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PaineWebber California Tax-Free Income Fund
PaineWebber National Tax-Free Income Fund
PaineWebber New York Tax-Free Income Fund
SUPPLEMENT TO PROSPECTUS DATED JULY 1, 1996
February 3, 1997
Dear Shareholder,
This is a supplement to the Prospectus of PaineWebber California Tax-Free Income
Fund, PaineWebber National Tax-Free Income Fund and PaineWebber New York
Tax-Free Income Fund dated July 1, 1996. The purpose of this supplement is to
inform you of revised information to the prospectus, specifically the ability of
the Funds to now invest in lower rated municipal securities.
Effective February 3, 1997, each Fund may invest up to 35% of its total assets
in lower grade securities. Previously, each Fund did not have the ability to
invest in lower grade securities. Lower grade municipal securities are those
rated:
Ba, B, MIG-3 or MIG-4 by Moody's Investors Service, Inc. ('Moody's')
BB, B or SP-3 by Standard & Poor's ('S&P')
Have been assigned an equivalent rating from another nationally recognized
statistical rating organization
If unrated, are determined by Mitchell Hutchins Asset Management Inc.
('Mitchell Hutchins') to be of comparable quality
Additionally, Mitchell Hutchins expects that investments in lower grade
municipal securities will include securities that are subject to the federal
alternative minimum tax ('AMT'). Each Fund, except under unusual market
conditions, will continue to invest at least 80% of its net assets in municipal
securities that are not subject to AMT.
Risk Factors Relating to Lower Grade Municipal Securities:
Municipal securities rated below investment grade are deemed by Moody's and S&P
to be predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal and may involve major risk exposure to adverse
conditions. Such securities are commonly referred to as municipal 'junk' bonds.
Therefore, the Funds' new policy of seeking to invest a portion of assets in
lower rated securities entails greater risks than those associated with
investments in higher rated, investment grade securities. These risks include
greater risk of default, greater volatility and thinner and less active markets.
Shareholders should carefully review information contained in the Funds'
Prospectus under the heading 'Municipal High Income Fund -- Lower Rated
Securities,' which contains further information on the risks associated with
investments in lower grade municipal securities.
If you have any questions regarding these changes please call your PaineWebber
Investment Executive or one of its correspondent firms.
This supplement does not supersede any prior supplements.
