PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
SUPPLEMENT TO STATEMENT OF ADDITIONAL INFORMATION DATED JUNE 30, 2000
October 10, 2000
Dear Investor,
The board of trustees for PaineWebber National Tax-Free Income 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 an
Interim Sub-Advisory Contract between Mitchell Hutchins and Standish, Ayer &
Wood, Inc., an unaffiliated sub-adviser.
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 investment adviser (or investment 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 Standish, Ayer & Wood, Inc.
("Standish" or "sub-adviser") to serve as sub-adviser
for National Tax-Free Income Fund.
THE NAME "MITCHELL HUTCHINS" IN REFERENCES TO DETERMINATIONS MADE BY A FUND'S
SUB-ADVISER IN THE SECTIONS CAPTIONED "THE FUNDS' INVESTMENT POLICIES, RELATED
RISKS AND LIMITATIONS," "STRATEGIES USING DERIVATIVE INSTRUMENTS" AND "PORTFOLIO
TRANSACTIONS" IS REPLACED BY THE PHRASE "MITCHELL HUTCHINS OR THE SUB-ADVISER,
AS APPLICABLE," EXCEPT IN THE SECTION CAPTIONED "LENDING OF PORTFOLIO
SECURITIES" ON P. 9.
THE FIRST PARAGRAPH IN THE SECTION CAPTIONED "INVESTMENT ADVISORY,
ADMINISTRATION AND DISTRIBUTION ARRANGEMENTS -- INVESTMENT ADVISORY AND
ADMINISTRATION ARRANGEMENTS" ON P. 44 IS REPLACED IN ITS ENTIRETY BY THE
FOLLOWING:
INVESTMENT ADVISORY AND ADMINISTRATION ARRANGEMENTS.
Mitchell Hutchins acts as the investment manager and
administrator for National Tax-Free Income Fund and as
investment adviser and administrator for Municipal
High Income Fund, California Tax-Free Income Fund and
New York Tax-Free Income Fund pursuant to separate
contracts (each an "Advisory Contract") with each
Trust. Under the applicable Advisory Contract, each
fund pays Mitchell Hutchins a fee, computed daily and
paid monthly, at the annual rate of 0.50% of average
daily net assets in the case of National Tax-Free
Income Fund and California Tax-Free Income Fund and
0.60% of average daily net assets in the case of
Municipal High Income Fund and New York Tax-Free
Income Fund.
THE LAST PARAGRAPH IN THE SECTION CAPTIONED "INVESTMENT ADVISORY, ADMINISTRATION
AND DISTRIBUTION ARRANGEMENTS" ON P. 45 IS AMENDED BY ADDING THE FOLLOWING TEXT
AT THE END OF THE PARAGRAPH:
Notwithstanding the foregoing, the current Advisory
Contract for National Tax-Free Income Fund is an
Interim Investment Management and Administration
<PAGE>
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 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 for National Tax-Free Income
Fund authorizes Mitchell Hutchins to retain one or
more sub-advisers for the management of the fund's
investment portfolio. Mitchell Hutchins has entered
into an interim sub-advisory contract ("Sub-Advisory
Contract") with Standish, Ayer & Wood, Inc.
("Standish") effective October 10, 2000, pursuant to
which Standish serves as investment sub-adviser for
the fund's assets. Under the Sub-Advisory Contract,
Mitchell Hutchins (not the fund) pays Standish a fee
in the annual amount of 0.20% of the fund's average
daily net assets up to and including $60 million and
0.15% of the fund's average daily net assets in excess
of $60 million.
Standish is a privately held investment management
firm founded in 1933. Edward H. Ladd is the Chairman
of the Board of Directors of Standish. Richard S. Wood
is President, Chief Executive Officer and a Managing
Director of Standish. George W. Noyes is the Vice
Chairman and a Managing Director of Standish. Austin
C. Smith is the Treasurer of Standish. The following
constitute all of the Directors of Standish: Caleb F.
Aldrich, David H. Cameron, Maria D. Furman, Raymond J.
Kubiak, George W. Noyes, Howard B. Rubin, Thomas P.
Sorbo, Ralph S. Tate and Richard S. Wood. All of the
outstanding stock of Standish is owned by SAW Trust, a
Massachusetts business trust. SAW Trust is owned
entirely by its twenty-two trustees, all of whom are
officers of Standish. Nine of the twenty-two trustees
are the Directors of Standish listed above. The
remaining thirteen trustee/shareholders are: Karen K.
Chandor, Lavinia B. Chase, W. Charles Cook, Joseph M.
Corrado, Richard C. Doll, Dolores S. Driscoll, James
E. Hollis III, Edward H. Ladd, Laurence A. Manchester,
Catherine A. Powers, Austin C. Smith, David C. Stuehr
and Michael W. Thompson. All of the
trustee/shareholders of SAW Trust are Standish
controlling persons.
Under the Sub-Advisory Contract, Standish will not be
liable for any error of judgment or mistake of law or
for any loss suffered by Mutual Fund Trust, National
Tax-Free Income 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 Standish in
the performance of its duties or from reckless
disregard of its duties and obligations thereunder.
The 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 Standish by the fund's board or by
vote of the holders of a majority of the fund's
outstanding voting securities and by Standish on 60
days' written notice to Mitchell Hutchins. The
Sub-Advisory Contract may be terminated by Mitchell
Hutchins (1) upon material breach by Standish of its
representations and warranties, which breach shall not
be cured within a 20 day period after notice of such
breach; or (2) if Standish becomes unable to discharge
its duties and obligations under the Sub-Advisory
Contract.
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