<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
7
<PAGE>
PAINEWEBBER GLOBAL INCOME FUND
PERFORMANCE RESULTS
(UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------------- ---------------------------------------
10/31/97 04/30/97 10/31/96 12 MONTHS 6 MONTHS
ENDED 10/31/97 ENDED 10/31/97
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares $10.27 $10.09 $ 10.46 4.99% 5.26%
- ---------------------------------------------------------------------------------------------
Class B Shares 10.24 10.07 10.44 4.11 4.77
- ---------------------------------------------------------------------------------------------
Class C Shares 10.26 10.09 10.45 4.48 4.91
- ---------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS A SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS DIVIDENDS PAID FROM TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID CAPITAL RETURN/1/
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
07/01/91 - 12/31/91 $10.40 $11.05 $0.0100 $0.4800 -- 11.11%
- ---------------------------------------------------------------------------------------------
1992 11.05 10.42 0.1644 0.6029 -- 1.22
- ---------------------------------------------------------------------------------------------
1993 10.42 10.97 0.1445 0.7486 -- 14.16
- ---------------------------------------------------------------------------------------------
1994 10.97 9.90 0.0009 0.3213 $0.3178 (3.89)
- ---------------------------------------------------------------------------------------------
1995 9.90 10.44 -- 0.7325 -- 13.20
- ---------------------------------------------------------------------------------------------
1996 10.44 10.44 -- 0.7113 -- 7.13
- ---------------------------------------------------------------------------------------------
01/01/97 - 10/31/97 10.44 10.27 -- 0.4812 0.0899 4.04
- ---------------------------------------------------------------------------------------------
Totals: $0.3198 $4.0778 $0.4077
- ---------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
10/31/97: 55.70%
- ---------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS B SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS DIVIDENDS PAID FROM TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID CAPITAL RETURN/1/
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
03/20/87 - 12/31/87 $10.00 $10.86 $0.1800 $0.6647 -- 17.58%
- ---------------------------------------------------------------------------------------------
1988 10.86 10.64 0.1489 1.3436 -- 12.15
- ---------------------------------------------------------------------------------------------
1989 10.64 10.25 -- 0.9200 -- 5.44
- ---------------------------------------------------------------------------------------------
1990 10.25 10.87 -- 1.1300 -- 17.72
- ---------------------------------------------------------------------------------------------
1991 10.87 11.05 0.0100 0.7300 -- 10.75
- ---------------------------------------------------------------------------------------------
1992 11.05 10.41 0.1644 0.5214 -- 0.38
- ---------------------------------------------------------------------------------------------
1993 10.41 10.96 0.1445 0.6689 -- 13.36
- ---------------------------------------------------------------------------------------------
1994 10.96 9.87 0.0009 0.2852 $0.2810 (4.77)
- ---------------------------------------------------------------------------------------------
1995 9.87 10.41 -- 0.6538 -- 12.39
- ---------------------------------------------------------------------------------------------
1996 10.41 10.41 -- 0.6336 -- 6.34
- ---------------------------------------------------------------------------------------------
01/01/97 - 10/31/97 10.41 10.24 -- 0.4263 0.0804 3.39
- ---------------------------------------------------------------------------------------------
Totals: $0.6487 $7.9775 $0.3614
- ---------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
10/31/97: 151.67%
- ---------------------------------------------------------------------------------------------
PERFORMANCE SUMMARY CLASS C SHARES
<CAPTION>
NET ASSET VALUE
------------------ CAPITAL GAINS DIVIDENDS PAID FROM TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID CAPITAL RETURN/1/
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
07/02/92 - 12/31/92 $10.94 $10.42 $0.1644 $0.3744 -- 0.10%
- ---------------------------------------------------------------------------------------------
1993 10.42 10.97 0.1445 0.6973 -- 13.64
- ---------------------------------------------------------------------------------------------
1994 10.97 9.89 0.0009 0.2978 $0.2938 (4.43)
- ---------------------------------------------------------------------------------------------
1995 9.89 10.42 -- 0.6801 -- 12.54
- ---------------------------------------------------------------------------------------------
1996 10.42 10.43 -- 0.6592 -- 6.70
- ---------------------------------------------------------------------------------------------
01/01/97 - 10/31/97 10.43 10.26 -- 0.4460 0.0836 3.62
- ---------------------------------------------------------------------------------------------
Totals: $0.3098 $3.1548 $0.3774
- ---------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
10/31/97: 35.26%
- ---------------------------------------------------------------------------------------------
</TABLE>
/1/ FIGURES ASSUME REINVESTMENT OF ALL DIVIDENDS, CAPITAL GAINS 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.
NOTE: THE FUND OFFERS CLASS Y SHARES TO THE TRUSTEES OF THE PAINEWEBBER SAVINGS
INVESTMENT PLAN AND INSIGHT INVESTMENT ADVISORY PROGRAM PARTICIPANTS. FOR THE
YEAR ENDED OCTOBER 31, 1997 AND SINCE INCEPTION, AUGUST 26, 1991, THROUGH
OCTOBER 31, 1997, CLASS Y SHARES HAD A TOTAL RETURN OF 5.20% AND 55.79%,
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.
8
<PAGE>
PAINEWEBBER GLOBAL INCOME FUND
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)* DATES RATES VALUE
---------- -------------------- ---------------- -------------
LONG-TERM DEBT SECURITIES -- 86.89%
<C> <S> <C> <C> <C>
AUSTRALIA -- 4.55%
New South Wales Treasury
17,100 Corporation............ 12/01/01 12.000% $ 14,780,153
Queensland Treasury
Corporation Global
16,550 Issue.................. 08/15/01 12.000 14,171,271
-------------
28,951,424
-------------
CANADA -- 3.27%
21,785 Government of Canada.... 06/01/08 to 06/01/10 9.500 to 10.000 20,793,040
-------------
CHILE -- 1.03%
Empresa Nacional de
US$ 6,560 Electricidad, S.A...... 02/01/37 7.325 6,581,327
-------------
DENMARK -- 2.64%
105,695 Government of Denmark... 11/15/98 9.000 16,828,779
-------------
GERMANY -- 9.92%
Federal Republic of
98,360 Germany................ 07/22/02 to 07/04/07 6.000 to 8.000 63,195,342
-------------
ITALY -- 5.22%
49,765,000 Republic of Italy(1).... 02/01/99 to 04/01/04 8.500 to 12.000 33,263,628
-------------
MEXICO -- 0.58%
US$ 3,800 Hysla................... 09/15/07 9.250 3,686,000
-------------
NEW ZEALAND -- 2.28%
Government of New
20,800 Zealand(1)............. 03/15/02 10.000 14,530,639
-------------
PANAMA -- 0.41%
US$ 3,640 Republic of Panama, PDI. 07/17/16 6.688# 2,620,907
-------------
POLAND -- 2.13%
29,910 Republic of Poland(2)... 06/12/02 12.000 6,436,872
US$ 8,730 Republic of Poland, PDI. 10/27/14 4.000## 7,136,775
-------------
13,573,647
-------------
SPAIN -- 1.84%
1,477,020 Government of Spain..... 03/25/00 12.250 11,734,443
-------------
SWEDEN -- 2.51%
99,100 Kingdom of Sweden....... 06/15/01 to 05/05/03 10.250 to 13.000 16,004,969
-------------
UNITED KINGDOM -- 10.00%
32,544 United Kingdom Gilt..... 07/14/00 to 12/07/15 8.000 to 13.000 63,699,925
-------------
UNITED STATES -- 40.51%
9,692 Banc One Corporation.... 09/01/00 6.250 9,752,478
16,000 Clorox Corporation...... 07/15/01 8.800 17,347,776
Ford Motor Credit
24,000 Corporation............ 07/01/01 to 09/10/02 6.550 to 9.500 25,702,164
Federal National
NZD 21,525 Mortgage Association... 06/20/02 7.250 13,468,616
U.S. Treasury Inflation
30,200 Index Notes............ 01/15/07 3.375 30,243,797
155,135 U.S. Treasury Notes(1).. 08/15/99 to 05/15/07 6.250 to 8.000 161,554,295
-------------
258,069,126
-------------
Total Long-Term Debt Securities
(cost -- $552,865,780).............. 553,533,196
-------------
</TABLE>
9
<PAGE>
PAINEWEBBER GLOBAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)* DATES RATES VALUE
---------- ---------------------- ---------------- ------------
SHORT-TERM DEBT SECURITIES -- 6.67%
<C> <S> <C> <C> <C>
FRANCE -- 1.10%
US$7,000 Societe Generale........ 10/09/98 5.765% $ 6,997,200
------------
GERMANY -- 2.04%
US$ 13,000 Bayerische Vereinsbank.. 10/06/98 5.710 12,988,300
------------
IRELAND -- 0.71%
3,000 Republic of Ireland..... 11/15/97 11.500 4,514,913
------------
UNITED STATES -- 2.82%
The Chase Manhattan
18,000 Corporation............ 12/01/97 7.500 18,022,590
------------
Total Short-Term Debt Securities
(cost -- $43,744,393)............... 42,523,003
------------
REPURCHASE AGREEMENTS -- 5.22%
20,000 Repurchase agreement
dated 10/31/97 with
Citicorp Securities
Inc., collateralized by
$18,380,000 U.S.
Treasury Notes, 7.500%,
due 02/15/05; proceeds:
$20,009,417............ 11/03/97 5.650 20,000,000
13,247 Repurchase agreement
dated 10/31/97 with
Salomon Brothers Inc.,
collateralized by
$13,107,000 U.S.
Treasury Notes, 6.875%,
due 03/31/00; proceeds:
$13,253,215............ 11/03/97 5.630 13,247,000
------------
Total Repurchase Agreements (cost --
$33,247,000)....................... 33,247,000
------------
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED -- 11.92%
REPURCHASE AGREEMENTS -- 7.35%
1,466 Repurchase agreement
dated 10/31/97 with
Dresdner Securities
(USA) Inc.,
collateralized by
$1,455,000 U.S.
Treasury Notes, 6.250%,
due 02/28/02; proceeds:
$1,466,694............. 11/03/97 5.680 1,466,000
15,368 Repurchase agreement
dated 10/31/97 with
J.P. Morgan Inc.,
collateralized by
$15,598,000 U.S.
Treasury Notes, 5.125%,
due 02/28/98; proceeds:
$15,375,197............ 11/03/97 5.620 15,368,000
30,000 Repurchase agreement
dated 10/31/97 with
Union Bank of
Switzerland,
collateralized by
$31,146,000 U.S.
Treasury Bonds, 6.000%,
due 02/15/26; proceeds:
$30,014,200............ 11/03/97 5.680 30,000,000
------------
Total Repurchase Agreements (cost --
$46,834,000)....................... 46,834,000
------------
<CAPTION>
NUMBER
OF SHARES
----------
<C> <S> <C> <C> <C>
MONEY MARKET FUNDS -- 4.57%
28,802,771 Liquid Assets Portfolio. 28,802,771
59,146 Prime Portfolio......... 59,146
208,214 TempFund Portfolio...... 208,214
------------
Total Money Market Funds (cost --
$29,070,131)....................... 29,070,131
------------
Total Investment of Cash Collateral
for Securities Loaned (cost --
$75,904,131)....................... 75,904,131
------------
Total Investments (cost --
$705,761,304) -- 110.70%........... 705,207,330
Liabilities in excess of assets --
(10.70%)........................... (68,146,780)
------------
Net Assets -- 100.00%............... $637,060,550
============
</TABLE>
- -------
NOTE:THE PORTFOLIO OF INVESTMENTS IS LISTED BY THE ISSUER'S COUNTRY OF ORIGIN
*IN LOCAL CURRENCY UNLESS OTHERWISE INDICATED
(1)SECURITY, OR PORTION THEREOF, WAS ON LOAN AT OCTOBER 31, 1997
(2)ILLIQUID SECURITIES REPRESENT 1.01% OF NET ASSETS
#REFLECTS RATE AT OCTOBER 31, 1997 ON VARIABLE RATE INSTRUMENTS
##REFLECTS RATE AT OCTOBER 31, 1997 ON STEP COUPON RATE INSTRUMENTS
PDIPAST DUE INTEREST BOND
10
<PAGE>
PAINEWEBBER GLOBAL INCOME FUND
FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT TO IN EXCHANGE MATURITY APPRECIATION
DELIVER FOR DATES (DEPRECIATION)
-------------- ----------------- -------------------- --------------
<S> <C> <C> <C> <C>
Australian Dollars...... 36,520,000 US$ 26,990,932 11/25/97 to 02/27/98 $ 1,301,687
Australian Dollars...... 20,365,000 US$ 14,826,738 12/10/97 491,471
Australian Dollars...... 9,500,000 US$ 6,852,150 11/03/97 to 03/03/98 162,941
British Pounds.......... 14,360,000 US$ 23,160,940 11/26/97 to 11/28/97 (905,820)
British Pounds.......... 12,672,700 US$ 20,124,248 12/18/97 (1,112,224)
British Pounds.......... 5,940,000 US$ 9,551,520 11/25/97 (413,736)
Danish Kronars.......... 69,421,375 US$ 10,392,421 11/10/97 (186,910)
Danish Kronars.......... 41,078,625 US$ 6,149,495 11/10/97 (110,600)
German Deutschemarks.... 33,140,000 US$ 18,620,593 11/14/97 (596,572)
German Deutschemarks.... 19,330,000 US$ 12,312,886 01/21/98 1,103,840
German Deutschemarks.... 17,532,900 US$ 10,205,413 11/28/97 38,467
Czech Korunas........... 341,380,728 US$ 9,781,772 04/29/98 (521,572)
Italian Lira............ 42,841,000,000 US$ 24,635,423 11/24/97 (655,659)
Italian Lira............ 32,424,000,000 US$ 18,311,299 02/27/98 (807,338)
New Zealand Dollars..... 33,855,000 US$ 21,698,786 12/15/97 to 12/19/97 641,546
New Zealand Dollars..... 18,255,000 US$ 11,664,945 11/13/97 309,320
New Zealand Dollars..... 9,620,000 US$ 6,156,800 11/28/97 175,883
Polish Zloties.......... 17,150,000 US$ 4,495,177 03/02/98 (425,913)
Spanish Pesetas......... 1,280,319,750 US$ 9,181,869 02/10/98 395,720
Swedish Kronas.......... 171,381,741 US$ 22,564,826 01/14/98 (279,329)
U.S. Dollars............ 15,718,961 AUD 21,520,000 02/27/98 (585,016)
U.S. Dollars............ 3,855,500 AUD 5,500,000 11/03/97 12,376
U.S. Dollars............ 16,076,829 CAD 22,432,000 11/28/97 (134,738)
U.S. Dollars............ 9,899,685 CZK 341,380,728 04/29/98 403,659
U.S. Dollars............ 28,448,811 DEM 49,640,000 11/14/97 to 11/28/97 350,459
U.S. Dollars............ 27,157,842 DEM 47,842,000 11/20/97 to 11/28/97 596,386
U.S. Dollars............ 11,813,021 DEM 19,330,000 01/21/98 (603,974)
U.S. Dollars............ 6,492,537 DEM 11,310,000 11/14/97 70,796
U.S. Dollars............ 16,466,728 DKK 110,500,000 11/10/97 372,700
U.S. Dollars............ 8,851,829 ESP 1,280,319,750 02/10/98 (65,680)
U.S. Dollars............ 9,596,961 GBP 5,940,000 11/25/97 368,295
U.S. Dollars............ 7,903,913 GBP 4,950,000 12/18/97 400,467
U.S. Dollars............ 11,785,157 ITL20,000,000,000 11/24/97 25,591
U.S. Dollars............ 8,760,457 ITL15,164,000,000 02/27/98 194,452
U.S. Dollars............ 14,300,934 NZD 22,920,000 12/15/97 (29,790)
U.S. Dollars............ 4,670,352 PLN 17,150,000 03/02/98 250,738
U.S. Dollars............ 7,300,971 SEK 57,751,741 01/14/98 384,391
-----------
$ 616,314
===========
</TABLE>
- -------
CURRENCY TYPE ABBREVIATIONS:
AUD - AUSTRALIAN DOLLARS
CAD - CANADIAN DOLLARS
CZK - CZECH KORUNAS
DEM - GERMAN DEUTSCHEMARKS
DKK - DANISH KRONARS
ESP - SPANISH PESETAS
GBP - BRITISH POUNDS
ITL - ITALIAN LIRA
NZD - NEW ZEALAND DOLLARS
PLN - POLISH ZLOTIES
SEK - SWEDISH KRONAS
11
<PAGE>
PAINEWEBBER GLOBAL INCOME FUND
INVESTMENTS BY TYPE OF ISSUER
<TABLE>
<CAPTION>
PERCENT OF NET ASSETS
-------------------------
LONG-TERM SHORT-TERM
---------- -----------
<S> <C> <C>
Government and other public issuers................ 76.99% 0.71%
Repurchase agreements.............................. -- 5.22
Bank and other financial institutions.............. 8.29 5.96
Investments of cash collateral for securities
loaned............................................ -- 11.92
Other.............................................. 1.61 --
---------- ----------
86.89% 23.81%
========== ==========
</TABLE>
See accompanying notes to financial statements
12
<PAGE>
PAINEWEBBER GLOBAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost -- $596,610,173)....... $596,056,199
Repurchase agreements (cost -- $33,247,000)...................... 33,247,000
Investments of Cash Collateral for Securities Loaned (cost --
$75,904,131).................................................... 75,904,131
Receivable for investments and foreign currency sold............. 48,408,115
Interest receivable.............................................. 16,338,857
Unrealized appreciation on forward foreign currency contracts.... 8,051,185
Receivable for shares of beneficial interest sold................ 454,716
Other assets..................................................... 88,175
------------
Total assets..................................................... 778,548,378
------------
LIABILITIES
Collateral for securities loaned................................. 75,904,131
Payable for investments and foreign currency purchased........... 50,690,386
Unrealized depreciation on forward foreign currency contracts.... 7,434,871
Payable for shares of beneficial interest repurchased............ 5,674,178
Payable to affiliate............................................. 630,206
Due to custodian................................................. 227,156
Accrued expenses and other liabilities........................... 926,900
------------
Total liabilities................................................ 141,487,828
------------
NET ASSETS
Beneficial interest -- $0.001 par value (unlimited amount
authorized)..................................................... 664,931,852
Distributions in excess of net investment income................. (5,532,012)
Accumulated net realized losses from investment transactions..... (22,428,899)
Net unrealized appreciation of investments, other assets,
liabilities and forward contracts denominated in foreign
currencies...................................................... 89,609
------------
Net assets....................................................... $637,060,550
============
CLASS A:
Net assets....................................................... $486,717,900
------------
Shares outstanding............................................... 47,412,170
------------
Net asset value and redemption value per share................... $10.27
======
Maximum offering price per share (net asset value plus sales
charge of 4.00% of offering price).............................. $10.70
======
CLASS B:
Net assets....................................................... $103,311,515
------------
Shares outstanding............................................... 10,091,323
------------
Net asset value and offering price per share..................... $10.24
======
CLASS C:
Net assets....................................................... $ 36,935,196
------------
Shares outstanding............................................... 3,600,057
------------
Net asset value and offering price per share..................... $10.26
======
CLASS Y:
Net assets....................................................... $ 10,095,939
------------
Shares outstanding............................................... 982,660
------------
Net asset value, offering price and redemption value per share... $10.27
======
</TABLE>
See accompanying notes to financial statements
13
<PAGE>
PAINEWEBBER GLOBAL INCOME FUND
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
OCTOBER 31, 1997
----------------
<S> <C>
INVESTMENT INCOME:
Interest (net of foreign withholding taxes).................... $ 60,256,069
------------
EXPENSES:
Investment advisory and administration fees.................... 5,683,381
Service fees--Class A.......................................... 1,317,917
Service and distribution fees--Class B......................... 1,847,036
Service and distribution fees--Class C......................... 325,118
Transfer agency and service fees............................... 668,060
Custody and accounting......................................... 465,382
Reports and notices to shareholders............................ 272,558
Legal and audit ............................................... 200,588
State registration fees........................................ 82,934
Trustees' fees................................................. 10,500
Other expenses................................................. 25,172
------------
10,898,646
------------
Net investment income.......................................... 49,357,423
------------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVI-
TIES:
Net realized gains (losses) from:
Investment transactions....................................... 4,199,590
Foreign currency transactions................................. (10,338,511)
Net change in unrealized appreciation/depreciation of:
Investments................................................... (14,031,758)
Other assets, liabilities and forward contracts denominated in
foreign currencies........................................... 2,416,586
------------
NET REALIZED AND UNREALIZED LOSSES FROM INVESTMENT ACTIVITIES.. (17,754,093)
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........... $ 31,603,330
============
</TABLE>
See accompanying notes to financial statements
14
<PAGE>
PAINEWEBBER GLOBAL INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
OCTOBER 31,
-----------------------------
1997 1996
------------- --------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income............................ $ 49,357,423 $ 69,861,996
Net realized gains from investment transactions.. 4,199,590 16,169,953
Net realized gains (losses) from foreign currency
transactions.................................... (10,338,511) 1,471,764
Net change in unrealized
appreciation/depreciation of:
Investments..................................... (14,031,758) (8,780,320)
Other assets, liabilities and forward contracts
denominated in foreign currencies.............. 2,416,586 4,285,697
------------- --------------
Net increase in net assets resulting from
operations...................................... 31,603,330 83,009,090
------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income--Class A.............. (27,840,969) (42,572,977)
From net investment income--Class B.............. (8,831,997) (26,087,043)
From net investment income--Class C.............. (2,128,744) (3,931,619)
From net investment income--Class Y.............. (630,033) (1,138,899)
In excess of net investment income--Class A...... (3,060,693) --
In excess of net investment income--Class B...... (844,584) --
In excess of net investment income--Class C...... (226,669) --
In excess of net investment income--Class Y...... (67,644) --
From paid in capital--Class A.................... (4,640,523) --
From paid in capital--Class B.................... (1,280,531) --
From paid in capital--Class C.................... (343,669) --
From paid in capital--Class Y.................... (102,560) --
------------- --------------
Total dividends and distributions to
shareholders.................................... (49,998,616) (73,730,538)
------------- --------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares............. 24,327,034 15,262,782
Cost of shares repurchased....................... (322,360,553) (385,467,944)
Proceeds from dividends reinvested............... 31,974,549 46,943,399
------------- --------------
Net decrease in net assets from beneficial
interest transactions........................... (266,058,970) (323,261,763)
------------- --------------
Net decrease in net assets....................... (284,454,256) (313,983,211)
NET ASSETS:
Beginning of year................................ 921,514,806 1,235,498,017
------------- --------------
End of year...................................... $ 637,060,550 $ 921,514,806
============= ==============
</TABLE>
See accompanying notes to financial statements
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Investment Series ("Trust") was organized under Massachusetts law
by a Declaration of Trust dated December 22, 1986 and is registered with the
Securities and Exchange Commission under the Investment Company Act of 1940, as
amended, as a non-diversified open-end management investment company. The Trust
currently has one series, PaineWebber Global Income Fund (the "Fund").
Currently, the Fund offers Class A, Class B, Class C and Class Y shares. Each
class represents interests in the same assets of the Fund, and the classes are
identical except for differences in their sales charge structure, ongoing serv-
ice and/or distribution charges, if any, and certain transfer agency and re-
lated expenses. In addition, Class B shares and all corresponding reinvested
dividend shares automatically convert to Class A shares approximately six years
after initial issuance. All classes of shares have equal rights as to voting
privileges except that Class A, Class B and Class C shares each have exclusive
voting rights with respect to their service and/or distribution plan. Class Y
shares have no service or distribution plan.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and assump-
tions that affect the reported amounts and disclosures in the financial state-
ments. Actual results could differ from those estimates. The following is a
summary of significant accounting policies:
Valuation of Investments--Securities which are listed on stock exchanges are
valued at the last sale price on the day the securities are being 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 generally
valued on the exchange designated as the primary market by Mitchell Hutchins
Asset Management Inc. ("Mitchell Hutchins"), a wholly owned asset management
subsidiary of PaineWebber Incorporated ("PaineWebber") and investment advisor,
administrator and distributor of the Fund. Securities traded in the over-the-
counter ("OTC") market and listed on The Nasdaq Stock Market, Inc. ("Nasdaq")
are valued at the last available sales price, or last bid price available if no
sales occur on Nasdaq prior to the time of valuation; other OTC securities are
valued at the last bid price available in the OTC market prior to the time of
valuation (other than short-term investments that mature in sixty days or
less). The amortized cost method of valuation generally is used to value short-
term debt instruments with sixty days or less remaining to maturity. Securities
and assets for which market quotations are not readily available (including re-
stricted and/or illiquid securities subject to limitations as to their sale)
are valued at fair value as determined in good faith by a management committee
under the direction of the Trust's board of trustees. All investments quoted in
foreign currencies will be valued daily in U.S. dollars on the basis of the
foreign currency exchange rates prevailing at the time such valuation is deter-
mined by the Fund's custodian.
Foreign currency exchange rates are generally determined prior to the close of
regular trading on the New York Stock Exchange ("NYSE"). Occasionally events
affecting the value of foreign investments and such exchange rates occur be-
tween the time at which they are determined and the close of the NYSE, which
will not be reflected in the computation of the Fund's net asset value on that
day. If events occur materially affecting the value of such securities or cur-
rency exchange rates during such time period, the
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
securities will be valued at their fair value as determined in good faith by or
under the direction of the Trust's board of trustees.
Repurchase Agreements--The Fund's custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a mark-to-market basis to ensure that the value, including ac-
crued interest, is at least equal to the repurchase price. In the event of de-
fault of the obligation to repurchase, the Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation. Under cer-
tain circumstances, in the event of default or bankruptcy by the other party to
the agreement, realization and/or retention of the collateral may be subject to
legal proceedings. The Fund occasionally participates in joint repurchase
agreement transactions with other funds managed by Mitchell Hutchins.
Investment Transactions and Investment Income--Investment transactions are re-
corded on the trade date. Realized gains and losses from investments and for-
eign exchange transactions are calculated using the identified cost method. In-
terest income is recorded on an accrual basis. Discounts are accreted as ad-
justments to interest income and the identified cost of investments.
Income, expenses (excluding class-specific expenses) and realized/unrealized
gains/losses are allocated proportionately to each class of shares based upon
the relative net asset value of outstanding shares (or the value of dividend-
eligible shares, as appropriate) of each class at the beginning of the day (af-
ter adjusting for current capital share activity of the respective classes).
Class specific expenses are charged directly to the applicable class of shares.
Foreign Currency Translation--The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis: (1) Market value of investment securities, other assets
and liabilities--at the exchange rates prevailing at the end of the period; and
(2) Purchases and sales of investment securities, income and expenses--at the
rates of exchange prevailing on the respective dates of such transactions.
Although the net assets and the market values of the Fund are presented at the
foreign exchange rates at the end of the period, the Fund does not generally
isolate the effect of fluctuations in foreign exchange rates from the effect of
the changes in market prices of securities. However, the Fund does isolate the
effect of fluctuations in foreign exchange rates when determining the gain or
loss upon the sale or maturity of foreign currency-denominated debt obligations
pursuant to federal income tax regulations. Certain foreign exchange gains and
losses included in realized and unrealized gains and losses are included in or
are a reduction of ordinary income in accordance with federal income tax regu-
lations.
Forward Foreign Currency Contracts--The Fund may enter into forward foreign
currency exchange contracts ("forward contracts") in connection with planned
purchases or sales of securities or to hedge the U.S. dollar value of portfolio
securities denominated in a particular currency. The Fund may also use forward
currency contracts to enhance income.
The Fund has no specific limitation on the percentage of assets which may be
committed to such contracts. The Fund may enter into forward contracts or main-
tain a net exposure to forward contracts only if (1) the consummation of the
contracts would not obligate the Fund to deliver an amount of
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
foreign currency in excess of the value of the position being hedged by such
contracts or (2) the Fund maintains cash or liquid securities in a segregated
account in an amount not less than the value of its total assets committed to
the consummation of the forward contracts and not covered as provided in (1)
above, as marked-to-market daily.
Risks may arise with respect to entering into forward contracts from the po-
tential inability of counterparties to meet the terms of their forward con-
tracts and from unanticipated movements in the value of foreign currencies rel-
ative to the U.S. dollar.
Fluctuations in the value of forward contracts are recorded for book purposes
as unrealized gains or losses by the Fund. Realized gains and losses include
net gains and losses recognized by the Fund on contracts which have matured.
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 differ-
ences 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
Investing in securities of foreign issuers and currency transactions may in-
volve certain considerations and risks not typically associated with invest-
ments in the United States. These risks include revaluation of currencies, ad-
verse fluctuations in foreign currency values and possible adverse political,
social and economic developments, including those particular to a specific in-
dustry, country or region, which could cause the securities and their markets
to be less liquid and prices more volatile than those of comparable U.S. compa-
nies and U.S. government securities. These risks are greater with respect to
securities of issuers located in emerging market countries in which the Fund is
authorized to invest. The ability of the issuers of debt securities held by the
Fund to meet their obligations may be affected by economic and political devel-
opments particular to a specific industry, country or region.
INVESTMENT ADVISER AND ADMINISTRATOR
The Trust's board of trustees has approved an Investment Advisory and Adminis-
tration Contract ("Advisory Contract") with Mitchell Hutchins, under which
Mitchell Hutchins serves as investment adviser, administrator and distributor
of the Fund. In accordance with the Advisory Contract, the Fund pays Mitchell
Hutchins an investment advisory and administration fee, which is accrued daily
and paid monthly, in accordance with the following schedule:
<TABLE>
<CAPTION>
ANNUAL
AVERAGE DAILY NET ASSETS RATE
- ------------------------ ------
<S> <C>
Up to $500 million...................................................... 0.750%
In excess of $500 million up to $1.0 billion............................ 0.725
In excess of $1.0 billion up to $1.5 billion............................ 0.700
In excess of $1.5 billion up to $2.0 billion............................ 0.675
Over $2.0 billion....................................................... 0.650
</TABLE>
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
At October 31, 1997, the Fund owed Mitchell Hutchins $407,557 in investment
advisory and administration fees.
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of the Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under sepa-
rate plans of service and/or distribution pertaining to the Class A, Class B
and Class C shares, the Fund pays Mitchell Hutchins monthly service fees at the
annual rate of 0.25% of the average daily net assets of Class A, Class B and
Class C shares and monthly distribution fees at the annual rates of 0.75% and
0.50% of the average daily net assets of Class B and Class C shares, respec-
tively. At October 31, 1997, the Fund owed Mitchell Hutchins $217,689 in serv-
ice 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 charge paid by shareholders upon certain redemptions of Class A, Class B
and Class C shares. Mitchell Hutchins has informed the Fund that for the year
ended October 31, 1997, it earned $425,760 in sales charges.
SECURITY LENDING
The Fund may lend up to 33 1/3% of its total assets to qualified institutions.
The loans are secured at all times by cash or U.S. government securities in an
amount at least equal to the market value of the securities loaned, plus ac-
crued interest, determined on a daily basis and adjusted accordingly. The Fund
will regain record ownership of loaned securities to exercise certain benefi-
cial rights, however, the Fund may bear the risk of delay in recovery of, or
even loss of rights in, the securities loaned should the borrower fail finan-
cially. The Fund receives compensation, which is included in interest income,
for lending its securities from interest earned on the cash or U.S. government
securities held as collateral, net of fee rebates paid to the borrower plus
reasonable administrative and custody fees. For the year ended October 31,
1997, PaineWebber earned $26,057 as the Fund's lending agent. At October 31,
1997, the Fund owed PaineWebber $4,960 for security lending.
As of October 31, 1997, the Fund's custodian held cash and/or cash equivalents
having an aggregate value of $75,904,131 as collateral for portfolio securities
loaned having a market value of $71,937,283.
BANK LINE OF CREDIT
The Fund may participate with other funds managed by Mitchell Hutchins in a
$200 million committed credit facility ("Facility") to be utilized for tempo-
rary financing until the settlement of sale or purchase of portfolio securi-
ties, the repurchase or redemption of shares of the Fund at the request of the
shareholders and other temporary or emergency purposes. In connection there-
with, the Fund has agreed to pay a commitment fee, pro rata, based on the rela-
tive asset size of the funds in the Facility. Interest is charged to the Fund
at rates based on prevailing market rates in effect at the time of borrowings.
For the year ended October 31, 1997, the Fund did not borrow under the Facili-
ty.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
TRANSFER AGENCY SERVICE FEES
Prior to August 1, 1997, the Fund paid PaineWebber an annual fee of $4.00 per
active shareholder account for certain services not provided by the Fund's
transfer agent. For these services for the nine months ended July 31, 1997,
PaineWebber earned $189,131 in service fees from the Fund. Subsequent to August
1, 1997, PaineWebber provides transfer agency related services to the Fund pur-
suant to a delegation of authority from PFPC, Inc., the Fund's transfer agent,
and is compensated for these services by PFPC, Inc., not the Fund.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at October 31,
1997 was substantially the same as the cost of securities for financial state-
ment purposes.
At October 31, 1997, the components of the net unrealized depreciation of in-
vestments were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of value over
cost)............................................................ $12,400,816
Gross depreciation (investments having an excess of cost over
value)........................................................... (12,954,790)
-----------
Net unrealized depreciation of investments........................ $ (553,974)
===========
</TABLE>
For the year ended October 31, 1997, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were as follows:
<TABLE>
<S> <C>
Purchases........................................................ $1,183,944,557
Sales............................................................ $1,272,897,735
</TABLE>
FEDERAL TAX STATUS
The Fund intends to distribute substantially all of its taxable 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, by distributing during each calendar year sub-
stantially all of its net investment income, capital gains and certain other
amounts, if any, the Fund intends not to be subject to a federal excise tax.
At October 31, 1997, the Fund had a capital loss carryforward of $22,428,898
available as a reduction, to the extent provided in the regulations, of any fu-
ture net realized capital gains which expires as follows: $6,675,082 in 2002
and $15,753,816 in 2003. To the extent that such losses are used to offset fu-
ture capital gains, it is probable that the gains so offset will not be dis-
tributed.
To reflect reclassifications for the Fund arising from permanent "book/tax"
differences for the year ended October 31, 1997, undistributed net investment
income was increased by $228,362, accumulated net realized losses from invest-
ment transactions were decreased by $10,338,511 and beneficial interest was de-
creased by $10,566,873. Permanent "book/tax" differences are primarily attrib-
utable to the foreign currency gains/losses.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
SHARES OF BENEFICIAL INTEREST
There are an unlimited amount of $0.001 par value shares of beneficial inter-
est 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>
YEAR ENDED
OCTOBER 31,
1997:
Shares sold..... 1,400,652 $ 14,315,313 266,230 $ 2,723,757 528,903 $ 5,416,951 208,671 $ 1,871,013
Shares
repurchased.... (21,782,669) (222,541,051) (7,236,905) (74,001,286) (2,003,842) (20,474,051) (548,721) (5,344,165)
Dividends
reinvested..... 2,177,592 22,246,482 671,598 6,868,908 203,733 2,081,999 75,931 777,160
Shares converted
from Class B to
Class A........ 13,047,410 134,125,097 (13,082,351) (134,125,097) -- -- -- --
----------- ------------- ------------ ------------- ---------- ------------ -------- -----------
Net decrease.... (5,157,015) $ (51,854,159) (19,381,428) $(198,533,718) (1,271,206) $(12,975,101) (264,119) $(2,695,992)
=========== ============= ============ ============= ========== ============ ======== ===========
YEAR ENDED
OCTOBER 31,
1996:
Shares sold..... 489,988 $ 5,054,421 574,699 $ 5,920,154 257,119 $ 2,664,053 157,553 $ 1,624,154
Shares
repurchased.... (20,920,168) (215,703,423) (13,308,674) (136,726,494) (2,581,113) (26,608,504) (623,126) (6,429,523)
Dividends
reinvested..... 2,543,860 26,172,036 1,623,171 16,661,502 291,533 2,997,099 108,008 1,112,762
Shares converted
from Class B to
Class A........ 6,382,186 65,618,202 (6,398,780) (65,618,202) -- -- -- --
----------- ------------- ------------ ------------- ---------- ------------ -------- -----------
Net decrease.... (11,504,134) $(118,858,764) (17,509,584) $(179,763,040) (2,032,461) $(20,947,352) (357,565) $(3,692,607)
=========== ============= ============ ============= ========== ============ ======== ===========
</TABLE>
21
<PAGE>
PAINEWEBBER GLOBAL INCOME FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
YEAR IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
-------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year...... $10.46 $10.35 $ 9.99 $10.97 $10.64
------ ------ ------ ------ ------
Net investment income... 0.69@ 0.72@ 0.77@ 0.72 0.59
Net realized and
unrealized gains
(losses) from
investments and foreign
currency............... (0.19)@ 0.13@ 0.31@ (1.05) 0.68
------ ------ ------ ------ ------
Net increase (decrease)
from investment
transactions........... 0.50 0.85 1.08 (0.33) 1.27
------ ------ ------ ------ ------
Dividends from net
investment income...... (0.54) (0.74) (0.72) (0.33) (0.80)
Distributions from net
realized gains from
investments and foreign
currency transactions.. -- -- -- -- (0.14)
Distributions in excess
of net investment
income................. (0.06) -- -- -- --
Distributions from paid
in capital............. (0.09) -- -- (0.32) --
------ ------ ------ ------ ------
Total dividends and
distributions to
shareholders........... (0.69) (0.74) (0.72) (0.65) (0.94)
------ ------ ------ ------ ------
Net asset value, end of
year................... $10.27 $10.46 $10.35 $ 9.99 $10.97
====== ====== ====== ====== ======
Total investment
return(1).............. 4.99% 8.60% 11.09% (3.10)% 12.41%
====== ====== ====== ====== ======
Ratios/supplemental
data:
Net assets, end of year
(000's)................ $486,718 $549,932 $663,022 $611,855 $648,853
Expenses to average net
assets................. 1.21% 1.27% 1.24%(2) 1.17% 1.32%**
Net investment income to
average net assets..... 6.66% 6.88% 7.47%(2) 6.94% 6.82%**
Portfolio turnover rate. 172% 126% 113% 108% 90%
<CAPTION>
CLASS B
------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year...... $10.44 $10.31 $ 9.96 $10.95 $10.62
------ ------ ------ ------ ------
Net investment income... 0.58@ 0.64@ 0.69@ 0.86 0.78
Net realized and
unrealized gains
(losses) from
investments and foreign
currency............... (0.17)@ 0.15@ 0.30@ (1.28) 0.40
------ ------ ------ ------ ------
Net increase (decrease)
from investment
transactions........... 0.41 0.79 0.99 (0.42) 1.18
------ ------ ------ ------ ------
Dividends from net
investment income...... (0.48) (0.66) (0.64) (0.29) (0.71)
Distributions from net
realized gains from
investments and foreign
currency transactions.. -- -- -- -- (0.14)
Distributions in excess
of net investment
income................. (0.05) -- -- -- --
Distributions from paid
in capital............. (0.08) -- -- (0.28) --
------ ------ ------ ------ ------
Total dividends and
distributions to
shareholders........... (0.61) (0.66) (0.64) (0.57) (0.85)
------ ------ ------ ------ ------
Net asset value, end of
year................... $10.24 $10.44 $10.31 $ 9.96 $10.95
====== ====== ====== ====== ======
Total investment
return(1).............. 4.11% 7.95% 10.24% (3.90)% 11.45%
====== ====== ====== ====== ======
Ratios/supplemental
data:
Net assets, end of year
(000's)................ $103,312 $307,577 $484,534 $725,553 $1,188,890
Expenses to average net
assets................. 1.99% 1.99% 2.00%(2) 1.94% 2.11%**
Net investment income to
average net assets..... 5.83% 6.14% 6.71%(2) 6.05% 5.97%**
Portfolio turnover rate. 172% 126% 113% 108% 90%
</TABLE>
- -------
** INCLUDES 0.15% OF INTEREST EXPENSE RELATED TO THE REVERSE REPURCHASE
AGREEMENT TRANSACTIONS ENTERED INTO DURING THE FISCAL YEAR
@ CALCULATED USING THE AVERAGE SHARES OUTSTANDING FOR THE YEAR
(1)TOTAL INVESTMENT RETURN IS CALCULATED ASSUMING A $1,000 INVESTMENT ON THE
FIRST DAY OF EACH YEAR REPORTED, REINVESTMENT OF ALL DIVIDENDS AND OTHER
DISTRIBUTIONS AT NET ASSET VALUE ON THE PAYABLE DATES AND A SALE AT NET ASSET
VALUE ON THE LAST DAY OF EACH YEAR REPORTED. THE FIGURES DO NOT INCLUDE SALES
CHARGES; RESULTS WOULD BE LOWER FOR CLASS A, CLASS B AND CLASS C SHARES IF
SALES CHARGES WERE INCLUDED.
(2)THESE RATIOS INCLUDE NON-RECURRING ACQUISITION EXPENSES OF 0.04%.
22
<PAGE>
<TABLE>
<CAPTION>
CLASS C CLASS Y
- ------------------------------------------------- -------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31, FOR THE YEARS ENDED OCTOBER 31,
- ------------------------------------------------- -------------------------------------------------------
1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
- ------- ------- ------- ------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$10.45 $10.33 $ 9.98 $10.96 $10.64 $10.49 $10.35 $ 9.99 $10.97 $10.64
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.63@ 0.67@ 0.71@ 0.70 0.68 0.71@ 0.75@ 0.78@ 0.75 0.71
(0.18)@ 0.14@ 0.31@ (1.09) 0.52 (0.21)@ 0.17@ 0.32@ (1.06) 0.58
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.45 0.81 1.02 (0.39) 1.20 0.50 0.92 1.10 (0.31) 1.29
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(0.50) (0.69) (0.67) (0.30) (0.74) (0.56) (0.78) (0.74) (0.34) (0.82)
-- -- -- -- (0.14) -- -- -- -- (0.14)
(0.06) -- -- -- -- (0.06) -- -- -- --
(0.08) -- -- (0.29) -- (0.10) -- -- (0.33) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(0.64) (0.69) (0.67) (0.59) (0.88) (0.72) (0.78) (0.74) (0.67) (0.96)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$10.26 $10.45 $10.33 $ 9.98 $10.96 $10.27 $10.49 $10.35 $ 9.99 $10.97
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
4.48% 8.12% 10.49% (3.56)% 11.64% 5.20% 9.25% 11.39% (2.86)% 12.60%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
$36,935 $50,928 $71,329 $92,480 $135,847 $10,096 $13,077 $16,613 $12,975 $12,043
1.69% 1.73% 1.75%(2) 1.68% 1.83%** 0.94% 0.96% 0.95%(2) 0.88% 1.06%**
6.17% 6.40% 6.96%(2) 6.34% 6.17%** 6.93% 7.19% 7.77%(2) 7.23% 7.00%**
172% 126% 113% 108% 90% 172% 126% 113% 108% 90%
</TABLE>
23
<PAGE>
PAINEWEBBER GLOBAL INCOME FUND
REPORT OF PRICE WATERHOUSE LLP INDEPENDENT AUDITORS
To the Shareholders and Trustees of
PaineWebber Investment Series
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all mate-
rial respects, the financial position of PaineWebber Global Income Fund (a se-
ries of PaineWebber Investment Series and hereafter referred to as the "Fund")
at October 31, 1997, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our au-
dits of these financial statements in accordance with generally accepted audit-
ing standards which require that we plan and perform the audit to obtain rea-
sonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the account-
ing principles used and significant estimates made by management, and evaluat-
ing the overall financial statement presentation. We believe that our audits,
which included confirmation of securities at October 31, 1997 by correspondence
with the custodian and brokers, provide a reasonable basis for the opinion ex-
pressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
December 23, 1997
24
<PAGE>
PAINEWEBBER GLOBAL INCOME FUND
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 the Fund's fiscal year end (October
31, 1997) as to the federal tax status of distributions received by sharehold-
ers during such fiscal year. Accordingly, we are advising you that 87.27% of
the distributions paid during the fiscal year by the Fund were taxable as ordi-
nary income and 12.73% were distributions from paid-in-capital.
Dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need not
be reported as taxable income. Some retirements trusts (e.g., corporate, Keogh
and 403(b) (7) plans) may need this information for their annual information
reporting.
Since the Fund's fiscal year is not the calendar year, another notification
will be sent with respect to calendar year 1997. Such notification, which will
reflect the amount to be used by calendar year taxpayers on their federal in-
come tax returns, will be made in conjunction with Form 1099 DIV and will be
mailed in January 1998. Shareholders are advised to consult their own tax ad-
visers with respect to the tax consequences of their investment in the Fund.
25
