PAINEWEBBER MANAGED INVESTMENTS TRUST, 497, 1996-04-12

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

PaineWebber U.S. Government Income Fund
PaineWebber Low Duration U.S. Government Income Fund
PaineWebber Investment Grade Income Fund
PaineWebber High Income Fund
1285 Avenue of the Americas, New York, New York 10019
Prospectus -- April 1, 1996
- -------------------------------------------------------------------------------
[] Professional Management

[] Portfolio Diversification

[] Dividend and Capital Gain Reinvestment

[] Flexible Pricing(SM)

[] Low Minimum Investment

[] Automatic Investment Plan

[] Systematic Withdrawal Plan

[] Exchange Privileges

[] Suitable for Retirement Plans

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

A Statement of Additional Information dated April 1, 1996 (which is incorpo-
rated by reference herein) has been filed with the Securities and Exchange
Commission. The Statement of Additional Information can be obtained without
charge, and further inquiries can be made, by contacting the Funds, your
PaineWebber investment executive or PaineWebber's correspondent firms or by
calling toll-free 1-800-647-1568.
------------------------------------------------------------------------

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

<PAGE>

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

Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................................................... 3
Financial Highlights....................................................... 9
Flexible Pricing System.................................................... 18
Investment Objectives and Policies......................................... 19
Purchases.................................................................. 31
Exchanges.................................................................. 35
Redemptions................................................................ 36
Conversion of Class B Shares............................................... 37
Other Services and Information............................................. 37
Dividends and Taxes........................................................ 38
Valuation of Shares........................................................ 39
Management................................................................. 40
Performance Information.................................................... 42
General Information........................................................ 42
Appendix A................................................................. 43
Appendix B................................................................. 46
Appendix C................................................................. 49
</TABLE>

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Prospectus Page 2

<PAGE>

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

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

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

The Funds: This Prospectus describes four separate, diversified
series (each a "Fund") of an open-end management in-
vestment company. Each Fund has its own investment ob-
jective and policies.

Investment Objectives
and Policies:
PaineWebber U.S. High current income consistent with the preservation
Government Income of capital and liquidity; invests primarily in U.S.
Fund ("U.S. government securities.
Government Income
Fund")

PaineWebber Low Highest level of income consistent with the preserva-
Duration tion of capital and low volatility of net asset value;
U.S. Government invests primarily in U.S. government securities, and
Income Fund ("Low seeks to limit the volatility of its net asset value
Duration per share by maintaining, under normal circumstances,
Income Fund") an overall portfolio duration of from one to three
years.

PaineWebber High current income consistent with the preservation
Investment Grade of capital and liquidity; invests primarily in invest-
Income Fund ment grade corporate bonds and other fixed income se-
("Investment Grade curities.
Income Fund")

PaineWebber High Highest level of current income available without un-
Income Fund ("High due risk; invests primarily in high risk, high yield-
Income Fund") ing medium and lower quality corporate bonds. At a
special meeting of shareholders scheduled for April
10, 1996, shareholders of the Fund will be asked to
approve a change in the Fund's investment objective
from "to provide the highest level of current income
available without undue risk" to "to provide high in-
come."

Total Net Assets at
February 29, 1996:

U.S. Government Income Fund $535.6 million
Low Duration Income Fund $285.2 million
Investment Grade Income Fund $352.2
million
High Income Fund
$543.0 million

Investment Adviser: Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"), an asset management subsidiary of
PaineWebber Incorporated ("PaineWebber"), manages over
$45.4 billion in assets. See "Management."

Sub-Adviser: Pacific Investment Management Company ("PIMCO") serves
as sub-adviser for Low Duration Income Fund. PIMCO
manages approximately $78 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 Funds' 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."

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Prospectus Page 3
<PAGE>

Class B Shares Offered at net asset value (a maximum contingent de-
ferred sales charge of 5% is imposed on most redemp-
tions made within six years of date of purchase, ex-
cept for Low Duration Income Fund, which has a maximum
contingent deferred sales charge of 3% 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.

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: $1,000 for first purchase; $100 for subsequent pur-
chases, except for Low Duration Income Fund, which is
$100 for initial and subsequent purchases.

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

Class B Shares Automatic investment plan
Systematic withdrawal plan

Class C Shares Automatic investment plan
Systematic withdrawal plan

WHO SHOULD INVEST. Each Fund has its own suitability considerations and risk
factors, as summarized below and described in detail under "Investment
Objectives and Policies." While no single Fund is intended to provide a
complete or balanced investment program, each can serve as one component of an
investor's long-term program to accumulate assets for retirement, college
tuition or other major goals.

U.S. GOVERNMENT INCOME FUND. Investing primarily in U.S. government
securities, U.S. Government Income Fund is designed for
investors seeking high current income consistent with the preservation of
capital and liquidity.

LOW DURATION INCOME FUND. Also investing primarily in U.S. government
securities, Low Duration Income Fund seeks to limit the volatility of its net
asset value per share by maintaining, under normal circumstances, an overall
portfolio duration of from one to three years. This Fund is designed for
investors seeking income with less fluctuation in net asset value than
longer-term U.S. government bond funds.

INVESTMENT GRADE INCOME FUND. Investing in a diversified range of investment
grade bonds and

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Prospectus Page 4
<PAGE>

HIGH INCOME FUND. Investing in a diversified range of high risk, high yield
medium to lower quality bonds, High Income Fund is designed for investors
seeking the highest level of current income available without undue risk.

RISK FACTORS. There can be no assurance that any Fund will achieve its
investment objective, and each Fund's net asset value per share generally will
vary inversely with movements in interest rates. Mitchell Hutchins or PIMCO, as
applicable, attempts to reduce the risks associated with investments in debt
securities through diversification, credit analysis and attention to current
trends in interest rates and other factors. U.S. Government Income Fund and Low
Duration Income Fund each normally 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 liquidity of many mortgage-backed securities declined sharply due primarily
to increases in interest rates. There can be no assurance that such declines
will not recur. The market value of certain mortgage-backed securities,
including interest-only and principal-only classes of mortgage-backed
securities and inverse floating rate securities, can be extremely volatile and
these securities may become illiquid. Certain investment grade debt securities
in which Investment Grade Income Fund and High Income Fund may invest have
speculative characteristics. Investment Grade Income Fund and High Income Fund
are permitted to purchase high risk, high yield debt securities rated lower
than investment grade by Moody's Investors Service, Inc. ("Moody's"), Standard
& Poor's, a division of The McGraw Hill Companies, Inc. ("S&P"), or comparably
rated by another nationally recognized statistical rating organization
("NRSRO"), which may be subject to greater risks of default and price
fluctuation than investment grade securities and are considered predominantly
speculative. High risk, high yield securities are especially subject to adverse
changes in general economic conditions and in the industries in which the
issuers are engaged, to changes in the financial condition of the issuers and
to price fluctuations in response to changes in interest rates. If the proposed
change in High Income Fund's investment objective is approved by its
shareholders, the Fund's investment policies will change to permit investment
of up to 25% of its total assets in securities that do not currently provide
income but that Mitchell Hutchins believes have the potential for capital
appreciation. Investment Grade Income Fund and High Income Fund may invest in
U.S. dollar-denominated securities of foreign issuers the value of which is
linked to the value of foreign currencies. High Income Fund is permitted to
invest in securities of foreign issuers that are denominated and traded in
currencies other than the U.S. dollar. Foreign securities involve certain
considerations not typically associated with investing in securities of U.S.
issuers. These include risks relating to political, social and economic
developments abroad and to the differences between the regulations to which
U.S. and foreign issuers and markets are subject. The value of these
investments also can be adversely affected by fluctuations in foreign currency
values. Some foreign currencies can be volatile and may be subject to
governmental controls or intervention. The use of options, futures contracts
and interest rate protection transactions and, for U.S. Government Income Fund
and Low Duration Income Fund, dollar rolls and reverse repurchase agreements
also entails special risks.

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Prospectus Page 5
<PAGE>

SHAREHOLDER TRANSACTION EXPENSES(1)

<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME FUND
INVESTMENT GRADE INCOME FUND
HIGH INCOME FUND CLASS A CLASS B CLASS C
---------------------------- ------- ------- -------
<S> <C> <C> <C>
Maximum sales charge on purchases of shares (as a
percentage of public offering price).............. 4% 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) 5% 0.75%(3)
</TABLE>

<TABLE>
<CAPTION>
LOW DURATION INCOME FUND CLASS A CLASS B CLASS C
------------------------ ------- ------- -------
<S> <C> <C> <C>
Maximum sales charge on purchases of shares (as a
percentage of public offering price).............. 3% 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% 0.75%(3)
</TABLE>

ANNUAL FUND OPERATING EXPENSES(4)
(as a percentage of average net assets)

<TABLE>
<CAPTION>
U.S. GOVERNMENT
INCOME FUND LOW DURATION INCOME FUND
--------------------------- --------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Management fees......... 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
12b-1 fees(5)........... 0.25 1.00 0.75 0.25 1.00 0.75
Other expenses.......... 0.25(a) 0.28(a) 0.27(a) 0.40 0.52 0.50
---- ---- ---- -------- -------- --------
Total operating
expenses............... 1.00% 1.78% 1.52% 1.15% 2.02% 1.75%
==== ==== ==== ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
INVESTMENT GRADE
INCOME FUND HIGH INCOME FUND
----------------------- -----------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Management fees................. 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
12b-1 fees(5)................... 0.25 1.00 0.75 0.25 1.00 0.75
Other expenses.................. 0.20 0.20 0.20 0.18 0.18 0.19
---- ---- ---- ---- ---- ----
Total operating expenses........ 0.95% 1.70% 1.45% 0.93% 1.68% 1.44%
==== ==== ==== ==== ==== ====
</TABLE>
- -------
(a) Does not include 0.03% in non-recurring reorganization expenses that U.S.
Government Income Fund incurred during the fiscal year ended November 30,
1995. If those expenses were included, "Other expenses" for its Class A, B
and C shares would be 0.28%, 0.31% and 0.30%, respectively, and "Total
operating expenses" would be 1.03%, 1.81% and 1.55%, respectively.
(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 5% contingent deferred sales charge on Class B shares (3% for Low
Duration Income Fund) applies to redemptions during the first year after
purchase; the charge generally declines by 1% annually thereafter, reaching
zero after six years (four years for Low Duration Income Fund). See
"Purchases."

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Prospectus Page 6
<PAGE>

<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.

EXAMPLE OF EFFECT OF FUND EXPENSES

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

<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
U.S. GOVERNMENT INCOME FUND
Class A Shares (1).................................... $50 $71 $ 93 $158
Class B Shares:
Assuming a complete redemption at end of period
(2)(3).............................................. $68 $86 $116 $170
Assuming no redemption (3)........................... $18 $56 $ 96 $170
Class C Shares:
Assuming a complete redemption at end of period(2)... $23 $48 $ 83 $181
Assuming no redemption............................... $15 $48 $ 83 $181
LOW DURATION FUND
Class A Shares (4).................................... $41 $65 $ 91 $166
Class B Shares:
Assuming a complete redemption at end of period
(2)(3).............................................. $51 $83 $109 $192
Assuming no redemption (3)........................... $21 $63 $109 $192
Class C Shares:
Assuming a complete redemption at end of period (2).. $25 $55 $ 95 $206
Assuming no redemption............................... $18 $55 $ 95 $206
INVESTMENT GRADE INCOME FUND
Class A Shares (1).................................... $49 $69 $ 90 $152
Class B Shares:
Assuming a complete redemption at end of period
(2)(3).............................................. $67 $84 $ 92 $163
Assuming no redemption (3)........................... $17 $54 $112 $163
Class C Shares:
Assuming a complete redemption at end of period (2).. $22 $46 $ 79 $173
Assuming no redemption............................... $15 $46 $ 79 $173
</TABLE>

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Prospectus Page 7
<PAGE>

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 Funds' shares.

THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND A FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
The actual expenses attributable to each Class of a Fund's shares will depend
upon, among other things, the level of average net assets and the extent to
which a Fund incurs variable expenses, such as transfer agency costs.

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Prospectus Page 8
<PAGE>

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

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

The tables on the following pages provide selected per share data and ratios
for one Class A share, one Class B share and one Class C share of each Fund for
each of the periods shown. This information is supplemented by the financial
statements and accompanying notes appearing in the Funds' Annual Reports to
Shareholders for the fiscal year ended November 30, 1995, which are
incorporated by reference into the Statement of Additional Information. The
financial statements and notes, as well as the information in the tables
appearing on the following pages insofar as it relates to each of the five
years in the period ended November 30, 1995, have been audited by Ernst & Young
LLP, independent auditors, whose reports thereon are included in the Annual
Reports to Shareholders. Further information about the performance of each Fund
is also included in the Annual Reports to Shareholders, which may be obtained
without charge. The information appearing below for the periods prior to the
year ended November 30, 1991 also has been audited by Ernst & Young LLP, whose
reports thereon were unqualified.

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Prospectus Page 9
<PAGE>

<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME FUND
------------------------------------------------------------------------------------------------
CLASS A
------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED NOVEMBER 30,
------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987
-------- -------- -------- -------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................. $ 8.50 $ 10.03 $ 9.98 $ 9.97 $ 9.47 $ 9.51 $ 9.28 $ 9.31 $ 10.27
-------- -------- -------- -------- -------- -------- -------- ---------- ----------
Net investment income...... 0.58 0.60 0.67 0.75 0.77 0.76 0.80 0.80 0.81
Net realized and unrealized
gains (losses) from
investment, options and
futures transactions...... 0.62 (1.53) 0.05 0.01 0.49 (0.05) 0.23 -- (0.85)
-------- -------- -------- -------- -------- -------- -------- ---------- ----------
Net increase (decrease) in
net asset value resulting
from investment
operations................ 1.20 (0.93) 0.72 0.76 1.26 0.71 1.03 0.80 (0.04)
-------- -------- -------- -------- -------- -------- -------- ---------- ----------
Dividends from net
investment income......... (0.58) (0.60) (0.67) (0.75) (0.76) (0.75) (0.80) (0.80) (0.85)
Distributions from net
realized gains from
investment transactions... -- -- -- -- -- -- -- -- (0.07)
Return of capital.......... -- -- -- -- -- -- -- (0.03) --
-------- -------- -------- -------- -------- -------- -------- ---------- ----------
Total dividends and
distributions to
shareholders.............. (0.58) (0.60) (0.67) (0.75) (0.76) (0.75) (0.80) (0.83) (0.92)
-------- -------- -------- -------- -------- -------- -------- ---------- ----------
Net asset value, end of
period.................... $ 9.12 $ 8.50 $ 10.03 $ 9.98 $ 9.97 $ 9.47 $ 9.51 $ 9.28 $ 9.31
======== ======== ======== ======== ======== ======== ======== ========== ==========
Total investment
return (1)................ 14.70% (9.62)% 7.38% 7.92% 13.80% 8.36% 11.66% 8.93% (0.21)%
======== ======== ======== ======== ======== ======== ======== ========== ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's)................... $430,285 $428,722 $648,923 $703,198 $737,189 $795,240 $963,226 $1,279,535 $2,018,208
Ratio of expenses to
average net assets........ 1.03%(2) 0.95% 0.91% 0.93% 0.87% 0.66% 0.72% 0.67% 0.68%
Ratio of net investment
income to average net
assets.................... 6.65%(2) 6.48% 6.60% 7.42% 7.94% 8.57% 8.82% 8.83% 8.44%
Portfolio turnover rate.... 206% 358% 83% 28% 71% 34% 125% 302% 98%
</TABLE>
- -------
#Commencement of issuance of shares.
*Annualized.
**Formerly Class D.
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and other distributions
at net asset value on the payable dates, and a sale at net asset value on the
last day of each period reported. The figures do not include sales charges;
results for each Class would be lower if sales charges were included. Total
investment returns for periods of less than one year have not been
annualized.
(2) These ratios include non-recurring reorganization expenses of 0.03% for
each Class of shares.

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Prospectus Page 10
<PAGE>

<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME FUND
- -------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C**
- ------------ -------------------------------------------------------- ----------------------------------------------
FOR THE
YEAR FOR THE FOR THE PERIOD FOR THE FOR THE PERIOD
ENDED YEARS ENDED JULY 1, 1991# YEARS ENDED JULY 2, 1992#
NOVEMBER 30, NOVEMBER 30, TO NOVEMBER 30, TO
- ------------ ---------------------------------------- NOVEMBER 30, ------------------------------ NOVEMBER 30,
1986 1995 1994 1993 1992 1991 1995 1994 1993 1992
- ------------ ------- ------- -------- -------- -------------- ------- ------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 10.18 $ 8.50 $ 10.03 $ 9.98 $ 9.98 $ 9.59 $ 8.49 $ 10.02 $ 9.98 $ 10.13
---------- ------- ------- -------- -------- ------- ------- ------- -------- --------
0.96 0.51 0.53 0.60 0.67 0.29 0.53 0.55 0.62 0.25
0.32 0.63 (1.53) 0.05 0.01 0.39 0.63 (1.53) 0.04 (0.15)
---------- ------- ------- -------- -------- ------- ------- ------- -------- --------
1.28 1.14 (1.00) 0.65 0.68 0.68 1.16 (0.98) 0.66 0.10
---------- ------- ------- -------- -------- ------- ------- ------- -------- --------
(0.96) (0.52) (0.53) (0.60) (0.68) (0.29) (0.54) (0.55) (0.62) (0.25)
(0.23) -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
---------- ------- ------- -------- -------- ------- ------- ------- -------- --------
(1.19) (0.52) (0.53) (0.60) (0.68) (0.29) (0.54) (0.55) (0.62) (0.25)
---------- ------- ------- -------- -------- ------- ------- ------- -------- --------
$ 10.27 $ 9.12 $ 8.50 $ 10.03 $ 9.98 $ 9.98 $ 9.11 $ 8.49 $ 10.02 $ 9.98
========== ======= ======= ======== ======== ======= ======= ======= ======== ========
13.51% 13.81% (10.31)% 6.57% 6.98% 6.78% 14.12% (10.08)% 6.75% 0.62%
========== ======= ======= ======== ======== ======= ======= ======= ======== ========
$3,139,662 $82,469 $99,581 $161,158 $132,357 $23,532 $53,832 $68,400 $143,473 $127,026
0.66% 1.81%(2) 1.72% 1.66% 1.67% 1.68%* 1.55%(2) 1.45% 1.40% 1.44%*
9.35% 5.88%(2) 5.71% 5.79% 6.38% 6.40%* 6.17%(2) 5.99% 6.06% 6.13%*
224% 206% 358% 83% 28% 71% 206% 358% 83% 28%
</TABLE>

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Prospectus Page 11
<PAGE>

-----------------------------------------------------------------
PAINEWEBBER U.S. GOVERNMENT INCOME FUND LOW DURATION U.S. GOVERNMENT INCOME
FUND
INVESTMENT GRADE INCOME FUND HIGH INCOME FUND
Financial Highlights
(Continued)
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
LOW DURATION INCOME FUND
-----------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C***
-------------------------------------- ----------------------------------- --------------------------------------
FOR THE YEARS FOR THE YEARS FOR THE YEARS
ENDED FOR THE PERIOD ENDED NOVEMBER FOR THE PERIOD ENDED FOR THE PERIOD
NOVEMBER 30, MAY 3, 1993# 30, MAY 3, 1993# NOVEMBER 30, MAY 3, 1993#
------------------ TO NOVEMBER 30, --------------- TO NOVEMBER 30, ------------------ TO NOVEMBER 30,
1995 1994 1993 1995 1994 1993 1995 1994 1993
-------- -------- --------------- ------ ------- --------------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period......... $ 2.25 $ 2.48 $ 2.50 $ 2.25 $ 2.48 $ 2.50 $ 2.25 $ 2.47 $ 2.50
-------- -------- -------- ------ ------- ------- -------- -------- ----------
Net investment
income......... 0.13 0.12 0.07 0.11 0.10 0.06 0.12 0.11 0.06
Net realized and
unrealized
gains (losses)
from
investment,
futures and
options
transactions... 0.09 (0.29) (0.02) 0.09 (0.29) (0.02) 0.09 (0.28) (0.03)
-------- -------- -------- ------ ------- ------- -------- -------- ----------
Net increase
(decrease) in
net asset value
from
operations..... 0.22 (0.17) 0.05 0.20 (0.19) 0.04 0.21 (0.17) 0.03
-------- -------- -------- ------ ------- ------- -------- -------- ----------
Dividends from
net investment
income......... (0.13) (0.12) (0.07) (0.11) (0.10) (0.06) (0.12) (0.11) (0.06)
-------- -------- -------- ------ ------- ------- -------- -------- ----------
Contribution to
capital from
adviser........ -- .06 -- -- .06 -- -- .06 --
-------- -------- -------- ------ ------- ------- -------- -------- ----------
Net asset value,
end of period.. $ 2.34 $ 2.25 $ 2.48 $ 2.34 $ 2.25 $ 2.48 $ 2.34 $ 2.25 $ 2.47
======== ======== ======== ====== ======= ======= ======== ======== ==========
Total investment
return (1)..... 10.25% (4.50)%** 1.88% 9.30% (5.24)%** 1.47% 9.60% (4.99)%** 1.20%
======== ======== ======== ====== ======= ======= ======== ======== ==========
Ratios/
Supplemental
Data:
Net assets, end
of period
(000's)........ $127,961 $158,712 $551,243 $9,147 $13,382 $31,706 $180,169 $296,182 $1,186,181
Ratio of
expenses to
average net
assets (2)..... 1.15% 0.84% 0.81%* 2.02% 1.62% 1.62%* 1.75% 1.36% 1.35%*
Ratio of net
investment
income to
average net
assets (2)..... 5.89% 5.16% 4.85%* 5.03% 4.40% 4.31%* 5.31% 4.65% 4.52%*
Portfolio
turnover rate.. 242% 246% 97% 242% 246% 97% 242% 246% 97%
</TABLE>
- -------
# Commencement of issuance of shares.
* Annualized.
** Net of $0.06 contribution of capital from adviser. If such contribution had
not been made the total investment returns would have been (7.02)% for
Class A, (7.74)% for Class B and (7.50)% for Class C (formerly Class D).
*** Formerly Class D.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends at net
asset value on the payable dates, and a sale at net asset value on the last
day of each period reported. The figures do not include sales charges;
results for each Class would be lower if sales charges were included. Total
investment returns for periods of 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
(formerly Class D).

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<PAGE>

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Prospectus Page 13
<PAGE>

<TABLE>
<CAPTION>
INVESTMENT GRADE INCOME FUND
-----------------------------------------------------------------------------------------
CLASS A
-----------------------------------------------------------------------------------------
FOR THE YEARS ENDED NOVEMBER 30,
-----------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 9.67 $ 11.08 $ 10.38 $ 10.17 $ 9.50 $ 9.82 $ 9.53 $ 9.42 $ 10.74
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net investment income... 0.76 0.77 0.79 0.81 0.82 0.84 0.86 0.83 0.88
Net realized and
unrealized gains
(losses) from
investment
transactions........... 1.01 (1.41) 0.70 0.22 0.66 (0.33) 0.27 0.10 (1.15)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net increase (decrease)
in net asset value
resulting from
operations............. 1.77 (0.64) 1.49 1.03 1.48 0.51 1.13 0.93 (0.27)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Dividends from net
investment income...... (0.76) (0.77) (0.79) (0.82) (0.81) (0.83) (0.84) (0.81) (0.92)
Distributions from net
realized gains from
investment
transactions........... -- -- -- -- -- -- -- -- (0.08)
Return of capital....... -- -- -- -- -- -- -- (0.01) (0.05)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions to
shareholders........... (0.76) (0.77) (0.79) (0.82) (0.81) (0.83) (0.84) (0.82) (1.05)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
period................. $ 10.68 $ 9.67 $ 11.08 $ 10.38 $ 10.17 $ 9.50 $ 9.82 $ 9.53 $ 9.42
======== ======== ======== ======== ======== ======== ======== ======== ========
Total investment
return (1)............. 18.95% (5.99)% 14.77% 10.39% 16.17% 5.55% 12.28% 10.24% (2.69)%
======== ======== ======== ======== ======== ======== ======== ======== ========
Ratios/Supplemental Da-
ta:
Net assets, end of
period
(000's)................ $258,898 $271,553 $204,418 $197,795 $220,216 $225,424 $269,381 $334,106 $543,919
Ratio of expenses to
average net assets..... 0.95% 0.97% 0.96% 1.01% 0.91% 0.66% 0.65% 0.70% 0.72%
Ratio of net investment
income to
average net assets..... 7.42% 7.50% 7.24% 7.81% 8.32% 8.76% 8.96% 8.83% 8.67%
Portfolio turnover rate. 149% 142% 27% 44% 46% 31% 47% 35% 88%
</TABLE>
- -------
# Commencement of issuance of shares.
* Annualized.
** Formerly Class D.
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and other distributions
at net asset value on the payable dates, and a sale at net asset value on
the last day of each period reported. The figures do not include sales
charges; results for each Class would be lower if sales charges were in-
cluded. Total investment returns for periods of less than one year have not
been annualized.

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<PAGE>

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<PAGE>

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PAINEWEBBER U.S. GOVERNMENT INCOME FUND LOW DURATION U.S. GOVERNMENT INCOME
FUND
INVESTMENT GRADE INCOME FUND HIGH INCOME FUND
Financial Highlights
(Continued)
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH INCOME FUND
-------------------------------------------------------------------------------------------
CLASS A
-------------------------------------------------------------------------------------------
FOR THE YEARS ENDED NOVEMBER 30,
-------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning
of period.............. $ 7.14 $ 8.73 $ 7.92 $ 7.30 $ 5.61 $ 7.47 $ 8.60 $ 8.94 $ 10.46
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net investment income... 0.79 0.86 0.89 0.98 0.98 0.99 1.10 1.18 1.23
Net realized and
unrealized gains
(losses) from
investment
transactions........... (0.17) (1.59) 0.83 0.61 1.69 (1.88) (1.15) (0.33) (1.39)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net increase (decrease)
in net asset value
resulting from
operations............. 0.62 (0.73) 1.72 1.59 2.67 (0.89) (0.05) 0.85 (0.16)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Dividends from net
investment income...... (0.80) (0.86) (0.91) (0.97) (0.98) (0.97) (1.08) (1.19) (1.28)
Distributions from net
realized gains from
investment
transactions........... -- -- -- -- -- -- -- -- (0.08)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions to
shareholders........... (0.80) (0.86) (0.91) (0.97) (0.98) (0.97) (1.08) (1.19) (1.36)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
period................. $ 6.96 $ 7.14 $ 8.73 $ 7.92 $ 7.30 $ 5.61 $ 7.47 $ 8.60 $ 8.94
======== ======== ======== ======== ======== ======== ======== ======== ========
Total investment return
(1).................... 9.01 % (9.20)% 22.89% 22.99% 51.11% (12.95)% (0.76)% 9.81% (2.28)%
======== ======== ======== ======== ======== ======== ======== ======== ========
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $248,619 $268,397 $360,281 $279,685 $243,210 $184,990 $322,426 $532,450 $683,692
Ratio of expenses to
average net assets..... 0.93% 0.91% 0.93% 0.98% 1.05% 0.85% 0.71% 0.70% 0.67%
Ratio of net investment
income to average net
assets................. 11.17% 10.43% 10.61% 12.68% 15.12% 15.20% 13.50% 13.55% 12.05%
Portfolio turnover rate. 94% 156% 182% 185% 117% 110% 132% 111% 145%
</TABLE>
- -------
# Commencement of offering of shares.
* Annualized.
** Formerly Class D shares.
(1)Total return is calculated assuming a $1,000 investment on the first day of
each period, reinvestment of all dividends and other distributions 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; results
for each Class would be lower if sales charges were included. Total invest-
ment returns for periods of less than one year have not been annualized.

-------------
Prospectus Page 16
<PAGE>

FOR THE FOR THE
YEAR PERIOD FOR THE
ENDED JULY 1, FOR THE YEARS ENDED PERIOD JULY
NOVEMBER 30, FOR THE YEARS ENDED NOVEMBER 30, 1991# TO NOVEMBER 30, 2, 1992# TO
- ------------ -------------------------------------- NOVEMBER 30, ----------------------------- NOVEMBER 30,
1986 1995 1994 1993 1992 1991 1995 1994 1993 1992
- ------------ -------- -------- -------- ------- ------------ -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 10.21 $ 7.14 $ 8.72 $ 7.91 $ 7.29 $ 6.85 $ 7.15 $ 8.74 $ 7.92 $ 7.80
-------- -------- -------- -------- ------- ------- -------- -------- -------- -------
1.30 0.74 0.80 0.83 0.92 0.41 0.76 0.82 0.85 0.33
0.39 (0.18) (1.58) 0.82 0.61 0.44 (0.18) (1.59) 0.82 0.11
-------- -------- -------- -------- ------- ------- -------- -------- -------- -------
1.69 0.56 (0.78) 1.65 1.53 0.85 0.58 (0.77) 1.67 0.44
-------- -------- -------- -------- ------- ------- -------- -------- -------- -------
(1.30) (0.75) (0.80) (0.84) (0.91) (0.41) (0.76) (0.82) (0.85) (0.32)
(0.14) -- -- -- -- -- -- -- -- --
-------- -------- -------- -------- ------- ------- -------- -------- -------- -------
(1.44) (0.75) (0.80) (0.84) (0.91) (0.41) (0.76) (0.82) (0.85) (0.32)
-------- -------- -------- -------- ------- ------- -------- -------- -------- -------
$ 10.46 $ 6.95 $ 7.14 $ 8.72 $ 7.91 $ 7.29 $ 6.97 $ 7.15 $ 8.74 $ 7.92
======== ======== ======== ======== ======= ======= ======== ======== ======== =======
17.31% 8.05% (9.77)% 21.89% 22.07% 11.93% 8.45% (9.62)% 22.19% 5.21%
======== ======== ======== ======== ======= ======= ======== ======== ======== =======
$770,137 $212,946 $235,480 $286,525 $99,645 $18,274 $103,911 $115,196 $176,161 $35,992
0.69% 1.68% 1.64% 1.66% 1.70% 1.73%* 1.44% 1.38% 1.39% 1.45%*
12.07% 10.42% 9.66% 9.69% 11.42% 12.43%* 10.63% 9.91% 9.81% 10.67%*
169% 94% 156% 182% 185% 117% 94% 156% 182% 185%
</TABLE>

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<PAGE>

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

Flexible Pricing System
----------------------------------------------------------------------------

DIFFERENCES AMONG THE CLASSES

The primary distinctions among the Classes of each 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 NET
SALES CHARGE ASSETS) OTHER INFORMATION
------------ ------------------------- -----------------
<S> <C> <C> <C>
CLASS A Maximum initial sales charge Service fee of 0.25% Initial sales charge waived
of 4% (3% for Low Duration or reduced for certain
Income Fund) of the public purchases
offering price
CLASS B Maximum contingent deferred Service fee of 0.25%; Shares convert to Class A
sales charge of 5% upon distribution fee of shares approximately six
redemption (3% for Low 0.75% years after issuance
Duration Income Fund);
declines to zero after six
years (four years for Low
Duration Income Fund)
CLASS C Contingent deferred sales Service fee of 0.25%; --
charge of 0.75% upon distribution fee of
redemption for first year 0.50%
</TABLE>

FACTORS TO CONSIDER IN CHOOSING A CLASS OF SHARES

In deciding which Class of shares to purchase, investors should consider the
cost of sales charges together with the cost of the ongoing 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 4% of the public offering price (3% for Class A shares of Low
Duration Income Fund). 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
5% applies to most redemptions made within six years of purchase (for Low
Duration Income Fund, 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 one 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 a 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 each 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%, and Class C shares pay an annual 12b-1
distribution fee of 0.50%, of average daily net

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Prospectus Page 18
<PAGE>

Investment Objectives and Policies
- --------------------------------------------------------------------------------
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.

For example, assuming a constant net asset value, the cumulative distribution
fees on the Class B shares of U.S. Government Income Fund, Investment Grade
Income Fund and High Income Fund would approximate the expenses of the 4%
maximum initial sales charge on the Class A shares if the shares were held for
approximately 5 1/2 years. For these Funds, the cumulative distribution fees on
their Class C shares would approximate the expenses of the 4% maximum initial
sales charge on the Class A shares if the shares were held for approximately
eight years.

For Low Duration Income Fund, the cumulative distribution fees on its Class B
or Class C shares would approximate the 3% maximum initial sales charge on its
Class A shares if the shares were held approximately four years in the case of
the Class B shares or approximately six years in the case of the Class C
shares.

Class B shares convert to Class A shares (which do not bear the expense of
ongoing distribution fees) approximately six years after purchase. The
cumulative distribution fees on a Fund's Class C shares would approximate the
cumulative distribution fees on the Class B shares if the shares were held for
nine years. Thus, an investor who would be subject to the maximum initial sales
charge on Class A shares and who expects to hold shares of a Fund for less than
nine years (six years for Low Duration Income Fund) 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 may differ slightly because of the allocation
of other Class-specific expenses. The "Example of Effect of Fund Expenses"
under "Prospectus Summary" shows for each Fund 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 distri-
bution fees for Class A, B and C shares of each Fund. See also "Conversion of
Class B Shares," "Dividends and Taxes" and "General Information" for other dif-
ferences among the three Classes.
INVESTMENT OBJECTIVES AND PRIMARY INVESTMENTS

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

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

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

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<PAGE>

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

investment grade bonds and other fixed income securities.

The investment objective of HIGH INCOME FUND is to provide the highest level of
current income available without undue risk. The Fund invests in a diversified
range of high risk, high yield medium to lower quality bonds. At a special
meeting of shareholders scheduled for April 10, 1996, shareholders of the Fund
will be asked to approve a change in the Fund's investment objective from "to
provide the highest level of current income available without undue risk" to
"to provide high income."

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

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

Under normal conditions, U.S. Government Income Fund and Low Duration Income
Fund each invests at least 65% of its total assets in U.S. government
securities, including mortgage-backed securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities ("U.S. government mortgage-
backed securities"), other obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities and repurchase agreements with
respect to those securities. While these instruments may be guaranteed as to
the payment of interest and principal, they are not guaranteed as to market
value. Up to 35% of each Fund's total assets may be invested in privately
issued mortgage- and asset-backed securities that at the time of purchase have
been rated AAA by S&P or Aaa by Moody's, have an equivalent rating from another
NRSRO or, if unrated, have been determined by Mitchell Hutchins or PIMCO, as
applicable, to be of comparable quality. As a matter of fundamental policy,
each Fund normally concentrates at least 25% of its total assets in mortgage-
and asset-backed securities issued or guaranteed by private issuers or by
agencies or instrumentalities of the U.S. government.

Low Duration Income Fund seeks to limit the volatility of its net asset value
per share by maintaining, under normal circumstances, an overall portfolio
duration of from one to three years. U.S. Government Income Fund has no fixed
portfolio duration policy. Duration is a measure of the expected life of a
fixed income security on a present value basis. See "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-through securities and collateralized
mortgage obligations. Multi-class pass-through securities and collateralized
mortgage obligations are collectively referred to herein as CMOs. Issuers and
guarantors of the U.S. government mortgage-backed securities in which U.S.
Government Income Fund and Low Duration Income Fund may invest include the
Government National Mortgage Association ("Ginnie Mae"), the Federal National
Mortgage Association ("Fannie Mae"), or the Federal Home Loan Mortgage
Corporation ("Freddie Mac"). Private issuers of mortgage-backed securities, in
which each Fund may invest, are generally originators of, and investors in,
mortgage loans, including savings associations, mortgage bankers, commercial
banks, investment bankers and special purpose entities (collectively, "Private
Mortgage Lenders"). Payments of principal and interest (but not the market
value) of such private mortgage-backed securities may be supported by pools of
mortgage loans or other mortgage-backed securities that are guaranteed,
directly or indirectly, by the U.S. government or one of its agencies or
instrumentalities, or they may be issued without any government guarantee of
the underlying mortgage assets but with some form of non-government credit
enhancement. For more information concerning the types of mortgage-backed
securities in which the Funds may invest, see Appendix A to this Prospectus.

Each Fund's policy of investing at least 25% of its total assets in mortgage-
and asset-backed securities

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<PAGE>

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

has the effect of increasing the Fund's exposure to the risks related to such
securities and might cause the Fund's net asset value per share to fluctuate
more than otherwise would be the case. See
"Risks of Mortgage- and Asset-Backed Securities."

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

U.S. Government Income Fund and Low Duration Income Fund may invest in certain
zero coupon securities that are U.S. Treasury notes and bonds that have been
stripped of their unmatured interest coupon receipts or interests in such U.S.
Treasury securities or coupons. The SEC staff currently takes the position that
"stripped" U.S. government securities that are not issued through the U.S.
Treasury are not U.S. government securities. As long as the SEC takes this
position, Certificates of Accrual Treasury Securities ("CATS") and Treasury
Income Growth Receipts ("TIGRs"), which are not issued through the U.S.
Treasury will not be counted as U.S. government securities for purposes of the
65% investment requirement. See "Risks of Zero Coupon Securities."

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

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

INVESTMENT GRADE INCOME FUND

Investment Grade Income Fund invests in a diversified range of investment grade
bonds and other fixed income securities. Investment grade bonds are those bonds
that, at the time of purchase, are assigned one of the four highest grades by
S&P or Moody's, are comparably rated by another NRSRO or, if unrated, are
determined by Mitchell Hutchins to be of comparable quality to such rated
securities. Under normal circumstances, the Fund invests at least 65% of its
total assets in investment grade corporate bonds and securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities. Up to 35%
of the Fund's total assets may be invested in corporate bonds that are below
investment grade, preferred stocks, convertible securities, certain mortgage-
and asset-backed securities described below, commercial paper or variable
amount master notes issued by companies having at the time of purchase an issue
of outstanding debt securities rated investment grade by S&P or Moody's or
commercial paper rated A-1 by S&P or P-1 by Moody's, and other money market
instruments, including repurchase agreements. Up to 20% of the Fund's net
assets may be invested in U.S. dollar-denominated securities of foreign issuers
the value of which is linked to the value of foreign currencies. The Fund may
also seek to enhance income or to reduce the risks associated with ownership of
the securities in which it invests through the use of options, futures
contracts, options on futures contracts and interest rate protection
transactions. See "Hedging and Related Income Strategies."

Investment Grade Income Fund may invest in mortgage-backed securities that are
issued or guaranteed as to the payment of principal and interest (but not as to
market value) by the U.S. government, its agencies or instrumentalities or
issued by private issuers and rated in the four highest ratings of S&P or
Moody's. The Fund also may invest in asset-backed securities that are rated in
the two highest ratings assigned by S&P or Moody's. See "Risk Factors." The
Fund may invest

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<PAGE>

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

up to 10% of its total assets in classes of mortgage-backed securities that
receive different proportions of the interest and principal distributions from
the underlying mortgage assets. See "--Risks of Mortgage- and Asset-Backed
Securities."

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

HIGH INCOME FUND

High Income Fund invests in a diversified range of high risk, high yield medium
to lower quality bonds. Generally, higher yielding bonds carry ratings assigned
by S&P, Moody's or another NRSRO that are lower than those assigned to
investment grade bonds, or are unrated, and thus carry higher investment risk
than investment grade bonds. See "Risks of Lower Rated Securities." Under
normal circumstances, at least 65% of the Fund's total assets are invested in
high risk, high yielding, income producing corporate debt securities that at
the time of purchase are rated B or better by S&P or Moody's, comparably rated
by another NRSRO or are unrated but determined to be of comparable quality by
Mitchell Hutchins. Up to 35% of the Fund's total assets may be invested in debt
securities rated below B by S&P or Moody's or comparably rated by another
NRSRO, preferred stocks, securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, equity securities (including
common stocks, warrants and rights) when attached to fixed income securities or
as a part of a unit including fixed income securities, or in connection with a
conversion or exchange of fixed income securities and money market instruments,
including repurchase agreements. The Fund may invest in securities selling at a
substantial discount from par; such securities carry with them the potential
for capital gain, but will not normally be purchased unless they also provide a
high level of current income. The Fund may invest up to 35% of its net assets
in securities of foreign issuers, with no more than 10% of its net assets in
securities of foreign issuers that are denominated and traded in currencies
other than the U.S. dollar. The Fund may also seek to enhance income or to
reduce the risks associated with ownership of the debt securities in which it
invests through the use of options, futures contracts, options on futures
contracts, forward currency contracts and interest rate protection
transactions. See "Hedging and Related Income Strategies."

If the proposed change in High Income Fund's investment objective is approved
by its shareholders, the Fund's investment policies will change at the same
time to permit investment of up to 25% of its total assets in securities that
do not currently provide income but that Mitchell Hutchins believes have the
potential for capital appreciation. The securities that the Fund could purchase
pursuant to this new investment policy include debt securities that are not
currently paying income and equity securities such as common stock, warrants,
rights and preferred stocks that are not paying current income.

During its 1995 fiscal year, High Income Fund had 80% of its average annual net
assets in debt securities that received a rating from S&P or Moody's or another
NRSRO and 15% of its average annual net assets in debt securities that were not
so rated. The Fund had the following percentages of its average annual net
assets invested in rated securities: AAA/Aaa (including cash items)--2%,
AA/Aa--0%, A/A--0%, BBB/Baa--0%, BB/Ba--21%, B/B--51%, CCC/Caa--6%. It should
be noted that this information reflects the average composition of the Fund's
assets during the fiscal year ended November 30, 1995 and is not necessarily
representative of the Fund's assets as of the end of that fiscal year, the
current fiscal year or at any time in the future.

OTHER INVESTMENT POLICIES AND RISK FACTORS

RISK FACTORS. Each Fund's net asset value fluctuates based on changes in the
value of its portfolio securities. Neither the issuance by, nor the guarantee
of, a U.S. government agency nor even the highest rating by a NRSRO constitutes

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assurance that the security will not fluctuate in value or that a Fund will
receive the originally anticipated yield on the security. An investment in a
Fund also is subject to the risks discussed below.

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

- --RISKS OF MORTGAGE- AND ASSET-BACKED SECURITIES. The yield characteristics of
the mortgage- and asset-backed securities in which U.S. Government Income Fund,
Low Duration Income Fund and Investment Grade Income Fund may invest differ
from those of traditional debt securities. Among the major differences are that
interest and principal payments are made more frequently on mortgage- and
asset-backed securities (usually monthly) and that principal may be prepaid at
any time because the underlying mortgage loans or other assets generally may be
prepaid at any time. As a result, if a Fund purchases these securities at a
premium, a prepayment rate that is faster than expected will reduce yield to
maturity, while a prepayment rate that is slower than expected will have the
opposite effect of increasing yield to maturity. Conversely, if a Fund
purchases these securities at a discount, faster than expected prepayments will
increase, while slower than expected prepayments will reduce, yield to
maturity. Amounts available for reinvestment by a Fund are likely to be greater
during a period of declining interest rates and, as a result, are likely to be
reinvested at lower interest rates than during a period of rising interest
rates. Accelerated prepayments on securities purchased by a Fund at a premium
also impose a risk of loss of principal because the premium may not have been
fully amortized at the time the principal is prepaid in full. The market for
privately issued mortgage- and asset-backed securities is smaller and less
liquid than the market for U.S. government mortgage-backed securities. CMO
classes may be specially structured in a manner that provides any of a wide
variety of investment characteristics, such as yield, effective maturity and
interest rate sensitivity. As market conditions change, however, and
particularly during periods of rapid or unanticipated changes in market
interest rates, the attractiveness of the CMO classes and the ability of the
structure to provide the anticipated investment characteristics may be
significantly reduced. These changes can result in volatility in the market
value, and in some instances reduced liquidity, of the CMO class.

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. In the most extreme case, one class will be entitled to receive all or a
portion of the interest but none of the principal from the underlying mortgage
assets (the interest-only or "IO" class) and one class will be entitled to
receive all or a portion of the principal but none of the interest (the
principal-only or "PO" class). IOs and POs may also be created from mortgage-
backed securities that are not CMOs. The yields on IOs, POs and other mortgage-
backed securities that are purchased at a substantial premium or discount
generally are extremely sensitive to the rate of principal payments (including
prepayments) on the underlying mortgage assets. If the mortgage assets
underlying an IO experience greater than anticipated principal prepayments, an
investor may fail to recoup fully his or her initial investment even if the
security is government issued or guaranteed or is rated AAA or the equivalent.
While Low Duration Income Fund generally may invest in CMO classes that are
structured to sell at a premium or discount, the Fund may not invest in IO or
PO classes. U.S. Government Income Fund and Investment Grade Income Fund are
not subject to any similar limitation.

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index increases. For other CMO classes, the yield may move in the same
direction as market interest rates--i.e. the yield may increase as rates
increase and decrease as rates decrease--but may do so more rapidly or to a
greater degree. The market value of such securities generally is more volatile
than that of a fixed rate obligation. Such interest rate formulas may be
combined with other CMO characteristics. For example, a CMO class may be an
"inverse IO," on which the holders are entitled to receive no payments of
principal and are entitled to receive interest at a rate that will vary
inversely with a specified index or a multiple thereof. Low Duration Income
Fund may not invest in inverse floating rate mortgage- or asset-backed
securities. U.S. Government Income Fund and Investment Grade Income Fund are
not subject to any similar limitation.

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

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

- --RATINGS OF DEBT SECURITIES. Ratings of debt securities represent the NRSROs'
opinions regarding their quality, are not a guarantee of quality and may be
reduced after a Fund has acquired the security. Mitchell Hutchins or PIMCO
would consider such an event in determining whether the Fund should continue to
hold the security but is not required to dispose of it. Credit ratings attempt
to evaluate the safety of principal and interest payments and do not reflect an
assessment of the volatility of the security's market value or the liquidity of
an investment in the security. Also, NRSROs may fail to make timely changes in
credit ratings in response to subsequent events, so that an issuer's financial
condition may be better or worse than the rating indicates. See Appendix B to
this Prospectus for further information regarding S&P's and Moody's ratings.

- --RISKS OF LOWER RATED SECURITIES. High Income Fund may invest all of its
assets in corporate bonds rated below investment grade and Investment Grade
Income Fund may invest up to 35% of its assets in such bonds. Investment Grade
Income Fund must normally invest at least 65% of its assets in debt securities
rated investment grade. Investment grade bonds include debt securities rated
BBB by S&P, Baa by Moody's or comparably rated by another NRSRO. Moody's
considers securities rated Baa to have speculative characteristics. Changes in
economic conditions or other circumstances are more likely to lead to a
weakened capacity for such securities to make principal and interest payments
than is the case for higher grade debt securities. Debt securities rated below
investment grade are deemed by these agencies to be predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal and
may involve major risk exposure to adverse conditions. Such securities are
commonly referred to as "junk bonds." Investment Grade Income Fund and High
Income Fund each may invest up to 35% of its assets in debt securities rated
lower than B, which include securities that are in default or face the risk of
default with respect to the payment of principal or interest. Such securities
are generally unsecured and are often subordinated to other creditors of the
issuer. To the extent a Fund is required to seek recovery upon a default in the
payment of principal or interest on its portfolio holdings, the Fund may incur
additional expenses and may have limited legal recourse in the event of a
default. Investment Grade Income Fund and High Income Fund are also permitted
to purchase debt securities that are not rated by a NRSRO but that Mitchell
Hutchins determines to be of comparable quality to that of rated securities in
which those Funds may invest. Such securities are included in the computation
of any percentage limitations applicable to the comparable rated securities. In
the event that, due to a downgrade of one or more debt securities, an amount in
excess of 35% of Investment Grade Income Fund's total assets is held in
securities

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rated below investment grade and comparable unrated securities, Mitchell
Hutchins will engage in an orderly disposition of such securities to the extent
necessary to reduce the Fund's holdings of these securities to 35% of total
assets.

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

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

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

- --RISKS OF ZERO COUPON SECURITIES. Each Fund may invest in certain zero coupon
securities that are "stripped" U.S. Treasury notes and bonds. High Income Fund
may also invest in zero coupon securities of corporate issuers and other
securities that are issued with original issue discount ("OID") and payment-in-
kind ("PIK") securities. Zero coupon securities usually trade at a substantial
discount from their face or par value; PIK securities often trade at a discount
from their face or par value. Both zero coupon and PIK securities are subject
to greater fluctuations of market value in response to changing interest rates
than debt obligations of comparable maturities that make current distributions
of interest in cash.

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

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

- --RISKS OF FOREIGN SECURITIES. Investment Grade Income Fund may invest up to
20% of its net assets in U.S. dollar-denominated securities of foreign

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

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

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

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

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

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

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

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

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

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

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

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

The dollar rolls and reverse repurchase agreements entered into by U.S.
Government Income Fund and Low Duration Income Fund normally will be arbitrage
transactions in which the Fund will maintain an offsetting position in
securities or repurchase agreements that mature on or before the settlement
date on the related dollar roll or reverse repurchase agreement. Since the Fund
will

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

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

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

ILLIQUID SECURITIES. Each Fund may invest up to 10% (15% for Low Duration
Income Fund) of its net assets in illiquid securities. The term "illiquid
securities" for this purpose means securities that cannot be disposed of within
seven days in the ordinary course of business at approximately the price at
which the Fund has valued the securities. Under current guidelines of the staff
of the SEC, IOs and POs are considered illiquid. However, IO and PO classes of
fixed-rate mortgage-backed securities issued by the U.S. government or one of
its agencies or instrumentalities will not be considered illiquid if Mitchell
Hutchins has determined that they are liquid pursuant to guidelines established
by the Trust's board of trustees. Illiquid securities also are considered to
include, among other things, written OTC options, repurchase agreements with
maturities in excess of seven days and securities whose disposition is
restricted under the federal securities laws (other than "Rule 144A" securities
that Mitchell Hutchins or PIMCO has determined to be liquid under procedures
approved by the Trust's board of trustees).

Rule 144A establishes a "safe harbor" from the requirements of the Securities
Act of 1933 ("1933 Act"). Institutional markets for restricted securities have
developed as a result of Rule 144A, providing both readily ascertainable values
for restricted securities and the ability to liquidate an investment to satisfy
share redemption orders. An insufficient

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number of qualified institutional buyers interested in purchasing Rule 144A-
eligible restricted securities held by a Fund, however, could affect adversely
the marketability of such portfolio securities and the Fund might be unable to
dispose of such securities promptly or at favorable prices.

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

LENDING OF PORTFOLIO SECURITIES. Each 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.

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

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

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

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Prospectus Page 29
<PAGE>

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

three years generally will decrease in value by approximately 3%. Accordingly,
if Mitchell Hutchins or PIMCO calculates the duration of the Fund's portfolio
as being three years, it normally would expect the portfolio to change in value
by approximately 3% for every 1% change in the level of interest rates.
However, various factors, such as changes in anticipated prepayment rates,
qualitative considerations 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 a Fund's portfolio may vary in relation to
interest rates by a greater or lesser percentage than indicated by the above
example.

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

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

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

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

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

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Prospectus Page 30
<PAGE>

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 Funds 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 an
account. The minimum initial investment for each Fund is $1,000 ($100 for Low
Duration Income Fund) and the minimum for additional purchases is $100. These
minimums may be waived or reduced for investments by employees of PaineWebber
or its affiliates, certain pension plans and retirement accounts and
participants in the Funds' automatic investment plans. 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 Class A shares.
Each Fund and Mitchell Hutchins reserve the right to reject any purchase order
and to suspend the offering of Fund 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 purchases 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 Funds through the Transfer Agent. Shares of a Fund
may be purchased, and an account with the Fund established, by calling
PaineWebber at 1-800-647-1568 to obtain an application form, completing and
signing the application form 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 SCHEDULES-- CLASS A SHARES

U.S. GOVERNMENT INCOME FUND
INVESTMENT GRADE INCOME FUND
HIGH INCOME FUND

LOW DURATION INCOME FUND

<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE DISCOUNT TO
OF SELECTED DEALERS
---------------------------------- AS A PERCENTAGE
OFFERING NET AMOUNT INVESTED OF OFFERING
AMOUNT OF PURCHASE PRICE (NET ASSET 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 1.0%. See "Contingent
Deferred Sales Charge--Class A Shares."

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Prospectus Page 31
<PAGE>

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

Mitchell Hutchins may at times agree to reallow a higher discount to
PaineWebber, as exclusive dealer for each 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 a 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 of the Funds 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 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 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 of the Funds 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 any Fund without regard to minimum investment
requirements and without sales charges by electing to have dividends and other
distributions from their UIT investment automatically invested in Class A
shares.

Class A shares may be acquired without a sales charge if issued by a Fund in
connection with a

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<PAGE>

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

reorganization pursuant to which the Fund acquires substantially all of the
assets and 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 5% (3%
for Low Duration Income Fund) 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 six years or longer (four years or
longer for Low Duration Income Fund) 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:

U.S. GOVERNMENT INCOME
FUND INVESTMENT GRADE
INCOME FUND HIGH INCOME
FUND

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
REDEMPTION PERCENTAGE OF
DURING NET ASSET VALUE
---------- -----------------------------
<S> <C>
1st Year Since Purchase........................... 5%
2nd Year Since Purchase........................... 4
3rd Year Since Purchase........................... 3
4th Year Since Purchase........................... 2
5th Year Since Purchase........................... 2
6th Year Since Purchase........................... 1
7th Year Since Purchase........................... None

LOW DURATION INCOME FUND

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

In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption is made first of Class B shares
representing 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. 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

-------------
Prospectus Page 33
<PAGE>

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

of any contingent deferred sales charge will be paid to Mitchell Hutchins.

Class B shareholders of Low Duration Income Fund who exchange those shares for
Class B shares of other PaineWebber mutual funds will be subject to the
contingent deferred sales charge schedule of the Class B shares acquired
through the exchange, which, in most instances, is both higher than that
applicable to the Class B shares of Low Duration Income Fund and is imposed
over a longer period. Class B shareholders of one of these other funds who
acquire Class B shares of Low Duration Income Fund through an exchange will
continue to be subject to the contingent deferred sales charge of their
original fund.

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

PURCHASES 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 .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 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"). The amount
of the contingent deferred sales charges imposed on redemptions of Class C
shares may be different for other PaineWebber mutual funds. 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.
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.

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Prospectus Page 34
<PAGE>

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

Shares of each Fund may be exchanged for shares of the corresponding Class of
other PaineWebber mutual funds (including the other 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

.Strategic 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

.Financial Services 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

PaineWebber clients must place exchange orders through their PaineWebber
investment executives or correspondent firms unless the shares to be exchanged
are held in certificate form. Shareholders who are not PaineWebber clients or
who hold their shares in certificated form 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 Funds 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. See the Statement of Additional Information for further
details. This exchange privilege is available only in those jurisdictions where
the sale of the PaineWebber mutual fund shares to be acquired through such
exchange 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.

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Prospectus Page 35
<PAGE>

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 non-certificated 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 telephone, mail or wire. As each 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 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. Fund shareholders who are not
PaineWebber clients or who wish to redeem certificated shares 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 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, (3) other supporting
legal documents for estates, trusts, guardianships, custodianships,
partnerships and corporations and (4) duly endorsed share certificates, if any.
Shareholders are responsible for ensuring that a request for redemption is
received in "good order."

ADDITIONAL INFORMATION ON REDEMPTIONS. A shareholder who holds non-certificated
Fund shares may have redemption proceeds of $1 million or more wired to the
shareholder's PaineWebber brokerage account or a commercial bank account
designated by the shareholder. Questions about this option, or redemption
requirements generally, should be referred to the shareholder's PaineWebber
investment executive or correspondent firm, 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, a Fund may delay
payment until it is assured that good payment has been received. In the case of
purchases by check, this can take up to 15 days.

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

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INVESTMENT GRADE INCOME FUND HIGH INCOME FUND

that fall below the minimum required level solely as a result of a reduction in
net asset value per share.

Shareholders who have redeemed Class A shares may reinstate their Fund account
without a sales charge up to the dollar amount redeemed by purchasing Class A
shares of the same Fund within 365 days of 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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Conversion of Class B Shares
- --------------------------------------------------------------------------------

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

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

AUTOMATIC INVESTMENT PLAN. Shareholders may purchase shares of the Funds
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 a 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 a 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 non-certificated 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 shares monthly,
quarterly or semi-annually under the 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

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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 of a Fund concurrent with withdrawals are
ordinarily disadvantageous to shareholders because of tax liabilities and, for
Class A shares, sales charges.

INDIVIDUAL RETIREMENT ACCOUNTS. Shares of the Funds may be purchased through
IRAs available through the Funds. In addition, a Self-Directed IRA is available
through PaineWebber under which investments may be made in the Funds 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 shares of a Fund 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 a Fund, the shareholder may be
able to hold Fund shares in an account with the other firm.
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Dividends and Taxes
- --------------------------------------------------------------------------------

DIVIDENDS. Dividends from each Fund's net investment income are declared daily
and paid monthly on or about the 15th day of each month. Net investment income
includes accrued interest and discount, less amortization of premium and
accrued expenses. High Income Fund may, but is not required to, distribute with
any dividend all or a portion of any net realized gains from foreign currency
transactions.

Substantially all of each Fund's net capital gain (the excess of net long-term
capital gain over net short-term capital loss) and net short-term capital gain,
if any, and, for High Income Fund, any undistributed net realized gains from
foreign currency transactions, are distributed annually. A Fund may make
additional distributions if necessary to avoid a 4% excise tax on certain
undistributed income and capital gain. While High Income Fund will not declare
any dividend in excess of the amount of net investment income and net realized
gains from foreign currency transactions available for distribution at the time
of declaration, it is possible that net losses from foreign currency
transactions after that time could convert a portion of such a dividend to a
non-taxable return of capital.

Dividends and other distributions on all Classes of shares of a Fund are
calculated at the same time and in the same manner. Dividends on Class B and
Class C shares of a Fund 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 of a Fund are expected to be lower than those on its 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.

Each Fund's 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
other distributions in cash, either mailed to the shareholder by check or

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INVESTMENT GRADE INCOME FUND HIGH INCOME FUND

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. Each Fund intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code so that it will be relieved
of federal income tax on that part of its investment company taxable income
(consisting generally of net investment income, net short-term capital gain
and, for High Income Fund, net gains from certain foreign currency
transactions) and net capital gain that is distributed to its shareholders.

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

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

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

A redemption of shares of a Fund may result in taxable gain or loss to the
redeeming shareholder, depending on whether the redemption proceeds payable to
the shareholder are more or less than the shareholder's adjusted basis for the
redeemed shares (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 of a Fund through a
redemption or exchange within 90 days of purchase and (2) subsequently acquires
Class A shares of a PaineWebber mutual fund without paying a sales charge due
to the 365-day reinstatement privilege or the exchange 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
a Fund are purchased within 30 days before or after redeeming other Fund shares
of that Fund (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 to 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 each Fund and its shareholders; see the
Statement of Additional Information for a further discussion. There may be
other federal, state or local tax considerations applicable to a particular
investor. Prospective investors are urged to consult their tax advisers.
- --------------------------------------------------------------------------------

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

The net asset value of each 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. Each Fund's 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.

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by or under the direction of the Trust's board of trustees. The amortized cost
method of valuation generally is used to value debt obligations with 60 days or
less remaining to maturity, unless the board of trustees determines that this
does not represent fair value. Investments of High Income Fund denominated in
foreign currencies are valued daily in U.S. dollars based on the then-
prevailing exchange rate. It should be recognized that judgment plays a greater
role in valuing lower rated debt securities in which High Income Fund and
Investment Grade Income Fund may invest because there is less reliable,
objective data available.
- --------------------------------------------------------------------------------

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

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

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

Each Fund also pays PaineWebber an annual fee of $4.00 per active shareholder
account held at PaineWebber for certain services not provided by the Transfer
Agent. Each Fund incurs other expenses, and, for the fiscal year ended November
30, 1995, the Funds' total expenses for their Class A, Class B and Class C
shares, stated as a percentage of average net assets, were as follows:
1.03%,1.81% and 1.55% for U.S. Government Income Fund, 1.15%, 2.02% and 1.75%
for Low Duration Income Fund, 0.95%, 1.70% and 1.45% for Investment Grade
Income Fund and 0.93%, 1.68% and 1.44% for High Income Fund.

Mitchell Hutchins is located at 1285 Avenue of the Americas, New York, New York
10019. It is a wholly owned subsidiary of PaineWebber, which is in turn wholly
owned by Paine Webber Group Inc., a publicly owned financial services holding
company. As of February 29, 1996, Mitchell Hutchins was adviser or sub-adviser
of 32 investment companies with 66 separate portfolios and aggregate assets of
over $31.2 billion.

PIMCO is located at 840 Newport Center Drive, Suite 360, Newport Beach,
California 92660. PIMCO is a subsidiary of PIMCO Advisors L.P., a publicly held
investment advisory firm. As of February 29, 1996, PIMCO had approximately $78
billion in assets under management and was adviser or sub-adviser of investment
companies with 47 portfolios and aggregate assets of approximately $8.5
billion.

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

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

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INVESTMENT GRADE INCOME FUND HIGH INCOME FUND

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

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

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

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

DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins is the distributor of each 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"), each Fund pays Mitchell Hutchins
monthly service fees at the annual rate of 0.25% of the average daily net
assets of each Class of shares. Each Fund also pays Mitchell Hutchins monthly
distribution fees 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 fees primarily to pay
PaineWebber for shareholder servicing, currently at the annual rate of 0.25% of
the aggregate investment amounts maintained in each 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
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 fees under the Class B Plan and Class C
Plan to offset the commissions it pays to PaineWebber for selling the Funds'
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, respectively, to offset each Fund's
marketing costs attributable to such Class, 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 additional compensation to PaineWebber and other
costs allocated to Mitchell Hutchins' and PaineWebber's distribution
activities, including employee salaries, bonuses and other overhead expenses.

Mitchell Hutchins expects that, from time to time, PaineWebber will pay
shareholder servicing fees and sales commissions to its investment executives
at the time of sale of Class C shares of one or more of the Funds. 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

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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 shares ("Distribution Contracts")
obligate the Funds 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 for any Fund, 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. Each
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 Fund's Plans, the
trustees will review the Plan and Mitchell Hutchins' corresponding expenses for
each Class separately from the Plan and corresponding expenses for the other
two Classes.
- --------------------------------------------------------------------------------

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

Each Fund performs a standardized computation of annualized total return and
may show this return in advertisements or promotional materials. Standardized
return shows the change in value of an investment in the Fund as a steady
compound annual rate of return. Actual year-by-year returns fluctuate and may
be higher or lower than standardized return. 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.

Each 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.

Each 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.
- --------------------------------------------------------------------------------

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

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

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Appendix A
Mortgage-Backed Securities
----------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES

The U.S. government securities in which the U.S. Government Income Fund, Low
Duration Income Fund and Investment Grade Income Fund may invest include
mortgage-backed securities issued or guaranteed by Ginnie Mae, Fannie Mae or
Freddie Mac. While these mortgage-backed securities may be guaranteed as to
payment of interest and principal, they are not guaranteed as to market value.
Other mortgage-backed securities in which the Funds may invest will be issued
by Private Mortgage Lenders. Such private mortgage-backed securities may be
supported by pools of mortgage loans or other mortgage-backed securities that
are guaranteed, directly or indirectly, by the U.S. government or one of its
agencies or instrumentalities, or they may be issued without any government
guarantee of the underlying mortgage assets but with some form of non-
government credit enhancement. New types of mortgage-backed securities are
developed and marketed from time to time and, consistent with their investment
limitations, the Funds expect to invest in those new types of mortgage-backed
securities that Mitchell Hutchins or PIMCO believes may assist the Funds in
achieving their investment objectives. Similarly, the Funds may invest in
mortgage-backed securities issued by new or existing governmental or private
issuers other than those identified herein.

GINNIE MAE CERTIFICATES

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

FANNIE MAE CERTIFICATES

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

FREDDIE MAC CERTIFICATES

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

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PRIVATE, RTC AND SIMILAR MORTGAGE-BACKED SECURITIES

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

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

COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS MORTGAGE PASS-THROUGHS

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

In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMO, also referred to as a "tranche," is issued at a specific fixed or
floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Mortgage Assets may cause CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all classes of a CMO (other than any 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 pay-
ment 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-

-------------
Prospectus Page 44
<PAGE>

backed securities are classes of mortgage-backed securities that have been
structured to represent the right to receive interest payments at rates that
fluctuate in accordance with an index but that generally are supported by pools
comprised of fixed-rate mortgage loans. Because the interest rates on ARM and
floating rate mortgage-backed securities are reset in response to changes in a
specified market index, the values of such securities tend to be less sensitive
to interest rate fluctuations than the values of fixed-rate securities.

TYPES OF CREDIT ENHANCEMENT

To lessen the effect of failures by obligors on Mortgage Assets to make
payments, mortgage-backed securities may contain elements of credit
enhancement. Such credit enhancement falls into two categories: (1) liquidity
protection and (2) protection against losses resulting after default by an
obligor on the underlying assets and collection of all amounts recoverable
directly from the obligor and through liquidation of the collateral. Liquidity
protection refers to the provision of advances, generally by the entity
administering the pool of assets (usually the bank, savings association or
mortgage banker that transferred the underlying loans to the issuer of the
security), to ensure that the receipt of payments on the underlying pool occurs
in a timely fashion. Protection against losses resulting after default and
liquidation ensures ultimate payment of the obligations on at least a portion
of the assets in the pool. Such protection may be provided through guarantees,
insurance policies or letters of credit obtained by the issuer or sponsor, from
third parties, through various means of structuring the transaction or through
a combination of such approaches. The Funds 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
scheduled payments on, or the principal amount of, the underlying assets exceed
that required to make payment of the securities and pay any servicing or other
fees). The degree of credit enhancement provided for each issue generally is
based on historical information regarding the level of credit risk associated
with the underlying assets. Delinquency or loss in excess of that anticipated
could adversely affect the return on an investment in such a security.

-------------
Prospectus Page 45
<PAGE>

DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS

AAA. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.

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

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

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

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

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

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

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

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

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

DESCRIPTION OF S&P CORPORATE DEBT RATINGS

AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong; AA. Debt rated AA has a very
strong capacity to pay interest and repay principal and differs

-------------
Prospectus Page 46
<PAGE>

-----------------------------------------------------------------
-----------------------------------------------------------------
PAINEWEBBER U.S. GOVERNMENT INCOME FUND LOW DURATION U.S. GOVERNMENT INCOME
FUND
INVESTMENT GRADE INCOME FUND HIGH INCOME FUND
from the highest rated issues only in small degree; A. Debt rated A has a
strong capacity to pay interest and repay principal although it is somewhat
more susceptible to the adverse effects of changes in circumstances and
economic conditions than debt in higher rated categories.

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

BB, B, CCC, CC, C. Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation.

BB. Iindicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

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

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

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

NR: "NR" indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as matter of policy.

DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS

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

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

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

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

DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS

A. Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety; A-1. This
designation indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. Those issues determined to possess
overwhelming safety characteristics are denoted with a plus (+) sign
designation; A-2. Capacity for timely payment on issues with this designation
is strong. However, the

-------------
Prospectus Page 47
<PAGE>

relative degree of safety is not as high as for issues designated A-1; A-3.
Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations; B.
Issues rated B are regarded as having only an adequate capacity for timely
payment. However, such capacity may be damaged by changing conditions or short-
term adversities; C. This rating is assigned to short-term debt obligations
with a doubtful capacity for payment; D. This rating indicates that the issue
is either in default or is expected to be in default upon maturity.

-------------
Prospectus Page 48
<PAGE>

THE FOLLOWING ARE DESCRIPTIONS OF INSTRUMENTS THAT ONE OR MORE OF THE FUNDS MAY
USE:

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

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

Debt Security Index Futures Contracts. A debt security index futures contract
is a bilateral agreement pursuant to which one party agrees to accept, and the
other party agrees to make, delivery of an amount of cash equal to a 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.

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

-------------
Prospectus Page 49
<PAGE>

Shares of the Funds can be exchanged for shares of the following PaineWebber
Mutual Funds:

PAINEWEBBER INCOME FUNDS

.Global Income Fund
.Strategic 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
.Financial Services 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

----------

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 the prospectus carefully before
investing.

[LOGO OF RECYCLED PAPER APPEARS HERE] Recycled Paper

PAINEWEBBER

U.S. GOVERNMENT
INCOME FUND
LOW DURATION
U.S. GOVERNMENT INCOME FUND
INVESTMENT GRADE
INCOME FUND
HIGH 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 FUNDS
OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
FUNDS OR THEIR DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.

PROSPECTUS
April 1, 1996

<PAGE>

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

CLASS Y SHARES

1285 Avenue of the Americas New York, New York 10019
PaineWebber U.S. Government Income Fund ("U.S. Government Income Fund") seeks
high current income consistent with the preservation of capital and liquidity.
PaineWebber Low Duration U.S. Government Income Fund ("Low Duration Income
Fund") seeks the highest level of income consistent with the preservation of
capital and low volatility of net asset value. Both Funds invest primarily in
U.S. government securities.

These Funds are series of PaineWebber Managed Investments Trust ("Trust").
This Prospectus concisely sets forth information about the Funds a prospective
investor should know before investing. Please retain this Prospectus for fu-
ture reference. A Statement of Additional Information dated April 1, 1996
(which is incorporated by reference herein) has been filed with the Securities
and Exchange Commission. The Statement of Additional Information can be ob-
tained without charge, and further inquiries can be made, by contacting the
Funds, your PaineWebber investment executive or PaineWebber's correspondent
firms or by calling toll-free 1-800-647-1568. Participants in the PaineWebber
Savings Investment Plan ("PW SIP") may make further inquiries by contacting
the PaineWebber Incorporated Benefits Department, 10th Floor, 1000 Harbor Bou-
levard, Weehawken, New Jersey 07087 or by calling 1-201-902-4444.
The Class Y shares described in this Prospectus are currently offered for sale
primarily to participants in the INSIGHT Investment Advisory Program
("INSIGHT"), when purchased through that program. The Class Y shares of U.S.
Government Income Fund also are offered to the trustee of the PW SIP on
behalf of that Plan. See "Purchases."
----------------

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 PRO-
SPECTUS. ANY REPRE- SENTATION TO THE CONTRARY IS A CRIMINAL OF-
FENSE.

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

The date of this Prospectus is April 1, 1996.

PaineWebber Incorporated
<PAGE>

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

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

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

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

<TABLE>
ANNUAL FUND OPERATING EXPENSES(2)
(as a percentage of average net assets)
<CAPTION>
U.S. GOVERNMENT LOW DURATION
INCOME FUND INCOME FUND
--------------- ------------
<S> <C> <C>
Management fees.................................... 0.50% 0.50%
12b-1 fees......................................... 0.00% 0.00%
Other expenses..................................... 0.18%(a) 0.40%
---- ----
Total operating expenses........................... 0.68% 0.90%
==== ====
</TABLE>
(a) Does not include 0.03% in non-recurring reorganization expenses that U.S.
Government Income Fund incurred during the fiscal year ended November 30,
1995. If those expenses were included, "Other expenses" would be 0.21% and
"Total operating expenses" would be 0.71%.
(1) Participation in INSIGHT is subject to payment of an advisory fee at the
maximum annual rate of 1.50% of assets held through INSIGHT (generally
charged quarterly in advance), which may be charged to the INSIGHT partici-
pant's PaineWebber account.
(2) See "Management" for additional information. The fees and expenses are
those actually incurred for the fiscal year ended November 30, 1995, except
that "Other expenses" for Low Duration Income Fund are estimated based on
the expenses incurred by that Fund's Class A shares for the fiscal year
ended November 30, 1995. The INSIGHT fee is not included.

EXAMPLE OF EFFECT OF FUND EXPENSES
An investor would directly or indirectly pay the following expenses
(including 1.50% annual INSIGHT fee) on a $1,000 investment in each Fund,
assuming a 5% annual return:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Government Income Fund........... $22 $68 $117 $251
Low Duration Income Fund.............. $25 $78 $133 $283
</TABLE>
This Example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund Operating
Expenses remain the same in the years shown. The above tables and the
assumption in the Example of a 5% annual return are required by regulations of
the Securities and Exchange Commission ("SEC") applicable to all mutual funds;
the assumed 5% annual return is not a prediction of, and does not represent,
the projected or actual performance of the Class Y shares of a Fund.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EX-
PENSES, AND A FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN. The
actual expenses attributable to a Fund's Class Y shares will depend upon, among
other things, the level of average net assets and the extent to which the Fund
incurs variable expenses, such as transfer agency costs.

2
<PAGE>

FINANCIAL HIGHLIGHTS

The table below provides selected per share data and ratios for one Class Y
share of each Fund for each of the periods shown. This information is supple-
mented by the financial statements and accompanying notes appearing in each
Fund's Annual Report to Shareholders for the fiscal year ended November 30,
1995, which are incorporated by reference into the Statement of Additional In-
formation. The financial statements and notes, as well as the information in
the table appearing below insofar as it relates to the fiscal year ended No-
vember 30, 1995 and for the prior periods, have been audited by Ernst & Young
LLP, independent auditors, whose reports thereon are included in the Annual
Reports to Shareholders. Further information about each Fund's performance is
also included in the Annual Reports to Shareholders, which may be obtained
without charge.
<TABLE>
<CAPTION>
CLASS Y SHARES**
-----------------------------------------------------------------
LOW DURATION
U.S. GOVERNMENT INCOME FUND INCOME FUND
-------------------------------------------------- --------------
FOR THE PERIOD FOR THE PERIOD
FOR THE SEPTEMBER 11, OCTOBER 20,
YEARS ENDED NOVEMBER 30, 1991 # TO 1995 # TO
---------------------------------- NOVEMBER 30, NOVEMBER 30,
1995 1994 1993 1992 1991 1995
------ ------ ------ ------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, $ 8.49 $10.02 $ 9.97 $ 9.97 $ 9.88 $2.33
beginning of period.... ------ ------ ------ ------ ------ -----
Net investment income... 0.61 0.62 0.70 0.77 0.18 0.01
Net realized and
unrealized gains
(losses) from
investment 0.62 (1.53) 0.05 0.01 0.09 0.01
transactions........... ------ ------ ------ ------ ------ -----
Net increase (decrease)
in net assets resulting 1.23 (0.91) 0.75 0.78 0.27 0.02
from operations........ ------ ------ ------ ------ ------ -----
Dividends from net
investment (0.61) (0.62) (0.70) (0.78) (0.18) (0.01)
income................. ------ ------ ------ ------ ------ -----
Net asset value, end of $ 9.11 $ 8.49 $10.02 $ 9.97 $ 9.97 $2.34
period................. ====== ====== ====== ====== ====== =====
Total investment return 15.06% (9.37)% 7.69% 8.13% 2.37% 0.83%
(1).................... ====== ====== ====== ====== ====== =====
Ratios/Supplemental
Data:
Net assets, end of
period (000's omitted). $7,957 $4,955 $6,232 $5,517 $4,514 $ 321
Ratio of expenses to
average net assets..... 0.71%(2) 0.65% 0.62% 0.63% 0.72%* 0.99%*
Ratio of net investment
income to average net
assets................. 6.96%(2) 6.76% 6.87% 7.70% 8.36%* 5.87%*
Portfolio turnover rate. 206% 358% 83% 28% 71% 242%
</TABLE>
- -------
# Commencement of offering of shares.
* Annualized.
** Formerly Class C shares.
(1) Total return is calculated assuming a $1,000 investment on the first day
of each period reported, reinvestment of all dividends and other distribu-
tions at net asset value on the payable date and a sale at net asset value
on the last day of each period reported. Total investment returns for pe-
riods of less than one year have not been annualized.
(2) These ratios include non-recurring reorganization expenses of 0.03%.

3
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

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

The investment objective of Low Duration Income Fund is to achieve the high-
est level of income consistent with the preservation of capital and low vola-
tility of net asset value. The Fund invests primarily in U.S. government secu-
rities and seeks to limit the volatility of its net asset value per share by
maintaining, under normal circumstances, an overall portfolio duration of from
one to three years.

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

Under normal conditions, each Fund invests at least 65% of its total assets
in U.S. government securities, including mortgage-backed securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities ("U.S.
government mortgage-backed securities"), other obligations issued or guaran-
teed by the U.S. government, its agencies or instrumentalities and repurchase
agreements with respect to those securities. While these instruments may be
guaranteed as to the payment of interest and principal, they are not guaran-
teed as to market value. Up to 35% of each Fund's total assets may be invested
in privately issued mortgage- and asset-backed securities that at the time of
purchase have been rated AAA by Standard & Poor's, a division of The McGraw
Hill Companies, Inc. ("S&P"), or Aaa by Moody's Investors Service, Inc.
("Moody's"), have an equivalent rating from another nationally recognized sta-
tistical rating organization ("NRSRO") or, if unrated, have been determined by
Mitchell Hutchins or PIMCO, as applicable, to be of comparable quality. As a
matter of fundamental policy, each Fund normally concentrates at least 25% of
its total assets in mortgage- and asset-backed securities issued or guaranteed
by private issuers or by agencies or instrumentalities of the U.S. government.

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

Mortgage-backed securities represent direct or indirect participations in,
or are secured by and payable from, mortgage loans secured by real property
and include single- and multi-class pass-through securities and collateralized
mortgage obligations. Multi-class pass-through securities and collateralized
mortgage obligations are collectively referred to herein as CMOs. Issuers and
guarantors of the U.S. government mortgage-backed securities in which the
Funds may invest include the Government National Mortgage Association ("Ginnie
Mae"), the Federal National Mortgage Association ("Fannie Mae") or the Federal
Home Loan Mortgage Corporation ("Freddie Mac"). Private issuers of mortgage-
backed securities in which the Funds may invest are generally origina tors 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

4
<PAGE>

government guarantee of the underlying mortgage assets but with some form of
non-government credit enhancement. For more information concerning the types
of mortgage-backed securities in which the Funds may invest, see Appendix A to
this Prospectus.

Each Fund's policy of investing at least 25% of its total assets in mort-
gage- and asset-backed securities has the effect of increasing the Fund's ex-
posure to the risks related to such securities and might cause the Fund's net
asset value per share to fluctuate more than otherwise would be the case. See
"Risks of Mortgage- and Asset-Backed Securities."

There can be no assurance that either Fund will achieve its investment ob-
jective. Each Fund's net asset value will fluctuate based upon changes in the
value of its portfolio securities. Each Fund's investment objective and cer-
tain other investment limitations as described in the Statement of Additional
Information are fundamental policies and may not be changed without share-
holder approval. Each Fund's policy of normally concentrating at least 25% of
its total assets in mortgage- and asset-backed securities also is fundamental
and may not be changed without shareholder approval. All other investment pol-
icies may be changed by the Trust's board of trustees without shareholder
approval.

Non-mortgage-related U.S. government securities in which the Funds may in-
vest 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 Asso-
ciation, the Federal Home Loan Banks and the Tennessee Valley Authority.

The Funds may invest in certain zero coupon securities that are U.S. Trea-
sury notes and bonds that have been stripped of their unmatured interest cou-
pon 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 securi-
ties. As long as the SEC takes this position, Certificates of Accrual Treasury
Securities ("CATS") and Treasury Income Growth Receipts ("TIGRs") which are
not issued through the U.S. Treasury will not be counted as U.S. government
securities for purposes of the 65% investment requirement. See "Risks of Zero
Coupon Securities."

Asset-backed securities have structural characteristics similar to mortgage-
backed securities. However, the underlying assets are not first lien mortgage
loans or interests therein, but include assets such as motor vehicle install-
ment sale contracts, other installment sale contracts, home equity loans,
leases of various types of real and personal property and receivables from re-
volving 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 is-
suer or other credit enhancements may be present.

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

OTHER INVESTMENT POLICIES AND RISK FACTORS. Each Fund's net asset value
fluctuates based on changes in the value of its portfolio securities. Neither
the issuance by, nor the guarantee of, a U.S. government agency, nor even the
highest rating by a NRSRO constitutes assurance that the security will not
fluctuate in value or that a Fund will receive the originally anticipated
yield

5
<PAGE>

on the security. An investment in a Fund also is subject to the risks dis-
cussed below.

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

--RISKS OF MORTGAGE- AND ASSET-BACKED SECURITIES. The yield characteristics
of the mortgage- and asset-backed securities in which the Funds 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 pre-
paid at any time because the underlying mortgage loans or other assets gener-
ally may be prepaid at any time. As a result, if a Fund purchases these secu-
rities at a premium, a prepayment rate that is faster than expected will re-
duce yield to maturity, while a prepayment rate that is slower than expected
will have the opposite effect of increasing yield to maturity. Conversely, if
a Fund purchases these securities at a discount, faster than expected prepay-
ments will increase, while slower than expected prepayments will reduce, yield
to maturity. Amounts available for reinvestment by a Fund are likely to be
greater during a period of declining interest rates and, as a result, are
likely to be reinvested at lower interest rates than during a period of rising
interest rates. Accelerated prepayments on securities purchased by a Fund at a
premium also impose a risk of loss of principal because the premium may not
have been fully amortized at the time the principal is prepaid in full. The
market for privately issued mortgage- and asset-backed securities is smaller
and less liquid than the market for U.S. government mortgage-backed securi-
ties. CMO classes may be specially structured in a manner that provides any of
a wide variety of investment characteristics, such as yield, effective matu-
rity and interest rate sensitivity. As market conditions change, however, and
particularly during periods of rapid or unanticipated changes in market inter-
est rates, the attractiveness of the CMO classes and the ability of the struc-
ture to provide the anticipated investment characteristics may be signifi-
cantly 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 secu-
rities will be sold at a substantial premium to, or at a discount from, par
value. In the most extreme case, one class will be entitled to receive all or
a portion of the interest but none of the principal from the underlying mort-
gage assets (the interest-only or "IO" class) and one class will be entitled
to receive all or a portion of the principal but none of the interest (the
principal-only or "PO" class). IOs and POs may also be created from mortgage-
backed securities that are not CMOs. The yields on IOs, POs and other mort-
gage-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 under-
lying an IO experience greater than anticipated principal prepayments, an in-
vestor may fail to recoup fully his or her initial investment even if the se-
curity is government issued or guaranteed or is rated AAA or the equivalent.
While Low Duration Income Fund generally may invest in CMO classes that are
structured to

6
<PAGE>

sell at a premium or discount, the Fund may not invest in IO or PO classes.
U.S. Government Income Fund is not subject to any similar limitation.

Some CMO classes are structured to pay interest at rates that are adjusted
in accordance with a formula, such as a multiple or fraction of the change in
a specified interest rate index, so as to pay at a rate that will be attrac-
tive in certain interest rate environments but not in others. For example, an
inverse floating rate CMO class pays interest at a rate that increases as a
specified interest rate index decreases but decreases as that index increases.
For other CMO classes, the yield may move in the same direction as market in-
terest rates--i.e., the yield may increase as rates increase and decrease as
rates decrease--but may do so more rapidly or to a greater degree. The market
value of such securities generally is more volatile than that of a fixed rate
obligation. Such interest rate formulas may be combined with other CMO charac-
teristics. For example, a CMO class may be an "inverse IO," on which the hold-
ers are entitled to receive no payments of principal and are entitled to re-
ceive interest at a rate that will vary inversely with a specified index or a
multiple thereof. Low Duration Income Fund may not invest in inverse floating
rate mortgage- or asset-backed securities. U.S. Government Income Fund is not
subject to any similar limitation.

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

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

--RATINGS OF DEBT SECURITIES. Ratings of debt securities represent the
NRSROs' opinions regarding their quality, are not a guarantee of quality and
may be reduced after a Fund has acquired the security. Mitchell Hutchins or
PIMCO would consider such an event in determining whether the Fund should con-
tinue to hold the security but is not required to dispose of it. Credit rat-
ings attempt to evaluate the safety of principal and interest payments and do
not reflect an assessment of the volatility of the security's market value or
the liquidity of an investment in the security. Also, NRSROs may fail to make
timely changes in credit ratings in response to subsequent events, so that an
issuer's financial condition may be better or worse than the rating indicates.

--RISKS OF ZERO COUPON SECURITIES. Each Fund may invest in certain zero cou-
pon securities that are "stripped" U.S. Treasury notes and bonds. Zero coupon
securities pay no interest to holders prior to maturity. Zero coupon securi-
ties usually trade at a substantial discount from their face or par value and
are subject to greater fluctuations of market value in response to changing
interest rates than debt obligations of comparable maturities that make cur-
rent distributions of interest in cash.

Federal tax law requires that a holder of a security with OID accrue a por-
tion of the OID on the security as income each year, even though the holder
may receive no interest payment on the security during the year. Accordingly,
although the investing Fund will receive no payments on its zero coupon secu-
rities prior to their maturity or disposition, it will have income attribut-
able to such securities.

Companies such as the Funds, which seek to qualify for pass-through federal
income tax treatment as regulated investment companies, must

7
<PAGE>

distribute substantially all of their net investment income each year, includ-
ing non-cash income. Accordingly, each Fund will be required to include in its
dividends an amount equal to the income attributable to its zero coupon secu-
rities. See "Taxes" in the Statement of Additional Information. Those divi-
dends will be paid from the cash assets of a Fund or by liquidation of portfo-
lio securities, if necessary, at a time when the Fund otherwise might not have
done so.

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

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

The Funds might not employ any of the strategies described above, and no as-
surance can be given that any strategy used will succeed. If Mitchell Hutchins
or PIMCO incorrectly forecasts interest rates, market values or other economic
factors in utilizing a strategy for a Fund, the Fund would be in a better po-
sition if it had not entered into the transaction at all. The use of these
strategies involves certain special risks, including (1) the fact that skills
needed to use hedging instruments are different from those needed to select
the Funds' securities, (2) possible imperfect correlation, or even no correla-
tion, 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 in-
vestments and (4) the possible inability of a Fund to purchase or sell a port-
folio security at a time that otherwise would be favorable for it to do so, or
the possible need for a Fund to sell a portfolio security at a disadvantageous
time, due to the need for the Fund to maintain "cover" or to segregate securi-
ties in connection with hedging transactions and the possible inability of a
Fund to close out or to liquidate its hedged position.

DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS. Each 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 sub-
stantially similar securities on a specified future date.

8
<PAGE>

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 dif-
ferent pools of mortgages. The Fund forgoes principal and interest paid during
the roll period on the securities sold, but the Fund is compensated by the
difference between the current sales price and the lower price for the future
purchase as well as by any interest earned on the proceeds of the securities
sold. The Fund also could be compensated through the receipt of fee income
equivalent to a lower forward price.

Each 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-upon date and price. The market value of securities sold under
reverse repurchase agreements typically is greater than the proceeds of the
sale, and accordingly, the market value of the securities sold is likely to be
greater than the value of the securities in which the Fund invests those pro-
ceeds. 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 re-
purchase 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 re-
stricted pending such decision.

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

Dollar rolls and reverse repurchase agreements will be considered to be
borrowings and, accordingly, will be subject to each Fund's limitations on
borrowings, which will restrict the aggregate of such transactions (plus any
other borrowings) to 33 1/3% of each Fund's total assets. A Fund will not en-
ter into dollar rolls or reverse repurchase agreements, other than in arbi-
trage transactions as described above, in an aggregate amount in excess of 5%
of the Fund's total assets. The Funds have no present intention to enter into
dollar rolls other than in such arbitrage transactions, and they have no pres-
ent intention to enter into reverse repurchase agreements other than in such
arbitrage transactions or for temporary or emergency purposes. Each Fund may
borrow money for temporary or emergency purposes, but not in excess of an ad-
ditional 5% of its total assets.

REPURCHASE AGREEMENTS. Each Fund may use repurchase agreements. Repurchase
agreements are transactions in which a Fund purchases securities from a bank
or recognized securities dealer and simultaneously commits to resell the secu-
rities 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 pur-
chased securities. Repurchase agreements carry certain risks not associated
with direct investments in securities, including possible decline in the mar-
ket value of the underlying securities and delays and costs to the Fund if the
other party to the repurchase agreement becomes insolvent. Each Fund intends
to enter into repurchase agree-

9
<PAGE>

ments only with banks and dealers in transactions believed by Mitchell
Hutchins or PIMCO to present minimum credit risks in accordance with guide-
lines established by the Trust's board of trustees.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each Fund may purchase debt se-
curities, including mortgage- and asset-backed securities, on a "when-issued"
basis or may purchase or sell securities for "delayed delivery". In when-is-
sued or delayed delivery transactions, delivery of the securities occurs be-
yond normal settlement period, but the Fund generally would not pay for such
securities or start earning interest on them until they are delivered. Howev-
er, when a Fund purchases securities on a when-issued or delayed delivery ba-
sis, 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 op-
portunity to make an alternative investment. Depending on market conditions, a
Fund's when-issued and delayed delivery purchase commitments could cause its
net asset value per share to be more volatile, because such securities may in-
crease the amount by which the Fund's total assets, including the value of
when-issued and delayed delivery securities held by the Fund, exceed its net
assets.

ILLIQUID SECURITIES. U.S. Government Income Fund may invest up to 10% of its
net assets in illiquid securities and Low Duration Income Fund may invest up
to 15% of its net assets in such securities. The term "illiquid securities"
for this purpose means securities that cannot be disposed of within seven days
in the ordinary course of business at approximately the price at which the
Fund has valued the securities. Under current guidelines of the staff of the
SEC, IOs and POs are considered illiquid. However, IO and PO classes of fixed-
rate mortgage-backed securities issued by the U.S. government or one of its
agencies or instrumentalities will not be considered illiquid if Mitchell
Hutchins has determined that they are liquid pursuant to guidelines estab-
lished by the Trust's board of trustees. Illiquid securities also are consid-
ered to include, among other things, written OTC options, repurchase agree-
ments with maturities in excess of seven days and securities whose disposition
is restricted under the federal securities laws (other than "Rule 144A" secu-
rities that Mitchell Hutchins or PIMCO has determined to be liquid under pro-
cedures approved by the Trust's board of trustees).

Rule 144A establishes a "safe harbor" from the requirements of the Securi-
ties 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 institu-
tional buyers interested in purchasing Rule 144A-eligible restricted securi-
ties held by a Fund, however, could affect adversely the marketability of such
portfolio securities and the Fund might be unable to dispose of such securi-
ties promptly or at favorable prices.

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

LENDING OF PORTFOLIO SECURITIES. Each Fund is authorized to lend up to 10%
of the total value of its portfolio securities to broker-dealers or institu-
tional investors that Mitchell Hutchins deems qualified. Lending securities
enables the

10
<PAGE>

Fund to earn additional income, but could result in a loss or delay in recover-
ing the securities.

DURATION. Duration is a measure of the expected life of a fixed income secu-
rity that was developed as a more precise alternative to the concept "term to
maturity." Duration incorporates a bond's yield, coupon interest payments, fi-
nal maturity and call features into one measure and is one of the fundamental
tools used by Mitchell Hutchins or PIMCO, as applicable, in portfolio selection
for the Funds. Traditionally, a debt security's "term to maturity" has been
used as a proxy for the sensitivity of the security's price to changes in in-
terest rates (which is the "interest rate risk" or "volatility" of the securi-
ty). 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 in-
terest and the principal payments are scheduled to be made or, in the case of a
callable bond, expected to be received, and weights them by the present values
of the cash to be received at each future point in time. For any fixed income
security with interest payments occurring prior to the payment of principal,
duration is always less than maturity. For example, depending upon its coupon
and the level of market yields, a U.S. treasury note with a remaining maturity
of five years might have a duration of 4.5 years. For mortgage-backed and other
securities that are subject to prepayments, put or call features or adjustable
coupons, the difference between the remaining stated maturity and the duration
is likely to be much greater.

Futures, options and options on futures have durations which, in general, are
closely related to the duration of the securities which underlie them. Holding
long futures or call option positions (backed by a segregated account of cash
and
cash equivalents) will lengthen a Fund's duration by approximately the same
amount as would holding an equivalent amount of the underlying securities.
Short futures or put options have durations roughly equal to the negative dura-
tion 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, float-
ing 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 prop-
erly captured by the standard duration calculation is the case of mortgage-
backed securities. The stated final maturity of such securities is generally 30
years, but current prepayment rates are critical in determining the securities'
interest rate exposure. In these and other similar situations, Mitchell
Hutchins and PIMCO will use more sophisticated analytical techniques that in-
corporate the economic life of a security into the determination of its dura-
tion and, therefore, its interest rate exposure.

Duration allows Mitchell Hutchins or PIMCO to make certain predictions as to
the effect that changes in the level of interest rates will have on the value
of a Fund's portfolio. For example, when the level of interest rates increases
by 1%, a fixed income security having a positive duration of three years gener-
ally will decrease in value by approximately 3%. Accordingly, if Mitchell
Hutchins or PIMCO calculates the duration of the Fund's portfolio as being
three years, it normally would expect the portfolio to change in value by ap-
proximately 3% for every 1% change in the level of interest rates. However,
various factors, such as changes in anticipated prepayment rates, qualitative
considerations, market supply and demand,

11
<PAGE>

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 esti-
mates and are not precise. This is particularly true during periods of market
volatility. Accordingly, the net asset value of a Fund's portfolio may vary in
relation to interest rates by a greater or lesser percentage than indicated by
the above example.

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

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

OTHER INVESTMENT POLICIES. Each Fund may hold up to 35% of its total assets
in cash or money market instruments for liquidity purposes or pending invest-
ment. In addition, when Mitchell Hutchins or PIMCO believes unusual circum-
stances warrant a defensive position, each Fund temporarily may commit all or
any portion of its assets to cash or money market instruments. For each Fund,
such instruments may include obligations of the U.S. government, its agencies
or instrumentalities, and repurchase agreements secured by such obligations.
For Low Duration Income Fund, such investments also may include commercial pa-
per rated at least A-1 by S&P or P-1 by Moody's, certificates of deposit,
bankers' acceptances and repurchase agreements secured by any of the forego-
ing. The Funds may also engage in short sales of securities "against the box"
to defer realization of gains or losses for tax purposes.

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

PURCHASES

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

12
<PAGE>

PURCHASES BY INSIGHT PARTICIPANTS. An investor who purchases $50,000 or more
of shares of mutual funds that are available to INSIGHT participants (which
include the PaineWebber mutual funds in the Flexible Pricing System SM and
certain specified other mutual funds) may take part in INSIGHT, a total port-
folio asset allocation program sponsored by PaineWebber, and thus become eli-
gible 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 administra-
tion 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 ac-
counts (by the automatic redemption of money market fund shares) or, if a
qualified plan, invoiced. Please contact your PaineWebber investment executive
or PaineWebber's correspondent firms or call 1-800-647-1568 for more informa-
tion concerning mutual funds that are available to INSIGHT participants or for
other INSIGHT information.

PURCHASES BY THE TRUSTEE OF THE PW SIP. Class Y shares of U.S. Government
Income Fund also are offered for sale to the trustee of the PW SIP, a defined
contribution plan sponsored by Paine Webber Group Inc. ("PW Group"). The
trustee of the PW SIP purchases these Class Y shares to implement the invest-
ment choices of individual plan participants with respect to their PW SIP con-
tributions. INDIVIDUAL PLAN PARTICIPANTS SHOULD CONSULT THE PLAN INFORMATION
STATEMENT AND SUMMARY PLAN DESCRIPTION OF THE PW SIP (COLLECTIVELY, "PLAN DOC-
UMENTS") FOR A DESCRIPTION OF THE PROCEDURES AND LIMITATIONS APPLICABLE TO
MAKING AND CHANGING INVESTMENT CHOICES. Copies of the Plan Documents are
available from the PaineWebber Incorporated Benefits Department, 10th Floor,
1000 Harbor Boulevard, Weehawken, New Jersey 07087 (telephone 1-201-902-4444).

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

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

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

REDEMPTIONS

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

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<PAGE>

REDEMPTIONS THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. INSIGHT participants
who are Class Y shareholders may submit redemption requests to their invest-
ment executives or correspondent firms in person or by telephone, mail or
wire. As each Fund's agent, PaineWebber may honor a redemption request by re-
purchasing Class Y shares from a redeeming shareholder at the shares' net as-
set value next determined after receipt of the request by PaineWebber's New
York City offices. Within three Business Days after receipt of the request,
repurchase proceeds will be paid by check or credited to the shareholder's
brokerage account at the election of the shareholder. PaineWebber investment
executives and correspondent firms are responsible for promptly forwarding re-
demption requests to PaineWebber's New York City offices. A "Business Day" is
any day, Monday through Friday, on which the New York Stock Exchange, Inc.
("NYSE") is open for business.

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

REDEMPTION THROUGH THE TRANSFER AGENT. Shareholders also may redeem Class Y
shares through each Fund's transfer agent, PFPC Inc. ("Transfer Agent").
Shareholders should mail redemption requests directly to the Transfer Agent:
PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington, Delaware
19899. A redemption request will be executed at the net asset value next com-
puted after it is received in "good order," and redemption proceeds will be
paid within seven days of the receipt of the request. "Good order" means that
the request must be accompanied by the following: (1) a letter of instruction
or a stock assignment specifying the number of shares or amount of investment
to be redeemed (or that all shares credited to the Fund account be redeemed),
signed by all registered owners of the shares in the exact names in which they
are registered, (2) a guarantee of the signature of each registered owner by
an eligible institution acceptable to the Transfer Agent and in accordance
with SEC rules, such as a commercial bank, trust company or member of a recog-
nized stock exchange and (3) other supporting legal documents for estates,
trusts, guardianships, custodianships, partnerships and corporations. Share-
holders are responsible for ensuring that a request for redemption is received
in "good order."

REDEMPTIONS FOR PARTICIPANTS IN PW SIP. The trustee of the PW SIP redeems
Class Y shares of U.S. Government Income Fund to implement the investment
choices of individual plan participants with respect to their PW SIP contribu-
tions, as described in the Plan Documents referenced under "Purchases" above.
As described in the Plan Documents, the average net asset value per share at
which Class Y shares are redeemed by the trustee of the PW SIP might be more
or less than the net asset value per share prevailing at the time that such
participants made their investment choices.

ADDITIONAL INFORMATION ON REDEMPTIONS. A shareholder (other than a partici-
pant in the PW SIP) may have redemption proceeds of $1 million or more wired
to the shareholder's PaineWebber brokerage account or a commercial bank ac-
count designated by the shareholder. Questions about this option, or redemp-
tion requirements generally, should be referred to the shareholder's
PaineWebber investment executive or correspondent firm. If a shareholder re-
quests redemption of shares which were purchased recently, a Fund may delay
payment until it is assured that good payment has been received. In the case
of purchases by check, this can take up to 15 days.

Because each Fund incurs certain fixed costs in maintaining shareholder ac-
counts, it reserves the right to redeem all Fund shares in any shareholder ac-
count having a net asset value below the lesser of $500 or the current minimum
for initial

14
<PAGE>

purchases. If a Fund elects to do so, it will notify the shareholder and pro-
vide the shareholder the opportunity to increase the amount invested to the
minimum required level or more within 60 days of the notice. A Fund will not
redeem accounts that fall below the minimum required level solely as a result
of a reduction in net asset value per share.

DIVIDENDS AND TAXES

DIVIDENDS. Dividends from each Fund's net investment income are declared
daily and paid monthly on or about the 15th day of each month. Net investment
income includes accrued interest and discount, less amortization of premium and
accrued expenses. Substantially all of each Fund's net capital gain (the excess
of net long-term capital gain over net short-term capital loss) and net short-
term capital gain, if any, are distributed annually. A Fund may make additional
distributions if necessary to avoid a 4% excise tax on undistributed income and
capital gain.

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

--INSIGHT PARTICIPANTS: Dividends and capital gain distributions are paid in
additional Class Y shares at net asset value unless the shareholder has re-
quested cash payments. Shareholders who wish to receive dividends and/or other
distributions in cash, either mailed to the shareholder by check or credited to
the shareholder's PaineWebber account, should contact their PaineWebber invest-
ment executives or correspondent firms.

TAXES. Each Fund intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code so that it will be relieved
of federal income tax on that

part of its investment company taxable income (consisting generally of net in-
vestment income and net short-term capital gain) and net capital gain that is
distributed to its shareholders.

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

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

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

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

15
<PAGE>

shares of another PaineWebber mutual fund generally will have similar tax con-
sequences. In addition, if shares of a Fund are purchased within 30 days be-
fore or after redeeming other Fund shares at a loss, all or a portion of that
loss will not be deductible and will increase the basis of the newly acquired
shares.

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

VALUATION OF SHARES

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

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

MANAGEMENT

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

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

Each Fund also pays PaineWebber an annual fee of $4.00 per active share-
holder account held at PaineWebber for certain services not provided by the
Transfer Agent. The Funds incur other expenses, such as custody and transfer
agency fees, brokerage commissions, professional fees, expenses of board and
shareholder meetings, fees and expenses relating to registration of its
shares, taxes and governmental fees, fees and expenses of the trustees, costs
of obtaining insurance, expenses of printing distributed shareholder materi-
als, and extraordinary expenses including costs or losses in any litigation.
For the fiscal year ended November 30, 1995, U.S. Government Income Fund's ex-
penses for its Class Y shares, stated as a percentage of average net assets
was 0.71%. For the fiscal period October 20, 1995 (commencement of offering)
to November 30, 1995, Low Duration Income Fund's expenses for its Class Y
shares, stated as a percentage of average net assets and annualized, was
0.99%.

Mitchell Hutchins is located at 1285 Avenue of the Americas, New York, New
York 10019. It is a wholly owned subsidiary of PaineWebber, which is in turn
wholly owned by PW Group, the sponsor of the PW SIP and a publicly owned fi-
nancial services holding company. At February 29, 1996, Mitchell Hutchins was
adviser or sub-adviser to 32 investment companies with 66 separate portfolios
and aggregate assets of over $31.2 billion.

PIMCO is located at 840 Newport Center Drive, Suite 360, Newport Beach, Cal-
ifornia

16
<PAGE>

92660. PIMCO is a subsidiary of PIMCO Advisors L.P., a publicly held investment
advisory firm. As of February 29, 1996, PIMCO had approximately $78 billion in
assets under management and was adviser or sub-adviser of investment companies
with 47 portfolios and aggregate assets of approximately $8.5 billion.

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

Other members of Mitchell Hutchins domestic fixed income group provide input
on market outlook, interest rate factors and other considerations pertaining to
fixed income investment for U.S. Government Income Fund.

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

PERFORMANCE INFORMATION

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

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

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

GENERAL INFORMATION

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

17
<PAGE>

The shares of beneficial interest of each Fund are divided into four clas-
ses, designated Class A, Class B, Class C and Class Y shares. Each Class rep-
resents interests in the same assets of the Fund. Class A, B and C differ as
follows: (1) each Class has exclusive voting rights on matters pertaining to
its plan of distribution, (2) Class A shares generally are subject to an ini-
tial sales charge, (3) Class B shares bear ongoing distribution fees, may be
subject to a contingent deferred sales charge upon most redemptions and will
automatically convert to Class A shares approximately six years after issu-
ance, (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 ex-
penses. Class Y shares are subject to neither an initial or contingent de-
ferred sales charge nor ongoing service or distribution fees.

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

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

To avoid additional operating costs and for investor convenience, share cer-
tificates are not issued. Ownership of shares of each Fund is re corded on a
share register by the Transfer Agent and shareholders have the same rights of
ownership with respect to such shares as if certificates had been issued.

CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, One Heri-
tage Drive, North Quincy, Massachusetts 02171 is custodian of each Fund's as-
sets. PFPC Inc., a subsidiary of PNC Bank, National Association, whose princi-
pal business address is 103 Bellevue Parkway, Wilmington, Delaware 19809, is
each Fund's transfer and dividend disbursing agent.

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

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<PAGE>

APPENDIX A

MORTGAGE-BACKED SECURITIES

The U.S. government securities in which the Funds may invest include mort-
gage-backed securities issued or guaranteed by Ginnie Mae, Fannie Mae or Fred-
die Mac. While these mortgage-backed securities may be guaranteed as to pay-
ment of interest and principal, they are not guaranteed as to market value.
Other mortgage-backed securities in which the Funds may invest will be issued
by Private Mortgage Lenders. Such private mortgage-backed securities may be
supported by pools of mortgage loans or other mortgage-backed securities that
are guaranteed, directly or indirectly, by the U.S. government or one of its
agencies or instrumentalities, or they may be issued without any government
guarantee of the underlying mortgage assets but with some form of non-govern-
ment credit enhancement. New types of mortgage-backed securities are developed
and marketed from time to time and, consistent with its investment limita-
tions, the Funds expect to invest in those new types of mortgage-backed secu-
rities that Mitchell Hutchins or PIMCO believes may
assist the Funds in achieving their investment objective. Similarly, the Funds
may invest in mortgage-backed securities issued by new or existing governmen-
tal or private issuers other than those identified herein.

GINNIE MAE CERTIFICATES. Ginnie Mae guarantees certain mortgage pass-through
certificates ("Ginnie Mae certificates") that are issued by Private Mortgage
Lenders and that represent ownership interests in individual pools of residen-
tial mortgage loans. These securities are designed to provide monthly payments
of interest and principal to the investor. Timely payment of interest and
principal is backed by the full faith and credit of the U.S. government. Each
mortgagor's monthly payments to his lending institution on his residential
mortgage are "passed through" to certificateholders such as the Funds. Mort-
gage 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 agen-
cies and in privately insured or uninsured residential mortgage loans (some-
times referred to as "conventional mortgage loans" or "conventional loans")
through its mortgage purchase and mortgage-backed securities sales activities.
Fannie Mae issues guaranteed mortgage pass-through certificates ("Fannie Mae
certificates"), which represent pro rata shares of all interest and principal
payments made and owed on the underlying pools. Fannie Mae guarantees timely
payment of interest and principal on Fannie Mae certificates. The Fannie Mae
guarantee is not backed by the full faith and credit of the U.S. government.

FREDDIE MAC CERTIFICATES. Freddie Mac also facilitates a national secondary
market for conventional residential and U.S. government-insured mortgage loans
through its mortgage purchase and mortgage-backed securities sales activities.
Freddie Mac issues two types of mortgage pass-through securities: mortgage
participation certificates ("PCs") and guaranteed mortgage certificates
("GMCs"). Each PC represents a pro rata share of all interest and principal
payments made and owed on the underlying pool. Freddie Mac generally guaran-
tees timely monthly payment of interest on PCs and the ultimate payment of
principal, but it also has a PC program under which it guarantees timely pay-
ment 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. govern-
ment.

19
<PAGE>

PRIVATE, RTC AND SIMILAR MORT-GAGE-BACKED SECURITIES. Mort-gage-backed
securities issued by Private Mortgage Lenders are structured similarly to the
pass-through certificates and collateralized mortgage obliga-tions ("CMOs")
issued or guaran-teed by Ginnie Mae, Fannie Mae and Freddie Mac. Such mortgage-
backed securities may be sup-ported by pools of U.S. govern-ment or agency
insured or guar-anteed mortgage loans or by other mortgage-backed securities
issued by a government agency or instrumentality, but they gener-ally are
supported by pools of conventional (i.e., non-govern-ment guaranteed or
insured) mortgage loans. Since such mort-gage-backed securities normally are
not guaranteed by an entity having the credit standing of Ginnie Mae, Fannie
Mae and Fred-die Mac, they normally are structured with one or more types of
credit enhancement. See "--Types of Credit Enhancement." These credit
enhancements do not protect investors from changes in market value.

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

COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS MORTGAGE PASS-THROUGHS.
CMOs are debt obligations that are collateralized by mortgage loans or mort-
gage pass-through securities (such collateral collectively being called "Mort-
gage 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 indi-
cates otherwise, references herein to CMOs include multi-class mortgage pass-
through securities. Payments of principal of and interest on the Mortgage As-
sets (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 re-
tired substantially earlier than their stated maturities or final distribution
dates. Interest is paid or accrues on all classes of a CMO (other than any
principal only ("PO") class) on a monthly, quarterly or semi-annual basis. The
principal and interest on the Mortgage Assets may be allocated among the sev-
eral 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

20
<PAGE>

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 secu-
rities are mortgage-backed securities that represent a right to receive inter-
est 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 secu-
rities 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 speci-
fied 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 ele-
ments of credit enhancement. Such credit enhancement falls into two catego-
ries; (1) liquidity protection and (2) protection against losses resulting af-
ter default by an obligor on the underlying assets and collection of all
amounts recoverable directly from the obligor and through liquidation of the
collateral. Liquidity protection refers to the provision of advances, gener-
ally 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 under-
lying pool occurs in a timely fashion. Protection against losses resulting af-
ter default and liquidation ensures ultimate payment of the obligations on at
least a portion of the assets in the pool. Such protection may be provided
through guarantees, insurance policies or letters of credit obtained by the
issuer or sponsor, from third parties, through various means of structuring
the transaction or through a combination of such approaches. The Fund will not
pay any additional fees for such credit enhancement, although the existence of
credit enhancement may increase the price of a security. Credit enhancements
do not provide protection against changes in the market value of the security.

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

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<PAGE>

APPENDIX B

THE FOLLOWING ARE DESCRIPTIONS OF INSTRUMENTS THAT ONE OR BOTH OF THE FUNDS
MAY USE:

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 option term. The writer of the put option, who receives the premi-
um, 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 tra-
ditional 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.

Interest Rate Futures Contracts. An interest rate futures contract is a bi-
lateral 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. Al-
though 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 op-
tion, the delivery of the futures position to the holder of the option will be
accompanied by delivery of the accumulated balance that represents the amount
by which the market price of the futures contract exceeds, in the case of a
call, or is less than, in the case of a put, the exercise price of the option
on the future. The writer of an option, upon exercise, will assume a short po-
sition in the case of a call and a long position in the case of a put.

22
<PAGE>

TABLE OF CONTENTS
<TABLE>
<S> <C>
Fund Expenses............................................................... 2
Financial Highlights........................................................ 3
Investment Objectives and Policies.......................................... 4
Purchases................................................................... 12
Redemptions................................................................. 13
Dividends and Taxes......................................................... 15
Valuation of Shares......................................................... 16
Management.................................................................. 16
Performance Information..................................................... 17
General Information......................................................... 17
Appendix A.................................................................. 19
Appendix B.................................................................. 22
</TABLE>
Recycled Paper
[LOGO OF RECYCLED PAPER APPEARS HERE]

PAINEWEBBER
U.S. GOVERNMENT
INCOME FUND

LOW DURATION
U.S. GOVERNMENT
INCOME FUND

Class Y Shares

PROSPECTUS

April 1, 1996