PAINEWEBBER MUTUAL FUND TRUST, 497, 1995-04-27

PAINEWEBBER MUTUAL FUND TRUST
497, 1995-04-27

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<PAGE>

PAINEWEBBER PAINEWEBBER GLOBAL
CALIFORNIA TAX-FREE INCOME FUND NATIONAL TAX-FREE INCOME FUND

PAINEWEBBER PAINEWEBBER
MUNICIPAL HIGH INCOME FUND NEW YORK TAX-FREE INCOME FUND

Supplement to Prospectus dated July 1, 1994

THE FOLLOWING AMENDS IN THEIR ENTIRETY THE FOURTH AND FIFTH PARAGRAPHS APPEARING
ON PAGE 32 OF THE PROSPECTUS UNDER THE CAPTION "MANAGEMENT":

Gregory W. Serbe, a vice president of each Trust and a managing director
of Mitchell Hutchins, is the portfolio manager and has day-to-day responsibility
for New York Tax-Free Income Fund. Effective May 1, 1995, Mr. Serbe will assume
sole responsibility for the day-to-day management of Municipal High Income Fund.
Mr. Serbe is also a portfolio manager for the other two Funds. In the case of
California Tax-Free Income Fund, Cynthia N. Bow, a vice president of Mitchell
Hutchins, is a portfolio manager and has day-to-day responsibility for the Fund.
In the case of National Tax-Free Income Fund, Richard S. Murphy, a senior vice
president of Mitchell Hutchins, is a portfolio manager and has day-to-day
responsibility for the Fund. Mr. Serbe has held his Fund responsibilities since
the Funds' inceptions. Ms. Bow and Mr. Murphy have held their Fund
responsibilities since April 1993 and July 1, 1994, respectively.

Mr. Serbe manages or oversees tax-exempt fixed income funds having
aggregate assets of more than $4.3 billion. Mr. Serbe has been with Mitchell
Hutchins since 1983. Ms. Bow has been with Mitchell Hutchins since 1982. Mr.
Murphy has been with Mitchell Hutchins since April 1994. From 1990 to March
1994, he was a vice president at American International Group, where he managed
the municipal bond portfolio.

Dated: April 28, 1995
<PAGE>

PAINEWEBBER PAINEWEBBER
CALIFORNIA TAX-FREE INCOME NATIONAL TAX-FREE INCOME
FUND FUND

PAINEWEBBER PAINEWEBBER
MUNICIPAL HIGH INCOME NEW YORK TAX-FREE INCOME
FUND FUND

1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019

. FEDERAL TAX-FREE INCOME

. PROFESSIONAL MANAGEMENT

. PORTFOLIO DIVERSIFICATION

. DIVIDEND AND CAPITAL GAIN REINVESTMENT

. FLEXIBLE PRICINGSM

. LOW MINIMUM INVESTMENT

. AUTOMATIC INVESTMENT PLAN

. SYSTEMATIC WITHDRAWAL PLAN

. EXCHANGE PRIVILEGES

PaineWebber California Tax-Free Income Fund and PaineWebber National Tax-Free
Income Fund are series of PaineWebber Mutual Fund Trust and PaineWebber Munici-
pal High Income Fund and PaineWebber New York Tax-Free Income Fund are series
of PaineWebber Municipal Series (each a "Trust"). This Prospectus concisely
sets forth information about the Funds a prospective investor should know be-
fore investing. Please retain this Prospectus for future reference.

A Statement of Additional Information dated July 1, 1994 (which is incorporated
by reference herein) has been filed with the Securities and Exchange Commis-
sion. The Statement of Additional Information can be obtained without charge,
and further inquiries can be made, by contacting the Funds, your PaineWebber
investment executive or PaineWebber's correspondent firms or by calling toll-
free 1-800-647-1568.
--------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS ANY SUCH COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PRO-
SPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

PAINEWEBBER MUNICIPAL HIGH INCOME FUND INVESTS PREDOMINANTLY IN LOWER RATED
MUNICIPAL OBLIGATIONS, COMMONLY REFERRED TO AS MUNICIPAL "JUNK BONDS."
MUNICIPAL OBLIGATIONS OF THIS TYPE ARE CONSIDERED TO BE SPECULATIVE
WITH RESPECT TO THE PAYMENT OF INTEREST AND RETURN OF PRINCI-
PAL. PURCHASERS SHOULD CAREFULLY ASSESS THE RISKS ASSOCI-
ATED WITH AN INVESTMENT IN THIS FUND.

--------------

THE DATE OF THIS PROSPECTUS IS JULY 1, 1994.
PAINEWEBBER MUTUAL FUNDS
<PAGE>

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTA-
TIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS OR THEIR DISTRIBUTOR.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUNDS OR THEIR DISTRIBU-
TOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.

----------------

PROSPECTUS SUMMARY

See the body of the Prospectus for more information on the topics discussed
in this summary.

The Funds: This Prospectus describes four series (each a "Fund")
of open-end management investment companies. Each Fund
has its own investment objective and policies.

Investment Objectives
and Policies:

PaineWebber A diversified Fund seeking high current income exempt
California Tax-Free from federal income tax and California personal income
Income Fund tax, consistent with the preservation of capital and
("California Tax- liquidity within the Fund's quality standards; invests
Free Income Fund") primarily in investment grade debt obligations of
varying maturities issued by the State of California,
its municipalities and public authorities.

PaineWebber National A diversified Fund seeking high current income exempt
Tax-Free Income Fund from federal income tax, consistent with the
("National Tax-Free preservation of capital and liquidity within the Fund's
Income Fund") quality standards; invests primarily in investment
grade debt obligations of varying maturities issued by
states, municipalities and public authorities.

PaineWebber Municipal A non-diversified Fund seeking high current income
High Income Fund exempt from federal income tax; invests primarily in
("Municipal High high yield, high risk medium and lower grade debt
Income Fund") obligations of varying maturities issued by states,
municipalities and public authorities.

PaineWebber New York A non-diversified Fund seeking high current income
Tax-Free Income Fund exempt from federal income tax and New York State and
("New York Tax-Free New York City personal income taxes; invests primarily
Income Fund") in investment grade debt obligations of varying
maturities issued by the State of New York, its
municipalities and public authorities.

Total Net Assets at California Tax-Free National Tax-Free
May 31, 1994: Income Fund....$287 million Income Fund....$623 million
Municipal High New York Tax-Free
Income Fund....$138 million Income Fund.....$88 million

2
<PAGE>

Investment Adviser: Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"), an asset management subsidiary of
PaineWebber Incorporated ("PaineWebber"), manages over
$36.9 billion in assets. See "Management."

Purchases: Shares of beneficial interest are available exclusively
through PaineWebber and its correspondent firms for
investors who are clients of PaineWebber or those firms
("PaineWebber clients") and, for other investors,
through PFPC Inc., the Funds' transfer agent ("Transfer
Agent").

Flexible Pricing Investors may select Class A, Class B or Class D
System: shares, each with a public offering price that reflects
different sales charges and expense levels. See
"Flexible Pricing System," "Purchases," "Redemptions"
and "Conversion of Class B Shares."

Class A Shares Offered at net asset value plus any applicable sales
charge (maximum is 4% of public offering price).

Class B Shares Offered at net asset value (a maximum contingent
deferred sales charge of 5% of redemption proceeds is
imposed on certain redemptions made within six years of
date of purchase). Class B shares automatically convert
into Class A shares (which pay lower ongoing expenses)
approximately six years after purchase.

Class D Shares Offered at net asset value without an initial or
contingent deferred sales charge. Class D shares pay
higher ongoing expenses than Class A shares and do not
convert into another Class.

Exchanges: Shares may be exchanged for shares of the corresponding
Class of most PaineWebber mutual funds.

Redemptions: PaineWebber clients may redeem through PaineWebber;
other shareholders must redeem through the Transfer
Agent.

Dividends: Declared daily and paid monthly; net capital gain is
distributed annually. See "Dividends and Taxes."

Reinvestment: All dividends and capital gain distributions are paid
in Fund shares of the same Class at net asset value
unless the shareholder has requested cash.

Minimum Purchase: $1,000 for the first purchase; $100 for subsequent
purchases.

Other Features:

Class A Shares Automatic investment plan Quantity discounts on
Systematic withdrawal plan initial sales charge
Rights of accumulation 365-day reinstatement
privilege

Class B Shares Automatic investment plan Systematic withdrawal plan

Class D Shares Automatic investment plan Systematic withdrawal plan

3
<PAGE>

WHO SHOULD INVEST. Each Fund has its own suitability considerations and risk
factors, as summarized below and described in detail under "Investment Objec-
tives and Policies." While no single Fund is intended to provide a complete or
balanced investment program, each can serve as one component of an investor's
long-term program to accumulate assets for retirement, college tuition or other
major goals. The Funds are not suitable for tax-exempt institutions or quali-
fied retirement plans, because those investors cannot take advantage of the
tax-exempt character of the Funds' dividends.

CALIFORNIA TAX-FREE INCOME FUND. The Fund invests primarily in investment
grade debt obligations of varying maturities issued by the State of Cali-
fornia, its municipalities and public authorities or by other issuers if
such obligations pay interest that is exempt from federal income tax and
California personal income tax ("California Obligations"). Accordingly, the
Fund is designed for investors seeking income that is exempt from those
taxes.

NATIONAL TAX-FREE INCOME FUND. The Fund invests primarily in investment
grade debt obligations of varying maturities issued by states, municipali-
ties and public authorities and other issuers that pay interest that is ex-
empt from federal income tax ("municipal securities" or "municipal obliga-
tions"). Accordingly, the Fund is designed for investors seeking income
that is exempt from federal income tax.

MUNICIPAL HIGH INCOME FUND. The Fund invests primarily in high yield,
high risk medium and lower grade municipal obligations that pay interest
that is exempt from federal income tax. Accordingly, the Fund is designed
for investors seeking high current income that is exempt from federal in-
come tax and who can assume the risks associated with the types of securi-
ties in which the Fund invests.

NEW YORK TAX-FREE INCOME FUND. The Fund invests primarily in investment
grade debt obligations of varying maturities issued by the State of New
York, its municipalities and public authorities or by other issuers if such
obligations pay interest that is exempt from federal income tax as well as
New York State and New York City personal income taxes ("New York Obliga-
tions"). Accordingly, the Fund is designed for investors seeking income
that is exempt from those taxes.

RISK FACTORS. There can be no assurance that any Fund will achieve its in-
vestment objective, and each Fund's net asset value will fluctuate inversely
with movements in interest rates. During periods of market uncertainty, the
market values of municipal obligations can become volatile. Certain investment
grade municipal securities in which the Funds may invest have speculative char-
acteristics, and the lower rated municipal securities in which Municipal High
Income Fund may invest are subject to greater risks of default and greater vol-
atility than higher rated securities. The market for lower rated municipal se-
curities may be thinner and less active than for higher rated securities. Mu-
nicipal High Income Fund may invest without limit in municipal securities that
pay interest that is an item of tax preference for purposes of the federal al-
ternative minimum tax. Each Fund's ability to invest more than 25% of its total
assets in municipal securities, the interest on which is paid from similar
types of projects, may increase the risk of a Fund investment. The concentra-
tion of the investments of New York Tax-Free Income Fund and California Tax-
Free

4
<PAGE>

Income Fund in New York Obligations and California Obligations, respectively,
may subject those Funds to greater risks than an investment company that has a
broader range of investments. The States of New York and California and many of
their agencies and local governments are experiencing significant financial
difficulties, and the credit standings of those States and of certain local
governments (including New York City) have been, and could be further, reduced.

EXPENSES OF INVESTING IN THE FUNDS. The following tables are intended to as-
sist investors in understanding the expenses associated with investing in each
Fund.

SHAREHOLDER TRANSACTION EXPENSES(1)

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
------- ------- -------
<S> <C> <C> <C>
Maximum sales charge on purchases of shares
(as a percentage of public offering price)............. 4% None None
Sales charge on reinvested dividends.................... None None None
Exchange fee............................................ $5.00 $5.00 $5.00
Maximum contingent deferred sales charge
(as a percentage of redemption proceeds)............... None 5% None
</TABLE>

ANNUAL FUND OPERATING EXPENSES(2)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)

<TABLE>
<CAPTION>
CALIFORNIA
TAX-FREE NATIONAL TAX-FREE MUNICIPAL HIGH NEW YORK TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------------------- ----------------------- ----------------------- -----------------------
CLASS A CLASS B CLASS D CLASS A CLASS B CLASS D CLASS A CLASS B CLASS D CLASS A CLASS B CLASS D
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees...... 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.60% 0.60% 0.60% 0.60% 0.60% 0.60%
12b-1 fees(3)........ 0.25 1.00 0.75 0.25 1.00 0.75 0.25 1.00 0.75 0.25 1.00 0.75
Other expenses....... 0.15 0.15 0.14 0.14 0.13 0.12 0.31 0.30 0.29 0.40 0.39 0.37
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total operating
expenses............ 0.90% 1.65% 1.39% 0.89% 1.63% 1.37% 1.16% 1.90% 1.64% 1.25% 1.99% 1.72%
==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
- --------
(1) Sales charge waivers are available for Class A and Class B shares, reduced
sales charge purchase plans are available for Class A shares and exchange fee
waivers are available for all three Classes. The maximum 5% contingent de-
ferred sales charge on Class B shares applies to redemptions during the first
year after purchase; the charge generally declines by 1% annually thereafter,
reaching zero after six years. See "Purchases."
(2) See "Management" for additional information. In the case of Municipal High
Income Fund and New York Tax-Free Income Fund, all expenses are those that
would have been experienced by each of these Funds for the fiscal year ended
February 28, 1994 had Mitchell Hutchins and PaineWebber not waived a portion
of their fees.

5
<PAGE>

(3) 12b-1 fees have two components, as follows:

12b-1 distribution fees are asset-based sales charges. Long-term Class B and
Class D shareholders may pay more in direct and indirect sales charges (in-
cluding distribution fees) than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of Securities
Dealers, Inc.

6
<PAGE>

EXAMPLE OF EFFECT OF FUND EXPENSES

An investor would directly or indirectly pay the following expenses on a
$1,000 investment in each Fund, assuming a 5% annual return:

<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
CALIFORNIA TAX-FREE INCOME FUND
Class A Shares (1)................... $49 $68 $ 88 $146
Class B Shares:
Assuming a complete redemption at
end of period (2)(3).............. $67 $82 $110 $157
Assuming no redemption (3)......... $17 $52 $ 90 $157
Class D Shares....................... $14 $44 $ 76 $167
NATIONAL TAX-FREE INCOME FUND
Class A Shares (1)................... $49 $67 $ 87 $145
Class B Shares:
Assuming a complete redemption at
end of period (2)(3).............. $67 $81 $109 $155
Assuming no redemption (3)......... $17 $51 $ 89 $155
Class D Shares....................... $14 $43 $ 75 $165
MUNICIPAL HIGH INCOME FUND
Class A shares (1)................... $50 $71 $ 95 $161
Class B Shares:
Assuming a complete redemption at
end of period (2)(3).............. $68 $86 $117 $172
Assuming no redemption (3)......... $18 $56 $ 97 $172
Class D Shares....................... $16 $49 $ 84 $183
NEW YORK TAX-FREE INCOME FUND
Class A Shares (1)................... $52 $78 $106 $185
Class B Shares:
Assuming a complete redemption at
end of period (2)(3).............. $70 $92 $127 $195
Assuming no redemption (3)......... $20 $62 $107 $195
Class D Shares....................... $17 $54 $ 93 $203
</TABLE>
- --------
(1) Assumes deduction at the time of purchase of the maximum 4% initial sales
charge.
(2) Assumes deduction at the time of redemption of the maximum applicable con-
tingent deferred sales charge.
(3) Ten-year figures assume conversion of Class B shares to Class A shares at
end of sixth year.

This Example assumes that all dividends and other distributions are rein-
vested and that the percentage amounts listed under Annual Fund Operating Ex-
penses remain the same in the years shown. The above tables and the assumption
in the Example of a 5% annual return are required by regulations of the Securi-
ties and Exchange Commission ("SEC") applicable to all mutual funds; the as-
sumed 5% annual return is not a prediction of, and does not represent, the pro-
jected or actual performance of any Class of the Funds' shares.

THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EX-
PENSES, AND A FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN. The
actual expenses attributable to each Class of a Fund's shares will depend upon,
among other things, the level of average net assets, the extent to which a Fund
incurs variable expenses, such as transfer agency costs and whether Mitchell
Hutchins reimburses all or a portion of the Fund's expenses and/or waives all
or a portion of its advisory and other fees.

7
<PAGE>

FINANCIAL HIGHLIGHTS

The tables below provide selected per share data and ratios for one Class A
share, one Class B share and one Class D share of each Fund for each of the
periods shown. This information is supplemented by the financial statements
and accompanying notes appearing in the Funds' Annual Report to Shareholders
for the fiscal year ended February 28, 1994, which are incorporated by refer-
ence into the Statement of Additional Information. The financial statements
and notes, as well as the information in the tables appearing below insofar as
it relates to the fiscal year ended February 28, 1994, the fiscal period ended
February 28, 1993 and the four fiscal years ended November 30, 1992 (in the
case of California Tax-Free Income Fund and National Tax-Free Income Fund) and
the five fiscal years ended February 28, 1994 (in the case of Municipal High
Income and New York Tax-Free Income Fund) have been audited by Ernst & Young,
independent auditors, whose report thereon is included in the Annual Report to
Shareholders. Further information about the performance of each Fund is also
included in the Annual Report to Shareholders, which may be obtained without
charge. The information appearing below for periods prior to the years ended
November 30, 1989 and February 28, 1989 also have been audited by
Ernst & Young, whose reports thereon were unqualified.

<TABLE>
<CAPTION>
CALIFORNIA TAX-FREE INCOME FUND
--------------------------------------------------------------------------------------------------------------
CLASS A
--------------------------------------------------------------------------------------------------------------
FOR THE FOR THE PERIOD
FOR THE THREE SEPTEMBER 16, 1985
YEAR MONTHS (COMMENCEMENT
ENDED ENDED FOR THE YEARS ENDED NOVEMBER 30, OF OPERATIONS)
FEBRUARY FEBRUARY --------------------------------------------------------------------- TO NOVEMBER 30,
28, 1994 28, 1993 1992 1991 1990 1989 1988 1987 1986 1985
-------- -------- -------- -------- -------- -------- -------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period........... $ 11.80 $ 11.39 $ 11.13 $ 10.94 $ 10.95 $ 10.67 $ 10.40 $ 11.23 $ 9.94 $ 9.57
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Net income from
investment
operations:
Net investment
income........... 0.60 0.16 0.66 0.71 0.78 0.74 0.75 0.75 0.79 0.17
Net realized and
unrealized gains
(losses) from
investment
transactions..... (0.08) 0.58 0.29 0.22 (0.01) 0.28 0.27 (0.83) 1.29 0.37
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Net income from
investment
operations....... 0.52 0.74 0.95 0.93 0.77 1.02 1.02 (0.08) 2.08 0.54
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Less Dividends and
other
Distributions:
Dividends from net
investment
income........... (0.60) (0.16) (0.66) (0.71) (0.78) (0.74) (0.75) (0.75) (0.79) (0.17)
Distributions from
net realized
gains from
investment
transactions..... (0.31) (0.17) (0.03) (0.03) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Total dividends
and other
distributions to
shareholders..... (0.91) (0.33) (0.69) (0.74) (0.78) (0.74) (0.75) (0.75) (0.79) (0.17)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Net asset value,
end of period.... $ 11.41 $ 11.80 $ 11.39 $ 11.13 $ 10.94 $ 10.95 $ 10.67 $ 10.40 $ 11.23 $ 9.94
======== ======== ======== ======== ======== ======== ======== ======== ======== =======
Total investment
return(1)........ 4.46% 6.52% 8.73% 8.84% 6.89% 9.85% 10.02% (0.74)% 21.69% 5.07%
======== ======== ======== ======== ======== ======== ======== ======== ======== =======
Ratios and
supplemental
data:
Net assets, end of
period (000's)... $227,179 $247,025 $239,851 $231,987 $211,701 $200,398 $163,651 $158,272 $152,015 $63,932
Ratios of
expenses to
average net
assets**........ 0.90% 0.99%* 0.93% 0.83% 0.68% 0.76% 0.73% 0.71% 0.67% 0.04%*
Ratios of net
investment
income to
average net
assets**........ 5.10% 5.61%* 5.80% 6.46% 6.78% 6.82% 6.98% 6.96% 7.22% 7.78%*
Portfolio turnover
rate............. 36.73% 3.42% 24.78% 2.44% 22.82% 4.02% 7.50% 9.57% 7.13% 0.00%
- -----------------------
</TABLE>
+ Commencement of issuance of shares.
* Annualized.
** During certain periods presented above, PaineWebber reimbursed the Fund
for portions of its operating expenses. If such reimbursements had not
been made, the annualized ratio of expenses to average net assets and the
annualized ratio of net investment income to average net assets would have
been 0.74% and 7.15%, respectively, for the year ended November 30, 1986
and 1.26% and 6.56%, respectively, for the period from September 16, 1985
to November 30, 1985.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and other
distributions at net asset value on the payable dates, and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charges; results for Class A and Class B would be lower if
sales charges were included. Total investment returns for periods of less
than one year have not been annualized.

8
<PAGE>

<TABLE>
<CAPTION>
CALIFORNIA TAX-FREE INCOME FUND
- -------------------------------------------------------------------------------------------------
CLASS B CLASS D
- ------------------------------------------------------- -----------------------------------------
FOR THE FOR THE THREE FOR THE FOR THE PERIOD FOR THE FOR THE THREE FOR THE PERIOD
YEAR MONTHS YEAR JULY 1, 1991+ YEAR MONTHS JULY 2, 1992+
ENDED ENDED ENDED TO ENDED ENDED TO
FEBRUARY 28, FEBRUARY 28, NOVEMBER 30, NOVEMBER 30, FEBRUARY 28, FEBRUARY 28, NOVEMBER 30,
1994 1993 1992 1991 1994 1993 1992
- ------------ ------------- ------------ -------------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 11.81 $ 11.39 $ 11.14 $ 10.95 $ 11.79 $ 11.38 $ 11.41
------- ------- ------- ------- ------- ------- -------
0.51 0.14 0.57 0.25 0.54 0.14 0.21
(0.09) 0.59 0.28 0.19 (0.08) 0.58 (0.03)
------- ------- ------- ------- ------- ------- -------
0.42 0.73 0.85 0.44 0.46 0.72 0.18
------- ------- ------- ------- ------- ------- -------
(0.51) (0.14) (0.57) (0.25) (0.54) (0.14) (0.21)
(0.31) (0.17) (0.03) -- (0.31) (0.17) --
------- ------- ------- ------- ------- ------- -------
(0.82) (0.31) (0.60) (0.25) (0.85) (0.31) (0.21)
------- ------- ------- ------- ------- ------- -------
$ 11.41 $ 11.81 $ 11.39 $ 11.14 $ 11.40 $ 11.79 $ 11.38
======= ======= ======= ======= ======= ======= =======
3.56% 6.50% 7.80% 3.69% 3.91% 6.49% 1.28%
======= ======= ======= ======= ======= ======= =======
$41,979 $36,693 $30,205 $10,743 $53,874 $39,029 $30,141
1.65% 1.74%* 1.68% 1.62%* 1.39% 1.48%* 1.39%*
4.32% 4.81%* 4.91% 5.02%* 4.55% 5.06%* 4.79%*
36.73% 3.42% 24.78% 2.44% 36.73% 3.42% 24.78%
</TABLE>

9
<PAGE>

<TABLE>
<CAPTION>
NATIONAL TAX-FREE INCOME FUND
-----------------------------------------------------------------------------------------------------------------
CLASS A
-----------------------------------------------------------------------------------------------------------------
FOR THE
FOR THE THREE
YEAR MONTHS FOR THE PERIOD
ENDED ENDED FOR THE YEARS ENDED NOVEMBER 30, DECEMBER 3, 1984+
FEBRUARY FEBRUARY --------------------------------------------------------------------- TO NOVEMBER 30,
28, 1994 28, 1993 1992 1991 1990 1989 1988 1987 1986 1986
-------- -------- -------- -------- -------- -------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period......... $ 12.09 $ 11.67 $ 11.40 $ 11.20 $ 11.21 $ 10.98 $ 10.64 $ 11.48 $ 10.28 $ 9.57
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net income from
investment
operations:
Net investment
income......... 0.64 0.17 0.71 0.76 0.78 0.81 0.79 0.78 0.63 0.85
Net realized and
unrealized gains
(losses) from
investment
transactions... 0.03 0.55 0.31 0.20 (0.01) 0.23 0.34 (0.84) 1.20 0.71
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net income from
investment
operations..... 0.67 0.72 1.02 0.96 0.77 1.04 1.13 (0.06) 2.03 1.56
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less Dividends
and Distributions:
Dividends from
net investment
income......... (0.64) (0.17) (0.71) (0.76) (0.78) (0.81) (0.79) (0.78) (0.63) (0.85)
Distributions
from net
realized gains
from investment
transactions... (0.12) (0.13) (0.04) -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total dividends
and distributions
to shareholders (0.76) (0.30) (0.75) (0.76) (0.78) (0.81) (0.79) (0.78) (0.83) (0.85)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value,
end of period.. $ 12.00 $ 12.09 $ 11.67 $ 11.40 $ 11.20 $ 11.21 $ 10.98 $ 10.64 $ 11.48 $ 10.28
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total investment
return(1)...... 5.65% 6.31% 9.21% 8.85% 7.17% 9.77% 10.85% (0.50%) 20.49% 16.61%
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Ratios and
supplemental
data:
Net assets, end of
period (000's) $432,825 $419,596 $396,587 $366,300 $343,539 $333,314 $307,954 $322,325 $359,439 $154,252
Ratios of
expenses to
average net
assets........ 0.89% 0.88%* 0.91% 0.83% 0.69% 0.62% 0.75% 0.78% 0.72% 0.70%*
Ratios of net
investment
income to
average net
assets........ 5.28% 5.86%* 6.13% 6.66% 7.08% 7.32% 7.14% 7.07% 7.39% 8.24%*
Portfolio
turnover rate.. 15.87% 5.36% 21.40% 26.69% 24.45% 10.57% 1.35% 15.96% 5.38% 6.83%
- -----------------------
</TABLE>
+ Commencement of issuance of shares.
* Annualized.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
capital gains distributions at net asset value on the payable dates, and a
sale at net asset value on the last day of each period reported. The
figures do not include sales charges; results for Class A and Class B
would be lower if sales charges were included. Total investment returns
for periods of less than one year have not been annualized.

10
<PAGE>

<TABLE>
<CAPTION>
NATIONAL TAX-FREE INCOME FUND
------------------------------------------------------------------------------------
CLASS B CLASS D
---------------------------------------------- -------------------------------------
FOR THE FOR THE
FOR THE THREE FOR THE FOR THE THREE FOR THE PERIOD
YEAR MONTHS YEAR FOR THE PERIOD YEAR MONTHS JULY 2, 1992+
ENDED ENDED ENDED JULY 1, 1991+ ENDED ENDED TO
FEBRUARY FEBRUARY NOVEMBER TO NOVEMBER 30, FEBRUARY FEBRUARY 28, NOVEMBER 30,
28, 1994 28, 1993 30, 1992 1991 28, 1994 1993 1992
-------- -------- -------- --------------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
$ 12.08 $ 11.67 $ 11.40 $11.19 $ 12.09 $ 11.67 $ 11.71
------- ------- ------- ------ -------- -------- --------
0.55 0.15 0.62 0.27 0.58 0.15 0.23
0.03 0.54 0.31 0.21 0.03 0.55 (0.04)
------- ------- ------- ------ -------- -------- --------
0.58 0.69 0.93 0.48 0.61 0.70 0.19
------- ------- ------- ------ -------- -------- --------
(0.55) (0.15) (0.62) (0.27) (0.58) (0.15) (0.23)
(0.12) (0.13) (0.04) -- (0.12) (0.13) --
------- ------- ------- ------ -------- -------- --------
(0.67) (0.28) (0.66) (0.27) (0.70) (0.28) (0.23)
------- ------- ------- ------ -------- -------- --------
$ 11.99 $ 12.08 $ 11.67 $11.40 $ 12.00 $ 12.09 $ 11.67
======= ======= ======= ====== ======== ======== ========
4.87% 6.02% 8.36% 4.06% 5.13% 6.18% 1.41%
======= ======= ======= ====== ======== ======== ========
$70,988 $50,064 $39,564 $8,620 $187,778 $138,989 $105,854
1.63% 1.63%* 1.65% 1.65%* 1.37% 1.37%* 1.42%*
4.50% 5.08%* 5.16% 5.26%* 4.75% 5.30%* 5.17%*
15.87% 5.36% 21.40% 26.69% 15.87% 5.36% 21.40%
</TABLE>

11
<PAGE>

<TABLE>
<CAPTION>
MUNICIPAL HIGH INCOME FUND
------------------------------------------------------------------
CLASS A
------------------------------------------------------------------
FOR THE
FOR THE YEARS ENDED PERIOD
-------------------------------------------------------- JUNE 23,
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, 1987+ TO
---------------- ------------ ------------------------- FEBRUARY
1994 1993 1992 1991 1990 1989 29, 1988
------- ------- ------------ ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.. $ 10.96 $ 10.29 $ 9.92 $ 10.00 $ 9.91 $ 9.80 $ 9.58
------- ------- ------- ------- ------- ------- -------
Net income from investment
operations:
Net investment income................. 0.61 0.67 0.71 0.72 0.74 0.75 0.50
Net realized and unrealized gains
(losses) from investment transactions. 0.01 0.81 0.44 (0.08) 0.09 0.11 0.22
------- ------- ------- ------- ------- ------- -------
Net income from investment
operations........................... 0.62 1.48 1.15 0.64 0.83 0.86 0.72
------- ------- ------- ------- ------- ------- -------
Less Dividends and Distributions:
Dividends from net investment
income............................... (0.61) (0.67) (0.71) (0.72) (0.74) (0.75) (0.50)
Distributions from net realized gains
from investment transactions......... (0.20) (0.14) (0.07) -- -- -- --
------- ------- ------- ------- ------- ------- -------
Total dividends and distributions
to shareholders...................... (0.81) (0.81) (0.78) (0.72) (0.74) (0.75) (0.50)
------- ------- ------- ------- ------- ------- -------
Net asset value, end of period........ $ 10.77 $ 10.96 $ 10.29 $ 9.92 $ 10.00 $ 9.91 $ 9.80
======= ======= ======= ======= ======= ======= =======
Total investment return(1)............ 5.77% 15.05% 11.94% 6.69% 8.74% 9.11% 7.23%
======= ======= ======= ======= ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (000's)..... $82,248 $82,251 $68,830 $62,559 $61,067 $54,512 $48,515
Ratios of expenses to average net
assets**............................ 1.03% 0.87% 0.75% 0.69% 0.65% 0.60% 0.12%*
Ratios of net investment income to
average net assets**................ 5.52% 6.31% 6.99% 7.32% 7.35% 7.64% 7.63%*
Portfolio turnover rate............... 23.19% 10.05% 45.93% 19.82% 17.13% 13.95% 0.00%
- ------------------------
</TABLE>
+ Commencement of issuance of shares.
* Annualized.
** During some of the periods presented above, PaineWebber/Mitchell Hutchins
reimbursed the Fund for a portion of its operating expenses and/or waived
all or a portion of its advisory and administration, distribution and
transfer agency fees. If such reimbursements and waivers had not been made,
for the Class A shares the annualized ratios of expenses to average net
assets and the annualized ratios of net investment income to average net
assets would have been 1.16% and 5.39% for the year ended February 28, 1994
and 1.29% and 5.89%, 1.25% and 6.49%, 1.54% and 6.47%, 1.49% and 6.51%,
1.46% and 6.78%, and 1.40% and 6.35%, respectively, for the year ended
February 28, 1993, for the year ended February 29, 1992 and for the years
ended February 28, 1991, 1990, 1989, and for the period from June 23, 1987
to February 29, 1988. If such reimbursements and waivers had not been made
for the Class B shares, the annualized ratios of expenses to average net
assets and the annualized ratios of net investment income to average net
assets would have been 1.90% and 4.61% for the year ended February 28, 1994
and 2.01% and 5.10%, and 1.98% and 5.32%, respectively, for the year ended
February 28, 1993 and for the period from July 1, 1991 to February 29,
1992. If such reimbursements and waivers had not been made for the Class D
shares, the annualized ratios of expenses to average net assets and net
investment income to average net assets would have been 1.64% and 4.85%,
respectively, for the year ended February 28, 1994 and 1.69% and 4.97%,
respectively, for the period July 2, 1992 to February 28, 1993.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
capital gains distributions at net asset value on the payable dates, and a
sale at net asset value on the last day of each period reported. The
figures do not include sales charges; results for Class A and Class B would
be lower if sales charges were included. Total investment returns for
periods of less than one year have not been annualized.

12
<PAGE>

<TABLE>
<CAPTION>
MUNICIPAL HIGH INCOME FUND
- ---------------------------------------------------------------------------------------
CLASS B CLASS D
- ----------------------------------------------- ----------------------------
FOR THE FOR THE
FOR THE YEARS ENDED PERIOD FOR THE PERIOD
- -------------------------- JULY 1, YEAR JULY 2,
FEBRUARY 28, 1991+ TO ENDED 1992+ TO
- -------------------------- FEBRUARY FEBRUARY FEBRUARY
1994 1993 29, 1992 28, 1994 28, 1993
- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C>
$ 10.96 $ 10.29 $10.05 $ 10.96 $ 10.50
- ------- ------- ------ ------- -------
0.52 0.59 0.42 0.55 0.36
0.00 0.81 0.31 0.01 0.47
- ------- ------- ------ ------- -------
0.52 1.40 0.73 0.56 0.83
- ------- ------- ------ ------- -------
(0.52) (0.59) (0.42) (0.55) (0.36)
(0.20) (0.14) (0.07) (0.20) (0.01)
- ------- ------- ------ ------- -------
(0.72) (0.73) (0.49) (0.75) (0.37)
- ------- ------- ------ ------- -------
$10.76 $ 10.96 $10.29 $ 10.77 $ 10.96
======= ======= ====== ======= =======
4.88% 14.81% 6.89% 5.24% 7.72%
======= ======= ====== ======= =======
$32,287 $22,922 $8,176 $35,872 $21,638
1.79% 1.63% 1.50%* 1.54% 1.40%*
4.72% 5.48% 5.80%* 4.95% 5.26%*
23.19% 10.05% 45.93% 23.19% 10.05%
</TABLE>

13
<PAGE>

<TABLE>
<CAPTION>
NEW YORK TAX-FREE INCOME FUND
---------------------------------------------------------------------
CLASS A
---------------------------------------------------------------------
FOR THE YEARS ENDED FOR THE PERIOD
----------------------------------------------- SEPTEMBER 30, 1988+
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, TO FEBRUARY 28, 1989
---------------- ------------ ---------------- --------------------
1994 1993 1992 1991 1990 1989
------- ------- ------------ ------- ------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 10.99 $ 10.12 $ 9.76 $ 9.72 $ 9.59 $ 9.60
------- ------- ------- ------- ------- -------
Net income from
investment operations:
Net investment income... 0.57 0.63 0.66 0.67 0.70 0.28
Net realized and
unrealized gains
from investment
transactions........... 0.07 0.87 0.36 0.04 0.13 (0.01)
------- ------- ------- ------- ------- -------
Net income from
investment operations.. 0.64 1.50 1.02 0.71 0.83 0.27
------- ------- ------- ------- ------- -------
Less Dividends and
Distributions:
Dividends from net
investment income...... (0.57) (0.63) (0.66) (0.67) (0.70) (0.28)
Distributions from net
realized gains
from investment
transactions........... (0.03) -- -- -- -- --
------- ------- ------- ------- ------- -------
Total dividends and
distributions
to shareholders........ (0.60) (0.63) (0.66) (0.67) (0.70) (0.28)
------- ------- ------- ------- ------- -------
Net asset value, end of
period................. $ 11.03 $ 10.99 $ 10.12 $ 9.76 $ 9.72 $ 9.59
======= ======= ======= ======= ======= =======
Total investment
return(1).............. 5.89% 15.44% 10.80% 7.59% 8.94% 2.25%
======= ======= ======= ======= ======= =======
Ratios and supplemental
data:
Net assets, end of
period (000's)......... $45,033 $43,443 $35,961 $30,173 $21,999 $11,222
Ratios of expenses to
average net assets**.. 0.75% 0.34% 0.25% 0.21% 0.00% 0.00%*
Ratios of net
investment income to
average net assets**.. 5.13% 6.07% 6.65% 6.93% 7.07% 6.96%*
Portfolio turnover rate. 8.14% 5.76% 5.55% 2.65% 0.00% 0.00%
- ------------------------
</TABLE>
+ Commencement of issuance of shares.
* Annualized.
** During some of the periods presented above, PaineWebber/Mitchell Hutchins
reimbursed the Fund for a portion of its operating expenses and/or waived
all or a portion of its advisory and administration, distribution and
transfer agency service fees. If such reimbursements and waivers had not
been made, for the Class A shares the annualized ratios of expenses to
average net assets and the annualized ratios of net investment income to
average net assets would have been 1.25% and 4.63%, 1.47% and 4.94%, 1.53%
and 5.37%, 1.84% and 5.30%, 2.20% and 4.87%, and 3.04% and 3.92%,
respectively, for the years ended February 28, 1994 and 1993, for the year
ended February 29, 1992, and for the years ended February 28, 1991 and
1990, and for the period September 30, 1988 to February 28, 1989. If such
reimbursements and waivers had not been made for the Class B shares, the
annualized ratios of expenses to average net assets and the annualized
ratios of net investment income to average net assets would have been
1.99% and 3.86%, 2.19% and 4.13% and 2.20% and 4.39%, respectively, for
the years ended February 28, 1994 and 1993 and for the period from July 1,
1991 to February 29, 1992. If such reimbursements and waivers had not been
made for the Class D shares, the annualized ratios of expenses to average
net assets and the annualized ratios of net investment income to average
net assets would have been 1.72% and 4.10%, and 1.83% and 4.11%,
respectively, for the year ended February 28, 1994 and for the period from
July 2, 1992 to February 28, 1993.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
capital gains distributions at net asset value on the payable dates, and a
sale at net asset value on the last day of each period reported. The
figures do not include sales charges; results for Class A and Class B
would be lower if sales charges were included. Total investment returns
for periods of less than one year have not been annualized.

14
<PAGE>

<TABLE>
<CAPTION>
NEW YORK TAX-FREE INCOME FUND
- ------------------------------------------------------------------------------------
CLASS B CLASS D
- ---------------------------------------------- -------------------------------
FOR THE FOR THE FOR THE
YEAR YEAR FOR THE PERIOD YEAR FOR THE PERIOD
ENDED ENDED JULY 1, 1991+ ENDED JULY 2, 1992+
FEBRUARY FEBRUARY TO FEBRUARY 29, FEBRUARY TO FEBRUARY 28,
28, 1994 28, 1993 1992 28, 1994 1993
- -------- -------- --------------- -------- ---------------
<S> <C> <C> <C> <C>
$ 10.98 $ 10.12 $ 9.81 $ 10.99 $ 10.45
------- ------- ------ ------- -------
0.49 0.56 0.39 0.51 0.36
0.08 0.86 0.31 0.07 0.54
------- ------- ------ ------- -------
0.57 1.42 0.70 0.58 0.90
------- ------- ------ ------- -------
(0.49) (0.56) (0.39) (0.51) (0.36)
(0.03) -- -- (0.03) --
------- ------- ------ ------- -------
(0.52) (0.56) (0.39) (0.54) (0.36)
------- ------- ------ ------- -------
$ 11.03 $ 10.98 $10.12 $ 11.03 $ 10.99
======= ======= ====== ======= =======
5.19% 14.35% 6.80% 5.35% 8.38%
======= ======= ====== ======= =======
$19,193 $13,776 $6,026 $38,165 $19,553
1.51% 1.10% 1.00%* 1.27% 0.90%*
4.34% 5.22% 5.59%* 4.55% 5.04%*
8.14% 5.76% 5.55% 8.14% 5.76%
</TABLE>

15
<PAGE>

FLEXIBLE PRICING SYSTEM

DIFFERENCES AMONG THE CLASSES

The primary distinctions among the Classes of each Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of distribution fees.
These differences are summarized in the table below. Each Class has distinct
advantages and disadvantages for different investors, and investors may choose
the Class that best suits their circumstances and objectives.

<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
------------------------- ------------------------- -------------------------
<S> <C> <C> <C>
CLASS A Maximum initial sales Service fee of 0.25% Initial sales charge
charge of 4% of the waived or reduced for
public offering price certain purchases

CLASS B Maximum contingent Service fee of 0.25% Shares convert to Class A
deferred sales charge of Distribution fee of 0.75% shares approximately six
5% of redemption years after issuance
proceeds; declines to
zero after six years

CLASS D None Service fee of 0.25% --
Distribution fee of 0.50%
</TABLE>

FACTORS TO CONSIDER IN CHOOSING A CLASS OF SHARES

In deciding which Class of shares to purchase, investors should consider the
cost of sales charges together with the cost of the on-going annual expenses
described below, as well as any other relevant facts and circumstances.

SALES CHARGES. Class A shares are sold at net asset value plus an initial
sales charge of up to 4.0% of the public offering price. Because of this ini-
tial sales charge, not all of a Class A shareholder's purchase price is in-
vested in the Fund. Class B shares are sold with no initial sales charge, but a
contingent deferred sales charge of up to 5% of the redemption proceeds applies
to redemptions made within six years of purchase. Class D shareholders pay no
initial or contingent deferred sales charges. Thus, the entire amount of a
Class B or Class D shareholder's purchase price is immediately invested in the
Fund.

WAIVERS AND REDUCTIONS OF CLASS A SALES CHARGES. Class A share purchases over
$100,000 and Class A share purchases made under a Fund's reduced sales charge
plan may be made at a reduced sales charge. In considering the combined cost of
sales charges and ongoing annual expenses, investors should take into account
any reduced sales charges on Class A shares for which they may be eligible.

The entire initial sales charge on Class A shares is waived for certain eli-
gible purchasers. Because Class A shares bear lower ongoing annual expenses
than Class B shares or Class D shares, investors eligible for complete waivers
should purchase Class A shares.

ONGOING ANNUAL EXPENSES. All three Classes of Fund shares pay an annual 12b-1
service fee of 0.25% of average daily net assets. Class B shares pay an annual
12b-1 distribution fee of 0.75%, and Class D shares pay an annual 12b-1 distri-
bution fee of 0.50%, of average daily net assets. Annual 12b-1 distribution
fees are a form of asset-based sales charge. An investor should consider both
ongoing annual expenses and initial or contingent deferred sales

16
<PAGE>

charges in estimating the costs of investing in the respective Classes of Fund
shares over various time periods.

For example, assuming a constant net asset value, the cumulative distribution
fees on a Fund's Class B and Class D shares would approximate the expense of
the 4% maximum initial sales charge on the Class A shares if the shares were
held for approximately 5 1/2 years in the case of the Class B shares and ap-
proximately 8 years in the case of the Class D shares. The cumulative distribu-
tion fees on the Class D shares would approximate the cumulative distribution
fees on the Class B shares if the shares were held for 9 years. Thus, an in-
vestor who would be subject to the maximum initial sales charge on Class A
shares and who expects to hold a Fund's shares for less than 8 years generally
should expect to pay the lowest cumulative expenses by purchasing Class D
shares.

The foregoing examples do not reflect, among other variables, the cost or
benefit of bearing sales charges or distribution fees at the time of purchase,
upon redemption or over time, nor can they reflect fluctuations in the net as-
set value of Fund shares, which will affect the actual amount of expenses paid.
Expenses borne by Classes may differ slightly because of the allocation of
other Class-specific expenses. The "Example of Effect of Fund Expenses" under
"Prospectus Summary" shows for each Fund the cumulative expenses an investor
would pay over time on a hypothetical investment in each Class of Fund shares,
assuming an annual return of 5%.

OTHER INFORMATION

PaineWebber investment executives may receive different levels of compensa-
tion for selling one particular Class of shares rather than another. Investors
should understand that distribution fees and initial and contingent deferred
sales charges all are intended to compensate Mitchell Hutchins for distribution
services.

See "Purchases," "Redemptions" and "Management" for a more complete descrip-
tion of the initial and contingent deferred sales charges, service fees and
distribution fees for the three Classes of shares of each Fund. See also "Con-
version of Class B Shares," "Dividends and Taxes," "Valuation of Shares" and
"General Information" for other differences among the three Classes.

INVESTMENT OBJECTIVES AND POLICIES

INVESTMENT OBJECTIVES AND PRIMARY INVESTMENTS

The investment objective of CALIFORNIA TAX-FREE INCOME FUND is to provide
high current income exempt from federal income tax and California personal in-
come tax, consistent with the preservation of capital and liquidity within the
Fund's quality standards. The Fund seeks to invest 100% of its net assets in
California Obligations and, except under unusual market conditions, invests at
least 80% of its net assets in California Obligations that pay interest that is
not an item of tax preference for purposes of the federal alternative minimum
tax ("AMT") ("AMT exempt interest"). See "Other Investment Policies."

The investment objective of NATIONAL TAX-FREE INCOME FUND is to provide high
current income exempt from federal income tax, consistent with the preservation
of capital and liquidity within the Fund's quality standards. The Fund seeks to
invest 100% of its net assets in municipal obligations with varying maturities.
Except under unusual market conditions, the Fund invests at least 80% of its
net assets in municipal obligations that pay AMT exempt interest. See "Other
Investment Policies."

The investment objective of MUNICIPAL HIGH INCOME FUND is to provide high
current income exempt from federal income tax. Ex-

17
<PAGE>

cept under unusual market conditions, the Fund invests at least 80% of its net
assets in municipal obligations. The Fund may invest without limit in municipal
obligations that pay interest that is subject to the AMT. To date, the Fund has
not purchased any bonds subject to the AMT.

The investment objective of NEW YORK TAX-FREE INCOME FUND is to provide high
current income exempt from federal income tax and from New York State and New
York City personal income taxes. The Fund seeks to invest 100% of its net as-
sets in New York Obligations and, except under unusual market conditions, in-
vests at least 80% of its net assets in New York Obligations that pay AMT ex-
empt interest. See "Other Investment Policies."

National Tax-Free Income Fund and Municipal High Income Fund each may invest
in municipal obligations of issuers in any state that meet the particular
Fund's investment standards and pay interest that is exempt from federal income
tax. California Tax-Free Income Fund and New York Tax-Free Income Fund normally
invest only in municipal obligations that are California Obligations and New
York Obligations, respectively. Municipal obligations include, but are not lim-
ited to, municipal bonds, floating rate and variable rate municipal obliga-
tions, inverse floaters, participation interests in municipal bonds, tax-exempt
commercial paper, tender option bonds and short-term municipal notes. Municipal
bonds include industrial development bonds ("IDBs"), municipal lease obliga-
tions and certificates of participation therein, put bonds and private activity
bonds ("PABs"). Each Fund also may invest in stand-by commitments, as described
in the Statement of Additional Information. No Fund may invest more than 10% of
its total assets in inverse floaters. Because most PABs do not pay AMT exempt
interest, none of California Tax-Free Income Fund, National Tax-Free Income
Fund and New York Tax-Free Income Fund will invest more than 20% of its net as-
sets in such PABs, except under unusual market conditions. The principal munic-
ipal obligations in which the Funds invest are described in Appendix A to this
Prospectus.

There can be no assurance that any Fund will achieve its investment objec-
tive. Each Fund's net asset value fluctuates based upon changes in the value of
its portfolio securities. Each Fund's investment objective and certain invest-
ment limitations described in the Statement of Additional Information are fun-
damental policies that may not be changed without shareholder approval. In ad-
dition, California Tax-Free Income Fund's policy of investing at least 80% of
its net assets in California Obligations that pay AMT exempt interest, National
Tax-Free Income Fund's policy of investing at least 80% of its net assets in
municipal obligations that pay AMT exempt interest, Municipal High Income
Fund's policy of investing at least 80% of its net assets in municipal obliga-
tions and New York Tax-Free Income Fund's policy of investing at least 80% of
its net assets in New York Obligations that pay AMT exempt interest, may not be
changed without shareholder approval. All other investment policies may be
changed without shareholder approval by the board of trustees.

OTHER INVESTMENT POLICIES AND RISK FACTORS

CREDIT QUALITY. Each Fund invests only in municipal securities that present
acceptable credit risks in the judgment of Mitchell Hutchins and, with the ex-
ception of Municipal High Income Fund, that at the time of purchase are rated
at least Baa or MIG-2 by Moody's Investors Service Inc. ("Moody's"), BBB or SP-
2 by Standard & Poor's Ratings Group ("S&P"), have been assigned an equivalent
rating by another nationally recognized statistical rating organization
("NRSRO") or, if unrated, are determined by Mitchell Hutchins to be of compara-
ble quality. Except as described below, Municipal High Income Fund invests at
least 65% and seeks to invest

18
<PAGE>

100% of its net assets in medium and lower grade municipal obligations. Medium
grade municipal obligations are of investment grade quality and are rated A,
Baa or MIG-2 by Moody's, A, BBB or SP-2 by S&P, have been assigned an equiva-
lent rating from another NRSRO or, if unrated, are determined by Mitchell
Hutchins to be of comparable quality. Lower grade municipal obligations are
those rated Ba, B, MIG-3 or MIG-4 by Moody's, BB, B or SP-3 by S&P, have an
equivalent rating from another NRSRO or, if unrated, are determined by Mitchell
Hutchins to be of comparable quality. Mitchell Hutchins does not intend during
the coming year to invest Municipal High Income Fund's assets in securities
rated lower than B by Moody's or S&P at the time of purchase. Medium and lower
grade municipal securities generally offer a higher current yield than higher
rated securities, but also carry greater investment risk. See "Yield and Risk
Factors" and "Risks of Lower Rated Securities."

Municipal High Income Fund also may invest up to 35%, and temporarily may in-
vest more than 35%, of its net assets in higher grade municipal securities if
Mitchell Hutchins considers such a strategy to be appropriate. For example, Mu-
nicipal High Income Fund might make such investments when the difference in re-
turns between different grades of municipal securities is very narrow, Mitchell
Hutchins expects interest rates to rise or the availability of medium and lower
grade securities is limited. Investments in higher grade securities may result
in lower yield than if the Fund were fully invested in medium and lower grade
issues.

During the fiscal year ended February 28, 1994, Municipal High Income Fund
had 99.50% of its average annual net assets in municipal securities that re-
ceived a rating from Moody's or S&P. Municipal High Income Fund had the follow-
ing percentages of its average annual net assets invested in rated securities:
AAA/Aaa (including cash items and repurchase agreements)--15.85%, AA/Aa--9.49%,
A/A--29.65%, BBB/Baa--27.69%, BB/Ba--10.24%, B/B-- 6.58%, CCC/Caa--0%, CC/Ca--
0%, C/C--0%, and D--0%. Municipal securities that received different ratings
from Moody's and S&P were assigned to the lower rating category. It should be
noted that this information reflects the average composition of the Fund's as-
sets during the fiscal year ended February 28, 1994, and is not necessarily
representative of the Fund's assets at the end of that fiscal year, the current
fiscal year or any other time in the future.

Moody's and S&P may assign equivalent ratings to those described above for
specific categories of securities. See the Statement of Additional Information
and Appendix B to this Prospectus for further information about Moody's and S&P
ratings.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each Fund may purchase securi-
ties on a "when-issued" basis, or may purchase or sell securities for delayed
delivery. In when-issued or delayed delivery transactions, delivery of the se-
curities occurs beyond normal settlement periods, but a Fund would not pay for
such securities or start earning interest on them until they are delivered.
However, when a Fund purchases securities on a when-issued or delayed delivery
basis, it immediately assumes the risks of ownership, including the risk of
price fluctuation. Failure to deliver a security purchased on a when-issued or
delayed delivery basis may result in a loss or missed opportunity to make an
alternative investment. Depending on market conditions, a Fund's when-issued
and delayed delivery purchase commitments could cause its net asset value per
share to be more volatile, because such securities may increase the amount by
which the Fund's total assets, including the value of when-issued and delayed
delivery securities held by the Fund, exceed its net assets.

19
<PAGE>

YIELD AND RISK FACTORS. The yield of a municipal security depends on a vari-
ety of factors, including general municipal and fixed-income security market
conditions, the financial condition of the issuer, the size of the particular
offering, the maturity, credit quality and rating of the issue and expectations
regarding changes in tax rates. Generally, the longer the maturity of a munici-
pal security, the higher the rate of interest paid and the greater the volatil-
ity. Further, if general market interest rates are increasing , the prices of
municipal obligations ordinarily will decrease and, if rates decrease, the op-
posite generally will be true. During periods of market uncertainty, the market
values of fixed income securities can become volatile. Each Fund may invest in
municipal securities with a broad range of maturities, based on Mitchell
Hutchins' judgment of current and future market conditions as well as other
factors, such as the Fund's liquidity needs. Accordingly, the average weighted
maturity of each Fund's portfolio may vary.

Ratings of municipal securities represent the rating agencies' opinions re-
garding their quality, are not a guarantee of quality and may be reduced after
a Fund has acquired the security. Mitchell Hutchins will consider such an event
in deciding whether a Fund should continue to hold the security but is not re-
quired to dispose of it. Credit ratings attempt to evaluate the safety of prin-
cipal and interest payments and do not reflect an assessment of the volatility
of the security's market value or the liquidity of an investment in the securi-
ty. Also, rating agencies may fail to make timely changes in credit ratings in
response to subsequent events, so that an issuer's current financial condition
may be better or worse than the rating indicates. Securities rated BBB by S&P
or Baa by Moody's are investment grade but Moody's considers securities rated
Baa to have speculative characteristics. Changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity for such
securities to make principal and interest payments than is the case for higher
grade municipal securities. In addition, future federal, state and local laws
may ad-versely affect the tax-exempt status of interest on a Fund's portfolio
securi-ties or of the exempt-interest dividends paid by a Fund, extend the time
for payment of principal or interest or otherwise constrain enforcement of such
ob-ligations. Opinions relating to the validity of municipal securities and the
tax-exempt status of interest thereon are rendered by the issuer's bond counsel
at the time of issuance; Mitchell Hutchins will rely on such opinions without
independent investigation.

Municipal High Income Fund and New York Tax-Free Income Fund are each "non-
diversified," as that term is defined in the Investment Company Act of 1940
("1940 Act"). Each intends to continue to qualify as a "regulated investment
company" for federal income tax purposes. See "Dividends and Taxes." This
means, in general, that more than 5% of each Fund's total assets may be in-
vested in securities of one issuer, but only if, at the close of each quarter
of the Fund's taxable year, the aggregate amount of such holdings does not ex-
ceed 50% of the value of its total assets and no more than 25% of the value of
its total assets is invested in the securities of a single issuer. Although
Mitchell Hutchins anticipates that normally each Fund's portfolio will include
the securities of a number of different issuers, each of these Funds may be
subject to greater risk with respect to its portfolio securities than a "diver-
sified" investment company, because changes in the financial condition or mar-
ket assessment of a single issuer may cause greater fluctuation in the Fund's
yield and the net asset value of Fund shares.

Each Fund may invest more than 25% of its total assets in municipal securi-
ties that are related in such a way that an economic, business or political de-
velopment or change affecting one such security also might affect the other se-
curities, such as securities the interest

20
<PAGE>

on which is paid from revenues of similar types of projects. The Funds may be
subject to greater risk than other funds that do not follow this practice.

RISKS OF LOWER RATED SECURITIES. Municipal High Income Fund's policy of in-
vesting a portion of its assets in lower rated securities entails greater risks
than those associated with investment in higher rated securities. Municipal se-
curities rated below investment grade are deemed by Moody's and S&P to be pre-
dominantly speculative with respect to the issuer's capacity to pay interest
and repay principal and may involve major risk exposure to adverse conditions.
Such securities are commonly referred to as municipal "junk bonds."

Lower rated municipal securities generally offer a higher current yield than
higher grade issues, but they involve higher risks, in that they are especially
subject to adverse changes in general economic conditions, in economic condi-
tions in the issuer's geographic area and in the industries or activities in
which the issuer is engaged. Such securities are also subject to changes in the
financial condition of the issuer and to price fluctuations in response to
changes in interest rates. During periods of economic downturn or rising inter-
est rates, municipal issuers may experience financial stress which could ad-
versely affect their ability to make payments of principal and interest and in-
crease the possibility of default.

In addition, medium and lower grade municipal securities are frequently
traded only in markets where the number of potential purchasers and sellers, if
any, is limited. This factor may limit Municipal High Income Fund's ability to
acquire such securities and also may limit the Fund's ability to sell such se-
curities at their fair value in response to changes in the economy or the fi-
nancial markets. This may be especially true of unrated securities. Although
unrated securities are not necessarily of lower quality than rated securities,
the market for rated securities generally is broader than that for unrated is-
sues. Adverse publicity and investor perceptions, whether or not based on fun-
damental analysis, may also decrease the values and liquidity of lower rated
securities, especially in a thinly traded market.

Although Mitchell Hutchins will attempt to minimize the speculative risks as-
sociated with investments in lower rated securities through credit analysis and
monitoring and attention to current trends in interest rates and other factors,
investors should carefully review the investment objective and policies of Mu-
nicipal High Income Fund and consider their ability to assume the investment
risks involved before making an investment.

RISKS OF CALIFORNIA OBLIGATIONS. California Tax-Free Income Fund's investment
concentration in California Obligations involves greater risks than if it se-
lected its investments from a broader range of issuers. The Fund's yield and
net asset value per share can be affected by political and economic de-
velopments within the State of California ("California"), and by the financial
condition of California, its public authorities and political subdivisions.
California is experiencing substantial financial difficulties related to the
weak performance of the once-booming California economy, which has caused sub-
stantial, broad-based revenue shortfalls. California's long-term credit rating
has been, and could be further, reduced and its ability to provide assistance
to its public authorities and political subdivisions has been, and could be
further, impaired. Cutbacks in state aid could adversely affect the financial
condition of cities, counties and education districts previously subject to se-
vere fiscal constraints and facing a fall in their own tax collections.

In the past, California voters have passed amendments to the California Con-
stitution and other measures that limit the taxing and spending authority of
California governmental entities and future voter initiatives could result in

21
<PAGE>

adverse consequences affecting California Obligations. These factors, among
others (including the outcome of related pending litigation), could reduce the
credit standing of certain issuers of California Obligations. A more detailed
discussion of the risks of investing in California Obligations is included in
the Statement of Additional Information.

RISKS OF NEW YORK OBLIGATIONS. New York Tax-Free Income Fund's investment
concentration in New York Obligations involves greater risks than if it in-
vested in the securities of a broader range of issuers. The Fund's yield and
the value of its portfolio can be affected by political and economic develop-
ments within the State of New York ("State"), and by the financial condition of
the State, its public authorities and political subdivisions, particularly the
City of New York ("City"). The State reduced its accumulated General Fund defi-
cit and experienced operating surpluses in FY1991-92, FY1992-93 and FY1993-94
(estimated). However, it continues to experience substantial financial diffi-
culties related to the recent recession from which the State is recovering more
slowly than other parts of the country. The City (which is constrained in its
fiscal flexibility by an already heavy local tax burden, urgent social needs
and its extensive and deteriorating infrastructure) and most suburban county
governments are also experiencing serious fiscal problems related to the reces-
sionary performance of the regional economy, which has caused substantial,
broad-based and recurring revenue shortfalls. The credit standings of the State
and the City have been, and could be further, reduced, and the State's ability
to provide assistance to its public authorities and political subdivisions has
been, and could be further, impaired. A more detailed discussion of the risks
of investing in New York Obligations is included in the Statement of Additional
Information.

OTHER INVESTMENT POLICIES. During un- usual market conditions, including when
in the opinion of Mitchell Hutchins there are insuffi- cient suitable municipal
obligations available, each of California Tax-Free Income Fund, National Tax-
Free Income Fund and New York Tax-Free Income Fund, for defensive purposes,
temporarily may invest more than 20% of its net assets in other municipal obli-
gations. For this purpose, "suitable municipal obligations" means, in the case
of California Tax-Free Income Fund, California Obligations that pay AMT exempt
interest, in the case of National Tax-Free, municipal obligations that pay AMT
exempt interest and, in the case of New York Tax-Free Income Fund, New York Ob-
ligations that pay AMT exempt interest. "Other municipal obligations" means mu-
nicipal obligations that pay interest that is exempt from federal income tax
but is subject to California personal income tax (in the case of California
Tax-Free Income Fund), New York personal income tax (in the case of New York
Tax-Free Income Fund) or is not AMT exempt interest.

Each Fund expects that under normal circumstances it will maintain needed li-
quidity through the purchase of short-term municipal securities, including ten-
der option bonds. However, when Mitchell Hutchins believes unusual circum-
stances warrant a defensive position, including when in the opinion of Mitchell
Hutchins no suitable municipal obligations are available, each Fund temporarily
and without percentage limit may hold cash and invest in taxable money market
instruments, including repurchase agreements. Interest earned from such taxable
investments will be taxable to investors as ordinary income when distributed.
If a Fund holds cash, the cash would not earn income and would reduce the
Fund's yield.

Each Fund is authorized to engage in certain option income strategies and to
use options and futures in hedging strategies, all of which may generate tax-
able income. None of the Funds have engaged in these strategies in the past or
have any intention of so doing during the coming year. A discussion of these
strate-

22
<PAGE>

gies is included in the Statement of Additional Information. Each Fund may bor-
row money for emergency or temporary purposes, but not in excess of 10% of its
total assets. No Fund will invest more than 10% of its net assets in illiquid
securities. The term "illiquid securities" for this purpose means securities
that cannot be disposed of within seven days in the ordinary course of business
at approximately the amount at which the Fund has valued the securities and in-
cludes, among other things, repurchase agreements maturing in more than seven
days and municipal lease obligations (including certificates of participation)
other than those Mitchell Hutchins has determined are liquid pursuant to guide-
lines established by the appropriate Trust's board of trustees.

PURCHASES

GENERAL. Class A shares of the Funds are sold to investors subject to an ini-
tial sales charge; Class B shares of the Funds are sold without an initial
sales charge but are subject to higher ongoing expenses than Class A shares and
a contingent deferred sales charge payable upon certain redemptions. Class B
shares automatically convert to Class A shares approximately six years after
issuance. Class D shares are sold without an initial or a contingent deferred
sales charge but are subject to higher ongoing expenses than Class A shares and
do not convert into another Class. See "Flexible Pricing System" and "Conver-
sion of Class B Shares."

Shares of the Funds are available through PaineWebber and its correspondent
firms or, for shareholders who are not PaineWebber clients, through the Trans-
fer Agent. Investors may contact a local PaineWebber office to open an account.
The minimum initial investment for each Fund is $1,000 and the minimum for ad-
ditional purchases is $100. These minimums may be waived or reduced for invest-
ments by employees of PaineWebber or its affiliates and participants in a
Fund's automatic investment plan. Purchase orders will be priced at the net as-
set value per share next determined (see "Valuation of Shares") after the order
is received by PaineWebber's New York City offices or by the Transfer Agent,
plus any applicable sales charge for Class A shares. Each Fund and Mitchell
Hutchins reserve the right to reject any purchase order and to suspend the of-
fering of Fund shares for a period of time.

When placing purchase orders, investors should specify whether the order is
for Class A, Class B or Class D shares. All share purchase orders that fail to
specify a Class will automatically be invested in Class A shares.

PURCHASES THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. Purchases through
PaineWebber investment executives or corre-spondent firms may be made in person
or by mail, telephone or wire; the minimum wire purchase is $1 million. Invest-
ment executives and correspondent firms are responsible for transmitting pur-
chase orders to PaineWebber's New York City offices promptly. Investors may pay
for purchases with checks drawn on U.S. banks or with funds held in brokerage
accounts at PaineWebber or its correspondent firms. Payment is due on the fifth
Business Day after the order is received at PaineWebber's New York City of-
fices. A "Business Day" is any day, Monday through Friday, on which the New
York Stock Exchange, Inc. ("NYSE") is open for business.

PURCHASES THROUGH THE TRANSFER AGENT. Investors who are not PaineWebber cli-
ents may purchase shares of the Funds through the Transfer Agent. Shares of a
Fund may be purchased, and an account with the Fund established, by completing
and signing the purchase application at the end of this Prospectus and mailing
it, together with a check to cover the purchase, to the Transfer Agent: PFPC
Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington, Delaware
19899. Subse-

23
<PAGE>

quent investments need not be accompanied by an application.

INITIAL SALES CHARGE--CLASS A SHARES. The public offering price of Class A
shares is the next determined net asset value, plus any applicable sales charge,
which will vary with the size of the purchase as shown in the following table:

INITIAL SALES CHARGE SCHEDULE--CLASS A SHARES

<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF DISCOUNT TO SELECTED
---------------------------------------- DEALERS AS A PERCENTAGE
OFFERING NET AMOUNT INVESTED OF
AMOUNT OF PURCHASE PRICE (NET ASSET VALUE) OFFERING PRICE
- ------------------ --------------- --------------------- -----------------------
<S> <C> <C> <C>
Less than $100,000...... 4.00% 4.17% 3.75%
$100,000 to $249,999.... 3.00 3.09 2.75
$250,000 to $499,999.... 2.25 2.30 2.00
$500,000 to $999,999.... 1.75 1.78 1.50
$1,000,000 and over (1). None None 1.00
</TABLE>
- --------
(1) Mitchell Hutchins pays compensation to PaineWebber out of its own resources.

Mitchell Hutchins may at times agree to reallow a higher discount to
PaineWebber, as primary dealer for each Fund's shares, than those shown above.
To the extent PaineWebber or any dealer receives 90% or more of the sales
charge, it may be deemed an "underwriter" under the Securities Act of 1933.

SALES CHARGE WAIVERS--CLASS A SHARES. Class A shares of the Funds are avail-
able without a sales charge through exchanges for Class A shares of most other
PaineWebber mutual funds. See "Exchanges." In addition, Class A shares may be
purchased without a sales charge, and exchanges made without the $5.00 exchange
fee, by employees, directors and officers of PaineWebber or its affiliates, di-
rectors or trustees and officers of any PaineWebber funds, their spouses, par-
ents and children and advisory clients of Mitchell Hutchins.

Class A shares also may be purchased without a sales charge if the purchase
is made through a PaineWebber investment executive who formerly was employed as
a broker with another firm registered as a broker-dealer with the SEC, provided
(1) the purchaser was the investment executive's client at the competing bro-
kerage firm, (2) within 90 days of the pur- chase of Class A shares the pur-
chaser redeemed shares of one or more mutual funds for which that competing
firm or its affiliates was principal underwriter, provided the purchaser either
paid a sales charge to invest in those funds, paid a contingent deferred sales
charge upon redemption or held shares of those funds for the period required
not to pay the otherwise applicable contingent deferred sales charge and (3)
the total amount of shares of all PaineWebber funds purchased under this sales
charge waiver does not exceed the amount of the purchaser's redemption proceeds
from the competing firm's funds. To take advantage of this waiver, an investor
must provide satisfactory evidence that all the above-noted conditions are met.
Qualifying investors should contact their PaineWebber investment executives for
more information.

Certificate holders of certain municipal bond trusts ("MBTs") sponsored by
PaineWebber may acquire Class A shares of the Funds without regard to the mini-
mum investment requirements and without sales charges by electing to have dis-
tributions from their MBT investment automatically invested in Class A shares.
In addition, certificate holders who have had past MBT distributions reinvested
through the MBT reinvestment program may, upon redemption of those reinvest-

24
<PAGE>

ment units, invest the full amount of all redemption proceeds in shares of a
Fund, also without sales charges and without regard to minimum investment re-
quirements.

REDUCED SALES CHARGE PLANS--CLASS A SHARES. If an investor or eligible group
of related Fund investors purchases Class A shares of a Fund concurrently with
Class A shares of other PaineWebber mutual funds, the purchases may be combined
to take advantage of the reduced sales charge applicable to larger purchases.
In addition, the right of accumulation permits a Fund investor or eligible
group of related Fund investors to pay the lower sales charge applicable to
larger purchases by basing the sales charge on the dollar amount of Class A
shares currently being purchased, plus the net asset value of the investor's or
group's total existing Class A shareholdings in other PaineWebber mutual funds.

An "eligible group of related Fund investors" includes an individual, the in-
dividual's spouse, parents and children, the individual's individual retirement
account ("IRA"), certain companies controlled by the individual and employee
benefit plans of those companies, and trusts or Uniform Gifts to Minors
Act/Uniform Transfers to Minors Act accounts created by the individual or eli-
gible group of individuals for the benefit of the individual and/or the indi-
vidual's spouse, parents or children. The term also includes a group of related
employers and one or more qualified retirement plans of such employers. For
more information, an investor should consult the Statement of Additional Infor-
mation or contact a PaineWebber investment executive or correspondent firm or
the Transfer Agent.

CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. The public offering price
of the Class B shares of each Fund is the next determined net asset value, and
no initial sales charge is imposed. A contingent deferred sales charge, howev-
er, is imposed upon certain redemptions of Class B shares.

Class B shares that are redeemed will not be subject to a contingent deferred
sales charge to the extent that the value of such shares represents (1) capital
appreciation of Fund assets, (2) reinvestment of dividends or capital gain dis-
tributions or (3) shares redeemed more than six years after their purchase.
Otherwise, redemptions of Class B shares of a Fund will be subject to a contin-
gent deferred sales charge. The amount of any applicable contingent deferred
sales charge will be calculated by multiplying the net asset value of such
shares at the time of redemption by the applicable percentage shown in the ta-
ble below:

<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
REDEMPTION NET ASSET VALUE
DURING AT REDEMPTION
---------- -----------------
<S> <C>
1st Year Since Purchase....................................... 5%
2nd Year Since Purchase....................................... 4
3rd Year Since Purchase....................................... 3
4th Year Since Purchase....................................... 2
5th Year Since Purchase....................................... 2
6th Year Since Purchase....................................... 1
7th Year Since Purchase....................................... None
</TABLE>

In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption is made first of Class B shares
representing capital appreciation, next of shares representing the reinvestment
of dividends and capital gain distributions and finally of other shares held by
the shareholder for the longest period of time. The holding period of Class B
shares acquired through an exchange with another PaineWebber mutual fund will
be calculated from the date that the Class B shares were initially acquired in
one of the other PaineWebber funds, and Class B shares being redeemed will be
considered to represent, as applicable, capital appreciation or dividend and
capital gain distribution reinvestments in such other funds. This will result
in any contingent deferred sales charge being imposed at

25
<PAGE>

the lowest possible rate. For federal income tax purposes, the amount of the
contingent deferred sales charge will reduce the gain or increase the loss, as
the case may be, realized on the redemption. The amount of any contingent de-
ferred sales charge will be paid to Mitchell Hutchins.

SALES CHARGE WAIVERS--CLASS B SHARES. The contingent deferred sales charge
will be waived for exchanges, as described below, and for redemptions in con-
nection with each Fund's systematic withdrawal plan. In addition, the contin-
gent deferred sales charge will be waived where a total or partial redemption
is made within one year of the death of the shareholder. The contingent de-
ferred sales charge waiver is available where the decedent is either the sole
shareholder or owns the shares with his or her spouse as a joint tenant with
right of survivorship. This waiver applies only to redemption of shares held at
the time of death.

Contingent deferred sales charge waivers will be granted subject to confirma-
tion (by PaineWebber in the case of shareholders who are PaineWebber clients or
by the Transfer Agent in the case of all other shareholders) of the sharehold-
er's status or holdings, as the case may be.

PURCHASES OF CLASS D SHARES. The public offering price of the Class D shares
of each Fund is the next determined net asset value. No initial or contingent
deferred sales charge is imposed.

EXCHANGES

Shares of each Fund may be exchanged for shares of the corresponding Class of
the other Funds or the PaineWebber mutual funds listed below, or may be ac-
quired through an ex- change of shares of the corresponding Class of those
funds. No initial sales charge is imposed on the shares being acquired, and no
contin-gent deferred sales charge is imposed on the shares being disposed of,
through an exchange. However, contingent deferred sales charges may apply to
redemptions of Class B shares acquired through an exchange. A $5.00 exchange
fee is charged for each exchange, and exchanges may be subject to minimum in-
vestment requirements of the fund into which exchanges are made.

Exchanges are permitted among the Funds and with other PaineWebber funds, in-
cluding:

PaineWebber Income Funds

. GLOBAL INCOME FUND
. HIGH INCOME FUND
. INVESTMENT GRADE INCOME FUND
. SHORT-TERM U.S. GOVERNMENT INCOME FUND
. SHORT-TERM U.S. GOVERNMENT INCOME FUND FOR CREDIT UNIONS
. STRATEGIC INCOME FUND
. U.S. GOVERNMENT INCOME FUND

PaineWebber Growth Funds

. ATLAS GLOBAL GROWTH FUND
. BLUE CHIP GROWTH FUND
. CAPITAL APPRECIATION FUND
. COMMUNICATIONS & TECHNOLOGY GROWTH FUND
. EUROPE GROWTH FUND
. GROWTH FUND
. REGIONAL FINANCIAL GROWTH FUND
. SMALL CAP VALUE FUND

PaineWebber Growth and Income Funds

. ASSET ALLOCATION FUND
. DIVIDEND GROWTH FUND
. GLOBAL ENERGY FUND
. GLOBAL GROWTH AND INCOME FUND
. UTILITY INCOME FUND

PaineWebber Money Market Fund

PaineWebber clients must place exchange orders through their PaineWebber in-
vestment

26
<PAGE>

executives or correspondent firms unless the shares to be exchanged are held in
certificate form. Shareholders who are not PaineWebber clients or who hold
their shares in certificate form must place exchange orders in writing with the
Transfer Agent: PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wil-
mington, Delaware 19899. All exchanges will be effected based on the relative
net asset values per share next deter-mined after the exchange order is received
at PaineWebber's New York City of-fices or by the Transfer Agent. See "Valuation
of Shares." Shares of the Funds purchased through PaineWebber or its
correspondent firms may be exchanged only after the settlement date has passed
and payment for such shares has been made.

OTHER EXCHANGE INFORMATION. This exchange offer may be modified or terminated
at any time, upon at least 60 days' notice when such notice is required by SEC
rules. This exchange privilege is available only in those jurisdictions where
the sale of the PaineWebber fund shares to be acquired through such exchange
may be legally made. Before making any exchange, shareholders should contact
their PaineWebber investment executives or correspondent firms or the Transfer
Agent to obtain more information and prospectuses of the PaineWebber funds to
be acquired through the exchange.

REDEMPTIONS

As described below, Fund shares may be redeemed at their net asset value
(subject to any applicable contingent deferred sales charge) and redemption
proceeds will be paid within seven days of the receipt of a redemption request.
PaineWebber clients may redeem non-certificated shares through PaineWebber or
its correspondent firms; all other shareholders must redeem through the Trans-
fer Agent. If a redeeming shareholder owns shares of more than one Class, the
shares will be redeemed in the following order unless the shareholder specifi-
cally requests otherwise: Class D shares, then Class A shares, and finally
Class B shares.

REDEMPTION THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. PaineWebber clients
may submit redemption requests to their investment executives or correspondent
firms in person or by telephone, mail or wire. As each Fund's agent,
PaineWebber may honor a redemption request by repurchasing Fund shares from a
redeeming shareholder at the shares' net asset value next determined after re-
ceipt of the request by PaineWebber's New York City offices. Within seven days,
repurchase proceeds (less any applicable contingent deferred sales charge) will
be paid by check or credited to the shareholder's brokerage account at the
election of the shareholder. PaineWebber investment executives and correspon-
dent firms are responsible for promptly forwarding redemption requests to
PaineWebber's New York City offices.

PaineWebber reserves the right not to honor any redemption request, in which
case PaineWebber promptly will forward the request to the Transfer Agent for
treatment as described below.

REDEMPTION THROUGH THE TRANSFER AGENT. Fund shareholders who are not
PaineWebber clients or who wish to redeem certificated shares must redeem their
shares through the Transfer Agent by mail; other shareholders also may redeem
Fund shares through the Transfer Agent. Shareholders should mail redemption re-
quests directly to the Transfer Agent: PFPC Inc., Attn: PaineWebber Mutual
Funds, P.O. Box 8950, Wilmington, Delaware 19899. A redemption request will be
executed at the net asset value next computed after it is received in "good or-
der." "Good order" means that the request must be accompanied by the following:
(1) a letter of instruction or a stock assignment specifying the number of
shares or amount of investment to be redeemed (or that all shares

27
<PAGE>

credited to a Fund account be redeemed), signed by all registered owners of the
shares in the exact names in which they are registered, (2) a guarantee of the
signature of each registered owner by an eligible institution acceptable to the
Transfer Agent and in accordance with SEC rules, such as a commercial bank,
trust company or member of a recognized stock exchange, (3) other supporting
legal documents for estates, trusts, guardianships, custodianships, partner-
ships and corporations and (4) duly endorsed share certificates, if any. Share-
holders are responsible for ensuring that a request for redemption is received
in "good order."

ADDITIONAL INFORMATION ON REDEMPTIONS. A shareholder who holds non-certifi-
cated Fund shares may have redemption proceeds of $1 million or more wired to
the shareholder's PaineWebber brokerage account or a commercial bank account
designated by the shareholder. Questions about this option, or redemption re-
quirements generally, should be referred to the shareholder's PaineWebber in-
vestment executive or correspondent firm, or to the Transfer Agent if the
shares are not held in a PaineWebber brokerage account. If a shareholder re-
quests redemption of shares which were purchased recently, a Fund may delay
payment until it is assured that good payment has been received. In the case of
purchases by check, this can take up to 15 days.

Because the Funds incur certain fixed costs in maintaining shareholder ac-
counts, each Fund reserves the right to redeem all Fund shares in any share-
holder account of less than $500 net asset value. If a Fund elects to do so, it
will notify the shareholder and provide the shareholder the opportunity to in-
crease the amount invested to $500 or more within 60 days of the notice. A Fund
will not redeem accounts that fall below $500 solely as a result of a reduction
in net asset value per share.

Shareholders who have redeemed Class A shares may reinstate their Fund ac-
count with out a sales charge up to the dollar amount redeemed by purchasing
Class A shares of the same Fund within 365 days of the redemption. To take ad-
vantage of this reinstatement privilege, shareholders must notify their
PaineWebber investment executive or correspondent firm at the time the privi-
lege is exercised.

CONVERSION OF CLASS B SHARES

A shareholder's Class B shares will automatically convert to Class A shares
in the same Fund approximately six years after the date of issuance, together
with a pro rata portion of all Class B shares representing dividends and other
distributions paid in additional Class B shares. The Class B shares so con-
verted will no longer be subject to the higher expenses borne by Class B
shares. The conversion will be effected at the relative net asset values per
share of the two Classes on the first Business Day of the month in which the
sixth anniversary of the issuance of the Class B shares occurs. See "Valuation
of Shares." If a shareholder effects one or more exchanges among Class B shares
of the PaineWebber mutual funds during the six-year period, the holding periods
for the shares so exchanged will be counted toward the six-year period.

OTHER SERVICES AND INFORMATION

Investors interested in the services described below should consult their
PaineWebber investment executives or correspondent firms or call the Transfer
Agent toll-free at 1-800-647-1568.

AUTOMATIC INVESTMENT PLAN. Shareholders may purchase shares of the Funds
through an automatic investment plan, under which an amount specified by the
shareholder of $50 or more each month will be sent to the Transfer Agent from
the shareholder's bank for investment in a Fund. In addition to providing a
convenient and disciplined manner of investing, participation in the automatic
investment

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<PAGE>

plan enables the investor to use the technique of "dollar cost averaging." When
under the plan a shareholder invests the same dollar amount each month, the
shareholder will purchase more shares when a Fund's net asset value per share
is low and fewer shares when the net asset value per share is high. Using this
technique, a shareholder's average purchase price per share over any given pe-
riod will be lower than if the shareholder purchased a fixed number of shares
on a monthly basis during the period. Of course, investing through the auto-
matic investment plan does not assure a profit or protect against loss in de-
clining markets. Additionally, since the automatic investment plan involves
continuous investing regardless of price levels, an investor should consider
his or her financial ability to continue purchases through periods of low price
levels.

SYSTEMATIC WITHDRAWAL PLAN. Shareholders who own non-certificated Class A or
Class D shares of a Fund with a value of $5,000 or more or Class B shares of a
Fund with a value of $20,000 or more may have PaineWebber redeem a portion of
their shares monthly, quarterly or semi-annually under the systematic with-
drawal plan. No contingent deferred sales charge will be imposed on such with-
drawals for Class B shares. The minimum amount for all withdrawals of Class A
or Class D shares is $100, and minimum monthly, quarterly and semi-annual with-
drawal amounts for Class B shares are $200, $400 and $600, respectively. Quar-
terly withdrawals are made in March, June, September and December, and semi-an-
nual withdrawals are made in June and December. A Class B shareholder of a Fund
may not withdraw an amount exceeding 12% annually of his or her "Initial Ac-
count Balance," a term that means the value of the Fund account at the time the
shareholder elects to participate in the systematic withdrawal plan. A Class B
shareholder's participation in the systematic withdrawal plan will terminate
automatically if the Initial Account Balance (plus the net asset value on the
date of purchase of Fund shares acquired after the election to participate in
the systematic withdrawal plan), less aggregate redemptions made other than
pursuant to the systematic withdrawal plan, is less than $20,000. Shareholders
who receive dividends or other distributions in cash may not participate in the
systematic withdrawal plan. Purchases of additional shares of a Fund concurrent
with withdrawals are ordinarily disadvantageous to shareholders because of tax
liabilities and, for Class A shares, sales charges.

TRANSFER OF ACCOUNTS. If a shareholder holding shares of a Fund in a
PaineWebber brokerage account transfers his brokerage account to another firm,
the Fund shares normally will be transferred to an account with the Transfer
Agent. However, if the other firm has entered into a selected dealer agreement
with Mitchell Hutchins relating to a Fund, the shareholder may be able to hold
Fund Shares in an account with the other firm.

DIVIDENDS AND TAXES

DIVIDENDS. Dividends from each Fund's net investment income are declared
daily and paid monthly. California Tax-Free Income Fund pays dividends about
the fifth day of each month and National Tax-Free Income Fund pays dividends
about the fifteenth day of each month. Municipal High Income Fund and New York
Tax-Free Income Fund pay dividends on or about the first Wednesday of each
month. Net investment income includes accrued interest and discount, less amor-
tization of premium and accrued expenses, with respect to municipal securities.
Each Fund distributes substantially all of its net capital gain (the excess of
net long-term capital gain over net short-term capital loss), if any, together
with any other taxable income (including any net short-term capital gain) at
least annually. A Fund may make more frequent distributions of any net capital
gain and other taxable income if necessary to avoid

29
<PAGE>

a 4% excise tax on undistributed income and capital gain.

Dividends and other distributions paid on each Class of shares of a Fund are
calculated at the same time and in the same manner. Dividends on Class B and
Class D shares of a Fund are expected to be lower than those for its Class A
shares because of the higher expenses resulting from distribution fees borne by
the Class B and Class D shares. For the same reason, dividends on Class B
shares are expected to be lower than those for Class D shares. Dividends on
each Class also might be affected differently by the allocation of other Class-
specific expenses. See "Valuation of Shares."

Shares purchased through PaineWebber investment executives and correspondent
firms begin earning dividends on the Business Day following the date payment
for such shares is due; shares purchased through the Transfer Agent begin earn-
ing dividends on the Business Day following the Transfer Agent's receipt of
payment for such shares. Shares acquired through an exchange begin earning div-
idends on the Business Day following the day on which the exchange is effected.

Each Fund's dividends and other distributions are paid in additional Fund
shares of the same Class at net asset value unless the shareholder has re-
quested cash payments. Shareholders who wish to receive dividends and/or capi-
tal gain distributions in cash, either mailed to the shareholder by check or
credited to the shareholder's PaineWebber account, should contact their
PaineWebber investment executives or correspondent firms or complete the appro-
priate section of the application form.

FEDERAL INCOME TAX. Each Fund intends to continue to qualify for treatment as
a regulated investment company ("RIC") under the Internal Revenue Code so that
it will be relieved of federal income tax on the part of its investment company
taxable income (consisting generally of taxable net investment income and net
short-term capital gain) and net capital gain that is distributed to its share-
holders.

Distributions by a Fund that it designates as "exempt-interest dividends"
generally may be excluded from gross income by a shareholder. In order to pay
exempt-interest dividends to its shareholders, each Fund must (and intends to
continue to) satisfy the requirement that, at the close of each quarter of its
taxable year, at least 50% of the value of its total assets consists of munici-
pal securities.

Interest on indebtedness incurred or continued by a shareholder to purchase
or carry Fund shares is not deductible. If a Fund invests in certain PABs,
shareholders must include a portion of their exempt-interest dividends from
that Fund in calculating their liability for the AMT. Corporate shareholders
must include all of their exempt-interest dividends in calculating their lia-
bility for that tax.

If a Fund realizes capital gains as a result of market transactions, any dis-
tribution of those gains is taxable to its shareholders.

Each Fund notifies its shareholders following the end of each calendar year
of the amounts of exempt-interest dividends (and any portion thereof that is
subject to the AMT), taxable dividends and capital gain distributions paid (or
deemed paid) that year.

A redemption of shares of a Fund may result in taxable gain or loss to the
redeeming shareholder, depending upon whether the redemption proceeds are more
or less than the shareholder's adjusted basis for the redeemed shares (which
normally includes any initial sales charge paid on Class A shares). An exchange
of Fund shares for shares of another PaineWebber fund generally will have simi-
lar tax consequences.

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<PAGE>

No gain or loss will be recognized to a shareholder as a result of a conver-
sion of Class B shares into Class A shares.

CALIFORNIA TAXES. If California Tax-Free Income Fund continues to qualify as
a RIC under the Internal Revenue Code and at least 50% of the value of its to-
tal assets consists of California Obligations, exempt-interest dividends de-
rived from interest on qualifying California Obligations will be exempt from
California personal income tax ("California exempt-interest dividends"), but
not California franchise tax. Dividends and other distributions derived from
interest on other municipal securities, taxable income and capital gains are
taxable under California law at ordinary income rates. Interest on indebtedness
incurred by a shareholder to purchase or carry shares of the Fund is not de-
ductible for California personal income tax purposes. California exempt-inter-
est dividends may affect the calculation of certain adjustments to alternative
minimum taxable income for shareholders that are corporations. The Fund itself
will not be subject to California franchise or corporate income tax on interest
income or net capital gain distributed to its shareholders.

NEW YORK STATE AND NEW YORK CITY TAXES. Exempt-interest dividends paid by New
York Tax-Free Income Fund that are derived from interest on qualifying New York
Obligations will be exempt from New York State and New York City personal in-
come taxes, but not corporate franchise taxes. Dividends and other distribu-
tions derived from taxable income and capital gains are not exempt from New
York State and New York City taxes. Interest on indebtedness incurred or con-
tinued by a shareholder to purchase or carry shares of the Fund is not deduct-
ible for New York State or New York City personal income tax purposes. Share-
holders receive notification annually stating the portion of the Fund's tax-ex-
empt income attributable to issuers in New York State, New York City and other
states.

ADDITIONAL INFORMATION. The foregoing is only a summary of some of the impor-
tant federal income tax and California, New York State and New York City per-
sonal income tax considerations generally affecting each Fund and its share-
holders; see the Statement of Additional Information for a further discussion.
There may be other federal, state or local tax considerations applicable to a
particular investor. Therefore prospective investors are urged to consult their
tax advisers.

VALUATION OF SHARES

The net asset value of each Fund's shares fluctuates and is determined sepa-
rately for each Class as of the close of regular trading on the NYSE (currently
4:00 p.m., eastern time) each Business Day. Each Fund's net asset value per
share is determined by dividing the value of the securities held by the Fund
plus any cash or other assets minus all liabilities by the total number of Fund
shares outstanding.

Each Fund values its assets based on their current market value when market
quotations are readily available or, when such market quotations are not avail-
able, based upon appraisals received from a pricing system using a computerized
matrix system or based upon appraisals derived from information from recognized
dealers. If such value cannot be established, assets are valued at fair value
as determined in good faith by or under the direction of that Fund's board of
trustees. The amortized cost method of valuation generally is used to value
debt obligations with 60 days or less remaining to maturity, unless the board
of trustees determines that this does not represent fair value.

MANAGEMENT

The board of trustees for each Trust, as part of its overall management re-
sponsibility, oversees various organizations responsible for the day-to-day
management of each Fund in that Trust. Mitchell Hutchins, investment ad-

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<PAGE>

viser and administrator of each Fund, makes and implements all investment deci-
sions and supervises all aspects of each Fund's operations. Mitchell Hutchins
receives a monthly fee from each of California Tax-Free Income Fund and Na-
tional Tax-Free Income Fund for these services at the annual rate of 0.50% of
that Fund's average daily net assets and from each of Municipal High Income
Fund and New York Tax-Free Income Fund at the annual rate of 0.60% of that
Fund's average daily net assets.

Each Fund also pays PaineWebber an annual fee of $4.00 per active shareholder
account held at PaineWebber for certain services not provided by the Transfer
Agent. Each Fund incurs other expenses and, for the fiscal year ended February
28, 1994, the Funds' total expenses for their Class A shares, Class B shares
and Class D shares, respectively, stated as a percentage of net assets were as
follows: 0.90%, 1.65% and 1.39% for California Tax-Free Income Fund, 0.89%,
1.63% and 1.37% for National Tax-Free Income Fund, 1.03%, 1.79% and 1.54% for
Municipal High Income Fund and 0.75%, 1.51% and 1.27% for New York Tax-Free In-
come Fund. Mitchell Hutchins and PaineWebber waived a portion of their advisory
and administration, distribution and other fees and reimbursed Municipal High
Income Fund and New York Tax-Free Income Fund for a portion of their expenses.
If such waivers and reimbursements had not been made, each of those Fund's ra-
tio of expenses stated as a percentage of average net assets would have been
1.16%, 1.90% and 1.64%, and 1.25%, 1.99% and 1.72%, respectively.

Mitchell Hutchins is located at 1285 Avenue of the Americas, New York, New
York 10019. It is a wholly owned subsidiary of PaineWebber, which is in turn
wholly owned by Paine Webber Group Inc., a publicly owned financial services
holding company. As of May 31, 1994, Mitchell Hutchins was adviser or
subadviser of 30 investment companies with 56 separate portfolios and aggregate
assets of over $24.7 billion.

Gregory W. Serbe, a Vice President of each Trust and a managing director of
Mitchell Hutchins, is the portfolio manager and has day-to-day responsibility
for New York Tax-Free Income Fund. Mr. Serbe is also a portfolio manager for
each of the other Funds. In the case of California Tax-Free Income Fund, Cyn-
thia N. Bow, a vice president of Mitchell Hutchins, is a portfolio manager and
has day-to-day responsibility for the Fund. In the case of National Tax-Free
Income Fund, Richard S. Murphy, a senior vice president of Mitchell Hutchins,
is a portfolio manager and has day-to-day responsibility for the Fund. In the
case of Municipal High Income Fund, Timothy Sexton, a vice president of Mitch-
ell Hutchins, is a portfolio manager and has day-to-day responsibility for the
Fund. Mr Serbe has held his Fund responsibilities since the Funds' inception.
Ms. Bow and Mr. Sexton have held their Fund responsibilities since April 1993
and November 1993, respectively. Mr. Murphy has held his Fund responsibilities
since July 1, 1994.

Mr. Serbe is the chief investment officer of Mitchell Hutchins responsible
for tax-exempt investments and he manages or oversees tax-exempt fixed income
funds having aggregate assets of more than $3.7 billion. Mr. Serbe has been
with Mitchell Hutchins since 1983. Ms. Bow has been with Mitchell Hutchins
since 1982. Mr. Murphy has been with Mitchell Hutchins since April 1994. From
1990 to March 1994, he was a vice president at American International Group,
where he managed the municipal bond portfolio. Prior to 1990, he managed the
municipal bond syndicate department at the Bank of Boston. Mr. Sexton has been
with Mitchell Hutchins since 1991. Prior to that time he was a senior analyst
in the public finance department of Moody's Investors Service.

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<PAGE>

Other members of Mitchell Hutchins' tax-exempt investments group provide in-
put on market outlook, interest rate forecasts, and other considerations per-
taining to tax-exempt investments.

DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins is the distributor of each
Fund's shares and has appointed PaineWebber as the exclusive dealer for the
sale of those shares. Under separate plans of distribution pertaining to each
Fund's Class A shares, Class B shares and Class D shares ("Class A Plan",
"Class B Plan" and "Class D Plan," collectively, "Plans"), each Fund pays
Mitchell Hutchins monthly service fees at the annual rate of 0.25% of the aver-
age daily net assets of each Class of shares. Each Fund also pays Mitchell
Hutchins monthly distribution fees at the annual rate of 0.75% of the average
daily net assets of the Class B shares and 0.50% of the average daily net as-
sets of the Class D shares.

Under all three Plans, Mitchell Hutchins uses the service fees primarily to
pay PaineWebber for shareholder servicing, currently at the annual rate of
0.25% of the aggregate investment amounts maintained in each Fund by
PaineWebber clients. PaineWebber passes on a portion of these fees to its in-
vestment executives to compensate them for shareholder servicing that they per-
form, and it retains the remainder to offset its own expenses in servicing and
maintaining shareholder accounts. These expenses may include costs of the
PaineWebber branch office in which the investment executive is based, such as
rent, communications equipment, employee salaries and other overhead costs.

Mitchell Hutchins uses the distribution fees under the Class B and Class D
Plans to offset the commissions it pays to PaineWebber for selling the Fund's
Class B and Class D shares. PaineWebber passes on to its investment executives
a portion of these commissions and retains the remainder to offset its expenses
in selling Class B and Class D shares. These expenses may include the branch
office costs noted above. In addition, Mitchell Hutchins uses the distribution
fees under the Class B and Class D Plans to offset each Fund's marketing costs
attributable to such Classes, such as preparation of sales literature, adver-
tising and printing and distributing prospectuses and other shareholder materi-
als to prospective investors. Mitchell Hutchins also may use the distribution
fees to pay additional compensation to PaineWebber and other costs allocated to
Mitchell Hutchins' and PaineWebber's distribution activities, including em-
ployee salaries, bonuses and other overhead expenses.

Mitchell Hutchins expects that, from time to time, PaineWebber will pay
shareholder servicing fees and sales commissions to its investment executives
at the time of sale of Class D shares of the Funds, and that PaineWebber may
make such payments from time to time in the future with respect to Class D
shares of one or more of the Funds. If PaineWebber makes such payments, it will
retain the service and distribution fees on Class D shares until it has been
reimbursed and thereafter will pass a portion of the service and distribution
fees on Class D shares on to its investment executives.

Mitchell Hutchins receives the proceeds of the initial sales charge paid upon
the purchase of Class A shares and the contingent deferred sales charge paid
upon certain redemptions of Class B shares, and may use these proceeds for any
of the distribution expenses described above. See "Purchases."

During the period they are in effect, the Plans and related distribution con-
tracts pertaining to each Class of shares ("Distribution Contracts") obligate
the Funds to pay service and distribution fees to Mitchell Hutchins as compen-
sation for its service and distribution activities, not as reimbursement for
specific expenses incurred. Thus, even if Mitchell

33
<PAGE>

Hutchins' expenses exceed its service or distribution fees for a Fund, the Fund
will not be obligated to pay more than those fees and, if Mitchell Hutchins'
expenses are less than such fees, it will retain its full fees and realize a
profit. Each Fund will pay the service and distribution fees to Mitchell
Hutchins until either the applicable Plan or Distribution Contract for that
Fund is terminated or not renewed. In that event, Mitchell Hutchins' expenses
in excess of service and distribution fees received or accrued through the ter-
mination date will be Mitchell Hutchins' sole responsibility and not obliga-
tions of the Fund. In their annual consideration of the continuation of each
Fund's Plans, the trustees will review the Plan and Mitchell Hutchins' corre-
sponding expenses for each Class separately from the Plan and corresponding ex-
penses for the other two Classes.

PERFORMANCE INFORMATION

Each Fund performs a standarized computation of annualized total return and
may show this return in advertisements or promotional materials. Standardized
return shows the change in value of an investment in the Fund as a steady com-
pound annual rate of return. Actual year-by-year returns fluctuate and may be
higher or lower than standardized return. Standardized return for the Class A
shares of each Fund reflects deduction of the Fund's maximum initial sales
charge at the time of purchase, and standardized return for the Class B shares
of each Fund reflects deduction of the applicable contingent deferred sales
charge imposed on a redemption of shares held for the period. One-, five- and
ten-year periods will be shown, unless the Class has been in existence for a
shorter period. Total return calculations assume reinvestment of dividends and
other distributions.

Each Fund may use other total return presentations in conjunction with stan-
dardized return. These may cover the same or different periods as those used
for standardized return and may include cumulative returns, average annual
rates, actual year-by-year rates or any combination thereof. Non-standardized
return does not reflect initial or contingent deferred sales charges and would
be lower if such charges were included.

Each Fund also may advertise its yield or tax-equivalent yield. Yield re-
flects investment income net of expenses over a 30-day (or one-month) period on
a Fund share, expressed as an annualized percentage of the maximum offering
price per share for Class A shares and net asset value per share for Class B
shares and Class D shares at the end of the period. Tax-equivalent yield shows
the yield that would produce the same income after a stated rate of taxes as
the Fund's tax-exempt yield (yield excluding taxable income). Yield computa-
tions differ from other accounting methods and therefore may differ from divi-
dends actually paid or reported net income.

Each Fund will include performance data for all three Classes of Fund shares
in any advertisements or promotional materials including Fund performance data.
Total return and yield information reflects past performance and does not nec-
essarily indicate future results. Investment return and principal values will
fluctuate, and proceeds upon redemption may be more or less than a sharehold-
er's cost.

GENERAL INFORMATION

ORGANIZATION. Both PaineWebber Municipal Series and PaineWebber Mutual Fund
Trust are Massachusetts business trusts which are registered with the SEC as
open-end management investment companies. PaineWebber Municipal Series was or-
ganized under a Declaration of Trust dated January 28, 1987 and PaineWebber Mu-
tual Fund Trust was organized under a Declaration of Trust dated November 21,
1986. The trustees of each Trust have authority to issue an unlimited number of
shares of beneficial interest of separate series,

34
<PAGE>

par value $.001 per share. Although each Trust is offering only the shares of
its Funds, it is possible that a Trust could become liable for misstatement in
this Prospectus about a Fund of the other Trust. The trustees of each Trust
have considered this factor in approving the use of a combined Prospectus.

The shares of beneficial interest of each Fund are divided into three Clas-
ses, designated Class A shares, Class B shares and Class D shares. Each Class
represents interests in the same assets of each Fund. The Classes differ as
follows: (1) each Class of shares has exclusive voting rights on matters per-
taining to its plan of distribution, (2) Class A shares are subject to an ini-
tial sales charge, (3) Class B shares bear ongoing distribution fees, are sub-
ject to a contingent deferred sales charge upon certain redemptions and will
automatically convert to Class A shares approximately six years after issuance,
(4) Class D shares are subject to neither an initial nor a contingent deferred
sales charge, bear ongoing distribution fees and do not convert into another
Class and (5) each Class may bear differing amounts of certain Class-specific
expenses. Neither Trust's board of trustees anticipates that there will be any
conflicts among the interests of the holders of each Class of Fund shares. On
an ongoing basis, each board of trustees will consider whether any such con-
flict exists and, if so, take appropriate action.

The Trusts do not hold annual shareholder meetings. There normally will be no
meetings of shareholders to elect trustees unless fewer than a majority of the
trustees holding office have been elected by shareholders. Shareholders of rec-
ord holding at least two-thirds of the outstanding shares of a Trust may remove
a trustee by votes cast in person or by proxy at a meeting called for that pur-
pose. The trustees of a Trust are required to call a meeting of shareholders
for the purpose of voting upon the question of removal of any trustee when so
requested in writing by the shareholders of record holding at least 10% of the
Trust's outstanding shares. Each share of each Fund has equal voting rights,
except as noted above. Each share of each Fund is entitled to participate
equally in dividends and other distributions and the proceeds of any liquida-
tion, except that, due to the differing expenses borne by the three Classes of
shares, such dividends are likely to be lower for the Class B and Class D
shares than for the Class A shares and are likely to be lower for the Class B
shares than for the Class D shares. The shares of each series of a Trust will
be voted separately except when an aggregate vote of all series is required by
the 1940 Act.

To avoid additional operating costs and for investor convenience, the Funds
do not issue share certificates. Ownership of shares of each Fund is recorded
on a stock register by the Transfer Agent and shareholders have the same rights
of ownership with respect to such shares as if certificates had been issued.

CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, 1776 Heri-
tage Drive, North Quincy, Massachusetts 02171 is custodian of each Fund's as-
sets. PFPC Inc., a subsidiary of PNC Bank, National Association, whose princi-
pal business address is 400 Bellevue Parkway, Wilmington, Delaware 19809, is
the Funds' transfer and dividend disbursing agent.

CONFIRMATIONS AND STATEMENTS. Shareholders receive confirmations of purchases
and redemptions of shares of the Funds. PaineWebber clients receive statements
at least quarterly that report their Fund activity and consolidated year-end
statements that show all Fund transactions for that year. Shareholders who are
not PaineWebber clients receive quarterly statements from the Transfer Agent.
Shareholders also receive audited annual and unaudited semi-annual financial
statements of the Funds.

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<PAGE>

APPENDIX A

Each Fund may invest in a variety of municipal securities, as described be-
low:

MUNICIPAL BONDS. Municipal bonds are debt obligations issued to obtain funds
for various public purposes that pay interest that is exempt from federal in-
come tax in the opinion of issuer's counsel. The two principal classifications
of municipal bonds are "general obligation" and "revenue" bonds. General obli-
gation bonds are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue bonds are pay-
able only from the revenues derived from a particular facility or class of fa-
cilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as from the user of the facility being financed.
The term "municipal bonds" also includes "moral obligation" issues, which are
normally issued by special purpose authorities. In the case of such issues, an
express or implied "moral obligation" of a related government unit is pledged
to the payment of the debt service, but is usually subject to annual budget ap-
propriations. The term "municipal bonds" also includes municipal lease obliga-
tions, such as leases, installment purchase contracts and conditional sales
contracts, and certificates of participation therein. Municipal lease obliga-
tions are issued by state and local governments and authorities to purchase
land or various types of equipment or facilities and may be subject to annual
budget appropriations. The Funds generally invest in municipal lease obliga-
tions through certificates of participation. The Funds do not presently intend
to purchase municipal lease obligations that are not rated by Moody's or S&P.

INDUSTRIAL DEVELOPMENT BONDS AND PRIVATE ACTIVITY BONDS. IDBs and PABs are
issued by or on behalf of public authorities to finance various privately oper-
ated facilities, such as airport or pollution control facilities. These obliga-
tions are included within the term "municipal bonds" if the interest paid
thereon is exempt from federal income tax in the opinion of the bond issuer's
counsel. IDBs and PABs are in most cases revenue bonds and thus are not payable
from the unrestricted revenues of the issuer. The credit quality of IDBs and
PABs is usually directly related to the credit standing of the user of the fa-
cilities being financed. IDBs issued after August 15, 1986 generally are con-
sidered PABs, and to the extent a Fund invests in such PABs, shareholders gen-
erally will be required to include a portion of their exempt-interest dividends
from that Fund in calculating their liability for the AMT. See "Dividends and
Taxes." Each Fund is authorized to invest more than 25% of its net assets in
IDBs and PABs.

FLOATING RATE AND VARIABLE RATE OBLIGATIONS. Floating rate and variable rate
obliga tions bear interest at rates that are not fixed, but that vary with
changes in specified market rates or indices. Accordingly, as interest rates
decrease or increase, the potential for capital appreciation or capital depre-
ciation is less than for fixed rate obligations. Floating rate or variable rate
obligations typically permit the holder to demand payment of principal from the
issuer or remarketing agent at par value prior to maturity and may permit the
issuer to prepay principal, plus accrued interest, at its discretion after a
specified notice period. Frequently, floating rate or variable rate obligations
and/or the demand features thereon are secured by letters of credit or other
credit support arrangements provided by banks, the credit standing of which af-
fects the credit quality of the obligations.

PARTICIPATION INTERESTS. Participation interests are interests in municipal
bonds, including IDBs and PABs, and floating and variable rate obligations that
are owned by banks. These interests carry a demand feature permit-

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<PAGE>

ting the holder to tender them back to the bank, which demand feature generally
is backed by an irrevocable letter of credit or guarantee of the bank. The
credit standing of such bank affects the credit quality of the participation
interests.

TENDER OPTION BONDS. Tender option bonds are long-term municipal securities
sold by a bank subject to a "tender option" that gives the purchaser the right
to tender them to the bank at par plus accrued interest at designated times
(the "tender option"). The tender option may be exercisable at intervals rang-
ing from bi-weekly to semi-annually, and the interest rate on the bonds is typ-
ically reset at the end of the applicable interval in an attempt to cause the
bonds to have a market value that approximates their par value. The tender op-
tion generally would not be exercisable in the event of a default on, or sig-
nificant downgrading of, the underlying municipal securities. Therefore, a
Fund's ability to exercise the tender option will be affected by the credit
standing of both the bank involved and the issuer of the underlying securities.

PUT BONDS. A put bond is a municipal bond which gives the holder the uncondi-
tional right to sell the bond back to the issuer or a remarketing agent at a
specified price and exercise date, which is typically well in advance of the
bond's maturity date. The obligation to purchase the bond on the exercise date
may be supported by a letter of credit or other credit support arrangement from
a bank, insurance company or other financial institution, the credit standing
of which affects the credit quality of the obligation.

TAX-EXEMPT COMMERCIAL PAPER AND SHORT-TERM MUNICIPAL NOTES. Tax-exempt com-
mercial paper and short-term municipal notes include tax anticipation notes,
bond anticipation notes, revenue anticipation notes and other forms of short-
term loans. Such notes are issued with a short-term maturity in anticipation of
the receipt of tax funds, the proceeds of bond placements and other revenues.

INVERSE FLOATERS

Each Fund may invest in municipal obligations on which the rate of interest
varies inversely with interest rates on other municipal obligations or an in-
dex. Such obligations include components of securities on which interest is
paid in two separate parts--an auction component, which pays interest at a mar-
ket rate that is set periodically through an auction process or other method,
and a residual component, or "inverse floater," which pays interest at a rate
equal to the difference between the rate that the issuer would have paid on a
fixed-rate obligation at the time of issuance and the rate paid on the auction
component. The market value of an inverse floater will be more volatile than
that of a fixed-rate obligation and, like most debt obligations, will vary in-
versely with changes in interest rates.

Because the interest rate paid to holders of inverse floaters is generally
determined by subtracting the interest rate paid to the holders of auction com-
ponents from a fixed amount, the interest rate paid to holders of inverse
floaters will decrease as market rates increase and increase as market rates
decrease. Moreover, the extent of the increases and decreases in the market
value of inverse floaters may be larger than comparable changes in the market
value of an equal principal amount of a fixed rate municipal obligation having
similar credit quality redemption provisions and maturity. In a declining in-
terest rate environment, inverse floaters can provide a Fund with a means of
increasing or maintaining the level of tax-exempt interest paid to sharehold-
ers. However, because of the market volatility associated with inverse float-
ers, no Fund will invest more than 10% of its total assets in inverse floaters.

37
<PAGE>

APPENDIX B

Municipal bonds are rated by Moody's and S&P. Moody's and S&P also publish
separate ratings for municipal notes and tax-exempt commercial paper. Descrip-
tions of these ratings are set forth below.

DESCRIPTION OF MOODY'S MUNICIPAL BOND RATINGS:

Aaa. Bonds which are rated Aaa are judged to be of the best quality and carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be visu-
alized are most unlikely to impair the fundamentally strong position of such
issues.

Aa. Bonds which are rated Aa are judged to be of high quality by all stan-
dards. They are rated lower than the Aaa bonds because margins of protection
may not be as large as in Aaa securities, fluctuation of protective elements
may be of greater amplitude, or there may be other elements present which made
the long-term risks appear somewhat larger than in Aaa securities.

A. Bonds which are rated A are judged to be upper medium grade obligations.
Security for principal and interest are considered adequate, but elements may
be present which suggest susceptibility to impairment sometime in the future.

Baa. Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position charac-
terizes bonds in this class.

B. Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca. Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcom-
ings.

C. Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

DESCRIPTION OF S&P'S MUNICIPAL BOND RATINGS:

AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA. Debt rated AA has a very strong capacity to pay interest and repay prin-
cipal and differs from the highest rated issues only in small degree. The AA
rating may be modified by the addition of a plus or minus sign to show relative
standing within the AA rating category.

A. Debt rated A is regarded as safe. This rating differs from the two higher
ratings be-

38
<PAGE>

cause with respect to general obligation bonds, there is some weakness which,
under certain adverse circumstances, might impair the ability of the issuer to
meet debt obligations at some future date. With respect to revenue bonds, debt
service coverage is good but not exceptional and stability of pledged revenues
could show some variations because of increased competition or economic influ-
ences on revenues.

BBB. Bonds rated BBB are regarded as having adequate capacity to pay princi-
pal and interest. Whereas they normally exhibit protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay principal and interest for bonds in this category than
for bonds in the A category.

BB, B, CCC, CC. Debt rated BB, B, CCC, or CC is regarded, on balance, as pre-
dominantly speculative with respect to capacity to pay interest and repay prin-
cipal in accordance with the terms of the obligation. BB indicates the lowest
degree of speculation and CC the highest degree of speculation. While such debt
will likely have some quality and protective characteristics, these are out-
weighed by large uncertainties or major risk exposures to adverse conditions.

C. This rating is reserved for income bonds on which no interest is being
paid.

D. Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.

DESCRIPTION OF MOODY'S RATINGS OF STATE AND MUNICIPAL NOTES AND OTHER SHORT-
TERM LOANS:

Moody's ratings for state and municipal notes and other short-term loans are
designated "Moody's Investment Grade" ("MIG" or, for variable or floating rate
obligations, "VMIG"). Such ratings recognize the differences between short-term
credit risk and long-term risk. Factors affecting the liquidity of the borrower
and short-term cyclical elements are critical in short-term ratings. Symbols
used will be as follows:

MIG-1/VMIG-1. This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.

MIG-2/VMIG-2. This designation denotes high quality. Margins of protec-
tion are ample although not so large as in the preceding group.

MIG-3/VMIG-3. This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.

MIG-4/VMIG-4. This designation denotes adequate quality. Protection com-
monly regarded as required of an investment security is present and al-
though not distinctly or predominantly speculative, there is specific risk.

DESCRIPTION OF S&P'S RATINGS OF STATE AND MUNICIPAL NOTES AND OTHER SHORT-TERM
LOANS:

Standard & Poor's tax-exempt note ratings are generally given to such notes
that mature in three years or less. The three rating categories are as follows:

SP-1. Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.

SP-2. Satisfactory capacity to pay principal and interest.

39
<PAGE>

SP-3. Speculative capacity to pay principal and interest.

DESCRIPTION OF COMMERCIAL PAPER RATINGS

Commercial paper rated Prime-1 by Moody's are judged by Moody's to be of the
best quality. Their short-term debt obligations carry the smallest degree of
investment risk. Margins of support for current indebtedness are large or sta-
ble with cash flow and asset protection well assured. Current liquidity pro-
vides ample coverage of near-term liabilities and unused alternative financing
arrangements are generally available. While protective elements may change over
the intermediate or longer term, such changes are most unlikely to impair the
fundamentally strong position of short-term obligations.

Commercial paper rated A by S&P have the following characteristics. Liquidity
ratios are better than industry average. Long-term debt rating is A or better.
The issuer has access to at least two additional channels of borrowing. Basic
earnings and cash flow are in an upward trend. Typically, the issuer is a
strong company in a well-established industry and has superior management. Is-
suers rated A are further refined by use of numbers 1, 2, and 3 to denote rela-
tive strength within this highest classification. Those issues rated A-1 that
are determined by S&P to possess overwhelming safety characteristics are de-
noted with a plus (+) sign designation.

40
<PAGE>

Application Form

THE PAINEWEBBER [_][_]-[_][_][_][_][_]-[_][_]
MUTUAL FUNDS PaineWebber Account No.
- -------------------------------------------------------------------------------
INSTRUCTIONS DO NOT USE THIS FORM IF YOU WOULD LIKE YOUR ACCOUNT SERVICED
THROUGH PAINEWEBBER. INSTEAD, CALL YOUR PAINEWEBBER INVESTMENT
EXECUTIVE (OR YOUR LOCAL PAINEWEBBER OFFICE TO OPEN AN ACCOUNT).

FOR ASSISTANCE IN COMPLETING THIS FORM Return this completed
CONTACT PFPC INC. AT 1-800-647-1568. form to: PFPC Inc.
P.O. Box 8950
Wilmington, Delaware
19899 ATTN:
PaineWebber Mutual
Funds

PLEASE PRINT
- -------------------------------------------------------------------------------

[1] INITIAL INVESTMENT ($1,000 MINIMUM)

ENCLOSED IS A CHECK FOR:

$______ (payable to PaineWebber California Tax-Free Income
Fund) to purchase Class A [_] Class B [_] or Class D [_]
shares

$______ (payable to PaineWebber National Tax-Free Income
Fund) to purchase Class A [_] Class B [_] or Class D [_]
shares

$______ (payable to PaineWebber Municipal High Income Fund)
to purchase Class A [_] Class B [_] or Class D [_] shares

$______ (payable to PaineWebber New York Tax-Free Income
Fund) to purchase Class A [_] Class B [_] or Class D [_]
shares

(Check one Class; if no Class is specified Class A shares
will be purchased)

A separate check is required for your investment in each
Fund.

[2] ACCOUNT REGISTRATION

Not valid 1. Individual / /
without ------------ ---------------- ---------------
signature and First Name Last Name MI Soc. Sec. No.
Soc. Sec. or
Tax ID #
- --As joint
tenants, use 2. Joint Tenancy / /
Lines 1 and 2 ---------- --------------- ---------------
- --As custodian First Name Last Name MI Soc. Sec. No.
for a minor, ("Joint Tenants with Rights of Survivorship"
use Lines 1 unless otherwise specified)
and 3
- --In the name
of a 3. Gifts to Minors / /
corporation, ------------------------ --------------
trust or other Minor's Name Soc. Sec. No.
organization
or any fiduciary
capacity, use
Line 4
Under the _________________________ Uniform Gifts to
State of Residence of Minor Minors Act/
/Uniform
Transfers
to Minors
Act
4. Other Registrations
------------------------ --------------
Name Tax Ident.No.

5. If Trust, Date of Trust Instrument:
-----------------------

[3] ADDRESS

----------------------------- U.S. Citizen [_] YES [_] NO*
Street

----------------------------- --------------------------
City State Zip Code *Country of Citizenship

[4] DISTRIBUTION OPTIONS See Prospectus

Please select one of the following:

[_] Reinvest both dividends and capital gain distributions
in additional shares

[_] Pay dividends to my address above; reinvest capital
gain distributions

[_] Pay both dividends and capital gain distributions in
cash to my address above

[_] Reinvest dividends and pay capital gain distributions
in cash to my address above
NOTE: If a selection is not made, both dividends and
capital gain distributions will be paid in additional
shares of the same Class.
<PAGE>

[5] SPECIAL OPTIONS (For More Information--Check Appropriate Box)

[_] Automatic Investment Plan
[_] Systematic Withdrawal Plan

[6] RIGHTS OF ACCUMULATION--CLASS A SHARES See Prospectus

Indicate here any other account(s) in the group of funds that
would qualify for the cumulative quantity discount as outlined
in the Prospectus.

----------------------- ------------ -----------------------
Fund Name Account No. Registered Owner

[7] PLEASE INDICATE BELOW IF YOU ARE AFFILIATED WITH PAINEWEBBER

"Affiliated" persons are defined as officers,
directors/trustees and employees of the PaineWebber funds,
PaineWebber or its affiliates, and their parents, spouses and
children.

--------------------------------------------------
Nature of Relationship

[8] SIGNATURE(S) AND TAX CERTIFICATION(S)

I warrant that I have full authority and am of legal age to
purchase shares of the Fund(s) specified and have received and
read a current Prospectus of the Fund(s) and agree to its terms.
The Fund(s) and their Transfer Agent will not be liable for
acting upon instructions or inquiries believed genuine. Under
penalties of perjury, I certify that (1) my taxpayer
identification number provided in this application is correct
and (2) I am not subject to backup withholding because (i) I
have not been notified that I am subject to backup withholding
as a result of failure to report interest or dividends or (ii)
the IRS has notified me that I am no longer subject to backup
withholding (strike out clause (2) if incorrect).

------------------------ ------------------------ --------
Individual (or Custodian) Joint Registrant (if any) Date

------------------------ ------------------------ --------
Corporate Officer, Title Date
Partner, Trustee, etc.

[9] INVESTMENT EXECUTIVE IDENTIFICATION (To Be Completed By In-
vestment Executive Only)

---------------------------- ----------------------------
Broker No./Name Branch Wire Code
( )
---------------------------- ----------------------------
Branch Address Telephone

[10] CORRESPONDENT FIRM IDENTIFICATION (To Be Completed By Corre-
spondent Firm Only)

---------------------------- ----------------------------
Name Address

----------------------------
MAIL COMPLETED FORM TO YOUR PAINEWEBBER INVESTMENT EXECUTIVE OR
CORRESPONDENT FIRM OR TO: PFPC INC., P.O. BOX 8950, WILMINGTON,
DELAWARE 19899.
<PAGE>

Shares of the Funds can be exchanged for shares of the following other
PaineWebber funds:

PAINEWEBBER INCOME FUNDS
.Global Income Fund
.High Income Fund
.Investment Grade Income Fund
.Short-Term U.S. Government Income Fund
.Short-Term U.S. Government Income Fund for Credit Unions
.Strategic Income Fund
.U.S. Government Income Fund

PAINEWEBBER GROWTH FUNDS
.Atlas Global Growth Fund
.Blue Chip Growth Fund
.Capital Appreciation Fund
.Communications & Technology Growth Fund
.Europe Growth Fund
.Growth Fund
.Regional Financial Growth Fund
.Small Cap Value Fund

PAINEWEBBER GROWTH AND INCOME FUNDS
.Asset Allocation Fund
.Dividend Growth Fund
.Global Energy Fund
.Global Growth and Income Fund
.Utility Income Fund

PAINEWEBBER MONEY MARKET FUND

--------------

A PROSPECTUS CONTAINING MORE COMPLETE INFORMATION FOR ANY OF THE ABOVE FUNDS,
INCLUDING CHARGES AND EXPENSES, CAN BE OBTAINED FROM A PAINEWEBBER INVESTMENT
EXECUTIVE OR CORRESPONDENT FIRM. READ IT CAREFULLY BEFORE INVESTING.

LOGO Recycled Paper

PAINEWEBBER

CALIFORNIA TAX-FREE INCOME FUND
NATIONAL TAX-FREE INCOME FUND
MUNICIPAL HIGH INCOME FUND
NEW YORK TAX-FREE INCOME FUND

--------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................................... 2
Financial Highlights....................................................... 8
Flexible Pricing System.................................................... 16
Investment Objectives and Policies......................................... 17
Purchases.................................................................. 23
Exchanges.................................................................. 26
Redemptions................................................................ 27
Conversion of Class B Shares............................................... 28
Other Services and Information............................................. 28
Dividends and Taxes........................................................ 29
Valuation of Shares........................................................ 31
Management................................................................. 31
Performance Information.................................................... 34
General Information........................................................ 34
Appendix A................................................................. 36
Appendix B................................................................. 38
</TABLE>

PROSPECTUS
JULY 1, 1994