PAINEWEBBER INVESTMENT SERIES, 497, 1995-03-07

PAINEWEBBER INVESTMENT SERIES
497, 1995-03-07

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<PAGE>

PAINEWEBBER PAINEWEBBER GLOBAL
EUROPE GROWTH FUND GROWTH AND INCOME FUND

PAINEWEBBER GLOBAL
ENERGY FUND

1285 Avenue of the Americas
New York, New York 10019

. Professional Management These Funds are series of
PaineWebber Investment Series
("Trust"). This Prospectus concisely
sets forth information about the
Funds a prospective investor should
know before investing. Please retain
this Prospectus for future refer-
ence. A Statement of Additional In-
formation dated March 1, 1995 (which
is incorporated by reference herein)
has been filed with the Securities
and Exchange Commission. The State-
ment of Additional Information can
be obtained without charge, and
further inquiries can be made, by
contacting the Funds, your
PaineWebber investment executive or
PaineWebber's correspondent firms or
by calling toll-free 1-800-647-1568.

. Dividend and Capital Gain
Reinvestment

. Flexible Pricing SM

. Low Minimum Investment

. Automatic Investment Plan

. Systematic Withdrawal Plan

. Exchange Privileges

. Suitable for Retirement Plans

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

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

PROSPECTIVE WISCONSIN INVESTORS SHOULD NOTE THAT EACH FUND MAY INVEST UP
TO 10% OF ITS NET ASSETS IN RESTRICTED SECURITIES (OTHER THAN RULE 144A
SECURITIES DETERMINED TO BE LIQUID BY THE TRUST'S BOARD OF TRUSTEES).
INVESTMENT IN RESTRICTED SECURITIES (OTHER THAN SUCH RULE 144A SECU-
RITIES) IN EXCESS OF 5% OF A FUND'S TOTAL ASSETS MAY BE CONSIDERED A
SPECULATIVE ACTIVITY AND MAY RESULT IN GREATER RISK AND INCREASED
FUND EXPENSES.

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

The date of this Prospectus is March 1, 1995.

PaineWebber Mutual Funds
<PAGE>

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

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

PROSPECTUS SUMMARY

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

<TABLE>
<CAPTION>
<C> <S>
The Funds: This Prospectus describes three separate series (each a "Fund")
of an open-end, management investment company. Each Fund has its
own investment objective and policies.
Investment Objectives
and Policies:
PaineWebber Europe A diversified Fund seeking long-term capital appreciation;
Growth Fund ("Europe invests principally in equity securities of issuers based in
Growth Fund") Europe.
PaineWebber Global A non-diversified Fund seeking high total return; invests in
Growth and Income Fund equity, debt and money market securities of issuers based
("Global Growth and In- primarily in the U.S., Europe, Japan and the Pacific Basin.
come Fund")
PaineWebber Global A diversified Fund seeking to achieve high total return by
Energy Fund ("Global investing principally in securities of foreign and domestic
Energy Fund") energy and energy service companies.
Total Net Assets at
January 31, 1995:
</TABLE>

<TABLE>
<S> <C> <C>
Europe Growth Fund $108.6 million Global Growth Global Energy Fund
and Income Fund $23.0 million
$85.8 million
</TABLE>

<TABLE>
<C> <S>
Investment Adviser: Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"), an asset management subsidiary of
PaineWebber Incorporated ("PaineWebber"), manages
approximately $39.3 billion in assets. See
"Management."
Purchases: Shares of beneficial interest are available
exclusively through PaineWebber and its
correspondent firms for investors who are clients of
PaineWebber or those firms ("PaineWebber clients")
and, for other investors, through PFPC Inc., the
Funds' transfer agent ("Transfer Agent").
</TABLE>

2
<PAGE>

<TABLE>
<C> <S>
Flexible Pricing System: Investors may select Class A, Class B or Class D
shares, each with a public offering price that
reflects different sales charges and expense
levels. See "Flexible Pricing System," "Purchases,"
"Redemptions" and "Conversion of Class B Shares."
Class A Shares Offered at net asset value plus any applicable
sales charge (maximum is 4.5% of public offering
price).
Class B Shares Offered at net asset value (a maximum contingent
deferred sales charge of 5% of redemption proceeds
is imposed on certain redemptions made within six
years of date of purchase). Class B shares
automatically convert into Class A shares (which
pay lower ongoing expenses) approximately six years
after purchase.
Class D Shares Offered at net asset value without an initial or
contingent deferred sales charge. Class D shares
pay higher ongoing expenses than Class A shares and
do not convert into another Class.
Exchanges: Shares may be exchanged for shares of the
corresponding Class of most PaineWebber mutual
funds.
Redemptions: PaineWebber clients may redeem through PaineWebber;
other shareholders must redeem through the Transfer
Agent.
Dividends: Declared and paid annually; net capital gain is
distributed annually. See "Dividends and Taxes."
Reinvestment: All dividends and capital gain distributions are
paid in Fund shares of the same Class at net asset
value unless the shareholder has requested cash.
Minimum Purchase: $1,000 for first purchase; $100 for subsequent
purchases.
</TABLE>

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

Class B Shares Automatic investment plan
Systematic withdrawal plan

Class D Shares Automatic investment plan
Systematic withdrawal plan

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

3
<PAGE>

EUROPE GROWTH FUND. Investing principally in equity securities of issuers
based in Europe, Europe Growth Fund is designed for investors seeking long-
term capital appreciation.

GLOBAL GROWTH AND INCOME FUND. Investing in equity, debt and money market
securities of issuers based primarily in the United States, Europe, Japan
and the Pacific Basin, Global Growth and Income Fund is designed for invest-
ors seeking the benefits of the Fund's flexibility to commit its assets to
the countries and categories of assets that, in the opinion of Mitchell
Hutchins, offer the greatest potential for high total return.

GLOBAL ENERGY FUND. Investing principally in equity and debt securities of
foreign and domestic energy and energy service companies, Global Energy Fund
is designed for investors seeking high total return potential through the
investment of a portion of their assets in the energy and energy service in-
dustries.

RISK FACTORS. Investors in the Funds should be able to assume the special
risks of investing in foreign securities, which include possible adverse polit-
ical, social and economic developments abroad and differing characteristics of
foreign economies and markets. There is often less information publicly avail-
able about foreign issuers. These risks are greater with respect to securities
of issuers located in emerging market countries, in which each Fund is autho-
rized to invest. Most of the foreign securities held by the Funds are denomi-
nated in foreign currencies, and the value of these investments thus can be ad-
versely affected by fluctuations in foreign currency values. Some foreign cur-
rencies can be volatile and may be subject to governmental controls or inter-
vention. Prospective investors are urged to read "Investment Objectives and
Policies" for more complete information about risk factors.

There can be no assurance that any Fund will achieve its investment objec-
tive, and each Fund's net asset value will fluctuate based upon changes in the
value of its portfolio securities.

Certain investment grade debt securities in which the Funds may invest have
speculative characteristics. Global Growth and Income Fund and Global Energy
Fund are permitted to purchase debt securities rated lower than investment
grade by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Ratings
Group ("S&P") or another nationally recognized statistical rating organization
("NRSRO") or, if not so rated, determined by Mitchell Hutchins to be of compa-
rable quality. Such securities are subject to greater risks of default or price
fluctuation than investment grade securities and are considered predominantly
speculative. The use of options, futures contracts and forward currency con-
tracts also entails special risks.

As a non-diversified Fund, Global Growth and Income Fund is subject to
greater risk with respect to its portfolio securities than investment companies
that have a broader range of investments, because changes in the financial con-
dition or market assessment of a single issuer may cause greater fluctuation in
the Fund's total return and the price of its shares. Global Energy Fund's pol-
icy of concentrating its investments in the energy and energy service indus-
tries may cause the value of its shares to fluctuate more than if it invested
in a greater number of industries. In particular, its shares will be affected
by economic, competitive and regulatory developments in those industries, in-
cluding changes in the price and supply of different energy fuels.

4
<PAGE>

EXPENSES OF INVESTING IN THE FUNDS. The following tables are intended to as-
sist investors in understanding the expenses associated with investing in each
Fund.

SHAREHOLDER TRANSACTION EXPENSES(1)

<TABLE>
<CAPTION>
EUROPE GLOBAL GROWTH AND GLOBAL
GROWTH FUND INCOME FUND ENERGY FUND
----------------- ----------------- -----------------
CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS
A B D A B D A B D
----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum sales charge on
purchases of shares (as
a percentage of public
offering price)......... 4.5% None None 4.5% None None 4.5% None None
Sales charge on rein-
vested dividends........ None None None None None None None None None
Exchange fee............. $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00
Maximum contingent
deferred sales charge
(as a percentage of
redemption proceeds).... None 5% None None 5% None None 5% None
</TABLE>

ANNUAL FUND OPERATING EXPENSES(2)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)

<TABLE>
<CAPTION>
GLOBAL
EUROPE GROWTH AND GLOBAL
GROWTH FUND INCOME FUND ENERGY FUND
------------------- ------------------- -------------------
CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS
A B D A B D A B D
----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees.......... 0.85% 0.85% 0.85% 0.90% 0.90% 0.90% 0.85% 0.85% 0.85%
12b-1 fees(3)............ 0.25 1.00 1.00 0.25 1.00 1.00 0.25 1.00 1.00
Other expenses........... 0.55 0.55 0.54 0.61 0.64 0.65 0.89 0.97 0.89
---- ---- ---- ---- ---- ---- ---- ---- ----
Total operating expenses. 1.65% 2.40% 2.39% 1.76% 2.54% 2.55% 1.99% 2.82% 2.74%
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
- -------
(1) Sales charge waivers are available for Class A and Class B shares, re-
duced sales charge purchase plans are available for Class A shares and exchange
fee waivers are available for all three Classes. The maximum 5% contingent de-
ferred sales charge on Class B shares applies to redemptions during the first
year after purchase; the charge generally declines by 1% annually thereafter,
reaching zero after six years. See "Purchases."

(2) See "Management" for additional information. The management fees paid to
Mitchell Hutchins are greater than the management fees paid by most funds. All
expenses are those actually incurred for the fiscal year ended October 31,
1994.

(3) 12b-1 fees have two components, as follows:

5
<PAGE>

12b-1 distribution fees are asset-based sales charges. Long-term Class B and
Class D shareholders may pay more in direct and indirect sales charges (includ-
ing distribution fees) than the economic equivalent of the maximum front-end
sales charge permitted by the National Association of Securities Dealers, Inc.

EXAMPLE OF EFFECT OF FUND EXPENSES

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

<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
EUROPE GROWTH FUND
Class A Shares(1)..................................... $61 $ 95 $131 $232
Class B Shares:
Assuming a complete redemption at end of peri-
od(2)(3)........................................... $74 $105 $148 $238
Assuming no redemption(3)........................... $24 $ 75 $128 $238
Class D Shares........................................ $24 $ 75 $128 $273
GLOBAL GROWTH AND INCOME FUND
Class A Shares (1).................................... $62 $ 98 $136 $243
Class B Shares:
Assuming a complete redemption at end of peri-
od(2)(3)........................................... $76 $109 $155 $251
Assuming no redemption(3)........................... $26 $ 79 $135 $251
Class D Shares........................................ $26 $ 79 $136 $289
GLOBAL ENERGY FUND
Class A Shares (1).................................... $64 $105 $147 $266
Class B Shares:
Assuming a complete redemption at end of peri-
od(2)(3)........................................... $79 $117 $169 $277
Assuming no redemption(3)........................... $29 $ 87 $149 $277
Class D Shares........................................ $28 $ 85 $145 $307
</TABLE>
- -------
(1) Assumes deduction at the time of purchase of the maximum 4.5% initial sales
charge.

(2) Assumes deduction at the time of redemption of the maximum applicable con-
tingent deferred sales charge.

(3) Ten-year figures assume conversion of Class B shares to Class A shares at
end of sixth year.

This Example assumes that all dividends and other distributions are rein-
vested and that the percentage amounts listed under Annual Fund Operating Ex-
penses remain the same in the years shown. The above tables and the assumption
in the Example of a 5% annual return are required by regulations of the Securi-
ties and Exchange Commission ("SEC") applicable to all mutual funds; the as-
sumed 5% annual return is not a prediction of, and does not represent, the pro-
jected or actual performance of any Class of the Funds' shares.

6
<PAGE>

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

7
<PAGE>

FINANCIAL HIGHLIGHTS

The tables below provide selected per share data and ratios for one Class A
share, one Class B share and one Class D share of each Fund for each of the pe-
riods shown. This information is supplemented by the financial statements and
accompanying notes appearing in the Funds' Annual Report to Shareholders for
the fiscal year ended October 31, 1994, which are incorporated by reference
into the Statement of Additional Information. The financial statements and
notes and the financial information in the tables below insofar as it relates
to each of the periods presented in the five year period ended October 31, 1994
have been audited by Price Waterhouse LLP, independent accountants, whose un-
qualified report thereon is included in the Annual Report to Shareholders. Fur-
ther information about the Funds' performance also is included in the Annual
Report to Shareholders, which may be obtained without charge.

<TABLE>
<CAPTION>
EUROPE GROWTH FUND
-----------------------------------------------------------------------------------------------------
CLASS A CLASS B
--------------------------------------------------------- -------------------------------------------
FOR THE YEARS
FOR THE PERIOD ENDED FOR THE PERIOD
FOR THE YEARS ENDED OCTOBER 31, FEBRUARY 7, 1990+ OCTOBER 31, JULY 1, 1991+
------------------------------------- TO OCTOBER 31, -------------------------- TO OCTOBER 31,
1994 1993 1992 1991 1990 1994 1993 1992 1991
------- ------- ------- -------- ----------------- ------- ------- ------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period... $9.75 $ 7.19 $ 8.48 $ 8.94 $ 9.55 $ 9.62 $ 7.14 $ 8.45 $ 8.52
------- ------- ------- -------- -------- ------- ------- ------ ------
Income (loss) from
investment operations:
Net investment income
(loss)............... (0.03) 0.02 0.08 0.06 0.12 (0.09) (0.03) 0.06 (0.02)
Net realized and
unrealized gains
(losses) from
investment
transactions......... (0.36) 2.54 (1.13) (0.35) (0.73) (0.37) 2.51 (1.15) (0.05)
------- ------- ------- -------- -------- ------- ------- ------ ------
Total income (loss)
from investment
operations............ (0.39) 2.56 (1.05) (0.29) (0.61) (0.46) 2.48 (1.09) (0.07)
------- ------- ------- -------- -------- ------- ------- ------ ------
Less dividends and
distributions from:
Net investment income. (0.02) -- (0.06) (0.12) -- -- -- (0.04) --
Net realized gains on
investments and
foreign currency
transactions......... (0.35) -- (0.18) (0.05) -- (0.35) -- (0.08) --
------- ------- ------- -------- -------- ------- ------- ------ ------
Total dividends and
distributions......... (0.37) -- (0.24) (0.17) -- (0.35) -- (0.22) --
------- ------- ------- -------- -------- ------- ------- ------ ------
Net asset value, end of
period................ $ 8.99 $ 9.75 $ 7.19 $ 8.48 $ 8.94 $ 8.81 $ 9.62 $ 7.14 $ 8.45
======= ======= ======= ======== ======== ======= ======= ====== ======
Total Return(1)........ (4.24)% 35.61% (12.69)% (3.21)% (6.39)% (5.03)% 34.73% (13.19)% (0.82)%
======= ======= ======= ======== ======== ======= ======= ====== ======
Ratios/Supplemental
data:
Net assets, end of
period (000's)....... $78,285 $97,773 $78,667 $128,888 $158,736 $37,525 $34,386 $5,446 $1,641
Ratio of expenses to
average net assets... 1.65% 1.84% 2.05% 1.78% 1.85%* 2.40 % 2.46% 2.79% 2.60%*
Ratio of net
investment income
(loss) to average net
assets............... (0.35)% 0.19% 0.82% 0.64% 1.92%* (1.05)% (0.77)% 0.39% (1.36)%*
Portfolio turnover
rate................. 173.58 % 252.23% 59.64% 86.80% 48.59% 173.58 % 252.23% 59.64% 86.80%
</TABLE>
- --------
* Annualized.
+ Commencement of offering of shares.
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gain dis-
tributions at net asset value on the payable date, and a sale at net asset
value on the last day of each period reported. The figures do not include
sales charges; results of Class A and Class B shares would be lower if
sales charges were included. Total return information for periods less than
one year is not annualized.

8
<PAGE>

<TABLE>
<CAPTION>
EUROPE GROWTH FUND
- -------------------------------------
CLASS D
- -------------------------------------
FOR THE YEARS
ENDED FOR THE PERIOD
OCTOBER 31, JULY 6, 1992+
- ------------------- TO OCTOBER 31,
1994 1993 1992
- ------- ------- --------------
<S> <C> <C>
$ 9.67 $ 7.17 $ 8.33
- ------- ------- ------
(0.11) (0.02) (0.01)
(0.35) 2.52 (1.15)
- ------- ------- ------
(0.46) 2.50 (1.16)
- ------- ------- ------
-- -- --
(0.35) -- --
- ------- ------- ------
(0.35) -- --
- ------- ------- ------
$ 8.86 $ 9.67 $ 7.17
======= ======= ======
(5.00)% 34.87% (13.93)%
======= ======= ======
$14,064 $15,522 $681
2.39 % 2.39 % 3.26 %*
(1.00)% (0.74)% (0.94)%*
173.58 % 252.23 % 59.64 %
</TABLE>

9
<PAGE>

<TABLE>
<CAPTION>
GLOBAL GROWTH
------------------------------------------------------------
CLASS A
------------------------------------------------------------
FOR THE PERIOD
FOR THE YEARS ENDED OCTOBER 31, JUNE 9, 1989+
-------------------------------------------- TO OCTOBER 31,
1994 1993 1992 1991 1990 1989
------- ------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 11.31 $ 8.73 $ 9.26 $ 10.09 $ 10.02 $ 9.55
------- ------- ------- ------- ------- --------
Income (loss) from
investment operations:
Net investment income.. 0.17 0.30 0.50 0.49 0.58 0.22
Net realized and
unrealized gains
(losses) from
investment
transactions.......... (0.01) 2.32 (0.66) 0.02 0.18 0.25
------- ------- ------- ------- ------- --------
Total income (loss) from
investment operations... 0.16 2.62 (0.16) 0.51 0.76 0.47
------- ------- ------- ------- ------- --------
Less dividends and
distributions from:
Net investment income.. (0.16) (0.04) (0.37) (0.54) (0.55) --
Net realized gains on
investments and
foreign currency
transactions.......... (0.11) -- -- (0.80) (0.14) --
------- ------- ------- ------- ------- --------
Total dividends and
distributions........... (0.27) (0.04) (0.37) (1.34) (0.69) --
------- ------- ------- ------- ------- --------
Net asset value, end of
period.................. $ 11.20 $ 11.31 $ 8.73 $ 9.26 $ 10.09 $ 10.02
======= ======= ======= ======= ======= ========
Total Return(1).......... 1.35% 30.10% (1.90)% 5.90% 7.73% 4.92%
======= ======= ======= ======= ======= ========
Ratios/Supplemental data:
Net assets, end of
period (000's)........ $61,813 $67,284 $60,540 $83,431 $98,354 $103,493
Ratio of expenses to
average net assets.... 1.76% 2.02% 1.72% 1.95% 2.04% 2.20%*
Ratio of net investment
income to average net
assets................ 1.10% 2.54% 4.76% 5.04% 5.50% 5.66%*
Portfolio turnover
rate.................. 172.13% 205.86% 59.27% 65.26% 141.75% 39.57%
</TABLE>
- -------
* Annualized.
+ Commencement of offering of shares.
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gains distri-
butions at net asset value on the payable date, and a sale at net asset value
on the last day of each period reported. The figures do not include sales
charges; results of Class A and Class B shares would be lower if sales
charges were included. Total return information for periods less than one
year is not annualized.

10
<PAGE>

<TABLE>
<CAPTION>
AND INCOME FUND
- -------------------------------------------------------------------------
CLASS B CLASS D
- ----------------------------------------- -------------------------------
FOR THE
FOR THE YEARS ENDED FOR THE PERIOD YEARS ENDED FOR THE PERIOD
OCTOBER 31, JULY 1, 1991+ OCTOBER 31, JULY 2, 1992+
- ------------------------ TO OCTOBER 31, --------------- TO OCTOBER 31,
1994 1993 1992 1991 1994 1993 1992
- ------- ------- ------ -------------- ------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
$ 11.20 $ 8.68 $ 9.23 $ 8.58 $ 11.22 $ 8.71 $9.32
- ------- ------- ------ ------ ------- ------ -----
0.04 0.03 0.35 0.05 0.05 0.03 0.06
0.04 2.50 (0.58) 0.60 0.04 2.51 (0.67)
- ------- ------- ------ ------ ------- ------ -----
0.08 2.53 (0.23) 0.65 0.09 2.54 (0.61)
- ------- ------- ------ ------ ------- ------ -----
(0.14) (0.01) (0.32) -- (0.15) (0.03) --
(0.11) -- -- -- (0.11) -- --
- ------- ------- ------ ------ ------- ------ -----
(0.25) (0.01) (0.32) -- (0.26) (0.03) --
- ------- ------- ------ ------ ------- ------ -----
$ 11.03 $ 11.20 $ 8.68 $ 9.23 $ 11.05 $11.22 $8.71
======= ======= ====== ====== ======= ====== =====
0.60% 29.11% (2.61)% 7.58% 0.68% 29.20% (6.55)%
======= ======= ====== ====== ======= ====== =====
$34,468 $18,639 $4,554 $1,947 $11,492 $7,063 $ 683
2.54% 2.74% 2.50% 2.52%* 2.55% 2.72% 2.82%*
0.38% 1.52% 4.07% 3.32%* 0.34% 1.40% 3.92%*
172.13% 205.86% 59.27% 65.26% 172.13% 205.86% 59.27%
</TABLE>

11
<PAGE>

<TABLE>
<CAPTION>
GLOBAL ENERGY FUND
----------------------------------------------------
CLASS A
----------------------------------------------------

FOR THE YEARS FOR THE PERIOD
ENDED OCTOBER 31, JULY 1, 1991+
------------------------- TO
1994 1993 1992 OCTOBER 31, 1991
------- ------- ------ ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period................ $ 14.21 $ 11.63 $12.18 $11.20
------- ------- ------ ------
Income (loss) from invest-
ment operations:
Net investment income
(loss).................. 0.03 0.16 0.25 0.01
Net realized and
unrealized gains (loss-
es) from investment and
foreign currency trans-
actions................. (0.91) 2.69 (0.66) 0.97
------- ------- ------ ------
Total income (loss) from
investment operations.... (0.88) 2.85 (0.41) 0.98
------- ------- ------ ------
Less dividends and distri-
butions from:
Net investment income.... (0.10) (0.27) (0.14) --
Net realized gains on in-
vestments and foreign
currency transactions... (1.84) -- -- --
------- ------- ------ ------
Total dividends and dis-
tributions............... (1.94) (0.27) (0.14) --
------- ------- ------ ------
Net asset value, end of
period.................. $ 11.39 $ 14.21 $11.63 $12.18
======= ======= ====== ======
Total Return(1)........... (5.79)% 24.90% (3.44)% 8.84%
======= ======= ====== ======
Ratios/Supplemental data:
Net assets, end of period
(000's)................. $11.230 $12,702 $2,575 $ 80
Ratio of expenses to av-
erage net assets**...... 1.99% 2.05% 2.05% 1.83%*
Ratio of net investment
income (loss) to average
net assets**............ 0.20% 1.21% 2.89% 0.26%*
Portfolio turnover rate.. 156.96% 148.01% 89.00% 50.98%
</TABLE>
- -------
* Annualized.
+ Commencement of offering of shares.
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gains distri-
butions at net asset value on the payable date, and a sale at net asset value
on the last day of each period reported. The figures do not include sales
charges; results of Class A and Class B would be lower if sales charges were
included. Total return information for periods less than one year is not
annualized.
** No reimbursements or voluntary waivers were made during the years ended Oc-
tober 31, 1994, 1993, 1992, 1991 or 1990. PaineWebber and Mitchell Hutchins
voluntarily waived a portion of their advisory and administration, distribu-
tion and service fees for the year ended October 31, 1989. If such waivers
had not been made, the annualized ratios of expenses and net investment in-
come to average net assets would have been 3.33% and 1.45%, respectively, for
the year ended October 31, 1989. For the year ended October 31, 1988,
PaineWebber and Mitchell Hutchins waived a significant portion of their advi-
sory and administration fee and all of their distribution and service fees.
If such waivers had not been made, the annualized ratios of expenses and net
investment income to average net assets would have been 3.98% and 1.72%, re-
spectively. During the period from September 18, 1987 (commencement of offer-
ing of Class B shares) to October 31, 1987, PaineWebber and Mitchell Hutchins
reimbursed the Fund for a significant portion of its operating expenses and
waived their advisory and administration, distribution and service fees. If
such reimbursement and waivers had not been made, the annualized ratio of ex-
penses to average net assets would have been 8.64% and the Fund would have
sustained a net loss for the period.

12
<PAGE>

<TABLE>
<CAPTION>
GLOBAL ENERGY FUND
- ---------------------------------------------------------------------------------------------------------------
CLASS B CLASS D
- ------------------------------------------------------------------------------- -------------------------------
FOR THE PERIOD
SEPTEMBER 18, FOR THE FOR THE PERIOD
1987+ YEARS ENDED JULY 8, 1992+
FOR THE YEARS ENDED OCTOBER 31, TO OCTOBER 31, TO
- --------------------------------------------------------------- OCTOBER 31, --------------- OCTOBER 31,
1994 1993 1992 1991 1990 1989 1988 1987 1994 1993 1992
- ------- ------- ------- ------- ------- ------- ------- -------------- ------ ------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 14.19 $ 11.60 $ 12.16 $ 12.45 $ 12.05 $ 10.30 $ 9.27 $ 10.00 $14.09 $11.60 $11.95
- ------- ------- ------- ------- ------- ------- ------- ------- ------ ------ ------
(0.05) 0.19 0.13 0.17 0.08 0.24 0.35 0.02 (0.04) 0.26 0.02
(0.92) 2.56 (0.64) 0.36 1.16 1.84 0.94 (0.75) (0.93) 2.47 (0.37)
- ------- ------- ------- ------- ------- ------- ------- ------- ------ ------ ------
(0.97) 2.75 (0.51) 0.53 1.24 2.08 1.29 (0.73) (0.97) 2.73 (0.35)
- ------- ------- ------- ------- ------- ------- ------- ------- ------ ------ ------
-- (0.16) (0.05) (0.13) (0.11) (0.27) (0.26) -- -- (0.24) --
(1.84) -- -- (0.69) (0.73) (0.06) -- -- (1.84) -- --
- ------- ------- ------- ------- ------- ------- ------- ------- ------ ------ ------
(1.84) (0.16) (0.05) (0.82) (0.84) (0.33) (0.26) -- (1.84) (0.24) --
- ------- ------- ------- ------- ------- ------- ------- ------- ------ ------ ------
$ 11.38 $ 14.19 $ 11.60 $ 12.16 $ 12.45 $ 12.05 $ 10.30 $ 9.27 $11.28 $14.09 $11.60
======= ======= ======= ======= ======= ======= ======= ======= ====== ====== ======
(6.56)% 23.80% (4.09)% 4.89% 10.37% 20.47% 14.06% (7.30)% (6.59)% 23.84% (2.93)%
======= ======= ======= ======= ======= ======= ======= ======= ====== ====== ======
$17,341 $24,140 $36,460 $53,506 $58,748 $23,825 $17,510 $13,524 $1,481 $1,777 $ 56
2.82% 2.82% 3.04% 2.50% 2.48% 2.60% 2.11% 2.24%* 2.74% 2.76% 2.13%*
(0.59)% 0.72% 0.76% 1.39% 1.01% 2.19% 3.59% 2.58%* (0.49)% 0.24% 1.39%*
156.96% 148.01% 89.00% 50.98% 76.57% 90.86% 110.76% 0.00% 156.96% 148.01% 89.00%
</TABLE>

13
<PAGE>

FLEXIBLE PRICING SYSTEM

DIFFERENCES AMONG THE CLASSES

The primary distinctions among the Classes of each Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of distribution fees.
These differences are summarized in the table below. Each Class has distinct
advantages and disadvantages for different investors, and investors may choose
the Class that best suits their circumstances and objectives.

<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
------------ ------------------------ -----------------
<S> <C> <C> <C>
CLASS A Maximum initial sales Service fee of 0.25% Initial sales charge
charge of 4.5% of the waived or reduced for
public offering price certain purchases
CLASS B Maximum contingent Service fee of 0.25%; Shares convert to Class A
deferred sales charge of distribution fee of 0.75% shares approximately six
5% of redemption years after issuance
proceeds; declines to
zero after six years
CLASS D None Service fee of 0.25%; --
distribution fee of 0.75%
</TABLE>

FACTORS TO CONSIDER IN CHOOSING A CLASS OF SHARES

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

SALES CHARGES. Class A shares are sold at net asset value plus an initial
sales charge of up to 4.5% of the public offering price. Because of this ini-
tial sales charge, not all of a Class A shareholder's purchase price is in-
vested in the Fund. Class B shares are sold with no initial sales charge, but a
contingent deferred sales charge of up to 5% of the redemption proceeds applies
to redemptions made within six years of purchase. Class D shareholders pay no
initial or contingent deferred sales charges. Thus, the entire amount of a
Class B or Class D shareholder's purchase price is immediately invested in the
Fund.

WAIVERS AND REDUCTIONS OF CLASS A SALES CHARGES. Class A share purchases over
$50,000 and Class A share purchases made under a Fund's reduced sales charge
plan may be made at a reduced sales charge. In considering the combined cost of
sales charges and ongoing annual expenses, investors should take into account
any reduced sales charges on Class A shares for which they may be eligible.

The entire initial sales charge on Class A shares is waived for certain eli-
gible purchasers. Because Class A shares bear lower ongoing annual expenses
than Class B shares or Class D

14
<PAGE>

shares, investors eligible for complete waivers should purchase Class A shares.

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

For example, assuming a constant net asset value, the cumulative distribution
fees on a Fund's Class B or Class D shares and the 4.5% maximum initial sales
charge on the Class A shares would all be approximately equal if the shares
were held for six years. Because Class B shares convert to Class A shares
(which do not bear the expense of ongoing distribution fees) approximately six
years after purchase, an investor expecting to hold shares of the Funds for
longer than six years would generally pay lower cumulative expenses by purchas-
ing Class A or Class B shares than by purchasing Class D shares. An investor
expecting to hold shares of the Funds for less than six years would generally
pay lower cumulative expenses by purchasing Class D shares than by purchasing
Class A shares, and, due to the contingent deferred sales charges that would
become payable on redemption of Class B shares, such an investor would gener-
ally pay lower cumulative expenses by purchasing Class D shares than Class B
shares.

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

OTHER INFORMATION

PaineWebber investment executives may receive different levels of compensa-
tion for selling one particular Class of Fund shares rather than another. In-
vestors should understand that distribution fees and initial and contingent de-
ferred sales charges all are intended to compensate Mitchell Hutchins for dis-
tribution services.

See "Purchases," "Redemptions" and "Management" for a more complete descrip-
tion of the initial and contingent deferred sales charges, service fees and
distribution fees for the three Classes of shares of each Fund. See also "Con-
version of Class B Shares," "Dividends and Taxes," "Valuation of Shares" and
"General Information" for other differences among the three Classes.

INVESTMENT OBJECTIVES AND POLICIES

INVESTMENT OBJECTIVES AND PRIMARY INVESTMENTS

The investment objective of EUROPE GROWTH FUND is long-term capital apprecia-
tion. Europe Growth Fund seeks to achieve this objective by investing princi-
pally in equity securities of issuers based in Europe.

15
<PAGE>

The investment objective of GLOBAL GROWTH AND INCOME FUND is high total re-
turn. Global Growth and Income Fund seeks to achieve this objective by invest-
ing in equity, debt and money market securities of issuers based primarily in
the United States, Europe, Japan and the Pacific Basin.

The investment objective of GLOBAL ENERGY FUND is to achieve high total re-
turn by investing principally in securities of foreign and domestic energy and
energy service companies.

There can be no assurance that any Fund will achieve its investment objec-
tive. Each Fund's net asset value will fluctuate based upon changes in the
value of its portfolio securities. Each Fund's investment objective and certain
investment limitations as described in the Statement of Additional Information
are fundamental policies that may not be changed without shareholder approval.
All other investment policies may be changed by the Trust's board of trustees
without shareholder approval.

EUROPE GROWTH FUND

Under normal circumstances, at least 65% of Europe Growth Fund's total assets
are invested in equity securities (which include common stocks, preferred
stocks and securities convertible into common stocks) of issuers based in Eu-
rope. European countries include Austria, Belgium, Denmark, Finland, France,
Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway,
Portugal, Spain, Sweden, Switzerland, Turkey and the United Kingdom. If Mitch-
ell Hutchins considers an appropriate opportunity to arise, the Fund may invest
in issuers based in Eastern European countries, including Bulgaria, the Czech
Republic, Hungary, Poland, Romania and Slovakia. Mitchell Hutchins expects that
the Fund normally will be invested in issuers based in at least three different
European countries. There is no limit on the portion of the Fund's assets that
may be invested in securities of issuers based in any one country.

As of December 31, 1994, according to Morgan Stanley Capital International,
over 63% of the capitalization of the public securities markets of Europe was
represented by the three largest European markets: the United Kingdom, Germany
and France. While Europe Growth Fund's investments are not required to reflect
such distribution of market capitalization, Mitchell Hutchins expects to invest
a significant portion of the Fund's assets in issuers based in these countries.

Europe Growth Fund may invest up to 35% of its total assets in equity securi-
ties of issuers based in countries outside Europe, including the United States.
The Fund also may invest up to 20% of its total assets in non-convertible cor-
porate debt securities of both U.S. and foreign issuers, as well as in obliga-
tions issued or guaranteed by U.S. or foreign governments, their agencies or
instrumentalities or by supranational organizations such as the International
Bank for Reconstruction and Development ("World Bank"). The Fund may invest
only in investment grade debt securities. See "Other Investment Policies and
Risk Factors--Debt Securities."

In the opinion of Mitchell Hutchins, the best equity returns will be gener-
ated from markets that have the best economic growth. Mitchell Hutchins at-
tempts to identify equity securities within those countries likely to benefit
from long-term trends and shifting trade patterns as they develop in the Euro-
pean economy. Individual equity securities are selected based upon a fundamen-
tal analysis of financial reports, earnings potential and assessment of a
security's current price, as compared to projections of its future value.

16
<PAGE>

The 12 countries of the European Union have eliminated cross-border tariffs
and non-tariff barriers. It is the opinion of Mitchell Hutchins that Europe's
economic reform could create a new unified market that will stimulate growth
and could provide a unique opportunity for investors. No assurance can be giv-
en, however, that such developments will occur, will occur in the expected time
frame or will have positive effects. Over the past 10 years, equity securities
traded in certain European countries have provided higher investment returns
than equity securities of U.S. issuers. Mitchell Hutchins believes that the
relative performance of various European countries' securities markets histori-
cally has reflected wide variations relating to the unique characteristics of
each country's economy. Year-to-year fluctuations in certain markets have been
significant.

Europe Growth Fund may invest in securities of issuers based in Eastern Eu-
rope, where capital markets may be new or developing. Such securities generally
are illiquid and may involve greater risks than investments in securities of
issuers based elsewhere in Europe. These countries may have relatively unstable
governments, economies based only on a few industries and relatively new secu-
rities markets that trade a small number of securities. Securities of issuers
located in these countries tend to have volatile prices and may offer signifi-
cant potential for loss as well as gain.

GLOBAL GROWTH AND INCOME FUND

Under normal circumstances, Global Growth and Income Fund invests in securi-
ties, denominated in foreign currencies or U.S. dollars, of issuers based in at
least three countries, including the United States. There is no limit on the
portion of the Fund's assets that may be invested in securities of issuers
based in any one country. There are no prescribed limits on the allocation of
the Fund's investments among equity, debt and money market securities; accord-
ingly, at any given time, any portion or all of the Fund's assets may be in-
vested in equity, debt or money market securities. Mitchell Hutchins antici-
pates, however, that under normal market conditions, the Fund's portfolio will
include securities in each of those categories.

In determining the allocation of Global Growth and Income Fund's assets among
equity, debt and money market securities, Mitchell Hutchins evaluates the mar-
kets for such securities around the world. In allocating assets, Mitchell
Hutchins considers the expected returns of each asset class, the projected
risks for each class and risk premiums. Based on this analysis, Mitchell
Hutchins determines the appropriate asset mix for the Fund. The Fund's portfo-
lio manager utilizes a multi-layer decision structure, starting with asset al-
location, then market allocation within assets, and then security allocation
within each country.

In the opinion of Mitchell Hutchins, the best equity returns will be gener-
ated from markets which have the best economic growth. Mitchell Hutchins at-
tempts to identify equity securities within those countries likely to benefit
from long-term trends and shifting trade patterns as they develop in the global
economy. Individual equity securities are selected based upon a fundamental
analysis of financial reports, earnings potential and assessment of a
security's current price, as compared to projections of its future value. The
equity securities in which Global Growth and Income Fund may invest include
common stocks of U.S. and foreign issuers and preferred stock when Mitchell
Hutchins believes the return on such stock is attractive relative to alterna-
tive investments.

In determining Global Growth and Income Fund's investment in debt securities,
Mitchell Hutchins considers the expected fu-

17
<PAGE>

ture direction of interest rates, the anticipated potential return relative to
credit risk and currency risk. When anticipating future movements in interest
rates, Mitchell Hutchins considers, among other things, a country's general
economic conditions, current levels of interest rates and real rates, as well
as current and anticipated monetary policies. When evaluating currency risk,
Mitchell Hutchins considers, among other things, relative inflation rates, rel-
ative interest rates, money flows and the political and economic stability of
each country.

The debt securities in which Global Growth and Income Fund may invest include
(1) debt securities issued or guaranteed by foreign governments, their agen-
cies, instrumentalities or political subdivisions, (2) U.S. or foreign corpo-
rate debt securities, including commercial paper, (3) debt obligations of banks
and bank holding companies, (4) debt securities issued or guaranteed by supra-
national organizations, (5) securities issued or guaranteed by the U.S. govern-
ment, its agencies or instrumentalities and (6) U.S. or foreign mortgage-re-
lated securities. The Fund may invest up to 35% of its assets in non-investment
grade debt securities. See "Other Investment Policies and Risk Factors--Debt
Securities."

Global Growth and Income Fund may hold cash (U.S. dollars or foreign curren-
cies) and may invest in money market instruments of U.S. or foreign issuers.
Such instruments may include securities issued or guaranteed by the U.S. or
foreign governments, their agencies or instrumentalities, high-grade commercial
paper, including variable rate securities, bank certificates of deposit, bank-
ers' acceptances and repurchase agreements secured by any of the foregoing.

GLOBAL ENERGY FUND

Under normal market conditions, at least 65% of Global Energy Fund's net as-
sets are invested in equity and debt securities of foreign and domestic energy
and energy service companies based in at least three countries, including the
United States.

Energy companies are the primary producers of raw energy materials such as
oil and gas. Energy service companies are companies that provide services, sup-
plies and equipment to energy companies. Accordingly, energy and energy service
companies generally benefit from increases in energy prices. Conversely, energy
price declines generally work to the detriment of energy and energy service
companies.

Global Energy Fund's ability to invest in foreign issuers may provide it with
the flexibility to react to developments, both positive and negative, with re-
spect to energy production and consumption in specific parts of the world. The
Fund may invest an unlimited percentage of its assets in the securities of for-
eign issuers and expects that a substantial portion of its assets normally will
be invested in such securities. Mitchell Hutchins currently expects to invest
the Fund's assets primarily in securities of energy and energy service compa-
nies located in one or more of the following countries: Australia, Belgium,
Canada, France, Germany, Hong Kong, Ireland, Italy, Japan, the Netherlands,
Norway, the Philippines, Singapore, Spain, Sweden, Switzerland, the United
Kingdom and the United States.

While Mitchell Hutchins expects that at times substantially all of Global En-
ergy Fund's assets will be invested in energy and energy service company secu-
rities, the Fund may invest up to 35% of its assets in equity and debt securi-
ties of issuers in any industry, including the utility sector, although no more
than 25% of the Fund's assets may be invested in any industry other than the
energy or energy service industries. The Fund may invest up to 35% of

18
<PAGE>

its assets in non-investment grade debt securities. See "Other Investment Poli-
cies and Risk Factors--Debt Securities."

The business activities of energy companies in which Global Energy Fund in-
vests may include the production, transmission, marketing or control of energy
or energy fuels (including oil, gas and coal, as well as newer sources of en-
ergy such as nuclear, geothermal, oil shale and solar power), energy research
or experimentation and activities related to the solution of energy-related
problems, such as energy conservation and pollution control. The activities of
energy service companies in which the Fund invests may include the manufacture,
operation and maintenance of equipment used in drilling or constructing oil and
gas wells and pipelines, the construction of drilling platforms, the manufac-
ture and provision of mining equipment, the measurement of energy or energy fu-
els and services relating to the interpretation of seismic and other data.

Global Energy Fund's policy of concentrating its investments in the energy
and energy service industries may cause the value of its shares to fluctuate
more than if it invested in a greater number of industries. The Fund's shares
will be affected by economic, competitive and regulatory developments in those
industries. Energy and energy service companies are subject to risks occasioned
by changes in the price and supply of different energy fuels. Prices and sup-
plies may fluctuate significantly over short periods of time due to a variety
of factors, such as domestic and foreign political and regulatory developments,
energy conservation efforts, the success of exploration efforts and the devel-
opment and implementation of new forms or sources of energy. Energy and energy
service companies are also affected by supply, demand and normal competitive
factors.

OTHER INVESTMENT POLICIES AND RISK FACTORS

FOREIGN SECURITIES. Each Fund's investment policies are designed to enable it
to capitalize on unique investment opportunities presented throughout the world
and in in- ternational financial markets influenced by the increasing interde-
pendence of economic cycles and currency exchange rates. As of December 31,
1994, more than 63% of the Salomon Brothers World Government Bond Market Index
was represented by securities denominated in currencies other than the U.S.
dollar; according to Morgan Stanley Capital International, as of December 31,
1994, over 63% of the value of the world's equity securities were located out-
side of the United States.

Over the past eight years, debt securities offered by certain foreign govern-
ments provided higher investment returns than U.S. government debt securities,
and over the past 10 years, certain foreign equity markets have provided higher
investment returns than the U.S. equity market. Such returns reflect interest
rates and other market conditions prevailing in those countries and the effect
of gains and losses in the denominated currencies, which have had a substantial
impact on investment in foreign fixed income and equity securities. The rela-
tive performance of various countries' fixed income markets historically has
reflected wide variations relating to the unique characteristics of each
country's economy. Year-to-year fluctuations in certain markets have been sig-
nificant, and negative returns have been experienced in various markets from
time to time.

Mitchell Hutchins believes that over time investment in a composite of U.S.
and foreign securities is less risky than portfolios comprised exclusively of
foreign securities and provides investors with the potential to earn a higher
return than portfolios invested exclusively in U.S. securities.

19
<PAGE>

Investments in foreign securities involve risks relating to political, social
and economic developments abroad, as well as risks resulting from the differ-
ences between the regulations to which U.S. and foreign issuers and markets are
subject. These risks may include expropriation, confiscatory taxation, with-
holding taxes on dividends and interest, limitations on the use or transfer of
Fund assets and political or social instability or diplomatic developments.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of pay-
ments position. Securities of many foreign companies may be less liquid and
their prices more volatile than securities of comparable U.S. companies. While
each Fund generally invests only in securities that are traded on recognized
exchanges or in over-the-counter markets, from time to time foreign securities
may be difficult to liquidate rapidly without significantly depressing the
price of such securities. There may be less publicly available information con-
cerning foreign issuers of securities held by the Funds than is available con-
cerning U.S. companies. Transactions in foreign securities may be subject to
less efficient settlement practices. Foreign securities trading practices, in-
cluding those involving securities settlement where Fund assets may be released
prior to receipt of payment, may expose a Fund to increased risk in the event
of a failed trade or the insolvency of a foreign broker-dealer. Legal remedies
for defaults and disputes may have to be pursued in foreign courts, whose pro-
cedures differ substantially from those of U.S. courts.

Because foreign securities ordinarily are denominated in currencies other
than the U.S. dollar (as are some securities of U.S. issuers), changes in for-
eign currency exchange rates will affect each Fund's net asset value, the value
of dividends and interest earned, gains and losses realized on the sale of se-
curities and net investment income and capital gains, if any, to be distributed
to shareholders by each Fund. If the value of a foreign currency rises against
the U.S. dollar, the value of Fund assets denominated in that currency will in-
crease; correspondingly, if the value of a foreign currency declines against
the U.S. dollar, the value of Fund assets denominated in that currency will de-
crease. The exchange rates between the U.S. dollar and other currencies are de-
termined by supply and demand in the currency exchange markets, international
balances of payments, speculation and other economic and political conditions.
In addition, some foreign currency values may be volatile and there is the pos-
sibility of governmental controls on currency exchange or governmental inter-
vention in currency markets. Any of these factors could adversely affect the
Funds.

The costs attributable to foreign investing that each Fund must bear fre-
quently are higher than those attributable to domestic investing. For example,
the costs of maintaining custody of securities in foreign countries exceed cus-
todian costs related to domestic securities.

Each Fund may invest in securities of issuers located in emerging market
countries. The risks of investing in foreign securities may be greater with re-
spect to securities of issuers in, or denominated in the currencies of, emerg-
ing market countries. The economies of emerging market countries generally are
heavily dependent upon international trade and, accordingly, have been and may
continue to be adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values and other protectionist measures im-
posed or negotiated by the countries with which they trade. These economies
also have been and may continue to be adversely affected by economic conditions
in the countries

20
<PAGE>

with which they trade. Many emerging market countries have experienced substan-
tial, and in some periods extremely high, rates of inflation for many years.
Inflation and rapid fluctuations in inflation rates have had and may continue
to have very negative effects on the economies and securities markets of cer-
tain emerging market countries. The securities markets of emerging market coun-
tries are substantially smaller, less developed, less liquid and more volatile
than the securities markets of the United States and other developed countries.
Disclosure and regulatory standards in many respects are less stringent in
emerging market countries than in the United States and other major markets.
There also may be a lower level of monitoring and regulation of emerging mar-
kets and the activities of investors in such markets, and enforcement of exist-
ing regulations may be extremely limited. Investing in local markets, particu-
larly in emerging market countries, may require the Fund to adopt special pro-
cedures, seek local government approvals or take other actions, each of which
may involve additional costs to the Fund. Certain emerging market countries may
also restrict investment opportunities in issuers in industries deemed impor-
tant to national interests.

DEBT SECURITIES. Each Fund is permitted to purchase investment grade debt se-
curities. Securities rated BBB by S&P or Baa by Moody's are investment grade
but Moody's considers securities rated Baa to have speculative characteristics.
Changes in economic conditions or other circumstances are more likely to lead
to a weakened capacity for such securities to make principal and interest pay-
ments than is the case for higher-rated securities. Global Growth and Income
Fund may invest up to 35% of its net assets in debt securities rated below in-
vestment grade but not lower than B- by S&P, B by Moody's or comparably rated
by another NRSRO and Global Energy Fund may invest up to 35% of its net assets
in debt securities rated below investment grade but not lower than BB by S&P,
Ba by Moody's or comparably rated by another NRSRO. These securities are deemed
by those NRSROs to be predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal and may involve major risk expo-
sure to adverse conditions. Such securities are commonly referred to as "junk
bonds." Each Fund is also permitted to purchase debt securities that are not
rated by a NRSRO but Mitchell Hutchins determines to be of comparable quality
to that of rated securities in which the Fund may invest. Such securities are
included in the computation of any percentage limitations applicable to the
comparable rated securities.

The market value of debt securities generally varies inversely with interest
rate changes. Ratings of debt securities represent the NRSROs' opinions regard-
ing their quality, are not a guarantee of quality and may be reduced after a
Fund has acquired the security. Mitchell Hutchins would consider such an event
in determining whether the Fund should continue to hold the security but is not
required to dispose of it. However, in the event that, due to a downgrade of
one or more debt securities, an amount in excess of 35% of Global Growth and
Income Fund's or Global Energy Fund's net assets, as the case may be, is held
in securities rated below investment grade and comparable unrated securities.
Mitchell Hutchins will engage in an orderly disposition of such securities to
the extent necessary to ensure that the Fund's holdings of such securities do
not exceed 35% of the Fund's net assets. Credit ratings attempt to evaluate the
safety of principal and interest payments and do not reflect an assessment of
the volatility of the security's market value or the liquidity of an investment
in the security. Also, NRSROs may fail to make timely changes in credit ratings
in response to subsequent events, so that an issuer's financial condition may
be better or worse than the rating indicates. See the Statement of Additional

21
<PAGE>

Information for more information about S&P's and Moody's ratings.

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

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

U.S. AND FOREIGN GOVERNMENT SECURITIES. The U.S. government securities in
which the Funds may invest include direct obligations of the U.S. government
(such as Treasury bills, notes and bonds) and obligations issued or guaranteed
by U.S. government agencies and instrumentalities, including securities that
are backed by the full faith and credit of the United States (such as Govern-
ment National Mortgage Association certificates), securities that are supported
primarily or solely by the creditworthiness of the issuer (such as securities
issued by the Resolution Funding Corporation and the Tennessee Valley Authori-
ty) and securities that are supported primarily or solely by specific pools of
assets and the creditworthiness of a U.S. government-related issuer (such as
securities issued by the Federal National Mortgage Association and the Federal
Home Loan Mortgage Corporation). Global Growth and Income Fund is authorized to
invest in mortgage-backed securities guaranteed by the Government National
Mortgage Association but has no current intention of investing more than 10% of
its total assets in such securities.

Global Growth and Income Fund may invest in "zero coupon" Treasury securi-
ties, which are U.S. Treasury bills, notes and bonds that have been stripped of
their unmatured interest coupons, and receipts or certificates representing in-
terest in such stripped debt obligations and coupons. A zero coupon security
pays no cash interest to its holder prior to maturity. Accordingly, these secu-
rities usually are issued and traded at a deep discount from their face or par
value and are subject to greater fluctuations of market value in response to
changing interest rates than debt obligations of compara-

22
<PAGE>

ble maturities that make current distributions of interest. Federal tax law re-
quires that the holder of a zero coupon security include in gross income each
year the original issue discount that accrues on the security for the year,
even though the holder receives no interest payment on the security during the
year. For additional discussion of the tax treatment of zero coupon Treasury
securities, see "Taxes" in the Statement of Additional Information.

The foreign government securities in which the Funds may invest generally
consist of obligations supported by national, state or provincial governments
or similar political subdivisions. Foreign government securities also include
debt obligations of supranational entities, which include international organi-
zations designated or supported by governmental entities to promote economic
reconstruction or development, international banking institutions and related
government agencies. Examples include the World Bank, the European Coal and
Steel Community, the Asian Development Bank and the InterAmerican Development
Bank.

Foreign government securities also include debt securities of "quasi-govern-
mental agencies" and debt securities denominated in multinational currency
units of an issuer (including supranational issuers). An example of a multina-
tional currency unit is the European Currency Unit ("ECU"). An ECU represents
specified amounts of the currencies of certain member states of the European
Union. Debt securities of quasi-governmental agencies are issued by entities
owned by either a national, state or equivalent government or are obligations
of a political unit that is not backed by the national government's full faith
and credit and general taxing powers. Foreign government securities also in-
clude mortgage-related securities issued or guaranteed by national, state or
provincial governmental instrumentalities, including quasi-governmental agen-
cies.

Investments in foreign government debt securities involve special risks. The
issuer of the debt or the governmental authorities that control the repayment
of the debt may be unable or unwilling to pay interest or repay principal when
due in accordance with the terms of such debt, and the Funds may have limited
legal recourse in the event of default. Political conditions, especially a sov-
ereign entity's willingness to meet the terms of its debt obligations, are of
considerable significance.

HEDGING AND RELATED INCOME STRATEGIES. Each Fund except Europe Growth Fund
may use options (both exchange-traded and over-the-counter) and futures con-
tracts to attempt to enhance income, and each Fund may attempt to reduce the
overall risk of its investments (hedge) by using options, futures contracts and
forward currency contracts. Hedging strategies may be used in an attempt to
manage a Fund's foreign currency exposure, and other risks of a Fund's invest-
ments that can cause fluctuations in its net asset value. Each Fund's ability
to use these strategies may be limited by market conditions, regulatory limits
and tax considerations. The Appendix to this Prospectus describes the hedging
instruments that the Funds may use and the Statement of Additional Information
contains further information on these strategies.

Each Fund may enter into forward currency contracts, buy or sell foreign cur-
rency futures contracts, write (sell) covered call or put options and buy put
or call options on securities, foreign currencies and such futures contracts.
In addition, the Funds may buy or sell interest rate futures contracts and
stock index futures contracts, purchase put and call options or write covered
call or put options on such contracts, and write covered call or put options
and buy put or call options on securities indices. Each Fund may enter into op-
tions and futures contracts under which up to 100% of its portfolio is at risk.

23
<PAGE>

Each Fund may enter into forward currency contracts for the purchase or sale
of a specified currency at a specified future date either with respect to spe-
cific transactions or with respect to portfolio positions. For example, when
Mitchell Hutchins anticipates making a currency exchange transaction in connec-
tion with the purchase or sale of a security, a Fund may enter into a forward
contract in order to set the exchange rate at which the transaction will be
made. A Fund also may enter into a forward currency contract to sell an amount
of a foreign currency approximating the value of some or all of the Fund's se-
curities denominated in such currency. Each Fund may use forward contracts in
one currency or a basket of currencies to hedge against fluctuations in the
value of another currency when Mitchell Hutchins anticipates there will be a
correlation between the two and may use forward currency contracts to shift a
Fund's exposure to foreign currency fluctuations from one country to another.
The purpose of entering into these contracts is to minimize the risk to the
Funds from adverse changes in the relationship between the U.S. dollar and for-
eign currencies.

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

New financial products and risk management techniques continue to be devel-
oped. Each Fund may use these instruments and techniques to the extent consis-
tent with its investment objectives and regulatory and tax considerations.

CONVERTIBLE SECURITIES. Each Fund may invest in convertible securities, and
Global Growth and Income Fund may invest up to 25% of its assets in such secu-
rities. A convertible security is a bond, debenture, note, preferred stock or
other security that may be converted into or exchanged for a prescribed amount
of common stock of the same or a different issuer within a particular period of
time at a specified price or formula. A convertible security entitles the
holder to receive interest paid or accrued on debt or dividends paid on pre-
ferred stock until the convertible security matures or is redeemed, converted
or exchanged. Convertible securities have unique investment characteristics in
that they generally (1) have higher yields than common stocks, but lower yields
than comparable non-convertible securities, (2) are less subject to fluctuation
in value than the underlying stock because they have fixed income characteris-
tics, and (3) provide the potential for capital appreciation if the market
price of the underlying common stock increases. While no securities investment
is without some risk, investments in convertible securities generally entail
less risk than the

24
<PAGE>

issuer's common stock, although the extent to which such risk is reduced de-
pends in large measure upon the degree to which the convertible security sells
above its value as a fixed income security.

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

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

PRIVATE MORTGAGE-RELATED SECURITIES. Global Growth and Income Fund may invest
up to 10% of its total assets in mortgage-related securities of private U.S.
and foreign issuers. Such instruments may include collateralized mortgage obli-
gations and pass-through securities representing ownership interests in pools
of residential and commercial real property mortgages. These securities are de-
signed to provide periodic payments of interest and principal to the investor.
Each mortgagor's payments to his lending institution on his mortgage are
"passed through" to securities holders. Prepayments of the mortgages included
in the underlying mortgage pool may adversely impact the yield of the mortgage-
backed securities. Private mortgage-related securities of foreign issuers are
subject to the risks described above under "Investment Objective and Policies--
Foreign Securities" with respect to foreign securities generally.

PRECIOUS METAL-RELATED SECURITIES. Global Growth and Income Fund invests in
precious metal-related securities when Mitchell Hutchins believes such invest-
ments are attractively priced in relation to the value of a company's precious
metal-related assets or when the values of precious metals are expected to ben-
efit from inflationary pressure or other economic, political or financial un-
certainty or instability. Precious metal-related securities are equity securi-
ties of companies that explore for, extract, process or deal in precious met-
als, i.e., gold, silver and platinum, and asset-based securities indexed to the
value of such metals. The prices of precious metals and of the securities of
precious metal-related companies historically have been subject to volatility,
and

25
<PAGE>

the earnings and financial condition of such companies are heavily influenced
by the prices of the precious metals in which they conduct operations. Asset-
based securities are debt securities, preferred stock or convertible securi-
ties, the principal amount, redemption terms or conversion terms of which are
related to the market price of some precious metals such as gold bullion. The
Fund will purchase only asset-based securities that are rated BBB or better by
S&P, Baa or better by Moody's or comparably rated by another NRSRO (or are is-
sued by issuers that have outstanding debt obligations that are rated BBB or
better by S&P, Baa or better by Moody's or comparably rated by another NRSRO or
commercial paper that is rated A-1 by S&P, Prime-1 by Moody's or comparably
rated by another NRSRO) or, if not rated, determined by Mitchell Hutchins to be
of comparable quality. If the asset-based security is backed by a bank letter
of credit or other similar facility, Mitchell Hutchins may take such backing
into account in determining the creditworthiness of the issuer. The Fund does
not expect that more than 15% of its total assets will be invested in such se-
curities during the coming year.

REAL ESTATE-RELATED SECURITIES. Global Growth and Income Fund may invest in
real estate-related securities, including equity securities of real estate in-
vestment trusts that own income-producing properties and real estate investment
trusts that make various types of mortgage loans, often combined with equity
features. The securities of such trusts generally earn above-average dividends
and may offer the potential for capital appreciation. Such securities will be
subject to the risks customarily associated with the real estate industry, in-
cluding declines in the value of the real estate investments of the trusts. The
Fund invests in real estate-related securities when Mitchell Hutchins believes
the return on such securities is attractive relative to alternative invest-
ments. The Fund does not expect that more than 15% of its total assets will be
invested in such securities during the coming year.

ILLIQUID SECURITIES. Each Fund may invest up to 10% of its net assets in il-
liquid securities, including certain cover for over-the-counter options, repur-
chase agreements with maturities in excess of seven days and securities whose
disposition is restricted under the federal securities laws (other than "Rule
144A securities" Mitchell Hutchins has determined to be liquid under procedures
approved by the Trust's board of trustees). Rule 144A establishes a "safe har-
bor" from the registration requirements of the Securities Act of 1933 ("1933
Act"). Institutional markets for restricted securities have developed as a re-
sult of Rule 144A, providing both readily ascertainable values for restricted
securities and the ability to liquidate an investment to satisfy share redemp-
tion orders. An insufficient number of qualified institutional buyers inter-
ested in purchasing Rule 144A-eligible restricted securities held by a Fund,
however, could affect adversely the marketability of such portfolio securities
and the Fund might be unable to dispose of such securities promptly or at fa-
vorable prices.

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

OTHER INFORMATION

When Mitchell Hutchins believes unusual circumstances warrant a defensive
posture, each Fund temporarily may commit all or any portion of its assets to
cash (U.S. dollars or foreign currencies) or money market instruments of U.S.
or foreign issuers, including repurchase

26
<PAGE>

agreements. The Funds also may engage in short sales of securities "against
the box" to defer realization of gains and losses for tax or other purposes.
Each Fund may borrow money for temporary or emergency purposes, but not in ex-
cess of 10% of its total assets.

While Europe Growth Fund and Global Energy Fund are "diversified" as that
term is defined in the Investment Company Act of 1940 ("1940 Act"), Global
Growth and Income Fund is "non-diversified" (as defined in the 1940 Act). How-
ever, Global Growth and Income Fund intends to meet the diversification and
other requirements necessary to continue to qualify as a "regulated investment
company" for federal income tax purposes. See "Dividends and Taxes." This
means, in general, that more than 5% of the total assets of Global Growth and
Income Fund may be invested in securities of one issuer (including a foreign
government), but only if, at the close of each quarter of the Fund's taxable
year, the aggregate amount of such holdings does not exceed 50% of the value
of its total assets and no more than 25% of the value of its total assets is
invested in the securities of a single issuer. To the extent that the Fund's
portfolio at times may include the securities of a smaller number of issuers
than if it were "diversified" the Fund will at such times be subject to
greater risk with respect to its portfolio securities than an investment com-
pany that invests in a broader range of securities, in that changes in the fi-
nancial condition or market assessment of a single issuer may cause greater
fluctuation in the Fund's total return and the price of Fund shares.

PURCHASES

GENERAL. Class A shares of the Funds are sold to investors subject to an
initial sales charge. Class B shares of the Funds are sold without an initial
sales charge but are subject to higher ongoing expenses than Class A shares
and a contingent deferred sales charge payable upon certain redemptions. Class
B shares automatically convert to Class A shares approximately six years after
issuance. Class D shares are sold without an initial or a contingent deferred
sales charge but are subject to higher ongoing expenses than Class A shares
and do not convert into another Class. See "Flexible Pricing System" and "Con-
version of Class B Shares."

Shares of the Funds are available through PaineWebber and its correspondent
firms or, for shareholders who are not PaineWebber clients, through the Trans-
fer Agent. Investors may contact a local PaineWebber office to open an ac-
count. The minimum initial investment for each Fund is $1,000, and the minimum
for additional purchases is $100. These minimums may be waived or reduced for
investments by employees of PaineWebber or its affiliates, cer-tain pension
plans and retirement accounts and participants in a Fund's automatic invest-
ment plan. Purchase orders will be priced at the net asset value per share
next determined (see "Valuation of Shares") after the order is received by
PaineWebber's New York City offices or by the Transfer Agent, plus any appli-
cable sales charge for Class A shares. Each Fund and Mitchell Hutchins reserve
the right to reject any purchase order and to suspend the offering of Fund
shares for a period of time.

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

27
<PAGE>

banks or with funds held in brokerage accounts at PaineWebber or its correspon-
dent firms. Payment is due on the fifth Business Day after the order is re-
ceived at PaineWebber's New York City offices. A "Business Day" is any day,
Monday through Friday, on which the New York Stock Exchange, Inc. ("NYSE") is
open for business.

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

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

INITIAL SALES CHARGE SCHEDULE--CLASS A SHARES

<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF
---------------------------------------- DISCOUNT TO SELECTED
AMOUNT OF OFFERING NET AMOUNT INVESTED DEALERS AS A PERCENTAGE
PURCHASE PRICE (NET ASSET VALUE) OF OFFERING PRICE
--------- -------- ------------------- -----------------------
<S> <C> <C> <C>
Less than
$50,000 4.50% 4.71% 4.25%
$50,000 to
$99,999 4.00 4.17 3.75
$100,000
to
$249,999 3.50 3.63 3.25
$250,000
to
$499,999 2.50 2.56 2.25
$500,000
to
$999,999 1.75 1.78 1.50
$1,000,000
and
over(1) None None 1.00
</TABLE>
- -------
(1) Mitchell Hutchins pays compensation to PaineWebber out of its own re-
sources.

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

SALES CHARGE WAIVERS--CLASS A SHARES. Class A shares of the Funds are avail-
able without a sales charge through exchanges for Class A shares of most other
PaineWebber mutual funds. See "Exchanges." In addition, Class A shares may be
purchased without a sales charge, and exchanges of any Class of shares made
without the $5.00 exchange fee, by employees, directors and officers of
PaineWebber or its affiliates, directors or trustees and officers of any Paine-
Webber fund, their spouses, parents and children and advisory clients of Mitch-
ell Hutchins.

Class A shares of the Funds also may be purchased without a sales charge if
the purchase is made through a PaineWebber investment executive who formerly
was employed as a broker with another firm registered as a broker-dealer with
the SEC, provided (1) the purchaser was the investment executive's client at
the competing brokerage firm, (2) within 90 days of the purchase of Class A
shares the purchaser redeemed shares of one or more mutual funds for which that
competing firm or its affiliates was principal underwriter, provided the

28
<PAGE>

purchaser either paid a sales charge to invest in those funds, paid a contin-
gent deferred sales charge upon redemption or held shares of those funds for
the period required not to pay the otherwise applicable contingent deferred
sales charge and (3) the total amount of shares of all PaineWebber funds pur-
chased under this sales charge waiver does not exceed the amount of the pur-
chaser's redemption proceeds from the competing firm's funds. To take advantage
of this waiver, an investor must provide satisfactory evidence that all the
above-noted conditions are met. Qualifying investors should contact their
PaineWebber investment executives for more information.

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

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

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

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

Class B shares of a Fund that are redeemed will not be subject to a contin-
gent deferred sales charge to the extent that the value of such shares repre-
sents (1) capital appreciation of Fund assets, (2) reinvestment of dividends or
capital gain distributions or (3) shares redeemed more than six years after
their purchase. Otherwise, redemptions of Class B shares will be subject to a
contingent deferred sales charge. The amount of any applicable contingent de-
ferred sales charge will be calculated by multiplying the net asset value of
such shares at the time of redemption by the applicable percentage shown in the
table below.

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF NET
ASSET VALUE AT
REDEMPTION DURING REDEMPTION
- ----------------- -------------------
<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
</TABLE>

29
<PAGE>

In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption is made first of Class B shares
representing capital appreciation, next of shares representing the reinvestment
of dividends and capital gain distributions and finally of other shares held by
the shareholder for the longest period of time. The holding period of Class B
shares of a Fund acquired through an exchange with another PaineWebber mutual
fund will be calculated from the date that the Class B shares were initially
acquired in one of the other PaineWebber funds, and Class B shares being re-
deemed will be considered to represent, as applicable, capital appreciation or
dividend and capital gain distribution reinvestments in such other funds. This
will result in any contingent deferred sales charge being imposed at the lowest
possible rate. For federal income tax purposes, the amount of the contingent
deferred sales charge will reduce the gain or increase the loss, as the case
may be, on the amount realized on redemption. The amount of any contingent de-
ferred sales charge will be paid to Mitchell Hutchins.

SALES CHARGE WAIVERS--CLASS B SHARES. The contingent deferred sales charge
will be waived for exchanges, as described below, and for redemptions in con-
nection with each Fund's systematic withdrawal plan. In addition, the contin-
gent deferred sales charge will be waived for a total or partial redemption
made within one year of the death of the shareholder. The contingent deferred
sales charge waiver is available where the decedent is either the sole share-
holder or owns the shares with his or her spouse as a joint tenant with right
of survivorship. This waiver applies only to redemption of shares held at the
time of death. The contingent deferred sales charge will also be waived in con-
nection with a lump-sum or other distribution in the case of an IRA, a self-em-
ployed individual retirement plan (so-called "Keogh Plan") or a custodial ac-
count under Section 403(b) of the Internal Revenue Code following attainment of
age 59 1/2; a total or partial redemption resulting from any distribution fol-
lowing retirement in the case of a tax-qualified retirement plan; and a redemp-
tion resulting from a tax-free return of an excess contribution to an IRA.

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

PURCHASES OF CLASS D SHARES. The public offering price of the Class D shares
of each Fund is the next determined net asset value. No initial or contingent
deferred sales charge is imposed.

EXCHANGES

Shares of each Fund may be exchanged for shares of the corresponding Class of
other PaineWebber mutual funds (including the other funds) or may be acquired
through an exchange of shares of the corresponding Class of those funds. No
initial sales charge is imposed on the shares being acquired, and no contingent
deferred sales charge is imposed on the shares being disposed of, through an
exchange. However, contingent deferred sales charges may apply to redemptions
of Class B shares acquired through an exchange. A $5.00 exchange fee is charged
for each exchange, and exchanges may be subject to minimum investment require-
ments of the fund into which exchanges are made.
30
<PAGE>

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

PaineWebber Income Funds

. GLOBAL INCOME FUND

. HIGH INCOME FUND

. INVESTMENT GRADE INCOME FUND

. SHORT-TERM U.S. GOVERNMENT INCOME FUND

. SHORT-TERM U.S. GOVERNMENT INCOME FUND FOR CREDIT UNIONS

. STRATEGIC INCOME FUND

. U.S. GOVERNMENT INCOME FUND

PaineWebber Tax-Free Income Funds

. CALIFORNIA TAX-FREE INCOME FUND

. MUNICIPAL HIGH INCOME FUND

. NATIONAL TAX-FREE INCOME FUND

. NEW YORK TAX-FREE INCOME FUND

PaineWebber Growth Funds

. ATLAS GLOBAL GROWTH FUND

. BLUE CHIP GROWTH FUND

. CAPITAL APPRECIATION FUND

. COMMUNICATIONS & TECHNOLOGY GROWTH FUND

. GROWTH FUND

. REGIONAL FINANCIAL GROWTH FUND

. SMALL CAP VALUE FUND

PaineWebber Growth and Income Funds

. ASSET ALLOCATION FUND

. DIVIDEND GROWTH FUND

. UTILITY INCOME FUND

PaineWebber Money Market Fund

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

OTHER EXCHANGE INFORMATION. This exchange privilege may be modified or termi-
nated at any time, upon at least 60 days' notice when such notice is required
by SEC rules. See the Statement of Additional Information for further details.
This exchange privilege is available only in those jurisdictions where the sale
of the PaineWebber fund shares to be acquired may be legally made. Before mak-
ing any exchange, shareholders should contact their PaineWebber investment ex-
ecutives or correspondent firms or the Transfer Agent to obtain more informa-
tion and prospectuses of the PaineWebber funds to be acquired through the ex-
change.

REDEMPTIONS

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tion request. PaineWebber clients may redeem non-certificated shares through
PaineWebber or its correspondent firms; all other shareholders must redeem
through the Transfer Agent. If a redeeming shareholder owns shares of more than
one Class, the shares will be redeemed in the following order unless the share-
holder specifically requests otherwise: Class D shares, then Class A shares,
and finally Class B shares.

REDEMPTION THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. PaineWebber clients
may submit redemption requests to their investment executives or correspondent
firms in person or by telephone, mail or wire. As each Fund's agent,
PaineWebber may honor a redemption request by repurchasing Fund shares from a
redeeming shareholder at the shares' net asset value next determined after re-
ceipt of the request by PaineWebber's New York City offices. Within seven days,
repurchase proceeds (less any applicable contingent deferred sales charge) will
be paid by check or credited to the shareholder's brokerage account at the
election of the shareholder. PaineWebber investment executives and correspon-
dent firms are responsible for promptly forwarding redemption requests to
PaineWebber's New York City offices.

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

REDEMPTION THROUGH THE TRANSFER AGENT. Fund shareholders who are not
PaineWebber clients or who wish to redeem certificated shares must redeem their
shares through the Transfer Agent by mail; other shareholders also may redeem
Fund shares through the Transfer Agent. Shareholders should mail redemption re-
quests directly to the Transfer Agent: PFPC Inc., Attn: PaineWebber Mutual
Funds, P.O. Box 8950, Wilmington, Delaware 19899. A redemption request will be
executed at the net asset value next computed after it is received in "good or-
der." "Good order" means that the request must be accompanied by the following:
(1) a letter of instruction or a stock assignment specifying the number of
shares or amount of investment to be redeemed (or that all shares credited to a
Fund account be redeemed), signed by all registered owners of the shares in the
exact names in which they are registered, (2) a guarantee of the signature of
each registered owner by an eligible institution acceptable to the Transfer
Agent and in accordance with SEC rules, such as a commercial bank, trust com-
pany or member of a recognized stock exchange, (3) other supporting legal docu-
ments for estates, trusts, guardianships, custodianships, partnerships and cor-
porations and (4) duly endorsed share certificates, if any. Shareholders are
responsible for ensuring that a request for redemption is received in "good or-
der."

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

Because the Funds incur certain fixed costs in maintaining shareholder ac-
counts, each

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<PAGE>

Fund reserves the right to redeem all Fund shares in any shareholder account of
less than $500 net asset value. If the Fund elects to do so, it will notify the
shareholder and provide the shareholder the opportunity to increase the amount
invested to $500 or more within 60 days of the notice. A Fund will not redeem
accounts that fall below $500 solely as a result of a reduction in net asset
value per share.

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

CONVERSION OF CLASS B SHARES

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

OTHER SERVICES AND INFORMATION

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

AUTOMATIC INVESTMENT PLAN. Shareholders may purchase shares of the Funds
through an automatic investment plan, under which an amount specified by the
shareholder of $50 or more each month will be sent to the Transfer Agent from
the shareholder's bank for investment in a Fund. In addition to providing a
convenient and disciplined manner of investing, participation in the automatic
investment plan enables the investor to use the technique of "dollar cost aver-
aging." When under the plan a shareholder invests the same dollar amount each
month, the shareholder will purchase more shares when a Fund's net asset value
per share is low and fewer shares when the net asset value per share is high.
Using this technique, a shareholder's average purchase price per share over any
given period will be lower than if the shareholder purchased a fixed number of
shares on a monthly basis during the period.

SYSTEMATIC WITHDRAWAL PLAN. Shareholders who own non-certificated Class A or
Class D shares of a Fund with a value of $5,000 or more or non-certificated
Class B shares of a Fund with a value of $20,000 or more may have PaineWebber
redeem a portion of their shares monthly, quarterly or semi-annually under the
systematic withdrawal plan. No contingent deferred sales charge will be imposed
on such withdrawals for Class B shares. The minimum amount for all withdrawals
of Class A or Class D shares is $100, and minimum monthly,

33
<PAGE>

quarterly and semi-annual withdrawal amounts for Class B shares are $200, $400
and $600, respectively. Quarterly withdrawals are made in March, June, Septem-
ber and December, and semi-annual withdrawals are made in June and December. A
Class B shareholder of a Fund may not withdraw an amount exceeding 12% annually
of his or her "Initial Account Balance," a term that means the value of the
Fund account at the time the shareholder elects to participate in the system-
atic withdrawal plan. A Class B shareholder's participation in the systematic
withdrawal plan will terminate automatically if the Initial Account Balance
(plus the net asset value on the date of purchase of Fund shares acquired after
the election to participate in the systematic withdrawal plan), less aggregate
redemptions made other than pursuant to the systematic withdrawal plan, is less
than $20,000. Shareholders who receive dividends or other distributions in cash
may not participate in the systematic withdrawal plan. Purchases of additional
shares of a Fund concurrent with withdrawals are ordinarily disadvantageous to
shareholders because of tax liabilities and, for Class A shares, sales charges.

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

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

DIVIDENDS AND TAXES

DIVIDENDS. Each Fund pays an annual dividend from its net investment income
and net short-term capital gain, if any. Each Fund distributes any net realized
gain from foreign currency transactions with such dividend and also distributes
annually substantially all of its net capital gain (the excess of net long-term
capital gain over net short-term capital loss). Each Fund may make additional
distributions if necessary to avoid a 4% excise tax on certain undistributed
income and capital gain.

Dividends and other distributions paid on each Class of shares of a Fund are
calculated at the same time and in the same manner. Dividends on Class B and
Class D shares of a Fund are expected to be lower than those for its Class A
shares because of the higher expenses resulting from the distribution fees
borne by the Class B and Class D shares. Dividends on each Class also might be
affected differently by the allocation of other Class-specific expenses. See
"Valuation of Shares."

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

TAXES. Each Fund intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code so

34
<PAGE>

that it will be relieved of federal income tax on that part of its investment
company taxable income (consisting generally of net investment income, net
gains from certain foreign currency transactions and net short-term capital
gain) and net capital gain that is distributed to its shareholders.

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

Each Fund notifies its shareholders following the end of each calendar year
of the amounts of dividends and capital gain distributions paid (or deemed
paid) that year and of any portion of those dividends that qualifies for the
corporate dividends-received deduction. Under certain circumstances, the notice
also will specify the shareholder's share of any foreign taxes paid by the
Fund, in which event the shareholder would be required to include in his gross
income his pro rata share of those taxes but might be entitled to claim a
credit or deduction for those taxes.

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

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

No gain or loss will be recognized to a shareholder as a result of a conver-
sion of Class B shares into Class A shares.

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

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<PAGE>

VALUATION OF SHARES

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

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

MANAGEMENT

The Trust's board of trustees, as part of its overall management responsibil-
ity, oversees various organizations responsible for the Funds' day-to-day man-
agement. Mitchell Hutchins, the investment adviser and administrator of each
Fund, makes and implements all investment decisions and supervises all aspects
of each Fund's operations. Mitchell Hutchins receives a monthly fee for these
services. For the fiscal year ended October 31, 1994, Europe Growth Fund,
Global Growth and Income Fund and Global Energy Fund paid advisory fees at the
effective annual rates of 0.85%, 0.90% and 0.85% of such Fund's average daily
net assets, respectively. The Funds' advisory fees are higher than those paid
by most investment companies to their advisers, but Mitchell Hutchins believes
the fees are justified by the global nature of the Funds' investment activi-
ties. Brokerage transactions for the Funds may be conducted through PaineWebber
or its affiliates in accordance with procedures adopted by the Trust's board of
trustees.

Each Fund also pays PaineWebber an annual fee of $4.00 per active shareholder
account held at PaineWebber for certain services not provided by the Transfer
Agent. Each Fund incurs various other expenses and, for the fiscal year ended
October 31, 1994, the Funds' total expenses for their Class A, Class B and
Class D shares, stated as a percentage of net assets, were as follows: 1.65%,
2.40% and 2.39% for Europe Growth Fund, 1.76%, 2.54% and 2.55% for Global
Growth and Income Fund, and 1.99%, 2.82% and 2.74% for Global Energy Fund, re-
spectively.

Mitchell Hutchins is located at 1285 Avenue of the Americas, New York, New
York 10019. It is a wholly owned subsidiary of PaineWebber, which is in turn
wholly owned by Paine Webber Group Inc., a publicly owned financial services
holding company. As of January 31, 1995, Mitchell Hutchins was adviser or sub-
adviser of 36 investment companies with 63 separate portfolios and aggregate
assets of approximately $26.2 billion, including approximately $3.0 billion in
global funds.

Lauren Young has been primarily responsible for the day-to-day portfolio man-
agement of Europe Growth Fund since January 1994. Ms. Young is a vice president
and a portfolio manager of Mitchell Hutchins. Prior to joining Mitchell
Hutchins as a European equity analyst in February 1990, Ms. Young served as a
corporate finance analyst at Salomon Brothers and

36
<PAGE>

in the capital markets division of Donaldson, Lufkin and Jenrette.

Frank Jennings and Stuart Waugh have been primarily responsible for the day-
to-day portfolio management of Global Growth and Income Fund since November
1994. Mr. Jennings is a managing director of global equities of Mitchell
Hutchins. Prior to 1992, Mr. Jennings served as managing director of Global In-
vestments of AIG Global Investors. Mr. Waugh is a vice president of the Trust
and a managing director of global fixed income investments of Mitchell
Hutchins. Mr. Waugh has been employed by Mitchell Hutchins as a portfolio man-
ager for the last eight years.

Karen Finkel and Ellen R. Harris are responsible for the day-to-day manage-
ment of Global Energy Fund. Ms. Finkel and Ms. Harris assumed their responsi-
bilities in March 1995 and December 1994, respectively. Ms. Finkel is a first
vice president of Mitchell Hutchins and has been employed by Mitchell Hutchins
as a portfolio manager for the last seven years. Ms. Harris is a chief domestic
equity strategist and a managing director of Mitchell Hutchins. She is also a
vice president of the Trust and of other investment companies for which Mitch-
ell Hutchins or PaineWebber serves as investment adviser and has been employed
by Mitchell Hutchins as a portfolio manager for the last 11 years.

Other members of Mitchell Hutchins' international equities and fixed income
groups provide input on market outlook, interest rate forecasts and other con-
siderations pertaining to global equity and fixed income investments.

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

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

Mitchell Hutchins uses the distribution fees under the Class B and Class D
Plans to offset the commissions it pays to PaineWebber for selling the Funds'
Class B and Class D shares. PaineWebber passes on to its investment executives
a portion of these commissions and retains the remainder to offset its expenses
in selling Class B and Class D shares. These expenses may include the branch
office costs noted above. In addition, Mitchell Hutchins uses the distribution
fees under the Class B and Class D Plans to offset each Fund's marketing costs
attributable to such Classes, such as preparation of sales literature, adver-
tising and printing and distributing prospectuses and other shareholder materi-
als to prospective investors. Mitchell Hutchins also may use the distribution
fees to pay additional compensation to PaineWebber and other costs allocated to
Mitchell Hutchins' and PaineWebber's distri-
37
<PAGE>

bution activities, including employee salaries, bonuses and other overhead ex-
penses.

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

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

During the period they are in effect, the Plans and related distribution con-
tracts pertaining to each Class of shares ("Distribution Contracts") obligate
the Funds to pay service and distribution fees to Mitchell Hutchins as compen-
sation for its service and distribution activities, not as reimbursement for
specific expenses incurred. Thus, even if Mitchell Hutchins' expenses exceed
its service or distribution fees for any Fund, the Fund will not be obligated
to pay more than those fees and, if Mitchell Hutchins' expenses are less than
such fees, it will retain its full fees and realize a profit. Each Fund will
pay the service and distribution fees to Mitchell Hutchins until either the ap-
plicable Plan or Distribution Contract is terminated or not renewed. In that
event, Mitchell Hutchins' expenses in excess of service and distribution fees
received or accrued through the termination date will be Mitchell Hutchins'
sole responsibility and not obligations of the Fund. In their annual considera-
tion of the continuation of each Fund's Plans, the Trust's board of trustees
will review the Plan and Mitchell Hutchins' corresponding expenses for each
Class separately from the Plans and corresponding expenses for the other two
Classes.

PERFORMANCE INFORMATION

Each Fund performs a standardized computation of annualized total return and
may show this return in advertisements or promotional materials. Standardized
return shows the change in value of an investment in the Fund as a steady com-
pound annual rate of return. Actual year-by-year returns fluctuate and may be
higher or lower than standardized return. Standardized return for the Class A
shares of each Fund reflects deduction of the Fund's maximum initial sales
charge at the time of purchase, and standardized return for the Class B shares
of each Fund reflects deduction of the applicable contingent deferred sales
charge imposed on a redemption of shares held for the period. One-, five- and
ten-year periods will be shown, unless the Class has been in existence for a
shorter period. Total return calculations assume reinvestment of dividends and
other distributions.

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

Each Fund will include performance data for all three Classes of Fund shares
in any advertisements or promotional materials including Fund performance data.
Total return and yield information reflects past performance and does not nec-
essarily indicate future results. Investment return and principal values will
fluctuate, and proceeds upon redemption may be more or less than a sharehold-
er's cost.
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<PAGE>

GENERAL INFORMATION

ORGANIZATION. PaineWebber Investment Series is registered with the SEC as an
open-end management investment company and was organized as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts by Declara-
tion of Trust dated December 22, 1986. The trustees have authority to issue an
unlimited number of shares of beneficial interest of separate series, par value
$.001 per share. In addition to the Funds, shares of one other series have been
authorized.

The shares of beneficial interest of each Fund are divided into three Clas-
ses, designated Class A shares, Class B shares and Class D shares. Each Class
represents interests in the same assets of each Fund. The Classes differ as
follows: (1) each Class has exclusive voting rights on matters pertaining to
its plan of distribution; (2) Class A shares are subject to an initial sales
charge; (3) Class B shares bear ongoing distribution fees, are subject to a
contingent deferred sales charge upon certain redemptions and will automati-
cally convert to Class A shares approximately six years after issuance; (4)
Class D shares are subject to neither an initial nor a contingent deferred
sales charge, bear ongoing distribution fees and do not convert into another
Class; and (5) each Class may bear differing amounts of certain Class-specific
expenses. The Trust's board of trustees does not anticipate that there will be
any conflicts among the interests of the holders of the different Classes of
shares of a Fund. On an ongoing basis, the board of trustees will consider
whether any such conflict exists and, if so, take appropriate action.

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

To avoid additional operating costs and for investor convenience, the Funds
no longer issue share certificates. Ownership of shares of each Fund is re-
corded on a stock register by the Transfer Agent and shareholders have the same
rights of ownership with respect to such shares as if certificates had been is-
sued.

CUSTODIAN AND TRANSFER AGENT. Brown Brothers Harriman & Co., 40 Water Street,
Boston, Massachusetts 02109, is custodian of each Fund's assets and employs
foreign sub-custodians, approved by the Trust's board of trustees in accordance
with applicable requirements under the 1940 Act, to provide custody of the
Funds' foreign assets. PFPC Inc., a subsidiary of PNC Bank, National Associa-
tion, whose principal business address is 400 Bellevue Parkway, Wilmington,
Delaware 19809, is the Funds' transfer and dividend disbursing agent.

CONFIRMATIONS AND STATEMENTS. Shareholders receive confirmations of purchases
and re-

39
<PAGE>

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

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<PAGE>

APPENDIX

THE FUNDS MAY USE SOME OR ALL OF THE FOLLOWING HEDGING INSTRUMENTS:

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

OPTIONS ON SECURITIES INDICES--A securities index assigns relative values to
the securities included in the index and fluctuates with changes in the market
values of those securities. An index option operates in the same way as a more
traditional stock option, except that exercise of an index option is effected
with cash payment and does not involve delivery of securities. Thus, upon exer-
cise of an index option, the purchaser will realize, and the writer will pay,
an amount based on the difference between the exercise price and the closing
price of the index.

STOCK INDEX FUTURES CONTRACTS--A stock index futures contract is a bilateral
agreement pursuant to which one party agrees to accept, and the other party
agrees to make, delivery of an amount of cash equal to a specified dollar
amount times the difference between the stock index value at the close of trad-
ing of the contract and the price at which the futures contract is originally
struck. No physical delivery of the stocks comprising the index is made. Gener-
ally, contracts are closed out prior to the expiration date of the contract.

INTEREST RATE AND FOREIGN CURRENCY FUTURES CONTRACTS--Interest rate and for-
eign currency futures contracts are bilateral agreements pursuant to which one
party agrees to make, and the other party agrees to accept, delivery of a spec-
ified type of debt security or currency at a specified future time and at a
specified price. Although such futures contracts by their terms call for actual
delivery or acceptance of debt securities or currency, in most cases the con-
tracts are closed out before the settlement date without the making or taking
of delivery.

OPTIONS ON FUTURES CONTRACTS--Options on futures contracts are similar to op-
tions on securities or currency, except that an option on a futures contract
gives the purchaser the right, in return for the premium, to assume a position
in a futures contract (a long position if the option is a call and a short po-
sition if the option is a put), rather than to purchase or sell a security or
currency, at a specified price at any time during the option term. Upon exer-
cise of the option, the delivery of the futures position to the holder of the
option will be accompanied by delivery of the accumulated balance that repre-
sents the amount by which the market price of the futures contract exceeds, in
the case of a call, or is less than, in the case of a put, the exercise price
of the option on the future. The writer of an option, upon exercise, will as-
sume a short position in the case of a call and a long position in the case of
a put.

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

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<PAGE>

Application Form

THE PAINEWEBBER [_] [_] - [_] [_] [_] [_] [_] - [_] [_]
MUTUAL FUNDS PaineWebber Account No.
- --------------------------------------------------------------------------------
INSTRUCTIONS DO NOT USE THIS FORM IF YOU WOULD LIKE YOUR ACCOUNT SERVICED
THROUGH PAINEWEBBER. INSTEAD, CALL YOUR PAINEWEBBER INVESTMENT
EXECUTIVE (OR YOUR LOCAL PAINEWEBBER OFFICE TO OPEN AN ACCOUNT).

ALSO, DO NOT USE THIS FORM TO OPEN Return this completed form
A RETIREMENT PLAN ACCOUNT. FOR to: PFPC Inc. P.O. Box 8950
RETIREMENT PLAN FORMS OR FOR Wilmington, Delaware 19899
ASSISTANCE IN COMPLETING THIS FORM ATTN: PaineWebber Mutual
CONTACT PFPC INC. AT 1-800-647-1568. Funds
PLEASE PRINT
- --------------------------------------------------------------------------------

1 INITIAL INVESTMENT ($1,000 MINIMUM)

ENCLOSED IS A CHECK FOR:
$ (payable to PaineWebber Europe Growth Fund) to pur-
chase Class A [_] or Class B [_] or Class D [_] shares.

$ (payable to PaineWebber Global Growth and Income Fund)
to purchase Class A [_] or Class B [_] or
Class D [_] shares.

$ (payable to PaineWebber Global Energy Fund) to pur-
chase Class A [_] or Class B [_] or Class D [_] shares.

(Check one Class; if no Class is specified Class A shares will
be purchased)
A SEPARATE CHECK IS REQUIRED FOR YOUR INVESTMENT IN EACH FUND.

2 ACCOUNT REGISTRATION

Not valid 1. Individual / /
without ------------- --------------- ------------
signature and First Name Last Name MI Soc. Sec. No.
Soc. Sec. or
Tax ID #.
2. Joint Tenancy / /
- --As joint ------------ --------------- ------------
tenants, use First Name Last Name MI Soc. Sec. No.
Lines 1 and 2. ("Joint Tenants with Rights of Survivorship" unless
- --As otherwise specified)
custodian
for a minor, 3. Gifts to Minors / /
use Lines 1 -------------------------- ------------
and 3. Minor's Name Soc. Sec. No.

- --In the name
of a Uniform Gifts Uniform Trans-
corporation, to Minors /fers to Minors
trust or Under the _______________________ Act Act
other State of Residence of Minor
organization
or any 4. Other Registrations
fiduciary ------------------------ ------------
capacity, use Name Tax Ident. No.
Line 4.
5. If Trust, Date of Trust Instrument:
---------------------------

3 ADDRESS

---------------------------- U.S. Citizen [_] YES [_] NO*
Street
---------------------------- ----------------------------
City State Zip Code *Country of Citizenship

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

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

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

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

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

5 SPECIAL OPTIONS (For More Information--Check Appropriate Box)

[_] Automatic Investment Plan [_] Prototype IRA Application
[_] Systematic Withdrawal Plan

6 RIGHTS OF ACCUMULATION--CLASS A SHARES (See Prospectus)

Indicate here any other account(s) in the group of funds that would
qualify for the cumulative quantity discount as outlined in the
Prospectus.

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

7 PLEASE INDICATE BELOW IF YOU ARE AFFILIATED WITH PAINEWEBBER

"Affiliated" persons are defined as officers, directors/trustees and
employees of the PaineWebber funds, PaineWebber or its affiliates, and
their parents, spouses and children.

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

8 SIGNATURE(S) AND TAX CERTIFICATION

I warrant that I have full authority and am of legal age to purchase
shares of the Fund(s) specified and have received and read a current
Prospectus of the Fund(s) and agree to its terms. The Fund(s) and their
Transfer Agent will not be liable for acting upon instructions or
inquiries believed genuine. Under penalties of perjury, I certify that (1)
my taxpayer identification number provided in this application is correct
and (2) I am not subject to backup withholding because (i) I have not been
notified that I am subject to backup withholding as a result of failure to
report interest or dividends or (ii) the IRS has notified me that I am no
longer subject to backup withholding (strike out clause (2) if incorrect).

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

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

9 INVESTMENT EXECUTIVE IDENTIFICATION (To be Completed By Investment
Executive Only)

-------------------------- --------------------------
Broker No./Name Branch Wire Code

( )
-------------------------- --------------------------
Branch Address Telephone

10 CORRESPONDENT FIRM IDENTIFICATION (To Be Completed By Correspondent
Firm Only)

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

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

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

Shares of the Funds can be exchanged for shares of other PaineWebber Mutual
Funds which include:

PAINEWEBBER INCOME FUNDS

.Global Income Fund
.High Income Fund
.Investment Grade Income Fund
.Short-Term U.S. Government In-
come Fund
.Short-Term U.S. Government In-
come Fund for Credit Unions
.Strategic Income Fund
.U.S. Government Income Fund

PAINEWEBBER TAX-FREE INCOME FUNDS

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

PAINEWEBBER GROWTH FUNDS

.Atlas Global Growth Fund
.Blue Chip Growth Fund
.Capital Appreciation Fund
.Communications & Technology Growth Fund
.Growth Fund
.Regional Financial Growth Fund
.Small Cap Value Fund

PAINEWEBBER GROWTH AND INCOME FUNDS

.Asset Allocation Fund
.Dividend Growth Fund
.Utility Income Fund

PAINEWEBBER MONEY MARKET FUND

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

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

Printed on Recycled Paper

LOGO PAINEWEBBER

EUROPE GROWTH FUND
GLOBAL GROWTH AND
INCOME FUND
GLOBAL ENERGY FUND

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

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................................... 2
Financial Highlights....................................................... 8
Flexible Pricing System.................................................... 14
Investment Objectives and Policies......................................... 15
Purchases ................................................................. 27
Exchanges.................................................................. 30
Redemptions................................................................ 31
Conversion of Class B Shares............................................... 33
Other Services and Information............................................. 33
Dividends and Taxes........................................................ 34
Valuation of Shares........................................................ 36
Management................................................................. 36
Performance Information.................................................... 38
General Information........................................................ 39
Appendix................................................................... 41
</TABLE>

PROSPECTUS
March 1, 1995
- -------------------------
<PAGE>

PAINEWEBBER EUROPE GROWTH FUND
PAINEWEBBER GLOBAL GROWTH AND INCOME FUND
PAINEWEBBER GLOBAL ENERGY FUND

1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019

STATEMENT OF ADDITIONAL INFORMATION

The three funds named above (each a "Fund") are series of PaineWebber
Investment Series ("Trust"), a professionally managed mutual fund. PaineWebber
Europe Growth Fund ("Europe Growth Fund") and PaineWebber Global Energy Fund
("Global Energy Fund") are diversified funds, while PaineWebber Global Growth
and Income Fund ("Global Growth and Income Fund") is a non-diversified fund.
Europe Growth Fund seeks long-term capital appreciation; it invests principally
in equity securities of issuers based in Europe. Global Growth and Income Fund
seeks high total return; it invests in equity, debt and money market securities
of U.S. and foreign issuers. Global Energy Fund seeks high total return by
investing principally in debt and equity securities of U.S. and foreign energy
and energy service companies. The Funds' investment adviser, administrator and
distributor is Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a
wholly owned subsidiary of PaineWebber Incorporated ("PaineWebber"). As
distributor for the Funds, Mitchell Hutchins has appointed PaineWebber to serve
as the exclusive dealer for the sale of Fund shares. This Statement of
Additional Information is not a prospectus and should be read only in
conjunction with the Funds' current Prospectus, dated March 1, 1995. A copy of
the Prospectus may be obtained by calling any PaineWebber investment executive
or correspondent firm or by calling toll-free 1-800-647-1568. This Statement of
Additional Information is dated March 1, 1995.

INVESTMENT POLICIES AND RESTRICTIONS

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

SPECIAL CONSIDERATIONS RELATING TO FOREIGN SECURITIES. Many of the foreign
securities held by the Funds are not registered with the Securities and
Exchange Commission ("SEC"), nor are the issuers thereof subject to its
reporting requirements. Accordingly, there may be less publicly available
information concerning foreign issuers of securities held by the Funds than is
available concerning U.S. companies. Foreign companies are not generally
subject to uniform accounting, auditing and financial reporting standards or to
other regulatory requirements comparable to those applicable to U.S. companies.

In addition to purchasing securities of foreign issuers in foreign markets,
the Funds may invest in American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs") or other securities convertible into securities of
corporations based in foreign countries. These securities may not necessarily
be denominated in the same currency as the securities into which they may be
converted. Generally, ADRs, in registered form, are denominated in U.S. dollars
and are designed
<PAGE>

for use in the U.S. securities markets and EDRs, in bearer form, may be
denominated in other currencies and are designed for use in European securities
markets. ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities. EDRs are European receipts
evidencing a similar arrangement. For purposes of the Funds' investment
policies, ADRs and EDRs are deemed to have the same classification as the
underlying securities they represent. Thus, an ADR or EDR evidencing ownership
of common stock will be treated as common stock.

Each Fund anticipates that its brokerage transactions involving securities of
companies headquartered in countries other than the United States will be
conducted primarily on the principal exchanges of such countries. Foreign
security trading practices, including those involving securities settlement
where Fund assets may be released prior to receipt of payment, may expose a
Fund to increased risk in the event of a failed trade or the insolvency of a
foreign broker-dealer. Transactions on foreign exchanges are usually subject to
fixed commissions that are generally higher than negotiated commissions on U.S.
transactions, although each Fund will endeavor to achieve the best net results
in effecting its portfolio transactions. There is generally less government
supervision and regulation of exchanges and brokers in foreign countries than
in the United States.

Investment income on certain foreign securities in which each Fund may invest
may be subject to foreign withholding or other taxes that could reduce the
return on these securities. Tax treaties between the United States and foreign
countries, however, may reduce or eliminate the amount of foreign taxes to
which the Funds would be subject.

SOVEREIGN DEBT. Investment by a Fund in debt securities issued by foreign
governments and their political subdivisions or agencies ("Sovereign Debt")
involves special risks. The issuer of the debt or the governmental authorities
that control the repayment of the debt may be unable or unwilling to repay
principal and/or interest when due in accordance with the terms of such debt,
and the Fund may have limited legal recourse in the event of a default.

Sovereign Debt differs from debt obligations issued by private entities in
that, generally, remedies for defaults must be pursued in the courts of the
defaulting party. Legal recourse is therefore somewhat diminished. Political
conditions, especially a sovereign entity's willingness to meet the terms of
its debt obligations, are of considerable significance. Also, there can be no
assurance that the holders of commercial bank debt issued by the same sovereign
entity may not contest payments to the holders of Sovereign Debt in the event
of default under commercial bank loan agreements.

A sovereign debtor's willingness or ability to repay principal and interest
due in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
principal international lenders and the political constraints to which a
sovereign debtor may be subject. Increased protectionism on the part of a
country's trading partners, or political changes in those countries, could also
adversely affect its exports. Such events could diminish a country's trade
account surplus, if any, or the credit standing of a particular local
government or agency.

The occurrence of political, social or diplomatic changes in one or more of
the countries issuing Sovereign Debt could adversely affect a Fund's
investments. Political changes or a deterioration of

2
<PAGE>

a country's domestic economy or balance of trade may affect the willingness of
countries to service their Sovereign Debt. While Mitchell Hutchins manages the
Funds' portfolios in a manner that is intended to minimize the exposure to such
risks, there can be no assurance that adverse political changes will not cause
a Fund to suffer a loss of interest or principal on any of its holdings.

FOREIGN CURRENCY TRANSACTIONS. Although each Fund values its assets daily in
U.S. dollars, it does not intend to convert its holdings of foreign currencies
to U.S. dollars on a daily basis. The Funds' foreign currencies may be held as
"foreign currency call accounts" at foreign branches of foreign or domestic
banks. These accounts bear interest at negotiated rates and are payable upon
relatively short demand periods. If a bank became insolvent, a Fund could
suffer a loss of some or all of the amounts deposited. The Funds may convert
foreign currency to U.S. dollars from time to time. Although foreign exchange
dealers generally do not charge a stated commission or fee for conversion, the
prices posted generally include a "spread," which is the difference between the
prices at which the dealers are buying and selling foreign currencies.

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

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

3
<PAGE>

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

The Trust's board of trustees has delegated the function of making day-to-day
determinations of liquidity to Mitchell Hutchins, pursuant to guidelines
approved by the board. Mitchell Hutchins takes into account a number of factors
in reaching liquidity decisions, including (1) the frequency of trades for the
security, (2) the number of dealers that make quotes for the security, (3) the
number of dealers that have undertaken to make a market in the security, (4)
the number of other potential purchasers and (5) the nature of the security and
how trading is effected (e.g., the time needed to sell the security, how bids
are solicited and the mechanics of transfer). Mitchell Hutchins monitors the
liquidity of restricted securities in each Fund's portfolio and reports
periodically on such decisions to the board of trustees.

YIELD FACTORS AND RATINGS. Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Group ("S&P") and other nationally recognized
statistical rating organizations ("NRSROs") are private services that provide
ratings of the credit quality of fixed income obligations. A description of
ratings assigned to corporate debt obligations and preferred stock by Moody's
and S&P is included in the Appendix to this Statement of Additional
Information. The Funds may use these ratings in determining whether to
purchase, sell or hold a security. It should be emphasized, however, that
ratings are general and are not absolute standards of quality. Consequently,
securities with the same maturity, interest rate and rating may have different
market prices. Credit ratings attempt to evaluate the safety of principal and
interest payments and do not evaluate the risks of fluctuations in market value
or the risks of changes in foreign currency exchange rates. Also, NRSROs may
fail to make timely changes in credit ratings in response to subsequent events,
so that an issuer's current financial condition may be better or worse than the
rating indicates. The rating assigned to a security by a NRSRO does not reflect
an assessment of the security's market value or of the liquidity of an
investment in the security. Subsequent to its purchase by a Fund, an issue of
debt obligations may cease to be rated or its rating may be reduced below the
minimum rating required for purchase by that Fund. Mitchell Hutchins will
consider such an event in determining whether the Fund should continue to hold
the obligation but is not required to dispose of it.

4
<PAGE>

are subject to the provisions of bankruptcy, insolvency and other laws
affecting the rights and remedies of bond holders or other creditors of an
issuer; litigation or other conditions may also adversely affect the power or
ability of issuers to meet their obligations for the payment of interest and
principal on their bonds.

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

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

REVERSE REPURCHASE AGREEMENTS. Each Fund may enter into reverse repurchase
agreements with banks and securities dealers up to an aggregate value of not
more than 5% of its total assets. Such agreements involve the sale of
securities held by a Fund subject to the Fund's agreement to repurchase the
securities at an agreed-upon date and price reflecting a market rate of
interest. Such agreements are considered to be borrowings and may be entered
into only for temporary or emergency purposes. While a reverse repurchase
agreement is outstanding, a Fund's custodian segregates assets to cover the
amount of the Fund's obligations under the reverse repurchase agreement. See
"Investment Policies and Restrictions--Segregated Accounts." The Funds have no
intention of entering into reverse repurchase agreements during the coming
year.

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

5
<PAGE>

LENDING OF PORTFOLIO SECURITIES. Although they have no intention of doing so
during the coming year, each Fund is authorized to lend up to 10% of the total
value of its portfolio securities to broker-dealers or institutional investors
that Mitchell Hutchins deems qualified, but only when the borrower maintains
with the Fund's custodian bank collateral either in cash or money market
instruments, marked to market daily, in an amount at least equal to the market
value of the securities loaned, plus accrued interest and dividends. In
determining whether to lend securities to a particular broker-dealer or
institutional investor, Mitchell Hutchins will consider, and during the period
of the loan will monitor, all relevant facts and circumstances, including the
creditworthiness of the borrower. Each Fund will retain authority to terminate
any loans at any time. A Fund may pay reasonable administrative and custodial
fees in connection with a loan and may pay a negotiated portion of the interest
earned on the cash or money market instruments held as collateral to the
borrower or placing broker. A Fund will receive reasonable interest on the loan
or a flat fee from the borrower and amounts equivalent to any dividends,
interest or other distributions on the securities loaned. A Fund will regain
record ownership of loaned securities to exercise beneficial rights, such as
voting and subscription rights and rights to dividends, interest or other
distributions, when regaining such rights is considered to be in the Fund's
interest.

U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES. The U.S. government securities in
which Global Growth and Income Fund may invest include mortgage-backed
securities issued or guaranteed by the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association or the Federal Home Loan
Mortgage Corporation, which represent undivided ownership interests in pools of
mortgages. The mortgages backing these securities include both fixed and
adjustable rate mortgages. The U.S. government or the issuing agency guarantees
the payment of the interest on and principal of these securities. The
guarantees do not extend to the securities' value, however, which is likely to
vary inversely with fluctuations in interest rates, and the guarantees do not
extend to the yield or market value of the Fund's shares. These securities are
"pass-through" instruments through which the holders receive a share of the
interest and principal payments from the mortgages underlying the securities,
net of certain fees. The principal amounts of such underlying mortgages
generally may be prepaid in whole or in part by the mortgagees at any time
without penalty, and the prepayment characteristics of the underlying mortgages
may vary. During periods of declining interest rates, prepayment of mortgages
underlying mortgage-backed securities can be expected to accelerate. The Fund
will reinvest prepaid amounts in other income producing securities, the yields
of which will reflect interest rates prevailing at the time. Accelerated
prepayments adversely affect yields for mortgage-backed securities purchased by
the Fund at a premium and may involve additional risk of loss of principal
because the premium may not have been fully amortized at the time the
obligation is prepaid. The opposite is true for mortgage-backed securities
purchased by the Fund at a discount.

PRIVATE MORTGAGE-BACKED SECURITIES. The private mortgage-backed securities in
which Global Growth and Income Fund may invest include U.S. private
collateralized mortgage obligations or single- or multi-class pass-through
securities and foreign mortgage pass-through securities ("Foreign Pass-
Throughs"), which are structurally similar to the pass-through instruments
described above. Such securities generally are issued by originators of and
investors in mortgage loans, including savings associations, mortgage bankers,
commercial banks, investment bankers, specialized financial institutions and
special purpose entities. Foreign Pass-Throughs usually are backed by pools of
fixed rate or adjustable rate mortgage loans. The private mortgage-backed
securities in which Global

6
<PAGE>

Growth and Income Fund invests typically are not guaranteed by an entity having
the credit status of GNMA, but they generally utilize various types of credit
enhancement.

CONVERTIBLE SECURITIES. As described in the Prospectus, each Fund may invest
in convertible securities. Before conversion, convertible securities have
characteristics similar to nonconvertible debt securities in that they
ordinarily provide a stable stream of income with generally higher yields than
those of common stocks of the same or similar issuers. Convertible securities
rank senior to common stock in a corporation's capital structure but are
usually subordinated to comparable nonconvertible securities. The value of a
convertible security is a function of its "investment value" (determined by its
yield in comparison with the yields of other securities of comparable maturity
and quality that do not have a conversion privilege) and its "conversion value"
(the security's worth, at market value, if converted into the underlying common
stock). The investment value of a convertible security is influenced by changes
in interest rates, with investment value declining as interest rates increase
and increasing as interest rates decline. The credit standing of the issuer and
other factors also may have an effect on the convertible security's investment
value. The conversion value of a convertible security is determined by the
market price of the underlying common stock. If the conversion value is low
relative to the investment value, the price of the convertible security is
governed principally by its investment value, and generally the conversion
value decreases as the convertible security approaches maturity. To the extent
the market price of the underlying common stock approaches or exceeds the
conversion price, the price of the convertible security will be increasingly
influenced by its conversion value. In addition, a convertible security
generally will sell at a premium over its conversion value determined by the
extent to which investors place value on the right to acquire the underlying
common stock while holding a fixed income security.

PRECIOUS METAL-RELATED SECURITIES. As disclosed in the Prospectus, Global
Growth and Income Fund may invest in securities of companies that explore for,
extract, process or deal in precious metals, i.e., gold, silver and platinum,
and in asset-based securities indexed to the value of such metals. Such
securities may be purchased when they are believed to be attractively priced in
relation to the value of a company's precious metal-related assets or when the
values of precious metals are expected to benefit from inflationary pressure or
other economic, political or financial uncertainty or instability.

The major producers of gold include the Republic of South Africa, Russia,
Canada, the United States, Brazil and Australia. Sales of gold by Russia are
largely unpredictable and often relate to political and economic considerations
rather than to market forces. Economic, social and political developments
within South Africa may significantly affect South African gold production.

While the market prices for an asset-based security and the related natural
resource asset generally are expected to move in the same direction, there may
not be perfect correlation in the two price movements. Asset-based securities
may not be secured by a security interest in or claim on the underlying natural
resource asset. The asset-based securities in which Global Growth and Income
Fund may invest may bear interest or pay preferred dividends at below market
(or even relatively nominal) rates. Certain asset-based securities may be
payable in cash at maturity at a stated amount or, at the option of the holder,
the cash equivalent of a stated amount of the asset to which it is related. (As
an example, assume gold is selling at a market price of $300 per ounce and an
issuer sells a $1,000 face amount gold-related note with a seven-year maturity,
payable in cash at maturity at the greater of either $1,000 or the then-market
price of three ounces of gold. If, at maturity, the market price of gold is
$400 per ounce, the amount payable on the note would be

7
<PAGE>

$1,200.) In such instance, the Fund may sell the asset-based security in the
secondary market, to the extent one exists, prior to maturity if the value of
the stated amount of the asset exceeds the stated principal amount and thereby
realize the appreciation in the underlying asset.

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

INVESTMENT LIMITATIONS OF THE FUNDS

EUROPE GROWTH FUND. Europe Growth Fund may not (1) issue senior securities or
borrow money, except from banks or through reverse repurchase agreements for
emergency or temporary purposes, and then in an aggregate amount not in excess
of 10% of the value of Europe Growth Fund's total assets at the time of such
borrowing, provided that Europe Growth Fund will not purchase securities while
borrowings (including reverse repurchase agreements) in excess of 5% of the
value of Europe Growth Fund's total assets are outstanding; (2) purchase
securities of any one issuer if as a result more than 5% of Europe Growth
Fund's total assets would be invested in such issuer or Europe Growth Fund
would own or hold 10% of the outstanding voting securities of that issuer,
except that up to 25% of Europe Growth Fund's total assets may be invested
without regard to this limitation and provided that this limitation does not
apply to securities issued or guaranteed by the U.S. government, its agencies
and instrumentalities; (3) make an investment in any one industry if doing so
would cause the value of investments in such industry at the time of purchase
to be 25% or more of Europe Growth Fund's total assets taken at market value;
(4) purchase securities on margin, except for short-term credits necessary for
clearance of portfolio transactions and except that Europe Growth Fund may make
margin deposits in connection with its use of options, futures contracts and
options on futures contracts; (5) underwrite securities of other issuers,
except to the extent that, in connection with the disposition of portfolio
securities, Europe Growth Fund may be deemed an underwriter under federal
securities laws; (6) make short sales of securities or maintain a short
position, except that Europe Growth Fund may (a) make short sales and maintain
short positions in connection with its use of options, futures contracts and
options on futures contracts and (b) sell short "against the box"; (7) purchase
or sell real estate, provided that Europe Growth Fund may invest in securities
secured by, or issued by companies that invest in, real estate or interests
therein, including real estate investment trusts; (8) purchase or sell
commodities or commodity contracts, except that Europe Growth Fund may purchase
or sell stock index, interest rate and foreign currency futures contracts and
options thereon, may engage in transactions in foreign currencies and may
purchase or sell options on foreign currencies for hedging purposes; (9) invest
in oil, gas or mineral-related programs or leases, provided that Europe Growth
Fund may invest in securities issued by companies that engage in such
activities; (10) make loans, except through loans of portfolio securities as
described in this Statement of Additional Information and except through
repurchase agreements, provided that for purposes of this restriction the
acquisition of publicly distributed bonds, debentures or other corporate debt
securities and investment in government obligations, short-term commercial
paper, certificates of deposit and bankers'

8
<PAGE>

acceptances shall not be deemed to be the making of a loan; or (11) purchase
any securities issued by any other investment company, except by purchase in
the open market where no commission or profit, other than a customary broker's
commission, is earned by any sponsor or dealer associated with the investment
company whose shares are acquired as a result of such purchase, provided that
such securities in the aggregate do not represent more than 10% of Europe
Growth Fund's total assets, or except in connection with the merger,
consolidation or acquisition of all the securities or assets of such an issuer.

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

The following investment restrictions may be changed by the vote of the
Trust's board of trustees without shareholder approval. Europe Growth Fund may
not (1) purchase or retain the securities of any issuer if, to the knowledge of
Europe Growth Fund's management, the officers and trustees of the Trust and the
officers and directors of Mitchell Hutchins (each owning beneficially more than
0.5% of the outstanding securities of the issuer) own in the aggregate more
than 5% of the securities of the issuer; (2) invest more than 10% of its net
assets in illiquid securities, a term that means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which it has valued the securities and includes,
among other things, repurchase agreements maturing in more than seven days; (3)
make investments in warrants, if such investments, valued at the lower of cost
or market, exceed 5% of the value of its net assets, which amount may include
warrants that are not listed on the New York Stock Exchange, Inc. ("NYSE") or
American Stock Exchange, Inc. ("AMEX"), provided that such warrants, valued at
the lower of cost or market, do not exceed 2% of its net assets, and further
provided that this restriction does not apply to warrants attached to, or sold
as a unit with, other securities; (4) purchase any security if as a result it
would have more than 5% of its total assets invested in securities of companies
that together with any predecessors have been in continuous operation for less
than three years; or (5) invest more than 35% of its total assets in debt
securities rated Ba or lower by Moody's or BB or lower by S&P, comparably rated
by another NRSRO or determined by Mitchell Hutchins to be of comparable
quality. This non-fundamental policy (5) can be changed only upon 30 days
advance notice to shareholders.

Europe Growth Fund will continue to interpret fundamental investment
limitation (7) to prohibit investment in real estate limited partnerships.

GLOBAL GROWTH AND INCOME FUND. Global Growth and Income Fund may not (1)
issue senior securities or borrow money, except from banks or through reverse
repurchase agreements for emergency or temporary purposes, and then in an
aggregate amount not in excess of 10% of the value of Global Growth and Income
Fund's total assets at the time of such borrowing, provided that Global Growth
and Income Fund will not purchase securities while borrowings (including
reverse repurchase agreements) in excess of 5% of the value of Global Growth
and Income Fund's total assets are outstanding; (2) purchase securities of any
one issuer if as a result more than 5% of Global

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<PAGE>

Growth and Income Fund's total assets would be invested in such issuer or
Global Growth and Income Fund would own or hold more than 10% of the
outstanding voting securities of that issuer, except that up to 50% of Global
Growth and Income Fund's total assets may be invested without regard to this
limitation and provided that this limitation does not apply to securities
issued or guaranteed by the U.S. government, its agencies and
instrumentalities; (3) make an investment in any one industry if doing so would
cause the value of investments in such industry at the time of purchase to be
25% or more of Global Growth and Income Fund's total assets taken at market
value; (4) purchase securities on margin, except for short-term credits
necessary for clearance of portfolio transactions and except that Global Growth
and Income Fund may make margin deposits in connection with its use of options,
futures contracts and options on futures contracts; (5) underwrite securities
of other issuers, except to the extent that, in connection with the disposition
of portfolio securities, Global Growth and Income Fund may be deemed an
underwriter under federal securities laws; (6) make short sales of securities
or maintain a short position, except that Global Growth and Income Fund may (a)
make short sales and maintain short positions in connection with its use of
options, futures contracts and options on futures contracts and (b) sell short
"against the box"; (7) purchase or sell real estate, provided that Global
Growth and Income Fund may invest in securities secured by, or issued by
companies that invest in, real estate or interests therein, including real
estate investment trusts; (8) purchase or sell commodities or commodity
contracts, except that Global Growth and Income Fund may purchase or sell stock
index, interest rate and foreign currency futures contracts and options
thereon, may engage in transactions in foreign currencies and may purchase or
sell options on foreign currencies for hedging purposes; (9) invest in oil, gas
or mineral-related programs or leases, provided that Global Growth and Income
Fund may invest in securities issued by companies that engage in such
activities; (10) make loans, except through loans of portfolio securities as
described in this Statement of Additional Information and except through
repurchase agreements, provided that for purposes of this restriction the
acquisition of publicly distributed bonds, debentures or other corporate debt
securities and investment in government obligations, short-term commercial
paper, certificates of deposit and bankers' acceptances shall not be deemed to
be the making of a loan; or (11) purchase any securities issued by any other
investment company, except by purchase in the open market where no commission
or profit, other than a customary broker's commission, is earned by any sponsor
or dealer associated with the investment company whose shares are acquired as a
result of such purchase, provided that such securities in the aggregate do not
represent more than 10% of Global Growth and Income Fund's total assets, or
except in connection with the merger, consolidation or acquisition of all the
securities or assets of such an issuer.

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

The following investment restrictions may be changed by the vote of the
Trust's board of trustees without shareholder approval. Global Growth and
Income Fund may not (1) purchase or retain the securities of any issuer if, to
the knowledge of Global Growth and Income Fund's management, the officers and
trustees of the Trust and the officers and directors of Mitchell

10
<PAGE>

Hutchins (each owning beneficially more than 0.5% of the outstanding securities
of the issuer) own in the aggregate more than 5% of the securities of the
issuer; (2) invest more than 10% of its net assets in illiquid securities, a
term that means securities that cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at which it has valued
the security and includes, among other things, repurchase agreements maturing
in more than seven days; (3) make investments in warrants, if such investments,
valued at the lower of cost or market, exceed 5% of the value of its net
assets, which amount may include warrants that are not listed on the NYSE or
AMEX, provided that such unlisted warrants, valued at the lower of cost or
market, do not exceed 2% of its net assets, and further provided that this
restriction does not apply to warrants attached to, or sold as a unit with,
other securities; (4) purchase securities of any one issuer if as a result it
would, as to 75% of its assets at the time of purchase, own or hold more than
10% of the outstanding voting securities of that issuer; (5) purchase any
security if as a result would have more than 5% of its total assets invested in
securities of companies that together with any predecessors have been in
continuous operation for less than three years; or (6) invest more than 35% of
its total assets in debt securities rated Ba or lower by Moody's or BB or lower
by S&P, comparably rated by another NRSRO or determined by Mitchell Hutchins to
be of comparable quality. This non-fundamental policy (6) can be changed only
upon 30 days' advance notice to shareholders.

Global Growth and Income Fund will continue to interpret fundamental
investment limitation (7) to prohibit investment in real estate limited
partnerships.

GLOBAL ENERGY FUND. Global Energy Fund may not (1) purchase securities of any
one issuer if as a result more than 5% of Global Energy Fund's total assets
would be invested in such issuer or the Fund would own or hold more than 10% of
the outstanding voting securities of that issuer, except that up to 25% of
Global Energy Fund's total assets may be invested without regard to this
limitation and provided that this limitation does not apply to securities
issued or guaranteed by the U.S. government, its agencies and
instrumentalities; (2) purchase securities on margin, except for short-term
credits necessary for clearance of portfolio transactions, and except that
Global Energy Fund may make margin deposits in connection with its use of
options, futures contracts and options on futures contracts; (3) underwrite
securities of other issuers, except to the extent that, in connection with the
disposition of portfolio securities, Global Energy Fund may be deemed an
underwriter under federal securities laws; (4) make short sales of securities
or maintain a short position, except that Global Energy Fund may (a) make short
sales and may maintain short positions in connection with its use of options,
futures contracts and options on futures contracts and (b) sell short "against
the box"; (5) purchase or sell real estate, provided that Global Energy Fund
may invest in securities secured by real estate or interests therein or issued
by companies which invest in real estate or interests therein; (6) make loans,
except through loans of portfolio securities and except through repurchase
agreements, provided that for purposes of this restriction the acquisition of
bonds, debentures, or other corporate debt securities and investment in
government obligations, short-term commercial paper, certificates of deposit
and bankers' acceptances shall not be deemed to be the making of loans; (7)
issue senior securities or borrow money, except from banks for temporary
purposes and except for reverse repurchase agreements, and then in an aggregate
amount not in excess of 10% of Global Energy Fund's total assets, provided that
Global Energy Fund will not purchase securities while borrowings in excess of
5% of its total assets are outstanding; (8) purchase any securities issued by
any other investment company, except in connection with the merger,
consolidation or acquisition of all the securities or assets of such an issuer;
(9) invest in oil, gas or mineral-related programs or leases, provided that
Global Energy Fund may invest in

11
<PAGE>

securities issued by companies that engage in such activities; and (10)
purchase or sell commodities or commodity contracts, except that Global Energy
Fund may purchase or sell stock index, interest rate and foreign currency
futures contracts and options thereon, may engage in transactions in foreign
currencies, may purchase and sell options on foreign currencies for hedging
purposes and may also purchase or sell options, futures contracts and options
on futures contracts on heating oil, gasoline, crude oil and other energy-
related products for hedging purposes.

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

The following investment restrictions may be changed by the vote of the
Trust's board of trustees without shareholder approval. Global Energy Fund may
not (1) purchase or retain the securities of any issuer if, to the knowledge of
Global Energy Fund's management, the officers and trustees of the Trust and the
officers and directors of Mitchell Hutchins (each owning beneficially more than
0.5% of the outstanding securities of the issuer) own in the aggregate more
than 5% of the securities of the issuer; (2) invest more than 10% of its net
assets in illiquid securities, a term that for this purpose means securities
that cannot be disposed of within seven days in the ordinary course of business
at approximately the amount at which it has valued the securities and includes,
among other things, repurchase agreements maturing in more than seven days; (3)
make investments in warrants, if such investments, valued at the lower of cost
or market, exceed 5% of the value of its net assets, which amount may include
warrants that are not listed on the NYSE or AMEX, provided that such unlisted
warrants, valued at the lower of cost or market, do not exceed 2% of its net
assets, and further provided that this restriction does not apply to warrants
attached to, or sold as a unit with, other securities; (4) purchase any
security if as a result more than 5% of its total assets would be invested in
securities of companies which together with any predecessors have been in
continuous operation for less than three years, or (5) invest more than 35% of
its total assets in debt securities rated Ba or lower by Moody's or BB or lower
by S&P, comparably rated by another NRSRO or determined by Mitchell Hutchins to
be of comparable quality. This non-fundamental policy (5) can be changed only
upon 30 days' advance notice to shareholders.

Global Energy Fund will continue to interpret fundamental investment
limitation (5) to prohibit investment in real estate limited partnerships.

HEDGING AND RELATED INCOME STRATEGIES

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<PAGE>

EUROPE GROWTH FUND. As discussed in the Prospectus, Mitchell Hutchins may
engage in certain options and futures strategies in order to attempt to hedge
Europe Growth Fund's portfolio. Mitchell Hutchins may use forward currency
contracts, options on foreign currencies, options on equity and debt securities
in which Europe Growth Fund is authorized to invest, stock index options, stock
index futures contracts, interest rate futures contracts, foreign currency
futures contracts and options on futures contracts.

GLOBAL GROWTH AND INCOME FUND. As discussed in the Prospectus, Mitchell
Hutchins may engage in certain options strategies involving securities in which
Global Growth and Income Fund is authorized to invest in order to attempt to
enhance income or to hedge Global Growth and Income Fund's portfolio. Global
Growth and Income Fund may also purchase options on stocks and stock indices to
attempt to achieve capital appreciation. Mitchell Hutchins also may use forward
currency contracts, write covered put and call options on foreign currencies
and use stock index options, stock index futures contracts, interest rate
futures contracts and foreign currency futures contracts and options on futures
contracts.

GLOBAL ENERGY FUND. As discussed in the Prospectus, Mitchell Hutchins may
engage in certain options strategies involving securities in which Global
Energy Fund is authorized to invest in order to attempt to enhance income or to
hedge Global Energy Fund's portfolio. Mitchell Hutchins also may use forward
currency contracts, write covered put and call options on foreign currencies
and use options, futures contracts and options on futures contracts on foreign
currencies. Although it has no intention of doing so during the current fiscal
year, Mitchell Hutchins also may use stock index options, stock index futures,
interest rate futures and options thereon.

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

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

Each Fund may purchase and write (sell) covered straddles on securities and
stock or debt indices. A long straddle is a combination of a call and a put
option purchased on the same security

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<PAGE>

or on the same futures contract, where the exercise price of the put is less
than or equal to the exercise price of the call. A Fund might enter into a long
straddle when Mitchell Hutchins believes it likely that interest rates will be
more volatile during the term of the option than the option pricing implies. A
short straddle is a combination of a call and a put option written on the same
security where the exercise price of the put is less than or equal to the
exercise price of the call. A Fund might enter into a short straddle when
Mitchell Hutchins believes it unlikely that interest rates will be as volatile
during the term of the option as the option pricing implies.

Hedging Instruments on securities generally are used to hedge against price
movements in one or more particular securities positions that a Fund owns or
intends to acquire. Hedging Instruments on stock indices, in contrast,
generally are used to hedge against price movements in broad equity market
sectors in which the Fund has invested or expects to invest. Hedging
Instruments on debt securities may be used to hedge either individual
securities or broad fixed income market sectors.

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

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

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

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

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

14
<PAGE>

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

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

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

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

OPTIONS. The Funds may purchase put and call options, and write (sell)
covered put and call options, on equity and debt securities in which they are
authorized to invest, foreign currencies and stock or debt indices. The
purchase of call options serves as a long hedge, and the purchase of put
options serves as a short hedge. Writing covered put or call options can enable
a Fund to enhance income by reason of the premiums paid by the purchasers of
such options. However, if the market price of the security underlying a covered
put option declines to less than the exercise price on the option, minus the
premium received, the Fund would expect to suffer a loss. Writing covered call
options serves as a limited short hedge, because declines in the value of the
hedged investment would be offset to the extent of the premium received for
writing the option. However, if the

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<PAGE>

security appreciates to a price higher than the exercise price of the call
option, it can be expected that the option will be exercised and the Fund will
be obligated to sell the security at less than its market value. Writing
covered put options serves as a limited long hedge because increases in the
value of the hedged instruments would be offset to the extent of the premiums
received for writing the options. However, if the security depreciates to a
price lower than the exercise price of the put option, it can be expected that
the put option will be exercised and a Fund will be obligated to purchase the
security at more than its market value. If the covered option is an OTC option,
the securities or other assets used as cover would be considered illiquid to
the extent described under "Investment Policies and Restrictions--Illiquid
Securities."

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

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

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

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

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<PAGE>

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

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

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

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

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

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

FUTURES. The purchase of futures or call options thereon can serve as a long
hedge, and the sale of futures or the purchase of put options thereon can serve
as a short hedge. Writing covered call options on futures contracts can serve
as a limited short hedge, using a strategy similar to that used for writing
covered call options on securities or indices. Similarly, writing covered put
options on futures contracts can serve as a limited long hedge.

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

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

17
<PAGE>

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

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

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

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

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

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

(1) To the extent a Fund enters into futures contracts, options on futures
positions and options on foreign currencies traded on a commodities exchange
that are not for bona fide hedging purposes

18
<PAGE>

(as defined by the CFTC), the aggregate initial margin and premiums on those
positions (excluding the amount by which options are "in-the-money") may not
exceed 5% of the Fund's net assets.

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

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

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

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

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

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

Settlement of hedging transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency.
Thus, a Fund might be required to accept or make delivery of the underlying
foreign currency in accordance with any U.S. or foreign regulations regarding
the maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.

19
<PAGE>

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

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

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

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

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

20
<PAGE>

LIMITATIONS ON THE USE OF FORWARD CURRENCY CONTRACTS. Each Fund may enter
into forward currency contracts or maintain a net exposure to such contracts
only if (1) the consummation of the contracts would not obligate the Fund to
deliver an amount of foreign currency in excess of the value of the position
being hedged by such contracts or (2) the Fund maintains cash, U.S. government
securities or liquid, high-grade debt securities in a segregated account in an
amount not less than the value of its total assets committed to the
consummation of the contract and not covered as provided in (1) above, as
marked to market daily.

OTHER OPTIONS AND FUTURES STRATEGIES. Although it has no intention of doing
so during the coming year, Global Energy Fund may invest in certain energy-
related commodity options and futures, such as heating oil, gasoline and crude
oil options and futures, to hedge against changes in the market value of
securities held in its portfolio. Such investments may be made only for hedging
purposes and only as permitted by applicable federal and state law. Such
options and futures contracts would be subject to the same guidelines as
described above for other options and futures contracts. Global Energy Fund
will not invest in energy-related commodity options or futures until such
instruments have been sufficiently described in the Prospectus and Statement of
Additional Information.

TRUSTEES AND OFFICERS

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

<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH TRUST OTHER DIRECTORSHIPS
---------------------- ------------------- --------------------
<S> <C> <C>
E. Garrett Bewkes, Trustee and Mr. Bewkes is a director of Paine
Jr.**; 68 Chairman of the Webber Group Inc. ("PW Group")
Board of Trustees (holding company of PaineWebber and
Mitchell Hutchins) and a consultant
to PW Group. Prior to 1988, he was
chairman of the board, president
and chief executive officer of
American Bakeries Company. Mr.
Bewkes is also a director of Inter-
state Bakeries Corporation and a
director or trustee of 26 other in-
vestment companies for which Mitch-
ell Hutchins or PaineWebber serves
as investment adviser.
Meyer Feldberg; 52 Trustee Mr. Feldberg is Dean and Professor
Columbia University of Management of the Graduate
101 Uris Hall School of Business, Columbia Uni-
New York, New York 10027 versity. Prior to 1989, he was
president of the Illinois Institute
of Technology. Dean Feldberg is
also a director of AMSCO
</TABLE>

21
<PAGE>

<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH TRUST OTHER DIRECTORSHIPS
---------------------- ------------------- --------------------
<S> <C> <C>
International Inc., Federated De-
partment Stores, Inc., Inco Homes
Corporation and New World Communi-
cations Group Incorporated and a
director or trustee of 18 other in-
vestment companies for which Mitch-
ell Hutchins or PaineWebber serves
as investment adviser.
George W. Gowen; 65 Trustee Mr. Gowen is a partner in the law
666 Third Avenue firm of Dunnington, Bartholow &
New York, New York 10117 Miller. Prior to May 1994, he was a
partner in the law firm of Fryer,
Ross & Gowen. Mr. Gowen is also a
director of Columbia Real Estate
Investments, Inc. and a director or
trustee of 16 other investment com-
panies for which Mitchell Hutchins
or PaineWebber serves as investment
adviser.
Paul B. Guenther**; 54 Trustee and President Mr. Guenther is a director of
PaineWebber and Mitchell Hutchins
and president and a director of PW
Group. Mr. Guenther is also presi-
dent and/or a director or trustee
of 25 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Frederic V. Malek; 58 Trustee Mr. Malek is chairman of Thayer Cap-
901 15th Street, N.W. ital Partners (investment bank) and
Suite 300 a co-chairman and director of CB
Washington, D.C. 20005 Commercial Group Inc. (real es-
tate). From January 1992 to Novem-
ber 1992, he was campaign manager
of Bush-Quayle '92. From 1990 to
1992, he was vice chairman, and
from 1989 to 1990, he was president
of Northwest Airlines Inc., NWA
Inc. (holding company of Northwest
Airlines Inc.) and Wings Holdings
Inc. (holding company of NWA Inc.)
Prior to 1989, he was employed by
the Marriott
</TABLE>

22
<PAGE>

<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH TRUST OTHER DIRECTORSHIPS
---------------------- ------------------- --------------------
<S> <C> <C>
Corporation (hotels, restaurants,
airline catering and contract feed-
ing), where he most recently was an
exec-utive vice president and pres-
ident of Marriott Hotels and Re-
sorts. Mr. Malek is also a director
of American Management Systems,
Inc., Automatic Data Processing,
Inc., Avis, Inc., FPL Group, Inc.,
ICF International, Manor Care, Inc.
and National Education Corporation
and a director or trustee of 16
other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Frank P.L. Minard**; 49 Trustee Mr. Minard is chairman and a direc-
tor of Mitchell Hutchins, chairman
of the board of Mitchell Hutchins
Institutional Investors Inc. and a
director of PaineWebber. Prior to
1993, Mr. Minard was managing di-
rector of Oppenheimer Capital in
New York and Director of Oppen-
heimer Capital Ltd. in London. Mr.
Minard is also a director or
trustee of 27 other investment com-
panies for which Mitchell Hutchins
or PaineWebber serves as investment
adviser.
Judith Davidson Moyers; Trustee Mrs. Moyers is president of Public
59 Affairs Television, Inc., an educa-
Public Affairs Televi- tional consultant and a home econo-
sion mist. Mrs. Moyers is also a direc-
356 W. 58th Street tor of Columbia Real Estate Invest-
New York, New York 10019 ments, Inc. and Ogden Corporation
and a director or trustee of 16
other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Thomas F. Murray; 84 Trustee Mr. Murray is a real estate and fi-
400 Park Avenue nancial consultant. Mr. Murray is
New York, New York 10022 also a director and chairman of
American Continental Properties,
Inc., a trustee of Prudential Re-
alty Trust and a director or
trustee of 16 other investment com-
panies for which Mitchell Hutchins
or PaineWebber serves as investment
adviser.
</TABLE>

23
<PAGE>

<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ------------------- --------------------
<S> <C> <C>
Teresa M. Boyle; 36 Vice President Ms. Boyle is a first vice president
and manager--advisory administra-
tion of Mitchell Hutchins. Prior to
November 1993, she was compliance
manager of Hyperion Capital Manage-
ment, Inc., an investment advisory
firm. Prior to April 1993, Ms.
Boyle was a vice president and man-
ager--legal administration of
Mitchell Hutchins. Ms. Boyle is
also a vice president of 26 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Joan L. Cohen; 30 Vice President and Ms. Cohen is a vice president and
Assistant Secretary attorney of Mitchell Hutchins.
Prior to December 1993, she was an
associate at the law firm of Seward
& Kissel. Ms. Cohen is also a vice
president and assistant secretary
of 26 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Ellen R. Harris; 48 Vice President Ms. Harris is chief domestic equity
strategist and a managing director
of Mitchell Hutchins. Ms. Harris is
also a vice president of 19 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Frank Jennings; 47 Vice President Mr. Jennings is a managing director
and director of international equi-
ties of Mitchell Hutchins. Prior to
1992, he was managing director of
global investments of AIG Global
Investors. Mr. Jennings is also a
vice president of 3 other invest-
ment companies for which Mitchell
Hutchins serves as investment ad-
viser.
Clifford E. Kirsch; 35 Vice President and Mr. Kirsch is a first vice president
Assistant Secretary and associate general counsel of
Mitchell Hutchins. Prior to March
1994, he was an assistant director
in the Division of Investment Man-
agement at the SEC. Mr. Kirsch is
also a vice
</TABLE>

24
<PAGE>

<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH TRUST OTHER DIRECTORSHIPS
---------------------- ------------------- --------------------
<S> <C> <C>
president and assistant secretary
of 26 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Ann E. Moran; 37 Vice President and Ms. Moran is a vice president of
Assistant Treasurer Mitchell Hutchins. Ms. Moran is
also a vice president and assistant
treasurer of 39 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Dianne E. O'Donnell; 42 Vice President and Ms. O'Donnell is a senior vice pres-
Secretary ident and senior associate general
counsel of Mitchell Hutchins. Ms.
O'Donnell is also a vice president
and secretary of 39 other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Victoria E. Schonfeld; Vice President Ms. Schonfeld is a managing director
43 and general counsel of Mitchell
Hutchins. From April 1990 to May
1994, she was a partner in the law
firm of Arnold & Porter. Prior to
April 1990, she was a partner in
the law firm of Shereff, Friedman,
Hoffman & Goodman. Ms. Schonfeld is
also a vice president of 39 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Paul H. Schubert; 32 Vice President and Mr. Schubert is a vice president of
Assistant Treasurer Mitchell Hutchins. From August 1992
to August 1994, he was a vice pres-
ident at BlackRock Financial Man-
agement, L.P. Prior to August 1992,
he was an audit manager with Ernst
& Young LLP. Mr. Schubert is also a
vice president and assistant trea-
surer of 39 other investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>

25
<PAGE>

<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ------------------- --------------------
<S> <C> <C>
Martha J. Slezak; 32 Vice President and Ms. Slezak is a vice president of
Assistant Treasurer Mitchell Hutchins. From September
1991 to April 1992, she was a fund-
raising director for a U.S. Senate
campaign. Prior to September 1991,
she was a tax manager with Arthur
Andersen & Co. Ms. Slezak is also a
vice president and assistant trea-
surer of 39 other investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Julian F. Sluyters; 34 Vice President and Mr. Sluyters is a senior vice presi-
Treasurer dent and the director of the mutual
fund finance division of Mitchell
Hutchins. Prior to 1991, he was an
audit senior manager with Ernst &
Young LLP. Mr. Sluyters is also a
vice president and treasurer of 39
other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Gregory K. Todd; 38 Vice President and Mr. Todd is a first vice president
Assistant Secretary and associate general counsel of
Mitchell Hutchins. Prior to 1993,
he was a partner in the law firm of
Shereff, Friedman, Hoffman &
Goodman. Mr. Todd is also a vice
president and assistant secretary
of 39 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Stuart Waugh; 39 Vice President Mr. Waugh is a managing director and
a portfolio manager of Mitchell
Hutchins responsible for global
fixed income investments and cur-
rency trading. Mr. Waugh is also a
vice president of 5 other invest-
ment companies for which Mitchell
Hutchins serves as investment ad-
viser.
</TABLE>
- --------
* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.
** Messrs. Bewkes, Guenther and Minard are "interested persons" of the Trust as
defined in the 1940 Act by virtue of their positions with PW Group,
PaineWebber and/or Mitchell Hutchins.

26
<PAGE>

1% of the shares of each Fund. Because Mitchell Hutchins and PaineWebber
perform substantially all of the services necessary for the operation of the
Trust, the Trust requires no employees. No officer, director or employee of
Mitchell Hutchins or PaineWebber presently receives any compensation from the
Trust for acting as a trustee or officer.

COMPENSATION TABLE

<TABLE>
<CAPTION>
PENSION OR TOTAL
RETIREMENT COMPENSATION
BENEFITS FROM THE
AGGREGATE ACCRUED AS ESTIMATED TRUST AND THE
COMPENSATION PART OF A ANNUAL FUND COMPLEX
FROM FUND'S BENEFITS UPON PAID TO
NAME OF PERSON, POSITION THE TRUST* EXPENSES RETIREMENT TRUSTEES**
------------------------ ------------ ---------- ------------- -------------
<S> <C> <C> <C> <C>
E. Garrett Bewkes, Jr.,
Trustee and chairman of
the board of trustees..... -- -- -- --
Meyer Feldberg,
Trustee................... $6,500 -- -- $86,050
George W. Gowen,
Trustee................... 6,000 -- -- 71,425
Paul B. Guenther,
Trustee and president..... -- -- -- --
Frederic V. Malek,
Trustee................... 6,500 -- -- 77,875
Frank P.L. Minard,
Trustee................... -- -- -- --
Judith Davidson Moyers,
Trustee................... 5,750 -- -- 71,125
Thomas F. Murray,
Trustee................... 6,250 -- -- 71,925
</TABLE>
- --------
* Represents fees paid to each trustee during the fiscal year ended October
31, 1994.
** Represents total compensation paid to each trustee during the calendar year
ended December 31, 1994.

27
<PAGE>

INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS

INVESTMENT ADVISORY ARRANGEMENTS. Mitchell Hutchins acts as the investment
adviser and administrator of the Funds pursuant to a contract with the Trust
dated April 21, 1988, as supplemented by Fee Agreements for Europe Growth Fund
and Global Growth and Income Fund dated January 29, 1990 and May 19, 1989,
respectively ("Advisory Contract"). Under the Advisory Contract, the Funds pay
Mitchell Hutchins an annual fee, computed daily and paid monthly, according to
the following schedules:

EUROPE GROWTH FUND

<TABLE>
<CAPTION>
ANNUAL
AVERAGE DAILY NET ASSETS RATE
- ------------------------ ------
<S> <C>
Up to $50 million.......... 0.90%
In excess of $50 million
up to $100 million........ 0.85
In excess of $100 million
up to $150 million........ 0.80
In excess of $150 million
up to $200 million........ 0.75
Over $200 million.......... 0.70
</TABLE>

GLOBAL GROWTH AND INCOME FUND

<TABLE>
<CAPTION>
ANNUAL
AVERAGE DAILY NET ASSETS RATE
- ------------------------ ------
<S> <C>
Up to $500 million......... 0.900%
In excess of $500 million
up to $1.0 billion........ 0.875
In excess of $1.0 billion
up to $1.5 billion........ 0.850
In excess of $1.5 billion
up to $2.0 billion........ 0.825
Over $2.0 billion.......... 0.800
</TABLE>

GLOBAL ENERGY FUND

<TABLE>
<CAPTION>
ANNUAL
AVERAGE DAILY NET ASSETS RATE
------------------------ ------
<S> <C>
Up to $250 million................ 0.85%
In excess of $250 million
up to $500 million............... 0.80
Over $500 million................. 0.75
</TABLE>

For the fiscal year ended October 31, 1994, the Funds paid (or accrued) to
Mitchell Hutchins the following advisory and administrative fees: Europe Growth
Fund--$1,281,874; Global Growth and Income Fund--$986,716; and Global Energy
Fund--$284,559. For the fiscal year ended October 31, 1993, the Funds paid (or
accrued) to Mitchell Hutchins the following advisory and administrative fees:
Europe Growth Fund--$861,201; Global Growth and Income Fund--$617,119; and
Global Energy Fund--$318,543. For the fiscal year ended October 31, 1992, the
Funds paid (or accrued) to Mitchell Hutchins the following advisory and
administrative fees: Europe Growth Fund--$944,779; Global Growth and Income
Fund--$686,551; and Global Energy Fund--$388,669.

Under a service agreement pursuant to which PaineWebber provides certain
services to the Funds not otherwise provided by the Funds' transfer agent,
which agreement is reviewed by the Trust's board of trustees annually, during
the fiscal years ended October 31, 1994, October 31, 1993 and October 31, 1992,
respectively, the Funds paid (or accrued) the following service fees to
PaineWebber: Europe Growth Fund--$80,674, $67,681 and $80,187; Global Growth
and Income Fund--$49,245, $36,065 and $40,741; and Global Energy Fund--$17,999,
$20,167 and $24,634.

Under the terms of the Advisory Contract, each Fund bears all expenses
incurred in its operation that are not specifically assumed by Mitchell
Hutchins. General expenses of the Trust not

28
<PAGE>

readily identifiable as belonging to a Fund are allocated among the Funds and
the Trust's other series by or under the direction of the board of trustees in
such manner as the board deems to be fair and equitable. Expenses borne by each
Fund include the following (or a Fund's share of the following): (1) the cost
(including brokerage commissions) of securities purchased or sold by the Fund
and any losses incurred in connection therewith, (2) fees payable to and
expenses incurred on behalf of the Fund by Mitchell Hutchins, (3)
organizational expenses, (4) filing fees and expenses relating to the
registration and qualification of the Fund's shares and the Trust under federal
and state securities laws and maintenance of such registrations and
qualifications, (5) fees and salaries payable to trustees who are not
interested persons (as defined in the 1940 Act) of the Trust or Mitchell
Hutchins, (6) all expenses incurred in connection with the trustees' services,
including travel expenses, (7) taxes (including any income or franchise taxes)
and governmental fees, (8) costs of any liability, uncollectible items of
deposit and other insurance or fidelity bonds, (9) any costs, expenses or
losses arising out of a liability of or claim for damages or other relief
asserted against the Trust or the Fund for violation of any law, (10) legal,
accounting and auditing expenses, including legal fees of special counsel for
the independent trustees, (11) charges of custodians, transfer agents and other
agents, (12) costs of preparing share certificates, (13) expenses of setting in
type and printing prospectuses and supplements thereto, statements of
additional information and supplements thereto, reports and proxy materials for
existing shareholders, and costs of mailing such materials to existing
shareholders, (14) any extraordinary expenses (including fees and disbursements
of counsel) incurred by the Trust or the Fund, (15) fees, voluntary assessments
and other expenses incurred in connection with membership in investment company
organizations, (16) costs of mailing and tabulating proxies and costs of
meetings of shareholders, the board and any committees thereof, (17) the cost
of investment company literature and other publications provided to trustees
and officers and (18) costs of mailing, stationery and communications
equipment.

As required by state regulation, Mitchell Hutchins will reimburse a Fund if
and to the extent that the aggregate operating expenses of the Fund exceed
applicable limits in any fiscal year. Currently, the most restrictive such
limit applicable to a Fund is 2.5% of the first $30 million of the Fund's
average daily net assets, 2.0% of the next $70 million of its average daily net
assets and 1.5% of its average daily net assets in excess of $100 million.
Certain expenses, such as brokerage commissions, taxes, interest, distribution
fees, certain expenses attributable to investing outside the United States and
extraordinary items, are excluded from this limitation. For the fiscal years
ended October 31, 1994, October 31, 1993 and October 31, 1992, no
reimbursements were made pursuant to such limitation for any of the Funds.

Under the Advisory Contract, Mitchell Hutchins will not be liable for any
error or judgment or mistake of law or for any loss suffered by a Fund in
connection with the performance of the Advisory Contract, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part
of Mitchell Hutchins in the performance of its duties or from reckless
disregard of its duties and obligations thereunder. The Advisory Contract
terminates automatically upon its assignment and is terminable at any time
without penalty by the Trust's board of trustees or by vote of the holders of a
majority of a Fund's outstanding voting securities, on 60 days' written notice
to Mitchell Hutchins or by Mitchell Hutchins on 60 days' written notice to the
Fund.

29
<PAGE>

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

<TABLE>
<CAPTION>
NET ASSETS
INVESTMENT CATEGORY ($ MIL)
------------------- ----------
<S> <C>
Domestic (excluding Money Market).............................. $ 5,512.8
Global......................................................... 3,003.4
Equity/Balanced................................................ 2,382.1
Fixed Income (excluding Money Market).......................... 6,134.1
Taxable Fixed Income......................................... 4,393.1
Tax-Free Fixed Income........................................ 1,741.0
Money Market Funds............................................. 17,685.9
</TABLE>

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

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

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

30
<PAGE>

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

For the fiscal year ended October 31, 1994, the Funds paid (or accrued) the
following fees to Mitchell Hutchins under the Class A, Class B and Class D
Plans:

<TABLE>
<CAPTION>
GLOBAL GROWTH
EUROPE AND GLOBAL
GROWTH FUND INCOME FUND ENERGY FUND
----------- ------------- -----------
<S> <C> <C> <C>
Class A................................... $231,887 $168,336 $ 30,522
Class B................................... 403,753 308,330 200,830
Class D................................... 180,504 114,683 11,861
</TABLE>

Mitchell Hutchins estimates that it and its parent corporation, PaineWebber,
incurred the following shareholder service-related and distribution-related
expenses with respect to the Funds during the fiscal year ended October 31,
1994:

CLASS A

<TABLE>
<CAPTION>
GLOBAL GROWTH
EUROPE AND GLOBAL
GROWTH FUND INCOME FUND ENERGY FUND
----------- ------------- -----------
<S> <C> <C> <C>
Marketing and advertising................ $ 39,248 $ 29,271 $ 5,665
Printing of prospectuses and statements
of additional information............... 168 119 6
Branch network costs allocated and
interest expense........................ 242,481 130,655 19,051
Service fees paid to PaineWebber
investment executives................... 104,350 75,751 13,736
</TABLE>

CLASS B

<TABLE>
<CAPTION>
GLOBAL GROWTH
EUROPE AND GLOBAL
GROWTH FUND INCOME FUND ENERGY FUND
----------- ------------- -----------
<S> <C> <C> <C>
Marketing and advertising................ $ 47,691 $ 67,738 $ 18,090
Amortization of commissions.............. 177,963 119,627 76,662
Printing of prospectuses and statements
of additional information............... 279 373 24
Branch network costs allocated and
interest expense........................ 300,614 312,260 67,882
Service fees paid to PaineWebber
investment executives................... 45,422 34,688 122,594
</TABLE>

31
<PAGE>

CLASS D

<TABLE>
<CAPTION>
GLOBAL GROWTH
EUROPE AND GLOBAL
GROWTH FUND INCOME FUND ENERGY FUND
----------- ------------- -----------
<S> <C> <C> <C>
Marketing and advertising................ $ 48,601 $ 25,729 $ 49,883
Amortization of commissions.............. 60,747 34,214 3,760
Printing of prospectuses and statements
of additional information............... 436 73 170
Branch network costs allocated and
interest expense........................ 298,236 103,646 187,780
Service fees paid to PaineWebber
investment executives................... 20,306 12,902 1,334
</TABLE>

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

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

In approving the Class A Plan for each Fund, the trustees considered all the
features of the distribution system, including (1) the conditions under which
initial sales charges would be imposed and the amount of such charges, (2)
Mitchell Hutchins' belief that the initial sales charge combined with a service
fee would be attractive to PaineWebber investment executives and correspondent
firms, resulting in greater growth of the Fund than might otherwise be the
case, (3) the advantages to the shareholders of economies of scale resulting
from growth in the Fund's assets and potential continued growth, (4) the
services provided to the Fund and its shareholders by Mitchell Hutchins, (5)
the services provided by PaineWebber pursuant to its Exclusive Dealer Agreement
with Mitchell Hutchins and (6) Mitchell Hutchins' shareholder service-related
expenses and costs.

In approving the Class B Plan for each Fund, the trustees considered all the
features of the distribution system, including (1) the conditions under which
contingent deferred sales charges would be imposed and the amount of such
charges, (2) the advantage to investors in having no initial sales charges
deducted from Fund purchase payments and instead having the entire amount of
their purchase payments immediately invested in Fund shares, (3) Mitchell
Hutchins' belief that the ability of PaineWebber investment executives and
correspondent firms to receive sales commissions when Class B shares are sold
and continuing service fees thereafter while their customers invest

32
<PAGE>

their entire purchase payments immediately in Class B shares would prove
attractive to the investment executives and correspondent firms, resulting in
greater growth of the Fund than might otherwise be the case, (4) the advantages
to the shareholders of economies of scale resulting from growth in the Fund's
assets and potential continued growth, (5) the services provided to the Fund
and its shareholders by Mitchell Hutchins, (6) the services provided by
PaineWebber pursuant to its Exclusive Dealer Agreement with Mitchell Hutchins
and (7) Mitchell Hutchins' shareholder service- and distribution-related
expenses and costs. The trustees also recognized that Mitchell Hutchins'
willingness to compensate PaineWebber and its investment executives, without
the concomitant receipt by Mitchell Hutchins of initial sales charges, was
conditioned upon its expectation of being compensated under the Class B Plan.

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

With respect to each Plan, the trustees considered all compensation that
Mitchell Hutchins would receive under the Plan and the Distribution Contract,
including service fees and, as applicable, initial sales charges, distribution
fees and contingent deferred sales charges. The trustees also considered the
benefits that would accrue to Mitchell Hutchins under each Plan in that
Mitchell Hutchins would receive service, distribution and advisory fees that
are calculated based upon a percentage of the average net assets of a Fund,
which fees would increase if the Plan were successful and the Fund attained and
maintained significant asset levels.

33
<PAGE>

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

EUROPE GROWTH FUND

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
OCTOBER 31,
--------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Earned............................................ $206,967 $218,529 $110,740
Retained.......................................... 19,921 14,904 6,512
</TABLE>

GLOBAL GROWTH AND INCOME FUND

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
OCTOBER 31,
------------------------
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
Earned.............................................. $139,061 $78,195 $69,770
Retained............................................ 88,279 5,515 4,235
</TABLE>

GLOBAL ENERGY FUND

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
OCTOBER 31,
----------------------
1994 1993 1992
------ ------- -------
<S> <C> <C> <C>
Earned................................................ $5,410 $10,651 $13,387
Retained.............................................. 302 5,496 761
</TABLE>

For the fiscal year ended October 31, 1994, Mitchell Hutchins earned and
retained the following contingent deferred sales charges paid upon certain
redemptions of Class B shares:

<TABLE>
<CAPTION>
GLOBAL GROWTH
AND GLOBAL
EUROPE GROWTH FUND INCOME FUND ENERGY FUND
------------------ ------------- -----------
<S> <C> <C>
$194,268 $92,409 $57,557
</TABLE>

PORTFOLIO TRANSACTIONS

Subject to policies established by the Trust's board of trustees, Mitchell
Hutchins is responsible for the execution of each Fund's portfolio transactions
and the allocation of brokerage transactions. In executing portfolio
transactions, Mitchell Hutchins seeks to obtain the best net results for each
Fund, taking into account such factors as the price (including the applicable
brokerage commission or dealer spread), size of order, difficulty of execution
and operational facilities of the firm involved. Prices paid to dealers in
principal transactions, through which most debt securities and some equity
securities are traded, generally include a "spread," which is the difference
between the prices at

34
<PAGE>

which the dealer is willing to purchase and sell a specific security at the
time. Each Fund may invest in securities traded in the OTC market and will
engage primarily in transactions with the dealers who make markets in such
securities, unless a better price or execution could be obtained by using a
broker. While Mitchell Hutchins generally seeks reasonably competitive
commission rates and dealer spreads, payment of the lowest commission or spread
is not necessarily consistent with obtaining the best net results. For the
fiscal years ended October 31, 1994, October 31, 1993 and October 31, 1992,
Europe Growth Fund paid $1,083,604, $1,338,699 and $357,883, respectively, in
brokerage commissions. For the fiscal years ended October 31, 1994, October 31,
1993 and October 31, 1992, Global Growth and Income Fund paid $720,898,
$752,315 and $186,174, respectively, in brokerage commissions. For the fiscal
years ended October 31, 1994, October 31, 1993 and October 31, 1992, Global
Energy Fund paid $174,269, $209,072 and $148,681, respectively, in brokerage
commissions.

No Fund has any obligation to deal with any broker or group of brokers in the
execution of portfolio transactions. Each Fund contemplates that, consistent
with the policy of obtaining the best net results, brokerage transactions may
be conducted through Mitchell Hutchins or its affiliates, including
PaineWebber. The Trust's board of trustees has adopted procedures in conformity
with Rule 17e-1 under the 1940 Act to ensure that all brokerage commissions
paid to Mitchell Hutchins and its affiliates are reasonable and fair. Specific
provisions in the Advisory Contract authorize Mitchell Hutchins and any of its
affiliates that are members of a national securities exchange to effect
portfolio transactions for a Fund on such exchange and to retain compensation
in connection with such transactions. Any such transactions will be effected
and related compensation paid only in accordance with applicable SEC
regulations. For the fiscal years ended October 31, 1994, October 31, 1993 and
October 31, 1992, Global Growth and Income Fund paid $0, $880 and $0,
respectively, and Global Energy Fund paid $0, $1,400 and $2,500, respectively,
to PaineWebber in brokerage commissions. During the last three fiscal years,
Europe Growth Fund paid no brokerage commissions to Mitchell Hutchins or any of
its affiliates.

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

Consistent with the interests of each Fund and subject to the review of the
board of trustees, Mitchell Hutchins may cause a Fund to purchase and sell
portfolio securities through brokers who provide the Fund with research,
analysis, advice and similar services. In return for such services, a Fund may
pay to those brokers a higher commission than may be charged by other brokers,
provided that Mitchell Hutchins determines in good faith that such commission
is reasonable in terms either of that particular transaction or of the overall
responsibility of Mitchell Hutchins to the Fund and its other clients and that
the total commissions paid by the Fund will be reasonable in relation to the
benefits to the Fund over the long term. Research services furnished by brokers
through which a Fund effects securities transactions may be used by Mitchell
Hutchins in advising other funds or accounts, and, conversely, research
services furnished to Mitchell Hutchins by brokers in connection with other
funds or accounts Mitchell Hutchins advises may be used by Mitchell Hutchins in
advising a Fund. Information and research received from brokers will be in

35
<PAGE>

addition to, and not in lieu of, the services required to be performed by
Mitchell Hutchins under the Advisory Contract. For Europe Growth Fund, Global
Growth and Income Fund and Global Energy Fund, for the fiscal year ended
October 31, 1994, Mitchell Hutchins directed $0, $9,573,436 and $4,633,191,
respectively, in portfolio transactions to brokers chosen because they provided
research services, for which these Funds paid $0, $38,902 and $5,750,
respectively, in commissions. The Funds may purchase and sell portfolio
securities to and from dealers who provide the Funds with research services.
Portfolio transactions will not be directed by the Funds to dealers solely on
the basis of research services provided. The Funds will not purchase portfolio
securities at a higher price or sell such securities at a lower price in
connection with transactions effected with a dealer, acting as principal, who
furnishes research services to Mitchell Hutchins than would be the case if no
weight were given by Mitchell Hutchins to the dealer's furnishing of such
services. Research services furnished by the dealers through which or with
which the Funds effect securities transactions may be used by Mitchell Hutchins
in advising other funds or accounts and, conversely, research services
furnished to Mitchell Hutchins in connection with other funds or accounts that
Mitchell Hutchins advises may be used in advising the Funds.

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

No Fund will purchase securities that are offered in underwritings in which
Mitchell Hutchins or any of its affiliates is a member of the underwriting or
selling group, except pursuant to procedures adopted by the Trust's board of
trustees pursuant to Rule 10f-3 under the 1940 Act. Among other things, these
procedures require that the commission or spread paid in connection with such a
purchase be reasonable and fair, that the purchase be at not more than the
public offering price prior to the end of the first business day after the date
of the public offering and that Mitchell Hutchins or any affiliate thereof not
participate in or benefit from the sale to a Fund.

PORTFOLIO TURNOVER. The annual portfolio turnover rate is calculated by
dividing the lesser of a Fund's annual sales or purchases of portfolio
securities (exclusive of purchases or sales of securities whose maturities at
the time of acquisition were one year or less) by the monthly average value of
securities in the portfolio during the year. For the fiscal years ended October
31, 1994 and October 31, 1993, respectively, the portfolio turnover rates for
the Funds were: Europe Growth Fund--173.58% and 252.23%; Global Growth and
Income Fund--172.13% and 205.86%; and Global Energy Fund--156.96% and 148.01%.

36
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

WAIVERS OF SALES CHARGES--CLASS B SHARES. Among other circumstances, the
contingent deferred sales charge on Class B shares is waived where a total or
partial redemption is made within one year following the death of the
shareholder. The contingent deferred sales charge waiver is available where the
decedent is either the sole shareholder or owns the shares with his or her
spouse as a joint tenant with right of survivorship. This waiver applies only
to redemption of shares held at the time of death.

Certain PaineWebber mutual funds, including Global Energy Fund, offered
shares subject to contingent deferred sales charges before the implementation
of the Flexible Pricing system on July

37
<PAGE>

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

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

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

SYSTEMATIC WITHDRAWAL PLAN. On or about the 15th of each month for monthly
plans and on or about the 15th of the months selected for quarterly or semi-
annual plans, PaineWebber will arrange for redemption by a Fund of sufficient
shares to provide the withdrawal payment specified by participants in the
Funds' systematic withdrawal plan. The payment generally is mailed
approximately five business days after the redemption date. Withdrawal payments
should not be considered dividends, but redemption proceeds, with the tax
consequences described under "Dividends and Taxes" in the Prospectus. If
periodic withdrawals continually exceed reinvested dividends, a shareholder's
investment may be correspondingly reduced. A shareholder may change the amount
of the systematic withdrawal or terminate participation in the plan at any time
without charge or penalty by written instructions with signatures guaranteed to
PaineWebber or PFPC Inc. ("Transfer Agent"). Instructions to participate in the
plan, change the withdrawal amount or terminate participation in the plan will
not be effective until five business days after written

38
<PAGE>

instructions with signatures guaranteed are received by the Transfer Agent.
Shareholders may request the forms needed to establish a systematic withdrawal
plan from their PaineWebber investment executives, correspondent firms or the
Transfer Agent at 1-800-647-1568.

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

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

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

To participate in the Plan, an investor must be an RMA accountholder, must
have made an initial purchase of the shares of each PW Fund selected for
investment under the Plan (meeting applicable minimum investment requirements)
and must complete and submit the RMA Resource Accumulation Plan Client
Agreement and Instruction Form available from PaineWebber. The investor must
have received a current prospectus for each PW Fund selected prior to enrolling
in the Plan. Information about mutual fund positions and outstanding
instructions under the Plan are noted on the RMA accountholder's account
statement. Instructions under the Plan may be changed at any time, but may take
up to two weeks to become effective.

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

39
<PAGE>

PERIODIC INVESTING AND DOLLAR COST AVERAGING.

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

PAINEWEBBER'S RESOURCE MANAGEMENT ACCOUNT.

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

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

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

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

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

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

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

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

. automatic direct deposit of checks into your RMA account and automatic
withdrawals from the account.

40
<PAGE>

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

CONVERSION OF CLASS B SHARES

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

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

VALUATION OF SHARES

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

41
<PAGE>

valuation. Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
direction of the Trust's board of trustees. It should be recognized that
judgment often plays a greater role in valuing non-investment grade debt
securities than is the case with respect to securities for which a broader
range of dealer quotations and last-sale information is available. All
investments quoted in foreign currency are valued daily in U.S. dollars on the
basis of the foreign currency exchange rate prevailing at the time such
valuation is determined by the Funds' custodian. The amortized cost method of
valuation generally is used to value debt obligations with 60 days or less
remaining until maturity, unless the board of trustees determines that this
does not represent fair value.

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

PERFORMANCE INFORMATION

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

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

P(1 + T) to the power of n = ERV

where: P = a hypothetical initial payment of $1,000 to purchase shares of a
specified Class
T = average annual total return of shares of that Class
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made
at the beginning of that period.

Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or "T" in the formula above, is computed by finding
the average annual change in the value of an initial $1,000 investment over the
period. In calculating the ending redeemable value for Class A shares, the
maximum 4.5% sales charge is deducted from the initial $1,000 payment and, for
Class B shares, the applicable contingent deferred sales charge imposed on a
redemption of Class B shares held for the period is deducted. All dividends and
other distributions are assumed to have been reinvested at net asset value.

42
<PAGE>

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

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

The following table shows performance information for the Class A, Class B
and Class D shares of each of the Funds for the periods indicated. All returns
for periods of more than one year are expressed as an annual average return.

<TABLE>
<CAPTION>
GLOBAL GROWTH AND
EUROPE GROWTH FUND INCOME FUND GLOBAL ENERGY FUND
-------------------------- ------------------------- ---------------------------
CLASS A CLASS B CLASS D CLASS A CLASS B CLASS D CLASS A CLASS B CLASS D
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fiscal year ended Octo-
ber 31, 1994:
Standardized Return*... (8.55)% (10.03)% (5.00)% (3.18)% (4.40)% 0.68% (10.03)% (11.56)% (6.59)%
Non-Standardized Re-
turn.................. (4.24)% (5.03)% (5.00)% 1.35% 0.60% 0.68% (5.79)% (6.56)% (6.59)%
Five years ended Octo-
ber 31, 1993:
Standardized Return*... NA NA NA 7.10% NA NA NA 4.80% NA
Non-Standardized Re-
turn.................. NA NA NA 8.09% NA NA NA 5.13% NA
Inception** to October
31, 1994:
Standardized Return.... (0.40)% 2.38% 4.30% 7.48% 9.18% 8.72% 5.10% 7.30% 5.13%
Non-Standardized Re-
turn.................. 0.57% 2.94% 4.30% 8.40% 9.66% 8.72% 6.57% 7.30% 5.13%
</TABLE>
- --------
*All Standardized Return figures for Class A shares reflect deduction of the
current maximum sales charge of 4.5%. All Standardized Return figures for
Class B shares reflect deduction of the applicable contingent deferred sales
charge imposed on a redemption of shares held for the period. Class D shares
do not impose an initial or a contingent deferred sales charge; therefore,
Non-Standardized Return is identical to Standardized Return.

**The inception dates for the Class A shares of each Fund are as follows:
Europe Growth Fund--February 7, 1990; Global Energy Fund--July 1, 1991;
Global Growth and Income Fund--June 9, 1989. The inception dates for the
Class B shares of each Fund are as follows: Europe Growth Fund--July 1,
1991; Global Energy Fund--September 18, 1987; Global Growth and Income
Fund--July 1, 1991. The inception dates for the Class D shares of each Fund
are as follows: Europe Growth Fund--July 6, 1992; Global Energy Fund--July
8, 1992; and Global Growth and Income Fund--July 6, 1992.

OTHER INFORMATION. In Performance Advertisements, the Funds may compare their
Standardized Return and/or their Non-Standardized Return with data published by
Lipper Analytical Services, Inc. ("Lipper") for European region mutual funds
(Europe Growth Fund), global flexible portfolio funds (Global Growth and Income
Fund), and natural resources funds (Global Energy Fund), CDA Investment
Technologies, Inc. ("CDA"), Wiesenberger Investment

43
<PAGE>

Companies Service ("Wiesenberger"), Investment Company Data, Inc. ("ICD"), or
Morningstar Mutual Funds ("Morningstar") or with the performance of recognized
stock and other indices, including the Standard & Poor's 500 Composite Stock
Price Index, the Dow Jones Industrial Average, the Wilshire 5000 Index, the
Morgan Stanley Capital International Perspective Indices, the Salomon Brothers
World Government Index, the Morgan Stanley Capital International Energy Sources
Index, the Standard & Poor's Oil Composite Index, the Salomon Brothers Non-U.S.
Dollar Index, the Lehman Bond Index, 30-year and 10-year U.S. Treasury Bonds
and changes in the Consumer Price Index as published by the U.S. Department of
Commerce. Each Fund also may refer in such materials to mutual fund performance
rankings and other data, such as comparative asset, expense and fee levels,
published by Lipper, CDA, Wiesenberger, ICD or Morningstar. Performance
Advertisements also may refer to discussions of a Fund and comparative mutual
fund data and ratings reported in independent periodicals, including (but not
limited to) THE WALL STREET JOURNAL, MONEY Magazine, FORBES, BUSINESS WEEK,
FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW YORK TIMES, THE CHICAGO TRIBUNE,
THE WASHINGTON POST and THE KIPLINGER LETTERS.

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

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

TAXES

In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code, each Fund must distribute to
its shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income, net short-term
capital gain and net gains from certain foreign currency transactions)
("Distribution Requirement") and must meet several additional requirements.
With respect to each Fund, these requirements include the following: (1) the
Fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of securities or foreign currencies, or other
income (including gains from options, futures or forward currency contracts)
derived with respect to its business of investing in securities or those
currencies ("Income Requirement"); (2) the Fund must derive less than 30% of

44
<PAGE>

its gross income each taxable year from the sale or other disposition of
securities, or any of the following, that were held for less than three
months--options, futures or forward contracts (other than those on foreign
currencies), or foreign currencies (or options, futures or forward contracts
thereon) that are not directly related to the Fund's principal business of
investing in securities (or options and futures with respect to securities)
("Short-Short Limitation"); (3) at the close of each quarter of the Fund's
taxable year, at least 50% of the value of its total assets must be represented
by cash and cash items, U.S. government securities, securities of other RICs
and other securities, with these other securities limited, in respect of any
one issuer, to an amount that does not exceed 5% of the value of the Fund's
total assets and that does not represent more than 10% of the issuer's
outstanding voting securities; and (4) at the close of each quarter of the
Fund's taxable year, not more than 25% of the value of its total assets may be
invested in securities (other than U.S. government securities or the securities
of other RICs) of any one issuer.

Dividends and other distributions declared by a Fund in October, November or
December of any year and payable to shareholders of record on a date in any of
those months will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls.

A portion of the dividends from the investment company taxable income of the
Funds (whether paid in cash or reinvested in additional Fund shares) may be
eligible for the dividends-received deduction allowed to corporations. The
eligible portion may not exceed the aggregate dividends received by a Fund from
U.S. corporations. However, dividends received by a corporate shareholder and
deducted by it pursuant to the dividends-received deduction are subject
indirectly to the alternative minimum tax.

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

Dividends and interest received by a Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors. If more than 50% of the value of a
Fund's total assets at the close of its taxable year consists of securities of
foreign corporations, the Fund will be eligible to, and may, file an election
with the Internal Revenue Service that will enable its shareholders, in effect,
to receive the benefit of the foreign tax credit with respect to any foreign
and U.S. possessions income taxes paid by it. Pursuant to the election, the
Fund would treat those taxes as dividends paid to its shareholders and each
shareholder would be required to (1) include in gross income, and treat as paid
by him or her, his or her proportionate share of those taxes, (2) treat his or
her share of those taxes and of any dividend paid by the Fund that represents
income from foreign or U.S. possessions sources as his or her own income from
those sources and (3) either deduct the taxes deemed paid by him or her in
computing his or her taxable income or, alternatively, use the foregoing
information in calculating the foreign tax credit against his or her federal
income tax. Each Fund will report to its shareholders shortly after each
taxable year their respective shares of

45
<PAGE>

the Fund's income from sources within, and taxes paid to, foreign countries and
U.S. possessions if it makes this election.

Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year substantially
all of its ordinary income for that year and capital gain net income for the
one-year period ending on October 31 of that year, plus certain other amounts.

Each Fund may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation that, in general, meets either of
the following tests: (1) at least 75% of its gross income is passive or (2) an
average of at least 50% of its assets produce, or are held for the production
of, passive income. Under certain circumstances, a Fund will be subject to
federal income tax on a portion of any "excess distribution" received on the
stock of a PFIC or of any gain on disposition of the stock (collectively "PFIC
income"), plus interest thereon, even if the Fund distributes the PFIC income
as a taxable dividend to its shareholders. The balance of the PFIC income will
be included in the Fund's investment company taxable income and, accordingly,
will not be taxable to it to the extent that income is distributed to its
shareholders. If a Fund invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund," then in lieu of the foregoing tax and interest
obligation, the Fund will be required to include in income each year its pro
rata share of the qualified electing fund's annual ordinary earnings and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss)--which would have to be distributed to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax--even if those earnings and
gain are not distributed to the Fund. In most instances it will be very
difficult, if not impossible, to make this election because of certain
requirements thereof.

Pursuant to proposed regulations, open-end RICs, such as the Funds, would be
entitled to elect to "mark-to-market" their stock in certain PFICs. "Marking-
to-market," in this context, means recognizing as gain for each taxable year
the excess, as of the end of that year, of the fair market value of each such
PFIC's stock over the owner's adjusted basis in that stock (including mark-to-
market gain for each prior year for which an election was in effect).

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

If a Fund satisfies certain requirements, any increase in value of a position
that is part of a "designated hedge" will be offset by any decrease in value
(whether realized or not) of the offsetting hedging position during the period
of the hedge for purposes of determining whether the Fund satisfies the Short-
Short Limitation. Thus, only the net gain (if any) from the designated hedge
will

46
<PAGE>

be included in gross income for purposes of that limitation. Each Fund will
consider whether it should seek to qualify for this treatment for its hedging
transactions. To the extent a Fund does not qualify for this treatment, it may
be forced to defer the closing out of certain options, futures and forward
currency contracts beyond the time when it otherwise would be advantageous to
do so, in order for the Fund to continue to qualify as a RIC.

Global Growth and Income Fund may acquire zero coupon Treasury securities
issued with original issue discount. As the holder of such securities, each
such Fund must include in its gross income the original issue discount that
accrues on the securities during the taxable year, even if the Fund receives no
corresponding payment on the securities during the year. Because each Fund
annually must distribute substantially all of its investment company taxable
income, including any accrued original issue discount to satisfy the
Distribution Requirement and avoid imposition of the 4% excise tax, it may be
required in a particular year to distribute as a dividend an amount that is
greater than the total amount of cash it actually receives. Those distributions
will be made from a Fund's cash assets or from the proceeds of sales of
portfolio securities, if necessary. A Fund may realize capital gains or losses
from those sales, which would increase or decrease the Fund's investment
company taxable income and/or net capital gain. In addition, any such gains may
be realized on the disposition of securities held for less than three months.
Because of the Short-Short Limitation, any such gains would reduce a Fund's
ability to sell other securities, or certain options, futures or forward
currency contracts, held for less than three months that it might wish to sell
in the ordinary course of its portfolio management.

OTHER INFORMATION

PAINEWEBBER INVESTMENT SERIES. Prior to May 1, 1991, the name of Global
Energy Fund was "PaineWebber Master Energy-Utility Fund." Prior to July 1,
1991, the name of Europe Growth Fund was "PaineWebber Classic Europe Growth
Fund."

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

47
<PAGE>

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

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

INDEPENDENT ACCOUNTANTS. Price Waterhouse LLP, 1177 Avenue of the Americas,
New York, New York 10036, serves as the Trust's independent accountants.

FINANCIAL STATEMENTS

The Funds' Annual Report to Shareholders for the fiscal year ended October
31, 1994 is a separate document supplied with this Statement of Additional
Information and the financial statements, accompanying notes and report of
independent accountants appearing therein are incorporated by reference in this
Statement of Additional Information.

48
<PAGE>

APPENDIX

DESCRIPTION OF MOODY'S LONG-TERM DEBT RATINGS

Aaa. Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues; Aa. Bonds which are
rated "Aa" are judged to be of high quality by all standards. Together with the
"Aaa" group they comprise what are generally known as high-grade bonds. They
are rated lower than the best bonds because margins of protection may not be as
large as in "Aaa" securities or fluctuation of protective elements may be of
greater amplitude, or there may be other elements present which make the long-
term risks appear somewhat greater than the "Aaa" securities; A. Bonds which
are rated "A" possess many favorable investment attributes and are considered
as upper-medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment some time in the future; Baa. Bonds which are
rated "Baa" are considered as medium-grade obligations (i.e., they are neither
highly protected nor poorly secured). Interest payments and principal security
appear adequate for the present, but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well; Ba. Bonds which are rated "Ba" are judged to have
speculative elements; their future cannot be considered as well-assured. Often
the protection of interest and principal payments may be very moderate, and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class; B. Bonds which are
rated "B" generally lack characteristics of the desirable investment. Assurance
of interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small.

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

DESCRIPTION OF STANDARD & POOR'S CORPORATE DEBT RATINGS

AAA. Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong; AA. Debt
rated "AA" has a very strong capacity to pay interest and repay principal and
differs from the higher rated issues only in small degree; A. Debt rated "A"
has a strong capacity to pay interest and repay principal although it is
somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions than debt in higher rated categories; BBB. Debt rated
"BBB" is regarded as having an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories; BB, B. Debt rated "BB" and "B" is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. "BB"
indicates the lowest degree of speculation. While such debt will likely have
some quality and

49
<PAGE>

protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions; BB. Debt rated "BB" has less near-
term vulnerability to default than other speculative issues. However, it faces
major ongoing uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to inadequate capacity to meet timely
interest and principal payments. The "BB" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BBB-"
rating; B. Debt rated "B" has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.

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

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

DESCRIPTION OF MOODY'S SHORT-TERM DEBT RATINGS

PRIME-1. Issuers (or supporting institutions) rated Prime-1 (P-1) have a
superior capacity for repayment of short-term promissory obligations. P-1
repayment capacity will normally be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; well-
established access to a range of financial markets and assured sources of
alternate liquidity. PRIME-2. Issuers (or supporting institutions) rated Prime-
2 (P-2) have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above, but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.

DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS

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

50
<PAGE>

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

----------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and Restrictions...................................... 1
Hedging and Related Income Strategies..................................... 12
Trustees and Officers..................................................... 21
Investment Advisory and Distribution Arrangements......................... 28
Portfolio Transactions.................................................... 34
Reduced Sales Charges, Additional Exchange and Redemption Information and
Other Services........................................................... 37
Conversion of Class B Shares.............................................. 41
Valuation of Shares....................................................... 41
Performance Information................................................... 42
Taxes..................................................................... 44
Other Information......................................................... 47
Financial Statements...................................................... 48
Appendix.................................................................. 49
</TABLE>

[ART Recycled Paper]

PaineWebber
Europe Growth Fund
PaineWebber
Global Growth and
Income Fund
PaineWebber
Global Energy Fund

- --------------------------------------------------------------------------------
Statement of Additional Information March 1, 1995

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

[LOGO of PAINEWEBBER]
<PAGE>

- --------------------------------------------------------------------------------
PaineWebber Global Income Fund
1285 Avenue of the Americas, New York, New York 10019
Prospectus -- March 1, 1995.
- --------------------------------------------------------------------------------

PaineWebber Global Income Fund ("Fund") is a series of PaineWebber Investment
Series ("Trust"). This Prospectus concisely sets forth information about the
Fund a prospective investor should know before investing. Please retain this
Prospectus for future reference. A Statement of Additional Information dated
March 1, 1995 (which is incorporated by reference herein) has been filed with
the Securities and Exchange Commission. The Statement of Additional Information
can be obtained without charge, and further inquiries can be made, by
contacting the Fund, your PaineWebber investment executive or PaineWebber's
correspondent firms or by calling toll-free 1-800-647-1568.

.Professional Management

.Dividend and Capital Gain
Reinvestment

.Flexible Pricing (SM)

.Low Minimum Investment

.Automatic Investment Plan

.Systematic Withdrawal Plan

.Exchange Privileges

.Suitable For Retirement Plans
- --------------------------------------------------------------------------------

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

PROSPECTIVE WISCONSIN INVESTORS SHOULD NOTE THAT THE FUND MAY INVEST UP TO
10% OF ITS NET ASSETS IN RESTRICTED SECURITIES (OTHER THAN RULE 144A
SECURITIES DETERMINED TO BE LIQUID BY THE TRUST'S BOARD OF TRUSTEES).
INVESTMENT IN RESTRICTED SECURITIES (OTHER THAN SUCH RULE 144A
SECURITIES) IN EXCESS OF 5% OF THE FUND'S TOTAL ASSETS MAY BE
CONSIDERED A SPECULATIVE ACTIVITY AND MAY RESULT IN GREATER RISK
AND INCREASED FUND EXPENSES.

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

Prospectus Page 1

<PAGE>

- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND

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

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................................................... 3
Financial Highlights....................................................... 6
Flexible Pricing System.................................................... 8
Investment Objectives and Policies......................................... 9
Purchases ................................................................. 16
Exchanges.................................................................. 18
Redemptions................................................................ 19
Conversion of Class B Shares............................................... 20
Other Services and Information............................................. 21
Dividends and Taxes........................................................ 22
Valuation of Shares........................................................ 23
Management................................................................. 23
Performance Information.................................................... 25
General Information........................................................ 26
Appendix................................................................... 27
</TABLE>

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

Prospectus Page 2

<PAGE>

- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND

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

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

<TABLE>
<S> <C>
The Fund: PaineWebber Global Income Fund ("Fund") is a non-diversified se-
ries of an open-end, management investment company.
Investment Objectives High current income consistent with prudent investment risk; capi-
and tal appreciation is a secondary objective; invests principally in
Policies: high quality debt securities issued or guaranteed by foreign gov-
ernments, by the U.S. government, by their respective agencies or
instrumentalities or by supranational organizations, or issued by
foreign or U.S. companies.
Total Net Assets: $1.28 billion at January 31, 1995.
Investment Adviser: Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), an
asset management subsidiary of PaineWebber Incorporated
("PaineWebber"), manages approximately $39.3 billion in assets.
See "Management."
Purchases: Shares of beneficial interest are available exclusively through
PaineWebber and its correspondent firms for investors who are cli-
ents of PaineWebber or those firms ("PaineWebber clients") and,
for other investors, through PFPC Inc., the Fund's transfer agent
("Transfer Agent").
Flexible Pricing System: Investors may select Class A, Class B or Class D shares, each with
a public offering price that reflects different sales charges and
expense levels. See "Flexible Pricing System," "Purchases," "Re-
demptions" and "Conversion of Class B Shares."
Class A Shares Offered at net asset value plus any applicable sales charge (maxi-
mum is 4% of public offering price).
Class B Shares Offered at net asset value (a maximum contingent deferred sales
charge of 5% of redemption proceeds is imposed on certain redemp-
tions made within six years of date of purchase). Class B shares
automatically convert into Class A shares (which pay lower ongoing
expenses) approximately six years after purchase.
Class D Shares Offered at net asset value without an initial or contingent de-
ferred sales charge. Class D shares pay higher ongoing expenses
than Class A shares and do not convert into another Class.
Exchanges: Shares may be exchanged for shares of the corresponding Class of
most PaineWebber mutual funds.
Redemptions: PaineWebber clients may redeem through PaineWebber; other share-
holders must redeem through the Transfer Agent.
Dividends: Declared and paid quarterly; net capital gain is distributed annu-
ally. See "Dividends and Taxes."
Reinvestment: All dividends and capital gain distributions are paid in Fund
shares of the same Class at net asset value unless the shareholder
has requested cash.
Minimum Purchase: $1,000 for first purchase; $100 for subsequent purchases.
</TABLE>

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

Prospectus Page 3
<PAGE>

- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
Prospectus Summary
(Continued)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
Other Features:

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

Class B Shares Automatic investment plan Systematic withdrawal plan

Class D Shares Automatic investment plan Systematic withdrawal plan
</TABLE>

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

WHO SHOULD INVEST. The Fund invests principally in high quality debt securities
issued or guaranteed by foreign governments, by the U.S. government, by their
respective agencies or instrumentalities or by supranational organizations, or
issued by foreign or U.S. companies. The Fund is designed for investors seeking
high current income and, secondarily, capital appreciation. While the Fund is
not intended to provide a complete or balanced investment program, it can serve
as one component of an investor's long-term program to accumulate assets for
retirement, college tuition or other major goals.

RISK FACTORS. Investors in the Fund should be able to assume the special risks
of investing in foreign securities, which include possible adverse political,
social and economic developments abroad and differing characteristics of
foreign economies and markets. There is often less information publicly
available about foreign issuers. These risks are greater with respect to
securities of issuers located in emerging markets, in which the Fund may invest
a portion of its assets. Most of the foreign securities held by the Fund are
denominated in foreign currencies, and the value of these investments thus can
be adversely affected by fluctuations in foreign currency values. Some foreign
currencies can be volatile and may be subject to governmental controls or
intervention. Prospective investors are urged to read "Investment Objectives
and Policies" for more complete information about risk factors.

There can be no assurance that the Fund will achieve its investment objectives,
and the Fund's net asset value will fluctuate based upon changes in the value
of its portfolio securities.

Certain investment grade debt securities in which the Fund may invest have
speculative characteristics. The Fund is permitted to purchase debt securities
rated lower than investment grade by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Group ("S&P") or another nationally
recognized statistical rating organization ("NRSRO") or, if not so rated,
determined by Mitchell Hutchins to be of comparable quality. Such securities
are subject to greater risks of default or price fluctuation than investment
grade securities and are considered predominantly speculative. The use of
options, futures contracts, forward currency contracts and interest rate
protection transactions also entails special risks.

As a non-diversified fund, the Fund is subject to greater risk with respect to
its portfolio securities than investment companies that have a broader range of
investments, because changes in the financial condition or market assessment of
a single issuer may cause greater fluctuation in the Fund's total return and
the price of its shares.

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

SHAREHOLDER TRANSACTION EXPENSES(1)

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
------- ------- -------
<S> <C> <C> <C>
Maximum sales charge on purchases of shares (as a
percentage of public offering price).................. 4% None None
Sales charge on reinvested dividends................... None None None
Exchange fee........................................... $5.00 $5.00 $5.00
Maximum contingent deferred sales charge (as a
percentage of redemption proceeds).................... None 5% None
</TABLE>

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

Prospectus Page 4
<PAGE>

ANNUAL FUND OPERATING EXPENSES(2)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
------- ------- -------
<S> <C> <C> <C>
Management fees......................................... 0.72% 0.72% 0.72%
12b-1 fees(3)........................................... 0.25 1.00 0.75
Other expenses.......................................... 0.20 0.22 0.21
---- ---- ----
Total operating expenses................................ 1.17% 1.94% 1.68%
==== ==== ====
</TABLE>
- -------
(1) Sales charge waivers are available for Class A and Class B shares, reduced
sales charge purchase plans are available for Class A shares and exchange
fee waivers are available for all three Classes. The maximum 5% contingent
deferred sales charge on Class B shares applies to redemptions during the
first year after purchase; the charge generally declines by 1% annually
thereafter, reaching zero after six years. See "Purchases."

(2) See "Management" for additional information. All expenses are those
actually incurred for the fiscal year ended October 31, 1994.

(3) 12b-1 fees have two components, as follows:

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

12b-1 distribution fees are asset-based sales charges. Long-term Class B and
Class D shareholders may pay more in direct and indirect sales charges
(including distribution fees) than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of Securities
Dealers, Inc.

EXAMPLE OF EFFECT OF FUND EXPENSES

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

<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
Class A Shares(1)..................................... $51 $76 $102 $176
Class B Shares:
Assuming a complete redemption at end of peri-
od(2)(3)........................................... $70 $91 $125 $188
Assuming no redemption (3).......................... $20 $61 $105 $188
Class D Shares........................................ $17 $53 $ 91 $199
</TABLE>
- -------
(1) Assumes deduction at the time of purchase of the maximum 4% initial sales
charge.

(2) Assumes deduction at the time of redemption of the maximum applicable
contingent deferred sales charge.

(3) Ten-year figures assume conversion of Class B shares to Class A shares at
end of sixth year.

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

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

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

Prospectus Page 5
<PAGE>

- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND

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

The tables below provide selected per share data and ratios for one Class A
share, one Class B share and one Class D share of the Fund for each of the
periods shown. This information is supplemented by the financial statements and
accompanying notes appearing in the Fund's Annual Report to Shareholders for
the fiscal year ended October 31, 1994, which are incorporated by reference
into the Statement of Additional Information. The financial statements and
notes and the financial information in the tables below insofar as it relates
to each of the periods presented in the five year period ended October 31, 1994
have been audited by Price Waterhouse LLP, independent accountants, whose
unqualified report thereon is included in the Annual Report to Shareholders.
Further information about the Fund's performance also is included in the Annual
Report to Shareholders, which may be obtained without charge.
<TABLE>
<CAPTION>
CLASS A CLASS B
-------------------------------------------- -----------------------------------------------
FOR THE
PERIOD
FOR THE YEARS ENDED JULY 1, FOR THE YEARS ENDED
OCTOBER 31, 1991+ TO OCTOBER 31,
------------------------------- OCTOBER 31, -----------------------------------------------
1994 1993 1992 1991 1994 1993 1992 1991
-------- -------- -------- ----------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 10.97 $ 10.64 $ 10.75 $ 10.40 $ 10.95 $ 10.62 $ 10.74 $ 11.07
-------- -------- -------- ------- -------- ---------- ---------- ----------
Income (loss) from
investment operations:
Net investment income... 0.72 0.59 0.83 0.20 0.86 0.78 0.94 0.85
Net realized and
unrealized gains
(losses) from
investment and foreign
currency transactions.. (1.05) 0.68 (0.12) 0.40 (1.28) 0.40 (0.32) (0.09)
-------- -------- -------- ------- -------- ---------- ---------- ----------
Total income (loss) from
investment operations... (0.33) 1.27 0.71 0.60 (0.42) 1.18 0.62 0.76
-------- -------- -------- ------- -------- ---------- ---------- ----------
Less dividends and
distributions from:
Net investment income... (0.33) (0.80) (0.64) (0.23) (0.29) (0.71) (0.56) (0.97)
Net realized gains on
investments and foreign
currency transactions.. -- (0.14) (0.18) (0.02) -- (0.14) (0.18) (0.12)
Paid-in capital......... (0.32) -- -- -- (0.28) -- -- --
-------- -------- -------- ------- -------- ---------- ---------- ----------
Total dividends and
distributions........... (0.65) (0.94) (0.82) (0.25) (0.57) (0.85) (0.74) (1.09)
-------- -------- -------- ------- -------- ---------- ---------- ----------
Net asset value, end of
period.................. $ 9.99 $ 10.97 $ 10.64 $ 10.75 $ 9.96 $ 10.95 $ 10.62 $ 10.74
======== ======== ======== ======= ======== ========== ========== ==========
Total return(1).......... (3.10)% 12.41% 6.70% 5.79% (3.90)% 11.45% 5.93% 7.39%
======== ======== ======== ======= ======== ========== ========== ==========
Ratios/Supplemental data:
Net assets, end of
period (000's)......... $611,855 $648,853 $107,033 $16,501 $725,553 $1,188,890 $1,542,255 $1,593,814
Ratio of expenses to
average net assets..... 1.17% 1.32%** 1.21% 1.35%* 1.94% 2.11%** 1.98% 1.94%
Ratio of net investment
income to average net
assets................. 6.94% 6.82%** 7.84% 8.59%* 6.05% 5.97%** 7.11% 8.09%
Portfolio turnover rate. 108.48% 89.65% 91.72% 53.32% 108.48% 89.65% 91.72% 53.32%
</TABLE>
- -------
* Annualized.
** Includes 0.15% of interest expense related to the reverse repurchase
agreement transactions entered into during the fiscal year.
+ Commencement of offering of shares.
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gain
distributions at net asset value on the payable date, and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charges; results of Class A and Class B shares would be lower
if sales charges were included. Total return information for periods less
than one year is not annualized.

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

Prospectus Page 6
<PAGE>

- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
Financial Highlights
(Continued)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS B CLASS D
----------------------------------------------- ---------------------------------
FOR THE FOR THE FOR THE
PERIOD YEARS PERIOD
MARCH 20, ENDED JULY 2,
FOR THE YEARS ENDED OCTOBER 31, 1987+ TO OCTOBER 31, 1992+ TO
---------------------------------- OCTOBER 31, ------------------ OCTOBER 31,
1990 1989 1988 1987 1994 1993 1992
---------- ---------- ---------- ----------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 10.08 $ 11.10 $ 10.28 $ 10.00 $ 10.96 $ 10.64 $ 10.94
---------- ---------- ---------- -------- ------- -------- -------
Income (loss) from
investment operations:
Net investment income.. 1.01 1.01 0.98 0.47 0.70 0.68 0.20
Net realized and
unrealized gains
(losses) from
investment and foreign
currency transactions. 0.96 (0.64) 1.15 0.13 (1.09) 0.52 (0.13)
---------- ---------- ---------- -------- ------- -------- -------
Total income (loss) from
investment operations.. 1.97 0.37 2.13 0.60 (0.39) 1.20 0.07
---------- ---------- ---------- -------- ------- -------- -------
Less dividends and
distributions from:
Net investment income.. (0.98) (0.94) (1.06) (0.32) (0.21) (0.74) (0.21)
Net realized gains on
investments and
foreign currency
transactions.......... -- (0.45) (0.25) -- (0.16) (0.14) (0.16)
Paid-in capital........ -- -- -- -- (0.29) -- --
---------- ---------- ---------- -------- ------- -------- -------
Total dividends and
distributions.......... (0.98) (1.39) (1.31) (0.32) (0.59) (0.88) (0.37)
---------- ---------- ---------- -------- ------- -------- -------
Net asset value, end of
period................. $ 11.07 $ 10.08 $ 11.10 $ 10.28 $ 9.98 $ 10.96 $ 10.64
========== ========== ========== ======== ======= ======== =======
Total return(1)......... 20.32% 3.66% 18.29% 6.00% (3.56)% 11.64% 0.61%
========== ========== ========== ======== ======= ======== =======
Ratios/Supplemental
data:
Net assets, end of
period (000's)........ $1,323,495 $1,085,851 $1,145,460 $737,056 $92,480 $135,847 $36,598
Ratio of expenses to
average net assets.... 1.90% 1.95% 2.05% 2.08%* 1.68% 1.83%** 1.75%*
Ratio of net investment
income to average net
assets................ 9.88% 9.73% 9.13% 8.39%* 6.34% 6.17%** 7.02%*
Portfolio turnover
rate.................. 126.31% 124.02% 119.98% 52.47% 108.48% 89.65% 91.72%
</TABLE>
- -------
* Annualized.
** Includes 0.15% of interest expense related to the reverse repurchase
agreement transactions entered into during the fiscal year.
+ Commencement of offering of shares.
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gain
distributions at net asset value on the payable date, and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charges; results of Class A and Class B shares would be lower
if sales charges were included. Total return information for periods less
than one year is not annualized.

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Prospectus Page 7
<PAGE>

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PAINEWEBBER GLOBAL INCOME FUND

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

DIFFERENCES AMONG THE CLASSES

The primary distinctions among the Classes of the Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of distribution fees.
These differences are summarized in the table below. Each Class has distinct
advantages and disadvantages for different investors, and investors may choose
the Class that best suits their circumstances and objectives.
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
-------------------------------------- ------------------------ ------------------------
<S> <C> <C> <C>
Class A Maximum initial sales charge of Service fee of 0.25% Initial sales charge
4% of the public offering price waived or reduced
for certain purchases
Class B Maximum contingent deferred sales Service fee of 0.25%; Shares convert to Class
charge of 5% of redemption proceeds; distribution fee of A shares approximately
declines to zero after six years 0.75% six years after issuance
Class D None Service fee of 0.25%; --
distribution fee of
0.50%
</TABLE>
FACTORS TO CONSIDER IN CHOOSING A CLASS OF SHARES

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

SALES CHARGES. Class A shares are sold at net asset value plus an initial sales
charge of up to 4% of the public offering price. Because of this initial sales
charge, not all of a Class A shareholder's purchase price is invested in the
Fund. Class B shares are sold with no initial sales charge, but a contingent
deferred sales charge of up to 5% of the redemption proceeds applies to
redemptions made within six years of purchase. Class D shareholders pay no
initial or contingent deferred sales charges. Thus, the entire amount of a
Class B or Class D shareholder's purchase price is immediately invested in the
Fund.

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

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

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

For example, assuming a constant net asset value, the cumulative distribution
fees on the Class B

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Prospectus Page 8
<PAGE>

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PAINEWEBBER GLOBAL INCOME FUND
- --------------------------------------------------------------------------------

and Class D shares would approximate the expense of the 4% maximum initial
sales charge on the Class A shares if the shares were held for approximately 5
1/2 years in the case of the Class B shares and approximately 8 years in the
case of the Class D shares. Class B shares convert to Class A shares (which do
not bear the expense of ongoing distribution fees) approximately six years
after purchase. The cumulative distribution fees on the Fund's Class D shares
would approximate the cumulative distribution fees on the Class B shares if the
shares were held for 9 years. Thus, an investor who would be subject to the
maximum initial sales charge and who expects to hold Fund shares for less than
8 years generally should expect to pay the lowest cumulative expenses by
purchasing Class D shares.

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

OTHER INFORMATION

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

See "Purchases," "Redemptions" and "Management" for a more complete descrip-
tion of the initial and contingent deferred sales charges, service fees and
distribution fees for the three Classes of shares of the Fund. See also
"Conversion of Class B Shares," "Dividends and Taxes," "Valuation of Shares"
and "General Information" for other differences among the three Classes.
- --------------------------------------------------------------------------------

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

INVESTMENT OBJECTIVES AND PRIMARY INVESTMENTS

The Fund's primary investment objective is high current income consistent with
prudent investment risk; capital appreciation is a secondary objective. The
Fund seeks to achieve these objectives by investing principally in high quality
debt securities issued or guaranteed by foreign governments, by the U.S.
government, by their respective agencies or instrumentalities or by
supranational organizations, or issued by U.S. or foreign companies.

There can be no assurance that the Fund will achieve its investment objectives.
The Fund's net asset value fluctuates based upon changes in the value of its
portfolio securities. The Fund's investment objectives and certain investment
limitations as described in the Statement of Additional Information are
fundamental policies that may not be changed without shareholder approval. All
other investment policies may be changed by the board of trustees without
shareholder approval.

Normally, at least 65% of the Fund's total assets are invested in high quality
debt securities, denominated in foreign currencies or U.S. dollars, of issuers
located in at least three of the following countries: Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy,
Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain,
Sweden, Switzerland, Thailand, the United Kingdom and the United States. No
more than 40% of the Fund's assets normally are invested in securities of
issuers located in any one country.

The Fund's portfolio consists primarily of debt securities rated within one of
the two highest grades assigned by S&P, Moody's or another NRSRO or, if
unrated, determined by Mitchell Hutchins to be of comparable quality. Under
normal market conditions, at least 65% of its total assets are invested in the
following: (1) high

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

Prospectus Page 9
<PAGE>

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PAINEWEBBER GLOBAL INCOME FUND
- --------------------------------------------------------------------------------

quality debt securities issued or guaranteed by U.S. or foreign governments or
their agencies, instrumentalities or political subdivisions, (2) high quality
debt securities issued or guaranteed by supranational organizations such as the
International Bank for Reconstruction and Development ("World Bank"), (3) high
quality U.S. or foreign corporate debt securities, including commercial paper,
(4) high quality debt obligations of banks and bank holding companies and (5)
repurchase agreements involving these securities. Up to 5% of the Fund's total
assets may be invested in debt securities convertible into equity securities,
although the Fund has no current intention of converting such securities or
holding them as equity securities upon conversion. Mitchell Hutchins expects
that normally more than 50% of the Fund's assets will be invested in U.S. and
foreign government securities in order to minimize credit risk and to take
advantage of opportunities that historically have been presented by, and are
perceived to exist today with respect to, such instruments. The Fund may invest
up to 35% of its total assets in debt securities rated below the two highest
grades assigned by a NRSRO but rated BBB or better by S&P, Baa or better by
Moody's or comparably rated by another NRSRO or, if unrated, determined by
Mitchell Hutchins to be of comparable quality.

The Fund may invest up to 20% of its total assets in sovereign debt securities
rated below BBB by S&P, Baa by Moody's or comparably rated by another NRSRO but
no lower than BB by S&P, Ba by Moody's or comparably rated by another NRSRO or,
in the case of such securities assigned a commercial paper rating, no lower
than B by S&P or comparably rated by another NRSRO or, if not so rated,
determined by Mitchell Hutchins to be of comparable quality. Mitchell Hutchins
will purchase such securities for the Fund only when it concludes that the
anticipated return to the Fund on such investment warrants exposure to the
additional level of risk.

As of the end of its 1994 fiscal year, the Fund had 100% of its net assets in
debt securities that received a rating from a NRSRO. The Fund had the following
percentages of its net assets invested in rated securities: AAA/Aaa (including
cash and cash equivalents)--82.5%, AA/Aa--4.7%, A/A--2.5%, BBB/Baa--6.2%,
BB/Ba--2.9% and B--1.1%. It should be noted that this information reflects the
composition of the Fund's assets as of the end of the 1994 fiscal year, and is
not necessarily representative of the Fund's assets as of any other time in the
1994 fiscal year, the current fiscal year or any other time in the future.

Fundamental economic strength, credit quality and currency and interest rate
trends are the principal determinants of the various country, geographic and
industry sector weightings within the Fund's portfolio. See "Other Investment
Policies and Risk Factors--Debt Securities."

OTHER INVESTMENT POLICIES AND RISK FACTORS

FOREIGN SECURITIES. The Fund's investment policies are designed to enable it to
capitalize on unique investment opportunities presented throughout the world
and in international financial markets influenced by the increasing
interdependence of economic cycles and currency exchange rates. As of December
31, 1994, more than 63% of the Salomon Brothers World Government Bond Market
Index was represented by securities denominated in currencies other than the
U.S. dollar.

Over the past eight years, debt securities offered by certain foreign
governments provided higher investment returns than U.S. government debt
securities. Such returns reflect interest rates and other market conditions
prevailing in those countries and the effect of gains and losses in the
denominated currencies, which have had a substantial impact on investment in
foreign fixed income securities. The relative performance of various countries'
fixed income markets historically has reflected wide variations relating to the
unique characteristics of each country's economy. Year-to-year fluctuations in
certain markets have been significant, and negative returns have been
experienced in various markets from time to time.

Mitchell Hutchins believes that over time investment in a composite of foreign
fixed income markets and in the U.S. government and in corporate bond markets
is less risky than a portfolio comprised exclusively of foreign securities and
provides investors with the potential to earn a higher return than a portfolio
invested exclusively in U.S. debt securities.

Investments in foreign securities involve risks relating to political, social
and economic developments abroad, as well as risks resulting from the
differences between the regulations to which U.S. and foreign issuers and
markets are subject. These risks may include expropriation,

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

Prospectus Page 10
<PAGE>

- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
- --------------------------------------------------------------------------------

confiscatory taxation, withholding taxes on interest, limitations on the use or
transfer of Fund assets and political or social instability or diplomatic
developments. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position. Securities of many foreign companies may be less
liquid and their prices more volatile than securities of comparable U.S.
companies. While the Fund generally invests only in securities that are traded
on recognized exchanges or in over-the-counter markets, from time to time
foreign securities may be difficult to liquidate rapidly without significantly
depressing the price of such securities. There may be less publicly available
information concerning foreign issuers of securities held by the Fund than is
available concerning U.S. companies. Transactions in foreign securities may be
subject to less efficient settlement practices. Foreign securities trading
practices, including those involving securities settlement where Fund assets
may be released prior to receipt of payment, may expose the Fund to increased
risk in the event of a failed trade or the insolvency of a foreign broker-
dealer. Legal remedies for defaults and disputes may have to be pursued in
foreign courts, whose procedures differ substantially from those of U.S.
courts.

Because foreign securities ordinarily are denominated in currencies other than
the U.S. dollar (as are some securities of U.S. issuers), changes in foreign
currency exchange rates will affect the Fund's net asset value, the value of
interest earned, gains and losses realized on the sale of securities and net
investment income and capital gains, if any, to be distributed to shareholders
by the Fund. If the value of a foreign currency rises against the U.S. dollar,
the value of Fund assets denominated in that currency will increase;
correspondingly, if the value of a foreign currency declines against the U.S.
dollar, the value of Fund assets denominated in that currency will decrease.
The exchange rates between the U.S. dollar and other currencies are determined
by supply and demand in the currency exchange markets, international balances
of payments, speculation and other economic and political conditions. In
addition, some foreign currency values may be volatile and there is the
possibility of governmental controls on currency exchange or governmental
intervention in currency markets. Any of these factors could adversely affect
the Fund.

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

The Fund may invest in securities of issuers located in emerging market
countries. The risks of investing in foreign securities may be greater with
respect to securities of issuers in, or denominated in the currencies of,
emerging market countries. The economies of emerging market countries generally
are heavily dependent upon international trade and, accordingly, have been and
may continue to be adversely affected by trade barriers, exchange controls,
managed adjustments in relative currency values and other protectionist
measures imposed or negotiated by the countries with which they trade. These
economies also have been and may continue to be adversely affected by economic
conditions in the countries with which they trade. Many emerging market
countries have experienced substantial, and in some periods extremely high,
rates of inflation for many years. Inflation and rapid fluctuations in
inflation rates have had and may continue to have very negative effects on the
economies and securities markets of certain emerging market countries. The
securities markets of emerging market countries are substantially smaller, less
developed, less liquid and more volatile than the securities markets of the
United States and other developed countries. Disclosure and regulatory
standards in many respects are less stringent in emerging market countries than
in the United States and other major markets. There also may be a lower level
of monitoring and regulation of emerging markets and the activities of
investors in such markets, and enforcement of existing regulations may be
extremely limited. Investing in local markets, particularly in emerging market
countries, may require the Fund to adopt special procedures, seek local
government approvals or take other actions, each of which may involve
additional costs to the Fund. Certain emerging market countries may also
restrict investment opportunities in issuers in industries deemed important to
national interests.

DEBT SECURITIES. The market value of debt securities generally varies inversely
with interest

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

Prospectus Page 11
<PAGE>

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PAINEWEBBER GLOBAL INCOME FUND
- --------------------------------------------------------------------------------

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

The Fund is permitted to invest up to 35% of its total assets in securities
rated BBB by S&P or Baa by Moody's. These securities are investment grade but
Moody's considers securities rated Baa to have speculative characteristics.
Changes in economic conditions or other circumstances are more likely to lead
to a weakened capacity for such securities to make principal and interest
payments than is the case for higher-rated securities. The Fund may invest up
to 20% of its total assets in sovereign debt securities rated below investment
grade but no lower than BB by S&P, Ba by Moody's or comparably rated by another
NRSRO or, in the case of such securities assigned a commercial paper rating, no
lower than B by S&P or comparably rated by another NRSRO. These securities are
deemed by those NRSROs to be predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal and may involve major
risk exposure to adverse conditions. Such securities are commonly referred to
as "junk bonds." Commercial paper rated B by S&P is regarded by it as having
only an adequate capacity for timely payment. The Fund is also permitted to
purchase debt securities that are not rated by a NRSRO but Mitchell Hutchins
determines to be of comparable quality to that of rated securities in which the
Fund may invest. Such securities are included in the computation of any
percentage limitations applicable to the comparable rated securities. In the
event that, due to a downgrade of one or more debt securities, an amount in
excess of 20% of the Fund's total assets is held in securities rated below
investment grade and comparable unrated securities, Mitchell Hutchins will
engage in an orderly disposition of such securities to the extent necessary to
ensure that the Fund's holdings of such securities do not exceed 20% of the
Fund's total assets.

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

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

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Prospectus Page 12
<PAGE>

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PAINEWEBBER GLOBAL INCOME FUND
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including securities that are backed by the full faith and credit of the United
States (such as Government National Mortgage Association certificates),
securities that are supported primarily or solely by the creditworthiness of
the issuer (such as securities issued by the Resolution Funding Corporation and
the Tennessee Valley Authority) and securities that are supported primarily or
solely by specific pools of assets and the creditworthiness of a U.S.
government-related issuer (such as securities issued by the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation). The Fund
is authorized to invest in mortgage-backed securities guaranteed by the
Government National Mortgage Association but has no current intention of
investing more than 10% of its total assets in such securities.

The Fund may invest in "zero coupon" Treasury securities, which are U.S.
Treasury bills, notes and bonds that have been stripped of their unmatured
interest coupons, and receipts or certificates representing interest in such
stripped debt obligations and coupons. A zero coupon security pays no cash
interest to its holder prior to maturity. Accordingly, these securities usually
are issued and traded at a deep discount from their face or par value and will
be subject to greater fluctuations of market value in response to changing
interest rates than debt obligations of comparable maturities that make current
distributions of interest. Federal tax law requires that the holder of a zero
coupon security include in gross income each year the original issue discount
that accrues on the security for the year, even though the holder receives no
interest payment on the security during the year. For additional discussion of
the tax treatment of zero coupon Treasury securities, see "Taxes" in the
Statement of Additional Information.

The foreign government securities in which the Fund may invest generally
consist of obligations supported by national, state or provincial governments
or similar political subdivisions. Foreign government securities also include
debt obligations of supranational entities, which include international
organizations designated or supported by governmental entities to promote
economic reconstruction or development, international banking institutions and
related government agencies. Examples include the World Bank, the European Coal
and Steel Community, the Asian Development Bank and the InterAmerican
Development Bank.

Foreign government securities also include debt securities of "quasi-
governmental agencies" and debt securities denominated in multinational
currency units of an issuer (including supranational issuers). An example of a
multinational currency unit is the European Currency Unit ("ECU"). An ECU
represents specified amounts of the currencies of certain member states of the
European Union. Debt securities of quasi-governmental agencies are issued by
entities owned by either a national, state or equivalent government or are
obligations of a political unit that is not backed by the national government's
full faith and credit and general taxing powers. Foreign government securities
also include mortgage-related securities issued or guaranteed by national,
state or provincial governmental instrumentalities, including quasi-
governmental agencies.

Investments in foreign government debt securities involve special risks. The
issuer of the debt or the governmental authorities that control the repayment
of the debt may be unable or unwilling to pay interest or repay principal when
due in accordance with the terms of such debt, and the Fund may have limited
legal recourse in the event of default. Political conditions, especially a
sovereign entity's willingness to meet the terms of its debt obligations, are
of considerable significance.

HEDGING AND RELATED INCOME STRATEGIES. The Fund may use options (both
exchange-traded and over-the-counter) and futures contracts to attempt to
enhance income and may attempt to reduce the overall risk of its investments
(hedge) by using options, futures contracts and forward currency contracts.
Hedging strategies may be used in an attempt to manage the Fund's foreign
currency exposure, its average duration, and other risks of the Fund's
investments that can cause fluctuations in its net asset value. The Fund's
ability to use these strategies may be limited by market conditions, regulatory
limits and tax considerations. The Appendix to this Prospectus describes the
hedging instruments that the Fund may use and the Statement of Additional
Information contains further information on these strategies.

The Fund may enter into forward currency contracts, buy or sell foreign
currency futures contracts, write (sell) covered put or call options and buy
put or call options on securities,

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Prospectus Page 13
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- -------------------------------------------------------------------------------

securities indices, foreign currencies and such futures contracts. The Fund may
enter into options and futures contracts under which up to 100% of its
portfolio is at risk.

The Fund may enter into forward currency contracts for the purchase or sale of
a specified currency at a specified future date either with respect to specific
transactions or with respect to portfolio positions. For example, when Mitchell
Hutchins anticipates making a currency exchange transaction in connection with
the purchase or sale of a security, the Fund may enter into a forward contract
in order to set the exchange rate at which the transaction will be made. The
Fund also may enter into a forward contract to sell an amount of a foreign
currency approximating the value of some or all of the Fund's securities
denominated in such currency. The Fund may use forward contracts in one
currency or a basket of currencies to hedge against fluctuations in the value
of another currency when Mitchell Hutchins anticipates there will be a
correlation between the two and may use forward currency contracts to shift the
Fund's exposure to foreign currency fluctuations from one country to another.
The purpose of entering into these contracts is to minimize the risk to the
Fund from adverse changes in the relationship between the U.S. dollar and
foreign currencies.

The Fund may enter into interest rate protection transactions, including
interest rate swaps and interest rate caps, collars and floors, for hedging
purposes. For example, the Fund may enter into interest rate protection
transactions to preserve a return or spread on a particular investment or
portion of its portfolio or to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date. The Fund will enter
into interest rate protection transactions only with banks and recognized
securities dealers believed by Mitchell Hutchins to present minimal credit
risks in accordance with guidelines established by the Trust's board of
trustees.

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

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

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

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Prospectus Page 14
<PAGE>

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agreements are considered to be borrowings and may be entered into only for
temporary or emergency purposes. The Fund will not purchase securities while
borrowings (including reverse repurchase agreements) in excess of 5% of the
value of its total assets are outstanding.

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

ILLIQUID SECURITIES. The Fund may invest up to 10% of its net assets in
illiquid securities, including certain cover for over-the-counter options,
repurchase agreements with maturities in excess of seven days and securities
whose disposition is restricted under the federal securities laws (other than
"Rule 144A securities" Mitchell Hutchins has determined to be liquid under
procedures approved by the Trust's board of trustees). Rule 144A establishes a
"safe harbor" from the registration requirements of the Securities Act of 1933
("1933 Act"). Institutional markets for restricted securities have developed as
a result of Rule 144A, providing both readily ascertainable values for
restricted securities and the ability to liquidate an investment to satisfy
share redemption orders. An insufficient number of qualified institutional
buyers interested in purchasing Rule 144A-eligible restricted securities held
by the Fund, however, could affect adversely the marketability of such
portfolio securities and the Fund might be unable to dispose of such securities
promptly or at favorable prices.

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

OTHER INFORMATION. The Fund is "non-diversified," as that term is defined in
the Investment Company Act of 1940 ("1940 Act"), but the Fund intends to
continue to qualify as a "regulated investment company" for federal income tax
purposes. See "Dividends and Taxes." This means, in general, that more than 5%
of the total assets of the Fund may be invested in securities of one issuer
(including a foreign government), but only if, at the close of each quarter of
the Fund's taxable year, the aggregate amount of such holdings does not exceed
50% of the value of its total assets and no more than 25% of the value of its
total assets is invested in the securities of a single issuer. To the extent
that the Fund's portfolio at times may include the securities of a smaller
number of issuers than if it were "diversified" (as defined in the 1940 Act),
the Fund will at such times be subject to greater risk with respect to its
portfolio securities than an investment company that invests in a broader range
of securities, in that changes in the financial condition or market assessment
of a single issuer may cause greater fluctuation in the Fund's total return and
the price of Fund shares.

When Mitchell Hutchins believes unusual circumstances warrant a defensive
posture, the Fund temporarily may commit all or any portion of its assets to
cash (U.S. dollars or foreign currencies) or money market instruments of U.S.
or foreign issuers, including repurchase agreements. The Fund also may engage
in short sales of securities "against the box" to defer realization of gains
and losses for tax or other purposes. The Fund may borrow money for temporary
or emergency purposes, but not in excess of 10% of its total assets.

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

Prospectus Page 15
<PAGE>

- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND

Purchases
- --------------------------------------------------------------------------------

GENERAL. Class A shares of the Fund are sold to investors subject to an initial
sales charge. Class B shares of the Fund are sold without an initial sales
charge but are subject to higher ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon certain redemptions. Class B
shares automatically convert to Class A shares approximately six years after
issuance. Class D shares are sold without an initial or a contingent deferred
sales charge but are subject to higher ongoing expenses than Class A shares and
do not convert into another Class. See "Flexible Pricing System" and
"Conversion of Class B Shares."

Shares of the Fund are available through PaineWebber and its correspondent
firms or, for shareholders who are not PaineWebber clients, through the
Transfer Agent. Investors may contact a local PaineWebber office to open an
account. The minimum initial investment for the Fund is $1,000, and the minimum
for additional purchases is $100. These minimums may be waived or reduced for
investments by employees of PaineWebber or its affiliates, certain pension
plans and retirement accounts and participants in the Fund's automatic
investment plan. Purchase orders will be priced at the net asset value per
share next determined (see "Valuation of Shares") after the order is received
by PaineWebber's New York City offices or by the Transfer Agent, plus any
applicable sales charge for Class A shares. The Fund and Mitchell Hutchins
reserve the right to reject any purchase order and to suspend the offering of
Fund shares for a period of time.

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

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

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

INITIAL SALES CHARGE SCHEDULE-- CLASS A SHARES

<TABLE>
<CAPTION>
SALES CHARGE AS A
PERCENTAGE OF DISCOUNT TO
---------------------------------------- SELECTED
NET AMOUNT DEALERS AS A
INVESTED PERCENTAGE
OFFERING (NET ASSET OF OFFERING
AMOUNT OF PURCHASE PRICE VALUE) PRICE
------------------ -------- ---------- ------------
<S> <C> <C> <C>
Less than $100,000 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
</TABLE>
- -------
(1) Mitchell Hutchins pays compensation to PaineWebber out of its own
resources.

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

SALES CHARGE WAIVERS--CLASS A SHARES. Class A shares of the Fund are available
without a sales

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

Prospectus Page 16
<PAGE>

- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
- --------------------------------------------------------------------------------

charge through exchanges for Class A shares of most other PaineWebber mutual
funds. See "Exchanges." In addition, Class A shares may be purchased without a
sales charge, and exchanges of any Class of shares made without the $5.00
exchange fee, by employees, directors and officers of PaineWebber or its
affiliates, directors or trustees and officers of any PaineWebber fund, their
spouses, parents and children and advisory clients of Mitchell Hutchins.

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

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

Class A shares of the Fund may be acquired without a sales charge if issued by
the Fund in connection with a reorganization pursuant to which the Fund
acquires substantially all of the assets and liabilities of another investment
company in exchange solely for Class A shares of the Fund.

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

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

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

Class B shares of the Fund that are redeemed will not be subject to a
contingent deferred sales charge to the extent that the value of such shares
represents (1) capital appreciation of Fund assets, (2) reinvestment of
dividends or capital gain distributions or (3) shares redeemed more than six
years after their purchase. Otherwise, redemptions of Class B shares will be
subject to a contingent deferred sales charge. The amount of any applicable
contingent deferred sales charge will be calculated by multiplying the net
asset value of such shares at the time of redemption by the applicable
percentage shown in the table below.

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

Prospectus Page 17
<PAGE>

- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
- --------------------------------------------------------------------------------

In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption is made first of Class B shares
representing capital appreciation, next of shares representing the reinvestment
of dividends and capital gain distributions and finally of other shares held by
the shareholder for the longest period of time. The holding period of Class B
shares of the Fund acquired through an exchange with another PaineWebber mutual
fund will be calculated from the date that the Class B shares were initially
acquired in one of the other PaineWebber funds, and Class B shares being
redeemed will be considered to represent, as applicable, capital appreciation
or dividend and capital gain distribution reinvestments in such other funds.
This will result in any contingent deferred sales charge being imposed at the
lowest possible rate. For federal income tax purposes, the amount of the
contingent deferred sales charge will reduce the gain or increase the loss, as
the case may be, on the amount realized on redemption. The amount of any
contingent deferred sales charge will be paid to Mitchell Hutchins.

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

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

PURCHASES OF CLASS D SHARES. The public offering price of the Class D shares of
the Fund is the next determined net asset value. No initial or contingent
deferred sales charge is imposed.
- --------------------------------------------------------------------------------

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

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

PAINEWEBBER INCOME FUNDS

. High Income Fund

. Investment Grade Income Fund

. Short-Term U.S. Government Income Fund

. Short-Term U.S. Government Income Fund for Credit Unions

. Strategic Income Fund

. U.S. Government Income Fund

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

Prospectus Page 18
<PAGE>

- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
- --------------------------------------------------------------------------------

PAINEWEBBER TAX-FREE INCOME FUNDS

. California Tax-Free Income Fund

. Municipal High Income Fund

. National Tax-Free Income Fund

. New York Tax-Free Income Fund

PAINEWEBBER GROWTH FUNDS

. Atlas Global Growth Fund

. Blue Chip Growth Fund

. Capital Appreciation Fund

. Communications & Technology Growth Fund

. Europe Growth Fund

. Growth Fund

. Regional Financial Growth Fund

. Small Cap Value Fund

PAINEWEBBER GROWTH AND INCOME FUNDS

. Asset Allocation Fund

. Dividend Growth Fund

. Global Energy Fund

. Global Growth and Income Fund

. Utility Income Fund

PAINEWEBBER MONEY MARKET FUND

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

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

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

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

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

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

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

Prospectus Page 19
<PAGE>

- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
- --------------------------------------------------------------------------------

REDEMPTION THROUGH THE TRANSFER AGENT. Fund shareholders who are not
PaineWebber clients or who wish to redeem certificated shares must redeem their
shares through the Transfer Agent by mail; other shareholders also may redeem
Fund shares through the Transfer Agent. Shareholders should mail redemption
requests directly to the Transfer Agent: PFPC Inc., Attn: PaineWebber Mutual
Funds, P.O. Box 8950, Wilmington, Delaware 19899. A redemption request will be
executed at the net asset value next computed after it is received in "good
order." "Good order" means that the request must be accompanied by the
following: (1) a letter of instruction or a stock assignment specifying the
number of shares or amount of investment to be redeemed (or that all shares
credited to the Fund account be redeemed), signed by all registered owners of
the shares in the exact names in which they are registered, (2) a guarantee of
the signature of each registered owner by an eligible institution acceptable to
the Transfer Agent and in accordance with SEC rules, such as a commercial bank,
trust company or member of a recognized stock exchange, (3) other supporting
legal documents for estates, trusts, guardianships, custodianships,
partnerships and corporations and (4) duly endorsed share certificates, if any.
Shareholders are responsible for ensuring that a request for redemption is
received in "good order."

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

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

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

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

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

Prospectus Page 20
<PAGE>

- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND

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

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

AUTOMATIC INVESTMENT PLAN. Shareholders may purchase shares of the Fund through
an automatic investment plan, under which an amount specified by the
shareholder of $50 or more each month will be sent to the Transfer Agent from
the shareholder's bank for investment in the Fund. In addition to providing a
convenient and disciplined manner of investing, participation in the automatic
investment plan enables the investor to use the technique of "dollar cost
averaging." When under the plan a shareholder invests the same dollar amount
each month, the shareholder will purchase more shares when the Fund's net asset
value per share is low and fewer shares when the net asset value per share is
high. Using this technique, a shareholder's average purchase price per share
over any given period will be lower than if the shareholder purchased a fixed
number of shares on a monthly basis during the period.

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

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

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

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

Prospectus Page 21
<PAGE>

- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND

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

DIVIDENDS. The Fund distributes substantially all of its net investment income
and realized net gains to shareholders each year. Income dividends are declared
quarterly and may be accompanied by distributions of net realized short-term
capital gains and net realized gains from foreign currency transactions.

Substantially all of the Fund's net capital gain (the excess of net long-term
capital gain over net short-term capital loss) and any undistributed net short-
term capital gain and realized gains from foreign currency transactions is
distributed annually. The Fund may make additional distributions if necessary
to avoid a 4% excise tax on certain undistributed income and capital gain. If
the Fund's dividends and other distributions exceed its income in any year,
which may occur due to currency-related losses or short-term capital losses,
all or a portion of its dividends may be treated as a non-taxable return of
capital to shareholders for tax purposes.

Dividends and other distributions paid on each Class of Fund shares are
calculated at the same time and in the same manner. Dividends on Class B and
Class D shares are expected to be lower than those for Class A shares because
of the higher expenses resulting from the distribution fees borne by the Class
B and Class D shares. For the same reason, dividends on Class B shares are
expected to be lower than those for Class D shares. Dividends on each Class
also might be affected differently by the allocation of other Class-specific
expenses. See "Valuation of Shares."

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

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

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

The Fund notifies its shareholders following the end of each calendar year of
the amounts of dividends and capital gain distributions paid (or deemed paid)
that year. Under certain circumstances, the notice also will specify the
shareholder's share of any foreign taxes paid by the Fund, in which event the
shareholder would be required to include in his gross income his pro rata share
of those taxes but might be entitled to claim a credit or deduction for those
taxes.

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

A redemption of Fund shares may result in taxable gain or loss to the redeeming
shareholder, depending upon whether the redemption proceeds payable to the
shareholder are more or less than the shareholder's adjusted basis for the
redeemed shares (which normally includes any

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

Prospectus Page 22
<PAGE>

- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
- --------------------------------------------------------------------------------

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

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

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

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

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

Management
- --------------------------------------------------------------------------------
The Trust's board of trustees, as part of its overall management
responsibility, oversees various organizations responsible for the Fund's day-
to-day management. Mitchell Hutchins, the investment adviser and administrator
of the Fund, makes and implements all investment decisions and supervises all
aspects of the Fund's operations. Mitchell Hutchins receives a monthly fee for
these services. For the fiscal year ended October 31, 1994, the Fund paid
advisory fees at the effective annual rate of 0.72% of the Fund's average daily
net assets. The Fund's advisory fees are higher than those paid by most
investment companies to their advisers, but Mitchell Hutchins believes the fees
are justified by the global nature of the Fund's investment activities.
Brokerage transactions for the Fund may be conducted through PaineWebber or its
affiliates in accordance with procedures adopted by the Trust's board of
trustees.

The Fund also pays PaineWebber an annual fee of $4.00 per active shareholder
account held at PaineWebber for certain services not provided by

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

Prospectus Page 23
<PAGE>

- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
- --------------------------------------------------------------------------------

the Transfer Agent. The Fund incurs various other expenses and, for the fiscal
year ended October 31, 1994, the Fund's total expenses for its Class A, Class B
and Class D shares, stated as a percentage of net assets, were 1.17%, 1.94% and
1.68%, respectively.

Mitchell Hutchins is located at 1285 Avenue of the Americas, New York, New York
10019. It is a wholly owned subsidiary of PaineWebber, which is in turn wholly
owned by Paine Webber Group Inc., a publicly owned financial services holding
company. As of January 31, 1995, Mitchell Hutchins was adviser or sub-adviser
of 36 investment companies with 63 separate portfolios and aggregate assets of
approximately $26.2 billion, including approximately $3.0 billion in global
funds.

Stuart Waugh has been primarily responsible for the day-to-day portfolio
management of Global Income Fund since its inception. Mr. Waugh is a vice
president of the Trust and a managing director of global fixed income
investments of Mitchell Hutchins. Mr. Waugh has been employed by Mitchell
Hutchins as a portfolio manager for the last eight years.

Other members of Mitchell Hutchins' international fixed income groups provide
input on market outlook, interest rate forecasts and other considerations
pertaining to global fixed income investments.

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

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

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

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

During the period they are in effect, the Plans and related distribution
contracts pertaining to each Class of shares ("Distribution Contracts")

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

Prospectus Page 24
<PAGE>

- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
- --------------------------------------------------------------------------------

obligate the Fund to pay service and distribution fees to Mitchell Hutchins as
compensation for its service and distribution activities, not as reimbursement
for specific expenses incurred. Thus, even if Mitchell Hutchins' expenses
exceed its service or distribution fees for the Fund, the Fund will not be
obligated to pay more than those fees and, if Mitchell Hutchins' expenses are
less than such fees, it will retain its full fees and realize a profit. The
Fund will pay the service and distribution fees to Mitchell Hutchins until
either the applicable Plan or Distribution Contract is terminated or not
renewed. In that event, Mitchell Hutchins' expenses in excess of service and
distribution fees received or accrued through the termination date will be
Mitchell Hutchins' sole responsibility and not obligations of the Fund. In
their annual consideration of the continuation of the Fund's Plans, the
trustees will review the Plan and Mitchell Hutchins' corresponding expenses for
each Class separately from the Plans and corresponding expenses for the other
two Classes.
- --------------------------------------------------------------------------------

Performance Information
- --------------------------------------------------------------------------------
The Fund performs a standardized computation of annualized total return and may
show this return in advertisements or promotional materials. Standardized
return shows the change in value of an investment in the Fund as a steady
compound annual rate of return. Actual year-by-year returns fluctuate and may
be higher or lower than standardized return. Standardized return for the Class
A shares of the Fund reflects deduction of the Fund's maximum initial sales
charge at the time of purchase, and standardized return for the Class B shares
of the Fund reflects deduction of the applicable contingent deferred sales
charge imposed on a redemption of shares held for the period. One-, five-and
ten-year periods will be shown, unless the Class has been in existence for a
shorter period. Total return calculations assume reinvestment of dividends and
other distributions.

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

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

The Fund will include performance data for all three Classes of Fund shares in
any advertisements or promotional materials including Fund performance data.
Total return and yield information reflects past performance and does not
necessarily indicate future results. Investment return and principal values
will fluctuate, and proceeds upon redemption may be more or less than a
shareholder's cost.

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

Prospectus Page 25
<PAGE>

- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND

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

ORGANIZATION. PaineWebber Investment Series is registered with the SEC as an
open-end management investment company and was organized as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts by
Declaration of Trust dated December 22, 1986. The trustees have authority to
issue an unlimited number of shares of beneficial interest of separate series,
par value $.001 per share. In addition to the Fund, shares of three other
series have been authorized.

The shares of beneficial interest of the Fund are divided into four Classes,
designated Class A shares, Class B shares, Class C shares and Class D shares.
Each Class represents interests in the same assets of the Fund. The Classes
differ as follows: (1) each Class has exclusive voting rights on matters
pertaining to its plan of distribution; (2) Class A shares are subject to an
initial sales charge; (3) Class B shares bear ongoing distribution fees, are
subject to a contingent deferred sales charge upon certain redemptions and will
automatically convert to Class A shares approximately six years after issuance;
(4) Class D shares are subject to neither an initial nor a contingent deferred
sales charge, bear ongoing distribution fees and do not convert into another
Class; and (5) each Class may bear differing amounts of certain Class-specific
expenses. Class C shares, which may be offered only to a limited class of
institutional investors, are subject to neither an initial or contingent
deferred sales charge nor ongoing service or distribution fees. The Trust's
board of trustees does not anticipate that there will be any conflicts among
the interests of the holders of the different Classes of shares of the Fund. On
an ongoing basis, the board of trustees will consider whether any such conflict
exists and, if so, take appropriate action.

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

To avoid additional operating costs and for investor convenience, the Fund no
longer issues share certificates. Ownership of shares of the Fund is recorded
on a stock register by the Transfer Agent and shareholders have the same rights
of ownership with respect to such shares as if certificates had been issued.

CUSTODIAN AND TRANSFER AGENT. Brown Brothers Harriman & Co., 40 Water Street,
Boston, Massachusetts 02109, is custodian of the Fund's assets and employs
foreign sub-custodians, approved by the Trust's board of trustees in accordance
with applicable requirements under the 1940 Act, to provide custody of the
Fund's foreign assets. PFPC Inc., a subsidiary of PNC Bank, National
Association, whose principal business address is 400 Bellevue Parkway,
Wilmington, Delaware 19809, is the Fund's transfer and dividend disbursing
agent.

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

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

Prospectus Page 26
<PAGE>

- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND

Appendix
- --------------------------------------------------------------------------------

The Fund may use the following hedging instruments:

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

OPTIONS ON SECURITIES INDICES--A securities index assigns relative values to
the securities included in the index and fluctuates with changes in the market
values of those securities. An index option operates in the same way as a more
traditional stock option, except that exercise of an index option is effected
with cash payment and does not involve delivery of securities. Thus, upon
exercise of an index option, the purchaser will realize, and the writer will
pay, an amount based on the difference between the exercise price and the
closing price of the index.

INTEREST RATE AND FOREIGN CURRENCY FUTURES CONTRACTS--Interest rate and
foreign currency futures contracts are bilateral agreements pursuant to which
one party agrees to make, and the other party agrees to accept, delivery of a
specified type of debt security or currency at a specified future time and at a
specified price. Although such futures contracts by their terms call for actual
delivery or acceptance of debt securities or currency, in most cases the
contracts are closed out before the settlement date without the making or
taking of delivery.

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

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

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

Prospectus Page 27
<PAGE>

Application Form

THE PAINEWEBBER
MUTUAL FUNDS [_][_]-[_][_][_][_][_]-[_][_]
PaineWebber Account No.
- --------------------------------------------------------------------------------
INSTRUCTIONS DO NOT USE THIS FORM IF YOU WOULD LIKE YOUR ACCOUNT SERVICED
THROUGH PAINEWEBBER. INSTEAD, CALL YOUR PAINEWEBBER INVESTMENT
EXECUTIVE (OR YOUR LOCAL PAINEWEBBER OFFICE TO OPEN AN
ACCOUNT).

ALSO, DO NOT USE THIS FORM TO OPEN A Return this completed
RETIREMENT PLAN ACCOUNT. FOR form to: PFPC Inc. P.O.
RETIREMENT PLAN FORMS OR FOR Box 8950 Wilmington,
ASSISTANCE IN COMPLETING THIS FORM Delaware 19899
CONTACT PFPC INC. AT 1-800-647-1568. ATTN: PaineWebber Mutual
Funds
PLEASE PRINT
- --------------------------------------------------------------------------------

[1] INITIAL INVESTMENT ($1,000 MINIMUM)

ENCLOSED IS A CHECK FOR:

$_______ (payable to PaineWebber Global Income Fund) to pur-
chase Class A [_] or Class B [_]or Class D [_] shares.
(Check one Class; if no Class is specified Class A shares will
be purchased)
A separate check is required for your investment in each Fund.

[2] ACCOUNT REGISTRATION

Not valid 1. Individual / /
without ------------- --------------- ------------
signature and First Name Last Name MI Soc. Sec. No.
Soc. Sec. or
Tax ID #

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

- --As custodian 3. Gifts to Minors / /
for a minor, ------------------------ ------------
use Lines 1 Minor's Name Soc. Sec. No.
and 3
Under the Uniform Gifts/Uniform
- --In the name ------------------------ to Minors Act Transfers
of a State of Residence of Minor to Minors
corporation, Act
trust or other
organization or 4. Other Registrations
any fiduciary ------------------------ ------------
capacity, use Name Tax Ident.No.
Line 4
5. If Trust, Date of Trust Instrument:
------------------------
[3] ADDRESS

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

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

[4] DISTRIBUTION OPTIONS See Prospectus

Please select one of the following:

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

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

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

[_] Reinvest dividends and pay capital gain distributions in
cash to my address above

NOTE: If a selection is not made, both dividends and capi-
tal gain distributions will be paid in additional Fund
shares of the same Class.
<PAGE>

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

[_] Automatic Investment Plan
[_] Prototype IRA Application
[_] Systematic Withdrawal Plan

[6] RIGHTS OF ACCUMULATION--CLASS A SHARES (See Prospectus)

Indicate here any other account(s) in
the group of funds that would qualify
for the cumulative quantity discount as
outlined in the Prospectus.

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

[7] PLEASE INDICATE BELOW IF YOU ARE AFFILIATED WITH PAINEWEBBER

"Affiliated" persons are defined as officers,
directors/trustees and employees of the PaineWebber funds,
PaineWebber or its affiliates, and their parents, spouses
and children.

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

[8] SIGNATURE (S) AND TAX CERTIFICATION (S)

I warrant that I have full authority and am of legal age
to purchase shares of the Fund and have received and read
a current Prospectus of the Fund and agree to its terms.
The Fund and its Transfer Agent will not be liable for
acting upon instructions or inquiries believed genuine.
Under penalties of perjury, I certify that (1) my taxpayer
identification number provided in this application is
correct and (2) I am not subject to backup withholding
because (i) I have not been notified that I am subject to
backup withholding as a result of failure to report
interest or dividends or (ii) the IRS has notified me that
I am no longer subject to backup withholding (strike out
clause (2) if incorrect).

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

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

9
INVESTMENT EXECUTIVE IDENTIFICATION (To Be Completed By Invest-
ment Executive Only)

---------------------------- ----------------------------
Broker No./Name Branch Wire Code

( )
---------------------------- ----------------------------
Branch Address Telephone

10
CORRESPONDENT FIRM IDENTIFICATION (To Be Completed By Correspon-
dent Firm Only)

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

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

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

PaineWebber
Global Income
Fund

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

PROSPECTUS
March 1, 1995
Shares of the Fund can be exchanged for shares of other PaineWebber Mutual
Funds which include:

PAINEWEBBER INCOME FUNDS
. High Income Fund
. Investment Grade Income Fund
. Short-Term U.S. Government Income Fund
. Short-Term U.S. Government Income Fund for Credit Unions
. Strategic Income Fund
. U.S. Government Income Fund

PAINEWEBBER TAX-FREE INCOME FUNDS
. California Tax-Free Income Fund
. Municipal High Income Fund
. National Tax-Free Income Fund
.New York Tax-Free Income Fund

PAINEWEBBER GROWTH FUNDS
. Atlas Global Growth Fund
. Blue Chip Growth Fund
. Capital Appreciation Fund
. Communications & Technology Growth Fund
. Europe Growth Fund
. Growth Fund
. Regional Financial Growth Fund
.Small Cap Value Fund

PAINEWEBBER GROWTH AND INCOME FUNDS
. Asset Allocation Fund
. Dividend Growth Fund
. Global Energy Fund
. Global Growth and Income Fund
.Utility Income Fund

PAINEWEBBER MONEY MARKET FUND

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

[ART Recycled Paper]

- --------------------------------------------------------------------------------
<PAGE>

PAINEWEBBER GLOBAL INCOME FUND

1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019

STATEMENT OF ADDITIONAL INFORMATION

PaineWebber Global Income Fund ("Fund") is a non-diversified series of
PaineWebber Investment Series ("Trust"), a professionally managed mutual fund.
The Fund seeks high current income consistent with prudent investment risk,
with capital appreciation as a secondary objective; it invests principally in
high quality debt securities issued or guaranteed by foreign governments, by
the U.S. government, by their respective agencies or instrumentalities or by
supranational organizations, or issued by foreign or U.S. companies. The Fund's
investment adviser, administrator and distributor is Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins"), a wholly owned subsidiary of PaineWebber
Incorporated ("PaineWebber"). As distributor for the Fund, Mitchell Hutchins
has appointed PaineWebber to serve as the exclusive dealer for the sale of Fund
shares. This Statement of Additional Information is not a prospectus and should
be read only in conjunction with the Fund's current Prospectus, dated March 1,
1995. A copy of the Prospectus may be obtained by calling any PaineWebber
investment executive or correspondent firm or by calling toll-free 1-800-647-
1568. This Statement of Additional Information is dated March 1, 1995.

INVESTMENT POLICIES AND RESTRICTIONS

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

SPECIAL CONSIDERATIONS RELATING TO FOREIGN SECURITIES. Many of the foreign
securities held by the Fund are not registered with the Securities and Exchange
Commission ("SEC"), nor are the issuers thereof subject to its reporting
requirements. Accordingly, there may be less publicly available information
concerning foreign issuers of securities held by the Fund than is available
concerning U.S. companies. Foreign companies are not generally subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory requirements comparable to those applicable to U.S. companies.

In addition to purchasing securities of foreign issuers in foreign markets,
the Fund may invest in American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs") or other securities convertible into securities of
corporations based in foreign countries. These securities may not necessarily
be denominated in the same currency as the securities into which they may be
converted. Generally, ADRs, in registered form, are denominated in U.S. dollars
and are designed for use in the U.S. securities markets and EDRs, in bearer
form, may be denominated in other currencies and are designed for use in
European securities markets. ADRs are receipts typically issued by a U.S. bank
or trust company evidencing ownership of the underlying securities. EDRs are
European receipts evidencing a similar arrangement. For purposes of the Fund's
investment policies, ADRs and EDRs are deemed to have the same classification
as the underlying securities they represent. Thus, an ADR or EDR evidencing
ownership of common stock will be treated as common stock.

<PAGE>

The Fund anticipates that its brokerage transactions involving securities of
companies headquartered in countries other than the United States will be
conducted primarily on the principal exchanges of such countries. Foreign
security trading practices, including those involving securities settlement
where Fund assets may be released prior to receipt of payment, may expose a
Fund to increased risk in the event of a failed trade or the insolvency of a
foreign broker-dealer. Transactions on foreign exchanges are usually subject to
fixed commissions that are generally higher than negotiated commissions on U.S.
transactions, although the Fund will endeavor to achieve the best net results
in effecting its portfolio transactions. There is generally less government
supervision and regulation of exchanges and brokers in foreign countries than
in the United States.

Investment income on certain foreign securities in which the Fund may invest
may be subject to foreign withholding or other taxes that could reduce the
return on these securities. Tax treaties between the United States and foreign
countries, however, may reduce or eliminate the amount of foreign taxes to
which the Fund would be subject.

SOVEREIGN DEBT. Investment by the Fund in debt securities issued by foreign
governments and their political subdivisions or agencies ("Sovereign Debt")
involves special risks. The issuer of the debt or the governmental authorities
that control the repayment of the debt may be unable or unwilling to repay
principal and/or interest when due in accordance with the terms of such debt,
and the Fund may have limited legal recourse in the event of a default.

The occurrence of political, social or diplomatic changes in one or more of
the countries issuing Sovereign Debt could adversely affect the Fund's
investments. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their Sovereign Debt. While Mitchell Hutchins manages the Fund's portfolio in a
manner that is intended to minimize the exposure to such risks, there can be no
assurance that adverse political changes will not cause the Fund to suffer a
loss of interest or principal on any of its holdings.

2
<PAGE>

foreign or domestic banks. These accounts bear interest at negotiated rates and
are payable upon relatively short demand periods. If a bank became insolvent,
the Fund could suffer a loss of some or all of the amounts deposited. The Fund
may convert foreign currency to U.S. dollars from time to time. Although
foreign exchange dealers generally do not charge a stated commission or fee for
conversion, the prices posted generally include a "spread," which is the
difference between the prices at which the dealers are buying and selling
foreign currencies.

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

3
<PAGE>

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

The Trust's board of trustees has delegated the function of making day-to-day
determinations of liquidity to Mitchell Hutchins, pursuant to guidelines
approved by the board. Mitchell Hutchins takes into account a number of factors
in reaching liquidity decisions, including (1) the frequency of trades for the
security, (2) the number of dealers that make quotes for the security, (3) the
number of dealers that have undertaken to make a market in the security, (4)
the number of other potential purchasers and (5) the nature of the security and
how trading is effected (e.g., the time needed to sell the security, how bids
are solicited and the mechanics of transfer). Mitchell Hutchins monitors the
liquidity of restricted securities in the Fund's portfolio and reports
periodically on such decisions to the board of trustees.

YIELD FACTORS AND RATINGS. Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Group ("S&P") and other nationally recognized
statistical rating organizations ("NRSROs") are private services that provide
ratings of the credit quality of fixed income obligations. A description of
ratings assigned to corporate debt obligations and preferred stock by Moody's
and S&P is included in the Appendix to this Statement of Additional
Information. The Fund may use these ratings in determining whether to purchase,
sell or hold a security. It should be emphasized, however, that ratings are
general and are not absolute standards of quality. Consequently, securities
with the same maturity, interest rate and rating may have different market
prices. Credit ratings attempt to evaluate the safety of principal and interest
payments and do not evaluate the risks of fluctuations in market value or the
risks of changes in foreign currency exchange rates. Also, NRSROs may fail to
make timely changes in credit ratings in response to subsequent events, so that
an issuer's current financial condition may be better or worse than the rating
indicates. The rating assigned to a security by a NRSRO does not reflect an
assessment of the security's market value or of the liquidity of an investment
in the security. Subsequent to its purchase by the Fund, an issue of debt
obligations may cease to be rated or its rating may be reduced below the
minimum rating required for purchase by the Fund. Mitchell Hutchins will
consider such an event in determining whether the Fund should continue to hold
the obligation but is not required to dispose of it.

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

4
<PAGE>

custody of the underlying securities prior to their repurchase; thus, the
obligation of the bank or dealer to pay the repurchase price on the date agreed
to is, in effect, secured by such securities. If the value of these securities
is less than the repurchase price, plus any agreed-upon additional amount, the
other party to the agreement must provide additional collateral so that at all
times the collateral is at least equal to the repurchase price plus any agreed-
upon additional amount. The difference between the total amount to be received
upon repurchase of the securities and the price which was paid by the Fund upon
acquisition is accrued as interest and included in the Fund's net investment
income.

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

REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements with banks and securities dealers up to an aggregate value of not
more than 10% of its total assets. Such agreements involve the sale of
securities held by the Fund subject to the Fund's agreement to repurchase the
securities at an agreed-upon date and price reflecting a market rate of
interest. Such agreements are considered to be borrowings and may be entered
into only for temporary or emergency purposes. While a reverse repurchase
agreement is outstanding, the Fund's custodian segregates assets to cover the
amount of the Fund's obligations under the reverse repurchase agreement. See
"Investment Policies and Restrictions--Segregated Accounts." The Fund will not
purchase securities while borrowings (including reverse repurchase agreements)
in excess of 5% of the value of its total assets are outstanding.

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

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<PAGE>

portion of the interest earned on the cash or money market instruments held as
collateral to the borrower or placing broker. The Fund will receive reasonable
interest on the loan or a flat fee from the borrower and amounts equivalent to
any dividends, interest or other distributions on the securities loaned. The
Fund will regain record ownership of loaned securities to exercise beneficial
rights, such as voting and subscription rights and rights to dividends,
interest or other distributions, when regaining such rights is considered to be
in the Fund's interest.

U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES. The U.S. government securities in
which the Fund may invest include mortgage-backed securities issued or
guaranteed by the Government National Mortgage Association, the Federal
National Mortgage Association or the Federal Home Loan Mortgage Corporation,
which represent undivided ownership interests in pools of mortgages. The
mortgages backing these securities include both fixed and adjustable rate
mortgages. The U.S. government or the issuing agency guarantees the payment of
the interest on and principal of these securities. The guarantees do not extend
to the securities' market value, however, which is likely to vary inversely
with fluctuations in interest rates, and the guarantees do not extend to the
yield or value of the Fund's shares. These securities are "pass-through"
instruments through which the holders receive a share of the interest and
principal payments from the mortgages underlying the securities, net of certain
fees. The principal amounts of such underlying mortgages generally may be
prepaid in whole or in part by the mortgagees at any time without penalty, and
the prepayment characteristics of the underlying mortgages may vary. During
periods of declining interest rates, prepayment of mortgages underlying
mortgage-backed securities can be expected to accelerate. The Fund will
reinvest prepaid amounts in other income producing securities, the yields of
which will reflect interest rates prevailing at the time. Accelerated
prepayments adversely affect yields for mortgage-backed securities purchased by
the Fund at a premium and may involve additional risk of loss of principal
because the premium may not have been fully amortized at the time the
obligation is prepaid. The opposite is true for mortgage-backed securities
purchased by the Fund at a discount.

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

INVESTMENT LIMITATIONS OF THE FUND

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<PAGE>

the U.S. government, its agencies and instrumentalities; (3) make an investment
in any one industry if the investment would cause the value of such investments
at the time of purchase in such industry to be 25% or more of the total assets
of the Fund taken at market value; (4) purchase securities on margin, except
for short-term credits necessary for clearance of portfolio transactions, and
except that the Fund may make margin deposits in connection with its use of
options, futures contracts and options on futures contracts; (5) underwrite
securities of other issuers, except to the extent that, in connection with the
disposition of portfolio securities, the Fund may be deemed an underwriter
under federal securities laws; (6) make short sales of securities or maintain a
short position, except that the Fund may (a) make short sales and maintain
short positions in connection with its use of options, futures contracts and
options on futures contracts and (b) sell short "against the box"; (7) purchase
or sell real estate, provided that the Fund may invest in securities secured by
real estate or interests therein or issued by companies which invest in real
estate or interests therein; (8) purchase or sell commodities or commodity
contracts, except that the Fund may purchase or sell interest rate and foreign
currency futures contracts and options thereon, may engage in transactions in
foreign currency and may purchase or sell options on foreign currencies for
hedging purposes; (9) invest in oil, gas or mineral-related programs or leases;
(10) make loans, except through loans of portfolio securities as described in
this Statement of Additional Information and except through repurchase
agreements, provided that for purposes of this restriction the acquisition of
publicly distributed bonds, debentures or other corporate debt securities and
investment in government obligations, short-term commercial paper, certificates
of deposit and bankers' acceptances shall not be deemed to be the making of a
loan; or (11) purchase any securities issued by any other investment company,
except in connection with the merger, consolidation or acquisition of all the
securities or assets of such an issuer.

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

The following investment restrictions may be changed by the vote of the
Trust's board of trustees without shareholder approval. The Fund may not (1)
purchase or retain the securities of any issuer if, to the knowledge of its
management, the officers and trustees of the Trust and the officers and
directors of Mitchell Hutchins (each owning beneficially more than 0.5% of the
outstanding securities of the issuer) own in the aggregate more than 5% of the
securities of the issuer; (2) invest more than 10% of its net assets in
illiquid securities, a term that means securities that cannot be disposed of
within seven days in the ordinary course of business at approximately the
amount at which it has valued the securities and includes, among other things,
repurchase agreements maturing in more than seven days; (3) make investments in
warrants, if such investments, valued at the lower of cost or market, exceed 5%
of the value of its net assets, which amount may include warrants that are not
listed on the New York or American Stock Exchange, provided that such unlisted
warrants, valued at the lower of cost or market, do not exceed 2% of its net
assets, and further provided that this restriction does not apply to warrants
attached to, or sold as a unit with, other securities; (4) purchase any
security if as a result it would have more than 5% of its total assets invested
in securities of companies which together with any predecessors have been in
continuous operation for less than three years; or (5) invest more than 35% of
its total assets

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<PAGE>

in debt securities rated Ba or lower by Moody's or BB or lower by S&P,
comparably rated by another NRSRO or determined by Mitchell Hutchins to be of
comparable quality. This non-fundamental policy (5) can be changed only upon
30 days' advance notice to shareholders.

The Fund will continue to interpret fundamental investment limitation (7) to
prohibit investment in real estate limited partnerships.

HEDGING AND RELATED INCOME STRATEGIES

GENERAL DESCRIPTION OF HEDGING STRATEGIES. As discussed in the Prospectus,
Mitchell Hutchins may use a variety of financial instruments ("Hedging
Instruments"), including certain options, futures contracts (sometimes
referred to as "futures"), options on futures contracts and forward currency
contracts and enter into interest rate protection transactions to attempt to
hedge the Fund's portfolio and to enhance income. Although it has no intention
of doing so during the coming year, Mitchell Hutchins also may attempt to
hedge the Fund's portfolio through the use of interest rate futures and
options thereon. The particular Hedging Instruments are described in the
Appendix to the Prospectus.

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

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

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<PAGE>

The Fund might enter into a long straddle when Mitchell Hutchins believes it
likely that interest rates will be more volatile during the term of the option
than the option pricing implies. A short straddle is a combination of a call
and a put option written on the same security where the exercise price of the
put is less than or equal to the exercise price of the call. The Fund might
enter into a short straddle when Mitchell Hutchins believes it unlikely that
interest rates will be as volatile during the term of the option as the option
pricing implies.

Hedging Instruments on securities generally are used to hedge against price
movements in one or more particular securities positions that the Fund owns or
intends to acquire. Hedging Instruments on stock indices, in contrast,
generally are used to hedge against price movements in broad equity market
sectors in which the Fund has invested or expects to invest. Hedging
Instruments on debt securities may be used to hedge either individual
securities or broad fixed income market sectors.

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

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<PAGE>

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

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

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

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

OPTIONS. The Fund may purchase put and call options, and write (sell) covered
put and call options, on debt securities in which it is authorized to invest,
and foreign currencies. The purchase of call options serves as a long hedge,
and the purchase of put options serves as a short hedge. Writing covered put or
call options can enable the Fund to enhance income by reason of the premiums
paid by the purchasers of such options. However, if the market price of the
security underlying a covered put option declines to less than the exercise
price on the option, minus the premium received, the Fund would expect to
suffer a loss. Writing covered call options serves as a limited short hedge,
because declines in the value of the hedged investment would be offset to the
extent of the premium received for writing the option. However, if the security
appreciates to a price higher than the exercise price of the call option, it
can be expected that the option will be

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<PAGE>

exercised and the Fund will be obligated to sell the security at less than its
market value. Writing covered put options serves as a limited long hedge
because increases in the value of the hedged investment would be offset to the
extent of the premium received for writing the options. However, if the
security depreciates to a price lower than the exercise price of the put
option, it can be expected that the put option will be exercised and the Fund
will be obligated to purchase the security at more than its market value. If
the covered option is an OTC option, the securities or other assets used as
cover would be considered illiquid to the extent described under "Investment
Policies and Restrictions--Illiquid Securities."

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

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

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

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

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<PAGE>

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

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

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

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

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

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

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

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

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<PAGE>

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

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

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

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

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<PAGE>

activities of large traders in both the futures and securities markets
involving arbitrage, "program trading" and other investment strategies might
result in temporary price distortions.

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

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

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

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

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

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

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

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<PAGE>

Settlement of hedging transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency.
Thus, the Fund might be required to accept or make delivery of the underlying
foreign currency in accordance with any U.S. or foreign regulations regarding
the maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.

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

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

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

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

The precise matching of forward currency contract amounts and the value of
the securities involved generally will not be possible because the value of
such securities, measured in the foreign

15
<PAGE>

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

LIMITATIONS ON THE USE OF FORWARD CURRENCY CONTRACTS. The Fund may enter into
forward currency contracts or maintain a net exposure to such contracts only if
(1) the consummation of the contracts would not obligate the Fund to deliver an
amount of foreign currency in excess of the value of the position being hedged
by such contracts or (2) the Fund maintains cash, U.S. government securities or
liquid, high-grade debt securities in a segregated account in an amount not
less than the value of its total assets committed to the consummation of the
contract and not covered as provided in (1) above, as marked to market daily.

INTEREST RATE PROTECTION TRANSACTIONS. The Fund may enter into interest rate
protection transactions, including interest rate swaps and interest rate caps,
collars and floors. Interest rate swap transactions involve an agreement
between two parties to exchange payments that are based, for example, on
variable and fixed rates of interest and that are calculated on the basis of a
specified amount of principal (the "notional principal amount") for a specified
period of time. Interest rate cap and floor transactions involve an agreement
between two parties in which the first party agrees to make payments to the
counterparty when a designated market interest rate goes above (in the case of
a cap) or below (in the case of a floor) a designated level on predetermined
dates or during a specified time period. Interest rate collar transactions
involve an agreement between two parties in which the payments are made when a
designated market interest rate either goes above a designated ceiling level or
goes below a designated floor on predetermined dates or during a specified time
period.

The Fund expects to enter into interest rate protection transactions to
preserve a return or spread on a particular investment or portion of its
portfolio or to protect against any increase in the price of securities it
anticipates purchasing at a later date. The Fund intends to use these
transactions as a hedge and not as a speculative investment. Interest rate
protection transactions are subject to risks comparable to those described
above with respect to other hedging strategies.

The Fund may enter into interest rate swaps, caps, collars and floors on
either an asset-based or liability-based basis, depending on whether it is
hedging its assets or its liabilities, and will usually enter into interest
rate swaps on a net basis, i.e., the two payment streams are netted out, with
the Fund receiving or paying, as the case may be, only the net amount of the
two payments. Inasmuch as these interest rate protection transactions are
entered into for good faith hedging purposes, and inasmuch as segregated
accounts will be established with respect to such transactions, Mitchell
Hutchins and the Fund believe such obligations do not constitute senior
securities and, accordingly, will not treat them as being subject to the Fund's
borrowing restrictions. The net amount of the excess, if any, of the Fund's
obligations over its entitlements with respect to each interest rate swap will
be accrued on a daily basis and an amount of cash, U.S. government securities
or other liquid high grade debt obligations having an aggregate net asset value
at least equal to the accrued excess will be maintained in a segregated account
by a custodian that satisfies the requirements of the Investment Company Act of
1940 ("1940 Act"). The Fund also will establish and maintain such segregated
accounts with respect to its total obligations under any interest rate swaps
that are not entered into on a net basis and with respect to any interest rate
caps, collars and floors that are written by the Fund.

16
<PAGE>

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

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

TRUSTEES AND OFFICERS

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

<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH TRUST OTHER DIRECTORSHIPS
---------------------- ------------------- --------------------
<S> <C> <C>
E. Garrett Bewkes, Trustee and Mr. Bewkes is a director of Paine
Jr.**; 68 Chairman of the Webber Group Inc. ("PW Group")
Board of Trustees (holding company of PaineWebber and
Mitchell Hutchins) and a consultant
to PW Group. Prior to 1988, he was
chairman of the board, president
and chief executive officer of
American Bakeries Company. Mr.
Bewkes is also a director of Inter-
state Bakeries Corporation and a
director or trustee of 26 other in-
vestment companies for which Mitch-
ell Hutchins or PaineWebber serves
as investment adviser.
Meyer Feldberg; 52 Trustee Mr. Feldberg is Dean and Professor
Columbia University of Management of the Graduate
101 Uris Hall School of Business, Columbia Uni-
New York, New York 10027 versity. Prior to 1989, he was
president of the Illinois Institute
of Technology. Dean Feldberg is
also a director of AMSCO Interna-
tional Inc., Federated Department
Stores, Inc., Inco Homes Corpora-
tion and New World Communications
Group Incorporated and a director
or trustee of 18 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>

17
<PAGE>

<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH TRUST OTHER DIRECTORSHIPS
---------------------- ------------------- --------------------
<S> <C> <C>
George W. Gowen; 65 Trustee Mr. Gowen is a partner in the law
666 Third Avenue firm of Dunnington, Bartholow &
New York, New York 10117 Miller. Prior to May 1994, he was a
partner in the law firm of Fryer,
Ross & Gowen. Mr. Gowen is also a
director of Columbia Real Estate
Investments, Inc. and a director or
trustee of 16 other investment com-
panies for which Mitchell Hutchins
or PaineWebber serves as investment
adviser.
Paul B. Guenther**; 54 Trustee and President Mr. Guenther is a director of
PaineWebber and Mitchell Hutchins
and president and a director of PW
Group. Mr. Guenther is also presi-
dent and/or a director or trustee
of 25 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Frederic V. Malek; 58 Trustee Mr. Malek is chairman of Thayer Cap-
901 15th Street, N.W. ital Partners (investment bank) and
Suite 300 a co-chairman and director of CB
Washington, D.C. 20005 Commercial Group Inc. (real es-
tate). From January 1992 to Novem-
ber 1992, he was campaign manager
of Bush-Quayle '92. From 1990 to
1992, he was vice chairman, and
from 1989 to 1990, he was president
of Northwest Airlines Inc., NWA
Inc. (holding company of Northwest
Airlines Inc.) and Wings Holdings
Inc. (holding company of NWA Inc.)
Prior to 1989, he was employed by
the Marriott Corporation (hotels,
restaurants, airline catering and
contract feeding), where he most
recently was an exec-utive vice
president and president of Marriott
Hotels and Resorts. Mr.
Malek is also a director of Ameri-
can Management Systems, Inc., Auto-
matic Data Processing, Inc., Avis,
Inc., FPL Group, Inc., ICF Interna-
</TABLE>

18
<PAGE>

<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH TRUST OTHER DIRECTORSHIPS
---------------------- ------------------- --------------------
<S> <C> <C>
tional, Manor Care, Inc. and Na-
tional Education Corporation and a
director or trustee of 16 other in-
vestment companies for which Mitch-
ell Hutchins or PaineWebber serves
as investment adviser.
Frank P.L. Minard**; 49 Trustee Mr. Minard is chairman and a direc-
tor of Mitchell Hutchins, chairman
of the board of Mitchell Hutchins
Institutional Investors Inc. and a
director of PaineWebber. Prior to
1993, Mr. Minard was managing di-
rector of Oppenheimer Capital in
New York and Director of Oppen-
heimer Capital Ltd. in London. Mr.
Minard is also a director or
trustee of 27 other investment com-
panies for which Mitchell Hutchins
or PaineWebber serves as investment
adviser.
Judith Davidson Moyers; 59 Trustee Mrs. Moyers is president of Public
Public Affairs Television Affairs Television, Inc., an educa-
356 W. 58th Street tional consultant and a home econo-
New York, New York 10019 mist. Mrs. Moyers is also a direc-
tor of Columbia Real Estate Invest-
ments, Inc. and Ogden Corporation
and a director or trustee of 16
other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Thomas F. Murray; 84 Trustee Mr. Murray is a real estate and fi-
400 Park Avenue nancial consultant. Mr. Murray is
New York, New York 10022 also a director and chairman of
American Continental Properties,
Inc., a trustee of Prudential Re-
alty Trust and a director or
trustee of 16 other investment com-
panies for which Mitchell Hutchins
or PaineWebber serves as investment
adviser.
Teresa M. Boyle; 36 Vice President Ms. Boyle is a first vice president
and manager--advisory administra-
tion of Mitchell Hutchins. Prior to
November 1993, she was compliance
man- ager of Hyperion Capital Man-
agement, Inc., an investment advi-
sory firm. Prior to April 1993, Ms.
Boyle
</TABLE>

19
<PAGE>

<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ------------------- --------------------
<S> <C> <C>
was a vice president and manager--
legal administration of Mitchell
Hutchins. Ms. Boyle is also a vice
president of 26 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Joan L. Cohen; 30 Vice President and Ms. Cohen is a vice president and
Assistant Secretary attorney of Mitchell Hutchins. Prior
to December 1993, she was an associate
at the law firm of Seward & Kissel.
Ms. Cohen is also a vice president
and assistant secretary of 26 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Ellen R. Harris; 48 Vice President Ms. Harris is chief domestic equity
strategist and a managing director
of Mitchell Hutchins. Ms. Harris is
also a vice president of 19 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Frank Jennings; 47 Vice President Mr. Jennings is a managing director
and director of international equi-
ties of Mitchell Hutchins. Prior to
1992, he was managing director of
global investments of AIG Global In-
vestors. Mr. Jennings is also a vice
president of 3 other investment com-
panies for which Mitchell Hutchins
serves as investment adviser.
Clifford E. Kirsch; 35 Vice President and Mr. Kirsch is a first vice president
Assistant Secretary and associate general counsel of
Mitchell Hutchins. Prior to March
1994, he was an assistant director
in the Division of Investment Man-
agement at the SEC. Mr. Kirsch is
also a vice president and assistant
secretary of 26 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>

20
<PAGE>

<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH TRUST OTHER DIRECTORSHIPS
---------------------- ------------------- --------------------
<S> <C> <C>
Ann E. Moran; 37 Vice President and Ms. Moran is a vice president of
Assistant Treasurer Mitchell Hutchins. Ms. Moran is
also a vice president and assistant
treasurer of 39 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Dianne E. O'Donnell; 42 Vice President and Ms. O'Donnell is a senior vice pres-
Secretary ident and senior associate general
counsel of Mitchell Hutchins. Ms.
O'Donnell is also a vice president
and secretary of 39 other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Victoria E. Schonfeld; Vice President Ms. Schonfeld is a managing director
43 and general counsel of Mitchell
Hutchins. From April 1990 to May
1994, she was a partner in the law
firm of Arnold & Porter. Prior to
April 1990, she was a partner in
the law firm of Shereff, Friedman,
Hoffman & Goodman. Ms. Schonfeld is
also a vice president of 39 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Paul H. Schubert; 32 Vice President and Mr. Schubert is a vice president of
Assistant Treasurer Mitchell Hutchins. From August 1992
to August 1994, he was a vice
president at BlackRock Financial
Management, L.P. Prior to August
1992, he was an audit manager with
Ernst & Young LLP. Mr. Schubert is
also a vice president and assistant
treasurer of 39 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Martha J. Slezak; 32 Vice President and Ms. Slezak is a vice president of
Assistant Treasurer Mitchell Hutchins. From September
1991 to April 1992, she was a fund-
raising director for a U.S. Senate
campaign. Prior to September 1991,
she was a tax manager with Arthur
Andersen & Co. Ms. Slezak is also a
vice president
</TABLE>

21
<PAGE>

<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ------------------- --------------------
<S> <C> <C>
and assistant treasurer of 39 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Julian F. Sluyters; 34 Vice President and Mr. Sluyters is a senior vice presi-
Treasurer dent and the director of the mutual
fund finance division of Mitchell
Hutchins. Prior to 1991, he was an
audit senior manager with Ernst &
Young LLP. Mr. Sluyters is also a
vice president and treasurer of 39
other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Gregory K. Todd; 38 Vice President and Mr. Todd is a first vice president
Assistant Secretary and associate general counsel of
Mitchell Hutchins. Prior to 1993,
he was a partner in the law firm of
Shereff, Friedman, Hoffman &
Goodman. Mr. Todd is also a vice
president and assistant secretary
of 39 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Stuart Waugh; 39 Vice President Mr. Waugh is a managing director and
a portfolio manager of Mitchell
Hutchins responsible for global
fixed income investments and cur-
rency trading. Mr. Waugh is also a
vice president of 5 other invest-
ment companies for which Mitchell
Hutchins serves as investment ad-
viser.
</TABLE>
- --------
* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.
** Messrs. Bewkes, Guenther and Minard are "interested persons" of the Trust as
defined in the 1940 Act by virtue of their positions with PW Group,
PaineWebber and/or Mitchell Hutchins.

The Trust pays trustees who are not "interested persons" of the Trust $3,000
annually and $250 per meeting of the board or any committee thereof. Trustees
are reimbursed for any expenses incurred in attending meetings. Trustees and
officers of the Trust own in the aggregate less than 1% of the shares of the
Fund. Because Mitchell Hutchins and PaineWebber perform substantially all of
the services necessary for the operation of the Trust, the Trust requires no
employees. No officer, director or employee of Mitchell Hutchins or PaineWebber
presently receives any compensation from the Trust for acting as a trustee or
officer.

22
<PAGE>

COMPENSATION TABLE

<TABLE>
<CAPTION>
PENSION OR TOTAL
RETIREMENT COMPENSATION
BENEFITS FROM THE
AGGREGATE ACCRUED AS ESTIMATED TRUST AND THE
COMPENSATION PART OF A ANNUAL FUND COMPLEX
FROM FUND'S BENEFITS UPON PAID TO
NAME OF PERSON, POSITION THE TRUST* EXPENSES RETIREMENT TRUSTEES**
------------------------ ------------ ---------- ------------- -------------
<S> <C> <C> <C> <C>
E. Garrett Bewkes, Jr.,
Trustee and chairman of
the board of trustees..... -- -- -- --
Meyer Feldberg,
Trustee................... $5,000 -- -- $86,050
George W. Gowen,
Trustee................... 4,500 -- -- 71,425
Paul B. Guenther,
Trustee and president..... -- -- -- --
Frederic V. Malek,
Trustee................... 5,000 -- -- 77,875
Frank P.L. Minard,
Trustee................... -- -- -- --
Judith Davidson Moyers,
Trustee................... 4,250 -- -- 71,125
Thomas F. Murray,
Trustee................... 5,000 -- -- 71,925
</TABLE>
- --------
* Represents fees paid to each trustee during the fiscal year ended October
31, 1994.
** Represents total compensation paid to each trustee during the calendar year
ended December 31, 1994.

INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS

INVESTMENT ADVISORY ARRANGEMENTS. Mitchell Hutchins acts as the investment
adviser and administrator of the Fund pursuant to a contract with the Trust
dated April 21, 1988 ("Advisory Contract"). Under the Advisory Contract the
Fund pays Mitchell Hutchins an annual fee, computed daily and paid monthly,
according to the following schedules:
<TABLE>
<CAPTION>
ANNUAL
AVERAGE DAILY NET ASSETS RATE
------------------------ ------
<S> <C>
Up to $500 million................ 0.750%
In excess of $500 million
up to $1.0 billion............... 0.725
In excess of $1.0 billion
up to $1.5 billion............... 0.700
In excess of $1.5 billion
up to $2.0 billion............... 0.675
Over $2.0 billion................. 0.650
</TABLE>

23
<PAGE>

For the fiscal years ended October 31, 1994, October 31, 1993 and October 31,
1992, the Fund paid (or accrued) to Mitchell Hutchins advisory and
administrative fees of $12,723,592, $11,643,584 and $12,138,016, respectively.

Under a service agreement pursuant to which PaineWebber provides certain
services to the Fund not otherwise provided by the Fund's transfer agent, which
agreement is reviewed by the Trust's board of trustees annually, during the
fiscal years ended October 31, 1994, October 31, 1993 and October 31, 1992,
PaineWebber earned service fees of $487,859, $467,885 and $425,367,
respectively.

Under the terms of the Advisory Contract, the Fund bears all expenses
incurred in its operation that are not specifically assumed by Mitchell
Hutchins. General expenses of the Trust not readily identifiable as belonging
to the Fund are allocated among the Fund or the Trust's other series by or
under the direction of the board of trustees in such manner as the board deems
to be fair and equitable. Expenses borne by the Fund include the following (or
the Fund's share of the following): (1) the cost (including brokerage
commissions) of securities purchased or sold by the Fund and any losses
incurred in connection therewith, (2) fees payable to and expenses incurred on
behalf of the Fund by Mitchell Hutchins, (3) organizational expenses, (4)
filing fees and expenses relating to the registration and qualification of the
Fund's shares and the Trust under federal and state securities laws and
maintenance of such registrations and qualifications, (5) fees and salaries
payable to trustees who are not interested persons (as defined in the 1940 Act)
of the Trust or Mitchell Hutchins, (6) all expenses incurred in connection with
the trustees' services, including travel expenses, (7) taxes (including any
income or franchise taxes) and governmental fees, (8) costs of any liability,
uncollectible items of deposit and other insurance or fidelity bonds, (9) any
costs, expenses or losses arising out of a liability of or claim for damages or
other relief asserted against the Trust or the Fund for violation of any law,
(10) legal, accounting and auditing expenses, including legal fees of special
counsel for the independent trustees, (11) charges of custodians, transfer
agents and other agents, (12) costs of preparing share certificates, (13)
expenses of setting in type and printing prospectuses and supplements thereto,
statements of additional information and supplements thereto, reports and proxy
materials for existing shareholders, and costs of mailing such materials to
existing shareholders, (14) any extraordinary expenses (including fees and
disbursements of counsel) incurred by the Trust or the Fund, (15) fees,
voluntary assessments and other expenses incurred in connection with membership
in investment company organizations, (16) costs of mailing and tabulating
proxies and costs of meetings of shareholders, the board and any committees
thereof, (17) the cost of investment company literature and other publications
provided to trustees and officers and (18) costs of mailing, stationery and
communications equipment.

As required by state regulation, Mitchell Hutchins will reimburse the Fund if
and to the extent that the aggregate operating expenses of the Fund exceed
applicable limits in any fiscal year. Currently, the most restrictive such
limit applicable to the Fund is 2.5% of the first $30 million of the Fund's
average daily net assets, 2.0% of the next $70 million of its average daily net
assets and 1.5% of its average daily net assets in excess of $100 million.
Certain expenses, such as brokerage commissions, taxes, interest, distribution
fees, certain expenses attributable to investing outside the United States and
extraordinary items, are excluded from this limitation. For the fiscal years
ended October 31, 1994, October 31, 1993 and October 31, 1992, no
reimbursements were made pursuant to such limitation.

24
<PAGE>

Under the Advisory Contract, Mitchell Hutchins will not be liable for any
error or judgment or mistake of law or for any loss suffered by the Fund in
connection with the performance of the Advisory Contract, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part
of Mitchell Hutchins in the performance of its duties or from reckless
disregard of its duties and obligations thereunder. The Advisory Contract
terminates automatically upon its assignment and is terminable at any time
without penalty by the Trust's board of trustees or by vote of the holders of a
majority of the Fund's outstanding voting securities, on 60 days' written
notice to Mitchell Hutchins or by Mitchell Hutchins on 60 days' written notice
to the Fund.

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

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

25
<PAGE>

operation of the Plan or any agreement related to the Plan, acting in person at
a meeting called for that purpose, (3) payments by the Fund under the Plan
shall not be materially increased without the affirmative vote of the holders
of a majority of the outstanding shares of the relevant Class of the Fund and
(4) while the Plan remains in effect, the selection and nomination of trustees
who are not "interested persons" of the Trust shall be committed to the
discretion of the trustees who are not "interested persons" of the Trust.

For the fiscal year ended October 31, 1994, the Fund paid (or accrued) the
following fees to Mitchell Hutchins under the Class A, Class B and Class D
Plans:

<TABLE>
<S> <C>
Class A.............................................................. $1,664,223
Class B.............................................................. 9,741,334
Class D.............................................................. 905,849
</TABLE>

CLASS A

<TABLE>
<S> <C>
Marketing and advertising............................................ $ 185,379
Printing of prospectuses and statements of additional information.... 2,070
Branch network costs allocated and interest expense.................. 2,848,615
Service fees paid to PaineWebber investment executives............... 748,899
</TABLE>

CLASS B

<TABLE>
<S> <C>
Marketing and advertising............................................ $ 546,334
Amortization of commissions.......................................... 4,087,428
Printing of prospectuses and statements of additional information.... 3,029
Branch network costs allocated and interest expense.................. 8,247,207
Service fees paid to PaineWebber investment executives............... 1,095,899
</TABLE>

CLASS D

<TABLE>
<S> <C>
Marketing and advertising............................................ $ 327,380
Amortization of commissions.......................................... 238,527
Printing of prospectuses and statements of additional information.... 376
Branch network costs allocated and interest expense.................. 4,375,412
Service fees paid to PaineWebber investment executives............... 101,907
</TABLE>

26
<PAGE>

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

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

In approving the Class A Plan for the Fund, the trustees considered all the
features of the distribution system, including (1) the conditions under which
initial sales charges would be imposed and the amount of such charges, (2)
Mitchell Hutchins' belief that the initial sales charge combined with a service
fee would be attractive to PaineWebber investment executives and correspondent
firms, resulting in greater growth of the Fund than might otherwise be the
case, (3) the advantages to the shareholders of economies of scale resulting
from growth in the Fund's assets and potential continued growth, (4) the
services provided to the Fund and its shareholders by Mitchell Hutchins, (5)
the services provided by PaineWebber pursuant to its Exclusive Dealer Agreement
with Mitchell Hutchins and (6) Mitchell Hutchins' shareholder service-related
expenses and costs.

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

In approving the Class D Plan for the Fund, the trustees considered all the
features of the distribution system, including (1) the advantage to investors
in having no initial sales charges deducted from the Fund's purchase payments
and instead having the entire amount of their purchase payments immediately
invested in Fund shares, (2) the advantage to investors in being

27
<PAGE>

free from contingent deferred sales charges upon redemption and paying for
distribution on an ongoing basis, (3) Mitchell Hutchins' belief that the
ability of PaineWebber investment executives and correspondent firms to receive
sales compensation for their sales of Class D shares on an ongoing basis, along
with continuing service fees, while their customers invest their entire
purchase payments immediately in Class D shares and do not face contingent
deferred sales charges, would prove attractive to the investment executives and
correspondent firms, resulting in greater growth to the Fund than might
otherwise be the case, (4) the advantages to the shareholders of economies of
scale resulting from growth in the Fund's assets and potential continued
growth, (5) the services provided to the Fund and its shareholders by Mitchell
Hutchins, (6) the services provided by PaineWebber pursuant to its Exclusive
Dealer Agreement with Mitchell Hutchins and (7) Mitchell Hutchins' shareholder
service- and distribution-related expenses and costs. The trustees also
recognized that Mitchell Hutchins' willingness to compensate PaineWebber and
its investment executives, without the concomitant receipt by Mitchell Hutchins
of initial sales charges or contingent deferred sales charges upon redemption,
was conditioned upon its expectation of being compensated under the Class D
Plan.

With respect to each Plan, the trustees considered all compensation that
Mitchell Hutchins would receive under the Plan and the Distribution Contract,
including service fees and, as applicable, initial sales charges, distribution
fees and contingent deferred sales charges. The trustees also considered the
benefits that would accrue to Mitchell Hutchins under each Plan in that
Mitchell Hutchins would receive service, distribution and advisory fees that
are calculated based upon a percentage of the average net assets of the Fund,
which fees would increase if the Plan were successful and the Fund attained and
maintained significant asset levels.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
OCTOBER 31,
--------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Earned............................................ $193,492 $560,223 $966,683
Retained.......................................... 15,764 11,464 69,813
</TABLE>

For the fiscal year ended October 31, 1994, Mitchell Hutchins earned and
retained $3,156,771 in contingent deferred sales charges paid upon certain
redemptions of Class B shares.

PORTFOLIO TRANSACTIONS

28
<PAGE>

willing to purchase and sell a specific security at the time. The Fund may
invest in securities traded in the OTC market and will engage primarily in
transactions with the dealers who make markets in such securities, unless a
better price or execution could be obtained by using a broker. While Mitchell
Hutchins generally seeks reasonably competitive commission rates and dealer
spreads, payment of the lowest commission or spread is not necessarily
consistent with obtaining the best net results. For the fiscal years ended
October 31, 1994, October 31, 1993 and October 31, 1992, the Fund did not pay
any brokerage commissions.

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

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

Consistent with the interests of the Fund and subject to the review of the
Trust's board of trustees, Mitchell Hutchins may cause the Fund to purchase and
sell portfolio securities through brokers who provide the Fund with research,
analysis, advice and similar services. In return for such services, the Fund
may pay to those brokers a higher commission than may be charged by other
brokers, provided that Mitchell Hutchins determines in good faith that such
commission is reasonable in terms either of that particular transaction or of
the overall responsibility of Mitchell Hutchins to the Fund and its other
clients and that the total commissions paid by the Fund will be reasonable in
relation to the benefits to the Fund over the long term. Research services
furnished by brokers through which the Fund effects securities transactions may
be used by Mitchell Hutchins in advising other funds or accounts, and,
conversely, research services furnished to Mitchell Hutchins by brokers in
connection with other funds or accounts Mitchell Hutchins advises may be used
by Mitchell Hutchins in advising the Fund. Information and research received
from brokers will be in addition to, and not in lieu of, the services required
to be performed by Mitchell Hutchins under the Advisory Contract. For the
fiscal year ended October 31, 1994, Mitchell Hutchins directed no portfolio
transactions to brokers chosen for research services. The Fund may purchase and
sell portfolio securities to and from dealers who provide the Fund with
research services. Portfolio transactions will not be directed by the Fund to
dealers solely on the basis of research services provided. The Fund will not
purchase portfolio securities at a higher price or sell such securities at a
lower price in connection with transactions effected with a dealer, acting as
principal, who furnishes research services to Mitchell Hutchins than would be
the case if no weight were given by Mitchell Hutchins to the dealer's
furnishing of such services. Research services furnished by the

29
<PAGE>

dealers through which or with which the Fund effects securities transactions
may be used by Mitchell Hutchins in advising other funds or accounts and,
conversely, research services furnished to Mitchell Hutchins in connection with
other funds or accounts that Mitchell Hutchins advises may be used in advising
the Fund.

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

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

PORTFOLIO TURNOVER. The annual portfolio turnover rate is calculated by
dividing the lesser of the Fund's annual sales or purchases of portfolio
securities (exclusive of purchases or sales of securities whose maturities at
the time of acquisition were one year or less) by the monthly average value of
securities in the portfolio during the year. For the fiscal years ended October
31, 1994 and October 31, 1993, the portfolio turnover rates for the Fund were:
108.48% and 89.65%, respectively.

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

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

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

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

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

30
<PAGE>

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

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

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

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

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

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

31
<PAGE>

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

SYSTEMATIC WITHDRAWAL PLAN. On or about the 15th of each month for monthly
plans and on or about the 15th of the months selected for quarterly or semi-
annual plans, PaineWebber will arrange for redemption by the Fund of sufficient
shares to provide the withdrawal payment specified by participants in the
Fund's systematic withdrawal plan. The payment generally is mailed
approximately five business days after the redemption date. Withdrawal payments
should not be considered dividends, but redemption proceeds, with the tax
consequences described under "Dividends and Taxes" in the Prospectus. If
periodic withdrawals continually exceed reinvested dividends, a shareholder's
investment may be correspondingly reduced. A shareholder may change the amount
of the systematic withdrawal or terminate participation in the plan at any time
without charge or penalty by written instructions with signatures guaranteed to
PaineWebber or PFPC Inc. ("Transfer Agent"). Instructions to participate in the
plan, change the withdrawal amount or terminate participation in the plan will
not be effective until five business days after written instructions with
signatures guaranteed are received by the Transfer Agent. Shareholders may
request the forms needed to establish a systematic withdrawal plan from their
PaineWebber investment executives, correspondent firms or the Transfer Agent at
1-800-647-1568.

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

32
<PAGE>

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

PERIODIC INVESTING AND DOLLAR COST AVERAGING.

PAINEWEBBER'S RESOURCE MANAGEMENT ACCOUNT.

33
<PAGE>

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

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

. automatic direct deposit of checks into your RMA account and automatic
withdrawals from the account.

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

CONVERSION OF CLASS B SHARES

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

34
<PAGE>

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

VALUATION OF SHARES

The Fund determines the net asset value per share separately for each Class
of shares as of the close of regular trading (currently 4:00 p.m., eastern
time) on the New York Stock Exchange, Inc. ("NYSE") on each Monday through
Friday when the NYSE is open. Currently, the NYSE is closed on the observance
of the following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

Securities that are listed on U.S. and foreign stock exchanges are valued at
the last sale price on the day the securities are being valued or, lacking any
sales on such day, at the last available bid price. In cases where securities
are traded on more than one exchange, the securities are generally valued on
the exchange considered by Mitchell Hutchins as the primary market. Securities
traded in the OTC market and listed on Nasdaq are valued at the last available
sale price on Nasdaq at 4:00 p.m., eastern time; other OTC securities are
valued at the last bid price available prior to valuation. Securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the Trust's
board of trustees. It should be recognized that judgment often plays a greater
role in valuing non-investment grade debt securities than is the case with
respect to securities for which a broader range of dealer quotations and last-
sale information is available. All investments quoted in foreign currency are
valued daily in U.S. dollars on the basis of the foreign currency exchange rate
prevailing at the time such valuation is determined by the Fund's custodian.
The amortized cost method of valuation generally is used to value debt
obligations with 60 days or less remaining until maturity, unless the board of
trustees determines that this does not represent fair value.

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

35
<PAGE>

PERFORMANCE INFORMATION

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

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

P(1 + T) To the power of n = ERV
where: P = a hypothetical initial payment of $1,000 to purchase shares of a
specified Class
T = average annual total return of shares of that Class
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made
at the beginning of that period.

Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or "T" in the formula above, is computed by finding
the average annual change in the value of an initial $1,000 investment over the
period. In calculating the ending redeemable value for Class A shares, the
maximum 4% sales charge is deducted from the initial $1,000 payment and, for
Class B shares, the applicable contingent deferred sales charge imposed on a
redemption of Class B shares held for the period is deducted. All dividends and
other distributions are assumed to have been reinvested at net asset value.

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

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

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

36
<PAGE>

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
------- ------- -------
<S> <C> <C> <C>
Fiscal year ended October 31, 1994:
Standardized Return*................................ (7.00)% (8.89)% (3.56)%
Non-Standardized Return............................. (3.10)% (3.90)% (3.56)%
Five years ended
October 31, 1994:
Standardized
Return*............................................ NA 7.64 % NA
Non-Standardized Return............................. NA 7.94 % NA
Inception** to October 31, 1994:
Standardized Return................................. 5.09 % 9.43 % 3.51 %
Non-Standardized Return............................. 6.38 % 9.43 % 3.51 %
</TABLE>
- --------
*All Standardized Return figures for Class A shares reflect deduction of the
current maximum sales charge of 4%. All Standardized Return figures for
Class B shares reflect deduction of the applicable contingent deferred sales
charge imposed on a redemption of shares held for the period. Class D shares
do not impose an initial or a contingent deferred sales charge; therefore,
Non-Standardized Return is identical to Standardized Return.

**The inception date for each Class of the Fund is as follows: Class A--July
1, 1991, Class B--March 20, 1987 and Class D--July 2, 1992.

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

a - b
YIELD = 2[ (-------- + 1)to the power of 6-1 ]
cd

where: a = interest earned during the Period attributable to a Class of
shares
b = expenses accrued for the Period attributable to a Class of
shares (net of reimbursements)
c = the average daily number of shares of a Class outstanding
during the Period that were entitled to receive dividends
d = the maximum offering price per share (in the case of Class A
shares) or the net asset value per share (in the case of Class
B and Class D shares) on the last day of the Period.

37
<PAGE>

calculated in this fashion for each debt obligation held by the Fund, interest
earned during the Period is then determined by totalling the interest earned on
all debt obligations. For purposes of these calculations, the maturity of an
obligation with one or more call provisions is assumed to be the next date on
which the obligation reasonably can be expected to be called or, if none, the
maturity date. With respect to Class A shares, in calculating the maximum
offering price per share at the end of the Period (variable "d" in the above
formula) the Fund's current maximum 4% initial sales charge on Class A shares
is included. For the 30-day period ended October 31, 1994, the yields for its
Class A shares, Class B shares and Class D shares were 6.38%, 5.87% and 6.14%,
respectively.

OTHER INFORMATION. In Performance Advertisements, the Fund may compare its
Standardized Return and/or its Non-Standardized Return with data published by
Lipper Analytical Services, Inc. ("Lipper") for world income funds, CDA
Investment Technologies, Inc. ("CDA"), Wiesenberger Investment Companies
Service ("Wiesenberger"), Investment Company Data, Inc. ("ICD"), or Morningstar
Mutual Funds ("Morningstar") or with the performance of recognized stock and
other indices, including the Standard & Poor's 500 Composite Stock Price Index,
the Dow Jones Industrial Average, the Wilshire 5000 Index, the Morgan Stanley
Capital International Perspective Indices, the Salomon Brothers World
Government Index, the Morgan Stanley Capital International Energy Sources
Index, the Standard & Poor's Oil Composite Index, the Salomon Brothers Non-U.S.
Dollar Index, the Lehman Bond Index, 30-year and 10-year U.S. Treasury Bonds
and changes in the Consumer Price Index as published by the U.S. Department of
Commerce. Each Fund also may refer in such materials to mutual fund performance
rankings and other data, such as comparative asset, expense and fee levels,
published by Lipper, CDA, Wiesenberger, ICD or Morningstar. Performance
Advertisements also may refer to discussions of a Fund and comparative mutual
fund data and ratings reported in independent periodicals, including (but not
limited to) THE WALL STREET JOURNAL, MONEY Magazine, FORBES, BUSINESS WEEK,
FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW YORK TIMES, THE CHICAGO TRIBUNE,
THE WASHINGTON POST and THE KIPLINGER LETTERS.

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

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

38
<PAGE>

TAXES

In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code, the Fund must distribute to
its shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income, net short-term
capital gain and net gains from certain foreign currency transactions)
("Distribution Requirement") and must meet several additional requirements.
These requirements include the following: (1) the Fund must derive at least 90%
of its gross income each taxable year from dividends, interest, payments with
respect to securities loans and gains from the sale or other disposition of
securities or foreign currencies, or other income (including gains from
options, futures or forward currency contracts) derived with respect to its
business of investing in securities or those currencies ("Income Requirement");
(2) the Fund must derive less than 30% of its gross income each taxable year
from the sale or other disposition of securities, or any of the following, that
were held for less than three months--options, futures or forward contracts
(other than those on foreign currencies), or foreign currencies (or options,
futures or forward contracts thereon) that are not directly related to the
Fund's principal business of investing in securities (or options and futures
with respect to securities) ("Short-Short Limitation"); (3) at the close of
each quarter of the Fund's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. government securities,
securities of other RICs and other securities, with these other securities
limited, in respect of any one issuer, to an amount that does not exceed 5% of
the value of the Fund's total assets and that does not represent more than 10%
of the issuer's outstanding voting securities; and (4) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its total
assets may be invested in securities (other than U.S. government securities or
the securities of other RICs) of any one issuer.

Dividends and other distributions declared by the Fund in October, November
or December of any year and payable to shareholders of record on a date in any
of those months will be deemed to have been paid by the Fund and received by
the shareholders on December 31 of that year if the distributions are paid by
the Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls.

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

Interest received by the Fund may be subject to income, withholding or other
taxes imposed by foreign countries and U.S. possessions that would reduce the
yield on its securities. Tax conventions between certain countries and the
United States may reduce or eliminate these foreign taxes, however, and many
foreign countries do not impose taxes on capital gains in respect of
investments by foreign investors. If more than 50% of the value of the Fund's
total assets at the close of its taxable year consists of securities of foreign
corporations, the Fund will be eligible to, and may, file an election with the
Internal Revenue Service that will enable its shareholders, in effect, to
receive the benefit of the foreign tax credit with respect to any foreign and
U.S. possessions income taxes paid by it. Pursuant to the election, the Fund
would treat those taxes as dividends paid to its shareholders and each
shareholder would be required to (1) include in gross income, and

39
<PAGE>

treat as paid by him or her, his or her proportionate share of those taxes, (2)
treat his or her share of those taxes and of any dividend paid by the Fund that
represents income from foreign or U.S. possessions sources as his or her own
income from those sources and (3) either deduct the taxes deemed paid by him or
her in computing his or her taxable income or, alternatively, use the foregoing
information in calculating the foreign tax credit against his or her federal
income tax. The Fund will report to its shareholders shortly after each taxable
year their respective shares of the Fund's income from sources within, and
taxes paid to, foreign countries and U.S. possessions if it makes this
election.

The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year substantially
all of its ordinary income for that year and capital gain net income for the
one-year period ending on October 31 of that year, plus certain other amounts.

The Fund may invest in "passive foreign investment companies" ("PFICs"). A
PFIC is a foreign corporation that, in general, meets either of the following
tests: (1) at least 75% of its gross income is passive or (2) an average of at
least 50% of its assets produce, or are held for the production of, passive
income. Under certain circumstances, if the Fund holds stock of a PFIC will be
subject to federal income tax on a portion of any "excess distribution"
received on the stock or of any gain on disposition of the stock (collectively
"PFIC income"), plus interest thereon, even if the Fund distributes the PFIC
income as a taxable dividend to its shareholders. The balance of the PFIC
income will be included in the Fund's investment company taxable income and,
accordingly, will not be taxable to it to the extent that income is distributed
to its shareholders. If the Fund invests in a PFIC and elects to treat the PFIC
as a "qualified electing fund," then in lieu of the foregoing tax and interest
obligation, the Fund will be required to include in income each year its pro
rata share of the qualified electing fund's annual ordinary earnings and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss)--which would have to be distributed to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax--even if those earnings and
gain are not distributed to the Fund. In most instances it will be very
difficult, if not impossible, to make this election because of certain
requirements thereof.

Pursuant to proposed regulations, open-end RICs, such as the Fund, would be
entitled to elect to "mark-to-market" their stock in certain PFICs. "Marking-
to-market," in this context, means recognizing as gain for each taxable year
the excess, as of the end of that year, of the fair market value of each such
PFIC's stock over the owner's adjusted basis in that stock (including mark-to-
market gain for each prior year for which an election was in effect).

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

40
<PAGE>

principal business of investing in securities (or options and futures with
respect to securities) also will be subject to the Short-Short Limitation if
they are held for less than three months.

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

The Fund may acquire zero coupon Treasury securities issued with original
issue discount. As the holder of such securities, the Fund must include in its
gross income the original issue discount that accrues on the securities during
the taxable year, even if the Fund receives no corresponding payment on the
securities during the year. Because the Fund annually must distribute
substantially all of its investment company taxable income, including any
accrued original issue discount, to satisfy the Distribution Requirement and
avoid imposition of the Excise Tax, it may be required in a particular year to
distribute as a dividend an amount that is greater than the total amount of
cash it actually receives. Those distributions will be made from the Fund's
cash assets or from the proceeds of sales of portfolio securities, if
necessary. The Fund may realize capital gains or losses from those sales, which
would increase or decrease its investment company taxable income and/or net
capital gain. In addition, any such gains may be realized on the disposition of
securities held for less than three months. Because of the Short-Short
Limitation, any such gains would reduce the Fund's ability to sell other
securities, or certain options, futures or forward currency contracts, held for
less than three months that it might wish to sell in the ordinary course of its
portfolio management.

OTHER INFORMATION

PAINEWEBBER INVESTMENT SERIES. Prior to July 1, 1991, the name of the Fund
was "PaineWebber Master Global Income Fund."

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

41
<PAGE>

paying such liability will be entitled to reimbursement from the general assets
of the Fund. The trustees intend to conduct the operations of the Fund in such
a way as to avoid, as far as possible, ultimate liability of the shareholders
for liabilities of the Fund.

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

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

INDEPENDENT ACCOUNTANTS. Price Waterhouse LLP, 1177 Avenue of the Americas,
New York, New York 10036, serves as the Trust's independent accountants.

FINANCIAL STATEMENTS

The Fund's Annual Report to Shareholders for the fiscal year ended October
31, 1994 is a separate document supplied with this Statement of Additional
Information and the financial statements, accompanying notes and report of
independent accountants appearing therein are incorporated by reference in this
Statement of Additional Information.

42
<PAGE>

APPENDIX

DESCRIPTION OF MOODY'S LONG-TERM DEBT RATINGS

DESCRIPTION OF STANDARD & POOR'S CORPORATE DEBT RATINGS

43
<PAGE>

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

DESCRIPTION OF MOODY'S SHORT-TERM DEBT RATINGS

DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS

44
<PAGE>

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

----------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and Restrictions...................................... 1
Hedging and Related Income Strategies..................................... 8
Trustees and Officers..................................................... 17
Investment Advisory and Distribution Arrangements......................... 23
Portfolio Transactions.................................................... 28
Reduced Sales Charges, Additional Exchange and Redemption Information and
Other Services........................................................... 30
Conversion of Class B Shares.............................................. 34
Valuation of Shares....................................................... 35
Performance Information................................................... 36
Taxes..................................................................... 39
Other Information......................................................... 41
Financial Statements...................................................... 42
Appendix.................................................................. 43
</TABLE>

- --------------------------------------------------------------------------------
Statement of Additional Information March 1, 1995

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

[LOGO of PAINEWEBBER]
<PAGE>

PAINEWEBBER GLOBAL INCOME FUND

CLASS C SHARES

1285 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019

PaineWebber Global Income Fund This Prospectus concisely sets forth in-
("Fund"), a series of formation about the Fund a prospective in-
PaineWebber Investment Series vestor should know before investing.
("Trust"), seeks high current Please retain this Prospectus for future
income consistent with prudent reference. A Statement of Additional In-
investment risk and, secondari- formation dated March 1, 1995 (which is
ly, capital appreciation. The incorporated by reference herein) has been
Fund invests principally in filed with the Securities and Exchange
high quality debt securities Commission. The Statement of Additional
issued or guaranteed by foreign Information can be obtained without
governments, by the U.S. gov- charge, and further inquiries can be made,
ernment, by their respective by contacting the PaineWebber Incorporated
agencies or instrumentalities Benefits Department, 1000 Harbor Boule-
or by supranational organiza- vard, 10th Floor, Weehawken, New Jersey
tions, or issued by foreign or 07087 or by calling 1-201-902-4444.
U.S. companies.

The Class C shares described in this Prospectus are currently offered for
sale only to the trustee of the PaineWebber Savings Investment Plan on behalf
of that Plan.

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

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

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

The date of this Prospectus is March 1, 1995.

PAINEWEBBER INCORPORATED
<PAGE>

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

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

FUND EXPENSES

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

SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<S> <C>
Maximum sales charge on purchases of shares................................ None
Sales charge on reinvested dividends....................................... None
Redemption fee or deferred sales charge.................................... None
</TABLE>

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

<TABLE>
<S> <C>
Management fees........................................................... 0.72%
12b-1 fees................................................................ 0.00%
Other expenses............................................................ 0.16%
----
Total operating expenses.................................................. 0.88%
====
</TABLE>

EXAMPLE OF EFFECT OF FUND EXPENSES

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

<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C>
$ 9 $28 $49 $108
</TABLE>
This Example assumes that all dividends and other distributions are rein-
vested and that the percentage amounts listed under Annual Fund Operating Ex-
penses remain the same in the years shown. The above tables and the assumption
in the Example of a 5% annual return are required by regulations of the Securi-
ties and Exchange Commission ("SEC") applicable to all mutual funds; the as-
sumed 5% annual return is not a prediction of, and does not represent, the pro-
jected or actual performance of the Class C shares of the Fund.

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

2
<PAGE>

FINANCIAL HIGHLIGHTS

The table below provides selected per share data and ratios for one Class C
share of the Fund for each of the periods shown. This information is supple-
mented by the financial statements and accompanying notes appearing in the
Fund's Annual Report to Shareholders for the fiscal year ended October 31,
1994, which are incorporated by reference into the Statement of Additional In-
formation. The financial statements and notes and the financial information in
the table below have been audited by Price Waterhouse LLP, independent accoun-
tants, whose unqualified report thereon also is included in the Annual Report
to Shareholders. Further information about the Fund's performance also is in-
cluded in the Annual Report to Shareholders, which may be obtained without
charge.

<TABLE>
<CAPTION>
FOR THE
PERIOD
FOR THE YEARS ENDED AUGUST 26,
OCTOBER 31, 1991+ TO
--------------------------- OCTOBER 31,
1994 1993 1992 1991
------- ------- ------ -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.. $10.97 $ 10.64 $10.76 $10.53
------- ------- ------ ------
Income (loss) from investment
operations:
Net investment income................ 0.75 0.71 0.81 0.17
Net realized and unrealized gains
(losses) from investment and foreign
currency transactions............... (1.06) 0.58 (0.08) 0.32
------- ------- ------ ------
Total income (loss) from investment
operations........................... (0.31) 1.29 0.73 0.49
------- ------- ------ ------
Less dividends and distributions:
Net investment income................ (0.34) (0.82) (0.67) (0.24)
Net realized gains on investments and
foreign currency transactions....... -- (0.14) (0.18) (0.02)
Paid in capital...................... (0.33) -- -- --
------- ------- ------ ------
Total dividends and distributions..... (0.67) (0.96) (0.85) (0.26)
------- ------- ------ ------
Net asset value, end of period........ $9.99 $ 10.97 $10.64 $10.76
======= ======= ====== ======
Total return(1)....................... (2.86)% 12.60% 6.98% 4.63%
======= ======= ====== ======
Ratios/Supplemental data:
Net assets, end of period (000's).... $12,975 $12,043 $7,252 $2,565
Ratio of expenses to average net
assets.............................. 0.88% 1.06%** 0.94% 1.09%*
Ratio of net investment income to
average net assets.................. 7.23% 7.00%** 8.15% 8.79%*
Portfolio turnover rate.............. 108.48% 89.65% 91.72% 53.32%
</TABLE>
- -------
* Annualized.
** Includes 0.15% of interest expense related to the reverse repurchase agree-
ment transactions entered into during the fiscal year.
+ Commencement of offering of shares.
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gain distri-
butions at net asset value on the payable date, and a sale at net asset
value on the last day of each period reported. Total return information for
periods less than one year is not annualized.

3
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

The Fund is a non-diversified series of an open-end management investment
company. The Fund's primary investment objective is high current income con-
sistent with prudent investment risk; capital appreciation is a secondary ob-
jective. The Fund seeks to achieve these objectives by investing principally
in high quality debt securities issued or guaranteed by foreign governments,
by the U.S. government, by their respective agencies or instrumentalities or
by supranational organizations, or issued by foreign or U.S. companies.

There can be no assurance that the Fund will achieve its investment objec-
tives. The Fund's net asset value fluctuates based upon changes in the value
of its portfolio securities. The Fund's investment objectives and certain in-
vestment limitations as described in the Statement of Additional Information
are fundamental policies that may not be changed without shareholder approval.
All other investment policies may be changed by the Trust's board of trustees
without shareholder approval.

Normally, at least 65% of the Fund's total assets are invested in high qual-
ity debt securities, denominated in foreign currencies or U.S. dollars, of is-
suers located in at least three of the following countries: Australia, Aus-
tria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland,
Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore,
Spain, Sweden, Switzerland, Thailand, the United Kingdom and the United
States. No more than 40% of the Fund's assets normally are invested in securi-
ties of issuers located in any one country.

The Fund's portfolio consists primarily of debt securities rated within one
of the two highest grades assigned by Standard & Poor's Ratings Group ("S&P"),
Moody's Investors Service, Inc. ("Moody's") or another nationally recognized
statistical rating organization ("NRSRO") or, if unrated, determined by Mitch-
ell Hutchins Asset Management Inc. ("Mitchell Hutchins"), the Fund's invest-
ment adviser, to be of comparable quality. Under normal market conditions, at
least 65% of its total assets are invested in the following: (1) high quality
debt securities issued or guaranteed by U.S. or foreign governments or their
agencies, instrumentalities or political subdivisions; (2) high quality debt
securities issued or guaranteed by supranational organizations such as the In-
ternational Bank for Reconstruction and Development ("World Bank"); (3) high
quality U.S. or foreign corporate debt securities, including commercial paper;
(4) high quality debt obligations of banks and bank holding companies; and (5)
repurchase agreements involving these securities. Up to 5% of the Fund's total
assets may be invested in debt securities convertible into equity securities,
although the Fund has no current intention of converting such securities or
holding them as equity securities upon conversion. Mitchell Hutchins expects
that normally more than 50% of the Fund's assets will be invested in U.S. and
foreign government securities in order to minimize credit risk and to take ad-
vantage of opportunities that historically have been presented by, and are
perceived to exist today with respect to, such instruments. The Fund may in-
vest up to 35% of its total assets in debt securities rated below the two
highest grades assigned by a NRSRO but rated BBB or better by S&P, Baa or bet-
ter by Moody's or comparably rated by another NRSRO or, if unrated, determined
by Mitchell Hutchins to be of comparable quality.

The Fund may invest up to 20% of its total assets in sovereign debt securi-
ties rated below BBB by S&P, Baa by Moody's or comparably rated by another
NRSRO but no lower than BB by S&P, Ba by Moody's or comparably rated by

4
<PAGE>

another NRSRO or, in the case of such securities assigned a commercial paper
rating, no lower than B by S&P or comparably rated by another NRSRO or, if not
so rated, determined by Mitchell Hutchins to be of comparable quality. Mitchell
Hutchins will purchase such securities for the Fund only when it concludes that
the anticipated return to the Fund on such investment warrants exposure to the
additional level of risk.

As of the end of its 1994 fiscal year, the Fund had 100% of its net assets in
debt securities that received a rating from a NRSRO. The Fund had the following
percentages of its net assets invested in rated securities: AAA/Aaa (including
cash and cash equivalents)--82.5%, AA/Aa--4.7%, A/A--2.5%, BBB/Baa--6.2%,
BB/Ba--2.9% and B--1.1%. It should be noted that this information reflects the
composition of the Fund's assets as of the end of the 1993 fiscal year and is
not necessarily representative of the Fund's assets as of any other time in the
1994 fiscal year, the current fiscal year or any other time in the future.

OTHER INVESTMENT POLICIES AND RISK FACTORS

FOREIGN SECURITIES. The Fund's investment policies are designed to enable it
to capitalize on unique investment opportunities
presented throughout the world and in international financial markets influ-
enced by the increasing interdependence of economic cycles and currency ex-
change rates. As of December 31, 1994, more than 63% of the Salomon Brothers
World Government Bond Index was represented by securities denominated in cur-
rencies other than the U.S. dollar.

Over the past eight years, debt securities offered by certain foreign govern-
ments provided higher investment returns than U.S. gov-ernment debt securities.
Such returns reflect interest rates and other market conditions prevailing in
those countries and the effect of gains and losses in the denominated curren-
cies, which have had a substantial impact on investment in foreign fixed income
securities. The relative performance of various countries' fixed income markets
historically has reflected wide variations relating to the unique characteris-
tics of each country's economy. Year-to-year fluctuations in certain markets
have been significant, and negative returns have been experienced in various
markets from time to time.

Mitchell Hutchins believes that over time investment in a composite of for-
eign fixed income markets and in the U.S. government and corporate bond markets
is less risky than a portfolio comprised exclusively of foreign debt securities
and provides investors with the potential to earn a higher return than a port-
folio invested exclusively in U.S. debt securities.

5
<PAGE>

that are traded on recognized exchanges or in over-the-counter markets, from
time to time foreign securities may be difficult to liquidate rapidly without
significantly depressing the price of such securities. There may be less pub-
licly available information concerning foreign issuers of securities held by
the Fund than is available concerning U.S. companies. Transactions in foreign
securities may be subject to less efficient settlement practices. Foreign secu-
rities trading practices, including those involving securities settlement where
Fund assets may be released prior to receipt of payment, may expose the Fund to
increased risk in the event of a failed trade or the insolvency of a foreign
broker-dealer. Legal remedies for defaults and disputes may have to be pursued
in foreign courts, whose procedures differ substantially from those of U.S.
courts.

Because foreign securities ordinarily are denominated in currencies other
than the U.S. dollar (as are some securities of U.S. issuers), changes in for-
eign currency exchange rates will affect the Fund's net asset value, the value
of interest earned, gains and losses realized on the sale of securities and net
investment income and capital gain, if any, to be distributed to shareholders
by the Fund. If the value of a foreign currency rises against the U.S. dollar,
the value of Fund assets denominated in that currency will increase; corre-
spondingly, if the value of a foreign currency declines against the U.S. dol-
lar, the value of Fund assets denominated in that currency will decrease. The
exchange rates between the U.S. dollar and other currencies are determined by
supply and demand in the currency exchange markets, international balances of
payments, speculation and other economic and political conditions. In addition,
some foreign currency values may be volatile and there is the possibility of
governmental controls on currency exchange or governmental intervention in cur-
rency markets. Any of these factors could adversely affect the Fund.

The costs attributable to foreign investing that the Fund must bear fre-
quently are higher than those attributable to domestic investing. For example,
the costs of maintaining custody of securities in foreign countries exceed cus-
todian costs related to domestic securities.

The Fund may invest in securities of issuers located in emerging market coun-
tries. The risks of investing in foreign securities may be greater with respect
to securities of issuers in, or denominated in the currencies of, emerging mar-
ket countries. The economies of emerging market countries generally are heavily
dependent upon international trade and, accordingly, have been and may continue
to be adversely affected by trade barriers, exchange controls, managed adjust-
ments in relative currency values and other protectionist measures imposed or
negotiated by the countries with which they trade. These economies also have
been and may continue to be adversely affected by economic conditions in the
countries with which they trade. Many emerging market countries have experi-
enced substantial, and in some periods extremely high, rates of inflation for
many years. Inflation and rapid fluctuations in inflation rates have had any
may continue to have very negative effects on the economies and securities mar-
kets of certain emerging market countries. The securities markets of emerging
market countries are substantially smaller, less developed, less liquid and
more volatile than the securities markets of the United States and other devel-
oped countries. Disclosure and regulatory standards in many respects are less
stringent in emerging market countries than in the United States and other ma-
jor markets. There also may be a lower level of monitoring and regulation of
emerging markets and the activities of investors in suchmarkets, and enforce-
ment of existing regulations may be extremely limited. Investing in local mar-
kets, particularly in emerging market countries may require the Fund to adopt
spe-

6
<PAGE>

cial procedures, seek local government approvals or take other actions, each of
which may involve additional costs to the Fund. Certain emerging market coun-
tries may also restrict investment opportunities in issuers in industries
deemed important to national interests.

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

The Fund is permitted to invest up to 35% of its total assets in securities
rated BBB by S&P or Baa by Moody's. These securities are investment grade but
Moody's considers securities rated Baa to have speculative characteristics.
Changes in economic conditions or other circumstances are more likely to lead
to a weakened capacity for such securities to make principal and interest pay-
ments than is the case for higher-rated securities. The Fund may invest up to
20% of its total assets in sovereign debt securities rated below investment
grade but no lower than BB by S&P, Ba by Moody's or comparably rated by another
NRSRO or, in the case of such securities assigned a commercial paper rating, no
lower than B by S&P or comparably rated by another NRSRO. These securities are
deemed by those NRSROs to be predominantly speculative with respect to the is-
suer's capacity to pay interest and repay principal and may involve major risk
exposure to adverse conditions. Such securities are commonly referred to as
"junk bonds." Commercial paper rated B by S&P is regarded by it as having only
an adequate capacity for timely payment. The Fund is also permitted to purchase
debt securities that are not rated by a NRSRO but Mitchell Hutchins determines
to be of comparable quality to that of rated securities in which the Fund may
invest. Such securities are included in the computation of any percentage limi-
tations applicable to the comparable rated securities.

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

The market for lower rated debt securities has expanded rapidly in recent
years, and its growth paralleled a long economic expansion.

7
<PAGE>

In the past, the prices of many lower rated debt securities declined substan-
tially, reflect-ing an expectation that many issuers of such securities might
experience financial difficulties. As a result, the yields on lower rated debt
securities rose dramatically. However, such higher yields did not reflect the
value of the income stream that holders of such securities expected, but rather
the risk that holders of such securities could lose a substantial portion of
their value as a result of the issuers' financial restructuring or default.
There can be no assurance that such declines will not recur. The market for
lower rated debt securities generally is thinner and less active than that for
higher quality securities, which may limit a Fund's ability to sell such secu-
rities at fair value in response to changes in the economy or financial mar-
kets. Adverse publicity and investor perceptions, whether or not based on fun-
damental analysis, may also decrease the values and liquidity of lower rated
securities, especially in a thinly traded market.

U.S. AND FOREIGN GOVERNMENT SECURITIES. The U.S. government securities in
which the Fund may invest include direct obligations of the U.S. government
(such as Treasury bills, notes and bonds) and obligations issued or guaranteed
by U.S. government agencies and instrumentalities, including securities that
are backed by the full faith and credit of the United States (such as Govern-
ment National Mortgage Association certificates), securities that are supported
primarily or solely by the creditworthiness of the issuer (such as securities
issued by the Resolution Funding Corporation and the Tennessee Valley Authori-
ty) and securities that are supported primarily or solely by specific pools of
assets and the creditworthiness of a U.S. government-related issuer (such as
securities issued by the Federal National Mortgage Association and the Federal
Home Loan Mortgage Corporation). The Fund is authorized to invest in mortgage-
backed securities guaranteed by the Government National Mortgage Association
but has no current intention of investing more than 10% of its total assets in
such securities.

The Fund may invest in "zero coupon" Treasury securities, which are U.S.
Treasury bills, notes and bonds that have been stripped of their unmatured in-
terest coupons, and receipts or certificates representing interest in such
stripped debt obligations and coupons. A zero coupon security pays no cash in-
terest to its holder prior to maturity. Accordingly, these securities usually
are issued and traded at a deep discount from their face or par value and are
subject to greater fluctuations of market value in response to changing inter-
est rates than debt obligations of comparable maturities that make current dis-
tributions of interest. Federal tax law requires that the holder of a zero cou-
pon security include in gross income each year the original issue discount that
accrues on the security for the year, even though the holder receives no inter-
est payment on the security during the year. For additional discussion of the
tax treatment of zero coupon Treasury securities, see "Taxes" in the Statement
of Additional Information.

The foreign government securities in which the Fund may invest generally con-
sist of obligations supported by national, state or provincial governments or
similar political subdivisions. Foreign government securities also include debt
obligations of supranational entities, which include international organiza-
tions designated or supported by governmental entities to promote economic re-
construction or development, international banking institutions and related
government agencies. Examples include the World Bank, the European Coal and
Steel Community, the Asian Development Bank and the Inter-American Development
Bank.

8
<PAGE>

Investments in foreign government debt securities involve special risks. The
issuer of the debt or the governmental authorities that control the repayment
of the debt may be unable or unwilling to pay interest or repay principal when
due in accordance with the terms of such debt, and the Fund may have limited
legal recourse in the event of default. Political conditions, especially a sov-
ereign entity's willingness to meet the terms of its debt obligations, are of
considerable significance.

HEDGING AND RELATED INCOME STRATEGIES. The Fund may use options (both ex-
change-traded and over-the-counter) and futures contracts to attempt to enhance
income and may attempt to reduce the overall risk of its investments (hedge) by
using options, futures contracts and forward currency contracts. Hedging strat-
egies may be used in an attempt to manage the Fund's foreign currency exposure,
its average duration, and other risks of the Fund's investments that can cause
fluctuations in its net asset value. The Fund's ability to use these strategies
may be limited by market conditions, regulatory limits and tax considerations.
The Appendix to this Prospectus describes the hedging instruments that may be
used by the Fund and the Statement of Additional Information contains further
information on these strategies.

The Fund may enter into forward currency contracts, buy or sell foreign cur-
rency futures contracts, write (sell) covered put or call options and buy put
or call options on securities, foreign currencies and such futures contracts.
The Fund may enter into options and futures contracts under which up to 100% of
its portfolio is at risk.

The Fund may enter into forward currency contracts for the purchase or sale
of a specified currency at a specified future date either with respect to spe-
cific transactions or with respect to its portfolio positions. For ex- ample,
when Mitchell Hutchins anticipates making a currency exchange transaction in
connection with the purchase or sale of a security, the Fund may enter into a
forward currency contract in order to set the exchange rate at which the trans-
action will be made. The Fund also may enter into a forward contract to sell an
amount of a foreign currency approximating the value of some or all of the
Fund's securities denominated in such currency. The Fund may use forward con-
tracts in one currency or a basket of currencies to hedge against fluctuations
in the value of another currency when Mitchell Hutchins anticipates there will
be a correlation between the two and may use forward currency contracts to
shift the Fund's exposure to foreign currency fluctuations from one country to
another. The purpose of entering into these contracts is to minimize the risk
to the Fund from adverse changes in the relationship between the U.S. dollar
and foreign currencies.

The Fund may enter into interest rate protection transactions, including in-
terest rate

9
<PAGE>

swaps and interest rate caps, collars and floors, for hedging purposes. For ex-
ample, the Fund may enter into interest rate protection transactions to pre-
serve a return or spread on a particular investment or portion of its portfolio
or to protect against any increase in the price of securities the Fund antici-
pates purchasing at a later date. The Fund will enter into interest rate pro-
tection transactions only with banks and recognized securities dealers believed
by Mitchell Hutchins to present minimal credit risks in accordance with guide-
lines established by the Trust's board of trustees.

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

New financial products and risk management techniques continue to be devel-
oped. The Fund may use these instruments and techniques to the extent consis-
tent with its investment objectives and regulatory and tax considerations.

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

REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements with banks and broker-dealers up to an aggregate value of not more
than 10% of its total assets. Such agreements involve the sale of securities
held by the Fund subject to the Fund's agreement to repurchase the securities
at an agreed-upon date and price reflecting a market rate of interest. Such
agreements are considered to be borrowings and may be entered into only for
temporary or emergency purposes. The Fund will not purchase securities while
borrowings (including reverse repurchase agreements) in excess of 5% of the
value of the Fund's total assets are outstanding.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may purchase debt obli-
gations on a "when-issued" basis or may pur-

10
<PAGE>

chase or sell securities for delayed delivery. In when-issued or delayed deliv-
ery transactions, delivery of the securities occurs beyond normal settlement
periods, but the Fund would not pay for such securities or start earning inter-
est on them until they are delivered. However, when the Fund purchases securi-
ties on a when-issued or delayed delivery basis, it immediately assumes the
risks of ownership, including the risk of price fluctuation. Failure by a
counterparty to deliver a security purchased on a when-issued or delayed deliv-
ery basis may result in a loss or missed opportunity to make an alternative in-
vestment. Depending on market conditions, the Fund's when-issued and delayed
delivery purchase commitments could cause its net asset value to be more vola-
tile, because such securities may increase the amount by which the Fund's total
assets, including the value of when-issued and delayed delivery securities held
by the Fund, exceed its net assets.

ILLIQUID SECURITIES. The Fund may invest up to 10% of its net assets in il-
liquid securities, including certain cover for over-the-counter options, repur-
chase agreements with maturities in excess of seven days and securities whose
disposition is restricted under the federal securities laws (other than "Rule
144A securities" Mitchell Hutchins has determined to be liquid under procedures
approved by the Trust's board of trustees). Rule 144A establishes a "safe har-
bor" from the registration requirements of the Securities Act of 1933 ("1933
Act"). Institutional markets for restricted securities have developed as a re-
sult of Rule 144A, providing both readily ascertainable values for restricted
securities and the ability to liquidate an investment to satisfy share redemp-
tion orders. An insufficient number of qualified institutional buyers inter-
ested in purchasing Rule 144A-eligible restricted securities held by the Fund,
however, could affect adversely the marketability of such portfolio securities
and the Fund might be unable to dispose of such securities promptly or at fa-
vorable prices.

OTHER INFORMATION

The Fund is "non-diversified," as that term is defined in the Investment Com-
pany Act of 1940 ("1940 Act"), but intends to continue to qualify as a "regu-
lated investment company" for federal income tax purposes. See "Dividends and
Taxes." This means, in general, that more than 5% of the Fund's total assets
may be invested in securities of one issuer (including a foreign government),
but only if, at the close of each quarter of the Fund's taxable year, the ag-
gregate amount of such holdings does not exceed 50% of the value of its total
assets and no more than 25% of the value of its total assets is invested in the
securities of a single issuer. To the extent that the Fund's portfolio at times
may include the securities of a smaller number of issuers than if it were "di-
versified" (as defined in the 1940 Act), the Fund will at such times be subject
to greater risk with respect to its portfolio securities than an investment
company that invests in a broader range of securities, in that changes in the
financial condition or market assessment of a single issuer may cause greater
fluctuation in the Fund's total return and the price of Fund shares.

11
<PAGE>

agreements. The Fund may also engage in short sales of securities "against the
box" to defer realization of gains or losses for tax or other purposes. The
Fund may borrow money for temporary or emergency purposes, but not in excess of
10% of its total assets.

PURCHASES AND REDEMPTIONS

The Class C shares currently are offered for sale only to the trustee of the
PaineWebber Savings Investment Plan ("PW SIP"), a defined contribution plan
sponsored by Paine Webber Group Inc. ("PW Group"). Such shares may be purchased
or redeemed only by such trustee on behalf of the PW SIP at net asset value
without any sales or redemption charge.

The trustee of the PW SIP purchases and redeems Fund shares to implement the
investment choices of individual plan participants with respect to their PW SIP
contributions. INDIVIDUAL PLAN PARTICIPANTS SHOULD CONSULT THE PLAN INFORMATION
STATEMENT AND SUMMARY PLAN DESCRIPTION OF THE PW SIP (COLLECTIVELY, THE "PLAN
DOCUMENTS") FOR A DESCRIPTION OF THE PROCEDURES AND LIMITATIONS APPLICABLE TO
MAKING AND CHANGING INVESTMENT CHOICES. Copies of the Plan Documents are avail-
able from the PaineWebber Incorporated Benefits Department, 1000 Harbor Boule-
vard, 10th Floor, Weehawken, New Jersey 07087 (telephone 1-201-902-4444).

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

Purchase and redemption orders by the trustee of the PW SIP for shares of the
Fund will be effected at the net asset value per share next computed (see "Val-
uation of Shares") after the order is received by the Fund's transfer agent,
PFPC Inc. ("Transfer Agent"). The Fund and Mitchell Hutchins reserve the right
to reject any purchase order and to suspend the offering of Fund shares for a
period of time.

DIVIDENDS AND TAXES

DIVIDENDS. The Fund distributes substantially all of its net investment in-
come to shareholders each year. Income dividends are declared quarterly and may
be accompanied by net realized short-term capital gains and net realized gains
from foreign currency transactions.

Substantially all of the Fund's net capital gain (the excess of net long-term
capital gain over net short-term capital loss) and any undistributed net short-
term capital gain and realized gains from foreign currency transactions, is
distributed annually. The Fund may make additional distributions if necessary
to avoid a 4% excise tax on certain undistributed income and capital gain. If
the Fund's dividends and other distributions exceed its taxable income (con-
sisting generally of net investment income, net short-term capital gain and net
gains from certain foreign currency transactions) in any year, which may occur
due to currency-related losses or short-term capital losses, all or a portion
of its dividends may be treated as a non-taxable return of capital to share-
holders for tax purposes.

The Fund's dividends and other distributions are paid in additional Fund
shares at net asset value unless the Transfer Agent is instructed otherwise.

TAXES. The Fund intends to continue to qualify for treatment as a regulated
investment

12
<PAGE>

company under the Internal Revenue Code so that it will be relieved of federal
income tax on that part of its investment company taxable income and net capi-
tal gain that is distributed to its shareholders.

The Class C shares currently are offered for sale only to the trustee of the
PW SIP. As a qualified profit-sharing plan, the PW SIP pays no federal income
tax. Individual participants in the PW SIP should consult the Plan Documents
and their own tax advisers for information on the tax consequences associated
with participating in the PW SIP.

VALUATION OF SHARES

The net asset value of the Fund's shares fluctuates and is determined as of
the close of regular trading on the New York Stock Exchange, Inc. ("NYSE")
(currently 4:00 p.m., eastern time) each Business Day. A "Business Day" is any
day, Monday through Friday, on which the NYSE is open for business. Net asset
value per share is computed by dividing the value of the securities held by the
Fund plus any cash or other assets minus all liabilities by the total number of
Fund shares outstanding.

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

MANAGEMENT

The Trust's board of trustees, as part of its overall management responsibil-
ity, oversees various organizations responsible for the Fund's day-to-day man-
agement. Mitchell Hutchins, the Fund's investment adviser and administrator,
makes and implements all investment decisions and supervises all aspects of the
Fund's operations. Mitchell Hutchins receives a monthly fee for these services.
For the fiscal year ended October 31, 1994, the Fund paid advisory fees at the
effective annual rate of 0.72% of its average daily net assets. The Fund's ad-
visory fees are higher than those paid by most investment companies to their
advisers, but Mitchell Hutchins believes the fees are justified by the global
nature of the Fund's investment activities. Brokerage transactions for the Fund
may be conducted through PaineWebber or its affiliates in accordance with pro-
cedures adopted by the Trust's board of trustees.

The Fund incurs other expenses and, for the fiscal year ended October 31,
1994, the Fund's total expenses for its Class C shares, stated as a percentage
of net assets was 0.88%. See "Fund Expenses."

Mitchell Hutchins is located at 1285 Avenue of the Americas, New York, New
York 10019. It is a wholly owned subsidiary of PaineWebber, which is in turn
wholly owned by PW Group, the sponsor of the PW SIP and a publicly owned finan-
cial services holding company. At January 31, 1995, Mitchell Hutchins was ad-
viser or sub-adviser of 36 investment companies with 63 separate portfolios and
aggregate assets of approximately $26.2 billion, including over $3.0 billion in
global funds.

13
<PAGE>

Stuart Waugh has been primarily responsible for the day-to-day portfolio man-
agement of the Fund since its inception. Mr. Waugh is a vice president of the
Trust and a managing director of global fixed income investments of Mitchell
Hutchins. Mr. Waugh has been employed by Mitchell Hutchins as a portfolio man-
ager for the last eight years.

Other members of Mitchell Hutchins' international fixed income group provide
input on market outlook, interest rate forecasts and other considerations per-
taining to global fixed income investments.

DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins is the distributor of the Fund's
shares and has appointed PaineWebber as the exclusive dealer for the sale of
those shares.

PERFORMANCE INFORMATION

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

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

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

The Fund also may use yield information and standardized return and, in
conjunction therewith, non-standardized return of its Class A shares, Class B
shares and Class D shares in performance advertisements. Advertised returns for
one Class of the Fund's shares may include periods during which that Class was
outstanding but others were not. Yield and standardized returns of the other
Classes of Fund shares will reflect higher ongoing expenses attributable to
those Classes, as well as deduction of any applicable initial or contingent
deferred sales charge. See "General Information--Organization." Non-standardiz-
ed return of Class A or Class B shares will reflect such higher ongoing
expenses but not the sales charges and would be lower if the sales charges were
included.

Yield and total return information reflects past performance and does not
necessarily indicate future results. Investment return and principal values
will fluctuate, and proceeds upon redemption may be more or less than a share-
holder's cost.

GENERAL INFORMATION

ORGANIZATION. PaineWebber Investment Series is registered with the SEC as an
open-end management investment company and was organized as a business trust
under the laws of the Commonwealth of Massachusetts by Declaration of Trust
dated December 22, 1986. The trustees have authority to issue an unlimited num-
ber of shares of beneficial interest of

14
<PAGE>

separate series, par value $.001 per share. In addition to the Fund, shares of
three other series have been authorized.

The shares of beneficial interest of the Fund are divided into four classes,
designated Class A shares, Class B shares, Class C shares and Class D shares.
Each Class represents interests in the same assets of the Fund. The Classes
differ as follows: (1) Class A, Class B and Class D shares, unlike Class C
shares, bear certain fees under plans of distribution and have exclusive voting
rights on matters pertaining to those plans; (2) Class A shares are subject to
an initial sales charge; (3) Class B shares bear ongoing distribution fees, are
subject to a contingent deferred sales charge upon certain redemptions and will
automatically convert to Class A shares approximately six years after issuance;
(4) Class D shares are subject to neither an initial nor a contingent deferred
sales charge, bear ongoing distribution fees and do not convert into another
Class; (5) Class C shares are subject to neither an initial or contingent de-
ferred sales charge nor ongoing service or distribution fees; and (6) each
Class may bear differing amounts of certain Class-specific expenses. The
Trust's board of trustees does not anticipate that there will be any conflicts
among the interests of the holders of the different Classes of Fund shares. On
an ongoing basis, the board will consider whether any such conflict exists and,
if so, take appropriate action.

The Trust does not hold annual shareholder meetings. There normally will be
no meetings of shareholders to elect trustees unless fewer than a majority of
the trustees holding office have been elected by shareholders. Shareholders of
record holding at least two-thirds of the outstanding shares of the Trust may
remove a trustee by votes cast in person or by proxy at a meeting called for
that purpose. The trustees are required to call a meeting of shareholders for
the purpose of voting upon the question of removal of any trustee when so re-
quested in writing by the shareholders of record holding at least 10% of the
Trust's outstanding shares. Each share of the Fund has equal voting rights, ex-
cept as noted above. Each share of the Fund is entitled to participate equally
in dividends and other distributions and the proceeds of any liquidation, ex-
cept that, due to the differing expenses borne by the four Classes, such divi-
dends and proceeds are likely to be lower for the other Classes than for the
Class C shares.

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

CUSTODIAN AND TRANSFER AGENT. Brown Brothers Harriman & Co., 40 Water Street,
Boston, Massachusetts 02109, is custodian of the Fund's assets and employs for-
eign sub-custodians, approved by the Trust's board of trustees in accordance
with applicable requirements under the 1940 Act, to provide custody of the
Fund's foreign assets. PFPC Inc., a subsidiary of PNC Bank, National Associa-
tion, whose principal business address is 400 Bellevue Parkway, Wilmington,
Delaware 19809, is the Fund's transfer and dividend disbursing agent.

CONFIRMATIONS AND STATEMENTS. The PW SIP receives confirmations of purchases
and redemptions of shares of the Fund and quarterly statements from the Trans-
fer Agent. The PW SIP also receives audited annual and unaudited semi-annual
financial statements of the Fund. PW SIP participants receive periodic informa-
tion, including quarterly statements, about their plan participation from the
PW SIP plan administrator.

15
<PAGE>

APPENDIX

The Fund may use the following hedging instruments:

INTEREST RATE AND FOREIGN CURRENCY FUTURES CONTRACTS--Interest rate and for-
eign currency futures contracts are bilateral agreements pursuant to which one
party agrees to make, and the other party agrees to accept, delivery of a spec-
ified type of currency at a specified future time and at a specified price. Al-
though such futures contracts by their terms call for actual delivery or ac-
ceptance of currency, in most cases the contracts are closed out before the
settlement date without the making or taking of delivery.

16
<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
Fund Expenses............................................................... 2
Financial Highlights........................................................ 3
Investment Objectives and Policies.......................................... 4
Purchases and Redemptions................................................... 12
Dividends and Taxes......................................................... 12
Valuation of Shares......................................................... 13
Management.................................................................. 13
Performance Information..................................................... 14
General Information......................................................... 14
Appendix.................................................................... 16
</TABLE>

Printed on Recycled Paper

LOGO PAINEWEBBER

GLOBAL INCOME FUND
Class C Shares

PROSPECTUS
March 1, 1995
- -------------------------
<PAGE>

PAINEWEBBER GLOBAL INCOME FUND
CLASS C SHARES
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019

STATEMENT OF ADDITIONAL INFORMATION

PaineWebber Global Income Fund ("Fund") is a non-diversified series of
PaineWebber Investment Series ("Trust"), a professionally managed mutual fund.
The Fund seeks high current income consistent with prudent investment risk,
with capital appreciation as a secondary objective; it invests principally in
high quality debt securities issued or guaranteed by foreign governments, by
the U.S. government, by their respective agencies or instrumentalities or by
supranational organizations, or issued by foreign or U.S. companies. The Fund's
investment adviser, administrator and distributor is Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins"), a wholly owned subsidiary of PaineWebber
Incorporated ("PaineWebber"). As distributor for the Fund, Mitchell Hutchins
has appointed PaineWebber to serve as the exclusive dealer for the sale of Fund
shares. The Class C shares described in this Statement of Additional
Information are currently offered for sale only to the trustee of the
PaineWebber Savings Investment Plan acting on behalf of that Plan. This
Statement of Additional Information is not a prospectus and should be read only
in conjunction with the Fund's current Prospectus, dated March 1, 1995. A copy
of the Prospectus may be obtained by contacting the PaineWebber Incorporated
Benefits Department, 1000 Harbor Boulevard, 10th Floor, Weehawken, New Jersey
07087, or by calling 1-201-902-4444. This Statement of Additional Information
is dated March 1, 1995.

INVESTMENT POLICIES AND RESTRICTIONS

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

converted. Generally, ADRs, in registered form, are denominated in U.S. dollars
and are designed for use in the U.S. securities markets. EDRs, in bearer form,
may be denominated in other currencies and are designed for use in European
securities markets. ADRs are receipts typically issued by a U.S. bank or trust
company evidencing ownership of the underlying securities. EDRs are European
receipts evidencing a similar arrangement. For purposes of the Fund's
investment policies, ADRs and EDRs are deemed to have the same classification
as the underlying securities they represent. Thus, an ADR or EDR evidencing
ownership of common stock will be treated as common stock.

2
<PAGE>

FOREIGN CURRENCY TRANSACTIONS. Although the Fund values its assets daily in
U.S. dollars, it does not intend to convert its holdings of foreign currencies
to U.S. dollars on a daily basis. The Fund's foreign currencies may be held as
"foreign currency call accounts" at foreign branches of foreign or domestic
banks. These accounts bear interest at negotiated rates and are payable upon
relatively short demand periods. If a bank became insolvent, the Fund could
suffer a loss of some or all of the amounts deposited. The Fund may convert
foreign currency to U.S. dollars from time to time. Although foreign exchange
dealers generally do not charge a stated commission or fee for conversion, the
prices posted generally include a "spread," which is the difference between the
prices at which the dealers are buying and selling foreign currencies.

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

3
<PAGE>

a demand for repayment. Therefore, the fact that there are contractual or legal
restrictions on resale to the general public or certain institutions is not
dispositive of the liquidity of such investments.

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

The Trust's board of trustees has delegated the function of making day-to-day
determinations of liquidity to Mitchell Hutchins, pursuant to guidelines
approved by the board. Mitchell Hutchins takes into account a number of factors
in reaching liquidity decisions, including (1) the frequency of trades for the
security, (2) the number of dealers that make quotes for the security, (3) the
number of dealers that have undertaken to make a market in the security, (4)
the number of other potential purchasers and (5) the nature of the security and
how trading is effected (e.g., the time needed to sell the security, how offers
are solicited and the mechanics of transfer). Mitchell Hutchins monitors the
liquidity of restricted securities in the Fund's portfolio and reports
periodically on such decisions to the board of trustees.

YIELD FACTORS AND RATINGS. Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Group ("S&P") and other nationally recognized
statistical rating organizations ("NRSROs") are private services that provide
ratings of the credit quality of fixed income obligations. A description of
ratings assigned to corporate debt obligations and preferred stock by Moody's
and S&P is included in the Appendix to this Statement of Additional
Information. The Fund may use these ratings in determining whether to purchase,
sell or hold a security. It should be emphasized, however, that ratings are
general and are not absolute standards of quality. Consequently, securities
with the same maturity, interest rate and rating may have different market
prices. Credit ratings attempt to evaluate the safety of principal and interest
payments and do not evaluate the risks of fluctuations in market value or the
risks of changes in foreign currency exchange rates. Also, rating may fail to
make timely changes in credit ratings in response to subsequent events, so that
an issuer's current financial condition may be better or worse than the rating
indicates. The NRSROs assigned to a security by a NRSRO does not reflect an
assessment of the security's market value or of the liquidity of an investment
in the security. Subsequent to its purchase by the Fund, an issue of debt
obligations may cease to be rated or its rating may be reduced below the
minimum rating required for purchase. Mitchell Hutchins will consider such an
event in determining whether the Fund should continue to hold the obligation
but is not required to dispose of it.

4
<PAGE>

conditions in the bond market, the financial condition of the issuer, the size
of the offering, the maturity of the obligation and its rating. There is a wide
variation in the quality of bonds, both within a particular classification and
between classifications. An issuer's obligations under its bonds are subject to
the provisions of bankruptcy, insolvency and other laws affecting the rights
and remedies of bond holders or other creditors of an issuer; litigation or
other conditions may also adversely affect the power or ability of issuers to
meet their obligations for the payment of interest and principal on their
bonds.

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

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

5
<PAGE>

segregates assets to cover the amount of the commitment. See "Investment
Policies and Restrictions--Segregated Accounts." The Fund purchases when-issued
securities only with the intention of taking delivery, but may sell the right
to acquire the security prior to delivery if Mitchell Hutchins deems it
advantageous to do so, which may result in capital gain or loss to the Fund.

LENDING OF PORTFOLIO SECURITIES. Although it has no intention of doing so
during the coming year, the Fund is authorized to lend up to 10% of the total
value of its portfolio securities to broker-dealers or institutional investors
that Mitchell Hutchins deems qualified, but only when the borrower maintains
with the Fund's custodian collateral either in cash or money market
instruments, marked to market daily, in an amount at least equal to the market
value of the securities loaned, plus accrued interest and dividends. In
determining whether to lend securities to a particular broker-dealer or
institutional investor, Mitchell Hutchins will consider, and during the period
of the loan will monitor, all relevant facts and circumstances, including the
creditworthiness of the borrower. The Fund will retain authority to terminate
any loans at any time. The Fund may pay reasonable administrative and custodial
fees in connection with a loan and may pay a negotiated portion of the interest
earned on the cash or money market instruments held as collateral to the
borrower or placing broker. The Fund will receive reasonable interest on the
loan or a flat fee from the borrower and amounts equivalent to any dividends,
interest or other distributions on the securities loaned. The Fund will regain
record ownership of loaned securities to exercise beneficial rights, such as
voting and subscription rights and rights to dividends, interest or other
distributions, when regaining such rights is considered to be in the Fund's
interest.

U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES. The U.S. government securities in
which the Fund may invest include mortgage-backed securities issued or
guaranteed by the Government National Mortgage Association, the Federal
National Mortgage Association or the Federal Home Loan Mortgage Corporation,
which represent undivided ownership interests in pools of mortgages. The
mortgages backing these securities include both fixed and adjustable rate
mortgages. The U.S. government or the issuing agency guarantees the payment of
the interest on and principal of these securities. The guarantees do not extend
to the securities' value, however, which is likely to vary inversely with
fluctuations in interest rates, and the guarantees do not extend to the yield
or value of the Fund's shares. These securities are "pass-through" instruments
through which the holders receive a share of the interest and principal
payments from the mortgages underlying the securities, net of certain fees. The
principal amounts of such underlying mortgages generally may be prepaid in
whole or in part by the mortgagees at any time without penalty, and the
prepayment characteristics of the underlying mortgages may vary. During periods
of declining interest rates, prepayment of mortgages underlying mortgage-backed
securities can be expected to accelerate. The Fund will reinvest prepaid
amounts in other income producing securities, the yields of which will reflect
interest rates prevailing at the time. Accelerated prepayments adversely affect
yields for mortgage-backed securities purchased by the Fund at a premium and
may involve additional risk of loss of principal because the premium may not
have been fully amortized at the time the obligation is prepaid. The opposite
is true for mortgage-backed securities purchased by the Fund at a discount.

6
<PAGE>

custodian in a segregated account cash, U.S. government securities or other
liquid high-grade debt securities, marked to market daily, in an amount at
least equal to the Fund's obligation or commitment under such transactions. As
described below under "Hedging and Related Income Strategies," segregated
accounts may also be required in connection with certain transactions involving
options or futures contracts, interest rate protection transactions or forward
currency contracts.

INVESTMENT LIMITATIONS OF THE FUND

The Fund may not (1) issue senior securities or borrow money, except from
banks or through reverse repurchase agreements for emergency or temporary
purposes, and then in an aggregate amount not in excess of 10% of the value of
the Fund's total assets at the time of such borrowing; provided that the Fund
will not purchase securities while borrowings (including reverse repurchase
agreements) in excess of 5% of the value of the Fund's total assets are
outstanding; (2) purchase securities of any one issuer if as a result more than
5% of the Fund's total assets would be invested in such issuer or the Fund
would own or hold more than 10% of the outstanding voting securities of that
issuer, except that up to 50% of the Fund's total assets may be invested
without regard to this limitation and provided that this limitation does not
apply to securities issued or guaranteed by the U.S. government, its agencies
and instrumentalities; (3) make an investment in any one industry if the
investment would cause the value of such investments at the time of purchase in
such industry to be 25% or more of the total assets of the Fund taken at market
value; (4) purchase securities on margin, except for short-term credits
necessary for clearance of portfolio transactions, and except that the Fund may
make margin deposits in connection with its use of options, futures contracts
and options on futures contracts; (5) underwrite securities of other issuers,
except to the extent that, in connection with the disposition of portfolio
securities, the Fund may be deemed an underwriter under federal securities
laws; (6) make short sales of securities or maintain a short position, except
that the Fund may (a) make short sales and maintain short positions in
connection with its use of options, futures contracts and options on futures
contracts and (b) sell short "against the box"; (7) purchase or sell real
estate, provided that the Fund may invest in securities secured by real estate
or interests therein or issued by companies which invest in real estate or
interests therein; (8) purchase or sell commodities or commodity contracts,
except that the Fund may purchase or sell interest rate and foreign currency
futures contracts and options thereon, may engage in transactions in foreign
currency and may purchase or sell options on foreign currencies for hedging
purposes; (9) invest in oil, gas or mineral-related programs or leases; (10)
make loans, except through loans of portfolio securities as described in this
Statement of Additional Information and except through repurchase agreements,
provided that for purposes of this restriction the acquisition of publicly
distributed bonds, debentures or other corporate debt securities and investment
in government obligations, short-term commercial paper, certificates of deposit
and bankers' acceptances shall not be deemed to be the making of a loan; or
(11) purchase any securities issued by any other investment company, except in
connection with the merger, consolidation or acquisition of all the securities
or assets of such an issuer.

7
<PAGE>

time of an investment or transaction, a later increase or decrease in
percentage resulting from a change in values of portfolio securities or amount
of total assets will not be considered a violation of any of the foregoing
limitations.

The following investment restrictions may be changed by the vote of the
Trust's board of trustees without shareholder approval. The Fund may not (1)
purchase or retain the securities of any issuer if, to the knowledge of the
Fund's management, the officers and trustees of the Trust and the officers and
directors of PaineWebber and Mitchell Hutchins (each owning beneficially more
than 0.5% of the outstanding securities of the issuer) own in the aggregate
more than 5% of the securities of the issuer; (2) invest more than 10% of its
net assets in illiquid securities, a term that means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which it has valued the securities and includes,
among other things, repurchase agreements maturing in more than seven days; (3)
make investments in warrants, if such investments, valued at the lower of cost
or market, exceed 5% of the value of its net assets, which amount may include
warrants that are not listed on the New York Stock Exchange, Inc. ("NYSE") or
American Stock Exchange, Inc. ("AMEX"), provided that such unlisted warrants,
valued at the lower of cost or market, do not exceed 2% of its net assets, and
further provided that this restriction does not apply to warrants attached to,
or sold as a unit with, other securities; (4) purchase any security if as a
result it would have more than 5% of its total assets invested in securities of
companies that, together with any predecessors, have been in continuous
operation for less than three years; and (5) invest more than 35% of its total
assets in debt securities rated Ba or lower by Moody's or BB or lower by S&P,
comparably rated by another NRSRO or determined by Mitchell Hutchins to be of
comparable quality. This non-fundamental policy (5) can be changed only upon 30
days' advance notice to shareholders.

The Fund will continue to interpret fundamental investment limitation (7) to
prohibit investment in real estate limited partnerships.

HEDGING AND RELATED INCOME STRATEGIES

GENERAL DESCRIPTION OF HEDGING STRATEGIES. As discussed in the Prospectus,
Mitchell Hutchins may use a variety of financial instruments ("Hedging
Instruments"), including certain options, futures contracts (sometimes referred
to as "futures"), options on futures contracts and forward currency contracts,
and enter into interest rate protection transactions, to attempt to hedge the
Fund's portfolio and to enhance income. Although it has no intention of doing
so during the coming year, Mitchell Hutchins also may attempt to hedge the
Fund's portfolio through the use of interest rate futures and options thereon.
The particular Hedging Instruments used by the Fund are described in the
Appendix to the Prospectus.

8
<PAGE>

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

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

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

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

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

9
<PAGE>

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

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

10
<PAGE>

hedging transactions and will, if the guidelines so require, set aside cash,
U.S. government securities or other liquid, high-grade debt securities in a
segregated account with its custodian in the prescribed amount.

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

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

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

The Fund may purchase or write both exchange-traded and OTC options. Exchange
markets for options on debt securities and foreign currencies exist but are
relatively new, and these instruments are primarily traded on the OTC market.
Exchange-traded options in the United States

11
<PAGE>

are issued by a clearing organization affiliated with the exchange on which the
option is listed which, in effect, guarantees completion of every exchange-
traded option transaction. In contrast, OTC options are contracts between the
Fund and its contra party (usually a securities dealer or a bank) with no
clearing organization guarantee. Thus, when the Fund purchases or writes an OTC
option, it relies on the contra party to make or take delivery of the
underlying investment upon exercise of the option. Failure by the contra party
to do so would result in the loss of any premium paid by the Fund as well as
the loss of any expected benefit of the transaction.

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

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

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

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

FUTURES. The Fund may purchase and sell foreign currency futures contracts
and interest rate futures contracts, although the Fund does not intend to use
interest rate futures contracts during the coming year. The Fund may also
purchase put and call options, and write covered put and call

12
<PAGE>

options, on futures in which it is allowed to invest. The purchase of futures
or call options thereon can serve as a long hedge, and the sale of futures or
the purchase of put options thereon can serve as a short hedge. Writing covered
call options on futures contracts can serve as a limited short hedge, using a
strategy similar to that used for writing covered call options on securities or
indices. Similarly, writing covered put options on futures contracts can serve
as a limited long hedge.

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

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

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

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

13
<PAGE>

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

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

14
<PAGE>

the currency in which it is denominated. Such hedges do not, however, protect
against price movements in the securities that are attributable to other
causes.

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

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

As noted above, the Fund also may seek to hedge against changes in the value
of a particular currency by using forward contracts on another foreign currency
or a basket of currencies, the value of which Mitchell Hutchins believes will
have a positive correlation to the values of the currency

15
<PAGE>

being hedged. In addition, the Fund may use forward currency contracts to shift
exposure to foreign currency fluctuations from one country to another. For
example, if the Fund owns securities denominated in a foreign currency and
Mitchell Hutchins believes that currency will decline relative to another
currency, it might enter into a forward contract to sell an appropriate amount
of the first foreign currency, with payment to be made in the second foreign
currency. Transactions that use two foreign currencies are sometimes referred
to as "cross hedging." Use of a different foreign currency magnifies the risk
that movements in the price of the Hedging Instrument will not correlate or
will correlate unfavorably with the foreign currency being hedged.

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

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

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

16
<PAGE>

The Fund may enter into interest rate swaps, caps, collars and floors on
either an asset-based or liability-based basis, depending on whether it is
hedging its assets or its liabilities, and will usually enter into interest
rate swaps on a net basis, i.e., the two payment streams are netted out, with
the Fund receiving or paying, as the case may be, only the net amount of the
two payments. Inasmuch as these interest rate protection transactions are
entered into for good faith hedging purposes, and inasmuch as segregated
accounts will be established with respect to such transactions, Mitchell
Hutchins and the Fund believe such obligations do not constitute senior
securities and, accordingly, will not treat them as being subject to the Fund's
borrowing restrictions. The net amount of the excess, if any, of the Fund's
obligations over its entitlements with respect to each interest rate swap will
be accrued on a daily basis and an amount of cash, U.S. government securities
or other liquid, high-grade debt obligations having an aggregate net asset
value at least equal to the accrued excess will be maintained in a segregated
account by a custodian that satisfies the requirements of the Investment
Company Act of 1940 ("1940 Act"). The Fund also will establish and maintain
such segregated accounts with respect to its total obligations under any
interest rate swaps that are not entered into on a net basis and with respect
to any interest rate caps, collars and floors that are written by the Fund.

17
<PAGE>

TRUSTEES AND OFFICERS

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

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ---------- --------------------
<S> <C> <C>
E. Garrett Bewkes, Trustee and Chairman of Mr. Bewkes is a director of Paine
Jr.**; 68 the Board of Trustees Webber Group Inc. ("PW Group")
(holding company of PaineWebber
and Mitchell Hutchins) and a con-
sultant to PW Group. Prior to
1988, he was chairman of the
board, president and chief execu-
tive officer of American Bakeries
Company. Mr. Bewkes is also a di-
rector of Interstate Bakeries
Corporation and a director or
trustee of 26 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Meyer Feldberg; 52 Trustee Mr. Feldberg is Dean and Professor
Columbia University of Management of the Graduate
101 Uris Hall School of Business, Columbia Uni-
New York, New York 10027 versity. Prior to July 1989, he
was president of the Illinois In-
stitute of Technology. Dean
Feldberg is also a director of
AMSCO International Inc., Feder-
ated Department Stores, Inc.,
Inco Homes Corporation and New
World Communications Group Incor-
porated and a director or trustee
of 18 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as an invest-
ment adviser.
George W. Gowen; 65 Trustee Mr. Gowen is a partner in the law
666 Third Avenue firm of of Dunnington, Bartholow
New York, New York 10176 & Miller. Prior to May 1994, he
was a partner in the law firm of
Fryer, Ross & Gowen. Mr. Gowen is
also a director of Columbia Real
Estate Investments, Inc. and a
director or trustee of 16 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>

18
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ---------- --------------------
<S> <C> <C>
Paul B. Guenther**; 54 Trustee and President Mr. Guenther is president and a
director of PW Group and a direc-
tor
of Mitchell Hutchins and
PaineWebber. Mr. Guenther is also
president and/or a director or
trustee of 25 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Frederic V. Malek; 58 Trustee Mr. Malek is chairman of Thayer
901 15th Street, N.W. Capital Partners (investment
Suite 300 bank) and a co-chairman and di-
Washington, D.C. 20005 rector of CB Commercial Group
Inc. (real estate). From January
1992 to November 1992, he was
campaign manager of Bush-Quayle
'92. From 1990 to 1992, he was
vice chairman, and from 1989 to
1990, he was president of North-
west Airlines Inc., NWA Inc.
(holding company of Northwest
Airlines Inc.) and Wings Holdings
Inc. (holding company of NWA
Inc.). Prior to 1989, he was em-
ployed by the Marriott Corpora-
tion (hotels, restaurants, air-
line catering and contract feed-
ing), where he most recently was
an executive vice president and
president of Marriott Hotels and
Resorts. Mr. Malek is also a di-
rector of American Management
Systems, Inc., Automatic Data
Processing, Inc., Avis, Inc., FPL
Group, Inc., ICF International,
Manor Care, Inc. and National Ed-
ucation Corporation and a direc-
tor or trustee of 16 other in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Frank P. L. Minard**; 49 Trustee Mr. Minard is chairman and a di-
rector of Mitchell Hutchins,
chairman of the board of Mitchell
Hutchins Institutional Investors
Inc. and a director
</TABLE>

19
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ---------- --------------------
<S> <C> <C>
of PaineWebber. Prior to 1993,
Mr. Minard was managing director
of Oppenheimer Capital in New
York and Director of Oppenheimer
Capital Ltd. in London. Mr.
Minard is also a director or
trustee of 27 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Judith Davidson Moyers; Trustee Mrs. Moyers is president of Public
59 Affairs Television, Inc., an edu-
Public Affairs Televi- cational consultant and a home
sion economist. Mrs. Moyers is also a
356 W. 58th Street director of Columbia Real Estate
New York, New York 10019 Investments, Inc. and Ogden Cor-
poration and a director or
trustee of 16 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Thomas F. Murray; 84 Trustee Mr. Murray is a real estate and
400 Park Avenue financial consultant. Mr. Murray
New York, New York 10022 is also a director and chairman
of American Continental Proper-
ties, Inc., a trustee of Pruden-
tial Realty Trust and a director
or trustee of 16 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Teresa M. Boyle; 36 Vice President Ms. Boyle is a first vice presi-
dent and manager--advisory admin-
istration of Mitchell Hutchins.
Prior to November 1993, she was
compliance manager of Hyperion
Capital Management, Inc., an in-
vestment advisory firm. Prior to
April 1993, Ms. Boyle was a vice
president and manager-- legal ad-
ministration of Mitchell
Hutchins. Ms. Boyle is also a
vice president of 26 other in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>

20
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ---------- --------------------
<S> <C> <C>
Joan L. Cohen; 30 Vice President and Ms. Cohen is a vice president and
Assistant Secretary attorney of Mitchell Hutchins.
Prior to December 1993, she was
an associate at the law firm of
Seward & Kissel. Ms. Cohen is
also a vice president and assis-
tant secretary of 26 other in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Ellen R. Harris; 48 Vice President Ms. Harris is chief domestic eq-
uity strategist, a managing di-
rector and chief investment offi-
cer--domestic of Mitchell
Hutchins. Ms. Harris is also a
vice president of 19 other in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Frank Jennings; 47 Vice President Mr. Jennings is a managing direc-
tor and director of international
equities of Mitchell Hutchins.
Prior to 1992, he was managing
director of global investments of
AIG Global Investors. Mr.
Jennings is also a vice president
of 3 other investment companies
for which Mitchell Hutchins
serves as investment adviser.
Clifford E. Kirsch; 35 Vice President and Mr. Kirsch is a first vice presi-
Assistant Treasurer dent and associate general coun-
sel of Mitchell Hutchins. Prior
to March 1994, he was an assis-
tant director in the Division of
Investment Management at the SEC.
Mr. Kirsch is also a vice presi-
dent and assistant secretary of
26 other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Ann E. Moran; 37 Vice President and Ms. Moran is a vice president of
Assistant Treasurer Mitchell Hutchins. Ms. Moran is
also a vice president and assis-
tant treasurer of 39 other in-
vestment compa-
</TABLE>

21
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ---------- --------------------
<S> <C> <C>
nies for which Mitchell Hutchins
or PaineWebber serves as invest-
ment adviser.
Dianne E. O'Donnell; 42 Vice President and Ms. O'Donnell is a senior vice
Secretary president and senior associate
general counsel of Mitchell
Hutchins. Ms. O'Donnell is also a
vice president and secretary of
39 other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Victoria E. Schonfeld; Vice President Ms. Schonfeld is a managing direc-
43 tor and general counsel of Mitch-
ell Hutchins. From April 1990 to
May 1994, she was a partner in
the law firm of Arnold & Porter.
Prior to April 1990, she as a
partner in the law firm of
Shereff, Friedman, Hoffman &
Goodman. Ms. Schonfeld is also a
vice president of 39 other in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Paul H. Schubert; 32 Vice President and Mr. Schubert is a vice president
Assistant Treasurer of Mitchell Hutchins. From August
1992 to August 1994, he was a
vice president at BlackRock Fi-
nancial Management, L.P. Prior to
August 1992, he was an audit man-
ager with Ernst & Young LLP. Mr.
Schubert is also a vice president
and assistant treasurer of 39
other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Martha J. Slezak; 32 Vice President and Ms. Slezak is a vice president of
Assistant Treasurer Mitchell Hutchins. From September
1991 to April 1992, she was a
fund-raising director for a U.S.
Senate campaign. Prior to Septem-
ber 1991, she was a tax manager
with
</TABLE>

22
<PAGE>

<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ---------- --------------------
<S> <C> <C>
Arthur Andersen & Co. Ms. Slezak
is also a vice president and as-
sistant treasurer of 39 other in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Julian F. Sluyters; 34 Vice President and Mr. Sluyters is a senior vice
Treasurer president and the director of the
mutual fund finance division of
Mitchell Hutchins. Prior to 1991,
he was an audit senior manager
with Ernst & Young LLP. Mr.
Sluyters is also a vice president
and treasurer of 39 other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Gregory K. Todd; 38 Vice President and Mr. Todd is a first vice president
Assistant Secretary and associate general counsel of
Mitchell Hutchins. Prior to 1993,
he was a partner in the law firm
of Shereff, Friedman, Hoffman &
Goodman. Mr. Todd is also a vice
president and assistant secretary
of 39 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Stuart Waugh; 39 Vice President Mr. Waugh is a first vice presi-
dent and a portfolio manager of
Mitchell Hutchins responsible for
global fixed income investments
and currency trading. Mr. Waugh
is also a vice president of 5
other investment companies for
which Mitchell Hutchins serves as
investment adviser.
</TABLE>
- -------
* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.
** Messrs. Bewkes, Guenther and Minard are "interested persons" of the Trust as
defined in the 1940 Act by virtue of their positions with PW Group,
PaineWebber and/or Mitchell Hutchins.

23
<PAGE>

COMPENSATION TABLE

<TABLE>
<CAPTION>
PENSION OR TOTAL
RETIREMENT COMPENSATION
BENEFITS FROM THE
AGGREGATE ACCRUED AS ESTIMATED TRUST AND THE
COMPENSATION PART OF A ANNUAL FUND COMPLEX
FROM FUND'S BENEFITS UPON PAID TO
NAME OF PERSON, POSITION THE TRUST* EXPENSES RETIREMENT TRUSTEES**
------------------------ ------------ ---------- ------------- -------------
<S> <C> <C> <C> <C>
E. Garrett Bewkes, Jr.,
Trustee and chairman of
the board
of trustees............... -- -- -- --
Meyer Feldberg,
Trustee................... $5,000 -- -- $86,050
George W. Gowen,
Trustee................... 4,500 -- -- 71,425
Paul B. Guenther,
Trustee and president..... -- -- -- --
Frederic V. Malek,
Trustee................... 5,000 -- -- 77,875
Frank P.L. Minard,
Trustee................... -- -- -- --
Judith Davidson Moyers,
Trustee................... 4,250 -- -- 71,125
Thomas F. Murray,
Trustee................... 5,000 -- -- 71,925
</TABLE>
- -------
*Represents fees paid to each trustee during the fiscal year ended October 31,
1994.
** Represents total compensation paid to each trustee during the calendar year
ended December 31, 1994.

24
<PAGE>

INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS

<TABLE>
<CAPTION>
ANNUAL
AVERAGE DAILY NET ASSETS RATE
------------------------ ------
<S> <C>
Up to $500 million................................................. 0.750%
In excess of $500 million up to $1.0 billion....................... 0.725
In excess of $1.0 billion up to $1.5 billion....................... 0.700
In excess of $1.5 billion up to $2.0 billion....................... 0.675
Over $2.0 billion.................................................. 0.650
</TABLE>

In addition, under a service agreement pursuant to which PaineWebber provides
certain services to the Fund not otherwise provided by the Fund's transfer
agent, which agreement is reviewed by the Trust's board of trustees annually,
during the fiscal years ended October 31, 1994, October 31, 1993 and October
31, 1992, PaineWebber earned fees in the approximate amounts of $487,859,
$467,885 and $425,367, respectively.

Under the terms of the Advisory Contract, the Fund bears all expenses
incurred in its operation that are not specifically assumed by Mitchell
Hutchins. General expenses of the Trust not readily identifiable as belonging
to the Fund or to the Trust's other series are allocated among series by or
under the direction of the board of trustees in such manner as the board deems
to be fair and equitable. Expenses borne by the Fund include the following (or
the Fund's share of the following): (1) the cost (including brokerage
commissions) of securities purchased or sold by the Fund and any losses
incurred in connection therewith, (2) fees payable to and expenses incurred on
behalf of the Fund by Mitchell Hutchins, (3) organizational expenses, (4)
filing fees and expenses relating to the registration and qualification of the
Fund's shares and the Trust under federal and state securities laws and
maintenance of such registrations and qualifications, (5) fees and salaries
payable to trustees who are not interested persons (as defined in the 1940 Act)
of the Trust or Mitchell Hutchins, (6) all expenses incurred in connection with
the trustees' services, including travel expenses, (7) taxes (including any
income or franchise taxes) and governmental fees, (8) costs of any liability,
uncollectible items of deposit and other insurance or fidelity bonds, (9) any
costs, expenses or losses arising out of a liability of or claim for damages or
other relief asserted against the Trust or the Fund for violation of any law,
(10) legal, accounting and auditing expenses, including legal fees of special
counsel for the independent trustees, (11) charges of custodians, transfer
agents and other agents, (12) costs of preparing share certificates, (13)
expenses of setting in type and printing prospectuses and supplements thereto,
statements of additional information and supplements thereto, reports and proxy
materials for existing shareholders, and costs of mailing such materials to
existing shareholders, (14) any extraordinary expenses (including fees and
disbursements of counsel) incurred by the Trust or the Fund, (15) fees,
voluntary assessments and other expenses incurred in

25
<PAGE>

connection with membership in investment company organizations, (16) costs of
mailing and tabulating proxies and costs of meetings of shareholders, the board
and any committees thereof, (17) the cost of investment company literature and
other publications provided to trustees and officers and (18) costs of mailing,
stationery and communications equipment.

As required by state regulation, Mitchell Hutchins will reimburse the Fund if
and to the extent that the aggregate operating expenses of the Fund exceed
applicable limits in any fiscal year. Currently, the most restrictive such
limit applicable to the Fund is 2.5% of the first $30 million of the Fund's
average daily net assets, 2.0% of the next $70 million of its average daily net
assets and 1.5% of its average daily net assets in excess of $100 million.
Certain expenses, such as brokerage commissions, taxes, interest, distribution
fees, certain expenses attributable to investing outside the United States and
extraordinary items, are excluded from this limitation. For the fiscal years
ended October 31, 1994, October 31, 1993 and October 31, 1992 no reimbursements
were made pursuant to such limitation.

Under the Advisory Contract, Mitchell Hutchins will not be liable for any
error or judgment or mistake of law or for any loss suffered by the Fund in
connection with the performance of the Contract, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of Mitchell
Hutchins in the performance of its duties or from reckless disregard of its
duties and obligations thereunder. The Advisory Contract terminates
automatically upon its assignment and is terminable at any time without penalty
by the Trust's board of trustees or by vote of the holders of a majority of the
Fund's outstanding voting securities, on 60 days' written notice to Mitchell
Hutchins or by Mitchell Hutchins on 60 days' written notice to the Fund.

<TABLE>
<CAPTION>
INVESTMENT NET
CATEGORY ASSETS
---------- ---------
($ MIL)
<S> <C>
Domestic (excluding Money Market)............................... $ 5,512.8
Global.......................................................... 3,003.4
Equity/Balanced................................................. 2,382.1
Fixed Income (excluding Money Market)........................... 6,134.1
Taxable Fixed Income.......................................... 4,393.1
Tax-Free Fixed Income......................................... 1,741.0
Money Market Funds.............................................. 17,685.9
</TABLE>

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

26
<PAGE>

PORTFOLIO TRANSACTIONS

Subject to policies established by the Trust's board of trustees, Mitchell
Hutchins is responsible for the execution of the Fund's portfolio transactions
and the allocation of brokerage transactions. In executing portfolio
transactions, Mitchell Hutchins seeks to obtain the best net results for the
Fund, taking into account such factors as the price (including the applicable
brokerage commission or dealer spread), size of order, difficulty of execution
and operational facilities of the firm involved. Prices paid to dealers in
principal transactions, through which most debt securities are traded,
generally include a "spread," which is the difference between the prices at
which the dealer is willing to purchase and sell a specific security at the
time. The Fund may invest in securities traded in the OTC market and will
engage primarily in transactions with the dealers who make markets in such
securities, unless a better price or execution could be obtained by using a
broker. While Mitchell Hutchins generally seeks reasonably competitive
commission rates and dealer spreads, payment of the lowest commission or spread
is not necessarily consistent with obtaining the best net results. For the
fiscal years ended October 31, 1994, October 31, 1993 and October 31, 1992, the
Fund did not pay any brokerage commissions.

The Fund has no obligation to deal with any broker or group of brokers in the
execution of portfolio transactions. The Fund contemplates that, consistent
with the policy of obtaining the best net results, brokerage transactions may
be conducted through Mitchell Hutchins or its affiliates, including
PaineWebber. The Trust's board of trustees has adopted procedures in conformity
with Rule 17e-1 under the 1940 Act to ensure that all brokerage commissions
paid to Mitchell Hutchins and its affiliates are reasonable and fair. Specific
provisions in the Advisory Contract authorize Mitchell Hutchins and any of its
affiliates that are members of a national securities exchange to effect
portfolio transactions for the Fund on such exchange and to retain compensation
in connection with such transactions. Any such transactions will be effected
and related compensation paid only in accordance with applicable SEC
regulations. During the last three fiscal years, the Fund has not paid
brokerage commissions to Mitchell Hutchins or any of its affiliates.

27
<PAGE>

used by Mitchell Hutchins in advising the Fund. Information and research
received from brokers will be in addition to, and not in lieu of, the services
required to be performed by Mitchell Hutchins under the Advisory Contract.
During the fiscal year ended October 31, 1994, the Fund did not direct any
portfolio transactions to brokers chosen because they provide research
services. The Fund may purchase and sell portfolio securities to and from
dealers who provide the Fund with research services. Portfolio transactions
will not be directed by the Fund to dealers solely on the basis of research
services provided. The Fund will not purchase portfolio securities at a higher
price or sell such securities at a lower price in connection with transactions
effected with a dealer, acting as principal, who furnishes research services to
Mitchell Hutchins than would be the case if no weight were given by Mitchell
Hutchins to the dealer's furnishing of such services. Research services
furnished by the dealers through which or with which the Fund effects
securities transactions may be used by Mitchell Hutchins in advising other
funds or accounts and, conversely, research services furnished to Mitchell
Hutchins in connection with other funds or accounts that Mitchell Hutchins
advises may be used in advising the Fund.

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

PORTFOLIO TURNOVER. The Fund's annual portfolio turnover rate may vary
greatly from year to year, but it will not be a limiting factor when management
deems portfolio changes appropriate. The portfolio turnover rate is calculated
by dividing the lesser of the Fund's annual sales or purchases of portfolio
securities (exclusive of purchases or sales of securities whose maturities at
the time of acquisition were one year or less) by the monthly average value of
securities in the portfolio during the year. For the fiscal years ended October
31, 1993 and October 31, 1994, the portfolio turnover rates for the Fund were
89.65% and 108.48%, respectively.

VALUATION OF SHARES

28
<PAGE>

is open. Currently, the NYSE is closed on the observance of the following
holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

Securities that are listed on U.S. and foreign stock exchanges are valued at
the last sale price on the day the securities are being valued or, lacking any
sales on such day, at the last available bid price. In cases where securities
are traded on more than one exchange, the securities are generally valued on
the exchange considered by Mitchell Hutchins as the primary market. Securities
traded in the OTC market and listed on Nasdaq are valued at the last available
sale price on Nasdaq at 4:00 p.m., eastern time; other OTC securities are
valued at the last bid price available prior to valuation. Securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the Trust's
board of trustees. All investments quoted in foreign currency are valued daily
in U.S. dollars on the basis of the foreign currency exchange rate prevailing
at the time such valuation is determined by the Fund's custodian. The amortized
cost method of valuation generally is used to value debt obligations with 60
days or less remaining until maturity, unless the board of trustees determines
that this does not represent fair value.

Foreign currency exchange rates are generally determined prior to the close
of trading on the NYSE. Occasionally events affecting the value of foreign
investments and such exchange rates occur between the time at which they are
determined and the close of trading on the NYSE, which events will not be
reflected in a computation of the Fund's net asset value on that day. If events
materially affecting the value of such investments or currency exchange rates
occur during such time period, the investments will be valued at their fair
value as determined in good faith by or under the direction of the Trust's
board of trustees. The foreign currency exchange transactions of the Fund
conducted on a spot (i.e., cash) basis are valued at the spot rate for
purchasing or selling currency prevailing on the foreign exchange market. This
rate under normal market conditions differs from the prevailing exchange rate
in an amount generally less than one-tenth of one percent due to the costs of
converting from one currency to another.

PERFORMANCE INFORMATION

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

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

29
<PAGE>

Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or "T" in the formula above, is computed by finding
the average annual change in the value of an initial $1,000 investment over the
period. In calculating the ending redeemable value for Class A shares, the
maximum 4% sales charge is deducted from the initial payment and for Class B
shares, the applicable contingent deferred sales charge imposed on a redemption
of Class B shares held for the period is deducted. No deductions are required
in calculating the ending redeemable value for Class C or Class D shares
because Class C and Class D shares are subject to no sales charges. All
dividends and other distributions are assumed to have been reinvested at net
asset value.

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

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

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

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------- ------- ------- -------
<S> <C> <C> <C> <C>
Fiscal year ended October 31, 1994:
Standardized Return*...................... (7.00)% (8.89)% (2.86)% (3.56)%
Non-Standardized Return................... (3.10)% (3.90)% (2.86)% (3.56)%
Five years ended October 31, 1994:
Standardized Return*...................... NA 7.64 % NA NA
Non-Standardized Return................... NA 7.94 % NA NA
Inception** to October 31, 1994:
Standardized Return*...................... 5.09 % 9.43 % 6.55 % 3.51 %
Non-Standardized Return................... 6.38 % 9.43 % 6.55 % 3.51 %
</TABLE>
- -------
*All Standardized Return figures for Class A shares reflect deduction of the
current maximum sales charge of 4.0%. All Standardized Return figures for
Class B shares reflect deduction of the applicable contingent deferred sales
charge imposed on a redemption of shares held for the period. Class C and
Class D shares do not impose an initial or a contingent deferred sales
charge; therefore, Non-Standardized Return is identical to Standardized
Return.
**The inception date for each Class of the Fund is as follows: Class A--July 1,
1991, Class B--March 20, 1987, Class C--August 26, 1991 and Class D--July 2,
1992.

30
<PAGE>

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

a - b
YIELD = 2 [ (------ + 1)to the power of 6 -1]
cd

where: a = interest earned during the Period attributable to a Class of
shares

b = expenses accrued for the Period attributable to a Class of
shares (net of reimbursements)

c = the average daily number of shares of the Class outstanding
during the Period that were entitled to receive dividends

d = the maximum offering price per share (in the case of Class A
shares) or the net asset value per share (in the case of
Class B shares, Class C shares and Class D shares) on the
last day of the Period.

Except as noted below, in determining interest income earned during the
Period (variable "a" in the above formula), the Fund calculates interest earned
on each debt obligation held by it during the Period by (1) computing the
obligation's yield to maturity, based on the market value of the obligation
(including actual accrued interest) on the last business day of the Period or,
if the obligation was purchased during the Period, the purchase price plus
accrued interest and (2) dividing the yield to maturity by 360, and multiplying
the resulting quotient by the market value of the obligation (including actual
accrued interest) to determine the interest income on the obligation for each
day of the period that the obligation is in the portfolio. Once interest earned
is calculated in this fashion for each debt obligation held by the Fund,
interest earned during the Period is then determined by totalling the interest
earned on all debt obligations. For purposes of these calculations, the
maturity of an obligation with one or more call provisions is assumed to be the
next date on which the obligation reasonably can be expected to be called or,
if none, the maturity date. With respect to Class A shares, in calculating the
maximum offering price per share at the end of the period (variable "d" in the
above formula), the Fund's current maximum 4% sales charge on Class A shares is
included. The yields of the Fund's Class A, Class B, Class C and Class D shares
for the 30-day period ended October 31, 1994 were 6.38%, 5.87%, 6.93% and
6.14%, respectively.

31
<PAGE>

the Solomon Brothers World Government Index, the Solomon Brothers Non-U.S.
Dollar Index, the Lehman Bond Index, 30-year and 10-year U.S. Treasury Bonds
and changes in the Consumer Price Index as published by the U.S. Department of
Commerce. The Fund also may refer in such materials to mutual fund performance
rankings and other data, such as comparative asset, expense and fee levels,
published by Lipper, CDA, Wiesenberger, ICD or Morningstar. Performance
Advertisements also may refer to discussions of the Fund and comparative mutual
fund data and ratings reported in independent periodicals, including (but not
limited to) THE WALL STREET JOURNAL, MONEY Magazine, FORBES, BUSINESS WEEK,
FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW YORK TIMES, THE CHICAGO TRIBUNE,
THE WASHINGTON POST and THE KIPLINGER LETTERS.

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

TAXES

32
<PAGE>

directly related to the Fund's principal business of investing in securities
(or options and futures with respect to securities) ("Short-Short Limitation");
(3) at the close of each quarter of the Fund's taxable year, at least 50% of
the value of its total assets must be represented by cash and cash items, U.S.
government securities, securities of other RICs and other securities, with
these other securities limited, in respect of any one issuer, to an amount that
does not exceed 5% of the value of the Fund's total assets and that does not
represent more than 10% of the issuer's outstanding voting securities; and (4)
at the close of each quarter of the Fund's taxable year, not more than 25% of
the value of its total assets may be invested in securities (other than U.S.
government securities or the securities of other RICs) of any one issuer.

The Fund may invest in "passive foreign investment companies" ("PFICs"). A
PFIC is a foreign corporation that, in general, meets either of the following
tests: (1) at least 75% of its gross income is passive or (2) an average of at
least 50% of its assets produce, or are held for the production of, passive
income. Under certain circumstances, if the Fund holds stock of a PFIC it will
be subject to federal income tax on a portion of any "excess distribution"
received on the stock or of any gain on disposition of the stock (collectively
"PFIC income"), plus interest thereon, even if the Fund distributes the PFIC
income as a taxable dividend to its shareholders. The balance of the PFIC
income will be included in the Fund's investment company taxable income and,
accordingly, will not be taxable to it to the extent that income is distributed
to its shareholders. If the Fund invests in a PFIC and elects to treat the PFIC
as a "qualified electing fund," then in lieu of the foregoing tax and interest
obligation, the Fund will be required to include in income each year its pro
rata share of the qualified electing fund's annual ordinary earnings and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss)--which would have to be distributed to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax--even if those earnings and
gain are not distributed to the Fund. In most instances it will be very
difficult, if not impossible, to make this election because of certain
requirements thereof.

Pursuant to proposed regulations, open-end RICs, such as the Fund, would be
entitled to elect to "mark-to-market" their stock in certain PFICs. "Marking-
to-market," in this context, means

33
<PAGE>

recognizing as gain for each taxable year the excess, as of the end of that
year, of the fair market value of each such PFIC's stock over the owner's
adjusted basis in that stock (including mark-to-market gain for each prior year
for which an election was in effect).

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

34
<PAGE>

OTHER INFORMATION

PAINEWEBBER INVESTMENT SERIES. Prior to July 1, 1991, the name of the Fund
was "PaineWebber Master Global Income Fund."

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

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

INDEPENDENT ACCOUNTANTS. Price Waterhouse LLP, 1177 Avenue of the Americas,
New York, New York 10036, serves as the Trust's independent accountants.

FINANCIAL STATEMENTS

The Fund's annual report to shareholders for the fiscal year ended October
31, 1994 is a separate document supplied with this Statement of Additional
Information and the financial statements, accompanying notes and report of
independent accountants appearing therein are incorporated by reference in this
Statement of Additional Information.

35
<PAGE>

APPENDIX

DESCRIPTION OF MOODY'S LONG-TERM DEBT RATINGS

DESCRIPTION OF STANDARD & POOR'S CORPORATE DEBT RATINGS

36
<PAGE>

accordance with the terms of the obligation. "BB" indicates the lowest degree
of speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions; BB. Debt rated "BB" has less near-term
vulnerability to default than other speculative issues. However, it faces major
ongoing uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely interest and
principal payments. The "BB" rating category is also used for debt subordinated
to senior debt that is assigned an actual or implied "BBB-" rating; B. Debt
rated "B" has a greater vulnerability to default but currently has the capacity
to meet interest payments and principal repayments. Adverse business, financial
or economic conditions will likely impair capacity or willingness to pay
interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.

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

DESCRIPTION OF MOODY'S SHORT-TERM DEBT RATINGS

DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS

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

37
<PAGE>

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

-----------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and Restrictions................................... 1
Hedging and Related Income Strategies.................................. 8
Trustees and Officers.................................................. 18
Investment Advisory and Distribution Arrangements...................... 25
Portfolio Transactions................................................. 27
Valuation of Shares.................................................... 28
Performance Information................................................ 29
Taxes.................................................................. 32
Other Information...................................................... 35
Financial Statements................................................... 35
Appendix............................................................... 36
</TABLE>

PAINEWEBBER

GLOBAL INCOME FUND

CLASS C SHARES

- -----------------------------------
STATEMENT OF ADDITIONAL INFORMATION

MARCH 1, 1995

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

[LOGO PAINEWEBBER]