PAINEWEBBER INVESTMENT TRUST, 497, 1999-12-02

PAINEWEBBER INVESTMENT TRUST
497, 1999-12-02

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<PAGE>

GLOBAL SMALL CAP FUND INC.
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019-6114

November 19, 1999

Dear Shareholder:

Enclosed is a combined proxy statement and prospectus that seeks your
approval of an important proposal for your fund. YOUR VOTE ON THIS PROPOSAL WILL
HELP DECIDE THE FUND'S FUTURE.

The Board of Directors of Global Small Cap Fund Inc. ('Global Small Cap')
proposes to convert the fund into an open-end investment company by reorganizing
it into PaineWebber Global Equity Fund ('Global Equity'), a series of
PaineWebber Investment Trust. Under the proposed reorganization, each
shareholder of Global Small Cap would become a holder of Class A shares of
Global Equity, and Global Small Cap would be liquidated.

As with the shares of many closed-end investment companies, Global Small
Cap shares have historically traded at a discount to their net asset value. IF
APPROVED, THE PROPOSED REORGANIZATION WOULD COMPLETELY ELIMINATE THIS DISCOUNT.
The reorganization would give Global Small Cap shareholders the opportunity to
realize the full value of their investments through the automatic conversion of
their shares, at net asset value, to shares of Global Equity. In addition, the
Board believes that the reorganization would provide Global Small Cap
shareholders with other benefits. These include the benefits of the open-end
investment company form of organization, economies of scale, and other benefits
of combining with an existing fund.

Global Small Cap and Global Equity have substantially identical investment
objectives, and they invest in the same, global markets. Global Equity, however,
invests primarily in companies that have larger capitalizations than the
companies in which Global Small Cap normally invests, and it follows a more
flexible, though highly disciplined, investment process. The Global Small Cap
Board believes that these factors, as well as the benefits described above, mean
that the proposed reorganization is in the best overall interests of the fund's
shareholders. AFTER CAREFUL CONSIDERATION, THE GLOBAL SMALL CAP BOARD HAS
UNANIMOUSLY APPROVED THE PROPOSAL. THE BOARD RECOMMENDS THAT YOU READ THE
ENCLOSED MATERIALS CAREFULLY AND THEN VOTE 'FOR' THE REORGANIZATION.

The enclosed document describes the proposed reorganization and compares
the investment policies, operating expenses and performance histories of Global
Small Cap and Global Equity in more detail. Please read it carefully. After
reviewing it, please complete, date and sign your proxy card and return it in
the enclosed postage-paid return envelope.

YOUR VOTE IS VERY IMPORTANT. Please take a moment to review the enclosed
materials and to date, sign and return your proxy card today. Voting your shares
early will permit Global Small Cap to avoid costly follow-up mail and telephone
solicitation.

THE BOARD URGES THAT YOU VOTE 'FOR' THE PROPOSED REORGANIZATION.

Sincerely,

/s/ MARGO N. ALEXANDER
MARGO N. ALEXANDER
President

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[THIS PAGE IS INTENTIONALLY LEFT BLANK.]

<PAGE>

GLOBAL SMALL CAP FUND INC.
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019-6114

------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
DECEMBER 30, 1999

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

To the Shareholders,

NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders ('Meeting')
of Global Small Cap Fund Inc. ('Global Small Cap') will be held on December 30,
1999, at 1285 Avenue of the Americas, 14th Floor, New York, New York, 10019, at
10:30 a.m., Eastern time, for the following purpose:

To approve an Agreement and Plan of Reorganization and Termination
('Plan') that provides for the combination of Global Small Cap and
PaineWebber Global Equity Fund ('Global Equity'), a series of PaineWebber
Investment Trust ('Trust'). Pursuant to the Plan, Global Small Cap will
transfer all its assets to Global Equity, which will assume all the
liabilities of Global Small Cap, and the Trust will issue to each Global
Small Cap shareholder the number of full and fractional Class A shares of
Global Equity having an aggregate value that, on the effective date of the
reorganization, is equal to the aggregate net asset value of the
shareholder's shares in Global Small Cap.

Shareholders of record as of the close of business on November 4, 1999, are
entitled to notice of, and to vote at, the Meeting or any adjournment thereof.

Please execute and return promptly in the enclosed envelope the
accompanying proxy, which is being solicited by the Board of Directors of Global
Small Cap. Returning your proxy promptly is important to ensure a quorum at the
Meeting. You may revoke your proxy at any time before it is exercised by the
subsequent execution and submission of a revised proxy, by giving written notice
of revocation to Global Small Cap at any time before the proxy is exercised or
by voting in person at the Meeting.

By Order of the Board of Directors,

DIANNE E. O'DONNELL
Secretary

November 19, 1999
51 West 52nd Street
New York, New York 10019-6114

<PAGE>

YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN.

Please indicate your voting instructions on the enclosed proxy card, sign
and date the card and return it in the envelope provided. IF YOU SIGN, DATE AND
RETURN THE PROXY CARD BUT GIVE NO VOTING INSTRUCTIONS, YOUR SHARES WILL BE VOTED
'FOR' THE PROPOSAL DESCRIBED ABOVE. In order to avoid the additional expense of
further solicitation, we ask your cooperation in mailing your proxy card
promptly.

For more information or questions regarding casting your vote for the
Meeting, please call 1-800-949-8596.

If we do not receive your completed proxy cards after several weeks, you
may be contacted by our proxy solicitor, Shareholder Communications Corporation.
Our proxy solicitor will remind you to vote your shares.

<PAGE>

INSTRUCTIONS FOR SIGNING PROXY CARDS

The following general rules for signing proxy cards may be of assistance to
you and avoid the time and expense to Global Small Cap involved in validating
your vote if you fail to sign your proxy card properly.

1. Individual Accounts: Sign your name exactly as it appears in the
registration on the proxy card.

2. Joint Accounts: Either party may sign, but the name of the party signing
should conform exactly to the name shown in the registration on the proxy card.

3. All Other Accounts: The capacity of the individual signing the proxy
card should be indicated unless it is reflected in the form of registration. For
example:

<TABLE>
<CAPTION>
REGISTRATION VALID SIGNATURE
<S> <C>
Corporate Accounts
(1) ABC Corp................................... ABC Corp.
John Doe, Treasurer
(2) ABC Corp................................... John Doe, Treasurer
(3) ABC Corp. c/o John Doe, Treasurer.......... John Doe
(4) ABC Corp. Profit Sharing Plan.............. John Doe, Trustee

Partnership Accounts
(1) The XYZ Partnership........................ Jane B. Smith, Partner
(2) Smith and Jones, Limited Partnership....... Jane B. Smith, General Partner

Trust Accounts
(1) ABC Trust Account.......................... Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee u/t/d 12/28/78........ Jane B. Doe

Custodial or Estate Accounts
(1) John B. Smith, Cust. f/b/o
John B. Smith, Jr.,
UGMA/UTMA.................................. John B. Smith
(2) Estate of John B. Smith.................... John B. Smith, Jr., Executor
</TABLE>

<PAGE>

[THIS PAGE IS INTENTIONALLY LEFT BLANK.]

<PAGE>

GLOBAL SMALL CAP FUND INC.
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019-6114
(212) 882-5000

PAINEWEBBER GLOBAL EQUITY FUND
(A PORTFOLIO OF PAINEWEBBER INVESTMENT TRUST)
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019-6114
TOLL FREE: (800) 647-1568

------------------------
COMBINED PROXY STATEMENT AND PROSPECTUS
DATED: NOVEMBER 19, 1999
------------------------

This document is being furnished in connection with a Special Meeting of
Shareholders of Global Small Cap Fund Inc. ('Global Small Cap'), a Maryland
corporation, to be held on December 30, 1999, at 1285 Avenue of the Americas,
14th Floor, New York, NY 10019 at 10:30 a.m., Eastern time (such meeting and any
adjournments thereof are referred to as the 'Meeting'). At the Meeting, the
shareholders of Global Small Cap are being asked to consider and approve an
Agreement and Plan of Reorganization and Termination ('Plan') that provides for
the reorganization of Global Small Cap into PaineWebber Global Equity Fund
('Global Equity'), a series of PaineWebber Investment Trust, a Massachusetts
business trust ('Trust') ('Reorganization'). A form of the Plan is attached as
Appendix A to this Combined Proxy Statement and Prospectus ('Proxy
Statement/Prospectus'). The Board of Directors of Global Small Cap ('Board') has
unanimously approved the Plan as being in the best interests of Global Small Cap
and its shareholders.

Pursuant to the Plan, Global Small Cap will transfer all its assets to
Global Equity, which will assume all the liabilities of Global Small Cap, and
each Global Small Cap shareholder will receive the number of full and fractional
Class A shares of beneficial interest in Global Equity ('Global Equity Class A
Shares') having an aggregate value that, on the effective date of the
Reorganization, is equal to the aggregate net asset value of the shareholder's
shares of common stock of Global Small Cap. The value of each Global Small Cap
shareholder's account with Global Equity immediately after the Reorganization
will be the same as the net asset value of such shareholder's Global Small Cap
shares immediately prior to the Reorganization. The Reorganization has been
structured as a tax-free transaction. No initial sales charge will be imposed on
Global Equity Class A Shares issued in connection with the Reorganization.

Global Equity is a diversified series of the Trust, which is an open-end
management investment company comprised of several outstanding series. Global
Equity's investment objective is long-term growth of capital. Global Equity
seeks to achieve its investment objective by investing primarily in equity
securities of companies located in the United States and developed foreign
markets. Global Equity may also invest in U.S. and foreign debt securities.

This Proxy Statement/Prospectus sets forth the information that a
shareholder of Global Small Cap should know before voting on the Plan. It should
be read carefully and retained for future reference.

A copy of the current Prospectus of Global Equity, dated March 1, 1999, as
supplemented, is attached as Appendix B to this Proxy Statement/Prospectus and
incorporated by reference herein. Because Global Equity's March 1, 1999,
Prospectus is a joint prospectus of four funds, it includes information on three
other funds which is not germane to this Prospectus/Proxy Statement. Please
disregard all references to these three other funds. In addition, the current
Statement of Additional Information ('SAI') of Global Equity, dated March 1,
1999, as supplemented, the Annual Report to Shareholders of Global Equity for
the fiscal year ended October 31, 1998, and the Semi-Annual Report to
Shareholders of Global Equity for the six months ended April 30, 1999, are on
file with the Securities and Exchange Commission ('SEC') and are incorporated by
reference into this Proxy Statement/Prospectus. The Annual Report to
Shareholders of Global Small Cap for the fiscal year ended

<PAGE>

July 31, 1999, is on file with the SEC and is incorporated by reference into
this Proxy Statement/Prospectus. These documents are available without charge by
writing to Mitchell Hutchins Asset Management Inc., 51 West 52nd Street, New
York, NY 10019-6114 or by calling (800) 647-1568. The SEC maintains a Web site
at http://www.sec.gov that contains the documents described above and other
information about Global Small Cap and the Trust. Additional information about
Global Equity may also be obtained on the Web at http://www.painewebber.com.

AS WITH ALL MUTUAL FUNDS, THE SEC HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS TRUTHFUL OR
COMPLETE. TO STATE OTHERWISE IS A CRIME.

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
SECTION TITLE PAGE
- ------------- ----
<S> <C>
INTRODUCTION................................................ 1
PROPOSAL: REORGANIZATION OF GLOBAL SMALL CAP INTO GLOBAL
EQUITY.................................................... 3
REASONS FOR THE REORGANIZATION.............................. 3
The Reorganization..................................... 3
Board Considerations................................... 3
Conversion to an Open-End Format.................. 3
Open-Ending Methods............................... 4
The Proposed Reorganization with Global Equity.... 5
COMPARISON OF THE FUNDS..................................... 6
COMPARISON OF PRINCIPAL RISK FACTORS........................ 13
Primary Differences in Investment Risks of the Funds... 13
Risks Common to Both Funds............................. 13
Investing in Securities Generally................. 13
Investing in Foreign Securities................... 13
Lower Quality Debt................................ 14
Sovereign Debt.................................... 14
Illiquid Securities............................... 14
Year 2000......................................... 14
FINANCIAL HIGHLIGHTS........................................ 15
ADDITIONAL INFORMATION ABOUT THE REORGANIZATION............. 16
Terms of the Reorganization............................ 16
Description of Securities to be Issued................. 17
Dividends and Other Distributions...................... 17
Potential Net Redemption............................... 17
Accounting Treatment................................... 18
Federal Income Tax Considerations...................... 18
ORGANIZATION OF THE FUNDS................................... 19
CAPITALIZATION.............................................. 19
LEGAL MATTERS............................................... 19
INFORMATION FILED WITH THE SEC AND AMEX..................... 19
INFORMATION ABOUT THE FUNDS' ADVISER AND SUB-ADVISERS, AND
GLOBAL EQUITY'S DISTRIBUTOR............................... 20
ADDITIONAL INFORMATION ABOUT GLOBAL SMALL CAP AND GLOBAL
EQUITY.................................................... 20
EXPERTS..................................................... 21
SHAREHOLDER PROPOSALS....................................... 21
APPENDIX A: Plan of Reorganization and Termination.......... A-1
APPENDIX B: Joint Prospectus of Global Equity............... B-1
APPENDIX C: Directors/Trustees of Global Small Cap and
Global Equity and Officers of Global Small Cap............ C-1
</TABLE>

<PAGE>

[THIS PAGE IS INTENTIONALLY LEFT BLANK.]

<PAGE>

INTRODUCTION

This Proxy Statement/Prospectus is being furnished to shareholders of
Global Small Cap in connection with the solicitation of proxies by the Board for
use at the Meeting. All properly executed and unrevoked proxies received in time
for the Meeting will be voted in accordance with the instructions contained
therein. If no instructions are given, shares represented by proxies will be
voted 'FOR' approval of the Plan. The presence in person or by proxy of Global
Small Cap shareholders entitled to cast a majority of all the votes entitled to
be cast at the Meeting will constitute a quorum. If a quorum is not present at
the Meeting or a quorum is present but sufficient votes to approve the proposal
described in this Proxy Statement/Prospectus are not received, the persons named
as proxies may propose one or more adjournments of the Meeting to permit further
solicitation of proxies. Any such adjournment will require the affirmative vote
of a majority of the shares represented at the Meeting in person or by proxy.
The persons named as proxies will vote those proxies that they are entitled to
vote 'FOR' the proposal in favor of such an adjournment and will vote those
proxies required to be voted 'AGAINST' the proposal against such adjournment.

Global Small Cap intends to mail this Proxy Statement/Prospectus and the
accompanying proxy card on or about November 29, 1999.

Approval of the Plan requires the affirmative vote of a majority of the
votes entitled to be cast on the proposal.

Broker non-votes are shares held in 'street name' for which the broker
indicates that instructions have not been received from the beneficial owners or
other persons entitled to vote and for which the broker does not have
discretionary voting authority. Abstentions and broker non-votes will be counted
as shares present at the Meeting for quorum purposes but will not be considered
votes cast at the Meeting. Abstentions and broker non-votes are effectively
votes against the Plan because the required affirmative vote is a majority of
the total shares outstanding.

Any person giving a proxy has the power to revoke it at any time prior to
its exercise by executing a superseding proxy or by submitting a written notice
of revocation to the Secretary of Global Small Cap ('Secretary'). To be
effective, such revocation must be received by the Secretary prior to the
Meeting. In addition, although mere attendance at the Meeting will not revoke a
proxy, a shareholder present at the Meeting may withdraw his or her proxy by
voting in person.

Shareholders of record as of the close of business on November 4, 1999
('Record Date'), are entitled to vote at the Meeting. On the Record Date, there
were 3,801,667 shares of Global Small Cap outstanding. Each share is entitled to
one vote for each full share held and a fractional vote for each fractional
share held. Except as set forth below, as of October 12, 1999, Mitchell Hutchins
Asset Management Inc. ('Mitchell Hutchins'), the investment adviser of both
Global Small Cap and Global Equity ('Funds' or, individually, a 'Fund'), does
not know of any other person who owns beneficially 5% or more of the shares of
either Fund:

GLOBAL SMALL CAP FUND INC.

<TABLE>
<CAPTION>
NUMBER PERCENT
OF SHARES BENEFICIAL
SHAREHOLDER'S NAME/ADDRESS OWNED OWNERSHIP
-------------------------- ----- ---------
<S> <C> <C>
Ronald Olin Investment Management Company .................. 615,100 16.2%
One West Pack Square, Suite 777
Asheville, North Carolina 28801
Deep Discount Advisors, Inc. .............................. 984,063 25.9%
One West Pack Square, Suite 777
Asheville, North Carolina 28801
</TABLE>

The foregoing information is based on a Schedule 13D filed jointly by the two
entities noted above on October 12, 1999.

Global Small Cap has engaged the services of Shareholder Communications
Corporation ('SCC') to assist it in the solicitation of proxies for the Meeting.
Global Small Cap expects to solicit proxies principally by mail, but it or SCC
may also solicit proxies by telephone, facsimile, e-mail or personal

<PAGE>

interview. Global Small Cap officers and employees of Mitchell Hutchins who
assist in the proxy solicitation will not receive any additional or special
compensation for any such efforts. Global Small Cap will bear the expenses
incurred in connection with the solicitation and the Reorganization, which are
estimated to be $150,000. SCC will be paid approximately $7,000 for proxy
solicitation services. Global Small Cap will request broker/dealer firms,
custodians, nominees and fiduciaries to forward proxy materials to the
beneficial owners of the shares held of record by such persons. Global Small Cap
may reimburse such broker/dealer firms, custodians, nominees and fiduciaries for
their reasonable expenses incurred in connection with such proxy solicitation.

<PAGE>

PROPOSAL: REORGANIZATION OF
GLOBAL SMALL CAP INTO GLOBAL EQUITY

REASONS FOR THE REORGANIZATION

THE REORGANIZATION

The Plan provides for the acquisition by Global Equity of all of Global
Small Cap's assets in exchange for Global Equity Class A Shares and the
assumption by Global Equity of all of Global Small Cap's liabilities. Global
Small Cap will then distribute the Global Equity Class A Shares to its
shareholders. Each Global Small Cap shareholder will receive full and fractional
Global Equity Class A Shares equal in aggregate value to the net asset value of
the shareholder's shares of Global Small Cap at the time of the Reorganization.
These transactions are scheduled to occur at 4:00 p.m., Eastern time, on January
28, 2000, or on such later date as the conditions to consummation of the
Reorganization are satisfied ('Closing Date'). The Closing Date would not occur
immediately following the shareholders' meeting due to the policy of the Funds'
service providers to not effect major transactions, such as the Reorganization,
close to the turnover to the year 2000. Global Small Cap will be liquidated as
soon as is practicable after the Closing Date. See 'Additional Information About
the Reorganization' below.

Global Small Cap and the Trust each will receive an opinion of Kirkpatrick
& Lockhart LLP, their counsel, to the effect that the Reorganization will
constitute a tax-free reorganization within the meaning of section 368(a)(1)(C)
of the Internal Revenue Code of 1986, as amended ('Code'). Accordingly, neither
Fund nor any of their shareholders will recognize any gain or loss for federal
income tax purposes as a result of the Reorganization. To the extent Global
Small Cap sells securities prior to the Closing Date, there may be net
recognized gains or losses to the Fund. Any net recognized gains would increase
the amount of any distribution made to shareholders of Global Small Cap prior to
the Closing Date. See 'Additional Information About the
Reorganization -- Federal Income Tax Considerations' below.

If the Reorganization is not approved by shareholders at the Meeting,
Global Small Cap will continue to operate as a closed-end fund, and the Board
will then consider other options and alternatives for the future of the Fund.

BOARD CONSIDERATIONS

The Global Small Cap Board, including the Board Members who are not
'interested persons,' as that term is defined in the Investment Company Act of
1940 ('1940 Act'), of either Global Small Cap or Global Equity ('Independent
Board Members'), has determined that the Reorganization is in the best interests
of Global Small Cap and has voted unanimously to recommend to shareholders that
they approve the Plan.

CONVERSION TO AN OPEN-END FORMAT

Consistent with the policies set forth in Global Small Cap's Prospectus,
the Board from time-to-time considers whether it would be in the best interest
of the Fund to convert to an open-end investment company or to take other
actions designed to eliminate or reduce the discount to net asset value ('NAV')
at which the Fund's shares trade. The Board considered these matters frequently
during 1999, due in part to the extent of the discount and to concerns expressed
by shareholders regarding the discount. After considering alternative courses of
action, at a meeting on July 28, 1999, Global Small Cap's Board unanimously
approved the conversion of Global Small Cap to an open-end format as the best
means to address the discount. The Board agreed to decide on the most
appropriate means of open-ending the Fund at its next scheduled meeting.

In considering whether to continue to operate Global Small Cap as a
closed-end fund, the Board compared the benefits of operating as an open-end
fund to those of operating as a closed-end fund. Particularly, the Board noted
that the closed-end structure offered benefits in terms of portfolio management,
such as the ability to invest without limitation in illiquid securities
(although Global Small Cap's investment restrictions limit its investment in
illiquid securities to 20% of net assets) and to

<PAGE>

manage the portfolio without concern to inflows and outflows of fund assets.
However, the Board also noted that continuing to operate Global Small Cap as a
closed-end fund would not address the discount to NAV at which Global Small Cap
shares have historically traded. Conversion to an open-end format would result
in immediate elimination of this discount by enabling shareholders to redeem
shares at NAV, rather than selling them in the secondary market. In addition,
because Global Small Cap normally has held relatively few illiquid securities,
the loss of the more flexible illiquid securities limitation of the closed-end
format would not have a material negative effect on the Fund. On balance, the
Board concluded that the benefits of the closed-end structure were outweighed by
the advantages of converting to an open-end format.

Other techniques designed to reduce the discount, such as adopting a
managed distribution plan or repurchasing fund shares on the open market, were
rejected. The Board seriously questioned the effectiveness of both techniques.
The Board also concluded that the reduction in net assets that would result from
a share repurchase plan was likely to increase Global Small Cap's expense ratio
and to threaten both its ability to remain listed on a national securities
exchange and its overall viability.

The Board also contemplated liquidating Global Small Cap instead of
converting it to an open-end format. Liquidating Global Small Cap was determined
by the Board to be undesirable primarily because it would result in additional
expenses arising out of liquidating Global Small Cap's portfolio securities and
because it would be a taxable event to shareholders, regardless of their
individual preference for continuing or terminating their investment.

The Board also considered communications from its two largest shareholders,
Ron Olin Investment Management Company and Deep Discount Advisors, Inc.,
expressing their concerns about Global Small Cap's persistent discount to NAV
and its performance. Representatives of the Board communicated with
representatives of those shareholders regarding their concerns, as well as
regarding the Reorganization. Ron Olin Investment Management Company and Deep
Discount Advisors, Inc. have provided the Fund with advance notice of their
intention to introduce proposals for shareholder votes to remove Global Small
Cap's incumbent directors and to nominate a slate of candidates for election as
directors. In their initial submission to the Fund, these shareholders noted,
however, that they might not introduce any proposals for consideration at a
shareholder meeting if, in their assessment, the Board took appropriate action
to address their concerns. The Fund has indicated to these shareholders that
their proposals will not be considered at this Meeting. Ron Olin Investment
Management Company and Deep Discount Advisors, Inc. have not indicated to Global
Small Cap how they will vote on the Reorganization.

OPEN-ENDING METHODS

At Board meetings held in September 1999, Mitchell Hutchins, Global Small
Cap's investment adviser, proposed that the Board approve the Reorganization
into Global Equity as the means of converting Global Small Cap to an open-end
format. However, before deciding that the Reorganization was the most beneficial
conversion method, the Board considered alternative means of open-ending the
Fund, including a stand-alone open-end conversion of the Fund and a merger with
an open-end investment company other than Global Equity.

Converting Global Small Cap to a stand-alone open-end fund would eliminate
the discount to NAV. However, it would result in added distribution-related
expenses borne entirely by Global Small Cap's asset base, rather than by the
combined assets of two funds. In addition, operating Global Small Cap as a
stand-alone, open-end fund might not be economically feasible given its
comparatively small asset base, which could be significantly reduced by
redemptions following conversion to an open-end format. The Reorganization would
combine Global Small Cap's assets (about $67 million as of September 30, 1999),
with those of Global Equity Class A (about $226 million as of September 30,
1999), potentially realizing economies of scale and the benefits noted above.

Accordingly, the Board determined that converting Global Small Cap to an
open-end format by merging it into an open-end investment company is the most
advantageous alternative for Global Small Cap. For the reasons discussed below,
the Board decided that Global Equity is the best-suited open-end investment
company for merger with Global Small Cap.

<PAGE>

THE PROPOSED REORGANIZATION WITH GLOBAL EQUITY

As part of its consideration, the Board examined a number of factors with
respect to the Reorganization, including: (1) the compatibility of the Funds'
investment objectives, policies and restrictions; (2) the Funds' respective
investment performances; (3) the effect of the Reorganization on the expense
ratio of Global Equity Class A Shares and that expense ratio relative to Global
Small Cap's current expense ratio; (4) the costs to be incurred by each Fund as
a result of the Reorganization; (5) the tax consequences of the Reorganization;
and (6) the potential benefits of the Reorganization to other persons, including
Mitchell Hutchins and its affiliates.

The Board considered the investment objectives and policies of the Funds.
Global Small Cap's investment objective is long-term capital appreciation.
Global Equity has a comparable investment objective of long-term growth of
capital. To achieve its investment objective, Global Equity primarily invests
its assets in the equity securities of issuers located in the United States and
developed foreign markets. Global Small Cap normally invests at least 65% of its
total assets in equity securities of small capitalization ('small cap')
companies located throughout the world, including Asia, Europe, the Far East,
the Middle East, North Africa and the Americas. The Board noted that Global
Small Cap is subject to somewhat greater risk than Global Equity to the extent
that the securities of small cap companies have historically experienced greater
volatility and are less liquid. More information on the risks of investing in
small cap companies is provided below in 'Comparison of Principal Risk Factors.'
The Board also determined that, although Global Equity has a broader investment
mandate, the Funds' investment objectives and policies are reasonably
compatible.

The Board took into account the likelihood of substantial redemptions by
current shareholders of Global Small Cap after the Reorganization which would
necessitate a need for cash to satisfy those redemption requests. It also
considered the general compatibility of the current portfolio holdings of Global
Small Cap and Global Equity Fund. Mitchell Hutchins informed the Board that the
Fund could liquidate incompatible securities in the period after the
Reorganization is approved by Global Small Cap shareholders, but before the
Reorganization is effected. Such liquidation would have the effect of allocating
the costs and tax consequences, if any, of selling securities in Global Small
Cap's portfolio to its shareholders, not to the shareholders of Global Equity
after the Reorganization. Selling a portion of Global Small Cap's portfolio
before the Reorganization would also increase the opportunity for that Fund's
portfolio managers to liquidate the securities in a measured and economically
rational manner, instead of in a hurried 'fire sale' environment to liquidate
all those securities at the time of the Reorganization. Of course, there can be
no assurance of favorable prices or of the proportion of securities that will be
sold during this period.

In addition, the Board considered the different advisory arrangements in
place for the Funds and the historic performance of Global Small Cap in relation
to the performance of Global Equity. Mitchell Hutchins currently serves as
investment adviser for Global Small Cap, and GE Investment Management
Incorporated ('GEIM'), an indirect wholly owned subsidiary of General Electric
Company, serves as its sub-adviser, performing day-to-day portfolio management.
Mitchell Hutchins is also the investment adviser for Global Equity, performing
asset allocation between the U.S. and foreign portions of the portfolio and
performing day-to-day portfolio management of the U.S. portion. Invista Capital
Management LLC ('Invista'), a wholly owned subsidiary of Principal Financial
Group, an insurance and financial services holding company, serves as Global
Equity's sub-adviser for the international portion of its portfolio. The Board
considered the level and quality of investment advisory services provided by
Mitchell Hutchins and Invista, and decided that Global Small Cap shareholders
would benefit from their continued provision of portfolio management services
for Global Equity after the Reorganization. Therefore, upon the Closing Date of
the Reorganization, GEIM would no longer act as the sub-adviser for any of the
reorganized portfolio assets.

Mitchell Hutchins also advised the Board that, while past performance
provides no guarantee of future results, Global Equity historically has
outperformed Global Small Cap. Information on the relative performance of the
Funds is provided below in 'Comparison of the Funds -- Performance.'

The Board also considered the impact the Reorganization would have on
expenses. As a closed-end fund, Global Small Cap currently pays no Rule 12b-1
distribution or service fees. The Global Equity Class A Shares that Global Small
Cap shareholders would receive in the Reorganization are

<PAGE>

subject to an annual Rule 12b-1 service fee of 0.25% of average daily net assets
attributable to Class A. Open-end funds such as Global Equity also normally pay
higher transfer agency fees than closed-end funds due to the continuous sale and
redemption of their shares. In addition, open-end funds such as Global Equity
incur expenses associated with maintaining continuous federal securities
registration. Closed-end funds, such as Global Small Cap, typically do not incur
these expenses.

In analyzing expenses, the Board also considered the investment advisory
and administration fees paid by Global Equity. Global Small Cap pays Mitchell
Hutchins total investment advisory and administration fees of 1.00% of its
average weekly net assets. Global Equity pays Mitchell Hutchins a fee, computed
daily and paid monthly, at the effective annual rate of 0.85% of the Fund's
average daily net assets. This fee rate is reduced to the extent that Global
Equity's net assets exceed $500 million. GEIM's and Invista's sub-advisory fees
are paid by Mitchell Hutchins and not the respective Funds. The investment
advisory fee schedule in place for Global Equity will apply after the
Reorganization. Therefore, the effective investment advisory and administration
fee rate for the combined entity will be 0.85%, 0.15% less than Global Small
Cap's current investment advisory and administration fee rate.

The Board also considered that, overall, the Reorganization will result in
slightly higher total operating expenses for Global Small Cap shareholders. For
its fiscal year ended July 31, 1999, Global Small Cap had annualized operating
expenses of 1.43% of average weekly net assets. For the nine-month period ended
July 31, 1999, Global Equity Class A Shares had annualized total operating
expenses of 1.56% of average daily net assets. Based on Mitchell Hutchins'
preliminary calculations for the current fiscal year, Mitchell Hutchins
estimates that, on a pro forma basis, Global Equity Class A Shares would have
total operating expenses of approximately 1.55% of average daily net assets.
Accordingly, the Reorganization could result in an increase in total annual
operating expenses for Global Small Cap shareholders. For more information on
the comparative fees and expenses of the Funds, see 'Comparison of the
Funds -- Fees and Expenses,' below. In addition, the Board noted that no initial
sales charges would be imposed on the Global Equity Class A Shares issued to
Global Small Cap shareholders in connection with the Reorganization.

Finally, the Board reviewed the principal terms of the Plan and noted that
the securities and other assets held by Global Small Cap at the time of the
Reorganization will be valued at full market value, that the Reorganization
would be tax-free to it and its shareholders and that Global Small Cap
shareholders will have ownership of a compatible fund and the ability to
exchange into other PaineWebber open-end funds after the Reorganization without
having to pay a sales load should their investment priorities change. In some
cases, shareholders may qualify for reduced sales charges on additional
purchases of Class A shares in PaineWebber mutual funds, depending on the size
of their holdings.

On the basis of the information provided to the Board and on its evaluation
of that information, the Board determined that the proposed Reorganization will
not dilute the interests of shareholders of Global Small Cap and that it is in
the best interest of Global Small Cap. Therefore, the Board voted unanimously to
approve the Plan and to recommend that Global Small Cap shareholders approve the
Plan at the Meeting.

COMPARISON OF THE FUNDS

FORMS OF ORGANIZATION

Global Equity is a diversified, open-end fund organized as a series of the
Trust, a Massachusetts business trust, with shares that are continuously sold
and redeemed based upon NAV. Global Small Cap is a diversified, closed-end fund
organized as a Maryland corporation with shares that are traded on the American
Stock Exchange, Inc. ('AMEX'). Open-end funds such as Global Equity continuously
offer and redeem their shares, causing their total assets to fluctuate. In
contrast, most closed-end funds make a single offering of non-redeemable shares
and thus retain a stable pool of assets, which changes only upon appreciation or
depreciation of their portfolio investments. Global Small Cap issues share
certificates representing its shares, but Global Equity does not issue share
certificates.

When the Reorganization is effected, Global Small Cap shareholders will
become shareholders of a Massachusetts business trust. This change in
organizational form will not materially alter the rights of

<PAGE>

shareholders. Massachusetts business trust law gives investment companies more
legal flexibility by permitting the issuance of an unlimited number of shares of
beneficial interest and generally providing more flexibility in the adoption and
amendment of an investment company's governing instruments. Under Massachusetts
law, shareholders could, under certain circumstances, be held personally liable
for the obligations of the Trust. However, the Trust's Declaration of Trust
disclaims shareholder liability for acts and obligations of the Trust and
requires notice of such disclaimer be given in each note, bond, contract,
instrument, certificate or undertaking made or issued by the Board Members or
any officers or officer by or on behalf of the Trust, Global Equity, the Board
Members or any of them in connection with the Trust. The Declaration of Trust
provides for indemnification from Global Equity's property for all losses and
expenses of any shareholder held personally liable for the obligations of the
Fund. Thus, the risk of a shareholder's incurring financial loss on account of
shareholder liability is limited to circumstances in which Global Equity itself
would be unable to meet its obligations, a possibility which Mitchell Hutchins
believes is remote and not material. Upon payment of liability incurred by a
shareholder, the shareholder paying such liability will be entitled to
reimbursement from the general assets of Global Equity. The Board Members
conduct the operations of Global Equity in such a way as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the Fund.

INVESTMENT OBJECTIVES

The investment objectives of Global Equity and Global Small Cap are
effectively identical. Global Equity's investment objective is long-term growth
of capital. Global Small Cap's investment objective is long-term capital
appreciation.

INVESTMENT POLICIES

As described below, the primary difference in the investment policies of
Global Equity and Global Small Cap is Global Small Cap's focus on small cap
equity securities. While Global Equity also may invest in equity securities
issued by companies with relatively small capitalizations, its investments are
diversified across a broader range of issuers and are currently concentrated in
mid- and large-capitalization issuers.

Under normal circumstances, Global Equity invests at least 80% of its total
assets in stocks of companies in the United States and foreign countries that
are represented in the MSCI Europe, Australasia and Far East Index ('EAFE
Index'). However, Global Equity does not seek to replicate the weightings of the
EAFE Index. The EAFE Index reflects stocks in most developed countries outside
North America. Global Equity also may invest up to 20% of its total assets in
stocks of issuers in other countries, including Canada and emerging markets; up
to 35% of its total assets in investment grade corporate and governmental bonds;
and up to 10% of its total assets in convertible securities rated below
investment grade. Global Equity normally invests in at least three countries,
one of which is typically the U.S. Global Equity's investment adviser, Mitchell
Hutchins, allocates the Fund's assets between U.S. and foreign markets based on
how it expects U.S. stock markets to perform in comparison to stock markets in
certain of the EAFE Index countries. Mitchell Hutchins may increase the
allocation of Global Equity's assets to either the U.S. or foreign markets if it
believes that any of those markets has a greater potential for high returns,
relative to the risk of loss. Mitchell Hutchins may use futures and foreign
currency contracts to adjust Global Equity's exposure to either the U.S. or
foreign markets.

Global Small Cap normally invests at least 65% of its total assets in
equity securities of small cap companies (defined as companies with market
capitalizations of $1 billion or less at the time of investment) located
throughout the world, including Asia, Europe, the Far East, the Middle East,
North Africa and the Americas. While Global Small Cap is not restricted in the
portion of its assets that may be invested in a single country or region, under
normal market conditions, the Fund's assets are invested in issuers in at least
three countries. While Global Small Cap is not limited in the assets it can
allocate to emerging market securities, it typically has limited those
investments to less than 20% of its assets. In managing Global Small Cap's
portfolio, the Fund's sub-adviser, GEIM, seeks to identify those small cap
companies, both in the U.S. and abroad, that are likely to benefit from
long-term trends as they develop in the global economy. Global Small Cap may
invest up to 35% of its total assets in other securities, including equity
securities of companies with higher market capitalizations and in debt
securities. It may

<PAGE>

invest up to 25% of its assets in convertible debt securities of domestic and
foreign issuers and up to 10% of its assets in non-convertible debt securities
of domestic and foreign issuers, including obligations issued or guaranteed by
the U.S. or foreign governments or their agencies or instrumentalities. In
addition, the Fund may invest up to 5% of its net assets in debt securities
rated as low as B+ by Standard & Poor's ('S&P') or B1 by Moody's Investors
Service, Inc. ('Moody's'). Global Small Cap may engage in hedging strategies,
such as options, futures and forward currency contracts, to attempt to reduce
the overall risk of its investment portfolio or to manage the Fund's foreign
currency exposure.

PORTFOLIO COMPATIBILITY

Global Small Cap's current portfolio, consisting primarily of equity
securities of issuers located in the United States and overseas, is not entirely
compatible with Global Equity's portfolio. Incompatible securities include not
only those positions that would not be permitted under Global Equity's
investment policies, but also those securities that Mitchell Hutchins or Invista
believes may not be appropriate for Global Equity to maintain in its portfolio.
If the proposal is approved, Mitchell Hutchins and GEIM anticipate selling some
or all of the incompatible holdings in Global Small Cap's portfolio during the
period between the date that the Reorganization is approved and the Closing
Date. In addition, Global Small Cap may sell securities in order to increase the
liquidity of its portfolio in anticipation of potential redemptions by Global
Equity shareholders following the Reorganization. Global Small Cap will incur
brokerage and related expenses as a result of selling portfolio securities, and
it and its shareholders may incur tax consequences depending on the prices
realized on those sales. If Global Small Cap has a significant cash position as
a result of sales of securities for these purposes, then the Fund may be exposed
to an opportunity risk, namely not participating fully in any strong equity
market upward move at the beginning of the year 2000 to the same extent that it
would have had it remained fully invested in stocks.

PORTFOLIO MANAGEMENT

Closed-end funds, such as Global Small Cap, generally have greater freedom
in managing their portfolios than do open-end funds like Global Equity. Because
closed-end funds are not subject to forced sales of portfolio securities at
undesirable times or prices to meet redemption requests, they have more freedom
to invest in illiquid securities and may keep a larger percentage of their
assets fully invested in equity or debt securities, rather than in cash. In
addition, closed-end funds have greater flexibility under the 1940 Act to
leverage their portfolios by borrowing. Despite having greater flexibility in
portfolio management, Global Small Cap has not leveraged its portfolio, and, as
noted above, it has not invested significantly in illiquid securities.

PERFORMANCE

The following bar charts and tables provide information about the
performance of Global Equity and Global Small Cap, and thus give some indication
of the risks of investments in each Fund. The bar charts show how the Funds'
performance has varied from year to year. The chart for Global Equity shows
Class A Shares into which shares of Global Small Cap would be converted in the
Reorganization and which have the longest performance history of any class of
Global Equity's shares. The charts do not reflect the effect of sales charges.
If they did, the total returns shown for Global Equity would be lower. The table
that follows the bar charts shows the average annual total returns over several
time periods for Global Equity Class A Shares and Global Small Cap shares.
Except where otherwise indicated, the table does reflect sales charges on Global
Equity Class A Shares. The table also compares Fund returns to two broad-based
market indices, which are unmanaged and, therefore, do not include any sales
charges or expenses. Performance information for Global Small Cap is expressed
as a percentage of net asset value, not market value.

Performance information for Global Small Cap is expressed as a percentage
of net asset value, not market value. A Fund's past performance does not
necessarily indicate how the Fund will perform in the future.

<PAGE>

GLOBAL EQUITY -- TOTAL RETURN ON CLASS A SHARES

[PERFORMANCE GRAPH]

Total return January 1 to September 30, 1999 -- 1.81%
Best quarter during years shown: 1st quarter, 1998 -- 19.22%
Worst quarter during years shown: 3rd quarter, 1998 -- (19.41)%

GLOBAL SMALL CAP -- TOTAL RETURN

[PERFORMANCE GRAPH]

Total Return January 1 to September 30, 1999 -- 8.59%
Best quarter during years shown: 1st quarter, 1998 -- 20.56%
Worst quarter during years shown: 3rd quarter, 1998 -- (22.91%)

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998

<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS INCEPTION DATE
------ ------- --------- ----
<S> <C> <C> <C> <C>
GLOBAL SMALL CAP.............................. 3.88% 2.16%(1) 4.75%(1) 10/15/93
GLOBAL EQUITY CLASS A SHARES.................. 6.59%(2) 7.60%(3) 10.15%(2)(3) 11/14/91
GLOBAL EQUITY CLASS A SHARES (excluding
initial sales charge, which would not apply
to shares received in the Reorganization)... 11.61% 8.59% 10.87% 11/14/91
MSCI WORLD INDEX(4)........................... 24.80% 16.19% (6) --
SALOMON BROTHERS EXTENDED MARKET INDEX(5)..... 5.93% 9.25% (7) --
</TABLE>

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

(1) On March 26, 1995, GEIM became sub-adviser of Global Small Cap.

(2) Effective October 1, 1998, Invista began overseeing the day-to-day
management of the foreign portion of Global Equity's assets and Mitchell
Hutchins began allocating the Fund's portfolio between U.S. and foreign
investments and managing the U.S. portion of the Fund's assets.

(3) On February 13, 1995, Mitchell Hutchins replaced Kidder Peabody Asset
Management Inc. as Global Equity's investment adviser.
(footnotes continued on next page)

<PAGE>

(footnotes continued from previous page)

(4) The Morgan Stanley Capital International ('MSCI') World Index measures the
performance of securities in the U.S., Canada, Mexico, Western Europe,
Australia, New Zealand and the Far East.

(5) The Salomon Brothers Extended Market Index measures the performance of over
3,000 mid and small cap issuers in 21 developed countries.

(6) Average annual total returns for the MSCI World Index for the life of each
Fund were as follows: Global Small Cap -- 8.73% and Global Equity -- 13.96%.

(7) Average annual total returns for the Salomon Brothers Extended Market Index
for the life of each Fund were as follows: Global Small Cap -- 8.73% and
Global Equity -- 10.53%.

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and
hold Global Equity Class A Shares and shares of Global Small Cap. The pro forma
information reflects the anticipated effects of the Reorganization. The
information set forth below for Global Equity Class A Shares is based on its
fees and expenses for the nine-month period ended July 31, 1999; information for
Global Small Cap shares is based on its fees and expenses for the fiscal year
ended July 31, 1999.

<TABLE>
<CAPTION>
GLOBAL EQUITY
GLOBAL EQUITY GLOBAL SMALL PRO FORMA
CLASS A CAP COMBINED
SHAREHOLDER FEES/SHAREHOLDER TRANSACTION EXPENSES ------- --- --------
<S> <C> <C> <C>
Maximum Sales Charge (load) Imposed on Purchases
(as a percentage of offering price)............ 4.50%(1) None(2) 4.50%(1)
Maximum Deferred Sales Charge (load) (CDSC) (as a
percentage of offering price).................. None None None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management Fees.................................. 0.85% 1.00% 0.85%
Distribution and/or Service (12b-1) Fees......... 0.25% None 0.25%
Interest Payments on Borrowed Funds.............. None None None
Other Expenses................................... 0.46% 0.43% 0.45%
----- ------ ------
Total Annual Fund Operating Expenses............. 1.56% 1.43% 1.55%
</TABLE>
- ------------
(1) Shares issued in connection with the Reorganization will not be subject to
the sales charge.

(2) Purchases and sales of Global Small Cap shares on the AMEX would likely be
subject to brokerage fees and related expenses.

EXPENSE EXAMPLE

The example below is intended to help you compare the costs of investing in
Class A Shares of Global Equity, both before and after the Reorganization, with
the costs of investing in shares of Global Small Cap (although the impact of
brokerage commissions for Global Small Cap have not been reflected).

The example assumes that you invest $10,000 in each Fund for the time
periods indicated and then redeem (or in the case of Global Small Cap, sell) all
of your shares at the end of those periods. The example also assumes that your
investments each have a 5% return each year and that each Fund's operating
expenses remain the same. Although your actual returns and 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>
GLOBAL EQUITY CLASS A (excluding initial sales charge which
will not apply to shares received in the
Reorganization).......................................... $159 $493 $ 850 $1,856
GLOBAL EQUITY PRO FORMA COMBINED (excluding initial sales
charge which will not apply to shares received in the
Reorganization).......................................... $158 $490 $ 845 $1,845
GLOBAL SMALL CAP........................................... $145 $452 $ 782 $1,713
</TABLE>
10

<PAGE>

The following portion of the example is for the information of shareholders
who may wish to purchase additional Global Equity Class A Shares after the
Reorganization. The chart below reflects the effect of the Fund's maximum
initial sales charge.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
GLOBAL EQUITY CLASS A SHARES (including initial sales
charge).................................................. $602 $920 $1,262 $2,223
GLOBAL EQUITY PRO FORMA COMBINED (including initial sales
charge).................................................. $601 $918 $1,257 $2,212
</TABLE>

SALES CHARGES

GLOBAL EQUITY CLASS A SHARES RECEIVED IN CONNECTION WITH THE REORGANIZATION
WILL NOT BE SUBJECT TO THE CUSTOMARY INITIAL SALES CHARGE OF UP TO 4.50%. Any
new purchases of Global Equity Class A Shares by a former Global Small Cap
shareholder following the Reorganization will be subject to the applicable
initial sales charge.

DISTRIBUTION, PURCHASE, EXCHANGE AND REDEMPTION

Mitchell Hutchins, the distributor of Global Equity's shares, has appointed
PaineWebber Incorporated ('PaineWebber') and its correspondent firms to be the
dealers for the sale of those shares. The minimum initial investment in Global
Equity is $1,000; each additional investment must be $100 or more. These
minimums may be waived or reduced for investments by employees of PaineWebber or
its affiliates, certain pension plans and retirement accounts and participants
in a PaineWebber Fund's automatic investment plan.

Global Equity Class A Shares pay a fee in the amount of 0.25% of average
daily net assets to Mitchell Hutchins for shareholder services pursuant to a
Rule 12b-1 plan (the '12b-1 fee'). As noted above, Global Equity Class A Shares
are normally subject to an initial sales charge of up to 4.50%. Shares of Global
Equity may be exchanged for shares of most other PaineWebber Funds of the
corresponding class and may be acquired through exchange of the corresponding
class of shares of other PaineWebber Funds, as described in Global Equity's
prospectus. No initial sales charge is imposed on the shares acquired through an
exchange. Exchanges are subject to minimum investment and other requirements of
the PaineWebber Fund into which exchanges are made. Global Equity Class A Shares
may be redeemed by the Fund at NAV and are generally not subject to a contingent
deferred sales charge.

Shares of Global Small Cap are listed and publicly traded on the AMEX under
the symbol 'GSG' and are not subject to distribution fees. Shareholders of
Global Small Cap currently do not have an exchange privilege. Although Global
Small Cap shares are non-redeemable, shareholders of Global Small Cap may sell
their shares on the AMEX.

OPERATIONS OF GLOBAL EQUITY FOLLOWING THE REORGANIZATION

Although there are differences in the investment objectives and policies of
the Funds, it is not expected that Global Equity will revise its investment
objective or any of its policies following the Reorganization to reflect those
of Global Small Cap. Rather, because Global Small Cap's assets are predominantly
equity securities of small cap issuers, many of which are consistent with Global
Equity's investment policies, Mitchell Hutchins and GEIM, Global Small Cap's
investment adviser and sub-adviser, respectively, believe that a large portion
of Global Small Cap's assets could be transferred to and held by Global Equity
if the Reorganization is approved. However, Global Equity is not expected to
hold the majority of Global Small Cap's assets for any length of time.
Consequently, upon approval of the Reorganization, but before the Reorganization
becomes effective, Global Small Cap may sell a significant portion of the
assets, if any, that are inconsistent with Global Equity's investment policies
or that Mitchell Hutchins or Invista believes to be incompatible with the
management approach of Global Equity. The proceeds thereof will be held in
temporary investments or reinvested in assets that qualify to be held by Global
Equity. Such sales could result in selling securities at a disadvantageous time
and could result in Global Small Cap's realizing gains (or losses) that would
not otherwise have been realized.

<PAGE>

FUND BOARD MEMBERS AND OFFICERS

Following the Reorganization, the Trust's board of trustees ('Trust's
Board') will continue to serve in that capacity for Global Equity. The current
Board Members of the Trust are the same persons who are currently directors of
Global Small Cap. In addition, the current officers of Global Equity are
predominantly the same persons who now serve as Global Small Cap's officers.
Upon the Reorganization, the officers of Global Equity will be the officers for
the combined Fund. For more information about Global Equity's officers, see the
March 1, 1999, Global Equity SAI, which is incorporated by reference herein.
Please see Appendix C for the names, ages and principal occupations of the
current Board Members for both Funds and for the officers of Global Small Cap.

INVESTMENT ADVISERS AND PORTFOLIO MANAGEMENT

GLOBAL SMALL CAP. As noted above, Mitchell Hutchins serves as investment
adviser for Global Small Cap and GEIM serves as its sub-adviser, performing
day-to-day portfolio management. Mitchell Hutchins has served as the investment
adviser for Global Small Cap since the Fund's inception. GEIM has served as
Global Small Cap's sub-adviser since March 26, 1995. GEIM is affiliated with
Mitchell Hutchins because its parent company, General Electric Company, owns
about 21.7% of Paine Webber Group Inc. ('PW Group'), Mitchell Hutchins' indirect
parent.

The portfolio managers responsible for the day-to-day management of Global
Small Cap's portfolio are:

Ralph R. Layman, who is a Chartered Financial Analyst and an Executive
Vice President and a senior investment manager at GEIM and General
Electric Investment Corporation ('GEIC'). From 1989 to 1991, Mr. Layman
served as Executive Vice President, partner and portfolio manager of
Northern Capital Management Co., and prior thereto, served as Vice
President and portfolio manager of Templeton Investment Counsel, Inc., and
Vice President of the Templeton Emerging Markets Fund; and

Judith A. Studer, who is a Senior Vice President and Portfolio Manager
with GEIM's International Equities Team. She has more than 12 years of
investment experience and has held positions with GEIM and GEIC since
1984.

GLOBAL EQUITY. Mitchell Hutchins also serves as the investment adviser for
Global Equity. Mitchell Hutchins currently performs asset allocation between the
U.S. and foreign portions of the Fund's portfolio and manages the U.S. portion
of the portfolio day-to-day. Invista currently serves as the sub-adviser for the
international portion of Global Equity's portfolio. Prior to October 1, 1998,
GEIM served as sub-adviser for Global Equity, overseeing the day-to-day
management of the Fund's entire portfolio, and prior to February 13, 1995,
Kidder Peabody Asset Management Inc. served as investment adviser for Global
Equity.

The portfolio managers responsible for the asset allocation and day-to-day
management of the domestic portion of Global Equity's portfolio, respectively,
are:

T. Kirkham Barneby, who has been responsible for Global Equity's asset
allocation decisions since October 1, 1998. Mr. Barneby is a managing
director and chief investment officer for quantitative investments of
Mitchell Hutchins. Mr. Barneby rejoined Mitchell Hutchins in 1994, after
being with Vantage Global Management for one year. Prior to that year, Mr.
Barneby was a senior vice president responsible for quantitative
management and asset allocation models at Mitchell Hutchins; and

Mark A. Tincher, who has been primarily responsible for the day-to-day
management of Global Equity's U.S. investments since October 1, 1998. Mr.
Tincher is a managing director and chief investment officer for equities
(stocks) of Mitchell Hutchins. 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 and oversaw the management of all Chase U.S. equity funds.

The portfolio manager responsible for the day-to-day management of the
international portion of Global Equity's portfolio is:

<PAGE>

Scott D. Opsal, who has been primarily responsible for the day-to-day
management of Global Equity's foreign investments since October 1, 1998,
when Invista was appointed as the Fund's sub-adviser for foreign
investments. Mr. Opsal is an executive vice president and chief investment
officer of Invista, where he has been employed since 1986.

OTHER SERVICE PROVIDERS

Global Small Cap and Global Equity have the same custodian (State Street
Bank and Trust Company) and the same independent auditors (Ernst & Young LLP).
Global Equity's transfer and dividend disbursing agent is PFPC Inc. Global Small
Cap's transfer and dividend disbursing agent is PNC Bank, N.A. Upon completion
of the Reorganization, these entities (except PNC Bank, N.A.) will continue to
provide services to the combined Fund.

COMPARISON OF PRINCIPAL RISK FACTORS

PRIMARY DIFFERENCES IN INVESTMENT RISKS OF THE FUNDS

Global Equity and Global Small Cap are subject to substantially the same
investment risks arising out of investing in foreign securities generally, and
developing markets specifically. However, Global Small Cap is subject to
additional risks arising out of its narrower issuer capitalization focus. Global
Small Cap focuses its investments in companies with market capitalizations of $1
billion or less. Small cap companies may be more vulnerable than larger
companies to adverse business or economic developments. Small cap companies may
also have limited product lines, markets or financial resources. Securities of
such companies may be less liquid and more volatile than securities of larger
companies or the market averages in general and, therefore, may involve greater
risk than investing in larger companies. In addition, small cap companies may
not be well-known to the investing public, may not have institutional ownership
and may have only cyclical, static or moderate growth prospects. By contrast,
Global Equity may invest in securities of issuers with varying market
capitalization levels, and thus has greater latitude in allocating its
investments in times of economic instability. On the other hand, some of the
larger capitalization equity securities in which Global Equity invests may also
experience substantial economic difficulties.

RISKS COMMON TO BOTH FUNDS

INVESTING IN SECURITIES GENERALLY

Investing in either Global Equity or Global Small Cap entails a risk that
you could lose all or a portion of your investment. The value of your investment
in either Fund goes up and down with the prices of the securities in which the
Fund invests. The prices of equity securities change in response to many
factors, including the historical and prospective earnings of the issuer, the
value of its assets, general economic conditions, interest rates, investor
perceptions and market liquidity. Debt securities are particularly vulnerable to
credit risk and interest rate fluctuations. When interest rates rise, bond
prices generally fall; the longer the bond's duration (a measure of the expected
life of a bond on a present value basis), the more sensitive it is to this risk.

INVESTING IN FOREIGN SECURITIES

Investments in foreign securities may be affected by, among others, the
following factors:

Currency exchange rates -- The dollar value of the Funds' investments
denominated in foreign currencies will be affected by changes in the
exchange rates between the dollar and the currencies in which those
investments are traded.

Political and economic conditions -- The value of the Funds' foreign
investments may be adversely affected by political and social instability
in their home countries and by changes in economic or taxation policies in
those countries.

Regulations -- Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available
information about foreign companies than about U.S. companies. In
addition, certain countries may impose expropriation constraints on the
assets of certain companies.

<PAGE>

Markets -- The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less
liquid and their prices may be more volatile than U.S. securities.

These factors may affect the prices of securities issued by foreign
companies located in developing countries more than those in countries with more
mature economies. For example, many developing countries have, in the past,
experienced high rates of inflation or sharply devalued their currencies against
the U.S. dollar, thereby causing the value of investments in companies located
in those countries to decline. Transaction costs are often higher in developing
countries and there may be additional risks and delays in custody and settlement
procedures.

LOWER QUALITY DEBT

Global Small Cap may invest up to 5% of its net assets in debt securities
rated below investment grade, but not lower than B+ by S&P or B1 by Moody's. In
the event that, due to a downgrade of one or more debt securities, an amount in
excess of 5% of the Fund's net assets is held in securities rated below
investment grade and comparable unrated securities, GEIM 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 5% of the Fund's net
assets.

Global Equity may invest up to 10% of its net assets in convertible
securities rated below investment grade (below BBB by S&P or Baa by Moody's).

Compared to higher-quality debt securities, securities rated below
investment grade or 'junk bonds' involve greater risk of default or price
changes due to changes in the credit quality of the issuer because they are
generally unsecured and may be subordinated to other creditors' claims. The
value of junk bonds often fluctuates in response to issuer, political or
economic developments and can decline significantly over short periods of time
or during periods of general or regional economic difficulty. During those
times, the bonds may be difficult to value or sell at a fair price. Credit
ratings on junk bonds do not necessarily reflect their actual market risk.

SOVEREIGN DEBT

Both Global Equity and Global Small Cap may invest in sovereign debt
securities of foreign governments. Investments in sovereign debt securities
involve special risks. Sovereign debt securities in which the Funds would invest
are generally lower-quality debt securities, equivalent to junk bonds.
Accordingly, they are subject to many of the same risks as junk bonds, detailed
above. In addition, sovereign debt securities are subject to the risk that,
under certain political, diplomatic, social or economic circumstances, some
developing countries that issue sovereign debt securities may be unable or
unwilling to make principal or interest payments as they come due, and a Fund
may have limited legal recourse against a sovereign in the event of default.

ILLIQUID SECURITIES

Global Small Cap may invest up to 20% of its net assets, and Global Equity
may invest up to 10% of its net assets, in illiquid securities. Any limitations
on resale and marketability of such securities may have the effect of preventing
the Funds from disposing of such securities at the time desired or at a
reasonable price. In addition, in order to resell restricted securities, the
Funds might have to bear the expense and incur the delays associated with
registering such securities.

YEAR 2000

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.

<PAGE>

FINANCIAL HIGHLIGHTS

The following financial highlights table is intended to help you understand
the financial performance of Global Equity's Class A Shares for the past
5 years. Certain information reflects financial results for a single Global
Equity Class A share.

In the table, 'total investment return' represents the rate that an
investor would have earned on an investment in Global Equity Class A Shares
(assuming reinvestment of all dividends and distributions).

This information has been audited (except as noted) by Ernst & Young LLP,
independent auditors, whose report, along with Global Equity's financial
statements, is included in Global Equity's Annual Report to Shareholders. The
Annual Report may be obtained without charge by calling 1-800-647-1568 and is
incorporated by reference herein.

<TABLE>
<CAPTION>
GLOBAL EQUITY
-------------------------------------------------------------------------------------
CLASS A
-------------------------------------------------------------------------------------
FOR THE NINE FOR THE YEARS ENDED FOR THE TWO FOR THE YEARS ENDED
MONTHS ENDED OCTOBER 31, MONTHS ENDED AUGUST 31,
JULY 31, ------------------- OCTOBER 31, -------------------
1999 1998'D' 1997 1996 1996 1995** 1994
---- ------- ---- ---- ---- ------ ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $ 16.27 $ 18.37 $ 17.43 $ 16.81 $ 16.12 $ 16.98 $ 14.55
-------- -------- -------- -------- -------- -------- --------
Net investment income (loss)... 0.07 0.03'D'D' -- (0.02) 0.02 0.02 0.01
Net realized and unrealized
gains (losses) from
investments, futures and
foreign currency............. 2.49 0.35'D'D' 1.52 0.64 1.24 0.37 2.63
-------- -------- -------- -------- -------- -------- --------
Net increase (decrease) from
investment operations........ 2.56 0.38 1.52 0.62 1.26 0.39 2.64
-------- -------- -------- -------- -------- -------- --------
Dividends from net investment
income....................... (0.02) -- -- -- -- -- --

Distributions from net realized
gains from investment........ (0.81) (2.48) (0.58) -- (0.57) (1.25) (0.21)
-------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions................ (0.83) (2.48) (0.58) -- (0.57) (1.25) (0.21)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of
period....................... $ 18.00 $ 16.27 $ 18.37 $ 17.43 $ 16.81 $ 16.12 $ 16.98
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Total investment return(1)..... 16.21% 2.53% 8.87% 3.69% 8.06% 3.24% 18.23%
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Ratios/Supplemental Data:
Net assets, end of period
(000's)...................... $237,053 $251,680 $294,878 $307,267 $305,218 $360,652 $185,493
Expenses to average net
assets....................... 1.56%*(2) 1.55% 1.44% 1.53%* 1.48% 1.71%(3) 1.58%
Net investment income (loss) to
average net assets........... 0.63%* 0.17% 0.01% (0.80)%* 0.10% 0.09%(3) 0.07%
Portfolio turnover rate........ 59% 151% 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.

'D' Effective October 1, 1998, Invista began overseeing the day-to-day
management of the foreign portion of Global Equity's assets and Mitchell
Hutchins began allocating the Fund's portfolio between U.S. and foreign
investments and managing the U.S. portion of the Fund's assets.

'D'D' Calculated using the average monthly shares outstanding for that year.

(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 would be lower if sales charges were
included. Total investment returns for periods of less than one year have
not been annualized.

(2) During the nine months ended July 31, 1999, Mitchell Hutchins waived a
portion of its advisory and administration fees. The ratios excluding the
waiver would be the same since the fee waiver represents less than 0.005%.

(3) These ratios include non-recurring reorganization expenses of 0.06% for
Class A Shares.

<PAGE>

ADDITIONAL INFORMATION ABOUT THE REORGANIZATION

TERMS OF THE REORGANIZATION

The terms and conditions under which the Reorganization may be consummated
are set forth in the Plan. Significant provisions of the Plan are summarized
below; however, this summary is qualified in its entirety by reference to the
Plan, a copy of which is attached as Appendix A to this Proxy
Statement/Prospectus.

The Plan contemplates (a) Global Equity's acquiring on the Closing Date all
the assets of Global Small Cap in exchange solely for Global Equity Class A
Shares and Global Equity's assumption of all of Global Small Cap's liabilities
and (b) the distribution of those shares to Global Small Cap shareholders.
Global Small Cap's assets include all cash, cash equivalents, securities,
receivables (including interest and dividends receivable), claims and rights of
action, rights to register shares under applicable securities laws, books and
records, deferred and prepaid expenses shown as assets on its books and other
property owned by it as of the close of business on the Closing Date ('Effective
Time') (collectively, the 'Assets'). Global Equity will assume from Global Small
Cap all its liabilities, debts, obligations and duties of whatever kind or
nature, whether absolute, accrued, contingent or otherwise, whether or not
arising in the ordinary course of business, whether or not determinable at the
Effective Time and whether or not referred to in the Plan (collectively, the
'Liabilities'); provided, however, that Global Small Cap will use its best
efforts to discharge all of its known Liabilities prior to the Effective Time.
Global Equity will deliver its Class A Shares to Global Small Cap, which then
will be distributed to Global Small Cap's shareholders.

The value of the Assets to be acquired, and the amount of the Liabilities
to be assumed, by Global Equity and the NAV of a Class A Share of Global Equity
will be determined as of the close of regular trading on the AMEX on the Closing
Date. Portfolio securities normally will be valued based on market values
obtained from independent pricing services that use reported last sales prices,
current market quotations or valuations from computerized 'matrix' systems that
derive values based on comparable securities. Securities traded in the
over-the-counter ('OTC') market and listed on The Nasdaq Stock Market, Inc.
('Nasdaq') normally are valued at the last sale price on Nasdaq prior to
valuation. Other OTC securities are valued at the last bid price available prior
to valuation. Securities which are listed on U.S. and foreign stock exchanges
normally 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 valued
on the exchange designated as the primary market by Mitchell Hutchins, GEIM or
Invista. If a market value is not available from an independent pricing source
for a particular security, that security is valued at a fair value determined by
or under the direction of the Funds' Boards. The amortized cost method generally
will be used to value bonds that will mature in 60 days or less.

All investments quoted in foreign currencies are valued daily in U.S.
dollars on the basis of the foreign currency exchange rates prevailing at the
time such valuation is determined by a Fund's custodian, unless its Board
determines that this does not represent fair value. Foreign currency exchange
rates are generally determined prior to the close of trading. 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, which
will not be reflected in a computation of a Fund's NAV. 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 direction of the Fund's Board.

On, or as soon as practicable after, the Closing Date, Global Small Cap
will distribute to its shareholders of record as of the Effective Time the
Global Equity Class A Shares it receives so that each Global Small Cap
shareholder will receive the number of full and fractional Class A Shares of
Global Equity equal in aggregate NAV to the shareholder's shares in Global Small
Cap. That distribution will be accomplished by opening accounts on the books of
Global Equity in the names of Global Small Cap's shareholders and crediting
those accounts with Global Equity Class A Shares equal in aggregate NAV to the
shareholders' shares in Global Small Cap. Fractional shares of Global Equity
will be rounded to the third decimal place.

<PAGE>

Immediately after the Reorganization, each former shareholder of Global
Small Cap will own Class A Shares of Global Equity equal in NAV to the aggregate
NAV of that shareholder's shares in Global Small Cap immediately prior to the
Reorganization. The NAV per share of Global Equity will not be changed as a
result of the Reorganization. Thus, the Reorganization will not result in a
dilution of any shareholder ownership interest.

DESCRIPTION OF SECURITIES TO BE ISSUED

The Trust is registered with the SEC as an open-end management investment
company. Pursuant to the Trust's Amended and Restated Declaration of Trust, the
Trust may issue an unlimited number of shares. The Trust's Board has established
Global Equity as a series of the Trust and has authorized the public offering of
four classes of shares of that Fund, designated Class A, Class B, Class C and
Class Y shares. Only Class A Shares will be issued in connection with the
Reorganization. Although Class A Shares are customarily subject to an initial
sales charge of up to 4.50% of their public offering price, this sales charge
will be waived for the shares issued in connection with the Reorganization.

Each Global Equity Class A Share represents an equal proportionate interest
with other shares of that Fund, has a par value of $0.001 per share, has equal
earnings, assets and voting privileges, except as noted in the Global Equity
SAI, and is entitled to dividends and other distributions out of the income
earned and gain realized on the assets belonging to the Fund and related to
Class A, as declared by the Trust's Board. Each share of a class represents an
equal proportionate interest in Global Equity's assets with each other share of
that class. Shares of Global Equity entitle their holders to one vote per full
share and fractional votes for fractional shares held, except that each class
has exclusive voting rights on matters pertaining solely to that class. Shares
of Global Equity, when issued, are fully paid and non-assessable.

DIVIDENDS AND OTHER DISTRIBUTIONS

Dividends from each Fund's net investment income are normally declared and
distributed annually. Any net capital gain (the excess of net long-term capital
gain over net short-term capital loss) and net short-term capital gain realized
from the sale of portfolio securities and net gains from foreign currency
transactions generally are distributed annually. Shareholders of Global Equity
receive dividends in additional shares of the same class unless the shareholder
elects to receive cash. Shareholders of Global Small Cap may participate in the
Fund's Dividend Reinvestment Plan, under which dividends and other distributions
are automatically invested in additional shares of the Fund at market price.
Alternatively, Global Small Cap shareholders may elect to receive dividends and
other distributions in cash.

Each Fund may make additional distributions, if necessary, to avoid a 4%
federal excise tax on certain undistributed ordinary income and capital gains.

On or before the Closing Date, Global Small Cap will declare as a
distribution substantially all of its undistributed net investment income, net
capital gain, net short-term capital gain and net gains from foreign currency
transactions to maintain its tax status as a regulated investment company.

The consummation of the Reorganization is subject to a number of conditions
set forth in the Plan, some of which may be waived by Global Small Cap or Global
Equity. In addition, the Plan may be amended in any mutually agreeable manner,
except that no amendment may be made subsequent to the Meeting that would have a
material adverse effect on Global Small Cap shareholders' interests.

POTENTIAL NET REDEMPTION

If shareholders owning a large percentage of Global Small Cap shares
immediately prior to the Reorganization redeem their Global Equity Class A
Shares shortly after the Reorganization, Global Equity may incur significant
costs. To meet redemption requests in an amount that exceeds available cash,
Global Equity may be required either to draw upon a line of credit, which would
result in interest costs, or to sell portfolio securities, which would result in
brokerage costs and may result in capital gain or loss that would not otherwise
have been recognized at that time. To the extent it is not otherwise offset
during the year, any gain would be distributed to Global Equity's remaining
shareholders. Global

<PAGE>

Equity's recognition and distribution of any such gain may have a negative
consequence for non-redeeming shareholders because they would be required to pay
taxes on larger than expected capital gain distributions.

ACCOUNTING TREATMENT

The Reorganization will be accounted for on a tax-free combined basis.
Accordingly, the book cost basis to Global Equity of the assets transferred to
it by Global Small Cap will be the same as Global Small Cap's book cost basis of
such assets.

FEDERAL INCOME TAX CONSIDERATIONS

Global Small Cap and the Trust will each receive an opinion of Kirkpatrick
& Lockhart LLP, their counsel, substantially to the following effect:

(1) Global Equity's acquisition of the Assets in exchange solely for
Global Equity Class A Shares and Global Equity's assumption of the
Liabilities, followed by Global Small Cap's distribution of those shares
pro rata to its shareholders constructively in exchange for their Global
Small Cap shares, will qualify as a reorganization within the meaning of
section 368(a)(1)(C) of the Code, and each Fund will be 'a party to a
reorganization' within the meaning of section 368(b) of the Code;

(2) Global Small Cap will recognize no gain or loss on its transfer of
the Assets to Global Equity in exchange solely for Global Equity Class A
Shares and Global Equity's assumption of the Liabilities or on the
subsequent distribution of those shares to Global Small Cap's shareholders
in constructive exchange for their Global Small Cap shares;

(3) Global Equity will recognize no gain or loss on its receipt of the
Assets in exchange solely for Global Equity Class A Shares and its
assumption of the Liabilities;

(4) Global Equity's basis for the Assets will be the same as Global
Small Cap's basis therefor immediately before the Reorganization, and
Global Equity's holding period for the Assets will include Global Small
Cap's holding period therefor;

(5) A Global Small Cap shareholder will recognize no gain or loss on
the constructive exchange of all its Global Small Cap shares solely for
Global Equity Class A Shares pursuant to the Reorganization; and

(6) A Global Small Cap shareholder's aggregate basis for the Global
Equity Class A Shares to be received by it in the Reorganization will be
the same as the aggregate basis for its Global Small Cap Shares to be
constructively surrendered in exchange for those Global Equity shares, and
its holding period for those Global Equity Class A Shares will include its
holding period for those Global Small Cap shares, provided they are held as
capital assets by the shareholder on the Closing Date.

The foregoing opinion may state that no opinion is expressed as to the effect of
the Reorganization on the Funds or any Global Small Cap shareholder with respect
to any asset as to which any unrealized gain or loss is required to be
recognized for federal income tax purposes at the end of a taxable year (or on
the termination or transfer thereof) under a mark-to-market system of
accounting.

Utilization by Global Equity after the Reorganization of any
pre-Reorganization capital losses realized by Global Small Cap could be subject
to limitation in future years under the Code.

Shareholders of Global Small Cap should consult their tax advisers
regarding the effect, if any, of the Reorganization in light of their individual
circumstances. Because the foregoing discussion only relates to the federal
income tax consequences of the Reorganization, those shareholders also should
consult their tax advisers as to state and local tax consequences, if any, of
the Reorganization.

<PAGE>

ORGANIZATION OF THE FUNDS

Global Equity is a diversified series of the Trust, an open-end management
investment company. Global Equity commenced operations on November 14, 1991. The
Trust was organized as a Massachusetts business trust on March 28, 1991. The
operations of the Trust, as a Massachusetts business trust, are governed by its
Amended and Restated Declaration of Trust and Massachusetts law. The overall
direction and supervision of Global Equity is the responsibility of the Trust's
Board, which has the primary duty of ensuring that the Fund's general investment
policies and programs are adhered to and the Fund is properly administered.
Prior to August 25, 1995, the name of Global Equity was 'Mitchell
Hutchins/Kidder, Peabody Global Equity Fund.' Prior to February 13, 1995, the
name of the Fund was 'Kidder, Peabody Global Equity Fund.'

Global Small Cap is a diversified closed-end management investment company
that was organized as a Maryland corporation on June 22, 1993. Global Small Cap
shares have been listed and publicly traded on the AMEX under the symbol 'GSG'
since October 15, 1993. The operations of Global Small Cap, as a Maryland
corporation, are governed by its Articles of Incorporation and By-Laws and
Maryland law. The overall direction and supervision of Global Small Cap is the
responsibility of its Board, which has the primary duty of ensuring that the
Fund's general investment policies and programs are adhered to and the Fund is
properly administered.

CAPITALIZATION

The following table shows the capitalization of Global Small Cap and Global
Equity Class A Shares as of July 31, 1999, and on a pro forma combined basis as
of July 31, 1999, giving effect to the Reorganization:

<TABLE>
<CAPTION>
GLOBAL EQUITY
PRO FORMA
GLOBAL SMALL CAP GLOBAL EQUITY: CLASS A COMBINED
---------------- ---------------------- --------
<S> <C> <C> <C>
Net Assets.................. $66,075,392 $237,053,217 $303,128,609
Shares Outstanding.......... 3,801,667 13,167,559 16,838,414
Net Asset Value Per Share... $17.38 $18.00 $18.00
</TABLE>

REQUIRED VOTE. The proposal to approve the Plan requires the affirmative
vote of a majority of the votes entitled to be cast on the proposal. Neither
Ronald Olin Investment Management Company nor Deep Discount Advisors, Inc., the
only shareholders known to Global Small Cap who hold 5% or more of its
outstanding shares, has indicated to the Fund whether it supports or opposes the
Reorganization proposal.

THE BOARD RECOMMENDS THAT YOU VOTE 'FOR' THE PLAN OF REORGANIZATION.

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

LEGAL MATTERS

Certain legal matters concerning Global Small Cap and the Trust and their
participation in the Reorganization, the issuance of Class A Shares of Global
Equity in connection with the Reorganization and the tax consequences of the
Reorganization will be passed upon by Kirkpatrick & Lockhart LLP, 1800
Massachusetts Avenue, N.W., Washington, D.C. 20036-1800, counsel to Global Small
Cap and to the Trust.

INFORMATION FILED WITH THE SEC AND AMEX

This Proxy Statement/Prospectus and the related SAI do not contain all the
information set forth in the registration statements and the exhibits relating
thereto and annual reports which Global Small Cap has filed with the Securities
and Exchange Commission pursuant to the requirements of the Securities Act of
1933 and the Investment Company Act of 1940, as amended ('1940 Act'), to which
reference is hereby made. The SEC file number for Global Small Cap is 811-7814.
Global Small Cap's Annual

<PAGE>

Report to Shareholders is incorporated herein by reference. The SEC file number
for the Trust's registration statement containing the Prospectus and SAI
relating to Global Equity is 33-39659. Such Prospectus and SAI are incorporated
by reference herein and such Prospectus is attached at Appendix B.

Global Small Cap and the Trust are each subject to the informational
requirements of the 1940 Act and in accordance therewith each files reports and
other information with the SEC. Reports, proxy statements, registration
statements and other information filed by Global Small Cap and the Trust
(including the Registration Statement of the Trust relating to Global Equity and
Global Small Cap on Form N-14 of which this Proxy Statement/Prospectus is a
part) may be inspected without charge and copied at the public reference
facilities maintained by the SEC at Room 1014, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, DC 20549, and at the following regional offices of the
SEC: 7 World Trade Center, New York, NY 10048; and 500 West Madison Street, 14th
floor, Chicago, IL 60661. Copies of such material may also be obtained from the
Public Reference Branch of the SEC at 450 Fifth Street, N.W., Washington,
DC 20549 at the prescribed rates. The SEC maintains an Internet web site at
http://www.sec.gov that contains information regarding the Trust, Global Small
Cap and other registrants that file electronically with the SEC.

Global Small Cap shares are listed and publicly traded on the AMEX. If the
Reorganization is approved, Global Small Cap will delist from AMEX and
deregister as an investment company under the 1940 Act by filing an application
on Form N-8F with the SEC upon consummation of the Reorganization. Reports,
proxy statements and other information concerning Global Small Cap may be
inspected at the offices of AMEX, 86 Trinity Place, New York, NY 10006.

INFORMATION ABOUT THE FUNDS' ADVISER AND
SUB-ADVISERS, AND GLOBAL EQUITY'S DISTRIBUTOR

Mitchell Hutchins serves as investment adviser to both Global Small Cap and
Global Equity. Mitchell Hutchins is located at 51 West 52nd Street, New York,
New York 10019-6114. GEIM serves as investment sub-adviser to Global Small Cap
and Invista serves as the investment sub-adviser to Global Equity. GEIM is
located at 3003 Summer Street, Stamford, Connecticut 06905, and Invista is
located at 1800 Hub Tower, 699 Walnut, Des Moines, Iowa 50309. The advisers
supervise all aspects of the Funds' respective operations and provide investment
advisory services to their respective Fund, including obtaining and evaluating
economic, statistical and financial information to formulate and implement
investment programs for the Funds. As of September 30, 1999, Mitchell Hutchins
was adviser or sub-adviser of 33 investment companies with 75 separate
portfolios and aggregate assets of approximately $47.3 billion, including Global
Small Cap and Global Equity, encompassing a broad range of investment
objectives. As of September 30, 1999, GEIM managed approximately $82 billion in
client assets. As of September 30, 1999, Invista managed approximately $32.5
billion in client assets.

Mitchell Hutchins is an indirect wholly owned subsidiary of PaineWebber,
which in turn is an indirect wholly owned subsidiary of PW Group, a publicly
owned financial services holding company.

ADDITIONAL INFORMATION ABOUT
GLOBAL SMALL CAP AND GLOBAL EQUITY

For more information with respect to Global Small Cap concerning the
following topics, please refer to the Global Small Cap Annual Report to
Shareholders, dated July 31, 1999, as indicated: (i) see 'Investment Adviser and
Administrator' for further information regarding Global Small Cap's investment
adviser, sub-adviser and administrator; (ii) see 'Valuation of Investments' for
further information regarding the shares of Global Small Cap; and (iii) see
'Distribution Policy' for further information regarding the distribution of
dividends paid by Global Small Cap through its Dividend Reinvestment Plan.

For more information with respect to the Trust and Global Equity concerning
the following topics, please refer to the Global Equity Prospectus, dated
March 1, 1999, incorporated by reference herein, and attached as Appendix B to
this Proxy Statement/Prospectus, as indicated: (i) see 'Investment Objective,
Strategies and Risks' and 'Management' for further information regarding Global
Equity's

<PAGE>

principal investment strategies and risks and its management; (ii) see 'Managing
Your Fund Account' and 'Pricing and Valuation' for further information regarding
the shares of Global Equity; and (iii) see 'Managing Your Fund Account' for
further information regarding the purchase, redemption and repurchase of shares
of Global Equity.

EXPERTS

The audited financial statements of Global Small Cap and Global Equity
incorporated by reference herein and included in Global Small Cap's Annual
Report to Shareholders for the fiscal year ended July 31, 1999, and in Global
Equity's SAI dated March 1, 1999, respectively, have each been audited by Ernst
& Young LLP, independent auditors, whose reports thereon are included in the
Funds' respective Annual Reports to Shareholders for the fiscal years ended
July 31, 1999, and October 31, 1998, respectively. The financial statements
audited by Ernst & Young LLP have been incorporated herein by reference in
reliance on its reports given on its authority as experts in auditing and
accounting.

SHAREHOLDER PROPOSALS

Global Small Cap will continue to hold annual meetings only if the
Reorganization is not approved. If the Reorganization is approved, Global Small
Cap will be liquidated. Shareholder proposals intended for inclusion in the
Fund's proxy materials pursuant to Rule 14a-8 of the Securities Exchange Act of
1934 ('1934 Act') must be received by the Fund a reasonable time before the
printing and mailing of such proxy materials. In order for proposals made
outside of the processes of Rule 14a-8 of the 1934 Act to be deemed 'timely'
within the meaning of Rule 14a-4(c) of the 1934 Act, the Fund must have received
them by June 1, 1999. Shareholder proposals that are submitted in a timely
manner will not necessarily be included in Global Small Cap's proxy materials.
Inclusion of such proposals is subject to limitations under the federal
securities laws.

<PAGE>

[THIS PAGE IS INTENTIONALLY LEFT BLANK.]

<PAGE>

APPENDIX A

AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION

THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION ('Agreement') is
made as of , between PaineWebber Investment Trust, a Massachusetts
business trust ('Trust'), on behalf of PaineWebber Global Equity Fund, a
segregated portfolio of assets ('series') thereof ('Acquiring Fund'), and Global
Small Cap Fund Inc., a Maryland corporation ('Target'). (Acquiring Fund and
Target are sometimes referred to herein individually as a 'Fund' and
collectively as the 'Funds,' and Trust and Target are sometimes referred to
herein individually as an 'Investment Company' and collectively as the
'Investment Companies.') All agreements, representations, actions, and
obligations described herein made or to be taken or undertaken by Acquiring Fund
are made and shall be taken or undertaken by Trust.

The Investment Companies wish to effect a reorganization described in
section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended ('Code'),
and intend this Agreement to be a 'plan of reorganization' within the meaning of
the regulations under section 368 of the Code ('Regulations'). The
reorganization will involve the transfer of Target's assets to Acquiring Fund in
exchange solely for voting shares of beneficial interest ('shares') in Acquiring
Fund and the assumption by Acquiring Fund of Target's liabilities, followed by
the constructive distribution of those shares pro rata to the holders of shares
of common stock of Target ('Target Shares') in exchange therefor, all on the
terms and conditions set forth in this Agreement. The foregoing transactions are
referred to herein collectively as the 'Reorganization.'

Acquiring Fund is an open-end management investment company. Its shares are
divided into four classes, designated Class A, Class B, Class C, and Class Y
shares; only Acquiring Fund's Class A shares ('Acquiring Fund Shares') are
involved in the Reorganization.

Target is a closed-end management investment company that has only a single
class of shares. Target Shares can be purchased and sold only on the American
Stock Exchange ('AMEX').

In consideration of the mutual promises contained herein, the parties agree
as follows:

1. PLAN OF REORGANIZATION AND TERMINATION

1.1. Target agrees to assign, sell, convey, transfer, and deliver all of
its assets described in paragraph 1.2 ('Assets') to Acquiring Fund. Acquiring
Fund agrees in exchange therefor --

(a) to issue and deliver to Target the number of full and fractional
(rounded to the third decimal place) Acquiring Fund Shares,
determined by dividing the net value of Target (computed as set
forth in paragraph 2.1) by the net asset value ('NAV') of an
Acquiring Fund Share (computed as set forth in paragraph 2.2), and

(b) to assume all of Target's liabilities described in paragraph 1.3
('Liabilities').

Such transactions shall take place at the Closing (as defined in paragraph 3.1).

1.2. The Assets shall include, without limitation, all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), claims and rights of action, rights to register shares under
applicable securities laws, books and records, deferred and prepaid expenses
shown as assets on Target's books, and other property owned by Target at the
Effective Time (as defined in paragraph 3.1).

1.3. The Liabilities shall include (except as otherwise provided herein)
all of Target's liabilities, debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
arising in the ordinary course of business, whether or not determinable at the
Effective Time, and whether or not specifically referred to in this Agreement.
Notwithstanding the foregoing, Target agrees to use its best efforts to
discharge all its known Liabilities before the Effective Time.

1.4. At or immediately before the Effective Time, Target shall declare and
pay to its shareholders a dividend and/or other distribution in an amount large
enough so that it will have distributed substantially all (and in any event not
less than 90%) of its investment company taxable income

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(computed without regard to any deduction for dividends paid) and substantially
all of its realized net capital gain, if any, for the current taxable year
through the Effective Time.

1.5. At the Effective Time (or as soon thereafter as is reasonably
practicable), Target shall distribute the Acquiring Fund Shares received by it
pursuant to paragraph 1.1 to Target's shareholders of record, determined as of
the Effective Time (each a 'Shareholder' and collectively 'Shareholders'), in
constructive exchange for their Target Shares. Such distribution shall be
accomplished by Trust's transfer agent's opening accounts on Acquiring Fund's
share transfer books in the Shareholders' names and transferring such Acquiring
Fund Shares thereto. Each Shareholder's account shall be credited with the
respective pro rata number of full and fractional (rounded to the third decimal
place) Acquiring Fund Shares due that Shareholder. All outstanding Target
Shares, including any represented by certificates, shall simultaneously be
canceled on Target's share transfer books. Acquiring Fund shall not issue
certificates representing the Acquiring Fund Shares issued in connection with
the Reorganization.

1.6. As soon as reasonably practicable after distribution of the Acquiring
Fund Shares pursuant to paragraph 1.5, but in all events within six months after
the Effective Time, Target shall be terminated and any further actions shall be
taken in connection therewith as required by applicable law.

1.7. Any reporting responsibility of Target to a public authority is and
shall remain its responsibility up to and including the date on which it is
terminated.

1.8. Any transfer taxes payable upon issuance of Acquiring Fund Shares in a
name other than that of the registered holder on Target's books of the Target
Shares constructively exchanged therefor shall be paid by the person to whom
such Acquiring Fund Shares are to be issued, as a condition of such transfer.

2. VALUATION

2.1. For purposes of paragraph 1.1(a), Target's net value shall be (a) the
value of the Assets computed as of the close of regular trading on the AMEX on
the date of the Closing ('Valuation Time'), using the valuation procedures set
forth in Target's most recent annual report to its shareholders, less (b) the
amount of the Liabilities as of the Valuation Time.

2.2. For purposes of paragraph 1.1(a), the NAV of an Acquiring Fund Share
shall be computed as of the Valuation Time, using the valuation procedures set
forth in Acquiring Fund's then-current prospectus relating to Acquiring Fund
Shares ('Prospectus') and statement of additional information ('SAI').

2.3. All computations pursuant to paragraphs 2.1 and 2.2 shall be made by
or under the direction of Mitchell Hutchins Asset Management Inc.

3. CLOSING AND EFFECTIVE TIME

3.1. The Reorganization, together with related acts necessary to consummate
the same ('Closing'), shall occur at the Funds' principal office on January 28,
2000, or at such other place and/or on such other date as to which the
Investment Companies may agree. All acts taking place at the Closing shall be
deemed to take place simultaneously as of the close of business on the date
thereof or at such other time as to which the Investment Companies may agree
('Effective Time'). If, immediately before the Valuation Time, (a) the AMEX is
closed to trading or trading thereon is restricted or (b) trading or the
reporting of trading on the AMEX or elsewhere is disrupted, so that accurate
appraisal of the net value of Target and the NAV of an Acquiring Fund Share is
impracticable, the Effective Time shall be postponed until the first business
day after the day when such trading shall have been fully resumed and such
reporting shall have been restored.

3.2. Target's fund accounting and pricing agent shall deliver to Trust at
the Closing a certificate of an authorized officer verifying the information
(including adjusted basis and holding period, by lot) concerning the Assets,
including all portfolio securities, transferred by Target to Acquiring Fund, as
reflected on Acquiring Fund's books immediately before the Closing. Target's
custodian shall deliver at the Closing a certificate of an authorized officer
stating that (a) the Assets held by the custodian will be transferred to
Acquiring Fund at the Effective Time and (b) all necessary taxes in conjunction
with the

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delivery of the Assets, including all applicable federal and state stock
transfer stamps, if any, have been paid or provision for payment has been made.

3.3. Target shall deliver to Trust at the Closing a list of the names and
addresses of the Shareholders and the number of outstanding Target Shares owned
by each Shareholder, all as of the Effective Time, certified by Target's
Secretary or Assistant Secretary. Trust's transfer agent shall deliver at the
Closing a certificate as to the opening on Acquiring Fund's share transfer books
of accounts in the Shareholders' names. Trust shall issue and deliver a
confirmation to Target evidencing the Acquiring Fund Shares to be credited to
Target at the Effective Time or provide evidence satisfactory to Target that
such Acquiring Fund Shares have been credited to Target's account on Acquiring
Fund's books. At the Closing, each Investment Company shall deliver to the other
such bills of sale, checks, assignments, stock certificates, receipts, or other
documents as the other Investment Company or its counsel may reasonably request.

3.4. Each Investment Company shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipient and dated the Effective Time, to the
effect that the representations and warranties it made in this Agreement are
true and correct at the Effective Time except as they may be affected by the
transactions contemplated by this Agreement.

4. REPRESENTATIONS AND WARRANTIES

4.1. Target represents and warrants as follows:

4.1.1. Target is a corporation that is duly organized, validly
existing, and in good standing under the laws of the State of Maryland; and
its Articles of Incorporation are on file with the Department of
Assessments and Taxation of Maryland;

4.1.2. Target is duly registered as a closed-end management investment
company under the Investment Company Act of 1940, as amended ('1940 Act'),
and such registration will be in full force and effect at the Effective
Time;

4.1.3. At the Closing, Target will have good and marketable title to
the Assets and full right, power, and authority to sell, assign, transfer,
and deliver the Assets free of any liens or other encumbrances; and upon
delivery and payment for the Assets, Acquiring Fund will acquire good and
marketable title thereto;

4.1.4. Target is not in violation of, and the execution and delivery
of this Agreement and consummation of the transactions contemplated hereby
will not conflict with or violate, Maryland law or any provision of its
Articles of Incorporation or By-Laws or of any agreement, instrument,
lease, or other undertaking to which Target is a party or by which it is
bound or result in the acceleration of any obligation, or the imposition of
any penalty, under any agreement, judgment, or decree to which Target is a
party or by which it is bound, except as previously disclosed in writing to
and accepted by Trust;

4.1.5. Except as otherwise disclosed in writing to and accepted by
Trust, all material contracts and other commitments of Target (other than
this Agreement and investment contracts, including options, futures, and
forward contracts) will be terminated, or provision for discharge of any
liabilities of Target thereunder will be made, at or prior to the Effective
Time, without either Fund's incurring any liability or penalty with respect
thereto and without diminishing or releasing any rights Target may have had
with respect to actions taken or omitted or to be taken by any other party
thereto prior to the Closing;

4.1.6. Except as otherwise disclosed in writing to and accepted by
Trust, no litigation, administrative proceeding, or investigation of or
before any court or governmental body is presently pending or (to Target's
knowledge) threatened against Target or any of its properties or assets
that, if adversely determined, would materially and adversely affect its
financial condition or the conduct of its business; and Target knows of no
facts that might form the basis for the institution of any such litigation,
proceeding, or investigation and is not a party to or subject to the

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provisions of any order, decree, or judgment of any court or governmental
body that materially or adversely affects its business or its ability to
consummate the transactions contemplated hereby;

4.1.7. The execution, delivery, and performance of this Agreement have
been duly authorized as of the date hereof by all necessary action on the
part of Target's board of directors, which has made the determinations
required by Rule 17a-8(a) under the 1940 Act; and, subject to approval by
Target's shareholders, this Agreement constitutes a valid and legally
binding obligation of Target, enforceable in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium, and similar laws relating to or
affecting creditors' rights and by general principles of equity;

4.1.8. At the Effective Time, the performance of this Agreement shall
have been duly authorized by all necessary action by Target's shareholders;

4.1.9. No governmental consents, approvals, authorizations, or filings
are required under the Securities Act of 1933, as amended ('1933 Act'), the
Securities Exchange Act of 1934, as amended ('1934 Act'), or the 1940 Act
for the execution or performance of this Agreement by Target, except for
(a) the filing with the Securities and Exchange Commission ('SEC') of a
registration statement by Trust on Form N-14 relating to the Acquiring Fund
Shares issuable hereunder, and any supplement or amendment thereto
('Registration Statement'), including therein a prospectus/proxy statement
('Proxy Statement'), and (b) such consents, approvals, authorizations, and
filings as have been made or received or as may be required subsequent to
the Effective Time;

4.1.10. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act, and
the 1940 Act and the rules and regulations thereunder and (b) not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
misleading; provided that the foregoing shall not apply to statements in or
omissions from the Proxy Statement made in reliance on and in conformity
with information furnished by Trust for use therein;

4.1.11. The Liabilities were incurred by Target in the ordinary course
of its business and are associated with the Assets; and there are no
Liabilities other than liabilities disclosed or provided for in its
financial statements referred to in paragraph 4.1.16 and liabilities
incurred by Target in the ordinary course of its business subsequent to
July 31, 1999, or otherwise previously disclosed to Trust, none of which
has been materially adverse to the business, assets, or results of Target's
operations;

4.1.12. Target qualified for treatment as a regulated investment
company under Subchapter M of the Code ('RIC') for each past taxable year
since it commenced operations and will continue to meet all the
requirements for such qualification for its current taxable year; it has no
earnings and profits accumulated in any taxable year in which the
provisions of Subchapter M did not apply to it; and the Assets will be
invested at all times through the Effective Time in a manner that ensures
compliance with the foregoing;

4.1.13. Target is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case within
the meaning of section 368(a)(3)(A) of the Code;

4.1.14. Not more than 25% of the value of Target's total assets
(excluding cash, cash items, and U.S. government securities) is invested in
the stock and securities of any one issuer, and not more than 50% of the
value of such assets is invested in the stock and securities of five or
fewer issuers;

4.1.15. Target's federal income tax returns, and all applicable state
and local tax returns, for all taxable years through and including the
taxable year ended July 31, 1998, have been timely filed and all taxes
payable pursuant to such returns have been timely paid; and

4.1.16. Target's financial statements for the year ended July 31,
1999, to be delivered to Trust, fairly represent Target's financial
position as of that date and the results of its operations and changes in
its net assets for the year then ended.

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4.2. Acquiring Fund represents and warrants as follows:

4.2.1. Trust is a trust operating under a written declaration of
trust, the beneficial interest in which is divided into transferable shares
('Business Trust'), that is duly organized and validly existing under the
laws of the Commonwealth of Massachusetts; and a copy of its Amended and
Restated Agreement and Declaration of Trust ('Declaration of Trust') is on
file with the Secretary of the Commonwealth of Massachusetts;

4.2.2. Trust is duly registered as an open-end management investment
company under the 1940 Act, and such registration will be in full force and
effect at the Effective Time;

4.2.3. Acquiring Fund is a duly established and designated series of
Trust;

4.2.4. No consideration other than Acquiring Fund Shares (and
Acquiring Fund's assumption of the Liabilities) will be issued in exchange
for the Assets in the Reorganization;

4.2.5. The Acquiring Fund Shares to be issued and delivered to Target
hereunder will, at the Effective Time, have been duly authorized and, when
issued and delivered as provided herein, will be duly and validly issued
and outstanding shares of Acquiring Fund, fully paid and non-assessable;

4.2.6. Acquiring Fund's current Prospectus and SAI conform in all
material respects to the applicable requirements of the 1933 Act and the
1940 Act and the rules and regulations thereunder and do not include any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;

4.2.7. Acquiring Fund is not in violation of, and the execution and
delivery of this Agreement and consummation of the transactions
contemplated hereby will not conflict with or violate, Massachusetts law or
any provision of the Declaration of Trust or Trust's By-Laws or of any
provision of any agreement, instrument, lease, or other undertaking to
which Acquiring Fund is a party or by which it is bound or result in the
acceleration of any obligation, or the imposition of any penalty, under any
agreement, judgment, or decree to which Acquiring Fund is a party or by
which it is bound, except as previously disclosed in writing to and
accepted by Target;

4.2.8. Except as otherwise disclosed in writing to and accepted by
Target, no litigation, administrative proceeding, or investigation of or
before any court or governmental body is presently pending or (to Acquiring
Fund's knowledge) threatened against Trust with respect to Acquiring Fund
or any of its properties or assets that, if adversely determined, would
materially and adversely affect Acquiring Fund's financial condition or the
conduct of its business; and Acquiring Fund knows of no facts that might
form the basis for the institution of any such litigation, proceeding, or
investigation and is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that
materially or adversely affects its business or its ability to consummate
the transactions contemplated hereby;

4.2.9. The execution, delivery, and performance of this Agreement have
been duly authorized as of the date hereof by all necessary action on the
part of Trust's board of trustees (together with Target's board of
directors, the 'Boards'), which has made the determinations required by
Rule 17a-8(a) under the 1940 Act; and this Agreement constitutes a valid
and legally binding obligation of Acquiring Fund, enforceable in accordance
with its terms, except as the same may be limited by bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium, and similar
laws relating to or affecting creditors' rights and by general principles
of equity;

4.2.10. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the 1934 Act, or the 1940 Act for
the execution or performance of this Agreement by Trust, except for (a) the
filing with the SEC of the Registration Statement and (b) such consents,
approvals, authorizations, and filings as have been made or received or as
may be required subsequent to the Effective Time;

4.2.11. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act, and
the 1940 Act and the rules and regulations thereunder and (b) not contain
any untrue statement of a

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material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements in or omissions
from the Proxy Statement made in reliance on and in conformity with
information furnished by Target for use therein;

4.2.12. Acquiring Fund is a 'fund' as defined in section 851(g)(2) of
the Code; it qualified for treatment as a RIC for each past taxable year
since it commenced operations and will continue to meet all the
requirements for such qualification for its current taxable year; Acquiring
Fund intends to continue to meet all such requirements for the next taxable
year; and it has no earnings and profits accumulated in any taxable year in
which the provisions of Subchapter M of the Code did not apply to it;

4.2.13. Acquiring Fund has no plan or intention to issue additional
Acquiring Fund Shares following the Reorganization except for shares issued
in the ordinary course of its business as a series of an open-end
investment company; nor does Acquiring Fund have any plan or intention to
redeem or otherwise reacquire any Acquiring Fund Shares issued to the
Shareholders pursuant to the Reorganization, except to the extent it is
required by the 1940 Act to redeem any of its shares presented for
redemption at NAV in the ordinary course of that business;

4.2.14. Following the Reorganization, Acquiring Fund (a) will continue
Target's 'historic business' (within the meaning of section 1.368-1(d)(2)
of the Regulations) and (b) use a significant portion of Target's historic
business assets (within the meaning of section 1.368-1(d)(3) of the
Regulations) in a business;

4.2.15. There is no plan or intention for Acquiring Fund to be
dissolved or merged into another business trust or a corporation or any
'fund' thereof (within the meaning of section 851(g)(2) of the Code)
following the Reorganization;

4.2.16. Immediately after the Reorganization, (a) not more than 25% of
the value of Acquiring Fund's total assets (excluding cash, cash items, and
U.S. government securities) will be invested in the stock and securities of
any one issuer and (b) not more than 50% of the value of such assets will
be invested in the stock and securities of five or fewer issuers;

4.2.17. Acquiring Fund does not directly or indirectly own, nor at the
Effective Time will it directly or indirectly own, nor has it directly or
indirectly owned, at any time during the past five years, any shares of
Target;

4.2.18. Acquiring Fund's federal income tax returns, and all
applicable state and local tax returns, for all taxable years through and
including the taxable year ended October 31, 1998, have been timely filed
and all taxes payable pursuant to such returns have been timely paid; and

4.2.19. Trust's financial statements for the year ended October 31,
1998, to be delivered to Target, fairly represent Acquiring Fund's
financial position as of that date and the results of its operations and
changes in its net assets for the year then ended.

4.3. Each Fund represents and warrants as follows:

4.3.1. The fair market value of the Acquiring Fund Shares received by
each Shareholder will be approximately equal to the fair market value of
its Target Shares constructively surrendered in exchange therefor;

4.3.2. Its management is unaware of any plan or intention of
Shareholders to redeem, sell, or otherwise dispose of (a) any portion of
their Target Shares before the Reorganization to any person related (within
the meaning of section 1.368-1(e)(3) of the Regulations) to either Fund or
(b) any portion of the Acquiring Fund Shares to be received by them in the
Reorganization to any person related (within such meaning) to Acquiring
Fund;

4.3.3. The Shareholders will pay their own expenses, if any, incurred
in connection with the Reorganization;

4.3.4. The fair market value of the Assets on a going concern basis
will equal or exceed the Liabilities to be assumed by Acquiring Fund and
those to which the Assets are subject;

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4.3.5. There is no intercompany indebtedness between the Funds that
was issued or acquired, or will be settled, at a discount;

4.3.6. Pursuant to the Reorganization, Target will transfer to
Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the fair
market value of the net assets, and at least 70% of the fair market value
of the gross assets, held by Target immediately before the Reorganization.
For the purposes of this representation, any amounts used by Target to pay
its Reorganization expenses and to make redemptions and distributions
immediately before the Reorganization (except (a) redemptions not made as
part of the Reorganization and (b) distributions made to conform to its
policy of distributing all or substantially all of its income and gains to
avoid the obligation to pay federal income tax and/or the excise tax under
section 4982 of the Code) will be included as assets held thereby
immediately before the Reorganization;

4.3.7. None of the compensation received by any Shareholder who is an
employee of or service provider to Target will be separate consideration
for, or allocable to, any of the Target Shares held by such Shareholder;
none of the Acquiring Fund Shares received by any such Shareholder will be
separate consideration for, or allocable to, any employment agreement,
investment advisory agreement, or other service agreement; and the
consideration paid to any such Shareholder will be for services actually
rendered and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services;

4.3.8. Immediately after the Reorganization, the Shareholders will not
own shares constituting 'control' (within the meaning of section 304(c) of
the Code) of Acquiring Fund; and

4.3.9. Neither Fund will be reimbursed for any expenses incurred by it
or on its behalf in connection with the Reorganization unless those
expenses are solely and directly related to the Reorganization (determined
in accordance with the guidelines set forth in Rev. Rul. 73-54, 1973-1 C.B.
187).

5. COVENANTS

5.1. Each Fund covenants to operate its respective business in the ordinary
course between the date hereof and the Closing, it being understood that --

(a) such ordinary course will include declaring and paying customary
dividends and other distributions and changes in operations
contemplated by each Fund's normal business activities, and

(b) each Fund will retain exclusive control of the composition of its
portfolio until the Closing; provided that (1) Target shall not
dispose of more than an insignificant portion of its historic
business assets during such period without Acquiring Fund's prior
consent and (2) if Target's shareholders approve this Agreement
(and the transactions contemplated hereby), then between the date
of such approval and the Closing, the Funds shall coordinate their
respective portfolios so that the transfer of the Assets to
Acquiring Fund will not cause it to fail to be in compliance with
all of its investment policies and restrictions immediately after
the Closing.

5.2. Target covenants to call a shareholders' meeting to consider and act
on this Agreement and to take all other action necessary to obtain approval of
the transactions contemplated hereby.

5.3. Target covenants that the Acquiring Fund Shares to be delivered
hereunder are not being acquired for the purpose of making any distribution
thereof, other than in accordance with the terms hereof.

5.4. Target covenants that it will assist Trust in obtaining information
Trust reasonably requests concerning the beneficial ownership of Target Shares.

5.5. Target covenants that its books and records (including all books and
records required to be maintained under the 1940 Act and the rules and
regulations thereunder) will be turned over to Trust at the Closing.

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5.6. Each Fund covenants to cooperate in preparing the Proxy Statement in
compliance with applicable federal and state securities laws.

5.7. Each Fund covenants that it will, from time to time, as and when
requested by the other Fund, execute and deliver or cause to be executed and
delivered all such assignments and other instruments, and will take or cause to
be taken such further action, as the other Fund may deem necessary or desirable
in order to vest in, and confirm to, (a) Acquiring Fund, title to and possession
of all the Assets, and (b) Target, title to and possession of the Acquiring Fund
Shares to be delivered hereunder, and otherwise to carry out the intent and
purpose hereof.

5.8. Acquiring Fund covenants to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act, and such
state securities laws it may deem appropriate to continue its operations after
the Effective Time.

5.9. Subject to this Agreement, each Fund covenants to take or cause to be
taken all actions, and to do or cause to be done all things, reasonably
necessary, proper, or advisable to consummate and effectuate the transactions
contemplated hereby.

6. CONDITIONS PRECEDENT

Each Fund's obligations hereunder shall be subject to (a) performance by
the other Fund of all its obligations to be performed hereunder at or before the
Effective Time, (b) all representations and warranties of the other Fund
contained herein being true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
hereby, as of the Effective Time, with the same force and effect as if made at
and as of the Effective Time, and (c) the following further conditions that, at
or before the Effective Time:

6.1. This Agreement and the transactions contemplated hereby shall have
been duly adopted and approved by each Board and shall have been approved by
Target's shareholders in accordance with its Articles of Incorporation, its
By-Laws, and applicable law.

6.2. All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall have been received that
any other or further action is required to permit the parties to carry out the
transactions contemplated hereby. The Registration Statement shall have become
effective under the 1933 Act, no stop orders suspending the effectiveness
thereof shall have been issued, and the SEC shall not have issued an unfavorable
report with respect to the Reorganization under section 25(b) of the 1940 Act
nor instituted any proceedings seeking to enjoin consummation of the
transactions contemplated hereby under section 25(c) of the 1940 Act. All
consents, orders, and permits of federal, state, and local regulatory
authorities (including the SEC and state securities authorities) deemed
necessary by either Investment Company to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain same would not involve a risk of a material
adverse effect on either Fund's assets or properties, provided that either
Investment Company may for itself waive any of such conditions.

6.3. At the Effective Time, no action, suit, or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or to obtain damages or other relief in connection with,
the transactions contemplated hereby.

6.4. Target shall have received an opinion of Kirkpatrick & Lockhart LLP
('Counsel') substantially to the effect that:

6.4.1. Acquiring Fund is a duly established series of Trust, a
Business Trust with power under the Declaration of Trust to own all its
properties and assets and, to the knowledge of Counsel, to carry on its
business as presently conducted;

6.4.2. This Agreement (a) has been duly authorized, executed, and
delivered by Trust on behalf of Acquiring Fund and (b) assuming due
authorization, execution, and delivery of this Agreement by Target, is a
valid and legally binding obligation of Trust with respect to Acquiring
Fund, enforceable in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, and similar laws relating to or affecting creditors' rights and
by general principles of equity;

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6.4.3. The Acquiring Fund Shares to be issued and distributed to the
Shareholders under this Agreement, assuming their due delivery as
contemplated by this Agreement, will be duly authorized, validly issued and
outstanding, and fully paid and non-assessable;

6.4.4. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, materially
violate the Declaration of Trust or Trust's By-Laws or any provision of any
agreement (known to Counsel, without any independent inquiry or
investigation) to which Trust (with respect to Acquiring Fund) is a party
or by which it is bound or (to the knowledge of Counsel, without any
independent inquiry or investigation) result in the acceleration of any
obligation, or the imposition of any penalty, under any agreement,
judgment, or decree to which Trust (with respect to Acquiring Fund) is a
party or by which it is bound, except as set forth in such opinion or as
previously disclosed in writing to and accepted by Target;

6.4.5. To the knowledge of Counsel (without any independent inquiry or
investigation), no consent, approval, authorization, or order of any court
or governmental authority is required for the consummation by Trust on
behalf of Acquiring Fund of the transactions contemplated herein, except
those obtained under the 1933 Act, the 1934 Act, and the 1940 Act and those
that may be required under state securities laws;

6.4.6. Trust is registered with the SEC as an investment company, and
to the knowledge of Counsel no order has been issued or proceeding
instituted to suspend such registration; and

6.4.7. To the knowledge of Counsel (without any independent inquiry or
investigation), (a) no litigation, administrative proceeding, or
investigation of or before any court or governmental body is pending or
threatened as to Trust (with respect to Acquiring Fund) or any of its
properties or assets attributable or allocable to Acquiring Fund and (b)
Trust (with respect to Acquiring Fund) is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental
body that materially and adversely affects Acquiring Fund's business,
except as set forth in such opinion or as otherwise disclosed in writing to
and accepted by Target.

In rendering such opinion, Counsel may (1) rely, as to matters governed by the
laws of the Commonwealth of Massachusetts, on an opinion of competent
Massachusetts counsel, (2) make assumptions regarding the authenticity,
genuineness, and/or conformity of documents and copies thereof without
independent verification thereof, (3) limit such opinion to applicable federal
and state law, and (4) define the word 'knowledge' and related terms to mean the
knowledge of attorneys then with Counsel who have devoted substantive attention
to matters directly related to this Agreement and the Reorganization.

6.5. Trust shall have received an opinion of Counsel substantially to the
effect that:

6.5.1. Target is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Maryland with power under
its Articles of Incorporation to own all its properties and assets and, to
the knowledge of Counsel, to carry on its business as presently conducted;

6.5.2. This Agreement (a) has been duly authorized, executed, and
delivered by Target and (b) assuming due authorization, execution, and
delivery of this Agreement by Trust on behalf of Acquiring Fund, is a valid
and legally binding obligation of Target, enforceable in accordance with
its terms, except as the same may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium, and similar laws relating
to or affecting creditors' rights and by general principles of equity;

6.5.3. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, materially
violate Target's Articles of Incorporation or By-Laws or any provision of
any agreement (known to Counsel, without any independent inquiry or
investigation) to which Target is a party or by which it is bound or (to
the knowledge of Counsel, without any independent inquiry or investigation)
result in the acceleration of any obligation, or the imposition of any
penalty, under any agreement, judgment, or decree to which Target is a
party or by which it is bound, except as set forth in such opinion or as
previously disclosed in writing to and accepted by Trust;

A-9

<PAGE>

6.5.4. To the knowledge of Counsel (without any independent inquiry or
investigation), no consent, approval, authorization, or order of any court
or governmental authority is required for the consummation by Target of the
transactions contemplated herein, except those obtained under the 1933 Act,
the 1934 Act, and the 1940 Act and those that may be required under state
securities laws;

6.5.5. Target is registered with the SEC as an investment company, and
to the knowledge of Counsel no order has been issued or proceeding
instituted to suspend such registration; and

6.5.6. To the knowledge of Counsel (without any independent inquiry or
investigation), (a) no litigation, administrative proceeding, or
investigation of or before any court or governmental body is pending or
threatened as to Target or any of its properties or assets and (b) Target
is not a party to or subject to the provisions of any order, decree, or
judgment of any court or governmental body that materially and adversely
affects Target's business, except as set forth in such opinion or as
otherwise disclosed in writing to and accepted by Trust.

In rendering such opinion, Counsel may (1) rely, as to matters governed by the
laws of the State of Maryland, on an opinion of competent Maryland counsel, (2)
make assumptions regarding the authenticity, genuineness, and/or conformity of
documents and copies thereof without independent verification thereof, (3) limit
such opinion to applicable federal and state law, and (4) define the word
'knowledge' and related terms to mean the knowledge of attorneys then with
Counsel have devoted substantive attention to matters directly related to this
Agreement and the Reorganization.

6.6. Each Investment Company shall have received an opinion of Counsel,
addressed to and in form and substance satisfactory to it, as to the federal
income tax consequences mentioned below ('Tax Opinion'). In rendering the Tax
Opinion, Counsel may rely as to factual matters, exclusively and without
independent verification, on the representations made in this Agreement (or in
separate letters addressed to Counsel) and the certificates delivered pursuant
to paragraph 3.4. The Tax Opinion shall be substantially to the effect that,
based on the facts and assumptions stated therein and conditioned on
consummation of the Reorganization in accordance with this Agreement, for
federal income tax purposes:

6.6.1. Acquiring Fund's acquisition of the Assets in exchange solely
for Acquiring Fund Shares and Acquiring Fund's assumption of the
Liabilities, followed by Target's distribution of those shares pro rata to
the Shareholders constructively in exchange for their Target Shares, will
qualify as a reorganization within the meaning of section 368(a)(1)(C) of
the Code, and each Fund will be 'a party to a reorganization' within the
meaning of section 368(b) of the Code;

6.6.2. Target will recognize no gain or loss on the transfer of the
Assets to Acquiring Fund in exchange solely for Acquiring Fund Shares and
Acquiring Fund's assumption of the Liabilities or on the subsequent
distribution of those shares to the Shareholders in constructive exchange
for their Target Shares;

6.6.3. Acquiring Fund will recognize no gain or loss on its receipt of
the Assets in exchange solely for Acquiring Fund Shares and its assumption
of the Liabilities;

6.6.4. Acquiring Fund's basis for the Assets will be the same as
Target's basis therefor immediately before the Reorganization, and
Acquiring Fund's holding period for the Assets will include Target's
holding period therefor;

6.6.5. A Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for Acquiring Fund
Shares pursuant to the Reorganization; and

6.6.6. A Shareholder's aggregate basis for the Acquiring Fund Shares
to be received by it in the Reorganization will be the same as the
aggregate basis for its Target Shares to be constructively surrendered in
exchange for those Acquiring Fund Shares, and its holding period for those
Acquiring Fund Shares will include its holding period for those Target
Shares, provided they are held as capital assets by the Shareholder at the
Effective Time.

Notwithstanding subparagraphs 6.6.2 and 6.6.4, the Tax Opinion may state that no
opinion is expressed as to the effect of the Reorganization on the Funds or any
Shareholder with respect to any asset as to which any unrealized gain or loss is
required to be recognized for federal income tax purposes at the

A-10

<PAGE>

end of a taxable year (or on the termination or transfer thereof) under a
mark-to-market system of accounting.

At any time before the Closing, either Investment Company may waive any of
the foregoing conditions (except that set forth in paragraph 6.1) if, in the
judgment of its Board, such waiver will not have a material adverse effect on
its Fund's shareholders' interests.

7. BROKERAGE FEES AND EXPENSES

7.1. Each Investment Company represents and warrants to the other that
there are no brokers or finders entitled to receive any payments in connection
with the transactions provided for herein.

7.2. Each Fund will bear its own Reorganization expenses.

8. ENTIRE AGREEMENT; NO SURVIVAL

Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties. The representations, warranties, and covenants contained herein or in
any document delivered pursuant hereto or in connection herewith shall not
survive the Closing.

9. TERMINATION OF AGREEMENT

This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by Target's shareholders:

9.1. By either Fund (a) in the event of the other Fund's material breach of
any representation, warranty, or covenant contained herein to be performed at or
prior to the Effective Time, (b) if a condition to its obligations has not been
met and it reasonably appears that such condition will not or cannot be met, or
(c) if the Closing has not occurred on or before April 30, 2000; or

9.2. By the parties' mutual agreement.

In the event of termination under paragraphs 9.1(c) or 9.2, there shall be no
liability for damages on the part of either Fund, or the trustees/directors, or
officers of either Investment Company, to the other Fund.

10. AMENDMENT

This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Target's shareholders, in any manner
mutually agreed upon in writing by the parties; provided that following such
approval no such amendment shall have a material adverse effect on the
Shareholders' interests.

11. MISCELLANEOUS

11.1. This Agreement shall be governed by and construed in accordance with
the internal laws of the Commonwealth of Massachusetts; provided that, in the
case of any conflict between such laws and the federal securities laws, the
latter shall govern.

11.2. Nothing expressed or implied herein is intended or shall be construed
to confer upon or give any person, firm, trust, or corporation other than the
parties and their respective successors and assigns any rights or remedies under
or by reason of this Agreement.

11.3. Target acknowledges that Trust is a Business Trust. This Agreement is
executed on behalf of Acquiring Fund and by its trustees and/or officers in
their capacities as such, and not individually. Target's obligations under this
Agreement are not binding on or enforceable against any of its directors,
officers, or shareholders but are only binding on and enforceable against
Target's assets and property. Acquiring Fund agrees that, in asserting any
rights or claims under this Agreement, it shall look only to Target's assets and
property in settlement of such rights or claims and not to such directors,
officers, or shareholders.

A-11

<PAGE>

11.4. A trustee of Trust shall not be personally liable hereunder to Target
or its directors or shareholders for any act, omission, or obligation of Trust
or any other trustee thereof. Target agrees that, in asserting any claim against
Trust or its trustees, it shall look only to Acquiring Fund's assets for payment
under such claim; and neither the shareholders nor the trustees of Trust, nor
any of their agents, whether past, present, or future, shall be personally
liable therefor.

11.5. This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more counterparts have been executed by each Investment Company and
delivered to the other party hereto. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

IN WITNESS WHEREOF, each party has caused this Agreement to be executed and
delivered by its duly authorized officers as of the day and year first written
above.

<TABLE>
<S> <C>
ATTEST: GLOBAL SMALL CAP FUND INC.

.................................................. By: ..............................................
Secretary Vice President

ATTEST: PAINEWEBBER INVESTMENT TRUST,
on behalf of its series,
PaineWebber Global Equity Fund

.................................................. By: ..............................................
Secretary Vice President
</TABLE>

A-12

<PAGE>

APPENDIX B

JOINT PROSPECTUS FOR PAINEWEBBER GLOBAL EQUITY FUND

(REFERENCES TO ALL FUNDS OTHER THAN PAINEWEBBER GLOBAL
EQUITY FUND IN THIS PROSPECTUS SHOULD BE DISREGARDED
BECAUSE THEY DO NOT PERTAIN TO THE PROSPECTUS/PROXY STATEMENT.)

PaineWebber Global Equity Fund

PaineWebber Global Income Fund

PaineWebber Asia Pacific Growth Fund

PaineWebber Emerging Markets Equity Fund

------------------------------------
PROSPECTUS

MARCH 1, 1999

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

This prospectus offers shares in PaineWebber's four Global Funds. Each fund
offers four classes of shares. Each class has different sales charges and
ongoing expenses. You can choose the class that is best for you based on how
much you plan to invest and how long you plan to hold your fund shares. Class Y
shares are available only to certain types of investors.

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

<PAGE>

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

Contents
THE FUNDS

<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------

What every investor B-3 PaineWebber Global Equity Fund
should know about B-6 PaineWebber Global Income Fund
the funds B-9 PaineWebber Asia Pacific Growth Fund
B-12 PaineWebber Emerging Markets Equity Fund
B-15 More About Risks and Investment Strategies
YOUR INVESTMENT

- ------------------------------------------------------------------------------------------------------------------
Information for B-18 Managing Your Fund Account
managing your fund -- Flexible Pricing
account -- Buying Shares
-- Selling Shares
-- Exchanging Shares
-- Pricing and Valuation
ADDITIONAL INFORMATION

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

Additional important B-24 Management
information about B-26 Dividends and Taxes
the funds B-27 Financial Highlights

- ------------------------------------------------------------------------------------------------------------------
Where to learn more Back Cover
about PaineWebber
mutual funds
</TABLE>

The funds are not complete or
balanced investment programs.

---------------
- --------------------------------------------------------------------------------
B-2

<PAGE>

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

PaineWebber Global Equity Fund
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
- --------------------------------------------------------------------------------

FUND OBJECTIVE

Long-term growth of capital.

PRINCIPAL INVESTMENT STRATEGIES

The fund invests primarily in stocks of companies in the United States and in
foreign countries that are represented in the MSCI Europe, Australia and Far
East Index. The EAFE Index reflects stocks in most developed countries outside
North America. The fund also invests, to a lesser extent, in stocks of issuers
in other countries, including emerging markets, and in U.S. and foreign bonds.

The fund's investment adviser, Mitchell Hutchins Asset Management Inc.,
allocates the fund's assets between U.S. and foreign markets based on how it
expects U.S. stock markets to perform in comparison to stock markets in certain
of the EAFE countries. Mitchell Hutchins may increase the allocation of the
fund's assets to either the U.S. or foreign markets if it believes that one of
those markets has a greater potential for high returns, relative to the risk of
loss. Mitchell Hutchins may use futures and foreign currency contracts to adjust
the fund's exposure to either the U.S. or foreign markets.

Mitchell Hutchins manages the fund's U.S. investments using its own Factor
Valuation Model to identify companies that appear undervalued. The model ranks
companies based on 'value' factors, such as dividends, cash flows, earnings and
book values, as well as on 'growth' factors, such as earnings momentum and
industry performance forecasts. Mitchell Hutchins then applies fundamental
analysis to select specific stocks from among those identified by the model.

Mitchell Hutchins has appointed Invista Capital Management, LLC as the
sub-adviser for the fund's foreign investments. Invista selects foreign stocks
for the fund through an analysis of the fundamental business prospects of
industries and of individual companies and by making an assessment of the
relative risks presented by the countries in which those companies operate.

PRINCIPAL RISKS

An investment in the fund is not guaranteed; investors may lose money by
investing in the fund. The principal risks presented by the fund are:

Equity Risk

Sector Allocation Risk

Foreign Securities Risk

Emerging Markets Risk

Currency Risk

Interest Rate Risk

Credit Risk

Derivatives Risk

For an explanation of each of these risks, see 'More About Risks and Investment
Strategies,' below.

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

---------------
- --------------------------------------------------------------------------------
B-3

<PAGE>

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

PERFORMANCE
- --------------------------------------------------------------------------------

RISK/RETURN BAR CHART AND TABLE

The following bar chart shows how the fund's performance has varied from year to
year. The chart shows Class A shares because they have the longest performance
history of any class of fund shares. The chart does not reflect the effect of
sales charges; if it did, the total returns shown would be lower.

The table that follows the chart shows the average annual returns over several
time periods for each class of the fund's shares. That table does reflect fund
sales charges. The table compares fund returns to returns on a broad-based
market index that is unmanaged and that, therefore, does not include any sales
charges or expenses.

The fund's past performance does not necessarily indicate how the fund will
perform in the future. This may be particularly true of the period prior to
October 1, 1998, when Mitchell Hutchins and Invista assumed the day-to-day
management of the fund's assets. Prior to that date, another sub-adviser was
responsible for managing all fund assets.

TOTAL RETURN ON CLASS A SHARES

[PERFORMANCE GRAPH]

Best quarter during years shown: 1st quarter, 1998 -- 19.22%

Worst quarter during years shown: 3rd quarter, 1998 -- (19.41)%

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............................................... 6.59% 5.67% 9.73% 11.92% 24.80%
Five Years............................................. 7.60% N/A 7.76% 8.93% 16.19%
Life of Class.......................................... 10.15% 8.79% 9.92% 11.10% *
</TABLE>

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

* Average annual total returns for the MSCI World Index for the life of each
class were as follows: Class A -- 13.96%; Class B -- 18.98%;
Class C -- 15.76%; and Class Y -- 15.76%.

---------------
- --------------------------------------------------------------------------------
B-4

<PAGE>

- --------------------------------------------------------------------------------
------------------------------
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
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted
from fund assets)
</TABLE>

<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.............................................. 0.45 0.53 0.47 0.36
---- ---- ---- ----
Total Annual Fund Operating Expenses........................ 1.55% 2.38% 2.32% 1.21%
</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..................................................... $601 $ 918 $1,257 $2,212
Class B (assuming sales of all shares at end of period)..... 741 1,042 1,470 2,320
Class B (assuming no sales of shares)....................... 241 742 1,270 2,320
Class C (assuming sales of all shares at end of period)..... 335 724 1,240 2,656
Class C (assuming no sales of shares)....................... 235 724 1,240 2,656
Class Y..................................................... 123 384 665 1,466
</TABLE>

---------------
- --------------------------------------------------------------------------------
B-5

<PAGE>

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

PaineWebber Global Income Fund
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
- --------------------------------------------------------------------------------

FUND OBJECTIVE

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

PRINCIPAL INVESTMENT STRATEGIES

The fund invests primarily in high quality bonds of governmental and private
issuers in the U.S. and in developed foreign countries. These high quality bonds
are rated in one of the two highest rating categories or are of comparable
quality. The fund also invests, to a lesser extent, in lower quality bonds,
including bonds of issuers in emerging markets. These may include bonds that
have very low credit ratings but that Mitchell Hutchins Asset Management Inc.,
the fund's investment adviser, believes may provide a return that is high enough
to justify the additional risk. Some of the fund's bonds may be backed by
mortgages.

Mitchell Hutchins normally invests a portion of the fund's assets in bonds of
U.S. government and private issuers, and allocates the balance of the fund's
portfolio among bonds of issuers in different foreign countries. Mitchell
Hutchins determines the allocation to different geographic areas, countries and
industries based upon its assessment of fundamental economic strengths, credit
quality and currency and interest rate trends. Mitchell Hutchins uses foreign
currency contracts to increase or decrease the fund's exposure to various
foreign currencies.

PRINCIPAL RISKS

An investment in the fund is not guaranteed; investors may lose money by
investing in the fund. The principal risks presented by the fund are:

Interest Rate Risk

Foreign Securities Risk

Sovereign Risk

Sector Allocation Risk

Currency Risk

Emerging Markets Risk

Credit Risk

Non-Diversified Status Risk

Prepayment Risk

Derivatives Risk

For an explanation of each of these risks, see 'More About Risks and Investment
Strategies,' below.

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

---------------
- --------------------------------------------------------------------------------
B-6

<PAGE>

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

PERFORMANCE
- --------------------------------------------------------------------------------

RISK/RETURN BAR CHART AND TABLE

The following bar chart shows how the fund's performance has varied from year to
year. The chart shows Class B shares because they have the longest performance
history of any class of fund shares. The chart does not reflect the effect of
sales charges; if it did, the total returns shown would be lower.

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

TOTAL RETURN ON CLASS B SHARES

[PERFORMANCE GRAPH]

Best quarter during years shown: 3rd quarter, 1991 -- 7.17%
Worst quarter during years shown: 1st quarter, 1994 -- (3.92)%

AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998

<TABLE>
<CAPTION>
SALOMON
BROTHERS
CLASS CLASS A CLASS B CLASS C CLASS Y WORLD 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..................................... 6.33% 4.73% 9.47% 11.12% 15.31%
Five Years................................... 5.16% 4.86% 5.50% 6.32% 7.85%
Ten Years.................................... N/A 7.75% N/A N/A 8.96%
Life of Class................................ 6.92% 9.06% 6.29% 7.78% *
</TABLE>

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

* Average annual total returns for the Salomon Brothers World Government Bond
Index for the life of each class were as follows: Class A -- 9.95%;
Class B -- 8.90%; Class C -- 8.42%; and Class Y -- 9.58%.

---------------
- --------------------------------------------------------------------------------
B-7

<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% None None None
Maximum Contingent Deferred Sales Charge (Load) (CDSC) (as a
% of offering price)...................................... None 5% 0.75% None
Exchange Fee................................................ None None None None

ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
</TABLE>

<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.............................................. 0.24 0.38 0.27 0.21
---- ---- ---- ----
Total Annual Fund Operating Expenses........................ 1.24% 2.13% 1.77% 0.96%
</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:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A.................................................... $521 $778 $1,054 $1,840
Class B (assuming sales of all shares at end of period).... 716 967 1,344 2,026
Class B (assuming no sales of shares)...................... 216 667 1,144 2,026
Class C (assuming sales of all shares at end of period).... 255 557 959 2,084
Class C (assuming no sales of shares)...................... 180 557 959 2,084
Class Y.................................................... 98 306 531 1,178
</TABLE>

---------------
- --------------------------------------------------------------------------------
B-8

<PAGE>

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

PaineWebber Asia Pacific Growth Fund
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
- --------------------------------------------------------------------------------

FUND OBJECTIVE

Long-term capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES

The fund invests primarily in stocks of companies in the Asia Pacific Region,
except Japan.

Mitchell Hutchins Asset Management Inc., the fund's investment adviser, has
appointed Schroder Capital Management International Inc. as the fund's
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's extensive network of locally
based analysts conducts comprehensive research to assess potential returns. It
also considers companies' management capability, the ability of companies to tap
capital markets, competitive position in both domestic and export markets,
government regulation, and other factors.

PRINCIPAL RISKS

An investment in the fund is not guaranteed; investors may lose money by
investing in the fund. The principal risks presented by the fund are:

Equity Risk

Foreign Securities Risk

Emerging Markets Risk

Currency Risk

Regional Concentration Risk

For an explanation of each of these risks, see 'More About Risks and Investment
Strategies,' below.

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

---------------
- --------------------------------------------------------------------------------
B-9

<PAGE>

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

PERFORMANCE
- --------------------------------------------------------------------------------

RISK/RETURN BAR CHART AND TABLE

The following bar chart shows the fund's performance for the last calendar year.
The chart shows Class A shares because they have as long a performance history
as any class of fund shares. The chart does not reflect the effect of sales
charges; if it did, the total returns shown would be lower.

The table that follows the chart shows the average annual returns during the
last calendar year and for the life of the fund for each class of the fund's
shares. That table does reflect fund sales charges. The table compares fund
returns to returns on a broad-based market index that is unmanaged and that,
therefore, does not include any sales charges or expenses.

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

TOTAL RETURN ON CLASS A SHARES

[PERFORMANCE GRAPH]

1998
----
-11.74%

Best quarter during the year shown: 4th quarter -- 19.90%

Worst quarter during the year shown: 2nd quarter -- (25.95)%

AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998

<TABLE>
<CAPTION>
MSCI
ASIA PACIFIC
FREE
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............................................. (15.72)% (16.69)% (13.18)% N/A (4.42)%
Life of Class........................................ (28.12)% (28.41)% (26.74)% (16.28)% *
</TABLE>

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

* Average annual total returns for the MSCI Asia Pacific Free (ex-Japan) Index
for the life of each class were as follows: Class A -- (22.07)%;
Class B -- (22.07)%; Class C -- (22.07)%; and Class Y -- (13.05)%.

---------------
- --------------------------------------------------------------------------------
B-10

<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>

<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.............................................. 1.43 1.43 1.40 1.46
---- ---- ---- ----
Total Annual Fund Operating Expenses........................ 2.88% 3.63% 3.60% 2.66%
</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.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A.................................................... $728 $1,302 $1,900 $3,510
Class B (assuming sales of all shares at end of period).... 865 1,411 2,078 3,573
Class B (assuming no sales of shares)...................... 365 1,111 1,878 3,573
Class C (assuming sales of all shares at end of period).... 462 1,103 1,864 3,862
Class C (assuming no sales of shares)...................... 362 1,103 1,864 3,862
Class Y.................................................... 269 826 1,410 2,993
</TABLE>

---------------
- --------------------------------------------------------------------------------
B-11

<PAGE>

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

PaineWebber Emerging Markets Equity Fund
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
- --------------------------------------------------------------------------------

FUND OBJECTIVE

Long-term capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES

The fund invests primarily in stocks of companies in emerging market countries.

Mitchell Hutchins Asset Management Inc., the fund's investment adviser, has
appointed Schroder Capital Management International Inc. as the fund's
sub-adviser. Schroder Capital diversifies the fund's investments by spreading
them among different geographic areas and industries. Schroder Capital assesses
emerging market countries to determine which are most likely to have favorable
long-term business environments and to have economic and political conditions
that will not impede a company's growth.

Within individual countries, Schroder Capital tries to diversify the fund's
investments among companies that it believes have attractive stock prices
relative to expected growth. 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.

PRINCIPAL RISKS

An investment in the fund is not guaranteed; investors may lose money by
investing in the fund. The principal risks presented by the fund are:

Equity Risk

Foreign Securities Risk

Emerging Markets Risk

Currency Risk

Sector Allocation Risk

For an explanation of each of these risks, see 'More About Risks and Investment
Strategies,' below.

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

---------------
- --------------------------------------------------------------------------------
B-12

<PAGE>

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

PERFORMANCE
- --------------------------------------------------------------------------------

RISK/RETURN BAR CHART AND TABLE

The following bar chart shows how the fund's performance has varied from year to
year. The chart shows Class A shares because they have as long a performance
history as any class of fund shares. The chart does not reflect the effect of
sales charges; if it did, the total returns shown would be lower.

The fund's past performance does not necessarily indicate how the fund will
perform in the future. This may be particularly true of the period prior to
February 25, 1997, which is when Mitchell Hutchins appointed Schroder Capital as
the fund's sub-adviser. Prior to that date, another sub-adviser was responsible
for managing the fund's assets.

TOTAL RETURN ON CLASS A SHARES

[PERFORMANCE GRAPH]

Best quarter during years shown: 4th quarter, 1998 -- 16.58%

Worst quarter during years shown: 2nd quarter, 1998 -- (22.48)%

AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998

<TABLE>
<CAPTION>
MSCI
EMERGING
CLASS A CLASS B CLASS C CLASS Y MARKETS
CLASS (1/19/94) (12/5/95) (1/19/94) (1/19/94) FREE INDEX
(INCEPTION DATE) --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
One Year..................................... (29.76)% (30.17)% (27.72)% (26.26)% (25.34)%
Life of Class................................ (11.51)% (10.63)% (11.36)% (10.49)% *
</TABLE>

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

* Average annual total returns for the MSCI Emerging Markets Free Index for the
life of each class were as follows: Class A -- (9.75)%; Class B -- (9.66)%;
Class C -- (9.75)%; and Class Y -- (9.75)%.

---------------
- --------------------------------------------------------------------------------
B-13

<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>

<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.............................................. 2.26 2.72 2.22 2.16
---- ---- ---- ----
Total Annual Fund Operating Expenses........................ 3.71% 4.92% 4.42% 3.36%
Expense Reimbursement*...................................... 1.27 1.73 1.23 1.17
Net Expenses*............................................... 2.44% 3.19% 3.19% 2.19%
</TABLE>

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

* The fund and Mitchell Hutchins have entered into an expense reimbursement
agreement. Mitchell Hutchins has agreed to reimburse the fund to the extent
that the fund's expenses through the end of the current fiscal year otherwise
would exceed the 'Net Expenses' rates for each class as shown above. The fund
has agreed to repay Mitchell Hutchins for those reimbursed expenses if it can
do so over the following three years without causing the fund's expenses in
any of those years to exceed those 'Net Expenses' rates.

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.

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, except for the
one year period when the fund's expenses are lower due to its reimbursement
agreement with Mitchell Hutchins. 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.................................................... $686 $1,422 $2,177 $4,152
Class B (assuming sales of all shares at end of period).... 822 1,624 2,529 4,388
Class B (assuming no sales of shares)...................... 322 1,324 2,329 4,388
Class C (assuming sales of all shares at end of period).... 422 1,227 2,143 4,479
Class C (assuming no sales of shares)...................... 322 1,227 2,143 4,479
Class Y.................................................... 222 924 1,650 3,570
</TABLE>

---------------
- --------------------------------------------------------------------------------
B-14

<PAGE>

MORE ABOUT RISKS
AND INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------

PRINCIPAL RISKS

The main risks of investing in one or more of the funds are described below. Not
all of these risks apply to each fund. You can find a list of the main risks
that apply to a particular fund by looking under the 'Investment Objective,
Strategies and Risks' heading for that fund.

Other risks of investing in a fund, along with further detail about some of the
risks described below, are discussed in the funds' Statement of Additional
Information ('SAI'). Information on how you can obtain the SAI is on the back
cover of this prospectus.

Credit Risk. Credit risk is the risk that the issuer of a bond will not make
principal or interest payments when they are due. Even if an issuer does not
default on a payment, a bond's value may decline if the market believes that the
issuer has become less able, or less willing, to make payments on time. Even
high quality bonds are subject to some credit risk. However, credit risk is
higher for lower quality bonds. Low quality bonds involve high credit risk and
are considered speculative. Some low quality bonds may be in default when
purchased by a fund.

Currency Risk. Currency risk is the risk that the value of a foreign currency in
which one or more of a fund's investments are denominated will fall in relation
to the U.S. dollar. Currency exchange rates can be volatile and can be 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.

Derivatives Risk. The value of 'derivatives' -- so-called because their value
'derives' from the value of an underlying asset, reference rate or index -- may
rise or fall more rapidly than other investments. For some derivatives, it is
possible for a fund to lose more than the amount it invested in the derivative.
Options, futures contracts and forward currency contracts are examples of
derivatives. If a fund uses derivatives to adjust or 'hedge' the overall risk of
its portfolio, it is possible that the hedge will not succeed. This may happen
for various reasons, including unexpected changes in the value of the
derivatives that are not matched by opposite changes in the value of the rest of
the fund's portfolio.

Emerging Markets Risk. Securities of issuers located in emerging market
countries are subject to all of the risks of other foreign securities (see
below). However, the level of those risks often is higher due to the fact that
political, legal and economic systems in emerging market countries may be less
fully developed and less stable than those in developed countries. Emerging
market securities also may be subject to additional risks, such as lower
liquidity and larger or more rapid changes in value.

Equity Risk. The prices of common stocks and other equity securities generally
fluctuate more than those of other investments. They reflect changes in the
issuing company's financial condition and changes in the overall market. A fund
may lose a substantial part, or even all, of its investment in a company's
stock.

Foreign Securities Risk. Foreign securities involve risks that normally are not
associated with securities of U.S. issuers. These include risks relating to
political, social and economic developments abroad and differences between U.S.
and foreign regulatory requirements and market practices. When securities are
denominated in foreign currencies, they also are subject to currency risk (see
above).

Interest Rate Risk. The value of bonds generally can be expected to fall when
interest rates rise and to rise when interest rates fall. Interest rate risk is
the risk that interest rates will rise, so that the value of a fund's
investments in bonds will fall. Because interest rate risk is the primary risk
presented by U.S. government and other very high quality bonds,

---------------
- --------------------------------------------------------------------------------
B-15

<PAGE>

- --------------------------------------------------------------------------------
PaineWebber Global Equity Fund PaineWebber Asia Pacific Growth Fund
PaineWebber Global Income Fund PaineWebber Emerging Markets Equity Fund
changes in interest rates may actually have a larger effect on the value of
those bonds than on lower quality bonds.

Non-Diversified Status Risk. This means that a fund is not subject to certain
limitations on its ability to invest more than 5% of its total assets in
securities of a single issuer. When a fund holds a large position in the
securities of one issuer, changes in the financial condition or in the market's
assessment of that issuer may cause larger changes in the fund's total return
and in the price of its shares than if the fund held only a smaller position.

Prepayment Risk. Payments on bonds that are backed by mortgage loans or similar
assets may be received earlier or later than expected due to changes in the rate
at which the underlying loans are prepaid. Faster prepayments often happen when
market interest rates are falling. As a result, a fund may need to reinvest
these early payments at those lower interest rates, thus reducing its income.
Conversely, when interest rates rise, prepayments may happen more slowly,
causing the underlying loans to be outstanding for a longer time. This can cause
the market value of the security to fall because the market may view its
interest rate as too low for a longer term investment.

Regional Concentration Risk. Asia Pacific Growth Fund invests primarily in
stocks of companies in the Asia Pacific Region (excluding Japan). As a result,
factors affecting this region will affect the value of the fund's investments
more than if the fund invested in several geographic areas. The Asia Pacific
Region countries in which the fund invests generally have less stable economies,
stock markets, currencies and political systems than in Europe or North America.
Also, countries in the Asia Pacific Region generally are heavily dependent on
international trade and on the availability of foreign capital. This makes these
countries more subject to external influences.

Sector Allocation Risk. Mitchell Hutchins, Schroder Capital or Invista may not
be successful in choosing the best allocation among geographic or other market
sectors. A fund that allocates its assets among market sectors is more dependent
on its investment adviser's or sub-adviser's ability to successfully assess the
relative values in each sector than are funds that do not do so.

Sovereign Risk. Investments in foreign government bonds involve special risks
because the investors 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.

ADDITIONAL RISKS

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

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

ADDITIONAL INVESTMENT STRATEGIES

Defensive Positions; Cash Reserves. In order to protect itself from adverse
market conditions, a fund may take a defensive position that is different from
its normal investment strategy. This means that the fund may temporarily invest
a larger-than-normal part, or even all, of its assets in cash or money market
instruments. Since these investments provide relatively low income, a defensive
position may not be consistent with achieving a fund's investment objective.
However, Global Income Fund may invest in money market instruments on an
unlimited basis as part of its ordinary investment strategy. Each of the other
funds

---------------
- --------------------------------------------------------------------------------
B-16

<PAGE>

- --------------------------------------------------------------------------------
PaineWebber Global Equity Fund PaineWebber Asia Pacific Growth Fund
PaineWebber Global Income Fund PaineWebber Emerging Markets Equity Fund
may invest up to 35% of its total assets in cash or money market instruments as
a cash reserve for liquidity or other purposes.

Portfolio Turnover. Each fund may engage in frequent trading in order to achieve
its investment objective. Frequent trading may result in a high portfolio
turnover rate and higher fund expenses due to transaction costs.

Frequent trading also may increase the portion of a fund's dividends that
represent short-term capital gains. The federal income tax rate payable by
shareholders on dividends representing short-term capital gains is the same as
the rate on dividends representing ordinary income, but it is higher than the
rate on dividends representing long-term capital gains.

---------------
- --------------------------------------------------------------------------------
B-17

<PAGE>

Your Investment
MANAGING YOUR FUND ACCOUNT
- --------------------------------------------------------------------------------

FLEXIBLE PRICING

The funds offer four classes of shares -- Class A, Class B, Class C and Class Y.
Each class has different sales charges and ongoing expenses. You can choose the
class that is best for you, based on how much you plan to invest in the funds
and how long you plan to hold your fund investment. Class Y shares are only
available to certain types of investors.

CLASS A SHARES

Class A shares have a front-end sales charge that is included in the offering
price of the Class A shares. This sales charge is not invested in the fund.
Class A shares pay an annual 12b-1 service fee of 0.25% of average net assets,
but they pay no 12b-1 distribution fees. The ongoing expenses for Class A shares
are lower than for Class B and Class C shares.

The Class A sales charges for each fund are described in the following tables.

CLASS A SALES CHARGES FOR: GLOBAL EQUITY FUND
ASIA PACIFIC GROWTH FUND
EMERGING MARKETS EQUITY FUND

<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF: DISCOUNT TO SELECTED DEALERS AS
AMOUNT OF INVESTMENT OFFERING PRICE NET AMOUNT INVESTED PERCENTAGE OF OFFERING PRICE
- -------------------- -------------- ------------------- ----------------------------
<S> <C> <C> <C>
Less than $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>

CLASS A SALES CHARGES FOR: GLOBAL INCOME FUND

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

(1) A contingent deferred sales charge of 1% of the shares' offering price or
the net asset value at the time of sale by the shareholder, whichever is
less, is charged on sales of shares made within one year of the purchase
date. Class A shares representing reinvestment of dividends are not subject
to this 1% charge. Withdrawals in the first year after purchase of up to 12%
of the value of the fund account under the funds' Systematic Withdrawal Plan
are not subject to this charge.

(2) Mitchell Hutchins pays 1% to PaineWebber.

---------------
- --------------------------------------------------------------------------------
B-18

<PAGE>

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

You may also qualify for a lower sales charge if you combine your purchases with
those of:

your spouse, parents or children under age 21;

your Individual Retirement Accounts (IRAs);

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

a company that you control;

a trust that you created;

Uniform Gifts to Minors Act/Uniform Transfers to Minors Act accounts created by
you or by a group of investors for your children; or

accounts with the same adviser.

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

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

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

-- you were the Financial Advisor's client at the competing brokerage firm;

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

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

Acquire these shares through the reinvestment of dividends of a PaineWebber unit
investment trust;

Are a 401(k) or 403(b) qualified employee benefit plan with 50 or more eligible
employees in the plan or at least $1 million in assets; or

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

Note: See the funds' Statement of Additional Information for some other sales
charge waivers. If you think you qualify for any sales charge reductions or
waivers, you will need to provide documentation to PaineWebber or the fund. For
more information, you should contact your PaineWebber Financial Advisor or
correspondent firm or call 1-800-647-1568. If you want information on the funds'
Systematic Withdrawal Plan, see the Statement of Additional Information or
contact your PaineWebber Financial Advisor or correspondent firm.

CLASS B SHARES

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

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

---------------
- --------------------------------------------------------------------------------
B-19

<PAGE>

convert to Class A shares, which have lower ongoing expenses.

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

<TABLE>
<CAPTION>
PERCENTAGE BY WHICH
THE SHARES' NET
IF YOU SELL 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>

We will not impose the deferred sales charge on Class B shares representing
reinvestment of dividends or on withdrawals in any year of up to 12% of the
value of your Class B shares under the Systematic Withdrawal Plan.

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

First, Class B shares representing reinvested dividends and

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

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

You participate in the Systematic Withdrawal Plan;

You are older than 59 1/2 and are selling shares to take a distribution from
certain types of retirement plans;

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

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

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

Note: If you think you qualify for any of these sales charge waivers, you will
need to provide documentation to PaineWebber or the fund. For more information,
you should contact your PaineWebber Financial Advisor or correspondent firm or
call 1-800-647-1568. If you want information on the Systematic Withdrawal Plan,
see the Statement of Additional Information or contact your PaineWebber
Financial Advisor or correspondent firm.

CLASS C SHARES

Class C shares have a level load sales charge in the form of ongoing 12b-1
distribution fees. When you purchase Class C shares, we will invest 100% of your
purchase in fund shares.

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

Class C shares also have a contingent deferred sales charge. You may have to pay
the deferred sales charge if you sell your shares within one year of the date
you purchased them. We calculate the deferred sales charge on sales of Class C
shares by multiplying 1.00% (0.75% for Global Income Fund) by the lesser of the
net asset value of the Class C shares at the time of purchase or the net asset
value at the time of sale. We will not impose the deferred sales charge on Class
C shares representing reinvestment of dividends or on withdrawals, in the first
year after purchase, of up to 12% of the value of your Class C shares under the
Systematic Withdrawal Plan.

Note: If you want information on the funds' Systematic Withdrawal Plan, see the
Statement of Additional Information or contact your

---------------
- --------------------------------------------------------------------------------
B-20

<PAGE>

PaineWebber Financial Advisor or correspondent firm.

CLASS Y SHARES

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

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

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

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

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

The trustee of PaineWebber's 401(k) Plus Plan for its employees is also eligible
to purchase Class Y shares.

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

BUYING SHARES

If you are a PaineWebber client, or a client of a PaineWebber correspondent
firm, you can purchase fund shares through your Financial Advisor. Otherwise,
you can invest in the funds through the funds' transfer agent, PFPC Inc. You can
obtain an application by calling 1-800-647-1568. You must complete and sign the
application and mail it, along with a check, to: PFPC Inc., Attn.: PaineWebber
Mutual Funds, P.O. Box 8950, Wilmington, DE 19899.

If you wish to invest in other PaineWebber Funds, you can do so by:

Contacting your Financial Advisor (if you have an account at PaineWebber or at a
PaineWebber correspondent firm);

Mailing an application with a check; or

Opening an account by exchanging shares from another PaineWebber fund.

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

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

MINIMUM INVESTMENTS

<TABLE>
<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

You can sell your fund shares at any time. If you own more than one class of
shares, you should specify which class you want to sell. If you do not, the fund
will assume that you want to sell shares in the following order: Class A, then
Class C, then Class B and last, Class Y.

If you want to sell shares that you purchased recently, the fund may delay
payment until it verifies that it has received good payment. If you purchased
shares by check, this can take up to 15 days.

If you have an account with PaineWebber or a PaineWebber correspondent firm, you
can sell shares by contacting your Financial Advisor.

If you do not have an account at PaineWebber or a correspondent firm, and you
bought your shares through the transfer agent, you can sell your shares by
writing to the fund's transfer agent. Your letter must include:

Your name and address;

The fund's name;

The fund account number;

The dollar amount or number of shares you want to sell; and

---------------
- --------------------------------------------------------------------------------
B-21

<PAGE>

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 that is a participant in one of the medallion
programs recognized by the Securities Transfer Agents Association. These are:
Securities Transfer Agents Medallion Program (STAMP), Stock Exchanges
Medallion Program (SEMP) and the New York Stock Exchange Medallion Signature
Program (MSP). The funds will not accept signature guarantees that are not a
part of these programs.

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

If you sell Class A shares and then repurchase Class A shares of the same fund
within 365 days of the sale, you can reinstate your account without paying a
sales charge.

It costs each fund money to maintain shareholder accounts. Therefore, the funds
reserve the right to repurchase all shares in any account that has a net asset
value of less than $500. If a fund elects to do this with your account, it will
notify you that you can increase the amount invested to $500 or more within 60
days. A fund will not repurchase shares in accounts that fall below $500 solely
because of a decrease in the fund's net asset value.

EXCHANGING SHARES

You may exchange Class A, Class B or Class C shares of each fund for shares of
the same class of most other PaineWebber funds. You may not exchange Class Y
shares.

You will not pay either a front-end sales charge or a deferred sales charge when
you exchange shares. However, you may have to pay a deferred sales charge if you
later sell the shares you acquired in the exchange. Each fund will use the date
that you purchased the shares in the first fund to determine whether you must
pay a deferred sales charge when you sell the shares in the acquired fund.

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

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

PaineWebber Clients. If you bought your shares through PaineWebber or a
correspondent firm, you may exchange your shares by placing an order with your
PaineWebber Financial Advisor.

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

Your name and address;

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

Your account number;

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

A guarantee of your signature. (See 'Buying Shares' for information on obtaining
a signature guarantee.)

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

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

PRICING AND VALUATION

The price at which you may buy, sell or exchange fund shares is based on net
asset value per share. Each fund calculates net asset value on days that the New
York Stock Exchange is open. Each fund calculates net asset value separately for
each class as of the close of regular trading on the NYSE (generally, 4:00 p.m.,
Eastern time). The NYSE normally is not open, and the funds do

---------------
- --------------------------------------------------------------------------------
B-22

<PAGE>

not price their shares, on national holidays and on Good Friday. If trading on
the NYSE is halted for the day before 4:00 p.m., Eastern time, the fund's net
asset value per share will be calculated as of the time trading was halted.

Your price for buying, selling or exchanging shares will be based on the net
asset value that is next calculated after the fund accepts your order. If you
place your order through PaineWebber, your PaineWebber Financial Advisor is
responsible for making sure that your order is promptly sent to the fund.

You should keep in mind that a front-end sales charge may be applied to your
purchase if you buy Class A shares. A deferred sales charge may be applied when
you sell Class B or Class C shares.

Each fund calculates its net asset value based on the current market value for
its portfolio securities. The funds normally obtain market values for their
securities from independent pricing services that use reported last sales
prices, current market quotations or valuations from computerized 'matrix'
systems that derive values based on comparable securities. If a market value is
not available from an independent pricing source for a particular security, that
security is valued at a fair value determined by or under the direction of the
fund's board. The funds normally use the amortized cost method to value bonds
that will mature in 60 days or less.

Judgment plays a greater role in valuing thinly traded securities, including
many lower-rated bonds, because there is less reliable, objective data
available.

The funds calculate the U.S. dollar value of investments that are denominated in
foreign currencies daily, based on current exchange rates. A fund may own
securities, including some securities that trade primarily in foreign markets,
that trade on weekends or other days on which a fund does not calculate net
asset value. You will not be able to sell your shares on those days. If a fund
concludes that a material change in the value of a foreign security has occurred
after the close of trading in its principal foreign market but before the close
of regular trading on the NYSE, the fund may use fair value methods to reflect
those changes. Any use of fair value methods would be intended to assure that
the fund's net asset value fairly reflects security values as of the time of
pricing.

---------------
- --------------------------------------------------------------------------------
B-23

<PAGE>

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 PaineWebber
Group Inc., a publicly owned financial services holding company. On January 31,
1999, Mitchell Hutchins was adviser or sub-adviser of 33 investment companies
with 75 separate portfolios and aggregate assets of approximately
$47.7 billion.

Invista Capital Management, LLC is the sub-adviser for Global Equity Fund's
foreign investments. It is located at 1800 Hub Tower, 699 Walnut, Des Moines,
Iowa 50309. As of December 31, 1998, Invista managed approximately $31.0 billion
in client assets.

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. As of
December 31, 1998, Schroder Capital, together with its United Kingdom affiliate,
Schroder Capital Management International Limited, had over $27.1 billion under
management.

The funds have received an exemptive order from the SEC that permits their
boards to appoint and replace sub-advisers and to amend sub-advisory contracts
without obtaining shareholder approval. A fund's shareholders must approve this
policy before its board may implement it. As of March 1, 1999, only the
shareholders of Global Equity Fund have done so.

PORTFOLIO MANAGERS

Global Equity Fund. Mitchell Hutchins is responsible for allocating Global
Equity Fund's assets between U.S. and foreign markets and for managing its U.S.
investments. Since October 1, 1998, T. Kirkham Barneby has been responsible for
the fund's asset allocation decisions. Mr. Barneby is a managing director and
chief investment officer for quantitative investments of Mitchell Hutchins.

Mr. Barneby rejoined Mitchell Hutchins in 1994, after being with Vantage Global
Management for one year. Prior to that year, Mr. Barneby was a senior vice
president responsible for quantitative management and asset allocation models.

Mark A. Tincher has been primarily responsible for the day-to-day management of
the fund's U.S. investments since October 1, 1998. Mr. Tincher is a managing
director and chief investment officer for equities (stocks) of Mitchell
Hutchins. 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 and oversaw the management of all
Chase equity funds.

Scott D. Opsal has been primarily responsible for the day-to-day management of
the fund's foreign investments since October 1, 1998, when Invista was appointed
as the fund's sub-adviser for foreign investments. Mr. Opsal is an executive
vice president and chief investment officer of Invista, where he has been
employed since 1986.

Global Income Fund. Stuart Waugh and William King are primarily responsible for
the day-to-day management of Global Income 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 the fund in 1997.
Prior to 1995, 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.

---------------
- --------------------------------------------------------------------------------
B-24

<PAGE>

Other members of Mitchell Hutchins' international fixed income group provide
information on market outlook, interest rate forecasts and other factors
affecting global fixed income investments.

Asia Pacific Growth Fund. Louise Croset and Heather Crighton, with the
assistance of Schroder Capital's Asia Pacific Region investment committee, have
been primarily responsible for the day-to-day management of Asia Pacific Growth
Fund since its inception. Ms. Croset is a first vice president and director of
Schroder Capital and has been with the firm since 1993. She has managed Asia
Pacific Region stocks for the past 14 years. Ms. Crighton is a first vice
president of Schroder Capital and has also been with the firm since 1993. She
has managed Asia Pacific Region stocks for the past ten years.

Emerging Markets Equity Fund. John A. Troiano, Ms. Crighton and Mark Bridgeman,
with the assistance of Schroder Capital's emerging markets investment committee,
have been primarily responsible for the day-to-day management of Emerging
Markets Equity 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 joined Schroder
Capital in 1990 and has been a vice president and international fund manager of
the firm since 1995.

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

Global Equity Fund.......................................................0.85%
Global Income Fund.......................................................0.75%
Asia Pacific Growth Fund.................................................1.20%
Emerging Markets Equity Fund.............................................1.20%

---------------
- --------------------------------------------------------------------------------
B-25

<PAGE>

DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------

DIVIDENDS

Global Income Fund normally declares and pays dividends monthly, and it
distributes substantially all of its gains, if any, annually. The other funds
normally declare and pay dividends and distribute any gains annually.

Classes with higher expenses are expected to have lower dividends. For example,
Class B shares are expected to have the lowest dividends of any class of a
fund's shares, while Class Y shares are expected to have the highest.

You will receive dividends in additional shares of the same class unless you
elect to receive them in cash. Contact your Financial Advisor at PaineWebber or
one of its corresponding firms if you prefer to receive dividends in cash.

TAXES

The dividends that you receive from a fund generally are subject to federal
income tax regardless of whether you receive them in additional fund shares or
in cash. If you hold fund shares through a tax-exempt account or plan, such as
an IRA or 401(k) plan, dividends on your shares generally will not be subject to
tax.

When you sell fund shares, you generally will be subject to federal income tax
on any gain you realize. If you exchange any fund's shares for shares of another
PaineWebber mutual fund, the transaction will be treated as a sale of the first
fund's shares, and any gain will be subject to federal income tax.

Global Income Fund expects that its dividends will be taxed primarily as
ordinary income. The other funds expect that their dividends will be comprised
primarily of capital gain distributions. The distribution of capital gains may
be taxed at a lower rate than ordinary income, depending on whether the fund
held the assets that generated the gains for more than 12 months. Your fund will
tell you how you should treat its dividends for tax purposes.

---------------
- --------------------------------------------------------------------------------
B-26

<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

The following financial highlights tables are intended to help you understand
the funds' financial performance for the past 5 years. Shorter periods are shown
for funds or classes of fund shares that have existed for less than 5 years.
Certain information reflects financial results for a single fund share. In the
tables, 'total investment return' represents the rate that an investor would
have earned (or lost) on an investment in a fund (assuming reinvestment of all
dividends).

The information in the financial highlights has been audited by Ernst & Young
LLP, independent auditors (or for Global Income Fund, PricewaterhouseCoopers
LLP, independent accountants), whose reports, along with the funds' financial
statements, are included in the funds' Annual Reports to Shareholders. Annual
Reports may be obtained without charge by calling 1-800-647-1568.

---------------
- --------------------------------------------------------------------------------
B-27

<PAGE>

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

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
GLOBAL EQUITY FUND
---------------------------------------------------------------------------
CLASS A
---------------------------------------------------------------------------
FOR THE TWO
FOR THE MONTHS FOR THE
YEARS ENDED ENDED YEARS ENDED
OCTOBER 31, OCTOBER 31, AUGUST 31,
----------------------- ----------- -----------------------------------
1998# 1997 1996 1996 1995** 1994
----- ---- ---- ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 18.37 $ 17.43 $ 16.81 $ 16.12 $ 16.98 $ 14.55
---------- ---------- -------- ---------- -------- --------
Net investment income (loss)...................... 0.03'D' 0.00 (0.02) 0.02 0.02 0.01
Net realized and unrealized gains (losses) from
investments, futures and foreign currency....... 0.35'D' 1.52 0.64 1.24 0.37 2.63
---------- ---------- -------- ---------- -------- --------
Net increase (decrease) from investment
operations...................................... 0.38 1.52 0.62 1.26 0.39 2.64
---------- ---------- -------- ---------- -------- --------
Distributions from net realized gains............. (2.48) (0.58) -- (0.57) (1.25) (0.21)
---------- ---------- -------- ---------- -------- --------
Net asset value, end of period.................... $ 16.27 $ 18.37 $ 17.43 $ 16.81 $ 16.12 $ 16.98
---------- ---------- -------- ---------- -------- --------
---------- ---------- -------- ---------- -------- --------
Total investment return(1)........................ 2.53% 8.87% 3.69% 8.06% 3.24% 18.23%
---------- ---------- -------- ---------- -------- --------
---------- ---------- -------- ---------- -------- --------

Ratios/Supplemental Data:
Net assets, end of period (000's)................. $ 251,680 $ 294,878 $307,267 $ 305,218 $360,652 $185,493
Expenses to average net assets.................... 1.55% 1.44% 1.53%* 1.48% 1.71%(2) 1.58%
Net investment income (loss) to average net
assets.......................................... 0.17% 0.01% (0.80)%* 0.10% 0.09%(2) 0.07%
Portfolio turnover rate........................... 151% 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.

# Effective October 1, 1998, Invista Capital Management, LLC oversees the
day-to-day management of the international portion of the fund's assets and
Mitchell Hutchins allocates the portfolio between domestic and international
investments and manages the domestic portion of the fund's assets.

'D' Calculated using the average monthly shares outstanding for the year.

(2) These ratios include non-recurring reorganization expenses of 0.06%, 0.00%,
0.06% and 0.06% for Class A, Class B, Class C and Class Y shares,
respectively.

---------------
- --------------------------------------------------------------------------------
B-28

<PAGE>

[THIS PAGE LEFT BLANK INTENTIONALLY]

---------------
- --------------------------------------------------------------------------------
B-29

<PAGE>

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

FINANCIAL HIGHLIGHTS
(continued)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
GLOBAL EQUITY FUND
---------------------------------------------------------------
CLASS B
---------------------------------------------------------------
FOR THE TWO
FOR THE MONTHS FOR THE FOR THE
YEARS ENDED ENDED YEAR ENDED PERIOD
OCTOBER 31, OCTOBER 31, AUGUST 31, ENDED AUG. 31,
------------------- ----------- ---------- --------------
1998# 1997 1996 1996 1995'D'D'
----- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.................... $ 17.69 $ 16.93 $ 16.35 $ 15.82 $ 15.83
-------- -------- -------- -------- --------
Net investment income (loss)............................ (0.12)'D' (0.21) (0.05) (0.12) 0.00
Net realized and unrealized gains (losses) from
investments, futures and foreign currency............. 0.34'D' 1.55 0.63 1.22 (0.01)
-------- -------- -------- -------- --------
Net increase (decrease) from investment operations...... 0.22 1.34 0.58 1.10 (0.01)
-------- -------- -------- -------- --------
Distributions from net realized gains................... (2.48) (0.58) -- (0.57) --
-------- -------- -------- -------- --------
Net asset value, end of period.......................... $ 15.43 $ 17.69 $ 16.93 $ 16.35 $ 15.82
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total investment return(1).............................. 1.62% 8.05% 3.55% 7.18% (0.06)%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratios/Supplemental Data:
Net assets, end of period (000's)....................... $ 52,709 $ 87,104 $113,445 $113,235 $142,880
Expenses to average net assets.......................... 2.38% 2.26% 2.34% 2.25% 2.17%*(2)
Net investment income (loss) to average net assets...... (0.74)% (0.80)% (1.61)%* (0.68)% (1.92)%*(2)
Portfolio turnover rate................................. 151% 86% 3% 33% 40%
</TABLE>

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

* Annualized

'D' Calculated using the average monthly shares outstanding for the year.

'D'D' For the period August 25, 1995 (commencement of offering of shares) to
August 31, 1995.

(2) These ratios include non-recurring reorganization expenses of 0.06%, 0.00%,
0.06% and 0.06% for Class A, Class B, Class C and Class Y shares,
respectively.

---------------
- --------------------------------------------------------------------------------
B-30

<PAGE>

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

FINANCIAL HIGHLIGHTS
(continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL EQUITY FUND
-----------------------------------------------------------------------------------------------------
CLASS C CLASS Y
------------------------------------------------------------------- -------------------------------
FOR THE TWO FOR THE TWO
FOR THE MONTHS FOR THE FOR THE YEARS MONTHS
YEARS ENDED ENDED YEARS ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, AUGUST 31, OCTOBER 31, OCTOBER 31
------------------ ------------ ----------- ----------------- -----------
1998# 1997 1996 1996 1995** 1994 1998# 1997 1996
----- ---- ------------ ---- ------ ---- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 17.69 $ 16.93 $ 16.35 $ 15.82 $ 16.81 $ 14.52 $ 18.63 $ 17.60 $ 16.97
-------- ------- ------- ------- ------- ------- ------- ------- -------
(0.11)'D' (0.23) (0.05) (0.13) (0.11) (0.07) 0.09'D' 0.10 (0.01)
0.35'D' 1.57 0.63 1.23 0.37 2.57 0.35'D' 1.51 0.64
-------- ------- ------- ------- ------- ------- ------- ------- -------
0.24 1.34 0.58 1.10 0.26 2.50 0.44 1.61 0.63
-------- ------- ------- ------- ------- ------- ------- ------- -------
(2.48) (0.58) -- (.57) (1.25) (0.21) (2.48) (0.58) --
-------- ------- ------- ------- ------- ------- ------- ------- -------
$ 15.45 $ 17.69 $ 16.93 16.35 $ 15.82 $ 16.81 $ 16.59 $ 18.63 $ 17.60
-------- ------- ------- ------- ------- ------- ------- ------- -------
-------- ------- ------- ------- ------- ------- ------- ------- -------
1.74% 8.05% 3.55% 7.18% 2.46% 7.29% 2.86% 9.31% 3.71%
-------- ------- ------- ------- ------- ------- ------- ------- -------
-------- ------- ------- ------- ------- ------- ------- ------- -------
$ 41,103 $54,510 $67,530 $66,585 $83,485 $31,837 $51,025 $57,683 $63,225
2.32% 2.20% 2.30%* 2.27% 2.48%(2) 2.33% 1.21% 1.10% 1.18%*
(0.65)% (0.75)% (1.57)%* (0.70)% (0.68)%(2) (0.68)% 0.50% 0.36% (0.45)%*
151% 86% 3% 33% 40% 51% 151% 86% 3%

<CAPTION>
GLOBAL EQUITY FUND
--------------------------------
CLASS Y
--------------------------------

FOR THE
YEARS ENDED
AUGUST 31,
--------------------------------
1996 1995** 1994
---- ------ ----
<S> <C> <C> <C>
$ 16.22 $ 17.03 $ 14.56
------- ------- --------
0.07 0.07 0.05
1.25 0.37 2.63
------- ------- --------
1.32 0.44 2.68
------- ------- --------
(0.57) (1.25) (0.21)
------- ------- --------
$ 16.97 $ 16.22 $ 17.03
------- ------- --------
------- ------- --------
8.39% 3.54% 18.49%
------- ------- --------
------- ------- --------
$61,736 $57,150 $ 28,390
1.17%* 1.46%(2) 1.33%
0.46% 0.36%(2) 0.32%
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.

'D' Calculated using the average monthly shares outstanding for the year.

(2) These ratios include non-recurring reorganization expenses of 0.06%, 0.00%,
0.06% and 0.06% for Class A, Class B, Class C and Class Y shares,
respectively.

---------------
- --------------------------------------------------------------------------------
B-31

<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 year.................. $10.27 $10.46 $10.35 $ 9.99 $10.97
------ ------ ------ ------ ------
Net investment income............................... 0.62@ 0.69@ 0.72@ 0.77@ 0.72
Net realized and unrealized gains (losses) from
investments and foreign currency.................. 0.32@ (0.19)@ 0.13@ 0.31@ (1.05)
Net increase (decrease) from investment
transactions...................................... 0.94 0.50 0.85 1.08 (0.33)
------ ------ ------ ------ ------
Dividends from net investment income................ (0.50) (0.54) (0.74) (0.72) (0.33)
Distributions in excess of net investment income.... (0.05) (0.06) -- -- --
Distribution from paid-in capital................... (0.08) (0.09) -- -- (0.32)
Total dividends and distributions to shareholders... (0.63) (0.69) (0.74) (0.72) (0.65)
------ ------ ------ ------ ------
Net asset value, end of year........................ $10.58 $10.27 $10.46 $10.35 $ 9.99
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total investment return(1).......................... 9.51% 4.99% 8.60% 11.09% (3.10)%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Ratio/Supplemental data:
Net assets, end of year (000's)..................... $408,190 $486,718 $549,932 $663,022 $611,855
Expenses to average net assets...................... 1.24% 1.21% 1.27% 1.24%(2) 1.17%
Net investment income to average net assets......... 6.07% 6.66% 6.88% 7.47%(2) 6.94%
Portfolio turnover rate............................. 93% 172% 126% 113% 108%
</TABLE>

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

@ Calculated using the average monthly shares outstanding for the year.

(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each year reported, reinvestment of all dividends and
distributions at net asset value on the payable dates and a sale at net
asset value on the last day of each year reported. The figures do not
include sales charges; results would be lower if sales charges were
included.

(2) These ratios include non-recurring reorganization expenses of 0.04%.

---------------
- --------------------------------------------------------------------------------
B-32

<PAGE>

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

FINANCIAL HIGHLIGHTS
(continued)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
GLOBAL INCOME FUND
------------------------------------------------------------------
CLASS B
------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.................. $10.24 $10.44 $10.31 $ 9.96 $10.95
------ ------ ------ ------ ------
Net investment income............................... 0.51@ 0.58@ 0.64@ 0.69@ 0.86
Net realized and unrealized gains (losses) from
investments and foreign currency.................. 0.33@ (0.17)@ 0.15@ 0.30@ (1.28)
------ ------ ------ ------ ------
Net increase (decrease) from investment
transactions...................................... 0.84 0.41 0.79 0.99 (0.42)
------ ------ ------ ------ ------
Dividends from net investment income................ (0.43) (0.48) (0.66) (0.64) (0.29)
Distributions in excess of net investment income.... (0.04) (0.05) -- -- --
Distribution from paid-in capital................... (0.07) (0.08) -- -- (0.28)
Total dividends and distributions to shareholders... (0.54) (0.61) (0.66) (0.64) (0.57)
------ ------ ------ ------ ------
Net asset value, end of year........................ $10.54 $10.24 $10.44 $10.31 $ 9.96
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total investment return(1).......................... 8.53% 4.11% 7.95% 10.24% (3.90)%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Ratio/Supplemental data:
Net assets, end of year (000's)..................... $33,478 $103,312 $307,577 $484,534 $725,553
Expenses to average net assets...................... 2.13% 1.99% 1.99% 2.00%(2) 1.94%
Net investment income to average net assets......... 5.16% 5.83% 6.14% 6.71%(2) 6.05%
Portfolio turnover rate............................. 93% 172% 126% 113% 108%
</TABLE>

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

@ Calculated using the average monthly shares outstanding for the year.

(2) These ratios include non-recurring reorganization expenses of 0.04%.

---------------
- --------------------------------------------------------------------------------
B-33

<PAGE>

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

FINANCIAL HIGHLIGHTS
(continued)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
GLOBAL INCOME FUND
------------------------------------------------------------------
CLASS C
------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.................. $10.26 $10.45 $10.33 $ 9.98 $10.96
------ ------ ------ ------ ------
Net investment income............................... 0.56@ 0.63@ 0.67@ 0.71@ 0.70
Net realized and unrealized gains (losses) from
investments and foreign currency.................. 0.33@ (0.18)@ 0.14@ 0.31@ (1.09)
------ ------ ------ ------ ------
Net increase (decrease) from investment
transactions...................................... 0.89 0.45 0.81 1.02 (0.39)
------ ------ ------ ------ ------
Dividends from net investment income................ (0.46) (0.50) (0.69) (0.67) (0.30)
Distributions in excess of net investment income.... (0.04) (0.06) -- -- --
Distribution from paid-in capital................... (0.07) (0.08) -- -- (0.29)
Total dividends and distributions to shareholders... (0.57) (0.64) (0.69) (0.67) (0.59)
------ ------ ------ ------ ------
Net asset value, end of year........................ $10.58 $10.26 $10.45 $10.33 $ 9.98
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total investment return(1).......................... 9.01% 4.48% 8.12% 10.49% (3.56)%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Ratio/Supplemental data:
Net assets, end of year (000's)..................... $28,633 $36,935 $50,928 $71,329 $92,480
Expenses to average net assets...................... 1.77% 1.69% 1.73% 1.75%(2) 1.68%
Net investment income to average net assets......... 5.54% 6.17% 6.40% 6.96%(2) 6.34%
Portfolio turnover rate............................. 93% 172% 126% 113% 108%
</TABLE>

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

@ Calculated using the average monthly shares outstanding for the year.

(2) These ratios include non-recurring reorganization expenses of 0.04%.

---------------
- --------------------------------------------------------------------------------
B-34

<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 year.............. $10.27 $ 10.49 $ 10.35 $ 9.99 $ 10.97
------ ------- ------- ------- -------
Net investment income........................... 0.65@ 0.71@ 0.75@ 0.78@ 0.75
Net realized and unrealized gains (losses) from
investments and foreign currency.............. 0.32@ (0.21)@ 0.17@ 0.32@ (1.06)
------ ------- ------- ------- -------
Net increase (decrease) from investment
transactions.................................. 0.97 0.50 0.92 1.10 (0.31)
------ ------- ------- ------- -------
Dividends from net investment income............ (0.52) (0.56) (0.78) (0.74) (0.34)
Distributions in excess of net investment
income........................................ (0.05) (0.06) -- -- --
Distribution from paid-in capital............... (0.09) (0.10) -- -- (0.33)
------ ------- ------- ------- -------
Total dividends and distributions to
shareholders.................................. (0.66) (0.72) (0.78) (0.74) (0.67)
------ ------- ------- ------- -------
Net asset value, end of year.................... $10.58 $ 10.27 $ 10.49 $ 10.35 $ 9.99
------ ------- ------- ------- -------
------ ------- ------- ------- -------
Total investment return (1)..................... 9.89% 5.20% 9.25% 11.39% (2.86)%
------ ------- ------- ------- -------
------ ------- ------- ------- -------
Ratio/Supplemental data:
Net assets, end of year (000's)................. $9,547 $10,096 $13,077 $16,613 $12,975
Expenses to average net assets.................. 0.96% 0.94% 0.96% 0.95%(2) 0.88%
Net investment income to average net assets..... 6.35% 6.93% 7.19% 7.77%(2) 7.23%
Portfolio turnover rate......................... 93% 172% 126% 113% 108%
</TABLE>

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

@ Calculated using the average monthly shares outstanding for the year.

(2) These ratios include non-recurring reorganization expenses of 0.04%.

---------------
- --------------------------------------------------------------------------------
B-35

<PAGE>

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

FINANCIAL HIGHLIGHTS
(continued)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
ASIA PACIFIC GROWTH FUND
----------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Y
-------------------- ------------------- ------------------- ---------
FOR THE FISCAL YEARS ENDED OCTOBER 31,
----------------------------------------------------------------------------
1998 1997'D' 1998 1997'D' 1998 1997'D' 1998'D'D'
---- ------- ---- ------- ---- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period............ $ 8.96 $ 12.50 $ 8.92 $ 12.50 $ 8.92 $ 12.50 $ 8.66
--------- -------- -------- -------- -------- -------- -------
Net investment income (loss).................... 0.00 @ 0.03 (0.06)@ (0.03) (0.06)@ (0.03) (0.06)@
Net realized and unrealized losses from invest-
ments and foreign currency.................... (2.14)@ (3.57) (2.12)@ (3.55) (2.12)@ (3.55) (1.93)@
Net decrease from investment operations......... (2.14) (3.54) (2.18) (3.58) (2.18) (3.58) (1.87)
--------- -------- -------- -------- -------- -------- -------
Net asset value, end of period.................. $ 6.82 $ 8.96 $ 6.74 $ 8.92 $ 6.74 $ 8.92 $ 6.79
--------- -------- -------- -------- -------- -------- -------
--------- -------- -------- -------- -------- -------- -------
Total investment return (1)..................... (23.88)% (28.32)% (24.44)% (28.64)% (24.44)% (28.64)% (21.59)%
--------- -------- -------- -------- -------- -------- -------
--------- -------- -------- -------- -------- -------- -------
Ratios/Supplemental Data:
Net assets, end of period (000's)............... $ 11,526 $ 21,466 $ 12,746 $ 22,949 $ 6,220 $ 13,887 $ 47
Expenses to average net assets.................. 2.88% 2.33%* 3.63% 3.12%* 3.60% 3.10%* 2.66%*
Net investment income (loss) to average net
assets........................................ (0.02)% 0.37%* (0.78)% (0.43)%* (0.79)% (0.42)%* 1.46%*
Portfolio turnover rate......................... 59% 13% 59% 13% 59% 13% 59%
</TABLE>

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

* Annualized

'D' For the period March 25, 1997 (commencement of operations) to October 31,
1997.

'D'D' For the period March 13, 1998 (commencement of offering) through October
31, 1998.

@ Calculated using the average monthly 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 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 would be lower if sales charges were
included. Total investment returns for periods less than a year have not
been annualized.

---------------
- --------------------------------------------------------------------------------
B-36

<PAGE>

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

FINANCIAL HIGHLIGHTS
(continued)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
EMERGING MARKETS EQUITY FUND
---------------------------------------------------------------
CLASS A
---------------------------------------------------------------
FOR THE
FOUR FOR THE FOR THE
FOR THE MONTHS YEARS PERIOD
YEARS ENDED ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, JUNE 30, JUNE 30,
----------------- ----------- ----------------- --------
1998 1997*** 1996 1996 1995** 1994'D'
---- ------- ---- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period..................... $ 9.39 $ 9.46 $ 10.06 $ 9.73 $ 10.79 $ 12.00
------- ------- ----------- ------- ------- ---------
Net investment income (loss)............................. (0.01)@ (0.06) (0.13) (0.14) 0.04 0.04
Net realized and unrealized gains (losses) from
investments and foreign currency....................... (2.86)@ (0.01) (0.47) 0.47 (0.97) (1.25)
------- ------- ----------- ------- ------- ---------
Net increase (decrease) from investment operations....... (2.87) (0.07) (0.60) 0.33 (1.01) (1.21)
Dividends from net investment income..................... -- -- -- -- (0.05) --
------- ------- ----------- ------- ------- ---------
Net asset value, end of period........................... $ 6.52 $ 9.39 $ 9.46 $ 10.06 $ 9.73 $ 10.79
------- ------- ----------- ------- ------- ---------
------- ------- ----------- ------- ------- ---------
Total investment return(1)............................... (30.56)% (0.74)% (5.96)% 3.39% (9.29)% (10.08)%
------- ------- ----------- ------- ------- ---------
------- ------- ----------- ------- ------- ---------
Ratios/Supplemental data:
Net assets, end of year (000's).......................... $ 4,237 $ 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% 2.44% 2.47%*
Expenses before fee waivers, to average net assets....... 3.71% 3.01% 3.48% 3.42% 2.54% 2.47%
Net investment income (loss), net of fee waivers, to
average net assets..................................... (0.16)% (0.40)% (1.42)%* (0.52)% (0.76)% 0.72%*
Net investment income (loss), before fee waivers, to
average net assets..................................... (1.43)% (0.97)% (2.46)%* (1.50)% (0.86)% 0.72%*
Portfolio turnover rate.................................. 64% 87% 22% 69% 76% 8%
</TABLE>

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

'D' For the period January 19, 1994 (commencement of operations) to June 30,
1994.

'D'D' For the period December 5, 1995 (commencement of offering of shares) to
June 30, 1996.

@ Calculated using the average monthly shares outstanding for the year.

* 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.

(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends at net
asset value on the payable dates and a sale at net asset value on the last
day of each period reported. The figures do not include sales charges;
results would be lower if sales charges were included. Total investment
returns for periods of less than one year have not been annualized.

---------------
- --------------------------------------------------------------------------------
B-37

<PAGE>

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

FINANCIAL HIGHLIGHTS
(continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING MARKETS EQUITY FUND
-----------------------------------------------------------------------------
CLASS B CLASS C
------------------------------------------- -------------------------------
FOR THE FOR THE
FOUR FOR THE FOUR
FOR THE MONTHS PERIOD FOR THE MONTHS
YEARS ENDED ENDED ENDED YEARS ENDED ENDED
OCTOBER 31, OCTOBER 31, JUNE 30, OCTOBER 31, OCTOBER 31,
----------------- ----------- --------- ----------------- -----------
1998 1997*** 1996 1996'D'D' 1998 1997** 1996
---- ------- ---- --------- ---- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period... $ 9.19 $ 9.32 $ 9.94 $ 9.13 $ 9.17 $ 9.32 $ 9.94
------- ------- ----------- -------- ------- ------- -----------
Net investment income
(loss)................ (0.08)@ (0.10) (0.07) (0.01) (0.08)@ (0.14) (0.22)
Net realized and
unrealized gains
(losses) from
investments and
foreign currency...... (2.74)@ (0.03) (0.55) 0.82 (2.77)@ (0.01) (0.40)
------- ------- ----------- -------- ------- ------- -----------
Net increase (decrease)
from investment
operations............ (2.82) (0.13) (0.62) 0.81 (2.85) (0.15) (0.62)
Dividends from net
investment income..... -- -- -- -- -- -- --
------- ------- ----------- -------- ------- ------- -----------
Net asset value, end of
period................ $ 6.37 $ 9.19 $ 9.32 $ 9.94 $ 6.32 $ 9.17 $ 9.32
------- ------- ----------- -------- ------- ------- -----------
------- ------- ----------- -------- ------- ------- -----------
Total investment
return(1)............. (30.69)% (1.39)% (6.24)% 8.87% (31.08)% (1.61)% (6.24)%
------- ------- ----------- -------- ------- ------- -----------
------- ------- ----------- -------- ------- ------- -----------
Ratios/Supplemental
data:
Net assets, end of year
(000's)............... $ 461 $ 1,598 $ 879 $ 936 $ 2,575 $ 5,345 $ 7,882
Expenses net of fee
waivers, to average
net assets............ 3.19% 3.19% 3.19%* 3.19%* 3.19% 3.19% 3.19%
Expenses before fee
waivers, to average
net assets............ 4.92% 3.82% 4.23% 4.97%* 4.42% 3.78% 4.23%*
Net investment income
(loss), net of fee
waivers, to average
net assets............ (0.99)% (1.25)% (2.12)%* (0.21)%* (0.96)% (1.18)% (2.16)%*
Net investment income
(loss), before fee
waivers, to average
net assets............ (2.72)% (1.88)% (3.16)%* (1.99) (2.19)% (1.77)% (3.20)%*
Portfolio turnover
rate.................. 64% 87% 22% 64% 64% 87% 22%

<CAPTION>
EMERGING MARKETS EQUITY FUND
------------------------------
CLASS C
------------------------------

FOR THE
PERIOD
FOR THE YEARS ENDED
ENDED JUNE 30, JUNE 30,
----------------- ----------
1996 1995** 1994'D'
---- ------ -------
<S> <C> <C> <C>
Net asset value,
beginning of period... $ 9.67 $ 10.75 $ 12.00
------- ------- ----------
Net investment income
(loss)................ (0.24) (0.17) --
Net realized and
unrealized gains
(losses) from
investments and
foreign currency...... (0.51) (0.90) (1.25)
------- ------- ----------
Net increase (decrease)
from investment
operations............ 0.27 (1.07) (1.25)
Dividends from net
investment income..... -- (0.01) --
------- ------- ----------
Net asset value, end of
period................ $ 9.94 $ 9.67 $ 10.75
------- ------- ----------
------- ------- ----------
Total investment
return(1)............. 2.79% (10.01)% (10.42)%
------- ------- ----------
------- ------- ----------
Ratios/Supplemental
data:
Net assets, end of year
(000's)............... $11,561 $18,551 $ 26.721
Expenses net of fee
waivers, to average
net assets............ 3.19% 3.19% 3.22%*
Expenses before fee
waivers, to average
net assets............ 4.17% 3.29% 3.22%*
Net investment income
(loss), net of fee
waivers, to average
net assets............ (1.28)% (1.50)% (0.03)%*
Net investment income
(loss), before fee
waivers, to average
net assets............ (2.26)% (1.60)% (0.03)%*
Portfolio turnover
rate.................. 69% 76% 8%
</TABLE>

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

'D' For the period January 19, 1994 (commencement of operations) to June 30,
1994.

'D'D' For the period December 5, 1995 (commencement of offering of shares) to
June 30, 1996.

@ Calculated using the average monthly shares outstanding for the year.

* 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.

---------------
- --------------------------------------------------------------------------------
B-38

<PAGE>

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

FINANCIAL HIGHLIGHTS
(continued)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
EMERGING MARKETS EQUITY FUND
------------------------------------------------------------------
CLASS Y
------------------------------------------------------------------
FOR THE FOR THE
FOR THE FOR THE FOUR YEARS PERIOD
YEARS ENDED MONTHS ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, JUNE 30, JUNE 30,
----------------- ------------ ----------------- -----------
1998 1997*** 1996 1996 1995** 1994'D'
---- ------- ---- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.................. $ 9.46 $ 9.51 $ 10.11 $ 9.75 $ 10.80 $ 12.00
------- ------- ------------ ------- ------- -----------
Net investment income (loss).......................... (0.01)@ (0.02) (0.05) (0.01) (0.01) 0.05
Net realized and unrealized gains (losses) from
investments and foreign currency.................... (2.87)@ (0.03) (0.55) 0.37 (0.99) (1.25)
------- ------- ------------ ------- ------- -----------
Net increase (decrease) from investment operations.... (2.88) (0.05) (0.6) 0.36 (0.98) (1.2)
Dividends from net investment income.................. -- -- -- -- (0.07) --
------- ------- ------------ ------- ------- -----------
Net asset value, end of period........................ $ 6.58 $ 9.46 $ 9.51 $ 10.11 $ 9.75 $ 10.80
------- ------- ------------ ------- ------- -----------
------- ------- ------------ ------- ------- -----------
Total investment return(1)............................ (30.44)% (0.53)% (5.93)% 3.69% (9.03)% (10.00)%
------- ------- ------------ ------- ------- -----------
------- ------- ------------ ------- ------- -----------
Ratios/Supplemental data:
Net assets, end of year (000's)....................... $ 877 $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% 2.19% 2.22%*
Expenses before fee waivers, to average net assets.... 3.36% 2.69% 3.23%* 3.29% 2.29% 2.22%*
Net investment income (loss), net of fee waivers, to
average net assets.................................. (0.08)% (0.15)% (1.13)%* (0.15)% (0.51)% 0.97%*
Net investment income (loss), before fee waivers, to
average net assets.................................. (1.25)% (0.65)% (2.17)%* (1.25)% (0.61)% 0.97%*
Portfolio turnover rate............................... 64% 87% 22% 69% 76% 8%
</TABLE>

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

'D' For the period January 19, 1994 (commencement of operations) to June 30,
1994.

'D'D' For the period December 5, 1995 (commencement of offering of shares) to
June 30, 1996.

@ Calculated using the average monthly shares outstanding for the year.

* 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.

---------------
- --------------------------------------------------------------------------------
B-39

<PAGE>

Your Investment
MANAGING YOUR FUND ACCOUNT
- --------------------------------------------------------------------------------

<TABLE>
<C> <S> <C> <C>
TICKER SYMBOL: Global Equity Fund Class A:KPGEX.Q Asia Pacific Growth Fund Class A:PPGAX.Q
B:KPGLX.Q B:PPGBX.Q
C:KPGBX.Q C:PPGCX.Q
Y:KPGCX.Q Y:None

Global Income Fund Class A:PGBAX.Q Emerging Markets Equity Fund 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/SEMI-ANNUAL REPORTS

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

STATEMENT OF ADDITIONAL INFORMATION (SAI)

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

You may discuss your questions about the funds by contacting your PaineWebber
Financial Advisor. You may obtain free copies of annual and semi-annual reports
and the SAI by contacting the funds directly at 1-800-647-1568.

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

For a fee, by writing to or calling the 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

---------------
- --------------------------------------------------------------------------------
B-40

<PAGE>

SUPPLEMENTS TO THE GLOBAL EQUITY JOINT PROSPECTUS
PAINEWEBBER MUTUAL FUNDS
PROSPECTUS SUPPLEMENT

June 1, 1999

Dear Investor,

This is a supplement to the prospectuses of the PaineWebber mutual funds
listed on the reverse side. The purpose of the supplement is to notify you of
circumstances under which a fund may refuse to accept purchase orders and
exchanges into the fund.

The following text is added to the information 'Your
Investment' -- 'Managing Your Fund Account' -- 'Buying Shares'.

Frequent Trading. The interests of the fund's long-term
shareholders and its ability to manage its investments may be
adversely affected when its shares are repeatedly bought and
sold in response to short-term market fluctuations -- also known
as 'market timing.' When large dollar amounts are involved, the
fund may have difficulty implementing long-term investment
strategies, because it cannot predict how much cash it will have
to invest. Market timing also may force the fund to sell
portfolio securities at disadvantageous times to raise the cash
needed to buy a market timer's fund shares. These factors may
hurt the fund's performance and its shareholders. When Mitchell
Hutchins believes frequent trading would have a disruptive
effect on the fund's ability to manage its investments, Mitchell
Hutchins and the fund may reject purchase orders and exchanges
into the fund by any person, group or account that Mitchell
Hutchins believes to be a market timer. The fund may notify the
market timer that a purchase order or an exchange has been
rejected after the day the order is placed.

(REVERSE SIDE OF JUNE 1, 1999 SUPPLEMENT)

PAINEWEBBER BOND FUNDS
High Income Fund
Investment Grade Income Fund
Low Duration U.S. Government Income Fund
Strategic Income Fund
U.S. Government Income Fund

PAINEWEBBER GLOBAL FUNDS
Asia Pacific Growth Fund
Emerging Markets Equity Fund
Global Equity Fund
Global Income Fund

B-41

<PAGE>

PAINEWEBBER ASIA PACIFIC GROWTH FUND
PAINEWEBBER EMERGING MARKETS EQUITY FUND
SUPPLEMENT TO PROSPECTUS DATED MARCH 1, 1999

July 9, 1999

Dear Investor,

This is a supplement to the Prospectus dated March 1, 1999, for PaineWebber
Asia Pacific Growth Fund and PaineWebber Emerging Markets Equity Fund (the
'Funds').

The Funds' sub-adviser, Schroder Capital Management International Inc., has
been merged into a newly created Delaware corporation, Schroder Investment
Management North America Inc. The new company, like its predecessor, is a wholly
owned subsidiary of Schroder US Holdings Inc. Louise Croset and Heather
Crighton, who are primarily responsible for the day-to-day management of
PaineWebber Asia Pacific Growth Fund, have been made executive vice president
and senior vice president, respectively, of the new company. John A. Troiano and
Mark Bridgeman, who, along with Ms. Crighton, are primarily responsible for the
day-to-day management of PaineWebber Emerging Markets Equity Fund, serve as
chief executive and first vice president, respectively, of the new company. None
of the personnel involved in providing advisory services to the Funds are
changing as a result of this restructuring.

B-42

<PAGE>

PAINEWEBBER MUTUAL FUNDS
PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION SUPPLEMENT

October 27, 1999

Dear Investor

This is a supplement to the prospectuses and Statements of Additional
Information, as applicable, of the PaineWebber Mutual Funds listed on the
reverse side. The purpose of the supplement is to notify you of:

the new address for the PaineWebber Mutual Funds and Mitchell Hutchins
Asset Management Inc.;

a waiver of the Class A sales charge for purchases through PaineWebber
InsightOneSM Program brokerage accounts;

a special waiver of the contingent deferred sales charge for certain
employee benefit plans that purchase Class C shares;

a modification in the systematic withdrawal plan for Class B shares; and

a special waiver of the contingent deferred sales charges applicable to
Class A, Class B and Class C shares for certain non-resident aliens.

The PaineWebber Mutual Funds and Mitchell Hutchins Asset Management Inc.
have changed their address to 51 West 52nd Street, New York, New York
10019-6114.

Investors who purchase shares through the PaineWebber InsightOne'sm'
Program are eligible to buy Class A shares without a sales load. The PaineWebber
InsightOne'sm' Program offers a non-discretionary brokerage account to
PaineWebber clients for an asset-based fee at an annual rate of up to 1.50%
of the assets in the account. Account holders may purchase or sell certain
investment products without paying commissions or other markups/markdowns.

Employee benefit plans qualified under Section 401(k) or Section (403)(b)
of the Internal Revenue Code with fewer than 100 employees or less than $1
million in assets may be eligible to buy Class C shares with no contingent
deferred sales charge imposed on redemptions by those plans during the first
year after purchase.

The Systematic Withdrawal Plan is modified for Class B shares to require a
$10,000 minimum investment, a minimum withdrawal of $100 and minimum monthly,
quarterly, semi-annual and annual withdrawals of $100, $200, $300 and $400,
respectively.

Until March 31, 2000, investors who are non-resident aliens will be able to
sell their Fund shares without incurring a contingent deferred sales charge, if
they use the sales proceeds to immediately purchase shares of certain offshore
investment pools available through PaineWebber. The Fund will waive the
contingent deferred sales charge that would otherwise apply to a sale of
Class A, Class B or Class C shares of the Fund. Fund shareholders who want to
take advantage of this waiver should review the offering documents of the
offshore investment pools for further information, including investment
minimums, and fees and expenses. Shares of the offshore investment pools are
available only in those jurisdictions where the sale is authorized and are not
available to any U.S. person, including, but not limited to, any citizen or
resident of the United States,and U.S. partnership or U.S. trust, and are not
available to residents of certain other countries. For more information on how
to take advantage of the deferred sales charge waiver, investors should contact
their PaineWebber Financial Advisors.

B-43

<PAGE>

(REVERSE SIDE OF OCTOBER 27, 1999 SUPPLEMENT)

This Supplement applies to the following Funds:

PAINEWEBBER BOND FUNDS

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

PAINEWEBBER TAX-FREE BOND FUNDS

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

PAINEWEBBER ASSET ALLOCATION FUNDS

Balanced Fund
Tactical Allocation Fund

PAINEWEBBER STOCK FUNDS

Financial Services Growth Fund
Growth Fund
Growth and Income Fund
Mid Cap Fund
Small Cap Fund
Tax-Managed Equity Fund
Utility Income Fund

PAINEWEBBER GLOBAL FUNDS

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

PAINEWEBBER MONEY MARKET FUND

B-44

<PAGE>

APPENDIX C

BOARD MEMBERS OF GLOBAL SMALL CAP AND GLOBAL EQUITY AND
OFFICERS OF GLOBAL SMALL CAP

The following is a list of the present Board Members of both Funds and
officers of Global Small Cap, their ages, business addresses and a description
of their principal occupations during the past five years:

<TABLE>
<CAPTION>
POSITION WITH
GLOBAL SMALL
NAME AND ADDRESS; AGE CAP/GLOBAL EQUITY BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
- ------------------------------ ----------------- ----------------------------------------
<S> <C> <C>
Margo N. Alexander *'D'; 52 Board Member and Mrs. Alexander is chairman (since March
President 1999), chief executive officer and a
director of Mitchell Hutchins (since
January 1995), and an executive vice
president and 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 one of their
affiliates serves as investment adviser.
Richard Q. Armstrong; 64 Board Member Mr. Armstrong is chairman and principal
R.Q.A. Enterprises of RQA Enterprises (management consulting
One Old Church Road -- firm) (since April 1991 and principal
Unit #6 occupation since March 1995). Mr.
Greenwich, CT 06830 Armstrong 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 one of their
affiliates serves as investment adviser.
E. Garrett Bewkes, Jr.*'D'; 73 Board Member and Mr. Bewkes is a director of PW Group
Chairman of the (holding company of PaineWebber and
Board 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
(baker and distributor of bakery
products). Mr. Bewkes is a director of
</TABLE>

C-1

<PAGE>

<TABLE>
<CAPTION>
POSITION WITH
GLOBAL SMALL
NAME AND ADDRESS; AGE CAP/GLOBAL EQUITY BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
- ------------------------------ ----------------- ----------------------------------------
<S> <C> <C>
Interstate Bakeries Corporation. Mr.
Bewkes is a director or trustee of 35
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
Richard R. Burt; 52 Board Member Mr. Burt is chairman of IEP Advisers,
1275 Pennsylvania Ave., N.W. Inc. (international investments and
Washington, D.C. 20004 consulting firm) (since March 1994) and
a 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.
(gold mining), Powerhouse Technologies
Inc. (provides technology to gaming and
wagering industries) and Weirton Steel
Corp. (steel fabrication and finished
steel products). 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 one of their affiliates
serves as investment adviser.
Mary C. Farrell*'D'; 49 Board Member 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 30 investment companies for
which Mitchell Hutchins, PaineWebber or
one of their affiliates serves as
investment adviser.
Meyer Feldberg; 57 Board Member Mr. Feldberg is Dean and Professor of
Columbia University Management of the Graduate School of
101 Uris Hall Business, Columbia University. Prior to
New York, New York 10027 1989, he was president of the Illinois
Institute of Technology. Dean Feldberg
is also a director of Primedia Inc.
(publishing), Federated Department
Stores Inc. (operator of department
stores) and
</TABLE>

C-2

<PAGE>

<TABLE>
<CAPTION>
POSITION WITH
GLOBAL SMALL
NAME AND ADDRESS; AGE CAP/GLOBAL EQUITY BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
- ------------------------------ ----------------- ----------------------------------------
<S> <C> <C>
Revlon, Inc. (cosmetics). Dean
Feldberg is a director or trustee
of 34 investment companies for which
Mitchell Hutchins, PaineWebber or one of
their affiliates serves as investment
adviser.
George W. Gowen; 70 Board Member Mr. Gowen is a partner in the law firm
666 Third Avenue of Dunnington, Bartholow & Miller. Prior
New York, New York 10017 to May 1994, he was a partner in the law
firm of Fryer, Ross & Gowen. Mr. Gowen
is a director or trustee of 34
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
Frederic V. Malek; 62 Board Member Mr. Malek is chairman of Thayer Capital
1455 Pennsylvania Avenue, N.W. Partners (merchant bank). From January
Suite 350 1992 to November 1992, he was campaign
Washington, D.C. 20004 manager of Bush-Quayle '92. From 1990 to
1992, he was vice chairman and, from
1989 to 1990, he was president of
Northwest Airlines Inc., NWA Inc.
(holding company of Northwest Airlines
Inc.) and Wings Holdings Inc. (holding
company of NWA Inc.). Prior to 1989, he
was employed by the Marriott Corporation
(hotels, restaurants, airline catering
and contract feeding), where he most
recently was an executive vice president
and president of Marriott Hotels and
Resorts. Mr. Malek is also a director of
Aegis Communications, Inc.
(tele-services), American Management
Systems, Inc. (management consulting and
computer-related services), Automatic
Data Processing, Inc. (computing
services), CB Commercial Group, Inc.
(real estate services), Choice Hotels
International (hotel and hotel
franchising), FPL Group, Inc. (electric
services), HCR/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 one of their
affiliates serves as investment adviser.
</TABLE>

C-3

<PAGE>

<TABLE>
<CAPTION>
POSITION WITH
GLOBAL SMALL
NAME AND ADDRESS; AGE CAP/GLOBAL EQUITY BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
- ------------------------------ ----------------- ----------------------------------------
<S> <C> <C>
Carl W. Schafer; 63 Board Member Mr. Schafer is president of the Atlantic
66 Witherspoon Street Foundation (charitable foundation
#1100 supporting mainly oceanographic
Princeton, NJ 08542 exploration and research). He is a
director of Labor Ready, Inc. (temporary
employment), Roadway Express, Inc.
(trucking), The Guardian Group of Mutual
Funds, Harding, Loevner Funds, Evans
Systems, Inc. (a 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
one of their affiliates serves as
investment adviser.
Brian M. Storms*'D'; 45 Board Member Mr. Storms is president and chief
operating officer of Mitchell Hutchins
(since March 1999). Prior to March 1999,
he was president of Prudential
Investments (1996-1999). Prior to
joining Prudential, he was a managing
director at Fidelity Investments. Mr.
Storms is a director or trustee of 31
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
</TABLE>

C-4

<PAGE>

INFORMATION REGARDING THE OFFICERS OF
GLOBAL SMALL CAP

<TABLE>
<CAPTION>
POSITION WITH
GLOBAL SMALL
NAME AND ADDRESS; AGE CAP/GLOBAL EQUITY BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
- ------------------------------ ----------------- ----------------------------------------
<S> <C> <C>
Ann E. Moran*; 42 Vice President and Ms. Moran is a vice president and a
Assistant Treasurer manager of the mutual 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 one of their affiliates serves as
investment adviser.
Dianne E. O'Donnell*; 47 Vice President and Ms. O'Donnell is a senior vice president
Secretary and deputy general counsel of Mitchell
Hutchins. Ms. O'Donnell is a vice
president and secretary of 31 investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as investment adviser.
Emil Polito**; 39 Vice President Mr. Polito is a senior vice president
and director of operations and control
for Mitchell Hutchins. Mr. Polito is
vice president of 32 investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as investment adviser.
Victoria E. Schonfeld*; 48 Vice President Ms. Schonfeld is a managing director and
general counsel of Mitchell Hutchins
(since May 1994) and a senior vice
president of PaineWebber (since July
1995). 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 one of their
affiliates serves as investment adviser.
Paul H. Schubert*; 36 Vice President and Mr. Schubert is a senior vice president
Treasurer and director of the mutual fund finance
department of Mitchell Hutchins. Mr.
Schubert is a vice president and
treasurer of 32 investment companies for
which Mitchell Hutchins, PaineWebber or
one of their affiliates serves as
investment adviser.
Barney A. Taglialatela*; 38 Vice President and Mr. Taglialatela is a vice president and
Assistant Treasurer a manager of the 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,
</TABLE>

C-5

<PAGE>

<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS; AGE GLOBAL SMALL CAP BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
- ------------------------------ ----------------- ----------------------------------------
<S> <C> <C>
PaineWebber or one of their affiliates
serves as investment adviser.
Mark A.Tincher**; 44 Vice President Mr. Tincher is a managing director and
chief investment officer -- equities of
Mitchell Hutchins. Prior to March 1995,
he was a vice president and directed the
U.S. funds management and equity
research areas of Chase Manhattan
Private Bank. Mr. Tincher is a vice
president of 13 investment companies for
which Mitchell Hutchins, PaineWebber or
one of their affiliates serves as
investment adviser.
Keith A. Weller*; 38 Vice President Mr. Weller is a first vice president and
and Assistant associate general counsel of Mitchell
Secretary Hutchins. Prior to May 1995, he was an
attorney at Brown & Wood (New York
City). Mr. Weller is a vice president
and assistant secretary of 31 investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as investment adviser.
</TABLE>

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

* This person's business address is 1285 Avenue of the Americas, New York, New
York 10019.

** This person's business address is 51 West 52nd Street, New York, New York
10019.

'D' Mrs. Alexander, Mr. Bewkes, Mrs. Farrell, and Mr. Storms are 'interested
persons' of Global Small Cap, as defined in the 1940 Act, by virtue of
their positions with PW Group,
PaineWebber and/or Mitchell Hutchins.

C-6

STATEMENT OF DIFFERENCES
------------------------

The service mark symbol shall be expressed as.............................. 'sm'
The dagger symbol shall be expressed as.................................... 'D'

<PAGE>

PROXY APPENDIX 1 PROXY

GLOBAL SMALL CAP FUND INC.
SPECIAL MEETING OF SHAREHOLDERS - DECEMBER 30, 1999

THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF GLOBAL
SMALL CAP FUND INC. The undersigned hereby appoints as proxies KEITH A. WELLER
and STEPHANIE HEMPHILL-JOHNSON and each of them (with the power of substitution)
to vote for the undersigned all shares of common stock of the undersigned in
Global Small Cap Fund Inc. at the above referenced meeting and any adjournment
thereof, with all the power the undersigned would have if personally present.
The shares represented by this proxy will be voted as instructed below. UNLESS
INDICATED TO THE CONTRARY, THIS PROXY SHALL BE DEEMED TO GRANT AUTHORITY TO VOTE
'FOR' THE PROPOSAL RELATING TO GLOBAL SMALL CAP FUND INC.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE 'FOR' THE PROPOSAL. PLEASE INDICATE
YOUR VOTE BY FILLING IN THE BOX COMPLETELY. EXAMPLE: [*]

<TABLE>
<S> <C> <C> <C>
PROPOSAL: FOR AGAINST ABSTAIN

Approval of the Agreement and Plan of Reorganization and [ ] [ ] [ ]
Termination that provides for the combination of Global
Small Cap Fund Inc. and PaineWebber Global Equity Fund, a
series of PaineWebber Investment Trust.
</TABLE>

PLEASE DATE AND SIGN THE REVERSE SIDE OF THIS CARD.

<PAGE>

YOUR VOTE IS IMPORTANT.
PLEASE DATE AND SIGN THIS PROXY BELOW AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE.

IF SHARES ARE HELD BY AN INDIVIDUAL,
SIGN YOUR NAME EXACTLY AS IT APPEARS
ON THIS CARD. IF SHARES ARE HELD
JOINTLY, EITHER PARTY MAY SIGN, BUT
THE NAME OF THE PARTY SIGNING SHOULD
CONFORM EXACTLY TO THE NAME SHOWN ON
THIS PROXY CARD. IF SHARES ARE HELD
BY A CORPORATION, PARTNERSHIP OR
SIMILAR ACCOUNT, THE NAME AND THE
CAPACITY OF THE INDIVIDUAL SIGNING
THE PROXY CARD SHOULD BE
INDICATED -- FOR EXAMPLE: 'ABC
CORP., JOHN DOE, TREASURER.'

____________________________________
SIGNATURE

____________________________________
SIGNATURE (IF HELD JOINTLY)

____________________________________
DATED

PLEASE MARK YOUR VOTE ON THE REVERSE SIDE OF THIS CARD.