<PAGE>
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
---------------------------
PROSPECTUS
March 31, 1999
---------------------------
This prospectus offers shares in PaineWebber's five bond funds. Each fund
offers four classes of shares--Class A, Class B, Class C and Class Y. Each
class has different sales charges and ongoing expenses. You can choose the
class that is best for you based on how much you plan to invest and how long
you plan to hold your fund shares. Class Y shares are available only to certain
types of investors.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any fund's shares or determined whether this prospectus
is complete or accurate. To state otherwise is a crime.
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber U.S. Government Income Fund Low Duration U.S. Government Income Fund
Investment Grade Income Fund High Income Fund Strategic Income Fund
Contents
The Funds
----------------------------------------------------------------
<TABLE>
<S> <C> <C>
What every investor 3 U.S. Government Income Fund
should know about
the funds 6 Low Duration U.S. Government Income Fund
9 Investment Grade Income Fund
12 High Income Fund
15 Strategic Income Fund
18 More About Risks and Investment Strategies
Your Investment
------------------------------------------------------------------------------
Information for 20 Managing Your Fund Account
managing your fund --Flexible Pricing
account --Buying Shares
--Selling Shares
--Exchanging Shares
--Pricing and Valuation
Additional Information
------------------------------------------------------------------------------
Additional important 26 Management
information about
the funds 28 Dividends and Taxes
29 Financial Highlights
------------------------------------------------------------------------------
Where to learn more
about PaineWebber Back Cover
mutual funds
</TABLE>
The funds are not
complete or balanced
investment programs.
----------
- --------------------------------------------------------------------------------
Prospectus Page 2
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber U.S. Government Income Fund
PaineWebber U.S. Government Income Fund
Investment Objective, Strategies and Risks
- --------------------------------------------------------------------------------
Fund Objective
High current income consistent with the preservation of capital and liquidity.
Principal Investment Strategies
The fund invests primarily in U.S. government bonds, including bonds that are
backed by mortgages. The fund also invests, to a lesser extent, in non-
government bonds that have the highest credit ratings and that are backed by
mortgages or other assets. Normally, the fund concentrates its investments in
U.S. government and privately issued bonds that are backed by mortgages or
other assets. The fund uses interest rate futures contracts and other
derivatives to help manage its portfolio "duration." "Duration" is a measure of
the fund's exposure to interest rate risk. The fund invests in when-issued or
delayed delivery bonds as a leveraging technique in order to increase its
return.
The fund's investment adviser, Mitchell Hutchins Asset Management Inc., uses a
three-step investment process to find the best relative values for the fund:
management of the fund's portfolio duration; allocation of the fund's assets
among its investment sectors; and selection of specific securities.
Mitchell Hutchins adjusts the fund's portfolio duration based on its assessment
of fundamental economic and technical market conditions. A longer duration
means that changes in market interest rates are likely to have a larger effect
on the value of the fund's assets. Therefore, when Mitchell Hutchins believes
that interest rates are likely to fall, thereby increasing bond values, it may
lengthen the fund's portfolio duration.
Mitchell Hutchins allocates the fund's assets among the various sectors of the
U.S. government and mortgage-backed bond markets (for example, Treasury
obligations, bonds issued or guaranteed by government agencies and government
or non-government mortgage-backed bonds) by deciding which sectors provide the
best relative values under prevailing conditions. For example, mortgage-backed
bonds normally provide a higher yield than comparable Treasury bonds. If the
difference in yields between those two types of bonds is higher than normal,
Mitchell Hutchins may increase the fund's investments in mortgage-backed bonds.
Mitchell Hutchins selects securities for the fund by analyzing bond
fundamentals. It chooses securities that it believes provide the best
combination of income, liquidity and potential for gain relative to risk of
loss.
Principal Risks
An investment in the fund is not guaranteed; investors may lose money by
investing in the fund. The principal risks presented by the fund are:
. Interest Rate Risk
. Prepayment Risk
. Concentration Risk
. Leverage Risk
. Credit Risk
. Derivatives Risk
For an explanation of each of these risks, see "More About Risks and Investment
Strategies," below.
Information on the fund's recent investment strategies and holdings can be
found in its current annual/semi-annual reports (see back cover for information
on ordering those reports).
----------
- --------------------------------------------------------------------------------
Prospectus Page 3
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber U.S. Government Income Fund
Performance
- --------------------------------------------------------------------------------
Risk/Return Bar Chart and Table
The following bar chart shows how the fund's performance has varied from year
to year. The chart shows Class A shares because they have the longest
performance history of any class of fund shares. The chart does not reflect the
effect of sales charges; if it did, the total returns shown would be lower.
The table that follows the chart shows the average annual returns over several
time periods for each class of the fund's shares. That table does reflect fund
sales charges. The table compares fund returns to returns on a broad-based
market index that is unmanaged and that, therefore, does not include any sales
charges or expenses.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
Total Return on Class A Shares
[CHART APPEARS HERE]
1989 12.58%
1990 9.67%
1991 14.89%
1992 6.37%
1993 6.48%
1994 (10.51)%
1995 17.04%
1996 0.98%
1997 9.44%
1998 7.91%
Best quarter during years shown: 2nd quarter, 1989--6.49%
Worst quarter during years shown: 2nd quarter, 1994--(4.69)%
Average Annual Total Returns
as of December 31, 1998
<TABLE>
<CAPTION>
Lehman
Brothers
Class Class A Class B* Class C Class Y Government
(Inception Date) (8/31/84) (7/1/91) (7/2/92) (9/11/91) Bond Index
- ---------------- --------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
One Year....................... 3.53% 2.03% 6.61% 8.25% 9.85%
Five Years..................... 3.69% 3.40% 4.02% 4.84% 7.18%
Ten Years...................... 6.78% N/A N/A N/A 9.17%
Life of Class.................. 7.83% 5.45% 4.33% 5.92% **
</TABLE>
- -------
* Reflects conversion of Class B shares to Class A after six years.
** Average annual total returns for the Lehman Brothers Government Bond Index
for the life of each class were as follows: Class A--10.14%; Class B--8.70%;
Class C--7.94%; Class Y--8.39%.
----------
- --------------------------------------------------------------------------------
Prospectus Page 4
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber U.S. Government Income Fund
Expenses and Fee Tables
- --------------------------------------------------------------------------------
Fees and Expenses These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.
Shareholder Transaction Expenses (fees paid directly from your investments)
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
------- ------- ------- --------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on
Purchases
(as a % of offering price).................. 4% None None None
Maximum Contingent Deferred Sales Charge
(Load) (CDSC)
(as a % of offering price).................. None 5% 0.75% None
Exchange Fee................................. None None None None
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
<CAPTION>
Class A Class B Class C Class Y
------- ------- ------- --------
<S> <C> <C> <C> <C>
Management Fees.............................. 0.50% 0.50% 0.50% 0.50%
Distribution and/or Service (12b-1) Fees..... 0.25 1.00 0.75 0.00
Other Expenses............................... 0.28 0.33 0.29 0.21
---- ---- ----- ------
Total Annual Fund Operating Expenses......... 1.03% 1.83% 1.54% 0.71%
Example
This example is intended to help you compare the cost of investing in
PaineWebber U.S. Government Income Fund with the cost of investing in other
mutual funds.
This example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods unless
otherwise stated. The example also assumes that your investment has a 5% return
each year and that the fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs
would be:
<CAPTION>
1 year 3 years 5 years 10 years
------- ------- ------- --------
<S> <C> <C> <C> <C>
Class A...................................... $501 $715 $ 946 $1,609
Class B (assuming sales of all shares at end
of period).................................. 686 876 1,190 1,745
Class B (assuming no sales of shares)........ 186 576 990 1,745
Class C (assuming sales of all shares at end
of period).................................. 232 486 839 1,834
Class C (assuming no sales of shares)........ 157 486 839 1,834
Class Y...................................... 73 227 395 883
</TABLE>
----------
- --------------------------------------------------------------------------------
Prospectus Page 5
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Low Duration U.S. Government Income Fund
PaineWebber Low Duration U.S. Government Income Fund
Investment Objective, Strategies and Risks
- --------------------------------------------------------------------------------
Fund Objective
The highest level of income that is consistent with the preservation of capital
and low volatility of net asset value.
Principal Investment Strategies
The fund normally limits its portfolio "duration" to between one and three
years. "Duration" is a measure of the fund's exposure to interest rate risk. A
longer duration means that changes in market interest rates are likely to have
a larger effect on the value of the assets in a portfolio. Because the fund's
normal, one-to-three year portfolio duration is relatively short, the effect of
interest rate changes on the fund's value is expected to be relatively limited.
The fund invests primarily in U.S. government bonds, including those backed by
mortgages. The fund also invests, to a lesser extent, in non-government bonds
that have the highest credit rating and that are backed by mortgages or other
assets. The fund normally concentrates its investments in U.S. government and
privately issued bonds that are backed by mortgages or other assets. The fund
invests in when-issued or delayed delivery bonds as a leveraging technique in
order to increase its return.
Mitchell Hutchins Asset Management Inc. has appointed Pacific Investment
Management Company ("PIMCO") as the fund's sub-adviser. PIMCO analyzes U.S.
economic and market conditions, as well as other factors, to decide on a
portfolio duration and to allocate fund assets among bonds of different
maturities, types and coupon interest rates. PIMCO selects bonds based on
various factors, including economic forecasts, anticipated interest rate levels
and expected prepayment rates on the mortgages supporting mortgage-backed
bonds. PIMCO selects specific bonds by analyzing their relative value and risk
characteristics.
Principal Risks
An investment in the fund is not guaranteed; investors may lose money by
investing in the fund. The principal risks presented by the fund are:
. Interest Rate Risk
. Prepayment Risk
. Concentration Risk
. Leverage Risk
. Credit Risk
. Derivatives Risk
For an explanation of each of these risks, see "More About Risks and Investment
Strategies," below.
Information on the fund's recent investment strategies and holdings can be
found in its current annual/semi-annual reports (see back cover for information
on ordering those reports).
----------
- --------------------------------------------------------------------------------
Prospectus Page 6
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Low Duration U.S. Government Income Fund
Performance
- --------------------------------------------------------------------------------
Risk/Return Bar Chart and Table
The following bar chart shows how the fund's performance has varied from year
to year. The chart shows Class A shares because they have as long a performance
history as any class of fund shares. The chart does not reflect the effect of
sales charges; if it did, the total returns shown would be lower.
The table that follows the chart shows the average annual returns over several
time periods for each class of the fund's shares. That table does reflect fund
sales charges. The table compares fund returns to returns on a broad-based
market index that is unmanaged and that, therefore, does not include any sales
charges or expenses.
The fund's past performance does not necessarily indicate how the fund will
perform in the future. This may be particularly true of the period prior to
October 24, 1994, when PIMCO became the fund's sub-adviser.
Total Return on Class A Shares
[CHART APPEARS HERE]
1994 -4.39%
1995 10.75%
1996 5.57%
1997 7.05%
1998 6.36%
Best quarter during years shown: 4th quarter, 1996--3.10%
Worst quarter during years shown: 2nd quarter, 1994--(7.33)%
Average Annual Total Returns
as of December 31, 1998
<TABLE>
<CAPTION>
Merrill
Lynch
1-3 Year
Class Class A Class B Class C Class Y Treasury
(Inception Date) (5/3/93) (5/3/93) (5/3/93) (10/20/95) Index
- ---------------- -------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
One Year......................... 3.31% 2.06% 4.52% 6.51% 7.00%
Five Years....................... 4.28% 4.00% 4.24% N/A 5.99%
Life of Class.................... 4.22% 3.88% 4.12% 6.76% *
</TABLE>
- -------
* Average annual total returns for the Merrill Lynch 1-3 Year Treasury Index
for the life of each class were as follows: Class A -- 5.72%; Class B --
5.72%; Class C -- 5.72%; Class Y -- 6.42%.
-----------
- --------------------------------------------------------------------------------
Prospectus Page 7
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Low Duration U.S. Government Income Fund
Expenses and Fee Tables
- --------------------------------------------------------------------------------
Fees and Expenses These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.
Shareholder Transaction Expenses (fees paid directly from your investments)
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on
Purchases
(as a % of offering price).................... 3% None None None
Maximum Contingent Deferred Sales Charge (Load)
(CDSC)
(as a % of offering price).................... None 3% 0.75% None
Exchange Fee................................... None None None None
</TABLE>
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
Management Fees................................ 0.50% 0.50% 0.50% 0.50%
Distribution and/or Service (12b-1) Fees....... 0.25 1.00 0.75 0.00
Other Expenses................................. 0.32 0.41 0.47 0.29
---- ---- ---- ----
Total Annual Fund Operating Expenses........... 1.07% 1.91% 1.72% 0.79%
</TABLE>
Example
This example is intended to help you compare the cost of investing in
PaineWebber Low Duration U.S. Government Income Fund with the cost of investing
in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods unless
otherwise stated. The example also assumes that your investment has a 5% return
each year and that the fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A....................................... $406 $630 $ 872 $1,566
Class B (assuming sales of all shares at end
of period)................................... 494 800 1,032 1,813
Class B (assuming no sales of shares)......... 194 600 1,032 1,813
Class C (assuming sales of all shares at end
of period)................................... 250 542 933 2,030
Class C (assuming no sales of shares)......... 175 542 933 2,030
Class Y....................................... 81 252 439 978
</TABLE>
-----------
- --------------------------------------------------------------------------------
Prospectus Page 8
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Investment Grade Income Fund
PaineWebber Investment Grade Income Fund
Investment Objective, Strategies and Risks
- --------------------------------------------------------------------------------
Fund Objective
High current income consistent with the preservation of capital and liquidity.
Principal Investment Strategies
The fund invests primarily in a diversified range of investment grade bonds,
including U.S. government bonds, U.S. and foreign corporate bonds and bonds
that are backed by mortgages. The fund also invests, to a lesser extent, in
corporate bonds that are below investment grade, preferred stocks and bonds
that are convertible into common stocks. The fund uses interest rate futures
contracts and other derivatives to help manage its portfolio "duration."
"Duration" is a measure of the fund's exposure to interest rate risk.
The fund's investment adviser, Mitchell Hutchins Asset Management Inc., tries
to find the best relative values in the markets in which the fund invests. It
does this primarily through sector and industry allocation and bond selection.
Mitchell Hutchins allocates the fund's assets among bond market sectors and
industries by deciding which sectors and industries provide the best relative
values under prevailing conditions. For example, investment grade corporate
bonds normally provide a higher yield than comparable Treasury bonds. If the
difference in yields between those two types of bonds is higher than normal,
Mitchell Hutchins may increase the fund's investments in investment grade
corporate bonds.
Mitchell Hutchins selects industries and companies within the corporate bond
sector by performing fundamental credit analysis based on cash flows and the
ability of the issuer to make required payments on its debt. Mitchell Hutchins
chooses specific securities that it believes provide the best combination of
income, liquidity and potential for gain relative to risk of loss.
Principal Risks
An investment in the fund is not guaranteed; investors may lose money by
investing in the fund. The principal risks presented by the fund are:
. Interest Rate Risk
. Credit Risk
. Prepayment Risk
. Foreign Securities Risk
. Derivatives Risk
For an explanation of each of these risks, see "More About Risks and Investment
Strategies," below.
Information on the fund's recent investment strategies and holdings can be
found in its current annual/semi-annual reports (see back cover for information
on ordering those reports).
-----------
- --------------------------------------------------------------------------------
Prospectus Page 9
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Investment Grade Income Fund
Performance
- --------------------------------------------------------------------------------
Risk/Return Bar Chart and Table
The following bar chart shows how the fund's performance has varied from year
to year. The chart shows Class A shares because they have the longest
performance history of any class of fund shares. The chart does not reflect the
effect of sales charges; if it did, the total returns shown would be lower.
The table that follows the chart shows the average annual returns over several
time periods for each class of the fund's shares. That table does reflect fund
sales charges. The table compares fund returns to returns on a broad-based
market index that is unmanaged and that, therefore, does not include any sales
charges or expenses.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
Total Return on Class A Shares
[CHART APPEARS HERE]
1989 11.98%
1990 6.47%
1991 18.56%
1992 8.87%
1993 13.35%
1994 (5.59)%
1995 19.61%
1996 3.98%
1997 11.93%
1998 4.77%
Best quarter during years shown: 2nd quarter, 1989 -- 4.66%
Worst quarter during years shown: 1st quarter, 1994 -- (5.79)%
Average Annual Total Returns
as of December 31, 1998
<TABLE>
<CAPTION>
Lehman
Brothers
Class Class A Class B* Class C Class Y Corporate
(Inception Date) (8/31/84) (7/1/91) (7/2/92) (2/20/98) Bond Index
- ---------------- --------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
One Year....................... 0.53% (1.02)% 3.52% N/A 8.59%
Five Years..................... 5.74% 5.48% 6.10% N/A 7.75%
Ten Years...................... 8.71% N/A N/A N/A 9.87%
Life of Class.................. 9.51% 8.14% 7.17% 3.51% **
</TABLE>
- -------
* Reflects conversion of Class B shares to Class A after six years.
** Average annual total returns for the Lehman Brothers Corporate Bond Index
for the life of each class were as follows: Class A -- 11.29%; Class B --
9.48%; Class C -- 8.59%; and Class Y -- 7.34%.
-----------
- --------------------------------------------------------------------------------
Prospectus Page 10
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Investment Grade Income Fund
Expenses and Fee Tables
- --------------------------------------------------------------------------------
Fees and Expenses These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.
Shareholder Transaction Expenses (fees paid directly from your investments)
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on
Purchases
(as a % of offering price).................... 4% None None None
Maximum Contingent Deferred Sales Charge (Load)
(CDSC)
(as a % of offering price).................... None 5% 0.75% None
Exchange Fee................................... None None None None
</TABLE>
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
Management Fees................................ 0.50% 0.50% 0.50% 0.50%
Distribution and/or Service (12b-1) Fees....... 0.25 1.00 0.75 0.00
Other Expenses................................. 0.18 0.19 0.17 0.12
---- ---- ---- ----
Total Annual Fund Operating Expenses........... 0.93% 1.69% 1.42% 0.62%
</TABLE>
Example
The following example is intended to help you compare the cost of investing in
PaineWebber Investment Grade Income Fund with the cost of investing in other
mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods unless
otherwise stated. The example also assumes that your investment has a 5% return
each year and that the fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A....................................... $491 $685 $ 894 $1,497
Class B (assuming sales of all shares at end
of period)................................... 672 833 1,118 1,610
Class B (assuming no sales of shares)......... 172 533 918 1,610
Class C (assuming sales of all shares at end
of period)................................... 220 449 776 1,702
Class C (assuming no sales of shares)......... 145 449 776 1,702
Class Y....................................... 63 199 346 774
</TABLE>
-----------
- --------------------------------------------------------------------------------
Prospectus Page 11
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber High Income Fund
PaineWebber High Income Fund
Investment Objective, Strategies and Risks
- --------------------------------------------------------------------------------
Fund Objective
High income.
Principal Investment Strategies
The fund invests primarily in a diversified range of high yield U.S. and
foreign corporate bonds (sometimes called "junk bonds"). The fund also invests,
to a lesser extent, in other types of bonds, preferred stocks and bonds that
are convertible into common stock.
The fund's investment adviser, Mitchell Hutchins Asset Management Inc., uses a
three-step investment process to find the best relative values in the bond
markets in which the fund invests: industry selection, company selection and
security selection.
Mitchell Hutchins allocates the fund's assets among industry groups by
analyzing economic factors, industry dynamics and yield spreads to determine
which industries provide the most attractive investment opportunities. Mitchell
Hutchins selects companies within these industries by using a proprietary
financial forecasting model and by performing fundamental credit analysis based
on cash flows and other factors. Finally, Mitchell Hutchins chooses from among
the types of securities offered by these companies to select those that appear
to offer the best relative values. All aspects of this process rely on Mitchell
Hutchins' economic, credit, quantitative and market research.
Principal Risks
An investment in the fund is not guaranteed; investors may lose money by
investing in the fund. The principal risks presented by the fund are:
.Credit Risk
.Interest Rate Risk
.Foreign Securities Risk
.Emerging Markets Risk
.Equity Risk
For an explanation of each of these risks, see "More About Risks and Investment
Strategies," below.
Information on the fund's recent investment strategies and holdings can be
found in its current annual/semi-annual reports (see back cover for information
on ordering those reports).
-----------
- --------------------------------------------------------------------------------
Prospectus Page 12
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber High Income Fund
Performance
- --------------------------------------------------------------------------------
Risk/Return Bar Chart and Table
The following bar chart shows how the fund's performance has varied from year
to year. The chart shows Class A shares because they have the longest
performance history of any class of fund shares. The chart does not reflect the
effect of sales charges; if it did, the total returns shown would be lower.
The table that follows the chart shows the average annual returns over several
time periods for each class of the fund's shares. That table does reflect fund
sales charges. The table compares fund returns to returns on a broad-based
market index that is unmanaged and that, therefore, does not include any sales
charges or expenses.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
Total Return on Class A Shares
[CHART APPEARS HERE]
1989 -1.83%
1990 -8.53%
1991 47.02%
1992 24.06%
1993 22.74%
1994 -11.69%
1995 10.96%
1996 17.73%
1997 12.98%
1998 -6.22%
Best quarter during years shown: 1st quarter, 1991--19.96%
Worst quarter during years shown: 3rd quarter, 1998--(11.60)%
Average Annual Total Returns
as of December 31, 1998
<TABLE>
<CAPTION>
CS First
Boston
Class Class A Class B* Class C Class Y High Yield
(Inception Date) (8/31/84) (7/1/91) (7/2/92) (2/20/98) Index
- ---------------- --------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
One Year....................... (9.99)% (11.33)% (7.30)% N/A 0.58%
Five Years..................... 3.24% 3.04% 3.56% N/A 8.15%
Ten Years...................... 8.97% N/A N/A N/A 10.73%
Life of Class.................. 9.62% 9.80% 7.07% (9.00)% **
</TABLE>
- -------
* Reflects conversion of Class B shares to Class A after six years.
** Average annual total returns for the CS First Boston High Yield Index for
the life of each class were as follows: Class A--12.54%; Class B--11.86%;
Class C--9.94%; Class Y--(1.11)%.
-----------
- --------------------------------------------------------------------------------
Prospectus Page 13
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber High Income Fund
Expenses and Fee Tables
- --------------------------------------------------------------------------------
Fees and Expenses These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.
Shareholder Transaction Expenses (fees paid directly from your investments)
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on
Purchases
(as a % of offering price).................... 4% None None None
Maximum Contingent Deferred Sales Charge (Load)
(CDSC)
(as a % of offering price).................... None 5% 0.75% None
Exchange Fee................................... None None None None
</TABLE>
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
Management Fees................................ 0.50% 0.50% 0.50% 0.50%
Distribution and/or Service (12b-1) Fees....... 0.25 1.00 0.75 0.00
Other Expenses................................. 0.16 0.16 0.16 0.13
---- ---- ---- ----
Total Annual Fund Operating Expenses........... 0.91% 1.66% 1.41% 0.63%
</TABLE>
Example
The following example is intended to help you compare the cost of investing in
PaineWebber High Income Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods unless
otherwise stated. The example also assumes that your investment has a 5% return
each year and that the fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A....................................... $489 $679 $ 884 $1,475
Class B (assuming sales of all shares at end
of period)................................... 669 823 1,102 1,582
Class B (assuming no sales of shares)......... 169 523 902 1,582
Class C (assuming sales of all shares at end
of period)................................... 219 446 771 1,691
Class C (assuming no sales of shares)......... 144 446 771 1,691
Class Y....................................... 64 202 351 786
</TABLE>
-----------
- --------------------------------------------------------------------------------
Prospectus Page 14
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Strategic Income Fund
PaineWebber Strategic Income Fund
Investment Objective, Strategies and Risks
- --------------------------------------------------------------------------------
Fund Objective
High level of current income and, secondarily, capital appreciation.
Principal Investment Strategies
The fund strategically allocates investments among three bond market sectors:
. U.S. government and investment grade bonds;
. U.S. high yield bonds (sometimes called "junk bonds"), including preferred
stock and bonds that are convertible into common stock; and
. Foreign and emerging market bonds.
Each of these sectors generally reacts in different ways or at different times
to changes in interest rates or to particular economic events. This means that,
when one sector underperforms the market as a whole, another sector may
outperform the market.
The fund normally invests in each of these three sectors. However, the fund's
investment adviser, Mitchell Hutchins Asset Management Inc., tries to take
advantage of changes in the relative performance of different sectors by
allocating a larger percentage of the fund's assets to those sectors that it
believes are undervalued. Selections of specific securities are based on market
outlook, investment research, geographic analysis and forecasts of interest
rates and currency exchange rates. The fund sometimes uses forward currency
contracts to hedge against foreign currency risk.
Principal Risks
An investment in the fund is not guaranteed; investors may lose money by
investing in the fund. The principal risks presented by the fund are:
. Credit Risk
. Interest Rate Risk
. Sector Allocation Risk
. Foreign Securities Risk
. Emerging Markets Risk
. Equity Risk
. Non-Diversified Status Risk
. Prepayment Risk
. Derivatives Risk
For an explanation of each of these risks, see "More About Risks and Investment
Strategies," below.
Information on the fund's recent investment strategies and holdings can be
found in its current annual/semi-annual reports (see back cover for information
on ordering those reports).
----------
- --------------------------------------------------------------------------------
Prospectus Page 15
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Strategic Income Fund
Performance
- --------------------------------------------------------------------------------
Risk/Return Bar Chart and Table
The following bar chart shows how the fund's performance has varied from year
to year. The chart shows Class A shares because they have as long a performance
history as any class of fund shares. The chart does not reflect the effect of
sales charges; if it did, the total returns shown would be lower.
The table that follows the chart shows the average annual returns over several
time periods for each class of the fund's shares. That table does reflect fund
sales charges. The table compares fund returns to returns on a broad-based
market index that is unmanaged and that, therefore, does not include any sales
charges or expenses.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
Total Return on Class A Shares
[CHART APPEARS HERE]
1995 14.12%
1996 14.00%
1997 10.32%
1998 0.96%
Best quarter during years shown: 1st quarter, 1995--6.04%
Worst quarter during years shown: 3rd quarter, 1998--(3.71)%
Average Annual Total Returns
as of December 31, 1998
<TABLE>
<CAPTION>
Lehman
Brothers
Class Class A Class B Class C Class Y Aggregate
(Inception Date) (2/7/94) (2/7/94) (2/7/94) (2/17/98) Bond Index
- ---------------- -------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
One Year........................ (3.10)% (4.50)% (0.36)% N/A 8.69%
Life of Class................... 4.98% 4.77% 5.33% (1.15)% *
</TABLE>
- -------
* Average annual total returns for the Lehman Brothers Aggregate Bond Index for
the life of each class were as follows: Class A -- 7.11%; Class B -- 7.11%;
Class C -- 7.11%; Class Y -- 7.39%.
----------
- --------------------------------------------------------------------------------
Prospectus Page 16
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Strategic Income Fund
Expenses and Fee Tables
- --------------------------------------------------------------------------------
Fees and Expenses These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.
Shareholder Transaction Expenses (fees paid directly from your investments)
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
------- ------- ------- --------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on
Purchases
(as a % of offering price)................. 4% None None None
Maximum Contingent Deferred Sales Charge
(Load) (CDSC)
(as a % of offering price)................. None 5% 0.75% None
Exchange Fee................................ None None None None
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
<CAPTION>
Class A Class B Class C Class Y
------- ------- ------- --------
<S> <C> <C> <C> <C>
Management Fees............................. 0.75% 0.75% 0.75% 0.75%
Distribution and/or Service (12b-1) Fees.... 0.25 1.00 0.75 0.00
Other Expenses.............................. 0.34 0.37 0.36 0.32
---- ---- ------ ------
Total Annual Fund Operating Expenses........ 1.34% 2.12% 1.86% 1.07%
Example
This example is intended to help you compare the cost of investing in
PaineWebber Strategic Income Fund with the cost of investing in other mutual
funds.
This example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods unless
otherwise stated. The example also assumes that your investment has a 5% return
each year and that the fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs
would be:
<CAPTION>
1 year 3 years 5 years 10 years
------- ------- ------- --------
<S> <C> <C> <C> <C>
Class A..................................... $531 $808 $1,105 $1,948
Class B (assuming sales of all shares at end
of period)................................. 715 964 1,339 2,070
Class B (assuming no sales of shares)....... 215 664 1,139 2,070
Class C (assuming sales of all shares at end
of period)................................. 264 585 1,006 2,180
Class C (assuming no sales of shares)....... 189 585 1,006 2,180
Class Y..................................... 109 340 590 1,306
</TABLE>
----------
- --------------------------------------------------------------------------------
Prospectus Page 17
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber U.S. Government Income Fund Low Duration U.S. Government Income Fund
Investment Grade Income Fund High Income Fund Strategic Income Fund
More About Risks and Investment Strategies
- --------------------------------------------------------------------------------
Principal Risks
The main risks of investing in one or more of the funds are described below.
Not all of these risks apply to each fund. You can find a list of the main
risks that apply to a particular fund by looking under the "Investment
Objective, Strategies and Risks" heading for that fund.
Other risks of investing in a fund, along with further detail about some of the
risks described below, are discussed in the funds' Statement of Additional
Information ("SAI"). Information on how you can obtain the SAI is on the back
cover of this prospectus.
Concentration Risk. This means that a fund normally invests at least 25% of its
total assets in a single industry group. U.S. Government Income Fund and Low
Duration Fund each normally concentrates its investments in U.S. government and
privately issued bonds that are backed by mortgages or other assets.
Concentration increases a fund's exposure to that industry group and might
cause the fund's net asset value to change more than it otherwise would.
Credit Risk. Credit risk is the risk that the issuer of a bond will not make
principal or interest payments when they are due. Even if an issuer does not
default on a payment, a bond's value may decline if the market believes that
the issuer has become less able, or less willing, to make payments on time.
Even high quality bonds are subject to some credit risk. However, credit risk
is higher for lower quality bonds. High yield bonds involve high credit risk
and are considered speculative. Some high yield bonds may be in default when
purchased by a fund.
Derivatives Risk. The value of "derivatives" - so-called because their value
"derives" from the value of an underlying asset, reference rate or index - may
rise or fall more rapidly than other investments. For some derivatives, it is
possible for a fund to lose more than the amount it invested in the derivative.
Options, futures contracts and forward currency contracts are examples of
derivatives. If a fund uses derivatives to adjust or "hedge" the overall risk
of its portfolio, it is possible that the hedge will not succeed. This may
happen for various reasons, including unexpected changes in the value of the
derivatives that are not matched by opposite changes in the value of the rest
of the fund's portfolio.
Emerging Markets Risk. Securities of issuers located in emerging market
countries are subject to all of the risks of other foreign securities (see
below). However, the level of those risks often is higher due to the fact that
political, legal and economic systems in emerging market countries may be less
fully developed and less stable than those in developed countries. Emerging
market securities also may be subject to additional risks, such as lower
liquidity and larger or more rapid changes in value.
Equity Risk. The prices of common stocks and other equity securities generally
fluctuate more than those of other investments. They reflect changes in the
issuing company's financial condition and changes in the overall market. A fund
may lose a substantial part, or even all, of its investment in a company's
stock.
Foreign Securities Risk. Foreign securities involve risks that normally are not
associated with securities of U.S. issuers. These include risks relating to
political, social and economic developments abroad and differences between U.S.
and foreign regulatory requirements and market practices. When securities are
denominated in foreign currencies, they also are subject to foreign currency
risk, which is the risk that the value of the foreign currency will fall in
relation to the U.S. dollar.
Interest Rate Risk. The value of bonds generally can be expected to fall when
interest rates rise and to rise when interest rates fall. Interest rate risk is
the risk that interest rates will rise, so that the value of a fund's
investments in bonds will fall. Because interest rate risk is the primary risk
presented by U.S. government and other very high quality bonds, changes in
interest rates may actually have a larger effect on the value of those bonds
than on lower quality bonds.
Leverage Risk. Leverage involves increasing the total assets in which a fund
can invest beyond the level of
-----------
- --------------------------------------------------------------------------------
Prospectus Page 18
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber U.S. Government Income Fund Low Duration U.S. Government Income Fund
Investment Grade Income Fund High Income Fund Strategic Income Fund
the fund's net assets. Because leverage increases the amount of a fund's
assets, it can magnify the effect on the fund of changes in market values. As a
result, while leverage can increase a fund's income and potential for gain, it
also can increase expenses and the risk of loss. U.S. Government Income Fund
and Low Duration Fund, each of which uses leverage by investing in when-issued
and delayed delivery bonds, attempt to limit the potential magnifying effect of
the leverage by managing portfolio duration.
Non-Diversified Status Risk. A non-diversified fund is not subject to certain
limitations on its ability to invest more than 5% of its total assets in
securities of a single issuer. When a fund holds a large position in the
securities of one issuer, changes in the financial condition or in the market's
assessment of that issuer may cause larger changes in the fund's total return
and in the price of its shares than if the fund held only a smaller position.
Prepayment Risk. Payments on bonds that are backed by mortgage loans or similar
assets may be received earlier or later than expected due to changes in the
rate at which the underlying loans are prepaid. Faster prepayments often happen
when market interest rates are falling. As a result, a fund may need to
reinvest these early payments at those lower interest rates, thus reducing its
income. Conversely, when interest rates rise, prepayments may happen more
slowly, causing the underlying loans to be outstanding for a longer time. This
can cause the market value of the security to fall because the market may view
its interest rate as too low for a longer term investment.
Sector Allocation Risk. Mitchell Hutchins may not be successful in choosing the
best allocation among market sectors. A fund that allocates its assets among
market sectors is more dependent on Mitchell Hutchins' ability to successfully
assess the relative values in each sector than are funds that do not allocate
among market sectors.
Additional Risks
Year 2000 Risk. The funds could be adversely affected by problems relating to
the inability of computer systems used by Mitchell Hutchins and the funds'
other service providers to recognize the year 2000. While year 2000-related
computer problems could have a negative effect on the funds, Mitchell Hutchins
is working to avoid these problems with respect to its own computer systems and
to obtain assurances from other service providers that they are taking similar
steps.
Similarly, the companies in which the funds invest and trading systems used by
the funds could be adversely affected by this issue. The ability of a company
or trading system to respond successfully to the issue requires both
technological sophistication and diligence, and there can be no assurance that
any steps taken will be sufficient to avoid an adverse impact on the funds.
Additional Investment Strategies
Defensive Positions; Cash Reserves. In order to protect itself from adverse
market conditions, a fund may take a temporary defensive position that is
different from its normal investment strategy. This means that the fund may
temporarily invest a larger-than-normal part, or even all, of its assets in
cash or money market instruments. Since these investments provide relatively
low income, a defensive position may not be consistent with achieving a fund's
investment objective. However, with the exception of High Income Fund, each
fund also may invest in money market instruments on an unlimited basis as part
of its ordinary investment strategy. High Income Fund may invest up to 35% of
its total assets in cash or money market instruments as a cash reserve for
liquidity.
Portfolio Turnover. Each fund may engage in frequent trading (high portfolio
turnover) in order to achieve its investment objective.
Frequent trading may increase the portion of a fund's capital gains that are
realized for tax purposes in any given year. This may increase the fund's
taxable dividends in that year. Frequent trading also may increase the portion
of a fund's realized capital gains that are considered "short-term" for tax
purposes. Shareholders will pay higher taxes on dividends that represent short-
term capital gains than they would pay on dividends that represent long-term
capital gains. Frequent trading also may result in higher fund expenses due to
transaction costs.
The funds do not restrict the frequency of trading in order to limit expenses
or the tax effect that the fund's dividends may have on shareholders.
-----------
- --------------------------------------------------------------------------------
Prospectus Page 19
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber U.S. Government Income Fund Low Duration U.S. Government Income Fund
Investment Grade Income Fund High Income Fund Strategic Income Fund
Your Investment
Managing Your Fund Account
- --------------------------------------------------------------------------------
Flexible Pricing
The funds offer four classes of shares - Class A, Class B, Class C and Class Y.
Each class has different sales charges and ongoing expenses. You can choose the
class that is best for you, based on how much you plan to invest in the funds
and how long you plan to hold your fund investment. Class Y shares are
available only to certain types of investors.
Class A Shares
Class A shares have a front-end sales charge that is included in the offering
price of the Class A shares. This sales charge is not invested in the fund.
Class A shares pay an annual 12b-1 service fee of 0.25% of average net assets,
but they pay no 12b-1 distribution fees. The ongoing expenses for Class A
shares are lower than for Class B and Class C shares.
The Class A sales charges for each fund are described in the following tables.
Class A Sales Charges for: U.S. Government Income Fund
Investment Grade Income Fund
High Income Fund
Strategic Income Fund
<TABLE>
<CAPTION>
Sales Charge as a Percentage of: Discount to Selected Dealers as
Amount of Investment Offering Price Net Amount Invested Percentage of Offering Price
- -------------------- -------------- ------------------- -------------------------------
<S> <C> <C> <C>
Less than $100,000...... 4.00% 4.17% 3.75%
$100,000 to $249,999.... 3.00 3.09 2.75
$250,000 to $499,999.... 2.25 2.30 2.00
$500,000 to $999,999.... 1.75 1.78 1.50
$1,000,000 and over(1).. None None 1.00(2)
Class A Sales Charges for: Low Duration Fund
Less than $100,000...... 3.00% 3.09% 2.75%
$100,000 to $249,999.... 2.50 2.56 2.25
$250,000 to $499,999.... 2.00 2.04 1.75
$500,000 to $999,999.... 1.50 1.52 1.25
$1,000,000 and over(1).. None None 1.00(2)
</TABLE>
- -------
(1) A contingent deferred sales charge of 1% of the shares' offering price or
the net asset value at the time of sale by the shareholder, whichever is
less, is charged on sales of shares made within one year of the purchase
date. Class A shares representing reinvestment of dividends are not subject
to this 1% charge. Withdrawals in the first year after purchase of up to
12% of the value of the fund account under the funds' Systematic Withdrawal
Plan are not subject to this charge.
(2) Mitchell Hutchins pays 1% to PaineWebber.
-----------
- --------------------------------------------------------------------------------
Prospectus Page 20
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber U.S. Government Income Fund Low Duration U.S. Government Income Fund
Investment Grade Income Fund High Income Fund Strategic Income Fund
Sales Charge Reductions and Waivers. You may qualify for a lower sales charge
if you already own Class A shares of a PaineWebber mutual fund. You can combine
the value of Class A shares that you own in other PaineWebber funds and the
purchase amount of the Class A shares of the PaineWebber fund that you are
buying.
You may also qualify for a lower sales charge if you combine your purchases
with those of:
. your spouse, parents or children under age 21;
. your Individual Retirement Accounts (IRAs);
. certain employee benefit plans, including 401(k) plans;
. a company that you control;
. a trust that you created;
. Uniform Gifts to Minors Act/Uniform Transfers to Minors Act accounts created
by you or by a group of investors for your children; or
. accounts with the same adviser.
You may qualify for a complete waiver of the sales charge if you:
. Are an employee of PaineWebber or its affiliates or the spouse, parent or
child under age 21 of a PaineWebber employee;
. Buy these shares through a PaineWebber Financial Advisor who was formerly
employed as an investment executive with a competing brokerage firm that was
registered as a broker-dealer with the SEC, and
--you were the Financial Advisor's client at the competing brokerage firm;
--within 90 days of buying shares in a fund, you sell shares of one or more
mutual funds that were principally underwritten by the competing brokerage
firm or its affiliates, and you either paid a sales charge to buy those
shares, pay a contingent deferred sales charge when selling them or held
those shares until the contingent deferred sales charge was waived; and
--you purchase an amount that does not exceed the total amount of money you
received from the sale of the other mutual fund;
. Acquire these shares through the reinvestment of dividends of a PaineWebber
unit investment trust;
. Are a 401(k) or 403(b) qualified employee benefit plan with 50 or more
eligible employees in the plan or at least $1 million in assets; or
. Are a participant in the PaineWebber Members Only Program. For investments
made pursuant to this waiver, Mitchell Hutchins may make payments out of its
own resources to PaineWebber and to participating membership organizations in
a total amount not to exceed 1% of the amount invested.
Note: See the funds' SAI for some other sales charge waivers. If you think you
qualify for any sales charge reductions or waivers, you will need to provide
documentation to PaineWebber or the fund. For more information, you should
contact your PaineWebber Financial Advisor or correspondent firm or call 1-800-
647-1568. If you want information on the funds' Systematic Withdrawal Plan, see
the SAI or contact your PaineWebber Financial Advisor or correspondent firm.
Class B Shares
Class B shares have a contingent deferred sales charge. When you purchase Class
B shares, we invest 100% of your purchase in fund shares. However, you may have
to pay the deferred sales charge when you sell your fund shares, depending on
how long you own the shares.
Class B shares pay an annual 12b-1 distribution fee of 0.75% of average net
assets, as well as an annual 12b-1 service fee of 0.25% of average net assets.
Over time, these fees will increase the cost of your investment and may cost
you more than if you paid a front-end sales charge. If you hold your Class B
shares for six years, they will automatically convert to Class A shares, which
have lower ongoing expenses.
If you sell Class B shares before the end of six years, you will pay a deferred
sales charge. We calculate the deferred sales charge by multiplying the lesser
of the net asset value of the Class B shares at the time of purchase or the net
asset value at the time of sale by the percentage shown below:
-----------
- --------------------------------------------------------------------------------
Prospectus Page 21
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber U.S. Government Income Fund Low Duration U.S. Government Income Fund
Investment Grade Income Fund High Income Fund Strategic Income Fund
U.S. Government Income Fund
Investment Grade Income Fund
High Income Fund
Strategic Income Fund
<TABLE>
<CAPTION>
Percentage by which
If you sell the shares' net asset
shares within: value is multiplied:
- -------------- ---------------------
<S> <C>
1st year since purchase................................... 5%
2nd year since purchase................................... 4
3rd year since purchase................................... 3
4th year since purchase................................... 2
5th year since purchase................................... 2
6th year since purchase................................... 1
7th year since purchase................................... None
Low Duration Fund
1st year since purchase................................... 3%
2nd year since purchase................................... 2
3rd year since purchase................................... 2
4th year since purchase................................... 1
5th year since purchase................................... None
</TABLE>
We will not impose the deferred sales charge on Class B shares representing
reinvestment of dividends or on withdrawals in any year of up to 12% of the
value of your Class B shares under the Systematic Withdrawal Plan.
If you exchange Class B shares of Low Duration Fund for shares of other
PaineWebber mutual funds, you will be subject to the contingent deferred sales
charges of the Class B shares that you acquire in the exchange. Usually, these
are higher and are imposed over a longer period. If you exchange Class B shares
of another fund for Class B shares of Low Duration Fund, you will continue to
be subject to the contingent deferred sales charge of the original fund.
To minimize your deferred sales charge, we will assume that you are selling:
. First, Class B shares representing reinvested dividends, and
. Second, Class B shares that you have owned the longest.
Sales Charge Waivers. You may qualify for a waiver of the deferred sales charge
on a sale of shares if:
. You participate in the Systematic Withdrawal Plan;
. You are older than 59 1/2 and are selling shares to take a distribution from
certain types of retirement plans;
. You receive a tax-free return of an excess IRA contribution;
. You receive a tax-qualified retirement plan distribution following
retirement; or
. The shares are sold within one year of your death and you owned the shares
either (1) as the sole shareholder or (2) with your spouse as a joint tenant
with the right of survivorship.
Note: If you think you qualify for any of these sales charge waivers, you will
need to provide documentation to PaineWebber or the fund. For more information,
you should contact your PaineWebber Financial Advisor or correspondent firm or
call 1-800-647-1568. If you want information on the Systematic Withdrawal Plan,
see the SAI or contact your PaineWebber Financial Advisor or correspondent
firm.
Class C Shares
Class C shares have a level load sales charge in the form of ongoing 12b-1
distribution fees. When you purchase Class C shares, we will invest 100% of
your purchase in fund shares.
Class C shares pay an annual 12b-1 distribution fee of 0.50% of average net
assets, as well as an annual 12b-1 service fee of 0.25% of average net assets.
Over time these fees will increase the cost of your investment and may cost you
more than if you paid a front-end sales charge. Class C shares do not convert
to another class of shares. This means that you will pay the 12b-1 fees for as
long as you own your shares.
Class C shares also have a contingent deferred sales charge. You may have to
pay the deferred sales charge if you sell your shares within one year of the
date you purchased them. We calculate the deferred sales charge on sales of
Class C shares by multiplying 0.75% by the lesser of the net asset value of the
Class C shares at the time of purchase or the net asset value at the time of
sale. We will not impose the deferred sales charge on Class C shares
representing reinvestment of dividends or on withdrawals in the first year
after purchase of up to 12% of the value of your Class C shares under the
Systematic Withdrawal Plan.
Note: If you want information on the funds' Systematic Withdrawal Plan, see the
SAI or contact your PaineWebber Financial Advisor or correspondent firm.
-----------
- --------------------------------------------------------------------------------
Prospectus Page 22
<PAGE>
- -------------------------------------------------------------------------------
-------------------
PaineWebber U.S. Government Income Fund Low Duration U.S. Government Income
Fund
Investment Grade Income Fund High Income Fund Strategic Income Fund
Class Y Shares
Class Y shares have no sales charge. Only specific types of investors can
purchase Class Y shares. You may be eligible to purchase Class Y shares if
you:
. Buy shares through PaineWebber's PACE Multi-Advisor Program;
. Buy $10 million or more of PaineWebber fund shares at any one time;
. Are a qualified retirement plan with 5,000 or more eligible employees or $50
million in assets; or
. Are an investment company advised by PaineWebber or an affiliate of
PaineWebber.
The trustee of PaineWebber's 401(k) Plus Plan for its employees is also
eligible to purchase Class Y shares.
Class Y shares do not pay ongoing sales or distribution fees or sales charges.
The ongoing expenses for Class Y shares are the lowest of all the classes.
Buying Shares
If you are a PaineWebber client, or a client of a PaineWebber correspondent
firm, you can purchase fund shares through your Financial Advisor. Otherwise,
you can invest in the funds through the funds' transfer agent, PFPC Inc. You
can obtain an application by calling 1-800-647-1568. You must completed and
sign the application and mail it, along with a check, to: PFPC Inc., Attn.:
PaineWebber Mutual Funds, P.O. Box 8950, Wilmington, DE 19899.
If you wish to invest in other PaineWebber Funds, you can do so by:
. Contacting your Financial Advisor (if you have an account at PaineWebber or
at a PaineWebber correspondent firm);
. Mailing an application with a check; or
. Opening an account by exchanging shares from another PaineWebber fund.
You do not have to complete an application when you make additional
investments in the same fund.
The funds and Mitchell Hutchins reserve the right to reject a purchase order
or suspend the offering of shares.
<TABLE>
<CAPTION>
Minimum Investments:
- --------------------
<S> <C>
To open an account...................................................... $1,000
($100 for Low Duration Fund)
To add to an account.................................................... $ 100
</TABLE>
Each fund may waive or reduce these amounts for:
. Employees of PaineWebber or its affiliates; or
. Participants in certain pension plans, retirement accounts, unaffiliated
investment programs or the funds' automatic investment plans.
Selling Shares
You can sell your fund shares at any time. If you own more than one class of
shares, you should specify which class you want to sell. If you do not, the
fund will assume that you want to sell shares in the following order: Class A,
then Class C, then Class B and last, Class Y.
If you want to sell shares that you purchased recently, the fund may delay
payment until it verifies that it has received good payment. If you purchased
shares by check, this can take up to 15 days.
If you have an account with PaineWebber or a PaineWebber correspondent firm,
you can sell shares by contacting your Financial Advisor.
If you do not have an account at PaineWebber or a correspondent firm, and you
bought your shares through the transfer agent, you can sell your shares by
writing to the fund's transfer agent. Your letter must include:
. Your name and address;
. The fund's name;
. The fund account number;
. The dollar amount or number of shares you want to sell; and
. A guarantee of each registered owner's signature. A signature guarantee may
be obtained from a financial institution, broker, dealer or clearing agency
that is a participant in one of the medallion programs recognized by the
Securities Transfer Agents Association. These are: Securities Transfer
Agents Medallion Program (STAMP), Stock Exchanges Medallion Program (SEMP)
and the New York Stock Exchange Medallion Signature
-----------
- -------------------------------------------------------------------------------
Prospectus Page 23
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber U.S. Government Income Fund Low Duration U.S. Government Income Fund
Investment Grade Income Fund High Income Fund Strategic Income Fund
Program (MSP). The funds will not accept signature guarantees that are not a
part of these programs.
Mail the letter to:
PFPC Inc.
Attn.: PaineWebber Mutual Funds
P.O. Box 8950
Wilmington, DE 19899.
If you sell Class A shares and then repurchase Class A shares of the same fund
within 365 days of the sale, you can reinstate your account without paying a
sales charge.
It costs each fund money to maintain shareholder accounts. Therefore, the funds
reserve the right to repurchase all shares in any account that has a net asset
value of less than $500. If a fund elects to do this with your account, it will
notify you that you can increase the amount invested to $500 or more within 60
days. A fund will not repurchase shares in accounts that fall below $500 solely
because of a decrease in the fund's net asset value.
Exchanging Shares
You may exchange Class A, Class B or Class C shares of each fund for shares of
the same class of most other PaineWebber funds. You may not exchange Class Y
shares.
You will not pay either a front-end sales charge or a deferred sales charge
when you exchange shares. However, you may have to pay a deferred sales charge
if you later sell the shares you acquired in the exchange. Each fund will use
the date that you purchased the shares in the first fund to determine whether
you must pay a deferred sales charge when you sell the shares in the acquired
fund.
Other PaineWebber funds may have different minimum investment amounts. You may
not be able to exchange your shares if your exchange is not as large as the
minimum investment amount in that other fund.
You may exchange shares of one fund for shares of another fund only after the
first purchase has settled and the first fund has received your payment.
PaineWebber Clients. If you bought your shares through PaineWebber or a
correspondent firm, you may exchange your shares by placing an order with your
PaineWebber Financial Advisor.
Other Investors. If you are not a PaineWebber client, you may exchange your
shares by writing to the fund's transfer agent. You must include:
. Your name and address;
. The name of the fund whose shares you are selling and the name of the fund
whose shares you want to buy;
. Your account number;
. How much you are exchanging (by dollar amount or by number of shares to be
sold); and
. A guarantee of your signature. (See "Buying Shares" for information on
obtaining a signature guarantee.)
Mail the letter to:
PFPC Inc.
Attn.: PaineWebber Mutual Funds
P.O. Box 8950
Wilmington, DE 19899.
A fund may modify or terminate the exchange privilege at any time.
Pricing and Valuation
The price at which you may buy, sell or exchange fund shares is based on net
asset value per share. Each fund calculates net asset value on days that the
New York Stock Exchange is open. Each fund calculates net asset value
separately for each class as of the close of regular trading on the NYSE
(generally, 4:00 p.m., Eastern time). The NYSE normally is not open, and the
funds do not price their shares, on national holidays and on Good Friday. If
trading on the NYSE is halted for the day before 4:00 p.m., Eastern time, the
fund's net asset value per share will be calculated as of the time trading was
halted.
Your price for buying, selling or exchanging shares will be based on the net
asset value that is next calculated after the fund accepts your order. If you
place your order through PaineWebber, your PaineWebber Financial Advisor is
responsible for making sure that your order is promptly sent to the fund.
You should keep in mind that a front-end sales charge may be applied to your
purchase if you buy Class A
-----------
- --------------------------------------------------------------------------------
Prospectus Page 24
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber U.S. Government Income Fund Low Duration U.S. Government Income Fund
Investment Grade Income Fund High Income Fund Strategic Income Fund
shares. A deferred sales charge may be applied when you sell Class B or Class C
shares.
Each fund calculates its net asset value based on the current market value for
its portfolio securities. The funds normally obtain market values for their
securities from independent pricing services that use reported last sales
prices, current market quotations or valuations from computerized "matrix"
systems that derive values based on comparable securities. If a market value is
not available from an independent pricing source for a particular security,
that security is valued at a fair value determined by or under the direction of
the fund's board. The funds normally use the amortized cost method to value
bonds that will mature in 60 days or less.
Judgment plays a greater role in valuing thinly traded securities, including
many lower-rated bonds, because there is less reliable, objective data
available.
The funds calculate the U.S. dollar value of investments that are denominated
in foreign currencies daily, based on current exchange rates. A fund may own
securities, including some securities that trade primarily in foreign markets,
that trade on weekends or other days on which a fund does not calculate net
asset value. You will not be able to sell your shares on those days. If a fund
concludes that a material change in the value of a foreign security has
occurred after the close of trading in its principal foreign market but before
the close of regular trading on the NYSE, the fund may use fair value methods
to reflect those changes. Any use of fair value methods would be intended to
assure that the fund's net asset value fairly reflects security values as of
the time of pricing.
-----------
- --------------------------------------------------------------------------------
Prospectus Page 25
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber U.S. Government Income Fund Low Duration U.S. Government Income Fund
Investment Grade Income Fund High Income Fund Strategic Income Fund
Management
- --------------------------------------------------------------------------------
Investment Advisers
Mitchell Hutchins Asset Management Inc. is the investment adviser and
administrator of the funds. Mitchell Hutchins is located at 1285 Avenue of the
Americas, New York, New York, 10019, and is a wholly owned asset management
subsidiary of PaineWebber Incorporated, which is wholly owned by Paine Webber
Group Inc., a publicly owned financial services holding company. On February
28, 1999, Mitchell Hutchins was adviser or sub-adviser of 33 investment
companies with 75 separate portfolios and aggregate assets of approximately
$47.5 billion.
Pacific Investment Management Company ("PIMCO") is the sub-adviser for Low
Duration Fund. It is located at 840 Newport Center Drive, Suite 300, Newport
Beach, California 92660. On December 31, 1998, PIMCO had approximately $158
billion in assets under management and was adviser or sub-adviser of 19
investment companies with 55 portfolios and aggregate assets of approximately
$39.5 billion.
The funds have received an exemptive order from the SEC that permits their
boards to appoint and replace sub-advisers and to amend sub-advisory contracts
without obtaining shareholder approval. A fund's shareholders must approve this
policy before its board may implement it. As of the date of this prospectus,
the shareholders of none of the funds have done so.
Portfolio Managers
U.S. Government Income Fund. Nirmal Singh and Dennis L. McCauley are
responsible for the day-to-day management of U.S. Government Income Fund's
portfolio. Mr. Singh is a senior vice president of Mitchell Hutchins and has
served as a portfolio manager with Mitchell Hutchins since 1993. He has been a
portfolio manager for the fund since December 1994. Mr. McCauley is managing
director and chief investment officer of fixed income investments of Mitchell
Hutchins and has been a portfolio manager for the fund since March 1999.
Further information about Mr. McCauley's background may be found below under
"Strategic Income Fund."
Low Duration Fund. William C. Powers, Managing Director of PIMCO, is
responsible for the day-to-day management of Low Duration 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. Mr. Powers has been
a senior member of the fixed income portfolio management group of PIMCO since
1991.
Investment Grade Income Fund. James F. Keegan and Julieanna Berry are
responsible for the day-to-day management of Investment Grade Income Fund's
portfolio. Mr. Keegan is a senior vice president of Mitchell Hutchins. Prior to
joining Mitchell Hutchins in March 1996, Mr. Keegan was a director with Merrion
Group, L.P. Prior to 1994, he was a vice president of global investment
management of Bankers Trust Company. Mrs. Berry has held her responsibilities
with the fund since June 1995. Mrs. Berry is a first vice president of Mitchell
Hutchins, where she has been employed as a portfolio manager since 1989.
High Income Fund. 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. 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 bonds.
Strategic Income Fund. 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. Prior to joining Mitchell Hutchins, Mr.
McCauley worked for IBM Corporation, where he was director of fixed income
-----------
- --------------------------------------------------------------------------------
Prospectus Page 26
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber U.S. Government Income Fund Low Duration U.S. Government Income Fund
Investment Grade Income Fund High Income Fund Strategic Income Fund
investments. He was 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 also served as vice president of IBM
Credit Corporation's mutual funds and as a member of its retirement fund
investment committee.
Mr. Singh has been responsible for the U.S. government and investment grade
securities sector of Strategic Income Fund since December 1994. Mr. Keegan also
shares responsibility for the day-to-day management for the U.S. government and
investment grade securities sector of Strategic Income Fund. Mr. Libassi has
been the sector manager responsible for the day-to-day management of Strategic
Income Fund's U.S. high yield securities since May 1994. 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.
Advisory Fees
The funds paid advisory fees to Mitchell Hutchins for the most recent fiscal
year at the following rates based on average daily net assets:
<TABLE>
<S> <C>
U.S Government Income Fund................................................ 0.50%
Low Duration Fund......................................................... 0.50%
Investment Grade Income Fund.............................................. 0.50%
High Income Fund.......................................................... 0.50%
Strategic Income Fund..................................................... 0.75%
</TABLE>
-----------
- --------------------------------------------------------------------------------
Prospectus Page 27
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber U.S. Government Income Fund Low Duration U.S. Government Income Fund
Investment Grade Income Fund High Income Fund Strategic Income Fund
Dividends and Taxes
- --------------------------------------------------------------------------------
Dividends
Strategic Income Fund normally declares and pays dividends monthly. The other
funds normally declare dividends daily and pay them monthly. Each fund
distributes substantially all of its gains, if any, annually.
Classes with higher expenses are expected to have lower dividends. For example,
Class B shares are expected to have the lowest dividends of any class of a
fund's shares, while Class Y shares are expected to have the highest.
You will receive dividends in additional shares of the same class unless you
elect to receive them in cash. Contact your Financial Advisor at PaineWebber or
one of its corresponding firms if you prefer to receive dividends in cash.
Taxes
The dividends that you receive from a fund generally are subject to federal
income tax regardless of whether you receive them in additional fund shares or
in cash. If you hold fund shares through a tax-exempt account or plan, such as
an IRA or 401(k) plan, dividends on your shares generally will not be subject
to tax.
When you sell fund shares, you generally will be subject to federal income tax
on any gain you realize. If you exchange any fund's shares for shares of
another PaineWebber mutual fund, the transaction will be treated as a sale of
the first fund's shares, and any gain will be subject to federal income tax.
Each fund expects that its dividends will be taxed primarily as ordinary
income. The distribution of capital gains may be taxed at a lower rate than
ordinary income, depending on whether the fund held the assets that generated
the gains for more than 12 months. Your fund will tell you how you should treat
its dividends for tax purposes.
-----------
- --------------------------------------------------------------------------------
-----------
- --------------------------------------------------------------------------------
Prospectus Page 28
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber U.S. Government Income Fund Low Duration U.S. Government Income Fund
Investment Grade Income Fund High Income Fund Strategic Income Fund
Financial Highlights
- --------------------------------------------------------------------------------
The following financial highlights tables are intended to help you understand
the funds' financial performance for the past 5 years. Shorter periods are
shown for funds or classes of fund shares that have existed for less than 5
years. Certain information reflects financial results for a single fund share.
In the tables, "total investment return" represents the rate that an investor
would have earned (or lost) on an investment in a fund (assuming reinvestment
of all dividends).
The information in the financial highlights has been audited by Ernst & Young
LLP, independent auditors (or, for Strategic Income Fund,
PricewaterhouseCoopers LLP, independent accountants), whose reports, along with
the funds' financial statements, are included in the funds' Annual Reports to
Shareholders. Annual Reports may be obtained without charge by calling 1-800-
647-1568.
-----------
- --------------------------------------------------------------------------------
Prospectus Page 29
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber U.S. Government Income Fund
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. Government Income Fund
---------------------------------------------------------------------------------------------------
Class A Class B
--------------------------------------------------- ----------------------------------------------
For the Years Ended November 30, For the Years Ended November 30,
--------------------------------------------------- ----------------------------------------------
1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year...... $8.94 $ 8.86 $ 9.12 $ 8.50 $10.03 $ 8.94 $ 8.87 $ 9.12 $ 8.50 $ 10.03
-------- -------- -------- -------- -------- ------- ------- ------- ------- -------
Net investment income... 0.51 0.54 0.55 0.58 0.60 0.44 0.47 0.48 0.51 0.53
Net realized and
unrealized gains
(losses) from
investments, futures
and options............ 0.26 0.08 (0.26) 0.62 (1.53) 0.26 0.07 (0.25) 0.63 (1.53)
-------- -------- -------- -------- -------- ------- ------- ------- ------- -------
Net increase (decrease)
from investment
operations............. 0.77 0.62 0.29 1.20 (0.93) 0.70 0.54 0.23 1.14 (1.00)
-------- -------- -------- -------- -------- ------- ------- ------- ------- -------
Dividends from net
investment income...... (0.51) (0.54) (0.55) (0.58) (0.60) (0.44) (0.47) (0.48) (0.52) (0.53)
-------- -------- -------- -------- -------- ------- ------- ------- ------- -------
Net asset value, end of
year................... $9.20 $ 8.94 $ 8.86 $ 9.12 $ 8.50 $ 9.20 $ 8.94 $ 8.87 $ 9.12 $ 8.50
======== ======== ======== ======== ======== ======= ======= ======= ======= =======
Total investment
return(1).............. 9.06% 7.27% 3.39% 14.70% (9.62)% 8.16% 6.34% 2.72% 13.81% (10.31)%
======== ======== ======== ======== ======== ======= ======= ======= ======= =======
Ratios/Supplemental
data:
Net assets, end of year
(000's)................ $278,483 $291,470 $343,836 $430,285 $428,722 $23,318 $42,097 $61,873 $82,469 $99,581
Expenses to average net
assets................. 1.03% 0.94% 0.94% 1.03%(2) 0.95% 1.83% 1.69% 1.70% 1.81%(2) 1.72%
Net investment income to
average net assets..... 5.69% 6.15% 6.24% 6.65%(2) 6.48% 4.87% 5.40% 5.47% 5.88%(2) 5.71%
Portfolio turnover
rate................... 370% 322% 359% 206% 358% 370% 322% 359% 206% 358%
</TABLE>
- -------
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each year reported, reinvestment of all dividends at net asset
value on the payable dates and a sale at net asset value on the last day of
each year reported. The figures do not include sales charges; results would
be lower if sales charges were included.
(2) These ratios include non-recurring reorganization expenses of 0.03%.
-----------
- --------------------------------------------------------------------------------
Prospectus Page 30
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber U.S. Government Income Fund
Financial Highlights
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. Government Income Fund
- -------------------------------------------------------------------------------------------
Class C Class Y
- ---------------------------------------------- ------------------------------------------
For the Years Ended November 30, For the Years Ended November 30,
- ---------------------------------------------- ------------------------------------------
1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
- ------- ------- ------- ------- ------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 8.93 $ 8.86 $ 9.11 $ 8.49 $ 10.02 $ 8.93 $ 8.86 $ 9.11 $ 8.49 $10.02
- ------- ------- ------- ------- ------- ------- ------ ------ ------ ------
0.47 0.49 0.50 0.53 0.55 0.54 0.56 0.57 0.61 0.62
0.26 0.07 (0.25) 0.63 (1.53) 0.26 0.07 (0.25) 0.62 (1.53)
- ------- ------- ------- ------- ------- ------- ------ ------ ------ ------
0.73 0.56 0.25 1.16 (0.98) 0.80 0.63 0.32 1.23 (0.91)
- ------- ------- ------- ------- ------- ------- ------ ------ ------ ------
(0.47) (0.49) (0.50) (0.54) (0.55) (0.54) (0.56) (0.57) (0.61) (0.62)
- ------- ------- ------- ------- ------- ------- ------ ------ ------ ------
$ 9.19 $ 8.93 $ 8.86 $ 9.11 $ 8.49 $ 9.19 $ 8.93 $ 8.86 $ 9.11 $ 8.49
======= ======= ======= ======= ======= ======= ====== ====== ====== ======
8.50% 6.62% 2.98% 14.12% (10.08)% 9.41% 7.43% 3.81% 15.06% (9.37)%
======= ======= ======= ======= ======= ======= ====== ====== ====== ======
$25,076 $28,132 $37,754 $53,832 $68,400 $11,547 $6,816 $6,495 $7,957 $4,955
1.54% 1.44% 1.45% 1.55%(2) 1.45% 0.71% 0.67% 0.64% 0.71%(2) 0.65%
5.17% 5.66% 5.74% 6.17%(2) 5.99% 5.99% 6.41% 6.53% 6.96%(2) 6.76%
370% 322% 359% 206% 358% 370% 322% 359% 206% 358%
</TABLE>
-----------
- --------------------------------------------------------------------------------
Prospectus Page 31
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Low Duration U.S. Government Income Fund
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Low Duration U.S. Government Income Fund
-------------------------------------------------------------------------------------------
Class A Class B
---------------------------------------------- ----------------------------------------
For the Years Ended November 30, For the Years Ended November 30,
---------------------------------------------- ----------------------------------------
1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
------- ------- ------- -------- -------- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $2.37 $ 2.35 $ 2.34 $ 2.25 $ 2.48 $ 2.37 $ 2.35 $ 2.34 $ 2.25 $ 2.48
------- ------- ------- -------- -------- ------ ------ ------ ------ -------
Net investment income... 0.13 0.13 0.14 0.13 0.12 0.11 0.11 0.12 0.11 0.10
Net realized and
unrealized gains
(losses) from
investments, futures
and options............ 0.01 0.02 0.01 0.09 (0.29) 0.01 0.02 0.01 0.09 (0.29)
------- ------- ------- -------- -------- ------ ------ ------ ------ -------
Net increase (decrease)
from operations........ 0.14 0.15 0.15 0.22 (0.17) 0.12 0.13 0.13 0.20 (0.19)
------- ------- ------- -------- -------- ------ ------ ------ ------ -------
Dividends from net
investment income...... (0.13) (0.13) (0.14) (0.13) (0.12) (0.11) (0.11) (0.12) (0.11) (0.10)
------- ------- ------- -------- -------- ------ ------ ------ ------ -------
Contribution to capital
from adviser........... -- -- -- -- 0.06 -- -- -- -- 0.06
------- ------- ------- -------- -------- ------ ------ ------ ------ -------
Net asset value, end of
period................. $ 2.38 $ 2.37 $ 2.35 $ 2.34 $ 2.25 $ 2.38 $ 2.37 $ 2.35 $ 2.34 $ 2.25
======= ======= ======= ======== ======== ====== ====== ====== ====== =======
Total investment
return(1).............. 6.11% 6.67% 6.46% 10.25% (4.50)%++ 5.24% 5.81% 5.60% 9.30% (5.24)%++
======= ======= ======= ======== ======== ====== ====== ====== ====== =======
Ratios/Supplemental
data:
Net assets, end of year
(000's)................ $63,606 $33,648 $71,216 $127,961 $158,712 $7,670 $6,949 $7,716 $9,147 $13,382
Expenses to average net
assets(2).............. 1.07%+ 1.04% 1.21% 1.15% 0.84% 1.91%+ 1.87% 2.03% 2.02% 1.62%
Net investment income to
average net assets(2).. 5.37%+ 5.72% 5.84% 5.89% 5.16% 4.58%+ 4.80% 4.99% 5.03% 4.40%
Portfolio turnover
rate................... 411% 359% 210% 242% 246% 411% 359% 210% 242% 246%
</TABLE>
- ---------
# Commencement of issuance of shares
* Annualized
+ Includes 0.13% of interest expense related to the reverse repurchase
agreement transactions entered into during the year.
++ Net of $0.06 contribution of capital from adviser. If such contribution had
not been made the total investment returns would have been (7.02)% for
Class A, (7.74)% for Class B and (7.50)% for Class C.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each year reported, reinvestment of all dividends at net asset
value on the payable dates and a sale at net asset value on the last day of
each year reported. The figures do not include sales charges; results would
be lower if sales charges were included. Total investment return for
periods of less than one year has not been annualized.
(2) During the year ended November 30, 1994 Mitchell Hutchins waived a portion
of its advisory and administration fees. If such waivers had not been made
the annualized ratios of expenses to average net assets, and net investment
income to average net assets, respectively, would have been 0.88% and 5.12%
for Class A, 1.66% and 4.35% for Class B, and 1.39% and 4.61% for Class C.
-----------
- --------------------------------------------------------------------------------
Prospectus Page 32
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Low Duration U.S. Government Income Fund
Financial Highlights
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Low Duration U.S. Government Income Fund
- ----------------------------------------------------------------------------------------------
Class C Class Y
- ----------------------------------------------- ------------------------------------------
For the
For the Years Period
For the Years Ended November 30, Ended November 30, October 20, 1995#
- ----------------------------------------------- ----------------------- to November 30,
1998 1997 1996 1995 1994 1998 1997 1996 1995
- ------- ------- -------- -------- -------- ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 2.37 $ 2.35 $ 2.34 $ 2.25 $ 2.47 $ 2.37 $ 2.35 $ 2.34 $ 2.33
- ------- ------- -------- -------- -------- ------ ------ ------ ------
0.12 0.12 0.12 0.12 0.11 0.14 0.14 0.14 0.01
0.01 0.02 0.01 0.09 (0.28) 0.01 0.02 0.01 0.01
- ------- ------- -------- -------- -------- ------ ------ ------ ------
0.13 0.14 0.13 0.21 (0.17) 0.15 0.16 0.15 0.02
- ------- ------- -------- -------- -------- ------ ------ ------ ------
(0.12) (0.12) (0.12) (0.12) (0.11) (0.14) (0.14) (0.14) (0.01)
- ------- ------- -------- -------- -------- ------ ------ ------ ------
-- -- -- -- 0.06 -- -- -- --
- ------- ------- -------- -------- -------- ------ ------ ------ ------
$ 2.38 $ 2.37 $ 2.35 $ 2.34 $ 2.25 $ 2.38 $ 2.37 $ 2.35 $2.34
======= ======= ======== ======== ======== ====== ====== ====== ======
5.46% 6.05% 5.82% 9.60% (4.99)%++ 6.37% 6.87% 6.64% 0.83%
======= ======= ======== ======== ======== ====== ====== ====== ======
$78,923 $91,700 $123,203 $180,169 $296,182 $1,810 $352 $ 333 $ 321
1.72%+ 1.64% 1.80% 1.75% 1.36% 0.79%+ 0.86% 0.99% 0.99%*
4.78%+ 5.05% 5.22% 5.31% 4.65% 5.60%+ 5.82% 6.00% 5.87%*
411% 359% 210% 242% 246% 411% 359% 210% 242%
</TABLE>
-----------
- --------------------------------------------------------------------------------
Prospectus Page 33
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Investment Grade Income Fund
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment Grade Income Fund
------------------------------------------------
Class A
------------------------------------------------
For the Years Ended November 30,
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $10.85 $10.59 $10.68 $ 9.67 $11.08
-------- -------- -------- -------- --------
Net investment income........ 0.74 0.74 0.73 0.76 0.77
Net realized and unrealized
gains (losses) from
investments, futures and
options..................... (0.06) 0.26 (0.09) 1.01 (1.41)
-------- -------- -------- -------- --------
Net increase (decrease) from
investment operations....... 0.68 1.00 0.64 1.77 (0.64)
-------- -------- -------- -------- --------
Dividends from net investment
income...................... (0.74) (0.74) (0.73) (0.76) (0.77)
-------- -------- -------- -------- --------
Net asset value, end of
period...................... $10.79 $10.85 $10.59 $10.68 $ 9.67
======== ======== ======== ======== ========
Total investment return(1)... 6.37% 9.88% 6.33% 18.95% (5.99)%
======== ======== ======== ======== ========
Ratios/Supplemental data:
Net assets, end of period
(000's)..................... $216,402 $212,472 $229,117 $258,898 $271,553
Expenses to average net
assets...................... 0.93% 1.03% 0.94% 0.95% 0.97%
Net investment income to
average net assets.......... 6.56% 7.07% 7.02% 7.42% 7.50%
Portfolio turnover rate...... 173% 109% 115% 149% 142%
</TABLE>
- ---------
+ Commencement of issuance of shares.
* Annualized.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period, reinvestment of all dividends at net asset value
on the payable dates and a sale at net asset value on the last day of each
period reported. The figures do not include sales charges; results would be
lower if sales charges were included. Total investment return for periods
of less than one year has not been annualized.
-----------
- --------------------------------------------------------------------------------
Prospectus Page 34
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Investment Grade Income Fund
Financial Highlights
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment Grade Income Fund
- ----------------------------------------------------------------------------------------------------------
Class B Class C Class Y
- ------------------------------------------- ------------------------------------------- --------------
For the Period
February 18,
For the Years Ended November 30, For the Years Ended November 30, 1998+ through
- ------------------------------------------- ------------------------------------------- November 30,
1998 1997 1996 1995 1994 1998 1997 1996 1995 1994 1998
- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$10.85 $10.58 $10.67 $ 9.67 $11.07 $10.85 $10.59 $10.68 $ 9.67 $11.08 $10.99
- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------
0.65 0.66 0.65 0.68 0.69 0.68 0.69 0.68 0.70 0.72 0.57
(0.06) 0.27 (0.09) 1.00 (1.40) (0.06) 0.26 (0.09) 1.01 (1.41) (0.19)
- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------
0.59 0.93 0.56 1.68 (0.71) 0.62 0.95 0.59 1.71 (0.69) 0.38
- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------
(0.65) (0.66) (0.65) (0.68) (0.69) (0.68) (0.69) (0.68) (0.70) (0.72) (0.57)
- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------
$10.79 $10.85 $10.58 $10.67 $ 9.67 $10.79 $10.85 $10.59 $10.68 $ 9.67 $10.80
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======
5.56% 9.17% 5.54% 17.97% (6.60)% 5.84% 9.34% 5.80% 18.37% (6.40)% 3.51%
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======
$41,124 $44,829 $58,364 $71,372 $69,359 $34,457 $29,204 $32,337 $39,150 $45,473 $2,682
1.69% 1.78% 1.68% 1.70% 1.72% 1.42% 1.53% 1.44% 1.45% 1.45% 0.62%*
5.79% 6.31% 6.27% 6.67% 6.73% 6.04% 6.57% 6.51% 6.95% 6.99% 6.71%*
173% 109% 115% 149% 142% 173% 109% 115% 149% 142% 173%
</TABLE>
-----------
- --------------------------------------------------------------------------------
Prospectus Page 35
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber High Income Fund
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
High Income Fund
-------------------------------------------------
Class A
-------------------------------------------------
For the Years Ended November 30,
-------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................ $ 7.63 $ 7.35 $ 6.96 $ 7.14 $ 8.73
-------- -------- -------- -------- --------
Net investment income..... 0.67 0.69 0.72 0.79 0.86
Net realized and
unrealized gains (losses)
from investments......... (0.99) 0.27 0.37 (0.17) (1.59)
-------- -------- -------- -------- --------
Net increase (decrease)
from investment
operations............... (0.32) 0.96 1.09 0.62 (0.73)
-------- -------- -------- -------- --------
Dividends from net
investment income........ (0.65) (0.68) (0.70) (0.80) (0.86)
-------- -------- -------- -------- --------
Net asset value, end of
period................... $ 6.66 $ 7.63 $ 7.35 $ 6.96 $ 7.14
======== ======== ======== ======== ========
Total investment
return(1)................ (4.46)% 13.59% 16.55% 9.01% (9.20)%
======== ======== ======== ======== ========
Ratios/Supplemental data:
Net assets, end of period
(000's).................. $258,559 $272,325 $243,564 $248,619 $268,397
Expenses to average net
assets................... 0.91% 0.98% 0.96% 0.93% 0.91%
Net investment income to
average net assets....... 9.10% 9.21% 10.10% 11.17% 10.43%
Portfolio turnover rate... 161% 160% 142% 94% 156%
</TABLE>
- -------
* Annualized
+ Commencement of issuance of shares
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period, reinvestment of all dividends at net asset value
on the payable dates and a sale at net asset value on the last day of each
period reported. The figures do not include sales charges; results would be
lower if sales charges were included. Total investment return for a period
of less than one year has not been annualized.
-----------
- --------------------------------------------------------------------------------
Prospectus Page 36
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber High Income Fund
Financial Highlights
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
High Income Fund
- -------------------------------------------------------------------------------------------------------------------
Class B Class C Class Y
- ------------------------------------------------- ----------------------------------------------- -------------
For the
Period
February 20,
For the Years Ended November 30, For the Years Ended November 30, 1998+ through
- ------------------------------------------------- ----------------------------------------------- November 30,
1998 1997 1996 1995 1994 1998 1997 1996 1995 1994 1998
- -------- -------- -------- -------- -------- ------- -------- ------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 7.63 $ 7.35 $ 6.95 $ 7.14 $ 8.72 $ 7.64 $ 7.36 $ 6.97 $ 7.15 $ 8.74 $ 7.79
- -------- -------- -------- -------- -------- ------- -------- ------- -------- -------- ------
0.63 0.63 0.66 0.74 0.80 0.64 0.65 0.68 0.76 0.82 0.53
(1.01) 0.27 0.39 (0.18) (1.58) (0.99) 0.27 0.38 (0.18) (1.59) (1.14)
- -------- -------- -------- -------- -------- ------- -------- ------- -------- -------- ------
(0.38) 0.90 1.05 0.56 (0.78) (0.35) 0.92 1.06 0.58 (0.77) (0.61)
- -------- -------- -------- -------- -------- ------- -------- ------- -------- -------- ------
(0.60) (0.62) (0.65) (0.75) (0.80) (0.62) (0.64) (0.67) (0.76) (0.82) (0.53)
- -------- -------- -------- -------- -------- ------- -------- ------- -------- -------- ------
$ 6.65 $ 7.63 $ 7.35 $ 6.95 $ 7.14 $ 6.67 $ 7.64 $ 7.36 $ 6.97 $ 7.15 $ 6.65
======== ======== ======== ======== ======== ======= ======== ======= ======== ======== ======
(5.32)% 12.76% 15.86% 8.05% (9.77)% (4.92)% 13.03% 15.96% 8.45% (9.62)% (8.43)%
======== ======== ======== ======== ======== ======= ======== ======= ======== ======== ======
$176,997 $236,656 $215,492 $212,946 $235,480 $98,982 $115,757 $94,445 $103,911 $115,196 $2,633
1.66% 1.73% 1.71% 1.68% 1.64% 1.41% 1.48% 1.47% 1.44% 1.38% 0.63%*
8.30% 8.45% 9.34% 10.42% 9.66% 8.58% 8.66% 9.60% 10.63% 9.91% 9.78%*
161% 160% 142% 94% 156% 161% 160% 142% 94% 156% 161%
</TABLE>
-----------
- --------------------------------------------------------------------------------
Prospectus Page 37
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Strategic Income Fund
Financial Highlights
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Strategic Income Fund
----------------------------------------------------------------
Class A
----------------------------------------------------------------
For the For the Period For the Period
Years Ended February 1, 1996 For the February 7, 1994+
November 30, through Year Ended through
---------------- November 30, January 31, January 31,
1998 1997 1996 1996 1995
------- ------- ---------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 9.60 $ 9.37 $ 8.99 $ 8.60 $ 10.00
------- ------- ------ ------ -------
Net investment income... 0.64 0.74 0.57 0.67 0.74
Net realized and
unrealized gains
(losses)
from investments and
purchased options,
foreign currency,
futures contracts and
written options........ (0.48) 0.17 0.39 0.59 (1.49)
------- ------- ------ ------ -------
Net increase (decrease)
from investment
operations............. 0.16 0.91 0.96 1.26 (0.75)
------- ------- ------ ------ -------
Dividends from net
investment income...... (0.70) (0.68) (0.58) (0.77) (0.65)
Distributions from net
realized gains
from foreign currency
transactions........... -- -- -- (0.10) --
------- ------- ------ ------ -------
Total dividends and
distributions to
shareholders........... (0.70) (0.68) (0.58) (0.87) (0.65)
------- ------- ------ ------ -------
Net asset value, end of
period................. $ 9.06 $ 9.60 $ 9.37 $ 8.99 $ 8.60
======= ======= ====== ====== =======
Total investment return
(1).................... 1.65% 10.04% 11.14% 15.27% (7.61)%
======= ======= ====== ====== =======
Ratios/Supplemental
data:
Net assets, end of
period (000's)......... $35,778 $20,909 $9,944 $9,841 $11,148
Expenses to average net
assets (2)............. 1.34% 1.65% 1.89%* 1.74% 1.49%*
Net investment income to
average net assets
(2).................... 6.97% 7.35% 7.69%* 8.52% 8.06%*
Portfolio turnover
rate................... 192% 140% 101% 91% 117%
</TABLE>
- -------
+ Commencement of operations
* Annualized
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends at net
asset value on the payable dates and a sale at net asset value on the last
day of each period reported. The figures do not include sales charges;
results would be lower if sales charges were included. Total investment
return for periods of less than one year has not been annualized.
(2) During the year ended November 30, 1997 Mitchell Hutchins waived a portion
of its advisory and administration fees. If such waivers had not been made
the annualized ratios of expenses to average net assets, and net investment
income to average net assets, respectively, would have been 1.66% and 7.34%
for Class A, 2.45% and 6.54% for Class B and 2.18% and 6.81% for Class C
shares.
-----------
- --------------------------------------------------------------------------------
Prospectus Page 38
<PAGE>
- --------------------------------------------------------------------------------
-------------------
PaineWebber Strategic Income Fund
Financial Highlights
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Strategic Income Fund
- -------------------------------------------------------------------------------------------------------------------------
Class B Class C
- ---------------------------------------------------------------------- --------------------------------------------------
For the Period For the Period For the Period
For the Years Ended February 1, 1996 For the February 7, 1994+ For the Years Ended February 1, 1996 For the
November 30, through Year Ended through November 30, through Year Ended
- ---------------------- November 30, January 31, January 31, -------------------- November 30, January 31,
1998 1997 1996 1996 1995 1998 1997 1996 1996
- ---------- ---------- ---------------- ----------- ----------------- --------- --------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 9.59 $ 9.36 $ 8.98 $ 8.60 $ 10.00 $ 9.59 $ 9.37 $ 8.98 $ 8.60
- ---------- ---------- ------- ------- ------- --------- --------- ------- -------
0.56 0.67 0.51 0.60 0.66 0.59 0.70 0.53 0.62
(0.47) 0.16 0.39 0.59 (1.47) (0.48) 0.15 0.40 0.59
- ---------- ---------- ------- ------- ------- --------- --------- ------- -------
0.09 0.83 0.90 1.19 (0.81) 0.11 0.85 0.93 1.21
- ---------- ---------- ------- ------- ------- --------- --------- ------- -------
(0.63) (0.60) (0.52) (0.71) (0.59) (0.65) (0.63) (0.54) (0.73)
-- -- -- (0.10) -- -- -- -- (0.10)
- ---------- ---------- ------- ------- ------- --------- --------- ------- -------
(0.63) (0.60) (0.52) (0.81) (0.59) (0.65) (0.63) (0.54) (0.83)
- ---------- ---------- ------- ------- ------- --------- --------- ------- -------
$ 9.05 $ 9.59 $ 9.36 $ 8.98 $ 8.60 $ 9.05 $ 9.59 $ 9.37 $ 8.98
========== ========== ======= ======= ======= ========= ========= ======= =======
0.87% 9.20% 10.46% 14.37% (8.22)% 1.14% 9.37% 10.80% 14.63%
========== ========== ======= ======= ======= ========= ========= ======= =======
$ 45,217 $ 41,650 $37,249 $40,653 $40,710 $ 30,133 $ 23,117 $17,101 $19,232
2.12% 2.43% 2.63%* 2.49% 2.24%* 1.86% 2.17% 2.38%* 2.24%
5.98% 6.56% 6.93%* 7.77% 7.46%* 6.24% 6.82% 7.19%* 8.03%
192% 140% 101% 91% 117% 192% 140% 101% 91%
<CAPTION>
Strategic Income Fund
- ---------------------------------------------------
Class C Class Y
- ----------------- -------------------------------
For the Period For the Period
February 7, 1994+ February 17, 1998+
through through
January 31, November 30,
1995 1998
- ----------------- ------------------
<S> <C>
$ 10.00 $ 9.72
- ----------------- ------------------
0.69 0.56
(1.48) (0.66)
- ----------------- ------------------
(0.79) (0.10)
- ----------------- ------------------
(0.61) (0.57)
-- --
- ----------------- ------------------
(0.61) (0.57)
- ----------------- ------------------
$ 8.60 $ 9.05
================= ==================
(8.02)% (1.04)%
================= ==================
$21,208 $ 779
1.98%* 1.07%*
7.62%* 7.26%*
117% 192%
</TABLE>
-----------
- --------------------------------------------------------------------------------
Prospectus Page 39
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------
-------------------
<S> <C> <C>
PaineWebber U.S. Government Income Fund Low Duration U.S. Government Income Fund
Investment Grade Income Fund High Income Fund Strategic Income Fund
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Ticker Symbol: U.S. Government Income Class: A: PUGAX.Q High Income Class: A: PHIAX.Q
B: PUGBX.Q B: PHIBX.Q
C: PWGOX.Q C: PWHDX.Q
Y: None Y: None
Low Duration Income Class: A: PSUAX.Q Strategic Income Class: A: PWSAX.Q
B: PSGBX.Q B: PWSBX.Q
C: PSGDX.Q C: PWSDX.Q
Y: None Y: None
Investment Grade Income Class: A: PIGAX.Q
B: PIGBX.Q
C: PIUDX.Q
Y: None
</TABLE>
If you want more information about the funds, the following documents are
available free upon request:
Annual/Semi-Annual Reports
Additional information about the funds' investments is available in the funds'
annual and semi-annual reports to shareholders. In the funds' annual reports,
you will find a discussion of the market conditions and investment strategies
that significantly affected the funds' performance during the last fiscal year.
Statement of Additional Information (SAI):
The SAI provides more detailed information about the funds and is incorporated
by reference into this prospectus.
You may discuss your questions about the funds by contacting your PaineWebber
Financial Advisor. You may obtain free copies of annual and semi-annual reports
and the SAI by contacting the funds directly at 1-800-647-1568.
You may review and copy information about the funds, including shareholder
reports and the SAI, at the Public Reference Room of the Securities and
Exchange Commission. You can get text-only copies of reports and other
information about the funds:
.For a fee, by writing to or calling the SEC's Public Reference Room,
Washington, D.C. 20549-6009
Telephone: 1-800-SEC-0330
.Free, from the SEC's Internet website at: http://www.sec.gov
Investment Company Act File Nos.
PaineWebber Managed Investments Trust--811-4040
PaineWebber Securities Trust--811-7374
-----------
- --------------------------------------------------------------------------------
