<PAGE>
PAINEWEBBER
We invest in relationships
'c'1995 PaineWebber Incorporated 930423-374
PAINEWEBBER
PREMIER
TAX-FREE
INCOME
FUND INC.
SEMI-ANNUAL REPORT
MARCH 31, 1995
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May 15, 1995
Dear Shareholder,
During the six months ended March 31, 1995, the United States economy exhibited
steady growth. In a series of monetary tightenings that began early in 1994, the
Federal Reserve Board raised the benchmark Federal Funds rate, the rate banks
charge each other for overnight borrowing, six times in 1994 for a total
increase of 2.5%. These increases, which were implemented to moderate economic
expansion and forestall inflation, triggered stock and bond market volatility
throughout most of 1994. The Federal Reserve tightened another 0.5% on February
1, 1995, increasing the Federal Funds rate to 6.0%.
MUNICIPAL MARKET OVERVIEW
The Federal Reserve's monetary tightening policy set off a turbulent year in
fixed income markets. In the municipal market, this meant falling bond prices
for most of the period. However, in the last three months of the fiscal period,
the municipal market rallied. For example, on February 3, 1994, the Bond Buyer's
Index (composed of 20 long-term municipal bonds rated 'A' or better) had an
average yield of 5.25%. This average climbed as high as 7.06% on November 17,
1994, before settling back to 6.07% on March 30, 1995. The Revenue Bond Index
(composed of 25 revenue bonds) showed similar volatility. On February 3, 1994,
it was 5.49%; by November 17, 1994 it climbed to 7.37% and settled back to 6.29%
on March 30, 1995. As municipal interest rates increased, the market value of
outstanding bonds decreased.
In early December 1994, the municipal market was shaken by the bankruptcy of
Orange County, California. None of our Funds owned any Orange County general
obligation bonds. Although the bankruptcy initially destabilized the municipal
market, investors ultimately concluded that the magnitude of the problem was
isolated, and that other municipalities that invested in derivatives had not
leveraged themselves to the extent Orange County did. Consequently, the market
regained investors' confidence and put in a very strong performance during the
first three months of 1995.
Another source of positive momentum at the end of the fiscal period was the
so-called January effect. Each year, large amounts of money are returned to
investors on January 1st in the form of interest payments, normal maturities and
prerefunded bonds -- those bonds called prior to their final maturity. Early
1995 was a particularly active period for prerefunded bonds. Investors found
large amounts of money in their hands in January and February 1995, and as the
bond and Treasury markets rallied, this money was aggressively reinvested in
municipal bonds. In addition to the January effect, municipals benefitted from
traditional demand because of very high levels of taxation stemming from the tax
increase of 1993. Recently, the market has become sensitive to the talk of tax
reform, which is expected to become an item of discussion in the 1996
Presidential
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campaign. We will monitor these developments and keep you, our shareholders,
apprised of events.
The supply of municipal bonds continues to present an intriguing story. After
years of high volume, new issue supply declined dramatically in 1994. In 1993, a
record $290 billion in new bonds were issued, while in 1994 new issue supply was
reduced to $164 billion. Estimates for 1995 range from $125-$150 billion in new
bonds. In fact, during the first four months of 1995, new issue supply was down
approximately 40% from 1994 levels. With fewer bonds in the market, demand
increases, pushing up the prices of existing bonds. The combination of a very
limited supply, the strong January effect and the perception that the Federal
Reserve was temporarily content vis-a-vis interest rates led to a rebound in the
municipal market in the last three months of the six-month period ended March
31, 1995.
PORTFOLIO REVIEW
During the six months ended March 31, 1995, the performance of PaineWebber
Premier Tax-Free Income Fund Inc. (the 'Fund') was affected by the volatile
interest rate environment and its impact on the municipal market. During the
first part of the six-month period, increasing short-term interest rates caused
long-term interest rates to increase and resulted in long-term municipal bond
prices falling. This put pressure on the Fund's net asset value ('NAV') as the
market value of the long-term bonds in the portfolio declined. However, the
long-term municipal market reached its yield highs and price lows by
mid-November 1994. After that, the tenor of the marketplace changed
dramatically. Long-term rates started declining and prices rose dramatically and
the spread between long- and short-term rates compressed. This helped the Fund's
NAV to increase during the last four months of the semi-annual period. As a
result, the Fund's total return for the six months ended March 31, 1995, based
on the Fund's net asset value was 8.39%, while the Fund's total return for the
same time period based on the Fund's market value was 6.84%. As of March 31,
1995, the Fund's net asset value per share was $15.38, while its share price on
the New York Stock Exchange was $12.75.
The Fund paid dividends from net investment income, which totalled $0.47 per
share of common stock during the six months ended March 31, 1995. The Fund's
dividends were affected by the increases in short-term interest rates. As
short-term rates increased, the benefit derived from the Fund's Auction
Preferred Shares ('APS') decreased, lowering the dividend paid to the Fund's
common shareholders. As you know, the Fund's dividends have benefitted from the
use of leverage through the issuance of APS. By investing the proceeds of the
APS offering in longer-term municipal bonds, the Fund has been able to earn a
spread, the difference between short- and long-term interest rates, over the
rate paid on the APS, which is a short-term rate. The amount of the spread,
after paying the costs attributable to the APS, increases the income dividends
payable to common shareholders. However, in the past six months, short-term
interest rates increased,
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2
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decreasing the benefit derived from the APS. If short-term interest rates
continue to increase, management will carefully evaluate whether it would be in
the best interests of the common shareholders to redeem the APS and deleverage
the Fund. Unless and until that happens, our goal is to provide the best use of
leverage for the Fund to the common shareholders.
Going forward, our outlook is one of cautious optimism. The Federal Reserve
Board appears to have engineered a 'soft landing' -- a slowdown in economic
growth without a decline into recession. If the Fed has been successful, it
appears as though the direction for short-term interest rates will eventually
decline. However, if inflation becomes problematic, further increases in short-
term interest rates could be possible. Municipal supply remains extremely light,
and demand has been able to absorb this supply, which should cause municipal
bonds to perform better than taxable debt instruments in the coming months. Our
long-term outlook is for strength in the municipal market after the domestic
economic picture becomes clearer.
As of March 31, 1995, the Fund was fully invested in long-term municipal
securities with an average maturity of 26 years and was fully diversified. Using
the higher of Moody's Investors Service, Inc. or Standard & Poor's Ratings Group
ratings, the ratings mix in the portfolio as of March 31, 1995, was as follows:
[PIE CHART]
A or A = 29.9%
A1/A+ = 1.5%
AA or Aa = 30.1%
BBB or Baa = 2.5%
Cash equivalents, Prerefunded bonds and Aaa or AAA = 36.0%
The largest percentages of the Fund's net assets as of March 31, 1995 were
invested in securities of Illinois, 14.5%; Texas, 12.4%; and New York, 12.4%,
issuers. As of March 31, 1995, three of the largest sector holdings were water
and sewer, 18.2%; power, 17.7%; and hospital, 14.0%.
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3
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We value you as a shareholder and as a client, and thank you for your continued
support. We welcome any comments or questions you may have.
Sincerely,
<TABLE>
<S> <C>
FRANK P.L. MINARD GREGORY W. SERBE
FRANK P.L. MINARD GREGORY W. SERBE
Chairman, Managing Director,
Mitchell Hutchins Asset Management Inc. Mitchell Hutchins Asset Management Inc.
Portfolio Manager,
PaineWebber Premier Tax-Free Income
Fund Inc.
</TABLE>
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4
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PAINEWEBBER PREMIER TAX-FREE INCOME FUND INC.
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Portfolio of Investments
March 31, 1995 -- (unaudited)
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LONG-TERM MUNICIPAL BONDS -- 95.36%
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<TABLE>
<CAPTION>
Principal Moody's S&P
Amount Rating Rating Maturity Interest
(000) (unaudited) (unaudited) Dates Rates Value
- --------- ----------- ----------- -------------------- -------------- ------------
<C> <S> <C> <C> <C> <C> <C>
Alaska -- 2.88%
$ 6,540 Valdez Marine Terminal
British Petroleum Co.
Sohio Pipeline Project........ A1 AA - 12/01/25 7.000% $ 6,889,301
------------
California -- 1.44%
3,500 California Public Works Board
California State University... A A - 09/01/16 6.250 3,455,060
------------
Colorado -- 0.64%
1,500 Denver City & County
Excise Tax Revenue Bonds
(MBIA-Insured)................ Aaa AAA 09/01/14 6.500 1,541,460
------------
Connecticut -- 4.13%
9,650 Connecticut Housing
Finance Authority............. Aa AA 05/15/14 to 11/15/23 6.200 to 6.750 9,880,203
------------
Georgia -- 0.21%
500 Municipal Electric Authority of
Georgia....................... A A+ 01/01/16 6.375 502,630
------------
Illinois -- 14.51%
1,000 Illinois Educational
Facilities Authority
Northwestern University
(Pre-refunded with U.S.
Government Securities to
12/01/01 @ $102).............. Aa AA - 12/01/21 6.900 1,115,450
3,000 Illinois Health Facilities
Authority Glen Oaks
Hospital...................... Baa1 BBB 11/15/19 7.000 2,964,960
3,000 Illinois Health Facilities
Authority Hinsdale Hospital... Baa1 BBB 11/15/19 7.000 2,964,960
1,890 Illinois Toll & Highway
Authority (FGIC-Insured)...... Aaa AAA 01/01/16 6.200 1,891,115
7,380 Chicago Gas Supply
People's Gas.................. Aa3 AA - 03/01/15 6.875 7,748,852
4,000 Chicago Water Works............. A1 A+ 11/15/19 6.000 3,874,760
11,600 Metropolitan Pier & Exposition
Authority..................... A A+ 06/15/27 6.500 11,658,580
2,650 University of Illinois.......... Aa AA - 04/01/22 5.750 2,488,059
------------
34,706,736
------------
Indiana -- 10.75%
6,750 Indiana Transportation
Financing Authority........... A A 11/01/16 6.250 6,585,637
6,000 Indianapolis Gas Utility
(FGIC-Insured)................ Aaa AAA 06/01/23 6.200 5,999,280
2,000 Indianapolis Local Public
Improvement Bond Bank......... Aa AA - 07/01/10 6.000 2,038,080
4,000 Marion County Hospital Authority
Methodist Hospital of
Indiana....................... Aa AA - 09/01/13 6.500 4,139,400
</TABLE>
5
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PAINEWEBBER PREMIER TAX-FREE INCOME FUND INC.
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LONG-TERM MUNICIPAL BONDS -- (CONTINUED)
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<TABLE>
<CAPTION>
Principal Moody's S&P
Amount Rating Rating Maturity Interest
(000) (unaudited) (unaudited) Dates Rates Value
- --------- ----------- ----------- -------------------- -------------- ------------
<C> <S> <C> <C> <C> <C> <C>
Indiana -- (concluded)
$ 5,725 Petersburg County
Pollution Control
Indianapolis Power & Light
Co............................ Aa2 AA - 12/01/24 6.625% $ 5,900,300
1,000 Purdue University............... Aa AA - 07/01/15 6.700 1,048,890
------------
25,711,587
------------
Kentucky -- 3.30%
7,750 Boone County Pollution Control
Dayton Power & Light Co....... Aa3 AA - 11/15/22 6.500 7,882,137
------------
Massachusetts -- 7.53%
8,500 Massachusetts Bay Transportation
Authority..................... A1 A+ 03/01/23 6.100 8,431,745
6,000 Massachusetts Water Resources
Authority (Pre-refunded with
U.S. Government Securities to
07/15/02 @ $102).............. Aaa AAA 07/15/21 6.500 6,578,940
2,750 Massachusetts Water Resources
Authority (Pre-refunded with
U.S. Government Securities to
12/01/01 @ $102).............. Aaa AAA 12/01/19 6.500 3,010,892
------------
18,021,577
------------
Nevada -- 2.91%
6,750 Clark County Pollution Control
Nevada Power (FGIC-Insured)... Aaa AAA 06/01/19 6.600 6,971,602
------------
New York -- 12.36%
6,000 New York State Local Government
Assistance Corp............... A A 04/01/21 6.250 6,000,000
5,350 New York State Local Government
Assistance Corp
(Pre-refunded with U.S.
Government Securities to
04/01/02 @ $102).............. Aaa AAA 04/01/21 6.750 5,949,467
1,500 New York State
Medical Care Facilities
(FHA-Insured)................. NR AAA 02/15/31 6.600 1,525,935
6,150 New York City................... Baa1 A - 02/01/16 to 08/01/17 7.000 6,246,872
10,070 New York City
Municipal Water Finance....... A A - 06/15/17 to 06/15/21 6.000 to 6.250 9,851,501
------------
29,573,775
------------
North Carolina -- 2.14%
2,700 North Carolina Eastern Municipal
Power Agency.................. A A - 01/01/21 6.400 2,616,975
2,550 North Carolina Municipal
Power Agency
Catawba Electric Revenue...... A A 01/01/17 6.250 2,505,069
------------
5,122,044
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</TABLE>
6
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PAINEWEBBER PREMIER TAX-FREE INCOME FUND INC.
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LONG-TERM MUNICIPAL BONDS -- (CONTINUED)
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<TABLE>
<CAPTION>
Principal Moody's S&P
Amount Rating Rating Maturity Interest
(000) (unaudited) (unaudited) Dates Rates Value
- --------- ----------- ----------- -------------------- -------------- ------------
<C> <S> <C> <C> <C> <C> <C>
Pennsylvania -- 0.49%
$ 1,190 Philadelphia Hospitals and
Higher
Educational Facilities
Authority
Chestnut Hill Hospital........ A A - 11/15/22 6.500% $ 1,176,315
------------
Rhode Island -- 2.58%
6,175 Rhode Island Housing Finance.... Aa AA+ 04/01/27 6.500 6,179,323
------------
South Carolina -- 4.99%
5,035 South Carolina
Public Service Authority
Santee Cooper (Pre-refunded
with U.S. Government
Securities to 07/01/02 @
$102)......................... Aaa AAA 07/01/31 6.625 5,561,661
6,290 Richland County Pollution
Control Union Camp............ A1 A - 11/01/20 6.550 6,374,223
------------
11,935,884
------------
Texas -- 12.39%
5,000 Texas Health Facilities
Development Corporation
All Saints Episcopal Hospital
(MBIA-Insured)................ Aaa AAA 08/15/22 6.250 5,014,600
4,000 Coastal Bend Health Facilities
Incarnate Word Health System
(AMBAC-Insured)............... Aaa AAA 01/01/17 6.300 4,028,400
4,750 Harris County Subordinated Line
Revenue....................... Aa AA+ 08/01/14 6.750 4,986,788
915 Harris County Toll Road
Senior Lien (AMBAC-Insured)... Aaa AAA 08/15/17 6.500 943,383
1,000 Houston Water & Sewer........... A A 12/01/14 6.375 1,011,020
6,575 Houston Water & Sewer
(AMBAC-Insured)............... Aaa AAA 12/01/17 6.375 6,703,410
6,750 Sabine River Authority
Pollution Control
(FGIC-Insured)................ Aaa AAA 10/01/22 6.550 6,954,255
------------
29,641,856
------------
Virginia -- 4.39%
4,500 Virginia Beach
Development Authority
Sentara Bayside Hospital...... Aa AA 11/01/21 6.300 4,505,535
5,815 Virginia Transportation
Board Revenue
Route 28 Project.............. Aa AA 04/01/18 6.500 6,006,779
------------
10,512,314
------------
</TABLE>
7
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PAINEWEBBER PREMIER TAX-FREE INCOME FUND INC.
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LONG-TERM MUNICIPAL BONDS -- (CONCLUDED)
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<TABLE>
<CAPTION>
Principal
Amount
(000)
- --------- Moody's S&P
Rating Rating Maturity Interest
Washington -- 4.92% (unaudited) (unaudited) Dates Rates Value
----------- ----------- -------------------- -------------- ------------
<C> <S> <C> <C> <C> <C> <C>
$ 4,500 Metropolitan Seattle Sewer
(MBIA-Insured)................ Aaa AAA 01/01/33 6.300% $ 4,515,660
6,625 Metropolitan Seattle Sewer
(Pre-refunded with U.S.
Government Securities to
01/01/00 @ $102).............. Aaa AA - 01/01/31 6.875 7,245,564
------------
11,761,224
------------
Wisconsin -- 2.80%
6,750 Wisconsin Health and Educational
Facilities Authority
Sisters of Sorrowful Mother
Health Care System
(MBIA-Insured)................ Aaa AAA 06/01/20 6.250 6,706,868
------------
TOTAL LONG-TERM MUNICIPAL BONDS
(cost -- $222,276,903) -- 95.36%.......... 228,171,896
------------
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SHORT-TERM MUNICIPAL NOTES -- 2.97%
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Florida -- 1.17%
2,800 Hillsborough County
Pollution Control*............ VMIG1 A-1+ 05/15/18 4.550 2,800,000
------------
New York -- 0.29%
700 New York City
General Obligation*........... VMIG1 A-1+ 08/15/03 to 08/15/23 4.400 to 4.600 700,000
------------
Wyoming -- 1.51%
3,600 Lincoln County Pollution
Control*...................... VMIG1 A-1+ 11/01/14 4.600 3,600,000
------------
TOTAL SHORT-TERM MUNICIPAL NOTES
(cost -- $7,100,000) -- 2.97%............. 7,100,000
------------
TOTAL INVESTMENTS
(cost -- $229,376,903) -- 98.33%.......... 235,271,896
Other assets in excess of
liabilities -- 1.67%........................ 3,986,985
------------
NET ASSETS -- 100.00%....................... $239,258,881
------------
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</TABLE>
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* Variable rate demand notes are payable on demand. The maturity dates shown are
the stated maturities; the interest rates shown are the current rates as of
March 31, 1995 and reset daily.
AMBAC -- American Municipal Bond Assurance Corporation
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Authority
MBIA -- Municipal Bond Insurance Association
NR -- Not Rated
See accompanying notes to financial statements
8
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PAINEWEBBER PREMIER TAX-FREE INCOME FUND INC.
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Statement of Assets and Liabilities
March 31, 1995 -- (unaudited)
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<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost -- $229,376,903)..................................... $235,271,896
Cash........................................................................................... 76,052
Interest receivable............................................................................ 4,326,691
Deferred organizational expenses............................................................... 100,319
Other assets................................................................................... 4,122
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Total assets............................................................................... 239,779,080
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LIABILITIES
Dividends payable to preferred shareholders.................................................... 209,849
Payable to affiliate........................................................................... 181,895
Accrued expenses and other liabilities......................................................... 128,455
------------
Total liabilities.......................................................................... 520,199
------------
NET ASSETS
Auction Preferred Shares Series A & B -- 1,600 non-participating shares authorized, issued and
outstanding; $0.001 par value; $50,000 liquidation value...................................... 80,000,000
------------
Common Stock -- $0.001 par value; total authorized shares 199,998,400; 10,356,667 shares issued
and outstanding............................................................................... 10,357
Paid in capital in excess of par value of common shares........................................ 153,663,783
Undistributed net investment income............................................................ 140,118
Accumulated net realized losses from investment transactions................................... (450,370)
Net unrealized appreciation of investments..................................................... 5,894,993
------------
Net assets applicable to common shareholders............................................... 159,258,881
------------
Total net assets........................................................................... $239,258,881
------------
------------
Net asset value per common share ($159,258,881 applicable to
10,356,667 common shares outstanding).................................................... $15.38
------------
------------
</TABLE>
See accompanying notes to financial statements
9
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PAINEWEBBER PREMIER TAX-FREE INCOME FUND INC.
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Statement of Operations
For the Six Months Ended March 31, 1995 -- (unaudited)
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<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................................................................... $ 7,422,872
-----------
EXPENSES:
Investment advisory and administration...................................................................... 1,025,602
Auction Preferred Shares expenses........................................................................... 143,167
Custody and accounting...................................................................................... 58,976
Reports and notices to shareholders......................................................................... 54,148
Legal and audit............................................................................................. 48,341
Amortization of organizational expenses..................................................................... 19,219
Transfer agency and service fees............................................................................ . 11,173
Directors' fees............................................................................................. 5,500
Other expenses.............................................................................................. 14,550
-----------
1,380,676
-----------
NET INVESTMENT INCOME........................................................................................... 6,042,196
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVITIES:
Net realized losses from investment transactions............................................................ (447,179)
Net change in unrealized appreciation/depreciation of investments........................................... 7,652,970
-----------
NET REALIZED AND UNREALIZED GAINS FROM INVESTMENT ACTIVITIES.................................................... 7,205,791
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................................ $13,247,987
-----------
-----------
</TABLE>
See accompanying notes to financial statements
10
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PAINEWEBBER PREMIER TAX-FREE INCOME FUND INC.
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Statement of Cash Flows
For the Six Months Ended March 31, 1995 -- (unaudited)
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<TABLE>
<S> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Interest received............................................................................... $ 7,355,560
Expenses paid................................................................................... (1,308,802)
Purchase of short-term portfolio investments, net............................................... (2,600,000)
Purchase of long-term portfolio investments..................................................... (16,307,352)
Sale of long-term portfolio investments......................................................... 19,218,077
-----------
Net cash provided by operating activities....................................................... 6,357,483
-----------
CASH FLOWS USED FOR FINANCING ACTIVITIES:
Dividends paid from net investment income to common stockholders................................ (4,817,922)
Dividends paid from net investment income to preferred stockholders............................. (1,474,360)
-----------
Net cash used for financing activities.......................................................... (6,292,282)
-----------
NET INCREASE IN CASH................................................................................ 65,201
CASH AT BEGINNING OF PERIOD......................................................................... 10,851
-----------
CASH AT END OF PERIOD............................................................................... $ 76,052
-----------
-----------
RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net increase in net assets resulting from operations............................................ $13,247,987
-----------
Decrease in cost of investments................................................................. 745,032
Increase in unrealized appreciation............................................................. (7,652,970)
Increase in interest receivable................................................................. (54,441)
Decrease in other assets and deferred organizational expenses................................... 14,295
Increase in accrued expenses and other liabilities.............................................. 57,580
-----------
Total adjustments........................................................................... (6,890,504)
-----------
Net cash provided by operating activities....................................................... $ 6,357,483
-----------
-----------
</TABLE>
See accompanying notes to financial statements
11
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PAINEWEBBER PREMIER TAX-FREE INCOME FUND INC.
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Statement of Changes in Net Assets
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<TABLE>
<CAPTION>
For the Six Months
Ended For the Year
March 31, 1995 Ended
(unaudited) September 30, 1994
------------------ ------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income.................................................. $ 6,042,196 $ 12,102,474
Net realized gains (losses) from investment transactions............... (447,179) 175,219
Net change in unrealized appreciation/depreciation of investments...... 7,652,970 (23,797,805)
------------------ ------------------
Net increase (decrease) in net assets resulting from operations........ 13,247,987 (11,520,112)
------------------ ------------------
DIVIDENDS AND DISTRIBUTIONS TO STOCKHOLDERS FROM:
Net investment income-common stockholders.............................. (4,817,922) (10,103,964)
Net investment income-preferred stockholders........................... (1,577,119) (2,208,428)
Net realized gains from investment transactions-common stockholders.... -- (187,456)
Net realized gains from investment transactions-preferred
stockholders......................................................... -- (40,160)
------------------ ------------------
Total dividends and distributions to stockholders.................. (6,395,041) (12,540,008)
------------------ ------------------
Net increase (decrease) in net assets.................................. 6,852,946 (24,060,120)
NET ASSETS:
Beginning of period.................................................... 232,405,935 256,466,055
------------------ ------------------
End of period (including undistributed net investment income of
$140,118 and $492,963, respectively)................................. $239,258,881 $232,405,935
------------------ ------------------
------------------ ------------------
</TABLE>
See accompanying notes to financial statements
12
<PAGE>
PAINEWEBBER PREMIER TAX-FREE INCOME FUND INC.
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Notes to Financial Statements -- (unaudited)
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ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Premier Tax-Free Income Fund Inc. (the 'Fund') was incorporated in
Maryland on August 6, 1992 as a closed-end, diversified management investment
company. Organizational costs aggregating $192,824 have been deferred and are
being amortized on the straight line method over a period not to exceed 60
months from the date the Fund commenced operations.
The Fund follows an investment policy of investing primarily in municipal
obligations of various states. Economic changes affecting those states and
certain of their public bodies and municipalities may affect the ability of the
issuers within those states to pay interest on, or repay principal of, municipal
obligations held by the Fund.
Valuation of Investments -- Where market quotations are readily available,
portfolio securities are valued based upon market quotations, provided such
quotations adequately reflect, in the judgment of Mitchell Hutchins Asset
Management Inc. ('Mitchell Hutchins'), investment adviser and administrator of
the Fund, the fair value of the securities. When market quotations are not
readily available, securities are valued based upon appraisals received from a
pricing service which utilizes a computerized matrix pricing system, or based
upon appraisals derived from information concerning those securities or similar
securities received from recognized dealers in those securities. All other
securities are valued at fair value as determined in good faith by or under the
direction of the Fund's board of directors. The amortized cost method of
valuation, which approximates market value, is used to value certain debt
obligations with 60 days or less remaining to maturity, unless the Fund's board
of directors 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.
Federal Tax Status -- The Fund intends to distribute all of its taxable and tax
exempt income and to comply with the other requirements of the Internal Revenue
Code applicable to regulated investment companies. Accordingly, no provision for
federal income taxes is required. In addition, the Fund may not be subject to a
federal excise tax to the extent that it distributes substantially all of its
net investment income, capital gains and other undistributed amounts.
In accordance with Treasury Regulations, the Fund has elected to defer realized
losses arising after October 31, 1993. Such losses have been treated for tax
purposes as arising on October 1, 1994. To the extent that such losses are used
to offset future capital gains, it is probable that the gains so offset will not
be distributed to shareholders.
Dividends and Other Distributions -- The Fund intends to pay monthly cash
dividends to common stockholders at a level rate that over time will result in
the distribution of all of the Fund's net
13
<PAGE>
PAINEWEBBER PREMIER TAX-FREE INCOME FUND INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements -- (continued)
- --------------------------------------------------------------------------------
investment income remaining after the payment of dividends on any outstanding
preferred stock. Dividends and distributions to common stockholders are recorded
on the ex-dividend date. Dividends to preferred stockholders are accrued daily.
Dividends from net investment income and distributions from realized capital
gains from investment transactions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles. Net
realized capital gains and certain other amounts, if any, will be distributed at
least annually, but the Fund may make more frequent distributions of such
amounts if necessary to avoid income or excise taxes.
INVESTMENT ADVISER AND ADMINISTRATOR
The Fund's board of directors 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
Fund. In accordance with the Advisory Contract, Mitchell Hutchins receives
compensation from the Fund, computed weekly and paid monthly, at the annual rate
of 0.90% of the Fund's average weekly net assets.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at March 31, 1995
was substantially the same as the cost of securities for financial statement
purposes.
At March 31, 1995, the components of the net unrealized appreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (from investments having an excess of value over cost)..... $ 6,121,134
Gross depreciation (from investments having an excess of cost over value)..... (226,141)
-----------
Net unrealized appreciation of investments.................................... $ 5,894,993
-----------
-----------
</TABLE>
For the six months ended March 31, 1995, aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $16,307,352 and
$19,218,077, respectively.
CAPITAL STOCK
COMMON STOCK
There are 199,998,400 shares of $0.001 par value common stock authorized. Of the
10,356,667 common shares outstanding, 6,667 shares are owned by Mitchell
Hutchins.
14
<PAGE>
PAINEWEBBER PREMIER TAX-FREE INCOME FUND INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements -- (concluded)
- --------------------------------------------------------------------------------
PaineWebber Incorporated ('PaineWebber') paid all costs incurred in connection
with the offering of common stock aggregating $393,593.
AUCTION PREFERRED SHARES
On January 21, 1993, the Fund issued 800 shares of Auction Preferred Shares
Series A and 800 shares of Auction Preferred Shares Series B, which are referred
to herein collectively as the 'APS.' All shares of each series of APS will have
a liquidation preference of $50,000 per share plus an amount equal to
accumulated but unpaid dividends and distributions of assets upon liquidation.
Dividends, which are cumulative, are generally reset every 28 days for APS
Series A and 90 days for APS Series B. Dividend rates ranged from 3.14% to 5.00%
for the six months ended March 31, 1995.
The Fund is subject to certain restrictions relating to the APS. Failure to
comply with these restrictions could preclude the Fund from declaring any
distributions to common shareholders or repurchasing common shares and/or could
trigger the mandatory redemption of APS at liquidation value.
The APS are entitled to one vote per share and, unless otherwise required by
law, will vote with holders of common stock as a single class, except that the
preferred shares will vote separately as a class on certain matters, as required
by law. The holders of the preferred shares have the right to elect two
directors of the Fund.
15
<PAGE>
PAINEWEBBER PREMIER TAX-FREE INCOME FUND INC.
- --------------------------------------------------------------------------------
Quarterly Results of Operations -- (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Realized and Net Increase
Unrealized Gains (Decrease)
(Losses) from in Net Assets
Net Investment Investment Resulting from
Income Activities Operations
----------------- ------------------ ------------------
Per Per Per
Total Common Total Common Total Common
Quarter Ended (000's) Share (000's) Share (000's) Share
- ------------------------------------------- ------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
March 31, 1995............................. $ 3,018 $0.29 $ 14,115 $1.36 $ 17,133 $1.65
December 31, 1994.......................... 3,024 0.29 (6,909) (0.66 ) (3,885) (0.37)
------- ------ -------- ------ -------- ------
Totals................................ $ 6,042 $0.58 $ 7,206 $0.70 $ 13,248 $1.28
------- ------ -------- ------ -------- ------
------- ------ -------- ------ -------- ------
September 30, 1994......................... $ 3,005 $0.29 $ (2,960) $(0.28) $ 45 $0.01
June 30, 1994.............................. 3,041 0.30 (1,783) (0.18 ) 1,258 0.12
March 31, 1994............................. 3,038 0.29 (18,096) (1.74 ) (15,058) (1.45)
December 31, 1993.......................... 3,018 0.29 (783) (0.08 ) 2,235 0.21
------- ------ -------- ------ -------- ------
Totals................................ $12,102 $1.17 $(23,622) ($2.28) $(11,520) $(1.11)
------- ------ -------- ------ -------- ------
------- ------ -------- ------ -------- ------
September 30, 1993......................... $ 3,029 $0.29 $ 6,694 $0.65 $ 9,723 $0.94
June 30, 1993.............................. 3,044 0.30 6,860 0.66 9,904 0.96
March 31, 1993............................. 2,681 0.26 5,788 0.56 8,469 0.82
December 31, 1992*......................... 924 0.09 2,746 0.26 3,670 0.35
------- ------ -------- ------ -------- ------
Totals................................ $9,678.. $0.94 $ 22,088 $2.13 $ 31,766 $3.07
------- ------ -------- ------ -------- ------
------- ------ -------- ------ -------- ------
</TABLE>
- ------------
* For the period November 6, 1992 (commencement of operations) to December 31,
1992.
16
<PAGE>
PAINEWEBBER PREMIER TAX-FREE INCOME FUND INC.
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED FOR THE FOR THE PERIOD
MARCH 31, 1995 YEAR ENDED NOVEMBER 6, 1992`D'
(UNAUDITED) SEPTEMBER 30, 1994 TO SEPTEMBER 30, 1993
---------------- ------------------ ---------------------
<S> <C> <C> <C>
Selected data for a share of common stock outstanding throughout the
period:
Net asset value, beginning of period................................ $ 14.72 $ 17.04 $ 15.00
---------------- ------------------ -----------
Net increase (decrease) from investment operations:
Net investment income.......................................... 0.58 1.17 0.94
Net realized and unrealized gains (losses) from investment
transactions................................................. 0.70 (2.28) 2.13
---------------- ------------------ -----------
Net increase (decrease) from investment operations.................. 1.28 (1.11) 3.07
---------------- ------------------ -----------
Less dividends and distributions:
Dividends from net investment income to:
Common shareholders....................................... (0.47) (0.98) (0.73)
Common share equivalent of dividends paid to preferred
shareholders............................................ (0.15) (0.21) (0.14)
Distributions from net realized gains from investment
transactions................................................. -- (0.02) --
---------------- ------------------ -----------
Total dividends and distributions to shareholders................... (0.62) (1.21) (0.87)
---------------- ------------------ -----------
Underwriting and offering costs incurred with the preferred stock
offering charged to common stock................................. -- -- (0.16)
---------------- ------------------ -----------
Net asset value, end of period...................................... $ 15.38 $ 14.72 $ 17.04
---------------- ------------------ -----------
---------------- ------------------ -----------
Per share market value, end of period............................... $ 12.75 $ 12.38 $ 15.63
---------------- ------------------ -----------
---------------- ------------------ -----------
Total investment return (1)......................................... 6.84% (15.21)% 9.10%
---------------- ------------------ -----------
---------------- ------------------ -----------
Ratios to average net assets attributable to common shares:
Total expenses...................................................... 1.86%* 1.70% 1.55%*
Net investment income before preferred stock dividends.............. 8.16%* 7.32% 6.55%*
Preferred stock dividends........................................... 2.13%* 1.33% 0.95%*
Net investment income -- available to common shareholders........... 6.03%* 5.99% 5.60%*
Supplemental data:
Net assets, end of period (000's)................................... $239,259 $232,406 $ 256,466
Portfolio turnover rate............................................. 7% 0% 6%
Asset coverage per share of preferred stock, end of period.......... $149,537 $145,254 $ 160,291
</TABLE>
- ------------
`D' Commencement of operations
* Annualized
(1) Total investment return is calculated assuming a purchase of common stock at
the current market price on the first day and a sale at the current market
price on the last day of each period reported and assuming reinvestment of
dividends and other distributions to common shareholders at prices obtained
under the Fund's Dividend Reinvestment Plan. Total returns for periods of
less than one year have not been annualized. Total investment return does
not reflect brokerage commissions.
17
<PAGE>
PAINEWEBBER PREMIER TAX-FREE INCOME FUND INC.
- --------------------------------------------------------------------------------
General Information
- --------------------------------------------------------------------------------
THE FUND
PaineWebber Premier Tax-Free Income Fund Inc. (the 'Fund') is a diversified
closed-end management investment company whose shares trade on the New York
Stock Exchange, Inc. ('NYSE'). The Fund's investment objective is to achieve a
high level of current income that is exempt from federal income tax, consistent
with the preservation of capital. The Fund's investment adviser and
administrator is Mitchell Hutchins Asset Management Inc., a wholly owned
subsidiary of PaineWebber, which has over $41 billion in assets under management
as of April 30, 1995.
SHAREHOLDER INFORMATION
The Fund's NYSE trading symbol is 'PPM.' Weekly comparative net asset value and
market price information about the Fund is published each Monday in The Wall
Street Journal and The New York Times and each Saturday in Barron's, as well as
numerous other newspapers.
An annual meeting of shareholders of the Fund was held on January 19, 1995. At
the meeting, E. Garrett Bewkes, Jr., John R. Torell III, William D. White, Meyer
Feldberg and Paul B. Guenther were elected as directors to serve until the
annual meeting of shareholders in 1996, or until their successors are elected
and qualified, and the selection of Price Waterhouse LLP as the Fund's
independent accountants for the fiscal year ending September 30, 1995 was
ratified. The votes were as follows:
<TABLE>
<CAPTION>
ALL SHARES VOTING AS A SINGLE CLASS
---------------------------------------------
SHARES VOTED FOR SHARES WITHHOLD AUTHORITY
---------------- -------------------------
<S> <C> <C>
E. Garrett Bewkes, Jr. ................................. 9,687,670 199,202
John R. Torell III...................................... 9,701,101 185,771
William D. White........................................ 9,968,154 188,718
<CAPTION>
AUCTION PREFERRED SHARES
---------------------------------------------
SHARES VOTED FOR SHARES WITHHOLD AUTHORITY
---------------- -------------------------
<S> <C> <C>
Meyer Feldberg.......................................... 1,393 1
Paul B. Guenther........................................ 1,393 1
</TABLE>
<TABLE>
<CAPTION>
ALL SHARES VOTING AS A SINGLE CLASS
------------------------------------------------
SHARES SHARES SHARES
VOTED FOR VOTED AGAINST WITHHOLD AUTHORITY
--------- ------------- ------------------
<S> <C> <C> <C>
Ratification of the selection
of Price Waterhouse............................... 9,741,746 48,700 96,428
</TABLE>
Broker non-votes and abstentions are included within the 'Shares Withhold
Authority' totals.
18
<PAGE>
PAINEWEBBER PREMIER TAX-FREE INCOME FUND INC.
- --------------------------------------------------------------------------------
General Information -- (concluded)
- --------------------------------------------------------------------------------
Paul B. Guenther resigned as a director of the Fund on May 1, 1995. Richard Q.
Armstrong and Richard R. Burt were elected as directors at the board meeting
held on February 15, 1995.
DISTRIBUTION POLICY
The Fund's Board of Directors has established a Dividend Reinvestment Plan (the
'Plan') under which all common stockholders whose shares are registered in their
own names, or in the name of PaineWebber or its nominee, will have all dividends
and other distributions on their shares of common stock automatically reinvested
in additional shares of common stock, unless such common stockholders elect to
receive cash. Common stockholders who elect to hold their shares in the name of
another broker or nominee should contact such broker or nominee to determine
whether, or how, they may participate in the Plan. Additional shares of common
stock acquired under the Plan will be purchased in the open market, on the NYSE,
at prices that may be higher or lower than the net asset value per share of the
common stock at the time of the purchase. The Fund will not issue any new shares
of common stock in connection with the Plan.
19
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
20
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
21
<PAGE>
- ---------------------------------------------------------
DIRECTORS
E. Garrett Bewkes, Jr., Chairman
Richard Q. Armstrong
Richard R. Burt
Meyer Feldberg
John R. Torell III
William D. White
- ---------------------------------------------------------
PRINCIPAL OFFICERS
Margo N. Alexander
President
Victoria E. Schonfeld
Vice President
Dianne E. O'Donnell
Vice President and Secretary
Gregory W. Serbe
Vice President
Julian F. Sluyters
Vice President and Treasurer
- ---------------------------------------------------------
INVESTMENT ADVISER
AND ADMINISTRATOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
- ---------------------------------------------------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that from time to time the Fund may purchase at market
prices shares of its common stock in the open market.
The financial information included herein is taken from the records of the Fund
without examination by independent accountants who do not express an opinion
thereon.
This report is not to be used in connection with the offering of shares of the
Fund unless accompanied or preceded by an effective prospectus.
'c' 1995 PaineWebber Incorporated
['RECYCLED PAPER' LOGO]
<PAGE>
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as 'D'
The copyright symbol shall be expressed as 'c'
