PAINEWEBBER MANAGED INVESTMENTS TRUST, 485BPOS, 1995-03-31

PAINEWEBBER MANAGED INVESTMENTS TRUST
485BPOS, 1995-03-31

Previous: PRUDENTIAL MUNICIPAL SERIES FUND, 497, 1995-03-31

Next: HANCOCK HOLDING CO, 10-K405, 1995-03-31

<PAGE>

As filed with the Securities and Exchange Commission on March 31, 1995

1933 Act Registration No. 2-91362
1940 Act Registration No. 811-4040

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_X_]

Pre-Effective Amendment No.____ [___]

Post-Effective Amendment No. 37 [_X_]

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_X_]

Amendment No. 32

(Check appropriate box or boxes.)

PAINEWEBBER MANAGED INVESTMENTS TRUST
(Exact name of registrant as specified in charter)

1285 Avenue of the Americas
New York, New York 10019
(Address of principal executive offices)

Registrant's telephone number, including area code: (212)713-2000

DIANNE E. O'DONNELL, Esq.
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
(Name and address of agent for service)

Copies to:

ELINOR W. GAMMON, Esq.
LINDA L. RITTENHOUSE, Esq.
Kirkpatrick & Lockhart
South Lobby - 9th Floor
1800 M Street, N.W.
Washington, D.C. 20036-5891
Telephone: (202)778-9000

It is proposed that this filing will become effective:

____ Immediately upon filing pursuant to Rule 485(b)
_X__ On April 1 , 1995 pursuant to Rule 485(b)
____ 60 days after filing pursuant to Rule 485(a)(i)
____ On _____________, 1995 pursuant to Rule 485(a)(i)
____ 75 days after filing pursuant to Rule 485(a)(ii)
____ On _____________, 1995 pursuant to Rule 485(a)(ii)
<PAGE>

Registrant has filed a declaration pursuant to Rule 24f-2 under
the Investment Company Act of 1940 and filed the notice required by such
Rule for its most recent fiscal year on January 25, 1995.

- 2 -
<PAGE>

PaineWebber Managed Investments Trust

Contents of Registration Statement

This registration statement consists of the following papers and
documents.

Cover Sheet

Contents of Registration Statement

Cross Reference Sheets

Class A, B and D shares of:

PaineWebber Short-Term U.S. Government Income Fund
--------------------------------------------------

Part A - Prospectus
Part B - Statement of Additional Information

Class A and D shares of:

PaineWebber Short-Term U.S. Government Income Fund for Credit Unions
--------------------------------------------------------------------
Part A - Prospectus
Part B - Statement of Additional Information

Part C - Other Information

Signature Page

Exhibits

- 3 -
<PAGE>

<TABLE>
<CAPTION>
PaineWebber Managed Investments Trust:

Class A, B and D shares of:

PaineWebber Short-Term U.S. Government Income Fund

Form N-1A Cross Reference Sheet

Part A Item No. and Caption Prospectus Caption
--------------------------- ------------------
1. Cover Page.............. Cover Page

2. Synopsis................ Prospectus Summary

3. Condensed Financial Financial Highlights; Performance
Information............. Information
4. General Description of Prospectus Summary; Investment
Registrant.............. Objective and Policies; General
Information

5. Management of the Fund.. Management; General Information
6. Capital Stock and other Cover Page; Conversion of Class B
Securities.............. Shares; Dividends and Taxes;
General Information

7. Purchase of Securities Purchases; Exchanges; Valuation
Being Offered........... of Shares; Other Services and
Information; Management

8. Redemption or Redemptions; Other Services
Repurchase.............. and Information
9. Legal Proceedings....... Not Applicable

Part B Item No. Statement of Additional
and Caption Information Caption
---------------- ----------------------

10. Cover Page.............. Cover Page

11. Table of Contents....... Table of Contents
12. General Information and Other Information
History.............

- 4 -

<PAGE>

</TABLE>
<TABLE>

<S> <C>
13. Investment Objectives Investment Policies and
and Policies............ Restrictions; Hedging and
Related Income Strategies;
Portfolio Transactions

14. Management of the Trustees and Officers
Registrant..............

15. Control Persons and Principal Trustees and Officers
Holders of
Securities..............

16. Investment Advisory and Investment Advisory and
Other Services.......... Distribution Arrangements;
Other Information

17. Brokerage Allocation.... Portfolio Transactions
18. Capital Stock and Other Conversion of Class B Shares;
Securities.............. Other Information

19. Purchase, Redemption and Pricing Reduced Sales Charges,
of Securities Being Additional Exchange and
Offered...... Redemption Information and
Other Services; Valuation of
Shares

20. Tax Status.............. Taxes

21. Underwriters............ Investment Advisory and
Distribution Arrangements

22. Calculation of Performance Performance Information
Data....................
23. Financial Statements.... Financial Statements
</TABLE>

- 5 -
<PAGE>

<TABLE>
<CAPTION>
PaineWebber Managed Investments Trust:

Class A and D shares of:

PaineWebber Short-Term U.S. Government Income Fund for Credit Unions

Form N-1A Cross Reference Sheet
<S> <C> <C>

Part A Item No. and Caption Prospectus Caption
--------------------------- ------------------
1. Cover Page.............. Cover Page

2. Synopsis................ Prospectus Summary

5. Management of the Fund.. Management; General Information
6. Capital Stock and other Cover Page; Dividends and Taxes;
Securities.............. General Information

7. Purchase of Securities Purchases; Exchanges; Valuation of
Being Offered........... Shares; Other Services and
Information; Management

8. Redemption or Redemptions; Other Services
Repurchase.............. and Information
9. Legal Proceedings....... Not Applicable

Part B Item No. Statement of Additional
and Caption Information Caption
------------------------- ----------------------
10. Cover Page.............. Cover Page

11. Table of Contents....... Table of Contents

12. General Information and Other Information
History.............
13. Investment Objectives Investment Policies and
and Policies............ Restrictions; Portfolio
Transactions

14. Management of the Trustees and Officers
Registrant..............

- 6 -

<PAGE>

</TABLE>
<TABLE>

<S> <C>
15. Control Persons and Principal Trustees and Officers
Holders of
Securities..............

16. Investment Advisory and Investment Advisory and
Other Services.......... Distribution Arrangements;
Other Information
17. Brokerage Allocation.... Portfolio Transactions

18. Capital Stock and Other Other Information
Securities..............

19. Purchase, Redemption and Pricing Reduced Sales Charges,
of Securities Being Additional Exchange and
Offered...... Redemption Information and
Other Services; Valuation of
Shares

20. Tax Status.............. Taxes

21. Underwriters............ Investment Advisory and
Distribution Arrangements
22. Calculation of Performance Performance Information
Data....................

23. Financial Statements.... Financial Statements
</TABLE>

- 7 -
<PAGE>

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

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

PaineWebber Short-Term U.S. Government Income Fund
1285 Avenue of the Americas, New York, New York 10019

Prospectus -- April 1, 1995
--------------------------------------------------------------------------------
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND is a professionally managed
series of a mutual fund seeking the highest level of income consistent with the
preservation of capital and low volatility of net asset value.

A Statement of Additional Information dated April 1, 1995 (which is
incorporated by reference herein), has been filed with the Securities and
Exchange Commission. The Statement of Additional Information can be obtained
without charge, and further inquiries can be made, by contacting the Fund, your
PaineWebber investment executive or PaineWebber's correspondent firms or by
calling toll-free 1-800-647-1568.

. Professional Management

. Portfolio Diversification

. Dividend and Capital Gain Reinvestment

. Flexible Pricingsm

. Low Minimum Investment

. Automatic Investment Plan

. Systematic Withdrawal Plan

. Suitable For Retirement Plans

--------------------------------------------------------------------------------
A PAINEWEBBER MUTUAL FUND

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS ANY SUCH
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

Prospectus Page 1
<PAGE>

---------------------
-------------------------------------------
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND

Table of Contents
--------------------------------------------------------------------------------
-------------
Prospectus Page 2
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................................................... 3
Financial Highlights....................................................... 7
Flexible Pricing System.................................................... 8
Investment Objective and Policies.......................................... 9
Purchases.................................................................. 14
Exchanges.................................................................. 17
Redemptions................................................................ 18
Conversion of Class B Shares............................................... 20
Other Services and Information............................................. 20
Dividends and Taxes........................................................ 21
Valuation of Shares........................................................ 22
Management................................................................. 22
Performance Information.................................................... 24
General Information........................................................ 25
Appendix A................................................................. 26
Appendix B................................................................. 29
</TABLE>
<PAGE>

-------------------------------------------
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND

Prospectus Summary
--------------------------------------------------------------------------------

See the body of the Prospectus for more information on the topics discussed in
this summary.

The Fund: This Prospectus describes PaineWebber Short-Term U.S.
Government Income Fund ("Fund"), a diversified series
of an open-end, management investment company.

Investment Objective Highest level of income consistent with the preserva-
and Policies: tion of capital and low volatility of net asset value;
invests primarily in U.S. government securities, in-
cluding mortgage-backed securities that are issued or
guaranteed by the U.S. government, its agencies or in-
strumentalities.

Total Net Assets:
Approximately $392.8 million at February 28, 1995.

Investment Adviser
and Administrator: Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"), an asset management subsidiary of
PaineWebber Incorporated ("PaineWebber" or "PW"), man-
ages over $41.5 billion in assets. See "Management."

Sub-Adviser: Pacific Investment Management Company ("PIMCO") man-
ages approximately $59.8 billion in assets. See "Man-
agement."

Purchases:
Shares of beneficial interest are available exclu-
sively through PaineWebber and its correspondent firms
for investors who are clients of PaineWebber or those
firms ("PaineWebber clients") and, for other invest-
ors, through PFPC Inc., the Fund's transfer agent
("Transfer Agent").

Flexible Pricing Investors may select Class A, Class B or Class D
System: shares, each with a public offering price that re-
flects different sales charges and expense levels. See
"Flexible Pricing System," "Purchases," "Redemptions"
and "Conversion of Class B Shares."

Class A Shares Offered at net asset value plus any applicable sales
charge (maximum is 3% of public offering price).

Class B Shares Offered at net asset value (a maximum contingent de-
ferred sales charge of 3% of redemption proceeds is
imposed on certain redemptions made within four years
of date of purchase). Class B shares automatically
convert into Class A shares (which pay lower ongoing
expenses) approximately six years after purchase.

Class D Shares Offered at net asset value without an initial or con-
tingent deferred sales charge. Class D shares pay
higher ongoing expenses than Class A shares and do not
convert into another Class.

Exchanges:
Shares may be exchanged for shares of the correspond-
ing Class of most PaineWebber and Mitchell
Hutchins/Kidder, Peabody ("MH/KP") mutual funds.

Redemptions: PaineWebber clients may redeem through PaineWebber;
other shareholders must redeem through the Transfer
Agent.

Prospectus Page 3

<PAGE>

---------------------
-------------------------------------------
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND
Prospectus Summary
(Continued)
--------------------------------------------------------------------------------

Dividends: Declared daily and paid monthly; net capital gain is
distributed annually. See "Dividends and Taxes."

Reinvestment: All dividends and capital gain distributions are paid
in Fund shares of the same Class at net asset value
unless the shareholder has requested cash.

Minimum Purchase: $100 for initial and subsequent purchases.

Other Features:

Class A Shares Automatic investment plan Quantity discounts on
initial sales charge

Systematic withdrawal plan 365-day reinstatement
Rights of accumulation privilege

Class B Shares Automatic investment plan Systematic withdrawal plan

Class D Shares Automatic investment plan Systematic withdrawal plan

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

WHO SHOULD INVEST. The Fund invests primarily in U.S. government securities,
including mortgage-backed securities, and may also invest in privately issued
mortgage- and asset-backed securities that have been rated AAA by Standard &
Poor's Ratings Group ("S&P") or Aaa by Moody's Investors Service ("Moody's"),
have an equivalent rating from another nationally recognized statistical rating
organization ("NRSRO") or, if unrated, have been determined by PIMCO to be of
comparable quality. The Fund maintains a dollar-weighted average portfolio
maturity of three years or less. The Fund is designed to provide investors with
current income and less fluctuation in net asset value than in longer-term U.S.
government bond funds.

RISK FACTORS. There can be no assurance that the Fund will achieve its
investment objective. Although the Fund invests primarily in U.S. government
securities, neither the Fund's yield nor its net asset value is insured or
guaranteed by the U.S. government. The Fund's net asset value per share
generally will vary inversely with movements in interest rates and its yield
will vary depending, in part, on its net asset value per share. Normally, the
Fund concentrates at least 25% of its total assets in mortgage- and asset-
backed securities. Investing in mortgage- and asset-backed securities involves
special risks, such as those relating to the prepayment of principal on the
underlying obligations, in addition to the risks present in the case of other
types of debt securities. During 1994, the value and the liquidity of many
mortgage-backed securities, including securities held by the Fund, declined
sharply due primarily to increases in short-term interest rates. There can be
no assurance that such declines will not recur. The market value of certain
mortgage-backed securities in which the Fund may invest, including interest-
only and principal-only classes of mortgage-backed securities and inverse
floating rate securities, can be extremely volatile, and such securities may
become illiquid. The use of options, futures contracts, interest rate
protection transactions, dollar rolls and reverse repurchase agreements also
entails special risks.

Prospectus Page 4
<PAGE>

EXPENSES OF INVESTING IN THE FUND. The following tables are intended to assist
investors in understanding the expenses associated with investing in the Fund.

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
------- ------- -------
<S> <C> <C> <C>
Shareholder Transaction Expenses(1)
Maximum sales charge on purchases of shares (as a
percentage of public offering price)................. 3.00% None None
Sales charge on reinvested dividends.................. None None None
Exchange fee.......................................... $5.00 $5.00 $5.00
Maximum contingent deferred sales charge (as a
percentage of redemption proceeds)................... None 3.00% None
Annual Fund Operating Expenses(2)
(as a percentage of average net assets)
Management fees....................................... 0.50% 0.50% 0.50%
12b-1 fees(3)......................................... 0.25 1.00 0.75
Other expenses........................................ 0.13 0.16 0.14
----- ----- -----
Total operating expenses.............................. 0.88% 1.66% 1.39%
===== ===== =====
</TABLE>

Example of Effect of Fund Expenses (4)

An investor would directly or indirectly pay the following expenses on a $1,000
investment in the Fund, assuming a 5% annual return:

<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Class A Shares(5).................... $39 $57 $77 $135
Class B Shares:
Assuming a complete redemption at
end of period(6)(7)............... $47 $72 $90 $157
Assuming no redemption(7).......... $17 $52 $90 $157
Class D Shares....................... $14 $44 $76 $167
</TABLE>

This Example assumes that all dividends and other distributions are reinvested
and that the percentage amounts listed under Annual Fund Operating Expenses
remain the same in the years shown. The above tables and the assumption in the
Example of a 5% annual return are required by regulations of the Securities and
Exchange Commission ("SEC") applicable to all mutual funds; the assumed 5%
annual return is not a prediction of, and does not represent, the projected or
actual performance of any Class of the Fund's shares.

THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
The actual expenses attributable to each Class of the Fund's shares will depend
upon, among other things, the level of average net assets and the extent to
which the Fund incurs variable expenses, such as transfer agency costs.
-------
(1) Sales charge waivers are available for Class A and Class B shares, reduced
sales charge purchase plans are available for Class A shares and exchange
fee waivers are available for all three Classes. The maximum 3% contingent
deferred sales charge on Class B shares applies to redemptions during the
first year after purchase; the charge declines by 1% following each of the
first, third and fourth years after purchase, thereby reaching zero after
four years. See "Purchases."

(2) See "Management" for additional information. During the year ended November
30, 1994, Mitchell Hutchins waived a portion of its advisory and
administration fees. Expenses net of waivers were 0.84% for Class A, 1.62%
for Class B and 1.36% for Class D for this period.

Prospectus Page 5
<PAGE>

(3) 12b-1 fees have two components, as follows:

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
------- ------- -------
<S> <C> <C> <C>
12b-1 services fees................................ 0.25% 0.25% 0.25%
12b-1 distribution fees............................ 0.00 0.75 0.50
</TABLE>

12b-1 distribution fees are asset-based sales charges. Long-term Class B
and Class D shareholders may pay more in direct and indirect sales charges
(including distribution fees) than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of Securities
Dealers, Inc.

(4) During the year ended November 30, 1994, Mitchell Hutchins waived a portion
of its advisory and administration fees. This Example is based on expense
ratios which would have occurred had such waivers not been made.

(5) Assumes deduction at the time of purchase of the maximum 3% initial sales
charge.

(6) Assumes deduction at the time of redemption of the maximum applicable
contingent deferred sales charge.

(7) Ten-year figures assume conversion of Class B shares to Class A shares at
end of sixth year.

Prospectus Page 6
<PAGE>

-------------------------------------------
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND

Financial Highlights
--------------------------------------------------------------------------------
-------------

The table below provides selected per share data and ratios for one Class A
share, one Class B share and one Class D share for the periods shown. This
information is supplemented by the financial statements and accompanying notes
appearing in the Fund's Annual Report to Shareholders for the fiscal year ended
November 30, 1994, which are incorporated by reference into the Statement of
Additional Information. The financial statements and notes, as well as the
information in the table appearing below, have been audited by Ernst & Young
LLP, independent auditors, whose report thereon is included in the Annual
Report to Shareholders. Further information about the Fund's performance is
also included in the Annual Report to Shareholders, which may be obtained
without charge.

<TABLE>
<CAPTION>
CLASS A CLASS B
-------------------------------------- --------------------------------------
FOR THE PERIOD FOR THE PERIOD
MAY 3, 1993 MAY 3, 1993
FOR THE YEAR (COMMENCEMENT OF FOR THE YEAR (COMMENCEMENT OF
ENDED OPERATIONS) ENDED OPERATIONS)
NOVEMBER 30, 1994 TO NOVEMBER 30, 1993 NOVEMBER 30, 1994 TO NOVEMBER 30, 1993
----------------- -------------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of
period........... $ 2.48 $ 2.50 $ 2.48 $ 2.50
-------- -------- ------- -------
Net
increase(decrease)
from investment
operations:
Net investment
income........... 0.12 0.07 0.10 0.06
Net realized and
unrealized losses
from investment
transactions..... (0.29) (0.02) (0.29) (0.02)
-------- -------- ------- -------
Net increase
(decrease) in net
asset value from
operations....... (0.17) 0.05 (0.19) 0.04
-------- -------- ------- -------
Less
distributions:
Dividends from net
investment
income........... (0.12) (0.07) (0.10) (0.06)
-------- -------- ------- -------
Contribution to
capital from
adviser.......... 0.06 -- 0.06 --
-------- -------- ------- -------
Net asset value,
end of period.... $ 2.25 $ 2.48 $ 2.25 $ 2.48
======== ======== ======= =======
Total investment
return(1)........ (4.50)%** 1.88% (5.24)%** 1.47%
======== ======== ======= =======
Ratios/Supplemental
data:
Net assets, end
of period
(000's
omitted)....... $158,712 $551,243 $13,382 $31,706
Ratio of
expenses to
average net
assets(2)...... 0.84% 0.81%* 1.62% 1.62%*
Ratio of net
investment
income to
average net
assets(2)...... 5.16% 4.85%* 4.40% 4.31%*
Portfolio
turnover rate.. 246.34% 96.60% 246.34% 96.60%
<CAPTION>
CLASS D
--------------------------------------
FOR THE PERIOD
MAY 3, 1993
FOR THE YEAR (COMMENCEMENT OF
ENDED OPERATIONS)
NOVEMBER 30, 1994 TO NOVEMBER 30, 1993
----------------- --------------------
<S> <C> <C>
Net asset value,
beginning of
period........... $ 2.47 $ 2.50
----------------- --------------------
Net
increase(decrease)
from investment
operations:
Net investment
income........... 0.11 0.06
Net realized and
unrealized losses
from investment
transactions..... (0.28) (0.03)
----------------- --------------------
Net increase
(decrease) in net
asset value from
operations....... (0.17) 0.03
----------------- --------------------
Less
distributions:
Dividends from net
investment
income........... (0.11) (0.06)
----------------- --------------------
Contribution to
capital from
adviser.......... 0.06 --
----------------- --------------------
Net asset value,
end of period.... $ 2.25 $ 2.47
================= ====================
Total investment
return(1)........ (4.99)%** 1.20%
================= ====================
Ratios/Supplemental
data:
Net assets, end
of period
(000's
omitted)....... $296,182 $1,186,181
Ratio of
expenses to
average net
assets(2)...... 1.36% 1.35%*
Ratio of net
investment
income to
average net
assets(2)...... 4.65% 4.52%*
Portfolio
turnover rate.. 246.34% 96.60%
</TABLE>
-------
* Annualized.

** During the year ended November 30, 1994, PaineWebber and Mitchell Hutchins
took actions affecting the Fund and its shareholders. Mitchell Hutchins made
payments aggregating approximately $33 million for the benefit of
shareholders of the Fund who held Fund shares on or after April 28, 1994,
pursuant to a settlement of certain class action lawsuits filed against the
Fund, PaineWebber, Mitchell Hutchins and related parties. The payments
equated to $0.06 per share for each Fund share outstanding on May 6, 1994 or
issued from that date through June 7, 1994, plus certain additional amounts.
If such payments had not been made, the total investment return would have
been (7.02)% for Class A, (7.74)% for Class B and (7.50)% for

Class D.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends at net
asset value on the payable dates, and a sale at net asset value on the last
day of each period reported. The figures do not include sales charges;
results for Class A and Class B would be lower if sales charges were
included. Total investment returns for periods less than one year have not
been annualized.

(2) During the year ended November 30, 1994 Mitchell Hutchins waived a portion
of its advisory and administration fees. If such waivers had not been made
the annualized ratios of expenses to average net assets, and net investment
income to average net assets, respectively, would have been 0.88% and 5.12%
for Class A, 1.66% and 4.35% for Class B, and 1.39% and 4.61% for Class D.

Prospectus Page 7
<PAGE>

-------------------------------------------
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND

Flexible Pricing System
--------------------------------------------------------------------------------
-------------
DIFFERENCES AMONG THE CLASSES

The primary distinctions among the Classes of the Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of distribution fees.
These differences are summarized in the table below. Each Class has distinct
advantages and disadvantages for different investors, and investors may choose
the Class that best suits their circumstances and objectives.
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
------------------------ ------------------------ ----------------------
<C> <S> <C> <C>
Class A Maximum initial sales Service fee of 0.25% Initial sales charge
charge of 3% of the pub- waived or reduced for
lic offering price certain purchases

Class B Maximum contingent de- Service fee of 0.25%; Shares convert to
ferred sales charge of distribution fee of Class A shares
3% of redemption pro- 0.75% approximately six
ceeds; declines to zero years after issuance
after four years

Class D None Service fee of 0.25%; --
distribution fee of
0.50%
</TABLE>
FACTORS TO CONSIDER IN CHOOSING A CLASS OF SHARES

In deciding which Class of shares to purchase, investors should consider the
cost of sales charges together with the cost of the on-going annual expenses
described below, as well as any other relevant facts and circumstances.

SALES CHARGES. Class A shares are sold at net asset value plus an initial sales
charge of up to 3% of the public offering price. Because of this initial sales
charge, not all of a Class A shareholder's purchase price is invested in the
Fund. Class B shares are sold with no initial sales charge, but a contingent
deferred sales charge of up to 3% of the redemption proceeds applies to
redemptions made within four years of purchase. Class D shareholders pay no
initial or contingent deferred sales charges. Thus, the entire amount of a
Class B or Class D shareholder's purchase price is immediately invested in the
Fund.

WAIVERS AND REDUCTIONS OF CLASS A SALES CHARGES. Class A share purchases over
$100,000 and Class A share purchases made under the Fund's reduced sales charge
plan may be made at a reduced sales charge. In considering the combined cost of
sales charges and ongoing annual expenses, investors should take into account
any reduced sales charges on Class A shares for which they may be eligible.

The entire initial sales charge on Class A shares is waived for certain
eligible purchasers. Because Class A shares bear lower ongoing annual expenses
than Class B shares or Class D shares, investors eligible for complete waivers
should purchase Class A shares.

ONGOING ANNUAL EXPENSES. All three Classes of Fund shares pay an annual 12b-1
service fee of 0.25% of average daily net assets. Class B shares pay an annual
12b-1 distribution fee of 0.75% of average daily net assets. Class D shares pay
an annual 12b-1 distribution fee of 0.50% of average daily net assets. Annual
12b-1 distribution fees are a form of asset-based sales charge. An investor
should consider both ongoing annual expenses and initial or contingent deferred
sales charges in estimating the costs of investing in the respective Classes of
Fund shares over various time periods.

Prospectus Page 8
<PAGE>

-------------------------------------------
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND
-------------

For example, assuming a constant net asset value, the cumulative distribution
fees on the Fund's Class B or Class D shares and the 3% maximum initial sales
charge on the Fund's Class A shares would all be approximately equal if the
shares were held for approximately four years in the case of the Class B shares
and approximately six years in the case of the Class D shares. The cumulative
distribution fees on the Fund's Class D shares would approximate the cumulative
distribution fees on the Class B shares if the shares were held for nine years.
Class B shares convert to Class A shares (which do not bear the expense of
ongoing distribution fees) approximately six years after purchase. Thus, an
investor who would be subject to the maximum initial sales charge and who
expects to hold Fund shares for less than six years generally should expect to
pay the lowest cumulative expenses by purchasing Class D shares.

The foregoing examples do not reflect, among other variables, the cost or
benefit of bearing sales charges or distribution fees at the time of purchase,
upon redemption or over time, nor can they reflect fluctuations in the net
asset value of Fund shares, which will affect the actual amount of expenses
paid. Expenses borne by Classes will differ slightly because of the allocation
of other Class-specific expenses. The "Example of Effect of Fund Expenses"
under "Prospectus Summary" shows the cumulative expenses an investor would pay
over time on a hypothetical investment in each Class of Fund shares, assuming
an annual return of 5%.

OTHER INFORMATION

PaineWebber investment executives may receive different levels of compensation
for selling one particular Class of Fund shares rather than another. Investors
should understand that distribution fees and initial and contingent deferred
sales charges all are intended to compensate Mitchell Hutchins for distribution
services.

See "Purchases," "Redemptions" and "Management" for a more complete description
of the initial and contingent deferred sales charges, service fees and
distribution fees for the three Classes of shares of the Fund. See also
"Conversion of Class B Shares," "Dividends and Taxes," "Valuation of Shares"
and "General Information" for other differences among the three Classes.
--------------------------------------------------------------------------------

Investment Objective and Policies
--------------------------------------------------------------------------------
The Fund's investment objective is to achieve the highest level of income
consistent with the preservation of capital and low volatility of net asset
value. The Fund seeks to maximize income consistent with the preservation of
capital by investing, under normal conditions, at least 65% of its total assets
in U.S. government securities, including mortgage-backed securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities ("U.S.
government mortgage-backed securities"), other obligations issued or guaranteed
by the U.S. government, its agencies or instrumentalities and repurchase
agreements with respect to those securities. Up to 35% of the Fund's total
assets may be invested in mortgage- and asset-backed securities that are issued
by private issuers and that at the time of purchase have been rated AAA by S&P
or Aaa by Moody's, have an equivalent rating from another NRSRO or, if unrated,
have been determined by PIMCO to be of comparable quality. The Fund also may
invest in money market instruments. As a matter of fundamental policy, the Fund
normally concentrates at least 25% of its total assets in mortgage- and asset-
backed securities issued or guaranteed by private issuers or by agencies or
instrumentalities of the U.S. government.

Prospectus Page 9
<PAGE>

-------------------------------------------
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND
-------------
of a mortgage-backed security generally is substantially shorter than its
stated maturity. The Fund may invest in securities with adjustable or floating
interest rates. Unless PIMCO believes such treatment to be inappropriate due to
the effect of interest rate caps or other factors, such securities may be
deemed to have maturities equal to the time remaining until the next date on
which their respective interest rates are reset. The maturities of the other
securities held by the Fund generally are their stated maturities.

Mortgage-backed securities represent direct or indirect participations in, or
are secured by and payable from, mortgage loans secured by real property and
include single- and multi-class pass-through securities and collateralized
mortgage obligations. Multi-class pass-through securities and collateralized
mortgage obligations are collectively referred to herein as CMOs. The U.S.
government mortgage-backed securities in which the Fund may invest include
mortgage-backed securities issued or guaranteed as to the payment of principal
and interest (but not as to market value) by the Government National Mortgage
Association ("Ginnie Mae"), the Federal National Mortgage Association ("Fannie
Mae"), or the Federal Home Loan Mortgage Corporation ("Freddie Mac"). Other
mortgage-backed securities, in which the Fund may invest up to 35% of its total
assets, are issued by private issuers, generally originators of and investors
in mortgage loans, including savings associations, mortgage bankers, commercial
banks, investment bankers and special purpose entities (collectively, "Private
Mortgage Lenders"). Payments of principal and interest (but not the market
value) of such private mortgage-backed securities may be supported by pools of
mortgage loans or other mortgage-backed securities that are guaranteed,
directly or indirectly, by the U.S. government or one of its agencies or
instrumentalities, or they may be issued without any government guarantee of
the underlying mortgage assets but with some form of non-government credit
enhancement. For more information concerning the types of mortgage-backed
securities in which the Fund may invest, see Appendix A to this Prospectus.

Non-mortgage-related U.S. government securities in which the Fund may invest
include U.S. Treasury obligations and other obligations backed by the full
faith and credit of the U.S. government and securities that are supported
primarily or solely by the creditworthiness of the issuer, such as securities
issued by the Resolution Funding Corporation, the Student Loan Marketing
Association, the Federal Home Loan Banks and the Tennessee Valley Authority.

Asset-backed securities have structural characteristics similar to mortgage-
backed securities. However, the underlying assets are not first lien mortgage
loans or interests therein, but include assets such as motor vehicle
installment sales contracts, other installment loan contracts, home equity
loans, leases of various types of real and personal property and receivables
from revolving credit (credit card) agreements. Such assets are securitized
through the use of trusts or special purpose corporations. Payments or
distributions of principal and interest on asset-backed securities may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution
unaffiliated with the issuer or other credit enhancements may be present.

There can be no assurance that the Fund will achieve its investment objective.
The Fund's net asset value will fluctuate based on changes in the value of its
portfolio securities. Neither the issuance by, nor the guarantee of, a U.S.
government agency nor even the highest rating by a NRSRO constitutes assurance
that the security will not fluctuate in value or that the Fund will receive the
originally anticipated yield on the security. An investment in the Fund also is
subject to the risks discussed below. See "Investment Policies and
Restrictions--Yield Factors and Ratings" in the Statement of Additional
Information.

RISK FACTORS AND OTHERINVESTMENT POLICIES

INTEREST RATE SENSITIVITY. The investment income of the Fund is based on the
income earned on the securities it holds, less expenses incurred; thus, the
Fund's investment income may be expected to fluctuate in response to changes in
such expenses or income. For example, the investment income of the Fund may be
affected if it experiences a net inflow of new money that is then invested in
securities whose yield is higher or lower than that earned on then-current
investments. Generally, the value of the securities held by the Fund, and thus
the net asset value per share of the Fund, will rise when interest rates
decline. Conversely, when interest rates rise, the value of fixed income
securities, and thus the net asset value per share of the Fund, may be expected
to decline.

Prospectus Page 10
<PAGE>

-------------------------------------------
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND
-------------

RISKS OF MORTGAGE- AND ASSET-BACKED SECURITIES. The yield characteristics of
the mortgage- and asset-backed securities in which the Fund may invest differ
from those of traditional debt securities. Among the major differences are that
interest and principal payments are made more frequently on mortgage- and
asset-backed securities, usually monthly, and that principal may be prepaid at
any time because the underlying mortgage loans or other assets generally may be
prepaid at any time. As a result, if the Fund purchases these securities at a
premium, a prepayment rate that is faster than expected will reduce yield to
maturity, while a prepayment rate that is slower than expected will have the
opposite effect of increasing yield to maturity. Conversely, if the Fund
purchases these securities at a discount, faster than expected prepayments will
increase, while slower than expected prepayments will reduce, yield to
maturity. Amounts available for reinvestment by the Fund are likely to be
greater during a period of declining interest rates and, as a result, are
likely to be reinvested at lower interest rates than during a period of rising
interest rates. Accelerated prepayments on securities purchased by the Fund at
a premium also impose a risk of loss of principal because the premium may not
have been fully amortized at the time the principal is prepaid in full. The
market for privately issued mortgage- and asset-backed securities is smaller
and less liquid than the market for U.S. government mortgage-backed securities.

CMO classes may be specially structured in a manner that provides any of a wide
variety of investment characteristics, such as yield, effective maturity and
interest rate sensitivity. As market conditions change, however, and
particularly during periods of rapid or unanticipated changes in market
interest rates, the attractiveness of the CMO classes and the ability of the
structure to provide the anticipated investment characteristics may be
significantly reduced. These changes can result in volatility in the market
value, and in some instances reduced liquidity, of the CMO class.

The rate of interest payable on CMO classes may be set at levels that are
either above or below market rates at the time of issuance, so that the
securities will be sold at a substantial premium to, or at a discount from, par
value. In the most extreme case, one class will be entitled to receive all or a
portion of the interest but none of the principal from the underlying mortgage
assets (the interest-only or "IO" class) and one class will be entitled to
receive all or a portion of the principal but none of the interest (the
principal-only or "PO" class). IOs and POs may also be created from mortgage-
backed securities that are not CMOs. The yields on IOs, POs and other mortgage-
backed securities that are purchased at a substantial premium or discount
generally are extremely sensitive to the rate of principal payments (including
prepayments) on the underlying mortgage assets. If the mortgage assets
underlying an IO experience greater than anticipated principal prepayments, an
investor may fail to recoup fully his or her initial investment even if the
security is government issued or guaranteed or is rated AAA or the equivalent.

Some CMO classes are structured to pay interest at rates that are adjusted in
accordance with a formula, such as a multiple or fraction of the change in a
specified interest rate index, so as to pay at a rate that will be attractive
in certain interest rate environments but not in others. For example, an
inverse floating rate CMO class pays interest at a rate that increases as a
specified interest rate index decreases but decreases as that index increases.
For other CMO classes, the yield may move in the same direction as market
interest rates--i.e. the yield may increase as rates increase and decrease as
rates decrease--but may do so more rapidly or to a greater degree. The market
value of such securities generally is more volatile than that of a fixed rate
obligation. Such interest rate formulas may be combined with other CMO
characteristics. For example, a CMO class may be an "inverse IO," on which the
holders are entitled to receive no payments of principal and are entitled to
receive interest at a rate that will vary inversely with a specified index or a
multiple thereof.

While the market values of particular securities in which the Fund invests may
be volatile, or may become volatile under certain conditions, PIMCO will seek
to manage the Fund so that the volatility of the Fund's portfolio, taken as a
whole, is consistent with the Fund's investment objective. If PIMCO incorrectly
forecasts interest rate changes or other factors that may affect the volatility
of securities held by the Fund, the Fund's ability to meet its investment
objective may be reduced. In addition, the Fund will not invest more than 5% of
its net assets in any combination of IOs, POs and inverse floating rate
securities.

Prospectus Page 11
<PAGE>

-------------------------------------------
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND
-------------

The Fund's policy of investing at least 25% of its total assets in mortgage-
and asset-backed securities has the effect of increasing the Fund's exposure to
these and other risks related to such securities and might cause the Fund's net
asset value per share to fluctuate more than otherwise would be the case.

DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS. The Fund may enter into dollar
rolls, in which the Fund sells mortgage-backed or other securities for delivery
in the current month and simultaneously contracts to purchase substantially
similar securities on a specified future date. In the case of dollar rolls
involving mortgage-backed securities, the mortgage-backed securities that are
purchased will be of the same type and will have the same interest rate as
those sold, but will be supported by different pools of mortgages. The Fund
forgoes principal and interest paid during the roll period on the securities
sold in a dollar roll, but the Fund is compensated by the difference between
the current sales price and the lower price for the future purchase as well as
by any interest earned on the proceeds of the securities sold. The Fund also
could be compensated through the receipt of fee income equivalent to a lower
forward price.

The Fund may also enter into reverse repurchase agreements in which the Fund
sells securities to a bank or dealer and agrees to repurchase them at a
mutually agreed date and price. The market value of securities sold under
reverse repurchase agreements typically is greater than the proceeds of the
sale, and accordingly, the market value of the securities sold is likely to be
greater than the value of the securities in which the Fund invests those
proceeds. Thus, reverse repurchase agreements involve the risk that the buyer
of the securities sold by the Fund might be unable to deliver them when the
Fund seeks to repurchase. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, such buyer or
its trustee or receiver may receive an extension of time to determine whether
to enforce the Fund's obligation to repurchase the securities and the Fund's
use of the proceeds of the reverse repurchase agreement may effectively be
restricted pending such decision.

The dollar rolls and reverse repurchase agreements entered into by the Fund
normally will be arbitrage transactions in which the Fund will maintain an
offsetting position in securities or repurchase agreements that mature on or
before the settlement date of the related dollar roll or reverse repurchase
agreement. Since the Fund will receive interest on the securities or repurchase
agreements in which it invests the transaction proceeds, such transactions may
involve leverage. However, since such securities or repurchase agreements must
satisfy the quality requirements of the Fund, and will mature on or before the
settlement date of the related dollar roll or reverse repurchase agreement,
PIMCO believes that such arbitrage transactions do not present the risks to the
Fund that are associated with other types of leverage.

Dollar rolls and reverse repurchase agreements will be considered to be
borrowings and, accordingly, will be subject to the Fund's limitations on
borrowings, which will restrict the aggregate of such transactions (plus any
other borrowings) to 33 1/3% of the Fund's total assets. The Fund will not
enter into dollar rolls or reverse repurchase agreements, other than in
arbitrage transactions as described above, in an aggregate amount in excess of
5% of the Fund's total assets. The Fund has no present intention to enter into
dollar rolls other than in such arbitrage transactions, and it has no present
intention to enter into reverse repurchase agreements other than in such
arbitrage transactions or for temporary or emergency purposes.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may purchase debt
securities, including mortgage- and asset-backed securities, on a "when-issued"
basis or may purchase or sell securities for "delayed delivery." In when-issued
or delayed delivery transactions, delivery of the securities occurs beyond
normal settlement periods, but the Fund generally would not pay for such
securities or start earning interest on them until they are delivered. However,
when the Fund purchases securities on a when-issued or delayed delivery basis,
it immediately assumes the risks of ownership, including the risk of price
fluctuation. Failure by a counter party to deliver a security purchased on a
when-issued or delayed delivery basis may result in a loss or missed
opportunity to make an alternative investment. Depending on market conditions,
the Fund's when-issued and delayed delivery purchase commitments could cause
its net asset value per share to be more volatile, because such securities may
increase the amount

Prospectus Page 12
<PAGE>

-------------------------------------------
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND
-------------
by which its total assets, including the value of when-issued and delayed
delivery securities it holds, exceed its net assets.

HEDGING AND RELATED INCOME STRATEGIES. The Fund may use options (both exchange-
traded and over-the-counter ("OTC")) and futures contracts to attempt to
enhance income and to reduce the overall risk of its investments (hedge).
Hedging strategies may be used in an attempt to manage the Fund's average
duration and other risks of its investments, which can affect fluctuations in
the Fund's net asset value. The Fund's ability to use these strategies may be
limited by market conditions, regulatory limits and tax considerations.
Appendix B to the Prospectus describes the instruments that the Fund may use,
and the Statement of Additional Information contains further information on
these strategies.

The Fund may write (sell) covered call and put options, buy call and put
options, buy and sell interest rate futures contracts and debt security index
futures contracts and buy call or put options or write covered put and call
options on such futures contracts. The Fund may enter into options and futures
contracts that approximate (but do not exceed) the full value of its portfolio.

The Fund may also enter into interest rate protection transactions, including
interest rate swaps, caps, collars and floors, to preserve a return or spread
on a particular investment or portion of the portfolio or to protect against
any increase in the price of securities the Fund anticipates purchasing at a
later date. The Fund will enter into interest rate protection transactions only
with banks and recognized securities dealers believed to present minimal credit
risks in accordance with guidelines established by the Trust's board of
trustees. The Fund would use these transactions as a hedge and not as a
speculative investment.

The Fund might not employ any of the strategies described above, and no
assurance can be given that any strategy used will succeed. If PIMCO
incorrectly forecasts interest rates, market values or other economic factors
in utilizing a strategy for the Fund, the Fund would be in a better position if
it had not entered into the transaction at all. The use of these strategies
involves certain special risks, including (1) the fact that skills needed to
use hedging instruments are different from those needed to select the Fund's
securities, (2) possible imperfect correlation, or even no correlation, between
price movements of hedging instruments and price movements of the investments
being hedged, (3) the fact that, while hedging strategies can reduce the risk
of loss, they can also reduce the opportunity for gain, or even result in
losses, by offsetting favorable price movements in hedged investments and (4)
the possible inability of the Fund to purchase or sell a portfolio security at
a time that otherwise would be favorable for it to do so, or the possible need
for the Fund to sell a portfolio security at a disadvantageous time, due to the
need for the Fund to maintain "cover" or to segregate securities in connection
with hedging transactions and the possible inability of the Fund to close out
or to liquidate its hedged position.

New financial products and risk management techniques continue to be developed.
The Fund may use these instruments and techniques to the extent consistent with
its investment objective and regulatory and tax considerations.

REPURCHASE AGREEMENTS. The Fund may use repurchase agreements. Repurchase
agreements are transactions in which the Fund purchases securities from a bank
or recognized securities dealer and simultaneously commits to resell the
securities to the bank or dealer at an agreed-upon date and price reflecting a
market rate of interest unrelated to the coupon rate or maturity of the
purchased securities. Repurchase agreements carry certain risks not associated
with direct investments in securities, including possible decline in the market
value of the underlying securities and delays and costs to the Fund if the
other party to the repurchase agreement becomes insolvent. The Fund intends to
enter into repurchase agreements only with banks and dealers in transactions
believed by PIMCO to present minimum credit risks in accordance with guidelines
established by the Trust's board of trustees.

Prospectus Page 13
<PAGE>

-------------------------------------------
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND
-------------

PIMCO has determined that they are liquid pursuant to guidelines established by
the Trust's board of trustees. Illiquid securities also are considered to
include, among other things, written OTC options, certain cover for OTC
options, repurchase agreements with maturities in excess of seven days,
securities whose disposition is restricted under the federal securities laws
(other than "Rule 144A" securities and certain commercial paper that PIMCO has
determined to be liquid under procedures approved by the Trust's board of
trustees).

Rule 144A establishes a "safe harbor" from the registration requirements of the
Securities Act of 1933 ("1933 Act"). Institutional markets for restricted
securities have developed as a result of Rule 144A, providing both readily
ascertainable values for restricted securities and the ability to liquidate an
investment to satisfy share redemption orders. An insufficient number of
qualified institutional buyers interested in purchasing Rule 144A-eligible
restricted securities held by the Fund, however, could affect adversely the
marketability of these portfolio securities and the Fund might be unable to
dispose of the securities promptly or at favorable prices.

The Fund may not be able to sell illiquid securities when PIMCO considers it
desirable to do so or may have to sell such securities at a price lower than
could be obtained if they were more liquid. Also the sale of illiquid
securities may require more time and may result in higher dealer discounts and
other selling expenses than does the sale of securities that are not illiquid.
Illiquid securities may be more difficult to value due to the unavailability of
reliable market quotations for such securities, and investment in illiquid
securities may have an adverse impact on net asset value.

PORTFOLIO TURNOVER. The Fund's portfolio turnover rate may vary greatly from
year to year and will not be a limiting factor when Mitchell Hutchins or PIMCO
deem portfolio changes appropriate. A higher turnover rate (100% or more) will
involve correspondingly greater transaction costs, which will be borne directly
by the Fund, and may increase the potential for short-term capital gains.

OTHER INVESTMENT POLICIES. In addition to its investments in U.S. government
securities and related repurchase agreements, the Fund may hold up to 35% of
its total assets in cash or money market instruments for liquidity purposes or
pending investment in longer-term portfolio securities. In addition, when PIMCO
believes unusual circumstances warrant a defensive posture, the Fund
temporarily may commit all or any portion of its assets to cash or money market
instruments. Such instruments may include securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities, commercial paper rated
at least A-1 by S&P or P-1 by Moody's, bank certificates of deposit, bankers'
acceptances and repurchase agreements secured by any of the foregoing. The Fund
may also engage in short sales of securities "against the box" to defer
realization of gains or losses for tax or other purposes.

The Fund's investment objective, its policy of normally concentrating at least
25% of its total assets in mortgage- and asset-backed securities and certain
investment limitations as described in the Statement of Additional Information
are fundamental policies that may not be changed without shareholder approval.
All other investment policies may be changed by the Trust's trustees without
shareholder approval.

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

Purchases
--------------------------------------------------------------------------------
GENERAL. Class A shares of the Fund are sold to investors subject to an initial
sales charge. Class B shares of the Fund are sold without an initial sales
charge but are subject to higher ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon certain redemptions. Class B
shares automatically convert to Class A shares approximately six years after
issuance. Class D shares are sold without an initial or a contingent deferred
sales charge but are subject to higher ongoing expenses than Class A shares and
do not convert into another Class. See "Flexible Pricing System" and
"Conversion of Class B Shares."

Shares of the Fund are available through PaineWebber and its correspondent
firms or, for shareholders who are not PaineWebber clients, through the
Transfer Agent. Investors may

Prospectus Page 14
<PAGE>

-------------------------------------------
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND
-------------
contact a local PaineWebber office to open a PaineWebber account. The minimum
initial investment, as well as the minimum for additional purchases, is $100.
The Fund reserves the right to change these minimums. These minimums may be
waived or reduced for investments by employees of PaineWebber or its
affiliates, by certain pension plans and retirement accounts, by participants
in the Fund's automatic investment plan. Purchase orders will be priced at the
net asset value per share next determined (see "Valuation of Shares") after the
order is received by PaineWebber's New York City offices or by the Transfer
Agent, plus any applicable sales charge for the Class A shares. The Fund and
Mitchell Hutchins reserve the right to reject any purchase order and to suspend
the offering of the Fund's shares for a period of time.

When placing purchase orders, investors should specify whether the order is for
Class A, Class B or Class D shares. All share purchase orders that fail to
specify a Class will automatically be invested in Class A shares.

PURCHASES THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. Purchases through
PaineWebber investment executives or correspondent firms may be made in person
or by mail, telephone or wire; the minimum wire purchase is $1 million.
Investment executives and correspondent firms are responsible for transmitting
purchase orders to PaineWebber's New York City offices promptly. Investors may
pay for a purchase with checks drawn on U.S. banks or with funds held in
brokerage accounts at PaineWebber or its correspondent firms. Payment is due on
the fifth Business Day after the order is received at PaineWebber's New York
City offices. A "Business Day" is any day, Monday through Friday, on which the
New York Stock Exchange, Inc. ("NYSE") is open for business.

PURCHASES THROUGH THE TRANSFER AGENT. Investors who are not PaineWebber clients
may purchase shares of the Fund through the Transfer Agent. Shares of the Fund
may be purchased, and an account with the Fund established, by completing and
signing the purchase application at the end of this Prospectus and mailing it,
together with a check to cover the purchase, to the Transfer Agent: PFPC Inc.,
Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington, Delaware 19899.
Subsequent investments need not be accompanied by an application.

INITIAL SALES CHARGE--CLASS A SHARES. The public offering price of Class A
shares is the next determined net asset value, plus any applicable sales
charge, which will vary with the size of the purchase as shown in the following
table:

INITIAL SALES CHARGE SCHEDULE--CLASS A SHARES

<TABLE>
<CAPTION>
SALES CHARGE AS A
PERCENTAGE OF DISCOUNT TO
---------------------------------------- SELECTED
NET AMOUNT DEALERS AS A
INVESTED PERCENTAGE
OFFERING (NET ASSET OF OFFERING
AMOUNT OF PURCHASE PRICE VALUE) PRICE
------------------ -------- ---------- ------------
<S> <C> <C> <C>
Less than$100,000 3.00% 3.09% 2.75%
$100,000 to$249,999 2.50 2.56 2.25
$250,000 to$499,999 2.00 2.04 1.75
$500,000 to$999,999 1.50 1.52 1.25
$1,000,000 and over(1) None None 1.00
</TABLE>
-------
(1) Mitchell Hutchins pays compensation to PaineWebber out of its own
resources.

Mitchell Hutchins may at times agree to reallow a higher discount to
PaineWebber, as exclusive dealer for the Fund's shares, than those shown above.
To the extent PaineWebber or any dealer receives 90% or more of the sales
charge, it may be deemed an "underwriter" under the 1933 Act.

SALES CHARGE WAIVERS--CLASS A SHARES. Class A shares of the Fund are available
without a sales charge through exchanges for Class A shares of most other
PaineWebber and MH/KP mutual funds. See "Exchanges." In addition, Class A
shares may be purchased without a sales charge, and exchanges of any Class of
shares may be made without the $5.00 exchange fee, by employees, directors and
officers of PaineWebber or its affiliates, directors or trustees and officers
of any PaineWebber or MH/KP fund, their spouses, parents and children and
advisory clients of Mitchell Hutchins.

Prospectus Page 15
<PAGE>

-------------------------------------------
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND
-------------

charge and (3) the total amount of shares of all PaineWebber and MH/KP funds
purchased under this sales charge waiver does not exceed the amount of the
purchaser's redemption proceeds from the competing firm's funds. To take
advantage of this waiver, an investor must provide satisfactory evidence that
all the above-noted conditions are met. Qualifying investors should contact
their PaineWebber investment executives for more information.

Certificate holders of unit investment trusts ("UITs") sponsored by PaineWebber
may acquire Class A shares of the Fund without regard to the minimum investment
requirements and without sales charges by electing to have dividends and
distributions from their UIT investment automatically invested in Class A
shares.

REDUCED SALES CHARGE PLANS--CLASS A SHARES. If an investor or eligible group of
related Fund investors purchases Class A shares of the Fund concurrently with
Class A shares of other PaineWebber or MH/KP mutual funds, the purchases may be
combined to take advantage of the reduced sales charge applicable to larger
purchases. In addition, the right of accumulation permits a Fund investor or
eligible group of related Fund investors to pay the lower sales charge
applicable to larger purchases by basing the sales charge on the dollar amount
of Class A shares currently being purchased, plus the net asset value of the
investor's or group's total existing Class A shareholdings in other PaineWebber
or MH/KP mutual funds.

An "eligible group of related Fund investors" includes an individual, the
individual's spouse, parents and children, the individual's individual
retirement account ("IRA"), certain companies controlled by the individual and
employee benefit plans of those companies, and trusts or Uniform Gifts to
Minors Act/Uniform Transfers to Minors Act accounts created by the individual
or eligible group of individuals for the benefit of the individual and/or the
individual's spouse, parents or children. The term also includes a group of
related employers and one or more qualified retirement plans of such employers.
For more information, an investor should consult the Statement of Additional
Information or contact a PaineWebber investment executive or correspondent firm
or the Transfer Agent.

CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. The public offering price of
the Class B shares of the Fund is the next determined net asset value, and no
initial sales charge is imposed. A contingent deferred sales charge, however,
is imposed upon certain redemptions of Class B shares.

Class B shares that are redeemed will not be subject to a contingent deferred
sales charge to the extent that the value of such shares represents (1) capital
appreciation of Fund assets, (2) reinvestment of dividends or capital gain
distributions or (3) shares redeemed more than four years after their purchase.
Otherwise, redemptions of Class B shares of the Fund will be subject to a
contingent deferred sales charge. The amount of any applicable contingent
deferred sales charge will be calculated by multiplying the net asset value of
such shares at the time of redemption by the applicable percentage shown in the
table below:

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF NET
REDEMPTION ASSET VALUE AT
DURING REDEMPTION
---------- -------------------
<S> <C>
1st Year Since Purchase.................................... 3%
2nd Year Since Purchase.................................... 2
3rd Year Since Purchase.................................... 2
4th Year Since Purchase.................................... 1
5th Year Since Purchase.................................... None
</TABLE>

In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption is made first of Class B shares
representing capital appreciation, next of shares representing the reinvestment
of dividends and capital gain distributions and finally of other shares held by
the shareholder for the longest period of time. The holding period of Class B
shares acquired through an exchange with another PaineWebber mutual fund will
be calculated from the date that the Class B shares were initially acquired in
one of the other PaineWebber funds, and Class B shares being redeemed will be
considered to represent, as applicable, capital appreciation or dividend and
capital gain distribution reinvestments in such other funds. This will result
in any contingent deferred sales charge being imposed at the lowest possible
rate. Investors should be aware, however, that Class B shares of the Fund and
Class B shares of most other PaineWebber mutual funds have different contingent
deferred sales charge schedules. The higher schedule will apply to the
redemption if the shareholder has ever held Class B shares of another
PaineWebber mutual fund having a different contingent deferred sales charge
schedule, either acquired through an

Prospectus Page 16
<PAGE>

-------------------------------------------
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND
-------------
exchange for Class B shares of the Fund or disposed of to acquire Class B
shares of the Fund (see "Exchanges"). For federal income tax purposes, the
amount of the contingent deferred sales charge will reduce the gain or increase
the loss, as the case may be, on the amount realized on redemption. The amount
of any contingent deferred sales charge will be paid to Mitchell Hutchins.

SALES CHARGE WAIVERS--CLASS B SHARES. The contingent deferred sales charge will
be waived for exchanges, as described below, and for redemptions in connection
with the Fund's systematic withdrawal plan. In addition, the contingent
deferred sales charge will be waived for a total or partial redemption made
within one year of the death of the shareholder. The contingent deferred sales
charge waiver is available where the decedent is either the sole shareholder or
owns the shares with his or her spouse as a joint tenant with right of
survivorship. This waiver applies only to redemption of shares held at the time
of death. The contingent deferred sales charge will also be waived in
connection with a lump-sum or other distribution in the case of an IRA, a self-
employed individual retirement plan (so-called "Keogh Plan") or a custodial
account under Section 403(b) of the Internal Revenue Code following attainment
of age 59 1/2; a total or partial redemption resulting from any distribution
following retirement in the case of a tax-qualified retirement plan; and a
redemption resulting from a tax-free return of an excess contribution to an
IRA.

Contingent deferred sales charge waivers will be granted subject to
confirmation (by PaineWebber in the case of shareholders who are PaineWebber
clients or by the Transfer Agent in the case of all other shareholders) of the
shareholder's status or holdings, as the case may be.

PURCHASE OF CLASS D SHARES. The public offering price of the Class D shares of
the Fund is the next determined net asset value. No initial or contingent
deferred sales charge is imposed.
--------------------------------------------------------------------------------

Exchanges
--------------------------------------------------------------------------------

Shares of the Fund may be exchanged for shares of the corresponding Class of
other PaineWebber and MH/KP mutual funds, or may be acquired through an
exchange of shares of the corresponding Class of those funds. No initial sales
charge is imposed on the shares being acquired, and no contingent deferred
sales charge is imposed on the shares being disposed of, through an exchange.
However, contingent deferred sales charges may apply to redemptions of Class B
shares of PaineWebber mutual funds acquired through an exchange. Class B shares
of MH/KP mutual funds differ from those of PaineWebber mutual funds. Class B
shares of MH/KP mutual funds are equivalent to Class D shares of PaineWebber
mutual funds. Thus, contingent deferred sales charges are not applicable to
redemptions of the Class B shares of MH/KP mutual funds. A $5.00 exchange fee
is charged for each exchange, and exchanges may be subject to minimum
investment requirements of the fund into which exchanges are made.

Exchanges are permitted with other PaineWebber and MH/KP mutual funds,
including:

INCOME FUNDS

. MH/KP Adjustable Rate Government Fund

. MH/KP Global Fixed Income Fund

. MH/KP Government Income Fund

. MH/KP Intermediate Fixed Income Fund

. PW Global Income Fund

. PW High Income Fund

. PW Investment Grade Income Fund

. PW Short-Term U.S. Government Income Fund for Credit Unions

. PW Strategic Income Fund

. PW U.S. Government Income Fund

TAX-FREE INCOME FUNDS

. MH/KP Municipal Bond Fund

. PW California Tax-Free Income Fund

. PW Municipal High Income Fund

. PW National Tax-Free Income Fund

. PW New York Tax-Free Income Fund

Prospectus Page 17
<PAGE>

-------------------------------------------
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND
-------------

GROWTH FUNDS

. MH/KP Emerging Markets Equity Fund

. MH/KP Global Equity Fund

. MH/KP Small Cap Growth Fund

. PW Atlas Global Growth Fund

. PW Blue Chip Growth Fund

. PW Capital Appreciation Fund

. PW Communications & Technology Growth Fund

. PW Europe Growth Fund

. PW Growth Fund

. PW Regional Financial Growth Fund

. PW Small Cap Value Fund

GROWTH AND INCOME FUNDS

. MH/KP Asset Allocation Fund

. MH/KP Equity Income Fund

. PW Asset Allocation Fund

. PW Global Energy Fund

. PW Global Growth and Income Fund

. PW Growth and Income Fund

. PW Utility Income Fund

PW MONEY MARKET FUND

The holding period of Class B shares of the Fund is included in the holding
period used to compute the contingent deferred sales charge applicable on a
redemption of Class B shares of the other PaineWebber mutual funds. The same
contingent deferred sales charge schedule applicable to the Fund's Class B
shares will apply to Class B shares of PaineWebber Money Market Fund that are
acquired directly through an exchange for the Fund's Class B shares. However,
Class B shares of the other PaineWebber mutual funds have higher contingent
deferred sales charges than Class B shares of the Fund and such charges are
imposed over a longer period. Class B shareholders exercising the exchange
privilege to acquire Class B shares of one of these other funds will be subject
to the higher contingent deferred sales charge schedule of the Class B shares
being acquired, and Class B shareholders of one of these other funds exercising
the exchange privilege to acquire Class B shares of the Fund will continue to
be subject to the higher contingent deferred sales charge. The Short-Term U.S.
Government Income Fund for Credit Unions does not offer Class B Shares.

PaineWebber clients must place exchange orders through their PaineWebber
investment executives or correspondent firms. Shareholders who are not
PaineWebber clients must place exchange orders in writing with the Transfer
Agent: PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington,
Delaware 19899. All exchanges will be effected based on the relative net asset
values per share next determined after the exchange order is received at
PaineWebber's New York City offices or by the Transfer Agent. See "Valuation of
Shares." Shares of the Fund purchased through PaineWebber or its correspondent
firms may be exchanged only after the settlement date has passed and payment
for such shares has been made.

OTHER EXCHANGE INFORMATION. This exchange privilege may be modified or
terminated at any time upon at least 60 days' notice when such notice is
required by SEC rules. This exchange privilege is available only in those
jurisdictions where the sale of the PaineWebber and MH/KP fund shares to be
acquired may be legally made. Before making any exchange, shareholders should
contact their PaineWebber investment executives or correspondent firms or the
Transfer Agent to obtain more information and prospectuses of the PaineWebber
and MH/KP funds to be acquired through the exchange.
--------------------------------------------------------------------------------

Redemptions
--------------------------------------------------------------------------------

As described below, Fund shares may be redeemed at their net asset value
(subject to any applicable contingent deferred sales charge) and redemption
proceeds will be paid within seven days of the receipt of a redemption request.
PaineWebber clients may redeem shares through PaineWebber or its correspondent
firms; all other shareholders must redeem through the Transfer Agent. If a
redeeming shareholder owns shares of more than one Class, the shares will be
redeemed

Prospectus Page 18
<PAGE>

-------------------------------------------
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND
-------------
in the following order unless the shareholder specifically requests otherwise:
Class D shares, then Class A shares, and finally Class B shares.

REDEMPTION THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. PaineWebber clients may
submit redemption requests to their investment executives or correspondent
firms in person or by telephone, mail or wire. As the Fund's agent, PaineWebber
may honor a redemption request by repurchasing Fund shares from a redeeming
shareholder at the shares' net asset value next determined after receipt of the
request by PaineWebber's New York City offices. Within seven days, repurchase
proceeds (less any applicable contingent deferred sales charge) will be paid by
check or credited to the shareholder's brokerage account at the election of the
shareholder. PaineWebber investment executives and correspondent firms are
responsible for promptly forwarding redemption requests to PaineWebber's New
York City offices.

PaineWebber reserves the right not to honor a redemption request, in which case
PaineWebber promptly will forward the request to the Transfer Agent for
treatment as described below.

REDEMPTION THROUGH THE TRANSFER AGENT. Fund shareholders who are not
PaineWebber clients must redeem their shares through the Transfer Agent by
mail; other shareholders also may redeem Fund shares through the Transfer
Agent. Shareholders should mail redemption requests directly to the Transfer
Agent: PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington,
Delaware 19899. A redemption request will be executed at the net asset value
next computed after it is received in "good order." "Good order" means that the
request must be accompanied by the following: (1) a letter of instruction or a
stock assignment specifying the number of shares or amount of investment to be
redeemed (or that all shares credited to a Fund account be redeemed), signed by
all registered owners of the shares in the exact names in which they are
registered, (2) a guarantee of the signature of each registered owner by an
eligible guarantor institution acceptable to the Transfer Agent and in
accordance with SEC rules, such as a commercial bank, trust company or member
of a recognized stock exchange, and (3) other supporting legal documents for
estates, trusts, guardianships, custodianships, partnerships and corporations.
Shareholders are responsible for ensuring that a request for redemption is
received in "good order."

ADDITIONAL INFORMATION ON REDEMPTIONS. Redemption proceeds of $1 million or
more may be wired to the shareholder's PaineWebber brokerage account or a
commercial bank account designated by the shareholder. Questions about this
option, or redemption requirements generally, should be referred to the
shareholder's PaineWebber investment executive or correspondent firm, or to the
Transfer Agent if the shares are not held in a PaineWebber brokerage account.
If a shareholder requests redemption of shares which were purchased recently,
the Fund may delay payment until it is assured that good payment has been
received. In the case of purchases by check, this can take up to 15 days.

Because the Fund incurs certain fixed costs in maintaining shareholder
accounts, the Fund reserves the right to redeem all Fund shares in any
shareholder account having a net asset value below the lesser of $500 or the
current minimum for initial purchases. If the Fund elects to do so, it will
notify the shareholder and provide the shareholder the opportunity to increase
the amount invested to the minimum required level or more within 60 days of the
notice. The Fund will not redeem accounts that fall below the minimum required
level solely as a result of a reduction in net asset value per share.

Shareholders who have redeemed Class A shares may reinstate their Fund account
without a sales charge up to the dollar amount redeemed by purchasing Class A
shares of the Fund within 365 days after the redemption. To take advantage of
this reinstatement privilege, shareholders must notify their PaineWebber
investment executive or correspondent firm at the time the privilege is
exercised.

Prospectus Page 19
<PAGE>

-------------------------------------------
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND
-------------

Conversion of Class B Shares
--------------------------------------------------------------------------------

A shareholder's Class B shares will automatically convert to Class A shares of
the Fund approximately six years after the date of issuance, together with a
pro rata portion of all Class B shares representing dividends and other
distributions paid in additional Class B shares. The Class B shares so
converted will no longer be subject to the higher expenses borne by Class B
shares. The conversion will be effected at the relative net asset values per
share of the two Classes on the first Business Day of the month in which the
sixth anniversary of the issuance of the Class B shares occurs. See "Valuation
of Shares." If a shareholder effects one or more exchanges among Class B shares
of the PaineWebber mutual funds during the six-year period, the holding periods
for the shares so exchanged will be counted toward the six-year period.

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

Other Services and Information
--------------------------------------------------------------------------------

Investors interested in the services described below should consult their
PaineWebber investment executives or correspondent firms or call the Transfer
Agent toll free at 1-800-647-1568.

AUTOMATIC INVESTMENT PLAN. Shareholders may purchase shares of the Fund through
an automatic investment plan, under which an amount specified by the
shareholder of $50 or more each month will be sent to the Transfer Agent from
the shareholder's bank for investment in the Fund. In addition to providing a
convenient and disciplined manner of investing, participation in the automatic
investment plan enables the investor to use the technique of "dollar cost
averaging." When under the plan a shareholder invests the same dollar amount
each month, the shareholder will purchase more shares when the Fund's net asset
value per share is low and fewer shares when the net asset value per share is
high. Using this technique, a shareholder's average purchase price per share
over any given period will be lower than if the shareholder purchased a fixed
number of shares on a monthly basis during the period.

SYSTEMATIC WITHDRAWAL PLAN. Shareholders who own Class A or Class D Fund shares
with a value of $5,000 or more or Class B Fund shares with a value of $20,000
or more may have PaineWebber redeem a portion of their Fund shares monthly,
quarterly or semi-annually under the Fund's systematic withdrawal plan. No
contingent deferred sales charge will be imposed on such withdrawals for Class
B shares. The minimum amount for all withdrawals of Class A or Class D shares
is $100, and minimum monthly, quarterly and semi-annual withdrawal amounts for
Class B shares are $200, $400 and $600, respectively. Quarterly withdrawals are
made in March, June, September and December, and semi-annual withdrawals are
made in June and December. A Class B shareholder of the Fund may not withdraw
an amount exceeding 12% annually of his or her "Initial Account Balance," a
term that means the value of the Fund account at the time the shareholder
elects to participate in the systematic withdrawal plan. A Class B
shareholder's participation in the systematic withdrawal plan will terminate
automatically if the Initial Account Balance (plus the net asset value on the
date of purchase of Fund shares acquired after the election to participate in
the systematic withdrawal plan), less aggregate redemptions made other than
pursuant to the systematic withdrawal plan, is less than $20,000. Shareholders
who receive dividends or other distributions in cash may not participate in the
Fund's systematic withdrawal plan. Purchases of additional shares concurrent
with withdrawals are ordinarily disadvantageous to shareholders because of tax
liabilities and, for Class A shares, sales charges.

INDIVIDUAL RETIREMENT ACCOUNTS. Fund shares may be purchased through IRAs
available through the Fund or PaineWebber. In addition, a Self-Directed IRA is
available through

Prospectus Page 20
<PAGE>

-------------------------------------------
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND
-------------
PaineWebber under which investments may be made in the Fund as well as in other
investments available through PaineWebber. Investors considering establishing
an IRA should review applicable tax laws and should consult their tax advisers.

TRANSFER OF ACCOUNTS. If a shareholder holding Fund shares in a PaineWebber
brokerage account transfers his brokerage account to another firm, the Fund
shares normally will be transferred to an account with the Transfer Agent.
However, if the other firm has entered into a selected dealer agreement with
Mitchell Hutchins relating to the Fund, the shareholder may be able to hold
Fund shares in an account with the other firm.

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

Dividends and Taxes
--------------------------------------------------------------------------------

DIVIDENDS. Dividends from the Fund's net investment income are declared daily
and paid monthly on or about the 15th day of each month. Net investment income
includes accrued interest and discount, less amortization of premium and
accrued expenses. The Fund distributes annually substantially all of its net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) and net short-term capital gain, if any. The Fund may make
additional distributions if necessary to avoid a 4% excise tax on certain
undistributed income and capital gain. Dividends and other distributions paid
on all Classes of Fund shares are calculated at the same time and in the same
manner. Dividends on Class B and Class D shares are expected to be lower than
those for its Class A shares because of the higher expenses resulting from
distribution fees borne by the Class B and Class D shares. For the same reason,
dividends on Class B shares are expected to be lower than those for Class D
shares. Dividends on each Class also might be affected differently by the
allocation of other Class-specific expenses. See "Valuation of Shares."

Shares purchased through PaineWebber investment executives and correspondent
firms begin earning dividends on the Business Day following the date payment
for such shares is due; shares purchased through the Transfer Agent begin
earning dividends on the Business Day following the Transfer Agent's receipt of
payment for such shares. Shares acquired through an exchange begin earning
dividends on the Business Day following the day on which the exchange is
effected.

Dividends and other distributions are paid in additional Fund shares of the
same Class at net asset value unless the shareholder has requested cash
payments. Shareholders who wish to receive dividends and/or capital gain
distributions in cash, either mailed to the shareholder by check or credited to
the shareholder's PaineWebber account, should contact their PaineWebber
investment executives or correspondent firms or complete the appropriate
section of the application form.

TAXES. The Fund intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code so that it will be relieved
of federal income tax on that part of its investment company taxable income
(consisting generally of net investment income and net short-term capital gain)
and net capital gain that is distributed to its shareholders.

Dividends from the Fund's investment company taxable income (whether paid in
cash or in additional shares) generally are taxable to its shareholders as
ordinary income. Distributions of the Fund's net capital gain (whether paid in
cash or in additional shares) are taxable to its shareholders as long-term
capital gain, regardless of how long they have held their Fund shares.
Shareholders not subject to tax on their income will not be required to pay tax
on amounts distributed to them.

The Fund notifies its shareholders following the end of each calendar year of
the amounts of dividends and capital gain distributions paid (or deemed paid)
that year.

The Fund is required to withhold 31% of all dividends, capital gain
distributions and redemption proceeds payable to any individuals and certain
other noncorporate shareholders who do not provide the Fund with a correct
taxpayer

Prospectus Page 21
<PAGE>

-------------------------------------------
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND
-------------

identification number. Withholding at that rate also is required from dividends
and capital gain distributions payable to those shareholders who otherwise are
subject to backup withholding.

A redemption of Fund shares may result in taxable gain or loss to the redeeming
shareholder, depending upon whether the redemption proceeds are more or less
than the shareholder's adjusted basis for the redeemed shares (which normally
includes any initial sales charge paid on Class A shares). An exchange of Fund
shares for shares of another PaineWebber or MH/KP fund generally will have
similar tax consequences. However, special tax rules apply when a shareholder
(1) disposes of Class A shares through a redemption or exchange within 90 days
of purchase and (2) subsequently acquires Class A shares of a PaineWebber or
MH/KP fund (including the Fund) without paying a sales charge due to the
exchange privilege or 365-day reinstatement privilege. In these cases, any gain
on the disposition of the original Class A shares will be increased, or loss
decreased, by the amount of the sales charge paid when the shares were
acquired, and that amount will increase the basis of the PaineWebber fund
shares subsequently acquired. In addition, if shares of the Fund are purchased
within 30 days before or after redeeming Fund shares (regardless of Class) at a
loss, all or a portion of that loss will not be deductible and will increase
the basis of the newly purchased shares.

No gain or loss will be recognized by a shareholder as a result of a conversion
of Class B shares into Class A shares.

The foregoing is only a summary of some of the important federal tax
considerations generally affecting the Fund and its shareholders; see the
Statement of Additional Information for a further discussion. There may be
other federal, state or local tax considerations applicable to a particular
investor. Prospective shareholders are therefore urged to consult their tax
advisers.
--------------------------------------------------------------------------------

Valuation of Shares
--------------------------------------------------------------------------------

The net asset value of the Fund's shares fluctuates and is determined
separately for each Class as of the close of regular trading on the NYSE
(currently 4:00 p.m., eastern time) each Business Day. Net asset value per
share is determined by dividing the value of the securities held by the Fund
plus any cash or other assets minus all liabilities by the total number of Fund
shares outstanding.

The Fund values its assets based on their current market value where market
quotations are readily available. If such value cannot be established, assets
are valued at fair value as determined in good faith by or under the direction
of the Trust's board of trustees. The amortized cost method of valuation
generally is used to value debt obligations with 60 days or less remaining
until maturity, unless the board of trustees determines that this does not
represent fair value.
--------------------------------------------------------------------------------

Management
--------------------------------------------------------------------------------

The Trust's board of trustees, as part of its overall management
responsibility, oversees various organizations responsible for the Fund's day-
to-day management. Mitchell Hutchins, the Fund's investment adviser and
administrator, supervises all aspects of the Fund's operations. Mitchell
Hutchins receives a monthly fee for its services, computed daily and payable
monthly, at an annual rate of 0.50% of the Fund's average daily net assets.

Mitchell Hutchins supervises the activities of PIMCO which, as sub-adviser for
the Fund makes and implements all investment decisions for the
Prospectus Page 22
<PAGE>

-------------------------------------------
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND
-------------
Fund. Under the sub-advisory contract, Mitchell Hutchins (not the Fund) pays
PIMCO a fee for its services as sub-adviser for the Fund in the amount of 0.25%
of the Fund's average daily net assets.

The Fund also pays PaineWebber an annual fee of $4.00 per active shareholder
account held at PaineWebber for certain services not provided by the Transfer
Agent. The Fund incurs other expenses and, for the fiscal year ended November
30, 1994, the Fund's total expenses for its Class A, Class B and Class D
shares, stated as a percentage of average net assets were 0.84%, 1.62% and
1.36%, respectively.

Mitchell Hutchins is located at 1285 Avenue of the Americas, New York, New York
10019. It is a wholly owned subsidiary of PaineWebber, which is in turn a
wholly owned subsidiary of Paine Webber Group Inc., a publicly owned financial
services holding company. As of February 28, 1995, Mitchell Hutchins was
adviser or sub-adviser of 42 investment companies with 77 separate portfolios
and aggregate assets of over $26.8 billion.

PIMCO is located at 840 Newport Center Drive, Suite 360, Newport Beach,
California 92660. PIMCO is a subsidiary of PIMCO Advisors L.P., a publicly held
investment advisory firm. As of February 28, 1995, PIMCO had approximately
$59.8 billion in assets under management and was adviser or sub-adviser of 12
investment companies with 33 portfolios and aggregate assets of approximately
$13.1 billion. PIMCO is one of the largest fixed income management firms in the
nation. Included among PIMCO's institutional clients are many "Fortune 500"
companies.

William C. Powers, a Managing Director of PIMCO, is responsible for the day-to-
day management of the Fund's portfolio. Mr. Powers has participated in the
management of the portfolio since PIMCO assumed subadvisory responsibilities
for the Fund in October 1994. Since 1991, Mr. Powers has been a senior member
of the fixed income portfolio management group of PIMCO. He was previously
associated with Salomon Brothers and Bear Stearns as a Senior Managing
Director.

Mitchell Hutchins and PIMCO investment personnel may engage in securities
transactions for their own accounts pursuant to each firm's code of ethics that
establishes procedures for personal investing and restricts certain
transactions.

DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins is the distributor of the Fund's
shares and has appointed PaineWebber as the exclusive dealer for the sale of
those shares. Under separate plans of distribution pertaining to the Class A
shares, Class B shares and Class D shares ("Class A Plan," "Class B Plan" and
"Class D Plan," collectively, "Plans"), the Fund pays Mitchell Hutchins a
monthly service fee at the annual rate of 0.25% of the average daily net assets
of each Class of Fund shares and a monthly distribution fee at the annual rate
of 0.75% of the average daily net assets of the Class B shares and 0.50% of the
average daily net assets of the Class D shares.

Under all three Plans, Mitchell Hutchins uses the service fee primarily to pay
PaineWebber for shareholder servicing, currently at the annual rate of 0.25% of
the aggregate investment amounts maintained in the Fund by PaineWebber clients.
PaineWebber passes on a portion of these fees to its investment executives to
compensate them for shareholder servicing that they perform, and it retains the
remainder to offset its own expenses in servicing and maintaining shareholder
accounts. These expenses may include costs of the PaineWebber branch office in
which the investment executive is based, such as rent, communications
equipment, employee salaries and other overhead costs.

Mitchell Hutchins uses the distribution fee under the Class B and Class D Plans
to offset the commissions it pays to PaineWebber for selling the Fund's Class B
and Class D shares. PaineWebber passes on to its investment executives a
portion of these commissions and retains the remainder to offset its expenses
in selling Class B and Class D shares. These expenses may include the branch
office costs noted above. In addition, Mitchell Hutchins uses the distribution
fees under the Class B and Class D Plans to offset the Fund's marketing costs
attributable to such Classes, such as preparation of sales literature,
advertising and printing and distributing prospectuses and other shareholder
materials to prospective investors. Mitchell Hutchins also may use the
distribution fees to pay other costs allocated to Mitchell Hutchins' and
PaineWebber's distribution activities, including employee salaries, bonuses and
other overhead expenses.

Mitchell Hutchins expects that, from time to time, PaineWebber will pay
shareholder servicing fees

Prospectus Page 23
<PAGE>

---------------------
-----------------------------
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND
-------------
and sales commissions to its investment executives at the time of sale of Class
D shares of the Fund. If PaineWebber makes such payments, it will retain the
service and distribution fees on Class D shares until it has been reimbursed
and thereafter will pass a portion of the service and distribution fees on
Class D shares on to its investment executives.

Mitchell Hutchins receives the proceeds of the initial sales charge paid upon
the purchase of Class A shares and the contingent deferred sales charge paid
upon certain redemptions of Class B shares, and may use these proceeds for any
of the distribution expenses described above. See "Purchases."

During the period they are in effect, the Plans and related distribution
contracts pertaining to each Class of Fund shares ("Distribution Contracts")
obligate the Fund to pay service and distribution fees to Mitchell Hutchins as
compensation for its service and distribution activities, not as reimbursement
for specific expenses incurred. Thus, even if Mitchell Hutchins' expenses
exceed its service or distribution fees, the Fund will not be obligated to pay
more than those fees, and, if Mitchell Hutchins' expenses are less than such
fees, it will retain its full fees and realize a profit. The Fund will pay the
service and distribution fees to Mitchell Hutchins until either the applicable
Plan or Distribution Contract is terminated or not renewed. In that event,
Mitchell Hutchins' expenses in excess of service and distribution fees received
or accrued through the termination date will be Mitchell Hutchins' sole
responsibility and not obligations of the Fund. In their annual consideration
of the continuation of each Plan, the trustees will review the Plan and
Mitchell Hutchins' corresponding expenses for each Class separately from the
Plans and corresponding expenses for the other two Classes.
--------------------------------------------------------------------------------

Performance Information
--------------------------------------------------------------------------------
The Fund performs a standardized computation of annualized total return and may
show this return in advertisements or promotional materials. Standardized
return shows the change in value of an investment in the Fund as a steady
compound annual rate of return. Actual year-by-year returns fluctuate and may
be higher or lower than standardized return. Standardized return for the Class
A shares of the Fund reflects deduction of the Fund's maximum initial sales
charge at the time of purchase, and standardized return for the Class B shares
of the Fund reflects deduction of the applicable contingent deferred sales
charge imposed on a redemption of shares held for the period. One-, five- and
ten-year periods will be shown, unless the Class has been in existence for a
shorter period. Total return calculations assume reinvestment of dividends and
other distributions.

The Fund may use other total return presentations in conjunction with
standardized return. These may cover the same or different periods as those
used for standardized return and may include cumulative returns, average annual
rates, actual year-by-year rates or any combination thereof. Non-standardized
return does not reflect initial or contingent deferred sales charges and would
be lower if such charges were included.

The Fund also may advertise its yield. Yield reflects investment income net of
expenses over a 30-day (or one-month) period on a Fund share, expressed as an
annualized percentage of the maximum offering price per share for Class A
shares and net asset value per share for Class B shares and Class D shares at
the end of the period. Yield computations differ from other accounting methods
and therefore may differ from dividends actually paid or reported net income.

The Fund will include performance data for all three Classes of Fund shares in
any advertisements or promotional materials including Fund performance data.
Total return and yield information reflect past performance and do not
necessarily indicate future results. Investment return and principal values
will fluctuate, and proceeds upon redemption may be more or less than a
shareholder's cost.

Prospectus Page 24
<PAGE>

---------------------
-----------------------------
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND
-------------

General Information
--------------------------------------------------------------------------------

ORGANIZATION. PaineWebber Managed Investments Trust is registered with the SEC
as an open-end management investment company and was organized as a
Massachusetts business trust under the laws of the Commonwealth of
Massachusetts by Declaration of Trust dated November 21, 1986. The trustees
have authority to issue an unlimited number of shares of beneficial interest of
separate series, par value $.001 per share. In addition to the Fund, shares of
five other series have been authorized.

The shares of beneficial interest of the Fund are divided into three Classes,
designated Class A shares, Class B shares and Class D shares. Each Class
represents interests in the same assets of the Fund. The Classes differ as
follows: (1) each Class of shares has exclusive voting rights on matters
pertaining to its plan of distribution, (2) Class A shares are subject to an
initial sales charge, (3) Class B shares bear ongoing distribution fees, are
subject to a contingent deferred sales charge upon certain redemptions and will
automatically convert to Class A shares approximately six years after issuance,
(4) Class D shares are subject to neither an initial nor a contingent deferred
sales charge, bear ongoing distribution fees and do not convert into another
Class and (5) each Class may bear differing amounts of certain Class-specific
expenses. The board of trustees of the Trust does not anticipate that there
will be any conflicts among the interests of the holders of the different
Classes of shares of the Fund. On an ongoing basis, the board of trustees will
consider whether any such conflict exists and, if so, take appropriate action.

The Trust does not hold annual shareholder meetings. There normally will be no
meetings of shareholders to elect trustees unless fewer than a majority of the
trustees holding office have been elected by shareholders. Shareholders of
record holding at least two-thirds of the outstanding shares of the Trust may
remove a trustee by votes cast in person or by proxy at a meeting called for
that purpose. The trustees are required to call a meeting of shareholders for
the purpose of voting upon the question of removal of any trustee when so
requested in writing by shareholders of record holding at least 10% of the
Trust's outstanding shares. Each share of the Fund has equal voting rights,
except as noted above. Each share of the Fund is entitled to participate
equally in dividends and other distributions and the proceeds of any
liquidation, except that, due to the differing expenses borne by the three
Classes, these dividends and proceeds for the Class B and Class D shares are
likely to be lower than for the Class A shares. The shares of the Fund and the
other series of the Trust will be voted separately except when an aggregate
vote of all series is required by the Investment Company Act of 1940 ("1940
Act").

To avoid additional operating costs and for investor convenience, the Fund does
not issue share certificates. Ownership of the Fund's shares is recorded on a
stock register by the Transfer Agent and shareholders have the same rights of
ownership with respect to such shares as if certificates had been issued.

CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, One Heritage
Drive, North Quincy, Massachusetts 02171, is the custodian of the Fund's
assets. PFPC Inc., a subsidiary of PNC Bank, National Association, whose
principal business address is 400 Bellevue Parkway, Wilmington, Delaware 19809,
is the Fund's transfer and dividend disbursing agent.

CONFIRMATIONS AND STATEMENTS. Shareholders receive confirmations of purchases
and redemptions of Fund shares. PaineWebber clients receive statements at least
quarterly that report their Fund activity and consolidated year-end statements
that show all Fund transactions for that year. Shareholders who are not
PaineWebber clients receive quarterly statements from the Transfer Agent.
Shareholders also receive audited annual and unaudited semi-annual financial
statements of the Fund.

Prospectus Page 25
<PAGE>

-------------------------------------------
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND
Appendix A
Types of Mortgage-Backed Securities
--------------------------------------------------------------------------------

--------------
GINNIE MAE CERTIFICATES

Ginnie Mae guarantees certain mortgage pass-through certificates ("Ginnie Mae
certificates") that are issued by Private Mortgage Lenders and that represent
ownership interests in individual pools of residential mortgage loans. These
securities are designed to provide monthly payments of interest and principal
to the investor. Timely payment of interest and principal (but not the market
value of the security itself) is backed by the full faith and credit of the
U.S. government. Each mortgagor's monthly payments to his lending institution
on his residential mortgage are "passed through" to certificateholders such as
the Fund. Mortgage pools consist of whole mortgage loans or participations in
loans. The terms and characteristics of the mortgage instruments are generally
uniform within a pool but may vary among pools. Lending institutions that
originate mortgages for the pools are subject to certain standards, including
credit and other underwriting criteria for individual mortgages included in the
pools.

FANNIE MAE CERTIFICATES

Fannie Mae facilitates a national secondary market in residential mortgage
loans insured or guaranteed by U.S. government agencies and in privately
insured or uninsured residential mortgage loans (sometimes referred to as
"conventional mortgage loans" or "conventional loans") through its mortgage
purchase and mortgage-backed securities sales activities. Fannie Mae issues
guaranteed mortgage pass-through certificates ("Fannie Mae certificates"),
which represent pro rata shares of all interest and principal payments made and
owed on the underlying pools. Fannie Mae guarantees timely payment of interest
and principal (but not the market value of the security itself) on Fannie Mae
certificates. The Fannie Mae guarantee is not backed by the full faith and
credit of the U.S. government.

FREDDIE MAC CERTIFICATES

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

PRIVATE, RTC AND SIMILAR MORTGAGE-BACKED SECURITIES

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

Prospectus Page 26
<PAGE>

-------------------------------------------
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND
--------------
The Resolution Trust Corporation ("RTC"), which was organized by the U.S.
government in connection with the savings and loan crisis, holds assets of
failed savings associations as either a conservator or receiver for such
associations, or it acquires such assets in its corporate capacity. These
assets include, among other things, single family and multifamily mortgage
loans, as well as commercial mortgage loans. In order to dispose of such assets
in an orderly manner, RTC has established a vehicle registered with the SEC
through which it sells mortgage-backed securities. RTC mortgage-backed
securities represent pro rata interests in pools of mortgage loans that RTC
holds or has acquired, as described above, and are supported by one or more of
the types of private credit enhancements used by Private Mortgage Lenders.

COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS MORTGAGE PASS-THROUGHS

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

In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMO, also referred to as a "tranche," is issued at a specific fixed or
floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Mortgage Assets may cause CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all classes of a CMO (other than any principal-
only or PO class) on a monthly, quarterly or semi-annual basis. The principal
and interest on the Mortgage Assets may be allocated among the several classes
of a CMO in many ways. In one structure, payments of principal, including any
principal prepayments, on the Mortgage Assets are applied to the classes of a
CMO in the order of their respective stated maturities or final distribution
dates so that no payment of principal will be made on any class of the CMO
until all other classes having an earlier stated maturity or final distribution
date have been paid in full. In some CMO structures, all or a portion of the
interest attributable to one or more of the CMO classes may be added to the
principal amounts attributable to such classes, rather than passed through to
certificateholders on a current basis, until other classes of the CMO are paid
in full.

Parallel pay CMOs are structured to provide payments of principal on each
payment date to more than one class. These simultaneous payments are taken into
account in calculating the stated maturity date or final distribution date of
each class, which, as with other CMO structures, must be retired by its stated
maturity date or final distribution date but may be retired earlier.

ARM AND FLOATING RATE MORTGAGE-BACKED SECURITIES

ARM mortgage-backed securities are mortgage-backed securities that represent a
right to receive interest payments at a rate that is adjusted to reflect the
interest earned on a pool of mortgage loans bearing variable or adjustable
rates of interest (such mortgage loans are referred to as "ARMs"). Floating
rate mortgage-backed securities are classes of mortgage-backed securities that
have been structured to represent the right to receive interest payments at
rates that fluctuate in accordance with an index but that generally are
supported by pools comprised of fixed-rate mortgage loans. Because the interest
rates on ARM and Floating Rate mortgage-backed securities are reset in response
to changes in a specified market index, the values of such securities tend to
be less sensitive to interest rate fluctuations than the values of fixed-rate
securities.

TYPES OF CREDIT ENHANCEMENT

To lessen the effect of failures by obligors on Mortgage Assets to make
payments, mortgage-backed securities may contain elements of credit
enhancement. Such credit enhancement falls into two categories: (1) liquidity
protection; and (2) protection against losses resulting after default by an
obligor on the underlying assets and collection of all amounts recoverable
directly from the obligor and through liquidation of the collateral.

Prospectus Page 27
<PAGE>

-------------------------------------------
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND
--------------

Liquidity protection refers to the provisions of advances, generally by the
entity administering the pool of assets (usually the bank, savings association
or mortgage banker that transferred the underlying loans to the issuer of the
security), to ensure that the receipt of payments on the underlying pool occurs
in a timely fashion. Protection against losses resulting after default and
liquidation ensures ultimate payment of the obligations on at least a portion
of the assets in the pool. Such protection may be provided through guarantees,
insurance policies or letters of credit obtained by the issuer or sponsor from
third parties, through various means of structuring the transaction or through
a combination of such approaches. The Fund will not pay any additional fees for
such credit enhancement, although the existence of credit enhancement may
increase the price of a security. Credit enhancements do not provide protection
against changes in the market value of the security.

Examples of credit enhancement arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal
thereof and interest thereon, with the result that defaults on the underlying
assets are borne first by the holders of the subordinated class), creation of
"spread accounts" or "reserve funds" (where cash or investments, sometimes
funded from a portion of the payments on the underlying assets, are held in
reserve against future losses) and "over-collateralization" (where the sched-
uled payments on, or the principal amount of, the underlying assets exceeds
that required to make payment of the securities and pay any servicing or other
fees). The degree of credit enhancement provided for each issue generally is
based on historical information regarding the level of credit risk associated
with the underlying assets. Delinquency or loss in excess of that anticipated
could adversely affect the return on an investment in such a security.

SPECIALLY STRUCTURED CMOS AND NEW TYPES OF MORTGAGE-BACKED SECURITIES

The Fund may invest in IOs, POs, inverse floating rate CMOs and other specially
structured CMO classes. See "Risk Factors and Other Investment Policies--Risks
of Mortgage-Backed and Asset-Backed Securities."

New types of mortgage-backed securities are developed and marketed from time to
time and, consistent with its investment limitations, the Fund expects to in-
vest in those new types of mortgage-backed securities that Mitchell Hutchins
believes may assist the Fund in achieving its investment objective. Similarly,
the Fund may invest in mortgage-backed securities issued by new or existing
governmental or private issuers other than those identified above. The Fund's
prospectus or statement of additional information will be supplemented to the
extent that new types of mortgage-backed securities or those issued by issuers
other than those identified above involve materially different risks than the
securities or issuers described herein.

Prospectus Page 28
<PAGE>

-------------------------------------------
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND
Appendix B
--------------------------------------------------------------------------------
--------------
THE FUND MAY USE THE FOLLOWING INSTRUMENTS:

Options on Debt Securities. A call option is a short-term contract pursuant to
which the purchaser of the option, in return for a premium, has the right to
buy the security underlying the option at a specified price at any time during
the term of the option. The writer of the call option, who receives the
premium, has the obligation, upon exercise of the option during the option
term, to deliver the underlying security against payment of the exercise price.
A put option is a similar contract which gives its purchaser, in return for a
premium, the right to sell the underlying security at a specified price during
the term of the option. The writer of the put option, who receives the premium,
has the obligation, upon exercise of the option during the option term, to buy
the underlying security at the exercise price.

Options on Indices of Debt Securities. An index assigns relative values to the
securities included in the index and fluctuates with changes in the market
values of such securities. Index options operate in the same way as more
traditional options except that exercises of index options are effected with
cash payment and do not involve delivery of securities. Thus, upon exercise of
an index option, the purchaser will realize, and the writer will pay, an amount
based on the difference between the exercise price and the closing price of the
index.

Debt Security Index Futures Contracts. An index futures contract is a bilateral
agreement pursuant to which one party agrees to accept, and the other party
agrees to make, delivery of an amount of cash equal to a specified dollar
amount times the difference between the index value at the close of trading of
the contract and the price at which the futures contract is originally struck.
No physical delivery of the securities comprising the index is made; generally,
contracts are closed out prior to the expiration date of the contract.

Interest Rate Futures Contracts. An interest rate futures contract is a
bilateral agreement pursuant to which one party agrees to make, and the other
party agrees to accept, delivery of the specified type of debt security called
for in the contract at a specified future time and at a specified price.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of debt securities, in most cases the contracts are
closed out before the settlement date without the making or taking of delivery.

Options on Futures Contracts. Options on futures contracts are similar to
options on securities, except that an option on a futures contract gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract (a long position if the option is a call and a short position
if the option is a put), rather than to purchase or sell a security, at a
specified price at any time during the option term. Upon exercise of the
option, the delivery of the futures position to the holder of the option will
be accompanied by delivery of the accumulated balance that represents the
amount by which the market price of the futures contract exceeds, in the case
of a call, or is less than, in the case of put, the exercise price of the
option on the future. The writer of an option, upon exercise, will assume a
short position in the case of a call and a long position in the case of a put.

Prospectus Page 29
<PAGE>

Application Form

THE PAINEWEBBER
MUTUAL FUNDS [_] [_] - [_] [_] [_] [_] [_]- [_] [_]
PaineWebber Account No.
--------------------------------------------------------------------------------
INSTRUCTIONS DO NOT USE THIS FORM IF YOU WOULD LIKE YOUR ACCOUNT SERVICED
THROUGH PAINEWEBBER. INSTEAD, CALL YOUR PAINEWEBBER INVESTMENT
EXECUTIVE (OR YOUR LOCAL PAINEWEBBER OFFICE TO OPEN AN ACCOUNT).

ALSO, DO NOT USE THIS FORM TO OPEN A Return this completed
RETIREMENT PLAN ACCOUNT. FOR form to: PFPC Inc. P.O.
RETIREMENT PLAN FORMS OR FOR Box 8950 Wilmington,
ASSISTANCE IN COMPLETING THIS FORM Delaware 19899 ATTN:
CONTACT PFPC INC. AT 1-800-647-1568. PaineWebber Mutual Funds
PLEASE PRINT
--------------------------------------------------------------------------------

[1] INITIAL INVESTMENT ($100 MINIMUM)

ENCLOSED IS A CHECK FOR $_____ (payable to PaineWebber
Short-Term U.S. Government Income Fund) to purchase
Class A [_] Class B [_] or Class D [_] shares
(Check one; if no Class is specified Class A shares will be
purchased)

[2] ACCOUNT REGISTRATION

Not valid
without
signature and
Soc. Sec. or
Tax ID # on
accompanying
Form W-9
--As joint
tenants, use 1. Individual / /
Lines 1 and 2 ----------- --------------- --------------
First Name Last Name MI Soc. Sec. No.

--As custodian
for a minor, 2. Joint Tenancy / /
use Lines 1 ---------- --------------- --------------
and 3 First Name Last Name MI Soc. Sec. No.

("Joint Tenants with Rights of Survivorship"
unless otherwise specified)

--In the name 3. Gifts to Minors / /
of a ------------------------- --------------
corporation, Minor's Name Soc. Sec. No.
trust or other
organization Under the Uniform Gifts/Uniform
or any --------------------- to Minors Act/Transfers
fiduciary State of Residence of Minor to Minors Act
capacity, use
Line 4

4. Other Registrations
--------------------- --------------
Name Tax Ident. No.

5. If Trust, Date of Trust Instrument:
---------

[3] ADDRESS

---------------------------- U.S. Citizen [_] YES [_] NO*
Street

---------------------------- ---------------------------
City State Zip Code *Country of Citizenship

[4] DISTRIBUTION OPTIONS See Prospectus
Please select one of the following:
[_] Reinvest both dividends and capital gain distributions
in additional shares

[_] Pay dividends to my address above; reinvest capital
gain distributions

[_] Pay both dividends and capital gain distributions in
cash to my address above

[_] Reinvest dividends and pay capital gain distributions
in cash to my address above NOTE: If a selection is not
made, both dividends and cap-ital gain distributions
will be paid in additional Fund shares of the same
Class.

<PAGE>

[5] SPECIAL OPTIONS (For More Information--Check Appropriate
Box)

[_] Prototype IRA [_] Automatic [_] Systematic
Application Investment Withdrawal Plan
Plan

[6] RIGHTS OF ACCUMULATION--CLASS A SHARES See Prospectus

Indicate here any other account(s) in the group of funds that
qualify for the cumulative quantity discount as outlined in
the Prospectus.

--------------------- ----------- --------------------
Fund Name Account No. Registered Owner

[7] PLEASE INDICATE BELOW IF YOU ARE AFFILIATED WITH
PAINEWEBBER

"Affiliated" persons are defined as officers,
directors/trustees and employees of the PaineWebber funds,
PaineWebber or its affiliates, and their parents, spouses
and children.

-----------------------------------------------
Nature of Relationship

[8] SIGNATURE (S) AND TAX CERTIFICATION

I warrant that I have full authority and am of legal age to
purchase shares of the Fund specified and have received and
read a current Prospectus of the Fund and agree to its
terms. The Fund and its Transfer Agent will not be liable
for acting upon instructions or inquiries believed genuine.
Under penalties of perjury, I certify that (1) my taxpayer
identification number provided in this application is
correct and (2) I am not subject to backup withholding
because (i) I have not been notified that I am subject to
backup withholding as a result of failure to report interest
or dividends or (ii) the IRS has notified me that I am no
longer subject to backup withholding (STRIKE OUT CLAUSE (2)
IF INCORRECT).

---------------------- ---------------------- -------
Individual Joint Registrant Date
(or Custodian) (if any)

---------------------- ---------------------- -------
Corporate Officer, Title Date
Partner, Trustee, etc.

[9] INVESTMENT EXECUTIVE IDENTIFICATION (To Be Completed By
Investment Executive Only)

-------------------------- --------------------------
Broker No./Name Branch Wire Code
( )

-------------------------- --------------------------
Branch Address Telephone

[10] CORRESPONDENT FIRM IDENTIFICATION (To Be Completed By Cor-
respondent Firm Only)

-------------------------- --------------------------
Name Address

-------------------------- --------------------------
MAIL COMPLETED FORM TO YOUR PAINEWEBBER INVESTMENT EXECUTIVE
OR CORRESPONDENT FIRM OR TO: PFPC INC., P.O. BOX 8950,
WILMINGTON, DELAWARE 19899.
<PAGE>

GROWTH AND INCOME FUNDS

. MH/KP Asset Allocation Fund

. MH/KP Equity Income Fund

. PW Asset Allocation Fund

. PW Global Energy Fund

. PW Global Growth and Income Fund

. PW Growth and Income Fund

. PW Utility Income Fund

PW MONEY MARKET FUND
<PAGE>

Shares of the Fund can be exchanged for shares of the following PaineWebber and
Mitchell Hutchins/Kidder, Peabody mutual funds:

INCOME FUNDS

. MH/KP Adjustable Rate Government Fund

. MH/KP Global Fixed Income Fund

. MH/KP Government Income Fund

. MH/KP Intermediate Fixed Income Fund

. PW Global Income Fund

. PW High Income Fund

. PW Investment Grade Income Fund

. PW Short-Term U.S. Government Income Fund for Credit Unions

. PW Strategic Income Fund

. PW U.S. Government Income Fund

TAX-FREE INCOME FUNDS

. MH/KP Municipal Bond Fund

. PW California Tax-Free Income Fund

. PW Municipal High Income Fund

. PW National Tax-Free Income Fund

. PW New York Tax-Free Income Fund

GROWTH FUNDS

. MH/KP Emerging Markets Equity Fund

. MH/KP Global Equity Fund

. MH/KP Small Cap Growth Fund

. PW Atlas Global Growth Fund

. PW Blue Chip Growth Fund

. PW Capital Appreciation Fund

. PW Communications & Technology Growth Fund

. PW Europe Growth Fund

. PW Growth Fund

. PW Regional Financial Growth Fund

. PW Small Cap Value Fund

----------

(continued on the inside of back cover)

A prospectus containing more complete information for any of the above funds,
including charges and expenses, can be obtained from a PaineWebber investment
executive or correspondent firm. Read it carefully before investing.

PaineWebber
Short-Term
U.S. Government
Income Fund

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.

PROSPECTUS

April 1, 1995

LOGO Recycled Paper

<PAGE>

PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND

1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019

STATEMENT OF ADDITIONAL INFORMATION

PaineWebber Short-Term U.S. Government Income Fund ("Fund") is a diversified
series of a professionally managed, open-end management investment company
organized as a Massachusetts business trust ("Trust"). The Fund seeks high
current income consistent with the preservation of capital and low volatility
of net asset value; it invests primarily in mortgage-backed securities that are
issued or guaranteed by the U.S. government, its agencies or instrumentalities
and other U.S. government securities. The Fund's investment adviser,
administrator and distributor is Mitchell Hutchins Asset Management Inc.
("Mitchell Hutchins"), a wholly owned subsidiary of PaineWebber Incorporated
("PaineWebber"). As distributor for the Fund, Mitchell Hutchins has appointed
PaineWebber to serve as the exclusive dealer for the sale of Fund shares. The
Fund's investment sub-adviser is Pacific Investment Management Company
("PIMCO"). This Statement of Additional Information is not a prospectus and
should be read only in conjunction with the Fund's current Prospectus, dated
April 1, 1995. A copy of the Prospectus may be obtained by calling any
PaineWebber investment executive or correspondent firm or by calling toll-free
1-800-647-1568. This Statement of Additional Information is dated April 1,
1995.

INVESTMENT POLICIES AND RESTRICTIONS

The following supplements the information contained in the Prospectus
concerning the Fund's investment policies and limitations.

YIELD FACTORS AND RATINGS. Standard & Poor's Ratings Group ("S&P"), Moody's
Investors Service, Inc. ("Moody's") and other nationally recognized statistical
rating organizations ("NRSROs") are private services that provide ratings of
the credit quality of mortgage- and asset-backed securities and other debt
obligations. The Fund may use these ratings in determining whether to purchase,
sell or hold a security.

S&P's highest rating category is AAA. Moody's highest rating category is Aaa.
Publications of S&P indicate that it assigns such ratings to securities for
which the obligor's "capacity to pay interest and repay principal is extremely
strong." Publications of Moody's indicate that it assigns such ratings to
securities that "are judged to be of the best quality" and "carry the smallest
degree of investment risk," that interest payments on such securities "are
protected by a large or by an exceptionally stable margin and principal is
secure" and that while "the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues." The process by which S&P and Moody's determine
ratings for mortgage- and asset-backed securities includes consideration of the
likelihood of the receipt by security holders of all distributions, the nature
of the underlying securities, the credit quality of the guarantor, if any, and
the structural, legal and tax aspects associated with such securities. Neither
of such ratings
<PAGE>

represents an assessment of the likelihood that principal prepayments will be
made by mortgagors or the degree to which such prepayments may differ from that
originally anticipated, nor do such ratings address the possibility that
investors may suffer a lower than anticipated yield or that investors in such
securities may fail to recoup fully their initial investment due to
prepayments.

It should be emphasized that ratings are general and are not absolute
standards of quality. Consequently, debt obligations with the same maturity,
interest rate and rating may have different market prices. Also, rating
agencies may fail to make timely changes in credit ratings in response to
subsequent events so that an issuer's current financial condition may be better
or worse than the rating would indicate. The rating assigned to a security by a
NRSRO does not reflect an assessment of the volatility of the security's market
value or of the liquidity of an investment in the security. Subsequent to its
purchase by the Fund, an issue of debt obligations may cease to be rated or its
rating may be reduced below the minimum rating required for purchase by the
Fund. PIMCO will consider such an event in determining whether the Fund should
continue to hold the obligation, but is not required to dispose of it. In
addition to ratings assigned to individual securities, PIMCO will analyze
interest rate trends and developments that may affect individual issuers,
including factors such as liquidity, profitability and asset quality.

The yields on debt securities, including mortgage- and asset-backed
securities in which the Fund invests are dependent on a variety of factors,
including general money market conditions, general conditions in the bond
market, the financial condition of the issuer, the size of the offering, the
maturity of the obligation and its credit rating. There is a wide variation in
the quality of debt securities, both within a particular classification and
between classifications. The obligations of an issuer of debt securities are
subject to the provisions of bankruptcy, insolvency and other laws affecting
the rights and remedies of bond holders or other creditors of an issuer;
litigation or other conditions may also adversely affect the power or ability
of issuers to meet their obligations for the payment of interest and principal.

ADJUSTABLE RATE AND FLOATING RATE MORTGAGE-BACKED SECURITIES. The Fund may
invest in adjustable rate mortgage ("ARM") and floating rate mortgage-backed
securities. Because the interest rates on ARM and floating rate mortgage-backed
securities are reset in response to changes in a specified market index, the
values of such securities tend to be less sensitive to interest rate
fluctuations than the values of fixed-rate securities. As a result, during
periods of rising interest rates, ARMs generally do not decrease in value as
much as fixed rate securities. Conversely, during periods of declining interest
rates, ARMs generally do not increase in value as much as fixed rate
securities. ARM mortgage-backed securities represent a right to receive
interest payments at a rate that is adjusted to reflect the interest earned on
a pool of ARMs. ARMs generally provide that the borrower's mortgage interest
rate may not be adjusted above a specified lifetime maximum rate or, in some
cases, below a minimum lifetime rate. In addition, certain ARMs provide for
limitations on the maximum amount by which the mortgage interest rate may
adjust for any single adjustment period. ARMs also may provide for limitations
on changes in the maximum amount by which the borrower's monthly payment may
adjust for any single adjustment period. In the event that a monthly payment is
not sufficient to pay the interest accruing on the ARM, any such excess
interest is added to the mortgage loan ("negative amortization"), which is
repaid through future monthly payments. If the monthly payment exceeds the sum
of the interest accrued at the applicable

2
<PAGE>

mortgage interest rate and the principal payment that would have been necessary
to amortize the outstanding principal balance over the remaining term of the
loan, the excess reduces the principal balance of the ARM. Borrowers under ARMs
experiencing negative amortization may take longer to build up their equity in
the underlying property and may be more likely to default.

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

Floating rate mortgage-backed securities are classes of mortgage-backed
securities that have been structured to represent the right to receive interest
payments at rates that fluctuate in accordance with an index but that generally
are supported by pools comprised of fixed-rate mortgage loans. As with ARM
mortgage-backed securities, interest rate adjustments on floating rate
mortgage-backed securities may be based on indices that lag behind market
interest rates. Interest rates on floating rate mortgage-backed securities
generally are adjusted monthly. Floating rate mortgage-backed securities are
subject to lifetime interest rate caps, but they generally are not subject to
limitations on monthly or other periodic changes in interest rates or monthly
payments.

SPECIAL CHARACTERISTICS OF MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The
yield characteristics of mortgage- and asset-backed securities differ from
those of traditional debt securities. Among the major differences are that
interest and principal payments are made more frequently, usually monthly, and
that principal may be prepaid at any time because the underlying mortgage loans
or other obligations generally may be prepaid at any time. Prepayments on a
pool of mortgage loans are influenced by a variety of economic, geographic,
social and other factors, including changes in mortgagors' housing needs, job
transfers, unemployment, mortgagors' net equity in the mortgaged properties and
servicing decisions. Generally, however, prepayments on fixed-rate mortgage
loans will increase during a period of falling interest rates and decrease
during a period of rising interest rates. Similar factors apply to prepayments
on asset-backed securities, but the receivables underlying asset-backed
securities generally are of a shorter maturity and thus are less likely to
experience substantial prepayments. Such securities, however, often provide
that for a specified time period the issuers will replace receivables in the
pool that are repaid with comparable obligations. If the issuer is unable to do
so, repayment of principal on the asset-backed securities may commence at an
earlier date. Mortgage- and asset-backed securities may decrease in value as a
result of increases in interest rates and may benefit less than other fixed-
income securities from declining interest rates because of the risk of
prepayment.

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

3
<PAGE>

The rate of interest on mortgage-backed securities is lower than the interest
rates paid on the mortgages included in the underlying pool due to the annual
fees paid to the servicer of the mortgage pool for passing through monthly
payments to certificateholders and to any guarantor, and due to any yield
retained by the issuer. Actual yield to the holder may vary from the coupon
rate, even if adjustable, if the mortgage-backed securities are purchased or
traded in the secondary market at a premium or discount. In addition, there is
normally some delay between the time the issuer receives mortgage payments from
the servicer and the time the issuer makes the payments on the mortgage-backed
securities and this delay reduces the effective yield to the holder of such
securities.

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

ILLIQUID SECURITIES. As indicated in the Prospectus, the Fund may invest up
to 15% of its net assets in illiquid securities. The term "illiquid securities"
for this purpose includes, among other things, over-the-counter ("OTC")
options, repurchase agreements maturing in more than seven days and restricted
securities other than those PIMCO has determined are liquid pursuant to
guidelines established by the Trust's board of trustees. Interest-only ("IO")
and principal-only ("PO") mortgage-backed securities are considered illiquid
except that PIMCO may determine that IO and PO classes of fixed-rate mortgage-
backed securities issued by the U.S. government or one of its agencies or
instrumentalities are liquid pursuant to guidelines established by the Trust's
board of trustees. The assets used as cover for OTC options written by the Fund
will be considered illiquid unless the OTC options are sold to qualified
dealers who agree that the Fund may repurchase any OTC option it writes at a
maximum price to be calculated by a formula set forth in the option agreement.
The cover for an OTC option written subject to this procedure would be
considered illiquid only to the extent that the maximum repurchase price under
the formula exceeds the intrinsic value of the option. Illiquid restricted
securities may be sold only in privately negotiated transactions or in public
offerings with respect to which a registration statement is in effect under the
Securities Act of 1933 ("1933 Act"). Where registration is required, the Fund
may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an

4
<PAGE>

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

Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the 1933 Act, including private placements, repurchase
agreements, commercial paper, foreign securities and corporate bonds and notes.
These instruments are often restricted securities because the securities are
sold in transactions not requiring registration. Institutional investors
generally will not seek to sell these instruments to the general public, but
instead will often depend either on an efficient institutional market in which
such unregistered securities can be readily resold or on an issuer's ability to
honor a demand for repayment. Therefore, the fact that there are contractual or
legal restrictions on resale to the general public or certain institutions is
not dispositive of the liquidity of such investments.

Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
have developed as a result of Rule 144A, providing both readily ascertainable
values for restricted securities and the ability to liquidate an investment to
satisfy share redemption orders. Such markets include automated systems for the
trading, clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the National
Association of Securities Dealers, Inc. An insufficient number of qualified
buyers interested in purchasing Rule 144A-eligible restricted securities held
by the Fund, however, could affect adversely the marketability of such
portfolio securities, and the Fund might be unable to dispose of such
securities promptly or at favorable prices.

The Trust's board of trustees has delegated the function of making day-to-day
determinations of liquidity to PIMCO, pursuant to guidelines approved by the
board. PIMCO takes into account a number of factors in reaching liquidity
decisions, including but not limited to (1) the frequency of trades for the
security, (2) the number of dealers that make quotes for the security, (3) the
number of dealers that have undertaken to make a market in the security, (4)
the number of other potential purchasers and (5) the nature of the security and
how trading is effected (e.g., the time needed to sell the security, how bids
are solicited and the mechanics of transfer). PIMCO monitors the liquidity of
restricted securities in the Fund's portfolio and reports periodically on such
decisions to the board of trustees.

REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which the
Fund purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated to
the coupon rate or maturity of the purchased securities. The Fund maintains
custody of the underlying securities prior to their repurchase; thus, the
obligation of the bank or dealer to pay the repurchase price on the date agreed
to is, in effect, secured by such securities. If the value of these securities
is less than the repurchase price, plus any agreed-upon additional amount, the
other party to the agreement must provide additional collateral so that at all
times the collateral is at least equal to the repurchase price, plus any
agreed-upon additional amount. The difference between the total amount to be
received upon repurchase of the securities and the price that was paid by the
Fund upon acquisition is accrued as interest and included in the Fund's net
investment income.

Repurchase agreements carry certain risks not associated with direct
investments in securities, including possible declines in the market value of
the underlying securities and delays and costs to

5
<PAGE>

the Fund if the other party to a repurchase agreement becomes insolvent. The
Fund intends to enter into repurchase agreements only with banks and dealers in
transactions believed by PIMCO to present minimal credit risks in accordance
with guidelines established by the Trust's board of trustees. PIMCO reviews and
monitors the creditworthiness of those institutions under the general
supervision of Mitchell Hutchins and the Trust's board.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. As stated in the Prospectus, the
Fund may purchase securities on a "when-issued" or delayed delivery basis. A
security purchased on a when-issued or delayed delivery basis is recorded as an
asset on the commitment date and is subject to changes in market value
generally based upon changes in the level of interest rates. Thus, fluctuation
in the value of the security from the time of the commitment date will affect
the Fund's net asset value. When the Fund agrees to purchase securities on a
when-issued basis, its custodian segregates assets to cover the amount of the
commitment. See "Investment Policies and Restrictions--Segregated Accounts."
The Fund purchases when-issued securities only with the intention of taking
delivery, but may sell the right to acquire the security prior to delivery if
PIMCO deems it advantageous to do so, which may result in capital gain or loss
to the Fund.

LENDING OF PORTFOLIO SECURITIES. The Fund is authorized to lend up to 10% of
the total value of its portfolio securities to broker-dealers or institutional
investors that PIMCO deems qualified, but only when the borrower maintains with
the Fund's custodian collateral either in cash or money market instruments,
marked to market daily, in an amount at least equal to the market value of the
securities loaned, plus accrued interest and dividends. In determining whether
to lend securities to a particular broker-dealer or institutional investor,
PIMCO would consider, and during the period of the loan would monitor, all
relevant facts and circumstances, including the creditworthiness of the
borrower. The Fund will retain authority to terminate any loans at any time.
The Fund may pay reasonable administrative and custodial fees in connection
with a loan and may pay a negotiated portion of the interest earned on the cash
or money market instruments held as collateral to the borrower or placing
broker. The Fund will receive reasonable interest on the loan or a flat fee
from the borrower and amounts equivalent to any dividends, interest or other
distributions on the securities loaned. The Fund will regain record ownership
of loaned securities to exercise beneficial rights, such as voting and
subscription rights and rights to dividends, interest or other distributions,
when regaining such rights is considered to be in the Fund's interest.

SEGREGATED ACCOUNTS. When the Fund enters into certain transactions that
involve obligations to make future payments to third parties, including dollar
rolls, reverse repurchase agreements or the purchase of securities on a when-
issued or delayed delivery basis, the Fund will maintain with an approved
custodian in a segregated account cash, U.S. government securities or other
liquid high-grade debt securities, marked to market daily, in an amount at
least equal to the Fund's obligation or commitment under such transactions. As
described below under "Hedging and Related Income Strategies," segregated
accounts may also be required in connection with certain transactions involving
options or futures contracts or interest rate protection transactions.

6
<PAGE>

borrow money, except from banks or through reverse repurchase agreements and
mortgage dollar rolls, and then in an aggregate amount not in excess of 33 1/3%
of the Fund's total assets (including the amount of the borrowings and senior
securities issued but reduced by any liabilities not constituting senior
securities) at the time of such borrowings, except that the Fund may borrow up
to an additional 5% of total assets (not including the amount borrowed) for
temporary or emergency purposes; (3) purchase securities if, as a result of the
purchase, the Fund would have more than 25% of the value of its total assets
invested in securities of issuers in any one industry, except that this
limitation does not apply to (a) obligations issued or guaranteed by the U.S.
government, its agencies and instrumentalities and (b) investments in mortgage-
and asset-backed securities, which (whether or not issued or guaranteed by an
agency or instrumentality of the U.S. government) shall be considered a single
industry for purposes of this limitation; (4) underwrite securities of other
issuers, except to the extent that in connection with the disposition of
portfolio securities, the Fund may be deemed an underwriter under federal
securities laws; (5) purchase or sell real estate (including real estate
limited partnerships), except that investments in mortgage-backed securities
and other debt securities secured by real estate or interests therein are not
subject to this limitation, and provided further that the Fund may exercise
rights under agreements relating to such securities, including the right to
enforce security interests and to liquidate real estate acquired as a result of
such enforcement; (6) purchase securities on margin, make short sales of
securities or maintain a short position in any security, except that the Fund
may (a) make margin deposits, make short sales and maintain short positions in
connection with its use of options, futures contracts and options on futures
contracts and (b) sell short "against the box"; (7) purchase or sell
commodities or commodity contracts, except that the Fund may purchase or sell
financial futures contracts, such as interest rate and bond index futures
contracts and options thereon; (8) invest in oil, gas or mineral exploration or
development programs or leases, except that the Fund may invest in issuers
which invest in such programs; (9) purchase securities of other open-end
investment companies, except in connection with a merger, consolidation or
acquisition; or (10) make loans, except through repurchase agreements and
except in connection with the loan of securities as described herein or in the
Prospectus; provided that for purposes of this restriction the acquisition of
bonds or other debt instruments, or interests therein, shall not be deemed to
be the making of a loan.

The foregoing fundamental investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Fund or (b) 67% or more of the shares present at a shareholders'
meeting if more than 50% of the outstanding shares are represented at the
meeting in person or by proxy. If a percentage restriction is adhered to at the
time of an investment or transaction, a later increase or decrease in
percentage resulting from a change in values of portfolio securities or amount
of total assets will not be considered a violation of any of the foregoing
limitations. For purposes of fundamental investment limitation (1), mortgage-
and asset-backed securities will not be considered to have been issued by the
same issuer by reason of such securities having the same sponsor, and mortgage-
and asset-backed securities issued by a finance subsidiary or other single
purpose subsidiary of a corporation that are not guaranteed by the parent
corporation will be considered to be issued by a separate issuer from its
parent corporation.

7
<PAGE>

of the Trust and the officers and directors of Mitchell Hutchins and PIMCO
(each owning beneficially as principal for its own account more than 0.5% of
the outstanding securities of the issuer) beneficially so own in the aggregate
more than 5% of the securities of the issuer; (2) purchase any security, other
than mortgage- and asset-backed securities if as a result more than 5% of the
Fund's total assets would be invested in securities of companies that together
with any predecessors have been in continuous operation for less than three
years; (3) invest more than 15% of its net assets in illiquid securities, a
term that means securities that cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at which the Fund has
valued the securities and includes, among other things, repurchase agreements
maturing in more than seven days and (4) invest in warrants, valued at the
lower of cost or market, in excess of 5% of the value of its net assets, which
amount may include warrants that are not listed on the New York Stock Exchange
Inc. ("NYSE") or the American Stock Exchange, Inc., provided that such unlisted
warrants, valued at the lower of cost or market, do not exceed 2% of the Fund's
net assets, and further provided that this restriction does not apply to
warrants attached to, or sold as a unit with, other securities.

HEDGING AND RELATED INCOME STRATEGIES

GENERAL DESCRIPTION OF HEDGING STRATEGIES. As discussed in the Prospectus,
PIMCO may use a variety of financial instruments ("Hedging Instruments"),
including certain options, futures contracts (sometimes referred to as
"futures") and options on futures contracts, to attempt to hedge the Fund's
portfolio and to enhance income. PIMCO also may attempt to hedge the Fund's
portfolio through the use of interest rate protection transactions. The
particular Hedging Instruments are described in Appendix B to the Prospectus.

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

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

8
<PAGE>

The Fund may purchase and write (sell) covered straddles on securities or
indices of debt securities. A long straddle is a combination of a call and a
put option purchased on the same security or on the same futures contract,
where the exercise price of the put is less than or equal to the exercise price
of the call. The Fund might enter into a long straddle when PIMCO believes it
likely that interest rates will be more volatile during the term of the option
than the option pricing implies. A short straddle is a combination of a call
and a put written on the same security where the exercise price of the put is
less than or equal to the exercise price of the call. The Fund might enter into
a short straddle when Mitchell Hutchins believes it unlikely that interest
rates will be as volatile during the term of the option as the option pricing
implies.

Hedging Instruments on securities generally are used to hedge against price
movements in one or more particular securities positions that the Fund owns or
intends to acquire. Hedging Instruments on debt securities may be used to hedge
either individual securities or broad fixed income market sectors.

The use of Hedging Instruments is subject to applicable regulations of the
Securities and Exchange Commission ("SEC"), the several options and futures
exchanges upon which they are traded, the Commodity Futures Trading Commission
("CFTC") and various state regulatory authorities. In addition, the Fund's
ability to use Hedging Instruments will be limited by tax considerations. See
"Taxes."

In addition to the products, strategies and risks described below and in the
Prospectus, PIMCO expects to discover additional opportunities in connection
with options, futures contracts and other hedging techniques. These new
opportunities may become available as PIMCO develops new techniques, as
regulatory authorities broaden the range of permitted transactions and as new
options, futures contracts or other techniques are developed. PIMCO may utilize
these opportunities to the extent that they are consistent with the Fund's
investment objective and permitted by the Fund's investment limitations and
applicable regulatory authorities. The Fund's Prospectus or Statement of
Additional Information will be supplemented to the extent that new products or
techniques involve materially different risks than those described below or in
the Prospectus.

SPECIAL RISKS OF HEDGING STRATEGIES. The use of Hedging Instruments involves
special considerations and risks, as described below. Risks pertaining to
particular Hedging Instruments are described in the sections that follow:

(1) Successful use of most Hedging Instruments depends upon PIMCO's
ability to predict movements of the overall securities and interest rate
markets, which requires different skills than predicting changes in the
prices of individual securities. While PIMCO is experienced in the use of
Hedging Instruments, there can be no assurance that any particular hedging
strategy adopted will succeed.

(2) There might be imperfect correlation, or even no correlation, between
price movements of a Hedging Instrument and price movements of the
investments being hedged. For example, if the value of a Hedging Instrument
used in a short hedge increased by less than the decline in value of the
hedged investment, the hedge would not be fully successful. Such a lack of
correlation might occur due to factors unrelated to the value of the
investments being hedged, such as speculative or other pressures on the
markets in which Hedging Instruments are traded.

9
<PAGE>

The effectiveness of hedges using Hedging Instruments on indices will
depend on the degree of correlation between price movements in the index
and price movements in the securities being hedged.

(3) Hedging strategies, if successful, can reduce risk of loss by wholly
or partially offsetting the negative effect of unfavorable price movements
in the investments being hedged. However, hedging strategies can also
reduce opportunity for gain by offsetting the positive effect of favorable
price movements in the hedged investments. For example, if the Fund entered
into a short hedge because PIMCO projected a decline in the price of a
security in the Fund's portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by
a decline in the price of the Hedging Instrument. Moreover, if the price of
the Hedging Instrument declined by more than the increase in the price of
the security, the Fund could suffer a loss. In either such case, the Fund
would have been in a better position had it not hedged at all.

(4) As described below, the Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in Hedging Instruments involving obligations to third parties
(i.e., Hedging Instruments other than purchased options). If the Fund were
unable to close out its positions in such Hedging Instruments, it might be
required to continue to maintain such assets or accounts or make such
payments until the position expired or matured. These requirements might
impair the Fund's ability to sell a portfolio security or make an
investment at a time when it would otherwise be favorable to do so, or
require that the Fund sell a portfolio security at a disadvantageous time.
The Fund's ability to close out a position in a Hedging Instrument prior to
expiration or maturity depends on the existence of a liquid secondary
market or, in the absence of such a market, the ability and willingness of
a contra party to enter into a transaction closing out the position.
Therefore, there is no assurance that any hedging position can be closed
out at a time and price that is favorable to the Fund.

COVER FOR HEDGING STRATEGIES. Transactions using Hedging Instruments, other
than purchased options, expose the Fund to an obligation to another party. The
Fund will not enter into any such transactions unless it owns either (1) an
offsetting ("covered") position in securities or other options or futures
contracts or (2) cash, receivables and short-term liquid debt securities, with
a value sufficient at all times to cover its potential obligations to the
extent not covered as provided in (1) above. The Fund will comply with SEC
guidelines regarding cover for hedging transactions and will, if the guidelines
so require, set aside cash, U.S. government securities or other liquid, high-
grade debt securities in a segregated account with its custodian in the
prescribed amount.

Assets used as cover or held in a segregated account cannot be sold while the
position in the corresponding Hedging Instrument is open, unless they are
replaced with similar assets. As a result, the commitment of a large portion of
the Fund's assets to cover or segregated accounts could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.

OPTIONS. The Fund may purchase put and call options, or write (sell) covered
put and call options, on debt securities. The purchase of call options serves
as a long hedge, and the purchase of put options serves as a short hedge.
Writing covered put or call options can enable the Fund to

10
<PAGE>

enhance income by reason of the premiums paid by the purchasers of such
options. Writing covered put options serves as a limited long hedge because
increases in the value of the hedged investment would be offset to the extent
of the premium received for writing the option. However, if the market price of
the security underlying a covered put option declines to less than the exercise
price on the option, minus the premium received, the Fund would expect to
suffer a loss. In addition, writing covered call options serves as a limited
short hedge, because declines in the value of the hedged investment would be
offset to the extent of the premium received for writing the option. However,
if the security appreciates to a price higher than the exercise price of the
call option, it can be expected that the option will be exercised and the Fund
will be obligated to sell the security at less than its market value. The
securities or other assets used as cover for OTC options written by the Fund
would be considered illiquid to the extent described under "Investment Policies
and Restrictions--Illiquid Securities."

The value of an option position will reflect, among other things, the current
market value of the underlying investment, the time remaining until expiration,
the relationship of the exercise price to the market price of the underlying
investment, the historical price volatility of the underlying investment and
general market conditions. Options normally have expiration dates of up to nine
months. Generally, OTC options on debt securities are European-style options.
This means that the option is only exercisable immediately prior to its
expiration. This is in contrast to American-style options, which are
exercisable at any time prior to the expiration date of the option. Options
that expire unexercised have no value.

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

The Fund may purchase or write both exchange-traded and OTC options. Exchange
markets for options on debt securities exist but are relatively new, and these
instruments are primarily traded on the OTC market. Exchange-traded options in
the United States are issued by a clearing organization affiliated with the
exchange on which the option is listed which, in effect, guarantees completion
of every exchange-traded option transaction. In contrast, OTC options are
contracts between the Fund and a contra party (usually a securities dealer or a
bank) with no clearing organization guarantee. Thus, when the Fund purchases or
writes an OTC option, it relies on the contra party to make or take delivery of
the underlying investment upon exercise of the option. Failure by the contra
party to do so would result in the loss of any premium paid by the Fund as well
as the loss of any expected benefit of the transaction. The Fund will enter
into OTC option transactions only with contra parties that have a net worth of
at least $20 million.

The Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. The Fund intends to
purchase or write only those exchange-traded options for which there appears to
be a liquid secondary market. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for

11
<PAGE>

OTC options only by negotiating directly with the contra party, or by a
transaction in the secondary market if any such market exists. Although the
Fund will enter into OTC options only with contra parties that are expected to
be capable of entering into closing transactions with the Fund, there is no
assurance that the Fund will in fact be able to close out an OTC option
position at a favorable price prior to expiration. In the event of insolvency
of the contra party, the Fund might be unable to close out an OTC option
position at any time prior to its expiration.

If the Fund were unable to effect a closing transaction for an option it had
purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call
option written by the Fund could cause material losses because the Fund would
be unable to sell the investment used as cover for the written option until the
option expires or is exercised.

GUIDELINES FOR OPTIONS. The Fund's use of options is governed by the
following guidelines, which can be changed by the Trust's board of trustees
without shareholder vote:

1. The Fund may purchase a put or call option, including any straddles or
spreads, only if the value of its premium, when aggregated with the premiums on
all other options held by the Fund, does not exceed 5% of the Fund's total
assets.

2. The aggregate value of securities underlying put options written by the
Fund, determined as of the date the put options are written, will not exceed
50% of the Fund's net assets.

3. The aggregate premiums paid on all options (including options on
securities and debt security indices and options on future contracts) purchased
by the Fund that are held at any time will not exceed 20% of the Fund's net
assets.

FUTURES. The Fund may purchase and sell interest rate futures contracts and
debt security index futures contracts. The Fund may also purchase put and call
options, and write covered put and call options, on such futures contracts. The
purchase of futures or call options thereon can serve as a long hedge, and the
sale of futures or the purchase of put options thereon can serve as a short
hedge. Writing covered call options on futures contracts can serve as a limited
short hedge, and writing covered put options on futures contracts can serve as
a limited long hedge, using a strategy similar to that used for writing covered
call or put options on securities or indices.

Futures strategies also can be used to manage the average duration of the
Fund's portfolio. If PIMCO wishes to shorten the average duration of the Fund,
the Fund may sell an interest rate or debt security index futures contract or a
call option thereon, or purchase a put option on that futures contract. If
PIMCO wishes to lengthen the average duration of the Fund, the Fund may buy an
interest rate or debt security index futures contract or a call option thereon
or sell a put option thereon.

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

12
<PAGE>

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

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

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

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

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

Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or related options might not
correlate perfectly with movements in the

13
<PAGE>

prices of the investments being hedged. For example, all participants in the
futures and related options markets are subject to daily variation margin calls
and might be compelled to liquidate futures or related options positions whose
prices are moving unfavorably to avoid being subject to further calls. These
liquidations could increase price volatility of the instruments and distort the
normal price relationship between the futures or options and the investments
being hedged. Also, because initial margin deposit requirements in the futures
market are less onerous than margin requirements in the securities markets,
there might be increased participation by speculators in the futures markets.
This participation also might cause temporary price distortions. In addition,
activities of large traders in both the futures and securities markets
involving arbitrage, "program trading" and other investment strategies might
result in temporary price distortions.

GUIDELINES FOR FUTURES AND RELATED OPTIONS. The Fund's use of futures and
related options is governed by the following guidelines, which can be changed
by the Trust's board of trustees without shareholder vote:

1. To the extent the Fund enters into futures contracts and options on
futures positions that are not for bona fide hedging purposes (as defined
by the CFTC), the aggregate initial margin and premiums on those positions
(excluding the amount by which options are "in-the-money") may not exceed
5% of the Fund's net assets.

2. The aggregate premiums paid on all options (including options on
securities and debt security indices and options on futures contracts)
purchased by the Fund that are held at any time will not exceed 20% of the
Fund's net assets.

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

INTEREST RATE PROTECTION TRANSACTIONS. The Fund may enter into interest rate
protection transactions, including interest rate swaps and interest rate caps,
collars and floors. Interest rate swap transactions involve an agreement
between two parties to exchange payments that are based, respectively, on
variable and fixed rates of interest and that are calculated on the basis of a
specified amount of principal (the "notional principal amount") for a specified
period of time. Interest rate cap and floor transactions involve an agreement
between two parties in which the first party agrees to make payments to the
counterparty when a designated market interest rate goes above (in the case of
a cap) or below (in the case of a floor) a designated level on predetermined
dates or during a specified time period. Interest rate collar transactions
involve an agreement between two parties in which payments are made when a
designated market interest rate either goes above a designated ceiling or goes
below a designated floor on predetermined dates or during a specified time
period. The Fund intends to use these transactions as a hedge and not as a
speculative investment. Interest rate protection transactions are subject to
risks comparable to those described above with respect to other hedging
strategies.

The Fund may enter into interest rate swaps, caps, collars and floors on
either an asset-based or liability-based basis, depending on whether it is
hedging its assets or its liabilities, and will usually enter into interest
rate swaps on a net basis, i.e., the two payment streams are netted out, with
the Fund receiving or paying, as the case may be, only the net amount of the
two payments. Inasmuch as these interest rate protection transactions are
entered into for good faith hedging purposes, and

14
<PAGE>

inasmuch as segregated accounts will be established with respect to such
transactions, PIMCO and the Fund believe such obligations do not constitute
senior securities and, accordingly, will not treat them as being subject to its
borrowing restrictions. The net amount of the excess, if any, of the Fund's
obligations over its entitlements with respect to each interest rate swap will
be accrued on a daily basis and appropriate Fund assets having an aggregate net
asset value at least equal to the accrued excess will be maintained in a
segregated account as described above in "Investment Policies and
Restrictions--Segregated Accounts." The Fund also will establish and maintain
such segregated accounts with respect to its total obligations under any
interest rate swaps that are not entered into on a net basis and with respect
to any interest rate caps, collars and floors that are written by the Fund.

The Fund will enter into interest rate protection transactions only with
banks and recognized securities dealers believed by PIMCO to present minimal
credit risks in accordance with guidelines established by the Trust's board of
trustees. If there is a default by the other party to such a transaction, the
Fund will have to rely on its contractual remedies (which may be limited by
bankruptcy, insolvency or similar laws) pursuant to the agreements related to
the transaction.

The swap market has grown substantially in recent years with a large number
of banks and investment banking firms acting both as principals and agents
utilizing standardized swap documentation. Caps, collars and floors are more
recent innovations for which documentation is less standardized, and
accordingly, they are less liquid than swaps.

TRUSTEES AND OFFICERS

The trustees and executive officers of the Trust, their ages, business
addresses and principal occupations during the past five years are:

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME, AGE AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
---------------------- ---------- --------------------
<S> <C> <C>
E. Garrett Bewkes, Jr.; Trustee and Chairman Mr. Bewkes is a director of Paine
68** of the Board of Webber Group Inc. ("PW Group")
Trustees (holding company of PaineWebber
and Mitchell Hutchins) and a con-
sultant to PW Group. Prior to
1988, he was chairman of the
board, president and chief execu-
tive officer of American Bakeries
Company. Mr. Bewkes is also a di-
rector of Interstate Bakeries
Corporation and a director or
trustee of 26 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>

15
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME, AGE AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
---------------------- ---------- --------------------
<S> <C> <C>
Meyer Feldberg; 52 Trustee Mr. Feldberg is Dean and Professor
Columbia University of Management of the Graduate
101 Uris Hall School of Business, Columbia Uni-
New York, New York 10027 versity. Prior to 1989, he was
president of the Illinois Insti-
tute of Technology. Dean Feldberg
is also a director of AMSCO In-
ternational Inc., Federated De-
partment Stores, Inc., Inco Homes
Corporation and New World Commu-
nications Group Incorporated and
a director or trustee of 18 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
George W. Gowen; 65 Trustee Mr. Gowen is a partner in the law
666 Third Avenue firm of Dunnington, Bartholow &
New York, New York 10017 Miller. Prior to May 1994, he was
a partner in the law firm of Fry-
er, Ross & Gowen. Mr. Gowen is
also a director of Columbia Real
Estate Investments, Inc. and a
director or trustee of 16 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.

Paul B. Guenther; 54** Trustee and President Mr. Guenther is president and a
director of PW Group and a direc-
tor of PaineWebber and Mitchell
Hutchins. Mr. Guenther is also
president of 26, and a director
or trustee of 17, other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>

16
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME, AGE AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
---------------------- ---------- --------------------
<S> <C> <C>
Frederic V. Malek; 58 Trustee Mr. Malek is chairman of Thayer
901 15th Street, N.W. Capital Partners (investment
Suite 300 bank) and a co-chairman and di-
Washington, D.C. 20005 rector of CB Commercial Group
Inc. (real estate). From January
1992 to November 1992, he was
campaign manager of Bush-Quayle
'92. From 1990 to 1992, he was
vice chairman and, from 1989 to
1990, he was president of North-
west Airlines Inc., NWA Inc.
(holding company of Northwest
Airlines Inc.) and Wings Holdings
Inc. (holding company of NWA
Inc.). Prior to January 1989, he
was employed by the Marriott Cor-
poration (hotels, restaurants,
airline catering and contract
feeding), where he most recently
was an executive vice president
and president of Marriott Hotels
and Resorts. Mr. Malek is also a
director of American Management
Systems, Inc., Automatic Data
Processing, Inc., Avis, Inc., FPL
Group, Inc., ICF International,
Manor Care, Inc., National Educa-
tion Corporation and Northwest
Airlines Inc. and a director or
trustee of 16 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Frank P.L. Minard; 49** Trustee Mr. Minard is chairman of the
board and a director of Mitchell
Hutchins, chairman of the board
of Mitchell Hutchins Institu-
tional Investors Inc. and a di-
rector of PaineWebber. Prior to
1993, Mr. Minard was managing di-
rector of Oppenheimer Capital in
New York and director of Oppen-
heimer Capital Ltd. in London.
Mr. Minard is also president of
13, and a director or trustee of
16, other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>

17
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME, AGE AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
---------------------- ---------- --------------------
<S> <C> <C>
Judith Davidson Moyers; Trustee Mrs. Moyers is president of Public
59 Affairs Television, Inc., an edu-
Public Affairs cational consultant and a home
Television economist. Mrs. Moyers is also a
356 W. 58th Street director of Ogden Corporation and
New York, New York 10019 a director or trustee of 16 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Thomas F. Murray; 84 Trustee Mr. Murray is a real estate and
400 Park Avenue financial consultant. Mr. Murray
New York, New York 10022 is also a director and chairman
of American Continental Proper-
ties, Inc., a trustee of Pruden-
tial Realty Trust and a director
or trustee of 16 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Teresa M. Boyle; 36 Vice President Ms. Boyle is a first vice presi-
dent and manager--advisory admin-
istration of Mitchell Hutchins.
Prior to November 1993, she was
compliance manager of Hyperion
Capital Management, Inc., an in-
vestment advisory firm. Prior to
April 1993, Ms. Boyle was a vice
president and manager--legal ad-
ministration of Mitchell
Hutchins. Ms. Boyle is also a
vice president of 39 other in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Joan L. Cohen; 30 Vice President and Ms. Cohen is a vice president and
Assistant Secretary attorney of Mitchell Hutchins.
Prior to December 1993, she was
an associate at the law firm of
Seward & Kissel. Ms. Cohen is
also a vice president and assis-
tant secretary of 26 other in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>

18
<PAGE>

<TABLE>
<CAPTION>
NAME, AGE AND POSITION BUSINESS EXPERIENCE;
ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
------------- ---------- --------------------
<S> <C> <C>
Ellen R. Harris; 48 Vice President Ms. Harris is chief domestic eq-
uity strategist and a managing
director of Mitchell Hutchins.
Ms. Harris is also a vice presi-
dent of 19 other investment com-
panies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Mary B. King; 31 Vice President Mrs. King is a first vice presi-
dent and a portfolio manager of
Mitchell Hutchins. Mrs. King is
also a vice president of one
other investment company for
which Mitchell Hutchins serves as
investment adviser.
Thomas J. Libassi; 36 Vice President Mr. Libassi is a senior vice pres-
ident of Mitchell Hutchins. Prior
to May 1994, he was a vice presi-
dent of Keystone Custodian Funds
Inc. with portfolio management
responsibility. Mr. Libassi is
also a vice president of one
other investment company for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Ann E. Moran; 37 Vice President and Ms. Moran is a vice president of
Assistant Treasurer Mitchell Hutchins. Ms. Moran is
also a vice president and assis-
tant treasurer of 39 other in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>

19
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME, AGE AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
---------------------- ---------- --------------------
<S> <C> <C>
Dianne E. O'Donnell; 42 Vice President and Ms. O'Donnell is a senior vice
Secretary president and senior associate
general counsel of Mitchell
Hutchins. Ms. O'Donnell is also a
vice president and secretary of
39 other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Victoria E. Schonfeld; Vice President Ms. Schonfeld is a managing direc-
44 tor and general counsel of Mitch-
ell Hutchins. From April 1990 to
May 1994, she was a partner in
the law firm of Arnold & Porter.
Prior to April 1990, she was a
partner in the law firm of
Shereff, Friedman, Hoffman &
Goodman. Ms. Schonfeld is also a
vice president of 39 other in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Paul H. Schubert; 32 Vice President and Mr. Schubert is a vice president
Assistant Treasurer of Mitchell Hutchins. From August
1992 to August 1994, he was a
vice president at BlackRock Fi-
nancial Management, L.P. Prior to
August 1992, he was an audit man-
ager with Ernst & Young LLP. Mr.
Schubert is also a vice president
and assistant treasurer of 39
other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Martha J. Slezak; 32 Vice President and Ms. Slezak is a vice president of
Assistant Treasurer Mitchell Hutchins. From September
1991 to April 1992, she was
fundraising director for a U.S.
Senate campaign. Prior to Septem-
ber 1991, she was a tax manager
with Arthur Andersen & Co. LLP.
Ms. Slezak is also a vice presi-
dent and assistant treasurer of
39 other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>

20
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME, AGE AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
---------------------- ---------- --------------------
<S> <C> <C>
Julian F. Sluyters; 34 Vice President and Mr. Sluyters is a senior vice
Treasurer president and the director of the
mutual fund finance division of
Mitchell Hutchins. Prior to 1991,
he was an audit senior manager
with Ernst & Young LLP. Mr.
Sluyters is also a vice president
and treasurer of 39 other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Gregory K. Todd; 38 Vice President and Mr. Todd is a first vice president
Assistant Secretary and associate general counsel of
Mitchell Hutchins. Prior to 1993,
he was a partner in the law firm
of Shereff, Friedman, Hoffman &
Goodman. Mr. Todd is also a vice
president and assistant secretary
of 39 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>
--------
* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.

** Messrs. Bewkes, Guenther and Minard are "interested persons" of the Trust as
defined in the Investment Company Act of 1940 ("1940 Act") by virtue of their
positions with PW Group, PaineWebber and/or Mitchell Hutchins.

The Trust pays trustees who are not "interested persons" of the Trust $5,000
annually and $250 per meeting of the board or any committee thereof. Trustees
also are reimbursed for any expenses incurred in attending meetings. Trustees
and officers of the Trust own in the aggregate less than 1% of the shares of
the Fund. Because Mitchell Hutchins and PaineWebber perform substantially all
of the services necessary for the operation of the Trust, the Trust requires no
employees. No officer, director or employee of Mitchell Hutchins or PaineWebber
presently receives any compensation from the Trust for acting as a trustee or
officer. The table below includes certain information relating to the
compensation of the Trust's trustees for the fiscal year ended November 30,
1994.

21
<PAGE>

COMPENSATION TABLE

<TABLE>
<CAPTION>
PREFERRED
OR TOTAL
RETIREMENT COMPENSATION
BENEFITS FROM THE
ACCRUED AS TRUST AND
AGGREGATE PART OF ESTIMATED THE
COMPENSATION THE ANNUAL FUND COMPLEX
FROM TRUST'S BENEFITS UPON PAID TO
NAME OF PERSON, POSITION THE TRUST* EXPENSES RETIREMENT TRUSTEES+
------------------------ ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C>
E. Garrett Bewkes, Jr.
Trustee and chairman of the
board of trustees......... -- -- -- --
Meyer Feldberg,
Trustee.................... $10,250 -- -- $86,050
George W. Gowen,
Trustee.................... $ 9,250 -- -- $71,425
Paul B. Guenther,
Trustee and president...... -- -- -- --
Frederic V. Malek,
Trustee.................... $ 9,750 -- -- $77,875
Frank P.L. Minard,
Trustee.................... -- -- -- --
Judith Davidson Moyers,
Trustee.................... $9,750 -- -- $71,125
Thomas F. Murray,
Trustee.................... $9,750 -- -- $71,925
</TABLE>
--------

* Represents fees paid to each trustee during the fiscal year ended November
30, 1994.

+ Represents total compensation paid to each trustee during the calendar year
ended December 31, 1994.

INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS

INVESTMENT ADVISORY ARRANGEMENTS. Mitchell Hutchins acts as the investment
adviser and administrator of the Fund pursuant to a contract with the Trust
dated April 28, 1988, as supplemented by a separate fee agreement dated March
26, 1993, ("Advisory Contract"). Under the Advisory Contract, the Fund pays
Mitchell Hutchins an annual fee of 0.50% of the Fund's average net assets,
computed daily and paid monthly. During the fiscal year ended November 30,
1994, the Fund paid (or accrued) to Mitchell Hutchins investment advisory and
administrative fees of $5,598,491 of which $400,611 was waived by Mitchell
Hutchins. During the period May 3, 1993 (commencement of operations) to
November 30, 1993, the Fund paid (or accrued) to Mitchell Hutchins investment
advisory and administrative fees of $3,519,442.

Under a service agreement with the Trust, PaineWebber provides certain
services to the Fund not otherwise provided by its transfer agent. The
agreement is reviewed by the Trust's board of trustees annually. During the
fiscal year ended November 30, 1994 and the period May 3, 1993 (commencement of
operations) to November 30, 1993, PaineWebber earned fees under the service
agreement in the amount of $139,291 and $71,854, respectively.

22
<PAGE>

The Advisory Contract authorizes Mitchell Hutchins to retain one or more sub-
advisers but does not require Mitchell Hutchins to do so. Under a sub-
investment advisory contract ("Sub-Advisory Contract") dated November 14, 1994
with Mitchell Hutchins, PIMCO serves as sub-adviser for the Fund. Under the
Sub-Advisory Contract, Mitchell Hutchins (not the Fund) pays the PIMCO a fee in
the annual amount of 0.25% of the Fund's average daily net assets. PIMCO bears
all expenses incurred by it in connection with its services under the Sub-
Advisory Contract. For the period October 20, 1994 to November 30, 1994,
Mitchell Hutchins paid (or accrued) to PIMCO sub-advisory fees of $147,540
pursuant to the Sub-Advisory Contract and a prior substantially similar
contract.

Under the terms of the Advisory Contract, the Fund will bear all expenses
incurred in its operation that are not specifically assumed by Mitchell
Hutchins. General expenses of the Trust not readily identifiable as belonging
to a particular series of the Trust are allocated among the series (including
the Fund) by or under the direction of the Trust's board of trustees in such
manner as the board deems fair and equitable. Expenses borne by the Fund
include the following (or the Fund's share of the following): (1) the cost
(including brokerage commissions) of securities purchased or sold by the Fund
and any losses incurred in connection therewith; (2) fees payable to and
expenses incurred on behalf of the Fund by Mitchell Hutchins; (3)
organizational expenses; (4) filing fees and expenses relating to the
registration and qualification of the Fund's shares under federal and state
securities laws and maintenance of such registrations and qualifications; (5)
fees and salaries payable to trustees who are not interested persons of the
Trust or Mitchell Hutchins; (6) all expenses incurred in connection with the
trustees' services, including travel expenses; (7) taxes (including any income
or franchise taxes) and governmental fees; (8) costs of any liability,
uncollectible items of deposit and any other insurance or fidelity bonds; (9)
any costs, expenses or losses arising out of a liability of or claim for
damages or other relief asserted against the Trust or the Fund for violation of
any law; (10) legal, accounting and auditing expenses, including legal fees of
special counsel for the independent trustees; (11) charges of custodians,
transfer agents and other agents; (12) costs of preparing share certificates;
(13) expenses of setting in type and printing prospectuses and supplements
thereto, statements of additional information and supplements thereto, reports
and proxy materials for existing shareholders, and costs of mailing such
materials to existing shareholders; (14) any extraordinary expenses (including
fees and disbursements of counsel) incurred by the Trust or the Fund; (15)
fees, voluntary assessments and other expenses incurred in connection with
membership in investment company organizations; (16) costs of mailing and
tabulating proxies and costs of meetings of shareholders, the board and any
committees thereof; (17) the cost of investment company literature and other
publications provided to trustees and officers; and (18) costs of mailing,
stationery and communications equipment.

As required by state regulation, Mitchell Hutchins will reimburse the Fund if
and to the extent that the aggregate operating expenses of the Fund in any
fiscal year exceed applicable limits. Currently, the most restrictive such
limit applicable to the Fund is 2.5% of the first $30 million of the Fund's
average daily net assets, 2.0% of the next $70 million of its average daily net
assets and 1.5% of its average daily net assets in excess of $100 million.
Certain expenses, such as brokerage commissions, taxes, interest, distribution
fees and extraordinary items, are excluded from this limitation. No
reimbursement pursuant to such limitation was required for the fiscal year
ended November 30, 1994.

23
<PAGE>

Under the Advisory Contract, Mitchell Hutchins will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Trust or
the Fund in connection with the performance of the Advisory Contract, except to
the extent that such loss results from willful misfeasance, bad faith or gross
negligence on the part of Mitchell Hutchins in the performance of its duties or
from reckless disregard of its obligations and duties thereunder. Under the
Sub-Advisory Contract, PIMCO will not be liable for any error of judgment or
mistake of law or for any loss suffered by the Trust, the Fund, its
shareholders or Mitchell Hutchins in connection with the Sub-Advisory Contract,
except any liability to the Trust, the Fund, its shareholders or Mitchell
Hutchins to which PIMCO would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under the
Sub-Advisory Contract. The Advisory Contract terminates automatically upon
assignment and is terminable at any time without penalty by the Trust's board
of trustees or by vote of the holders of a majority of the Fund's outstanding
voting securities on 60 days' written notice to Mitchell Hutchins, or by
Mitchell Hutchins on 60 days' written notice to the Fund. The Sub-Advisory
Contract terminates automatically upon its assignment or the termination of the
Advisory Contract and is terminable at any time without penalty by the board of
trustees or by vote of the holders of a majority of the Fund's outstanding
voting securities on 60 days' notice to PIMCO, or by PIMCO on 120 days' written
notice to Mitchell Hutchins. The Sub-Advisory Contract may also be terminated
by Mitchell Hutchins (1) upon material breach by PIMCO of its representations
and warranties, which breach shall not have been cured within a 20 day period
after notice of such breach; (2) if PIMCO becomes unable to discharge its
duties and obligations under the Sub-Advisory Contract or (3) on 120 days'
notice to PIMCO.

The following table shows the approximate net assets as of February 28, 1995,
sorted by category of investment objective, of the investment companies as to
which Mitchell Hutchins serves as adviser or sub-adviser. An investment company
may fall into more than one of the categories below.

<TABLE>
<CAPTION>
NET
ASSETS
INVESTMENT CATEGORY ($ MIL)
------------------- -------
<S> <C>
Domestic (excluding Money Market)............................... $ 5,772.8
Global.......................................................... 3,662.6
Equity/Balanced................................................. 2,804.0
Fixed Income (excluding Money Market)........................... 6,631.4
Taxable Fixed Income.......................................... 4,836.4
Tax-Free Fixed Income......................................... 1,795.0
Money Market Funds.............................................. 17,772.5
</TABLE>

Mitchell Hutchins personnel may invest in securities for their own accounts
pursuant to a code of ethics that describes the fiduciary duty owed to
shareholders of the PaineWebber and Mitchell Hutchins/Kidder, Peabody ("MH/KP")
mutual funds and other Mitchell Hutchins' advisory accounts by all Mitchell
Hutchins' directors, officers and employees, establishes procedures for
personal investing and restricts certain transactions. For example, Mitchell
Hutchins employee accounts generally must be maintained at PaineWebber,
personal trades in most securities require pre-clearance and short-term trading
and participation in initial public offerings generally are prohibited. In
addition, the code of ethics puts restrictions on the timing of personal
investing in relation to trades by PaineWebber and MH/KP funds and other
Mitchell Hutchins advisory clients.

24
<PAGE>

PIMCO personnel also may invest in securities for their own accounts pursuant
to PIMCO's Code of Ethics that establishes procedures for personal investing
and restricts certain transactions.

DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of the
Class A, Class B and Class D shares of the Fund under separate distribution
contracts with the Trust dated July 7, 1993 (collectively, "Distribution
Contracts") that require Mitchell Hutchins to use its best efforts, consistent
with its other businesses, to sell shares of the Fund. Shares of the Fund are
offered continuously. Under separate exclusive dealer agreements between
Mitchell Hutchins and PaineWebber dated July 7, 1993 relating to the Class A,
Class B and Class D shares of the Fund (collectively, "Exclusive Dealer
Agreements"), PaineWebber and its correspondent firms sell the Fund's shares.

Under separate plans of distribution pertaining to the Class A, Class B and
Class D shares of the Fund adopted by the Trust in the manner prescribed under
Rule 12b-1 under the 1940 Act ("Class A Plan," "Class B Plan" and "Class D
Plan," collectively, "Plans"), the Fund pays Mitchell Hutchins a service fee,
accrued daily and payable monthly, at the annual rate of 0.25% of the average
daily net assets of each Class of Fund shares. Under the Class B Plan, the Fund
also pays Mitchell Hutchins a monthly distribution fee at the annual rate of
0.75% of the average daily net assets of the Class B shares. Under the Class D
Plan, the Fund pays Mitchell Hutchins a monthly distribution fee, accrued daily
and payable monthly, at the annual rate of 0.50% of the average daily net
assets of the Class D shares.

Among other things, each Plan provides that (1) Mitchell Hutchins will submit
to the Trust's board of trustees at least quarterly, and the trustees will
review, reports regarding all amounts expended under the Plan and the purposes
for which such expenditures were made, (2) the Plan will continue in effect
only so long as it is approved at least annually, and any material amendment
thereto is approved, by the Trust's board of trustees, including those trustees
who are not "interested persons" of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or any agreement
related to the Plan, acting in person at a meeting called for that purpose, (3)
payments by the Fund under the Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the Fund's outstanding
voting securities and (4) while the Plan remains in effect, the selection and
nomination of trustees who are not "interested persons" of the Trust shall be
committed to the discretion of the trustees who are not "interested persons" of
the Trust.

In reporting amounts expended under the Plans to the trustees, Mitchell
Hutchins will allocate expenses attributable to the sale of each Class of Fund
shares to such Class based on the ratio of sales of shares of such Class to the
sales of all three Classes of shares. The fees paid by one Class of Fund shares
will not be used to subsidize the sale of any other Class of Fund shares.

For the fiscal year ended November 30, 1994, the Fund paid (or accrued) the
following fees to Mitchell Hutchins under the Plans:

<TABLE>
<S> <C>
Class A..................................... $ 889,441
Class B..................................... $ 258,627
Class D..................................... $5,505,447
</TABLE>

25
<PAGE>

Mitchell Hutchins estimates that it and its parent corporation, PaineWebber,
incurred the following shareholder service-related and distribution-related
expenses with respect to the Fund during the fiscal year ended November 30,
1994:

<TABLE>
<CAPTION>
CLASS A
-------
<S> <C>
Marketing and advertising............................................ $ 554,268
Printing of prospectuses and statements of additional information.... 2,159
Branch network costs allocated and interest expense.................. 2,616,074
Service fees paid to PaineWebber investment executives............... 404,748
<CAPTION>
CLASS B
-------
<S> <C>
Marketing and advertising............................................ $ 19,602
Amortization of commissions.......................................... 193,753
Printing of prospectuses and statements of additional information.... 51
Branch network costs allocated and interest expense.................. 123,423
Service fees paid to PaineWebber investment executives............... 29,096
<CAPTION>
CLASS D
-------
<S> <C>
Marketing and advertising............................................ $ 562,272
Amortization of commissions.......................................... 2,616,723
Printing of prospectuses and statements of additional information.... 12,648
Branch network costs allocated and interest expense.................. 3,342,930
Service fees paid to PaineWebber investment executives............... 825,816
</TABLE>

"Marketing and advertising" includes various internal costs allocated by
Mitchell Hutchins to its efforts at distributing Fund shares. These internal
costs encompass office rent, salaries and other overhead expenses of various
departments and areas of operations of Mitchell Hutchins. "Branch network
costs allocated and interest expense" consist of an allocated portion of the
expenses of various PaineWebber departments involved in the distribution of
the Fund's shares, including the PaineWebber retail branch system.

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

26
<PAGE>

continued growth, (4) the services provided to the Fund and its shareholders by
Mitchell Hutchins, (5) the services provided by PaineWebber pursuant to its
Exclusive Dealer Agreement with Mitchell Hutchins and (6) Mitchell Hutchins'
shareholder service-related expenses and costs.

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

In approving the Class D Plan for the Fund, the trustees considered all the
features of the distribution system, including (1) the advantage to investors
in having no initial sales charges deducted from the Fund's purchase payments
and instead having the entire amount of their purchase payments immediately
invested in Fund shares, (2) the advantage to investors in being free from
contingent deferred sales charges upon redemption and paying for distribution
on an ongoing basis, (3) Mitchell Hutchins' belief that the ability of
PaineWebber investment executives and correspondent firms to receive sales
compensation for their sales of Class D shares on an ongoing basis, along with
continuing service fees, while their customers invest their entire purchase
payments immediately in Class D shares and do not face contingent deferred
sales charges, would prove attractive to the investment executives and
correspondent firms, resulting in greater growth to the Fund than might
otherwise be the case, (4) the advantages to the shareholders of economies of
scale resulting from growth in the Fund's assets and potential continued
growth, (5) the services provided to the Fund and its shareholders by Mitchell
Hutchins, (6) the services provided by PaineWebber pursuant to its Exclusive
Dealer Agreement with Mitchell Hutchins and (7) Mitchell Hutchins' shareholder
service- and distribution-related expenses and costs. The trustees also
recognized that Mitchell Hutchins' willingness to compensate PaineWebber and
its investment executives without the concomitant receipt by Mitchell Hutchins
of initial sales charges or contingent deferred sales charges upon redemption
was conditioned upon its expectation of being compensated under the Class D
Plan.

27
<PAGE>

Hutchins would receive service, distribution and advisory fees which are
calculated based upon a percentage of the average net assets of the Fund, which
fees would increase if the Plan were successful and the Fund attained and
maintained significant asset levels.

Under the Distribution Contract between the Trust and Mitchell Hutchins for
the Class A shares, for the periods set forth below, Mitchell Hutchins earned
the following approximate amounts in sales charges and retained the following
approximate amounts, net of concessions to PaineWebber as exclusive dealer.

<TABLE>
<CAPTION>
FOR THE PERIOD
FOR YEAR ENDED MAY 3, 1993*
NOVEMBER 30, 1994 TO NOVEMBER 30, 1993
----------------- --------------------
<S> <C> <C>
Earned................................ $892,216 $5,336,484
Retained.............................. 494,591 31,294
</TABLE>
--------

* Commencement of operations.

For the fiscal year ended November 30, 1994, Mitchell Hutchins earned and
retained approximately $251,254 in contingent deferred sales charges paid upon
certain redemptions of Class B shares.

PORTFOLIO TRANSACTIONS

Subject to policies established by the board of trustees of the Trust, PIMCO
is responsible for the execution of the Fund's portfolio transactions and the
allocation of brokerage transactions. In executing portfolio transactions,
PIMCO seeks to obtain the best net results for the Fund, taking into account
such factors as the price (including the applicable brokerage commission or
dealer spread), size of order, difficulty of execution and operational
facilities of the firm involved. Generally, bonds are traded on the OTC market
on a "net" basis without a stated commission through dealers acting for their
own account and not as brokers. Prices paid to dealers in principal
transactions generally include a "spread," which is the difference between the
prices at which the dealer is willing to purchase and sell a specific security
at the time. While PIMCO generally seeks reasonably competitive commission
rates and dealer spreads, payment of the lowest commission or spread is not
necessarily consistent with obtaining the best net results. During the fiscal
year ended November 30, 1994 and the period May 3, 1993 (commencement of
operations) to November 30, 1993, the Fund paid $88,421 and $0, respectively,
in brokerage commissions.

The Fund has no obligation to deal with any broker or group of brokers in the
execution of portfolio transactions. The Fund contemplates that, consistent
with the policy of obtaining the best net results, brokerage transactions may
be conducted through Mitchell Hutchins or its affiliates, including
PaineWebber. The Trust's board of trustees has adopted procedures in conformity
with Rule 17e-1 under the 1940 Act to ensure that all brokerage commissions
paid to Mitchell Hutchins or its affiliates are reasonable and fair. Specific
provisions in the Advisory Contract authorize Mitchell Hutchins and any of its
affiliates that is a member of a national securities exchange to effect
portfolio transactions for the Fund on such exchange and authorize Mitchell
Hutchins and any of its affiliates to retain compensation in connection with
such transactions. Any such transactions will

28
<PAGE>

be effected and related compensation paid only in accordance with applicable
regulations of the SEC. During the fiscal year ended November 30, 1994 and the
period May 3, 1993 (commencement of operations) to November 30, 1993, the Fund
paid no brokerage commissions to PaineWebber or any other affiliate of Mitchell
Hutchins.

Transactions in futures contracts are executed through futures commission
merchants ("FCMs"), who receive brokerage commissions for their services. The
Fund's procedures in selecting FCMs to execute the Fund's transactions in
futures contracts, including procedures permitting the use of Mitchell Hutchins
and its affiliates, are similar to those in effect with respect to brokerage
transactions in securities.

Consistent with the interests of the Fund and subject to the review of the
Trust's board of trustees, PIMCO may, in its discretion, use brokers who
provide the Fund with research, analysis, advice and similar services to
execute portfolio transactions on behalf of the Fund. In return for such
services, the Fund may pay to those brokers a higher commission than may be
charged by other brokers, provided that PIMCO determines in good faith that
such commission is reasonable in terms either of that particular transaction or
of the overall responsibility of PIMCO to the Fund and its other clients and
that the total commissions paid by the Fund will be reasonable in relation to
the benefits to the Fund over the long term. For purchases or sales with
broker-dealer firms which act as principal, PIMCO seeks best execution.
Although PIMCO may receive certain research or execution services in connection
with these transactions, PIMCO will not purchase securities at a higher price
or sell securities at a lower price than would otherwise be paid if no weight
was attributed to the services provided by the executing dealer. Moreover,
PIMCO will not enter into any explicit soft dollar arrangements relating to
principal transactions and will not receive in principal transactions the types
of services which could be purchased for hard dollars. PIMCO may engage in
agency transactions in OTC debt securities in return for research and execution
services. These transactions are entered into only in compliance with
procedures ensuring that the transaction (including commissions) is at least as
favorable as it would have been if effected directly with a market-maker that
did not provide research or execution services. These procedures include PIMCO
receiving multiple quotes from dealers before executing the transaction on an
agency basis.

Research services furnished by brokers or dealers with or through which the
Fund effects securities transactions may be used by PIMCO in advising other
funds or accounts it manages and, conversely, research services furnished to
PIMCO in connection with other funds or accounts it manages may be used by
PIMCO for the Fund. Information and research received from such brokers will be
in addition to, and not in lieu of, the services required to be performed by
PIMCO under the Sub-Advisory Contract. During the fiscal year ended November
30, 1994 and the period May 3, 1993 (commencement of operations) to November
30, 1993, PIMCO directed no portfolio transactions to brokers chosen because
they provided research services. The Fund may purchase and sell securities to
and from dealers who provide the Fund with research services. Portfolio
transactions will not be directed by the Fund to such dealers when they are
acting as principals on the basis of research services provided. The Fund will
not purchase portfolio securities at a higher price or sell such securities at
a lower price in connection with transactions effected with a dealer, acting as
principal, who furnishes research services to PIMCO than would be the case if
no weight were given by PIMCO to the dealer's furnishing of such services.
Research services furnished by the dealers through which or with which the Fund
effects securities transactions may be used by

29
<PAGE>

PIMCO in advising other funds or accounts, and, conversely, research services
furnished to PIMCO in connection with other funds or accounts that PIMCO
advises may be used in advising the Fund.

Investment decisions for the Fund and for other investment accounts managed
by PIMCO are made independently of each other in light of differing
considerations for the various accounts. However, the same investment decision
may occasionally be made for the Fund and one or more of such accounts. In such
cases, simultaneous transactions are inevitable. Purchases or sales are then
averaged as to price and allocated between the Fund and such other account(s)
as to amount according to a formula deemed equitable to the Fund and such
account(s). While in some cases this practice could have a detrimental effect
upon the price or value of the security as far as the Fund is concerned, or
upon its ability to complete its entire order, in other cases it is believed
that coordination and the ability to participate in volume transactions will be
beneficial to the Fund.

The Fund will not purchase securities that are offered in underwritings in
which Mitchell Hutchins or any of its affiliates is a member of the
underwriting or selling group, except pursuant to procedures adopted by the
Trust's board of trustees pursuant to Rule 10f-3 under the 1940 Act. Among
other things, these procedures require that the spread or commission paid in
connection with such a purchase be reasonable and fair, the purchase be at not
more than the public offering price prior to the end of the first business day
after the date of the public offering and that Mitchell Hutchins or any
affiliate thereof not participate in or benefit from the sale to the Fund.

PORTFOLIO TURNOVER. The portfolio turnover rate is calculated by dividing the
lesser of the Fund's annual sales or purchases of portfolio securities
(exclusive of purchases or sales of securities whose maturities at the time of
acquisition were one year or less) by the monthly average value of such
securities in the portfolio during the year. During the fiscal year ended
November 30, 1994 and the period May 3, 1993 (commencement of operations) to
November 30, 1993, the portfolio turnover rate for the Fund was 246.34% and
96.60%, respectively. The Fund's high portfolio turnover rate for the fiscal
year ended November 30, 1994 was attributable to repositioning caused by an
unusually high number of redemptions.

30
<PAGE>

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

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

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

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

(b) an individual and his or her Individual Retirement Account ("IRA");

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

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

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

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

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

RIGHTS OF ACCUMULATION--CLASS A SHARES. Reduced sales charges are available
through a right of accumulation, under which investors and eligible groups of
related Fund investors (as defined above) are permitted to purchase Class A
shares of the Fund among related accounts at the offering price applicable to
the total of (1) the dollar amount then being purchased plus (2) an amount
equal to the then-current net asset value of the purchaser's combined holdings
of Class A Fund shares and Class A shares of any other PaineWebber or MH/KP
mutual fund. The purchaser must provide sufficient information to permit
confirmation of his or her holdings, and the acceptance of the purchase order
is subject to such confirmation. The right of accumulation may be amended or
terminated at any time.

WAIVERS OF SALES CHARGES--CLASS B SHARES. Among other circumstances, the
contingent deferred sales charge on Class B shares is waived where a total or
partial redemption is made within one year following the death of the
shareholder. The contingent deferred sales charge waiver is available where the
decedent is either the individual shareholder or owns the shares with his or
her spouse as a joint tenant with right of survivorship. This waiver applies
only to redemption of shares held at the time of death.

31
<PAGE>

Certain PaineWebber mutual funds offered shares subject to contingent
deferred sales charges before the implementation of the Flexible Pricing System
on July 1, 1991 ("CDSC Funds"). The contingent deferred sales charge is waived
with respect to redemptions of Class B shares of CDSC Funds purchased prior to
July 1, 1991 by officers, directors (trustees) or employees of the CDSC Funds,
Mitchell Hutchins or their affiliates (or their spouses and children under age
21). In addition, the contingent deferred sales charge will be reduced by 50%
with respect to redemptions of Class B shares of CDSC Funds purchased prior to
July 1, 1991 with a net asset value at the time of purchase of at least $1
million. If Class B shares of a CDSC Fund purchased prior to July 1, 1991 are
exchanged for Class B shares of the Fund, any waiver or reduction of the
contingent deferred sales charge that applied to the Class B Shares of the CDSC
Fund will apply to the Class B shares of the Fund acquired through the
exchange.

ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION. As discussed in the
Prospectus, eligible shares of the Fund may be exchanged for shares of the
corresponding Class of most other PaineWebber or MH/KP mutual funds.
Shareholders will receive at least 60 days' notice of any termination or
material modification of the exchange offer, except no notice need be given of
an amendment whose only material effect is to reduce the exchange fee and no
notice need be given if, under extraordinary circumstances, either redemptions
are suspended under the circumstances described below or the Fund temporarily
delays or ceases the sales of its shares because it is unable to invest amounts
effectively in accordance with the Fund's investment objective, policies and
restrictions.

If conditions exist that make cash payments undesirable, the Fund reserves
the right to honor any request for redemption by making payment in whole or in
part in securities chosen by the Fund and valued in the same way as they would
be valued for purposes of computing the Fund's net asset value. Any such
redemptions in kind will be made with readily marketable securities, to the
extent available. If payment is made in securities, a shareholder may incur
brokerage expenses in converting these securities into cash. The Trust has
elected, however, to be governed by Rule 18f-1 under the 1940 Act, under which
the Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund during any 90-day period for
one shareholder. This election is irrevocable unless the SEC permits its
withdrawal. The Fund may suspend redemption privileges or postpone the date of
payment during any period (1) when the NYSE is closed or trading on the NYSE is
restricted as determined by the SEC, (2) when an emergency exists, as defined
by the SEC, that makes it not reasonably practicable for the Fund to dispose of
securities owned by it or fairly to determine the value of its assets or (3) as
the SEC may otherwise permit. The redemption price may be more or less than the
shareholder's cost, depending on the market value of the Fund's portfolio at
the time.

32
<PAGE>

plan at any time without charge or penalty by written instructions with
signatures guaranteed to PaineWebber or PFPC Inc. ("Transfer Agent").
Instructions to participate in the plan, change the withdrawal amount or
terminate participation in the plan will not be effective until five days after
written instructions with signatures guaranteed are received by the Transfer
Agent. Shareholders may request the forms needed to establish a systematic
withdrawal plan from their PaineWebber investment executives, correspondent
firms or the Transfer Agent at 1-800-647-1568.

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

PAINEWEBBER RMA RESOURCE ACCUMULATION PLAN SM; PAINEWEBBER RESOURCE MANAGEMENT
ACCOUNT (R) (RMA (R))

Shares of the PaineWebber and MH/KP mutual funds (each a "PW Fund" and,
collectively, the "PW Funds") are available for purchase through the RMA
Resource Accumulation Plan ("Plan") by customers of PaineWebber and its
correspondent firms who maintain Resource Management Accounts ("RMA
accountholders"). The Plan allows an RMA accountholder to continually invest in
one or more of the PW Funds at regular intervals, with payment for shares
purchased automatically deducted from the client's RMA account. The client may
elect to invest at monthly or quarterly intervals and may elect either to
invest a fixed dollar amount (minimum $100 per period) or to purchase a fixed
number of shares. A client can elect to have Plan purchases executed on the
first or fifteenth day of the month. Settlement occurs five business days after
the trade date, and the purchase price of the shares is withdrawn from the
client's RMA account on the settlement date from the following sources and in
the following order: uninvested cash balances, balances in RMA money market
funds, or margin borrowing power, if applicable to the account.

To participate in the Plan, an investor must be an RMA accountholder, must
have made an initial purchase of the shares of each PW Fund selected for
investment under the Plan (meeting applicable minimum investment requirements)
and must complete and submit the RMA Resource Accumulation Plan Client
Agreement and Instruction Form available from PaineWebber. The investor must
have received a current prospectus for each PW Fund selected prior to enrolling
in the Plan. Information about mutual fund positions and outstanding
instructions under the Plan are noted on the RMA accountholder's account
statement. Instructions under the Plan may be changed at any time, but may take
up to two weeks to become effective.

33
<PAGE>

The terms of the Plan or an RMA accountholder's participation in the Plan,
may be modified or terminated at any time. It is anticipated that, in the
future, shares of other PW Funds and/or mutual funds other than the PW Funds
may be offered through the Plan.

PERIODIC INVESTING AND DOLLAR COST AVERAGING.

Periodic investing in the PW Funds or other mutual funds, whether through the
Plan or otherwise, helps investors establish and maintain a disciplined
approach to accumulating assets over time, de-emphasizing the importance of
timing the market's highs and lows. Periodic investing also permits an investor
to take advantage of "dollar cost averaging." By investing a fixed amount in
mutual fund shares at established intervals, an investor purchases more shares
when the price is lower and fewer shares when the price is higher, thereby
increasing his or her earning potential. Of course, dollar cost averaging does
not guarantee a profit or protect against a loss in a declining market, and an
investor should consider his or her financial ability to continue investing
through periods of low share prices. However, over time, dollar cost averaging
generally results in a lower average original investment cost than if an
investor invested a larger dollar amount in a mutual fund at one time.

PAINEWEBBER'S RESOURCE MANAGEMENT ACCOUNT.

In order to enroll in the Plan, an investor must have opened an RMA account
with PaineWebber or one of its correspondent firms. The RMA account is
PaineWebber's comprehensive asset management account and offers investors a
number of features, including the following:

. monthly Premier account statements that itemize all account activity,
including investment transactions, checking activity and Gold MasterCard (R)
transactions during the period, and provide unrealized and realized gain and
loss estimates for most securities held in the account;

. comprehensive preliminary 9-month and year-end summary statements that
provide information on account activity for use in tax planning and tax
return preparation;

. automatic "sweep" of uninvested cash into the RMA accountholders's choice of
one of the five RMA money market funds -- RMA Money Market Portfolio, RMA
U.S. Government Portfolio, RMA Tax-Free Fund, RMA California Municipal Money
Fund and RMA New York Municipal Money Fund. Each money market fund attempts
to maintain a stable price per share of $1.00, although there can be no
assurance that it will be able to do so. Investments in the money market
funds are not insured or guaranteed by the U.S. government;

. check writing, with no per-check usage charge, no minimum amount on checks
and no maximum number of checks that can be written. RMA accountholders can
code their checks to classify expenditures. All canceled checks are returned
each month;

. Gold MasterCard, with or without a line of credit, which provides RMA
accountholders with direct access to their accounts and can be used with
automatic teller machines worldwide. Purchases on the Gold Mastercard are
debited to the RMA account once monthly, permitting accountholders to remain
invested for a longer period of time;

. 24-hour access to account information through toll-free numbers, and more
detailed personal assistance during business hours from RMA Service Center;

34
<PAGE>

. expanded account protection to $25 million in the event of the liquidation
of PaineWebber. This protection does not apply to shares of the RMA money
market funds or the PW Funds because those shares are held at the transfer
agent and not through PaineWebber; and

. automatic direct deposit of checks into the investor's account and automatic
withdrawals from the account.

The annual account fee for an RMA account is $85, which includes the Gold
MasterCard, with an additional fee of $40 if the investor selects an optional
line of credit with the Gold MasterCard.

CONVERSION OF CLASS B SHARES

Class B shares of the Fund will automatically convert to Class A shares,
based on the relative net asset values per share of each of the two Classes, as
of the close of business on the first Business Day (as defined under "Valuation
of Shares") of the month in which the sixth anniversary of the initial issuance
of such Class B shares of the Fund occurs. For the purpose of calculating the
holding period required for conversion of Class B shares, the date of initial
issuance shall mean (1) the date on which such Class B shares were issued, or
(2) for Class B shares obtained through an exchange, or a series of exchanges,
the date on which the original Class B shares were issued. If a shareholder
acquired Class B shares of the Fund through an exchange of Class B shares of a
CDSC Fund that were acquired prior to July 1, 1991, the shareholder's holding
period for purposes of conversion will be determined based on the date the CDSC
Fund shares were initially issued. For purposes of conversion into Class A
shares, Class B shares purchased through the reinvestment of dividends and
other distributions paid in respect of Class B shares are held in a separate
sub-account. Each time any Class B shares in the shareholder's regular account
(other than those in the sub-account) convert to Class A shares, a pro rata
portion of the Class B shares in the sub-account also converts to Class A
shares. The portion is determined by the ratio that the shareholder's Class B
shares converting to Class A shares bears to the shareholder's total Class B
shares not acquired through dividends and other distributions.

The availability of the conversion feature is subject to (1) the continuing
applicability of a ruling of the Internal Revenue Service that the dividends
and other distributions paid on Class A and Class B shares will not result in
"preferential dividends" under the Internal Revenue Code and (2) the continuing
availability of an opinion of counsel to the effect that the conversion of
shares does not constitute a taxable event. If the conversion feature ceased to
be available, the Class B shares of the Fund would not be converted and would
continue to be subject to the higher ongoing expenses of the Class B shares
beyond six years from the date of purchase. Mitchell Hutchins has no reason to
believe that these conditions for the availability of the conversion feature
will not continue to be met.

VALUATION OF SHARES

The Fund determines its net asset value per share separately for each Class
of shares as of the close of regular trading (currently 4:00 p.m., eastern
time) on the NYSE on each Business Day, which is defined as each Monday through
Friday when the NYSE is open. Currently the NYSE is

35
<PAGE>

closed on the observance of the following holidays: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.

Where market quotations are readily available, portfolio securities are
valued based upon market quotations, provided such quotations adequately
reflect, in the judgment of PIMCO, the fair value of the security. Where such
market quotations are not readily available, securities are valued at fair
value as determined in good faith by or under the direction of the Trust's
board of trustees, generally based upon appraisals received from a pricing
service using a computerized matrix system or derived from information
concerning the security or similar securities received from recognized dealers
in those securities. The amortized cost method of valuation generally is used
with respect to debt obligations with 60 days or less remaining until maturity
unless the Trust's board of trustees determines that this does not represent
fair value.

PERFORMANCE INFORMATION

The Fund's performance data quoted in advertising and other promotional
materials ("Performance Advertisements") represent past performance and are not
intended to indicate future performance. The investment return and principal
value of an investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.

TOTAL RETURN CALCULATIONS. Average annual total return quotes ("Standardized
Return") used in the Fund's Performance Advertisements are calculated according
to the following formula:

P(1 + T)to the nth power = ERV

where: P= a hypothetical initial payment of $1,000 to purchase shares of a
specified Class
T= average annual total return of shares of that Class
n= number of years
ERV= ending redeemable value of a hypothetical $1,000 payment made at
the beginning of that period.

Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or "T" in the formula above, is computed by finding
the average annual change in the value of an initial $1,000 investment over the
period. In calculating the ending redeemable value, for Class A shares, the
maximum 3% sales charge is deducted from the initial $1,000 payment and, for
Class B shares, the applicable contingent deferred sales charge imposed on a
redemption of Class B shares held for the period is deducted. All dividends and
other distributions are assumed to have been reinvested at net asset value.

36
<PAGE>

rate of return is determined by subtracting the initial value of the investment
from the ending value and by dividing the remainder by the initial value.
Neither initial nor contingent deferred sales charges are taken into account in
calculating Non-Standardized Return; the inclusion of those charges would
reduce the return.

Both Standardized Return and Non-Standardized Return for Class B shares for
periods of over six years will reflect conversion of the Class B shares to
Class A shares at the end of the sixth year.

The following table shows performance information for the Class A, Class B
and Class D shares of the Fund for the periods indicated. All returns for
periods of more than one year are expressed as an average return.

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
------- ------- -------
<S> <C> <C> <C>
Fiscal year ended November 30, 1994:
Standardized Return*............................... (4.50)% (5.24)% (4.99)%
Non-Standardized Return............................ (7.48)% (7.48)% (4.99)%
Inception** to November 30, 1993:
Standardized Return*............................... (3.66)% (4.39)% (2.21)%
Non-Standardized Return............................ (1.72)% (2.45)% (2.21)%
</TABLE>
--------

* All Standardized Return figures for Class A shares reflect deduction of the
current maximum sales charge of 3%. All Standardized Return figures for Class
B shares reflect deduction of the applicable contingent deferred sales
charges imposed on a redemption of shares held for the period. Class D shares
do not impose an initial or a contingent deferred sales charge; therefore,
Non-Standardized Return is identical to Standardized Return.

** The inception date for each Class of shares is May 3, 1993.

YIELD. Yields used in the Fund's Performance Advertisements are calculated by
dividing the Fund's interest income attributable to a Class of shares for a 30-
day period ("Period"), net of expenses attributable to such Class, by the
average number of shares of such Class entitled to receive dividends during the
Period and expressing the result as an annualized percentage (assuming
semiannual compounding) of the maximum offering price per share (in the case of
Class A shares) or the net asset value per share (in the case of Class B and
Class D shares) at the end of the Period. Yield quotations are calculated
according to the following formula:

a-b
YIELD = 2[(--- + 1)to the sixth power - 1]
cd
<TABLE>
<C> <C> <S>
where: a = interest earned during the Period attributable to a Class of
shares
b = expenses accrued for the Period attributable to a Class of shares
(net of reimbursements)
c = the average daily number of shares of the Class outstanding
during the Period that were entitled to receive dividends
d = the maximum offering price per share (in the case of Class A
shares) or the net asset value per share (in the case of Class B
and Class D shares) on the last day of the Period.
</TABLE>

37
<PAGE>

Except as noted below, in determining net investment income earned during the
Period (variable "a" in the above formula), the Fund calculates interest earned
on each debt obligation held by it during the Period by (1) computing the
obligation's yield to maturity, based on the market value of the obligation
(including actual accrued interest) on the last business day of the Period or,
if the obligation was purchased during the Period, the purchase price plus
accrued interest and (2) dividing the yield to maturity by 360, and multiplying
the resulting quotient by the market value of the obligation (including actual
accrued interest) to determine the interest income on the obligation for each
day of the period that the obligation is in the portfolio. Once interest earned
is calculated in this fashion for each debt obligation held by the Fund,
interest earned during the Period is then determined by totalling the interest
earned on all debt obligations. For purposes of these calculations, the maturity
of an obligation with one or more call provisions is assumed to be the next date
on which the obligation reasonably can be expected to be called or, if none, the
maturity date. With respect to Class A shares, in calculating the maximum
offering price per share at the end of the period (variable "d" in the above
formula), the Fund's current maximum 3% initial sales charge on Class A shares
is included.

The following table shows the yield for the Class A, Class B and Class D
shares of the Fund for the 30-day period ended November 30, 1994:

<TABLE>
<CAPTION>
YIELD
-----
<S> <C>
Class A............................................................ 5.36%
Class B............................................................ 4.73%
Class D............................................................ 4.98%
</TABLE>

OTHER INFORMATION. In Performance Advertisements, the Fund may compare its
Standardized Return and/or its Non-Standardized Return with, or otherwise
discuss data (including average 30-day money market fund yields), published by
Lipper Analytical Services, Inc. ("Lipper"); IBC/Donaghue's Money Market Fund
Report; CDA Investment Technologies, Inc. ("CDA"); Wiesenberger Investment
Companies Service ("Wiesenberger"); Investment Company Data Inc. ("ICD"); or
Morningstar Mutual Funds ("Morningstar"); or with the performance of U.S.
Treasury securities of various maturities, recognized stock, bond and other
indices, including (but not limited to) the Salomon Brothers Bond Index,
Shearson Lehman Bond Index, Shearson Lehman Government/Corporate Bond Index,
the Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial
Average, and changes in the Consumer Price Index as published by the U.S.
Department of Commerce. Such comparisons also may include economic data and
statistics published by the United States Bureau of Labor Statistics, such as
the cost of living index, information and statistics on the residential
mortgage market or the market for mortgage-backed securities, such as those
published by the Federal Reserve Bank, the Office of Thrift Supervision, Ginnie
Mae, Fannie Mae and Freddie Mac, and the Lehman Mortgage-Backed Securities
Index. The Fund also may refer in such materials to mutual fund performance
rankings and other data, such as comparative asset, expense and fee levels,
published by Lipper, CDA, Wiesenberger, ICD or Morningstar. Performance
Advertisements also may refer to discussions of the Fund and comparative mutual
fund data and ratings reported in independent periodicals, including (but not
limited to) THE WALL STREET JOURNAL, MONEY Magazine, FORBES, BUSINESS WEEK,
FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW YORK TIMES, THE CHICAGO

38
<PAGE>

TRIBUNE, THE WASHINGTON POST and THE KIPLINGER LETTERS. Comparisons in
Performance Advertisements may be in graphic form.

The Fund may include discussions or illustrations of the effects of
compounding in Performance Advertisements. "Compounding" refers to the fact
that, if dividends or other distributions on a Fund investment are reinvested
in additional Fund shares, any future income or capital appreciation of the
Fund would increase the value, not only of the original Fund investment, but
also of the additional Fund shares received through reinvestment. As a result,
the value of the Fund investment would increase more quickly than if dividends
or other distributions had been paid in cash.

The Fund may also compare its performance with, or may otherwise discuss, the
performance of bank certificates of deposit ("CDs") as measured by the CDA
Investment Technologies, Inc. Certificate of Deposit Index, the Bank Rate
Monitor National Index and the averages of yields of CDs of major banks
published by Banxquote (R) Money Markets. In comparing the Fund or its
performance to CDs investors should keep in mind that bank CDs are insured in
whole or in part by an agency of the U.S. government and offer fixed principal
and fixed or variable rates of interest, and that bank CD yields may vary
depending on the financial institution offering the CD and prevailing interest
rates. Shares of the Fund are not insured or guaranteed by the U.S. government
and returns and net asset value will fluctuate. In comparing the Fund or its
performance to money market funds, investors should keep in mind that money
market funds seek to maintain a constant net asset value per share of $1.00,
while the net asset value of the Fund's shares will fluctuate and the Fund may
not be able to return money invested on a dollar-for-dollar basis. The
securities held by the Fund generally will have longer maturities than those
held by money market funds or than most CDs and may reflect interest rate
fluctuations for longer term securities. An investment in the Fund involves
greater risks than an investment in either a money market fund or a CD.

TAXES

In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code, the Fund must distribute to
its shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income and net short-
term capital gain) ("Distribution Requirement") and must meet several
additional requirements. Among these requirements are the following: (1) the
Fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of securities, or other income (including gains
from options or futures) derived with respect to its business of investing in
securities ("Income Requirement"); (2) the Fund must derive less than 30% of
its gross income each taxable year from the sale or other disposition of
securities, options or futures that were held for less than three months
("Short-Short Limitation"); (3) at the close of each quarter of the Fund's
taxable year, at least 50% of the value of its total assets must be represented
by cash and cash items, U.S. government securities, securities of other RICs
and other securities, with these other securities limited, in respect of any
one issuer, to an amount that does not exceed 5% of the value of the Fund's
total assets; and (4) at the close of each quarter of the Fund's taxable year,
not more than 25% of the value of its

39
<PAGE>

total assets may be invested in securities (other than U.S. government
securities or the securities of other RICs) of any one issuer.

Dividends and other distributions declared by the Fund in October, November
or December of any year and payable to shareholders of record on a date in any
of those months will be deemed to have been paid by the Fund and received by
the shareholders on December 31 of that year if the distributions are paid by
the Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls. The Fund
invests exclusively in debt securities and receives no dividend income;
accordingly, no portion of the dividends or other distributions paid by the
Fund will be eligible for the dividends-received deduction allowed to
corporations.

If Fund shares are sold at a loss after being held for six months or less,
the loss will be treated as long-term, instead of short-term, capital loss to
the extent of any capital gain distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before the
record date for any dividend or capital gain distribution, the shareholder will
pay full price for the shares and receive some portion of the price back as a
taxable distribution.

The Fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year substantially all of its
ordinary income for the year and capital gain net income for the one-year
period ending on November 30 of that year, plus certain other amounts.

The use of hedging and option income strategies, such as writing (selling)
and purchasing options and futures contracts, involves complex rules that will
determine for income tax purposes the character and timing of recognition of
the gains and losses the Fund realizes in connection therewith. Income from
transactions in options and futures contracts derived by the Fund with respect
to its business of investing in securities will qualify as permissible income
under the Income Requirement. However, income from the disposition of options
and futures contracts will be subject to the Short-Short Limitation if they are
held for less than three months.

If the Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. The
Fund will consider whether it should seek to qualify for this treatment for its
hedging transactions. To the extent the Fund does not qualify for this
treatment, it may be forced to defer the closing out of certain options and
futures contracts beyond the time when it otherwise would be advantageous to do
so, in order for the Fund to continue to qualify as a RIC.

The Fund may acquire zero coupon or other securities issued with original
issue discount ("OID"). As the holder of such securities, the Fund would have
to include in its gross income the OID that accrues on the securities during
the taxable year, even if the Fund receives no corresponding payment on the
securities during the year. The Fund intends to elect similar treatment with
respect to securities purchased at a discount from their face value ("market
discount"). Because the Fund annually seeks to distribute substantially all of
its investment company

40
<PAGE>

taxable income, including any accrued OID, market discount and other non-cash
income, in order to continue to satisfy the Distribution Requirement and to
avoid imposition of the 4% excise tax, the Fund may be required in a particular
year to distribute as a dividend an amount that is greater than the total
amount of cash it actually receives. Those distributions will be made from the
Fund's cash assets or from the proceeds of sales of portfolio securities, if
necessary. The Fund may realize capital gains or losses from those sales, which
would increase or decrease the Fund's investment company taxable income or net
capital gain (the excess of net long-term capital gain over net short-term
capital loss). In addition, any such gains may be realized on the disposition
of securities held for less than three months. Because of the Short-Short
Limitation, any such gains would reduce the Fund's ability to sell other
securities, or certain options or futures, held for less than three months that
it might wish to sell in the ordinary course of its portfolio management.

OTHER INFORMATION

PAINEWEBBER MANAGED INVESTMENTS TRUST. Prior to February 26, 1992, the
Trust's name was "PaineWebber Fixed Income Portfolios." The Trust is an entity
of the type commonly known as a "Massachusetts business trust." Under
Massachusetts law, shareholders could, under certain circumstances, be held
personally liable for the obligations of the Trust or the Fund. However, the
Trust's Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust or the Fund and requires that notice of such
disclaimer be given in each note, bond, contract, instrument, certificate or
undertaking made or issued by the trustees or by any officers or officer by or
on behalf of the Trust, the Fund, the trustees or any of them in connection
with the Trust. The Declaration of Trust provides for indemnification from the
Fund's property for all losses and expenses of any shareholder held personally
liable for the obligations of the Fund. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its obligations,
a possibility that Mitchell Hutchins believes is remote and not material. Upon
payment of any liability incurred by a shareholder solely by reason of being or
having been a shareholder, the shareholder paying such liability will be
entitled to reimbursement from the general assets of the Fund. The trustees
intend to conduct the operations of the Fund in such a way as to avoid, as far
as possible, ultimate liability of the shareholders for liabilities of the
Fund.

The Fund is authorized to issue Class C shares in addition to Class A, Class
B and Class D shares, but the Trust's board of trustees has no current
intention of doing so. Class C shares, if issued, would bear no service or
distribution fees, would be sold with no initial sales charge and would be
redeemable at net asset value without the imposition of a contingent deferred
sales charge. Class C shares would be offered only to a limited class of
institutional purchasers.

CLASS-SPECIFIC EXPENSES. The Fund may determine to allocate certain of its
expenses (in addition to distribution fees) to the specific Classes of the
Fund's shares to which those expenses are attributable. For example, Class B
shares of the Fund bear higher transfer agency fees per shareholder account
than those borne by Class A or Class D shares. The higher fee is imposed due to
the higher costs incurred by the transfer agent in tracking shares subject to a
contingent deferred sales charge because, upon redemption, the duration of the
shareholder's investment must be determined in order to determine the
applicable charge. Moreover, the tracking and calculations required by the
automatic conversion feature of the Class B shares will cause the transfer
agent to

41
<PAGE>

incur additional costs. Although the transfer agency fee will differ on a per
account basis as stated above, the specific extent to which the transfer agency
fees will differ between the Classes as a percentage of net assets is not
certain, because the fee as a percentage of net assets will be affected by the
number of shareholder accounts in each Class and the relative amounts of net
assets in each Class.

COUNSEL. The law firm of Kirkpatrick & Lockhart, 1800 M Street, N.W.,
Washington, D.C., 20036-5891, counsel to the Fund, has passed upon the legality
of the shares offered by the Prospectus. Kirkpatrick & Lockhart also acts as
counsel to PaineWebber and Mitchell Hutchins in connection with other matters.

INDEPENDENT AUDITORS. Ernst & Young LLP, 787 Seventh Avenue, New York, N.Y.
10019, serves as independent auditors for the Trust.

FINANCIAL STATEMENTS

The Fund's Annual Report to Shareholders for the fiscal year ended November
30, 1994 is a separate document supplied with this Statement of Additional
Information and the financial statements, accompanying notes and report of
independent auditors appearing therein are incorporated by reference in this
Statement of Additional Information.

42
<PAGE>

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN- FORMATION OR TO MAKE ANY REPRE-
SENTATIONS NOT CONTAINED IN THE PROSPECTUS OR IN THIS STATEMENT OF ADDITIONAL
INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THE PROSPECTUS AND THIS
STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN OFFERING BY THE FUND
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAW-
FULLY BE MADE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and Restrictions...................................... 1
Hedging and Related Income Strategies..................................... 8
Trustees and Officers..................................................... 15
Investment Advisory and Distribution Arrangements......................... 22
Portfolio Transactions.................................................... 28
Reduced Sales Charges, Additional Exchange and Redemption Information and
Other Services........................................................... 31
Conversion of Class B Shares.............................................. 35
Valuation of Shares....................................................... 35
Performance Information................................................... 36
Taxes..................................................................... 39
Other Information......................................................... 41
Financial Statements...................................................... 42
</TABLE>

LOGO Recycled
Paper

PAINEWEBBER

SHORT-TERM

U.S. GOVERNMENT

INCOME FUND

--------------------------------------------------------------------------------
Statement of Additional Information

April 1, 1995

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

PAINEWEBBER
<PAGE>

PaineWebber
Short-Term U.S. Government
Income Fund for Credit Unions
1285 Avenue of the Americas New York, New York 10019

Prospectus Dated April 1, 1995

The Fund is a series of PaineWebber Managed Investments Trust ("Trust"). This
Prospectus concisely sets forth information about the Fund a prospective
investor should know before investing. Please retain this Prospectus for future
reference. A Statement of Additional Information dated April 1, 1995 (which is
incorporated by reference herein) has been filed with the Securities and
Exchange Commission. The Statement of Additional Information can be obtained
without charge, and further inquiries can be made, by contacting the Fund, your
PaineWebber investment executive or PaineWebber's correspondent firms or by
calling toll-free 1-800-647-1568.

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

A professionally managed series of a mutual fund designed primarily for federal
credit unions seeking the highest level of income consistent with the
preservation of capital and low volatility of net asset value.

. Professional Management

. Portfolio Diversification

. Dividend and Capital Gain Reinvestment

. Flexible Pricingsm

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS ANY SUCH COMMIS-
SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTA-
TION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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

A PAINEWEBBER MUTUAL FUND
<PAGE>

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTA-
TIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR BY THE DISTRIBU-
TOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.

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

PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND FOR CREDIT UNIONS

PROSPECTUS SUMMARY

See the body of the Prospectus for more information on the topics discussed
in this summary.

The Fund: This Prospectus describes PaineWebber Short-Term U.S.
Government Income Fund for Credit Unions ("Fund"), a
diversified series of an open-end, management
investment company designed primarily for federal
credit unions.

Investment Objective Highest level of income consistent with the
and Policies: preservation of capital and low volatility of net asset
value; invests primarily in U.S. government securities,
including mortgage-backed securities that are issued or
guaranteed by the U.S. government, its agencies or
certain other government-related entities; all of the
Fund's investments and investment transactions are
intended to be legally permissible for investment by
federal credit unions under the Federal Credit Union
Act and the rules and regulations of the National
Credit Union Administration ("NCUA Regulations").

Total Net Assets:
$6.4 million at February 28, 1995.

Investment Adviser
and Administrator: Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"), an asset management subsidiary of
PaineWebber Incorporated ("PaineWebber" or "PW"),
manages over $41.5 billion in assets. See "Management."

Purchases: Shares of beneficial interest are available exclusively
through PaineWebber and its correspondent firms for
investors who are clients of PaineWebber or those firms
("PaineWebber clients") and, for other investors,
through PFPC Inc., the Fund's transfer agent ("Transfer
Agent").

Flexible Pricing Sys- Investors may select Class A or Class D shares, each
tem: with a public offering price that reflects different
sales charges and expense levels. See "Flexible Pricing
System," "Purchases" and "Redemptions."

Class A Shares Offered at net asset value plus any applicable sales
charge (maximum is 2.5% of public offering price).

Class D Shares Offered at net asset value without an initial or
contingent deferred sales charge. Class D shares pay
higher ongoing expenses than Class A shares.

2
<PAGE>

Exchanges:
Shares may be exchanged for shares of the corresponding
Class of most PaineWebber and Mitchell Hutchins/Kidder,
Peabody ("MH/KP") mutual funds. However, such other
funds may not constitute permitted investments for
federal credit unions.

Redemptions: PaineWebber clients may redeem through PaineWebber;
other shareholders must redeem through the Transfer
Agent.

Dividends: Declared daily and paid monthly; net capital gain will
be distributed annually. See "Dividends and Taxes."

Reinvestment: All dividends and capital gain distributions will be
paid in Fund shares of the same Class at net asset
value unless the shareholder has requested cash.

Minimum Purchase: $100,000 for initial investment; $5,000 for subsequent
purchases.

Other Features:

Class A Shares Automatic investment Quantity discounts on initial
plan sales charge
Systematic withdrawal 365-day reinstatement privilege
plan
Rights of accumulation

Class D Shares Automatic investment Systematic withdrawal plan
plan

WHO SHOULD INVEST. The Fund is designed primarily for investment by federal
credit unions, but also is available for investment by other institutional and
individual investors. All of the Fund's investments and investment transactions
are intended to be legally permissible for federal credit unions under the Fed-
eral Credit Union Act and NCUA Regulations. The Fund will invest primarily in
U.S. government securities, including mortgage-backed securities, and may also
invest in privately issued mortgage-backed securities that have been rated AAA
by Standard & Poor's Ratings Group ("S&P") or Aaa by Moody's Investors Service,
Inc. ("Moody's"), have an equivalent rating from another nationally recognized
statistical rating organization ("NRSRO") or, if unrated, have been determined
by Mitchell Hutchins to be of comparable quality. The Fund will have a dollar-
weighted average portfolio maturity of less than three years. Accordingly, the
Fund is designed to provide investors with current income and less fluctuation
in net asset value than in longer-term U.S. government bond funds.

RISK FACTORS. There can be no assurance that the Fund will achieve its in-
vestment objective, and the Fund's net asset value generally will vary in-
versely with movements in interest rates. Although the Fund invests primarily
in U.S. government securities, neither the Fund's yield nor its net asset value
is insured or guaranteed by the U.S. government. Normally, the Fund will con-
centrate at least 25% of its total assets in mortgage-backed securities. In-
vesting in mortgage-backed securities involves special risks, such as those re-
lating to the prepayment of principal on the underlying obligations, in addi-
tion to the risks present in the case of other types of debt securities. During
periods of market uncertainty, the market values of fixed income securities,
including mortgage-backed securities, can become volatile. Additionally, in-
vestments in certain types of mortgage-backed securities may, from time to
time, become less liquid than other types of investments, increasing the vola-
tility of the Fund's net asset value. During 1994, the value and the liquidity
of many mortgage-backed securities declined sharply due primarily to increases
in short-term interest rates. There can be no assurance that such declines will
not recur.

3
<PAGE>

EXPENSES OF INVESTING IN THE FUND. The following tables are intended to as-
sist investors in understanding the expenses associated with investing in the
Fund.

SHAREHOLDER TRANSACTION EXPENSES(1)
<TABLE>
<CAPTION>
CLASS A CLASS D
------- -------
<S> <C> <C>
Maximum sales charge on purchases of shares (as a percentage of
public offering price)........................................ 2.50% None
Sales charge on reinvested dividends........................... None None
Exchange fee................................................... $5.00 $5.00
Maximum contingent deferred sales charge (as a percentage of
redemption proceeds).......................................... None None
</TABLE>

ANNUAL FUND OPERATING EXPENSES(2)
(as a percentage of average net assets)
<TABLE>
<CAPTION>
CLASS A CLASS D
------- -------
<S> <C> <C>
Management fees................................................. 0.30% 0.30%
12b-1 fees(3)................................................... 0.25 0.50
Other expenses.................................................. 1.17 1.14
---- ----
Total operating expenses........................................ 1.72% 1.94%
==== ====
</TABLE>
--------
(1) Sales charge waivers and reduced sales charge purchase plans are avail-
able for Class A shares. See "Purchases".

(2) See "Management" for additional information. "Other expenses" have been
annualized based on those actually incurred for the period December 7, 1993
(commencement of operations) to November 30, 1994. Mitchell Hutchins waived a
portion of its advisory and administration fees for this period. Expenses net
of waivers were 1.35% for Class A shares and 1.55% for Class D shares for this
period.
(3) 12b-1 fees have two components, as follows:
<TABLE>
<CAPTION>
CLASS A CLASS D
------- -------
<S> <C> <C>
12b-1 service fees......................................... 0.25% 0.25%
12b-1 distribution fees.................................... 0.00 0.25
</TABLE>
12b-1 distribution fees are asset-based sales charges. Long-term Class D share-
holders may pay more in direct and indirect sales charges (including distribu-
tion fees) than the economic equivalent of the maximum front-end sales charges
permitted by the National Association of Securities Dealers, Inc.

EXAMPLE OF EFFECT OF FUND EXPENSES

An investor would directly or indirectly pay the following expenses on a
$1,000 investment in the Fund, assuming a 5% annual return:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Class A Shares(1)(2)............... $42 $78 $116 $223
Class D Shares(2).................. $20 $61 $105 $226
</TABLE>
--------
(1) Assumes deduction at the time of purchase of the maximum 2.5% initial
sales charge.

(2) During the year ended November 30, 1994, Mitchell Hutchins waived a por-
tion of its advisory and administration fees. This Example is based on expense
ratios which would have occurred had such waivers not been made.

This Example assumes that all dividends and other distributions are rein-
vested and that the percentage amounts listed under Annual Fund Operating Ex-
penses remain the same in the years shown. The above tables and the assumption
in the Example of a 5% annual return are required by regulations of the Securi-
ties and Exchange Commission ("SEC") applicable to all mutual funds; the as-
sumed 5% annual return is not a prediction of, and does not represent, the pro-
jected or actual performance of either Class of the Fund's shares.

THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EX-
PENSES, AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
The Fund's actual expenses will depend upon, among other things, the level of
average net assets, the extent to which the Fund incurs variable expenses, such
as transfer agency costs, and whether Mitchell Hutchins reimburses all or a
portion of the Fund's expenses and/or waives all or a portion of its advisory
and other fees.

4
<PAGE>

FINANCIAL HIGHLIGHTS

The table below provides selected per share data and ratios for one Class A
share and one Class D share of the Fund for the period shown. This information
is supplemented by the financial statements and accompanying notes appearing in
the Fund's Annual Report to Shareholders, which are incorporated by reference
into the Statement of Additional Information.

The financial statements and notes, as well as the information in the table
appearing below, have been audited by Ernst & Young LLP, independent auditors,
whose report thereon is included in the Annual Report to Shareholders. Further
information about the Fund's performance is also included in the Annual Report
to Shareholders, which may be obtained without charge.
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 7, 1993# TO
NOVEMBER 30, 1994
-----------------------
CLASS A CLASS D
---------- ----------
<S> <C> <C>
Net Asset Value, beginning of period................. $ 10.00 $ 10.00
---------- ----------
Net Decrease from Operations:
Net investment income.............................. 0.40 0.37
Net realized and unrealized losses from investment
transactions...................................... (0.41) (0.41)
---------- ----------
Net decrease in net asset value from operations.... (0.01) (0.04)
---------- ----------
Less Distributions:
Dividends from net investment income............... (0.40) (0.37)
---------- ----------
Net Asset Value, end of period....................... $ 9.59 $ 9.59
========== ==========
Total investment return (1)........................ (0.36)% (0.59)%
========== ==========
Ratios/Supplemental Data:
Net assets, end of period (000's).................. $10,619 $ 1,143
Ratio of expenses to average net assets**.......... 1.35%* 1.55%*
Ratio of net investment income to average net as-
sets**............................................ 4.13%* 3.89%*
Portfolio turnover rate............................ 570.73% 570.73%
</TABLE>
--------
# Commencement of operations.
* Annualized.

** During the period presented above, PaineWebber/Mitchell Hutchins waived all
or a portion of its investment advisory and administration fees and service
and distribution fees. If such waivers had not been made for the Class A
shares, the annualized ratio of expenses to average net assets and the
annualized ratio of net investment income to average net assets would have
been 1.72% and 3.75%, respectively, for the period ended November 30, 1994.
If such waivers had not been made for the Class D shares, the annualized
ratio of expenses to average net assets and the annualized ratio of net in-
vestment income to average net assets would have been 1.94% and 3.51%, re-
spectively, for the period ended November 30, 1994.

(1) Total investment return is calculated assuming a $1,000 investment on the
first day of the period reported, reinvestment of all dividends at net as-
set value on the payable dates, and a sale at net asset value on the last
day of the period reported. The figures do not include sales charges; re-
sults for Class A shares would be lower if sales charges were included. To-
tal investment returns have not been annualized.

5
<PAGE>

FLEXIBLE PRICING SYSTEM

DIFFERENCES BETWEEN THE CLASSES

The primary distinctions between the Classes of the Fund's shares lie in
their sales charge structures and in their ongoing expenses, including asset-
based sales charges in the form of distribution fees. These differences are
summarized in the table below. Each Class has distinct advantages and disadvan-
tages for different investors, and investors may choose the Class that better
suits their circumstances and objectives.
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
------------ ------------------------ -----------------
<S> <C> <C> <C>
CLASS A Maximum initial sales Service fee of 0.25% Initial sales charge
charge of 2.5% of the waived or reduced for
public offering price certain purchases
CLASS D None Service fee of 0.25%; --
distribution fee of 0.25%
</TABLE>

FACTORS TO CONSIDER IN CHOOSING A CLASS OF SHARES

SALES CHARGES. Class A shares are sold at net asset value plus an initial
sales charge of up to 2.5% of the public offering price. Because of this ini-
tial sales charge, not all of a Class A shareholder's purchase price is in-
vested in the Fund. Class D shareholders pay no initial sales charges. Thus,
the entire amount of a Class D shareholder's purchase price is immediately in-
vested in the Fund.

WAIVERS AND REDUCTIONS OF CLASS A SALES CHARGES. Class A share purchases of
$250,000 or more and Class A share purchases made under the Fund's reduced
sales charge plans may be made at a reduced sales charge. In considering the
combined cost of sales charges and ongoing annual expenses, investors should
take into account any reduced sales charges on Class A shares for which they
may be eligible.

The entire initial sales charge on Class A shares is waived for certain eli-
gible purchasers. Because Class A shares bear lower ongoing annual expenses
than Class D shares, investors eligible for complete waivers should purchase
Class A shares.

ONGOING ANNUAL EXPENSES. Both Classes of Fund shares pay an annual 12b-1
service fee of 0.25% of average daily net assets. In addition, Class D shares
pay an annual 12b-1 distribution fee of 0.25% of average daily net assets. An-
nual 12b-1 distribution fees are a form of asset-based sales charge. An in-
vestor should consider both ongoing annual expenses and initial sales charges
in estimating the costs of investing in the respective Classes of Fund shares
over various time periods.

For example, assuming a constant net asset value, the cumulative distribution
fees on the Fund's Class D shares and the 2.5% maximum initial sales charge on
the Fund's Class A shares would be approximately equal if the shares were held
for approximately ten years. Thus, an investor who would be subject to the max-
imum initial sales charge and who expects to hold Fund shares for less than ten
years generally should expect to pay the lowest cumulative expenses by purchas-
ing Class D shares.

The foregoing example does not reflect, among other variables, the cost or
benefit of bearing sales charges or distribution fees at the time of purchase,
upon redemption or over time, nor can it reflect fluctuations in the net asset
value of Fund shares, which will affect the actual amount of expenses paid. Ex-
penses

6
<PAGE>

borne by Classes will differ slightly because of the allocation of other
Class-specific expenses. The "Example of Effect of Fund Expenses" under "Pro-
spectus Summary" shows the cumulative expenses an investor would pay over time
on a hypothetical investment in each Class of Fund shares, assuming an annual
return of 5%.

OTHER INFORMATION

PaineWebber investment executives may receive different levels of compensa-
tion for selling one Class of Fund shares rather than the other. Investors
should understand that distribution fees and initial sales charges are in-
tended to compensate Mitchell Hutchins for distribution services.

See "Purchases," "Redemptions" and "Management" for a more complete descrip-
tion of the sales charges, service fees and distribution fees applicable to
the two Classes of shares in the Fund. See also "Dividends and Taxes," "Valua-
tion of Shares" and "General Information" for other differences between the
Classes.

INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is to achieve the highest level of income
consistent with the preservation of capital and low volatility of net asset
value. All of the Fund's investments and investment transactions are intended
to be legally permissible for investment by federal credit unions under the
Federal Credit Union Act and NCUA Regulations.

The Fund seeks to maximize income consistent with the preservation of capi-
tal by investing, under normal conditions, at least 65% of its total assets in
U.S. government securities, including mortgage-backed securities ("U.S. gov-
ernment mortgage-backed securities") issued or guaranteed by the U.S. govern-
ment or by government agencies or other government entities permissible for
investment by federal credit unions ("permitted government entities"), other
obligations issued or guaranteed by the U.S. government or permitted govern-
ment entities and repurchase agreements with respect to those securities. Up
to 35% of the Fund's total assets may be invested in mortgage-backed securi-
ties that are issued by private issuers and that at the time of purchase have
been rated AAA by S&P or Aaa by Moody's, have an equivalent rating from an-
other NRSRO or, if unrated, have been determined by Mitchell Hutchins to be of
comparable quality. As a matter of fundamental policy, the Fund normally con-
centrates at least 25% of its total assets in U.S. government and privately
issued mortgage-backed securities.

The Fund seeks to limit the volatility of its net asset value per share by
maintaining a dollar-weighted average portfolio maturity not in excess of
three years. For this purpose, the maturity of a mortgage-backed security is
deemed to be its average life (i.e., the average time in which the principal
amount of the security is repaid), as estimated by Mitchell Hutchins based
upon scheduled principal amortization and an anticipated rate of principal
prepayments, which, in turn, is based upon past prepayment patterns, prevail-
ing interest rates and other factors. The effective life of a mortgage-backed
security generally is substantially shorter than its stated maturity. The Fund
may invest in securities with variable interest rates. The maturities of vari-
able rate securities maturing in 397 days or less and of those variable rate
securities that are issued or guaranteed by the U.S. government or its agen-
cies or instrumentalities and that have interest rates that are readjusted no
less frequently than every 762 days will be deemed to be equal to the period
remaining until the next readjustment of the interest rate. Unless permitted
under applicable SEC policies, interest rate reset dates will not be used for
purposes of determining the maturity of other variable rate securities.

7
<PAGE>

Mae"), the Federal National Mortgage Association ("Fannie Mae"), or the Fed-
eral Home Loan Mortgage Corporation ("Freddie Mac"). Other mortgage-backed se-
curities, in which the Fund may invest up to 35% of its total assets, will be
issued by private issuers, generally originators of and investors in mortgage
loans, including savings associations, mortgage bankers, commercial banks, in-
vestment bankers and special purpose entities (collectively, "Private Mortgage
Lenders"). Payments of principal and interest (but not the market value) of
such private mortgage-backed securities may be supported by pools of mortgage
loans or other mortgage-backed securities that are guaranteed, directly or in-
directly, by the U.S. government or one of its agencies or instrumentalities,
or they may be issued without any government guarantee of the underlying mort-
gage assets but with some form of non-government credit enhancement. The Fund
intends to invest in private mortgage-backed securities only if they qualify
as mortgage related securities within the meaning of Section 3(a)(41) of the
Securities Exchange Act of 1934 ("1934 Act"). For more information concerning
the types of mortgage-backed securities in which the Fund may invest, see the
Appendix to this Prospectus.

Non-mortgage-related U.S. government securities in which the Fund may invest
include U.S. Treasury obligations and other obligations backed by the full
faith and credit of the U.S. government and securities that are supported pri-
marily or solely by the creditworthiness of the issuer, such as securities is-
sued by the Resolution Funding Corporation, the Student Loan Marketing Associ-
ation, the Federal Home Loan Banks and the Tennessee Valley Authority.

The Fund may invest in certain zero coupon securities that are U.S. Treasury
notes and bonds that have been stripped of their unmatured interest coupon re-
ceipts or interests in such U.S. Treasury securities or coupons. The SEC staff
currently takes the position that "stripped" U.S. government securities that
are not issued through the U.S. Treasury are not U.S. government securities.
As long as the SEC takes this position, Certificates of Accrual Treasury Secu-
rities ("CATS") and Treasury Income Growth Receipts ("TIGRs") that are not is-
sued through the U.S. Treasury will not be counted as U.S. government securi-
ties for purposes of the 65% investment requirement. The Fund intends to enter
into only those zero coupon transactions that are permitted for investment by
federal credit unions under the Federal Credit Union Act and NCUA Regulations.

There can be no assurance that the Fund will achieve its investment objec-
tive. The Fund's net asset value will fluctuate based on changes in the value
of its portfolio securities. Neither the issuance by, nor the guarantee of, a
U.S. government agency nor even the highest rating by a NRSRO constitutes as-
surance that the security will not fluctuate in value or that the Fund will
receive the originally anticipated yield on the security. See "Investment Pol-
icies and Restrictions--Yield Factors and Ratings" in the Statement of Addi-
tional Information.

RISK FACTORS AND OTHER INVESTMENT POLICIES

INTEREST RATE SENSITIVITY. The investment income of the Fund is based on the
income earned on the securities it holds, less expenses incurred; thus, the
Fund's investment income may be expected to fluctuate in response to changes
in such expenses or income. For example, the investment income of the Fund may
be affected if it experiences a net inflow of new money that is then invested
in securities whose yield is higher or lower than that earned on then-current
investments. Generally, the value of the securities held by the Fund, and thus
the net asset value per share of the Fund, will rise when interest rates de-
cline. Conversely, when interest rates rise, the value of fixed income securi-
ties, and thus the net asset value per share of the Fund, may be expected to
decline. During periods of market uncertainty, the market values of fixed in-
come securities, including mortgage-backed securities, can become volatile.

DETERMINATIONS BY NRSROS. Ratings of debt securities represent the NRSROs'
opinions regarding their quality, are not a guarantee of quality and may be
reduced after the Fund has acquired the security. Mitchell Hutchins will con-
sider such an event in determining whether the Fund should continue to hold
the security,

8
<PAGE>

but is not required to dispose of it. Credit ratings attempt to evaluate the
safety of principal and interest payments and do not reflect an assessment of
the volatility of the security's market value or the liquidity of an investment
in the security. Also, NRSROs may fail to make timely changes in credit ratings
in response to subsequent events, so that an issuer's current financial condi-
tion may be better or worse than the rating indicates.

RISKS OF MORTGAGE-BACKED SECURITIES. The yield characteristics of the mort-
gage-backed securities in which the Fund may invest differ from those of tradi-
tional debt securities. Among the major differences are that interest and prin-
cipal payments are made more frequently on mortgage-backed securities, usually
monthly, and that principal may be prepaid at any time because the underlying
mortgage loans or other assets generally may be prepaid at any time. As a re-
sult, if the Fund purchases these securities at a premium, a prepayment rate
that is faster than expected will reduce yield to maturity, while a prepayment
rate that is slower than expected will have the opposite effect of increasing
yield to maturity. Conversely, if the Fund purchases these securities at a dis-
count, faster than expected prepayments will increase, while slower than ex-
pected prepayments will reduce, yield to maturity. Amounts available for rein-
vestment by the Fund are likely to be greater during a period of declining in-
terest rates and, as a result, are likely to be reinvested at lower interest
rates than during a period of rising interest rates. Accelerated prepayments on
securities purchased by the Fund at a premium also impose a risk of loss of
principal because the premium may not have been fully amortized at the time the
principal is prepaid in full.

The market for privately issued mortgage-backed securities is smaller and
less liquid than the market for U.S. government mortgage-backed securities. CMO
classes may be specially structured in a manner that provides any of a wide va-
riety of investment characteristics, such as yield, effective maturity and in-
terest rate sensitivity. As market conditions change, however, and particularly
during periods of rapid or unanticipated changes in market interest rates, the
attractiveness of the CMO classes and the ability of the structure to provide
the anticipated investment characteristics may be significantly reduced. These
changes can result in volatility in the market value, and in some instances re-
duced liquidity, of the CMO class.

The rate of interest payable on CMO classes may be set at levels that are ei-
ther above or below market rates at the time of issuance, so that the securi-
ties will be sold at a substantial premium to, or at a discount from, par val-
ue. In the most extreme case, one class will be entitled to receive all or a
portion of the interest but none of the principal from the underlying mortgage
assets (the interest-only or "IO" class) and one class will be entitled to re-
ceive all or a portion of the principal but none of the interest (the princi-
pal-only or "PO" class). IOs and POs may also be created from mortgage-backed
securities that are not CMOs. The yields on IOs, POs and other mortgage-backed
securities that are purchased at a substantial premium or discount generally
are extremely sensitive to the rate of principal payments (including prepay-
ments) on the underlying mortgage assets. If the mortgage assets underlying an
IO experience greater than anticipated principal prepayments, an investor may
fail to recoup fully his or her initial investment even if the security is gov-
ernment issued or guaranteed or is rated AAA or the equivalent.

Some CMO classes are structured to pay interest at rates that are adjusted in
accordance with a formula, such as a multiple or fraction of the change in a
specified interest rate index, so as to pay at a rate that will be attractive
in certain interest rate environments but not in others. For example, an in-
verse floating rate CMO class pays interest at a rate that increases as a spec-
ified interest rate index decreases but decreases as that index increases. For
other CMO classes, the yield may move in the same direction as market interest
rates--i.e. the yield may increase as rates increase and decrease as rates de-
crease--but may do so more rapidly or to a greater degree. The market value of
such securities generally is more volatile than that of a fixed rate obliga-
tion. Such interest rate formulas may be combined with other CMO characteris-
tics. For example, a

9
<PAGE>

CMO class may be an "inverse IO," on which the holders are entitled to receive
no payments of principal and are entitled to receive interest at a rate that
will vary inversely with a specified index or a multiple thereof.

During 1994, the value and liquidity of many mortgage-backed securities de-
clined sharply due primarily to increases in interest rates. There can be no
assurance that such declines will not recur. The market value of certain mort-
gage-backed securities in which the Fund may invest, including IO and PO clas-
ses of mortgage-backed securities and inverse floating rate securities, can be
extremely volatile and these securities may become illiquid.

While the market values of particular securities in which the Fund invests
may be volatile, or may become volatile under certain conditions, Mitchell
Hutchins seeks to manage the Fund so that the volatility of its portfolio,
taken as a whole, is consistent with the Fund's investment objective. If Mitch-
ell Hutchins incorrectly forecasts interest rate changes or other factors that
may affect the volatility of securities held by the Fund, the Fund's ability to
meet its investment objective may be reduced.

The Fund intends to invest in CMOs and other mortgage backed securities only
to the extent permitted for federal credit unions under the Federal Credit
Union Act and NCUA Regulations.

The Fund's policy of investing at least 25% of its total assets in mortgage-
backed securities has the effect of increasing the Fund's exposure to these and
other risks related to such securities and may cause the Fund's net asset value
to fluctuate more than otherwise would be the case.

See Appendix A to this Prospectus for more information concerning the types
of mortgage-backed securities in which the Fund may invest.

RISKS OF ZERO COUPON SECURITIES. The Fund may invest in certain zero coupon
securities that are "stripped" U.S. Treasury notes and bonds. Zero coupon secu-
rities pay no interest to holders prior to maturity. However, a portion of the
original issue discount on the zero coupon securities must be included in the
Fund's income. Accordingly, to continue to qualify for tax treatment as a regu-
lated investment company and to avoid a certain excise tax (see "Taxes" in the
Statement of Additional Information), the Fund may be required to distribute as
dividends amounts that are greater than the total amount of cash it actually
receives. These distributions must be made from the Fund's cash assets or, if
necessary, from the proceeds of sales of portfolio securities. The Fund will
not be able to purchase additional income- producing securities with cash used
to make such distributions, and its current income ultimately may be reduced as
a result. Zero coupon securities usually trade at a deep discount from their
face or par value and will be subject to greater fluctuations of market value
in response to changing interest rates than debt obligations of comparable ma-
turities that make current distributions of interest in cash.

DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS. The Fund may enter into dol-
lar rolls, in which the Fund sells mortgage-backed or other securities for de-
livery in the current month and simultaneously contracts to purchase substan-
tially similar securities on a specified future date. In the case of dollar
rolls involving mortgage-backed securities, the mortgage-backed securities that
are purchased will be of the same type and will have the same interest rate and
maturity as those sold, but will be supported by different pools of mortgages.
The Fund forgoes principal and interest paid during the roll period on the se-
curities sold in a dollar roll, but the Fund is compensated by the difference
between the current sales price and the lower price for the future purchase, as
well as by any interest earned on the proceeds of the securities sold. The Fund
also could be compensated through the receipt of fee income equivalent to a
lower forward price.

The Fund may also enter into reverse repurchase agreements in which the Fund
sells securities to a bank or dealer and agrees to repurchase them at a mutu-
ally agreed date and price. The market value of securities sold under reverse
repurchase agreements typically is greater than the proceeds of the sale, and
ac-

10
<PAGE>

cordingly, the market value of the securities sold is likely to be greater than
the value of the securities in which the Fund invests those proceeds. Thus, re-
verse repurchase agreements involve the risk that the buyer of the securities
sold by the Fund might be unable to deliver them when the Fund seeks to repur-
chase. In the event the buyer of securities under a reverse repurchase agree-
ment files for bankruptcy or becomes insolvent, such buyer or its trustee or
receiver may receive an extension of time to determine whether to enforce the
Fund's obligation to repurchase the securities and the Fund's use of the pro-
ceeds of the reverse repurchase agreement may effectively be restricted pending
such decision.

The dollar rolls and reverse repurchase agreements entered into by the Fund
normally will be arbitrage transactions in which the Fund will maintain an off-
setting position in securities or repurchase agreements that mature on or be-
fore the settlement date of the related dollar roll or reverse repurchase
agreement. Since the Fund will receive interest on the securities or repurchase
agreements in which it invests the transaction proceeds, such transactions may
involve leverage. However, since such securities or repurchase agreements must
satisfy the quality requirements of the Fund, and will mature on or before the
settlement date of the dollar roll or reverse repurchase agreement, Mitchell
Hutchins believes that such arbitrage transactions do not present the risks to
the Fund that are associated with other types of leverage.

Dollar rolls and reverse repurchase agreements will be considered to be
borrowings and, accordingly, will be subject to the Fund's limitations on
borrowings, which will restrict the aggregate of such transactions (plus any
other borrowings) to 33 1/3% of the Fund's total assets. The Fund will not en-
ter into dollar rolls or reverse repurchase agreements, other than in arbitrage
transactions as described above, in an aggregate amount in excess of 5% of the
Fund's total assets. The Fund has no present intention to enter into dollar
rolls other than in such arbitrage transactions, and it has no present inten-
tion to enter into reverse repurchase agreements other than in such arbitrage
transactions or for temporary or emergency purposes. The Fund intends to enter
into only those dollar roll and reverse repurchase transactions that are per-
mitted for investment by federal credit unions under the Federal Credit Union
Act and NCUA Regulations.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may purchase debt secu-
rities, including mortgage-backed securities, on a "when-issued" basis or may
purchase or sell such securities for "delayed delivery," provided that, in ei-
ther case, settlement occurs no more than 120 days after the trade date. In
when-issued or delayed delivery transactions, delivery of the securities occurs
beyond normal settlement periods, but the Fund generally would not pay for such
securities or start earning interest on them until they are delivered. However,
when the Fund undertakes to purchase a when-issued or delayed delivery obliga-
tion, it immediately assumes the risks of ownership, including the risk of
price fluctuation. Failure of a counterparty to deliver a security purchased on
a when-issued or delayed delivery basis may result in the Fund's incurring a
loss or missing an opportunity to make an alternative investment. Depending on
market conditions, the Fund's when-issued and delayed delivery purchase commit-
ments could cause its net asset value per share to be more volatile, because
such securities may increase the amount by which its total assets, including
the value of when-issued and delayed-delivery securities it holds, exceed its
net assets.

REPURCHASE AGREEMENTS. The Fund may use repurchase agreements. Repurchase
agreements are transactions in which the Fund purchases securities from a bank
or recognized securities dealer and simultaneously commits to resell the secu-
rities to the bank or dealer at an agreed-upon date and price reflecting a mar-
ket rate of interest unrelated to the coupon rate or maturity of the purchased
securities. Repurchase agreements carry certain risks not associated with di-
rect investments in securities, including possible declines in the market value
of the underlying securities and delays and costs to the Fund if the other
party to the repurchase agreement becomes insolvent. The Fund in-

11
<PAGE>

tends to enter into repurchase agreements only with banks and dealers in trans-
actions that are permitted for investment by federal credit unions under the
Federal Credit Union Act and NCUA Regulations and that are believed by Mitchell
Hutchins to present minimum credit risks in accordance with guidelines estab-
lished by the Trust's board of trustees.

ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in il-
liquid securities, including repurchase agreements with maturities in excess of
seven days and securities whose disposition is restricted under the federal se-
curities laws (other than "Rule 144A" securities Mitchell Hutchins has deter-
mined to be liquid under procedures approved by the Trust's board of trustees).
Rule 144A establishes a "safe harbor" from the registration requirements of the
Securities Act of 1933 ("1933 Act"). Institutional markets for restricted secu-
rities have developed as a result of Rule 144A, providing both readily ascer-
tainable values for restricted securities and the ability to liquidate an in-
vestment to satisfy share redemption orders. An insufficient number of quali-
fied institutional buyers interested in purchasing Rule 144A-eligible re-
stricted securities held by the Fund, however, could affect adversely the mar-
ketability of such portfolio securities, and the Fund might be unable to dis-
pose of such securities promptly or at favorable prices.

PORTFOLIO TURNOVER. The Fund's portfolio turnover rate may vary greatly from
year to year and will not be a limiting factor when Mitchell Hutchins deems
portfolio changes appropriate. A higher turnover rate (100% or more) will in-
volve correspondingly greater transaction costs, and may increase the potential
for short-term capital gains.

OTHER INVESTMENT POLICIES. In order to invest cash reserves or, on a tempo-
rary basis, when Mitchell Hutchins believes unusual circumstances warrant a de-
fensive posture, the Fund temporarily may commit all or any portion of its as-
sets to money market instruments. Such instruments may include securities is-
sued or guaranteed by the U.S. government or permitted government entities, CDs
and bankers' acceptances of banks that are insured by the Federal Deposit In-
surance Corporation and repurchase agreements secured by any of the foregoing.

The Fund's investment objective and certain investment limitations as de-
scribed in the Statement of Additional Information are fundamental policies
that may not be changed without shareholder approval. Additionally, the Fund's
policy of limiting its investments and investment transactions to those in-
tended to be legally permissible for federal credit unions under the Federal
Credit Union Act and NCUA Regulations may not be changed without shareholder
approval. All other investment policies may be changed by the Trust's board of
trustees without shareholder approval.

PURCHASES

GENERAL. Class A shares of the Fund are sold to investors subject to an ini-
tial sales charge. Class D shares are sold without an initial sales charge but
are subject to higher ongoing expenses than Class A shares. See "Flexible Pric-
ing System."

Shares of the Fund are available through PaineWebber and its correspondent
firms or, for shareholders who are not PaineWebber clients, through the Trans-
fer Agent. Investors may contact a local PaineWebber office to open a
PaineWebber account. The minimum initial investment is $100,000; the minimum
for additional purchases is $5,000. The Fund reserves the right to change these
minimums. Purchase orders will be priced at the net asset value per share next
determined (see "Valuation of Shares") after the order is received by
PaineWebber's New York City offices or by the Transfer Agent, plus any applica-
ble sales charge for the Class A shares. The Fund and Mitchell Hutchins reserve
the right to reject any purchase order and to suspend the offering of the
Fund's shares for a period of time.

When placing purchase orders, investors should specify whether the order is
for Class A or Class D shares. All share purchase orders that fail to specify a
Class will automatically be invested in Class A shares.

12
<PAGE>

PURCHASES THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. Purchases through
PaineWebber investment executives or correspondent firms may be made in person
or by mail, telephone or wire; the minimum wire purchase is $1 million. Invest-
ment executives and correspondent firms are responsible for transmitting pur-
chase orders to PaineWebber's New York City offices promptly. Investors may pay
for a purchase with checks drawn on U.S. banks or with funds held in brokerage
accounts at PaineWebber or its correspondent firms. Payment is due on the fifth
Business Day after the order is received at PaineWebber's New York City of-
fices. A "Business Day" is any day, Monday through Friday, on which the New
York Stock Exchange, Inc. ("NYSE") is open for business.

PURCHASES THROUGH THE TRANSFER AGENT. Investors who are not PaineWebber cli-
ents may purchase shares of the Fund through the Transfer Agent. Shares of the
Fund may be purchased, and an account with the Fund established, by completing
and signing the purchase application at the end of this Prospectus and mailing
it, together with a check to cover the purchase, to the Transfer Agent: PFPC
Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington, Delaware
19899. Subsequent investments need not be accompanied by an application.

INITIAL SALES CHARGE SCHEDULE--CLASS A SHARES
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF DISCOUNT TO SELECTED
----------------------------------------- DEALERS AS A PERCENTAGE
OFFERING NET AMOUNT INVESTED OF
AMOUNT OF PURCHASE PRICE (NET ASSET VALUE) OFFERING PRICE
-------------------- -------------------- -------------------- -----------------------
<S> <C> <C> <C>
Less than $250,000 2.50 2.56 2.25
$250,000 to $499,999 2.00 2.04 1.75
$500,000 to $999,999 1.50 1.52 1.25
$1,000,000 and over(1) None None 0.50
</TABLE>
--------
(1) Mitchell Hutchins pays compensation to PaineWebber out of its own
resources.

SALES CHARGE WAIVERS--CLASS A SHARES. Class A shares of the Fund are avail-
able with- out a sales charge through exchanges for Class
A shares of most other PaineWebber and MH/KP mutual funds. See "Exchanges."

Class A shares also may be purchased without a sales charge if the purchase
is made through a PaineWebber investment executive who formerly was employed as
a broker with another firm registered as a broker-dealer with the SEC, provided
(1) the purchaser was the investment executive's client at the competing bro-
kerage firm, (2) within 90 days of the purchase of Class A shares the purchaser
redeemed shares of one or more mutual funds for which that competing firm or
its affiliates was principal underwriter, provided the purchaser either paid a
sales charge to invest in those funds, paid a contingent deferred sales charge
upon redemption or held shares of those funds for the period required not to
pay the otherwise applicable contingent deferred sales charge and (3) the total
amount of shares of all PaineWebber and MH/KP funds purchased under this sales
charge waiver does not exceed the amount of the purchaser's redemption proceeds
from the competing firm's funds. To take advantage of this waiver, an investor
must provide satisfactory evidence that all the above-noted conditions are met.
Qualifying investors should contact their PaineWebber investment executives for
more information.

Certificate holders of unit investment trusts ("UITs") sponsored by
PaineWebber

13
<PAGE>

may acquire Class A shares of the Fund without regard to minimum investment re-
quirements and without sales charges by electing to have dividends and other
distributions from their UIT investment automatically invested in Class A
shares.

REDUCED SALES CHARGE PLANS--CLASS A SHARES. If an investor or eligible group
of related Fund investors purchases Class A shares of the Fund concurrently
with Class A shares of other PaineWebber or MH/KP mutual funds, the purchases
may be combined to take advantage of the reduced sales charge applicable to
larger purchases. In addition, the right of accumulation permits a Fund in-
vestor or eligible group of related Fund investors to pay the lower sales
charge applicable to larger purchases by basing the sales charge on the dollar
amount of Class A shares currently being purchased, plus the net asset value of
the investor's or group's total existing Class A shareholdings in other
PaineWebber or MH/KP mutual funds.

An "eligible group of related Fund investors" includes an individual, the in-
dividual's spouse, parents and children, the individual's individual retirement
account ("IRA"), certain companies controlled by the individual and employee
benefit plans of those companies, and trusts or Uniform Gifts to Minors
Act/Uniform Transfers to Minors Act accounts created by the individual or eli-
gible group of individuals for the benefit of the individual and/or the indi-
vidual's spouse, parents or children. The term also includes a group of related
employers and one or more qualified retirement plans of such employers. For
more information, an investor should consult the Statement of Additional Infor-
mation or contact a PaineWebber investment executive or correspondent firm or
the Transfer Agent.

PURCHASE OF CLASS D SHARES. The public offering price of the Class D shares
of the Fund is the next determined net asset value. No initial or contingent
deferred sales charge is imposed.

EXCHANGES

Shares of the Fund may be exchanged for shares of the corresponding Class of
other PaineWebber and MH/KP mutual funds, or may be acquired through an ex-
change of shares of the corresponding Class of those funds. Federal credit
union investors should be aware, however, that the investment policies of other
PaineWebber mutual funds have not been designed for, and such other funds gen-
erally would not constitute permissible investments for, federal credit unions.

No initial sales charge is imposed on the shares being acquired through an
exchange. Class B shares of MH/KP mutual funds are equivalent to Class D shares
of PaineWebber mutual funds. A $5.00 exchange fee is charged for each exchange,
and exchanges may be subject to minimum investment requirements of the fund
into which exchanges are made.

Exchanges are permitted with other PaineWebber and MH/KP mutual funds, in-
cluding:

Income Funds

. MH/KP ADJUSTABLE RATE GOVERNMENT FUND

. MH/KP GLOBAL FIXED INCOME FUND

. MH/KP GOVERNMENT INCOME FUND

. MH/KP INTERMEDIATE FIXED INCOME FUND

. PW GLOBAL INCOME FUND

. PW HIGH INCOME FUND

. PW INVESTMENT GRADE INCOME FUND

. PW SHORT-TERM U.S. GOVERNMENT INCOME FUND

. PW STRATEGIC INCOME FUND

. PW U.S. GOVERNMENT INCOME FUND

Tax-Free Income Funds

. MH/KP MUNICIPAL BOND FUND

. PW CALIFORNIA TAX-FREE INCOME FUND

. PW MUNICIPAL HIGH INCOME FUND

. PW NATIONAL TAX-FREE INCOME FUND

. PW NEW YORK TAX-FREE INCOME FUND

Growth Funds

. MH/KP EMERGING MARKETS EQUITY FUND

. MH/KP GLOBAL EQUITY FUND

. MH/KP SMALL CAP GROWTH FUND
14
<PAGE>

. PW ATLAS GLOBAL GROWTH FUND

. PW BLUE CHIP GROWTH FUND

. PW CAPITAL APPRECIATION FUND

. PW COMMUNICATIONS & TECHNOLOGY GROWTH FUND

. PW EUROPE GROWTH FUND

. PW GROWTH FUND

. REGIONAL FINANCIAL GROWTH FUND

. SMALL CAP VALUE FUND

Growth and Income Funds

. MH/KP ASSET ALLOCATION FUND

. MH/KP EQUITY INCOME FUND

. PW ASSET ALLOCATION FUND

. PW GLOBAL ENERGY FUND

. PW GLOBAL GROWTH AND INCOME FUND

. PW GROWTH AND INCOME FUND

. PW UTILITY INCOME FUND

PW Money Market Fund

PaineWebber clients must place exchange orders through their PaineWebber in-
vestment executives or correspondent firms. Shareholders who are not
PaineWebber clients must place exchange orders in writing with the Transfer
Agent: PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington,
Delaware 19899. All exchanges will be effected based on the relative net asset
values per share next determined after the exchange order is received at
PaineWebber's New York City offices or by the Transfer Agent. See "Valuation of
Shares." Shares of the Fund purchased through PaineWebber or its correspondent
firms may be exchanged only after the settlement date has passed and payment
for such shares has been made.

OTHER EXCHANGE INFORMATION. This exchange privilege may be modified or termi-
nated at any time, upon at least 60 days' notice when such notice is required
by SEC rules. This exchange privilege is available only in those jurisdictions
where the sale of the PaineWebber and MH/KP fund shares to be acquired may be
legally made. Before making any exchange, shareholders should contact their
PaineWebber investment executives or correspondent firms or the Transfer Agent
to obtain more information and prospectuses of the PaineWebber and MH/KP funds
to be acquired through the exchange.

REDEMPTIONS

As described below, Fund shares may be redeemed at their net asset value and
redemption proceeds will be paid within seven days of the receipt of a redemp-
tion request. PaineWebber clients may redeem shares through PaineWebber or its
correspondent firms; all other shareholders must redeem through the Transfer
Agent. If a redeeming shareholder owns shares of more than one Class, the
shares will be redeemed in the following order unless the shareholder specifi-
cally requests otherwise: Class D shares and then Class A shares.

REDEMPTION THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. PaineWebber clients
may submit redemption requests to their investment executives or correspondent
firms in person or by telephone, mail or wire. As the Fund's agent, PaineWebber
may honor a redemption request by repurchasing Fund shares from a redeeming
shareholder at the shares' net asset value next determined after receipt of the
request by PaineWebber's New York City offices. Within seven days, repurchase
proceeds will be paid by check or credited to the shareholder's brokerage ac-
count at the election of the shareholder. PaineWebber investment executives and
correspondent firms are responsible for promptly forwarding redemption requests
to PaineWebber's New York City offices.

PaineWebber reserves the right not to honor a redemption request, in which
case PaineWebber promptly will forward the request to the Transfer Agent for
treatment as described below.

15
<PAGE>

should mail redemption requests directly to the Transfer Agent: PFPC Inc.,
Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington, Delaware 19899. A
redemption request will be executed at the net asset value next computed after
it is received in "good order." "Good order" means that the request must be ac-
companied by the following: (1) a letter of instruction or a stock assignment
specifying the number of shares or amount of investment to be redeemed (or that
all shares credited to a Fund account be redeemed), signed by all registered
owners of the shares in the exact names in which they are registered, (2) a
guarantee of the signature of each registered owner by an eligible guarantor
institution acceptable to the Transfer Agent and in accordance with SEC rules,
such as a commercial bank, trust company or member of a recognized stock ex-
change, and (3) other supporting legal documents for estates, trusts, guardian-
ships, custodianships, partnerships and corporations. Shareholders are respon-
sible for ensuring that a request for redemption is received in "good order."

ADDITIONAL INFORMATION ON REDEMPTIONS. Redemption proceeds of $1 million or
more may be wired to the shareholder's PaineWebber brokerage account or a com-
mercial bank account designated by the shareholder. Questions about this op-
tion, or redemption requirements generally, should be referred to the share-
holder's PaineWebber investment executive or correspondent firm, or to the
Transfer Agent if the shares are not held in a PaineWebber brokerage account.
If a shareholder requests redemption of shares which were purchased recently,
the Fund may delay payment until it is assured that good payment has been re-
ceived. In the case of purchases by check, this can take up to 15 days.

Because the Fund incurs certain fixed costs in maintaining shareholder ac-
counts, the Fund reserves the right to redeem all Fund shares in any share-
holder account having a net asset value below the lesser of $500 or the current
minimum for initial purchases. If the Fund elects to do so, it will notify the
shareholder and provide the shareholder the opportunity to increase the amount
invested to the minimum required level or more within 60 days of the notice.
The Fund will not redeem accounts that fall below the minimum required level
solely as a result of a reduction in net asset value per share.

Shareholders who have redeemed Class A shares may reinstate their Fund ac-
count without a sales charge up to the dollar amount redeemed by purchasing
Class A shares of the Fund within 365 days after the redemption. To take advan-
tage of this reinstatement privilege, shareholders must notify their
PaineWebber investment executive or correspondent firm at the time the privi-
lege is exercised.

OTHER SERVICES AND INFORMATION

Investors interested in the services described below should consult their
PaineWebber investment executives or correspondent firms or call the Transfer
Agent toll free at 1-800-647-1568.

SYSTEMATIC WITHDRAWAL PLAN. Shareholders who own Class A or Class D Fund
shares with a value of $5,000 or more may have PaineWebber redeem a portion of
their Fund shares monthly, quarterly or semi-annually under the Fund's system-
atic withdrawal plan. The minimum amount for all withdrawals of Class A or
Class D shares is $100. Shareholders who receive dividends or other distribu-
tions in cash may not participate in the systematic withdrawal plan. Purchases
of additional shares of the Fund concurrent with withdrawals are ordinarily
disadvantageous to shareholders because of tax liabilities and, for Class A
shares, sales charges.

16
<PAGE>

Agent. However, if the other firm has entered into a selected dealer agreement
with Mitchell Hutchins relating to the Fund, the shareholders may be able to
hold Fund shares in an account with the other firm.

DIVIDENDS AND TAXES

DIVIDENDS. Dividends from the Fund's net investment income are declared daily
and paid monthly on or about the 15th day of each month. Net investment income
includes accrued interest and discount, less amortization of premium and ac-
crued expenses. The Fund distributes annually substantially all of its net cap-
ital gain (the excess of net long-term capital gain over net short-term capital
loss) and net short-term capital gain, if any. The Fund may make additional
distributions if necessary to avoid a 4% excise tax on certain undistributed
income and capital gain. Dividends and other distributions paid on each Class
of Fund shares are calculated at the same time and in the same manner. Divi-
dends on Class D shares are expected to be lower than those for Class A shares
because of the higher expenses resulting from distribution fees borne by the
Class D shares. Dividends on each Class also might be affected differently by
the allocation of other Class-specific expenses. See "Valuation of Shares."

Shares purchased through PaineWebber investment executives and correspondent
firms begin earning dividends on the Business Day following the date payment
for such shares is due; shares purchased through the Transfer Agent begin earn-
ing dividends on the Business Day following the Transfer Agent's receipt of
payment for such shares. Shares acquired through an exchange begin earning div-
idends on the Business Day following the day on which the exchange is effected.

Dividends and other distributions are paid in additional Fund shares of the
same Class at net asset value unless the shareholder has requested cash pay-
ments. Shareholders who wish to receive dividends and/or capital gain distribu-
tions in cash, either mailed to the shareholder by check or credited to the
shareholder's PaineWebber account, should contact their PaineWebber investment
executives or correspondent firms or complete the appropriate section of the
application form.

Dividends from the Fund's investment company taxable income (whether paid in
cash or in additional shares) generally are taxable to its shareholders as or-
dinary income. Distributions of the Fund's net capital gain (whether paid in
cash or in additional shares) are taxable to shareholders as long-term capital
gain, regardless of how long they have held their Fund shares. Shareholders not
subject to tax on their income will not be required to pay tax on amounts dis-
tributed to them.

The Fund notifies its shareholders following the end of each calendar year of
the amounts of dividends and capital gain distributions paid (or deemed paid)
that year.

The Fund is required to withhold 31% of all dividends, capital gain distribu-
tions and redemption proceeds payable to any individuals and certain other
noncorporate shareholders who do not provide the Fund with a correct taxpayer
identification number. Withholding at that rate also is required from dividends
and capital gain distributions payable to those shareholders who otherwise are
subject to backup withholding.

The Fund is required to include in its gross income each year a portion of
the original issue discount on zero coupon or other deeply discounted securi-
ties it acquires, even though the Fund receives no interest payment on the se-
curities during the year.

A redemption of Fund shares may result in taxable gain or loss to the redeem-
ing shareholder, depending upon whether the redemp-

17
<PAGE>

tion proceeds are more or less than the shareholder's adjusted basis for the
redeemed shares (which normally includes any initial sales charge paid on Class
A shares). An exchange of Fund shares for shares of another PaineWebber or
MH/KP fund generally will have similar tax consequences. However, special tax
rules apply when a shareholder (1) disposes of Class A shares through an ex-
change or redemption within 90 days of purchase and (2) subsequently acquires
Class A shares of a PaineWebber or MH/KP fund without paying a sales charge due
to the exchange privilege or 365-day reinstatement privilege. In these cases,
any gain on the disposition of the original Class A shares will be increased,
or loss decreased, by the amount of the sales charge paid when the shares were
acquired, and that amount will increase the basis of the PaineWebber or MH/KP
fund shares subsequently acquired. In addition, if Fund shares are purchased
within 30 days before or after redeeming Fund shares (regardless of Class) at a
loss, that loss will not be deductible to the extent that the redemption pro-
ceeds are reinvested and instead will increase the basis of the newly purchased
shares.

The foregoing is only a summary of some of the important federal tax consid-
erations generally affecting the Fund and its shareholders; see the Statement
of Additional Information for a further discussion. There may be other federal,
state or local tax considerations applicable to a particular investor. Prospec-
tive shareholders are therefore urged to consult their tax advisers.

VALUATION OF SHARES

The net asset value of the Fund's shares fluctuates and is determined sepa-
rately for each Class as of the close of regular trading on the NYSE (currently
4:00 p.m., eastern time) each Business Day. Net asset value per share is deter-
mined by dividing the value of the securities held by the Fund plus any cash or
other assets minus all liabilities by the total number of Fund shares outstand-
ing.

The Fund values its assets based on their current market value where market
quotations are readily available. If such value cannot be established, assets
are valued at fair value as determined in good faith by or under the direction
of the Trust's board of trustees. The amortized cost method of valuation gener-
ally is used to value debt obligations with 60 days or less remaining until ma-
turity, unless the board of trustees determines that this does not represent
fair value.

MANAGEMENT

The Trust's board of trustees, as part of its overall management responsibil-
ity, oversees various organizations responsible for the Fund's day-to-day man-
agement. Mitchell Hutchins, the Fund's investment adviser and administrator,
makes and implements all investment decisions and supervises all aspects of the
Fund's operations. Mitchell Hutchins receives a monthly fee for its services,
computed daily and payable monthly, at an annual rate of 0.30% of the Fund's
average daily net assets.

The Fund also pays PaineWebber an annual fee of $4.00 per active shareholder
account held at PaineWebber for certain services not provided by the Transfer
Agent. The Fund incurs various other expenses in its operations, such as cus-
tody and transfer agency fees, brokerage commissions, professional fees, ex-
penses of board and shareholder meetings, fees and expenses relating to regis-
tration of its shares, taxes and governmental fees, fees and expenses of the
trustees, costs of obtaining insurance, expenses of printing and distributing
shareholder materials, organizational expenses and extraordinary expenses, in-
cluding costs or losses in any litigation. For the fiscal year ended November
30, 1994, the Fund's total expenses for its Class A and Class D shares, stated
as a percentage of average net assets (annualized) were 1.35% and 1.55%,
respectively.

Mitchell Hutchins is located at 1285 Avenue of the Americas, New York, New
York 10019. It is a wholly owned subsidiary of PaineWebber, which is in turn a
wholly owned subsidiary of Paine Webber Group Inc., a publicly owned financial
services holding company. At February 28, 1995, Mitchell Hutchins was adviser
or sub-adviser of 42 investment compa

18
<PAGE>

nies with 77 separate portfolios and aggregate assets of approximately $26.8
billion.

Nirmal Singh and Craig M. Varrelman have been responsible for the day-to-day
management of the Fund's portfolio since December 1994. Mr. Singh is a vice
president of Mitchell Hutchins, and Mr. Varrelman is a first vice president of
Mitchell Hutchins. Prior to joining Mitchell Hutchins in 1993, Mr. Singh was
with Merrill Lynch Asset Management, Inc., where he was a member of the portfo-
lio management team responsible for managing several diversified funds, includ-
ing mortgage-backed securities funds with assets totaling $8 billion. From 1990
to 1993, Mr. Singh was a senior portfolio manager at Nomura Mortgage Fund Man-
agement Corporation, where he was responsible for managing approximately $3
billion in mortgage assets. From 1987 to 1990, Mr. Singh was a vice president
of Lehman Brothers. Mr. Varrelman has been with Mitchell Hutchins as a portfo-
lio manager since 1988 and manages fixed income portfolios with assets totaling
approximately $1.5 billion, with an emphasis on U.S. government securities.

Other members of Mitchell Hutchins' domestic fixed income group provide input
on market outlook, interest rate forecasts and other considerations pertaining
to domestic fixed income investments.

Mitchell Hutchins investment personnel may engage in securities transactions
for their own accounts pursuant to a code of ethics which establishes proce-
dures for personal investing and restricts certain transactions.

DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins is the distributor of the Fund's
shares and has appointed PaineWebber as the exclusive dealer for the sale of
those shares. Under separate plans of distribution pertaining to the Class A
shares and Class D shares ("Class A Plan," and "Class D Plan," collectively,
"Plans"), the Fund pays Mitchell Hutchins a monthly service fee at the annual
rate of 0.25% of the average daily net assets of each Class of Fund shares and
a monthly distribution fee at the annual rate of 0.25% of the average daily net
assets of the Class D shares.

Under both Plans, Mitchell Hutchins uses the service fee primarily to pay
PaineWebber for shareholder servicing, currently at the annual rate of 0.25% of
the aggregate investment amounts maintained in the Fund by PaineWebber clients.
PaineWebber passes on a portion of these fees to its investment executives to
compensate them for shareholder servicing that they perform, and it retains the
remainder to offset its own expenses in servicing and maintaining shareholder
accounts. These expenses may include costs of the PaineWebber branch office in
which the investment executive is based, such as rent, communications equip-
ment, employee salaries and other overhead costs.

Mitchell Hutchins uses the distribution fee under the Class D Plan to offset
the commissions it pays to PaineWebber for selling the Fund's Class D shares.
PaineWebber passes on to its investment executives a portion of these commis-
sions and retains the remainder to offset its expenses in selling Class D
shares. These expenses may include the branch office costs noted above. In ad-
dition, Mitchell Hutchins may use the distribution fees under the Class D Plan
to offset the Fund's marketing costs attributable to such Class, such as prepa-
ration of sales literature, advertising and printing and distributing prospec-
tuses and other shareholder materials to prospective investors. Mitchell
Hutchins also may use the distribution fees to pay other costs allocated to
Mitchell Hutchins' and PaineWebber's distribution activities, including em-
ployee salaries, bonuses and other overhead expenses.

Mitchell Hutchins expects that, from time to time, PaineWebber will pay
shareholder servicing fees and sales commissions to its investment executives
at the time of sale of Class D shares of the Fund. If PaineWebber makes such
payments, it will retain the service and distribution fees on Class D shares
until it has been reimbursed and thereafter will pass a portion of the service
and distribution fees on Class D shares on to its investment executives.

Mitchell Hutchins receives the proceeds of the initial sales charge paid upon
the purchase of Class A shares and may use these proceeds

19
<PAGE>

for any of the distribution expenses described above. See "Purchases."

During the period they are in effect, the Plans and related distribution con-
tracts pertaining to each Class of Fund shares ("Distribution Contracts") obli-
gate the Fund to pay service and distribution fees to Mitchell Hutchins as com-
pensation for its service and distribution activities, not as reimbursement for
specific expenses incurred. Thus, even if Mitchell Hutchins' expenses exceed
its service or distribution fees, the Fund will not be obligated to pay more
than those fees and, if Mitchell Hutchins' expenses are less than such fees, it
will retain its full fees and realize a profit. The Fund will pay the service
and distribution fees to Mitchell Hutchins until either the applicable Plan or
Distribution Contract is terminated or not renewed. In that event, Mitchell
Hutchins' distribution expenses in excess of service and distribution fees re-
ceived or accrued through the termination date will be Mitchell Hutchins' sole
responsibility and not obligations of the Fund. In their annual consideration
of the continuation of each Plan, the trustees will review the Plan and Mitch-
ell Hutchins' corresponding expenses for each Class separately from the Plan
and corresponding expenses for the other Class.

PERFORMANCE INFORMATION

The Fund performs a standardized computation of annualized total return and
may show this return in advertisements or promotional materials. Standardized
return shows the change in value of an investment in the Fund as a steady com-
pound annual rate of return. Actual year-by-year returns fluctuate and may be
higher or lower than standardized return. Standardized return for the Class A
shares of the Fund reflects deduction of the Fund's maximum initial sales
charge at the time of purchase. One-, five- and ten-year periods will be shown,
unless the Class has been in existence for a shorter period. Total return cal-
culations assume reinvestment of dividends and other distributions.

The Fund may use other total return presentations in conjunction with stan-
dardized return. These may cover the same or different periods as those used
for standardized return and may include cumulative returns, average annual
rates, actual year-by-year rates or any combination thereof. Non-standardized
return does not reflect initial or contingent deferred sales charges and would
be lower if such charges were included.

The Fund also may advertise its yield. Yield reflects investment income net
of expenses over a 30-day (or one-month) period on a Fund share, expressed as
an annualized percentage of the maximum offering price per share for Class A
shares and net asset value per share for Class D shares at the end of the peri-
od. Yield computations differ from other accounting methods and therefore may
differ from dividends actually paid or reported net income.

The Fund will include performance data for both Classes of Fund shares in any
advertisements or promotional materials including Fund performance data. Total
return and yield information reflect past performance and do not necessarily
indicate future results. Investment return and principal values will fluctuate,
and proceeds upon redemption may be more or less than a shareholder's cost.

GENERAL INFORMATION

ORGANIZATION. PaineWebber Managed Investments Trust is registered with the
SEC as an open-end management investment company and was organized as a busi-
ness trust under the laws of the Commonwealth of Massachusetts by Declaration
of Trust dated November 21, 1986. The trustees have authority to issue an un-
limited number of shares of beneficial interest of separate series, par value
$.001 per share. In addition to the Fund, shares of five other series have been
authorized.

The shares of beneficial interest of the Fund are divided into two Classes,
designated Class A shares and Class D shares. Each Class represents interests
in the same assets of the Fund. The Classes differ as follows: (1) each Class
of shares has exclusive voting rights on matters pertaining to its plan of dis-
tribution, (2) Class A shares are subject to an initial sales

20
<PAGE>

charge, (3) Class D shares are not subject to an initial sales charge and bear
ongoing distribution fees and (4) each Class may bear differing amounts of cer-
tain Class-specific expenses. The board of trustees of the Trust does not an-
ticipate that there will be any conflicts among the interests of the holders of
the different Classes of shares of the Fund. On an ongoing basis, the board of
trustees will consider whether any such conflict exists and, if so, take appro-
priate action.

The Trust does not hold annual shareholder meetings. There normally will be
no meetings of shareholders to elect trustees unless fewer than a majority of
the trustees holding office have been elected by shareholders. Shareholders of
record holding at least two-thirds of the outstanding shares of the Trust may
remove a trustee by votes cast in person or by proxy at a meeting called for
that purpose. The trustees are required to call a meeting of shareholders for
the purpose of voting upon the question of removal of any trustee when so re-
quested in writing by shareholders of record holding at least 10% of the
Trust's outstanding shares. Each share of the Fund has equal voting rights, ex-
cept as noted above. Each share of the Fund is entitled to participate equally
in dividends and other distributions and the proceeds of any liquidation, ex-
cept that, due to the differing expenses borne by the two Classes, these divi-
dends and proceeds for the Class D shares are likely to be lower than for the
Class A shares. The shares of the Fund and the other series of the Trust will
be voted separately except when an aggregate vote of all series is required by
the Investment Company Act of 1940.

To avoid additional operating costs and for investor convenience, the Fund
does not issue share certificates. Ownership of the Fund's shares is recorded
on a stock register by the Transfer Agent and shareholders have the same rights
of ownership with respect to such shares as if certificates had been issued.

CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, 1776 Heri-
tage Drive, North Quincy, Massachusetts 02171, is the custodian of the Fund's
assets. PFPC Inc., a subsidiary of PNC Bank, National Association, whose prin-
cipal business address is 400 Bellevue Parkway, Wilmington, Delaware 19809, is
the Fund's transfer and dividend disbursing agent.

21
<PAGE>

APPENDIX

TYPES OF MORTGAGE-BACKED SECURITIES
GINNIE MAE CERTIFICATES

Ginnie Mae guarantees certain mortgage pass-through certificates ("Ginnie Mae
certificates") that are issued by Private Mortgage Lenders and that represent
ownership interests in individual pools of residential mortgage loans. These
securities are designed to provide monthly payments of interest and principal
to the investor. Timely payment of interest and principal is backed by the full
faith and credit of the U.S. government. Each mortgagor's monthly payments to
his lending institution on his residential mortgage are "passed through" to
certificateholders such as the Fund. Mortgage pools consist of whole mortgage
loans or participations in loans. The terms and characteristics of the mortgage
instruments are generally uniform within a pool but may vary among pools. Lend-
ing institutions that originate mortgages for the pools are subject to certain
standards, including credit and other underwriting criteria for individual
mortgages included in the pools.

FANNIE MAE CERTIFICATES

Fannie Mae facilitates a national secondary market in residential mortgage
loans insured or guaranteed by U.S. government agencies and in privately in-
sured or uninsured residential mortgage loans (sometimes referred to as "con-
ventional mortgage loans" or "conventional loans") through its mortgage pur-
chase and mortgage-backed securities sales activities. Fannie Mae issues guar-
anteed mortgage pass-through certificates ("Fannie Mae certificates"), which
represent pro rata shares of all interest and principal payments made and owed
on the underlying pools. Fannie Mae guarantees timely payment of interest and
principal on Fannie Mae certificates. The Fannie Mae guarantee is not backed by
the full faith and credit of the U.S. government.

FREDDIE MAC CERTIFICATES

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

PRIVATE, RTC AND SIMILAR MORTGAGE-BACKED SECURITIES

Mortgage-backed securities issued by Private Mortgage Lenders are structured
similarly to the pass-through certificates and collateralized mortgage obliga-
tions ("CMOs") issued or guaranteed by Ginnie Mae, Fannie Mae and Freddie Mac.
Such mortgage-backed securities may be supported by pools of U.S. government or
agency insured or guaranteed mortgage loans or by other mortgage-backed securi-
ties issued by a government agency or instrumentality, but they generally are
supported by pools of conventional (i.e., non-government guaranteed or insured)
mortgage loans. Since such mortgage-backed securities normally are not guaran-
teed by an entity having the credit standing of Ginnie Mae, Fannie Mae or Fred-
die Mac, they normally are structured with one or more types of credit enhance-
ment. See "--Types of Credit Enhancement." These credit enhancements do not
protect investors from changes in market value.

The Resolution Trust Corporation ("RTC"), which was organized by the U.S.
government in connection with the savings and loan crisis, holds assets of
failed savings associations as

22
<PAGE>

either a conservator or receiver for such associations, or it acquires such as-
sets in its corporate capacity. These assets include, among other things, sin-
gle family and multifamily mortgage loans. In order to dispose of such assets
in an orderly manner, RTC has established a vehicle registered with the SEC
through which it sells mortgage-backed securities. RTC mortgage-backed securi-
ties represent pro rata interests in pools of mortgage loans that RTC holds or
has acquired, as described above, and are supported by one or more of the types
of private credit enhancements used by Private Mortgage Lenders.

COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS MORTGAGE PASS-THROUGHS

CMOs are debt obligations that are collateralized either by mortgage loans or
mortgage pass-through securities (such collateral collectively being called
"Mortgage Assets"). CMOs may be issued by Private Mortgage Lenders or by gov-
ernment entities such as Fannie Mae or Freddie Mac. Multi-class mortgage pass-
through securities are interests in trusts that are comprised of Mortgage As-
sets and that have multiple classes similar to those in CMOs. Multi-class mort-
gage pass-through securities generally are treated as grantor trusts or as real
estate mortgage investment conduits ("REMICs") for federal tax purposes. Unless
the context indicates otherwise, references herein to CMOs include multi-class
mortgage pass-through securities. Payments of principal and interest on the
Mortgage Assets (and, in the case of CMOs, any reinvestment income thereon)
provide the funds to pay debt service on the CMOs or to make scheduled distri-
butions on the multi-class mortgage pass-through securities.

In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMO, also referred to as a "tranche," is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all classes of a CMO (other than any principal-
only ("PO") class) on a monthly, quarterly or semi-annual basis. The principal
and interest on the Mortgage Assets may be allocated among the several classes
of a CMO in many ways. In one structure, payments of principal, including any
principal prepayments, on the Mortgage Assets are applied to the classes of a
CMO in the order of their respective stated maturities or final distribution
dates so that no payment of principal will be made on any class of the CMO un-
til all other classes having an earlier stated maturity or final distribution
date have been paid in full. In some CMO structures, all or a portion of the
interest attributable to one or more of the CMO classes may be added to the
principal amounts attributable to such classes, rather than passed through to
certificateholders on a current basis, until other classes of the CMO are paid
in full.

To the extent required for investment by federal credit unions, the Fund in-
tends to invest in only those CMO or REMIC tranches that have average lives at
the time of purchase and at subsequent review dates that are not greater than
ten years and that would not be extended by more than four years or be short-
ened by more than six years under modeling scenarios assuming an immediate and
sustained parallel shift in the yield curve of plus or minus 300 basis points,
assuming market interest rates and prepayment spreads at the time the standard
is applied. Such a 300 basis point change in interest rates also may not result
in an estimated change of more than 17% in the price of a CMO or REMIC tranche
in which the Fund may invest. Alternatively, the Fund may invest in floating
and adjustable rate CMO or REMIC tranches if (i) the interest rate is reset at
least annually, (ii) at the time of purchase and at subsequent review dates,
interest rates on the instrument are below any interest rate cap that applies
to the security, (iii) the index upon

23
<PAGE>

which the interest rate on the security is based is a conventional, widely-
used market interest rate such as LIBOR and (iv) interest rates on the instru-
ment vary directly (not inversely) with a conventional, widely used index and
not as a multiple thereof. The Fund will not invest in CMO or REMIC residual
interests.

ARM AND FLOATING RATE MORTGAGE-BACKED SECURITIES

ARM mortgage-backed securities are mortgage-backed securities that represent
a right to receive interest payments at a rate that is adjusted to reflect the
interest earned on a pool of mortgage loans bearing variable or adjustable
rates of interest (such mortgage loans are referred to as "ARMs"). Floating
rate mortgage-backed securities are classes of mortgage-backed securities that
have been structured to represent the right to receive interest payments at
rates that fluctuate in accordance with an index but that generally are sup-
ported by pools comprised of fixed-rate mortgage loans. Because the interest
rates on ARM and floating rate mortgage-backed securities are reset in re-
sponse to changes in a specified market index, the values of such securities
tend to be less sensitive to interest rate fluctuations than the values of
fixed-rate securities.

TYPES OF CREDIT ENHANCEMENT

To lessen the effect of failures by obligors on Mortgage Assets to make pay-
ments, mortgage-backed securities may contain elements of credit enhancement.
Such credit enhancement falls into two categories: (1) liquidity protection;
and (2) protection against losses resulting after default by an obligor on the
underlying assets and collection of all amounts recoverable directly from the
obligor and through liquidation of the collateral. Liquidity protection refers
to the provisions of advances, generally by the entity administering the pool
of assets (usually the bank, savings association or mortgage banker that
transferred the underlying loans to the issuer of the security), to ensure
that the receipt of payments on the underlying pool occurs in a timely fash-
ion. Protection against losses resulting after default and liquidation ensures
ultimate payment of the obligations on at least a portion of the assets in the
pool. Such protection may be provided through guarantees, insurance policies
or letters of credit obtained by the issuer or sponsor from third parties,
through various means of structuring the transaction or through a combination
of such approaches. The Fund will not pay any additional fees for such credit
enhancement, although the existence of credit enhancement may increase the
price of a security. Credit enhancements do not provide protection against
changes in the market value of the security.

Examples of credit enhancement arising out of the structure of the transac-
tion include "senior-subordinated securities" (multiple class securities with
one or more classes subordinate to other classes as to the payment of princi-
pal thereof and interest thereon, with the result that defaults on the under-
lying assets are borne first by the holders of the subordinated class), crea-
tion of "spread accounts" or "reserve funds" (where cash or investments, some-
times funded from a portion of the payments on the underlying assets, are held
in reserve against future losses) and "over-collateralization" (where the
scheduled payments on, or the principal amount of, the underlying assets ex-
ceeds that required to make payment of the securities and pay any servicing or
other fees). The degree of credit enhancement provided for each issue gener-
ally is based on historical information regarding the level of credit risk as-
sociated with the underlying assets. Delinquency or loss in excess of that an-
ticipated could adversely affect the return on an investment in such a securi-
ty.

New types of mortgage-backed securities are developed and marketed from time
to time and, consistent with its investment limitations, the Fund expects to
invest in those new types of mortgage-backed securities that Mitchell Hutchins
believes may assist the Fund in achieving its investment objective and that
are permitted for federal credit union investment under the Federal Credit
Union Act and NCUA Regulations. Consistent with such limitations, the Fund may
invest in mortgage-backed securities issued by new or existing governmental or
private issuers other than those identified above.

24
<PAGE>

Application Form

THE PAINEWEBBER [_] [_] - [_] [_] [_] [_] [_] - [_] [_]
MUTUAL FUNDS PaineWebber Account No.
--------------------------------------------------------------------------------
INSTRUCTIONS DO NOT USE THIS FORM IF YOU WOULD LIKE YOUR ACCOUNT SERVICED
THROUGH PAINEWEBBER. INSTEAD, CALL YOUR PAINEWEBBER INVESTMENT
EXECUTIVE (OR YOUR LOCAL PAINEWEBBER OFFICE TO OPEN AN ACCOUNT).

Return this completed form to:
FOR ASSISTANCE IN COMPLETING THIS PFPC Inc.
FORM CONTACT PFPC INC. AT P.O. Box 8950
1-800-647-1568. Wilmington, Delaware 19899
ATTN: PaineWebber Mutual Funds
PLEASE PRINT
--------------------------------------------------------------------------------

[1] INITIAL INVESTMENT ($100,000 MINIMUM)

ENCLOSED IS A CHECK FOR $____(payable to PaineWebber
Short-Term U.S. Government Income Fund for Credit
Unions) to purchase Class A [_] or Class D [_]
shares
(Check one; if no Class is specified Class A shares will be
purchased)

[2A] ACCOUNT REGISTRATION FOR CREDIT UNIONS OR OTHER INSTITU-
TIONS

Not valid 1. Name of Institution
without -----------------------------------
signature and
Federal Tax
ID # on
accompanying 2. Federal Taxpayer I.D. Number
Form W-9 --------------------------

[2B] ACCOUNT REGISTRATION FOR NON-INSTITUTIONAL PURCHASERS

Not valid 1. Individual / /
without ------------ ------------ -------------
signature and First Name Last Name MI Soc. Sec. No.
Soc. Sec. or
Tax ID # on
accompanying 2. Joint Tenancy / /
Form W-9 ------------ ------------ -------------
--As joint First Name Last Name MI Soc. Sec. No.
tenants, use ("Joint Tenants with Rights of Survivorship"
Lines 1 and 2 unless otherwise specified)
--As custodian
for a minor, use 3. Gifts to Minors / /
Lines 1 and 3 ----------------------- -------------
--in the name Minor's Name Soc. Sec. No.
of a corporation,
trust or other
organization
or any fiduciary
capacity, use
Line 4
Under the Uniform / Uniform
-------------------------------- Gifts Transfers
State of Residence of Minor to Mi- to Mi-
nors nors Act
Act

4. Other Registrations
------------------- --------------
Name Tax Ident. No.

5. If Trust, Date of Trust Instruments:
----------------------

[3] ADDRESS

------------------------- Federal Credit Union [_] YES [_] NO*
Street

-------------------------
City State Zip Code -------------------------------
*Type and State of Organization

If an Individual : U.S. Citizen [_] YES [_] NO*
OF CITIZENSHIP *COUNTRY
----------

[4] DISTRIBUTION OPTIONS See Prospectus
Please select one of the following:

[_] Reinvest both dividends and capital gain distributions in
additional shares
[_] Pay dividends to my address above; reinvest capital gain
distributions
[_] Pay both dividends and capital gain distributions in cash
to my address above
[_] Reinvest dividends and pay capital gain distributions in
cash to my address above
NOTE: If a selection is not made, both dividends and cap-
ital gain distributions will be paid in additional Fund
shares of the same Class.
<PAGE>

[5] SPECIAL OPTIONS (For More Information--Check Appropriate Box)

[_] [Automatic Investment Plan] [_] [Systematic Withdrawal Plan]

[6] RIGHTS OF ACCUMULATION--CLASS A SHARES See Prospectus

Indicate here any other account(s) in the group of funds
that qualify for the cumulative quantity discount as
outlined in the Prospectus.

--------------------- ----------- --------------------
Fund Name Account No. Registered Owner
--------------------- ----------- --------------------
Fund Name Account No. Registered Owner
--------------------- ----------- --------------------
Fund Name Account No. Registered Owner

[7] PLEASE INDICATE BELOW IF YOU OR ANY OF YOUR OFFICERS OR
DIRECTORS ARE AFFILIATED WITH PAINEWEBBER

"Affiliated" persons are defined as officers, directors/trustees
and employees of the PaineWebber funds, PaineWebber or its
affiliates, and their parents, spouses and children.

---------------------------------------------
Nature of Relationship

[8] SIGNATURE (S) AND TAX CERTIFICATION

I warrant that I have full corporate and other authority or, if
I am an individual, I warrant that I have full authority and am
of legal age, to purchase shares of the Fund specified on behalf
of the entity in whose name such shares are to be registered, or
myself if I am purchasing for my own account, ("Purchaser") and
that Purchaser is authorized to purchase Fund Shares under all
applicable laws and regulations and has received and read a
current Prospectus of the Fund and agree to its terms. The Fund
and its Transfer Agent will not be liable for acting upon
instructions or inquiries believed genuine. Under penalties of
perjury, I certify that (1) the taxpayer identification number
provided in this application is correct and (2) Purchaser is not
subject to backup withholding because (i) it has not been
notified that it is subject to backup withholding as a result of
failure to report interest or dividends or (ii) the IRS has
notified it that it is no longer subject to backup withholding
(STRIKE OUT CLAUSE (2) IF INCORRECT).

-------------------------------------------- ------- -------
Corporate Officer, Partner, Trustee, etc. Title Date

-------------------------------- ------------------------- -------
Individual (or Custodian) Joint Registrant (if any) (Date)

[9] INVESTMENT EXECUTIVE IDENTIFICATION (To Be Completed By
Investment Executive Only)

------------------------- -------------------------
Broker No./Name Branch Wire Code
( )
------------------------- -------------------------
Branch Address Telephone

[10] CORRESPONDENT FIRM IDENTIFICATION (To Be Completed By
Correspondent Firm Only)

------------------------- -------------------------
Name Address

-------------------------
MAIL COMPLETED FORM TO YOUR PAINEWEBBER INVESTMENT EXECUTIVE OR
CORRESPONDENT FIRM OR TO: PFPC INC., P.O. BOX 8950, WILMINGTON,
DELAWARE 19899.
<PAGE>

PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND FOR CREDIT UNIONS

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................................................. 2
Financial Highlights................................................ 5
Flexible Pricing System............................................. 6
Investment Objective and Policies................................... 7
Purchases........................................................... 12
Exchanges........................................................... 14
Redemptions......................................................... 15
Other Services and Information...................................... 16
Dividends and Taxes................................................. 17
Valuation of Shares................................................. 18
Management.......................................................... 18
Performance Information............................................. 20
General Information................................................. 20
Appendix............................................................ 22
</TABLE>

PROSPECTUS

April 1, 1995

LOGO Recycled
Paper
<PAGE>

PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND FOR CREDIT UNIONS

1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019

STATEMENT OF ADDITIONAL INFORMATION

PaineWebber Short-Term U.S. Government Income Fund for Credit Unions ("Fund")
is a diversified series of PaineWebber Managed Investments Trust ("Trust"), a
professionally managed, open-end management investment company organized as a
Massachusetts business trust. The Fund is designed primarily for federal credit
unions and seeks high current income consistent with the preservation of
capital and low volatility of net asset value; it invests primarily in
mortgage-backed securities that are issued or guaranteed by the U.S. government
or by government agencies or other government entities permissible for
investment by federal credit unions ("permitted government entities"), other
U.S. government securities and repurchase agreements with respect to those
securities. The Fund's investment adviser, administrator and distributor is
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned
subsidiary of PaineWebber Incorporated ("PaineWebber"). As distributor for the
Fund, Mitchell Hutchins has appointed PaineWebber to serve as the exclusive
dealer for the sale of Fund shares. This Statement of Additional Information is
not a prospectus and should be read only in conjunction with the Fund's current
Prospectus, dated April 1, 1995. A copy of the Prospectus may be obtained by
calling any PaineWebber investment executive or correspondent firm or by
calling toll-free 1-800-647-1568. This Statement of Additional Information is
dated April 1, 1995.

INVESTMENT POLICIES AND RESTRICTIONS

The following supplements the information contained in the Prospectus
concerning the Fund's investment policies and limitations.

YIELD FACTORS AND RATINGS. Standard & Poor's Ratings Group ("S&P"), Moody's
Investors Service, Inc. ("Moody's") and other nationally recognized statistical
rating organizations are private services that provide ratings of the credit
quality of mortgage-backed securities and other debt obligations. The Fund may
use these ratings in determining whether to purchase, sell or hold a security.

S&P's highest rating category is AAA. Moody's highest rating category is Aaa.
Publications of S&P indicate that it assigns such ratings to securities for
which the obligor's "capacity to pay interest and repay principal is extremely
strong." Publications of Moody's indicate that it assigns such ratings to
securities that "are judged to be of the best quality" and "carry the smallest
degree of investment risk," that interest payments on such securities "are
protected by a large or by an exceptionally stable margin and principal is
secure" and that while "the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues." The process by which S&P and Moody's determine
ratings for mortgage-backed securities includes consideration of the likelihood
of the receipt by security holders of all distributions, the nature of the
underlying securities, the credit quality of the guarantor, if any, and the
structural, legal and tax aspects associated with such securities. Neither of
such ratings represents an assessment of the likelihood that principal
prepayments will be made by mortgagors or the degree to which such prepayments
may differ from that originally anticipated, nor do such ratings address the
possibility that investors may suffer a lower than anticipated yield or that
investors in such securities may fail to recoup fully their initial investment
due to prepayments.
<PAGE>

It should be emphasized that ratings are general and are not absolute
standards of quality. Consequently, debt obligations with the same maturity,
interest rate and rating may have different market prices. Also, rating
agencies may fail to make timely changes in credit ratings in response to
subsequent events so that an issuer's current financial condition may be better
or worse than the rating would indicate. The rating assigned to a security by
Moody's or S&P does not reflect an assessment of the volatility of the
security's market value or of the liquidity of an investment in the security.
Subsequent to its purchase by the Fund, an issue of debt obligations may cease
to be rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. Mitchell Hutchins will consider such an event in
determining whether the Fund should continue to hold the obligation, but is not
required to dispose of it. In addition to ratings assigned to individual
securities, Mitchell Hutchins will analyze interest rate trends and
developments that may affect individual issuers, including factors such as
liquidity, profitability and asset quality.

The yields on debt securities, including mortgage-backed securities in which
the Fund invests, are dependent on a variety of factors, including general
money market conditions, general conditions in the bond market, the financial
condition of the issuer, the size of the offering, the maturity of the
obligation and its credit rating. There is a wide variation in the quality of
debt securities, both within a particular classification and between
classifications. The obligations of an issuer of debt securities are subject to
the provisions of bankruptcy, insolvency and other laws affecting the rights
and remedies of bond holders or other creditors of an issuer; litigation or
other conditions may also adversely affect the power or ability of issuers to
meet their obligations for the payment of interest and principal.

2
<PAGE>

current interest rate levels, although the values of such ARM mortgage-backed
securities still tend to be less sensitive to interest rate fluctuations than
fixed-rate securities.

SPECIAL CHARACTERISTICS OF MORTGAGE-BACKED SECURITIES. The yield
characteristics of mortgage-backed securities differ from those of traditional
debt securities. Among the major differences are that interest and principal
payments are made more frequently, usually monthly, and that principal may be
prepaid at any time because the underlying mortgage loans or other obligations
generally may be prepaid at any time. As a result, if the securities are
purchased at a premium, a prepayment rate that is faster than expected will
reduce yield to maturity, while a prepayment rate that is slower than expected
will have the opposite effect of increasing yield to maturity. Conversely, if
the securities are purchased at a discount, faster than expected prepayments
will increase, while slower than expected prepayments will reduce, yield to
maturity. Amounts available for reinvestment are likely to be greater during a
period of decreasing interest rates and are likely to be reinvested at lower
interest rates than during a period of rising interest rates. Accelerated
prepayments on securities purchased at a premium also impose a risk of loss of
principal because the premium may not have been fully amortized at the time the
principal is repaid in full. Investments in derivative securities such as
stripped mortgage-backed securities are more sensitive to changes in prepayment
and interest rates than traditional debt securities and mortgage-backed
securities.

Prepayments on a pool of mortgage loans are influenced by a variety of
economic, geographic, social and other factors, including changes in
mortgagors' housing needs, job transfers, unemployment, mortgagors' net equity
in the mortgaged properties and servicing decisions. Generally, however,
prepayments on fixed-rate mortgage loans will increase during a period of
falling interest rates and decrease during a period of rising interest rates.
Mortgage-backed securities may decrease in value as a result of increases in
interest rates and may benefit less than other fixed-income securities from
declining interest rates because of the risk of prepayment.

The rate of interest on mortgage-backed securities is lower than the interest
rates paid on the mortgages included in the underlying pool due to the annual
fees paid to the servicer of the mortgage pool for passing through monthly
payments to certificateholders and to any guarantor, such as the Government
National Mortgage Association ("Ginnie Mae"), and due to any yield retained by
the issuer. Actual yield to the holder may vary from the coupon rate, even if
adjustable, if the mortgage-backed securities are purchased or traded in the
secondary market at a premium or discount. In addition, there is normally some
delay between the time the issuer receives mortgage payments from the servicer
and the time the issuer makes the payments on the mortgage-backed securities
and this delay reduces the effective yield to the holder of such securities.

3
<PAGE>

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

ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in
illiquid securities. The term "illiquid securities" for this purpose means
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which the Fund has valued the
securities and includes, among other things, repurchase agreements maturing in
more than seven days and restricted securities other than those Mitchell
Hutchins has determined are liquid pursuant to guidelines established by the
Trust's board of trustees. Illiquid restricted securities may be sold only in
privately negotiated transactions or in public offerings with respect to which
a registration statement is in effect under the Securities Act of 1933 ("1933
Act"). Where registration is required, the Fund may be obligated to pay all or
part of the registration expenses and a considerable period may elapse between
the time of the decision to sell and the time the Fund may be permitted to sell
a security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell.

Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
have developed as a result of Rule 144A providing both readily ascertainable
values for restricted securities and the ability to liquidate an investment to
satisfy share redemption orders. Such markets include automated systems for the
trading, clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the National
Association of Securities Dealers, Inc. An insufficient number of qualified
buyers interested in purchasing Rule 144A-eligible restricted securities held
by the Fund, however, could affect adversely the marketability of such
portfolio securities, and the Fund might be unable to dispose of such
securities promptly or at favorable prices.

4
<PAGE>

The Trust's board of trustees has delegated the function of making day-to-day
determinations of liquidity to Mitchell Hutchins, pursuant to guidelines
approved by the board. Mitchell Hutchins takes into account a number of factors
in reaching liquidity decisions, including but not limited to (1) the frequency
of trades for the security, (2) the number of dealers that make quotes for the
security, (3) the number of dealers that have undertaken to make a market in
the security, (4) the number of other potential purchasers and (5) the nature
of the security and how trading is effected (e.g., the time needed to sell the
security, how bids are solicited and the mechanics of transfer). Mitchell
Hutchins monitors the liquidity of restricted securities in the Fund's
portfolio and reports periodically on such decisions to the board of trustees.

REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which the
Fund would purchase securities from a bank or recognized securities dealer and
simultaneously commit to resell the securities to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated to
the coupon rate or maturity of the purchased securities. The Fund would
maintain custody of the underlying securities prior to their repurchase; thus,
the obligation of the bank or dealer to pay the repurchase price on the date
agreed to would be in effect, secured by such securities. If the value of these
securities is less than the repurchase price, plus any agreed-upon additional
amount, the other party to the agreement would be required to provide
additional collateral so that at all times the collateral is at least equal to
the repurchase price, plus any agreed-upon additional amount. The difference
between the total amount to be received upon repurchase of the securities and
the price that would have been paid by the Fund upon acquisition would be
accrued as interest and included in the Fund's net investment income.

Repurchase agreements carry certain risks not associated with direct
investments in securities, including possible declines in the market value of
the underlying securities and delays and costs to the Fund if the other party
to a repurchase agreement becomes insolvent. The Fund will enter into
repurchase agreements only with banks and dealers in transactions believed by
Mitchell Hutchins to present minimal credit risks in accordance with guidelines
established by the Trust's board of trustees. Mitchell Hutchins will review and
monitor the creditworthiness of those institutions under the board's general
supervision.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. A security purchased on a when-
issued or delayed delivery basis is recorded as an asset on the commitment date
and is subject to changes in market value, generally based upon changes in the
level of interest rates. Thus, fluctuations in the value of the security from
the time of the commitment date will affect the Fund's net asset value. When
the Fund commits to purchase securities on a when-issued or delayed delivery
basis, its custodian segregates assets to cover the amount of the commitment.
See "Investment Policies and Restrictions--Segregated Accounts." The Fund
purchases when-issued securities only with the intention of taking delivery,
but may sell the right to acquire the security prior to delivery if Mitchell
Hutchins deems it advantageous to do so, which may result in capital gain or
loss to the Fund.

LENDING OF PORTFOLIO SECURITIES. Although the Fund has no present intention
of doing so, the Fund is authorized to lend up to 10% of the total value of its
portfolio securities to broker-dealers or institutional investors that Mitchell
Hutchins deems qualified, but only to the extent permitted for federal credit
union investment, and only when the borrower maintains with the Fund's
custodian collateral either in cash or money market instruments, marked to
market daily, in an amount at least equal to the market value of the securities
loaned, plus accrued interest and dividends, determined on a daily basis and
adjusted accordingly. In determining whether to lend securities to a particular
broker-dealer or institutional investor, Mitchell Hutchins would consider, and
during the period of the loan would monitor, all relevant facts and
circumstances, including the creditworthiness of the borrower. The Fund will
retain authority to terminate any loans at any time. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and

5
<PAGE>

may pay a negotiated portion of the interest earned on the cash or money market
instruments held as collateral to the borrower or placing broker. The Fund will
receive reasonable interest on the loan or a flat fee from the borrower and
amounts equivalent to any dividends, interest or other distributions on the
securities loaned. The Fund will regain record ownership of loaned securities
to exercise beneficial rights, such as voting and subscription rights and
rights to dividends, interest or other distributions, when regaining such
rights is considered to be in the Fund's interest.

INVESTMENT LIMITATIONS. The Fund may not (1) purchase the securities of any
issuer if as a result more than 5% of the total assets of the Fund would be
invested in the securities of that issuer; provided that securities issued or
guaranteed by the U.S. government, its agencies and instrumentalities are not
subject to this limitation and further provided that up to 25% of the value of
the Fund's assets may be invested without regard to this limitation; (2) issue
senior securities or borrow money, except from banks or through reverse
repurchase agreements and dollar rolls, and then in an aggregate amount not in
excess of 33 1/3% of the Fund's total assets (including the amount of the
borrowings and senior securities issued but reduced by any liabilities not
constituting senior securities) at the time of such borrowings, except that the
Fund may borrow up to an additional 5% of total assets (not including the
amount borrowed) for temporary or emergency purposes; (3) purchase securities
if, as a result of the purchase, the Fund would have more than 25% of the value
of its total assets invested in securities of issuers in any one industry,
except that this limitation does not apply to (a) obligations issued or
guaranteed by the U.S. government, its agencies and instrumentalities and (b)
investments in mortgage-backed securities, which (whether or not issued or
guaranteed by an agency or instrumentality of the U.S. government) shall be
considered a single industry for purposes of this limitation; (4) underwrite
securities of other issuers, except to the extent that in connection with the
disposition of portfolio securities, the Fund may be deemed an underwriter
under federal securities laws; (5) purchase or sell real estate (including real
estate limited partnerships), except that investments in mortgage-backed
securities and other debt securities secured by real estate or interests
therein are not subject to this limitation, and provided further that the Fund
may exercise rights under agreements relating to such securities, including the
right to enforce security interests and to liquidate real estate acquired as a
result of such enforcement; (6) purchase securities on margin, make short sales
of securities or maintain a short position in any security, except that the
Fund may (a) make margin deposits, make short sales and maintain short
positions in connection with its use of options, futures contracts and options
on futures contracts and (b) sell short "against the box"; (7) purchase or sell
commodities or commodity contracts, except that the Fund may purchase or sell
financial futures contracts, such as interest rate and bond index futures
contracts and options thereon; (8) invest in oil, gas or mineral exploration or
development programs or leases, except that the Fund may invest in issuers
which invest in such programs; (9) purchase securities of other open-end
investment companies, except in connection with a merger, consolidation or
acquisition; or (10) make loans, except through repurchase agreements and
except in connection with the loan of securities as described herein or in the
Prospectus; provided that for purposes of this restriction the acquisition of
bonds or other debt instruments, or interests therein, shall not be deemed to
be the making of a loan.

6
<PAGE>

time of an investment or transaction, a later increase or decrease in
percentage resulting from a change in values of portfolio securities or amount
of total assets will not be considered a violation of any of the foregoing
limitations. For purposes of fundamental investment limitation (1), mortgage-
backed securities will not be considered to have been issued by the same issuer
by reason of such securities having the same sponsor, and mortgage-backed
securities issued by a finance subsidiary or other single purpose subsidiary of
a corporation that are not guaranteed by the parent corporation will be
considered to be issued by a separate issuer from its parent corporation.

The following investment restrictions are non-fundamental and may be changed
by the vote of the Trust's board of trustees without shareholder approval: the
Fund may not (1) purchase or retain the securities of any issuer if, to the
knowledge of the Fund's management, the officers and trustees of the Trust and
the officers and directors of Mitchell Hutchins (each owning beneficially as
principal for its own account more than 0.5% of the outstanding securities of
the issuer) beneficially so own in the aggregate more than 5% of the securities
of the issuer; (2) purchase any security, other than mortgage-backed
securities, if as a result more than 5% of the Fund's total assets would be
invested in securities of companies that together with any predecessors have
been in continuous operation for less than three years; (3) invest more than
15% of its net assets in illiquid securities, a term that means securities that
cannot be disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities and
includes, among other things, repurchase agreements maturing in more than seven
days; (4) invest in warrants, valued at the lower of cost or market, in excess
of 5% of the value of its net assets, which amount may include warrants that
are not listed on the New York Stock Exchange Inc. ("NYSE") or the American
Stock Exchange, Inc., provided that such unlisted warrants, valued at the lower
of cost or market, do not exceed 2% of the Fund's net assets, and further
provided that this restriction does not apply to warrants attached to, or sold
as a unit with, other securities; (5) make short sales or maintain short
positions in connection with any use of options, futures contracts and options
on futures contracts; (6) sell short "against the box"; and (7) purchase or
sell financial futures contracts or options thereon. In addition, in connection
with the qualification of its shares for sale in a state, the Fund has
undertaken not to invest more than 15% of its total assets in restricted
securities (including Rule 144A securities).

TRUSTEES AND OFFICERS

The trustees and executive officers of the Trust (except as indicated), their
ages, business addresses and principal occupations during the past five years
are:

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME, AGE AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
---------------------- ---------- --------------------
<S> <C> <C>
E. Garrett Bewkes, Jr.; Trustee and Chairman Mr. Bewkes is a director of Paine Web-
68** of the Board of ber Group Inc. ("PW Group") (holding
Trustees company of PaineWebber and Mitchell
Hutchins) and a consultant to PW
Group. Prior to 1988, he was chairman
of the board, president and chief ex-
ecutive officer of American Bakeries
Company. Mr. Bewkes is also a direc-
tor of Interstate Bakeries Corpora-
tion and a director or trustee of 26
other investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>

7
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME, AGE AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
---------------------- ---------- --------------------
<S> <C> <C>
Meyer Feldberg; 52 Trustee Mr. Feldberg is Dean and Professor of
Columbia University Management of the Graduate School of
101 Uris Hall Business, Columbia University. Prior
New York, New York 10027 to 1989, he was president of the Il-
linois Institute of Technology. Dean
Feldberg is also a director of AMSCO
International Inc., Federated Depart-
ment Stores Inc., Inco Homes Corpora-
tion and New World Communications
Group Incorporated and a director or
trustee of 18 other investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment ad-
viser.
George W. Gowen; 65 Trustee Mr. Gowen is a partner in the law firm
666 Third Avenue of Dunnington, Bartholow & Miller.
New York, New York 10017 Prior to May 1994, he was a partner
in the law firm of Fryer, Ross & Gow-
en. Mr. Gowen is also a director of
Columbia Real Estate Investments,
Inc. and a director or trustee of 16
other investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Paul B. Guenther; 54** Trustee and President Mr. Guenther is president and a direc-
tor of PW Group and a director of
PaineWebber and Mitchell Hutchins.
Mr. Guenther is also president of 26,
and a director or trustee of 17,
other investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>

8
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME, AGE AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
---------------------- ---------- --------------------
<S> <C> <C>
Frederic V. Malek; 58 Trustee Mr. Malek is chairman of Thayer Capi-
901 15th Street, N.W. tal Partners (investment bank) and
Suite 300 co-chairman and director of CB Com-
Washington, DC 20005 mercial Group Inc. (real estate).
From January 1992 to November 1992,
he was campaign manager of Bush-
Quayle '92. From 1990 to 1992, he was
vice chairman and, from 1989 to 1990,
he was president of Northwest Air-
lines Inc., NWA Inc. (holding company
of Northwest Airlines Inc.) and Wings
Holdings Inc. (holding company of NWA
Inc.). Prior to 1989, he was employed
by the Marriott Corporation (hotels,
restaurants, airline catering and
contract feeding), where he most re-
cently was an executive vice presi-
dent and president of Marriott Hotels
and Resorts. Mr. Malek is also a di-
rector of American Management Sys-
tems, Inc., Automatic Data Process-
ing, Inc., Avis, Inc., FPL Group,
Inc., ICF International, Manor Care,
Inc. and National Education Corpora-
tion and a director or trustee of 16
other investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Frank P. L. Minard; 49** Trustee Mr. Minard is chairman of the board
and a director of Mitchell Hutchins,
chairman of the board of Mitchell
Hutchins Institutional Investors Inc.
and a director of PaineWebber. Prior
to 1993, Mr. Minard was managing di-
rector of Oppenheimer Capital in New
York and director of Oppenheimer Cap-
ital Ltd. in London. Mr. Minard is
also president of 13, and a director
or trustee of 16, other investment
companies for which Mitchell Hutchins
or PaineWebber serves as investment
adviser.
Judith Davidson Moyers; Trustee Mrs. Moyers is president of Public Af-
59 fairs Television, Inc., an educa-
Public Affairs tional consultant and a home econo-
Television mist. Mrs. Moyers is also a director
356 W. 58th Street of Ogden Corporation and a director
New York, New York 10019 or trustee of 16 other investment
companies for which Mitchell Hutchins
or PaineWebber serves as investment
adviser.
</TABLE>

9
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME, AGE AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
---------------------- ---------- --------------------
<S> <C> <C>
Thomas F. Murray; 84 Trustee Mr. Murray is a real estate and finan-
400 Park Avenue cial consultant. Mr. Murray is also a
New York, New York 10022 di-
rector and chairman of American Con-
tinental Properties, Inc., a trustee
of Prudential Realty Trust and a di-
rector or trustee of 16 other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as in-
vestment adviser.
Teresa M. Boyle; 36 Vice President Ms. Boyle is a first vice president
and manager--advisory administration
of Mitchell Hutchins. Prior to Novem-
ber 1993, she was compliance manager
of Hyperion Capital Management, Inc.,
an investment advisory firm. Prior to
April 1993, Ms. Boyle was a vice
president and manager--legal adminis-
tration of Mitchell Hutchins. Ms.
Boyle is also a vice president of 39
other investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Joan L. Cohen; 30 Vice President and Ms. Cohen is a vice president and at-
Assistant Secretary torney of Mitchell Hutchins. Prior to
December 1993, she was an associate
at the law firm of Seward & Kissel.
Ms. Cohen is also a vice president
and assistant secretary of 26 other
investment companies for which Mitch-
ell Hutchins or PaineWebber serves as
investment adviser.
Ellen R. Harris; 48 Vice President Ms. Harris is chief domestic equity
strategist, a managing director and
chief investment officer--domestic of
Mitchell Hutchins. Ms. Harris is also
a vice president of 19 other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as in-
vestment adviser.
Mary B. King; 31 Vice President Mrs. King is a first vice president
and a portfolio manager of Mitchell
Hutchins. Mrs. King is also a vice
president of one other investment
company for which Mitchell Hutchins
serves as investment adviser.
</TABLE>

10
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME, AGE AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
---------------------- ---------- --------------------
<S> <C> <C>
Thomas J. Libassi; 36 Vice President Mr. Libassi is a senior vice president
of Mitchell Hutchins. Prior to May
1994, he was a vice president of Key-
stone Custodian Funds Inc. with port-
folio management responsibility. Mr.
Libassi is also a vice president of
one other investment company for
which Mitchell Hutchins or
PaineWebber serves as investment ad-
viser.
Ann E. Moran; 37 Vice President and Ms. Moran is a vice president of
Assistant Treasurer Mitchell Hutchins. Ms. Moran is also
a vice president and assistant trea-
surer of 39 other investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment ad-
viser.
Dianne E. O'Donnell; 42 Vice President and Ms. O'Donnell is a senior vice presi-
Secretary dent and senior associate general
counsel of Mitchell Hutchins. Ms.
O'Donnell is also a vice president
and secretary of 39 other investment
companies for which Mitchell Hutchins
or PaineWebber serves as investment
adviser.
Victoria E. Schonfeld; Vice President Ms. Schonfeld is a managing director
44 and general counsel of Mitchell
Hutchins. From April 1990 to May
1994, she was a partner in the law
firm of Arnold & Porter. Prior to
April 1990, she was a partner in the
law firm of Shereff, Friedman, Hoff-
man & Goodman. Ms. Schonfeld is also
a vice president of 39 other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as in-
vestment adviser.
Paul H. Schubert; 32 Vice President and Mr. Schubert is a vice president of
Assistant Treasurer Mitchell Hutchins. From August 1992
to August 1994, he was a vice presi-
dent at BlackRock Financial Manage-
ment, L.P. Prior to August 1992, he
was an audit manager with Ernst &
Young LLP. Mr. Schubert is also a
vice president and assistant trea-
surer of 39 other investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment ad-
viser.
</TABLE>

11
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME, AGE AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
---------------------- ---------- --------------------
<S> <C> <C>
Martha J. Slezak; 32 Vice President and Ms. Slezak is a vice president of
Assistant Treasurer Mitchell Hutchins. From September
1991 to April 1992, she was a fund-
raising director for a U.S. Senate
campaign. Prior to September 1991,
she was a tax manager with Arthur An-
dersen & Co. LLP. Ms. Slezak is also
a vice president and assistant trea-
surer of 39 other investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Julian F. Sluyters; 34 Vice President and Mr. Sluyters is a senior vice presi-
Treasurer dent and the director of the mutual
fund finance division of Mitchell
Hutchins. Prior to 1991, he was an
audit senior manager with Ernst &
Young LLP. Mr. Sluyters is also a
vice president and treasurer of 39
other investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Gregory K. Todd; 38 Vice President and Mr. Todd is a first vice president and
Assistant Secretary associate general counsel of Mitchell
Hutchins. Prior to 1993, he was a
partner in the law firm of Shereff,
Friedman, Hoffman & Goodman. Mr. Todd
is also a vice president and assis-
tant secretary of 39 other investment
companies for which Mitchell Hutchins
or PaineWebber serves as investment
adviser.
</TABLE>

--------
* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.

12
<PAGE>

COMPENSATION TABLE

* Represents fees paid to each trustee during the fiscal year ended November
30, 1994.

+ Represents total compensation paid to each trustee during the calendar year
ended December 31, 1994.

The following table sets forth the names, addresses and percentages of
ownership of each person who owned beneficially and of record 5% or more of the
Fund's Class A or Class D shares as of March 20, 1995:

<TABLE>
<CAPTION>
NAME AND ADDRESS OF PERSON CLASS PERCENTAGE OF CLASS OWNED
-------------------------- ----- -------------------------
<S> <C> <C>
Southgate Federal Credit Union A 74.44%
13050 Fort Street
Southgate, MI 48195-1101
I.C.E. Federal Credit Union A 16.86%
One Manchester Boulevard
Inglewood, CA 90301-1750
Mrs. Diana Riklis A 8.58%
1020 Park Avenue
New York, NY 10028-0913
Postal Employees Regional D 37.99%
Federal Credit Union
40 Montgomery Street
P.O. Box 126
Pawtucket, RI 02862-0126
David Agency, Inc. D 30.21%
800 International Center
900 2nd Avenue South
Minneapolis, MN 55402-3314

</TABLE>

13
<PAGE>

<TABLE>
<CAPTION>
NAME AND ADDRESS OF PERSON CLASS PERCENTAGE OF CLASS OWNED
-------------------------- ----- -------------------------
<S> <C> <C>
United Grocers Federal D 19.15%
Credit Union
P.O. Box 22187
Milwaukie, OR 97222-0187
Eldon A. Glessing D 6.57%
8711 Knox Avenue S.W.
Howard Lake, MN 55349-5310
Direct Response Insurance D 5.92%
Administrative Services Inc.
7815 Telegraph Road
Bloomington, MN 55438-1133
</TABLE>

INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS

INVESTMENT ADVISORY ARRANGEMENTS. Mitchell Hutchins acts as the investment
adviser and administrator of the Fund pursuant to a contract with the Trust
dated April 28, 1988, as supplemented by a separate fee agreement dated
September 29, 1993 ("Advisory Contract"). Under the Advisory Contract, the
Fund pays Mitchell Hutchins an annual fee of 0.30% of the Fund's average net
assets, computed daily and paid monthly. During the period December 7, 1993
(commencement of operations) to November 30, 1994, Mitchell Hutchins earned
investment advisory and administrative fees of $55,736 (of which $42,838 was
voluntarily waived).

Under a service agreement with the Trust, PaineWebber provides certain
services to the Fund not otherwise provided by its transfer agent. The
agreement is reviewed by the Trust's board of trustees annually. During the
period December 7, 1993 (commencement of operations) to November 30, 1994,
PaineWebber earned fees under the service agreement in the approximate amount
of $125.

Under the terms of the Advisory Contract, the Fund will bear all expenses
incurred in its operation that are not specifically assumed by Mitchell
Hutchins. General expenses of the Trust not readily identifiable as belonging
to a particular series of the Trust are allocated among the series (including
the Fund) by or under the direction of the Trust's board of trustees in such
manner as the board deems fair and equitable. Expenses borne by the Fund
include the following (or the Fund's share of the following): (1) the cost
(including brokerage commissions) of securities purchased or sold by the Fund
and any losses incurred in connection therewith; (2) fees payable to and
expenses incurred on behalf of the Fund by Mitchell Hutchins; (3)
organizational expenses; (4) filing fees and expenses relating to the
registration and qualification of the Fund's shares under federal and state
securities laws and maintenance of such registrations and qualifications; (5)
fees and salaries payable to trustees who are not interested persons of the
Trust or Mitchell Hutchins; (6) all expenses incurred in connection with the
trustees' services, including travel expenses; (7) taxes (including any income
or franchise taxes) and governmental fees; (8) costs of any liability,
uncollectible items of deposit and any other insurance or fidelity bonds; (9)
any costs, expenses or losses arising out of a liability of or claim for
damages or other relief asserted against the Trust or the Fund for violation
of any law; (10) legal, accounting and auditing expenses, including legal fees
of special counsel for the independent trustees; (11) charges of custodians,
transfer agents and other agents; (12) costs of preparing share certificates;
(13) expenses of setting in type and printing prospectuses and supplements
thereto, statements of additional information and supplements thereto, reports
and proxy materials for existing shareholders and costs of mailing such
materials to existing shareholders; (14) any extraordinary expenses (including
fees and disbursements of counsel) incurred by the Trust or the Fund; (15)
fees, voluntary assessments and other expenses incurred in connection with
membership in investment company organizations; (16) costs of mailing and

14
<PAGE>

tabulating proxies and costs of meetings of shareholders, the board and any
committees thereof; (17) the cost of investment company literature and other
publications provided to trustees and officers; and (18) costs of mailing,
stationery and communications equipment.

<TABLE>
<CAPTION>
NET ASSETS
INVESTMENT CATEGORY ($ MIL)
------------------- ----------
<S> <C>
Domestic (excluding Money Market).............................. $ 5,772.8
Global......................................................... 3,662.6
Equity/Balanced................................................ 2,804.0
Fixed Income (excluding Money Market).......................... 6,631.4
Taxable Fixed Income......................................... 4,836.4
Tax-Free Fixed Income........................................ 1,795.0
Money Market Funds............................................. 17,772.5
</TABLE>

Mitchell Hutchins personnel may invest in securities for their own accounts
pursuant to a code of ethics that describes the fiduciary duty owed to
shareholders of the PaineWebber and Mitchell Hutchins/Kidder, Peabody ("MH/KP")
mutual funds and other Mitchell Hutchins' advisory accounts by all Mitchell
Hutchins' directors, officers and employees, establishes procedures for
personal investing and restricts certain transactions. For example, employee
accounts generally must be maintained at PaineWebber, personal trades in most
securities require pre-clearance and short-term trading and participation in
initial public offerings generally are prohibited. In addition, the code of
ethics puts restrictions on the timing of personal investing in relation to
trades by PaineWebber and MH/KP funds and other Mitchell Hutchins advisory
clients.

DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of the
Class A and Class D shares of the Fund under separate distribution contracts
dated July 7, 1993 (collectively, "Distribution Contracts") that require
Mitchell Hutchins to use its best efforts, consistent with its other
businesses, to sell shares of the Fund. Shares of the Fund are offered
continuously. Under separate exclusive dealer agreements dated July 7, 1993
relating to the Class A and Class D shares

15
<PAGE>

of the Fund (collectively, "Exclusive Dealer Agreements"), PaineWebber and its
correspondent firms sell the Fund's shares.

Under separate plans of distribution pertaining to the Class A and Class D
shares of the Fund adopted by the Trust in the manner prescribed under Rule
12b-1 under the 1940 Act ("Class A Plan" and "Class D Plan," collectively,
"Plans"), the Fund pays Mitchell Hutchins a service fee, accrued daily and
payable monthly, at the annual rate of 0.25% of the average daily net assets of
each Class of Fund shares. Under the Class D Plan, the Fund pays Mitchell
Hutchins a monthly distribution fee at the annual rate of 0.25% of the average
daily net assets of the Class D shares.

In reporting amounts expended under the Plans to the trustees, Mitchell
Hutchins will allocate expenses attributable to the sale of each Class of Fund
shares to such Class based on the ratio of sales of shares of such Class to the
sales of both Classes of shares. The fees paid by one Class of Fund shares will
not be used to subsidize the sale of the other Class of Fund shares.

For the period December 7, 1993 (commencement of operations) to November 30,
1994, Mitchell Hutchins received the following fees under the Plans:

<TABLE>
<S> <C>
Class A........................................................... $16,866*
Class D........................................................... $10,231*
</TABLE>

*During the fiscal period shown above, Mitchell Hutchins voluntarily waived
all or a portion of its distribution fees. If such waivers had not been made,
for the Class A and Class D shares, the actual fees which would have been paid
by the Fund would have been $38,305 and $16,281, respectively.

<TABLE>
<CAPTION>
CLASS A CLASS D
------- -------
<S> <C> <C>
Marketing and advertising...................................... $36,816 $6,624
Amortization of commissions ................................... N/A $5,943
Printing of prospectuses and statements of additional informa-
tion.......................................................... $ 4,594 $ 811
Branch network costs allocated and interest expense............ $29,688 $7,317
Service fees paid to PaineWebber investment executives......... $17,237 $3,663
</TABLE>

16
<PAGE>

network costs allocated and interest expense" consist of an allocated portion
of the expenses of various PaineWebber departments involved in the
distribution of the Fund's shares, including the PaineWebber retail branch
system.

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

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

In approving the Class D Plan for the Fund, the trustees considered all the
features of the distribution system, including (1) the advantage to investors
in having no initial sales charges deducted from the Fund's purchase payments
and instead having the entire amount of their purchase payments immediately
invested in Fund shares, (2) the advantage to investors from paying for
distribution on an ongoing basis rather than at the time of investment, (3)
Mitchell Hutchins' belief that the ability of PaineWebber investment
executives and correspondent firms to receive sales compensation for their
sales of Class D shares on an ongoing basis, along with continuing service
fees, while their customers invest their entire purchase payments immediately
in Class D shares, would prove attractive to the investment executives and
correspondent firms, resulting in greater growth to the Fund than might
otherwise be the case, (4) the advantages to the shareholders of economies of
scale resulting from growth in the Fund's assets and potential continued
growth, (5) the services provided to the Fund and its shareholders by Mitchell
Hutchins, (6) the services provided by PaineWebber pursuant to its Exclusive
Dealer Agreement with Mitchell Hutchins and (7) Mitchell Hutchins' shareholder
service and distribution-related expenses and costs. The trustees also
recognized that Mitchell Hutchins' willingness to compensate PaineWebber and
its investment executives without the concomitant receipt by Mitchell Hutchins
of initial sales charges was conditioned upon its expectation of being
compensated under the Class D Plan.

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

Under the Distribution Contract between the Trust and Mitchell Hutchins for
the Class A shares, for the period December 7, 1993 (commencement of
operations) to November 30, 1994, Mitchell Hutchins received approximately
$54,211 in sales charges and retained approximately $1,139, net of concessions
to PaineWebber as exclusive dealer.

17
<PAGE>

PORTFOLIO TRANSACTIONS

Subject to policies established by the board of trustees of the Trust,
Mitchell Hutchins is responsible for the execution of the Fund's portfolio
transactions and the allocation of brokerage transactions. In executing
portfolio transactions, Mitchell Hutchins seeks to obtain the best net results
for the Fund, taking into account such factors as the price (including the
applicable brokerage commission or dealer spread), size of order, difficulty of
execution and operational facilities of the firm involved. Prices paid to
dealers in principal transactions, through which most debt securities and some
equity securities are traded, generally include a "spread," which is the
difference between the prices at which the dealer is willing to purchase and
sell a specific security at the time. While Mitchell Hutchins generally seeks
reasonable competitive commission rates and dealer spreads, payment of the
lowest commission or spread is not necessarily consistent with obtaining the
best net results. During the period December 7, 1993 (commencement of
operations) to November 30, 1994, the Fund paid no brokerage commissions.

The Fund has no obligation to deal with any broker or group of brokers in the
execution of portfolio transactions. The Fund contemplates that, consistent
with the policy of obtaining the best net results, brokerage transactions may
be conducted through Mitchell Hutchins or its affiliates, including
PaineWebber. The Trust's board of trustees has adopted procedures in conformity
with Rule 17e-1 under the 1940 Act to ensure that all brokerage commissions
paid to Mitchell Hutchins or its affiliates are reasonable and fair. Specific
provisions in the Advisory Contract authorize Mitchell Hutchins and any of its
affiliates that are members of a national securities exchange to effect
portfolio transactions for the Fund on such exchange and authorize Mitchell
Hutchins and any of its affiliates to retain compensation in connection with
such transactions. Any such transactions will be effected and related
compensation paid only in accordance with applicable regulations of the
Securities and Exchange Commission ("SEC"). During the period December 7, 1993
(commencement of operations) to November 30, 1994, the Fund paid no brokerage
commissions to PaineWebber or any other affiliate of Mitchell Hutchins.

Consistent with the interests of the Fund and subject to the review of the
Trust's board of trustees, Mitchell Hutchins may, in its discretion, use
brokers who provide the Fund with research, analysis, advice and similar
services to execute portfolio transactions on behalf of the Fund. In return for
such services, the Fund may pay to those brokers a higher commission than may
be charged by other brokers, provided that Mitchell Hutchins determines in good
faith that such commission is reasonable in terms either of the particular
transaction or of the overall responsibility of Mitchell Hutchins to the Fund
and its other clients and that the total commissions paid by the Fund will be
reasonable in relation to the benefits to the Fund over the long term. For
purchases or sales with broker-dealer firms which act as principal, Mitchell
Hutchins seeks best execution. Although Mitchell Hutchins may receive certain
research or execution services in connection with these transactions, Mitchell
Hutchins will not purchase securities at a higher price or sell securities at a
lower price than would otherwise be paid if no weight was attributed to the
services provided by the executing dealer. Moreover, Mitchell Hutchins will not
enter into any explicit soft dollar arrangements relating to principal
transactions and will not receive in principal transactions the types of
services which could be purchased for hard dollars. Mitchell Hutchins may
engage in agency transactions in OTC debt securities in return for research and
execution services. These transactions are entered into only in compliance with
procedures ensuring that the transaction (including commissions) is at least as
favorable as it would have been if effected directly with a market-maker that
did not provide research or execution services. These procedures include
Mitchell Hutchins receiving multiple quotes from dealers before executing the
transaction on an agency basis.

Research services furnished by brokers or dealers with or through which the
Fund effects securities transactions may be used by Mitchell Hutchins for other
funds or accounts it manages

18
<PAGE>

and, conversely, research services furnished to Mitchell Hutchins in connection
with other funds or accounts it manages may be used by Mitchell Hutchins for
the Fund. Information and research received from brokers will be in addition
to, and not in lieu of, the services required to be performed by Mitchell
Hutchins under the Advisory Contract. During the period December 7, 1993
(commencement of operations) to November 30, 1994, Mitchell Hutchins directed
no portfolio transactions to brokers chosen because they provided research
services. The Fund may purchase and sell securities to and from dealers who
provide the Fund with research services. Portfolio transactions will not be
directed by the Fund to dealers solely on the basis of research services
provided. The Fund will not purchase portfolio securities at a higher price or
sell such securities at a lower price in connection with transactions effected
with a dealer, acting as principal, who furnishes research services to Mitchell
Hutchins than would be the case if no weight were given by Mitchell Hutchins to
the dealer's furnishing of such services. Research services furnished by the
dealers through which or with which the Fund effects securities transactions
may be used by Mitchell Hutchins in advising other funds or accounts it advises
and, conversely, research services furnished to Mitchell Hutchins in connection
with other funds or accounts that Mitchell Hutchins advises may be used in
advising the Fund.

Investment decisions for the Fund and for other investment accounts managed
by Mitchell Hutchins are made independently of each other in light of differing
considerations for the various accounts. However, the same investment decision
may occasionally be made for the Fund and one or more of such accounts. In such
cases, simultaneous transactions are inevitable. Purchases or sales are then
averaged as to price and allocated between the Fund and such other account(s)
as to amount according to a formula deemed equitable to the Fund and such
account(s). While in some cases this practice could have a detrimental effect
upon the price or value of the security as far as the Fund is concerned, or
upon the amount of the security to be purchased or sold by the Fund, in other
cases it is believed that coordination and the ability to participate in volume
transactions will be beneficial to the Fund.

PORTFOLIO TURNOVER. The portfolio turnover rate is calculated by dividing the
lesser of the Fund's annual sales or purchases of portfolio securities
(exclusive of purchases or sales of securities whose maturities at the time of
acquisition were one year or less) by the monthly average value of such
securities in the portfolio during the year. During the period December 7, 1993
(commencement of operations) to November 30, 1994, the portfolio turnover rate
for the Fund was 570.73%. The Fund's high portfolio turnover rate was
attributable to repositioning caused by an unusually high number of
redemptions.

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

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

19
<PAGE>

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

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

(b) an individual and his or her Individual Retirement Account ("IRA");

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

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

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

RIGHTS OF ACCUMULATION--CLASS A SHARES. Reduced sales charges are available
through a right of accumulation, under which investors are permitted to
purchase Class A shares of the Fund among related accounts at the offering
price applicable to the total of (1) the dollar amount then being purchased
plus (2) an amount equal to the then-current net asset value of the purchaser's
combined holdings of Class A Fund shares and Class A shares of any other
PaineWebber or MH/KP mutual fund. The purchaser must provide sufficient
information to permit confirmation of his or her holdings, and the acceptance
of the purchase order is subject to such confirmation. The right of
accumulation may be amended or terminated at any time.

Shareholders will receive at least 60 days notice of any termination or
material modification of the exchange offer, except no notice need be given of
an amendment whose only material effect is to reduce the exchange fee, and no
notice need be given if, under extraordinary circumstances, either redemptions
are suspended or the Fund temporarily delays or ceases the sales of its shares
because it is unable to invest amounts effectively in accordance with its
investment objective, policies and restrictions.

20
<PAGE>

dispose of securities owned by it or fairly to determine the value of its
assets or (3) as the SEC may otherwise permit. The redemption price may be more
or less than the shareholder's cost, depending on the market value of the
Fund's portfolio at the time.

AUTOMATIC INVESTMENT PLAN. Shareholders may purchase shares of the Fund
through an automatic investment plan, under which an amount specified by the
shareholder of $5,000 or more each month will be sent to the Transfer Agent
from the shareholder's bank for investment in the Fund. In addition to
providing a convenient and disciplined manner of investing, participation in
the automatic investment plan enables the investor to use the technique of
"dollar cost averaging." When under the plan a shareholder invests the same
dollar amount each month, the shareholder will purchase more shares when the
Fund's net asset value per share is low and fewer shares when the net asset
value per share is high. Using this technique, a shareholder's average purchase
price per share over any given period will be lower than if the shareholder
purchased a fixed number of shares on a monthly basis during the period. Of
course, investing through the automatic investment plan does not assure a
profit or protect against loss in declining markets. Additionally, since the
automatic investment plan involves continuous investing regardless of price
levels, an investor should consider his or her financial ability to continue
purchases through periods of low price levels.

SYSTEMATIC WITHDRAWAL PLAN. On or about the 15th of each month for monthly
plans and on or about the 15th of the months selected for quarterly or semi-
annual plans, PaineWebber will arrange for redemption by the Fund of sufficient
Fund shares to provide the withdrawal payment specified by participants in the
Fund's systematic withdrawal plan. The payment generally is mailed
approximately five business days after the redemption date. Withdrawal payments
should not be considered dividends, but redemption proceeds, with the tax
consequences described under "Dividends and Taxes" in the Prospectus. If
periodic withdrawals continually exceed reinvested dividends, a shareholder's
investment may be correspondingly reduced. A shareholder may change the amount
of the systematic withdrawal or terminate participation in the systematic
withdrawal plan at any time without charge or penalty by written instructions
with signatures guaranteed to PaineWebber or PFPC Inc. ("Transfer Agent").
Instructions to participate in the plan, change the withdrawal amount or
terminate participation in the plan will not be effective until five days after
written instructions with signatures guaranteed are received by the Transfer
Agent. Shareholders who receive dividends or other distributions in cash may
not participate in the Fund's systematic withdrawal plan. Purchases of
additional shares concurrent with withdrawals are ordinarily disadvantageous to
shareholders because of tax liabilities and, for Class A shares, sales charges.
Shareholders may request the forms needed to establish a systematic withdrawal
plan from their PaineWebber investment executives, correspondent firms or the
Transfer Agent at 1-800-647-1568.

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

21
<PAGE>

VALUATION OF SHARES

The Fund determines its net asset value per share separately for each Class
of shares as of the close of regular trading (currently 4:00 p.m., eastern
time) on the 0NYSE on each Business Day, which is defined as each Monday
through Friday when the NYSE is open. Currently the NYSE is closed on the
observance of the following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.

Where market quotations are readily available, portfolio securities are
valued based upon market quotations, provided such quotations adequately
reflect, in the judgment of Mitchell Hutchins, the fair value of the security.
Where such market quotations are not readily available, securities are valued
at fair value as determined in good faith by or under the direction of the
Trust's board of trustees, generally based upon appraisals received from a
pricing service using a computerized matrix system or derived from information
concerning the security or similar securities received from recognized dealers
in those securities. The amortized cost method of valuation generally is used
with respect to debt obligations with 60 days or less remaining until maturity
unless the Trust's board of trustees determines that this does not represent
fair value.

PERFORMANCE INFORMATION

TOTAL RETURN CALCULATIONS. Average annual total return quotes ("Standardized
Return") used in the Fund's Performance Advertisements are calculated according
to the following formula:

P(1 + T)to the nth power = ERV

where: P = a hypothetical initial payment of $1,000 to purchase shares of a
specified Class
T = average annual total return of shares of that Class
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment at the
beginning of that period.

Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or "T" in the formula above, is computed by finding
the average annual change in the value of an initial $1,000 investment over the
period. In calculating the ending redeemable value, for Class A shares, the
maximum 2.5% sales charge is deducted from the initial $1,000 payment. All
dividends and other distributions are assumed to have been reinvested at net
asset value.

The Fund also may refer in Performance Advertisements to total return
performance data that are not calculated according to the formula set forth
above ("Non-Standardized Return"). The Fund calculates Non-Standardized Return
for specified periods of time by assuming an investment of $1,000 in Fund
shares and assuming the reinvestment of all dividends and other distributions.
The rate of return is determined by subtracting the initial value of the
investment from the ending value and by dividing the remainder by the initial
value. Initial sales charges are not taken into account in calculating Non-
Standardized Return; the inclusion of those charges would reduce the return.

22
<PAGE>

The following table shows performance information for the Class A and Class D
shares of the Fund for the period indicated:

<TABLE>
<CAPTION>
CLASS A CLASS D
------- -------
<S> <C> <C>
From December 7, 1993 (commencement of operations) to
November 30, 1994:
Standardized Return*...................................... (2.88)% (0.59)%
Non-Standardized Return................................... (0.36)% (0.59)%
</TABLE>
--------
* Standardized Return for Class A shares reflects deduction of the current
maximum sales charge of 2.5%. Class D shares do not impose an initial or a
contingent deferred sales charge; therefore, Non-Standardized Return is
identical to Standardized Return.

YIELD. Yields used in the Fund's Performance Advertisements are calculated by
dividing the Fund's interest income attributable to a Class of shares for a 30-
day period ("Period"), net of expenses attributable to such Class, by the
average number of shares of such Class entitled to receive dividends during the
Period and expressing the result as an annualized percentage (assuming
semiannual compounding) of the maximum offering price per share (in the case of
Class A shares) or the net asset value per share (in the case of Class D
shares) at the end of the Period. Yield quotations are calculated according to
the following formula:

YIELD a-b
= 2[(--- + 1)to the sixth power - 1]
cd
<TABLE>
<C> <C> <S>
where: a = interest earned during the Period attributable to a Class of
shares
b = expenses accrued for the Period attributable to a Class of shares
(net of reimbursements)
c = the average daily number of shares of the Class outstanding
during the Period that were entitled to receive a dividend
d = the maximum offering price per share (in the case of Class A
shares) or the net asset value per share (in the case of Class D
shares) on the last day of the Period.
</TABLE>

Except as noted below, in determining net investment income earned during the
Period (variable "a" in the above formula), the Fund calculates interest earned
on each debt obligation held by it during the Period by (1) computing the
obligation's yield to maturity, based on the market value of the obligation
(including actual accrued interest) on the last business day of the Period or,
if the obligation was purchased during the Period, the purchase price plus
accrued interest and (2) dividing the yield to maturity by 360, and multiplying
the resulting quotient by the market value of the obligation (including actual
accrued interest) to determine the interest income on the obligation for each
day of the period that the obligation is in the portfolio. Once interest earned
is calculated in this fashion for each debt obligation held by the Fund,
interest earned during the Period is then determined by totalling the interest
earned on all debt obligations. For purposes of these calculations, the
maturity of an obligation with one or more call provisions is assumed to be the
next date on which the obligation reasonably can be expected to be called or,
if none, the maturity date. With respect to Class A shares, in calculating the
maximum offering price per share at the end of the period (variable "d" in the
above formula), the Fund's current maximum 2.5% initial sales charge on Class A
shares is included.

The following table shows the yield for the Class A and Class D shares of the
Fund for the 30-day period ended November 30, 1994:

<TABLE>
<CAPTION>
YIELD
-----
<S> <C>
Class A............................................................. 4.69%
Class D............................................................. 4.61%
</TABLE>

23
<PAGE>

OTHER INFORMATION. In Performance Advertisements the Fund may compare its
Standardized Return and/or its Non-Standardized Return with, or otherwise
discuss data (including average 30-day money market fund yields), published by
Lipper Analytical Services, Inc. ("Lipper"); IBC/Donaghue's Money Market Fund
Report; CDA Investment Technologies, Inc. ("CDA"); Wiesenberger Investment
Companies Service ("Wiesenberger"); Investment Company Data Inc. ("ICD"); or
Morningstar Mutual Funds ("Morningstar"); or with the performance of U.S.
Treasury securities of various maturities, recognized stock, bond and other
indices, including (but not limited to) the Salomon Brothers Bond Index,
Salomon Brothers Non-U.S. World Government Bond Index, Lehman Bond Index,
Lehman Brothers Government/Corporate Bond Index, Lehman Brothers 20+ Year
Treasury Bond Index, the Standard & Poor's 500 Composite Stock Price Index, the
Dow Jones Industrial Average, Morgan Stanley Capital International World Index
and changes in the Consumer Price Index as published by the U.S. Department of
Commerce. Such comparisons also may include economic data and statistics
published by the United States Bureau of Labor Statistics, such as the cost of
living index, information and statistics on the residential mortgage market or
the market for mortgage-backed securities, such as those published by the
Federal Reserve Bank, the Office of Thrift Supervision, Ginnie Mae, Federal
National Mortgage Association and Federal Home Loan Mortgage Corporation, and
the Lehman Brothers Mortgage-Backed Securities Index. The Fund also may refer
in such materials to mutual fund performance rankings and other data, such as
comparative asset, expense and fee levels, published by Lipper, CDA,
Wiesenberger, ICD or Morningstar. Performance Advertisements also may refer to
discussions of the Fund and comparative mutual fund data and ratings reported
in independent periodicals, including (but not limited to) THE WALL STREET
JOURNAL, MONEY Magazine, FORBES, BUSINESS WEEK, FINANCIAL WORLD, BARRON'S,
FORTUNE, THE NEW YORK TIMES, THE CHICAGO TRIBUNE, THE WASHINGTON POST and THE
KIPLINGER LETTERS. Comparisons in Performance Advertisements may be in graphic
form.

The Fund may include discussions or illustrations of the effects of
compounding in Performance Advertisements. "Compounding" refers to the fact
that, if dividends or other distributions on an investment in the Fund are
reinvested in additional Fund shares, any future income or capital appreciation
of the Fund would increase the value, not only of the original Fund investment,
but also of the additional Fund shares received through reinvestment. As a
result, the value of the Fund investment would increase more quickly than if
dividends or other distributions had been paid in cash.

The Fund may also compare its performance with, or may otherwise discuss, the
performance of bank certificates of deposit (CDs) as measured by the CDA
Investment Technologies, Inc. Certificate of Deposit Index, the Bank Rate
Monitor National Index and the averages of yields of CDs of major banks
published by Banxquote (R) Money Markets. In comparing the Fund or its
performance to CDs, investors should keep in mind that bank CDs are insured in
whole or in part by an agency of the U.S. government and offer fixed principal
and fixed or variable rates of interest, and that bank CD yields may vary
depending on the financial institution offering the CD and prevailing interest
rates. Shares of the Fund are not insured or guaranteed by the U.S. government
and returns and net asset value will fluctuate. In comparing the Fund or its
performance to money market funds, investors should keep in mind that money
market funds seek to maintain a constant net asset value per share of $1.00,
while the net asset value of the Fund's shares will fluctuate and the Fund may
not be able to return money invested on a dollar-for-dollar basis. The
securities held by the Fund generally will have longer maturities than those
held by money market funds or than most CDs and may reflect interest rate
fluctuations for longer term securities. Additionally, the Fund's portfolio
securities present greater risks than those of money market funds. An
investment in the Fund involves greater risks than an investment in either a
money market fund or a CD.

24
<PAGE>

TAXES

In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code, the Fund must distribute to
its shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income and net short-
term capital gain) ("Distribution Requirement") and must meet several
additional requirements. These requirements include the following: (1) the Fund
must derive at least 90% of its gross income each taxable year from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of securities, or other income derived with respect to its
business of investing in securities; (2) the Fund must derive less than 30% of
its gross income each taxable year from the sale or other disposition of
securities that were held for less than three months ("Short-Short
Limitation"); (3) at the close of each quarter of the Fund's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, U.S. government securities, securities of other RICs and other
securities, with these other securities limited, in respect of any one issuer,
to an amount that does not exceed 5% of the value of the Fund's total assets;
and (4) at the close of each quarter of the Fund's taxable year, not more than
25% of the value of its total assets may be invested in securities (other than
U.S. government securities or the securities of other RICs) of any one issuer.

Dividends and other distributions declared by the Fund in December of any
year and payable to shareholders of record on a date in that month will be
deemed to have been paid by the Fund and received by shareholders on the last
day of that month if the distributions are paid by the Fund during the
following January. Accordingly, those distributions will be taxed to
shareholders for the year in which that December 31 falls. The Fund invests
exclusively in debt securities and receives no dividend income; accordingly, no
portion of the dividends or other distributions paid by the Fund will be
eligible for the dividends-received deduction allowed to corporations.

The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year substantially
all of its ordinary income for the year and capital gain net income for the
one-year period ending on November 30 of that year, plus certain other amounts.

The Fund may acquire certain zero coupon or other securities issued with
original issue discount. As a holder of such securities, the Fund annually must
include in its gross income the portion of the original issue discount that
accrues on the securities for the taxable year, even if the Fund receives no
corresponding payment on the securities during the year. Because the Fund
annually must distribute substantially all of its investment company taxable
income, including any accrued original issue discount, to satisfy the
Distribution Requirement and avoid imposition of the Excise Tax, the Fund may
be required in a particular year to distribute as a dividend an amount that is
greater than the total amount of cash it actually receives. Those distributions
will be made from the Fund's cash assets or from the proceeds of sales of
portfolio securities, if necessary. The Fund may realize capital gains or
losses from those sales, which would increase or decrease the Fund's investment
company taxable income or net capital gain (the excess of net long-term capital
gain over net short-term capital loss). In addition, any such gains may be
realized on the disposition of securities held for less than three months.
Because of the Short-Short Limitation, any such gains would reduce the Fund's
ability to sell other securities held for less than three months that it might
wish to sell in the ordinary course of its portfolio management.

25
<PAGE>

OTHER INFORMATION

INDEPENDENT AUDITORS. Ernst & Young LLP, 787 Seventh Avenue, New York, N.Y.
10019, serves as independent auditors for the Trust.

FINANCIAL STATEMENTS

The Fund's Annual Report to Shareholders for the period December 7, 1993
(commencement of operations) to November 30, 1994 is a separate document
supplied with this Statement of Additional Information, and the financial
statements, accompanying notes and report of independent auditors appearing
therein are incorporated by reference in this Statement of Additional
Information.

26
<PAGE>

PAINEWEBBER SHORT-TERM U.S. GOVERNMENT
INCOME FUND FOR CREDIT UNIONS

Statement of Additional Information
April 1, 1995

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and Restrictions...................................... 1
Trustees and Officers..................................................... 7
Investment Advisory and Distribution Arrangements......................... 14
Portfolio Transactions.................................................... 18
Reduced Sales Charges, Additional Exchange and Redemption Information and
Other Services........................................................... 19
Valuation of Shares....................................................... 22
Performance Information................................................... 22
Taxes..................................................................... 25
Other Information......................................................... 26
Financial Statements...................................................... 26
</TABLE>

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

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS NOT CONTAINED IN THE PROSPECTUS OR IN THIS STATEMENT OF ADDITIONAL IN-
FORMATION IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THE PROSPECTUS AND THIS STATE-
MENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN OFFERING BY THE FUND OR BY
THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE
MADE.

LOGO Recycled
Paper

PAINEWEBBER
<PAGE>

PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND

PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1994

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
--------- -------------------- -------------- ------------
<C> <S> <C> <C> <C>
Government National Mortgage Association Certificates - 8.70%
$ 260 GNMA.................... 02/15/23 8.000% $ 246,694
25,331 GNMA.................... 01/15/16 10.500 27,341,932
11,867 GNMA.................... 01/15/18 11.500 13,168,204
------------
Total Government National Mort-
gage Association Certificates
(cost - $42,322,892)............ 40,756,830
------------
Federal Home Loan Mortgage Corporation Certificates - 21.45%
7,029 FHLMC................... 08/01/20 9.500 7,185,353
14,800 FHLMC................... 05/15/21 9.500 15,331,305
3,542 FHLMC................... 11/01/19 11.000 3,816,398
6,259 FHLMC................... 08/01/16 11.500 6,865,617
24,736 FHLMC ARM............... 07/01/24 4.527 23,877,830
22,809 FHLMC ARM............... 01/01/23 5.929 22,669,683
15,103 FHLMC ARM............... 08/01/23 5.885 14,664,330
1,518 FHLMC Gold.............. 10/01/20 10.500 1,623,209
4,070 FHLMC Gold.............. 12/01/20 11.000 4,416,100
------------
Total Federal Home Loan Mortgage
Corporation Certificates
(cost - $102,112,743)........... 100,449,825
------------
Federal National Mortgage Association Certificates - 3.12%
2,196 FNMA.................... 01/01/18 10.250 2,312,997
4,765 FNMA.................... 09/01/17 10.500 5,016,200
6,701 FNMA.................... 10/01/15 11.000 7,304,123
------------
Total Federal National Mortgage
Association Certificates
(cost - $15,260,942)............ 14,633,320
------------
Collateralized Mortgage Obligations - 36.69%
FHLMC, Series 35, Class
25,586 PA..................... 06/17/06 6.750 25,274,158
FHLMC, Series 1312,
12,476 Class HA............... 12/15/20 10.500 13,747,614
FNMA, REMIC Trust 1992-
22,213 213, Class A........... 04/25/18 7.000 21,879,778
FNMA, REMIC Trust 1993-
6,769 164, Class A........... 03/25/08 5.250 6,194,726
Bear Stearns, Series
7,124 1989-1, Class D........ 06/01/17 9.000 7,221,786
Capstead Securities
Corp., Series 1991-5,
13,000 Class VG............... 10/25/21 9.500 13,014,219
3,780 Collateralized Mortgage
Obligation Trust, Se-
ries 28, Class C....... 12/01/10 8.500 3,776,546
19,464 Greenwich Capital Ac-
ceptance Corp., Series
94,
Class A-1.............. 08/25/24 5.752* 19,780,338
Prudential Bache Mort-
2,830 gage Trust II, Class C. 06/01/18 9.200 2,880,188
Resolution Trust Corp.,
7,235 Series 1994A, Class 2A. 06/25/26 6.800 7,185,723
Ryland Mortgage Accept-
7,114 ance Corp., Series 76B. 08/01/18 9.000 7,054,341
24,886 Saxon Mortgage Securi-
ties Corp., Series
1994-5,
Class A1............... 05/25/24 5.818* 24,765,073
19,083 Saxon Mortgage Securi-
ties Corp., Series
1994-6,
Class A................ 06/25/24 5.988* 19,014,746
------------
Total Collateralized Mortgage Ob-
ligations
(cost - $173,786,933)........... 171,789,236
------------
Agency Backed Obligations - 20.40%
Federal Home Loan Bank
24,535 Consolidated Bonds..... 03/25/96 to 12/30/96 9.500 to 9.800 25,349,348
Federal National Mort-
gage Association Deben-
69,295 tures.................. 02/12/96 to 03/10/98 7.700 to 9.350 70,179,823
------------
Total Agency Backed Obligations
(cost - $97,876,332)............ 95,529,171
------------
</TABLE>

2
<PAGE>

PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND

PORTFOLIO OF INVESTMENTS (CONCLUDED) NOVEMBER 30, 1994

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
---------------------------------- -------------- -------------- ------------
<C> <S> <C> <C> <C>
Treasury Bills - 8.20%
United States Treasury
Bills (cost -
$40,000 $38,539,913).......... 07/27/95 5.280 to 6.018 $ 38,377,455
------------
Commercial Paper - 4.90%
17,000 Motorola Inc. .......... 12/07/94 5.450 16,984,558
American Telephone &
3,000 Telegraph.............. 01/10/95 5.700 2,981,000
3,000 Wisconsin Gas Co. ...... 02/06/95 5.800 2,967,617
------------
Total Commercial Paper (cost -
$22,933,175).................... 22,933,175
------------
Repurchase Agreement - 0.71%
3,342 Repurchase Agreement
dated 11/30/94, with
State Street Bank &
Trust Co., collateral-
ized by $3,215,000
Treasury Bond, 8.500%
due 02/15/20; proceeds
$3,342,478 (Cost -
$3,342,000)........... 12/01/94 5.150% 3,342,000
------------
Total Investments (cost -
$496,174,930) - 104.17%......... 487,811,012
------------
Liabilities in excess of other as-
sets - (4.17%)................... (19,535,410)
------------
Net Assets - 100.00%.............. $468,275,602
============
</TABLE>
--------------------
* Floating rate mortgage backed security.
ARM - Adjustable Rate Mortgage Security
REMIC - Real Estate Mortgage Investment Conduit

See accompanying notes to financial statements

3
<PAGE>

PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND

STATEMENT OF ASSETS AND LIABILITIES NOVEMBER 30, 1994

<TABLE>
<S> <C>
Assets
Investments in securities, at value (cost - $496,174,930)........ $487,811,012
Cash............................................................. 434,798
Receivable for investments sold.................................. 50,343,750
Interest receivable.............................................. 5,666,294
Receivable for shares of beneficial interest sold................ 239,271
Deferred organizational costs.................................... 161,603
Other assets..................................................... 39,981
------------
Total assets..................................................... 544,696,709
------------
Liabilities
Payable for investments purchased................................ 63,204,496
Payable for shares of beneficial interest repurchased............ 11,641,719
Dividends payable................................................ 1,095,287
Payable to affiliates............................................ 452,509
Accrued expenses and other liabilities........................... 27,096
------------
Total liabilities................................................ 76,421,107
------------
Net Assets
Beneficial interest - $0.001 par value (unlimited amount
authorized)..................................................... 597,349,370
Overdistributed net investment income............................ (1,179,228)
Accumulated net realized losses from investment transactions..... (119,530,622)
Net unrealized depreciation of investments....................... (8,363,918)
------------
Net assets applicable to shares outstanding...................... $468,275,602
============
Class A:
Net assets....................................................... $158,711,891
------------
Shares outstanding............................................... 70,456,247
------------
Net asset and redemption value per share......................... $2.25
=====
Maximum offering price per share (net asset value plus sales
charge of 3.00% of offering price).............................. $2.32
=====
Class B:
Net assets....................................................... $ 13,382,019
------------
Shares outstanding............................................... 5,941,456
------------
Net asset value and offering price per share..................... $2.25
=====
Class D:
Net assets....................................................... $296,181,692
------------
Shares outstanding............................................... 131,558,800
------------
Net asset value, offering price and redemption value per share... $2.25
=====
</TABLE>

See accompanying notes to financial statements

4
<PAGE>

PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND

STATEMENT OF OPERATIONS FOR THE YEAR ENDED NOVEMBER 30, 1994

<TABLE>
<S> <C>
Investment Income:
Interest........................................................ $ 67,242,683
-------------
Expenses:
Investment advisory and administration.......................... 5,598,491
Service fees - Class A.......................................... 899,441
Service and distribution fees - Class B......................... 258,627
Service and distribution fees - Class D......................... 5,505,447
Custody and accounting.......................................... 483,839
Transfer agency and service fees................................ 438,558
Legal and audit................................................. 130,273
Reports and notices to shareholders............................. 187,785
Federal and state registration fees............................. 75,598
Amortization of organizational expense.......................... 47,000
Trustees' fees.................................................. 11,042
Other expenses.................................................. 175,571
-------------
13,811,672
Less: Fee waivers from adviser.................................. (400,611)
-------------
Net expenses.................................................... 13,411,061
-------------
Net investment income........................................... 53,831,622
-------------
Realized and unrealized losses from investment activities:
Net realized losses from investment transactions................ (122,429,696)
Net change in unrealized appreciation/depreciation of
investments.................................................... (10,439,486)
-------------
Net realized and unrealized losses from investment activities... (132,869,182)
-------------
Net decrease in net assets resulting from operations............ $ (79,037,560)
=============
</TABLE>

See accompanying notes to financial statements

5
<PAGE>

PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 3, 1993
(COMMENCEMENT OF
FOR THE YEAR ENDED OPERATIONS) TO
NOVEMBER 30, 1994 NOVEMBER 30, 1993
------------------ -----------------
<S> <C> <C>
From operations:
Net investment income................... $ 53,831,622 $ 32,286,982
Net realized losses from investment
transactions, futures and
options................................ (122,429,696) (17,912,716)
Net change in unrealized
appreciation/depreciation of
investments............................ (10,439,486) 2,075,568
--------------- --------------
Net increase (decrease) in net assets
resulting from operations.............. (79,037,560) 16,449,834
--------------- --------------
Dividends to shareholders from:
Net investment income - Class A......... (18,507,294) (7,461,841)
Net investment income - Class B......... (1,132,692) (529,816)
Net investment income - Class D......... (34,050,034) (24,295,325)
--------------- --------------
(53,690,020) (32,286,982)
--------------- --------------
From beneficial interest transactions:
Net proceeds from the sale of beneficial
interest............................... 659,981,986 2,679,186,026
Cost of beneficial interest repurchased. (1,881,729,023) (916,208,664)
Proceeds from dividends reinvested...... 37,606,736 21,989,249
--------------- --------------
Net increase (decrease) in net assets
from beneficial interest transactions.. (1,184,140,301) 1,784,966,611
--------------- --------------
Contribution to capital from adviser.... 16,014,012 --
--------------- --------------
Net increase (decrease) in net assets... (1,300,853,869) 1,769,129,463
Net assets:
Beginning of period..................... 1,769,129,471 8
--------------- --------------
End of period........................... $ 468,275,602 $1,769,129,471
=============== ==============
</TABLE>

See accompanying notes to financial statements

6
<PAGE>

PAINEWEBBER NOTES TO FINANCIAL STATEMENTS

ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

PaineWebber Short-Term U.S. Government Income Fund (the "Fund"), a
series of PaineWebber Managed Investments Trust (the "Trust"), is
registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended, as an open-end,
diversified investment company. The Trust is a series mutual fund
with six funds: the Fund, as well as PaineWebber U.S. Government
Income Fund, PaineWebber Investment Grade Income Fund, PaineWebber
High Income Fund, PaineWebber Short-Term U.S. Government Income
Fund for Credit Unions, and PaineWebber Utility Income Fund, which
are not presented in these financial statements.

Organizational Matters - Prior to commencing its operations, the
Fund had no activities other than organizational matters and
activities related to the initial public offering and the issuance,
at net asset value, of 1 Class A share, 1 Class B share and 1 Class
D share of the Fund to Mitchell Hutchins Asset Management Inc.
("Mitchell Hutchins"), a wholly owned subsidiary of PaineWebber
Incorporated ("PaineWebber") and investment adviser and
administrator of the Fund. Costs of $235,000 incurred by the Fund
in connection with its organization and the registration of its
shares have been deferred and are being amortized, using the
straight-line method over a period not to exceed five years from
the commencement of operations of the Fund.

On May 3, 1993 the Fund commenced operations for Class A, B and D
shares. Each class represents interests in the same assets of the
Fund and the classes are identical except for differences in their
sales charge structures, ongoing distribution charges and certain
transfer agency expenses. In addition, Class B shares and all
corresponding dividend reinvested shares automatically convert to
Class A shares approximately six years after issuance. All classes
of shares have equal voting privileges, except that each class has
exclusive voting rights with respect to its distribution plan.

Valuation of Investments - Where market quotations are readily
available, portfolio securities are valued thereon, provided such
quotations adequately reflect, in the judgment of Mitchell
Hutchins, the fair value of the securities. When market quotations
are not readily available, securities are valued based upon
appraisals derived from information concerning those securities or
similar securities received from recognized dealers in those
securities. All other securities are valued at fair value as
determined in good faith by or under the direction of the Trust's
board of trustees. The amortized cost method of valuation, which
approximates market value, is used to value debt obligations with
60 days or less remaining to maturity, unless the Trust's board of
trustees determines that this does not represent fair value.

The ability of the issuers of the debt securities held by the Fund
to meet their obligations may be affected by economic developments,
including those particular to a specific industry or region.

7
<PAGE>

PAINEWEBBER NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

Investment Transactions and Investment Income - Investment
transactions are recorded on the trade date. Realized gains and
losses from investment transactions are calculated using the
identified cost method. Interest income is recorded on an accrual
basis. Discounts are accreted and premiums are amortized as
adjustments to interest income and the identified cost of
investments. The Fund may enter into transactions in which the Fund
sells securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar (same
type, coupon and maturity) securities on a specified future date
(the "roll period"). During the roll period the Fund foregoes
principal and interest paid on the securities. The Fund is
compensated by the interest earned on the cash proceeds of the
initial sale and by fee income or a lower repurchase price.

Income, expenses (excluding class-specific expenses) and
realized/unrealized gains/losses are allocated proportionately to
each class of shares based upon the relative net asset value of
outstanding shares (or the value of dividend-eligible shares, as
appropriate) of each class at the beginning of the day (after
adjusting for current capital share activity of the respective
classes). Class-specific expenses are charged directly to the
applicable class of shares.

Futures Contracts - Upon entering into a financial futures
contract, the Fund is required to pledge to a broker an amount of
cash and/or U.S. Government securities equal to a certain
percentage of the contract amount. This amount is known as the
"initial margin." Subsequent payments, known as "variation margin,"
are made or received by the Fund each day, depending on the daily
fluctuations in the value of the underlying financial futures
contracts. Such variation margin is recorded for financial
statement purposes on a daily basis as unrealized gain or loss
until the financial futures contract is closed, at which time the
net gain or loss is reclassified to realized.

Using financial futures contracts involves various market risks.
The maximum amount at risk from the purchase of a futures contract
is the contract value. The Fund is subject to a number of
guidelines which reduce this risk by seeking to ensure that
financial futures contracts are used for hedging purposes as well
as to manage the average duration of the Fund's portfolio and not
for leverage. However, imperfect correlations between futures
contracts and the portfolio securities being hedged, or market
disruptions, do not normally permit full control of these risks at
all times.

Option Writing - When the Fund writes a call or a put option, an
amount equal to the premium received by the Fund is included in the
Fund's Statement of Assets and Liabilities as an asset and as an
equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option
written. If an option which the Fund has written either expires on
its stipulated expiration date or the Fund enters into a closing
purchase transaction, the Fund realizes a gain (or loss if the cost
of a closing purchase transaction exceeds the premium received when
the option was written) without regard to any unrealized gain or
loss on the underlying security, and the liability related to such
option is extinguished. If a call option which the Fund has written
is exercised, the Fund realizes a capital gain or loss (long-term
or short-term, depending on the holding period of the underlying
security) from the sale of the

8
<PAGE>

PAINEWEBBER NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

underlying security and the proceeds from the sale are increased by
the premium originally received. If a put option which a Fund has
written is exercised, the amount of the premium originally received
reduces the cost of the security which the Fund purchases upon
exercise of the option. At November 30, 1994 the Fund held no
unexpired options.

Repurchase Agreements - The Fund's custodian takes possession of
the collateral pledged for investments in repurchase agreements.
The underlying collateral is valued daily on a mark-to-market basis
to ensure that the value, including accrued interest, is at least
equal to the repurchase price. In the event of default of the
obligation to repurchase, the Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or
bankruptcy by the other party to the agreement, realization and/or
retention of the collateral may be subject to legal proceedings.

Federal Tax Status - The Fund intends to distribute all of its
taxable income and to comply with the other requirements of the
Internal Revenue Code applicable to regulated investment companies.
Accordingly, no provision for federal income taxes is required. In
addition, by distributing during each calendar year substantially
all of its net investment income, capital gains and certain other
amounts, if any, the Fund intends not to be subject to a federal
excise tax.

Dividends and Distributions to Shareholders - Dividends and
distributions to shareholders are recorded on the ex-dividend date.
The Fund declares dividends on a daily basis from net investment
income. During the year ended November 30, 1994, the Fund adopted
Statement of Position 93-2, "Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies".
Accordingly, the amount of dividends and distributions are
determined in accordance with federal income tax regulations which
may differ from generally accepted accounting principles. These
"book/tax" differences are either considered temporary or permanent
in nature. To the extent these differences are permanent in nature,
such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; temporary differences do not
require reclassification. Dividends and distributions which exceed
net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in
excess of net realized capital gains. To the extent they exceed net
investment income and net realized capital gains for tax purposes,
they are reported as distributions of paid-in-capital.

INVESTMENT ADVISER AND ADMINISTRATOR

The Trust's board of trustees has approved an Investment Advisory
and Administration Contract ("Advisory Contract") with Mitchell
Hutchins, under which Mitchell Hutchins serves as investment
adviser and administrator of the Fund. In

9
<PAGE>

PAINEWEBBER NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

accordance with the Advisory Contract, the Fund pays Mitchell
Hutchins an investment advisory and administration fee, which is
accrued daily and paid monthly, at the annual rate of 0.50% of the
Fund's average daily net assets. At November 30, 1994, the Fund
owed Mitchell Hutchins $203,774 in investment advisory and
administration fees. For the year ended November 30, 1994, Mitchell
Hutchins voluntarily waived $400,611 in investment advisory and
administration fees.

In compliance with applicable state securities laws, Mitchell
Hutchins will reimburse the Fund if and to the extent that the
aggregate operating expenses in any fiscal year, exclusive of
taxes, distribution fees, interest, brokerage fees and
extraordinary expenses, exceed limitations imposed by various state
regulations. Currently, the most restrictive limitation applicable
to the Fund is 2.5% of the first $30 million of average daily net
assets, 2.0% of the next $70 million and 1.5% of any excess over
$100 million. For the year ended November 30, 1994, no
reimbursements were required pursuant to the above limitation for
the Fund.

On October 19, 1994 shareholders of the Fund approved Pacific
Investment Management Company ("PIMCO") as sub-adviser to the Fund.
Under a separate contract with Mitchell Hutchins, Mitchell Hutchins
(not the Fund) will pay PIMCO a fee, computed weekly and payable
monthly, in an amount equal to one-half of the advisory fee
received by Mitchell Hutchins from the Fund.

DISTRIBUTION PLANS

Mitchell Hutchins is the distributor of the Fund's shares and has
appointed PaineWebber as the exclusive dealer for the sale of those
shares. Under separate plans of distribution pertaining to the
Class A, Class B, and Class D shares, the Fund pays Mitchell
Hutchins monthly service fees at the annual rate of 0.25% of the
average daily net assets of each Class of shares and monthly
distribution fees at the annual rate of 0.75% and 0.50% of the
average daily net assets of Class B shares and Class D shares,
respectively. At November 30, 1994, the Fund owed Mitchell Hutchins
$241,001 in service and distribution fees.

Mitchell Hutchins also receives the proceeds of the initial sales
charges paid by the shareholders upon the purchase of Class A
shares and the contingent deferred sales charges paid by the
shareholders upon certain redemptions of Class B shares. Mitchell
Hutchins has informed the Fund that for the year ended November 30,
1994, it earned the following amounts in sales charges:

<TABLE>
<S> <C>
Initial sales charges - Class A...........................$892,216
Contingent deferred sales charges - Class B...............$251,254
</TABLE>

TRANSFER AGENCY SERVICE FEES

The Fund pays PaineWebber an annual fee of $4.00 per active
PaineWebber shareholder account for certain services not provided
by the Fund's transfer agent. For these services for the year ended
November 30, 1994, PaineWebber earned $139,291 and was owed $7,734
at November 30, 1994 in shareholder service fees from the Fund.

10
<PAGE>

PAINEWEBBER NOTES TO FINANCIAL STATEMENTS-(CONCLUDED)

INVESTMENTS IN SECURITIES

For federal income tax purposes, the cost of securities owned at November 30,
1994 was substantially the same as the cost of securities for financial
statement purposes.

At November 30, 1994, the components of the net unrealized depreciation of
investments were as follows:

<TABLE>
<S> <C>
Gross depreciation (investments having an excess of cost
over value)...................................................... $(8,698,532)
Gross appreciation (investments having an excess of value
over cost)....................................................... 334,614
-----------
Net unrealized depreciation of investments........................ $(8,363,918)
===========
</TABLE>

For the year ended November 30, 1994, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were as follows:

<TABLE>
<S> <C>
Purchases........................................................ $2,584,255,735
Sales............................................................ $3,691,173,531
</TABLE>

FEDERAL INCOME TAX STATUS

At November 30, 1994, the Fund had a net capital loss carryforward of
$119,530,622. The loss carryforward is available as a reduction, to the extent
provided in the regulations, of future net realized capital gains, and will
expire between November 30, 2001 and November 30, 2002.

At November 30, 1993, the cumulative effect of permanent book/tax
reclassifications resulted in increases (decreases) to the components of net
assets as follows:

<TABLE>
<S> <C>
Beneficial interest................................................ $(1,721,048)
Overdistributed net investment income.............................. (3,076,730)
Accumulated net realized losses.................................... 4,797,778
</TABLE>

For the year ended November 30, 1994, the reclassification arising from
permanent book/tax differences resulted in increases (decreases) to the
components of net assets as follows:

<TABLE>
<S> <C>
Beneficial interest............................................... $(17,769,912)
Overdistributed net investment income............................. 1,755,900
Accumulated net realized losses................................... 16,014,012
</TABLE>

11
<PAGE>

PAINEWEBBER NOTES TO FINANCIAL STATEMENTS-(CONCLUDED)

SHARES OF BENEFICIAL INTEREST

There is an unlimited amount of $0.001 par value shares of beneficial interest
authorized. Transactions in shares of beneficial interest, were as follows:

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
-------------------------- ----------------------- --------------------------
FOR THE
FOR THE PERIOD MAY FOR THE
FOR THE YEAR PERIOD MAY FOR THE 3, 1993+ FOR THE YEAR PERIOD MAY
ENDED 3, 1993+ TO YEAR ENDED TO ENDED 3, 1993+ TO
NOVEMBER 30, NOVEMBER 30, NOVEMBER NOVEMBER NOVEMBER 30, NOVEMBER 30,
1994 1993 30, 1994 30, 1993 1994 1993
------------ ------------ ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold............. 110,055,565 330,216,040 6,067,397 17,947,153 152,025,632 726,137,751
Shares repurchased...... (266,619,181) (109,145,183) (13,249,406) (5,271,802) (511,209,002) (253,596,948)
Dividends reinvested in
additional shares...... 4,302,214 1,646,791 315,736 132,377 11,154,830 7,046,536
------------ ------------ ----------- ---------- ------------ ------------
Net decrease in shares
outstanding............ (152,261,402) 222,717,648 (6,866,273) 12,807,728 (348,028,540) 479,587,339
============ ============ =========== ========== ============ ============
</TABLE>
+ Commencement of operations

CAPITAL CONTRIBUTION FROM MITCHELL HUTCHINS

On September 23, 1994, the Fund recorded a capital contribution from Mitchell
Hutchins in the amount of $16.0 million or $0.06 per Fund share. An additional
$16.8 million that was paid directly to certain shareholders who had redeemed
Fund shares prior to September 23, 1994. These amounts were paid by Mitchell
Hutchins in connection with the settlement of certain class action litigation.
The payments reflected losses that had been incurred by the Fund by reason of
its investments in non-planned amortization class interest-only and principal-
only (I/O and P/O) securities.

AFFILIATED TRANSACTIONS

PaineWebber Capital Inc., a wholly owned subsidiary of PaineWebber Group Inc.,
purchased certain of the Fund's I/O and P/O securities on June 8, 1994 for an
aggregate purchase price of $50.4 million and purchased the Fund's certain
structured floating rate securities on August 25, 1994 for an aggregate
purchase price of $179.7 million. The purchases of those securities by
PaineWebber Capital Inc. were made at prices equal to the securities' then
current fair values, and thus did not affect the Fund's net asset value.

12
<PAGE>

PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND

FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD IS PRESENTED BELOW:

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
-------------------------- -------------------------- --------------------------
FOR THE FOR THE FOR THE
PERIOD MAY 3, PERIOD MAY 3, PERIOD MAY 3,
1993 1993 1993
FOR THE (COMMENCEMENT FOR THE (COMMENCEMENT FOR THE (COMMENCEMENT
YEAR OF YEAR OF YEAR OF
ENDED OPERATIONS) ENDED OPERATIONS) ENDED OPERATIONS)
NOVEMBER TO NOVEMBER NOVEMBER TO NOVEMBER NOVEMBER TO NOVEMBER
30, 1994 30, 1993 30, 1994 30, 1993 30, 1994 30, 1993
-------- ------------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 2.48 $ 2.50 $ 2.48 $ 2.50 $ 2.47 $ 2.50
-------- -------- ------- ------- -------- ----------
Net increase (decrease)
from investment
operations:
Net investment income... 0.12 0.07 0.10 0.06 0.11 0.06
Net realized and
unrealized losses from
investment, futures and
options transactions.... (0.29) (0.02) (0.29) (0.02) (0.28) (0.03)
-------- -------- ------- ------- -------- ----------
Net increase (decrease)
in net asset value from
operations.............. (0.17) 0.05 (0.19) 0.04 (0.17) 0.03
-------- -------- ------- ------- -------- ----------
Less distributions:
Dividends from net
investment income....... (0.12) (0.07) (0.10) (0.06) (0.11) (0.06)
-------- -------- ------- ------- -------- ----------
Contribution to capital
from adviser............ .06 -- .06 -- .06 --
-------- -------- ------- ------- -------- ----------
Net asset value, end of
period.................. $ 2.25 $ 2.48 $ 2.25 $ 2.48 $ 2.25 $ 2.47
======== ======== ======= ======= ======== ==========
Total investment
return(1)............... (4.50%)** 1.88% (5.24%)** 1.47% (4.99%)** 1.20%
======== ======== ======= ======= ======== ==========
Ratios/Supplemental data:
Net assets, end of
period (000 omitted).... $158,712 $551,243 $13,382 $31,706 $296,182 $1,186,181
Ratio of expenses to
average net assets(2)... 0.84% 0.81%* 1.62% 1.62%* 1.36% 1.35%*
Ratio of net investment
income to average net
assets(2)............... 5.16% 4.85%* 4.40% 4.31%* 4.65% 4.52%*
Portfolio turnover rate. 246.34% 96.60% 246.34% 96.60% 246.34% 96.60%
</TABLE>
----------
* Annualized
** Net of $0.06 contribution of capital from adviser. If such contribution had
not been made the total investment returns would have been (7.02)% for Class
A, (7.74)% for Class B and (7.50)% for Class D.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends at net
asset value on the payable dates, and a sale at net asset value on the last
day of each period reported. The figures do not include sales charges;
results for Class A and Class B would be lower if sales charges were
included. Total investment returns for periods less than one year have not
been annualized.
(2) During the year ended November 30, 1994 Mitchell Hutchins waived a portion
of its advisory and administration fees. If such waivers had not been made
the annualized ratios of expenses to average net assets, and net investment
income to average net assets, respectively, would have been 0.88% and 5.12%
for Class A, 1.66% and 4.35% for Class B, and 1.39% and 4.61% for Class D.

13
<PAGE>

PAINEWEBBER

REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS

The Board of Trustees and Shareholders
PaineWebber Managed Investments Trust

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of PaineWebber Short-Term U.S. Government Income
Fund (one of the portfolios of PaineWebber Managed Investments Trust) (the
"Fund") as of November 30, 1994, and the related statement of operations for
the year then ended, the statement of changes in net assets, and the financial
highlights for the year ended November 30, 1994 and the period May 3, 1993
(commencement of operations) to November 30, 1993. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned at
November 30, 1994 by correspondence with the custodian and others. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
PaineWebber Short-Term U.S. Government Income Fund at November 30, 1994, and
the results of its operations for the year then ended, the changes in its net
assets, and the financial highlights for the indicated periods, in conformity
with generally accepted accounting principles.

/s/ Ernst & Young LLP

New York, New York
January 20, 1995
<PAGE>

Page 5

PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND FOR CREDIT UNIONS

--------------------------------------------------------------------------------
Portfolio of Investments
November 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
---------- --------------------- --------------- -----------
<S> <C> <C> <C>
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS--31.20%
$2,000 FHLMC Series 1993, Class 119-CA......................... 07/25/16 5.500 % $ 1,891,378
1,816 FHLMC Series 1730, Class 1730-E......................... 02/15/99 7.000 1,778,382
-----------
Total Agency Collateralized Mortgage Obligations
(cost--$3,788,333). . . . 3,669,760
-----------

AGENCY BACKED NOTES--42.23%
1,000 Federal Land Bank Note.................................. 10/21/96 7.950 1,010,454
4,000 Federal Home Loan Mortgage Corporation.................. 10/21/96 6.915 3,956,292
-----------
Total Agency Backed Notes (cost--$5,020,266)........................ 4,966,746
-----------

U.S. GOVERNMENT SECURITIES--30.53%
3,000 United States Treasury Notes............................ 11/15/96 7.250 2,991,570
600 United States Treasury Bills............................ 12/08/94 to 12/15/94 4.720 599,174
-----------
Total U.S. Government Securities (cost--$3,627,046)................. 3,590,744
-----------

Total Investments (cost--$12,435,645)--103.96%...................... 12,227,250
Liabilities in excess of other assets--(3.96%)...................... (465,317)
-----------
Net Assets--100.00%................................................. $11,761,933
-----------
-----------
</TABLE>

See accompanying notes to financial statements

PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND FOR CREDIT UNIONS
<PAGE>

Page 6

--------------------------------------------------------------------------------
Statement of Assets and Liabilities
November 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost--$12,435,645).......................................... $12,227,250
Cash............................................................................................. 71,988
Interest receivable.............................................................................. 71,557
Deferred organizational costs.................................................................... 188,000
Other assets..................................................................................... 16,551
-----------
Total assets.................................................................................. 12,575,346
-----------
LIABILITIES
Payable for shares of beneficial interest repurchased............................................ 686,145
Dividends payable................................................................................ 24,170
Payable to affiliate............................................................................. 2,928
Accrued expenses and other liabilities........................................................... 100,170
-----------
Total liabilities............................................................................. 813,413
-----------
NET ASSETS
Beneficial interest--$0.001 par value; (unlimited amount authorized)............................. 12,562,168
Accumulated net realized losses from investment transactions..................................... (591,840)
Net unrealized depreciation of investments....................................................... (208,395)
-----------
Net assets....................................................................................... $11,761,933
-----------
-----------
CLASS A:
Net assets....................................................................................... $10,619,432
-----------
Shares outstanding............................................................................... 1,107,517
-----------
Net asset value and redemption value per share................................................... $9.59
Maximum offering price per share (net asset value plus sales charge
of 2.50% of offering price).................................................................... $9.84
CLASS D:
Net assets....................................................................................... $ 1,142,501
-----------
Shares outstanding............................................................................... 119,169
-----------
Net asset value, offering price and redemption value per share................................... $9.59

</TABLE>

See accompanying notes to financial statements

PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND FOR CREDIT UNIONS
<PAGE>

Page 7

--------------------------------------------------------------------------------
Statement of Operations
For the Period December 7, 1993 (commencement of operations)
to November 30, 1994
--------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.......................................................................................... $1,016,269
----------

EXPENSES:
Investment advisory and administration............................................................ 55,736
Distribution fees--Class A........................................................................ 38,305
Distribution fees--Class D........................................................................ 16,281
Legal and audit................................................................................... 62,904
Amortization of organizational expenses........................................................... 47,000
Custody and accounting............................................................................ 39,690
Reports and notices to shareholders............................................................... 21,491
Federal and state registration.................................................................... 20,201
Transfer agency and service fees.................................................................. 9,775
Trustees' fees and expenses....................................................................... 7,292
Other expenses.................................................................................... 8,704
----------
327,379
Less: Fee waivers................................................................................. (70,327)
----------
Net expenses...................................................................................... 257,052
----------
NET INVESTMENT INCOME................................................................................ 759,217
----------
REALIZED AND UNREALIZED LOSSES FROM INVESTMENT ACTIVITIES:
Net realized losses from investment transactions.................................................. (591,840)
Net change in unrealized appreciation/depreciation of investments................................. (208,395)
----------
NET REALIZED AND UNREALIZED LOSSES FROM INVESTMENT ACTIVITIES........................................ (800,235)
----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS................................................. $ (41,018)
----------
----------
</TABLE>

See accompanying notes to financial statements

PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND FOR CREDIT UNIONS

--------------------------------------------------------------------------------
Statement of Changes in Net Assets
For the Period December 7, 1993 (commencement of operations)
to November 30, 1994
<PAGE>

Page 8

--------------------------------------------------------------------------------
<TABLE>
<S> <C>
FROM OPERATIONS:
Net investment income............................................................................ $ 759,217
Net realized losses from investment transactions................................................. (591,840)
Net change in unrealized appreciation/depreciation of investments................................ (208,395)
-----------
Net decrease in net assets resulting from operations............................................. (41,018)
-----------

DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income--Class A................................................................... (632,410)
Net investment income--Class D................................................................... (126,807)
-----------
(759,217)
-----------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares............................................................. 34,003,391
Cost of shares repurchased....................................................................... (21,738,631)
Proceeds from dividends reinvested............................................................... 297,388
-----------
Net increase in net assets from beneficial interest transactions................................. 12,562,148
-----------
Net increase in net assets....................................................................... 11,761,913

NET ASSETS:
Beginning of period.............................................................................. 20
-----------
End of period.................................................................................... $11,761,933
-----------
-----------
</TABLE>

See accompanying notes to financial statements

PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND FOR CREDIT UNIONS

--------------------------------------------------------------------------------
Notes to Financial Statements
--------------------------------------------------------------------------------

ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

PaineWebber Managed Investments Trust (the 'Trust') was organized under
Massachusetts law by a Declaration of Trust dated November 21, 1986 and is
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940, as amended, as an open-end, diversified investment company.
The Trust is a series mutual fund with six funds: PaineWebber Short-Term U.S.
Government Income Fund for Credit Unions (the 'Fund'), PaineWebber U.S.
Government Income Fund, PaineWebber Investment Grade Income Fund, PaineWebber
<PAGE>

Page 9

High Income Fund, PaineWebber Short-Term U.S. Government Income Fund and
PaineWebber Utility Income Fund. The financial statements for PaineWebber U.S.
Government Income Fund, PaineWebber Investment Grade Income Fund, PaineWebber
High Income Fund, PaineWebber Short-Term U.S. Government Income Fund and
PaineWebber Utility Income Fund are not included herein.

Organizational Matters--Prior to commencing its operations, the Fund had no
activities other than organizational matters and activities related to the
initial public offering and the issuance, at net asset value, of 1 Class A share
and 1 Class D share of the Fund to PaineWebber Incorporated ('PaineWebber').
Organization costs estimated at $235,000 have been deferred and are being
amortized, using the straight-line method over a period not to exceed five years
from the commencement of operations.

On December 7, 1993 the Fund commenced operations for Classes A and D
Shares. Each Class represents interests in the same assets of the Fund and the
Classes are identical except for differences in their sales charge structures,
ongoing distribution charges and certain transfer agency expenses. Both Classes
of shares have equal voting privileges except that each Class has exclusive
voting rights with respect to its distribution plan.

Valuation of Investments--Where market quotations are readily available,
portfolio securities are valued based upon market quotations, provided such
quotations adequately reflect, in the judgment of Mitchell Hutchins Asset
Management Inc. ('Mitchell Hutchins'), a wholly owned subsidiary of PaineWebber
and investment adviser and administrator of the Fund, the fair value of the
securities. When market quotations are not readily available, securities are
valued based upon appraisals derived from information concerning those
securities or similar securities received from recognized dealers in those
securities. All other securities are valued at fair value as determined in good
faith by or under the direction of the Trust's board of trustees. The amortized
cost method of valuation, which approximates market value, is used to value debt
obligations with 60 days or less remaining to maturity, unless the Trust's board
of trustees determines that this does not represent fair value.

The ability of the issuers of the debt securities held by the Fund to meet
their obligations may be affected by economic developments, including those
particular to a specific industry or region.

Investment Transactions and Investment Income--Investment transactions are
recorded on the trade date. Realized gains and losses from investment
transactions are calculated using the identified cost method. Interest income is
recorded on an accrual basis. Discounts are accreted and premiums are amortized
as adjustments to interest income and the identified cost of investments.

PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND FOR CREDIT UNIONS

Income, expenses (excluding class-specific expenses) and
<PAGE>

Page 10

realized/unrealized gains/losses are allocated proportionately to each class of
shares upon the relative net asset value of outstanding shares (or the value of
dividend-eligible shares, as appropriate) of each class at the beginning of the
day (after adjusting for current capital share activity of the respective
classes). Class-specific expenses are charged directly to the applicable class
of shares.

Repurchase Agreements--The Fund's custodian takes possession of the
collateral pledged for investments in repurchase agreements. The underlying
collateral is valued daily on a mark-to-market basis to ensure that the value,
including accrued interest, is at least equal to the repurchase price. In the
event of default of the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances in the event of default or bankruptcy by
the other party to the agreement, realization and/or retention of the collateral
may be subject to legal proceedings.

Federal Tax Status--The Fund intends to distribute all of its taxable
income and to comply with the other requirements of the Internal Revenue Code
applicable to regulated investment companies. Accordingly, no provision for
federal income taxes is required. In addition, by distributing during each
calendar year substantially all of its investment income, capital gains and
certain other amounts, if any, the Fund intends not to be subject to a federal
excise tax.

At November 30, 1994, the Fund had a net capital loss carryforward of
$591,840. The loss carryforward is available as a reduction, to the extent
provided in the regulations, of future net realized capital gains and will
expire November 30, 2002.

Dividends--Dividends and distributions to shareholders are recorded on the
ex-dividend date. The Fund declares dividends on a daily basis from net
investment income. Dividends from net investment income and distributions from
realized gains from investment transactions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. Net capital gains, if any, will be distributed at least annually,
but the Fund may make more frequent distributions of such gains, if necessary,
to avoid income or excise taxes.

INVESTMENT ADVISER AND ADMINISTRATOR

The Trust's board of trustees has approved an Investment Advisory and
Administration Contract ('Advisory Contract') with Mitchell Hutchins, under
which Mitchell Hutchins serves as investment adviser and administrator of the
Fund. In accordance with the Advisory Contract, the Fund pays Mitchell Hutchins
an investment advisory and administration fee, which is accrued daily and paid
monthly, at the annual rate of 0.30% of the Fund's average daily net assets. For
the period ended November 30, 1994, Mitchell Hutchins voluntarily waived $42,838
in investment advisory and administration fees.

Page 11

regulations. Currently,

PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND FOR CREDIT UNIONS

--------------------------------------------------------------------------------
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
the most restrictive limitation applicable to the Fund is 2.5% of the first $30
million of average daily net assets, 2.0% of the next $70 million and 1.5% of
any excess over $100 million. For the period ended November 30, 1994, no
reimbursements were required pursuant to the above limitation for the Fund.

DISTRIBUTION PLANS

Mitchell Hutchins is the distributor of the Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under separate
plans of distribution pertaining to the Class A and Class D shares, the Fund
pays Mitchell Hutchins monthly service fees at the annual rate of 0.25% of the
average daily net assets of each Class of shares and monthly distribution fees
at the annual rate of 0.25% of the average daily net assets of Class D shares.
At November 30, 1994, the Fund owed Mitchell Hutchins $2,920 in service and
distribution fees. For the period ended November 30, 1994, Mitchell Hutchins
voluntarily waived $27,489 in service and distribution fees.

Mitchell Hutchins also receives the proceeds of the initial sales charges
paid by the shareholders upon the purchase of Class A shares. Mitchell Hutchins
has informed the Fund that for the period ended November 30, 1994, it received
sales charges of $54,211 on Class A shares.

TRANSFER AGENCY SERVICE FEES

The Fund pays PaineWebber an annual fee of $4.00 per active PaineWebber
shareholder account for certain services not provided by the Fund's transfer
agent. For these services for the period ended November 30, 1994, PaineWebber
earned $125 and was owed $8 at November 30, 1994 in shareholder service fees
from the Fund.

INVESTMENTS IN SECURITIES

For federal income tax purposes, the cost of securities owned at November
30, 1994 was substantially the same as the cost of securities for financial
statement purposes.

At November 30, 1994, the components of the net unrealized depreciation of
investments were as follows:

<TABLE>
<S> <C>
Gross depreciation (investments having an excess of cost over value)....................... $(208,395)

Gross appreciation (investments having an excess of value over cost)....................... --
---------
</TABLE>
<PAGE>

Page 12

<TABLE>
<S> <C>
Net unrealized depreciation of investments................................................. $(208,395)
---------
---------
</TABLE>

For the period November 30, 1994, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were as follows:

<TABLE>
<S> <C>
Purchases..................................................................... $101,568,509

Sales......................................................................... $ 89,144,567
</TABLE>

PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND FOR CREDIT UNIONS

--------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
--------------------------------------------------------------------------------

SHARES OF BENEFICIAL INTEREST

There is an unlimited amount of $0.001 par value of beneficial interest
authorized. Transactions in shares of beneficial interest for the period
December 7, 1993 (commencement of operations) to November 30, 1994, were as
follows:

<TABLE>
<CAPTION>
Class A Class D
---------- --------
<S> <C> <C>
Shares sold............................................................... 2,754,298 655,650
Shares repurchased........................................................ (1,667,949) (545,459)
Dividends reinvested in additional Fund shares............................ 21,167 8,977
---------- --------
Net increase in shares outstanding............................................. 1,107,516 119,168
---------- --------
---------- --------
</TABLE>

PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND FOR CREDIT UNIONS

--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------

Selected data for a share of beneficial interest outstanding from December
7, 1993 (commencement of operations) to November 30, 1994, is presented below:
<PAGE>

Page 13

<TABLE>
<CAPTION>
Class A Class D
------- -------
<S> <C> <C>
Net asset value, beginning of period....................................................... $ 10.00 $ 10.00
------- -------
Net decrease from operations:
Net investment income.................................................................... 0.40 0.37
Net realized and unrealized losses from investment transactions.......................... (0.41) (0.41)
------- -------
Net decrease in net asset value from operations.......................................... (0.01) (0.04)
------- -------
Less distributions:
Dividends from net investment income..................................................... (0.40) (0.37)
------- -------
Net asset value, end of period............................................................. $ 9.59 $ 9.59
------- -------
------- -------
Total investment return (1)................................................................ (0.36)% (0.59)%
------- -------
------- -------
Ratios/Supplemental Data:
Net assets, end of period (000's)........................................................ $10,619 $ 1,143
Expenses to average net assets**......................................................... 1.35%* 1.55%*
Net investment income to average net assets**............................................ 4.13%* 3.89%*
Portfolio turnover rate.................................................................. 570.73% 570.73%
</TABLE>

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

* Annualized

** During the period presented above, PaineWebber/Mitchell Hutchins waived a
portion of its investment advisory and administration fees, and service and
distribution fees. If such waivers had not been made for the Class A shares,
the annualized ratio of expenses to average net assets and the annualized
ratio of net investment income to average net assets would have been 1.72%
and 3.75%, respectively, for the period ended November 30, 1994. If such
waivers had not been made for the Class D shares, the annualized ratio of
expenses to average net assets and the annualized ratio of net investment
income to average net assets would have been 1.94% and 3.51%, respectively,
for the period ended November 30, 1994.

(1) Total investment return is calculated assuming a $1,000 investment on the
first day of the period, reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and a sale at net
asset value on the last day of the period. The figures do not include sales
charges; results for Class A would be lower if sales charges were included.
Total investment returns have not been annualized.

12
<PAGE>

Page 14

PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND FOR CREDIT UNIONS

--------------------------------------------------------------------------------
Report of Ernst & Young LLP, Independent Auditors
--------------------------------------------------------------------------------

The Board of Trustees and Shareholders
PaineWebber Managed Investments Trust

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of PaineWebber Short-Term U.S. Government Income
Fund for Credit Unions (one of the portfolios of PaineWebber Managed Investments
Trust) (the 'Fund') as of November 30, 1994, and the related statement of
operations, the statement of changes in net assets, and the financial highlights
for the period December 7, 1993 (commencement of operations) to November 30,
1994. These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments owned at November 30, 1994 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
PaineWebber Short-Term U.S. Government Income Fund for Credit Unions at November
30, 1994, and the results of its operations, the changes in its net assets, and
the financial highlights for the period December 7, 1993 to November 30, 1994,
in conformity with generally accepted accounting principles.

New York, New York
January 20, 1995

<PAGE>

PART C. OTHER INFORMATION
-------------------------
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements: (filed herewith)

Included in Part A of this Registration Statement for PaineWebber
Short-Term U.S. Government Income Fund:

Financial Highlights for one Class A share, one Class B share and
one Class D share of the Fund for the year ended November 30,
1994 and for the period May 3, 1993 (commencement of operations)
to November 30, 1993.

Included in Part B of this Registration Statement for PaineWebber
Short-Term U.S. Government Income Fund through incorporation by reference
from the annual report to shareholders (a copy of these financial
statements is transmitted herewith):

Portfolio of Investments at November 30, 1994.

Statement of Assets and Liabilities at November 30, 1994.

Statement of Operations for the year ended November 30, 1994.

Statement of Changes in Net Assets for the year ended November
30, 1994 and the period May 3, 1993 (commencement of operations)
to November 30, 1993.

Notes to Financial Statements.

Financial Highlights for one Class A share, one Class B share and
one Class D share of the Fund for the year ended November 30,
1994 and the period May 3, 1993 (commencement of operations) to
November 30, 1993.

Report of Ernst & Young LLP, Independent Auditors, dated January
20, 1995.

Included in Part A of this Registration Statement for PaineWebber
Short-Term U.S. Government Income Fund for Credit Unions:

Financial Highlights for one Class A share and one Class D share
of the Fund for the period December 7, 1993 (commencement of
operations) to November 30, 1994.

Included in Part B of this Registration Statement for PaineWebber
Short-Term U.S. Government Income Fund for Credit Unions through
incorporation by reference from the annual report to shareholders (a copy
of these financial statements is transmitted herewith):

C-1
<PAGE>

Portfolio of Investments at November 30, 1994.

Statement of Assets and Liabilities at November 30, 1994.

Statement of Operations for the year ended November 30, 1994.

Statement of Changes in Net Assets for the period December 7,
1993 (commencement of operations) to November 30, 1994.

Notes to Financial Statements.

Financial Highlights for one Class A share and one Class D share
of the Fund for the period December 7, 1993 (commencement of
operations) to November 30, 1994.

Report of Ernst & Young LLP, Independent Auditors, dated January
20, 1995.

(b) Exhibits:
(1) (a) Declaration of Trust 1/
(b) Amendment to Declaration of Trust effective
January 28, 1988 2/
(c) Amendment to Declaration of Trust effective July
1, 1990 6/
(d) Amendment to Declaration of Trust effective March
21, 1991 7/
(e) Amendment to Declaration of Trust effective April
1, 1991 8/
(f) Amendment to Declaration of Trust effective July
1, 1991 11/
(g) Amendment to Declaration of Trust effective
February 26, 1992 10/
(h) Amendment to Declaration of Trust effective
January 25, 1993 12/
(i) Amendment to Declaration of Trust effective May
25, 1993 14/
(j) Amendment to Declaration of Trust effective July
30, 1993 14/
(k) Amendment to Declaration of Trust effective
November 13, 1993 18/
(2) (a) By-Laws 1/
(b) Amendment to By-Laws effective March 19, 1991 7/
(c) Amendment to By-Laws effective September 28, 1994
18/
(3) Voting trust agreement - none
(4) Specimen Security - none
(5) (a) Investment Advisory and Administration Contract
4/
(b) Investment Advisory Fee Agreement with respect to
PaineWebber Utility Income Fund 15/

C-2
<PAGE>

(c) Investment Advisory Fee Agreement with respect to
PaineWebber Short-Term U.S. Government Income
Fund 15/
(d) Investment Advisory Fee Agreement with respect to
PaineWebber Short-Term U.S. Government Income
Fund for Credit Unions 16/

(e) Sub-Investment Advisory Contract with respect to
PaineWebber Short-Term U.S. Government Income
Fund (filed herewith)

(6) (a) Distribution Contract with respect to Class A
Shares 15/
(b) Distribution Contract with respect to Class B
Shares 15/
(c) Distribution Contract with respect to Class C
Shares 9/
(d) Distribution Contract with respect to Class D
Shares 15/
(e) Exclusive Dealer Agreement with respect to Class
A Shares 15/
(f) Exclusive Dealer Agreement with respect to Class
B Shares 15/
(g) Exclusive Dealer Agreement with respect to Class
C Shares9/
(h) Exclusive Dealer Agreement with respect to Class
D Shares15/
(7) Bonus, profit sharing or pension plans - none
(8) Custodian Agreement 2/
(9) (a) Transfer Agency and Service Contract 6/
(b) Service Contract 5/
(10) (a) Opinion and consent of Kirkpatrick & Lockhart,
counsel to the Registrant, with respect to Class
A and Class B shares of U.S. Government Income
Fund, Investment Grade Income Fund, and High
Income Fund 8/
(b) Opinion and consent of Kirkpatrick & Lockhart,
counsel to the Registrant, with respect to Class
A and Class B shares of PaineWebber Utility
Income Fund 9/
(c) Opinion and consent of Kirkpatrick & Lockhart,
counsel to the Registrant, with respect to Class
D Shares of the above-referenced Funds 11/
(d) Opinion and consent of Kirkpatrick & Lockhart,
counsel to the Registrant, with respect to
PaineWebber Short-Term U.S. Government Income
Fund 12/
(e) Opinion and Consent of Kirkpatrick & Lockhart,
counsel to the Registrant, with respect to
PaineWebber Short-Term U.S. Government Income
Fund for Credit Unions 14/

C-3
<PAGE>

(11) Auditor's Consents (filed herewith)

(12) Financial statements omitted from prospectus - none
(13) Letter of investment intent 3/
(14) Prototype Retirement Plan 10/
(15) (a) Plan pursuant to Rule 12b-1 with respect to Class
A Shares 9/
(b) Plan pursuant to Rule 12b-1 with respect to Class
B Shares 9/
(c) Plan pursuant to Rule 12b-1 with respect to Class
D Shares 12/
(d) Distribution Fee Addendum with respect to Class D
shares of PaineWebber Short-Term U.S. Government
Income Fund 15/
(e) Distribution Fee Addendum with respect to Class D
shares of PaineWebber Short-Term U.S. Government
Income Fund for Credit Unions 16/
(16) Schedule for Computation of Performance Quotations 8/
(a) Schedule for Computation of Performance
Quotations for Class A shares of U.S. Government
Income Fund, Investment Grade Income Fund,
and High Income Fund 7/
(b) Schedule for Computation of Performance
Quotations for Class B shares of U.S. Government
Income Fund, Investment Grade Income Fund, and
High Income Fund 10/
(c) Schedule for Computation of Performance
Quotations for Class C shares of U.S. Government
Income Fund 10/
(d) Schedule for Computation of Performance
Quotations For Class D shares of U.S. Government
Income Fund, Investment Grade Income Fund, and
High Income Fund 13/
(e) Schedule for Computation of Performance
Quotations for Class A, Class B and Class D
shares of PaineWebber Utility Income Fund 16/
(f) Schedule for Computation of Performance
Quotations for Class A, Class B, and Class D
shares of PaineWebber Short-Term U.S. Government
Income Fund 16/
(g) Schedule for computation of Performance
Quotations for Class A and Class D shares of
PaineWebber Short-Term U.S. Government Income
Fund for Credit Unions 17/
---------------------

1/ Incorporated by reference from Post-Effective Amendment No. 5 to
the registration statement, SEC File No. 2-91362, filed January
30, 1987.

C-4
<PAGE>

2/ Incorporated by reference from Post-Effective Amendment No. 8 to
the registration statement, SEC File No. 2-91362, filed March 31,
1988.

3/ Incorporated by reference from Pre-Effective Amendment No. 1 to
the registration statement, SEC File No. 2-91362, filed July 18,
1984.

4/ Incorporated by reference from Post-Effective Amendment No. 10 to
the registration statement, SEC File No. 2-91362, filed March 6,
1989.

5/ Incorporated by reference from Post-Effective Amendment No. 12 to
the registration statement, SEC File No. 2-91362, filed January
31, 1990.

6/ Incorporated by reference from Post-Effective Amendment No. 15 to
the registration statement, SEC File No. 2-91362, filed January
31, 1991.

7/ Incorporated by reference from Post-Effective Amendment No. 16 to
the registration statement, SEC File No. 2-91362, filed March 28,
1991.

8/ Incorporated by reference from Post-Effective Amendment No. 18 to
the registration statement, SEC File No. 2-91362, filed May 2,
1991.

9/ Incorporated by reference from Post-Effective Amendment No. 19 to
the registration statement, SEC File No. 2-91362, filed March 2,
1992.

10/ Incorporated by reference from Post-Effective Amendment No. 20 to
the registration statement, SEC File No. 2-91362, filed April 1,
1992.

11/ Incorporated by reference from Post-Effective Amendment No. 21 to
the registration statement, SEC File No. 2-91362, filed May 1,
1992.

12/ Incorporated by reference from Post-Effective Amendment No. 23 to
the registration statement, SEC File No. 2-91362, filed January
26, 1993.

13/ Incorporated by reference from Post-Effective Amendment No. 24 to
the registration statement, SEC File No. 2-91362, filed April 1,
1993.

14/ Incorporated by reference from Post-Effective Amendment No. 25 to
the registration statement, SEC File No. 2-91362, filed August
10, 1993.

C-5
<PAGE>

15/ Incorporated by reference from Post-Effective Amendment No. 26 to
the registration statement, SEC File No. 2-91362, filed October
4, 1993.

16/ Incorporated by reference from Post-Effective Amendment No. 28 to
the registration statement, SEC File No. 2-91362, filed April 1,
1994.

17/ Incorporated by reference from Post-Effective Amendment No. 30 to
the registration statement, SEC File No. 2-91362, filed July 1,
1994.

18/ Incorporated by reference form Post-Effective Amendment No. 34 to
the registration statement, SEC File No. 2-91362, filed January
27, 1995.

Item 25. Persons Controlled by or under Common Control with
Registrant
--------------------------------------------------

None.
<TABLE>
<CAPTION>

Item 26. Number of Holders of Securities
-------------------------------
<S> <C>

Number of Record
Shareholders as of
Title of Class January 19, 1995
-------------- ------------------
Shares of beneficial interest, par value $0.001 per
share, in

U.S. Government Income Fund

Class A Shares 45,979
Class B Shares 12,048

Class C Shares 2
Class D Shares 8,270

Investment Grade Income Fund

Class A Shares 25,724
Class B Shares 6,469

Class C Shares 0
Class D Shares 3,916

C-6

<PAGE>

<S> <C>

High Income Fund
Class A Shares 26,990

Class B Shares 21,662

Class C Shares 0
Class D Shares 13,192

PaineWebber Utility Income Fund
Class A Shares 1,887

Class B Shares 5,594

Class C Shares 0
Class D Shares 2,254

PaineWebber Short-Term U.S. Government Income Fund
Class A Shares 2,890

Class B Shares 2,799

Class C Shares 0
Class D Shares 47,446

PaineWebber Short-Term U.S. Government Income Fund
for Credit Unions
Class A Shares 25

Class B Shares 0

Class C Shares 0
Class D Shares 34
</TABLE>

C-7
<PAGE>

Item 27. Indemnification
---------------

Section 2 of "Indemnification" in Article X of the Declaration of
Trust provides that the Registrant will indemnify its trustees and
officers to the fullest extent permitted by law against claims and
expenses asserted against or incurred by them by virtue of being or having
been a trustee or officer; provided that no such person shall be
indemnified where there has been an adjudication or other determination,
as described in Article X, that such person is liable to the Registrant or
its shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
his or her office or did not act in good faith in the reasonable belief
that his or her action was in the best interest of the Registrant.
Section 2 of "Indemnification" in Article X also provides that the
Registrant may maintain insurance policies covering such rights of
indemnification.

Additionally, "Limitation of Liability" in Article X of the
Declaration of Trust provides that the trustees or officers of the
Registrant shall not be personally liable to any person extending credit
to, contracting with, or having a claim against, the Trust; and that,
provided they have exercised reasonable care and have acted under the
reasonable belief that their actions are in the best interest of the
Registrant, the trustees and officers shall not be liable for neglect or
wrongdoing by them or any officer, agent, employee or investment adviser
of the Registrant.

Section 2 of Article XI of the Declaration of Trust additionally
provides that, subject to the provisions of Section 1 of
Article XI and to Article X, the trustees shall not be liable for errors
of judgment or mistakes of fact or law, or for any act or omission in
accordance with advice of counsel or other experts, or failing to follow
such advice, with respect to the meaning and operation of the Declaration
of Trust.

Article XI of the By-Laws provides that the Registrant may
purchase and maintain insurance on behalf of any person who is or was a
trustee, officer or employee of the Trust, or is or was serving at the
request of the Trust as a trustee, officer or employee of a corporation,
partnership, joint venture, trust or other enterprise against any
liability asserted against him or her and incurred by him or her in any
such capacity or arising out of his or her status as such, whether or not
the Registrant would have the power to indemnify him or her against such
liability, provided that the Registrant may not acquire insurance
protecting any trustee or officer against liability to the Registrant or
its shareholders to which he or she would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless disregard
of the duties involved in the conduct of his or her office.

Section 9 of the Investment Advisory and Administration Contract
(the "Contract") between Mitchell Hutchins Asset Management Inc.

C-8
<PAGE>

("Mitchell Hutchins") and the Trust provides that Mitchell Hutchins shall
not be liable for any error of judgment or mistake of law or for any loss
suffered by the Registrant in connection with the matters to which the
Contract relates, except for a loss resulting from willful misfeasance,
bad faith, or gross negligence of Mitchell Hutchins in the performance of
its duties or from its reckless disregard of its obligations and duties
under the Contract. Section 10 of the Contract provides that the trustees
shall not be liable for any obligations of the Trust under the Contract
and that Mitchell Hutchins shall look only to the assets and property of
the Trust in settlement of such right or claim and not to the assets and
property of the trustees.

Section 7 of the Sub-Investment Advisory Contract ("Sub-Advisory
Contract") between Mitchell Hutchins and Pacific Investment Management
Company ("PIMCO") with respect to PaineWebber Short-Term U.S. Government
Income Fund ("Short-Term U.S. Government Income Fund") provides that PIMCO
shall not be liable for any error of judgment or mistake of law or for any
loss suffered by Short-Term U.S. Government Income Fund, the Registrant,
or its shareholders or by Mitchell Hutchins in connection the matters to
which that contract relates. Section 7, however, expressly excepts from
this limitation of liability a loss resulting from willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties
or from reckless disregard by it of its obligations under the contract.
Pursuant to a separate agreement between Mitchell Hutchins and PIMCO,
Mitchell Hutchins has agreed to indemnify PIMCO with respect to third
party claims relating to certain acts or omissions by PIMCO occurring
prior to the date of the Sub-Advisory Contract.

Section 9 of each Distribution Contract provides that the Trust
will indemnify Mitchell Hutchins and its officers, directors or
controlling persons against all liabilities arising from any alleged
untrue statement of material fact in the Registration Statement or from
any alleged omission to state in the Registration Statement a material
fact required to be stated in it or necessary to make the statements in
it, in light of the circumstances under which they were made, not
misleading, except insofar as liability arises from untrue statements or
omissions made in reliance upon and in conformity with information
furnished by Mitchell Hutchins to the Trust for use in the Registration
Statement; and provided that this indemnity agreement shall not protect
any such persons against liabilities arising by reason of their bad faith,
gross negligence or willful misfeasance; and shall not inure to the
benefit of any such persons unless a court of competent jurisdiction or
controlling precedent determines that such result is not against public
policy as expressed in the Securities Act of 1933. Section 9 of each
Distribution Contract also provides that Mitchell Hutchins agrees to
indemnify, defend and hold the Trust, its officers and trustees free and
harmless of any claims arising out of any alleged untrue statement or any
alleged omission of material fact contained in information furnished by
Mitchell Hutchins for use in the Registration Statement or arising out of
an agreement between Mitchell Hutchins and any retail dealer, or arising
out of supplementary literature or advertising used by Mitchell Hutchins
in connection with each Distribution Contract.

C-9
<PAGE>

Section 9 of each Exclusive Dealer Agreement contains provisions
similar to Section 9 of each Distribution Contract, with respect to
PaineWebber Incorporated ("PaineWebber").

Section 6 of the Service Contract provides that PaineWebber shall
be indemnified and held harmless by the Trust against all liabilities,
except those arising out of bad faith, gross negligence, willful
misfeasance or reckless disregard of its duties under the Service
Contract.

Section 10 of each Distribution Contract and Section 7 of the
Service Contract contain provisions similar to that of Section 10 of the
Investment Advisory and Administration Contract, with respect to Mitchell
Hutchins and PaineWebber, as appropriate.

Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be provided to trustees, officers
and controlling persons of the Trust, pursuant to the foregoing provisions
or otherwise, the Trust has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other
than the payment by the Trust of expenses incurred or paid by a trustee,
officer or controlling person of the Trust in connection with the
successful defense of any action, suit or proceeding or payment pursuant
to any insurance policy) is asserted against the Trust by such trustee,
officer or controlling person in connection with the securities being
registered, the Trust will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
Mitchell Hutchins, a Delaware corporation, is a registered
investment advisor and is a wholly owned subsidiary of PaineWebber which
is, in turn, a wholly owned subsidiary of Paine Webber Group Inc.
Mitchell Hutchins is primarily engaged in the investment advisory
business. Information as to the officers and directors of Mitchell
Hutchins is included in its Form ADV filed on December 19, 1994 with the
Securities and Exchange Commission (registration number 801-13219) and is
incorporated herein by reference.

PIMCO serves as investment sub-adviser for Short-Term U.S.
Government Income Fund. PIMCO, a Delaware partnership, is a registered
investment adviesr and a subsidiary partnership of PIMCO Advisors L.P.
("PIMCO Advisors"). A majority interest in PIMCO Advisors is held by
PIMCO Partners, G.P., a general partnership between Pacific Financial
Asset Management Corporation, an indirect wholly owned subsidiary of
Pacific Mutual Life Insurance Company, and PIMCO Partners, L.P., a limited
partnership controlled by the PIMCO Managing Directors. PIMCO is

C-10
<PAGE>

primarily engaged in the investment advisory business. Information as to
the officers, Managing Directors and partners of PIMCO is included in its
Form ADV filed on January 13, 1995 with the Securities and Exchange
Commission (registration number 801-48187) and is incorporated herein by
reference.

Item 29. Principal Underwriters
----------------------
(a) Mitchell Hutchins serves as principal underwriter and/or
investment adviser for the following other investment companies:

. ALL-AMERICAN TERM TRUST INC.
. GLOBAL HIGH INCOME DOLLAR FUND INC.
. GLOBAL INCOME PLUS FUND, INC.
. GLOBAL SMALL CAP FUND INC.
. MITCHELL HUTCHINS/KIDDER, PEABODY EQUITY INCOME FUND,
INC.
. MITCHELL HUTCHINS/KIDDER, PEABODY GOVERNMENT INCOME FUND,
INC.
. MITCHELL HUTCHINS INSTITUTIONAL SERIES TRUST
. MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST
. MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST II
. MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST III
. PAINEWEBBER AMERICA FUND
. PAINEWEBBER ATLAS FUND
. PAINEWEBBER INVESTMENT SERIES
. PAINEWEBBER MANAGED ASSETS TRUST
. PAINEWEBBER MANAGED INVESTMENTS TRUST
. PAINEWEBBER MASTER SERIES, INC.
. PAINEWEBBER MUNICIPAL SERIES
. PAINEWEBBER MUTUAL FUND TRUST
. PAINEWEBBER OLYMPUS FUND
. PAINEWEBBER PREMIER HIGH INCOME TRUST INC.
. PAINEWEBBER PREMIER INSURED MUNICIPAL INCOME FUND, INC.
. PAINEWEBBER PREMIER TAX-FREE INCOME FUND INC.
. PAINEWEBBER REGIONAL FINANCIAL GROWTH FUND INC.
. PAINEWEBBER SECURITIES TRUST
. PAINEWEBBER SERIES TRUST
. STRATEGIC GLOBAL INCOME FUND, INC.
. TRIPLE A AND GOVERNMENT SERIES - 1995, INC.
. TRIPLE A AND GOVERNMENT SERIES - 1997, INC.
. 2002 TARGET TERM TRUST INC.

(b) Mitchell Hutchins is the principal underwriter for the
Registrant. PaineWebber acts as exclusive dealer for the shares of the
Registrant. The directors and officers of Mitchell Hutchins, their
principal business addresses and their positions and offices with Mitchell
Hutchins are identified in its Form ADV filed December 19, 1994, with the
Securities and Exchange Commission (registration number 801-13219). The
directors and officers of PaineWebber, their principal business addresses
and their positions and offices with PaineWebber are identified in its

C-11
<PAGE>

Form ADV filed February 13, 1995, with the Securities and Exchange
Commission (registration number 801-7163). The foregoing information is
hereby incorporated by reference. The information set forth below is
furnished for those directors and officers of Mitchell Hutchins or
PaineWebber who also serve as trustees or officers of the Registrant:

C-12
<PAGE>

<TABLE>
<CAPTION>
<S> <C> <C>
Position and Offices With
Name and Principal Business Position With Underwriter or Exclusive
Address Registrant Dealer
------------------ ------------- -------------------------

Paul B. Guenther Trustee and Director of PaineWebber
1285 Avenue of the Americas President and Mitchell Hutchins
New York, New York 10019

Frank P. L. Minard Trustee Chairman of the Board of
1285 Avenue of the Americas Mitchell Hutchins and a
New York, New York 10019 Director of Mitchell
Hutchins and PaineWebber

Teresa M. Boyle Vice President First Vice President and Manager
1285 Avenue of the Americas - Advisory Administration
New York, New York 10019 of Mitchell Hutchins

Joan L. Cohen Vice President Vice President and
1285 Avenue of the Americas Attorney of Mitchell
New York, New York 10019 Hutchins

Ellen R. Harris Vice President Managing Director and
1285 Avenue of the Americas Chief Domestic Equity
New York, New York 10019 Strategist of Mitchell
Hutchins

Mary B. King Vice President First Vice President and a
1285 Avenue of the Americas Portfolio Manager of
New York, New York 10019 Mitchell Hutchins

Thomas J. Libassi Vice President Senior Vice President and
1285 Avenue of the Americas a Portfolio Manager of
New York, New York 10019 Mitchell Hutchins

Ann E. Moran Vice President Vice President of
1285 Avenue of the Americas and Assistant Mitchell Hutchins
New York, New York 10019 Treasurer

Dianne E. O'Donnell Vice President Senior Vice President and
1285 Avenue of the Americas and Secretary Senior Associate General
New York, New York 10019 Counsel of Mitchell
Hutchins
</TABLE>

C-13

<PAGE>

Victoria E. Schonfeld Vice President Managing Director and
1285 Avenue of the Americas General Counsel of
New York, New York 10019 Mitchell Hutchins

Paul H. Schubert Vice President Vice President of
1285 Avenue of the Americas and Assistant Mitchell Hutchins
New York, New York 10019 Treasurer

Martha J. Slezak Vice President Vice President of
1285 Avenue of the Americas and Assistant Mitchell Hutchins
New York, New York 10019 Treasurer

Julian F. Sluyters Vice President Senior Vice President
1285 Avenue of the Americas and Treasurer and Director of Mutual
New York, New York 10019 Fund Finance Division of
Mitchell Hutchins

Gregory K. Todd Vice President First Vice President and
1285 Avenue of the Americas and Assistant Associate General Counsel
New York, New York 10019 Secretary of Mitchell Hutchins
</TABLE>

Item 30. Location of Accounts and Records
--------------------------------
The books and other documents required by paragraphs (b)(4), (c)
and (d) of Rule 31a-1 under the Investment Company Act of 1940 are
maintained in the physical possession of Mitchell Hutchins, 1285 Avenue of
the Americas, New York, New York 10019. All other accounts, books and
documents required by Rule 31a-1 are maintained in the physical possession
of Registrant's transfer agent and custodian.

Item 31. Management Services
--------------------
Not applicable.

Item 32. Undertakings
------------
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders upon request and without charge.

C-14
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant, PaineWebber Managed
Investments Trust, certifies that it meets all of the requirements for
effectiveness of this Post-Effective Amendment No. 37 to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Post-Effective Amendment to be signed on its
behalf by the undersigned, thereunto duly authorized, in this City of New
York and State of New York, on the 29th day of March, 1995.

PAINEWEBBER MANAGED INVESTMENTS TRUST

By: /s/ Dianne E. O'Donnell
______________________________________
Dianne E. O'Donnell
Vice President, Secretary

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment has been signed below by the following persons in
the capacities and on the dates indicated:

Signature Title Date
--------- ----- ----

/s/ Paul B. Guenther* Trustee and President March 29, 1995
-------------------------- (Chief Executive Officer)
Paul B. Guenther

/s/ E. Garrett Bewkes, Jr.** Trustee and Chairman of March 29, 1995
-------------------------- the Board of Trustees
E. Garrett Bewkes, Jr.

/s/ Meyer Feldberg*** Trustee March 29, 1995
--------------------------
Meyer Feldberg

/s/ George W. Gowen**** Trustee March 29, 1995
--------------------------
George W. Gowen
/s/ Frederic V. Malek**** Trustee March 29, 1995
--------------------------
Frederic V. Malek

/s/ Frank P. L. Minard***** Trustee March 29, 1995
--------------------------
Frank P. L. Minard

<PAGE>

/s/ Judith Davidson Moyers**** Trustee March 29, 1995
---------------------------
Judith Davidson Moyers

/s/ Thomas F. Murray**** Trustee March 29, 1995
---------------------------
Thomas F. Murray
/s/ Julian F. Sluyters Vice President and March 29, 1995
--------------------------- Treasurer (Principal
Julian F. Sluyters Financial and Accounting
Officer)

</TABLE>

SIGNATURES (Continued)

* Signature affixed by Elinor W. Gammon pursuant to power of
attorney dated August 29, 1994 and incorporated by reference from Post-
Effective Amendment No. 28 to the registration statement of PaineWebber
Managed Municipal Trust, SEC File No. 2-89016, filed
June 29, 1994.

** Signature affixed by Elinor W. Gammon pursuant to power of
attorney dated January 3, 1994 and incorporated by reference from Post-
Effective Amendment No. 25 to the registration statement of PaineWebber
Investment Series, SEC File 33-11025, filed March 1, 1994.

*** Signature affixed by Elinor W. Gammon pursuant to power of
attorney dated June 12, 1991 and incorporated by reference from Post-
Effective Amendment No. 16 to the registration statement of PaineWebber
Investment Series, SEC File No. 33-11025, filed
July 31, 1991.

**** Signature affixed by Elinor W. Gammon pursuant to power of
attorney dated March 27, 1990 and incorporated by reference from Post-
Effective Amendment No. 7 to the registration statement of PaineWebber
Municipal Series, SEC File No. 33-11611, filed June 28, 29, 1990.

*****Signature affixed by Elinor W. Gammon pursuant to power of attorney
dated November 17, 1993 and incorporated by reference from Post-Effective
Amendment No. 28 to the registration statement of PaineWebber America
Fund, SEC File No. 2-78626, December 29, 1993.
<PAGE>

PAINEWEBBER MANAGED INVESTMENTS TRUST

EXHIBIT INDEX
Ex
Number Page
-----
(1) (a) Declaration of Trust 1/
(b) Amendment to Declaration of Trust effective January 28,
1988 2/
(c) Amendment to Declaration of Trust effective July 1,
1990 6/
(d) Amendment to Declaration of Trust effective March 21,
1991 7/
(e) Amendment to Declaration of Trust effective April 1,
1991 8/
(f) Amendment to Declaration of Trust effective July 1,
1991 11/
(g) Amendment to Declaration of Trust effective February 26,
1992 10/
(h) Amendment to Declaration of Trust effective January 25,
1993 12/
(i) Amendment to Declaration of Trust effective May 25,
1993 14/
(j) Amendment to Declaration of Trust effective July 30,
1993 14/
(k) Amendment to Declaration of Trust effective November 17,
1993 18/
(2) (a) By-Laws 1/
(b) Amendment to By-Laws effective March 19, 1991 7/
(c) Amendment to By-Laws effective September 28, 1994 18/
(3) Voting trust agreement - none
(4) Specimen Security - none
(5) (a) Investment Advisory and Administration Contract 4/
(b) Investment Advisory Fee Agreement with respect to
PaineWebber Utility Income Fund 15/
(c) Investment Advisory Fee Agreement with respect to
PaineWebber Short-Term U.S. Government Income Fund 15/
(d) Investment Advisory Fee Agreement with respect to
PaineWebber Short-Term U.S. Government Income Fund for
Credit Unions 16/

(e) Sub-Investment Advisory Contract with respect to
PaineWebber Short-Term U.S. Government Income Fund (filed
herewith)

- 1 -
<PAGE>

(e) Exclusive Dealer Agreement with respect to Class A
Shares 15/
(f) Exclusive Dealer Agreement with respect to Class B
Shares 15/
(g) Exclusive Dealer Agreement with respect to Class C
Shares 9/
(h) Exclusive Dealer Agreement with respect to Class D Shares
15/
(7) Bonus, profit sharing or pension plans - none
(8) Custodian Agreement 2/
(9) (a) Transfer Agency and Service Contract 6/
(b) Service Contract 5/
(10) (a) Opinion and consent of Kirkpatrick & Lockhart, counsel to
the Registrant, with respect to Class A and Class B
shares of U.S. Government Income Fund, Investment Grade
Income Fund, and High Income Fund 8/
(b) Opinion and consent of Kirkpatrick & Lockhart, counsel to
the Registrant, with respect to Class A and Class B
shares of PaineWebber Utility Income Fund 9/
(c) Opinion and consent of Kirkpatrick & Lockhart, counsel to
the Registrant, with respect to Class D Shares of the
above-referenced Funds 11/
(d) Opinion and consent of Kirkpatrick & Lockhart, counsel to
the Registrant, with respect to PaineWebber Short-Term
U.S. Government Income Fund 12/
(e) Opinion and Consent of Kirkpatrick & Lockhart, counsel to
the Registrant, with respect to PaineWebber Short-Term
U.S. Government Income Fund for Credit Unions 14/

(11) Auditor's Consents (filed herewith)

- 2 -
<PAGE>

(c) Schedule for Computation of Performance Quotations for
Class C shares of U.S. Government Income Fund 10/
(d) Schedule for Computation of Performance Quotations for
Class D shares of U.S. Government Income Fund, Investment
Grade Income Fund, and High Income Fund 13/
(e) Schedule for Computation of Performance Quotations for
Class A, Class B and Class D shares of PaineWebber
Utility Income Fund 16/
(f) Schedule for Computation of Performance Quotations for
Class A, Class B, and Class D shares of PaineWebber
Short-Term U.S. Government Income Fund 16/
(g) Schedule for computation of Performance Quotations for
Class A and Class D shares of PaineWebber Short-Term U.S.
Government Income Fund for Credit Unions 17/

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

1/ Incorporated by reference from Post-Effective Amendment No. 5 to
the registration statement, SEC File No. 2-91362, filed
January 30, 1987.

2/ Incorporated by reference from Post-Effective Amendment No. 8 to
the registration statement, SEC File No. 2-91362, filed March 31,
1988.

3/ Incorporated by reference from Pre-Effective Amendment No. 1 to
the registration statement, SEC File No. 2-91362, filed July 18,
1984.

4/ Incorporated by reference from Post-Effective Amendment No. 10 to
the registration statement, SEC File No. 2-91362, filed March 6,
1989.

5/ Incorporated by reference from Post-Effective Amendment No. 12 to
the registration statement, SEC File No. 2-91362, filed
January 31, 1990.

6/ Incorporated by reference from Post-Effective Amendment No. 15 to
the registration statement, SEC File No. 2-91362, filed
January 31, 1991.

7/ Incorporated by reference from Post-Effective Amendment No. 16 to
the registration statement, SEC File No. 2-91362, filed March 28,
1991.

8/ Incorporated by reference from Post-Effective Amendment No. 18to
the registration statement, SEC File No. 2-91362, filed May 2,
1991.

9/ Incorporated by reference from Post-Effective Amendment No. 19to
the registration statement, SEC File No. 2-91362, filed March 2,
1992.

- 3 -
<PAGE>

10/ Incorporated by reference from Post-Effective Amendment No. 20to
the registration statement, SEC File No. 2-91362, filed April 1,
1992.

11/ Incorporated by reference from Post-Effective Amendment No. 21 to
the registration statement, SEC File No. 2-91362, filed May 1,
1992.

12/ Incorporated by reference from Post-Effective Amendment No. 23to
the registration statement, SEC File No. 2-91362, filed January
26, 1993.

13/ Incorporated by reference from Post-Effective Amendment No. 24 to
the registration statement, SEC File No. 2-91362, filed April 1,
1993.

14/ Incorporated by reference from Post-Effective Amendment No. 25 to
the registration statement, SEC File No. 2-91362, filed
August 10, 1993.

15/ Incorporated by reference from Post-Effective Amendment No. 26 to
the registration statement, SEC File No. 2-91362, filed
October 4, 1993.

16/ Incorporated by reference from Post-Effective Amendment No. 28 to
the registration statement, SEC File No. 2-91362, filed April 1,
1994.

17/ Incorporated by reference from Post-Effective Amendment No. 30 to
the registration statement, SEC File No. 2-91362, filed July 1,
1994.

18/ Incorporated by reference from Post-Effective Amendment No. 34 to
the registration statement, SEC File No. 2-91362, filed
January 27, 1995

- 4 -

<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from 11/30/94 -
Annual and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND CLASS A
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1994
<PERIOD-START> DEC-01-1993
<PERIOD-END> NOV-30-1994
<INVESTMENTS-AT-COST> 168,168
<INVESTMENTS-AT-VALUE> 165,333
<RECEIVABLES> 19,064
<ASSETS-OTHER> 14
<OTHER-ITEMS-ASSETS> 202
<TOTAL-ASSETS> 184,613
<PAYABLE-FOR-SECURITIES> 21,422
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,479
<TOTAL-LIABILITIES> 25,901
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 202,459
<SHARES-COMMON-STOCK> 70,456
<SHARES-COMMON-PRIOR> 222,718
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (400)
<ACCUMULATED-NET-GAINS> (40,512)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,835)
<NET-ASSETS> 158,712
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 22,790
<OTHER-INCOME> 0
<EXPENSES-NET> (3,186)
<NET-INVESTMENT-INCOME> 19,604
<REALIZED-GAINS-CURRENT> (41,495)
<APPREC-INCREASE-CURRENT> (3,538)
<NET-CHANGE-FROM-OPS> (25,429)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (18,507)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 110,056
<NUMBER-OF-SHARES-REDEEMED> (266,619)
<SHARES-REINVESTED> 4,302
<NET-CHANGE-IN-ASSETS> (439,848)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,897
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,322
<AVERAGE-NET-ASSETS> 359,776
<PER-SHARE-NAV-BEGIN> 2.48
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> (0.29)
<PER-SHARE-DIVIDEND> (0.12)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0.06
<PER-SHARE-NAV-END> 2.25
<EXPENSE-RATIO> 0.84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from 11/30/94 -
Annual and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> PAINEWEBBER SHORT-TERM US GOVERNMENT INCOME FUND CLASS B
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1994
<PERIOD-START> DEC-01-1993
<PERIOD-END> NOV-30-1994
<INVESTMENTS-AT-COST> 14,179
<INVESTMENTS-AT-VALUE> 13,940
<RECEIVABLES> 1,608
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 17
<TOTAL-ASSETS> 15,566
<PAYABLE-FOR-SECURITIES> 1,806
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 378
<TOTAL-LIABILITIES> 2,184
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,071
<SHARES-COMMON-STOCK> 5,914
<SHARES-COMMON-PRIOR> 12,808
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (34)
<ACCUMULATED-NET-GAINS> (3,416)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (239)
<NET-ASSETS> 13,382
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,922
<OTHER-INCOME> 0
<EXPENSES-NET> (452)
<NET-INVESTMENT-INCOME> 1,470
<REALIZED-GAINS-CURRENT> (3,499)
<APPREC-INCREASE-CURRENT> (298)
<NET-CHANGE-FROM-OPS> (2,327)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,133)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,067
<NUMBER-OF-SHARES-REDEEMED> (13,249)
<SHARES-REINVESTED> 316
<NET-CHANGE-IN-ASSETS> (36,841)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 160
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 463
<AVERAGE-NET-ASSETS> 25,863
<PER-SHARE-NAV-BEGIN> 2.48
<PER-SHARE-NII> 0.10
<PER-SHARE-GAIN-APPREC> (0.29)
<PER-SHARE-DIVIDEND> (0.10)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0.06
<PER-SHARE-NAV-END> 2.25
<EXPENSE-RATIO> 1.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from 11/30/94 -
Annual and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> PAINEWEBBER SHORT-TERM US GOVERNMENT INCOME FUND CLASS D
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1994
<PERIOD-START> DEC-01-1993
<PERIOD-END> NOV-30-1994
<INVESTMENTS-AT-COST> 313,828
<INVESTMENTS-AT-VALUE> 308,538
<RECEIVABLES> 35,578
<ASSETS-OTHER> 25
<OTHER-ITEMS-ASSETS> 377
<TOTAL-ASSETS> 344,518
<PAYABLE-FOR-SECURITIES> 39,976
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,360
<TOTAL-LIABILITIES> 48,336
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 377,820
<SHARES-COMMON-STOCK> 131,559
<SHARES-COMMON-PRIOR> 479,587
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (746)
<ACCUMULATED-NET-GAINS> (75,602)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (5,290)
<NET-ASSETS> 296,182
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 42,531
<OTHER-INCOME> 0
<EXPENSES-NET> (9,774)
<NET-INVESTMENT-INCOME> 32,757
<REALIZED-GAINS-CURRENT> (77,436)
<APPREC-INCREASE-CURRENT> (6,603)
<NET-CHANGE-FROM-OPS> (51,282)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (34,050)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 152,026
<NUMBER-OF-SHARES-REDEEMED> (511,209)
<SHARES-REINVESTED> 11,155
<NET-CHANGE-IN-ASSETS> (824,165)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,541
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,027
<AVERAGE-NET-ASSETS> 734,060
<PER-SHARE-NAV-BEGIN> 2.47
<PER-SHARE-NII> 0.11
<PER-SHARE-GAIN-APPREC> (0.28)
<PER-SHARE-DIVIDEND> (0.11)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0.06
<PER-SHARE-NAV-END> 2.25
<EXPENSE-RATIO> 1.36
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> PAINEWEBBER SHORT-TERM U.S. GOVT INC FUND FOR CREDIT UNIONS - CLASS A
<MULTIPLIER> 1,000,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1994
<PERIOD-START> DEC-07-1993
<PERIOD-END> NOV-30-1994
<INVESTMENTS-AT-COST> 11,228
<INVESTMENTS-AT-VALUE> 11,040
<RECEIVABLES> 65
<ASSETS-OTHER> 185
<OTHER-ITEMS-ASSETS> 64
<TOTAL-ASSETS> 11,354
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 734
<TOTAL-LIABILITIES> 734
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,342
<SHARES-COMMON-STOCK> 1,108
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (534)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (188)
<NET-ASSETS> 10,619
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 839
<OTHER-INCOME> 0
<EXPENSES-NET> (207)
<NET-INVESTMENT-INCOME> 632
<REALIZED-GAINS-CURRENT> (534)
<APPREC-INCREASE-CURRENT> (188)
<NET-CHANGE-FROM-OPS> (90)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (632)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,754
<NUMBER-OF-SHARES-REDEEMED> (1,668)
<SHARES-REINVESTED> 21
<NET-CHANGE-IN-ASSETS> 10,556
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 46
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 264
<AVERAGE-NET-ASSETS> 15,578
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.40
<PER-SHARE-GAIN-APPREC> (0.41)
<PER-SHARE-DIVIDEND> (0.40)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.59
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from 11/30/94 -
Annual and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<SERIES>
<NUMBER> 5
<NAME> PAINEWEBBER SHORT-TERM U.S. GOVT INC FUND FOR CREDIT UNIONS - CLASS D
<MULTIPLIER> 1,000,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1994
<PERIOD-START> DEC-07-1993
<PERIOD-END> NOV-30-1994
<INVESTMENTS-AT-COST> 1,208
<INVESTMENTS-AT-VALUE> 1,187
<RECEIVABLES> 7
<ASSETS-OTHER> 20
<OTHER-ITEMS-ASSETS> 7
<TOTAL-ASSETS> 1,221
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 79
<TOTAL-LIABILITIES> 79
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,220
<SHARES-COMMON-STOCK> 119
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (57)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (20)
<NET-ASSETS> 1,143
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 177
<OTHER-INCOME> 0
<EXPENSES-NET> (50)
<NET-INVESTMENT-INCOME> 127
<REALIZED-GAINS-CURRENT> (58)
<APPREC-INCREASE-CURRENT> (20)
<NET-CHANGE-FROM-OPS> 49
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (127)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 656
<NUMBER-OF-SHARES-REDEEMED> (545)
<SHARES-REINVESTED> 9
<NET-CHANGE-IN-ASSETS> 1,206
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 63
<AVERAGE-NET-ASSETS> 3,311
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.37
<PER-SHARE-GAIN-APPREC> (0.41)
<PER-SHARE-DIVIDEND> (0.37)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.59
<EXPENSE-RATIO> 1.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

EXHIBIT 99.5(e)

SUB-INVESTMENT ADVISORY CONTRACT
---------------------------------

Contract made as of November 14, 1994 between MITCHELL HUTCHINS
ASSET MANAGEMENT INC. ("Mitchell Hutchins"), a Delaware corporation, and
PACIFIC INVESTMENT MANAGEMENT COMPANY ("Sub-Adviser"), a Delaware
partnership (hereinafter referred to as the "Contract").

RECITALS

(1) Mitchell Hutchins has entered into an Investment Advisory
and Administration Contract dated April 21, 1988, as supplemented by a
separate Fee Agreement dated March 29, 1993 ("Advisory Contract") with
PaineWebber Managed Investments Trust ("Trust"), an open-end management
investment company registered under the Investment Company Act of 1940, as
amended ("1940 Act") with respect to the PaineWebber Short-Term U.S.
Government Income Fund ("Fund") series of the Trust; and

(2) Mitchell Hutchins wishes to retain the Sub-Adviser to
furnish certain investment advisory services to Mitchell Hutchins and the
Fund, and the Sub-Adviser is willing to furnish such services;

NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is agreed between the parties hereto as
follows:

1. Appointment. Mitchell Hutchins hereby appoints the
Sub-Adviser as an investment sub-adviser with respect to the Fund for the
period and on the terms set forth in this Contract. The Sub-Adviser
accepts such appointment and agrees to render the services herein set
forth, for the compensation herein provided.

2. Duties as Sub-Adviser.

(a) Subject to the supervision of the Trust's Board of
Trustees ("Board") and Mitchell Hutchins, the Sub-Adviser will provide a
continuous investment program for the Fund, including investment research
and management. The Sub-Adviser will determine from time to time what
investments will be purchased, retained or sold by the Fund. The
Sub-Adviser will be responsible for placing purchase and sell orders for
investments and for other related transactions. The Sub-Adviser will be
responsible for voting proxies of issuers of securities held by the Fund.
The Sub-Adviser understands that the Fund's assets need to be managed so
as to permit the Fund to qualify or to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code, as
amended ("Code"). The Sub-Adviser will provide services under this
Contract in accordance with the Fund's investment objective, policies and
restrictions as stated in the Fund's Prospectus.

<PAGE>

(b) The Sub-Adviser agrees that, in placing orders with
brokers, it will attempt to obtain the best net result in terms of price
and execution; provided that, on behalf of the Fund, the Sub-Advisor may,
in its discretion, use brokers who provide the Fund with research,
analysis, advice and similar services to execute portfolio transactions on
behalf of the Fund, and the Sub-Adviser may pay to those brokers in return
for brokerage and research services a higher commission than may be
charged by other brokers, subject to the Sub-Adviser's determining in good
faith that such commission is reasonable in terms either of the particular
transaction or of the overall responsibility of the Sub-Adviser to the
Fund and its other clients and that the total commissions paid by the Fund
will be reasonable in relation to the benefits to the Fund over the long
term. In no instance will portfolio securities be purchased from or sold
to Mitchell Hutchins or the Sub-Adviser, or any affiliated person thereof,
except in accordance with the federal securities laws and the rules and
regulations thereunder. Whenever the Sub-Adviser simultaneously places
orders to purchase or sell the same security on behalf of the Fund and one
or more other accounts advised by the Sub-Adviser, such orders will be
allocated as to price and amount among all such accounts in a manner
believed to be equitable to each account. Mitchell Hutchins recognizes
that in some cases this procedure may adversely affect the results
obtained for the Fund.

(c) The Sub-Adviser will maintain all books and records
required to be maintained by the Sub-Adviser pursuant to the 1940 Act and
the rules and regulations promulgated thereunder with respect to
transactions on behalf of the Fund, and will furnish the Board and
Mitchell Hutchins with such periodic and special reports as the Board or
Mitchell Hutchins reasonably may request. In compliance with the
requirements of Rule 31a-3 under the 1940 Act, the Sub-Adviser hereby
agrees that all records which it maintains for the Fund are the property
of the Trust, agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act any records which it maintains for the Trust and which
are required to be maintained by Rule 31a-1 under the 1940 Act, and
further agrees to surrender promptly to the Trust any records which it
maintains for the Trust upon request by the Trust.

(d) At such times as shall be reasonably requested by the
Board or Mitchell Hutchins, the Sub-Adviser will provide the Board and
Mitchell Hutchins with economic and investment analyses and reports and
make available to the Board and Mitchell Hutchins any economic,
statistical and investment services normally available to institutional or
other customers of the Sub-Adviser.

3. Further Duties. In all matters relating to the
performance of this Contract, the Sub-Adviser will seek to act in
conformity with the Trust's Declaration of Trust, By-Laws and currently
effective registration statement under the 1940 Act and any amendments or
supplements thereto ("Registration Statement") and with the instructions
and directions of the Board and Mitchell Hutchins and will seek to comply
with the requirements of the 1940 Act, the Investment Advisers Act of 1940
("Advisers Act"), the rules thereunder, and all other applicable federal

- 2 -
<PAGE>

and state laws and regulations. Mitchell Hutchins agrees to provide to the
Sub-Adviser copies of the Trust's Declaration of Trust, By-Laws,
Registration Statement, written instructions and directions of the Board
and Mitchell Hutchins, any amendments or supplements to any of these
materials as soon as practicable after such materials become available,
and further agrees to identify to the Sub-Adviser in writing any
broker-dealers that are affiliated with Mitchell Hutchins.

4. Services Not Exclusive. The services furnished by the
Sub-Adviser hereunder are not to be deemed exclusive, and except as the
Sub-Adviser may otherwise agree in writing, the Sub-Adviser shall be free
to furnish similar services to others so long as its services under this
Contract are not impaired thereby. Nothing in this Contract shall limit or
restrict the right of any director, officer or employee of the
Sub-Adviser, who may also be a trustee, officer or employee of the Trust,
to engage in any other business or to devote his or her time and attention
in part to the management or other aspects of any other business, whether
of a similar nature or a dissimilar nature.

5. Expenses. During the term of this Contract, the
Sub-Adviser will bear all expenses incurred by it in connection with its
services under this Contract.

6. Compensation.

(a) For the services provided and the expenses assumed by the
Sub-Adviser pursuant to this Contract, Mitchell Hutchins will pay to the
Sub-Adviser a fee, computed daily and payable monthly, at an annual rate
of 0.25% of the Fund's average daily net assets (computed in the manner
specified in the Advisory Contract), together with a schedule showing the
manner in which the fee was computed.

(b) The fee shall be accrued daily and payable monthly to the
Sub-Adviser on or before the last business day of the next succeeding
calendar month.

(c) If this Contract becomes effective or terminates before
the end of any month, the fee for the period from the effective date to
the end of the month or from the beginning of such month to the date of
termination, as the case may be, shall be prorated according to the
proportion which such period bears to the full month in which such
effectiveness or termination occurs.

7. Limitation Of Liability. The Sub-Adviser shall not be
liable for any error of judgment or mistake of law or for any loss
suffered by the Fund, the Trust or its shareholders or by Mitchell
Hutchins in connection with the matters to which this Contract relates,
except a loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Contract.

- 3 -
<PAGE>

8. Representations of Sub-Adviser. The Sub-Adviser
represents, warrants and agrees as follows:

(a) The Sub-Adviser (i) is registered as an investment
adviser under the Advisers Act and will seek to continue to be so
registered for so long as this Contract remains in effect; (ii) is not
prohibited by the 1940 Act or the Advisers Act from performing the
services contemplated by this Contract; (iii) has met, and will seek to
continue to meet for so long as this Contract remains in effect, any other
applicable federal or state requirements, or the applicable requirements
of any regulatory or industry self-regulatory agency, necessary to be met
in order to perform the services contemplated by this Contract; (iv) has
the authority to enter into and perform the services contemplated by this
Contract; and (v) will promptly notify Mitchell Hutchins of the occurrence
of any event that would disqualify the Sub-Adviser from serving as an
investment adviser of an investment company pursuant to Section 9(a) of
the 1940 Act or otherwise.

(b) The Sub-Adviser has adopted a written code of ethics
complying with the requirements of Rule 17j-1 under the 1940 Act and will
provide Mitchell Hutchins with a copy of such code of ethics, together
with evidence of its adoption. Within fifteen days of the end of the last
calendar quarter of each year that this Contract is in effect, the
president or a vice-president of the Sub-Adviser shall certify to Mitchell
Hutchins that the Sub-Adviser has complied with the requirements of Rule
17j-1 during the previous year and that there has been no violation of the
Sub-Adviser's code of ethics or, if such a violation has occurred, that
appropriate action was taken in response to such violation. Upon the
written request of Mitchell Hutchins, the Sub-Adviser shall permit
Mitchell Hutchins, its employees or its agents to examine the reports
required to be made to the Sub-Adviser by Rule 17j-1(c)(1) and all other
records relevant to the Sub-Adviser's code of ethics.

(c) The Sub-Adviser has provided Mitchell Hutchins with a
copy of its Form ADV as most recently filed with the Securities and
Exchange Commission ("SEC") and promptly will furnish a copy of the most
recently filed amendment to Mitchell Hutchins at least annually.

(d) The Sub-Adviser shall provide notice to Mitchell Hutchins
within a reasonable time after being informed or learning of the death or
withdrawal of any of its partners, upon the admission of any new partners
or upon any other change in its membership.

9. Representations of Mitchell Hutchins.

Mitchell Hutchins represents that (i) the Trust was organized as
a Massachusetts business trust under the laws of the Commonwealth of
Massachusetts by Declaration of Trust dated November 21, 1986, (ii) the
appointment of the Sub-Adviser has been duly authorized and (iii) the
Trust has acted and will continue to act in conformity with the 1940 Act
and other applicable laws.

- 4 -
<PAGE>

10. Duration and Termination.

(a) This Contract shall become effective upon the date first
above written, provided that this Contract shall not take effect unless it
has first been approved (i) by a vote of a majority of those trustees of
the Trust who are not parties to this Contract or interested persons of
any such party, cast in person at a meeting called for the purpose of
voting on such approval, and (ii) by vote of a majority of the Fund's
outstanding voting securities.

(b) Unless sooner terminated as provided herein, this
Contract shall continue in effect for two years from its effective date.
Thereafter, if not terminated, this Contract shall continue automatically
for successive periods of twelve months each, provided that such
continuance is specifically approved at least annually i) by a vote of a
majority of those trustees of the Trust who are not parties to this
Contract or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval, and ii) by the
Board or by vote of a majority of the outstanding voting securities of the
Fund.

(c) Notwithstanding the foregoing, this Contract may be
terminated at any time, without the payment of any penalty, by vote of the
Board or by a vote of a majority of the outstanding voting securities of
the Fund on 60 days' written notice to the Sub-Adviser. This Contract may
also be terminated by Mitchell Hutchins: (i) on 120 days' written notice
to the Sub-Adviser, without the payment of any penalty; (ii) upon material
breach by the Sub-Adviser of any of the representations and warranties set
forth in Paragraph 8 of this Contract, if such breach shall not have been
cured within a 20 day period after notice of such breach; or (iii) if the
Sub-Adviser becomes unable to discharge its duties and obligations under
this Contract. The Sub-Adviser may terminate this Contract at any time,
without the payment of any penalty, on 120 days' written notice to
Mitchell Hutchins. This Contract will terminate automatically in the event
of its assignment or upon termination of the Advisory Contract.

11. Amendment of this Contract. No provision of this
Contract may be changed, waived, discharged or terminated orally, but only
by an instrument in writing signed by the party against which enforcement
of the change, waiver, discharge or termination is sought, and no
amendment of this Contract shall be effective until approved by vote of a
majority of the Fund's outstanding voting securities.

12. Governing Law. This Contract shall be construed in
accordance with the laws of the State of Delaware without giving effect to
the conflicts of laws principles thereof and the 1940 Act. To the extent
that the applicable laws of the State of Delaware conflict with the
applicable provisions of the 1940 Act, the latter shall control.

13. Miscellaneous. The captions in this Contract are
included for convenience of reference only and in no way define or delimit
any of the provisions hereof or otherwise affect their construction or

- 5 -
<PAGE>

effect. If any provision of this Contract shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this
Contract shall not be affected thereby. This Contract shall be binding
upon and shall inure to the benefit of the parties hereto and their
respective successors. As used in this Contract, the terms "majority of
the outstanding voting securities," "affiliated person," "interested
person," "assignment," "broker," "investment adviser," "net assets,"
"sale," "sell" and "security" shall have the same meaning as such terms
have in the 1940 Act, subject to such exemption as may be granted by the
SEC by any rule, regulation or order. Where the effect of a requirement of
the federal securities laws reflected in any provision of this Contract is
made less restrictive by a rule, regulation or order of the SEC, whether
of special or general application, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.

IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their duly authorized signatories as of the
date and year first above written.

Attest: MITCHELL HUTCHINS ASSET MANAGEMENT INC.

By: /s/ Gregory Todd
----------------------------------
Name: Gregory Todd
Title: First Vice President

Attest: PACIFIC INVESTMENT MANAGEMENT COMPANY

By: /s/ Brent R. Harris
------------------------------------
Name: Brent R. Harris
Title: Managing Director

- 6 -

<PAGE>

EXHIBIT 99.11(a)

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Financial
Highlights" in the Propectus and "Independent Auditors" in the
Statement of Additional Information and to the use of our report dated
January 20, 1995, in this Registration Statement (Form N-1A 2-91362) of
PaineWebber Short Term US Government Income Fund (one of the portfolios
in PaineWebber Managed Investments Trust).

/s/ Ernst & Young LLP

ERNST & YOUNG LLP

New York, New York
March 31, 1995

<PAGE>

EXHIBIT 99.11(b)

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Financial
Highlights" in the Propectuses and "Independent Auditors" in the
Statements of Additional Information and to the incorporation by
reference of our report dated January 20, 1995, in this Registration
Statement (Form N-1A 2-91362) of PaineWebber Short Term US Government
Income Fund for Credit Unions.

/s/ Ernst & Young LLP

ERNST & YOUNG LLP

New York, New York
March 27, 1995