<PAGE>
GLOBAL INCOME FUND
PAINEWEBBER
PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------- -----------------------------
12 MONTHS 6 MONTHS
10/31/96 04/30/96 10/31/95 ENDED 10/31/96 ENDED 10/31/96
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $10.46 $10.24 $10.35 8.60% 5.65%
- ------------------------------------------------------------------------
Class B Shares 10.44 10.21 10.31 7.95 5.37
- ------------------------------------------------------------------------
Class C Shares 10.45 10.23 10.33 8.12 5.39
- ------------------------------------------------------------------------
</TABLE>
Performance Summary Class A Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
----------------
PERIOD CAPITAL GAINS DIVIDENDS PAID FROM TOTAL
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
- -------------------------------------------------------------------------
01/01/96 -
10/31/96 10.44 10.46 -- 0.5956 -- 6.16
- -------------------------------------------------------------------------
Total: $0.3198 $3.4809 $0.3178
- -------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
10/31/96: 48.29%
- -------------------------------------------------------------------------
</TABLE>
Performance Summary Class B Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
----------------
PERIOD CAPITAL GAINS DIVIDENDS PAID FROM TOTAL
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
- -------------------------------------------------------------------------
01/01/96 -
10/31/96 10.41 10.44 -- 0.5312 -- 5.61
- -------------------------------------------------------------------------
Total: $0.6487 $7.4488 $0.2810
- -------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
10/31/96: 139.92%
- -------------------------------------------------------------------------
</TABLE>
Performance Summary Class C Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
----------------
PERIOD CAPITAL GAINS DIVIDENDS PAID FROM TOTAL
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
- -------------------------------------------------------------------------
01/01/96 -
10/31/96 10.42 10.45 -- 0.5524 -- 5.62
- -------------------------------------------------------------------------
Total: $0.3098 $2.6020 $0.2938
- -------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
10/31/96: 29.47%
- -------------------------------------------------------------------------
</TABLE>
/1Figures/assume reinvestment of all dividends and other distributions at net
asset value on the payable dates and do not include sales charges; results
for each class would be lower if sales charges were included.
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, 1996 and since inception, August 26, 1991,
through October 31, 1996, Class Y shares had a total return of 9.25% and
48.92%, respectively. Class Y shares do not have initial or contingent
deferred sales charges or ongoing distribution and service fees.
The data above represents past performance of the Fund's shares, which is no
guarantee of future results. The principal value of an investment in the Fund
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
5
<PAGE>
GLOBAL INCOME FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)* DATES RATES VALUE
---------- -------------------- ----------------- ------------
LONG-TERM DEBT SECURITIES - 81.68%
<C> <S> <C> <C> <C>
AUSTRALIA - 3.47%
New South Wales Treasury
17,100 Corporation............ 12/01/01 12.000% $ 16,290,615
Queensland Treasury
Corporation Global
16,550 Issue.................. 08/15/01 12.000 15,671,564
------------
31,962,179
------------
CANADA - 4.69%
67,638 Ontario Hydro Global.... 04/11/07 to 04/11/11 10.502 to 10.551@ 20,543,341
Province of British
37,025 Columbia Residual...... 01/09/12 9.061 to 9.155@ 8,981,865
US$114,461 Province of Ontario..... 02/21/06 6.000 13,739,830
------------
43,265,036
------------
DENMARK - 3.04%
150,072 Government of Denmark... 05/15/03 to 03/15/06 8.000 28,000,876
------------
GERMANY - 9.85%
Federal Republic of
122,852 Germany................ 07/22/02 to 12/20/02 7.125 to 8.000 90,749,092
------------
IRELAND - 0.56%
3,000 Republic of Ireland..... 11/15/97 11.500 5,145,206
------------
ITALY - 5.09%
67,335,000 Republic of Italy....... 07/15/98 to 04/01/04 8.500 to 10.500 46,863,144
------------
NEW ZEALAND - 5.18%
Government of New
63,590 Zealand................ 02/15/00 to 11/15/06 6.500 to 10.000 47,726,170
------------
SPAIN - 8.05%
8,511,420 Government of Spain..... 08/30/98 to 02/28/01 10.100 to 12.250 74,174,569
------------
UNITED KINGDOM - 8.35%
40,995 United Kingdom Gilt..... 09/30/98 to 02/26/01 10.000 to 15.500 76,983,434
------------
UNITED STATES - 33.40%
The Chase Manhattan
18,000 Corporation............ 12/01/97 7.500 18,295,056
16,000 Clorox Corporation...... 07/15/01 8.800 17,508,272
Ford Motor Credit
15,000 Corporation............ 07/01/01 9.500 16,716,435
United States Treasury
252,042 Notes(1)............... 01/31/98 to 07/15/06 5.625 to 7.000 255,324,870
------------
307,844,633
------------
Total Long-Term Debt Securities
(cost - $738,367,810)............... 752,714,339
------------
</TABLE>
6
<PAGE>
GLOBAL INCOME FUND
PAINEWEBBER
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)* DATES RATES VALUE
------------ -------------------- ----------------- ------------
SHORT-TERM DEBT SECURITIES - 7.62%
<C> <S> <C> <C> <C> <C>
AUSTRALIA - 1.60%
New South Wales Treasury
18,200 Corporation............ 04/01/97 12.500% $ 14,776,376
------------
POLAND - 2.48%
Republic of Poland
67,400 Treasury Bills......... 11/13/96 to 04/23/97 20.100 to 20.906@ 22,827,241
------------
UNITED STATES - 3.54%
General Motors
Acceptance Corporation
10,000 MTN.................... 04/30/97 7.950 10,111,080
United States Treasury
22,500 Notes.................. 12/31/96 7.500 22,584,375
------------
32,695,455
------------
Total Short-Term Debt Securities
(cost - $71,167,818).................. 70,299,072
------------
REPURCHASE AGREEMENTS - 8.26%
36,080 Repurchase agreement
dated 10/31/96 with
Citicorp Securities,
Inc., collateralized by
$36,715,000 U.S.
Treasury Notes, 5.875%
due 04/30/98; proceeds:
$36,085,512............ 11/01/96 5.500 36,080,000
24,210 Repurchase agreement
dated 10/31/96 with
First Chicago Capital
Markets, Inc.,
collateralized by
$24,500,000 U.S.
Treasury Notes, 5.125%
due 11/30/98; proceeds:
$24,213,699............ 11/01/96 5.500 24,210,000
15,790 Repurchase agreement
dated 10/31/96 with
First Chicago Capital
Markets, Inc.,
collateralized by
$16,470,000 U.S.
Treasury Bills, due
04/30/97, proceeds:
$15,792,412............ 11/01/96 5.500 15,790,000
------------
Total Repurchase Agreements (cost -
$76,080,000)......................... 76,080,000
------------
INVESTMENTS OF CASH COLLATERAL FOR
SECURITIES LOANED - 10.82%
U.S. GOVERNMENT AGENCY - 0.98%
9,000 Federal Home Loan Bank.. 11/01/96 5.500@ 9,000,000
------------
NUMBER OF
SHARES (000)
------------
MONEY MARKET FUNDS - 9.84%
35,097 Short Term Investment
Company Liquid Assets
Portfolio.............. 35,097,002
10,199 Short Term Investment
Company Prime
Portfolio.............. 10,198,952
45,356 Temporary Investment
Fund, Inc.............. 45,355,564
------------
90,651,518
------------
Total Investments of Cash Collateral
for Securities Loaned
(cost - $99,651,518)................. 99,651,518
------------
Total Investments (cost -
$985,267,146) - 108.38%............. 998,744,929
Liabilities in excess of other
assets - (8.38%)..................... (77,230,123)
------------
Net Assets - 100.00%.................. $921,514,806
============
</TABLE>
- -------
Note: The Portfolio of Investments is listed by the issuer's country of origin
* In local currency unless otherwise indicated
(1) A portion of security was on loan at October 31, 1996
MTN Medium Term Note
@ Yield to Maturity
7
<PAGE>
GLOBAL INCOME FUND
PAINEWEBBER
FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT TO IN EXCHANGE MATURITY APPRECIATION
DELIVER FOR DATES (DEPRECIATION)
-------------- ------------------ -------------------- --------------
<S> <C> <C> <C> <C>
Australian Dollars...... 42,550,832 US$ 33,554,973 12/23/96 to 01/03/97 $ (140,182)
Australian Dollars...... 33,475,117 US$ 26,373,523 12/20/96 to 01/08/97 (116,935)
Australian Dollars...... 15,307,075 US$ 12,000,747 11/29/96 (129,348)
Australian Dollars...... 12,421,098 US$ 9,812,667 11/04/96 (28,965)
Belgian Francs.......... 634,112,770 US$ 20,790,583 09/30/97 (19,763)
Belgian Francs.......... 610,000,000 US$ 19,871,001 07/14/97 121,664
British Pounds.......... 14,822,000 US$ 23,878,242 11/29/96 (234,454)
British Pounds.......... 12,108,000 US$ 18,319,404 01/13/97 (1,377,752)
Canadian Dollars........ 30,888,000 US$ 22,705,087 03/24/97 (329,329)
Canadian Dollars........ 19,403,600 US$ 14,272,075 02/24/97 (197,965)
Finnish Markka.......... 259,013,906 US$ 57,009,313 12/23/96 to 03/24/97 (186,353)
Finnish Markka.......... 78,668,800 US$ 17,419,632 03/24/97 66,376
German Deutschemarks.... 29,624,000 US$ 19,458,877 12/02/96 (109,126)
Italian Lira............ 33,071,963,766 US$ 21,657,019 11/14/96 to 11/22/96 (147,108)
Netherland Guilders..... 51,226,564 US$ 30,063,236 01/13/97 to 01/15/97 (123,201)
New Zealand Dollars..... 42,825,000 US$ 29,620,460 11/08/96 (656,303)
New Zealand Dollars..... 12,345,000 US$ 8,566,620 12/30/96 to 01/15/97 (112,135)
New Zealand Dollars..... 8,210,000 US$ 5,664,490 01/21/97 (94,747)
Spanish Pesetas......... 2,974,384,375 US$ 23,579,651 11/25/96 295,137
Spanish Pesetas......... 531,921,960 US$ 4,100,539 10/15/97 (37,888)
Spanish Pesetas......... 3,750,000,000 US$ 29,206,666 11/12/96 to 11/20/96 (162,862)
U.S. Dollars............ 20,104,248 AUD 25,490,781 12/23/96 to 01/03/97 95,926
U.S. Dollars............ 12,092,589 AUD 15,307,075 11/29/96 37,505
U.S. Dollars............ 8,536,099 AUD 10,820,117 12/20/96 38,305
U.S. Dollars............ 8,038,238 BFR 247,666,148 07/14/97 (97,032)
U.S. Dollars............ 22,993,091 CAD 30,888,000 03/24/97 41,325
U.S. Dollars............ 14,457,641 CAD 19,403,600 02/24/97 12,399
U.S. Dollars............ 19,520,295 DEM 29,624,000 12/02/96 47,708
U.S. Dollars............ 41,072,315 FIM 190,534,962 12/23/96 to 03/24/97 957,079
U.S. Dollars............ 17,147,017 FIM 78,668,800 03/24/97 206,239
U.S. Dollars............ 9,730,002 GBP 5,994,437 01/13/97 25,949
U.S. Dollars............ 11,908,728 ITL 18,220,950,000 11/22/96 108,414
U.S. Dollars............ 30,153,719 NLG 51,226,564 01/13/97 to 01/15/97 32,717
U.S. Dollars............ 8,444,459 NZD 12,290,000 11/08/96 250,104
-----------
$(1,964,601)
===========
</TABLE>
- -------
CURRENCY TYPE ABBREVIATIONS:
AUD
- Australian Dollars
BFR
- Belgian Francs
CAD
- Canadian Dollars
DEM
- German Deutschemarks
FIM
- Finnish Markka
GBP
- British Pounds
ITL
- Italian Lira
NLG
- Netherland Guilders
NZD
- New Zealand Dollars
<TABLE>
<CAPTION>
PERCENT OF NET ASSETS
INVESTMENTS BY TYPE OF ISSUER -------------------------
LONG-TERM SHORT-TERM
--------- -----------
<S> <C> <C>
Government and other public issuers................ 75.98% 7.51%
Repurchase agreements.............................. -- 8.26
Financial institutions............................. 1.81 1.09
Money market funds................................. -- 9.84
Banks.............................................. 1.99 --
Other.............................................. 1.90 --
---------- ----------
81.68% 26.70%
========== ==========
</TABLE>
See accompanying notes to financial statements
8
<PAGE>
GLOBAL INCOME FUND
PAINEWEBBER
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Assets
Investments in securities, at value (cost - $985,267,146)....... $ 998,744,929
Cash denominated in foreign currencies, at value (cost -
$4,589,465)................................................... 4,787,581
Receivable for investments and foreign currency sold............ 98,708,963
Interest receivable............................................. 17,771,973
Unrealized appreciation on forward foreign currency contracts... 2,298,959
Receivable for shares of beneficial interest sold............... 222,534
Other assets.................................................... 163,946
-------------
Total assets.................................................... 1,122,698,885
-------------
Liabilities
Collateral for securities loaned................................ 99,651,518
Payable for investments and foreign currency purchased.......... 90,766,072
Unrealized depreciation on forward foreign currency contracts... 4,263,560
Payable for shares of beneficial interest repurchased........... 4,267,228
Payable to affiliate............................................ 1,017,852
Accrued expenses and other liabilities.......................... 1,217,849
-------------
Total liabilities............................................... 201,184,079
-------------
Net Assets
Beneficial interest - $0.001 par value (unlimited amount
authorized).................................................... 941,557,695
Distributions in excess of net investment income................ (5,119,181)
Accumulated net realized losses from investments................ (26,628,489)
Net unrealized appreciation of investments, other assets,
liabilities and forward contracts denominated in foreign
currencies..................................................... 11,704,781
-------------
Net assets...................................................... $ 921,514,806
=============
Class A:
Net assets...................................................... $ 549,932,227
-------------
Shares outstanding.............................................. 52,569,185
-------------
Net asset value and redemption value per share.................. $10.46
======
Maximum offering price per share (net asset value plus sales
charge of 4.00% of offering price)............................. $10.90
======
Class B:
Net assets...................................................... $ 307,577,396
-------------
Shares outstanding.............................................. 29,472,751
-------------
Net asset value and offering price per share.................... $10.44
======
Class C:
Net assets...................................................... $ 50,927,689
-------------
Shares outstanding.............................................. 4,871,263
-------------
Net asset value and offering price per share.................... $10.45
======
Class Y:
Net assets...................................................... $ 13,077,494
-------------
Shares outstanding.............................................. 1,246,779
-------------
Net asset value, offering price and redemption value per share.. $10.49
======
</TABLE>
See accompanying notes to financial statements
9
<PAGE>
GLOBAL INCOME FUND
PAINEWEBBER
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Investment income:
Interest (net of foreign withholding taxes)........................ $86,489,494
-----------
Expenses:
Investment advisory and administration fees........................ 7,812,766
Service fees--Class A.............................................. 1,466,720
Service and distribution fees--Class B............................. 4,022,741
Service and distribution fees--Class C............................. 438,497
Transfer agency and service fees................................... 1,040,882
Custody and accounting............................................. 766,973
Reports and notices to shareholders................................ 426,538
Legal and audit fees............................................... 322,140
State registration fees............................................ 120,169
Trustees' fees..................................................... 23,750
Other expenses..................................................... 186,322
-----------
16,627,498
-----------
Net investment income.............................................. 69,861,996
-----------
Realized and unrealized gains (losses) from investment transac-
tions:
Net realized gains from:
Investment transactions........................................... 16,169,953
Foreign currency transactions..................................... 1,471,764
Net change in unrealized appreciation/depreciation of:
Investments....................................................... (8,780,320)
Other assets, liabilities and forward contracts denominated in
foreign currencies............................................... 4,285,697
-----------
Net realized and unrealized gains from investment activities....... 13,147,094
-----------
Net increase in net assets resulting from operations............... $83,009,090
===========
</TABLE>
See accompanying notes to financial statements
10
<PAGE>
GLOBAL INCOME FUND
PAINEWEBBER
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
OCTOBER 31,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
From operations:
Net investment income............................. $ 69,861,996 $ 89,739,771
Net realized gains (losses) from investment
transactions..................................... 16,169,953 (16,067,201)
Net realized gains (losses) from foreign currency
transactions..................................... 1,471,764 (954,350)
Net change in unrealized appreciation/depreciation
of investments................................... (8,780,320) 48,868,150
Net change in unrealized appreciation/depreciation
of other assets, liabilities and forward
contracts denominated in foreign currencies...... 4,285,697 5,687,668
-------------- --------------
Net increase in net assets resulting from
operations....................................... 83,009,090 127,274,038
-------------- --------------
Dividends to shareholders from:
Net investment income--Class A.................... (42,572,977) (40,376,543)
Net investment income--Class B.................... (26,087,043) (35,685,366)
Net investment income--Class C.................... (3,931,619) (4,526,987)
Net investment income--Class Y.................... (1,138,899) (782,694)
-------------- --------------
(73,730,538) (81,371,590)
-------------- --------------
From beneficial interest transactions:
Net proceeds from the sale of shares.............. 15,262,782 24,154,810
Proceeds from shares issued in connection with the
acquisition of Global Income Plus Fund, Inc. .... -- 230,782,432
Proceeds from shares issued in connection with the
acquisition of Mitchell Hutchins/Kidder, Peabody
Global Fixed Income Fund......................... -- 64,455,167
Cost of shares repurchased........................ (385,467,944) (625,332,239)
Proceeds from dividends reinvested................ 46,943,399 52,671,643
-------------- --------------
Net decrease in net assets from beneficial
interest transactions............................ (323,261,763) (253,268,187)
-------------- --------------
Net decrease in net assets........................ (313,983,211) (207,365,739)
Net assets:
Beginning of year................................. 1,235,498,017 1,442,863,756
-------------- --------------
End of year ...................................... $ 921,514,806 $1,235,498,017
============== ==============
</TABLE>
See accompanying notes to financial statements
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
PAINEWEBBER
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 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
service/distribution charges and certain transfer agency 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 voting privileges, except that Class A, Class B
and Class C shares have exclusive voting rights with respect to their
service/distribution plans.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates. The following is
a summary of significant accounting policies:
Valuation of Investments - 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 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 sale price 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 restricted 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
determined by the Fund's custodian.
12
<PAGE>
PAINEWEBBER
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
between 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
currency exchange rates occurred during such time period, the 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
accrued interest, is at least equal to the repurchase price. In the event of
default of the obligation to repurchase, the Fund has the right to liquidate
the collateral and apply the proceeds in satisfaction of the obligation. Under
certain 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
recorded on trade date. Realized gains and losses from sales of investments and
foreign exchange transactions are calculated using the identified cost method.
Interest income is recorded on an accrual basis. Discounts are accreted as
adjustments to interest income and the identified cost of investments.
Income, expenses (excluding class-specific expenses) and realized/unrealized
gains and 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 (after 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.
(2) Purchases and sales of investment securities, income and expenses--at
the rates of exchange prevailing on the respective dates of such
transactions.
13
<PAGE>
PAINEWEBBER
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
regulations.
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 attempt 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
maintain a net exposure to forward contracts only if (1) the consummation of
the contracts would not obligate the Fund to deliver an amount of 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
potential inability of counterparties to meet the terms of their forward
contracts and from unanticipated movements in the value of foreign currencies
relative 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
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification.
14
<PAGE>
PAINEWEBBER
ACQUISITIONS
Acquisition of Global Income Plus Fund, Inc. ("Global Income Plus Fund") - On
June 30, 1995, the Fund acquired all the net assets of Global Income Plus Fund
pursuant to a plan of reorganization approved by the Global Income Plus Fund
shareholders on May 25, 1995. The acquisition was accomplished by a tax-free
exchange of 22,661,242 Class A shares of the Fund for the 26,096,317 shares of
Global Income Plus Fund outstanding on June 30, 1995. Global Income Plus Fund's
net assets at that date, valued at $230,782,432, including accumulated net
realized losses of $5,949,592, net unrealized appreciation on investments of
$5,094,121 and net unrealized foreign exchange losses of $1,867,298, were
combined with those of the Fund.
Acquisition of Mitchell Hutchins/Kidder, Peabody Global Fixed Income Fund
("MH/KP Global Fixed Income Fund") - On October 27, 1995, the Fund acquired
all the net assets of MH/KP Global Fixed Income Fund pursuant to a plan of
reorganization approved by MH/KP Global Fixed Income Fund shareholders on
October 5, 1995. The acquisition was accomplished by tax free exchanges of
4,138,263 Class A, 776,391 Class C (currently Class Y) and 1,332,238 Class D
(currently Class C) shares of the Fund for 3,520,765 Class A, 659,996 Class C
and 1,131,249 Class B shares, respectively, of MH/KP Global Fixed Income Fund
outstanding on October 27, 1995. MH/KP Global Fixed Income Fund's net assets at
that date, valued at $64,455,167, including accumulated net realized losses of
$2,407,711, net unrealized appreciation of investments of $1,481,458 and net
unrealized foreign exchange losses of $165,549, were combined with those of the
Fund.
CONCENTRATION OF RISK
Investing in securities of foreign issuers and currency transactions may
involve certain considerations and risks not typically associated with
investments in the United States. These risks include revaluation of
currencies, adverse fluctuations in foreign currency values and possible
adverse political, social and economic developments, including those particular
to a specific industry, 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. companies 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 developments particular to specific industry, country
or region.
INVESTMENT ADVISER AND ADMINISTRATOR
The Fund has an Investment Advisory and Administration Contract ("Advisory
Contract") with Mitchell Hutchins. In accordance with the Advisory Contract,
the
15
<PAGE>
PAINEWEBBER
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>
At October 31, 1996, the Fund owed Mitchell Hutchins $581,897 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
separate plans of 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, respectively. At
October 31, 1996, the Fund owed Mitchell Hutchins $413,338 in service and
distribution fees.
Mitchell Hutchins also receives the proceeds of the initial sales charges paid
upon the purchase of Class A shares and the contingent deferred sales charge
paid 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, 1996, it
received $1,012,993 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
accrued interest, determined on a daily basis and adjusted accordingly. The
Fund will retain record ownership of loaned securities to exercise certain
beneficial 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
financially. 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. The Fund's lending
agent is PaineWebber, who received no compensation from the Fund for the year
ended October 31, 1996.
16
<PAGE>
PAINEWEBBER
As of October 31, 1996, the Fund's custodian held cash and cash equivalents
having an aggregate value of $99,651,518 as collateral for portfolio securities
loaned having a market value of $97,798,283.
TRANSFER AGENCY SERVICE FEES
The Fund pays PaineWebber an annual fee of $4.00 per active PaineWebber
shareholder account for certain services not provided by the Fund's transfer
agent. For these services for the year ended October 31, 1996, PaineWebber
earned $305,944 from the Fund. At October 31, 1996, the Fund owed PaineWebber
$22,617 for service fees.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at October 31,
1996 was substantially the same as the cost of securities for financial
statement purposes.
At October 31, 1996, the components of the net unrealized appreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of value over
cost)............................................................ $20,401,886
Gross depreciation (investments having an excess of cost over
value)........................................................... (6,924,103)
-----------
Net unrealized appreciation of investments........................ $13,477,783
===========
</TABLE>
For the year ended October 31, 1996, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were as follows:
<TABLE>
<S> <C>
Purchases........................................................ $1,130,321,322
Sales............................................................ $1,347,110,119
</TABLE>
FEDERAL INCOME 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
substantially 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.
To reflect reclassifications arising from permanent "book/tax" differences for
the year ended October 31, 1996, accumulated net realized losses were increased
by $1,471,764 and distributions in excess of net investment income were
decreased by $1,471,764.
17
<PAGE>
PAINEWEBBER
During the current year ended October 31, 1996, the Fund utilized
$15,014,841 of its capital loss carryforward to offset net
realized capital gains for federal income tax purposes. At October
31, 1996, the Fund had a capital loss carryforward of $26,628,489
available as a reduction, to the extent provided in the
regulations, of any future net realized capital gains which
expires as follows: $10,874,673 in 2002 and $15,753,816 in 2003.
To the extent that such losses are used to offset future capital
gains, it is probable that the gains to offset will not be
distributed.
SHARES OF BENEFICIAL INTEREST
There are an unlimited amount of $0.001 par value shares of
beneficial interest authorized. Transactions in shares of
beneficial interest were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
-------------------------- --------------------------- ------------------------ ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------------- ------------ ------------- ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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)
=========== ============= ============ ============= ========== ============ ======== ===========
YEAR ENDED
OCTOBER 31,
1995:
Shares sold..... 769,482 $ 7,829,343 1,097,002 $ 11,102,275 283,304 $ 2,865,085 231,829 $ 2,358,107
Shares issued in
connection with
the acquisition
of:
Global Income
Plus Fund...... 22,661,242 230,782,432 -- -- -- -- -- --
MH/KP Global
Fixed Income
Fund........... 4,138,263 42,716,735 -- -- 1,332,238 13,723,085 776,391 8,015,347
Shares
repurchased.... (32,813,653) (334,286,327) (23,655,674) (239,410,776) (4,310,582) (43,639,719) (779,383) (7,995,417)
Dividends
reinvested..... 2,518,835 25,654,246 2,254,509 22,871,888 330,949 3,362,814 76,872 782,695
Shares converted
from Class B to
Class A........ 5,525,275 55,754,624 (5,541,079) (55,754,624) -- -- -- --
----------- ------------- ------------ ------------- ---------- ------------ -------- -----------
Net increase
(decrease)..... 2,799,444 $ 28,451,053 (25,845,242) $(261,191,237) (2,364,091) $(23,688,735) 305,709 $ 3,160,732
=========== ============= ============ ============= ========== ============ ======== ===========
</TABLE>
18
<PAGE>
[This Page Intentionally Left Blank]
19
<PAGE>
GLOBAL INCOME FUND
PAINEWEBBER
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
-------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 10.35 $ 9.99 $ 10.97 $ 10.64 $ 10.75
-------- -------- -------- -------- --------
Net investment income... 0.72@ 0.77@ 0.72 0.59 0.83
Net realized and
unrealized gains
(losses) from
investments and foreign
currency transactions.. 0.13@ 0.31@ (1.05) 0.68 (0.12)
-------- -------- -------- -------- --------
Total increase
(decrease) from
investment operations.. 0.85 1.08 (0.33) 1.27 0.71
-------- -------- -------- -------- --------
Dividends from net
investment income...... (0.74) (0.72) (0.33) (0.80) (0.64)
Distributions from
realized gains on
investments and foreign
currency transactions.. -- -- -- (0.14) (0.18)
Distributions from paid
in capital............. -- -- (0.32) -- --
-------- -------- -------- -------- --------
Total dividends and
distributions.......... (0.74) (0.72) (0.65) (0.94) (0.82)
-------- -------- -------- -------- --------
Net asset value, end of
period................. $ 10.46 $ 10.35 $ 9.99 $ 10.97 $ 10.64
======== ======== ======== ======== ========
Total investment return
(1).................... 8.60% 11.09% (3.10)% 12.41% 6.70%
======== ======== ======== ======== ========
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $549,932 $663,022 $611,855 $648,853 $107,033
Expenses to average net
assets................. 1.27% 1.24%(2) 1.17% 1.32%** 1.21%
Net investment income to
average net assets..... 6.88% 7.47%(2) 6.94% 6.82%** 7.84%
Portfolio turnover rate. 126% 113% 108% 90% 92%
<CAPTION>
CLASS B
------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ------------ ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 10.31 $ 9.96 $ 10.95 $ 10.62 $ 10.74
---------- ------------ ---------- ------------- -----------
Net investment income... 0.64@ 0.69@ 0.86 0.78 0.94
Net realized and
unrealized gains
(losses) from
investments and foreign
currency transactions.. 0.15@ 0.30@ (1.28) 0.40 (0.32)
---------- ------------ ---------- ------------- -----------
Total increase
(decrease) from
investment operations.. 0.79 0.99 (0.42) 1.18 0.62
---------- ------------ ---------- ------------- -----------
Dividends from net
investment income...... (0.66) (0.64) (0.29) (0.71) (0.56)
Distributions from
realized gains on
investments and foreign
currency transactions.. -- -- -- (0.14) (0.18)
Distributions from paid
in capital............. -- -- (0.28) -- --
---------- ------------ ---------- ------------- -----------
Total dividends and
distributions.......... (0.66) (0.64) (0.57) (0.85) (0.74)
---------- ------------ ---------- ------------- -----------
Net asset value, end of
period................. $ 10.44 $ 10.31 $ 9.96 $ 10.95 $ 10.62
========== ============ ========== ============= ===========
Total investment return
(1).................... 7.95% 10.24% (3.90)% 11.45% 5.93%
========== ============ ========== ============= ===========
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $307,577 $484,534 $725,553 $1,188,890 $1,542,255
Expenses to average net
assets................. 1.99% 2.00%(2) 1.94% 2.11%** 1.98%
Net investment income to
average net assets..... 6.14% 6.71%(2) 6.05% 5.97%** 7.11%
Portfolio turnover rate. 126% 113% 108% 90% 92%
</TABLE>
- -------------
*Annualized
** Includes 0.15% of interest expense related to the reverse repurchase
agreement transactions entered into during the fiscal year
+Commencement of issuance of shares
@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 period reported, reinvestment of all dividends and
distributions at net asset value on the payable dates, and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charges; results for each class would be lower if sales
charges were included. Total investment return information for periods less
than one year has not been annualized.
(2) These ratios include non-recurring acquisition expenses of 0.04%.
20
<PAGE>
GLOBAL INCOME FUND
PAINEWEBBER
<TABLE>
<CAPTION>
CLASS C CLASS Y
------------------------------------------------------------ ------------------------------------------------
FOR THE PERIOD
FOR THE YEARS ENDED OCTOBER 31, JULY 2, 1992+ FOR THE YEARS ENDED OCTOBER 31,
------------------------------------------ TO OCTOBER 31, ------------------------------------------------
1996 1995 1994 1993 1992 1996 1995 1994 1993 1992
------- ------- ------- -------- -------------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 10.33 $ 9.98 $ 10.96 $ 10.64 $ 10.94 $ 10.35 $ 9.99 $ 10.97 $ 10.64 $10.76
------- ------- ------- -------- ------- ------- ------- ------- ------- ------
0.67 @ 0.71@ 0.70 0.68 0.20 0.75@ 0.78@ 0.75 0.71 0.81
0.14@ 0.31@ (1.09) 0.52 (0.13) 0.17@ 0.32@ (1.06) 0.58 (0.08)
------- ------- ------- -------- ------- ------- ------- ------- ------- ------
0.81 1.02 (0.39) 1.20 0.07 0.92 1.10 (0.31) 1.29 0.73
------- ------- ------- -------- ------- ------- ------- ------- ------- ------
(0.69) (0.67) (0.30) (0.74) (0.21) (0.78) (0.74) (0.34) (0.82) (0.67)
-- -- -- (0.14) (0.16) -- -- -- (0.14) (0.18)
-- -- (0.29) -- -- -- -- (0.33) -- --
------- ------- ------- -------- ------- ------- ------- ------- ------- ------
(0.69) (0.67) (0.59) (0.88) (0.37) (0.78) (0.74) (0.67) (0.96) (0.85)
------- ------- ------- -------- ------- ------- ------- ------- ------- ------
$ 10.45 $ 10.33 $ 9.98 $ 10.96 $ 10.64 $ 10.49 $ 10.35 $ 9.99 $ 10.97 $10.64
======= ======= ======= ======== ======= ======= ======= ======= ======= ======
8.12% 10.49% (3.56)% 11.64% 0.61% 9.25% 11.39% (2.86)% 12.60% 6.98%
======= ======= ======= ======== ======= ======= ======= ======= ======= ======
$50,928 $71,329 $92,480 $135,847 $36,598 $13,077 $16,613 $12,975 $12,043 $7,252
1.73% 1.75%(2) 1.68% 1.83%** 1.75%* 0.96% 0.95%(2) 0.88% 1.06%** 0.94%
6.40% 6.96%(2) 6.34% 6.17%** 7.02%* 7.19% 7.77%(2) 7.23% 7.00%** 8.15%
126% 113% 108% 90% 92% 126% 113% 108% 90% 92%
</TABLE>
21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
PAINEWEBBER
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 material
respects, the financial position of PaineWebber Global Income
Fund (a series of PaineWebber Investment Series and hereafter
referred to as the "Fund") at October 31, 1996, 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 audits of these financial statements in
accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain
reasonable 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
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits, which included
confirmation of securities at October 31, 1996 by
correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
December 23, 1996
22
<PAGE>
TAX INFORMATION-(UNAUDITED)
PAINEWEBBER
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, 1996) as to the federal tax status
of distributions received by shareholders during such fiscal
year. Accordingly, we are advising you that all of the
distributions paid during the fiscal year by the Fund were
derived from net investment income and are taxable as ordinary
income.
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 1996.
Such notification, which will reflect the amount to be used by
calendar year taxpayers on their federal income tax returns,
will be made in conjunction with Form 1099 DIV and will be
mailed in January 1997. Shareholders are advised to consult
their own tax advisers with respect to the tax consequences of
their investment in the Fund.
23
