PAINEWEBBER MANAGED INVESTMENTS TRUST, 497, 1997-04-24

PAINEWEBBER MANAGED INVESTMENTS TRUST
497, 1997-04-24

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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
PaineWebber Strategic Income Fund
Class Y Shares
1285 Avenue of the Americas, New York, New York 10019
Prospectus -- April 1, 1997
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PaineWebber Bond Funds are designed for investors seeking income by investing
in debt and similar securities, which are commonly called "bonds." Each Fund
seeks generally to obtain the highest level of income that is consistent with
its investment strategy. The Funds differ in terms of the types of bonds in
which they invest and the type and degree of risks that they will accept in or-
der to achieve their investment goals.

PaineWebber U.S. Government Income Fund invests primarily in U.S. government
bonds, including those backed by mortgages. PaineWebber Low Duration U.S. Gov-
ernment Income Fund also invests primarily in U.S. government bonds, including
those backed by mortgages, but it limits the expected life (duration) of its
portfolio to from 1 to 3 years. PaineWebber Investment Grade Income Fund in-
vests primarily in a diversified range of investment grade bonds, including
U.S. government and U.S. and foreign corporate bonds. PaineWebber High Income
Fund invests primarily in a diversified range of high yield, high risk, U.S.
and foreign corporate bonds. PaineWebber Strategic Income Fund strategically
allocates its investments among three bond market categories: U.S. government
and investment grade corporate bonds; U.S. high yield, high risk corporate
bonds; and foreign and emerging market bonds.

The Class Y shares described in this Prospectus are currently offered for sale
only to a limited group of investors, which include, for the Class Y shares of
PaineWebber U.S. Government Income Fund, the trustee of the PaineWebber Savings
Investment Plan ("PW SIP"). See "How to Buy Shares." Participants in the PW SIP
can make further inquiries by contacting the PaineWebber Incorporated Benefits
Department, 10th Floor, 1000 Harbor Boulevard, Weehawken, New Jersey 10197 or
by calling 1-201-902-4444.

This Prospectus concisely sets forth information that a prospective investor
should know about the Funds before investing. Please read it carefully and re-
tain a copy of this Prospectus for future reference. A Statement of Additional
Information dated April 1, 1997 has been filed with the Securities and Exchange
Commission and is legally part of this Prospectus. The Statement of Additional
Information can be obtained without charge, and further inquiries can be made,
by contacting an individual Fund, your investment executive at PaineWebber or
one of its correspondent firms or by calling toll-free 1-800-647-1568.

INVESTORS SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR REFERRED TO IN THIS
PROSPECTUS. THE FUNDS AND THEIR DISTRIBUTOR HAVE NOT AUTHORIZED ANYONE TO PRO-
VIDE INVESTORS WITH INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS IS NOT AN
OFFER TO SELL SHARES OF THE FUNDS IN ANY JURISDICTION WHERE THE FUNDS OR THEIR
DISTRIBUTOR MAY NOT LAWFULLY SELL THOSE SHARES.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURI-
TIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESEN-
TATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

PAINEWEBBER HIGH INCOME FUND AND PAINEWEBBER STRATEGIC INCOME FUND MAY
INVEST WITHOUT LIMIT IN HIGH YIELD, HIGH RISK BONDS, COMMONLY REFERRED TO
AS "JUNK BONDS." BONDS OF THIS TYPE ARE CONSIDERED SPECULATIVE WITH
RESPECT TO THE PAYMENT OF INTEREST AND RETURN OF PRINCIPAL. INVESTORS
SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH INVESTMENTS IN THESE
FUNDS.

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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 Strategic Income Fund

Table of Contents
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Page
----
<S> <C>
The Funds at a Glance...................................................... 3
Expense Table.............................................................. 5
Financial Highlights....................................................... 7
Investment Objectives & Policies........................................... 8
Investment Philosophy & Process............................................ 10
Performance................................................................ 11
The Funds' Investments..................................................... 13
How to Buy Shares.......................................................... 20
How to Sell Shares......................................................... 22
Management................................................................. 22
Determining the Shares' Net Asset Value.................................... 24
Dividends & Taxes.......................................................... 24
General Information........................................................ 25
Appendix................................................................... A-1
</TABLE>

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Prospectus Page 2
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PaineWebberU.S. Government Income Fund Low Duration U.S. Government Income Fund
Investment Grade Income Fund High Income Fund Strategic Income Fund
The Funds at a Glance
- -------------------------------------------------------------------------------

The Funds offered by this Prospectus are not intended to provide a complete
investment program, but one or all of them may be appropriate as a component
of an investor's overall portfolio. Some common reasons to invest in these
Funds are to finance college educations, plan for retirement or diversify a
portfolio. When selling shares, investors should be aware that they may get
more or less for their shares than they originally paid for them. As with any
mutual fund, there is no assurance that the Funds will achieve their goals.

U.S. GOVERNMENT INCOME FUND

GOAL: To provide you with current income by investing primarily in U.S.
government bonds, including those backed by mortgages.

INVESTMENT OBJECTIVE: High current income consistent with the preservation of
capital and liquidity.

SIZE: Over $412.1 million in assets on February 28, 1997.

WHO SHOULD INVEST: Investors seeking high current income from investment in
U.S. government bonds.

LOW DURATION U.S. GOVERNMENT INCOME FUND ("LOW DURATION INCOME FUND")

GOAL: To provide you with current income by investing primarily in U.S.
government bonds, including those backed by mortgages, while maintaining a
portfolio duration of from 1 to 3 years.

INVESTMENT OBJECTIVE: Highest level of income consistent with the preservation
of capital and low volatility of net asset value.

SIZE: Over $181.1 million in assets on February 28, 1997.

WHO SHOULD INVEST: Investors seeking current income with less fluctuation in
net asset value than longer-term U.S. government bond funds.

INVESTMENT GRADE INCOME FUND

GOAL: To provide you with current income by investing primarily in a
diversified range of investment grade bonds, including U.S. government and
U.S. and foreign corporate bonds.

INVESTMENT OBJECTIVE: High current income consistent with the preservation of
capital and liquidity.

SIZE: Over $298.5 million in assets on February 28, 1997.

WHO SHOULD INVEST: Investors seeking high current income from investment in a
diversified portfolio of investment grade bonds.

HIGH INCOME FUND

GOAL: To provide you with high income by investing primarily in a diversified
range of high yield, high risk, U.S. and foreign corporate bonds.

INVESTMENT OBJECTIVE: High income.

SIZE: Over $573.2 million in assets on February 28, 1997.

WHO SHOULD INVEST: Investors seeking high income, who can assume additional
risks for the potential for higher returns.

STRATEGIC INCOME FUND

GOAL: To provide you with high current income primarily by strategically
allocating investments among three bond market categories: U.S. government and
investment grade corporate bonds; U.S. high yield, high risk corporate bonds;
and foreign and emerging market bonds.

INVESTMENT OBJECTIVE: High level of current income and, secondarily, capital
appreciation.

SIZE: Over $63.7 million in assets on February 28, 1997.

WHO SHOULD INVEST: Investors seeking current high income and, secondarily,
capital appreciation, who can assume additional risks for the potential for
higher returns.

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Prospectus Page 3
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PaineWebberU.S. Government Income Fund Low Duration U.S. Government Income Fund
Investment Grade Income Fund High Income Fund Strategic Income Fund
The Funds at a Glance
(Continued)
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RISKS

Investors may lose money by investing in the Funds; your investment is not
guaranteed.

INTEREST RATE RISK: The bonds in which each Fund invests are subject to
interest rate risk, which means that their values and, therefore, the net
asset value of the Fund can be expected to fall when interest rates rise. Each
Fund attempts to reduce this risk through diversification, credit analysis and
attention to interest rate trends and other factors. Low Duration Income Fund
seeks to further limit (but not eliminate) this risk by maintaining a
portfolio duration of from 1 to 3 years. However, efforts to limit this risk
may not be successful.

QUALITY RISK: The high yield, high risk bonds in which High Income Fund and
Strategic Income Fund may invest without limit are considered predominantly
speculative and involve major risk exposure to adverse conditions. Investment
Grade Income Fund may invest up to 35% of its assets in these types of bonds.
Some lower-tier investment grade bonds also have speculative characteristics.

MORTGAGE- AND ASSET-BACKED SECURITIES: Mortgage- and asset-backed securities
involve special risks relating to the prepayment of the underlying
obligations. Each Fund may invest in these securities, and U.S. Government
Income Fund and Low Duration Income Fund each concentrates at least 25% of its
total assets in them. Some types of mortgage- and asset-backed securities,
including "interest-only," "principal-only" and inverse floating rate classes
of these securities, can be extremely volatile and may become illiquid. Low
Duration Income Fund does not invest in interest-only, principal-only or
inverse floating rate classes of mortgage-backed securities. Investment Grade
Income Fund may not invest more than 10% of its total assets in interest-only
or principal-only classes.

FOREIGN SECURITIES: Foreign bonds and bonds denominated in foreign currencies
involve special risks, including possible adverse political, social and
economic risks abroad and differing characteristics of foreign markets. These
risks are greater for bonds in emerging markets. Bonds denominated in foreign
currencies are subject to changes in the values of those currencies relative
to the U.S. dollar. Strategic Income Fund may invest in foreign and emerging
market bonds, including bonds denominated in foreign currencies, without
limit. High Income Fund may invest up to 35% of its assets in foreign bonds
(10% of net assets in foreign currency-denominated bonds); Investment Grade
Fund may invest up to 20% of its assets in U.S. dollar-denominated foreign
bonds.

DERIVATIVES: Each Fund may use derivatives, such as options, futures and, in
the case of High Income Fund and Strategic Income Fund, forward currency
contracts, in its investment activities and use interest rate protection
transactions, each of which involve special risks.

MANAGEMENT

Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), an asset
management subsidiary of PaineWebber Incorporated ("PaineWebber"), is the
investment adviser and administrator of U.S. Government Income Fund, Low
Duration Income Fund, Investment Grade Income Fund, High Income Fund and
Strategic Income Fund (each a "Fund"). Pacific Investment Management Company
("PIMCO") serves as sub-adviser for Low Duration Income Fund.

HOW TO PURCHASE CLASS Y SHARES

Eligible investors may purchase Class Y shares of the Funds as follows:

The price is the net asset value next calculated after PaineWebber's New York
City headquarters or the Transfer Agent receives the purchase order.

Investors do not pay an initial sales charge when they buy Class Y shares. As
a result, 100% of their purchase is immediately invested. Investors also do
not pay a redemption fee or contingent deferred sales charge when they sell
Class Y shares.

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Prospectus Page 4
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PaineWebberU.S. Government Income Fund Low Duration U.S. Government Income Fund
Investment Grade Income Fund High Income Fund Strategic Income Fund
Expense Table
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The following tables are intended to assist investors in understanding the
expenses associated with investing in Class Y shares of the Funds. Expenses
shown below represent those incurred for the fiscal year ended November 30,
1996, except that "Other Expenses" for Investment Grade Income Fund, High
Income Fund and Strategic Income Fund are estimated based on the expenses
incurred for each Fund's Class A shares for that fiscal year. All expenses for
Strategic Income Fund are annualized for the 10 months ended November 30,
1996.

<TABLE>
<CAPTION>
CLASS Y
SHAREHOLDER TRANSACTION EXPENSES -------
<S> <C>
ALL FUNDS
Maximum Sales Charge on Purchases of Shares (as a % of offering price). None
Sales Charge on Reinvested Dividends (as a % of offering price)........ None
Exchange Fees.......................................................... None
ANNUAL FUND OPERATING EXPENSES (as a % of average net assets) (1)
U.S. GOVERNMENT INCOME FUND
Management Fees........................................................ 0.50%
12b-1 Fees............................................................. 0.00
Other Expenses......................................................... 0.14
----
Total Operating Expenses............................................... 0.64%
====
LOW DURATION INCOME FUND
Management Fees........................................................ 0.50%
12b-1 Fees............................................................. 0.00
Other Expenses......................................................... 0.49
----
Total Operating Expenses............................................... 0.99%
====
INVESTMENT GRADE INCOME FUND
Management Fees........................................................ 0.50%
12b-1 Fees............................................................. 0.00
Other Expenses (estimated)............................................. 0.19
----
Total Operating Expenses (estimated)................................... 0.69%
====
HIGH INCOME FUND
Management Fees........................................................ 0.50%
12b-1 Fees............................................................. 0.00
Other Expenses (estimated)............................................. 0.21
----
Total Operating Expenses (estimated)................................... 0.71%
====
STRATEGIC INCOME FUND
Management Fees........................................................ 0.75%
12b-1 Fees............................................................. 0.00
Other Expenses (estimated)............................................. 0.89
----
Total Operating Expenses (estimated)................................... 1.64%
====
</TABLE>
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(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.

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Prospectus Page 5
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PaineWebberU.S. Government Income Fund Low Duration U.S. Government Income Fund
Investment Grade Income Fund High Income Fund Strategic Income Fund
Expense Table
(Continued)
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EXAMPLES OF EFFECT OF FUND EXPENSES

The following examples should assist investors in understanding various costs
and expenses they would incur as shareholders of a Fund. The assumed 5% annual
return shown in the examples is required by regulations of the Securities and
Exchange Commission ("SEC") applicable to all mutual funds. THESE EXAMPLES
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL
EXPENSES OF A FUND MAY BE MORE OR LESS THAN THOSE SHOWN.

An investor would pay the following expenses, directly or indirectly, on a
$1,000 investment in a Fund, assuming a 5% annual return reinvestment of all
dividends and distributions and percentage amounts listed under "Annual Fund
Operating Expenses" remain the same for the years shown:

<TABLE>
<CAPTION>
EXAMPLE FOR CLASS Y SHARES OF 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
U.S. Government Income Fund..................... $ 7 $21 $36 $ 80
Low Duration Income Fund........................ $10 $32 $55 $121
Investment Grade Income Fund.................... $10 $30 $64 $115
High Income Fund................................ $ 7 $23 $40 $ 89
Strategic Income Fund........................... $17 $52 $89 $194
</TABLE>

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Prospectus Page 6
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PaineWebberU.S. Government Income Fund Low Duration U.S. Government Income Fund
Investment Grade Income Fund High Income Fund Strategic Income Fund
Financial Highlights
- -------------------------------------------------------------------------------

The table below provides selected per share data and ratios for one Class Y
share of U.S. Government Income Fund and Low Duration Income Fund for each of
the periods shown. This information is supplemented by the financial
statements, accompanying notes and the report of Ernst & Young, LLP,
independent auditors, which appear in each Fund's Annual Report to
Shareholders for the fiscal year ended November 30, 1996, and 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
relating to each of the five years in the period ended November 30, 1996 have
been audited by Ernst & Young LLP. Further information about each Fund's
performance, including the performance of other classes of shares, is also
included in the Annual Reports to Shareholders, which may be obtained without
charge. The information appearing below for the period prior to the fiscal
year ended November 30, 1992 also has been audited by Ernst & Young LLP, whose
report thereon was unqualified. No information is presented for Class Y shares
of Investment Grade Income Fund, High Income Fund and Strategic Income Fund
because no such shares were outstanding as of November 30, 1996.
<TABLE>
<CAPTION>
CLASS Y SHARES
----------------------------------------------------------------------------------
LOW DURATION
U.S. GOVERNMENT INCOME FUND INCOME FUND
-------------------------------------------------------- -------------------------
FOR THE FOR THE
PERIOD FOR THE PERIOD
SEPTEMBER 11, YEAR OCTOBER 20,
FOR THE YEARS ENDED NOVEMBER 30, 1991# TO ENDED 1995# TO
----------------------------------------- NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996 1995 1994 1993 1992 1991 1996 1995
------ ------ ------ ------ ------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................. $9.11 $ 8.49 $10.02 $ 9.97 $ 9.97 $ 9.88 $2.34 $2.33
------ ------ ------ ------ ------ ------ ----- -----
Net investment income...... 0.57 0.61 0.62 0.70 0.77 0.18 0.14 0.01
Net realized and unrealized
gains (losses) from
investments, futures and
options................... (0.25) 0.62 (1.53) 0.05 0.01 0.09 0.01 0.01
------ ------ ------ ------ ------ ------ ----- -----
Net increase (decrease)
from operations........... 0.32 1.23 (0.91) 0.75 0.78 0.27 0.15 0.02
------ ------ ------ ------ ------ ------ ----- -----
Dividends from net
investment income......... (0.57) (0.61) (0.62) (0.70) (0.78) (0.18) (0.14) (0.01)
------ ------ ------ ------ ------ ------ ----- -----
Net asset value, end of
period.................... $8.86 $ 9.11 $ 8.49 $10.02 $ 9.97 $ 9.97 $2.35 $2.34
====== ====== ====== ====== ====== ====== ===== =====
Total investment
return (1)................ 3.81% 15.06% (9.37)% 7.69% 8.13% 2.37% 6.64% 0.83%
====== ====== ====== ====== ====== ====== ===== =====
Ratios/Supplemental data:
Net assets, end of period
(000's omitted)........... $6,495 $7,957 $4,955 $6,232 $5,517 $4,514 $333 $ 321
Expenses to average net
assets.................... 0.64% 0.71(2) 0.65% 0.62% 0.63% 0.72%* 0.99% 0.99%*
Net investment income to
average net assets........ 6.53% 6.96(2) 6.76% 6.87% 7.70% 8.36%* 6.00% 5.87%*
Portfolio turnover rate.... 359% 206% 358% 83% 28% 71% 210% 242%(3)
</TABLE>
- -------
# Commencement of issuance 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 return for periods of less
than one year has 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 7
<PAGE>

Investment Objectives & Policies
- -------------------------------------------------------------------------------

The Funds' investment objectives may not be changed without shareholder
approval. Except where noted, their other investment policies are not
fundamental and may be changed by the Funds' boards.

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

U.S. Government Income Fund's investment objective is to provide high income
consistent with the preservation of capital and liquidity. Low Duration Income
Fund's investment objective is to achieve the highest level of income
consistent with the preservation of capital and low volatility of net asset
value.

Low Duration Income Fund seeks to limit (but not eliminate) the volatility of
net asset value by normally maintaining an overall portfolio duration of from
1 to 3 years. U.S. Government Income Fund has no fixed portfolio duration
policy. "Duration" is a measure of the expected life of a fixed income
security on a present value basis.

Each Fund normally invests at least 65% of its total assets in U.S. government
bonds (including mortgage-backed securities) and repurchase agreements with
respect to them. Each Fund also may invest up to 35% of its total assets in
privately issued mortgage-backed and asset-backed securities that, at the time
of purchase, are rated in the highest rating category by a nationally
recognized rating agency, such as Standard & Poor's, a division of The McGraw-
Hill Companies, Inc. ("S&P"), or Moody's Investors Service, Inc. ("Moody's"),
or if unrated, are considered to be of comparable quality by Mitchell Hutchins
or, for Low Duration Income Fund, PIMCO.

Each Fund has a fundamental policy of normally concentrating at least 25% of
its total assets in U.S. government and privately issued mortgage- and asset-
backed securities. This policy has the effect of increasing each Fund's
exposure to the risks of these securities and might cause the Fund's net asset
value to fluctuate more than otherwise would be the case. Some types of
mortgage- and asset-backed securities, including "interest-only," "principal-
only" and inverse floating rate classes of these securities, can be extremely
volatile and may become illiquid. Low Duration Income Fund does not invest in
these classes of mortgage-backed securities.

INVESTMENT GRADE INCOME FUND

Investment Grade Income Fund's objective is to provide high current income
consistent with the preservation of capital and liquidity. The Fund normally
invests at least 65% of its total assets in U.S. government and investment
grade corporate bonds, including mortgage-backed securities. The Fund also may
invest up to 35% of its total assets in the following: (1) corporate bonds
that are below investment grade; (2) preferred stocks; (3) convertible
securities; (4) asset-backed securities other than mortgage-backed securities;
(5) commercial paper or variable amount master notes whose issuers, at the
time the security is purchased by the Fund, have outstanding either long-term
bonds that are rated investment grade by S&P or Moody's or commercial paper
rated in the highest rating category by S&P or Moody's; and (6) other money
market instruments, including repurchase agreements.

Investment grade bonds are bonds that, at the time of purchase, are rated in
one of the four highest rating categories by a nationally recognized rating
agency, such as S&P or Moody's, or if unrated, are considered to be of
comparable quality by Mitchell Hutchins.

The Fund's ability to invest in mortgage- and asset-backed securities is
limited. The Fund may invest in mortgage-backed securities only if they are
U.S. government issued or guaranteed or if, at the time of purchase, they are
investment grade. The Fund may invest in other asset-backed securities only
if, at the time of purchase, they are rated in one of the two highest rating
categories by S&P or Moody's. Also, the Fund may not invest more than 10% of
its total assets in interest-only and principal-only classes of mortgage-
backed securities.

Up to 20% of the Fund's net assets may be invested in certain foreign
securities. These are: (1) U.S. dollar-denominated securities of foreign
issuers or of foreign

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Prospectus Page 8
<PAGE>

branches of U.S. banks that are traded in the U.S. securities markets; and (2)
securities that are U.S. dollar-denominated but whose value is linked to the
value of foreign currencies.

HIGH INCOME FUND

High Income Fund's investment objective is to provide high income. The Fund
normally invests at least 65% of its total assets in high yield, high risk,
income producing, corporate bonds that, at the time of purchase, are rated B
or better by S&P or Moody's, are comparably rated by another nationally
recognized rating agency or, if unrated, are considered to be of comparable
quality by Mitchell Hutchins. The Fund may include in this 65% of its total
assets any equity securities (including common stocks and rights and warrants
for equity securities) that are attached to corporate bonds or are part of a
unit including corporate bonds, so long as the corporate bonds meet these
quality requirements. The Fund also may invest up to 35% of its total assets
in (1) bonds that are rated below B (and rated as low as D by S&P or C by
Moody's) or comparable unrated bonds; (2) U.S. government bonds; (3) equity
securities; and (4) money market instruments, including repurchase agreements.

Up to 25% of the Fund's total assets may be invested in bonds and equity
securities that are not paying current income. The Fund may purchase these
securities if Mitchell Hutchins believes that they have a potential for
capital appreciation.

Up to 35% of the Fund's net assets may be invested in securities of foreign
issuers. However, no more than 10% of the Fund's net assets may be invested in
securities of foreign issuers that are denominated and traded in currencies
other than the U.S. dollar.

STRATEGIC INCOME FUND

Strategic Income Fund's primary investment objective is to achieve a high
level of current income. As a secondary objective, it seeks capital
appreciation. The Fund strategically allocates its investments among three
distinct bond market sectors: (1) U.S. government and investment grade
corporate bonds, including mortgage-and asset-backed securities; (2) U.S. high
yield, high risk corporate bonds, including convertible bonds, and preferred
stock; and (3) foreign and emerging market bonds. A portion of the Fund's
assets normally is invested in each of these investment sectors. However, the
Fund has the flexibility at any time to invest all or substantially all of its
assets in any one sector.

The Fund may invest in high yield, high risk bonds that are rated as low as D
by S&P or C by Moody's.

The foreign and emerging market bonds in which the Fund may invest include:
(1) government bonds, including Brady bonds and other sovereign debt, and
bonds issued by multi-national institutions such as the International Bank for
Reconstruction and Development and the International Monetary Fund; (2)
corporate bonds and preferred stock issued by entities located in foreign
countries, or denominated in or indexed to foreign currencies; and (3)
interests in securitized or restructured foreign loans, bonds or preferred
stock. The Fund may invest without limit in securities of issuers located in
any country in the world, including both industrialized and emerging market
countries. The Fund generally is not restricted in the portion of its assets
that may be invested in a single country or region, but the Fund's assets
normally are invested in issuers located in at least three countries. No more
than 25% of the Fund's total assets are invested in securities issued or
guaranteed by any single government. The Fund may invest in foreign and
emerging market bonds that do not meet any minimum credit rating standard or
that are unrated.

The Fund may invest up to 10% of its total assets in preferred stock of U.S.
and foreign issuers. It also may acquire equity securities when attached to
bonds or as part of a unit including bonds, or in connection with a conversion
or exchange of bonds. The Fund also may invest without limit in certificates
of deposit issued by banks and savings associations and in banker's
acceptances.

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Prospectus Page 9
<PAGE>

- -------------------------------------------------------------------------------
-------------------
PaineWebberU.S. Government Income Fund Low Duration U.S. Government Income Fund
Investment Grade Income Fund High Income Fund Strategic Income Fund
- -------------------------------------------------------------------------------

Investment Philosophy & Process

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

U.S. GOVERNMENT INCOME FUND
INVESTMENT GRADE INCOME FUND

In selecting investments for the these Funds, Mitchell Hutchins relies on the
expertise of its team of analysts and portfolio managers. The Mitchell
Hutchins team uses a "top-down" investment process for each Fund. The process
consists of three fundamental steps: to determine portfolio duration, to
select sectors appropriate for Fund investment, and to analyze and purchase
individual securities. Duration is a measure of the expected life of a
security on a present value basis. Duration incorporates a bond's yield,
coupon interest payments, final maturity and call features into one measure.
Sector selection is determined by analyzing the spreads between various types
of fixed income securities in which the Fund may invest. Finally, security
selection is established by performing an analysis of both credit quality and
structure of individual issues. All aspects of the Mitchell Hutchins
investment process rely on solid economic, credit, quantitative and market
research. Mitchell Hutchins believes that the fixed income markets offer
opportunities for active management to increase portfolio value.

LOW DURATION INCOME FUND

PIMCO structures the portfolio of Low Duration Income Fund to maintain, under
normal circumstances, an overall portfolio duration of from 1-3 years. PIMCO
uses economic forecasting, interest rate anticipation, credit and call risk
analysis, and other security selection techniques. The proportion of the
Fund's assets committed to investment in securities with particular
characteristics (such as maturity, type and coupon rate) will vary based on
PIMCO's outlook for the U.S., the financial markets and other factors.

HIGH INCOME FUND

Mitchell Hutchins believes that fixed income markets offer opportunities for
active management to increase portfolio value. In selecting investments for
High Income Fund, Mitchell Hutchins relies on the expertise of the portfolio
manager, as well as his team of credit analysts. The investment process
incorporates three key steps to achieve portfolio selection. They are:
industry selection, company selection and security selection. Industry
selection consists of an analysis of economic factors, industry dynamics and
yield spreads to determine which sectors of the market are the most attractive
for investment. Company selection, combines Mitchell Hutchins' proprietary
financial forecasting model with fundamental credit analysis to determine
which companies are the most attractive investment candidates. Consulting
third party research and conducting company visits are also key components in
this selection process. Finally, a security selection process is done to
determine the appropriate type of security (high yield bond, common stock,
etc.). Unlike equity research, which often relies on earnings or stock price
evaluations to make buy and sell decisions, the credit analysis for the Fund
focuses on cash flow. A company's strong cash flow is a key contributing
factor to the creditworthiness of a security. Once this has been determined, a
formalized risk management oversight ensures that the Fund's investment risk
remains within defined parameters. All aspects of the Mitchell Hutchins
investment process rely on solid economic, credit, quantitative and market
research.

STRATEGIC INCOME FUND

Mitchell Hutchins believes that investors may be able to achieve superior
returns through a flexible allocation of investments in several different
sectors of the fixed income market. Strategic Income Fund has the flexibility
to allocate its assets strategically among its three investment sectors.

Each of these sectors generally reacts differently to interest rate changes
and reacts in different ways or at different times to different economic
events. This means that when one sector underperforms the market as a whole,
another sector may perform at roughly the same level as the market, while the
third sector may outperform the market. Mitchell Hutchins believes that the
relative investment opportunities and risks presented by securities in these
sectors will vary so that, over time, securities in one or more of Strategic
Income Fund's three sectors will become undervalued relative to the risks
presented. Accordingly, the relative investment performance of these
investments will change over time, and the best performing sector frequently
will change from year to year.

----------
Prospectus Page 10
<PAGE>

Mitchell Hutchins seeks to take advantage of these changes in relative
performance by allocating a greater proportion of Strategic Income Fund's
assets in those investment sectors that it believes are undervalued.
Allocations among the sectors and investment decisions with respect to each
sector are made by investment management team comprised of a Fund allocation
manager and individual sector managers. The Fund's allocation manager
determines sector percentage allocations based upon advice from each sector
manager as to the market considerations applicable to his sector. Decisions as
to investments within each sector are made by the sector manager based on
market outlook, investment research, geographic analysis and forecasts
regarding currency and interest rates.
- -------------------------------------------------------------------------------

Performance

- -------------------------------------------------------------------------------
These charts show the total returns for U.S. Government Income Fund and Low
Duration U.S. Government Income Fund for each calendar year since Class Y
shares were first offered. No information is presented for Class Y shares of
Investment Grade Income Fund, High Income Fund and Strategic Income Fund
because there were no shares outstanding in 1996 or earlier. Past results are
not a guarantee of future results.

Total returns are shown below in the tables that follow the performance
charts.

U.S. GOVERNMENT INCOME FUND

LOGO

The inception date for Class Y shares was September 11, 1991; thus, the 1991
return represents the period from September 11, 1991 through December 31,
1991.

AVERAGE ANNUAL RETURNS
As of November 30, 1996
<TABLE>
<CAPTION>
CLASS Y SHARES
--------------
<S> <C>
Inception Date........................................... 9/11/91
One Year................................................. 3.81%
Five Years............................................... 4.71%
Life..................................................... 5.00%
</TABLE>

----------
Prospectus Page 11
<PAGE>

LOW DURATION INCOME FUND

LOGO

The inception date of the Class Y shares was October 20, 1995; thus, the 1995
return represents the period from October 20, 1995 through December 31, 1995.

AVERAGE ANNUAL RETURNS
As of November 30, 1996
<TABLE>
<CAPTION>
CLASS Y SHARES
--------------
<S> <C>
Inception Date........................................... 10/20/95
One Year................................................. 6.64%
Life..................................................... 6.77%
</TABLE>

-----------
Prospectus Page 12
<PAGE>

PERFORMANCE INFORMATION

The Funds perform 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 a 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 Fund or class has been in existence for a shorter
period. If so, returns will be shown for the period since inception, known as
"Life." Total return calculations assume reinvestment of dividends and other
distributions.

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

Total return information reflects past performance and does not indicate
future results. The investment return and principal value of shares of the
Funds will fluctuate. The amount investors receive when selling shares may be
more or less than what they paid. Further information about each Fund's
performance is contained in its Annual Report to Shareholders, which may be
obtained without charge by contacting the Fund, your PaineWebber investment
executive or PaineWebber's correspondent firms or by calling toll-free
1-800-647-1568.
- -------------------------------------------------------------------------------

The Funds' Investments

- -------------------------------------------------------------------------------
BONDS are fixed or variable rate debt obligations, including notes, debentures
and similar debt instruments and securities. Mortgage- and asset-backed
securities are types of bonds. Corporations, governments and others issuers
use bonds to borrow money from investors. The issuer pays the investor a fixed
or variable rate of interest and must repay the amount borrowed at or before
maturity. Bonds have varying degrees of investment risk and varying levels of
sensitivity to changes in interest rates.

U.S. GOVERNMENT BONDS include direct obligations of the U.S. government (such
as U.S. Treasury bills, notes and bonds) and obligations issued or guaranteed
by the U.S. government, its agencies or its instrumentalities. U.S. government
bonds include mortgage-backed securities issued or guaranteed by government
agencies or government-sponsored enterprises. Other U.S. government bonds may
be backed by the full faith and credit of the U.S. government or supported
primarily or solely by the creditworthiness of the government-related issuer,
such as the Resolution Funding Corporation, the Student Loan Marketing
Association ("Sallie Mae"), the Federal Home Loan Banks and the Tennessee
Valley Authority.

CORPORATE BONDS are bonds issued by corporations, banks, partnerships, trusts
or other non-governmental entities.

MORTGAGE- AND ASSET-BACKED SECURITIES, in which all of the Funds may invest,
are bonds backed by specific types of assets. Mortgage-backed securities
represent direct or indirect interests in pools of underlying mortgage loans
that are secured by real property. U.S. government mortgage-backed securities
are issued or guaranteed as to principal and interest (but not as to market
value) by the Government National Mortgage Association ("Ginnie Mae"), Fannie
Mae (formerly, the Federal National Mortgage Association), the Federal Home
Loan Mortgage Corporation ("Freddie Mac") or other government-sponsored
enterprises. Other mortgage-backed securities are sponsored or issued by
private entities, including investment banking firms and mortgage originators.
The growth of mortgage-backed securities and the secondary mortgage market in
which they are traded has helped to keep mortgage money available for home
financing.

Mortgage-backed securities may be composed of one or more classes and may be
structured either as pass-through securities or collateralized debt
obligations. Multiple-class mortgage-backed securities are referred to in this
prospectus as "CMOs." Some CMOs are directly supported by other CMOs, which in
turn are supported by mortgage pools. Investors typically receive payments out
of the interest and principal on the underlying mortgages. The portions of
these payments that investors receive, as well as the priority of their

----------
Prospectus Page 13
<PAGE>

rights to receive payments, are determined by the specific terms of the CMO
class. CMOs involve special risks, and evaluating them requires special
knowledge.

When interest rates go down and homeowners refinance their mortgages,
mortgage-backed bonds may be paid off more quickly than investors expect. When
interest rates rise, mortgage-backed bonds may be paid off more slowly than
originally expected. Changes in the rate or "speed" of these prepayments can
cause the value of mortgage-backed securities to fluctuate rapidly.

Other asset-backed securities are similar to mortgage-backed securities,
except that the underlying assets are different.These underlying assets may be
nearly any type of financial asset or receivable, such as motor vehicle
installment sales contracts, home equity loans, leases of various types of
real and personal property and receivables from credit cards.

ZERO COUPON BONDS, OID AND PIK SECURITIES. Zero coupon bonds in which each
Fund may invest are securities that make no periodic interest payments but
instead are sold at a deep discount from their face value. The buyer of these
bonds receives a rate of return by the gradual appreciation of the security,
which results from, the fact that it will be redeemed at face value on a
specified maturity date. There are many kinds of zero coupon bonds. Some are
issued in zero-coupon form including stripped U.S. government securities
issued through the U.S. Treasury. Others are created by brokerage firms that
strip (separate) the coupons (unmatured interest payments) from interest-
paying bonds and sell the principal and the coupons separately.

Because zero coupon bonds bear no interest, they are generally more sensitive
to changes in interest rates than other U.S. government bonds. This means that
when interest rates fall, the value of zero coupon bonds rises more rapidly
than bonds paying interest on a current basis. However, when interest rates
rise, their value falls more dramatically.

The Funds may invest in other securities with original issue discount ("OID"),
a term that means the securities are issued at a price lower than their value
at maturity even though the securities also may pay cash dividends. In
addition, Investment Grade Income Fund, High Income Fund and Strategic Income
Fund may invest in payment-in-kind ("PIK") securities, a term that means
interest is paid in additional securities and not in cash. OID and PIK
securities also are more sensitive to changes in interest rates than
securities that pay interest in cash.

SOVEREIGN DEBT AND BRADY BONDS AND STRUCTURED FOREIGN INVESTMENTS. Sovereign
debt includes bonds that are issued or guaranteed by foreign governments or
their agencies, instrumentalities or political sub- divisions or by foreign
central banks. Sovereign debt also may be issued by quasi-governmental
entities that are owned by foreign governments but are not backed by their
full faith and credit or general taxing powers.

Brady bonds are sovereign debt securities issued under a 1989 plan (named for
former U.S. Treasury Secretary Nicholas F. Brady) that allows emerging market
countries to restructure their outstanding debt to U.S. and other banks.

Strategic Income Fund may invest in structured foreign investments. These are
securities backed by or representing interests in certain underlying
securities or instruments, such as commercial bank loans, Brady bonds or
preferred stock. The cash flow on these underlying instruments may be
reapportioned among several classes of the structured foreign investments so
that the classes may have different maturities, payment priorities and
interest rate provisions. Strategic Income Fund receives interest and
principal payments on structured foreign investments only to the extent that
the underlying instruments produce sufficient cash flow.

EQUITY SECURITIES, in which High Income Fund and Strategic Income Fund may
invest, include common stocks, preferred stocks and securities that are
convertible into them, including common stock purchase warrants and rights,
equity interests in trusts, partnerships, joint ventures or similar
enterprises and depository receipts. Common stocks, the most familiar type,
represent an equity (ownership) interest in a corporation. Preferred stock has
certain fixed-income features, like a bond, but is actually equity in a
company, like common stock. The prices of equity securities generally
fluctuate more than bonds and reflect changes in a company's financial
condition and in overall market and economic conditions. It is possible that a
Fund may experience a substantial or complete loss on an individual equity
security.

CONVERTIBLE SECURITIES, in which Investment Grade Income Fund, High Income
Fund and Strategic Income Fund may invest, include bonds, preferred stock or
other securities 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

----------
Prospectus Page 14
<PAGE>

interest paid or accrued on debt or dividends paid on preferred stock until
the convertible security matures or is redeemed, converted or exchanged.
Convertible securities have unique investment characteristics in that they
generally (1) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (2) are less subject to fluctuation in
value than the underlying stock because they have fixed income
characteristics, and (3) provide the potential for capital appreciation if the
market price of the underlying common stock increases. While no securities
investment is without some risk, investments 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.

LOAN PARTICIPATIONS AND ASSIGNMENTS. Strategic Income Fund, Investment Grade
Income Fund and High Income Fund may invest in fixed and floating rate loans
arranged through private negotiations with a U.S. or foreign borrower. These
investments normally are participations in or assignments of all or a portion
of loans made by banks. Participations typically will result in the Fund's
having a contractual relationship only with the lender, not with the borrower.
In a participation, the Fund is entitled to receive payments of principal,
interest and any loan fees by the lender only when and if these fees are
received. Also, the Fund may not directly benefit from any collateral
supporting the underlying loan. As a result, the Fund assumes the credit risk
of both the borrower and the lender that is selling the participation. If the
lender becomes insolvent, the 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. In a loan assignment, the Fund is entitled to receive payments
directly from the borrower and, therefore, does not depend on the selling bank
to pass these payments on to the Fund.

CURRENCY-LINKED INVESTMENTS. Investment Grade Income Fund, High Income Fund
and Strategic Income Fund may invest in bonds that are indexed to specific
foreign currency exchange rates. The principal amount of these bonds may be
adjusted up or down (but not below zero) at maturity to reflect changes in the
exchange rate between two currencies. A Fund may experience loss of principal
due to these adjustments.

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, usually no more than seven days after
purchase, 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 a 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, for Low Duration Income Fund,
PIMCO, to present minimum credit risks in accordance with guidelines
established by the Fund's board.

RISKS

INTEREST RATE AND CREDIT RISK. Interest rate risk is the risk that interest
rates will rise and that, as a result, bond prices will fall, lowering the
value of the Funds' investments. In general, bonds having longer durations are
more sensitive to interest changes than are bonds with shorter durations. See
"Duration."

Credit risk is the risk that the issuer or a guarantor may be unable to pay
interest or repay principal on the bond. This can be affected by many factors,
including adverse changes in the issuer's own financial condition or in
economic conditions.

CREDIT RATINGS; BONDS RATED BELOW INVESTMENT GRADE. Credit ratings attempt to
evaluate the safety of principal and interest payments, but they do not
evaluate the volatility of a bond's value or its liquidity and do not
guarantee the performance of the issuer. 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. There is a risk that rating agencies may downgrade bonds.

Investment grade bonds are rated in one of the four highest rating categories
by a nationally recognized rating agency, such as S&P or Moody's, or, if
unrated, are considered to be of comparable quality by Mitchell Hutchins (or
PIMCO for Low Duration Income Fund). Moody's considers bonds rated Baa (its
lowest investment grade rating) to have speculative

----------
Prospectus Page 15
<PAGE>

characteristics. This means that changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case for higher-rated bonds. Investment
Grade Income Fund, High Income Fund and Strategic Income Fund may invest
without limit in bonds with the lowest investment grade rating.

High yield, high risk bonds are rated below investment grade and are commonly
referred to as "junk bonds." High Income Fund and Strategic Income Fund may
invest their entire portfolios in these bonds. Investment Grade Income Fund
may invest up to 35% of its total assets in these bonds. High yield, high risk
bonds are considered to be predominantly speculative with respect to the
issuer's ability to pay interest and repay principal. A Fund's investments in
these lower rated bonds entail greater risk than its investments in higher
rated bonds. Lower rated bonds may be more sensitive to adverse market
conditions. During an economic downturn or period of rising interest rates,
their issuers may experience financial stress that adversely affects their
ability to pay interest and principal and may increase the possibility of
default. Lower rated bonds are frequently unsecured by collateral and will not
receive payment until more senior claims are paid in full. The market for
these bonds is thinner and less active, which may limit the Funds' ability to
sell them at fair value in response to changes in the economy or financial
markets.

During the fiscal year or period ended November 30, 1996, Investment Grade
Income Fund, High Income Fund and Strategic Income Fund invested their average
annual net assets as follows:

<TABLE>
<CAPTION>
INVESTMENT
GRADE HIGH STRATEGIC
% OF AVERAGE ANNUAL NET INCOME INCOME INCOME
ASSETS INVESTED IN FUND FUND FUND
----------------------- ---------- ------ ---------
<S> <C> <C> <C>
Debt securities rated by S&P or Moody's 91.06% 82.94% 91.07%
Debt securities not so rated 3.78% 11.01% 6.65%
Securities rated AAA/Aaa (including cash items) 7.57% 3.19% 36.69%
Securities rated AA/Aa 4.84% -- 2.83%
Securities rated A/A 27.06% -- 0.77%
Securities rated BBB/Baa 26.39% -- 4.67%
Securities rated BB/Ba 23.98% 33.12% 14.54%
Securities rated B/B 1.22% 44.02% 31.57%
Securities rated CCC/Caa -- 2.61% --
</TABLE>

It should be noted that this information reflects the average composition of
the assets of each Fund during the fiscal year or period ended November 30,
1996 and is not necessarily representative of that Fund's assets as of the end
of that fiscal year or period, the current fiscal year or at any time in the
future.

DURATION. Duration is a measure of the expected life of a bond on a present
value basis. 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, for Low Duration Income Fund,
PIMCO, in portfolio selection and yield curve positioning for the Funds.

Duration takes the length of the time intervals between the present time and
the time that the interest and principal payments are scheduled or, in the
case of a callable bond, expected to be made, and weights them by the present
values of the cash to be received at each future point in time. For any bond
with interest payments occurring prior to the payment of principal, duration
is always less than maturity.

Duration allows Mitchell Hutchins (or PIMCO for Low Duration Income Fund) 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 by approximately 3%.
Thus, if Mitchell Hutchins or PIMCO calculates the duration of the Fund's
portfolio as 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.

RISKS OF MORTGAGE- AND ASSET-BACKED SECURITIES. The yield characteristics of
mortgage- and asset-backed

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

securities differ from those of traditional bonds. 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 assets generally may be prepaid at any time.
Generally, prepayments on fixed-rate mortgage loans will increase during a
period of falling interest rates and decrease during a period of rising
interest rates. Mortgage- and asset-backed securities may also decrease in
value as a result of increases in interest rates and, because of prepayments,
may benefit less than other bonds from declining interest rates. Reinvestments
of prepayments may occur at lower interest rates than the original investment,
thus adversely affecting a Fund's yield. Actual prepayment experience may
cause the yield of a mortgage-backed security to differ from what was assumed
when the Fund purchased the security.

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 especially during periods of rapid or unanticipated changes in market
interest rates, the attractiveness of some 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 are structured in a manner that makes them extremely
sensitive to changes in prepayment rates. Interest-only ("IO") and principal-
only ("PO") classes are examples of this. IOs are entitled to receive all or a
portion of the interest, but none (or only a nominal amount) of the principal
payments, from the underlying mortgage assets. If the mortgage assets
underlying an IO experience greater than anticipated principal prepayments,
then the total amount of interest payments allocable to the IO class, and
therefore the yield to investors, generally will be reduced. In some
instances, an investor in an IO may fail to recoup all of his or her initial
investment, even if the security is government guaranteed or considered to be
of the highest quality, 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.

Inverse floating rate CMO classes also may be extremely volatile. These
classes pay interest at a rate that decreases when a specified index of market
rates increases.

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, can be extremely volatile and these securities may become
illiquid. Mitchell Hutchins or, for Low Duration Income Fund, PIMCO, seeks to
manage a Fund's investments in mortgage-backed securities so that the
volatility of a 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.

While Low Duration Income Fund generally may invest in CMO classes that are
structured to sell at a premium or a discount, the Fund may not invest in IO
or PO classes or in inverse floating rate classes. Investment Grade Income
Fund may invest no more than 10% of its total assets in IO or PO classes.

RISKS OF ZERO COUPON BONDS, OID AND PIK SECURITIES. Zero coupon bonds pay no
interest to holders prior to maturity. However, a portion of the original
issue discount on the zero coupon securities must be included in a Fund's
income. This also is true for other OID securities. In addition, a Fund must
include in its income the value of any securities received in place of cash
interest payments on PIK securities. Accordingly, to continue to qualify for
tax treatment as

----------
Prospectus Page 17
<PAGE>

a regulated investment company and to avoid certain excise taxes (see "Taxes"
in the Statement of Additional Information), a Fund may be required to
distribute as dividends amounts that are greater than the total amount of cash
it actually receives. These distributions must be made from the Fund's cash
assets or, if necessary, from the proceeds of sales of portfolio securities.
The Fund will not be able to purchase additional income-producing securities
with cash used to make such distributions, and its current income ultimately
may be reduced as a result.

Zero coupon bonds usually trade at a substantial discount from their face or
par value. PIK securities often trade at a discount. These securities are
subject to greater fluctuations in market value in response to changing
interest rates than bonds of comparable maturities that make current
distributions of interest in cash.

FOREIGN SECURITIES. Strategic Income Fund, Investment Grade Income Fund and
High Income Fund may invest in foreign securities. Investing in foreign
securities, especially in emerging markets, can involve more risks than
investing in securities of U.S. companies. Their value is subject to economic
and political developments in the countries where the companies operate.
Values may also be affected by foreign tax laws, changes in foreign economic
or monetary policies, exchange control regulations and regulations involving
prohibitions on the repatriation of foreign currencies. In general, less
information may be available about foreign companies than about U.S.
companies, and they are generally not subject to the same accounting, auditing
and financial reporting standards as are U.S. companies.

Sovereign debt involves specific risks. Issuers, or the governmental
authorities that control the repayment of the debt, may be unable or unwilling
to pay interest or repay principal when due in accordance with the terms of
the debt. A Fund may have limited recourse in the event of default. Political
conditions, especially a sovereign entity's willingness to meet the terms of
its debt obligations, are of considerable significance.

INVESTING IN EMERGING MARKETS. Emerging market securities involve additional
risks. These countries typically have economic and political systems that are
relatively less mature, and can be expected to be less stable, than those of
developed countries. Emerging market countries may have policies that restrict
investment by foreigners in those countries, and there is a risk of government
expropriation or nationalization of private property. The possibility of low
or nonexistent trading volume in the securities of companies in emerging
markets may also result in a lack of liquidity and in price volatility.
Issuers in emerging markets typically are subject to a greater degree of
change in earnings and business prospects than are companies in developed
markets.

CURRENCY. Currency risk is the risk that changes in foreign exchange rates may
reduce the U.S. dollar value of a Fund's foreign investments. A Fund's share
value may change significantly when investments are denominated in foreign
currencies. Generally, currency exchange rates are determined by supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries. Currency exchange rates can also be affected by the
intervention of the U.S. and foreign governments or central banks, the
imposition of currency controls, speculation or other political or economic
developments inside and outside the United States.

DERIVATIVES. Some of the Funds' investments 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, forward currency contracts, swaps and similar
instruments that may be used in hedging and related strategies. There is only
limited consensus as to what constitutes a "derivative" security. However, in
Mitchell Hutchins' view, derivative securities also include "stripped"
securities, specially structured types of mortgage- and asset-backed
securities, such as IOs, POs or inverse floaters, and dollar-denominated
securities whose value is linked to foreign currencies. The market value of
derivatives sometimes is more volatile than that of other investments, and
each type of derivative may pose its own special risks. Mitchell Hutchins (or
PIMCO for Low Duration Income Fund) takes these risks into account in its
management of the Funds.

COUNTERPARTIES. The Funds may be exposed to the risk of insolvency of another
party with which the Fund enters into a transaction, such as a repurchase
agreement or a derivative contract. Subject to board supervision, Mitchell
Hutchins (or PIMCO for Low Duration Income Fund) monitors and evaluates the
creditworthiness of these counterparties to help minimize those risks.

----------
Prospectus Page 18
<PAGE>

LIMITS OF SECTOR ALLOCATION STRATEGY. Mitchell Hutchins believes that
Strategic Income Fund's strategy of sector allocation should be less risky
than investing in only one sector of the bond market. Data from the Lehman
Aggregate Bond Index, the Salomon Brothers High Yield Index, the Merrill Lynch
High Yield Index and the Salomon Brothers World Government Bond Index indicate
that these sectors are not closely correlated. If successful, the Fund's
strategy should enable the Fund to achieve a higher level of investment return
than if the Fund invested exclusively in any one investment or allocated a
fixed proportion of its assets to each investment sector. The Fund is,
however, more dependent on the ability of Mitchell Hutchins to evaluate
successfully the relative values of the Fund's three investment sectors than
is the case with a fund that does not seek to adjust market sector allocations
over time.

NON-DIVERSIFIED STATUS. Strategic Income Fund is "non-diversified," as that
term is defined in the 1940 Act. See "Dividends & Taxes." This means, in
general, that more than 5% of the total assets of the Fund may be invested in
securities of one issuer (including a foreign government), but only if, at the
close of each quarter of the Fund's taxable year, the aggregate amount of such
holdings does not exceed 50% of the value of its total assets is invested in
the securities of a single issuer. When the Fund's portfolio is comprised of
securities of a smaller number of issuers than if it were "diversified," the
Fund will be subject to greater risk because changes in the financial
condition or market assessment of a single issuer may have a greater effect on
the Fund's total return and the price of Fund shares.

INVESTMENT TECHNIQUES AND STRATEGIES

HEDGING AND OTHER STRATEGIES USING DERIVATIVE CONTRACTS. Each Fund may use
derivative contracts, such as options (both exchange-traded and over-the-
counter) and futures contracts, in strategies intended to enhance income,
realize gains or reduce the overall risk of its investments ("hedge"). Use of
these derivative contracts solely to enhance income or realize gains may be
considered a form of speculation. High Income Fund and Strategic Income Fund
also may use forward currency contracts, but solely for hedging purposes. Each
Fund may use interest rate swaps and similar contracts to preserve a return or
spread on a particular investment or portion of its portfolio or to protect
against an increase in the price of securities that the Fund anticipates
purchasing at a later date. New financial products and risk management
techniques continue to be developed, and they may be used by any Fund if
consistent with its investment objective and policies. The Statement of
Additional Information contains further information on these derivative
contracts and related hedging strategies.

The Funds might not use any derivative contract or hedging strategy, and there
can be no assurance that any hedging strategy will succeed. If Mitchell
Hutchins or PIMCO is incorrect in its judgment on interest rates, market
values or other economic factors in using a hedging strategy, a Fund might
have lower net income and a net loss on the investment. Each strategy involves
certain risks, which include:

. the fact that the skills needed to implement a strategy using derivative
contracts are different from those needed to select securities for the
Funds,

. the possibility of imperfect correlation, or even no correlation, between
price movements of derivative contracts used in hedging strategies and
price movements of the securities being hedged,

. possible constraints on a Fund's ability to purchase or sell portfolio
investments at advantageous times due to the need for the Fund to "cover"
or to segregate securities, and

. the possibility that a Fund is unable to close out or liquidate its
position.

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 for Low Duration Income Fund) deems portfolio changes appropriate. A
higher turnover rate for a Fund (100% or more) will involve correspondingly
greater transaction costs, which will be borne directly by that Fund and may
increase the potential for short-term capital gains.

ILLIQUID SECURITIES. U.S. Government Income Fund, Investment Grade Income Fund
and High Income Fund may invest up to 10% of their net assets, and Low
Duration Income Fund and Strategic Income Fund up to 15% of their net assets,
in illiquid securities. These include repurchase agreements maturing in more
than seven days, certain cover for over-the-counter options and securities
whose

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Prospectus Page 19
<PAGE>

disposition is restricted under the federal securities laws. The Funds do not
consider securities that are eligible for resale under SEC Rule 144A to be
illiquid if Mitchell Hutchins (or PIMCO for Low Duration Income Fund) has
determined them to be liquid, based upon the trading markets for the
securities under procedures approved by the Funds' boards.

WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. Each Fund may purchase securities
on a "when-issued" or delayed-delivery basis. In when-issued or delayed-
delivery transactions, delivery of the securities occurs beyond normal
settlement periods, but the Fund 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.

LENDING PORTFOLIO SECURITIES. Each Fund may lend its securities to qualified
broker-dealers or institutional investors in an amount up to 33 1/3% of the
Fund's total assets taken at market value. Lending securities enables the
Funds to earn additional income, but could result in a loss or delay in
recovering these securities.

TEMPORARY AND DEFENSIVE POSITIONS. When Mitchell Hutchins (or PIMCO for Low
Duration Income Fund) believes that unusual circumstances warrant a defensive
posture, a Fund may temporarily commit all or any portion of its assets to
cash or money market instruments, including repurchase agreements. Each Fund
may commit up to 35% of its total assets (100% of Strategic Income Fund's
total assets) to cash or money market instruments for liquidity purposes or
pending investment in other securities.

BORROWINGS, DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS. U.S. Government
Income Fund, Low Duration Income Fund and Strategic Income Fund each may
invest in "arbitraged" dollar roll and reverse repurchase transactions. In a
dollar roll, the Fund sells mortgage-backed or other securities for delivery
on the next regular settlement date for those securities and, simultaneously,
contracts to purchase substantially similar securities for delivery on a later
settlement date. In a reverse repurchase agreement, the Fund sells securities
to a bank or dealer and agrees to repurchase them on demand or on a specified
future date and at a specified price. In "arbitraged" transactions, the Fund
maintains an offsetting position in cash or in U.S. government or investment
grade bonds that mature on or before the settlement date of the related dollar
roll or reverse repurchase agreement. Mitchell Hutchins believes that these
"arbitraged" transactions do not present the risks that are normally
associated with leverage. These Funds may invest up to 5% of their total
assets in dollar rolls that are not arbitraged. These dollar roll and reverse
repurchase transactions are subject to each Fund's limitation on borrowings
and may not exceed 33 1/3% of its total assets. These Funds also may borrow
for temporary or emergency purposes, but not in excess of an additional 5% of
a Fund's total assets.

Investment Grade Income Fund and High Income Fund each may use reverse
repurchase agreements and borrow money for temporary or emergency purposes,
but not in excess of 10% of each Fund's total assets.

OTHER INFORMATION. Each Fund normally invests at least 65% of its total assets
in income producing securities, which include zero coupon bonds and other OID
securities and, for each Fund permitted to invest in them, PIK securities and
PO mortgage-backed securities. Strategic Income Fund may not invest more than
35% of its total assets in zero coupon securities.

Each Fund may sell securities that it already owns short ("short sales against
the box") to defer realization of gains or losses for tax or other purposes.

New forms of bonds, derivatives and hedging instruments continue to be
developed. Each Fund may invest in such securities to the extent consistent
with its investment objectives.
- -------------------------------------------------------------------------------

How to Buy Shares
- -------------------------------------------------------------------------------

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 the trustee of the
PW SIP, by the Fund's transfer agent ("Transfer Agent"). No initial or
contingent deferred sales charge

----------
Prospectus Page 20
<PAGE>

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.

INSIGHT

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.

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.

----------
Prospectus Page 21
<PAGE>

- -------------------------------------------------------------------------------
-------------------
PaineWebberU.S. Government Income Fund Low Duration U.S. Government Income Fund
Investment Grade Income Fund High Income Fund Strategic Income Fund
- -------------------------------------------------------------------------------

How to Sell Shares
- -------------------------------------------------------------------------------

Investors can sell (redeem) shares at any time. Shares will be sold at the
share price as next calculated after the order is received and accepted. Share
prices are normally calculated at the close of regular trading on the New York
Stock Exchange (currently 4:00 p.m., Eastern time).

Investors who have an account with PaineWebber or one of PaineWebber's
correspondent firms can sell their shares by contacting their investment
executive. Investors who do not have an account and have bought their shares
through PFPC Inc., the Funds' Transfer Agent, may sell shares by writing a
"letter of instruction." The letter of instruction must include:

. the investor's name and address;

. the Fund's name;

. the Fund account number;

. the dollar amount or number of shares to be sold; and

. a guarantee of each registered owner's signature by an eligible institution,
such as a commercial bank, trust company or stock exchange member.

The letter of instruction must be mailed to PFPC Inc., Attn: PaineWebber
Mutual Funds, P.O. Box 8950, Wilmington, DE 19899.

If a shareholder wants to sell shares that were purchased recently, the Fund
may delay payment until it verifies that good payment was received. In the
case of purchases by check, this can take up to 15 days.

Because each Fund incurs fixed costs in maintaining shareholder accounts, each
Fund reserves the right to purchase back all Fund shares in any shareholder
account having a net asset value of less than $500. If the Fund elects to do
so, it will notify the shareholder of the opportunity to increase the amount
invested to $500 or more within 60 days of the notice. The Fund will not
purchase back accounts that fall below $500 solely due to a reduction in net
asset value per share.

SALES BY PARTICIPANTS IN PW SIP

The trustee of the PW SIP sells Class Y shares of U.S. Government 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 "How to Buy Shares" above. The price at which Class Y shares are sold by
the trustee of the PW SIP might be more or less than the price per share at
the time the participants made their investment choices.
- -------------------------------------------------------------------------------

Management
- -------------------------------------------------------------------------------
Each Fund is governed by a board of trustees, which oversees the Fund's
operations. Each board has appointed Mitchell Hutchins as investment adviser
and administrator responsible for the Fund's operations (subject to the
authority of its board). Mitchell Hutchins has appointed PIMCO as investment
sub-adviser for Low Duration Income Fund.

Mitchell Hutchins, located at 1285 Avenue of the Americas, New York, New York,
10019, is the asset management subsidiary of PaineWebber Incorporated, which
is wholly owned by PW Group, a publicly owned financial services holding
company. On February 28, 1997, Mitchell Hutchins was adviser or sub-adviser of
30 investment companies with 65 separate portfolios and aggregate assets of
approximately $33.3 billion.

PIMCO is located at 840 Newport Center Drive, Suite 360, Newport Beach,
California 92660. PIMCO is a subsidiary of PIMCO Advisors L.P., a publicly
held investment advisory firm. As of February 28, 1997, PIMCO had
approximately $92.3 billion in assets under management and was adviser or sub-
adviser of investment companies with 57 portfolios and aggregate assets of
approximately $26.2 billion.

The boards have determined that brokerage transactions for the Funds may be
conducted through PaineWebber or its affiliates in accordance with procedures
adopted by each board.

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

----------
Prospectus Page 22
<PAGE>

As investment adviser and administrator, Mitchell Hutchins supervises all
aspects of each Fund's operations (including the activities of PIMCO, as sub-
adviser for Low Duration Income Fund), and Mitchell Hutchins makes and
implements all investment decisions for each Fund other than Low Duration
Income Fund. PIMCO makes and implements all investment decisions for that
Fund.

Nirmal Singh and Craig M. Varrelman, CFA, have been responsible for the day-
to-day management of U.S. Government Income Fund's portfolio and for the U.S.
government and investment grade securities sector of Strategic Income Fund
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 with an expertise in U.S. government securities.

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

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

Dennis L. McCauley, managing director and chief investment officer of fixed
income investments of Mitchell Hutchins, has been Strategic Income Fund's
allocation manager since March 1995. Mr. McCauley has been employed by
Mitchell Hutchins since December 1994 and is responsible for overseeing all
active fixed income investments, including domestic and global taxable and
tax-exempt mutual funds. Mr. McCauley worked for IBM Corporation, where he was
director of fixed income investments responsible for developing and managing
investment strategy for all fixed income and cash management investments of
IBM's pension fund and self-insured medical funds. Mr. McCauley has also
served as vice president of IBM Credit Corporation's mutual funds and as a
member of the retirement fund investment committee.

Thomas J. Libassi, a senior vice president of Mitchell Hutchins, has been
responsible for the day-to-day management of High Income Fund's portfolio
since May 1994. Mr. Libassi also has been the sector manager responsible for
the day-to-day management of Strategic Income Fund's U.S. high yield, high
risk securities since that date. 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, high risk bonds.

Stuart Waugh, a managing director of Mitchell Hutchins responsible for global
fixed income and currency trading, is the sector manager responsible for the
day-to-day management of Strategic Income Fund's foreign and emerging market
bonds. Mr. Waugh has been employed by Mitchell Hutchins since 1984.

Other members of Mitchell Hutchins' fixed income and equity investments groups
provide input on market outlook, interest rate forecasts, investment research
and other considerations pertaining to each Fund's investments.

MANAGEMENT FEES & OTHER EXPENSES

Each Fund pays Mitchell Hutchins a monthly fee for its services. For the most
recent fiscal year, Mitchell Hutchins received a monthly fee for these
services at an annual rate of 0.75% of Strategic Income Fund's average daily
net assets and at an annual rate of 0.50% of average daily net assets for each
other Fund. Mitchell Hutchins (not the Fund) pays PIMCO a monthly fee for its
services as sub-adviser for Low Duration Fund at an annual rate of 0.25% of
that 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.

----------
Prospectus Page 23
<PAGE>

- -------------------------------------------------------------------------------
-------------------
PaineWebberU.S. Government Income Fund Low Duration U.S. Government Income Fund
Investment Grade Income Fund High Income Fund Strategic Income Fund
- -------------------------------------------------------------------------------

Determining the Shares' Net Asset Value
- -------------------------------------------------------------------------------

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

Each Fund values its assets based on their current market value when market
quotations are readily available. If market quotations are not readily
available, assets are valued at fair value as determined in good faith by or
under the direction of its board. The amortized cost method of valuation
generally is used to value debt obligations with 60 days or less remaining to
maturity, unless the board determines that this does not represent fair value.
Investments 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 high yield, high risk bonds, thinly
traded securities and foreign securities in which High Income Fund, Investment
Grade Income Fund and Strategic Income Fund may invest, because there is less
reliable, objective data available.
- -------------------------------------------------------------------------------

Dividends & Taxes
- -------------------------------------------------------------------------------
DIVIDENDS

Dividends from Strategic Income Fund's net investment income are declared and
paid monthly. Dividends from each of the other four Funds' net investment
income are declared daily and paid monthly. High Income Fund and Strategic
Income Fund may, but are not required to, distribute with any dividend all or
some of any net realized foreign currency gains.

Substantially all of each Fund's net capital gain, net short-term capital
gain, and, for High Income Fund and Strategic Income Fund, undistributed net
realized foreign currency gains, if any, are distributed at least annually.
Each Fund may make additional distributions if necessary to avoid income or
excise taxes. While a Fund will not declare any distribution in excess of the
amount of its net investment income and net realized foreign currency gains
available at the time of declaration, it is possible that foreign currency
losses sustained after that time could convert a portion of such a
distribution to a non-taxable return of capital.

Dividends and other distributions paid on each class of a Fund's shares are
calculated at the same time and in the same manner as dividends and other
distributions on other classes of the Fund's shares.

With respect to the four Funds that declare daily dividends, shares purchased
through PaineWebber investment executives and correspondent firms begin
earning dividends on the Business Day following the date payment for the
shares is due; shares purchased through the Transfer Agent begin earning
dividends on the Business Day following its receipt of payment for the shares.
Shares acquired through an exchange begin earning dividends on the Business
Day following the day on which the exchange is effected.

A Fund's distributions are paid in additional Fund shares of the same class at
net asset value, unless the shareholder has requested cash payments.
Shareholders who wish to receive dividends and/or other distributions in cash,
either by check or credited to the shareholder's PaineWebber account, should
contact their investment executive at PaineWebber or one of its correspondent
firms or complete the appropriate section of the account application. For PW
SIP participants, the Fund's Class Y dividends and other distributions are
paid in additional Class Y shares at net asset value unless the Transfer Agent
is instructed otherwise.

TAXES

Each Fund intends to continue to qualify for treatment as a regulated
investment company under

----------
Prospectus Page 24
<PAGE>

the Internal Revenue Code so that it will not have to pay federal income tax
on the part of its taxable income (generally consisting of net investment
income, net short-term capital gain and certain net foreign currency gains)
and net long-term capital gain that it distributes to its shareholders. Under
certain circumstances, these requirements may limit Strategic Income Fund's
ability to reallocate its assets among broad markets.

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

YEAR-END TAX REPORTING

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 and any portion of those dividends that qualifies for special
treatment.

WITHHOLDING REQUIREMENTS

Each Fund must withhold 31% of all dividends, capital gain distributions and
redemption proceeds payable to individuals and certain other non-corporate
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.

TAXES ON THE SALE OF FUND SHARES

A sale (redemption) of Fund shares may result in a taxable gain or loss. This
depends on whether the shareholder receives more or less than their adjusted
basis for the shares. In addition, if a Fund's shares are bought within 30
days before or after selling other shares of the Fund (regardless of class) at
a loss, all or part of that loss will not be deductible and will increase the
basis of the newly purchased shares.

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

* * * *

Because the foregoing only summarizes some of the important federal income tax
considerations affecting the Funds and their shareholders, please see the
further discussion in the Statement of Additional Information. Prospective
shareholders are urged to consult their tax advisors.
- -------------------------------------------------------------------------------

General Information
- -------------------------------------------------------------------------------
ORGANIZATION

U.S. Government Income Fund, Low Duration Income Fund, Investment Grade Income
Fund and High Income Fund are diversified series of PaineWebber Managed
Investments Trust, an open-end management investment company formed on
November 21, 1986 as a business trust under the laws of the Commonwealth of
Massachusetts. Strategic Income Fund is a non-diversified series of
PaineWebber Securities Trust, an open-end management investment company formed
on December 3, 1992, as a business trust under the laws of the Commonwealth of
Massachusetts. The trustees of PaineWebber Managed Investments Trust and
PaineWebber Securities Trust (each, a "Trust") have authority to issue an
unlimited number of shares of beneficial interest of separate series, with a
par value of $.001 per share.

The shares of each Fund are divided into four classes, designated Class A,
Class B, Class C and Class Y shares. Each class represents an identical
interest in the respective Fund's investment portfolio and has the same
rights, privileges and preferences. However, each class may differ with
respect to sales charges, if any, distribution and/or service fees, if any,
other expenses allocable exclusively to each class, voting rights on

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

matters exclusively affecting that class, and its exchange privilege. The
different sales charges and other expenses applicable to the different classes
of shares of the Funds will affect the performance of those classes.

Each share of a Fund is entitled to participate equally in dividends, other
distributions and the proceeds of any liquidation of that Fund. However, due
to the differing expenses of the classes, dividends on the other classes are
likely to be lower than for Class Y shares, which bear the lowest expenses.

More information concerning Class A, Class B and Class C shares of the Funds
may be obtained from an investment executive at PaineWebber or one of
its correspondent firms or by calling toll-free 1-800-647-1568.

Although each Fund is offering only its own shares, it is possible that a Fund
could become liable for misstatements in the Prospectus about another Fund.
The boards have considered this factor in approving the use of a single,
combined Prospectus.

VOTING RIGHTS

Shareholders of each Fund are entitled to one vote for each full share held
and fractional votes for fractional shares held. Voting rights are not
cumulative and, as a result, the holders of more than 50% of all the shares of
the Trusts may elect all of their board members. The shares of a Fund will be
voted together except that only the shareholders of a particular class of a
Fund may vote on matters affecting only that class, such as the terms of a
Plan as it relates to a class. The shares of each series of a Trust will be
voted separately, except when an aggregate vote of all the securities is
required by law.

SHAREHOLDER MEETINGS

The Funds do not hold annual meetings.

Shareholders of record of no less than two-thirds of the outstanding shares of
either Trust may remove a board member through a declaration in writing or by
vote cast in person or by proxy at a meeting called for that purpose. A
meeting will be called to vote on the removal of a board member at the written
request of holders of 10% of a Trust's outstanding shares.

REPORTS TO SHAREHOLDERS

Each Fund sends its shareholders audited annual and unaudited semiannual
reports, each of which includes a list of the investment securities held by
the Fund as of the end of the period covered by the report. The Statement of
Additional Information, which is incorporated herein by reference, is
available to shareholders upon request.

CUSTODIAN & RECORDKEEPING AGENT; TRANSFER & DIVIDEND AGENT

State Street Bank and Trust Company, located at One Heritage Drive, North
Quincy, Massachusetts 02171, serves as the Funds' custodian and recordkeeping
agent. PFPC Inc., a subsidiary of PNC Bank, N.A., serves as the Funds'
transfer and dividend disbursing agent. It is located at 400 Bellevue Parkway,
Wilmington, DE 19809.

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Prospectus Page 26
<PAGE>

APPENDIX
RATINGS

DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS

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

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

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

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

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

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

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

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

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

Note: Moody's may apply numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system.
The modifier 1 indicates that the security

A-1
<PAGE>

ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.

DESCRIPTION OF S&P CORPORATE DEBT RATINGS

AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong; AA. Debt rated AA has a very
strong capacity to pay interest and repay principal and differs 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-2
<PAGE>

a lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.

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

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

DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS

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

A-3
<PAGE>

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[]PAINEWEBBER BOND FUNDS []PAINEWEBBER STOCK FUNDS

High Income Fund Capital Appreciation Fund
Investment Grade Income Financial Services Growth Fund
Fund Growth Fund
Low Duration U.S. Growth and Income Fund
Government Income Fund Small Cap Fund
Strategic Income Fund Utility Income Fund
U.S. Government Income
Fund

[]PAINEWEBBER TAX-FREE BOND []PAINEWEBBER GLOBAL FUNDS
FUNDS

Asia Pacific Growth Fund
California Tax-Free Emerging Markets Equity Fund
Income Fund Global Equity Fund
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Fund

National Tax-Free
Income Fund
New York Tax-Free
Income Fund []PAINEWEBBER MONEY MARKET
FUND

[]PAINEWEBBER
ASSET ALLOCATION FUNDS

Balanced Fund
Tactical Allocation
Fund

A prospectus containing more complete information for any of the above
funds, including charges and expenses, can be obtained from a PaineWebber
investment executive or correspondent firm. Please read it carefully before
investing. It is important you have all the information you need to make a
sound investment decision.