<PAGE>
TAX-FREE BOND FUNDS ANNUAL REPORT
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND
PERFORMANCE AT A GLANCE
- --------------------------------------------------------------------------------
The graph depicts the performance of PaineWebber California Tax-Free Income Fund
(A) versus the Lehman Brothers Municipal Bond Index. It is important to note
PaineWebber California Tax-Free Income Fund is a professionally managed mutual
fund while the Index is not available for investment and is unmanaged. The
comparison is shown for illustrative purposes only.
Comparison of the change of a $10,000 investment in PaineWebber California
Tax-Free Income Fund (A) and the Lehman Brothers Municipal Bond Index for the
10-year period ended February 28, 1999
[CHART APPEARS HERE]
PaineWebber California Lehman Brothers
Tax-Free Fund (A) Municipal Bond Index
Feb-89 $ 9,597 $ 10,000
May-89 9,916 10,425
Aug-89 10,070 10,605
Nov-89 10,325 10,891
Feb-90 10,396 11,026
May-90 10,539 11,188
Aug-90 10,576 11,287
Nov-90 11,037 11,730
Feb-91 11,269 12,042
May-91 11,530 12,316
Aug-91 11,775 12,618
Nov-91 12,013 12,933
Feb-92 12,314 13,246
May-92 12,532 13,527
Aug-92 12,913 14,029
Nov-92 13,062 14,232
Feb-93 13,927 15,071
May-93 13,943 15,146
Aug-93 14,540 15,740
Nov-93 14,439 15,809
Feb-94 14,545 15,904
May-94 13,963 15,520
Aug-94 14,149 15,763
Nov-94 13,309 14,978
Feb-95 14,518 16,204
May-95 15,112 16,933
Aug-95 15,094 17,161
Nov-95 15,713 17,810
Feb-96 15,778 17,995
May-96 15,368 17,707
Aug-96 15,703 18,058
Nov-96 16,386 18,856
Feb-97 16,397 18,986
May-97 16,558 19,176
Aug-97 17,009 19,731
Nov-97 17,453 20,212
Feb-98 17,916 20,725
May-98 18,069 20,976
Aug-98 18,551 21,438
Nov-98 18,857 21,782
Feb-99 18,974 21,999
Past performance is no guarantee of future performance.
The performance of the other classes will vary from the performance of the class
shown because of differences in sales charges and fees paid by shareholders
investing in different classes.
AVERAGE ANNUAL TOTAL RETURN, Periods Ended 2/28/99
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years Life(0)
<S> <C> <C> <C> <C>
Class A(*) 5.90% 5.46% 7.05% 8.00%
Class B(**) 5.06% 4.65% N/A 6.00%
Before Deducting
Maximum Sales Charge
Class C(+) 5.35% 4.92% N/A 5.45%
Class Y(++) 6.28% N/A N/A 5.54%
Class A(*) 1.71% 4.59% 6.61% 7.67%
After Deducting
Class B(**) 0.15% 4.32% N/A 6.00%
Maximum Sales Charge
Class C(+) 4.61% 4.92% N/A 5.45%
</TABLE>
(0) Life: since commencement of issuance on September 16, 1985 for Class A
shares, July 1, 1991 for Class B shares, July 2, 1992 for Class C shares
and February 5, 1998 for Class Y shares.
(*) 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 six 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 one year. Class C shares bear ongoing 12b-1
distribution and service fees.
++ The Fund offers Class Y shares to a limited group of eligible investors,
including participants in certain investment programs that are sponsored by
PaineWebber and that may invest in PaineWebber mutual funds. Class Y shares
do not bear initial or contingent deferred sales charges or ongoing
distribution and service fees.
The investment return and 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.
1
<PAGE>
ANNUAL REPORT
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
PERFORMANCE AT A GLANCE
The graph depicts the performance of PaineWebber National Tax-Free Income Fund
(A) versus the Lehman Brothers Municipal Bond Index. It is important to note
PaineWebber National Tax-Free Income Fund is a professionally managed mutual
fund while the Index is not available for investment and is unmanaged. The
comparison is shown for illustrative purposes only.
Comparison of the change of a $10,000 investment in PaineWebber National
Tax-Free Income Fund (A) and the Lehman Brothers Municipal Bond Index for the
10-year period ended February 28, 1999
[CHART APPEARS HERE]
PaineWebber California Lehman Brothers
Tax-Free Fund (A) Municipal Bond Index
Feb-89 $ 9,598 $ 10,000
May-89 9,960 10,425
Aug-89 10,083 10,605
Nov-89 10,332 10,891
Feb-90 10,425 11,026
May-90 10,576 11,188
Aug-90 10,607 11,287
Nov-90 11,073 11,730
Feb-91 11,295 12,042
May-91 11,554 12,316
Aug-91 11,796 12,618
Nov-91 12,053 12,933
Feb-92 12,316 13,246
May-92 12,581 13,527
Aug-92 13,031 14,029
Nov-92 13,164 14,232
Feb-93 13,994 15,071
May-93 14,115 15,146
Aug-93 14,664 15,740
Nov-93 14,720 15,809
Feb-94 14,785 15,904
May-94 14,237 15,520
Aug-94 14,398 15,763
Nov-94 13,529 14,978
Feb-95 14,692 16,204
May-95 15,270 16,933
Aug-95 15,334 17,161
Nov-95 15,934 17,810
Feb-96 15,977 17,995
May-96 15,574 17,707
Aug-96 15,862 18,058
Nov-96 16,582 18,856
Feb-97 16,638 18,986
May-97 16,780 19,176
Aug-97 17,349 19,731
Nov-97 17,751 20,212
Feb-98 18,215 20,725
May-98 18,394 20,976
Aug-98 18,795 21,438
Nov-98 19,009 21,782
Feb-99 19,183 21,999
Past performance is no guarantee of future performance.
The performance of the other classes will vary from the performance of the class
shown because of differences in sales charges and fees paid by shareholders
investing in different classes.
AVERAGE ANNUAL TOTAL RETURN, Periods Ended 2/28/99
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years Life(0)
<S> <C> <C> <C> <C>
Class A(*) 5.31% 5.35% 7.17% 8.41%
Class B(**) 4.48% 4.56% N/A 6.20%
Before Deducting
Maximum Sales Charge
Class C(+) 4.76% 4.81% N/A 5.53%
Class Y(++) 5.49% N/A N/A 6.41%
Class A(*) 1.09% 4.49% 6.73% 8.09%
After Deducting
Class B(**) -0.42% 4.23% N/A 6.20%
Maximum Sales Charge
Class C(+) 4.02% 4.81% N/A 5.53%
</TABLE>
(0) Life: since commencement of issuance on December 2, 1984 for Class A
shares, July 1, 1991 for Class B shares, July 2, 1992 for Class C shares
and November 3, 1995 for Class Y shares.
(*) 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 six 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 one year. Class C shares bear ongoing 12b-1
distribution and service fees.
++ The Fund offers Class Y shares to a limited group of eligible investors,
including participants in certain investment programs that are sponsored by
PaineWebber and that may invest in PaineWebber mutual funds. Class Y shares
do not bear initial or contingent deferred sales charges or ongoing
distribution and service fees.
The investment return and 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.
2
<PAGE>
TAX-FREE BOND FUNDS ANNUAL REPORT
PAINE WEBBER MUNICIPAL HIGH INCOME FUND
PERFORMANCE AT A GLANCE
The graph depicts the performance of PaineWebber Municipal High Income Fund (A)
versus the Lehman Brothers Municipal Bond Index. It is important to note
PaineWebber Municipal High Income Fund is a professionally managed mutual fund
while the Index is not available for investment and is unmanaged. The comparison
is shown for illustrative purposes only.
Comparison of the change of a $10,000 investment in PaineWebber Municipal High
Income Fund (A) and the Lehman Brothers Municipal Bond Index for the 10-year
period ended February 28, 1999
[CHART APPEARS HERE]
Lehman Brothers PaineWebber California
Municipal Bond Index Tax-Free Fund (A)
Feb-89 $ 9,603 $ 10,000
May-89 9,975 10,425
Aug-89 10,116 10,605
Nov-89 10,331 10,891
Feb-90 10,442 11,026
May-90 10,531 11,188
Aug-90 10,602 11,287
Nov-90 10,922 11,730
Feb-91 11,141 12,042
May-91 11,535 12,316
Aug-91 11,870 12,618
Nov-91 12,206 12,933
Feb-92 12,471 13,246
May-92 12,855 13,527
Aug-92 13,380 14,029
Nov-92 13,498 14,232
Feb-93 14,347 15,071
May-93 14,441 15,146
Aug-93 15,060 15,740
Nov-93 15,073 15,809
Feb-94 15,176 15,904
May-94 14,524 15,520
Aug-94 14,737 15,763
Nov-94 13,911 14,978
Feb-95 14,867 16,204
May-95 15,452 16,933
Aug-95 15,699 17,161
Nov-95 16,167 17,810
Feb-96 16,382 17,995
May-96 16,242 17,707
Aug-96 16,565 18,058
Nov-96 17,269 18,856
Feb-97 17,465 18,986
May-97 17,740 19,176
Aug-97 18,384 19,731
Nov-97 18,864 20,212
Feb-98 19,397 20,725
May-98 19,647 20,976
Aug-98 20,003 21,438
Nov-98 20,112 21,782
Feb-99 20,329 21,999
Past performance is no guarantee of future performance.
The performance of the other classes will vary from the performance of the class
shown because of differences in sales charges and fees paid by shareholders
investing in different classes.
AVERAGE ANNUAL TOTAL RETURN, Periods Ended 2/28/99
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years Life(0)
<S> <C> <C> <C> <C>
Class A(*) 4.80% 6.02% 7.79% 8.06%
Class B(**) 3.87% 5.22% N/A 6.93%
Before Deducting
Maximum Sales Charge
Class C(+) 4.25% 5.49% N/A 6.07%
Class Y(++) 4.96% N/A N/A 4.56%
Class A(*) 0.58% 5.16% 7.35% 7.69%
After Deducting
Class B(**) -1.09% 4.89% N/A 6.93%
Maximum Sales Charge
Class C(+) 3.51% 5.49% N/A 6.07%
</TABLE>
(0) Life:since commencement of issuance on June 23, 1987 for Class A shares,
July 1, 1991 for Class B shares, July 2, 1992 for Class C shares and
February 5, 1998 for Class Y shares.
(*) 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 six 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 one year. Class C shares bear ongoing 12b-1
distribution and service fees.
++ The Fund offers Class Y shares to a limited group of eligible
investors, including participants in certain investment programs that are
sponsored by PaineWebber and that may invest in PaineWebber mutual
funds. Class Y shares do not bear initial or contingent deferred sales
charges or ongoing distribution and service fees.
The investment return and 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.
3
<PAGE>
ANNUAL REPORT
PAINE WEBBER NEW YORK TAX-FREE INCOME FUND
PERFORMANCE AT A GLANCE
The graph depicts the performance of PaineWebber New York Tax-Free Income Fund
(A) versus the Lehman Brothers Municipal Bond Index. It is important to note
PaineWebber New York Tax-Free Income Fund is a professionally managed mutual
fund while the Index is not available for investment and is unmanaged. The
comparison is shown for illustrative purposes only.
Comparison of the change of a $10,000 investment in PaineWebber New York
Tax-Free Income Fund (A) and the Lehman Brothers Municipal Bond Index for the
10-year period ended February 28, 1999
[CHART APPEARS HERE]
Lehman Brothers PaineWebber California
Municipal Bond Index Tax-Free Fund (A)
Feb-89 $ 9,600 $ 10,000
May-89 10,019 10,425
Aug-89 10,144 10,605
Nov-89 10,367 10,891
Feb-90 10,458 11,026
May-90 10,585 11,188
Aug-90 10,613 11,287
Nov-90 10,973 11,730
Feb-91 11,252 12,042
May-91 11,585 12,316
Aug-91 11,924 12,618
Nov-91 12,193 12,933
Feb-92 12,467 13,246
May-92 12,837 13,527
Aug-92 13,355 14,029
Nov-92 13,516 14,232
Feb-93 14,392 15,071
May-93 14,577 15,146
Aug-93 15,122 15,740
Nov-93 15,136 15,809
Feb-94 15,239 15,904
May-94 14,645 15,520
Aug-94 14,848 15,763
Nov-94 13,714 14,978
Feb-95 15,113 16,204
May-95 15,795 16,933
Aug-95 15,785 17,161
Nov-95 16,444 17,810
Feb-96 16,599 17,995
May-96 16,212 17,707
Aug-96 16,583 18,058
Nov-96 17,299 18,856
Feb-97 17,344 18,986
May-97 17,511 19,176
Aug-97 18,034 19,731
Nov-97 18,465 20,212
Feb-98 18,967 20,725
May-98 19,191 20,976
Aug-98 19,701 21,438
Nov-98 19,967 21,782
Feb-99 20,150 21,999
Past performance is no guarantee of future performance.
The performance of the other classes will vary from the performance of the class
shown because of differences in sales charges and fees paid by shareholders
investing in different classes.
AVERAGE ANNUAL TOTAL RETURN, Periods Ended 2/28/99
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years Life(0)
<S> <C> <C> <C> <C>
Class A(*) 6.24% 5.75% 7.70% 7.59%
Class B(**) 5.40% 4.95% N/A 6.78%
Before Deducting
Maximum Sales Charge
Class C(+) 5.78% 5.24% N/A 5.99%
Class Y(++) N/A N/A N/A 5.39%
Class A(*) 2.02% 4.89% 7.26% 7.17%
After Deducting
Class B(**) 0.44% 4.62% N/A 6.78%
Maximum Sales Charge
Class C(+) 5.04% 5.24% N/A 5.99%
</TABLE>
(0) Life: since commencement of issuance on September 23,1988 for Class A
shares, July 1, 1991 for Class B shares, July 2, 1992 for Class C shares
and May 21, 1998 for Class Y shares. Performance for Class Y shares
represents a cumulative return for a period less than a year.
(*) 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 six 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 one year. Class C shares bear ongoing 12b-1
distribution and service fees.
++ The Fund offers Class Y shares to a limited group of eligible
investors, including participants in certain investment programs that are
sponsored by PaineWebber and that may invest in PaineWebber mutual
funds. Class Y shares do not bear initial or contingent deferred sales
charges or ongoing distribution and service fees.
The investment return and 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.
4
<PAGE>
TAX-FREE BOND FUNDS ANNUAL REPORT
April 16, 1999
Dear Shareholder,
We are pleased to present you with the annual 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 for the
fiscal year ended February 28, 1999.
GENERAL MARKET OVERVIEW
The mid-August crisis in Russia and fears of its spread to Latin America
heightened investors' aversion to credit risk and prompted them to sell other
securities in favor of U.S. Treasurys. The "flight to quality" ultimately drove
U.S. Treasury bond yields to a low of 4.70% in October. To fend off a
threatening global financial crisis, the Federal Reserve cut the short-term
interest rate by 0.25% three times in as many months, lowering them from 5.50%
to 4.75%. Investors returned in search of bargains as the bond markets began to
stabilize.
Once the turmoil settled down, rates remained in the low 5% range until early
February 1999, when Federal Reserve Chairman Alan Greenspan delivered his annual
Humphrey-Hawkins testimony to Congress. In his testimony, Chairman Greenspan
expressed an inclination to restrain economic policy and confessed that he might
have overdone interest-rate cuts during the fall crisis. This surprised market
participants, and the yield on the 30-year Treasury bond rose by about one-half
percent to reflect fears of rising rates. Actual economic statistics for the
period, however, belied investors' concerns.
As Treasury yields rose in February, municipal bonds strongly outperformed
taxable bonds, reversing their underperformance of 1998. In August 1998,
municipal bonds had yielded about 94% of taxable bonds. By fiscal year-end,
municipal bond yields had improved to around 84% of taxable bonds, the result of
significant municipal bond outperformance. The interest-rate backup contributed
to municipal bond outperformance -- as rates rose municipalities delayed their
financing, which further decreased supply.
5
<PAGE>
ANNUAL REPORT
PAINEWEBBER
CALIFORNIA TAX-FREE
INCOME FUND
PROFILE
[GRAPHIC] Goal
High current income
exempt from federal
income tax and
California personal
income tax
[GRAPHIC] Portfolio Managers:
Elbridge T. Gerry, III.
Cynthia N. Bow.
Mitchell Hutchins
Asset Management
Inc.
[GRAPHIC] Total Net Assets:
$152.0 million as of
February 28, 1999
[GRAPHIC] Dividend Payments:
Monthly
PAINEWEBBER
CALIFORNIA TAX-FREE
INCOME FUND
Credit
Quality*
[PIE CHART]
AAA 53.3%
AA 12.6%
A 8.8%
BBB 15.6%
Nonrated 9.5%
Cash Equivalents 0.2%
PORTFOLIO REVIEWS
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND
PERFORMANCE
The Fund's total return consists of the change in net asset value with dividends
reinvested. For the fiscal year ended February 28, 1999, without deducting sales
charges, Class A shares gained 5.90%, Class B shares gained 5.06%, Class C
shares gained 5.35% and Class Y shares gained 6.28%.
The Fund's total return may be lower for shareowners who purchased or
redeemed Fund shares during the period. After deducting the maximum applicable
sales charges, Class A shares gained 1.71%, Class B shares gained 0.15% and
Class C shares gained 4.61%. Class Y shares are not subject to sales charges.
PORTFOLIO HIGHLIGHTS
We continued to pursue our goal of diversifying the Fund's portfolio during
the six months ended February 28, 1999. Most significantly, we added a
zero-coupon-bond component to the portfolio, purchasing bonds issued by
Escondido (1.7%*) and San Jose Santa Clara School Districts (1.0%). We
perennially seek to capture value in "structure spreads," that is, yield
differences between bond issues with different payback structures. For example,
we purchased the callable San Jose Santa Clara zero-coupon bonds at a price that
translated to a yield 39 basis points (0.39%) higher than that issuer's
current-income bond, an attractive spread for this structure.
Within the Fund's non-callable sector, we added small positions in Natomas
School District (0.7%) and Inglewood Redevelopment Agency (0.7%). New
acquisitions in the nonrated sector included Lake Elsinore Recreation Authority
(1.2%) and a small increase in the Fund's holdings of Virgin Island Water and
Power (1.3%). Nonrated holdings comprised 9.5% of the portfolio at period-end.
During this period of municipal outperformance versus taxable bonds we enhanced
total return by extending portfolio duration one-third of a year. (Duration is a
measure of a Fund's exposure to interest-rate risk.)
OUTLOOK
California's issuance of new bonds has been moderate to slightly heavy, and has
kept pace with previous issuance rates. However, demand for California
securities has grown and their yields relative to non-California municipals are
near historical lows -- "rich" in industry parlance. We do not expect the
richness of California debt to diminish unless the supply balance changes
dramatically.
* Weightings represent percentages of portfolio assets as of February 28, 1999.
The Fund's portfolio is actively managed and its composition will vary over
time.
<PAGE>
TAX-FREE BOND FUNDS ANNUAL REPORT
PAINEWEBBER
NATIONAL TAX-FREE
INCOME FUND
PROFILE
[GRAPHIC] Goal
High current income
exempt from federal
income tax
[GRAPHIC] Portfolio Managers:
Elbridge T. Gerry, III.
Richard S. Murphy
Mitchell Hutchins
Asset Management
Inc.
[GRAPHIC] Total Net Assets:
$299.3 million as of
February 28, 1999
[GRAPHIC] Dividend Payments:
Monthly
PAINEWEBBER
CALIFORNIA TAX-FREE
INCOME FUND
Credit
Quality*
[PIE CHART]
AAA 43.8%
AA 14.4%
A 13.2%
BBB 15.6%
BB 2.7%
Cash Equivalents 1.1%
Nonrated 9.2%
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
PERFORMANCE
The Fund's total return consists of the change in net asset value with
dividends reinvested. For the fiscal year ended February 28, 1999, without
deducting sales charges, Class A shares gained 5.31%, Class B shares gained
4.48%, Class C shares gained 4.76% and Class Y shares gained 5.49%.
The Fund's total return may be lower for shareowners who purchased or
redeemed Fund shares during the period. After deducting the maximum applicable
sales charges, Class A shares gained 1.09%, Class B shares lost 0.42% and Class
C shares gained 4.02%. Class Y shares are not subject to sales charges.
PORTFOLIO HIGHLIGHTS
The cheapest part of the yield curve, the 15-20 year range, remained the
focus of our purchases. Generally, we added 30-60 basis-point premium bonds to
the Fund. (A basis point equals 1/100th of one percent.) We believe these
securities offer the greatest return potential for their effective duration
(interest-rate risk exposure), giving shareholders a higher yield without
increasing market risk. A typical addition was the block of small-premium bonds
issued by San Antonio Texas (1.0%*) due in 2015, which yielded 5.25% and were
rated Aa2/AA+. This strategy increased the Fund's yield and thus helped
performance.
In pursuit of this strategy of enhancing yield, we also increased the Fund's
allocation to such lower credit quality sectors as BBB-rated and nonrated bonds.
We are taking more credit risk among shorter maturity securities, where market
risk generally is lower. Among our notable purchases were nonrated Virgin Island
Water and Sewer bonds due in 2012 (0.3%). These bonds carry a Mitchell Hutchins
internal rating of BBB-. These lower credit quality purchases improved the
Fund's yield, which translated into better performance.
* Weightings represent percentages of portfolio assets as of February 28, 1999.
The Fund's portfolio is actively managed and its composition will vary over
time.
<PAGE>
ANNUAL REPORT
PAINEWEBBER
MUNICIPAL HIGH
INCOME FUND
FUND PROFILE
[GRAPHIC] Goal
High current income
exempt from federal
income tax
[GRAPHIC] Portfolio Managers:
Elbridge T. Gerry, III,
William W. Veronda,
Mitchell Hutchins
Asset Management
Inc.
[GRAPHIC] Total Net Assets:
$110.2 million as of
February 28, 1999
[GRAPHIC] Dividend Payments:
Monthly
PAINEWEBBER
MUNICIPAL HIGH
INCOME FUND
Credit
Quality*
[PIE CHART]
AAA %
A %
BBB %
BB %
B %
Nonrated %
Cash Equivalents %
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
PERFORMANCE
The Fund's total return consists of the change in net asset value with
dividends reinvested. For the fiscal year ended February 28, 1999, without
deducting sales charges, Class A shares gained 4.80%, Class B shares gained
3.87%, Class C shares gained 4.25% and Class Y shares gained 4.96%.
The Fund's total return may be lower for shareowners who purchased or
redeemed Fund shares during the period. After deducting the maximum applicable
sales charges, Class A shares gained 0.58%, Class B shares lost 1.09% and Class
C shares gained 3.51%. Class Y shares are not subject to sales charges.
PORTFOLIO HIGHLIGHTS
The Fund suffered last August when municipal yield spreads to Treasurys
widened, especially among the Fund's lower-quality credits. Also, the Fund's
relatively short duration hurt it when the Federal Reserve cut interest rates.
(Longer-duration portfolios gain more than shorter-duration portfolios when
interest rates fall.) After the market stabilized, the Fund's performance
improved and returned to its prior trend of general outperformance.
We have avoided the hospital sector for a long time, believing that an
oversupply of hospitals would lead to financial troubles for many of them. The
Fund benefited from its underweighting -- during the period the entire hospital
sector suffered from the default of several issuers. The Fund also benefited by
avoiding waste management bonds. The sector has suffered from downgrades
following unfavorable court rulings against issuers and a spate of takeovers.
During the fiscal year the Fund bought Alexandria, Virginia bonds for
Buckingham Village Apartments (3.5%*), a lower-income housing project. Housing
projects can be risky investments -- low occupancy rates and high operating
costs can result in significant losses. Such bonds require thorough top-down and
bottom-up analysis. Our top-down analysis was positive: Alexandria is part of
the Washington D.C. metropolitan area, which faces a shortage of moderately
priced housing. From a bottom-up perspective, Buckingham Village is a well-kept
postwar apartment building that only needed minor upgrading. These factors
reassure us that occupancy rates in Buckingham Village are likely to remain
high, and we believe the project should keep making its debt payments.
Private placements offer above-market yields to compensate for being harder
to sell and for their credit risk. The Fund bought private placements issued to
fund construction of public facilities such as health
* Weightings represent percentages of portfolio assets as of February 28, 1999.
The Fund's portfolio is actively managed and its composition will vary over
time.
<PAGE>
TAX-FREE BOND FUNDS ANNUAL REPORT
department laboratories, child protection centers and corrections department
offices. We believe demand for such facilities is unlikely to fade over time. A
typical purchase was the Fund's participation in a placement by Harris County,
Texas (1.9%*). We consider these securities the equivalent of a high "A" credit
rating, yet the Fund gets a return well in excess of the market rate for A-rated
bonds.
OUTLOOK
With the market turbulence apparently behind us, we think our long-term
investment themes remain valid and applicable over the next few years. We still
like the airline and travel industries, which continue to benefit from the solid
economy. Also, we remain bullish on the power and utilities sector, where we
think that uncertainty over deregulation has created buying opportunities. Our
bottom-up analysis has identified projects and companies that we believe will
perform well regardless of the form deregulation takes.
The large spreads of municipals to taxable securities have narrowed as
municipal prices have risen, and spreads are likely to remain stable for a
while. In this more stable climate we'll look to enhance yield where we can by
selling some of our winners and, we hope, picking new ones. We continue to look
for opportunities to enhance total return through the accrual of tax-exempt
income and bond price appreciation, but we will not lower our credit quality
standards for the sake of either.
* Weightings represent percentages of portfolio assets as of February 28, 1999.
The Fund's portfolio is actively managed and its composition will vary over
time.
ANNUAL REPORT
<PAGE>
ANNUAL REPORT
PAINEWEBBER
NEW YORK TAX-FREE
INCOME FUND
PROFILE
[GRAPHIC] Goal
High current income
exempt from federal
income tax, and New
York State and New
York City personal
income taxes
[GRAPHIC] Portfolio Managers:
Elbridge T. Gerry, III.
Richard S. Murphy
Mitchell Hutchins
Asset Management
Inc.
[GRAPHIC] Total Net Assets:
$45.0 million as of
February 28, 1999
[GRAPHIC] Dividend Payments:
Monthly
PAINEWEBBER
NEW YORK TAX-FREE
INCOME FUND
Credit
Quality*
[PIE CHART]
AAA 42.9%
AA 9.9%
A 29.5%
BBB 13.0%
Nonrated 4.7%
PAINEWEBBER NEW YORK TAX-FREE INCOME FUND
PERFORMANCE
The Fund's total return consists of the change in net asset value with
dividends reinvested. For the fiscal year ended February 28, 1999, without
deducting sales charges, Class A shares gained 6.24%, Class B shares gained
5.40%, Class C shares gained 5.78% and Class Y shares gained 5.90% from
commencement of issuance on May 21, 1998 through February 28, 1999.
The Fund's total return may be lower for shareowners who purchased or
redeemed Fund shares during the period. After deducting the maximum applicable
sales charges, Class A shares gained 2.02%, Class B shares gained 0.44% and
Class C shares gained 5.04%. Class Y shares are not subject to sales charges.
PORTFOLIO HIGHLIGHTS
The cheapest part of the yield curve, the 15-20 year range, remained the
focus of our purchases. Generally, we added 30-60 basis-point premium bonds to
the Fund. (A basis point equals 1/100th of one percent.) We believe these
securities offer the greatest return potential for their effective duration
(interest-rate risk exposure), giving shareholders a higher yield without
increasing market risk. A typical addition was the block of small-premium bonds
issued by the New York State Thruway (4.7%*) due in 2014, which yielded 5.25%
and were rated Aaa/AAA. This strategy increased the Fund's yield and thus helped
performance. In pursuit of our strategy of enhancing yield, we increased the
Fund's allocation to such lower credit quality sectors as BBB-rated and nonrated
bonds. We are taking more credit risk among shorter maturity securities, where
market risk generally is lower. Among our notable purchases were nonrated Virgin
Island Water and Sewer bonds (0.4%) due in 2017, which yielded 5.5%. These bonds
carry a Mitchell Hutchins internal rating of BBB-. These lower credit quality
purchases also improved the Fund's yield, which translated into better
performance.
* Weightings represent percentages of portfolio assets as of February 28, 1999.
The Fund's portfolio is actively managed and its composition will vary over
time.
<PAGE>
TAX-FREE BOND FUNDS ANNUAL REPORT
Our ultimate objective in managing your investments is to help you
successfully meet your financial goals. We thank you for your continued support
and welcome any comments or questions you may have.
For a Quarterly Review on 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, or another fund in the
PaineWebber Family of Funds, /1/ please contact your Financial Advisor.
Sincerely,
/s/ Margo Alexander /s/ Elbridge T. Gerry, III
MARGO ALEXANDER ELBRIDGE T. GERRY, III
Chairman and Chief Executive Senior Vice President
Officer Mitchell Hutchins Asset
Mitchell Hutchins Asset Management Inc.
Management Inc. 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> <C> <C>
/s/ Cynthia N. Bow /s/ Richard S. Murphy /s/ William W. Veronda
CYNTHIA N. BOW RICHARD S. MURPHY WILLIAM W. VERONDA
Portfolio Manager Portfolio Manager Portfolio Manager
PaineWebber California Tax-Free PaineWebber National Tax-Free PaineWebber Municipal High
Income Fund Income Fund, PaineWebber New Income Fund
York Tax-Free Income Fund
</TABLE>
This letter is intended to assist shareholders in understanding how the Funds
performed during the fiscal year ended February 28, 1999, and reflects our views
at the time of its writing. Of course, these views may change in response to
changing circumstances. We encourage you to consult your Financial Advisor
regarding your personal investment program.
/1/ Mutual funds are sold by prospectus only. The prospectuses for the funds
contain more complete information regarding risks, charges and expenses, and
should be read carefully before investing.
<PAGE>
PaineWebber California Tax-Free Income Fund
Performance Results (unaudited)
<TABLE>
<CAPTION>
Net Asset Value Total Return/1/
-------------------------------------- --------------------------------
12 Months 6 Months
02/28/99 08/31/98 02/28/98 Ended 02/28/99 Ended 02/28/99
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A
Shares $11.18 $11.50 $11.39 5.90% 2.28%
- ---------------------------------------------------------------------------------------
Class B
Shares 11.18 11.50 11.39 5.06 1.89
- ---------------------------------------------------------------------------------------
Class C Shares 11.17 11.49 11.38 5.35 2.03
- ---------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------
1998 11.37 11.20 0.3170 0.5189 6.00
- ---------------------------------------------------------------------------------------
01/01/99-
02/28/99 11.20 11.18 -- 0.0782 0.52
- ---------------------------------------------------------------------------------------
Totals: $0.9500 $8.7428
- ---------------------------------------------------------------------------------------
Cumulative Total Return as of 02/28/99: 181.88%
- ---------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------
1998 11.38 11.21 0.3170 0.4326 5.20
- ---------------------------------------------------------------------------------------
01/01/99 -
02/28/99 11.21 11.18 -- 0.0657 0.32
- ---------------------------------------------------------------------------------------
Totals: $0.9160 $3.7435
- ---------------------------------------------------------------------------------------
Cumulative Total Return as of 02/28/99: 56.34%
- ---------------------------------------------------------------------------------------
</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. Total investment
return for periods of less than one year has not been annualized.
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 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
- -------------------------------------------------------------------------
1998 11.37 11.19 0.3170 0.4610 5.38
- -------------------------------------------------------------------------
01/01/99 -
02/28/99 11.19 11.17 -- 0.0698 0.44
- -------------------------------------------------------------------------
Totals: $0.8892 $3.3054
- -------------------------------------------------------------------------
Cumulative Total Return as of
02/28/99: 42.47%
- -------------------------------------------------------------------------
</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. Total investment
return for periods of less than one year has not been annualized.
Note: The Fund offers Class Y shares to a limited group of investors, including
participants in certain investment programs that are sponsored by PaineWebber
and that may invest in PaineWebber mutual funds. For the year ended February
28, 1999 and since inception, February 5, 1998 through February 28, 1999, Class
Y shares had a total return of 6.28% and 5.92%, 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.
13
<PAGE>
PaineWebber National Tax-Free Income Fund
Performance Results (unaudited)
<TABLE>
<CAPTION>
Net Asset Value Total Return/1/
------------------------------------ -----------------------------
12 Months 6 Months
02/28/99 08/31/98 02/28/98 Ended 02/28/99 Ended 02/28/99
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $11.73 $12.05 $11.97 5.31% 2.06%
- ----------------------------------------------------------------------------------
Class B Shares 11.73 12.05 11.97 4.48 1.67
- ----------------------------------------------------------------------------------
Class C Shares 11.73 12.05 11.97 4.76 1.80
- ----------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------
1998 11.95 11.76 0.2864 0.5639 5.67
- ----------------------------------------------------------------------------------
01/01/99 -
02/28/99 11.76 11.73 -- 0.0832 0.45
- ----------------------------------------------------------------------------------
Totals: $0.6722 $9.9742
- ----------------------------------------------------------------------------------
Cumulative Total Return as of 02/28/99: 215.83%
- ----------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------
1998 11.95 11.75 0.2864 0.4698 4.76
- ----------------------------------------------------------------------------------
01/01/99 -
02/28/99 11.75 11.73 -- 0.0695 0.42
- ----------------------------------------------------------------------------------
Totals: $0.6722 $3.9996
- ----------------------------------------------------------------------------------
Cumulative Total Return as of 02/28/99: 58.66%
- ----------------------------------------------------------------------------------
</TABLE>
/1/Figures assume reinvestment of all dividends and other distributions at net
asset value on the payable dates and do not include sales charges; results for
each class would be lower if sales charges were included. Total investment
return for periods of less than one year has not been annualized.
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 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
- ---------------------------------------------------------------------------
1998 11.95 11.75 0.2864 0.5014 5.03
- ---------------------------------------------------------------------------
01/01/99 -
02/28/99 11.75 11.73 -- 0.0741 0.46
- ---------------------------------------------------------------------------
Totals: $0.6357 $3.5214
- ---------------------------------------------------------------------------
Cumulative Total Return as of
02/28/99: 43.15%
- ---------------------------------------------------------------------------
</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. Total investment return for
periods of less than one year has not been annualized.
Note: The Fund offers Class Y shares to a limited group of investors, including
participants in certain investment programs that are sponsored by PaineWebber
and that may invest in PaineWebber mutual funds. For the year ended February
28, 1999 and since inception, November 3, 1995 through February 28, 1999, Class
Y shares had a total return of 5.49% and 22.96%, 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.
15
<PAGE>
PaineWebber Municipal High Income Fund
Performance Results (unaudited)
<TABLE>
<CAPTION>
Net Asset Value Total Return/1/
---------------------------------- -----------------------------
12 Months 6 Months
02/28/99 08/31/98 02/28/98 Ended 02/28/99 Ended 02/28/99
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A
Shares $10.88 $10.99 $10.96 4.80% 1.63%
- ----------------------------------------------------------------------------
Class B
Shares 10.87 10.99 10.96 3.87 1.15
- ----------------------------------------------------------------------------
Class C
Shares 10.88 10.99 10.96 4.25 1.38
- ----------------------------------------------------------------------------
Performance Summary Class A Shares
<CAPTION>
Net Asset Value
------------------
Period Capital Gains Total
Covered Beginning Ending Distributed Dividends Paid Return/1/
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
06/23/87 -
12/31/87 $ 9.58 $ 9.40 -- $0.3131 1.46%
- ----------------------------------------------------------------------------
1988 9.40 9.90 -- 0.8091 14.45
- ----------------------------------------------------------------------------
1989 9.90 10.09 -- 0.7380 9.66
- ----------------------------------------------------------------------------
1990 10.09 9.89 -- 0.7322 5.52
- ----------------------------------------------------------------------------
1991 9.89 10.38 $0.0679 0.7144 13.32
- ----------------------------------------------------------------------------
1992 10.38 10.54 0.1406 0.6736 9.79
- ----------------------------------------------------------------------------
1993 10.54 10.97 0.2037 0.6180 12.14
- ----------------------------------------------------------------------------
1994 10.97 9.52 0.0260 0.5865 (7.77)
- ----------------------------------------------------------------------------
1995 9.52 10.36 -- 0.6079 15.55
- ----------------------------------------------------------------------------
1996 10.36 10.39 -- 0.5627 5.94
- ----------------------------------------------------------------------------
1997 10.39 10.92 -- 0.5531 10.73
- ----------------------------------------------------------------------------
1998 10.92 10.90 0.0141 0.5484 5.07
- ----------------------------------------------------------------------------
01/01/99 -
02/28/99 10.90 10.88 -- 0.0827 0.58
- ----------------------------------------------------------------------------
Totals: $0.4523 $7.5397
- ----------------------------------------------------------------------------
Cumulative Total Return as of 02/28/99: 147.68%
- ----------------------------------------------------------------------------
Performance Summary Class B Shares
<CAPTION>
Net Asset Value
------------------
Period Capital Gains Total
Covered Beginning Ending Distributed Dividends Paid Return/1/
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91 -
12/31/91 $10.05 $10.38 $0.0679 $0.3170 7.21%
- ----------------------------------------------------------------------------
1992 10.38 10.54 0.1406 0.5930 8.95
- ----------------------------------------------------------------------------
1993 10.54 10.97 0.2037 0.5349 11.30
- ----------------------------------------------------------------------------
1994 10.97 9.52 0.0260 0.5103 (8.47)
- ----------------------------------------------------------------------------
1995 9.52 10.35 -- 0.5328 14.59
- ----------------------------------------------------------------------------
1996 10.35 10.38 -- 0.4854 5.15
- ----------------------------------------------------------------------------
1997 10.38 10.91 -- 0.4726 9.91
- ----------------------------------------------------------------------------
1998 10.91 10.89 0.0141 0.4641 4.27
- ----------------------------------------------------------------------------
01/01/99 -
02/28/99 10.89 10.87 -- 0.0704 0.46
- ----------------------------------------------------------------------------
Totals: $0.4523 $3.9805
- ----------------------------------------------------------------------------
Cumulative Total Return as of 02/28/99: 67.16%
- ----------------------------------------------------------------------------
</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. Total investment
return for periods of less than one year has not been annualized.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. Capital gain distributions and gains realized
on the sale of Fund shares are taxable.
16
<PAGE>
PaineWebber Municipal High 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 $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
- ---------------------------------------------------------------------------
1998 10.92 10.89 0.0141 0.4932 4.45
- ---------------------------------------------------------------------------
01/01/99 -
02/28/99 10.89 10.88 -- 0.0745 0.59
- ---------------------------------------------------------------------------
Totals: $0.2573 $3.4959
- ---------------------------------------------------------------------------
Cumulative Total Return as of
02/28/99: 48.08%
- ---------------------------------------------------------------------------
</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. Total investment return for
periods of less than one year has not been annualized.
Note: The Fund offers Class Y shares to a limited group of investors, including
participants in certain investment programs that are sponsored by PaineWebber
and that may invest in PaineWebber mutual funds. For the year ended February
28, 1999 and since inception, February 5, 1998 through February 28, 1999, Class
Y shares had a total return of 4.96% and 4.87%, 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.
17
<PAGE>
PaineWebber New York Tax-Free Income Fund
Performance Results (unaudited)
<TABLE>
<CAPTION>
Net Asset Value Total Return/1/
-------------------------------- -----------------------------
12 Months 6 Months
02/28/99 08/31/98 02/28/98 Ended 02/28/99 Ended 02/28/99
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $11.03 $11.26 $11.12 6.24% 2.28%
- ------------------------------------------------------------------------------
Class B Shares 11.03 11.26 11.12 5.40 1.90
- ------------------------------------------------------------------------------
Class C Shares 11.04 11.26 11.12 5.78 2.12
- ------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
1998 11.10 11.04 0.2389 0.5022 6.29
- ------------------------------------------------------------------------------
01/01/99 -
02/28/99 11.04 11.03 -- 0.0735 0.57
- ------------------------------------------------------------------------------
Totals: $0.3659 $6.0792
- ------------------------------------------------------------------------------
Cumulative Total Return as of
02/28/99: 114.63%
- ------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
1998 11.10 11.04 0.2389 0.4179 5.49
- ------------------------------------------------------------------------------
01/01/99 -
02/28/99 11.04 11.03 -- 0.0611 0.46
- ------------------------------------------------------------------------------
Totals: $0.3659 $3.6025
- ------------------------------------------------------------------------------
Cumulative Total Return as of
02/28/99: 65.38%
- ------------------------------------------------------------------------------
</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. Total investment
return for periods of less than one year has not been annualized.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. Capital gain distributions and gains realized
on the sale of Fund shares are taxable.
18
<PAGE>
PaineWebber New York 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 $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
- -------------------------------------------------------------------------
1998 11.10 11.05 0.2389 0.4466 5.86
- -------------------------------------------------------------------------
01/01/99 -
02/28/99 11.05 11.04 -- 0.0653 0.50
- -------------------------------------------------------------------------
Totals: $0.3659 $3.1747
- -------------------------------------------------------------------------
Cumulative Total Return as of
02/28/99: 47.41%
- -------------------------------------------------------------------------
</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. Total investment return for
periods of less than one year has not been annualized.
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 February 28, 1999, Class Y shares had a total return of 5.39%. 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.
19
<PAGE>
PaineWebber California Tax-Free Income Fund
Portfolio of Investments February 28, 1999
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
--------- -------------------- -------------- ------------
<C> <S> <C> <C> <C>
Municipal Bonds and Notes --
106.38%
$ 1,000 California Educational
Facilities Authority
Los Angeles College of
Chiropractic Medicine.. 11/01/17 5.600% $ 1,034,870
200 California Health
Facilities Financing
Authority
Adventist Health System
Series C (MBIA
Insured)............... 03/01/99 3.100* 200,000
2,000 California Health
Facilities Financing
Authority Kaiser
Permanente Hospital
Series A (Pre-refunded
with U.S. Government
Securities to 10/01/99
@ 102)................. 10/01/18 7.000 2,088,000
2,000 California Housing
Finance Agency Revenue
Bonds Series G......... 08/01/14 6.100 2,124,320
400 California Pollution
Control Financing
Authority Resource
Recovery Revenue OMS
Equity Stanislaus
Project................ 03/01/99 3.100* 400,000
1,925 California State
Department of Water
Resources Central
Valley Project Revenue
Water Systems Series Q. 12/01/17 5.250 1,971,662
1,000 California State
Department of Water
Resources Central
Valley Project Revenue
Water Systems Series U. 12/01/16 5.125 1,027,170
10,450 California State Public
Works Board Department
of Corrections Series B
(MBIA Insured)......... 11/01/19 5.625 11,118,800
2,000 California Statewide
Communities Development
Authority Apartment
Development Revenue
Bonds Irvine Apartment
Communities Series A-3. 05/17/10(2) 5.100(3) 2,018,580
3,000 California Statewide
Communities Development
Authority Apartment
Development Revenue
Bonds Irvine Apartment
Communities Series A-4. 05/15/13(2) 5.250(3) 3,025,320
2,000 ABAG Finance Authority
for Nonprofit
Corporations
Certificates of
Participation Rhoda
Haas Goldman Plaza..... 05/15/15 5.125 2,017,700
4,315 Alum Rock Unified
Elementary School
District (FGIC
Insured)............... 09/01/18 5.250 4,418,819
2,690 Beverly Hills
Certificates of
Participation (Pre-
refunded with U.S.
Government Securities
to 06/01/99 @ 102)..... 06/01/15 to 06/01/19 6.750 to 7.000 2,771,034
1,830 Capistrano Unified
School District
Certificates of
Participation.......... 02/01/18 5.200 1,850,020
1,350 Contra Costa
Transportation
Authority Sales Tax
Revenue Bonds Series A. 03/01/07 6.875 1,462,469
2,715 Del Mar Race Track
Authority.............. 08/15/11 to 08/15/13 6.200 to 6.450 2,884,477
650 Duarte Redevelopment
Agency Tax Allocation
Davis Addition Project. 09/01/14 6.700 692,926
5,285 Escondido Union High
School District (MBIA
Insured)............... 05/01/12 to 05/01/13 4.700 to 4.750# 2,789,345
5,350 Fontana Redevelopment
Agency Tax Allocation
Jurupa Hills
Redevelopment Project
Series A............... 10/01/24 to 10/01/27 5.500 to 7.200 5,668,827
4,275 Glendale Unified School
District Series B (FSA
Insured)............... 09/01/18 5.500 4,455,191
2,000 Huntington Park Public
Financing Authority
Wastewater Systems
Project Series A++..... 10/01/25 6.200 2,074,720
1,060 Inglewood Redevelopment
Agency Tax Allocation
Merged Redevelopment
Project Series A (AMBAC
Insured)............... 05/01/13 to 05/01/16 5.250 1,119,277
1,000 Intermodal Container
Transfer Facilities
Joint Powers Authority
Southern Pacific
Transfer Company Series
A...................... 11/01/14 7.700 1,045,740
100 Irvine Ranch Water
District Series B...... 03/01/99 3.000* 100,000
1,500 La Mirada Redevelopment
Agency Special Tax
Community Facilities
District Number 89-1... 10/01/20 5.700 1,513,080
1,835 Lake Elsinore Recreation
Authority Revenue Bonds
Public Facilities
Project Series A....... 02/01/17 7.100 1,916,768
1,450 Long Beach Industrial
Development Revenue
Bonds CSU Foundation
Series A............... 02/01/23 5.250 1,413,315
1,000 Los Angeles Department
of Water & Power
Electric Plant Revenue
Bonds.................. 09/01/23 5.375 1,021,180
5,750 Los Angeles Harbor
Department Revenue
Bonds Series B......... 11/01/23 to 08/01/25 5.375 to 6.625 6,085,565
2,200 M-S-R Public Power
Agency San Juan Project
Revenue Bonds Series E
(MBIA Insured)......... 07/01/17 6.500 2,377,518
6,470 Menlo Park Community
Development Agency Tax
Allocation
Las Pulgas Community
Development Project
(AMBAC Insured)........ 06/01/16 5.375 6,759,856
2,000 Modesto Irrigation
District Certificates
of Participation
Capital Improvements
Series B............... 07/01/22 5.300 2,001,000
1,705 Modesto Public Financing
Authority John Thurman
Field Renovation
Project................ 11/01/16 6.125 1,791,836
2,625 Mojave Water Agency
Improvement District
Morongo Basin (FGIC
Insured)............... 09/01/15 5.750 2,857,496
4,785 Moulton Niguel Water
District (MBIA
Insured)............... 09/01/13 to 09/01/19 5.000 to 5.250 4,934,374
1,000 Natomas Unified School
District (MBIA
Insured)............... 09/01/21 5.950 1,140,740
1,000 Oakland General
Obligation Bonds Series
C (MBIA Insured)....... 12/15/22 5.900 1,091,470
</TABLE>
20
<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)
$ 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% $ 2,252,006
5,000 Orange County Recovery
Certificates of
Participation Series A
(MBIA Insured)......... 07/01/26 6.000 5,470,650
585 Orange County Single
Family Residential
Mortgage Revenue Bonds
Issue A (GNMA Insured). 09/01/16 7.800 591,540
1,275 Paramount Unified School
District Series A (FSA
Insured)............... 09/01/19 5.125 1,292,276
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 1,903,601
4,425 Riverside County Public
Financing Authority Tax
Allocation Revenue
Bonds Redevelopment
Projects Series A...... 10/01/11 to 10/01/16 5.200 to 5.250 4,457,334
1,180 Rohnert Park Community
Development Agency Tax
Allocation
(AMBAC Insured)........ 08/01/20 6.500 1,249,596
5,500+ Sacramento Power
Authority Cogeneration
Project Revenue Bonds.. 07/01/15 5.875 5,817,570
2,200 Salinas Capital
Improvement Projects
Certificates of
Participation Series A. 10/01/28 5.700 2,299,572
1,300 San Diego Industrial
Development Revenue
Bonds San Diego Gas &
Electric Series A...... 09/01/18 6.400 1,399,918
6,000 San Diego Industrial
Development Revenue
Bonds San Diego Gas &
Electric Series A (MBIA
Insured)............... 09/01/18 6.100 6,535,740
1,375 San Diego Public
Facilities Financing
Authority Sewer Revenue
Bonds Series A (FGIC
Insured)............... 05/15/27 5.250 1,399,929
3,000 San Francisco City and
County Airport
Commission
International Airport
Revenue Bonds Second
Series Issue 8A (FGIC
Insured)............... 05/01/20 6.250 3,300,270
3,850 San Francisco City and
County Airport
Commission
International Airport
Revenue Bonds Second
Series Issue 16A (FSA
Insured)............... 05/01/13 5.500 4,114,264
2,650 San Jose Santa Clara
Water Financing
Authority Sewer Revenue
Bonds Series A (FGIC
Insured)............... 11/15/15 5.375 2,775,928
4,250 San Jose Unified School
District Santa Clara
County Series B (FGIC
Insured)............... 08/01/17 5.200# 1,664,895
960 San Ysidro School
District (AMBAC
Insured)............... 08/01/21 6.125 1,089,082
5,485 Santa Ana Financing
Authority Revenue Bonds
South Harbor Boulevard
Series B
(MBIA Insured)(1)...... 09/01/19 5.125 5,433,989
5,000 Santa Monica Parking
Authority Revenue
Bonds.................. 07/01/16 6.375 5,436,100
2,000 Southern California
Public Power Authority
Transmission
Project Revenue Bonds.. 07/01/20 5.500 2,054,500
5,740 Torrance Redevelopment
Agency Tax Allocation
Senior Lien Series C
(MBIA Insured)(1)...... 09/01/18 5.450 5,857,268
2,050 Virgin Islands Water &
Power Authority........ 07/01/13 to 07/01/18 5.125 to 5.500 2,059,931
------------
Total Investments (cost --
$156,690,702) -- 106.38%.......... 161,719,424
Liabilities in excess of other
assets -- (6.38)%.................. (9,703,584)
------------
Net Assets -- 100.00%.............. $152,015,840
============
</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 date; the interest rate shown is the current rate as of February
28, 1999.
+ Entire principal amount pledged as collateral for futures transactions.
++Illiquid security representing 1.4% of net assets.
# Yield to maturity at purchase date on zero coupon bond.
(1) Purchased on a forward commitment basis.
(2) Maturity date reflects earliest date bond will be put back to issuer.
(3) Yield to put date on zero coupon bond.
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
Futures Contracts
<TABLE>
<CAPTION>
Number of In Expiration Unrealized
Contracts Contracts to Buy Exchange For Date Appreciation
--------- ------------------------------- ------------ ---------- ------------
<C> <S> <C> <C> <C>
20 Municipal Bond Futures......... $2,473,750 June 99 $10,000
=======
</TABLE>
See accompanying notes to financial statements
21
<PAGE>
PaineWebber National Tax-Free Income Fund
Portfolio of Investments February 28, 1999
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
--------- -------------------- -------------- ------------
<C> <S> <C> <C> <C>
Municipal Bonds and Notes -- 98.82%
Alabama -- 0.36%
$ 1,000 Courtland Industrial
Development Board
Industrial Development
Revenue Champion
International.......... 12/01/13 7.200% $ 1,092,470
------------
Alaska -- 0.59%
1,460 Alaska Industrial
Development & Export
Authority Power Revenue
Upper Lynn Canal
Regional Power......... 01/01/12 5.700 1,440,407
320 Alaska State Housing
Finance Corporation.... 06/01/22 7.100 338,518
------------
1,778,925
------------
Arizona -- 2.35%
3,700 Phoenix General
Obligation............. 07/01/16 6.250 4,316,938
2,500 Tucson Arizona Airport
Authority Lockheed
Aermod Center
Incorporated........... 09/01/19 8.700 2,706,800
------------
7,023,738
------------
Arkansas -- 0.67%
2,000 Little Rock Arkansas
Capital Improvement
Revenue Parks &
Recreation Project
Series A............... 01/01/18 5.700 2,012,700
------------
California -- 3.20%
160 California State (FGIC
Insured)............... 11/01/12 7.000 186,808
5,035 Escondido California
Union High School
District Capital
Appreciation Refunding
(MBIA Insured)......... 11/01/12 to 11/01/13 4.730 to 4.780# 2,594,261
1,920 Long Beach Aquarium of
The Pacific California
Revenue................ 07/01/23 6.125 2,024,256
4,500 Sacramento Power
Authority Cogeneration
Project Revenue........ 07/01/15 5.875 4,759,830
------------
9,565,155
------------
Colorado -- 0.99%
1,650 Black Hawk Colorado
Device Tax Revenue..... 12/01/12 to 12/01/21 5.500 to 5.625 1,651,350
1,205 Colorado Housing Finance
Authority.............. 08/01/23 7.200 1,303,424
------------
2,954,774
------------
Connecticut -- 0.52%
1,500 Mashantucket Western
Pequot Tribe
Connecticut Special
Revenue (1)............ 09/01/12 5.700 1,550,325
------------
District of Columbia -- 0.03%
100 District of Columbia
General Obligation..... 03/01/99 3.250* 100,000
------------
Florida -- 1.91%
2,000 Hillsborough County
Florida Industrial
Development Authority
Pollution Control
Revenue................ 05/01/22 8.000 2,283,580
3,000 Plant City Utility
Systems Revenue (MBIA
Insured)............... 10/01/15 6.000 3,427,110
------------
5,710,690
------------
</TABLE>
22
<PAGE>
PaineWebber National Tax-Free Income Fund
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
--------- -------------------- -------------- ------------
<C> <S> <C> <C> <C>
Municipal Bonds and Notes
(continued)
Georgia -- 6.17%
$ 5,000 Conyers Water and Sewage
Revenue (AMBAC
Insured)............... 07/01/15 6.600% $ 5,729,550
3,000 Georgia Municipal
Electric Authority
Power Revenue.......... 01/01/12 6.250 3,444,450
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 9,305,360
------------
18,479,360
------------
Hawaii -- 0.37%
1,000 Hawaii State Department
Budget and Finance
Special Purpose Revenue
(MBIA Insured)......... 05/01/26 6.200 1,100,170
------------
Idaho -- 0.46%
1,285 Idaho Housing Agency
(FHA Insured).......... 07/01/24 7.500 1,363,629
------------
Illinois -- 12.93%
2,500 Chicago Series A2 (AMBAC
Insured)............... 01/01/15 6.250 2,904,950
14,500 Illinois Board of
Education Chicago
School Reform (AMBAC
Insured)............... 12/01/17 to 12/01/30 5.250 to 5.800 14,990,210
1,000 Illinois Board of
Education Chicago
School Reform (MBIA
Insured)............... 12/01/12 6.250 1,166,800
4,335 Illinois Development
Finance Authority
Citizens Utilities..... 08/01/20 7.150 4,541,563
3,625 Illinois Development
Finance Authority
Revenue Refunding
Community Rehab
Providers A............ 07/01/09 to 07/01/15 5.900 to 6.000 3,790,491
1,000 Illinois Educational
Facilities Authority
Revenue Augustana
College Refunding...... 10/01/13 5.000 982,680
660 Illinois Health
Facilities Authority
Revenue Evangelical
Hospital............... 04/15/17 6.750 780,133
2,000 Metropolitan Pier &
Exposition Authority
(Illinois) McCormick
Place Convention
Complex................ 07/01/26 7.000 2,434,600
1,170 Northern Illinois
University (Pre-
refunded with U.S.
Government Securities
to 10/01/09 @ 100)..... 04/01/13 10.400 1,704,023
4,620 Regional Transportation
Authority (Pre-refunded
with U.S. Government
Securities to 06/01/04
@ 102) (FGIC Insured).. 06/01/14 7.100 5,401,104
------------
38,696,554
------------
Indiana -- 4.14%
2,550 East Chicago Indiana
Multi School Building
Corporation (AMBAC
Insured)............... 07/15/14 5.500 2,666,280
3,000 Indiana Health Facility
Finance Authority
Methodist Hospital of
Indiana................ 09/01/15 5.750 3,300,750
6,000 Indianapolis Indiana
Airport Authority
Revenue Special
Facility United Air
Lines Project Series A. 11/15/31 6.50 6,432,000
------------
12,399,030
------------
Kansas -- 1.76%
5,000 Kansas State Department
Transportation Highway
Revenue................ 03/01/13 5.375 5,268,600
------------
Massachusetts -- 7.96%
21,190 Massachusetts State
Turnpike Authority
Metropolitan Highway
Systems Revenue (MBIA
Insured)............... 01/01/27 5.000 20,721,277
3,000 Massachusetts State
Water Resources
Authority (MBIA
Insured)............... 11/01/15 5.500 3,110,640
------------
23,831,917
------------
</TABLE>
23
<PAGE>
PaineWebber National Tax-Free Income Fund
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
--------- -------- -------- ------------
<C> <S> <C> <C> <C>
Municipal Bonds and Notes (continued)
Michigan -- 0.69%
$ 1,915 Royal Oak Hospital Finance
Authority William Beaumont
Hospital.......................... 01/01/19 6.625% $ 2,064,772
------------
New Hampshire -- 0.63%
1,275 New Hampshire Higher Educational &
Health Facilities Authority
Revenue New Hampshire College..... 01/01/07 5.950 1,363,052
500 New Hampshire Industrial
Development Authority Central
Maine Power Company............... 05/01/14 7.375 537,865
------------
1,900,917
------------
New Jersey -- 6.33%
2,500 New Jersey Economic Development
Authority Economic Development
Revenue........................... 04/01/18 6.375 2,583,175
1,890 New Jersey Housing General
Resolution Series A............... 11/01/04 6.700 2,009,486
12,000 New Jersey State Turnpike Authority
(MBIA Insured).................... 01/01/16 6.500 14,337,720
------------
18,930,381
------------
New York -- 15.65%
4,350 Long Island Power Authority New
York Electric Systems Revenue
General Series A.................. 12/01/29 5.500 4,484,371
4,500 New York City Series D............. 08/01/17 5.375 4,639,365
3,000 New York City Industrial
Development Bonds Brooklyn Navy
Yard.............................. 10/01/36 5.750 3,076,440
4,960 New York City Municipal Water
Finance Authority Water & Sewer
Systems Revenue
Series A.......................... 06/15/12 7.100 5,388,792
3,691 New York State Energy Research &
Development Long Island Lighting.. 02/01/22 7.150 3,896,896
2,780 New York State Energy Research &
Development Authority Electric
Facilities Revenue Series A....... 06/01/20 7.150 3,048,078
525 New York State Energy Research &
Development Authority Electric
Facilities Revenue Series B....... 09/01/19 7.150 576,345
300 New York City Municipal Water
Finance Authority................. 03/01/99 3.150* 300,000
2,400 New York State Environmental
Facilities Corporation State Water
Pollution Control................. 06/15/14 6.875 2,731,656
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 4,167,324
3,825 New York State Local Government
Assistance Corporation............ 04/01/14 6.000 4,362,566
3,000 New York State Thruway Authority
Highway & Bridge Trust Fund Series
B................................. 04/01/14 5.250 3,138,240
1,000 Port Authority of New York & New
Jersey Kennedy International
Airport Cogeneration Project 4th
Installment Project............... 10/01/11 6.750 1,109,470
3,100 Triborough Bridge & Tunnel
Authority......................... 01/01/10 7.100 3,341,366
2,550 Triborough Bridge & Tunnel
Authority New York Revenues
General Purpose................... 01/01/27 5.200 2,571,344
------------
46,832,253
------------
North Carolina -- 1.76%
3,400 North Carolina Eastern Municipal
Power Agency (MBIA Insured)....... 01/01/13 7.000 4,216,714
1,000 North Carolina Housing Finance
Agency............................ 03/01/18 6.200 1,060,890
------------
5,277,604
------------
North Dakota -- 0.12%
340 North Dakota State Housing Finance
Agency Revenue.................... 07/01/16 6.300 365,299
------------
</TABLE>
24
<PAGE>
PaineWebber National Tax-Free Income Fund
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
--------- -------------------- -------------- ------------
<C> <S> <C> <C> <C>
Municipal Bonds and Notes
(continued)
Ohio -- 5.33%
$ 1,145 Butler County
Transportation
Improvement District
(FSA Insured).......... 04/01/11 6.000% $ 1,292,797
6,000 Cleveland Airport
Special Revenue
Refunding Continental
Airlines Incorporated.. 12/01/08 5.500 6,071,280
2,250 Cleveland Public Power
Systems Revenue........ 11/15/17 7.000 2,465,572
6,000 Ohio State Water
Development Authority
Solid Waste Disposal
Revenue Bay Shore Power
Project................ 09/01/20 5.875 6,119,160
------------
15,948,809
------------
Pennsylvania -- 2.09%
3,365 Beaver County
Pennsylvania Pollution
Control Revenue........ 06/01/21 7.000 3,648,737
2,500 Philadelphia Water &
Wastewater Revenue
Refunding Series 1999.. 12/15/06 5.000 2,602,050
------------
6,250,787
------------
Puerto Rico -- 0.56%
1,500 Puerto Rico Commonwealth
(MBIA Insured)......... 07/01/15 5.650 1,666,665
------------
South Carolina -- 3.06%
1,000 Charleston Waterworks &
Sewer Revenue (AMBAC
Insured)............... 01/01/16 6.000 1,072,810
7,600 Piedmont Municipal Power
Agency (MBIA Insured).. 01/01/23 4.000 6,481,660
1,500 South Carolina State
Housing Finance
Development Single
Family Mortgage
Purchase............... 07/01/18 5.500 1,603,785
------------
9,158,255
------------
Texas -- 11.51%
4,850 Alliance Airport
Authority Incorporated
Texas Special
Facilities Revenue
America Airlines
Incorporated Project... 12/01/29 7.500 5,200,461
3,000 Austin Utility Systems
Revenue (AMBAC
Insured)++............. 11/15/12 6.750 3,671,250
1,200 Guadalupe Blanco River
Authority Central Tax
Power.................. 03/01/99 3.200* 1,200,000
6,575 Harris County Lease (1). 05/15/02 to 05/01/14 5.400 to 5.900 6,854,134
710 Harris County Toll Road
Authority (AMBAC
Insured)............... 08/15/17 6.500 780,794
1,315 Hereford Texas
Independent School
District Public
Facility Corporation
School Facility Lease
Revenue................ 08/15/13 5.125 1,331,490
1,500 Port Arthur Texas
Navigation District
(AMBAC Insured)........ 03/01/12 5.125# 809,115
1,295 San Antonio Texas
Certificate of
Obligation Series A.... 02/01/15 5.250 1,340,558
1,425 San Antonio Texas
General Obligation
Series A............... 02/01/15 5.250 1,475,131
355 Texas State Prerefunded
Water Development
Board.................. 08/01/18 5.750 390,543
2,345 Texas State Public
Property Finance
Corporation Revenue
Mental Health.......... 09/01/03 5.400 2,391,009
8,000 Texas State Turnpike
Authority North Thruway
Revenue President
George Bush Turnpike
(FGIC Insured)......... 01/01/25 5.000 7,840,240
1,085 Texas State Unrefunded
Water Development
Board.................. 08/01/18 5.750 1,173,167
------------
34,457,892
------------
Utah -- 0.19%
520 Utah State Housing
Finance Agency (FHA
Insured)............... 01/01/11 6.450 556,260
------------
</TABLE>
25
<PAGE>
PaineWebber National Tax-Free Income Fund
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
--------- -------------------- -------------- ------------
<C> <S> <C> <C> <C>
Municipal Bonds and Notes
(concluded)
Virginia -- 2.19%
$ 500 Peninsula Ports
Authority Virginia
Hospital Facility
Revenue (FHA Insured).. 08/01/23 8.700% $ 536,375
4,800 Pittsylvania County
Virginia Industrial
Development Authority
Revenue (1)............ 01/01/10 7.650 5,362,464
600 Hampton Roads Medical
College................ 11/15/16 6.875 645,870
------------
6,544,709
------------
Wyoming -- 3.79%
1,500 Lincoln County Pollution
Control Revenue Exxon
Project A.............. 03/01/99 3.100* 1,500,000
9,000 Sweetwater County Solid
Waste Disposal Revenue
FMC Corporation
Project................ 06/01/24 7.000 9,853,110
------------
11,353,110
------------
U.S. Virgin Islands -- 0.51%
1,525 Virgin Islands Water &
Power Authority Water
Systems Revenue........ 07/01/12 to 07/01/17 5.250 to 5.500 1,512,968
------------
Total Investments (cost --
$280,870,937) -- 98.82%........... 295,748,718
Other assets in excess of
liabilities -- 1.18%............... 3,530,103
------------
Net Assets -- 100.00%.............. $299,278,821
============
</TABLE>
- ---------
* Variable rate demand notes and variable rate certificates of participation
which are payable on demand. The maturity dates shown are the next interest
rate reset dates; the interest rates shown are the current rates as of
February 28, 1999.
# Zero coupon bond interest rate reflects yield to maturity at date of
purchase.
++ Purchased on a forward commitment basis.
(1) Illiquid securities representing 4.60% of net assets.
AMBAC - American Municipal Bond Assurance Corporation
FGIC - Financial Guaranty Insurance Company
FHA - Federal Housing Authority
FSA - Financial Security Assurance Incorporated
MBIA - Municipal Bond Investors Assurance
See accompanying notes to financial statements
26
<PAGE>
PaineWebber Municipal High Income Fund
Portfolio of Investments February 28, 1999
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
--------- -------------------- -------------- ------------
<C> <S> <C> <C> <C>
Municipal Bonds and Notes -- 98.57%
Alaska -- 1.30%
$1,445 Alaska Industrial
Development & Export
Authority Power Revenue
Upper Lynn Canal
Regional Power......... 01/01/32 5.875% $ 1,432,400
------------
Arizona -- 0.27%
300 Pinal County Arizona
Industrial Development
Authority
Pollution Control
Revenue................ 03/01/99 3.200* 300,000
------------
Arkansas -- 1.37%
1,500 Little Rock Arkansas
Capital Improvement
Revenue
Parks & Recreation
Projects Series A...... 01/01/18 5.700 1,509,525
------------
California -- 7.88%
350 Duarte California
Redevelopment Agency
Tax Allocation
Refunding
Davis Addition Project. 09/01/14 6.700 373,114
3,000 Lake Elsinore California
Public Financing
Authority Local Agency
Revenue................ 09/01/20 7.100 3,236,400
1,000 Lake Elsinore California
Recreation Authority
Revenue
Public Facilities
Project Series A....... 02/01/17 7.100 1,044,560
2,975 Long Beach Aquarium of
the Pacific California
Revenue................ 07/01/15 6.125 3,155,047
800 Poway Community
Facilities District
Parkway Business
Center................. 08/15/15 6.750 872,352
------------
8,681,473
------------
Colorado -- 4.31%
1,500 Black Hawk Colorado
Device Tax Revenue..... 12/01/21 5.625 1,484,670
3,000 Hyland Hills
Metropolitan Park and
Recreation District.... 12/15/15 6.750 3,268,590
------------
4,753,260
------------
Georgia -- 1.04%
100 Burke County Georgia
Development Authority
Pollution Control
Revenue
Daily Georgia Power
Company Plant.......... 03/01/99 3.150* 100,000
1,000 Development Authority of
Effingham County Fort
Howard Paper
(assumed by Fort James
Corporation)........... 10/01/05 7.900 1,047,460
------------
1,147,460
------------
Illinois -- 7.55%
1,100 Chicago Illinois O'Hare
International Airport
Special Facility
Revenue
United Air Lines
Project Series A....... 09/01/16 5.350 1,095,039
750 Illinois Educational
Facilities Authority
Revenue Augustana
College................ 10/01/18 5.250 733,800
750 Illinois Educational
Facilities Authority
Revenue Columbia
College................ 12/01/17 6.875 822,735
1,750 Illinois Educational
Facilities Authority
Revenue Columbia
College
(Pre-refunded with U.S.
Government Securities
to 12/01/04 @ 100)..... 12/01/17 6.875 2,020,200
3,000 Metropolitan Pier &
Exposition Authority
(Illinois) McCormick
Place
Convention Complex..... 07/01/26 7.000 3,651,900
------------
8,323,674
------------
Indiana -- 12.57%
1,300 Crawfordsville Economic
Development Authority
Kroger Co.............. 11/01/12 7.700 1,444,066
4,000 Indiana State
Development Finance
Authority Inland Steel
Corporation............ 11/01/11 7.250 4,167,880
</TABLE>
27
<PAGE>
PaineWebber Municipal High Income Fund
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
--------- -------------------- -------------- ------------
<C> <S> <C> <C> <C>
Municipal Bonds and Notes
(continued)
Indiana -- (concluded)
$2,500 Indianapolis Airport
Authority Federal
Express................ 01/15/17 7.100% $ 2,798,475
3,000 Indianapolis Indiana
Airport Authority
Revenue Special
Facilities
United Air Lines
Project Series A....... 11/15/31 6.500 3,216,000
2,000 Wabash Solid Waste
Disposal Jefferson
Smurfit Corporation
Project................ 06/01/26 7.500 2,233,080
------------
13,859,501
------------
Kansas -- 0.22%
250 Shawnee County Kansas
Certificates
Participation Community
Mental Health Center
Incorporated........... 07/01/19 5.350 239,985
------------
Kentucky -- 3.95%
2,200 Ashland Sewage and Solid
Waste Ashland
Incorporated Project+.. 02/01/22 7.125 2,479,048
1,250 Kenton County Airport
Board Delta Airlines... 02/01/21 7.125 1,343,675
440 Russell Health Financing
Authority Franciscan
Sisters of the Poor
Health System.......... 07/01/15 8.100 528,035
------------
4,350,758
------------
Louisiana -- 2.95%
1,000 Pointe Coupee Parish
Gulf States Utilities.. 03/01/13 6.700 1,064,050
2,000 West Feliciana Parish
Gulf States Utilities.. 12/01/14 7.700 2,182,000
------------
3,246,050
------------
Massachusetts -- 0.82%
890 Agawam Resource Recovery
Springfield Project.... 12/01/08 8.500 902,246
------------
Michigan -- 0.09%
100 Delta County Michigan
Economic Development
Corporation
Environmental
Improvement Revenue.... 03/01/99 3.250* 100,000
------------
Minnesota -- 0.18%
200 Beltrami County
Minnesota Environmental
Control Revenue
Northwood Panelboard
Company Project........ 03/01/99 3.200* 200,000
------------
Mississippi -- 2.23%
2,400 Jones County Mississippi
Solid Waste Disposal
Revenue
International Paper
Company Project........ 10/01/21 5.800 2,459,040
------------
New Hampshire -- 4.53%
1,690 New Hampshire Higher
Educational & Health
Facilities Authority
Revenue
New Hampshire College.. 01/01/16 6.300 1,770,647
3,000 New Hampshire Industrial
Development Authority
Central Maine Power
Company................ 05/01/14 7.375 3,227,190
------------
4,997,837
------------
</TABLE>
28
<PAGE>
PaineWebber Municipal High Income Fund
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
--------- -------------------- -------------- ------------
<C> <S> <C> <C> <C>
Municipal Bonds and Notes (continued)
New Jersey -- 6.65%
$5,000 New Jersey Economic
Development Authority
Kapkowski Road Landfill.. 04/01/18 6.500% $ 5,167,300
2,000 New Jersey Economic
Development Authority
Vineland Cogeneration
L.P. Project............. 06/01/19 7.875 2,162,800
------------
7,330,100
------------
New York -- 8.13%
2,000 New York City Industrial
Development Agency
Laguardia Associates L.P.
Project.................. 11/01/28 6.000 1,970,900
1,250 New York City Industrial
Development Agency
Special Facilities
Revenue American Airlines
Incorporated Project..... 07/01/19 to 08/01/24 5.400 to 6.900 1,354,205
3,500 Port Authority New York &
New Jersey Kennedy
International Airport
Cogeneration Project 4th
Installment Project...... 10/01/11 6.750 3,883,145
1,750 Suffolk County New York
Industrial Development
Agency
Nissequogue Cogen Partners
Facility................. 01/01/13 to 01/01/23 5.300 to 5.500 1,751,605
------------
8,959,855
------------
Ohio -- 5.69%
3,000 Dayton Emery Air Freight.. 10/01/09 6.200 3,209,820
3,000 Ohio State Water
Development Authority Bay
Shore Power Project...... 09/01/20 5.875 3,059,580
------------
6,269,400
------------
Pennsylvania -- 2.51%
1,500 Beaver County Industrial
Development Authority
Toledo Edison............ 05/01/20 7.750 1,719,990
1,000 Northeastern Pennsylvania
Hospital and Education
Authority College
Revenue.................. 07/15/18 6.000 1,043,490
------------
2,763,480
------------
Texas -- 5.77%
212 Department of Transport
Project State of Texas
Municipal Bond(1)........ 09/15/12 7.000 218,873
1,875 El Paso International
Airport Marriott Hotel... 03/01/22 7.875 1,994,231
2,000 Harris County Texas Lease
Agreement(1)............. 05/01/14 5.800 2,106,660
2,000 Houston Texas Airport
Systems Revenue Special
Facilities Continental
Airlines................. 07/15/17 6.125 2,042,800
------------
6,362,564
------------
Utah -- 2.47%
2,500 Tooele County Utah
Hazardous Waste Disposal
Revenue.................. 08/01/10 6.750 2,722,800
------------
Virginia -- 7.58%
3,860 Alexandria Virginia
Redevelopment and Housing
Authority Multi-Family
Housing Revenue Mortgage
Buckingham Village
Apartments............... 01/01/29 5.500 3,795,770
1,175 Loudoun County Industrial
Development Authority
Dulles Airport Marriott
Hotel.................... 09/01/15 7.125 1,286,237
500 Peninsula Ports Authority
Virginia Hospital
Facility Revenue (FHA
Insured)................. 08/01/23 8.700 536,375
2,500 Pittsylvania County
Virginia Industrial
Development Authority
Revenue(1)............... 01/01/14 7.500 2,734,350
------------
8,352,732
------------
Washington -- 1.41%
1,500 Pilchuck Development
Public Corporation
Revenue Special
Facilities Airport
Revenue.................. 08/01/23 6.000 1,550,670
------------
</TABLE>
29
<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)
West Virginia -- 1.96%
$1,900 Harrison County
Commercial Development
Bonds Kroger Company... 11/01/14 8.100% $ 2,156,899
------------
Wisconsin -- 3.68%
3,900 Janesville Industrial
Development Revenue
Bonds Simmons
Manufacturing Company
Paramount
Communications......... 10/15/17 7.000 4,059,237
------------
Wyoming -- 0.09%
100 Lincoln County Pollution
Control Revenue Exxon
Project A.............. 03/01/99 3.100* 100,000
------------
U.S. Virgin Islands -- 1.37%
1,520 Virgin Islands Water and
Power Authority Water
Systems Revenue
Refunding.............. 07/01/09 to 07/01/17 5.000 to 5.500 1,508,391
------------
Total Investments (cost --
$104,249,733) -- 98.57%........... 108,639,337
Other assets in excess of
liabilities -- 1.43%............... 1,576,339
------------
Net Assets -- 100.00%.............. $110,215,676
============
</TABLE>
- ---------
* Variable rate demand notes and variable rate certificates of participation
which are payable on demand. The maturity dates shown are the next interest
rate reset dates; the interest rates shown are the current rates as of
February 28, 1999.
+ Entire principal amount pledged as collateral for futures transactions.
(1) Illiquid securities representing 4.6% of net assets.
FHA -- Federal Housing Authority
Futures Contracts
<TABLE>
<CAPTION>
Number of In Expiration Unrealized
Contracts Contracts to Buy Exchange For Date Appreciation
--------- ------------------------------- ------------ ---------- ------------
<C> <S> <C> <C> <C>
21 Municipal Bond Futures......... $2,597,438 June 99 $11,156
=======
</TABLE>
See accompanying notes to financial statements
30
<PAGE>
PaineWebber New York Tax-Free Income Fund
Portfolio of Investments February 28, 1999
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
--------- -------------------- -------------- -----------
<C> <S> <C> <C> <C>
Municipal Bonds and Notes -- 98.82%
New York -- 90.25%
$1,000 Erie County Water
Revenue Authority
(AMBAC Insured)........ 12/01/14 6.750% $ 1,206,220
1,000 Huntington New York
Refunding.............. 04/01/13 5.500 1,065,680
1,600 Long Island Power
Authority New York
Electric Systems
Revenue General Series
A...................... 12/01/26 5.250 1,607,984
1,500 New York City Series D.. 08/01/17 5.375 1,546,455
2,100 New York City (FGIC
Insured) Series J...... 02/15/26 5.500 2,199,855
1,000 New York City Industrial
Development Bonds
Brooklyn Navy Yard..... 10/01/36 5.750 1,025,480
1,900 New York City Industrial
Development Bonds Japan
Airlines Company....... 11/01/15 6.000 2,045,996
1,730 New York City Industrial
Development Bonds
Lighthouse Project..... 07/01/22 6.500 1,911,685
545 New York City Municipal
Water Finance Authority
Water & Sewer Systems
Revenue................ 06/15/12 7.100 592,115
100 New York City Municipal
Water Finance Authority
Water & Sewer Systems
Revenue................ 06/15/23 3.150 100,000
1,500 New York City Municipal
Water Finance Authority
Water & Sewer Systems
Revenue (MBIA Insured). 06/15/27 5.500 1,573,335
1,000 New York City Industrial
Development Agency
Special Facility
Revenue................ 07/01/19 5.400 1,011,340
680 New York State Energy
Research And
Development Authority
Electric Facilities
Revenue Long Island
Lighting A Remarketed.. 12/01/20 7.150 756,286
1,000 New York State Series A. 03/15/11 5.700 1,074,200
1,000 New York State (AMBAC
Insured)............... 06/15/10 6.000 1,103,770
1,000 New York State Dormitory
Authority Revenue Bonds
City University of New
York+.................. 07/01/16 5.625 1,075,480
1,000 New York State Dormitory
Authority Revenue Bonds
City University Of New
York................... 07/01/28 5.000 965,620
40 New York State Dormitory
Authority Revenue Bonds
Fordham University
(AMBAC Insured)........ 07/01/15 7.200 42,678
700 New York State Dormitory
Authority Revenue Bonds
State University of New
York................... 05/15/16 7.000 740,831
1,500 New York State Dormitory
Authority Revenues
Mental Health Services
Facilities Improvement
G...................... 08/15/13 5.250 1,573,275
800 New York State Energy
Research & Development
Central Hudson Gas &
Electric (FGIC
Insured)............... 10/01/14 7.375 842,592
2,400 New York State Energy
Research & Development
Consolidated Edison
Company................ 08/15/20 6.100 2,612,592
300 New York State Energy
Research & Development
Long Island Lighting... 02/01/22 7.150 331,839
250 New York State Energy
Research & Development
Niagara Mohawk (FGIC
Insured)............... 10/01/13 6.625 271,637
1,500 New York State
Environmental
Facilities Corp. Spring
Valley Water (AMBAC
Insured)............... 08/01/24 6.150 1,669,800
70 New York State
Environmental
Facilities Corp. State
Water Pollution
Control................ 06/15/10 7.250 76,621
10 New York State Housing
Finance Agency......... 09/15/12 7.300 11,018
2,250 New York State Local
Government Assistance
Corp. Refunding Series
B...................... 04/01/20 4.875 2,196,292
1,500 New York State Medical
Care Facilities
Hospital and Nursing
(Huntington Hospital).. 11/01/14 6.500 1,616,355
2,000 New York State Thruway
Authority Highway &
Bridge Trust Fund
Series B............... 04/01/14 5.250 2,092,160
1,000 New York State Thruway
Authority Highway &
Bridge Trust Fund
Series C............... 04/01/18 5.000 980,660
1,025 Niagara Falls (FGIC
Insured)............... 06/15/08 5.500 1,095,704
60 Oneida Herkimer New York
Solid Waste............ 04/01/14 6.750 64,269
1,000 Port Authority of New
York & New Jersey
Kennedy International
Airport Cogeneration
Project................ 10/01/11 6.750 1,109,470
750 Suffolk County New York
Industrial Development
Agency Industrial
Development Revenue
Nissequogue Cogen
Partners Facility...... 01/01/13 5.300 748,485
1,500 Triborough Bridge &
Tunnel Authority....... 01/01/12 to 01/01/17 5.500 to 6.000 1,682,075
-----------
40,619,854
-----------
</TABLE>
31
<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)
Puerto Rico -- 8.13%
$2,700 Puerto Rico Commonwealth
Highway &
Transportation
Authority.............. 07/01/13 to 07/01/36 5.000 to 6.250% $ 2,842,692
785 Puerto Rico Industrial
Medical & Environmental
Authority Warner
Lambert................ 05/01/14 7.600 814,469
-----------
3,657,161
-----------
U.S. Virgin Islands -- 0.44%
200 Virgin Islands Water And
Power Authority Water
Systems Revenue
Refunding.............. 07/01/17 5.500 197,934
-----------
Total Investments (cost --
$42,008,940) -- 98.82%............ 44,474,949
Other assets in excess of
liabilities -- 1.18%............... 531,839
-----------
Net Assets -- 100.00%.............. $45,006,788
===========
</TABLE>
- ---------
+ Entire principal amount pledged as collateral for futures transactions.
AMBAC -- American Municipal Bond Assurance Corporation
FGIC -- Federal Guaranty Insurance Corp.
MBIA -- Municipal 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>
12 Municipal Bond Futures........ $1,477,500 June 99 $6,374
======
</TABLE>
See accompanying notes to financial statements
32
<PAGE>
PaineWebber
Statements of Assets and Liabilities February 28, 1999
<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--
$156,690,702, $280,870,937,
$104,249,733 and
$42,008,940, respectively). $161,719,424 $295,748,718 $108,639,337 $44,474,949
Cash........................ 39,408 29,354 56,856 66,291
Receivable for investments
sold....................... 1,056,850 9,007,697 3,937,720 --
Interest receivable......... 2,429,591 3,827,230 1,842,776 575,293
Receivable for shares of
beneficial interest sold... 129,940 46,392 40,665 29,409
Variation margin receivable. 10,625 -- 11,813 6,750
Other assets................ 27,910 107,828 90,597 31,023
------------ ------------ ------------ -----------
Total assets................ 165,413,748 308,767,219 114,619,764 45,183,715
------------ ------------ ------------ -----------
Liabilities
Payable for investments
purchased.................. 12,919,009 8,594,200 4,000,000 --
Payable for shares of
beneficial interest
repurchased................ 179,193 197,589 136,805 86,709
Dividends payable........... 101,965 202,593 80,682 28,342
Payable to affiliates....... 79,320 204,445 91,556 20,588
Accrued expenses and other
liabilities................ 118,421 289,571 95,045 41,288
------------ ------------ ------------ -----------
Total liabilities........... 13,397,908 9,488,398 4,404,088 176,927
------------ ------------ ------------ -----------
Net Assets
Beneficial interest--$0.001
par value (unlimited number
authorized)................ 146,222,446 283,333,401 105,275,294 42,373,303
Accumulated net realized
gains from investments and
futures transactions....... 754,672 1,067,639 539,622 161,102
Net unrealized appreciation
of investments and futures. 5,038,722 14,877,781 4,400,760 2,472,383
------------ ------------ ------------ -----------
Net assets.................. $152,015,840 $299,278,821 $110,215,676 $45,006,788
============ ============ ============ ===========
Class A:
Net assets.................. $119,265,636 $227,150,704 $ 66,771,074 $27,171,343
------------ ------------ ------------ -----------
Shares outstanding.......... 10,670,506 19,364,985 6,137,923 2,462,720
------------ ------------ ------------ -----------
Net asset value and
redemption value per share. $11.18 $11.73 $10.88 $11.03
====== ====== ====== ======
Maximum offering price per
share (net asset value plus
sales charge of 4.00% of
offering price)............ $11.65 $12.22 $11.33 $11.49
====== ====== ====== ======
Class B:
Net assets.................. $ 13,755,851 $24,085,408 $18,675,403 $ 6,012,927
------------ ------------ ------------ -----------
Shares outstanding.......... 1,229,885 2,053,977 1,717,525 545,175
------------ ------------ ------------ -----------
Net asset value and offering
price per share............ $11.18 $11.73 $10.87 $11.03
====== ====== ====== ======
Class C:
Net assets.................. $ 18,681,871 $ 47,721,787 $ 24,355,138 $11,801,840
------------ ------------ ------------ -----------
Shares outstanding.......... 1,672,611 4,068,673 2,239,418 1,069,479
------------ ------------ ------------ -----------
Net asset value and offering
price per share............ $11.17 $11.73 $10.88 $11.04
====== ====== ====== ======
Class Y:
Net assets.................. $ 312,482 $ 320,922 $ 414,061 $ 20,678
------------ ------------ ------------ -----------
Shares outstanding.......... 27,959 27,353 38,054 1,875
------------ ------------ ------------ -----------
Net asset value, offering
price and redemption value
per share.................. $11.18 $11.73 $10.88 $11.03
====== ====== ====== ======
</TABLE>
See accompanying notes to financial statements
33
<PAGE>
PaineWebber
Statement of Operations
<TABLE>
<CAPTION>
For the Year Ended February 28, 1999
--------------------------------------------------
California National Municipal New York
Tax-Free Tax-Free High Tax-Free
Income Fund Income Fund Income Fund Income Fund
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Investment income:
Interest..................... $ 8,176,725 $ 17,236,100 $ 6,468,916 $2,498,752
----------- ------------ ----------- ----------
Expenses:
Investment advisory and
administration.............. 754,659 1,522,045 632,526 273,412
Service fees--Class A........ 295,776 571,447 159,618 66,771
Service and distribution
fees--Class B............... 146,383 273,146 184,576 67,141
Service and distribution
fees--Class C............... 133,179 361,729 171,032 90,995
Custody and accounting....... 78,070 155,439 55,108 25,004
Legal and audit.............. 72,405 77,937 70,161 66,273
State registration........... 51,354 67,369 57,381 44,334
Reports and notices to
shareholders................ 46,990 117,483 45,660 21,275
Transfer agency and service
fees........................ 42,784 137,173 39,146 20,742
Trustees' fees............... 10,500 10,500 10,500 10,500
Other expenses............... 22,651 40,168 4,977 1,725
----------- ------------ ----------- ----------
1,654,751 3,334,436 1,430,685 688,172
Less: Fee waivers from
adviser..................... (200,824) -- -- (112,366)
----------- ------------ ----------- ----------
Net expenses................. 1,453,927 3,334,436 1,430,685 575,806
----------- ------------ ----------- ----------
Net investment income........ 6,722,798 13,901,664 5,038,231 1,922,946
----------- ------------ ----------- ----------
Realized and unrealized gains
(losses) from investment
activities:
Net realized gains (losses)
from:
Investment transactions..... 3,107,363 7,509,246 1,362,352 1,122,408
Futures transactions........ 48,625 176,203 (46,556) 104,729
Net change in unrealized
appreciation/depreciation
of:
Investments................. (1,814,201) (6,616,634) (2,022,521) (638,759)
Futures..................... (3,594) -- 11,156 20,780
----------- ------------ ----------- ----------
Net realized and unrealized
gains (losses) from
investment activities....... 1,338,193 1,068,815 (695,569) 609,158
----------- ------------ ----------- ----------
Net increase in net assets
resulting from operations... $ 8,060,991 $ 14,970,479 $ 4,342,662 $2,532,104
=========== ============ =========== ==========
</TABLE>
See accompanying notes to financial statements
34
<PAGE>
PaineWebber California Tax-Free Income Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Years Ended
February 28,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
From operations:
Net investment income.............................. $ 6,722,798 $ 6,856,811
Net realized gains from investments and futures
transactions...................................... 3,155,988 5,302,721
Net change in unrealized appreciation/depreciation
of investments and futures........................ (1,817,795) 1,174,070
------------ ------------
Net increase in net assets resulting from
operations........................................ 8,060,991 13,333,602
------------ ------------
Dividends and distributions to shareholders from:
Net investment income -- Class A................... (5,429,352) (5,468,084)
Net investment income -- Class B................... (557,752) (702,870)
Net investment income -- Class C................... (724,462) (685,475)
Net investment income -- Class Y................... (11,232) (382)
Net realized gains from investment transactions --
Class A.......................................... (3,272,689) --
Net realized gains from investment transactions --
Class B.......................................... (400,415) --
Net realized gains from investment transactions --
Class C.......................................... (512,411) --
Net realized gains from investment transactions --
Class Y.......................................... (7,943) --
------------ ------------
Total dividends and distributions to shareholders.. (10,916,256) (6,856,811)
------------ ------------
From beneficial interest transactions:
Net proceeds from the sale of shares............... 18,059,890 13,562,128
Cost of shares repurchased......................... (22,951,550) (34,717,050)
Proceeds from dividends reinvested................. 5,540,671 3,292,864
------------ ------------
Net increase (decrease) in net assets derived from
beneficial interest transactions.................. 649,011 (17,862,058)
------------ ------------
Net decrease in net assets......................... (2,206,254) (11,385,267)
Net assets:
Beginning of year.................................. 154,222,094 165,607,361
------------ ------------
End of year........................................ $152,015,840 $154,222,094
============ ============
</TABLE>
See accompanying notes to financial statements
35
<PAGE>
PaineWebber National Tax-Free Income Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Years Ended
February 28,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
From operations:
Net investment income.............................. $ 13,901,664 $ 15,042,406
Net realized gains from investments and futures
transactions ..................................... 7,685,449 8,074,251
Net change in unrealized appreciation/depreciation
of investments.................................... (6,616,634) 5,686,557
------------ ------------
Net increase in net assets resulting from
operations........................................ 14,970,479 28,803,214
------------ ------------
Dividends and distributions to shareholders from:
Net investment income--Class A..................... (10,791,089) (11,333,618)
Net investment income--Class B..................... (1,072,277) (1,448,904)
Net investment income--Class C..................... (2,024,190) (2,247,870)
Net investment income--Class Y..................... (14,108) (12,014)
Net realized gains from investment transactions--
Class A........................................... (5,560,128) (1,614,300)
Net realized gains from investment transactions--
Class B........................................... (614,087) (234,614)
Net realized gains from investment transactions--
Class C........................................... (1,135,565) (351,055)
Net realized gains from investment transactions--
Class Y........................................... (7,094) (1,632)
------------ ------------
Total dividends and distributions to shareholders.. (21,218,538) (17,244,007)
------------ ------------
From beneficial interest transactions:
Net proceeds from the sale of shares............... 29,885,363 18,067,615
Cost of shares repurchased......................... (50,116,104) (93,133,232)
Proceeds from dividends reinvested................. 14,014,344 10,977,802
------------ ------------
Net decrease in net assets from beneficial interest
transactions...................................... (6,216,397) (64,087,815)
------------ ------------
Net decrease in net assets......................... (12,464,456) (52,528,608)
Net assets:
Beginning of year.................................. 311,743,277 364,271,885
------------ ------------
End of year........................................ $299,278,821 $311,743,277
============ ============
</TABLE>
See accompanying notes to financial statements
36
<PAGE>
PaineWebber Municipal High Income Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Years Ended
February 28,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
From operations:
Net investment income.............................. $ 5,038,231 $ 4,495,846
Net realized gains from investments and futures
transactions...................................... 1,315,796 1,064,838
Net change in unrealized appreciation/depreciation
of investments and futures........................ (2,011,365) 3,836,633
------------ ------------
Net increase in net assets resulting from
operations........................................ 4,342,662 9,397,317
------------ ------------
Dividends and distributions to shareholders from:
Net investment income--Class A..................... (3,208,275) (2,812,137)
Net investment income--Class B..................... (783,090) (806,054)
Net investment income--Class C..................... (1,030,416) (877,465)
Net investment income--Class Y..................... (16,450) (190)
Net realized gains from investment transactions--
Class A........................................... (83,846) --
Net realized gains from investment transactions--
Class B........................................... (24,705) --
Net realized gains from investment transactions--
Class C........................................... (29,688) --
Net realized gains from investment transactions--
Class Y........................................... (492) --
------------ ------------
Total dividends and distributions to shareholders.. (5,176,962) (4,495,846)
------------ ------------
From beneficial interest transactions:
Net proceeds from the sale of shares............... 29,444,970 36,280,293
Cost of shares repurchased......................... (20,867,956) (33,150,701)
Proceeds from dividends reinvested................. 3,049,335 2,406,603
------------ ------------
Net increase in net assets from beneficial interest
transactions...................................... 11,626,349 5,536,195
------------ ------------
Net increase in net assets......................... 10,792,049 10,437,666
Net assets:
Beginning of year.................................. 99,423,627 88,985,961
------------ ------------
End of year........................................ $110,215,676 $ 99,423,627
============ ============
</TABLE>
See accompanying notes to financial statements
37
<PAGE>
PaineWebber New York Tax-Free Income Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Years Ended
February 28,
-------------------------
1999 1998
----------- ------------
<S> <C> <C>
From operations:
Net investment income............................... $ 1,922,946 $ 1,962,694
Net realized gains from investments and futures
transactions....................................... 1,227,137 840,405
Net change in unrealized appreciation/depreciation
of investments and futures......................... (617,979) 1,013,915
----------- ------------
Net increase in net assets resulting from
operations......................................... 2,532,104 3,817,014
----------- ------------
Dividends and distributions to shareholders from:
Net investment income -- Class A.................... (1,192,008) (1,065,025)
Net investment income -- Class B.................... (248,634) (340,912)
Net investment income -- Class C.................... (481,660) (556,757)
Net investment income -- Class Y.................... (643) --
Net realized gains from investment transactions --
Class A........................................... (609,522) --
Net realized gains from investment transactions --
Class B........................................... (131,564) --
Net realized gains from investment transactions --
Class C........................................... (254,029) --
Net realized gains from investment transactions --
Class Y........................................... (417) --
----------- ------------
Total dividends and distributions to shareholders... (2,918,477) (1,962,694)
----------- ------------
From beneficial interest transactions:
Net proceeds from the sale of shares................ 7,383,454 6,314,160
Cost of shares repurchased.......................... (8,488,955) (11,342,623)
Proceeds from dividends reinvested.................. 2,009,257 1,255,238
----------- ------------
Net increase (decrease) in net assets from
beneficial interest transactions................... 903,756 (3,773,225)
----------- ------------
Net increase (decrease) in net assets............... 517,383 (1,918,905)
Net assets:
Beginning of year................................... 44,489,405 46,408,310
----------- ------------
End of year......................................... $45,006,788 $44,489,405
=========== ============
</TABLE>
See accompanying notes to financial statements
38
<PAGE>
Notes to Financial Statements
Organization and Significant Accounting Policies
PaineWebber Mutual Fund Trust ("Mutual Fund Trust") and PaineWebber Municipal
Series ("Municipal Series") (collectively, the "Trusts") were organized under
Massachusetts law by Declarations of Trust dated November 21, 1986 and January
28, 1987, respectively, and are registered with the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended, as an open-end
diversified management investment company and an open-end non-diversified
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
39
<PAGE>
Notes to Financial Statements
current capital share activity of the respective class). Class-specific ex-
penses are charged directly to the applicable class of shares.
Futures Contracts--Upon entering into a financial futures contract, the Funds
are required to pledge to a broker an amount of cash and/or municipal securi-
ties equal to a certain percentage of the contract amount. This amount is known
as the "initial margin." Subsequently, payments, known as "variation margin,"
are made or received by the Funds each day, depending on the daily fluctuations
in the value of the underlying financial futures contracts. Such variation mar-
gin is recorded for financial statement purposes on a daily basis as unrealized
gain or loss until the financial futures contract is closed, at which time the
net gain or loss is reclassified to realized.
Using financial futures contracts involves various market risks. The maximum
amount at risk from the purchase of a futures contract is the contract value.
The Funds use 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 year ended February 28, 1999, the Funds did not borrow under the Facil-
ity.
Investment Adviser and Administrator
Each Trust's board of trustees has approved an Investment Advisory and Admin-
istration Contract ("Advisory Contract") with Mitchell Hutchins, under which
Mitchell Hutchins serves as investment adviser and administrator of the Funds.
In accordance with the Advisory Contracts, each Fund pays Mitchell Hutchins an
investment advisory and administration fee, which is accrued daily and paid
monthly, at the annual rates of 0.50% of California Tax-Free Income Fund's and
National Tax-Free Income Fund's average daily net assets and 0.60% of Municipal
High Income Fund's and New York Tax-Free Income Fund's average daily net as-
sets. At February 28, 1999, California Tax-Free Income Fund, National Tax-Free
Income Fund, Municipal High Income Fund and New York Tax-Free Income Fund owed
Mitchell Hutchins $35,062, $114,877,
40
<PAGE>
Notes to Financial Statements
$50,610 and $3,766, respectively, in investment advisory and administration
fees. For the year ended February 28, 1999 Mitchell Hutchins voluntarily waived
$200,824 and $112,366 in investment advisory and administration fees from the
California Tax-Free Income Fund and New York Tax-Free Income Fund, respective-
ly.
Distribution Plans
Mitchell Hutchins is the distributor of each Fund's shares and has appointed
PaineWebber as exclusive dealer for the sale of those shares. Under separate
plans of distribution pertaining to Class A, Class B and Class C shares, each
Fund pays Mitchell Hutchins monthly service fees at the annual rate of 0.25% of
the average daily net assets of each class of shares and monthly distribution
fees at the annual rate of 0.75% and 0.50% of the average daily net assets of
Class B and Class C shares, respectively. At February 28, 1999, California Tax-
Free Income Fund, National Tax-Free Income Fund, Municipal High Income Fund and
New York Tax-Free Income Fund owed Mitchell Hutchins $44,258, $89,568, $40,946
and $16,822, 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 year
ended February 28, 1999, it earned $164,517, $209,660, $112,785 and $53,051 in
sales charges for the California Tax-Free Income Fund, National Tax-Free Income
Fund, Municipal High Income Fund and New York Tax-Free Income Fund, respective-
ly.
Transfer Agency Service Fees
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 year ended
February 28, 1999, PaineWebber received from PFPC Inc., not the Funds, approxi-
mately 52%, 50%, 53% and 55% 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 February 28,
1999, was substantially the same as the cost of securities for financial state-
ment purposes.
At February 28, 1999, 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).......... $5,084,280 $15,244,752 $4,624,571 $2,542,078
Gross depreciation
(investments having an excess
of cost over value).......... (55,558) (366,971) (234,967) (76,069)
---------- ----------- ---------- ----------
Net unrealized appreciation of
investments.................. $5,028,722 $14,877,781 $4,389,604 $2,466,009
========== =========== ========== ==========
</TABLE>
41
<PAGE>
Notes to Financial Statements
For the year ended February 28, 1999, 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...................... $79,413,321 $133,881,100 $33,900,210 $20,757,389
Sales.......................... $70,447,574 $171,660,196 $27,035,573 $19,654,922
</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 28,1999, National Tax-Free Income Fund had $394,177 of capital
loss carryforwards available relating to its acquisition on November 3, 1995 of
Mitchell Hutchins/Kidder, Peabody Municipal Bond Fund, which will expire by
February 28, 2003. To the extent that any net capital loss carryforwards are
used, as provided in the regulations, to offset future capital gains, it is
probable that the gains so offset will not be distributed.
42
<PAGE>
Notes to Financial Statements
Shares of Beneficial Interest
There is an unlimited number of $0.001 par value shares of beneficial interest
authorized. Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
------------------------ ---------------------- ------------------------ ----------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ------------ -------- ------------ ---------- ------------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California Tax-
Free Income
Fund
Year Ended
February 28,
1999:
Shares sold..... 740,844 $ 8,433,654 420,927 $ 4,789,060 407,805 $ 4,621,823 18,991 $215,353
Shares
repurchased.... (1,464,217) (16,586,563) (299,581) (3,416,618) (257,876) (2,917,520) (2,750) (30,849)
Shares converted
from Class B to
Class A........ 403,728 4,561,700 (403,372) (4,561,700) -- -- -- --
Dividends
reinvested..... 379,806 4,285,994 38,923 439,604 70,574 795,963 1,693 19,110
---------- ------------ -------- ------------ ---------- ------------ ------ --------
Net increase
(decrease)..... 60,161 $ 694,785 (243,103) $ (2,749,654) 220,503 $ 2,500,266 17,934 $203,614
========== ============ ======== ============ ========== ============ ====== ========
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
========== ============ ======== ============ ========== ============ ====== ========
National Tax-
Free Income
Fund
Year Ended
February 28,
1999:
Shares sold..... 1,202,289 $ 14,355,836 567,368 $ 6,768,383 731,376 $ 8,693,315 5,702 $ 67,829
Shares
repurchased.... (2,772,759) (32,955,038) (430,222) (5,122,831) (1,010,512) (12,035,240) (251) (2,995)
Shares converted
from Class B to
Class A........ 894,312 10,669,407 (894,563) (10,669,407) -- -- -- --
Dividends
reinvested..... 911,223 10,789,984 69,736 825,483 200,823 2,377,551 1,801 21,326
---------- ------------ -------- ------------ ---------- ------------ ------ --------
Net increase
(decrease)..... 235,065 $ 2,860,189 (687,681) $ (8,198,372) (78,313) $ (964,374) 7,252 $ 86,160
========== ============ ======== ============ ========== ============ ====== ========
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)
========== ============ ======== ============ ========== ============ ====== ========
</TABLE>
43
<PAGE>
Notes to Financial Statements
Shares of Beneficial Interest (concluded)
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
------------------------ --------------------- --------------------- ----------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ------------ -------- ----------- -------- ----------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal High Income
Fund
Year Ended February 28,
1999:
Shares sold............. 1,135,193 $ 12,423,758 829,528 $ 9,074,526 689,391 $ 7,542,258 36,978 $404,428
Shares repurchased...... (986,808) (10,797,960) (394,045) (4,308,107) (520,751) (5,700,686) (5,599) (61,203)
Shares converted from
Class B to Class A..... 405,558 4,437,624 (405,705) (4,437,624) -- -- -- --
Dividends reinvested.... 175,957 1,923,125 36,333 396,953 65,218 712,560 1,527 16,697
---------- ------------ -------- ----------- -------- ----------- ------ --------
Net increase............ 729,900 $ 7,986,547 66,111 $ 725,748 233,858 $ 2,554,132 32,906 $359,922
========== ============ ======== =========== ======== =========== ====== ========
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
Year Ended February 28,
1999:
Shares sold............. 399,688 $ 4,460,550 146,747 $ 1,635,818 113,337 $ 1,264,677 2,017 $ 22,409
Shares repurchased...... (400,090) (4,442,034) (103,652) (1,155,003) (259,962) (2,889,290) (236) (2,628)
Shares converted from
Class B to Class A..... 220,207 2,456,208 (220,220) (2,456,208) -- -- -- --
Dividends reinvested.... 112,472 1,247,040 18,141 200,952 50,534 560,221 94 1,044
---------- ------------ -------- ----------- -------- ----------- ------ --------
Net increase (decrease). 332,277 $ 3,721,764 (158,984) $(1,774,441) (96,091) $(1,064,392) 1,875 $ 20,825
========== ============ ======== =========== ======== =========== ====== ========
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>
44
<PAGE>
[This Page Intentionally Left Blank]
45
<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
Years For the For the
Ended Year Year
February 28, Ended Ended
---------------------------- February 29, February 28,
1999 1998 1997 1996 1995
-------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $11.39 $10.91 $11.02 $10.68 $11.41
------ ------ ------ ------ ------
Net investment income... 0.52 0.51 0.52 0.57 0.58
Net realized and
unrealized gains
(losses) from
investments and
futures................ 0.11 0.48 (0.11) 0.34 (0.63)
------ ------ ------ ------ ------
Net increase (decrease)
from investment
operations............. 0.63 0.99 0.41 0.91 (0.05)
------ ------ ------ ------ ------
Dividends from net
investment income...... (0.52) (0.51) (0.52) (0.57) (0.58)
Distributions from net
realized gains from
investment
transactions........... (0.32) -- -- -- (0.10)
------ ------ ------ ------ ------
Total dividends and
distributions to
shareholders........... (0.84) (0.51) (0.52) (0.57) (0.68)
------ ------ ------ ------ ------
Net asset value, end of
period................. $11.18 $11.39 $10.91 $11.02 $10.68
====== ====== ====== ====== ======
Total investment
return(1).............. 5.90% 9.26% 3.92% 8.68% (0.18)%
====== ====== ====== ====== ======
Ratios/Supplemental
data:
Net assets, end of
period (000's)......... $119,266 $120,804 $127,040 $151,684 $178,234
Expenses to average net
assets, net of waivers
from adviser........... 0.83% 0.98% 0.97% 0.94% 0.88%
Expenses to average net
assets, before waivers
from adviser........... 0.96% 0.98% 0.97% 0.94% 0.88%
Net investment income to
average net assets, net
of waivers from
adviser................ 4.59% 4.56% 4.85% 5.21% 5.55%
Net investment income to
average net assets,
before waivers from
adviser................ 4.46% 4.56% 4.85% 5.21% 5.55%
Portfolio turnover rate. 45% 107% 73% 32% 11%
</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 or program fees; results would be lower if sales
charges or program fees were included. Total investment return for periods
of less than one year has not been annualized.
46
<PAGE>
<TABLE>
<CAPTION>
Class B Class C
- ---------------------------------------------------- ----------------------------------------------------
For the For the For the For the
For the Years Ended Year Year For the Years Ended Year Year
February 28, Ended Ended February 28, Ended Ended
- ------------------------- February 29, February 28, ------------------------- February 29, February 28,
1999 1998 1997 1996 1995 1999 1998 1997 1996 1995
- ------- ------- ------- ------------ ------------ ------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$11.39 $10.92 $11.03 $10.69 $11.41 $11.38 $10.90 $11.02 $10.67 $11.40
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.43 0.42 0.44 0.48 0.50 0.46 0.45 0.47 0.51 0.53
0.11 0.47 (0.11) 0.34 (0.62) 0.11 0.48 (0.12) 0.35 (0.63)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.54 0.89 0.33 0.82 (0.12) 0.57 0.93 0.35 0.86 (0.10)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(0.43) (0.42) (0.44) (0.48) (0.50) (0.46) (0.45) (0.47) (0.51) (0.53)
(0.32) -- -- -- (0.10) (0.32) -- -- -- (0.10)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(0.75) (0.42) (0.44) (0.48) (0.60) (0.78) (0.45) (0.47) (0.51) (0.63)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$11.18 $11.39 $10.92 $11.03 $10.69 $11.17 $11.38 $10.90 $11.02 $10.67
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
5.06% 8.33% 3.14% 7.86% (0.85)% 5.35% 8.71% 3.30% 8.22% (0.70)%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
$13,756 $16,783 $20,943 $27,175 $33,007 $18,682 $16,522 $17,624 $22,155 $28,217
1.59% 1.75% 1.74% 1.70% 1.64% 1.33% 1.50% 1.49% 1.46% 1.40%
1.72% 1.75% 1.74% 1.70% 1.64% 1.47% 1.50% 1.49% 1.46% 1.40%
3.81% 3.79% 4.08% 4.45% 4.78% 4.08% 4.05% 4.34% 4.69% 5.05%
3.68% 3.79% 4.08% 4.45% 4.78% 3.94% 4.05% 4.34% 4.69% 5.05%
45% 107% 73% 32% 11% 45% 107% 73% 32% 11%
<CAPTION>
Class Y
- -------------------------
For the
Period
For the February 5,
Year 1998+
Ended through
February 28, February 28,
1999 1998
- ------------ ------------
<C> <C>
$11.38 $11.42
------ ------
0.55 0.04
0.12 (0.04)
------ ------
0.67 0.00
------ ------
(0.55) (0.04)
(0.32) --
------ ------
(0.87) (0.04)
------ ------
$11.18 $11.38
====== ======
6.28% (0.34)%
====== ======
$ 312 $ 114
0.55% 0.76%*
0.71% 0.76%*
4.87% 5.07%*
4.71% 5.07%*
45% 107%
</TABLE>
47
<PAGE>
PaineWebber National Tax-Free Income Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
year is presented below:
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------
For the
Years For the For the
Ended Year Year
February 28, Ended Ended
---------------------------- February 29, February 28,
1999 1998 1997 1996 1995
-------- -------- -------- ------------ ------------ ---
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year...... $11.97 $11.55 $11.64 $11.26 $12.00
------ ------ ------ ------ ------
Net investment income... 0.56 0.56 0.55 0.58 0.63
Net realized and
unrealized gains
(losses) from
investments and futures
....................... 0.05 0.50 (0.09) 0.39 (0.73)
------ ------ ------ ------ ------
Net increase (decrease)
from investment
operations............. 0.61 1.06 0.46 0.97 (0.10)
------ ------ ------ ------ ------
Dividends from net
investment income...... (0.56) (0.56) (0.55) (0.59) (0.63)
Distributions from net
realized gains from
investment
transactions........... (0.29) (0.08) -- -- (0.01)
------ ------ ------ ------ ------
Total dividends and
distributions to
shareholders........... (0.85) (0.64) (0.55) (0.59) (0.64)
------ -------- ------ ------ ------
Net asset value, end of
year................... $11.73 $11.97 $11.55 $11.64 $11.26
====== ====== ====== ====== ======
Total investment
return(1).............. 5.31% 9.48% 4.14% 8.75% (0.63)%
====== ====== ====== ====== ======
Ratios/Supplemental
data:
Net assets, end of year
(000's)................ $227,151 $229,040 $263,425 $315,899 $346,579
Expenses to average net
assets................. 0.94% 0.95% 0.91% 0.93%(/2/) 0.88%
Net investment income to
average net assets..... 4.72% 4.77% 4.85% 5.06%(/2/) 5.62%
Portfolio turnover rate. 43% 79% 81% 74% 60%
</TABLE>
- ---------
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each year reported, reinvestment of all dividends and
distributions at net asset value on the payable dates and a sale at net
asset value on the last day of each year reported. The figures do not
include sales charges; results would be lower if sales charges were
included.
(2) These ratios include non-recurring acquisition expenses of 0.03%.
48
<PAGE>
<TABLE>
<CAPTION>
Class B Class C
- -------------------------------------------------------- --------------------------------------------------------
For the For the
Years For the For the Years For the For the
Ended Year Year Ended Year Year
February 28, Ended Ended February 28, Ended Ended
- ------------------------- February 29, February 28, ------------------------- February 29, February 28,
1999 1998 1997 1996 1995 1999 1998 1997 1996 1995
- ------- ------- ------- ------------ ------------ ------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$11.97 $11.55 $11.64 $11.26 $11.99 $11.97 $11.55 $11.64 $11.26 $12.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.47 0.47 0.46 0.49 0.54 0.50 0.50 0.49 0.52 0.57
0.05 0.50 (0.09) 0.39 (0.72) 0.05 0.50 (0.09) 0.39 (0.73)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.52 0.97 0.37 0.88 (0.18) 0.55 1.00 0.40 0.91 (0.16)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(0.47) (0.47) (0.46) (0.50) (0.54) (0.50) (0.50) (0.49) (0.53) (0.57)
(0.29) (0.08) -- -- (0.01) (0.29) (0.08) -- -- (0.01)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(0.76) (0.55) (0.46) (0.50) (0.55) (0.79) (0.58) (0.49) (0.53) (0.58)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$11.73 $11.97 $11.55 $11.64 $11.26 $11.73 $11.97 $11.55 $11.64 $11.26
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
4.48% 8.62% 3.35% 7.94% (1.29)% 4.76% 8.92% 3.61% 8.19% (1.13)%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
$24,085 $32,815 $40,949 $51,546 $58,958 $47,722 $49,647 $59,652 $75,076 $101,642
1.72% 1.73% 1.67% 1.68%(/2/) 1.64% 1.47% 1.47% 1.42% 1.45%(/2/) 1.40%
3.93% 3.98% 4.09% 4.31%(/2/) 4.86% 4.20% 4.26% 4.34% 4.57%(/2/) 5.13%
43% 79% 81% 74% 60% 43% 79% 81% 74% 60%
</TABLE>
49
<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 Period
Years November 3,
Ended 1995+
February 28, through
---------------------- February 29,
1999 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................. 0.59 0.59 0.58 0.19
Net realized and unrealized gains
(losses) from investments and
futures.............................. 0.04 0.51 (0.10) 0.01
------ ------ ------ ------
Net increase from investment
operations........................... 0.63 1.10 0.48 0.20
------ ------ ------ ------
Dividends from net investment income.. (0.59) (0.59) (0.58) (0.17)
Distributions from net realized gains
from investment transactions......... (0.29) (0.08) -- --
------ ------ ------ ------
Total dividends and distributions to
shareholders......................... (0.88) (0.67) (0.58) (0.17)
------ ------ ------ ------
Net asset value, end of period........ $11.73 $11.98 $11.55 $11.65
====== ====== ====== ======
Total investment return(1)............ 5.49% 9.87% 4.32% 1.70%
====== ====== ====== ======
Ratios/Supplemental data:
Net assets, end of period (000's)..... $321 $241 $246 $341
Expenses to average net assets........ 0.71% 0.68% 0.65% 0.64%(/2/)*
Net investment income to average net
assets............................... 4.95% 5.04% 5.13% 5.19%(/2/)*
Portfolio turnover rate............... 43% 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. The figures do not
include program fees; results would be lower if program fees 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%.
50
<PAGE>
[This Page Intentionally Left Blank]
51
<PAGE>
PaineWebber Municipal High Income Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------
For the
Years For the For the
Ended Year Year
February 28, Ended Ended
------------------------- February 29, February 28,
1999 1998 1997 1996 1995
------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $10.96 $10.39 $10.29 $ 9.92 $10.77
------ ------ ------ ------ ------
Net investment income... 0.55 0.55 0.56 0.62 0.59
Net realized and
unrealized gains
(losses) from
investments and
futures................ (0.07) 0.57 0.10 0.37 (0.82)
------ ------ ------ ------ ------
Net increase (decrease)
from investment
operations............. 0.48 1.12 0.66 0.99 (0.23)
------ ------ ------ ------ ------
Dividends from net
investment income...... (0.55) (0.55) (0.56) (0.62) (0.59)
Distributions from net
realized gains from
investment
transactions........... (0.01) -- -- -- (0.03)
------ ------ ------ ------ ------
Total dividends and
distributions to
shareholders........... (0.56) (0.55) (0.56) (0.62) (0.62)
------ ------ ------ ------ ------
Net asset value, end of
period................. $10.88 $10.96 $10.39 $10.29 $ 9.92
====== ====== ====== ====== ======
Total investment
return(1).............. 4.80% 11.06% 6.61% 10.18% (2.03)%
====== ====== ====== ====== ======
Ratios/Supplemental
data:
Net assets, end of
period (000's)......... $66,771 $59,288 $52,593 $57,280 $63,287
Expenses to average net
assets................. 1.12% 1.22% 1.15% 1.10% 1.13%
Net investment income to
average net assets..... 5.02% 5.15% 5.49% 5.94% 5.96%
Portfolio turnover rate. 26% 22% 64% 48% 28%
</TABLE>
- ---------
+ Commencement of issuance of shares
* Annualized
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period, reinvestment of all dividends and distributions
at net asset value on the payable dates and a sale at net asset value on
the last day of each period reported. The figures do not include sales
charges or program fees; results would be lower if sales charges or program
fees 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
Years For the For the Years For the For the
Ended Year Year Ended Year Year
February 28, Ended Ended February 28, Ended Ended
- ------------------------- February 29, February 28, ------------------------- February 29, February 28,
1999 1998 1997 1996 1995 1999 1998 1997 1996 1995
- ------- ------- ------- ------------ ------------ ------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$10.96 $10.39 $10.29 $ 9.92 $10.76 $10.96 $10.39 $10.29 $ 9.92 $10.77
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.47 0.47 0.48 0.54 0.52 0.49 0.50 0.51 0.56 0.55
(0.08) 0.57 0.10 0.37 (0.81) (0.07) 0.57 0.10 0.37 (0.82)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.39 1.04 0.58 0.91 (0.29) 0.42 1.07 0.61 0.93 (0.27)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(0.47) (0.47) (0.48) (0.54) (0.52) (0.49) (0.50) (0.51) (0.56) (0.55)
(0.01) -- -- -- (0.03) (0.01) -- -- -- (0.03)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(0.48) (0.47) (0.48) (0.54) (0.55) (0.50) (0.50) (0.51) (0.56) (0.58)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$10.87 $10.96 $10.39 $10.29 $ 9.92 $10.88 $10.96 $10.39 $10.29 $ 9.92
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
3.87% 10.23% 5.82% 9.36% (2.67)% 4.25% 10.51% 6.08% 9.64% (2.51)%
====== ====== ====== ====== ====== ======= ====== ====== ====== ======
$18,675 $18,097 $19,427 $23,868 $25,823 $24,355 $21,982 $16,967 $20,700 $23,158
1.88% 1.98% 1.90% 1.85% 1.87% 1.62% 1.72% 1.66% 1.60% 1.63%
4.24% 4.39% 4.73% 5.19% 5.21% 4.52% 4.64% 4.98% 5.45% 5.48%
26% 22% 64% 48% 28% 26% 22% 64% 48% 28%
<CAPTION>
Class Y
- -------------------------
For the
Period
For the February 5,
Year 1998+
Ended through
February 28, February 28,
1999 1998
- ------------ ------------
<C> <C>
$10.97 $10.98
------ ------
0.58 0.04
(0.08) (0.01)
------ ------
0.50 0.03
------ ------
(0.58) (0.04)
(0.01) --
------ ------
(0.59) (0.04)
------ ------
$10.88 $10.97
====== ======
4.96% (0.09)%
====== ======
$414 $56
0.87% 1.00%*
5.28% 5.44%*
26% 22%
</TABLE>
53
<PAGE>
PaineWebber New York Tax-Free Income Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------
For the
Years For the For the
Ended Year Year
February 28, Ended Ended
------------------------- February 29, February 28,
1999 1998 1997 1996 1995
------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $11.12 $10.66 $10.71 $10.27 $11.03
------ ------ ------ ------ ------
Net investment income... 0.53 0.51 0.51 0.54 0.54
Net realized and
unrealized gains
(losses) from
investments and
futures................ 0.15 0.46 (0.05) 0.45 (0.66)
------ ------ ------ ------ ------
Net increase (decrease)
from investment
operations............. 0.68 0.97 0.46 0.99 (0.12)
------ ------ ------ ------ ------
Dividends from net
investment income...... (0.53) (0.51) (0.51) (0.55) (0.54)
Distributions from net
realized gains from
investment
transactions........... (0.24) -- -- -- (0.10)
------ ------ ------ ------ ------
Total dividends and
distributions to
shareholders........... (0.77) (0.51) (0.51) (0.55) (0.64)
------ ------ ------ ------ ------
Net asset value, end of
period................. $11.03 $11.12 $10.66 $10.71 $10.27
====== ====== ====== ====== ======
Total investment
return(1).............. 6.24% 9.36% 4.49% 9.83% (0.83)%
====== ====== ====== ====== ======
Ratios/Supplemental
data:
Net assets, end of
period (000's)......... $27,171 $23,694 $23,160 $28,734 $32,475
Expenses to average net
assets, net of waivers
and reimbursements from
adviser................ 1.02% 1.02% 1.02% 1.02% 1.01%
Expenses to average net
assets, before waivers
and reimbursements from
adviser ............... 1.27% 1.28% 1.50% 1.15% 1.26%
Net investment income to
average net assets, net
of waivers and
reimbursements from
adviser ............... 4.46% 4.74% 4.91% 5.11% 5.38%
Net investment income to
average net assets,
before waivers and
reimbursements from
adviser................ 4.21% 4.48% 4.42% 4.98% 5.13%
Portfolio turnover rate. 44% 34% 40% 13% 6%
</TABLE>
- ---------
+ Commencement of issuance of shares
* Annualized
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
distributions at net asset value on the payable dates and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charges or program fees; results would be lower if sales
charges or program fees were included. Total investment return for periods
of less than one year has not been annualized.
54
<PAGE>
<TABLE>
<CAPTION>
Class B Class C Class Y
- ------------------------------------------------- ---------------------------------------------------- --------------
For the For the
Years For the For the Years For the For the For the Period
Ended Year Year Ended Year Year May 21, 1998+
February 28, Ended Ended February 28, Ended Ended through
- ---------------------- February 29, February 28, ------------------------- February 29, February 28, February 28,
1999 1998 1997 1996 1995 1999 1998 1997 1996 1995 1999
- ------ ------ ------ ------------ ------------ ------- ------- ------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$11.12 $10.65 $10.71 $10.27 $11.03 $11.12 $10.66 $10.71 $10.28 $11.03 $11.08
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.44 0.43 0.44 0.47 0.47 0.47 0.46 0.46 0.49 0.49 0.40
0.15 0.47 (0.06) 0.44 (0.66) 0.16 0.46 (0.05) 0.43 (0.65) 0.19
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.59 0.90 0.38 0.91 (0.19) 0.63 0.92 0.41 0.92 (0.16) 0.59
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(0.44) (0.43) (0.44) (0.47) (0.47) (0.47) (0.46) (0.46) (0.49) (0.49) (0.40)
(0.24) -- -- -- (0.10) (0.24) -- -- -- (0.10) (0.24)
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(0.68) (0.43) (0.44) (0.47) (0.57) (0.71) (0.46) (0.46) (0.49) (0.59) (0.64)
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$11.03 $11.12 $10.65 $10.71 $10.27 $11.04 $11.12 $10.66 $10.71 $10.28 $11.03
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
5.40% 8.65% 3.62% 9.01% (1.57)% 5.78% 8.82% 3.98% 9.17% (1.20)% 5.39%
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
$6,013 $7,829 $9,462 $11,862 $14,660 $11,802 $12,966 $13,786 $17,849 $21,095 $21
1.77% 1.77% 1.76% 1.77% 1.76% 1.52% 1.52% 1.52% 1.52% 1.52% 0.77%*
2.02% 2.05% 2.27% 1.89% 2.01% 1.77% 1.78% 2.04% 1.64% 1.75% 1.03%*
3.70% 3.99% 4.16% 4.36% 4.63% 3.97% 4.24% 4.41% 4.61% 4.89% 4.71%*
3.45% 3.70% 3.65% 4.24% 4.83% 3.72% 3.98% 3.89% 4.50% 4.65% 4.44%*
44% 34% 40% 13% 6% 44% 34% 40% 13% 6% 44%
</TABLE>
55
<PAGE>
PaineWebber
Report of Ernst & Young LLP,
Independent Auditors
The Board of Trustees and Shareholders
PaineWebber Mutual Fund Trust
PaineWebber Municipal Series
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of PaineWebber Mutual Fund Trust
(comprising PaineWebber California Tax-Free Income Fund and PaineWebber
National Tax-Free Income Fund), and PaineWebber Municipal Series (comprising
PaineWebber Municipal High Income Fund and PaineWebber New York Tax-Free Income
Fund) (the "Trusts") as of February 28, 1999, and the related statements of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights
for each of the periods indicated therein. These financial statements and
financial highlights are the responsibility of the Trusts' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
investments owned as of February 28, 1999 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective funds constituting PaineWebber Mutual Fund Trust and
PaineWebber Municipal Series at February 28, 1999, the results of their
operations for the year then ended, the changes in their net assets for each of
the two years in the period then ended, and the financial highlights for each
of the indicated periods, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
New York, New York
April 16, 1999
56
<PAGE>
PaineWebber
Tax Information (unaudited)
We are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of each Fund's fiscal year end (February
28, 1999), as to the federal tax status of distributions received by
shareholders during such fiscal year. Accordingly, we are advising you that the
following distributions paid during the fiscal year were derived from the
following sources:
<TABLE>
<CAPTION>
California National New York
Tax-Free Tax-Free Municipal High Tax-Free
Per Share Data: Income Fund Income Fund Income Fund Income Fund
--------------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Tax-exempt income*
Class A.................... 0.5203 0.5616 0.5493 0.5269
Class B.................... 0.4341 0.4684 0.4651 0.4382
Class C.................... 0.4626 0.4994 0.4941 0.4685
Class Y.................... 0.5492 0.5898 0.5765 0.3982
Short-term Capital Gains**
Class A.................... 0.0585 0.0419 -- --
Class B.................... 0.0585 0.0419 -- --
Class C.................... 0.0585 0.0419 -- --
Class Y.................... 0.0585 0.0419 -- --
Long-term Capital Gains***
Class A.................... 0.2585 0.2445 0.0141 0.2389
Class B.................... 0.2585 0.2445 0.0141 0.2389
Class C.................... 0.2585 0.2445 0.0141 0.2389
Class Y.................... 0.2585 0.2445 0.0141 0.2389
Alternative Minimum Tax..... 8.59% 20.41% 48.01% 12.76%
</TABLE>
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* Federally exempt interest dividends
** Taxable as ordinary income
*** All long-term capital gains distributions are taxed at a 20% rate.
All exempt interest dividends paid by California Tax-Free Income Fund and New
York Tax-Free Income Fund were exempt from California state income tax and New
York state and city income tax, respectively.
Because each Fund's fiscal year is not the calendar year, another notification
will be sent in respect of calendar year 1999. The second notification, which
reflects the amount to be used by calendar year taxpayers on their federal
income tax returns, will be made in conjunction with Form 1099 DIV and will be
mailed in January 2000. Shareholders are advised to consult their own tax
advisers with respect to the tax consequences of their investment in each Fund.
57
<PAGE>
TRUSTEES
E. Garrett Bewkes, Jr. Mary C. Farrell
Chairman
Meyer Feldberg
Margo N. Alexander
George W. Gowen
Richard Q. Armstrong
Frederic V. Malek
Richard R. Burt
Carl W. Schafer
PRINCIPAL OFFICERS
Margo N. Alexander Elbridge T. Gerry III
President Vice President
Dianne E. O'Donnell Richard S. Murphy
Vice President and Secretary Vice President
Victoria E. Schonfeld Cynthia N. Bow
Vice President Vice President
Paul H. Schubert William W. Veronda
Vice President and Treasurer 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 Financial Advisor or
correspondent firm. Read the prospectus carefully before investing. 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
(C)1999 PaineWebber Incorporated
Member SIPC
ANNUAL REPORT
PaineWebber
- ------------------------------------
TAX-FREE
BOND FUNDS
CALIFORNIA TAX-FREE INCOME FUND
NATIONAL TAX-FREE INCOME FUND
MUNICIPAL HIGH INCOME FUND
NEW YORK TAX-FREE INCOME FUND
FEBRUARY 28, 1999
