<PAGE>
CALIFORNIA TAX-FREE INCOME FUND
PAINEWEBBER
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------- -----------------------------
12 MONTHS 6 MONTHS
02/28/97 08/31/96 02/29/96 ENDED 02/28/97 ENDED 02/28/97
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $10.91 $10.70 $11.02 3.92% 4.42%
- ------------------------------------------------------------------------
Class B Shares 10.92 10.71 11.03 3.14 4.02
- ------------------------------------------------------------------------
Class C Shares 10.90 10.70 11.02 3.30 4.06
- ------------------------------------------------------------------------
</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
- ------------------------------------------------------------------------------
1996 11.18 10.94 -- 0.5271 2.74
- ------------------------------------------------------------------------------
01/01/97-
02/28/97 10.94 10.91 -- 0.0502 0.18
- ------------------------------------------------------------------------------
Total: $0.6330 $7.6903
- ------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 02/28/97: 143.59%
- ------------------------------------------------------------------------------
</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
- ----------------------------------------------------------------------------
1996 11.19 10.95 -- 0.4449 1.96
- ----------------------------------------------------------------------------
01/01/97 - 02/28/97 10.95 10.92 -- 0.0420 0.11
- ----------------------------------------------------------------------------
Total: $0.5990 $2.8659
- ----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/28/97: 35.98%
- ----------------------------------------------------------------------------
</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
- ----------------------------------------------------------------------------
1996 11.17 10.94 -- 0.4713 2.31
- ----------------------------------------------------------------------------
01/01/97 - 02/28/97 10.94 10.90 -- 0.0446 0.04
- ----------------------------------------------------------------------------
Total: $0.5722 $2.3705
- ----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/28/97: 24.41%
- ----------------------------------------------------------------------------
</TABLE>
/1Figures/assume reinvestment of all dividends and capital gain 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.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The 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.
11
<PAGE>
NATIONAL TAX-FREE INCOME FUND
PAINEWEBBER
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------- -----------------------------
12 MONTHS 6 MONTHS
02/28/97 08/31/96 02/29/96 ENDED 02/28/97 ENDED 02/28/97
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $11.55 $11.28 $11.64 4.14% 4.89%
- ------------------------------------------------------------------------
Class B Shares 11.55 11.27 11.64 3.35 4.59
- ------------------------------------------------------------------------
Class C Shares 11.55 11.27 11.64 3.61 4.72
- ------------------------------------------------------------------------
</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
- -----------------------------------------------------------------------------
1996 11.84 11.54 -- 0.5299 2.29
- -----------------------------------------------------------------------------
01/01/97 - 02/28/97 11.54 11.55 -- 0.0695 0.69
- -----------------------------------------------------------------------------
Total: $0.3022 $8.8381
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/28/97: 173.92%
- -----------------------------------------------------------------------------
</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
- -----------------------------------------------------------------------------
1996 11.83 11.53 -- 0.4467 1.52
- -----------------------------------------------------------------------------
01/01/97 - 02/28/97 11.53 11.55 -- 0.0588 0.68
- -----------------------------------------------------------------------------
Total: $0.3022 $3.0515
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/28/97: 38.04%
- -----------------------------------------------------------------------------
</TABLE>
/1Figures/assume reinvestment of all dividends and capital gain 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.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The 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.
12
<PAGE>
NATIONAL TAX-FREE INCOME FUND
PAINEWEBBER
PERFORMANCE RESULTS (UNAUDITED) (CONCLUDED)
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
- -----------------------------------------------------------------------------
1996 11.84 11.54 -- 0.4737 1.77
- -----------------------------------------------------------------------------
01/01/97 - 02/28/97 11.54 11.55 -- 0.0623 0.63
- -----------------------------------------------------------------------------
Total: $0.2657 $2.5095
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/28/97: 25.46%
- -----------------------------------------------------------------------------
</TABLE>
/1Figures/assume reinvestment of all dividends and capital gain distributions
at net asset value on the payable dates, and do not include sales charges;
results would be lower if sales charges were included.
Note: The Fund currently offers Class Y shares primarily to INSIGHT Investment
Advisory Program participants. For the year ended February 28, 1997 and
since inception, November 3, 1995 through February 28, 1997, Class Y
shares had a total return of 4.32% and 6.10%, respectively. 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 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.
13
<PAGE>
MUNICIPAL HIGH INCOME FUND
PAINEWEBBER
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------- -----------------------------
12 MONTHS 6 MONTHS
02/28/97 08/31/96 02/29/96 ENDED 02/28/97 ENDED 02/28/97
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $10.39 $10.12 $10.29 6.61% 5.43%
- ------------------------------------------------------------------------
Class B Shares 10.39 10.11 10.29 5.82 5.14
- ------------------------------------------------------------------------
Class C Shares 10.39 10.12 10.29 6.08 5.17
- ------------------------------------------------------------------------
</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>
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
- -----------------------------------------------------------------------------
1996 10.36 10.39 -- 0.5627 5.94
- -----------------------------------------------------------------------------
01/01/97 - 02/28/97 10.39 10.39 -- 0.0554 0.53
- -----------------------------------------------------------------------------
Total: $0.4382 $6.4109
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/28/97: 112.79%
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
1996 10.35 10.38 -- 0.4854 5.15
- -----------------------------------------------------------------------------
01/01/97 - 02/28/97 10.38 10.39 -- 0.0476 0.56
- -----------------------------------------------------------------------------
Total: $0.4382 $3.021
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/28/97: 44.18%
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
1996 10.35 10.39 -- 0.5106 5.51
- -----------------------------------------------------------------------------
01/01/97 - 02/28/97 10.39 10.39 -- 0.0502 0.48
- -----------------------------------------------------------------------------
Total: $0.2432 $2.4785
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/28/97: 28.53%
- -----------------------------------------------------------------------------
</TABLE>
/1Figures/assume reinvestment of all dividends and capital gain 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.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The 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.
14
<PAGE>
NEW YORK TAX-FREE INCOME FUND
PAINEWEBBER
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------- -----------------------------
12 MONTHS 6 MONTHS
02/28/97 08/31/96 02/29/96 ENDED 02/28/97 ENDED 02/28/97
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $10.66 $10.44 $10.71 4.49% 4.59%
- ------------------------------------------------------------------------
Class B Shares 10.65 10.43 10.71 3.62 4.21
- ------------------------------------------------------------------------
Class C Shares 10.66 10.44 10.71 3.98 4.33
- ------------------------------------------------------------------------
</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 5.53
- -----------------------------------------------------------------------------
1991 9.68 10.22 -- 0.6637 12.85
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
1996 10.81 10.65 -- 0.5175 3.46
- -----------------------------------------------------------------------------
01/01/97 - 02/28/97 10.65 10.66 -- 0.0509 0.57
- -----------------------------------------------------------------------------
Total: $0.1270 $5.0409
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/28/97: 84.74%
- -----------------------------------------------------------------------------
</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 9.02
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
1996 10.81 10.65 -- 0.4385 2.69
- -----------------------------------------------------------------------------
01/01/97 - 02/28/97 10.65 10.65 -- 0.0430 0.40
- -----------------------------------------------------------------------------
Total: $0.1270 $2.7336
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/28/97: 42.99%
- -----------------------------------------------------------------------------
</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
- -----------------------------------------------------------------------------
1996 10.81 10.65 -- 0.4651 2.95
- -----------------------------------------------------------------------------
01/01/97 - 02/28/97 10.65 10.66 -- 0.0456 0.52
- -----------------------------------------------------------------------------
Total: $0.1270 $2.2484
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/28/97: 28.07%
- -----------------------------------------------------------------------------
</TABLE>
/1Figures/assume reinvestment of all dividends and capital gain 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.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The 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.
15
<PAGE>
CALIFORNIA TAX-FREE INCOME FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- --------------- ------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES - 98.99%
$ 7,150 California General
Obligation Bonds....... 06/01/09 to 11/01/09 5.000 to 6.500% $ 7,393,674
2,000 California Educational
Facilities Authority
Claremont College...... 05/01/22 6.375 2,083,160
6,000 California Educational
Facilities Authority
Stanford University.... 01/01/13 to 11/01/16 6.000 to 6.750 6,269,435
1,740 California Educational
Facilities Authority
University of San
Francisco.............. 10/01/07 6.250 1,930,687
3,500 California Educational
Facilities Authority
University of Southern
California............. 10/01/15 7.200 3,624,005
2,000 California Health
Facilities Financing
Authority
Kaiser Permanente
Hospital............... 10/01/18 7.000 2,154,000
3,500 California State
Department of
Transportation......... 03/01/16 6.500 3,657,010
500 California Statewide
Communities Development
Authority St. Joseph's
Health System.......... 03/03/97 3.350* 500,000
3,370 University of California
Revenues
Multiple Purpose
Projects (MBIA
Insured)............... 09/01/01 10.000 4,132,597
4,000 University of California
Revenues
Refunding Housing
Systems Series A....... 11/01/13 5.000 3,812,560
1,000 Anaheim Public Financing
Authority Lease Revenue
Senior Public
Improvements Project
Series A............... 09/01/24 6.000 1,058,700
1,390 Beverly Hills
Certificates of
Participation.......... 06/01/15 to 06/01/19 6.750 to 7.000 1,475,161
4,000 Central Coast Water
Authority Revenue
Series A............... 10/01/16 5.000 3,720,960
1,350 Contra Costa County
Transportation
Commission
Sales Tax Revenue
Bonds.................. 03/01/07 6.875 1,527,741
6,175 Contra Costa Water
District (AMBAC
Insured)............... 10/01/22 6.375 6,612,375
3,850 Downey Certificates of
Participation
Civic Center Project... 02/01/07 to 02/01/09 6.500 4,330,667
2,000 East Bay Municipal
Utility District....... 06/01/12 6.000 2,082,040
1,895 Foothill/Eastern
Transportation Corridor
Agency California Toll
Road Revenue........... 01/01/34 6.000 1,875,368
1,000 Intermodal Container
Transfer Facilities
Southern Pacific
Transfer Company....... 11/01/14 7.700 1,061,760
3,000 Kings River Conservation
District
Pine Flat Power........ 01/01/12 6.375 3,187,620
4,960 Los Angeles County
Public Works Financing
Authority Revenue
Regional Parks and Open
Space
(MBIA Insured)......... 10/01/09 6.100 5,289,642
3,000 Los Angeles Department
of Water & Power
(Crossover refunded to
01/15/01 @ 102)........ 01/15/31 7.100 3,333,120
1,500 Los Angeles Department
of Water & Power
(Crossover refunded to
02/15/99 @ 102)........ 02/15/19 7.200 1,613,955
3,000 Los Angeles Harbor
Department Revenue
Bonds
(Pre-refunded with U.S.
Government Securities
to 08/01/02 @ 102)..... 08/01/20 6.400 3,335,580
5,400 Los Angeles Metropolitan
Transportation
Authority
Sales Tax Revenue
(AMBAC Insured)........ 07/01/25 5.000 4,871,286
1,265 Los Angeles Transport
Commission
Sales Tax Revenue (MBIA
Insured)............... 07/01/13 6.250 1,342,722
1,260 Los Angeles Wastewater
Systems Revenue........ 06/01/12 6.250 1,337,452
8,100 Metropolitan Water
District of Southern
California
Series C............... 07/01/27 to 07/01/37 5.000 7,213,140
1,800 Modesto Public Financing
Authority Lease Revenue
John Thurman Field
Renovation Project..... 11/01/16 6.125 1,793,502
9,000 Newport Beach Health
Facilities
Hoag Memorial Hospital. 03/03/97 3.350* 9,000,000
</TABLE>
16
<PAGE>
CALIFORNIA TAX-FREE INCOME FUND
PAINEWEBBER
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------------- ------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES - (CONCLUDED)
$ 5,000 Oakland General
Obligation Bonds (FGIC
Insured)............... 06/15/22 6.000% $ 5,111,950
4,535 Ontario Redevelopment
Financing Authority
Revenue
Center City Cimarron
Project................ 08/01/15 6.250 4,776,443
810 Orange County Mortgage
Revenue Bonds (GNMA
Insured)............... 09/01/16 7.800 835,061
1,745 Redding Joint Powers
Financing Authority
Electric Systems
Revenue................ 06/01/00 5.500 1,814,364
2,315 San Bernardino County
Transportation
Authority
Sales Tax Revenue...... 03/01/09 6.250 2,565,043
8,300 San Diego Industrial
Development Authority
San Diego Gas &
Electric............... 09/01/18 6.100 to 6.400 8,583,307
2,000 San Francisco Sewer
(AMBAC Insured)........ 10/01/11 6.000 2,091,540
4,525 San Joaquin Hills
Transportation Corridor
Agency Toll Road
Revenue................ 01/01/00 4.950+ 3,928,153
1,000 San Jose Redevelopment
Agency Tax Allocation.. 08/01/09 6.000 1,087,810
2,000 Santa Clara County
Financing Authority
Lease
(AMBAC Insured)........ 11/15/20 6.750 2,243,400
5,000 Santa Monica Parking
Authority.............. 07/01/16 6.375 5,267,050
5,000 Southern California
Public Power Authority. 07/01/20 5.500 4,821,400
3,500 Southern California
Rapid Transit District
Special Benefit
Assessment District.... 09/01/08 6.000 3,716,860
16,630 Puerto Rico Electric
Power Authority
Revenue................ 07/01/12 to 07/01/25 5.000 to 5.500 15,469,092
------------
Total Investments (cost -
$158,248,945) - 98.99%........... 163,931,392
Other assets in excess of
liabilities - 1.01%............... 1,675,969
------------
Net Assets - 100.00%............... $165,607,361
============
</TABLE>
- -------
* Variable rate demand notes and variable rate certificates of participation
which are payable on demand. The maturity date shown is the next interest
rate reset date; the interest rate shown is the current rate as of February
28, 1997.
+ Zero coupon bond, interest rate reflects yield to maturity at date of
purchase.
AMBAC - American Municipal Bond Assurance Corporation
FGIC - Financial Guaranty Insurance Company
GNMA - Government National Mortgage Association
MBIA - Municipal Bond Investors Assurance
See accompanying notes to financial statements
17
<PAGE>
NATIONAL TAX-FREE INCOME FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------- ------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES - 101.78%
Alaska - 0.30%
$ 1,025 Anchorage Telephone
Utility Revenue Series
A...................... 03/01/06 6.000% $ 1,098,605
------------
Arizona - 5.43%
10,510 Maricopa County
Community College
District............... 07/01/07 6.000 11,180,643
2,500 Maricopa County School
District Kyrene
Elementary............. 07/01/00 4.720+ 2,158,425
2,875 Maricopa County School
District (MBIA
Insured)............... 07/01/01 5.025+ 2,362,848
3,700 Phoenix General
Obligation Bonds....... 07/01/16 6.250 4,069,556
------------
19,771,472
------------
California - 4.15%
160 California State (FGIC
Insured)............... 11/01/12 7.000 181,706
200 California Statewide
Communities Development
Authority
St. Joseph's Health
System................. 03/03/97 3.350* 200,000
3,000 Foothill/Eastern
Transportation Corridor
Agency
California Toll Road
Revenue Series A....... 01/01/34 6.000 2,968,920
200 Irvine Ranch Water
District Dates Capital
Improvement Project.... 03/03/97 3.250* 200,000
10,000 Metropolitan Water
District of Southern
California Waterworks
Revenue................ 07/01/37 5.000 8,841,500
2,845 University of California
Revenues
Refunding Housing
Systems Series A....... 11/01/13 5.000 2,711,683
------------
15,103,809
------------
Colorado - 3.98%
12,000 Arapahoe County Capital
Improvement Trust Fund
Highway Revenue........ 08/31/26 7.000 13,228,920
1,235 University of Colorado.. 12/01/00 5.500 1,281,930
------------
14,510,850
------------
Connecticut - 0.18%
600 Connecticut State....... 03/15/12 6.000 647,694
------------
District of Columbia - 1.28%
4,355 District of Columbia
Hospital Revenue
Medlantic Healthcare
Group.................. 08/15/09 to 08/15/10 6.000 4,649,896
------------
Florida - 1.71%
2,750 Florida State Board of
Education.............. 06/01/20 7.000 3,027,337
3,000 Plant City Utility
Systems Revenue........ 10/01/15 6.000 3,209,370
------------
6,236,707
------------
Georgia - 4.01%
5,000 Conyers Water and Sewage
Revenue (AMBAC
Insured)............... 07/01/15 6.600 5,612,500
8,000 Hall County School
District (AMBAC
Insured)............... 12/01/14 6.700 8,985,040
------------
14,597,540
------------
</TABLE>
18
<PAGE>
NATIONAL TAX-FREE INCOME FUND
PAINEWEBBER
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------- ------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES - (CONTINUED)
Hawaii - 1.44%
$ 4,515 Hawaii General Obligation
Bonds................... 01/01/15 6.250% $ 4,748,471
500 Hawaii State............. 02/01/08 5.125 502,680
------------
5,251,151
------------
Idaho - 0.11%
400 Idaho Health Facilities
Authority
St. Lukes Medical Center
Project................. 03/03/97 3.450* 400,000
------------
Illinois - 5.62%
1,000 Illinois Board of
Education
Chicago School Reform... 12/01/12 6.250 1,094,910
4,335 Illinois Development
Finance Authority
Citizens Utilities...... 08/01/20 7.150 4,625,272
1,000 Illinois Health
Facilities Authority
Evangelical Hospital.... 04/15/17 6.750 1,139,160
1,100 Illinois Health
Facilities Authority
Revenue
Central Dupage
Healthcorp.............. 03/03/97 3.450* 1,100,000
2,000 Illinois Skyway Toll
Bridge Revenue.......... 01/01/10 6.500 2,235,000
500 Chicago Metropolitan
Water Reclamation
District................ 12/01/10 7.000 587,610
2,500 Chicago Series A2........ 01/01/15 6.250 2,720,150
1,170 Northern Illinois
University (Pre-refunded
with U.S. Government
Securities to 04/01/09 @
100).................... 04/01/13 10.400 1,608,867
4,620 Regional Transportation
Authority (FGIC
Insured)................ 06/01/14 7.100 5,370,057
------------
20,481,026
------------
Indiana - 4.68%
3,000 Indiana Health Facility
Finance Authority
Methodist Hospital of
Indiana................. 09/01/15 5.750 2,986,470
10,650 Indianapolis Local Public
Improvement Series C.... 01/01/17 6.700 11,840,883
2,000 Purdue University........ 07/01/15 6.700 2,206,480
------------
17,033,833
------------
Kentucky - 0.85%
3,000 Jefferson County School
District Series B....... 01/01/99 5.500 3,082,170
------------
Louisiana - 0.83%
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 1,455,986
1,580 Louisiana Public
Facilities Authority
Revenue
Kenner Hotel Limited.... 03/03/97 3.500* 1,580,000
------------
3,035,986
------------
Massachusetts - 4.29%
8,000 Massachusetts General
Obligation Bonds........ 06/01/13 6.500 8,788,640
3,290 Massachusetts General
Obligation Bonds (FGIC
Insured)................ 11/01/13 to 11/01/14 7.000 3,818,670
1,770 Massachusetts Water
Resources Authority..... 12/01/11 6.000 1,897,458
1,000 Massachusetts Water
Resources Authority
(Pre-refunded
with U.S. Government
Securities to 04/01/00 @
102).................... 04/01/16 7.500 1,111,660
------------
15,616,428
------------
</TABLE>
19
<PAGE>
NATIONAL TAX-FREE INCOME FUND
PAINEWEBBER
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------------- ------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES - (CONTINUED)
Michigan - 2.67%
$ 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% $ 1,142,880
7,850 Royal Oak Hospital
Finance Authority
William Beaumont
Hospital............... 01/01/19 to 01/01/20 6.625 to 6.750 8,571,014
------------
9,713,894
------------
Minnesota - 1.77%
6,000 Minnesota Public
Facilities Authority
Water Pollution........ 03/01/15 6.250 6,448,980
------------
New Jersey - 4.25%
1,890 New Jersey Housing
General Resolution
Series A............... 11/01/04 6.700 2,027,724
12,000 New Jersey State
Turnpike Authority
(MBIA Insured)......... 01/01/16 6.500 13,441,080
------------
15,468,804
------------
New York - 19.61%
3,000 New York State Dormitory
Authority Revenues
State University
Educational Facilities
Series A (Pre-refunded
with U.S. Government
Securities to 05/15/00
@ 102)................. 05/15/05 7.625 3,357,150
11,590 New York State Dormitory
Authority Revenues
City University........ 07/01/02 to 07/01/03 6.000 12,194,373
7,300 New York State
Environmental
Facilities Corporation
State Water Pollution
Control................ 06/15/12 to 06/15/14 6.875 to 7.500 8,191,187
7,325 New York State Local
Government Assistance
Corporation............ 04/01/14 to 04/01/17 5.500 to 6.000 7,539,949
2,550 New York State Medical
Care Facilities Finance
Agency Revenue St Lukes
Hospital (Pre-refunded
with U.S. Government
Securities to 02/15/00
@ 102)................. 02/15/29 7.450 2,821,473
4,000 Municipal Assistance
Corporation for the
City of
New York............... 07/01/00 5.500 4,157,800
200 New York City Municipal
Water Finance
Authority.............. 03/03/97 3.450* 200,000
500 New York City........... 03/03/97 3.450 to 3.550* 500,000
4,960 New York City Municipal
Water Finance
Authority.............. 06/15/12 7.100 5,460,513
3,800 Port Authority of New
York and New Jersey.... 03/03/97 3.450* 3,800,000
12,875 Triborough Bridge &
Tunnel Authority....... 01/01/10 to 01/01/17 5.500 to 7.100 13,185,706
10,000 United Nations
Development
Corporation............ 07/01/26 6.000 10,025,000
------------
71,433,151
------------
North Carolina - 2.18%
3,400 North Carolina Eastern
Municipal Power Agency. 01/01/13 7.000 3,811,162
4,000 North Carolina Medical
Care Company Rex
Hospital............... 06/01/17 6.250 4,121,640
------------
7,932,802
------------
Ohio - 0.29%
1,000 Ohio State
Infrastructure
Improvement............ 08/01/13 6.200 1,071,330
------------
Oklahoma - 2.65%
5,780 Oklahoma State Turnpike
Authority
First Senior Systems
(Pre-refunded with U.S.
Government Securities
to 01/01/99 @ 102)..... 01/01/21 7.875 6,274,826
3,290 Holdenville Industrial
Authority
Correctional Facility
Revenue................ 07/01/03 to 07/01/06 6.050 to 6.350 3,373,696
------------
9,648,522
------------
</TABLE>
20
<PAGE>
NATIONAL TAX-FREE INCOME FUND
PAINEWEBBER
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------------- ------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES - (CONCLUDED)
Oregon - 3.03%
$10,400 Portland Sewer Systems
Revenue................ 06/01/15 6.250% $ 11,052,600
------------
Pennsylvania - 0.84%
3,000 Pennsylvania State
Turnpike Commission
Revenue................ 12/01/12 5.750 3,071,280
------------
Puerto Rico - 1.72%
1,500 Puerto Rico Commonwealth
(MBIA Insured)......... 07/01/15 5.650 1,553,835
2,425 Puerto Rico Commonwealth
Highway &
Transportation
Authority.............. 07/01/36 5.000 2,145,931
2,400 Puerto Rico Electric
Power Authority Power
Revenue................ 07/01/09 6.125 2,568,480
------------
6,268,246
------------
South Carolina - 5.53%
27,515 Piedmont Municipal Power
Agency................. 01/01/23 4.000 20,131,075
------------
Texas - 14.48%
2,705 Texas State Public
Finance Authority...... 10/01/13 6.000 2,815,499
2,900 Texas State Public
Property Finance
Corporation Revenue.... 09/01/03 5.400 2,899,507
9,000 Austin Utility Systems
Revenue++.............. 11/15/05 to 11/15/12 6.500 to 6.750 9,813,450
3,200 Bexar Metropolitan Water
District............... 05/01/25 6.350 3,470,912
700 Guadalupe Blanco River
Authority
Central Tax Power...... 03/03/97 3.500* 700,000
710 Harris County Toll Road
Authority (AMBAC
Insured)............... 08/15/17 6.500 778,707
23,000 San Antonio Electric and
Gas Revenue............ 02/01/11 5.750 23,332,580
4,000 San Antonio............. 08/01/01 8.000 4,573,080
4,000 Texarkana Health
Facilities Development
Corporation Wadley
Regional Medical Center
(MBIA Insured)......... 10/01/19 7.000 4,372,440
------------
52,756,175
------------
Utah - 1.47%
5,000 Intermountain Power
Agency................. 07/01/07 6.000 5,374,450
------------
Vermont - 0.80%
2,750 Burlington Electric
Revenue Series A....... 07/01/14 6.250 2,935,378
------------
Virginia - 1.63%
4,350 Virginia State Public
Facilities Authority... 06/01/15 6.500 4,870,216
1,000 Hampton Roads Medical
College................ 11/15/16 6.875 1,068,780
------------
5,938,996
------------
Total Investments (cost -
$354,954,992) - 101.78........... 370,762,850
Liabilities in excess of other as-
sets - (1.78)%.................... (6,490,965)
------------
Net Assets - 100.00%............... $364,271,885
============
</TABLE>
- -------
* Variable rate demand notes and variable rate certificates of participation
which are payable on demand. The maturity dates shown are the next interest
rate reset dates; the interest rates shown are the current rates as of
February 28, 1997.
+ Zero coupon bond, interest rate reflects yield to maturity at date of
purchase.
++ Purchased on a forward committment basis.
AMBAC - American Municipal Bond Assurance Corporation
FGIC - Financial Guaranty Insurance Company
MBIA - Municipal Bond Investors Assurance
See accompanying notes to financial statements
21
<PAGE>
MUNICIPAL HIGH INCOME FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- ---------------- -------------- -----------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES - 98.80%
California - 3.56%
$ 200 Irvine Ranch Water
District
Dates Capital
Improvement Project.... 03/03/97 3.250%* $ 200,000
2,975 Long Beach Aquarium of
the Pacific Project.... 07/01/15 6.125 2,966,581
-----------
3,166,581
-----------
Colorado - 3.53%
3,000 Hyland Hills
Metropolitan Park and
Recreation District.... 12/15/15 6.750 3,139,530
-----------
Florida - 2.44%
2,035 Escambia County
Pollution Control
Champion International
Corporation Project.... 08/01/22 6.900 2,170,857
-----------
Georgia - 2.94%
2,500 Development Authority of
Effingham County
Fort Howard Paper...... 10/01/05 7.900 2,613,150
-----------
Illinois - 8.06%
3,750 Illinois Educational
Facilities Authority 12/01/17 to
Columbia College....... 12/01/18 6.125 to 6.875 3,826,737
3,000 Metropolitan Pier &
Exposition Authority
(Illinois) Mccormick
Place Convention
Complex................ 07/01/26 7.000 3,347,700
-----------
7,174,437
-----------
Indiana - 11.66%
4,000 Indiana State
Development Finance
Authority
Inland Steel
Corporation............ 11/01/11 7.250 4,137,880
1,300 Crawfordsville Economic
Development Authority
Kroger Co.............. 11/01/12 7.700 1,436,630
2,500 Indianapolis Airport
Authority
Federal Express........ 01/15/17 7.100 2,698,825
2,000 Wabash Solid Waste
Disposal
Jefferson Smurfit
Corporation Project.... 06/01/26 7.500 2,100,880
-----------
10,374,215
-----------
Kentucky - 5.43%
2,200 Ashland Sewage and Solid
Waste
Ashland Incorporated
Project................ 02/01/22 7.125 2,379,080
1,250 Kenton County Airport
Board
Delta Airlines......... 02/01/21 7.125 1,329,287
1,000 Russell Health Financing
Authority
Franciscan Sisters of
the Poor Health System. 07/01/15 8.100 1,126,860
-----------
4,835,227
-----------
Louisiana - 3.60%
1,000 Pointe Coupee Parish
Gulf States Utilities.. 03/01/13 6.700 1,021,250
2,000 West Feliciana Parish
Gulf States Utilities.. 12/01/14 7.700 2,179,600
-----------
3,200,850
-----------
</TABLE>
22
<PAGE>
MUNICIPAL HIGH INCOME FUND
PAINEWEBBER
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- ---------------- -------- -----------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES - (CONTINUED)
Massachusetts - 1.16%
$1,000 Agawam Resource Recovery
Springfield Project........ 12/01/08 8.500% $ 1,033,240
-----------
New Hampshire - 2.98%
2,500 New Hampshire Industrial
Development Authority
Central Maine Power
Company.................... 05/01/14 7.375 2,647,400
-----------
New Jersey - 7.03%
2,000 New Jersey Economic
Development Authority
Vineland Cogeneration L.P.
Project.................... 06/01/19 7.875 2,159,700
3,900 New Jersey Health Care
Facilities Financing
Authority Columbus
Hospital................... 07/01/21 7.500 4,094,844
-----------
6,254,544
-----------
New Mexico - 6.23%
3,900 Chaves County Hospital
Revenue Bonds
Eastern New Mexico Medical 12/01/10 to
Center..................... 12/01/22 7.250 4,129,922
1,400 Farmington Pollution Control
Revenue
Public Service Company of
New Mexico................. 12/01/16 6.300 1,417,234
-----------
5,547,156
-----------
New York - 12.09%
2,800 New York City Industrial
Development Agency
American Airlines
Incorporated............... 08/01/24 6.900 3,016,972
3,870 New York Energy Research and
Development Authority
Lilco...................... 09/01/19 7.150 4,137,533
3,500 Port Authority New York and
New Jersey
Kennedy International
Airport Cogeneration
Project
4th Installment Project.... 10/01/11 6.750 3,606,715
-----------
10,761,220
-----------
North Dakota - 0.11%
100 Grand Forks Health Care
Facilities
The United Hospital Group
Project.................... 03/03/97 3.450* 100,000
-----------
Ohio - 4.20%
3,000 Dayton Emery Air Freight.... 10/01/09 6.200 3,056,820
600 Meigs County Kroger Co...... 10/01/11 8.375 675,858
-----------
3,732,678
-----------
Oklahoma - 2.36%
2,050 Holdenville Industrial
Authority
Correctional Facility...... 07/01/10 6.600 2,102,418
-----------
Pennsylvania - 4.86%
1,500 Beaver County Industrial
Development Authority
Toledo Edison.............. 05/01/20 7.750 1,641,120
</TABLE>
23
<PAGE>
MUNICIPAL HIGH INCOME FUND
PAINEWEBBER
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- ---------------- --------- -----------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES - (CONCLUDED)
Pennsylvania - (concluded)
$2,610 Philadelphia Hospitals
and Higher Education
Facilities Authority -
Jeanes Health Systems.. 07/01/10 6.600% $ 2,683,237
-----------
4,324,357
-----------
South Carolina - 2.04%
1,750 Myrtle Beach Certificates
of Participation
Convention Center
Project................. 07/01/17 6.875 1,811,338
-----------
Texas - 2.11%
1,875 El Paso International
Airport
Marriott Hotel.......... 03/01/22 7.875 1,879,556
-----------
Virginia - 1.33%
1,175 Loudoun County Industrial
Development Authority
Dulles Airport Marriott
Hotel................... 09/01/15 7.125 1,185,681
-----------
West Virginia - 2.43%
1,900 Harrison County
Commercial Development
Bonds Kroger Co......... 11/01/14 8.100 2,164,651
-----------
Wisconsin - 4.44%
3,900 Janesville Industrial
Development Revenue
Bonds Simmons
Manufacturing Co.
Paramount
Communications.......... 10/15/17 7.000 3,950,934
-----------
Wyoming - 4.21%
3,500 Sweetwater County Solid
Waste Disposal Revenue
FMC Corporation Project. 06/01/24 7.000 3,745,420
-----------
Total Investments (cost -
$85,339,948) - 98.80%............. 87,915,440
Other assets in excess of
liabilities - 1.20%................ 1,070,521
-----------
Net Assets - 100.00%................ $88,985,961
===========
</TABLE>
- -------
* Variable rate demand notes and variable rate certificates of participation
which are payable on demand. The maturity dates shown are the next interest
rate reset dates; the interest rates shown are the current rates as of
February 28, 1997.
See accompanying notes to financial statements
24
<PAGE>
NEW YORK TAX-FREE INCOME FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- --------------- -----------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES - 99.61%
$1,705 Metropolitan
Transportation
Authority.............. 07/01/11 to 07/01/17 5.500 to 6.250% $ 1,716,644
400 Metropolitan
Transportation
Authority (MBIA
Insured)............... 01/01/08 6.875 431,092
1,750 Metropolitan
Transportation
Authority
New York Commuter
Facilities............. 07/01/17 6.250 1,847,702
2,350 New York State Dormitory
Authority Revenue Bonds
City University of New
York................... 07/01/02 to 07/01/16 5.625 to 6.000 2,400,944
450 New York State Dormitory
Authority Revenue Bonds
Colgate University..... 07/01/16 6.000 478,211
2,000 New York State Dormitory
Authority Revenue Bonds
Columbia University.... 07/01/14 4.750 1,823,140
40 New York State Dormitory
Authority Revenue Bonds
Fordham University
(AMBAC Insured)........ 07/01/15 7.200 43,871
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 1,737,509
800 New York State Energy
Research & Development
Central Hudson Gas &
Electric (FGIC
Insured)............... 10/01/14 7.375 876,600
2,400 New York State Energy
Research & Development
Consolidated Edison
Company................ 08/15/20 6.100 2,451,264
600 New York State Energy
Research & Development
New York Electric &
Gas.................... 03/03/97 3.350* 600,000
250 New York State Energy
Research & Development
Niagara Mohawk (FGIC
Insured)............... 10/01/13 6.625 274,565
1,500 New York State
Environmental
Facilities Corporation
Spring Valley Water
(AMBAC Insured)........ 08/01/24 6.150 1,561,935
1,400 New York State
Environmental
Facilities Corporation
State Water Pollution
Control................ 06/15/10 to 06/15/12 7.250 to 7.500 1,546,853
300 New York State Housing
Finance Agency......... 09/15/12 7.300 329,322
1,500 New York State Local
Government Assistance
Corporation............ 04/01/20 6.500 1,611,960
580 New York State Medical
Care Facilities
Hospital and Nursing
(FHA Insured).......... 02/15/09 7.500 620,588
1,500 New York State Medical
Care Facilities
Hospital & Nursing
(Huntington Hospital).. 11/01/14 6.500 1,556,520
3,155 New York State Thruway
Authority.............. 01/01/00 to 01/01/02 5.500 to 5.900+ 2,610,348
2,000 New York State Thruway
Authority
Highway & Bridge Trust
Fund................... 04/01/14 6.000 2,075,020
1,900 New York State Urban
Development
Corporation............ 01/01/04 to 04/01/05 6.250 to 6.400 2,031,858
1,000 Port Authority of New
York & New Jersey...... 08/01/14 5.625 990,640
300 Port Authority of New
York & New Jersey...... 03/03/97 3.450* 300,000
1,000 Triborough Bridge and
Tunnel Authority....... 01/01/12 6.000 1,079,800
200 Triborough Bridge And
Tunnel Authority (MBIA
Insured)............... 01/01/17 6.625 216,940
1,000 Erie County Water
Revenue Authority
(AMBAC Insured)........ 12/01/14 6.750 1,108,580
2,850 New York City........... 06/01/05 to 02/15/26 5.500 to 8.250 2,815,930
1,730 New York City Industrial
Development Bonds
Lighthouse Project..... 07/01/22 6.500 1,830,184
545 New York City Municipal
Water Finance
Authority.............. 06/15/12 7.100 599,996
1,025 Niagara Falls (FGIC
Insured)............... 06/15/08 5.500 1,055,863
</TABLE>
25
<PAGE>
NEW YORK TAX-FREE INCOME FUND
PAINEWEBBER
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------------- -----------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES - (CONCLUDED)
$1,250 Oneida Herkimer Waste
Management Authority... 04/01/14 6.750% $ 1,277,125
3,700 Puerto Rico Commonwealth
Highway &
Transportation
Authority.............. 07/01/13 to 07/01/36 5.000 to 6.250 3,480,704
2,000 Puerto Rico Electric
Power Authority
Revenue................ 07/01/09 to 07/01/21 5.250 to 6.125 1,991,540
785 Puerto Rico Industrial
Medical & Environmental
Authority Warner
Lambert................ 05/01/14 7.600 852,196
-----------
Total Investments (cost - 46,225,444
$44,148,998) - 99.61%.............
Other assets in excess of 182,866
liabilities - 0.39%................
-----------
Net Assets - 100.00%............... $46,408,310
===========
</TABLE>
- -------
* Variable rate demand note is payable on demand. The maturity date shown is
the next interest rate reset date, the interest rate shown is the current
rate as of February 28, 1997.
+ Zero coupon bond, interest rate reflects yield to maturity at date of
purchase.
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
26
<PAGE>
PAINEWEBBER
STATEMENTS OF ASSETS AND LIABILITIES FEBRUARY 28, 1997
<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--$158,248,945,
$354,954,992,
$85,339,948 and
$44,148,998,
respectively)........... $163,931,392 $370,762,850 $87,915,440 $46,225,444
Cash..................... 39,295 -- 9,633 44,297
Receivable for
investments sold........ 36,365 13,391,533 -- --
Interest receivable...... 2,527,015 4,118,739 1,577,898 546,749
Receivable for shares of
beneficial interest
sold.................... 10,761 77,863 8,541 80,000
Other assets............. 40,941 115,568 68,377 42,883
------------ ------------ ----------- -----------
Total assets............. 166,585,769 388,466,553 89,579,889 46,939,373
------------ ------------ ----------- -----------
Liabilities
Dividends payable........ 509,755 734,019 322,027 145,640
Payable for shares of
beneficial interest
repurchased............. 261,489 8,470,354 173,765 294,185
Payable to affiliates.... 116,745 266,977 77,568 8,430
Payable for investments
purchased............... -- 14,559,980 -- --
Accrued expenses and
other liabilities....... 90,419 163,338 20,568 82,808
------------ ------------ ----------- -----------
Total liabilities........ 978,408 24,194,668 593,928 531,063
------------ ------------ ----------- -----------
Net Assets
Beneficial interest--
$0.001 par value
(unlimited amount
authorized)............. 163,435,493 353,637,613 88,112,750 45,242,772
Accumulated net realized
losses from investment
transactions............ (3,510,579) (5,173,586) (1,702,281) (910,908)
Net unrealized
appreciation of
investments............. 5,682,447 15,807,858 2,575,492 2,076,446
------------ ------------ ----------- -----------
Net assets............... $165,607,361 $364,271,885 $88,985,961 $46,408,310
============ ============ =========== ===========
Class A:
Net assets............... $127,040,000 $263,424,971 $52,592,625 $23,160,212
------------ ------------ ----------- -----------
Shares outstanding....... 11,642,146 22,807,923 5,060,767 2,173,576
------------ ------------ ----------- -----------
Net asset value and
redemption value per
share................... $10.91 $11.55 $10.39 $10.66
====== ====== ====== ======
Maximum offering price
per share (net asset
value plus sales charge
of 4.00% of offering
price).................. $11.36 $12.03 $10.82 $11.10
====== ====== ====== ======
Class B:
Net assets............... $ 20,943,158 $ 40,948,749 $19,426,506 $ 9,462,129
------------ ------------ ----------- -----------
Shares outstanding....... 1,917,938 3,546,612 1,870,025 888,271
------------ ------------ ----------- -----------
Net asset value and
offering price per
share................... $10.92 $11.55 $10.39 $10.65
====== ====== ====== ======
Class C:
Net assets............... $ 17,624,203 $ 59,652,477 $16,966,830 $13,785,969
------------ ------------ ----------- -----------
Shares outstanding....... 1,616,175 5,165,289 1,633,045 1,293,530
------------ ------------ ----------- -----------
Net asset value and
offering price per
share................... $10.90 $11.55 $10.39 $10.66
====== ====== ====== ======
Class Y:
Net assets............... $ 245,688
------------
Shares outstanding....... 21,267
------------
Net asset value, offering
price and redemption
value per share......... $11.55
======
</TABLE>
See accompanying notes to financial statements
27
<PAGE>
PAINEWEBBER
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED FEBRUARY 28, 1997
<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.................... $10,529,220 $23,299,263 $6,144,379 $3,086,707
----------- ----------- ---------- ----------
Expenses:
Investment advisory and
administration............. 902,327 2,022,871 555,499 312,553
Service fees--Class A....... 344,429 730,134 132,992 65,229
Service and distribution
fees--Class B.............. 234,043 462,284 211,056 102,212
Service and distribution
fees--Class C.............. 144,672 495,098 137,105 118,348
Custody and accounting...... 110,608 195,838 60,461 52,782
Legal and audit............. 101,869 97,300 70,514 98,117
Transfer agency and service
fees....................... 64,453 149,785 57,315 62,458
State registration.......... 52,794 58,480 33,214 48,802
Reports and notices to
shareholders............... 39,003 138,934 38,040 42,807
Trustees' fees.............. 12,250 12,250 12,250 12,250
Other expenses.............. 36,258 11,234 7,646 30,358
----------- ----------- ---------- ----------
2,042,706 4,374,208 1,316,092 945,916
Less: Fee waivers and
reimbursements from
adviser.................... -- -- -- (260,674)
----------- ----------- ---------- ----------
Net expenses................ 2,042,706 4,374,208 1,316,092 685,242
----------- ----------- ---------- ----------
Net investment income....... 8,486,514 18,925,055 4,828,287 2,401,465
----------- ----------- ---------- ----------
Realized and unrealized
gains (losses) from
investment activities:
Net realized gains (losses)
from investment
transactions............... 654,917 (2,590,396) 1,153,507 469,607
Net change in unrealized
appreciation/depreciation
of investments............. (3,028,942) (1,953,998) (474,646) (901,550)
----------- ----------- ---------- ----------
Net realized and unrealized
gains (losses) from
investment activities...... (2,374,025) (4,544,394) 678,861 (431,943)
----------- ----------- ---------- ----------
Net increase in net assets
resulting from operations.. $ 6,112,489 $14,380,661 $5,507,148 $1,969,522
=========== =========== ========== ==========
</TABLE>
See accompanying notes to financial statements
28
<PAGE>
CALIFORNIA TAX-FREE INCOME FUND
PAINEWEBBER
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
----------------- -----------------
<S> <C> <C>
From operations:
Net investment income...................... $ 8,486,514 $ 11,266,576
Net realized gains from investment
transactions.............................. 654,917 6,052,923
Net change in unrealized
appreciation/depreciation of investments.. (3,028,942) 1,143,428
------------ ------------
Net increase in net assets resulting from
operations................................ 6,112,489 18,462,927
------------ ------------
Dividends to shareholders from:
Net investment income--Class A............. (6,690,592) (8,722,541)
Net investment income--Class B............. (957,662) (1,360,956)
Net investment income--Class C............. (838,260) (1,183,079)
------------ ------------
Total dividends to shareholders............ (8,486,514) (11,266,576)
------------ ------------
From beneficial interest transactions:
Net proceeds from the sale of shares....... 8,838,812 9,546,393
Cost of shares repurchased................. (46,089,161) (60,908,096)
Proceeds from dividends reinvested......... 4,217,037 5,722,329
------------ ------------
Net decrease in net assets from beneficial
interest transactions..................... (33,033,312) (45,639,374)
------------ ------------
Net decrease in net assets................. (35,407,337) (38,443,023)
Net assets:
Beginning of year.......................... 201,014,698 239,457,721
------------ ------------
End of year................................ $165,607,361 $201,014,698
============ ============
</TABLE>
See accompanying notes to financial statements
29
<PAGE>
NATIONAL TAX-FREE INCOME FUND
PAINEWEBBER
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
----------------- -----------------
<S> <C> <C>
From operations:
Net investment income...................... $ 18,925,055 $ 23,261,272
Net realized gains (losses) from investment
transactions.............................. (2,590,396) 16,795,602
Net change in unrealized
appreciation/depreciation of investments.. (1,953,998) (275,650)
------------- -------------
Net increase in net assets resulting from
operations................................ 14,380,661 39,781,224
------------- -------------
Dividends to shareholders from:
Net investment income--Class A............. (14,156,747) (16,946,168)
Net investment income--Class B............. (1,889,671) (2,416,713)
Net investment income--Class C............. (2,864,344) (4,038,027)
Net investment income--Class Y............. (14,293) (6,581)
------------- -------------
Total dividends to shareholders............ (18,925,055) (23,407,489)
------------- -------------
From beneficial interest transactions:
Net proceeds from the sale of shares....... 105,046,487 73,623,651
Proceeds from shares issued in connection
with the acquisition of Mitchell
Hutchins/Kidder, Peabody Municipal Bond
Fund...................................... -- 11,831,545
Cost of shares repurchased................. (190,976,675) (180,593,964)
Proceeds from dividends reinvested......... 11,884,626 14,447,770
------------- -------------
Net decrease in net assets from beneficial
interest transactions..................... (74,045,562) (80,690,998)
------------- -------------
Net decrease in net assets................. (78,589,956) (64,317,263)
Net assets:
Beginning of year.......................... 442,861,841 507,179,104
------------- -------------
End of year................................ $ 364,271,885 $ 442,861,841
============= =============
</TABLE>
See accompanying notes to financial statements
30
<PAGE>
MUNICIPAL HIGH INCOME FUND
PAINEWEBBER
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
----------------- -----------------
<S> <C> <C>
From operations:
Net investment income...................... $ 4,828,287 $ 6,115,736
Net realized gains from investment
transactions.............................. 1,153,507 3,605,491
Net change in unrealized
appreciation/depreciation of investments.. (474,646) 406,432
------------ ------------
Net increase in net assets resulting from
operations................................ 5,507,148 10,127,659
------------ ------------
Dividends to shareholders from:
Net investment income--Class A............. (2,920,065) (3,615,202)
Net investment income--Class B............. (997,782) (1,295,493)
Net investment income--Class C............. (910,440) (1,205,041)
------------ ------------
Total dividends to shareholders............ (4,828,287) (6,115,736)
------------ ------------
From beneficial interest transactions:
Net proceeds from the sale of shares....... 10,286,482 11,836,359
Cost of shares repurchased................. (26,447,595) (29,710,576)
Proceeds from dividends reinvested......... 2,620,432 3,442,477
------------ ------------
Net decrease in net assets from beneficial
interest transactions..................... (13,540,681) (14,431,740)
------------ ------------
Net decrease in net assets................. (12,861,820) (10,419,817)
Net assets:
Beginning of year.......................... 101,847,781 112,267,598
------------ ------------
End of year................................ $ 88,985,961 $101,847,781
============ ============
</TABLE>
See accompanying notes to financial statements
31
<PAGE>
NEW YORK TAX-FREE INCOME FUND
PAINEWEBBER
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
----------------- -----------------
<S> <C> <C>
From operations:
Net investment income...................... $ 2,401,465 $ 3,039,490
Net realized gains from investment
transactions.............................. 469,607 304,150
Net change in unrealized
appreciation/depreciation of investments.. (901,550) 2,352,203
------------ ------------
Net increase in net assets resulting from
operations................................ 1,969,522 5,695,843
------------ ------------
Dividends to shareholders from:
Net investment income--Class A............. (1,280,146) (1,567,191)
Net investment income--Class B............. (425,371) (581,692)
Net investment income--Class C............. (695,948) (890,607)
------------ ------------
Total dividends to shareholders............ (2,401,465) (3,039,490)
------------ ------------
From beneficial interest transactions:
Net proceeds from the sale of shares....... 2,580,008 4,575,816
Cost of shares repurchased................. (15,737,969) (18,949,061)
Proceeds from dividends reinvested......... 1,553,231 1,931,595
------------ ------------
Net decrease in net assets from beneficial
interest transactions..................... (11,604,730) (12,441,650)
------------ ------------
Net decrease in net assets................. (12,036,673) (9,785,297)
Net assets:
Beginning of year.......................... 58,444,983 68,230,280
------------ ------------
End of year................................ $ 46,408,310 $ 58,444,983
============ ============
</TABLE>
See accompanying notes to financial statements
32
<PAGE>
NOTES TO FINANCIAL STATEMENTS
PAINEWEBBER
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").
Currently, each Fund offers Class A, Class B, Class C and Class Y shares (no
Class Y shares were outstanding during the period for California Tax-Free
Income Fund, Municipal High Income Fund and New York Tax-Free Income Fund).
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 service and distribution charges and certain transfer
agency expenses. In addition, Class B shares and all corresponding dividend
reinvested shares automatically convert to Class A shares approximately six
years after initial issuance. All classes of shares have equal voting
privileges, except that each class has exclusive voting rights with respect to
its service and/or distribution plan.
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. The following is
a summary of significant accounting policies:
Valuation of Investments -- Where market quotations are readily available,
portfolio securities are valued thereon, provided such quotations adequately
reflect the fair value of the securities, 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. 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 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.
33
<PAGE>
PAINEWEBBER
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 upon 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 -- Dividends and distributions to shareholders are
recorded on the ex-dividend date. The amount of dividends and distributions 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.
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 states. 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.
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,
34
<PAGE>
PAINEWEBBER
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 28, 1997, California Tax-Free Income Fund,
National Tax-Free Income Fund, Municipal High Income Fund and New York Tax-Free
Income Fund owed Mitchell Hutchins $64,375, $144,500, $41,381 and $0,
respectively, in investment advisory and administration fees. During the year
ended February 28, 1997 Mitchell Hutchins voluntarily waived $123,590 in
investment advisory and administration fees from the New York Tax-Free Income
Fund. Mitchell Hutchins also voluntarily reimbursed the New York Tax-Free
Income Fund $1,303 for expenses incurred during the fiscal year ended February
28, 1997.
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of each Fund's shares and has appointed
PaineWebber as exclusive 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 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 28, 1997, California Tax-
Free Income Fund, National Tax-Free Income Fund, Municipal High Income Fund and
New York Tax-Free Income Fund owed Mitchell Hutchins $51,118, $119,119, $35,141
and $8,430, respectively, in service and distribution fees. For the year ended
February 28, 1997, Mitchell Hutchins voluntarily waived $128,099 in service and
distribution 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 28, 1997, it earned $166,044, $347,143, $106,470 and $67,697 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.
35
<PAGE>
PAINEWEBBER
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 28, 1997, PaineWebber
earned $16,293, $43,965, $13,436 and $0 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 28, 1997, California Tax-Free Income
Fund, National Tax-Free Income Fund, Municipal High Income Fund and New York
Tax-Free Income Fund owed PaineWebber $1,252, $3,358, $1,046 and $0,
respectively, for transfer agency service fees. For the year ended February 28,
1997, PaineWebber voluntarily waived $7,682 in transfer agency service fees
from New York Tax-Free Income Fund.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at February 28,
1997, was substantially the same as the cost of securities for financial
statement purposes.
At February 28, 1997, the components of net unrealized appreciation of
investments were as follows:
<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>
Gross appreciation
(investments having an excess
of value over cost).......... $6,083,138 $16,677,454 $2,725,896 $2,169,075
Gross depreciation
(investments having an excess
of cost over value).......... (400,691) (869,596) (150,404) (92,629)
---------- ----------- ---------- ----------
Net unrealized appreciation of
investments.................. $5,682,447 $15,807,858 $2,575,492 $2,076,446
========== =========== ========== ==========
</TABLE>
For the year ended February 28, 1997, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were as follows:
<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>
Purchases..................... $127,950,910 $318,536,683 $56,544,554 $20,387,193
Sales......................... $163,960,691 $387,819,504 $65,721,193 $32,854,905
</TABLE>
36
<PAGE>
PAINEWEBBER
FEDERAL 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 28, 1997, 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 $3,509,975 549,124 $1,701,313 --
2004 -- -- -- $910,441
2005 -- 2,590,396 -- --
---------- ---------- ---------- --------
$3,509,975 $5,173,589 $1,701,313 $910,441
========== ========== ========== ========
</TABLE>
The capital loss carryforwards of National Tax-Free Income Fund includes
$2,583,193 from its acquisition on November 3, 1995, of Mitchell
Hutchins/Kidder, Peabody Municipal Bond Fund.
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.
37
<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>
California Tax-
Free Income
Fund
Year Ended
February 28,
1997:
Shares sold..... 510,488 $ 5,504,522 131,234 $ 1,418,045 178,083 $ 1,916,245
Shares
repurchased.... (2,963,291) (31,999,497) (681,970) (7,362,837) (625,668) (6,726,827)
Shares converted
from Class B to
Class A........ 34,172 369,695 (34,152) (369,695) -- --
Dividends
reinvested..... 300,002 3,229,518 39,223 422,345 52,550 565,174
----------- ------------- ---------- ------------ ---------- ------------
Net decrease.... (2,118,629) $ (22,895,762) (545,665) $ (5,892,142) (395,035) $ (4,245,408)
=========== ============= ========== ============ ========== ============
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)
=========== ============= ========== ============ ========== ============
<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 28,
1997:
Shares sold..... 8,619,128 $ 97,801,970 253,262 $ 2,877,367 381,333 $ 4,367,150 -- --
Shares
repurchased.... (13,822,729) (157,206,321) (1,118,597) (12,708,618) (1,842,002) (20,956,425) (9,251) $(105,311)
Shares converted
from Class B to
Class A........ 107,309 1,229,690 (107,317) (1,229,690) -- -- -- --
Dividends
reinvested..... 775,209 8,810,453 91,161 1,035,371 178,183 2,024,390 1,269 14,412
----------- ------------- ---------- ------------ ---------- ------------ ------ ---------
Net decrease.... (4,321,083) $ (49,364,208) (881,491) $(10,025,570) (1,282,486) $(14,564,885) (7,982) $ (90,899)
=========== ============= ========== ============ ========== ============ ====== =========
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
=========== ============= ========== ============ ========== ============ ====== =========
</TABLE>
38
<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 28,
1997:
Shares sold............. 536,992 $ 5,536,346 175,425 $ 1,795,292 286,992 $ 2,954,844
Shares repurchased...... (1,250,644) (12,777,454) (617,828) (6,305,194) (721,045) (7,364,947)
Shares converted from
Class B to Class A..... 52,173 535,183 (52,179) (535,183)
Dividends reinvested ... 156,542 1,601,417 44,526 455,296 55,120 563,719
---------- ------------ -------- ----------- -------- -----------
Net decrease............ (504,937) $ (5,104,508) (450,056) $(4,589,789) (378,933) $(3,846,384)
========== ============ ======== =========== ======== ===========
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)
========== ============ ======== =========== ======== ===========
New York Tax-Free Income
Fund
Year Ended February 28,
1997:
Shares sold............. 88,199 $ 925,277 88,876 $ 938,568 67,988 $ 716,163
Shares repurchased...... (680,523) (7,153,673) (324,941) (3,422,517) (489,556) (5,161,779)
Shares converted from
Class B to Class A..... 5,504 58,218 (5,504) (58,218) -- --
Dividends reinvested ... 77,051 812,033 21,753 229,150 48,603 512,048
---------- ------------ -------- ----------- -------- -----------
Net decrease............ (509,769) $ (5,358,145) (219,816) $(2,313,017) (372,965) $(3,933,568)
========== ============ ======== =========== ======== ===========
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)
========== ============ ======== =========== ======== ===========
</TABLE>
39
<PAGE>
CALIFORNIA TAX-FREE INCOME FUND
PAINEWEBBER
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------
For the For the
For the For the Years Three For the
Year Year Ended Months Year
Ended Ended February 28, Ended Ended
February 28, February 29, ------------------- February 28, November 30,
1997 1996 1995 1994 1993 1992
------------ ------------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 11.02 $ 10.68 $ 11.41 $ 11.80 $ 11.39 $ 11.13
-------- -------- -------- -------- -------- --------
Net investment income... 0.52 0.57 0.58 0.60 0.16 0.66
Net realized and
unrealized gains
(losses) from
investments ........... (0.11) 0.34 (0.63) (0.08) 0.58 0.29
-------- -------- -------- -------- -------- --------
Net increase (decrease)
from investment
operations............. 0.41 0.91 (0.05) 0.52 0.74 0.95
-------- -------- -------- -------- -------- --------
Dividends from net
investment income...... (0.52) (0.57) (0.58) (0.60) (0.16) (0.66)
Distributions from net
realized gains from
investment
transactions........... -- -- (0.10) (0.31) (0.17) (0.03)
-------- -------- -------- -------- -------- --------
Total dividends and
distributions to
shareholders........... (0.52) (0.57) (0.68) (0.91) (0.33) (0.69)
-------- -------- -------- -------- -------- --------
Net asset value, end of
period................. $ 10.91 $ 11.02 $ 10.68 $ 11.41 $ 11.80 $ 11.39
======== ======== ======== ======== ======== ========
Total investment
return(1).............. 3.92% 8.68% (0.18)% 4.46% 6.52% 8.73%
======== ======== ======== ======== ======== ========
Ratios/Supplemental
data:
Net assets, end of
period (000's)......... $127,040 $151,684 $178,234 $227,179 $247,025 $239,851
Expenses to average net
assets................. 0.97% 0.94% 0.88% 0.90% 0.99%* 0.93%
Net investment income to
average net assets..... 4.85% 5.21% 5.55% 5.10% 5.61%* 5.80%
Portfolio turnover rate. 73% 32% 11% 37% 3% 25%
- ---------------------
</TABLE>
+ Commencement of issuance of shares
* Annualized
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
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 investment return for periods of less than
one year has not been annualized.
40
<PAGE>
<TABLE>
<CAPTION>
CLASS B
- -----------------------------------------------------------------------
For the For the
For the For the Years Three For the
Year Year Ended Months Year
Ended Ended February 28, Ended Ended
February 28, February 29, ----------------- February 28, November 30,
1997 1996 1995 1994 1993 1992
- ------------ ------------ ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
$ 11.03 $ 10.69 $ 11.41 $ 11.81 $ 11.39 $ 11.14
------- ------- ------- ------- ------- -------
0.44 0.48 0.50 0.51 0.14 0.57
(0.11) 0.34 (0.62) (0.09) 0.59 0.28
------- ------- ------- ------- ------- -------
0.33 0.82 (0.12) 0.42 0.73 0.85
------- ------- ------- ------- ------- -------
(0.44) (0.48) (0.50) (0.51) (0.14) (0.57)
-- -- (0.10) (0.31) (0.17) (0.03)
------- ------- ------- ------- ------- -------
(0.44) (0.48) (0.60) (0.82) (0.31) (0.60)
------- ------- ------- ------- ------- -------
$ 10.92 $ 11.03 $ 10.69 $ 11.41 $ 11.81 $ 11.39
======= ======= ======= ======= ======= =======
3.14% 7.86% (0.85)% 3.56% 6.50% 7.80%
======= ======= ======= ======= ======= =======
$20,943 $27,175 $33,007 $41,979 $36,693 $30,205
1.74% 1.70% 1.64% 1.65% 1.74%* 1.68%
4.08% 4.45% 4.78% 4.32% 4.81%* 4.91%
73% 32% 11% 37% 3% 25%
<CAPTION>
CLASS C
- -----------------------------------------------------------------------------------
For the For the For the
For the For the For the Years Three Period
Year Year Year Ended Months July 2, 1992+
Ended Ended Ended February 28, Ended through
February 28, February 28, February 29, ------------------ February 28, November 30,
1997 1997 1996 1995 1994 1993 1992
- ------------- ------------ ------------ --------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
$ 11.03 $ 11.02 $ 10.67 $ 11.40 $ 11.79 $ 11.38 $ 11.41
- ------------- ------------ ------------ --------- -------- ------------ -------------
0.44 0.47 0.51 0.53 0.54 0.14 0.21
(0.11) (0.12) 0.35 (0.63) (0.08) 0.58 (0.03)
- ------------- ------------ ------------ --------- -------- ------------ -------------
0.33 0.35 0.86 (0.10) 0.46 0.72 0.18
- ------------- ------------ ------------ --------- -------- ------------ -------------
(0.44) (0.47) (0.51) (0.53) (0.54) (0.14) (0.21)
-- -- -- (0.10) (0.31) (0.17) --
- ------------- ------------ ------------ --------- -------- ------------ -------------
(0.44) (0.47) (0.51) (0.63) (0.85) (0.31) (0.21)
- ------------- ------------ ------------ --------- -------- ------------ -------------
$ 10.92 $ 10.90 $ 11.02 $ 10.67 $ 11.40 $ 11.79 $ 11.38
============= ============ ============ ========= ======== ============ =============
3.14% 3.30 % 8.22% (0.70)% 3.91% 6.49% 1.28%
============= ============ ============ ========= ======== ============ =============
$20,943 $17,624 $22,155 $28,217 $53,874 $39,029 $30,141
1.74% 1.49% 1.46% 1.40% 1.39% 1.48%* 1.39%*
4.08% 4.34% 4.69% 5.05% 4.55% 5.06%* 4.79%*
73% 73% 32% 11% 37% 3% 25%
</TABLE>
41
<PAGE>
NATIONAL TAX-FREE INCOME FUND
PAINEWEBBER
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------
For the For the
For the For the Years Three For the
Year Year Ended Months Year
Ended Ended February 28, Ended Ended
February 28, February 29, ------------------- February 28, November 30,
1997 1996 1995 1994 1993 1992
------------ ------------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 11.64 $ 11.26 $ 12.00 $ 12.09 $ 11.67 $ 11.40
-------- -------- -------- -------- -------- -------- ---
Net investment income... 0.55 0.58 0.63 0.64 0.17 0.71
Net realized and
unrealized gains
(losses) from
investments ........... (0.09) 0.39 (0.73) 0.03 0.55 0.31
-------- -------- -------- -------- -------- --------
Net increase (decrease)
from investment
operations............. 0.46 0.97 (0.10) 0.67 0.72 1.02
-------- -------- -------- -------- -------- --------
Dividends from net
investment income...... (0.55) (0.59) (0.63) (0.64) (0.17) (0.71)
Distributions from net
realized gains from
investment
transactions........... -- -- (0.01) (0.12) (0.13) (0.04)
-------- -------- -------- -------- -------- --------
Total dividends and
distributions to
shareholders........... (0.55) (0.59) (0.64) (0.76) (0.30) (0.75)
-------- -------- -------- -------- -------- --------
Net asset value, end of
period................. $ 11.55 $ 11.64 $ 11.26 $ 12.00 $ 12.09 $ 11.67
======== ======== ======== ======== ======== ========
Total investment
return(1).............. 4.14% 8.75% (0.63)% 5.65% 6.31% 9.21%
======== ======== ======== ======== ======== ========
Ratios/Supplemental
data:
Net assets, end of
period (000's)......... $263,425 $315,899 $346,579 $432,825 $419,596 $396,587
Expenses to average net
assets................. 0.91% 0.93%(/2/) 0.88% 0.89% 0.88%* 0.91%
Net investment income to
average net assets..... 4.85% 5.06%(/2/) 5.62% 5.28% 5.86%* 6.13%
Portfolio turnover rate. 81% 74% 60% 16% 5% 21%
- ---------------------
</TABLE>
* Annualized
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
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 investment return for periods of less than
one year has not been annualized.
(2) These ratios include non-recurring acquisition expenses of 0.03%.
42
<PAGE>
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------------------
For the For the
For the For the Years Three For the
Year Year Ended Months Year
Ended Ended February 28, Ended Ended
February 28, February 29, ----------------- February 28, November 30,
1997 1996 1995 1994 1993 1992
------------ ------------ ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
$ 11.64 $ 11.26 $ 11.99 $ 12.08 $ 11.67 $ 11.40
------- ------- ------- ------- ------- -------
0.46 0.49 0.54 0.55 0.15 0.62
(0.09) 0.39 (0.72) 0.03 0.54 0.31
------- ------- ------- ------- ------- -------
0.37 0.88 (0.18) 0.58 0.69 0.93
------- ------- ------- ------- ------- -------
(0.46) (0.50) (0.54) (0.55) (0.15) (0.62)
-- -- (0.01) (0.12) (0.13) (0.04)
------- ------- ------- ------- ------- -------
(0.46) (0.50) (0.55) (0.67) (0.28) (0.66)
------- ------- ------- ------- ------- -------
$ 11.55 $ 11.64 $ 11.26 $ 11.99 $ 12.08 $ 11.67
======= ======= ======= ======= ======= =======
3.35% 7.94% (1.29)% 4.87% 6.02% 8.36%
======= ======= ======= ======= ======= =======
$40,949 $51,546 $58,958 $70,988 $50,064 $39,564
1.67% 1.68%(/2/) 1.64% 1.63% 1.63%* 1.65%
4.09% 4.31%(/2/) 4.86% 4.50% 5.08%* 5.16%
81% 74% 60% 16% 5% 21%
</TABLE>
43
<PAGE>
NATIONAL TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS--(CONCLUDED)
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------------------------------
For the For the
For the For the For the Years Three Period
Year Year Ended Months July 2, 1992+
Ended Ended February 28, Ended through
February 28, February 29, ------------------ February 28, November 30,
1997 1996 1995 1994 1993 1992
------------ ------------ -------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period... $ 11.64 $ 11.26 $ 12.00 12.09 $ 11.67 $ 11.71
------- ------- -------- -------- -------- --------
Net investment income.. 0.49 0.52 0.57 0.58 0.15 0.23
Net realized and
unrealized gains
(losses) from
investments........... (0.09) 0.39 (0.73) 0.03 0.55 (0.04)
------- ------- -------- -------- -------- --------
Net increase (decrease)
from investment
operations............ 0.40 0.91 (0.16) 0.61 0.70 0.19
------- ------- -------- -------- -------- --------
Dividends from net
investment income..... (0.49) (0.53) (0.57) (0.58) (0.15) (0.23)
Distributions from net
realized gains from
investment
transactions.......... -- -- (0.01) (0.12) (0.13) --
------- ------- -------- -------- -------- --------
Total dividends and
distributions to
shareholders.......... (0.49) (0.53) (0.58) (0.70) (0.28) (0.23)
------- ------- -------- -------- -------- --------
Net asset value, end of
period................ $ 11.55 $ 11.64 $ 11.26 $ 12.00 $ 12.09 $ 11.67
======= ======= ======== ======== ======== ========
Total investment
return(1)............. 3.61% 8.19% (1.13)% 5.13% 6.18% 1.41%
======= ======= ======== ======== ======== ========
Ratios/Supplemental
data:
Net assets, end of
period (000's)........ $59,652 $75,076 $101,642 $187,778 $138,989 $105,854
Expenses to average net
assets................ 1.42% 1.45%(/2/) 1.40% 1.37% 1.37%* 1.42%*
Net investment income
to average
net assets............ 4.34% 4.57%(/2/) 5.13% 4.75% 5.30%* 5.17%*
Portfolio turnover
rate.................. 81% 74% 60% 16% 5% 21%
- ---------------------
<CAPTION>
CLASS Y
-----------------------------
For the
Period
For the November 3,
Year 1995+
Ended through
February 28, February 29,
1997 1996
------------ ----------------
<S> <C> <C>
Net asset value,
beginning of period... $11.65 $11.62
------------ ----------------
Net investment income.. 0.58 0.19
Net realized and
unrealized gains
(losses) from
investments........... (0.10) 0.01
------------ ----------------
Net increase (decrease)
from investment
operations............ 0.48 0.20
------------ ----------------
Dividends from net
investment income..... (0.58) (0.17)
Distributions from net
realized gains from
investment
transactions.......... -- --
------------ ----------------
Total dividends and
distributions to
shareholders.......... (0.58) (0.17)
------------ ----------------
Net asset value, end of
period................ $11.55 $11.65
============ ================
Total investment
return(1)............. 4.32% 1.70%
============ ================
Ratios/Supplemental
data:
Net assets, end of
period (000's)........ $ 246 $ 341
Expenses to average net
assets................ 0.65% 0.64%(/2/)*
Net investment income
to average
net assets............ 5.13% 5.19%(/2/)*
Portfolio turnover
rate.................. 81% 74%
- ---------------------
</TABLE>
+ Commencement of issuance of shares
* Annualized
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
distributions at net asset value on the payable dates and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charges; results for class C would be lower if sales charges
were included. Total investment return for periods of less than one year
has not been annualized.
(2) These ratios include non-recurring acquisition expenses of 0.03%.
44
<PAGE>
This Page Intentionally Left Blank
45
<PAGE>
MUNICIPAL HIGH INCOME FUND
PAINEWEBBER
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 Year For the Years Ended
Ended Ended February 28,
February 28, February 29, --------------------------
1997 1996 1995 1994 1993
------------ ------------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 10.29 $ 9.92 $ 10.77 $ 10.96 $ 10.29
------- ------- ------- ------- -------
Net investment income.... 0.56 0.62 0.59 0.61 0.67
Net realized and
unrealized gains
(losses) from
investments............. 0.10 0.37 (0.82) 0.01 0.81
------- ------- ------- ------- -------
Net increase (decrease)
from investment
operations.............. 0.66 0.99 (0.23) 0.62 1.48
------- ------- ------- ------- -------
Dividends from net
investment income....... (0.56) (0.62) (0.59) (0.61) (0.67)
Distributions from net
realized gains from
investment transactions. -- -- (0.03) (0.20) (0.14)
------- ------- ------- ------- -------
Total dividends and
distributions to
shareholders............ (0.56) (0.62) (0.62) (0.81) (0.81)
------- ------- ------- ------- -------
Net asset value, end of
period.................. $ 10.39 $ 10.29 $ 9.92 $ 10.77 $ 10.96
======= ======= ======= ======= =======
Total investment
return(1)............... 6.61% 10.18% (2.03)% 5.77% 15.05%
======= ======= ======= ======= =======
Ratios/Supplemental data:
Net assets, end of period
(000's)................. $52,593 $57,280 $63,287 $82,248 $82,251
Expenses to average net
assets, net of waivers
from adviser............ 1.15% 1.10% 1.13% 1.03% 0.87%
Expenses to average net
assets, before waivers
from adviser............ 1.15% 1.10% 1.13% 1.16% 1.29%
Net investment income to
average net assets, net
of waivers from adviser. 5.49% 5.94% 5.96% 5.52% 6.31%
Net investment income to
average net assets,
before waivers from
adviser................. 5.49% 5.94% 5.96% 5.39% 5.89%
Portfolio turnover rate.. 64% 48% 28% 23% 10%
- ---------------------
</TABLE>
+ Commencement of issuance of shares
* Annualized
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period, reinvestment of all dividends and 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 investment return for periods of less than one year has
not been annualized.
46
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C
- ----------------------------------------------------- -----------------------------------------------------------
For the For the Years For the Years For the Period
Year For the Year Ended For the Year For the Year Ended July 2, 1992+
Ended Ended February 28, Ended Ended February 28, through
February 28, February 29, -------------------------- February 28, February 29, ----------------- February 28,
1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
- ------------ ------------ ------- ------- ------- ------------ ------------ ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 10.29 $ 9.92 $ 10.76 $ 10.96 $ 10.29 $ 10.29 $ 9.92 $ 10.77 $ 10.96 $ 10.50
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
0.48 0.54 0.52 0.52 0.59 0.51 0.56 0.55 0.55 0.36
0.10 0.37 (0.81) -- 0.81 0.10 0.37 (0.82) 0.01 0.47
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
0.58 0.91 (0.29) 0.52 1.40 0.61 0.93 (0.27) 0.56 0.83
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(0.48) (0.54) (0.52) (0.52) (0.59) (0.51) (0.56) (0.55) (0.55) (0.36)
-- -- (0.03) (0.20) (0.14) -- -- (0.03) (0.20) (0.01)
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(0.48) (0.54) (0.55) (0.72) (0.73) (0.51) (0.56) (0.58) (0.75) (0.37)
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
$ 10.39 $ 10.29 $ 9.92 $ 10.76 $ 10.96 $ 10.39 $ 10.29 $ 9.92 $ 10.77 $ 10.96
======== ======= ======= ======= ======= ======= ======= ======= ======= =======
5.82% 9.36% (2.67)% 4.88% 14.81% 6.08% 9.64% (2.51)% 5.24% 7.72%
======== ======= ======= ======= ======= ======= ======= ======= ======= =======
$ 19,427 $23,868 $25,823 $32,287 $22,922 $16,967 $20,700 $23,158 $35,872 $21,638
1.90% 1.85% 1.87% 1.79% 1.63% 1.66% 1.60% 1.63% 1.54% 1.40%*
1.90% 1.85% 1.87% 1.90% 2.01% 1.66% 1.60% 1.63% 1.64% 1.69%*
4.73% 5.19% 5.21% 4.72% 5.48% 4.98% 5.45% 5.48% 4.95% 5.26%*
4.73% 5.19% 5.21% 4.61% 5.10% 4.98% 5.45% 5.48% 4.85% 4.97%*
64% 48% 28% 23% 10% 64% 48% 28% 23% 10%
</TABLE>
47
<PAGE>
NEW YORK TAX-FREE INCOME FUND
PAINEWEBBER
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 Year For the Years Ended
Ended Ended February 28,
February 28, February 29, --------------------------
1997 1996 1995 1994 1993
------------ ------------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 10.71 $ 10.27 $ 11.03 $ 10.99 $ 10.12
------- ------- ------- ------- -------
Net investment income.... 0.51 0.54 0.54 0.57 0.63
Net realized and
unrealized gains
(losses) from
investments............. (0.05) 0.45 (0.66) 0.07 0.87
------- ------- ------- ------- -------
Net increase (decrease)
from investment
operations.............. 0.46 0.99 (0.12) 0.64 1.50
------- ------- ------- ------- -------
Dividends from net
investment income....... (0.51) (0.55) (0.54) (0.57) (0.63)
Distributions from net
realized gains from
investment transactions. -- -- (0.10) (0.03) --
------- ------- ------- ------- -------
Total dividends and
distributions to
shareholders............ (0.51) (0.55) (0.64) (0.60) (0.63)
------- ------- ------- ------- -------
Net asset value, end of
period.................. $ 10.66 $ 10.71 $ 10.27 $ 11.03 $ 10.99
======= ======= ======= ======= =======
Total investment
return(1)............... 4.49% 9.83% (0.83)% 5.89% 15.44%
======= ======= ======= ======= =======
Ratios/Supplemental data:
Net assets, end of period
(000's)................. $23,160 $28,734 $32,475 $45,033 $43,443
Expenses to average net
assets, net of waivers
and reimbursements from
adviser................. 1.02% 1.02% 1.01% 0.75% 0.34%
Expenses to average net
assets, before waivers
and reimbursements from
adviser ................ 1.50% 1.15% 1.26% 1.25% 1.47%
Net investment income to
average net assets, net
of waivers and
reimbursements from
adviser ................ 4.91% 5.11% 5.38% 5.13% 6.07%
Net investment income to
average net assets,
before waivers and
reimbursements from
adviser ................ 4.42% 4.98% 5.13% 4.63% 4.94%
Portfolio turnover rate.. 40% 13% 6% 8% 6%
- ---------------------
</TABLE>
+ Commencement of issuance of shares
* Annualized
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
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 investment return for periods of less than
one year has not been annualized.
48
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C
- ------------------------------------------------------ -----------------------------------------------------------
For the Years For the Period
For the Year For the Year For the Years Ended For the Year For the Year Ended July 2, 1992+
Ended Ended February 28, Ended Ended February 28, through
February 28, February 29, -------------------------- February 28, February 29, ----------------- February 28,
1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
- ------------- ------------ ------- ------- ------- ------------ ------------ ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$10.71 $ 10.27 $ 11.03 $ 10.98 $ 10.12 $ 10.71 $ 10.28 $ 11.03 $ 10.99 $ 10.45
------ ------- ------- ------- ------- ------- ------- ------- ------- -------
0.44 0.47 0.47 0.49 0.56 0.46 0.49 0.49 0.51 0.36
(0.06) 0.44 (0.66) 0.08 0.86 (0.05) 0.43 (0.65) 0.07 0.54
------ ------- ------- ------- ------- ------- ------- ------- ------- -------
0.38 0.91 (0.19) 0.57 1.42 0.41 0.92 (0.16) 0.58 0.90
------ ------- ------- ------- ------- ------- ------- ------- ------- -------
(0.44) (0.47) (0.47) (0.49) (0.56) (0.46) (0.49) (0.49) (0.51) (0.36)
-- -- (0.10) (0.03) -- -- -- (0.10) (0.03) --
------ ------- ------- ------- ------- ------- ------- ------- ------- -------
(0.44) (0.47) (0.57) (0.52) (0.56) (0.46) (0.49) (0.59) (0.54) (0.36)
------ ------- ------- ------- ------- ------- ------- ------- ------- -------
$10.65 $ 10.71 $ 10.27 $ 11.03 $ 10.98 $ 10.66 $ 10.71 $ 10.28 $ 11.03 $ 10.99
====== ======= ======= ======= ======= ======= ======= ======= ======= =======
3.62% 9.01% (1.57)% 5.19% 14.35% 3.98% 9.17% (1.20)% 5.35% 8.38%
====== ======= ======= ======= ======= ======= ======= ======= ======= =======
$9,462 $11,862 $14,660 $19,193 $13,776 $13,786 $17,849 $21,095 $38,165 $19,553
1.76% 1.77% 1.76% 1.51% 1.10% 1.52% 1.52% 1.52% 1.27% 0.90%*
2.27% 1.89% 2.01% 1.99% 2.19% 2.04% 1.64% 1.75% 1.72% 1.83%*
4.16% 4.36% 4.63% 4.34% 5.22% 4.41% 4.61% 4.89% 4.55% 5.04%*
3.65% 4.24% 4.83% 3.86% 4.13% 3.89% 4.50% 4.65% 4.10% 4.11%*
40% 13% 6% 8% 6% 40% 13% 6% 8% 6%
</TABLE>
49
<PAGE>
PAINEWEBBER
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 28, 1997, and the
related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in
the period then ended, and the 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 and financial highlights. Our procedures included
confirmation of investments owned at February 28, 1997 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 28, 1997, the results of their operations for the year
then ended, the changes in their net assets for each of the two
years in the period then ended, and the financial highlights for
each of the indicated periods, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
April 7, 1997
50
<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 28, 1997), 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........... $0.5212 $0.5502 $0.5576 $0.5148
Class B........... 0.4391 0.4639 0.4806 0.4364
Class C........... 0.4658 0.4921 0.5058 0.4628
Class Y........... -- 0.5806 -- --
</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 2.9% 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 1997. 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 1998. Shareholders are advised to consult their own tax
advisers with respect to the tax consequences of their investment
in each Fund.
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