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PAINEWEBBER TAX-MANAGED EQUITY FUND
SUPPLEMENT TO PROSPECTUS DATED DECEMBER 6, 1999
October 10, 2000
Dear Investor,
This supplement to the Prospectus dated December 6, 1999 for PaineWebber
Tax-Managed Equity Fund describes important changes affecting your fund. These
changes were proposed by Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins") and approved by your fund's board as in the best interests of fund
shareholders. If you have any questions about these changes, you should contact
your Financial Advisor.
The purpose of this supplement is to notify you of
- the proposed merger of Tax-Managed Equity Fund, a series of PaineWebber
Managed Investments Trust, into PACE Large Company Value Equity
Investments, a series of another mutual fund and
- changes in the investment management arrangements for Tax-Managed
Equity Fund and related investment strategy changes that became
effective on October 10, 2000.
Tax-Managed Equity Fund's shareholders must approve its proposed merger
before the transaction can be effected. The proposed merger will be submitted to
Tax-Managed Equity Fund's shareholders at a meeting expected to be held in
January or February 2001. If approved by Tax-Managed Equity Fund's shareholders,
the merger is expected to become effective no later than early March 2001.
The merger is expected to be a tax-free transaction, which means that no
gain or loss will be recognized by either fund and that Tax-Managed Equity
Fund's shareholders will not realize any gain or loss on their receipt of shares
of PACE Large Company Value Equity Investments in the merger. More information
about the proposed merger and the new investment management arrangements and
related investment strategy changes is set out below.
PROPOSED MERGER
On October 6, 2000, Tax Managed Equity Fund's board of trustees approved the
submission to shareholders of an Agreement and Plan of Reorganization and
Termination ("Plan") under which Tax Managed Equity Fund would transfer
substantially all of its assets and liabilities to PACE Large Company Value
Equity Investments, a series of PaineWebber PACE Select Advisors Trust ("PACE
Fund"). If Tax-Managed Equity Fund's shareholders approve the proposed merger,
they will receive shares of the PACE Fund in exchange for their shares in Tax-
Managed Equity Fund, and Tax-Managed Equity Fund will cease operations.
Although Tax-Managed Equity Fund and the PACE Fund both invest primarily in
stocks of large capitalization companies, they have different investment
objectives. Tax-Managed Equity Fund's investment objective is to maximize
after-tax total return. The PACE Fund's investment objective is capital
appreciation and dividend income. The PACE Fund does not actively seek to
maximize after-tax return to its shareholders. The PACE Fund's investments are
managed by three sub-advisers, two of which now serve as sub-advisers to Tax-
Managed Equity Fund. More information about the proposed merger will be provided
to Tax-Managed Equity Fund's shareholders in proxy solicitation materials that
are expected to be mailed in December 2000.
You may continue to buy and sell shares in Tax-Managed Equity Fund and
exchange your Tax-Managed Equity Fund Class A, Class B and Class C shares for
shares of the corresponding class of other PaineWebber funds prior to the
shareholder meeting. When you sell or exchange your Tax-Managed Equity Fund
shares, you generally will be subject to federal income tax on any gain you
realize. If Tax-Managed Equity Fund's shareholders approve the merger proposal,
the fund expects to close to new purchases and exchange purchases approximately
five business days prior to the date on which the merger is effected.
Item #ZS77
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NEW INVESTMENT MANAGEMENT ARRANGEMENTS
On October 6, 2000, the board of trustees for Tax-Managed Equity Fund
terminated the existing Investment Advisory and Administration Contract ("Old
Advisory Contract") with Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins") relating to the fund and approved new interim investment management
arrangements that became effective on October 10, 2000.
These interim investment management arrangements consist of a new Interim
Investment Management and Administration Contract ("Interim Management
Contract") with Mitchell Hutchins and Interim Sub-Advisory Contracts between
Mitchell Hutchins and two sub-advisers -- Institutional Capital Corporation
("ICAP") and Westwood Management Corporation ("Westwood"). Under the Interim
Management Contract, Mitchell Hutchins' primary portfolio management
responsibility is to identify appropriate sub-advisers to manage the Fund's
assets and to supervise and monitor the performance of those sub-advisers and
make recommendations about the retention or replacement of sub-advisers. The
interim contracts terminate automatically 150 days after their effective dates.
The fees payable by Tax-Managed Equity Fund to Mitchell Hutchins under its
Interim Management Contract are identical to the fees under the Old Advisory
Contract. Mitchell Hutchins (not the fund) pays the sub-advisers for their
services under the Interim Sub-Advisory Contracts.
These arrangements and related changes in the fund's investment strategies
are described in greater detail below.
AS A RESULT OF THESE CHANGES, THE PROSPECTUS DATED DECEMBER 6, 1999 IS REVISED
AS FOLLOWS:
THE SECTION CAPTIONED "PRINCIPAL INVESTMENT STRATEGIES" ON P. 3 OF THE
PROSPECTUS IS REPLACED IN ITS ENTIRETY BY THE FOLLOWING:
PRINCIPAL INVESTMENT STRATEGIES
The fund invests primarily in common stocks that are
believed to have reasonable valuations and favorable
earnings forecasts. The fund's sub-advisers seek to
minimize the taxes the fund's shareholders incur,
primarily by minimizing the fund's realized capital gains
and by realizing capital losses that can offset present or
future capital gains.
The fund may invest in U.S. dollar denominated securities
of foreign issuers. The fund's investments may include
convertible bonds, including to a limited extent those
that are not investment grade. The fund may (but is not
required to) use options, futures contracts and other
derivatives as part of its investment strategy or to help
manage portfolio risks.
The fund's manager, Mitchell Hutchins Asset Management
Inc., has appointed Institutional Capital Corporation
("ICAP") and Westwood Management Corporation ("Westwood")
to serve as sub-advisers for the fund's investments.
Mitchell Hutchins allocates the fund's assets among the
two sub-advisers. The relative values of assets allocated
to each sub-adviser can change at any time.
In managing its share of the fund's assets, ICAP uses its
proprietary valuation model to identify
large-capitalization companies that ICAP believes offer
the best relative values because they sell below the
price-to-earnings ratio warranted by their prospects. ICAP
looks for companies where a catalyst for a positive change
is about to occur with potential to produce stock
appreciation of 20% or more relative to the market over a
12 to 18 month period. The catalyst can be thematic (E.G.,
global economic recovery) or company specific (e.g., a
corporate restructuring or a new product). ICAP also uses
internally generated research to evaluate the financial
condition and business prospects of every company it
considers. ICAP monitors
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each stock purchased and sells the stock when its target
price is achieved, the catalyst becomes inoperative or
ICAP identifies another stock with greater opportunity for
appreciation.
In managing its share of the fund's assets, Westwood
maintains a list of securities that it believes have
proven records and potential for above-average earnings
growth. It considers purchasing a security on such list if
Westwood's forecast for growth rates and earnings
estimates exceeds Wall Street expectations or Westwood's
forecasted price/earnings ratio is less than the
forecasted growth rate. Westwood monitors the issuing
companies and will sell a stock if Westwood expects
limited future price appreciation or the projected
price/earnings ratio exceeds the three-year growth rate.
THE SECTIONS AT P. 12 OF THE PROSPECTUS CAPTIONED "INVESTMENT ADVISER" AND
"PORTFOLIO MANAGERS" ARE RETITLED "MANAGER" AND "SUB-ADVISERS AND PORTFOLIO
MANAGERS," RESPECTIVELY, AND ARE REPLACED IN THEIR ENTIRETY BY THE FOLLOWING:
MANAGER
Mitchell Hutchins Asset Management Inc. is the fund's
manager and administrator. Mitchell Hutchins is located at
51 West 52nd Street, New York, New York, 10019-6114, and
is a wholly owned asset management subsidiary of
PaineWebber Incorporated, which is wholly owned by Paine
Webber Group Inc. ("PW Group"), a publicly owned financial
services holding company. On August 31, 2000, Mitchell
Hutchins was adviser or sub-adviser of 31 investment
companies with 75 separate portfolios and aggregate assets
of approximately $57.7 billion.
On July 12, 2000, PW Group and UBS AG ("UBS") announced
that they had entered into an agreement and plan of merger
under which PW Group will merge into a wholly owned
subsidiary of UBS. If all required approvals are obtained
and the required conditions are satisfied, PW Group and
UBS expect to complete the transaction in November 2000.
UBS, with headquarters in Zurich, Switzerland, is an
internationally diversified organization with operations
in many areas of the financial services industry.
Mitchell Hutchins, with the approval of the fund's board,
has selected investment sub-advisers for the fund and
reviews the performance of those sub-advisers.
SUB-ADVISERS AND PORTFOLIO MANAGERS
Institutional Capital Corporation ("ICAP") and Westwood
Management Corporation ("Westwood") serve as sub-advisers
for Tax-Managed Equity Fund. ICAP is located at 225 West
Wacker Drive, Suite 2400, Chicago, Illinois 60606-1229,
and has been in the investment management business since
1970. As of September 30, 2000, ICAP had approximately
$14.4 billion in assets under management. ICAP uses a team
approach in the day-to-day management of its share of the
fund's assets. ICAP has held its fund responsibilities
since October 10, 2000.
Westwood is located at 300 Crescent Court, Suite 1300,
Dallas, Texas 75201, and has been in the investment
management business since 1983. As of September 30, 2000,
Westwood had approximately $3.2 billion in assets under
management. Susan M. Byrne, president of Westwood since
1983, is primarily responsible for the day-to-day
management of Westwood's share of the fund's assets.
Ms. Byrne has held her fund responsibilities since
October 10, 2000.
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