MITCHELL HUTCHINS KIDDER PEABODY INVESTMENT TRUST II, 497, 1995-11-17

MITCHELL HUTCHINS KIDDER PEABODY INVESTMENT TRUST II
497, 1995-11-17

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<PAGE>
PAINEWEBBER EMERGING MARKETS
EQUITY FUND
1285 Avenue of the Americas
New York, New York 10019

Professional Management
Portfolio Diversification
Dividend and Capital Gain
Reinvestment
Flexible Pricing'SM'
Low Minimum Investment
Automatic Investment Plan
Systematic Withdrawal Plan
Exchange Privileges
Suitable for Retirement Plans

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

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

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

------------------------
The date of this Prospectus is November 1, 1995
PAINEWEBBER MUTUAL FUNDS

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

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

PROSPECTUS SUMMARY

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

<TABLE>
<S> <C>
The Fund: PaineWebber Emerging Markets Equity Fund ('Fund') is a diversified series of
Mitchell Hutchins/Kidder, Peabody Investment Trust II ('Trust'), an open-end
management investment company.
Investment Objective and Long-term capital appreciation; invests primarily in equity securities of issuers
Policies: in the securities markets of newly industrializing countries ('Emerging Markets')
in Asia, Latin America, the Middle East, Southern Europe, Eastern Europe and
Africa.
Total Net Assets at September $60.24 million
30, 1995:
Investment Adviser and Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins'), an asset
Administrator: management subsidiary of PaineWebber Incorporated ('PaineWebber' or 'PW'),
manages over $44.7 billion in assets. See 'Management.'
Sub-Adviser: Emerging Markets Management ('EMM' or 'Sub-Adviser') manages approximately $3.2
billion in assets. See 'Management.'
Purchases: Shares of beneficial interest are available exclusively through PaineWebber and
its correspondent firms for investors who are clients of PaineWebber or those
firms ('PaineWebber clients') and, for other investors, through PFPC Inc., the
Fund's transfer agent ('Transfer Agent').
Flexible Pricing System: Investors may select Class A, Class B or Class C shares, each with a public
offering price that reflects different sales charges and expense levels. See
'Flexible Pricing System,' 'Purchases,' 'Redemptions' and 'Conversion of Class B
Shares.'
Class A Shares Offered at net asset value plus any applicable sales charge (maximum is 4.5% of
the public offering price).
</TABLE>

<PAGE>

<TABLE>
<S> <C>
Class B Shares Offered at net asset value (a maximum contingent deferred sales charge of 5% of
redemption proceeds is imposed on certain redemptions made within six years of
date of purchase). Class B shares automatically convert into Class A shares
(which pay lower ongoing expenses) approximately six years after purchase. Such
Class B shares were not offered prior to November 1, 1995.
Class C Shares Offered at net asset value without an initial or contingent deferred sales charge
(a contingent deferred sales charge of 1% of redemption proceeds is imposed on
certain redemptions made within one year of purchase). Class C shares pay higher
ongoing expenses than Class A shares and do not convert into another Class. Prior
to November 10, 1995, these Class C shares were called 'Class B' shares.
Exchanges: Shares may be exchanged for shares of the corresponding Class of most PaineWebber
mutual funds.
Redemptions: PaineWebber clients may redeem through PaineWebber; other shareholders must
redeem through the Transfer Agent.
Dividends: Declared and paid annually; net capital gain also is distributed annually. See
'Dividends, Distributions and Taxes.'
Reinvestment: All dividends and capital gain distributions are paid in Fund shares of the same
Class at net asset value unless the shareholder has requested cash.
Minimum Purchase: $1,000 for first purchase; $100 for subsequent purchases.
</TABLE>

<TABLE>
<S> <C> <C>
Other Features:
Class A Shares Automatic investment plan Quantity discounts on initial sales charge
Systematic withdrawal plan 365-day reinstatement privilege
Rights of accumulation
Class B Shares Automatic investment plan Systematic withdrawal plan
Class C Shares Automatic investment plan Systematic withdrawal plan
</TABLE>

WHO SHOULD INVEST. The Fund invests primarily in equity securities of
issuers in Emerging Markets in Asia, Latin America, the Middle East, Southern
Europe, Eastern Europe and Africa and is designed for investors who are seeking
long-term capital appreciation. The Fund's risk factors are summarized below and
are described in more detail under 'Investment Objective and Policies -- Risk
Factors and Special Considerations.' While the Fund is not intended to provide a
complete or balanced investment program, it can serve as one component of an
investor's long-term program to accumulate assets, for instance, for retirement,
college tuition or other major goals.

RISK FACTORS. There can be no assurance that the Fund will achieve its
investment objective, and the Fund's net asset value will fluctuate based upon
changes in the value of its portfolio securities. Investors in the Fund should
be able to assume the special risks of investing in foreign securities, which
include possible adverse political, social and economic developments abroad and

<PAGE>
differing characteristics of foreign economies and securities markets. There is
often less information publicly available about foreign issuers. These risks are
greater with respect to securities of issuers located in Emerging Markets. Most
of the foreign securities held by the Fund are denominated in foreign
currencies, and the value of these investments thus can be adversely affected by
fluctuations in foreign currency values. Some foreign currencies can be volatile
and may be subject to governmental controls or intervention. The use of options,
futures contracts and forward currency contracts also entails special risks.
Prospective investors are urged to read 'Investment Objective and
Policies -- Risk Factors and Special Considerations' at pages 16-19 for more
complete information about risk factors.

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

SHAREHOLDER TRANSACTION EXPENSES(1)

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------

<S> <C> <C> <C>
Maximum sales charge on purchases of shares (as a percentage of public offering
price)......................................................................... 4.5% None None
Sales charge on reinvested dividends............................................. None None None
Maximum contingent deferred sales charge (as a percentage of redemption
proceeds)...................................................................... None(2) 5% 1%(3)
</TABLE>

ANNUAL FUND OPERATING EXPENSES(4)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Management fees.............................................................. 1.62% 1.62% 1.62%
12b-1 fees(5)................................................................ 0.25 1.00 1.00
Other expenses............................................................... 0.57 0.57 0.57
------- ------- -------
Total operating expenses (after fee waivers and expense reimbursements)...... 2.44% 3.19% 3.19%
------- ------- -------
------- ------- -------
</TABLE>

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

(1) Sales charge waivers are available for Class A and Class B shares and
reduced sales charge purchase plans are available for Class A shares. The
maximum 5% contingent deferred sales charge on Class B shares applies to
redemptions during the first year after purchase; the charge generally declines
by 1% annually thereafter, reaching zero after six years. See 'Purchases.'

(2) Purchases of Class A shares of $1 million or more are not subject to a
sales charge. If shares are redeemed within one year of purchase, a contingent
deferred sales charge of 1% will be applied to the redemption. See 'Purchases.'

(3) If Class C shares are redeemed within one year of purchase, a
contingent deferred sales charge of 1% will be applied to the redemption. See
'Purchases.'

<PAGE>
(4) See 'Management' for additional information. The management fee payable
to Mitchell Hutchins is greater than the management fee paid by most funds. All
expenses, except for Class B shares, are those actually incurred for the fiscal
year ended June 30, 1995. Class B shares 'other expenses' are based on estimates
for the Fund's current fiscal year. During the fiscal year ended June 30, 1995,
Mitchell Hutchins reimbursed the Fund for a portion of the operating expenses.
Without such reimbursement, total operating expenses would have been 2.54% for
Class A shares and 3.29% for Class B and Class C shares.

(5) 12b-1 fees have two components, as follows:

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------

<S> <C> <C> <C>
12b-1 service fees.................................................................. 0.25% 0.25% 0.25%
12b-1 distribution fees............................................................. 0.00 0.75 0.75
</TABLE>

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

EXAMPLE OF EFFECT OF FUND EXPENSES(1)

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

<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----

<S> <C> <C> <C> <C>
Class A Shares(2)................................................................. $ 69 $118 $ 169 $ 310
Class B Shares:
Assuming a complete redemption at end of period(3)(4)........................ $ 82 $128 $ 187 $ 316
Assuming no redemption(4).................................................... $ 32 $ 98 $ 167 $ 316
Class C Shares:
Assuming a complete redemption at end of period(3)........................... $ 42 $ 98 $ 167 $ 349
Assuming no redemption....................................................... $ 32 $ 98 $ 167 $ 349
</TABLE>

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

(1) Fund expenses shown are net of reimbursements made by Mitchell Hutchins.
Without such reimbursements, the expenses on a $1,000 investment at the end
of one, three, five and ten years would have been $70, $121, $174 and $320,
respectively, for Class A shares, $83, $131, $192 and $326, respectively,
for Class B shares (assuming complete redemption), $33, $101, $172 and $326,
respectively, for Class B shares (assuming no redemption), $43, $101, $172
and $359, respectively, for Class C shares (assuming complete redemption)
and $33, $101, $172 and $359, respectively, for Class C shares (assuming no
redemption).

(2) Assumes deduction at the time of purchase of the maximum 4.5% initial sales
charge.

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

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

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

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

<PAGE>
FINANCIAL HIGHLIGHTS

The table below provides selected per share data and ratios for one Class A
share and one Class C share (prior to November 10, 1995, Class C shares were
called 'Class B' shares) of the Fund for each of the periods shown. No new Class
B shares were outstanding during such periods. This information is supplemented
by the financial statements and accompanying notes appearing in the Fund's
Annual Report to Shareholders for the fiscal year ended June 30, 1995, which are
incorporated by reference into the Statement of Additional Information. The
financial statements and notes, and the financial information appearing in the
table below, have been audited by Deloitte & Touche LLP, independent
accountants, whose report thereon is included in the Annual Report to
Shareholders. Further information about the Fund's performance is also included
in the Annual Report to Shareholders, which may be obtained without charge.

<TABLE>
<CAPTION>
Class A Class C
-------------------------- --------------------------
For the For the For the For the
Year ended Period ended Year ended Period ended
June 30, June 30, June 30, June 30,
1995 1994`D' 1995 1994`D'
------------ ------------ ------------ ------------

<S> <C> <C> <C> <C>
Net asset value, beginning of period........................... $ 10.79 $ 12.00 $ 10.75 $ 12.00
------------ ------------ ------------ ------------
Increase (decrease) from investment operations:
Net investment income (loss)................................... (0.04) 0.04 (0.17) --
Net realized and unrealized losses from investment
transactions................................................. (0.97) (1.25) (0.90) (1.25)
------------ ------------ ------------ ------------
Net decrease in net assets resulting from investment
operations................................................... (1.01) (1.21) (1.07) (1.25)
------------ ------------ ------------ ------------
Less dividends to shareholders from:
Net investment income.......................................... (0.05) -- (0.01) --
------------ ------------ ------------ ------------
Net asset value, end of period................................. $ 9.73 $ 10.79 $ 9.67 $ 10.75
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Total Investment Return(1)..................................... (9.29)% (10.08)% (10.01)% (10.42)%
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Ratios/Supplemental Data:
Net assets, end of period (000's omitted)...................... $ 33,043 $ 46,758 $ 18,551 $ 26,721
Ratios of expenses, net of fee waivers and expense
reimbursements, to average net assets........................ 2.44 % 2.47 %* 3.19 % 3.22 %*
Ratios of expenses, before fee waivers and expense
reimbursements, to average net assets........................ 2.54 % 2.47 %* 3.29 % 3.22 %*
Ratios of net investment income to average net assets.......... (0.76)% 0.72 %* (1.50)% (0.03)%*
Portfolio turnover............................................. 76 % 8 % 76 % 8 %
</TABLE>

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* Annualized.

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

(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 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.

<PAGE>
FLEXIBLE PRICING SYSTEM

DIFFERENCES AMONG THE CLASSES

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

<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
-------------------------------- -------------------------------- --------------------------------

<S> <C> <C> <C>
CLASS A Maximum initial sales charge of Service fee of 0.25% Initial sales charge waived or
4.5% of the public offering reduced for certain purchases
price
CLASS B Maximum contingent deferred Service fee of 0.25%; Shares convert to Class A shares
sales charge of 5% of redemption distribution fee of 0.75% approximately six years after
proceeds; declines to zero after issuance
six years
CLASS C Contingent deferred sales charge Service fee of 0.25%; --
of 1% of redemption proceeds if distribution fee of 0.75%
redeem within first year after
purchase
</TABLE>

FACTORS TO CONSIDER IN CHOOSING A CLASS OF SHARES

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

SALES CHARGES. Class A shares are sold at net asset value plus an initial
sales charge of up to 4.5% of the public offering price. Because of this initial
sales charge, not all of a Class A shareholder's purchase price is invested in
the Fund. Class B shares are sold with no initial sales charge, but a contingent
deferred sales charge of up to 5% of the redemption proceeds applies to
redemptions made within six years of purchase. Class C shareholders pay no
initial or contingent deferred sales charges, although a contingent deferred
sales charge of 1.00% applies to certain redemptions of Class C shares made
within the first year after purchase. Thus, the entire amount of a Class B or
Class C shareholder's purchase price is immediately invested in the Fund.

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

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

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

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

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

OTHER INFORMATION

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

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

INVESTMENT OBJECTIVE AND POLICIES

OBJECTIVE

The Fund's investment objective is long-term capital appreciation. The
Fund seeks to achieve its objective through investment in a diversified
portfolio consisting primarily of equity securities of issuers in Emerging
Mar-

<PAGE>
kets in Asia, Latin America, the Middle East, Southern Europe, Eastern Europe
and Africa.

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

INVESTMENT SELECTION PROCESS

The Sub-Adviser's efforts focus primarily on asset allocation among
selected Emerging Markets and, secondarily, on issuer selection within those
markets. In addition to considerations relating to a particular market's
investment restrictions and tax barriers, this asset allocation is based on
other relevant factors including the outlook for economic growth, currency
exchange rates, commodity prices, interest rates, political factors and the
stage of the local market cycle in the market. The Sub-Adviser expects to spread
the Fund's investments over geographic as well as economic sectors. Generally,
the Sub-Adviser does not intend to invest more than two-thirds of the Fund's
total assets in any single region (Asia, Latin America, Middle East, Southern
Europe, Eastern Europe or Africa) or 35% in any single country. Under no
circumstances will the Sub-Adviser invest more than 25% of the Fund's total
assets in any single industry. Within each Emerging Market, the Fund will be
diversified through investments in a number of local companies characterized by
attractive valuation relative to expected growth.

MARKET SELECTION. As of September 30, 1995, there were over 60 newly
industrializing and developing countries having equity markets. The 18 most
accessible of these markets had a total market capitalization of approximately
$1.598 trillion and over 7,700 listed stocks. A number of the Emerging Markets
are not yet easily accessible to foreign investors and have unattractive tax
barriers or insufficient liquidity to make significant investments by the Fund
feasible or attractive. However, many of the largest of the Emerging Markets
have, in recent years, liberalized access and the Sub-Adviser expects more to do
so over the coming few years.

Selections are made among Emerging Markets based on various factors
including:

MARKET FACTORS -- including the relative attractiveness of the market
in comparison with its historic performance and with the performance of
other emerging and world markets on the basis of fundamental values (e.g.,
price/earnings, price/book value, earnings momentum, volatility, dividend
yield and debt/equity). The Sub-Adviser employs a computerized global and
emerging market asset allocation model as one of its methods to assess the
relative attractiveness of each Emerging Market based on these factors.

MACRO-ECONOMIC FACTORS -- including the outlook for currencies,
interest rates, commodities, economic growth, inflation, business
confidence and private sector initiative.

POLITICAL FACTORS -- including the stability of the current government
and its attitudes towards foreign investment, private sector initiative and
development of capital markets.

<PAGE>
MARKET DEVELOPMENT -- the development of the market relative to North
American markets in terms of market capitalization, level of trading
activity, sophistication of capital market activities and shareholder
protection.

INVESTMENT RESTRICTIONS -- including the level of foreign ownership
allowed, the method of investment allowed (e.g., direct investment or
through authorized investment funds), required holding periods, ability to
repatriate earnings and applicable tax legislation.

Based on these and other factors, the portfolio is evaluated and, if
necessary, adjusted on at least a quarterly basis to ensure that it conforms to
the objective and policies of the Fund. Each of the Emerging Markets in which
the Fund may invest is also monitored on a continuous basis and tactical shifts
in portfolio allocation are made, when required, based on new developments.

Emerging Markets in which the Fund intends to invest are currently
expected to be selected from the following 34 Emerging Markets and republics:

<TABLE>
<S> <C>
ASIA: Bangladesh, China, Hong Kong,
India, Indonesia, Korea,
Malaysia, Pakistan, Papua New
Guinea, Philippines,
Singapore, Sri Lanka, Republic
of China (Taiwan), Thailand

LATIN AMERICA: Argentina, Bolivia, Brazil,
Chile, Colombia, Mexico, Peru,
Venezuela
EUROPE/MIDDLE
EAST: The Czech Republic, Com-
monwealth of Independent
States, Greece, Hungary,
Jordan, Poland, Portugal,
Turkey

AFRICA: Mauritius, Morocco, South
Africa, Zimbabwe
</TABLE>

The foregoing list of Emerging Markets is not exhaustive. As used in this
Prospectus, the countries that will not be considered Emerging Markets include:
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland,
Italy, Japan, Luxembourg, Netherlands, New Zealand, Spain, Norway, Sweden,
Switzerland, United Kingdom and the United States. Under normal market
conditions, the Fund will invest a minimum of 65% of its total assets in equity
securities of issuers in Emerging Markets and will maintain investments in at
least three Emerging Markets. In a number of the countries, investment is
presently allowed exclusively or predominantly through existing or newly formed
authorized investment funds. See 'Types of Portfolio Investments' below. These
restrictions are gradually easing and the Fund anticipates that it will be able
to make investments in individual stocks in these countries as their attitude
towards foreign investment improves. The Sub-Adviser expects that over the
coming years a number of countries other than those listed above are likely to
become potential candidates for investment by the Fund, including Uruguay, Ivory
Coast, Jamaica, Kenya, Nigeria and Slovakia.

INVESTMENT SELECTION. Within each Emerging Market, the Fund invests in a
selection of companies that are characterized by attractive valuation. Using
various data bases and sources of investment information, the Sub-Adviser
screens each market for companies available for investment. In order to be
considered for investment, companies must legally permit investment by
foreigners, have a market capitalization of over $15 million and show sufficient
liquidity based on trading volume and shares outstanding. From among this group,
investments are systematically screened for fundamental value based on a number
of standards, including price-to-earnings ratio, price-to-book value ratio,
earnings momentum, dividend yield and debt-to-

<PAGE>
equity ratio. The purpose of this screening is to eliminate investments in
companies considered inappropriate due to inadequate liquidity or unacceptable
risk factors. Decisions on issuer selection are often influenced by on-site
visits to issuers. The resulting selection of investments is intended to provide
a broad group of attractively valued investments available to foreign investors
in each Emerging Market.

USE OF QUANTITATIVE TECHNIQUES. The Sub-Adviser has developed and will use
a proprietary asset allocation model to assist in the selection of markets and
individual stocks. Making use of long-term historical data on at least 1,000 of
the most actively traded stocks in the target markets, as well as additional
data for recent years and earnings forecasts, the Sub-Adviser estimates the
relationship between the fair value and price levels of markets based on a
variety of fundamental indicators. Statistical techniques are employed that help
determine those indicators that are relevant in particular cases. The model
evaluates markets in historical and prospective terms taking into consideration
interest rates, inflation and currency developments. While following a
disciplined, systematic approach to investment selection, the Sub-Adviser
combines the results from computerized screening techniques with market,
industry, economic and political information.

TYPES OF PORTFOLIO INVESTMENTS

An equity security of an issuer in an Emerging Market is defined as common
stock and preferred stock (including convertible preferred stock); bonds, notes
and debentures convertible into common or preferred stock; stock purchase
warrants and rights; equity interests in trusts and partnerships; and depositary
receipts of companies: (1) the principal securities trading market for which is
in an Emerging Market; (2) whose principal trading market is in any country,
provided that, alone or on a consolidated basis, they derive 50% or more of
their annual revenue from either goods produced, sales made or services
performed in Emerging Markets; or (3) that are organized under the laws of, and
with a principal office in, an Emerging Market. Determinations as to eligibility
are made by the Sub-Adviser based on publicly available information and
inquiries made to the companies.

The Fund may invest in securities of foreign issuers in the form of
American Depositary Receipts ('ADRs'), which are U.S. dollar-denominated
receipts typically issued by domestic banks or trust companies, and which
represent the deposit with those entities of securities of a foreign issuer.
ADRs are publicly traded on exchanges or over-the-counter in the United States
and are issued through 'sponsored' or 'unsponsored' arrangements. In a sponsored
ADR arrangement, the foreign issuer assumes the obligation to pay some or all of
the depositary's transaction fees, whereas under an unsponsored arrangement, the
foreign issuer assumes no obligations and the depositary's transaction fees are
paid directly by the ADR holders. The Fund may invest in ADRs through both
sponsored and unsponsored arrangements.

The Fund, in addition to investing in foreign securities in the form of
ADRs, may purchase European Depositary Receipts ('EDRs'), which are sometimes
referred to as Continental Depositary Receipts ('CDRs'). EDRs and CDRs are
generally issued by foreign banks and evidence ownership of either foreign or
domestic securities.

In certain countries that currently prohibit direct foreign investment in
the securities of their companies, indirect foreign

<PAGE>
investment in the securities of companies listed and traded on the stock
exchanges in these countries is permitted through investment funds that have
been specifically authorized to invest directly in the relevant market. The Fund
may invest in these investment funds and registered investment companies subject
to the provisions of the 1940 Act. Under the 1940 Act, the Fund, subject to
certain exceptions, may invest a maximum of 10% of its total assets in the
securities of other investment companies, not more than 5% of the Fund's total
assets may be invested in the securities of any one investment company and the
Fund may not own more than 3% of the securities of any one investment company.
If the Fund invests in investment companies, the Fund will bear its
proportionate share of the costs incurred by such companies, including
investment advisory fees, if any.

Although the Fund does not intend to do so in the foreseeable future, the
Fund may hedge all or a portion of its portfolio investments through stock
options, stock index options, futures contracts and options thereon and short
sales and may hedge all or a portion of its exposure to foreign currencies in
which its investments are, or are anticipated to be, denominated through
currency futures contracts and options thereon, and options on foreign
currencies. Currently, these financial instruments are only rarely available in
Emerging Markets and the Fund will not engage in transactions involving these
instruments prior to providing appropriate disclosure to investors. Although it
has no intention of doing so in an amount exceeding 5% of its total assets in
the foreseeable future, the Fund may lend its portfolio securities, as described
in the Statement of Additional Information. The Fund intends to engage in
transactions involving forward currency contracts. See 'Investment Techniques
and Strategies' below.

Up to 15% of the value of the Fund's total assets may be invested in
illiquid securities, which are securities lacking readily available markets,
including: (1) repurchase agreements not maturing within seven days, (2) time
deposits with maturities in excess of seven days and (3) securities whose
disposition is restricted as to resale in the principal market in which they are
traded (other than Rule 144A securities determined to be liquid by the Trust's
board of trustees).

The Fund may hold up to 35% of its total assets in cash or invest in money
market instruments and in excess of that amount when the Sub-Adviser determines
that unstable market, economic, political or currency conditions abroad warrant
adoption of a temporary defensive posture. To the extent that it holds cash or
invests in money market instruments, the Fund may not achieve its investment
objective.

Pending the investment of funds resulting from the sale of Fund shares or
the liquidation of portfolio holdings, or during temporary defensive periods or
in order to have available highly liquid assets to meet anticipated redemptions
of Fund shares or to pay the Fund's operating expenses, the Fund may invest in
the following types of money market instruments: securities issued or guaranteed
by the U.S. Government or one of its agencies or instrumentalities ('Government
Securities'); bank obligations (including certificates of deposit, time deposits
and bankers' acceptances of foreign or domestic banks and other banking
institutions having total assets in excess of $500 million); commercial paper,
including variable and floating rate notes, rated no lower than A-1 by Standard
&

<PAGE>
Poor's or Prime-1 by Moody's Investors Service, Inc., or the equivalent rating
from another major rating service, or, if unrated, of an issuer having an
outstanding unsecured debt issue then rated within the three highest rating
categories; and repurchase agreements meeting the conditions described below
under 'Investment Techniques and Strategies -- Repurchase Agreements.' Except
during temporary defensive periods, the Fund will not invest more than 35% of
its assets in money market instruments. At no time will the Fund's investments
in bank obligations, including time deposits, exceed 25% of the value of its
assets.

The Fund is authorized to invest in obligations of foreign banks or
foreign branches of domestic banks that are traded in the United States or
outside the United States, but that are denominated in U.S. dollars. These
obligations entail risks that are different from those of investments in
obligations in domestic banks, including foreign economic and political
developments outside the United States, foreign governmental restrictions that
may adversely affect payment of principal and interest on the obligations,
foreign exchange controls and foreign withholding or other taxes on income.
Foreign branches of domestic banks are not necessarily subject to the same or
similar regulatory requirements that apply to domestic banks, such as mandatory
reserve requirements, loan limitations and accounting, auditing and financial
recordkeeping requirements. In addition, less information may be publicly
available about a foreign branch of a domestic bank than about a domestic bank.

Among the Government Securities that may be held by the Fund are
instruments that are supported by the full faith and credit of the United
States; instruments that are supported by the right of the issuer to borrow from
the U.S. Treasury; and instruments that are supported solely by the credit of
the instrumentality. The Fund may invest up to 5% of its total assets in
exchange rate-related Government Securities, which are described in the
Statement of Additional Information.

INVESTMENT TECHNIQUES AND STRATEGIES

The Fund, in seeking to meet its investment objective, is authorized to engage
in any one or more of the specialized investment techniques and strategies
described below:

FORWARD CURRENCY TRANSACTIONS. The Fund may hold currencies to meet
settlement requirements for foreign securities and may engage in currency
exchange transactions to protect against uncertainty in the level of future
exchange rates between a particular foreign currency and the U.S. dollar or
between foreign currencies in which the Fund's securities are or may be
denominated. Forward currency contracts are agreements to exchange one currency
for another at a future date. The date (which may be any agreed-upon fixed
number of days in the future), the amount of currency to be exchanged and the
price at which the exchange takes place will be negotiated and fixed for the
term of the contract at the time that the Fund enters into the contract. Forward
currency contracts (1) are traded in a market conducted directly between
currency traders (typically, commercial banks or other financial institutions)
and their customers, (2) generally have no deposit requirements and (3) are
typically consummated without payment of any commissions. The Fund, however, may
enter into forward currency contracts requiring deposits or involving the
payment of commissions.

Upon maturity of a forward currency contract, the Fund may (1) pay for and

<PAGE>
receive the underlying currency, (2) negotiate with the dealer to rollover the
contract into a new forward currency contract with a new future settlement date
or (3) negotiate with the dealer to terminate the forward contract by entering
into an offset with the currency trader providing for the Fund's paying or
receiving the difference between the exchange rate fixed in the contract and the
then current exchange rate. The Fund may also be able to negotiate such an
offset prior to maturity of the original forward contract. No assurance can be
given that new forward contracts or offsets will always be available to the
Fund.

The Fund's dealings in forward foreign exchange is limited to hedging
involving either specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of one forward foreign currency for another
currency with respect to specific receivables or payables of the Fund accruing
in connection with the purchase and sale of its portfolio securities, the sale
and redemption of shares of the Fund or the payment of dividends and
distributions by the Fund. Position hedging is the purchase or sale of one
forward foreign currency for another currency with respect to portfolio security
positions denominated or quoted in the foreign currency to offset the effect of
an anticipated substantial appreciation or depreciation, respectively, in the
value of the currency relative to the U.S. dollar. In this situation, the Fund
also may, for example, enter into a forward contract to sell or purchase a
different foreign currency for a fixed U.S. dollar amount where it is believed
that the U.S. dollar value of the currency to be sold or bought pursuant to the
forward contract will fall or rise, as the case may be, whenever there is a
decline or increase, respectively, in the U.S. dollar value of the currency in
which portfolio securities of the Fund are denominated (this practice being
referred to as a 'cross-hedge').

In hedging a specific transaction, the Fund may enter into a forward
contract with respect to either the currency in which the transaction is
denominated or another currency deemed appropriate by the Sub-Adviser. The
amount the Fund may invest in forward currency contracts is limited to the
amount of the Fund's aggregate investments in foreign currencies. See the
Statement of Additional Information for a further discussion of forward currency
contracts.

REPURCHASE AGREEMENTS. The Fund may engage in repurchase agreement
transactions with respect to instruments in which the Fund is authorized to
invest. The Fund may engage in repurchase agreement transactions with certain
member banks of the Federal Reserve System and with certain dealers listed on
the Federal Reserve Bank of New York's list of reporting dealers. Under the
terms of a typical repurchase agreement, the Fund would acquire an underlying
debt obligation for a relatively short period (usually not more than seven days)
subject to an obligation of the seller to repurchase, and the Fund to resell,
the obligation at an agreed-upon price and time, thereby determining the yield
during the Fund's holding period. Thus, repurchase agreements are considered to
be collateralized loans. This arrangement results in a fixed rate of return that
is not subject to market fluctuations during the Fund's holding period. The
value of the securities underlying a repurchase agreement of the Fund are
monitored on an ongoing basis by the Sub-Adviser or Mitchell Hutchins to ensure
that the value is at least equal at all times to the total amount of the
repurchase obligation, including interest. The Sub-Adviser or Mitchell Hutchins
also monitors, on an ongoing basis to evaluate potential risks, the

<PAGE>
creditworthiness of those banks and dealers with which the Fund enters into
repurchase agreements.

WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. To secure prices deemed
advantageous at a particular time, the Fund may purchase securities on a
when-issued or delayed-delivery basis, in which case delivery of the securities
occurs beyond the normal settlement period; payment for or delivery of the
securities would be made prior to the reciprocal delivery or payment by the
other party to the transaction. The Fund enters into when-issued or
delayed-delivery transactions for the purpose of acquiring securities and not
for the purpose of leverage. When-issued securities purchased by the Fund may
include securities purchased on a 'when, as and if issued' basis under which the
issuance of the securities depends on the occurrence of a subsequent event, such
as approval of a merger, corporate reorganization or debt restructuring. The
Fund will establish with its custodian, or with a designated sub-custodian, a
segregated account consisting of cash, Government Securities or other liquid
high-grade debt obligations in an amount equal to the amount of its when-issued
or delayed-delivery purchase commitments.

INVESTMENT RESTRICTIONS

The Trust has adopted certain fundamental investment restrictions with
respect to the Fund that may not be changed without approval of a majority of
the Fund's outstanding voting securities (as defined in the 1940 Act). Included
among those fundamental restrictions are the following:

1. The Fund will not lend money to other persons, except through
purchasing debt obligations, lending portfolio securities in an amount not
to exceed 33 1/3% of the value of the Fund's total assets and entering into
repurchase agreements.

2. The Fund may borrow from banks for leveraging purposes (although it
has no intention of doing so in the foreseeable future), as well as the
meeting of redemption requests and cash payments of dividends and
distributions that might otherwise require the untimely disposition of
securities, in an amount not to exceed 33 1/3% of the value of the Fund's
total assets (including the amount borrowed) valued at market less
liabilities (not including the amount borrowed) at the time the borrowing
is made.

The risks of borrowing for investment purposes, as well as certain other
investment restrictions adopted by the Trust with respect to the Fund, are
described in the Statement of Additional Information.

RISK FACTORS AND SPECIAL CONSIDERATIONS

Investing in the Fund involves risks and special considerations, such as
those described below:

<PAGE>
Markets and their securities, the Fund may be subject to greater investment risk
than that assumed by other investment companies. Because of the risks associated
with the Fund's investments, the Fund is intended to be a long-term investment
vehicle and is not designed to provide investors with a means of speculating on
short-term stock market movements.

INVESTMENT IN FOREIGN SECURITIES. Investing in securities issued by
foreign issuers involves considerations and potential risks not typically
associated with investing in obligations issued by domestic issuers. Less
information may be available about foreign issuers than about domestic issuers
and foreign issuers generally are not subject to uniform accounting, auditing
and financial reporting standards or to other regulatory practices and
requirements comparable to those applicable to domestic issuers. The values of
foreign investments are affected by changes in currency rates or exchange
control regulations, restrictions or prohibitions on the repatriation of foreign
currencies, application of foreign tax laws, including withholding taxes,
changes in governmental administration or economic or monetary policy (in the
United States or abroad) or changed circumstances in dealings between nations.
Costs are also incurred in connection with conversions between various
currencies. In addition, foreign brokerage commissions are generally higher than
those charged in the United States and foreign securities markets may be less
liquid, more volatile and less subject to governmental supervision than in the
United States. Investments in foreign countries could be affected by other
factors not present in the United States, including expropriation, confiscatory
taxation, lack of uniform accounting and auditing standards and potential
difficulties in enforcing contractual obligations and could be subject to
extended clearance and settlement periods.

INVESTING IN EMERGING MARKETS. Investing in securities of issuers in
Emerging Markets involves exposure to economic structures that are generally
less diverse and mature than, and to political systems that can be expected to
have less stability than, those of developed countries. Other characteristics of
Emerging Markets that may affect investment in their markets include certain
national policies that may restrict investment by foreigners and the absence of
developed legal structures governing private and foreign investments and private
property. The typically small size of the markets for securities issued by
issuers located in Emerging Markets and the possibility of a low or nonexistent
volume of trading in those securities may also result in a lack of liquidity and
in significantly greater price volatility of those securities.

Included among the Emerging Markets in which the Fund may invest are the
formerly communist countries of Eastern Europe, the Commonwealth of Independent
States (formerly the Soviet Union) and the People's Republic of China
(collectively, 'Communist Countries'). Upon the accession to power of Communist
regimes approximately 40 to 70 years ago, the governments of a number of
Communist Countries expropriated a large amount of property. The claims of many
property owners against those governments were never finally settled. There can
be no assurance that the Fund's investments in Communist Countries, if any,
would not also be expropriated, nationalized or otherwise confiscated, in which
case the Fund could lose its entire investment in the Communist Country
involved. In addition, any change in the leadership or policies of Communist
Countries may halt the expansion of

<PAGE>
or reverse the liberalization of foreign investment policies now occurring.

CURRENCY EXCHANGE RATES. The Fund's share values may change significantly
when the currencies, other than the U.S. dollar, in which the Fund's portfolio
investments are denominated strengthen or weaken against the U.S. dollar.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments in
different countries as seen from an international perspective. Currency exchange
rates can also be affected unpredictably by the intervention of the U.S.
government, foreign governments or central banks, the imposition of currency
controls or other political developments in the United States or abroad.

WARRANTS. Because a warrant, which is a security permitting, but not
obligating, its holder to subscribe for another security, does not carry with it
the right to dividends or voting rights with respect to the securities that the
warrant holder is entitled to purchase, and because a warrant does not represent
any rights to the assets of the issuer, a warrant may be considered more
speculative than certain other types of investments. In addition, the value of a
warrant does not necessarily change with the value of the underlying security
and a warrant ceases to have value if it is not exercised prior to its
expiration date. The investment by the Fund in warrants, valued at the lower of
cost or market, may not exceed 5% of the value of the Fund's net assets.
Included within that amount, but not to exceed 2% of the value of the Fund's net
assets, may be warrants that are not listed on the New York Stock Exchange, Inc.
('NYSE') or the American Stock Exchange. Warrants acquired by the Fund in units
or attached to securities may be deemed to be without value.

NON-PUBLICLY TRADED AND ILLIQUID SECURITIES. Non-publicly traded
securities may be less liquid than publicly traded securities. Although these
securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the Fund.
In addition, companies whose securities are not publicly traded are not subject
to the disclosure and other investor protection requirements that may be
applicable if their securities were publicly traded. The Fund's investments in
illiquid securities are subject to the risk that, should the Fund desire to sell
any of these securities when a ready buyer is not available at a price that the
Sub-Adviser deems representative of their value, the value of the Fund's net
assets could be adversely affected.

FORWARD CURRENCY CONTRACTS. In entering into forward currency contracts,
the Fund is subject to a number of risks and special considerations. The market
for forward currency contracts, for example, may be limited with respect to
certain currencies. The existence of a limited market may in turn restrict the
Fund's ability to hedge against the risk of devaluation of currencies in which
the Fund holds a substantial quantity of securities. The successful use of
forward currency contracts as a hedging technique draws upon the Sub-Adviser's
special skills and experience with respect to those instruments and usually
depends on the Sub-Adviser's ability to forecast currency exchange rate
movements correctly. Should exchange rates move in an unexpected manner, the
Fund may not achieve the anticipated benefits of forward currency contracts or
may realize losses and thus be in a less advantageous position than if those
strategies had not been used. Many forward currency contracts are subject to no
daily price fluctuation limits so that adverse market movements could continue
with

<PAGE>
respect to those contracts to an unlimited extent over a period of time. In
addition, the correlation between movements in the prices of those contracts and
movements in the prices of the currencies hedged or used for cover will not be
perfect.

The Fund's ability to dispose of its positions in forward currency
contracts depends on the availability of active markets in those instruments and
the Sub-Adviser cannot now predict the amount of trading interest that may exist
in the future in forward currency contracts. Forward currency contracts may be
closed out only by the parties entering into an offsetting contract. As a
result, no assurance can be given that the Fund will be able to utilize these
contracts effectively for the purposes described above.

REPURCHASE AGREEMENTS. In entering into a repurchase agreement, the Fund
bears a risk of loss in the event that the other party to the transaction
defaults on its obligations and the Fund is delayed or prevented from exercising
its rights to dispose of the underlying securities, including the risk of a
possible decline in the value of the underlying securities during the period in
which the Fund seeks to assert its rights to them, the risk of incurring
expenses associated with asserting those rights and the risk of losing all or a
part of the income from the agreement.

WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. Securities purchased on a
when-issued or delayed-delivery basis may expose the Fund to risk because the
securities may experience fluctuations in value prior to their actual delivery.
The Fund does not accrue income with respect to a when-issued or
delayed-delivery security prior to its stated delivery date. Purchasing
securities on a when-issued or delayed-delivery basis can involve the additional
risk that the yield available in the market when the delivery takes place may be
higher than that obtained in the transaction itself. When the Fund engages in
when-issued or delayed-delivery securities transactions, it relies on the other
party to consummate the trade. Failure of the seller to do so may result in the
Fund incurring a loss or missing on opportunity to obtain a price considered to
be advantageous.

PORTFOLIO TRANSACTIONS AND TURNOVER

Decisions to buy and sell securities for the Fund are made by the Sub-Adviser,
subject to review by the Board of Trustees and Mitchell Hutchins, and are placed
with brokers or dealers selected by the Sub-Adviser. The Trustees have
determined that, to the extent consistent with applicable provisions of the 1940
Act and rules and exemptions adopted thereunder, transactions for the Fund may
be executed through PaineWebber if, in the judgment of the Sub-Adviser, the use
of PaineWebber is likely to result in price and execution at least as favorable
to the Fund as those obtainable through other qualified broker-dealers, and if,
in the transaction, PaineWebber charges the Fund a fair and reasonable rate
consistent with that charged to comparable unaffiliated customers in similar
transactions.

The Fund's portfolio is actively managed. The Fund's portfolio turnover
rate may vary greatly from year to year and will not be a limiting factor when
the Sub-Adviser deems portfolio changes appropriate. An annual turnover rate of
100% would occur if all of the securities held by the Fund are replaced once
during a period of one year. Higher portfolio turnover rates (100% or more) will
result in corresponding increases in transaction costs, which will be borne
directly by the Fund, may make it more difficult for the Fund to qualify as a
regulated investment company for federal income tax purposes and

<PAGE>
may cause shareholders of the Fund to recognize short-term capital gains for
federal income tax purposes. See 'Dividends, Distributions and Taxes -- Taxes.'

PURCHASES

GENERAL. Class A shares are sold to investors subject to an initial sales
charge. Class B shares are sold without an initial sales charge but are subject
to higher ongoing expenses than Class A shares and a contingent deferred sales
charge payable upon certain redemptions. Class B shares automatically convert to
Class A shares approximately six years after issuance. Class C shares are sold
without an initial sales charge but are subject to a 1% contingent deferred
sales charge for redemptions made within one year and to higher ongoing expenses
than Class A shares and do not convert into another Class. See 'Flexible Pricing
System' and 'Conversion of Class B Shares.'

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

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

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

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

INITIAL SALES CHARGE -- CLASS A SHARES. The public offering price of
Class A shares is the next determined net asset value, plus any

<PAGE>
applicable sales charge, which will vary with the size of the purchase as shown
in the table below.

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

INITIAL SALES CHARGE SCHEDULE -- CLASS A SHARES

<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF
------------------------------- DISCOUNT TO SELECTED
OFFERING NET AMOUNT INVESTED DEALERS AS A PERCENTAGE OF
AMOUNT OF PURCHASE PRICE (NET ASSET VALUE) OFFERING PRICE
- -------------------------------- -------- ------------------- --------------------------

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

(1) Mitchell Hutchins pays compensation to PaineWebber out of its own resources.

SALES CHARGE WAIVERS -- CLASS A SHARES. Class A shares of the Fund are
available without a sales charge through exchanges for Class A shares of most
other PaineWebber mutual funds. See 'Exchanges.' In addition, Class A shares may
be purchased without a sales charge by employees, directors and officers of
PaineWebber or its affiliates, directors or trustees and officers of any
PaineWebber mutual fund, their spouses, parents and children and advisory
clients of Mitchell Hutchins.

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

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

<PAGE>

CONTINGENT DEFERRED SALES CHARGE -- CLASS A SHARES. Purchases of Class A
shares of $1 million or more may be made without a sales charge. Purchases of
Class A shares of two or more PaineWebber mutual funds may be combined for the
purpose, and the right of accumulation also applies to such purchases. See
'Reduced Sales Charge Plans -- Class A Shares' below. If a shareholder redeems
any Class A shares that were purchased without a sales charge by reason of a
purchase of $1 million or more within one year after the date of purchase, a
contingent deferred sales charge will be applied to the redemption. The Class A
contingent deferred sales charge will be equal to 1% of the lower of (a) the net
asset value of the shares at the time of purchase or (b) the net asset value of
the shares at the time of redemption. Class A shares of the Fund held one year
or longer, and Class A shares of the Fund acquired through reinvestment of
dividends or capital gains distributions will not be subject to this contingent
deferred sales charge. The contingent deferred sales charge for Class A shares
of the Fund will be waived for redemptions in connection with the systematic
withdrawal plan, subject to the limitations described below under 'Other
Services and Information -- Systematic Withdrawal Plan.' This contingent
deferred sales charge does not apply to redemptions of Class A shares purchased
prior to November 10, 1995.

Class A shares of the Fund that are purchased without a sales charge may
be exchanged for Class A shares of another PaineWebber mutual fund without the
imposition of a contingent deferred sales charge, although contingent deferred
sales charges may apply to the Class A shares acquired through an exchange. For
federal income tax purposes, the amount of the contingent deferred sales charge
will reduce the gain or increase the loss, as the case may be, on the amount
realized on the redemption. The amount of any contingent deferred sales charge
will be paid to Mitchell Hutchins.

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

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

CONTINGENT DEFERRED SALES CHARGE -- CLASS B SHARES. The public offering
price of the Class B shares of the Fund is the next determined net asset value,
and no initial

<PAGE>
sales charge is imposed. A contingent deferred sales charge, however, is imposed
upon certain redemptions of Class B shares.

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

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
REDEMPTION DURING APPLICABLE
- -------------------------------- --------------------

<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>

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

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

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

<PAGE>
PURCHASES OF CLASS C SHARES. The public offering price of the Class C
shares is the next determined net asset value. No initial or contingent deferred
sales charge is imposed.

CONTINGENT DEFERRED SALES CHARGE -- CLASS C SHARES. If a shareholder
redeems Class C shares within a year after the date of the purchase, a
contingent deferred sales charge will be applied to the redemption. The
contingent deferred sales charge on Class C shares will be equal to 1.00% of the
lower of: (a) the net asset value of the shares at the time of purchase or (b)
the net asset value of the shares at the time of redemption. Class C shares of
the Fund held one year or longer and Class C shares of the Fund acquired through
reinvestment of dividends or capital gains distributions will not be subject to
the contingent deferred sales charge. The contingent deferred sales charge for
Class C shares of the Fund will be waived for redemptions in connection with the
systematic withdrawal plan, subject to the limitations described below under
'Other Services and Information -- Systematic Withdrawal Plan.' This contingent
deferred sales charge does not apply to redemptions of Class C shares purchased
prior to November 10, 1995.

Class C shares of the Fund that are purchased without a sales charge may
be exchanged for Class C shares of another PaineWebber mutual fund without the
imposition of a contingent deferred sales charge, although contingent deferred
sales charges may apply to the Class C shares acquired through an exchange. For
federal income tax purposes, the amount of the contingent deferred sales charge
will reduce the gain or increase the loss, as the case may be, on the amount
realized on the redemption. The amount of any contingent deferred sales charge
will be paid to Mitchell Hutchins.

EXCHANGES

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

Exchanges are permitted between the Fund and other PaineWebber mutual
funds, including:

Income Funds

PW GLOBAL INCOME FUND

PW HIGH INCOME FUND

PW INVESTMENT GRADE INCOME FUND

PW LOW DURATION U.S. GOVERNMENT
INCOME FUND

PW STRATEGIC INCOME FUND

PW U.S. GOVERNMENT INCOME FUND

Tax-Free Income Funds

PW CALIFORNIA TAX-FREE INCOME FUND

PW MUNICIPAL HIGH INCOME FUND

PW NATIONAL TAX-FREE INCOME FUND

PW NEW YORK TAX-FREE INCOME FUND

Growth Funds

PW CAPITAL APPRECIATION FUND

PW GLOBAL EQUITY FUND

PW GROWTH FUND

PW REGIONAL FINANCIAL GROWTH FUND

PW SMALL CAP GROWTH FUND

PW SMALL CAP VALUE FUND

<PAGE>
Growth and Income Funds

PW BALANCED FUND

PW GROWTH AND INCOME FUND

PW TACTICAL ALLOCATION FUND

PW UTILITY INCOME FUND

PaineWebber Money Market Fund

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

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

REDEMPTIONS

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

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

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

REDEMPTION THROUGH THE TRANSFER AGENT. Fund shareholders who are not
PaineWebber clients or who wish to redeem certificated shares must redeem their
shares

<PAGE>
through the Transfer Agent by mail; other shareholders also may redeem Fund
shares through the Transfer Agent. Shareholders should mail redemption requests
directly to the Transfer Agent: PFPC Inc., Attn: PaineWebber Mutual Funds, P.O.
Box 8950, Wilmington, Delaware 19899. A redemption request will be executed at
the net asset value next computed after it is received in 'good order' and
redemption proceeds will be paid within seven days of the receipt of the
request. 'Good order' means that the request must be accompanied by the
following: (1) a letter of instruction or a stock assignment specifying the
number of shares or amount of investment to be redeemed (or that all shares
credited to a Fund account be redeemed), signed by all registered owners of the
shares in the exact names in which they are registered, (2) a guarantee of the
signature of each registered owner by an eligible institution acceptable to the
Transfer Agent and in accordance with SEC rules, such as a commercial bank,
trust company or member of a recognized stock exchange, (3) other supporting
legal documents for estates, trusts, guardianships, custodianships, partnerships
and corporations and (4) duly endorsed share certificates, if any. Shareholders
are responsible for ensuring that a request for redemption is received in 'good
order.'

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

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

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

CONVERSION OF CLASS B SHARES

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

<PAGE>
periods for the shares so exchanged will be counted toward the six-year period.

OTHER SERVICES AND INFORMATION

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

AUTOMATIC INVESTMENT PLAN. Shareholders may purchase shares of the Fund
through an automatic investment plan, under which an amount specified by the
shareholder of $50 or more each month will be sent to the Transfer Agent from
the shareholder's bank for investment in the Fund. In addition to providing a
convenient and disciplined manner of investing, participation in the automatic
investment plan enables the investor to use the technique of 'dollar cost
averaging.' When under the plan a shareholder invests the same dollar amount
each month, the shareholder will purchase more shares when the Fund's net asset
value per share is low and fewer shares when the net asset value per share is
high. Using this technique, a shareholder's average purchase price per share
over any given period will be lower than if the shareholder purchased a fixed
number of shares on a monthly basis during the period. Of course, investing
through the automatic investment plan does not assure a profit or protect
against loss in declining markets. Additionally, since the automatic investment
plan involves continuous investing regardless of price levels, an investor
should consider his or her financial ability to continue purchases through
periods of low price levels.

SYSTEMATIC WITHDRAWAL PLAN. Shareholders who own Class A or Class C shares
with a value of $5,000 or more or non-certificated Class B shares with a value
of $20,000 or more may have PaineWebber redeem a portion of their shares
monthly, quarterly or semi-annually under the systematic withdrawal plan. No
contingent deferred sales charge will be imposed on such withdrawals for Class B
shares. The minimum amount for all withdrawals of Class A or Class C shares is
$100, and minimum monthly, quarterly and semi-annual withdrawal amounts for
Class B shares are $200, $400 and $600, respectively. Quarterly withdrawals are
made in March, June, September and December, and semi-annual withdrawals are
made in June and December. A Class B shareholder may not withdraw an amount
exceeding 12% annually of his or her 'Initial Account Balance,' a term that
means the value of the Fund account at the time the shareholder elects to
participate in the systematic withdrawal plan. A shareholder's participation in
the systematic withdrawal plan will terminate automatically if the Initial
Account Balance (plus the net asset value on the date of purchase of Fund shares
acquired after the election to participate in the systematic withdrawal plan),
less aggregate redemptions made other than pursuant to the systematic withdrawal
plan, is less than $20,000 in the case of Class B shares or $5,000 in the case
of Class A or Class C shares. No contingent deferred sales charge will be
imposed on such withdrawals within the first year after purchase for Class A
shares purchased pursuant to the sales charge waiver for purchases of $1 million
or more or Class C shares, provided that the Class A or Class C shareholder does
not withdraw an amount exceeding 12% in the first year after purchase of his or
her Initial Account Balance. Shareholders who receive dividends or other
distributions in cash may not participate in the systematic withdrawal plan.
Purchases of additional Fund shares concurrently with withdrawals are ordinarily
disadvantageous to shareholders because of tax liabilities and, for Class A
shares, sales charges.

INDIVIDUAL RETIREMENT ACCOUNTS. Shares of the Fund may be purchased
through IRAs

<PAGE>
available through the Fund. In addition, a Self-Directed IRA is available
through Paine-Webber under which investments may be made in the Fund as well as
in other investments available through PaineWebber. Investors considering
establishing an IRA should review applicable tax laws and should consult their
tax advisers.

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

DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS AND DISTRIBUTIONS

Dividends from net investment income and distributions of net realized capital
gains of the Fund, if any, are distributed annually. Unless a shareholder
instructs the Fund that dividends and capital gains distributions on shares of
any Class should be paid in cash and credited to the shareholder's Account,
dividends and capital gains distributions are reinvested automatically at net
asset value in additional shares of the same Class. The Fund is subject to a 4%
nondeductible excise tax measured with respect to certain undistributed amounts
of net investment income and capital gains. If necessary to avoid the imposition
of this tax, and if in the best interests of its shareholders, the Fund will
declare and pay dividends of its net investment income and distributions of its
net capital gains more frequently than stated above. The per share dividends and
distributions on Class A shares are higher than those on Class B and Class C
shares, as a result of the distribution fees borne by Class B and Class C
shares. Dividends on each Class also might be affected differently by the
allocation of other Class-specific expenses. See 'Fee Table,' 'Purchase of
Shares,' 'Distributor' and 'General Information.'

TAXES

The Fund has qualified for the fiscal year ended June 30, 1995 as a regulated
investment company within the meaning of the Code and intends to qualify for
this treatment in each year. To qualify as a regulated investment company for
federal income tax purposes, the Fund will limit its income and investments so
that (1) less than 30% of its gross income is derived from the sale or
disposition of stocks, other securities and certain financial instruments
(including certain forward contracts) that were held for less than three months
and (2) at the close of each quarter of the taxable year (a) not more than 25%
of the market value of the Fund's total assets is invested in the securities of
a single issuer or of two or more issuers controlled by the Fund (within the
meaning of Section 852(a)(2) of the Code) that are engaged in the same or
similar trades or businesses or in related trades or businesses (other than
Government Securities and securities of other regulated investment companies)
and (b) at least 50% of the market value of the Fund's total assets is
represented by (i) cash and cash items, (ii) Government Securities and (iii)
other securities limited in respect of any one issuer to an amount not greater
in value than 5% of the market value of the Fund's total assets and to not more
than 10% of the outstanding voting securities of the issuer. The requirements
for qualification may cause the Fund to restrict the degree to which it sells or
otherwise disposes of stocks, other securities and certain financial instruments
held for less than three months. If the Fund qualifies as a regulated
invest-

<PAGE>
ment company and meets certain distribution requirements, the Fund will not be
subject to federal income and excise taxes on its net investment income and net
realized capital gains that it distributes to its shareholders.

Dividends paid by the Fund out of net investment income and distributions
of net realized short term capital gains will be taxable to shareholders as
ordinary income, whether received in cash or reinvested in additional Fund
shares. Distributions of net realized long term capital gains will be taxable to
shareholders as long term capital gains, regardless of how long shareholders
have held their shares and whether the distributions are received in cash or
reinvested in additional shares. Dividends and distributions paid by the Fund
will generally not qualify for the federal dividends received deduction for
corporate shareholders.

Income received by the Fund from sources within foreign countries may be
subject to withholding and other foreign taxes. The payment of these taxes will
reduce the amount of dividends and distributions paid to the Fund's
shareholders. The Fund expects to elect, for federal income tax purposes, to
treat certain foreign income taxes it pays as having been paid by its
shareholders.

Statements as to the tax status of each Fund shareholder's dividends and
distributions will be mailed annually. Shareholders will also receive, as
appropriate, various written notices after the close of the Fund's taxable year
regarding the tax status of certain dividends and distributions that were paid
(or that are treated as having been paid) by the Fund to its shareholders during
the preceding taxable year, including the amount of dividends that represent
interest derived from Government Securities.

Shareholders are urged to consult their tax advisors regarding the
application of federal, state, local and foreign tax laws to their specific
situations before investing in the Fund.

VALUATION OF SHARES

Each Class' net asset value per share is calculated by State Street, the Fund's
custodian, on each day, Monday through Friday, except that net asset value is
not computed on days on which the NYSE is closed. The NYSE is currently
scheduled to be closed on the observance of New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.

Net asset value per share of a Class is determined as of the close of
regular trading on the NYSE (currently 4:00 p.m., Eastern time), and is computed
by dividing the value of the Fund's net assets attributable to that Class by the
total number of shares outstanding of that Class. Generally, the Fund's
investments are valued at market value or, in the absence of a market value, at
fair value as determined by or under the direction of the Trustees.

Securities that are primarily traded on foreign exchanges that close prior
to the close of regular trading on the NYSE (currently 4:00 p.m., Eastern time)
are generally valued for purposes of calculating the Fund's net asset values at
the preceding closing values of the securities on their respective exchanges,
except that, when an occurrence subsequent to the time a value was so
established is likely to have changed that value, the fair market value of those
securities will be determined by consideration of other factors by or under the
direction of the board of trustees. Securities that are primarily traded on
foreign exchanges that close after the close of regular trading on the NYSE are
generally valued at sale prices as of a time reasonably proximate to the close
of regular trading on the NYSE or,

<PAGE>
if no sales occurred previously during that day, at the then-current bid price.

A security that is primarily traded on a domestic stock exchange is valued
at the last sale price on that exchange or, if no sales occurred during the day,
at the current quoted bid price. An option that is written by the Fund is
generally valued at the last sale price or, in the absence of the last sale
price, the last offer price. An option that is purchased by the Fund is
generally valued at the last sale price or, in the absence of the last sale
price, the last bid price. The value of a futures contract is equal to the
unrealized gain or loss on the contract that is determined by marking the
contract to the current settlement price for a like contract on the valuation
date of the futures contract. A settlement price may not be used if the market
makes a limit move with respect to a particular futures contract or if the
securities underlying the futures contract experience significant price
fluctuations after the determination of the settlement price. When a settlement
price cannot be used, futures contracts will be valued at their fair market
value as determined by or under the direction of the Board of Trustees.

For purposes of calculating a Class' net asset value per share, assets and
liabilities initially expressed in foreign currency values are converted into
U.S. dollar values based on a formula prescribed by the Trust or, if the
information required by the formula is unavailable, as determined in good faith
by the Trustees. Corporate actions by issuers of securities held by the Fund,
such as the payment of dividends or distributions, are reflected in each Class'
net asset value on the ex-dividend date therefore, except that they will be so
reflected on the date the Fund is actually advised of the corporate action if
subsequent to the ex-dividend date. In carrying out the Fund's valuation
policies, State Street may consult with an independent pricing service retained
by the Trust. Further information regarding the Fund's valuation policies is
contained in the Statement of Additional Information.

MANAGEMENT

The Trust's board of trustees, as part of its overall management responsibility,
oversees various organizations responsible for the Fund's day-to-day management.
Mitchell Hutchins, the Fund's investment adviser and administrator, supervises
all aspects of the Fund's operations. Mitchell Hutchins receives a monthly fee
for its services, computed daily and payable monthly, at an annual rate of 1.62%
of the Fund's average daily net assets. The rate of fee paid to Mitchell
Hutchins, although higher than that paid by most other investment companies
registered under the 1940 Act, is believed by Mitchell Hutchins to be within the
range charged to other investment companies that invest in Emerging Markets and
reflects the need to devote additional time and incur added expense in
developing the specialized resources contemplated by investing in these markets.

Mitchell Hutchins supervises the activities of EMM which, as sub-adviser
for the Fund, makes and implements all investment decisions for the Fund. Under
the sub-advisory contract, Mitchell Hutchins (not the Fund) pays EMM a fee for
its services as sub-adviser for the Fund in the amount of 1.12% of the Fund's
average daily net assets.

The Fund incurs other expenses and, for the fiscal year ended June 30,
1995, the Fund's total expenses for its Class A and Class C shares, stated as a
percentage of average net assets were (net of fee waivers and expense
reimbursements) 2.44% and 3.19%, respectively.

<PAGE>
Mitchell Hutchins is located at 1285 Avenue of the Americas, New York, New
York 10019. It is a wholly owned subsidiary of PaineWebber, which is in turn a
wholly owned subsidiary of Paine Webber Group Inc., a publicly owned financial
services holding company. As of September 30, 1995, Mitchell Hutchins was
adviser or sub-adviser of 38 investment companies with 81 separate portfolios
and aggregate assets of over $28.8 billion.

The Sub-Adviser, located at 1001 Nineteenth Street North, Arlington,
Virginia 22209-1722, is a registered investment adviser under the Advisers Act
and concentrates its investment advisory activities in the area of Emerging
Markets. The Sub-Adviser is organized as a general partnership under the laws of
the District of Columbia. The managing partner of the Sub-Adviser is Emerging
Markets Investors Corporation ('EMI'), a Delaware Corporation that is also
registered under the Advisers Act, which is controlled by Antoine W. van
Agtmael. Mr. van Agtmael is ultimately responsible for all investment decisions
made by the Sub-Adviser and EMI. Mr. van Agtmael serves as the Fund's Chief
Investment Officer and in that capacity is the individual primarily responsible
for the management of the Fund's assets. Mr. van Agtmael has been the President
of the Sub-Adviser for more than five years. EMI, directly and through the
Sub-Adviser, provides its investment advisory services to a variety of clients
having total assets under its management exceeding $3.2 billion as of September
30, 1995. The Sub-Adviser has not previously served as an investment adviser to
a registered investment company.

Although investment decisions for the Fund are made independently from
those of the other accounts managed by the Sub-Adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund and
one or more other accounts managed by the Sub-Adviser are prepared to invest in,
or desire to dispose of, the same security, available investments or
opportunities for sales are allocated in a manner believed by the Sub-Adviser to
be equitable to each. In some cases, this procedure may adversely affect the
price paid or received by the Fund or the size of the position obtained or
disposed of by the Fund.

Mitchell Hutchins and EMM investment personnel may engage in securities
transactions for their own accounts pursuant to each firm's code of ethics that
establishes procedures for personal investing and restricts certain
transactions.

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

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

<PAGE>
which the investment executive is based, such as rent, communications equipment,
employee salaries and other overhead costs.

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

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

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

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

PERFORMANCE INFORMATION

The Fund performs a standardized computation of annualized total return
and may show this return in advertisements or promotional materials.
Standardized return shows the change in value of an investment in the Fund as a
steady compound annual rate of return. Actual year-by-year returns fluctuate and
may be higher or lower than standardized return. Standardized return for Class A
shares reflects deduction of the Fund's maximum initial sales charge at the time
of purchase, and standardized return for Class B

<PAGE>
shares reflects deduction of the applicable contingent deferred sales charge
imposed on a redemption of shares held for the period. One-, five- and ten-year
periods will be shown, unless the class has been in existence for a shorter
period. Total return calculations assume reinvestment of dividends and other
distributions.

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

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

GENERAL INFORMATION

ORGANIZATION. The Trust is registered under the 1940 Act as an open-end
management investment company and was formed as a business trust pursuant to a
Declaration of Trust, as amended from time to time (the 'Declaration'), under
the laws of The Commonwealth of Massachusetts on August 10, 1992. The Fund
commenced investment operations on January 19, 1994. The Declaration authorizes
the Trustees to create separate series, and within each series separate Classes,
of an unlimited number of shares of beneficial interest, par value $.001 per
share. As of the date of this Prospectus, the Trustees have established several
such series, representing interests in, among others, the Fund described in this
Prospectus. See 'Exchange Privilege' in the Statement of Additional Information.

When issued, Fund shares will be fully paid and non-assessable. Shares are
freely transferable and have no pre-emptive, subscription or conversion rights.
Each Class represents an identical interest in the Fund's investment portfolio.
As a result, the Classes have the same rights, privileges and preferences,
except with respect to: (1) the designation of each Class; (2) the effect of the
respective sales charges, if any, for each Class; (3) the distribution and/or
service fees, if any, borne by each Class; (4) the expenses allocable
exclusively to each Class; (5) voting rights on matters exclusively affecting a
single Class; and (6) the exchange privilege of each Class. The board of
trustees does not anticipate that there will be any conflicts among the
interests of the holders of the different Classes. The Trustees, on an ongoing
basis, will consider whether any conflict exists and, if so, take appropriate
action. Certain aspects of the shares may be changed, upon notice to Fund
shareholders, to satisfy certain tax regulatory requirements, if the change is
deemed necessary by the Trust's board of trustees.

Shareholders of the Fund are entitled to one vote for each full share held
and fractional votes for fractional shares held. Voting rights are not
cumulative and, as a result, the holders of more than 50% of the aggregate
shares of the Trust may elect all of the Trustees. Generally, shares of the
Trust are voted on a Trust-wide basis on all matters except those affecting only
the interests of one series, such as the Fund's investment advisory agreement.
In turn, shares of the Fund

<PAGE>
are voted on a Fund-wide basis on all matters except those affecting only the
interests of one Class, such as the terms of each plan of distribution as it
relates to a Class.

The Trust does not intend to hold annual meetings of shareholders for the
purpose of electing Trustees unless, and until such time as, less than a
majority of the Trustees holding office have been elected by shareholders.
Shareholders of record of no less than two-thirds of the outstanding shares of
the Trust may remove a Trustee through a declaration in writing or by vote cast
in person or by proxy at a meeting called for that purpose. A meeting will be
called for the purpose of voting on the removal of a Trustee at the written
request of holders of 10% of the Trust's outstanding shares. Shareholders of the
Fund who satisfy certain criteria will be assisted by the Trust in communicating
with other shareholders in seeking the holding of the meeting.

To avoid additional operating costs and for investor convenience, the Fund
does not issue share certificates. Ownership of the Fund's shares is recorded on
a stock register by the Transfer Agent and shareholders have the same rights of
ownership with respect to such shares as if certificates had been issued.

CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, One
Heritage Drive, North Quincy, Massachusetts 02171, is the custodian of the
Fund's assets. PFPC Inc., a subsidiary of PNC Bank, National Association, whose
principal business address is 400 Bellevue Parkway, Wilmington, Delaware 19809,
is the Fund's transfer and dividend disbursing agent.

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

<PAGE>
Shares of the Fund can be exchanged for shares of the following PaineWebber
Mutual Funds:

INCOME FUNDS
PW Global Income Fund
PW High Income Fund
PW Investment Grade Income Fund
PW Low Duration U.S. Government Income Fund
PW Strategic Income Fund
PW U.S. Government Income Fund

TAX-FREE INCOME FUNDS
PW California Tax-Free Income Fund
PW Municipal High Income Fund
PW National Tax-Free Income Fund
PW New York Tax-Free Income Fund
GROWTH FUNDS
PW Capital Appreciation Fund
PW Global Equity Fund
PW Growth Fund
PW Regional Financial Growth Fund
PW Small Cap Growth Fund
PW Small Cap Value Fund

GROWTH AND INCOME FUNDS
PW Balanced Fund
PW Growth and Income Fund
PW Tactical Allocation Fund
PW Utility Income Fund

PAINEWEBBER MONEY MARKET FUND
------------------------

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

'c'1995 PaineWebber Incorporated

[Logo] Printed on recycled paper

PAINEWEBBER

EMERGING MARKETS EQUITY FUND

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary................................. 2
Financial Highlights............................... 7
Flexible Pricing System............................ 8
Investment Objective and Policies.................. 9
Purchases.......................................... 20
Exchanges.......................................... 24
Redemptions........................................ 25
Conversion of Class B Shares....................... 26
Other Services and Information..................... 27
Dividends, Distributions and Taxes................. 28
Valuation of Shares................................ 29
Management......................................... 30
Performance Information............................ 32
General Information................................ 33
</TABLE>

PROSPECTUS
November 1, 1995

<PAGE>
PAINEWEBBER EMERGING MARKETS EQUITY FUND
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019

STATEMENT OF ADDITIONAL INFORMATION

PaineWebber Emerging Markets Equity Fund ('Fund') is a diversified series
of Mitchell Hutchins/Kidder, Peabody Investment Trust II ('Trust'), a
professionally managed mutual fund. The Fund seeks long-term capital
appreciation by investing primarily in equity securities of issuers in the
securities markets of newly industrializing countries in Asia, Latin America,
the Middle East, Southern Europe, Eastern Europe and Africa. The Fund's
investment adviser, administrator and distributor is Mitchell Hutchins Asset
Management Inc. ('Mitchell Hutchins'), a wholly owned subsidiary of PaineWebber
Incorporated ('PaineWebber'). The Fund's investment sub-adviser is Emerging
Markets Management ('Sub-Adviser'). As distributor for the Fund, Mitchell
Hutchins has appointed PaineWebber to serve as the exclusive dealer for the sale
of Fund shares. This Statement of Additional Information is not a prospectus and
should be read only in conjunction with the Fund's current Prospectus, dated
November 1, 1995. A copy of the Prospectus may be obtained by calling any
PaineWebber investment executive or corresponding firm or by calling toll-free
1-800-647-1568. This Statement of Additional Information is dated November 1,
1995.

INVESTMENT POLICIES AND RESTRICTIONS

The Prospectus discusses the investment objective of the Fund and the
policies to be employed to achieve that objective. Supplemental information is
set out below concerning certain of the securities and other instruments in
which the Fund may invest, the investment techniques and strategies that the
Fund may utilize and certain risks involved with those investments, techniques
and strategies.

RULE 144A SECURITIES

The Fund may purchase securities that are not registered under the
Securities Act of 1933, as amended (the '1933 Act'), but that can be sold to
'qualified institutional buyers' in accordance with Rule 144A under the 1933 Act
('Rule 144A Securities'). Particular Rule 144A Securities are considered
illiquid and, therefore, subject to the Fund's limitation on the purchase of
illiquid securities, unless the Trustees determine on an ongoing basis that an
adequate trading market exists for the Rule 144A Securities. The Fund's purchase
of Rule 144A Securities could have the effect of increasing the level of
illiquidity in the Fund to the extent that qualified institutional buyers become
uninterested for a time in purchasing Rule 144A Securities. The Board of
Trustees may adopt guidelines and delegate to Mitchell Hutchins or the
Sub-Adviser the daily function of determining and monitoring the liquidity of
Rule 144A Securities, although the Trustees retain ultimate responsibility for
any determination regarding liquidity. The ability to sell to qualified
institutional buyers under Rule 144A is a recent development and neither
Mitchell Hutchins nor

<PAGE>
the Sub-Adviser can predict how this market will develop. The Trustees carefully
monitor any investments by the Fund in Rule 144A Securities.

GOVERNMENT SECURITIES

Securities issued or guaranteed by the U.S. Government or one of its
agencies or instrumentalities ('Government Securities') in which the Fund may
invest include debt obligations of varying maturities issued by the U.S.
Treasury or issued or guaranteed by an agency or instrumentality of the U.S.
Government, including the Federal Housing Administration, Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association, General Services
Administration, Central Bank for Cooperatives, Federal Farm Credit Banks,
Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal
Intermediate Credit Banks, Federal Land Banks, Federal National Mortgage
Association, Maritime Administration, Tennessee Valley Authority, District of
Columbia Armory Board, Student Loan Marketing Association and Resolution Trust
Corporation. Direct obligations of the U.S. Treasury include a variety of
securities that differ in their interest rates, maturities and dates of
issuance. Because the United States Government is not obligated by law to
provide support to an instrumentality that it sponsors, the Fund invests in
obligations issued by an instrumentality of the U.S. Government only if Mitchell
Hutchins or the Sub-Adviser determines that the instrumentality's credit risk
does not make its securities unsuitable for investment by the Fund. Although the
Fund has no current intention to do so, the Fund may invest in exchange rate-
related Government Securities. Such securities are indexed to certain specific
foreign currency exchange rates and generally provide that the interest rate
and/or principal amount will be adjusted upwards or downwards (but not below
zero) to reflect changes in the exchange rate between two currencies while the
obligations are outstanding. While such securities offer the potential for an
attractive rate of return, they also entail the risk of loss of principal.

INVESTMENT TECHNIQUES AND STRATEGIES

FORWARD CURRENCY TRANSACTIONS. At or before the maturity of a forward
currency contract, the Fund may either sell a portfolio security and make
delivery of the currency, or retain the security and offset its contractual
obligation to deliver the currency by purchasing a second contract pursuant to
which the Fund will obtain, on the same maturity date, the same amount of the
currency that it is obligated to deliver. If the Fund retains the portfolio
security and engages in an offsetting transaction, the Fund, at the time of
execution of the offsetting transaction, will incur a gain or a loss to the
extent that movement has occurred in forward currency contract prices. Should
forward prices decline during the period between the Fund's entering into a
forward contract for the sale of a currency and the date it enters into an
offsetting contract for the purchase of the currency, the Fund will realize a
gain to the extent that the price of the currency it has agreed to sell exceeds
the price of the currency it has agreed to purchase. Should forward prices
increase, the Fund will suffer a loss to the extent that the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.

The cost to the Fund of engaging in forward currency transactions varies
with factors such as the currency involved, the length of the contract period
and the market conditions then prevailing. The use of forward currency contracts
does not eliminate fluctuations in the underlying prices of the securities, but
it does establish a rate of exchange that can be achieved in the future. In

<PAGE>
addition, although forward currency contracts limit the risk of loss due to a
decline in the value of the hedged currency, at the same time, they limit any
potential gain that might result should the value of the currency increase.

If a devaluation is generally anticipated, the Fund may not be able to
contract to sell currency at a price above the devaluation level it anticipates.
The Fund will not enter into a forward currency transaction if, as a result, it
will fail to qualify as a regulated investment company under the Internal
Revenue Code of 1986, as amended ('Code'), for a given year. See 'Taxes -- Tax
Status of the Fund and its Shareholders.'

Certain transactions involving forward currency contracts are not traded on
contract markets regulated by the Commodities Futures Trading Commission
('CFTC'); forward currency contracts also are not regulated by the Securities
and Exchange Commission ('SEC'). Instead, forward currency contracts are traded
through financial institutions acting as market-makers. In the forward currency
market, no daily price fluctuation limits are applicable, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Moreover, a trader of forward currency contracts could lose amounts
substantially in excess of its initial investments, due to the collateral
requirements associated with those positions.

Forward currency contracts may be traded on foreign exchanges, to the
extent permitted by the CFTC. These transactions are subject to the risk of
governmental actions affecting trading in or the prices of foreign currencies or
securities. The value of these positions also could be adversely affected by (1)
other complex foreign political and economic factors, (2) lesser availability of
data on which to make trading decisions than in the United States, (3) delays in
the Fund's ability to act upon economic events occurring in foreign markets
during nonbusiness hours in the United States, (4) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States and (5) lesser trading volume.

LENDING PORTFOLIO SECURITIES. The Fund may lend portfolio securities to
well-known and recognized U.S. and foreign brokers, dealers and banks. These
loans, if and when made, may not exceed 33 1/3% of the value of the Fund's total
assets. The Fund's loans of securities are collateralized by cash, letters of
credit or Government Securities. The cash or instruments collateralizing the
Fund's loans of securities are maintained at all times in a segregated account
with the Fund's custodian, or with a designated sub-custodian, in an amount at
least equal to the current market value of the loaned securities. From time to
time, the Fund may pay a part of the interest earned from the investment of
collateral received for securities loaned to the borrower and/or a third party
that is unaffiliated with the Fund and is acting as a 'finder.' The Fund will
comply with the following conditions whenever it loans securities: (1) the Fund
must receive at least 100% cash collateral or equivalent securities from the
borrower; (2) the borrower must increase the collateral whenever the market
value of the securities loaned rises above the level of the collateral; (3) the
Fund must be able to terminate the loan at any time; (4) the Fund must receive
reasonable interest on the loan, as well as any dividends, interest or other
distributions on the loaned securities, and any increase in market value; (5)
the Fund may pay only reasonable custodian fees in connection with the loan; and
(6) voting rights on the loaned securities may pass to the borrower except that,
if a material event adversely affecting the investment in the loaned securities
occurs, the Trust's Board of Trustees must terminate the loan and regain the
right to vote the securities.

<PAGE>
BORROWING. Although it has no intention of doing so in the foreseeable
future, the Fund may borrow for leverage purposes from banks up to 33 1/3 of the
value of its net assets (not including the amount of such borrowings). Leverage
increases investment risk as well as investment opportunity. If the income and
investment gains on securities purchased with borrowed money exceed the interest
paid on the borrowing, the net asset value of the Fund's shares will rise faster
than would otherwise be the case. On the other hand, if the income and
investment gains fail to cover the cost, including interest, of the borrowings,
or if there are losses, the net asset value of the Fund's shares will decrease
faster than otherwise would be the case.

If the Fund borrows money for other than temporary or emergency purposes,
it may borrow no more than 33 1/3 of its net assets and, in any event, the value
of its assets (including borrowings) less its liabilities (excluding borrowings
but including securities borrowed in connection with short sales) must at all
times be maintained at not less than 300% of all outstanding borrowings. If, for
any reason, including adverse market conditions, the Fund should fail to meet
this test, it will be required to reduce its borrowings within three business
days to the extent necessary to meet the test. This requirement may make it
necessary for the Fund to sell a portion of its portfolio securities at a time
when it is disadvantageous to do so.

INVESTMENT RESTRICTIONS

Investment restrictions numbered 1 through 10 below have been adopted by
the Trust as fundamental policies with respect to the Fund. A fundamental policy
may not be changed without the vote of a majority of the outstanding voting
securities of the Fund, as defined in the Investment Company Act of 1940, as
amended ('1940 Act'). Investment restrictions numbered 11 through 14 may be
changed by a vote of a majority of the Trustees at any time.

Under the investment restrictions adopted by the Trust with respect to the
Fund:

1. The Fund will not purchase securities (other than Government
Securities) of any issuer if, as a result of the purchase, more than 5% of
the value of the Fund's total assets would be invested in the securities of
the issuer, except that up to 25% of the value of the Fund's total assets
may be invested without regard to this 5% limitation.

2. The Fund will not purchase more than 10% of the voting securities
of any one issuer, except that this limitation is not applicable to the
Fund's investments in Government Securities, and up to 25% of the Fund's
assets may be invested without regard to this 10% limitation.

3. The Fund may borrow from banks for leveraging purposes, as well as
for temporary or emergency purposes such as the meeting of redemption
requests and cash payments of dividends and distributions that might
otherwise require the untimely disposition of securities, in an amount not
to exceed 33 1/3% of the value of the Fund's total assets (including the
amount borrowed) valued at market less liabilities (not including the
amount borrowed) at the time the borrowing is made. Whenever borrowings for
temporary or emergency purposes exceed 5% of the value of the Fund's total
assets, the Fund will not make any additional investments.

4. The Fund will not lend money to other persons, except through
purchasing debt obligations, lending portfolio securities in an amount not
to exceed 33 1/3% of the value of the Fund's total assets and entering into
repurchase agreements.

<PAGE>
5. The Fund will invest no more than 25% of the value of its total
assets in securities of issuers in any one industry. For purposes of this
restriction, the term industry will be deemed to include (a) the government
of any country other than the United States, but not the United States
Government and (b) all supranational organizations.

6. The Fund will not purchase securities on margin, except that the
Fund may engage in short sales of securities and obtain any short-term
credits necessary for the clearance of purchases and sales of securities.
For purposes of this restriction, the deposit or payment of initial or
variation margin in connection with futures contracts or options on futures
contracts will not be deemed to be a purchase of securities on margin.

7. The Fund will not purchase or sell real estate or real estate
limited partnership interests, except that the Fund may purchase and sell
securities of companies that deal in real estate or interests in real
estate.

8. The Fund will not purchase or sell commodities or commodity
contracts (except currencies, securities index and currency futures
contracts and related options, forward foreign currency contracts and other
similar contracts).

9. The Fund will not invest in oil, gas or other mineral leases or
exploration or development programs.

10. The Fund will not act as an underwriter of securities, except that
the Fund may acquire securities under circumstances in which, if the
securities were sold, the Fund might be deemed to be an underwriter for
purposes of the 1933 Act.

11. The Fund will not make investments for the purpose of exercising
control of management.

12. The Fund will not purchase any security, if as a result of the
purchase, the Fund would then have more than 5% of the value of its total
assets invested in securities of companies (including predecessors) that
have been in continuous operation for fewer than three years.

13. The Fund will not purchase or retain securities of any company if,
to the knowledge of the Fund, any of the Trust's Trustees or officers or
any officer or director of Mitchell Hutchins or the Sub-Adviser
individually owns more than .5% of the outstanding securities of the
company and together they own beneficially more than 5% of the securities.

14. The Fund will not invest in warrants (other than warrants acquired
by the Fund as part of a unit or attached to securities at the time of
purchase) if, as a result, the investments (valued at the lower of cost or
market) would exceed 5% of the value of the Fund's net assets of which not
more than 2% of the Fund's net assets may be invested in warrants not
listed on the New York Stock Exchange, Inc. ('NYSE') or the American Stock
Exchange, Inc.

The Trust may make commitments regarding the Fund more restrictive than the
restrictions listed above so as to permit the sale of the Fund's shares in
certain states. Should the Trust determine that a commitment is no longer in the
best interests of the Fund and its shareholders, the Trust will revoke the
commitment by terminating the sale of the Fund's shares in the state involved.
The percentage limitations contained in the restrictions listed above apply at
the time of purchase of the securities.

<PAGE>
TRUSTEES AND OFFICERS

The names of Trustees and officers of the Trust, together with information
as to their principal business occupations during the last five years, are shown
below. An asterisk appears before the name of each Trustee who is an 'interested
person' of the Trust, as defined in the 1940 Act.

David J. Beaubien, 60, Trustee. Chairman of Yankee Environmental Systems,
Inc., manufacturer of meteorological measuring instruments. Director of IEC,
Inc., manufacturer of electronic assemblies, Belfort Instruments, Inc.,
manufacturer of environmental instruments, and Oriel Corp., manufacturer of
optical instruments. Prior to January 1991, Senior Vice President of EG&G, Inc.,
a company that makes and provides a variety of scientific and technically
oriented products and services. Mr. Beaubien is a director or trustee of 13
other investment companies for which Mitchell Hutchins or PaineWebber
Incorporated ('PaineWebber') serves as investment adviser.

William W. Hewitt, Jr., 66, Trustee. Trustee of The Guardian Asset
Allocation Fund, The Guardian Baillie Gifford International Fund, The Guardian
Bond Fund, Inc., The Guardian Cash Fund, Inc., The Guardian Park Ave. Fund, The
Guardian Stock Fund, Inc., The Guardian Cash Management Trust and The Guardian
U.S. Government Trust. Mr. Hewitt is a director or trustee of 13 other
investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.

Thomas R. Jordan, 66, Trustee. Principal of The Dilenschneider Group, Inc.,
a corporate communications and public policy counseling firm. Prior to January
1992, Senior Vice President of Hill & Knowlton, a public relations and public
affairs firm. Prior to April 1991, President of The Jordan Group, a management
consulting and strategies development firm. Mr. Jordan is a director or trustee
of 12 other investment companies for which Mitchell Hutchins or PaineWebber
serves as investment adviser.

*Frank P. L. Minard, 50, Trustee. Chairman of Mitchell Hutchins, chairman
of the board of Mitchell Hutchins Institutional Investors Inc. and a director of
PaineWebber. Prior to 1993, managing director of Oppenheimer Capital in New York
and Director of Oppenheimer Capital Ltd. in London. Mr. Minard is a director or
trustee of 27 other investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.

Carl W. Schafer, 59, Trustee. President of the Atlantic Foundation, a
charitable foundation supporting mainly oceanographic exploration and research.
Director of International Agritech Resources, Inc., an agribusiness investment
and consulting firm, Ardic Exploration and Development Ltd. and Hidden Lake Gold
Mines Ltd., gold mining companies, Electronic Clearing House, Inc., a financial
transactions processing company, Wainoco Oil Corporation and BioTechniques
Laboratories, Inc., an agricultural biotechnology company. Prior to January
1993, chairman of the Investment Advisory Committee of the Howard Hughes Medical
Institute and director of Ecova Corporation, a toxic waste treatment firm. Mr.
Schafer is a director or trustee of 12 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.

Antoine W. van Agtmael, 50, Executive Vice President and Chief Investment
Officer. President of the Sub-Adviser, Managing Director of Strategic Investment
Management ('SIM'), Strategic Investment Management International ('SIMI'),
Emerging Markets Investors Corporation ('EMI'), Strategic Investment Partners,
Inc. ('SIP') and a Director of India Growth Fund.

<PAGE>
Margo N. Alexander, 48, President. President, chief executive officer and a
director of Mitchell Hutchins. Prior to January 1995, an executive vice
president of PaineWebber. Ms. Alexander is also a trustee of one other
investment company and president of 38 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.

Teresa M. Boyle, 36, Vice President. First vice president and
manager -- advisory administration of Mitchell Hutchins. Prior to November 1993,
compliance manager of Hyperion Capital Management, Inc., an investment advisory
firm. Prior to April 1993, a vice president and manager -- legal administration
of Mitchell Hutchins. Ms. Boyle is also a vice president of 38 other investment
companies for which Mitchell Hutchins or PaineWebber serves as investment
adviser.

Mary Claire Choksi, 45, Senior Vice President. Managing Director of the
Sub-Adviser, SIM, SIMI, EMI and SIP, each a registered investment adviser.

Michael A. Duffy, 40, Senior Vice President and Investment Officer.
Managing Director of the Sub-Adviser, SIM, SIMI, EMI and SIP.

Scott H. Griff, 29, Vice President and Assistant Secretary. Vice president
and attorney of Mitchell Hutchins. Prior to January 1995, an associate at the
law firm of Cleary, Gottlieb, Steen & Hamilton. Mr. Griff is also a vice
president and assistant secretary of 12 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.

C. William Maher, 34, Vice President and Assistant Treasurer. Mr. Maher is
a first vice president and the senior manager of the Fund Administration
Division of Mitchell Hutchins. Mr. Maher is also a vice president and assistant
treasurer of 38 other investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.

Ann E. Moran, 38, Vice President and Assistant Treasurer. Vice president of
Mitchell Hutchins. Ms. Moran is also a vice president and assistant treasurer of
38 other investment companies for which Mitchell Hutchins or PaineWebber serves
as investment adviser.

Dianne E. O'Donnell, 43, Vice President and Secretary. Senior vice
president and deputy general counsel of Mitchell Hutchins. Ms. O'Donnell is also
a vice president and secretary of 38 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.

Victoria E. Schonfeld, 44, Vice President. Managing director and general
counsel of Mitchell Hutchins. From April 1990 to May 1994, a partner in the law
firm of Arnold & Porter. Ms. Schonfeld is also a vice president and assistant
secretary of 38 other investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.

Paul H. Schubert, 32, Vice President and Assistant Treasurer. First vice
president of Mitchell Hutchins. From August 1992 to August 1994, vice president
at BlackRock Financial Management, Inc. Prior to August 1992, an audit manager
with Ernst & Young LLP. Mr. Schubert is also a vice president and assistant
treasurer of 38 other investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.

Julian F. Sluyters, 35, Vice President and Treasurer. Senior vice president
and the director of the mutual fund finance division of Mitchell Hutchins. Prior
to 1991, an audit senior manager with Ernst & Young LLP. Mr. Sluyters is also a
vice president and treasurer of 38 other investment companies for which Mitchell
Hutchins or PaineWebber serves as investment adviser.

<PAGE>
Gregory K. Todd, 38, Vice President and Assistant Secretary. First vice
president and associate general counsel of Mitchell Hutchins. Prior to 1993, a
partner with the law firm of Shereff, Friedman, Hoffman & Goodman. Mr. Todd is
also a vice president and assistant secretary of 38 other investment companies
for which Mitchell Hutchins or PaineWebber serves as investment adviser.

Certain of the Trustees and officers of the Trust are directors and/or
trustees and officers of other mutual funds managed by Mitchell Hutchins. The
addresses of the non-interested Trustees are as follows: Mr. Beaubien, Montague
Industrial Park, 101 Industrial Road, Box 746, Turner Falls, Massachusetts
01376; Mr. Hewitt, P.O. Box 2359, Princeton, New Jersey 08543-2359; Mr. Jordan,
200 Park Avenue, New York, New York 10166; and Mr. Schafer, P.O. Box 1164,
Princeton, New Jersey 08542. The address of Mr. Minard and the officers listed
above, other than Messrs. van Agtmael and Duffy and Ms. Choksi, is 1285 Avenue
of the Americas, New York, New York 10019. The address of Messrs. van Agtmael
and Duffy and Ms. Choksi is 1001 Nineteenth Street North, Arlington, Virginia
22209-1722.

By virtue of the responsibilities assumed by Mitchell Hutchins under its
management agreement with the Trust (the 'Management Agreement'), and by the
Sub-Adviser under its Sub-Investment Advisory Agreement with Mitchell Hutchins
and the Trust, the Fund requires no executive employees other than officers of
the Trust, none of whom devotes full time to the affairs of the Fund. Trustees
and officers of the Trust, as a group, owned less than 1% of the outstanding
Class A shares, Class C shares and Class Y shares of beneficial interest as of
September 30, 1995. The Trust pays each Trustee who is not an officer, director
or employee of Mitchell Hutchins, the Sub-Adviser, or any of their affiliates,
an annual retainer of $1,000, and $375 for each Board of Trustees meeting
attended, and reimburses the Trustee for out-of-pocket expenses associated with
attendance at Board meetings. The Chairman of the Board's audit committee
receives an annual fee of $250. No officer, director or employee of Mitchell
Hutchins, the Sub-Adviser, or any of their affiliates, receives any compensation
from the Trust for serving as an officer or Trustee of the Trust. The amount of
compensation paid by the Fund to each Trustee for the fiscal year ended June 30,
1995, and the aggregate amount of compensation paid to each such Trustee for the
year ended December 31, 1994 by all investment companies in the same fund
complex for which such person is a Board member were as follows:

<TABLE>
<CAPTION>
(5)
(3) TOTAL COMPENSATION
(2) PENSION OR (4) FROM FUND AND 12
(1) AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL OTHER INVESTMENT
NAME OF BOARD COMPENSATION FROM ACCRUED AS PART OF BENEFITS UPON COMPANIES IN THE
MEMBER FUND FUND'S EXPENSES RETIREMENT FUND COMPLEX*
- ------------------------------ ----------------- -------------------- ----------------- ------------------
<S> <C> <C> <C> <C>
David J. Beaubien $ 2,500 None None $ 80,700
William W. Hewitt, Jr. $ 2,500 None None $ 74,425
Thomas R. Jordan $ 2,500 None None $ 83,125
Frank P.L. Minard None None None None
Carl W. Schafer $ 2,750 None None $ 84,575
</TABLE>

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

* Represents total compensation paid to each Trustee during the calendar year
ended December 31, 1994.

<PAGE>
INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS

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

For the fiscal year ended June 30, 1995 and for the period January 19, 1994
(commencement of investment operations) through June 30, 1994, the Trust paid
(or accrued) management fees with respect to the Fund of $1,261,493 and
$658,437, respectively, to the Fund's investment adviser and administrator.

For the fiscal year ended June 30, 1995 and for the period January 19, 1994
(commencement of investment operations) through June 30, 1994, the Fund's
investment adviser and administrator paid (or accrued) fees of $872,143 and
$455,243, respectively, to the Sub-Adviser with respect to the Fund.

Mitchell Hutchins has agreed that, if in any fiscal year of the Fund, the
aggregate expenses of the Fund (including management fees, but excluding
interest, taxes, brokerage and, with the prior written consent of the necessary
state securities commissions, extraordinary expenses) exceed the expense
limitation of any state having jurisdiction over the Trust, Mitchell Hutchins
will reimburse the Trust for the excess expense. This expense reimbursement
obligation is limited to the amount of Mitchell Hutchins' fees under its
respective agreement with the Trust in respect of the Fund. Any expense
reimbursement will be estimated, reconciled and paid on a monthly basis. As of
the date of this Statement of Additional Information, the most restrictive state
expense limitation applicable to the Fund requires reimbursement of expenses in
any year that the Fund's expenses

<PAGE>

subject to the limitation exceed 2 1/2% of the first $30 million of the average
daily value of the Fund's net assets, 2% of the next $70 million of the average
daily value of the Fund's net assets and 1 1/2% of the remaining average daily
value of the Fund's net assets. For the fiscal year ended June 30, 1995,
Mitchell Hutchins voluntarily waived part of its management fees and reimbursed
the Fund in the amount of $81,217.

Under their respective agreements with the Trust in respect of the Fund,
each of Mitchell Hutchins and the Sub-Adviser will not be liable for any error
of judgment or mistake of law or for any loss suffered by the Trust with respect
to the Fund in connection with the matters to which the agreement relates,
except for a loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under the agreement.

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

The Sub-Adviser's personnel also may invest in securities for their own
accounts pursuant to its code of ethics which establishes procedures for
personal investing and restricts certain transactions.

DISTRIBUTION ARRANGEMENTS

Mitchell Hutchins serves as the distributor of the Fund's shares on a best
efforts basis. Under a Shareholder Servicing and Distribution Plans (the
'Plans') adopted by the Trust with respect to the Fund pursuant to Rule 12b-1
under the 1940 Act, the Trust pays Mitchell Hutchins monthly fees calculated at
the aggregate annual rates of .25%, 1.00% and 1.00% of the value of the Fund's
average daily net assets attributed to Class A shares, Class B shares and Class
C shares, respectively. Under their terms, the Plans continues from year to
year, so long as their continuance is approved annually by vote of the Trustees,
including a majority of the Trustees who are not interested persons of the Trust
and who have no direct or indirect financial interest in the operation of the
Plans (the 'Independent Trustees'). The Plans may not be amended to increase
materially the amount to be spent for the services provided by Mitchell Hutchins
without Fund shareholder approval, and all material amendments of the Plans also
must be approved by the Trustees in the manner described above. The Plans may be
terminated with respect to a Class at any time, without penalty, by vote of a
majority of the Independent Trustees or by a vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) represented by the
Class on not more than 30 days' written notice to Mitchell Hutchins.

Pursuant to the Plans, Mitchell Hutchins provides the Trustees with
periodic reports of amounts expended under the Plans and the purpose for which
the expenditures were made. The Trustees believe that the Fund's expenditures
under the Plans benefit the Fund and its shareholders by providing better
shareholder services and by facilitating the distribution of shares.

<PAGE>
With respect to Class A shares, for the fiscal year ended June 30, 1995,
Mitchell Hutchins received $102,254 from the Fund. During such fiscal year, it
is estimated that Mitchell Hutchins and PaineWebber spent $499 on advertising,
$7,158 on printing and mailing of prospectuses to other than current
shareholders, $46,014 on commission credits to branch offices for payments of
shareholder servicing compensation to investment executives and $69,327 on
overhead and other branch office distribution or shareholder servicing-related
expenses. With respect to Class C shares, for the fiscal year ended June 30,
1995, Mitchell Hutchins received $226,672 from the Fund. During such fiscal
year, it is estimated that Mitchell Hutchins and PaineWebber spent $114 on
advertising, $1,591 was spent on printing and mailing of prospectuses to other
than current shareholders, $87,771 was spent on commission credits to branch
offices for payments of commissions and shareholder servicing compensation to
investment executives and $118,582 was spent on overhead and other branch office
distribution or shareholder servicing-related expenses. No Class B shares were
outstanding during that period. The term 'overhead and other branch office
distribution or shareholder servicing-related expenses' represents (1) the
expenses of operating PaineWebber's branch offices in connection with the sale
of Fund shares or servicing of shareholder accounts, including lease costs, the
salaries and employee benefits of operations and sales support personnel,
utility costs, communications costs and the costs of stationery and supplies,
(2) the costs of client sales seminars, (3) travel expenses of mutual fund sales
coordinators to promote the sale of Fund shares and (4) other incidental
expenses relating to branch promotion of Fund sales.

PORTFOLIO TRANSACTIONS

Decisions to buy and sell securities for the Fund are made by the
Sub-Adviser, subject to review by Mitchell Hutchins and the Trust's Board of
Trustees. Transactions on domestic stock exchanges and some foreign stock
exchanges involve the payment of negotiated brokerage commissions. On exchanges
on which commissions are negotiated, the cost of transactions may vary among
different brokers. On most foreign exchanges, commissions are generally fixed.

Subject to policies established by the board of directors, the Sub-Adviser
is responsible for the execution of the Fund's portfolio transactions and the
allocation of brokerage transactions. In executing portfolio transactions, the
Sub-Adviser seeks to obtain the best net results for the Fund, taking into
account such factors as price (including the applicable brokerage commission or
dealer spread), size of order, difficulty of execution and operational
facilities of the firm involved. Generally, bonds are traded on the OTC market
on a 'net' basis without a stated commission through dealers acting for their
own account and not as brokers. Prices paid to dealers in principal transactions
generally include a 'spread,' which is the difference between the prices at
which the dealer is willing to purchase and sell a specific security at the
time. For the period January 19, 1994 (commencement of operations) through the
fiscal year ended June 30, 1994 and for the fiscal year ended June 30, 1995, the
Fund paid $363,528 and $531,901, respectively, in aggregate brokerage
commissions.

<PAGE>
and its affiliates are reasonable and fair. Specific provisions in the Advisory
Contract authorize Mitchell Hutchins and any of its affiliates that are members
of a national securities exchange to effect portfolio transactions for the Fund
on such exchange and to retain compensation in connection with such
transactions. Any such transactions will be effected and related compensation
paid only in accordance with applicable SEC regulations. For the fiscal year
ended June 30, 1995, the Fund paid no brokerage commissions to PaineWebber.

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

Consistent with the interest of the Fund and subject to the review of the
board of directors, the Sub-Adviser may cause the Fund to purchase and sell
portfolio securities through brokers who provide the Fund with research,
analysis, advice and similar services. In return for such services, the Fund may
pay to those brokers a higher commission than may be charged by other brokers,
provided that the Sub-Adviser determines in good faith that such commission is
reasonable in terms either of that particular transaction or of the overall
responsibility of the Sub-Adviser to the Fund and its other clients and that the
total commissions paid by the Fund will be reasonable in relation to the
benefits to the Fund over the long term. For purchases or sales with
broker-dealer firms which act as principal, the Sub-Adviser seeks best
execution. Although the Sub-Adviser may receive certain research or execution
services in connection with these transactions, the Sub-Adviser will not
purchase securities at a higher price or sell securities at a lower price than
would otherwise be paid if no weight was attributed to the services provided by
the executing dealer. Moreover, the Sub-Adviser will not enter into any explicit
soft dollar arrangements relating to principal transactions and will not receive
in principal transactions the types of services which could be purchased for
hard dollars. The Sub-Adviser may engage in agency transactions in OTC equity
and debt securities in return for research and execution services. These
transactions are entered into only in compliance with procedures ensuring that
the transaction (including commissions) is at least as favorable as it would
have been if effected directly with a market-maker that did not provided
research or execution services. These procedures include the Sub-Adviser
receiving multiple quotes from dealers before executing the transaction on an
agency basis.

Research services furnished by the brokers or dealers through which or with
which the Fund effects securities transactions may be used by the Sub-Adviser in
advising other funds or accounts and, conversely, research services furnished to
the Sub-Adviser by brokers or dealers in connection with other funds or accounts
that the Sub-Adviser advises may be used by the Sub-Adviser in advising the
Fund. Information and research received from such brokers or dealers will be in
addition to, and not in lieu of, the services required to be performed by the
Sub-Adviser under the Sub-Investment Contract.

<PAGE>
account(s). While in some cases this practice could have a detrimental effect
upon the price or value of the security as far as the Fund is concerned or upon
its ability to complete its entire order, in other cases it is believed that
coordination and the ability to participate in volume transactions will be
beneficial to the Fund.

The Fund will not purchase securities in underwritings in which Mitchell
Hutchins or any of its affiliates is a member of the underwriting or selling
group, except pursuant to procedures adopted by the Corporation's board of
directors pursuant to Rule 10f-3 under the 1940 Act. Among other things, these
procedures require that the commission or spread paid in connection with such a
purchase be reasonable and fair, that the purchase be at not more than the
public offering price prior to the end of the first business day after the date
of the public offering and that Mitchell Hutchins or any affiliate thereof not
participate in or benefit from the sale to the Fund.

PORTFOLIO TURNOVER. The portfolio turnover rate is calculated by dividing
the lesser of the Fund's annual sales or purchases of portfolio securities
(exclusive of purchases or sales of securities whose maturities at the time of
acquisition were one year or less) by the monthly average value of the
securities in the portfolio during the year. For the fiscal year ended June 30,
1995 and for the period from January 19, 1994 (commencement of operations) to
June 30, 1994, the portfolio turnover rate for the Fund was 76% and 8%,
respectively.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SYSTEMATIC WITHDRAWAL PLAN. On or about the 15th of each month for monthly
plans and on or about the 15th of the months selected for quarterly or
semi-annual plans, PaineWebber will arrange for redemption by the Fund of
sufficient Fund shares to provide the withdrawal payment

<PAGE>
specified by participants in the Fund's systematic withdrawal plan. The payment
generally is mailed approximately three business days after the redemption date.
Withdrawal payments should not be considered dividends, but redemption proceeds,
with the tax consequences described under 'Dividends, Distributions and Taxes'
in the Prospectus. If periodic withdrawals continually exceed reinvested
dividends, a shareholder's investment may be correspondingly reduced. A
shareholder may change the amount of the systematic withdrawal or terminate
participation in the systematic withdrawal plan at any time without charge or
penalty by written instructions with signatures guaranteed to PaineWebber or
PFPC Inc. ('Transfer Agent'). Instructions to participate in the plan, change
the withdrawal amount or terminate participation in the plan will not be
effective until five days after written instructions with signatures guaranteed
are received by the Transfer Agent. Shareholders may request the forms needed to
establish a systematic withdrawal plan from their PaineWebber investment
executives, correspondent firms or the Transfer Agent at 1-800-647-1568.

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

Reductions in or exemptions from the imposition of a sales load are due to
the nature of the investors and/or the reduced sales efforts that will be needed
in obtaining such investments.

PAINEWEBBER RMA RESOURCE ACCUMULATION PLAN'SM';
PAINEWEBBER RESOURCE MANAGEMENT ACCOUNT'r' (RMA'r')

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

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

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

Periodic Investing and Dollar Cost Averaging.

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

PaineWebber's Resource Management Account.

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

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

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

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

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

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

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

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

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

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

CONVERSION OF CLASS B SHARES

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

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

VALUATION OF SHARES

<PAGE>
closed on the observance of the following holidays: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.

Securities that are listed on stock exchanges are valued at the last sale
price on the day the securities are being valued or, lacking any sales on such
day, at the last available bid price. In cases where securities are traded on
more than one exchange, the securities are generally valued on the exchange
considered by the Sub-Adviser as the primary market. Securities traded in the
OTC market and listed on Nasdaq are valued at the last available sale price on
Nasdaq at 4:00 p.m., Eastern time; other OTC securities are valued at the last
bid price available prior to valuation.

The Fund invests in foreign securities and, as a result, the calculation of
each Class' net asset value may not take place contemporaneously with the
determination of the prices of certain of the portfolio securities used in the
calculation. A security that is listed or traded on more than one exchange is
valued for purposes of calculating each Class' net asset value at the quotation
on the exchange determined to be the primary market for the security. All assets
and liabilities initially expressed in foreign currency values are converted
into U.S. dollar values at the mean between the bid and offered quotations of
the currencies against U.S. dollars as last quoted by any recognized dealer. If
the bid and offered quotations are not available, the rate of exchange is
determined in good faith by the Trustees.

Where market quotations, are readily available, debt securities are valued
based upon those quotations, provided such quotations adequately reflect, in the
Sub-Adviser's judgment, fair value of the security. Where such market quotations
are not readily available, such securities are valued based upon appraisals
received from a pricing service using a computerized matrix system, or based
upon appraisals derived from information concerning the security or similar
securities received from recognized dealers in those securities. All other
securities or assets will be valued at fair value as determined in good faith by
or under the direction of the Trust's board of trustees. The amortized cost
method of valuation generally is used to value debt obligations with 60 days or
less remaining to maturity, unless the Trust's board of trustees determines that
this does not represent fair value.

PERFORMANCE INFORMATION

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

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

<TABLE>
<S> <C> <C> <C>
P(1 + T)'pp'n = ERV
where: P = a hypothetical initial payment of $1,000 to purchase shares of a specified Class
T = average annual total return of shares of that Class
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of that period.
</TABLE>

<PAGE>
Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or 'T' in the formula above, is computed by finding
the average annual change in the value of an initial $1,000 investment over the
period. In calculating the ending redeemable value for Class A shares, the
Fund's maximum 4.5% initial sales charge is deducted from the initial $1,000
payment and, for Class B and Class C shares, the applicable contingent deferred
sales charge imposed on a redemption of Class B and Class C shares held for the
period is deducted. All dividends and other distributions are assumed to have
been reinvested at net asset value.

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

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

The following table shows performance information for the Class A and Class
C shares of the Fund for the periods indicated. No Class B shares were
outstanding during those periods. All returns for periods of more than one year
are expressed as an average return.

<TABLE>
<CAPTION>
CLASS A CLASS C
-------- --------
<S> <C> <C>
Fiscal year ended June 30, 1995:
Standardized Return*.................................................... (13.38)% (10.91)%
Non-Standardized Return................................................. (9.29)% (10.01)%
Five years ended June 30, 1995:
Standardized Return*.................................................... NA NA
Non-Standardized Return................................................. NA NA
Inception** to June 30, 1995:
Standardized Return*.................................................... (15.91)% (13.86)%
Non-Standardized Return................................................. (13.16)% (13.86)%
</TABLE>

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

* All Standardized Return figures for Class A shares reflect deduction of the
current maximum sales charge of 4.5%. Standardized Return figures for periods
of one year or less for Class C shares reflect deduction of a 1% contingent
deferred sales charge on redemptions made within a year of purchase; for
periods longer than one year, Non-Standardized Return is identical to
Standardized Return.

** The inception date for the Class A shares and Class C shares of the Fund is
January 19, 1994.

<PAGE>
indexes, including (but not limited to) the Standard & Poor's 500 Composite
Stock Price Index, the Dow Jones Industrial Average, the International Finance
Corporation Global Total Return Index, the Morgan Stanley International Capital
World Index, the Lehman Brothers 20+ Year Treasury Bond Index, the Lehman
Brothers Government/Corporate Bond Index, the Salomon Brothers Non-U.S. World
Government Bond Index, and changes in the Consumer Price Index as published by
the U.S. Department of Commerce. The Fund also may refer in such materials to
mutual fund performance rankings and other data, such as comparative asset,
expense and fee levels, published by Lipper, CDA, Wiesenberger, ICD or
Morningstar. Performance Advertisements also may refer to discussions of the
Fund and comparative mutual fund data and ratings reported in independent
periodicals, including (but not limited to) THE WALL STREET JOURNAL, MONEY
Magazine, FORBES, BUSINESS WEEK, FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW
YORK TIMES, THE CHICAGO TRIBUNE, THE WASHINGTON POST and THE KIP-
LINGER LETTERS. Comparisons in Performance Advertisements may be in graphic
form.

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

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

TAXES

Set forth below is a summary of certain income tax considerations generally
affecting the Fund and its shareholders. The summary is not intended as a
substitute for individual tax planning, and shareholders are urged to consult
their tax advisors regarding the application of federal, state, local and
foreign tax laws to their specific tax situations.

TAX STATUS OF THE FUND AND ITS SHAREHOLDERS

The Fund is treated as a separate entity for federal income tax purposes.
The Fund's net investment income, capital gains and distributions are determined
for each Class of shares separately from any other series or Class that the
Trust may designate.

The Fund has qualified for the fiscal period ended June 30, 1995 as a
'regulated investment company' under the Code and intends to continue to qualify
for this treatment for each year. If the

<PAGE>
Fund (1) is a regulated investment company and (2) distributes to its
shareholders at least 90% of its net investment income (including for this
purpose its net realized short term capital gains), the Fund will not be liable
for federal income taxes to the extent that its net investment income and its
net realized long term and short term capital gains, if any, are distributed to
its shareholders. The Fund will be subject to a nondeductible 4% excise tax to
the extent it does not satisfy certain other distribution requirements. The Fund
intends to distribute sufficient income so as to avoid both the corporate income
tax and the excise tax.

The Fund's transactions in foreign currencies, forward currency contracts,
options and futures contracts (including options and futures on foreign
currencies) are subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by the Fund (that
is, may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund and defer Fund losses. These rules (1) could
affect the character, amount and timing of distributions to shareholders of the
Fund, (2) will require the Fund to 'mark to market' certain types of the
positions in its portfolio (that is, treat them as if they were closed out), and
(3) may cause the Fund to recognize income without receiving cash with which to
make distributions in amounts necessary to satisfy the distribution requirements
for avoiding income and excise taxes described above and in the Prospectus. The
Fund will seek to monitor its transactions, will seek to make the appropriate
tax elections and will seek to make the appropriate entries in its books and
records when it acquires any foreign currency, forward currency contract,
option, futures contract or hedged investment, to mitigate the effect of these
rules and prevent disqualification of the Fund as a regulated investment
company.

As a general rule, a shareholder's gain or loss on a sale or redemption of
Fund shares is a long term capital gain or loss if the shareholder has held the
shares for more than one year. The gain or loss is a short term capital gain or
loss if the shareholder has held the shares for one year or less.

The Fund's net realized long term capital gains are distributed as
described in the Prospectus. The distributions ('capital gain dividends'), if
any, will be taxable to shareholders as long term capital gains, regardless of
how long a shareholder has held Fund shares, and will be designated as capital
gain dividends in a written notice mailed by the Trust to the shareholders of
the Fund after the close of the Fund's prior taxable year. If a shareholder
receives a capital gain dividend with respect to any Fund share, and if the
share is sold before it has been held by the shareholder for more than six
months, then any loss on the sale or exchange of the share, to the extent of the
capital gain dividend, will be treated as a long term capital loss. Investors
considering buying Fund shares on or just prior to the record date for a taxable
dividend or capital gain distribution should be aware that the amount of the
forthcoming dividend or distribution payment will be a taxable dividend or
distribution payment.

Special rules contained in the Code apply when a Fund shareholder (1)
disposes of shares of the Fund through a redemption or exchange within 90 days
of purchase and (2) subsequently acquires shares of another PaineWebber mutual
fund on which a sales charge normally is imposed without paying a sales charge
in accordance with the exchange privilege described in the Prospectus. In these
cases, any gain on the disposition of the Fund shares will be increased, or loss
decreased, by the amount of the sales charge paid when the shares were acquired,
and that amount will increase the adjusted basis of the Fund shares subsequently
acquired. In addition, if shares of the Fund are purchased within 30 days of
redeeming shares at a loss, the loss will not be deductible and instead will
increase the basis of the newly purchased shares.

<PAGE>
If a shareholder fails to furnish the Trust with a correct taxpayer
identification number, fails to report fully dividend or interest income, or
fails to certify that he or she has provided a correct taxpayer identification
number and that he or she is not subject to 'backup withholding,' then the
shareholder may be subject to a 31% 'backup withholding' tax with respect to (1)
taxable dividends and distributions from the Fund and (2) the proceeds of any
redemptions of Fund shares. An individual's taxpayer identification number is
his or her social security number. The backup withholding tax is not an
additional tax and may be credited against a taxpayer's regular federal income
tax liability.

INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES

If the Fund purchases shares in certain foreign entities classified under
the Code as 'passive foreign investment companies,' the Fund may be subject to
federal income tax on a portion of an 'excess distribution' or gain from the
disposition of the shares, even though the income may have to be distributed as
a taxable dividend by the Fund to its shareholders. In addition, gain on the
disposition of shares in a passive foreign investment company generally is
treated as ordinary income even though the shares are capital assets in the
hands of the Fund. Certain interest charges may be imposed on either the Fund or
its shareholders with respect to any taxes arising from excess distributions or
gains on the disposition of shares in a passive foreign investment company.

The Fund may be eligible to elect to include in its gross income its share
of earnings of a passive foreign investment company on a current basis.
Generally, the election would eliminate the interest charge and the ordinary
income treatment on the disposition of stock, but such an election may have the
effect of accelerating the recognition of income and gains by the Fund compared
to a fund that did not make the election. In addition, information required to
make such an election may not be available to the Fund.

Legislation currently pending before the U.S. Congress would unify and, in
certain cases, modify the anti-deferral rules contained in various provisions of
the Code, including the passive foreign investment company provisions, related
to the taxation of U.S. shareholders of foreign corporations. In the case of a
passive foreign company ('PFC'), as defined in the legislation, having
'marketable stock,' the legislation would require U.S. shareholders owning less
than 25% of a PFC that is not U.S.-controlled to mark to market the PFC stock
annually, unless such shareholders elected to include in income currently their
proportionate shares of the PFC's income and gain. Otherwise, U.S. shareholders
would be treated substantially the same as under current law. Special rules
applicable to mutual funds would classify as 'marketable stock' all stock in
PFCs owned by the Fund; however, the Fund would not be liable for tax on income
from PFCs that is distributed to shareholders. It is impossible to predict if or
when the legislation will become law and, if it is so enacted, what form it will
ultimately take. If the Fund is not able to make the foregoing election, it may
be able to avoid the interest charge (but not the ordinary income treatment) on
disposition of the stock by electing, under proposed regulations, each year to
mark-to-market the stock (that is, treat it as if it were sold for fair market
value). Such an election could also result in acceleration of income to the
Fund.

OTHER INFORMATION

<PAGE>
Markets Equity Fund.' Prior to February 13, 1995, the name of the Fund was
'Kidder, Peabody Emerging Markets Equity Fund.' Prior to November 10, 1995, the
Fund's Class C shares were called 'Class B' shares. New Class B shares were not
offered prior to November 1, 1995.

Massachusetts law provides that shareholders of the Trust could, under
certain circumstances, be held personally liable for the obligations of the
Trust. The Declaration disclaims shareholder liability for acts or obligations
of the Trust, however, and requires that notice of the disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or a Trustee. The Declaration provides for indemnification from the Trust's
property for all losses and expenses of any shareholder of the Trust held
personally liable for the obligations of the Trust. Thus, the risk of a Fund
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust would be unable to meet its
obligations, a possibility that the Trust's management believes is remote. Upon
payment of any liability incurred by the Trust, the shareholder paying the
liability will be entitled to reimbursement from the general assets of the
Trust. The Trustees intend to conduct the operations of the Trust in such a way
so as to avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Trust.

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

INDEPENDENT AUDITORS

Ernst & Young LLP, located at 787 Seventh Avenue, New York, New York 10019,
serves as independent auditors for the Trust. In that capacity, Ernst & Young
LLP will audit the Trust's financial statements at least annually.

COUNSEL

Willkie Farr & Gallagher, located at One Citicorp Center, 153 East 53rd
Street, New York, New York 10022, serves as counsel to the Trust.

FINANCIAL STATEMENTS

The Fund's Annual Report to Shareholders for the fiscal year ended June 30,
1995 is a separate document supplied with this Statement of Additional
Information, and the financial statements, accompanying notes and report of
independent accountants appearing therein are incorporated by reference in this
Statement of Additional Information.

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

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Statement of Additional Information.............. 1
Investment Policies and Restrictions............. 1
Trustees and Officers............................ 6
Investment Advisory and Distribution
Arrangements................................... 9
Portfolio Transactions........................... 11
Reduced Sales Charges, Additional
Exchange and Redemption
Information and Other Services................. 13
Conversion of Class B Shares..................... 17
Valuation of Shares.............................. 17
Performance Information.......................... 18
Taxes............................................ 20
Other Information................................ 22
Financial Statements............................. 23
</TABLE>

'c'1995 PAINEWEBBER INCORPORATED

[Logo] Recycled Paper

PaineWebber
Emerging Markets Equity Fund

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

-------------------------------------------------------
PAINEWEBBER

<PAGE>
PAINEWEBBER EMERGING MARKETS
EQUITY FUND
CLASS Y SHARES
1285 Avenue of the Americas
New York, New York 10019

Professional Management
Portfolio Diversification
Dividend and Capital Gain
Reinvestment
Low Minimum Investment
Automatic Investment Plan
Systematic Withdrawal Plan
Exchange Privileges
Suitable for Retirement Plans

The Class Y shares described in this Prospectus are currently offered for sale
primarily to participants in the INSIGHT Investment Advisory Program
('INSIGHT'), when purchased through that program. See 'Purchases.'

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

------------------------
The date of this Prospectus is November 1, 1995
PAINEWEBBER MUTUAL FUNDS

<PAGE>
PROSPECTUS SUMMARY

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

SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<S> <C>
Maximum sales charge on purchases of shares (as a percentage of public offering
price)........................................................................... None
Sales charge on reinvested dividends............................................... None
Maximum contingent deferred sales charge (as a percentage of redemption
proceeds)........................................................................ None
Maximum Annual Investment Advisory Fee Payable by Shareholders through INSIGHT (as
a percentage of average daily value of shares held).............................. 1.50%
</TABLE>

ANNUAL FUND OPERATING EXPENSES(1)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)

<TABLE>
<S> <C>
Management fees.................................................................... 1.62%
12b-1 fees......................................................................... 0.00
Other expenses..................................................................... 0.57
-------
Total operating expenses*.......................................................... 2.19%
-------
-------
</TABLE>

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

(1) See 'Management' for additional information. The management fee payable to
Mitchell Hutchins is greater than the management fee paid by most funds.

EXAMPLE OF EFFECT OF FUND EXPENSES*

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

<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
- -------- ----------- ---------- ---------
<S> <C> <C> <C>
$ 22 $69 $117 $ 252
</TABLE>

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

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

* During the fiscal year ended June 30, 1995, Mitchell Hutchins reimbursed the
Fund for a portion of the operating expenses. Without such reimbursement,
total operating expenses would have been 2.29% and the expenses on a $1,000
investment at the end of one, three, five and ten years would have been $23,
$72, $123 and $263, respectively.

<PAGE>
FINANCIAL HIGHLIGHTS

The table below provides selected per share data and ratios for one Class Y
share (prior to November 10, 1995, called 'Class C' shares) of the Fund for each
of the periods shown. This information is supplemented by the financial
statements and accompanying notes appearing in the Fund's Annual Report to
Shareholders for the fiscal year ended June 30, 1995, which are incorporated by
reference into the Statement of Additional Information. The financial statements
and notes, and the financial information appearing in the table below, have been
audited by Deloitte & Touche LLP, independent accountants, whose report thereon
is included in the Annual Report to Shareholders. Further information about the
Fund's performance is also included in the Annual Report to Shareholders, which
may be obtained without charge.

<TABLE>
<CAPTION>
Class Y
----------------------------
For the For the
Year ended Period ended
June 30, June 30,
1995 1994`D'
------------ ------------
<S> <C> <C>
Net asset value, beginning of period.................................................. $ 10.80 $ 12.00
------------ ------------
Increase (decrease) from investment operations:
Net investment income................................................................. 0.01 0.05
Net realized and unrealized losses from investment transactions....................... (0.99) (1.25)
------------ ------------
Net decrease in net assets resulting from investment operations....................... (0.98) (1.20)
------------ ------------
Less dividends to shareholders from:
Net investment income................................................................. (0.07) --
------------ ------------
Net asset value, end of period........................................................ $ 9.75 $ 10.80
------------ ------------
------------ ------------
Total Investment Return(1)............................................................ (9.03)% (10.00)%
------------ ------------
------------ ------------
Ratios/Supplemental Data:
Net assets, end of period (000's omitted)............................................. $ 12,332 $ 15,435
Ratios of expenses, net of fee waivers and expense reimbursements, to average net
assets.............................................................................. 2.19 % 2.22 %*
Ratios of expenses, before fee waivers and expense reimbursements, to average net
assets.............................................................................. 2.29 % 2.22 %*
Ratios of net investment income to average net assets................................. (0.51)% 0.97 %*
Portfolio turnover.................................................................... 76 % 8 %
</TABLE>

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

* Annualized.

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

(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 at net asset value on the payable dates, and a sale at net
asset value on the last day of each period reported. Total investment
returns for periods of less than one year have not been annualized.

<PAGE>
INVESTMENT OBJECTIVE AND POLICIES

OBJECTIVE

The Fund's investment objective is long term capital appreciation. The
Fund seeks to achieve its objective through investment in a diversified
portfolio consisting primarily of equity securities of issuers in Emerging
Markets in Asia, Latin America, the Middle East, Southern Europe, Eastern Europe
and Africa.

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

INVESTMENT SELECTION PROCESS

Selections are made among Emerging Markets based on various factors
including:

MACRO-ECONOMIC FACTORS -- including the outlook for currencies,
interest rates, commodities, economic growth, inflation, business
confidence and private sector initiative.

POLITICAL FACTORS -- including the stability of the current government
and its attitudes towards foreign investment,

<PAGE>
private sector initiative and development of capital markets.

MARKET DEVELOPMENT -- the development of the market relative to North
American markets in terms of market capitalization, level of trading
activity, sophistication of capital market activities and shareholder
protection.

Emerging Markets in which the Fund intends to invest are currently
expected to be selected from the following 34 Emerging Markets and republics:

<TABLE>
<S> <C>
ASIA: Bangladesh, China, Hong Kong,
India, Indonesia, Korea,
Malaysia, Pakistan, Papua New
Guinea, Philippines,
Singapore, Sri Lanka, Republic
of China (Taiwan), Thailand

LATIN AMERICA: Argentina, Bolivia, Brazil,
Chile, Colombia, Mexico, Peru,
Venezuela
EUROPE/MIDDLE
EAST: The Czech Republic,
Commonwealth of Independent
States, Greece, Hungary,
Jordan, Poland, Portugal,
Turkey

AFRICA: Mauritius, Morocco, South
Africa, Zimbabwe
</TABLE>

<PAGE>
on a number of standards, including price-to-earnings ratio, price-to-book value
ratio, earnings momentum, dividend yield and debt-to-equity ratio. The purpose
of this screening is to eliminate investments in companies considered
inappropriate due to inadequate liquidity or unacceptable risk factors.
Decisions on issuer selection are often influenced by on-site visits to issuers.
The resulting selection of investments is intended to provide a broad group of
attractively valued investments available to foreign investors in each Emerging
Market.

TYPES OF PORTFOLIO INVESTMENTS

In certain countries that currently prohibit direct foreign investment in
the securi-

<PAGE>
ties of their companies, indirect foreign investment in the securities of
companies listed and traded on the stock exchanges in these countries is
permitted through investment funds that have been specifically authorized to
invest directly in the relevant market. The Fund may invest in these investment
funds and registered investment companies subject to the provisions of the 1940
Act. Under the 1940 Act, the Fund, subject to certain exceptions, may invest a
maximum of 10% of its total assets in the securities of other investment
companies, not more than 5% of the Fund's total assets may be invested in the
securities of any one investment company and the Fund may not own more than 3%
of the securities of any one investment company. If the Fund invests in
investment companies, the Fund will bear its proportionate share of the costs
incurred by such companies, including investment advisory fees, if any.

<PAGE>
debt issue then rated within the three highest rating categories; and repurchase
agreements meeting the conditions described below under 'Investment Techniques
and Strategies -- Repurchase Agreements.' Except during temporary defensive
periods, the Fund will not invest more than 35% of its assets in money market
instruments. At no time will the Fund's investments in bank obligations,
including time deposits, exceed 25% of the value of its assets.

INVESTMENT TECHNIQUES AND STRATEGIES

The Fund, in seeking to meet its investment objective, is authorized to
engage in any one or more of the specialized investment techniques and
strategies described below:

Upon maturity of a forward currency contract, the Fund may (1) pay for and
receive the underlying currency, (2) negotiate with the dealer to rollover the
contract into a new forward currency contract with a new future settlement date
or (3) negotiate with the dealer to terminate the forward contract

<PAGE>
by entering into an offset with the currency trader providing for the Fund's
paying or receiving the difference between the exchange rate fixed in the
contract and the then current exchange rate. The Fund may also be able to
negotiate such an offset prior to maturity of the original forward contract. No
assurance can be given that new forward contracts or offsets will always be
available to the Fund.

<PAGE>
settlement period; payment for or delivery of the securities would be made prior
to the reciprocal delivery or payment by the other party to the transaction. The
Fund enters into when-issued or delayed-delivery transactions for the purpose of
acquiring securities and not for the purpose of leverage. When-issued securities
purchased by the Fund may include securities purchased on a 'when, as and if
issued' basis under which the issuance of the securities depends on the
occurrence of a subsequent event, such as approval of a merger, corporate
reorganization or debt restructuring. The Fund will establish with its
custodian, or with a designated sub-custodian, a segregated account consisting
of cash, Government Securities or other liquid high-grade debt obligations in an
amount equal to the amount of its when-issued or delayed-delivery purchase
commitments.

INVESTMENT RESTRICTIONS

RISK FACTORS AND SPECIAL CONSIDERATIONS

Investing in the Fund involves risks and special considerations, such as
those described below:

GENERAL. An investment in shares of the Fund should not be considered to
be a complete investment program. The value of the Fund's investments and, as a
result, the net asset values of the Fund's shares will fluctuate in response to
changes in the market and economic conditions as well as the financial condition
and prospects of issuers in which the Fund invests. Issuers in Emerging Markets
typically are subject to a greater degree of change in earnings and business
prospects than are companies in developed markets. In addition, securities of
issuers in Emerging Markets are traded in lower volume and are more volatile
than those issued by companies in developed markets. In light of these
characteristics of issuers in Emerging Markets and their securities, the Fund
may be subject to greater investment risk than that assumed by other investment
companies. Because of the risks associated with the Fund's investments, the Fund
is intended to be a long-term investment vehicle and is not designed to provide
investors with a means of speculating on short-term stock market movements.

INVESTMENT IN FOREIGN SECURITIES. Investing in securities issued by
foreign issuers involves considerations and potential

<PAGE>
risks not typically associated with investing in obligations issued by domestic
issuers. Less information may be available about foreign issuers than about
domestic issuers and foreign issuers generally are not subject to uniform
accounting, auditing and financial reporting standards or to other regulatory
practices and requirements comparable to those applicable to domestic issuers.
The values of foreign investments are affected by changes in currency rates or
exchange control regulations, restrictions or prohibitions on the repatriation
of foreign currencies, application of foreign tax laws, including withholding
taxes, changes in governmental administration or economic or monetary policy (in
the United States or abroad) or changed circumstances in dealings between
nations. Costs are also incurred in connection with conversions between various
currencies. In addition, foreign brokerage commissions are generally higher than
those charged in the United States and foreign securities markets may be less
liquid, more volatile and less subject to governmental supervision than in the
United States. Investments in foreign countries could be affected by other
factors not present in the United States, including expropriation, confiscatory
taxation, lack of uniform accounting and auditing standards and potential
difficulties in enforcing contractual obligations and could be subject to
extended clearance and settlement periods.

<PAGE>
of currency controls or other political developments in the United States or
abroad.

<PAGE>
REPURCHASE AGREEMENTS. In entering into a repurchase agreement, the Fund
bears a risk of loss in the event that the other party to the transaction
defaults on its obligations and the Fund is delayed or prevented from exercising
its rights to dispose of the underlying securities, including the risk of a
possible decline in the value of the underlying securities during the period in
which the Fund seeks to assert its rights to them, the risk of incurring
expenses associated with asserting those rights and the risk of losing all or a
part of the income from the agreement.

PORTFOLIO TRANSACTIONS AND TURNOVER

Decisions to buy and sell securities for the Fund are made by the
Sub-Adviser, subject to review by the Board of Trustees and Mitchell Hutchins,
and are placed with brokers or dealers selected by the Sub-Adviser. The Trustees
have determined that, to the extent consistent with applicable provisions of the
1940 Act and rules and exemptions adopted thereunder, transactions for the Fund
may be executed through PaineWebber if, in the judgment of the Sub-Adviser, the
use of PaineWebber is likely to result in price and execution at least as
favorable to the Fund as those obtainable through other qualified
broker-dealers, and if, in the transaction, PaineWebber charges the Fund a fair
and reasonable rate consistent with that charged to comparable unaffiliated
customers in similar transactions.

The Fund's portfolio is actively managed. The Fund's portfolio turnover
rate may vary greatly from year to year and will not be a limiting factor when
the Sub-Adviser deems portfolio changes appropriate. An annual turnover rate of
100% would occur if all of the securities held by the fund are replaced once
during a period of one year. Higher portfolio turnover rates (100% or more) will
result in corresponding increases in transaction costs, which will be borne
directly by the Fund, may make it more difficult for the Fund to qualify as a
regulated investment company for federal income tax purposes and may cause
shareholders of the Fund to recognize short-term capital gains for federal
income tax purposes. See 'Dividends, Distributions and Taxes -- Taxes.'

PURCHASES

Class Y shares (prior to November 10, 1995, called 'Class C' shares) are
sold to eligible investors at the net asset value next determined (see
'Valuation of Shares') after the purchase order is received at PaineWebber's New
York City offices. No initial or contingent deferred sales charge is imposed,
nor are Class Y shares subject to Rule 12b-1 distribution or service fees. The
Fund and Mitchell Hutchins reserve the right to reject any purchase order and to
suspend the offering of the Class Y shares for a period of time.

INSIGHT. An investor who purchases $50,000 or more of shares of the
PaineWebber

<PAGE>
mutual funds that are in the Flexible Pricing System may participate in INSIGHT,
a total portfolio asset allocation program sponsored by PaineWebber, and thus
become eligible to purchase Class Y shares. INSIGHT offers comprehensive
investment services, including a personalized asset allocation investment
strategy using an appropriate combination of funds, professional investment
advice regarding investment among the funds by portfolio specialists, monitoring
of investment performance and comprehensive quarterly reports that cover market
trends, portfolio summaries and personalized account information. Participation
in INSIGHT is subject to payment of an advisory fee to PaineWebber at the
maximum annual rate of 1.5% of assets held through the program (generally
charged quarterly in advance), which covers all INSIGHT investment advisory
services and program administration fees. Employees of PaineWebber and its
affiliates are entitled to a 50% reduction in the fee otherwise payable for
participation in INSIGHT. INSIGHT clients may elect to have their INSIGHT fees
charged to their PaineWebber accounts (by the automatic redemption of money
market fund shares) or another of their PaineWebber accounts or billed
separately.

ACQUISITION OF CLASS Y SHARES BY OTHERS. Present holders of Class Y shares
who are not current INSIGHT participants may acquire Class A shares of the Fund
without a sales charge. This category includes former employees of Kidder,
Peabody & Co. Incorporated ('Kidder, Peabody'), their associated accounts,
present and former directors and trustees of the former Kidder, Peabody mutual
funds. The Fund is authorized to offer Class Y shares to employee benefit and
retirement plans of Paine Webber Group, Inc., and its affiliates and certain
other investment advisory programs that are sponsored by PaineWebber and that
may invest in PaineWebber mutual funds. At present, however, INSIGHT
participants are the only purchasers in these two categories.

REDEMPTIONS

As described below, Class Y shares may be redeemed at their net asset
value and redemption proceeds will be paid after receipt of a redemption request
as described below.

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

REDEMPTION THROUGH THE TRANSFER AGENT. Fund shareholders who are not
PaineWebber clients or who wish to redeem certificated shares must redeem their
shares through the Transfer Agent by mail; other shareholders also may redeem
Fund shares through the Transfer Agent. Shareholders should mail redemption
requests directly to the Transfer Agent: PFPC Inc., Attn: PaineWebber Mutual
Funds, P.O. Box 8950,

<PAGE>
Wilmington, Delaware 19899. A redemption request will be executed at the net
asset value next computed after it is received in 'good order' and redemption
proceeds will be paid within seven days of the receipt of the request. 'Good
order' means that the request must be accompanied by the following: (1) a letter
of instruction or a stock assignment specifying the number of shares or amount
of investment to be redeemed (or that all shares credited to a Fund account be
redeemed), signed by all registered owners of the shares in the exact names in
which they are registered, (2) a guarantee of the signature of each registered
owner by an eligible institution acceptable to the Transfer Agent and in
accordance with SEC rules, such as a commercial bank, trust company or member of
a recognized stock exchange, (3) other supporting legal documents for estates,
trusts, guardianships, custodianships, partnerships and corporations and (4)
duly endorsed share certificates, if any. Shareholders are responsible for
ensuring that a request for redemption is received in 'good order.'

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

DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS AND DISTRIBUTIONS

TAXES

<PAGE>
30% of its gross income is derived from the sale or disposition of stocks, other
securities and certain financial instruments (including certain forward
contracts) that were held for less than three months and (2) at the close of
each quarter of the taxable year (a) not more than 25% of the market value of
the Fund's total assets is invested in the securities of a single issuer or of
two or more issuers controlled by the Fund (within the meaning of Section
852(a)(2) of the Code) that are engaged in the same or similar trades or
businesses or in related trades or businesses (other than Government Securities
and securities of other regulated investment companies) and (b) at least 50% of
the market value of the Fund's total assets is represented by (i) cash and cash
items, (ii) Government Securities and (iii) other securities limited in respect
of any one issuer to an amount not greater in value than 5% of the market value
of the Fund's total assets and to not more than 10% of the outstanding voting
securities of the issuer. The requirements for qualification may cause the Fund
to restrict the degree to which it sells or otherwise disposes of stocks, other
securities and certain financial instruments held for less than three months. If
the Fund qualifies as a regulated investment company and meets certain
distribution requirements, the Fund will not be subject to federal income and
excise taxes on its net investment income and net realized capital gains that it
distributes to its shareholders.

Shareholders are urged to consult their tax advisors regarding the
application of federal, state, local and foreign tax laws to their specific
situations before investing in the Fund.

VALUATION OF SHARES

Net asset value per share is calculated by State Street, the Fund's
custodian, on each day, Monday through Friday, except that net asset value is
not computed on days on which the NYSE is closed. The NYSE is currently
scheduled to be closed on the observance of New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.

Net asset value per share is determined as of the close of regular trading
on the NYSE (currently 4:00 p.m., Eastern Time), and is

<PAGE>
computed by dividing the value of the Fund's net assets attributable to that
Class by the total number of shares outstanding of that Class. Generally, the
Fund's investments are valued at market value or, in the absence of a market
value, at fair value as determined by or under the direction of the Trustees.

MANAGEMENT

<PAGE>
1940 Act, is believed by Mitchell Hutchins to be within the range charged to
other investment companies that invest in Emerging Markets and reflects the need
to devote additional time and incur added expense in developing the specialized
resources contemplated by investing in these markets.

The Fund incurs other expenses and, for the fiscal year ended June 30,
1995, the Fund's total expenses for Class Y shares, stated as a percentage of
average net assets were (net of fee waivers and expense reimbursements) 2.19%.

Mitchell Hutchins is located at 1285 Avenue of the Americas, New York, New
York 10019. It is a wholly owned subsidiary of PaineWebber, which is in turn a
wholly owned subsidiary of Paine Webber Group Inc., a publicly owned financial
services holding company. As of September 30, 1995, Mitchell Hutchins was
adviser or sub-adviser of 38 investment companies with 81 separate portfolios
and aggregate assets of over 28.8 billion.

DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins is the distributor of the
Fund's Class Y shares and has appointed PaineWebber as the exclusive dealer for
the sale of those shares.

<PAGE>
PERFORMANCE INFORMATION

The Fund performs a standardized computation of annualized total return
and may show this return in advertisements or promotional materials.
Standardized return shows the change in value of an investment in the Fund as a
steady compound annual rate of return. Actual year-by-year returns fluctuate and
may be higher or lower than standardized return. One-, five- and ten-year
periods will be shown, unless the shares have been in existence for a shorter
period. Total return calculations assume reinvestment of dividends and other
distributions.

Total return and yield information reflects past performance and does not
necessarily indicate future results. Investment return and principal values will
fluctuate, and proceeds upon redemption may be more or less than a shareholder's
cost.

GENERAL INFORMATION

ORGANIZATION. The Trust is registered under the 1940 Act as an open-end
management investment company and was formed as a business trust pursuant to a
Declaration of Trust, as amended from time to time (the 'Declaration'), under
the laws of The Commonwealth of Massachusetts on August 10, 1992. The Fund
commenced operations on January 19, 1994. The Declaration authorizes the
Trustees to create separate series, and within each series separate Classes, of
an unlimited number of shares of beneficial interest, par value $.001 per share.
As of the date of this Prospectus, the Trustees have established several such
series, representing interests in, among others, the Fund described in this
Prospectus. See 'Exchange Privilege' in the Statement of Additional Information.

When issued, Fund shares will be fully paid and non-assessable. Shares are
freely transferable and have no pre-emptive, subscription or conversion rights.
Each Class represents an identical interest in the Fund's investment portfolio.
As a result, the Classes have the same rights, privileges and preferences,
except with respect to: (1) the designation of each Class; (2) the effect of the
respective sales charges, if any, for each Class; (3) the distribution and/or
service fees, if any, borne by each Class; (4) the expenses allocable
exclusively to each Class; (5) voting rights on matters exclusively affecting a
single Class; and (6) the exchange privilege of each Class. The Board of
Trustees does not anticipate that there will be any conflicts among the
interests of the holders of the different Classes. The Trustees, on an ongoing
basis, will consider whether any conflict exists and, if so, take appropriate
action. Certain aspects of the shares may be changed, upon notice to Fund
shareholders, to satisfy certain tax regulatory requirements, if the change is
deemed necessary by the Trust's Board of Trustees.

<PAGE>
The Trust does not intend to hold annual meetings of shareholders for the
purpose of electing Trustees unless, and until such time as, less than a
majority of the Trustees holding office have been elected by shareholders.
Shareholders of record of no less than two-thirds of the outstanding shares of
the Trust may remove a Trustee through a declaration in writing or by vote cast
in person or by proxy at a meeting called for that purpose. A meeting will be
called for the purpose of voting on the removal of a Trustee at the written
request of holders of 10% of the Trust's outstanding shares. Shareholders of the
Fund who satisfy certain criteria will be assisted by the Trust in communicating
with other shareholders in seeking the holding of the meeting.

<PAGE>

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

'c'1995 PaineWebber Incorporated

[Logo] Printed on recycled paper

PAINEWEBBER

EMERGING MARKETS EQUITY FUND
CLASS Y SHARES

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary................................. 2
Financial Highlights............................... 3
Investment Objective and Policies.................. 4
Purchases.......................................... 13
Redemptions........................................ 14
Dividends, Distributions and Taxes................. 15
Valuation of Shares................................ 16
Management......................................... 17
Performance Information............................ 19
General Information................................ 19
</TABLE>

PROSPECTUS
November 1, 1995

<PAGE>
PAINEWEBBER EMERGING MARKETS EQUITY FUND
CLASS Y SHARES
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019

STATEMENT OF ADDITIONAL INFORMATION

INVESTMENT POLICIES AND RESTRICTIONS

RULE 144A SECURITIES

<PAGE>
institutional buyers under Rule 144A is a recent development and neither
Mitchell Hutchins nor the Sub-Adviser can predict how this market will develop.
The Trustees carefully monitor any investments by the Fund in Rule 144A
Securities.

GOVERNMENT SECURITIES

INVESTMENT TECHNIQUES AND STRATEGIES

<PAGE>
the securities, but it does establish a rate of exchange that can be achieved in
the future. In addition, although forward currency contracts limit the risk of
loss due to a decline in the value of the hedged currency, at the same time,
they limit any potential gain that might result should the value of the currency
increase.

INVESTMENT RESTRICTIONS

Under the investment restrictions adopted by the Trust with respect to the
Fund:

9. The Fund will not invest in oil, gas or other mineral leases or
exploration or development programs.

11. The Fund will not make investments for the purpose of exercising
control of management.

<PAGE>
TRUSTEES AND OFFICERS

Mary Claire Choksi, 45, Senior Vice President. Managing Director of the
Sub-Adviser, SIM, SIMI, EMI and SIP, each a registered investment adviser.

Michael A. Duffy, 40, Senior Vice President and Investment Officer.
Managing Director of the Sub-Adviser, SIM, SIMI, EMI and SIP.

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

* Represents total compensation paid to each Trustee during the calendar year
ended December 31, 1994.

<PAGE>
INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS

For the fiscal year ended June 30, 1995 and for the period January 19, 1994
(commencement of investment operations) through June 30, 1994, the Trust paid
management fees with respect to the Fund of $1,261,493 and $537,792,
respectively, to the Trust's investment adviser and administrator during those
periods.

For the fiscal year ended June 30, 1995 and for the period January 19, 1994
(commencement of investment operations) through June 30, 1994 the Trust's
investment adviser and administrator paid fees of $872,143 and $371,807,
respectively, to the Sub-Adviser with respect to the Fund.

<PAGE>

Fund's net assets, 2% of the next $70 million of the average daily value of the
Fund's net assets and 1 1/2% of the remaining average daily value of the Fund's
net assets. For the fiscal year ended June 30, 1995, Mitchell Hutchins
voluntarily waived fees and reimbursed the Fund in the amount of $81,217.

The Sub-Adviser's personnel also may invest in securities for their own
accounts pursuant to its code of ethics which establishes procedures for
personal investing and restricts certain transactions.

DISTRIBUTION ARRANGEMENTS

Mitchell Hutchins acts as the distributor of the Class Y shares of the Fund
under a distribution contract with the Trust that requires Mitchell Hutchins to
use its best efforts, consistent with its other businesses, to sell shares of
the Fund. Shares of the Fund are offered continuously. Under an exclusive dealer
agreement between Mitchell Hutchins and PaineWebber relating to Class Y shares
of the Fund, PaineWebber and its correspondent firms sell the Fund's Class Y
shares.

PORTFOLIO TRANSACTIONS

<PAGE>
transactions generally include a 'spread,' which is the difference between the
prices at which the dealer is willing to purchase and sell a specific security
at the time. For the period January 19, 1994 (commencement of operations)
through the fiscal year ended June 30, 1994 and for the fiscal year ended June
30, 1995, the Fund paid $363,528 and $531,901, respectively, in aggregate
brokerage commissions.

The Fund has no obligation to deal with any broker or group of brokers in
the execution of portfolio transactions. The Fund contemplates that, consistent
with the policy of obtaining the best net results, brokerage transactions may be
conducted through Mitchell Hutchins or its affiliates, including PaineWebber.
The Trust's board of trustees has adopted procedures in conformity with Rule
17e-1 under the 1940 Act to ensure that all brokerage commissions paid to
Mitchell Hutchins and its affiliates are reasonable and fair. Specific
provisions in the Advisory Contract authorize Mitchell Hutchins and any of its
affiliates that are members of a national securities exchange to effect
portfolio transactions for the Fund on such exchange and to retain compensation
in connection with such transactions. Any such transactions will be effected and
related compensation paid only in accordance with applicable SEC regulations.
For the fiscal year ended June 30, 1995, the Fund paid no brokerage commissions
to PaineWebber.

<PAGE>
with other funds or accounts that the Sub-Adviser advises may be used by the
Sub-Adviser in advising the Fund. Information and research received from such
brokers or dealers will be in addition to, and not in lieu of, the services
required to be performed by the Sub-Adviser under the Sub-Investment Contract.

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

VALUATION OF SHARES

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

<PAGE>
exchange is valued for purposes of calculating each Class' net asset value at
the quotation on the exchange determined to be the primary market for the
security. All assets and liabilities initially expressed in foreign currency
values are converted into U.S. dollar values at the mean between the bid and
offered quotations of the currencies against U.S. dollars as last quoted by any
recognized dealer. If the bid and offered quotations are not available, the rate
of exchange is determined in good faith by the Trustees.

PERFORMANCE INFORMATION

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

Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or 'T' in the formula above, is computed by finding
the average annual change in the value of an initial $1,000 investment over the
period. In calculating the ending redeemable value for Class A shares, the
Fund's maximum 4.5% initial sales charge is deducted from the initial $1,000
payment and, for Class B and Class C shares, the applicable contingent deferred
sales charge imposed on a redemption of Class B and Class C shares held for the
period is deducted. All dividends and other distributions are assumed to have
been reinvested at net asset value.

<PAGE>
of $1,000 in Fund shares and assuming the reinvestment of all dividends and
other distributions. The rate of return is determined by subtracting the initial
value of the investment from the ending value and by dividing the remainder by
the initial value. Neither initial nor contingent deferred sales charges are
taken into account in calculating Non-Standardized Return; the inclusion of
these charges would reduce the return.

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

The following table shows performance information for the Class A, Class C
and Class Y shares of the Fund for the periods indicated. No Class B shares were
outstanding during those periods. All returns for periods of more than one year
are expressed as an average return.

<TABLE>
<CAPTION>
CLASS A CLASS C CLASS Y
------- ------- -------
<S> <C> <C> <C>
Fiscal year ended June 30, 1995:
Standardized Return*........................................... (13.38)% (10.91)% (9.03)%
Non-Standardized Return........................................ (9.29)% (10.01)% (9.03)%
Five years ended June 30, 1995:
Standardized Return*........................................... NA NA NA
Non-Standardized Return........................................ NA NA NA
Inception** to June 30, 1995:
Standardized Return*........................................... (15.91)% (13.86)% (12.94)%
Non-Standardized Return........................................ (13.16)% (13.86)% (12.94)%
</TABLE>

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

** The inception date for the Class A shares, Class C shares and Class Y shares
of the Fund is January 19, 1994.

OTHER INFORMATION. In Performance Advertisements, the Fund may compare its
Standardized Return and/or its Non-Standardized Return with data published by
Lipper Analytical Services, Inc. ('Lipper') for growth funds; CDA Investment
Technologies, Inc. ('CDA'); Wiesenberger Investment Companies Service
('Wiesenberger'); Investment Company Data Inc. ('ICD'); or Morningstar Mutual
Funds ('Morningstar'); or with the performance of recognized stock and other
indexes, including (but not limited to) the Standard & Poor's 500 Composite
Stock Price Index, the Dow Jones Industrial Average, the International Finance
Corporation Global Total Return Index, the Morgan Stanley International Capital
World Index, the Lehman Brothers 20+ Year Treasury Bond Index, the Lehman
Brothers Government/Corporate Bond Index, the Salomon Brothers Non-U.S. World
Government Bond Index, and changes in the Consumer Price Index as published by
the U.S. Department of Commerce. The Fund also may refer in such materials to
mutual fund performance rankings and other data, such as comparative asset,
expense and fee levels, published by Lipper, CDA, Wiesenberger, ICD or
Morningstar. Performance Advertisements also may refer to discussions of the
Fund and comparative mutual fund data and ratings reported in independent
periodicals, including (but not limited to) THE WALL STREET JOURNAL, MONEY
Magazine, FORBES, BUSINESS WEEK, FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW

<PAGE>
YORK TIMES, THE CHICAGO TRIBUNE, THE WASHINGTON POST and THE KIP-
LINGER LETTERS. Comparisons in Performance Advertisements may be in graphic
form.

TAXES

TAX STATUS OF THE FUND AND ITS SHAREHOLDERS

The Fund has qualified for the fiscal period ended June 30, 1995 as a
'regulated investment company' under the Code and intends to continue to qualify
for this treatment for each year. If the Fund (1) is a regulated investment
company and (2) distributes to its shareholders at least 90% of its net
investment income (including for this purpose its net realized short term
capital gains), the Fund will not be liable for federal income taxes to the
extent that its net investment income and its net realized long term and short
term capital gains, if any, are distributed to its shareholders. The Fund will
be subject to a nondeductible 4% excise tax to the extent it does not satisfy
certain other distribution requirements. The Fund intends to distribute
sufficient income so as to avoid both the corporate income tax and the excise
tax.

The Fund's transactions in foreign currencies, forward currency contracts,
options and futures contracts (including options and futures on foreign
currencies) are subject to special provisions of

<PAGE>
the Code that, among other things, may affect the character of gains and losses
realized by the Fund (that is, may affect whether gains or losses are ordinary
or capital), accelerate recognition of income to the Fund and defer Fund losses.
These rules (1) could affect the character, amount and timing of distributions
to shareholders of the Fund, (2) will require the Fund to 'mark to market'
certain types of the positions in its portfolio (that is, treat them as if they
were closed out), and (3) may cause the Fund to recognize income without
receiving cash with which to make distributions in amounts necessary to satisfy
the distribution requirements for avoiding income and excise taxes described
above and in the Prospectus. The Fund will seek to monitor its transactions,
will seek to make the appropriate tax elections and will seek to make the
appropriate entries in its books and records when it acquires any foreign
currency, forward currency contract, option, futures contract or hedged
investment, to mitigate the effect of these rules and prevent disqualification
of the Fund as a regulated investment company.

If a shareholder fails to furnish the Trust with a correct taxpayer
identification number, fails to report fully dividend or interest income, or
fails to certify that he or she has provided a correct taxpayer identification
number and that he or she is not subject to 'backup withholding,' then the
shareholder may be subject to a 31% 'backup withholding' tax with respect to (1)
taxable dividends and distributions from the Fund and (2) the proceeds of any
redemptions of Fund shares. An individual's taxpayer identification number is
his or her social security number. The backup withholding tax is not an
additional tax and may be credited against a taxpayer's regular federal income
tax liability.

<PAGE>
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES

OTHER INFORMATION

The Trust was organized as a business trust under the laws of The
Commonwealth of Massachusetts pursuant to a Declaration of Trust dated August
10, 1992, as amended from time to time (the 'Declaration'). The Fund commenced
operations on January 19, 1994. Prior to November 1, 1995, the name of the Fund
was 'Mitchell Hutchins/Kidder, Peabody Emerging Markets Equity Fund.' Prior to
February 13, 1995, the name of the Fund was 'Kidder, Peabody Emerging Markets
Equity Fund.' Prior to November 1, 1995, the Fund's Class C shares were called
'Class B' shares and Class Y shares were called 'Class C' shares. New Class B
shares were not offered prior to November 1, 1995.

<PAGE>
given in each agreement, obligation or instrument entered into or executed by
the Trust or a Trustee. The Declaration provides for indemnification from the
Trust's property for all losses and expenses of any shareholder of the Trust
held personally liable for the obligations of the Trust. Thus, the risk of a
Fund shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust would be unable to meet its
obligations, a possibility that the Trust's management believes is remote. Upon
payment of any liability incurred by the Trust, the shareholder paying the
liability will be entitled to reimbursement from the general assets of the
Trust. The Trustees intend to conduct the operations of the Trust in such a way
so as to avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Trust.

INDEPENDENT AUDITORS

COUNSEL

Willkie Farr & Gallagher, located at One Citicorp Center, 153 East 53rd
Street, New York, New York 10022, serves as counsel to the Trust.

FINANCIAL STATEMENTS

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Statement of Additional Information.............. 1
Investment Policies and Restrictions............. 1
Trustees and Officers............................ 6
Investment Advisory and Distribution
Arrangements................................... 9
Portfolio Transactions........................... 10
Valuation of Shares.............................. 12
Performance Information.......................... 13
Taxes............................................ 15
Other Information................................ 17
Financial Statements............................. 18
</TABLE>

'c'1995 PAINEWEBBER INCORPORATED

[Logo] Recycled Paper

PaineWebber
Emerging Markets Equity Fund
Class Y Shares

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Statement of Additional Information
November 1, 1995

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PAINEWEBBER

<PAGE>

STATEMENT OF DIFFERENCES

The dagger symbol shall be expressed as.................... 'D'
The copyright symbol shall be expressed as................. 'c'
The service mark symbol shall be expressed as.............. 'sm'
The registered trademark symbol shall be expressed as...... 'r'
Mathematical powers normally expressed as superscript
shall be preceded by..................................... 'pp'