<PAGE>
PAINEWEBBER TAX-FREE BOND FUNDS SEMIANNUAL REPORT
October 19, 1998
Dear Shareholder,
We are pleased to present you with the semiannual report for PaineWebber
California Tax-Free Income Fund, PaineWebber National Tax-Free Income Fund,
PaineWebber Municipal High Income Fund and PaineWebber New York Tax-Free Income
Fund and for the six-month period ended August 31, 1998.
GENERAL MARKET OVERVIEW
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
During the last six months of global turmoil, Russian, Asian and Latin American
economies faltered and their stock markets fell. Corporate America also felt the
impact of scaled-back profit expectations. As capital retreated from stocks and
foreign markets, the security of U.S. Treasury bonds attracted investors from
around the world. After beginning the period just below 6.00%, the yield on the
30-year Treasury bond ratcheted down to 5.27%.
Other sectors of the fixed income market, including municipals, could not keep
pace with Treasurys. But the lagging price movement of tax-exempts attracted a
large number of institutional cross-market buyers, who bolstered the municipal
market.
When investors bid bond prices up, issuers normally take advantage of lower
market rates to refinance outstanding debt. Unusually low Treasury yields,
however, would have created losses in issuers' escrow accounts, and prevented
refinancing issues from coming to market. As a result, the supply of municipal
bonds decreased during the period.
- ---------------------------------
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:
$149.8 million as of
August 31, 1998
. Dividend Payments:
Monthly
- ---------------------------------
PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND
[GRAPHIC APPEARS HERE]
PERFORMANCE
The Fund's total return (the net asset value change with dividends reinvested)
for the six-month period ended August 31, 1998, without deducting sales charges,
was 3.54% for Class A shares, 3.11% for Class B shares, 3.25% for Class C shares
and 3.78% for Class Y shares.
The Fund's total return may be lower for shareowners who purchased or redeemed
shares during the period. After deducting the maximum applicable sales charges,
Class A shares lost 0.56%, Class B shares lost 1.89% and Class C shares gained
2.50%. Class Y shares are not subject to sales charges.
<PAGE>
SEMIANNUAL REPORT
PORTFOLIO HIGHLIGHTS
The cornerstone of our management approach is to vigorously analyze market
sectors to uncover value. This approach has brought the Fund success and has led
to significant changes over the course of the six-month period. During this time
of bullish market sentiment we extended our duration from 6.5 years to 7.1
years. We improved the average coupon yield from 5.8% to 6.6%, acting on our
preference for attractively structured premium bonds.
We have taken important steps in our effort to diversify the Fund's credit
exposure. In the past we were more heavily weighted in the insured sector than
our peers were. By the end of August, we had reduced the Fund's AAA weighting
from 62.3% to a more competitive 55.0% and its BBB-rated weighting had increased
from 8.3% to 16.1%.* Among the new BBB credits we own are California State
University Revenue Housing Systems (2.7%), Sacramento Power Authority
Cogeneration Project (3.6%) and California Statewide Development Authority for
Irvine Apartment Corporation (3.1%).
We also have added to the Fund's nonrated weighting (8.0%). Among the new
holdings are Orange County Community Facilities Districts-Rancho Santa Margarita
(1.4%), Poway Business Center (1.2%) and La Mirada Redevelopment Agency (0.9%).
Though these bonds came to the market as nonrated issues, our credit team
determined that they were undervalued and represented either stable or improving
credit situations. As always, our credit team adheres to a strict analytical
discipline and remains conservative in its judgment of new issuers and current
holdings.
From the A-rated sector we added our first state-insured health bond, ABAG
Finance Authority for Rhoda Haas Goldman Plaza (1.2%).
California now enjoys a budget surplus and its lowest unemployment rate since
1990, although there are signs of slowing growth and declining exports as a
result of the Asian crisis. This fall, California debt comes to market with an
AA rating, a just reward for the strenuous rebuilding of the early 1990s.
- --------------------------------------------------------------------------------
PAINEWEBBER CALIFORNIA TAX FREE INCOME FUND
Quality breakdown August 31, 1998
[PIE CHART APPEARS HERE]
*Percentage of portfolio assets, all weightings subject to change
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:
$305.5 million as of August 31, 1998
. Dividend Payments:
Monthly
- --------------------------------------------------------------------------------
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
PERFORMANCE
The Fund's total return (the net asset value change with dividends reinvested)
for the six-month period ended August 31, 1998, without deducting sales charges,
was 3.18% for Class A shares, 2.76% for Class B shares, 2.90% for Class C shares
and 3.33% for Class Y shares.
The Fund's total return may be lower for shareowners who purchased or redeemed
shares during the period. After deducting the maximum applicable sales charges,
Class A shares lost 0.95%, Class B shares lost 2.24% and Class C shares gained
2.15%. Class Y shares are not subject to sales charges.
* All weightings for the California Tax-Free Income Fund represent percentages
of portfolio assets as of August 31, 1998; all holdings are subject to change.
2
<PAGE>
PAINEWEBBER TAX-FREE BOND FUNDS SEMIANNUAL REPORT
PORTFOLIO HIGHLIGHTS
During the period, we took advantage of peak spots along the yield curve to help
generate greater total return. Normally, the Fund should get potentially greater
rewards for taking on greater interest rate risk (duration). We actually
increased the Fund's yield per unit of duration risk by purchasing securities in
the 15- to 20-year range -- obtaining greater rewards for relatively lower
interest-rate risk compared to 30-year bonds.
The Fund's premium coupon bonds continued to roll down the yield curve, i.e.,
they were evaluated versus their call dates (lower yields) rather than their
maturity dates (higher yields). These evaluations at lower yields increased the
prices of the bonds.
During the six-month period, lower-credit yield spreads to Treasurys widened
dramatically in almost all other fixed income sectors except tax-exempts. Within
the municipal sector, a few corporate-backed tax-exempt issues did see their
credit spreads widen, but most credit spreads to high-grade bonds (AAA rated)
continued to narrow.
The narrowing of credit spreads within the municipal sector meant price gains
for the Fund's lower-rated holdings, rewarding us for the additions we had made
during recent periods. We increased the Fund's weighting of nonrated bonds from
4.6% of net assets on February 28, 1998, to 8.4% on August 31, 1998.
- --------------------------------------------------------------------------------
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
PERFORMANCE
The Fund's total return (the net asset value change with dividends reinvested)
for the six-month period ended August 31, 1998, without deducting sales charges,
was 3.12% for Class A shares, 2.69% for Class B shares, 2.84% for Class C shares
and 3.25% for Class Y shares.
The Fund's total return may be lower for shareowners who purchased or redeemed
shares during the period. After deducting the maximum applicable sales charges,
Class A shares lost 1.03%, Class B shares lost 2.31% and Class C shares gained
2.09%. Class Y shares are not subject to sales charges.
PORTFOLIO HIGHLIGHTS
The U.S. economy has been expanding at a strong level for a long time. While we
do not think a downturn is imminent, we think the economy is entering a mature
phase of the business cycle and that a downturn is becoming more likely.
Therefore, we are using even greater caution in our credit selection process
than during the last reporting period.
In the last report we mentioned several investment themes in our security
selections: growth of the travel and leisure
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
Top Five States,
August 31, 1998
[BAR CHART APPEARS HERE]
New York 14.2%
Illinois 12.6%
Texas 11.2%
Georgia 8.2%
New Jersey 6.2%
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:
$104.6 million as of
August 31, 1998
. Dividend Payments:
Monthly
/1/ Unless otherwise noted, all portfolio weightings represent percentages of
net assets as of August 31, 1998; all holdings are subject to change.
3
<PAGE>
Semiannual Report
PAINEWEBBER
MUNICIPAL HIGH
INCOME FUND
Quality breakdown
August 31, 1998
[PIE CHART APPEARS HERE]
[NUMBERS TO COME]
industry; a defensive shift to higher portfolio quality; increased emphasis on
security selection; and power industry consolidation. Two recent examples
illustrate how these themes continue to shape our investment decisions.
There is still room for select lower-rated credits in sectors that we favor. We
recently bought bonds issued by New York City Industrial Development Agency --
LaGuardia Associates (1.9%),1 issued to finance construction of a Crown Plaza
hotel near LaGuardia Airport. The hotel industry has benefited as high corporate
profitability has led to more business travel, and New York has benefited as a
prime business destination. While this trend may have peaked, the Crown Plaza
faces little competition at LaGuardia and we believe it still should do well.
We do not base all our investment decisions on credit analysis -- occasionally
an opportunity presents itself where credit quality is not the primary concern.
We recently purchased bonds issued by the Peninsula Ports Authority of Virginia
for a hospital facility (0.5%). The bonds are backed by a note guarantee of the
Federal Housing Authority, giving them a high credit rating. The hospital did
not meet its payments so the FHA guarantee came into play. We based our purchase
decision on a thorough analysis of the guarantee's sinking-fund and call
provisions, by which we determined that the bonds offered an attractively high
yield despite being guaranteed credits. We regard this investment as a "core"
position for the Fund -- a long-term holding that we believe will add stability
to the portfolio.
The municipal bond market has not advanced the way the Treasury market has, and
we do not believe it will. Treasurys have risen on heavy demand from foreign
investors, who have no incentive to buy U.S. tax-exempt bonds. Conversely, if
foreign investors began to exit the Treasury market, it would be unlikely to
pull the muni market down much. We do not expect major changes in the market
over the next six months, nor do we expect to change our strategy or investment
themes.
1 Unless otherwise noted, all portfolio weightings represent percentages of net
assets as of August 31, 1998; all holdings are subject to change.
4
<PAGE>
PaineWebber Tax-Free Bond Funds Semiannual Report
- --------------------------------------------------------------------------------
PAINEWEBBER NEW YORK TAX-FREE INCOME FUND
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:
$46.2 million as of
August 31, 1998
Dividend Payments:
Monthly
Performance
The Fund's total return (the net asset value change with dividends reinvested)
for the six-month period ended August 31, 1998, without deducting sales charges,
was 3.87% for Class A shares, 3.47% for Class B shares, 3.59% for Class C
shares. Class Y shares commenced issuance on May 21, 1998; for that 103-day
period they returned 2.91%.
The Fund's total return may be lower for shareowners who purchased or redeemed
shares during the period. After deducting the maximum applicable sales charges,
Class A shares lost 0.25%, Class B shares lost 1.53% and Class C shares gained
2.84%. Class Y shares are not subject to sales charges.
Portfolio
Highlights
During the reporting period, the highlight of the New York municipal market was
the largest bond issue ever for the Long Island Power Authority. This $3.3
billion issue funded the buyout of the Long Island Electric Company (LILCO).
As spreads in the New York market widened to make room for the increased supply,
we were able to purchase some of the new bonds at attractive prices. As of
August 31, 1998 the Fund's holdings of Long Island Power Authority debt
represented 3.5% of net assets.
Besides presenting an attractive investment opportunity, the new Long Island
Power Authority issuance program should further benefit the Fund because the
proceeds of the next issue are expected to prerefund our current holdings of
LILCO debt (2.3%).1
Outlook
- --------------------------------------------------------------------------------
Global economic disruptions could continue to exert downward pressure on
interest rates. The Federal Reserve has lowered rates twice in an effort to
stave off harm to the U.S. economy. While global unrest and its effects on our
shores continue to unfold, we remain cautiously optimistic in the municipal
markets. Currently, municipal bonds are historically cheap compared to taxable
bonds, suggesting that municipals have relative upside potential.
PAINEWEBBER
NEW YORK
TAX-FREE
INCOME FUND
Top Five Sectors
August 31, 1998
General obligation 20.4%
- ------------------------
Power 16.3%
- -----------
Fuel tax 11.3%
- --------------
Water 11.2%
- -----------
Universities 6.4%
- -----------------
5
<PAGE>
Semiannual 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,/2/ please contact your
investment executive.
Sincerely,
<TABLE>
<S> <C> <C>
/s/ MARGO ALEXANDER /s/ ELBRIDGE T. GERRY III /s/ CYNTHIA N. BOW
MARGO ALEXANDER ELBRIDGE T. GERRY III CYNTHIA N. BOW
President Senior Vice President Portfolio Manager
Mitchell Hutchins Asset Mitchell Hutchins Asset PaineWebber California
Management Inc. Management Inc. Tax-Free Income Fund
Portfolio Manager, 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
</TABLE>
/s/ RICHARD S. MURPHY /s/ WILLIAM W. VERONDA
RICHARD S. MURPHY WILLIAM W. VERONDA
Portfolio Manager Portfolio Manager
PaineWebber National Tax-Free PaineWebber Municipal High
Income Fund, PaineWebber Income Fund
New York Tax-Free Income Fund
This letter is intended to assist shareholders in understanding how the Funds
performed during the six-month period ended August 31, 1998, and reflects our
views at the time of 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.
/2/ 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.
6
<PAGE>
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------------------- --------------------------------
12 MONTHS 6 MONTHS
08/31/98 02/28/98 08/31/97 ENDED 08/31/98 ENDED 08/31/98
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A
SHARES $11.50 $11.39 $11.06 9.06% 3.54%
- ---------------------------------------------------------------------------------------
CLASS B
SHARES 11.50 11.39 11.07 8.09 3.11
- ---------------------------------------------------------------------------------------
CLASS C SHARES 11.49 11.38 11.06 8.39 3.25
- ---------------------------------------------------------------------------------------
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>
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-
08/31/98 11.37 11.50 -- 0.3361 4.18
- ---------------------------------------------------------------------------------------
TOTALS: $0.6330 $8.4818
- ---------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 08/31/98: 175.60%
- ---------------------------------------------------------------------------------------
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 -
08/31/98 11.38 11.50 -- 0.2799 3.57
- ---------------------------------------------------------------------------------------
TOTALS: $0.5990 $3.5251
- ---------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 08/31/98: 53.35%
- ---------------------------------------------------------------------------------------
</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.
7
<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 -
08/31/98 11.37 11.49 -- 0.2984 3.74
- -------------------------------------------------------------------------
TOTALS: $0.5722 $3.0730
- -------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
08/31/98: 39.64%
- -------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL RETURN
<TABLE>
<CAPTION>
% RETURN AFTER DEDUCTING
% RETURN WITHOUT SALES CHARGE MAXIMUM SALES CHARGE
-------------------------------- -----------------------------
CLASS CLASS
-------------------------------- -----------------------------
A* B** C*** A* B** C***
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months Ended
09/30/98 9.50% 8.53% 8.92% 5.16% 3.53% 8.17%
- ----------------------------------------------------------------------------------------
FIVE YEARS ENDED
09/30/98 5.08 4.26 4.54 4.23 3.93 4.54
- ----------------------------------------------------------------------------------------
TEN YEARS ENDED 09/30/98 7.29 N/A N/A 6.85 N/A N/A
- ----------------------------------------------------------------------------------------
COMMENCEMENT OF
OPERATIONS THROUGH
09/30/98+ 8.21 6.30 5.75 7.87 6.30 5.75
- ----------------------------------------------------------------------------------------
</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.
* MAXIMUM SALES CHARGE FOR CLASS A SHARES IS 4% 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% 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 ISSUANCE DATES ARE SEPTEMBER 16, 1985, JULY 1, 1991 AND JULY
2, 1992 FOR CLASS A, CLASS B AND CLASS C SHARES, RESPECTIVELY.
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 SIX MONTHS ENDED
AUGUST 31, 1998 AND FOR THE PERIOD SINCE INCEPTION, FEBRUARY 5, 1998 THROUGH
AUGUST 31, 1998, CLASS Y SHARES HAD A TOTAL RETURN OF 3.78% AND 3.43%,
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.
8
<PAGE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
------------------------------------ -----------------------------
12 MONTHS 6 MONTHS
08/31/98 02/28/98 08/31/97 ENDED 08/31/98 ENDED 08/31/98
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES $12.05 $11.97 $11.76 8.34% 3.18%
- ----------------------------------------------------------------------------------
CLASS B SHARES 12.05 11.97 11.75 7.55 2.76
- ----------------------------------------------------------------------------------
CLASS C SHARES 12.05 11.97 11.76 7.76 2.90
- ----------------------------------------------------------------------------------
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 -
08/31/98 11.95 12.05 -- 0.3698 4.00
- ----------------------------------------------------------------------------------
TOTALS: $0.3858 $9.6969
- ----------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 08/31/98: 209.44%
- ----------------------------------------------------------------------------------
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 -
08/31/98 11.95 12.05 -- 0.3083 3.47
- ----------------------------------------------------------------------------------
TOTALS: $0.3858 $3.7686
- ----------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 08/31/98: 55.45%
- ----------------------------------------------------------------------------------
</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.
9
<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 -
08/31/98 11.95 12.05 -- 0.3291 3.65
- ---------------------------------------------------------------------------
TOTALS: $0.3493 $3.2750
- ---------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
08/31/98: 40.62%
- ---------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL RETURN
<TABLE>
<CAPTION>
% RETURN AFTER DEDUCTING
% RETURN WITHOUT SALES CHARGE MAXIMUM SALES CHARGE
-------------------------------- -----------------------------
CLASS CLASS
-------------------------------- -----------------------------
A* B** C*** A* B** C***
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months Ended
09/30/98 8.39% 7.52% 7.81 % 4.08% 2.52% 7.06%
- ----------------------------------------------------------------------------------------
FIVE YEARS ENDED
09/30/98 5.09 4.30 4.55 4.22 3.97 4.55
- ----------------------------------------------------------------------------------------
TEN YEARS ENDED 09/30/98 7.36 N/A N/A 6.92 N/A N/A
- ----------------------------------------------------------------------------------------
COMMENCEMENT OF
OPERATIONS THROUGH
09/30/98+ 8.60 6.45 5.80 8.28 6.45 5.80
- ----------------------------------------------------------------------------------------
</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.
* MAXIMUM SALES CHARGE FOR CLASS A SHARES IS 4% 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% 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 ISSUANCE DATES ARE DECEMBER 3, 1984, JULY 1, 1991 AND JULY 2,
1992 FOR CLASS A, CLASS B AND CLASS C SHARES, RESPECTIVELY.
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 SIX MONTHS ENDED
AUGUST 31, 1998 AND SINCE INCEPTION, NOVEMBER 3, 1995 THROUGH AUGUST 31, 1998,
CLASS Y SHARES HAD A TOTAL RETURN OF 3.33% AND 20.45%, RESPECTIVELY. FOR THE
TWELVE MONTHS ENDED SEPTEMBER 30, 1998 AND FOR THE PERIOD SINCE INCEPTION,
NOVEMBER 3, 1995 THROUGH SEPTEMBER 30, 1998, CLASS Y SHARES HAD AN AVERAGE
ANNUAL RETURN OF 8.61% AND 7.03%, 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.
10
<PAGE>
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------------- -----------------------------
12 MONTHS 6 MONTHS
08/31/98 02/28/98 08/31/97 ENDED 08/31/98 ENDED 08/31/98
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES $10.99 $10.96 $10.65 8.81% 3.12%
- ------------------------------------------------------------------------------
CLASS B SHARES 10.99 10.96 10.65 7.94 2.69
- ------------------------------------------------------------------------------
CLASS C SHARES 10.99 10.96 10.65 8.24 2.84
- ------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
06/23/87 -
12/31/87 $ 9.58 $ 9.40 -- $0.3131 1.46%
- ------------------------------------------------------------------------------
1988 9.40 9.90 -- 0.8091 14.45
- ------------------------------------------------------------------------------
1989 9.90 10.09 -- 0.7380 9.66
- ------------------------------------------------------------------------------
1990 10.09 9.89 -- 0.7322 5.52
- ------------------------------------------------------------------------------
1991 9.89 10.38 $0.0679 0.7144 13.32
- ------------------------------------------------------------------------------
1992 10.38 10.54 0.1406 0.6736 9.79
- ------------------------------------------------------------------------------
1993 10.54 10.97 0.2037 0.6180 12.14
- ------------------------------------------------------------------------------
1994 10.97 9.52 0.0260 0.5865 (7.77)
- ------------------------------------------------------------------------------
1995 9.52 10.36 -- 0.6079 15.55
- ------------------------------------------------------------------------------
1996 10.36 10.39 -- 0.5627 5.94
- ------------------------------------------------------------------------------
1997 10.39 10.92 -- 0.5531 10.73
- ------------------------------------------------------------------------------
01/01/98 -
08/31/98 10.92 10.99 -- 0.3584 3.98
- ------------------------------------------------------------------------------
TOTALS: $0.4382 $7.2670
- ------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
08/31/98: 143.71%
- ------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91 -
12/31/91 $10.05 $10.38 $0.0679 $0.3170 7.21%
- ------------------------------------------------------------------------------
1992 10.38 10.54 0.1406 0.5930 8.95
- ------------------------------------------------------------------------------
1993 10.54 10.97 0.2037 0.5349 11.30
- ------------------------------------------------------------------------------
1994 10.97 9.52 0.0260 0.5103 (8.47)
- ------------------------------------------------------------------------------
1995 9.52 10.35 -- 0.5328 14.59
- ------------------------------------------------------------------------------
1996 10.35 10.38 -- 0.4854 5.15
- ------------------------------------------------------------------------------
1997 10.38 10.91 -- 0.4726 9.91
- ------------------------------------------------------------------------------
01/01/98 -
08/31/98 10.91 10.99 -- 0.3034 3.56
- ------------------------------------------------------------------------------
TOTALS: $0.4382 $3.7494
- ------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
08/31/98: 64.48%
- ------------------------------------------------------------------------------
</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 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 - 08/31/98 10.92 10.99 -- 0.3224 3.64
- ------------------------------------------------------------------------------
TOTALS: $0.2432 $3.2506
- ------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
08/31/98: 46.07%
- ------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL RETURN
<TABLE>
<CAPTION>
% RETURN AFTER
% RETURN DEDUCTING
WITHOUT SALES MAXIMUM SALES
CHARGE CHARGE
---------------- ----------------
CLASS CLASS
---------------- ----------------
A* B** C*** A* B** C***
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TWELVE MONTHS ENDED 09/30/98 8.41% 7.44% 7.84% 4.05% 2.44% 7.09%
- -----------------------------------------------------------------------
FIVE YEARS ENDED 09/30/98 5.80 4.98 5.27 4.94 4.66 5.27
- -----------------------------------------------------------------------
TEN YEARS ENDED 09/30/98 8.11 N/A N/A 7.67 N/A N/A
- -----------------------------------------------------------------------
COMMENCEMENT OF OPERATIONS THROUGH
09/30/98+ 8.29 7.21 6.37 7.90 7.21 6.37
- -----------------------------------------------------------------------
</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.
* MAXIMUM SALES CHARGE FOR CLASS A SHARES IS 4% 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% 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 ISSUANCE DATES ARE JUNE 23, 1987, JULY 1, 1991 AND JULY 2,
1992 FOR CLASS A, CLASS B AND CLASS C SHARES, RESPECTIVELY.
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 SIX MONTHS ENDED
AUGUST 31, 1998 AND SINCE INCEPTION, FEBRUARY 5, 1998 THROUGH AUGUST 31, 1998,
CLASS Y SHARES HAD A TOTAL RETURN OF 3.25% AND 3.16%, 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.
12
<PAGE>
PAINEWEBBER NEW YORK TAX-FREE INCOME FUND
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------------- -----------------------------
12 MONTHS 6 MONTHS
08/31/98 02/28/98 08/31/97 ENDED 08/31/98 ENDED 08/31/98
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES $11.26 $11.12 $10.82 9.24% 3.87%
- ------------------------------------------------------------------------------
CLASS B SHARES 11.26 11.12 10.82 8.42 3.47
- ------------------------------------------------------------------------------
CLASS C SHARES 11.26 11.12 10.83 8.57 3.59
- ------------------------------------------------------------------------------
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 -
08/31/98 11.10 11.26 -- 0.3262 4.52
- ------------------------------------------------------------------------------
TOTALS: $0.1270 $5.8297
- ------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
08/31/98: 109.85%
- ------------------------------------------------------------------------------
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 -
08/31/98 11.10 11.26 -- 0.2777 4.03
- ------------------------------------------------------------------------------
TOTALS: $0.1270 $3.4012
- ------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
08/31/98: 62.10%
- ------------------------------------------------------------------------------
</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.
13
<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 - 08/31/98 11.10 11.26 -- 0.2964 4.18
- ------------------------------------------------------------------------------
TOTALS: $0.1270 $2.9592
- ------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
08/31/98: 44.36%
- ------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL RETURN
<TABLE>
<CAPTION>
% RETURN AFTER
% RETURN DEDUCTING
WITHOUT SALES MAXIMUM SALES
CHARGE CHARGE
---------------- ----------------
CLASS CLASS
---------------- ----------------
A* B** C*** A* B** C***
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TWELVE MONTHS ENDED 09/30/98 9.41% 8.48% 8.84% 5.08% 3.48% 8.09%
- ---------------------------------------------------------------------------------
FIVE YEARS ENDED 09/30/98 5.52 4.72 5.00 4.67 4.38 5.00
- ---------------------------------------------------------------------------------
TEN YEARS ENDED 09/30/98 7.84 N/A N/A 7.40 N/A N/A
- ---------------------------------------------------------------------------------
COMMENCEMENT OF OPERATIONS THROUGH 09/30/98+ 7.82 7.08 6.27 7.38 7.08 6.27
- ---------------------------------------------------------------------------------
</TABLE>
/1/ FIGURES ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
AT NET ASSET VALUE ON THE PAYABLE DATES AND DO NOT INCLUDE SALES CHARGES;
RESULTS FOR EACH CLASS WOULD BE LOWER IF SALES CHARGES WERE INCLUDED.
* MAXIMUM SALES CHARGE FOR CLASS A SHARES IS 4% 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% 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 ISSUANCE DATES ARE SEPTEMBER 23, 1988, JULY 1, 1991 AND JULY
2, 1992 FOR CLASS A, CLASS B AND CLASS C SHARES, RESPECTIVELY.
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, MAY 21, 1998
THROUGH AUGUST 31, 1998, CLASS Y SHARES HAD A TOTAL RETURN OF 2.91%. 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 CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS AUGUST 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------------- ------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- 108.54%
$ 1,000 CALIFORNIA EDUCATIONAL FACILITIES
AUTHORITY
LOS ANGELES COLLEGE OF
CHIROPRACTIC MEDICINE............ 11/01/17 5.600% $ 1,040,360
2,000 CALIFORNIA HEALTH FACILITIES
FINANCING AUTHORITY
KAISER PERMANENTE HOSPITAL SERIES
A................................ 10/01/18 7.000 2,100,120
2,000 CALIFORNIA HOUSING FINANCE AGENCY
REVENUE SERIES G................. 08/01/14 6.100 2,128,500
1,925 CALIFORNIA STATE DEPARTMENT OF
WATER RESOURCES CENTRAL VALLEY
PROJECT REVENUE WATER SYSTEMS
SERIES Q......................... 12/01/17 5.250 1,961,633
10,450 CALIFORNIA STATE PUBLIC WORKS
BOARD DEPARTMENT OF CORRECTIONS
SERIES B (MBIA INSURED) ......... 11/01/19 5.625 11,110,440
4,000+ CALIFORNIA STATE UNIVERSITY
REVENUE HOUSING SYSTEMS (FGIC
INSURED)......................... 11/01/21 5.900 4,338,600
5,000 CALIFORNIA STATEWIDE COMMUNITIES
DEVELOPMENT AUTHORITY ........... 05/15/25 5.100 TO 5.250 5,072,300
1,000 UNIVERSITY OF CALIFORNIA REVENUES
MULTIPLE PURPOSE PROJECTS SERIES
C (AMBAC INSURED)................ 09/01/11 5.250 1,045,830
2,000 ABAG FINANCE AUTHORITY FOR
NONPROFIT CORPORATIONS
CERTIFICATES OF PARTICIPATION
RHODA HAAS GOLDMAN PLAZA......... 05/15/15 5.125 2,011,220
4,315 ALUM ROCK UNIFIED ELEMENTARY
SCHOOL DISTRICT (FGIC INSURED) .. 09/01/18 5.250 4,419,552
2,690 BEVERLY HILLS CERTIFICATES OF
PARTICIPATION.................... 06/01/15 TO 06/01/19 6.750 TO 7.000 2,801,918
1,830 CAPISTRANO UNIFIED SCHOOL DISTRICT
CERTIFICATES OF PARTICIPATION.... 02/01/18 5.200 1,847,806
1,350 CONTRA COSTA TRANSPORTATION
AUTHORITY SALES TAX REVENUE BONDS
SERIES A......................... 03/01/07 6.875 1,470,609
2,715 DEL MAR RACE TRACK AUTHORITY...... 08/15/11 TO 08/15/13 6.200 TO 6.450 2,904,696
650 DUARTE REDEVELOPMENT AGENCY TAX
ALLOCATION DAVIS ADDITION
PROJECT.......................... 09/01/14 6.700 698,730
4,000 FONTANA REDEVELOPMENT AGENCY TAX
ALLOCATION
JURUPA HILLS REDEVELOPMENT PROJECT
................................. 10/01/24 TO 10/01/27 5.500 TO 7.200 4,341,900
2,000 FOOTHILL DE ANZA COMMUNITY COLLEGE
DISTRICT CERTIFICATES OF
PARTICIPATION
(AMBAC INSURED).................. 09/01/13 6.250 2,212,800
2,000 FREMONT UNIFIED SCHOOL DISTRICT
ALAMEDA COUNTY SERIES F (MBIA
INSURED) 08/01/16 5.875 2,188,420
4,275 GLENDALE UNIFIED SCHOOL DISTRICT
SERIES B (FSA INSURED)........... 09/01/18 5.500 4,478,148
2,000 HUNTINGTON PARK PUBLIC FINANCING
AUTHORITY WASTEWATER SYSTEMS
PROJECT REVENUE BONDS SERIES A++. 10/01/25 6.200 2,079,540
1,000 INTERMODAL CONTAINER TRANSFER
FACILITIES SOUTHERN PACIFIC
TRANSFER COMPANY SERIES A........ 11/01/14 7.700 1,056,080
200 IRVINE RANCH WATER DISTRICT SERIES
A................................ 09/01/98 3.000* 200,000
1,500 LA MIRADA REDEVELOPMENT AGENCY
SPECIAL TAX COMMUNITY FACILITIES
DISTRICT NUMBER 89-1............. 10/01/20 5.700 1,516,110
1,450 LONG BEACH INDUSTRIAL DEVELOPMENT
REVENUE CSU FOUNDATION SERIES A.. 02/01/23 5.250 1,434,195
3,000 LOS ANGELES DEPARTMENT OF WATER &
POWER REVENUE BONDS
(CROSSOVER REFUNDED TO 01/15/01 @
102)............................. 01/15/31 7.100 3,277,950
5,750 LOS ANGELES HARBOR DEPARTMENT
REVENUE BONDS SERIES B........... 11/01/23 TO 08/01/25 5.375 TO 6.625 6,089,960
2,200 M-S-R PUBLIC POWER AGENCY SAN JUAN
PROJECT REVENUE BONDS SERIES E
(MBIA INSURED)................... 07/01/17 6.500 2,387,594
6,470 MENLO PARK COMMUNITY DEVELOPMENT
AGENCY TAX ALLOCATION LAS PULGAS
COMMUNITY DEVELOPMENT PROJECT
(AMBAC INSURED).................. 06/01/16 5.375 6,761,603
1,755 MODESTO PUBLIC FINANCING AUTHORITY
JOHN THURMAN FIELD RENOVATION
PROJECT.......................... 11/01/16 6.125 1,880,360
2,625 MOJAVE WATER AGENCY IMPROVEMENT
DISTRICT MORONGO BASIS (FGIC
INSURED)......................... 09/01/15 5.750 2,859,780
4,180 MOULTON NIGUEL WATER DISTRICT
(MBIA INSURED)................... 09/01/13 5.250 4,338,506
1,000 OAKLAND GENERAL OBLIGATION BONDS
SERIES C (MBIA INSURED) ......... 12/15/22 5.900 1,088,630
2,235 ORANGE COUNTY COMMUNITY FACILITIES
SPECIAL TAX
RANCHO SANTA MARGARITA DISTRICT
NUMBER 86-2 SERIES A............. 08/15/12 TO 08/15/17 5.375 TO 5.550 2,257,898
710 ORANGE COUNTY MORTGAGE REVENUE
BONDS (GNMA INSURED)............. 09/01/16 7.800 724,995
</TABLE>
15
<PAGE>
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------------- ------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES
(CONCLUDED)
$ 5,000 ORANGE COUNTY RECOVERY
CERTIFICATES OF
PARTICIPATION SERIES A
(MBIA INSURED)......... 07/01/26 6.000% $ 5,501,350
1,800 POWAY COMMUNITY
FACILITIES DISTRICT
SPECIAL TAX NUMBER 88-1
PARKWAY BUSINESS
CENTER................. 08/15/06 TO 08/15/15 5.400 TO 6.750 1,912,429
3,120 RIVERSIDE COUNTY PUBLIC
FINANCING REDEVELOPMENT
PROJECT SERIES A....... 10/01/16 5.250 3,136,848
1,305 RIVERSIDE COUNTY PUBLIC
FINANCING AUTHORITY TAX
ALLOCATION REVENUE
REDEVELOPMENT PROJECTS
SERIES A .............. 10/01/11 5.200 1,357,513
1,180 ROHNERT PARK COMMUNITY
DEVELOPMENT AGENCY TAX
ALLOCATION
(AMBAC INSURED)........ 08/01/20 6.500 1,258,246
5,500 SACRAMENTO POWER
AUTHORITY COGENERATION
PROJECT REVENUE ....... 07/01/15 5.875 5,852,220
2,200 SALINAS CAPITAL
IMPROVEMENT PROJECTS
CERTIFICATES OF
PARTICIPATION SERIES A. 10/01/28 5.700 2,299,220
1,300 SAN DIEGO INDUSTRIAL
DEVELOPMENT REVENUE
BONDS SAN DIEGO GAS &
ELECTRIC SERIES A...... 09/01/18 6.400 1,406,288
6,000 SAN DIEGO INDUSTRIAL
DEVELOPMENT REVENUE
BONDS SAN DIEGO GAS &
ELECTRIC SERIES A (MBIA
INSURED)............... 09/01/18 6.100 6,550,200
1,375 SAN DIEGO PUBLIC
FACILITIES FINANCING
AUTHORITY SEWER REVENUE
BONDS SERIES A (FGIC
INSURED)............... 05/15/27 5.250 1,406,557
3,850 SAN FRANCISCO CITY AND
COUNTY AIRPORTS
COMMISSION
INTERNATIONAL AIRPORT
REVENUE SECOND SERIES
ISSUE 16A (FSA
INSURED)............... 05/01/13 5.500 4,095,938
3,000 SAN FRANCISCO CITY AND
COUNTY AIRPORTS
COMMISSION
INTERNATIONAL AIRPORT
REVENUE SECOND SERIES
ISSUE 8A (FGIC
INSURED)............... 05/01/20 6.250 3,262,710
2,650 SAN JOSE SANTA CLARA
WATER FINANCING
AUTHORITY SEWER REVENUE
SERIES A
(FGIC INSURED)......... 11/15/15 5.375 2,777,041
960 SAN YSIDRO SCHOOL
DISTRICT (AMBAC
INSURED)............... 08/01/21 6.125 1,104,931
5,485 SANTA ANA FINANCING
AUTHORITY REVENUE SOUTH
HARBOR BOULEVARD B
(MBIA INSURED)(1)...... 09/01/19 5.125 5,453,571
2,000 SANTA CLARA COUNTY
FINANCING AUTHORITY VMC
FACILITY REPLACEMENT
PROJECT SERIES A (PRE-
REFUNDED WITH U.S.
GOVERNMENT SECURITIES
TO 11/15/02 @102)
(AMBAC INSURED)........ 11/15/20 6.750 2,346,440
5,000 SANTA MONICA PARKING
AUTHORITY REVENUE
BONDS.................. 07/01/16 6.375 5,481,200
2,000 SOUTHERN CALIFORNIA
PUBLIC POWER AUTHORITY
TRANSMISSION PROJECT
REVENUE BONDS.......... 07/01/20 5.500 2,036,440
5,740 TORRANCE REDEVELOPMENT
AGENCY TAX ALLOCATION
SENIOR LIEN SERIES C
(MBIA INSURED)(1)...... 09/01/18 5.450 5,836,891
2,000 PUERTO RICO ELECTRICAL
POWER AUTHORITY REVENUE
BONDS SERIES O (PRE-
REFUNED WITH U.S.
GOVERNMENT SECURITIES
TO 07/01/99 @ 101 1/2). 07/01/14 7.125 2,083,820
250 VIRGIN ISLANDS WATER &
POWER AUTHORITY........ 07/01/18 5.300 252,170
1,000 VIRGIN ISLANDS WATER &
POWER AUTHORITY SERIES
A...................... 07/01/13 5.125 1,005,660
------------
TOTAL MUNICIPAL BONDS AND NOTES
(COST -- $155,945,619)............. 162,544,466
------------
<CAPTION>
NUMBER OF
SHARES
---------
<C> <S> <C> <C> <C>
TAX-EXEMPT MONEY MARKET FUND --
0.27%
400,000 PROVIDENT CALIFORNIA
MUNICIPAL MONEY FUND
FOR TEMPORARY FUND
INVESTMENTS (COST --
$400,000)............. 400,000
------------
TOTAL INVESTMENTS (COST --
$156,345,619) -- 108.81%.......... 162,944,466
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (8.81)%.................. (13,189,724)
------------
NET ASSETS -- 100.00%.............. $149,754,742
============
</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 AUGUST
31, 1998.
+ ENTIRE PRINCIPAL AMOUNT PLEDGED AS COLLATERAL FOR FUTURES TRANSACTIONS.
++ ILLIQUID SECURITY REPRESENTING 1.4% OF NET ASSETS.
(1) PURCHASED ON A FORWARD COMMITTMENT BASIS.
AMBAC AMERICAN MUNICIPAL BOND ASSURANCE CORPORATION
FGIC FINANCIAL GUARANTY INSURANCE COMPANY
FSA FINANCIAL SECURITY ASSURANCE INCORPORATED
GNMA GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
MBIA MUNICIPAL BOND INVESTORS ASSURANCE
16
<PAGE>
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND
FUTURES CONTRACTS
<TABLE>
<CAPTION>
NUMBER OF IN EXPIRATION UNREALIZED
CONTRACTS CONTRACTS TO BUY EXCHANGE FOR DATE APPRECIATION
--------- ------------------------ ---------------- ---------------- --------------
<C> <S> <C> <C> <C>
5 30 YEAR U.S. TREASURY
BONDS.................. $612,969 SEPTEMBER 98 $22,657
=======
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS AUGUST 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------------- ------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES --
101.44%
ALASKA -- 0.63%
$ 1,460 ALASKA INDUSTRIAL
DEVELOPMENT & EXPORT
AUTHORITY POWER REVENUE
UPPER LYNN CANAL
REGIONAL POWER......... 01/01/12 5.700% $ 1,473,958
415 ALASKA STATE HOUSING
FINANCE CORPORATION.... 06/01/22 7.100 441,427
------------
1,915,385
------------
ARIZONA -- 6.09%
10,510 MARICOPA COUNTY
COMMUNITY COLLEGE
DISTRICT............... 07/01/07 6.000 11,477,656
3,700 PHOENIX GENERAL
OBLIGATION............. 07/01/16 6.250 4,367,221
2,500 TUCSON ARIZONA AIRPORT
AUTHORITY LOCKHEED
AERMOD CENTER
INCORPORATED........... 09/01/19 8.700 2,763,800
------------
18,608,677
------------
ARKANSAS -- 0.66%
2,000 LITTLE ROCK ARKANSAS
CAPITAL IMPROVEMENT
REVENUE PARKS &
RECREATION
PROJECTS SERIES A...... 01/01/18 5.700 2,019,780
------------
CALIFORNIA -- 2.29%
160 CALIFORNIA STATE (FGIC
INSURED)............... 11/01/12 7.000 187,153
1,920 LONG BEACH AQUARIUM OF
THE PACIFIC CALIFORNIA
REVENUE................ 07/01/23 6.125 2,029,037
4,500 SACRAMENTO POWER
AUTHORITY COGENERATION
PROJECT REVENUE........ 07/01/15 5.875 4,788,180
------------
7,004,370
------------
COLORADO -- 0.67%
1,650 BLACK HAWK COLORADO
DEVICE TAX REVENUE..... 12/01/12 TO 12/01/21 5.500 TO 5.625 1,641,685
400 MOFFAT COUNTY POLLUTION
CONTROL REVENUE (AMBAC
ISSUED)................ 09/01/98 3.700* 400,000
------------
2,041,685
------------
CONNECTICUT -- 0.51%
1,500 MASHANTUCKET WESTERN
PEQUOT TRIBE
CONNECTICUT SPECIAL
REVENUE (1)............ 09/01/12 5.700 1,571,190
------------
DISTRICT OF COLUMBIA -- 1.24%
3,355 DISTRICT OF COLUMBIA
HOSPITAL REVENUE
MEDLANTIC HEALTHCARE
GROUP
(MBIA INSURED) ........ 08/15/09 6.000 3,777,160
------------
FLORIDA -- 3.40%
6,000 HILLSBOROUGH COUNTY
FLORIDA INDUSTRIAL
DEVELOPMENT AUTHORITY
POLLUTION CONTROL
REVENUE ............... 05/01/22 8.000 6,932,520
3,000 PLANT CITY UTILITY
SYSTEMS REVENUE (MBIA
INSURED)............... 10/01/15 6.000 3,451,350
------------
10,383,870
------------
</TABLE>
18
<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)
GEORGIA -- 8.18%
$ 5,900 ATLANTA GEORGIA......... 12/01/11 5.900% $ 6,505,989
5,000 CONYERS WATER AND SEWAGE
REVENUE (AMBAC
INSURED)............... 07/01/15 6.600 5,719,250
3,000 GEORGIA MUNICIPAL
ELECTRIC AUTHORITY
POWER REVENUE.......... 01/01/12 6.250 3,446,940
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 9,313,200
------------
24,985,379
------------
HAWAII -- 0.36%
1,000 HAWAII STATE DEPARTMENT
BUDGET AND FINANCE
SPECIAL PURPOSE REVENUE
(MBIA INSURED)......... 05/01/26 6.200 1,097,810
------------
IDAHO -- 0.52%
1,480 IDAHO HOUSING AGENCY
(FHA INSURED).......... 07/01/24 7.500 1,580,018
------------
ILLINOIS -- 12.64%
500 CHICAGO METROPOLITAN
WATER RECLAMATION
DISTRICT............... 12/01/10 7.000 617,755
2,500 CHICAGO SERIES A2 (AMBAC
INSURED)............... 01/01/15 6.250 2,919,425
14,500 ILLINOIS BOARD OF
EDUCATION CHICAGO
SCHOOL REFORM (AMBAC
INSURED)............... 12/01/17 TO 12/01/30 5.250 TO 5.800 15,065,435
1,000 ILLINOIS BOARD OF
EDUCATION CHICAGO
SCHOOL REFORM (MBIA
INSURED)............... 12/01/12 6.250 1,167,550
4,335 ILLINOIS DEVELOPMENT
FINANCE AUTHORITY
CITIZENS UTILITIES..... 08/01/20 7.150 4,575,593
3,625 ILLINOIS DEVELOPMENT
FINANCE AUTHORITY
REVENUE REFUNDING
COMMUNITY REHAB
PROVIDERS A............ 07/01/09 TO 07/01/15 5.900 TO 6.000 3,839,594
660 ILLINOIS HEALTH
FACILITIES AUTHORITY
REVENUE EVANGELICAL
HOSPITAL............... 04/15/17 6.750 786,581
2,000 METROPOLITAN PIER &
EXPOSITION AUTHORITY
(ILLINOIS) MCCORMICK
PLACE CONVENTION
COMPLEX................ 07/01/26 7.000 2,515,820
1,170 NORTHERN ILLINOIS
UNIVERSITY (PRE-
REFUNDED WITH U.S.
GOVERNMENT SECURITIES
TO 10/01/09 @ 100)..... 04/01/13 10.400 1,713,523
4,620 REGIONAL TRANSPORTATION
AUTHORITY (PRE-REFUNDED
WITH U.S. GOVERNMENT
SECURITIES TO 06/01/04
@ 102) (FGIC INSURED).. 06/01/14 7.100 5,418,752
------------
38,620,028
------------
INDIANA -- 1.95%
2,550 EAST CHICAGO INDIANA
MULTI SCHOOL BUILDING
CORPORATION (AMBAC
INSURED)............... 07/15/14 5.500 2,674,057
3,000 INDIANA HEALTH FACILITY
FINANCE AUTHORITY
METHODIST HOSPITAL OF
INDIANA................ 09/01/15 5.750 3,291,870
------------
5,965,927
------------
KANSAS -- 1.71%
5,000 KANSAS STATE DEPARTMENT
TRANSPORTATION HIGHWAY
REVENUE ............... 03/01/13 5.375 5,224,150
------------
MARYLAND -- 1.01%
2,750 PRINCE GEORGES COUNTY
MARYLAND POLLUTION
CONTROL REVENUE
REFUNDING POTOMAC
ELECTRIC PROJECT....... 03/15/10 5.750 3,075,132
------------
</TABLE>
19
<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)
MASSACHUSETTS -- 4.94%
$ 3,000 MASSACHUSETTS STATE
WATER RESOURCES
AUTHORITY (MBIA
INSURED)............... 11/01/15 5.500% $ 3,123,720
10,115 MASSACHUSETTS STATE
TURNPIKE AUTHORITY
METROPOLITAN HIGHWAY
SYSTEMS REVENUE
(MBIA INSURED) 01/01/27 TO 01/01/37 5.000 9,964,558
1,770 MASSACHUSETTS WATER
RESOURCES AUTHORITY.... 12/01/11 6.000 2,017,446
------------
15,105,724
------------
MICHIGAN -- 0.68%
1,915 ROYAL OAK HOSPITAL
FINANCE AUTHORITY
WILLIAM BEAUMONT
HOSPITAL............... 01/01/19 6.625 2,083,118
------------
MINNESOTA -- 0.44%
1,280 MINNESOTA STATE HOUSING
FINANCE AGENCY......... 01/01/23 8.000 1,354,240
------------
MISSISSIPPI -- 2.06%
6,045 CLAIBORNE COUNTY
MISSISSIPPI POLLUTION
CONTROL REVENUE MIDDLE
SOUTH ENERGY
INCORPORATED........... 12/01/14 9.875 6,299,676
------------
NEW HAMPSHIRE -- 0.62%
1,275 NEW HAMPSHIRE HIGHER
EDUCATIONAL & HEALTH
FACILITIES AUTHORITY
REVENUE NEW HAMPSHIRE
COLLEGE................ 01/01/07 5.950 1,345,954
500 NEW HAMPSHIRE INDUSTRIAL
DEVELOPMENT AUTHORITY
CENTRAL MAINE
POWER COMPANY.......... 05/01/14 7.375 545,710
------------
1,891,664
------------
NEW JERSEY -- 6.20%
2,500 NEW JERSEY ECONOMIC
DEVELOPMENT AUTHORITY
ECONOMIC DEVELOPMENT
REVENUE ............... 04/01/18 6.375 2,500,025
1,890 NEW JERSEY HOUSING
GENERAL RESOLUTION
SERIES A............... 11/01/04 6.700 2,021,506
12,000 NEW JERSEY STATE
TURNPIKE AUTHORITY
(MBIA INSURED)+........ 01/01/16 6.500 14,428,800
------------
18,950,331
------------
NEW YORK -- 14.19%
4,350 LONG ISLAND POWER
AUTHORITY NEW YORK
ELECTRIC SYSTEMS
REVENUE GENERAL
SERIES A .............. 12/01/29 5.500 4,469,408
4,500 NEW YORK CITY........... 08/01/17 5.375 4,591,080
3,000 NEW YORK CITY INDUSTRIAL
DEVELOPMENT BONDS
BROOKLYN NAVY YARD..... 10/01/36 5.750 3,082,770
6,805 NEW YORK STATE ENERGY
RESEARCH & DEVELOPMENT
LONG ISLAND LIGHTING... 09/01/19 TO 02/01/22 7.150 7,469,780
2,400 NEW YORK STATE
ENVIRONMENTAL
FACILITIES CORPORATION
STATE WATER POLLUTION
CONTROL................ 06/15/14 6.875 2,733,720
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 4,164,696
3,825 NEW YORK STATE LOCAL
GOVERNMENT ASSISTANCE
CORPORATION............ 04/01/14 6.000 4,383,603
3,100 TRIBOROUGH BRIDGE &
TUNNEL AUTHORITY....... 01/01/10 7.100 3,374,164
2,550 TRIBOROUGH BRIDGE &
TUNNEL AUTHORITY NEW
YORK REVENUES GENERAL
PURPOSE................ 01/01/27 5.200 2,568,054
1,000 PORT AUTHORITY OF NEW
YORK & NEW JERSEY
KENNEDY INTERNATIONAL
AIRPORT COGENERATION
PROJECT 4TH INSTALLMENT
PROJECT................ 10/01/11 6.750 1,110,170
4,960 NEW YORK CITY MUNICIPAL
WATER FINANCE AUTHORITY
WATER & SEWER SYSTEMS
REVENUE SERIES A....... 06/15/12 7.100 5,425,248
------------
43,372,693
------------
</TABLE>
20
<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 -- 1.73%
$ 3,400 NORTH CAROLINA EASTERN
MUNICIPAL POWER AGENCY
(MBIA INSURED)......... 01/01/13 7.000% $ 4,224,806
1,000 NORTH CAROLINA HOUSING
FINANCE AGENCY......... 03/01/18 6.200 1,062,670
------------
5,287,476
------------
NORTH DAKOTA -- 0.12%
350 NORTH DAKOTA STATE
HOUSING FINANCE AGENCY
REVENUE................ 07/01/16 6.300 376,803
------------
OHIO -- 5.22%
1,145 BUTLER COUNTY
TRANSPORTATION
IMPROVEMENT DISTRICT
(FSA INSURED).......... 04/01/11 6.000 1,294,331
6,000 CLEVELAND AIRPORT
SPECIAL REVENUE
REFUNDING CONTINENTAL
AIRLINES INCORPORATED.. 12/01/08 5.500 6,056,280
2,250 CLEVELAND PUBLIC POWER
SYSTEMS REVENUE........ 11/15/17 7.000 2,472,030
6,000 OHIO STATE WATER
DEVELOPMENT AUTHORITY
SOLID WASTE DISPOSAL
REVENUE BAY SHORE POWER
PROJECT................ 09/01/20 5.875 6,120,180
------------
15,942,821
------------
OKLAHOMA -- 0.88%
2,500 TULSA MUNICIPAL AIRPORT
TRUST REVENUE AMERICAN
AIRLINES INCORPORATED.. 12/01/20 7.375 2,691,000
------------
PENNSYLVANIA -- 2.26%
3,365 BEAVER COUNTY
PENNSYLVANIA POLLUTION
CONTROL REVENUE ....... 06/01/21 7.000 3,661,524
3,000 PENNSYLVANIA STATE
TURNPIKE COMMISSION
REVENUE (AMBAC
INSURED)............... 12/01/12 5.750 3,235,440
------------
6,896,964
------------
PUERTO RICO -- 0.55%
1,500 PUERTO RICO COMMONWEALTH
(MBIA INSURED)......... 07/01/15 5.650 1,668,090
------------
SOUTH CAROLINA -- 2.64%
1,000 CHARLESTON WATERWORKS &
SEWER REVENUE (AMBAC
INSURED)............... 01/01/16 6.000 1,075,710
6,300 PIEDMONT MUNICIPAL POWER
AGENCY (MBIA INSURED) . 01/01/23 4.000 5,390,784
1,500 SOUTH CAROLINA STATE
HOUSING FINANCE
DEVELOPMENT SINGLE
FAMILY MORTGAGE
PURCHASE............... 07/01/18 5.500 1,595,715
------------
8,062,209
------------
TEXAS -- 11.20%
4,850 ALLIANCE AIRPORT
AUTHORITY INCORPORATED
TEXAS SPECIAL
FACILITIES REVENUE
AMERICA AIRLINES
INCORPORATED PROJECT... 12/01/29 7.500 5,230,095
3,000 AUSTIN UTILITY SYSTEMS
REVENUE (AMBAC
INSURED)++............. 11/15/12 6.750 3,659,940
3,500 DALLAS FORT WORTH
INTERNATIONAL AIRPORT
AMERICAN AIRLINES
INCORPORATED........... 11/01/25 7.500 3,768,660
5,259 HARRIS COUNTY LEASE (1). 11/01/07 TO 05/01/14 5.800 TO 5.900 5,439,701
1,068 HARRIS COUNTY LEASE..... 05/15/00 5.500 1,090,503
710 HARRIS COUNTY TOLL ROAD
AUTHORITY (AMBAC
INSURED)............... 08/15/17 6.500 783,442
1,315 HEREFORD TEXAS
INDEPENDENT SCHOOL
DISTRICT PUBLIC
FACILITY CORPORATION
SCHOOL FACILITY LEASE
REVENUE................ 08/15/13 5.125 1,319,050
</TABLE>
21
<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)
$ 1,500 PORT ARTHUR TEXAS NAVIGATION
DISTRICT (AMBAC INSURED)... 03/01/12 5.010%# $ 779,280
2,625 TEXAS STATE PUBLIC PROPERTY
FINANCE CORPORATION REVENUE
MENTAL HEALTH.............. 09/01/03 5.400 2,706,401
8,000 TEXAS STATE TURNPIKE
AUTHORITY NORTH THRUWAY
REVENUE PRESIDENT GEORGE
BUSH TURNPIKE (FGIC
INSURED)................... 01/01/25 5.000 7,907,040
1,440 TEXAS STATE WATER
DEVELOPMENT SERIES A&C..... 08/01/18 5.750 1,546,790
------------
34,230,272
------------
UTAH -- 0.23%
645 UTAH STATE HOUSING FINANCE
AGENCY (FHA INSURED)....... 01/01/11 6.450 691,866
------------
VIRGINIA -- 2.33%
500 PENINSULA PORTS AUTHORITY
VIRGINIA HOSPITAL FACILITY
REVENUE (FHA INSURED)...... 08/01/23 8.700 536,250
5,200 PITTSYLVANIA COUNTY VIRGINIA
INDUSTRIAL DEVELOPMENT
AUTHORITY REVENUE (1)...... 01/01/10 7.650 5,919,212
600 HAMPTON ROADS MEDICAL
COLLEGE.................... 11/15/16 6.875 650,196
------------
7,105,658
------------
WISCONSIN -- 0.03%
100 LOUISIANA CROSSE WISCONSIN
POLLUTION CONTROL REVENUE
REFUNDING DAIRYLAND POWER.. 09/01/98 3.450* 100,000
------------
WYOMING -- 3.26%
9,000 SWEETWATER COUNTY SOLID
WASTE DISPOSAL REVENUE FMC
CORPORATION PROJECT........ 06/01/24 7.000 9,972,000
------------
TOTAL INVESTMENTS (COST --
$291,933,118) -- 101.44%............. 309,953,166
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (1.44)%..................... (4,405,291)
------------
NET ASSETS -- 100.00%.................. $305,547,875
============
</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
AUGUST 31, 1998.
#ZERO COUPON BOND INTEREST RATE REFLECTS YIELD TO MATURITY AT DATE OF PURCHASE.
+SECURITY WAS PLEDGED AS COLLATERAL FOR FUTURE TRANSACTIONS.
++PURCHASED ON A FORWARD COMMITMENT BASIS.
(1)ILLIQUID SECURITIES REPRESENTS 4.2% OF NET ASSETS.
AMBACAMERICAN MUNICIPAL BOND ASSURANCE CORPORATION
FGICFINANCIAL GUARANTY INSURANCE COMPANY
FHAFEDERAL HOUSING AUTHORITY
FSAFINANCIAL SECURITY ASSURANCE INCORPORATED
MBIAMUNICIPAL BOND INVESTORS ASSURANCE
FUTURES CONTRACTS
<TABLE>
<CAPTION>
NUMBER OF IN EXPIRATION UNREALIZED
CONTRACTS CONTRACTS TO BUY EXCHANGE FOR DATE APPRECIATION
--------- ------------------------ ---------------- ---------------- --------------
<C> <S> <C> <C> <C>
30 30 YEAR U.S. TREASURY
BONDS.................. $3,695,813 DECEMBER 98 $117,937
========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
22
<PAGE>
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS AUGUST 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------- -------- ------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- 100.47%
ALASKA -- 1.40%
$1,445 ALASKA INDUSTRIAL DEVELOPMENT &
EXPORT AUTHORITY POWER REVENUE UPPER
LYNN CANAL REGIONAL POWER........... 01/01/32 5.875% $ 1,464,088
------------
ARKANSAS -- 1.45%
1,500 LITTLE ROCK ARKANSAS CAPITAL
IMPROVEMENT REVENUE PARKS &
RECREATION PROJECTS SERIES A........ 01/01/18 5.700 1,514,835
------------
CALIFORNIA -- 7.32%
350 DUARTE CALIFORNIA REDEVELOPMENT
AGENCY TAX ALLOCATION REFUNDING
DAVIS ADDITION PROJECT.............. 09/01/14 6.700 376,240
3,000 LAKE ELSINORE CALIFORNIA PUBLIC
FINANCING AUTHORITY LOCAL AGENCY
REVENUE............................. 09/01/20 7.100 3,252,780
2,975 LONG BEACH AQUARIUM OF THE PACIFIC
CALIFORNIA REVENUE.................. 07/01/15 6.125 3,152,548
800 POWAY COMMUNITY FACILITIES DISTRICT
PARKWAY BUSINESS CENTER............. 08/15/15 6.750 877,080
------------
7,658,648
------------
COLORADO -- 4.74%
1,500 BLACK HAWK COLORADO DEVICE TAX
REVENUE............................. 12/01/21 5.625 1,483,560
3,000 HYLAND HILLS METROPOLITAN PARK AND
RECREATION DISTRICT................. 12/15/15 6.750 3,272,040
200 MOFFAT COUNTY COLORADO POLLUTION
CONTROL REVENUE..................... 09/01/98 3.300* 200,000
------------
4,955,600
------------
FLORIDA -- 2.17%
2,035 ESCAMBIA COUNTY POLLUTION CONTROL
CHAMPION INTERNATIONAL CORPORATION
PROJECT............................. 08/01/22 6.900 2,266,196
------------
GEORGIA -- 2.54%
2,500 DEVELOPMENT AUTHORITY OF EFFINGHAM
COUNTY FORT HOWARD PAPER
(ASSUMED BY FORT JAMES CORPORATION). 10/01/05 7.900 2,658,950
------------
ILLINOIS -- 6.25%
2,500 ILLINOIS EDUCATIONAL FACILITIES
AUTHORITY COLUMBIA COLLEGE.......... 12/01/17 6.875 2,765,650
3,000 METROPOLITAN PIER & EXPOSITION
AUTHORITY (ILLINOIS) MCCORMICK PLACE
CONVENTION COMPLEX.................. 07/01/26 7.000 3,773,730
------------
6,539,380
------------
INDIANA -- 10.50%
1,300 CRAWFORDSVILLE ECONOMIC DEVELOPMENT
AUTHORITY KROGER CO. ............... 11/01/12 7.700 1,468,441
4,000 INDIANA STATE DEVELOPMENT FINANCE
AUTHORITY INLAND STEEL CORPORATION.. 11/01/11 7.250 4,433,520
2,500 INDIANAPOLIS AIRPORT AUTHORITY
FEDERAL EXPRESS..................... 01/15/17 7.100 2,829,550
2,000 WABASH SOLID WASTE DISPOSAL JEFFERSON
SMURFIT CORPORATION PROJECT......... 06/01/26 7.500 2,250,640
------------
10,982,151
------------
</TABLE>
23
<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 -- 4.20%
$2,200 ASHLAND SEWAGE AND SOLID WASTE
ASHLAND INCORPORATED PROJECT...... 02/01/22 7.125% $ 2,496,912
1,250 KENTON COUNTY AIRPORT BOARD DELTA
AIRLINES.......................... 02/01/21 7.125 1,360,113
440 RUSSELL HEALTH FINANCING AUTHORITY
FRANCISCAN SISTERS OF THE POOR
HEALTH SYSTEM .................... 07/01/15 8.100 537,306
------------
4,394,331
------------
LOUISIANA -- 3.15%
1,000 POINTE COUPEE PARISH GULF STATES
UTILITIES......................... 03/01/13 6.700 1,079,730
2,000 WEST FELICIANA PARISH GULF STATES
UTILITIES......................... 12/01/14 7.700 2,218,680
------------
3,298,410
------------
MASSACHUSETTS -- 0.93%
950 AGAWAM RESOURCE RECOVERY
SPRINGFIELD PROJECT............... 12/01/08 8.500 972,439
------------
MISSISSIPPI -- 2.40%
2,400 JONES COUNTY MISSISSIPPI SOLID
WASTE DISPOSAL REVENUE
INTERNATIONAL PAPER COMPANY
PROJECT........................... 10/01/21 5.800 2,510,760
------------
NEW HAMPSHIRE -- 4.87%
1,690 NEW HAMPSHIRE HIGHER EDUCATIONAL &
HEALTH FACILITIES AUTHORITY
REVENUE NEW HAMPSHIRE COLLEGE..... 01/01/16 6.300 1,822,986
3,000 NEW HAMPSHIRE INDUSTRIAL
DEVELOPMENT AUTHORITY CENTRAL
MAINE POWER COMPANY .............. 05/01/14 7.375 3,274,260
------------
5,097,246
------------
NEW JERSEY -- 6.88%
5,000 NEW JERSEY ECONOMIC DEVELOPMENT
AUTHORITY KAPKOWSKI ROAD LANDFILL. 04/01/18 6.500 5,000,050
2,000 NEW JERSEY ECONOMIC DEVELOPMENT
AUTHORITY VINELAND COGENERATION
L.P. PROJECT ..................... 06/01/19 7.875 2,198,160
------------
7,198,210
------------
NEW MEXICO -- 1.10%
1,000 CHAVES COUNTY HOSPITAL REVENUE
BONDS EASTERN NEW MEXICO MEDICAL
CENTER ........................... 12/01/22 7.250 1,145,650
------------
NEW YORK -- 13.34%
200 NEW YORK CITY (AMBAC INSURED)...... 09/01/98 3.300* 200,000
300 NEW YORK CITY (MBIA INSURED)....... 09/01/98 3.550* 300,000
2,000 NEW YORK CITY INDUSTRIAL
DEVELOPMENT AGENCY LAGUARDIA
ASSOCIATES LP PROJECT ............ 11/01/28 6.000 1,996,760
2,800 NEW YORK CITY INDUSTRIAL
DEVELOPMENT AGENCY AMERICAN
AIRLINES INCORPORATED ............ 08/01/24 6.900 3,124,240
100 NEW YORK CITY MUNICIPAL WATER
FINANCE AUTHORITY WATER AND SEWER
SYSTEMS .......................... 09/01/98 3.750* 100,000
100 NEW YORK STATE ENERGY RESEARCH AND
DEVELOPMENT AUTHORITY POLLUTION
CONTROL REVENUE .................. 09/01/98 3.850* 100,000
3,870 NEW YORK STATE ENERGY RESEARCH AND
DEVELOPMENT AUTHORITY LONG ISLAND
LIGHTING.......................... 09/01/19 7.150 4,248,060
3,500 PORT AUTHORITY NEW YORK & NEW
JERSEY KENNEDY INTERNATIONAL
AIRPORT COGENERATION PROJECT
4TH INSTALLMENT PROJECT .......... 10/01/11 6.750 3,885,595
------------
13,954,655
------------
OHIO -- 6.06%
3,000 DAYTON EMERY AIR FREIGHT........... 10/01/09 6.200 3,277,410
3,000 OHIO STATE WATER DEVELOPMENT
AUTHORITY BAY SHORE POWER PROJECT
.................................. 09/01/20 5.875 3,060,090
------------
6,337,500
------------
</TABLE>
24
<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)
PENNSYLVANIA -- 2.67%
$1,500 BEAVER COUNTY INDUSTRIAL
DEVELOPMENT AUTHORITY TOLEDO
EDISON........................... 05/01/20 7.750% $ 1,739,190
1,000 NORTHEASTERN PENNSYLVANIA HOSPITAL
AND EDUCATION AUTHORITY COLLEGE
REVENUE ......................... 07/15/18 6.000 1,050,370
------------
2,789,560
------------
TEXAS -- 3.91%
2,000 HARRIS COUNTY TEXAS LEASE
AGREEMENT (1).................... 05/01/14 5.800 2,068,300
1,875 EL PASO INTERNATIONAL AIRPORT
MARRIOTT HOTEL................... 03/01/22 7.875 2,020,556
------------
4,088,856
------------
UTAH -- 2.65%
2,500 TOOELE COUNTY UTAH HAZARDOUS WASTE
DISPOSAL REVENUE................. 08/01/10 6.750 2,768,875
------------
VIRGINIA -- 4.42%
1,175 LOUDOUN COUNTY INDUSTRIAL
DEVELOPMENT AUTHORITY DULLES
AIRPORT MARRIOTT HOTEL........... 09/01/15 7.125 1,306,318
500 PENINSULA PORTS AUTHORITY VIRGINIA
HOSPITAL FACILITY REVENUE (FHA
INSURED)......................... 08/01/23 8.700 536,250
2,500 PITTSYLVANIA COUNTY VIRGINIA
INDUSTRIAL DEVELOPMENT AUTHORITY
REVENUE(1) ...................... 01/01/14 7.500 2,774,975
------------
4,617,543
------------
WASHINGTON -- 1.49%
1,500 PILCHUCK DEVELOPMENT PUBLIC
CORPORATION REVENUE SPECIAL
FACILITIES AIRPORT REVENUE ...... 08/01/23 6.000 1,559,190
------------
WEST VIRGINIA -- 2.10%
1,900 HARRISON COUNTY COMMERCIAL
DEVELOPMENT BONDS KROGER COMPANY
................................. 11/01/14 8.100 2,196,134
------------
WISCONSIN -- 3.93%
3,900 JANESVILLE INDUSTRIAL DEVELOPMENT
REVENUE BONDS SIMMONS
MANUFACTURING COMPANY PARAMOUNT
COMMUNICATIONS................... 10/15/17 7.000 4,109,235
------------
TOTAL INVESTMENTS (COST -- $98,826,024) --
100.47%.................................... 105,078,442
LIABILITIES IN EXCESS OF OTHER ASSETS --
(0.47)%.................................... (486,942)
------------
NET ASSETS -- 100.00%........................ $104,591,500
============
</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
AUGUST 31, 1998.
(1)ILLIQUID SECURITIES REPRESENTING 4.6% OF NET ASSETS.
AMBACAMERICAN MUNICIPAL BOND ASSURANCE CORPORATION
FHAFEDERAL HOUSING AUTHORITY
MBIAMUNICIPAL BOND INVESTORS ASSURANCE
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
25
<PAGE>
PAINEWEBBER NEW YORK TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS AUGUST 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------------- -----------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- 98.67%
$1,000 HUNTINGTON NEW YORK..... 04/01/13 5.500% $ 1,065,420
1,600 LONG ISLAND POWER
AUTHORITY NEW YORK
ELECTRIC SYSTEMS
REVENUE GENERAL
SERIES A .............. 12/01/26 5.250 1,609,632
1,500 NEW YORK CITY........... 08/01/17 5.375 1,530,360
100 NEW YORK CITY (AMBAC
INSURED)............... 09/01/98 3.300* 100,000
300 NEW YORK CITY SERIES B . 09/01/98 3.750* 300,000
1,000 NEW YORK CITY INDUSTRIAL
DEVELOPMENT BONDS
BROOKLYN NAVY YARD..... 10/01/36 5.750 1,027,590
2,000 NEW YORK CITY INDUSTRIAL
DEVELOPMENT BONDS JAPAN
AIRLINES COMPANY....... 11/01/15 6.000 2,162,080
1,000 NEW YORK STATE SERIES A. 03/15/11 5.700 1,075,720
1,000 NEW YORK STATE (AMBAC
INSURED)............... 06/15/10 6.000 1,104,580
1,000 NEW YORK STATE DORMITORY
AUTHORITY REVENUES CITY
UNIVERSITY 3RD
BENEFICIAL RESOURCES
SERIES 2............... 07/01/28 5.000 969,780
1,000 NEW YORK STATE DORMITORY
AUTHORITY REVENUES
STATE UNIVERSITY
EDUCATIONAL FACILITIES
SERIES A .............. 05/15/11 5.250 1,060,010
980 NEW YORK STATE ENERGY
RESEARCH & DEVELOPMENT
LONG ISLAND LIGHTING... 12/01/20 TO 02/01/22 7.150 1,075,736
70 NEW YORK STATE
ENVIRONMENTAL
FACILITIES CORPORATION
STATE WATER POLLUTION
CONTROL................ 06/15/10 7.250 77,078
10 NEW YORK STATE HOUSING
FINANCE AGENCY......... 09/15/12 7.300 11,073
345 NEW YORK STATE MEDICAL
CARE FACILITIES FINANCE
AGENCY REVENUE
UNREFUNDED BALANCE
HOSPITAL SERIES A
HOSPITAL AND NURSING
HOME INSURED MORTGAGE.. 02/15/09 7.500 357,416
1,000 NEW YORK STATE THRUWAY
AUTHORITY HIGHWAY AND
BRIDGE TRUST FUND
SERIES C .............. 04/01/18 5.000 986,440
1,190 ONEIDA HERKIMER NEW YORK
SOLID WASTE
PREREFUNDED............ 04/01/14 6.750 1,347,746
60 ONEIDA HERKIMER NEW YORK
SOLID WASTE UNREFUNDED
BALANCE................ 04/01/14 6.750 65,182
1,500 TRIBOROUGH BRIDGE &
TUNNEL AUTHORITY....... 01/01/12 TO 01/01/17 5.500 TO 6.000 1,683,850
1,000 METROPOLITAN
TRANSPORTATION
AUTHORITY.............. 07/01/11 6.250 1,071,370
1,000 NEW YORK STATE DORMITORY
AUTHORITY REVENUE BONDS
CITY UNIVERSITY OF NEW
YORK................... 07/01/16 5.625 1,081,750
40 NEW YORK STATE DORMITORY
AUTHORITY REVENUE BONDS
FORDHAM UNIVERSITY
(AMBAC INSURED)........ 07/01/15 7.200 43,030
700 NEW YORK STATE DORMITORY
AUTHORITY REVENUE BONDS
STATE UNIVERSITY OF NEW
YORK................... 05/15/16 7.000 745,423
800 NEW YORK STATE ENERGY
RESEARCH & DEVELOPMENT
CENTRAL HUDSON GAS &
ELECTRIC (FGIC
INSURED)............... 10/01/14 7.375 851,304
2,400 NEW YORK STATE ENERGY
RESEARCH & DEVELOPMENT
CONSOLIDATED EDISON
COMPANY................ 08/15/20 6.100 2,611,536
250 NEW YORK STATE ENERGY
RESEARCH & DEVELOPMENT
NIAGARA MOHAWK (FGIC
INSURED)............... 10/01/13 6.625 272,283
1,500 NEW YORK STATE
ENVIRONMENTAL
FACILITIES CORPORATION
SPRING VALLEY WATER
(AMBAC INSURED)........ 08/01/24 6.150 1,653,360
1,500 NEW YORK STATE LOCAL
GOVERNMENT ASSISTANCE
CORPORATION............ 04/01/20 6.500 1,627,860
1,500 NEW YORK STATE MEDICAL
CARE FACILITIES
HOSPITAL AND NURSING
(HUNTINGTON HOSPITAL).. 11/01/14 6.500 1,635,525
2,000 NEW YORK STATE THRUWAY
AUTHORITY HIGHWAY &
BRIDGE TRUST FUND...... 04/01/14 6.000 2,226,100
500 NEW YORK STATE URBAN
DEVELOPMENT
CORPORATION............ 01/01/04 6.400 549,780
1,000 PORT AUTHORITY OF NEW
YORK & NEW JERSEY
KENNEDY INTERNATIONAL
AIRPORT COGENERATION
PROJECT................ 10/01/11 6.750 1,110,170
1,000 ERIE COUNTY WATER
REVENUE AUTHORITY
(AMBAC INSURED)........ 12/01/14 6.750 1,195,800
300 NEW YORK CITY........... 09/01/98 3.750* 300,000
1,730 NEW YORK CITY INDUSTRIAL
DEVELOPMENT BONDS
LIGHTHOUSE PROJECT..... 07/01/22 6.500 1,866,255
545 NEW YORK CITY MUNICIPAL
WATER FINANCE AUTHORITY
WATER & SEWER SYSTEMS
REVENUE SERIES A....... 06/15/12 7.100 596,121
1,500 NEW YORK CITY MUNICIPAL
WATER FINANCE AUTHORITY
WATER & SEWER SYSTEMS
REVENUE (MBIA INSURED). 06/15/27 5.500 1,572,765
2,100 NEW YORK CITY (FGIC
INSURED)............... 02/15/26 5.500 2,200,863
1,025 NIAGARA FALLS (FGIC
INSURED)............... 06/15/08 5.500 1,094,833
</TABLE>
26
<PAGE>
PAINEWEBBER NEW YORK TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- ---------------- --------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES
(CONCLUDED)
$2,700 PUERTO RICO COMMONWEALTH
HIGHWAY &
TRANSPORTATION
AUTHORITY.............. 07/01/13 TO 07/01/36 5.000 TO 6.250% $ 2,864,516
785 PUERTO RICO INDUSTRIAL
MEDICAL & ENVIRONMENTAL
AUTHORITY WARNER
LAMBERT................ 05/01/14 7.600 827,123
-----------
TOTAL INVESTMENTS (COST --
$42,245,317) -- 98.67%........... 45,607,460
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 1.33%.............. 616,663
-----------
NET ASSETS -- 100.00%.............. $46,224,123
===========
- ---------
* VARIABLE RATE DEMAND NOTES 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
AUGUST 31, 1998.
AMBACAMERICAN MUNICIPAL BOND ASSURANCE CORPORATION
FGICFINANCIAL GUARANTY INSURANCE COMPANY
MBIAMUNICIPAL BOND INVESTORS ASSURANCE
FUTURES CONTRACTS
<CAPTION>
NUMBER OF IN EXPIRATION UNREALIZED
CONTRACTS CONTRACTS TO BUY EXCHANGE FOR DATE APPRECIATION
--------- ------------------------ -------------------- ---------------- --------------
<C> <S> <C> <C> <C>
10 30 YEAR U.S. TREASURY
BONDS.................. $1,219,297 DECEMBER 98 $51,953
===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
27
<PAGE>
PAINEWEBBER
STATEMENTS OF ASSETS AND LIABILITIES AUGUST 31, 1998 (UNAUDITED)
<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 --
$156,345,619,
$291,933,118, $98,826,024
AND $42,245,317,
RESPECTIVELY)............ $162,944,466 $309,953,166 $105,078,442 $45,607,460
CASH...................... 98,403 56,181 7,460 43,756
RECEIVABLE FOR INVESTMENTS
SOLD..................... -- -- 3,937,720 --
INTEREST RECEIVABLE....... 2,394,016 4,170,649 1,766,461 622,754
RECEIVABLE FOR SHARES OF
BENEFICIAL INTEREST SOLD. 177,658 1,522,513 71,312 14,877
VARIATION MARGIN
RECEIVABLE............... 2,969 17,813 -- 5,938
OTHER ASSETS.............. 39,671 122,484 117,315 49,174
------------ ------------ ------------ -----------
TOTAL ASSETS.............. 165,657,183 315,842,806 110,978,710 46,343,959
------------ ------------ ------------ -----------
LIABILITIES
PAYABLE FOR INVESTMENTS
PURCHASED................ 15,463,955 7,612,427 6,017,333 --
PAYABLE FOR SHARES OF
BENEFICIAL INTEREST
REPURCHASED.............. 144,592 1,974,274 106,867 33,438
DIVIDENDS PAYABLE......... 90,304 187,397 66,790 26,060
PAYABLE TO AFFILIATES..... 85,911 231,349 96,079 34,459
ACCRUED EXPENSES AND OTHER
LIABILITIES.............. 117,679 289,484 100,141 25,879
------------ ------------ ------------ -----------
TOTAL LIABILITIES......... 15,902,441 10,294,931 6,387,210 119,836
------------ ------------ ------------ -----------
NET ASSETS
BENEFICIAL INTEREST --
$0.001 PAR VALUE
(UNLIMITED AMOUNT
AUTHORIZED).............. 139,690,029 281,311,545 98,511,169 42,641,594
ACCUMULATED NET REALIZED
GAINS (LOSSES) FROM
INVESTMENTS AND FUTURES
TRANSACTIONS............. 3,443,209 6,098,345 (172,087) 168,433
NET UNREALIZED
APPRECIATION OF
INVESTMENTS AND FUTURES.. 6,621,504 18,137,985 6,252,418 3,414,096
------------ ------------ ------------ -----------
NET ASSETS................ $149,754,742 $305,547,875 $104,591,500 $46,224,123
============ ============ ============ ===========
CLASS A:
NET ASSETS................ $116,778,624 $228,990,540 $ 63,258,465 $27,703,113
------------ ------------ ------------ -----------
SHARES OUTSTANDING........ 10,157,366 18,995,597 5,753,731 2,460,173
------------ ------------ ------------ -----------
NET ASSET VALUE AND
REDEMPTION VALUE PER
SHARE.................... $11.50 $12.05 $10.99 $11.26
====== ====== ====== ======
MAXIMUM OFFERING PRICE PER
SHARE (NET ASSET VALUE
PLUS SALES CHARGE OF
4.00% OF OFFERING PRICE). $11.98 $12.55 $11.45 $11.73
====== ====== ====== ======
CLASS B:
NET ASSETS................ $ 14,498,615 $ 27,580,452 $ 18,449,236 $ 6,729,973
------------ ------------ ------------ -----------
SHARES OUTSTANDING........ 1,260,241 2,288,662 1,678,804 597,859
------------ ------------ ------------ -----------
NET ASSET VALUE AND
OFFERING PRICE PER SHARE. $11.50 $12.05 $10.99 $11.26
====== ====== ====== ======
CLASS C:
NET ASSETS................ $ 18,248,308 $ 48,684,530 $ 22,521,239 $11,774,409
------------ ------------ ------------ -----------
SHARES OUTSTANDING........ 1,588,323 4,038,864 2,048,989 1,045,426
------------ ------------ ------------ -----------
NET ASSET VALUE AND
OFFERING PRICE PER SHARE. $11.49 $12.05 $10.99 $11.26
====== ====== ====== ======
CLASS Y:
NET ASSETS................ $ 229,195 $ 292,353 $ 362,560 $ 16,628
------------ ------------ ------------ -----------
SHARES OUTSTANDING........ 19,939 24,247 32,970 1,477
------------ ------------ ------------ -----------
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
VALUE PER SHARE.......... $11.50 $12.06 $11.00 $11.26
====== ====== ====== ======
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
28
<PAGE>
PAINEWEBBER
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED AUGUST 31, 1998
(UNAUDITED)
--------------------------------------------------
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.................... $4,106,251 $8,737,661 $3,178,875 $1,246,443
---------- ---------- ---------- ----------
EXPENSES:
INVESTMENT ADVISORY AND
ADMINISTRATION FEES ....... 378,353 769,186 311,747 134,992
SERVICE FEES -- CLASS A..... 148,616 286,272 78,574 31,722
SERVICE AND DISTRIBUTION
FEES -- CLASS B............ 75,797 147,557 90,923 35,815
SERVICE AND DISTRIBUTION
FEES -- CLASS C............ 64,209 183,296 84,890 46,674
CUSTODY AND ACCOUNTING...... 38,734 76,919 25,979 10,326
LEGAL AND AUDIT............. 33,052 45,490 35,620 29,419
STATE REGISTRATION.......... 28,125 31,467 25,712 10,537
TRANSFER AGENCY AND SERVICE
FEES....................... 25,799 92,414 27,128 10,567
REPORTS AND NOTICES TO
SHAREHOLDERS .............. 23,803 63,845 22,008 9,531
TRUSTEES' FEES.............. 5,250 5,250 5,250 5,250
OTHER EXPENSES.............. 11,026 10,629 3,135 432
---------- ---------- ---------- ----------
832,764 1,712,325 710,966 325,265
LESS: FEE WAIVERS FROM
ADVISER.................... (50,302) -- -- (37,839)
---------- ---------- ---------- ----------
NET EXPENSES................ 782,462 1,712,325 710,966 287,426
---------- ---------- ---------- ----------
NET INVESTMENT INCOME....... 3,323,789 7,025,336 2,467,909 959,017
---------- ---------- ---------- ----------
REALIZED AND UNREALIZED
GAINS (LOSSES) FROM
INVESTMENT ACTIVITIES:
NET REALIZED GAINS (LOSSES)
FROM:
INVESTMENT TRANSACTIONS.... 1,647,876 5,526,837 465,356 220,158
FUTURES CONTRACTS.......... 3,191 (127,556) -- 18,778
NET CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION
OF:
INVESTMENTS................ (244,076) (3,474,367) (159,707) 271,782
FUTURES.................... 9,063 117,937 -- 51,953
---------- ---------- ---------- ----------
NET REALIZED AND UNREALIZED
GAINS FROM INVESTMENT
ACTIVITIES................. 1,416,054 2,042,851 305,649 562,671
---------- ---------- ---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS.. $4,739,843 $9,068,187 $2,773,558 $1,521,688
========== ========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
29
<PAGE>
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR
AUGUST 31, 1998 ENDED
(UNAUDITED) FEBRUARY 28, 1998
--------------- -----------------
<S> <C> <C>
FROM OPERATIONS:
NET INVESTMENT INCOME........................ $ 3,323,789 $ 6,856,811
NET REALIZED GAINS FROM INVESTMENTS AND
FUTURES TRANSACTIONS........................ 1,651,067 5,302,721
NET CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION OF INVESTMENTS AND
FUTURES..................................... (235,013) 1,174,070
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.................................. 4,739,843 13,333,602
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
NET INVESTMENT INCOME -- CLASS A............. (2,691,993) (5,468,084)
NET INVESTMENT INCOME -- CLASS B............. (284,240) (702,870)
NET INVESTMENT INCOME -- CLASS C............. (343,539) (685,475)
NET INVESTMENT INCOME -- CLASS Y............. (4,017) (382)
------------ ------------
TOTAL DIVIDENDS TO SHAREHOLDERS.............. (3,323,789) (6,856,811)
------------ ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
NET PROCEEDS FROM THE SALE OF SHARES......... 6,943,212 13,562,128
COST OF SHARES REPURCHASED................... (14,470,160) (34,717,050)
PROCEEDS FROM DIVIDENDS REINVESTED........... 1,643,542 3,292,864
------------ ------------
NET DECREASE IN NET ASSETS DERIVED FROM
BENEFICIAL INTEREST TRANSACTIONS............ (5,883,406) (17,862,058)
------------ ------------
NET DECREASE IN NET ASSETS................... (4,467,352) (11,385,267)
NET ASSETS:
BEGINNING OF PERIOD.......................... 154,222,094 165,607,361
------------ ------------
END OF PERIOD................................ $149,754,742 $154,222,094
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
30
<PAGE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR
AUGUST 31, 1998 ENDED
(UNAUDITED) FEBRUARY 28, 1998
--------------- -----------------
<S> <C> <C>
FROM OPERATIONS:
NET INVESTMENT INCOME........................ $ 7,025,336 $ 15,042,406
NET REALIZED GAINS FROM INVESTMENTS AND
FUTURES TRANSACTIONS ....................... 5,399,281 8,074,251
NET CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION OF INVESTMENTS AND
FUTURES..................................... (3,356,430) 5,686,557
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.................................. 9,068,187 28,803,214
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM:
NET INVESTMENT INCOME--CLASS A............... (5,411,998) (11,333,618)
NET INVESTMENT INCOME--CLASS B............... (580,308) (1,448,904)
NET INVESTMENT INCOME--CLASS C............... (1,026,377) (2,247,870)
NET INVESTMENT INCOME--CLASS Y............... (6,653) (12,014)
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................................ (7,025,336) (17,244,007)
------------ ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
NET PROCEEDS FROM THE SALE OF SHARES......... 13,723,484 18,067,615
COST OF SHARES REPURCHASED................... (26,640,332) (93,133,232)
PROCEEDS FROM DIVIDENDS REINVESTED........... 4,678,595 10,977,802
------------ ------------
NET DECREASE IN NET ASSETS FROM BENEFICIAL
INTEREST TRANSACTIONS....................... (8,238,253) (64,087,815)
------------ ------------
NET DECREASE IN NET ASSETS................... (6,195,402) (52,528,608)
NET ASSETS:
BEGINNING OF PERIOD.......................... 311,743,277 364,271,885
------------ ------------
END OF PERIOD................................ $305,547,875 $311,743,277
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
31
<PAGE>
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR
AUGUST 31, 1998 ENDED
(UNAUDITED) FEBRUARY 28, 1998
--------------- -----------------
<S> <C> <C>
FROM OPERATIONS:
NET INVESTMENT INCOME........................ $ 2,467,909 $ 4,495,846
NET REALIZED GAIN FROM INVESTMENT
TRANSACTIONS................................ 465,356 1,064,838
NET CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION OF INVESTMENTS.... (159,707) 3,836,633
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.................................. 2,773,558 9,397,317
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
NET INVESTMENT INCOME--CLASS A............... (1,570,449) (2,812,137)
NET INVESTMENT INCOME--CLASS B............... (382,794) (806,054)
NET INVESTMENT INCOME--CLASS C............... (508,525) (877,465)
NET INVESTMENT INCOME--CLASS Y............... (6,141) (190)
------------ ------------
TOTAL DIVIDENDS TO SHAREHOLDERS.............. (2,467,909) (4,495,846)
------------ ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
NET PROCEEDS FROM THE SALE OF SHARES......... 15,808,013 36,280,293
COST OF SHARES REPURCHASED................... (12,442,717) (33,150,701)
PROCEEDS FROM DIVIDENDS REINVESTED........... 1,496,928 2,406,603
------------ ------------
NET INCREASE IN NET ASSETS FROM BENEFICIAL
INTEREST TRANSACTIONS....................... 4,862,224 5,536,195
------------ ------------
NET INCREASE IN NET ASSETS................... 5,167,873 10,437,666
NET ASSETS:
BEGINNING OF PERIOD.......................... 99,423,627 88,985,961
------------ ------------
END OF PERIOD................................ $104,591,500 $ 99,423,627
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
32
<PAGE>
PAINEWEBBER NEW YORK TAX-FREE INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR
AUGUST 31, 1998 ENDED
(UNAUDITED) FEBRUARY 28, 1998
--------------- -----------------
<S> <C> <C>
FROM OPERATIONS:
NET INVESTMENT INCOME........................ $ 959,017 $ 1,962,694
NET REALIZED GAINS FROM INVESTMENTS AND
FUTURES TRANSACTIONS........................ 238,936 840,405
NET CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION OF INVESTMENTS AND
FUTURES..................................... 323,735 1,013,915
----------- ------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.................................. 1,521,688 3,817,014
----------- ------------
DIVIDENDS TO SHAREHOLDERS FROM:
NET INVESTMENT INCOME -- CLASS A............. (573,310) (1,065,025)
NET INVESTMENT INCOME -- CLASS B............. (134,749) (340,912)
NET INVESTMENT INCOME -- CLASS C............. (250,743) (556,757)
NET INVESTMENT INCOME -- CLASS Y............. (215) --
----------- ------------
TOTAL DIVIDENDS TO SHAREHOLDERS.............. (959,017) (1,962,694)
----------- ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
NET PROCEEDS FROM THE SALE OF SHARES......... 4,822,513 6,314,160
COST OF SHARES REPURCHASED................... (4,335,790) (11,342,623)
PROCEEDS FROM DIVIDENDS REINVESTED........... 685,324 1,255,238
----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
BENEFICIAL INTEREST TRANSACTIONS............ 1,172,047 (3,773,225)
----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS........ 1,734,718 (1,918,905)
NET ASSETS:
BEGINNING OF PERIOD.......................... 44,489,405 46,408,310
----------- ------------
END OF PERIOD................................ $46,224,123 $44,489,405
=========== ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
33
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Mutual Fund Trust ("Mutual Fund Trust") and PaineWebber Municipal
Series ("Municipal Series") (collectively, the "Trusts") were organized under
Massachusetts law by Declarations of Trust dated November 21, 1986 and January
28, 1987, respectively, and are registered with the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended, as an open-end
diversified management investment company and an open-end non-diversified
management investment company, respectively. Mutual Fund Trust has two series:
PaineWebber California Tax-Free Income Fund ("California Tax-Free Income Fund")
and PaineWebber National Tax-Free Income Fund ("National Tax-Free Income
Fund"). Municipal Series has two series: PaineWebber Municipal High Income Fund
("Municipal High Income Fund") and PaineWebber New York Tax-Free Income Fund
("New York Tax-Free Income Fund") (collectively, the "Funds").
Currently, each Fund offers Class A, Class B, Class C and Class Y shares. Each
class represents interests in the same assets of the applicable Fund and the
classes are identical except for differences in their sales charge structures,
ongoing service and distribution charges and certain transfer agency expenses.
In addition, Class B shares and all corresponding dividend reinvested shares
automatically convert to Class A shares approximately six years after initial
issuance. All classes of shares have equal voting privileges, except that each
class has exclusive voting rights with respect to its service and/or distribu-
tion plan.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates. The following is
a summary of significant accounting policies:
Valuation of Investments--Where market quotations are readily available, 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
34
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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
differences 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 primarily in municipal obligations of
their respective states. This concentration of investments may subject these
Funds to greater risks. 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 obli-
gations 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 six months ended August 31, 1998, the Funds did not borrow under the
Facility.
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 August 31, 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 $37,792, $128,994,
35
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
$52,976 and $15,477, respectively, in investment advisory and administration
fees. For the six months ended August 31, 1998 Mitchell Hutchins voluntarily
waived $50,302 and $37,839 in investment advisory and administration fees from
the California Tax-Free Income Fund and New York Tax-Free Income Fund, respec-
tively.
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 August 31, 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 $48,119, $102,355, $43,103
and $18,982, respectively, in service and distribution fees.
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 six
months ended August 31, 1998, it earned $61,334, $124,817, $181,536 and $62,104
in sales charges for the California Tax-Free Income Fund, National Tax-Free In-
come Fund, Municipal High Income Fund and New York Tax-Free Income Fund, re-
spectively.
TRANSFER AGENCY SERVICE FEES
PaineWebber provides transfer agency related services to each Fund pursuant to
a delegation of authority from PFPC Inc., each Funds' transfer agent, and is
compensated for these services by PFPC Inc., not the Funds. For the six months
ended August 31, 1998, PaineWebber received from PFPC Inc., not the Funds, ap-
proximately 47%, 54%, 50% and 56% of the total transfer agency and related
service fees collected by PFPC Inc. from the California Tax-Free Income Fund,
National Tax-Free Income Fund, Municipal High Income Fund and New York Tax-Free
Income Fund, respectively.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at August 31,
1998, was substantially the same as the cost of securities for financial state-
ment purposes.
At August 31, 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).......... $6,626,628 $18,519,851 $6,264,482 $3,374,659
GROSS DEPRECIATION
(INVESTMENTS HAVING AN EXCESS
OF COST OVER VALUE).......... (27,781) (499,803) (12,064) (12,516)
---------- ----------- ---------- ----------
NET UNREALIZED APPRECIATION OF
INVESTMENTS.................. $6,598,847 $18,020,048 $6,252,418 $3,362,143
========== =========== ========== ==========
</TABLE>
36
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
For the six months ended August 31, 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....................... $59,828,434 $68,348,038 $15,358,207 $11,585,186
SALES........................... $50,120,889 $90,549,541 $13,158,481 $ 9,952,970
</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
applicable to regulated investment companies. Accordingly, no provisions for
federal income taxes are required. In addition, by distributing during each
calendar year substantially all of its net investment income, capital gains and
certain other amounts, if any, each Fund intends not to be subject to a federal
excise tax.
At February 28, 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.
37
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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
SIX MONTHS ENDED
AUGUST 31,
1998:
SHARES SOLD..... 204,023 $ 2,335,544 156,422 $ 1,777,398 239,823 $ 2,720,730 9,674 $109,540
SHARES
REPURCHASED.... (974,433) (11,045,967) (176,058) (2,016,678) (123,997) (1,406,039) (130) (1,476)
SHARES CONVERTED
FROM CLASS B TO
CLASS A........ 204,803 2,300,637 (204,623) (2,300,637) -- -- -- --
DIVIDENDS
REINVESTED..... 112,628 1,277,451 11,512 130,691 20,389 231,201 370 4,199
---------- ------------ -------- ----------- ---------- ------------ ------ --------
NET INCREASE
(DECREASE)..... (452,979) $ (5,132,335) (212,747) $(2,409,226) 136,215 $ 1,545,892 9,914 $112,263
========== ============ ======== =========== ========== ============ ====== ========
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
========== ============ ======== =========== ========== ============ ====== ========
<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> <C> <C> <C> <C>
NATIONAL TAX-
FREE INCOME
FUND
SIX MONTHS ENDED
AUGUST 31,
1998:
SHARES SOLD..... 455,023 $ 5,434,813 262,127 $ 3,126,210 429,396 $ 5,118,295 3,702 $ 44,166
SHARES
REPURCHASED.... (1,349,025) (16,097,633) (281,400) (3,352,291) (603,263) (7,188,875) (129) (1,533)
SHARES CONVERTED
FROM CLASS B TO
CLASS A........ 457,778 5,454,281 (457,825) (5,454,281) -- -- -- --
DIVIDENDS
REINVESTED..... 301,901 3,600,387 24,102 287,322 65,745 784,052 573 6,834
---------- ------------ -------- ----------- ---------- ------------ ------ --------
NET INCREASE
(DECREASE)..... (134,323) $ (1,608,152) (452,996) $(5,393,040) (108,122) $ (1,286,528) 4,146 $ 49,467
========== ============ ======== =========== ========== ============ ====== ========
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)
========== ============ ======== =========== ========== ============ ====== ========
<CAPTION>
<S> <C> <C> <C> <C>
CALIFORNIA TAX-
FREE INCOME
FUND
SIX MONTHS ENDED
AUGUST 31,
1998:
SHARES SOLD.....
SHARES
REPURCHASED....
SHARES CONVERTED
FROM CLASS B TO
CLASS A........
DIVIDENDS
REINVESTED.....
NET INCREASE
(DECREASE).....
YEAR ENDED
FEBRUARY 28,
1998:
SHARES SOLD.....
SHARES
REPURCHASED....
SHARES CONVERTED
FROM CLASS B TO
CLASS A........
DIVIDENDS
REINVESTED.....
NET INCREASE
(DECREASE).....
<CAPTION>
<S> <C> <C> <C> <C>
NATIONAL TAX-
FREE INCOME
FUND
SIX MONTHS ENDED
AUGUST 31,
1998:
SHARES SOLD.....
SHARES
REPURCHASED....
SHARES CONVERTED
FROM CLASS B TO
CLASS A........
DIVIDENDS
REINVESTED.....
NET INCREASE
(DECREASE).....
YEAR ENDED
FEBRUARY 28,
1998:
SHARES SOLD.....
SHARES
REPURCHASED....
SHARES CONVERTED
FROM CLASS B TO
CLASS A........
DIVIDENDS
REINVESTED.....
NET DECREASE....
</TABLE>
38
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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
SIX MONTHS ENDED
AUGUST 31, 1998:
SHARES SOLD.......... 628,020 $ 6,879,755 495,978 $ 5,425,482 290,455 $ 3,181,156 29,391 $321,620
SHARES REPURCHASED... (588,038) (6,441,127) (266,353) (2,914,135) (279,694) (3,064,246) (2,121) (23,209)
SHARES CONVERTED FROM
CLASS B TO CLASS A.. 219,767 2,404,529 (219,860) (2,404,529) -- -- -- --
DIVIDENDS REINVESTED. 85,959 940,751 17,625 192,798 32,668 357,326 552 6,053
---------- ------------ -------- ----------- -------- ----------- ------ --------
NET INCREASE......... 345,708 $ 3,783,908 27,390 $ 299,616 43,429 $ 474,236 27,822 $304,464
========== ============ ======== =========== ======== =========== ====== ========
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
========== ============ ======== =========== ======== =========== ====== ========
NEW YORK TAX-FREE
INCOME FUND
SIX MONTHS ENDED
AUGUST 31, 1998:
SHARES SOLD.......... 311,400 $ 3,462,228 75,278 $ 835,989 45,544 $ 506,857 1,572 $ 17,439
SHARES REPURCHASED... (139,750) (1,548,608) (66,911) (742,284) (183,982) (2,043,635) (113) (1,263)
SHARES CONVERTED FROM
CLASS B TO CLASS A.. 120,574 1,338,298 (120,574) (1,338,298) -- -- -- --
DIVIDENDS REINVESTED. 37,506 416,508 5,907 65,545 18,294 203,067 18 204
---------- ------------ -------- ----------- -------- ----------- ------ --------
NET INCREASE
(DECREASE).......... 329,730 $ 3,668,426 (106,200) $(1,179,048) (120,144) $(1,333,711) 1,477 $ 16,380
========== ============ ======== =========== ======== =========== ====== ========
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)
========== ============ ======== =========== ======== ===========
</TABLE>
39
<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 FOR THE
SIX MONTHS YEARS FOR THE YEARS
ENDED ENDED YEAR ENDED
AUGUST 31, FEBRUARY 28, ENDED FEBRUARY 28,
1998 ------------------ FEBRUARY 29, -------------------
(UNAUDITED) 1998 1997 1996 1995 1994
----------- -------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $11.39 $10.91 $11.02 $10.68 $11.41 $11.80
------ ------ ------ ------ ------ ------
NET INVESTMENT INCOME... 0.26 0.51 0.52 0.57 0.58 0.60
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) FROM
INVESTMENTS AND
FUTURES................ 0.11 0.48 (0.11) 0.34 (0.63) (0.08)
------ ------ ------ ------ ------ ------
NET INCREASE (DECREASE)
FROM INVESTMENT
OPERATIONS............. 0.37 0.99 0.41 0.91 (0.05) 0.52
------ ------ ------ ------ ------ ------
DIVIDENDS FROM NET
INVESTMENT INCOME...... (0.26) (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........... (0.26) (0.51) (0.52) (0.57) (0.68) (0.91)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD................. $11.50 $11.39 $10.91 $11.02 $10.68 $11.41
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT
RETURN(1).............. 3.54% 9.26% 3.92% 8.68% (0.18)% 4.46%
====== ====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL
DATA:
NET ASSETS, END OF
PERIOD (000'S)......... $116,779 $120,804 $127,040 $151,684 $178,234 $227,179
EXPENSES TO AVERAGE NET
ASSETS, NET OF WAIVERS
FROM ADVISER........... 0.90%* 0.98% 0.97% 0.94% 0.88% 0.90%
EXPENSES TO AVERAGE NET
ASSETS, BEFORE WAIVERS
FROM ADVISER........... 0.97%* 0.98% 0.97% 0.94% 0.88% 0.90%
NET INVESTMENT INCOME TO
AVERAGE NET ASSETS, NET
OF WAIVERS FROM
ADVISER................ 4.53%* 4.56% 4.85% 5.21% 5.55% 5.10%
NET INVESTMENT INCOME TO
AVERAGE NET ASSETS,
BEFORE WAIVERS FROM
ADVISER................ 4.46%* 4.56% 4.85% 5.21% 5.55% 5.10%
PORTFOLIO TURNOVER RATE. 33% 107% 73% 32% 11% 37%
</TABLE>
- ---------
* ANNUALIZED
(1) TOTAL INVESTMENT RETURN IS CALCULATED ASSUMING A $1,000 INVESTMENT ON THE
FIRST DAY OF EACH PERIOD REPORTED, REINVESTMENT OF ALL DIVIDENDS AND
DISTRIBUTIONS AT NET ASSET VALUE ON THE PAYABLE DATES AND A SALE AT NET
ASSET VALUE ON THE LAST DAY OF EACH PERIOD REPORTED. THE FIGURES DO NOT
INCLUDE SALES CHARGES; RESULTS WOULD BE LOWER IF SALES CHARGES WERE
INCLUDED. TOTAL INVESTMENT RETURN FOR PERIODS OF LESS THAN ONE YEAR HAS NOT
BEEN ANNUALIZED.
40
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C
- ------------------------------------------------------------- ------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE
SIX MONTHS YEARS FOR THE YEARS SIX MONTHS YEARS FOR THE YEARS
ENDED ENDED YEAR ENDED ENDED ENDED YEAR ENDED
AUGUST 31, FEBRUARY 28, ENDED FEBRUARY 28, AUGUST 31, FEBRUARY 28, ENDED FEBRUARY 28,
1998 ---------------- FEBRUARY 29, ----------------- 1998 ---------------- FEBRUARY 29, -----------------
(UNAUDITED) 1998 1997 1996 1995 1994 (UNAUDITED) 1998 1997 1996 1995 1994
- ----------- ------- ------- ------------ ------- ------- ----------- ------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$11.39 $10.92 $11.03 $10.69 $11.41 $11.81 $11.38 $10.90 $11.02 $10.67 $11.40 $11.79
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.22 0.42 0.44 0.48 0.50 0.51 0.23 0.45 0.47 0.51 0.53 0.54
0.11 0.47 (0.11) 0.34 (0.62) (0.09) 0.11 0.48 (0.12) 0.35 (0.63) (0.08)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.33 0.89 0.33 0.82 (0.12) 0.42 0.34 0.93 0.35 0.86 (0.10) 0.46
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(0.22) (0.42) (0.44) (0.48) (0.50) (0.51) (0.23) (0.45) (0.47) (0.51) (0.53) (0.54)
-- -- -- -- (0.10) (0.31) -- -- -- -- (0.10) (0.31)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(0.22) (0.42) (0.44) (0.48) (0.60) (0.82) (0.23) (0.45) (0.47) (0.51) (0.63) (0.85)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$11.50 $11.39 $10.92 $11.03 $10.69 $11.41 $11.49 $11.38 $10.90 $11.02 $10.67 $11.40
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
3.11% 8.33% 3.14% 7.86% (0.85)% 3.56% 3.25% 8.71% 3.30% 8.22% (0.70)% 3.91%
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
$14,499 $16,783 $20,943 $27,175 $33,007 $41,979 $18,248 $16,522 $17,624 $22,155 $28,217 $53,874
1.66%* 1.75% 1.74% 1.70% 1.64% 1.65% 1.40%* 1.50% 1.49% 1.46% 1.40% 1.39%
1.72%* 1.75% 1.74% 1.70% 1.64% 1.65% 1.47%* 1.50% 1.49% 1.46% 1.40% 1.39%
3.75%* 3.79% 4.08% 4.45% 4.78% 4.32% 4.01%* 4.05% 4.34% 4.69% 5.05% 4.55%
3.69%* 3.79% 4.08% 4.45% 4.78% 4.32% 3.94%* 4.05% 4.34% 4.69% 5.05% 4.55%
33% 107% 73% 32% 11% 37% 33% 107% 73% 32% 11% 37%
</TABLE>
41
<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 Y
------------------------
FOR THE
FOR THE PERIOD
SIX MONTHS FEBRUARY 5,
ENDED 1998+
AUGUST 31, THROUGH
1998 FEBRUARY 28,
(UNAUDITED) 1998
----------- ------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...... $11.38 $11.42
------ ------
NET INVESTMENT INCOME..................... 0.27 0.04
NET REALIZED AND UNREALIZED GAINS (LOSSES)
FROM INVESTMENTS AND FUTURES ............ 0.12 (0.04)
------ ------
NET INCREASE FROM INVESTMENT OPERATIONS... 0.39 0.00
------ ------
DIVIDENDS FROM NET INVESTMENT INCOME...... (0.27) (0.04)
------ ------
NET ASSET VALUE, END OF PERIOD............ $11.50 $11.38
====== ======
TOTAL INVESTMENT RETURN(1)................ 3.78% (0.34)%
====== ======
RATIOS/SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (000'S)......... $ 229 $ 114
EXPENSES TO AVERAGE NET ASSETS, NET OF
WAIVERS FROM ADVISER..................... 0.63%* 0.76%*
EXPENSES TO AVERAGE NET ASSETS, BEFORE
WAIVERS FROM ADVISER..................... 0.71%* 0.76%*
NET INVESTMENT INCOME TO AVERAGE NET
ASSETS, NET OF WAIVERS FROM ADVISER...... 4.79%* 5.07%*
NET INVESTMENT INCOME TO AVERAGE NET
ASSETS, BEFORE WAIVERS FROM ADVISER...... 4.71%* 5.07%*
PORTFOLIO TURNOVER RATE................... 33% 107%
</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. TOTAL INVESTMENT
RETURN FOR PERIODS OF LESS THAN ONE YEAR HAS NOT BEEN ANNUALIZED.
42
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
43
<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 FOR THE
SIX MONTHS YEARS FOR THE YEARS
ENDED ENDED YEAR ENDED
AUGUST 31, FEBRUARY 28, ENDED FEBRUARY 28,
1998 ------------------ FEBRUARY 29, -------------------
(UNAUDITED) 1998 1997 1996 1995 1994
----------- -------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $11.97 $11.55 $11.64 $11.26 $12.00 $12.09
------ ------ ------ ------ ------ ------
NET INVESTMENT INCOME... 0.28 0.56 0.55 0.58 0.63 0.64
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) FROM
INVESTMENTS AND FUTURES
....................... 0.08 0.50 (0.09) 0.39 (0.73) 0.03
------ ------ ------ ------ ------ ------
NET INCREASE (DECREASE)
FROM INVESTMENT
OPERATIONS............. 0.36 1.06 0.46 0.97 (0.10) 0.67
------ ------ ------ ------ ------ ------
DIVIDENDS FROM NET
INVESTMENT INCOME...... (0.28) (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........... (0.28) (0.64) (0.55) (0.59) (0.64) (0.76)
------ -------- ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD................. $12.05 $11.97 $11.55 $11.64 $11.26 $12.00
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT
RETURN(1).............. 3.18% 9.48% 4.14% 8.75% (0.63)% 5.65%
====== ====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL
DATA:
NET ASSETS, END OF
PERIOD (000'S)......... $228,991 $229,040 $263,425 $315,899 $346,579 $432,825
EXPENSES TO AVERAGE NET
ASSETS................. 0.96%* 0.95% 0.91% 0.93%(/2/) 0.88% 0.89%
NET INVESTMENT INCOME TO
AVERAGE NET ASSETS..... 4.73%* 4.77% 4.85% 5.06%(/2/) 5.62% 5.28%
PORTFOLIO TURNOVER RATE. 22% 79% 81% 74% 60% 16%
</TABLE>
- ---------
* ANNUALIZED
(1) TOTAL INVESTMENT RETURN IS CALCULATED ASSUMING A $1,000 INVESTMENT ON THE
FIRST DAY OF EACH PERIOD REPORTED, REINVESTMENT OF ALL DIVIDENDS AND
DISTRIBUTIONS AT NET ASSET VALUE ON THE PAYABLE DATES AND A SALE AT NET
ASSET VALUE ON THE LAST DAY OF EACH PERIOD REPORTED. THE FIGURES DO NOT
INCLUDE SALES CHARGES; RESULTS WOULD BE LOWER IF SALES CHARGES WERE
INCLUDED. TOTAL INVESTMENT RETURN FOR PERIODS OF LESS THAN ONE YEAR HAS NOT
BEEN ANNUALIZED.
(2) THESE RATIOS INCLUDE NON-RECURRING ACQUISITION EXPENSES OF 0.03%.
44
<PAGE>
<TABLE>
<CAPTION>
CLASS B
- -----------------------------------------------------------------
FOR THE FOR THE FOR THE
SIX MONTHS YEARS FOR THE YEARS
ENDED ENDED YEAR ENDED
AUGUST 31, FEBRUARY 28, ENDED FEBRUARY 28,
1998 ---------------- FEBRUARY 29, -----------------
(UNAUDITED) 1998 1997 1996 1995 1994
- ----------- ------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
$11.97 $11.55 $11.64 $11.26 $11.99 $12.08
------ ------ ------ ------ ------ ------
0.24 0.47 0.46 0.49 0.54 0.55
0.08 0.50 (0.09) 0.39 (0.72) 0.03
------ ------ ------ ------ ------ ------
0.32 0.97 0.37 0.88 (0.18) 0.58
------ ------ ------ ------ ------ ------
(0.24) (0.47) (0.46) (0.50) (0.54) (0.55)
-- (0.08) -- -- (0.01) (0.12)
------ ------ ------ ------ ------ ------
(0.24) (0.55) (0.46) (0.50) (0.55) (0.67)
------ ------ ------ ------ ------ ------
$12.05 $11.97 $11.55 $11.64 $11.26 $11.99
====== ====== ====== ====== ====== ======
2.76% 8.62% 3.35% 7.94% (1.29)% 4.87%
====== ====== ====== ====== ====== ======
$27,580 $32,815 $40,949 $51,546 $58,958 $70,988
1.73%* 1.73% 1.67% 1.68%(/2/) 1.64% 1.63%
3.93%* 3.98% 4.09% 4.31%(/2/) 4.86% 4.50%
22% 79% 81% 74% 60% 16%
<CAPTION>
CLASS B CLASS C
- --------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
SIX MONTHS SIX MONTHS YEARS FOR THE YEARS
ENDED ENDED ENDED YEAR ENDED
AUGUST 31, AUGUST 31, FEBRUARY 28, ENDED FEBRUARY 28,
1998 1998 ----------------- FEBRUARY 29, --------------------
(UNAUDITED) (UNAUDITED) 1998 1997 1996 1995 1994
- ------------ ----------- -------- -------- ---------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
$11.97 $11.97 $11.55 $11.64 $11.26 $12.00 $12.09
------ ------ ------ ------ ------ ------ ------
0.24 0.25 0.50 0.49 0.52 0.57 0.58
0.08 0.08 0.50 (0.09) 0.39 (0.73) 0.03
------ ------ ------ ------ ------ ------ ------
0.32 0.33 1.00 0.40 0.91 (0.16) 0.61
------ ------ ------ ------ ------ ------ ------
(0.24) (0.25) (0.50) (0.49) (0.53) (0.57) (0.58)
-- -- (0.08) -- -- (0.01) (0.12)
------ ------ ------ ------ ------ ------ ------
(0.24) (0.25) (0.58) (0.49) (0.53) (0.58) (0.70)
------ ------ ------ ------ ------ ------ ------
$12.05 $12.05 $11.97 $11.55 $11.64 $11.26 $12.00
====== ====== ====== ====== ====== ====== ======
2.76% 2.90% 8.92% 3.61% 8.19% (1.13)% 5.13%
====== ====== ====== ====== ====== ====== ======
$27,580 $48,685 $49,647 $59,652 $75,076 $101,642 $187,778
1.73%* 1.48%* 1.47% 1.42% 1.45%(/2/) 1.40% 1.37%
3.93%* 4.20%* 4.26% 4.34% 4.57%(/2/) 5.13% 4.75%
22% 22% 79% 81% 74% 60% 16%
</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 Y
----------------------------------------
FOR THE
FOR THE FOR THE PERIOD
SIX MONTHS YEARS NOVEMBER 3,
ENDED ENDED 1995+
AUGUST 31, FEBRUARY 28, THROUGH
1998 -------------- FEBRUARY 29,
(UNAUDITED) 1998 1997 1996
----------- ------ ------ ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $11.98 $11.55 $11.65 $11.62
------ ------ ------ ------
NET INVESTMENT INCOME............. 0.30 0.59 0.58 0.19
NET REALIZED AND UNREALIZED GAINS
(LOSSES) FROM INVESTMENTS AND
FUTURES.......................... 0.08 0.51 (0.10) 0.01
------ ------ ------ ------
NET INCREASE FROM INVESTMENT
OPERATIONS....................... 0.38 1.10 0.48 0.20
------ ------ ------ ------
DIVIDENDS FROM NET INVESTMENT
INCOME........................... (0.30) (0.59) (0.58) (0.17)
DISTRIBUTIONS FROM NET REALIZED
GAINS FROM INVESTMENT
TRANSACTIONS..................... -- (0.08) -- --
------ ------ ------ ------
TOTAL DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS.................. (0.30) (0.67) (0.58) (0.17)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD.... $12.06 $11.98 $11.55 $11.65
====== ====== ====== ======
TOTAL INVESTMENT RETURN(1)........ 3.33% 9.87% 4.32% 1.70%
====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (000'S). $292 $241 $246 $341
EXPENSES TO AVERAGE NET ASSETS.... 0.68%* 0.68% 0.65% 0.64%(/2/)*
NET INVESTMENT INCOME TO AVERAGE
NET ASSETS....................... 5.00%* 5.04% 5.13% 5.19%(/2/)*
PORTFOLIO TURNOVER RATE........... 22% 79% 81% 74%
</TABLE>
- ---------
+ COMMENCEMENT OF ISSUANCE OF SHARES
* ANNUALIZED
(1) TOTAL INVESTMENT RETURN IS CALCULATED ASSUMING A $1,000 INVESTMENT ON THE
FIRST DAY OF EACH PERIOD REPORTED, REINVESTMENT OF ALL DIVIDENDS AND
DISTRIBUTIONS AT NET ASSET VALUE ON THE PAYABLE DATES AND A SALE AT NET
ASSET VALUE ON THE LAST DAY OF EACH PERIOD REPORTED. 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>
[THIS PAGE INTENTIONALLY LEFT BLANK]
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 FOR THE
SIX MONTHS YEARS FOR THE YEARS
ENDED ENDED YEAR ENDED
AUGUST 31, FEBRUARY 28, ENDED FEBRUARY 28,
1998 ---------------- FEBRUARY 29, -----------------
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $10.96 $10.39 $10.29 $ 9.92 $10.77 $10.96
------ ------ ------ ------ ------ ------
NET INVESTMENT INCOME... 0.28 0.55 0.56 0.62 0.59 0.61
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) FROM
INVESTMENTS AND
FUTURES................ 0.03 0.57 0.10 0.37 (0.82) 0.01
------ ------ ------ ------ ------ ------
NET INCREASE (DECREASE)
FROM INVESTMENT
OPERATIONS............. 0.31 1.12 0.66 0.99 (0.23) 0.62
------ ------ ------ ------ ------ ------
DIVIDENDS FROM NET
INVESTMENT INCOME...... (0.28) (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........... (0.28) (0.55) (0.56) (0.62) (0.62) (0.81)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD................. $10.99 $10.96 $10.39 $10.29 $ 9.92 $10.77
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT
RETURN(1).............. 3.12% 11.06% 6.61% 10.18% (2.03)% 5.77%
====== ====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL
DATA:
NET ASSETS, END OF
PERIOD (000'S)......... $63,258 $59,288 $52,593 $57,280 $63,287 $82,248
EXPENSES TO AVERAGE NET
ASSETS, NET OF WAIVERS
FROM ADVISER........... 1.13%* 1.22% 1.15% 1.10% 1.13% 1.03%
EXPENSES TO AVERAGE NET
ASSETS, BEFORE WAIVERS
FROM ADVISER........... 1.13%* 1.22% 1.15% 1.10% 1.13% 1.16%
NET INVESTMENT INCOME TO
AVERAGE NET ASSETS, NET
OF WAIVERS FROM
ADVISER................ 5.00%* 5.15% 5.49% 5.94% 5.96% 5.52%
NET INVESTMENT INCOME TO
AVERAGE NET ASSETS,
BEFORE WAIVERS FROM
ADVISER................ 5.00%* 5.15% 5.49% 5.94% 5.96% 5.39%
PORTFOLIO TURNOVER RATE. 13% 22% 64% 48% 28% 23%
</TABLE>
- ---------
* 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 WOULD BE LOWER IF SALES CHARGES WERE INCLUDED. TOTAL
INVESTMENT RETURN FOR PERIODS OF LESS THAN ONE YEAR HAS NOT BEEN
ANNUALIZED.
48
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C
- ------------------------------------------------------------- ------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE
SIX MONTHS YEARS FOR THE YEARS SIX MONTHS YEARS FOR THE YEARS
ENDED ENDED YEAR ENDED ENDED ENDED YEAR ENDED
AUGUST 31, FEBRUARY 28, ENDED FEBRUARY 28, AUGUST 31, FEBRUARY 28, ENDED FEBRUARY 28,
1998 ---------------- FEBRUARY 29, ----------------- 1998 ---------------- FEBRUARY 29, -----------------
(UNAUDITED) 1998 1997 1996 1995 1994 (UNAUDITED) 1998 1997 1996 1995 1994
- ----------- ------- ------- ------------ ------- ------- ----------- ------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$10.96 $10.39 $10.29 $ 9.92 $10.76 $10.96 $10.96 $10.39 $10.29 $ 9.92 $10.77 $10.96
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.23 0.47 0.48 0.54 0.52 0.52 0.25 0.50 0.51 0.56 0.55 0.55
0.03 0.57 0.10 0.37 (0.81) -- 0.03 0.57 0.10 0.37 (0.82) 0.01
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.26 1.04 0.58 0.91 (0.29) 0.52 0.28 1.07 0.61 0.93 (0.27) 0.56
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(0.23) (0.47) (0.48) (0.54) (0.52) (0.52) (0.25) (0.50) (0.51) (0.56) (0.55) (0.55)
-- -- -- -- (0.03) (0.20) -- -- -- -- (0.03) (0.20)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(0.23) (0.47) (0.48) (0.54) (0.55) (0.72) (0.25) (0.50) (0.51) (0.56) (0.58) (0.75)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$10.99 $10.96 $10.39 $10.29 $ 9.92 $10.76 $10.99 $10.96 $10.39 $10.29 $ 9.92 $10.77
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
2.69% 10.23% 5.82% 9.36% (2.67)% 4.88% 2.84% 10.51% 6.08% 9.64% (2.51)% 5.24%
====== ====== ====== ====== ====== ====== ======= ====== ====== ====== ====== ======
$18,449 $18,097 $19,427 $23,868 $25,823 $32,287 $22,521 $21,982 $16,967 $20,700 $23,158 $35,872
1.89%* 1.98% 1.90% 1.85% 1.87% 1.79% 1.63%* 1.72% 1.66% 1.60% 1.63% 1.54%
1.89%* 1.98% 1.90% 1.85% 1.87% 1.90% 1.63%* 1.72% 1.66% 1.60% 1.63% 1.64%
4.21%* 4.39% 4.73% 5.19% 5.21% 4.72% 4.49%* 4.64% 4.98% 5.45% 5.48% 4.95%
4.21%* 4.39% 4.73% 5.19% 5.21% 4.61% 4.49%* 4.64% 4.98% 5.45% 5.48% 4.85%
13% 22% 64% 48% 28% 23% 13% 22% 64% 48% 28% 23%
</TABLE>
49
<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 Y
------------------------
FOR THE
FOR THE PERIOD
SIX MONTHS FEBRUARY 5,
ENDED 1998+
AUGUST 31, THROUGH
1998 FEBRUARY 28,
(UNAUDITED) 1998
----------- ------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................. $10.97 $10.98
------ ------
NET INVESTMENT INCOME................................. 0.29 0.04
NET REALIZED AND UNREALIZED GAINS (LOSSES) FROM
INVESTMENTS AND FUTURES ............................. 0.03 (0.01)
------ ------
NET INCREASE FROM INVESTMENT OPERATIONS............... 0.32 0.03
------ ------
DIVIDENDS FROM NET INVESTMENT INCOME.................. (0.29) (0.04)
------ ------
NET ASSET VALUE, END OF PERIOD........................ $11.00 $10.97
====== ======
TOTAL INVESTMENT RETURN(1)............................ 3.25% (0.09)%
====== ======
RATIOS/SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (000'S)..................... $363 $56
EXPENSES TO AVERAGE NET ASSETS, NET OF WAIVERS FROM
ADVISER.............................................. 0.87%* 1.00%*
EXPENSES TO AVERAGE NET ASSETS, BEFORE WAIVERS FROM
ADVISER.............................................. 0.87%* 1.00%*
NET INVESTMENT INCOME TO AVERAGE NET ASSETS, NET OF
WAIVERS FROM ADVISER................................. 5.25%* 5.44%*
NET INVESTMENT INCOME TO AVERAGE NET ASSETS, BEFORE
WAIVERS FROM ADVISER................................. 5.25%* 5.44%*
PORTFOLIO TURNOVER RATE............................... 13% 22%
</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. TOTAL INVESTMENT RETURN FOR PERIODS
OF LESS THAN ONE YEAR HAS NOT BEEN ANNUALIZED.
50
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
51
<PAGE>
PAINEWEBBER NEW YORK TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------
FOR THE FOR THE FOR THE
SIX MONTHS YEARS FOR THE YEARS
ENDED ENDED YEAR ENDED
AUGUST 31, FEBRUARY 28, ENDED FEBRUARY 28,
1998 ---------------- FEBRUARY 29, -----------------
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $11.12 $10.66 $10.71 $10.27 $11.03 $10.99
------ ------ ------ ------ ------ ------
NET INVESTMENT INCOME... 0.28 0.51 0.51 0.54 0.54 0.57
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) FROM
INVESTMENTS AND
FUTURES................ 0.14 0.46 (0.05) 0.45 (0.66) 0.07
------ ------ ------ ------ ------ ------
NET INCREASE (DECREASE)
FROM INVESTMENT
OPERATIONS............. 0.42 0.97 0.46 0.99 (0.12) 0.64
------ ------ ------ ------ ------ ------
DIVIDENDS FROM NET
INVESTMENT INCOME...... (0.28) (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........... (0.28) (0.51) (0.51) (0.55) (0.64) (0.60)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD................. $11.26 $11.12 $10.66 $10.71 $10.27 $11.03
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT
RETURN(1).............. 3.87% 9.36% 4.49% 9.83% (0.83)% 5.89%
====== ====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL
DATA:
NET ASSETS, END OF
PERIOD (000'S)......... $27,703 $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% 1.02% 1.01% 0.75%
EXPENSES TO AVERAGE NET
ASSETS, BEFORE WAIVERS
AND REIMBURSEMENTS FROM
ADVISER ............... 1.19%* 1.28% 1.50% 1.15% 1.26% 1.25%
NET INVESTMENT INCOME TO
AVERAGE NET ASSETS, NET
OF WAIVERS AND
REIMBURSEMENTS FROM
ADVISER ............... 4.52%* 4.74% 4.91% 5.11% 5.38% 5.13%
NET INVESTMENT INCOME TO
AVERAGE NET ASSETS,
BEFORE WAIVERS AND
REIMBURSEMENTS FROM
ADVISER................ 4.35%* 4.48% 4.42% 4.98% 5.13% 4.63%
PORTFOLIO TURNOVER RATE. 23% 34% 40% 13% 6% 8%
</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 WOULD BE LOWER IF SALES CHARGES WERE
INCLUDED. TOTAL INVESTMENT RETURN FOR PERIODS OF LESS THAN ONE YEAR HAS NOT
BEEN ANNUALIZED.
52
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C
- ----------------------------------------------------------- ------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE
SIX MONTHS YEARS FOR THE YEARS SIX MONTHS YEARS FOR THE YEARS
ENDED ENDED YEAR ENDED ENDED ENDED YEAR ENDED
AUGUST 31, FEBRUARY 28, ENDED FEBRUARY 28, AUGUST 31, FEBRUARY 28, ENDED FEBRUARY 28,
1998 -------------- FEBRUARY 29, ----------------- 1998 ---------------- FEBRUARY 29, -----------------
(UNAUDITED) 1998 1997 1996 1995 1994 (UNAUDITED) 1998 1997 1996 1995 1994
- ----------- ------ ------ ------------ ------- ------- ----------- ------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$11.12 $10.65 $10.71 $10.27 $11.03 $10.98 $11.12 $10.66 $10.71 $10.28 $11.03 $10.99
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.24 0.43 0.44 0.47 0.47 0.49 0.24 0.46 0.46 0.49 0.49 0.51
0.14 0.47 (0.06) 0.44 (0.66) 0.08 0.14 0.46 (0.05) 0.43 (0.65) 0.07
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.38 0.90 0.38 0.91 (0.19) 0.57 0.38 0.92 0.41 0.92 (0.16) 0.58
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(0.24) (0.43) (0.44) (0.47) (0.47) (0.49) (0.24) (0.46) (0.46) (0.49) (0.49) (0.51)
-- -- -- -- (0.10) (0.03) -- -- -- -- (0.10) (0.03)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(0.24) (0.43) (0.44) (0.47) (0.57) (0.52) (0.24) (0.46) (0.46) (0.49) (0.59) (0.54)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$11.26 $11.12 $10.65 $10.71 $10.27 $11.03 $11.26 $11.12 $10.66 $10.71 $10.28 $11.03
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
3.47% 8.65% 3.62% 9.01% (1.57)% 5.19% 3.59% 8.82% 3.98% 9.17% (1.20)% 5.35%
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
$6,730 $7,829 $9,462 $11,862 $14,660 $19,193 $11,774 $12,966 $13,786 $17,849 $21,095 $38,165
1.77%* 1.77% 1.76% 1.77% 1.76% 1.51% 1.52%* 1.52% 1.52% 1.52% 1.52% 1.27%
1.95%* 2.05% 2.27% 1.89% 2.01% 1.99% 1.69%* 1.78% 2.04% 1.64% 1.75% 1.72%
3.76%* 3.99% 4.16% 4.36% 4.63% 4.34% 4.03%* 4.24% 4.41% 4.61% 4.89% 4.55%
3.58%* 3.70% 3.65% 4.24% 4.83% 3.86% 3.86%* 3.98% 3.89% 4.50% 4.65% 4.10%
23% 34% 40% 13% 6% 8% 23% 34% 40% 13% 6% 8%
<CAPTION>
CLASS YCLASS B
- ------------------------------------------------------------
FOR THE FOR THE PERIOD
SIX MONTHS MAY 21, 1998+
ENDED THROUGH
AUGUST 31, AUGUST 31,
1998 1998
(UNAUDITED) (UNAUDITED)
- ------------ --------------
<S> <C>
$11.12 $11.08
------ ------
0.24 0.14
0.14 0.18
------ ------
0.38 0.32
------ ------
(0.24) (0.14)
-- --
------ ------
(0.24) (0.14)
------ ------
$11.26 $11.26
====== ======
3.47% 2.91%
====== ======
$6,730 $17
1.77%* 0.78%*
1.95%* 0.96%*
3.76%* 4.78%*
3.58%* 4.60%*
23% 23%
</TABLE>
53
<PAGE>
- --------------------------------------------------------------------------------
Trustees
E. Garrett Bewkes, Jr.
Chairman
Margo N. Alexander
Richard Q. Armstrong
Richard R. Burt
Mary C. Farrell
Meyer Feldberg
George W. Gowen
Frederic V. Malek
Carl W. Schafer
Principal Officers
Margo N. Alexander
President
Dianne E. O'Donnell
Vice President and Secretary
Victoria E. Schonfeld
Vice President
Paul H. Schubert
Vice President and Treasurer
Elbridge T. Gerry III
Vice President
Richard S. Murphy
Vice President
Cynthia N. Bow
Vice President
William W. Veronda
Vice President
Investment Adviser,
Administrator and Distributor
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
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.
The financial information included herein is taken from the records of the Funds
without examination by independent auditors who do not express an opinion
thereon.
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.
<PAGE>
PaineWebber offers a family of 27 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
. Tax-Managed Equity 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
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
TAX-FREE
BOND FUNDS
CALIFORNIA TAX-FREE INCOME FUND
NATIONAL TAX-FREE INCOME FUND
MUNICIPAL HIGH INCOME FUND
NEW YORK TAX-FREE INCOME FUND
(C)1998 PaineWebber Incorporated
Member SIPC
AUGUST 31, 1998
