PAINEWEBBER MANAGED INVESTMENTS TRUST, 497, 1996-10-15

PAINEWEBBER MANAGED INVESTMENTS TRUST
497, 1996-10-15

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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
Class Y Shares
1285 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10019
PROSPECTUS -- AUGUST 2, 1996, AS REVISED OCTOBER 9, 1996
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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.

PaineWebber Investment Grade Income Fund ('Investment
Grade Income Fund') seeks high current income consistent
with the preservation of capital and liquidity.

PaineWebber High Income Fund ('High Income Fund') seeks
high income.

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

These Funds are series of PaineWebber Managed Investments
Trust ('Trust'). This Prospectus concisely sets forth
information about the Funds a prospective investor should
know before investing. Please retain this Prospectus for
future reference.

The Class Y shares described in this Prospectus are
offered for sale only to limited groups of investors which
include, for the Class Y shares of U.S. Government Income
Fund only, the trustee of the PaineWebber Savings
Investment Plan ('PW SIP') Income Fund. See 'Purchases.'

A Statement of Additional Information dated August 2, 1996
(which is incorporated by reference herein) has been filed
with the Securities and Exchange Commission. The Statement
of Additional Information can be obtained without charge,
and further inquiries can be made, by contacting the
Funds, your PaineWebber investment executive or
PaineWebber's correspondent firms or by calling toll-free
1-800-647-1568. Participants in the PW SIP may make
further inquiries by contacting the PaineWebber
Incorporated Benefits Department, 10th Floor, 1000 Harbor
Boulevard, Weehawken, New Jersey 07087 or by calling
1-201-902-4444.

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

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Prospectus Page 1

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PAINEWEBBER
U.S. GOVERNMENT INCOME FUND LOW DURATION U.S. GOVERNMENT INCOME FUND
INVESTMENT GRADE INCOME FUND HIGH INCOME FUND
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
Page
-----

Fund Expenses.................................................................... 3

Financial Highlights............................................................. 4

Investment Objectives and Policies............................................... 5

Purchases........................................................................ 17

Redemptions...................................................................... 19

Dividends and Taxes.............................................................. 20

Valuation of Shares.............................................................. 21

Management....................................................................... 22

Performance Information.......................................................... 23

General Information.............................................................. 24

Appendix A....................................................................... 26

Appendix B....................................................................... 29

Appendix C....................................................................... 31
</TABLE>

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Prospectus Page 2

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PAINEWEBBER
U.S. GOVERNMENT INCOME FUND LOW DURATION U.S. GOVERNMENT INCOME FUND
INVESTMENT GRADE INCOME FUND HIGH INCOME FUND
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FUND EXPENSES
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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
</TABLE>

ANNUAL FUND OPERATING EXPENSES(1)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)

<TABLE>
<CAPTION>
U.S. GOVERNMENT LOW DURATION INVESTMENT GRADE HIGH
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
--------------- ------------ ---------------- -----------
<S> <C> <C> <C> <C>
Management fees....................................... 0.50% 0.50% 0.50% 0.50%
12b-1 fees............................................ 0.00 0.00 0.00 0.00
Other expenses(2)..................................... 0.18(a) 0.40 0.20 0.18
----- ----- ----- -----
Total operating expenses.............................. 0.68% 0.90% 0.70% 0.68%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>

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(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) Class Y shares may be purchased by participants in the INSIGHT Investment
Advisory Program ('INSIGHT') sponsored by PaineWebber, when purchased
through that program. Participation in INSIGHT is subject to payment of an
advisory fee at the maximum annual rate of 1.50% of assets held through
INSIGHT (generally charged quarterly in advance), which may be charged to
the INSIGHT participant's PaineWebber account. This account charge is not
included in the table because non-INSIGHT participants are permitted to
purchase Class Y shares of the Funds.

(2) See 'Management' for additional information. The fees and expenses are those
actually incurred for the fiscal year ended November 30, 1995, except that
'Other expenses' for Low Duration Income Fund, Investment Grade Income Fund
and High Income Fund are estimated based on the expenses incurred by each
Fund's Class A shares for the fiscal year ended November 30, 1995.

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 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....................................... $ 24 $75 $128 $ 274
Investment Grade Income Fund................................... $ 22 $69 $118 $ 253
High Income Fund............................................... $ 22 $68 $117 $ 251
</TABLE>

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

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

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Prospectus Page 3

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

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

<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period............... $ 8.49 $10.02 $ 9.97 $ 9.97 $ 9.88 $ 2.33
------ ------ ------ ------ ------ ------
Net investment income.............................. 0.61 0.62 0.70 0.77 0.18 0.01
Net realized and unrealized gains (losses) from
investment transactions.......................... 0.62 (1.53) 0.05 0.01 0.09 0.01
------ ------ ------ ------ ------ ------
Net increase (decrease) in net assets resulting
from operations.................................. 1.23 (0.91) 0.75 0.78 0.27 0.02
------ ------ ------ ------ ------ ------
Dividends from net investment income............... (0.61) (0.62) (0.70) (0.78) (0.18) (0.01)
------ ------ ------ ------ ------ ------
Net asset value, end of period..................... $ 9.11 $ 8.49 $10.02 $ 9.97 $ 9.97 $ 2.34
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
Total investment return(1)......................... 15.06% (9.37)% 7.69% 8.13% 2.37% 0.83%
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)...... $7,957 $4,955 $6,232 $5,517 $ 4,514 $ 321
Expenses to average net assets................. 0.71%(2) 0.65% 0.62% 0.63% 0.72%* 0.99%*
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%(3)
</TABLE>

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# Commencement of offering of shares.

* Annualized.

(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and distributions at net
asset value on the payable date and a sale at net asset value on the last
day of each period reported. Total investment returns for periods of less
than one year have not been annualized.

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

(3) Portfolio turnover rate is for Low Duration Income Fund's fiscal year ended
November 30, 1995.

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Prospectus Page 4

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

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

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

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

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

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

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

Low Duration Income Fund seeks to limit the volatility of its net asset value
per share by maintaining, under normal circumstances, an overall portfolio
duration of from one to three years. U.S. Government Income Fund has no fixed

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Prospectus Page 5

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') and the Federal Home
Loan Mortgage Corporation ('Freddie Mac'). Private issuers of mortgage-backed
securities in which the Funds may invest are generally originators of, and
investors in, mortgage loans, including savings associations, mortgage bankers,
commercial banks, investment bankers and special purpose entities (collectively,
'Private Mortgage Lenders'). Payments of principal and interest (but not the
market value) of such private mortgage-backed securities may be supported by
pools of mortgage loans or other mortgage-backed securities that are guaranteed,
directly or indirectly, by the U.S. government or one of its agencies or
instrumentalities, or they may be issued without any government guarantee of the
underlying mortgage assets but with some form of non-government credit
enhancement. For more information concerning the types of mortgage-backed
securities in which the Funds may invest, see Appendix A to this Prospectus.

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

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

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

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

Each Fund also may seek to enhance income or to reduce the risks associated with
ownership of the securities in which it invests through the use

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Prospectus Page 6

of options, futures contracts, options on futures contracts, interest rate
protection transactions, dollar rolls and reverse repurchase agreements. See
'Hedging and Related Income Strategies' and 'Dollar Rolls and Reverse Repurchase
Agreements'.

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

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

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

HIGH INCOME FUND. High Income Fund invests primarily in a diversified range of
high risk, high yield medium to lower quality bonds. Generally, higher yielding
bonds carry ratings assigned by S&P, Moody's or another NRSRO that are lower
than those assigned to investment grade bonds, or are unrated, and thus carry
higher investment risk than investment grade bonds. See 'Risks of Lower Rated
Securities.' Under normal circumstances, at 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

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Prospectus Page 7

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

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

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

OTHER INVESTMENT POLICIES AND RISK FACTORS

RISK FACTORS. Each Fund's net asset value fluctuates based on changes in the
value of its portfolio securities. Neither the issuance by, nor the guarantee
of, a U.S. government agency, nor even the highest rating by a NRSRO constitutes
assurance that the security will not fluctuate in value or that a Fund will
receive the originally anticipated yield on the security. An investment in a
Fund also is subject to the risks discussed below.

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

-- RISKS OF MORTGAGE- AND ASSET-BACKED SECURITIES. The yield characteristics of
the mortgage- and asset-backed securities in which U.S. Government Income Fund,
Low Duration Income Fund and Investment Grade Income Fund may invest differ from
those of traditional debt securities. Among the major differences are that
interest and principal payments are made more frequently on mortgage- and
asset-backed securities (usually monthly) and that principal may be prepaid at
any time because the underlying mortgage loans or other assets generally may be
prepaid at any time. As a result, if a Fund purchases these

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Prospectus Page 8

securities at a premium, a prepayment speed that is faster than expected will
reduce yield to maturity, while a prepayment speed that is slower than expected
will have the opposite effect of increasing yield to maturity. Conversely, if a
Fund purchases these securities at a discount, faster than expected prepayments
will increase, while slower than expected prepayments will reduce, yield to
maturity. Amounts available for reinvestment by a Fund are likely to be greater
during a period of declining interest rates and, as a result, are likely to be
reinvested at lower interest rates than during a period of rising interest
rates. Accelerated prepayments on securities purchased by a Fund at a premium
also impose a risk of loss of principal because the premium may not have been
fully amortized at the time the principal is prepaid in full. The market for
privately issued mortgage- and asset-backed securities is smaller and less
liquid than the market for U.S. government mortgage-backed securities. CMO
classes may be specially structured in a manner that provides any of a wide
variety of investment characteristics, such as yield, effective maturity and
interest rate sensitivity. As market conditions change, however, and
particularly during periods of rapid or unanticipated changes in market interest
rates, the attractiveness of the CMO classes and the ability of the structure to
provide the anticipated investment characteristics may be significantly reduced.
These changes can result in volatility in the market value and, in some
instances, reduced liquidity, of the CMO class.

Certain classes of CMOs and other mortgage-backed securities are structured in a
manner that makes them extremely sensitive to changes in prepayment speeds.
Interest-only ('IO') and principal-only ('PO') classes are examples of this. IOs
are entitled to receive all or a portion of the interest, but none (or only a
nominal amount) of the principal payments, from the underlying mortgage assets.
If the mortgage assets underlying an IO experience greater than anticipated
principal prepayments, then the total amount of interest payments allocable to
the IO class, and therefore the yield to investors, generally will be reduced.
In some instances, an investor in an IO may fail to recoup all of his or her
initial investment, even if the security is government issued or guaranteed or
is rated AAA or the equivalent. Conversely, PO classes are entitled to receive
all or a portion of the principal payments, but none of the interest, from the
underlying mortgage assets. PO classes are purchased at substantial discounts
from par, and the yield to investors will be reduced if principal payments are
slower than expected. Some IOs and POs, as well as other CMO classes, are
structured to have special protections against the effects of prepayments. These
structural protections, however, normally are effective only within certain
ranges of prepayment rates and thus will not protect investors in all
circumstances.

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

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

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Prospectus Page 9

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

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

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

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

-- RISKS OF LOWER RATED SECURITIES. High Income Fund may invest all of its
assets in corporate bonds rated below investment grade and Investment Grade
Income Fund may invest up to 35% of its assets in such bonds. Investment Grade
Income Fund must normally invest at least 65% of its assets in debt securities
rated investment grade. Investment grade bonds include debt securities rated BBB
by S&P, Baa by Moody's or comparably rated by another NRSRO. Moody's considers
securities rated Baa to have speculative characteristics. Changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
for such securities to make principal and interest payments than is the case for
higher grade debt securities. Debt securities rated below investment grade are
deemed by these agencies to be predominately speculative with respect to the
issuer's capacity to pay interest and repay principal and may involve major risk
exposure to adverse conditions. Such securities are commonly referred to as
'junk bonds.' Investment Grade Income Fund and High Income Fund each may invest
up to 35% of its assets in debt securities rated lower than B, which include
securities that are in default or face the risk of default with respect to the
payment of principal or interest. Such securities are generally unsecured and
are often subordinated to other creditors of the issuer. To the extent a Fund is
required to seek recovery upon a default in the 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

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Prospectus Page 10

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

Lower rated debt securities generally offer a higher current yield than that
available from higher grade issues, but they involve higher risks, in that they
are especially subject to adverse changes in general economic conditions and in
the industries in which the issuers are engaged, to changes in the financial
condition of the issuers and to price fluctuation in response to changes in
interest rates. During periods of economic downturn or rising interest rates,
highly leveraged issuers may experience financial stress, which 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 pay no interest to
holders prior to maturity. Zero coupon securities usually trade at a substantial
discount from their face or par value; PIK securities often trade at a discount
from their face or par value. Both zero coupon and PIK securities are subject to
greater fluctuations of market value in response to changing interest rates than
debt obligations 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.

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Prospectus Page 11

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

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

High Income Fund and Investment Grade Income Fund each may 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

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Prospectus Page 12

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

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

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

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

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

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

DERIVATIVES. Some of the instruments described above may be referred to as
'derivatives,' because their value depends on (or 'derives' from) the value of
an underlying asset, reference rate or index. These instruments include options,
futures contracts, interest rate protection con-

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Prospectus Page 13

tracts and similar instruments that may be used 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,
derivatives also include 'stripped' securities, such as CATS and TIGRs,
specially structured types of mortgage-and asset-backed securities, such as IOs,
POs and inverse floaters, and 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 may pose its own special risks. Mitchell Hutchins and PIMCO
take these risks into account in their management of the Funds.

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. Because a Fund will
receive interest on the securities or repurchase agreements in which it invests
the transaction proceeds, such transactions may involve leverage. However,
because such securities or repurchase agreements will mature on or before the
settlement date on the related dollar roll or reverse repurchase agreement,
Mitchell Hutchins and PIMCO believe that such arbitrage transactions do not
present the risks to the Funds that are associated with other types of leverage.

Dollar rolls and reverse repurchase agreements will be considered to be
borrowings and, accordingly, will be subject to each Fund's limitations on
borrowings, which will restrict the aggregate of such transactions (plus any
other borrowings) to 33 1/3% of each Fund's total assets. 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 arbi-

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Prospectus Page 14

trage 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 or upon demand and at a price
reflecting a market rate of interest unrelated to the coupon rate or maturity of
the purchased securities. Repurchase agreements carry certain risks not
associated with direct investments in securities, including possible decline in
the market value of the underlying securities and delays and costs to the Fund
if the other party to the repurchase agreement becomes insolvent. Each Fund
intends to enter into repurchase agreements only with banks and dealers in
transactions believed by Mitchell Hutchins or PIMCO to present minimum credit
risks in accordance with guidelines established by the Trust's board of
trustees.

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

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

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

A Fund may not be able to sell illiquid securities when Mitchell Hutchins or
PIMCO considers it desirable to do so or may have to sell such

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Prospectus Page 15

securities at a price lower than could be obtained if they were more liquid.
Also the sale of illiquid securities may require more time and may result in
higher dealer discounts and other selling expenses than does the sale of
securities that are not illiquid. Illiquid securities may be more difficult to
value due to the unavailability of reliable market quotations for such
securities.

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

DURATION. Duration is a measure of the expected life of a fixed income security
that was developed as a more precise alternative to the concept 'term to
maturity.' Duration incorporates a bond's yield, coupon interest payments, final
maturity and call features into one measure and is one of the fundamental tools
used by Mitchell Hutchins or PIMCO, as applicable, in portfolio selection for
the Funds. Traditionally, a debt security's 'term to maturity' has been used as
a proxy for the sensitivity of the security's price to changes in interest rates
(which is the 'interest rate risk' or 'volatility' of the security). However,
'term to maturity' measures only the time until a debt security provides for a
final payment, taking no account of the pattern of the security's payments prior
to maturity. Duration is a measure of the expected life of a fixed income
security on a present value basis. Duration takes the length of the time
intervals between the present time and the time that the interest and the
principal payments are scheduled to be made or, in the case of a callable bond,
expected to be received, and weights them by the present values of the cash to
be received at each future point in time. For any fixed income security with
interest payments occurring prior to the payment of principal, duration is
always less than maturity. For example, depending upon its coupon and the level
of market yields, a 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 that, in general, are
closely related to the duration of the securities that underlie them. Holding
long futures or call option positions (backed by a segregated account of cash
and liquid securities) 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.

Duration allows Mitchell Hutchins or PIMCO to make certain predictions as to the
effect that changes in the level of interest rates will have on the value of a
Fund's portfolio. For example, when the level of interest rates increases by 1%,
a fixed income security having a positive duration of three years generally will
decrease in

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Prospectus Page 16

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 the Fund, and may increase the potential for
short-term capital gains.

OTHER INVESTMENT POLICIES. Each Fund may hold up to 35% of its total assets in
cash or money market instruments for liquidity purposes or pending investment.
In addition, when Mitchell Hutchins or PIMCO believes unusual circumstances
warrant a defensive position, each Fund temporarily may commit all or any
portion of its assets to cash or money market instruments. Such instruments may
include obligations of the U.S. government, its agencies or instrumentalities,
commercial paper rated at least A-1 by S&P or 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 are limited to obligations of the U.S. government, its
agencies and instrumentalities and repurchase agreements secured by such
obligations. The Funds may also engage in short sales of securities 'against the
box' to defer realization of gains or losses for tax purposes.

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

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

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PURCHASES
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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
the New York City offices of PaineWebber Incorporated ('PaineWebber') or, with
respect to U.S. Government Income Fund, for purchases by

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Prospectus Page 17

the trustee of the PW SIP, by the Fund's transfer agent ('Transfer Agent'). No
initial or contingent deferred sales charge is imposed, nor are Class Y shares
subject to rule 12b-1 distribution or service fees. The Funds and Mitchell
Hutchins reserve the right to reject any purchase order and to suspend the
offering of Class Y shares for a period of time. Mitchell Hutchins, the
distributor of the Fund's Class Y shares, has appointed PaineWebber to serve as
the exclusive dealer for the sale of those shares.

The following investors are eligible to buy Class Y shares:

a participant in INSIGHT when Class Y shares are purchased through that
program;

an investor who buys $10 million or more at any one time in any combination of
PaineWebber mutual funds in the Flexible PricingSM System;

an employee benefit plan qualified under section 401 (including a salary
reduction plan qualified under section 401(k)) or 403(b) of the Internal
Revenue Code that has either

5,000 or more eligible employees or

$50 million or more in assets; and

an investment company advised by PaineWebber or an affiliate of PaineWebber.

PURCHASES BY INSIGHT PARTICIPANTS. An investor who purchases $50,000 or more of
shares of the mutual funds that are available to INSIGHT participants (which
include the PaineWebber mutual funds in the Flexible Pricing Systemsm and
certain other specified mutual funds) may take part in INSIGHT, a total
portfolio asset allocation program sponsored by PaineWebber, and thus become
eligible to purchase Class Y shares. INSIGHT offers comprehensive investment
services, including a personalized asset allocation investment strategy using an
appropriate combination of funds, monitoring of investment performance and
comprehensive quarterly reports that cover market trends, portfolio summaries
and personalized account information.

Participation in INSIGHT is subject to payment of an advisory fee to PaineWebber
at the maximum annual rate of 1.50% of assets held through the program
(generally charged quarterly in advance), which covers all INSIGHT investment
advisory services and program administration fees. Employees of PaineWebber and
its affiliates are entitled to a 50% reduction in the fee otherwise payable for
participation in INSIGHT. INSIGHT clients may elect to have their INSIGHT fees
charged to their PaineWebber accounts (by the automatic redemption of money
market fund shares) or, if a qualified plan, invoiced.

Please contact your PaineWebber investment executive or PaineWebber's
correspondent firms for more information concerning mutual funds that are
available to INSIGHT participants or for other INSIGHT information.

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

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.

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Prospectus Page 18

ACQUISITION OF CLASS Y SHARES BY OTHERS. Each Fund is authorized to offer Class
Y shares to other employee benefit and retirement plans of PW Group and its
affiliates and certain other investment programs that are sponsored by
PaineWebber and that may invest in PaineWebber mutual funds. At present,
however, INSIGHT participants and the PW SIP are the only purchasers in these
categories.

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

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

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

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

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

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Prospectus Page 19

the time that such participants made their investment choices.

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

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

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DIVIDENDS AND TAXES
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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, are distributed annually. A Fund may make additional distributions if
necessary to avoid a 4% excise tax on 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.

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

OTHER CLASS Y SHAREHOLDERS: Dividends and other distributions are paid in
additional Class Y shares at net asset value, unless the shareholder has
requested cash payments. Shareholders who wish to receive dividends and/or other
distributions in cash, either mailed to the shareholder by check or credited to
the shareholder's PaineWebber account, should contact their PaineWebber
investment executives or correspondent firms.

TAXES. Each Fund intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code so that it will be relieved
of federal income tax on that part of its investment company taxable income
(consisting generally of net investment income, 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.

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Prospectus Page 20

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

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

OTHER CLASS Y 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 shares.
Shareholders not subject to tax on their income generally will not be required
to pay tax on amounts distributed to them.

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

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

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

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

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

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Prospectus Page 21

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MANAGEMENT
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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, 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. 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 their shares, taxes and
governmental fees, fees and expenses of the trustees, costs of obtaining
insurance, expenses of printing distributed shareholder materials, and
extraordinary expenses including costs or losses in any litigation. For the
fiscal year ended November 30, 1995, U.S. Government Income Fund's expenses for
its Class Y shares, stated as a percentage of average net assets, was 0.71%. For
the fiscal period from October 20, 1995 (commencement of offering) to November
30, 1995, Low Duration Income Fund's expenses for its Class Y shares, stated as
a percentage of average net assets and annualized, was 0.99%.

Mitchell Hutchins is located at 1285 Avenue of the Americas, New York, New York
10019. It is a wholly owned subsidiary of PaineWebber, which is in turn wholly
owned by PW Group, the sponsor of the PW SIP and a publicly owned financial
services holding company. At June 30, 1996, Mitchell Hutchins was adviser or
sub-adviser to 31 investment companies with 65 separate portfolios and aggregate
assets of over $30 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 June 30, 1996, PIMCO had approximately $80
billion in assets under management and was adviser or sub-adviser of investment
companies with 60 portfolios and aggregate assets of approximately $25 billion.

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

William C. Powers, a Managing Director of PIMCO, is responsible for the
day-to-day management of Low Duration Income Fund's portfolio. Mr. Powers has
participated in the management of the portfolio since PIMCO assumed sub-advisory
responsibilities for the Fund in October 1994. Since 1991, Mr. Powers has been a
senior

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Prospectus Page 22

member of the fixed income portfolio management group of PIMCO. He was
previously associated with Salomon Brothers Inc and Bear Stearns as a Senior
Managing Director.

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

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

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

Mitchell Hutchins and PIMCO 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.

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

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

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

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

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

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Prospectus Page 23

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GENERAL INFORMATION
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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.

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

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

The Trust does not hold annual shareholder meetings. There normally will be no
meetings of shareholders to elect trustees unless fewer than a majority of the
trustees of the Trust holding office have been elected by shareholders.
Shareholders of record holding at least two-thirds of 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 each Fund is entitled to
participate equally in dividends and other distributions and the proceeds of any
liquidation except that, due to the differing expenses borne by the four
classes, these dividends and proceeds are likely to be lower for the other
classes than for the Class Y shares. The shares of each Fund will be voted
separately except when an aggregate vote of all series is required by the
Investment Company Act of 1940 ('1940 Act').

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

CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, One Heritage
Drive, North Quincy, Massachusetts 02171 is custodian of each Fund's assets and
employs foreign sub-custodians approved by the Trust's board of trustees in
accordance with the applicable requirements of the 1940 Act, to provide custody
of High Income Fund's foreign assets. PFPC Inc.,

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Prospectus Page 24

a subsidiary of PNC Bank, National Association, whose principal business address
is 103 Bellevue Parkway, Wilmington, Delaware 19809, is each Fund's transfer and
dividend disbursing agent.

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

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Prospectus Page 25

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APPENDIX A
MORTGAGE-BACKED SECURITIES
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MORTGAGE-BACKED SECURITIES

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

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Prospectus Page 26

and owed on the underlying pool. Freddie Mac generally guarantees timely monthly
payment of interest on PCs and the ultimate payment of principal, but it also
has a PC program under which it guarantees timely payment of both principal and
interest. GMCs also represent a pro rata interest in a pool of mortgages. These
instruments, however, pay interest semi-annually and return principal once a
year in guaranteed minimum payments. The Freddie Mac guarantee is not backed by
the full faith and credit of the U.S. government.

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

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

COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS MORTGAGE
PASS-THROUGHS. CMOs are debt obligations that are collateralized by mortgage
loans or mortgage pass-through securities (such collateral collectively being
called 'Mortgage 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

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Prospectus Page 27

a portion of the interest attributable to one or more of the CMO classes may be
added to the principal amounts attributable to such classes, rather than passed
through to certificateholders on a current basis, until other classes of the CMO
are paid in full.

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

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

TYPES OF CREDIT ENHANCEMENT. To lessen the effect of failures by obligors on
Mortgage Assets to make payments, mortgage-backed securities may contain
elements of credit enhancement. Such credit enhancement falls into two
categories; (1) liquidity protection and (2) protection against losses resulting
after default by an obligor on the underlying assets and collection of all
amounts recoverable directly from the obligor and through liquidation of the
collateral. Liquidity protection refers to the provision of advances, generally
by the entity administering the pool of assets (usually the bank, savings
association or mortgage banker that transferred the underlying loans to the
issuer of the security), to ensure that the receipt of payments on the
underlying pool occurs in a timely fashion. Protection against losses resulting
after default and liquidation ensures ultimate payment of the obligations on at
least a portion of the assets in the pool. Such protection may be provided
through guarantees, insurance policies or letters of credit obtained by the
issuer or sponsor, from third parties, through various means of structuring the
transaction or through a combination of such approaches. The 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.

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Prospectus Page 28

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APPENDIX B
RATINGS
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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

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Prospectus Page 29

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

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

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

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

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

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

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

DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS

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

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

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

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

DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS

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

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Prospectus Page 30

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.

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

OPTIONS ON DEBT SECURITIES AND FOREIGN CURRENCIES. A call option is a
short-term contract pursuant to which the purchaser of the option, in return for
a premium, has the right to buy the security or currency underlying the option
at a specified price at any time during the term of the option. The writer of
the call option, who receives the premium, has the obligation, upon exercise of
the option during the option term, to deliver the underlying security or
currency against payment of the exercise price. A put option is a similar
contract which gives its purchaser, in return for a premium, the right to sell
the underlying security or currency at a specified price during the option term.
The writer of the put option, who receives the premium, has the obligation, upon
exercise of the option during the option term, to buy the underlying security or
currency at the exercise price.

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

DEBT SECURITY INDEX FUTURES CONTRACTS. A debt security index futures contract
is a bilateral agreement pursuant to which one party agrees to accept, and the
other party agrees to make, delivery of an amount of cash equal to a 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

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Prospectus Page 31

and a short position if the option is a put), rather than to purchase or sell a
security, at a specified price at any time during the option term. Upon exercise
of the option, the delivery of the futures position to the holder of the option
will be accompanied by delivery of the accumulated balance that represents the
amount by which the market price of the futures contract exceeds, in the case of
a call, or is less than, in the case of a put, the exercise price of the option
on the future. The writer of an option, upon exercise, will assume a short
position in the case of a call and a long position in the case of a put.

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

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Prospectus Page 32

<PAGE>
<PAGE>
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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
Class Y Shares
PROSPECTUS -- AUGUST 2, 1996, AS REVISED OCTOBER 9, 1996
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<TABLE>
<S> <C>
PAINEWEBBER BOND FUNDS PAINEWEBBER STOCK FUNDS
High Income Fund Capital Appreciation Fund
Investment Grade Income Fund Financial Services Growth Fund
Low Duration U.S. Government Growth Fund
Income Fund Growth and Income Fund
Strategic Income Fund Small Cap Value Fund
U.S. Government Income Fund Utility Income Fund
PAINEWEBBER TAX-FREE BOND FUNDS PAINEWEBBER GLOBAL FUNDS
California Tax-Free Income Fund Emerging Markets Equity Fund
Municipal High Income Fund Global Equity Fund
National Tax-Free Income Fund Global Income Fund
New York Tax-Free Income Fund PAINEWEBBER MONEY MARKET FUND
PAINEWEBBER ASSET ALLOCATION
FUNDS
Balanced Fund
Tactical Allocation Fund
</TABLE>

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.

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. Please read it carefully before investing. It is important
that you have all the information you need to make a sound
investment decision.

'c' 1996 PaineWebber Incorporated
----------------
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<PAGE>
<PAGE>
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
PAINEWEBBER LOW DURATION U.S. GOVERNMENT
INCOME FUND
PAINEWEBBER INVESTMENT GRADE INCOME FUND
PAINEWEBBER HIGH INCOME FUND
CLASS Y SHARES
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019

STATEMENT OF ADDITIONAL INFORMATION

The four Funds named above (each a 'Fund') are diversified series of
PaineWebber Managed Investments Trust ('Trust'), a professionally managed mutual
fund. PaineWebber U.S. Government Income Fund ('U.S. Government Income Fund')
seeks to provide high current income consistent with the preservation of capital
and liquidity and invests primarily in U.S. government securities. PaineWebber
Low Duration U.S. Government Income Fund ('Low Duration Income Fund') seeks the
highest level of current income consistent with the preservation of capital and
low volatility of net asset value; it invests primarily in U.S. government
securities and seeks to limit the volatility of its net asset value per share by
maintaining, under normal circumstances, an overall portfolio duration of from
one to three years. PaineWebber Investment Grade Income Fund ('Investment Grade
Income Fund') seeks to provide high current income consistent with the
preservation of capital and liquidity; it invests primarily in investment grade
corporate bonds and other fixed income securities. PaineWebber High Income Fund
('High Income Fund') seeks to provide the highest level of current income
available without undue risk; it invests primarily in high risk, high yielding
medium and lower quality corporate bonds. The Funds' investment adviser,
administrator and distributor is Mitchell Hutchins Asset Management Inc.
('Mitchell Hutchins'), a wholly owned subsidiary of PaineWebber Incorporated
('PaineWebber'). As distributor for the Fund, Mitchell Hutchins has appointed
PaineWebber to serve as exclusive dealer for the sale of Fund shares. Pacific
Investment Management Company ('PIMCO') serves as investment sub-adviser for Low
Duration Income Fund. The Class Y shares described in this Statement of
Additional Information are currently offered for sale only to limited groups of
investors. The Class Y shares of U.S. Government Income Fund also are offered
for sale to the trustee of the PaineWebber Savings Investment Plan acting on
behalf of that Plan. This Statement of Additional Information is not a
prospectus and should be read only in conjunction with the Funds' current
Prospectus, dated August 2, 1996, as revised October 9, 1996. A copy of the
Prospectus may be obtained by calling any PaineWebber investment executive or
correspondent firm or by calling toll-free 1-800-647-1568. Participants in the
PaineWebber Savings Investment Plan may obtain a copy of the Prospectus by
contacting the PaineWebber Incorporated Benefits Department, 1000 Harbor
Boulevard, 10th Floor, Weehawken, New Jersey 07087 or by calling 1-201-902-4444.
This Statement of Additional Information is dated August 2, 1996, as revised
October 9, 1996.

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<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS

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

YIELD FACTORS AND RATINGS. Standard & Poor's, a division of The McGraw
Hill Companies, Inc. ('S&P'), Moody's Investors Service, Inc. ('Moody's') and
other nationally recognized statistical rating organizations ('NRSROs') are
private services that provide ratings of the credit quality of debt obligations.
A description of the ratings assigned to debt obligations by S&P and Moody's is
included in Appendix B to the Prospectus. The process by which S&P and Moody's
determine ratings for mortgage- and asset-backed securities includes
consideration of the likelihood of the receipt by security holders of all
distributions, the nature of the underlying securities, the credit quality of
the guarantor, if any, and the structural, legal and tax aspects associated with
such securities. Not even the highest such ratings represents an assessment of
the likelihood that principal prepayments will be made by mortgagors or the
degree to which such prepayments may differ from that originally anticipated,
nor do such ratings address the possibility that investors may suffer a lower
than anticipated yield or that investors in such securities may fail to recoup
fully their initial investment due to prepayments.

A Fund may use these ratings in determining whether to purchase, sell or
hold a security. It should be emphasized, however, that ratings are general and
are not absolute standards of quality. Consequently, debt obligations with the
same maturity, interest rate and rating may have different market prices. Also,
rating agencies may fail to make timely changes in credit ratings in response to
subsequent events so that an issuer's current financial condition may be better
or worse than the rating indicates. The rating assigned to a security by a NRSRO
does not reflect an assessment of the volatility of the security's market value
or of the liquidity of an investment in the security. Subsequent to its purchase
by any Fund, an issue of debt obligations may cease to be rated or its rating
may be reduced below the minimum rating required for purchase by that Fund.

In addition to ratings assigned to individual bond issues, Mitchell
Hutchins or PIMCO, as applicable, will analyze interest rate trends and
developments that may affect individual issuers, including factors such as
liquidity, profitability and asset quality. The yields on debt securities,
including mortgage- and asset-backed securities in which the Funds invest, are
dependent on a variety of factors, including general money market conditions,
general conditions in the bond market, the financial condition of the issuer,
the size of the offering, the maturity of the obligation and its credit rating.
There is a wide variation in the quality of bonds, both within a particular
classification and between classifications. An issuer's obligations under its
debt securities are subject to the provisions of bankruptcy, insolvency and
other laws affecting the rights and remedies of bond holders or other creditors
of an issuer; litigation or other conditions may also adversely affect the power
or ability of issuers to meet their obligations for the payment of interest and
principal on their bonds.

SPECIAL CHARACTERISTICS OF MORTGAGE- AND ASSET-BACKED SECURITIES. The
yield characteristics of mortgage- and asset-backed securities differ from those
of traditional debt securities. Among the major differences are that interest
and principal payments are made more frequently, usually monthly, and that
principal may be prepaid at any time because the underlying mortgage loans or
other obligations generally may be prepaid at any time. Prepayments on a pool of
mortgage loans are influenced by a variety of economic, geographic, social and
other factors, including changes in mortgagors' housing needs, job transfers,
unemployment, mortgagors' net equity in the mortgaged properties and servicing
decisions. Generally, however, prepayments on fixed-rate mortgage loans will
increase during a period of falling interest rates and

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decrease during a period of rising interest rates. Similar factors apply to
prepayments on asset-backed securities, but the receivables underlying
asset-backed securities generally are of a shorter maturity and thus are less
likely to experience substantial prepayments. Such securities, however, often
provide that for a specified time period the issuers will replace receivables in
the pool that are repaid with comparable obligations. If the issuer is unable to
do so, repayment of principal on the asset-backed securities may commence at an
earlier date. Mortgage- and asset-backed securities may decrease in value as a
result of increases in interest rates and may benefit less than other
fixed-income securities from declining interest rates because of the risk of
prepayment.

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

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

U.S. Government Income Fund, Low Duration Income Fund and Investment Grade
Income Fund each may invest in adjustable rate mortgage ('ARM') and floating
rate mortgage-backed securities. Because the interest rates on ARM and floating
rate mortgage-backed securities are reset in response to changes in a specified
market index, the values of such securities tend to be less sensitive to
interest rate fluctuations than the values of fixed-rate securities. As a
result, during periods of rising interest rates, ARMs generally do not decrease
in value as much as fixed rate securities. Conversely, during periods of
declining rates, ARMs generally do not increase in value as much as fixed rate
securities. ARM mortgage-backed securities represent a right to receive interest
payments at a rate that is adjusted to reflect the interest earned on a pool of
ARMs. ARMs generally provide that the borrower's mortgage interest rate may not
be adjusted above a specified lifetime maximum rate or, in some cases, below a
minimum lifetime rate. In addition, certain ARMs provide for limitations on the
maximum amount by which the mortgage interest rate may adjust for any single
adjustment period. ARMs also may provide for limitations on changes in the
maximum amount by which the

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<PAGE>
borrower's monthly payment may adjust for any single adjustment period. In the
event that a monthly payment is not sufficient to pay the interest accruing on
the ARM, any such excess interest is added to the mortgage loan ('negative
amortization'), which is repaid through future payments. If the monthly payment
exceeds the sum of the interest accrued at the applicable mortgage interest rate
and the principal payment that would have been necessary to amortize the
outstanding principal balance over the remaining term of the loan, the excess
reduces the principal balance of the ARM. Borrowers under ARMs experiencing
negative amortization may take longer to build up their equity in the underlying
property and may be more likely to default.

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

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

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

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

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

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

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

ILLIQUID SECURITIES. Each Fund may invest up to 10% of its net assets (15%
for Low Duration Income Fund) in illiquid securities. The term 'illiquid
securities' for this purpose means securities that cannot be disposed of within
seven days in the ordinary course of business at approximately the amount at
which a Fund has valued the securities and includes, among other things,
purchased over-the-counter ('OTC') options, repurchase agreements maturing in
more than seven days and restricted securities other than those Mitchell
Hutchins or PIMCO has determined are liquid pursuant to guidelines established
by the Trust's board of trustees. The assets used as cover for OTC options
written by the Funds will be considered illiquid unless the OTC options are sold
to qualified dealers who agree that the Funds may repurchase any OTC options
they write at a maximum price to be calculated by a formula set forth in the
option agreements. The cover for an OTC option written subject to this procedure
would be considered illiquid only to the extent that the maximum repurchase
price under the formula exceeds the intrinsic value of the option. Illiquid
restricted securities may be sold only in privately negotiated transactions or
in public offerings with respect to which a registration statement is in effect
under the Securities Act of 1933 ('1933 Act'). Where registration is required, a
Fund may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, the Fund might obtain a less favorable price than prevailed when it
decided to sell.

Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the 1933 Act, including private placements, repurchase
agreements, commercial paper, foreign securities and corporate bonds and notes.
These instruments are often restricted securities because the securities are
sold in transactions not requiring registration.

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Institutional investors generally will not seek to sell these instruments to the
general public, but instead will often depend either on an efficient
institutional market in which such unregistered securities can be readily resold
or on an issuer's ability to honor a demand for repayment. Therefore, the fact
that there are contractual or legal restrictions on resale to the general public
or certain institutions is not dispositive of the liquidity of such investments.

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

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

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

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

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

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

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

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

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

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

LENDING OF PORTFOLIO SECURITIES. As indicated in the Prospectus, each Fund
is authorized to lend up to 33 1/3% of the total value of its portfolio
securities to broker-dealers or institutional investors that Mitchell Hutchins
deems qualified, but only when the borrower maintains acceptable collateral with
the Fund's custodian, marked to market daily, in an amount at least equal to the
market value of the securities loaned, plus accrued interest and dividends.
Acceptable collateral is limited to cash, U.S. government securities and
irrevocable letters of credit that meet certain guidelines established by
Mitchell Hutchins. In determining whether to lend securities to a particular
broker-dealer or institutional investor, Mitchell Hutchins will consider, and
during the period of the loan will monitor, all relevant facts and
circumstances, including the creditworthiness of the borrower. A Fund will
retain authority to terminate any loan at any time. A Fund may pay reasonable
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash or money market
instruments held as collateral to the borrower or placing broker. A Fund will
receive reasonable interest on the loan or a flat fee from the borrower and
amounts equivalent to any dividends, interest or other distributions on the
securities loaned. A Fund will regain record ownership of loaned securities to
exercise beneficial rights, such as voting and subscription rights and rights to
dividends, interest or other distributions, when regaining such rights is
considered to be in the Fund's interest.

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

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

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

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

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

INVESTMENT LIMITATIONS OF THE FUNDS.

FUNDAMENTAL LIMITATIONS. The following fundamental investment limitations
cannot be changed for a Fund without the affirmative vote of the lesser of (1)
more than 50% of the outstanding shares of the Fund or (2) 67% or more of the
shares of the Fund present at a shareholders' meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy. If a
percentage restriction is adhered to at the time of an investment or
transaction, later changes in percentage resulting from a change in values of
portfolio securities or the amount of total assets will not be considered a
violation of any of the Funds' investment limitations, restrictions or
investment policies.

Each Fund will not:

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

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

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

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agency or instrumentality of the U.S. government) shall be considered a
single industry for purposes of this limitation.

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

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

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

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

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

NON-FUNDAMENTAL LIMITATIONS: The following investment restrictions,
which apply to each Fund, are not fundamental and may be changed by the
Trust's board of trustees without shareholder approval.

Each Fund will not:

(1) purchase or retain the securities of any issuer if the officers
and trustees of the Trust and the officers and directors of Mitchell
Hutchins (and, for Low Duration Income Fund, PIMCO) (each owning
beneficially as principal for its own account more than 0.5% of the
outstanding securities of the issuer) beneficially so own in the aggregate
more than 5% of the securities of the issuer.

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

(3) invest more than 10% (for Low Duration Income Fund, 15%) of its
net assets in illiquid securities, a term that means securities that cannot
be disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities and
includes, among other things, repurchase agreements maturing in more than
seven days.

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(4) make investments in warrants if such investments, valued at the
lower of cost or market, exceed 5% of the value of its net assets, which
amount may include warrants that are not listed on the New York Stock
Exchange, Inc. ('NYSE') or the American Stock Exchange, Inc., provided that
such unlisted warrants, valued at the lower of cost or market, do not
exceed 2% of the Fund's net assets, and further provided that this
restriction does not apply to warrants attached to or sold as a unit with
other securities.

(5) invest in real estate limited partnerships.

(6) purchase portfolio securities while borrowings in excess of 5% of
its total assets are outstanding.

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

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

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

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

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

HEDGING AND RELATED INCOME STRATEGIES

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

Hedging strategies can be broadly categorized as 'short hedges' and 'long
hedges.' A short hedge is a purchase or sale of a Hedging Instrument intended
partially or fully to offset potential declines in the value of one or more
investments held in a Fund's portfolio. Thus, in a short hedge a Fund takes a
position in a Hedging Instrument whose price is expected to move in the opposite
direction of the price of the investment being hedged. For example, a Fund might
purchase a put option on a security to hedge against a potential

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decline in the value of that security. If the price of the security declined
below the exercise price of the put, the Fund could exercise the put and thus
limit its loss below the exercise price to the premium paid plus transaction
costs. In the alternative, because the value of the put option can be expected
to increase as the value of the underlying security declines, the Fund might be
able to close out the put option and realize a gain to offset the decline in the
value of the security.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. Each Fund intends to
purchase or write only those exchange-traded options for which there appears to
be a liquid secondary market. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for
OTC options only by negotiating directly with the contra party, or by a
transaction in the secondary market if any such market exists. Although a Fund
will enter into OTC options only with contra parties that are expected to be
capable of entering into closing

<PAGE>
<PAGE>
transactions with the Fund, there is no assurance that the Fund will in fact be
able to close out an OTC option position at a favorable price prior to
expiration. In the event of insolvency of the contra party, the Fund might be
unable to close out an OTC option position at any time prior to its expiration.

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

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

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

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

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

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

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

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

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

No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract a Fund is required to deposit in a segregated
account with its custodian, in the name of the futures broker through whom the
transaction was effected, 'initial margin' consisting of cash, U.S. government
securities or other liquid, high-grade debt securities, in an amount generally
equal to 10% or less of the contract value.

<PAGE>
<PAGE>
Margin must also be deposited when writing a call option on a futures contract,
in accordance with applicable exchange rules. Unlike margin in securities
transactions, initial margin on futures contracts does not represent a
borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to a Fund at the termination of the transaction if all
contractual obligations have been satisfied. Under certain circumstances, such
as periods of high volatility, a Fund may be required by an exchange to increase
the level of its initial margin payment, and initial margin requirements might
be increased generally in the future by regulatory action.

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

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

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

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

Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or related options might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the futures and related options markets
are subject to daily variation margin calls and might be compelled to liquidate
futures or related options positions whose prices are moving unfavorably to
avoid being subject to further calls. These liquidations could increase price
volatility of the instruments and distort the normal price relationship between
the futures or options and the investments being hedged. Also, because initial
margin deposit requirements in the futures market are less onerous than margin
requirements in the securities markets, there might be increased participation
by speculators in the futures markets. This participation also might cause
temporary price distortions. In addition, activities of large traders in both
the futures and securities markets involving arbitrage, 'program trading' and
other investment strategies might result in temporary price distortions.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH TRUST OTHER DIRECTORSHIPS
- ------------------------------------- ------------------- ---------------------------------------------------
<S> <C> <C>
Margo N. Alexander**; 49 Trustee and Mrs. Alexander is president, chief executive
President officer and a director of Mitchell Hutchins
(since January 1995) and also an executive vice
president and a director of PaineWebber. Mrs.
Alexander is president and a director or trustee
of 30 investment companies for which Mitchell
Hutchins or PaineWebber serves as investment
adviser.
Richard Q. Armstrong; 61 Trustee Mr. Armstrong is chairman and principal of RQA
78 West Brother Drive Enterprises (management consulting firm) (since
Greenwich, CT 06830 April 1991 and principal occupation since March
1995). Mr. Armstrong is also a director of Hi Lo
Automotive, Inc. He was chairman of the board,
chief executive officer and co-owner of
Adirondack Beverages (producer and distributor of
soft drinks and sparkling/still waters) (October
1993-March 1995). Mr. Armstrong was a partner of
the New England Consulting Group (management
consulting firm) (December 1992-September 1993).
He was managing director of LMVH U.S. Corporation
(U.S. subsidiary of the French luxury goods
conglomerate, Luis Vuitton Moet Hennessey
Corporation) (1987-1991) and chairman of its wine
and spirits subsidiary, Schieffelin & Somerset
Company (1987-1991). Mr. Armstrong is a director
or trustee of 29 investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
E. Garrett Bewkes, Jr.**; 69 Trustee and Mr. Bewkes is a director of Paine Webber Group Inc.
Chairman of the ('PW Group') (holding company of PaineWebber and
Board of Trustees Mitchell Hutchins). Prior to December 1995, he
was a consultant to PW Group. Prior to 1988, he
was chairman of the board, president and chief
executive officer of American Bakeries Company.
Mr. Bewkes is also a director of Interstate
Bakeries Corporation and NaPro BioTherapeutics,
Inc. and a director or trustee of 30 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
</TABLE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH TRUST OTHER DIRECTORSHIPS
- ------------------------------------- ------------------- ---------------------------------------------------
<S> <C> <C>
Richard R. Burt; 49 Trustee Mr. Burt is chairman of International Equity
1101 Connecticut Avenue, N.W. Partners (international investments and con-
Washington, D.C. 20036 sulting firm) (since March 1994) and a partner of
McKinsey & Company (management consulting firm)
(since 1991). He is also a director of American
Publishing Company. He was the chief negotiator
in the Strategic Arms Reduction Talks with the
former Soviet Union (1989-1991) and the U.S.
Ambassador to the Federal Republic of Germany
(1985-1989). Mr. Burt is a director or trustee of
29 investment companies for which Mitchell
Hutchins or PaineWebber serves as investment
adviser.
Mary C. Farrell**; 46 Trustee Ms. Farrell is a managing director, senior
investment strategist and member of the
Investment Policy Committee of PaineWebber. Ms.
Farrell joined PaineWebber in 1982. She is a
member of the Financial Women's Association and
Women's Economic Roundtable and is employed as a
regular panelist on Wall $treet Week with Louis
Rukeyser. She also serves on the Board of
Overseers of New York University's Stern School
of Business. Ms. Farrell is a director or trustee
of 29 investment companies for which Mitchell
Hutchins or PaineWebber serves as investment
adviser.
Meyer Feldberg; 54 Trustee Dean Feldberg is Dean and Professor of Management
Columbia University of the Graduate School of Business, Columbia
101 Uris Hall University. Prior to 1989, he was president of
New York, New York 10027 the Illinois Institute of Technology. Dean
Feldberg is also a director of AMSCO
International Inc. (medical instruments and
supplies), Federated Department Stores, Inc., and
New World Communications Group Incorporated. Dean
Feldberg is a director or trustee of 29
investment companies for which Mitchell Hutchins
or PaineWebber serves as investment adviser.
George W. Gowen; 66 Trustee Mr. Gowen is a partner in the law firm of
666 Third Avenue Dunnington, Bartholow & Miller. Prior to May
New York, New York 10017 1994, he was a partner in the law firm of Fryer,
Ross & Gowen. Mr. Gowen is also a director of
Columbia Real Estate Investments, Inc. and a
director or trustee of 29 investment companies
for which Mitchell Hutchins or PaineWebber serves
as investment adviser.
</TABLE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH TRUST OTHER DIRECTORSHIPS
- ------------------------------------- ------------------- ---------------------------------------------------
<S> <C> <C>
Frederic V. Malek; 59 Trustee Mr. Malek is chairman of Thayer Capital Partners
1455 Pennsylvania Avenue, N.W. (investment bank) and a co-chairman and director
Suite 350 of CB Commercial Group Inc. (real estate). From
Washington, D.C. 20004 January 1992 to November 1992, he was campaign
manager of Bush-Quayle '92. From 1990 to 1992, he
was vice chairman and, from 1989 to 1990, he was
president of Northwest Airlines Inc., NWA Inc.
(holding company of Northwest Airlines Inc.) and
Wings Holdings Inc. (holding company of NWA Inc.)
Prior to 1989, he was employed by the Marriott
Corporation (hotels, restaurants, airline
catering and contract feeding), where he most
recently was an executive vice president and
president of Marriott Hotels and Resorts. Mr.
Malek is also a director of American Management
Systems, Inc. (management consulting and computer
related services), Automatic Data Processing,
Inc., Avis, Inc. (passenger car rental), FPL
Group, Inc. (electric services), National
Education Corporation and Northwest Airlines Inc.
Mr. Malek is a director or trustee of 29
investment companies for which Mitchell Hutchins
or PaineWebber serves as investment adviser.
Carl W. Schafer; 60 Trustee Mr. Schafer is president of the Atlantic Founda-
P.O. Box 1164 tion (charitable foundation supporting mainly
Princeton, NJ 08542 oceanographic exploration and research). He also
is a director of Roadway Express, Inc.
(trucking), The Guardian Group of Mutual Funds,
Evans Systems, Inc. (a motor fuels, convenience
store and diversified company), Hidden Lake Gold
Mines Ltd. (gold mining), Electronic Clearing
House, Inc. (financial transactions processing),
Wainoco Oil Corporation and Nutraceutix, Inc.
(biotechnology). Prior to January 1993, he was
chairman of the Investment Advisory Committee of
the Howard Hughes Medical Institute. Mr. Schafer
is a director or trustee of 29 investment compa-
nies for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH TRUST OTHER DIRECTORSHIPS
- ------------------------------------- ------------------- ---------------------------------------------------
<S> <C> <C>
John R. Torell III; 57 Trustee Mr. Torell is chairman of Torell Management, Inc.
767 Fifth Avenue (financial advisory firm), chairman of Telesphere
Suite 4605 Corporation (electronic provider of financial
New York, NY 10153 information) and a partner of Zilkha & Company
(merchant bank and private investment company).
He is the former chairman and chief executive
officer of Fortune Bancorp (1990-1991 and
1990-1994, respectively). He is the former
chairman, president and chief executive officer
of CalFed, Inc. (savings association) (1988 to
1989) and the former president of Manufacturers
Hanover Corp. (bank) (prior to 1988). Mr. Torell
is also a director of American Home Products
Corp., New Colt Inc. (armament manufacturer) and
Volt Information Sciences Inc. Mr. Torell is a
director or trustee of 29 investment companies
for which Mitchell Hutchins or PaineWebber serves
as investment adviser.
Julieanna Berry; 32 Vice President Ms. Berry is a vice president and a portfolio
manager of Mitchell Hutchins. Ms. Berry is a vice
president of two investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Teresa M. Boyle; 37 Vice President Ms. Boyle is a first vice president and manager-
advisory administration of Mitchell Hutchins.
Prior to November 1993, she was compliance
manager of Hyperion Capital Management, Inc., an
investment advisory firm. Prior to April 1993,
Ms. Boyle was a vice president and manager-legal
administration of Mitchell Hutchins. Ms. Boyle is
a vice president of 30 investment companies for
which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Karen L. Finkel; 38 Vice President Mrs. Finkel is a first vice president and a
portfolio manager of Mitchell Hutchins. Mrs.
Finkel is a vice president of two investment
companies for which Mitchell Hutchins serves as
investment adviser.
</TABLE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH TRUST OTHER DIRECTORSHIPS
- ------------------------------------- ------------------- ---------------------------------------------------
<S> <C> <C>
James F. Keegan; 35 Vice President Mr. Keegan is a senior vice president and a
portfolio manager of Mitchell Hutchins. Prior to
March 1996, he was director of fixed income
strategy and research of Merrion Group, L.P. From
1987 to 1994, he was a vice president of global
investment management of Bankers Trust Company.
Mr. Keegan is a vice president of two investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Thomas J. Libassi; 37 Vice President Mr. Libassi is a senior vice president and a
portfolio manager of Mitchell Hutchins. Prior to
May 1994, he was a vice president of Keystone
Custodian Funds Inc. with portfolio management
responsibility. Mr. Libassi is a vice president
of four investment companies for which Mitchell
Hutchins serves as investment adviser.
C. William Maher; 35 Vice President and Mr. Maher is a first vice president and a senior
Assistant Treasurer manager of the mutual fund finance division of
Mitchell Hutchins. Mr. Maher is a vice president
and assistant treasurer of 30 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Dennis McCauley; 49 Vice President Mr. McCauley is a managing director and chief
investment officer-fixed income of Mitchell
Hutchins. Prior to December 1994, he was director
of fixed income investments of IBM Corporation.
Mr. McCauley is a vice president of 19 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Ann E. Moran; 39 Vice President and Ms. Moran is a vice president of Mitchell Hutchins.
Assistant Treasurer Ms. Moran is a vice president and assistant
treasurer of 30 investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Dianne E. O'Donnell; 44 Vice President and Ms. O'Donnell is a senior vice president and deputy
Secretary general counsel of Mitchell Hutchins. Ms.
O'Donnell is a vice president and secretary of 29
investment companies for which Mitchell Hutchins
or PaineWebber serves as investment adviser.
</TABLE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH TRUST OTHER DIRECTORSHIPS
- ------------------------------------- ------------------- ---------------------------------------------------
<S> <C> <C>
Emile Polito; 36 Vice President Mr. Polito is a senior vice president and director
of operations and control for Mitchell Hutchins.
From March, 1991 to September, 1993 he was
director of the Mutual Funds Sales Support and
Service Center for Michell Hutchins and
PaineWebber. Mr. Polito is also vice president of
30 investment companies for which Mitchell
Hutchins or PaineWebber serves as investment
adviser.
Victoria E. Schonfeld; 45 Vice President Ms. Schonfeld is a managing director and general
counsel of Mitchell Hutchins. Prior to May 1994,
she was a partner in the law firm of Arnold &
Porter. Ms. Schonfeld is a vice president of 30
investment companies for which Mitchell Hutchins
or PaineWebber serves as investment adviser.
Paul H. Schubert; 33 Vice President and Mr. Schubert is a first vice president and a senior
Assistant Treasurer manager of the mutual fund finance division of
Mitchell Hutchins. From August 1992 to August
1994, he was a vice president at BlackRock
Financial Management Inc. Prior to August 1992,
he was an audit manager with Ernst & Young LLP.
Mr. Schubert is a vice president and assistant
treasurer of 30 investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Nirmal Singh; 40 Vice President Mr. Singh is a first vice president and a portfolio
manager of Mitchell Hutchins. Prior to September
1993, he was a member of the portfolio management
team at Merrill Lynch Asset Management, Inc. Mr.
Singh is a vice president of five investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Julian F. Sluyters; 36 Vice President and Mr. Sluyters is a senior vice president and the
Treasurer director of the mutual fund finance division of
Mitchell Hutchins. Prior to 1991, he was an audit
senior manager with Ernst & Young LLP. Mr.
Sluyters is a vice president and treasurer of 30
investment companies for which Mitchell Hutchins
or PaineWebber serves as investment adviser.
</TABLE>

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

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

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

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

The Trust pays trustees who are not 'interested persons' of the Trust
('disinterested trustees') $1,000 annually for each series of the Trust and $150
for each board meeting and each meeting of a board committee (other than
committee meetings held on the same day as a board meeting). The Trust presently
has five series and thus pays each such trustee $5,000 annually, plus any
additional amounts due for board or committee meetings. Messrs. Feldberg and
Torell each receive additional annual compensation from the PaineWebber fund
complex (including the Trust) of $15,000 for serving as chairmen of the audit
and contract review committees of the funds. All trustees are reimbursed for any
expenses incurred in attending meetings. Trustees and officers of the Trust own
in the aggregate less than 1% of the shares of the Fund. Because PaineWebber and
Mitchell Hutchins perform substantially all of the services necessary for the
operation of the Trust and the Funds, the Trust requires no employees. No
officer, director or employee of Mitchell Hutchins or PaineWebber presently
receives any compensation from the Trust for acting as a trustee or officer.

<PAGE>
<PAGE>
The table below includes certain information relating to the compensation of the
current trustees who held office with the Trust or other PaineWebber funds
during the years indicated.

COMPENSATION TABLE

<TABLE>
<CAPTION>
TOTAL
COMPENSATION
AGGREGATE FROM THE
COMPENSATION TRUST AND THE
FROM TRUST
NAME OF PERSON, POSITION THE TRUST* COMPLEX`D'
- ------------------------------------------------------------- ------------ --------------
<S> <C> <C>
Richard Q. Armstrong, Trustee................................ -- $ 9,000
Richard Burt, Trustee........................................ -- $ 7,750
Meyer Feldberg, Trustee...................................... $7,250 $106,375
George W. Gowen, Trustee..................................... $7,250 $ 99,750
Frederic V. Malek, Trustee................................... $7,250 $ 99,750
Carl W. Schafer, Trustee..................................... -- $118,175
John R. Torell, III, Trustee................................. -- $ 28,125
</TABLE>

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

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

* Represents fees paid to each trustee during the fiscal year ended November 30,
1995.

`D' Represents total compensation paid to each trustee during the year ended
December 31, 1995; no fund within the fund complex has a pension or
retirement plan.

BENEFICIAL OWNERSHIP OF GREATER THAN 5% OF FUND SHARES

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

<TABLE>
<CAPTION>
NUMBER AND PERCENTAGE OF
SHARES BENEFICIALLY
OWNED
NAME AND ADDRESS* AS OF AUGUST 1, 1996
- ------------------------------------------------------------------ ------------------------

<S> <C>
Kern County Treasurer............................................. 6,921,631.170 (6.86%)
</TABLE>

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

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

INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS

INVESTMENT ADVISORY ARRANGEMENTS. Mitchell Hutchins acts as the investment
adviser and administrator of each Fund pursuant to a contract with the Trust
dated April 21, 1988, as supplemented by a separate fee agreement dated March
26, 1993 with respect to Low Duration Income Fund ('Advisory Contract'). Under
the Advisory Contract, the Trust pays Mitchell Hutchins an annual fee, computed
daily and paid monthly, at the rate of 0.50% of each Fund's average daily net
assets. During the fiscal years ended November 30, 1995, November 30, 1994 and
November 30, 1993, respectively, the Trust paid (or accrued) to Mitchell
Hutchins investment advisory and administrative fees of $2,784,437, $3,958,127
and $4,999,240 with respect to U.S. Government Income Fund, $1,890,394,
$1,897,899 and $1,393,289 with respect to Investment Grade Income Fund and
$3,050,197, $4,047,201 and $3,100,195 with respect to High Income

<PAGE>
<PAGE>
Fund. During the fiscal years ended November 30, 1995 and November 30, 1994 and
the period May 3, 1993 (commencement of operations) to November 30, 1993, the
Trust paid (or accrued) to Mitchell Hutchins investment advisory and
administrative fees of $1,839,876, $5,598,491 (of which $400,611 was waived by
Mitchell Hutchins) and $3,519,442 with respect to Low Duration Income Fund.

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

The Advisory Contract authorizes Mitchell Hutchins to retain one or more
sub-advisers but does not require Mitchell Hutchins to do so. Under a
sub-investment advisory contract ('Sub-Advisory Contract') dated November 14,
1994 with Mitchell Hutchins, PIMCO serves as sub-adviser for Low Duration Income
Fund. Under the Sub-Advisory Contract, Mitchell Hutchins (not the Fund) pays
PIMCO a fee in the annual amount of 0.25% of the Fund's average daily net
assets. PIMCO bears all expenses incurred by it in connection with its services
under the Sub-Advisory Contract. For the fiscal year ended November 30, 1995 and
the period October 20, 1994 to November 30, 1994, Mitchell Hutchins paid (or
accrued) to PIMCO sub-advisory fees of $919,938 and $147,540, respectively,
pursuant to the Sub-Advisory Contract and a substantially similar prior
contract.

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

<PAGE>
<PAGE>
and any committees thereof; (17) the cost of investment company literature and
other publications provided to trustees and officers; and (18) costs of mailing,
stationery and communications equipment.

As required by state regulation, Mitchell Hutchins will reimburse a Fund if
and to the extent that the aggregate operating expenses of the Fund in any
fiscal year exceed applicable limits. Currently, the most restrictive such limit
applicable to the Fund is 2.5% of the first $30 million of the Fund's average
daily net assets, 2.0% of the next $70 million of its average daily net assets
and 1.5% of its average daily net assets in excess of $100 million. Certain
expenses, such as brokerage commissions, taxes, interest, distribution fees and
extraordinary items, are excluded from this limitation. For the fiscal years
ended November 30, 1995, November 30, 1994 and November 30, 1993, no
reimbursements were required pursuant to such limitations.

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

The following table shows the approximate net assets as of June 30, 1996,
sorted by category of investment objective, of the investment companies as to
which Mitchell Hutchins serves as adviser or sub-adviser. An investment company
may fall into more than one of the categories below.

<TABLE>
<CAPTION>
NET
ASSETS
INVESTMENT CATEGORY ($ MIL)
- -------------------------------------------------------------------------------- ---------

<S> <C>
Domestic (excluding Money Market)............................................... $ 5,585.3
Global.......................................................................... 2,826.1
Equity/Balanced................................................................. 3,118.7
Fixed Income (excluding Money Market)........................................... 5,292.7
Taxable Fixed Income....................................................... 3,653.2
Tax-Free Fixed Income...................................................... 1,639.5
Money Market Funds.............................................................. 21,656.6
</TABLE>

Mitchell Hutchins personnel may invest in securities for their own accounts
pursuant to a code of ethics that describes the fiduciary duty owed to
shareholders of the PaineWebber mutual funds and other Mitchell

<PAGE>
<PAGE>
Hutchins' advisory accounts by all Mitchell Hutchins' directors, officers and
employees, establishes procedures for personal investing and restricts certain
transactions. For example, employee accounts generally must be maintained at
PaineWebber, personal trades in most securities require pre-clearance and
short-term trading and participation in initial public offerings generally are
prohibited. In addition, the code of ethics puts restrictions on the timing of
personal investing in relation to trades by PaineWebber mutual funds and other
Mitchell Hutchins advisory clients. PIMCO personnel also may invest in
securities for their own accounts pursuant to PIMCO's code of ethics, which
establishes procedures for personal investing and restricts certain
transactions.

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

PORTFOLIO TRANSACTIONS

Subject to policies established by the Trust's board of trustees, Mitchell
Hutchins or PIMCO, as applicable, is responsible for the execution of the Fund's
portfolio transactions and the allocation of brokerage transactions. In
executing portfolio transactions, Mitchell Hutchins and PIMCO seek to obtain the
best net results for a Fund, taking into account such factors as the price
(including the applicable brokerage commission or dealer spread), size of order,
difficulty of execution and operational facilities of the firm involved.
Generally, bonds are traded on the OTC market on a 'net' basis without a stated
commission through dealers acting for their own account and not as brokers.
Prices paid to dealers in principal transactions generally include a 'spread,'
which is the difference between the prices at which the dealer is willing to
purchase and sell a specific security at that time. While Mitchell Hutchins or
PIMCO generally seeks reasonably competitive commission rates, payment of the
lowest commission is not necessarily consistent with obtaining the best net
results. During the fiscal year ended November 30, 1995, no Fund paid any
brokerage commissions. During the fiscal year ended November 30, 1994, U.S.
Government Income Fund, Low Duration Income Fund, Investment Grade Income Fund
and High Income Fund paid approximately $0, $88,421, $21,500 and $74,838,
respectively, in brokerage commissions. During the fiscal year ended November
30, 1993, U.S. Government Income Fund and Investment Grade Income Fund paid no
brokerage commissions and High Income Fund paid approximately $4,145 in
brokerage commissions. During the period May 3, 1993 (commencement of
operations) to November 30, 1993, Low Duration Income Fund paid no brokerage
commissions.

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

<PAGE>
<PAGE>
November 30, 1995, no Fund paid any brokerage commissions to PaineWebber or any
other affiliate of Mitchell Hutchins. During the fiscal year ended November 30,
1994, High Income Fund paid approximately $30,915 in brokerage commissions to
PaineWebber. During the fiscal years ended November 30, 1994 and November 30,
1993, the Funds paid no other brokerage commissions to PaineWebber or any other
affiliate of Mitchell Hutchins.

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

Consistent with the interests of a Fund and subject to the review of the
Trust's board of trustees, Mitchell Hutchins or PIMCO may cause the Fund to
purchase and sell portfolio securities through brokers who provide the Fund with
research, analysis, advice and similar services. In return for such services,
the Fund may pay to those brokers a higher commission than may be charged by
other brokers, provided that Mitchell Hutchins or PIMCO determines in good faith
that such commission is reasonable in terms either of that particular
transaction or of the overall responsibility of Mitchell Hutchins to the Fund
and its other clients and that the total commissions paid by the Fund will be
reasonable in relation to the benefits to the Fund over the long term. During
the fiscal year ended November 30, 1995, the Funds directed no portfolio
transactions to brokers chosen because they provided research services.

For purchases or sales with broker-dealer firms which act as principal,
Mitchell Hutchins and PIMCO seek best execution. Although Mitchell Hutchins or
PIMCO may receive certain research or execution services in connection with
these transactions, neither will purchase securities at a higher price or sell
securities at a lower price than would otherwise be paid if no weight was
attributed to the services provided by the executing dealer. Moreover, neither
Mitchell Hutchins nor PIMCO will enter into any explicit soft dollar
arrangements relating to principal transactions or will receive in principal
transactions the types of services that could be purchased for hard dollars.
Mitchell Hutchins and PIMCO may engage in agency transactions in OTC equity and
debt securities in return for research and execution services. These
transactions are entered into only in compliance with procedures ensuring that
the transaction (including commissions) is at least as favorable as it would
have been if effected directly with a market-maker that did not provide research
or execution services. These procedures include Mitchell Hutchins or PIMCO
receiving multiple quotes from dealers before executing the transaction on an
agency basis.

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

Investment decisions for the Funds and other investment accounts managed by
Mitchell Hutchins or PIMCO are made independently of each other in light of
differing considerations for the various accounts. However, the same investment
decision may occasionally be made for a Fund and one or more of such accounts.
In such cases, simultaneous transactions are inevitable. Purchases or sales are
then averaged as to price and allocated between the Fund and such other
account(s) as to amount according to a formula deemed equitable to the Fund and
such account(s). While in some cases this practice could have a

<PAGE>
<PAGE>
detrimental effect upon the price or value of the security as far as a Fund is
concerned, or upon its ability to complete its entire order, in other cases it
is believed that coordination and the ability to participate in volume
transactions will be beneficial to the Fund.

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

PORTFOLIO TURNOVER. Each Fund's annual portfolio turnover rate may vary
greatly from year to year, but it will not be a limiting factor when management
deems portfolio changes appropriate. The portfolio turnover rate is calculated
by dividing the lesser of the Fund's annual sales and purchases of portfolio
securities (exclusive of purchases or sales of securities whose maturities at
the time of acquisition were one year or less) by the monthly average value of
the securities in the portfolio during the year. During the fiscal years ended
November 30, 1995 and November 30, 1994, respectively, the portfolio turnover
rates were 206% and 358% for U.S. Government Income Fund; 242% and 246% for Low
Duration Income Fund; 149% and 142% for Investment Grade Income Fund; and 94%
and 156% for High Income Fund.

VALUATION OF SHARES

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

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

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

<PAGE>
<PAGE>
the prevailing exchange rate in an amount generally less than one-tenth of one
percent due to the costs of converting from one currency to another.

PERFORMANCE INFORMATION

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

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

<TABLE>
<S> <C>
P(1 + T)(n) = ERV
where: P = a hypothetical initial payment of $1,000 to purchase shares of a specified class
T = average annual total return of shares of that class
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of that period.
</TABLE>

Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or 'T' in the formula above, is computed by finding
the average annual change in the value of an initial $1,000 investment over the
period. All dividends and other distributions are assumed to have been
reinvested at net asset value.

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

The following table shows performance information for Class Y shares
(formerly Class C shares) of U.S. Government Income Fund and Low Duration Income
Fund for the periods indicated. Investment Grade Income Fund and High Income
Fund had no Class Y shares outstanding during these periods. All returns for
periods of more than one year are expressed as an annualized average return:

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

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

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

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

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

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

Except as noted below, in determining net investment income earned during
the Period (variable 'a' in the above formula), the Fund calculates interest
earned on each debt obligation held by it during the Period by (1) computing the
obligation's yield to maturity, based on the market value of the obligation
(including actual accrued interest) on the last business day of the Period or,
if the obligation was purchased during the Period, the purchase price plus
accrued interest and (2) dividing the yield to maturity by 360, and multiplying
the resulting quotient by the market value of the obligation (including actual
accrued interest) to determine the interest income on the obligation for each
day of the period that the obligation is in the portfolio. Once interest earned
is calculated in this fashion for each debt obligation held by the Fund,
interest earned during the Period is then determined by totalling the interest
earned on all debt obligations. For purposes of these calculations, the maturity
of an obligation with one or more call provisions is assumed to be the next date
on which the obligation reasonably can be expected to be called or, if none, the
maturity date. The yield of the Funds' Class Y shares for the 30-day period
ended November 30, 1995 was 6.11% for U.S. Government Income Fund and 6.24% for
Low Duration Income Fund. Investment Grade Income Fund and High Income Fund had
no Class Y shares outstanding during this period.

OTHER INFORMATION. In Performance Advertisements each Fund may compare its
Standardized Return and/or its Non-Standardized Return with data published by
Lipper Analytical Services, Inc. ('Lipper') for U.S. government funds, CDA
Investment Technologies, Inc. ('CDA'), Wiesenberger Investment Companies Service
('Wiesenberger'), Investment Company Data Inc. ('ICD') or Morningstar Mutual
Funds ('Morningstar'), or with the performance of U.S. Treasury securities of
various maturities, recognized stock, bond and other indices, including the
Salomon Brothers Bond Index, Lehman Bond Index, Lehman Government/Corporate Bond
Index, the Standard & Poor's 500 Composite Stock Price Index, the Dow Jones
Industrial Average, and changes in the Consumer Price Index as published by the
U.S. Department of Commerce. Such companies also may include economic data and
statistics published by the United States Bureau of Labor Statistics, such as
the cost of living index, information and statistics on the residential mortgage
market or the market for mortgage-backed securities, such as those published by
the Federal Reserve Bank, the Office of Thrift Supervision, Ginnie Mae, Fannie
Mae and Freddie Mac and the Lehman Mortgage-Backed Securities Index. The Fund
also may refer in such materials to mutual fund performance rankings and other
data, such as comparative asset, expense and fee levels, published by Lipper,
CDA, Wiesenberger, ICD or Morningstar. Performance Advertisements also may refer
to discussions of the Fund and comparative mutual fund data and ratings reported
in independent periodicals, including THE WALL STREET JOURNAL, MONEY Magazine,
FORBES, BUSINESS WEEK, FINANCIAL WORLD, BARRONS, FORTUNE, THE NEW YORK TIMES,
THE CHICAGO TRIBUNE, THE WASHINGTON

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

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

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

TAXES

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

Dividends and other distributions declared by a Fund in November or
December of any year and payable to shareholders of record on a date in either
of those months will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund during the following January. Accordingly, those distributions will be
taxed to shareholders (other than shareholders who are not subject to tax on
their income generally) for the year in which that December 31 falls.

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

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

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

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

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

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

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

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

OTHER INFORMATION

PAINEWEBBER MANAGED INVESTMENTS TRUST. Prior to October 20, 1995, the name
of Low Duration Income Fund was 'PaineWebber Short-Term U.S. Government Income
Fund.' Prior to November 10, 1995, the Class Y shares of U.S. Government Income
Fund and Low Duration Income Fund were called 'Class C' shares.

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

ADDITIONAL REDEMPTION INFORMATION. If conditions exist that make cash
payments undesirable, the Funds reserve the right to honor any request for
redemption by making payment in whole or in part in securities chosen by the
Funds and valued in the same way as they would be valued for purposes of
computing the Fund's net asset value. If payment is made in securities, a
shareholder may incur brokerage expenses in converting these securities into
cash. Each Fund has elected, however, to be governed by Rule 18f-1 under the
1940 Act, under which the Funds are obligated to redeem shares solely in cash up
to the lesser of $250,000 or 1% of the net asset value of the Funds during any
90-day period for one shareholder. This election is irrevocable unless the SEC
permits its withdrawal.

The Funds may suspend redemption privileges or postpone the date of payment
during any period (1) when the NYSE is closed or trading on the NYSE is
restricted as determined by the SEC, (2) when an emergency exists, as defined by
the SEC, that makes it not reasonably practicable for a Fund to dispose of
securities owned by it or fairly to determine the value of its assets or (3) as
the SEC may otherwise permit.

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The redemption price may be more or less than the shareholder's cost, depending
on the market value of a Fund's portfolio at the time.

CLASS-SPECIFIC EXPENSES. Each Fund may determine to allocate certain of
its expenses to the specific classes of the Fund's shares to which those
expenses are attributable.

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

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

FINANCIAL STATEMENTS

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

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<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THE PROSPECTUS OR IN THIS STATEMENT OF
ADDITIONAL INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS OR THEIR DISTRIBUTOR. THE PROSPECTUS
AND THIS STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN OFFERING BY
THE FUNDS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and Restrictions........... 2
Hedging and Related Income
Strategies................................... 11
Trustees and Officers; Principal Holders of
Securities................................... 20
Investment Advisory and Distribution
Arrangements................................. 27
Portfolio Transactions......................... 30
Valuation of Shares............................ 32
Performance Information........................ 33
Taxes.......................................... 35
Other Information.............................. 37
Financial Statements........................... 38
</TABLE>

'c' 1996 PaineWebber Incorporated

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

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

Statement of Additional Information
August 2, 1996

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

PAINEWEBBER

STATEMENT OF DIFFERENCES

The dagger symbol shall be expressed as ......`D'
The copyright symbol shall be expressed as ...'c'