<PAGE>
TAX-FREE BOND FUNDS
ANNUAL REPORT
PaineWebber National Tax-Free Income Fund
PERFORMANCE AT A GLANCE
================================================================================
Comparison of the change of a $10,000 investment in PaineWebber
National Tax-Free Income Fund (A), the Bond Buyer 20-Bond GO Index and the
Lehman Brothers Municipal Bond Index.
[LINEGRAPH APPEARS HERE]
<TABLE>
<CAPTION>
PaineWebber National Bond Buyer 20-Bond Lehman Brothers Municiple
Tax-Free Fund (A) GO Index Bond Index
-------------------- ------------------ -------------------------
<S> <C> <C> <C>
2/29/88 9,596 10,000 10,262
2/89 10,148 10,794 10,900
2/90 11,022 11,597 12,017
2/91 11,942 12,468 13,125
2/92 13,022 13,354 14,436
2/93 14,796 14,226 16,423
2/94 15,632 15,029 17,333
2/95 15,533 16,014 17,659
2/96 16,892 16,973 19,610
2/97 17,591 17,983 20,690
2/98 19,259 18,981 22,581
</TABLE>
Past performance is not predictive of future performance.
The performance of the other classes will vary from the performance of the class
shown based on the difference in sales charges and fees paid by shareholders
investing in different classes.
- ---------------------------
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------
<TABLE>
<CAPTION>
Commencement of
Twelve Months Five Years Ten Years Operations
Ended 2/28/98 Ended 2/28/98 Ended 2/28/98 Through 2/28/98++
------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
CLASS A* 9.48% 5.41% 7.21% 8.64%
% Return Without Deducting CLASS B** 8.62% 4.64% N/A 6.34%
Maximum Sales Charge CLASS C*** 8.92% 4.88% N/A 5.67%
CLASS Y+ 9.87% N/A N/A 6.81%
% Return After Deducting CLASS A* 5.11% 4.56% 6.77% 8.31%
Maximum Sales Charge CLASS B** 3.62% 4.30% N/A 6.34%
CLASS C*** 8.17% 4.88% N/A 5.67%
</TABLE>
* Maximum sales charge for Class A shares is 4.0% of the public offering
price Class A shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 5.0% and is
reduced to 0% after 6 years. Class B shares bear ongoing 12b-1 distribution
and service fees.
*** Maximum contingent deferred sales charge for Class C shares is 0.75% and is
reduced to 0% after 1 year. Class C shares bear ongoing 12b-1 distribution
and service fees.
+ The fund offers Class Y shares to INSIGHT participants. Class Y shares do
not have initial or contingent deferred sales charges or ongoing
distribution and service fees.
++ Commencement of operations was December 3, 1984, July 1, 1991, July 2, 1992
and November 3, 1995 for Class A, Class B, Class C and Class Y shares,
respectively.
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. Capital gain distributions and gains realized on the sale of Fund shares
are taxable.
The graph depicts the performance of PaineWebber National Tax-Free Income Fund
versus the Bond Buyer 20-Bond General Obligation Index and the Lehman Brothers
Municipal Bond Index. It is important to note PaineWebber National
Tax-Free Income Fund is a professionally managed mutual fund while the indexes
are not available for investment and are unmanaged. The comparison is shown for
illustrative purposes only.
The Fund's performance benchmark has been changed to the Lehman Brothers
Municipal Bond Index. The Lehman Index is a more widely followed benchmark of
municipal bond returns and is believed to be a more appropriate broad-based
index for comparison with the total return performance of the Fund. The Fund's
prior benchmark, the Bond Buyer Index, is also shown in this report's
performance graph but will not appear in subsequent reports.
1
<PAGE>
ANNUAL REPORT
The graph depicts the performance of PaineWebber Municipal High Income Fund
versus the Bond Buyer 25-Bond Revenue Index and the Lehman Brothers Municipal
Bond Index. It is important to note PaineWebber Municipal High Income Fund is a
professionally managed mutual fund while the indexes are not available for
investment and are unmanaged. The comparison is shown for illustrative purposes
only.
The Fund's performance benchmark has been changed to the Lehman Brothers
Municipal Bond Index. The Lehman Index is a more widely followed benchmark of
municipal bond returns and is believed to be a more appropriate broad-based
index for comparison with the total return performance of the Fund. The Fund's
prior benchmark, the Bond Buyer Index, is also shown in this report's
performance graph but will not appear in subsequent reports.
PaineWebber Municipal High Income Fund
PERFORMANCE AT A GLANCE
================================================================================
Comparison of the change of a $10,000 investment in PaineWebber Municipal High
Income Fund (A), the Bond Buyer 25-Bond Revenue Index and the Lehman Brothers
Municipal Bond Index.
[LINE GRAPH APPEARS HERE]
PaineWebber
Municipal Bond Buyer Lehman Brothers
High Income 25-Bond Municipal
Date Fund (A) Revenue Index Bond Index
- ---- ----------- ------------- ---------------
2/29/88 9,598 10,000 10,262
2/89 10,473 10,829 10,900
2/90 11,388 11,667 12,017
2/91 12,150 12,575 13,125
2/92 13,601 13,488 14,436
2/93 15,647 14,392 16,423
2/94 16,551 15,240 17,333
2/95 16,214 16,284 17,659
2/96 17,866 17,303 19,610
2/97 19,047 18,379 20,690
2/98 21,154 19,448 22,581
Past performance is not predictive of future performance.
The performance of the other classes will vary from the performance of the class
shown based on the difference in sales charges and fees paid by shareholders
investing in different classes.
- ---------------------------
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------
<TABLE>
<CAPTION>
Commencement of
Twelve Months Five Years Ten Years Operations
Ended 2/28/98 Ended 2/28/98 Ended 2/28/98 Through 2/28/98
<S> <C> <C> <C> <C> <C>
CLASS A* 11.06% 6.22% 8.22% 8.37%
% Return Without Deducting
Maximum Sales Charge CLASS B** 10.23% 5.42% N/A 7.25%
CLASS C*** 10.51% 5.69% N/A 6.39%
% Return After Deducting
Maximum Sales Charge CLASS A* 6.65% 5.35% 7.78% 7.96%
CLASS B** 5.23% 5.10% N/A 7.25%
CLASS C*** 9.76% 5.69% N/A 6.39%
</TABLE>
* Maximum sales charge for Class A shares is 4.0% of the public offering
price. Class A shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 5.0% and is
reduced to 0% after 6 years. Class B shares bear ongoing 12b-1 distribution
and service fees.
*** Maximum contingent deferred sales charge for Class C shares is 0.75% and is
reduced to 0% after 1 year. Class C shares bear ongoing 12b-1 distribution
and service fees.
+ Commencement of operations was June 23, 1987, July 1, 1991 and July 2, 1992
for Class A, Class B and Class C shares, respectively. Inception for class
Y shares was February 5, 1998.
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. Capital gain distributions and gains realized on the sale of fund shares
are taxable.
2
<PAGE>
TAX-FREE BOND FUNDS
ANNUAL REPORT
PaineWebber New York Tax-Free Income Fund
PERFORMANCE AT A GLANCE
================================================================================
Comparison of the change of a $10,000 investment in PaineWebber New York Tax-
Free Income Fund (A), the Bond Buyer 20-Bond GO Index and the Lehman Brothers
Municipal Bond Index.
[LINE GRAPH APPEARS HERE]
PaineWebber Bond Lehman Brothers
New York Tax- Buyer 20-Bond Municipal Bond
Free Income Fund (A) GO Index Index
2/29/98 9,600 10,000 10,176
2/89 9,816 10,794 10,278
2/90 10,694 11,597 11,332
2/91 11,506 12,468 12,377
2/92 12,749 13,354 13,613
2/93 14,716 14,226 15,487
2/94 15,583 15,029 16,345
2/95 15,454 16,014 16,653
2/96 16,973 16,973 18,492
2/97 17,735 17,983 19,510
2/98 19,394 18,981 21,294
Past performance is not predictive of future performance.
The performance of the other classes will vary from the performance of the class
shown based on the difference in sales charges and fees paid by shareholders
investing in different classes.
- ---------------------------
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------
<TABLE>
<CAPTION>
Commencement Of
Twelve Months Five Years Operations
Ended 2/28/98 Ended 2/28/98 Through 2/28/98+
------------- ------------- ----------------
<S> <C> <C> <C> <C>
CLASS A* 9.36% 5.68% 7.73%
% Return Without Deducting
Maximum Sales Charge CLASS B** 8.65% 4.91% 6.90%
CLASS C*** 8.82% 5.16% 6.03%
CLASS A* 5.02% 4.81% 7.27%
% Return After Deducting
Maximum Sales Charge CLASS B** 3.65% 4.58% 6.90%
CLASS C*** 8.07% 5.16% 6.03%
</TABLE>
* Maximum sales charge for Class A shares is 4.0% of the public offering
price. Class A shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class C shares is 5.0% and is
reduced to 0% after 6 years. Class B shares bear ongoing 12b-1 distribution
and service fees.
*** Maximum contingent deferred sales charge for Class C shares is 0.75% and is
reduced to 0% after 1 year. Class C shares bear ongoing 12b-1 distribution
and service fees.
+ Commencement of operations was September 23, 1988, July 1, 1991 and July 2,
1992 for Class A, Class B and Class C shares, respectively.
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. Capital gain distributions and gains realized on the sale of Fund shares
are taxable.
The graph depicts the performance of PaineWebber New York Tax-Free Income Fund
versus the Bond Buyer 20-Bond General Obligation Index and the Lehman Brothers
Municipal Bond Index. It is important to note PaineWebber New York Tax-Free
Income Fund is a professionally managed mutual fund while the indexes are not
available for investment and are unmanaged. The comparison is shown for
illustrative purposes only.
The Fund's performance benchmark has been changed to the Lehman Brothers
Municipal Bond Index. The Lehman Index is a more widely followed benchmark of
municipal bond returns and is believed to be a more appropriate broad-based
index for comparison with the total return performance of the Fund. The Fund's
prior benchmark, the Bond Buyer Index, is also shown in this report's
performance graph but will not appear in subsequent reports.
3
<PAGE>
ANNUAL REPORT
The graph depicts the performance of PaineWebber California Tax-Free Income Fund
versus the Bond Buyer 20-Bond general Obligation Index and the Lehman Brothers
Municipal Bond Index. It is important to note PaineWebber California
Tax-Free Income Fund is a professionally managed mutual fund while the indexes
are not available for investment and are unmanaged. The comparison is shown for
illustrative purposes only.
The Fund's performance benchmark has been changed to the Lehman Brothers
Municipal Bond Index. The Lehman Index is a more widely followed benchmark of
municipal bond returns and is believed to be a more appropriate broad-based
index for comparison with the total return performance of the Fund. The Fund's
prior benchmark, the Bond Buyer Index, is also shown in this report's
performance graph but will not appear in subsequent reports.
PaineWebber California Tax-Free Income Fund
PERFORMANCE AT A GLANCE
================================================================================
Comparison of the change of a $10,000 investment in PaineWebber California Tax-
Free Income Fund (A), the Bond Buyer 20-Bond GO Index and the Lehman Brothers
Municipal Bond Index.
[LINE GRAPH APPEARS HERE]
PaineWebber Bond Lehman Brothers
California Tax- Buyer 20-Bond Municipal Bond
Free Income Fund (A) GO Index Index
2/29/88 9,597 10,000 10,262
2/89 10,059 10,794 10,900
2/90 10,897 11,597 12,017
2/91 11,812 12,468 13,125
2/92 12,908 13,354 14,436
2/93 14,598 14,226 16,423
2/94 15,246 15,029 17,333
2/95 15,217 16,014 17,659
2/96 16,538 16,973 19,610
2/97 17,188 17,983 20,690
2/98 18,779 18,981 22,581
Past performance is not predictive of future performance.
The performance of the other classes will vary from the performance of the class
shown based on the difference in sales charges and fees paid by shareholders
investing in different classes.
- ---------------------------
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------
<TABLE>
<CAPTION>
Commencement of
Twelve Months Five Years Ten Years Operations
Ended Ended Ended Through
2/28/98 2/28/98 2/28/98 2/28/98+
------------- ---------- --------- ---------------
<S> <C> <C> <C> <C> <C>
CLASS A* 9.26% 5.17% 6.94% 8.17%
% Return Without Deducting
Maximum Sales Charge CLASS B** 8.33% 4.35% N/A 6.06%
CLASS C*** 8.71% 4.63% N/A 5.47%
CLASS A* 4.93% 4.31% 6.50% 7.82%
% Return After Deducting
Maximum Sales Charge CLASS B** 3.33% 4.03% N/A 6.06%
CLASS C*** 7.96% 4.63% N/A 5.47%
</TABLE>
* Maximum sales charge for Class A shares is 4.0% Of the public offering
price. Class A shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 5.0% and is
reduced to 0% after 6 years. Class B shares bear ongoing 12b-1 distribution
and service fees.
*** Maximum contingent deferred sales charge for Class C shares is 0.75% and is
reduced to 0% after 1 year. Class C shares bear ongoing 12b-1 distribution
and service fees.
+ Commencement of operations was September 16, 1985, July 1, 1991 and July 2,
1992 for Class A, Class B and Class C shares, respectively. Inception for
Class Y shares was February 5, 1998.
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. Capital gain distributions and gains realized on the sale of Fund shares
are taxable.
4
<PAGE>
TAX-FREE BOND FUNDS ANNUAL REPORT
April 14, 1998
Dear Shareholder,
We are pleased to present you with the annual report for PaineWebber National
Tax-Free Income Fund, PaineWebber Municipal High Income Fund, PaineWebber New
York Tax-Free Income Fund and PaineWebber California Tax-Free Income Fund for
the fiscal year ended February 28, 1998.
GENERAL MARKET OVERVIEW
================================================================================
[GRAPHIC APPEARS HERE]
The credit markets rallied strongly from beginning to end of the Funds' fiscal
year. The long Treasury bond finished up, yielding below 6.00% from a 6.60%
starting point. Most of the move came in the early part of the fiscal year;
during the last three months the long bond stayed in a 25-basis-point (0.25%)
range.
The central factors driving this move were: a steadily improving economy
without inflation, Asian economic unrest potentially causing a slowdown in the
United States, demand for U.S. financial assets by investors fleeing Asia and
the perception that the Federal Reserve would not increase short-term interest
rates.
Municipal bonds also gained through the fiscal year, although they trailed the
U.S. Treasury market. Municipal issuers took advantage of historically low rates
to refinance outstanding debt with new, lower yielding bonds. At February 28,
1998, municipal yields were 86% of comparable-maturity Treasury yields, which
bodes well for municipal bonds. On average, municipals yield 82-83% of
comparable Treasuries. This yield relationship tends to return to its average,
meaning municipal prices could gain or Treasury prices could fall, or some
combination of both.
Portfolio Review
================================================================================
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
[GRAPHIC APPEARS HERE]
PERFORMANCE
The Fund's total return (the net asset value change with dividends reinvested)
for the fiscal year ended February 28, 1998, without deducting sales charges,
was 9.48% for Class A shares, 8.62% for Class B shares, 8.92% for Class C shares
and 9.87% for Class Y shares. The Fund's Class A shares outperformed the Lipper
median manager in the General Municipal Funds peer group by 38 basis points
(0.38%).
For shareowners who purchased or redeemed Fund shares during the period, the
Fund's total return may be lower; for example, after deducting the maximum
applicable sales charges, the Fund's total return for the period was 5.11% for
Class A shares, 3.62% for Class B shares, 8.17% for Class C shares and 9.87% for
Class Y shares.
5
<PAGE>
Annual Report
- ----------------------
PaineWebber National
Tax-Free Income Fund
FUND PROFILE
Goal:
High current income
exempt from federal
income tax
Portfolio Managers:
Elbridge T. Gerry III,
Richard S. Murphy,
Mitchell Hutchins
Asset Management Inc.
Total Net Assets:
$311.7 million as of
February 28, 1998
Dividend Payments:
Monthly
- ----------------------
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
Quality breakdown as percent of net assets, February 28, 1998*
[PIE CHART APPEARS HERE]
AAA 40.1%
AA 17.8%
A 14.7%
BBB 15.0%
BB 6.3%
No rating 4.6%
Cash & Cash
equivalents 1.5%
* Allocations subject to change
Portfolio Highlights
Our disciplined investment style -- focused on duration, sector allocation and
security selection -- allowed us to outperform our peers during this period.
Purchasing bonds with 50-basis-point (0.50%) premiums helped the Fund's
performance, as these bonds started pricing to their call dates versus their
maturity dates (thus rolling down the maturity curve). Diversifying across the
credit spectrum -- mainly into more BBB's, BB's and nonrated issues -- helped
too, as these issues performed better than higher-rated credits for the period.
Our hospital bond positions underperformed generally. However, since we are
underweighted in hospitals compared to our Lipper peer group, hospital issues
did not affect our performance as much as theirs.
Our Holdenville Oklahoma holding best represents the success of our investment
strategy. After extensive research, in late 1996 we purchased a Baa-rated jail-
lease bond that yielded 1.30% above an equivalent-maturity AAA bond. Less than
one year later, the issuer sold a new issue and used the proceeds to escrow our
position. This "prerefunding" allowed us to sell our bonds at a gain.
We are still positive on the power sector (19.9% of net assets as of February
28, 1998); we expect further consolidation to lead to lower issuance and more
prerefundings as municipalities respond to customers' ability to choose power
vendors. We hope to increase our single-family housing allocation (2.5% of net
assets as of February 28, 1998) if we can fine-tune individual issue prepayment
rates.
We are generally positive on interest rates, believing that inflation will stay
down within the context of a moderately healthy economy. In accordance with this
view, we are maintaining the Fund's duration slightly above that of its Lipper
peer group.
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
PERFORMANCE
The Fund's total return (the net asset value change with dividends reinvested)
for the fiscal year ended February 28, 1998, without deducting sales charges,
was 11.06% for Class A shares, 10.23% for Class B shares and 10.51% for Class C
shares. Class Y shares were not outstanding for the entire fiscal year ended
February 28, 1998. The total return for Class Y shares from commencement on
February 5, 1998 is -0.09%, with and without deduction of sales charges. The
Fund's Class A shares outperformed the Lipper Municipal High Yield peer group by
81 basis points (0.81%).
For shareowners who purchased or redeemed Fund shares during the period the
Fund's total return may be lower; for example, after deducting the maximum
applicable sales charges, the Fund's total return for the period was 6.65% for
Class A shares, 5.23% for Class B shares and 9.76% for Class C shares. Class Y
shares were not outstanding for the entire fiscal year ended February 28, 1998.
The total return
6
<PAGE>
Tax-Free Bond Funds Annual Report
for Class Y shares from commencement on February 5, 1998 is -0.09%, with the
deduction of sales charges.
Portfolio Highlights
During the last six months the Fund benefited from the refunding of several of
its holdings. In late 1996 we purchased Baa-rated Holdenville, Oklahoma jail-
lease bonds that yielded 1.30% above an equivalent-maturity AAA bond. Less than
one year later, the issuer sold a new issue and used the proceeds to escrow our
position. This "prerefunding" allowed us to sell our bonds at a gain. Also, our
investment in bonds for a convention center in Myrtle Beach, South Carolina was
refunded in January 1998.
Several investment themes currently give focus to our industry and security
selections. The stable, moderate-growth economy, with its low inflation and high
consumer confidence, continue to bode well for the leisure and travel
industries. One of the issues we like is Black Hawk, Colorado Water Bonds, to
supply water to casinos (1.5% of net assets on February 28, 1998). The economic
recovery of Southern California presents attractive investment opportunities as
municipalities there undertake new infrastructure projects, such as our
investment in aquarium bonds for Long Beach, California (3.1% of net assets on
February 28, 1998). This investment also connects with our travel and leisure
theme.
We favor select companies in the power industry; those that we think will
benefit from consolidation as consumers get to choose their suppliers. At this
time, we are not keen on hospital bonds and have kept them to only 5% of the
Fund's net assets for some time. (Most of our Lipper competitors hold hospital
positions of about 15%.) Hospital issues underperformed during the last six
months, turning our underweighting into a relative advantage.
In the last report we asserted that narrowing credit spreads were justified, but
that we weren't sure how much longer the narrowing would continue. In fact, it
continued through the end of the Fund's fiscal year (February 28, 1998) and on
into March. Because spreads have narrowed so much already, we feel it's time to
take a more cautious stance with the Fund's portfolio. Therefore, we have begun
to increase the Fund's overall quality as a defensive move. Recently we
purchased the Fund's first A-rated credit in several years, bonds issued by
Pilchuck, Washington (1.6% of net assets as of February 28, 1998).
In an environment of such tight credit spreads there is little room for error;
we will therefore emphasize security selection and quality enhancement. While we
may give up some yield, we think that shareholders will be best served by taking
a cautious approach in the months ahead.
- -------------------------------------------------------
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
FUND PROFILE
Goal:
High current income exempt from federal income tax
Portfolio Managers:
Elbridge T. Gerry III,
William W. Veronda,
Mitchell Hutchins
Asset Management Inc.
Total Net Assets:
$99.4 million as of
February 28, 1998
Dividend Payments:
Monthly
- -------------------------------------------------------
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
Quality breakdown as percent of net assets, February 28, 1998*
[PIE CHART APPEARS HERE]
A 3.3%
BBB 45.2%
BB 27.9%
B 2.0%
No-Rated 19.8%
Cash and Cash
Equivalents 1.8%
* Allocations subject to change
7
<PAGE>
ANNUAL REPORT
- --------------------------------------------------------------------------------
PAINEWEBBER NEW YORK TAX-FREE INCOME FUND
FUND PROFILE
Goal:
High current income exempt from federal income tax and New York State and New
York City personal income taxes
Portfolio Managers:
Elbridge T. Gerry III,
Richard S. Murphy,
Mitchell Hutchins
Asset Management Inc
Total Net Assets:
$44.5 million as of
February 28, 1998
Dividend Payments:
Monthly
- --------------------------------------------------------------------------------
PAINEWEBBER NEW YORK TAX-FREE INCOME FUND
Quality breakdown as percent of net assets, February 28, 1998*
[PIE CHART APPEARS HERE]
A 24.0%
BBB 22.9%
BB 2.4%
No rating 2.5%
Cash and cash
equivalents 2.7%
AAA 30.9%
AA 14.6%
* Allocations subject to change
================================================================================
PAINEWEBBER NEW YORK TAX-FREE INCOME FUND
Performance
The Fund's total return (the net asset value change with dividends reinvested)
for the fiscal year ended February 28, 1998, without deducting sales charges,
was 9.36% for Class A shares, 8.65% for Class B shares and 8.82% for Class C
shares.
For shareowners who purchased or redeemed Fund shares during the period the
Fund's total return may be lower; for example, after deducting the maximum
applicable sales charges, the Fund's total return for the period was 5.02% for
Class A shares, 3.65% for Class B shares and 8.07% for Class C shares.
Portfolio Highlights
During the fiscal year, the main contributors to the Fund's performance were
rebalancing across the credit curve as spreads compressed and picking ideally
structured securities at peak spots along the maturity curve. Issues such as
Local Government Assistance Corporation, NYS Thruway Authority and NYS
Environmental Authority (3.7%, 4.8% and 3.7%, respectively, of net assets on
February 28, 1998) not only benefited our shareholders for the above mentioned
reasons but were also prerefunded to their first call dates, causing large
price increases.
We have been and still are positive on the utility sector. We foresee supply
dwindling as issuers delve into the world of consumer choice. Some issuers are
even issuing taxable paper to open up a greater customer base. NY Power
Authority (2.3% of net assets on February 28, 1998) is prerefunding all
outstanding debt to get out of restrictive bond covenants.
Expanding our research efforts resulted in our timely purchase of a Brooklyn
Navy Yard (Baa3) issue. This position (2.3% of net assets on February 28, 1998)
has turned in a strong performance since we bought it in December 1997.
================================================================================
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND
PERFORMANCE
The Fund's total return (the net asset value change with dividends reinvested)
for the fiscal year ended February 28, 1998, without deducting sales charges,
was 9.26% for Class A shares, 8.33% for Class B shares and 8.71% for Class C
shares. Class Y shares were not outstanding for the entire fiscal year ended
February 28, 1998. From their commencement on February 5, Class Y shares
returned -0.34%, with and without deduction of sales charges.
For shareowners who purchased or redeemed Fund shares during the period the
Fund's total return may be lower; for example, after deducting the maximum
applicable sales charges, the Fund's total return for the period was 4.93% for
Class A
8
<PAGE>
TAX-FREE BOND FUNDS ANNUAL REPORT
shares, 3.33% for Class B shares and 7.96% for Class C shares. Class Y shares
were not outstanding for the entire fiscal year ended February 28, 1998. From
their commencement on February 5, Class Y shares returned -0.34%, with and
without deduction of sales charges.
PORTFOLIO HIGHLIGHTS
During the year ended February 28, 1998, and particularly in the most recent
six months, improvements in the relative rate of interest rates brought an
onslaught of refinancing deals. Issuers took advantage of lower market rates to
prerefund higher-cost bond debt. Prerefunding accelerated the performance of
those bonds and contributed largely to strong performance for the period. Among
our attractive holdings (as percent of net assets on February 28, 1998) was
Santa Clara Valley Medical Center (1.5%).
In this rally new issuance coupons of long bonds drifted to 4.50% and
resistance to the absolute levels of interest materialized. Some investors split
away from discount bonds and moved into higher premium bonds. Thus, moderate-
premium bonds grew to more substantial premiums in this rally and performed
well. Many of our core holdings consist of premium bonds in the 20-year range
with coupons between 5.5% and 6.0%.
The third significant event that marked this period was the narrowing of
traditional spreads. Yield compression was seen across the credit spectrum and
across sectors, although it was most evident in the credit spectrum. Lower-rated
securites, having seen the most narrowing, proved to be strong performers.
The Fund participated well in this rally: our exposure to premium bonds
contributed to our performance. We were under-weighted in lower-rated credits,
however, and therefore did not benefit greatly from their performance. We will
seek to increase our holdings of Baa and lower issues, but we will not
compromise our quality standards to do so. We remain diligent in our search for
relative value and proper compensation for additional investment risk.
PAINWEBBER CALIFORNIA TAX-FREE INCOME FUND
Quality breakdown as percent of net assets, February 28, 1998*
[PIE CHART APPEARS HERE]
AAA 62.3%
BBB 8.3%
A 9.7%
AA 15.7%
No rating 3.7%
Cash & Cash
Equivalent 0.9%
* Allocations subject to change
- --------------------------------------------------------------------------------
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND
FUND PROFILE
Goal:
High current income
exempt from federal
income tax and
California personal
income taxes
Portfolio Managers:
Elbridge T. Gerry III,
Cynthia N. Bow,
Mitchell Hutchins
Asset Management Inc.
Total Net Assets:
$154.2 million as of
February 28, 1998
Dividend Payments:
Monthly
- --------------------------------------------------------------------------------
OUTLOOK
================================================================================
We think 1998 will be a strong year for the U.S. bond markets. The U.S.
economy is slowing slightly due to Asia, though the effects will not show up in
economic statistics for a while. We expect inflation to run at a 1.5% annual
rate. The Federal budget is now running a surplus, which should reduce
government borrowing and ease the upward pressure on market interest rates. We
think rates could fall one- to three-tenths of a percent if present conditions
persist.
9
<PAGE>
ANNUAL REPORT
Our ultimate objective in managing your investments is to help you
successfully meet your financial goals. We thank you for your continued support
and welcome any comments or questions you may have.
For a quarterly Fund Profile on any of the PaineWebber Tax-Free Bond Funds or
other funds in the PaineWebber Family of Funds/1/, please contact your
investment executive.
Sincerely,
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Margo N. Alexander /s/ Elbridge T. Gerry III /s/ Richard S. Murphy
MARGO N. ALEXANDER ELBRIDGE T. GERRY III RICHARD S. MURPHY
President Senior Vice President Portfolio Manager
Mitchell Hutchins Asset Mitchell Hutchins Asset PaineWebber National Tax-Free
Management Inc. Management Inc. Income Fund, PaineWebber
Portfolio Manager, PaineWebber New York Tax-Free Income Fund
National Tax-Free Income Fund,
PaineWebber Municipal High Income
Fund, PaineWebber New York Tax-Free
Income Fund and PaineWebber
California Tax-Free Income Fund
/s/ Cynthia N. Bow /s/ William W. Veronda
CYNTHIA N. BOW WILLIAM W. VERONDA
Portfolio Manager Portfolio Manager
PaineWebber California PaineWebber Municipal High
Tax-Free Income Fund Income Fund
</TABLE>
This letter is intended to assist shareholders in understanding how the Funds
performed during the fiscal year ended February 28, 1998, and reflects our views
at the time we are writing this report. Of course, these views may change in
response to changing circumstances. We encourage you to consult your investment
executive regarding your personal investment program.
/1/ Mutual funds are sold by prospectus only. The prospectuses for the funds
contain more complete information regarding risks, charges and expenses, and
should be read carefully before investing.
10
<PAGE>
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------------------- --------------------------------
12 MONTHS 6 MONTHS
02/28/98 08/31/97 02/28/97 ENDED 02/28/98 ENDED 02/28/98
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES $11.39 $11.06 $10.91 9.26% 5.33%
- ---------------------------------------------------------------------------------------
CLASS B SHARES 11.39 11.07 10.92 8.33 4.83
- ---------------------------------------------------------------------------------------
CLASS C SHARES 11.38 11.06 10.90 8.71 4.97
- ---------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
<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
- ---------------------------------------------------------------------------------------
1997 10.94 11.37 -- 0.5056 8.80
- ---------------------------------------------------------------------------------------
01/01/98-
02/28/98 11.37 11.39 -- 0.0496 0.61
- ---------------------------------------------------------------------------------------
TOTALS: $0.6330 $8.1953
- ---------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 02/28/98: 166.17%
- ---------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<CAPTION>
NET ASSET VALUE
----------------------
PERIOD CAPITAL GAINS TOTAL
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
- ---------------------------------------------------------------------------------------
1997 10.95 11.38 -- 0.4213 7.96
- ---------------------------------------------------------------------------------------
01/01/98 -
02/28/98 11.38 11.39 -- 0.0411 0.45
- ---------------------------------------------------------------------------------------
TOTALS: $0.5990 $3.2863
- ---------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 02/28/98: 48.10%
- ---------------------------------------------------------------------------------------
</TABLE>
/1/FIGURES ASSUME REINVESTMENT OF ALL DIVIDENDS AND OTHER 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. CAPITAL GAIN DISTRIBUTIONS AND GAINS REALIZED
ON THE SALE OF FUND SHARES ARE TAXABLE.
11
<PAGE>
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND
PERFORMANCE RESULTS (UNAUDITED) (CONCLUDED)
PERFORMANCE SUMMARY CLASS C SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
----------------
PERIOD CAPITAL GAINS
COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID TOTAL 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
- -------------------------------------------------------------------------
1997 10.94 11.37 -- 0.4487 8.24
- -------------------------------------------------------------------------
01/01/98 -
02/28/98 11.37 11.38 -- 0.0438 0.47
- -------------------------------------------------------------------------
TOTALS: $0.5722 $2.8184
- -------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/28/98: 35.24%
- -------------------------------------------------------------------------
</TABLE>
/1/FIGURES ASSUME REINVESTMENT OF ALL DIVIDENDS AND OTHER 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.
NOTE: THE FUND OFFERS CLASS Y SHARES TO A LIMITED GROUP OF INVESTORS, INCLUDING
PARTICIPANTS IN CERTAIN INVESTMENT PROGRAMS THAT ARE SPONSORED BY PAINEWEBBER
AND THAT MAY INVEST IN PAINEWEBBER MUTUAL FUNDS. SINCE INCEPTION, FEBRUARY 5,
1998 THROUGH FEBRUARY 28, 1998, CLASS Y SHARES HAD A TOTAL RETURN OF (0.34)%.
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. CAPITAL GAIN DISTRIBUTIONS AND GAINS REALIZED
ON THE SALE OF FUND SHARES ARE TAXABLE.
12
<PAGE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
------------------------------------ -----------------------------
12 MONTHS 6 MONTHS
02/28/98 08/31/97 02/28/97 ENDED 02/28/98 ENDED 02/28/98
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES $11.97 $11.76 $11.55 9.48% 5.00%
- ----------------------------------------------------------------------------------
CLASS B SHARES 11.97 11.75 11.55 8.62 4.66
- ----------------------------------------------------------------------------------
CLASS C SHARES 11.97 11.76 11.55 8.92 4.72
- ----------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
- ----------------------------------------------------------------------------------
1997 11.54 11.95 0.0836 0.5585 9.37
- ----------------------------------------------------------------------------------
01/01/98 -
02/28/98 11.95 11.97 -- 0.0750 0.79
- ----------------------------------------------------------------------------------
TOTALS: $0.3858 $9.4021
- ----------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 02/28/98: 199.90%
- ----------------------------------------------------------------------------------
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 $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
- ----------------------------------------------------------------------------------
1997 11.53 11.95 0.0836 0.4676 8.62
- ----------------------------------------------------------------------------------
01/01/98 -
02/28/98 11.95 11.97 -- 0.0622 0.68
- ----------------------------------------------------------------------------------
TOTALS: $0.3858 $3.5225
- ----------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 02/28/98: 50.66%
- ----------------------------------------------------------------------------------
</TABLE>
/1/FIGURES ASSUME REINVESTMENT OF ALL DIVIDENDS AND OTHER 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. CAPITAL GAIN DISTRIBUTIONS AND GAINS REALIZED
ON THE SALE OF FUND SHARES ARE TAXABLE.
13
<PAGE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
PERFORMANCE RESULTS (UNAUDITED) (CONCLUDED)
PERFORMANCE SUMMARY CLASS C SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
----------------
PERIOD CAPITAL GAINS
COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID TOTAL 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
- ---------------------------------------------------------------------------
1997 11.54 11.95 0.0836 0.4987 8.81
- ---------------------------------------------------------------------------
01/01/98 -
02/28/98 11.95 11.97 -- 0.0667 0.72
- ---------------------------------------------------------------------------
TOTALS: $0.3493 $3.0126
- ---------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/28/98: 36.65%
- ---------------------------------------------------------------------------
</TABLE>
/1/FIGURES ASSUME REINVESTMENT OF ALL DIVIDENDS AND OTHER 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 OFFERS CLASS Y SHARES TO A LIMITED GROUP OF INVESTORS, INCLUDING
PARTICIPANTS IN CERTAIN INVESTMENT PROGRAMS THAT ARE SPONSORED BY PAINEWEBBER
AND THAT MAY INVEST IN PAINEWEBBER MUTUAL FUNDS. FOR THE YEAR ENDED FEBRUARY
28, 1998 AND SINCE INCEPTION, NOVEMBER 3, 1995 THROUGH FEBRUARY 28, 1998, CLASS
Y SHARES HAD A TOTAL RETURN OF 9.87% AND 16.57%, 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. CAPITAL GAIN DISTRIBUTIONS AND GAINS REALIZED
ON THE SALE OF FUND SHARES ARE TAXABLE.
14
<PAGE>
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
---------------------------------- -----------------------------
12 MONTHS 6 MONTHS
02/28/98 08/31/97 02/28/97 ENDED 02/28/98 ENDED 02/28/98
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A
SHARES $10.96 $10.65 $10.39 11.06% 5.51%
- ----------------------------------------------------------------------------
CLASS B
SHARES 10.96 10.65 10.39 10.23 5.11
- ----------------------------------------------------------------------------
CLASS C
SHARES 10.96 10.65 10.39 10.51 5.25
- ----------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
<CAPTION>
NET ASSET VALUE
------------------
PERIOD CAPITAL GAINS TOTAL
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
- ----------------------------------------------------------------------------
1997 10.39 10.92 -- 0.5531 10.73
- ----------------------------------------------------------------------------
01/01/98 -
02/28/98 10.92 10.96 -- 0.0509 0.83
- ----------------------------------------------------------------------------
TOTALS: $0.4382 $6.9595
- ----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 02/28/98: 136.33%
- ----------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<CAPTION>
NET ASSET VALUE
------------------
PERIOD CAPITAL GAINS TOTAL
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
- ----------------------------------------------------------------------------
1997 10.38 10.91 -- 0.4726 9.91
- ----------------------------------------------------------------------------
01/01/98 -
02/28/98 10.91 10.96 -- 0.0428 0.85
- ----------------------------------------------------------------------------
TOTALS: $0.4382 $3.4888
- ----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 02/28/98: 59.50%
- ----------------------------------------------------------------------------
</TABLE>
/1/FIGURES ASSUME REINVESTMENT OF ALL DIVIDENDS AND OTHER 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. CAPITAL GAIN DISTRIBUTIONS AND GAINS REALIZED
ON THE SALE OF FUND SHARES ARE TAXABLE.
15
<PAGE>
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
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 $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
- ------------------------------------------------------------------------------
1997 10.39 10.92 -- 0.4999 10.18
- ------------------------------------------------------------------------------
01/01/98 - 02/28/98 10.92 10.96 -- 0.0456 0.78
- ------------------------------------------------------------------------------
TOTALS: $0.2432 $2.9738
- ------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/28/98: 42.04%
- ------------------------------------------------------------------------------
</TABLE>
/1/FIGURES ASSUME REINVESTMENT OF ALL DIVIDENDS AND OTHER 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 OFFERS CLASS Y SHARES TO A LIMITED GROUP OF INVESTORS, INCLUDING
PARTICIPANTS IN CERTAIN INVESTMENT PROGRAMS THAT ARE SPONSORED BY PAINEWEBBER
AND THAT MAY INVEST IN PAINEWEBBER MUTUAL FUNDS. SINCE INCEPTION, FEBRUARY 5,
1998 THROUGH FEBRUARY 28, 1998, CLASS Y SHARES HAD A TOTAL RETURN OF (0.09)%.
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. CAPITAL GAIN DISTRIBUTIONS AND GAINS REALIZED
ON THE SALE OF FUND SHARES ARE TAXABLE.
16
<PAGE>
PAINEWEBBER NEW YORK TAX-FREE INCOME FUND
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------------- -----------------------------
12 MONTHS 6 MONTHS
02/28/98 08/31/97 02/28/97 ENDED 02/28/98 ENDED 02/28/98
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES $11.12 $10.82 $10.66 9.36% 5.17%
- ------------------------------------------------------------------------------
CLASS B SHARES 11.12 10.82 10.65 8.65 4.78
- ------------------------------------------------------------------------------
CLASS C SHARES 11.12 10.83 10.66 8.82 4.81
- ------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
- ------------------------------------------------------------------------------
1997 10.65 11.10 -- 0.5135 9.31
- ------------------------------------------------------------------------------
01/01/98 -
02/28/98 11.10 11.12 -- 0.0488 0.62
- ------------------------------------------------------------------------------
TOTALS: $0.1270 $5.5523
- ------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/28/98: 102.02%
- ------------------------------------------------------------------------------
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 $ 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
- ------------------------------------------------------------------------------
1997 10.65 11.10 -- 0.4329 8.50
- ------------------------------------------------------------------------------
01/01/98 -
02/28/98 11.10 11.12 -- 0.0407 0.55
- ------------------------------------------------------------------------------
TOTALS: $0.1270 $3.1642
- ------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/28/98: 56.05%
- ------------------------------------------------------------------------------
</TABLE>
/1/FIGURES ASSUME REINVESTMENT OF ALL DIVIDENDS AND OTHER 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. CAPITAL GAIN DISTRIBUTIONS AND GAINS REALIZED
ON THE SALE OF FUND SHARES ARE TAXABLE.
17
<PAGE>
PAINEWEBBER NEW YORK TAX-FREE INCOME FUND
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 $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
- ------------------------------------------------------------------------------
1997 10.65 11.10 -- 0.4600 8.77
- ------------------------------------------------------------------------------
01/01/98 - 02/28/98 11.10 11.12 -- 0.0435 0.57
- ------------------------------------------------------------------------------
TOTALS: $0.1270 $2.7063
- ------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/28/98: 39.36%
- ------------------------------------------------------------------------------
</TABLE>
/1/FIGURES ASSUME REINVESTMENT OF ALL DIVIDENDS AND OTHER 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. CAPITAL GAIN DISTRIBUTIONS AND GAINS REALIZED
ON THE SALE OF FUND SHARES ARE TAXABLE.
18
<PAGE>
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------------- ------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- 98.99%
$ 1,000 CALIFORNIA EDUCATIONAL
FACILITIES AUTHORITY
LOS ANGELES COLLEGE OF
CHIROPRACTIC MEDICINE.. 11/01/17 5.600% $ 1,024,910
2,500 CALIFORNIA EDUCATIONAL
FACILITIES AUTHORITY
STANFORD UNIVERSITY
SERIES J............... 11/01/16 6.000 2,662,800
2,000 CALIFORNIA HEALTH
FACILITIES FINANCING
AUTHORITY KAISER
PERMANENTE HOSPITAL
SERIES A............... 10/01/18 7.000 2,127,000
100 CALIFORNIA HEALTH
FACILITIES FINANCING
AUTHORITY SUTTER HEALTH
SERIES B............... 03/02/98 3.650* 100,000
1,950 CALIFORNIA POLLUTION
CONTROL FINANCING
AUTHORITY SAN DIEGO GAS
& ELECTRIC
(AMBAC INSURED)........ 06/01/14 5.900 2,190,064
400 CALIFORNIA POLLUTION
CONTROL FINANCING
AUTHORITY SOUTHERN
CALIFORNIA EDISON...... 03/02/98 3.900* 400,000
10,450 CALIFORNIA STATE PUBLIC
WORKS BOARD DEPARTMENT
OF CORRECTIONS SERIES B
(MBIA INSURED)......... 11/01/19 5.625 10,922,862
1,750 CALIFORNIA STATE PUBLIC
WORKS BOARD VARIOUS
UNIVERSITY OF
CALIFORNIA PROJECTS.... 06/01/14 5.500 1,878,853
6,000+ CALIFORNIA STATE
UNIVERSITY REVENUE &
COLLEGES HOUSING
SYSTEMS (FGIC INSURED). 11/01/17 TO 11/01/21 5.800 TO 5.900 6,447,700
100 CALIFORNIA STATEWIDE
COMMUNITIES DEVELOPMENT
AUTHORITY ST. JOSEPH
HEALTH SYSTEM GROUP.... 03/02/98 3.650* 100,000
1,000 UNIVERSITY OF CALIFORNIA
REVENUES MULTIPLE
PURPOSE PROJECTS SERIES
C
(AMBAC INSURED)........ 09/01/11 5.250 1,033,820
4,000 UNIVERSITY OF CALIFORNIA
REVENUES MULTIPLE
PURPOSE PROJECTS SERIES
E
(MBIA INSURED)......... 09/01/20 5.125 3,955,200
4,315 ALUM ROCK UNIFIED
ELEMENTARY SCHOOL
DISTRICT (FGIC
INSURED)............... 09/01/18 5.250 4,363,630
1,390 BEVERLY HILLS
CERTIFICATES OF
PARTICIPATION.......... 06/01/15 TO 06/01/19 6.750 TO 7.000 1,463,354
2,100 CAPISTRANO UNIFIED
SCHOOL DISTRICT
CERTIFICATES OF
PARTICIPATION.......... 02/01/18 5.200 2,113,839
2,000 CENTRAL COAST WATER
AUTHORITY REVENUE BONDS
SERIES A (AMBAC
INSURED)............... 10/01/22 5.000 1,952,880
1,350 CONTRA COSTA
TRANSPORTATION
AUTHORITY SALES TAX
REVENUE BONDS SERIES A. 03/01/07 6.875 1,550,826
2,715 DEL MAR RACE TRACK
AUTHORITY.............. 08/15/11 TO 08/15/13 6.200 TO 6.450 2,915,589
650 DUARTE REDEVELOPMENT
AGENCY TAX ALLOCATION
DAVIS ADDITION PROJECT. 09/01/14 6.700 690,762
2,000 EAST BAY MUNICIPAL
UTILITY DISTRICT WATER
SYSTEM REVENUE BONDS
(FGIC INSURED)......... 06/01/12 6.000 2,155,360
1,000 FAIRFIELD PUBLIC
FINANCING AUTHORITY
MUNICIPAL PARK
IMPROVEMENT DISTRICT
NO. 1 (FGIC INSURED)... 07/01/14 6.250 1,091,410
4,000 FONTANA REDEVELOPMENT
AGENCY TAX ALLOCATION
JURUPA HILLS
REDEVELOPMENT PROJECT.. 10/01/24 TO 10/01/27 5.500 TO 7.200 4,285,860
2,000 FOOTHILL DE ANZA
COMMUNITY COLLEGE
DISTRICT CERTIFICATES
OF PARTICIPATION....... 09/01/13 6.250 2,199,420
2,000 FREMONT UNIFIED SCHOOL
DISTRICT ALAMEDA COUNTY
SERIES F (MBIA
INSURED)............... 08/01/16 5.875 2,179,440
1,225 FRESNO UNIFIED SCHOOL
DISTRICT SERIES A (MBIA
INSURED)............... 08/01/20 6.550 1,439,142
2,000 HUNTINGTON PARK PUBLIC
FINANCING AUTHORITY
WASTEWATER SYSTEMS
PROJECT REVENUE BONDS
SERIES A++............. 10/01/25 6.200 2,053,120
1,000 INTERMODAL CONTAINER
TRANSFER FACILITIES
SOUTHERN PACIFIC
TRANSFER COMPANY SERIES
A...................... 11/01/14 7.700 1,062,210
100 IRVINE RANCH WATER
DISTRICT IMPROVEMENT
DISTRICT NO. 284 SERIES
A...................... 03/02/98 3.550* 100,000
100 IRVINE RANCH WATER
DISTRICT SERIES B...... 03/02/98 3.550* 100,000
1,600 LONG BEACH WATER REVENUE
BONDS SERIES A (MBIA
INSURED)............... 05/01/18 5.000 1,566,048
3,000 LOS ANGELES DEPARTMENT
OF WATER & POWER
REVENUE BONDS
(CROSSOVER REFUNDED TO
01/15/01 @ 102)........ 01/15/31 7.100 3,300,780
4,750 LOS ANGELES HARBOR
DEPARTMENT REVENUE
BONDS SERIES B......... 11/01/23 TO 08/01/25 5.375 TO 6.625 4,937,620
3,000 LOS ANGELES METROPOLITAN
TRANSPORTATION
AUTHORITY SALES TAX
REVENUE BONDS SERIES A
(MBIA INSURED)......... 07/01/27 5.250 3,009,300
2,200 M-S-R PUBLIC POWER
AGENCY SAN JUAN PROJECT
REVENUE BONDS SERIES E
(MBIA INSURED)......... 07/01/17 6.500 2,384,404
6,470 MENLO PARK COMMUNITY
DEVELOPMENT AGENCY TAX
ALLOCATION LAS PULGAS
COMMUNITY DEVELOPMENT
PROJECT (AMBAC
INSURED)............... 06/01/16 5.375 6,667,594
</TABLE>
19
<PAGE>
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------------- ------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS AND NOTES
(CONCLUDED)
$ 4,535 METROPOLITAN WATER
DISTRICT OF SOUTHERN
CALIFORNIA WATERWORKS
REVENUE BONDS SERIES A. 07/01/10 5.500% $ 4,906,416
1,755 MODESTO PUBLIC FINANCING
AUTHORITY JOHN THURMAN
FIELD RENOVATION
PROJECT................ 11/01/16 6.125 1,865,863
3,625 MOJAVE WATER AGENCY
IMPROVEMENT DISTRICT
MORONGO BASIN (FGIC
INSURED)............... 09/01/15 TO 09/01/22 5.750 TO 5.800 3,903,869
4,180 MOULTON NIGUEL WATER
DISTRICT (MBIA
INSURED)............... 09/01/13 5.250 4,284,166
600 NEWPORT BEACH HEALTH
FACILITIES HOAG
MEMORIAL HOSPITAL...... 03/02/98 3.650* 600,000
1,000 OAKLAND GENERAL
OBLIGATION BONDS SERIES
C (MBIA INSURED)....... 12/15/22 5.900 1,077,780
6,360 ORANGE COUNTY RECOVERY
CERTIFICATES OF
PARTICIPATION SERIES A
(MBIA INSURED)......... 07/01/10 TO 07/01/26 5.700 TO 6.000 6,887,485
2,000 ORANGE COUNTY RECOVERY
REVENUE BONDS SERIES A
(MBIA INSURED)......... 06/01/10 6.000 2,260,000
755 ORANGE COUNTY SINGLE
FAMILY RESIDENTIAL
MORTGAGE REVENUE BONDS
(GNMA INSURED)......... 09/01/16 7.800 770,840
4,425 RIVERSIDE COUNTY PUBLIC
FINANCING AUTHORITY TAX
ALLOCATION REVENUE
REDEVELOPMENT PROJECTS
SERIES A............... 10/01/11 TO 10/01/16 5.200 TO 5.250 4,433,425
1,180 ROHNERT PARK COMMUNITY
DEVELOPMENT AGENCY TAX
ALLOCATION (AMBAC
INSURED)............... 08/01/20 6.500 1,264,158
2,200 SALINAS CAPITAL
IMPROVEMENT PROJECTS
CERTIFICATES OF
PARTICIPATION SERIES A. 10/01/28 5.700 2,260,016
1,300 SAN DIEGO INDUSTRIAL
DEVELOPMENT REVENUE
BONDS SAN DIEGO GAS &
ELECTRIC SERIES A...... 09/01/18 6.400 1,401,153
7,000 SAN DIEGO INDUSTRIAL
DEVELOPMENT REVENUE
BONDS SAN DIEGO GAS &
ELECTRIC SERIES A
(MBIA INSURED) ........ 09/01/18 6.100 7,614,670
1,375 SAN DIEGO PUBLIC
FACILITIES FINANCING
AUTHORITY SEWER REVENUE
BONDS SERIES A (FGIC
INSURED)............... 05/15/27 5.250 1,379,510
2,000 SAN FRANCISCO SEWER
REVENUE BONDS (AMBAC
INSURED)............... 10/01/11 6.000 2,163,600
960 SAN YSIDRO SCHOOL
DISTRICT (AMBAC
INSURED)............... 08/01/21 6.125 1,081,862
2,000 SANTA CLARA COUNTY
FINANCING AUTHORITY VMC
FACILITY REPLACEMENT
PROJECT SERIES A (PRE-
REFUNDED WITH U.S.
GOVERNMENT SECURITIES
TO 11/15/04 @ 102)
(AMBAC INSURED)........ 11/15/20 6.750 2,334,860
5,000 SANTA MONICA PARKING
AUTHORITY REVENUE
BONDS.................. 07/01/16 6.375 5,473,200
2,000 SOUTHERN CALIFORNIA
PUBLIC POWER AUTHORITY
TRANSMISSION PROJECT
REVENUE BONDS.......... 07/01/20 5.500 2,030,680
3,500 SOUTHERN CALIFORNIA
RAPID TRANSIT DISTRICT
SPECIAL BENEFIT
ASSESSMENT DISTRICT A1
(AMBAC INSURED)........ 09/01/08 6.000 3,811,465
3,350 PUERTO RICO COMMONWEALTH
HIGHWAY AND
TRANSPORTATION
AUTHORITY REVENUE BONDS
SERIES Y............... 07/01/26 5.500 3,440,182
1,000 PUERTO RICO ELECTRIC
POWER AUTHORITY REVENUE
BONDS SERIES O......... 07/01/12 5.000 998,920
------------
TOTAL INVESTMENTS (COST --
$145,826,994) -- 98.99%........... 152,669,917
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 1.01%............... 1,552,177
------------
NET ASSETS -- 100.00%.............. $154,222,094
============
</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, 1998.
+PARTIAL PRINCIPAL AMOUNT PLEDGED AS COLLATERAL FOR FUTURES TRANSACTIONS.
++ILLIQUID SECURITY REPRESENTING 1.3% OF PORTFOLIO ASSETS.
AMBAC - AMERICAN MUNICIPAL BOND ASSURANCE CORPORATION
FGIC - FINANCIAL GUARANTY INSURANCE COMPANY
GNMA - GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
MBIA - MUNICIPAL BOND INVESTORS ASSURANCE
20
<PAGE>
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
FUTURES CONTRACTS
NUMBER OF OUTSTANDING LONG IN EXPIRATION UNREALIZED
CONTRACTS FUTURES CONTRACTS EXCHANGE FOR DATE APPRECIATION
--------- ----------------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
15 MUNICIPAL BOND FUTURES......... $1,861,406 MAR 98 $13,594
=======
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
21
<PAGE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------------- ------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES --
105.92%
ALASKA -- 0.62%
$ 1,460 ALASKA INDUSTRIAL
DEVELOPMENT & EXPORT
AUTHORITY POWER REVENUE
UPPER LYNN CANAL
REGIONAL POWER......... 01/01/12 5.700% $ 1,453,795
455 ALASKA STATE HOUSING
FINANCE CORPORATION.... 06/01/22 7.100 483,601
------------
1,937,396
------------
ARIZONA -- 5.95%
10,510 MARICOPA COUNTY
COMMUNITY COLLEGE
DISTRICT............... 07/01/07 6.000 11,448,543
3,700 PHOENIX GENERAL
OBLIGATION............. 07/01/16 6.250 4,304,580
2,500 TUCSON ARIZONA AIRPORT
AUTHORITY LOCKHEED
AERMOD CENTER
INCORPORATED........... 09/01/19 8.700 2,796,375
------------
18,549,498
------------
CALIFORNIA -- 0.70%
160 CALIFORNIA STATE (FGIC
INSURED)............... 11/01/12 7.000 185,114
1,920 LONG BEACH AQUARIUM OF
THE PACIFIC CALIFORNIA
REVENUE................ 07/01/23 6.125 2,008,032
------------
2,193,146
------------
COLORADO -- 0.52%
1,650 BLACK HAWK COLORADO
DEVICE TAX REVENUE..... 12/01/12 TO 12/01/21 5.500 TO 5.625 1,603,979
------------
CONNECTICUT -- 0.50%
1,500 MASHANTUCKET WESTERN
PEQUOT TRIBE
CONNECTICUT SPECIAL
REVENUE (1)............ 09/01/12 5.700 1,559,070
------------
DISTRICT OF COLUMBIA -- 1.56%
4,355 DISTRICT OF COLUMBIA
HOSPITAL REVENUE
MEDLANTIC HEALTHCARE
GROUP (MBIA INSURED)... 08/15/09 TO 08/15/10 6.000 4,846,437
------------
FLORIDA -- 1.09%
3,000 PLANT CITY UTILITY
SYSTEMS REVENUE (MBIA
INSURED)............... 10/01/15 6.000 3,405,060
------------
GEORGIA -- 7.98%
5,900 ATLANTA GEORGIA......... 12/01/11 5.900 6,455,839
5,000 CONYERS WATER AND SEWAGE
REVENUE (AMBAC
INSURED)............... 07/01/15 6.600 5,745,200
3,000 GEORGIA MUNICIPAL
ELECTRIC AUTHORITY
POWER REVENUE.......... 01/01/12 6.250 3,406,680
8,000 HALL COUNTY SCHOOL
DISTRICT (PRE-REFUNDED
WITH U.S. GOVERNMENT
SECURITIES TO 12/01/04
@ 102) (AMBAC INSURED). 12/01/14 6.700 9,271,280
------------
24,878,999
------------
HAWAII -- 0.17%
500 HAWAII STATE............ 02/01/08 5.125 523,965
------------
</TABLE>
22
<PAGE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------------- ------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES
(CONTINUED)
IDAHO -- 0.56%
$ 1,625 IDAHO HOUSING AGENCY
(FHA INSURED).......... 07/01/24 7.500% $ 1,736,183
------------
ILLINOIS -- 13.00%
14,500 ILLINOIS BOARD OF
EDUCATION CHICAGO
SCHOOL REFORM (AMBAC
INSURED)............... 12/01/17 TO 12/01/30 5.250 TO 5.800 14,841,515
1,000 ILLINOIS BOARD OF
EDUCATION CHICAGO
SCHOOL REFORM (MBIA
INSURED)............... 12/01/12 6.250 1,154,310
4,335 ILLINOIS DEVELOPMENT
FINANCE AUTHORITY
CITIZENS UTILITIES..... 08/01/20 7.150 4,609,275
3,625 ILLINOIS DEVELOPMENT
FINANCE AUTHORITY
REVENUE REFUNDING
COMMUNITY REHAB
PROVIDERS A............ 07/01/09 TO 07/01/15 5.900 TO 6.000 3,803,770
660 ILLINOIS HEALTH
FACILITIES AUTHORITY
REVENUE EVANGELICAL
HOSPITAL............... 04/15/17 6.750 779,731
2,000 ILLINOIS SKYWAY TOLL
BRIDGE REVENUE (PRE-
REFUNDED WITH U.S.
GOVERNMENT SECURITIES
TO 01/01/04 @ 102)..... 01/01/10 6.500 2,254,100
500 CHICAGO METROPOLITAN
WATER RECLAMATION
DISTRICT............... 12/01/10 7.000 612,090
2,500 CHICAGO SERIES A2 (AMBAC
INSURED)............... 01/01/15 6.250 2,874,450
2,000 METROPOLITAN PIER &
EXPOSITION AUTHORITY
(ILLINOIS) MCCORMICK
PLACE CONVENTION
COMPLEX................ 07/01/26 7.000 2,490,500
1,170 NORTHERN ILLINOIS
UNIVERSITY (PRE-
REFUNDED WITH U.S.
GOVERNMENT SECURITIES
TO 10/01/09 @ 100)..... 04/01/13 10.400 1,709,089
4,620 REGIONAL TRANSPORTATION
AUTHORITY (PRE-REFUNDED
WITH U.S. GOVERNMENT
SECURITIES TO 06/01/04
@ 102) (FGIC INSURED).. 06/01/14 7.100 5,407,803
------------
40,536,633
------------
INDIANA -- 1.04%
3,000 INDIANA HEALTH FACILITY
FINANCE AUTHORITY
METHODIST HOSPITAL OF
INDIANA................ 09/01/15 5.750 3,238,530
------------
KENTUCKY -- 0.03%
100 ECONOMIC DEVELOPMENT
FINANCE AUTHORITY
REVENUE................ 03/02/98 3.750* 100,000
------------
LOUISIANA -- 0.03%
100 CALCASIEU PARISH
INCORPORATED INDUSTRIAL
DEVELOPMENT BOARD...... 03/02/98 3.600* 100,000
------------
MARYLAND -- 1.68%
4,750 PRINCE GEORGES COUNTY
MARYLAND POLLUTION
CONTROL REVENUE
REFUNDING POTOMAC
ELECTRIC PROJECT....... 03/15/10 5.750 5,250,887
------------
MASSACHUSETTS -- 1.92%
4,115 MASSACHUSETTS STATE
TURNPIKE AUTHORITY
METROPOLITAN HIGHWAY
SYSTEMS REVENUE (MBIA
INSURED)............... 01/01/27 5.000 3,980,522
1,770 MASSACHUSETTS WATER
RESOURCES AUTHORITY.... 12/01/11 6.000 1,999,162
------------
5,979,684
------------
</TABLE>
23
<PAGE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------------- ------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES
(CONTINUED)
MICHIGAN -- 1.96%
$ 1,915 ROYAL OAK HOSPITAL
FINANCE AUTHORITY
WILLIAM BEAUMONT
HOSPITAL............... 01/01/19 6.625% $ 2,074,462
3,700 ROYAL OAK HOSPITAL
FINANCE AUTHORITY
WILLIAM BEAUMONT
HOSPITAL (PRE-REFUNDED
WITH U.S. GOVERNMENT
SECURITIES TO 01/01/01
@ 102)................. 01/01/20 6.750 4,033,740
------------
6,108,202
------------
MINNESOTA -- 2.15%
6,000 MINNESOTA PUBLIC
FACILITIES AUTHORITY
WATER POLLUTION (PRE-
REFUNDED WITH U.S.
GOVERNMENT SECURITIES
TO 03/01/05 @ 100)..... 03/01/15 6.250 6,713,280
------------
MISSISSIPPI -- 2.07%
6,045 CLAIBORNE COUNTY
MISSISSIPPI POLLUTION
CONTROL REVENUE MIDDLE
SOUTH ENERGY
INCORPORATED........... 12/01/14 9.875 6,441,371
------------
NEW HAMPSHIRE -- 0.61%
1,275 NEW HAMPSHIRE HIGHER
EDUCATIONAL & HEALTH
FACILITIES NEW
HAMPSHIRE COLLEGE...... 01/01/07 5.950 1,340,165
500 NEW HAMPSHIRE INDUSTRIAL
DEVELOPMENT AUTHORITY
CENTRAL MAINE POWER
COMPANY................ 05/01/14 7.375 546,390
------------
1,886,555
------------
NEW JERSEY -- 5.19%
1,890 NEW JERSEY HOUSING
GENERAL RESOLUTION
SERIES A............... 11/01/04 6.700 2,025,437
12,000 NEW JERSEY STATE
TURNPIKE AUTHORITY
(MBIA INSURED)......... 01/01/16 6.500 14,162,640
------------
16,188,077
------------
NEW YORK -- 14.62%
5,715 NEW YORK STATE ENERGY
RESEARCH AND
DEVELOPMENT LONG ISLAND
LIGHTING............... 09/01/19 TO 02/01/22 7.150 6,229,909
2,400 NEW YORK STATE
ENVIRONMENTAL
FACILITIES CORPORATION
STATE WATER POLLUTION
CONTROL................ 06/15/14 6.875 2,722,512
3,600 NEW YORK STATE
ENVIRONMENTAL
FACILITIES CORPORATION
STATE WATER POLLUTION
CONTROL (PRE-REFUNDED
WITH U.S. GOVERNMENT
SECURITIES TO 06/15/04
@ 101.50).............. 06/15/14 6.875 4,160,808
3,825 NEW YORK STATE LOCAL
GOVERNMENT ASSISTANCE
CORPORATION............ 04/01/14 6.000 4,321,523
4,500 NEW YORK CITY........... 08/01/17 5.375 4,534,200
3,000 NEW YORK CITY INDUSTRIAL
DEVELOPMENT BONDS
BROOKLYN NAVY YARD..... 10/01/36 5.750 3,093,780
3,000 NEW YORK CITY INDUSTRIAL
DEVELOPMENT BONDS JAPAN
AIRLINES COMPANY....... 11/01/15 6.000 3,227,430
4,960 NEW YORK CITY MUNICIPAL
WATER FINANCE AUTHORITY
WATER & SEWER SYSTEMS
REVENUE SERIES A....... 06/15/12 7.100 5,454,661
3,000 NEW YORK CITY MUNICIPAL
WATER FINANCE AUTHORITY
WATER & SEWER SYSTEMS
REVENUE SERIES B (MBIA
INSURED)............... 06/15/27 5.500 3,099,840
300 PORT AUTHORITY OF NEW
YORK & NEW JERSEY...... 03/02/98 3.500* 300,000
1,000 PORT AUTHORITY OF NEW
YORK & NEW JERSEY
KENNEDY INTERNATIONAL
AIRPORT COGENERATION
PROJECT................ 10/01/11 6.750 1,118,990
3,100 TRIBOROUGH BRIDGE &
TUNNEL AUTHORITY....... 01/01/10 7.100 3,396,143
3,825 TRIBOROUGH BRIDGE &
TUNNEL AUTHORITY NEW
YORK REVENUES GENERAL
PURPOSE................ 01/01/17 TO 01/01/27 5.200 TO 5.500 3,908,398
------------
45,568,194
------------
</TABLE>
24
<PAGE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------------- ------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES
(CONTINUED)
NORTH CAROLINA -- 2.89%
$ 3,400 NORTH CAROLINA EASTERN
MUNICIPAL POWER AGENCY
(MBIA INSURED)......... 01/01/13 7.000% $ 4,187,372
500 NORTH CAROLINA HOUSING
FINANCE AGENCY......... 03/01/18 6.200 527,060
4,000 NORTH CAROLINA MEDICAL
CARE COMPANY REX
HOSPITAL............... 06/01/17 6.250 4,307,480
------------
9,021,912
------------
NORTH DAKOTA -- 0.12%
350 NORTH DAKOTA STATE
HOUSING FINANCE AGENCY
REVENUE................ 07/01/16 6.300 373,828
------------
OHIO -- 4.95%
1,145 BUTLER COUNTY
TRANSPORTATION
IMPROVEMENT DISTRICT
(FSA INSURED).......... 04/01/11 6.000 1,272,622
6,000 CLEVELAND AIRPORT
SPECIAL REVENUE
REFUNDING CONTINENTAL
AIRLINES INCORPORATED.. 12/01/08 5.500 5,964,420
2,250 CLEVELAND PUBLIC POWER
SYSTEMS REVENUE........ 11/15/17 7.000 2,462,242
4,500 DAYTON EMERY AIR
FREIGHT................ 02/01/18 5.625 4,587,750
1,000 OHIO STATE
INFRASTRUCTURE
IMPROVEMENT (PRE-
REFUNDED WITH U.S.
GOVERNMENT SECURITIES
TO 05/01/05 @ 102)..... 08/01/13 6.200 1,132,890
------------
15,419,924
------------
OKLAHOMA -- 2.05%
3,290 HOLDENVILLE INDUSTRIAL
AUTHORITY CORRECTIONAL
FACILITY REVENUE....... 07/01/03 TO 07/01/06 6.050 TO 6.350 3,661,642
2,500 TULSA MUNICIPAL AIRPORT
TRUST REVENUE AMERICAN
AIRLINES INCORPORATED.. 12/01/20 7.375 2,724,550
------------
6,386,192
------------
OREGON -- 3.72%
10,400 PORTLAND SEWER SYSTEMS
REVENUE (PRE-REFUNDED
WITH U.S. GOVERNMENT
SECURITIES TO 06/01/04
@ 101)................. 06/01/15 6.250 11,599,848
------------
PENNSYLVANIA -- 1.03%
3,000 PENNSYLVANIA STATE
TURNPIKE COMMISSION
REVENUE (AMBAC
INSURED)............... 12/01/12 5.750 3,220,800
------------
PUERTO RICO -- 1.28%
1,500 PUERTO RICO COMMONWEALTH
(MBIA INSURED)......... 07/01/15 5.650 1,646,985
2,425 PUERTO RICO COMMONWEALTH
HIGHWAY &
TRANSPORTATION
AUTHORITY.............. 07/01/36 5.000 2,352,420
------------
3,999,405
------------
SOUTH CAROLINA -- 2.03%
1,000 CHARLESTON WATERWORKS &
SEWER REVENUE (AMBAC
INSURED)............... 01/01/16 6.000 1,074,720
6,300 PIEDMONT MUNICIPAL POWER
AGENCY (MBIA INSURED) . 01/01/23 4.000 5,267,304
------------
6,342,024
------------
TEXAS -- 18.19%
4,850 ALLIANCE AIRPORT
AUTHORITY INCORPORATED
TEXAS SPECIAL
FACILITIES REVENUE
AMERICA AIRLINES
INCORPORATED PROJECT... 12/01/29 7.500 5,286,597
9,000 AUSTIN UTILITY SYSTEMS
REVENUE (AMBAC
INSURED)+.............. 11/15/05 TO 11/15/12 6.500 TO 6.750 10,322,010
3,500 DALLAS FORT WORTH TEXAS
INTERNATIONAL AIRPORT
AMERICAN AIRLINES
INCORPORATED........... 11/01/25 7.500 3,808,140
</TABLE>
25
<PAGE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------- ------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES
(CONCLUDED)
TEXAS -- (CONCLUDED)
$ 1,944 HARRIS COUNTY LEASE (1). 11/01/07 TO 12/01/08 5.900% $ 1,973,743
3,390 HARRIS COUNTY LEASE..... 05/01/14 5.800 3,389,575
1,197 HARRIS COUNTY LEASE (1). 05/15/02 5.500 1,244,280
710 HARRIS COUNTY TOLL ROAD
AUTHORITY (AMBAC
INSURED)............... 08/15/17 6.500 783,066
1,950 PORT CORPUS CHRISTI
INDUSTRIAL DEVELOPMENT. 04/01/18 5.400 1,500,000
1,500 PORT PORT ARTHUR TEXAS
NAVIGATION DISTRICT
(AMBAC INSURED)........ 03/01/12 5.010# 743,760
10,675 SAN ANTONIO ELECTRIC AND
GAS REVENUE............ 02/01/11 5.750 11,291,054
2,625 TEXAS STATE PUBLIC
PROPERTY FINANCE
CORPORATION REVENUE
MENTAL HEALTH.......... 09/01/03 5.400 2,697,004
8,000 TEXAS STATE TURNPIKE
AUTHORITY NORTH THRUWAY
REVENUE PRESIDENT
GEORGE BUSH TURNPIKE
(FGIC INSURED)......... 01/01/25 5.000 7,769,280
1,440 TEXAS STATE WATER
DEVELOPMENT SERIES A&C. 08/01/18 5.750 1,508,083
4,000 TEXARKANA HEALTH
FACILITIES DEVELOPMENT
CORPORATION WADLEY
REGIONAL MEDICAL CENTER
(PRE-REFUNDED WITH U.S.
GOVERNMENT SECURITIES
TO 10/01/00 @ 102)(MBIA
INSURED)............... 10/01/19 7.000 4,377,440
------------
56,694,032
------------
UTAH -- 0.25%
725 UTAH STATE HOUSING
FINANCE AGENCY (FHA
INSURED)............... 01/01/11 6.450 772,662
------------
VIRGINIA -- 2.23%
5,200 PITTSYLVANIA COUNTY
VIRGINIA INDUSTRIAL
DEVELOPMENT AUTHORITY
REVENUE (1)............ 01/01/10 7.650 5,873,088
1,000 HAMPTON ROADS MEDICAL
COLLEGE................ 11/15/16 6.875 1,082,970
------------
6,956,058
------------
WYOMING -- 3.23%
9,000 SWEETWATER COUNTY SOLID
WASTE DISPOSAL REVENUE
FMC CORPORATION
PROJECT................ 06/01/24 7.000 10,062,810
------------
TOTAL INVESTMENTS (COST --
$308,700,226) -- 105.92%.......... 330,194,641
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (5.92)%.................. (18,451,364)
------------
NET ASSETS -- 100.00%.............. $311,743,277
============
</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, 1998.
# ZERO COUPON BOND, INTEREST RATE REFLECTS YIELD TO MATURITY AT DATE OF
PURCHASE.
+ PURCHASED ON A FORWARD COMMITMENT BASIS.
(1) ILLIQUID SECURITIES REPRESENTING 3.42% OF NET ASSETS.
AMBAC - AMERICAN MUNICIPAL BOND ASSURANCE CORPORATION
FGIC - FINANCIAL GUARANTY INSURANCE COMPANY
FHA - FEDERAL HOUSING AUTHORITY
FSA - FINANCIAL SECURITY ASSURANCE INCORPORATED
MBIA - MUNICIPAL BOND INVESTORS ASSURANCE
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
26
<PAGE>
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------- -------- ------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- 104.21%
ALASKA -- 1.46%
$ 1,445 ALASKA INDUSTRIAL DEVELOPMENT AND
EXPORT AUTHORITY POWER REVENUE
UPPER LYNN CANAL REGIONAL POWER.... 01/01/32 5.875% $ 1,454,551
------------
CALIFORNIA -- 6.74%
350 DUARTE CALIFORNIA REDEVELOPMENT
AGENCY TAX ALLOCATION REFUNDING
DAVIS ADDITION PROJECT............. 09/01/14 6.700 371,949
3,000 LAKE ELSINORE CALIFORNIA PUBLIC
FINANCING AUTHORITY LOCAL AGENCY
REVENUE............................ 09/01/20 7.100 3,218,190
2,975 LONG BEACH AQUARIUM OF THE PACIFIC
PROJECT............................ 07/01/15 6.125 3,115,836
------------
6,705,975
------------
COLORADO -- 4.73%
1,500 BLACK HAWK COLORADO DEVICE TAX
REVENUE............................ 12/01/21 5.625 1,447,485
3,000 HYLAND HILLS METROPOLITAN PARK AND
RECREATION DISTRICT................ 12/15/15 6.750 3,256,560
------------
4,704,045
------------
FLORIDA -- 2.30%
2,035 ESCAMBIA COUNTY POLLUTION CONTROL
CHAMPION INTERNATIONAL CORPORATION
PROJECT............................ 08/01/22 6.900 2,282,029
------------
GEORGIA -- 2.70%
2,500 DEVELOPMENT AUTHORITY OF EFFINGHAM
COUNTY FORT HOWARD PAPER
(ASSUMED BY FORT JAMES
CORPORATION)....................... 10/01/05 7.900 2,684,250
------------
ILLINOIS -- 6.94%
2,500 ILLINOIS EDUCATIONAL FACILITIES
AUTHORITY COLUMBIA COLLEGE......... 12/01/17 6.875 2,759,850
200 ILLINOIS HEALTH FACILITIES AUTHORITY
REVENUE ELMHURST MEMORIAL HOSPITAL. 03/02/98 3.800* 200,000
200 ILLINOIS HEALTH FACILITIES AUTHORITY
REVENUE FRANCISCAN SISTERS......... 03/02/98 3.800* 200,000
3,000 METROPOLITAN PIER & EXPOSITION
AUTHORITY (ILLINOIS) MCCORMICK
PLACE CONVENTION COMPLEX........... 07/01/26 7.000 3,735,750
------------
6,895,600
------------
INDIANA -- 11.26%
1,300 CRAWFORDSVILLE ECONOMIC DEVELOPMENT
AUTHORITY KROGER CO................ 11/01/12 7.700 1,470,313
4,000 INDIANA STATE DEVELOPMENT FINANCE
AUTHORITY INLAND STEEL CORPORATION. 11/01/11 7.250 4,580,360
2,500 INDIANAPOLIS AIRPORT AUTHORITY
FEDERAL EXPRESS.................... 01/15/17 7.100 2,812,875
100 INDIANAPOLIS INDIANA RESOURCE
RECOVERY REVENUE................... 03/02/98 3.700* 100,000
2,000 WABASH SOLID WASTE DISPOSAL
JEFFERSON SMURFIT CORPORATION
PROJECT............................ 06/01/26 7.500 2,232,740
------------
11,196,288
------------
</TABLE>
27
<PAGE>
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------- -------- ------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (CONTINUED)
KENTUCKY -- 5.13%
$ 2,200 ASHLAND SEWAGE AND SOLID WASTE
ASHLAND INCORPORATED PROJECT...... 02/01/22 7.125% $ 2,495,108
1,250 KENTON COUNTY AIRPORT BOARD DELTA
AIRLINES.......................... 02/01/21 7.125 1,372,663
1,000 RUSSELL HEALTH FINANCING AUTHORITY
FRANCISCAN SISTERS OF THE POOR
HEALTH SYSTEM..................... 07/01/15 8.100 1,234,091
------------
5,101,862
------------
LOUISIANA -- 3.34%
1,000 POINTE COUPEE PARISH GULF STATES
UTILITIES......................... 03/01/13 6.700 1,077,010
2,000 WEST FELICIANA PARISH GULF STATES
UTILITIES......................... 12/01/14 7.700 2,245,560
------------
3,322,570
------------
MASSACHUSETTS -- 0.98%
950 AGAWAM RESOURCE RECOVERY
SPRINGFIELD PROJECT............... 12/01/08 8.500 972,296
------------
NEW HAMPSHIRE -- 5.11%
1,690 NEW HAMPSHIRE HIGHER EDUCATIONAL
AND HEALTH FACILITIES AUTHORITY
REVENUE NEW HAMPSHIRE COLLEGE..... 01/01/16 6.300 1,804,886
3,000 NEW HAMPSHIRE INDUSTRIAL
DEVELOPMENT AUTHORITY CENTRAL
MAINE POWER COMPANY............... 05/01/14 7.375 3,278,340
------------
5,083,226
------------
NEW JERSEY -- 3.19%
2,000 NEW JERSEY ECONOMIC DEVELOPMENT
AUTHORITY VINELAND COGENERATION
L.P. PROJECT...................... 06/01/19 7.875 2,202,520
900 NEW JERSEY HEALTH CARE FACILITIES
FINANCING AUTHORITY COLUMBUS
HOSPITAL.......................... 07/01/21 7.500 969,516
------------
3,172,036
------------
NEW MEXICO -- 2.22%
2,000 CHAVES COUNTY HOSPITAL REVENUE
BONDS EASTERN NEW MEXICO MEDICAL
CENTER............................ 12/01/22 7.250 2,210,540
------------
NEW YORK -- 15.56%
100 NEW YORK CITY...................... 03/02/98 3.650* 100,000
300 NEW YORK CITY (FGIC INSURED)....... 03/02/98 3.900* 300,000
100 NEW YORK CITY (MBIA INSURED)....... 03/02/98 3.650* 100,000
2,800 NEW YORK CITY INDUSTRIAL
DEVELOPMENT AGENCY AMERICAN
AIRLINES INCORPORATED............. 08/01/24 6.900 3,143,196
3,000 NEW YORK CITY INDUSTRIAL
DEVELOPMENT AGENCY BROOKLYN NAVY
YARD.............................. 10/01/36 5.750 3,093,780
200 NEW YORK CITY MUNICIPAL WATER
FINANCE AUTHORITY WATER AND SEWER
SYSTEMS........................... 03/02/98 3.650* 200,000
3,870 NEW YORK ENERGY RESEARCH AND
DEVELOPMENT AUTHORITY LILCO....... 09/01/19 7.150 4,219,113
400 PORT AUTHORITY NEW YORK AND NEW
JERSEY SPECIAL OBLIGATION REVENUE. 03/02/98 3.500* 400,000
3,500 PORT AUTHORITY NEW YORK AND NEW
JERSEY KENNEDY INTERNATIONAL
AIRPORT COGENERATION PROJECT 4TH
INSTALLMENT PROJECT............... 10/01/11 6.750 3,916,465
------------
15,472,554
------------
</TABLE>
28
<PAGE>
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------- -------- ------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (CONCLUDED)
OHIO -- 8.75%
$ 1,500 CLEVELAND OHIO AIRPORT SPECIAL
REVENUE CONTINENTAL AIRLINES
INCORPORATED....................... 09/15/27 5.375% $ 1,467,570
4,000 CLEVELAND OHIO AIRPORT SPECIAL
REVENUE REFUNDING CONTINENTAL
AIRLINES INCORPORATED+............. 12/01/08 5.500 3,976,280
3,000 DAYTON EMERY AIR FREIGHT............ 10/01/09 6.200 3,251,250
------------
8,695,100
------------
PENNSYLVANIA -- 2.80%
1,500 BEAVER COUNTY INDUSTRIAL DEVELOPMENT
AUTHORITY TOLEDO EDISON............ 05/01/20 7.750 1,745,115
1,000 NORTHEASTERN PENNSYLVANIA HOSPITAL
AND EDUCATION AUTHORITY COLLEGE
REVENUE............................ 07/15/18 6.000 1,038,530
------------
2,783,645
------------
SOUTH CAROLINA -- 1.89%
1,750 MYRTLE BEACH CERTIFICATES OF
PARTICIPATION CONVENTION CENTER
PROJECT............................ 07/01/17 6.875 1,882,020
------------
TEXAS -- 4.05%
2,000 HARRIS COUNTY TEXAS LEASE AGREEMENT. 05/01/14 5.800 2,000,000
1,875 EL PASO INTERNATIONAL AIRPORT
MARRIOTT HOTEL..................... 03/01/22 7.875 2,023,725
------------
4,023,725
------------
UTAH -- 2.77%
2,500 TOOELE COUNTY UTAH HAZARDOUS WASTE
DISPOSAL REVENUE................... 08/01/10 6.750 2,749,600
------------
VIRGINIA -- 4.10%
1,175 LOUDOUN COUNTY INDUSTRIAL
DEVELOPMENT AUTHORITY DULLES
AIRPORT MARRIOTT HOTEL............. 09/01/15 7.125 1,305,296
2,500 PITTSYLVANIA COUNTY VIRGINIA
INDUSTRIAL DEVELOPMENT AUTHORITY
REVENUE(1)......................... 01/01/14 7.500 2,768,125
------------
4,073,421
------------
WASHINGTON -- 1.87%
1,500 PILCHUCK DEVELOPMENT PUBLIC
CORPORATION REVENUE SPECIAL
FACILITIES AIRPORT REVENUE......... 08/01/23 6.000 1,559,985
100 WASHINGTON STATE HEALTH CARE
FACILITIES AUTHORITY REVENUE....... 03/02/98 3.700* 100,000
200 WASHINGTON STATE HEALTH CARE
FACILITIES FRED HUTCHINSON CANCER
CENTER............................. 03/02/98 3.700* 200,000
------------
1,859,985
------------
WEST VIRGINIA -- 2.22%
1,900 HARRISON COUNTY COMMERCIAL
DEVELOPMENT BONDS KROGER COMPANY... 11/01/14 8.100 2,204,513
------------
WISCONSIN -- 4.10%
3,900 JANESVILLE INDUSTRIAL DEVELOPMENT
REVENUE BONDS SIMMONS MANUFACTURING
COMPANY PARAMOUNT COMMUNICATIONS... 10/15/17 7.000 4,080,102
------------
TOTAL INVESTMENTS (COST -- $97,197,808) --
104.21%....................................... 103,609,933
LIABILITIES IN EXCESS OF OTHER ASSETS --
(4.21)%....................................... (4,186,306)
------------
NET ASSETS -- 100.00%.......................... $ 99,423,627
============
</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, 1998.
(1) ILLIQUID SECURITIES REPRESENTING 2.78% OF NET ASSETS.
+ PURCHASED ON A FORWARD COMMITMENT BASIS.
FGIC - FINANCIAL GUARANTY INSURANCE COMPANY
MBIA - MUNICIPAL BOND INVESTORS ASSURANCE
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
29
<PAGE>
PAINEWEBBER NEW YORK TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------------- -----------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- 98.91%
$1,500 NEW YORK CITY........... 08/01/17 5.375% $ 1,511,400
1,000 NEW YORK CITY INDUSTRIAL
DEVELOPMENT BONDS
BROOKLYN NAVY YARD..... 10/01/36 5.750 1,031,260
2,000 NEW YORK CITY INDUSTRIAL
DEVELOPMENT BONDS JAPAN
AIRLINES COMPANY....... 11/01/15 6.000 2,151,620
600 NEW YORK CITY MUNICIPAL
WATER FINANCE AUTHORITY
WATER & SEWER SYSTEMS
REVENUE (FGIC INSURED). 06/15/30 5.125 588,348
1,000 NEW YORK STATE (AMBAC
INSURED)............... 06/15/10 6.000 1,097,680
980 NEW YORK STATE ENERGY
RESEARCH & DEVELOPMENT
LONG ISLAND LIGHTING... 12/01/20 TO 02/01/22 7.150 1,068,406
400 NEW YORK STATE
ENVIRONMENTAL
FACILITIES CORPORATION
STATE WATER POLLUTION
CONTROL................ 06/15/10 7.250 445,627
10 NEW YORK STATE HOUSING
FINANCE AGENCY......... 09/15/12 7.300 11,108
1,500 TRIBOROUGH BRIDGE AND
TUNNEL AUTHORITY....... 01/01/12 TO 01/01/17 5.500 TO 6.000 1,661,725
1,200 PORT AUTHORITY OF NEW
YORK & NEW JERSEY...... 03/02/98 3.400* 1,200,000
1,705 METROPOLITAN
TRANSPORTATION
AUTHORITY.............. 07/01/11 TO 07/01/17 5.500 TO 6.250 1,809,047
400 METROPOLITAN
TRANSPORTATION
AUTHORITY (MBIA
INSURED)............... 01/01/08 6.875 427,884
1,000 NEW YORK STATE DORMITORY
AUTHORITY REVENUE BONDS
CITY UNIVERSITY OF NEW
YORK................... 07/01/16 5.625 1,064,460
450 NEW YORK STATE DORMITORY
AUTHORITY REVENUE BONDS
COLGATE UNIVERSITY
(MBIA INSURED)......... 07/01/16 6.000 506,493
40 NEW YORK STATE DORMITORY
AUTHORITY REVENUE BONDS
FORDHAM UNIVERSITY
(AMBAC INSURED)........ 07/01/15 7.200 43,394
700 NEW YORK STATE DORMITORY
AUTHORITY REVENUE BONDS
STATE UNIVERSITY OF NEW
YORK................... 05/15/16 7.000 752,542
800 NEW YORK STATE ENERGY
RESEARCH & DEVELOPMENT
CENTRAL HUDSON GAS &
ELECTRIC (FGIC
INSURED)............... 10/01/14 7.375 861,456
2,400 NEW YORK STATE ENERGY
RESEARCH & DEVELOPMENT
CONSOLIDATED EDISON
COMPANY................ 08/15/20 6.100 2,609,304
250 NEW YORK STATE ENERGY
RESEARCH & DEVELOPMENT
NIAGARA MOHAWK (FGIC
INSURED)............... 10/01/13 6.625 272,833
1,500 NEW YORK STATE
ENVIRONMENTAL
FACILITIES CORPORATION
SPRING VALLEY WATER
(AMBAC INSURED)........ 08/01/24 6.150 1,643,850
1,500 NEW YORK STATE LOCAL
GOVERNMENT ASSISTANCE
CORPORATION+........... 04/01/20 6.500 1,634,145
570 NEW YORK STATE MEDICAL
CARE FACILITIES
HOSPITAL AND NURSING
(FHA INSURED).......... 02/15/09 7.500 598,853
1,500 NEW YORK STATE MEDICAL
CARE FACILITIES
HOSPITAL AND NURSING
(HUNTINGTON HOSPITAL).. 11/01/14 6.500 1,635,765
1,000 NEW YORK STATE POWER
AUTHORITY REVENUE &
GENERAL PURPOSE........ 01/01/20 6.000 1,030,940
2,000 NEW YORK STATE THRUWAY
AUTHORITY HIGHWAY &
BRIDGE TRUST FUND...... 04/01/14 6.000 2,153,160
1,500 NEW YORK STATE URBAN
DEVELOPMENT
CORPORATION............ 01/01/04 TO 04/01/05 6.250 TO 6.400 1,644,140
1,000 PORT AUTHORITY OF NEW
YORK & NEW JERSEY
KENNEDY INTERNATIONAL
AIRPORT COGENERATION
PROJECT................ 10/01/11 6.750 1,118,990
1,000 ERIE COUNTY WATER
REVENUE AUTHORITY
(AMBAC INSURED)........ 12/01/14 6.750 1,176,950
1,730 NEW YORK CITY INDUSTRIAL
DEVELOPMENT BONDS
LIGHTHOUSE PROJECT..... 07/01/22 6.500 1,857,276
545 NEW YORK CITY MUNICIPAL
WATER FINANCE AUTHORITY
WATER & SEWER SYSTEMS
REVENUE................ 06/15/12 7.100 599,353
1,500 NEW YORK CITY MUNICIPAL
WATER FINANCE AUTHORITY
WATER & SEWER SYSTEMS
REVENUE (MBIA INSURED). 06/15/27 5.500 1,549,920
2,100 NEW YORK CITY (FGIC
INSURED)............... 02/15/26 5.500 2,168,271
1,025 NIAGARA FALLS (FGIC
INSURED)............... 06/15/08 5.500 1,090,723
1,250 ONEIDA HERKIMER WASTE
MANAGEMENT AUTHORITY... 04/01/14 6.750 1,353,912
2,700 PUERTO RICO COMMONWEALTH
HIGHWAY &
TRANSPORTATION
AUTHORITY.............. 07/01/13 TO 07/01/36 5.000 TO 6.250 2,795,809
785 PUERTO RICO INDUSTRIAL
MEDICAL & ENVIRONMENTAL
AUTHORITY WARNER
LAMBERT................ 05/01/14 7.600 838,875
-----------
TOTAL INVESTMENTS (COST --
$40,900,751) -- 98.91%............ 44,005,519
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 1.09%............... 483,886
-----------
NET ASSETS -- 100.00%.............. $44,489,405
===========
</TABLE>
30
<PAGE>
PAINEWEBBER NEW YORK TAX-FREE INCOME FUND
- ---------
* 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, 1998.
+ SECURITY WAS PLEDGED AS COLLATERAL FOR FUTURES TRANSACTIONS.
AMBAC - AMERICAN MUNICIPAL BOND ASSURANCE CORPORATION
FGIC - FINANCIAL GUARANTY INSURANCE COMPANY
FHA - FEDERAL HOUSING AUTHORITY
MBIA - MUNICIPAL BOND INVESTORS ASSURANCE
FUTURES CONTRACTS
<TABLE>
<CAPTION>
NUMBER OF OUTSTANDING LONG IN EXPIRATION UNREALIZED
CONTRACTS FUTURES CONTRACTS EXCHANGE FOR DATE DEPRECIATION
--------- ----------------- ------------ ---------- ------------
<C> <S> <C> <C> <C>
123 MUNICIPAL BOND FUTURES......... $ 618,594 MAR 98 $ (2,657)
243 30 YEAR U.S. TREASURY BONDS.... 1,219,562 MAR 98 (11,750)
--------
$(14,407)
========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
31
<PAGE>
PAINEWEBBER
STATEMENTS OF ASSETS AND LIABILITIES FEBRUARY 28, 1998
<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--
$145,826,994,
$308,700,226, $97,197,808
AND $40,900,751
RESPECTIVELY)............ $152,669,917 $330,194,641 $103,609,933 $44,005,519
CASH...................... 57,100 60,616 25,301 92,752
RECEIVABLE FOR INVESTMENTS
SOLD..................... 1,843,377 -- -- --
INTEREST RECEIVABLE....... 2,537,232 4,100,919 1,620,140 572,861
RECEIVABLE FOR SHARES OF
BENEFICIAL INTEREST SOLD. 198,761 512,419 296,909 119,093
VARIATION MARGIN
RECEIVABLE............... -- -- -- 2,813
OTHER ASSETS.............. 34,086 115,932 86,813 36,779
------------ ------------ ------------ -----------
TOTAL ASSETS.............. 157,340,473 334,984,527 105,639,096 44,829,817
------------ ------------ ------------ -----------
LIABILITIES
PAYABLE FOR INVESTMENTS
PURCHASED................ $ 1,918,128 $ 21,366,630 $ 5,475,239 --
DIVIDENDS PAYABLE......... 459,344 470,512 336,408 $ 136,960
PAYABLE FOR SHARES OF
BENEFICIAL INTEREST
REPURCHASED.............. 402,877 708,911 135,423 75,626
PAYABLE TO AFFILIATES..... 223,019 218,138 83,209 34,756
ACCRUED EXPENSES AND OTHER
LIABILITIES.............. 115,011 477,059 185,190 93,070
------------ ------------ ------------ -----------
TOTAL LIABILITIES......... 3,118,379 23,241,250 6,215,469 340,412
------------ ------------ ------------ -----------
NET ASSETS
BENEFICIAL INTEREST--
$0.001 PAR VALUE
(UNLIMITED AMOUNT
AUTHORIZED).............. 145,573,435 289,549,798 93,648,945 41,469,547
ACCUMULATED NET REALIZED
GAINS (LOSSES) FROM
INVESTMENTS AND FUTURES
TRANSACTIONS............. 1,792,142 699,064 (637,443) (70,503)
NET UNREALIZED
APPRECIATION OF
INVESTMENTS AND FUTURES.. 6,856,517 21,494,415 6,412,125 3,090,361
------------ ------------ ------------ -----------
NET ASSETS................ $154,222,094 $311,743,277 $ 99,423,627 $44,489,405
============ ============ ============ ===========
CLASS A:
NET ASSETS................ $120,803,505 $229,040,279 $ 59,288,382 $23,694,332
------------ ------------ ------------ -----------
SHARES OUTSTANDING........ 10,610,345 19,129,920 5,408,023 2,130,443
------------ ------------ ------------ -----------
NET ASSET VALUE AND
REDEMPTION VALUE PER
SHARE.................... $11.39 $11.97 $10.96 $11.12
====== ====== ====== ======
MAXIMUM OFFERING PRICE PER
SHARE (NET ASSET VALUE
PLUS SALES CHARGE OF
4.00% OF OFFERING PRICE). $11.86 $12.47 $11.42 $11.58
====== ====== ====== ======
CLASS B:
NET ASSETS................ $ 16,782,655 $ 32,814,958 $ 18,097,107 $ 7,829,153
------------ ------------ ------------ -----------
SHARES OUTSTANDING........ 1,472,988 2,741,658 1,651,414 704,159
------------ ------------ ------------ -----------
NET ASSET VALUE AND
OFFERING PRICE PER SHARE. $11.39 $11.97 $10.96 $11.12
====== ====== ====== ======
CLASS C:
NET ASSETS................ $ 16,521,821 $ 49,647,322 $ 21,981,679 $12,965,920
------------ ------------ ------------ -----------
SHARES OUTSTANDING........ 1,452,108 4,146,986 2,005,560 1,165,570
------------ ------------ ------------ -----------
NET ASSET VALUE AND
OFFERING PRICE PER SHARE. $11.38 $11.97 $10.96 $11.12
====== ====== ====== ======
CLASS Y:
NET ASSETS................ $ 114,113 $ 240,718 $ 56,459
------------ ------------ ------------
SHARES OUTSTANDING........ 10,025 20,101 5,148
------------ ------------ ------------
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
VALUE PER SHARE.......... $11.38 $11.98 $10.97
====== ====== ======
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
32
<PAGE>
PAINEWEBBER
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FEBRUARY 28, 1998
--------------------------------------------------
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.................... $ 8,614,338 $18,710,976 $5,850,176 $2,542,178
----------- ----------- ---------- ----------
EXPENSES:
INVESTMENT ADVISORY AND
ADMINISTRATION............. 776,955 1,634,990 551,107 264,754
SERVICE FEES--CLASS A....... 299,711 593,783 136,456 56,124
SERVICE AND DISTRIBUTION
FEES--CLASS B.............. 185,535 364,267 183,553 85,494
SERVICE AND DISTRIBUTION
FEES--CLASS C.............. 127,095 396,151 141,828 98,452
CUSTODY AND ACCOUNTING...... 86,243 196,787 51,546 20,020
LEGAL AND AUDIT............. 85,080 95,937 87,591 58,720
STATE REGISTRATION.......... 54,315 67,165 56,757 44,602
TRANSFER AGENCY AND SERVICE
FEES....................... 49,394 142,757 62,492 21,920
REPORTS AND NOTICES TO
SHAREHOLDERS............... 41,157 149,089 50,802 24,875
TRUSTEES' FEES.............. 10,500 10,500 10,500 10,500
OTHER EXPENSES.............. 41,542 17,144 21,698 11,373
----------- ----------- ---------- ----------
1,757,527 3,668,570 1,354,330 696,834
LESS: FEE WAIVERS FROM
ADVISER.................... -- -- -- (117,350)
----------- ----------- ---------- ----------
NET EXPENSES................ 1,757,527 3,668,570 1,354,330 579,484
----------- ----------- ---------- ----------
NET INVESTMENT INCOME....... 6,856,811 15,042,406 4,495,846 1,962,694
----------- ----------- ---------- ----------
REALIZED AND UNREALIZED
GAINS (LOSSES) FROM
INVESTMENT ACTIVITIES:
NET REALIZED GAINS (LOSSES)
FROM:
INVESTMENT TRANSACTIONS.... 5,616,954 8,445,076 1,065,161 820,150
FUTURES CONTRACTS.......... (314,233) (370,825) (323) 20,255
NET CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION
OF:
INVESTMENTS................ 1,160,476 5,686,557 3,836,633 1,028,322
FUTURES.................... 13,594 -- -- (14,407)
----------- ----------- ---------- ----------
NET REALIZED AND UNREALIZED
GAINS FROM INVESTMENT
ACTIVITIES................. 6,476,791 13,760,808 4,901,471 1,854,320
----------- ----------- ---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS.. $13,333,602 $28,803,214 $9,397,317 $3,817,014
=========== =========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
33
<PAGE>
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
FEBRUARY 28,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
FROM OPERATIONS:
NET INVESTMENT INCOME.............................. $ 6,856,811 $ 8,486,514
NET REALIZED GAINS FROM INVESTMENTS AND FUTURES
TRANSACTIONS...................................... 5,302,721 654,917
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
OF INVESTMENTS AND FUTURES........................ 1,174,070 (3,028,942)
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS........................................ 13,333,602 6,112,489
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
NET INVESTMENT INCOME--CLASS A..................... (5,468,084) (6,690,592)
NET INVESTMENT INCOME--CLASS B..................... (702,870) (957,662)
NET INVESTMENT INCOME--CLASS C..................... (685,475) (838,260)
NET INVESTMENT INCOME--CLASS Y..................... (382) --
------------ ------------
TOTAL DIVIDENDS TO SHAREHOLDERS.................... (6,856,811) (8,486,514)
------------ ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
NET PROCEEDS FROM THE SALE OF SHARES............... 13,562,128 8,838,812
COST OF SHARES REPURCHASED......................... (34,717,050) (46,089,161)
PROCEEDS FROM DIVIDENDS REINVESTED................. 3,292,864 4,217,037
------------ ------------
NET DECREASE IN NET ASSETS DERIVED FROM BENEFICIAL
INTEREST TRANSACTIONS............................. (17,862,058) (33,033,312)
------------ ------------
NET DECREASE IN NET ASSETS......................... (11,385,267) (35,407,337)
NET ASSETS:
BEGINNING OF YEAR.................................. 165,607,361 201,014,698
------------ ------------
END OF YEAR........................................ $154,222,094 $165,607,361
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
34
<PAGE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
FEBRUARY 28,
---------------------------
1998 1997
------------ -------------
<S> <C> <C>
FROM OPERATIONS:
NET INVESTMENT INCOME............................. $ 15,042,406 $ 18,925,055
NET REALIZED GAIN (LOSS) FROM INVESTMENTS AND
FUTURES TRANSACTIONS ............................ 8,074,251 (2,590,396)
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
OF INVESTMENTS................................... 5,686,557 (1,953,998)
------------ -------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS....................................... 28,803,214 14,380,661
------------ -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
NET INVESTMENT INCOME--CLASS A.................... (11,333,618) (14,156,747)
NET INVESTMENT INCOME--CLASS B.................... (1,448,904) (1,889,671)
NET INVESTMENT INCOME--CLASS C.................... (2,247,870) (2,864,344)
NET INVESTMENT INCOME--CLASS Y.................... (12,014) (14,293)
NET REALIZED GAINS FROM INVESTMENT TRANSACTIONS--
CLASS A.......................................... (1,614,300) --
NET REALIZED GAINS FROM INVESTMENT TRANSACTIONS--
CLASS B.......................................... (234,614) --
NET REALIZED GAINS FROM INVESTMENT TRANSACTIONS--
CLASS C.......................................... (351,055) --
NET REALIZED GAINS FROM INVESTMENT TRANSACTIONS--
CLASS Y.......................................... (1,632) --
------------ -------------
TOTAL DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. (17,244,007) (18,925,055)
------------ -------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
NET PROCEEDS FROM THE SALE OF SHARES.............. 18,067,615 105,046,487
COST OF SHARES REPURCHASED........................ (93,133,232) (190,976,675)
PROCEEDS FROM DIVIDENDS REINVESTED................ 10,977,802 11,884,626
------------ -------------
NET DECREASE IN NET ASSETS FROM BENEFICIAL
INTEREST TRANSACTIONS............................ (64,087,815) (74,045,562)
------------ -------------
NET DECREASE IN NET ASSETS........................ (52,528,608) (78,589,956)
NET ASSETS:
BEGINNING OF YEAR................................. 364,271,885 442,861,841
------------ -------------
END OF YEAR....................................... $311,743,277 $ 364,271,885
============ =============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
35
<PAGE>
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
FEBRUARY 28,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
FROM OPERATIONS:
NET INVESTMENT INCOME.............................. $ 4,495,846 $ 4,828,287
NET REALIZED GAIN FROM INVESTMENT TRANSACTIONS..... 1,064,838 1,153,507
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
OF INVESTMENTS.................................... 3,836,633 (474,646)
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS........................................ 9,397,317 5,507,148
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
NET INVESTMENT INCOME--CLASS A..................... (2,812,137) (2,920,065)
NET INVESTMENT INCOME--CLASS B..................... (806,054) (997,782)
NET INVESTMENT INCOME--CLASS C..................... (877,465) (910,440)
NET INVESTMENT INCOME--CLASS Y..................... (190) --
------------ ------------
TOTAL DIVIDENDS TO SHAREHOLDERS.................... (4,495,846) (4,828,287)
------------ ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
NET PROCEEDS FROM THE SALE OF SHARES............... 36,280,293 10,286,482
COST OF SHARES REPURCHASED......................... (33,150,701) (26,447,595)
PROCEEDS FROM DIVIDENDS REINVESTED................. 2,406,603 2,620,432
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
BENEFICIAL INTEREST TRANSACTIONS.................. 5,536,195 (13,540,681)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS.............. 10,437,666 (12,861,820)
NET ASSETS:
BEGINNING OF YEAR.................................. 88,985,961 101,847,781
------------ ------------
END OF YEAR........................................ $ 99,423,627 $ 88,985,961
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
36
<PAGE>
PAINEWEBBER NEW YORK TAX-FREE INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
FEBRUARY 28,
-------------------------
1998 1997
----------- ------------
<S> <C> <C>
FROM OPERATIONS:
NET INVESTMENT INCOME............................... $ 1,962,694 $ 2,401,465
NET REALIZED GAINS FROM INVESTMENTS AND FUTURES
TRANSACTIONS....................................... 840,405 469,607
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
OF INVESTMENTS AND FUTURES......................... 1,013,915 (901,550)
----------- ------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS......................................... 3,817,014 1,969,522
----------- ------------
DIVIDENDS TO SHAREHOLDERS FROM:
NET INVESTMENT INCOME--CLASS A...................... (1,065,025) (1,280,146)
NET INVESTMENT INCOME--CLASS B...................... (340,912) (425,371)
NET INVESTMENT INCOME--CLASS C...................... (556,757) (695,948)
----------- ------------
TOTAL DIVIDENDS TO SHAREHOLDERS..................... (1,962,694) (2,401,465)
----------- ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
NET PROCEEDS FROM THE SALE OF SHARES................ 6,314,160 2,580,008
COST OF SHARES REPURCHASED.......................... (11,342,623) (15,737,969)
PROCEEDS FROM DIVIDENDS REINVESTED.................. 1,255,238 1,553,231
----------- ------------
NET DECREASE IN NET ASSETS FROM BENEFICIAL INTEREST
TRANSACTIONS....................................... (3,773,225) (11,604,730)
----------- ------------
NET DECREASE IN NET ASSETS.......................... (1,918,905) (12,036,673)
NET ASSETS:
BEGINNING OF YEAR................................... 46,408,310 58,444,983
----------- ------------
END OF YEAR......................................... $44,489,405 $ 46,408,310
=========== ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
37
<PAGE>
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Mutual Fund Trust ("Mutual Fund Trust") and PaineWebber Municipal
Series ("Municipal Series") (collectively, the "Trusts") were organized under
Massachusetts law by Declarations of Trust dated November 21, 1986 and January
28, 1987, respectively, and are registered with the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended, as an open-end
diversified management investment company and an open-end non-diversified man-
agement 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 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 re-
invested shares automatically convert to Class A shares approximately six years
after initial issuance. All classes of shares have equal voting privileges, ex-
cept 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 assump-
tions that affect the reported amounts and disclosures in the financial state-
ments. 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, port-
folio securities are valued thereon, provided such quotations adequately re-
flect the fair value of the securities, in the judgment of Mitchell Hutchins
Asset Management Inc. ("Mitchell Hutchins"), a wholly owned asset management
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 ap-
praisals derived from information concerning those securities or similar secu-
rities received from recognized dealers in those securities. All other securi-
ties are valued at fair value as determined in good faith by or under the di-
rection of each Trust's board of trustees. The amortized cost method of valua-
tion, 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.
Investment Transactions and Investment Income--Investment transactions are re-
corded on the trade date. Realized gains and losses from investment transac-
tions are calculated on the identified cost method. Interest income is recorded
on an accrual basis. Discounts are accreted and premiums are amortized as ad-
justments to interest income and the identified cost of securities.
Income and expenses (excluding class-specific expenses) are allocated propor-
tionately to each class of shares based upon the relative value of dividend el-
igible 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
38
<PAGE>
NOTES TO FINANCIAL STATEMENTS
current capital share activity of the respective class). Class-specific ex-
penses are charged directly to the applicable class of shares.
Futures Contracts--Upon entering into a financial futures contract, the Funds
are required to pledge to a broker an amount of cash and/or municipal securi-
ties equal to a certain percentage of the contract amount. This amount is known
as the "initial margin." Subsequently, payments, known as "variation margin,"
are made or received by the Funds each day, depending on the daily fluctuations
in the value of the underlying financial futures contracts. Such variation mar-
gin is recorded for financial statement purposes on a daily basis as unrealized
gain or loss until the financial futures contract is closed, at which time the
net gain or loss is reclassified to realized.
Using financial futures contracts involves various market risks. The maximum
amount at risk from the purchase of a futures contract is the contract value.
The Fund uses financial futures contracts in strategies intended to enhance in-
come or for hedging purposes. However, imperfect correlations between futures
contracts and the portfolio securities being hedged or, market disruptions, do
not normally permit full control of these risks at all times.
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 differ-
ences do not require reclassification.
CONCENTRATION OF RISK
Each Fund follows an investment policy of investing primarily in municipal ob-
ligations 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.
BANK LINE OF CREDIT
Each Fund may participate with other funds managed by Mitchell Hutchins in a
$200 million committed credit facility ("Facility") to be utilized for tempo-
rary financing until the settlement of sale or purchase of portfolio securi-
ties, the repurchase or redemption of shares of the Funds at the request of the
shareholders and other temporary or emergency purposes. In connection there-
with, each Fund has agreed to pay a commitment fee, pro rata, based on the rel-
ative asset size of the Funds in the Facility. Interest is charged to each Fund
at rates based on prevailing market rates in effect at the time of borrowings.
For the year ended February 28, 1998, the Funds did not borrow under the Facil-
ity.
INVESTMENT ADVISER AND ADMINISTRATOR
Each Trust's board of trustees has approved an Investment Advisory and Admin-
istration 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 as-
sets. At February 28, 1998, California Tax-Free Income Fund, National Tax-Free
Income Fund, Municipal High Income Fund and New York Tax-Free Income Fund owed
Mitchell Hutchins $125,749, $120,182,
39
<PAGE>
NOTES TO FINANCIAL STATEMENTS
$45,650 and $16,907, respectively, in investment advisory and administration
fees. During the year ended February 28, 1998 Mitchell Hutchins voluntarily
waived $101,675 in investment advisory and administration fees from the New
York Tax-Free Income Fund.
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, 1998, California Tax-
Free Income Fund, National Tax-Free Income Fund, Municipal High Income Fund and
New York Tax-Free Income Fund owed Mitchell Hutchins $97,270, $97,956, $37,559
and $17,849, respectively, in service and distribution fees. For the year ended
February 28, 1998, Mitchell Hutchins voluntarily waived $13,884 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, 1998, it earned $145,737, $201,738, $210,046 and $74,056 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, respective-
ly.
TRANSFER AGENCY SERVICE FEES
Prior to August 1, 1997, each Fund paid PaineWebber an annual fee of $4.00 per
active PaineWebber shareholder account, plus certain out-of-pocket expenses,
for certain services not provided by the Fund's transfer agent. For these serv-
ices for the period ended July 31, 1997, PaineWebber earned $5,924, $15,757,
$5,104 and $2,077 from California Tax-Free Income Fund, National Tax-Free In-
come Fund, Municipal High Income Fund and New York Tax-Free Income Fund, re-
spectively. For the period ended July 31, 1997, PaineWebber voluntarily waived
$1,791 in transfer agency service fees from New York Tax-Free Income Fund.
Subsequent to July 31, 1997, PaineWebber provides transfer agency related
services to each Fund pursuant to a delegation of authority from PFPC Inc., the
Funds' transfer agent, and is compensated for these services by PFPC Inc., not
the Funds. For the seven months ended February 28, 1998, PaineWebber received
from PFPC Inc., not the Funds, approximately 47%, 47%, 47% and 39% of the total
transfer agency and related service fees collected by PFPC Inc. from the Cali-
fornia Tax-Free Income Fund, National Tax-Free Income Fund, Municipal High In-
come Fund and New York Tax-Free Income Fund, respectively.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at February 28,
1998, was substantially the same as the cost of securities for financial state-
ment purposes.
At February 28, 1998, the components of net unrealized appreciation of invest-
ments 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).......... $6,937,444 $21,858,036 $6,463,240 $3,130,896
GROSS DEPRECIATION
(INVESTMENTS HAVING AN EXCESS
OF COST OVER VALUE).......... (94,521) (363,621) (51,115) (26,128)
---------- ----------- ---------- ----------
NET UNREALIZED APPRECIATION OF
INVESTMENTS.................. $6,842,923 $21,494,415 $6,412,125 $3,104,768
========== =========== ========== ==========
</TABLE>
40
<PAGE>
NOTES TO FINANCIAL STATEMENTS
For the year ended February 28, 1998, 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..................... $162,490,214 $261,363,775 $28,797,423 $14,871,698
SALES......................... $172,377,024 $307,656,575 $19,541,762 $19,318,460
</TABLE>
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 appli-
cable 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, 1998, the Funds had the following net capital loss
carryforwards available as reductions, to the extent provided in the regula-
tions, of future net realized capital gains which expire as follows:
<TABLE>
<CAPTION>
FISCAL NATIONAL MUNICIPAL NEW YORK
YEAR TAX-FREE HIGH TAX-FREE
ENDING INCOME FUND INCOME FUND INCOME FUND
- ------- ----------- ----------- -----------
<S> <C> <C> <C>
2002....................................... $525,367 -- --
2003....................................... 549,124 $636,475 --
2004....................................... -- -- $84,444
</TABLE>
The capital loss carryforwards of National Tax-Free Income Fund of $1,074,491
relate to its acquisition on November 3, 1995, of Mitchell Hutchins/Kidder,
Peabody Municipal Bond Fund, and may be limited to its use by the Internal
Revenue Code.
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.
41
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 CLASS Y
-------------------------- ------------------------ ------------------------ -----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------------- ---------- ------------ ---------- ------------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CALIFORNIA TAX-
FREE INCOME
FUND
YEAR ENDED
FEBRUARY 28,
1998:
SHARES SOLD..... 604,741 $ 6,701,864 397,907 $ 4,439,963 207,563 $ 2,305,833 10,024 $ 114,468
SHARES
REPURCHASED.... (2,270,152) (24,980,957) (467,813) (5,173,426) (410,922) (4,562,667) -- --
SHARES CONVERTED
FROM CLASS B TO
CLASS A........ 402,000 4,486,891 (401,712) (4,486,891) -- -- -- --
DIVIDENDS
REINVESTED..... 231,610 2,563,302 26,668 295,042 39,292 434,505 1 15
----------- ------------- ---------- ------------ ---------- ------------ ------ ---------
NET INCREASE
(DECREASE)..... (1,031,801) $ (11,228,900) (444,950) $ (4,925,312) (164,067) $ (1,822,329) 10,025 $ 114,483
=========== ============= ========== ============ ========== ============ ====== =========
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)
=========== ============= ========== ============ ========== ============
<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,
1998:
SHARES SOLD..... 790,828 $ 9,264,660 324,437 $ 3,830,210 418,821 $ 4,968,154 382 $ 4,591
SHARES
REPURCHASED.... (5,657,653) (66,075,561) (711,875) (8,329,771) (1,597,464) (18,695,987) (2,717) (31,913)
SHARES CONVERTED
FROM CLASS B TO
CLASS A........ 491,034 5,796,285 (491,190) (5,796,285) -- -- -- --
DIVIDENDS
REINVESTED..... 697,788 8,211,507 73,674 865,770 160,340 1,886,769 1,169 13,756
----------- ------------- ---------- ------------ ---------- ------------ ------ ---------
NET DECREASE.... (3,678,003) $ (42,803,109) (804,954) $ (9,430,076) (1,018,303) $(11,841,064) (1,166) $ (13,566)
=========== ============= ========== ============ ========== ============ ====== =========
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)
=========== ============= ========== ============ ========== ============ ====== =========
CALIFORNIA TAX-
FREE INCOME
FUND
YEAR ENDED
FEBRUARY 28,
1998:
SHARES SOLD.....
SHARES
REPURCHASED....
SHARES CONVERTED
FROM CLASS B TO
CLASS A........
DIVIDENDS
REINVESTED.....
NET INCREASE
(DECREASE).....
YEAR ENDED
FEBRUARY 28,
1997:
SHARES SOLD.....
SHARES
REPURCHASED....
SHARES CONVERTED
FROM CLASS B TO
CLASS A........
DIVIDENDS
REINVESTED.....
NET DECREASE....
NATIONAL TAX-
FREE INCOME
FUND
YEAR ENDED
FEBRUARY 28,
1998:
SHARES SOLD.....
SHARES
REPURCHASED....
SHARES CONVERTED
FROM CLASS B TO
CLASS A........
DIVIDENDS
REINVESTED.....
NET DECREASE....
YEAR ENDED
FEBRUARY 28,
1997:
SHARES SOLD.....
SHARES
REPURCHASED....
SHARES CONVERTED
FROM CLASS B TO
CLASS A........
DIVIDENDS
REINVESTED.....
NET DECREASE....
</TABLE>
42
<PAGE>
NOTES TO FINANCIAL STATEMENTS
SHARES OF BENEFICIAL INTEREST (CONCLUDED)
<TABLE>
<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>
MUNICIPAL HIGH INCOME
FUND
YEAR ENDED FEBRUARY 28,
1998
SHARES SOLD............. 1,906,110 $ 20,357,250 509,880 $ 5,442,014 972,763 $10,424,502 5,148 $56,527
SHARES REPURCHASED...... (1,966,391) (20,938,926) (497,305) (5,255,099) (650,234) (6,956,676) -- --
SHARES CONVERTED FROM
CLASS B TO CLASS A..... 265,783 2,862,043 (265,859) (2,862,043) -- -- -- --
DIVIDENDS REINVESTED ... 141,754 1,506,999 34,673 367,839 49,986 531,765 -- --
---------- ------------ -------- ----------- -------- ----------- ----- -------
NET INCREASE (DECREASE). 347,256 $ 3,787,366 (218,611) $(2,307,289) 372,515 $ 3,999,591 5,148 $56,527
========== ============ ======== =========== ======== =========== ===== =======
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)
========== ============ ======== =========== ======== ===========
NEW YORK TAX-FREE INCOME
FUND
YEAR ENDED FEBRUARY 28,
1998
SHARES SOLD............. 271,157 $ 2,968,588 128,934 $ 1,401,336 178,559 $ 1,944,236
SHARES REPURCHASED...... (537,864) (5,807,507) (167,802) (1,802,368) (344,249) (3,732,748)
SHARES CONVERTED FROM
CLASS B TO CLASS A..... 160,156 1,751,710 (160,220) (1,751,710) -- --
DIVIDENDS REINVESTED.... 63,418 685,618 14,976 161,650 37,730 407,970
---------- ------------ -------- ----------- -------- -----------
NET DECREASE............ (43,133) $ (401,591) (184,112) $(1,991,092) (127,960) $(1,380,542)
========== ============ ======== =========== ======== ===========
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)
========== ============ ======== =========== ======== ===========
</TABLE>
43
<PAGE>
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------
FOR THE FOR THE
YEARS FOR THE YEARS
ENDED YEAR ENDED
FEBRUARY 28, ENDED FEBRUARY 28,
------------------ FEBRUARY 29, -------------------
1998 1997 1996 1995 1994
-------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $10.91 $11.02 $10.68 $11.41 $11.80
------ ------ ------ ------ ------
NET INVESTMENT INCOME.... 0.51 0.52 0.57 0.58 0.60
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) FROM
INVESTMENTS AND FUTURES. 0.48 (0.11) 0.34 (0.63) (0.08)
------ ------ ------ ------ ------
NET INCREASE (DECREASE)
FROM INVESTMENT
OPERATIONS.............. 0.99 0.41 0.91 (0.05) 0.52
------ ------ ------ ------ ------
DIVIDENDS FROM NET
INVESTMENT INCOME....... (0.51) (0.52) (0.57) (0.58) (0.60)
DISTRIBUTIONS FROM NET
REALIZED GAINS FROM
INVESTMENT TRANSACTIONS. -- -- -- (0.10) (0.31)
------ ------ ------ ------ ------
TOTAL DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS............ (0.51) (0.52) (0.57) (0.68) (0.91)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD.................. $11.39 $10.91 $11.02 $10.68 $11.41
====== ====== ====== ====== ======
TOTAL INVESTMENT
RETURN(1)............... 9.26% 3.92% 8.68% (0.18)% 4.46%
====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD
(000'S)................. $120,804 $127,040 $151,684 $178,234 $227,179
EXPENSES TO AVERAGE NET
ASSETS.................. 0.98% 0.97% 0.94% 0.88% 0.90%
NET INVESTMENT INCOME TO
AVERAGE NET ASSETS...... 4.56% 4.85% 5.21% 5.55% 5.10%
PORTFOLIO TURNOVER RATE.. 107% 73% 32% 11% 37%
</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 CLASSES A, B AND C WOULD BE LOWER IF
SALES CHARGES WERE INCLUDED. TOTAL INVESTMENT RETURN FOR PERIODS OF LESS
THAN ONE YEAR HAS NOT BEEN ANNUALIZED.
44
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C CLASS Y
- ------------------------------------------------ ------------------------------------------------ ------------
FOR THE
FOR THE FOR THE FOR THE FOR THE PERIOD
YEARS FOR THE YEARS YEARS FOR THE YEARS FEBRUARY 5,
ENDED YEAR ENDED ENDED YEAR ENDED 1998+
FEBRUARY 28, ENDED FEBRUARY 28, FEBRUARY 28, ENDED FEBRUARY 28, THROUGH
- ---------------- FEBRUARY 29, ----------------- ---------------- FEBRUARY 29, ----------------- FEBRUARY 28,
1998 1997 1996 1995 1994 1998 1997 1996 1995 1994 1998
- ------- ------- ------------ ------- ------- ------- ------- ------------ ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$10.92 $11.03 $10.69 $11.41 $11.81 $10.90 $11.02 $10.67 $11.40 $11.79 $11.42
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.42 0.44 0.48 0.50 0.51 0.45 0.47 0.51 0.53 0.54 0.04
0.47 (0.11) 0.34 (0.62) (0.09) 0.48 (0.12) 0.35 (0.63) (0.08) (0.04)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.89 0.33 0.82 (0.12) 0.42 0.93 0.35 0.86 (0.10) 0.46 0.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(0.42) (0.44) (0.48) (0.50) (0.51) (0.45) (0.47) (0.51) (0.53) (0.54) (0.04)
-- -- -- (0.10) (0.31) -- -- -- (0.10) (0.31) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(0.42) (0.44) (0.48) (0.60) (0.82) (0.45) (0.47) (0.51) (0.63) (0.85) (0.04)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$11.39 $10.92 $11.03 $10.69 $11.41 $11.38 $10.90 $11.02 $10.67 $11.40 $11.38
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
8.33% 3.14% 7.86% (0.85)% 3.56% 8.71% 3.30% 8.22% (0.70)% 3.91% (0.34)%
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
$16,783 $20,943 $27,175 $33,007 $41,979 $16,522 $17,624 $22,155 $28,217 $53,874 $ 114
1.75% 1.74% 1.70% 1.64% 1.65% 1.50% 1.49% 1.46% 1.40% 1.39% 0.76%*
3.79% 4.08% 4.45% 4.78% 4.32% 4.05% 4.34% 4.69% 5.05% 4.55% 5.07%*
107% 73% 32% 11% 37% 107% 73% 32% 11% 37% 107%
</TABLE>
45
<PAGE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------
FOR THE FOR THE
YEARS FOR THE YEARS
ENDED YEAR ENDED
FEBRUARY 28, ENDED FEBRUARY 28,
------------------ FEBRUARY 29, -------------------
1998 1997 1996 1995 1994
-------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $11.55 $11.64 $11.26 $12.00 $12.09
------ ------ ------ ------ ------
NET INVESTMENT INCOME... 0.56 0.55 0.58 0.63 0.64
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) FROM
INVESTMENTS AND FUTURES
....................... 0.50 (0.09) 0.39 (0.73) 0.03
------ ------ ------ ------ ------
NET INCREASE (DECREASE)
FROM INVESTMENT
OPERATIONS............. 1.06 0.46 0.97 (0.10) 0.67
------ ------ ------ ------ ------
DIVIDENDS FROM NET
INVESTMENT INCOME...... (0.56) (0.55) (0.59) (0.63) (0.64)
DISTRIBUTIONS FROM NET
REALIZED GAINS FROM
INVESTMENT
TRANSACTIONS........... (0.08) -- -- (0.01) (0.12)
------ ------ ------ ------ ------
TOTAL DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS........... (0.64) (0.55) (0.59) (0.64) (0.76)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD................. $11.97 $11.55 $11.64 $11.26 $12.00
====== ====== ====== ====== ======
TOTAL INVESTMENT
RETURN(1).............. 9.48% 4.14% 8.75% (0.63)% 5.65%
====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL
DATA:
NET ASSETS, END OF
PERIOD (000'S)......... $229,040 $263,425 $315,899 $346,579 $432,825
EXPENSES TO AVERAGE NET
ASSETS................. 0.95% 0.91% 0.93%/(2)/ 0.88% 0.89%
NET INVESTMENT INCOME TO
AVERAGE NET ASSETS..... 4.77% 4.85% 5.06%/(2)/ 5.62% 5.28%
PORTFOLIO TURNOVER RATE. 79% 81% 74% 60% 16%
</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 CLASSES A, B AND 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%.
46
<PAGE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS (CONCLUDED)
<TABLE>
<CAPTION>
CLASS B CLASS C
---------------------------------------------------- ------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEARS FOR THE YEARS YEARS FOR THE YEARS
ENDED YEAR ENDED ENDED YEAR ENDED
FEBRUARY 28, ENDED FEBRUARY 28, FEBRUARY 28, ENDED FEBRUARY 28,
---------------- FEBRUARY 29, ----------------- ---------------- FEBRUARY 29, -------------------
1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
------- ------- ------------ ------- ------- ------- ------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$11.55 $11.64 $11.26 $11.99 $12.08 $11.55 $11.64 $11.26 $12.00 $12.09
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.47 0.46 0.49 0.54 0.55 0.50 0.49 0.52 0.57 0.58
0.50 (0.09) 0.39 (0.72) 0.03 0.50 (0.09) 0.39 (0.73) 0.03
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.97 0.37 0.88 (0.18) 0.58 1.00 0.40 0.91 (0.16) 0.61
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(0.47) (0.46) (0.50) (0.54) (0.55) (0.50) (0.49) (0.53) (0.57) (0.58)
(0.08) -- -- (0.01) (0.12) (0.08) -- -- (0.01) (0.12)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(0.55) (0.46) (0.50) (0.55) (0.67) (0.58) (0.49) (0.53) (0.58) (0.70)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$11.97 $11.55 $11.64 $11.26 $11.99 $11.97 $11.55 $11.64 $11.26 $12.00
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
8.62% 3.35% 7.94% (1.29)% 4.87% 8.92% 3.61% 8.19% (1.13)% 5.13%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
CLASS Y
-----------------------------------------------------
FOR THE
FOR THE FOR THE PERIOD
YEARS YEARS NOVEMBER 3,
ENDED ENDED 1995+
FEBRUARYFEBRUARY 28,28, THROUGH
------------------------ FEBRUARY 29,
1998 1998 1997 1996
-------- ------- ------- ----------------
<S> <C> <C> <C>
$11.55 $11.55 $11.65 $11.62
------ ------ ------ ------
0.47 0.59 0.58 0.19
0.50 0.51 (0.10) 0.01
------ ------ ------ ------
0.97 1.10 0.48 0.20
------ ------ ------ ------
(0.47) (0.59) (0.58) (0.17)
(0.08) (0.08) -- --
------ ------ ------ ------
(0.55) (0.67) (0.58) (0.17)
------ ------ ------ ------
$11.97 $11.98 $11.55 $11.65
====== ====== ====== ======
8.62% 9.87% 4.32% 1.70%
====== ====== ====== ======
$32,815 $40,949 $51,546 $58,958 $70,988 $49,647 $59,652 $75,076 $101,642 $187,778
1.73% 1.67% 1.68%/(2)/ 1.64% 1.63% 1.47% 1.42% 1.45%/(2)/ 1.40% 1.37%
3.98% 4.09% 4.31%/(2)/ 4.86% 4.50% 4.26% 4.34% 4.57%/(2)/ 5.13% 4.75%
79% 81% 74% 60% 16% 79% 81% 74% 60% 16%
$32,815 $241 $246 $341
1.73% 0.68% 0.65% 0.64%/(2)/*
3.98% 5.04% 5.13% 5.19%/(2)/*
79% 79% 81% 74%
</TABLE>
47
<PAGE>
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------
FOR THE FOR THE
YEARS FOR THE YEARS
ENDED YEAR ENDED
FEBRUARY 28, ENDED FEBRUARY 28,
---------------- FEBRUARY 29, -----------------
1998 1997 1996 1995 1994
------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $10.39 $10.29 $ 9.92 $10.77 $10.96
------ ------ ------ ------ ------
NET INVESTMENT INCOME.... 0.55 0.56 0.62 0.59 0.61
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) FROM
INVESTMENTS AND FUTURES. 0.57 0.10 0.37 (0.82) 0.01
------ ------ ------ ------ ------
NET INCREASE (DECREASE)
FROM INVESTMENT
OPERATIONS.............. 1.12 0.66 0.99 (0.23) 0.62
------ ------ ------ ------ ------
DIVIDENDS FROM NET
INVESTMENT INCOME....... (0.55) (0.56) (0.62) (0.59) (0.61)
DISTRIBUTIONS FROM NET
REALIZED GAINS FROM
INVESTMENT TRANSACTIONS. -- -- -- (0.03) (0.20)
------ ------ ------ ------ ------
TOTAL DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS............ (0.55) (0.56) (0.62) (0.62) (0.81)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD.................. $10.96 $10.39 $10.29 $ 9.92 $10.77
====== ====== ====== ====== ======
TOTAL INVESTMENT
RETURN(1)............... 11.06% 6.61% 10.18% (2.03)% 5.77%
====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD
(000'S)................. $59,288 $52,593 $57,280 $63,287 $82,248
EXPENSES TO AVERAGE NET
ASSETS, NET OF WAIVERS
FROM ADVISER............ 1.22% 1.15% 1.10% 1.13% 1.03%
EXPENSES TO AVERAGE NET
ASSETS, BEFORE WAIVERS
FROM ADVISER............ 1.22% 1.15% 1.10% 1.13% 1.16%
NET INVESTMENT INCOME TO
AVERAGE NET ASSETS, NET
OF WAIVERS FROM ADVISER. 5.15% 5.49% 5.94% 5.96% 5.52%
NET INVESTMENT INCOME TO
AVERAGE NET ASSETS,
BEFORE WAIVERS FROM
ADVISER................. 5.15% 5.49% 5.94% 5.96% 5.39%
PORTFOLIO TURNOVER RATE.. 22% 64% 48% 28% 23%
</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 CLASSES A, B AND C 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 CLASS Y
- ------------------------------------------------ ------------------------------------------------ ------------
FOR THE
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE PERIOD
YEARS YEAR YEARS YEARS YEAR YEARS FEBRUARY 5,
ENDED ENDED ENDED ENDED ENDED ENDED 1998+
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, THROUGH
- ---------------- ------------ ----------------- ---------------- ------------ ----------------- FEBRUARY 28,
1998 1997 1996 1995 1994 1998 1997 1996 1995 1994 1998
- ------- ------- ------------ ------- ------- ------- ------- ------------ ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$10.39 $10.29 $ 9.92 $10.76 $10.96 $10.39 $10.29 $ 9.92 $10.77 $10.96 $10.98
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.47 0.48 0.54 0.52 0.52 0.50 0.51 0.56 0.55 0.55 0.04
0.57 0.10 0.37 (0.81) -- 0.57 0.10 0.37 (0.82) 0.01 (0.01)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
1.04 0.58 0.91 (0.29) 0.52 1.07 0.61 0.93 (0.27) 0.56 0.03
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(0.47) (0.48) (0.54) (0.52) (0.52) (0.50) (0.51) (0.56) (0.55) (0.55) (0.04)
-- -- -- (0.03) (0.20) -- -- -- (0.03) (0.20) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(0.47) (0.48) (0.54) (0.55) (0.72) (0.50) (0.51) (0.56) (0.58) (0.75) (0.04)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$10.96 $10.39 $10.29 $ 9.92 $10.76 $10.96 $10.39 $10.29 $ 9.92 $10.77 $10.97
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
10.23% 5.82% 9.36% (2.67)% 4.88% 10.51% 6.08% 9.64% (2.51)% 5.24% (0.09)%
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
$18,097 $19,427 $23,868 $25,823 $32,287 $21,982 $16,967 $20,700 $23,158 $35,872 $56
1.98% 1.90% 1.85% 1.87% 1.79% 1.72% 1.66% 1.60% 1.63% 1.54% 1.00%*
1.98% 1.90% 1.85% 1.87% 1.90% 1.72% 1.66% 1.60% 1.63% 1.64% 1.00%*
4.39% 4.73% 5.19% 5.21% 4.72% 4.64% 4.98% 5.45% 5.48% 4.95% 5.44%*
4.39% 4.73% 5.19% 5.21% 4.61% 4.64% 4.98% 5.45% 5.48% 4.85% 5.44%*
22% 64% 48% 28% 23% 22% 64% 48% 28% 23% 22%
</TABLE>
49
<PAGE>
PAINEWEBBER NEW YORK TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
YEAR IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------
FOR THE FOR THE
YEARS FOR THE YEARS
ENDED YEAR ENDED
FEBRUARY 28, ENDED FEBRUARY 28,
---------------- FEBRUARY 29, -----------------
1998 1997 1996 1995 1994
------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR....... $10.66 $10.71 $10.27 $11.03 $10.99
------ ------ ------ ------ ------
NET INVESTMENT INCOME.... 0.51 0.51 0.54 0.54 0.57
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) FROM
INVESTMENTS AND FUTURES. 0.46 (0.05) 0.45 (0.66) 0.07
------ ------ ------ ------ ------
NET INCREASE (DECREASE)
FROM INVESTMENT
OPERATIONS.............. 0.97 0.46 0.99 (0.12) 0.64
------ ------ ------ ------ ------
DIVIDENDS FROM NET
INVESTMENT INCOME....... (0.51) (0.51) (0.55) (0.54) (0.57)
DISTRIBUTIONS FROM NET
REALIZED GAINS FROM
INVESTMENT TRANSACTIONS. -- -- -- (0.10) (0.03)
------ ------ ------ ------ ------
TOTAL DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS............ (0.51) (0.51) (0.55) (0.64) (0.60)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF
YEAR.................... $11.12 $10.66 $10.71 $10.27 $11.03
====== ====== ====== ====== ======
TOTAL INVESTMENT
RETURN(1)............... 9.36% 4.49% 9.83% (0.83)% 5.89%
====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
NET ASSETS, END OF YEAR
(000'S)................. $23,694 $23,160 $28,734 $32,475 $45,033
EXPENSES TO AVERAGE NET
ASSETS, NET OF WAIVERS
AND REIMBURSEMENTS FROM
ADVISER................. 1.02% 1.02% 1.02% 1.01% 0.75%
EXPENSES TO AVERAGE NET
ASSETS, BEFORE WAIVERS
AND REIMBURSEMENTS FROM
ADVISER ................ 1.28% 1.50% 1.15% 1.26% 1.25%
NET INVESTMENT INCOME TO
AVERAGE NET ASSETS, NET
OF WAIVERS AND
REIMBURSEMENTS FROM
ADVISER ................ 4.74% 4.91% 5.11% 5.38% 5.13%
NET INVESTMENT INCOME TO
AVERAGE NET ASSETS,
BEFORE WAIVERS AND
REIMBURSEMENTS FROM
ADVISER................. 4.48% 4.42% 4.98% 5.13% 4.63%
PORTFOLIO TURNOVER RATE.. 34% 40% 13% 6% 8%
</TABLE>
- ---------
(1) TOTAL INVESTMENT RETURN IS CALCULATED ASSUMING A $1,000 INVESTMENT ON THE
FIRST DAY OF EACH YEAR 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 YEAR REPORTED. THE FIGURES DO NOT
INCLUDE SALES CHARGES; RESULTS FOR CLASSES A, B AND C WOULD BE LOWER IF
SALES CHARGES WERE INCLUDED.
50
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C
- ---------------------------------------------- ------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEARS FOR THE YEARS YEARS FOR THE YEARS
ENDED YEAR ENDED ENDED YEAR ENDED
FEBRUARY 28, ENDED FEBRUARY 28, FEBRUARY 28, ENDED FEBRUARY 28,
- -------------- FEBRUARY 29, ----------------- ---------------- FEBRUARY 29, -----------------
1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
- ------ ------ ------------ ------- ------- ------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$10.65 $10.71 $10.27 $11.03 $10.98 $10.66 $10.71 $10.28 $11.03 $10.99
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.43 0.44 0.47 0.47 0.49 0.46 0.46 0.49 0.49 0.51
0.47 (0.06) 0.44 (0.66) 0.08 0.46 (0.05) 0.43 (0.65) 0.07
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.90 0.38 0.91 (0.19) 0.57 0.92 0.41 0.92 (0.16) 0.58
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(0.43) (0.44) (0.47) (0.47) (0.49) (0.46) (0.46) (0.49) (0.49) (0.51)
-- -- -- (0.10) (0.03) -- -- -- (0.10) (0.03)
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(0.43) (0.44) (0.47) (0.57) (0.52) (0.46) (0.46) (0.49) (0.59) (0.54)
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$11.12 $10.65 $10.71 $10.27 $11.03 $11.12 $10.66 $10.71 $10.28 $11.03
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
8.65% 3.62% 9.01% (1.57)% 5.19% 8.82% 3.98% 9.17% (1.20)% 5.35%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
$7,829 $9,462 $11,862 $14,660 $19,193 $12,966 $13,786 $17,849 $21,095 $38,165
1.77% 1.76% 1.77% 1.76% 1.51% 1.52% 1.52% 1.52% 1.52% 1.27%
2.05% 2.27% 1.89% 2.01% 1.99% 1.78% 2.04% 1.64% 1.75% 1.72%
3.99% 4.16% 4.36% 4.63% 4.34% 4.24% 4.41% 4.61% 4.89% 4.55%
3.70% 3.65% 4.24% 4.83% 3.86% 3.98% 3.89% 4.50% 4.65% 4.10%
34% 40% 13% 6% 8% 34% 40% 13% 6% 8%
</TABLE>
51
<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, 1998, 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, 1998 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, 1998, 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 15, 1998
52
<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, 1998), 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.................... 0.5055 0.5593 0.5485 0.5135
CLASS B.................... 0.4207 0.4667 0.4673 0.4319
CLASS C.................... 0.4483 0.4988 0.4950 0.4594
CLASS Y.................... 0.0381 0.5912 0.0391 --
LONG-TERM CAPITAL GAINS**
CLASS A.................... -- 0.0836 -- --
CLASS B.................... -- 0.0836 -- --
CLASS C.................... -- 0.0836 -- --
CLASS Y.................... -- 0.0836 -- --
ALTERNATIVE MINIMUM TAX..... -- 10.45% 41.83% 2.52%
</TABLE>
- ------------
* FEDERALLY EXEMPT INTEREST DIVIDENDS
** ALL LONG-TERM CAPITAL GAINS DISTRIBUTIONS ARE TAXED AT A 20% RATE.
The California 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 this
fund were subject to such tax. 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 1998. 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 1999. Shareholders are advised to consult their own tax
advisers with respect to the tax consequences of their investment in each Fund.
53
<PAGE>
================================================================================
TRUSTEES
E. Garrett Bewkes, Jr. Mary C. Farrell
Chairman Meyer Feldberg
Margo N. Alexander George W. Gowen
Richard Q. Armstrong Frederic V. Malek
Richard R. Burt Carl W. Schafer
PRINCIPAL OFFICERS
Margo N. Alexander Elbridge T. Gerry III
President Vice President
Dianne E. O'Donnell Richard S. Murphy
Vice President and Secretary Vice President
Victoria E. Schonfeld Cynthia N. Bow
Vice President Vice President
Paul H. Schabert William W. Veronda
Vice President and Treasurer Vice President
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
INVESTMENT ADVISER, ADMINISTRATOR AND DISTRIBUTOR
This report is not to be used in connection with the offering of shares of the
Funds unless accompanied or preceded by an effective prospectus.
A prospectus containing more complete information for any of the Funds listed on
the back cover can be obtained from a PaineWebber investment executive or
correspondent firm. Read the prospectus carefully before investing.
<PAGE>
PaineWebber offers a family of 26 funds which encompass a diversified range of
investment goals.
BOND FUNDS
. High Income Fund
. Investment Grade Income Fund
. Low Duration U.S. Government Income Fund
. Strategic Income Fund
. U.S. Government Income Fund
TAX-FREE BOND FUNDS
. California Tax-Free Income Fund
. Municipal High Income Fund
. National Tax-Free Income Fund
. New York Tax-Free Income Fund
STOCK FUNDS
. Financial Services Growth Fund
. Growth Fund
. Growth and Income Fund
. Mid Cap Fund
. Small Cap Fund
. S&P 500 Index Fund
. Utility Income Fund
ASSET ALLOCATION FUNDS
. Balanced Fund
. Tactical Allocation Fund
GLOBAL FUNDS
. Asia Pacific Growth Fund
. Emerging Markets Equity Fund
. Global Equity Fund
. Global Income Fund
MITCHELL HUTCHINS PORTFOLIOS
. Aggressive Portfolio
. Moderate Portfolio
. Conservative Portfolio
PAINEWEBBER MONEY MARKET FUND
PAINEWEBBER
(R) 1998 PaineWebber Incorporated
Member SIPC
PAINEWEBBER
- --------------------------------------------------------------------------------
TAX-FREE
BOND FUNDS
CALIFORNIA TAX-FREE INCOME FUND
MUNICIPAL HIGH INCOME FUND
NATIONAL TAX-FREE INCOME FUND
NEW YORK TAX-FREE INCOME FUND
FEBRUARY 28, 1998
ANNUAL REPORT
