGE>
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.
<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. PW LOW DURATION
SECURITIES FIXED GOVERNMENT U.S. GOVERNMENT
INCOME INVESTMENTS INCOME FUND INCOME FUND
------------------ ------------- ---------------
<S> <C> <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 $ 208,997,696
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 - 467,063
Receivable for shares of beneficial interest sold 110,435 161 381
Dividends and interest receivable 1,633,542 3,387,309 1,309,501
Deferred organizational expenses 1,025 - -
Other assets 32,713 31,332 19,591
------------- ------------- -------------
Total assets 330,108,236 343,078,450 210,794,232
------------- ------------- -------------
LIABILITIES
Payable for cash collateral for securities loaned - 24,520,750 -
Payable for investments purchased 130,699,989 79,182,313 48,800,072
Payable for shares of beneficial interest repurchased 103,565 535,616 434,226
Unrealized depreciation of forward foreign currency contracts - - 214
Outstanding options written, at value 77,700 - -
Variation margin payable - 90,013 -
Payable to affiliates 114,807 122,437 64,290
Payable to custodian 82,526 - -
Accrued expenses and other liabilities 111,628 542,602 410,824
------------- ------------- -------------
Total liabilities 131,190,215 104,993,731 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 203,803,263 344,066,767 282,773,545
Accumulated undistributed (distributions in excess of) net investment 1,181,552 (169,608) (42,695)
income (loss)
Accumulated net realized losses from investment transactions (3,516,672) (92,151,808) (121,018,626)
Net unrealized depreciation of investments (2,550,122) (13,660,632) (627,618)
------------- ------------- -------------
Net assets applicable to shares outstanding $ 198,918,021 $ 238,084,719 $ 161,084,606
============= ============= =============
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 $ 106,542,467
------------- ------------- -------------
Shares outstanding - 24,304,537 46,534,977
------------- ------------- -------------
Net asset and redemption value per share $ - $ 8.47 $ 2.29
============= ============= =============
Maximum offering price per share (net asset value plus sales charge
of 0%, 4%, 3%, and 4%, respectively, of offering price) $ - $ 8.82 $ 2.36
============= ============= =============
CLASS B:
Net assets $ - $ 7,515,198 $ 4,095,236
------------- ------------- -------------
Shares outstanding - 887,146 1,791,501
------------- ------------- -------------
Net asset value and offering price per share $ - $ 8.47 $ 2.29
============= ============= =============
CLASS C:
Net assets $ - $ 15,913,817 $ 49,588,743
------------- ------------- -------------
Shares outstanding - 1,880,778 21,682,285
------------- ------------- -------------
Net asset value and offering price per share $ - $ 8.46 $ 2.29
============= ============= =============
CLASS Y:
Net assets $ - $ 8,810,698 $ 858,162
------------- ------------- -------------
Shares outstanding - 1,041,269 374,162
------------- ------------- -------------
Net asset value and offering price per share $ - $ 8.46 $ 2.29
============= ============= =============
<CAPTION>
PRO FORMA
COMBINED
PACE GOVERNMENT
SECURITIES
FIXED INCOME
ADJUSTMENTS INVESTMENTS
------------- ---------------
<S> <C> <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 (44,991,979) 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 (1,717,978) 960,669
------------- -------------
Net asset value and offering price per share $ - $ 12.09
============= =============
CLASS C:
Net assets $ - $ 65,502,560
------------- -------------
Shares outstanding (18,143,256) 5,419,807
------------- -------------
Net asset value and offering price per share $ - $ 12.09
============= =============
CLASS Y:
Net assets $ - $ 9,668,860
------------- -------------
Shares outstanding (615,411) 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 PACE
GOVERNMENT GOVERNMENT
FIXED PAINEWEBBER PW LOW SECURITIES
COMBINED SECURITIES U.S. DURATION FIXED
PRINCIPAL MATURITY INTEREST INCOME GOVERNMENT U.S. GOVERNMENT INCOME
AMOUNT (000) DATES RATES 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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
PACE PACE
GOVERNMENT GOVERNMENT
FIXED PAINEWEBBER PW LOW SECURITIES
COMBINED SECURITIES U.S. DURATION FIXED
PRINCIPAL MATURITY INTEREST INCOME GOVERNMENT U.S. GOVERNMENT INCOME
AMOUNT (000) DATES RATES INVESTMENTS INCOME FUND INCOME FUND INVESTMENTS
------------- ------------------ --------------- ----------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
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
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PACE
GOVERNMENT
FIXED
COMBINED SECURITIES
PRINCIPAL MATURITY INTEREST INCOME
AMOUNT (000) DATES RATES INVESTMENTS
------------- -------- -------- -----------
<S> <C> <C> <C>
919 GNMA REMIC, Trust Series 2000 - 009, Class FH 02/16/30 7.126++ 922,361
1,963 3EWCourt Receivables Asset Trust Series 1997-1, Class A4 05/20/05 6.193 -
100 Bank of America Mortgage Securities Series 1999 - 5, Class A-22 05/25/29 6.500 90,863
450 Bank of America Mortgage Securities Series 1999 - 8, Class A-12 08/25/29 6.750 416,812
207 Bear Stearns Mortgage Securities Inc. Series 1993 - 8, Class A-5 08/25/24 6.350 206,163
2,379 Bear Stearns Mortgage Securities Inc. Series 1996 - 4, Class AI-1 09/25/27 8.125 2,401,504
1,750 Chase Mortgage Finance Corp. Series 1998, Class IA-8 08/25/28 6.750 1,536,743
386 Cityscape Home Equity Loan Trust Series 1997-B, Class A5 09/25/19 7.480 -
1,000 Countrywide Home Loan Inc. 06/15/04 6.850 975,880
1,145 CS First Boston Mortgage Securities Corp., Series 1997-2, Class A t 06/01/20 7.500 -
5,000 CS First Boston Mortgage Securities Corp., Series 1998-C2, Class A2 11/15/08 6.300 -
1,500 CWMBS Inc. Series 1998 - 13, Class A3 12/25/28 6.500 1,337,805
1,500 CWMBS Inc. Series 1998 - 15, Class A8 10/25/28 6.750 1,300,505
3,586 DLJ Commercial Mortgage Corporation Series 1998-CF2, Class A1A 11/12/31 5.880 -
3,382 Farmer Mac. Series 2002 - Class AA1 04/25/01 7.721 3,380,077
530 Green Tree Financial Corp Series 1998, Class 2 11/01/16 6.240 519,956
686 Headlands Mortgage Security Inc. REMIC Series 1997 - 1, Class A, II 03/15/12 7.750 689,249
489 Headlands Mortgage Security Inc. REMIC Series 1997 - 2, Class A, II 05/25/12 7.750 490,697
383 Headlands Mortgage Security Inc. REMIC Series 1997 - 4, Class A, II 11/25/12 7.250 380,330
1,500 Headlands Mortgage Security Inc. REMIC Series 1998 - 1, Class A, III 11/25/28 6.500 1,368,570
6,346 LB Commercial Conduit Mortgage Trust, Series 1998-C4, Class A1A 08/15/06 5.870 -
703 Merrill Lynch Mortgage Investors, Inc. Series 1999, Class H1 03/20/17 6.210++ 698,216
539 Money Store Home Equity Trust Series 1997-D, Class AF3 11/15/21 6.345 -
3,086 Morgan Stanley Capital I, Series 1997-ALIC, Class A1B 11/15/02 6.440 -
4,289 Morgan Stanley Capital I, Series 1997-WF1, Class A1 144A 10/15/06 6.830 -
1,610 Morgan Stanley Capital Inc. Series 1998 - HF1, Class A1 01/15/07 6.190++ 1,557,497
4,935 Mortgage Capital Funding, Inc., Series 1998-MCI, Class A2 01/18/08 6.663 -
1,639 PNC Mortgage Securities Corp. Series 1998 - 5, Class 2A5 11/25/28 6.750 1,526,259
2,500 PNC Mortgage Securities Corp. Series 1999 - 5, Class 2A5 07/25/29 6.750 2,322,625
436 Prudential Home Mortgage REMIC 1993 - 29, Class A8 08/25/08 6.750 423,257
2,488 Prudential Securities Trust Series 18, Class E 09/25/20 7.000 -
4,333 Residential Accredit Loans Inc. Series 2000-QS3C, Class A1 03/25/30 7.750 -
10 Residential Funding Mortgage Securities Inc. Series 1993 - S15, Class A9 04/25/08 7.721++ 92,763
1,500 Residential Funding Mortgage Securities Inc. Series 1998 - S12, Class A6 05/25/28 6.750 1,359,461
1,428 Residential Funding Mortgage Securities Inc. Series 1998 - S20, Class A19 09/25/28 6.750 267,777
1,578 Ryland Mortgage Acceptance Corp. REMIC Series 76, Class B 08/01/18 9.000 -
990 Small Business Administration Series 1995 - 10, Class I 03/01/05 7.750 994,061
-----------
Total Collateralized Mortgage Obligations (cost - $100,751,562) 50,625,039
-----------
ASSET BACKED SECURITIES - 0.92%
863 Beneficial Home Equity Loan Trust 04/28/26 6.945++ 862,514
2,000 Conseco Finance Home Loan Trust 06/15/24 9.520 2,003,480
688 Student Loan Marketing Association Series 1996 - 2, Class A1 10/25/04 6.581 686,863
2,000 Student Loan Trust 10/27/25 6.740 1,939,960
-----------
Total Asset Backed Securities (cost - $5,486,505) 5,492,817
-----------
STRIPPED MORTGAGE-BACKED SECURITIES - 2.08%
815 FHLMC REMIC Series 0013, Class B(1)+++ 06/25/23 7.000 466,384
772 FHLMC REMIC Series 1554, Class I(1)+++ 08/15/08 6.500* 66,078
5,000 FHLMC REMIC Series 1627, Class PN(1)+++ 09/15/22 6.000 1,055,866
1,613 FHLMC REMIC Series 1993 - 138, Class CL(1)+++ 11/25/22 7.000 334,878
4,854 FHLMC REMIC Series 2059, Class PI(1)+++ 07/15/26 6.500 1,112,681
9,033 FHLMC REMIC Series 2080, Class VK(1)+++ 09/15/05 6.500 1,361,748
1,000 FHLMC REMIC Series 2110, Class PT(1)+++ 07/15/23 6.000 306,780
941 FHLMC REMIC Series 2136, Class GD(1)+++ 03/15/29 7.000 207,923
3,818 FHLMC REMIC, Series 2178, Class PI(1)+++ 08/15/29 7.500 886,047
6 FNMA REMIC Trust 1992 - 142, Class KB(1)+++ 08/25/07 11.977 164,618
7 FNMA REMIC Trust 1992 - 157, Class JA(1)+++ 09/25/07 10.146 166,283
616 FNMA REMIC Trust 1992 - 207, Class U(1)+++ 10/25/07 7.500 111,156
2,926 FNMA REMIC Trust 1993 - 116, Class H(1)+++ 07/25/22 7.000 514,564
186 FNMA REMIC Trust 1993 - 161, Class GC(1)+++ 02/25/23 .010* 126,760
794 FNMA REMIC Trust 1994 - 007, Class PK(1)+++ 05/25/08 6.500* 40,883
1,184 FNMA REMIC Trust 1994 - 030, Class IA(1)+++ 11/25/22 6.500* 141,378
7,119 FNMA REMIC Trust 1998 - 013, Class PI(1)+++ 07/18/19 7.000 729,469
3,301 FNMA REMIC Trust 1998 - 024, Class OK(1) 11/18/21 7.000 433,157
1,388 FNMA REMIC Trust 1998 - 044, Class IG(1)+++ 07/18/16 6.500 208,041
6,705 GNMA REMIC Trust Series 1998 - 001, Class PG(1)+++ 07/20/24 7.000 1,063,625
4,424 Chase Mortgage Finance Corp. Series 1998 - S2, Class A4(1)+++ 07/25/28 6.750 536,410
16,000 Conseco Finance Securitizations(1)+++ 12/15/29 7.000 1,015,000
15,096 CWMBS Inc. Series 1998 - 14, Class A2(1)+++ 12/25/13 0.500* 207,564
1,500 Firstplus Home Loan Owner Trust Series 1998 - 5, Class A1(1)+++ 10/10/00 6.000* 14,297
1,410 Prudential Home Mortgage REMIC 1993 - 54, Class A19(1)** 01/25/24 6.500 1,188,280
-----------
Total Stripped Mortgage-Backed Securities (cost - $11,212,501) 12,459,870
-----------
CORPORATE OBLIGATIONS - 0.50%
2,000 Lehman Brothers Holdings Inc. MTN 04/02/02 7.678 2,007,542
1,000 Morgan Stanley Dean Witter 01/28/02 6.837@ 1,000,699
-----------
Total Corporate Obligations (cost--$3,006,152) 3,008,241
-----------
COMMERCIAL PAPER - 0.12%
700 Dominion Resources MTN(1) (cost - $699,915) 01/26/01 7.026 699,915
-----------
SHORT-TERM U.S. GOVERNMENT OBLIGATIONS - 0.76%
4,500 Federal National Mortgage Association Discount Notes 10/26/00 6.42 to 6.45 -
105 U.S. Treasury Notes 08/31/00 5.125@ 104,869
-----------
Total Short-Term U.S. Government Obligations (cost - $4,430,949) 104,869
-----------
<CAPTION>
PRO FORMA
COMBINED
PACE
GOVERNMENT
PAINEWEBBER PW LOW SECURITIES
COMBINED U.S. DURATION FIXED
PRINCIPAL GOVERNMENT U.S. GOVERNMENT INCOME
AMOUNT (000) INCOME FUND INCOME FUND INVESTMENTS
------------- ----------- --------------- -----------
<S> <C> <C> <C>
919 GNMA REMIC, Trust Series 2000 - 009, Class FH - - 922,361
1,963 3EWCourt Receivables Asset Trust Series 1997-1, Class A4 - 1,944,919 1,944,919
100 Bank of America Mortgage Securities Series 1999 - 5, Class A-22 - - 90,863
450 Bank of America Mortgage Securities Series 1999 - 8, Class A-12 - - 416,812
207 Bear Stearns Mortgage Securities Inc. Series 1993 - 8, Class A-5 - - 206,163
2,379 Bear Stearns Mortgage Securities Inc. Series 1996 - 4, Class AI-1 - - 2,401,504
1,750 Chase Mortgage Finance Corp. Series 1998, Class IA-8 - - 1,536,743
386 Cityscape Home Equity Loan Trust Series 1997-B, Class A5 - 383,885 383,885
1,000 Countrywide Home Loan Inc. - - 975,880
1,145 CS First Boston Mortgage Securities Corp., Series 1997-2, Class A t 1,134,562 - 1,134,562
5,000 CS First Boston Mortgage Securities Corp., Series 1998-C2, Class A2 4,624,118 - 4,624,118
1,500 CWMBS Inc. Series 1998 - 13, Class A3 - - 1,337,805
1,500 CWMBS Inc. Series 1998 - 15, Class A8 - - 1,300,505
3,586 DLJ Commercial Mortgage Corporation Series 1998-CF2, Class A1A 3,381,526 - 3,381,526
3,382 Farmer Mac. Series 2002 - Class AA1 - - 3,380,077
530 Green Tree Financial Corp Series 1998, Class 2 - - 519,956
686 Headlands Mortgage Security Inc. REMIC Series 1997 - 1, Class A, II - - 689,249
489 Headlands Mortgage Security Inc. REMIC Series 1997 - 2, Class A, II - - 490,697
383 Headlands Mortgage Security Inc. REMIC Series 1997 - 4, Class A, II - - 380,330
1,500 Headlands Mortgage Security Inc. REMIC Series 1998 - 1, Class A, III - - 1,368,570
6,346 LB Commercial Conduit Mortgage Trust, Series 1998-C4, Class A1A 6,042,498 - 6,042,498
703 Merrill Lynch Mortgage Investors, Inc. Series 1999, Class H1 - - 698,216
539 Money Store Home Equity Trust Series 1997-D, Class AF3 - 534,426 534,426
3,086 Morgan Stanley Capital I, Series 1997-ALIC, Class A1B 3,044,907 - 3,044,907
4,289 Morgan Stanley Capital I, Series 1997-WF1, Class A1 144A 4,236,486 - 4,236,486
1,610 Morgan Stanley Capital Inc. Series 1998 - HF1, Class A1 - - 1,557,497
4,935 Mortgage Capital Funding, Inc., Series 1998-MCI, Class A2 4,703,302 - 4,703,302
1,639 PNC Mortgage Securities Corp. Series 1998 - 5, Class 2A5 - - 1,526,259
2,500 PNC Mortgage Securities Corp. Series 1999 - 5, Class 2A5 - - 2,322,625
436 Prudential Home Mortgage REMIC 1993 - 29, Class A8 - - 423,257
2,488 Prudential Securities Trust Series 18, Class E - 2,448,923 2,448,923
4,333 Residential Accredit Loans Inc. Series 2000-QS3C, Class A1 - 4,328,718 4,328,718
10 Residential Funding Mortgage Securities Inc. Series 1993 - S15, Class A9 - - 92,763
1,500 Residential Funding Mortgage Securities Inc. Series 1998 - S12, Class A6 - - 1,359,461
1,428 Residential Funding Mortgage Securities Inc. Series 1998 - S20, Class A19 - - 267,777
1,578 Ryland Mortgage Acceptance Corp. REMIC Series 76, Class B - 1,621,638 1,621,638
990 Small Business Administration Series 1995 - 10, Class I - - 994,061
---------- ---------- -----------
Total Collateralized Mortgage Obligations (cost - $100,751,562) 34,149,927 11,325,038 96,100,004
---------- ---------- -----------
ASSET BACKED SECURITIES - 0.92%
863 Beneficial Home Equity Loan Trust - - 862,514
2,000 Conseco Finance Home Loan Trust - - 2,003,480
688 Student Loan Marketing Association Series 1996 - 2, Class A1 - - 686,863
2,000 Student Loan Trust - - 1,939,960
---------- ---------- -----------
Total Asset Backed Securities (cost - $5,486,505) - - 5,492,817
---------- ---------- -----------
STRIPPED MORTGAGE-BACKED SECURITIES - 2.08%
815 FHLMC REMIC Series 0013, Class B(1)+++ - - 466,384
772 FHLMC REMIC Series 1554, Class I(1)+++ - - 66,078
5,000 FHLMC REMIC Series 1627, Class PN(1)+++ - - 1,055,866
1,613 FHLMC REMIC Series 1993 - 138, Class CL(1)+++ - - 334,878
4,854 FHLMC REMIC Series 2059, Class PI(1)+++ - - 1,112,681
9,033 FHLMC REMIC Series 2080, Class VK(1)+++ - - 1,361,748
1,000 FHLMC REMIC Series 2110, Class PT(1)+++ - - 306,780
941 FHLMC REMIC Series 2136, Class GD(1)+++ - - 207,923
3,818 FHLMC REMIC, Series 2178, Class PI(1)+++ - - 886,047
6 FNMA REMIC Trust 1992 - 142, Class KB(1)+++ - - 164,618
7 FNMA REMIC Trust 1992 - 157, Class JA(1)+++ - - 166,283
616 FNMA REMIC Trust 1992 - 207, Class U(1)+++ - - 111,156
2,926 FNMA REMIC Trust 1993 - 116, Class H(1)+++ - - 514,564
186 FNMA REMIC Trust 1993 - 161, Class GC(1)+++ - - 126,760
794 FNMA REMIC Trust 1994 - 007, Class PK(1)+++ - - 40,883
1,184 FNMA REMIC Trust 1994 - 030, Class IA(1)+++ - - 141,378
7,119 FNMA REMIC Trust 1998 - 013, Class PI(1)+++ - - 729,469
3,301 FNMA REMIC Trust 1998 - 024, Class OK(1) - - 433,157
1,388 FNMA REMIC Trust 1998 - 044, Class IG(1)+++ - - 208,041
6,705 GNMA REMIC Trust Series 1998 - 001, Class PG(1)+++ - - 1,063,625
4,424 Chase Mortgage Finance Corp. Series 1998 - S2, Class A4(1)+++ - - 536,410
16,000 Conseco Finance Securitizations(1)+++ - - 1,015,000
15,096 CWMBS Inc. Series 1998 - 14, Class A2(1)+++ - - 207,564
1,500 Firstplus Home Loan Owner Trust Series 1998 - 5, Class A1(1)+++ - - 14,297
1,410 Prudential Home Mortgage REMIC 1993 - 54, Class A19(1)** - - 1,188,280
---------- ---------- -----------
Total Stripped Mortgage-Backed Securities (cost - $11,212,501) - - 12,459,870
---------- ---------- -----------
CORPORATE OBLIGATIONS - 0.50%
2,000 Lehman Brothers Holdings Inc. MTN - - 2,007,542
1,000 Morgan Stanley Dean Witter - - 1,000,699
---------- ---------- -----------
Total Corporate Obligations (cost--$3,006,152) - - 3,008,241
---------- ---------- -----------
COMMERCIAL PAPER - 0.12%
700 Dominion Resources MTN(1) (cost - $699,915) - - 699,915
---------- ---------- -----------
SHORT-TERM U.S. GOVERNMENT OBLIGATIONS - 0.76%
4,500 Federal National Mortgage Association Discount Notes - 4,430,735 4,430,735
105 U.S. Treasury Notes - - 104,869
---------- ---------- -----------
Total Short-Term U.S. Government Obligations (cost - $4,430,949) - 4,430,735 4,535,604
---------- ---------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMBINED PACE GOVERNMENT PAINEWEBBER
NUMBER SECURITIES FIXED U.S. GOVERNMENT
OF SHARES INCOME INVESTMENTS INCOME FUND
------------------- -------------------- -----------------
<S> <C> <C>
MUTUAL FUNDS - 3.51%
14,703 MH Money Market Fund LLC - 14,702,955
84 Scudder Institutional Fund - 84,180
6,186 AIM Liquid Assets Portfolio - 6,186,116
----------------- -----------------
Total Mutual Funds (cost - $20,973,251) - 20,973,251
----------------- -----------------
<CAPTION>
PRO FORMA
COMBINED
PACE GOVERNMENT
COMBINED PW LOW DURATION SECURITIES
NUMBER U.S. GOVERNMENT FIXED INCOME
OF SHARES INCOME FUND INVESTMENTS
------------------- ----------------- ----------------------
<S> <C> <C>
MUTUAL FUNDS - 3.51%
14,703 MH Money Market Fund LLC - 14,702,955
84 Scudder Institutional Fund - 84,180
6,186 AIM Liquid Assets Portfolio - 6,186,116
----------------- ----------------------
Total Mutual Funds (cost - $20,973,251) - 20,973,251
----------------- ----------------------
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
PACE PACE
GOVERNMENT GOVERNMENT
COMBINED SECURITIES PAINEWEBBER PW LOW DURATION SECURITIES
PRINCIPAL MATURITY INTEREST FIXED 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>
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>
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
PACE GOVERNMENT
COMBINED PACE GOVERNMENT PAINEWEBBER 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 $ 77,700 $ - $ - $ 77,700
2000
================== ================ ================= ================
</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 Fund ("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.
