PAINEWEBBER MANAGED INVESTMENTS TRUST, 485APOS, 1996-06-03

PAINEWEBBER MANAGED INVESTMENTS TRUST
485APOS, 1996-06-03

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<PAGE>

As filed with the Securities and Exchange Commission on June 3, 1996

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

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-lA

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]

Pre-Effective Amendment No. [ ]

Post-Effective Amendment No. 42 [ X ]

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

Amendment No. 37

(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.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D.C. 20036-1800
Telephone: (202)778-9000

It is proposed that this filing will become effective:

Immediately upon filing pursuant to Rule 485(b)
On , 1996 pursuant to Rule 485(b)

X 60 days after filing pursuant to Rule 485(a)(i)

On , 1996 pursuant to Rule 485(a)(i)
75 days after filing pursuant to Rule 485(a)(ii)
On , 1996 pursuant to Rule 485(a)(ii)

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
the most recent fiscal year of the four series that are the subject of this
post-effective amendment on January 26, 1996.

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 Y shares of:

PaineWebber U.S. Government Income Fund
PaineWebber Low Duration U.S. Government Income Fund
PaineWebber Investment Grade Income Fund
PaineWebber High Income Fund

Part A - Prospectus
Part B - Statement of Additional Information
Part C- Other Information

Signature Page

Exhibits

This Post-Effective Amendment is filed to add Class Y shares of PaineWebber
Investment Grade Income Fund and PaineWebber High Income Fund to the prospectus
and statement of additional information for the Class Y shares of PaineWebber
U.S. Government Income Fund and PaineWebber Low Duration U.S. Government Income
Fund. These four Funds are all series of PaineWebber Managed Investments Trust.
This Post-Effective Amendment does not make any changes in the currently
effective prospectuses and statements of additional information for the Class A,
B and C shares of these Funds or for any other series of PaineWebber Managed
Investments Trust.

- 2 -

PaineWebber Managed Investments Trust:

Class Y shares of:

PaineWebber U.S. Government Income Fund
PaineWebber Low Duration U.S. Government Income Fund

PaineWebber Investment Grade Income Fund
PaineWebber High Income Fund

Form N-1A Cross Reference Sheet

<TABLE>
<CAPTION>
Part A Item No. and Caption Prospectus Caption

<S> <C> <C>
1. Cover Page.............. Cover Page

2. Synopsis................ Fund Expenses

3. Condensed Financial Financial Highlights; Performance Information
Information.............

4. General Description of Investment Objectives and Policies; General
Registrant.............. Information

5. Management of the Fund.. Management; General Information

6. Capital Stock and other Cover Page; Dividends and Taxes; General
Securities.............. Information

7. Purchase of Securities Purchases; Valuation of Shares; Management
Being Offered...........

8. Redemption or Redemptions
Repurchase..............

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 and Investment Policies and Restrictions; Hedging and
Policies............ Related Income Strategies; Portfolio Transactions

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

</TABLE>

- 3 -

<TABLE>

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

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

17. Brokerage Allocation.... Portfolio Transactions

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

19. Purchase, Redemption and Pricing of Valuation of Shares
Securities Being Offered......

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

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

22. Calculation of Performance Performance Information
Data....................

23. Financial Statements.... Financial Statements

</TABLE>

Part C

Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.

- 4 -

<PAGE>

PAINEWEBBER U.S. GOVERNMENT INCOME FUND
PAINEWEBBER LOW DURATION U.S. GOVERNMENT
INCOME FUND
PAINEWEBBER INVESTMENT GRADE INCOME FUND
PAINEWEBBER HIGH INCOME FUND
CLASS Y SHARES
1285 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10019
PROSPECTUS -- JULY , 1996

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

Professional Management
Portfolio Diversification
Dividend and Capital Gain Reinvestment
Low Minimum Investment
Suitable for Retirement Plans

PAINEWEBBER U.S. GOVERNMENT INCOME FUND ('U.S. Government Income Fund') seeks
high current income consistent with the preservation of captial and liquidity.

PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND ('Low Duration Income
Fund') seeks the highest level of income consistent with the preservation of
capital and low volatility of net asset value.

PAINEWEBBER INVESTMENT GRADE INCOME FUND ('Investment Grade Income Fund') seeks
high current income consistent with the preservation of capital and liquidity.

PAINEWEBBER HIGH INCOME FUND ('High Income Fund') seeks high income.

PAINEWEBBER HIGH INCOME FUND INVESTS PREDOMINANTLY IN LOWER RATED BONDS,
COMMONLY REFERRED TO AS 'JUNK BONDS.' BONDS OF THIS TYPE ARE CONSIDERED TO BE
SPECULATIVE WITH RESPECT TO THE PAYMENT OF INTEREST AND RETURN OF PRINCIPAL.
PURCHASERS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN
THIS FUND.

These Funds are series of PaineWebber Managed Investments Trust ('Trust'). This
Prospectus concisely sets forth information about the Funds a prospective
investor should know before investing. Please retain this Prospectus for future
reference. A Statement of Additional Information dated April 1, 1996 (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 Funds, your
PaineWebber investment executive or PaineWebber's correspondent firms or by
calling toll-free 1-800-647-1568. The Class Y shares described in this
Prospectus are currently offered for sale primarily to participants in the
INSIGHT Investment Advisory Program ('INSIGHT'), when purchased through that
program. The Class Y shares of U.S. Government Income Fund also are offered to
the trustee of the PW SIP on behalf of that Plan. See 'Purchases.' Participants
in the PaineWebber Savings Investment Plan ('PW SIP') may make further inquiries
by contacting the PaineWebber Incorporated Benefits Department, 10th Floor, 1000
Harbor Boulevard, Weehawken, New Jersey 07087 or by calling 1-201-902-4444.

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

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

- --------------------------------------------------------------------------------
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
PAINEWEBBER INVESTMENT GRADE INCOME FUND
PAINEWEBBER HIGH INCOME FUND

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Page
-----
Fund Expenses..................................................................................................... 3
Financial Highlights.............................................................................................. 4
Investment Objectives and Policies................................................................................ 5
Purchases......................................................................................................... 16
Redemptions....................................................................................................... 17
Dividends and Taxes............................................................................................... 18
Valuation of Shares............................................................................................... 19
Management........................................................................................................ 19
Performance Information........................................................................................... 21
General Information............................................................................................... 21
Appendix A........................................................................................................ 22
Appendix B........................................................................................................ 25
Appendix C........................................................................................................ 27
</TABLE>

Prospectus Page 2

FUND EXPENSES
- --------------------------------------------------------------------------------

The following tables are intended to assist investors in understanding the
expenses associated with investing in Class Y shares of each Fund.

SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<S> <C>
Sales charge on purchases of shares............................................................................ None
Sales charge on reinvested dividends........................................................................... None
Redemption fee or deferred sales charge........................................................................ None
Maximum annual investment advisory fee payable by shareholders through INSIGHT (as a percentage of average
daily net asset value of shares held)(1)..................................................................... 1.50%
</TABLE>

ANNUAL FUND OPERATING EXPENSES(2)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)

<TABLE>
<CAPTION>
U.S. GOVERNMENT LOW DURATION INVESTMENT GRADE HIGH
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
--------------- ------------ ---------------- -----------
<S> <C> <C> <C> <C>
Management fees....................................... 0.50% 0.50% 0.50% 0.50%
12b-1 fees............................................ 0.00 0.00 0.00 0.00
Other expenses........................................ 0.18(a) 0.40 0.20 0.18
----- ----- ----- -----
Total operating expenses.............................. 0.68% 0.90% 0.70% 0.68%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>

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

(a) Does not include 0.03% in non-recurring reorganization expenses that U.S.
Government Income Fund incurred during the fiscal year ended November 30,
1995. If those expenses were included, 'Other expenses' would be 0.21% and
'Total operating expenses' would be 0.71%.

(1) Participation in INSIGHT is subject to payment of an advisory fee at the
maximum annual rate of 1.50% of assets held through INSIGHT (generally
charged quarterly in advance), which may be charged to the INSIGHT
participant's PaineWebber account.

(2) See 'Management' for additional information. The fees and expenses are those
actually incurred for the fiscal year ended November 30, 1995, except that
'Other expenses' for Low Duration Income Fund, Investment Grade Income Fund
and High Income Fund are estimated based on the expenses incurred by each
Fund's Class A shares for the fiscal year ended November 30, 1995. The
INSIGHT fee is not included.

EXAMPLE OF EFFECT OF FUND EXPENSES

An investor would directly or indirectly pay the following expenses (including
1.50% annual INSIGHT fee) on a $1,000 investment in each Fund, assuming a 5%
annual return:

<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Government Income Fund.................................... $ 22 $68 $117 $ 251
Low Duration Income Fund....................................... $ 25 $78
Investment Grade Income Fund................................... $ 22 $69
High Income Fund............................................... $ 22 $68
</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 the Class Y shares of a Fund.

THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND A FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN. The
actual expenses attributable to a Fund's Class Y 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.

Prospectus Page 3

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

The table below provides selected per share data and ratios for one Class Y
share of U.S. Government Income Fund and Low Duration Income Fund for each of
the periods shown. This information is supplemented by the financial statements
and accompanying notes appearing in each Fund's Annual Report to Shareholders
for the fiscal year ended November 30, 1995, 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 insofar as it
relates to the fiscal year ended November 30, 1995 and for the prior periods,
have been audited by Ernst & Young LLP, independent auditors, whose reports
thereon are included in the Annual Reports to Shareholders. Further information
about each Fund's performance is also included in the Annual Reports to
Shareholders, which may be obtained without charge. No information is presented
for Class Y shares of Investment Grade Income Fund and High Income Fund because
no such shares were outstanding as of November 30, 1995.

<TABLE>
<CAPTION>
CLASS Y SHARES**
--------------------------------------------------------------------------
LOW DURATION
U.S. GOVERNMENT INCOME FUND INCOME FUND
---------------------------------------------------------- ------------
FOR THE FOR THE
PERIOD PERIOD
SEPTEMBER 11, OCTOBER 20,
FOR THE YEARS ENDED NOVEMBER 30, 1991# TO 1995# TO
----------------------------------------- NOVEMBER 30, NOVEMBER 30,
1995 1994 1993 1992 1991 1995
------ ------ ------ ------ ------------- ------------

<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period............... $ 8.49 $10.02 $ 9.97 $ 9.97 $ 9.88 $ 2.33
------ ------ ------ ------ ------ ------
Net investment income.............................. 0.61 0.62 0.70 0.77 0.18 0.01
Net realized and unrealized gains (losses) from
investment transactions.......................... 0.62 (1.53) 0.05 0.01 0.09 0.01
------ ------ ------ ------ ------ ------
Net increase (decrease) in net assets resulting
from operations.................................. 1.23 (0.91) 0.75 0.78 0.27 0.02
------ ------ ------ ------ ------ ------
Dividends from net investment income............... (0.61) (0.62) (0.70) (0.78) (0.18) (0.01)
------ ------ ------ ------ ------ ------
Net asset value, end of period..................... $ 9.11 $ 8.49 $10.02 $ 9.97 $ 9.97 $ 2.34
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
Total investment return(1)......................... 15.06% (9.37)% 7.69% 8.13% 2.37% 0.83%
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)...... $7,957 $4,955 $6,232 $5,517 $ 4,514 $ 321
Ratio of expenses to average net assets........ 0.71%(2) 0.65% 0.62% 0.63% 0.72%* 0.99%*
Ratio of net investment income to average net
assets....................................... 6.96%(2) 6.76% 6.87% 7.70% 8.36%* 5.87%*
Portfolio turnover rate........................ 206% 358% 83% 28% 71% 242%
</TABLE>

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

# Commencement of offering of shares.

* Annualized.

** Formerly Class C shares.

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

(2) These ratios include non-recurring reorganization expenses of 0.03%.

Prospectus Page 4

INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------

The investment objective of U.S. GOVERNMENT INCOME FUND is to provide high
current income consistent with the preservation of capital and liquidity. The
Fund invests primarily in U.S. government securities.

The investment objective of LOW DURATION INCOME FUND is to achieve the highest
level of income consistent with the preservation of capital and low volatility
of net asset value. The Fund invests primarily in U.S. government securities and
seeks to limit the volatility of its net asset value per share by maintaining,
under normal circumstances, an overall portfolio duration of from one to three
years.

The investment objective of INVESTMENT GRADE INCOME FUND is to provide high
current income consistent with the preservation of capital and liquidity. The
Fund invests in a diversified range of investment grade bonds and other fixed
income securities.

The investment objective of HIGH INCOME FUND is to provide high income. The Fund
invests primarily in a diversified range of high risk, high yield medium to
lower quality corporate bonds.

The Funds are diversified series of an open-end management investment company.
Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins') is each Fund's
investment adviser and administrator. Pacific Investment Management Company
('PIMCO') serves as sub-adviser for Low Duration Income Fund.

There can be no assurance that any Fund will achieve its investment objective.
Each Fund's net asset value will fluctuate based upon changes in the value of
its portfolio securities. Each Fund's investment objective and certain
investment limitations as described in the Statement of Additional Information
are fundamental policies and may not be changed without shareholder approval. In
addition, the policy of each of U.S. Government Income Fund and Low Duration
Income Fund of normally concentrating at least 25% of its total assets in
mortgage- and asset-backed securities is fundamental and may not be changed
without shareholder approval. All other investment policies may be changed by
the Trust's board of trustees without shareholder approval.

U.S. GOVERNMENT INCOME FUND AND LOW
DURATION INCOME FUND. Under normal conditions, U.S. Government Income Fund and
Low Duration Income Fund each invests 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. While these instruments may be guaranteed as to the
payment of interest and principal, they are not guaranteed as to market value.
Up to 35% of each Fund's total assets may be invested in privately issued
mortgage- and asset-backed securities that at the time of purchase have been
rated AAA by Standard & Poor's, a division of The McGraw Hill Companies, Inc.
('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
or PIMCO, as applicable, to be of comparable quality. As a matter of fundamental
policy, each 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.

Low Duration Income Fund seeks to limit the volatility of its net asset value
per share by maintaining, under normal circumstances, an overall portfolio
duration of from one to three years. U.S. Government Income Fund has no fixed
portfolio duration policy. Duration is a measure of the expected life of a fixed
income security on a present value basis. See 'Duration.'

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

Prospectus Page 5

obligations. Multi-class pass-through securities and collateralized mortgage
obligations are collectively referred to herein as CMOs. Issuers and guarantors
of the U.S. government mortgage-backed securities in which the Funds may invest
include the Government National Mortgage Association ('Ginnie Mae'), the Federal
National Mortgage Association ('Fannie Mae') or the Federal Home Loan Mortgage
Corporation ('Freddie Mac'). Private issuers of mortgage-backed securities in
which the Funds may invest are 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 Funds may invest, see Appendix A to this Prospectus.

Each 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
the 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. See 'Risks of
Mortgage- and Asset-Backed Securities.'

Non-mortgage-related U.S. government securities in which U.S. Government Income
Fund and Low Duration Income 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.

U.S. Government Income Fund and Low
Duration Income 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 receipts 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 Securities ('CATS') and Treasury Income Growth Receipts ('TIGRs') which
are not issued through the U.S. Treasury will not be counted as U.S. government
securities for purposes of the 65% investment requirement. See 'Risks of Zero
Coupon Securities.'

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 sale contracts, other installment sale 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.

Each Fund also may seek to enhance income or to reduce the risks associated with
ownership of the securities in which it invests through the use of options,
futures contracts, options on futures contracts, interest rate protection
transactions, dollar rolls and reverse repurchase agreements. See 'Hedging and
Related Income Strategies' and 'Dollar Rolls and Reverse Repurchase Agreements'.

INVESTMENT GRADE INCOME FUND. Investment Grade Income Fund invests in a
diversified range of investment grade bonds and other fixed income securities.
Investment grade bonds are those bonds that, at the time of purchase, are
assigned one of the four highest grades by S&P or Moody's, are comparably rated
by another NRSRO or, if unrated, are determined by
Mitchell Hutchins to be of comparable quality to such rated securities. Under
normal circumstances, the Fund invests at least 65% of its total assets in
investment grade corporate bonds and securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities. Up to 35% of the Fund's total
assets may be invested in corporate bonds that are below investment grade,

Prospectus Page 6

preferred stocks, convertible securities, certain mortgage- and asset-backed
securities described below, commercial paper or variable amount master notes
issued by companies having at the time of purchase an issue of outstanding debt
securities rated investment grade by S&P or Moody's or commercial paper rated
A-1 by S&P or P-1 by Moody's, and other money market instruments, including
repurchase agreements. Up to 20% of the Fund's net assets may be invested in
U.S. dollar-denominated securities of foreign issuers or foreign branches of
U.S. banks that are traded in the U.S. securities markets, or in U.S.
dollar-denominated securities the value of which is linked to the value of
foreign currencies. The Fund may also seek to enhance income or to reduce the
risks associated with ownership of the securities in which it invests through
the use of options, futures contracts, options on futures contracts and interest
rate protection transactions. See 'Hedging and Related Income Strategies.'

Investment Grade Income Fund may invest in mortgage-backed securities that are
issued or guaranteed as to the payment of principal and interest (but not as to
market value) by the U.S. government, its agencies or instrumentalities or
issued by private issuers and rated in the four highest ratings of S&P or
Moody's. The Fund also may invest in asset-backed securities that are rated in
the two highest ratings assigned by S&P or Moody's. See 'Risk Factors.' The Fund
may invest up to 10% of its total assets in classes of mortgage-backed
securities that receive different proportions of the interest and principal
distributions from the underlying mortgage assets. See 'Risks of Mortgage- and
Asset-Backed Securities.'

During its 1995 fiscal year, Investment Grade Income Fund had 100% of its
average annual net assets in debt securities that received a rating from S&P or
Moody's or another NRSRO. The Fund had the following percentages of its average
annual net assets invested in rated securities: AAA/Aaa (including cash
items) -- 13%, AA/Aa -- 7%, A/A -- 35%, BBB/Baa -- 29%, BB/Ba -- 15%, B/B -- 1%
and CCC/Caa -- 0%. It should be noted that this information reflects the average
composition of the Fund's assets during the fiscal year ended November 30, 1995
and is not necessarily representative of the Fund's assets as of the end of that
fiscal year, the current fiscal year or at any time in the future.

HIGH INCOME FUND. High Income Fund invests primarily in a diversified range of
high risk, high yield medium to lower quality bonds. Generally, higher yielding
bonds carry ratings assigned by S&P, Moody's or another NRSRO that are lower
than those assigned to investment grade bonds, or are unrated, and thus carry
higher investment risk than investment grade bonds. See 'Risks of Lower Rated
Securities.' Under normal circumstances, at lease 65% of the Fund's total assets
are invested in high risk, high yielding, income-producing corporate debt
securities that at the time of purchase are rated B or better by S&P or Moody's,
comparably rated by another NRSRO or are unrated but determined to be of
comparable quality by Mitchell Hutchins.

Up to 35% of the Fund's total assets may be invested in debt securities rated
below B by S&P or Moody's or comparably rated by another NRSRO, preferred
stocks, securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities, equity securities (including common stocks, warrants and
rights) which may be attached to fixed income securities or as a part of a unit
including fixed income securities or in connection with a conversion or exchange
of fixed income securities, and money market instruments, including repurchase
agreements. The Fund may invest in securities selling at a substantial discount
from par.

High Income Fund is permitted to invest up to 25% of its total assets in
securities that do not currently provide income but that Mitchell Hutchins
believes have the potential for capital appreciation. These securities include
debt securities that are not currently paying income and equity securities, such
as common stock, warrants, rights and preferred stocks, that are not paying
current income. The Fund may invest up to 35% of its net assets in securities of
foreign issuers, with no more than 10% of its net assets in securities of
foreign issuers that are denominated and traded in currencies other than the
U.S. dollar. The Fund may also seek to enhance income or to reduce the risks
associated with ownership of the debt securities in which it invests through the
use of options, futures contracts, options on futures contracts, forward
currency contracts and interest rate protection transactions. See 'Hedging and
Related Income Strategies.'

During its 1995 fiscal year, High Income Fund had 80% of its average annual net
assets in debt securities that received a rating from S&P or

Prospectus Page 7

Moody's or another NRSRO and 15% of its average annual net assets in debt
securities that were not so rated. The Fund had the following percentages of its
average annual net assets invested in rated securities: AAA/Aaa (including cash
items) -- 2%, AA/Aa -- 0%, A/A -- 0%, BBB/Baa -- 0%, BB/Ba -- 21%, B/B -- 51%,
CCC/Caa -- 6%. It should be noted that this information reflects the average
composition of the Fund's assets during the fiscal year ended November 30, 1995
and is not necessarily representative of the Fund's assets as of the end of that
fiscal year, the current fiscal year or at any time in the future.

OTHER INVESTMENT POLICIES AND RISK
FACTORS

RISK FACTORS. Each Fund's net asset value fluctuates 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 a Fund will
receive the originally anticipated yield on the security. An investment in a
Fund also is subject to the risks discussed below.

-- INTEREST RATE SENSITIVITY. The investment income of each 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. The investment income of a Fund also 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 debt securities held by the Funds, and thus the net
asset value per share of each 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 each Fund, may be expected to decline.

-- RISKS OF MORTGAGE- AND ASSET-BACKED SECURITIES. The yield characteristics of
the mortgage- and asset-backed securities in which U.S. Government Income Fund,
Low Duration Income Fund and Investment Grade Income 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 a 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 a 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 a 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 a 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.

Certain classes of CMOs and other mortgage-backed securities are structured in a
manner that makes them extremely sensitive to changes in prepayment rates.
Interest-only ('IO') and principal-only ('PO') classes are examples of this. IOs
are entitled to receive all or a portion of the interest, but none (or only a
nominal amount) of the principal payments, from the underlying mortgage assets.
If the mortgage assets underlying an IO experience greater than anticipated
principal prepayments, then the total amount of interest payments allocable to
the IO class, and therefore the yield to investors, generally will be reduced.
In some instances, an investor in an IO may fail to recoup all of his or her
initial investment, even if the security is government issued or guaranteed or
is rated AAA or the equivalent.

Prospectus Page 8

Conversely, PO classes are entitled to receive all or a portion of the principal
payments, but none of the interest, from the underlying mortgage assets. PO
classes are purchased at substantial discounts from par, and the yield to
investors will be reduced if principal payments are slower than expected. Some
IOs and POs, as well as other CMO classes, are structured to have special
protections against the effects of prepayments. These structural protections,
however, normally are effective only within certain ranges of prepayment rates
and thus will not protect investors in all circumstances.

While Low Duration Income Fund generally may invest in CMO classes that are
structured to sell at a premium or a discount or that are sensitive to changes
in prepayment rates, that Fund may not invest in IO or PO classes. U.S.
Government Income Fund and Investment Grade Income Fund are not subject to any
similar limitation.

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. Low Duration Income Fund may not invest in inverse floating
rate mortgage-or asset-backed securities. U.S. Government Income Fund and
Investment Grade Income Fund are not subject to any similar limitation.

During 1994, the value and liquidity of many mortgage-backed securities declined
sharply due primarily to increases in interest rates. There can be no assurance
that such declines will not recur. The market value of certain mortgage-backed
securities, including IO and PO classes of
mortgage-backed securities and inverse floating rate securities, can be
extremely volatile and these securities may become illiquid. Mitchell Hutchins
or PIMCO, as applicable, seeks to manage each Fund so that the volatility of the
Fund's portfolio, taken as a whole, is consistent with the Fund's investment
objective. If market interest rates or other factors that affect the volatility
of securities held by a Fund change in ways that Mitchell Hutchins or PIMCO does
not anticipate, the Fund's ability to meet its investment objective may be
reduced.

See Appendix A to this Prospectus for more information concerning the types of
mortgage-backed securities in which U.S. Government Income Fund, Low Duration
Income Fund and Investment Grade Income Fund may invest.

-- RATINGS OF DEBT SECURITIES. Ratings of debt securities represent the
NRSROs' opinions regarding their quality, are not a guarantee of quality and may
be reduced after a Fund has acquired the security. Mitchell Hutchins or PIMCO
would consider such an event in determining whether the Fund should continue to
hold the security 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 financial
condition may be better or worse than the rating indicates. See Appendix B to
this Prospectus for further information regarding S&P's or Moody's ratings.

-- RISKS OF LOWER RATED SECURITIES. High Income Fund may invest all of its
assets in corporate bonds rated below investment grade and Investment Grade
Income Fund may invest up to 35% of its assets in such bonds. Investment Grade
Income Fund must normally invest at least 65% of its assets in debt securities
rated investment grade. Investment grade bonds include debt securities rated BBB
by S&P, Baa by Moody's or comparably rated by another NRSRO. Moody's considers
securities rated Baa to have speculative characteristics. Changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
for such securities to make principal and interest payments than is the case for
higher grade debt securities. Debt securities rated below investment grade are

Prospectus Page 9

deemed by these agencies to be predominately speculative with respect to the
issuer's capacity to pay interest and repay principal and may involve major risk
exposure to adverse conditions. Such securities are commonly referred to as
'junk bonds.' Investment Grade Income Fund and High Income Fund each may invest
up to 35% of its assets in debt securities rated lower than B, which include
securities that are in default or face the risk of default with respect to the
payment of principal or interest. Such securities are generally unsecured and
are often subordinated to other creditors of the issuer. To the extent a Fund is
required to seek recovery upon a default in the the payment of principal or
interest on its portfolio holdings, the Fund may incur additional expenses and
may have limited legal recourse in the event of a default. Investment Grade
Income Fund and High Income Fund are also permitted to purchase debt securities
that are not rated by a NRSRO but that Mitchell Hutchins determines to be of
comparable quality to that of rated securities in which those Funds may invest.
Such securities are included in the computation of any percentage limitations
applicable to the comparable rated securities. In the event that, due to a
downgrade of one or more debt securities, an amount in excess of 35% of
Investment Grade Income Fund's total assets is held in securities rated below
investment grade and comparable unrated securities, Mitchell Hutchins will
engage in an orderly disposition of such securities to the extent necessary to
reduce the Fund's holdings of these securities to 35% of total assets.

Lower rated debt securities generally offer a higher current yield than that
available from higher grade issues, but they involve higher risks, in that they
are especially subject to adverse changes in general economic conditions and in
the industries in which the issuers are engaged, to changes in the financial
condition of the issuers and to price fluctuation in response to changes in
interest rates. During periods of economic downturn or rising interest rates,
highly leveraged issuers may experience financial stress, which would adversely
affect their ability to make payments of principal and interest and increase the
possibility of default. In addition, such issuers may not have more traditional
methods of financing available to them, and may be unable to repay debt at
maturity by refinancing. The risk of loss due to default by such issuers is
significantly greater because such securities frequently are unsecured and
subordinated to the prior payment of senior indebtedness.

The market for lower rated securities has expanded rapidly in recent years, and
its growth paralleled a long economic expansion. In the past, the prices of many
lower rated debt securities declined substantially, reflecting an expectation
that many issuers of such securities might experience financial difficulties. As
a result, the yields on lower rated debt securities rose dramatically. However,
such higher yields did not reflect the value of the income stream that holders
of such securities expected, but rather the risk that holders of such securities
could lose a substantial portion of their value as a result of the issuers'
financial restructuring or default. There can be no assurance that such declines
will not recur. The market for lower rated debt securities generally is thinner
and less active than that for higher quality securities, which may limit a
Fund's ability to sell such securities at fair value in response to changes in
the economy or the financial markets. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may also decrease the
values and liquidity of lower rated securities, especially in a thinly traded
market.

Although Mitchell Hutchins will attempt to minimize the speculative risks
associated with investments in such securities through diversification, credit
analysis and attention to current trends in interest rates and other factors,
investors should carefully review the objectives and policies of Investment
Grade Income Fund and High Income Fund and consider their ability to assume the
investment risks involved before making an investment in these Funds.

-- RISKS OF ZERO COUPON SECURITIES. Each Fund may invest in certain zero
coupon securities that are 'stripped' U.S. Treasury notes and bonds. High Income
Fund may also invest in zero coupon securities of corporate issuers and other
securities that are issued with original issue discount ('OID') and
payment-in-kind ('PIK') securities. Zero coupon securities pay no interest to
holders prior to maturity. Zero coupon securities usually trade at a substantial
discount from their face or par value; PIK securities often trade at a discount
from their face or par value. Both zero coupon and PIK securities are subject to
greater fluctuations of market value in response to changing interest rates than
debt obligations

Prospectus Page 10

of comparable maturities that make current distributions of interest in cash.

Federal tax law requires that a holder of a security with OID accrue a portion
of the OID on the security as income each year, even though the holder may
receive no interest payment on the security during the year. Accordingly,
although the investing Fund will receive no payments on its zero coupon
securities prior to their maturity or disposition, it will have income
attributable to such securities. Similarly, while PIK securities may pay
interest in the form of additional securities rather than cash, that interest
must be included in High Income Fund's annual income.

Companies such as the Funds, which seek to qualify for pass-through federal
income tax treatment as regulated investment companies, must distribute
substantially all of their net investment income each year, including non-cash
income. Accordingly, each Fund will be required to include in its dividends an
amount equal to the income attributable to its zero coupon securities, other OID
and PIK securities. See 'Taxes' in the Statement of Additional Information.
Those dividends will be paid from the cash assets of a Fund or by liquidation of
portfolio securities, if necessary, at a time when the Fund otherwise might not
have done so.

-- RISKS OF FOREIGN SECURITIES. Investment Grade Income Fund may invest up to
20% of its net assets in U.S. dollar-denominated securities of foreign issuers
or foreign branches of U.S. banks that are traded in the U.S. securities
markets, or in U.S. dollar-denominated securities the value of which is linked
to the value of foreign currencies. High Income Fund may invest up to 35% of its
net assets in securities of foreign issuers, with no more than 10% of its net
assets in securities of foreign issuers that are denominated and traded in
currencies other than the U.S. dollar. The foreign securities in which these
Funds may invest involve risks relating to political, social and economic
developments abroad, as well as risks resulting from the differences between the
regulations to which U.S. and foreign issuers and markets are subject.
Individual foreign economies may differ favorably or unfavorably from the U.S.
economy. Securities of many foreign companies may be less liquid and their
prices more volatile than securities of comparable U.S. companies. Foreign
securities may from time to time be difficult to liquidate rapidly without
significantly depressing the price of such securities. There may be less
publicly available information concerning foreign issuers of securities held by
the Funds than is available concerning U.S. issuers.

High Income Fund and Investment Grade Income Fund may each invest in dollar-
denominated securities whose value is linked to the value of foreign currencies,
and High Income Fund may invest in non-U.S. dollar-denominated securities.
Accordingly, changes in foreign currency exchange rates will affect the Fund's
net asset value, the value of dividends and interest earned, gains and losses
realized on the sale of securities and net investment income to be distributed
to shareholders by the Fund. In addition, some foreign currency values may be
volatile and there is the possibility of governmental controls on currency
exchange or governmental intervention in currency markets. Any of these factors
could adversely affect the Fund.

The costs attributable to foreign investing that High Income Fund must bear
frequently are higher than those attributable to domestic investing. For
example, the costs of maintaining custody of securities in foreign countries
exceed custodian costs related to domestic securities.

High Income Fund may enter into forward currency contracts to set the rate at
which currency exchanges will be made for specific contemplated transactions.
The Fund might also enter into forward currency contracts for the purchase or
sale of a specified currency at a specified future date either with respect to
contemplated transactions or with respect to portfolio positions. For example,
when Mitchell Hutchins anticipates making a currency exchange transaction in
connection with the purchase or sale of a security, the Fund may enter into a
forward currency contract in order to set the exchange rate at which the
transaction will be made. The Fund also may enter into a forward contract to
sell an amount of a foreign currency approximating the value of some or all of
its securities denominated in that currency.

High Income Fund may use forward contracts in one currency or a basket of
currencies to hedge against fluctuations in the value of another currency when
Mitchell Hutchins anticipates there will be a correlation between the two and
may use forward currency contracts to shift the Fund's exposure to foreign
currency fluctuations from one country to another. The purpose of entering into
these contracts is to minimize the risk to the Fund from adverse changes in the

Prospectus Page 11

relationship between the U.S. dollar and foreign currencies.

High Income Fund may also write covered put and call options and purchase put
and call options on foreign currencies to hedge against movements in currency
exchange rates. The risks of these hedging strategies are similar to those of
the other hedging strategies in which the Fund may engage, as described under
'Hedging and Related Income Strategies.' See the Statement of Additional
Information for more information on currency hedging strategies.

HEDGING AND RELATED INCOME STRATEGIES. Each Fund may use options (both
exchange-traded and over-the-counter ('OTC')), futures contracts and interest
rate protection transactions 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 a Fund's average duration and other risks of its investments,
which can affect fluctuations in the Fund's net asset value. A Fund's ability to
use these strategies may be limited by market conditions, regulatory limits and
tax considerations. The use of options and futures solely to enhance income may
be considered a form of speculation. Appendix C to this Prospectus describes the
hedging instruments that the Funds may use, and the Statement of Additional
Information contains further information on these strategies.

Each Fund may write (sell) covered call and put options, buy call and put
options, buy and sell interest rate futures contracts and buy call or put
options or write covered call options on such futures contracts. In addition,
Low Duration Income Fund may buy and sell debt security index futures contracts.
Each Fund may enter into options and futures contracts under which the full
value of its portfolio is at risk. Under normal circumstances, however, a Fund's
use of these instruments will place at risk a much smaller portion of its
assets.

The Funds may 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 a portfolio or to protect against any
increase in the price of securities a Fund anticipates purchasing at a later
date. A Fund will enter into interest rate protection transactions only with
banks and recognized securities dealers believed by Mitchell Hutchins or PIMCO
to present minimal credit risks in accordance with guidelines established by the
Trust's board of trustees. A Fund would use these transactions as a hedge and
not as a speculative investment.

The Funds might not employ any of the strategies described above, and no
assurance can be given that any strategy used will succeed. If Mitchell Hutchins
or PIMCO incorrectly forecasts interest rates, market values or other economic
factors in utilizing a strategy for a 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
Funds' 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 a 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
a 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 a Fund to close out or to
liquidate its hedged position.

DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS. U.S. Government Income Fund and
Low Duration Income Fund each 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, 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

Prospectus Page 12

through the receipt of fee income equivalent to a lower forward price.

U.S. Government Income Fund and Low
Duration Income Fund each 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-upon 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 U.S.
Government Income Fund and Low Duration Income 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
on the related dollar roll or reverse repurchase agreement. Because a Fund will
receive interest on the securities or repurchase agreements in which it invests
the transaction proceeds, such transactions may involve leverage. However,
because such securities or repurchase agreements must satisfy the quality
requirements of the Fund, and will mature on or before the settlement date on
the related dollar roll or reverse repurchase agreement, Mitchell Hutchins and
PIMCO believe that such arbitrage transactions do not present the risks to the
Funds 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 each Fund's limitations on
borrowings, which will restrict the aggregate of such transactions (plus any
other borrowings) to 33 1/3% of each Fund's total assets. A 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 Funds have no present intention to enter into dollar
rolls other than in such arbitrage transactions, and they have no present
intention to enter into reverse repurchase agreements other than in such
arbitrage transactions or for temporary or emergency purposes. Each Fund may
borrow money for temporary or emergency purposes, but not in excess of an
additional 5% of its total assets.

REPURCHASE AGREEMENTS. Each Fund may use repurchase agreements. Repurchase
agreements are transactions in which a 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. Each Fund intends to enter into
repurchase agreements only with banks and dealers in transactions believed by
Mitchell Hutchins or PIMCO to present minimum credit risks in accordance with
guidelines established by the Trust's board of trustees.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each 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 period, but the Fund generally would not pay for such
securities or start earning interest on them until they are delivered. However,
when a 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, a 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

Prospectus Page 13

amount by which the Fund's total assets, including the value of when-issued and
delayed delivery securities held by the Fund, exceed its net assets.

ILLIQUID SECURITIES. Each Fund may invest up to 10% (15% for Low Duration
Income Fund) 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 price at
which the Fund has valued the securities. Under current guidelines of the staff
of the SEC, IOs and POs are considered illiquid. However, IO and PO classes of
fixed-rate mortgage-backed securities issued by the U.S. government or one of
its agencies or instrumentalities will not be considered illiquid if Mitchell
Hutchins 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, repurchase agreements with
maturities in excess of seven days and securities whose disposition is
restricted under the federal securities laws (other than 'Rule 144A' securities
that Mitchell Hutchins or PIMCO has determined to be liquid under procedures
approved by the Trust's board of trustees).

Rule 144A establishes a 'safe harbor' from the 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
a 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.

A Fund may not be able to sell illiquid securities when Mitchell Hutchins or
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.

LENDING OF PORTFOLIO SECURITIES. Each Fund is authorized to lend up to 33 1/3%
of the total value of its portfolio securities to broker-dealers or
institutional investors that Mitchell Hutchins deems qualified. Lending
securities enables the Fund to earn additional income, but could result in a
loss or delay in recovering the securities.

DURATION. Duration is a measure of the expected life of a fixed income security
that was developed as a more precise alternative to the concept 'term to
maturity.' Duration incorporates a bond's yield, coupon interest payments, final
maturity and call features into one measure and is one of the fundamental tools
used by Mitchell Hutchins or PIMCO, as applicable, in portfolio selection for
the Funds. Traditionally, a debt security's 'term to maturity' has been used as
a proxy for the sensitivity of the security's price to changes in interest rates
(which is the 'interest rate risk' or 'volatility' of the security). However,
'term to maturity' measures only the time until a debt security provides for a
final payment, taking no account of the pattern of the security's payments prior
to maturity. Duration is a measure of the expected life of a fixed income
security on a present value basis. Duration takes the length of the time
intervals between the present time and the time that the interest and the
principal payments are scheduled to be made or, in the case of a callable bond,
expected to be received, and weights them by the present values of the cash to
be received at each future point in time. For any fixed income security with
interest payments occurring prior to the payment of principal, duration is
always less than maturity. For example, depending upon its coupon and the level
of market yields, a U.S. treasury note with a remaining maturity of five years
might have a duration of 4.5 years. For mortgage-backed and other securities
that are subject to prepayments, put or call features or adjustable coupons, the
difference between the remaining stated maturity and the duration is likely to
be much greater.

Futures, options and options on futures have durations which, in general, are
closely related to the duration of the securities which underlie them. Holding
long futures or call option positions (backed by a segregated account of cash
and cash equivalents) will lengthen a Fund's duration by approximately the same
amount as would holding an equivalent amount of the underlying securities. Short
futures or put

Prospectus Page 14

options have durations roughly equal to the negative duration of the securities
that underlie these positions, and have the effect of reducing portfolio
duration by approximately the same amount as would selling an equivalent amount
of the underlying securities.

There are some situations in which the standard duration calculation does not
properly reflect the interest rate exposure of a security. For example, floating
and variable rate securities often have final maturities of ten or more years;
however, their interest rate exposure corresponds to the frequency of the coupon
reset. Another example where the interest rate exposure is not properly captured
by the standard duration calculation is the case of mortgage-backed securities.
The stated final maturity of such securities is generally 30 years, but current
prepayment rates are critical in determining the securities' interest rate
exposure. In these and other similar situations, Mitchell Hutchins and PIMCO
will use more sophisticated analytical techniques that incorporate the economic
life of a security into the determination of its duration and, therefore, its
interest rate exposure.

Duration allows Mitchell Hutchins or PIMCO to make certain predictions as to the
effect that changes in the level of interest rates will have on the value of a
Fund's portfolio. For example, when the level of interest rates increases by 1%,
a fixed income security having a positive duration of three years generally will
decrease in value by approximately 3%. Accordingly, if
Mitchell Hutchins or PIMCO calculates the duration of the Fund's portfolio as
being three years, it normally would expect the portfolio to change in value by
approximately 3% for every 1% change in the level of interest rates. However,
various factors, such as changes in anticipated prepayment rates, qualitative
considerations, market supply and demand, can cause particular securities to
respond somewhat differently to changes in interest rates than indicated in the
above example. Moreover, in the case of mortgage-backed and other complex
securities, duration calculations are estimates and are not precise. This is
particularly true during periods of market volatility. Accordingly, the net
asset value of a Fund's portfolio may vary in relation to interest rates by a
greater or lesser percentage than indicated by the above example.

PORTFOLIO TURNOVER. Each Fund's portfolio turnover rate may vary greatly from
year to year and will not be a limiting factor when Mitchell Hutchins or PIMCO
deems portfolio changes appropriate. A higher turnover rate for a Fund (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.

DERIVATIVES. The Funds may invest in instruments or securities that commonly
are referred to as 'derivatives,' because their value depends on (or 'derives'
from) the value of an underlying asset, reference rate or index. Derivative
instruments include options, futures contracts, interest rate protection
contracts and similar instruments that may be used by the Funds in hedging and
related income strategies. There is only limited consensus as to what
constitutes a 'derivative' security. However, in Mitchell
Hutchins' and PIMCO's view, the derivative securities in which the Funds may
invest include 'stripped' securities, such as CATS and TIGRs, and specially
structured types of mortgage- and asset-backed securities, such as IOs, POs and
inverse floaters. The market value of derivative instruments and securities
sometimes is more volatile than that of other investments, and each type of
derivative may pose its own special risks. Mitchell Hutchins and PIMCO take
these risks into account in their management of the Funds.

OTHER INVESTMENT POLICIES. Each Fund may hold up to 35% of its total assets in
cash or money market instruments for liquidity purposes or pending investment.
In addition, when Mitchell Hutchins or PIMCO believes unusual circumstances
warrant a defensive position, each Fund temporarily may commit all or any
portion of its assets to cash or money market instruments. Such instruments may
include obligations of the U.S. government, its agencies or instrumentalities,
commercial paper rated at least A-1 by S&P or Moody's (Low Duration Income Fund
and Investment Grade Income Fund) or without regard to rating (High Income
Fund), bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by any of the foregoing. The money market investments of U.S.
Government Income Fund are limited to obligations of the U.S. government, its
agencies and instrumentalities and repurchase agreements secured by such
obligations. The Funds may also engage in short sales of securities 'against the
box' to defer realization of gains or losses for tax purposes.

Prospectus Page 15

Investment Grade Income Fund and High Income Fund each may enter into reverse
repurchase agreements with banks and dealers and may borrow money for temporary
or emergency purposes, but not in excess of 10% of its total assets. Investment
Grade Income Fund and High Income Fund each may invest up to 5% of its net
assets in participations in, or assignments of, all or a portion of secured or
unsecured fixed or floating rate loans arranged through private negotiations
between a borrowing corporation and one or more financial institutions.

New types of mortgage- and asset-backed securities, derivative securities,
hedging instruments and risk management techniques are developed and marketed
from time to time. Each Fund may invest in these securities and instruments and
use these techniques to the extent consistent with its investment objective and
limitations and with regulatory and tax considerations.

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PURCHASES
- --------------------------------------------------------------------------------

Class Y shares are sold to eligible investors at the net asset value next
determined (see 'Valuation of Shares') after the purchase order is received at
PaineWebber's New York City offices, or, with respect to U.S. Government Income
Fund, for purchases by the trustee of the PW SIP, by the Fund's transfer agent
('Transfer Agent'). No initial or contingent deferred sales charges is imposed,
nor are Class Y shares subject to Rule 12b-1 distribution or service fees.
Mitchell Hutchins is the distributor of the Fund's shares and has appointed
PaineWebber Incorporated ('PaineWebber') as the exclusive dealer for the sale of
those shares. Each Fund and Mitchell Hutchins reserve the right to reject any
purchase order and to suspend the offering of the Class Y shares for a period of
time.

PURCHASES BY INSIGHT PARTICIPANTS. An investor who purchases $50,000 or more of
shares of mutual funds that are available to INSIGHT participants (which include
the PaineWebber mutual funds in the Flexible Pricing System SM and certain
specified other mutual funds) may take part in INSIGHT, a total portfolio asset
allocation program sponsored by PaineWebber, and thus become eligible to
purchase Class Y shares. INSIGHT offers comprehensive investment services,
including a personalized asset allocation investment strategy using an
appropriate combination of funds, monitoring of investment performance and
comprehensive quarterly reports that cover market trends, portfolio summaries
and personalized account information. Participation in INSIGHT is subject to
payment of an advisory fee to PaineWebber at the maximum annual rate of 1.50% of
assets held through the program (generally charged quarterly in advance), which
covers all INSIGHT investment advisory services and program administration fees.
Employees of PaineWebber and its affiliates are entitled to a 50% reduction in
the fee otherwise payable for participation in INSIGHT. INSIGHT clients may
elect to have their INSIGHT fees charged to their PaineWebber accounts (by the
automatic redemption of money market fund shares) or, if a qualified plan,
invoiced. Please contact your PaineWebber investment executive or PaineWebber's
correspondent firms or call 1-800-647-1568 for more information concerning
mutual funds that are available to INSIGHT participants or for other INSIGHT
information.

PURCHASES BY THE TRUSTEE OF THE PW SIP. Class Y shares of U.S. Government Income
Fund also are offered for sale to the trustee of the PW SIP, a defined
contribution plan sponsored by Paine Webber Group Inc. ('PW Group'). The trustee
of the PW SIP purchases these Class Y shares to implement the investment choices
of individual plan participants with respect to their PW SIP contributions.
Individual plan participants should consult the Plan Information Statement and
Summary Plan Description of the PW SIP (collectively, 'Plan Documents') for a
description of the procedures and limitations applicable to making and changing
investment choices. Copies of the Plan Documents are available from the
PaineWebber Incorporated Benefits Department, 10th Floor, 1000 Harbor Boulevard,
Weehawken, New Jersey 07087 (telephone 1-201-902-4444).

Prospectus Page 16

As described in the Plan Documents, the average net asset value per share at
which Class Y shares of U.S. Government Income Fund are purchased by the trustee
of the PW SIP for the accounts of individual participants might be more or less
than the net asset value per share prevailing at the time that such participants
made their investment choices or made their contributions to the PW SIP.

ACQUISITION OF CLASS Y SHARES BY OTHERS. Certain present holders of Class Y
shares who are not current INSIGHT participants may acquire Class Y shares of
the Fund. This category includes former employees of Kidder, Peabody & Co.,
Incorporated, their associated accounts and present and former directors and
trustees of the former Mitchell Hutchins, Kidder, Peabody mutual funds.

The Funds are authorized to offer Class Y shares to other employee benefit and
retirement plans of PW Group and its affiliates and certain investment programs
that are sponsored by PaineWebber and that may invest in PaineWebber mutual
funds. At present, however, INSIGHT participants and the PW SIP are the only
purchasers in these categories.

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REDEMPTIONS
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Class Y shares may be redeemed at their net asset value and redemption proceeds
will be paid after receipt of a redemption request, as described below.

REDEMPTIONS THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. INSIGHT participants
who are Class Y shareholders may submit redemption requests to their investment
executives or correspondent firms in person or by telephone, mail or wire. As
each Fund's agent, PaineWebber may honor a redemption request by repurchasing
Class Y 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 three Business Days after receipt of the request, repurchase proceeds
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. A 'Business Day' is any day, Monday through
Friday, on which the New York Stock Exchange, Inc. ('NYSE') is open for
business.

PaineWebber reserves the right not to honor any 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. Shareholders also may redeem Class Y
shares through each Fund's transfer agent, PFPC Inc. ('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,' and redemption proceeds will be
paid within seven days of the receipt of the request. '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 the 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 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.'

REDEMPTIONS FOR PARTICIPANTS IN PW SIP. The trustee of the PW SIP redeems Class
Y shares of U.S. Government Income Fund to implement the investment choices of
individual plan participants with respect to their PW SIP contributions, as
described in the Plan Documents referenced under 'Purchases' above. As described
in the Plan Documents, the average net asset value per

Prospectus Page 17

share at which Class Y shares are redeemed by the trustee of the PW SIP might be
more or less than the net asset value per share prevailing at the time that such
participants made their investment choices.

ADDITIONAL INFORMATION ON REDEMPTIONS. A shareholder (other than a participant
in the PW SIP) may have redemption proceeds of $1 million or more 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. If a shareholder requests redemption
of shares which were purchased recently, a 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 each Fund incurs certain fixed costs in maintaining shareholder
accounts, it 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 a 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. A 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.

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DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------

DIVIDENDS. Dividends from each 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. Substantially all of each Fund's 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, are distributed annually. A Fund may make additional
distributions if necessary to avoid a 4% excise tax on undistributed income and
capital gain.

PW SIP PARTICIPANTS: Dividends and other distributions are paid in additional
U.S. Government Income Fund Class Y shares at net asset value unless the
Transfer Agent is instructed otherwise.

INSIGHT PARTICIPANTS: Dividends and capital gain distributions are paid in
additional Class Y shares at net asset value unless the shareholder has
requested cash payments. Shareholders who wish to receive dividends and/or other
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.

TAXES. Each 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.

Each 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.

PW SIP PARTICIPANTS. Qualified profit-sharing plans such as the PW SIP pay no
federal income tax. Individual participants in the PW SIP should consult the
Plan Documents and their own tax advisers for information on the tax
consequences associated with participating in the PW SIP.

INSIGHT PARTICIPANTS: Dividends from a 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 a 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 shares.
Shareholders not subject to tax on their income generally will not be required
to pay tax on amounts distributed to them.

Prospectus Page 18

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

A redemption of shares of a Fund may result in taxable gain or loss to the
redeeming shareholder, depending on whether the redemption proceeds payable to
the shareholder are more or less than the shareholder's adjusted basis for the
redeemed shares. An exchange of Fund shares for shares of another PaineWebber
mutual fund generally will have similar tax consequences. In addition, if shares
of a Fund are purchased within 30 days before or after redeeming other Fund
shares at a loss, all or a portion of that loss will not be deductible and will
increase the basis of the newly acquired 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 investors are urged to consult their tax advisers.

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VALUATION OF SHARES
- --------------------------------------------------------------------------------

The net asset value of each Fund's shares fluctuates and is determined 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 computed 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.

Each Fund values its assets based on their current market value when 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 to
maturity, unless the board of trustees determines that this does not represent
fair value. Investments of High Income Fund denominated in foreign currencies
are valued daily in U.S. dollars based on the then-prevailing exchange rate. It
should be recognized that judgment plays a greater role in valuing lower rated
debt securities in which High Income Fund and Investment Grade Income Fund may
invest, because there is less reliable, objective data available.

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MANAGEMENT
- --------------------------------------------------------------------------------

The Trust's board of trustees, as part of its overall management responsibility,
oversees various organizations responsible for each Fund's day-to-day
management. Mitchell Hutchins, investment adviser and administrator for each
Fund, supervises all aspects of the Fund's operations, makes and implements all
investment decisions for U.S. Government Income Fund, Investment Grade Income
Fund and High Income Fund and supervises the activities of PIMCO as sub-adviser
for Low Duration Income Fund. Mitchell Hutchins receives a monthly fee for these
services at the annual rate of 0.50% of each Fund's average daily net assets.

PIMCO, as sub-adviser for Low Duration Income Fund, makes and implements all
investment decisions for that Fund. Under the sub-advisory contract, Mitchell
Hutchins (not the Fund) pays PIMCO a fee for its services as sub-adviser at the
annual rate of 0.25% of the Fund's average daily net assets.

Prospectus Page 19

Each 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 Funds incur other expenses, such as custody and transfer agency fees,
brokerage commissions, professional fees, expenses of board and shareholder
meetings, fees and expenses relating to registration of its shares, taxes and
governmental fees, fees and expenses of the trustees, costs of obtaining
insurance, expenses of printing distributed shareholder materials, and
extraordinary expenses including costs or losses in any litigation. For the
fiscal year ended November 30, 1995, U.S. Government Income Fund's expenses for
its Class Y shares, stated as a percentage of average net assets was 0.71%. For
the fiscal period October 20, 1995 (commencement of offering) to November 30,
1995, Low Duration Income Fund's expenses for its Class Y shares, stated as a
percentage of average net assets and annualized, was 0.99%.

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 wholly
owned by PW Group, the sponsor of the PW SIP and a publicly owned financial
services holding company. At , 1996, Mitchell Hutchins was adviser
or sub-adviser to investment companies with separate portfolios and
aggregate assets of over $ 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 , 1996, PIMCO had approximately $ billion
in assets under management and was adviser or sub-adviser of investment
companies with portfolios and aggregate assets of approximately $ billion.

Nirmal Singh and Craig M. Varrelman have been responsible for the day-to-day
management of U.S. Government Income Fund's portfolio since December 1994. Mr.
Singh and Mr. Varrelman are both first vice presidents of Mitchell Hutchins.
Prior to joining Mitchell Hutchins in September 1993, Mr. Singh was with Merrill
Lynch Asset Management, Inc., where he was a member of the portfolio management
team. From 1990 to 1993, Mr. Singh was a senior portfolio manager at Nomura
Mortgage Fund Management Corporation. Mr. Varrelman has been with Mitchell
Hutchins as a portfolio manager since 1988.

William C. Powers, a Managing Director of PIMCO, is responsible for the
day-to-day management of Low Duration Income Fund's portfolio. Mr. Powers has
participated in the management of the portfolio since PIMCO assumed sub-advisory
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 Inc and Bear Stearns as a Senior
Managing Director.

James F. Keegan and Julieanna Berry are responsible for the day-to-day
management of Investment Grade Income Fund's portfolio. Mr.
Keegan is a senior vice president of Mitchell Hutchins. Prior to joining
Mitchell Hutchins in March 1996, Mr. Keegan was a director with
Merrion Group, L.P. From 1987 to 1994, he was a vice president of global
investment management of Bankers Trust Company. Mrs. Berry is a vice president
of Mitchell Hutchins and has been employed as a portfolio manager since 1989.
Mrs Berry has held her fund responsibilities since June 1995.

Thomas J. Libassi has been responsible for the day-to-day management of High
Income Fund's portfolio since May 1994. Mr. Libassi is a senior vice president
of Mitchell Hutchins. Prior to May 1994, Mr. Libassi was a vice president of
Keystone Custodian Funds Inc. with portfolio management responsibility for
approximately $900 million in assets primarily invested in high yield debt
securities.

Other members of Mitchell Hutchins' domestic fixed income and high yield groups
provide input on market outlook, interest rate factors and other considerations
pertaining to fixed income investments for U.S. Government Income Fund,
Investment Grade Income Fund and High Income Fund.

Mitchell Hutchins and PIMCO investment personnel may engage in securities
transactions for their own accounts pursuant to codes of ethics which establish
procedures for personal investing and restrict certain transactions.

Prospectus Page 20

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PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------

Each 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. 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.

Each Fund may use other total return presentations in conjunction with
standardized return. These may cover the same or different periods than those
used for standardized return and may include cumulative returns, average annual
rates, actual year-by-year rates or any combination thereof.

Each Fund also may advertise its yield. Yield reflects investment income net of
expenses over a 30-day (or one-month) period on a Class Y share, expressed as an
annualized percentage of the net asset value per share 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.

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.

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GENERAL INFORMATION
- --------------------------------------------------------------------------------

ORGANIZATION. PaineWebber Managed Investments Trust is registered with the SEC
as an open-end management investment company and was organized as a 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. Shares of five series, including the Funds, have been authorized.

The shares of beneficial interest of each Fund are divided into four classes,
designated Class A, Class B, Class C and Class Y shares. Each Class represents
interests in the same assets of the Fund. Class A, B and C differ as follows:
(1) each Class has exclusive voting rights on matters pertaining to its plan of
distribution, (2) Class A shares generally are subject to an initial sales
charge, (3) Class B shares bear ongoing distribution fees, may be subject to a
contingent deferred sales charge upon most redemptions and will automatically
convert to Class A shares approximately six years after issuance, (4) Class C
shares are not subject to an initial sales charge, but are subject to a
contingent deferred sales charge if redeemed within one year of purchase, bear
ongoing distribution fees and do not convert into another Class and (5) each
Class may bear differing amounts of certain Class-specific expenses. Class Y
shares are subject to neither an initial or contingent deferred sales charge nor
ongoing service or distribution fees.

The different sales charges and other expenses applicable to the different
Classes of each Fund's shares may affect the performance of those Classes. More
information concerning the other Classes of shares of the Funds may be obtained
from a PaineWebber investment executive or correspondent firm or by calling
1-800-647-1568.

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 of the Trust holding office have been elected by shareholders.
Shareholders of record holding at least two-thirds of

Prospectus Page 21

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 the shareholders of
record holding at least 10% of the Trust's outstanding shares. Each share of a
Fund has equal voting rights, except as noted above. Each share of a 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 four Classes, these dividends and proceeds are likely to be lower for the
other Classes than for the Class Y shares. The shares of each 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, share
certificates are not issued. Ownership of shares of each Fund is re corded on a
share 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 custodian of each Fund's assets and
employs foreign sub-custodians approved by the Trust's board of trustees in
accordance with the applicable requirements of the 1940 Act, to provide custody
of High Income Fund's foreign assets. PFPC Inc., a subsidiary of PNC Bank,
National Association, whose principal business address is 103 Bellevue Parkway,
Wilmington, Delaware 19809, is each Fund's transfer and dividend disbursing
agent.

CONFIRMATIONS AND STATEMENTS. Shareholders receive confirmations of purchases
and redemptions of shares of the Funds. PaineWebber clients receive statements
at least quarterly that report their activity and consolidated year-end
statements that show all Fund transactions for that year. Shareholders also
receive audited annual and semi-annual financial statements. The PW SIP receives
confirmations of purchases and redemptions of shares of the U.S. Government
Income Fund and quarterly statements from the Transfer Agent. The PW SIP also
receives audited annual and unaudited semi-annual financial statements of the
U.S. Government Income Fund. PW SIP participants receive periodic information,
including quarterly statements, about their plan participation from the PW SIP
plan administrator.

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APPENDIX A
MORTGAGE-BACKED SECURITIES
- --------------------------------------------------------------------------------

MORTGAGE-BACKED SECURITIES

The U.S. government securities in which U.S. Government Income Fund, Low
Duration Income Fund and Investment Grade Income Fund may invest include
mortgage-backed securities issued or guaranteed by Ginnie Mae, Fannie Mae or
Freddie Mac. While these mortgage-backed securities may be guaranteed as to
payment of interest and principal, they are not guaranteed as to market value.
Other mortgage-backed securities in which the Funds may invest will be issued by
Private Mortgage Lenders. 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. New types of mortgage-backed securities are developed and
marketed from time to time and, consistent with its investment limitations, the
Funds expect to invest in those new types of mortgage-backed securities that
Mitchell Hutchins or PIMCO believes may assist the Funds in achieving their
investment objective. Similarly, the Funds may invest in mortgage-backed
securities issued by new or

Prospectus Page 22

existing governmental or private issuers other than those identified herein.

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 Funds. 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 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 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 pass-through
certificates and collateralized mortgage obligations ('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 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 and Freddie Mac, they
normally are structured with one or more types of credit enhancement. 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, held assets of failed
savings associations as either a conservator or receiver for such associations,
or it acquired such assets in its corporate capacity. These assets included,
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 established a vehicle registered with the SEC through which it sold
mortgage-backed securities. RTC mortgage-backed securities represent pro rata
interests in pools of mortgage loans that RTC held or 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 by mortgage
loans or mortgage pass-through securities (such collateral collectively being
called 'Mortgage

Prospectus Page 23

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 of 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 ('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. Liquidity protection refers to the provision 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

Prospectus Page 24

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 scheduled payments on, or the principal amount of, the underlying
assets exceed 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.

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APPENDIX B
RATINGS
- --------------------------------------------------------------------------------

DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS

Aaa. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as 'gilt
edged.' Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. 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.

Aa. Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.

A. Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

Baa. Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B. Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca. Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C. Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

Note: Moody's may apply numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue

Prospectus Page 25

ranks in the lower end of its generic rating category.

DESCRIPTION OF S&P CORPORATE DEBT RATINGS

AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong; AA. Debt rated AA has a very
strong capacity to pay interest and repay principal and differs from the highest
rated issues only in small degree; A. Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories.

BBB. Debt rated BBB is regarded as having adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than for debt in higher rated categories.

BB, B, CCC, CC, C. Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation; BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.

CI. The rating CI is reserved for income bonds on which no interest is being
paid.

D. Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.

PLUS (+) OR MINUS ( - ): The ratings from 'AA' to 'CCC' may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

NR: 'NR' indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does nor rate a
particular type of obligation as matter of policy.

DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS

PRIME-1. Issues assigned this highest rating have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by the following characteristics: leading market positions in
well established industries; high rates of return on funds employed;
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earnings coverage of fixed financial charges
and high internal cash generation; well established access to a range of
financial markets and assured sources of alternate liquidity.

PRIME-2. Issuers assigned this rating have a strong ability for repayment of
senior short-term debt obligations. This will normally be evidenced by many of
the characteristics cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.

PRIME-3. Issuers assigned this rating have an acceptable capacity for repayment
of short-term promissory obligations. The effect of industry characteristics and
market composition may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt protection measurements
and the requirement for relatively high financial leverage. Adequate alternate
liquidity is maintained.

NOT PRIME. Issuers assigned this rating do not fall within any of the Prime
rating categories.

DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS

A. Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety; A-1. This
designation indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. Those issues determined to possess
overwhelming safety characteristics are denoted with a plus (+) sign
designation; A-2. Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1; A-3. Issues carrying this designation have a satisfactory
capacity for timely payment. They are, however, somewhat more vulnerable to the
adverse effects of changes in circumstances than obligations carrying the higher
designations; B. Issues rated B are regarded as having only an adequate capacity
for timely payment. However, such capacity may be damaged by changing conditions
or short-term adversities; C. This rating is assigned to short-term debt
obligations with a doubtful capacity for payment; D. This rating indicates that
the issue is either in default or is expected to be in default upon maturity.

Prospectus Page 26

- --------------------------------------------------------------------------------
APPENDIX C
- --------------------------------------------------------------------------------

The following are descriptions of instruments that one or more of the Funds may
use:

OPTIONS ON DEBT SECURITIES AND FOREIGN CURRENCIES. 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 or currency 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 or
currency 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 or currency at a specified price during the option term.
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 or
currency 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. A debt security 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 specificed
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 a 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.

FORWARD CURRENCY CONTRACTS. A forward currency contract involves an obligation
to purchase or sell a specific currency at a specified future date, which may be
any fixed number of days from the contract date agreed upon by the parties, at a
price set at the time the contract is entered into.

Prospectus Page 27

'c'1996 PaineWebber Incorporated

[Recycle Logo]
Printed on recycled paper

PAINEWEBBER
U.S. GOVERNMENT
INCOME FUND
LOW DURATION
U.S. GOVERNMENT

INCOME FUND
INVESTMENT GRADE
INCOME FUND
HIGH INCOME FUND
CLASS Y SHARES

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
FUNDS OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUNDS OR THEIR DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.

PROSPECTUS
July , 1996

STATEMENT OF ADDITIONAL INFORMATION

The four Funds named above (each a 'Fund') are diversified series of
PaineWebber Managed Investments Trust ('Trust'), a professionally managed mutual
fund. PaineWebber U.S. Government Income Fund ('U.S. Government Income Fund')
seeks to provide high current income consistent with the preservation of capital
and liquidity and invests primarily in U.S. government securities. PaineWebber
Low Duration U.S. Government Income Fund ('Low Duration Income Fund') seeks the
highest level of current income consistent with the preservation of capital and
low volatility of net asset value; it invests primarily in U.S. government
securities and seeks to limit the volatility of its net asset value per share by
maintaining, under normal circumstances, an overall portfolio duration of from
one to three years. PaineWebber Investment Grade Income Fund ('Investment Grade
Income Fund') seeks to provide high current income consistent with the
preservation of capital and liquidity; it invests primarily in investment grade
corporate bonds and other fixed income securities. PaineWebber High Income Fund
('High Income Fund') seeks to provide the highest level of current income
available without undue risk; it invests primarily in high risk, high yielding
medium and lower quality corporate bonds. The Funds' 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 exclusive dealer for the sale of Fund shares. Pacific
Investment Management Company ('PIMCO') serves as investment sub-adviser for Low
Duration Income Fund. The Class Y shares described in this Statement of
Additional Information are currently offered for sale primarily to participants
in the INSIGHT Investment Advisory Program ('INSIGHT'), when purchased through
that program. The Class Y shares of U.S. Government Income Fund also are offered
for sale to the trustee of the PaineWebber Savings Investment Plan acting on
behalf of that Plan. This Statement of Additional Information is not a
prospectus and should be read only in conjunction with the Funds' current
Prospectus, dated July , 1996. 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. Participants in the PaineWebber Savings Investment
Plan may obtain a copy of the Prospectus by contacting the PaineWebber
Incorporated Benefits Department, 1000 Harbor Boulevard, 10th Floor, Weehawken,
New Jersey 07087 or by calling 1-201-902-4444. This Statement of Additional
Information is dated July , 1996.

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INVESTMENT POLICIES AND RESTRICTIONS

The following supplements the information contained in the Prospectus
concerning the investment policies and limitations of the Funds.

YIELD FACTORS AND RATINGS. Standard & Poor's, a division of The McGraw
Hill Companies, Inc. ('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 debt obligations.
A description of the ratings assigned to debt obligations by S&P and Moody's is
included in Appendix B to the Prospectus. 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. Not even the highest 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.

A Fund may use these ratings in determining whether to purchase, sell or
hold a security. It should be emphasized, however, 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 indicates. 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 any 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 that Fund.

In addition to ratings assigned to individual bond issues, Mitchell
Hutchins or PIMCO, as applicable, 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 Funds invest, 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 bonds, both within a particular
classification and between classifications. An issuer's obligations under its
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 on their bonds.

SPECIAL CHARACTERISTICS OF MORTGAGE- 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

<PAGE>
<PAGE>
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.

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 a Fund.

U.S. Government Income Fund, Low Duration Income Fund and Investment Grade
Income Fund each 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 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

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<PAGE>
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 payments. If the monthly payment
exceeds the sum of the interest accrued at the applicable 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.

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.

CONVERTIBLE SECURITIES. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Before conversion, convertible securities have
characteristics similar to nonconvertible debt securities in that they
ordinarily provide a stable stream of income with generally higher yields than
those of common stocks of the same or similar issuers. Convertible securities
rank senior to common stock in a corporation's capital structure but are usually
subordinate to comparable nonconvertible securities. While no securities'
investment is without some risk, investment in convertible securities generally
entail less risk than the issuer's common stock, although the extent to which
such risk is reduced depends in large measure upon the degree to which the
convertible security sells above its value as a fixed income security.
Convertible securities have unique investment characteristics in that they
generally (1) have higher yields than common stocks, but lower yields than
comparable nonconvertible securities, (2) are less subject to fluctuation in
value than the underlying stock

since they have fixed income characteristics and (3) provide the potential for
capital appreciation if the market price of the underlying common stock
increases.

The value of a convertible security is a function of its 'investment value'
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
'conversion value' (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value and
generally the conversion value decreases as the convertible security approaches
maturity. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. In addition, a
convertible security generally will sell at a premium over its conversion value
by the extent to which investors place value on the right to acquire the
underlying common stock while holding a fixed income security.

Investment Grade Income Fund has no current intention of converting any
convertible securities it may own into equity or holding them as equity upon
conversion, although it may do so for temporary purposes. A convertible security
may be subject to redemption at the option of the issuer at a price established
in the convertible security's governing instrument. If a convertible security
held by the Fund is called for redemption, the Fund will be required to permit
the issuer to redeem the security, convert it into the underlying common stock
or sell it to a third party.

ILLIQUID SECURITIES. Each Fund may invest up to 10% of its net assets (15%
for Low Duration Income Fund) 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 a Fund has valued the securities and includes, among other things,
purchased over-the-counter ('OTC') options, repurchase agreements maturing in
more than seven days and restricted securities other than those Mitchell
Hutchins or PIMCO has determined are liquid pursuant to guidelines established
by the Trust's board of trustees. The assets used as cover for OTC options
written by a 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, a 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.

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.

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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 institutional
buyers interested in purchasing Rule 144A-eligible restricted securities held by
a 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 reasonable prices.

The Trust's board of trustees has delegated the function of making
day-to-day determinations of liquidity to Mitchell Hutchins or PIMCO, pursuant
to guidelines approved by the board. Mitchell Hutchins and PIMCO take 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 offers are solicited and the mechanics
of transfer). Mitchell Hutchins or 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 a
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. A 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 a Fund upon their 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 a Fund if the other party to a
repurchase agreement becomes insolvent. Each Fund intends to enter into
repurchase agreements only with banks and dealers in transactions believed by
Mitchell Hutchins or PIMCO to present minimum credit risks in accordance with
guidelines established by the Trust's board of trustees. Mitchell Hutchins or
PIMCO reviews and monitors the creditworthiness of those institutions under the
board's general supervision.

REVERSE REPURCHASE AGREEMENTS. As stated in the Prospectus, each Fund each
may enter into reverse repurchase agreements with banks and securities dealers.
Such agreements involve the sale of

securities held by the Fund subject to the Fund's agreement to repurchase the
securities at an agreed-upon date and price reflecting a market rate of
interest. Such agreements are considered to be borrowings and may be entered
into only for temporary or emergency purposes. While a reverse repurchase
agreement is outstanding, a Fund's custodian segregates assets to cover the
amount of the Fund's obligations under the reverse repurchase agreement. See
'Investment Policies and Restrictions -- Segregated Accounts.'

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. As stated in the Prospectus,
each 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 a
Fund's net asset value. When a 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 Funds purchase 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 or PIMCO deems it advantageous to do so, which may result in
capital gain or loss to a Fund.

FOREIGN SECURITIES. Investment Grade Income Fund may invest up to 20% of
its net assets in U.S. dollar-denominated securities of foreign issuers or
foreign branches of U.S. banks that are traded in the U.S. securities markets,
or in U.S. dollar-denominated securities the value of which is linked to the
value of foreign currencies. High Income Fund may invest up to 35% of its net
assets in securities of foreign issuers, with no more than 10% of its net assets
in securities of foreign issuers that are denominated and traded in currencies
other than the U.S. dollar. An investment in these Funds may involve risks
relating to political, social and economic developments abroad as well as risks
resulting from the differences between the regulations to which U.S. and foreign
issuers and markets are subject. These risks include expropriation, confiscatory
taxation, withholding taxes, political or social instability or diplomatic
developments. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments positions. To the extent these Funds invest in foreign
securities, the securities may not be registered with the Securities and
Exchange Commission ('SEC'), nor the issuers thereof subject to its reporting
requirements. Accordingly, there may be less publicly available information
concerning foreign issuers of securities held by these Funds than is available
concerning U.S. companies. Foreign companies are not generally subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory requirements comparable to those applicable to U.S. companies.
Securities of many foreign companies may be less liquid and their prices more
volatile than those of securities of comparable U.S. companies. Transactions in
foreign securities may be subject to less efficient settlement practices. Legal
remedies for defaults and disputes may have to be pursued in foreign courts,
whose procedures differ substantially from those of U.S. courts. Foreign
securities trading practices, including those involving securities settlement
where High Income Fund assets may be released prior to receipt of payment, may
expose that Fund to increased risk in the event of a failed trade or the
insolvency of a foreign broker-dealer.

If the value of foreign currency rises against the value of the U.S.
dollar, the value of Fund assets denominated in that currency or linked to that
currency will increase; correspondingly, if the value of a foreign currency
declines against the value of the U.S. dollar, the value of Fund assets
denominated in that currency or linked to that currency will decrease. The
exchange rates between the U.S. dollar and other currencies are determined by
supply and demand in the currency exchange markets, international balances of
payments, governmental intervention, speculation and other economic and
political conditions.

The costs attributable to foreign investing borne by High Income Fund
frequently are higher than those attributable to domestic investing. For
example, the cost of maintaining custody of foreign securities exceeds custodian
costs for domestic securities, and transaction and settlement costs of foreign
investing also frequently are higher than those attributable to domestic
investing. Costs associated with the exchange of currencies also make foreign
investing more expensive than domestic investing. Investment income on certain
foreign securities in which the Fund may invest may be subject to foreign
withholding or other government taxes that could reduce the return of these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign tax to which the Fund
would be subject.

LENDING OF PORTFOLIO SECURITIES. As indicated in the Prospectus, each Fund
is authorized to lend up to 33 1/3% of the total value of its portfolio
securities to broker-dealers or institutional investors that Mitchell Hutchins
deems qualified, but only when the borrower maintains acceptable collateral with
the Fund's custodian, marked to market daily, in an amount at least equal to the
market value of the securities loaned, plus accrued interest and dividends.
Acceptable collateral is limited to cash, U.S. government securities and
irrevocable letters of credit that meet certain guidelines established by
Mitchell Hutchins. In determining whether to lend securities to a particular
broker-dealer or institutional investor, Mitchell Hutchins will consider, and
during the period of the loan will monitor, all relevant facts and
circumstances, including the creditworthiness of the borrower. A Fund will
retain authority to terminate any loan at any time. A 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. A 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. A 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.

LOAN PARTICIPATIONS AND ASSIGNMENTS. Investment Grade Income Fund and High
Income Fund each may invest up to 5% of its net assets in secured or unsecured
fixed or floating rate loans ('Loans') arranged through private negotiations
between a borrowing corporation and one or more financial institutions
('Lenders'). The Fund's investments in Loans are expected in most instances to
be in the form of participations ('Participations') in Loans and assignments
('Assignments') of all or a portion of Loans from third parties. Participations
typically result in a Fund's having a contractural relationship only with the
Lender, not with the borrower. A Fund has the right to receive payments of
principal, interest and any fees to which it is entitled only from the Lender
selling the Participation and only upon receipt by the Lender of the payments
from the borrower. In connection with purchasing Participations, a Fund
generally has no direct right to enforce compliance by the borrower with the
terms of the loan agreement relating to the Loan, nor any rights of set-off
against the borrower, and the fund may not directly benefit from any collateral
supporting the Loan in which it has purchased the Participation. As a result, a
Fund assumes the credit risk of both the borrower and the Lender that is selling
the Participation. In the event of the insolvency of the Lender selling a
Participation, a Fund may be treated as a general creditor of the Lender and may
not benefit from any set-off between the Lender and the borrower. The Funds will
acquire Participations only if the Lender interpositioned between the Fund and
the borrower is determined by Mitchell Hutchins to be creditworthy.

When a Fund purchases Assignments from Lenders, it acquires direct rights
against the borrower on the Loan. However, because Assignments are arranged
through private negotiations between potential assignees

and assignors, the rights and obligations acquired by a Fund as the purchaser of
an Assignment may differ from, and be more limited than, those held by the
assigning Lender.

Assignments and Participations are generally not registered under the 1933
Act and thus are subject to each Fund's limitation on investment in illiquid
securities. Because there is no liquid market for such securities, the Funds
anticipate that such securities could be sold only to a limited number of
institutional investors. The lack of a liquid secondary market will have an
adverse impact on the value of such securities and on a Fund's ability to
dispose of particular Assignments or Participations when necessary to meet the
Fund's liquidity needs or in response to a specific economic event, such as
deterioration in the creditworthiness of the borrower.

SEGREGATED ACCOUNTS. When a 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.

INVESTMENT LIMITATIONS. Each Fund will not:

(1) purchase securities of any one issuer if, as a result, more than
5% of the Fund's total assets would be invested in securities of that
issuer or the Fund would own or hold more than 10% of the outstanding
voting securities of that issuer, except that up to 25% of the Fund's total
assets may be invested without regard to this limitation, and except that
this limitation does not apply to securities issued or guaranteed by the
U.S. government, its agencies and instrumentalities or to securities issued
by other investment companies.

The following interpretation applies to, but is not a part of, this
fundamental restriction: Mortgage- and asset-backed securities will not be
considered to have been issued by the same issuer by reason of the securities
having the same sponsor, and mortgage- and asset-backed securities issued by a
finance or other special purpose subsidiary that are not guaranteed by the
parent company will be considered to be issued by a separate issuer from the
parent company.

(2) purchase any security if, as a result of that purchase, 25% or
more of the Fund's total assets would be invested in securities of issuers
having their principal business activities in the same industry, except
that this limitation does not apply to securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities or to municipal
securities, and except that U.S. Government Income Fund and Low Duration
Income Fund, under normal circumstances, each will invest 25% or more of
its total assets 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.

(3) issue senior securities or borrow money, except as permitted under
the Investment Company Act of 1940 ('1940 Act') and then not in excess of
33 1/3% of the Fund's total assets (including the amount of the senior
securities issued but reduced by any liabilities not constituting senior
securities) at the time of the issuance or borrowing, except that the Fund
may borrow up to an additional 5% of its total assets (not including the
amount borrowed) for temporary or emergency purposes.

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(4) make loans, except through loans of portfolio securities or
through repurchase agreements, provided that for purposes of this
restriction, the acquisition of bonds, debentures, other debt securities or
instruments, or participations or other interests therein and investments
in government obligations, commercial paper, certificates of deposit,
bankers' acceptances or similar instruments will not be considered the
making of a loan.

(5) engage in the business of underwriting securities of other
issuers, except to the extent that the Fund might be considered an
underwriter under the federal securities laws in connection with its
disposition of portfolio securities.

(6) purchase or sell real estate, except that investments in
securities of issuers that invest in real estate and investments in
mortgage-backed securities, mortgage participations or other instruments
supported by interests in real estate are not subject to this limitation,
and except that the Fund may exercise rights under agreements relating to
such securities, including the right to enforce security interests and to
hold real estate acquired by reason of such enforcement until that real
estate can be liquidated in an orderly manner.

(7) purchase or sell physical commodities unless acquired as a result
of owning securities or other instruments, but the Fund may purchase, sell
or enter into financial options and futures, forward and spot currency
contracts, swap transactions and other financial contracts or derivative
instruments.

The foregoing fundamental investment limitations cannot be changed for a
Fund without the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Fund or (2) 67% or more of the shares of the Fund
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, later
changes in percentage resulting from a change in values of portfolio securities
or the amount of total assets will not be considered a violation of any of the
Funds' investment limitations, restrictions or investment policies.

The following investment restrictions of each Fund are not fundamental and
may be changed by the Trust's board of trustees without shareholder approval.

Each Fund will not:

(1) purchase or retain the securities of any issuer if the officers
and trustees of the Trust and the officers and directors of Mitchell
Hutchins (and, for Low Duration Income Fund, 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 (for Low Duration Income Fund, any security
other than mortgage- and asset-backed securities) if as a result more than
5% of the value of the Fund's assets would be invested in securities of
companies that, together with any predecessors, have been in continuous
operation for less then three years.

(3) invest more than 10% (for Low Duration Income Fund, 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) make investments in warrants if such investments, valued at the
lower of cost or market, exceed 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) invest in real estate limited partnerships.

(6) change its investment policies to permit the Fund to invest more
than 35% of its total assets in debt securities rated Ba or lower by
Moody's or BB or lower by S&P, comparably rated by another NRSRO or
determined by Mitchell Hutchins or PIMCO to be of comparable quality
without giving at least 30 days' advance notice to shareholders, except
that this restriction does not apply to High Income Fund.

(7) purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions and except that the Fund
may make margin deposits in connection with its use of financial options
and futures, forward and spot currency contracts, swap transactions and
other financial contracts or derivative instruments.

(8) engage in short sales of securities or maintain a short position,
except that the Fund may (a) sell short 'against the box' and (b) maintain
short positions in connection with its use of financial options and
futures, forward and spot currency contracts, swap transactions and other
financial contracts or derivative instruments.

(9) invest in oil, gas or mineral exploration or development programs
or leases, except that investments in securities of issuers that invest in
such programs or leases and investments in asset-backed securities
supported by receivables generated from such programs or leases are not
subject to this prohibition.

(10) purchase securities of other investment companies, except to the
extent permitted by the 1940 Act and except that this limitation does not
apply to securities received or acquired as dividends, through offers of
exchange, or as a result of reorganization, consolidation, or merger.

HEDGING AND RELATED INCOME STRATEGIES

GENERAL DESCRIPTION OF HEDGING STRATEGIES. As discussed in the Prospectus,
Mitchell Hutchins or 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 a Fund's
portfolio and to enhance income. Mitchell Hutchins or PIMCO also may attempt to
hedge a Fund's portfolio through the use of interest rate protection
transactions. The particular Hedging Instruments are described in Appendix C 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 a Fund's portfolio. Thus, in a short hedge a 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, a 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 the 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

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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 a Fund intends to acquire. Thus, in a long
hedge a 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, a 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.

Each 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. A Fund might enter into a long straddle when Mitchell Hutchins or 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. A Fund might enter
into a short straddle when Mitchell Hutchins or PIMCO 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 a 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, a 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, Mitchell Hutchins and PIMCO expect to discover additional
opportunities in connection with options, futures contracts and other hedging
techniques. These new opportunities may become available as Mitchell Hutchins
and PIMCO develop new techniques, as regulatory authorities broaden the range of
permitted transactions and as new options, futures contracts or other techniques
are developed. Mitchell Hutchins or PIMCO may utilize these opportunities to the
extent that they are consistent with a Fund's investment objective and permitted
by the Fund's investment limitations and applicable regulatory authorities. The
Funds' 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 Mitchell
Hutchins' or PIMCO's ability to predict movements of the overall securities
markets, which requires different skills than predicting changes in the
prices of individual securities. While Mitchell Hutchins and PIMCO are

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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.

(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 a Fund
entered into a short hedge because Mitchell Hutchins or 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, a 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 a 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 a 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. A 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 a Fund.

COVER FOR HEDGING STRATEGIES. Transactions using Hedging Instruments,
other than purchased options, expose a Fund to an obligation to another party. A
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. Each 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
a 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. Each Fund may purchase put and call options, and write (sell)
covered put and call options, on debt securities and, for High Income Fund,
foreign currencies, in which it is authorized to invest. The

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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 enhance income by reason of the premiums paid by the purchasers of such
options. In addition, 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 of the option, minus the premium received, the Fund would expect
to suffer a loss. 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 a 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.

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

The Funds 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 a Fund and its contra party (usually a securities dealer
or a bank) with no clearing organization guarantee. Thus, when a 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. A Fund will enter into
OTC option transactions only with contra parties that have a net worth of at
least $20 million.

A Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. Each 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
OTC options only by negotiating directly with the contra party, or by a
transaction in the secondary market if any such market exists. Although a 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

<PAGE>
<PAGE>
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 a 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 a 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.

A Fund may purchase and write put and call options on indices of debt
securities in much the same manner as the more traditional options discussed
above, except the index options may serve as a hedge against overall
fluctuations in the debt securities market (or market sectors) rather than
anticipated increases or decreases in the value of a particular security.

GUIDELINES FOR OPTIONS. Each 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 purchased 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 indices of debt securities 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.

FUTURES. Each Fund may purchase and sell interest rate futures contracts
and Low Duration Fund may purchase and sell debt security index futures
contracts. Each Fund also may purchase put and call options, and write covered
put and call options, on the futures contracts it is allowed to purchase and
sell. 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 options on securities or indices.

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

Each 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. A Fund will engage in
this strategy only when it is more advantageous to the Fund than is purchasing
the futures contract.

No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract a 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

<PAGE>
<PAGE>
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 a Fund at the
termination of the transaction if all contractual obligations have been
satisfied. Under certain circumstances, such as periods of high volatility, a
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 future position varies, a process known as
'marking to market.' Variation margin does not involve borrowing, but rather
represents a daily settlement of a Fund's obligations to or from a futures
broker. When a Fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when a Fund purchases or
sells a futures contract or writes a 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.
Each 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 a Fund were unable to liquidate a futures or 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 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.

<PAGE>
<PAGE>
GUIDELINES FOR FUTURES AND RELATED OPTIONS. Each 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 indices of debt securities 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.

FOREIGN CURRENCY HEDGING STRATEGIES -- SPECIAL CONSIDERATIONS. High Income
Fund may use options on foreign currencies, as described above, and forward
currency contracts, as described below, to hedge against movements in the values
of the foreign currencies in which that Fund's securities are denominated. Such
currency hedges can protect against price movements in a security High Income
Fund owns or intends to acquire that are attributable to changes in the value of
the currency in which it is denominated. Such hedges do not, however, protect
against price movements in the securities that are attributable to other causes.

High Income Fund might seek to hedge against changes in the value of a
particular currency when no Hedging Instruments on that currency are available
or such Hedging Instruments are more expensive than certain other Hedging
Instruments. In such cases, High Income Fund may hedge against price movements
in that currency by entering into transactions using Hedging Instruments on
another currency or a basket of currencies, the value of which Mitchell Hutchins
believes will have a positive correlation to the value of the currency being
hedged. The risk that movements in the price of the Hedging Instrument will not
correlate perfectly with movements in the price of the currency being hedged is
magnified when this strategy is used.

The value of Hedging Instruments on foreign currencies depends on the value
of the underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of such Hedging Instruments, High
Income Fund could be disadvantaged by having to deal in the odd lot market
(generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.

There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the Hedging Instruments until they reopen.

Settlement of hedging transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency. Thus,
High Income Fund might be required to accept or make

delivery of the underlying foreign currency in accordance with any U.S. or
foreign regulations regarding the maintenance of foreign banking arrangements by
U.S. residents and might be required to pay any fees, taxes and charges
associated with such delivery assessed in the issuing country.

FOREIGN CURRENCY CONTRACTS. High Income Fund may enter into forward
currency contracts to purchase or sell foreign currencies for a fixed amount of
U.S. dollars or another foreign currency. Such transactions may serve as long
hedges -- for example, High Income Fund may purchase a forward currency contract
to lock in the U.S. dollar price of a security denominated in a foreign currency
that the Fund intends to acquire. Forward currency transactions may also serve
as short hedges -- for example, High Income Fund may sell a forward currency
contract to lock in the U.S. dollar equivalent of the proceeds from the
anticipated sale of a security denominated in a foreign currency.

As noted above, High Income Fund also may seek to hedge against changes in
the value of a particular currency by using forward contracts on another foreign
currency or a basket of currencies, the value of which Mitchell Hutchins
believes will have positive correlation to the value of the currency being
hedged. In addition, the Fund may use forward currency contracts to shift its
exposure to foreign currency fluctuations from one country to another. For
example, if the Fund owned securities denominated in a foreign currency and
Mitchell Hutchins believed that currency would decline relative to another
currency, it might enter into a forward currency contract to sell an appropriate
amount of the first foreign currency, with payment to be made in the second
foreign currency. Transactions that use two foreign currencies are sometimes
referred to as 'cross hedging.' Use of a different foreign currency magnifies
the risk that movements in the price of the Hedging Instrument will not
correlate or will correlate unfavorably with the foreign currency being hedged.

The cost to High Income Fund of engaging in forward currency contracts
varies with factors such as the currency involved, the length of the contract
period and the market conditions then prevailing. Because forward currency
contracts are usually entered into on a principal basis, no fees or commissions
are involved. When the Fund enters into a forward currency contract, it relies
on the contra party to make or take delivery of the underlying currency at the
maturity of the contract. Failure by the contra party to do so would result in
the loss of any expected benefit of the transaction.

As is the case with futures contracts, holders and writers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures, by selling or purchasing, respectively, an
instrument identical to the instrument purchased or sold. Secondary markets
generally do not exist for forward currency contracts, with the result that
closing transactions generally can be made for forward currency contracts only
by negotiating directly with the contra party. Thus, there can be no assurance
that the Fund will in fact be able to close out a forward currency contract at a
favorable price prior to maturity. In addition, in the event of insolvency of
the contra party, the Fund might be unable to close out a forward currency
contract at any time prior to maturity. In either event, the Fund would continue
to be subject to market risk with respect to the position, and would continue to
be required to maintain a position in the securities or currencies that are the
subject of the hedge or to maintain cash or securities in a segregated account.

The precise matching of forward currency contract amounts and the value of
the securities involved generally will not be possible because the value of such
securities, measured in the foreign currency, will change after the forward
currency contract has been established. Thus, High Income Fund might need to
purchase or sell foreign currencies in the spot (cash) market to the extent such
foreign currencies are not covered by forward contracts. The projection of
short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.

LIMITATIONS ON THE USE OF FORWARD CURRENCY CONTRACTS. High Income Fund may
enter into forward currency contracts or maintain a net exposure to such
contracts only if (1) the consummation of the contracts would not obligate the
Fund to deliver an amount of foreign currency in excess of the value of the
position being hedged by such contracts or (2) the Fund maintains appropriate
assets in a segregated account in an amount not less than the value of its total
assets committed to the consummation of the contract and not covered as provided
in (1) above, as marked to market daily.

INTEREST RATE PROTECTION TRANSACTIONS. Each 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 level or goes below
a designated floor on predetermined dates or during a specified time period.
Each 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.

Each 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 inasmuch as segregated accounts will
be established with respect to such transactions, Mitchell Hutchins, PIMCO and
the Funds believe such obligations do not constitute senior securities and,
accordingly, will not treat them as being subject to a Fund's borrowing
restrictions. The net amount of the excess, if any, of a 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.' Each 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.

A Fund will enter into interest rate protection transactions only with
banks and recognized securities dealers believed by Mitchell Hutchins or 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 as 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.

<PAGE>
<PAGE>
TRUSTEES AND OFFICERS; PRINCIPAL HOLDERS OF SECURITIES

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

<S> <C> <C>
Margo N. Alexander**; 49 Trustee and President Mrs. Alexander is president, chief ex-
ecutive officer and a director of
Mitchell Hutchins (since January 1995)
and also an executive vice president and
a director of PaineWebber. Mrs. Alexander
is president and a director or trustee of
30 investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Richard Q. Armstrong; 60 Trustee Mr. Armstrong is chairman and principal of
78 West Brother Drive RQA Enterprises (management consulting
Greenwich, CT 06830 firm) (since April 1991 and principal
occupation since March 1995). Mr.
Armstrong is also a director of Hi Lo
Automotive, Inc. He was chairman of the
board, chief executive officer and
co-owner of Adirondack Beverages (producer
and distributor of soft drinks and
sparkling/still waters) (October
1993-March 1995). He was a partner of the
New England Consulting Group (management
consulting firm) (December 1992-September
1993). He was managing director of LMVH
U.S. Corporation (U.S. subsidiary of the
French luxury goods conglomerate, Luis
Vuitton Moet Hennessey Corporation)
(1987-1991) and chairman of its wine and
spirits subsidiary, Schieffelin & Somerset
Company (1987-1991). Mr. Armstrong is a
director or trustee of 29 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
</TABLE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH TRUST OTHER DIRECTORSHIPS
- ------------------------------------ ----------------------------- --------------------------------------------
<S> <C> <C>
E. Garrett Bewkes, Jr.**; 69 Trustee and Chairman of Mr. Bewkes is a director of Paine Webber
the Board of Trustees Group Inc. ('PW Group') (holding company
of PaineWebber and Mitchell Hutchins).
Prior to December 1995, he was a
consultant to PW Group. Prior to 1988, he
was chairman of the board, president and
chief executive officer of American
Bakeries Company. Mr. Bewkes is also a
director of Interstate Bakeries
Corporation, NaPro BioTherapeutics, Inc.
and a director or trustee of 30 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Richard R. Burt; 49 Trustee Mr. Burt is chairman of International Equity
1101 Connecticut Avenue, N.W. Partners (international investments and
Washington, D.C. 20036 consulting firm) (since March 1994) and a
partner of McKinsey & Company (management
consulting firm) (since 1991). He is also
a director of American Publishing Com-
pany. He was the chief negotiator in the
Strategic Arms Reduction Talks with the
former Soviet Union (1989-1991) and the
U.S. Ambassador to the Federal Republic of
Germany (1985-1989). Mr. Burt is a
director or trustee of 29 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Mary C. Farrell**; 46 Trustee Ms. Farrell is a managing director, senior
investment strategist and member of the
Investment Policy Committee of
PaineWebber. Ms. Farrell joined
PaineWebber in 1982. She is a member of
the Financial Women's Association and
Women's Economic Roundtable and is
employed as a regular panelist on Wall
Street Week with Louis Rukeyser. She also
serves on the Board of Overseers of New
York University's Stern School of Busi-
ness. Ms. Farrell is a director or trustee
of 29 investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
</TABLE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH TRUST OTHER DIRECTORSHIPS
- ------------------------------------ ----------------------------- --------------------------------------------
<S> <C> <C>
Frederic V. Malek; 59 Trustee Mr. Malek is chairman of Thayer Capital
901 15th Street, N.W. Partners (investment bank) and a
Suite 300 co-chairman and director of CB Commercial
Washington, D.C. 20005 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 1989, he was employed by
the Marriott Corporation (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
Education Corporation and Northwest
Airlines Inc. Mr. Malek is a director or
trustee of 29 investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Carl W. Schafer; 60 Trustee Mr. Schafer is president of the Atlantic
P.O. Box 1164 Foundation (charitable foundation sup-
Princeton, NJ 08542 porting mainly oceanographic exploration
and research). He also is a director of
Roadway Express, Inc. (trucking), The
Guardian Group of Mutual Funds, Evans
Systems, Inc. (a motor fuels, convenience
store and diversified company), Hidden
Lake Gold Mines Ltd. (gold mining),
Electronic Clearing House, Inc. (financial
transactions processing), Wainoco Oil
Corporation and Nutraceutix, Inc.
(biotechnology). Prior to January 1993, he
was chairman of the Investment Advisory
Committee of the Howard Hughes Medical
Institute. Mr. Schafer is a director or
trustee of 29 investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH TRUST OTHER DIRECTORSHIPS
- ------------------------------------ ----------------------------- --------------------------------------------
<S> <C> <C>
John R. Torell III; 56 Trustee Mr. Torell is chairman of Torell Manage-
767 Fifth Avenue ment, Inc. (financial advisory firm),
Suite 4605 chairman of Telesphere Corporation
New York, NY 10153 (electronic provider of financial infor-
mation) and a partner of Zilkha & Company
(merchant bank and private investment
company). He is the former chairman and
chief executive officer of Fortune Bancorp
(1990-1991 and 1990-1994, respectively).
He is the former chairman, president and
chief executive officer of CalFed, Inc.
(savings association) (1988 to 1989) and
the former president of Manufacturers
Hanover Corp. (bank) (prior to 1988). Mr.
Torell is also a director of American Home
Products Corp., New Colt Inc. (armament
manufacturer) and Volt Information
Sciences Inc. Mr. Torell is a director or
trustee of 29 investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Julieanna Berry; 32 Vice President Ms. Berry is a vice president and a
portfolio manager of Mitchell Hutchins.
Ms. Berry is a vice president of two
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Teresa M. Boyle; 37 Vice President Ms. Boyle is a first vice president and
manager-advisory administration of
Mitchell Hutchins. Prior to November 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 administration of Mitchell
Hutchins. Ms. Boyle is a vice president of
30 investment companies for which Mitchell
Hutchins or PaineWebber serves as invest-
ment adviser.
Karen L. Finkel; 38 Vice President Mrs. Finkel is a first vice president and a
portfolio manager of Mitchell Hutchins.
Mrs. Finkel is a vice president of two
investment companies for which Mitchell
Hutchins serves as investment adviser.
</TABLE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH TRUST OTHER DIRECTORSHIPS
- ------------------------------------ ----------------------------- --------------------------------------------
<S> <C> <C>
Ellen R. Harris; 49 Vice President Ms. Harris is a managing director and a
portfolio manager of Mitchell Hutchins.
Ms. Harris is a vice president of three
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
James F. Keegan; 35 Vice President Mr. Keegan is a senior vice president and a
portfolio manager of Mitchell Hutchins.
Prior to March 1996, he was director of
fixed income strategy and research of
Merrion Group, L.P. From 1987 to 1994, he
was a vice president of Bankers Trust
Company, where he was the director of
credit research for the global investment
management group. Mr. Keegan is a vice
president of two investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Thomas J. Libassi; 37 Vice President Mr. Libassi is a senior vice president and a
portfolio manager of Mitchell Hutchins.
Prior to May 1994, he was a vice president
of Keystone Custodian Funds Inc. with
portfolio management responsibility. Mr.
Libassi is a vice president of four
investment companies for which Mitchell
Hutchins serves as investment adviser.
C. William Maher; 35 Vice President and Mr. Maher is a first vice president and a
Assistant Treasurer senior manager of the mutual fund finance
division of Mitchell Hutchins. Mr. Maher
is a vice president and assistant
treasurer of 30 investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Dennis McCauley; 49 Vice President Mr. McCauley is a managing director and
chief investment officer-fixed income of
Mitchell Hutchins. Prior to December 1994,
he was director of fixed income
investments of IBM Corporation. Mr.
McCauley is a vice president of 19
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH TRUST OTHER DIRECTORSHIPS
- ------------------------------------ ----------------------------- --------------------------------------------
<S> <C> <C>
Ann E. Moran; 38 Vice President and Ms. Moran is a vice president of Mitchell
Assistant Treasurer Hutchins. Ms. Moran is a vice president
and assistant treasurer of 30 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Dianne E. O'Donnell; 43 Vice President and Ms. O'Donnell is a senior vice president and
Secretary deputy general counsel of Mitchell
Hutchins. Ms. O'Donnell is a vice
president and secretary of 30 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Victoria E. Schonfeld; 45 Vice President Ms. Schonfeld is a managing director and
general counsel of Mitchell Hutchins.
Prior to May 1994, she was a partner in
the law firm of Arnold & Porter. Ms.
Schonfeld is a vice president of 30
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Paul H. Schubert; 33 Vice President and Mr. Schubert is a first vice president and a
Assistant Treasurer senior manager of the mutual fund finance
division of Mitchell Hutchins. From August
1992 to August 1994, he was a vice
president at BlackRock Financial
Management, L.P. Prior to August 1992, he
was an audit manager with Ernst & Young
LLP. Mr. Schubert is a vice president and
assistant treasurer of 30 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Nirmal Singh; 39 Vice President Mr. Singh is a first vice president and a
portfolio manager of Mitchell Hutchins.
Prior to September 1993, he was a member
of the portfolio management team at
Merrill Lynch Asset Management, Inc. Mr.
Singh is a vice president of five
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH TRUST OTHER DIRECTORSHIPS
- ------------------------------------ ----------------------------- --------------------------------------------
<S> <C> <C>
Julian F. Sluyters; 35 Vice President and Mr. Sluyters is a senior vice president and
Treasurer 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 a vice
president and treasurer of 30 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Mark A. Tincher; 40 Vice President Mr. Tincher is a managing director and chief
investment officer-U.S. equity investments
of Mitchell Hutchins. Prior to March 1995,
he was a vice president and directed the
U.S. funds management and equity research
areas of Chase Manhattan Private Bank. Mr.
Tincher is a vice president of 14
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Craig M. Varrelman; 37 Vice President Mr. Varrelman is a first vice president and
a portfolio manager of Mitchell Hutchins.
Mr. Varrelman is a vice president of five
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Keith A. Weller; 34 Vice President and Mr. Weller is a first vice president and
Assistant Secretary associate general counsel of Mitchell
Hutchins. Prior to May 1995, he was an
attorney in private practice. Mr. Weller
is a vice president and assistant
secretary of 29 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.

** Mrs. Alexander, Mr. Bewkes and Ms. Farrell are 'interested persons' of the
Trust as defined in the 1940 Act by virtue of their positions with Mitchell
Hutchins, PaineWebber and/or PW Group.

The Trust pays trustees who are not 'interested persons' of the Trust
$1,000 annually for each series of the Trust and $150 for each board meeting and
each separate meeting of a board committee. The Trust presently has five series
and thus pays each such trustee $5,000 annually, plus any additional amounts due
for board or committee meetings. Certain committee chairs receive additional
compensation aggregating $15,000

annually from all the funds within the PaineWebber fund complex. Trustees of the
Trust who are 'interested persons' receive no compensation from the Trust. All
trustees 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 PaineWebber and Mitchell Hutchins perform
substantially all of the services necessary for the operation of the Trust and
the Funds, 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 current trustees who held office with the Trust or other
PaineWebber funds during the fiscal year ended November 30, 1995.<

COMPENSATION TABLE

<TABLE>
<CAPTION>
TOTAL
COMPENSATION
AGGREGATE FROM THE
COMPENSATION TRUST AND THE
FROM TRUST
NAME OF PERSON, POSITION THE TRUST* COMPLEX`D'
- ------------------------------------------------------------- ------------ --------------

<S> <C> <C>
Richard Q. Armstrong, Trustee................................ -- $ 9,000
Richard Burt, Trustee........................................ -- $ 7,750
Meyer Feldberg, Trustee...................................... $7,250 $106,375
George W. Gowen, Trustee..................................... $7,250 $ 99,750
Frederick V. Malek, Trustee.................................. $7,250 $ 99,750
Carl W. Schafer, Trustee..................................... -- $118,175
John R. Torell, III, Trustee................................. -- $ 28,125
</TABLE>

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

* Represents fees paid to each trustee during the fiscal year ended November 30,
1995; the Trust does not have a pension or retirement plan.

`D' Represents total compensation paid to each trustee during the year ended
December 31, 1995.

Only independent members of the board of trustees are compensated by the Trust
and identified above; trustees who are 'interested persons,' as defined by the
1940 Act, do not receive compensation.

BENEFICIAL OWNERSHIP OF GREATER THAN 5% OF FUND SHARES

The following shareholders are shown in the Trust's records as owning more
than 5% of Low Duration Income Fund's shares.

<TABLE>
<CAPTION>
NUMBER AND PERCENTAGE OF
SHARES BENEFICIALLY
OWNED
NAME AND ADDRESS* AS OF JANUARY 31, 1996
- ------------------------------------------------------------------ ------------------------

<S> <C>
Hilton Hotels Corporation......................................... 9,100,500.000 (7.2%)
Kern County Treasurer............................................. 8,585,131.170 (6.8%)
</TABLE>

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

* Each of the shareholders listed may be contacted c/o Mitchell Hutchins Asset
Management Inc., 1285 Avenue of the Americas, New York, NY 10019.

<PAGE>
<PAGE>
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 21, 1988, as supplemented by a separate fee agreement dated March
26, 1993 with respect to Low Duration Income Fund ('Advisory Contract'). Under
the Advisory Contract, the Trust pays Mitchell Hutchins an annual fee, computed
daily and paid monthly, at the rate of 0.50% of each Fund's average daily net
assets. During the fiscal years ended November 30, 1995, November 30, 1994 and
November 30, 1993, respectively, the Trust paid (or accrued) to Mitchell
Hutchins investment advisory and administrative fees of $2,784,437, $3,958,127
and $4,999,240 with respect to U.S. Government Income Fund, $1,890,394,
$1,897,899 and $1,393,289 with respect to Investment Grade Income Fund and
$3,050,197, $4,047,201 and $3,100,195 with respect to High Income Fund. During
the fiscal years ended November 30, 1995 and November 30, 1994 and the period
May 3, 1993 (commencement of operations) to November 30, 1993, the Trust paid
(or accrued) to Mitchell Hutchins investment advisory and administrative fees of
$1,839,876, $5,598,491 (of which $400,611 was waived by Mitchell Hutchins) and
$3,519,442 with respect to Low Duration Income Fund.

Under a service agreement pursuant to which PaineWebber provides certain
services to each Fund not otherwise provided by the Fund's transfer agent, which
agreement is reviewed by the Trust's board of trustees annually, during the
fiscal years ended November 30, 1995, November 30, 1994 and November 30, 1993,
respectively, PaineWebber earned fees in the approximate amounts of $154,428,
$196,490 and $217,612 for U.S. Government Income Fund, $99,641, $97,475 and
$60,450 for Investment Grade Income Fund and $158,323, $181,748 and $137,332 for
High Income Fund. During the fiscal years ended November 30, 1995 and November
30, 1994 and the period May 3, 1993 (commencement of operations) to November 30,
1993, respectively, PaineWebber earned fees under the service agreement in the
amounts of $107,999, $139,291 and $71,854 for Low Duration Income Fund.

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 Low Duration Income
Fund. Under the Sub-Advisory Contract, Mitchell Hutchins (not the Fund) pays
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 fiscal year ended November 30, 1995 and
the period October 20, 1994 to November 30, 1994, Mitchell Hutchins paid (or
accrued) to PIMCO sub-advisory fees of $919,938 and $147,540, respectively,
pursuant to the Sub-Advisory Contract and a substantially similar prior
contract.

Under the terms of the Advisory Contract, each Fund bears 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 of the Trust
(including the Funds) 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 each
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;

<PAGE>
<PAGE>
(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 a 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. For the fiscal years
ended November 30, 1995, November 30, 1994 and November 30, 1993, no
reimbursements were required pursuant to such limitations.

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 a
Fund in connection with the performance of the Contract, except a loss resulting
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
duties and obligations 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, Low Duration Income Fund, its shareholders or Mitchell
Hutchins in connection with the Sub-Advisory Contract, except any liability to
any of them 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 with
respect to each Fund 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
Trust. The Sub-Advisory Contract terminates automatically upon its assignment or
the termination of the Advisory Contract and its terminable at any time without
penalty by the board of trustees or by vote of the holders of a majority of Low
Duration Income 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 ,
1996, 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)............................................... $
Global..........................................................................
Equity/Balanced.................................................................
Fixed Income (excluding Money Market)...........................................
Taxable Fixed Income.......................................................
Tax-Free Fixed Income......................................................
Money Market Funds..............................................................
</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 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 mutual funds and other
Mitchell Hutchins advisory clients.

PIMCO personnel also may invest in securities for their own accounts
pursuant to PIMCO's code of ethics, which establishes procedures for personal
investing and restricts certain transactions.

DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of
the Class Y shares of each Fund under a distribution contract with the Trust
dated July 1, 1991 ('Distribution Contract') that requires Mitchell Hutchins to
use its best efforts, consistent with its other businesses, to sell shares of
the Funds. Class Y shares of the Funds are offered continuously. Under an
exclusive dealer contract between Mitchell Hutchins and PaineWebber dated July
1, 1991 ('Exclusive Dealer Contract'), PaineWebber sells each Fund's Class Y
shares.

PORTFOLIO TRANSACTIONS

Subject to policies established by the Trust's board of trustees, Mitchell
Hutchins or PIMCO, as applicable, is responsible for the execution of the Fund's
portfolio transactions and the allocation of brokerage transactions. In
executing portfolio transactions, Mitchell Hutchins and PIMCO seek to obtain the
best net results for a 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 that time. While Mitchell Hutchins or
PIMCO generally seeks reasonably competitive commission rates, payment of the
lowest commission is not necessarily consistent with obtaining the best net
results. During the fiscal year ended November 30, 1995, no Fund paid any
brokerage commissions. During the fiscal year ended November 30, 1994, U.S.
Government Income Fund, Low Duration Income Fund, Investment Grade Income Fund
and High Income Fund paid approximately $0, $88,421, $21,500 and $74,838,
respectively, in brokerage commissions. During the fiscal year ended November
30, 1993, U.S. Government Income Fund and Investment Grade Income Fund paid no
brokerage commissions and High Income Fund paid approximately $4,145 in
brokerage commissions.

During the period May 3, 1993 (commencement of operations) to November 30, 1993,
Low Duration Income Fund paid no brokerage commissions.

No Fund has any obligation to deal with any broker or group of brokers in
the execution of portfolio transactions. The Funds contemplate 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 Funds on such exchange and to retain compensation in
connection with such transactions. Any such transactions will be effected and
related compensation paid in accordance with applicable SEC regulations. During
the fiscal year ended November 30, 1995, no Fund paid any brokerage commissions
to PaineWebber or any other affiliate of Mitchell Hutchins. During the fiscal
year ended November 30, 1994, High Income Fund paid approximately $30,915 in
brokerage commissions to PaineWebber. During the fiscal years ended November 30,
1994 and November 30, 1993, the Funds paid no other 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. Each
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 a Fund and subject to the review of the
Trust's board of trustees, Mitchell Hutchins or PIMCO may cause the Fund to
purchase and sell portfolio securities through brokers who provide the Fund with
research, analysis, advice and similar services. 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 or PIMCO determines in good faith
that such commission is reasonable in terms either of that 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. During
the fiscal year ended November 30, 1995, the Funds directed no portfolio
transactions to brokers chosen because they provided research services.

For purchases or sales with broker-dealer firms which act as principal,
Mitchell Hutchins and PIMCO seek best execution. Although Mitchell Hutchins or
PIMCO may receive certain research or execution services in connection with
these transactions, neither will 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, neither
Mitchell Hutchins nor PIMCO will enter into any explicit soft dollar
arrangements relating to principal transactions or will receive in principal
transactions the types of services which could be purchased for hard dollars.
Mitchell Hutchins and PIMCO may engage in agency transactions in OTC equity and
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 or PIMCO
receiving multiple quotes from dealers before executing the transaction on an
agency basis.

Information and research services furnished by dealers or brokers with or
through which a Fund effects securities transactions may be used by Mitchell
Hutchins or PIMCO in advising other funds or accounts and,

<PAGE>
<PAGE>
conversely, research services furnished to Mitchell Hutchins or PIMCO by dealers
or brokers in connection with other funds or accounts Mitchell Hutchins advises
may be used by Mitchell Hutchins or PIMCO in advising a Fund. Information and
research received from such brokers or dealers will be in addition to, and not
in lieu of, the services required to be performed by Mitchell Hutchins under the
Advisory Contract or PIMCO under the Sub-Advisory Contract.

Investment decisions for the Funds and other investment accounts managed by
Mitchell Hutchins or 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 a 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 a 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 Funds 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 commission or spread paid in connection with such a
purchase be reasonable and fair, that 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. Each Fund's annual portfolio turnover rate may vary
greatly from year to year, but it will not be a limiting factor when management
deems portfolio changes appropriate. The portfolio turnover rate is calculated
by dividing the lesser of the Fund's annual sales and 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
the securities in the portfolio during the year. During the fiscal years ended
November 30, 1995 and November 30, 1994, respectively, the portfolio turnover
rates were 206% and 358% for U.S. Government Income Fund; 242% and 246% for Low
Duration Income Fund; 149% and 142% for Investment Grade Income Fund; and 94%
and 156% for High Income Fund.

VALUATION OF SHARES

Each Fund determines the 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 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 or PIMCO, the fair value of the
security. Where such market quotations are not readily available, securities are
valued based upon appraisals received from a pricing service using a
computerized matrix system or based upon appraisals 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 to maturity
unless the Trust's board of trustees determines that this

<PAGE>
<PAGE>
does not represent fair value. All other securities or assets will be valued at
fair value as determined in good faith by or under the direction of the Trust's
board of trustees.

Foreign currency exchange rates are generally determined prior to the close
of trading on the NYSE. Occasionally events effecting the value of foreign
investments and such exchange rates occur between the time at which they are
determined and the close of trading on the NYSE, which events will not be
reflected in a computation of High Income Fund's net asset value on that day. If
events materially affecting the value of such investments or currency exchange
rates occur during such time period, the investments will be valued at their
fair value by or under the direction of the Trust's board of trustees. The
foreign currency exchange transactions of High Income Fund conducted on a spot
(that is, cash) basis are valued at the spot rate for purchasing or selling
currency prevailing on the foreign exchange market. This rate under normal
conditions differs from the prevailing exchange rate in an amount generally less
than one-tenth of one percent due to the costs of converting from one currency
to another.

PERFORMANCE INFORMATION

Each Fund's performance data quoted in advertising and other promotional
materials ('Performance Advertisements') represents past performance and is 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:

<TABLE>
<S> <C>
P(1 + T)'pp'n = 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.
</TABLE>

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. All dividends and other distributions are assumed to have been
reinvested at net asset value.

Each 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.

The following table shows performance information for Class Y shares
(formerly Class C shares) of U.S. Government Income Fund and Low Duration Income
Fund for the periods indicated. Investment

Grade Income Fund and High Income Fund had no Class Y shares outstanding during
these periods. All returns for periods of more than one year are expressed as an
annualized average return:

<TABLE>
<CAPTION>
U.S. GOVERNMENT LOW DURATION
INCOME FUND INCOME FUND
--------------- ------------
<S> <C> <C>
Fiscal Year Ended November 30, 1995:
Standardized Return*................................................. 15.06% 0.83%
Non-Standardized Return.............................................. 15.06 0.83
Inception to November 30, 1995:**
Standardized Return*................................................. 5.29 0.83
Non-Standardized Return.............................................. 5.29 0.83
</TABLE>

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

* Class Y shares do not impose an initial or a contingent deferred sales
charge; therefore, Non-Standardized Return is identical to Standardized
Return.

** For U.S. Government Income Fund, the inception date for its Class Y shares
is September 11, 1991; for Low Duration Income Fund, the inception date for
its Class Y shares is October 20, 1995.

YIELD. Yields used in each 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 semi-annual compounding) of the net asset value per share
at the end of the Period. Yield quotations are calculated according to the
following formula:

<TABLE>
<S> <C>
a-b
---
YIELD = 2[( cd + 1)'pp'6 - 1]
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 net asset value per share 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. The yield of the Funds' Class Y shares for the 30-day period
ended November 30, 1995 was 6.11% for U.S. Government Income Fund and 6.24% for
Low Duration Income Fund. Investment Grade Income Fund and High Income Fund had
no Class Y shares outstanding during this period.

OTHER INFORMATION. In Performance Advertisements each Fund may compare its
Standardized Return and/or its Non-Standardized Return with data published by
Lipper Analytical Services, Inc. ('Lipper') for U.S. government funds, CDA
Investment Technologies, Inc. ('CDA'), Wiesenberger

<PAGE>
<PAGE>
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, Lehman
Bond Index, 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
companies 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, BARRONS, FORTUNE, THE
NEW YORK TIMES, THE CHICAGO TRIBUNE, THE WASHINGTON POST and THE KIPLINGER
LETTERS. Comparisons in Performance Advertisements may be in graphic form.

A 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 by
being paid 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.

A Fund may also compare its performance with, or may otherwise discuss, the
performance of bank certificates of deposit (CDs) as measured by the CDA
Certificate of Deposit Index and the Bank Rate Monitor National Index and the
averages of yields of CDs of major banks published by Banxquote (R) Money
Markets. In comparing a Fund or its performance to CDs or to CD performance,
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. Fund shares are not
insured or guaranteed by the U.S. government and returns thereon and net asset
value will fluctuate. The securities held by the Fund generally have longer
maturities 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, each 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 (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

<PAGE>
<PAGE>
gross income each taxable year from the sale or other disposition of securities,
options or futures 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 that are
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 a Fund in November or
December of any year and payable to shareholders of record on a date in either
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 (other than shareholders who are not subject to tax on
their income generally) for the year in which that December 31 falls.

U.S. Government Income Fund and Low Duration Income Fund each invests
exclusively in debt securities and receives no dividend income; accordingly, no
portion of the dividends or other distributions paid by these Funds is eligible
for the dividends-received deduction allowed to corporations. Although High
Income Fund and Investment Grade Income Fund are authorized to hold equity
securities, it is expected that any dividend income received by the Funds will
be minimal.

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.

Interest and dividends, if any, received by High Income Fund may be subject
to income, withholding or other taxes imposed by foreign countries and U.S.
possessions that would reduce the yield on its securities. Tax conventions
between certain countries and the United States, however, may reduce or
eliminate these foreign taxes, and many foreign countries do not impose taxes on
capital gains in respect of investments by foreign investors.

Each 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 that 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 and entering into forward currency contracts,
involves complex rules that will determine for income tax purposes the character
and timing of recognition of the gains and losses a Fund realizes in connection
therewith. Gains from the disposition of foreign currencies (except certain
gains therefrom that may be excluded by future regulations), and gains from
options, futures and forward currency contracts derived by a Fund with respect
to its business of investing in securities or foreign currencies, will qualify
as permissable income under the Income Requirement. However, income from the
disposition of options and futures (other than those on foreign currencies) will
be subject to the Short-Short Limitation if they are held for less than three
months. Income from the disposition of foreign currencies, and options, futures
and forward contracts on foreign currencies, that are not directly related to a
Fund's principal business of investing in securities (or options and futures
with respect to securities) also will be subject to the Short-Short Limitation
if they are held for less than three months.

<PAGE>
<PAGE>
If a 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. Each
Fund will consider whether it should seek to qualify for this treatment for its
hedging transactions. To the extent a Fund does not qualify for this treatment,
it may be forced to defer the closing out of certain options and futures beyond
the time when it otherwise would be advantageous to do so, in order for the Fund
to continue to qualify as a RIC.

Each Fund may acquire zero coupon or other securities issued with original
issue discount ('OID'). As a holder of such securities, a 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 them during
the year. Each Fund has elected similar treatment with respect to securities
purchased at a discount from their face value ('market discount'). Because each
Fund annually must distribute substantially all of its investment company
taxable income, including any accrued OID and market 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 its 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 October 20, 1995, the name
of Low Duration Income Fund was 'PaineWebber Short-Term U.S. Government Income
Fund.' Prior to November 10, 1995, the Class Y shares of U.S. Government Income
Fund and Low Duration Income Fund were called 'Class C' shares.

The Trust is an entity of the type commonly known as a 'Massachusetts
business trust.' Prior to February 26, 1992, the Trust's name was PaineWebber
Fixed Income Portfolios. Under Massachusetts law, shareholders could, under
certain circumstances, be held personally liable for the obligations of the
Trust or a Fund. However, the Trust's Declaration of Trust disclaims shareholder
liability for acts or obligations of the Trust or the Funds 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, a Fund, the trustees or any of them in
connection with the Trust. The Declaration of Trust provides for indemnification
from each 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 a 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 each Fund in such a way as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Fund.

<PAGE>
<PAGE>
COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts
Avenue, NW, Washington, DC 20036-1800, counsel to the Funds, has passed upon the
legality of the shares offered by the Funds' Prospectus. Kirkpatrick & Lockhart
LLP also acts as counsel to Mitchell Hutchins and PaineWebber in connection with
other matters.

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

FINANCIAL STATEMENTS

The Funds' Annual Reports to Shareholders for the fiscal year ended
November 30, 1995 are separate documents supplied with this Statement of
Additional Information and the financial statements, accompanying notes and
reports of independent auditors appearing therein relating to the Funds are
incorporated by reference in this Statement of Additional Information.

<PAGE>
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS 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 FUNDS OR THEIR DISTRIBUTOR. THE PROSPECTUS
AND THIS STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN OFFERING BY
THE FUNDS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----

<S> <C>
Investment Policies and Restrictions........... 2
Hedging and Related Income
Strategies................................... 11
Trustees and Officers; Principal Holders of
Securities................................... 20
Investment Advisory and Distribution
Arrangements................................. 29
Portfolio Transactions......................... 31
Valuation of Shares............................ 33
Performance Information........................ 34
Taxes.......................................... 36
Other Information.............................. 38
Financial Statements........................... 39
</TABLE>

'c' 1996 PaineWebber Incorporated

Recycled
[Recycle Logo] Paper

PAINEWEBBER
U.S. GOVERNMENT
INCOME FUND
PAINEWEBBER
LOW DURATION
U.S. GOVERNMENT
INCOME FUND
PAINEWEBBER
INVESTMENT GRADE
INCOME FUND
PAINEWEBBER
HIGH INCOME FUND
CLASS Y SHARES

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

Statement of Additional Information
July , 1996

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

PAINEWEBBER

PART C. OTHER INFORMATION

Item 24. Financial Statements and Exhibits

(a) Financial Statements: (filed herewith)

Included in Part A of this Registration Statement:

Financial Highlights for one Class Y share of PaineWebber U.S.
Government Income Fund for each of the four years in the period ended
November 30, 1995 and the period September 11, 1991 (commencement of
issuance of shares) to November 30, 1991.

Financial Highlights for one Class Y share of PaineWebber Low Duration
U.S. Government Income Fund for the period October 20, 1995
(commencement of issuance of shares) to November 30, 1995.

Included in Part B of this Registration Statement for PaineWebber U.S.
Government Income Fund, PaineWebber Investment Grade Income Fund and PaineWebber
High Income Fund through incorporation by reference from the annual report to
shareholders previously filed with the Securities and Exchange Commission
through EDGAR on February 1, 1996 (Accession No. 0000950130-96-000345):

Portfolio of Investments at November 30, 1995.

Statement of Assets and Liabilities at November 30, 1995.

Statement of Operations for the year ended November 30, 1995.

Statement of Changes in Net Assets for each of the two years in the
period ended November 30, 1995.

Notes to Financial Statements.

Financial Highlights for one Class A share of each Fund for each of the
five years in the period ended November 30, 1995.

Financial Highlights for one Class B share of each Fund for each of the
four years in the period ended November 30, 1995 and the period July 1,
1991 (commencement of issuance of shares) to November 30, 1991.

Financial Highlights for one Class C share of each Fund for each of the
three years in the period ended November 30, 1995 and the period July 2,
1992 (commencement of issuance of shares) to November 30, 1992.

Financial Highlights for one Class Y share of U.S. Government Income
Fund for each of the four years in the period ended November 30, 1995
and the period September 11, 1991 (commencement of issuance of shares)
to November 30, 1991.

Report of Ernst & Young LLP, Independent Auditors, dated January 25,
1996.

C-1

Included in Part B of this Registration Statement for PaineWebber Low
Duration U.S. Government Income Fund through incorporation by reference from the
annual report to shareholders previously filed with the Securities and Exchange
Commission through EDGAR on January 31, 1996 (Accession No.
0000950130-96-000346):

Portfolio of Investments at November 30, 1995.

Statement of Assets and Liabilities at November 30, 1995.

Statement of Operations for the year ended November 30, 1995.

Statement of Changes in Net Assets for each of the two years in the
period ended November 30, 1995.

Notes to Financial Statements.

Financial Highlights for one Class A share, one Class B share and one
Class C share of the Fund for each of the two years in the period ended
November 30, 1995 and the period May 3, 1993 (commencement of
operations) to November 30, 1993.

Financial Highlights for one Class Y share of the Fund for the period
October 20, 1995 (commencement of issuance of shares) to November 30,
1995.

Report of Ernst & Young LLP, Independent Auditors, dated January 20,
1996.
<TABLE>

<S> <C> <C>
(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/
(l) Amendment to Declaration of Trust effective July 20, 1995 20/
(m) Amendments to Declaration of Trust effective October 20, 1995, November 10, 1995 and
November 29, 1995 21/
(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) Instruments defining the rights of holders of the Registrant's shares of beneficial
interest 19/
(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 Low Duration U.S.
Government Income Fund 15/
(6) (a) Distribution Contract with respect to Class A Shares 15/

C-2

(b) Distribution Contract with respect to Class B Shares 15/ (c)
Distribution Contract with respect to Class C Shares 21/ (d)
Distribution Contract with respect to Class Y Shares 21/ (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 21/ (h)
Exclusive Dealer Agreement with respect to Class Y Shares 21/
(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 LLP , 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 LLP ,
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 LLP, counsel
to the Registrant, with respect to Class C Shares of the
above-referenced Funds 11/
(d) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to the Registrant, with
respect to Class A, B and C shares of PaineWebber Low Duration U.S. Government
Income Fund 12/
(e) Opinion and Consent of Kirkpatrick & Lockhart LLP, counsel to
the Registrant, with respect to Class Y shares of PaineWebber
Low Duration U.S. Government Income Fund 20/
(f) Opinion and Consent of Kirkpatrick & Lockhart LLP, counsel
to the Registrant, with respect to Class Y shares of
PaineWebber Investment Grade Income Fund and PaineWebber
High Income Fund (filed herewith)
(11) Auditor's Consent (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 C Shares
12/ (d) Distribution Fee Addendum with respect to Class C shares
of PaineWebber Low Duration
U.S. Government Income Fund 15/
(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 Y shares of U.S.
Government Income Fund 10/
(d) Schedule for Computation of Performance Quotations For Class C 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 C shares of PaineWebber Utility
Income Fund 16/

C-3

(f) Schedule for Computation of Performance Quotations for Class A, Class B, and Class C
shares of PaineWebber Low Duration U.S. Government Income Fund 16/
(17) and
(27) Financial Data Schedule (filed herewith)
(18) Plan pursuant to Rule 18f-3 22/

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. 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-4

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.

19/ Incorporated by reference from Articles III, VIII, IX, X and XI of
Registrant's Declaration of Trust, as amended effective January 28,
1988, July 1, 1990, March 21, 1991, April 1, 1991, July 1, 1991,
February 26, 1992, January 25, 1993, July 30, 1993, November 13, 1993,
July 20, 1995, October 20, 1995, November 10, 1995 and November 29, 1995
and from Articles II, VII and X of Registrant's By-Laws, as amended
March 19, 1993 and September 28, 1994.

20/ Incorporated by reference from Post-Effective Amendment No. 38 to the registration statement, SEC
File No. 2-91362, filed September 5, 1995.

21/ Incorporated by reference from Post-Effective Amendment No. 39 to the registration statement, SEC
File No. 2-91362, filed February 14, 1996.

22/ Incorporated by reference from Post-Effective Amendment No. 40 to the registration statement, SEC
File No. 2-91362, filed March 29, 1996.
</TABLE>

Item 25. Persons Controlled by or under Common Control with
Registrant
None.

Item 26. Number of Holders of Securities

Number of Record
Title of Class Shareholders as of
May 17, 1996

Shares of beneficial interest, par value $0.001 per
share, in

U.S. Government Income Fund

Class A Shares 26,755

Class B Shares 5,366

Class C Shares 3,173

Class Y Shares 185

Investment Grade Income Fund

Class A Shares 16,177

C-5

Class B Shares 3,644

Class C Shares 2,001

Class Y Shares 0

High Income Fund

Class A Shares 15,841

Class B Shares 11,897

Class C Shares 6,058

Class Y Shares 0

PaineWebber Utility Income Fund

Class A Shares 920

Class B Shares 3,011

Class C Shares 1,054

Class Y Shares 0

PaineWebber Low Duration U.S. Government Income Fund

Class A Shares 1,048

Class B Shares 890

Class C Shares 16,107

Class Y Shares 39

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 reason- able 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.

C-6

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. ("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 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.

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.

C-7

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, as filed with the
Securities and Exchange Commission (registration number 801-13219), and is
incorporated herein by reference.

Pacific Investment Management Company ("PIMCO") serves as sub-adviser for
PaineWebber Low Duration U.S. Government Income Fund. PIMCO, a Delaware
partnership, is a registered investment adviser and a subsidiary general
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 ("Pacific Mutual") and PIMCO
Partners, L.L.C., a limited liability company controlled by the PIMCO Managing
Directors. PIMCO is primarily engaged in the investment advisory business.
Information as to the officers and Managing Directors and partners of PIMCO is
included in its Form ADV, as filed 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 SMALL CAP FUND INC.
. INSURED MUNICIPAL INCOME FUND INC.
. INVESTMENT GRADE MUNICIPAL INCOME FUND INC.
. MANAGED HIGH YIELD FUND INC.
. PAINEWEBBER AMERICA FUND
. PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
. PAINEWEBBER INVESTMENT SERIES

C-8

. PAINEWEBBER INVESTMENT TRUST
. PAINEWEBBER INVESTMENT TRUST II
. PAINEWEBBER INVESTMENT TRUST III
. PAINEWEBBER MANAGED ASSETS TRUST
. PAINEWEBBER MANAGED INVESTMENTS TRUST
. PAINEWEBBER MASTER SERIES, INC.
. PAINEWEBBER MUNICIPAL SERIES
. PAINEWEBBER MUTUAL FUND TRUST
. PAINEWEBBER OLYMPUS FUND
. PAINEWEBBER SECURITIES TRUST
. PAINEWEBBER SERIES TRUST
. STRATEGIC GLOBAL INCOME FUND, 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, as filed 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 Form ADV, as filed 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:

Name and Principal Position With Position and Offices With
Business Address Registrant Underwriter or Exclusive Dealer

Margo N. Alexander President and Trustee Director, President and Chief
1285 Avenue of the Americas Executive Officer of Mitchell
New York, New York 10019 Hutchins and Director and
Executive Vice President of
PaineWebber

Mary C. Farrell Trustee Managing Director, Senior
1285 Avenue of the Americas Investment Strategist and member
New York, New York 10019 of Investment Policy Committee
of PaineWebber

Julianna Berry Vice President Vice President and a Portfolio
1285 Avenue of the Americas Manager of Mitchell Hutchins
New York, New York 10019

C-9

Teresa M. Boyle Vice President First Vice President and Manager
1285 Avenue of the Americas - Advisory Administration of
New York, New York 10019 Mitchell Hutchins

Karen L. Finkel Vice President First Vice President and a
1285 Avenue of the Americas Portfolio Manager of Mitchell
New York, New York 10019 Hutchins

Ellen R. Harris Vice President Managing Director and a
1285 Avenue of the Americas Portfolio Manager of Mitchell
New York, New York 10019 Hutchins

James F. Keegan Vice President Senior Vice President and a
1285 Avenue of the Americas Portfolio Manager of Mitchell
New York, New York 10019 Hutchins

Thomas J. Libassi Vice President Senior Vice President and a
1285 Avenue of the Americas Portfolio Manager of Mitchell
New York, New York 10019 Hutchins

C. William Maher Vice President and First Vice President and a
1285 Avenue of the Americas Assistant Senior Manger of the Mutual Fund
New York, New York 10019 Treasurer Finance Division
of Mitchell Hutchins

Dennis McCauley Vice President Managing Director and Chief
1285 Avenue of the Americas Investment Officer - Fixed
New York, New York 10019 Income of 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 Deputy
1285 Avenue of the Americas and Secretary General Counsel of Mitchell
New York, New York 10019 Hutchins

Victoria E. Schonfeld Vice President Managing Director and General
1285 Avenue of the Americas Counsel of Mitchell Hutchins
New York, New York 10019

Paul H. Schubert Vice President First Vice President of Mitchell
1285 Avenue of the Americas and Assistant Hutchins
New York, New York 10019 Treasurer

C-10

Nirmal Singh Vice President First Vice President and a
1285 Avenue of the Americas New York, Portfolio Manager of Mitchell
New York 10019 Hutchins

Julian F. Sluyters Vice President Senior Vice President and
1285 Avenue of the Americas New York, and Treasurer Director of Mutual Fund Finance
New York 10019 Division of Mitchell Hutchins

Mark A. Tincher Vice President Managing Director and Chief
1285 Avenue of the Americas Investment Officer - U.S. Equity
New York, New York 10019 Investments of Mitchell Hutchins

Craig M. Varrelman Vice President First Vice President and a
1285 Avenue of the Americas Portfolio Manager of Mitchell
New York, New York 10019 Hutchins

Keith A. Weller Vice President First Vice President and
1285 Avenue of the Americas and Assistant Associate General Counsel of
New York, New York 10019 Secretary 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-11

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York, on the 30th day of May, 1996.

PAINEWEBBER MANAGED INVESTMENTS TRUST

By: /s/ Dianne E. O'Donnell
Dianne E. O'Donnell
Vice President and 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:

<TABLE>
<CAPTION>
Signature Title Date

<S> <C> <C>
/s/ Margo N. Alexander President and Trustee May 30, 1996
- ----------------------------
Margo N. Alexander *, ** (Chief Executive Officer)

/s/ E. Garrett Bewkes, Jr. Trustee and Chairman May 30, 1996
- ----------------------------
E. Garrett Bewkes, Jr. *** of the Board of Trustees

/s/ Richard Q. Armstrong Trustee May 30, 1996
- ----------------------------
Richard Q. Armstrong **

/s/ Richard R. Burt Trustee May 30, 1996
- ----------------------------
Richard Burt **

/s/ Mary C. Farrell Trustee May 30, 1996
- ----------------------------
Mary C. Farrell **

/s/ Meyer Feldberg Trustee May 30, 1996
- ----------------------------
Meyer Feldberg **

/s/ George W. Gowen Trustee May 30, 1996
- ----------------------------
George W. Gowen ***

/s/ Frederic V. Malek Trustee May 30, 1996
- ----------------------------
Frederic V. Malek **

/s/ Carl W. Schafer Trustee May 30, 1006
- ----------------------------
Carl W. Schafer **

/s/ John R. Torell III Trustee May 30, 1996
- ----------------------------
John R. Torell III **

/s/ Julian F. Sluyters Vice President and Treasurer (Chief May 30, 1996
- ----------------------------
Julian F. Sluyters Financial and Accounting Officer)

</TABLE>

SIGNATURES (CONTINUED)
* Signature affixed by Elinor W. Gammon pursuant to power of attorney
dated May 8, 1995 and incorporated by reference from Post-Effective
Amendment No. 34 to the registration statement of PaineWebber America
Fund, SEC File No. 2-78626, filed May 10, 1995.

** Signature affixed by Elinor W. Gammon pursuant to power of attorney
dated April 18, 1996 and incorporated by reference from Post-Effective
Amendment No. 17 to the registration statement of PaineWebber Municipal
Series, SEC File No. 33-11611, filed April 25, 1996.

*** Signature affixed by Elinor W. Gammon pursuant to power of attorney
dated April 18, 1996 and incorporated by reference from Post-Effective
Amendment No. 14 to the registration statement of PaineWebber Investment
Trust, SEC File No. 33-39659, filed May 2, 1996.

PAINEWEBBER MANAGED INVESTMENTS TRUST

EXHIBIT INDEX

<TABLE>
<S> <C> <C>
(1) (a) Declaration of Trust1/
(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/
(l) Amendment to Declaration of Trust effective July 20, 1995 20/
(m) Amendments to Declaration of Trust effective October 20, 1995, November 10,
1995 and November 29, 1995 21/
(2) (a) By-Laws1/
(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) Instruments defining the rights of holders of the Registrant's shares of beneficial
interest 19/
(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 Low Duration
U.S. Government Income Fund 15/
(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 21/
(d) Distribution Contract with respect to Class Y Shares 21/
(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 21/
(h) Exclusive Dealer Agreement with respect to Class Y Shares 21/
(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 LLP , 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 LLP ,
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 LLP, counsel
to the Registrant, with respect to Class C Shares of the
above-referenced Funds 11/
(d) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to the Registrant,
with respect to PaineWebber Low Duration U.S. Government Income Fund 12/
(e) Opinion and Consent of Kirkpatrick & Lockhart LLP,
counsel to the Registrant, with respect to Class Y shares
of PaineWebber Low Duration U.S. Government Income Fund 20/

</TABLE>

<S> <C>
(f) Opinion and Consent of Kirkpatrick & Lockhart LLP, counsel to the
Registrant, with respect to Class Y shares of PaineWebber
Investment Grade Income Fund and PaineWebber High Income Fund
(filed herewith)

(11) Auditor's Consent (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 C Shares 12/
(d) Distribution Fee Addendum with respect to Class C shares of
PaineWebber Low
Duration U.S. Government Income Fund 15/
(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 Y shares of U.S.
Government Income Fund 10/
(d) Schedule for Computation of Performance Quotations For Class C 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 C shares of PaineWebber Utility
Income Fund 16/
(f) Schedule for Computation of Performance Quotations for Class A, Class B, and
Class C shares of PaineWebber Low Duration U.S. Government Income Fund 16/
(17) and
(27) Financial Data Schedule (filed herewith)
(18) Plan pursuant to Rule 18f-3 (filed herewith) 22/

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. 18 to the registration
statement, SEC File No. 2-91362, filed May 2, 1991.

<S> <C>
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.

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.

</TABLE>

<PAGE>

<TABLE>
<S> <C>
18/ Incorporated by reference form Post-Effective Amendment No. 34 to the
registration statement, SEC File No. 2-91362, filed January 27, 1995.

20/ Incorporated by reference from Post-Effective Amendment No. 38 to the
registration statement, SEC File No. 2-91362, filed September 5, 1995.

21/ Incorporated by reference from Post-Effective Amendment No. 39 to the
registration statement, SEC File No. 2-91362, filed February 14, 1996.

22/ Incorporated by reference from Post-Effective Amendment No. 40 to the registration
statement, SEC File No. 2-91362, filed March 29, 1996.

</TABLE>

STATEMENT OF DIFFERENCES
The copyright symbol shall be expressed as.................................. 'c'
The dagger symbol shall be expressed as..................................... 'D'
The mathermatical powers normally expressed as superscript shall
be expressed as................. 'pp'

<PAGE>

EXHIBIT 10(f)

KIRKPATRICK & LOCKHART LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D.C. 20036-1800

June 3, 1996

PaineWebber Managed Investments Trust
1285 Avenue of the Americas
New York, New York 10019

Dear Sir/Madam:

PaineWebber Managed Investments Trust ("Trust") is an unincorporated
voluntary association organized under the laws of the Commonwealth of
Massachusetts on November 21, 1986. You have requested our opinion regarding
certain matters in connection with the issuance by the Trust of an indefinite
number of Class Y shares of beneficial interest ("Class Y Shares") of
PaineWebber Investment Grade Income Fund and PaineWebber High Income Fund, two
of the five series of the Trust.

We have, as counsel, participated in various business and other matters
related to the Trust. We have examined copies, either certified or otherwise
proved to be genuine, of the Declaration of Trust and By-Laws of the Trust, the
minutes of the meetings of the trustees and other documents relating to the
organization and operation of the Trust, and we generally are familiar with its
business affairs. Based on the foregoing, it is our opinion that the unlimited
number of unissued Class Y Shares of PaineWebber Investment Grade Income Fund
and PaineWebber High Income Fund, which are currently being registered under the
Securities Act of 1933, as amended ("1933 Act"), may be legally and validly
issued from time to time in accordance with the Trust's Declaration of Trust and
By-Laws and, subject to compliance with the 1933 Act, the Investment Company Act
of 1940, as amended, and various state laws regulating the offer and sale of
securities; and when so issued, the Class Y Shares of PaineWebber Investment
Grade Income Fund and PaineWebber High Income Fund will be legally issued, fully
paid and nonassessable by the Trust.

PaineWebber Managed Investments Trust
June 3, 1996
Page 2

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. The
Declaration of Trust states that creditors of, contractors with and claimants
against the Trust or any series thereof shall look only to the assets of the
Trust or the appropriate series for payment. It also requires that notice of
such disclaimer be given in each note, bond, contact, certificate, undertaking
or instrument made or issued by the officers or trustees of the Trust on behalf
of the Trust. The Declaration of Trust further provides (i) for indemnification
from the assets of the appropriate series for all loss and expense of any
shareholder held personally liable for the obligations of the Trust or any
series by virtue of ownership of shares of such series and (ii) for the
appropriate series to assume the defense of any claim against the shareholder
for any act or obligation of the series. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust or series would be unable to meet its
obligations.

We hereby consent to the filing of this opinion in connection with
Post-Effective Amendment No. 42 to the Trust's Registration Statement on Form
N-1A (SEC File Nos. 2-91362 and 811-4040) to be filed with the Securities and
Exchange Commission. We also consent to the reference to our firm under the
caption "Counsel" in the Statement of Additional Information filed as part of
the Registration Statement.

Very truly yours,

KIRKPATRICK & LOCKHART LLP

/s/ Elinor W. Gammon

By:
Elinor W. Gammon

<PAGE>

EXHIBIT 11

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Financial
Highlights" in the Prospectus and "Independent Auditors" in the Statement of
Additional Information and to the incorporation by reference of our report dated
January 25, 1996 for PaineWebber U.S. Government Income Fund, PaineWebber
Investment Grade Income Fund and PaineWebber High Income Fund and our report
dated January 20, 1996 for PaineWebber Low Duration U.S. Government Income Fund,
in this Registration Statement (Form N-1A No. 2-91362) of PaineWebber Managed
Investments Trust.

/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP

New York, New York
May 29, 1996

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 101
<NAME> PAINEWEBBER US GOVERNMENT INCOME FUND CLASS A
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 412,760
<INVESTMENTS-AT-VALUE> 42,6717
<RECEIVABLES> 6,570
<ASSETS-OTHER> 224
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 433,511
<PAYABLE-FOR-SECURITIES> 60
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,166
<TOTAL-LIABILITIES> 3,226
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 626,565
<SHARES-COMMON-STOCK> 47,185
<SHARES-COMMON-PRIOR> 50,464
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1,104)
<ACCUMULATED-NET-GAINS> (209,160)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13,984
<NET-ASSETS> 430,285
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 31,028
<OTHER-INCOME> 0
<EXPENSES-NET> (4,173)
<NET-INVESTMENT-INCOME> 26,855
<REALIZED-GAINS-CURRENT> (923)
<APPREC-INCREASE-CURRENT> 30,439
<NET-CHANGE-FROM-OPS> 56,371
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (26,986)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,478
<NUMBER-OF-SHARES-REDEEMED> (11,424)
<SHARES-REINVESTED> 1,554
<NET-CHANGE-IN-ASSETS> (3,392)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (1,372)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,020
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,173
<AVERAGE-NET-ASSETS> 404,115
<PER-SHARE-NAV-BEGIN> 8.50
<PER-SHARE-NII> 0.58
<PER-SHARE-GAIN-APPREC> 0.62
<PER-SHARE-DIVIDEND> (0.58)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.12
<EXPENSE-RATIO> 1.03
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 102
<NAME> PAINEWEBBER US GOVERNMENT INCOME FUND CLASS B
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 79,110
<INVESTMENTS-AT-VALUE> 81,785
<RECEIVABLES> 1,259
<ASSETS-OTHER> 43
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 83,087
<PAYABLE-FOR-SECURITIES> 12
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 607
<TOTAL-LIABILITIES> 619
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 120,088
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<PAGE>

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<NAME> PAINEWEBBER US GOVERNMENT INCOME FUND CLASS C
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<S> <C>
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<PAGE>

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<NAME> PAINEWEBBER US GOVERNMENT INCOME FUND CLASS Y
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<S> <C>
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<PAGE>

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<NAME> PAINEWEBBER LOW DURATION US GOV'T INCOME FUND CLASS A
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<S> <C>
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<PAGE>

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<NAME> PAINEWEBBER LOW DURATION US GOV'T INCOME FUND CLASS B
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<S> <C>
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<PAGE>

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<NAME> PAINEWEBBER LOW DURATION US GOV'T INCOME FUND CLASS C
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<S> <C>
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<PAGE>

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<NAME> PAINEWEBBER LOW DURATION US GOV'T INCOME FUND CLASS Y
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<S> <C>
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<PAGE>

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<NAME> PAINEWEBBER INVESTMENT GRADE INCOME FUND CLASS A
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<S> <C>
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<PAGE>

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<NAME> PAINEWEBBER INVESTMENT GRADE INCOME FUND CLASS B
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<PAGE>

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<NAME> PAINEWEBBER INVESTMENT GRADE INCOME FUND CLASS C
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<S> <C>
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<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 141
<NAME> PAINEWEBBER HIGH INCOME FUND CLASS A
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> 12-MOS
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<PERIOD-START> DEC-01-1994
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<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 142
<NAME> PAINEWEBBER HIGH INCOME FUND CLASS B
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> 12-MOS
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<PERIOD-START> DEC-01-1994
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<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 143
<NAME> PAINEWEBBER HIGH INCOME FUND CLASS C
<MULTIPLIER> 1000

<S> <C>
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<PERIOD-START> DEC-01-1994
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<PAGE>