<PAGE>
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND ANNUAL REPORT
PERFORMANCE AT A GLANCE
- --------------------------------------------------------------------------------
Comparison of the change of a $10,000 investment in PaineWebber California
Tax-Free Income Fund (Class A) and the Lehman Brothers Municipal Bond Index,
from February 28, 1990 through February 29, 2000
[GRAPH]
<TABLE>
<CAPTION>
PAINEWEBBER
CALIFORNIA TAX-FREE LEHMAN BROTHERS
INCOME FUND (CLASS A) MUNICIPAL BOND INDEX
<S> <C> <C>
Feb-90 $9,601 $10,089
Mar-90 $9,602 $10,092
Apr-90 $9,468 $10,019
May-90 $9,733 $10,238
Jun-90 $9,821 $10,328
Jul-90 $9,976 $10,480
Aug-90 $9,767 $10,328
Sep-90 $9,775 $10,334
Oct-90 $9,988 $10,522
Nov-90 $10,193 $10,734
Dec-90 $10,273 $10,780
Jan-91 $10,349 $10,924
Feb-91 $10,407 $11,019
Mar-91 $10,417 $11,022
Apr-91 $10,552 $11,170
May-91 $10,648 $11,270
Jun-91 $10,635 $11,258
Jul-91 $10,755 $11,396
Aug-91 $10,875 $11,546
Sep-91 $11,020 $11,696
Oct-91 $11,101 $11,801
Nov-91 $11,094 $11,834
Dec-91 $11,387 $12,089
Jan-92 $11,327 $12,117
Feb-92 $11,373 $12,120
Mar-92 $11,347 $12,125
Apr-92 $11,447 $12,233
May-92 $11,574 $12,377
Jun-92 $11,755 $12,585
Jul-92 $12,112 $12,963
Aug-92 $11,926 $12,837
Sep-92 $11,976 $12,921
Oct-92 $11,721 $12,794
Nov-92 $12,064 $13,023
Dec-92 $12,240 $13,156
Jan-93 $12,284 $13,309
Feb-93 $12,862 $13,790
Mar-93 $12,699 $13,644
Apr-93 $12,822 $13,782
May-93 $12,877 $13,859
Jun-93 $13,071 $14,091
Jul-93 $13,069 $14,109
Aug-93 $13,428 $14,402
Sep-93 $13,589 $14,567
Oct-93 $13,584 $14,594
Nov-93 $13,335 $14,466
Dec-93 $13,703 $14,771
Jan-94 $13,797 $14,939
Feb-94 $13,433 $14,552
Mar-94 $12,793 $13,960
Apr-94 $12,766 $14,079
May-94 $12,895 $14,201
Jun-94 $12,786 $14,115
Jul-94 $13,071 $14,373
Aug-94 $13,067 $14,423
Sep-94 $12,822 $14,211
Oct-94 $12,535 $13,958
Nov-94 $12,292 $13,706
Dec-94 $12,597 $14,007
Jan-95 $13,009 $14,408
Feb-95 $13,407 $14,827
Mar-95 $13,481 $14,998
Apr-95 $13,476 $15,016
May-95 $13,956 $15,495
Jun-95 $13,685 $15,360
Jul-95 $13,759 $15,506
Aug-95 $13,940 $15,703
Sep-95 $13,997 $15,802
Oct-95 $14,226 $16,031
Nov-95 $14,511 $16,297
Dec-95 $14,712 $16,453
Jan-96 $14,660 $16,578
Feb-96 $14,571 $16,466
Mar-96 $14,232 $16,255
Apr-96 $14,204 $16,209
May-96 $14,193 $16,203
Jun-96 $14,330 $16,379
Jul-96 $14,511 $16,527
Aug-96 $14,502 $16,523
Sep-96 $14,685 $16,755
Oct-96 $14,857 $16,944
Nov-96 $15,133 $17,254
Dec-96 $15,116 $17,182
Jan-97 $15,019 $17,214
Feb-97 $15,144 $17,373
Mar-97 $14,950 $17,142
Apr-97 $15,068 $17,286
May-97 $15,292 $17,547
Jun-97 $15,450 $17,734
Jul-97 $15,922 $18,226
Aug-97 $15,709 $18,054
Sep-97 $15,897 $18,269
Oct-97 $16,016 $18,386
Nov-97 $16,118 $18,495
Dec-97 $16,446 $18,765
Jan-98 $16,532 $18,958
Feb-98 $16,546 $18,964
Mar-98 $16,534 $18,981
Apr-98 $16,422 $18,895
May-98 $16,687 $19,194
Jun-98 $16,807 $19,269
Jul-98 $16,848 $19,317
Aug-98 $17,132 $19,616
Sep-98 $17,407 $19,861
Oct-98 $17,326 $19,861
Nov-98 $17,415 $19,931
Dec-98 $17,432 $19,981
Jan-99 $17,582 $20,219
Feb-99 $17,523 $20,130
Mar-99 $17,560 $20,158
Apr-99 $17,600 $20,208
May-99 $17,471 $20,091
Jun-99 $17,189 $19,802
Jul-99 $17,212 $19,873
Aug-99 $16,990 $19,714
Sep-99 $16,943 $19,722
Oct-99 $16,597 $19,509
Nov-99 $16,825 $19,716
Dec-99 $16,680 $19,568
Jan-00 $16,512 $19,482
Feb-00 $16,828 $19,708
</TABLE>
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.
[Sidenote:]
The graph depicts the performance of PaineWebber California Tax-Free Income Fund
(Class 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.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN, PERIODS ENDED 2/29/00
- ----------------------------------------------------
6 Months 1 Year 5 Years 10 Years Inception(0)
<S> <C> <C> <C> <C> <C> <C>
Class A* -0.95% -3.96% 4.65% 5.77% 7.13%
Before Deducting Class B** -1.33 -4.60 3.85 N/A 4.84
Maximum Sales Charge Class C+ -1.11 -4.36 4.13 N/A 4.12
Class Y++ -0.84 -3.73 N/A N/A 0.95
After Deducting Class A* -4.90 -7.84 3.79 5.34 6.82
Maximum Sales Charge Class B** -6.13 -9.16 3.52 N/A 4.84
Class C+ -1.83 -5.04 4.13 N/A 4.12
LB Municipal Bond Index -0.02 -2.08 5.85 6.92 8.24
Lipper California Municipal
Debt Funds Median -1.08 -4.23 4.93 6.30 7.40
</TABLE>
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. Six-month and one-year returns are cumulative.
(0) Inception: 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. Index and Lipper median inception
returns are as of oldest share class inception.
* 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, as well as the
trustee of the PaineWebber 401(k) Plus Plan. Class Y shares do not bear
initial or contingent deferred sales charges or ongoing distribution and
service fees.
1
<PAGE>
ANNUAL REPORT PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
PERFORMANCE AT A GLANCE
- --------------------------------------------------------------------------------
Comparison of the change of a $10,000 investment in PaineWebber National
Tax-Free Income Fund (Class A) and the Lehman Brothers Municipal Bond Index,
from February 28, 1990 through February 29, 2000
[GRAPH]
<TABLE>
<CAPTION>
PAINEWEBBER
NATIONAL TAX-FREE LEHMAN BROTHERS
INCOME FUND (CLASS A) MUNICIPAL BOND INDEX
<S> <C> <C>
Feb-90 $9,602 $10,089
Mar-90 $9,595 $10,092
Apr-90 $9,479 $10,019
May-90 $9,741 $10,238
Jun-90 $9,808 $10,328
Jul-90 $9,973 $10,480
Aug-90 $9,771 $10,328
Sep-90 $9,789 $10,334
Oct-90 $9,970 $10,522
Nov-90 $10,200 $10,734
Dec-90 $10,245 $10,780
Jan-91 $10,347 $10,924
Feb-91 $10,404 $11,019
Mar-91 $10,414 $11,022
Apr-91 $10,567 $11,170
May-91 $10,643 $11,270
Jun-91 $10,611 $11,258
Jul-91 $10,741 $11,396
Aug-91 $10,866 $11,546
Sep-91 $11,005 $11,696
Oct-91 $11,100 $11,801
Nov-91 $11,102 $11,834
Dec-91 $11,385 $12,089
Jan-92 $11,305 $12,117
Feb-92 $11,344 $12,120
Mar-92 $11,338 $12,125
Apr-92 $11,428 $12,233
May-92 $11,588 $12,377
Jun-92 $11,802 $12,585
Jul-92 $12,186 $12,963
Aug-92 $12,003 $12,837
Sep-92 $12,037 $12,921
Oct-92 $11,784 $12,794
Nov-92 $12,125 $13,023
Dec-92 $12,296 $13,156
Jan-93 $12,389 $13,309
Feb-93 $12,890 $13,790
Mar-93 $12,731 $13,644
Apr-93 $12,919 $13,782
May-93 $13,001 $13,859
Jun-93 $13,220 $14,091
Jul-93 $13,202 $14,109
Aug-93 $13,508 $14,402
Sep-93 $13,675 $14,567
Oct-93 $13,710 $14,594
Nov-93 $13,559 $14,466
Dec-93 $13,812 $14,771
Jan-94 $13,959 $14,939
Feb-94 $13,619 $14,552
Mar-94 $12,970 $13,960
Apr-94 $13,008 $14,079
May-94 $13,114 $14,201
Jun-94 $12,986 $14,115
Jul-94 $13,266 $14,373
Aug-94 $13,262 $14,423
Sep-94 $12,986 $14,211
Oct-94 $12,698 $13,958
Nov-94 $12,462 $13,706
Dec-94 $12,826 $14,007
Jan-95 $13,207 $14,408
Feb-95 $13,533 $14,827
Mar-95 $13,639 $14,998
Apr-95 $13,656 $15,016
May-95 $14,065 $15,495
Jun-95 $13,908 $15,360
Jul-95 $14,031 $15,506
Aug-95 $14,124 $15,703
Sep-95 $14,196 $15,802
Oct-95 $14,406 $16,031
Nov-95 $14,677 $16,297
Dec-95 $14,879 $16,453
Jan-96 $14,898 $16,578
Feb-96 $14,717 $16,466
Mar-96 $14,420 $16,255
Apr-96 $14,339 $16,209
May-96 $14,345 $16,203
Jun-96 $14,473 $16,379
Jul-96 $14,617 $16,527
Aug-96 $14,611 $16,523
Sep-96 $14,777 $16,755
Oct-96 $14,951 $16,944
Nov-96 $15,274 $17,254
Dec-96 $15,221 $17,182
Jan-97 $15,184 $17,214
Feb-97 $15,325 $17,373
Mar-97 $15,124 $17,142
Apr-97 $15,236 $17,286
May-97 $15,456 $17,547
Jun-97 $15,655 $17,734
Jul-97 $16,160 $18,226
Aug-97 $15,980 $18,054
Sep-97 $16,168 $18,269
Oct-97 $16,259 $18,386
Nov-97 $16,350 $18,495
Dec-97 $16,647 $18,765
Jan-98 $16,761 $18,958
Feb-98 $16,778 $18,964
Mar-98 $16,782 $18,981
Apr-98 $16,650 $18,895
May-98 $16,943 $19,194
Jun-98 $17,019 $19,269
Jul-98 $17,062 $19,317
Aug-98 $17,312 $19,616
Sep-98 $17,524 $19,861
Oct-98 $17,451 $19,861
Nov-98 $17,510 $19,931
Dec-98 $17,590 $19,981
Jan-99 $17,767 $20,219
Feb-99 $17,670 $20,130
Mar-99 $17,663 $20,158
Apr-99 $17,737 $20,208
May-99 $17,617 $20,091
Jun-99 $17,336 $19,802
Jul-99 $17,333 $19,873
Aug-99 $17,110 $19,714
Sep-99 $17,054 $19,722
Oct-99 $16,835 $19,509
Nov-99 $17,008 $19,716
Dec-99 $16,875 $19,568
Jan-00 $16,749 $19,482
Feb-00 $16,978 $19,708
</TABLE>
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.
[Sidenote:]
The graph depicts the performance of PaineWebber National Tax-Free Income Fund
(Class 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.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN, PERIODS ENDED 2/29/00
- ----------------------------------------------------
6 Months 1 Year 5 Years 10 Years Inception(0)
<S> <C> <C> <C> <C> <C> <C>
Class A* -0.77% -3.91% 4.64% 5.86% 7.55%
Before Deducting Class B** -1.08 -4.68 3.83 N/A 4.98
Maximum Sales Charge Class C+ -1.03 -4.42 4.10 N/A 4.17
Class Y++ -0.71 -3.77 N/A N/A 3.96
After Deducting Class A* -4.72 -7.77 3.79 5.44 7.26
Maximum Sales Charge Class B** -5.89 -9.22 3.50 N/A 4.98
Class C+ -1.75 -5.10 4.10 N/A 4.17
LB Municipal Bond Index -0.02 -2.08 5.85 6.92 8.65
Lipper General Municipal
Debt Funds Median -1.21 -4.29 4.41 6.24 8.18
</TABLE>
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. Six-month and one-year returns are cumulative.
(0) Inception: since commencement of issuance on December 3, 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. Index and Lipper median inception
returns are as of oldest share class inception.
* 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, as well as the
trustee of the PaineWebber 401(k) Plus Plan. Class Y shares do not bear
initial or contingent deferred sales charges or ongoing distribution and
service fees.
2
<PAGE>
PAINEWEBBER MUNICIPAL HIGH INCOME FUND ANNUAL REPORT
PERFORMANCE AT A GLANCE
- --------------------------------------------------------------------------------
Comparison of the change of a $10,000 investment in PaineWebber Municipal High
Income Fund (Class A) and the Lehman Brothers Municipal Bond Index, from
February 28, 1990 through February 29, 2000
[GRAPH]
<TABLE>
<CAPTION>
PAINEWEBBER
MUNICIPAL HIGH LEHMAN BROTHERS
INCOME FUND (CLASS A) MUNICIPAL BOND INDEX
<S> <C> <C>
Feb-90 $9,597 $10,089
Mar-90 $9,568 $10,092
Apr-90 $9,447 $10,019
May-90 $9,679 $10,238
Jun-90 $9,775 $10,328
Jul-90 $9,941 $10,480
Aug-90 $9,744 $10,328
Sep-90 $9,742 $10,334
Oct-90 $9,868 $10,522
Nov-90 $10,038 $10,734
Dec-90 $10,136 $10,780
Jan-91 $10,197 $10,924
Feb-91 $10,239 $11,019
Mar-91 $10,321 $11,022
Apr-91 $10,491 $11,170
May-91 $10,602 $11,270
Jun-91 $10,620 $11,258
Jul-91 $10,763 $11,396
Aug-91 $10,910 $11,546
Sep-91 $11,064 $11,696
Oct-91 $11,189 $11,801
Nov-91 $11,218 $11,834
Dec-91 $11,486 $12,089
Jan-92 $11,408 $12,117
Feb-92 $11,462 $12,120
Mar-92 $11,513 $12,125
Apr-92 $11,640 $12,233
May-92 $11,815 $12,377
Jun-92 $12,047 $12,585
Jul-92 $12,479 $12,963
Aug-92 $12,297 $12,837
Sep-92 $12,343 $12,921
Oct-92 $12,112 $12,794
Nov-92 $12,406 $13,023
Dec-92 $12,610 $13,156
Jan-93 $12,670 $13,309
Feb-93 $13,186 $13,790
Mar-93 $13,020 $13,644
Apr-93 $13,201 $13,782
May-93 $13,272 $13,859
Jun-93 $13,501 $14,091
Jul-93 $13,536 $14,109
Aug-93 $13,841 $14,402
Sep-93 $13,974 $14,567
Oct-93 $14,047 $14,594
Nov-93 $13,853 $14,466
Dec-93 $14,142 $14,771
Jan-94 $14,271 $14,939
Feb-94 $13,948 $14,552
Mar-94 $13,218 $13,960
Apr-94 $13,251 $14,079
May-94 $13,349 $14,201
Jun-94 $13,287 $14,115
Jul-94 $13,546 $14,373
Aug-94 $13,544 $14,423
Sep-94 $13,283 $14,211
Oct-94 $13,048 $13,958
Nov-94 $12,785 $13,706
Dec-94 $13,042 $14,007
Jan-95 $13,357 $14,408
Feb-95 $13,664 $14,827
Mar-95 $13,832 $14,998
Apr-95 $13,870 $15,016
May-95 $14,202 $15,495
Jun-95 $14,169 $15,360
Jul-95 $14,292 $15,506
Aug-95 $14,428 $15,703
Sep-95 $14,525 $15,802
Oct-95 $14,620 $16,031
Nov-95 $14,859 $16,297
Dec-95 $15,070 $16,453
Jan-96 $15,070 $16,578
Feb-96 $15,056 $16,466
Mar-96 $14,962 $16,255
Apr-96 $14,921 $16,209
May-96 $14,927 $16,203
Jun-96 $15,081 $16,379
Jul-96 $15,177 $16,527
Aug-96 $15,225 $16,523
Sep-96 $15,484 $16,755
Oct-96 $15,655 $16,944
Nov-96 $15,871 $17,254
Dec-96 $15,966 $17,182
Jan-97 $15,920 $17,214
Feb-97 $16,052 $17,373
Mar-97 $16,000 $17,142
Apr-97 $16,112 $17,286
May-97 $16,305 $17,547
Jun-97 $16,495 $17,734
Jul-97 $16,941 $18,226
Aug-97 $16,896 $18,054
Sep-97 $17,090 $18,269
Oct-97 $17,238 $18,386
Nov-97 $17,337 $18,495
Dec-97 $17,680 $18,765
Jan-98 $17,777 $18,958
Feb-98 $17,827 $18,964
Mar-98 $17,901 $18,981
Apr-98 $17,821 $18,895
May-98 $18,057 $19,194
Jun-98 $18,181 $19,269
Jul-98 $18,212 $19,317
Aug-98 $18,384 $19,616
Sep-98 $18,528 $19,861
Oct-98 $18,439 $19,861
Nov-98 $18,484 $19,931
Dec-98 $18,577 $19,981
Jan-99 $18,692 $20,219
Feb-99 $18,684 $20,130
Mar-99 $18,729 $20,158
Apr-99 $18,813 $20,208
May-99 $18,815 $20,091
Jun-99 $18,616 $19,802
Jul-99 $18,612 $19,873
Aug-99 $18,373 $19,714
Sep-99 $18,362 $19,722
Oct-99 $18,057 $19,509
Nov-99 $18,189 $19,716
Dec-99 $17,928 $19,568
Jan-00 $17,784 $19,482
Feb-00 $17,953 $19,708
</TABLE>
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.
[Sidenote]
The graph depicts the performance of PaineWebber Municipal High Income Fund
(Class 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.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN, PERIODS ENDED 2/29/00
- ----------------------------------------------------
6 Months 1 Year 5 Years 10 Years Inception(0)
<S> <C> <C> <C> <C> <C> <C>
Class A* -2.29% -3.91% 5.61% 6.46% 7.07%
Before Deducting Class B** -2.76 -4.65 4.79 N/A 5.62
Maximum Sales Charge Class C+ -2.63 -4.49 5.06 N/A 4.62
Class Y++ -2.20 -3.73 N/A N/A 0.46
After Deducting Class A* -6.15 -7.73 4.76 6.03 6.72
Maximum Sales Charge Class B** -7.48 -9.18 4.45 N/A 5.62
Class C+ -3.34 -5.17 5.06 N/A 4.62
LB Municipal Bond Index -0.02 -2.08 5.85 6.92 7.29
Lipper High Yield Municipal
Debt Funds Median -2.48 -4.37 4.95 6.33 7.02
</TABLE>
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. Six-month and one-year returns are cumulative.
(0) Inception: 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. Index and Lipper median inception
returns are as of oldest share class inception.
* 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 fee.
++ 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, as well as the
trustee of the PaineWebber 401(k) Plus Plan. Class Y shares do not bear
initial or contingent deferred sales charges or ongoing distribution and
service fees.
3
<PAGE>
ANNUAL REPORT PAINEWEBBER NEW YORK TAX-FREE INCOME FUND
PERFORMANCE AT A GLANCE
- --------------------------------------------------------------------------------
Comparison of the change of a $10,000 investment in PaineWebber New York
Tax-Free Income Fund (Class A) and the Lehman Brothers Municipal Bond Index,
from February 28, 1990 through February 29, 2000
[GRAPH]
<TABLE>
<CAPTION>
PAINEWEBBER
NEW YORK TAX-FREE LEHMAN BROTHERS
INCOME FUND (CLASS A) MUNICIPAL BOND INDEX
<S> <C> <C>
Feb-90 $9,595 $10,089
Mar-90 $9,560 $10,092
Apr-90 $9,440 $10,019
May-90 $9,712 $10,238
Jun-90 $9,816 $10,328
Jul-90 $10,024 $10,480
Aug-90 $9,737 $10,328
Sep-90 $9,700 $10,334
Oct-90 $9,847 $10,522
Nov-90 $10,068 $10,734
Dec-90 $10,171 $10,780
Jan-91 $10,276 $10,924
Feb-91 $10,324 $11,019
Mar-91 $10,372 $11,022
Apr-91 $10,553 $11,170
May-91 $10,629 $11,270
Jun-91 $10,610 $11,258
Jul-91 $10,785 $11,396
Aug-91 $10,940 $11,546
Sep-91 $11,083 $11,696
Oct-91 $11,173 $11,801
Nov-91 $11,187 $11,834
Dec-91 $11,478 $12,089
Jan-92 $11,377 $12,117
Feb-92 $11,439 $12,120
Mar-92 $11,488 $12,125
Apr-92 $11,602 $12,233
May-92 $11,778 $12,377
Jun-92 $12,009 $12,585
Jul-92 $12,427 $12,963
Aug-92 $12,253 $12,837
Sep-92 $12,261 $12,921
Oct-92 $12,074 $12,794
Nov-92 $12,401 $13,023
Dec-92 $12,609 $13,156
Jan-93 $12,693 $13,309
Feb-93 $13,205 $13,790
Mar-93 $13,107 $13,644
Apr-93 $13,271 $13,782
May-93 $13,375 $13,859
Jun-93 $13,587 $14,091
Jul-93 $13,592 $14,109
Aug-93 $13,874 $14,402
Sep-93 $14,001 $14,567
Oct-93 $14,058 $14,594
Nov-93 $13,887 $14,466
Dec-93 $14,213 $14,771
Jan-94 $14,339 $14,939
Feb-94 $13,982 $14,552
Mar-94 $13,277 $13,960
Apr-94 $13,281 $14,079
May-94 $13,437 $14,201
Jun-94 $13,296 $14,115
Jul-94 $13,609 $14,373
Aug-94 $13,623 $14,423
Sep-94 $13,282 $14,211
Oct-94 $12,940 $13,958
Nov-94 $12,583 $13,706
Dec-94 $13,008 $14,007
Jan-95 $13,357 $14,408
Feb-95 $13,866 $14,827
Mar-95 $13,969 $14,998
Apr-95 $13,983 $15,016
May-95 $14,492 $15,495
Jun-95 $14,245 $15,360
Jul-95 $14,343 $15,506
Aug-95 $14,483 $15,703
Sep-95 $14,595 $15,802
Oct-95 $14,807 $16,031
Nov-95 $15,088 $16,297
Dec-95 $15,294 $16,453
Jan-96 $15,308 $16,578
Feb-96 $15,229 $16,466
Mar-96 $14,933 $16,255
Apr-96 $14,859 $16,209
May-96 $14,874 $16,203
Jun-96 $15,031 $16,379
Jul-96 $15,190 $16,527
Aug-96 $15,215 $16,523
Sep-96 $15,433 $16,755
Oct-96 $15,580 $16,944
Nov-96 $15,872 $17,254
Dec-96 $15,823 $17,182
Jan-97 $15,748 $17,214
Feb-97 $15,913 $17,373
Mar-97 $15,692 $17,142
Apr-97 $15,840 $17,286
May-97 $16,066 $17,547
Jun-97 $16,246 $17,734
Jul-97 $16,733 $18,226
Aug-97 $16,547 $18,054
Sep-97 $16,744 $18,269
Oct-97 $16,836 $18,386
Nov-97 $16,941 $18,495
Dec-97 $17,295 $18,765
Jan-98 $17,420 $18,958
Feb-98 $17,402 $18,964
Mar-98 $17,438 $18,981
Apr-98 $17,292 $18,895
May-98 $17,608 $19,194
Jun-98 $17,750 $19,269
Jul-98 $17,789 $19,317
Aug-98 $18,076 $19,616
Sep-98 $18,320 $19,861
Oct-98 $18,260 $19,861
Nov-98 $18,320 $19,931
Dec-98 $18,383 $19,981
Jan-99 $18,572 $20,219
Feb-99 $18,488 $20,130
Mar-99 $18,472 $20,158
Apr-99 $18,543 $20,208
May-99 $18,367 $20,091
Jun-99 $18,060 $19,802
Jul-99 $18,061 $19,873
Aug-99 $17,802 $19,714
Sep-99 $17,731 $19,722
Oct-99 $17,442 $19,509
Nov-99 $17,651 $19,716
Dec-99 $17,542 $19,568
Jan-00 $17,374 $19,482
Feb-00 $17,687 $19,708
</TABLE>
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.
[Sidenote]
The graph depicts the performance of PaineWebber New York Tax-Free Income Fund
(Class 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.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN, PERIODS ENDED 2/29/00
- ----------------------------------------------------
6 Months 1 Year 5 Years 10 Years Inception(0)
<S> <C> <C> <C> <C> <C> <C>
Class A* -0.65% -4.33% 4.99% 6.31% 6.49%
Before Deducting Class B** -1.02 -5.05 4.20 N/A 5.43
Maximum Sales Charge Class C+ -0.89 -4.80 4.46 N/A 4.52
Class Y++ -0.52 -4.10 N/A N/A 0.60
After Deducting Class A* -4.59 -8.16 4.13 5.87 6.11
Maximum Sales Charge Class B** -5.83 -9.58 3.86 N/A 5.43
Class C+ -1.61 -5.48 4.46 N/A 4.52
LB Municipal Bond Index -0.02 -2.08 5.85 6.92 7.20
Lipper New York Municipal
Debt Funds Median -1.08 -4.47 4.84 6.41 6.58
</TABLE>
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. Six-month and one-year returns are cumulative.
(0) Inception: 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. Index and Lipper median inception returns
are as of oldest share class inception.
* 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, as well as the
trustee of the PaineWebber 401(k) Plus Plan. Class Y shares do not bear
initial or contingent deferred sales charges or ongoing distribution and
service fees.
4
<PAGE>
PAINEWEBBER TAX-FREE BOND FUNDS ANNUAL REPORT
Dear Shareholder, April 15, 2000
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 29, 2000.
MARKET REVIEW
- --------------------------------------------------------------------------------
[GRAPHIC] Through the fiscal year ended February 29, 2000, the bond market
experienced one of its worst years ever. A strong U.S. economy and rising energy
prices caused investors to fear the possible effects of inflation, leading to a
sell-off of bonds. The Federal Reserve (the Fed) raised short-term interest
rates three times in 1999, citing tight labor markets and inflated asset prices.
This combination of rising rates and fairly low inflation led to volatility in
all fixed income markets.
Rising interest rates had a dampening effect on the municipal market,
pushing up yields and reducing the supply of new issues. Making matters worse,
declining profitability among property and casualty insurers reduced the level
of institutional investors' participation in the municipal markets. These
negative factors produced a significant market sell-off from December 1999
through January 2000.
Municipals and high-yield municipals rallied modestly in February as
investors realized the sell-off of December and January was overdone. Still the
municipal market as measured by the Lehman Brothers Municipal Bond Index lost
2.08% for the 12 months ended February 29, 2000.
OUTLOOK
We believe municipals are now attractive on an absolute basis. Yields have
not been so high since 1995, when they rose in the wake of the last protracted
series of interest rate increases. Furthermore, the credit outlook is still
remarkably good: credit problems seem confined largely to healthcare-related
issuers such as hospitals.
Nevertheless, we believe that some weakness could return. The Fed raised
short-term rates by 25 basis points in March and will most likely raise them
again in future months. We do not believe that the bond markets have fully
discounted these rate increases. While interest rate and credit risks lie ahead,
we also see the possibility of a significant market rebound when the economy
slows.
5
<PAGE>
ANNUAL REPORT
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS
For the fiscal year ended February 29, 2000, Class A and Class Y shares
outperformed the Lipper median. Class B and Class C shares underperformed the
median. (Differences in fees paid by the different share classes accounted for
the variation in results.) The outperformance was a result of the Fund's
slightly shorter-than-benchmark duration (a measure of a bond portfolio's
sensitivity to interest rate changes), and its overweighting in the 15-20 year
part of the yield curve. While the 20-30 year part of the yield curve steepened
dramatically, our portfolio was positioned for greater stability.
Selective use of municipal futures contracts also positively influenced
performance for the fiscal year. Regrettably, these positive factors could not
completely offset the negative impact of rising interest rates.
The Treasury debt buyback announced in February spooked the global capital
markets and sent investors running for cover. The news also affected the
municipal yield curve, causing it to flatten slightly. (A "flatter" yield curve
means that the yield difference between shorter and longer maturities is
diminishing.) By fiscal year-end, however, the richness of the municipal futures
contract, the lighter new issue calendar and the overall stability of tax-free
yields allowed for an improvement of investor sentiment.
The 15-20 year area of the municipal yield curve still appears to be the
most attractive from a total return perspective. During the last month of the
Fund's fiscal year we purchased several deeply discounted positions that have
added 10 basis points of after-tax yield due to the increased DE MINIMUS(1) tax
exposure in the portfolio (a basis point equals 1/100th of one percent). To
hedge the additional duration exposure from our recent purchases we sold short
municipal futures contracts, which allowed the Fund to maintain its duration and
slightly increase its yield.
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND--PORTFOLIO STATISTICS
<TABLE>
<CAPTION>
CHARACTERISTICS* 2/29/00 8/31/99
- --------------------------------------------------------------------------------
<S> <C> <C>
Weighted Average Duration 8.9 yrs 8.8 yrs
Weighted Average Maturity 19.6 yrs 20.3 yrs
AMT Paper (%) 11.3% 10.2%
Net Assets ($mm) $126.8 $141.4
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SECTORS* 2/29/00 8/31/99
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax Allocation 15.5% Tax Allocation 16.4%
Power 13.6 Lease 15.6
General Obligation 11.1 Power 13.4
Special Tax 9.0 General Obligation 10.7
Water 8.9 Water 9.4
- --------------------------------------------------------------------------------
Total 58.1 Total 65.5
</TABLE>
(1) Tax-exempt securities purchased at a discount are subject to capital gains
tax if the discount exceeds a threshold defined in terms of the security's
remaining life. The shorter the security's remaining life, the lower the
threshold of DE MINIMUS tax liability.
* Weightings represent percentages of portfolio assets. The Fund's portfolio
is actively managed and its composition will vary over time.
[Sidenote:]
- --------------------------------------------------------------------------------
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND
INVESTMENT GOAL:
High current income exempt from federal income tax and California personal
income tax
PORTFOLIO MANAGERS:
Elbridge T. Gerry, III
Cynthia N. Bow
Mitchell Hutchins Asset Management Inc.
COMMENCEMENT:
September 16, 1985 (Class A)
July 1, 1991 (Class B)
July 2, 1992 (Class C)
February 5, 1998 (Class Y)
DIVIDEND PAYMENTS:
Monthly
- --------------------------------------------------------------------------------
6
<PAGE>
PAINEWEBBER TAX-FREE BOND FUNDS ANNUAL REPORT
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND--PORTFOLIO STATISTICS
<TABLE>
<CAPTION>
CREDIT QUALITY* 2/29/00 8/31/99
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash 0.8% 0.4%
AAA 55.5 51.6
AA 8.5 10.8
A 5.1 6.5
BBB 16.4 20.7
Non-Rated 13.7 10.0
- --------------------------------------------------------------------------------
Total 100.0 100.0
</TABLE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS
The Treasury debt buyback announced in February spooked the global capital
markets and sent investors running for cover. The news also affected the
municipal yield curve, causing it to flatten slightly. (A "flatter" yield curve
means that the yield difference between shorter and longer maturities is
diminishing.) By fiscal year-end, however, the richness of municipal futures
contracts, the lighter new issue calendar and the overall stability of tax-free
yields allowed for an improvement of investor sentiment.
The 15-20 year area of the municipal yield curve still appears to be the
most attractive from a total return perspective. During the last month of the
Fund's fiscal year we purchased several deeply discounted positions that have
added 10 basis points of after-tax yield due to the DE MINIMUS(2) rule (a basis
point equals 1/100th of one percent). To hedge the additional duration exposure
from our recent purchases we sold short municipal futures contracts, which
allowed the Fund to maintain its duration and slightly increase its yield.
The high yield credit spread sector of the municipal market firmed up in
February and even improved in certain sectors. The spread tightening of certain
issues helped the Fund's performance and offset our slightly short duration to
the benchmark during the fixed income rally.
With a slightly shorter duration than the benchmark and an overweighting in
the 15-20 year section of the yield curve as it steepened, Fund shares held
about even with their Lipper peer group for the fiscal year ended February 29,
2000 (duration is a measure of a bond portfolio's sensitivity to interest rate
changes). Selective use of municipal futures contracts also positively
influenced performance for the fiscal year. Regrettably, these positive factors
could not completely offset the negative impact of rising interest rates. Credit
spreads widened in the high yield arena, which allowed us to add to our exposure
in Black Hawk Colorado gaming bonds (1.1%).*
(2) Tax-exempt securities purchased at a discount are subject to capital gains
tax if the discount exceeds a threshold defined in terms of the security's
remaining life. The shorter the security's remaining life, the lower the
threshold of DE MINIMUS tax liability.
* Weightings represent percentages of portfolio assets. The Fund's portfolio
is actively managed and its composition will vary over time.
[Sidenote:]
- --------------------------------------------------------------------------------
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
INVESTMENT GOAL:
High current income exempt from federal income tax
PORTFOLIO MANAGERS:
Elbridge T. Gerry, III
Richard S. Murphy
Mitchell Hutchins Asset Management Inc.
COMMENCEMENT:
December 3, 1984 (Class A)
July 1, 1991 (Class B)
July 2, 1992 (Class C)
November 3, 1995 (Class Y)
DIVIDEND PAYMENTS:
Monthly
- --------------------------------------------------------------------------------
7
<PAGE>
ANNUAL REPORT
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND--PORTFOLIO STATISTICS
<TABLE>
<CAPTION>
CHARACTERISTICS* 2/29/00 8/31/99
- --------------------------------------------------------------------------------
<S> <C> <C>
Weighted Average Duration 8.0 yrs 7.7 yrs
Weighted Average Maturity 18.2 yrs 19.5 yrs
AMT Paper (%) 12.8% 16.3%
Net Assets ($mm) $250.2 $276.3
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SECTORS* 2/29/00 8/31/99
- --------------------------------------------------------------------------------
<S> <C> <C>
Power 16.1% Power 15.4%
General Obligation 12.8 General Obligation 14.3
Toll 11.6 Toll 11.2
Water 9.4 Water 9.5
Lease 7.9 Lease 8.7
- --------------------------------------------------------------------------------
Total 57.8 Total 59.1
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE STATES* 2/29/00 8/31/99
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Texas 16.9% Texas 15.1%
Illinois 13.8 Illinois 12.9
New York 9.7 New York 12.1
California 8.4 New Jersey 7.5
New Jersey 7.0 Georgia 6.4
- --------------------------------------------------------------------------------
Total 55.8 Total 54.0
</TABLE>
<TABLE>
<CAPTION>
CREDIT QUALITY* 2/29/00 8/31/99
- --------------------------------------------------------------------------------
<S> <C> <C>
SP1 & A1 3.2% 3.4%
AAA 41.4 33.5
AA 14.6 20.1
A 7.1 11.5
BBB 13.1 17.0
BB 2.8 2.6
Non-Rated 17.8 11.9
- --------------------------------------------------------------------------------
Total 100.0 100.0
</TABLE>
* Weightings represent percentages of portfolio assets. The Fund's portfolio
is actively managed and its composition will vary over time.
8
<PAGE>
PAINEWEBBER TAX-FREE BOND FUNDS ANNUAL REPORT
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS
The bond market, particularly the long end of the municipal market, opened
the new century on a weak note. While the Fund could not overcome the weak trend
in the municipal market, Class A and Class Y shares did outperform the Lipper
High Yield Municipal Debt Funds median for the fiscal year ended February 29,
2000.
Because of rising interest rates during the fiscal year we shortened
portfolio duration modestly, shifting our emphasis to intermediate-term bonds
(duration is a measure of a bond portfolio's sensitivity to interest rate
changes). The duration shift helped by partially offsetting the negative impact
of rising rates. As rates backed up, high-yield municipal bonds generally
underperformed investment-grade municipals.
The Fund has moved very cautiously in this environment to utilize available
cash. We have looked for value among discount bonds that sold off more than the
market. We purchased a small block of an independent power producer with what we
believe to be good prospects, Nissequogue Cogeneration Project of Suffolk
County, New York, 5.30% due 1/01/13 (1.6%).* This bond has a gross yield of
7.03% and still yields an attractive 6.72% after the DE MINIMIS(3) capital gains
tax. The small tax causes many investors to avoid this sector entirely, but our
philosophy is to focus on maximizing after-tax returns. The maturity is shorter
than the 15 to 30 year range we normally buy, reflecting our expectation of
further interest-rate increases.
We slightly reduced our holdings in airline paper during the month of
January. While the overall outlook remains positive, some short-term inflation
pressures have emerged from rising fuel and labor costs.
In contrast to our wariness about airlines, we continue to hold issuers in
the leisure industry, evaluating them on a selective, credit-by-credit basis.
Though we see a threat to airline earnings and to airport-dependent businesses,
we believe people will continue to devote a higher portion of their income to
leisure activities.
Despite a difficult environment during the fiscal year, we kept the Fund
aligned with its long-term investment themes, including: growth of the travel
and leisure industries in a period of strong economic expansion, deregulation of
the power industry and the ongoing economic recovery of Southern California.
A notable investment during the fiscal year was the purchase of bonds issued
by California Statewide Community Development Authority for Pride Industries,
maturing in 2016 with a coupon of 7.125% (2.0%). Pride Industries offers
employment opportunities to mentally and physically disabled persons. The
company contracts with businesses and government agencies to provide staff for
food services, transportation and janitorial services, as well as light
manufacturing. We believe that Pride's contracts with the Federal government are
secure, and that the company's earnings will be consistent enough to enable
Pride Industries to service its debt reliably.
* Weightings represent percentages of portfolio assets. The Fund's portfolio
is actively managed and its composition will vary over time.
(3) Tax-exempt securities purchased at a discount are subject to capital gains
tax if the discount exceeds a threshold defined in terms of the security's
remaining life. The shorter the security's remaining life, the lower the
threshold of DE MINIMUS tax liability.
[Sidenote:]
- --------------------------------------------------------------------------------
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
INVESTMENT GOAL:
High current income exempt from federal income tax
PORTFOLIO MANAGERS:
Elbridge T. Gerry, III
William W. Veronda
Mitchell Hutchins Asset Management Inc.
COMMENCEMENT:
June 23, 1987 (Class A)
July 1, 1991 (Class B)
July 2, 1992 (Class C)
February 5, 1998 (Class Y)
DIVIDEND PAYMENTS:
Monthly
- --------------------------------------------------------------------------------
9
<PAGE>
ANNUAL REPORT
PAINEWEBBER MUNICIPAL HIGH INCOME FUND--PORTFOLIO STATISTICS
<TABLE>
<CAPTION>
CHARACTERISTICS* 2/29/00 8/31/99
- --------------------------------------------------------------------------------
<S> <C> <C>
Weighted Average Duration 7.4 years 7.0 years
Weighted Average Maturity 17.4 years 18.9 years
AMT Paper (%) 45.6% 47.3%
Net Assets ($mm) $96.6 $109.6
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SECTORS* 2/29/00 8/31/99
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Power 19.4% Power 18.5%
Leisure 10.9 Leisure 10.4
Paper 8.2 Hotel 7.8
Lease 6.8 Paper 7.7
Airlines 6.1 Airlines 7.6
- --------------------------------------------------------------------------------
Total 51.4 Total 52.0
</TABLE>
<TABLE>
<CAPTION>
CREDIT QUALITY* 2/29/00 8/31/99
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash Equivalents 5.6% 2.9%
AAA 0.6 0.5
A 6.9 6.4
BBB 27.4 35.8
BB 16.2 12.8
B 2.0 5.5
Non-Rated 41.3 36.1
- --------------------------------------------------------------------------------
Total 100.0 100.0
</TABLE>
PAINEWEBBER NEW YORK TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS
The Treasury debt buyback announced in February spooked the global capital
markets and sent investors running for cover. The news also affected the
municipal yield curve, causing it to flatten slightly. (A "flatter" yield curve
means that the yield difference between shorter and longer maturities is
diminishing.) By fiscal year-end, however, the richness of municipal futures
contracts, the lighter new issue calendar and the overall stability of tax-free
yields allowed for an improvement of investor sentiment.
The 15-20 year area of the municipal yield curve still appears to be the
most attractive from a total return perspective. During the last month of the
Fund's fiscal year we purchased several deeply discounted positions that have
added 10 basis points of after-tax yield due to the DE MINIMUS(4) rule (a basis
point equals 1/100th of one percent). To hedge the additional duration exposure
from our
* Weightings represent percentages of portfolio assets. The Fund's portfolio
is actively managed and its composition will vary over time.
(4) Tax-exempt securities purchased at a discount are subject to capital gains
tax if the discount exceeds a threshold defined in terms of the security's
remaining life. The shorter the security's remaining life, the lower the
threshold of DE MINIMUS tax liability.
[Sidenote:]
- --------------------------------------------------------------------------------
PAINEWEBBER NEW YORK TAX-FREE INCOME FUND
INVESTMENT GOAL:
High current income exempt from federal income tax and New York State and New
York City personal income taxes
PORTFOLIO MANAGERS:
Elbridge T. Gerry, III
Richard S. Murphy
Mitchell Hutchins Asset Management Inc.
COMMENCEMENT:
September 23, 1988 (Class A)
July 1, 1991 (Class B)
July 2, 1992 (Class C)
May 21, 1998 (Class Y)
DIVIDEND PAYMENTS:
Monthly
- --------------------------------------------------------------------------------
10
<PAGE>
PAINEWEBBER TAX-FREE BOND FUNDS ANNUAL REPORT
recent purchases we sold short municipal futures contracts, which allowed the
Fund to maintain its duration and slightly increase its yield.
The high yield credit spread sector of the municipal market firmed up in
February and even improved in certain sectors. The spread tightening of certain
issues helped the Fund's performance and offset our slightly short duration to
the benchmark during the fixed income rally.
The Fund's slightly shorter-than-benchmark duration and its overweighting in
the 15-20 year section of the yield curve helped performance for the fiscal
year. (Duration is a measure of a bond portfolio's sensitivity to interest rate
changes.) Selective use of municipal futures contracts also benefited
performance. Regrettably, these positive factors could not completely offset the
negative impact of rising interest rates.
Credit spreads widened in the high yield arena, which allowed us to add to
the Fund's position in a deeply-discounted, independent power producer with what
we believe to be good prospects--Nissequogue Cogeneration Project of Suffolk
County, New York, 5.30% due 1/01/13 (2.9%).* This bond has a gross yield of
7.03% and still yields an attractive 6.72% after the DE MINIMUS(5) capital gains
tax.
PAINEWEBBER NEW YORK TAX-FREE INCOME FUND--PORTFOLIO STATISTICS
<TABLE>
<CAPTION>
CHARACTERISTICS* 2/29/00 8/31/99
- --------------------------------------------------------------------------------
<S> <C> <C>
Weighted Average Duration 8.6 years 8.6 years
Weighted Average Maturity 17.9 years 18.8 years
AMT Paper (%) 16.7% 13.8%
Total Net Assets ($mm) $35.9 $39.9
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SECTORS* 2/29/00 8/31/99
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
General Obligation 28.6% General Obligation 21.1%
Power 13.1 Power 17.4
Water 12.5 Water 12.4
Toll 7.9 Hospital 7.6
University 6.8 University 6.9
- --------------------------------------------------------------------------------
Total 68.9 Total 65.4
</TABLE>
<TABLE>
<CAPTION>
CREDIT QUALITY* 2/29/00 8/31/99
- --------------------------------------------------------------------------------
<S> <C> <C>
AAA 53.3% 46.7%
AA 7.9 7.2
A 29.1 28.8
BBB 3.6 12.4
Non-Rated 6.1 4.9
- --------------------------------------------------------------------------------
Total 100.0 100.0
</TABLE>
* Weightings represent percentages of portfolio asset. The Fund's portfolio is
actively managed and its composition will vary over time.
(5) Tax-exempt securities purchased at a discount are subject to capital gains
tax if the discount exceeds a threshold defined in terms of the security's
remaining life. The shorter the security's remaining life, the lower the
threshold of DE MINIMUS tax liability.
11
<PAGE>
ANNUAL REPORT
Our ultimate objective in managing your investments is to help you
successfully meet your financial goals. We thank you for your continued support
and welcome any comments or questions you may have. For a QUARTERLY 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,(6)
please contact your Financial Advisor.
Sincerely,
<TABLE>
<S> <C> <C>
/s/ Margo Alexander /s/ Brian M. Storms /s/ Elbridge T. Gerry, III
MARGO ALEXANDER BRIAN M. STORMS ELBRIDGE T. GERRY, III
Chairman and President and Senior Vice President
Chief Executive Officer Chief Operating Officer Mitchell Hutchins Asset
Mitchell Hutchins Mitchell Hutchins Management Inc.
Asset Management Inc. Asset 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
/s/ Cynthia N. Bow /s/ Richard S. Murphy
CYNTHIA N. BOW RICHARD S. MURPHY
Portfolio Manager Portfolio Manager
PaineWebber California Tax-Free PaineWebber National Tax-Free
Income Fund Income Fund and PaineWebber
New York Tax-Free Income Fund
/s/ William W. Veronda
WILLIAM W. VERONDA
Portfolio Manager
PaineWebber Municipal High
Income Fund
</TABLE>
This letter is intended to assist shareholders in understanding how the funds
performed during the fiscal year ended February 29, 2000, 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.
(6) 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.
12
<PAGE>
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN(1)
------------------------------------------ -----------------------------------------
12 MONTHS 6 MONTHS
02/29/00 08/31/99 02/28/99 ENDED 02/29/00 ENDED 02/29/00
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $10.17 $10.59 $11.18 (3.96)% (0.95)%
- ---------------------------------------------------------------------------------------------------------------------------
Class B Shares 10.18 10.60 11.18 (4.60) (1.33)
- ---------------------------------------------------------------------------------------------------------------------------
Class C Shares 10.17 10.58 11.17 (4.36) (1.11)
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PERFORMANCE SUMMARY CLASS A SHARES
NET ASSET VALUE
------------------------- CAPITAL GAINS
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID TOTAL 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
- ---------------------------------------------------------------------------------------------------------------------------
1999 11.20 10.16 0.0585 0.5133 (4.32)
- ---------------------------------------------------------------------------------------------------------------------------
01/01/00-02/29/00 10.16 10.17 -- 0.0798 0.89
- ---------------------------------------------------------------------------------------------------------------------------
Totals: $1.0085 $9.2577
- ---------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 02/29/00: 170.71%
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PERFORMANCE SUMMARY CLASS B SHARES
NET ASSET VALUE
------------------------- CAPITAL GAINS
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID TOTAL RETURN(1)
- ---------------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------------
1999 11.21 10.17 0.0585 0.4312 (5.04)
- ---------------------------------------------------------------------------------------------------------------------------
01/01/00-02/29/00 10.17 10.18 -- 0.0682 0.77
- ---------------------------------------------------------------------------------------------------------------------------
Totals: $0.9745 $4.1772
- ---------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 02/29/00: 50.63%
- ---------------------------------------------------------------------------------------------------------------------------
</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.
13
<PAGE>
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND
PERFORMANCE RESULTS (UNAUDITED) (CONCLUDED)
PERFORMANCE SUMMARY CLASS C SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
------------------------- CAPITAL GAINS
PERIOD 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
- ---------------------------------------------------------------------------------------------------------------------------
1999 11.19 10.15 0.0585 0.4585 (4.81)
- ---------------------------------------------------------------------------------------------------------------------------
01/01/00-02/29/00 10.15 10.17 -- 0.0720 0.91
- ---------------------------------------------------------------------------------------------------------------------------
Totals: $0.9477 $3.7661
- ---------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 02/29/00: 36.25%
- ---------------------------------------------------------------------------------------------------------------------------
</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 29,
2000 and for the period since inception, February 5, 1998 through February 29,
2000, Class Y shares had a total return of (3.73)% and 1.96%, 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.
14
<PAGE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN(1)
------------------------------------------ ------------------------------------------
12 MONTHS 6 MONTHS
02/29/00 08/31/99 02/28/99 ENDED 02/29/00 ENDED 02/29/00
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $10.66 $11.09 $11.73 (3.91)% (0.77)%
- ---------------------------------------------------------------------------------------------------------------------------
Class B Shares 10.66 11.08 11.73 (4.68) (1.08)
- ---------------------------------------------------------------------------------------------------------------------------
Class C Shares 10.66 11.09 11.73 (4.42) (1.03)
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PERFORMANCE SUMMARY CLASS A SHARES
NET ASSET VALUE
-------------------------- CAPITAL GAINS
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID TOTAL 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
- ---------------------------------------------------------------------------------------------------------------------------
1999 11.76 10.68 0.0657 0.5514 (4.06)
- ---------------------------------------------------------------------------------------------------------------------------
01/01/00-02/29/00 10.68 10.66 -- 0.0844 0.61
- ---------------------------------------------------------------------------------------------------------------------------
Totals: $0.7379 $10.5268
- ---------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 02/29/00: 203.46%
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PERFORMANCE SUMMARY CLASS B SHARES
NET ASSET VALUE
-------------------------- CAPITAL GAINS
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID TOTAL 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
- ---------------------------------------------------------------------------------------------------------------------------
1999 11.75 10.67 0.0657 0.4615 (4.83)
- ---------------------------------------------------------------------------------------------------------------------------
01/01/00-02/29/00 10.67 10.66 -- 0.0715 0.58
- ---------------------------------------------------------------------------------------------------------------------------
Totals: $0.7379 $4.4631
- ---------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 02/29/00: 52.45%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Figures assume reinvestment of all dividends and other distributions at net
asset value on the payable dates and do not include sales charges; results
for each class would be lower if sales charges were included. 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.
15
<PAGE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
PERFORMANCE RESULTS (UNAUDITED) (CONCLUDED)
PERFORMANCE SUMMARY CLASS C SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
------------------------- CAPITAL GAINS
PERIOD 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
- ---------------------------------------------------------------------------------------------------------------------------
1999 11.75 10.67 0.0657 0.4923 (4.57)
- ---------------------------------------------------------------------------------------------------------------------------
01/01/00-02/29/00 10.67 10.66 -- 0.4941 0.62
- ---------------------------------------------------------------------------------------------------------------------------
Totals: $0.7014 $4.4337
- ---------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 02/29/00: 36.83%
- ---------------------------------------------------------------------------------------------------------------------------
</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 29,
2000 and since inception, November 3, 1995 through February 29, 2000, Class Y
shares had a total return of (3.77)% and 18.33%, 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.
16
<PAGE>
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN(1)
----------------------------------------- ----------------------------------------
12 MONTHS 6 MONTHS
02/29/00 08/31/99 02/28/99 ENDED 02/29/00 ENDED 02/29/00
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $9.86 $10.43 $10.88 (3.91)% (2.29)%
- ---------------------------------------------------------------------------------------------------------------------------
Class B Shares 9.85 10.43 10.87 (4.65) (2.76)
- ---------------------------------------------------------------------------------------------------------------------------
Class C Shares 9.85 10.43 10.88 (4.49) (2.63)
- ---------------------------------------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
<CAPTION>
NET ASSET VALUE
------------------------- CAPITAL GAINS
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID TOTAL 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
- ---------------------------------------------------------------------------------------------------------------------------
1999 10.90 9.93 0.0589 0.5481 (3.49)
- ---------------------------------------------------------------------------------------------------------------------------
01/01/00-02/29/00 9.93 9.86 -- 0.0836 0.14
- ---------------------------------------------------------------------------------------------------------------------------
Totals: $0.5112 $8.0887
- ---------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 02/29/00: 138.00%
- ---------------------------------------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<CAPTION>
NET ASSET VALUE
------------------------- CAPITAL GAINS
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID TOTAL 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
- ---------------------------------------------------------------------------------------------------------------------------
1999 10.89 9.93 0.0589 0.4670 (4.14)
- ---------------------------------------------------------------------------------------------------------------------------
01/01/00-02/29/00 9.93 9.85 -- 0.0723 (0.08)
- ---------------------------------------------------------------------------------------------------------------------------
Totals: $0.5112 $4.4494
- ---------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 02/29/00: 60.62%
- ---------------------------------------------------------------------------------------------------------------------------
</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.
17
<PAGE>
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
PERFORMANCE RESULTS (UNAUDITED) (CONCLUDED)
PERFORMANCE SUMMARY CLASS C SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
------------------------- CAPITAL GAINS
PERIOD 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
- ---------------------------------------------------------------------------------------------------------------------------
1999 10.89 9.93 0.0589 0.4949 (3.89)
- ---------------------------------------------------------------------------------------------------------------------------
01/01/00-02/29/00 9.93 9.85 -- 0.0762 (0.04)
- ---------------------------------------------------------------------------------------------------------------------------
Totals: $0.3162 $3.9925
- ---------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 02/29/00: 41.43%
- ---------------------------------------------------------------------------------------------------------------------------
</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 29,
2000 and since inception, February 5, 1998 through February 29, 2000, Class Y
shares had a total return of (3.73)% and 0.96%, 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.
18
<PAGE>
PAINEWEBBER NEW YORK TAX-FREE INCOME FUND
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN(1)
----------------------------------------- ----------------------------------------
12 MONTHS 6 MONTHS
02/29/00 08/31/99 02/28/99 ENDED 02/29/00 ENDED 02/29/00
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $ 9.99 $10.39 $11.03 (4.33)% (0.65)%
- ---------------------------------------------------------------------------------------------------------------------------
Class B Shares 9.99 10.39 11.03 (5.05) (1.02)
- ---------------------------------------------------------------------------------------------------------------------------
Class C Shares 10.00 10.40 11.04 (4.80) (0.89)
- ---------------------------------------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
<CAPTION>
NET ASSET VALUE
------------------------- CAPITAL GAINS
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID TOTAL 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
- ---------------------------------------------------------------------------------------------------------------------------
1999 11.04 9.98 0.0918 0.4773 (4.57)
- ---------------------------------------------------------------------------------------------------------------------------
01/01/00-02/29/00 9.98 9.99 -- 0.0721 0.83
- ---------------------------------------------------------------------------------------------------------------------------
Totals: $0.4577 $6.5551
- ---------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 02/29/00: 105.33%
- ---------------------------------------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<CAPTION>
NET ASSET VALUE
------------------------- CAPITAL GAINS
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID TOTAL 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
- ---------------------------------------------------------------------------------------------------------------------------
1999 11.04 9.97 0.0918 0.3971 (5.39)
- ---------------------------------------------------------------------------------------------------------------------------
01/01/00-02/29/00 9.97 9.99 -- 0.0608 0.82
- ---------------------------------------------------------------------------------------------------------------------------
Totals: $0.4577 $3.9993
- ---------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 02/29/00: 58.22%
- ---------------------------------------------------------------------------------------------------------------------------
</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.
19
<PAGE>
PAINEWEBBER NEW YORK TAX-FREE INCOME FUND
PERFORMANCE RESULTS (UNAUDITED) (CONCLUDED)
PERFORMANCE SUMMARY CLASS C SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
------------------------- CAPITAL GAINS
PERIOD 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
- ---------------------------------------------------------------------------------------------------------------------------
1999 11.05 9.98 0.0918 0.4242 (5.14)
- ---------------------------------------------------------------------------------------------------------------------------
01/01/00-02/29/00 9.98 10.00 -- 0.0646 0.85
- ---------------------------------------------------------------------------------------------------------------------------
Totals: $0.4577 $3.5982
- ---------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 02/29/00: 40.34%
- ---------------------------------------------------------------------------------------------------------------------------
</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
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 29,
2000 and since inception, May 21, 1998 through February 29, 2000, Class Y shares
had a total return of (4.10)% and 1.08%, 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.
20
<PAGE>
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- --------- -------- -------- -----
<S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES--99.15%
CALIFORNIA--97.72%
$2,500 California Educational Facilities Authority
Loyola Marymount (MBIA Insured) ................................... 10/01/14 6.099#% $ 1,045,150
500 California Educational Facilities Authority
Fresno Pacific University Series A (1) ............................ 03/01/19 6.750 503,265
1,600 California Educational Facilities Authority
Los Angeles College of Chiropractic Medicine ...................... 11/01/17 5.600 1,426,096
1,375 California Educational Facilities Authority
University of Southern California ................................. 10/01/27 5.500 1,287,330
1,765 California Housing Finance Agency Revenue Bonds
Series G (3) ...................................................... 08/01/14 6.100 1,768,018
2,000 California Statewide Community Development Authority
Certificates of Participation++ ................................... 11/01/16 7.125 1,955,360
2,000 California Statewide Communities Development Authority
Apartment Development Revenue Bonds
Irvine Apartment Communities Series A-3 ........................... 05/17/10(2) 5.100 1,885,680
3,000 California Statewide Communities Development Authority
Apartment Development Revenue Bonds
Irvine Apartment Communities Series A-4 ........................... 05/15/13(2) 5.250 2,770,680
2,000 ABAG Finance Authority for Nonprofit Corporations
Certificates of Participation Rhoda Haas Goldman Plaza ............ 05/15/15 5.125 1,836,180
1,245 Capistrano Unified School District Certificates of
Participation ..................................................... 02/01/18 5.200 1,230,371
1,350 Contra Costa Transportation Authority Sales Tax Revenue
Bonds Series A .................................................... 03/01/07 6.875 1,405,904
2,715 Del Mar Race Track Authority ........................................ 08/15/11 to 08/15/13 6.200 to 6.450 2,750,151
650 Duarte Redevelopment Agency Tax Allocation Davis
Addition Project .................................................. 09/01/14 6.700 653,075
5,285 Escondido Union High School District (MBIA Insured) ................. 05/01/12 to 05/01/13 4.700 to 4.750# 2,616,036
6,140 Fontana Redevelopment Agency Tax Allocation
Jurupa Hills Redevelopment Project Series A ....................... 10/01/19 to 10/01/27 5.500 to 5.600 5,177,830
5,300 Foothill/Eastern Transportation Corridor Agency
California Toll Road Revenue Bonds ................................ 01/15/40 5.750 5,099,660
1,855 Fresno Unified School District Series C (MBIA Insured) .............. 02/01/18 5.900 1,898,314
4,275 Glendale Unified School District Series B (FSA Insured) ............. 09/01/18 5.500 4,154,231
2,000 Huntington Park Public Financing Authority Wastewater
Systems Project Series A++ ........................................ 10/01/25 6.200 1,859,360
1,695 Inglewood Unified School District Series A (FGIC Insured) ........... 10/01/19 6.000 1,722,781
1,060 Inglewood Redevelopment Agency Tax Allocation
Merged Redevelopment Project Series A (AMBAC Insured) ............. 05/01/13 to 05/01/16 5.250 1,030,646
200 Irvine Ranch Water District Certificates of Participation
Dates-Capital Improvement Project (Capital
Improvement Project) ............................................ 03/01/00 3.050* 200,000
1,500 La Mirada Redevelopment Agency Special Tax Community
Facilities
District Number 89-1 ............................................ 10/01/20 5.700 1,284,825
1,835 Lake Elsinore Recreation Authority Revenue Bonds
Public Facilities Project Series A ................................ 02/01/17 7.100 1,845,661
1,450 Long Beach Industrial Development Revenue Bonds
CSU Foundation Series A ........................................... 02/01/23 5.250 1,173,558
3,000 Los Angeles County Metropolitan Transportation Authority
Sales Tax Revenue Prop C-Second Series Series A
(FSA Insured) ................................................... 07/01/26 4.750 2,468,820
21
<PAGE>
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- --------- -------- -------- -----
<S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES--(CONTINUED)
CALIFORNIA--(CONCLUDED)
$5,750 Los Angeles Harbor Department Revenue Bonds Series B (3) ............ 11/01/23 to 08/01/25 5.375 to 6.625% $ 5,570,235
2,200 M-S-R Public Power Agency San Juan Project Revenue Bonds
Series E (MBIA Insured) ........................................... 07/01/17 6.500 2,289,628
2,000 Menlo Park Community Development Agency Tax Allocation
Las Pulgas Community Development Project (AMBAC Insured) .......... 06/01/16 5.375 1,935,620
1,930 Modesto Irrigation District Certificates of Participation
Capital Improvements Series B ..................................... 07/01/22 5.300 1,790,712
1,655 Modesto Public Financing Authority John Thurman Field
Renovation Project ................................................ 11/01/16 6.125 1,642,041
2,625 Mojave Water Agency Improvement District Morongo Basin
(FGIC Insured) .................................................... 09/01/15 5.750 2,653,114
1,605 Moulton Niguel Water District (MBIA Insured) ........................ 09/01/19 5.000 1,435,496
1,000 Natomas Unified School District (MBIA Insured) ...................... 09/01/21 5.950 1,023,250
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 1,966,827
3,075 Poway Community Facilities District Special Tax Number 88-1
Parkway Business Center ........................................... 08/15/06 to 08/15/15 5.400 to 6.750 3,095,547
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 3,868,609
1,180 Rohnert Park Community Development Agency Tax Allocation
(AMBAC Insured) ................................................... 08/01/20 6.500 1,210,633
5,500 Sacramento Power Authority Cogeneration Project Revenue
Bonds (MBIA Insured) .............................................. 07/01/15 5.875 5,617,535
2,200 Salinas Certificates of Participation Capital Improvement
Projects Series A ................................................. 10/01/28 5.700 2,023,450
2,300 San Diego County Certificates of Participation Burnham
Institute ......................................................... 09/01/29 6.250 2,193,119
2,500 San Diego County Certificates Water Utility Fund Net
Systems Revenue (FGIC Insured) .................................... 08/01/28 4.750 2,041,700
6,000 San Diego Industrial Development Revenue Bonds
San Diego Gas & Electric Series A (MBIA Insured) .................. 09/01/18 6.100 6,084,180
3,000 San Francisco City and County Airport Commission International
Airport Revenue Bonds Second Series Issue 8A (FGIC Insured)(3) .... 05/01/20 6.250 3,041,910
3,850 San Francisco City and County Airport Commission International
Airport Revenue Bonds Second Series Issue 16A (FSA Insured)(3) .... 05/01/13 5.500 3,846,111
2,650 San Jose Santa Clara Water Financing Authority Sewer
Revenue Bonds
Series A (FGIC Insured) ......................................... 11/15/15 5.375 2,587,990
4,250 San Jose Unified School District Santa Clara County
Series B (FGIC Insured) ......................................... 08/01/17 5.200# 1,481,848
960 San Ysidro School District (AMBAC Insured) .......................... 08/01/21 6.125 989,606
1,000 Santa Ana Health Facility Revenue Multi-Modal Town & Country ........ 03/01/00 3.200* 1,000,000
5,485 Santa Ana Financing Authority Revenue Bonds South Harbor
Boulevard Series B (MBIA Insured)+ ................................ 09/01/19 5.125 5,002,155
1,000 South Orange County Public Financing Authority
Special Tax Revenue Senior Lien Series A (MBIA Insured) ........... 09/01/13 6.200 1,040,550
2,000 Southern California Public Power Authority Transmission Project
Revenue Bonds ..................................................... 07/01/20 5.500 1,908,060
5,740 Torrance Redevelopment Agency Tax Allocation Senior Lien Series C
(MBIA Insured) .................................................... 09/01/18 5.450 5,529,572
------------
123,918,480
------------
22
<PAGE>
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- --------- -------- -------- -----
<S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES--(CONCLUDED)
U.S. VIRGIN ISLANDS--1.43%
$2,050 Virgin Islands Water & Power Authority .............................. 07/01/13 to 07/01/18 5.125 to 5.500% $ 1,807,675
------------
Total Investments (cost--$132,272,499)--99.15% .............................. 125,726,155
Other assets in excess of liabilities--0.85% ................................ 1,082,486
------------
Net Assets--100.00% ......................................................... $126,808,641
------------
------------
</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 29, 2000.
+ Entire principal amount pledged as collateral for futures transactions.
++ Illiquid security representing 3.01 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) Security subject to alternative minimum tax.
AMBAC American Municipal Bond Assurance Corporation
FGIC Financial Guaranty Insurance Company
FSA Financial Security Assurance Incorporated
MBIA Municipal Bond Investors Assurance
FUTURES CONTRACTS
<TABLE>
<CAPTION>
NUMBER OF IN EXPIRATION UNREALIZED
CONTRACTS CONTRACTS TO SELL EXCHANGE FOR DATE DEPRECIATION
- --------- --------------------------------------------------------------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
17 Municipal Bond Futures ........................................ $1,580,250 March 2000 $(5,532)
========
</TABLE>
See accompanying notes to financial statements
23
<PAGE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- --------- -------- -------- -----
<S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES--98.90%
ALABAMA--1.88%
$4,090 Birmingham Alabama Series B ........................................ 06/01/24 5.250% $ 3,652,370
1,000 Courtland Industrial Development Board Industrial
Development Revenue
Champion International ......................................... 12/01/13 7.200 1,043,040
-----------
4,695,410
-----------
ALASKA--0.51%
1,460 Alaska Industrial Development & Export Authority Power Revenue
Upper Lynn Canal Regional Power .................................. 01/01/12 5.700 1,284,785
-----------
ARIZONA--2.62%
3,700 Phoenix General Obligation ......................................... 07/01/16 6.250 3,959,037
2,500 Tucson Arizona Airport Authority Lockheed Aermod Center
Incorporated ..................................................... 09/01/19 8.700 2,590,350
-----------
6,549,387
-----------
ARKANSAS--0.72%
2,000 Little Rock Arkansas Capital Improvement Revenue Parks &
Recreation
Projects Series A .............................................. 01/01/18 5.700 1,801,480
-----------
CALIFORNIA--8.31%
160 California State (FGIC Insured) .................................... 11/01/12 7.000 175,011
1,500 California Statewide Community Development Authority
Certificates Participation ....................................... 11/01/16 7.125 1,466,520
11,500 East Bay California Municipal Utility District Water
Systems Revenue .................................................. 06/01/28 4.750 9,397,340
2,370 Escondido California Union High School District Capital
Appreciation
Refunding (MBIA Insured) ....................................... 11/01/12 4.730# 1,181,398
2,665 Escondido California Union High School District Capital
Appreciation
Refunding (MBIA Insured) ....................................... 11/01/13 4.780# 1,240,824
1,920 Long Beach Aquarium of The Pacific California Revenue .............. 07/01/23 6.125 1,788,269
4,500 Sacramento Power Authority Cogeneration Project Revenue ............ 07/01/15 5.875 4,596,165
1,000 San Diego County California Certificates Participation
Burnham Institute ................................................ 09/01/29 6.250 953,530
-----------
20,799,057
-----------
COLORADO--1.42%
3,150 Black Hawk Colorado Device Tax Revenue ............................. 12/01/12 to 12/01/21 5.500 to 5.625 2,642,379
880 Colorado Housing Finance Authority ................................. 08/01/23 7.200 912,463
-----------
3,554,842
-----------
CONNECTICUT--0.57%
1,500 Mashantucket Western Pequot Tribe Connecticut Special Revenue ...... 09/01/12 5.700 1,415,235
-----------
FLORIDA--2.12%
2,000 Hillsborough County Florida Industrial Development Authority
Pollution Control Revenue ........................................ 05/01/22 8.000 2,181,840
3,000 Plant City Utility Systems Revenue (MBIA Insured) .................. 10/01/15 6.000 3,133,050
-----------
5,314,890
-----------
29
<PAGE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- --------- -------- -------- -----
<S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES--(CONTINUED)
GEORGIA--4.75%
$5,000 Conyers Water and Sewage Revenue (AMBAC Insured) ................... 07/01/15 6.600% $ 5,352,400
6,000 Hall County School District (Pre-refunded with U.S.
Government Securities to 12/01/04 @ 102) (AMBAC Insured) ......... 12/01/14 6.700 6,532,740
-----------
11,885,140
-----------
HAWAII--0.40%
1,000 Hawaii State Department Budget and Finance Special Purpose
Revenue (MBIA Insured) ........................................... 05/01/26 6.200 1,001,040
-----------
IDAHO--0.37%
910 Idaho Housing Agency (FHA Insured) ................................. 07/01/24 7.500 939,120
-----------
ILLINOIS--13.63%
14,500 Illinois Board of Education Chicago School Reform (AMBAC Insured) .. 12/01/17 to 12/01/30 5.250 to 5.800 13,247,430
4,335 Illinois Development Finance Authority Citizens Utilities .......... 08/01/20 7.150 4,455,079
3,625 Illinois Development Finance Authority Revenue
Refunding Community Rehabilitation Providers A ................... 07/01/09 to 07/01/15 5.900 to 6.000 3,290,139
1,000 Illinois Educational Facilities Authority Revenue Augustana
College Refunding ................................................ 10/01/13 5.000 881,590
660 Illinois Health Facilities Authority Revenue
Evangelical Hospital ............................................. 04/15/17 6.750 712,378
2,500 Chicago Series A2 (AMBAC Insured) .................................. 01/01/15 6.250 2,636,225
2,000 Metropolitan Pier & Exposition Authority (Illinois)
McCormick Place Convention Complex ............................... 07/01/26 7.000 2,259,900
1,170 Northern Illinois University (Pre-refunded with
U.S. Government Securities to 10/01/09 @ 100) .................... 04/01/13 10.400 1,553,702
4,620 Regional Transportation Authority (Pre-refunded with
U.S. Government Securities to 06/01/04 @ 102) (FGIC Insured) ..... 06/01/14 7.100 5,070,773
-----------
34,107,216
-----------
INDIANA--5.84%
3,000 Indiana Health Facility Finance Authority Methodist Hospital of
Indiana .......................................................... 09/01/15 5.750 3,015,300
3,240 Dyer Indiana Redevelopment Authority Economic ...................... 07/15/14 6.875 3,335,807
2,550 East Chicago Indiana Multi School Building Corporation
(AMBAC Insured) .................................................. 07/15/14 5.500 2,466,232
6,000 Indianapolis Indiana Airport Authority Revenue
Special Facility United Air Lines Project Series A ............... 11/15/31 6.500 5,593,800
200 Indianapolis Indiana Resource Recovery Revenue ..................... 03/01/00 3.900* 200,000
-----------
14,611,139
-----------
KANSAS--1.96%
5,000 Kansas State Department Transportation Highway Revenue ............. 03/01/13 5.375 4,910,600
-----------
MASSACHUSETTS--1.93%
5,680 Massachusetts State Turnpike Authority Metropolitan
Highway Systems Revenue (MBIA Insured) ........................... 01/01/27 5.000 4,819,821
-----------
MICHIGAN--0.78%
1,915 Royal Oak Hospital Finance Authority William Beaumont Hospital ..... 01/01/19 6.625 1,965,173
-----------
25
<PAGE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- --------- -------- -------- -----
<S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES--(CONTINUED)
MISSISSIPPI--1.25%
$3,600 Mississippi Business Finance Corporation Mississippi
Pollution Control Revenue Refunding Systems
Energy Resources Incorporated Project Utah ....................... 05/01/22 5.900% $ 3,120,660
-----------
NEW HAMPSHIRE--0.72%
1,275 New Hampshire Higher Educational & Health Facilities
Authority Revenue New Hampshire College .......................... 01/01/07 5.950 1,277,716
500 New Hampshire Industrial Development Authority
Central Maine Power Company ...................................... 05/01/14 7.375 522,930
-----------
1,800,646
-----------
NEW JERSEY--6.97%
2,500 New Jersey Economic Development Authority Economic
Development Revenue .............................................. 04/01/18 6.375 2,392,675
1,890 New Jersey Housing General Resolution Series A ..................... 11/01/04 6.700 1,956,717
12,000 New Jersey State Turnpike Authority (MBIA Insured)+ ................ 01/01/16 6.500 13,092,000
-----------
17,441,392
-----------
NEW YORK--9.57%
365 New York State Energy Research & Development Authority Electric
Facilities Revenue Series B ...................................... 09/01/19 7.150 382,203
430 New York State Energy Research & Development
Unrefunded Balance Series B ...................................... 02/01/22 7.150 450,266
2,400 New York State Environmental Facilities Corporation
State Water Pollution Control .................................... 06/15/14 6.875 2,574,864
4,350 Long Island Power Authority New York Electric Systems Revenue
General Series A ................................................. 12/01/29 5.500 3,879,069
3,000 Port Authority of New York & New Jersey ............................ 03/01/00 3.750* 3,000,000
1,000 Port Authority of New York & New Jersey Kennedy International Airport
Cogeneration Project 4th Installment Project ..................... 10/01/11 6.750 1,018,810
3,100 Triborough Bridge & Tunnel Authority ............................... 01/01/10 7.100 3,227,193
3,000 New York City Industrial Development Bonds Brooklyn Navy Yard ...... 10/01/36 5.750 2,607,120
1,675 New York City Municipal Water Finance Authority
Water & Sewer Systems Revenue Series A ........................... 06/15/12 7.100 1,737,695
1,000 New York City Transitional Finance Authority Revenue Series B ...... 11/15/23 4.750 817,820
4,500 New York City Series D ............................................. 08/01/17 5.375 4,244,760
-----------
23,939,800
-----------
NORTH CAROLINA--0.52%
1,000 North Carolina Housing Finance Agency .............................. 03/01/18 6.200 998,920
300 North Carolina Medical Care Commission Revenue Carol Woods
Project .......................................................... 03/01/00 3.850* 300,000
-----------
1,298,920
-----------
NORTH DAKOTA--0.13%
330 North Dakota State Housing Finance Agency Revenue .................. 07/01/16 6.300 333,158
-----------
26
<PAGE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- --------- -------- -------- -----
<S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES--(CONTINUED)
OHIO--5.58%
$6,000 Ohio State Water Development Authority Solid Waste Disposal
Revenue Bay Shore Power Project .................................... 09/01/20 5.875% $ 4,874,640
1,145 Butler County Transportation Improvement District (FSA Insured) ...... 04/01/11 6.000 1,187,010
6,000 Cleveland Airport Special Revenue Refunding
Continental Airlines Incorporated .................................. 12/01/08 5.500 5,528,160
2,250 Cleveland Public Power Systems Revenue ............................... 11/15/17 7.000 2,367,698
-----------
13,957,508
-----------
PENNSYLVANIA--1.87%
3,365 Beaver County Pennsylvania Pollution Control Revenue ................. 06/01/21 7.000 3,507,945
1,245 Philadelphia Pennsylvania Authority Industrial Development
1st Mortgage Crime Prevention Association .......................... 04/01/09 6.000 1,179,812
-----------
4,687,757
-----------
SOUTH CAROLINA--3.16%
1,500 South Carolina State Housing Finance Development
Single Family Mortgage Purchase .................................... 07/01/18 5.500 1,471,035
1,000 Charleston Waterworks & Sewer Revenue (AMBAC Insured) ................ 01/01/16 6.000 1,008,410
7,600 Piedmont Municipal Power Agency (MBIA Insured) ....................... 01/01/23 4.000 5,439,852
-----------
7,919,297
-----------
TEXAS--16.68%
355 Texas State Prerefunded Water Development Board ...................... 08/01/18 5.750 366,303
1,885 Texas State Public Property Finance Corporation Mental Health
Revenue ............................................................ 09/01/03 5.400 1,838,704
8,000 Texas State Turnpike Authority North Thruway Revenue
President George Bush Turnpike (FGIC Insured) ...................... 01/01/25 5.000 6,772,880
1,085 Texas State Water Development Board .................................. 08/01/18 5.750 1,069,202
3,510 Texas State Water Financial Assistance ............................... 08/01/35 5.500 3,214,142
5,000 Dallas County Texas Utility And Reclamation District Series B ........ 02/15/29 5.875 4,854,400
6,017 Harris County Lease (1) .............................................. 05/15/02 to 05/01/14 5.400 to 5.900 6,038,290
7,756 Harris County Texas Lease Mulworth Project (1) ....................... 05/01/20 5.625 7,164,802
710 Harris County Toll Road Authority (AMBAC Insured) .................... 08/15/17 6.500 727,871
1,315 Hereford Texas Independent School District Public Facility Corporation
School Facility Lease Revenue ...................................... 08/15/13 5.125 1,191,088
5,000 Lower Colorado River Authority Texas Revenue Refunding Series B ...... 05/15/13 6.000 5,161,300
1,500 Port Arthur Texas Navigation District (AMBAC Insured) ................ 03/01/12 5.125# 752,430
1,295 San Antonio Texas Certificate of Obligation Series A ................. 02/01/15 5.250 1,228,165
1,425 San Antonio Texas General Obligation Series A ........................ 02/01/15 5.250 1,351,456
-----------
41,731,033
-----------
UTAH--0.15%
375 Utah State Housing Finance Agency (FHA Insured) ...................... 01/01/11 6.450 379,912
-----------
27
<PAGE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- --------- -------- -------- -----
<S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES--(CONCLUDED)
VIRGINIA--2.35%
$ 500 Peninsula Ports Authority Virginia Hospital Facility Revenue
(FHA Insured) ................................................... 08/01/23 8.700% $ 532,250
4,500 Pittsylvania County Virginia Industrial Development Authority
Revenue ......................................................... 01/01/10 7.650 4,709,745
600 Hampton Roads Medical College ..................................... 11/15/16 6.875 627,378
------------
5,869,373
------------
WYOMING--1.60%
4,000 Sweetwater County Solid Waste Disposal Revenue
FMC Corporation Project ......................................... 06/01/24 7.000 4,003,000
------------
U. S. VIRGIN ISLANDS--0.54%
1,525 Virgin Islands Water and Power Authority Water Systems Revenue
Refunding ....................................................... 07/01/12 to 07/01/17 5.250 to 5.500 1,341,969
------------
Total Investments (cost--$257,228,955)--98.90% ............................. 247,478,760
Other assets in excess of liabilities--1.10% ............................... 2,743,925
------------
Net Assets--100.00% ........................................................ $250,222,685
============
</TABLE>
- -------------
# Zero coupon bond interest rate reflects yield to maturity at date of
purchase.
* 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 rate shown are the
current rates as of February 29, 2000.
+ Security was pledged as collateral for future transactions.
(1) Illiquid securities representing 5.27% of net assets.
AMBAC American Municipal Bond Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FHA Financial Housing Authority.
FSA Financial Security Assurance.
MBIA Municipal Bond Investors Assurance.
FUTURES CONTRACTS
<TABLE>
<CAPTION>
NUMBER OF IN EXPIRATION UNREALIZED
CONTRACTS CONTRACTS TO SELL EXCHANGE FOR DATE DEPRECIATION
--------- --------------------------------------------------------------- ------------ ---------- ------------
<S> <C> <C> <C>
73 Municipal Bond Futures ........................................ 6,730,500 March 2000 $(79,031)
=========
</TABLE>
See accompanying notes to financial statements
28
<PAGE>
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- ---------- -------- -------- -----------
<S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES--99.24%
ALABAMA--1.86%
$2,000 Courtland Alabama Industrial Development Board Solid Waste Disposal
Revenue Refunding Champion International Corporation Project .......... 08/01/29 6.000% $ 1,799,800
-----------
ALASKA--1.22%
1,445 Alaska Industrial Development & Export Authority Power Revenue
Upper Lynn Canal Regional Power ....................................... 01/01/32 5.875 1,177,993
-----------
ARKANSAS--0.93%
1,000 Little Rock Arkansas Capital Improvement Revenue Parks & Recreation
Projects Series A ..................................................... 01/01/18 5.700 900,740
-----------
CALIFORNIA--10.07%
2,000 California Statewide Community Development Authority Certificates
Participation (Pride Industries) (1) .................................. 11/01/16 7.125 1,955,360
350 Duarte California Redevelopment Agency Tax Allocation Refunding
Davis Addition Project ................................................ 09/01/14 6.700 351,656
2,985 Lake Elsinore California Public Financing Authority Local
Agency Revenue ........................................................ 09/01/20 7.100 3,025,506
1,000 Lake Elsinore California Recreation Authority Revenue Public Facilities
Project Series A ...................................................... 02/01/17 7.100 1,005,810
1,000 Long Beach Aquarium of the Pacific California Revenue .................... 07/01/15 6.125 960,080
800 Poway Community Facilities District Parkway Business Center .............. 08/15/15 6.750 808,328
1,700 San Diego County California Certificates Participation Burnham Institute . 09/01/29 6.250 1,621,001
-----------
9,727,741
-----------
COLORADO--3.91%
1,500 Black Hawk Colorado Device Tax Revenue ................................... 12/01/21 5.625 1,236,420
2,500 Hyland Hills Metropolitan Park and Recreation District ................... 12/15/15 6.750 2,546,075
-----------
3,782,495
-----------
GEORGIA--1.06%
1,000 Development Authority of Effingham County Fort Howard Paper
(assumed by Fort James Corporation) ................................... 10/01/05 7.900 1,027,480
-----------
ILLINOIS--2.44%
1,100 Chicago Illinois O'Hare International Airport Special Facility Revenue
United Air Lines Project Series A ..................................... 09/01/16 5.350 941,281
750 Illinois Educational Facilities Authority Revenue Augustana College ...... 10/01/18 5.250 652,560
750 Illinois Educational Facilities Authority Revenue Columbia College ....... 12/01/17 6.875 767,235
-----------
2,361,076
-----------
INDIANA--6.13%
1,300 Crawfordsville Economic Development Authority Kroger Company ............. 11/01/12 7.700 1,370,122
2,500 Indianapolis Airport Authority Federal Express ........................... 01/15/17 7.100 2,567,875
2,000 Wabash Solid Waste Disposal Jefferson Smurfit Corporation Project ........ 06/01/26 7.500 1,985,600
-----------
5,923,597
-----------
29
<PAGE>
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- ---------- -------- -------- -----------
<S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES--(CONTINUED)
KANSAS--0.20%
$ 250 Shawnee County Kansas Certificates Participation Community
Mental Health Center Incorporated ..................................... 07/01/19 5.350% $ 196,715
-----------
KENTUCKY--3.28%
2,200 Ashland Sewage and Solid Waste Ashland Incorporated Project .............. 02/01/22 7.125 2,264,416
400 Lexington-Fayette Urban County Airport Corporation
Kentucky Revenue ...................................................... 03/01/00 3.950* 400,000
440 Russell Health Financing Authority Franciscan Sisters of the Poor
Health System ......................................................... 07/01/15 8.100 505,595
-----------
3,170,011
-----------
LOUISIANA--3.18%
1,000 Pointe Coupee Parish Gulf States Utilities ............................... 03/01/13 6.700 991,450
2,000 West Feliciana Parish Gulf States Utilities .............................. 12/01/14 7.700 2,082,460
-----------
3,073,910
-----------
MICHIGAN--1.66%
1,600 Michigan State Strategic Fund Limited Obligation Revenue ................. 03/01/00 3.800* 1,600,000
-----------
MISSISSIPPI--2.19%
2,400 Jones County Mississippi Solid Waste Disposal Revenue
International Paper Company Project ................................... 10/01/21 5.800 2,112,984
-----------
NEW HAMPSHIRE--4.94%
1,690 New Hampshire Higher Educational & Health Facilities Authority Revenue
New Hampshire College ................................................. 01/01/16 6.300 1,631,458
3,000 New Hampshire Industrial Development Authority Central Maine
Power Company ......................................................... 05/01/14 7.375 3,137,580
-----------
4,769,038
-----------
NEW JERSEY--12.06%
4,000 New Jersey Economic Development Authority Kapkowski
Road Landfill ......................................................... 04/01/18 6.500 3,867,800
800 New Jersey Economic Development Authority Natural Gas Facilities
Revenue Series B ...................................................... 03/01/00 3.700* 800,000
1,600 New Jersey Economic Development Authority Natural Gas Facilities
Revenue Series C ...................................................... 03/01/00 3.700* 1,600,000
1,200 New Jersey Economic Development Authority Revenue ........................ 03/01/00 3.800* 1,200,000
2,320 New Jersey Economic Development Authority Special Facility Revenue
Continental Airlines Incorporated Project ............................. 09/15/19 6.250 2,124,610
2,000 New Jersey Economic Development Authority Vineland Cogeneration
L.P. Project .......................................................... 06/01/19 7.875 2,059,800
-----------
11,652,210
-----------
30
<PAGE>
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- ---------- -------- -------- -----------
<S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES--(CONTINUED)
NEW YORK--5.29%
$3,500 Port Authority of New York & New Jersey Kennedy International Airport
Cogeneration Project 4th Installment Project .......................... 10/01/11 6.750% $ 3,565,835
1,750 Suffolk County New York Industrial Development Agency
Nissequogue Cogen Partners Facility ................................... 01/01/13 5.300 1,545,197
-----------
5,111,032
-----------
OHIO--3.36%
4,000 Ohio State Water Development Authority Bay Shore Power Project ........... 09/01/20 5.875 3,249,760
-----------
PENNSYLVANIA--5.34%
1,500 Beaver County Industrial Development Authority Toledo Edison ............. 05/01/20 7.750 1,586,820
1,000 Northeastern Pennsylvania Hospital and Education Authority
College Revenue (Kings College) ....................................... 07/15/18 6.000 953,940
1,350 Northumberland County Pennsylvania Authority Guaranteed
Lease Revenue ......................................................... 09/15/20 6.650 1,309,284
1,430 Philadelphia Pennsylvania Authority Industrial Development Revenue
First Mortgage Crime Prevention Association ........................... 04/01/19 6.125 1,310,438
-----------
5,160,482
-----------
TEXAS--10.61%
1,000 Dallas-Fort Worth Texas International Airport Facility Improvement
Corporation Revenue American Airlines Incorporated .................... 05/01/35 6.375 932,030
203 Department of Transport Project State of Texas Municipal Bond (1) ........ 09/15/12 7.000 209,363
1,875 El Paso International Airport Marriott Hotel ............................. 03/01/22 7.875 1,915,744
700 Harris County Texas Industrial Development Corporation Solid
Waste Disposal Revenue ................................................ 03/01/00 3.850* 700,000
1,936 Harris County Texas Lease Agreement (1) .................................. 05/01/14 5.800 1,945,724
2,986 Harris County Texas Lease Mulworth Project (1) ........................... 05/01/20 5.625 2,758,593
2,000 Houston Texas Airport Systems Revenue Special Facilities
Continental Airlines .................................................. 07/15/17 6.125 1,786,720
-----------
10,248,174
-----------
UTAH--2.50%
2,500 Tooele County Utah Hazardous Waste Disposal Revenue
(assumed by Laidlaw Incorporated) ..................................... 08/01/10 6.750 2,414,775
-----------
VIRGINIA--7.55%
3,360 Alexandria Virginia Redevelopment and Housing Authority Multi-Family
Housing Revenue Mortgage Buckingham Village Apartments ................ 01/01/29 5.500 2,996,213
1,175 Loudoun County Industrial Development Authority Dulles
Airport Marriott Hotel ................................................ 09/01/15 7.125 1,206,795
500 Peninsula Ports Authority Virginia Hospital Facility Revenue
(FHA Insured) ......................................................... 08/01/23 8.700 532,250
2,500 Pittsylvania County Virginia Industrial Development Authority Revenue .... 01/01/14 7.500 2,563,550
-----------
7,298,808
-----------
31
<PAGE>
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- ---------- -------- -------- -----------
<S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES--(CONCLUDED)
WASHINGTON--1.42%
$1,500 Pilchuck Development Public Corporation Revenue Special Facilities
Airport Revenue (assumed by B.F. Goodrich Company) .................... 08/01/23 6.000% $ 1,366,800
-----------
WEST VIRGINIA--2.10%
1,900 Harrison County Commercial Development Bonds Kroger Company .............. 11/01/14 8.100 2,030,701
-----------
WISCONSIN--4.73%
1,000 Green Bay Wisconsin Redevelopment Authority Industrial Development
Revenue Fort James Project ............................................ 05/01/19 5.600 861,850
3,900 Janesville Industrial Development Revenue Bonds Simmons
Manufacturing Company Paramount Communications ........................ 10/15/17 7.000 3,708,705
-----------
4,570,555
-----------
WYOMING--0.31%
300 Lincoln County Pollution Control Revenue Exxon Project C ................. 03/01/00 3.850* 300,000
-----------
U. S. VIRGIN ISLANDS--0.90%
1,000 Virgin Islands Water and Power Authority Water Systems
Revenue Refunding ..................................................... 07/01/17 5.500 866,860
-----------
Total Investments (cost--$100,583,917)--99.24% 95,893,737
Other assets in excess of liabilities--0.76% 735,390
-----------
Net Assets--100.00% $96,629,127
===========
</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 29, 2000.
(1) Illiquid securities representing 7.1% of net assets.
FHA Federal Housing Authority.
See accompanying notes to financial statements
32
<PAGE>
PAINEWEBBER NEW YORK TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- ---------- ---------- -------
<S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES--104.49%
NEW YORK--97.13%
$1,000 New York State (AMBAC Insured) ..................... 06/15/10 6.000% $1,031,560
1,175 New York State Dormitory Authority Lease Revenue
State University Dormitory Facilities Series C . 07/01/11 5.750 1,208,429
1,000 New York State Dormitory Authority Revenue Bonds
City University of New York + .................. 07/01/16 5.625 983,670
1,000 New York State Dormitory Authority Revenues Bonds
City University of New York .................... 07/01/28 5.000 813,410
40 New York State Dormitory Authority Revenue Bonds
Fordham University (AMBAC Insured) ............. 07/01/15 7.200 41,133
1,500 New York State Dormitory Authority Revenues
Mental Health Services Facilities
Improvement G .................................. 08/15/13 5.250 1,438,470
700 New York State Dormitory Authority Revenue Bonds
State University of New York ................... 05/15/16 7.000 718,081
2,400 New York State Energy Research & Development
Consolidated Edison Company .................... 08/15/20 6.100 2,399,928
80 New York State Energy Research & Development
Long Island Lighting * ......................... 02/01/22 7.150 83,770
250 New York State Energy Research & Development
Niagra Mohawk (FGIC Insured) ................... 10/01/13 6.625 260,975
180 New York State Energy Research & Development
Electric Facility Revenue Series A* ............ 12/01/20 7.150 188,483
1,500 New York State Environmental Facilities Corp.
Spring Valley Water (AMBAC Insured) ............ 08/01/24 6.150 1,512,555
70 New York State Environmental Facilities Corp.
State Water Pollution Control .................. 06/15/10 7.250 73,574
10 New York State Housing Finance Agency .............. 09/15/12 7.300 10,525
2,250 New York State Local Government Assistance Corp.
Refunding Series B ............................. 04/01/20 4.875 1,919,250
1,000 New York State Series A ............................ 03/15/11 5.700 1,011,520
1,500 New York State Thruway Authority General Revenue
Refunding Series E ............................. 01/01/15 5.250 1,414,260
1,000 New York State Thruway Authority Highway & Bridge
Trust Fund Series C ............................ 04/01/18 5.000 872,500
1,000 Metropolitan Transportation Authority New York
Commuter Facilities Revenue Series A ........... 07/01/28 5.250 886,570
1,500 Triborough Bridge & Tunnel Authority ............... 01/01/12 to 01/01/17 5.500 to 6.000 1,539,375
1,000 Erie County Water Revenue Authority
(AMBAC Insured) ................................ 12/01/14 6.750 1,100,020
700 Essex County New York Industrial Development Agency
Environmental Improvement Revenue, Series A * .. 03/01/00 6.450# 700,000
1,000 Huntington New York Refunding ...................... 04/01/13 5.500 993,500
500 New York City Industrial Development Agency
Special Facility Revenue * ..................... 07/01/19 5.400 429,575
1,000 New York City Industrial Development Bonds
Brooklyn Navy Yards * .......................... 10/01/36 5.750 869,040
1,835 New York City Industrial Development Bonds Japan
Airlines Company * ............................. 11/01/15 6.000 1,858,782
185 New York City Municipal Water Finance Authority
Water & Sewer Systems Revenue .................. 06/15/12 7.100 191,925
33
<PAGE>
PAINEWEBBER NEW YORK TAX-FREE INCOME FUND
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- ---------- ---------- -------
<S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES--(CONCLUDED)
NEW YORK--(CONCLUDED)
$ 500 New York City Municipal Water Finance Authority
Water & Sewer Systems Revenue ................... 03/01/00 3.800#% $ 500,000
1,250 New York City Municipal Water Finance Authority
Water & Sewer Systems Revenue (MBIA Insured) .... 06/15/27 5.500 1,150,000
2,100 New York City Series B2 ............................. 03/01/00 3.750# 2,100,000
1,500 New York City Series D .............................. 08/01/17 5.375 1,414,920
2,100 New York City Series J (FGIC Insured) ............... 02/15/26 5.500 1,941,912
1,025 Niagara Falls (FGIC Insured) ........................ 06/15/08 5.500 1,039,463
60 Oneida Herkimer New York Solid Waste ................ 04/01/14 6.750 60,637
1,000 Port Authority of New York & New Jersey Kennedy
International Airport Cogeneration Project * .... 10/01/11 6.750 1,018,810
1,250 Suffolk County New York Industrial Development
Agency Industrial Development Revenue
Nissequogue * ................................... 01/01/13 5.300 1,103,712
-----------
34,880,334
-----------
PUERTO RICO--6.88%
2,700 Puerto Rico Commonwealth Highway & Transportation
Authority ......................................... 07/01/13 to 07/01/36 5.000 to 6.250 2,472,141
-----------
U. S. Virgin Islands--0.48%
200 Virgin Islands Water and Power Authority Water
Systems Revenue Refunding ....................... 07/01/17 5.500 173,372
-----------
Total Investments (cost--$38,824,821)--104.49% ................ 37,525,847
Liabilities in excess of other assets--(4.49)% ................ (1,613,644)
-----------
Net Assets--100.00% ........................................... $35,912,203
===========
</TABLE>
- ---------------
# Variable rate demand note is payable on demand. The maturity date shown
is the next interest rate reset date; the interest rate shown is the
current rate as of February 29, 2000.
* Security subject to Alternative Minimum Tax
+ Security was 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 SELL EXCHANGE FOR DATE APPRECIATION
- ----------- ----------------------------------------------------------------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
17 Municipal Bond Futures .......................................... $1,588,000 June 2000 $3,843
======
</TABLE>
See accompanying notes to financial statements
34
<PAGE>
PAINEWEBBER
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES FEBRUARY 29, 2000
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--$132,272,499,
$257,228,955, $100,583,917 and $38,824,821, respectively) ........... $125,726,155 $247,478,760 $95,893,737 $37,525,847
Cash ..................................................................... 47,669 13,760 85,316 5,075
Receivable for investments sold .......................................... 1,924,640 4,811,600 -- 14,600
Interest receivable ...................................................... 2,271,594 3,554,665 1,716,516 481,160
Receivable for shares of beneficial interest sold ........................ -- 47,041 64,401 448,946
Other assets ............................................................. 23,159 99,720 85,094 32,540
------------ ------------ ------------ -----------
Total assets ............................................................. 129,993,217 256,005,546 97,845,064 38,508,168
------------ ------------ ------------ -----------
LIABILITIES
Payable for investments purchased ........................................ 2,446,040 4,865,100 864,368 2,336,179
Payable for shares of beneficial interest repurchased .................... 454,133 401,125 155,505 159,439
Dividends payable ........................................................ 91,602 184,798 73,840 23,395
Payable to affiliates .................................................... 67,645 173,845 80,810 19,974
Variation margin payable ................................................. 4,781 20,531 -- 3,594
Accrued expenses and other liabilities ................................... 120,375 137,462 41,414 53,384
------------ ------------ ------------ -----------
Total liabilities ........................................................ 3,184,576 5,782,861 1,215,937 2,595,965
------------ ------------ ------------ -----------
NET ASSETS
Beneficial interest - $0.001 par value (unlimited number authorized) ..... 134,494,732 260,881,588 102,095,248 37,267,899
Accumulated net realized losses from investments and futures transactions (1,134,215) (829,677) (775,941) (60,565)
Net unrealized depreciation of investments and futures ................... (6,551,876) (9,829,226) (4,690,180) (1,295,131)
------------ ------------ ------------ -----------
Net assets ............................................................... $126,808,641 $250,222,685 $96,629,127 $35,912,203
============ ============ ============ ===========
CLASS A:
Net assets ............................................................... $ 99,667,663 $194,134,360 $62,568,447 $22,810,409
------------ ------------ ------------ -----------
Shares outstanding ....................................................... 9,798,143 18,214,764 6,347,506 2,282,372
------------ ------------ ------------ -----------
Net asset value and redemption value per share ........................... $10.17 $10.66 $9.86 $9.99
====== ====== ===== =====
Maximum offering price per share (net asset value plus sales charge of
4.00% of offering price) ............................................ $10.60 $11.10 $10.27 $10.41
====== ====== ===== =====
CLASS B:
Net assets ............................................................... $ 10,547,292 $ 16,310,349 $13,999,405 $ 3,692,024
------------ ------------ ------------ -----------
Shares outstanding ....................................................... 1,036,238 1,530,744 1,420,808 369,537
------------ ------------ ------------ -----------
Net asset value and offering price per share ............................. $10.18 $10.66 $9.85 $9.99
====== ====== ===== =====
CLASS C:
Net assets ............................................................... $ 16,237,441 $ 39,045,240 $19,818,838 $ 9,344,286
------------ ------------ ------------ -----------
Shares outstanding ....................................................... 1,597,387 3,663,641 2,011,058 934,804
------------ ------------ ------------ -----------
Net asset value and offering price per share ............................. $10.17 $10.66 $9.85 $10.00
====== ====== ===== ======
CLASS Y:
Net assets ............................................................... $ 356,245 $ 732,736 $ 242,437 $ 65,484
------------ ------------ ------------ -----------
Shares outstanding ....................................................... 35,038 68,740 24,580 6,552
------------ ------------ ------------ -----------
Net asset value, offering price and redemption value per share ........... $10.17 $10.66 $9.86 $9.99
====== ====== ===== =====
</TABLE>
See accompanying notes to financial statements
35
<PAGE>
PAINEWEBBER
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FEBRUARY 29, 2000
-------------------------------------------------------
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 ................................................................. $ 7,886,524 $ 16,050,613 $ 6,696,867 $ 2,216,157
------------ ------------ ----------- -----------
EXPENSES:
Investment advisory and administration ................................... 704,250 1,376,862 636,525 238,369
Service fees--Class A .................................................... 276,573 526,472 164,945 60,508
Service and distribution fees--Class B ................................... 120,852 194,904 168,537 47,379
Service and distribution fees--Class C ................................... 133,731 335,657 171,172 80,640
Custody and accounting ................................................... 73,111 113,926 45,544 22,018
Legal and audit .......................................................... 64,856 47,860 56,988 67,346
Reports and notices to shareholders ...................................... 45,504 50,383 31,726 20,253
Transfer agency and service fees ......................................... 41,369 94,153 31,572 16,879
State registration ....................................................... 35,033 31,434 39,714 40,619
Trustees' fees ........................................................... 10,500 10,500 10,500 10,500
Other expenses ........................................................... 20,577 718 629 16,644
------------ ------------ ----------- -----------
1,526,356 2,782,869 1,357,852 621,155
Less: Fee waivers from adviser ........................................... (281,706) -- -- (125,371)
------------ ------------ ----------- -----------
Net expenses ............................................................. 1,244,650 2,782,869 1,357,852 495,784
------------ ------------ ----------- -----------
Net investment income .................................................... 6,641,874 13,267,744 5,339,015 1,720,373
------------ ------------ ----------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVITIES:
Net realized gains (losses) from:
Investment transactions ............................................. (1,203,238) (1,413,300) (531,232) 18,164
Futures transactions ................................................ 80,684 1,126,251 (177,521) 100,396
Net change in unrealized appreciation/depreciation of:
Investments ......................................................... (11,575,066) (24,627,976) (9,079,784) (3,764,983)
Futures ............................................................. (15,532) (79,031) (11,156) (2,531)
------------ ------------ ----------- -----------
NET REALIZED AND UNREALIZED LOSSES FROM INVESTMENT ACTIVITIES ............ (12,713,152) (24,994,056) (9,799,693) (3,648,954)
------------ ------------ ----------- -----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ..................... $ (6,071,278) $(11,726,312) $(4,460,678) $(1,928,581)
============ ============ =========== ===========
</TABLE>
See accompanying notes to financial statements
36
<PAGE>
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
FEBRUARY 29, 2000 FEBRUARY 28, 1999
------------------ ------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income .............................................................. $ 6,641,874 $ 6,722,798
Net realized gains (losses) from investments and futures transactions .............. (1,122,554) 3,155,988
Net change in unrealized appreciation/depreciation of investments and futures ...... (11,590,598) (1,817,795)
------------ ------------
Net increase (decrease) in net assets resulting from operations .................... (6,071,278) 8,060,991
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income--Class A ..................................................... (5,361,682) (5,429,352)
Net investment income--Class B ..................................................... (491,047) (557,752)
Net investment income--Class C ..................................................... (773,393) (724,462)
Net investment income--Class Y ..................................................... (15,752) (11,232)
Net realized gains from investment transactions--Class A ........................... (599,558) (3,272,689)
Net realized gains from investment transactions--Class B ........................... (64,598) (400,415)
Net realized gains from investment transactions--Class C ........................... (100,156) (512,411)
Net realized gains from investment transactions--Class Y ........................... (2,021) (7,943)
------------ ------------
Total dividends and distributions to shareholders .................................. (7,408,207) (10,916,256)
------------ ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares ............................................... 18,450,258 18,059,890
Cost of shares repurchased ......................................................... (34,005,085) (22,951,550)
Proceeds from dividends reinvested ................................................. 3,827,113 5,540,671
------------ ------------
Net increase (decrease) in net assets derived from beneficial interest
transactions .................................................................... (11,727,714) 649,011
------------ ------------
Net decrease in net assets ......................................................... (25,207,199) (2,206,254)
NET ASSETS:
Beginning of year .................................................................. 152,015,840 154,222,094
------------ ------------
End of year ........................................................................ $126,808,641 $152,015,840
============ ============
</TABLE>
See accompanying notes to financial statements
37
<PAGE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
FEBRUARY 29, 2000 FEBRUARY 28, 1999
------------------ ------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income .............................................................. $ 13,267,744 $ 13,901,664
Net realized gains (losses) from investments and futures transactions .............. (287,049) 7,685,449
Net change in unrealized appreciation/depreciation of investments and futures ...... (24,707,007) (6,616,634)
------------ ------------
Net increase (decrease) in net assets resulting from operations .................... (11,726,312) 14,970,479
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income--Class A ..................................................... (10,449,658) (10,791,089)
Net investment income--Class B ..................................................... (806,364) (1,072,277)
Net investment income--Class C ..................................................... (1,983,504) (2,024,190)
Net investment income--Class Y ..................................................... (28,218) (14,108)
Net realized gains from investment transactions--Class A ........................... (1,236,145) (5,560,128)
Net realized gains from investment transactions--Class B ........................... (106,332) (614,087)
Net realized gains from investment transactions--Class C ........................... (264,368) (1,135,565)
Net realized gains from investment transactions--Class Y ........................... (3,422) (7,094)
------------ ------------
Total dividends and distributions to shareholders .................................. (14,878,011) (21,218,538)
------------ ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares ............................................... 22,849,614 29,885,363
Cost of shares repurchased ......................................................... (54,948,445) (50,116,104)
Proceeds from dividends reinvested ................................................. 9,647,018 14,014,344
------------ ------------
Net decrease in net assets derived from beneficial interest transactions ........... (22,451,813) (6,216,397)
------------ ------------
Net decrease in net assets ......................................................... (49,056,136) (12,464,456)
NET ASSETS:
Beginning of year .................................................................. 299,278,821 311,743,277
------------ ------------
End of year ........................................................................ $250,222,685 $299,278,821
============ ============
</TABLE>
See accompanying notes to financial statements
38
<PAGE>
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
FEBRUARY 29, 2000 FEBRUARY 28, 1999
------------------ ------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income ............................................................ $ 5,339,015 $ 5,038,231
Net realized gains (losses) from investments and futures transactions ............ (708,753) 1,315,796
Net change in unrealized appreciation/depreciation of investments and futures .... (9,090,940) (2,011,365)
------------ ------------
Net increase (decrease) in net assets resulting from operations .................. (4,460,678) 4,342,662
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income--Class A ................................................... (3,474,079) (3,208,275)
Net investment income--Class B ................................................... (755,561) (783,090)
Net investment income--Class C ................................................... (1,085,799) (1,030,416)
Net investment income--Class Y ................................................... (23,576) (16,450)
Net realized gains from investment transactions--Class A ......................... (384,910) (83,846)
Net realized gains from investment transactions--Class B ......................... (92,792) (24,705)
Net realized gains from investment transactions--Class C ......................... (125,455) (29,688)
Net realized gains from investment transactions--Class Y ......................... (3,653) (492)
------------ ------------
Total dividends and distributions to shareholders ................................ (5,945,825) (5,176,962)
------------ ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares ............................................. 27,422,935 29,444,970
Cost of shares repurchased ....................................................... (34,015,541) (20,867,956)
Proceeds from dividends reinvested ............................................... 3,412,560 3,049,335
------------ ------------
Net increase (decrease) in net assets derived from beneficial interest
transactions ................................................................... (3,180,046) 11,626,349
------------ ------------
Net increase (decrease) in net assets ............................................ (13,586,549) 10,792,049
NET ASSETS:
Beginning of year ................................................................ 110,215,676 99,423,627
------------ ------------
End of year ...................................................................... $ 96,629,127 $110,215,676
============ ============
</TABLE>
See accompanying notes to financial statements
39
<PAGE>
PAINEWEBBER NEW YORK TAX-FREE INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
FEBRUARY 29, 2000 FEBRUARY 28, 1999
------------------ ------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income ............................................................. $ 1,720,373 $ 1,922,946
Net realized gains from investments and futures transactions ...................... 118,560 1,227,137
Net change in unrealized appreciation/depreciation of investments and futures ..... (3,767,514) (617,979)
------------ ------------
Net increase (decrease) in net assets resulting from operations ................... (1,928,581) 2,532,104
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income--Class A .................................................... (1,103,964) (1,192,008)
Net investment income--Class B .................................................... (178,638) (248,634)
Net investment income--Class C .................................................... (436,077) (481,660)
Net investment income--Class Y .................................................... (1,694) (643)
Net realized gains from investment transactions--Class A .......................... (210,252) (609,522)
Net realized gains from investment transactions--Class B .......................... (35,470) (131,564)
Net realized gains from investment transactions--Class C .......................... (93,939) (254,029)
Net realized gains from investment transactions--Class Y .......................... (566) (417)
------------ ------------
Total dividends and distributions to shareholders ................................. (2,060,600) (2,918,477)
------------ ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares .............................................. 3,333,884 7,383,454
Cost of shares repurchased ........................................................ (9,812,265) (8,488,955)
Proceeds from dividends reinvested ................................................ 1,372,977 2,009,257
------------ ------------
Net increase (decrease) in net assets derived from beneficial interest
transactions .................................................................... (5,105,404) 903,756
------------ ------------
Net increase (decrease) in net assets ............................................. (9,094,585) 517,383
NET ASSETS:
Beginning of year ................................................................. 45,006,788 44,489,405
------------ ------------
End of year ....................................................................... $ 35,912,203 $ 45,006,788
============ ============
</TABLE>
See accompanying notes to financial statements
40
<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
distribution plan.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates. The following is a summary of
significant accounting policies:
VALUATION OF INVESTMENTS--Each Fund calculates its net asset value based on
the current market value for its portfolio securities. The Funds normally obtain
market values for their securities from independent pricing sources. Independent
pricing sources may use reported last sale prices, current market quotations or
valuations from computerized "matrix" systems that derive values based on
comparable securities. Securities traded in the over-the-counter ("OTC") market
and listed on The Nasdaq Stock Market, Inc. ("Nasdaq") normally are valued at
the last sale price on Nasdaq prior to valuation. Other OTC securities are
valued at the last bid price available prior to valuation. Securities which are
listed on U.S. and foreign stock exchanges normally are valued at the last sale
price on the day the securities are valued or, lacking any sales on such day, at
the last available bid price. In cases where securities are traded on more than
one exchange, the securities are valued on the exchange designated as the
primary market by Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"),
a wholly owned subsidiary of PaineWebber Incorporated ("PaineWebber") and
investment adviser and administrator of the Funds. If a market value is not
available from an independent pricing source for a particular security, that
security is valued at fair value as determined in good faith by or under the
direction of the Funds' board of trustees (the "board"). The amortized cost
method of valuation, which approximates market value, generally is used to value
short-term debt instruments with sixty days or less remaining to maturity,
unless the board determines that this does not represent fair value.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date. Realized gains and losses from investment
transactions are calculated on the identified cost method. Interest income is
recorded on an accrual basis. Discounts are accreted and premiums are amortized
as adjustments to interest income and the identified cost of securities.
41
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Income and expenses (excluding class-specific expenses) are allocated
proportionately to each class of shares based upon the relative value of
dividend eligible shares of each class at the beginning of the day (after
adjusting for current capital share activity of the respective classes).
Realized and unrealized gains and losses are allocated proportionately to each
class of shares based upon the relative value of shares outstanding at the
beginning of the day (after adjusting for current capital share activity of the
respective class). Class-specific expenses are charged directly to the
applicable class of shares.
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 securities
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 margin
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
income 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
obligations 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
obligations held by those Funds.
BANK LINE OF CREDIT
Each Fund may participate with other funds managed by Mitchell Hutchins in a
$200 million committed credit facility ("Facility") to be utilized for temporary
financing until the settlement of sale or purchase of portfolio securities, the
repurchase or redemption of shares of the Funds at the request of the
shareholders and other temporary or emergency purposes. In connection therewith,
each Fund has agreed to pay a commitment fee, pro rata, based on the relative
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 29, 2000, the Funds did not borrow under the Facility.
INVESTMENT ADVISER AND ADMINISTRATOR
Each Trust's board has approved an Investment Advisory and Administration
Contract ("Advisory Contract") with Mitchell Hutchins, under which Mitchell
Hutchins serves as investment adviser and administrator of the Funds. In
accordance with the Advisory Contracts, each Fund pays Mitchell Hutchins an
investment advisory and administration fee,
42
<PAGE>
NOTES TO FINANCIAL STATEMENTS
which is accrued daily and paid monthly, at the annual rates of 0.50% of
California Tax-Free Income Fund's and National Tax-Free Income Fund's average
daily net assets and 0.60% of Municipal High Income Fund's and New York Tax-Free
Income Fund's average daily net assets. At February 29, 2000, California
Tax-Free Income Fund, National Tax-Free Income Fund, Municipal High Income Fund
and New York Tax-Free Income Fund owed Mitchell Hutchins $30,068, $99,145,
$45,746 and $7,005, respectively, in investment advisory and administration
fees. For the year ended February 29, 2000, Mitchell Hutchins voluntarily waived
$281,706 and $125,371 in investment advisory and administration fees from the
California Tax-Free Income Fund and New York Tax-Free Income Fund, respectively.
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 29, 2000, California
Tax-Free Income Fund, National Tax-Free Income Fund, Municipal High Income Fund
and New York Tax-Free Income Fund owed Mitchell Hutchins $37,577, $74,700,
$35,064 and $12,969, 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 29, 2000, it earned $156,137, $172,902, $117,726 and
$35,621 in sales charges for the California Tax-Free Income Fund, National
Tax-Free Income Fund, Municipal High Income Fund and New York Tax-Free Income
Fund, respectively.
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 29, 2000, PaineWebber received from PFPC Inc., not the Funds,
approximately 50%, 48%, 53% and 54% 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 29,
2000 was substantially the same as the cost of securities for financial
statement purposes.
At February 29, 2000 the components of net unrealized depreciation of
investments were as follows:
<TABLE>
<CAPTION>
California National Municipal New York
Tax-Free Tax-Free High Tax-Free
Income Fund Income Fund Income Fund Income Fund
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Gross depreciation (investments having an excess of cost over value) ...... $(7,029,153) $(12,779,435) $(5,355,276) $(1,661,704)
Gross appreciation (investments having an excess of value over cost) ...... 482,809 3,029,240 665,096 362,730
----------- ------------ ----------- -----------
Net unrealized depreciation of investments ................................ $(6,546,344) $ (9,750,195) $(4,690,180) $(1,298,974)
=========== ============ =========== ===========
</TABLE>
43
<PAGE>
NOTES TO FINANCIAL STATEMENTS
For the year ended February 29, 2000, 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 ............................... $33,893,576 $ 80,859,178 $19,638,333 $ 7,358,290
Sales ................................... $59,146,438 $113,419,288 $28,503,750 $13,748,921
</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 29, 2000, California Tax-Free Income Fund had $87,023 of capital
loss carryforwards available, which will expire by February 28, 2008. 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. In accordance with U.S. Treasury regulations,
California Tax-Free Income Fund, National Tax-Free Income Fund, Municipal High
Income Fund and New York Tax-Free Income Fund have elected to defer $1,051,063,
$904,221, $774,879 and $56,267, respectively, of realized capital losses arising
after October 31, 1999. Such losses are treated for tax purposes as arising on
March 1, 2000.
44
<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 29, 2000:
Shares sold ..................... 915,972 $ 9,834,294 369,791 $ 3,968,324 410,125 $ 4,394,795 23,563 $ 252,845
Shares repurchased .............. (2,399,039) (25,341,594) (261,113) (2,778,906) (538,948) (5,693,149) (17,454) (191,436)
Shares converted from Class B to
Class A ....................... 328,699 3,511,832 (328,493) (3,511,832) -- -- -- --
Dividends reinvested ............ 282,005 2,976,203 26,168 275,576 53,599 565,072 970 10,262
---------- ------------ -------- ------------ -------- ------------ ------- ---------
Net increase (decrease) ......... (872,363) $ (9,019,265) (193,647) $ (2,046,838) (75,224) $ (733,282) 7,079 $ 71,671
========== ============ ======== ============ ======== ============ ======= =========
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
========== ============ ======== ============ ======== ============ ======= =========
NATIONAL TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 29, 2000:
Shares sold ..................... 1,126,295 $ 12,518,003 429,819 $ 4,792,132 438,033 $ 4,934,806 54,252 $ 604,673
Shares repurchased .............. (3,655,632) (40,601,475) (289,243) (3,222,795) (996,202) (10,951,170) (15,676) (173,005)
Shares converted from Class B to
Class A ....................... 699,252 7,834,170 (698,899) (7,834,170) -- -- -- --
Dividends reinvested ............ 679,864 7,531,233 35,090 389,642 153,137 1,695,260 2,811 30,883
---------- ------------ -------- ------------ -------- ------------ ------- ---------
Net increase (decrease) ......... (1,150,221) $(12,718,069) (523,233) $ (5,875,191) (405,032) $ (4,321,104) 41,387 $ 462,551
========== ============ ======== ============ ======== ============ ======= =========
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
========== ============ ======== ============ ======== ============ ======= =========
</TABLE>
45
<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 29, 2000:
Shares sold .................. 1,755,817 $18,009,982 437,111 $ 4,559,798 420,773 $ 4,403,449 43,599 $ 449,706
Shares repurchased ........... (2,104,312) (21,542,166) (421,705) (4,311,469) (730,607) (7,562,182) (59,615) (599,724)
Shares converted from Class B to
Class A .................... 353,637 3,687,065 (352,821) (3,687,065) -- -- -- --
Dividends reinvested ......... 204,441 2,120,435 40,698 421,854 81,474 843,969 2,542 26,302
---------- ----------- -------- ----------- -------- ----------- ------- ---------
Net increase (decrease) ...... 209,583 $ 2,275,316 (296,717) $(3,016,882) (228,360) $(2,314,764) (13,474) $(123,716)
========== =========== ======== =========== ======== =========== ======= =========
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
========== =========== ======== =========== ======== =========== ======= =========
NEW YORK TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 29, 2000:
Shares sold .................. 197,037 $ 2,031,833 58,905 $ 613,987 58,584 $ 616,585 7,061 $ 71,479
Shares repurchased ........... (615,402) (6,440,717) (88,166) (927,749) (234,040) (2,416,919) (2,598) (26,880)
Shares converted from Class B to
Class A .................... 155,800 1,620,075 (155,863) (1,620,075) -- -- -- --
Dividends reinvested ......... 82,217 850,245 9,486 98,981 40,781 421,578 214 2,173
---------- ----------- -------- ----------- -------- ----------- ------- ---------
Net increase (decrease) ...... (180,348) $(1,938,564) (175,638) $(1,834,856) (134,675) $(1,378,756) 4,677 $ 46,772
========== =========== ======== =========== ======== =========== ======= =========
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
========== =========== ======== =========== ======== =========== ======= =========
</TABLE>
46
<PAGE>
(This page has been left blank intentionally.)
47
<PAGE>
PAINEWEBBER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------
FOR THE FOR THE FOR THE
YEAR YEARS YEAR
ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
----------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..................... $11.18 $11.39 $10.91 $11.02 $10.68
------ ------ ------ ------ ------
Net investment income .................................... 0.51 0.52 0.51 0.52 0.57
Net realized and unrealized gains (losses) from
investments and futures ................................ (0.95) 0.11 0.48 (0.11) 0.34
------ ------ ------ ------ ------
Net increase (decrease) from investment operations ....... (0.44) 0.63 0.99 0.41 0.91
------ ------ ------ ------ ------
Dividends from net investment income ..................... (0.51) (0.52) (0.51) (0.52) (0.57)
Distributions from net realized gains from
investment transactions ................................ (0.06) (0.32) -- -- --
------ ------ ------ ------ ------
Total dividends and distributions to shareholders ........ (0.57) (0.84) (0.51) (0.52) (0.57)
------ ------ ------ ------ ------
Net asset value, end of period ........................... $10.17 $11.18 $11.39 $10.91 $11.02
====== ====== ====== ====== ======
Total investment return(1) ............................... (3.96)% 5.90% 9.26% 3.92% 8.68%
====== ====== ====== ====== ======
Ratios/Supplemental data:
Net assets, end of period (000's) ........................ $99,668 $119,266 $120,804 $127,040 $151,684
Expenses to average net assets, net of waivers
from adviser ........................................... 0.75% 0.83% 0.98% 0.97% 0.94%
Expenses to average net assets, before waivers
from adviser ........................................... 0.95% 0.96% 0.98% 0.97% 0.94%
Net investment income to average net assets,
net of waivers from adviser ............................ 4.85% 4.59% 4.56% 4.85% 5.21%
Net investment income to average net assets, before
waivers from adviser ................................... 4.65% 4.46% 4.56% 4.85% 5.21%
Portfolio turnover rate .................................. 24% 45% 107% 73% 32%
- ----------------------
+ 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 any applicable sales charges or program fees; results would be
lower if they were included. Total investment return for a period of less
than one year has not been annualized.
48
<PAGE>
<CAPTION>
CLASS B
----------------------------------------------------------------------
FOR THE FOR THE FOR THE
YEAR YEARS YEAR
ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..................... $11.18 $11.39 $10.92 $11.03 $10.69
------ ------ ------ ------ ------
Net investment income .................................... 0.43 0.43 0.42 0.44 0.48
Net realized and unrealized gains (losses) from
investments and futures ................................ (0.94) 0.11 0.47 (0.11) 0.34
------ ------ ------ ------ ------
Net increase (decrease) from investment operations ....... (0.51) 0.54 0.89 0.33 0.82
------ ------ ------ ------ ------
Dividends from net investment income ..................... (0.43) (0.43) (0.42) (0.44) (0.48)
Distributions from net realized gains from
investment transactions ................................ (0.06) (0.32) -- -- --
------ ------ ------ ------ ------
Total dividends and distributions to shareholders ........ (0.49) (0.75) (0.42) (0.44) (0.48)
------ ------ ------ ------ ------
Net asset value, end of period ........................... $10.18 $11.18 $11.39 $10.92 $11.03
====== ====== ====== ====== ======
Total investment return(1) ............................... (4.60)% 5.06% 8.33% 3.14% 7.86%
====== ====== ====== ====== ======
Ratios/Supplemental data:
Net assets, end of period (000's) ........................ $10,547 $13,756 $16,783 $20,943 $27,175
Expenses to average net assets, net of waivers
from adviser ........................................... 1.52% 1.59% 1.75% 1.74% 1.70%
Expenses to average net assets, before waivers
from adviser ........................................... 1.72% 1.72% 1.75% 1.74% 1.70%
Net investment income to average net assets,
net of waivers from adviser ............................ 4.06% 3.81% 3.79% 4.08% 4.45%
Net investment income to average net assets, before
waivers from adviser ................................... 3.86% 3.68% 3.79% 4.08% 4.45%
Portfolio turnover rate .................................. 24% 45% 107% 73% 32%
<CAPTION>
CLASS C
---------------------------------------------------------------------
FOR THE FOR THE FOR THE
YEAR YEARS YEAR
ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
-------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..................... $11.17 $11.38 $10.90 $11.02 $10.67
------ ------ ------ ------ ------
Net investment income .................................... 0.46 0.46 0.45 0.47 0.51
Net realized and unrealized gains (losses) from
investments and futures ................................ (0.94) 0.11 0.48 (0.12) 0.35
------ ------ ------ ------ ------
Net increase (decrease) from investment operations ....... (0.48) 0.57 0.93 0.35 0.86
------ ------ ------ ------ ------
Dividends from net investment income ..................... (0.46) (0.46) (0.45) (0.47) (0.51)
Distributions from net realized gains from
investment transactions ................................ (0.06) (0.32) -- -- --
------ ------ ------ ------ ------
Total dividends and distributions to shareholders ........ (0.52) (0.78) (0.45) (0.47) (0.51)
------ ------ ------ ------ ------
Net asset value, end of period ........................... $10.17 $11.17 $11.38 $10.90 $11.02
====== ====== ====== ====== ======
Total investment return(1) ............................... (4.36)% 5.35% 8.71% 3.30% 8.22%
====== ====== ====== ====== ======
Ratios/Supplemental data:
Net assets, end of period (000's) ........................ $16,237 $18,682 $16,522 $17,624 $22,155
Expenses to average net assets, net of waivers
from adviser ........................................... 1.26% 1.33% 1.50% 1.49% 1.46%
Expenses to average net assets, before waivers
from adviser ........................................... 1.46% 1.47% 1.50% 1.49% 1.46%
Net investment income to average net assets,
net of waivers from adviser ............................ 4.34% 4.08% 4.05% 4.34% 4.69%
Net investment income to average net assets, before
waivers from adviser ................................... 4.14% 3.94% 4.05% 4.34% 4.69%
Portfolio turnover rate .................................. 24% 45% 107% 73% 32%
<CAPTION>
CLASS Y
----------------------------------------
FOR THE FOR THE FEBRUARY 5,
YEAR YEAR 1998+
ENDED ENDED THROUGH
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net asset value, beginning of period ..................... $11.18 $11.38 $11.42
------ ------ ------
Net investment income .................................... 0.54 0.55 0.04
Net realized and unrealized gains (losses) from
investments and futures ................................ (0.95) 0.12 (0.04)
------ ------ ------
Net increase (decrease) from investment operations ....... (0.41) 0.67 0.00
------ ------ ------
Dividends from net investment income ..................... (0.54) (0.55) (0.04)
Distributions from net realized gains from
investment transactions ................................ (0.06) (0.32) --
------ ------ ------
Total dividends and distributions to shareholders ........ (0.60) (0.87) (0.04)
------ ------ ------
Net asset value, end of period ........................... $10.17 $11.18 $11.38
====== ====== ======
Total investment return(1) ............................... (3.73)% 6.28% (0.34)%
====== ====== ======
Ratios/Supplemental data:
Net assets, end of period (000's) ........................ $356 $312 $114
Expenses to average net assets, net of waivers
from adviser ........................................... 0.48% 0.55% 0.76%*
Expenses to average net assets, before waivers
from adviser ........................................... 0.68% 0.71% 0.76%*
Net investment income to average net assets,
net of waivers from adviser ............................ 5.16% 4.87% 5.07%*
Net investment income to average net assets, before
waivers from adviser ................................... 4.96% 4.71% 5.07%*
Portfolio turnover rate .................................. 24% 45% 107%
</TABLE>
49
<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 FOR THE FOR THE
YEAR YEARS YEAR
ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
-----------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ....................................... $11.73 $11.97 $11.55 $11.64 $11.26
------ ------ ------ ------ ------
Net investment income .................................................... 0.55 0.56 0.56 0.55 0.58
Net realized and unrealized gains (losses) from investments and futures .. (1.00) 0.05 0.50 (0.09) 0.39
------ ------ ------ ------ ------
Net increase (decrease) from investment operations ....................... (0.45) 0.61 1.06 0.46 0.97
------ ------ ------ ------ ------
Dividends from net investment income ..................................... (0.55) (0.56) (0.56) (0.55) (0.59)
Distributions from net realized gains from investment transactions ....... (0.07) (0.29) (0.08) -- --
------ ------ ------ ------ ------
Total dividends and distributions to shareholders ........................ (0.62) (0.85) (0.64) (0.55) (0.59)
------ ------ ------ ------ ------
Net asset value, end of year ............................................. $10.66 $11.73 $11.97 $11.55 $11.64
====== ====== ====== ====== ======
Total investment return (1) .............................................. (3.91)% 5.31% 9.48% 4.14% 8.75%
====== ====== ====== ====== ======
Ratios/Supplemental data:
Net assets, end of year (000's) .......................................... $194,134 $227,151 $229,040 $263,425 $315,899
Expenses to average net assets ........................................... 0.87% 0.94% 0.95% 0.91% 0.93%(2)
Net investment income to average net assets .............................. 4.96% 4.72% 4.77% 4.85% 5.06%(2)
Portfolio turnover rate .................................................. 29% 43% 79% 81% 74%
</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 any applicable sales charges or program fees; results would be
lower if they were included.
(2) These ratios include non-recurring acquisition expenses of 0.03%.
50
<PAGE>
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------
FOR THE FOR THE FOR THE
YEAR YEARS YEAR
ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
-----------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ....................................... $11.73 $11.97 $11.55 $11.64 $11.26
------ ------ ------ ------ ------
Net investment income .................................................... 0.46 0.47 0.47 0.46 0.49
Net realized and unrealized gains (losses) from investments and futures .. (1.00) 0.05 0.50 (0.09) 0.39
------ ------ ------ ------ ------
Net increase (decrease) from investment operations ....................... (0.54) 0.52 0.97 0.37 0.88
------ ------ ------ ------ ------
Dividends from net investment income ..................................... (0.46) (0.47) (0.47) (0.46) (0.50)
Distributions from net realized gains from investment transactions ....... (0.07) (0.29) (0.08) -- --
------ ------ ------ ------ ------
Total dividends and distributions to shareholders ........................ (0.53) (0.76) (0.55) (0.46) (0.50)
------ ------ ------ ------ ------
Net asset value, end of year ............................................. $10.66 $11.73 $11.97 $11.55 $11.64
====== ====== ====== ====== ======
Total investment return (1) .............................................. (4.68)% 4.48% 8.62% 3.35% 7.94%
====== ====== ====== ====== ======
Ratios/Supplemental data:
Net assets, end of year (000's) .......................................... $16,310 $24,085 $32,815 $40,949 $51,546
Expenses to average net assets ........................................... 1.66% 1.72% 1.73% 1.67% 1.68%(2)
Net investment income to average net assets .............................. 4.14% 3.93% 3.98% 4.09% 4.31%(2)
Portfolio turnover rate .................................................. 29% 43% 79% 81% 74%
<CAPTION>
CLASS C
---------------------------------------------------------
FOR THE FOR THE FOR THE
YEAR YEARS YEAR
ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
-----------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ....................................... $11.73 $11.97 $11.55 $11.64 $11.26
------ ------ ------ ------ ------
Net investment income .................................................... 0.49 0.50 0.50 0.49 0.52
Net realized and unrealized gains (losses) from investments and futures .. (1.00) 0.05 0.50 (0.09) 0.39
------ ------ ------ ------ ------
Net increase (decrease) from investment operations ....................... (0.51) 0.55 1.00 0.40 0.91
------ ------ ------ ------ ------
Dividends from net investment income ..................................... (0.49) (0.50) (0.50) (0.49) (0.53)
Distributions from net realized gains from investment transactions ....... (0.07) (0.29) (0.08) -- --
------ ------ ------ ------ ------
Total dividends and distributions to shareholders ........................ (0.56) (0.79) (0.58) (0.49) (0.53)
------ ------ ------ ------ ------
Net asset value, end of year ............................................. $10.66 $11.73 $11.97 $11.55 $11.64
====== ====== ====== ====== ======
Total investment return (1) .............................................. (4.42)% 4.76% 8.92% 3.61% 8.19%
====== ====== ====== ====== ======
Ratios/Supplemental data:
Net assets, end of year (000's) .......................................... $39,045 $47,722 $49,647 $59,652 $75,076
Expenses to average net assets ........................................... 1.39% 1.47% 1.47% 1.42% 1.45%(2)
Net investment income to average net assets .............................. 4.43% 4.20% 4.26% 4.34% 4.57%(2)
Portfolio turnover rate .................................................. 29% 43% 79% 81% 74%
</TABLE>
<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
PERIOD
FOR THE FOR THE NOVEMBER 3,
YEAR YEARS 1995+
ENDED ENDED THROUGH
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
--------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...................................... $11.73 $11.98 $11.55 $11.65 $11.62
------ ------ ------ ------ -------
Net investment income ..................................................... 0.58 0.59 0.59 0.58 0.19
Net realized and unrealized gains (losses) from investments and futures ... (1.00) 0.04 0.51 (0.10) 0.01
------ ------ ------ ------ -------
Net increase (decrease) from investment operations ........................ (0.42) 0.63 1.10 0.48 0.20
------ ------ ------ ------ -------
Dividends from net investment income ...................................... (0.58) (0.59) (0.59) (0.58) (0.17)
Distributions from net realized gains from investment transactions ........ (0.07) (0.29) (0.08) -- --
------ ------ ------ ------ -------
Total dividends and distributions to shareholders ......................... (0.65) (0.88) (0.67) (0.58) (0.17)
------ ------ ------ ------ -------
Net asset value, end of period ............................................ $10.66 $11.73 $11.98 $11.55 $11.65
====== ====== ====== ====== =======
Total investment return (1) ............................................... (3.72)% 5.49% 9.87% 4.32% 1.70%
====== ====== ====== ====== =======
Ratios/Supplemental data:
Net assets, end of period (000's) ......................................... $733 $821 $241 $246 $341
Expenses to average net assets ............................................ 0.65% 0.71% 0.68% 0.65% 0.64%(2)*
Net investment income to average net assets ............................... 5.23% 4.95% 5.04% 5.13% 5.19%(2)*
Portfolio turnover rate ................................................... 29% 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 any applicable sales charges or program fees; results would be
lower if they 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%.
52
<PAGE>
(This page has been left blank intentionally.)
53
<PAGE>
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------
FOR THE FOR THE FOR THE
YEAR YEARS YEAR
ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
---------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...................................... $10.88 $10.96 $10.39 $10.29 $ 9.92
------ ------ ------ ------ -------
Net investment income ..................................................... 0.55 0.55 0.55 0.56 0.62
Net realized and unrealized gains (losses) from investments and futures ... (0.96) (0.07) 0.57 0.10 0.37
------ ------ ------ ------ -------
Net increase (decrease) from investment operations ........................ (0.41) 0.48 1.12 0.66 0.99
------ ------ ------ ------ -------
Dividends from net investment income ...................................... (0.55) (0.55) (0.55) (0.56) (0.62)
Distributions from net realized gains from investment transactions ........ (0.06) (0.01) -- -- --
------ ------ ------ ------ -------
Total dividends and distributions to shareholders ......................... (0.61) (0.56) (0.55) (0.56) (0.62)
------ ------ ------ ------ -------
Net asset value, end of period ............................................ $ 9.86 $10.88 $10.96 $10.39 $10.29
====== ====== ====== ====== ======
Total investment return (1) ............................................... (3.91)% 4.80% 11.06% 6.61% 10.18%
====== ====== ====== ====== ======
Ratios/Supplemental data:
Net assets, end of period (000's) .........................................$62,568 $66,771 $59,288 $52,593 $57,280
Expenses to average net assets ............................................ 1.05% 1.12% 1.22% 1.15% 1.10%
Net investment income to average net assets ............................... 5.27% 5.02% 5.15% 5.49% 5.94%
Portfolio turnover rate ................................................... 19% 26% 22% 64% 48%
</TABLE>
<TABLE>
<CAPTION>
54
<PAGE>
CLASS B
--------------------------------------------------------
FOR THE FOR THE FOR THE
YEAR YEARS YEAR
ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
---------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .................................... $10.87 $10.96 $10.39 $10.29 $ 9.92
------ ------ ------ ------ -------
Net investment income ................................................... 0.47 0.47 0.47 0.48 0.54
Net realized and unrealized gains (losses) from investments and futures . (0.96) (0.08) 0.57 0.10 0.37
------ ------ ------ ------ -------
Net increase (decrease) from investment operations ...................... (0.49) 0.39 1.04 0.58 0.91
------ ------ ------ ------ -------
Dividends from net investment income .................................... (0.47) (0.47) (0.47) (0.48) (0.54)
Distributions from net realized gains from investment transactions ...... (0.06) (0.01) -- -- --
------ ------ ------ ------ -------
Total dividends and distributions to shareholders ....................... (0.53) (0.48) (0.47) (0.48) (0.54)
------ ------ ------ ------ -------
Net asset value, end of period .......................................... $ 9.85 $10.87 $10.96 $10.39 $10.29
====== ====== ====== ====== ======
Total investment return (1) ............................................. (4.65)% 3.87% 10.23% 5.82% 9.36%
====== ====== ====== ====== ======
Ratios/Supplemental data:
Net assets, end of period (000's) ....................................... $13,999 $18,675 $18,097 $19,427 $23,868
Expenses to average net assets .......................................... 1.81% 1.88% 1.98% 1.90% 1.85%
Net investment income to average net assets ............................. 4.48% 4.24% 4.39% 4.73% 5.19%
Portfolio turnover rate ................................................. 19% 26% 22% 64% 48%
</TABLE>
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------
FOR THE FOR THE FOR THE
YEAR YEARS YEAR
ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
---------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .................................... $10.88 $10.96 $10.39 $10.29 $ 9.92
------ ------ ------ ------ -------
Net investment income ................................................... 0.50 0.49 0.50 0.51 0.56
Net realized and unrealized gains (losses) from investments and futures . (0.97) (0.07) 0.57 0.10 0.37
------ ------ ------ ------ -------
Net increase (decrease) from investment operations ...................... (0.47) 0.42 1.07 0.61 0.93
------ ------ ------ ------ -------
Dividends from net investment income .................................... (0.50) (0.49) (0.50) (0.51) (0.56)
Distributions from net realized gains from investment transactions ...... (0.06) (0.01) -- -- --
------ ------ ------ ------ -------
Total dividends and distributions to shareholders ....................... (0.56) (0.50) (0.50) (0.51) (0.56)
------ ------ ------ ------ -------
Net asset value, end of period .......................................... $ 9.85 $10.88 $10.96 $10.39 $10.29
====== ====== ====== ====== ======
Total investment return (1) ............................................. (4.49)% 4.25% 10.51% 6.08% 9.64%
====== ====== ====== ====== ======
Ratios/Supplemental data:
Net assets, end of period (000's) ....................................... $19,819 $24,355 $21,982 $16,967 $20,700
Expenses to average net assets .......................................... 1.55% 1.62% 1.72% 1.66% 1.60%
Net investment income to average net assets ............................. 4.76% 4.52% 4.64% 4.98% 5.45%
Portfolio turnover rate ................................................. 19% 26% 22% 64% 48%
</TABLE>
<TABLE>
<CAPTION>
CLASS Y
---------------------------------------------
FOR THE
PERIOD
FOR THE FOR THE FEBRUARY 5,
YEAR YEAR 1998+
ENDED ENDED THROUGH
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net asset value, beginning of period .................................... $10.88 $10.97 $10.98
------- ------- -------
Net investment income ................................................... 0.57 0.58 0.04
Net realized and unrealized gains (losses) from investments and futures . (0.96) (0.08) (0.01)
------- ------- -------
Net increase (decrease) from investment operations ...................... (0.39) 0.50 0.03
------- ------- -------
Dividends from net investment income .................................... (0.57) (0.58) (0.04)
Distributions from net realized gains from investment transactions ...... (0.06) (0.01) --
------- ------- -------
Total dividends and distributions to shareholders ....................... (0.63) (0.59) (0.04)
------- ------- -------
Net asset value, end of period .......................................... $ 9.86 $10.88 $10.97
======= ======= =======
Total investment return (1) ............................................. (3.73)% 4.96% (0.09)%
======= ======= =======
Ratios/Supplemental data:
Net assets, end of period (000's) ....................................... $242 $414 $56
Expenses to average net assets .......................................... 0.86% 0.87% 1.00%*
Net investment income to average net assets ............................. 5.45% 5.28% 5.44%*
Portfolio turnover rate ................................................. 19% 26% 22%
</TABLE>
- ----------------
+ Commencement of issuance of shares.
* Annualized.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period 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 any applicable sales charges or program fees; results would be
lower if they were included. Total investment return for periods of less
than one year has not been annualized.
55
<PAGE>
PAINEWEBBER NEW YORK TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------
FOR THE FOR THE FOR THE
YEAR YEARS YEAR
ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
--------------------------
2000 1999 1998 1997 1996
----------- --------------------------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...................................... $ 11.03 $ 11.12 $ 10.66 $ 10.71 $ 10.27
----------- ------- -------- ------- ----------
Net investment income ..................................................... 0.48 0.53 0.51 0.51 0.54
Net realized and unrealized gains (losses) from investments and futures ... (0.95) 0.15 0.46 (0.05) 0.45
----------- ------- -------- ------- ----------
Net increase (decrease) from investment operations ........................ (0.47) 0.68 0.97 0.46 0.99
----------- ------- -------- ------- ----------
Dividends from net investment income ...................................... (0.48) (0.53) (0.51) (0.51) (0.55)
Distributions from net realized gains from investment transactions ........ (0.09) (0.24) - - -
----------- ------- -------- ------- ----------
Total dividends and distributions to shareholders ......................... (0.57) (0.77) (0.51) (0.51) (0.55)
----------- ------- -------- ------- ----------
Net asset value, end of period ............................................ $ 9.99 $ 11.03 $ 11.12 $ 10.66 $ 10.71
=========== ======= ======== ======= ==========
Total investment return (1) ............................................... (4.33)% 6.24% 9.36% 4.49% 9.83%
=========== ======= ======== ======= ==========
Ratios/Supplemental data:
Net assets, end of period (000's) ......................................... $ 22,810 $27,171 $ 23,694 $23,160 $ 28,734
Expenses to average net assets, net of waivers from adviser ............... 1.02% 1.02% 1.02% 1.02% 1.02%
Expenses to average net assets, before waivers from adviser ............... 1.34% 1.27% 1.28% 1.50% 1.15%
Net investment income to average net assets, net of waivers from adviser .. 4.56% 4.46% 4.74% 4.91% 5.11%
Net investment income to average net assets, before waivers and
reimbursements from adviser ........................................... 4.24% 4.21% 4.48% 4.42% 4.98%
Portfolio turnover rate ................................................... 19% 44% 34% 40% 13%
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------
FOR THE FOR THE FOR THE
YEAR YEARS YEAR
ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
-------------------------
2000 1999 1998 1997 1996
----------- ------------------------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..................................... $ 11.03 $ 11.12 $ 10.65 $ 10.71 $ 10.27
----------- ------- ------- ------- ------------
Net investment income .................................................... 0.40 0.44 0.43 0.44 0.47
Net realized and unrealized gains (losses) from investments and futures .. (0.95) 0.15 0.47 (0.06) 0.44
----------- ------- ------- ------- ------------
Net increase (decrease) from investment operations ....................... (0.55) 0.59 0.90 0.38 0.91
----------- ------- ------- ------- ------------
Dividends from net investment income ..................................... (0.40) (0.44) (0.43) (0.44) (0.47)
Distributions from net realized gains from investment transactions ....... (0.09) (0.24) - - -
----------- ------- ------- ------- ------------
Total dividends and distributions to shareholders ........................ (0.49) (0.68) (0.43) (0.44) (0.47)
----------- ------- ------- ------- ------------
Net asset value, end of period ........................................... $ 9.99 $ 11.03 $ 11.12 $ 10.65 $ 10.71
=========== ======= ======= ======= ============
Total investment return (1) .............................................. (5.05)% 5.40% 8.65% 3.62% 9.01%
=========== ======= ======= ======= ============
Ratios/Supplemental data:
Net assets, end of period (000's) ........................................ $ 3,692 $ 6,013 $ 7,829 $ 9,462 $ 11,862
Expenses to average net assets, net of waivers from adviser .............. 1.77% 1.77% 1.77% 1.76% 1.77%
Expenses to average net assets, before waivers from adviser .............. 2.09% 2.02% 2.05% 2.27% 1.89%)
Net investment income to average net assets, net of waivers from adviser . 3.77% 3.70% 3.99% 4.16% 4.36%
Net investment income to average net assets, before waivers and
reimbursements from adviser .......................................... 3.45% 3.45% 3.70% 3.65% 4.24%
Portfolio turnover rate .................................................. 19% 44% 34% 40% 13%
<CAPTION>
CLASS C
------------------------------------------------------
FOR THE FOR THE FOR THE
YEAR YEARS YEAR
ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
---------------------------
2000 1999 1998 1997 1996
------------ --------------------------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..................................... $ 11.04 $ 11.12 $ 10.66 $ 10.71 $ 10.28
------------ ------- -------- -------- ------------
Net investment income .................................................... 0.42 0.47 0.46 0.46 0.49
Net realized and unrealized gains (losses) from investments and futures .. (0.95) 0.16 0.46 (0.05) 0.43
------------ ------- -------- -------- ------------
Net increase (decrease) from investment operations ....................... (0.53) 0.63 0.92 0.41 0.92
------------ ------- -------- -------- ------------
Dividends from net investment income ..................................... (0.42) (0.47) (0.46) (0.46) (0.49)
Distributions from net realized gains from investment transactions ....... (0.09) (0.24) - - -
------------ ------- -------- -------- ------------
Total dividends and distributions to shareholders ........................ (0.51) (0.71) (0.46) (0.46) (0.49)
------------ ------- -------- -------- ------------
Net asset value, end of period ........................................... $ 10.00 $ 11.04 $ 11.12 $ 10.66 $ 10.71
============ ======= ======== ======== ============
Total investment return (1) .............................................. (4.80)% 5.78% 8.82% 3.98% 9.17%
============ ======= ======== ======== ============
Ratios/Supplemental data:
Net assets, end of period (000's) ........................................ $ 9,344 $11,802 $ 12,966 $ 13,786 $ 17,849
Expenses to average net assets, net of waivers from adviser .............. 1.52% 1.52% 1.52% 1.52% 1.52%
Expenses to average net assets, before waivers from adviser .............. 1.83% 1.77% 1.78% 2.04% 1.64%
Net investment income to average net assets, net of waivers from adviser . 4.06% 3.97% 4.24% 4.41% 4.61%
Net investment income to average net assets, before waivers and
reimbursements from adviser .......................................... 3.75% 3.72% 3.98% 3.89% 4.50%
Portfolio turnover rate .................................................. 19% 44% 34% 40% 13%
<CAPTION>
CLASS Y
-------------------------------
FOR THE
FOR THE PERIOD
YEAR MAY 21, 1998+
ENDED THROUGH
FEBRUARY 29, FEBRUARY 28,
2000 1999
------------ -------------
<S> <C> <C>
Net asset value, beginning of period ..................................... $ 11.03 $ 11.08
----------- -------------
Net investment income .................................................... 0.50 0.40
Net realized and unrealized gains (losses) from investments and futures .. (0.95) 0.19
----------- -------------
Net increase (decrease) from investment operations ....................... (0.45) 0.59
----------- -------------
Dividends from net investment income ..................................... (0.50) (0.40)
Distributions from net realized gains from investment transactions ....... (0.09) (0.24)
----------- -------------
Total dividends and distributions to shareholders ........................ (0.59) (0.64)
----------- -------------
Net asset value, end of period ........................................... $ 9.99 $ 11.03
=========== =============
Total investment return (1) .............................................. (4.10)% 5.39%
=========== =============
Ratios/Supplemental data:
Net assets, end of period (000's) ........................................ $ 65 $ 21
Expenses to average net assets, net of waivers from adviser .............. 0.77% 0.77%*
Expenses to average net assets, before waivers from adviser .............. 1.05% 1.03%*
Net investment income to average net assets, net of waivers from adviser . 4.92% 4.71%*
Net investment income to average net assets, before waivers and
reimbursements from adviser .......................................... 4.64% 4.44%*
Portfolio turnover rate .................................................. 19% 44%
</TABLE>
- ----------------
+ Commencement of issuance of shares.
* Annualized.
(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 any applicable sales charges or program fees; results would be
lower if they were included. Total investment return for periods of less
than one year has not been annualized.
57
<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 29, 2000, and the related statements of operations for
the year then ended, the statements of changes in net assets, 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 auditing standards generally
accepted in the United States. 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 29, 2000, 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 29, 2000, 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 accounting principles generally
accepted in the United States.
/s/ ERNST & YOUNG LLP
New York, New York
April 14, 2000
58
<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
29, 2000), 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 0.5148 0.5526 0.5490 0.4759
Class B 0.4337 0.4634 0.4690 0.3968
Class C 0.4607 0.4941 0.4965 0.4235
Class Y 0.5430 0.5755 0.5686 0.5016
Short-term Capital Gains**
Class A -- 0.0036 -- 0.0123
Class B -- 0.0036 -- 0.0123
Class C -- 0.0036 -- 0.0123
Class Y -- 0.0036 -- 0.0123
Long-term Capital Gains***
Class A 0.0585 0.0621 0.0589 0.0795
Class B 0.0585 0.0621 0.0589 0.0795
Class C 0.0585 0.0621 0.0589 0.0795
Class Y 0.0585 0.0621 0.0589 0.0795
Alternative Minimum Tax 10.72% 18.73% 45.04% 15.18%
</TABLE>
- ----------
* 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 2000. 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 2001. Shareholders are advised to consult their
own tax advisers with respect to the tax consequences of their investment in
each Fund.
59
<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
- - Enhanced S&P 500 Fund
- - Enhanced Nasdaq-100 Fund
- - Financial Services Growth Fund
- - Growth Fund
- - Growth and Income Fund
- - Mid Cap Fund
- - Small Cap Fund
- - S&P 500 Index Fund
- - Strategy 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
PAINE WEBBER MONEY MARKET FUND
PAINEWEBBER
-C-2000 PaineWebber Incorporated
All rights reserved
Member SIPC
<PAGE>
PAINEWEBBER
ANNUAL REPORT
- --------------------------------------------------------------------------------
TAX-FREE
BOND FUNDS
CALIFORNIA TAX-FREE INCOME FUND
NATIONAL TAX-FREE INCOME FUND
MUNICIPAL HIGH INCOME FUND
NEW YORK TAX-FREE INCOME FUND
FEBRUARY 29, 2000
<PAGE>
- --------------------------------------------------------------------------------
TRUSTEES
E. Garrett Bewkes, Jr. Meyer Feldberg
CHAIRMAN
George W. Gowen
Margo N. Alexander
Frederic V. Malek
Richard Q. Armstrong
Carl W. Schafer
Richard R. Burt
Brian M. Storms
Mary C. Farrell
PRINCIPAL OFFICERS
Margo N. Alexander Richard S. Murphy
PRESIDENT VICE PRESIDENT
Dianne E. O'Donnell Cynthia N. Bow
VICE PRESIDENT AND SECRETARY VICE PRESIDENT
Paul H. Schubert William W. Veronda
VICE PRESIDENT AND TREASURER VICE PRESIDENT
Elbridge T. Gerry III
VICE PRESIDENT
INVESTMENT ADVISER,
ADMINISTRATOR AND DISTRIBUTOR
Mitchell Hutchins Asset Management Inc.
51 West 52nd Street
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.
