PAINEWEBBER MANAGED INVESTMENTS TRUST, 497, 1996-02-12

PAINEWEBBER MANAGED INVESTMENTS TRUST
497, 1996-02-12

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PaineWebber Low Duration U.S. Government Income Fund
1285 Avenue of the Americas, New York, New York 10019
Prospectus -- November 10, 1995
- --------------------------------------------------------------------------------
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND is a professionally
managed series of a mutual fund seeking the highest level of income consistent
with the preservation of capital and low volatility of net asset value.

The Fund is a series of PaineWebber Managed Investments Trust ("Trust"). This
Prospectus concisely sets forth information about the Fund a prospective
investor should know before investing. Please retain this Prospectus for future
reference.

A Statement of Additional Information dated November 10, 1995 (which is
incorporated by reference herein), has been filed with the Securities and
Exchange Commission. The Statement of Additional Information can be obtained
without charge, and further inquiries can be made, by contacting the Fund, your
PaineWebber investment executive or PaineWebber's correspondent firms or by
calling toll-free 1-800-647-1568.

[ ] Professional Management

[ ] Portfolio Diversification

[ ] Dividend and Capital Gain Reinvestment

[ ] Flexible Pricingsm

[ ] Low Minimum Investment

[ ] Automatic Investment Plan

[ ] Systematic Withdrawal Plan

[ ] Suitable For Retirement Plans

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

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

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Prospectus Page 1

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................................................... 3
Financial Highlights....................................................... 7
Flexible Pricing System.................................................... 8
Investment Objective and Policies.......................................... 9
Purchases.................................................................. 16
Exchanges.................................................................. 19
Redemptions................................................................ 20
Conversion of Class B Shares............................................... 22
Other Services and Information............................................. 22
Dividends and Taxes........................................................ 23
Valuation of Shares........................................................ 24
Management................................................................. 24
Performance Information.................................................... 26
General Information........................................................ 27
Appendix A................................................................. 29
Appendix B................................................................. 32
</TABLE>
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Prospectus Page 2
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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

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

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

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

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

Total Net Assets: Approximately $325.6 million at October 31, 1995.

Investment Adviser Mitchell Hutchins Asset Management Inc. ("Mitchell
and Administrator: Hutchins"), an asset management subsidiary of
PaineWebber Incorporated ("PaineWebber"), manages over
$44.6 billion in assets. See "Management."

Sub-Adviser: Pacific Investment Management Company ("PIMCO") man-
ages approximately $69.8 billion in assets. See "Man-
agement."

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

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

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

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

Class C Shares Offered at net asset value without an initial sales
charge (for shares purchased on or after November 10,
1995, a contingent deferred sales charge of 0.75% is
imposed on most redemptions made within one year of
date of purchase). Class C shares pay higher ongoing
expenses than Class A shares and do not convert into
another Class.

Exchanges: Shares may be exchanged for shares of the correspond-
ing Class of most PaineWebber mutual funds.

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

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Prospectus Page 3

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
Prospectus Summary
(Continued)
- --------------------------------------------------------------------------------

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

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

Minimum Purchase: $100 for initial and subsequent purchases.

Other Features:

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

Class B Shares Automatic investment plan
Systematic withdrawal plan

Class C Shares Automatic investment plan
Systematic withdrawal plan
------------------

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

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

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Prospectus Page 4

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

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Shareholder Transaction Expenses(1)
Maximum sales charge on purchases of shares (as a
percentage of public offering price)............ 3.00% None None
Sales charge on reinvested dividends............. None None None
Exchange fee..................................... $5.00 $5.00 $5.00
Maximum contingent deferred sales charge (as a
percentage of net asset value at the time of
purchase or redemption whichever is lower)...... None(2) 3.00% 0.75%(3)
Annual Fund Operating Expenses(4)
(as a percentage of average net assets)
Management fees.................................. 0.50% 0.50% 0.50%
12b-1 fees(5).................................... 0.25 1.00 0.75
Other expenses................................... 0.13 0.16 0.14
----- ----- -----
Total operating expenses......................... 0.88% 1.66% 1.39%
===== ===== =====
</TABLE>

Example of Effect of Fund Expenses(6)

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

<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Class A Shares(7).................... $39 $57 $77 $135
Class B Shares:
Assuming a complete redemption at
end of period(8)(9)............... $47 $72 $90 $157
Assuming no redemption(9).......... $17 $52 $90 $157
Class C Shares:
Assuming a complete redemption at
end of period(8).................. $22 $44 $76 $166
Assuming no redemption............. $14 $44 $76 $166
</TABLE>

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

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

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Prospectus Page 5

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
Prospectus Summary
(Continued)
- --------------------------------------------------------------------------------
(3) A contingent deferred sales charge of 0.75% will be applied to most
redemptions of Class C shares within one year of purchase. See "Purchases."
(4) See "Management" for additional information. During the year ended November
30, 1994, Mitchell Hutchins waived a portion of its advisory and
administration fees. Expenses net of waivers were 0.84% for Class A, 1.62%
for Class B and 1.36% for Class C for this period.
(5) 12b-1 fees have two components, as follows:

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

12b-1 distribution fees are asset-based sales charges. Long-term Class B
and Class C shareholders may pay more in direct and indirect sales charges
(including distribution fees) than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of Securities
Dealers, Inc.
(6) During the year ended November 30, 1994, Mitchell Hutchins waived a portion
of its advisory and administration fees. This Example is based on expense
ratios which would have occurred had such waivers not been made.
(7) Assumes deduction at the time of purchase of the maximum 3% initial sales
charge.
(8) Assumes deduction at the time of redemption of the maximum applicable
contingent deferred sales charge.
(9) Ten-year figures assume conversion of Class B shares to Class A shares at
end of sixth year.

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Prospectus Page 6

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

Financial Highlights
- --------------------------------------------------------------------------------
The table below provides selected per share data and ratios for one Class A
share, one Class B share and one Class C share for the periods shown. This
information is supplemented by the financial statements and accompanying notes
appearing in the Fund's Annual Report to Shareholders for the fiscal year ended
November 30, 1994, which are incorporated by reference into the Statement of
Additional Information. The financial statements and notes, as well as the
information in the table appearing below insofar as it relates to the fiscal
year ended November 30, 1994 and prior periods, have been audited by Ernst &
Young LLP, independent auditors, whose report thereon is included in the Annual
Report to Shareholders. The financial statements and notes and the financial
information in the table below, insofar as they relate to the six months ended
May 31, 1995, have been taken from the records of the Fund without examination
by the independent auditors, who do not express an opinion thereon. Further
information about the Fund's performance is also included in the Annual Report
to Shareholders, which may be obtained without charge.

<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------------- ----------------------------------------
FOR THE FOR THE PERIOD FOR THE FOR THE PERIOD
SIX MONTHS MAY 3, 1993 SIX MAY 3, 1993
ENDED FOR THE YEAR (COMMENCEMENT MONTHS FOR THE YEAR (COMMENCEMENT
MAY 31, ENDED OF OPERATIONS) ENDED ENDED OF OPERATIONS)
1995 NOVEMBER 30, TO NOVEMBER 30, MAY 31, NOVEMBER 30, TO NOVEMBER 30,
(UNAUDITED) 1994 1993 1995 1994 1993
----------- ------------ --------------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period........... $ 2.25 $ 2.48 $ 2.50 $ 2.25 $ 2.48 $ 2.50
-------- -------- -------- ------- ------- -------
Net
increase(decrease)
from investment
operations:
Net investment
income........... 0.07 0.12 0.07 0.06 0.10 0.06
Net realized and
unrealized gains
(losses) from
investment
transactions..... 0.07 (0.29) (0.02) 0.07 (0.29) (0.02)
-------- -------- -------- ------- ------- -------
Net increase
(decrease) in net
asset value from
operations....... 0.14 (0.17) 0.05 0.13 (0.19) 0.04
-------- -------- -------- ------- ------- -------
Less
distributions:
Dividends from net
investment
income........... (0.07) (0.12) (0.07) (0.06) (0.10) (0.06)
-------- -------- -------- ------- ------- -------
Contribution to
capital from
adviser.......... -- 0.06 -- -- 0.06 --
-------- -------- -------- ------- ------- -------
Net asset value,
end of period.... $ 2.32 $ 2.25 $ 2.48 $ 2.32 $ 2.25 $ 2.48
======== ======== ======== ======= ======= =======
Total investment
return(1)........ 6.20% (4.50)%** 1.88% 5.75% (5.24)%** 1.47%
======== ======== ======== ======= ======= =======
Ratios/Supplemental
data:
Net assets, end
of period
(000's
omitted)....... $132,662 $158,712 $551,243 $10,241 $13,382 $31,706
Ratio of
expenses to
average net
assets(2)...... 1.07%* 0.84% 0.81%* 1.94%* 1.62% 1.62%*
Ratio of net
investment
income to
average net
assets(2)...... 5.95%* 5.16% 4.85%* 5.09%* 4.40% 4.31%*
Portfolio
turnover rate.. 64.83% 246.34% 96.60% 64.81% 246.34% 96.60%
<CAPTION>
CLASS C (3)
-----------------------------------------
FOR THE FOR THE PERIOD
SIX MAY 3, 1993
MONTHS FOR THE YEAR (COMMENCEMENT
ENDED ENDED OF OPERATIONS)
MAY 31, NOVEMBER 30, TO NOVEMBER 30,
1995 1994 1993
---------- -------------- ---------------
<S> <C> <C> <C>
Net asset value,
beginning of
period........... $ 2.25 $ 2.47 $ 2.50
---------- -------------- ---------------
Net
increase(decrease)
from investment
operations:
Net investment
income........... 0.06 0.11 0.06
Net realized and
unrealized gains
(losses) from
investment
transactions..... 0.07 (0.28) (0.03)
---------- -------------- ---------------
Net increase
(decrease) in net
asset value from
operations....... 0.13 (0.17) 0.03
---------- -------------- ---------------
Less
distributions:
Dividends from net
investment
income........... (0.06) (0.11) (0.06)
---------- -------------- ---------------
Contribution to
capital from
adviser.......... -- 0.06 --
---------- -------------- ---------------
Net asset value,
end of period.... $ 2.32 $ 2.25 $ 2.47
========== ============== ===============
Total investment
return(1)........ 5.90% (4.99)%** 1.20%
========== ============== ===============
Ratios/Supplemental
data:
Net assets, end
of period
(000's
omitted)....... $216,381 $296,182 $1,186,181
Ratio of
expenses to
average net
assets(2)...... 1.67%* 1.36% 1.35%*
Ratio of net
investment
income to
average net
assets(2)...... 5.38%* 4.65% 4.52%*
Portfolio
turnover rate.. 64.81% 246.34% 96.60%
</TABLE>
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* Annualized.
** During the year ended November 30, 1994, PaineWebber and Mitchell Hutchins
took actions affecting the Fund and its shareholders. Mitchell Hutchins made
payments aggregating approximately $33 million for the benefit of sharehold-
ers of the Fund who held Fund shares on or after April 28, 1994, pursuant to
a settlement of certain class action lawsuits filed against the Fund,
PaineWebber, Mitchell Hutchins and related parties. The payments equated to
$0.06 per share for each Fund share outstanding on May 6, 1994 or issued
from that date through June 7, 1994, plus certain additional amounts. If
such payments had not been made, the total investment return would have been
(7.02)% for Class A, (7.74)% for Class B and (7.50)% for Class C.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends at net as-
set value on the payable dates, and a sale at net asset value on the last
day of each period reported. The figures do not include sales charges; re-
sults for Class A and Class B would be lower if sales charges were includ-
ed. Total investment returns for periods less than one year have not been
annualized.
(2) During the year ended November 30, 1994 Mitchell Hutchins waived a portion
of its advisory and administration fees. If such waivers had not been made
the annualized ratios of expenses to average net assets, and net investment
income to average net assets, respectively, would have been 0.88% and 5.12%
for Class A, 1.66% and 4.35% for Class B, and 1.39% and 4.61% for Class C.
(3) Formerly Class D shares.

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Prospectus Page 7
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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

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

The primary distinctions among the Classes of the Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of distribution fees.
These differences are summarized in the table below. Each Class has distinct
advantages and disadvantages for different investors, and investors may choose
the Class that best suits their circumstances and objectives.
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
------------------------ ------------------------ ----------------------
<C> <S> <C> <C>
CLASS A Maximum initial sales Service fee of 0.25% Initial sales charge
charge of 3% of the pub- waived or reduced for
lic offering price certain purchases
CLASS B Maximum contingent de- Service fee of 0.25%; Shares convert to
ferred sales charge of distribution fee of Class A shares
3% upon redemption; de- 0.75% approximately six
clines to zero years after issuance
after four years
CLASS C Contingent deferred Service fee of 0.25%; --
sales charge of 0.75% distribution fee of
upon redemption for 0.50%
first year
</TABLE>
FACTORS TO CONSIDER IN CHOOSING A CLASS OF SHARES

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

SALES CHARGES. Class A shares are sold at net asset value plus an initial sales
charge of up to 3% of the public offering price. Because of this initial sales
charge, not all of a Class A shareholder's purchase price is invested in the
Fund. Class B shares are sold with no initial sales charge, but a contingent
deferred sales charge of up to 3% applies to most redemptions made within four
years of purchase. Class C shareholders pay no initial sales charges, although
a contingent deferred sales charge of 0.75% applies to most redemptions made
within the first year after purchase. Thus, the entire amount of a Class B or
Class C shareholder's purchase price is immediately invested in the Fund.

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

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

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

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Prospectus Page 8
<PAGE>

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

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

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

OTHER INFORMATION

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

See "Purchases," "Redemptions" and "Management" for a more complete description
of the initial and contingent deferred sales charges, service fees and
distribution fees for Class A, B and C of shares of the Fund. See also
"Exchanges," "Conversion of Class B Shares," "Dividends and Taxes," "Valuation
of Shares" and "General Information" for other differences among the three
Classes.
- --------------------------------------------------------------------------------
Investment Objective and Policies
- --------------------------------------------------------------------------------
The Fund's investment objective is to achieve the highest level of income
consistent with the preservation of capital and low volatility of net asset
value. The Fund seeks to maximize income consistent with the preservation of
capital by investing, under normal conditions, at least 65% of its total assets
in U.S. government securities, including mortgage-backed securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities ("U.S.
government mortgage-backed securities"), other obligations issued or guaranteed
by the U.S. government, its agencies or instrumentalities and repurchase
agreements with respect to those securities. Up to 35% of the Fund's total
assets may be invested in mortgage- and asset-backed securities that are issued
by private issuers and that at the time of purchase have been rated AAA by S&P
or Aaa by Moody's, have an equivalent rating from another NRSRO or, if unrated,
have been determined by PIMCO to be of comparable quality. The Fund also may
invest in money market instruments. As a matter of fundamental policy, the Fund
normally concentrates at least 25% of its total assets in mortgage- and asset-
backed securities issued or guaranteed by private issuers or by agencies or
instrumentalities of the U.S. government.

The Fund seeks to limit the volatility of its net asset value per share by
maintaining an overall portfolio duration of from one to three years. Duration
is a measure of the expected life of a fixed income security on a present value
basis. See "Risk Factors and Other Investment Policies--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-

-----------------
Prospectus Page 9
<PAGE>

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

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

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

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

The Fund may invest in certain zero coupon securities that are U.S. Treasury
notes and bonds that have been stripped of their unmatured interest coupon
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") that
are not issued through the U.S. Treasury will not be counted as U.S. government
securities for purposes of the 65% investment requirement.

There can be no assurance that the Fund will achieve its investment objective.
The 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 the Fund will receive the
originally anticipated yield on the security. An investment in the Fund also is
subject to the risks discussed below. See "Investment Policies and
Restrictions--Yield Factors and Ratings" in the Statement of Additional
Information.

RISK FACTORS AND OTHERINVESTMENT POLICIES

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

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

decline. Conversely, when interest rates rise, the value of fixed income
securities, and thus the net asset value per share of the Fund, may be expected
to decline.

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

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

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

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 these CMO classes,
the yield may change more rapidly or to a greater degree than market interest
rates change. 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. Certain CMO classes known as inverse
floating rate securities, pay interest at a rate that increases as a specified
interest rate index decreases but decreases as that index increases. However,
the Fund may not invest in inverse floating rate mortgage- or asset-backed
securities.

During 1994, the value and the liquidity of many mortgage-backed securities,
including securities held by the Fund, declined sharply due primarily to
increases in short-term interest rates. There can be no assurance that such
declines will not recur. The market value of certain mortgage-backed securities
in which the Fund may invest can be extremely volatile, and such securities may
become illiquid. PIMCO will seek to manage the Fund so that the volatility of
the Fund's portfolio, taken as a whole, is consistent with the Fund's
investment objective. If market interest rates, or

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

other factors that affect the volatility of securities held by the Fund, change
in ways that PIMCO does not anticipate, the Fund's ability to meet its
investment objective may be reduced.

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

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

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

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

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

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

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

net asset value per share to be more volatile, because such securities may
increase the amount by which its total assets, including the value of when-
issued and delayed delivery securities it holds, exceed its net assets.

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

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

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

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

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

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 PIMCO in portfolio selection for the Fund. 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 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.

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

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 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 the Fund's duration by approximately the
same amount as would holding an equivalent amount of the underlying securities.
Short futures or put 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, 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 PIMCO to make certain predictions as to the effect that changes
in the level of interest rates will have on the value of the 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 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 and 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 the Fund's portfolio may
vary in relation to interest rates by a greater or lesser percentage than
indicated by the above example.

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

ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in
illiquid securities. The term "illiquid securities" for this purpose means
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which the Fund has valued the
securities. Illiquid securities are considered to include, among other things,
written OTC options, certain cover for OTC options, repurchase agreements with
maturities in excess of seven days, securities whose disposition is restricted
under the federal securities laws (other than "Rule 144A" securities and
certain commercial paper that PIMCO has determined to be liquid under
procedures approved by the Trust's board of trustees).

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

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

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

LENDING OF PORTFOLIO SECURITIES. The Fund is authorized to lend up to 10% of
the total value of its portfolio securities to broker-dealers or institutional
investors that 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.

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

DERIVATIVES. The Fund 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 Fund in hedging and
related income strategies. There is only limited consensus as to what
constitutes a "derivative" security. However, in Mitchell Hutchins' view, the
derivative securities in which the Fund may invest include "stripped"
securities, such as CATS and TIGRs, and specially structured types of mortgage-
and asset-backed securities. 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 takes
these risks into account in its management of the Fund.

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

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

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

Purchases
- --------------------------------------------------------------------------------
GENERAL. Class A shares are sold to investors subject to an initial sales
charge. Class B shares are sold without an initial sales charge but are subject
to higher ongoing expenses than Class A shares and a contingent deferred sales
charge payable upon most redemptions. Class B shares automatically convert to
Class A shares approximately six years after issuance. Class C shares are sold
without an initial sales charge but are subject to higher ongoing expenses than
Class A shares and a contingent deferred sales charge of 0.75% payable on most
redemptions made within one year of purchase. Class C shares do not convert
into another Class. See "Flexible Pricing System" and "Conversion of Class B
Shares."

Shares of the Fund are available through PaineWebber and its correspondent
firms or, for shareholders who are not PaineWebber clients, through the
Transfer Agent. Investors may contact a local PaineWebber office to open a
PaineWebber account. The minimum initial investment, as well as the minimum for
additional purchases, is $100. The Fund reserves the right to change these
minimums. These minimums may be waived or reduced for investments by employees
of PaineWebber or its affiliates, by certain pension plans and retirement
accounts, by participants in the Fund's automatic investment plan. Purchase
orders will be priced at the net asset value per share next determined (see
"Valuation of Shares") after the order is received by PaineWebber's New York
City offices or by the Transfer Agent, plus any applicable sales charge for the
Class A shares. The Fund and Mitchell Hutchins reserve the right to reject any
purchase order and to suspend the offering of the Fund's shares for a period of
time.

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

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

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

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

INITIAL SALES CHARGE SCHEDULE--CLASS A SHARES

<TABLE>
<CAPTION>
SALES CHARGE AS A
PERCENTAGE OF DISCOUNT TO
---------------------------------------- SELECTED
NET AMOUNT DEALERS AS A
INVESTED PERCENTAGE
OFFERING (NET ASSET OF OFFERING
AMOUNT OF PURCHASE PRICE VALUE) PRICE
------------------ -------- ---------- ------------
<S> <C> <C> <C>
Less than$100,000 3.00% 3.09% 2.75%
$100,000 to$249,999 2.50 2.56 2.25
$250,000 to$499,999 2.00 2.04 1.75
$500,000 to$999,999 1.50 1.52 1.25
$1,000,000 and over(1) None None 1.00
</TABLE>
- -------
(1) Mitchell Hutchins pays compensation to PaineWebber out of its own
resources. Most redemptions of these shares within one year of purchase will
be subject to a contingent deferred sales charge of 1%. See "Contingent
Deferred Sales Charge--Class A Shares."

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

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

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

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

SALES CHARGE WAIVERS--CLASS A SHARES. Class A shares are available without a
sales charge through exchanges for Class A shares of most other PaineWebber
mutual funds. See "Exchanges." In addition, Class A shares may be purchased
without a sales charge, and exchanges of any Class of shares may be made
without the $5.00 exchange fee, by employees, directors and officers of
PaineWebber or its affiliates, directors or trustees and officers of any
PaineWebber mutual fund, their spouses, parents and children and advisory
clients of Mitchell Hutchins. Class A shares may also be purchased without a
sales charge by employee benefit plans qualified under section 401 or 403(b) of
the Internal Revenue Code (the "Code"), including salary reduction plans
qualified under section 401(k) of the Code, subject to minimum requirements
established by Mitchell Hutchins with respect to the number of employees or
amount of purchase. Currently, the employers establishing the plan must have
100 or more eligible employees or the amount invested or to be invested during
the subsequent 13-month period in the Fund or any other PaineWebber mutual fund
must total at least $1 million. If investments by an employee benefit plan
without a sales charge are made through a dealer (including PaineWebber) who
has executed a dealer agreement with Mitchell Hutchins, Mitchell Hutchins may
make a payment, out of its own resources, to the dealer in an amount not to
exceed 1% of the amount invested.

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

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

Class A shares may be acquired without a sales charge if issued by the Fund in
connection with a reorganization pursuant to which the Fund acquires
substantially all of the assets and

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

liabilities of another investment company in exchange solely for shares of the
Fund.

CONTINGENT DEFERRED SALES CHARGE--CLASS A SHARES. Class A shares purchased
without an initial sales charge due to the sales charge waiver for purchases of
$1 million or more and held less than one year are subject to a contingent
deferred sales charge upon redemption equal to 1% of the lower of (a) the net
asset value of the shares at the time of purchase or (b) the net asset value of
the shares at the time of redemption. The holding period of Class A shares
acquired through an exchange with another PaineWebber mutual fund is calculated
from the date the Class A shares of the other PaineWebber mutual fund were
initially purchased without a sales charge, and Class A shares acquired through
an exchange will be considered to represent, as applicable, dividend and
capital gain distribution reinvestments in such other funds. Redemption order
will be determined as described for Class B shares (see "Contingent Deferred
Sales Charge--Class B Shares"). Class A shares held one year or longer and
Class A shares acquired through reinvestment of dividends or capital gains
distributions are not subject to this contingent deferred sales charge. The
contingent deferred sales charge is waived for exchanges, as described below,
and for most redemptions in connection with the systematic withdrawal plan.
THIS CONTINGENT DEFERRED SALES CHARGE DOES NOT APPLY TO REDEMPTIONS OF CLASS A
SHARES PURCHASED PRIOR TO NOVEMBER 10, 1995. For federal income tax purposes,
the amount of the contingent deferred sales charge will reduce the gain or
increase the loss, as the case may be, realized on the redemption. The amount
of any contingent deferred sales charge will be paid to Mitchell Hutchins.

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

The maximum contingent deferred sales charge for Class B shares equals 3% of
the lower of (a) the net asset value of the shares at the time of purchase or
(b) the net asset value of the shares at the time of redemption. Class B shares
held four years or longer and Class B shares acquired through reinvestment of
dividends or capital gains distributions are not subject to the contingent
deferred sales charge. The following table shows the contingent deferred sales
charge percentages charged in each year following purchase:

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

In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption is made first of Class B shares
representing the reinvestment of dividends and capital gains distributions and
then of other shares held by the shareholder for the longest period of time.
The holding period of Class B shares acquired through an exchange with another
PaineWebber mutual fund will be calculated from the date that the Class B
shares were initially acquired in one of the other PaineWebber mutual funds,
and Class B shares being redeemed will be considered to represent, as
applicable, dividend and capital gain distribution reinvestments in such other
funds. This will result in any contingent deferred sales charge being imposed
at the lowest possible rate. Investors should be aware, however, that Class B
shares of the Fund and Class B shares of most other PaineWebber mutual funds
have different contingent deferred sales charge schedules. The higher schedule
will apply to the redemption if Class B shares of the Fund are acquired through
an exchange from, or disposed of in an exchange for, Class B shares of another
PaineWebber mutual fund (see "Exchanges"). For federal income tax purposes, the
amount of the contingent deferred sales charge will reduce the gain or increase
the loss, as the case may be, realized on redemption. The amount of any
contingent deferred sales charge will be paid to Mitchell Hutchins.

SALES CHARGE WAIVERS--CLASS B SHARES. The contingent deferred sales charge will
be waived for exchanges, as described below, and for most redemptions in
connection with the Fund's systematic withdrawal plan. In addition, the
contingent deferred sales charge will be waived for a total or partial
redemption made within one year of the death of the shareholder. The contingent
deferred sales charge waiver is available where the decedent is either the sole
shareholder or owns the shares with his or her spouse as a joint tenant with
right of survivorship. This waiver applies only to redemption of shares held at
the time of death. The contingent deferred sales charge will also be waived in

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Prospectus Page 18
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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

connection with a lump-sum or other distribution in the case of an IRA, a self-
employed individual retirement plan (so-called "Keogh Plan") or a custodial
account under Section 403(b) of the Internal Revenue Code following attainment
of age 59 1/2; a total or partial redemption resulting from any distribution
following retirement in the case of a tax-qualified retirement plan; and a
redemption resulting from a tax-free return of an excess contribution to an
IRA.

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

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

CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES. Class C shares held less than
one year will be subject to a contingent deferred sales charge on redemptions
in an amount equal to 0.75% of the lower of (a) the net asset value of the
shares at the time of purchase or (b) the net asset value of the shares at the
time of redemption. The holding period of Class C shares acquired through an
exchange with another PaineWebber mutual fund is calculated from the date the
Class C shares of the other PaineWebber mutual fund were initially purchased
and Class C shares will be considered to represent, as applicable, dividend and
capital gain distribution reinvestments in such other funds. Redemption order
will be determined as described for Class B shares (see "Contingent Deferred
Sales Charge--Class B Shares"). Redemptions of Class C shares acquired through
an exchange and held less than one year will be subject to the same contingent
deferred sales charge that would have been imposed on Class C shares of the
PaineWebber mutual fund originally purchased that were subsequently exchanged
for Class C shares of the Fund. Class C shares held one year or longer and
Class C shares acquired through reinvestment of dividends or capital gains
distributions are not subject to this contingent deferred sales charge. The
contingent deferred sales charge is waived for exchanges, as described below,
and for most redemptions in connection with the systematic withdrawal plan.
THIS CONTINGENT DEFERRED SALES CHARGE DOES NOT APPLY TO REDEMPTIONS OF CLASS C
SHARES PURCHASED PRIOR TO NOVEMBER 10, 1995. For federal income tax purposes,
the amount of the contingent deferred sales charge will reduce the gain or
increase the loss, as the case may be, realized on the redemption. The amount
of any contingent deferred sales charge will be paid to Mitchell Hutchins.
- --------------------------------------------------------------------------------
Exchanges
- --------------------------------------------------------------------------------

Shares of the Fund may be exchanged for shares of the corresponding Class of
other PaineWebber mutual funds, or may be acquired through an exchange of
shares of the corresponding Class of those funds. No initial sales charge is
imposed on the shares being acquired, and no contingent deferred sales charge
is imposed on the shares being disposed of, through an exchange. However,
contingent deferred sales charges may apply to redemptions of shares of
PaineWebber mutual funds acquired through an exchange. A $5.00 exchange fee is
charged for each exchange, and exchanges may be subject to minimum investment
requirements of the fund into which exchanges are made.

The other PaineWebber mutual funds with which Fund shares may be exchanged
include:

PAINEWEBBER INCOME FUNDS

. Global Income Fund

. High Income Fund

. Investment Grade Income Fund

. Strategic Income Fund

. U.S. Government Income Fund

PAINEWEBBER TAX-FREE INCOME FUNDS

. California Tax-Free Income Fund

. Municipal High Income Fund

. National Tax-Free Income Fund

. New York Tax-Free Income Fund

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Prospectus Page 19
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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

PAINEWEBBER GROWTH FUNDS

. Capital Appreciation Fund

. Emerging Markets Equity Fund

. Global Equity Fund

. Growth Fund

. Regional Financial Growth Fund

. Small Cap Growth Fund

. Small Cap Value Fund

PAINEWEBBER GROWTH AND INCOME FUNDS

. Balanced Fund

. Growth and Income Fund

. Tactical Allocation Fund

. Utility Income Fund

PAINEWEBBER MONEY MARKET FUND

The holding period of shares of the Fund is included in the holding period used
to compute the contingent deferred sales charge applicable on a redemption of
shares of the other PaineWebber mutual funds acquired through an exchange. The
same contingent deferred sales charge schedule applicable to the Fund's Class B
shares will apply to Class B shares of PaineWebber Money Market Fund that are
acquired directly through an exchange for the Fund's Class B shares. However,
Class B shares of the other PaineWebber mutual funds have higher contingent
deferred sales charges than Class B shares of the Fund and such charges are
imposed over a longer period. Class B shareholders exercising the exchange
privilege to acquire Class B shares of one of these other funds will be subject
to the higher contingent deferred sales charge schedule of the Class B shares
being acquired, and Class B shareholders of one of these other funds exercising
the exchange privilege to acquire Class B shares of the Fund will continue to
be subject to the higher contingent deferred sales charge.

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

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

Fund shares may be redeemed at their net asset value (subject to any applicable
contingent deferred sales charge) and redemption proceeds will be paid after
receipt of a redemption request, as described below. PaineWebber clients may
redeem shares through PaineWebber or its correspondent firms; all other
shareholders must redeem through the Transfer Agent. If a redeeming shareholder
owns shares of more than one Class, the shares will be redeemed in the
following order unless the shareholder specifically requests otherwise: Class A
shares, then Class C shares, and finally Class B shares.

REDEMPTION THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. PaineWebber clients may
submit redemption requests to their investment executives or correspondent
firms in person or by

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<PAGE>

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

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

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

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

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

Because the Fund incurs certain fixed costs in maintaining shareholder
accounts, 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 the Fund elects to do so, it will notify the
shareholder and provide the shareholder the opportunity to increase the amount
invested to the minimum required level or more within 60 days of the notice.
The Fund will not redeem accounts that fall below the minimum required level
solely as a result of a reduction in net asset value per share.

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

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

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

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

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

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

AUTOMATIC INVESTMENT PLAN. Shareholders may purchase shares of the Fund through
an automatic investment plan, under which an amount specified by the
shareholder of $50 or more each month will be sent to the Transfer Agent from
the shareholder's bank for investment in the Fund. In addition to providing a
convenient and disciplined manner of investing, participation in the automatic
investment plan enables the investor to use the technique of "dollar cost
averaging." When under the plan a shareholder invests the same dollar amount
each month, the shareholder will purchase more shares when the Fund's net asset
value per share is low and fewer shares when the net asset value per share is
high. Using this technique, a shareholder's average purchase price per share
over any given period will be lower than if the shareholder purchased a fixed
number of shares on a monthly basis during the period. Of course, investing
through the automatic investment plan does not assure a profit or protect
against loss in declining markets. Additionally, since the automatic investment
plan involves continuous investing regardless of price levels, an investor
should consider his or her financial ability to continue purchases through
periods of low price levels.

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

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

ordinarily disadvantageous to shareholders because of tax liabilities and, for
Class A shares, sales charges.

INDIVIDUAL RETIREMENT ACCOUNTS. Fund shares may be purchased through IRAs
available through the Fund or PaineWebber. In addition, a Self-Directed IRA is
available through PaineWebber under which investments may be made in the Fund
as well as in other investments available through PaineWebber. Investors
considering establishing an IRA should review applicable tax laws and should
consult their tax advisers.

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

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

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

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

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

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

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

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

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

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

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

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

The foregoing is only a summary of some of the important federal tax
considerations generally affecting the Fund and its shareholders; see the
Statement of Additional Information for a further discussion. There may be
other federal, state or local tax considerations applicable to a particular
investor. Prospective shareholders are therefore urged to consult their tax
advisers.
- --------------------------------------------------------------------------------
Valuation of Shares
- --------------------------------------------------------------------------------
The net asset value of the Fund's shares fluctuates and is determined
separately for each Class as of the close of regular trading on the NYSE
(currently 4:00 p.m., Eastern time) each Business Day. Net asset value per
share is determined by dividing the value of the securities held by the Fund
plus any cash or other assets minus all liabilities by the total number of Fund
shares outstanding.

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

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

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

Mitchell Hutchins supervises the activities of PIMCO which, as sub-adviser for
the Fund makes and implements all investment decisions for the Fund. Under the
sub-advisory contract, Mitchell Hutchins (not the Fund) pays PIMCO a fee for
its services as sub-adviser for the Fund in the amount of 0.25% of the Fund's
average daily net assets.

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

Mitchell Hutchins is located at 1285 Avenue of the Americas, New York, New York
10019. It is a wholly owned subsidiary of PaineWebber, which is in turn a
wholly owned subsidiary of Paine Webber Group Inc., a publicly owned financial
services holding company. As of October 31, 1995, Mitchell Hutchins was adviser
or sub-adviser of 38 investment companies with 75 separate portfolios and
aggregate assets of over $29 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 October 31, 1995, PIMCO had approximately $69.8
billion in assets under management and was adviser or sub-adviser of 11
investment companies with 36 portfolios and aggregate assets of approximately
$18.7 billion. PIMCO is one of the largest fixed income management firms in the
nation. Included among PIMCO's institutional clients are many "Fortune 500"
companies.

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

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

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

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

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

------------------
Prospectus Page 25
<PAGE>

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

PaineWebber's distribution activities, including employee salaries, bonuses and
other overhead expenses.

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

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

During the period they are in effect, the Plans and related distribution
contracts pertaining to each Class of Fund shares ("Distribution Contracts")
obligate the Fund to pay service and distribution fees to Mitchell Hutchins as
compensation for its service and distribution activities, not as reimbursement
for specific expenses incurred. Thus, even if Mitchell Hutchins' expenses
exceed its service or distribution fees, the Fund will not be obligated to pay
more than those fees, and, if Mitchell Hutchins' expenses are less than such
fees, it will retain its full fees and realize a profit. The Fund will pay the
service and distribution fees to Mitchell Hutchins until either the applicable
Plan or Distribution Contract is terminated or not renewed. In that event,
Mitchell Hutchins' expenses in excess of service and distribution fees received
or accrued through the termination date will be Mitchell Hutchins' sole
responsibility and not obligations of the Fund. In their annual consideration
of the continuation of each Plan, the trustees will review the Plan and
Mitchell Hutchins' corresponding expenses for each Class separately from the
Plans and corresponding expenses for the other two Classes.
- --------------------------------------------------------------------------------
Performance Information
- --------------------------------------------------------------------------------
The Fund performs a standardized computation of annualized total return and may
show this return in advertisements or promotional materials. Standardized
return shows the change in value of an investment in the Fund as a steady
compound annual rate of return. Actual year-by-year returns fluctuate and may
be higher or lower than standardized return. Standardized return for the Class
A shares reflects deduction of the Fund's maximum initial sales charge at the
time of purchase, and standardized return for the Class B shares and Class C
shares reflects deduction of the applicable contingent deferred sales charge
imposed on a redemption of shares held for the period. One-, five- and ten-year
periods will be shown, unless the Class has been in existence for a shorter
period. Total return calculations assume reinvestment of dividends and other
distributions.

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

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

Total return and yield information reflect past performance and do not
necessarily indicate future results. Investment return and principal values
will fluctuate, and proceeds upon redemption may be more or less than a
shareholder's cost.

------------------
Prospectus Page 26
<PAGE>

---------------------------------------------
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
General Information
- --------------------------------------------------------------------------------

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

The shares of beneficial interest of the Fund are divided into four Classes,
designated Class A shares, Class B shares, Class C shares and Class Y shares.
Each Class represents interests in the same assets of the Fund. Classes 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 are subject to an
initial sales charge, (3) Class B shares bear ongoing distribution fees, are
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, which may be offered only to limited classes of investors, are
subject to neither an initial or contingent deferred sales charge nor ongoing
service or distribution fees. The board of trustees of the Trust does not
anticipate that there will be any conflicts among the interests of the holders
of the different Classes of shares of the Fund. On an ongoing basis, the board
of trustees will consider whether any such conflict exists and, if so, take
appropriate action.

The different sales charges and other expenses applicable to the different
classes of Fund shares may affect the performance of those classes. More
information concerning Class Y shares of the Fund 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 holding office have been elected by shareholders. Shareholders of
record holding at least two-thirds of the outstanding shares of the Trust may
remove a trustee by votes cast in person or by proxy at a meeting called for
that purpose. The trustees are required to call a meeting of shareholders for
the purpose of voting upon the question of removal of any trustee when so
requested in writing by shareholders of record holding at least 10% of the
Trust's outstanding shares. Each share of the Fund has equal voting rights,
except as noted above. Each share of the Fund is entitled to participate
equally in dividends and other distributions and the proceeds of any
liquidation, except that, due to the differing expenses borne by the four
Classes, these dividends and proceeds on the Class B and Class C shares are
likely to be lower than on the Class A shares and are likely to be lower on
every other Class of shares than for Class Y shares. The shares of the Fund and
the other series of the Trust will be voted separately except when an aggregate
vote of all series is required by the Investment Company Act of 1940 ("1940
Act").

To avoid additional operating costs and for investor convenience, the Fund does
not issue share certificates. Ownership of the Fund's shares is recorded on a
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 the custodian of the Fund's
assets. PFPC Inc., a subsidiary of PNC Bank, National Association, whose
principal business address is 400 Bellevue Parkway, Wilmington, Delaware 19809,
is the Fund's transfer and dividend disbursing agent.

------------------
Prospectus Page 27
<PAGE>

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

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

------------------
Prospectus Page 28
<PAGE>

---------------------------------------------
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
Appendix A
Types of Mortgage-Backed Securities
- --------------------------------------------------------------------------------

GINNIE MAE CERTIFICATES

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

FANNIE MAE CERTIFICATES

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

FREDDIE MAC CERTIFICATES

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

PRIVATE, RTC AND SIMILAR MORTGAGE-BACKED SECURITIES

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

------------------
Prospectus Page 29
<PAGE>

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

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

COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS MORTGAGE PASS-THROUGHS

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

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

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

ARM AND FLOATING RATE MORTGAGE-BACKED SECURITIES

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

TYPES OF CREDIT ENHANCEMENT

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

------------------
Prospectus Page 30
<PAGE>

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

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

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

SPECIALLY STRUCTURED CMOS AND NEW TYPES OF MORTGAGE-BACKED SECURITIES

The Fund may not invest in IOs, POs, or inverse floating rate CMOs. However the
Fund may invest in other specially structured CMO classes. See "Risk Factors
and Other Investment Policies--Risks of Mortgage- and Asset-Backed Securities."

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

------------------
Prospectus Page 31
<PAGE>

---------------------------------------------
PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND
Appendix B
- --------------------------------------------------------------------------------

THE FUND MAY USE THE FOLLOWING INSTRUMENTS:

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

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

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

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

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

------------------
Prospectus Page 32
<PAGE>

Application Form

THE PAINEWEBBER
MUTUAL FUNDS [ ] [ ] - [ ] [ ] [ ] [ ] - [ ] [ ]
PaineWebber Account No.
- --------------------------------------------------------------------------------
INSTRUCTIONS DO NOT USE THIS FORM IF YOU WOULD LIKE YOUR ACCOUNT SERVICED
THROUGH PAINEWEBBER. INSTEAD, CALL YOUR PAINEWEBBER INVESTMENT
EXECUTIVE (OR YOUR LOCAL PAINEWEBBER OFFICE TO OPEN AN ACCOUNT).
ALSO, DO NOT USE THIS FORM TO OPEN A Return this completed
RETIREMENT PLAN ACCOUNT. FOR form to: PFPC Inc. P.O.
RETIREMENT PLAN FORMS OR FOR Box 8950 Wilmington,
ASSISTANCE IN COMPLETING THIS FORM Delaware 19899 ATTN:
CONTACT PFPC INC. AT 1-800-647-1568. PaineWebber Mutual Funds
PLEASE PRINT
- --------------------------------------------------------------------------------
---------------------------------
[1] INITIAL INVESTMENT ($100 MINIMUM)
---------------------------------
ENCLOSED IS A CHECK FOR $_______ (payable to PaineWebber
Low Duration U.S. Government Income Fund) to purchase
Class A [_] Class B [_] or Class C [_] shares
(Check one; if no Class is specified Class A shares will be
purchased)

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

- --As custodian
for a minor,
use Lines 1
and 3
2. Joint Tenancy
----------- --------- ---- -------/-----/----
First Name Last Name MI Soc. Sec. No.
("Joint Tenants with Rights of Survivorship" unless
otherwise specified)

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

Under the Uniform Gifts Uniform
--------- to Minors Act / Transfers to
State of Residence Minors Act
of Minor

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

5. If Trust, Date of Trust Instrument: _______

-------
[3] ADDRESS
-------

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

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

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

[ ]Reinvest both dividends and capital gain distributions in
additional shares

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

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

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

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

[ ] Prototype IRA [ ] Automatic [ ] Systematic With-
Application Investment drawal Plan
Plan

-----------------------------------------------------
[6] RIGHTS OF ACCUMULATION--CLASS A SHARES See Prospectus
-----------------------------------------------------
Indicate here any other account(s) in
the group of funds that qualify for the
cumulative quantity discount as outlined
in the Prospectus.

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

------------------------------------------------------------
[7] PLEASE INDICATE BELOW IF YOU ARE AFFILIATED WITH PAINEWEBBER
------------------------------------------------------------
"Affiliated" persons are defined as officers,
directors/trustees and employees of the PaineWebber funds,
PaineWebber or its affiliates, and their parents, spouses
and children.

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

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

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

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

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

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

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

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

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

Shares of the Fund can be exchanged for shares of other PaineWebber mutual
funds, which include:

PAINEWEBBER INCOME FUNDS

. Global Income Fund
. High Income Fund
. Investment Grade Income Fund
. Strategic Income Fund
. U.S. Government Income Fund

PAINEWEBBER TAX-FREE INCOME FUNDS

. California Tax-Free Income Fund
. Municipal High Income Fund
. National Tax-Free Income Fund
. New York Tax-Free Income Fund

PAINEWEBBER GROWTH FUNDS

. Capital Appreciation Fund
. Emerging Markets Equity Fund
. Global Equity Fund
. Growth Fund
. Regional Financial Growth Fund
. Small Cap Growth Fund
. Small Cap Value Fund

PAINEWEBBER GROWTH AND INCOME FUNDS

. Balanced Fund
. Growth and Income Fund
. Tactical Allocation Fund
. Utility Income Fund

PW MONEY MARKET FUND

----------

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

[LOGO FOR RECYCLED PAPER]

PaineWebber
Low Duration
U.S. Government
Income Fund

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

PROSPECTUS
November 10, 1995

<PAGE>

PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019

STATEMENT OF ADDITIONAL INFORMATION

PaineWebber Low Duration U.S. Government Income Fund ("Fund") is a
diversified series of a professionally managed, open-end management investment
company organized as a Massachusetts business trust ("Trust"). The Fund seeks
high current income consistent with the preservation of capital and low
volatility of net asset value; it invests primarily in mortgage-backed
securities that are issued or guaranteed by the U.S. government, its agencies
or instrumentalities and other U.S. government securities. The Fund's
investment adviser, administrator and distributor is Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins"), a wholly owned subsidiary of PaineWebber
Incorporated ("PaineWebber"). As distributor for the Fund, Mitchell Hutchins
has appointed PaineWebber to serve as the exclusive dealer for the sale of Fund
shares. The Fund's investment sub-adviser is Pacific Investment Management
Company ("PIMCO"). This Statement of Additional Information is not a prospectus
and should be read only in conjunction with the Fund's current Prospectus,
dated November 10, 1995. A copy of the Prospectus may be obtained by calling
any PaineWebber investment executive or correspondent firm or by calling toll-
free 1-800-647-1568. This Statement of Additional Information is dated November
10, 1995, as revised December 1, 1995.

INVESTMENT POLICIES AND RESTRICTIONS

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

YIELD FACTORS AND RATINGS. Standard & Poor's, 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 mortgage- and asset-
backed securities and other debt obligations. The Fund may use these ratings in
determining whether to purchase, sell or hold a security.

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

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

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

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

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

2
<PAGE>

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

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

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

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

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

3
<PAGE>

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

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

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

4
<PAGE>

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

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

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

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

Repurchase agreements carry certain risks not associated with direct
investments in securities, including possible declines in the market value of
the underlying securities and delays and costs to the Fund if the other party
to a repurchase agreement becomes insolvent. The Fund intends to

5
<PAGE>

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

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

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

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

INVESTMENT LIMITATIONS. The Fund may not (1) purchase the securities of any
issuer if as a result more than 5% of the total assets of the Fund would be
invested in the securities of that issuer; provided that securities issued or
guaranteed by the U.S. government, its agencies and instrumentalities are not
subject to this limitation and further provided that up to 25% of the value of
the Fund's assets may be invested without regard to this limitation; (2) issue
senior securities or

6
<PAGE>

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

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

7
<PAGE>

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

HEDGING AND RELATED INCOME STRATEGIES

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

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

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

8
<PAGE>

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

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

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

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

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

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

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

9
<PAGE>

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

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

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

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

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

10
<PAGE>

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

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

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

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

11
<PAGE>

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

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

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

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

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

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

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

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

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

12
<PAGE>

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

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

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

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

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

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

13
<PAGE>

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

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

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

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

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

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

14
<PAGE>

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

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

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

15
<PAGE>

TRUSTEES AND OFFICERS

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

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME, AGE AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ---------- --------------------
<S> <C> <C>
E. Garrett Bewkes, Jr.; 69** Trustee and Chairman Mr. Bewkes is a director and a
of the Board of consultant to Paine Webber Group
Trustees Inc. ("PW Group") (holding com-
pany of PaineWebber and Mitchell
Hutchins). 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 In-
terstate Bakeries Corporation,
NaPro BioTherapeutics, Inc. and a
director or trustee of 24 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Meyer Feldberg; 53 Trustee Mr. Feldberg is Dean and Professor
Columbia University of Management of the Graduate
101 Uris Hall School of Business, Columbia Uni-
New York, New York 10027 versity. Prior to 1989, he was
president of the Illinois Insti-
tute of Technology. Dean Feldberg
is also a director of AMSCO In-
ternational Inc., Federated De-
partment Stores, Inc., and New
World Communications Group Incor-
porated and a director or trustee
of 16 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>

16
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME, AGE AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ---------- --------------------
<S> <C> <C>
George W. Gowen; 66 Trustee Mr. Gowen is a partner in the law
666 Third Avenue firm of Dunnington, Bartholow &
New York, New York 10017 Miller. Prior to May 1994, he was
a partner in the law firm of Fry-
er, Ross & Gowen. Mr. Gowen is
also a director of Columbia Real
Estate Investments, Inc. and a
director or trustee of 14 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Frederic V. Malek; 58 Trustee Mr. Malek is chairman of Thayer
901 15th Street, N.W. Capital Partners (investment
Suite 300 bank) and a co-chairman and di-
Washington, D.C. 20005 rector of CB Commercial Group
Inc. (real estate). From January
1992 to November 1992, he was
campaign manager of Bush-Quayle
'92. From 1990 to 1992, he was
vice chairman and, from 1989 to
1990, he was president of North-
west Airlines Inc., NWA Inc.
(holding company of Northwest
Airlines Inc.) and Wings Holdings
Inc. (holding company of NWA
Inc.). Prior to January 1989, he
was employed by the Marriott Cor-
poration (hotels, restaurants,
airline catering and contract
feeding), where he most recently
was an executive vice president
and president of Marriott Hotels
and Resorts. Mr. Malek is also a
director of American Management
Systems, Inc., Automatic Data
Processing, Inc., Avis, Inc., FPL
Group, Inc., ICF International,
Manor Care, Inc., National Educa-
tion Corporation and Northwest
Airlines Inc. and a director or
trustee of 14 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>

17
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME, AGE AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ---------- --------------------
<S> <C> <C>
Judith Davidson Moyers; 60 Trustee Mrs. Moyers is president of Public
Public Affairs Affairs Television, Inc., an edu-
Television cational consultant and a home
356 W. 58th Street economist. Mrs. Moyers is also a
New York, New York 10019 director of Ogden Corporation and
a director or trustee of 14 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Margo N. Alexander; 48 President Mrs. Alexander is president, chief
executive officer and a director
of Mitchell Hutchins. Prior to
January 1995, Mrs. Alexander was
an executive vice president of
PaineWebber. Mrs. Alexander is
also a director or trustee of two
investment companies and presi-
dent of 31 other investment com-
panies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Julieanna Berry; 32 Vice President Ms. Berry is a vice president and
portfolio manager of Mitchell
Hutchins.
Teresa M. Boyle; 37 Vice President Ms. Boyle is a first vice presi-
dent and manager--advisory admin-
istration of Mitchell Hutchins.
Prior to November 1993, she was
compliance manager of Hyperion
Capital Management, Inc., an in-
vestment advisory firm. Prior to
April 1993, Ms. Boyle was a vice
president and manager--legal ad-
ministration of Mitchell
Hutchins. Ms. Boyle is also a
vice president of 31 other in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Gigi L. Capes; 31 Vice President and Ms. Capes is a vice president and
Assistant Treasurer the tax manager of the mutual
fund finance division of Mitchell
Hutchins. Prior to 1992, she was
a tax senior consultant with KPMG
Peat Marwick. Ms. Capes is also a
vice president and assistant
treasurer 31 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>

18
<PAGE>

<TABLE>
<CAPTION>
NAME, AGE AND POSITION BUSINESS EXPERIENCE;
ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
- ------------- ---------- --------------------
<S> <C> <C>
Joan L. Cohen; 31 Vice President and Ms. Cohen is a vice president and
Assistant Secretary attorney of Mitchell Hutchins.
Prior to December 1993, she was
an associate at the law firm of
Seward & Kissel. Ms. Cohen is
also a vice president and assis-
tant secretary of 24 other in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Karen L. Finkel; 37 Vice President Mrs. Finkel is a first vice presi-
dent and portfolio manager of
Mitchell Hutchins. Mrs. Finkel is
also a vice president of one
other investment company for
which Mitchell Hutchins serves as
investment adviser.
Ellen R. Harris; 49 Vice President Ms. Harris is chief domestic eq-
uity strategist and a managing
director of Mitchell Hutchins.
Ms. Harris is also a vice presi-
dent of two other investment com-
panies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Mary B. King; 31 Vice President Mrs. King is a first vice presi-
dent and a portfolio manager of
Mitchell Hutchins. Mrs. King is
also a vice president of one
other investment company for
which Mitchell Hutchins serves as
investment adviser.
Thomas J. Libassi; 36 Vice President Mr. Libassi is a senior vice pres-
ident of Mitchell Hutchins. Prior
to May 1994, he was a vice presi-
dent of Keystone Custodian Funds
Inc. with portfolio management
responsibility. Mr. Libassi is
also a vice president of three
other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>

19
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME, AGE AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ---------- --------------------
<S> <C> <C>
C. William Maher; 34 Vice President and Mr. Maher is a first vice presi-
Assistant Treasurer dent and a senior manager of the
mutual fund finance division of
Mitchell Hutchins. Mr. Maher is
also a vice president and assis-
tant treasurer of 31 other in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Dennis McCauley; 49 Vice President Mr. McCauley is a managing direc-
tor and Chief Investment Offi-
cer--Fixed Income of Mitchell
Hutchins. Prior to December 1994,
he was Director of Fixed Income
Investments of IBM Corporation.
Mr. McCauley is also a vice pres-
ident of 17 other investment com-
panies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Ann E. Moran; 38 Vice President and Ms. Moran is a vice president of
Assistant Treasurer Mitchell Hutchins. Ms. Moran is
also a vice president and assis-
tant treasurer of 31 other in-
vestment 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
Secretary president and deputy general
counsel of Mitchell Hutchins. Ms.
O'Donnell is also a vice presi-
dent and secretary of 31 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Victoria E. Schonfeld; Vice President Ms. Schonfeld is a managing direc-
44 tor and general counsel of Mitch-
ell Hutchins. From April 1990 to
May 1994, she was a partner in
the law firm of Arnold & Porter.
Prior to April 1990, she was a
partner in the law firm of
Shereff, Friedman, Hoffman &
Goodman. Ms. Schonfeld is also a
vice president of 31 other in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>

20
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME, AGE AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ---------- --------------------
<S> <C> <C>
Paul H. Schubert; 33 Vice President and Mr. Schubert is a first vice pres-
Assistant Treasurer ident and a senior manager of the
mutual fund finance division of
Mitchell Hutchins. From August
1992 to August 1994, he was a
vice president at BlackRock Fi-
nancial Management, L.P. Prior to
August 1992, he was an audit man-
ager with Ernst & Young LLP. Mr.
Schubert is also a vice president
and assistant treasurer of 31
other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Nirmal Singh; 39 Vice President Mr. Singh is a first vice presi-
dent of Mitchell Hutchins. Prior
to September 1993, he was a mem-
ber of the portfolio management
team at Merrill Lynch Asset Man-
agement Inc. Mr. Singh is also
vice president of five other in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Julian F. Sluyters; 35 Vice President and Mr. Sluyters is a senior vice
Treasurer president and the director of the
mutual fund finance division of
Mitchell Hutchins. Prior to 1991,
he was an audit senior manager
with Ernst & Young LLP. Mr.
Sluyters is also a vice president
and treasurer of 31 other invest-
ment 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 Mitch-
ell Hutchins. Prior to March
1995, he was a vice president and
directed the U.S. funds manage-
ment and equity research areas of
Chase Manhattan Private Bank. Mr.
Tincher is also vice president of
ten other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>

21
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME, AGE AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ---------- --------------------
<S> <C> <C>
Gregory K. Todd; 38 Vice President and Mr. Todd is a first vice president
Assistant Secretary and associate general counsel of
Mitchell Hutchins. Prior to 1993,
he was a partner in the law firm
of Shereff, Friedman, Hoffman &
Goodman. Mr. Todd is also a vice
president and assistant secretary
of 31 other 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 of Mitchell Hutchins.
Mr. Varrelman is also vice presi-
dent of four other 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 presi-
Assistant Secretary dent and associate general coun-
sel of Mitchell Hutchins. From
September 1987 to May 1995, he
was an attorney in private prac-
tice. Mr. Weller is also a vice
president and assistant secretary
of 23 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>
- --------
* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.
** Mr. Bewkes is an "interested person" of the Trust as defined in the
Investment Company Act of 1940 ("1940 Act") by virtue of his position with PW
Group.

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

22
<PAGE>

The table below includes certain information relating to the compensation of
the Trust's Trustees.

COMPENSATION TABLE

<TABLE>
<CAPTION>
PREFERRED
OR TOTAL
RETIREMENT COMPENSATION
BENEFITS FROM THE
ACCRUED AS TRUST AND
AGGREGATE PART OF ESTIMATED THE
COMPENSATION THE ANNUAL FUND COMPLEX
FROM TRUST'S BENEFITS UPON PAID TO
NAME OF PERSON, POSITION THE TRUST* EXPENSES RETIREMENT TRUSTEES+
------------------------ ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C>
E. Garrett Bewkes, Jr.
Trustee and chairman of the
board of trustees......... -- -- -- --
Meyer Feldberg,
Trustee.................... $10,250 -- -- $86,050
George W. Gowen,
Trustee.................... $ 9,250 -- -- $71,425
Frederic V. Malek,
Trustee.................... $ 9,750 -- -- $77,875
Judith Davidson Moyers,
Trustee.................... $ 9,750 -- -- $71,125
</TABLE>
- --------
* Represents fees paid to each trustee during the fiscal year ended November
30, 1994.
+ Represents total compensation paid to each trustee during the calendar year
ended December 31, 1994.

INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS

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

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

23
<PAGE>

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

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

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

24
<PAGE>

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

The following table shows the approximate net assets as of October 31, 1995,
sorted by category of investment objective, of the investment companies as to
which Mitchell Hutchins serves as adviser or sub-adviser. An investment company
may fall into more than one of the categories below.

<TABLE>
<CAPTION>
NET
ASSETS
INVESTMENT CATEGORY ($ MIL)
------------------- -------
<S> <C>
Domestic (excluding Money Market)............................... $ 5,680.0
Global.......................................................... 2,893.3
Equity/Balanced................................................. 2,748.3
Fixed Income (excluding Money Market)........................... 5,825.0
Taxable Fixed Income.......................................... 4,083.1
Tax-Free Fixed Income......................................... 1,741.9
Money Market Funds.............................................. 20,479.4
</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 and other Mitchell
Hutchins advisory clients.

25
<PAGE>

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 A, Class B and Class C shares of the Fund under separate distribution
contracts with the Trust dated July 7, 1993 and November 10, 1995,
(collectively, "Distribution Contracts") that require Mitchell Hutchins to use
its best efforts, consistent with its other businesses, to sell shares of the
Fund. Shares of the Fund are offered continuously. Under separate exclusive
dealer agreements between Mitchell Hutchins and PaineWebber dated July 7, 1993
and November 10, 1995 relating to the Class A, Class B and Class C shares of
the Fund (collectively, "Exclusive Dealer Agreements"), PaineWebber and its
correspondent firms sell the Fund's shares.

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

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

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

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

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

26
<PAGE>

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

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

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

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

In approving the Class A Plan for the Fund, the trustees considered all the
features of the distribution system, including (1) the conditions under which
initial sales charges would be imposed and the amount of such charges, (2)
Mitchell Hutchins' belief that the initial sales load combined with a service
fee would be attractive to PaineWebber investment executives and correspondent
firms, resulting in greater growth of the Fund than might otherwise be the
case, (3) the advantages to the shareholders of economies of scale resulting
from growth in the Fund's assets and potential

27
<PAGE>

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

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

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

With respect to each Plan, the trustees considered all compensation that
Mitchell Hutchins would receive under the Plan and the Distribution Contract,
including service fees and, as applicable, initial sales charges, distribution
fees and contingent deferred sales charges. The trustees also considered the
benefits that would accrue to Mitchell Hutchins under each Plan in that
Mitchell

28
<PAGE>

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

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

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

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

PORTFOLIO TRANSACTIONS

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

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

29
<PAGE>

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

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

Consistent with the interests of the Fund and subject to the review of the
Trust's board of trustees, PIMCO may 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 PIMCO determines in good faith that such commission is
reasonable in terms either of that particular transaction or of the overall
responsibility of PIMCO to the Fund and its other clients and that the total
commissions paid by the Fund will be reasonable in relation to the benefits to
the Fund over the long term. During the fiscal year ended November 30, 1994,
neither Mitchell Hutchins nor PIMCO directed any portfolio transactions for the
Fund to brokers chosen because they provided research services.

For purchases or sales with broker-dealer firms which act as principal, PIMCO
seeks best execution. Although PIMCO may receive certain research or execution
services in connection with these transactions, Mitchell Hutchins will not
purchase securities at a higher price or sell securities at a lower price than
would otherwise be paid if no weight was attributed to the services provided by
the executing dealer. Moreover, PIMCO will not enter into any explicit soft
dollar arrangements relating to principal transactions and will not receive in
principal transactions the types of services which could be purchased for hard
dollars. PIMCO may engage in agency transactions in OTC 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 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 the Fund effects securities transactions may be used by PIMCO in
advising other funds or accounts and, conversely, research services furnished
to PIMCO by dealers or brokers in connection with other funds or accounts PIMCO
advises may be used by PIMCO in advising the 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 Fund and for other investment accounts managed
by PIMCO are made independently of each other in light of differing
considerations for the various accounts. However, the same investment decision
may occasionally be made for the Fund and one or more of such accounts. In such
cases, simultaneous transactions are inevitable. Purchases or sales are then

30
<PAGE>

averaged as to price and allocated between the Fund and such other account(s)
as to amount according to a formula deemed equitable to the Fund and such
account(s). While in some cases this practice could have a detrimental effect
upon the price or value of the security as far as the Fund is concerned, or
upon its ability to complete its entire order, in other cases it is believed
that coordination and the ability to participate in volume transactions will be
beneficial to the Fund.

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

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

31
<PAGE>

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

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

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

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

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

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

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

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

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

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

(h) Individual accounts related together under one registered investment
adviser having full discretion and control over the accounts. The
registered investment adviser must communicate at least quarterly through a
newsletter or investment update establishing a relationship with all of the
accounts.

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

WAIVERS OF SALES CHARGES--CLASS B SHARES. Among other circumstances, the
contingent deferred sales charge on Class B shares is waived where a total or
partial redemption is made within one year following the death of the
shareholder. The contingent deferred sales charge waiver is

32
<PAGE>

available where the decedent is either the individual shareholder or owns the
shares with his or her spouse as a joint tenant with right of survivorship.
This waiver applies only to redemption of shares held at the time of death.

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

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

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

SYSTEMATIC WITHDRAWAL PLAN. On or about the 15th of each month for monthly
plans and on or about the 15th of the months selected for quarterly or semi-
annual plans, PaineWebber will arrange for redemption by the Fund of sufficient
Fund shares to provide the withdrawal payment specified by participants in the
Fund's systematic withdrawal plan. The payment generally is mailed
approximately five Business days after the redemption date. Withdrawal payments
should not be

33
<PAGE>

considered dividends, but redemption proceeds, with the tax consequences
described under "Dividends and Taxes" in the Prospectus. If periodic
withdrawals continually exceed reinvested dividends, a shareholder's investment
may be correspondingly reduced. A shareholder may change the amount of the
systematic withdrawal or terminate participation in the systematic withdrawal
plan at any time without charge or penalty by written instructions with
signatures guaranteed to PaineWebber or PFPC Inc. ("Transfer Agent").
Instructions to participate in the plan, change the withdrawal amount or
terminate participation in the plan will not be effective until five days after
written instructions with signatures guaranteed are received by the Transfer
Agent. Shareholders may request the forms needed to establish a systematic
withdrawal plan from their PaineWebber investment executives, correspondent
firms or the Transfer Agent at 1-800-647-1568.

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

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

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

To participate in the Plan, an investor must be an RMA accountholder, must
have made an initial purchase of the shares of each PW Fund selected for
investment under the Plan (meeting applicable minimum investment requirements)
and must complete and submit the RMA Resource Accumulation Plan Client
Agreement and Instruction Form available from PaineWebber. The

34
<PAGE>

investor must have received a current prospectus for each PW Fund selected
prior to enrolling in the Plan. Information about mutual fund positions and
outstanding instructions under the Plan are noted on the RMA accountholder's
account statement. Instructions under the Plan may be changed at any time, but
may take up to two weeks to become effective.

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

PERIODIC INVESTING AND DOLLAR COST AVERAGING.

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

PAINEWEBBER'S RESOURCE MANAGEMENT ACCOUNT.

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

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

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

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

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

35
<PAGE>

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

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

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

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

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

CONVERSION OF CLASS B SHARES

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

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

36
<PAGE>

VALUATION OF SHARES

The Fund determines its net asset value per share separately for each Class
of shares as of the close of regular trading (currently 4:00 p.m., Eastern
time) on the 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 PIMCO, the fair value of the security. Where such
market quotations are not readily available, securities are valued at fair
value as determined in good faith by or under the direction of the Trust's
board of trustees, generally based upon appraisals received from a pricing
service using a computerized matrix system or derived from information
concerning the security or similar securities received from recognized dealers
in those securities. The amortized cost method of valuation generally is used
with respect to debt obligations with 60 days or less remaining until maturity
unless the Trust's board of trustees determines that this does not represent
fair value.

PERFORMANCE INFORMATION

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

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

P(1 + T)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.

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

The Fund also may refer in Performance Advertisements to total return
performance data that are not calculated according to the formula set forth
above ("Non-Standardized Return"). The Fund

37
<PAGE>

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. Neither initial nor contingent
deferred sales charges are taken into account in calculating Non-Standardized
Return; the inclusion of those charges would reduce the return.

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

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

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Fiscal year ended November 30, 1994:
Standardized Return*............................... (7.48)% (8.24)% (5.74)%
Non-Standardized Return............................ (4.50)% (5.24)% (4.99)%
Inception** to November 30, 1993:
Standardized Return*............................... (3.66)% (4.39)% (2.21)%
Non-Standardized Return............................ (1.72)% (2.45)% (2.21)%
</TABLE>
- --------
* All Standardized Return figures for Class A shares reflect deduction of the
current maximum sales charge of 3%. All Standardized Return figures for Class
B and Class C shares reflect deduction of the applicable contingent deferred
sales charges imposed on a redemption of shares held for the period.
** The inception date for Class A, Class B and Class C shares is May 3, 1993.

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

YIELD a-b
= 2[(--- + 1)/6/ - 1]
cd
<TABLE>
<C> <C> <S>
where: a = interest earned during the Period attributable to a Class of
shares
b = expenses accrued for the Period attributable to a Class of shares
(net of reimbursements)
c = the average daily number of shares of the Class outstanding
during the Period that were entitled to receive dividends
d = the maximum offering price per share (in the case of Class A
shares) or the net asset value per share (in the case of Class B
and Class C shares) on the last day of the Period.
</TABLE>

38
<PAGE>

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

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

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

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

39
<PAGE>

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

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

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

TAXES

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

40
<PAGE>

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

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

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

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

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

41
<PAGE>

than the total amount of cash it actually receives. Those distributions will be
made from the Fund's cash assets or from the proceeds of sales of portfolio
securities, if necessary. The Fund may realize capital gains or losses from
those sales, which would increase or decrease the Fund's investment company
taxable income or net capital gain (the excess of net long-term capital gain
over net short-term capital loss). In addition, any such gains may be realized
on the disposition of securities held for less than three months. Because of
the Short-Short Limitation, any such gains would reduce the Fund's ability to
sell other securities, or certain options or futures, held for less than three
months that it might wish to sell in the ordinary course of its portfolio
management.

OTHER INFORMATION

PAINEWEBBER MANAGED INVESTMENTS TRUST. Prior to February 26, 1992, the
Trust's name was "PaineWebber Fixed Income Portfolios." Prior to October 20,
1995, the Fund was known as the "PaineWebber Short-Term U.S. Government Income
Fund." Prior to November 10, 1995, the Fund's Class C shares were known as
"Class D" shares.

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

CLASS-SPECIFIC EXPENSES. The Fund may determine to allocate certain of its
expenses (in addition to distribution fees) to the specific Classes of the
Fund's shares to which those expenses are attributable. For example, Class B
shares of the Fund bear higher transfer agency fees per shareholder account
than those borne by Class A or Class C shares. The higher fee is imposed due to
the higher costs incurred by the transfer agent in tracking shares subject to a
contingent deferred sales charge because, upon redemption, the duration of the
shareholder's investment must be determined in order to determine the
applicable charge. Moreover, the tracking and calculations required by the
automatic conversion feature of the Class B shares will cause the transfer
agent to incur additional costs. Although the transfer agency fee will differ
on a per account basis as stated above, the specific extent to which the
transfer agency fees will differ between the Classes as a percentage of net
assets is not certain, because the fee as a percentage of net assets will be
affected by the number of shareholder accounts in each Class and the relative
amounts of net assets in each Class.

42
<PAGE>

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

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

FINANCIAL STATEMENTS

The Fund's Annual Report to Shareholders for the fiscal year ended November
30, 1994 and its Semi-Annual Report to Shareholders for the six months ended
May 31, 1995 are separate documents supplied with this Statement of Additional
Information and the financial statements, accompanying notes and (with respect
to the Annual Report to Shareholders) report of independent auditors appearing
therein are incorporated herein by this reference.

43
<PAGE>

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

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and Restrictions...................................... 1
Hedging and Related Income Strategies..................................... 8
Trustees and Officers..................................................... 16
Investment Advisory and Distribution Arrangements......................... 23
Portfolio Transactions.................................................... 29
Reduced Sales Charges, Additional Exchange and Redemption Information and
Other Services........................................................... 32
Conversion of Class B Shares.............................................. 36
Valuation of Shares....................................................... 37
Performance Information................................................... 37
Taxes..................................................................... 40
Other Information......................................................... 42
Financial Statements...................................................... 43
</TABLE>

[LOGO FOR RECYCLED PAPER]

PAINEWEBBER
LOW DURATION
U.S. GOVERNMENT
INCOME FUND

- --------------------------------------------------------------------------------
Statement of Additional Information
November 10, 1995, as revised
December 1, 1995
- --------------------------------------------------------------------------------

PAINEWEBBER
<PAGE>

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

PaineWebber Low Duration U.S. Government Income Fund Class Y Shares
1285 Avenue of the Americas, New York, New York 10019
Prospectus -- November 10, 1995
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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND ("Fund") is a
professionally managed series of a mutual fund seeking the highest level of
income consistent with the preservation of capital and low volatility of net
asset value.

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. See "Purchases."

- -Professional Management

- -Portfolio Diversification

- -Dividend and Capital Gain Reinvestment

- -Low Minimum Investment

- -Suitable For Retirement Plans

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A PAINEWEBBER MUTUAL FUND
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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.

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

Table of Contents
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<TABLE>
<CAPTION>
Page
----
<S> <C>
Fund Expenses.............................................................. 3
Investment Objective and Policies.......................................... 4
Purchases.................................................................. 10
Redemptions................................................................ 11
Dividends and Taxes........................................................ 12
Valuation of Shares........................................................ 13
Management................................................................. 13
Performance Information.................................................... 14
General Information........................................................ 14
Appendix A................................................................. 16
Appendix B................................................................. 19
</TABLE>

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

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

<TABLE>
<S> <C>
Shareholder Transaction Expenses
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 value of shares held)(1)............. 1.50%
Annual Fund Operating Expenses(2)
(as a percentage of average net assets)
Management fees......................................................... 0.50%
12b-1 fees.............................................................. 0.00
Other expenses (estimated).............................................. 0.13
----
Total operating expenses (estimated).................................... 0.63%
====
</TABLE>
- -------
(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
participants' PaineWebber account.
(2) See "Management" for additional information. "Other expenses" are estimated
based on the expenses incurred by the Fund's Class A shares for the fiscal
year ended November 30, 1994. Does not include the INSIGHT fee.

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 the Fund, assuming a 5%
annual return:

<TABLE>
<CAPTION>
ONE YEAR THREE YEARS
-------- -----------
<S> <C>
$22 $67
</TABLE>

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

Investment Objective and Policies
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The Fund's investment objective is to achieve the highest level of income
consistent with the preservation of capital and low volatility of net asset
value. The Fund is a diversified series of an open-end management investment
company. Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") is the
Fund's investment adviser and administrator; Pacific Investment Management
Company ("PIMCO") serves as the Fund's sub-adviser.

The Fund seeks to maximize income consistent with the preservation of capital
by investing, under normal conditions, at least 65% of its total assets in U.S.
government securities, including mortgage-backed securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities ("U.S.
government mortgage-backed securities"), other obligations issued or guaranteed
by the U.S. government, its agencies or instrumentalities and repurchase
agreements with respect to those securities. Up to 35% of the Fund's total
assets may be invested in mortgage- and asset-backed securities that are issued
by private issuers and that at the time of purchase have been rated AAA by
Standard & Poor's, a division of The McGraw Hill Companies, Inc. ("S&P"), or
Aaa by Moody's Investor Service, Inc. ("Moody's"), have an equivalent rating
from another nationally recognized statistical rating organization ("NRSRO")
or, if unrated, have been determined by PIMCO to be of comparable quality. The
Fund also may invest in money market instruments. As a matter of fundamental
policy, the Fund normally concentrates at least 25% of its total assets in
mortgage- and asset-backed securities issued or guaranteed by private issuers
or by agencies or instrumentalities of the U.S. government.

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

Asset-backed securities have structural characteristics similar to mortgage-
backed securities. However, the underlying assets are not

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

first lien mortgage loans or interests therein, but include assets such as
motor vehicle installment sales contracts, other installment loan contracts,
home equity loans, leases of various types of real and personal property and
receivables from revolving credit (credit card) agreements. Such assets are
securitized through the use of trusts or special purpose corporations. Payments
or distributions of principal and interest on asset-backed securities may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution
unaffiliated with the issuer or other credit enhancements may be present.

RISK FACTORS AND OTHERINVESTMENT POLICIES

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

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.

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

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.

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

accordance with guidelines established by the Trust's board of trustees. The
Fund would use these transactions as a hedge and not as a speculative
investment.

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

Duration allows PIMCO to make certain predictions as to the effect that changes
in the level of interest rates will have on the value of the 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 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 and 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 the Fund's portfolio may
vary in relation to interest rates by a greater of lesser percentage than
indicated by the above example.

ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in
illiquid securities. The term "illiquid securities" for this purpose means
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which the Fund has valued the
securities. Illiquid securities are considered to include, among other things,
written OTC options, certain cover for 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
and certain commercial paper that PIMCO has determined to be liquid under
procedures approved by the Trust's board of trustees).

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

DERIVATIVES. The Fund may invest in instruments or securities that commonly are
referred to as "derivatives" because their value

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

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 Fund
in hedging and related income strategies. There is only limited consensus as to
what constitutes a "derivative" security. However, in Mitchell Hutchins' view,
the derivative securities in which the Fund may invest include "stripped"
securities, such as CATS and TIGRs, and specially structured types of mortgage-
and asset-backed securities. 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 takes
these risks into account in its management of the Fund.

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. No initial or contingent deferred sales
charge 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. The 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 SystemSM 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

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

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.

ACQUISITION OF CLASS Y SHARES BY OTHERS. Certain present holders of Class Y
shares who are not current INSIGHT participants may acquire Class A shares of
the Fund without a sales charge. This category includes former employees of
Kidder, Peabody & Co., Incorporated, their associated accounts and present and
former directors and trustees of the former Kidder, Peabody mutual funds. The
Fund is authorized to offer Class Y shares to employee benefit and retirement
plans of Paine Webber Group Inc. and its affiliates and certain other
investment advisory programs that are sponsored by PaineWebber and that may
invest in PaineWebber mutual funds. At present, however, INSIGHT participants
are the only purchasers in these two categories.
- --------------------------------------------------------------------------------

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

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.

REDEMPTION THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. INSIGHT participants may
submit redemption requests to their investment executives or correspondent
firms in person or by telephone, mail or wire. As the Fund's agent, PaineWebber
may honor a redemption request by repurchasing 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 of
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 the 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 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 a Fund account be redeemed), signed by
all registered owners of the shares in the exact names in which they are
registered, (2) a guarantee of the signature of each registered owner by an
eligible 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."

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

shareholder requests redemption of shares which were purchased recently, the
Fund may delay payment until it is assured that good payment has been received.
In the case of purchases by check, this can take up to 15 days.

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

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

Dividends and other 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 capital gain distributions in cash, either
mailed to the shareholder by check or credited to the shareholder's PaineWebber
account, should contact their PaineWebber investment executives or
correspondent firms.

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

A redemption of Fund shares may result in taxable gain or loss to the redeeming
shareholder, depending upon whether the redemption proceeds are more or less
than the shareholder's adjusted basis for the redeemed shares. In addition, if
shares of the 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 purchased shares.

The foregoing is only a summary of some of the important federal tax
considerations generally

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

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

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

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

The Fund also pays PaineWebber an annual fee of $4.00 per active shareholder
account held at PaineWebber for certain services not provided by the Transfer
Agent. The Fund incurs other expenses, 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 and distributing shareholder
materials, and extraordinary expenses, including costs or losses in any
litigation.

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

was adviser or sub-adviser of 11 investment companies with 36 portfolios and
aggregate assets of approximately $18.7 billion. PIMCO is one of the largest
fixed income management firms in the nation. Included among PIMCO's
institutional clients are many "Fortune 500" companies.

Performance Information
- --------------------------------------------------------------------------------

The Fund performs a standardized computation of annualized total return and may
show this return in advertisements or promotional materials. Standardized
return shows the change in value of an investment in the Fund as a steady
compound annual rate of return. Actual year-by-year returns fluctuate and may
be higher or lower than standardized return. Standardized return for one-,
five- and ten-year periods will be shown, unless the Class has been in
existence for a shorter period. Total return calculations assume reinvestment
of dividends and other distributions.

The Fund 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.

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

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

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 redemption 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, which may be offered only to limited
classes of investors, 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 Fund shares may affect the performance of those classes. More
information concerning the other classes of shares of the Fund 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 holding office have been elected by shareholders. Shareholders of
record holding at least two-thirds of the outstanding shares of the Trust may
remove a trustee by votes cast in person or by proxy at a meeting called for
that purpose. The trustees are required to call a meeting of shareholders for
the purpose of voting upon the question of removal of any trustee when so
requested in writing by shareholders of record holding at least 10% of the
Trust's outstanding shares. Each share of the Fund has equal voting rights,
except as noted above. Each share of the Fund is entitled to participate
equally in dividends and other distributions and the proceeds of any
liquidation, except that, due to the differing expenses borne by the four
Classes, these dividends and proceeds are likely to be lower for every other
Class of shares than for Class Y shares. The shares of the Fund and the other
series of the Trust will be voted separately except when an aggregate vote of
all series is required by the Investment Company Act of 1940 ("1940 Act").

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

Appendix A
Types of Mortgage-Backed Securities
- --------------------------------------------------------------------------------

GINNIE MAE CERTIFICATES

FANNIE MAE CERTIFICATES

FREDDIE MAC CERTIFICATES

PRIVATE, RTC AND SIMILAR MORTGAGE-BACKED SECURITIES

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS MORTGAGE PASS-THROUGHS

ARM AND FLOATING RATE MORTGAGE-BACKED SECURITIES

TYPES OF CREDIT ENHANCEMENT

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

SPECIALLY STRUCTURED CMOS AND NEW TYPES OF MORTGAGE-BACKED SECURITIES

The Fund may not invest in IOs, POs or inverse floating rate CMOs. However, the
Fund may invest in other specially structured CMO classes. See "Risk Factors
and Other Investment Policies--Risks of Mortgage- and Asset-Backed Securities."

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PAINEWEBBER LOW DURATION U.S. GOVERNMENT INCOME FUND

Appendix B
- --------------------------------------------------------------------------------

THE FUND MAY USE THE FOLLOWING INSTRUMENTS:

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[LOGO FOR RECYCLED PAPER]

PaineWebber
Low Duration
U.S. Government
Income Fund
Class Y Shares

PROSPECTUS
November 10, 1995

<PAGE>

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

1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019

STATEMENT OF ADDITIONAL INFORMATION

INVESTMENT POLICIES AND RESTRICTIONS

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

any, and the structural, legal and tax aspects associated with such securities.
Neither of such ratings represents an assessment of the likelihood that
principal prepayments will be made by mortgagors or the degree to which such
prepayments may differ from that originally anticipated, nor do such ratings
address the possibility that investors may suffer a lower than anticipated
yield or that investors in such securities may fail to recoup fully their
initial investment due to prepayments.

2
<PAGE>

3
<PAGE>

4
<PAGE>

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

5
<PAGE>

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

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

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

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

INVESTMENT LIMITATIONS. The Fund may not (1) purchase the securities of any
issuer if as a result more than 5% of the total assets of the Fund would be
invested in the securities of that issuer;

6
<PAGE>

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

7
<PAGE>

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

HEDGING AND RELATED INCOME STRATEGIES

8
<PAGE>

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.

9
<PAGE>

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

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,

10
<PAGE>

the commitment of a large portion of the Fund's assets to cover or segregated
accounts could impede portfolio management or the Fund's ability to meet
redemption requests or other current obligations.

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

11
<PAGE>

Failure by the contra party to do so would result in the loss of any premium
paid by the Fund as well as the loss of any expected benefit of the
transaction. The Fund will enter into OTC option transactions only with contra
parties that have a net worth of at least $20 million.

The Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. The Fund intends to
purchase or write only those exchange-traded options for which there appears to
be a liquid secondary market. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for
OTC options only by negotiating directly with the contra party, or by a
transaction in the secondary market if any such market exists. Although the
Fund will enter into OTC options only with contra parties that are expected to
be capable of entering into closing transactions with the Fund, there is no
assurance that the Fund will in fact be able to close out an OTC option
position at a favorable price prior to expiration. In the event of insolvency
of the contra party, the Fund might be unable to close out an OTC option
position at any time prior to its expiration.

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

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.

12
<PAGE>

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

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

13
<PAGE>

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.

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.

14
<PAGE>

The Fund may enter into interest rate swaps, caps, collars and floors on
either an asset-based or liability-based basis, depending on whether it is
hedging its assets or its liabilities, and will usually enter into interest
rate swaps on a net basis, i.e., the two payment streams are netted out, with
the Fund receiving or paying, as the case may be, only the net amount of the
two payments. Inasmuch as these interest rate protection transactions are
entered into for good faith hedging purposes, and inasmuch as segregated
accounts will be established with respect to such transactions, PIMCO and the
Fund believe such obligations do not constitute senior securities and,
accordingly, will not treat them as being subject to its borrowing
restrictions. The net amount of the excess, if any, of the Fund's obligations
over its entitlements with respect to each interest rate swap will be accrued
on a daily basis and appropriate Fund assets having an aggregate net asset
value at least equal to the accrued excess will be maintained in a segregated
account as described above in "Investment Policies and Restrictions--Segregated
Accounts." The Fund also will establish and maintain such segregated accounts
with respect to its total obligations under any interest rate swaps that are
not entered into on a net basis and with respect to any interest rate caps,
collars and floors that are written by the Fund.

15
<PAGE>

TRUSTEES AND OFFICERS

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

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME, AGE AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ---------- --------------------
<S> <C> <C>
E. Garrett Bewkes, Jr.; Trustee and Chairman Mr. Bewkes is a director and a
69** of the Board of consultant to Paine Webber Group
Trustees Inc. ("PW Group") (holding com-
pany of PaineWebber and Mitchell
Hutchins). 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 In-
terstate Bakeries Corporation,
NaPro BioTherapeutics, Inc. and a
director or trustee of 24 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Meyer Feldberg; 53 Trustee Mr. Feldberg is Dean and Professor
Columbia University of Management of the Graduate
101 Uris Hall School of Business, Columbia Uni-
New York, New York 10027 versity. Prior to 1989, he was
president of the Illinois Insti-
tute of Technology. Dean Feldberg
is also a director of AMSCO In-
ternational Inc., Federated De-
partment Stores, Inc., and New
World Communications Group Incor-
porated and a director or trustee
of 16 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
George W. Gowen; 66 Trustee Mr. Gowen is a partner in the law
666 Third Avenue firm of Dunnington, Bartholow &
New York, New York 10017 Miller. Prior to May 1994, he was
a partner in the law firm of Fry-
er, Ross & Gowen. Mr. Gowen is
also a director of Columbia Real
Estate Investments, Inc. and a
director or trustee of 14 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>

16
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME, AGE AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ---------- --------------------
<S> <C> <C>
Frederic V. Malek; 58 Trustee Mr. Malek is chairman of Thayer
901 15th Street, N.W. Capital Partners (investment
Suite 300 bank) and a co-chairman and di-
Washington, D.C. 20005 rector of CB Commercial Group
Inc. (real estate). From January
1992 to November 1992, he was
campaign manager of Bush-Quayle
'92. From 1990 to 1992, he was
vice chairman and, from 1989 to
1990, he was president of North-
west Airlines Inc., NWA Inc.
(holding company of Northwest
Airlines Inc.) and Wings Holdings
Inc. (holding company of NWA
Inc.). Prior to January 1989, he
was employed by the Marriott Cor-
poration (hotels, restaurants,
airline catering and contract
feeding), where he most recently
was an executive vice president
and president of Marriott Hotels
and Resorts. Mr. Malek is also a
director of American Management
Systems, Inc., Automatic Data
Processing, Inc., Avis, Inc., FPL
Group, Inc., ICF International,
Manor Care, Inc., National Educa-
tion Corporation and Northwest
Airlines Inc. and a director or
trustee of 14 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Judith Davidson Moyers; Trustee Mrs. Moyers is president of Public
60 Affairs Television, Inc., an edu-
Public Affairs cational consultant and a home
Television economist. Mrs. Moyers is also a
356 W. 58th Street director of Ogden Corporation and
New York, New York 10019 a director or trustee of 14 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>

17
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME, AGE AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ---------- --------------------
<S> <C> <C>
Margo N. Alexander; 48 President Mrs. Alexander is president, chief
executive officer and a director
of Mitchell Hutchins. Prior to
January 1995, Mrs. Alexander was
an executive vice president of
PaineWebber. Mrs. Alexander is
also a director or trustee of one
investment company and president
of 31 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Julieanna Berry; 32 Vice President Ms. Berry is a vice president and
portfolio manager of Mitchell
Hutchins.
Teresa M. Boyle; 37 Vice President Ms. Boyle is a first vice presi-
dent and manager--advisory admin-
istration of Mitchell Hutchins.
Prior to November 1993, she was
compliance manager of Hyperion
Capital Management, Inc., an in-
vestment advisory firm. Prior to
April 1993, Ms. Boyle was a vice
president and manager--legal ad-
ministration of Mitchell
Hutchins. Ms. Boyle is also a
vice president of 31 other in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Gigi L. Capes; 31 Vice President and Ms. Capes is a vice president and
Assistant Treasurer the tax manager of the mutual
fund finance division of Mitchell
Hutchins. Prior to 1992, she was
a tax senior consultant with KPMG
Peat Marwick. Ms. Capes is also a
vice president and assistant
treasurer 31 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>

18
<PAGE>

19
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME, AGE AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ---------- --------------------
<S> <C> <C>
C. William Maher; 34 Vice President and Mr. Maher is a first vice presi-
Assistant Treasurer dent and a senior manager of the
mutual fund division of Mitchell
Hutchins. Mr. Maher is also a
vice president and assistant
treasurer of 31 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Dennis McCauley; 49 Vice President Mr. McCauley is a managing direc-
tor and Chief Investment Offi-
cer--Fixed Income of Mitchell
Hutchins. Prior to December 1994,
he was Director of Fixed Income
Investments of IBM Corporation.
Mr. McCauley is also a vice pres-
ident of 20 other investment com-
panies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Ann E. Moran; 38 Vice President and Ms. Moran is a vice president of
Assistant Treasurer Mitchell Hutchins. Ms. Moran is
also a vice president and assis-
tant treasurer of 31 other in-
vestment 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
Secretary president and deputy general
counsel of Mitchell Hutchins. Ms.
O'Donnell is also a vice presi-
dent and secretary of 31 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Victoria E. Schonfeld; 44 Vice President Ms. Schonfeld is a managing direc-
tor and general counsel of Mitch-
ell Hutchins. From April 1990 to
May 1994, she was a partner in
the law firm of Arnold & Porter.
Prior to April 1990, she was a
partner in the law firm of
Shereff, Friedman, Hoffman &
Goodman. Ms. Schonfeld is also a
vice president of 31 other in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>

20
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME, AGE AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ---------- --------------------
<S> <C> <C>
Paul H. Schubert; 32 Vice President and Mr. Schubert is a first vice pres-
Assistant Treasurer ident and a senior manager of the
mutual fund finance division of
Mitchell Hutchins. From August
1992 to August 1994, he was a
vice president at BlackRock Fi-
nancial Management, L.P. Prior to
August 1992, he was an audit man-
ager with Ernst & Young LLP. Mr.
Schubert is also a vice president
and assistant treasurer of 31
other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Nirmal Singh; 39 Vice President Mr. Singh is a first vice presi-
dent of Mitchell Hutchins. Prior
to September 1993, he was a mem-
ber of the portfolio management
team at Merrill Lynch Asset Man-
agement, Inc. Mr. Singh is also
vice president of five other in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Julian F. Sluyters; 35 Vice President and Mr. Sluyters is a senior vice
Treasurer president and the director of the
mutual fund finance division of
Mitchell Hutchins. Prior to 1991,
he was an audit senior manager
with Ernst & Young LLP. Mr.
Sluyters is also a vice president
and treasurer of 31 other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>

21
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME, AGE AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ---------- --------------------
<S> <C> <C>
Mark A. Tincher; 40 Vice President Mr. Tincher is a managing director
and chief investment officer--
U.S. equity investments of Mitch-
ell Hutchins. Prior to March
1995, he was a vice president and
directed the U.S. funds manage-
ment and equity research areas of
Chase Manhattan Private Bank. Mr.
Tincher is also vice president of
ten other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Gregory K. Todd; 38 Vice President and Mr. Todd is a first vice president
Assistant Secretary and associate general counsel of
Mitchell Hutchins. Prior to 1993,
he was a partner in the law firm
of Shereff, Friedman, Hoffman &
Goodman. Mr. Todd is also a vice
president and assistant secretary
of 31 other 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 of Mitchell Hutchins.
Mr. Varrelman is also vice presi-
dent of four other 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 presi-
Assistant Secretary dent and associate general coun-
sel of Mitchell Hutchins. From
September 1987 to May 1995, he
was an attorney in private prac-
tice. Mr. Weller is also a vice
president and assistant secretary
of 23 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>
- --------
* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.
** Mr. Bewkes is an "interested person" of the Trust as defined in the
Investment Company Act of 1940 ("1940 Act") by virtue of his position with PW
Group.

22
<PAGE>

The table below includes certain information relating to the compensation of
the Trust's Trustees.

COMPENSATION TABLE

INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS

23
<PAGE>

24
<PAGE>

the Fund's average daily net assets, 2.0% of the next $70 million of its
average daily net assets and 1.5% of its average daily net assets in excess of
$100 million. Certain expenses, such as brokerage commissions, taxes, interest,
distribution fees and extraordinary items, are excluded from this limitation.
No reimbursement pursuant to such limitation was required for the fiscal year
ended November 30, 1994.

25
<PAGE>

employees, establishes procedures for personal investing and restricts certain
transactions. For example, employee accounts generally must be maintained at
PaineWebber, personal trades in most securities require pre-clearance and
short-term trading and participation in initial public offerings generally are
prohibited. In addition, the code of ethics puts restrictions on the timing of
personal investing in relation to trades by PaineWebber and 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 the Fund a distribution contract with the Trust dated
November 10, 1995 ("Distribution Contract") that requires Mitchell Hutchins to
use its best efforts, consistent with its other businesses, to sell shares of
the Fund. Shares of the Fund are offered continuously. Under an exclusive
dealer agreements between Mitchell Hutchins and PaineWebber dated November 10,
1995 relating to Class Y shares of the Fund ("Exclusive Dealer Agreement"),
PaineWebber and its correspondent firms sell the Fund's Class Y shares.

PORTFOLIO TRANSACTIONS

26
<PAGE>

Consistent with the interests of the Fund and subject to the review of the
Trust's board of trustees, 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 PIMCO determines in good faith that such commission is
reasonable in terms either of that particular transaction or of the overall
responsibility of PIMCO to the Fund and its other clients and that the total
commissions paid by the Fund will be reasonable in relation to the benefits to
the Fund over the long term. During the fiscal year ended November 30, 1994,
neither PIMCO nor Mitchell Hutchins directed any portfolio transactions for the
Fund to brokers chosen because they provided research services.

For purchases or sales with broker-dealer firms which act as principal, PIMCO
seeks best execution. Although PIMCO may receive certain research or execution
services in connection with these transactions, PIMCO will not purchase
securities at a higher price or sell securities at a lower price than would
otherwise be paid if no weight was attributed to the services provided by the
executing dealer. Moreover, PIMCO will not enter into any explicit soft dollar
arrangements relating to principal transactions and will not receive in
principal transactions the types of services which could be purchased for hard
dollars. PIMCO may engage in agency transactions in OTC 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 PIMCO receiving multiple quotes
from dealers before executing the transaction on an agency basis.

Investment decisions for the Fund and for other investment accounts managed
by PIMCO are made independently of each other in light of differing
considerations for the various accounts.

27
<PAGE>

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

VALUATION OF SHARES

28
<PAGE>

PERFORMANCE INFORMATION

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

P(1 + T)n = ERV

The Fund also may refer in Performance Advertisements to total return
performance data that are not calculated according to the formula set forth
above ("Non-Standardized Return"). The Fund calculates Non-Standardized Return
for specified periods of time by assuming an investment of $1,000 in Fund
shares and assuming the reinvestment of all dividends and other distributions.
The rate of return is determined by subtracting the initial value of the
investment from the ending value and by dividing the remainder by the initial
value. Neither initial nor contingent deferred sales charges are taken into
account in calculating Non-Standardized Return; the inclusion of those charges
would reduce the return.

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

YIELD
= (a-b
2[ --- + 1)/6/ - 1]
cd
<TABLE>
<C> <C> <S>
where: a = interest earned during the Period attributable to a Class of
shares
b = expenses accrued for the Period attributable to a Class of shares
(net of reimbursements)
c = the average daily number of shares of the Class outstanding
during the Period that were entitled to receive dividends
d = the net asset value per share on the last day of the Period.
</TABLE>

29
<PAGE>

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

30
<PAGE>

TAXES

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

31
<PAGE>

The Fund may acquire zero coupon or other securities issued with original
issue discount ("OID"). As the holder of such securities, the Fund would have
to include in its gross income the OID that accrues on the securities during
the taxable year, even if the Fund receives no corresponding payment on the
securities during the year. The Fund intends to elect similar treatment with
respect to securities purchased at a discount from their face value ("market
discount"). Because the Fund annually seeks to distribute substantially all of
its investment company taxable income, including any accrued OID, market
discount and other non-cash income, in order to continue to satisfy the
Distribution Requirement and to avoid imposition of the 4% excise tax, the Fund
may be required in a particular year to distribute as a dividend an amount that
is greater than the total amount of cash it actually receives. Those
distributions will be made from the Fund's cash assets or from the proceeds of
sales of portfolio securities, if necessary. The Fund may realize capital gains
or losses from those sales, which would increase or decrease the Fund's
investment company taxable income or net capital gain (the excess of net long-
term capital gain over net short-term capital loss). In addition, any such
gains may be realized on the disposition of securities held for less than three
months. Because of the Short-Short Limitation, any such gains would reduce the
Fund's ability to sell other securities, or certain options or futures, held
for less than three months that it might wish to sell in the ordinary course of
its portfolio management.

32
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OTHER INFORMATION

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

FINANCIAL STATEMENTS

33
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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and Restrictions....................................... 1
Hedging and Related Income Strategies...................................... 8
Trustees and Officers...................................................... 16
Investment Advisory and Distribution Arrangements.......................... 23
Portfolio Transactions..................................................... 26
Valuation of Shares........................................................ 28
Performance Information.................................................... 29
Taxes...................................................................... 31
Other Information.......................................................... 33
Financial Statements....................................................... 33
</TABLE>

[LOGO FOR RECYCLED PAPER]

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

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Statement of Additional Information
November 10, 1995, as revised
December 1, 1995

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PAINEWEBBER