<PAGE>   1
                                                                    Exhibit 4.17





================================================================================


                               GUARANTEE AGREEMENT


                                       OF


                               PWG CAPITAL TRUST I


                                  -----------


                          Dated as of December 9, 1996





================================================================================





<PAGE>   2

                                TABLE OF CONTENTS



                                                                      Page
                                                                      ----
    ARTICLE I

Definitions.                                                             2


    ARTICLE II

TRUST INDENTURE ACT
-------------------

SECTION 2.01.  Trust Indenture Act; Application...............           5
SECTION 2.02.  Lists of Holders of Preferred
                   Securities.................................           5
SECTION 2.03.  Reports by the Guarantee Trustee...............           5
SECTION 2.04.  Periodic Reports to Guarantee
                   Trustee       .............................           6
SECTION 2.05.  Evidence of Compliance with
                   Conditions Precedent.......................           6
SECTION 2.06.  Events of Default; Waiver......................           6
SECTION 2.07.  Disclosure of Information......................           6
SECTION 2.08.  Conflicting Interest...........................           6


    ARTICLE III

POWERS, DUTIES AND RIGHTS OF GUARANTEE TRUSTEE
----------------------------------------------

SECTION 3.01.  Powers and Duties of the Guarantee
                   Trustee....................................           7
SECTION 3.02.  Certain Rights and Duties of the
                   Guarantee Trustee..........................           7
SECTION 3.03.  Not Responsible for Recitals or
                   Issuance of Guarantee......................           9


    ARTICLE IV

GUARANTEE TRUSTEE
-----------------

SECTION 4.01.  Qualifications.................................          10
SECTION 4.02.  Appointment, Removal and Resignation
                   of Guarantee Trustee.......................          10









<PAGE>   3
                                                                      Page
    ARTICLE V

GUARANTEE
---------

SECTION 5.01.  Guarantee......................................          12
SECTION 5.02.  Waiver of Notice...............................          12
SECTION 5.03.  Obligations Not Affected.......................          12
SECTION 5.04.  Enforcement of Guarantee ......................          13
SECTION 5.05.  Guarantee of Payment...........................          13
SECTION 5.06.  Subrogation....................................          13
SECTION 5.07.  Independent Obligations........................          13


    ARTICLE VI

LIMITATION OF TRANSACTIONS; SUBORDINATION
-----------------------------------------

SECTION 6.01.  Limitation of Transactions.....................          14
SECTION 6.02.  Subordination..................................          14


    ARTICLE VII

Termination.                                                            15


    ARTICLE VIII

LIMITATION OF LIABILITY; INDEMNIFICATION
----------------------------------------

SECTION 8.01.  Exculpation....................................          15
SECTION 8.02.  Indemnification................................          15


    ARTICLE IX

MISCELLANEOUS
-------------

SECTION 9.01.  Successors and Assigns.........................          16
SECTION 9.02.  Amendments.....................................          16
SECTION 9.03.  Notices........................................          16
SECTION 9.04.  Genders........................................          17
SECTION 9.05.  Benefit........................................          17
SECTION 9.06.  Governing Law..................................          17
SECTION 9.07.  Counterparts...................................          17
SECTION 9.08.  Exercise of Overallotment Option...............          17


<PAGE>   4


                                    GUARANTEE AGREEMENT dated as of December 9,
                           1996, between Paine Webber Group Inc., a Delaware
                           corporation (the "Guarantor"), and The Chase
                           Manhattan Bank, a New York banking corporation, as
                           the initial Guarantee Trustee (as defined herein) for
                           the benefit of the Holders (as defined herein) from
                           time to time of the Preferred Securities (as defined
                           herein) of PWG Capital Trust I, a Delaware business
                           trust (the "Issuer").


         WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the
"Declaration") dated as of December 9, 1996, among the trustees named therein,
Paine Webber Group Inc., as Sponsor, and the Holders from time to time of
undivided beneficial interests in the assets of the Issuer, the Issuer may issue
up to $201,250,000 aggregate liquidation amount of its 8.30% Preferred Trust
Securities (the "Preferred Securities") representing preferred undivided
beneficial interests in the assets of the Issuer and having the terms set forth
in Exhibit B to the Declaration, of which $195,000,000 aggregate liquidation
amount of Preferred Securities are being issued as of the date hereof by the
Issuer pursuant to the Underwriting Agreement (as defined in the Declaration);
and

         WHEREAS, as incentive for the Holders to purchase Preferred Securities,
the Guarantor desires to irrevocably and unconditionally agree, to the extent
set forth herein, to pay to the Holders the Guarantee Payments (as defined
herein) and to make certain other payments on the terms and conditions set forth
herein;


         NOW, THEREFORE, in consideration of the purchase by the initial
purchasers thereof of Preferred Securities, which purchase the Guarantor hereby
agrees shall benefit the Guarantor, the Guarantor executes and delivers this
Guarantee Agreement for the benefit of the Holders from time to time.

<PAGE>   5
                                                                               2
                                    ARTICLE I

                                   DEFINITIONS
                                   -----------

         (a) Capitalized terms used in this Guarantee Agreement but not defined
in the preamble above have the respective meanings assigned to them in this
Article I.

         (b) A term defined anywhere in this Guarantee Agreement has the same
meaning throughout.

         (c) All references to "this Guarantee Agreement" are to this Guarantee
Agreement as modified, supplemented or amended from time to time.

         (d) All references in this Guarantee Agreement to Articles and Sections
are to Articles and Sections of this Guarantee Agreement unless otherwise
specified.

         (e) A term defined in the Trust Indenture Act has the same meaning when
used in this Guarantee Agreement unless otherwise defined in this Guarantee
Agreement or unless the context otherwise requires.

         (f) A reference to the singular includes the plural and vice versa.

         "Affiliate" has the same meaning as given to that term in Rule 405
under the Securities Act of 1933, as amended, or any successor rule thereunder.

         "Commission" means the Securities and Exchange Commission.

         "Common Securities" means the securities representing common undivided
beneficial interests in the assets of the Issuer, having the terms set forth in
Exhibit C to the Declaration.

         "Covered Person" means any Holder.

         "Debentures" means the series of Junior Subordinated Debentures issued
by the Guarantor under theIndenture to the Property Trustee and entitled the
"8.30% Junior Subordinated Debentures due 2036".

         "Distributions" has the meaning set forth in Exhibit B to the
Declaration.


<PAGE>   6
                                                                               3



         "Event of Default" means a default by the Guarantor on any of its
payment or other obligations under this Guarantee Agreement; PROVIDED, HOWEVER,
that except with respect to such a default resulting from a failure to pay any
Guarantee Payment, such default shall have continued for more than 30 days.

         "Guarantee Payments" shall mean the following Distributions and other
payments, without duplication, with respect to the Preferred Securities, to the
extent not made or paid by the Issuer: (i) any accrued and unpaid Distributions
that are required to be paid on the Preferred Securities, but only if and to the
extent that in each case the Guarantor has made a payment to the Property
Trustee of interest on the Debentures, (ii) the redemption price, including all
accrued and unpaid Distributions to the date of redemption (the "Redemption
Price"), with respect to any Preferred Securities called for redemption by the
Issuer, but only if and to the extent that in each case the Guarantor has made a
payment to the Property Trustee of interest or principal on the Debentures, and
(iii) upon a voluntary or involuntary dissolution, winding-up or termination of
the Issuer (other than in connection with the distribution of Debentures to
Holders or the redemption of all the Preferred Securities upon the maturity or
redemption of the Debentures as provided in the Declaration), the lesser of (a)
the aggregate of the liquidation amount and all accrued and unpaid Distributions
on the Preferred Securities to the date of payment, to the extent the Issuer has
funds available therefor, and (b) the amount of assets of the Issuer remaining
available for distribution to Holders upon liquidation of the Issuer (in either
case, the "Liquidation Distribution").

         "Guarantee Trustee" means The Chase Manhattan Bank until a Successor
Guarantee Trustee has been appointed and accepted such appointment pursuant to
the terms of this Guarantee Agreement and thereafter means each such Successor
Guarantee Trustee.

         "Holder" shall mean any holder, as registered on the books and records
of the Issuer, of any Preferred Securities; PROVIDED, HOWEVER, that in
determining whether the holders of the requisite percentage of Preferred
Securities have given any request, notice, consent or waiver hereunder, "Holder"
shall not include the Guarantor or any entity directly or indirectly controlling
or controlled by or under direct or indirect common control with the Guarantor.

         "Indemnified Person" means the Guarantee Trustee, any Affiliate of the
Guarantee Trustee, and any officers, directors, shareholders, members, partners,
employees, representatives or agents of the Guarantee Trustee.

         "Indenture" means the Indenture dated as of December 9, 1996, between
the Guarantor and The Chase Manhattan Bank, as trustee, as supplemented by the
First Supplemental Indenture thereto dated as of December 9, 1996, pursuant to
which the Debentures are to be issued.

         "Investment Company" means an investment company as defined in the
Investment Company Act.

         "Investment Company Act" means the Investment Company Act of 1940, as
amended from time to time, or any successor legislation.

<PAGE>   7
                                                                               4


         "Liquidation Distribution" has the meaning set forth in the definition
of Guarantee Payments.

         "Majority in liquidation amount of the Preferred Securities" means,
except as otherwise required by the Trust Indenture Act, Holder(s) of
outstanding Preferred Securities voting together as a single class who are the
record owners of Preferred Securities whose aggregate liquidation amount
(including the stated amount that would be paid on redemption, liquidation or
otherwise, plus accrued and unpaid Distributions to the date upon which the
voting percentages are determined) represents more than 50% of the aggregate
liquidation amount of all outstanding Preferred Securities.

         "Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.

         "Preferred Securities" has the meaning set forth in the first WHEREAS
clause above.

         "Property Trustee" means the Person acting as Property Trustee under
the Declaration.

         "Redemption Price" has the meaning set forth in the definition of
Guarantee Payments.

         "Responsible Officer" means, with respect to the Guarantee Trustee, any
officer of the Guarantee Trustee with responsibility for the administration of
this Guarantee Agreement and also means, with respect to a particular corporate
trust matter, any other officer to whom such matter is referred because of that
officer's knowledge of, and familiarity with, the particular subject.

         "66-2/3% in liquidation amount of the Preferred Securities" means,
except as otherwise required by the Trust Indenture Act, Holder(s) of
outstanding Preferred Securities voting together as a single class who are the
record owners of Preferred Securities whose aggregate liquidation amount
(including the stated amount that would be paid on redemption, liquidation or
otherwise, plus accrued and unpaid Distributions to the date upon which the
voting percentages are determined) represents 66-2/3% or more of the aggregate
liquidation amount of all outstanding Preferred Securities.

         "Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as a Guarantee Trustee under Section 4.01.

         "Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended.



<PAGE>   8
                                                                               5

                                   ARTICLE II

                               TRUST INDENTURE ACT

         SECTION 2.01. TRUST INDENTURE ACT; APPLICATION. (a) This Guarantee
Agreement is subject to the provisions of the Trust Indenture Act that are
required to be part of this Guarantee Agreement and shall, to the extent
applicable, be governed by such provisions.

         (b) If and to the extent that any provision of this Guarantee Agreement
limits, qualifies or conflicts with the duties imposed by Sections 310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall control.

         (c) The application of the Trust Indenture Act to this Guarantee
Agreement shall not affect the nature of the Preferred Securities as equity
securities representing preferred undivided beneficial interests in the assets
of the Issuer.

         SECTION 2.02. LISTS OF HOLDERS OF PREFERRED SECURITIES. (a) The
Guarantor shall provide the Guarantee Trustee with such information as is
required under Section 312(a) of the Trust Indenture Act at the times and in the
manner provided in Section 312(a).

         (b) The Guarantee Trustee shall comply with its obligations under
Sections 310(b), 311 and 312(b) of the Trust Indenture Act.

         SECTION 2.03. REPORTS BY THE GUARANTEE TRUSTEE. Within 60 days after
May 15 of each year, the Guarantee Trustee shall provide to the Holders such
reports as are required by Section 313 of the Trust Indenture Act, if any, in
the form, in the manner and at the times provided by Section 313 of the Trust
Indenture Act. The Guarantee Trustee shall also comply with the requirements of
Section 313(d) of the Trust Indenture Act.


<PAGE>   9
                                                                               6


         SECTION 2.04. PERIODIC REPORTS TO THE GUARANTEE TRUSTEE. The Guarantor
shall provide to the Guarantee Trustee, the Commission and the Holders, as
applicable, such documents, reports and information as required by Section
314(a)(1)-(3) (if any) of the Trust Indenture Act and the compliance
certificates required by Section 314(a)(4) and (c) of the Trust Indenture Act,
any such certificates to be provided in the form, in the manner and at the times
required by Section 314(a)(4) and (c) of the Trust Indenture Act (provided that
any certificate to be provided pursuant to Section 314(a)(4) of the Trust
Indenture Act shall be provided within 120 days of the end of each fiscal year
of the Issuer).

         SECTION 2.05. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT. The
Guarantor shall provide the Guarantee Trustee such evidence of compliance with
any conditions precedent, if any, provided for in this Guarantee Agreement which
relate to any of the matters set forth in Section 314(c) of the Trust Indenture
Act. Any certificate or opinion required to be given pursuant to Section 314(c)
of the Trust Indenture Act shall comply with Section 314(e) of the Trust
Indenture Act.

         SECTION 2.06. EVENTS OF DEFAULT; WAIVER. (a) Subject to Section
2.06(b), Holders may, by vote of at least a Majority in liquidation amount of
the Preferred Securities, (A) direct the time, method and place of conducting
any proceeding for any remedy available to the Guarantee Trustee, or exercising
any trust or power conferred upon the Guarantee Trustee, or (B) on behalf of the
Holders of all Preferred Securities, waive any past Event of Default and its
consequences. Upon such waiver, any such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured for every
purpose of this Guarantee Agreement, but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.

         (b) The right of any Holder to receive payment of the Guarantee
Payments in accordance with this Guarantee Agreement, or to institute suit for
the enforcement of any such payment, shall not be impaired without the consent
of each such Holder.

         SECTION 2.07. DISCLOSURE OF INFORMATION. The disclosure of information
as to the names and addresses of the Holders in accordance with Section 312 of
the Trust Indenture Act, regardless of the source from which such information
was derived, shall not be deemed to be a violation of any existing law or any
law hereafter enacted which does not specifically refer to Section 312 of the
Trust Indenture Act, nor shall the Guarantee Trustee be held accountable by
reason of mailing any material pursuant to a request made under Section 312(b)
of the Trust Indenture Act.

         SECTION 2.08. CONFLICTING INTEREST. The Declaration shall be deemed to
be specifically described in this Guarantee Agreement for the purposes of clause
(i) of the first proviso contained in Section 310(b) of the Trust Indenture Act.

<PAGE>   10
                                                                               7


                                   ARTICLE III

                 POWERS, DUTIES AND RIGHTS OF GUARANTEE TRUSTEE
                 ----------------------------------------------

         SECTION 3.01. POWERS AND DUTIES OF THE GUARANTEE TRUSTEE. (a) This
Guarantee Agreement shall be held by the Guarantee Trustee in trust for the
benefit of the Holders. The Guarantee Trustee shall not transfer its right,
title and interest in this Guarantee Agreement to any Person except a Successor
Guarantee Trustee on acceptance by such Successor Guarantee Trustee of its
appointment to act as Guarantee Trustee or to a Holder exercising his or her
rights pursuant to Section 5.04. The right, title and interest of the Guarantee
Trustee to this Guarantee Agreement shall vest automatically in each Person who
may hereafter be appointed as Guarantee Trustee in accordance with Article IV.
Such vesting and cessation of title shall be effective whether or not
conveyancing documents have been executed and delivered.

         (b) If an Event of Default occurs and is continuing, the Guarantee
Trustee shall enforce this Guarantee Agreement for the benefit of the Holders.

         (c) This Guarantee Agreement and all moneys received by the Property
Trustee hereunder in respect of the Guarantee Payments will not be subject to
any right, charge, security interest, lien or claim of any kind in favor of or
for the benefit of the Guarantee Trustee or its agents or their creditors.

         (d) The Guarantee Trustee shall, within 90 days after the occurrence of
an Event of Default, transmit by mail, first class postage prepaid, to the
Holders, as their names and addresses appear upon the register, notice of all
Events of Default known to the Guarantee Trustee, unless such Events of Default
shall have been cured before the giving of such notice; provided that, the
Guarantee Trustee shall be protected in withholding such notice if and so long
as the board of directors, the executive committee or a trust committee of
directors and/or Responsible Officers of the Guarantee Trustee in good faith
determines that the withholding of such notice is in the interests of the
Holders. The Guarantee Trustee shall not be deemed to have knowledge of any
Event of Default except any Event of Default as to which the Guarantee Trustee
shall have received written notice or a Responsible Officer charged with the
administration of this Guarantee Agreement shall have obtained written notice.

         (e) The Guarantee Trustee shall not resign as a Trustee unless a
Successor Guarantee Trustee has been appointed and accepted that appointment in
accordance with Article IV.

         SECTION 3.02. CERTAIN RIGHTS AND DUTIES OF THE GUARANTEE TRUSTEE. (a)
The Guarantee Trustee, before the occurrence of an Event of Default and after
the curing or waiving of all Events of Default that may have occurred, shall
undertake to perform only such duties as are specifically set forth in this
Guarantee Agreement, and no implied covenants shall be read into this Guarantee
Agreement against the Guarantee Trustee. In case an Event of Default has
occurred (that has not been cured or waived pursuant to Section 2.06(a)), the
Guarantee Trustee shall exercise such of the rights and powers vested in it by
this Guarantee Agreement, and use the same degree of care and skill in their
exercise, as a prudent person would exercise or use under the circumstances in
the conduct of his or her own affairs.

<PAGE>   11
                                                                               8


         (b) No provision of this Guarantee Agreement shall be construed to
relieve the Guarantee Trustee from liability for its own negligent action, its
own negligent failure to act or its own wilful misconduct, except that:

                  (i) prior to the occurrence of an Event of Default and after
         the curing or waiving of all Events of Default that may have occurred;

                           (A) the duties and obligations of the Guarantee
                  Trustee shall be determined solely by the express provisions
                  of this Guarantee Agreement, and the Guarantee Trustee shall
                  not be liable except for the performance of such duties and
                  obligations as are specifically set forth in this Guarantee
                  Agreement, and no implied covenants or obligations shall be
                  read into this Guarantee Agreement against the Guarantee
                  Trustee; and

                           (B) in the absence of bad faith on the part of the
                  Guarantee Trustee, the Guarantee Trustee may conclusively
                  rely, as to the truth of the statements and the correctness of
                  the opinions expressed therein, upon any certificates or
                  opinions furnished to the Guarantee Trustee and conforming to
                  the requirements of this Guarantee Agreement; but in the case
                  of any such certificates or opinions that by any provision
                  hereof are specifically required to be furnished to the
                  Guarantee Trustee, the Guarantee Trustee shall be under a duty
                  to examine the same to determine whether or not they conform
                  to the requirements of this Guarantee Agreement;

                  (ii) the Guarantee Trustee shall not be liable for any error
         of judgment made in good faith by a Responsible Officer of the
         Guarantee Trustee, unless it shall be proved that the Guarantee Trustee
         was negligent in ascertaining the pertinent facts;

                  (iii) the Guarantee Trustee shall not be liable with respect
         to any action taken or omitted to be taken by it in good faith in
         accordance with the direction of the Holders as provided herein
         relating to the time, method and place of conducting any proceeding for
         any remedy available to the Guarantee Trustee, or exercising any trust
         or power conferred upon the Guarantee Trustee under this Guarantee
         Agreement; and

                  (iv) no provision of this Guarantee Agreement shall require
         the Guarantee Trustee to expend or risk its own funds or otherwise
         incur personal financial liability in the performance of any of its
         duties or in the exercise of any of its rights or powers, if it shall
         have reasonable ground for believing that the repayment of such funds
         or liability is not reasonably assured to it under the terms of this
         Guarantee Agreement or adequate indemnity against such risk or
         liability is not reasonably assured to it.

         (c) Subject to the provisions of Section 3.02(a) and (b):

                  (i) whenever in the administration of this Guarantee
         Agreement, the Guarantee Trustee shall deem it desirable that a matter
         be proved or established prior to taking, suffering or omitting any
         action hereunder, the Guarantee Trustee (unless other evidence is
         herein specifically prescribed) may, in the absence of bad faith on its
         part and, if the Trust is excluded from the definition of Investment
         Company solely by reason of Rule 3a-7 under the Investment Company Act
         ("Rule 3a-7"), subject to the requirements of Rule 3a-7, request and
         rely upon a certificate, which shall comply with the provisions of
         Section 314(e) of the Trust Indenture Act, signed by any authorized
         officer of the Guarantor;

<PAGE>   12
                                                                               9


                  (ii) the Guarantee Trustee (A) may consult with counsel (which
         may be counsel to the Guarantor or any of its Affiliates and may
         include any of its employees) selected by it in good faith and with due
         care and the written advice or opinion of such counsel with respect to
         legal matters shall be full and complete authorization and protection
         in respect of any action taken, suffered or omitted by it hereunder in
         good faith and in reliance thereon and in accordance with such advice
         and opinion and (B) shall have the right at any time to seek
         instructions concerning the administration of this Guarantee Agreement
         from any court of competent jurisdiction;

                  (iii) the Guarantee Trustee may execute any of the trusts or
         powers hereunder or perform any duties hereunder either directly or by
         or through agents or attorneys and the Guarantee Trustee shall not be
         responsible for any misconduct or negligence on the part of any agent
         or attorney appointed by it in good faith and with due care;

                  (iv) the Guarantee Trustee shall be under no obligation to
         exercise any of the rights or powers vested in it by this Guarantee
         Agreement at the request or direction of any Holders, unless such
         Holders shall have offered to the Guarantee Trustee reasonable security
         and indemnity against the costs, expenses (including attorneys' fees
         and expenses) and liabilities that might be incurred by it in complying
         with such request or direction; PROVIDED that nothing contained in this
         clause (iv) shall relieve the Guarantee Trustee of the obligation, upon
         the occurrence of an Event of Default (which has not been cured or
         waived) to exercise such of the rights and powers vested in it by this
         Guarantee Agreement, and to use the same degree of care and skill in
         such exercise, as a prudent person would exercise or use under the
         circumstances in the conduct of his or her own affairs; and

                  (v) any action taken by the Guarantee Trustee or its agents
         hereunder shall bind the Holders and the signature of the Guarantee
         Trustee or its agents alone shall be sufficient and effective to
         perform any such action; and no third party shall be required to
         inquire as to the authority of the Guarantee Trustee to so act, or as
         to its compliance with any of the terms and provisions of this
         Guarantee Agreement, both of which shall be conclusively evidenced by
         the Guarantee Trustee's or its agent's taking such action.

         SECTION 3.03. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE.
The recitals contained in this Guarantee Agreement shall be taken as the
statements of the Guarantor and the Guarantee Trustee does not assume any
responsibility for their correctness. The Guarantee Trustee makes no
representations as to the validity or sufficiency of this Guarantee Agreement.

<PAGE>   13
                                                                              10


                                   ARTICLE IV

                                GUARANTEE TRUSTEE
                                -----------------

         SECTION 4.01. QUALIFICATIONS. (a) There shall at all times be a
Guarantee Trustee which shall:

                  (i) not be an Affiliate of the Guarantor;

                  (ii) be a corporation organized and doing business under the
         laws of the United States of America or any State or Territory thereof
         or of the District of Columbia, or a corporation or Person permitted by
         the Commission to act as an institutional trustee under the Trust
         Indenture Act, authorized under such laws to exercise corporate trust
         powers, having a combined capital and surplus of at least $50,000,000,
         and subject to supervision or examination by Federal, State,
         Territorial or District of Columbia authority. If such corporation
         publishes reports of condition at least annually, pursuant to law or to
         the requirements of the supervising or examining authority referred to
         above, then for the purposes of this Section 4.01(a)(ii), the combined
         capital and surplus of such corporation shall be deemed to be its
         combined capital and surplus as set forth in its most recent report of
         condition so published; and

                  (iii) if the Trust is excluded from the definition of an
         Investment Company solely by reason of Rule 3a-7 and to the extent Rule
         3a-7 requires a trustee having certain qualifications to hold title to
         the "eligible assets" (as defined in Rule 3a-7) of the Trust, possess
         those qualifications.

         If at any time the Guarantee Trustee shall cease to satisfy the
requirements of clauses (i),(ii) and (iii) above, the Guarantee Trustee shall
immediately resign in the manner and with the effect set out in Section 4.02. If
the Guarantee Trustee has or shall acquire any "conflicting interest" within the
meaning of Section 310(b) of the Trust Indenture Act, the Guarantee Trustee and
the Guarantor shall in all respects comply with the provisions of Section 310(b)
of the Trust Indenture Act.

         SECTION 4.02. APPOINTMENT, REMOVAL AND RESIGNATION OF GUARANTEE
TRUSTEE. (a) Subject to Section 4.02(b), the Guarantee Trustee may be appointed
or removed without cause at any time by the Guarantor.

         (b) The Guarantee Trustee shall not be removed in accordance with
Section 4.02(a) until a Successor Guarantee Trustee possessing the
qualifications to act as Guarantee Trustee under Section 4.01(a) has been
appointed and has accepted such appointment by written instrument executed by
such Successor Guarantee Trustee and delivered to the Guarantor and the
Guarantee Trustee being removed.

         (c) The Guarantee Trustee appointed to office shall hold office until
its successor shall have been appointed and until its removal or resignation.

<PAGE>   14
                                                                              11


         (d) The Guarantee Trustee may resign from office (without need for
prior or subsequent accounting) by an instrument (a "Resignation Request") in
writing signed by the Guarantee Trustee and delivered to the Guarantor, which
resignation shall take effect upon such delivery or upon such later date as is
specified therein; PROVIDED, HOWEVER, that no such resignation of the Guarantee
Trustee shall be effective until: (i) a Successor Guarantee Trustee possessing
the qualifications to act as Guarantee Trustee under Section 4.01(a) has been
appointed and has accepted such appointment by instrument executed by such
Successor Guarantee Trustee and delivered to the Guarantor and the resigning
Guarantee Trustee; or (ii) until the assets of the Trust have been completely
liquidated and the proceeds thereof distributed to the Holders, if the Trust is
excluded from the definition of an Investment Company solely by reason of Rule
3a-7.

         (e) If no Successor Guarantee Trustee shall have been appointed and
accepted appointment as provided in this Section 4.02 within 60 days after
delivery to the Guarantor of a Resignation Request, the resigning Guarantee
Trustee may petition any court of competent jurisdiction for appointment of a
Successor Guarantee Trustee. Such court may thereupon, after such notice, if
any, as it may deem proper and prescribe, appoint a Successor Guarantee Trustee.

<PAGE>   15
                                                                              12

                                    ARTICLE V

                                    GUARANTEE
                                    ---------

         SECTION 5.01. GUARANTEE. The Guarantor irrevocably and unconditionally
agrees to pay in full to the Holders the Guarantee Payments (without duplication
of amounts theretofore paid by the Issuer), regardless of any defense, right of
set-off or counterclaim that the Issuer may have or assert. The Guarantor's
obligation to make a Guarantee Payment may be satisfied by direct payment of the
required amounts by the Guarantor to the Holders or by causing the Issuer to pay
such amounts to the Holders.

         SECTION 5.02. WAIVER OF NOTICE. The Guarantor hereby waives notice of
acceptance of this Guarantee Agreement and of any liability to which it applies
or may apply, presentment, demand for payment, any right to require a proceeding
first against the Issuer or any other Person before proceeding against the
Guarantor, protest, notice of nonpayment, notice of dishonor, notice of
redemption and, to the extent permitted by law, all other notices and demands.

         SECTION 5.03. OBLIGATIONS NOT AFFECTED. The obligations, covenants,
agreements and duties of the Guarantor under this Guarantee Agreement shall in
no way be affected or impaired by reason of the happening from time to time of
any of the following:

         (a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Issuer of any express or implied agreement,
covenant, term or condition relating to the Preferred Securities to be performed
or observed by the Issuer;

         (b) the extension of time for the payment by the Issuer of all or any
portion of the Distributions (other than an extension of time for payment of
Distributions that results from the extension of any interest payment period on
the Debentures), Redemption Price, Liquidation Distribution or any other sums
payable under the terms of the Preferred Securities or the extension of time for
the performance of any other obligation under, arising out of, or in connection
with, the Preferred Securities;

         (c) any failure, omission, delay or lack of diligence on the part of
the Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Preferred Securities, or
any action on the part of the Issuer granting indulgence or extension of any
kind;

         (d) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Issuer or any of the assets of the
Issuer;

<PAGE>   16
                                                                              13



         (e) any invalidity of, or defect or deficiency in, the Preferred
Securities;

         (f) the settlement or compromise of any obligation guaranteed hereby or
hereby incurred; or

         (g) any other circumstances whatsoever that might otherwise constitute
a legal or equitable discharge or defense of a guarantor, it being the intent of
this Section 5.03 that the obligations of the Guarantor hereunder shall be
absolute and unconditional under any and all circumstances.

         There shall be no obligation of the Holders to give notice to, or
obtain consent of, the Guarantor with respect to the happening of any of the
foregoing.

         SECTION 5.04. ENFORCEMENT OF GUARANTEE. The Guarantor and the Guarantee
Trustee expressly acknowledge that (i) this Guarantee Agreement will be
deposited with the Guarantee Trustee to be held for the benefit of the Holders;
(ii) the Guarantee Trustee has the right to enforce this Guarantee Agreement on
behalf of the Holders; (iii) Holders representing not less than a Majority in
liquidation amount of the Preferred Securities have the right to direct the
time, method and place of conducting any proceeding for any remedy available in
respect of this Guarantee Agreement, including the giving of directions to the
Guarantee Trustee, or exercising any trust or other power conferred upon the
Guarantee Trustee under this Guarantee Agreement, and (iv) if the Guarantee
Trustee fails to enforce this Guarantee Agreement, any Holder may institute a
legal proceeding directly against the Guarantor to enforce its rights under this
Guarantee Agreement, without first instituting a legal proceeding against the
Issuer, the Guarantee Trustee or any other Person. Notwithstanding the
foregoing, if the Guarantor has failed to make a Guarantee Payment, a Holder of
Preferred Securities may directly institute a proceeding against the Guarantor
for enforcement of such Holder's right to receive payment under the Guarantee.
The Guarantor waives any right or remedy to require that any action be brought
first against the Issuer or any other person or entity before proceeding
directly against the Guarantor.

         SECTION 5.05. GUARANTEE OF PAYMENT. This Guarantee Agreement creates a
guarantee of payment and not merely of collection. This Guarantee Agreement will
not be discharged except by payment of the Guarantee Payments in full (without
duplication of amounts theretofore paid by the Issuer).

         SECTION 5.06. SUBROGATION. The Guarantor shall be subrogated to all
rights, if any, of the Holders against the Issuer in respect of any amounts paid
to the Holders by the Guarantor under this Guarantee Agreement; PROVIDED,
HOWEVER, that the Guarantor shall not (except to the extent required by
mandatory provisions of law) be entitled to enforce or exercise any rights which
it may acquire by way of subrogation or any indemnity, reimbursement or other
agreement, in all cases as a result of payment under this Guarantee Agreement,
if, at the time of any such payment, any amounts are due and unpaid under this
Guarantee Agreement. If any amount shall be paid to the Guarantor in violation
of the preceding sentence, the Guarantor agrees to hold such amount in trust for
the Holders and to pay over such amount to the Holders.

         SECTION 5.07. INDEPENDENT OBLIGATIONS. The Guarantor acknowledges that
its obligations hereunder are independent of the obligations of the Issuer with
respect to the Preferred Securities and that the Guarantor shall be liable as
principal and as debtor hereunder to make Guarantee Payments pursuant to the
terms of this Guarantee Agreement notwithstanding the occurrence of any event
referred to in subsections (a) through (g), inclusive, of Section 5.03.


<PAGE>   17
                                                                              14


                                   ARTICLE VI

                    LIMITATION OF TRANSACTIONS; SUBORDINATION
                    -----------------------------------------

         SECTION 6.01. LIMITATION OF TRANSACTIONS. So long as any Preferred
Securities remain outstanding, the Guarantor will not declare or pay any
dividends on, or redeem, purchase, acquire or make a distribution or liquidation
payment with respect to, any of its common stock or preferred stock or make any
guarantee payment with respect thereto if at such time (i) the Guarantor shall
be in default with respect to its Guarantee Payments or other payment
obligations hereunder, (ii) there shall have occurred any Event of Default (as
defined in the Declaration) or (iii) the Guarantor shall have given notice of
its selection of an Extension Period (as defined in the Indenture) and such
period, or any extension thereof, is continuing; PROVIDED, HOWEVER, that the
foregoing restrictions will not apply to (i) dividends, redemptions, purchases,
acquisitions, distributions or payments made by the Guarantor by way of issuance
of shares of its capital stock, (ii) payments of accrued dividends by the
Guarantor upon the redemption, exchange or conversion of any preferred stock of
the Guarantor as may be outstanding from time to time in accordance with the
terms of such preferred stock or (iii) cash payments made by the Guarantor in
lieu of delivering fractional shares upon the redemption, exchange or conversion
of any preferred stock of the Guarantor as may be outstanding from time to time
in accordance with the terms of such preferred stock. In addition, so long as
any Preferred Securities remain outstanding, the Guarantor (i) will remain the
sole direct or indirect owner of all the outstanding Common Securities and shall
not cause or permit the Common Securities to be transferred except to the extent
such transfer is permitted under Section 9.01(c) of the Declaration, provided
that any permitted successor of the Guarantor under the Indenture may succeed to
the Guarantor's ownership of the Common Securities; and (ii) will use reasonable
efforts to cause the Issuer to continue to be treated as a grantor trust for
United States Federal income tax purposes, except in connection with a
distribution of Debentures as provided in the Declaration.

         SECTION 6.02. SUBORDINATION. This Guarantee Agreement will constitute
an unsecured obligation of the Guarantor and will rank (i) subordinate and
junior in right of payment to all other indebtedness, liabilities and
obligations of the Guarantor and any guarantees, endorsements or other
contingent obligations of the Guarantor in respect of such indebtedness,
liabilities or obligations, including the Debentures, except those made PARI
PASSU or subordinate by their terms, and (ii) senior to all capital stock now or
hereafter issued by the Guarantor and to any guarantee now or hereafter entered
into by the Guarantor in respect of any of its capital stock. The Guarantor's
obligations under this Guarantee Agreement will rank PARI PASSU with respect to
obligations under other guarantee agreements which it may enter into from time
to time to the extent that such agreements shall be entered into in
substantially the form hereof and provide for comparable guarantees by the
Guarantor of payment on preferred securities issued by other business trusts of
which the Guarantor holds the common securities.

<PAGE>   18
                                                                              15



                                   ARTICLE VII

                                   TERMINATION
                                   -----------

         This Guarantee Agreement shall terminate and be of no further force and
effect upon full payment of the Redemption Price of all Preferred Securities, or
upon the distribution of Debentures to Holders in exchange for all the Preferred
Securities, or upon full payment of the amounts payable in accordance with the
Declaration upon liquidation of the Issuer. Notwithstanding the foregoing, this
Guarantee Agreement will continue to be effective or will be reinstated, as the
case may be, if at any time any Holder must restore payment of any sums paid
with respect to the Preferred Securities or this Guarantee Agreement.



                                  ARTICLE VIII

                    LIMITATION OF LIABILITY; INDEMNIFICATION
                    ----------------------------------------

         SECTION 8.01. EXCULPATION. (a) No Indemnified Person shall be liable,
responsible or accountable in damages or otherwise to the Guarantor or any
Covered Person for any loss, damage or claim incurred by reason of any act or
omission performed or omitted by such Indemnified Person in good faith and in a
manner such Indemnified Person reasonably believed to be within the scope of the
authority conferred on such Indemnified Person by this Guarantee Agreement or by
law, except that an Indemnified Person shall be liable for any such loss, damage
or claim incurred by reason of such Indemnified Person's negligence or wilful
misconduct with respect to such acts or omissions.

         (b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Guarantor and upon such information, opinions,
reports or statements presented to the Guarantor by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Guarantor, including information, opinions, reports or
statements as to the value and amount of assets, liabilities, profits, losses or
any other facts pertinent to the existence and amounts of assets from which
Distributions to Holders might properly be paid.

         SECTION 8.02. INDEMNIFICATION. (a) To the fullest extent permitted by
applicable law, the Guarantor shall indemnify and hold harmless each Indemnified
Person from and against any loss, damage or claim incurred by such Indemnified
Person by reason of any act or omission performed or omitted by such Indemnified
Person in good faith and in a manner such Indemnified Person reasonably believed
to be within the scope of authority conferred on such Indemnified Person by this
Guarantee Agreement, except that no Indemnified Person shall be entitled to be
indemnified in respect of any loss, damage or claim incurred by such Indemnified
Person by reason of negligence or wilful misconduct with respect to such acts or
omissions.

<PAGE>   19
                                                                              16


         (b) To the fullest extent permitted by applicable law, expenses
(including legal fees) incurred by an Indemnified Person in defending any claim,
demand, action, suit or proceeding shall, from time to time, be advanced by the
Guarantor prior to the final disposition of such claim, demand, action, suit or
proceeding upon receipt by the Guarantor of an undertaking by or on behalf of
the Indemnified Person to repay such amount if it shall be determined that the
Indemnified Person is not entitled to be indemnified as authorized in Section
8.02(a).


                                   ARTICLE IX

                                  MISCELLANEOUS
                                  -------------

         SECTION 9.01. SUCCESSORS AND ASSIGNS. All guarantees and agreements
contained in this Guarantee Agreement shall bind the successors, assignees,
receivers, trustees and representatives of the Guarantor and shall inure to the
benefit of the Holders of the Preferred Securities then outstanding. Except in
connection with a consolidation, merger or conveyance, transfer or lease of
assets involving the Guarantor that is permitted under Article Ten of the
Indenture, the Guarantor shall not assign its obligations hereunder.

         SECTION 9.02. AMENDMENTS. Except with respect to any changes which do
not adversely affect the rights of Holders (in which case no consent of Holders
will be required), this Guarantee Agreement may only be amended with the prior
approval of the Holders of not less than 66-2/3% in liquidation amount of the
Preferred Securities. The provisions of Section 12.02 of the Declaration
concerning meetings of Holders shall apply to the giving of such approval.

         SECTION 9.03 NOTICES. Any notice, request or other communication
required or permitted to be given hereunder shall be in writing, duly signed by
the party giving such notice, and delivered, telecopied or mailed by first class
mail as follows:

                  (a) if given to the Guarantor, to the address set forth below
         or such other address as the Guarantor may give notice of to the
         Holders:

                      Paine Webber Group Inc.
                      1285 Avenue of the Americas
                      New York, New York 10019
                      Facsimile No.:  (212) 713-2116
                      Attention:  General Counsel

                  (b) if given to the Guarantee Trustee, to the address set
         forth below or such other address as the Guarantee Trustee may give
         notice of to the Holders:

                      The Chase Manhattan Bank
                      450 West 33rd Street
                      New York, New York 10001
                      Facsimile No.:  (212) 946-8158
                      Attention:  Corporate Trust Administration

                  (c) if given to any Holder of Preferred Securities, at the
         address set forth on the books and records of the Issuer.

<PAGE>   20
                                                                              17


         All notices hereunder shall be deemed to have been given when received
in person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.

         SECTION 9.04. GENDERS. The masculine, feminine and neuter genders used
herein shall include the masculine, feminine and neuter genders.

         SECTION 9.05. BENEFIT. This Guarantee Agreement is solely for the
benefit of the Holders and, subject to Section 3.01(a), is not separately
transferable from the Preferred Securities.

         SECTION 9.06. GOVERNING LAW. THIS GUARANTEE AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS).

         SECTION 9.07. COUNTERPARTS. This Guarantee Agreement may be executed in
counterparts, each of which shall be an original; but such counterparts shall
together constitute one and the same instrument.

         SECTION 9.08. EXERCISE OF OVERALLOTMENT OPTION. If and to the extent
that Preferred Securities are issued by the Issuer upon exercise of the
overallotment option referred to in the first WHEREAS clause, the Guarantor
agrees to give prompt notice thereof to the Guarantee Trustee, but the failure
to give such notice shall not relieve the Guarantor of any of its obligations
hereunder.


         This Guarantee Agreement is executed as of the day and year first above
written.

                                        PAINE WEBBER GROUP INC.,

                                          by
                                             ----------------------------------
                                             Name:
                                             Title:



                                        THE CHASE MANHATTAN BANK, as
                                        Guarantee Trustee,

                                          by
                                             ----------------------------------
                                             Name:
                                             Title: