PAINEWEBBER TAX-MANAGED EQUITY FUND
SUPPLEMENT TO STATEMENT OF ADDITIONAL INFORMATION DATED DECEMBER 6, 1999
October 10, 2000
Dear Investor,
The board of trustees for PaineWebber Tax-Managed Equity Fund 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 the fund and
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") and Interim
Sub-Advisory Contracts between Mitchell Hutchins and two unaffiliated
sub-advisers.
As a result of these new investment management arrangements, the fund's
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 fund's investment manager and
administrator. As distributor for the fund, Mitchell Hutchins has
appointed PaineWebber to serve as dealer for the sale of fund
shares. Mitchell Hutchins has appointed unaffiliated investment
advisers, Institutional Capital Corporation and Westwood Management
Corporation, to serve as sub-advisers for the fund's investments
(each a "sub-adviser").
THE NAME "MITCHELL HUTCHINS" IN THE SECTIONS CAPTIONED "THE FUND AND ITS
INVESTMENT POLICIES," "THE FUND'S INVESTMENTS, RELATED RISKS AND LIMITATIONS,"
"STRATEGIES USING DERIVATIVE INVESTMENTS" AND "PORTFOLIO TRANSACTIONS" IS
REPLACED BY THE PHRASE "EACH SUB-ADVISER" OR "THE APPLICABLE SUB-ADVISER," AS
THE CONTEXT REQUIRES, EXCEPT IN THE SUB-SECTION CAPTIONED "LENDING OF PORTFOLIO
SECURITIES" ON P. 7.
THE FIRST PARAGRAPH IN THE SECTION CAPTIONED "INVESTMENT ADVISORY,
ADMINISTRATION AND DISTRIBUTION ARRANGEMENTS -- INVESTMENT ADVISORY AND
ADMINISTRATION ARRANGEMENTS" ON P. 24 IS REPLACED IN ITS ENTIRETY BY THE
FOLLOWING:
INVESTMENT ADVISORY AND ADMINISTRATION ARRANGEMENTS. Mitchell
Hutchins acts as the investment manager and administrator for the
fund pursuant to an interim investment management and administration
contract ("Advisory Contract") with the Trust. Under the Advisory
Contract, the fund pays Mitchell Hutchins a fee computed daily and
paid monthly, at the annual rate of 0.75% of average daily net
assets. Under a prior investment advisory and administration
contract, during the fiscal period December 14, 1998 (commencement
of operations) through August 31, 1999, Mitchell Hutchins earned (or
accrued) $269,530 in advisory fees, of which $77,387 was waived.
THE THIRD PARAGRAPH IN THE SECTION CAPTIONED "INVESTMENT ADVISORY,
ADMINISTRATION AND DISTRIBUTION ARRANGEMENTS -- INVESTMENT ADVISORY AND
ADMINISTRATION ARRANGEMENTS" ON P. 25 IS REPLACED IN ITS ENTIRETY WITH THE
FOLLOWING:
The current Advisory Contract for the fund is an interim contract
that may be terminated without penalty on 10 days' written notice to
Mitchell Hutchins by the board of the fund or by vote of the holders
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of a majority of the fund's outstanding voting securities and will
terminate 150 days after October 10, 2000 (on March 9, 2001) unless
it has by then been approved by the holders of a majority of the
outstanding voting securities of the fund.
The Advisory Contract authorizes Mitchell Hutchins to retain one or
more sub-advisers for the management of the fund's investment
portfolio. Mitchell Hutchins has entered into separate interim
sub-advisory contracts (each a "Sub-Advisory Contract") with
Institutional Capital Corporation ("ICAP") and Westwood Management
Corporation ("Westwood") pursuant to which ICAP and Westwood serve
as investment sub-advisers for the fund's assets. Under the
Sub-Advisory Contracts, Mitchell Hutchins (not the fund) pays each
of ICAP and Westwood a fee in the annual amount of 0.30% of the
fund's average daily net assets that it manages. 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. Prior to October 10, 2000, Mitchell Hutchins
managed the fund's assets.
Under each Sub-Advisory Contract, the sub-adviser will not be liable
for any error of judgment or mistake of law or for any loss suffered
by the Trust, the fund, its shareholders or Mitchell Hutchins in
connection with the Sub-Advisory 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, 2001) and is terminable at any time
without penalty on 10 days' written notice to the sub-adviser by the
fund's board or by vote of the holders of a majority of the fund's
outstanding voting securities and by the sub-adviser on 60 days'
written notice to Mitchell Hutchins. Each 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.
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