<PAGE>
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------- -----------------------------
12 MONTHS 6 MONTHS
02/29/96 08/31/95 02/28/95 ENDED 02/29/96 ENDED 02/29/96
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $11.02 $10.81 $10.68 8.68% 4.53%
- -------------------------------------------------------------------------
Class B Shares 11.03 10.81 10.69 7.86 4.23
- -------------------------------------------------------------------------
Class C Shares* 11.02 10.80 10.67 8.22 4.36
- -------------------------------------------------------------------------
</TABLE>
Performance Summary Class A Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
----------------------
PERIOD CAPITAL GAINS TOTAL
COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
09/16/85 -
12/31/85 $ 9.57 $ 10.09 $ -- $0.1827 7.41%
- ------------------------------------------------------------------------------
1986 10.09 11.18 -- 0.7883 19.18
- ------------------------------------------------------------------------------
1987 11.18 10.49 -- 0.7564 0.65
- ------------------------------------------------------------------------------
1988 10.49 10.74 -- 0.7908 10.20
- ------------------------------------------------------------------------------
1989 10.74 10.95 -- 0.7384 9.11
- ------------------------------------------------------------------------------
1990 10.95 10.88 0.0340 0.7362 6.68
- ------------------------------------------------------------------------------
1991 10.88 11.29 0.0268 0.7064 10.84
- ------------------------------------------------------------------------------
1992 11.29 11.29 0.1701 0.6504 7.49
- ------------------------------------------------------------------------------
1993 11.29 11.70 0.3052 0.6077 11.96
- ------------------------------------------------------------------------------
1994 11.70 10.09 0.0969 0.5844 (8.07)
- ------------------------------------------------------------------------------
1995 10.09 11.18 -- 0.5713 16.80
- ------------------------------------------------------------------------------
01/01/96 -
02/29/96 11.18 11.02 -- 0.0534 (0.96)
- ------------------------------------------------------------------------------
Total: $0.6330 $7.1664
- ------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 02/29/96: 134.40%
- ------------------------------------------------------------------------------
</TABLE>
Performance Summary Class B Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91 - 12/31/91 $10.95 $11.29 $0.0268 $0.3043 6.20%
- ----------------------------------------------------------------------------
1992 11.29 11.29 0.1701 0.5631 6.67
- ----------------------------------------------------------------------------
1993 11.29 11.70 0.3052 0.5188 11.11
- ----------------------------------------------------------------------------
1994 11.70 10.10 0.0969 0.5029 (8.69)
- ----------------------------------------------------------------------------
1995 10.10 11.19 -- 0.4899 15.91
- ----------------------------------------------------------------------------
01/01/96 - 02/29/96 11.19 11.03 -- 0.0452 (1.03)
- ----------------------------------------------------------------------------
Total: $0.5990 $2.4242
- ----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/29/96: 31.85%
- ----------------------------------------------------------------------------
</TABLE>
Performance Summary Class C Shares*
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/92 - 12/31/92 $11.41 $11.28 $0.1701 $0.2625 2.68%
- ----------------------------------------------------------------------------
1993 11.28 11.69 0.3052 0.5477 11.40
- ----------------------------------------------------------------------------
1994 11.69 10.09 0.0969 0.5295 (8.47)
- ----------------------------------------------------------------------------
1995 10.09 11.17 -- 0.5149 16.09
- ----------------------------------------------------------------------------
01/01/96 - 02/29/96 11.17 11.02 -- 0.0477 (0.92)
- ----------------------------------------------------------------------------
Total: $0.5722 $1.9023
- ----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/29/96: 20.43%
- ----------------------------------------------------------------------------
</TABLE>
/1/ Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable dates, and do not include
sales charges; results for each class would be lower if sales charges were
included.
* Formerly Class D shares
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The investment return and principal value of an
investment in the Fund will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost. Capital gain
distributions, distributions from income from market discount amortization and
gains realized on the sale of Fund shares are taxable.
<PAGE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------- -----------------------------
12 MONTHS 6 MONTHS
02/29/96 08/31/95 02/28/95 ENDED 02/29/96 ENDED 02/29/96
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $11.64 $11.45 $11.26 8.75% 4.19%
- -------------------------------------------------------------------------
Class B Shares 11.64 11.45 11.26 7.94 3.80
- -------------------------------------------------------------------------
Class C Shares* 11.64 11.45 11.26 8.19 3.93
- -------------------------------------------------------------------------
</TABLE>
Performance Summary Class A Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
12/03/84 - 12/31/84 $ 9.57 $ 9.60 -- $ -- 0.31%
$
- -----------------------------------------------------------------------------
1985 9.60 10.45 -- 0.8903 19.00
- -----------------------------------------------------------------------------
1986 10.45 11.39 -- 0.8246 17.38
- -----------------------------------------------------------------------------
1987 11.39 10.74 -- 0.7823 1.30
- -----------------------------------------------------------------------------
1988 10.74 11.06 -- 0.8244 10.98
- -----------------------------------------------------------------------------
1989 11.06 11.23 -- 0.8041 9.11
- -----------------------------------------------------------------------------
1990 11.23 11.15 -- 0.7843 6.55
- -----------------------------------------------------------------------------
1991 11.15 11.56 0.0365 0.7519 11.12
- -----------------------------------------------------------------------------
1992 11.56 11.62 0.1314 0.7043 8.01
- -----------------------------------------------------------------------------
1993 11.62 12.25 0.1208 0.6507 12.32
- -----------------------------------------------------------------------------
1994 12.25 10.75 0.0135 0.6264 (7.14)
- -----------------------------------------------------------------------------
1995 10.75 11.84 -- 0.5954 16.01
- -----------------------------------------------------------------------------
01/01/96 - 02/29/96 11.84 11.64 -- 0.0716 (1.09)
- -----------------------------------------------------------------------------
Total: $0.3022 $8.3136
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/29/96: 163.04%
- -----------------------------------------------------------------------------
</TABLE>
Performance Summary Class B Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91 - 12/31/91 $11.19 $11.55 $0.0365 $0.3222 6.50%
- -----------------------------------------------------------------------------
1992 11.55 11.62 0.1314 0.6139 7.27
- -----------------------------------------------------------------------------
1993 11.62 12.25 0.1208 0.5599 11.49
- -----------------------------------------------------------------------------
1994 12.25 10.75 0.0135 0.5406 (7.84)
- -----------------------------------------------------------------------------
1995 10.75 11.83 -- 0.5094 15.05
- -----------------------------------------------------------------------------
01/01/96 - 02/29/96 11.83 11.64 -- 0.0604 (1.19)
- -----------------------------------------------------------------------------
Total: $0.3022 $2.6064
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/29/96: 33.57%
- -----------------------------------------------------------------------------
</TABLE>
Performance Summary Class C Shares*
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/92 - 12/31/92 $11.71 $11.62 $0.1314 $0.2766 2.78%
- -----------------------------------------------------------------------------
1993 11.62 12.25 0.1208 0.5904 11.77
- -----------------------------------------------------------------------------
1994 12.25 10.75 0.0135 0.5696 (7.60)
- -----------------------------------------------------------------------------
1995 10.75 11.84 -- 0.5369 15.42
- -----------------------------------------------------------------------------
01/01/96 - 02/29/96 11.84 11.64 -- 0.0639 (1.16)
- -----------------------------------------------------------------------------
Total: $0.2657 $2.0374
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/29/96: 21.09%
- -----------------------------------------------------------------------------
</TABLE>
/1Figures/assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable dates, and do not include
sales charges; results for each class would be lower if sales charges were
included.
*Formerly Class D shares
Note: The Fund currently offers Class Y shares primarily to INSIGHT
participants. Since inception, November 3, 1995 through February 29,
1996, Class Y shares have a total return of 1.70%. Class Y shares do not
have initial or contingent deferred sales charges or ongoing distribution
and service fees.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The investment return and principal value of an
investment in the Fund will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost. Capital gain
distributions, distributions from income from market discount amortization and
gains realized on the sale of Fund shares are taxable.
2
<PAGE>
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
--------------------------------- -----------------------------
12 MONTHS 6 MONTHS
02/29/96 08/31/95 02/28/95 ENDED 02/29/96 ENDED 02/29/96
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $10.29 $10.16 $9.92 10.18% 4.35%
- -------------------------------------------------------------------------------
Class B Shares 10.29 10.16 9.92 9.36 3.95
- -------------------------------------------------------------------------------
Class C
Shares* 10.29 10.16 9.92 9.64 4.08
- -------------------------------------------------------------------------------
Performance Summary Class A Shares
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
06/23/87 -
12/31/87 $ 9.58 $ 9.40 -- $0.3131 1.46%
$
- -------------------------------------------------------------------------------
1988 9.40 9.90 -- 0.8091 14.45
- -------------------------------------------------------------------------------
1989 9.90 10.09 -- 0.7380 9.66
- -------------------------------------------------------------------------------
1990 10.09 9.89 -- 0.7322 5.52
- -------------------------------------------------------------------------------
1991 9.89 10.38 0.0679 0.7144 13.32
- -------------------------------------------------------------------------------
1992 10.38 10.54 0.1406 0.6736 9.79
- -------------------------------------------------------------------------------
1993 10.54 10.97 0.2037 0.6180 12.14
- -------------------------------------------------------------------------------
1994 10.97 9.52 0.0260 0.5865 (7.77)
- -------------------------------------------------------------------------------
1995 9.52 10.36 -- 0.6079 15.55
- -------------------------------------------------------------------------------
01/01/96 -
02/29/96 10.36 10.29 -- 0.0605 (0.10)
- -------------------------------------------------------------------------------
Total: $0.4382 $5.8533
- -------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/29/96: 99.59%
- -------------------------------------------------------------------------------
Performance Summary Class B Shares
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91 -
12/31/91 $10.05 $10.38 $0.0679 $0.3170 7.21%
- -------------------------------------------------------------------------------
1992 10.38 10.54 0.1406 0.5930 8.95
- -------------------------------------------------------------------------------
1993 10.54 10.97 0.2037 0.5349 11.30
- -------------------------------------------------------------------------------
1994 10.97 9.52 0.0260 0.5103 (8.47)
- -------------------------------------------------------------------------------
1995 9.52 10.35 -- 0.5328 14.59
- -------------------------------------------------------------------------------
01/01/96 -
02/29/96 10.35 10.29 -- 0.0524 (0.08)
- -------------------------------------------------------------------------------
Total: $0.4382 $2.5404
- -------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/29/96: 36.25%
- -------------------------------------------------------------------------------
Performance Summary Class C Shares*
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/92 -
12/31/92 $10.50 $10.54 $0.0135 $0.2635 3.06%
- -------------------------------------------------------------------------------
1993 10.54 10.97 0.2037 0.5620 11.57
- -------------------------------------------------------------------------------
1994 10.97 9.52 0.0260 0.5339 (8.23)
- -------------------------------------------------------------------------------
1995 9.52 10.35 -- 0.5583 14.88
- -------------------------------------------------------------------------------
01/01/96 -
02/29/96 10.35 10.29 -- 0.0550 (0.05)
- -------------------------------------------------------------------------------
Total: $0.2432 $1.9727
- -------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/29/96: 21.16%
- -------------------------------------------------------------------------------
</TABLE>
/1Figures/assume reinvestment of all dividends and capital gains distributions
at net asset value on the payable dates, and do not include sales charges;
results for each class would be lower if sales charges were included.
* Formerly Class D shares
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The investment return and principal value of an
investment in the Fund will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost. Capital gain
distributions, distributions from income from market discount amortization and
gains realized on the sale of Fund shares are taxable.
3
<PAGE>
PAINEWEBBER NEW YORK TAX-FREE INCOME FUND
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------- -----------------------------
12 MONTHS 6 MONTHS
02/29/96 08/31/95 02/28/95 ENDED 02/29/96 ENDED 02/29/96
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $10.71 $10.45 $10.27 9.83% 5.16%
- -------------------------------------------------------------------------
Class B Shares 10.71 10.45 10.27 9.01 4.75
- -------------------------------------------------------------------------
Class C Shares* 10.71 10.46 10.28 9.17 4.79
- -------------------------------------------------------------------------
</TABLE>
Performance Summary Class A Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
09/23/88 - 12/31/88 $9.60 $9.61 -- $0.1630 1.82%
$
- -----------------------------------------------------------------------------
1989 9.61 9.84 -- 0.6931 9.90
- -----------------------------------------------------------------------------
1990 9.84 9.68 -- 0.6797 5.02
- -----------------------------------------------------------------------------
1991 9.68 10.22 -- 0.6637 12.31
- -----------------------------------------------------------------------------
1992 10.22 10.55 -- 0.6442 9.85
- -----------------------------------------------------------------------------
1993 10.55 11.26 0.0253 0.5796 12.72
- -----------------------------------------------------------------------------
1994 11.26 9.68 0.1017 0.5095 (8.48)
- -----------------------------------------------------------------------------
1995 9.68 10.81 -- 0.5397 17.57
- -----------------------------------------------------------------------------
01/01/96- 02/29/96 10.81 10.71 -- 0.0549 (0.42)
- -----------------------------------------------------------------------------
Total: $0.1270 $4.5274
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/29/96: 76.80%
- -----------------------------------------------------------------------------
</TABLE>
Performance Summary Class B Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91 - 12/31/91 $ 9.81 $10.22 -- $0.2930 7.25%
$
- -----------------------------------------------------------------------------
1992 10.22 10.55 -- 0.5654 8.91
- -----------------------------------------------------------------------------
1993 10.55 11.25 0.0253 0.4959 11.78
- -----------------------------------------------------------------------------
1994 11.25 9.68 0.1017 0.4362 (9.08)
- -----------------------------------------------------------------------------
1995 9.68 10.81 -- 0.4616 16.71
- -----------------------------------------------------------------------------
01/01/96 - 02/29/96 10.81 10.71 -- 0.0465 (0.50)
- -----------------------------------------------------------------------------
Total: $0.1270 $2.2986
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/29/96: 37.99%
- -----------------------------------------------------------------------------
</TABLE>
Performance Summary Class C Shares*
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/92 - 12/31/92 $10.45 $10.56 -- $0.2663 3.65%
$
- -----------------------------------------------------------------------------
1993 10.56 11.26 0.0253 0.5226 12.04
- -----------------------------------------------------------------------------
1994 11.26 9.69 0.1017 0.4613 (8.81)
- -----------------------------------------------------------------------------
1995 9.69 10.81 -- 0.4875 16.87
- -----------------------------------------------------------------------------
01/01/96 - 02/29/96 10.81 10.71 -- 0.0494 (0.47)
- -----------------------------------------------------------------------------
Total: $0.1270 $1.7871
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/29/96: 23.17%
- -----------------------------------------------------------------------------
</TABLE>
/1/Figures assume reinvestment of all dividends and capital gains distributions
at net asset value on the payable dates, and do not include sales charges;
results would be lower for each class if sales charges were included.
*Formerly Class D shares
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The investment return and principal value of an
investment in the Fund will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost. Capital gain
distributions, distributions from income from market discount amortization and
gains realized on the sale of Fund shares are taxable.
4
<PAGE>
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS FEBRUARY 29, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------------- ------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES - 97.54%
$ 9,000 California General
Obligation Bonds....... 10/01/15 to 10/01/18 5.250% $ 8,526,780
10,000 California Department of
Water Resources
Revenue Bonds.......... 12/01/25 4.750 8,801,000
5,000 California Educational
Facilities Authority
California Institute of
Technology............. 01/01/21 6.000 5,100,500
3,000 California Educational
Facilities Authority
Carnegie Institute of
Washington............. 10/01/23 5.600 2,913,720
2,000 California Educational
Facilities Authority
Claremont College...... 05/01/22 6.375 2,067,240
3,500 California Educational
Facilities Authority
Pepperdine University
(MBIA Insured)......... 06/01/19 5.500 3,427,760
1,140 California Educational
Facilities Authority
St Mary's College Of
California (Pre-
refunded with U.S.
Government Securities
to 10/01/00 @ 102)..... 10/01/20 7.500 1,316,392
6,000 California Educational
Facilities Authority
Stanford University.... 01/01/13 to 11/01/16 6.000 to 6.750 6,324,090
8,500 California Educational
Facilities Authority
University of Southern
California............. 10/01/15 5.800 to 7.200 8,765,920
7,000 California Health
Facilities Financing
Authority
Kaiser Permanente
Hospital............... 10/01/18 to 10/01/19 6.750 to 7.000 7,585,000
4,000 California Health
Facilities Financing
Authority Marin General
Hospital (FSA Insured). 08/01/14 5.500 3,909,280
540 California Health
Facilities Financing
Authority O'Connor
Hospital (Pre-refunded
with U.S. Government
Securities to 03/01/96
@ 102)................. 03/01/15 9.250 550,973
1,500 California Pollution
Control Financing
Authority Southern
California Edison*..... 02/28/08 3.500 1,500,000
3,500 California State
Department of
Transportation......... 03/01/16 6.500 3,684,590
15 University of California
Faculty Mortgage....... 01/01/18 9.200 15,513
1,390 Beverly Hills
Certificates of
Participation.......... 06/01/15 to 06/01/19 6.750 to 7.000 1,491,282
1,505 Big Bear Lake Water
Revenue Bonds (FGIC
Insured)............... 04/01/22 6.375 1,605,128
1,350 Contra Costa County
Transportation
Commission Sales Tax
Revenue Bonds.......... 03/01/07 6.875 1,439,667
6,175 Contra Costa Water
District (AMBAC
Insured)............... 10/01/22 6.375 6,605,953
1,235 East Bay Municipal
Utility District (AMBAC
Insured)............... 06/01/21 6.375 1,390,412
5,390 Fresno California Sewer
Revenue Bonds.......... 09/01/23 5.000 4,988,607
1,000 Intermodal Container
Transfer Facilities
Southern Pacific
Transfer Company....... 11/01/14 7.700 1,070,400
3,000 Kings River Conservation
District
Pine Flat Power........ 01/01/12 6.375 3,172,170
3,555 Long Beach Water Revenue
Bonds.................. 05/01/19 6.125 3,737,336
5,000 Los Angeles Department
of Water & Power....... 01/15/31 7.100 5,679,200
1,500 Los Angeles Department
of Water & Power
(Crossover refunded to
02/15/99 @ 102)........ 02/15/19 7.200 1,647,030
4,595 Los Angeles Harbor
Department Revenue
Bonds.................. 08/01/20 6.400 4,892,848
990 Los Angeles Harbor
Department Revenue
Bonds
(Pre-refunded with U.S.
Government Securities
to 09/01/99 @ 100)..... 09/01/15 8.700 1,075,397
13,900 Los Angeles Metropolitan
Transportation
Authority Sales Tax
Revenue (AMBAC
Insured)............... 07/01/17 to 07/01/25 5.000 to 5.500 13,380,782
</TABLE>
5
<PAGE>
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------------- ------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES - (CONCLUDED)
$ 5,000 M-S-R Public Power
Agency of California... 07/01/19 6.875% $ 5,204,450
790 Marin County Housing
Authority (FNMA
Insured)............... 09/01/07 9.200 816,457
7,640 Metropolitan Water
District of Southern
California............. 03/01/20 to 07/01/21 4.750 to 5.550 7,308,576
1,600 Newport Beach Health
Facilities
Hoag Memorial
Hospital*.............. 10/01/22 3.350 1,600,000
5,000 Oakland General
Obligation Bonds (FGIC
Insured)............... 06/15/22 6.000 5,187,800
860 Orange County Mortgage
Revenue Bonds (GNMA
Insured)............... 09/01/16 7.800 891,682
1,500 Pasadena Certificate of
Participation
Convention Center...... 01/01/13 5.750 1,490,280
1,000 Riverside County
Certificate of
Participation.......... 12/01/15 7.875 1,046,560
2,000 Riverside Electric
Revenue Bonds.......... 10/01/15 6.000 2,033,020
6,000 Sacramento County
Sanitation District
Financing Authority
Revenue Bonds.......... 12/01/13 to 12/01/15 5.000 to 5.125 5,617,620
7,000 Sacramento Utility
District Electric
Revenue Bonds (MBIA
Insured)............... 11/15/20 to 01/01/24 5.250 to 6.000 6,894,940
1,300 San Diego Industrial
Development Authority
San Diego Gas &
Electric............... 09/01/18 6.400 1,342,978
6,500 San Francisco Airport
Revenue Bonds
(AMBAC Insured)........ 05/01/13 6.500 7,158,710
2,000 San Francisco Sewer
(AMBAC Insured)........ 10/01/11 6.000 2,102,520
2,000 Santa Clara County
Financing Authority
Lease
(AMBAC Insured)........ 11/15/20 6.750 2,252,360
5,085 Santa Monica Malibu
Unified School
District............... 08/01/18 5.500 4,913,229
5,000 Santa Monica Parking
Authority.............. 07/01/16 6.375 5,309,600
5,000 Southern California
Public Power Authority. 07/01/20 5.500 4,862,400
5,200 Stockton Health
Facilities Revenue
St Joseph Medical
Center (MBIA Insured).. 06/01/23 5.500 5,056,480
9,000 Puerto Rico Commonwealth
Aqueduct And Sewer
Authority Revenue
Bonds.................. 07/01/15 to 07/01/19 5.000 8,311,650
------------
Total Investments (cost --
$187,354,893)--97.54%............ 196,066,282
Other assets in excess of
liabilities--2.46%................ 4,948,416
------------
Net Assets-100.00%................. $201,014,698
============
</TABLE>
- -------
* Variable rate demand notes which are payable on demand. The maturity dates
shown are the stated maturities; the interest rates shown are the current
rates as of February 29, 1996.
AMBAC--American Municipal Bond Assurance Corporation
FGIC--Financial Guaranty Insurance Company
FNMA--Federal National Mortgage Association
FSA--Financial Security Assurance Incorporated
GNMA--Government National Mortgage Association
MBIA--Municipal Bond Investors Assurance
See accompanying notes to financial statements
6
<PAGE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS FEBRUARY 29, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------------- ------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES - 99.08%
Alabama - 2.84%
$ 4,000 Alabama Special Care
Facilities Financing
Authority.............. 11/01/25 5.000% $ 3,622,280
4,000 Birmingham Warrants
Series A............... 06/01/13 5.700 4,120,280
4,740 Huntsville Warrants
Series A............... 02/01/15 5.750 4,840,346
------------
12,582,906
------------
Arizona - 5.43%
13,000 Arizona Agricultural
Improvement and Power
District
Salt River Project..... 01/01/17 to 01/01/30 4.750 to 5.000 11,716,930
10,510 Maricopa County
Community College
District............... 07/01/07 6.000 11,315,276
1,000 Phoenix City*........... 06/01/20 3.500 1,000,000
------------
24,032,206
------------
California - 7.39%
9,200 California State........ 10/01/13 to 10/01/15 5.250 8,812,382
5,000 California State (FGIC
Insured)............... 11/01/12 7.000 5,727,050
15,000 California State
Department of Water
Resources
Central Valley Project. 12/01/25 4.750 13,201,500
2,790 Sacramento County
Sanitation District
Financing Authority
Revenue................ 12/01/15 5.000 2,603,851
2,640 Southern California
Metropolitan Water
District
(MBIA Insured)......... 07/01/21 4.750 2,360,926
------------
32,705,709
------------
Connecticut - 3.83%
16,485 Connecticut State....... 03/15/12 to 03/15/15 5.800 to 6.000 16,972,563
------------
Florida - 5.55%
23,670 Florida State Board of
Education.............. 06/01/20 to 06/01/22 4.750 to 7.000 21,851,698
1,000 Gainesville Utilities
Systems Revenue........ 10/01/15 5.000 941,590
1,750 Marion County Hospital
District
Monroe Regional Medical
Center (FGIC Insured).. 10/01/20 6.000 1,798,650
------------
24,591,938
------------
Georgia - 4.01%
3,000 Georgia Municipal
Electric Authority..... 01/01/20 8.375 3,165,510
5,000 Conyers Water and Sewage
Revenue
(AMBAC Insured)........ 07/01/15 6.600 5,584,050
8,000 Hall County School
District (AMBAC
Insured)............... 12/01/14 6.700 9,021,280
------------
17,770,840
------------
Hawaii - 1.41%
4,515 Hawaii General
Obligation Bonds....... 01/01/15 6.250 4,771,768
500 Hawaii State............ 02/01/08 5.125 504,645
1,000 Honolulu City and County
(MBIA Insured)......... 11/01/15 5.000 943,720
------------
6,220,133
------------
</TABLE>
7
<PAGE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- --------- ------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES - (CONTINUED)
Illinois - 3.68%
$ 4,335 Illinois Development
Finance Authority
Citizens Utilities..... 08/01/20 7.150% $ 4,671,613
1,000 Illinois Health
Facilities Authority
Evangelical Hospital... 04/15/17 6.750 1,048,250
2,675 Illinois Health
Facilities Authority
Sherman Hospital (MBIA
Insured)............... 08/01/21 6.750 2,887,983
500 Chicago Metropolitan
Water Reclamation
District............... 12/01/10 7.000 595,315
1,170 Northern Illinois
University (Pre-
refunded with U.S.
Government Securities
to 04/01/09 @ 100)..... 04/01/13 10.400 1,598,279
4,620 Regional Transportation
Authority (FGIC
Insured)............... 06/01/14 7.100 5,479,505
------------
16,280,945
------------
Indiana - 1.16%
3,000 Indiana Health Facility
Finance Authority
Methodist Hospital of
Indiana................ 09/01/15 5.750 2,924,520
2,000 Purdue University....... 07/01/15 6.700 2,207,640
------------
5,132,160
------------
Kentucky - 1.28%
5,010 Louisville & Jefferson
County (AMBAC Insured). 05/15/16 6.750 5,680,087
------------
Louisiana - 0.34%
1,400 Louisiana Public
Facilities Authority
Tulane University (Pre-
refunded with U.S.
Government Securities
to 08/15/97 @ 102)..... 08/15/15 8.000 1,514,506
------------
Maryland - 1.22%
5,020 Anne Arundel County
Consolidated General
Improvement............ 08/01/14 to 08/01/15 6.300 5,409,301
------------
Massachusetts - 13.33%
20,000 Massachusetts General
Obligation Bonds....... 06/01/13 6.500 21,560,800
3,290 Massachusetts General
Obligation Bonds
(FGIC Insured)......... 11/01/13 to 11/01/14 7.000 3,757,180
4,850 Massachusetts State
Special Obligation
Revenue................ 06/01/14 5.800 4,875,560
17,000 Massachusetts State
Turnpike Authority..... 01/01/20 5.000 15,540,380
1,200 Massachusetts Water
Pollution Abatement
Trust.................. 02/01/14 5.700 1,227,360
5,000 Massachusetts Water
Resources Authority.... 03/01/22 5.000 4,490,900
7,000 Massachusetts Water
Resources Authority
(MBIA Insured)......... 12/01/25 5.000 6,441,750
1,000 Massachusetts Water
Resources Authority
(Pre-refunded with U.S.
Government Securities
to 04/01/00 @ 102)..... 04/01/16 7.500 1,140,840
------------
59,034,770
------------
Michigan - 7.47%
2,830 Michigan Public Power
Agency Revenue......... 01/01/19 5.000 2,588,629
1,000 Michigan State Hospital
Finance Authority
McLaren Regional
Medical Center (Pre-
refunded with U.S.
Government Securities
to 09/15/01 @ 102)..... 09/15/21 7.500 1,173,770
9,250 Detroit Sewage Disposal
Revenue (MBIA Insured). 07/01/25 5.000 8,516,568
</TABLE>
8
<PAGE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------------- ------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES - (CONTINUED)
Michigan - (concluded)
$ 6,500 Lake Orion Community
School District
(AMBAC Insured)........ 05/01/15 5.800% $ 6,639,620
5,695 Lansing Building
Authority.............. 06/01/15 5.800 5,798,136
7,850 Royal Oak Hospital
Finance Authority
William Beaumont
Hospital............... 01/01/19 to 01/01/20 6.625 to 6.750 8,364,869
------------
33,081,592
------------
Minnesota - 1.46%
6,000 Minnesota Public
Facilities Authority
Water Pollution........ 03/01/15 6.250 6,448,440
------------
Nebraska - 1.45%
1,000 Nebraska Public Power
District............... 01/01/22 6.250 1,031,100
2,000 Nebraska Public Power
District (MBIA
Insured)............... 01/01/17 5.000 1,860,320
3,500 Omaha Public Power
District............... 02/01/17 5.700 3,507,105
------------
6,398,525
------------
New Jersey - 4.71%
1,650 New Jersey Highway
Authority
Garden State Parkway... 01/01/19 5.750 1,667,770
14,000 New Jersey State
Turnpike Authority
(MBIA Insured)......... 01/01/16 6.500 15,841,140
3,000 Rutgers The State
University............. 05/01/13 6.400 3,361,530
------------
20,870,440
------------
New Mexico - 3.45%
4,500 Albuquerque Airport..... 07/01/19 6.500 4,558,050
8,000 Farmington Pollution
Control
Southern California
Edison................. 04/01/21 7.200 8,814,960
2,000 Santa Fe Utility Revenue
(AMBAC Insured)........ 06/01/17 5.250 1,925,480
------------
15,298,490
------------
New York - 8.81%
7,300 New York State
Environmental
Facilities Corporation
State Water Pollution
Control................ 06/15/12 to 06/15/14 6.875 to 7.500 8,260,055
4,960 New York City Municipal
Water Finance
Authority.............. 06/15/12 7.100 5,498,904
1,800 New York City*.......... 08/01/17 to 08/01/23 3.350 to 3.500 1,800,000
12,875 Triborough Bridge &
Tunnel Authority....... 01/01/10 to 01/01/17 5.500 to 7.100 13,279,099
10,000 United Nations
Development
Corporation............ 07/01/26 6.000 10,163,300
------------
39,001,358
------------
North Carolina - 2.31%
2,135 North Carolina Eastern
Municipal Power Agency. 01/01/21 7.250 2,214,742
4,000 North Carolina Medical
Care Company
Rex Hospital........... 06/01/17 6.250 4,256,680
1,250 Fayetteville Public
Works Commission
Revenue (AMBAC
Insured)............... 03/01/13 5.250 1,230,675
2,500 Winston Salem Water &
Sewer Systems Revenue.. 06/01/14 5.600 2,535,200
------------
10,237,297
------------
Ohio - 0.24%
1,000 Ohio State
Infrastructure
Improvement............ 08/01/13 6.200 1,080,790
------------
</TABLE>
9
<PAGE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------- --------- ------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES - (CONCLUDED)
Oklahoma - 0.88%
$ 3,500 Grand River Dam Authority
Revenue
(AMBAC Insured)............ 06/01/11 6.250% $ 3,910,935
------------
Oregon - 2.49%
10,400 Portland Sewer Systems
Revenue.................... 06/01/15 6.250 11,012,872
------------
Pennsylvania - 2.13%
5,400 Pennsylvania State Higher
Educational
Facilities Authority
University of Pennsylvania. 09/01/14 5.900 5,598,666
3,700 Bucks County................ 05/01/15 5.950 3,831,831
------------
9,430,497
------------
Puerto Rico - 0.35%
1,500 Puerto Rico Commonwealth
(MBIA Insured)............. 07/01/15 5.650 1,561,065
------------
Texas - 6.94%
5,000 Texas State................. 10/01/15 5.950 5,187,900
2,705 Texas State Public Finance
Authority.................. 10/01/13 6.000 2,836,057
3,000 Texas State Turnpike
Authority (AMBAC Insured).. 01/01/16 5.000 2,816,550
1,500 Dallas Independent School
District................... 08/15/14 5.800 1,539,480
1,240 Fort Worth Water & Sewer
Revenue.................... 02/15/15 5.125 1,181,435
3,955 Grapevine Colleyville
Independent School
District................... 08/15/22 5.125 3,738,899
710 Harris County Toll Road
Authority (AMBAC Insured).. 08/15/17 6.500 783,464
7,750 Houston Water & Sewer
System..................... 12/01/14 6.375 8,215,387
4,000 Texarkana Health Facilities
Development Corporation
Wadley Regional Medical
Center (MBIA Insured)...... 10/01/19 7.000 4,440,200
------------
30,739,372
------------
Utah - 0.51%
2,500 Intermountain Power Agency.. 07/01/21 5.000 2,275,100
------------
Virginia - 2.89%
5,850 Virginia State Public
Facilities Authority....... 06/01/15 6.500 6,663,384
4,995 Fairfax County Public
Improvement................ 06/01/11 5.400 5,046,748
1,000 Hampton Roads Medical
College.................... 11/15/16 6.875 1,082,200
------------
12,792,332
------------
Wisconsin - 1.52%
6,945 Wisconsin State
Transportation Revenue..... 07/01/11 5.000 6,713,454
------------
Total Investments (cost -
$421,018,767)-99.08%................. 438,780,623
Other assets in excess of liabilities-
0.92%................................. 4,081,218
------------
Net Assets-100.00%..................... $442,861,841
============
</TABLE>
- -------
* Variable rate demand notes and variable rate certificates of participation
which are payable on demand. The maturity dates shown are the stated
maturities; the interest rates shown are the current rates as of February 29,
1996.
AMBAC-American Municipal Bond Assurance Corporation
FGIC-Financial Guaranty Insurance Company
MBIA-Municipal Bond Investors Assurance
See accompanying notes to financial statements
10
<PAGE>
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS FEBRUARY 29, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------------- ------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES--97.90%
California--10.49%
$4,000 Adelanto California
Public Financing
Authority Local Agency
Revenue................. 09/01/28 6.300% $ 3,838,640
6,975 Long Beach Aquarium of
The Pacific Project..... 07/01/15 6.125 6,846,520
------------
10,685,160
------------
Colorado--3.37%
3,000 Denver City & County
Airport................. 11/15/25 7.250 3,432,840
------------
Georgia--2.62%
2,500 Effingham County
Development Authority
Fort Howard Paper....... 10/01/05 7.900 2,663,625
------------
Illinois--11.28%
6,000 Illinois Educational
Facilities Authority
Columbia College........ 12/01/17 to 12/01/18 6.125 to 6.875 6,114,090
5,000 Illinois Metropolitan
Pier & Exposition
Authority McCormick
Place Convention........ 07/01/26 7.000 5,374,850
------------
11,488,940
------------
Indiana--7.44%
4,000 Indiana State Development
Finance Authority
Pollution Control
Revenue................. 12/01/12 6.850 4,053,920
1,300 Crawfordsville Economic
Development Authority
Kroger Co............... 11/01/12 7.700 1,400,893
2,000 Indianapolis Airport
Facility
Federal Express......... 04/01/17 6.800 2,127,960
------------
7,582,773
------------
Kentucky--2.40%
1,250 Kenton County Airport
Delta Airlines.......... 02/01/22 7.250 1,345,100
1,000 Russell Health Financing
Authority
Franciscan Sisters of the
Poor Health System...... 07/01/15 8.100 1,098,610
------------
2,443,710
------------
Louisiana--12.02%
8,905 Orleans Levee District... 11/01/14 to 11/01/15 8.250 9,044,007
1,000 Pointe Coupee Parish
Pollution Control
Revenue................. 03/01/13 6.700 1,015,180
2,000 West Feliciana Parish
Pollution Control
Revenue................. 12/01/14 7.700 2,186,320
------------
12,245,507
------------
Massachusetts--1.04%
1,000 Agawam Resource Recovery
Springfield Project..... 12/01/08 8.500 1,058,120
------------
Michigan--3.04%
3,000 Greater Detroit Resource
Recovery Authority...... 12/13/08 9.250 3,099,270
------------
New Hampshire--2.63%
2,500 New Hampshire Industrial
Development Authority
Revenue Central Maine
Power Company........... 05/01/14 7.375 2,675,175
------------
New Jersey--5.57%
5,500 New Jersey Health Care
Facilities Financing
Authority Columbus
Hospital................ 07/01/21 7.500 5,675,340
------------
New Mexico--4.54%
4,440 Chaves County Hospital
Revenue Bonds
Eastern New Mexico
Medical Center.......... 12/01/10 to 12/01/22 7.250 4,624,482
------------
</TABLE>
11
<PAGE>
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------------- ------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES - (CONCLUDED)
New York--8.33%
$4,720 New York Energy Research
And Development
Authority Electric
Facilities Revenue..... 09/01/19 7.150% $ 4,884,350
1,300 New York City*.......... 08/01/16 to 08/01/22 3.300 to 3.500 1,300,000
2,300 New York City Trust
Cultural Resources
Revenue Soloman R
Guggenheim*............ 12/01/15 3.400 2,300,000
------------
8,484,350
------------
Ohio--1.86%
1,150 Butler County Hospital
Facilities
Ft. Hamilton Hughes
Memorial Hospital...... 01/01/10 7.500 1,231,834
600 Meigs County Kroger Co.. 10/01/11 8.375 664,224
------------
1,896,058
------------
Pennsylvania--5.12%
1,500 Beaver County Industrial
Development Authority
Pollution Control
Revenue................ 05/01/20 7.750 1,605,825
1,000 Monroeville Hospital
Authority Revenue
Forbes Health Systems.. 10/01/15 6.250 992,680
2,610 Philadelphia Hospitals
and Higher Education
Facilities Authority--
Jeanes Health Systems.. 07/01/10 6.600 2,618,091
------------
5,216,596
------------
South Carolina--1.78%
1,750 Myrtle Beach
Certificates of
Participation
Convention Center
Project................ 07/01/17 6.875 1,812,003
------------
Texas--4.73%
2,905 Dallas Fort Worth
International Airport
Delta Airlines......... 11/01/13 6.250 2,917,637
1,875 El Paso International
Airport Revenue Bonds
Marriott Hotel......... 03/01/22 7.875 1,896,000
------------
4,813,637
------------
Washington--1.00%
1,000 Port Camas Public
Industrial Corporation
Pollution Control
Revenue................ 04/01/23 6.700 1,018,290
------------
West Virginia--3.47%
1,900 Harrison County
Commercial Development
Bonds
Kroger Co.............. 11/01/14 8.100 2,115,859
1,300 Kanawha County
Commercial Development
Bonds Kroger Co........ 10/01/11 8.000 1,414,621
------------
3,530,480
------------
Wisconsin--5.17%
5,150 Janesville Industrial
Development Revenue
Bonds Simmons
Manufacturing Co.
(Paramount
Communications)........ 10/15/17 7.000 5,266,339
------------
Total Investments (cost--
$96,662,557)--97.90%.............. 99,712,695
Other assets in excess of
liabilities--2.10%................ 2,135,086
------------
Net Assets--100.00%................ $101,847,781
============
</TABLE>
- -------
* Variable rate demand notes and variable rate certificates of participation
which are payable on demand. The maturity dates shown are the stated
maturities; the interest rates shown are the current rates as of February 29,
1996.
See accompanying notes to financial statements
12
<PAGE>
PAINEWEBBER NEW YORK TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS FEBRUARY 29, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------------- -----------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES - 100.47%
$1,705 Metropolitan
Transportation
Authority.............. 07/01/11 to 07/01/17 5.500 to 6.250% $ 1,712,263
700 Metropolitan
Transportation
Authority (MBIA
Insured)............... 01/01/08 6.875 768,194
1,000 New York State Dormitory
Authority Revenue Bonds
City University of New
York................... 07/01/16 5.625 989,760
400 New York State Dormitory
Authority Revenue Bonds
City University of New
York (Pre-refunded to
07/01/96 @ 100)........ 07/01/16 6.500 404,272
450 New York State Dormitory
Authority Revenue Bonds
Colgate University..... 07/01/16 6.000 481,887
3,000 New York State Dormitory
Authority Revenue Bonds
Columbia University.... 07/01/14 to 07/01/15 4.750 to 5.750 2,851,520
1,200 New York State Dormitory
Authority Revenue Bonds
Cornell University..... 07/01/06 to 07/01/30 6.875 to 7.375 1,287,564
40 New York State Dormitory
Authority Revenue Bonds
Fordham University
(AMBAC Insured)........ 07/01/15 7.200 44,803
585 New York State Dormitory
Authority Revenue Bonds
Rockefeller University. 07/01/14 7.375 636,263
1,700 New York State Dormitory
Authority Revenue Bonds
State University of New
York................... 05/15/16 to 05/15/17 6.000 to 7.000 1,764,482
1,600 New York State Dormitory
Authority Revenue Bonds
Union College (FGIC
Insured)............... 07/01/10 5.750 1,654,432
800 New York State Energy
Research & Development
Central Hudson Gas &
Electric (FGIC
Insured)............... 10/01/14 7.375 896,704
2,400 New York State Energy
Research & Development
Consolidated Edison
Company................ 08/15/20 6.100 2,481,168
500 New York State Energy
Research & Development
Niagara Mohawk (FGIC
Insured)............... 10/01/13 6.625 553,210
1,500 New York State
Environmental
Facilities Corporation
Spring Valley Water
(AMBAC Insured)........ 08/01/24 6.150 1,596,075
1,400 New York State
Environmental
Facilities Corporation
State Water Pollution
Control................ 06/15/10 to 06/15/12 7.250 to 7.500 1,575,133
300 New York State Housing
Finance Agency......... 09/15/12 7.300 333,897
3,100 New York State Local
Government Assistance
Corporation............ 04/01/18 to 04/01/20 5.500 to 6.500 3,188,192
580 New York State Medical
Care Facilities
Hospital & Nursing (FHA
Insured)............... 02/15/09 7.500 628,117
1,500 New York State Medical
Care Facilities
Hospital & Nursing
(Huntington Hospital).. 11/01/14 6.500 1,519,980
2,000 New York State Thruway
Authority
Highway & Bridge Trust
Fund................... 04/01/14 6.000 2,085,960
850 New York State Thruway
Authority
Highway & Bridge Trust
Fund (MBIA Insured).... 04/01/15 5.500 842,027
2,100 New York State Thruway
Authority
Thruway Revenue........ 01/01/19 5.750 2,097,165
1,600 Port Authority of New
York & New Jersey...... 08/01/14 5.625 1,593,568
1,250 Triborough Bridge &
Tunnel Authority....... 01/01/12 to 01/01/17 5.500 to 6.000 1,329,495
450 Triborough Bridge &
Tunnel Authority (MBIA
Insured)............... 01/01/17 6.625 491,594
1,500 Battery Park City
Authority.............. 11/01/20 5.700 1,457,325
1,000 Erie County Water
Revenue Authority
(AMBAC Insured)........ 12/01/14 6.750 1,137,390
</TABLE>
13
<PAGE>
PAINEWEBBER NEW YORK TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------------- -----------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES - (CONCLUDED)
$1,500 Hempstead Town
Industrial Development
Agency American Refuel. 12/01/05 7.375 $ 1,554,375
3,050 New York City........... 06/01/05 to 05/15/20 6.000 to 8.250 3,113,904
600 New York City*.......... 08/01/16 to 08/01/22 3.300 to 3.500 600,000
2,000 New York City Industrial
Development Agency
Rockefeller Foundation. 07/01/23 5.375% 1,975,840
3,030 New York City Industrial
Development Bonds
Lighthouse Project..... 07/01/22 6.500 3,149,079
2,545 New York City Municipal
Water Finance
Authority.............. 06/15/12 to 06/15/21 6.250 to 7.100 2,660,094
870 New York City Trust for
Cultural Resources
Museum Of Modern Art
(AMBAC Insured)........ 01/01/12 5.400 874,428
2,200 Niagara Falls (FGIC
Insured)............... 06/15/08 to 06/15/11 5.500 to 5.550 2,261,707
1,250 Oneida Herkimer Waste
Management Authority... 04/01/14 6.750 1,272,125
700 Westchester County...... 11/01/05 to 11/01/07 6.700 819,851
1,100 Puerto Rico Commonwealth
Aqueduct and Sewer
Authority.............. 07/01/15 5.000 1,022,560
2,200 Puerto Rico Electric
Power Authority Power
Revenue................ 07/01/15 to 07/01/21 5.250 to 6.000 2,149,466
785 Puerto Rico Industrial
Medical &
Environmental Authority
Warner Lambert......... 05/01/14 7.600 865,471
-----------
Total Investments (cost - 58,721,340
$55,743,344)--100.47%.............
Liabilities in excess of other (276,357)
assets--(0.47)%....................
-----------
Net Assets - 100.00%............... $58,444,983
=============
</TABLE>
- -------
* Variable rate demand notes and variable rate certificates of participation
which are payable on demand. The maturity dates shown are the stated
maturities; the interest rates shown are the current rates as of February 29,
1996.
AMBAC-American Municipal Bond Assurance Corporation
FGIC-Financial Guaranty Insurance Company
FHA-Federal Housing Authority
MBIA-Municipal Bond Investors Assurance
See accompanying notes to financial statements
14
<PAGE>
PAINEWEBBER
STATEMENTS OF ASSETS AND LIABILITIES FEBRUARY 29, 1996
<TABLE>
<CAPTION>
CALIFORNIA NATIONAL MUNICIPAL NEW YORK
TAX-FREE TAX-FREE HIGH TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Assets
Investments in
securities, at value
(cost-$187,354,893,
$421,018,767,
$96,662,557 and
$55,743,344,
respectively).......... $196,066,282 $438,780,623 $ 99,712,695 $58,721,340
Cash.................... 4,887,401 -- 86,734 66,161
Receivable for
investments sold....... 3,222,000 -- 5,977,003 --
Interest receivable..... 3,152,656 6,251,606 1,936,717 786,500
Receivable for shares of
beneficial interest
sold................... 15,503 345,648 69,389 9,710
Other assets............ 33,017 105,167 58,510 22,867
------------ ------------ ------------ -----------
Total assets............ 207,376,859 445,483,044 107,841,048 59,606,578
------------ ------------ ------------ -----------
Liabilities
Payable for investments
purchased.............. 4,791,506 -- 5,379,444 495,395
Dividends payable....... 659,737 839,969 349,910 175,384
Payable for shares of
beneficial interest
repurchased............ 624,445 1,043,736 46,710 390,121
Payable to affiliate.... 148,910 339,096 92,996 48,376
Accrued expenses and
other liabilities...... 137,563 398,402 124,207 52,319
------------ ------------ ------------ -----------
Total liabilities....... 6,362,161 2,621,203 5,993,267 1,161,595
------------ ------------ ------------ -----------
Net Assets
Beneficial interest -
$0.001 par value
(unlimited amount
authorized)............ 196,468,805 427,683,175 101,653,431 56,847,502
Accumulated net realized
losses from investment
transactions........... (4,165,496) (2,583,190) (2,855,788) (1,380,515)
Net unrealized
appreciation of
investments............ 8,711,389 17,761,856 3,050,138 2,977,996
------------ ------------ ------------ -----------
Net assets.............. $201,014,698 $442,861,841 $101,847,781 $58,444,983
============ ============ ============ ===========
Class A:
Net assets.............. $151,684,357 $315,898,657 $ 57,279,515 $28,733,585
------------ ------------ ------------ -----------
Shares outstanding...... 13,760,775 27,129,006 5,565,704 2,683,345
------------ ------------ ------------ -----------
Net asset value and
redemption value per
share.................. $11.02 $11.64 $10.29 $10.71
====== ====== ====== ======
Maximum offering price
per share (net asset
value plus sales charge
of 4.00% of offering
price)................. $11.48 $12.13 $10.72 $11.16
====== ====== ====== ======
Class B:
Net assets.............. $ 27,175,249 $ 51,546,220 $ 23,868,161 $11,862,331
------------ ------------ ------------ -----------
Shares outstanding...... 2,463,603 4,428,103 2,320,081 1,108,087
------------ ------------ ------------ -----------
Net asset value and
offering price per
share.................. $11.03 $11.64 $10.29 $10.71
====== ====== ====== ======
Class C:
Net assets.............. $ 22,155,092 $ 75,076,280 $ 20,700,105 $17,849,067
------------ ------------ ------------ -----------
Shares outstanding...... 2,011,210 6,447,775 2,011,978 1,666,495
------------ ------------ ------------ -----------
Net asset value and
offering price per
share.................. $11.02 $11.64 $10.29 $10.71
====== ====== ====== ======
Class Y:
Net assets.............. $ 340,684
------------
Shares outstanding...... 29,249
------------
Net asset value,
offering price and
redemption value per
share.................. $11.65
======
</TABLE>
See accompanying notes to financial statements
15
<PAGE>
PAINEWEBBER
STATEMENT OF OPERATIONS FOR THE YEAR ENDED FEBRUARY 29, 1996
<TABLE>
<CAPTION>
CALIFORNIA NATIONAL MUNICIPAL NEW YORK
TAX-FREE TAX-FREE HIGH TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment Income:
Interest...................... $13,725,480 $28,556,070 $ 7,599,802 $3,884,182
----------- ----------- ----------- ----------
Expenses:
Investment advisory and
administration............... 1,116,442 2,388,482 647,537 380,993
Service fees--Class A......... 418,711 834,162 152,119 76,889
Service and distribution
fees--Class B................ 305,974 558,344 249,577 133,770
Service and distribution
fees--Class C................ 189,044 660,528 165,883 145,249
Custody and accounting........ 127,327 169,607 63,774 73,459
Legal and audit fees.......... 95,592 109,013 29,052 46,554
Transfer agency and service
fees......................... 72,082 174,303 48,968 32,782
State registration............ 49,485 90,483 62,473 7,862
Reports and notices to
shareholders................. 33,940 119,695 41,278 12,783
Trustees' fees................ 8,125 8,125 10,625 10,625
Fund acquisition expenses..... -- 146,217 -- --
Other expenses................ 42,182 35,839 12,780 1,326
----------- ----------- ----------- ----------
2,458,904 5,294,798 1,484,066 922,292
Less: Fee waivers............. -- -- -- (77,600)
----------- ----------- ----------- ----------
Net Expenses.................. 2,458,904 5,294,798 1,484,066 844,692
----------- ----------- ----------- ----------
Net investment income......... 11,266,576 23,261,272 6,115,736 3,039,490
----------- ----------- ----------- ----------
Realized and unrealized gains
(losses) on investment
activities:
Net realized gains from
investment transactions...... 6,052,923 16,795,602 3,605,491 304,150
Net change in unrealized
appreciation/depreciation of
investments.................. 1,143,428 (275,650) 406,432 2,352,203
----------- ----------- ----------- ----------
Net realized and unrealized
gains from investment
activities................... 7,196,351 16,519,952 4,011,923 2,656,353
----------- ----------- ----------- ----------
Net increase in net assets
resulting from operations.... $18,462,927 $39,781,224 $10,127,659 $5,695,843
=========== =========== =========== ==========
</TABLE>
See accompanying notes to financial statements
16
<PAGE>
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
FEBRUARY 29, 1996 FEBRUARY 28, 1995
----------------- -----------------
<S> <C> <C>
From operations:
Net investment income...................... $ 11,266,576 $ 14,403,375
Net realized gains (losses) from investment
transactions.............................. 6,052,923 (10,217,814)
Net change in unrealized
appreciation/depreciation of investments.. 1,143,428 (9,344,955)
------------ ------------
Net increase (decrease) in net assets
resulting from operations................. 18,462,927 (5,159,394)
------------ ------------
Dividends and distributions to shareholders
from:
Net investment income--Class A............. (8,722,541) (10,753,281)
Net investment income--Class B............. (1,360,956) (1,729,251)
Net investment income--Class C............. (1,183,079) (1,929,403)
Net realized gains from investment
transactions--Class A..................... -- (1,807,929)
Net realized gains from investment
transactions--Class B..................... -- (334,849)
Net realized gains from investment
transactions--Class C..................... -- (362,876)
------------ ------------
Total dividends and distributions to
shareholders.............................. (11,266,576) (16,917,589)
------------ ------------
From beneficial interest transactions:
Net proceeds from the sale of shares....... 9,546,393 37,898,363
Cost of shares repurchased................. (60,908,096) (108,667,003)
Proceeds from dividends reinvested......... 5,722,329 9,271,310
------------ ------------
Net decrease in net assets from beneficial
interest transactions..................... (45,639,374) (61,497,330)
------------ ------------
Net decrease in net assets................. (38,443,023) (83,574,313)
Net assets:
Beginning of year.......................... 239,457,721 323,032,034
------------ ------------
End of year................................ $201,014,698 $239,457,721
============ ============
</TABLE>
See accompanying notes to financial statements
17
<PAGE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
FEBRUARY 29, 1996 FEBRUARY 28, 1995
----------------- -----------------
<S> <C> <C>
From operations:
Net investment income...................... $ 23,261,272 $ 31,355,780
Net realized gains (losses) from investment
transactions.............................. 16,795,602 (16,725,603)
Net change in unrealized
appreciation/depreciation of investments.. (275,650) (27,594,131)
------------- -------------
Net increase (decrease) in net assets
resulting from operations................. 39,781,224 (12,963,954)
------------- -------------
Dividends and distributions to shareholders
from:
Net investment income--Class A............. (16,946,168) (21,139,476)
Net investment income--Class B............. (2,416,713) (3,087,440)
Net investment income--Class C............. (4,038,027) (7,128,978)
Net investment income--Class Y............. (6,581) --
Net realized gains from investment
transactions--Class A..................... -- (466,250)
Net realized gains from investment
transactions--Class B..................... -- (79,017)
Net realized gains from investment
transactions--Class C..................... -- (176,196)
Net realized gains from investment
transactions--Class Y..................... -- --
------------- -------------
Total dividends and distributions to
shareholders.............................. (23,407,489) (32,077,357)
------------- -------------
From beneficial interest transactions:
Net proceeds from the sale of shares....... 73,623,651 111,184,759
Proceeds from shares issued in connection
with the acquisition of Mitchell
Hutchins/Kidder, Peabody Municipal Bond
Fund...................................... 11,831,545 --
Cost of shares repurchased................. (180,593,964) (271,144,962)
Proceeds from dividends reinvested......... 14,447,770 20,588,449
------------- -------------
Net decrease in net assets from beneficial
interest transactions..................... (80,690,998) (139,371,754)
------------- -------------
Net decrease in net assets................. (64,317,263) (184,413,065)
Net assets:
Beginning of year.......................... 507,179,104 691,592,169
------------- -------------
End of year................................ $ 442,861,841 $ 507,179,104
============= =============
</TABLE>
See accompanying notes to financial statements
18
<PAGE>
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
FEBRUARY 29, 1996 FEBRUARY 28, 1995
----------------- -----------------
<S> <C> <C>
From operations:
Net investment income...................... $ 6,115,736 $ 7,282,798
Net realized gains (losses) from investment
transactions.............................. 3,605,491 (6,460,311)
Net change in unrealized
appreciation/depreciation of investments.. 406,432 (5,273,473)
------------ ------------
Net increase (decrease) in net assets
resulting from operations................. 10,127,659 (4,450,986)
------------ ------------
Dividends and distributions to shareholders
from:
Net investment income--Class A............. (3,615,202) (4,189,927)
Net investment income--Class B............. (1,295,493) (1,474,018)
Net investment income--Class C............. (1,205,041) (1,619,104)
Net realized gains from investment
transactions--Class A..................... -- (187,891)
Net realized gains from investment
transactions--Class B..................... -- (74,685)
Net realized gains from investment
transactions--Class C..................... -- (81,737)
------------ ------------
Total dividends and distributions to
shareholders.............................. (6,115,736) (7,627,362)
------------ ------------
From beneficial interest transactions:
Net proceeds from the sale of shares....... 11,836,359 24,601,158
Cost of shares repurchased................. (29,710,576) (55,028,010)
Proceeds from dividends reinvested......... 3,442,477 4,365,166
------------ ------------
Net decrease in net assets from beneficial
interest transactions..................... (14,431,740) (26,061,686)
------------ ------------
Net decrease in net assets................. (10,419,817) (38,140,034)
Net assets:
Beginning of year.......................... 112,267,598 150,407,632
------------ ------------
End of year................................ $101,847,781 $112,267,598
============ ============
</TABLE>
See accompanying notes to financial statements
19
<PAGE>
PAINEWEBBER NEW YORK TAX-FREE INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
FEBRUARY 29, 1996 FEBRUARY 28, 1995
----------------- -----------------
<S> <C> <C>
From operations:
Net investment income...................... $ 3,039,490 $ 4,054,804
Net realized gains (losses) from investment
transactions.............................. 304,150 (1,684,198)
Net change in unrealized
appreciation/depreciation of investments.. 2,352,203 (5,028,753)
------------ ------------
Net increase (decrease) in net assets
resulting from operations................. 5,695,843 (2,658,147)
------------ ------------
Dividends and distributions to shareholders
from:
Net investment income--Class A............. (1,567,191) (1,951,739)
Net investment income--Class B............. (581,692) (766,052)
Net investment income--Class C............. (890,607) (1,337,013)
Net realized gains from investment
transactions--Class A..................... -- (371,191)
Net realized gains from investment
transactions--Class B..................... -- (169,704)
Net realized gains from investment
transactions--Class C..................... -- (282,222)
------------ ------------
Total dividends and distributions to
shareholders.............................. (3,039,490) (4,877,921)
------------ ------------
From beneficial interest transactions:
Net proceeds from the sale of shares....... 4,575,816 12,977,985
Cost of shares repurchased................. (18,949,061) (43,175,356)
Proceeds from dividends reinvested......... 1,931,595 3,572,415
------------ ------------
Net decrease in net assets from beneficial
interest transactions..................... (12,441,650) (26,624,956)
------------ ------------
Net decrease in net assets................. (9,785,297) (34,161,024)
Net assets:
Beginning of year.......................... 68,230,280 102,391,304
------------ ------------
End of year................................ $ 58,444,983 $ 68,230,280
============ ============
</TABLE>
See accompanying notes to financial statements
20
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Mutual Fund Trust ("Mutual Fund Trust") and PaineWebber Municipal
Series ("Municipal Series") (collectively, the "Trusts") were organized under
Massachusetts law by Declarations of Trust dated November 21, 1986 and January
28, 1987, respectively, and are registered with the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended, as an open-end
diversified management investment company and an open-end non-diversified
management investment company, respectively. Mutual Fund Trust has two series:
PaineWebber California Tax-Free Income Fund ("California Tax-Free Income Fund")
and PaineWebber National Tax-Free Income Fund ("National Tax-Free Income
Fund"). Municipal Series has two series: PaineWebber Municipal High Income Fund
("Municipal High Income Fund") and PaineWebber New York Tax-Free Income Fund
("New York Tax-Free Income Fund") (collectively, the "Funds").
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
Currently, each Fund offers Class A, Class B and Class C (formerly called Class
D) shares. National Tax-Free Income Fund also offers Class Y shares (formerly
Class C). Effective November 10, 1995, the Funds began using industry
standardized nomenclature and Class D shares were renamed Class C shares and
Class C shares were renamed Class Y shares. Each class represents interests in
the same assets of the applicable Fund and the classes are identical except for
differences in their sales charge structures, ongoing distribution charges and
certain transfer agency expenses. In addition, Class B shares automatically
convert to Class A shares approximately six years after initial issuance. All
classes of shares have equal voting privileges, except that Class A, Class B,
and Class C shares have exclusive voting rights with respect to their
distribution plans.
Valuation of Investments - Where market quotations are readily available,
portfolio securities are valued thereon, provided such quotations adequately
reflect, in the judgment of Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"), a wholly owned subsidiary of PaineWebber Incorporated
("PaineWebber") and investment adviser, administrator and distributor of the
Funds, the fair value of the securities. When market quotations are not readily
available, securities are valued based upon appraisals received from a pricing
service which utilizes a computerized matrix system, or based upon appraisals
derived from information concerning those securities or similar securities
received from recognized dealers in those securities. All other securities are
valued at fair value as determined in good faith by or under the direction of
each Trust's board of trustees. The amortized cost method of valuation, which
approximates market value, is used to
21
<PAGE>
PAINEWEBBER
value debt obligations with 60 days or less remaining to maturity, unless the
respective Trust's board of trustees determines that this does not represent
fair value.
Investment Transactions and Investment Income - Investment transactions are
recorded on the trade date. Realized gains and losses from investment
transactions are calculated on the identified cost method. Interest income is
recorded on an accrual basis. Discounts are accreted and premiums are amortized
as adjustments to interest income and the identified cost of securities.
Income and expenses (excluding class-specific expenses) are allocated
proportionately to each class of shares based upon the relative value of
dividend eligible shares of each class at the beginning of the day (after
adjusting for current capital share activity of the respective classes).
Realized and unrealized gains and losses are allocated proportionately to each
class of shares based on the relative value of shares outstanding at the
beginning of the day (after adjusting for current capital share activity of the
respective class). Class-specific expenses are charged directly to the
applicable class of shares.
Dividends and Distributions - Each Fund declares dividends on a daily basis
from net investment income. Dividends from net investment income and
distributions from realized gains from investment transactions are determined
in accordance with federal income tax regulations which may differ from
generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment, temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
CONCENTRATION OF RISK
Each Fund follows an investment policy of investing primarily in municipal
obligations of various states except for California Tax-Free Income Fund and
New York Tax-Free Income Fund which invest solely in municipal obligations of
their respective state. Economic changes affecting those states and certain of
their public bodies and municipalities may affect the ability of the issuers
within those states to pay interest on, or repay principal of, municipal
obligations held by those Funds.
22
<PAGE>
PAINEWEBBER
ACQUISITION
Effective November 3, 1995, National Tax-Free Income Fund acquired all of the
net assets of Mitchell Hutchins/Kidder, Peabody Municipal Bond Fund ("MH/KP
Municipal Bond Fund") pursuant to a plan of reorganization approved by MH/KP
Municipal Bond Fund shareholders on October 27, 1995. The acquisition was
accomplished by a tax-free exchange of 727,202 Class A, 255,358 Class D
(currently Class C) and 35,331 Class C (currently Class Y) shares of National
Tax- Free Income Fund for 739,938 Class A, 259,829 Class B and 35,950 Class C
shares, respectively, of MH/KP Municipal Bond Fund outstanding on November 3,
1995. MH/KP Municipal Bond Fund's net assets at that date, valued at
$11,831,545, including accumulated net realized losses of $2,653,192 and net
unrealized gain of investments of $586,347, were combined with those of the
National Tax-Free Income Fund.
INVESTMENT ADVISER AND ADMINISTRATOR
Each Trust's board of trustees has approved an Investment Advisory and
Administration Contract ("Advisory Contract") with Mitchell Hutchins, under
which Mitchell Hutchins serves as investment adviser and administrator of the
Funds. In accordance with the Advisory Contracts, each Fund pays Mitchell
Hutchins an investment advisory and administration fee, which is accrued daily
and paid monthly, at the annual rates of 0.50% of California Tax-Free Income
Fund's and National Tax-Free Income Fund's average daily net assets and 0.60%
of Municipal High Income Fund's and New York Tax-Free Income Fund's average
daily net assets. At February 29, 1996, California Tax-Free Income Fund,
National Tax-Free Income Fund, Municipal High Income Fund and New York Tax-Free
Income Fund owed Mitchell Hutchins $81,191, $182,170, $48,837 and $28,471,
respectively, in investment advisory and administration fees.
In compliance with applicable state securities laws, Mitchell Hutchins will
reimburse each Fund if and to the extent that the aggregate operating expenses
in any fiscal year, exclusive of taxes, interest, brokerage fees, distribution
fees and extraordinary expenses, exceed limitations imposed by various state
regulations. Currently, the most restrictive limitation applicable to the Funds
is 2.5% of the first $30 million of average daily net assets, 2.0% of the next
$70 million and 1.5% of any excess over $100 million. For the year ended
February 29, 1996, no reimbursements were required pursuant to the above
limitation for any of the Funds.
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of each Fund's shares and has appointed
PaineWebber as dealer for the sale of those shares. Under separate plans of
distribution pertaining to Class A, Class B and Class C shares, each Fund pays
Mitchell Hutchins monthly service fees at the annual rate of 0.25% of the
average
23
<PAGE>
PAINEWEBBER
daily net assets of each class of shares and monthly distribution fees at the
annual rate of 0.75% and 0.50% of the average daily net assets of Class B and
Class C shares, respectively. At February 29, 1996, California Tax-Free Income
Fund, National Tax-Free Income Fund, Municipal High Income Fund and New York
Tax-Free Income Fund owed Mitchell Hutchins $66,216, $152,869, $42,939 and
$19,198, respectively, in service and distribution fees. For the year ended
February 29, 1996, Mitchell Hutchins voluntarily waived $77,600 in service fees
from New York Tax-Free Income Fund.
Mitchell Hutchins also receives the proceeds of the initial sales charges paid
by shareholders upon the purchase of Class A shares and the contingent deferred
sales charges paid by shareholders upon certain redemptions of Class A, Class B
and Class C shares. Mitchell Hutchins has informed each Fund that, for the year
ended February 29, 1996, it earned $252,092, $454,227, $163,798 and $100,602 in
sales charges for the California Tax-Free Income Fund, National Tax-Free Income
Fund, Municipal High Income Fund and New York Tax-Free Income Fund,
respectively.
TRANSFER AGENCY SERVICE FEES
Each Fund pays PaineWebber an annual fee of $4.00 per active PaineWebber
shareholder account for certain services not provided by the Funds' transfer
agent. For these services for the year ended February 29, 1996, PaineWebber
earned $19,943, $52,513, $15,997 and $9,267 from California Tax-Free Income
Fund, National Tax-Free Income Fund, Municipal High Income Fund and New York
Tax- Free Income Fund, respectively. At February 29, 1996, California Tax-Free
Income Fund, National Tax-Free Income Fund, Municipal High Income Fund and New
York Tax- Free Income Fund owed PaineWebber $1,503, $4,057, $1,220 and $707,
respectively, for transfer agency service fees.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at February 29,
1996, was substantially the same as the cost of securities for financial
statement purposes.
24
<PAGE>
PAINEWEBBER
At February 29, 1996, the components of net unrealized appreciation of
investments were as follows:
<TABLE>
<CAPTION>
CALIFORNIA NATIONAL NEW YORK
TAX-FREE TAX-FREE MUNICIPAL HIGH TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Gross appreciation
(investments having an
excess of value over
cost)................... $ 9,937,386 $21,175,047 $3,190,878 $3,198,700
Gross depreciation
(investments having an
excess of cost over
value).................. (1,225,997) (3,413,191) (140,740) (220,704)
----------- ----------- ---------- ----------
Net unrealized
appreciation of
investments............. $ 8,711,389 $17,761,856 $3,050,138 $2,977,996
=========== =========== ========== ==========
</TABLE>
For the year ended February 29, 1996, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were as follows:
<TABLE>
<CAPTION>
CALIFORNIA NATIONAL NEW YORK
TAX-FREE TAX-FREE MUNICIPAL HIGH TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------ ------------ -------------- -----------
<S> <C> <C> <C> <C>
Purchases.................. $ 69,313,376 $336,560,844 $50,410,231 $ 8,035,792
Sales...................... $116,977,668 $413,049,213 $68,054,082 $19,396,743
</TABLE>
FEDERAL INCOME TAX STATUS
Each Fund intends to distribute all of its tax-exempt income and any taxable
income and to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies. Accordingly, no provisions for
federal income taxes are required. In addition, by distributing during each
calendar year substantially all of its net investment income, capital gains and
certain other amounts, if any, each Fund intends not to be subject to a federal
excise tax.
At February 29, 1996, the funds had the following net capital loss
carryforwards available as reductions, to the extent provided in the
regulations, of future net realized capital gains which expire as follows:
<TABLE>
<CAPTION>
FISCAL CALIFORNIA NATIONAL MUNICIPAL NEW YORK
YEAR TAX-FREE TAX-FREE HIGH TAX-FREE
ENDING INCOME FUND INCOME FUND INCOME FUND INCOME FUND
- ------ ----------- ----------- ----------- ----------- ---
<S> <C> <C> <C> <C> <C>
2002 -- $2,034,069 -- --
2003 $4,164,891 549,124 $2,854,821 $ 436,117
2004 -- -- -- 943,931
---------- ---------- ---------- ----------
$4,164,891 $2,583,193 $2,854,821 $1,380,048
========== ========== ========== ==========
</TABLE>
The capital loss carryforwards for National Tax-Free Income Fund were acquired
pursuant to its acquisition of MH/KP Municipal Bond Fund.
25
<PAGE>
PAINEWEBBER
To the extent that any such losses are used to offset future capital gains, it
is probable that the gains so offset will not be distributed.
To reflect reclassifications arising from permanent "book/tax" differences for
the year ended February 29, 1996, National Tax-Free Income Fund's
overdistributed/ underdistributed net investment income was increased by
$150,000 and beneficial interest was decreased by $150,000. Permanent book/tax
differences are attributable to fund acquisition expenses.
26
<PAGE>
PAINEWEBBER
SHARES OF BENEFICIAL INTEREST
There is an unlimited amount of $0.001 par value shares of
beneficial interest authorized. Transactions in shares of
beneficial interest were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
-------------------------- ------------------------ -------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California Tax-Free
Income Fund
Year Ended February
29, 1996:
Shares sold......... 388,502 $ 4,236,457 228,144 $ 2,487,998 260,321 $ 2,821,938
Shares repurchased.. (3,725,470) (40,598,803) (898,438) (9,785,607) (969,110) (10,523,686)
Shares converted
from Class B to
Class A............ 10,277 113,004 (10,273) (113,004) -- --
Dividends
reinvested......... 395,668 4,299,566 55,294 601,266 75,666 821,497
----------- ------------- ---------- ------------ ----------- ------------
Net decrease........ (2,931,023) $ (31,949,776) (625,273) $ (6,809,347) (633,123) $ (6,880,251)
=========== ============= ========== ============ =========== ============
Year Ended February
28, 1995:
Shares sold......... 2,134,302 $ 22,622,544 525,879 $ 5,611,240 904,455 $ 9,664,579
Shares repurchased.. (6,021,282) (63,129,517) (1,168,617) (12,295,934) (3,148,117) (33,241,552)
Shares converted
from Class B to
Class A............ 44,953 478,312 (44,934) (478,312) -- --
Dividends
reinvested......... 616,881 6,514,811 98,867 1,045,011 161,815 1,711,488
----------- ------------- ---------- ------------ ----------- ------------
Net decrease........ (3,225,146) $ (33,513,850) (588,805) $ (6,117,995) (2,081,847) $(21,865,485)
=========== ============= ========== ============ =========== ============
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
-------------------------- ------------------------ ------------------------- ----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------------- ---------- ------------ ----------- ------------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
National Tax-Free
Income Fund
Year Ended February
29, 1996:
Shares sold......... 5,257,727 $ 60,650,008 571,893 $ 6,580,403 554,162 $ 6,393,240 -- --
Shares issued in
connection with the
acquisition of
Mitchell
Hutchins/Kidder,
Peabody Municipal
Bond Fund.......... 727,202 8,452,570 -- -- 255,358 2,968,259 35,331 $410,716
Shares repurchased.. (10,526,704) (121,519,966) (1,488,130) (17,127,225) (3,634,729) (41,869,021) (6,574) (77,752)
Shares converted
from Class B to
Class A............ 7,263 82,843 (7,263) (82,843) -- -- -- --
Dividends
reinvested......... 889,218 10,262,007 114,973 1,325,467 247,608 2,854,511 492 5,785
----------- ------------- ---------- ------------ ----------- ------------ ------ --------
Net increase
(decrease)......... (3,645,294) $ (42,072,538) (808,527) $ (9,304,198) (2,577,601) $(29,653,011) 29,249 $338,749
=========== ============= ========== ============ =========== ============ ====== ========
Year Ended February
28, 1995:
Shares sold......... 5,957,610 $ 66,318,464 955,454 $ 10,658,612 3,013,454 $ 34,207,682 -- --
Shares repurchased.. (12,519,609) (138,989,202) (1,732,673) (19,157,681) (10,137,360) (112,998,080) -- --
Shares converted
from Class B to
Class A............ 65,470 728,149 (65,470) (728,149) -- -- -- --
Dividends
reinvested......... 1,188,102 13,268,602 159,664 1,781,450 494,843 5,538,397 -- --
----------- ------------- ---------- ------------ ----------- ------------ ------ --------
Net decrease........ (5,308,427) $ (58,673,987) (683,025) $ (7,445,768) (6,629,063) $(73,252,001) -- --
=========== ============= ========== ============ =========== ============ ====== ========
</TABLE>
27
<PAGE>
PAINEWEBBER
SHARES OF BENEFICIAL INTEREST -- (CONCLUDED)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------------- ---------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------------ --------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Municipal High Income
Fund
Year Ended February 29,
1996:
Shares sold............. 486,514 $ 4,928,515 328,524 $ 3,324,149 355,164 $ 3,583,695
Shares repurchased...... (1,502,572) (15,268,177) (669,283) (6,789,711) (755,432) (7,652,688)
Shares converted from
Class B to Class A..... 6,026 61,833 (6,030) (61,833) -- --
Dividends reinvested ... 197,771 2,009,587 63,421 643,930 77,720 788,960
----------- ------------ --------- ----------- ---------- ------------
Net decrease............ (812,261) $ (8,268,242) (283,368) $(2,883,465) (322,548) $ (3,280,033)
=========== ============ ========= =========== ========== ============
Year Ended February 28,
1995:
Shares sold............. 720,430 $ 7,168,272 550,580 $ 5,501,098 1,193,461 $ 11,931,788
Shares repurchased...... (2,251,267) (22,313,165) (997,368) (9,856,871) (2,307,181) (22,857,974)
Shares converted from
Class B to Class A..... 30,243 298,033 (30,243) (298,033) -- --
Dividends reinvested ... 241,093 2,399,332 81,216 807,852 116,205 1,157,982
----------- ------------ --------- ----------- ---------- ------------
Net decrease............ (1,259,501) $(12,447,528) (395,815) $(3,845,954) (997,515) $ (9,768,204)
=========== ============ ========= =========== ========== ============
New York Tax-Free Income
Fund
Year Ended February 29,
1996:
Shares sold............. 75,913 $ 852,300 80,011 $ 838,891 272,767 $ 2,884,625
Shares repurchased...... (648,187) (6,829,541) (427,162) (4,485,601) (724,723) (7,633,919)
Shares converted from
Class B to Class A..... 1,199 12,707 (1,199) (12,707) -- --
Dividends reinvested.... 93,623 932,899 29,185 307,243 65,656 691,453
----------- ------------ --------- ----------- ---------- ------------
Net decrease............ (477,452) $ (5,031,635) (319,165) $(3,352,174) (386,300) $ (4,057,841)
=========== ============ ========= =========== ========== ============
Year Ended February 28,
1995:
Shares sold............. 283,990 $ 2,947,431 301,219 $ 3,116,930 663,852 $ 6,913,624
Shares repurchased...... (1,369,728) (13,922,406) (670,547) (6,771,023) (2,201,138) (22,481,927)
Shares converted from
Class B to Class A..... 15,724 163,362 (15,731) (163,362) -- --
Dividends reinvested ... 148,031 1,507,461 71,731 732,650 130,636 1,332,304
----------- ------------ --------- ----------- ---------- ------------
Net decrease............ (921,983) $ (9,304,152) (313,328) $(3,084,805) (1,406,650) $(14,235,999)
=========== ============ ========= =========== ========== ============
</TABLE>
28
<PAGE>
This Page Intentionally Left Blank
29
<PAGE>
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------
FOR THE YEAR FOR THE YEARS ENDED FOR THE THREE FOR THE YEARS
ENDED FEBRUARY 28, MONTHS ENDED ENDED NOVEMBER 30,
FEBRUARY 29, --------------------- FEBRUARY 28, --------------------
1996 1995 1994 1993 1992 1991
------------ --------- --------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 10.68 $ 11.41 $ 11.80 $ 11.39 $ 11.13 $ 10.94
-------- --------- --------- -------- --------- ---------
Net investment income... 0.57 0.58 0.60 0.16 0.66 0.71
Net realized and
unrealized gains
(losses) from
investment
transactions........... 0.34 (0.63) (0.08) 0.58 0.29 0.22
-------- --------- --------- -------- --------- ---------
Net increase (decrease)
from investment
operations............. 0.91 (0.05) 0.52 0.74 0.95 0.93
-------- --------- --------- -------- --------- ---------
Dividends from net
investment income...... (0.57) (0.58) (0.60) (0.16) (0.66) (0.71)
Distributions from net
realized gains from
investment
transactions........... -- (0.10) (0.31) (0.17) (0.03) (0.03)
-------- --------- --------- -------- --------- ---------
Total dividends and
distributions to
shareholders........... (0.57) (0.68) (0.91) (0.33) (0.69) (0.74)
-------- --------- --------- -------- --------- ---------
Net asset value, end of
period................. $ 11.02 $ 10.68 $ 11.41 $ 11.80 $ 11.39 $ 11.13
======== ========= ========= ======== ========= =========
Total investment
return(1).............. 8.68% (0.18)% 4.46% 6.52% 8.73% 8.84%
======== ========= ========= ======== ========= =========
Ratios and supplemental
data:
Net assets, end of
period (000's)......... $151,684 $ 178,234 $ 227,179 $247,025 $ 239,851 $ 231,987
Ratio of expenses to
average net assets..... 0.94% 0.88% 0.90% 0.99%* 0.93% 0.83%
Ratio of net investment
income to average net
assets................. 5.21% 5.55% 5.10% 5.61%* 5.80% 6.46%
Portfolio turnover rate. 32% 11% 37% 3% 25% 2%
- ---------------------
</TABLE>
+ Commencement of issuance of shares
* Annualized
** Formerly Class D
(1) Total 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 each class would be lower if sales
charges were included. Total returns for periods of less than one year have
not been annualized.
30
<PAGE>
<TABLE>
<CAPTION>
CLASS B
- ------------------------------------------------------------------------
FOR THE
FOR THE YEARS FOR THE THREE FOR THE PERIOD
FOR THE YEAR ENDED MONTHS YEAR JULY 1, 1991+
ENDED FEBRUARY 28, ENDED ENDED THROUGH
FEBRUARY 29, ---------------- FEBRUARY 28, NOVEMBER 30, NOVEMBER 30,
1996 1995 1994 1993 1992 1991
- ------------ ------- ------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
$ 10.69 $ 11.41 $ 11.81 $ 11.39 $ 11.14 $ 10.95
------- ------- ------- ------- ------- -------
0.48 0.50 0.51 0.14 0.57 0.25
0.34 (0.62) (0.09) 0.59 0.28 0.19
------- ------- ------- ------- ------- -------
0.82 (0.12) 0.42 0.73 0.85 0.44
------- ------- ------- ------- ------- -------
(0.48) (0.50) (0.51) (0.14) (0.57) (0.25)
-- (0.10) (0.31) (0.17) (0.03) --
------- ------- ------- ------- ------- -------
(0.48) (0.60) (0.82) (0.31) (0.60) (0.25)
------- ------- ------- ------- ------- -------
$ 11.03 $ 10.69 $ 11.41 $ 11.81 $ 11.39 $ 11.14
======= ======= ======= ======= ======= =======
7.86% (0.85)% 3.56% 6.50% 7.80% 3.69%
======= ======= ======= ======= ======= =======
$27,175 $33,007 $41,979 $36,693 $30,205 $10,743
1.70% 1.64% 1.65% 1.74%* 1.68% 1.62%*
4.45% 4.78% 4.32% 4.81%* 4.91% 5.02%*
32% 11% 37% 3% 25% 2%
<CAPTION>
CLASS B CLASS C**
- ------------- ----------------------------------------------------------
FOR THE
FOR THE YEARS FOR THE THREE PERIOD
FOR THE YEAR FOR THE YEAR ENDED MONTHS JULY 2, 1992+
ENDED ENDED FEBRUARY 28, ENDED THROUGH
FEBRUARY 29, FEBRUARY 29, ----------------- FEBRUARY 28, NOVEMBER 30,
1996 1996 1995 1994 1993 1992
- ------------- ------------ -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$ 10.69 $ 10.67 $ 11.40 $ 11.79 $ 11.38 $ 11.41
- ------------- ------------ -------- -------- ------------- -------------
0.48 0.51 0.53 0.54 0.14 0.21
0.34 0.35 (0.63) (0.08) 0.58 (0.03)
- ------------- ------------ -------- -------- ------------- -------------
0.82 0.86 (0.10) 0.46 0.72 0.18
- ------------- ------------ -------- -------- ------------- -------------
(0.48) (0.51) (0.53) (0.54) (0.14) (0.21)
-- -- (0.10) (0.31) (0.17) --
- ------------- ------------ -------- -------- ------------- -------------
(0.48) (0.51) (0.63) (0.85) (0.31) (0.21)
- ------------- ------------ -------- -------- ------------- -------------
$ 11.03 $ 11.02 $ 10.67 $ 11.40 $ 11.79 $ 11.38
============= ============ ======== ======== ============= =============
7.86% 8.22% (0.70)% 3.91% 6.49% 1.28%
============= ============ ======== ======== ============= =============
$27,175 $22,155 $28,217 $53,874 $39,029 $30,141
1.70% 1.46% 1.40% 1.39% 1.48%* 1.39%*
4.45% 4.69% 5.05% 4.55% 5.06%* 4.79%*
32% 32% 11% 37% 3% 25%
</TABLE>
31
<PAGE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------
FOR THE THREE
FOR THE YEAR FOR THE YEARS ENDED MONTHS FOR THE YEARS
ENDED FEBRUARY 28, ENDED ENDED NOVEMBER 30,
FEBRUARY 29, --------------------- FEBRUARY 28, -------------------
1996 1995 1994 1993 1992 1991
------------ --------- --------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 11.26 $ 12.00 $ 12.09 $ 11.67 $ 11.40 $ 11.20
-------- --------- --------- -------- -------- --------
Net investment income... 0.58 0.63 0.64 0.17 0.71 0.76
Net realized and
unrealized gains
(losses) from
investment
transactions........... 0.39 (0.73) 0.03 0.55 0.31 0.20
-------- --------- --------- -------- -------- --------
Net increase (decrease)
from investment
operations............. 0.97 (0.10) 0.67 0.72 1.02 0.96
-------- --------- --------- -------- -------- --------
Dividends from net
investment income...... (0.59) (0.63) (0.64) (0.17) (0.71) (0.76)
Distributions from net
realized gains from
investment
transactions........... -- (0.01) (0.12) (0.13) (0.04) --
-------- --------- --------- -------- -------- --------
Total dividends and
distributions to
shareholders........... (0.59) (0.64) (0.76) (0.30) (0.75) (0.76)
-------- --------- --------- -------- -------- --------
Net asset value, end of
period................. $ 11.64 $ 11.26 $ 12.00 $ 12.09 $ 11.67 $ 11.40
======== ========= ========= ======== ======== ========
Total investment
return(1).............. 8.75% (0.63)% 5.65% 6.31% 9.21% 8.85%
======== ========= ========= ======== ======== ========
Ratios and supplemental
data:
Net assets, end of
period (000's)......... $315,899 $ 346,579 $ 432,825 $419,596 $396,587 $366,300
Ratio of expenses to
average net assets..... 0.93%(/2/) 0.88% 0.89% 0.88%* 0.91% 0.83%
Ratio of net investment
income to average net
assets................. 5.06%(/2/) 5.62% 5.28% 5.86%* 6.13% 6.66%
Portfolio turnover rate. 74% 60% 16% 5% 21% 27%
- ---------------------
</TABLE>
+ Commencement of issuance of shares
* Annualized
** Formerly Class D shares
*** Formerly Class C shares
(1) Total 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 each class would be lower if sales
charges were included. Total returns for periods of less than one year have
not been annualized.
(2) These ratios include non-recurring acquisition expenses of 0.03% for each
class of shares.
32
<PAGE>
<TABLE>
<CAPTION>
CLASS B
- ----------------------------------------------------------------------------
FOR THE
FOR THE YEARS FOR THE THREE FOR THE PERIOD
FOR THE YEAR ENDED MONTHS YEAR JULY 1, 1991+
ENDED FEBRUARY 28, ENDED ENDED THROUGH
FEBRUARY 29, ----------------- FEBRUARY 28, NOVEMBER 30, NOVEMBER 30,
1996 1995 1994 1993 1992 1991
- ------------ ------- ------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
$ 11.26 $ 11.99 $ 12.08 $ 11.67 $ 11.40 $11.19
------- ------- ------- ------- ------- ------
0.49 0.54 0.55 0.15 0.62 0.27
0.39 (0.72) 0.03 0.54 0.31 0.21
------- ------- ------- ------- ------- ------
0.88 (0.18) 0.58 0.69 0.93 0.48
------- ------- ------- ------- ------- ------
(0.50) (0.54) (0.55) (0.15) (0.62) (0.27)
-- (0.01) (0.12) (0.13) (0.04) --
------- ------- ------- ------- ------- ------
(0.50) (0.55) (0.67) (0.28) (0.66) (0.27)
------- ------- ------- ------- ------- ------
$ 11.64 $ 11.26 $ 11.99 $ 12.08 $ 11.67 $11.40
======= ======= ======= ======= ======= ======
7.94% (1.29)% 4.87% 6.02% 8.36% 4.06%
======= ======= ======= ======= ======= ======
$51,546 $58,958 $70,988 $50,064 $39,564 $8,620
1.68%(/2/) 1.64% 1.63% 1.63%* 1.65% 1.65%*
4.31%(/2/) 4.86% 4.50% 5.08%* 5.16% 5.26%*
74% 60% 16% 5% 21% 27%
<CAPTION>
CLASS B CLASS C** CLASS Y***
- ---------------- ---------------------------------------------------------------- ----------------
FOR THE FOR THE PERIOD
FOR THE YEARS FOR THE THREE PERIOD NOVEMBER 3,
FOR THE YEAR FOR THE YEAR ENDED MONTHS JULY 2, 1992+ 1995+
ENDED ENDED FEBRUARY 28, ENDED THROUGH THROUGH
FEBRUARY 29, FEBRUARY 29, ------------------- FEBRUARY 28, NOVEMBER 30, FEBRUARY 29,
1996 1996 1995 1994 1993 1992 1996
- ---------------- ---------------- --------- --------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
$ 11.26 $ 11.26 $ 12.00 12.09 $ 11.67 $ 11.71 $11.62
- ---------------- ---------------- --------- --------- ------------- ------------- -----------------
0.49 0.52 0.57 0.58 0.15 0.23 0.19
0.39 0.39 (0.73) 0.03 0.55 (0.04) 0.01
- ---------------- ---------------- --------- --------- ------------- ------------- -----------------
0.88 0.91 (0.16) 0.61 0.70 0.19 0.20
- ---------------- ---------------- --------- --------- ------------- ------------- -----------------
(0.50) (0.53) (0.57) (0.58) (0.15) (0.23) (0.17)
-- -- (0.01) (0.12) (0.13) -- --
- ---------------- ---------------- --------- --------- ------------- ------------- -----------------
(0.50) (0.53) (0.58) (0.70) (0.28) (0.23) (0.17)
- ---------------- ---------------- --------- --------- ------------- ------------- -----------------
$ 11.64 $ 11.64 $ 11.26 $ 12.00 $ 12.09 $ 11.67 $11.65
================ ================ ========= ========= ============= ============= =================
7.94% 8.19% (1.13)% 5.13% 6.18% 1.41% 1.70%
================ ================ ========= ========= ============= ============= =================
$51,546 $75,076 $101,642 $187,778 $138,989 $105,854 $ 341
1.68%(/2/) 1.45%(/2/) 1.40% 1.37% 1.37%* 1.42%* 0.64%(/2/)*
4.31%(/2/) 4.57%(/2/) 5.13% 4.75% 5.30%* 5.17%* 5.19%(/2/)*
74% 74% 60% 16% 5% 21% 74%
</TABLE>
33
<PAGE>
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------
FOR THE YEARS ENDED
-----------------------------------------------------
FEBRUARY 28,
--------------------------
FEBRUARY 29, FEBRUARY 29,
1996 1995 1994 1993 1992
------------ ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 9.92 $ 10.77 $ 10.96 $ 10.29 $ 9.92
------- ------- ------- ------- -------
Net investment income... 0.62 0.59 0.61 0.67 0.71
Net realized and
unrealized gains
(losses) from
investment
transactions........... 0.37 (0.82) 0.01 0.81 0.44
------- ------- ------- ------- -------
Net increase (decrease)
from investment
operations............. 0.99 (0.23) 0.62 1.48 1.15
------- ------- ------- ------- -------
Dividends from net
investment income...... (0.62) (0.59) (0.61) (0.67) (0.71)
Distributions from net
realized gains from
investment
transactions........... -- (0.03) (0.20) (0.14) (0.07)
------- ------- ------- ------- -------
Total dividends and
distributions to
shareholders........... (0.62) (0.62) (0.81) (0.81) (0.78)
------- ------- ------- ------- -------
Net asset value, end of
period................. $ 10.29 $ 9.92 $ 10.77 $ 10.96 $ 10.29
======= ======= ======= ======= =======
Total investment
return(1).............. 10.18% (2.03)% 5.77% 15.05% 11.94%
======= ======= ======= ======= =======
Ratios and supplemental
data:
Net assets, end of
period (000's)......... $57,280 $63,287 $82,248 $82,251 $68,830
Ratio of expenses, net
of waivers from
adviser, to average net
assets................. 1.10% 1.13% 1.03% 0.87% 0.75%
Ratio of expenses,
before waivers from
adviser, to average net
assets................. 1.10% 1.13% 1.16% 1.29% 1.25%
Ratio of net investment
income, net of waivers
from adviser, to
average net assets..... 5.94% 5.96% 5.52% 6.31% 6.99%
Ratio of net investment
income, before waivers
from adviser, to
average net assets..... 5.94% 5.96% 5.39% 5.89% 6.49%
Portfolio turnover rate. 48% 28% 23% 10% 45%
- ---------------------
</TABLE>
+ Commencement of issuance of shares
* Annualized
** Formerly Class D
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period, reinvestment of all dividends 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 each
class would be lower if sales charges were included. Total investment
returns for periods of less than one year have not been annualized.
34
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C**
- ------------------------------------------------------- ----------------------------------------------
FOR THE YEARS FOR THE PERIOD FOR THE YEARS FOR THE PERIOD
FOR THE YEAR ENDED JULY 1, 1991+ FOR THE YEAR ENDED JULY 2, 1992+
ENDED FEBRUARY 28, THROUGH ENDED FEBRUARY 28, THROUGH
FEBRUARY 29, ------------------------- FEBRUARY 29, FEBRUARY 29, ----------------- FEBRUARY 28,
1996 1995 1994 1993 1992 1996 1995 1994 1993
- ------------ ------- ------- ------- -------------- ------------ ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 9.92 $ 10.76 $ 10.96 $ 10.29 $10.05 $ 9.92 $ 10.77 $ 10.96 $ 10.50
------- ------- ------- ------- ------ ------- ------- ------- -------
0.54 0.52 0.52 0.59 0.42 0.56 0.55 0.55 0.36
0.37 (0.81) -- 0.81 0.31 0.37 (0.82) 0.01 0.47
------- ------- ------- ------- ------ ------- ------- ------- -------
0.91 (0.29) 0.52 1.40 0.73 0.93 (0.27) 0.56 0.83
------- ------- ------- ------- ------ ------- ------- ------- -------
(0.54) (0.52) (0.52) (0.59) (0.42) (0.56) (0.55) (0.55) (0.36)
-- (0.03) (0.20) (0.14) (0.07) -- (0.03) (0.20) (0.01)
------- ------- ------- ------- ------ ------- ------- ------- -------
(0.54) (0.55) (0.72) (0.73) (0.49) (0.56) (0.58) (0.75) (0.37)
------- ------- ------- ------- ------ ------- ------- ------- -------
$ 10.29 $ 9.92 $ 10.76 $ 10.96 $10.29 $ 10.29 $ 9.92 $ 10.77 $ 10.96
======= ======= ======= ======= ====== ======= ======= ======= =======
9.36% (2.67)% 4.88% 14.81% 6.89% 9.64% (2.51)% 5.24% 7.72%
======= ======= ======= ======= ====== ======= ======= ======= =======
$23,868 $25,823 $32,287 $22,922 $8,176 $20,700 $23,158 $35,872 $21,638
1.85% 1.87% 1.79% 1.63% 1.50%* 1.60% 1.63% 1.54% 1.40%*
1.85% 1.87% 1.90% 2.01% 1.98%* 1.60% 1.63% 1.64% 1.69%*
5.19% 5.21% 4.72% 5.48% 5.80%* 5.45% 5.48% 4.95% 5.26%*
5.19% 5.21% 4.61% 5.10% 5.32%* 5.45% 5.48% 4.85% 4.97%*
48% 28% 23% 10% 46% 48% 28% 23% 10%
</TABLE>
35
<PAGE>
PAINEWEBBER NEW YORK TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------
FOR THE YEARS ENDED
-----------------------------------------------------
FEBRUARY 28,
--------------------------
FEBRUARY 29, FEBRUARY 29,
1996 1995 1994 1993 1992
------------ ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 10.27 $ 11.03 $ 10.99 $ 10.12 $ 9.76
------- ------- ------- ------- -------
Net investment income... 0.54 0.54 0.57 0.63 0.66
Net realized and
unrealized gains
(losses) from
investment
transactions........... 0.45 (0.66) 0.07 0.87 0.36
------- ------- ------- ------- -------
Net increase (decrease)
from investment
operations............. 0.99 (0.12) 0.64 1.50 1.02
------- ------- ------- ------- -------
Dividends from net
investment income...... (0.55) (0.54) (0.57) (0.63) (0.66)
Distributions from net
realized gains from
investment
transactions........... -- (0.10) (0.03) -- --
------- ------- ------- ------- -------
Total dividends and
distributions to
shareholders........... (0.55) (0.64) (0.60) (0.63) (0.66)
------- ------- ------- ------- -------
Net asset value, end of
period................. $ 10.71 $ 10.27 $ 11.03 $ 10.99 $ 10.12
======= ======= ======= ======= =======
Total investment
return(1).............. 9.83% (0.83)% 5.89% 15.44% 10.80%
======= ======= ======= ======= =======
Ratios and supplemental
data:
Net assets, end of
period (000's)......... $28,734 $32,475 $45,033 $43,443 $35,961
Ratio of expenses, net
of waivers from
adviser, to average net
assets................. 1.02% 1.01% 0.75% 0.34% 0.25%
Ratio of expenses,
before waivers from
adviser, to average net
assets................. 1.15% 1.26% 1.25% 1.47% 1.53%
Ratio of net investment
income, net of waivers
from adviser, to
average net assets..... 5.11% 5.38% 5.13% 6.07% 6.65%
Ratio of net investment
income, before waivers
from adviser, to
average net assets..... 4.98% 5.13% 4.63% 4.94% 5.37%
Portfolio turnover rate. 13% 6% 8% 6% 6%
- ---------------------
</TABLE>
+ Commencement of issuance of shares
* Annualized
** Formerly Class D shares.
(1) Total 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 each class would be lower if sales
charges were included. Total returns for periods of less than one year have
not been annualized.
36
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C**
- ------------------------------------------------------- ----------------------------------------------
FOR THE PERIOD FOR THE YEARS FOR THE PERIOD
FOR THE FOR THE YEARS JULY 1, 1991+ FOR THE ENDED JULY 2, 1992+
YEAR ENDED ENDED FEBRUARY 28, THROUGH YEAR ENDED FEBRUARY 28, THROUGH
FEBRUARY 29, ------------------------- FEBRUARY 29, FEBRUARY 29, ----------------- FEBRUARY 28,
1996 1995 1994 1993 1992 1996 1995 1994 1993
- ------------ ------- ------- ------- -------------- ------------ ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 10.27 $ 11.03 $ 10.98 $ 10.12 $ 9.81 $ 10.28 $ 11.03 $ 10.99 $ 10.45
------- ------- ------- ------- ------ ------- ------- ------- -------
0.47 0.47 0.49 0.56 0.39 0.49 0.49 0.51 0.36
0.44 (0.66) 0.08 0.86 0.31 0.43 (0.65) 0.07 0.54
------- ------- ------- ------- ------ ------- ------- ------- -------
0.91 (0.19) 0.57 1.42 0.70 0.92 (0.16) 0.58 0.90
------- ------- ------- ------- ------ ------- ------- ------- -------
(0.47) (0.47) (0.49) (0.56) (0.39) (0.49) (0.49) (0.51) (0.36)
-- (0.10) (0.03) -- -- -- (0.10) (0.03) --
------- ------- ------- ------- ------ ------- ------- ------- -------
(0.47) (0.57) (0.52) (0.56) (0.39) (0.49) (0.59) (0.54) (0.36)
------- ------- ------- ------- ------ ------- ------- ------- -------
$ 10.71 $ 10.27 $ 11.03 $ 10.98 $10.12 $ 10.71 $ 10.28 $ 11.03 $ 10.99
======= ======= ======= ======= ====== ======= ======= ======= =======
9.01% (1.57)% 5.19% 14.35% 6.80% 9.17% (1.20)% 5.35% 8.38%
======= ======= ======= ======= ====== ======= ======= ======= =======
$11,862 $14,660 $19,193 $13,776 $6,026 $17,849 $21,095 $38,165 $19,553
1.77% 1.76% 1.51% 1.10% 1.00%* 1.52% 1.52% 1.27% 0.90%*
1.89% 2.01% 1.99% 2.19% 2.20%* 1.64% 1.75% 1.72% 1.83%*
4.36% 4.63% 4.34% 5.22% 5.59%* 4.61% 4.89% 4.55% 5.04%*
4.24% 4.83% 3.86% 4.13% 4.39%* 4.50% 4.65% 4.10% 4.11%*
13% 6% 8% 6% 6% 13% 6% 8% 6%
</TABLE>
37
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
PaineWebber Mutual Fund Trust
PaineWebber Municipal Series
We have audited the accompanying statements of assets and
liabilities, including the portfolios of investments, of
PaineWebber Mutual Fund Trust (comprising PaineWebber California
Tax-Free Income Fund and PaineWebber National Tax-Free Income
Fund), and PaineWebber Municipal Series (comprising PaineWebber
Municipal High Income Fund and PaineWebber New York Tax-Free
Income Fund) (the "Trusts") as of February 29, 1996, and the
related statements of operations for the year then ended and the
statements of changes in net assets and financial highlights for
each of the periods indicated therein. These financial statements
and financial highlights are the responsibility of the Trusts'
management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments
owned at February 29, 1996 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of each of the respective Funds constituting
PaineWebber Mutual Fund Trust and PaineWebber Municipal Series at
February 29, 1996, the results of their operations for the year
then ended, and the changes in their net assets and financial
highlights for each of the indicated periods, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
April 12, 1996
38
<PAGE>
PAINEWEBBER
TAX INFORMATION
We are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of each Fund's fiscal year end (February
29, 1996), as to the federal tax status of distributions received by
shareholders during such fiscal year. Accordingly, we are advising you that the
following distributions paid during the fiscal year were derived from the
following sources:
<TABLE>
<CAPTION>
CALIFORNIA NATIONAL NEW YORK
TAX-FREE TAX-FREE MUNICIPAL HIGH TAX-FREE
PER SHARE DATA: INCOME FUND INCOME FUND INCOME FUND INCOME FUND
--------------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Tax-exempt income*
Class A..................... 0.5660 0.5862 0.6153 0.5474
Class B..................... 0.4841 0.4993 0.5382 0.4673
Class C..................... 0.5093 0.5269 0.5643 0.4940
Class Y..................... 0.1685
</TABLE>
- -------------
* Federally exempt interest dividends
The California Tax-Free Income Fund, National Tax-Free Income Fund and New York
Tax-Free Income Fund did not invest in any security which paid interest subject
to the federal alternative minimum tax for individual taxpayers during its
fiscal year. Therefore, none of the dividends paid by these funds were subject
to such tax. The Municipal High Income Fund had 0.4% of its dividends subject
to the federal alternative minimum tax for individual taxpayers during its
fiscal year. Additionally, all exempt interest dividends paid by California
Tax-Free Income Fund and New York Tax-Free Income Fund were exempt from
California state income tax and New York state and city income tax,
respectively.
Because each Fund's fiscal year is not the calendar year, another notification
will be sent in respect of calendar year 1996. The second notification, which
reflects the amount to be used by calendar year taxpayers on their federal
income tax returns, will be made in conjunction with Form 1099 DIV and will be
mailed in January 1997. Shareholders are advised to consult their own tax
advisers with respect to the tax consequences of their investment in each Fund.
39
