PAINEWEBBER GROWTH FUND
PAINEWEBBER GROWTH AND INCOME FUND
PAINEWEBBER MID CAP FUND
PAINEWEBBER SMALL CAP FUND
SUPPLEMENT TO STATEMENT OF ADDITIONAL INFORMATION DATED DECEMBER 1, 1999
October 10, 2000
Dear Investor,
The board of trustees for each of the above-referenced funds has
approved new investment management arrangements for the fund and related
investment strategy changes that became effective on October 10, 2000 pursuant
to a new Interim Investment Management and Administration Agreement between each
fund and Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") and one
or more Interim Sub-Advisory Contracts between Mitchell Hutchins and
unaffiliated sub-advisers.
As a result of these new investment management arrangements, the funds'
Statement of Additional Information ("SAI") is revised as follows:
THE SECOND PARAGRAPH OF THE COVER PAGE IS REPLACED IN ITS ENTIRETY BY THE
FOLLOWING:
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"),
a wholly owned asset management subsidiary of PaineWebber
Incorporated ("PaineWebber") serves as the manager and
administrator for each fund. As distributor for the funds,
Mitchell Hutchins has appointed PaineWebber to serve as dealer
for the sale of fund shares. Mitchell Hutchins has appointed
unaffiliated investment advisers (each a "sub-adviser") to
serve as sub-advisers for each fund's investments.
THE NAME "MITCHELL HUTCHINS" IN REFERENCES TO DETERMINATIONS MADE BY A FUND'S
SUB-ADVISER IN THE SECTIONS CAPTIONED "THE FUNDS AND THEIR INVESTMENT POLICIES,"
"THE FUNDS' INVESTMENTS, RELATED RISKS AND LIMITATIONS," "STRATEGIES USING
DERIVATIVE INSTRUMENTS" AND "PORTFOLIO TRANSACTIONS" IS REPLACED BY THE PHRASE
"THE APPLICABLE SUB-ADVISER," EXCEPT IN THE SECTION CAPTIONED "LENDING OF
PORTFOLIO SECURITIES" ON P. 8.
THE DESCRIPTION OF PAINEWEBBER GROWTH FUND IN THE SECOND PARAGRAPH OF THE
SECTION CAPTIONED "THE FUNDS AND THEIR INVESTMENT POLICIES" ON P. 2 IS REPLACED
IN ITS ENTIRETY BY THE FOLLOWING:
The investment objective of GROWTH FUND is long-term capital
appreciation. The fund generally invests in common stocks of
larger capitalization companies that are believed to have
substantial potential for capital growth. Alliance Capital
Management L.P. and State Street Global Advisors serve as the
fund's sub-advisers. Under normal circumstances, the fund
invests at least 65% of its total assets in equity securities.
THE DESCRIPTION OF PAINEWEBBER GROWTH AND INCOME FUND IN THE FIFTH PARAGRAPH OF
THE SECTION CAPTIONED "THE FUNDS AND THEIR INVESTMENT POLICIES" ON P. 2 IS
REPLACED IN ITS ENTIRETY BY THE FOLLOWING:
The investment objective of GROWTH AND INCOME FUND is current
income and capital growth. Institutional Capital Corporation,
Westwood Management Corporation and State Street Global
Advisors serve as the fund's sub-advisers. Under normal
circumstances, the fund invests at least 65% of its total
assets in equity securities believed to have substantial
potential for capital growth. The fund seeks to achieve the
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income portion of its objective by investing, under normal
circumstances, at least 65% of its total assets in
income-producing securities, which may include dividend-paying
equity securities, bonds and money market instruments. The
fund may invest up to 10% of its total assets in convertible
securities rated below investment grade but no lower than B by
S&P or Moody's, comparably rated by another rating agency or,
if unrated, determined by a sub-adviser to be of comparable
quality. The fund may also invest up to 25% of its total
assets in U.S. dollar denominated equity securities of foreign
issuers that are traded on recognized U.S. exchanges or in the
U.S. over-the-counter market.
THE DESCRIPTION OF PAINEWEBBER MID CAP FUND IN THE SEVENTH PARAGRAPH OF THE
SECTION CAPTIONED "THE FUNDS AND THEIR INVESTMENT POLICIES" ON P. 2 IS REPLACED
IN ITS ENTIRETY BY THE FOLLOWING:
The investment objective of MID CAP FUND is long-term capital
appreciation. Delaware Management Company serves as the fund's
sub-adviser. Under normal circumstances, the fund invests at
least 65% of its total assets in equity securities of medium
capitalization ("mid cap") companies, which the fund defines
as companies having market capitalizations of at least $750
million and no more than $8 billion at the time of purchase.
The fund may invest up to 35% of its total assets in equity
securities of companies that are larger or smaller than mid
cap companies, as well as in bonds and money market
instruments. The fund may invest up to 35% of its total assets
in U.S. dollar denominated equity securities of foreign
issuers that are traded on recognized U.S. exchanges or in the
U.S. over-the-counter market.
THE DESCRIPTION OF PAINEWEBBER SMALL CAP FUND IN THE NINTH PARAGRAPH OF THE
SECTION CAPTIONED "THE FUNDS AND THEIR INVESTMENT POLICIES" ON P.3 IS REPLACED
IN ITS ENTIRETY BY THE FOLLOWING:
The investment objective of SMALL CAP FUND is long-term
capital appreciation. Ariel Capital Management, Inc. and ICM
Asset Management, Inc. serve as the fund's sub-advisers. Under
normal circumstances, the fund invests at least 65% of its
total assets in equity securities of small capitalization
("small cap") companies, which the fund defines as companies
having market capitalizations of up to $1.5 billion at the
time of purchase. The fund may invest up to 35% of its total
assets in equity securities of companies that are larger than
small cap companies, as well as in bonds and money market
instruments. This includes up to 10% in convertible bonds that
are rated below investment grade, but no lower than B by S&P
or Moody's, comparably rated by another rating agency or, if
unrated, determined by a sub-adviser to be of comparable
quality. The fund may invest up to 25% of its total assets in
U.S. dollar denominated equity securities of foreign issuers
that are traded on recognized U.S. exchanges or in the U.S.
over-the-counter market.
THE SECTION CAPTIONED "INVESTMENT ADVISORY, ADMINISTRATION AND DISTRIBUTION
ARRANGEMENTS -- INVESTMENT ADVISORY AND ADMINISTRATION ARRANGEMENTS" ON PP. 26-7
IS RETITLED "INVESTMENT MANAGEMENT, ADMINISTRATION AND DISTRIBUTION ARRANGEMENTS
-- INVESTMENT MANAGEMENT AND ADMINISTRATION ARRANGEMENTS," ALL REFERENCES TO
"ADVISORY CONTRACT" ARE CHANGED TO "MANAGEMENT CONTRACT" AND THE FIRST PARAGRAPH
AND THE FOLLOWING PARAGRAPH PRECEDING THE TABLE ARE REPLACED IN THEIR ENTIRETY
BY THE FOLLOWING:
INVESTMENT MANAGEMENT AND ADMINISTRATION ARRANGEMENTS.
Mitchell Hutchins acts as the investment manager and
administrator for each fund pursuant to separate interim
investment management and administration contracts dated
October 10, 2000 (each a "Management Contract") with each
Trust. Under the Management Contracts, the funds pay fees
(expressed as a percentage of the fund's average daily net
assets) to Mitchell Hutchins for these services at the annual
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contract rates of 0.75% for Growth Fund, 0.70% for Growth and
Income Fund and 1.00% each for Mid Cap Fund and Small Cap
Fund. All fees paid under the Management Contracts are
computed daily and paid monthly.
During the periods indicated, Mitchell Hutchins earned (or
accrued) fees under prior investment advisory and
administration contracts relating to each fund in the amounts
set forth below:
THE FIRST FULL PARAGRAPH ON P. 27 IN THE SECTION CAPTIONED "INVESTMENT ADVISORY,
ADMINISTRATION AND DISTRIBUTION ARRANGEMENTS -- INVESTMENT ADVISORY AND
ADMINISTRATION ARRANGEMENTS" IS REVISED BY REPLACING THE LAST SENTENCE WITH THE
FOLLOWING:
The current Management Contract for each fund may be
terminated without penalty on 10 days' written notice to
Mitchell Hutchins by the board of the fund or by vote of a
majority of the outstanding voting securities of the fund and
will terminate 150 days after October 10, 2000 (on March 9,
2000) unless it has by then been approved by a majority of the
outstanding voting securities of the fund.
FOLLOWING THE FIRST FULL PARAGRAPH ON P. 27 IN THE SECTION CAPTIONED "INVESTMENT
ADVISORY, ADMINISTRATION AND DISTRIBUTION ARRANGEMENTS -- INVESTMENT ADVISORY
AND ADMINISTRATION ARRANGEMENTS," THE FOLLOWING NEW PARAGRAPHS ARE ADDED:
The Management Contracts authorize Mitchell Hutchins to retain
one or more sub-advisers for the management of a fund's
investment portfolio and, as described below, Mitchell
Hutchins has entered into one or more interim sub-advisory
contracts (each a "Sub-Advisory Contract") for each fund.
Mitchell Hutchins is responsible for monitoring the services
furnished pursuant to the Sub-Advisory Contracts and making
recommendations to the applicable board with respect to the
retention or replacement of sub-advisers and renewal of
Sub-Advisory Contracts.
Under each Sub-Advisory Contract, the sub-adviser will not be
liable for any error or judgment or mistake of law or for any
loss suffered by a fund, its shareholders or Mitchell Hutchins
in connection with the performance of the contract, except a
loss resulting from willful misfeasance, bad faith, or gross
negligence on the part of the sub-adviser in the performance
of its duties or from reckless disregard of its duties and
obligations thereunder.
Each Sub-Advisory Contract terminates automatically 150 days
after October 10, 2000 (on March 9, 2000) and is terminable at
any time without penalty on 10 days' written notice to
Mitchell Hutchins by the board of the fund or by vote of a
majority of the fund's outstanding voting securities and may
be terminated by the sub-adviser upon not more than 60 days'
written notice to Mitchell Hutchins. A Sub-Advisory Contract
may be terminated by Mitchell Hutchins (1) upon material
breach by the sub-adviser of its representations and
warranties, which breach shall not be cured within a 20 day
period after notice of such breach; or (2) if the sub-adviser
becomes unable to discharge its duties and obligations under
the Sub-Advisory Contract.
For GROWTH FUND, Mitchell Hutchins has entered into separate
Sub-Advisory Contracts with Alliance Capital Management L.P.
("Alliance Capital") and State Street Global Advisors
("SSgA"). Mitchell Hutchins (not the fund) pays Alliance a fee
in the annual amount of 0.30% and SSgA a fee at the annual
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rate of 0.15% of the fund's average daily net assets that it
manages. Prior to October 10, 2000, Mitchell Hutchins managed
the fund's assets.
SSgA is the investment management division of State Street
Bank and Trust Company, which is a wholly owned subsidiary of
State Street Corporation, a publicly held bank holding
company. Alliance Capital Management Corporation ("ACMC") is a
general partner of Alliance Capital and an indirect wholly
owned subsidiary of AXA Financial, Inc. ("AXA Financial"), a
Delaware corporation whose shares are traded on the New York
Stock Exchange, Inc. As of June 30, 2000, AXA Financial and
its subsidiaries were the beneficial owners of an
approximately 62.5% partnership interest in Alliance Capital,
and Alliance Capital Management Holding L.P. ("Alliance
Holding") owned an approximately 35% partnership interest in
Alliance Capital. Equity interests in Alliance Holding are
traded on the New York Stock Exchange in the form of units.
Approximately 97.9% of Alliance Holding's units are owned by
the public and management or employees of Alliance Capital and
approximately 2.1% are owned by certain wholly owned
subsidiaries of AXA Financial. The general partner of Alliance
Holding is ACMC. As of March 1, 2000, AXA, a French insurance
holding company, owned approximately 60.3% of the issued and
outstanding shares of the common stock of AXA Financial.
For GROWTH AND INCOME FUND, Mitchell Hutchins has entered into
separate Sub-Advisory Contracts with Institutional Capital
Corporation ("ICAP"), Westwood Management Corporation
("Westwood") and State Street Global Advisors ("SSgA").
Mitchell Hutchins (not the fund) pays each investment adviser
a fee at the annual rate of 0.30% (0.15% for SSgA) of the
fund's average daily net assets that it manages. Prior to
October 10, 2000, Mitchell Hutchins managed the fund's assets.
Robert H. Lyon, who serves as president, chief investment
officer and a director of ICAP owns a 51% controlling interest
in ICAP. Westwood is a wholly owned subsidiary of Southwest
Securities Group, Inc., a Dallas-based securities firm. SSgA
is the investment management division of State Street Bank and
Trust Company, which is a wholly owned subsidiary of State
Street Corporation, a publicly held bank holding company.
For MID CAP FUND, Mitchell Hutchins has entered into a
Sub-Advisory Contract with Delaware Management Company.
Mitchell Hutchins (not the fund) pays fees to Delaware
Management Company for its services under the Sub-Advisory
Contract at the annual rate of 0.40% of the fund's average
daily net assets. Delaware Management Company assumed its fund
responsibilities on October 10, 2000. Prior to October 10,
2000, Mitchell Hutchins managed the fund's assets. Delaware
Management Company is a series of Delaware Management Business
Trust, a Delaware business trust. It is a member of Delaware
Investments, a subsidiary of Lincoln National Corporation
("Lincoln National"). Lincoln National is a diversified
organization with operations in many aspects of the financial
services industry, including insurance and investment
management.
For SMALL CAP FUND, Mitchell Hutchins has entered into
separate Sub-Advisory Contracts with Ariel Capital Management,
Inc. ("Ariel") and ICM Asset Management, Inc. ("ICM").
Mitchell Hutchins (not the fund) pays each of these
sub-advisers a fee at the annual rate of 0.30% of the fund's
average daily net assets that it manages. Prior to October 10,
2000, Mitchell Hutchins managed the fund's assets. Ariel is an
independent subchapter S corporation with a majority of
ownership held by its employees. ICM also is an independent
subchapter S corporation with a majority of ownership held by
its employees. James M. Simmons, founder and chief investment
officer of ICM, owns more than 25% of ICM's voting stock.
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