PAINEWEBBER INVESTMENT SERIES, 485APOS, 1998-12-29

PAINEWEBBER INVESTMENT SERIES
485APOS, 1998-12-29

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<PAGE>

As filed with the Securities and Exchange Commission on December 29, 1998

1933 Act: Registration No. 33-11025
1940 Act: Registration No. 811-5259

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
-----

Pre-Effective Amendment No._____ [ _____]

Post-Effective Amendment No. 38 [ X ]
--- -----

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1940 [ X ]
-----

Amendment No. 35 [ X ]
--- ------

PAINEWEBBER INVESTMENT SERIES
(Exact name of registrant as specified in charter)
1285 Avenue of the Americas
New York, New York 10019
(Address of principal executive offices)

Registrant's telephone number, including area code: (212) 713-2000

DIANNE E. O'DONNELL, Esq.
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
(Name and address of agent for service)

Copies to:

ELINOR W. GAMMON, Esq.
BENJAMIN J. HASKIN, Esq.
Kirkpatrick & Lockhart LLP
Second Floor
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800
Telephone: (202) 778-9000

Approximate Date of Proposed Public Offering: Effective Date of this Post-
Effective Amendment.

[_______] Immediately upon filing pursuant to Rule 485(b)

[_______] On ________ pursuant to Rule 485(b)
[_______] 60 days after filing pursuant to Rule 485(a)(1)

[___X___] On March 1, 1999 pursuant to Rule 485(a)(1)
-------------
[_______] 75 days after filing pursuant to Rule 485(a)(2)
[_______] On pursuant to Rule 485(a)(2)

Title of Securities Being Registered: Shares of Beneficial Interest.
<PAGE>

PaineWebber Global
Equity Fund

PaineWebber Global
Income Fund

PaineWebber
Asia Pacific
Growth Fund

PaineWebber
Emerging Markets
Equity Fund

PROSPECTUS MARCH 1, 1999

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

As with all mutual funds, the Securities and Exchange Commission has not
approved any fund's shares as investments or determined whether this prospectus
is complete or accurate. To state otherwise is a crime.
<PAGE>

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-------------------
PaineWebber Global Equity Fund PaineWebber Asia Pacific Growth
PaineWebber Global Income Fund Fund
PaineWebber Emerging Markets
Equity Fund

Contents

The Funds

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

<TABLE>
<S> <C> <C>
What every investor 3 PaineWebber Global Equity Fund
should know about
the Funds 8 PaineWebber Global Income Fund

13 PaineWebber Asia Pacific Growth Fund

18 PaineWebber Emerging Markets Equity Fund

23 Additional Principal Investment Strategies and Risks

Your Investment

-------------------------------------------------------------------------
Information for 24 Managing Your Fund Account
managing your Fund --Flexible Pricing
account --Buying Shares
--Selling Shares
--Exchanging Shares
--Valuation and Pricing

Additional Information

-------------------------------------------------------------------------
Additional important 29 Management
information about
the Funds 31 Dividends and Taxes

34 Financial Highlights
-------------------------------------------------------------------------
Where to learn more
about PaineWebber Back Cover
Mutual Funds
</TABLE>

The funds are not
complete or balanced
investment programs.

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Prospectus Page 2
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PaineWebber Global Equity Fund

PaineWebber Global Equity Fund

Investment Objective and Strategies

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

FUND OBJECTIVE:

Long-term growth of capital.

PRINCIPAL INVESTMENT STRATEGIES:

The fund seeks to increase the value of your investment by investing in U.S.
and foreign companies.

Mitchell Hutchins Asset Management Inc., the asset management subsidiary of
PaineWebber Incorporated, is the fund's investment adviser. Mitchell Hutchins
ALLOCATES THE FUND'S ASSETS BETWEEN THE U.S. MARKET AND THE INTERNATIONAL
MARKETS. In determining the asset allocation, Mitchell Hutchins evaluates the
expected performance of the U.S. stock market and of certain developed
international markets. Mitchell Hutchins may allocate a higher portion of fund
assets to the U.S. market or the international markets if it believes that one
of the two shows a greater potential for higher returns on a risk-adjusted
basis.

For the U.S. EQUITIES PORTION of the fund, Mitchell Hutchins selects stocks
using an investment style that is a combination of "value" and "growth," with
an emphasis on "value." Mitchell Hutchins uses its own Factor Valuation Model
to screen over 3,500 companies and then applies traditional fundamental
analysis to the stocks ranked highly by the Model. The Model ranks each stock
based on several factors, such as dividends and earnings expectations, cash
flows, revenues and expected trends for each company and its sensitivity to
economic changes in the market. The Mitchell Hutchins Equity Research Team uses
these rankings, along with further company-specific research, to determine
which securities it will buy and sell for the fund.

For the INTERNATIONAL EQUITIES PORTION of the fund, Mitchell Hutchins has
appointed Invista Capital Management, Inc. as the investment sub-adviser.
Invista performs qualitative analysis and considers factors such as competitive
position, industry supply and demand trends, market share and competitive
strengths to help select international stocks for purchase and sale by the
fund. Invista also takes into consideration country risks in assessing the
companies. Invista may change investments as opportunities or prospects change
for particular countries, industries or companies.

Information on the fund's recent investment strategies and holdings can be
found in the current annual/semiannual reports (see back cover for information
on ordering such reports).

----------
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Prospectus Page 3
<PAGE>

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PaineWebber Global Equity Fund

Risks

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

An investment in the fund is not guaranteed; investors may lose money by
investing in this fund.

. Stock market risk: The fund invests in stocks of U.S. and foreign companies.
Stock prices generally fluctuate more than those of other securities, and
reflect changes in a company's financial condition and the overall market.
The fund may experience a substantial or complete loss on an individual
stock. However, the fund invests in a large number of companies in an effort
to lower this risk and restricts how much it can invest in any one stock.

. International investing risk: Investments in securities of international
issuers involve certain risks not typically associated with U.S.-based
issuers. The values of international securities are subject to economic and
political developments in the countries and regions where the companies
operate, such as changes in economic or monetary policies, and to changes in
exchange rates. Values may also be affected by foreign tax laws and
restrictions on receiving the investment proceeds from a foreign country.

In general, less information is publicly available about foreign companies
than about U.S. companies. Foreign companies are generally not subject to the
same accounting, auditing and financial reporting standards as are U.S.
companies. Foreign stock markets are often less liquid and subject to less
regulation than the U.S. stock markets.

. Emerging markets risk: The fund may invest a portion of its assets in
securities issued by companies located in emerging markets. These investments
involve additional risks. Emerging market countries typically have economic
and political systems that are less fully developed, and can be expected to
be less stable, than those of more advanced countries. Low trading volumes in
emerging markets securities may result in a lack of liquidity and in price
volatility. Emerging market countries may have policies that restrict
investment by foreigners, and there is a higher risk of a government's taking
private property.

. Currency risk: The fund's share value may change significantly from changes
in exchange rates reducing the U.S. dollar value of the fund's foreign
investments. Currency exchange rates can be volatile and affected by, among
other factors, the general economics of a country, the actions of the U.S.
and foreign governments or central banks, the imposition of currency
controls, and speculation.

. Global allocation model, investment model and stock selection risk: Mitchell
Hutchins may not be successful in determining the fund's best relative asset
allocation between U.S. and non-U.S. markets. The Factor Valuation Model used
by Mitchell Hutchins and its investment process may identify securities that
do not perform as well as expected. Similarly, Invista's investment process
may not identify securities that perform as well as expected. Changes in
economic or individual company conditions could cause both U.S. and foreign
securities to underperform expectations.

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Prospectus Page 4
<PAGE>

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PaineWebber Global Equity Fund

Performance

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

RISK/RETURN BAR CHART AND TABLE:

The following bar chart shows how the fund has performed from year to year.
Sales charges, which have not been deducted from the total returns for Class A
shares, would lower these returns if deducted. The table following the chart
indicates what the return would be if you averaged actual performance over
various lengths of time.

The fund's past performance does not indicate how the fund will perform in the
future.
On October 1, 1998, Mitchell Hutchins Asset Management Inc. assumed the
investment management responsibilities for allocating assets between U.S. and
international securities and for managing the fund's U.S. securities. Invista
Capital Management was appointed sub-adviser for the fund's international
investments. Prior to October 1998, another sub-adviser was responsible for
managing all fund assets. Thus, while past performance never guarantees future
results, information on the fund before October 1, 1998 will be even less
relevant.

[LOGO]

* Best quarter: %; Worst quarter: %. The fund's year to date total
return as of January 31, 1999 was %.

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Prospectus Page 5
<PAGE>

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PaineWebber Global Equity Fund

Average annual total returns after deducting the maximum sales charges for all
classes of the fund's shares are shown in this table and compared with the
performance of the Morgan Stanley Capital International World Index, a broad
measure of the performance of stocks traded in Europe, Australia, Asia, the
U.S., Canada and South Africa.

AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998

<TABLE>
<CAPTION>
MSCI
CLASS CLASS A CLASS B CLASS C CLASS Y WORLD
(INCEPTION DATE) (11/14/91) (8/25/95) (5/10/93) (5/10/93) INDEX
- ---------------- ---------- --------- --------- --------- -----
<S> <C> <C> <C> <C> <C>
ONE YEAR
After deducting maximum sales
charges.......................

FIVE YEARS
After deducting maximum sales
charges.......................

LIFE OF CLASS
After deducting maximum sales
charges.......................
</TABLE>

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Prospectus Page 6
<PAGE>

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PaineWebber Global Equity Fund

Expenses and Fee Tables

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

FEES AND EXPENSES: These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.

SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investments)

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on
Purchases
(as a % of offering price).................... 4.5% None None None
Maximum Contingent Deferred Sales Charge (Load)
(CDSC)
(as a % of offering price).................... None 5% 1% None
Exchange Fee................................... None None None None
</TABLE>

ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
Management Fees................................ 0.85% 0.85% 0.85% 0.85%
Distribution and/or Service (12b-1) Fees....... 0.25 1.00 1.00 None
Other Expenses................................. 0.XX 0.XX 0.XX 0.XX
---- ---- ---- ----
Total Annual Fund Operating Expenses........... 1.XX% 2.XX% 2.XX% 1.XX%
</TABLE>

EXAMPLE:

This example is intended to help you compare the cost of investing in
PaineWebber Global Equity Fund with the cost of investing in other mutual
funds.

This example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods unless
otherwise stated. The example also assumes that your investment has a 5% return
each year and that the fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs
would be:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A.......................................
Class B (assuming sales of all shares at end
of period)...................................
Class B (assuming no sales of shares).........
Class C (assuming sales of all shares at end
of period)...................................
Class C (assuming no sales of shares).........
Class Y.......................................
</TABLE>

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Prospectus Page 7
<PAGE>

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PaineWebber Global Income Fund

PaineWebber Global Income Fund

Investment Objectives and Strategies

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

FUND OBJECTIVE:

Primarily, high current income consistent with prudent investment risk;
secondarily, capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES:

The fund seeks to provide high current income, and secondarily capital
appreciation, by investing primarily in high-quality bonds of foreign and U.S.
issuers.

The high-quality bonds purchased by the fund are issued or guaranteed by the
U.S. government or by foreign governments of developed countries or are issued
by companies in the U.S. and those foreign countries.

Mitchell Hutchins is the fund's investment adviser. The Global Fixed Income
Team at Mitchell Hutchins focuses on the BOND MARKETS OF MAJOR DEVELOPED
COUNTRIES such as the U.S., the United Kingdom, Germany and Japan. The
portfolio maintains country allocations, foreign currency exposure, and
maturity characteristics that reflect Mitchell Hutchins' view of fundamental
global economics, currency trends and interest rate patterns. To a lesser
extent, the Team evaluates the attractiveness of lower quality bonds, including
securities of issuers in less developed, emerging markets. Some assets are
allocated to those bonds, taking into account the same fundamental and
technical factors as well as relative credit quality.

Information on the fund's recent investment strategies and holdings can be
found in the current annual/semiannual reports (see back cover for information
on ordering such reports).

----------
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Prospectus Page 8
<PAGE>

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-------------------
PaineWebber Global Income Fund

Risks

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

An investment in the fund is not guaranteed; investors may lose money by
investing in this fund.

. Fixed income securities risk: The fund invests primarily in high quality
bonds of foreign and U.S. issuers. Even high-quality bonds are subject to
interest rate risk and credit risk. Interest rate risk is the risk that
interest rates will rise and bond prices will fall, lowering the value of a
fund's investments in bonds. Credit risk is the risk that an issuer may be,
or may be perceived by the market to be unable or unwilling to pay interest
and/or principal on the bond.

. International investing risk: Investing in securities of international
issuers involves risks not typically associated with investments in the U.S.
These risks include, among others, adverse fluctuations in foreign currency
values as well as possible adverse foreign political, social and economic
developments. The fund invests in U.S. and foreign bonds. Owning
international securities could cause the fund's performance to fluctuate
more than if it held solely U.S. bonds. Investments in foreign countries
could be affected by factors not present in the U.S., including restrictions
on receiving the investment proceeds from a foreign country, foreign tax
laws, and potential difficulties in enforcing contractual obligations.
Transactions in foreign securities may be subject to less efficient
settlement practices, including extended clearance and settlement periods.

. Emerging markets risk: The fund invests a portion of its assets in
securities of issuers located in emerging markets. This involves greater
risk. These countries typically have economic and political systems that are
less fully developed, and can be expected to be less stable, than those of
more advanced countries. Emerging market countries may have policies that
restrict investment by foreigners, and there is a higher risk of a
government's taking private property. The possibility of low or nonexistent
trading volume in the securities of companies in emerging markets may also
result in a lack of liquidity and in price volatility. Issuers in emerging
markets typically are subject to a greater degree of change in earnings and
business prospects than are companies in developed markets.

. Sovereign investing risk: Investments in foreign government bonds involve
special risks because the fund may have limited legal recourse in the event
of default. Political conditions, especially a country's willingness to meet
the terms of its debt obligations, can be of considerable significance.

. Non-diversified status risk: The fund is "non-diversified." This means that
more than 5% but no more than 25% of the total assets of the fund may be
invested in securities of one issuer (including a foreign government). The
fund's portfolio at times may include the securities of a smaller number of
issuers than if it were "diversified." Where this is true, the fund will be
subject to more risk than a fund holding a broader range of securities,
since 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.

----------
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Prospectus Page 9
<PAGE>

- --------------------------------------------------------------------------------
------------------
PaineWebber Global Income Fund

Performance

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

RISK/RETURN BAR CHART AND TABLE:

The following bar chart shows how the fund performed from year to year. Sales
charges, which have not been deducted from the total returns for Class B
shares, would lower these returns if deducted. The table following the chart
indicates what the return would be if you averaged actual performance over
various lengths of time.

The fund's past performance does not indicate how the fund will perform in the
future.
[LOGO]

* Best quarter: %; Worst quarter: %. The fund's year-to-date total
return as of January 31, 1999 was %.

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

Prospectus Page 10
<PAGE>

- --------------------------------------------------------------------------------
-------------------
PaineWebber Global Income Fund

Average annual total returns for all classes of the fund's shares after
deducting the maximum sales charges are shown in this table and compared with
the performance of the Salomon Brothers World Government Bond Index, a broad
measure of fixed-rate bonds with a maturity of one year or longer.

AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998

<TABLE>
<CAPTION>
SALOMON
BROTHERS
WORLD
CLASS CLASS A CLASS B CLASS C CLASS Y GOVERNMENT
(INCEPTION DATE) (7/1/91) (3/20/87) (7/2/92) (8/26/91) BOND INDEX
- ---------------- -------- --------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
ONE YEAR
After deducting maximum sales
charges.....................

FIVE YEARS
After deducting maximum sales
charges.....................

TEN YEARS
After deducting maximum sales
charges.....................

LIFE OF CLASS
After deducting maximum sales
charges.....................
</TABLE>

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Prospectus Page 11
<PAGE>

- --------------------------------------------------------------------------------
-------------------
PaineWebber Global Income Fund

Expenses and Fee Tables

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

FEES AND EXPENSES: These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.

SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investments)

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on
Purchases
(as a % of offering price).................... 4.0% None None None
Maximum Contingent Deferred Sales Charge (Load)
(CDSC)
(as a % of offering price).................... None 5% 0.75% None
Exchange Fee................................... None None None None
</TABLE>

ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
Management Fees............................... [0.75% 0.75% 0.75% 0.75%]
Distribution and/or Service (12b-1) Fees...... 0.25 1.00 0.75 None
Other Expenses................................
----- ---- ---- ----
Total Annual Fund Operating Expenses..........
</TABLE>

EXAMPLE:

This example is intended to help you compare the cost of investing in
PaineWebber Global Income Fund with the cost of investing in other mutual
funds.

The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods unless
otherwise stated. The example also assumes that your investment has a 5% return
each year and that the fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs
would be:

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Prospectus Page 12
<PAGE>

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PaineWebber Asia Pacific Growth Fund

PaineWebber Asia Pacific Growth Fund

Investment Objective and Strategies

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

FUND OBJECTIVE:

Long-term capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES:

The fund seeks capital appreciation by investing PRIMARILY IN STOCKS OF
COMPANIES IN THE ASIA PACIFIC REGION, EXCEPT JAPAN.

The Asia Pacific Region, for purposes of this fund, excludes Japan, the largest
market in that area. Australia, China, Hong Kong, India, Indonesia, Malaysia,
New Zealand, Pakistan, the Philippines, Singapore, South Korea, Sri Lanka,
Taiwan and Thailand are included. The fund may also invest in other countries
in this region whose stock markets are or become sufficiently established.

Mitchell Hutchins, the fund's investment adviser, has appointed Schroder
Capital Management International Inc. as the fund's investment sub-adviser.
Schroder Capital allocates investments among Asia Pacific Region countries
based on its assessment of those countries' long-term business environments.
Within those countries, Schroder Capital selects stocks of companies that,
based on its analyses of fundamental corporate data, it believes have
sustainable competitive advantages and whose growth prospects are undervalued
by other investors. Schroder Capital also considers companies' management
capability, the ability of the company to tap capital markets, competitive
position in both domestic and export markets, government regulation, and other
factors.

Information on the fund's recent investment strategies and holdings can be
found in the current annual/semiannual reports (see back cover for information
on ordering such reports).

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Prospectus Page 13
<PAGE>

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PaineWebber Asia Pacific Growth Fund

Risks

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

An investment in the fund is not guaranteed; investors may lose money by
investing in this fund.

. Concentration risk: The fund invests primarily in companies in the Asia
Pacific Region (excluding Japan). This area generally consists of less
developed and less stable economies, stock markets and currencies than in
Europe or North America. These Asian Pacific economies are dependent on
exports outside their immediate region, and they are more subject to external
influences, such as U.S. and global economic events, than more developed
countries. Some countries are heavily dependent on international trade. Few
of the Asia Pacific Region countries have Western-style governments. Although
some countries have experienced rapid growth, many have less advanced
financial sectors and undeveloped legal systems. Political, economic, market
and other factors affecting these countries will likely affect the values of
the fund's investments more than if the fund were invested in more developed
countries or in a greater range of geographic regions.

. International investing risk: The fund's international securities involve
more risks than United States investments. Their value is subject to
economic, political, and social developments in the countries where the
companies operate (such as changes in monetary policies) and changes in
foreign currency values. Investments in foreign countries could be affected
by factors not present in the United States, including restrictions on
receiving the investment proceeds from a foreign country, foreign tax laws,
and potential difficulties in enforcing contractual obligations. Transactions
in foreign securities may be subject to less efficient settlement practices,
including extended clearance and settlement periods.

In general, less published information is available about foreign companies
than about U.S. companies. Foreign companies are generally not subject to the
same accounting, auditing and financial reporting standards as are U.S.
companies. Foreign stock markets may be less liquid and less regulated than
U.S. stock markets.

. Emerging markets risk: The risks of foreign investing increase when investing
in emerging markets, including those in the Asia Pacific Region. These
countries typically have economic and political systems that are less fully
developed, and can be expected to be less stable, than those of more
developed countries. Emerging market countries may have policies that
restrict investment by foreigners, and there is a higher risk of a
government's taking private property. The possibility of low or nonexistent
trading volume in emerging markets securities may also result in a lack of
liquidity and in price volatility. Issuers in emerging markets typically are
subject to a greater degree of change in earnings and business prospects than
are companies in developed markets.

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

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-------------------
PaineWebber Asia Pacific Growth Fund

Performance

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

RISK/RETURN BAR CHARTS AND TABLES:

The fund's past performance does not indicate how the fund will perform in the
future.

[LOGO]

* Best quarter: %; Worst quarter: %. The fund's year-to-date total
return as of January 31, 1999 was %.

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

- --------------------------------------------------------------------------------
-------------------
PaineWebber Asia Pacific Growth Fund

Average annual total returns for all classes of the fund's shares after
deducting the maximum sales charges are shown in this table and compared with
the performance of the MSCI Asia Pacific Free (ex-Japan) Index, a broad measure
of equity market performance in the markets in which the fund invests.

AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998

<TABLE>
<CAPTION>
MSCI
ASIA PACIFIC
FREE FUND
CLASS CLASS A CLASS B CLASS C CLASS Y (EX-JAPAN)
(INCEPTION DATE) (3/25/97) (3/25/97) (3/25/97) (3/13/98) INDEX
- ---------------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
ONE YEAR
After deducting maximum
sales charges...........

LIFE OF CLASS
After deducting maximum
sales charges...........
</TABLE>

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

Prospectus Page 16
<PAGE>

- --------------------------------------------------------------------------------
-------------------
PaineWebber Asia Pacific Growth Fund

Expenses and Fee Tables

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

FEES AND EXPENSES: These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.

SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investments)

ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
Management Fees................................ 1.20% 1.20% 1.20% 1.20%
Distribution and/or Service (12b-1) Fees....... 0.25 1.00 1.00 None
Other Expenses.................................
---- ---- ---- ----
Total Annual Fund Operating Expenses...........
</TABLE>

EXAMPLE:

The following example is intended to help you compare the cost of investing in
PaineWebber Asia Pacific Growth Fund with the cost of investing in other mutual
funds.

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

Prospectus Page 17
<PAGE>

- --------------------------------------------------------------------------------
-------------------
PaineWebber Emerging Markets Equity Fund

PaineWebber Emerging Markets Equity Fund

Investment Objective and Strategies

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

FUND OBJECTIVE:

Long-term capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES:

The fund seeks long-term capital appreciation by investing primarily in STOCKS
OF COMPANIES IN NEWLY INDUSTRIALIZING COUNTRIES. The fund can also buy bonds of
companies or foreign governments.

"Emerging markets" are the markets in all the countries not included in the
Morgan Stanley Capital International ("MSCI") World Index, an index of major
world economies. Malaysia also is considered an emerging market.

Mitchell Hutchins, the fund's investment adviser, has appointed Schroder
Capital Management International Inc. as the fund's investment sub-adviser. The
fund maintains a diversified portfolio consisting primarily of stocks of
issuers in emerging markets. Within each emerging market, the fund is
diversified through investments in a number of local companies characterized by
attractive valuation relative to expected growth.

Schroder Capital focuses on stocks in emerging market countries where it
expects favorable long-term business environments and where it believes a
company's growth is less likely to be impeded by adverse macro-economic or
political factors. Within those countries, Schroder Capital selects stocks of
companies that, based on its analyses of fundamental corporate data, it
believes have sustainable competitive advantages and whose growth prospects are
undervalued by other investors.

Information on the fund's recent investment strategies and holdings can be
found in the current annual/semiannual reports (see back cover for information
on ordering such reports).

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

Prospectus Page 18
<PAGE>

- -------------------------------------------------------------------------------
-------------------
PaineWebber Emerging Markets Equity Fund

Risks

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

An investment in the fund is not guaranteed; investors may lose money by
investing in this fund.

. Stock market risk: The fund invests primarily in stocks of companies in
newly industrializing countries. Stocks of such companies are more volatile
than those of companies in more developed markets. Consequently, it is
possible that the fund may experience a substantial or complete loss on an
individual stock. However, the fund invests in many companies in an effort
to reduce this risk, and restricts how much it can invest in any one stock.

. International investing risk: Investing in international securities involves
more risks than investing in the United States. Their value is subject to
economic and political developments in the countries where the companies
operate, such as changes in foreign economic or monetary policies, as well
as changes in foreign currency values. Investments in foreign countries
could be affected by factors not present in the United States, including
restrictions on receiving the investment proceeds from a foreign country,
foreign tax laws, and potential difficulties in enforcing contractual
obligations. Transactions in foreign securities are subject to less
efficient settlement practices, including extended clearance and settlement
periods.

. Emerging markets risk: The fund invests in securities issued by companies
located in emerging markets. This involves greater risks. These countries
typically have economic and political systems that are relatively less fully
developed, and can be expected to be less stable, than those of more
advanced countries. Emerging market countries may have policies that
restrict investment by foreigners, and there is a higher risk of a
government's taking private property. The possibility of low or nonexistent
trading volume in the securities of companies in emerging markets may also
result in a lack of liquidity and in price volatility. Issuers in emerging
markets typically are subject to a greater degree of change in earnings and
business prospects than are companies in developed markets.

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Prospectus Page 19
<PAGE>

- --------------------------------------------------------------------------------
-------------------
PaineWebber Emerging Markets Equity Fund

Performance

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

RISK/RETURN BAR CHARTS AND TABLES:

The following bar chart shows how the fund performed from year to year. Sales
charges, which have not been deducted from the total returns for Class A
shares, would lower these returns if deducted. The table following the chart
indicates what the return would be if you averaged actual performance over
various lengths of time.

The fund's past performance does not indicate how the fund will perform in the
future.

On February 25, 1997, Mitchell Hutchins appointed Schroder Capital as sub-
adviser for Emerging Markets Equity Fund; prior to that date, another sub-
adviser managed the portfolio. Thus, while past performance is never a
guarantee of future results, information for periods prior to that date may be
less relevant.

[LOGO]

* Best quarter: %; Worst quarter: %. The fund's year-to-date total
return as of January 31, 1999 was %.

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Prospectus Page 20
<PAGE>

- --------------------------------------------------------------------------------
-------------------
PaineWebber Emerging Markets Equity Fund

Average annual total returns after deducting the maximum sales charges for all
classes of the fund's shares are shown in this table and compared with the
performance of the MSCI Emerging Markets Free Index, a broad measure of
emerging markets equity performance.

AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998

<TABLE>
<CAPTION>
MSCI
EMERGING
CLASS CLASS A CLASS B CLASS C CLASS Y MARKETS
(INCEPTION DATE) (1/19/94) (12/5/95) (1/19/94) (1/19/94) FREE INDEX
- ---------------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
ONE YEAR
After deducting maximum
sales charges.............

LIFE OF CLASS
After deducting maximum
sales charges.............
</TABLE>

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

Prospectus Page 21
<PAGE>

- --------------------------------------------------------------------------------
-------------------
PaineWebber Emerging Markets Equity Fund

Expenses and Fee Tables

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

FEES AND EXPENSES: These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.

SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investments)

ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
Management Fees................................ 1.20% 1.20% 1.20% 1.20%
Distribution and/or Service(12b-1) Fees........ 0.25 1.00 1.00 None
Other Expenses.................................
---- ---- ---- ----
Total Annual Fund Operating Expenses...........
</TABLE>

EXAMPLE:

The following example is intended to help you compare the cost of investing in
PaineWebber Emerging Markets Equity Fund with the cost of investing in other
mutual funds.

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Prospectus Page 22
<PAGE>

Additional Principal Investment Strategies and Risks

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

THE FOLLOWING INFORMATION APPLIES TO ALL OF THE FUNDS:

DEFENSIVE POSITIONS; CASH RESERVES. When Mitchell Hutchins or the applicable
sub-adviser believes that unusual circumstances warrant a defensive posture,
the funds may temporarily commit all or a portion of assets to cash or
investment grade money market instruments of U.S. or foreign issuers, including
repurchase agreements. By taking a defensive position, a fund might not achieve
its investment objective because the adviser or sub-adviser is retrenching in
an attempt to protect the fund. Each of the funds may invest up to 35% of its
total assets in cash or investment grade money market instruments for liquidity
purposes, pending investment in other securities, to reinvest cash collateral
from securities lending or, in the case of Global Income Fund, as part of its
ordinary investment activities. Global Income Fund's investment of cash
collateral from securities lending in such money market instruments is not
subject to this 35% limitation.

PORTFOLIO TURNOVER. The funds' portfolio turnover rates may vary greatly from
year to year and will not be a limiting factor when Mitchell Hutchins or a sub-
adviser deems portfolio changes appropriate. A higher turnover rate (100% or
more) for each fund will involve correspondingly greater transaction costs
which will be borne directly by a fund, and may increase the potential for more
taxable dividends and distributions being paid to shareholders.

DERIVATIVES. Some of the instruments in which the funds may invest may be
referred to as "derivatives," because their value "derives" from the value of
an underlying asset, reference rate or index. These instruments include
options, futures contracts, forward currency contracts, swap agreements and
similar instruments. There is limited consensus as to what constitutes a
"derivative" security. However, in Mitchell Hutchins' view, derivative
securities also include specially structured types of mortgage- and asset-
backed securities and dollar denominated securities whose value is linked to
foreign currencies. The market value of derivative instruments and securities
sometimes is more volatile than that of other investments, and each type of
derivative instrument may have its own special risks. Mitchell Hutchins and the
sub-advisers take these risks into account in their management of the funds.

Each fund may use certain instruments and strategies designed to adjust the
overall risk of its investment portfolio ("hedge") or, in the case of Global
Income Fund, to enhance income or realize gains. Mitchell Hutchins also may use
futures contracts to adjust Global Equity Fund's exposure to U.S. and foreign
stock markets in connection with a reallocation of that fund's assets. Use of
derivative instruments solely to enhance income or realize gains may be
considered a form of speculation. The funds might not use any derivative
instruments or strategies, and there can be no assurance that using any
strategy will succeed. In some countries there may not be a market for
derivative instruments, or it may be too small to permit effective hedging.

YEAR 2000 RISKS AND EURO ISSUES. The funds could be adversely affected by
problems relating to the inability of computer systems used by Mitchell
Hutchins and the funds' other service providers to recognize the year 2000.
While year 2000-related computer problems could have a negative effect on the
funds, Mitchell Hutchins is working to avoid these problems with respect to its
own computer systems and to obtain assurances from service providers that they
are taking similar steps.

Similarly, the companies in which the funds invest and trading systems used by
the funds could be adversely affected by this issue. The ability of a company
or trading system to respond successfully to the issue requires both
technological sophistication and diligence, and there can be no assurance that
any steps taken will be sufficient to avoid an adverse impact on the funds.

The funds could also be adversely affected by the conversion of European
currencies into the Euro beginning January 1, 1999. This conversion will not be
complete until 2002 and its full implementation may be delayed. Difficulties
with the conversion and potential delays may significantly impact European
capital markets and could increase volatility in world capital markets.

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Prospectus Page 23
<PAGE>

Your Investment

Managing Your Fund Account

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

FLEXIBLE PRICING

The funds offer four classes of shares with different sales charges and ongoing
expenses--Class A, Class B, Class C and Class Y. You can choose the class that
is best for you, based upon how much you plan to invest in the funds and how
long you plan to hold your fund investment. Class Y shares require a $10
million dollar investment.

CLASS A SHARES

Class A shares have a front-end load sales charge, which is added to the fund's
net asset value (NAV) at the time of purchase. The amount of that sales charge
is not invested in the funds. Class A shares pay an annual 12b-1 service fee of
0.25% of average net assets. The ongoing expenses of this class are lower than
those of Class B and Class C shares.

THE CLASS A SALES CHARGE FOR PAINEWEBBER GLOBAL EQUITY FUND, PAINEWEBBER ASIA
PACIFIC GROWTH FUND AND EMERGING MARKETS EQUITY FUND IS AS FOLLOWS:

<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF: DISCOUNT TO SELECTED DEALERS AS
AMOUNT OF INVESTMENT OFFERING PRICE NET AMOUNT INVESTED PERCENTAGE OF OFFERING PRICE
- -------------------- -------------- ------------------- -------------------------------
<S> <C> <C> <C>
Less than $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(2)
</TABLE>
- -------
(1) A contingent deferred sales charge of 1% of the shares' offering price or
the net asset value at the time of sale by the shareholder, whichever is
less, is charged on sales of shares made within one year of the purchase
date. Class A shares representing reinvestment of any dividends or other
distributions are not subject to the 1% charge. Withdrawals under the
Systematic Withdrawal Plan are not subject to this charge. However,
investors may withdraw annually no more than 12% of the value of the fund
account under the Plan in the first year after purchase.
(2) Mitchell Hutchins pays 1% to PaineWebber.

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

Prospectus Page 24
<PAGE>

THE CLASS A SALES CHARGE FOR PAINEWEBBER GLOBAL INCOME FUND IS AS FOLLOWS:

<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF:
---------------------------------- DISCOUNT TO SELECTED DEALERS AS
AMOUNT OF INVESTMENT OFFERING PRICE NET AMOUNT INVESTED PERCENTAGE OF OFFERING PRICE
- -------------------- -------------- ------------------- -------------------------------
<S> <C> <C> <C>
Less than $100,000...... 4.00% 4.17% 3.75%
$100,000 to $249,999.... 3.00 3.09 2.75
$250,000 to $499,999.... 2.25 2.30 2.00
$500,000 to $999,999.... 1.75 1.78 1.50
$1,000,000 and over(1).. None None 1.00(2)
</TABLE>
- -------
(1) A contingent deferred sales charge of 1% of the shares' offering price or
the net asset value at the time of sale by the shareholder, whichever is
less, is charged on sales of shares made within one year of the purchase
date. Class A shares representing reinvestment of any dividends or other
distributions are not subject to the 1% charge. Withdrawals under the
Systematic Withdrawal Plan are not subject to this charge. However,
investors may withdraw annually no more than 12% of the value of the fund
account under the Plan in the first year after purchase.
(2) Mitchell Hutchins pays 1% to PaineWebber.

Sales Charge Reductions and Waivers. You may qualify for a lower sales charge
if you already own Class A shares of a PaineWebber mutual fund. You can combine
the value of Class A shares that you own in the other PaineWebber funds and the
purchase amount of the Class A shares of the PaineWebber funds that you are
buying.

Investors may also qualify for a lower sales charge when they combine their
purchases with those of:

. their spouses, parents or children under age 21;

. their Individual Retirement Accounts (IRAs);

. certain employee benefit plans, including 401(k) plans;

. any company controlled by the investor;

. trusts created by the investor;

. Uniform Gifts to Minors Act/Uniform Transfer to Minors Act accounts created
by the investor or group of investors' children; or

. accounts with the same adviser.

You may qualify for a complete waiver of the sales charge if you:

. Are an employee of PaineWebber or its affiliates or the spouse, parent or
child under age 21 of a PaineWebber employee;

. Buy these shares through a PaineWebber investment executive who was formerly
employed as an investment executive with a competing brokerage firm that was
registered as a broker-dealer with the SEC; and

. were the investment executive's client at the competing brokerage firm;

. within 90 days of buying shares in a fund, you sell shares of one or more
mutual funds that (a) were principally underwritten by the competing
brokerage firm or its affiliates and (b) either paid a sales charge to buy
those shares, paid a contingent deferred sales charge when selling them or
held those shares until the contingent deferred sales charge was waived;
and

. purchase an amount that does not exceed the total amount of money you
received from the sale of the other mutual fund;

. Own PaineWebber unit investment trusts and elect to have dividends and other
distributions on those units reinvested in fund shares;

. Are an employer establishing certain types of qualified employee benefit
plans and have 50 or more eligible employees in the plan or the plan has at
least $1 million in assets;

. Are a participant in the PaineWebber Members Only Program(TM). For
investments made pursuant to this waiver, Mitchell Hutchins may make payments
out of its own resources to PaineWebber and to participating membership
organizations in a total amount not to exceed 1% of the amount invested;

. Are a variable annuity offered only to qualified plans. For investments made
pursuant to this waiver, Mitchell Hutchins may make payments out of its own
resources to PaineWebber and to the variable

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Prospectus Page 25
<PAGE>

annuity's sponsor, adviser or distributor in a total amount not to exceed l%
of the amount invested;

. Acquire shares through an investment program that is not sponsored by
PaineWebber or its affiliates and that charges participants a fee for program
services, provided that the program sponsor has entered into a written
agreement with PaineWebber permitting the sale of shares at net asset value
to that program. For investments made pursuant to this waiver, Mitchell
Hutchins may make a payment to PaineWebber out of its own resources in an
amount not to exceed 1% of the amount invested. For subsequent investments or
exchanges made to implement a rebalancing feature of such an investment
program, the minimum subsequent investment requirement is also waived;

. Acquire shares in connection with a reorganization pursuant to which a fund
acquires substantially all of the assets and liabilities of another
investment company in exchange solely for shares of the fund; or

. Acquire shares in connection with the disposition of proceeds from the sale
of shares of Managed High Yield Plus Fund Inc. that were acquired during that
fund's initial public offering of shares and that meet certain other
conditions described in its prospectus.

Note: If you think you qualify for any of these sales charge reductions or
waivers, you will need to provide documentation to PaineWebber or the fund. For
more information, you should contact your PaineWebber investment executive or
correspondent firm or call 1-800-647-1568.

CLASS B SHARES

Class B shares have a contingent deferred sales charge. When you purchase Class
B shares, we invest 100% of your purchase in fund shares. However, you may have
to pay a sales charge when you sell your fund shares, depending on how long you
own the shares.

Class B shares pay an annual 12b-1 service fee of 0.25% of average net assets
and an annual 12b-1 distribution fee of 0.75% of average net assets. Over time,
these fees will increase the cost of your investment and may cost you more than
if you paid a front-end sales charge. If you hold your Class B shares for six
years, they will automatically convert to Class A shares, which have lower
ongoing expenses.

If you sell Class B shares before the end of six years, you will pay a deferred
sales charge. We calculate the deferred sales charge by multiplying the LESSER
of the net asset value at the time of purchase or the net asset value at the
time of sale by the percentage shown below:

<TABLE>
<CAPTION>
PERCENTAGE BY WHICH
IF YOU SELL THE SHARES' NET ASSET
SHARES WITHIN: VALUE IS MULTIPLIED:
- -------------- ---------------------
<S> <C>
1st year since purchase................................... 5%
2nd year since purchase................................... 4
3rd year since purchase................................... 3
4th year since purchase................................... 2
5th year since purchase................................... 2
6th year since purchase................................... 1
7th year since purchase................................... None
</TABLE>

To minimize the deferred sales charge, we will assume that you are selling

. First, Class B shares representing reinvested dividends and capital gains
distributions, and

. Second, Class B shares that you have owned the longest.

Sales Charge Waivers. You may qualify for a waiver of the deferred sales charge
on a sale of shares if:

. You participate in the Systematic Withdrawal Plan;

. You are older than 59 1/2 and are selling shares held in certain types of
retirement plans;

. You receive a tax-free return of an excess IRA contribution;

. You receive a tax-qualified retirement plan distribution following
retirement; or

. The shares are sold within one year of the death of the investor and the
investor owned the shares either (1) as the sole shareholder or (2) with his
or her spouse as a joint tenant with the right of survivorship.

Note: If you think you qualify for any of these sales charge waivers, you will
need to provide documentation to PaineWebber or the fund. For more information,
you should contact your PaineWebber investment executive or correspondent firm
or call 1-800- . If you want more information on the Systematic
Withdrawal Plan, you should contact your PaineWebber investment executive or
correspondent firm or call 1-800- .

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Prospectus Page 26
<PAGE>

CLASS C SHARES

Class C shares have a level load sales charge. When you purchase Class C
shares, we invest 100% of your purchase in fund shares. However, you may have
to pay a deferred sales charge if you sell your shares within one year of the
date you purchased them.

Class C shares pay an ongoing 12b-1 service fee of 0.25% of average net assets
and an ongoing 12b-1 distribution fee of 0.75% (0.50% for Global Income Fund)
of average net assets. Over time these fees will increase the cost of your
investment and may cost you more than if you paid a front-end sales charge.
Class C shares don't convert to another class of shares, which means that you
will pay the 12b-1 fees for as long as you own your shares.

We calculate the deferred sales charge on sales of Class C shares at the LESSER
of 1% (0.75% for Global Income Fund) of the shares' net asset value at the time
of purchase or net asset value at the time of sale. We will not impose the
deferred sales charge on shares representing reinvestment of dividends or
capital gains distributions or on sales under the Systematic Withdrawal Plan.

Note: If you want more information on the Systematic Withdrawal Plan, you
should contact your PaineWebber investment executive or correspondent firm or
call 1-800- .

CLASS Y SHARES

Class Y shares have a no load sales charge. Only specific types of investors
can purchase Class Y shares. You may be eligible to purchase Class Y shares if
you:

. Buy shares through PaineWebber's PACE Multi-Advisor Program;

. Buy $10 million or more of PaineWebber fund shares at any one time;

. Are a qualified retirement plan with 5,000 or more eligible employees or $50
million in assets; or

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

The only other eligible purchaser of Class Y shares is the trustee of
PaineWebber's 401(k) Plus Plan for its employees.

Class Y shares do not pay ongoing sales or distribution fees or sales charges.
The ongoing expenses for Class Y shares are the lowest for all the classes.

BUYING SHARES

PaineWebber clients may purchase shares through PaineWebber investment
executives. Investors who are not PaineWebber clients may invest in the funds
through the transfer agent, PFPC Inc., by completing and signing an account
application. The application may be obtained by calling 1-800-647-1568. The
completed application and check must be mailed to PFPC Inc., Attn: PaineWebber
Mutual Funds, P.O. Box 8950, Wilmington, DE 19899.

PaineWebber mutual fund investors wishing to invest in other PaineWebber Funds
may do so by:

. By contacting their investment executive, if they have an account at
PaineWebber or a PaineWebber correspondent firm.

. Mailing an application with a check; or

. Opening an account by exchanging shares from another PaineWebber fund.

You do not have to complete an application when you make additional investments
in the same fund.

The funds and Mitchell Hutchins reserve the right to reject a purchase order or
suspend the offering of shares.

<TABLE>
<CAPTION>
MINIMUM INVESTMENTS:
- --------------------
<S> <C>
To open an account....................................................... $1,000
To add to an account..................................................... $ 100
</TABLE>

Each fund may waive or reduce these amounts for:

. Employees of PaineWebber or its affiliates; or

. Participants in certain pension plans, retirement accounts, unaffiliated
investment programs or the funds' automatic investment plans.

SELLING SHARES

Investors may sell their fund shares at any time. Your shares will be sold at
the net asset value for each class next determined after your order is accepted
by the fund's transfer agent, subject to contingent deferred sales charges.

Investors who own more than one class of shares should specify which class they
wish to sell. If they do not, the fund will assume the investor wishes to sell
shares in the following order: Class A, then Class C, then Class B and last,
Class Y.

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Prospectus Page 27
<PAGE>

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

Investors who have an account with PaineWebber or a PaineWebber correspondent
firm may sell shares by contacting their investment executive.

Investors who do not have an account at PaineWebber or a correspondent firm and
who bought their shares through the transfer agent may sell shares by writing a
"letter of instruction."

The letter of instruction must include:

. the investor's name and address;

. the fund's name;

. the fund account number;

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

. a guarantee of each registered owner's signature. A signature guarantee may
be obtained from a domestic bank or trust company, broker, dealer, clearing
agency or savings association which is a participant in a medallion program
recognized by the Securities Transfer Agents Association. The three
recognized medallion programs are Securities Transfer Agents Medallion
Program (STAMP), Stock Exchanges Medallion Program (SEMP) and the New York
Stock Exchange Medallion Signature Program (MSP). Signature guarantees which
are not a part of these programs will not be accepted.

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

Shareholders who sell Class A shares may purchase Class A shares of the same
fund again to reinstate their account, with no sales charge, if they repurchase
the shares within 365 days after the sale.

AUTOMATIC REDEMPTION OF SMALL ACCOUNTS

Each fund incurs fixed costs in maintaining shareholder accounts. The funds,
therefore, reserve the right to repurchase all shares in any account with a net
asset value of less than $500.

If a fund elects to do so, it will notify the shareholder of the opportunity to
increase the amount invested to $500 or more within 60 days of the notice. A
fund will not purchase back accounts that fall below $500 solely due to a
reduction in net asset value per share. The funds' shares cannot be redeemed if
net asset value falls below the minimum due to market action.

EXCHANGING SHARES

You may exchange Class A, Class B or Class C shares of each fund for shares of
the same class of another PaineWebber Fund. (You may not exchange Class Y
shares.)

PaineWebber funds do not charge a front-end sales charge or deferred sales
charge when you exchange shares, but you may have to pay a deferred sales
charge if you later sell the shares you acquired in the exchange. Each fund
will use the date that you first purchased PaineWebber funds to determine
whether you owe a deferred sales charge when you sell the shares.

Other PaineWebber funds may have different minimum investment amounts, and you
may not be able to exchange your shares if your exchange is not as large as the
minimum investment amount in that other fund.

You may exchange shares of one fund for shares of another fund only after the
first fund purchase has settled and the first fund has received your payment.

PaineWebber Clients. If you bought your shares through PaineWebber or a
correspondent firm, you may exchange your shares by placing an order with your
PaineWebber investment executive. You may place an order in person, by mail, by
telephone or by wire. PaineWebber investment executives and correspondent firms
are responsible for promptly sending investors' purchase orders to
PaineWebber's New York City headquarters.

Other Investors: If you are not a PaineWebber client, you may exchange your
shares by writing to the fund's transfer agent. You must include the following
information in the letter:

Your name and address,

The name of the fund whose shares you are selling and the name of the fund
whose shares you want to buy,

Your account number,

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Prospectus Page 28
<PAGE>

How much you are exchanging (by dollar amount or by number of shares to be
sold), and

A guarantee of your signature. You may get guarantee of your signature from a
domestic bank or trust company, a broker, a dealer, a clearing agency or a
savings association which is a participant in a medallion program recognized by
the Securities Transfer Agents Association. The three recognized medallion
programs are Securities Transfer Agents Medallion Program (STAMP), Stock
Exchanges Medallion Programs (SEMP) and New York Stock Exchange Medallion
Signature Program (MSP). The funds will not accept signature guarantees which
are not a part of these programs.

Mail the letter requesting the exchange to PFPC Inc., Attn: PaineWebber Mutual
Funds, P.O. Box 8950, Wilmington, DE 19899.

The fund may modify or terminate the exchange privilege at any time.

VALUATION AND PRICING

The price of each fund share is based on its net asset value per share. Net
asset value is calculated once on each day that the New York Stock Exchange is
open, at the close of trading on the exchange (generally, 4:00 p.m. Eastern
time). The exchange is not normally open, and the funds do not price their
shares, on national holidays and on Good Friday. If trading on the NYSE is
halted for the day before 4:00 p.m., Eastern time, and trading on the NYSE will
not resume again that day, the fund's net asset value per share will be
calculated at the time trading was halted.

Your order to buy or sell shares will be based on the net asset value that is
next calculated after your order is accepted by the fund. You should keep in
mind that a front-end sales charge may be applied to your purchase if you buy
Class A shares. A deferred sales charge may be applied when you sell or redeem
Class B or Class C shares. If you place your order through PaineWebber, your
PaineWebber investment executive is responsible for making sure that your order
is sent promptly to PaineWebber's New York City headquarters.

The funds calculate net asset values separately for each class of shares. Each
fund calculates its net asset value based on the current market value for its
portfolio securities. If a market value is not available for a particular
portfolio security, that security is valued at a fair value determined by or
under the direction of the fund'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 determines that this does not represent
fair value. The funds translate the values of their investments that are
denominated in foreign currencies into U.S. dollars daily based on the current
exchange rates. It should be recognized that judgment plays a greater role in
valuing thinly traded securities and lower-rated bonds in which a fund may
invest, because there is less reliable objective data available.

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

Management

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

INVESTMENT ADVISERS. Mitchell Hutchins Asset Management Inc. is the investment
adviser and administrator of the funds. Mitchell Hutchins is located at 1285
Avenue of the Americas, New York, New York, 10019, and is a wholly owned asset
management subsidiary of PaineWebber Incorporated, which is wholly owned by
Paine Webber Group Inc., a publicly owned financial services holding company.
Mitchell Hutchins managed more than $ billion in mutual fund, institutional
and pension plan assets as of December 31, 1998.

Invista Capital Management, Inc. is the sub-adviser for Global Equity Fund's
foreign investments. It is located at 1800 Hub Tower, 699 Walnut, Des Moines,
Iowa 50309. Invista, which was founded in 1984, is a wholly owned indirect
subsidiary of Principal Life Insurance Company and manages substantially all of
Principal Life Insurance Company's equity accounts in addition to providing
investment advice to other affiliated and non-affiliated customers. As of
December 31, 1998, Invista managed approximately $ billion in client assets.

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Prospectus Page 29
<PAGE>

Schroder Capital Management International Inc. is the sub-adviser to Asia
Pacific Growth Fund and Emerging Markets Equity Fund. Schroder Capital is
located at 1301 Avenue of the Americas, New York, New York 10019. Schroder
Capital is a wholly owned indirect subsidiary of Schroders plc, which is listed
on the London Stock Exchange and is the holding company parent of a large
worldwide group of banks and financial services companies, with associated
companies, branch and representative offices located in 23 countries worldwide.
As of December 31, 1998, the investment management subsidiaries of the Schroder
Group had approximately $ billion in client assets under management.
Schroder Capital, together with its United Kingdom affiliate Schroder Capital
Management International Limited, had over $ billion under management as of
that date.

GLOBAL EQUITY FUND. Mitchell Hutchins, the fund's investment adviser, is
responsible both for allocating the fund's assets between U.S. and foreign
markets and for managing the U.S. investments. T. Kirkham Barneby is
responsible for the asset allocation decisions for the fund. Mr. Barneby is a
managing director and chief investment officer--quantitative investments of
Mitchell Hutchins. Mr. Barneby rejoined Mitchell Hutchins in 1994, after being
with Vantage Global Management for one year. During the eight years that Mr.
Barneby was previously with Mitchell Hutchins, he was a senior vice president
responsible for quantitative management and asset allocation models. Mr.
Barneby assumed his fund responsibilities on October 1, 1998.

Mark A. Tincher is primarily responsible for the day-to-day management of the
fund's U.S. investments. Mr. Tincher is a managing director and chief
investment officer of equities of Mitchell Hutchins, responsible for overseeing
the management of stocks. Prior to joining Mitchell Hutchins in March 1995, Mr.
Tincher worked for Chase Manhattan Private Bank, where he was vice president
and directed the U.S. funds management and equity research area. At Chase since
1988, Mr. Tincher oversaw the management of all Chase equity funds (the Vista
Funds and Trust Investment Funds). Mr. Tincher assumed his fund
responsibilities on October 1, 1998.

Invista Capital is the fund's sub-adviser and manages the fund's foreign
investments. Scott D. Opsal is primarily responsible for the day-to-day
management of the fund's foreign investments. Mr. Opsal has served as executive
vice president and chief investment officer of Invista since 1997. Previously,
he served as a vice president of Invista from 1986 to 1997. Mr. Opsal assumed
his fund responsibilities on October 1, 1998.

GLOBAL INCOME FUND. Mitchell Hutchins is responsible for the day-to-day
management of the fund's investments. Stuart Waugh and William King are
primarily responsible for the day-to-day portfolio management of the fund. Mr.
Waugh has been involved with the fund since its inception, first as an analyst
and then as portfolio manager since 1993. Mr. Waugh is a managing director of
Mitchell Hutchins responsible for global fixed income investments and currency
trading. Mr. Waugh has been with Mitchell Hutchins since 1983. Mr. King joined
Mitchell Hutchins in November 1995 and assumed his present responsibilities
with respect to the fund in 1997. Previously, he was at IBM Corporation, where
he was responsible for the management of IBM Pension Fund's global bond
portfolio. Both Mr. Waugh and Mr. King are Chartered Financial Analysts.

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

ASIA PACIFIC GROWTH FUND. Schroder Capital is the fund's sub-adviser. Since its
founding in 1980, Schroder Capital has developed an expertise in Asia Pacific
Region Investments. Louise Croset and Heather Crighton, with the assistance of
Schroder Capital's Asia Pacific Region investment committee, are primarily
responsible for the day-to-day management of the fund. Mesdames Croset and
Crighton have served in this capacity since the fund's inception. Ms. Croset, a
first vice president and director of Schroder Capital, has been with the firm
since 1993. Previously, she was a Vice President of Wellington Management Co.
Ms. Croset has managed Asia Pacific Region stocks for the past 14 years. Ms.
Crighton, a first vice president of Schroder Capital, has also been with the
firm since 1993. Previously, she was fund manager at Mercantile & General
Reinsurance Co. She has managed Asia Pacific Region stocks for the past ten
years.

EMERGING MARKETS EQUITY FUND. Schroder Capital is the fund's sub-adviser.
Schroder Group companies have invested internationally for over 50 years.
Schroder Capital has developed an expertise in

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

Prospectus Page 30
<PAGE>

emerging markets investments and has over 50 investment professionals located
in 13 offices in emerging market countries around the world. John A. Troiano,
Ms. Crighton and Mark Bridgeman, with the assistance of an emerging markets
investment committee, have been primarily responsible for the day-to-day
management of the fund since Schroder Capital was appointed sub-adviser on
February 25, 1997. Mr. Troiano has been chief executive of Schroder Capital
since July 1997, and has been employed by various Schroder Group companies in
the portfolio management area since 1988. He is currently chairman of Schroder
Capital's emerging markets investment committee. Mr. Bridgeman has been a vice
president and international fund manager of Schroder Capital since 1995. After
joining Schroders in 1990, he worked in the Schroders U.K. Research Department
as an Investment Analyst and then from 1992 until 1995 served in Schroders
Australia as an Industrial Analyst and Fund Manager.

The funds paid advisory fees to Mitchell Hutchins for the most recent fiscal
year at the following rate of average daily net assets:

<TABLE>
<S> <C>
Global Equity Fund.......................................................... %
Global Income Fund.......................................................... %
Asia Pacific Growth Fund.................................................... %
Emerging Market Equity Fund................................................. %
</TABLE>

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

Dividends and Taxes

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

DIVIDENDS

GLOBAL EQUITY FUND, ASIA PACIFIC GROWTH FUND AND EMERGING MARKETS EQUITY FUND
each normally pays any dividends once a year. The funds' distributions may
consist of ordinary income, capital gain and realized gains from foreign
currency transactions, if any.

GLOBAL INCOME FUND normally pays monthly dividends from investment income. This
monthly payment may include short-term capital gain and foreign currency gains.

EACH FUND annually distributes substantially all of its net capital gain (the
excess of net long-term capital gain over net short-term capital loss), if any.

Each fund may make additional distributions to avoid a potential 4% excise tax
on certain undistributed income and capital gain.

Dividends paid on Class A, B and C shares are expected to be less than
dividends on Class Y shares because of higher expenses on Class A, B and C
shares.

Dividends and other distributions will be paid in additional shares of the same
class (or in cash if you elect that option).

Contact your investment executive at PaineWebber or one of its corresponding
firms if you prefer to receive dividends or distributions in cash.

TAXES

Shareholders generally may treat each fund's dividends as ordinary income and
its capital gain distributions as long-term capital gains. You may pay federal
income taxes on a fund's distributions. The rate you pay on capital gains
distributions will depend on how long the fund held the securities that
generated the gains. Different tax rates apply to different types of capital
gain distributions, as shown below. The government may change these rates at
any time, but the rates below were believed accurate when this prospectus was
printed. Each fund will tell its shareholders how its capital gain
distributions should be treated.

Shareholders who are not subject to tax on their income (for example, shares
held through an IRA or 401(k) Plan) are generally not subject to tax on
distributions from these funds.

-----------
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Prospectus Page 31
<PAGE>

TAXABILITY OF DISTRIBUTIONS

<TABLE>
<CAPTION>
TAX RATE FOR TAX RATE FOR 28%
TYPE OF DISTRIBUTION 15% BRACKET BRACKET OR ABOVE
- -------------------- ------------ ----------------
<S> <C> <C>
Income Dividends Ordinary Income Rate Ordinary Income Rate
Short-Term Capital Gain Ordinary Income Rate Ordinary Income Rate
Long-Term Capital Gain (securities
held by the funds more than
12 months) 10% 20%
</TABLE>
Note: When you sell fund shares, you generally will be subject to federal
income tax on any gain you realize. If you exchange any fund's shares for
shares of another PaineWebber mutual fund, the transaction will be treated as a
sale of a fund's shares, and any gain on the exchange transaction will be
subject to federal income tax.

-----------
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Prospectus Page 32
<PAGE>

[INTENTIONALLY LEFT BLANK]

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

- --------------------------------------------------------------------------------
-------------------
PaineWebber Global Equity Fund

Financial Highlights

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

The following tables provide investors with data and ratios for Class A, B, C
and Y for each of the periods shown. This information is supplemented by the
financial statements, accompanying notes and the report of Ernst & Young LLP,
independent auditors, or, in the case of Global Income Fund,
PricewaterhouseCoopers LLP, independent accountants which appear in the funds'
Annual Reports to Shareholders for the fiscal years ended October 31, 1998, and
are incorporated by reference into the Statement of Additional Information. The
financial statements and notes, as well as the information for each of the five
years in the period ended October 31, 1998 appearing in the following tables,
have been audited by Ernst & Young LLP, independent auditors, or
PricewaterhouseCoopers LLP independent accountants as applicable. Further
information about each fund's performance is also included in the Annual Report
to Shareholders, which may be obtained without charge by calling 1-800- -
.
<TABLE>
<CAPTION>
GLOBAL EQUITY FUND
----------------------------------------------------------------
CLASS A
----------------------------------------------------------------
FOR THE FOR THE
YEARS ENDED FOR THE TWO YEARS ENDED
OCTOBER 31, MONTHS ENDED AUGUST 31,
----------------- OCTOBER 31, -------------------------------
1998 1997 1996 1996 1995** 1994
-------- -------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 17.43 $ 16.81 $ 16.12 $ 16.98 $ 14.55
-------- -------- -------- -------- --------
Net investment income
(loss)................. 0.00 (0.02) 0.02 0.02 0.01
Net realized and
unrealized gains
(losses) from
investments and foreign
currency............... 1.52 0.64 1.24 0.37 2.63
-------- -------- -------- -------- --------
Net increase (decrease)
from investment
operations............. 1.52 0.62 1.26 0.39 2.64
-------- -------- -------- -------- --------
Dividends from net
investment income...... -- -- -- -- --
Distributions from net
realized gains......... (0.58) -- (0.57) (1.25) (0.21)
-------- -------- -------- -------- --------
Total dividends and
distributions.......... (0.58) 0.00 (0.57) (1.25) (0.21)
-------- -------- -------- -------- --------
Net asset value, end of
period................. $ 18.37 $ 17.43 $ 16.81 $ 16.12 $ 16.98
======== ======== ======== ======== ========
Total investment return
(1).................... 8.87% 3.69% 8.06% 3.24% 18.23%
======== ======== ======== ======== ========
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $294,878 $307,267 $305,218 $360,652 $185,493
Expenses to average net
assets................. 1.44% 1.53%* 1.48% 1.71%(2) 1.58%
Net investment income
(loss) to average net
assets................. 0.01% (0.80)%* 0.10% 0.09%(2) 0.07%
Portfolio turnover
rate................... 86% 3% 33% 40% 51%
</TABLE>
- -------
* Annualized
** Investment advisory functions for the fund were transferred from Kidder
Peabody Asset Management Inc. to Mitchell Hutchins on February 13, 1995.
++ Commencement of offering of shares
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
distributions, if any, at net asset value on the payable dates and a sale
at net asset value on the last day of each period reported. The figures do
not include sales charges; results for each class would be lower if sales
charges were included. Total investment returns for periods of less than
one year have not been annualized.
(2) These ratios include non-recurring reorganization expenses of 0.06%, 0.00%
and 0.06% for Class A, Class B and Class C shares, respectively.

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

Prospectus Page 34
<PAGE>

- --------------------------------------------------------------------------------
-------------------
PaineWebber Global Equity Fund

Financial Highlights
(Continued)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
GLOBAL EQUITY FUND
- -------------------------------------------------------------------------------------------------------------------------------
CLASS B CLASS C
- ------------------------------------------------------------ ---------------------------------------------------------------
FOR THE FOR THE FOR THE
YEARS ENDED FOR THE TWO FOR THE FOR THE PERIOD YEARS ENDED FOR THE TWO YEARS ENDED
OCTOBER 31, MONTHS ENDED YEAR ENDED AUG. 25, 1995++ OCTOBER 31, MONTHS ENDED AUGUST 31,
- ----------------- OCTOBER 31, AUGUST 31, TO AUG. 31, ---------------- OCTOBER 31, ------------------------------
1998 1997 1996 1996 1995++ 1998 1997 1996 1996 1995** 1994
- -------- ------- ------------ ---------- --------------- -------- ------- ------------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 16.93 $ 16.35 $ 15.82 $ 15.83 $ 16.93 $ 16.35 $ 15.82 $ 16.81 $ 14.52
------- -------- -------- -------- ------- ------- ------- ------- -------
(0.21) (0.05) (0.12) 0.00 (0.23) (0.05) (0.13) (0.11) (0.07)
1.55 0.63 1.22 (0.01) 1.57 0.63 1.23 0.37 2.57
------- -------- -------- -------- ------- ------- ------- ------- -------
1.34 0.58 1.10 (0.01) 1.34 0.58 1.10 0.26 2.50
------- -------- -------- -------- ------- ------- ------- ------- -------
-- -- -- -- -- -- -- -- --
(0.58) -- (0.57) -- (0.58) -- (0.57) (1.25) (0.21)
------- -------- -------- -------- ------- ------- ------- ------- -------
(0.58) 0.00 (0.57) 0.00 (0.58) 0.00 (0.57) (1.25) (0.21)
------- -------- -------- -------- ------- ------- ------- ------- -------
$ 17.69 $ 16.93 $ 16.35 $ 15.82 $ 17.69 $ 16.93 $ 16.35 $ 15.82 $ 16.81
======= ======== ======== ======== ======= ======= ======= ======= =======
8.05% 3.55% 7.18% (0.06)% 8.05% 3.55% 7.18% 2.46% 17.29%
======= ======== ======== ======== ======= ======= ======= ======= =======
$87,104 $113,445 $113,235 $142,880 $54,510 $67,530 $66,585 $83,485 $31,837
2.26% 2.34%* 2.25% 2.17%*(2) 2.20% 2.30%* 2.27% 2.48%(2) 2.33%
(0.80)% (1.61)%* (0.68)% (1.92)%*(2) (0.75)% (1.57)%* (0.70)% (0.68)%(2) (0.68)%
86% 3% 33% 40% 86% 3% 33% 40% 51%
</TABLE>

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

Prospectus Page 35
<PAGE>

- --------------------------------------------------------------------------------
-------------------
PaineWebber Global Equity Fund

Financial Highlights
(continued)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
GLOBAL EQUITY FUND
------------------------------------------------------------
CLASS Y
------------------------------------------------------------
FOR THE FOR THE
YEARS ENDED FOR THE TWO YEARS ENDED
OCTOBER 31, MONTHS ENDED AUGUST 31,
---------------- OCTOBER 31, ----------------------------
1998 1997 1996 1996 1995** 1994
-------- ------- ------------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 17.60 $ 16.97 $ 16.22 $ 17.03 $ 14.56
------- ------- ------- ------- -------
Net investment income
(loss)................. 0.10 (0.01) 0.07 0.07 0.05
Net realized and
unrealized gains
(losses) from
investments and foreign
currency............... 1.51 0.64 1.25 0.37 2.63
------- ------- ------- ------- -------
Net increase (decrease)
from investment
operations............. 1.61 0.63 1.32 0.44 2.68
------- ------- ------- ------- -------
Dividends from net
investment income...... -- -- -- -- --
Distributions from net
realized gains......... (0.58) -- (0.57) (1.25) (0.21)
------- ------- ------- ------- -------
Total dividends and
distributions.......... (0.58) 0.00 (0.57) (1.25) (0.21)
------- ------- ------- ------- -------
Net asset value, end of
period................. $ 18.63 $ 17.60 $ 16.97 $ 16.22 $ 17.03
======= ======= ======= ======= =======
Total investment return
(1).................... 9.31% 3.71% 8.39% 3.54% 18.49%
======= ======= ======= ======= =======
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $57,683 $63,225 $61,736 $57,150 $28,390
Expenses to average net
assets................. 1.10% 1.18%* 1.17% 1.46%(2) 1.33%
Net investment income
(loss) to average net
assets................. 0.36% (0.45)%* 0.46% 0.36%(2) 0.32%
Portfolio turnover
rate................... 86% 3% 33% 40% 51%
</TABLE>
- -------
* Annualized
** Investment advisory functions for the fund were transferred from Kidder
Peabody Asset Management Inc. to Mitchell Hutchins on February 13, 1995.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
distributions, if any, at net asset value on the payable dates and a sale
at net asset value on the last day of each period reported. The figures do
not include sales charges; results for each class would be lower if sales
charges were included. Total investment returns for periods of less than
one year have not been annualized.
(2) These ratios include non-recurring reorganization expenses of 0.06%, 0.00%
and 0.06% for Class A, Class B and Class C shares, respectively.

-----------
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Prospectus Page 36
<PAGE>

[INTENTIONALLY LEFT BLANK]

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

Prospectus Page 37
<PAGE>

- --------------------------------------------------------------------------------
-------------------
PaineWebber Global Income Fund

Financial Highlights
(continued)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
GLOBAL INCOME FUND
---------------------------------------------------
CLASS A
---------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
---------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 10.46 $ 10.35 $ 9.99 $ 10.97
-------- -------- -------- --------
Net investment income.... 0.69@ 0.72@ 0.77@ 0.72
Net realized and
unrealized gains
(losses) from
investments and foreign
currency................ (0.19)@ 0.13@ 0.31@ (1.05)
-------- -------- -------- --------
Net increase (decrease)
from investment
transactions............ 0.50 0.85 1.08 0.33
-------- -------- -------- --------
Dividends from net
investment income....... (0.54) (0.74) (0.72) (0.33)
Distributions from net
realized gains from
investments and foreign
currency transactions... -- -- -- --
Distributions in excess
of net investment
income.................. (0.06) -- -- --
Distribution from paid-in
capital................. (0.09) -- -- (0.32)
-------- -------- -------- --------
Total dividends and
distributions to
shareholders............ (0.69) (0.74) (0.72) (0.65)
-------- -------- -------- --------
Net asset value, end of
period.................. $ 10.27 $ 10.46 $ 10.35 $ 9.99
======== ======== ======== ========
Total investment return
(1)..................... 4.99% 8.60% 11.09% (3.10)%
======== ======== ======== ========
Ratio/Supplemental data:
Net assets, end of period
(000's)................. $486,718 $549,932 $663,022 $611,855
Expenses to average net
assets.................. 1.21% 1.27% 1.24%(2) 1.17%
Net investment income to
average net assets...... 6.66% 6.88% 7.47%(2) 6.94%
Portfolio turnover rate.. 172% 126% 113% 108%
</TABLE>
- -------
@ Calculated using the average shares outstanding for the period.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
distributions, if any, at net asset value on the payable dates and a sale
at net asset value on the last day of each period reported. The figures do
not include sales charges; results for each class would be lower if sales
charges were included. Total investment returns for periods of less than
one year have not been annualized.
(2) These ratios include non-recurring reorganization expenses of 0.04%.

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

Prospectus Page 38
<PAGE>

- --------------------------------------------------------------------------------
-------------------
PaineWebber Global Income Fund

Financial Highlights
(Continued)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
GLOBAL INCOME FUND
- -------------------------------------------------------------------------------------------------------
CLASS B CLASS C
- ---------------------------------------------------- ------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
- -------- -------- -------- -------- -------- --------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 10.44 $ 10.31 $ 9.96 $ 10.95 $ 10.45 $ 10.33 $ 9.98 $ 10.96
-------- -------- -------- -------- ------- ------- ------- -------
0.58@ 0.64@ 0.69@ 0.86 0.63@ 0.67@ 0.71@ 0.70
(0.17)@ 0.15@ 0.30@ (1.28) (0.18)@ 0.14@ 0.31@ (1.09)
-------- -------- -------- -------- ------- ------- ------- -------
0.41 0.79 0.99 (0.42) 0.45 0.81 1.02 (0.39)
-------- -------- -------- -------- ------- ------- ------- -------
(0.48) (0.66) (0.64) (0.29) (0.50) (0.69) (0.67) (0.30)
-- -- -- -- -- -- -- --
(0.05) -- -- -- (0.06) -- -- --
(0.08) -- -- (0.28) (0.08) -- -- (0.29)
-------- -------- -------- -------- ------- ------- ------- -------
(0.61) (0.66) (0.64) (0.57) (0.64) (0.69) (0.67) (0.59)
-------- -------- -------- -------- ------- ------- ------- -------
$ 10.24 $ 10.44 $ 10.31 $ 9.96 $ 10.26 $ 10.45 $ 10.33 $ 9.98
======== ======== ======== ======== ------- ------- ------- -------
4.11% 7.95% 10.24% (3.90)% 4.48% 8.12% 10.49% (3.56)%
======== ======== ======== ======== ======= ======= ======= =======
$103,312 $307,577 $484,534 $725,553 $36,935 $50,928 $71,329 $92,480
1.99% 1.99% 2.00%(2) 1.94% 1.69% 1.73% 1.75%(2) 1.68%
5.83% 6.14% 6.71%(2) 6.05% 6.17% 6.40% 6.96%(2) 6.34%
172% 126% 113% 108% 172% 126% 113% 108%
</TABLE>

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

Prospectus Page 39
<PAGE>

- --------------------------------------------------------------------------------
-------------------
PaineWebber Global Income Fund

Financial Highlights
(continued)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
GLOBAL INCOME FUND
------------------------------------------------
CLASS Y
------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period.................. $ 10.49 $ 10.35 $ 9.99 $ 10.97
------- ------- ------- -------
Net investment income....... 0.71@ 0.75@ 0.78@ 0.75
Net realized and unrealized
gains (losses) from
investments and foreign
currency................... (0.21)@ 0.17@ 0.32@ (1.06)
------- ------- ------- -------
Net increase (decrease) from
investment transactions.... 0.50 0.92 1.10 (0.31)
------- ------- ------- -------
Dividends from net
investment income.......... (0.56) (0.78) (0.74) (0.34)
Distributions from net
realized gains from
investments and foreign
currency transactions...... -- -- -- --
Distributions in excess of
net investment income...... (0.06) -- -- --
Distributions from paid-in
capital.................... (0.10) -- -- (0.33)
------- ------- ------- -------
Total dividends and
distributions to
shareholders............... (0.72) (0.78) (0.74) (0.67)
------- ------- ------- -------
Net asset value, end of
period..................... $ 10.27 $ 10.49 $ 10.35 $ 9.99
======= ======= ======= =======
Total investment return
(1)........................ 5.20% 9.25% 11.39% (2.86)%
======= ======= ======= =======
Ratios/supplemental data:
Net assets, end of period
(000's).................... $10,096 $13,077 $16,613 $12,975
Expenses to average net
assets..................... 0.94% 0.96% 0.95%(2) 0.88 %
Net investment income to
average net assets......... 6.93% 7.19% 7.77%(2) 7.23 %
Portfolio turnover rate..... 172% 126% 113% 108 %
</TABLE>
- -------
@ Calculated using the average shares outstanding for the period.
(1) Total investment return is calculated assuming a $1,500 investment on the
first day of each period reported, reinvestment of all dividends and other
distributions at net asset value on the payable dates and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charges; results for each class would be lower if sales
charges were included. Total investment return for periods of less than one
year have not been annualized.
(2) These ratios include non-recurring reorganization expenses of 0.04%.

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

Prospectus Page 40
<PAGE>

- --------------------------------------------------------------------------------
-------------------
PaineWebber Asia Pacific Growth Fund

Financial Highlights
(continued)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
ASIAN PACIFIC GROWTH FUND
-------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Y
--------------- --------------- --------------- -----------
FOR THE FOR THE FOR THE
FISCAL YEARS FISCAL YEARS FISCAL YEARS FOR THE
ENDED ENDED ENDED FISCAL YEAR
OCTOBER 31, OCTOBER 31, OCTOBER 31, ENDED
--------------- --------------- --------------- OCTOBER 31,
1998 1997+ 1998 1997+ 1998 1997+ 1998
------- ------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 12.50 $ 12.50 $ 12.50
------- ------- -------
Net investment income
(loss)................. 0.03 (0.03) (0.03)
Net realized and
unrealized losses from
investments and foreign
currency............... (3.57) (3.55) (3.55)
Net decrease (increase)
from investment
operations............. (3.54) (3.58) (3.58)
------- ------- -------
Net asset value, end of
period................. $ 8.96 $ 8.92 $ 8.92
======= ======= =======
Total investment return
(1).................... (28.32)% (28.64)% (28.64)%
======= ======= =======
Ratios/Supplemental
Data:
Net assets, end of
period (000s).......... $21,466 $22,949 $13,887
Expenses to average net
assets................. 2.33%* 3.12%* 3.10%*
Net investment income
(loss) to average net
assets................. 0.37%* (0.43)%* (0.42)%*
Portfolio turnover
rate................... 13% 13% 13%
</TABLE>
- -------
* Annualized
+ For the period March 25, 1997 (commencement of operations) to October 31,
1997.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and other
distributions if any, at net asset value on the payable dates, and a sale
at net asset value on the last day of each period reported. The figures do
not include sales charges; results for each class (except Class Y) would be
lower if sales charges were included. Total investment returns for periods
less than a year have not been annualized.

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

Prospectus Page 41
<PAGE>

- --------------------------------------------------------------------------------
-------------------
PaineWebber Emerging Markets Equity Fund

Financial Highlights
(Continued)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
EMERGING MARKETS EQUITY FUND
------------------------------------------------------------
CLASS A
------------------------------------------------------------
FOR THE FOR THE FOR THE
YEARS ENDED FOR THE FOUR YEARS ENDED PERIOD
OCTOBER 31, MONTHS ENDED JUNE 30, ENDED
--------------- OCTOBER 31, ----------------- JUNE 30,
1998 1997*** 1996 1996 1995** 1994+
------- ------- ------------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 9.46 $ 10.06 $ 9.73 $ 10.79 $ 12.00
------ ------- ------- ------- -------
Net investment income
(loss)................. (0.06) (0.13) (0.14) (0.04) 0.04
Net realized and
unrealized gains
(losses) from
investments and foreign
currency............... (0.01) (0.47) 0.47 (0.97) (1.25)
------ ------- ------- ------- -------
Net increase (decrease)
from investment
operations............. (0.07) (0.60) 0.33 (1.01) (1.21)
------ ------- ------- ------- -------
Dividends from net
investment income...... -- -- -- (0.05) --
------ ------- ------- ------- -------
Net asset value, end of
period................. $ 9.39 $ 9.46 $ 10.06 $ 9.73 $ 10.79
====== ======= ======= ======= =======
Total investment return
(1).................... (0.74)% (5.96)% 3.39% (9.29)% (10.08)%
====== ======= ======= ======= =======
Ratios/Supplemental
Data: Net assets, end
of period (000's)...... $9,222 $14,992 $20,680 $33,043 $46,758
Expenses net of fee
waivers, to average net
assets................. 2.44% 2.44%* 2.44% 2.44% 2.47%*
Expenses before fee
waivers, to average net
assets................. 3.01% 3.48%* 3.42% 2.54% 2.47%*
Net investment income
(loss) net of fee
waivers, to average net
assets................. (0.40)% (1.42)%* (0.52)% (0.76)% 0.72%*
Net investment income
(loss), before fee
waivers, to average net
assets................. (0.97)% (2.46)%* (1.50)% (0.86)% 0.72%*
Portfolio turnover
rate................... 87% 22% 69% 76% 8%
</TABLE>
- -------
* Annualized
** Investment advisory functions for the fund were transferred from Kidder
Peabody Asset Management Inc. to Mitchell Hutchins on February 13, 1995.
*** Investment sub-advisory functions for the fund were transferred from
Emerging Markets Management to Schroder Capital effective February 25,
1997.
+ For the period January 19, 1994 (commencement of operations) to June 30,
1994. For the period December 5, 1995 (commencement of operations) to June
30, 1996.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends at net
asset value on the payable dates and a sale at net asset value on the last
day of each period reported. The figures do not include sales charges;
results for each class would be lower if sales charges were included. Total
investment returns for periods of less than one year have not been
annualized.

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

Prospectus Page 42
<PAGE>

- --------------------------------------------------------------------------------
-------------------
PaineWebber Emerging Markets Equity Fund

Financial Highlights
(Continued)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
EMERGING MARKETS EQUITY FUND
- -------------------------------------------------------------------------------------------------------
CLASS B CLASS C
- ---------------------------------------- ------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEARS ENDED FOR THE FOUR PERIOD YEARS ENDED FOR THE FOUR YEARS ENDED PERIOD
OCTOBER 31, MONTHS ENDED ENDED OCTOBER 31, MONTHS ENDED JUNE 30, ENDED
- ---------------- OCTOBER 31, JUNE 30, --------------- OCTOBER 31, ----------------- JUNE 30,
1998 1997*** 1996 1996++ 1998 1997*** 1996 1996 1995** 1994+
- ------- ------- ------------ -------- ------- ------- ------------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 9.32 $9.94 $9.13 $ 9.32 $ 9.94 $ 9.67 $ 10.75 $ 12.00
------ ----- ----- ------ ------ ------- ------- -------
(0.10) (0.07) (0.01) (0.14) (0.22) (0.24) (0.17) --
(0.03) (0.55) 0.82 (0.01) (0.40) 0.51 (0.90) (1.25)
------ ----- ----- ------ ------ ------- ------- -------
(0.13) (0.62) (0.81) (0.15) (0.62) 0.27 (1.07) (1.25)
------ ----- ----- ------ ------ ------- ------- -------
-- -- -- -- -- -- (0.01) --
------ ----- ----- ------ ------ ------- ------- -------
$ 9.19 $9.32 $9.94 $ 9.17 $ 9.32 $ 9.94 $ 9.67 $ 10.75
====== ===== ===== ====== ====== ======= ======= =======
(1.39)% (6.24)% 8.87% (1.61)% (6.24)% 2.79% (10.01)% (10.42)%
====== ===== ===== ====== ====== ======= ======= =======
$1,598 $ 879 $ 936 $5,345 $7,882 $11,561 $18,551 $26,721
3.19% 3.19%* 3.19%* 3.19% 3.19%* 3.19% 3.19% 3.22%*
3.82% 4.23%* 4.97%* 3.78% 4.23%* 4.17% 3.29% 3.22%*
(1.25)% (2.12)%* (0.21)%* (1.18)% (2.16)%** (1.28)% (1.50)% (0.03)%*
(1.88)% (3.16)%* (1.99)%* (1.77)% (3.20)%* (2.26)% (1.60)% (0.03)%*
87% 22% 69% 87% 22% 69% 76% 8%
</TABLE>

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

Prospectus Page 43
<PAGE>

- --------------------------------------------------------------------------------
-------------------
PaineWebber Emerging Markets Equity Fund

Financial Highlights
(Continued)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
EMERGING MARKETS EQUITY FUND
------------------------------------------------------------
CLASS Y
------------------------------------------------------------
FOR THE FOR THE FOR THE
YEARS ENDED FOR THE FOUR YEARS ENDED PERIOD
OCTOBER 31, MONTHS ENDED JUNE 30, ENDED
--------------- OCTOBER 31, ----------------- JUNE 30,
1998 1997*** 1996 1996 1995** 1994+
------- ------- ------------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 9.51 $ 10.11 $ 9.75 $ 10.80 $ 12.00
------- ------- ------- ------- -------
Net investment income
(loss)................. (0.02) (0.05) (0.01) 0.01 0.05
Net realized and
unrealized gains
(losses) from
investments and foreign
currency............... (0.03) (0.55) 0.37 (0.99) (1.25)
------- ------- ------- ------- -------
Net increase (decrease)
from investment
operations............. (0.05) (0.60) 0.36 (0.98) (1.20)
------- ------- ------- ------- -------
Dividends from net
investment income...... -- -- -- (0.07) --
------- ------- ------- ------- -------
Net asset value, end of
period................. $ 9.46 $ 9.51 $ 10.11 $ 9.75 $ 10.80
======= ======= ======= ======= =======
Total investment return
(1).................... (0.53)% (5.93)% 3.69% (9.03)% (10.00)%
======= ======= ======= ======= =======
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $10,053 $11,375 $12,979 $12,332 $15,435
Expenses net of fee
waivers, to average net
assets................. 2.19% 2.19%* 2.19% 2.19% 2.22%*
Expenses before fee
waivers to average net
assets................. 2.69% 3.23%* 3.29% 2.29% 2.22%*
Net investment income
(loss) net of fee
waivers to average net
assets................. (0.15)% (1.13)%* (0.15)% (0.51)% 0.97%*
Net investment income
(loss) before fee
waivers to average net
assets................. (0.65)% (2.17)%* (1.25)% (0.61)% 0.97%*
Portfolio turnover
rate................... 87% 22% 69% 76% 8%
</TABLE>
- -------
* Annualized
** Investment advisory functions for the fund were transferred from Kidder
Peabody Asset Management Inc. to Mitchell Hutchins on February 13, 1995.
*** Investment sub-advisory functions for the fund were transferred from
Emerging Markets Management to Schroder Capital effective February 25,
1997.
+ For the period January 19, 1994 (commencement of operations) to June 30,
1994.
For the period December 5, 1995 (commencement of operations) to June 30, 1996.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
distributions, if any, at net asset value on the payable dates and a sale
at net asset value on the last day of each period reported. The figures do
not include sales charges; results for each class would be lower if sales
charges were included. Total investment returns for periods of less than
one year have not been annualized.

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

Prospectus Page 44
<PAGE>

<TABLE>
<S> <C> <C> <C> <C>
Ticker Symbols: Global Equity Class A: KPGEX.Q Asia Pacific Class A: PPGAX.Q
B: KPGLX.Q B: PPGBX.Q
C: KPGBX.Q C: PPGCX.Q
Y: KPGCX.Q Y: NONE
Global Income Class A: PGBAX.Q Emerging Markets Class A: KPEAX.Q
B: PGBBX.Q B: NONE
C: PWIDX.Q C: KPEBX.Q
Y: NONE Y: NONE
</TABLE>

For investors who want more information about the funds, the following
documents are available free upon request:

ANNUAL/SEMIANNUAL REPORTS

Additional information about the funds' investments is available in the funds'
annual and semiannual reports to shareholders. In the funds' annual reports,
you will find a discussion of the market conditions and investment strategies
that significantly affected the funds' performance during the last fiscal year.

STATEMENT OF ADDITIONAL INFORMATION (SAI):

The SAI provides more detailed information about the funds and is incorporated
by reference into this prospectus.

You may obtain free copies of annual and semi-annual reports and SAIs, request
other information and discuss your questions about the funds by contacting your
PaineWebber investment executive, or by contacting the funds directly at 1-800-
.

You may review and copy information about the funds, including shareholder
reports and the SAI, at the Public Reference Room of the Securities and
Exchange Commission. You can get text-only copies of reports and other
information about the funds:

.For a fee, by writing to or calling the Commission's Public Reference Room,
Washington, D.C. 20549-6009
Telephone: 1-800-SEC-0330

.Free from the Commission's Internet
website at: http://www.sec.gov

Investment Company Act File No.
PaineWebber Global Equity Fund: 811-6292
PaineWebber Global Income Fund: 811-5259
PaineWebber Asia Pacific Growth Fund: 811-4040
PaineWebber Emerging Markets Equity Fund: 811-7104

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

<PAGE>

PAINEWEBBER GLOBAL EQUITY FUND
PAINEWEBBER GLOBAL INCOME FUND
PAINEWEBBER ASIA PACIFIC GROWTH FUND
PAINEWEBBER EMERGING MARKETS EQUITY FUND
1285 Avenue of the Americas
NEW YORK, NEW YORK 10019

STATEMENT OF ADDITIONAL INFORMATION

The four funds named above are series of professionally managed open-end
management investment companies (each a "Trust"). PaineWebber Global Equity
Fund is a diversified series of PaineWebber Investment Trust ("Investment
Trust"). PaineWebber Global Income Fund is a non-diversified series of
PaineWebber Investment Series ("Investment Series"). PaineWebber Asia Pacific
Growth Fund is a diversified series of PaineWebber Managed Investments Trust
("Managed Trust"). PaineWebber Emerging Markets Equity Fund is a diversified
series of PaineWebber Investment Trust II ("Investment Trust II").

The investment adviser, administrator and distributor for each fund is
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned
asset management 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. Schroder Capital Management
International Inc. ("Schroder Capital") serves as investment sub-adviser for
Asia Pacific Growth Fund and Emerging Markets Equity Fund. Invista Capital
Management, Inc. ("Invista") serves as investment sub-adviser for the foreign
investments of Global Equity Fund. Schroder Capital and Invista are each
sometimes referred to as the "Sub-Adviser."

This Statement of Additional Information is not a prospectus and should be
read only in conjunction with the funds' current Prospectus, dated March 1,
1999. 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, 1999.

THE FUNDS AND THEIR INVESTMENT POLICIES

Each fund's investment objective may not be changed without shareholder
approval. The funds' other investment policies, except where noted, may be
changed by their boards without shareholder approval. As with other mutual
funds, there is no assurance that a fund will achieve its investment objective.

PAINEWEBBER GLOBAL EQUITY FUND is a diversified series of Investment Trust.
Investment Trust was organized on March 28, 1991 as a business trust under the
laws of the Commonwealth of Massachusetts. The trustees have authority to issue
an unlimited number of shares of beneficial interest of separate series, par
value $0.001 per share. The Trust has one other operating series.

Global Equity Fund's investment objective is long-term growth of capital.
The fund attempts to achieve this objective by investing primarily in equity
securities issued by companies in developed foreign countries, as well as in the
United States. Under normal circumstances, the fund invests at least 80% of its
total assets in securities of issuers in the United States and countries
represented in the MSCI Europe, Australia and Far East Index ("EAFE Index").
The EAFE Index is a well known index that reflects most major equity markets
outside the United States. The fund may invest up to 20% of its total assets in
securities of issuers located in other countries (for example, Canada and
emerging markets).

Global Equity Fund normally invests in at least three countries, one of
which is typically the United States. The fund considers an issuer to be
located in the country in which the issuer (a) is organized, (b) derives at
least 50% of its revenues or profits from goods produced or sold, investments
made or services performed, (c) has at least 50% of its assets situated or (d)
has the principal trading market for its securities. The Fund normally invests
at least 65% of its total assets in equity securities of foreign and U.S.
companies.

When Mitchell Hutchins or Invista believes it is consistent with Global
Equity Fund's investment objective, the fund may invest up to 35% of its total
assets in investment grade debt securities that are issued by corporate or
governmental entities and that have maturities no longer than seven years. The
fund may invest up to 10% of its total assets in convertible debt securities
rated
<PAGE>

below investment grade. When Mitchell Hutchins or Invista considers market,
economic, political or currency conditions abroad to be unstable, the fund may
assume a temporary defensive position by investing all or a significant portion
of its assets in securities of U.S. issuers or by holding cash or short-term
money market instruments. The fund may invest up to 35% of its total assets in
cash or investment grade money market instruments for liquidity purposes,
pending investment in other securities or to reinvest cash collateral from
securities lending.

Mitchell Hutchins reevaluates the allocation of the fund's assets between
U.S. and foreign securities monthly and does not expect to reallocate the fund's
assets to reflect relatively minor changes (that is, less than 5%). When
Mitchell Hutchins determines that a reallocation of the fund's assets is
appropriate, the fund may effect the reallocation by using cash available from
the purchase of fund shares or by selectively selling securities in a region to
meet share redemption requests in addition to buying or selling portfolio
securities specifically to implement a reallocation. The fund also may use
futures contracts and forward currency contracts to adjust its exposure to U.S.
and foreign stock markets. Mitchell Hutchins determines the extent to which the
fund uses futures contracts and forward currency contracts for this purpose and
is responsible for implementing such transactions. The fund also may use
options, futures contracts and forward contracts to hedge its portfolio and for
cash management purposes.

While the Mitchell Hutchins Equity Research Team tends to favor stocks that
rank high in all of the categories considered by the Mitchell Hutchins Factor
Valuation Model, there may be situations in which companies are selected that
only rank high in a few categories. The portfolio managers may sell a security
for a number of reasons, such as the company reports lower earnings than
expected, the company's stock price reaches the target price set by research
analysts or the company's ranking by the Model declines.

Global Equity Fund may invest up to 10% of its net assets in illiquid
securities. The fund may lend its portfolio securities to qualified broker-
dealers or institutional investors in an amount up to 33-1/3% of its total
assets. When-issued and delayed-delivery securities may not exceed 10% of the
fund's net assets. The fund may borrow money from banks or through reverse
repurchase agreements for temporary or emergency purposes but not in excess of
20% of its total assets. The fund may invest up to 10% of its assets in the
securities of other investment companies and may sell short "against the box."

GLOBAL INCOME FUND is a non-diversified series of Investment Series.
Investment Series was organized on December 22, 1986 as a business trust under
the laws of the Commonwealth of Massachusetts. The trustees have authority to
issue an unlimited number of shares of beneficial interest of separate series,
par value $0.001 per share.

Global Income 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, the
U.S. government, their respective agencies or instrumentalities or supranational
organizations or issued by U.S. or foreign companies.

Global Income Fund's portfolio consists primarily of debt securities rated
within one of the two highest grades assigned by Standard & Poor's, a division
of The McGraw-Hill Companies, Inc. ("S&P"), Moody's Investors Service, Inc.
("Moody's") or another statistical rating organization ("SRO") or, if unrated,
determined by Mitchell Hutchins to be of comparable quality. Normally, at least
65% of the fund's total assets consist of high-quality debt securities (and
receivables from the sale of such 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, the United Kingdom and the
United States. No more than 40% of the fund's total assets are normally
invested in securities of issuers located in any one country other than the
United States. At least 65% of the fund's total assets normally are invested in
income-producing securities, a term that may include zero coupon securities and
other debt securities sold with a discount. Up to 5% of the fund's total assets
may be invested in bonds convertible to equity securities.

Global Income Fund may invest up to 35% of its total assets in debt
securities rated below the two highest grades assigned by an SRO. Except as
noted below, these securities must be investment grade (that is, rated at least
BBB by S&P, Baa by Moody's or comparably rated by another SRO or, if unrated,
determined by Mitchell Hutchins to be of comparable quality). Within this 35%
limitation, the fund may invest up to 20% of its total assets in debt securities
that are below investment grade. These debt securities may be rated as low as D
by S&P, C by Moody's or comparably rated by another SRO or, in the case of debt
securities assigned a short-term debt rating as low as D by S&P or comparably
rated by another SRO or, if not so rated, determined by Mitchell Hutchins to be
of comparable quality. Debt securities rated D by S&P are in payment default or
the rating is assigned upon the filing of a bankruptcy petition or the taking of
a similar action if payments on an obligation are jeopardized. Debt securities
rated C by Moody's are in the lowest rated class and can be regarded as having
extremely poor prospects of attaining any real investment standing. Mitchell
Hutchins will purchase these securities for the fund only when it concludes that
the anticipated return to the fund on the investment warrants exposure to the
additional level of risk. Lower-rated debt securities are often issued by
businesses and

2
<PAGE>

governments in emerging markets. Because the fund may also invest in emerging
market debt securities that are investment grade, the fund's total investment in
emerging market debt securities may exceed 20% of its total assets.

In the event that, due to a downgrade of one or more debt securities, an
amount in excess of 20% of Global Income Fund's total assets is held in
securities rated below investment grade and comparable unrated securities,
Mitchell Hutchins will engage in an orderly disposition of such securities to
the extent necessary to ensure that the fund's holdings of such securities do
not exceed 20% of the fund's total assets.

Global Income Fund may invest up to 35% of its total assets in mortgage-
backed securities of U.S. or foreign issuers that are rated in one of the two
highest rating categories by S&P, Moody's or another SRO or, if unrated,
determined by Mitchell Hutchins to be of comparable quality. Up to 20% of the
fund's total assets may be invested in debt securities that are not paying
current income. The fund may purchase these debt securities if Mitchell Hutchins
believes that they have a potential for capital appreciation. The fund also may
invest in secured and unsecured fixed or flating rate loans in the form of
participations and assignments

Global Income Fund may invest up to 35% of its total assets in cash or
investment grade money market instruments as part of its ordinary investment.
The fund's investment of cash collateral from securities lending in these money
market instruments is not subject to this 35% limitation activities and there is
no limitation on the fund's investments in short-term debt securities
denominated in foreign currencies. The fund may use options, futures contracts
and forward currency contracts to hedge its portfolio or to enhance income or
realize gains. The fund also may use interest rate swaps and similar contracts.

Global Income Fund may invest in loan participations and assignments and
may invest up to 10% of its net assets in illiquid securities. The fund may lend
its portfolio securities to qualified broker-dealers or institutional investors
in an amount up to 33-1/3% of its total assets. The fund may borrow money from
banks or through reverse repurchase agreements for temporary or emergency
purposes but not in excess of 10% of its total assets. The fund may invest up to
10% of its assets in the securities of other investment companies and may sell
short "against the box."

PAINEWEBBER ASIA PACIFIC GROWTH FUND is a diversified series of Managed
Trust. Managed Trust was organized on November 21, 1986 as a business trust
under the laws of the Commonwealth of Massachusetts. The trustees have authority
to issue an unlimited number of shares of beneficial interest of separate
series, par value $0.001 per share. The Trust has six other operating series.

Asia Pacific Growth Fund's investment objective is long-term capital
appreciation. The fund seeks to achieve its objective by investing primarily in
equity securities of companies in the Asia Pacific Region. The Fund considers
the "Asia Pacific Region" to be the region located south of the former Soviet
Union, east of Afghanistan and Iran and west of the International Date Line, but
excluding Japan. The Asia Pacific Region countries that currently have
established securities markets and that Schroder Capital normally considers for
investments by the fund are listed in the Prospectus. The fund may also invest
in other Asia Pacific Region countries whose markets become sufficiently
established. Except under unusual conditions, the fund invests in a minimum of
three, and generally in more, Asia Pacific Region countries. The fund invests
across a broad spectrum of industries, including trade, finance, real estate,
transportation, communications, energy, construction, manufacturing, services,
food processing and others. The mix of industries and countries changes over
time as investment opportunities change.

Asia Pacific Growth Fund defines Asia Pacific Region companies as
companies:

. that are organized under the laws of countries in the Asia Pacific
Region that now or in the future permit foreign investors to
participate in their stock markets,

. that regardless of where organized, and as determined by Schroder
Capital, either (1) derive at least 50% of their revenues from goods
produced or sold, investments made or services performed in Asia
Pacific Region countries or (2) maintain at least 50% of their assets
in Asia Pacific Region countries, or

. for which the principal trading market is an exchange or over-the-
counter ("OTC") market in the Asia Pacific Region.

Each year, the Schroder Group researches and conducts on-site visits with
approximately 1,200 companies in Asia Pacific Region countries. Of those
companies, the Schroder Group's investment professionals further develop
extensive management contacts with, and produce independent forecasts of
earnings estimates for, approximately 550 companies. Schroder Capital's analysis
includes small and medium-size companies, as well as larger capitalization
companies.

3
<PAGE>

Asia Pacific Growth Fund's investments have included securities issued by
Malaysian companies. As of the date of this Statement of Additional Information,
restrictions imposed by the Malaysian government may delay for up to one year
the proceeds of any securities sales by the fund. Assets subject to those
restrictions are unavailable to the fund to meet redemption requests or for
reinvestment in other securities. In addition, it may be difficult for the fund
to determine the fair value of such securities (or of the Malaysian currency in
which they are denominated) for purposes of computing the fund's net asset
value.

Under normal market conditions, Asia Pacific Growth Fund invests at least
65% of its total assets in equity securities of Asia Pacific Region companies.
Most of the equity securities purchased by the fund are expected to be traded on
a foreign stock exchange or in a foreign over-the-counter market. When Schroder
Capital believes it is consistent with the fund's investment objective, the fund
may invest up to 10% of its total assets in convertible and non-convertible debt
securities (which may be below investment grade) that are issued or guaranteed
by Asia Pacific Region issuers, including obligations of sovereign governmental
issuers.

Asia Pacific Growth Fund may invest up to 35% of its total assets in cash
or investment grade money market instruments for liquidity purposes, pending
investment in other securities or to reinvest cash collateral from securities
lending. The fund may use options, futures contracts and forward currency
contracts to hedge its portfolio. The fund also may use interest rate swaps,
currency swaps and similar contracts.

Asia Pacific Growth Fund may invest up to 15% of its net assets in illiquid
securities. The fund may lend its portfolio securities to qualified broker-
dealers or institutional investors in an amount up to 33-1/3% of its total
assets. The fund may borrow money from banks or through reverse repurchase
agreements for temporary or emergency purposes but not in excess of 33-1/3% of
its total assets. The fund may invest up to 10% of its assets in the securities
of other investment companies and may sell short "against the box."

EMERGING MARKETS EQUITY FUND is a diversified series of Investment Trust
II. Investment Trust II was organized on August 10, 1992 as a business trust
under the laws of the Commonwealth of Massachusetts. The trustees have authority
to issue an unlimited number of shares of beneficial interest of separate
series, par value $0.001 per share.

Emerging Markets Equity Fund's investment objective is long-term capital
appreciation. The fund seeks to achieve its objective through a diversified
portfolio consisting primarily of equity securities of issuers in emerging
markets. "Emerging markets" are the markets in all the countries not included in
the Morgan Stanley Capital International World Index, an index of major world
economies. Under normal market conditions, the fund invests at least 65% of its
total assets in equity securities of issuers located in emerging market
countries and maintains investments in at least three emerging market countries.
The fund considers issuers to be located in an emerging market country if

. the principal securities trading market for the issuer is in an
emerging market country,

. the issuer derives 50% or more of its annual revenue or profit from
either goods produced, sales made, investments made or services
performed in emerging market countries, or

. the issuer is organized under the laws of an emerging market country.

Generally, Schroder Capital will invest no more than 35% of Emerging
Markets Equity Fund's total assets in any single country. Within each emerging
market, the fund is diversified through investments in a number of local
companies characterized by attractive valuation relative to expected growth in
Schroder's view. Emerging Markets Equity Fund may invest up to 35% of its assets
in debt securities, including debt securities that are not investment grade.
Schroder Capital attempts to spread the fund's investments over geographic as
well as economic sectors.

There are currently over 60 newly industrializing and developing countries
with equity markets. A number of these emerging markets are not yet easily
accessible to foreign investors and have unattractive tax barriers or
insufficient liquidity to make significant investments by the fund feasible or
attractive. However, many of the largest of the emerging market countries have
liberalized access in recent years, and more are expected to do so in the
future.

In recent years, many emerging market countries have begun programs of
economic reform: removing import tariffs, dismantling trade barriers,
deregulating foreign investment, privatizing state owned industries, permitting
the value of their currencies to float against the dollar and other major
currencies, and generally reducing the level of state intervention in industry
and commerce. Important intra-regional economic integration also holds the
promise of and generally reducing the level of state intervention greater trade
and growth. At the same time, significant progress has been made in
restructuring the heavy external debt burden that certain

4
<PAGE>

emerging market countries accumulated during the 1970s and 1980s. While there is
no assurance that these trends will continue, and events within the past year
have shown reversals in some countries, Schroder Capital will seek out
attractive investment opportunities in these countries.

Schroder Capital believes that one of its key strengths is the Schroder
Group's worldwide network of local research offices, many long established, in
emerging market countries. Each year, the Schroder Group researches and
conducts on-site visits with approximately 1,200 companies in emerging market
countries. Of those companies, the Schroder Group's investment professionals
further develop extensive management contacts with, and produce independent
forecasts of earnings estimates for, approximately 1,000 companies. Schroder
Capital's analysis includes small and medium-sized companies, as well as larger
capitalization companies.

Emerging Markets Equity Fund may invest up to 35% of its total assets in
cash or investment grade money market instruments for liquidity purposes,
pending investment in other securities or to reinvest cash collateral from
securities lending. The fund may use options, futures contracts and forward
currency contracts to hedge its portfolio.

Emerging Markets Equity Fund may invest up to 15% of its net assets in
illiquid securities. The fund may lend its portfolio securities to qualified
broker-dealers or institutional investors in an amount up to 33-1/3% of its
total assets. The fund may borrow money from banks or through reverse
repurchase agreements for temporary or emergency purposes but not in excess of
33-1/3% of its total assets. The fund may invest up to 10% of its assets in the
securities of other investment companies and may sell short "against the box."

THE FUNDS' INVESTMENTS, RELATED RISKS AND LIMITATIONS

The following supplements the information contained in the Prospectus and
above concerning the funds' investments, related risks and limitations. Except
as otherwise indicated in the Prospectus or the Statement of Additional
Information, the funds have established no policy limitations on their ability
to use the investments or techniques discussed in these documents.

EQUITY SECURITIES. Equity securities (referred to as "stocks" in the
Prospectus) include common stocks, most preferred stocks and securities that are
convertible into them, including common stock purchase warrants and rights,
equity interests in trusts, partnerships, joint ventures or similar enterprises
and depository receipts. Common stocks, the most familiar type, represent an
equity (ownership) interest in a corporation.

Preferred stock has certain fixed income features, like a bond, but is
actually equity in a company, like common stock. Convertible securities may
include debentures, notes and preferred equity securities, that may be converted
into or exchanged for a prescribed amount of common stock of the same or a
different issuer within a particular period of time at a specified price or
formula. Depository receipts typically are issued by banks or trust companies
and evidence ownership of underlying equity securities.

While past performance does not guarantee future results, equity securities
historically have provided the greatest long-term growth potential in a company.
However, their prices generally fluctuate more than other securities and reflect
changes in a company's financial condition and in overall market and economic
conditions. Common stocks generally represent the riskiest investment in a
company. It is possible that a fund may experience a substantial or complete
loss on an individual equity investment.

DEBT SECURITIES. Debt securities (referred to as "bonds" in the Prospectus)
are fixed or variable rate debt obligations, including notes, debentures, and
similar instruments and securities. Mortgage- and asset-backed securities are
types of debt securities, and certain types of income-producing, non-convertible
preferred stocks may be treated as debt securities for investment purposes. Debt
securities are used by corporations and governments to borrow money from
investors. The issuer pays the investor a fixed or variable rate of interest and
normally must repay the amount borrowed on or before maturity. Many preferred
stocks and some debt securities are "perpetual" in that they have no maturity
date. Debt securities have varying degrees of investment risk and varying levels
of sensitivity to changes in interest rates.

Debt securities are subject to interest rate risk and credit risk. Interest
rate risk is the risk that interest rates will rise and that, as a result, debt
security prices will fall, lowering the value of a fund's investments in debt
securities. In general, debt securities having longer durations are more
sensitive to interest rate changes than are debt securities with shorter
durations. Credit risk is the risk that an issuer may be unable or unwilling to
pay interest and/or principal on the debt security. Credit risk can be
affectived by many factors, including adverse changes in the issuer's own
financial condition or in economic conditions.

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CREDIT RATINGS; NON-INVESTMENT GRADE DEBT SECURITIES. Moody's, S&P and
other nationally recognized statistical rating organizations ("NRSROs") or SROs
are private services that provide ratings of the credit quality of debt
obligations and certain other securities. A description of the ratings assigned
to corporate bonds by Moody's and S&P is included in the Appendix to this
Statement of Additional Information. The process by which Moody's and S&P
determine ratings for mortgage-backed securities includes consideration of the
likelihood of the receipt by security holders of all distributions, the nature
of the underlying assets, the credit quality of the guarantor, if any, and the
structural, legal and tax aspects associated with these securities. Not even
the highest such ratings represents an assessment of the likelihood that
principal prepayments will be made by obligors on the underlying assets or the
degree to which such prepayments may differ from that originally anticipated,
nor do such ratings address the possibility that investors may suffer a lower
than anticipated yield or that investors in such securities may fail to recoup
fully their initial investment due to prepayments.

Credit ratings attempt to evaluate the safety of principal and interest
payments, but they do not evaluate the volatility of a debt security's value or
its liquidity and do not guarantee the performance of the issuer. Rating
agencies may fail to make timely changes in credit ratings in response to
subsequent events, so that an issuer's current financial condition may be better
or worse than the rating indicates. There is a risk that rating agencies may
downgrade debt securities. 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.

In addition to ratings assigned to individual bond issues, Mitchell
Hutchins or a Sub-Adviser will analyze interest rate trends and developments
that may affect individual issuers, including factors such as liquidity,
profitability and asset quality. The yields on bonds 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.

Investment grade debt securities are rated in one of the four highest
rating categories by Moody's or S&P, comparably rated by another NRSRO/SRO or,
if unrated, determined by Mitchell Hutchins or a Sub-Adviser to be of comparable
quality. Moody's considers debt securities rated Baa (its lowest investment
grade rating) to have speculative characteristics. This means that changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest paymenets than is the case for higher
rated debt securities.

Non-investment grade debt securities (commonly known as "junk bonds") are
rated Ba or lower by Moody's, BB or lower by S&P, comparably rated by another
NRSRO/SRO or determined by Mitchell Hutchins or a Sub-Adviser to be of
comparable quality. A fund's investments in non-investment grade debt securities
entail greater risk than its investments in higher rated debt securities. Non-
investment grade debt securities, which are sometimes referred to as "high
yield, high risk" debt securities, are considered predominantly speculative with
respect to the issuer's ability to pay interest and repay principal and may
involve significant risk exposure to adverse conditions. Non-investment grade
debt securities generally offer a higher current yield than that available for
investment grade issues; however, they involve higher risks, in that they are
especially sensitive 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 by
collateral and will not receive payment until more senior claims are paid in
full.

The market for non-investment grade debt securities, especially those of
foreign issuers, has expanded rapidly in recent years, which has been a period
of generally expanding growth and lower inflation. These securities will be
susceptible to greater risk when economic growth slows or reverses and when
inflation increases or deflation occurs. This has been reflected in recent
volatility in emerging market securities, particularly in Asia. In the past,
many lower rated debt securities experienced substantial price declines
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 restructurings or defaults. There can be no
assurance that such declines will not recur.

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The market for non-investment grade debt securities generally is thinner
and less active than that for higher quality securities, which may limit a
fund's ability to sell such securities at fair value in response to changes in
the economy or financial markets. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may also decrease the values and
liquidity of non-investment grade securities, especially in a thinly traded
market.

INVESTING IN FOREIGN SECURITIES. Investing in foreign securities involves
more risks than investing in the United States. The value of foreign securities
is subject to economic and political developments in the countries where the
companies operate and to changes in foreign currency values. 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, confiscatory taxation, withholding taxes on
interest and/or dividends, limitations on the use of 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
funds generally invest in securities that are traded on recognized exchanges or
OTC, 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 funds 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
funds 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. Additionally, the costs of investing outside the United States
frequently are higher than those in the United States. These costs include
relatively higher brokerage commissions and foreign custody expenses.

Securities of foreign issuers may not be registered with the Securities and
Exchange Commission ("SEC"), and the issuers thereof may not be 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.

The funds may invest in foreign securities by purchasing depository
receipts, including American Depository Receipts ("ADRs"), European Depository
Receipts ("EDRs") and Global Depository Receipts ("GDRs"), or other securities
convertible into securities of issuers based in foreign countries. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically issued
by a U.S. bank or trust company evidencing ownership of the underlying
securities. They generally are in registered form, are denominated in U.S.
dollars and are designed for use in the U.S. securities markets. EDRs are
European receipts evidencing a similar arrangement, may be denominated in other
currencies and are designed for use in European securities markets. GDRs are
similar to EDRs and are designed for use in several international financial
markets. For purposes of each fund's investment policies, depository receipts
generally are deemed to have the same classification as the underlying
securities they represent. Thus, a depository receipt representing ownership of
common stock will be treated as common stock.

ADRs are publicly traded on exchanges or OTC in the United States and are
issued through "sponsored" or "unsponsored" arrangements. In a sponsored ADR
arrangement, the foreign issuer assumes the obligation to pay some or all of the
depositary's transaction fees, whereas under an unsponsored arrangement, the
foreign issuer assumes no obligations and the depositary's transaction fees are
paid directly by the ADR holders. In addition, less information is available in
the United States about an unsponsored ADR than about a sponsored ADR.

The funds anticipate that their brokerage transactions involving foreign
securities of companies headquartered in countries other than the United States
will be conducted primarily on the principal exchanges of such countries.
Although each fund will endeavor to achieve the best net results in effecting
its portfolio transactions, transactions on foreign exchanges are usually
subject to fixed commissions that are generally higher than negotiated
commissions on U.S. 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 funds 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. In addition, substantial limitations may
exist in certain countries with respect to the funds' ability to repatriate
investment capital or the proceeds of sales of securities.

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FOREIGN SOVEREIGN DEBT. Investment by the funds 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 funds 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 the funds'
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 and the Sub-Advisers manage 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
the funds to suffer a loss of interest or principal on any of its Sovereign Debt
holdings.

SPECIAL CONSIDERATIONS RELATING TO EMERGING MARKET INVESTMENTS. Investing
in securities of issuers located in emerging market countries involves
additional risks. For example, many of the currencies of Asia Pacific Region
countries recently have experienced significant devaluations relative to the
U.S. dollar, and major adjustments have been made periodically in various
emerging market currencies. Emerging market countries typically have economic
and political systems that are less fully developed and can be expected to be
less stable than those of developed countries. Emerging market countries may
have policies that restrict investment by foreigners, and there is a higher risk
of government expropriation or nationalization of private property. The
possibility of low or nonexistent trading volume in the securities of companies
in emerging markets also may result in a lack of liquidity and in price
volatility. Issuers in emerging markets typically are subject to a greater
degree of change in earnings and business prospects than are companies in
developed markets.

Investment and Repatriation Restrictions. Foreign investment in the
securities markets of several emerging market countries is restricted or
controlled to varying degrees. These restrictions may limit a fund's investment
in these countries and may increase its expenses. For example, certain countries
may require governmental approval prior to investments by foreign persons in a
particular company or industry sector or limit investment by foreign persons to
only a specific class of securities of a company, which may have less
advantageous terms (including price) than securities of the company available
for purchase by nationals. Certain countries may restrict or prohibit investment
opportunities in issuers or industries deemed important to national interests.
In addition, the repatriation of both investment income and capital from some
emerging market countries is subject to restrictions, such as the need for
certain government consents. Even where there is no outright restriction on
repatriation of capital, the mechanics of repatriation may affect certain
aspects of a fund's operations. These restrictions may in the future make it
undesirable to invest in the countries to which they apply. In addition, if
there is a deterioration in a country's balance of payments or for other
reasons, a country may impose restrictions on foreign capital remittances
abroad. A fund could be adversely affected by delays in, or a refusal to grant,
any required governmental approval for repatriation, as well as by the
application to it of other restrictions on investments.

Currency restrictions imposed by the Malaysian government may delay for up
to one year the proceeds of any sale of Malaysian securities by a fund. Fund
assets subject to those restrictions would be unavailable to meet redemption
requests by fund shareholders or for reinvestment in other securities. In
addition, it may be difficult for a fund to determine the fair value of such
securities (or of the Malaysian currency in which they are denominated) for
purposes of computing the fund's net asset value.

If, because of restrictions on repatriation or conversion, a fund were
unable to distribute substantially all of its net investment income, including
net short-term capital gains and net long-term capital gains within applicable
time periods, the fund could be subject to federal income and excise taxes that
would not otherwise be incurred and could cease to qualify for the favorable tax
treatment afforded to regulated investment companies ("RICs") under the Internal
Revenue Code ("Code"). In such case, it would become subject to federal income
tax on all of its income and net gains.

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Differences Between the U.S. and Emerging Market Securities Markets. Most
of the securities markets of emerging market countries have substantially less
volume than the New York Stock Exchange, and equity securities of most companies
in emerging market countries are less liquid and more volatile than equity
securities of U.S. companies of comparable size. Some of the stock exchanges in
emerging market countries, such as those in China, are in the earliest stages of
their development. As a result, security settlements may in some instances be
subject to delays and related administrative uncertainties. Many companies
traded on securities markets in emerging market countries are smaller, newer and
less seasoned than companies whose securities are traded on securities markets
in the United States. Investments in smaller companies involve greater risk than
is customarily associated with investing in larger companies. Smaller companies
may have limited product lines, markets or financial or managerial resources and
may be more susceptible to losses and risks of bankruptcy. Additionally, market-
making and arbitrage activities are generally less extensive in such markets,
which may contribute to increased volatility and reduced liquidity of such
markets. Accordingly, each of these markets may be subject to greater influence
by adverse events generally affecting the market, and by large investors trading
significant blocks of securities, than is usual in the United States. To the
extent that an emerging market country experiences rapid increases in its money
supply and investment in equity securities for speculative purposes, the equity
securities traded in that country may trade at price-earnings multiples higher
than those of comparable companies trading on securities markets in the United
States, which may not be sustainable.

Government Supervision of Emerging Market Securities Markets; Legal
Systems. There is also less government supervision and regulation of securities
exchanges, listed companies and brokers in emerging market countries than exists
in the United States. Therefore, less information may be available to a fund
than with respect to investments in the United States. Further, in certain
countries, less information may be available to a fund than to local market
participants. Brokers in other countries may not be as well capitalized as those
in the United States, so that they are more susceptible to financial failure in
times of market, political or economic stress. In addition, existing laws and
regulations are often inconsistently applied. As legal systems in some of the
emerging market countries develop, foreign investors may be adversely affected
by new laws and regulations, changes to existing laws and regulations and
preemption of local laws and regulations by national laws. In circumstances
where adequate laws exist, it may not be possible to obtain swift and equitable
enforcement of the law.

Financial Information and Standards. Issuers in emerging market countries
generally are subject to accounting, auditing and financial standards and
requirements that differ, in some cases significantly, from those applicable to
U.S. issuers. In particular, the assets and profits appearing on the financial
statements of an emerging market issuer may not reflect its financial position
or results of operations in the way they would be reflected had the financial
statements been prepared in accordance with U.S. generally accepted accounting
principles. In addition, for an issuer that keeps accounting records in local
currency, inflation accounting rules may require, for both tax and accounting
purposes, that certain assets and liabilities be restated on the issuer's
balance sheet in order to express items in terms of currency of constant
purchasing power. Inflation accounting may indirectly generate losses or
profits. Consequently, financial data may be materially affected by restatements
for inflation and may not accurately reflect the real condition of those issuers
and securities markets.

Social, Political and Economic Factors. Many emerging market countries may
be subject to a greater degree of social, political and economic instability
than is the case in the United States. Any change in the leadership or policies
of these countries may halt the expansion of or reverse any liberalization of
foreign investment policies now occurring. Such instability may result from,
among other things, the following: (i) authoritarian governments or military
involvement in political and economic decision making, and changes in government
through extra-constitutional means; (ii) popular unrest associated with demands
for improved political, economic and social conditions; (iii) internal
insurgencies; (iv) hostile relations with neighboring countries; and (v) ethnic,
religious and racial disaffection. Such social, political and economic
instability could significantly disrupt the financial markets in those countries
and elsewhere and could adversely affect the value of a fund's assets. In
addition, there may be the possibility of asset expropriations or future
confiscatory levels of taxation affecting a fund.

Emerging markets include formerly communist countries of Eastern Europe,
the Commonwealth of Independent States (formerly the Soviet Union) and China.
Upon the accession to power of communist regimes approximately 50 to 80 years
ago, the governments of a number of these countries seized a large amount of
property. The claims of many property owners against those governments were
never finally settled. There can be no guarantee that a fund's investments in
these countries, if any, would not also be seized or otherwise taken away, in
which case the fund could lose its entire investment in the country involved.
In addition, any change in the leadership or policies of these countries may
halt the expansion of or reverse the liberalization of foreign investment
policies now occurring.

Few of the Asia Pacific Region countries have Western-style or fully
democratic governments. Some governments in the region are authoritarian in
nature and influenced by security forces. For example, during the course of the
last 25 years, governments in the region have been installed or removed as a
result of military coups, while others have periodically demonstrated
repressive

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police state characteristics. In several Asia Pacific Region countries, the
leadership ability of the government has suffered as a result of recent
corruption scandals. Disparities of wealth, among other factors, have also led
to social unrest in some of the Asia Pacific Region countries, accompanied, in
certain cases, by violence and labor unrest. Ethnic, religious and racial
disaffection have created social, economic and political problems. Such problems
also have occurred in other emerging markets throughout the world. As in some
other regions, several Asia Pacific Region countries have or in the past have
had hostile relationships with neighboring nations or have experienced internal
insurgency.

The funds may invest in Hong Kong, which reverted to Chinese administration
on July 1, 1997. [Although China has committed by treaty to preserve the
economic and social freedoms enjoyed in Hong Kong for 50 years after regaining
control, there can be no assurance that China will not renege, and in fact China
has announced its intent to repeal certain laws. Business confidence and market
and business performance in Hong Kong, therefore, can be significantly affected
by political developments.] As a result, a fund's investments in Hong Kong may
be subject to the same or similar risks as an investment in China.

The economies of most of the Asia Pacific Region countries and many other
emerging markets are heavily dependent upon international trade and are
accordingly affected by protective trade barriers and the economic conditions of
their trading partners, principally the United States, Japan, China and the
European Community. The enactment by the United States or other principal
trading partners of protectionist trade legislation, reduction of foreign
investment in the local economies and general declines in the international
securities markets could have a significant adverse effect upon the securities
markets of these countries. In addition, the economies of some countries are
vulnerable to weakness in world prices for their commodity exports, including
crude oil.

CURRENCY-LINKED INVESTMENTS. The funds may invest in securities that are
indexed to specific foreign currency exchange rates. The principal amount of
these securities may be adjusted up or down (but not below zero) at maturity to
reflect changes in the exchange rate between two currencies. A fund may
experience loss of principal due to these adjustments.

FOREIGN CURRENCY TRANSACTIONS. A significant portion of each fund's assets
may be invested in foreign securities, and substantially all related income may
be received by a fund in foreign currencies. Currency risk is the risk that
changes in foreign exchange rates may reduce the U.S. dollar value of a fund's
foreign investments. A fund's share value may change significantly when its
investments are denominated in foreign currencies. Generally, currency exchange
rates are determined by supply and demand in the foreign exchange markets and
the relative merits of investments in different countries. Currency exchange
rates also can be affected by the intervention of the U.S. and foreign
governments or central banks, the imposition of currency controls, speculation,
devaluation or other political or economic developments inside and outside the
United States.

Each fund values its assets daily in U.S. dollars and does not intend to
convert its holdings of foreign currencies to U.S. dollars on a daily basis.
From time to time a 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, a fund could suffer a loss of some or all
of the amounts deposited. Each fund may convert foreign currency to U.S. dollars
from time to time.

The value of the assets of a fund as measured in U.S. dollars may be
affected favorably or unfavorably by fluctuations in currency rates and exchange
control regulations. Further, a fund may incur costs in connection with
conversions between various currencies. Currency exchange dealers realize a
profit based on the difference between the prices at which they are buying and
selling various currencies. Thus, a dealer normally will offer to sell a foreign
currency to a fund at one rate, while offering a lesser rate of exchange should
a fund desire immediately to resell that currency to the dealer. Each fund
conducts its currency exchange transactions either on a spot (i.e., cash) basis
at the spot rate prevailing in the foreign currency exchange market, or through
entering into forward, futures or options contracts to purchase or sell foreign
currencies.

Starting in mid-1997, some Asia Pacific Region countries began to
experience currency devaluations that resulted in high interest rate levels and
sharp reductions in economic activity. There can be no assurance that economic
growth in the Asia Pacific Region will occur, that the growth rate will be as
high on either an absolute or relative scale as in the past or that market
performance will reflect any actual economic growth in the Asia Pacific Region
overall. Many of the countries within the Asia Pacific Region may experience
political, social or economic instability. Emerging markets outside the Asia
Pacific Region, such as Latin American countries or Russia and other former
members of the Soviet Union, also are susceptible to diminished prospects for
corporate earnings growth and political, social or economic instability as a
result of currency crisises or related events.

EUROPEAN CURRENCY UNIFICATION. Several European countries are in the
process of adopting a single currency, the euro. Effective January 1, 1999,
exchange rates for countries participating in the Economic and Monetary Union
became irrevocably fixed. A newly created European Central Bank (ECB) will
attempt to manage monetary policy for this region. Pre-existing national

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currencies will continue to be valid until they are replaced by euro coins and
bank notes, which is expected to occur by sometime in 2002. The participating
countries are Austria, Belgium, Finland, France, Germany, Ireland, Italy,
Luxembourg, the Netherlands, Portugal and Spain.

These changes may significantly impact European capital markets, and
related risks may increase volatility in world capital markets. This, in turn,
may impact a fund's share price. Risks include:

. The completion of currency unification could be delayed. This could
cause uncertainty in world markets and create unanticipated expenses
as a result of having to undo changes made in anticipation of the
timely completion of different stages of currency unification.

. Exchange rates between the U.S. dollar and European currencies may
become more volatile and unstable;

. European entities may face substantial conversion costs which may not
be accurately anticipated and could impact issuer profitability and
creditworthiness;

. Institutional investors may shift assets away from certain European
currencies because of the uncertainty, making markets less liquid;

. Some major European countries, including the United Kingdom, Sweden
and Denmark, will not be participating in currency unification. This
could lead to greater volatility in exchange rates between the
currencies of countries participating in the euro and those that are
not;

. There is a risk that some contracts (e.g., bank loan agreements,
derivatives contracts, and foreign exchange contracts) may become
unenforceable when the currencies are unified. Certain political
units, including The European Council and the State of New York, have
enacted laws or regulations designed to ensure that financial
contracts will continue to be enforceable after the euro's
introduction; however, it is possible that these laws will not be
completely effective in preventing disputes from arising. Disputes and
litigation could negatively impact a fund's portfolio holdings and may
create uncertainties in the valuation of financial contracts a fund
could hold;

. Suitable clearing, settlement and operational systems may not be ready
for the euro conversion;

. European interest rates and exchange rates could become more volatile
as the ECB and market participants search for a common understanding
of policy targets and instruments; and

. A participating country will no longer be able to use monetary policy
changes to address economic or political concerns that affect only
that country.

INVESTMENTS IN OTHER INVESTMENT COMPANIES. From time to time, investments
in other investment companies may be the most effective available means by which
a fund may invest in securities of issuers in certain countries. Such
investments may include, for example, World Equity Benchmark SharesSM (commonly
known as "WEBS"), which are exchange-traded shares of series of an investment
company that are designed to replicate the composition and performance of
publicly traded issuers in particular foreign countries. Investment in such
investment companies may involve the payment of management expenses and, in
connection with some purchases, sales loads and payment of substantial premiums
above the value of such companies' portfolio securities. At the same time, a
fund would continue to pay its own management fees and other expenses. Each fund
may invest in such investment companies when, in the judgment of Mitchell
Hutchins or a Sub-Adviser, the potential benefits of such investment outweigh
the payment of any applicable premium, sales load and expenses. In addition, the
funds' investments in such investment companies are subject to limitations under
the Investment Company Act of 1940 ("1940 Act") and market availability, and may
result in special federal income tax consequences.

U.S. GOVERNMENT SECURITIES include direct obligations of the U.S. Treasury
(such as Treasury bills, notes or bonds) and obligations issued or guaranteed as
to principal and interest (but not as to market value) by the U.S. government,
its agencies or its instrumentalities (collectively, "U.S. government
securities"). U.S. government securities include mortgage-backed securities
issued or guaranteed by government agencies or government-sponsored enterprises.
Other U.S. government securities may be backed by the full faith and credit of
the U.S. government or supported primarily or solely by the creditworthiness of
the government-related issuer or, in the case of mortgage-backed securities, by
pools of assets.

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<PAGE>

Treasury Inflation-Protection Securities ("TIPS") are Treasury bonds on
which the principal value is adjusted daily in accordance with changes in the
Consumer Price Index.. Interest on TIPS is payable semiannually on the adjusted
principal value. The principal value of TIPS would decline during periods of
deflation, but the principal amount payable at maturity would not be less than
the original par amount. If inflation is lower than expected while a fund holds
TIPS, the fund may earn less on the TIPS than it would on conventional Treasury
bonds. Any increase in the principal value of TIPS is taxable in the year the
increase occurs, even though holders do not receive cash representing the
increase at that time.

ZERO COUPON SECURITIES; OID SECURITIES. Zero coupon securities are
securities that make no periodic interest payments but instead are sold at a
deep discount from their face value. The buyer of these securities receives a
rate of return by the gradual appreciation of the security, which results from
the fact that it will be paid at face value on a specified maturity date. There
are many types of zero coupon securities. Some are issued in zero coupon form,
including Treasury bills, notes and bonds that have been stripped of their
unmatured interest coupons and receipts or certificates representing interests
in such stripped debt obligations and coupons. Others are created by brokerage
firms that strip (separate) the coupons (unmatured interest payments) from
interest-paying debt securities and sell the principal and the coupons
separately.

The funds may invest in other securities with original issue discount
("OID"), a term that means the securities are issued at a price that is lower
than their value at maturity, even though the securities also may make cash
payments of interest prior to maturity. These OID securities usually trade at a
discount from their face value.

Zero coupon securities pay no cash interest to holders prior to maturity.
Accordingly, they are generally more sensitive to changes in interest rates than
debt obligations of comparable maturities that make current interest payments.
This means that when interest rates fall, the value of zero coupon securities
rises more rapidly than securities paying interest on a current basis. However,
when interest rates rise, their value falls more dramatically. Other OID
securities also are subject to greater fluctuations in market value in response
to changing interest rates than debt securities of comparable maturities that
make current distributions of interest in cash. Federal tax law requires that
the holder of a zero coupon security or other OID 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. Accordingly, to continue to qualify as a regulated investment
company and to avoid a federal excise tax, a fund may be required to distribute
as dividends amounts that are greater than the total amount of cash it actually
receives. These distributions must be made from the fund's cash assets or, if
necessary, from the proceeds of sales of portfolio securities. A fund will not
be able to purchase additional securities with cash used to make such
distributions and its current income and the value of its shares may ultimately
be reduced as a result.

CONVERTIBLE SECURITIES. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest or dividends until the
convertible security matures or is redeemed, converted or exchanged. Convertible
securities have unique investment characteristics in that they generally (1)
have higher yields than common stocks, but lower yields than comparable non-
convertible securities, (2) are less subject to fluctuation in value than the
underlying stock because they have fixed income characteristics and (3) provide
the potential for capital appreciation if the market price of the underlying
common stock increases. While no securities investment is without some risk,
investments in convertible securities generally entail less risk than the
issuer's common stock. However, the extent to which such risk is reduced depends
in large measure upon the degree to which the convertible security sells above
its value as a fixed income security.

Before conversion, convertible securities have characteristics similar to
non-convertible 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 non-
convertible securities. The value of a convertible security is a function of
its "investment value" (determined by its yield 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. 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

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<PAGE>

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.

MORTGAGE-BACKED SECURITIES. Mortgage-backed securities represent direct or
indirect interests in pools of underlying mortgage loans that are secured by
real property. U.S. government mortgage-backed securities are issued or
guaranteed as to the payment of principal and interest (but not as to market
value) by Ginnie Mae (also known as the Government National Mortgage
Association), Fannie Mae (also known as the Federal National Mortgage
Association) Freddie Mac (also known as the Federal Home Loan Mortgage
Corporation) or other government sponsored enterprises. Other domestic
mortgage-backed securities are sponsored or issued by private entities,
generally originators of an investors in mortgage loans, including savings
associations, mortgage bankers, commercial banks, investment bankers and special
purposes entities (collectively, "Private Mortgage Lenders"). Payments of
principal and interest (but not the market value) of such private mortgage-
backed securities may be supported by pools of mortgage loans or other mortgage-
backed securities that are guaranteed, directly or indirectly, by the U.S.
government or one of its agencies or instrumentalities, or they may be issued
without any government guarantee of the underlying mortgage assets but with some
form of non-government credit enhancement. Foreign mortgage-backed securities
may be issued by mortgage banks and other private or governmental entities
outside the United States and are supported by interests in foreign real estate.

Mortgage-backed securities may be composed of one or more classes and may
be structured either as pass-through securities or collateralized debt
obligations. Multiple-class mortgage-backed securities are referred to herein
as "CMOs." Some CMOs are directly supported by other CMOs, which in turn are
supported by mortgage pools. Investors typically receive payments out of the
interest and principal on the underlying mortgages. The portions of these
payments that investors receive, as well as the priority of their rights to
receive payments, are determined by the specific terms of the CMO class. CMOs
involve special risk and evaluating them requires special knowledge.

A major difference between mortgage-backed securities and traditional bonds
is that interest and principal payments are made more frequently (usually
monthly) and that principal may be repaid at any time. When interest rates go
down and homeowners refinance their mortgages, mortgage-backed securities may be
paid off more quickly than investors expect. When interest rates rise,
mortgage-backed securities may be paid off more slowly than originally expected.
Changes in the rate or "speed" of these prepayments can cause the value of
mortgage-backed securities to fluctuate rapidly.

Because of prepayments, mortgage-backed securities may benefit less than
other bonds from declining interest rates. Reinvestments of prepayments may
occur at lower interest rates than the original investment, thus adversely
affecting a fund's yield. Actual prepayment experience may cause the yield of a
mortgage-backed security to differ from what was assumed when the fund purchased
the security.

CMO classes may be specially structured in a manner that provides any of a
wide variety of investment characteristics, such as yield, effective maturity
and interest rate sensitivity. As market conditions change, however, and
particularly during periods of rapid or unanticipated changes in market interest
rates, the attractiveness of the CMO classes and the ability of the structure to
provide the anticipated investment characteristics may be significantly reduced.
These changes can result in volatility in the market value, and in some
instances reduced liquidity, of the CMO class.

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

The market for privately issued mortgage-backed securities is smaller and
less liquid than the market for U.S. government mortgage-backed securities.
Foreign mortgage-backed securities markets are substantially smaller than U.S.
markets, but have been established in several countries, including Germany,
Denmark, Sweden, Canada and Australia, and may be developed elsewhere.

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<PAGE>

Foreign mortgage-backed securities generally are structured differently than
domestic mortgage-backed securities, but they normally present substantially
similar investment risks as well as the other risks normally associated with
foreign securities.

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

More information concerning these mortgage-backed securities and the
related risks of investments therein is set forth below. New types of mortgage-
backed securities are developed and marketed from time to time and, consistent
with their investment limitations, the funds expect to invest in those new types
of mortgage-backed securities that Mitchell Hutchins or the Sub-Advisers believe
may assist the funds in achieving their investment objectives. Similarly, the
funds may invest in mortgage-backed securities issued by new or existing
governmental or private issuers other than those identified herein. The funds
also may invest in foreign mortgage-backed securities which may be structured
differently than domestic mortgage-backed securities.

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

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

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

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

Collateralized Mortgage Obligations and Multi-Class Mortgage Pass-Throughs-
- -CMOs are debt obligations that are collateralized by mortgage loans or mortgage
pass-through securities (such collateral collectively being called "Mortgage
Assets"). CMOs may be issued by Private Mortgage Lenders or by government
entities such as Fannie Mae or Freddie Mac. Multi-class mortgage pass-through
securities are interests in trusts that are comprised of Mortgage Assets and
that have multiple classes similar to

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<PAGE>

those in CMOs. Unless the context indicates otherwise, references herein to CMOs
include multi-class mortgage pass-through securities. Payments of principal of,
and interest on, the Mortgage Assets (and in the case of CMOs, any reinvestment
income thereon) provide the funds to pay debt services on the CMOs or to make
scheduled distributions on the multi-class mortgage pass-through securities.

In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMO, also referred to as a "tranche," is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrued on all classes of a CMO (other than any principal-
only or "PO" class) on a monthly, quarterly or semiannual basis. The principal
and interest on the Mortgage Assets may be allocated among the several classes
of a CMO in many ways. In one structure, payments of principal, including any
principal prepayments, on the Mortgage Assets are applied to the classes of a
CMO in the order of their respective stated maturities or final distribution
dates so that no payment of principal will be made on any class of the CMO until
all other classes having an earlier stated maturity or final distribution date
have been paid in full. In some CMO structures, all or a portion of the interest
attributable to one or more of the CMO classes may be added to the principal
amounts attributable to such classes, rather than passed through to
certificateholders on a current basis, until other classes of the CMO are paid
in full.

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

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

Types of Credit Enhancement--To lessen the effect of failures by obligors
on Mortgage Assets to make payments, mortgage-backed securities may contain
elements of credit enhancement. Such credit enhancement falls into two
categories: (1) liquidity protection and (2) protection against losses resulting
after default by an obligor on the underlying assets and collection of all
amounts recoverable directly from the obligor and through liquidation of the
collateral. Liquidity protection refers to the provision of advances, generally
by the entity administering the pool of assets (usually the bank, savings
association or mortgage banker that transferred the underlying loans to the
issuer of the security), to ensure that the receipt of payments on the
underlying pool occurs in a timely fashion. Protection against losses resulting
after default and liquidation ensures ultimate payment of the obligations on at
least a portion of the assets in the pool. Such protection may be provided
through guarantees, insurance policies or letters of credit obtained by the
issuer or sponsor, from third parties, through various means of structuring the
transaction or through a combination of such approaches. A fund will not pay any
additional fees for such credit enhancement, although the existence of credit
enhancement may increase the price of a security. Credit enhancements do not
provide protection against changes in the market value of the security. Examples
of credit enhancement arising out of the structure of the transaction include
"senior-subordinated securities" (multiple class securities with one or more
classes subordinate to other classes as to the payment of principal thereof and
interest thereon, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of "spread
accounts" or "reserve funds" (where cash or investments, sometimes funded from a
portion of the payments on the underlying assets, are held in reserve against
future losses) and "over-collateralization" (where the scheduled payments on, or
the principal amount of, the underlying assets exceed that required to make
payment of the securities and pay any servicing or other fees). The degree of
credit enhancement provided for each issue generally is based on historical
information regarding the level of credit risk associated with the underlying
assets. Delinquency or loss in excess of that anticipated could adversely affect
the return on an investment in such a security.

Special Characteristics of Mortgage-Backed Securities--The yield
characteristics of mortgage-backed securities differ from those of traditiona1
debt securities. Among the major differences are that interest and principal
payments are made more frequently, usually monthly, and that principal may be
prepaid at any time because the underlying mortgage loans generally may be
prepaid at any time. Prepayments on a pool of mortgage loans are influenced by a
variety of economic, geographic, social and other factors, including changes in
mortgagors' housing needs, job transfers, unemployment, mortgagors' net equity
in the mortgaged properties and servicing decisions. Generally, however,
prepayments on fixed-rate mortgage loans will increase during a period of
falling

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<PAGE>

interest rates and decrease during a period of rising interest rates. Mortgage-
backed securities may decrease in value as a result of increases in interest
rates and may benefit less than other fixed-income securities from declining
interest rates because of the risk of prepayment.

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

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

Adjustable Rate Mortgage and Floating Rate Mortgage-Backed Securities--
Adjustable Rate Mortgage ("ARM") mortgage-backed securities are mortgage-backed
securities that represent a right to receive interest payments at a rate that is
adjusted to reflect the interest earned on a pool of mortgage loans bearing
variable or adjustable rates of interest (such mortgage loans are referred to as
"ARMs"). Floating rate mortgage-backed securities are classes of mortgage-backed
securities that have been structured to represent the right to receive interest
payments at rates that fluctuate in accordance with an index but that generally
are supported by pools comprised of fixed-rate mortgage loans. Because the
interest rates on ARM and floating rate mortgage-backed securities are reset in
response to changes in a specified market index, the values of such securities
tend to be less sensitive to interest rate fluctuations than the values of
fixed-rate securities. As a result, during periods of rising interest rates,
ARMs generally do not decrease in value as much as fixed rate securities.
Conversely, during periods of declining rates, ARMs generally do not increase in
value as much as fixed rate securities. ARM mortgage-backed securities represent
a right to receive interest payments at a rate that is adjusted to reflect the
interest earned on a pool of ARMs. ARMs generally specify that the borrower's
mortgage interest rate may not be adjusted above a specified lifetime maximum
rate or, in some cases, below a minimum lifetime rate. In addition, certain ARMs
specify limitations on the maximum amount by which the mortgage interest rate
may adjust for any single adjustment period. ARMs also may limit changes in the
maximum amount by which the borrower's monthly payment may adjust for any single
adjustment period. In the event that a monthly payment is not sufficient to pay
the interest accruing on the ARM, any such excess interest is added to the
mortgage loan ("negative amortization"), which is repaid through future
payments. If the monthly payment exceeds the sum of the interest accrued at the
applicable mortgage interest rate and the principal payment that would have been
necessary to amortize the outstanding principal balance over the remaining term
of the loan, the excess reduces the principal balance of the ARM. Borrowers
under ARMs experiencing negative amortization may take longer to build up their
equity in the underlying property and may be more likely to default.

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

The rates of interest payable on certain ARMs, and therefore on certain ARM
mortgage-backed securities, are based on indices, such as the one-year constant
maturity Treasury rate, that reflect changes in market interest rates. Others
are based on indices, such as the 11th District Federal Home Loan Bank Cost of
Funds Index ("COFI"), that tend to lag behind changes in market interest rates.
The values of ARM mortgage-backed securities supported by ARMs that adjust based
on lagging indices tend to be somewhat

16
<PAGE>

more sensitive to interest rate fluctuations than those reflecting current
interest rate levels, although the values of such ARM mortgage-backed securities
still tend to be less sensitive to interest rate fluctuations than fixed-rate
securities.

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

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

When Global Income Fund purchases Assignments from Lenders, it acquires
direct rights against the borrower on the Loan. In an Assignment, the fund is
entitled to receive payments directly from the borrower and, therefore, does not
depend on the selling bank to pass these payments onto the fund. However,
because Assignments are arranged through private negotiations between potential
assignees and assignors, the rights and obligations acquired by the fund as the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender.

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

TEMPORARY AND DEFENSIVE INVESTMENTS; MONEY MARKET INVESTMENTS. Each fund
may invest in money market investments for temporary or defensive purposes or as
part of its normal investment program.. Such investments include, among other
things, (1) securities issued or guaranteed by the U.S. government or one of its
agencies or instrumentalities, (2) debt obligations of banks, savings and loan
institutions, insurance companies and mortgage bankers, (3) commercial paper and
notes, including those with variable and floating rates of interest, (4) debt
obligations of foreign branches of U.S. banks, U.S. branches of foreign banks
and foreign branches of foreign banks, (5) debt obligations issued or guaranteed
by one or more foreign governments or any of their political subdivisions,
agencies or instrumentalities, including obligations of supranational entities,
(6) debt securities issued by foreign issuers, (7) repurchase agreements and (8)
other investment companies that invest exclusively in money market instruments.

WARRANTS. Warrants are securities permitting, but not obligating, holders
to subscribe for other securities. Warrants do not carry with them the right to
dividends or voting rights with respect to the securities that they entitle
their holder to purchase, and they do not represent any rights in the assets of
the issuer. As a result, warrants may be considered more speculative than
certain other types of investments. In addition, the value of a warrant does not
necessarily change with the value of the underlying securities, and a warrant
ceases to have value if it is not exercised prior to its expiration date.

ILLIQUID SECURITIES. The term "illiquid securities" for purposes of the
Prospectus and Statement of Additional Information 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 OTC options, repurchase agreements maturing in
more than seven days and restricted securities other than those Mitchell
Hutchins or a Sub-Adviser, as applicable, has determined are liquid pursuant to
guidelines established by each fund's board. The assets used as cover for OTC
options written by the funds will be

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considered illiquid unless the OTC options are sold to qualified dealers who
agree that the funds may repurchase any OTC options they write at a maximum
price to be calculated by a formula set forth in the option agreements. The
cover for an OTC option written subject to this procedure would be considered
illiquid only to the extent that the maximum repurchase price under the formula
exceeds the intrinsic value of the option. Under current SEC guidelines, IO and
PO classes of mortgage-backed securities generally are considered illiquid.
However, IO and PO classes of fixed-rate mortgage-backed securities issued by
the U.S. government or one of its agencies or instrumentalities will not be
considered illiquid if Mitchell Hutchins or a Sub-Adviser has determined that
they are liquid pursuant to guidelines established by each fund's board. To the
extent a fund invests in illiquid securities, it may not be able to readily
liquidate such investments and may have to sell other investments if necessary
to raise cash to meet its obligations. The lack of a liquid secondary market for
illiquid securities may make it more difficult for a fund to assign a value to
those securities for purposes of valuing its portfolio and calculating its net
asset value.

Restricted securities are not registered under the 1933 Act and may be sold
only in privately negotiated or other exempted transactions or after a 1933 Act
registration statement has become effective. 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 a 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.

However, not all restricted securities are illiquid. To the extent that
foreign securities are freely tradeable in the country in which they are
principally traded, they generally are not considered illiquid, even if they are
restricted in the United States. A large institutional market has developed for
many U.S. and foreign securities that are not registered under the 1933 Act.
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.

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

Each board has delegated the function of making day-to-day determinations
of liquidity to Mitchell Hutchins or a Sub-Adviser, as applicable, pursuant to
guidelines approved by the board. Mitchell Hutchins or the Sub-Adviser 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 or a Sub-Adviser monitors the liquidity of restricted
securities in each fund's portfolio and reports periodically on such decisions
to the applicable board.

REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which a
fund purchases securities or other obligations from a bank or securities dealer
(or its affiliate) and simultaneously commits to resell them to the counterparty
at an agreed-upon date or upon demand and at a price reflecting a market rate of
interest unrelated to the coupon rate or maturity of the purchased obligations.
A fund maintains custody of the underlying obligations prior to their
repurchase, either through its regular custodian or through a special "tri-
party" custodian or sub-custodian that maintains separate accounts for both the
fund and its counterparty. Thus, the obligation of the counterparty to pay the
repurchase price on the date agreed to or upon demand is, in effect, secured by
such obligations. Repurchase agreements carry certain risks not associated with
direct investments in securities, including a possible decline in the market
value of the underlying obligations. Repurchase agreements involving
obligations other than U.S. government securities (such as commercial paper and
corporate bonds) may be subject to special risks and may not have the benefit of
certain protections in the event of the counterparty's insolvency. If the
seller or guarantor becomes insolvent, the fund may suffer delays, costs and
possible losses in connection with the disposition of collateral. If their
value becomes less than the repurchase price, plus any agreed-upon additional
amount, the counterparty 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 obligations and the price that was paid by a fund upon
acquisition is accrued as interest and included in its net investment income.
Each fund intends to enter into repurchase agreements only with counterparties
in transactions believed by Mitchell Hutchins or a sub-adviser to present
minimum credit risks in accordance with guidelines established by the fund's
board.

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REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements involve the
sale of securities held by a fund subject to its agreement to repurchase the
securities at an agreed-upon date or upon demand and at a price reflecting a
market rate of interest. Such agreements are considered to be borrowings and
may be entered into only with banks and securities dealers and for temporary or
emergency purposes. While a reverse repurchase agreement is outstanding, a fund
will maintain, in a segregated account with its custodian, cash or liquid
securities, marked to market daily, in an amount at least equal to its
obligations under the reverse repurchase agreement.

Reverse repurchase agreements involve the risk that the buyer of the
securities sold by a fund might be unable to deliver them when that fund seeks
to repurchase. In the event that the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, such buyer or
trustee or receiver may receive an extension of time to determine whether to
enforce that fund's obligation to repurchase the securities, and the fund's use
of the proceeds of the reverse repurchase agreement may effectively be
restricted pending such decision.

DURATION. Duration is a measure of the expected life of a debt security on
a present value basis. Duration incorporates the debt security's yield, coupon
interest payments, final maturity and call features into one measures and is one
of the fundamental tools used by Mitchell Hutchins in portfolio selection and
yield curve positioning a fund's investments in debt securities. Duration was
developed as a more precise alternative to the concept "term to maturity."
Traditionally, a debt security's "term to maturity" has been used as a proxy for
the sensitivity of the security's price to changes in interest rates (which is
the "interest rate risk" or "volatility" of the security). However, "term to
maturity" measures only the time until a debt security provides for a final
payment, taking no account of the pattern of the security's payments prior to
maturity.

Duration takes the length of the time intervals between the present time
and the time that the interest and principal payments are scheduled or, in the
case of a callable debt security, expected to be made, and weights them by the
present values of the cash to be received at each future point in time. For any
debt security with interest payments occurring prior to the payment of
principal, duration is always less than maturity. For example, depending on its
coupon and the level of market yields, a Treasury note with a remaining maturity
of five years might have a duration of 4.5 years. For mortgage-backed and other
securities that are subject to prepayments, put or call features or adjustable
coupons, the difference between the remaining stated maturity and the duration
is likely to be much greater.

Duration allows Mitchell Hutchins to make certain predictions as to the
effect that changes in the level of interest rates will have on the value of a
fund's portfolio of debt securities. For example, when the level of interest
rates increases by 1%, a debt security having a positive duration of three years
generally will decrease by approximately 3%. Thus, if Mitchell Hutchins
calculates the duration of a fund's portfolio of debt securities as three years,
it normally would expect the portfolio to change in value by approximately 3%
for every 1% change in the level of interest rates. However, various factors,
such as changes in anticipated prepayment rates, qualitative considerations and
market supply and demand, can cause particular securities to respond somewhat
differently to changes in interest rates than indicated in the above example.
Moreover, in the case of mortgage-backed and other complex securities, duration
calculations are estimates and are not precise. This is particularly true during
periods of market volatility. Accordingly, the net asset value of a fund's
portfolio of debt securities may vary in relation to interest rates by a greater
or lesser percentage than indicated by the above example.

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

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

LENDING OF PORTFOLIO SECURITIES. Each fund is authorized to lend its
portfolio securities to broker-dealers or institutional investors that Mitchell
Hutchins deems qualified. Lending securities enables a fund to earn additional
income, but could result in a loss or delay in recovering these securities. The
borrower of a fund's portfolio securities must maintain acceptable collateral
with that

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fund's custodian in an amount, marked to market daily, at least equal to the
market value of the securities loaned, plus accrued interest and dividends.
Acceptable collateral is limited to cash, U.S. government securities and
irrevocable letters of credit that meet certain guidelines established by
Mitchell Hutchins. Each fund may reinvest any cash collateral in money market
investments or other short-term liquid investments. 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 of its loans at any
time. Each fund may pay reasonable fees in connection with a loan and may pay
the borrower or placing broker a negotiated portion of the interest earned on
the reinvestment of cash held as collateral. A fund will receive amounts
equivalent to any dividends, interest or other distributions on the securities
loaned. Each fund will regain record ownership of loaned securities to exercise
beneficial rights, such as voting and subscription rights, when regaining such
rights is considered to be in the fund's interest.

Pursuant to procedures adopted by the boards governing each fund's
securities lending program, PaineWebber has been retained to serve as lending
agent for each fund. The boards also have authorized the payment of fees
(including fees calculated as a percentage of invested cash collateral) to
PaineWebber for these services. Each board periodically reviews all portfolio
securities loan transactions for which PaineWebber acted as lending agent.
PaineWebber also has been approved as a borrower under each fund's securities
lending program.

SHORT SALES "AGAINST THE BOX." Each fund may engage in short sales of
securities it owns or has the right to acquire at no added cost through
conversion or exchange of other securities it owns (short sales "against the
box"). To make delivery to the purchaser in a short sale, the executing broker
borrows the securities being sold short on behalf of a fund, and that fund is
obligated to replace the securities borrowed at a date in the future. When a
fund sells short, it establishes a margin account with the broker effecting the
short sale and deposits collateral with the broker. In addition, the fund
maintains, in a segregated account with its custodian, the securities that could
be used to cover the short sale. Each fund incurs transaction costs, including
interest expense, in connection with opening, maintaining and closing short
sales "against the box."

A fund might make a short sale "against the box" in order to hedge against
market risks when Mitchell Hutchins or a Sub-Adviser believes that the price of
a security may decline, thereby causing a decline in the value of a security
owned by the fund or a security convertible into or exchangeable for a security
owned by the fund. In such case, any loss in the fund's long position after the
short sale should be reduced by a corresponding gain in the short position.
Conversely, any gain in the long position after the short sale should be reduced
by a corresponding loss in the short position. The extent to which gains or
losses in the long position are reduced will depend upon the amount of the
securities sold short relative to the amount of the securities a fund owns,
either directly or indirectly, and in the case where the fund owns convertible
securities, changes in the investment values or conversion premiums of such
securities.

SEGREGATED ACCOUNTS. When a fund enters into certain transactions that
involve obligations to make future payments to third parties, including the
purchase of securities on a when-issued or delayed delivery basis, or reverse
repurchase agreements, it will maintain with an approved custodian in a
segregated account cash or liquid securities, marked to market daily, in an
amount at least equal to the fund's obligation or commitment under such
transactions. As described below under "Strategies Using Derivative
Instruments," segregated accounts may also be required in connection with
certain transactions involving options, futures or forward currency contracts
(and, for Global Income Fund and Asia Pacific Growth Fund, swaps).

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each fund may purchase
securities on a "when-issued" basis or may purchase or sell securities for
delayed delivery, I.E., for issuance or delivery to the fund later than the
normal settlement date for such securities at a stated price and yield. A fund
generally would not pay for such securities or start earning interest on them
until they are received. However, when a fund undertakes a when-issued or
delayed-delivery obligation, it immediately assumes the risks of ownership,
including the risks of price fluctuation. Failure of the issuer to deliver a
security purchased by a fund on a when-issued or delayed-delivery basis may
result in the fund's incurring or missing an opportunity to make an alternative
investment. Depending on market conditions, a fund's when-issued and delayed-
delivery purchase commitments could cause its net asset value per share to be
more volatile, because such securities may increase the amount by which the
fund's total assets, including the value of when-issued and delayed-delivery
securities held by that fund, exceeds its net assets.

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 commits to purchase securities on a when-
issued or delayed delivery basis, its custodian segregates assets to cover the
amount of the commitment. See "Investment Policies and Restrictions--Segregated
Accounts." A fund purchases when-issued securities only with the intention of
taking delivery,

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but may sell the right to acquire the security prior to delivery if Mitchell
Hutchins or a Sub-Adviser, as applicable, deems it advantageous to do so, which
may result in a gain or loss to the fund.

INVESTMENT LIMITATIONS OF THE FUNDS

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

Each fund will not:

(1) purchase any security if, as a result of that purchase, 25% or more of
the fund's total assets would be invested in securities of issuers having their
principal business activities in the same industry, except that this limitation
does not apply to securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities or to municipal securities.

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

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

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

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

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

In addition, Global Equity Fund, Asia Pacific Growth Fund and Emerging
Markets Equity Fund will not:

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

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

NON-FUNDAMENTAL LIMITATIONS. The following investment restrictions are non-
fundamental and may be changed by the vote of the appropriate board without
shareholder approval.

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Each fund will not:

(1) invest more than 10% of its net assets (15% of net assets for Asia
Pacific Growth Fund and Emerging Markets Equity Fund) in illiquid securities;

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

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

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

(5) purchase securities of other investment companies, except to the
extent permitted by the 1940 Act and except that this limitation does not apply
to securities received or acquired as dividends, through offers of exchange, or
as a result of reorganization, consolidation, or merger (and except that a fund
will not purchase securities of registered open-end investment companies or
registered unit investment trusts in reliance on Sections 12(d)(1)(F) or
12(d)(1)(G) of the 1940 Act).

STRATEGIES USING DERIVATIVE INSTRUMENTS

GENERAL DESCRIPTION OF DERIVATIVE INSTRUMENTS. Mitchell Hutchins and the
Sub-Advisers may use a variety of financial instruments ("Derivative
Instruments"), including certain options, futures contracts (sometimes referred
to as "futures"), options on futures contracts and forward currency contracts,
to attempt to hedge each fund's portfolio. Mitchell Hutchins also may use these
Derivative Instruments to adjust Global Equity Fund's exposure to U.S. and
foreign equity markets in connection with a reallocation of the fund's assets
and for cash management. Global Income Fund also may use these Derivative
Instruments to attempt to enhance income or realize gains and to manage the
duration of its portfolio. Global Income Fund and Asia Pacific Growth Fund may
enter into interest rate swaps, and Asia Pacific Growth Fund may engage in
currency swaps, as also described below. A fund may enter into transactions
involving one or more types of Derivative Instruments under which the full value
of its portfolio is at risk. Under normal circumstances, however, each fund's
use of these instruments will place at risk a much smaller portion of its
assets. In particular, each fund may use the Derivative Instruments described
below.

The funds might not use any derivative instruments or strategies, and there
can be no assurance that using any strategy will succeed. If a sub-adviser or
Mitchell Hutchins, as applicable, is incorrect in its judgment on market values,
interest rates or other economic factors in using a derivative instrument or
strategy, a fund may have lower net income and a net loss on the investment.

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
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 or at
specified times or at the expiration of the option, depending on the type of
option involved. 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 or at specified times or at the expiration of the option,
depending on the type of option involved. 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. A securities index option operates in the
same way as a more traditional securities option, except that exercise of a
securities index option is effected with cash payment and does not involve
delivery of securities. Thus, upon exercise of a securities 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 securities
index.

SECURITIES INDEX FUTURES CONTRACTS--A securities 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 securities index value at the
close of trading of the contract and the price at which the futures contract
is

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originally struck. No physical delivery of the securities comprising the index
is made. Generally, contracts are closed out prior to the expiration date of the
contract.

INTEREST RATE 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.

GENERAL DESCRIPTION OF STRATEGIES USING DERIVATIVE INSTRUMENTS. Hedging
strategies can be broadly categorized as "short hedges" and "long hedges." A
short hedge is a purchase or sale of a Derivative 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
Derivative 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, a 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, a 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 Derivative 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 Derivative 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, a fund could exercise the call and thus limit its acquisition
cost to the exercise price plus the premium paid and transactions costs.
Alternatively, a fund might be able to offset the price increase by closing out
an appreciated call option and realizing a gain.

A fund may purchase and write (sell) straddles on securities or indices of
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 equal to the exercise price of the call. A fund
might enter into a long straddle when Mitchell Hutchins or a Sub-Adviser
believes it likely that the prices of the securities will be more volatile
during the term of the option than the option pricing implies. A short straddle
is a combination of a call and a put written on the same security where the
exercise price of the put is equal to the exercise price of the call. A fund
might enter into a short straddle when Mitchell Hutchins or a Sub-Adviser
believes it unlikely that the prices of the securities will be as volatile
during the term of the option as the option pricing implies.

Derivative 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. Derivative Instruments on stock indices, in contrast,
generally are used to hedge against price movements in broad equity market
sectors in which a fund has invested or expects to invest. Derivative
Instruments on debt securities may be used to hedge either individual securities
or broad fixed income market sectors.

Income strategies using Derivative Instruments may include the writing of
covered options to obtain the related option premiums. Gain strategies may
include using Derivative Instruments to increase or decrease a fund's exposure
to different asset classes without buying or selling the underlying instruments.
A fund also may use derivatives to simulate full investment by the fund while
maintaining a cash balance for fund management purposes (such as to provide
liquidity to meet anticipated shareholder sales of fund shares and for fund
operating expenses).

23
<PAGE>

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

In addition to the products, strategies and risks described below and in
the Prospectus, Mitchell Hutchins and the Sub-Advisers may discover additional
opportunities in connection with Derivative Instruments and with hedging, income
and gain strategies. These new opportunities may become available as regulatory
authorities broaden the range of permitted transactions and as new Derivative
Instruments and techniques are developed. Mitchell Hutchins or a Sub-Adviser may
utilize these opportunities for a fund to the extent that they are consistent
with the fund's investment objective and permitted by its 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 STRATEGIES USING DERIVATIVE INSTRUMENTS. The use of
Derivative Instruments involves special considerations and risks, as described
below. Risks pertaining to particular Derivative Instruments are described in
the sections that follow.

(1) Successful use of most Derivative Instruments depends upon the ability
of Mitchell Hutchins or a Sub-Adviser to predict movements of the overall
securities, interest rate or currency exchange markets, which requires different
skills than predicting changes in the prices of individual securities. While
Mitchell Hutchins and the Sub-Advisers are experienced in the use of Derivative
Instruments, there can be no assurance that any particular strategy adopted will
succeed.

(2) There might be imperfect correlation, or even no correlation, between
price movements of a Derivative Instrument and price movements of the
investments that are being hedged. For example, if the value of a Derivative
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 affecting the markets in which Derivative
Instruments are traded, rather than the value of the investments being hedged.
The effectiveness of hedges using Derivative Instruments on indices will depend
on the degree of correlation between price movements in the index and price
movements in the securities being hedged.

(3) Hedging strategies, if successful, can reduce risk of loss by wholly
or partially offsetting the negative effect of unfavorable price movements in
the investments being hedged. However, hedging strategies can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if a fund entered into a short
hedge because Mitchell Hutchins or a Sub-Adviser projected a decline in the
price of a security in that 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 Derivative Instrument. Moreover, if the
price of the Derivative Instrument declined by more than the increase in the
price of the security, that 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 Derivative Instruments involving obligations to third parties
(i.e., Derivative Instruments other than purchased options). If the fund was
unable to close out its positions in such Derivative Instruments, it might be
required to continue to maintain such assets or accounts or make such payments
until the positions expired or matured. These requirements might impair a fund's
ability to sell a portfolio security or make an investment at a time when it
would otherwise be favorable to do so, or require that the fund sell a portfolio
security at a disadvantageous time. A fund's ability to close out a position in
a Derivative Instrument prior to expiration or maturity depends on the existence
of a liquid secondary market or, in the absence of such a market, the ability
and willingness of a contra party to enter into a transaction closing out the
position. Therefore, there is no assurance that any hedging position can be
closed out at a time and price that is favorable to a fund.

COVER FOR STRATEGIES USING DERIVATIVE INSTRUMENTS. Transactions using
Derivative Instruments, other than purchased options, expose the funds 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 or futures contracts or (2) cash or liquid
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 such transactions and will, if
the guidelines so require, set aside cash or liquid securities in a segregated
account with its custodian in the prescribed amount.

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

24
<PAGE>

OPTIONS. The funds may purchase put and call options, and write (sell)
covered put or call options on securities in which they invest and related
indices and on foreign currencies. The purchase of call options may serve as a
long hedge, and the purchase of put options may serve as a short hedge. A fund
may also use options to attempt to realize gains by increasing or reducing its
exposure to an asset class without purchasing or selling the underlying
securities. 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. 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 affected 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. The
securities or other assets used as cover for OTC options written by a fund would
be considered illiquid to the extent described under "Investment Policies and
Restrictions--Illiquid Securities."

The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options normally have expiration dates
of up to nine months. 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 or put option that it had written by purchasing an
identical call or put 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 and 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 are issued by a clearing
organization affiliated with the exchange on which the option is listed which,
in effect, guarantees completion of every exchange-traded option transaction. In
contrast, OTC options are contracts between a fund and its counterparty (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 counterparty to
make or take delivery of the underlying investment upon exercise of the option.
Failure by the counterparty 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.

Generally, the OTC debt options or 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. There are also other types of options exercisable on certain specified
dates before expiration.

The funds' ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. The funds intend 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
funds will enter into OTC options only with contra parties that are expected to
be capable of entering into closing transactions with the funds, there is no
assurance that a 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, a fund might be unable to close out an OTC option position at any
time prior to its expiration.

If a fund were unable to effect a closing transaction for an option it had
purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered 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.

A fund may purchase and write put and call options on indices 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 a securities market
(or market sector) rather than anticipated increases or decreases in the value
of a particular security.

25
<PAGE>

LIMITATIONS ON THE USE OF OPTIONS. The use of options is governed by the
following guidelines, which can be changed by each fund's board without
shareholder vote:

(1) A fund may purchase a put or call option, including any straddle or
spread, 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 its 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 its net assets.

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

FUTURES. The funds may purchase and sell securities index futures
contracts, interest rate futures contracts, debt security index futures
contracts and foreign currency futures contracts. A fund may also purchase put
and call options, and write covered put and call 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, and writing covered put options on futures
contracts can serve as a limited long hedge, using a strategy similar to that
used for writing covered options on securities or indices. In addition, Global
Equity Fund and Global Income Fund may purchase or sell futures contracts or
purchase options thereon to increase or reduce its exposure to an asset class
without purchasing or selling the underlying securities.

Futures strategies also can be used to manage the average duration of
Global Income Fund's portfolio. If Mitchell Hutchins wishes to shorten the
average duration of this 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.

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

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

Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking to market." Variation margin does not involve borrowing, but rather
represents a daily settlement of each 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 a 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 funds intend 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

26
<PAGE>

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. A fund would continue to be subject
to market risk with respect to the position. In addition, except in the case of
purchased options, a 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.

LIMITATIONS ON THE USE OF FUTURES AND RELATED OPTIONS. The use of futures
and related options is governed by the following guidelines, which can be
changed by a fund's board without shareholder vote:

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

(2) The aggregate premiums paid on all options (including options on
securities, foreign currencies and securities indices and options on futures
contracts) purchased by each fund that are held at any time will not exceed 20%
of its net assets.

(3) The aggregate margin deposits on all futures contracts and options
thereon held at any time by each fund will not exceed 5% of its total assets.

FOREIGN CURRENCY HEDGING STRATEGIES--SPECIAL CONSIDERATIONS. Each fund may
use options and futures on foreign currencies, as described above, and forward
currency contracts, as described below, to hedge against movements in the values
of the foreign currencies in which the fund's securities are denominated. Such
currency hedges can protect against price movements in a security 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.

A fund might seek to hedge against changes in the value of a particular
currency when no Derivative Instruments on that currency are available or such
Derivative Instruments are considered expensive. In such cases, the fund may
hedge against price movements in that currency by entering into transactions
using Derivative Instruments on another currency or a basket of currencies, the
value of which Mitchell Hutchins or a Sub-Adviser believes will have a positive
correlation to the value of the currency being hedged. In addition, a fund may
use forward currency contracts to shift exposure to foreign currency
fluctuations from one country to another. For example, if a fund owned
securities denominated in a foreign currency and Mitchell Hutchins or the Sub-
Adviser believed that currency would 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 Derivative Instrument will not correlate or will correlate
unfavorably with the foreign currency being hedged.

The value of Derivative 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 Derivative
Instruments, a fund could be disadvantaged by having to deal in the odd-lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.

There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is

27
<PAGE>

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 Derivative Instruments until they reopen.

Settlement of Derivative Instruments involving foreign currencies might be
required to take place within the country issuing the underlying currency. Thus,
the funds 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. A 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, 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. Global Income Fund may use forward
currency contracts to realize gains from favorable changes in exchange rates.

The cost to a 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 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 purchased or sold. Secondary markets
generally do not exist for forward currency contracts, with the result that
closing transactions generally can be made for forward currency contracts only
by negotiating directly with the contra party. Thus, there can be no assurance
that 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, a 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.

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 segregates with its custodian
cash or liquid securities 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.

SWAP TRANSACTIONS. Swap transactions include swaps, caps, floors and
collars. Interest rate swaps 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 contra party when a designated market
interest rate goes above (in the case of a cap) or below (in the case of a
floor) a designated level on predetermined dates or during a specified time
period. Interest rate collar transactions involve an agreement between two
parties in which payments are made when a designated market interest rate either
goes above a designated ceiling level or goes below a designated floor level on
predetermined dates or during a specified time period. Currency swaps, caps,
floors and collars are similar to interest rate swaps, caps, floors and collars
but they are based on currency exchange rates rather than interest rates.

A fund may enter into interest rate swap 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. A fund may only use these

28
<PAGE>

transactions as a hedge and not as a speculative investment. Interest rate swap
transactions are subject to risks comparable to those described above with
respect to other hedging strategies.

A fund may enter into interest rate swaps, caps, floors and collars 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 a fund
receiving or paying, as the case may be, only the net amount of the two
payments. Inasmuch as these interest rate swap 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 Sub-
Adviser (if applicable) believe such obligations do not constitute senior
securities and, accordingly, will not treat them as being subject to a fund's
borrowing restrictions. The net amount of the excess, if any, of a fund's
obligations over its entitlements with respect to each interest rate swap will
be accrued on a daily basis, and appropriate fund assets having an aggregate net
asset value at least equal to the accrued excess will be maintained in a
segregated account as described above in "Investment Policies and Restrictions--
Segregated Accounts." A fund also will establish and maintain such segregated
accounts with respect to its total obligations under any swaps that are not
entered into on a net basis and with respect to any caps, floors and collars
that are written by the fund.

A fund will enter into swap transactions only with banks and recognized
securities dealers believed by Mitchell Hutchins or, (if applicable) the Sub-
Adviser to present minimal credit risk in accordance with guidelines established
by the fund's board. If there is a default by the other party to such a
transaction, a 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.

TRUSTEES AND OFFICERS; PRINCIPAL HOLDERS OF SECURITIES

Each fund is governed by a board of trustees, which oversees its
operations. The trustees and executive officers of each Trust, their ages,
business addresses and principal occupations during the past five years are:

<TABLE>
<CAPTION>
NAME AND ADDRESS*; AGE POSITION WITH EACH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
---------------------- ------------------------ ----------------------------------------
<S> <C> <C>
Margo N. Alexander**; 51 Trustee and President Mrs. Alexander is president, chief executive officer and a
director of Mitchell Hutchins (since January 1995), and an
executive vice president and a director of PaineWebber
(since March 1984). Mrs. Alexander is president and a
director or trustee of 32 investment companies for which
Mitchell Hutchins, PaineWebber or their affiliates serve as
investment adviser.

Richard Q. Armstrong; 63 Trustee Mr. Armstrong is chairman and principal of R.Q.A.
One Old Church Road Enterprises (management consulting firm) (since April 1991
Unit #6 and principal occupation since March 1995). Mr. Armstrong
Greenwich, CT 06830 was chairman of the board, chief executive officer and
co-owner of Adirondack Beverages (producer and distributor
of soft drinks and sparkling/still waters) (October
1993-March 1995). He was a partner of The New England
Consulting Group (management consulting firm) (December
1992-September 1993). He was managing director of LVMH U.S.
Corporation (U.S. subsidiary of the French luxury goods
conglomerate, Louis Vuitton Moet Hennessey Corporation)
(1987-1991) and chairman of its wine and spirits subsidiary,
Schieffelin & Somerset Company (1987-1991). Mr. Armstrong is
a director or trustee of 31 investment companies for which
Mitchell Hutchins, PaineWebber or their affiliates serve as
investment adviser.
</TABLE>

29
<PAGE>

<TABLE>
<CAPTION>
NAME AND ADDRESS*; AGE POSITION WITH EACH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
--------------------- ------------------------ ----------------------------------------
<S> <C> <C>
E. Garrett Bewkes, Jr.**; 72 Trustee and Chairman of the Mr. Bewkes is a director of Paine Webber Group Inc. ("PW
Board of Trustees Group") (holding company of PaineWebber and Mitchell
Hutchins). Prior to December 1995, he was a consultant to PW
Group. Prior to 1988, he was chairman of the board,
president and chief executive officer of American Bakeries
Company. Mr. Bewkes is a director of Interstate Bakeries
Corporation. Mr. Bewkes is a director or trustee of 34
investment companies for which Mitchell Hutchins,
PaineWebber or their affiliates serve as investment adviser.

Richard R. Burt; 51 Trustee Mr. Burt is chairman of IEP Advisors, Inc. (international
1275 Pennsylvania Ave, N.W. investments and consulting firm) (since March 1994) and a
Washington, DC 20004 partner of McKinsey & Company (management consulting firm)
(since 1991). He is also a director of
Archer-Daniels-Midland Co. (agricultural commodities),
Hollinger International Co. (publishing), Homestake Mining
Corp., Powerhouse Technologies Inc. and Wierton Steel Corp.
He was the chief negotiator in the Strategic Arms Reduction
Talks with the former Soviet Union (1989-1991) and the U.S.
Ambassador to the Federal Republic of Germany (1985-1989).
Mr. Burt is a director or trustee of 31 investment companies
for which Mitchell Hutchins, PaineWebber or their affiliates
serve as investment adviser.

Mary C. Farrell**; 49 Trustee Ms. Farrell is a managing director, senior investment
strategist and member of the Investment Policy Committee of
PaineWebber. Ms. Farrell joined PaineWebber in 1982. She is
a member of the Financial Women's Association and Women's
Economic Roundtable and appears as a regular panelist on
Wall $treet Week with Louis Rukeyser. She also serves on the
Board of Overseers of New York University's Stern School of
Business. Ms. Farrell is a director or trustee of 31
investment companies for which Mitchell Hutchins,
PaineWebber or their affiliates serve as investment adviser.

Meyer Feldberg; 56 Trustee Mr. Feldberg is Dean and Professor of Management of the
Columbia University Graduate School of Business, Columbia University. Prior to
101 Uris Hall 1989, he was president of the Illinois Institute of
New York, NY 10027 Technology. Dean Feldberg is also a director of Primedia,
Inc., Federated Department Stores, Inc. and Revlon, Inc.
Dean Feldberg is a director or trustee of 33 investment
companies for which Mitchell Hutchins, PaineWebber or their
affiliates serve as investment adviser.

George W. Gowen; 69 Trustee Mr. Gowen is a partner in the law firm of Dunnington,
666 Third Avenue Bartholow & Miller. Prior to May 1994, he was a partner in
New York, NY 10017 the law firm of Fryer, Ross & Gowen. Mr. Gowen is a director
or trustee of 31 investment companies for which Mitchell
Hutchins, Paine Webber or their affiliates serve as
investment adviser.
</TABLE>

30
<PAGE>

<TABLE>
<CAPTION>
NAME AND ADDRESS*; AGE POSITION WITH EACH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
---------------------- ------------------------ ----------------------------------------
<S> <C> <C>
Frederic V. Malek; 62 Trustee Mr. Malek is chairman of Thayer Capital Partners (merchant
1455 Pennsylvania Ave, N.W. bank). From January 1992 to November 1992, he was campaign
Suite 350 manager of Bush-Quayle `92. From 1990 to 1992, he was vice
Washington, DC 20004 chairman and, from 1989 to 1990, he was president of
Northwest Airlines Inc., NWA Inc. (holding company of
Northwest Airlines Inc.) and Wings Holdings Inc. (holding
company of NWA Inc.). Prior to 1989, he was employed by the
Marriott Corporation (hotels, restaurants, airline catering
and contract feeding), where he most recently was an
executive vice president and president of Marriott Hotels
and Resorts. Mr. Malek is also a director of American
Management Systems, Inc. (management consulting and computer
related services), Automatic Data Processing, Inc., CB
Commercial Group, Inc. (real estate services), Choice Hotels
International (hotel and hotel franchising), FPL Group, Inc.
(electric services), Manor Care, Inc. (health care) and
Northwest Airlines Inc. Mr. Malek is a director or trustee
of 31 investment companies for which Mitchell Hutchins,
PaineWebber or their affiliates serve as investment adviser.

Carl W. Schafer; 63 Trustee Mr. Schafer is president of the Atlantic Foundation
66 Witherspoon Street, #1100 (charitable foundation supporting mainly oceanographic
Princeton, NJ 08542 exploration and research). He is a director of Base Ten
Systems, Inc. (software), Roadway Express, Inc. (trucking),
The Guardian Group of Mutual Funds, the Harding, Loevner
Funds, Evans Systems, Inc. (motor fuels, convenience store
and diversified company), Electronic Clearing House, Inc.,
(financial transactions processing), Frontier Oil
Corporation and Nutraceutix, Inc. (biotechnology company).
Prior to January 1993, he was chairman of the Investment
Advisory Committee of the Howard Hughes Medical Institute.
Mr. Schafer is a director or trustee of 31 investment
companies for which Mitchell Hutchins, PaineWebber or their
affiliates serve as investment adviser.

T. Kirkham Barneby; 52 Vice President Mr. Barneby is a managing director and chief investment
(Investment Trust only) officer--quantitative investments of Mitchell Hutchins.
Prior to September 1994, he was a senior vice president at
Vantage Global Management. Mr. Barneby is a vice president
of six investment companies for which Mitchell Hutchins,
PaineWebber or their affiliates serve as investment adviser.

Julieanna Berry; 35 Vice President Ms. Berry is a first vice president and a portfolio manager
(Managed Trust only) of Mitchell Hutchins. Ms. Berry is a vice president of two
investment companies for which Mitchell Hutchins,
PaineWebber or their affiliates serve as investment adviser.

Lawrence Chinsky; 29 Vice President and Mr. Chinsky is an assistant vice president and investment
Assistant Treasurer monitoring officer of the mutual fund finance department of
Mitchell Hutchins. Prior to August 1997, he was a securities
compliance examiner with the Office of Compliance,
Inspections and Examinations in the New York Regional Office
of the SEC. Mr. Chinsky is vice president and assistant
treasurer of 32 investment companies for which Mitchell
Hutchins, PaineWebber or their affiliates serve as
investment adviser.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
NAME AND ADDRESS*; AGE POSITION WITH EACH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
---------------------- ------------------------ ----------------------------------------
<S> <C> <C>
Karen L. Finkel; 41 Vice President Mrs. Finkel is a senior vice president and a portfolio
(Managed Trust only) manager of Mitchell Hutchins. Mrs. Finkel is a vice
president of three investment companies for which Mitchell
Hutchins, PaineWebber or their affiliates serve as
investment adviser.

James F. Keegan; 38 Vice President Mr. Keegan is a senior vice president and a portfolio
(Managed Trust only) manager of Mitchell Hutchins. Prior to March 1996, he was
director of fixed income strategy and research of Merrion
Group, L.P. From 1987 to 1994, he was a vice president of
global investment management of Bankers Trust. Mr. Keegan is
a vice president of three investment companies for which
Mitchell Hutchins, PaineWebber or their affiliates serve as
investment adviser.

John J. Lee; 30 Vice President and Mr. Lee is a vice president and a manager of the mutual fund
Assistant Treasurer finance department of Mitchell Hutchins. Prior to September
1997, he was an audit manager in the financial services
practice of Ernst & Young LLP. Mr. Lee is a vice president
and assistant treasurer of 32 investment companies for which
Mitchell Hutchins, PaineWebber or their affiliates serve as
an investment adviser.

Thomas J. Libassi; 40 Vice President Mr. Libassi is a senior vice president and portfolio manager
(Managed Trust only) of Mitchell Hutchins. Prior to May 1994, he was a vice
president of Keystone Custodian Funds Inc. with portfolio
management responsibility. Mr. Libassi is a vice president
of six investment companies for which Mitchell Hutchins,
PaineWebber or their affiliates serve as investment adviser.

Dennis McCauley; 52 Vice President Mr. McCauley is a managing director and chief investment
(Managed Trust and Investment officer--fixed income of Mitchell Hutchins. Prior to
Series only) December 1994, he was director of fixed income investments
of IBM Corporation. Mr. McCauley is a vice president of 22
investment companies for which Mitchell Hutchins,
PaineWebber or their affiliates serve as investment adviser.

Ann E. Moran; 41 Vice President and Ms. Moran is a vice president and a manager of the mutual
Assistant Treasurer fund finance department of Mitchell Hutchins. Ms. Moran is a
vice president and assistant treasurer of 32 investment
companies for which Mitchell Hutchins, PaineWebber or their
affiliates serve as investment adviser.

Dianne E. O'Donnell; 46 Vice President and Secretary Ms. O'Donnell is a senior vice president and deputy general
counsel of Mitchell Hutchins. Ms. O'Donnell is a vice
president and secretary of 31 investment companies and a
vice president and assistant secretary of one investment
company for which Mitchell Hutchins, PaineWebber or their
affiliates serve as investment adviser.

Emil Polito; 38 Vice President Mr. Polito is a senior vice president and director of
operations and control for Mitchell Hutchins. Mr. Polito is
a vice president of 32 investment companies for which
Mitchell Hutchins, PaineWebber or their affiliates serve as
investment adviser.
</TABLE>

32
<PAGE>

<TABLE>
<CAPTION>
NAME AND ADDRESS*; AGE POSITION WITH EACH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
---------------------- ------------------------ ----------------------------------------
<S> <C> <C>
Victoria E. Schonfeld; 48 Vice President Ms. Schonfeld is a managing director and general counsel of
Mitchell Hutchins. Prior to May 1994, she was a partner in
the law firm of Arnold & Porter. Ms. Schonfeld is a vice
president of 31 investment companies and a vice president
and secretary of one investment company for which Mitchell
Hutchins, PaineWebber or their affiliates serve as
investment adviser.

Paul H. Schubert; 36 Vice President and Treasurer Mr. Schubert is a senior vice president and director of the
mutual fund finance department of Mitchell Hutchins. From
August 1992 to August 1994, he was a vice president at
BlackRock Financial Management L.P. Mr. Schubert is a vice
president and treasurer of 32 investment companies for which
Mitchell Hutchins, PaineWebber or their affiliates serve as
investment adviser.

Nirmal Singh; 42 Vice President Mr. Singh is a senior vice president and a portfolio manager
(Managed Trust only) of Mitchell Hutchins. Mr. Singh is a vice president of four
investment companies for which Mitchell Hutchins,
PaineWebber or their affiliates serve as investment adviser.

Barney A. Taglialatela; 38 Vice President and Mr. Taglialatela is a vice president and a manager of the
Assistant Treasurer mutual fund finance department of Mitchell Hutchins. Prior
to February 1995, he was a manager of the mutual fund
finance division of Kidder Peabody Asset Management, Inc.
Mr. Taglialatela is a vice president and assistant treasurer
of 32 investment companies for which Mitchell Hutchins,
PaineWebber or their affiliates serve as investment adviser.

Mark A. Tincher; 43 Vice President Mr. Tincher is a managing director and chief investment
(Investment Trust, officer--equities of Mitchell Hutchins. Prior to March 1995,
Investment Trust II and Managed he was a vice president and directed the U.S. funds
Trust only) management and equity research areas of Chase Manhattan
Private Bank. Mr. Tincher is a vice president of 13
investment companies for which Mitchell Hutchins,
PaineWebber or their affiliates serve as investment adviser.

Craig M. Varrelman; 40 Vice President Mr. Varrelman is a senior vice president and a portfolio
(Managed Trust only) manager of Mitchell Hutchins. Mr. Varrelman is a vice
president of four investment companies for which Mitchell
Hutchins, PaineWebber or their affiliates serve as
investment adviser.

Stuart Waugh; 43 Vice President Mr. Waugh is a managing director and a portfolio manager of
(Investment Series only) Mitchell Hutchins responsible for global fixed income
investments and currency trading. Mr. Waugh is a vice
president of five investment companies for which Mitchell
Hutchins, PaineWebber or their affiliates serve as
investment adviser.

Keith A. Weller; 37 Vice President and Mr. Weller is a first vice president and associate general
Assistant Secretary counsel of Mitchell Hutchins. Prior to May 1995, he was an
attorney in private practice. Mr. Weller is a vice president
and assistant secretary of 31 investment companies for which
Mitchell Hutchins, PaineWebber or their affiliates serve 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.

33
<PAGE>

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

Board members are compensated as follows:

. MANAGED TRUST has seven operating series and pays each trustee who is
not an "interested person" of the Trust $1,000 annually for each
series. Therefore, Managed Trust pays each such trustee $7,000
annually, plus any additional amounts due for board or committee
meetings.

. INVESTMENT TRUST II AND INVESTMENT SERIES each pays board members who
are not "interested persons" of the Trust $1,000 annually for its sole
series, plus any additional amounts due for board or committee
meetings.

. INVESTMENT TRUST has two series and pays each board member who is not
an "interested person" of the Trust $1,000 annually for Global Equity
Fund and an additional $1,500 annually for its second series.
Therefore, Investment Trust pays each such board member $2,500
annually, plus any additional amounts due for board or committee
meetings.

Each Trust pays an additional $150 per series for each board meeting and
each separate meeting of a board committee. Each chairman of the audit and
contract review committees of individual funds within the PaineWebber fund
complex receives additional compensation, aggregating $15,000 annually, from the
relevant funds. All board members are reimbursed for any expenses incurred in
attending meetings. Board members and officers own in the aggregate less than 1%
of the outstanding shares of any class of each fund. Because PaineWebber,
Mitchell Hutchins and, as applicable, a Sub-Adviser perform substantially all
the services necessary for the operation of the Trusts and each fund, the Trusts
require no employees. No officer, director or employee of Mitchell Hutchins or
PaineWebber presently receives any compensation from the Trust for acting as a
board member or officer.

34
<PAGE>

The table below includes certain information relating to the compensation
of the current board members who held office with the Trusts or with other
PaineWebber funds during the funds' fiscal years ended October 31, 1998.

COMPENSATION TABLE+

<TABLE>
<CAPTION>
TOTAL
-----
AGGREGATE AGGREGATE AGGREGATE AGGREGATE COMPENSATION
--------- --------- --------- --------- ------------
COMPENSATION COMPENSATION COMPENSATION FROM COMPENSATION FROM THE
------------ ------------ ----------------- ------------ --------
NAME OF PERSON, FROM MANAGED FROM INVESTMENT INVESTMENT TRUST* FROM INVESTMENT TRUSTS AND THE
- --------------- ------------ --------------- ----------------- --------------- --------------
POSITION TRUST* SERIES* TRUST II* FUND COMPLEX
-------- ------ ------- --------- ------------
<S> <C> <C> <C> <C> <C>
Richard Q. Armstrong,
Trustee
Richard R. Burt,
Trustee
Meyer Feldberg,
Trustee
George W. Gowen,
Trustee
Frederic V. Malek,
Trustee
Carl W. Schafer,
Trustee
</TABLE>

____________________
+ Only independent board members are compensated by the Trusts and identified
above; board members who are "interested persons," as defined by the 1940
Act, do not receive compensation.

* Represents fees paid to each Trustee from the Trust indicated for the fiscal
year ended October 31, 1998.

** Represents total compensation paid to each board member during the calendar
year ended December 31, 1998; no fund within the fund complex has a bonus,
pension, profit sharing or retirement plan.

PRINCIPAL HOLDERS OF SECURITIES

The following shareholder is shown in the funds' records as owning 5% or
more of any class of its shares:

NUMBER AND PERCENTAGE
OF SHARES BENEFICIALLY
NAME AND ADDRESS* OWNED AS OF FEBRUARY , 1999
- ----------------- ----------------------------------

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

INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS

INVESTMENT ADVISORY ARRANGEMENTS. Mitchell Hutchins acts as the investment
adviser and administrator to each fund pursuant to separate contracts (each an
"Advisory Contract") with each Trust. Under the Advisory Contracts, each fund
pays Mitchell Hutchins a fee, computed daily and paid monthly, at the annual
rates indicated below. The Funds have applied for exemptive relief to the SEC
to permit their boards to appoint and replace sub-advisers and to amend sub-
advisory contracts without obtaining shareholder approval.

Under the terms of the Advisory Contracts, each fund bears all expenses
incurred in its operation that are not specifically assumed by Mitchell
Hutchins. Expenses borne by each fund include the following: (1) the cost
(including brokerage commissions) of

35
<PAGE>

securities purchased or sold by the fund and any losses incurred in connection
therewith; (2) fees payable to and expenses incurred on behalf of the fund by
Mitchell Hutchins; (3) organizational expenses; (4) filing fees and expenses
relating to the registration and qualification of the fund's shares under
federal and state securities laws and maintenance of such registrations and
qualifications; (5) fees and salaries payable to board members and officers who
are not interested persons (as defined in the 1940 Act) of the applicable Trust
or Mitchell Hutchins; (6) all expenses incurred in connection with the board
members' 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 applicable Trust or fund for violation of any
law; (10) legal, accounting and auditing expenses, including legal fees of
special counsel for the independent board members; (11) charges of custodians,
transfer agents and other agents; (12) costs of preparing share certificates;
(13) expenses of setting in type and printing prospectuses, statements of
additional information and supplements thereto, reports and proxy materials for
existing shareholders, and costs of mailing such materials to shareholders; (14)
any extraordinary expenses (including fees and disbursements of counsel)
incurred by 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 board members and officers; and
(18) costs of mailing, stationery and communications equipment.

Under each Advisory Contract, Mitchell Hutchins will not be liable for any
error of 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. Each Advisory Contract terminates
automatically upon assignment and is terminable at any time without penalty by
the fund's board 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.

GLOBAL EQUITY FUND. Mitchell Hutchins acts as the investment adviser and
administrator of Global Equity Fund pursuant to an Advisory Contract with
Investment Trust dated October 1, 1998. Under the Advisory Contract, the fund
pays Mitchell Hutchins a fee, computed daily and paid monthly, at the annual
rate of 0.85% of the fund's average daily net assets up to and including $500
million, 0.83% of amounts over $500 million and up to and including $1 billion,
and 0.805% of amounts over $1 billion. Under the Advisory Contract and a
substantially similar contract, for the fiscal years ended October 31, 1998 and
October 31, 1997, the two months ended October 31, 1996, and the fiscal year
ended August 31, 1996, the fund paid (or accrued) to Mitchell Hutchins advisory
and administrative fees of $_______, $4,689,662, $794,518 and $4,990,588,
respectively.

The Advisory Contract authorizes Mitchell Hutchins to retain one or more
sub-advisers but does not require Mitchell Hutchins to do so. Mitchell Hutchins
has entered into a separate contract with Invista dated October 1, 1998 ("Sub-
Advisory Contract"), pursuant to which Invista serves as investment sub-adviser
for the foreign investments of Global Equity Fund. (Mitchell Hutchins allocates
the fund's investments between U.S. and foreign investments and is responsible
for the day-to-day management of the fund's U.S. investments.) Under the Sub-
Advisory Contract, Mitchell Hutchins (not the fund) is obligated to pay Invista
at the annual rate of 0.40% of the fund's average daily net assets allocated to
its management up to and including $100 million. This fee drops to 0.29% of the
fund's average daily net assets allocated to Invista's management in excess of
$100 million up to and including $300 million and to 0.26% of such assets in
excess of $300 million. For the period October 1 through October 31, 1998,
Mitchell Hutchins paid or accrued sub-advisory fees to Invista of $ __________.
Prior to October 1, 1998, GE Investment Management Incorporated ("GEIM") served
as investment sub-adviser for all the fund's assets pursuant to a sub-advisory
contract with Mitchell Hutchins. Under that sub-advisory contract, Mitchell
Hutchins paid or accrued sub-advisory fees to GEIM for the period November 1,
1997 to September 30, 1998 and the fiscal yeas ended October 31, 1997, the two
months ended October 31, 1996, and the fiscal year ended August 31, 1996, of
$______, $1,695,840, $287,688 and $1,808,760, respectively.

Under the Sub-Advisory Contract, Invista will not be liable for any error
of judgment or mistake of law or for any loss suffered by Investment Trust,
Global Equity Fund, its shareholders or Mitchell Hutchins in connection with the
Sub-Advisory Contract, except any liability to Investment Trust, the fund, its
shareholders or Mitchell Hutchins to which Invista would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under the Sub-Advisory Contract.

The Sub-Advisory Contract terminates automatically upon its assignment or
the termination of the Advisory Contract and is terminable at any time without
penalty by Investment Trust's board or by vote of the holders of a majority of
the fund's outstanding voting securities on 60 days' notice to Invista and
Mitchell Hutchins, or by Invista or Mitchell Hutchins on 120 days' written
notice to Investment Trust.

36
<PAGE>

GLOBAL INCOME FUND. Mitchell Hutchins acts as the investment adviser and
administrator of Global Income Fund pursuant to an Advisory Contract with
Investment Series dated April 21, 1988. Under the Advisory Contract, the fund
pays Mitchell Hutchins a fee, computed daily and paid monthly, at the annual
rate of 0.75% of the value of its average daily net assets up to and including
$500 million, 0.725% of amounts in excess of $500 million and up to $1 billion,
0.70% of amounts in excess of $1 billion and up to $1.5 billion, 0.675% of
amounts in excess of $1.5 billion and up to $2.0 billion, and 0.65% of amounts
over $2 billion. For the fiscal years ended October 31, 1998, October 31, 1997
and October 31, 1996, the fund paid (or accrued) to Mitchell Hutchins advisory
and administrative fees of $________, $5,683,381 and $7,812,766, respectively.

Prior to August 1, 1997, PaineWebber provided certain services to Global
Income Fund not otherwise provided by its transfer agent. Pursuant to an
agreement between PaineWebber and the fund relating to those services, for the
period from November 1, 1996 to July 31, 1997 and for the fiscal year ended
October 31, 1996, Global Income Fund paid (or accrued) to PaineWebber $189,131
and $305,944, respectively.

ASIA PACIFIC GROWTH FUND. Mitchell Hutchins acts as the investment adviser
and administrator of Asia Pacific Growth Fund pursuant to an Investment Advisory
and Administration Contract with Managed Trust, dated April 21, 1988, made
applicable to the fund by means of an Investment Advisory and Administration Fee
Agreement dated December 18, 1996 (together an "Advisory Contract"). Under the
Advisory Contract, the fund pays Mitchell Hutchins a fee, computed daily and
paid monthly, at the annual rate of 1.20% of the fund's average daily net assets
up to and including $100 million and at an annual rate of 1.10% of its average
daily net assets in excess of $100 million. For the fiscal year ended October
31, 1998 and the period March 25, 1997 (commencement of operations) through
October 31, 1997, the fund paid (or accrued) to Mitchell Hutchins advisory and
administrative fees of $ __________________ and $533,412, respectively.

The Advisory Contract authorizes Mitchell Hutchins to retain one or more
sub-advisers, but does not require Mitchell Hutchins to do so. Mitchell Hutchins
has entered into a separate contract with Schroder Capital, dated December 18,
1996 ("Sub-Advisory Contract"), pursuant to which Schroder Capital determines
what securities will be purchased, sold or held by Asia Pacific Growth Fund.
Under the Sub-Advisory Contract, Mitchell Hutchins (not the fund) pays Schroder
Capital a fee, computed daily and paid monthly, at an annual rate of 0.65% of
the fund's average daily net assets up to and including $100 million and at an
annual rate of 0.55% of the fund's average daily net assets in excess of $100
million. Schroder Capital bears all expenses incurred by it in connection with
its services under the Sub-Advisory Contract. For the fiscal year ended October
31, 1998 and the period March 25, 1997 (commencement of operations) through
October 31, 1997, Mitchell Hutchins (not the fund) paid (or accrued) to Schroder
Capital sub-advisory fees of $ ______ and $284,106, respectively.

Under the Sub-Advisory Contract, Schroder Capital will not be liable for
any error of judgment or mistake of law or for any loss suffered by Managed
Trust, Asia Pacific Growth Fund, its shareholders or Mitchell Hutchins in
connection with the Sub-Advisory Contract, except any liability to Managed
Trust, the fund, its shareholders or Mitchell Hutchins to which Schroder Capital
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under the Sub-Advisory Contract.

The Sub-Advisory Contract terminates automatically upon its assignment or
the termination of the Advisory Contract and is terminable at any time without
penalty by Managed Trust's board or by vote of the holders of a majority of the
fund's outstanding voting securities on 60 days' notice to Schroder Capital, or
by Schroder Capital on 120 days' written notice to Mitchell Hutchins. The Sub-
Advisory Contract may also be terminated by Mitchell Hutchins (1) upon material
breach by Schroder Capital of its representations and warranties, which breach
shall not have been cured within a 20-day period after notice of such breach;
(2) if the Sub-Adviser becomes unable to discharge its duties and obligations
under the Sub-Advisory Contract or (3) on 120 days' notice to Schroder Capital.

Prior to August 1, 1997, PaineWebber provided certain services to Asia
Pacific Growth Fund not otherwise provided by its transfer agent. Pursuant to
an agreement between PaineWebber and the fund relating to those services, for
the period from March 25, 1997 (commencement of operations) through July 31,
1997, Asia Pacific Growth Fund paid (or accrued) to PaineWebber $9,958.

EMERGING MARKETS EQUITY FUND. Mitchell Hutchins acts as the investment
adviser and administrator of Emerging Markets Equity Fund pursuant to an
Advisory Contract with Investment Trust II dated February 25, 1997. Under the
Advisory Contract, the fund pays Mitchell Hutchins a fee, computed daily and
paid monthly, at the annual rate of 1.20% of the fund's average daily net
assets. Under the Advisory Contract and a similar prior advisory contract, for
the fiscal years ended October 31, 1998 and October 31, 1997, the four months
ended October 31, 1996 and the fiscal year ended June 30, 1996, the fund paid
(or accrued) to Mitchell Hutchins advisory and administrative fees of $_______,
$438,676, $220,071 and $867,093, respectively.

37
<PAGE>

During the fiscal years ended October 31, 1998 and October 31, 1997, the
four months ended October 31, 1996 and the fiscal year ended June 30, 1996,
Mitchell Hutchins waived part of its management fees and reimbursed Emerging
Markets Equity Fund in the aggregate amounts of $_______, $180,568, $142,160 and
$538,618, respectively. During these periods, certain expense limitations were
applicable which are no longer in effect. As of the date of this Statement of
Additional Information, Mitchell Hutchins is voluntarily waiving part of its
management fees and/or making reimbursements to Emerging Markets Equity Fund.
Mitchell Hutchins may discontinue these voluntary waivers and/or reimbursements
at any time.

The Advisory Contract authorizes Mitchell Hutchins to retain one or more
sub-advisers, but does not require Mitchell Hutchins to do so. Mitchell Hutchins
has entered into a separate contract with Schroder Capital, dated February 25,
1997 ("Sub-Advisory Contract"), pursuant to which Schroder Capital determines
what securities will be purchased, sold or held by Emerging Markets Equity Fund.
Under the Sub-Advisory Contract, Mitchell Hutchins (not the fund) pays Schroder
Capital a fee, computed daily and paid monthly, at an annual rate of 0.70% of
the fund's average daily net assets. Schroder Capital bears all expenses
incurred by it in connection with its services under the Sub-Advisory Contract.
For the fiscal year ended October 31, 1998 and the period February 25, 1997 to
October 31, 1997, Mitchell Hutchins (not the fund) paid (or accrued) to Schroder
Capital $ and $161,715, respectively, in sub-advisory fees. Under contracts
with the fund's former sub-adviser, Emerging Markets Management, for the period
November 1, 1996 through February 24, 1997, the four months ended October 31,
1996 and the fiscal year ended June 30, 1996, Mitchell Hutchins paid (or
accrued) fees of $86,731, $152,148 and $599,472, respectively, to Emerging
Markets Management.

Under the Sub-Advisory Contract, Schroder Capital will not be liable for
any error of judgment or mistake of law or for any loss suffered by Investment
Trust II, Emerging Markets Equity Fund, its shareholders or Mitchell Hutchins in
connection with the Sub-Advisory Contract, except any liability to Investment
Trust II, the fund, its shareholders or Mitchell Hutchins to which Schroder
Capital would otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations and duties under the Sub-Advisory
Contract.

The Sub-Advisory Contract terminates automatically upon the assignment or
the termination of the Advisory Contract and is terminable at any time without
penalty by Investment Trust II's board or by vote of the holders of a majority
of the fund's outstanding securities on 60 days' notice to Schroder Capital, or
by Schroder Capital on 60 days' written notice to Mitchell Hutchins. The Sub-
Advisory Contract may also be terminated by Mitchell Hutchins (1) upon material
breach by Schroder Capital of its representations and warranties, which breach
shall not have been cured within a 20-day period after notice of such breach;
(2) if the Sub-Adviser becomes unable to discharge its duties and obligations
under the Sub-Advisory Contract or (3) on 120 days' notice to Schroder Capital.

ALL FUNDS. During the fiscal years (or periods) ended October 31, 1997
and October 31, 1998, the indicated fund paid (or accrued) the following fees to
PaineWebber for its services as securities lending agent:

FUND FISCAL YEAR ENDED OCTOBER 31,
- ---- -----------------------------
1998 1997
---- ----
Global Equity Fund $14,324
Global Income Fund 5,582
Asia Pacific Growth Fund 42,125
Emerging Markets Equity Fund 26,057

Subsequent to August 1, 1997, PFPC (not the funds) pays PaineWebber for
certain transfer agency related services that PFPC has delegated to PaineWebber.

NET ASSETS. The following table shows the approximate net assets as of
February 28, 1999, 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.

38
<PAGE>

NET ASSETS
Investment Category ($MIL)
------------------- ------

Domestic (excluding Money Market).....................
Equity/Balanced.......................................
Fixed Income (excluding Money Market).................
Taxable Fixed Income...............................
Tax-Free Fixed Income..............................
Money Market funds....................................

PERSONAL TRADING POLICIES. Mitchell Hutchins personnel may invest in
securities for their own accounts pursuant to a code of ethics that describes
the fiduciary duty owed to shareholders of PaineWebber mutual funds and other
Mitchell Hutchins advisory accounts by all Mitchell Hutchins' directors,
officers and employees, establishes procedures for personal investing and
restricts certain transactions. For example, employee accounts generally must be
maintained at PaineWebber, personal trades in most securities require pre-
clearance and short-term trading and participation in initial public offerings
generally are prohibited. In addition, the code of ethics puts restrictions on
the timing of personal investing in relation to trades by PaineWebber Funds and
other Mitchell Hutchins advisory clients. Personnel of each Sub-Adviser may also
invest in securities for their own accounts pursuant to comparable codes of
ethics.

DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of
each class of shares of each fund under separate distribution contracts with
each Trust (collectively, "Distribution Contracts"). Each Distribution Contract
requires Mitchell Hutchins to use its best efforts, consistent with its other
businesses, to sell shares of the applicable fund. Shares of each fund are
offered continuously. Under separate exclusive dealer agreements between
Mitchell Hutchins and PaineWebber relating to each class of shares of the funds
(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 C shares of each fund adopted by each Trust in the manner prescribed under
Rule 12b-1 under the 1940 Act (each, respectively, a "Class A Plan," "Class B
Plan" and "Class C Plan," and 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 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 C Plan, each fund pays Mitchell Hutchins a
distribution fee, accrued daily and payable monthly, at the annual rate of 0.75%
(in the case of Asia Pacific Growth Fund, Emerging Markets Equity Fund and
Global Equity Fund) or 0.50% (in the case of Global Income Fund) of the average
daily net assets of the Class C shares. There is no distribution plan with
respect to the funds' Class Y shares.

Mitchell Hutchins uses the service fees under the Plans for Class A, B and
C shares 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 then compensates its investment
executives for shareholder servicing that they perform and offsets its own
expenses in servicing and maintaining shareholder accounts.

Mitchell Hutchins uses the distribution fees under the Class B and Class C
Plans to:

. Offset the commissions it pays to PaineWebber for selling each fund's
Class B and Class C shares, respectively.

. Offset each fund's marketing costs attributable to such classes, such
as preparation, printing and distribution of sales literature,
advertising and prospectuses to prospective investors and related
overhead expenses, such as employee salaries and bonuses.

PaineWebber compensates investment executives when Class B and Class C
shares are bought by investors, as well as on an ongoing basis. Mitchell
Hutchins receives no special compensation from any of the funds or investors at
the time Class B or C shares are bought.

Mitchell Hutchins receives the proceeds of the initial sales charge paid
when Class A shares are bought and of the contingent deferred sales charge paid
upon sales of shares. These proceeds may be used to cover distribution
expenses.

The Plans and the related Distribution Contracts for Class A, Class B and
Class C shares specify that each fund must pay service and distribution fees to
Mitchell Hutchins for its activities, not as reimbursement for specific expenses
incurred. Therefore,

39
<PAGE>

even if Mitchell Hutchins' expenses exceed the service or distribution fees it
receives, the funds will not be obligated to pay more than those fees. On the
other hand, if Mitchell Hutchins' expenses are less than such fees, it will
retain its full fees and realize a profit. Expenses in excess of service and
distribution fees received or accrued through the termination date of any Plan
will be Mitchell Hutchins' sole responsibility and not that of the funds.
Annually, the board of each fund reviews the Plans and Mitchell Hutchins'
corresponding expenses for each class separately from the Plans and expenses of
the other classes.

Among other things, each Plan provides that (1) Mitchell Hutchins will
submit to the applicable board at least quarterly, and the board members 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 applicable board, including those board members 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 and
(4) while the Plan remains in effect, the selection and nomination of board
members who are not "interested persons" of the Trust shall be committed to the
discretion of the board members who are not "interested persons" of that Trust.

In reporting amounts expended under the Plans to the board members,
Mitchell Hutchins allocates expenses attributable to the sale of each class of
each fund's 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
a fund's shares will not be used to subsidize the sale of any other class of
fund shares.

The funds paid (or accrued) the following fees to Mitchell Hutchins under
the Class A, Class B and Class C Plans during the fiscal year ended October 31,
1998:

<TABLE>
<CAPTION>
ASIA PACIFIC EMERGING MARKETS
GLOBAL EQUITY FUND GLOBAL INCOME FUND GROWTH FUND EQUITY FUND
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Class A......................
Class B......................
Class C......................
</TABLE>

Mitchell Hutchins estimates that it and its parent corporation,
PaineWebber, incurred the following shareholder service-related and
distribution-related expenses with respect to each fund during the fiscal year
ended October 31, 1998:

<TABLE>
<CAPTION>
GLOBAL GLOBAL ASIA PACIFIC EMERGING MARKETS
EQUITY FUND INCOME FUND GROWTH FUND EQUITY FUND
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
CLASS A
Marketing and advertising.........
Amortization of commissions.......
Printing of prospectuses and
statements of additional
information......................
Branch network costs allocated
and interest expense.............
Service fees paid to PaineWebber
investment executives............

CLASS B
Marketing and advertising.........
Amortization of commissions.......
Printing of prospectuses and
statements of additional
information......................
Branch network costs allocated and
interest expense.................
Service fees paid to PaineWebber
investment executives............
</TABLE>

40
<PAGE>

CLASS C
Marketing and advertising...............
Amortization of commissions.............
Printing of prospectuses and statements
of additional information..............
Branch network costs allocated and
interest expense.......................
Service fees paid to PaineWebber
investment executives..................

"Marketing and advertising" includes various internal costs allocated by
Mitchell Hutchins to its efforts at distributing the funds' 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 funds' shares, including the PaineWebber retail branch system.

In approving each fund's overall Flexible PricingSM system of distribution,
the applicable board 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, each board 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, the board of each fund 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 board members 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 C Plan, each board considered all the features of
the distribution system, including (1) 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, (2) the advantage to investors in being free from contingent deferred
sales charges upon redemption for shares held more than one year 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 C shares on an ongoing basis, along with
continuing service fees, while their customers invest their entire purchase
payments immediately in Class C shares and generally 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.

41
<PAGE>

The board members 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, within one year after purchase was conditioned
upon its expectation of being compensated under the Class C Plan.

With respect to each Plan, the boards 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 boards 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.

Under the Distribution Contract between each Trust and Mitchell Hutchins
for the Class A shares for the fiscal years (or 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.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31, TWO MONTHS ENDED FISCAL YEAR ENDED
-----------------------------
1998 1997 OCTOBER 31, 1996 AUGUST 31, 1996
---- ---- ---------------- ---------------
<S> <C> <C> <C> <C>
GLOBAL EQUITY FUND
Earned............. $132,728 $22,360 $229,590
Retained........... 8,400 1,366 10,949
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEARS ENDED OCTOBER 31,
1998 1997 1996
------ ---- ----
<S> <C> <C> <C>
GLOBAL INCOME FUND
Earned $29,752 $37,752
Retained 2,950 6,564
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEAR ENDED PERIOD ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
----------------- ----------------
<S> <C> <C>
ASIA PACIFIC GROWTH FUND
Earned $1,142,055
Retained 67,143
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31, FOUR MONTHS ENDED FISCAL YEAR ENDED
----------------------------- OCTOBER 31, 1996 JUNE 30, 1996
1998 1997 ----------------- -------------
-----------------------------
<S> <C> <C> <C> <C>
EMERGING MARKETS EQUITY
FUND
Earned............. $10,692 $4,109 $25,696
Retained........... 662 251 1,280
</TABLE>

42
<PAGE>

Mitchell Hutchins earned and retained the following contingent deferred
sales charges paid upon certain redemptions of shares for the fiscal year ended
October 31, 1998:

<TABLE>
<CAPTION>
ASIA PACIFIC EMERGING MARKETS
GLOBAL EQUITY FUND GLOBAL INCOME FUND GROWTH FUND EQUITY FUND
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Class A....................
Class B....................
Class C....................
</TABLE>

PORTFOLIO TRANSACTIONS

Subject to policies established by each board, Mitchell Hutchins or a Sub-
Adviser, as applicable, is responsible for the execution of each fund's
portfolio transactions and the allocation of brokerage transactions. In
executing portfolio transactions, Mitchell Hutchins or the Sub-Adviser seeks to
obtain the best net results for a fund, taking into account such factors as the
price (including the applicable brokerage commission or dealer spread), size of
order, difficulty of execution and operational facilities of the firm involved.
While Mitchell Hutchins and the Sub-Advisers generally seek reasonably
competitive commission rates, payment of the lowest commission is not
necessarily consistent with obtaining the best net results. 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 which the dealer is willing to purchase and
sell a specific security at the time. The funds may invest in securities traded
in the OTC market and will engage primarily in transactions directly with the
dealers who make markets in such securities, unless a better price or execution
could be obtained by using a broker. During the fiscal years or periods
indicated, the funds paid the brokerage commissions set forth below:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31, TWO MONTHS ENDED FISCAL YEAR ENDED
-----------------------------
1998 1997 OCTOBER 31, 1996 AUGUST 31, 1996
---- ---- ----------------- ----------------
<S> <C> <C> <C> <C>
GLOBAL EQUITY FUND $384,903 $118,589 $1,472,329
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEARS ENDED OCTOBER 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
GLOBAL INCOME FUND $3,330 $ 0
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEAR ENDED PERIOD ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
----------------- ----------------
<S> <C> <C>
ASIA PACIFIC GROWTH FUND $454,243
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31, FOUR MONTHS ENDED FISCAL YEAR ENDED
-----------------------------
1998 1997 OCTOBER 31, 1996 JUNE 30, 1996
---- ---- ---------------- -------------
<S> <C> <C> <C> <C>
EMERGING MARKETS EQUITY $266,325 $80,726 $264,723
FUND
</TABLE>

The funds have no obligation to deal with any broker or group of brokers in
the execution of portfolio transactions. The funds contemplate that, consistent
with the policy of obtaining the best net results, brokerage transactions may be
conducted through Mitchell Hutchins or its affiliates, including PaineWebber, or
brokerage affiliates of Schroder Capital or Invista. Each board has adopted
procedures in conformity with Rule 17e-1 under the 1940 Act to ensure that all
brokerage commissions paid to PaineWebber

43
<PAGE>

or brokerage affiliates of Schroder Capital or Invista are reasonable and fair.
Specific provisions in the Advisory Contracts and the applicable Sub-Advisory
Contracts authorize Mitchell Hutchins and Schroder Capital or Invista,
respectively, and any of their affiliates that is a member of a national
securities exchange to effect portfolio transactions for the applicable funds 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 fiscal year ended
October 31, 1998, the funds paid brokerage commissions to PaineWebber or, as
applicable, GEIM, Schroder Capital or Invista or their affiliates as follows:

These brokerage commissions represented for each fund the percentages of
total brokerage commissions paid and of the dollar amount representing the
fund's transactions involving the payment of brokerage commissions set forth
below.

None of the funds paid brokerage commissions to PaineWebber or in the case
of Asia Pacific Growth Fund, Emerging Markets Equity Fund, Schroder Capital's or
in the case of Global Equity Fund, GEIM's or Invista's affiliates during its
last two prior fiscal years.

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

Consistent with the interests of the funds and subject to the review of
each board, Mitchell Hutchins or a Sub-Adviser may cause a fund to purchase and
sell portfolio securities through brokers who provide Mitchell Hutchins or a
Sub-Adviser with research, analysis, advice and similar services. The funds may
pay to those brokers a higher commission than may be charged by other brokers,
provided that Mitchell Hutchins or the Sub-Adviser determines in good faith that
such commission is reasonable in terms either of that particular transaction or
of the overall responsibility of Mitchell Hutchins or the Sub-Adviser, as
applicable, to that 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. For the fiscal year ended October 31, 1998, the funds directed
the portfolio transactions indicated below to brokers chosen because they
provide research, analysis, advice and similar services, for which the funds
paid the brokerage commissions indicated below:

<TABLE>
<CAPTION>
FUND AMOUNT OF PORTFOLIO TRANSACTIONS BROKERAGE COMMISSIONS PAID
- ---- -------------------------------- --------------------------
<S> <C> <C>
Global Equity Fund
Global Income Fund
Asia Pacific Growth Fund
Emerging Markets Equity Fund
</TABLE>

For purchases or sales with broker-dealer firms that act as principal,
Mitchell Hutchins or the applicable Sub-Adviser seeks best execution. Although
Mitchell Hutchins and the Sub-Adviser may receive certain research or execution
services in connection with these transactions, Mitchell Hutchins and the Sub-
Advisers will not purchase securities at a higher price or sell securities at a
lower price than would otherwise be paid if no weight was attributed to the
services provided by the executing dealer. Moreover, Mitchell Hutchins and the
Sub-Advisers will not enter into any explicit soft dollar arrangements relating
to principal transactions and will not receive in principal transactions the
types of services that could be purchased for hard dollars. Mitchell Hutchins or
a Sub-Adviser may engage in agency transactions in OTC equity and debt
securities in return for research and execution services. These transactions are
entered into only in compliance with procedures ensuring that the transaction
(including commissions) is at least as favorable as it would have been if
effected directly with a market-maker that did not provide research or execution
services. These procedures include Mitchell Hutchins or the Sub-Adviser
receiving multiple quotes from dealers before executing the transactions on an
agency basis.

Information and research services furnished by brokers or dealers through
which or with which the funds effect securities transactions may be used by
Mitchell Hutchins or a Sub-Adviser in advising other funds or accounts and,
conversely, research services furnished to Mitchell Hutchins or a Sub-Adviser by
brokers or dealers in connection with other funds or accounts that either

44
<PAGE>

of them advises may be used in advising the funds. Information and research
received from brokers or dealers will be in addition to, and not in lieu of, the
services required to be performed by Mitchell Hutchins under the Advisory
Contracts or the Sub-Advisers under the Sub-Advisory Contracts.

Investment decisions for a fund and for other investment accounts managed
by Mitchell Hutchins or by a Sub-Adviser 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 that 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 funds
are concerned, or upon their ability to complete their entire order, in other
cases it is believed that coordination and the ability to participate in volume
transactions will be beneficial to the funds.

The funds will not purchase securities that are offered in underwritings in
which PaineWebber or an affiliate of a Sub-Adviser is a member of the
underwriting or selling group, except pursuant to procedures adopted by each
board pursuant to Rule 10f-3 under the 1940 Act. Among other things, these
procedures require that the spread or commission paid in connection with such a
purchase be reasonable and fair, 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 PaineWebber or any affiliate thereof or an affiliate of
a Sub-Adviser not participate in or benefit from the sale to the funds.

As of October 31, 1998, the funds owned securities issued by the following
companies which are regular broker-dealers for the funds: [____________________
__________].

PORTFOLIO TURNOVER. The funds' annual portfolio turnover rates may vary
greatly from year to year, but they will not be a limiting factor when
management deems portfolio changes appropriate. The 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.

The funds' respective portfolio turnover rates for the fiscal periods shown
were:

GLOBAL EQUITY FUND
Fiscal Year ended October 31, 1998........................................
Fiscal Year ended October 31, 1997........................................ 86%

GLOBAL INCOME FUND
Fiscal Year ended October 31, 1998........................................
Fiscal Year ended October 31, 1997........................................ 172%

ASIA PACIFIC GROWTH FUND
Fiscal Year ended October 31, 1998........................................
Fiscal Period March 25, 1997 (commencement of operations) to
October 31, 1997 ........................................................ 13%

EMERGING MARKETS EQUITY FUND
Fiscal Year ended October 31, 1998........................................
Fiscal Year ended October 31, 1997........................................ 87%

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

WAIVERS OF SALES CHARGES/CONTINGENT DEFERRED SALES CHARGES -- CLASS A
SHARES. Sales charge waivers for Class A shares are described in the Prospectus
and reduced sales charges are available through the combined purchase plan or
through rights of accumulation described below. Purchases of $1 million or more
are not subject to an initial sales charge; however, if a shareholder sells
these shares within one year after purchase, a contingent deferred sales charge
of 1% of the offering price or the net asset value of the shares at the time of
sale by the shareholder, whichever is less, is imposed.

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 indicated in the tables of
sales charges for Class A shares in the Prospectus. The sales

45
<PAGE>

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;

(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); or

(h) individual accounts related together under one registered investment
adviser having full discretion and control over the accounts. The registered
investment adviser must communicate at least quarterly through a newsletter or
investment update establishing a relationship with all of the accounts.

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.

REINSTATEMENT PRIVILEGE -- CLASS A SHARES. Shareholders who have redeemed
Class A shares of a fund may reinstate their account without a sales charge 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 "Taxes" in the Statement of
Additional Information.

WAIVERS OF CONTINGENT DEFERRED SALES CHARGES -- CLASS B SHARES. The
maximum 5% contingent deferred sales charge applies to sales of shares during
the first year after purchase. The charge generally declines by 1% annually,
reaching zero after six years. 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.

PURCHASES OF CLASS Y SHARES THROUGH THE PACE MULTI-ADVISOR PROGRAM. An
investor who participates in the PACE Multi-Advisor Program is eligible to
purchase Class Y shares. The PACE Multi-Advisor Program is an advisory program
sponsored

46
<PAGE>

by PaineWebber that provides comprehensive investment services, including
investor profiling, a personalized asset allocation strategy using an
appropriate combination of funds, and a quarterly investment performance review.
Participation in the PACE Multi-Advisor Program is subject to payment of an
advisory fee at the effective maximum annual rate of 1.5% of assets. Employees
of PaineWebber and its affiliates are entitled to a waiver of this fee. Please
contact your PaineWebber investment executive or PaineWebber's correspondent
firms for more information concerning mutual funds that are available through
the PACE Multi-Advisor Program.

PURCHASES AND SALES OF CLASS Y SHARES FOR PARTICIPANTS IN PW 401(K) PLUS
PLAN. The trustee of the PW 401(k) Plus Plan, a defined contribution plan
sponsored by PW Group, buys and sells Class Y shares of the funds to implement
the investment choices of individual plan participants with respect to their PW
401(k) Plus Plan contributions. Individual plan participants should consult the
Summary Plan Description and other plan material of the PW 401(k) Plus Plan
(collectively, "Plan Documents") for a description of the procedures and
limitations applicable to making and changing investment choices. Copies of the
Plan Documents are available from the Benefits Connection, 100 Halfday Road,
Lincolnshire, IL 60069 or by calling 1-888-Pwebber (1-000-793-2237). As
described in the Plan Documents, the price at which Class Y shares are bought
and sold by the trustee of PW 401(k) Plus Plan might be more or less than the
price per share at the time the participants made their investment choices.

ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION. As discussed in the
Prospectus, eligible shares of the funds may be exchanged for shares of the
corresponding class of most other PaineWebber mutual funds. Class Y shares are
not eligible for exchange. Shareholders will receive at least 60 days' notice
of any termination or material modification of the exchange offer, except 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 objective, 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. Any such
redemption in kind will be made with readily marketable securities, to the
extent available. If payment is made in securities, a shareholder may incur
brokerage expenses in converting these securities into cash. Each fund has
elected, however, to be governed by Rule 18f-1 under the 1940 Act, under which
it is obligated to redeem shares solely in cash up to the lesser of $250,000 or
1% of its net asset value during any 90-day period for one shareholder. This
election is irrevocable unless the SEC permits its withdrawal.

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

SERVICE ORGANIZATIONS. A fund may authorize service organizations, and
their agents, to accept on its behalf purchase and redemption orders that are in
"good form." A fund will be deemed to have received these purchase and
redemption orders when a service organization or its agent accepts them. Like
all customer orders, these orders will be priced based on the fund's net asset
value next computed after receipt of the order by the service organizations or
their agents. Service organizations may include retirement plan service
providers who aggregate purchase and redemption instructions received from
numerous retirement plans or plan participants.

AUTOMATIC INVESTMENT PLAN. PaineWebber offers an Automatic Investment Plan
with a minimum initial investment of $1,000 through which a fund will deduct $50
or more on a monthly, quarterly, semiannual or annual basis from the investor's
bank account to invest directly in the fund. Participation in the Automatic
Investment Plan enables an investor to use the technique of "dollar cost
averaging." When an investor invests the same dollar amount each month under the
Plan, the investor 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, an investor's average purchase price per share over any given
period will be lower than if the investor purchased a fixed number of shares on
a monthly basis during the period. Of course, investing through the automatic
investment plan does not assure a profit or protect against loss in declining
markets. Additionally, because the automatic investment plan involves continuous
investing regardless of price levels, an investor should consider his or her
financial ability to continue purchases through periods of both low and high
price levels.

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<PAGE>

SYSTEMATIC WITHDRAWAL PLAN. The Systematic Withdrawal Plan allows
investors to set up monthly, quarterly (March, June, September and December),
semiannual (June and December) or annual (December) withdrawals from their
PaineWebber Mutual Fund accounts. Minimum balances and withdrawals vary
according to the class of shares:

. Class A and Class C shares. Minimum value of fund shares in $5,000; minimum
withdrawals of $100.

. Class B shares. Minimum value of fund shares is $20,000; minimum monthly,
quarterly, and semi-annual and annual withdrawals of $200, $400, $600 and
$800, respectively.

Withdrawals under the Systematic Withdrawal Plan will not be subject to a
contingent deferred sales charge. An investor may withdraw no more than 12% of
the value of the fund account when the investor signed up for the Plan (for
Class B shares, annually; for Class A and Class C shares, during the first year
under the Plan). Shareholders who elect to receive dividends or other
distributions in cash may not participate in this Plan.

An investor's participation in the systematic withdrawal plan will
terminate automatically if the "Initial Account Balance" (a term that means the
value of the fund account at the time the investor elects to participate in the
systematic withdrawal plan) less aggregate redemptions made other than pursuant
to the systematic withdrawal plan is less than the minimum values specified
above. Purchases of additional shares of a fund concurrent with withdrawals are
ordinarily disadvantageous to shareholders because of tax liabilities and, for
Class A shares, initial sales charges. On or about the 20th of a month for
monthly, quarterly, semiannual and annual plans, PaineWebber will arrange for
redemption by the funds of sufficient fund shares to provide the withdrawal
payments specified by participants in the funds' systematic withdrawal plan. The
payments generally are mailed approximately five Business Days (defined under
"Valuation of Shares") after the redemption date. Withdrawal payments should not
be considered dividends, but redemption proceeds. If periodic withdrawals
continually exceed reinvested dividends and other distributions, a shareholder's
investment may be correspondingly reduced. A shareholder may change the amount
of the systematic withdrawal or terminate participation in the systematic
withdrawal 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 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.

INDIVIDUAL RETIREMENT ACCOUNTS. Self-directed IRAs are available through
PaineWebber in which purchases of PaineWebber mutual funds and other investments
may be made. Investors considering establishing an IRA should review applicable
tax laws and should consult their tax advisers.

TRANSFER OF ACCOUNTS. If investors holding shares of a fund in a
PaineWebber brokerage account transfer their brokerage accounts to another firm,
the fund shares will be moved to an account with the Transfer Agent. However,
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.

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

Shares of 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
three Business Days (defined under "Valuation of Shares") 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

48
<PAGE>

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.

PERIODIC INVESTING AND DOLLAR COST AVERAGING. Periodic investing in the PW
Funds or other mutual funds, whether through 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 both low
and high 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(Registered) 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 six RMA money market funds-RMA Money Market
Portfolio, RMA U.S. Government Portfolio, RMA Tax-Free Fund, RMA
California Municipal Money Fund, RMA New Jersey Municipal Money Fund
and RMA New York Municipal Money Fund. An investment in a money market
fund is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. Although a money market
fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in a money market
fund.

. 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 $100 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.

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 a fund will automatically convert to Class A shares of
that fund, based on the relative net asset values per share of the two classes,
as of the close of business on the first Business Day (as defined under
"Valuation of Shares") of the month in

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<PAGE>

which the sixth anniversary of the initial issuance of such Class B shares
occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean (i) the
date on which such Class B shares were issued, or (ii) for Class B shares
obtained through an exchange, or a series of exchanges, the date on which the
original Class B shares were issued. For purposes of conversion to Class A
shares, 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 shares, a pro rata
portion of the Class B shares in the sub-account will also convert to Class A
shares. The portion will be determined by the ratio that the shareholder's Class
B shares converting to Class A shares 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 the continuing
availability of an opinion of counsel to the effect that the dividends and other
distributions paid on Class A and Class B shares will not result in
"preferential dividends" under the Code and that the conversion of shares does
not constitute a taxable event. If the conversion feature ceased to be
available, the Class B shares 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 this
condition for the availability of the conversion feature will not continue to be
met.

VALUATION OF SHARES

Each fund determines its net asset value per share separately for each
class of shares, normally as of the close of regular trading (usually 4:00 p.m.,
Eastern time) on the NYSE on each Business Day, which is defined as each Monday
through Friday when the NYSE is open. Prices will be calculated earlier when the
NYSE closes early because trading has been halted for the day. Currently the
NYSE is closed on the observance of the following holidays: New Year's Day,
Martin Luther King, Jr. 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 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 or the Sub-Adviser as the primary
market. Securities traded in the OTC market and listed on the Nasdaq Stock
Market ("Nasdaq") are valued at the last trade price on Nasdaq prior to
valuation; other OTC securities are valued at the last bid price available prior
to valuation (other than short-term investments that mature in 60 days or less
which are valued as described further below). 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 applicable board. It
should be recognized that judgment often plays a greater role in valuing thinly
traded securities and lower rated bonds than is the case with respect to
securities for which a broader range of dealer quotations and last-sale
information is available. The amortized cost method of valuation generally is
used to value debt obligations with 60 days or less remaining until maturity,
unless the applicable board determines that this does not represent fair value.

All investments quoted in foreign currency will be valued daily in U.S.
dollars on the basis of the foreign currency exchange rate prevailing at the
time such valuation is determined by a fund's custodian. Foreign currency
exchange rates are generally determined prior to the close of regular 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 would not be reflected in the
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 applicable board. The
foreign currency exchange transactions of the funds 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. Under normal market conditions this
rate differs from the prevailing exchange rate by less than one-tenth of one
percent due to the costs of converting from one currency to another.

PERFORMANCE INFORMATION

The funds' 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.

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<PAGE>

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

P(1 + T)n = ERV

where: P = a hypothetical initial payment of $1,000 to purchase shares
of a specified class
T = average annual total return of shares of that class
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment 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 (4.0% for Global Income Fund) is deducted from the
initial $1,000 payment and, for Class B and Class C shares, the applicable
contingent deferred sales charge imposed on a redemption of Class B or Class C
shares held for the period is deducted. All dividends and other distributions
are assumed to have been reinvested at net asset value.

The funds 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 funds calculate 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 tables show performance information for each class of the
funds' shares outstanding for the periods indicated. All returns for periods of
more than one year are expressed as an average return.

GLOBAL EQUITY FUND

CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------

Year ended October 31, 1998:
Standardized Return*...................
Non-Standardized Return................
Five Years ended October 31, 1998:
Standardized Return*...................
Non-Standardized Return................
Inception** to October 31, 1998:
Standardized Return*...................
Non-Standardized Return................

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<PAGE>

GLOBAL INCOME FUND

CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------

Year ended October 31, 1998:
Standardized Return*....................
Non-Standardized Return.................
Five years ended October 31, 1998:
Standardized Return*....................
Non-Standardized Return.................
Ten years ended October 31, 1998:
Standardized Return*....................
Non-Standardized Return.................
Inception** to October 31, 1998:
Standardized Return*....................
Non-Standardized Return.................

ASIA PACIFIC GROWTH FUND

CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------

Year ended October 31, 1998:
Standardized Return*....................
Non-Standardized Return.................
Inception** to October 31, 1998:
Standardized Return*....................
Non-Standardized Return.................

EMERGING MARKETS EQUITY FUND

CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
Year ended October 31, 1998:
Standardized Return*....................
Non-Standardized Return.................
Inception** to October 31, 1998:
Standardized Return*....................
Non-Standardized Return.................
______________
* All Standardized Return figures for Class A shares reflect deduction of the
current maximum sales charge of 4.5% (4.0% for Global Income Fund). All
Standardized Return figures for Class B and Class C shares reflect deduction of
the applicable contingent deferred sales charges imposed on a redemption of
shares held for the period. Class Y shares do not impose an initial or
contingent deferred sales charge; therefore, the performance information is the
same for both standardized return and non-standardized return for the periods
indicated.

** The inception date for each Class of shares is as follows:

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Global Equity Fund 11/14/91 08/25/95 05/10/93 05/10/93
Global Income Fund 07/01/91 03/20/87 07/02/92 08/26/91
Asia Pacific Growth Fund 03/25/97 03/25/97 03/25/97 03/13/98
Emerging Markets Equity Fund 01/19/94 12/05/95 01/19/94 01/19/94
</TABLE>

YIELD. Yields used in Global Income 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

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<PAGE>

per share (in the case of Class B and Class C shares) at the end of the Period.
Yield quotations are calculated according to the following formula:

YIELD = [FORMULA APPEARS HERE]

where: a = interest earned during the Period attributable to a Class of
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 C 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), Global Income 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 totaling
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, 1998 the yields for
its Class A shares, Class B shares, Class C shares and Class Y shares were
____%, ____%, ____%, and ____%, respectively.

OTHER INFORMATION. In Performance Advertisements, the funds may compare
their Standardized Return and/or their Non-Standardized Return with data
published by Lipper Inc. ("Lipper"), CDA Investment Technologies, Inc. ("CDA"),
Wiesenberger Investment Companies Service ("Wiesenberger"), Investment Company
Data, Inc. ("ICD") or Morningstar Mutual Funds ("Morningstar"), with the
performance of recognized stock and other indices, including (but not limited
to) the Standard & Poor's 500 Composite Stock Price Index ("S&P 500"), the Dow
Jones Industrial Average, the International Finance Corporation Global Total
Return Index, the Nasdaq Composite Index, the Russell 2000 Index, the Wilshire
5000 Index, the Lehman Bond Index, the Lehman Brothers 20+ Year Treasury Bond
Index, the Lehman Brothers Government/Corporate Bond Index, other similar Lehman
Brothers indices or components thereof, 30-year and 10-year U.S. Treasury bonds,
the Morgan Stanley Capital International Perspective Indices, the Morgan Stanley
Capital International Energy Sources Index, the Standard & Poor's Oil Composite
Index, the Morgan Stanley Capital International World Index (including Asia
Pacific regional indices), the Salomon Brothers Non-U.S. Dollar Index, the
Salomon Brothers Non-U.S. World Government Bond Index, the Salomon Brothers
World Government Index, other similar Salomon Brothers indices or components
thereof and changes in the Consumer Price Index as published by the U.S.
Department of Commerce. The funds 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 funds 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. Comparisons in
Performance Advertisements may be in graphic form.

The funds 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 a 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 a fund investment would increase more quickly than if dividends or other
distributions had been paid in cash.

The funds may also compare their performance with the performance of bank
certificates of deposit (CDs) as measured by the CDA Certificate of Deposit
Index, the Bank Rate Monitor National Index and the averages of yields of CDs of
major banks

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<PAGE>

published by Banxquote(Registered) Money Markets. In comparing the funds'
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 and net asset values will fluctuate. The debt securities
held by the funds generally have longer maturities than most CDs and may reflect
interest rate fluctuations for longer term debt securities. An investment in any
fund involves greater risks than an investment in either a money market fund or
a CD.

Each fund may also compare its performance to general trends in the stock
and bond markets, as illustrated by the following graph prepared by Ibbotson
Associates, Chicago.

[CHART]

[TO BE UPDATED]

____________
Source: Stocks, Bonds, Bills and Inflation 1998 Yearbook(TM), Ibbotson Assoc.,
Chi., (annual updates work by Roger G. Ibbotson & Rex A. Sinquefield).

The chart is shown for illustrative purposes only and does not represent
any fund's performance. These returns consist of income and capital appreciation
(or depreciation) and should not be considered an indication or guarantee of
future investment results. Year-to-year fluctuations in certain markets have
been significant, and negative returns have been experienced in certain markets
from time to time. Stocks are measured by the S&P 500, an unmanaged weighted
index comprising 500 widely held common stock and varying in composition. Unlike
investors in bonds and U.S. Treasury bills, common stock investors do not
receive fixed income payments and are not entitled to repayment of principal.
These differences contribute to investment risk. Returns shown for long-term
government bonds are based on U.S. Treasury bonds with 20-year maturities.
Inflation is measured by the Consumer Price Index. The indexes are unmanaged and
are not available for investment.

Over time, stocks have outperformed all other investments by a wide margin,
offering a solid hedge against inflation. From 1925 to 1997, stocks beat all
other traditional asset classes. A $10,000 investment in the S&P 500 grew to
$18,272,762, significantly more than any other investment.

TAXES

BACKUP WITHHOLDING. Each fund is required to withhold 31% of all
dividends, capital gain distributions and redemption proceeds payable to
individuals and certain other non-corporate shareholders who do not provide the
fund or PaineWebber with a correct taxpayer identification number. Withholding
at that rate also is required from dividends and capital gain distributions
payable to those shareholders who otherwise are subject to backup withholding.

TAXES ON THE SALE OR EXCHANGE OF FUND SHARES. A shareholder's sale
(redemption) of shares may result in a taxable gain or loss. This depends upon
whether the shareholder receives more or less than his or her adjusted basis for
the shares (which normally includes any initial sales charge paid on Class A
shares). An exchange of any fund's shares for shares of another PaineWebber
mutual fund generally will have similar tax consequences. In addition, if a
fund's shares are bought within 30 days before or after selling other shares of
the fund (regardless of class) at a loss, all or a portion of that loss will not
be deductible and will increase the basis of the newly purchased shares.

SPECIAL TAX RULE FOR CLASS A SHAREHOLDERS. Special tax rules apply when a
shareholder sells or exchanges Class A shares within 90 days of purchase and
subsequently acquires Class A shares of a PaineWebber mutual fund without paying
a sales charge due to the 365-day reinstatement privilege or the exchange
privilege. In these cases, any gain on the sale or exchange of the original
Class A shares would be increased, or any loss would be decreased, by the amount
of the sales charge paid when those shares were bought, and that amount will
increase the basis of the PaineWebber mutual fund shares subsequently acquired.

CONVERSION OF CLASS B SHARES. No gains or loss will be recognized by a
shareholder as a result of a conversion from Class B shares into Class A shares.

54
<PAGE>

QUALIFICATION AS A REGULATED INVESTMENT COMPANY. In order to continue to
qualify for treatment as a RIC under the 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 gains and net gains from certain foreign currency transactions)
("Distribution Requirement") and must meet several additional requirements. For
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 contracts) derived with respect to its
business of investing in securities or those currencies ("Income Requirement");
(2) 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 (3)
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. If a
fund failed to qualify for treatment as a RIC for any taxable year, it would be
taxed as an ordinary corporation on its taxable income for that year (even if
that income was distributed to its shareholders) and all distributions out of
its earnings and profits would be taxable to its shareholders, as dividends
(that is, ordinary income).

OTHER INFORMATION. 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 each fund's investment company taxable
income (whether paid in cash or additional 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, and gains realized, by a fund on foreign
securities may be subject to income, withholding or other taxes imposed by
foreign countries and U.S. possessions (collectively "foreign taxes") that would
reduce the yield and/or total return on its securities. Tax conventions between
certain countries and the United States may reduce or eliminate foreign taxes
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, it 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 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 foreign 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. A fund will report
to its shareholders shortly after each taxable year their respective shares of
foreign taxes paid and the income from sources within, and taxes paid to,
foreign countries and U.S. possessions if it makes this election. If a fund
makes this election, individuals who have no more than $300 ($600 for married
persons filing jointly) of creditable foreign taxes included on Forms 1099 and
all of whose foreign source income is "qualified passive income" may elect each
year to be exempt from the extremely complicated foreign tax credit limitation
and will be able to claim a foreign tax credit without having to file the
detailed Form 1116 that otherwise is required.

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") if such stock is a permissible investment. A PFIC is a foreign
corporation--other than a "controlled foreign corporation" (i.e., a foreign
corporation of which, on any day during its taxable year, more than 50% of the
total voting power of its voting stock or the total value of all of its stock is

55
<PAGE>

owned, directly, indirectly, or constructively, by "U.S. shareholders," defined
as U.S. persons that individually own, directly, indirectly, or constructively,
at least 10% of that voting power) as to which a fund is U.S. shareholder
(effective for their taxable years beginning November 1, 1998)--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 from disposition of
such 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" ("QEF"), 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 QEF's annual ordinary earnings and
net capital gain (the excess of net long-term capital gain over net short-term
capital loss)--which may have to be distributed by the fund to satisfy the
Distribution Requirement and avoid imposition of the Excise Tax--even if those
earnings and gain are not distributed to the fund by the QEF. In most instances
it will be very difficult, if not impossible, to make this election because of
certain of its requirements.

Effective for their taxable years beginning November 1, 1998, each fund may
elect to "mark to market" its stock in any PFIC. "Marking-to-market," in this
context, means including in ordinary income each taxable year the excess, if
any, of the fair market value of a PFIC's stock over a fund's adjusted basis
therein as of the end of that year. Pursuant to the election, a fund also would
be allowed to deduct (as an ordinary, not capital, loss) the excess, if any, of
its adjusted basis in PFIC stock over the fair market value thereof as of the
taxable year-end, but only to the extent of any net mark-to-market gains with
respect to that stock included by the fund for prior taxable years. A fund's
adjusted basis in each PFIC's stock with respect to which it has made this
election will be adjusted to reflect the amounts of income included and
deductions taken under the election. Regulations proposed in 1992 would have
provided a similar election with respect to the stock of certain PFIC's.

The use of hedging strategies, such as writing (selling) and purchasing options
and futures contracts and entering into forward currency contracts, involves
complex rules that will determine for income tax purposes the amount, character
and timing of recognition of the gains and losses a fund realizes in connection
therewith. Gains from the disposition of foreign currencies (except certain
gains that may be excluded by future regulations), and gains from options,
futures and forward currency contracts derived by a fund with respect to its
business of investing in securities or foreign currencies, will qualify as
permissible income under the Income Requirement.

If a fund has an "appreciated financial position"--generally, an interest
(including an interest through an option, futures or forward currency contract
or short sale) with respect to any stock, debt instrument (other than "straight
debt") or partnership interest the fair market value of which exceeds its
adjusted basis--and enters into a "constructive sale" of the same or
substantially similar property, the fund will be treated as having made an
actual sale thereof, with the result that gain will be recognized at that time.
A constructive sale generally consists of a short sale, an offsetting notional
principal contract or a futures or forward currency contract entered into by a
fund or a related person with respect to the same or substantially similar
property. In addition, if the appreciated financial position is itself a short
sale or such a contract, acquisition of the underlying property or substantially
similar property will be deemed a constructive sale. The foregoing will not
apply, however, to a fund's transaction during any taxable year that otherwise
would be treated as a constructive sale if the transaction is closed within 30
days after the end of that year and the fund holds the appreciated financial
position unhedged for 60 days after that closing (i.e., at no time during that
60-day period is the fund's risk of loss regarding that position reduced by
reason of certain specified transactions with respect to substantially similar
or related property, such as having an option to sell, being contractually
obligated to sell, making a short sale, or granting an option to buy
substantially identical stock or securities).

A fund may acquire zero coupon or other securities issued with original
issue discount or Treasury Inflation-Protection Securities ("TIPS"), on which
principal is adjusted based on changes in the Consumer Price Index. A fund must
include in its gross income the portion of the original issue discount
(including the amount of any principal increases on TIPS) that accrues on such
securities during the taxable year, even if the fund receives no corresponding
payment on them during the year. Because a 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.

56
<PAGE>

OTHER INFORMATION

MASSACHUSETTS BUSINESS TRUSTS. Each Trust 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 fund or its Trust. However, each 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 board members or by any officers or officer by or on behalf of the Trust
or the fund, the board members or any of them in connection with the Trust. Each
Declaration of Trust provides for indemnification from the relevant fund's
property for all losses and expenses of any shareholder held personally liable
for the obligations of the fund. Thus, the risk of a shareholder 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
that Mitchell Hutchins believes is remote and not material. Upon payment of any
liability incurred by a shareholder solely by reason of being or having been a
shareholder, the shareholder paying such liability would be entitled to
reimbursement from the general assets of the relevant fund. The board members
intend to conduct each fund's operations in such a way as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the fund.

CLASSES OF SHARES. A share of each class of a fund represents an identical
interest in that fund's investment portfolio and has the same rights, privileges
and preferences. However, each class may differ with respect to sales charges,
if any, distribution and/or service fees, if any, other expenses allocable
exclusively to each class, voting rights on matters exclusively affecting that
class, and its exchange privilege, if any. The different sales charges and
other expenses applicable to the different classes of shares of the funds will
affect the performance of those classes. Each share of a fund is entitled to
participate equally in dividends, other distributions and the proceeds of any
liquidation of that fund. However, due to the differing expenses of the
classes, dividends and liquidation proceeds on Class A, B, C and Y shares will
differ.

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

The funds do not hold annual meetings. Shareholders of record of no less
than two-thirds of the outstanding shares of a Trust may remove a board member
through a declaration in writing or by vote cast in person or by proxy at a
meeting called for that purpose. A meeting will be called to vote on the
removal of a board member at the written request of holders of 10% of the
outstanding shares of a Trust.

CLASS-SPECIFIC EXPENSES. Each fund may determine to allocate certain of
its expenses (in addition to service and distribution fees) to the specific
classes of its shares to which those expenses are attributable. For example,
Class B and Class C shares bear higher transfer agency fees per shareholder
account than those borne by Class A or Class Y 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. 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.

PRIOR NAMES. Prior to August 25, 1995, the name of Global Equity Fund was
"Mitchell Hutchins/Kidder, Peabody Global Equity Fund." Prior to February 13,
1995, the name of the fund was "Kidder, Peabody Global Equity Fund." Prior to
November 10, 1995, the fund's Class B shares were known as "Class E" shares and
its Class C shares were known as "Class B" shares, and the fund's Class Y shares
were known as "Class C" shares.

Prior to November 10, 1995, Global Income Fund's Class C shares were known
as "Class D" shares, and the fund's Class Y shares were known as "Class C"
shares.

Prior to November 1, 1995, the name of Emerging Markets Equity Fund was
"Mitchell Hutchins/Kidder Peabody Emerging Markets Equity Fund." Prior to
February 13, 1995, the name of the fund was "Kidder, Peabody Emerging Markets
Equity Fund." Prior to November 10, 1995, the fund's Class C shares were called
"Class B" shares, and the fund's Class Y shares were called "Class C" shares.
New Class B shares were not offered prior to December 5, 1995.

57
<PAGE>

CUSTODIAN AND RECORDKEEPING AGENT; TRANSFER AND DIVIDEND AGENT. State
Street Bank and Trust Company, located at One Heritage Drive, North Quincy,
Massachusetts 02171, serves as custodian and recordkeeping agent for Asia
Pacific Growth Fund, Emerging Markets Equity Fund and Global Equity Fund and
employs foreign sub-custodians approved by the respective boards in accordance
with applicable requirements under the 1940 Act to provide custody of the funds'
foreign assets. Brown Brothers Harriman & Co., 40 Water Street, Boston,
Massachusetts 02109, serves as custodian for Global Income Fund and employs
foreign sub-custodians approved by the fund's board in accordance with those
same requirements to provide custody of the fund's foreign assets. PFPC Inc., a
subsidiary of PNC Bank, N.A., serves as each fund's transfer and dividend
disbursing agent. It is located at 400 Bellevue Parkway, Wilmington, DE 19809.

COMBINED PROSPECTUS. Although each fund is offering only its own shares,
it is possible that a fund might become liable for a misstatement in the
Prospectus about another fund. The board of each fund has considered this
factor in approving the use of a single, combined Prospectus.

COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts
Avenue, N.W., Washington, D.C. 20036-1800, serves as counsel to the funds.
Kirkpatrick & Lockhart LLP also acts as counsel to PaineWebber and Mitchell
Hutchins in connection with other matters.

AUDITORS. Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
serves as independent auditors for Asia Pacific Growth Fund, Emerging Markets
Equity Fund and Global Equity Fund. PricewaterhouseCoopers LLP, 1177 Avenue of
the Americas, New York, New York 10036, serves as independent accountants for
Global Income Fund.

FINANCIAL STATEMENTS

Each fund's Annual Report to Shareholders for its last fiscal year ended
October 31, 1998 is a separate document supplied with this Statement of
Additional Information, and the financial statements, accompanying notes and
report of independent auditors or independent accountants appearing therein are
incorporated herein by this reference.

58
<PAGE>

APPENDIX

RATINGS INFORMATION

DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS

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

Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic
rating classification from AA through CAA. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category, the modifier
2 indicates a mid-range ranking, and the modifier 3 indicates a ranking in the
lower end of that generic rating category.

DESCRIPTION OF S&P CORPORATE DEBT RATINGS

AAA. An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong; AA. An obligation rated AA differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong; A. An obligation rated A is
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than obligations in higher rated categories. However, the
obligor's capacity to meet its financial commitment on the obligation is still
strong; BBB. An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation; BB, B, CCC, CC, C. Obligations rated BB, B, CCC, CC and C are
regarded as having significant speculative characteristics. BB indicates the
least degree of speculation and C the highest. While such obligations will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions; BB. An
obligation rated BB is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation; B. An
obligation rated B is more vulnerable to nonpayment than obligations rated BB,
but the obligor currently has the capacity to meet its financial commitment on
the obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation; CCC. An obligation rated CCC is currently vulnerable to
nonpayment and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation; CC. An obligation rated CC is currently highly vulnerable to
nonpayment; C. The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments on this
obligation are being continued; D. An obligation rated D is in payment default.
The D rating category is used when payments on an obligation are not made on the
date due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. The D rating
also will be used upon the filing of a bankruptcy petition or the taking of a
similar action if payments on an obligation are jeopardized.

A-1
<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
rating categories.

R. This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk--such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.

A-2
<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 any
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>
The Funds and Their Investment Policies............................. 1
The Funds' Investments, Related Risks and Limitations............... 5
Strategies Using Derivative Instruments............................. 22
Trustees and Officers; Principal Holders of
Securities......................................................... 29
Investment Advisory and Distribution
Arrangements....................................................... 35
Portfolio Transactions.............................................. 43
Reduced Sales Charges, Additional Exchange and
Redemption Information and Other Services.......................... 45
Conversion of Class B Shares........................................ 49
Valuation of Shares................................................. 50
Performance Information............................................. 50
Taxes............................................................... 54
Other Information................................................... 57
Financial Statements................................................ 58
Appendix............................................................ A-1
</TABLE>

PaineWebber
Global Equity Fund

PaineWebber
Global Income Fund

PaineWebber
Asia Pacific
Growth Fund

PaineWebber
Emerging Markets
Equity Fund

__________________________________________________

Statement of Additional Information

March 1, 1999

__________________________________________________

PAINEWEBBER

<PAGE>

PART C. OTHER INFORMATION
--------------------------

Item 23. Exhibits
--------

(1) Amended and Restated Declaration of Trust 1/
-

(2) Restated By-Laws 1/
-

(3) Instruments defining the rights of holders of Registrant's shares of
beneficial interest 2/
-
(4) Investment Advisory and Administration Contract 1/
-

(5) (a) Distribution Contract with respect to Class A shares 1/
-
(b) Distribution Contract with respect to Class B shares 1/
-
(c) Distribution Contract with respect to Class C shares 3/
-
(d) Distribution Contract with respect to Class Y shares 3/
-
(e) Exclusive Dealer Agreement with respect to Class A shares 1/
-
(f) Exclusive Dealer Agreement with respect to Class B shares 1/
-
(g) Exclusive Dealer Agreement with respect to Class C shares 3/
-
(h) Exclusive Dealer Agreement with respect to Class Y shares 3/
-

(6) Bonus, profit sharing or pension plans - none

(7) Custodian Agreement with respect to PaineWebber Global Income Fund 1/
-

(8) Transfer Agency Agreement (to be filed)

(9) Opinion and consent of counsel (to be filed)

(10) Other opinions, appraisals, rulings and consents: Accountants' consent (to
be filed)

(11) Financial statements omitted from Part B - none

(12) Letter of investment intent 1/
-

(13) (a) Plan of Distribution pursuant to Rule 12b-1 with respect to Class A
shares (to be filed)

(b) Plan of Distribution pursuant to Rule 12b-1 with respect to Class B
shares (to be filed)

(14) and

(27) Financial Data Schedule (to be filed)

(15) Plan pursuant to Rule 18f-3 4/
-

_____________

1/ Incorporated by reference from Post-Effective Amendment No. 37, File No.
- - 33-11025, filed February 27, 1998.

2/ Incorporated by reference from Articles III, VIII, IX, X and XI of
- - Registrant's Amended and Restated Declaration of Trust, and from Articles
II, VII and X of Registrant's Restated By-Laws.

3/ Incorporated by reference from Post-Effective Amendment No.31, File No.
- - 33-11025, filed February 26, 1996.

C-1
<PAGE>

4/ Incorporated by reference from Post-Effective Amendment No. 33, File No.
- - 33-11025, filed August 29, 1996.

Item 24. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------

None.

Item 25. Indemnification
---------------

Section 2 of "Indemnification" in Article X of the Declaration of Trust
provides that the appropriate series of the Registrant will indemnify the
trustees and officers of the Registrant to the fullest extent permitted by law
against claims and expenses asserted against or incurred by them by virtue of
being or having been a trustee or officer; provided that no such person shall be
indemnified where there has been an adjudication or other determination, as
described in Article X, that such person is liable to the Registrant or its
shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office or
did not act in good faith in the reasonable belief that his action was in the
best interest of the Registrant. Section 2 of "Indemnification" in Article X
also provides that the Registrant may maintain insurance policies covering such
rights of indemnification.

Additionally, "Limitation of Liability" in Article X of the Declaration of
Trust provides that the trustees or officers of the Registrant shall not be
personally liable to any person extending credit to, contracting with or having
a claim against the Registrant or a particular series; and that, provided they
have exercised reasonable care and have acted under the reasonable belief that
their actions are in the best interest of the Registrant, the trustees and
officers shall not be liable for neglect or wrongdoing by them or any officer,
agent, employee or investment adviser of the Registrant.

Section 2 of Article XI of the Declaration of Trust additionally provides
that, subject to the provisions of Section 1 of Article XI and to Article X,
trustees shall not be liable for errors of judgment or mistakes of fact or law,
for any act or omission in accordance with advice of counsel or other experts,
or for failing to follow such advice, with respect to the meaning and operation
of the Declaration of Trust.

Article IX of the By-Laws provides that the Registrant may purchase and
maintain insurance on behalf of any person who is or was a trustee, officer or
employee of the Registrant, or is or was serving at the request of the
Registrant as a trustee, officer or employee of a corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity or arising out of his status as
such, whether or not the Registrant would have the power to indemnify him
against such liability to the Registrant or its shareholders, provided that the
Registrant may not purchase or maintain insurance that protects any such person
against any liability to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.

Section 9 of the Investment Advisory and Administration Contract ("Contract")
provides that Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins")
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by any series of the Registrant in connection with the matters to which
the Contract relates, except for a loss resulting from the willful misfeasance,
bad faith, or gross negligence of Mitchell Hutchins in the performance of its
duties or from its reckless disregard of its obligations and duties under the
Contract. Section 10 of the Contract provides that the trustees shall not be
liable for any obligations of any series or the Registrant under the Contract
and that Mitchell Hutchins shall look only to the assets and property of the
Registrant or appropriate series in settlement of such right or claim and not to
the assets and property of the trustees.

Section 9 of each Distribution Contract provides that the Registrant will
indemnify Mitchell Hutchins and its officers, directors and controlling persons
against all liabilities arising from any alleged untrue statement of material
fact in the Registration Statement or from any alleged omission to state in the
Registration Statement a material fact required to be stated in it or necessary
to make the statements in it, in light of the circumstances under which they
were made, not misleading, except insofar as liability arises from untrue
statements or omissions made

C-2
<PAGE>

in reliance upon and in conformity with information furnished by Mitchell
Hutchins to the Registrant for use in the Registration Statement; and provided
that this indemnity agreement shall not protect any such persons against
liabilities arising by reason of their bad faith, gross negligence or willful
misfeasance; and shall not inure to the benefit of any such persons unless a
court of competent jurisdiction or controlling precedent determines that such
result is not against public policy as expressed in the Securities Act of 1933.
Section 9 of each Distribution Contract also provides that Mitchell Hutchins
agrees to indemnify, defend and hold the Registrant, its officers and trustees
free and harmless of any claims arising out of any alleged untrue statement or
any alleged omission of material fact contained in information furnished by
Mitchell Hutchins for use in the Registration Statement or arising out of an
agreement between Mitchell Hutchins and any retail dealer, or arising out of
supplementary literature or advertising used by Mitchell Hutchins in connection
with each Distribution Contract.

Section 9 of each Exclusive Dealer Agreement contains provisions similar to
Section 9 of the relevant Distribution Contract, with respect to PaineWebber
Incorporated ("PaineWebber").

Section 10 of each Distribution Contract contains provisions similar to
Section 10 of the Investment Advisory and Administration Contract, applicable to
Mitchell Hutchins and PaineWebber, respectively.

Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended, may be provided to trustees, officers and controlling persons
of the Registrant, pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer or controlling person of the Registrant
in connection with the successful defense of any action, suit or proceeding or
payment pursuant to any insurance policy) is asserted against the Registrant by
such trustee, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

Item 26. Business and Other Connections of Investment Adviser
----------------------------------------------------

Mitchell Hutchins, a Delaware corporation, is a registered investment adviser
and is a wholly owned subsidiary of PaineWebber which is, in turn, a wholly
owned subsidiary of Paine Webber Group Inc. Mitchell Hutchins is primarily
engaged in the investment advisory business. Information as to the officers and
directors of Mitchell Hutchins is included in its Form ADV as filed with the
Securities and Exchange Commission (registration number 801-13219) and is
incorporated herein by reference.

Item 27. Principal Underwriters
----------------------

(a) Mitchell Hutchins serves as principal underwriter and/or investment
adviser for the following investment companies:

ALL-AMERICAN TERM TRUST INC.

GLOBAL HIGH INCOME DOLLAR FUND, INC.

GLOBAL SMALL CAP FUND, INC.

INSURED MUNICIPAL INCOME FUND INC.
INVESTMENT GRADE MUNICIPAL INCOME FUND INC.
MANAGED HIGH YIELD FUND INC.

MANAGED HIGH YIELD PLUS FUND INC.
MITCHELL HUTCHINS INSTITUTIONAL SERIES
MITCHELL HUTCHINS PORTFOLIOS
MITCHELL HUTCHINS SERIES TRUST
PAINEWEBBER AMERICA FUND
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.

C-3
<PAGE>

PAINEWEBBER INDEX TRUST
PAINEWEBBER INVESTMENT SERIES
PAINEWEBBER INVESTMENT TRUST
PAINEWEBBER INVESTMENT TRUST II
PAINEWEBBER MANAGED ASSETS TRUST
PAINEWEBBER MANAGED INVESTMENTS TRUST
PAINEWEBBER MASTER SERIES INC.
PAINEWEBBER MUNICIPAL SERIES
PAINEWEBBER MUTUAL FUND TRUST
PAINEWEBBER OLYMPUS FUND
PAINEWEBBER SECURITIES TRUST
STRATEGIC GLOBAL INCOME FUND INC.
2002 TARGET TERM TRUST INC.

(b) Mitchell Hutchins is the Registrant's principal underwriter. PaineWebber
acts as exclusive dealer of the Registrant's shares. The directors and officers
of Mitchell Hutchins, their principal business addresses, and their positions
and offices with Mitchell Hutchins are identified in its Form ADV as filed with
the Securities and Exchange Commission (registration number 801-13219). The
directors and officers of PaineWebber, their principal business addresses, and
their positions and offices with PaineWebber are identified in its Form ADV as
filed with the Securities and Exchange Commission (registration number 801-
7163). The foregoing information is hereby incorporated herein by reference.
The information set forth below is furnished for those directors and officers of
Mitchell Hutchins or PaineWebber who also serve as trustees or officers of the
Registrant. Unless otherwise indicated, the principal address of each is 1285
Avenue of the Americas, New York, New York 10019.

<TABLE>
<CAPTION>
Positions and Offices With
Name Positions and Offices With Registrant Underwriter or Exclusive Dealer
- ------------------------ ---------------------------------------------- ---------------------------------------------------
<S> <C> <C>
Margo N. Alexander President and Trustee President, Chief Executive Officer and a Director
of Mitchell Hutchins and Executive Vice President
and a Director of PaineWebber

Mary C. Farrell Trustee Managing Director, Senior Investment Strategist
and Member of Investment Policy Committee of
PaineWebber

Lawrence Chinsky Vice President and Assistant Treasurer Assistant Vice President and Investment Monitoring
Officer of the Mutual Fund Finance Department of
Mitchell Hutchins

Dianne E. O'Donnell Vice President and Secretary Senior Vice President and Deputy General Counsel
of Mitchell Hutchins

John J. Lee Vice President and Assistant Treasurer Vice President and a Manager of the Mutual Fund
Finance Department of Mitchell Hutchins

Dennis McCauley Vice President Managing Director and Chief Investment Officer -
Fixed Income of Mitchell Hutchins

Ann E. Moran Vice President and Assistant Treasurer Vice President and a Manager of the Mutual Fund
Finance Department of Mitchell Hutchins

Emil Polito Vice President Senior Vice President and Director of Operations
and Control of Mitchell Hutchins

Victoria E. Schonfeld Vice President Managing Director and General Counsel of Mitchell
Hutchins

Paul H. Schubert Vice President and Treasurer Senior Vice President and Director of the Mutual
Fund Finance Department of Mitchell Hutchins
</TABLE>

C-4
<PAGE>

<TABLE>
<CAPTION>
Positions and Offices With
Name Positions and Offices With Registrant Underwriter or Exclusive Dealer
- ------------------------ ---------------------------------------------- ---------------------------------------------------
<S> <C> <C>
Barney A. Taglialatela Vice President and Assistant Treasurer Vice President and a Manager of the Mutual Fund
Finance Department of Mitchell Hutchins

Stuart Waugh Vice President Managing Director and Portfolio Manager of
Mitchell Hutchins

Keith A. Weller Vice President and Assistant Secretary First Vice President and Associate General Counsel
of Mitchell Hutchins
</TABLE>

Item 28. Location of Accounts and Records
--------------------------------

The books and other documents required by paragraphs b)(4), (c) and (d) of
Rule 31a-1 under the Investment Company Act of 1940 are maintained in the
physical possession of Registrant's Portfolio Manager, Mitchell Hutchins, 1285
Avenue of the Americas, New York, New York 10019. All other accounts, books and
documents required by Rule 31a-1 are maintained in the physical possession of
Registrant's transfer agent and custodian.

Item 29. Management Services
-------------------

Not applicable.

Item 30. Undertakings
------------

None.

C-5
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York and State of New
York, on the 28th day of December, 1998.

PAINEWEBBER INVESTMENT SERIES

By: /s/ Dianne E. O'Donnell
----------------------------
Dianne E. O'Donnell
Vice President and Secretary

Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment has been signed below by the following persons in the
capacities and on the dates indicated:

Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Margo N. Alexander
- -------------------------------------------- President and Trustee December 28, 1998
Margo N. Alexander * (Chief Executive Officer)

/s/ E. Garrett Bewkes, Jr.
- -------------------------------------------- Trustee and Chairman December 28, 1998
E. Garrett Bewkes, Jr. * of the Board of Trustees

/s/ Richard Q. Armstrong
- -------------------------------------------- Trustee December 28, 1998
Richard Q. Armstrong *

/s/ Richard R. Burt
- -------------------------------------------- Trustee December 28, 1998
Richard R. Burt *

/s/ Mary C. Farrell
- -------------------------------------------- Trustee December 28, 1998
Mary C. Farrell *

/s/ Meyer Feldberg
- -------------------------------------------- Trustee December 28, 1998
Meyer Feldberg *

/s/ George W. Gowen
- -------------------------------------------- Trustee December 28, 1998
George W. Gowen *

/s/ Frederic V. Malek
- -------------------------------------------- Trustee December 28, 1998
Frederic V. Malek *

/s/ Carl W. Schafer
- -------------------------------------------- Trustee December 28, 1998
Carl W. Schafer *

/s/ Paul H. Schubert
- -------------------------------------------- Vice President and Treasurer (Chief December 28, 1998
Paul H. Schubert Financial and Accounting Officer)
</TABLE>
<PAGE>

SIGNATURES (CONTINUED)

* Signature affixed by Elinor W. Gammon pursuant to powers of attorney dated
May 21, 1996 and incorporated by reference from Post-Effective Amendment
No. 30 to the registration statement of PaineWebber Managed Municipal
Trust, SEC File 2-89016, filed June 27, 1996.
<PAGE>

PAINEWEBBER INVESTMENT SERIES

EXHIBIT INDEX
-------------

Exhibit
Number
- ------

(1) Amended and Restated Declaration of Trust 1/
-
(2) Restated By-Laws 1/
-

(3) Instruments defining the rights of holders of Registrant's shares of
beneficial interest 2/
-
(4) Investment Advisory and Administration Contract 1/
-

(7) Custodian Agreement with respect to PaineWebber Global Income Fund 1/
-
(8) Transfer Agency Agreement (to be filed)

(9) Opinion and consent of counsel (to be filed)

(10) Other opinions, appraisals, rulings and consents: Accountants' consent (to
be filed)

(11) Financial statements omitted from Part B - none

(12) Letter of investment intent 1/
-
(13) (a) Plan of Distribution pursuant to Rule 12b-1 with respect to Class A
shares (to be filed)

(b) Plan of Distribution pursuant to Rule 12b-1 with respect to Class B
shares (to be filed)

(14) and

(27) Financial Data Schedule (to be filed)

(15) Plan pursuant to Rule 18f-3 4/
-

_____________

1/ Incorporated by reference from Post-Effective Amendment No. 37, File No.
- - 33-11025, filed February 27, 1998.

2/ Incorporated by reference from Articles III, VIII, IX, X and XI of
- - Registrant's Amended and Restated Declaration of Trust, and from Articles
II, VII and X of Registrant's Restated By-Laws.
<PAGE>

3/ Incorporated by reference from Post-Effective Amendment No.31, File No.
- - 33-11025, filed February 26, 1996.

4/ Incorporated by reference from Post-Effective Amendment No. 33, File No.
- - 33-11025, filed August 29, 1996.