<PAGE>
GLOBAL INCOME PLUS FUND, INC.
COMMON STOCK
Global Income Plus Fund, Inc. ("Fund") is a non-diversified closed-end man-
agement investment company. The Fund's primary investment objective is to
achieve a high level of current income; capital appreciation is a secondary ob-
jective in the selection of investments. The Fund normally invests at least 65%
of its total assets in a combination of foreign and domestic debt securities,
all of which at the time of purchase will be rated AAA or AA by Standard &
Poor's Ratings Group ("S&P"), Aaa or Aa by Moody's Investors Service, Inc.
("Moody's"), comparably rated by another nationally recognized statistical rat-
ing organization ("NRSRO") or, if not rated, judged by Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins") to be of comparable quality. In addition,
up to 35% of the Fund's net assets may be invested in foreign and domestic debt
and convertible securities rated below AA by S&P or Aa by Moody's but rated B-
or better by S&P, B (or b) or better by Moody's, comparably rated by another
NRSRO or, if not rated, judged by Mitchell Hutchins to be of comparable quali-
ty. Debt securities rated below Baa by Moody's and BBB by S&P, commonly re-
ferred to as junk bonds, are deemed by those agencies to be predominantly spec-
ulative with respect to the issuer's capacity to pay interest and repay princi-
pal and to involve major risk exposures to adverse conditions. Debt securities
rated lower than B may include securities that are in default or face the risk
of default with respect to principal or interest. SEE "INVESTMENT OBJECTIVES
AND POLICIES--RISK FACTORS AND OTHER INVESTMENT POLICIES." No assurance can be
given that the Fund will be able to achieve its investment objectives.
The Shares are listed and traded on the New York Stock Exchange, Inc.
("NYSE") under the symbol "GLI". Shares may be offered pursuant to this Pro-
spectus from time to time in order to effect over-the-counter ("OTC") secondary
market sales by PaineWebber Incorporated ("PaineWebber") in its capacity as a
dealer and secondary market-maker at negotiated prices related to prevailing
market prices on the NYSE at the time of sale. The Fund will not receive any
proceeds from the sale of any Shares offered pursuant to this Prospectus. The
closing price for the Shares on the NYSE on February 17, 1995 was $8.125. See
"Trading History".
The Fund's Board of Directors has approved and will submit to the Fund's
shareholders at their annual meeting scheduled for May 25, 1995, a proposed Re-
organization under which the Fund would be merged into, and would become a part
of, PaineWebber Global Income Fund ("Income Fund"), a series of an existing,
open-end management investment company. Under the Reorganization, each of the
Fund's shareholders would receive a number of full and fractional Class A
shares of Income Fund having an aggregate value that, on the effective date of
the Reorganization, is equal to the aggregate net asset value of the sharehold-
er's Shares in the Fund. Following the Reorganization, the Fund would have nei-
ther assets, liabilities nor shareholders, and it would be liquidated as soon
as practicable. See "The Fund" and "General Information--Conversion to Open-End
Fund."
Mitchell Hutchins serves as investment adviser and administrator of the Fund.
This Prospectus concisely sets forth certain information a prospective investor
should know before investing and should be retained for future reference. A
Statement of Additional Information ("SAI"), dated March 1, 1995 has been filed
with the Securities and Exchange Commission and is incorporated by reference
into this Prospectus. A table of contents of the SAI is included as the last
section of this Prospectus. A copy of the SAI can be obtained without charge by
writing to the Fund, by contacting your PaineWebber investment executive or
PaineWebber's correspondent firms or by calling toll-free 1-800-852-4750.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURI-
TIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
The date of this Prospectus is March 1, 1995.
PAINEWEBBER INCORPORATED
<PAGE>
FUND EXPENSES
The following tables are intended to assist Fund investors in understanding
the various direct and indirect costs and expenses associated with investing in
the Fund.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load (as a percentage of offering price)....................... None(1)
Dividend Reinvestment Plan Fees...................................... None
ANNUAL EXPENSES
(as a percentage of net assets attributable to common shares)(2)
Investment Advisory and Administration Fees.......................... 0.85%
Interest Payments on Borrowed Funds.................................. 0.00%
Other Expenses....................................................... 0.25%
----
Total Annual Expenses............................................... 1.10%
</TABLE>
- --------
(1) Prices for Shares traded in the OTC market will reflect ordinary dealer
mark-ups.
(2) See "Management" for additional information. "Other Expenses" have been
estimated based upon expenses actually incurred for the Fund's last fiscal
year. The investment advisory and administration fees payable to Mitchell
Hutchins are higher than those paid by most funds.
EXAMPLE
An investor would directly or indirectly pay the following expenses on a
$1,000 investment in the Fund, assuming (i) a 5% annual return and (ii)
reinvestment of all dividends and other distributions at net asset value:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C>
$11 $35 $61 $134
</TABLE>
THIS EXAMPLE ASSUMES THAT THE PERCENTAGE AMOUNTS LISTED UNDER ANNUAL EXPENSES
REMAIN THE SAME IN THE YEARS SHOWN. THE ABOVE TABLES AND THE ASSUMPTION IN THE
EXAMPLE OF A 5% ANNUAL RETURN ARE REQUIRED BY REGULATIONS OF THE SECURITIES AND
EXCHANGE COMMISSION ("SEC") APPLICABLE TO ALL CLOSED-END INVESTMENT COMPANIES;
THE ASSUMED 5% ANNUAL RETURN IS NOT A PREDICTION OF, AND DOES NOT REPRESENT,
THE PROJECTED OR ACTUAL PERFORMANCE OF THE SHARES. IN ADDITION, WHILE THIS
EXAMPLE ASSUMES REINVESTMENT OF ALL DIVIDENDS AND OTHER DISTRIBUTIONS AT NET
ASSET VALUE, PARTICIPANTS IN THE FUND'S DIVIDEND REINVESTMENT PLAN MAY RECEIVE
SHARES THAT ARE ISSUED BY THE FUND OR THAT ARE PURCHASED BY THE PLAN AGENT AT
PRICES THAT MAY BE HIGHER OR LOWER, RESPECTIVELY, THAN THE NET ASSET VALUE OF
THE SHARES, DEPENDING UPON THE MARKET PRICE FOR THE SHARES AT THE TIME. SEE
"DIVIDENDS AND OTHER DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN."
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OF FUTURE
EXPENSES, AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus.
The Fund................ Global Income Plus Fund, Inc. ("Fund") is a non-di-
versified, closed-end management investment company.
See "The Fund."
The Offering............ Shares of the Fund's common stock ("Shares") may be
offered pursuant to this Prospectus from time to
time in order to effect over-the-counter ("OTC")
secondary market sales by PaineWebber Incorporated
("PaineWebber") in its capacity as a dealer and sec-
ondary market-maker at negotiated prices related to
prevailing market prices on the New York Stock Ex-
change, Inc. ("NYSE") at the time of sale. The
Shares are listed and traded on the NYSE under the
symbol "GLI". See "The Offering" and "Trading Histo-
ry."
Proposed On February 15, 1995, the Fund's board of directors
Reorganization......... approved, and determined to submit to the Fund's
shareholders for a vote at their annual meeting
scheduled for May 25, 1995, a proposed reorganiza-
tion ("Reorganization") under which the Fund would
be merged into, and would become a part of,
PaineWebber Global Income Fund ("Income Fund"), a
series of PaineWebber Investment Series ("Trust"),
an existing, open-end management investment company.
Under the Reorganization, the Trust would acquire
the assets of the Fund in exchange solely for Class
A shares of beneficial interest in Income Fund and
the assumption by Income Fund of the Fund's liabili-
ties. Those shares would then be distributed to
shareholders of the Fund, so that each shareholder
of the Fund would receive a number of full and frac-
tional Class A shares of Income Fund having an ag-
gregate value that, on the effective date of the Re-
organization, is equal to the aggregate net asset
value of the shareholder's Shares in the Fund.
Further information concerning the Reorganization
will be contained in a prospectus/proxy statement
that will be filed with the SEC and will be sent by
the Fund to all of the Fund's shareholders of record
as of April 6, 1995, which has been set as the rec-
ord date for the Fund's annual meeting. See "The
Fund" and "General Information--Conversion to Open-
End Fund."
3
<PAGE>
Investment Objectives
and Policies...........
The Fund's primary investment objective is to achieve
a high level of current income; capital appreciation
is a secondary objective in the selection of invest-
ments. The Fund normally invests at least 65% of its
total assets in a combination of some or all of the
following types of debt securities, all of which at
the time of purchase will be rated AAA or AA by
Standard & Poor's Ratings Group ("S&P"), Aaa or Aa
by Moody's Investors Service, Inc. ("Moody's"), com-
parably rated by another nationally recognized sta-
tistical rating organization ("NRSRO") or, if not
rated, judged by Mitchell Hutchins Asset Management
Inc. ("Mitchell Hutchins") to be of comparable qual-
ity: (1) debt securities issued or guaranteed by
foreign governments, their agencies, instrumentali-
ties and political subdivisions; (2) U.S. or foreign
corporate debt securities, including commercial pa-
per; (3) debt obligations of banks and bank holding
companies; (4) debt securities issued or guaranteed
by supranational organizations; (5) securities is-
sued or guaranteed by the U.S. government, its agen-
cies and instrumentalities; and (6) repurchase
agreements relating to any of the foregoing.
For purposes of the foregoing 65% investment policy,
the Fund invests in debt securities, denominated in
foreign currencies or U.S. dollars, of issuers lo-
cated in at least three of the following countries:
Australia, Austria, Belgium, Canada, Denmark, Fin-
land, France, Germany, Hong Kong, Ireland, Italy,
Japan, the Netherlands, New Zealand, Norway, Portu-
gal, Singapore, Spain, Sweden, Switzerland, Thai-
land, the United Kingdom and the United States. No
more than 40% of the Fund's assets normally will be
invested in securities of issuers located in any one
country.
Up to 35% of the Fund's net assets may be invested in
foreign and domestic debt and convertible securities
of U.S. and foreign issuers rated below AA by S&P or
Aa by Moody's but rated B- or better by S&P, B (or
b) or better by Moody's, comparably rated by another
NRSRO or, if not rated, judged by Mitchell Hutchins
to be of comparable quality. At least 65% of the
Fund's total assets normally will be invested in in-
come producing securities.
The Fund also may invest in preferred stock, and it
may purchase equity securities, including common
stocks, warrants and
4
<PAGE>
rights, when attached to fixed income securities or
as part of a unit including fixed income securities,
or in connection with a conversion or exchange of
fixed income securities. During unusual market con-
ditions, the Fund temporarily may hold cash (U.S.
dollars or foreign currencies) and temporarily may
invest any portion or all of its assets in money
market instruments of U.S. or foreign issuers. The
Fund may engage in certain options strategies to at-
tempt to enhance income and may engage in certain
options, futures, foreign currency and interest rate
protection transactions to attempt to hedge against
the overall level of risk associated with its in-
vestments. See "Investment Objectives and Policies."
Investment Adviser...... Mitchell Hutchins, a wholly owned subsidiary of
PaineWebber, serves as the Fund's investment adviser
and administrator. Mitchell Hutchins provides in-
vestment advisory and portfolio management services
to investment companies, pension funds and other in-
stitutional, corporate and individual clients. The
Fund pays Mitchell Hutchins, as investment adviser
and administrator, a fee, calculated and paid month-
ly, in an amount equal to the annualized rate of
.85% of the Fund's average weekly net assets. This
fee is greater than that paid by most funds. See
"Management."
Dividends and Other
Distributions..........
The Fund declares and pays quarterly dividends from
its net investment income each April, July, October
and December. In addition, the Fund may (but is not
required to) distribute with its first three quar-
terly dividends in each fiscal year all or a portion
of any realized net gains from foreign currency
transactions and net short-term capital gain, if
any. The Fund distributes annually to its sharehold-
ers substantially all of its realized net capital
gain (the excess of net long-term capital gain over
net short-term capital loss) and any undistributed
realized net gains from foreign currency transac-
tions and net short-term capital gain. The Fund may
make additional distributions if necessary to avoid
a 4% excise tax on certain undistributed income and
capital gain. See "Dividends and Other Distribu-
tions; Dividend Reinvestment Plan" and "Taxes."
Dividend Reinvestment
Plan...................
The Fund has established a Dividend Reinvestment Plan
("Plan"), under which all dividends and other dis-
tributions to shareholders whose Shares are regis-
tered in their own names
5
<PAGE>
or in the name of PaineWebber (or its nominee) are
automatically reinvested in additional Shares, un-
less such shareholders elect to receive cash. Shares
acquired under the Plan may be issued by the Fund or
may be purchased in the open market, on the NYSE or
otherwise, at prices that may be higher or lower,
respectively, than the net asset value of the
Shares, depending upon the market price for the
Shares at the time. Shareholders whose Shares are
held in the name of a broker or nominee other than
PaineWebber or its nominee should contact such bro-
ker or nominee to determine whether, or how, they
may participate in the Plan. See "Dividends and
Other Distributions; Dividend Reinvestment Plan."
Conversion to Open-End
Fund...................
In recognition of the possibility that the Shares
might trade at a discount to net asset value and
that any such discount may not be in the interest of
shareholders, the Fund's board of directors, as a
matter of policy, annually considers, in consulta-
tion with Mitchell Hutchins, the possibility of tak-
ing action to attempt to reduce or eliminate any
discount. At its November, 1994 meeting, the board
of directors, acting upon a recommendation from
Mitchell Hutchins, determined that it would recom-
mend to the Fund's shareholders that the Fund be
converted to an open-end investment company. The
board's decision was made in light of the market
discount at which the Shares had been trading, and
the conclusion of Mitchell Hutchins that the Fund's
investment policies and the nature of its portfolio
would be compatible with operating the Fund in open-
end form. At its meeting on February 15, 1995, the
board of directors approved a recommendation from
Mitchell Hutchins that the conversion of the Fund to
an open-end investment company be implemented by
means of the Reorganization. The Fund's shareholders
will be asked to vote on the Reorganization at their
annual meeting to be held on May 25, 1995. Approval
of the Reorganization will require the approval of a
majority of the Fund's outstanding shares. If ap-
proved, it is anticipated that the Reorganization
would become effective on or about June 30, 1995.
See "Trading History", "The Fund" and "General In-
formation--Conversion to Open-End Fund."
Risk Factors............ Foreign Securities. Investments in foreign securities
involve risks relating to political and economic de-
velopments abroad, as well as those that result from
the differences between the
6
<PAGE>
regulations to which U.S. and foreign issuers are
subject. These risks may include expropriation, con-
fiscatory taxation, withholding taxes on interest
and dividends, limitations on the use or transfer of
Fund assets, difficulty in obtaining or enforcing a
court judgment abroad, restrictions on the exchange
of currencies and political or social instability or
diplomatic developments. Moreover, individual for-
eign economies may differ favorably or unfavorably
from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance
of payments positions. Securities of many foreign
issuers may be less liquid and their prices more
volatile than those of securities of comparable U.S.
issuers.
Additionally, because foreign securities ordinarily
will be denominated in currencies other than the
U.S. dollar (as are some securities of U.S. is-
suers), changes in foreign currency exchange rates
will affect the Fund's net asset value, the value of
interest and dividends earned, gains and losses re-
alized on the sale of securities and net investment
income to be distributed to shareholders by the
Fund. If the value of a foreign currency rises
against the U.S. dollar, the value of Fund assets
denominated in such currency will increase; corre-
spondingly, if the value of a foreign currency de-
clines against the U.S. dollar, the value of Fund
assets denominated in such currency will decrease.
The exchange rates between the U.S. dollar and other
currencies are determined by supply and demand in
the currency exchange markets, international bal-
ances of payments, speculation and other economic
and political conditions. In addition, some foreign
currency values may be volatile, and there is the
possibility of governmental controls on currency ex-
change or governmental intervention in the currency
markets. Foreign security trading practices, includ-
ing those involving securities settlement where Fund
assets may be released prior to receipt of payment,
may expose the Fund to increased risk in the event
of a failed trade or the insolvency of a foreign
broker-dealer. Any of these factors could adversely
affect the Fund.
Foreign Government Securities. Investments in foreign
government debt securities involve special risks.
The issuer of the debt or the governmental authori-
ties that control the repayment of the debt may be
unable or unwilling to pay interest or repay princi-
pal when due in accordance with the terms of such
debt,
7
<PAGE>
and the Fund may have limited legal recourse in the
event of default. Foreign government debt securities
differ from debt obligations issued by private enti-
ties in that, generally, remedies for defaults must
be pursued in the courts of the defaulting party.
Legal recourse is therefore somewhat limited. Polit-
ical conditions, especially a sovereign entity's
willingness to meet the terms of its debt obliga-
tions, are of considerable significance. Also, there
can be no assurance that the holders of commercial
bank loans to the same sovereign entity may not con-
test payments to the holders of government debt se-
curities in the event of default under commercial
bank loan agreements.
Lower Grade Debt Securities. The Fund may invest up
to 35% of its net assets in debt securities rated as
low as B- by S&P, B (or b) by Moody's or comparably
rated by another NRSRO. These securities are deemed
by those agencies to be predominantly speculative
with respect to the issuer's capacity to pay inter-
est and repay principal and to involve major risk
exposures to adverse conditions. Lower grade securi-
ties, commonly known as junk bonds, involve higher
risks, in that they are especially subject to ad-
verse changes in general economic conditions and in
the industries in which the issuers are engaged, to
changes in the financial condition of the issuers
and to price fluctuations in response to changes in
interest rates.
Zero Coupon Securities. The Fund may invest in "zero
coupon" and other securities of governmental or pri-
vate issuers that are issued with original issue
discount. Zero coupon securities pay no cash inter-
est to their holders prior to maturity. Although the
Fund will receive no payments on its zero coupon se-
curities prior to their maturity or disposition, it
will have income attributable to such securities
each year it holds them, and it will be required, in
order to maintain its desired tax treatment, to in-
clude in its dividend distributions the income at-
tributable to its zero coupon securities. The Fund
might be required to liquidate portfolio securities
at a time that it otherwise would not have done so
in order to make such distributions.
Illiquid Securities. The Fund may invest up to 25% of
the Fund's total assets in illiquid securities. The
Fund may not be readily able to dispose of such se-
curities at an amount that approximates that at
which the Fund has valued them and would have to
sell other investments if necessary to raise cash to
meet
8
<PAGE>
its obligations. The term "illiquid securities" for
this purpose means securities that cannot be dis-
posed of within seven days in the ordinary course of
business at approximately the amount at which the
Fund has valued the securities.
Hedging and Related Income Strategies. The Fund may
use hedging and related income strategies, including
the use of options, futures contracts, forward cur-
rency contracts and interest rate protection trans-
actions. Such strategies involve certain special
risks, including (1) dependence on Mitchell
Hutchins' ability to predict movements in the prices
of individual securities, fluctuations in the gen-
eral securities markets for market sectors and move-
ments in currency markets; (2) imperfect correlation
between movements in the price of options, curren-
cies, futures contracts or options thereon and move-
ments in the price of the securities or currencies
hedged or used for cover; (3) the fact that skills
and techniques needed to trade options, futures con-
tracts and options thereon or to use forward cur-
rency contracts are different from those needed to
select the securities in which the Fund invests; (4)
lack of assurance that a liquid secondary market
will exist for any particular option, futures con-
tract or option thereon at any particular time; (5)
possible impediments to effective portfolio manage-
ment or the ability to meet current obligations
caused by the segregation of a large percentage of
the Fund's assets to cover its obligations; and (6)
the possible need to defer closing out certain op-
tions, futures contracts and options thereon in or-
der to continue to qualify for the beneficial tax
treatment afforded "regulated investment companies"
under the Internal Revenue Code. In the event that
the anticipated change in the price of the securi-
ties or currencies that are the subject of such a
strategy does not occur, it may be that the Fund
would have been in a better position had it not used
such a strategy at all. The Fund may enter into op-
tions, futures contracts and forward currency con-
tracts under which up to 100% of the Fund's portfo-
lio is at risk.
Non-Diversification. The Fund is "non-diversified" as
that term is defined in the Investment Company Act
of 1940 ("1940 Act"). This means that the Fund is
not subject to the limitations relating to holdings
in the securities of a single issuer to which "di-
versified" investment companies are subject under
the 1940 Act. As a result, the Fund may be subject
to greater risk with
9
<PAGE>
respect to its portfolio securities than an invest-
ment company that is "diversified" because changes
in the financial condition or market assessment of a
single issuer may cause greater fluctuations in the
price of the Shares.
Other Factors. The value of the debt securities held
by the Fund, and thus the net asset value of the
Shares, generally will fluctuate inversely with
movements in interest rates. The Fund's participa-
tion in the options and futures markets and in for-
ward currency contracts involves certain investment
risks and transaction costs.
Certain of the investment techniques that the Fund
may employ might expose the Fund to certain risks.
These techniques include purchasing restricted and
illiquid securities, zero coupon securities, mort-
gage-backed securities and when-issued and delayed
delivery securities, entering into repurchase agree-
ments and lending portfolio securities. Investors
should consider the effects of these techniques in
evaluating an investment in the Fund.
Market Prices and Net Asset Value of Shares. Shares
of the Fund and of other closed-end investment com-
panies have in the past frequently traded at a dis-
count to their net asset values. See "Trading Histo-
ry." Whether investors will realize gains or losses
upon the sale of the Shares will not depend upon the
Fund's net asset value, but will depend entirely
upon whether the market price of the Shares at the
time of sale is above or below the original purchase
price for the Shares. The market price of the Shares
is determined by such factors as relative demand for
and supply of such Shares in the market, general
market and economic conditions and other factors be-
yond the control of the Fund. The Shares are de-
signed primarily for long-term investors, and in-
vestors should not view the Fund as a vehicle for
trading purposes.
Anti-Takeover Provisions. The Fund's Articles of In-
corporation contain provisions that could have the
effect of limiting (1) the ability of other entities
or persons to acquire control of the Fund, (2) the
Fund's freedom to engage in certain transactions or
(3) the ability of the Fund's directors or share-
holders to amend the Articles of Incorporation.
These provisions of the Articles of Incorporation
may be regarded as "anti-takeover" provisions. These
provisions could have the effect of depriving
10
<PAGE>
shareholders of opportunities to sell their Shares
at a premium over prevailing market prices by dis-
couraging a third party from seeking to obtain con-
trol of the Fund in a tender offer or similar trans-
action. The overall effect of these provisions is to
render more difficult the accomplishment of a merger
or the assumption of control by a shareholder who
owns beneficially more than 5% of the Shares. They
provide, however, the advantage of potentially re-
quiring persons seeking control of the Fund to nego-
tiate with its management regarding the price to be
paid and facilitating the continuity of the Fund's
management, investment objectives and policies.
See "Investment Objectives and Policies", "Risk Fac-
tors and Other Investment Policies" and "General In-
formation."
Custodian, Transfer
Agent and Registrar....
Brown Brothers Harriman & Co. serves as custodian of
the Fund's assets and employs subcustodians outside
the United States approved by the directors of the
Fund to provide custody of the Fund's foreign as-
sets. PNC Bank, National Association, serves as
transfer and dividend disbursing agent and regis-
trar. See "General Information--Custodian, Transfer
and Dividend Disbursing Agent and Registrar."
11
<PAGE>
FINANCIAL HIGHLIGHTS
The table below provides selected per share data and ratios for one share
for each of the periods shown. This information is supplemented by the
financial statements and accompanying notes appearing in the Fund's SAI, which
can be obtained by shareholders upon request. The financial statements and
notes and the financial information in the table below insofar as it relates
to each of the seven years in the period ended October 31, 1994 have been
audited by Price Waterhouse LLP, independent accountants, whose unqualified
report thereon also is included in the SAI.
<TABLE>
<CAPTION>
FOR THE
PERIOD
FOR THE YEARS ENDED OCTOBER 31, 8/24/88+
------------------------------------------------------------- TO
1994 1993 1992 1991 1990 1989 10/31/88
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 9.86 $ 9.41 $ 9.62 $ 9.86 $ 9.16 $ 9.50 $ 9.30
-------- -------- -------- -------- -------- -------- --------
Income from investment
operations:
Net investment income... 0.69 0.74 0.85 0.91 1.00 0.95 0.11
Net realized and
unrealized gains
(losses) from
investments and foreign
currency transactions.. (0.92) 0.57 (0.20) 0.02 0.67 (0.30) 0.12
-------- -------- -------- -------- -------- -------- --------
Total income (loss) from
investment operations... (0.23) 1.31 0.65 0.93 1.67 0.65 0.23
-------- -------- -------- -------- -------- -------- --------
Less dividends and
distributions from:
Net investment income... (0.44) (0.81) (0.72) (1.17) (0.97) (0.99) --
Net realized gains from
investment and foreign
currency transactions.. (0.19) (0.05) (0.14) -- -- -- --
Paid in capital......... (0.24) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions.......... (0.87) (0.86) (0.86) (1.17) (0.97) (0.99) --
-------- -------- -------- -------- -------- -------- --------
Offering costs charged to
capital................. -- -- -- -- -- -- (0.03)
Net asset value, end of
period.................. $ 8.76 $ 9.86 $ 9.41 $ 9.62 $ 9.86 $ 9.16 $ 9.50
======== ======== ======== ======== ======== ======== ========
Per share market value,
end of period........... $ 7.75 $ 9.50 $ 9.75 $ 9.75 $ 9.375 $ 8.75 $ 10.125
======== ======== ======== ======== ======== ======== ========
Total return (1)......... (9.89)% 6.21% 9.14% 17.35% 24.32% (7.96)% 2.15%
======== ======== ======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of
period (000's)......... $228,666 $257,310 $245,600 $242,205 $243,171 $226,028 $229,522
Expenses to average net
assets................. 1.10% 1.50%** 1.12% 1.13% 1.27% 1.17% 1.40%*
Net investment income to
average
net assets............. 7.39% 7.75%** 8.60% 9.50% 10.61% 10.30% 7.53%*
Portfolio turnover rate. 106.92% 100.78% 85.60% 53.80% 127.84% 179.70% 30.00%
</TABLE>
- --------
(1) Total return on market value is calculated assuming a purchase of one
share at market value on the first day of each period reported,
reinvestment of all dividends and capital gain distributions in accordance
with the Dividend Reinvestment Plan, and a sale at market value on the
last day of each period reported. Total return for periods of less than
one year is not annualized.
* Annualized.
** Includes 0.38% of interest expense relating to reverse repurchase agreement
transactions entered into during the fiscal year.
+ Commencement of operations.
12
<PAGE>
THE FUND
The Fund is a non-diversified closed-end management investment company and
has registered as such under the 1940 Act. The Fund was incorporated under the
laws of the State of Maryland on July 13, 1988 and commenced operations on
August 24, 1988. The Fund's principal office is located at 1285 Avenue of the
Americas, New York, New York 10019, and its telephone number is (212) 713-2000.
See "General Information."
On February 15, 1995, the Fund's board of directors approved, and determined
to submit to the Fund's shareholders for a vote at their annual meeting
scheduled for May 25, 1995, a proposed Reorganization under which the Fund
would be merged into, and would become a part of, Income Fund, a series of the
Trust, which is an existing, open-end management investment company. Under the
Reorganization, the Trust would acquire the assets of the Fund in exchange
solely for Class A shares of beneficial interest in Income Fund and the
assumption by Income Fund of the Fund's liabilities. Those shares would then be
distributed to shareholders of the Fund, so that each shareholder of the Fund
would receive a number of full and fractional Class A shares of Income Fund
having an aggregate value that, on the effective date of the Reorganization, is
equal to the aggregate net asset value of the shareholder's Shares in the Fund.
Following the Reorganization, the Fund would have neither assets, liabilities
nor shareholders, and it would be liquidated as soon as practicable.
Further information concerning the Reorganization will be contained in a
prospectus/proxy statement that will be filed with the SEC and will be sent to
the Fund's shareholders of record as of April 6, 1995, which has been set as
the record date for the Fund's annual meeting. A prospectus and a statement of
additional information for Income Fund have been filed with the SEC and may be
obtained without charge by contacting your PaineWebber investment executive or
PaineWebber's correspondent firms or by calling 1-800-852-4750.
THE OFFERING
The Shares may be offered pursuant to this prospectus from time to time in
order to effect OTC secondary market sales by PaineWebber in its capacity as a
dealer and secondary market-maker at negotiated prices related to prevailing
market prices on the NYSE at the time of sale. Costs incurred in connection
with this offering will be paid by PaineWebber. PaineWebber's principal offices
are located at 1285 Avenue of the Americas, New York, New York 10019. Mitchell
Hutchins is a wholly owned subsidiary of PaineWebber.
USE OF PROCEEDS
The Fund will not receive any proceeds from the sale of any Shares offered
pursuant to this Prospectus. Proceeds received by PaineWebber as a result of
its OTC secondary market sales of the Shares will be utilized by PaineWebber in
connection with its secondary market operations and for general corporate
purposes.
13
<PAGE>
TRADING HISTORY
The Shares are listed and traded on the NYSE under the symbol "GLI". The
following table sets forth for the Shares for each quarterly period for the
fiscal years ended October 31, 1993 and October 31, 1994 and for the most
recent quarter: (a) the per Share high and low sales prices as reported by the
NYSE; (b) the per Share net asset values, based on the Fund's computation as of
4:00 p.m. on the last NYSE business day for the week corresponding to the dates
on which the respective high and low sales prices were recorded; and (c) the
discount or premium to net asset value represented by the high and low sales
prices shown. The range of net asset values and of premiums and discounts for
the Shares during the periods shown may be broader than is shown in this table.
On February 17, 1995, the closing price per Share was $8.125, the Fund's net
asset value per Share was $8.71 and the discount to net asset value per Share
was (6.72)%.
<TABLE>
<CAPTION>
(DISCOUNT) OR
NET ASSET PREMIUM TO NET
SALES PRICES VALUES ASSET VALUE
QUARTER ------------ ----------- ---------------
ENDED HIGH LOW HIGH LOW HIGH LOW
- ------- ------ ----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C>
01/31/93............................. $ 9.75 $8.63 $9.41 $9.40 3.61% (8.24)%
04/30/93............................. 9.88 9.00 9.65 9.32 2.33 (3.43)
07/31/93............................. 9.88 9.38 9.64 9.62 2.44 (2.55)
10/31/93............................. 10.00 9.50 9.74 9.88 2.67 (3.85)
01/31/94............................. 9.75 9.00 9.86 9.96 (1.12) (9.64)
04/30/94............................. 9.75 7.63 9.82 9.3 (0.71) (18.01)
07/31/94............................. 9.00 7.88 9.03 8.95 (0.33) (12.01)
10/31/94............................. 8.38 7.25 8.82 8.86 (5.05) (18.17)
01/31/95............................. 8.38 7.63 8.79 8.77 (4.72) (13.06)
</TABLE>
In light of the market discounts that have resulted from trading in the
Shares, the Fund's board of directors and Mitchell Hutchins have determined to
recommend to the Fund's shareholders that the Fund be converted to an open-end
investment company by means of the Reorganization. See "The Fund" and "General
Information--Conversion to Open-End Fund."
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES AND PRIMARY INVESTMENTS
The Fund's primary investment objective is to achieve a high level of current
income; capital appreciation is a secondary objective in the selection of
investments. There is no assurance that the Fund will achieve these objectives.
The Fund normally invests at least 65% of its total assets in a combination of
some or all of the following types of debt securities, all of which at the time
of purchase will be rated AAA or AA by S&P, Aaa or Aa by Moody's, comparably
rated by another NRSRO or, if not rated, judged by Mitchell Hutchins to be of
comparable quality: (1) debt securities issued or guaranteed by foreign
governments, their agencies, instrumentalities and political subdivisions; (2)
U.S. or foreign corporate debt securities, including commercial paper; (3) debt
obligations of banks and bank holding companies; (4) debt securities issued or
guaranteed by supranational organizations; (5) securities issued or guaranteed
by the U.S. government, its agencies and instrumentalities; and (6) repurchase
agreements relating to any of the foregoing.
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<PAGE>
For purposes of the foregoing 65% investment policy, the Fund invests in debt
securities, denominated in foreign currencies or U.S. dollars, of issuers
located in at least three of the following countries: Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy,
Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain,
Sweden, Switzerland, Thailand, the United Kingdom and the United States. No
more than 40% of the Fund's assets normally will be invested in securities of
issuers located in any one country.
In addition, up to 35% of the Fund's net assets may be invested in foreign
and domestic debt and convertible securities rated below AA by S&P or Aa by
Moody's but rated B- or better by S&P, B (or b) or better by Moody's,
comparably rated by another NRSRO or, if not rated, judged by Mitchell Hutchins
to be of comparable quality. Bonds rated Baa by Moody's or BBB by S&P are
deemed medium grade, but Moody's considers securities rated Baa to have
speculative characteristics. Changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity for such
securities to make principal and interest payments than is the case for higher
grade securities. Debt securities rated below Baa by Moody's and BBB by S&P,
commonly referred to as junk bonds, are deemed by those agencies to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal and to involve major risk exposures to adverse conditions.
Debt securities rated lower than B may include securities that are in default
or face the risk of default with respect to principal or interest. Fundamental
economic strength, credit quality and currency and interest rate trends will be
the principal determinants of the various country and geographic and industry
sector weightings within the Fund's portfolio. The Fund also may invest in
preferred stock when Mitchell Hutchins, weighing the security's status in the
issuer's credit structure, believes the return is attractive relative to
alternative investments. The Fund also may purchase equity securities,
including common stocks, warrants and rights, when attached to fixed income
securities or as part of a unit including fixed income securities, or in
connection with a conversion or exchange of fixed income securities.
At least 65% of the Fund's total assets normally will be invested in income
producing securities.
S&P, Moody's and other NRSROs are private services that provide ratings of
debt securities. Credit ratings attempt to evaluate the safety of principal and
interest payments and do not evaluate the risk of fluctuations in market value.
Even the highest (AAA or equivalent) rating constitutes no assurance that a
security will not fluctuate in value or, in the case of securities purchased at
a premium or a discount, that the Fund will recover the originally anticipated
yield on the security. It should be emphasized that ratings are general and are
not absolute standards of quality. Consequently, debt securities with the same
maturity, interest rate and rating may have different market prices. Also,
rating agencies may fail to make timely changes in credit ratings in response
to subsequent events, so that an issuer's financial condition may be better or
worse than is indicated by its rating.
Subsequent to purchase by the Fund, a security may cease to be rated or its
rating may be reduced below the minimum rating required for purchase by the
Fund. Mitchell Hutchins would consider such an event in determining whether the
Fund should continue to hold the security. In making such determination,
Mitchell Hutchins will consider such factors as its assessment of the credit
quality of the issuer of the security and the price at which the security could
be sold. Mitchell Hutchins will engage in an orderly disposition of downgraded
securities to the extent necessary to
15
<PAGE>
ensure that the Fund's holdings of debt securities rated below Baa by Moody's,
BBB by S&P or comparably rated by another NRSRO do not exceed 35% of the Fund's
net assets. See the SAI for more information about S&P and Moody's ratings.
The value of the debt securities held by the Fund generally will vary
inversely to changes in prevailing interest rates. Thus, if interest rates have
increased from the time a debt security was purchased, such security, if sold,
might be sold at a price less than its cost. Conversely, if interest rates have
declined from the time a debt security was purchased, such security, if sold,
might be sold at a price greater than its cost. In either instance, if the
security were held to maturity, no gain or loss would be realized. The average
maturity of the Fund's portfolio will vary based upon Mitchell Hutchins'
assessment of economic and market conditions.
The Fund may hold up to 35% of its assets in cash (U.S. dollars or foreign
currencies) and money market instruments of U.S. or foreign issuers for liquid-
ity purposes or pending investment, and for defensive purposes may hold up to
all of its assets in such instruments. Money market instruments may include se-
curities issued or guaranteed by the U.S. or foreign governments, their agen-
cies or instrumentalities; high grade commercial paper, including variable rate
securities; bank certificates of deposit; bankers' acceptances; and repurchase
agreements secured by any of the foregoing.
As of the end of its 1994 fiscal year, the Fund had 100% of its dollar
weighted average portfolio in debt securities that received a rating from a
NRSRO. The Fund had the following percentages of its dollar weighted average
portfolio invested in rated securities: AAA/Aaa (including cash items): 70.9%,
AA/Aa: 3.2%, A/A: 0.8%, BBB/Baa: 0%, BB/Ba: 10% and B/B: 15.2%. It should be
noted that this information reflects the average composition of the Fund's
assets as of the end of the 1994 fiscal year and is not necessarily
representative of the Fund's assets as of any other time in the 1994 fiscal
year, the current fiscal year or at any time in the future.
RISK FACTORS AND OTHER INVESTMENT POLICIES
Foreign Securities. The Fund's investment policies are designed to enable it
to capitalize on unique investment opportunities presented throughout the world
and in international financial markets influenced by the increasing
interdependence of economic cycles and currency exchange rates. Over recent
years, debt securities offered by certain foreign governments provided higher
investment returns than U.S. government debt securities. Such returns reflect
interest rates and other market conditions prevailing in those countries and
the effect of gains and losses in the denominated currencies, which have had a
substantial impact on investments in foreign debt securities. The relative
performance of various countries' debt securities markets historically has
reflected wide variations relating to the unique characteristics of each
country's economy. Year-to-year fluctuations in certain markets have been
significant, and negative returns have been experienced in various markets from
time to time. Mitchell Hutchins believes that over time investment in a
portfolio comprised of a combination of U.S. and foreign government and
corporate debt securities is less risky than a portfolio comprised exclusively
of foreign debt securities, and provides investors with the potential to earn a
higher return than a portfolio invested exclusively in U.S. debt securities.
16
<PAGE>
Investments in foreign securities involve risks relating to political and
economic developments abroad, as well as those that result from the differences
between the regulations to which U.S. and foreign issuers are subject. These
risks may include expropriation, confiscatory taxation, withholding taxes on
interest and dividends, limitations on the use or transfer of Fund assets,
difficulty in obtaining or enforcing a court judgment abroad, restrictions on
the exchange of currencies and political or social instability or diplomatic
developments. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments positions. Securities of many foreign issuers may be less
liquid and their prices more volatile than those of securities of comparable
U.S. issuers.
Many of the foreign securities held by the Fund will not be registered with
the SEC, nor will the issuers thereof be subject to SEC reporting requirements.
Accordingly, there may be less publicly available information concerning
foreign issuers of securities held by the Fund than is available concerning
U.S. companies. Foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards or to other regulatory
requirements comparable to those applicable to U.S. companies. Transactions in
foreign securities may be subject to less efficient settlement practices. Legal
remedies for defaults and disputes may have to be pursued in foreign courts,
whose procedures may differ substantially from those of U.S. courts.
Additionally, because foreign securities ordinarily will be denominated in
currencies other than the U.S. dollar (as are some securities of U.S. issuers),
changes in foreign currency exchange rates will affect the Fund's net asset
value, the value of interest and dividends earned, gains and losses realized on
the sale of securities and net investment income to be distributed to
shareholders by the Fund. If the value of a foreign currency rises against the
U.S. dollar, the value of Fund assets denominated in such currency will
increase; correspondingly, if the value of a foreign currency declines against
the U.S. dollar, the value of Fund assets denominated in such currency will
decrease. The exchange rates between the U.S. dollar and other currencies are
determined by supply and demand in the currency exchange markets, international
balances of payments, speculation and other economic and political conditions.
In addition, some foreign currency values may be volatile and there is the
possibility of governmental controls on currency exchange or governmental
intervention in the currency markets. Foreign security trading practices,
including those involving securities settlement where Fund assets may be
released prior to receipt of payment, may expose the Fund to increased risk in
the event of a failed trade or the insolvency of a foreign broker-dealer. Any
of these factors could adversely affect the Fund.
The costs attributable to foreign investing that the Fund must bear
frequently are higher than those attributable to domestic investing. For
example, the cost of maintaining custody of foreign securities exceeds
custodian costs for domestic securities, and transaction and settlement costs
of foreign investing also frequently are higher than those attributable to
domestic investing. Costs associated with the exchange of currencies also make
foreign investing more expensive than domestic investing. Investment income on
certain foreign securities in which the Fund may invest may be subject to
foreign withholding or other government taxes that could reduce the return of
these securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign tax to which the Fund
would be subject.
17
<PAGE>
The Fund may invest in securities of issuers located in emerging market
countries. The risks of investing in foreign securities may be greater with
respect to securities of issuers in, or denominated in the currencies of,
emerging market countries. The economies of emerging market countries generally
are heavily dependent upon international trade and, accordingly, have been and
may continue to be adversely affected by trade barriers, exchange controls,
managed adjustments in relative currency values and other protectionist
measures imposed or negotiated by the countries with which they trade. These
economies also have been and may continue to be adversely affected by economic
conditions in the countries with which they trade. Many emerging market
countries have experienced substantial, and in some periods extremely high,
rates of inflation for many years. Inflation and rapid fluctuations in
inflation rates have had and may continue to have very negative effects on the
economies and securities markets of certain emerging market countries. The
securities markets of emerging market countries are substantially smaller, less
developed, less liquid and more volatile than the securities markets of the
U.S. and other developed countries. Disclosure and regulatory standards in many
respects are less stringent in emerging market countries than in the U.S. and
other major markets. There also may be a lower level of monitoring and
regulation of emerging markets and the activities of investors in such markets,
and enforcement of existing regulations may be extremely limited. Investing in
local markets, particularly in emerging market countries, may require the Fund
to adopt special procedures, seek local government approvals or take other
actions, each of which may involve additional costs to the Fund. Certain
emerging market countries may also restrict investment opportunities in issuers
in industries deemed important to national interests.
In addition to purchasing securities of foreign issuers in foreign markets,
the Fund may invest in American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs") or other securities convertible into securities of
corporations based in foreign countries. These securities may not necessarily
be denominated in the same currency as the securities into which they may be
converted. Generally, ADRs, traded in registered form, are denominated in U.S.
dollars and are designed for use in the U.S. securities markets, and EDRs, in
bearer form, may be denominated in other currencies and are designed for use in
European securities markets. ADRs are receipts typically issued by a U.S. bank
or trust company evidencing ownership of underlying securities. EDRs are
European receipts evidencing a similar arrangement.
U.S. Government Securities. The U.S. government securities in which the Fund
may invest include direct obligations of the U.S. Treasury (such as Treasury
bills, notes and bonds) and obligations issued or guaranteed by U.S. government
agencies and instrumentalities, including securities that are supported by the
full faith and credit of the United States (such as Government National
Mortgage Association ("GNMA") certificates), securities that are supported
primarily or solely by the creditworthiness of the issuer (such as securities
issued by the Resolution Funding Corporation and the Tennessee Valley
Authority) and securities that are supported primarily or solely by specific
pools of assets and the creditworthiness of a U.S. government-related issuer
(such as mortgage-backed securities issued by the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC")).
The yield characteristics of the mortgage-backed securities in which the Fund
may invest differ from those of traditional debt securities. Among the major
differences are that interest and principal
18
<PAGE>
payments on mortgage-backed securities are made more frequently (usually
monthly) and that principal may be prepaid at any time because the underlying
mortgage loans or other obligations generally may be prepaid at any time. As a
result, if the securities are purchased at a premium, a prepayment rate that is
faster than expected will reduce yield to maturity, while a prepayment rate
that is slower than expected will have the opposite effect of increasing yield
to maturity. Conversely, if the securities are purchased at a discount, faster
than expected prepayments will increase, while slower than expected prepayments
will reduce, yield to maturity. Amounts available for reinvestment are likely
to be greater during a period of declining interest rates and, as a result, are
likely to be reinvested at lower interest rates than during periods of rising
interest rates. Accelerated prepayments on securities purchased at a premium
also impose a risk of loss of principal because the premium may not have been
fully amortized at the time the principal is repaid in full. Investments in
derivative securities such as stripped mortgage-backed securities are more
sensitive to changes in prepayment and interest rates, and the market for such
securities is less liquid, than is the case for traditional debt securities and
mortgage-backed securities.
Foreign Government Securities. The foreign government securities in which the
Fund may invest generally consist of obligations supported by national, state
or provincial governments or similar political subdivisions. Foreign government
securities also include debt obligations of supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the "World Bank"), the European Coal and Steel Community, the
Asian Development Bank and the InterAmerican Development Bank.
Foreign government securities also include debt securities of "quasi-
governmental agencies" and debt securities denominated in multinational
currency units of an issuer (including supranational issuers). An example of a
multinational currency unit is the European Currency Unit. A European Currency
Unit represents specified amounts of the currencies of certain member states of
the European Community. Debt securities of quasi-governmental agencies are
issued by entities owned by either a national, state or equivalent government
or are obligations of a political unit that is not backed by the national
government's full faith and credit and general taxing powers. Foreign
government securities also include mortgage-related securities issued or
guaranteed by national, state or provincial governmental instrumentalities
including quasi-governmental agencies.
Investments in foreign government debt securities involve special risks. The
issuer of the debt or the governmental authorities that control the repayment
of the debt may be unable or unwilling to pay interest or repay principal when
due in accordance with the terms of such debt, and the Fund may have limited
legal recourse in the event of default. Foreign government debt securities
differ from debt obligations issued by private entities in that, generally,
remedies for defaults must be pursued in the courts of the defaulting party.
Legal recourse is therefore somewhat limited. Political conditions, especially
a sovereign entity's willingness to meet the terms of its debt obligations, are
of considerable significance. Also, there can be no assurance that the holders
of commercial bank loans to the same sovereign entity may not contest payments
to the holders of government debt securities in the event of default under
commercial bank loan agreements.
19
<PAGE>
A sovereign debtor's willingness or ability to pay interest and repay
principal and in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the sovereign debtor's
policy toward principal international lenders and the political constraints to
which a sovereign debtor may be subject. Increased protectionism on the part of
a country's trading partners, or political changes in those countries, could
also adversely affect its exports. Such events could diminish a country's trade
account surplus, if any, or the credit standing of a particular local
government or agency.
The occurrence of political, social or diplomatic changes in one or more of
the countries issuing sovereign debt could adversely affect the Fund's
investments. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their sovereign debt. While Mitchell Hutchins intends to manage the Fund's
portfolio in a manner that will minimize the exposure to such risks, there can
be no assurance that adverse political changes will not cause the Fund to
suffer a loss of interest or principal on any of its holdings.
The Fund may invest in so-called "Brady Bonds," which are issued as part of a
debt restructuring in which the bonds are issued in exchange for cash and
certain of the country's outstanding commercial bank loans. Brady Bonds have
been issued only recently and do not have a long payment history. Brady Bonds
are issued in various currencies (primarily the U.S. dollar) and are actively
traded in the OTC secondary market. The Fund may invest in either
collateralized or uncollateralized Brady Bonds. U.S. dollar-denominated,
collateralized Brady Bonds, which may be fixed rate par bonds or floating rate
discount bonds, are collateralized in full as to principal by U.S. Treasury
zero coupon bonds having the same maturity as the bonds. Interest payments on
collateralized Brady Bonds generally are collateralized by cash or securities
in an amount that is equal to 12 to 18 months of interest accruals.
Brady Bonds are often viewed as having three or four valuation components:
(i) the collateralized repayment of principal, if any, at final maturity, (ii)
the collateralized interest payments, if any, (iii) the uncollateralized
interest payments, and (iv) any uncollateralized repayment of principal at
maturity (these uncollateralized amounts constitute the "residual risk"). In
light of the residual risk of Brady Bonds and, among other factors, the history
of defaults with respect to commercial bank loans by public and private
entities of countries issuing Brady Bonds, investments in Brady Bonds are to be
viewed as speculative. Many of the Brady Bonds and other Sovereign Debt in
which the Fund invests are likely to be acquired at a discount. See "Taxes" in
the SAI.
Lower Grade Debt Securities. The Fund may invest up to 35% of its net assets
in debt securities rated as low as B- by S&P, B (or b) by Moody's or comparably
rated by another NRSRO. These securities, commonly referred to as junk bonds,
are deemed by those agencies to be predominantly speculative with respect to
the issuer's capacity to pay interest and repay principal and may involve major
risk exposures to adverse conditions. The Fund is also permitted to purchase
debt securities that are not rated but that Mitchell Hutchins determines to be
of comparable quality to that of rated securities in which the Fund may invest.
Such securities are included in the computation of any percentage limitations
applicable to the comparable rated securities.
20
<PAGE>
Lower grade debt securities generally offer a higher current yield than that
available for higher grade issues. However, lower grade securities involve
higher risks, in that they are especially subject to adverse changes in general
economic conditions and in the industries in which the issuers are engaged, to
changes in the financial condition of the issuers and to price fluctuations in
response to changes in interest rates. During periods of economic downturn or
rising interest rates, highly leveraged issuers may experience financial
stress, which could adversely affect their ability to make payments of interest
and principal and increase the possibility of default. In addition, such
issuers may not have more traditional methods of financing available to them
and may be unable to repay debt at maturity by refinancing. The risk of loss
due to default by such issuers is significantly greater because such securities
frequently are unsecured and subordinated to the prior payment of senior
indebtedness. The market for lower grade debt securities has expanded rapidly
in recent years, and its growth paralleled a long economic expansion. In the
past, the prices of many lower grade debt securities declined substantially,
reflecting an expectation that many issuers of such securities might experience
financial difficulties. As a result, the yields on lower grade debt securities
rose dramatically. Such higher yields did not reflect the value of the income
stream that holders of such securities expected, but rather the risk that
holders of such securities could lose a substantial portion of their value as a
result of the issuer's financial restructuring or default. There can be no
assurance that such declines will not recur. The market for lower grade debt
issues generally is thinner and less active than that for higher quality
securities, which may limit the Fund's ability to sell such securities at fair
value in response to changes in the economy or financial markets. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the values and liquidity of lower grade securities,
especially in a thinly traded market.
Zero Coupon Securities. The Fund may invest in "zero coupon" and other
securities of governmental or private issuers that are issued with original
issue discount. Zero coupon securities pay no cash interest to their holders
prior to maturity. Accordingly, such securities usually are issued and traded
at a deep discount from their face or par value and will be subject to greater
fluctuations of market value in response to changing interest rates than
securities of comparable maturities and credit quality that pay cash interest
on a current basis.
The Fund does not anticipate that it will normally hold zero coupon
securities (other than those maturing in one year or less) to maturity. Zero
coupon securities having remaining terms to maturity of more than one year--
will not be used for purposes of satisfying the Fund's policy of investing at
least 65% of its total assets in income producing securities. Federal tax law
requires that a holder of a zero coupon security include in gross income each
year the original issue discount that accrues on the security for the year,
even though the holder receives no interest payment on the security during the
year. Federal tax law also requires that companies, such as the Fund, that seek
to qualify for pass-through treatment as regulated investment companies
distribute each year substantially all of their net investment income,
including non-cash income. Accordingly, although the Fund will receive no
payments on its zero coupon securities prior to their maturity or disposition,
it will have income attributable to such securities, and it will be required,
in order to maintain its desired tax treatment, to include in its dividend
distributions the income attributable to its zero coupon securities. The Fund
might be required to liquidate portfolio securities at a time that it otherwise
would not have done so in order to make such distributions. The Fund will not
be able to purchase additional income-producing securities with cash used to
make such distributions,
21
<PAGE>
and as a result, its current income ultimately may be reduced. See "Dividends
and Other Distributions; Dividend Reinvestment Plan" and "Taxes" below and
"Taxes" in the SAI.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
specified amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities have unique investment
characteristics in that they generally (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities, (2) are
less subject to fluctuation in value than the underlying stock since they have
fixed income characteristics and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases. Most
convertible securities currently are issued by U.S. companies, although a
substantial Eurodollar convertible securities market has developed, and the
markets for convertible securities denominated in local currencies are
increasing.
Non-Diversification. The Fund is "non-diversified" as that term is defined in
the 1940 Act. This means that the Fund is not subject to the limitations
relating to holdings in the securities of a single issuer to which
"diversified" investment companies are subject under the 1940 Act. Mitchell
Hutchins anticipates that typically the Fund's portfolio will include more than
15 issuers; the Fund, however, may be subject to greater risk with respect to
its portfolio securities than an investment company that is "diversified" as
defined in the 1940 Act because changes in the financial condition or market
assessment of a single issuer may cause greater fluctuations in the price of
the Shares.
Market Price of Shares. Shares of the Fund and of other closed-end investment
companies have in the past frequently traded at a discount to their net asset
values. See "Trading History" and "General Information." Whether investors will
realize gains or losses upon the sale of the Shares will not depend upon the
Fund's net asset value, but will depend entirely upon whether the market price
of the Shares at the time of sale is above or below the original purchase price
for the Shares. The market price of the Shares is determined by such factors as
relative demand for and supply of such Shares in the market, general market and
economic conditions and other factors beyond the control of the Fund. The
Shares are designed primarily for long-term investors, and investors should not
view the Fund as a vehicle for trading purposes.
Hedging and Related Income Strategies. The Fund may write covered call and
put options (both exchange-traded and OTC) and purchase call and put options to
attempt to enhance income or to hedge the Fund's portfolio, i.e., to reduce the
overall level of risk that normally would be expected to be associated with its
investments. The Fund may also use hedging strategies to manage its average
duration and other risks of its investments. The Fund also may use forward
currency contracts, write covered call and put options and purchase put and
call options on foreign currencies to hedge against movements in currency
rates. For the same purposes the Fund may purchase and sell foreign currency
futures contracts, write covered call and put options and purchase call and put
options on such futures contracts. The Fund's ability to use these strategies
may be limited by market conditions, regulatory limits and tax considerations.
There can be no assurance that the use of these strategies will succeed. The
SAI contains further information on these strategies. The Fund
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<PAGE>
may enter into options, futures contracts and forward currency contracts under
which up to 100% of the Fund's portfolio is at risk.
The Fund may enter into forward currency contracts for the purchase or sale
of a specified currency at a specified future date either with respect to
specific transactions or with respect to the Fund's portfolio positions. For
example, when Mitchell Hutchins anticipates making a currency exchange
transaction in connection with the purchase or sale of a security, the Fund may
enter into a forward currency contract in order to set the exchange rate at
which the exchange transaction will be made. The Fund also may enter into a
forward currency contract to sell an amount of a foreign currency approximating
the value of some or all of the Fund's securities positions denominated in such
currency. The Fund may use forward contracts in one currency or a basket of
currencies to hedge against fluctuations in the value of another currency when
Mitchell Hutchins anticipates there will be a correlation between the two and
may use forward currency contracts to shift the Fund's exposure to foreign
currency fluctuations from one country to another.
The Fund may enter into interest rate protection transactions, including
interest rate swaps and interest rate caps, collars and floors, for hedging
purposes. For example, the Fund may enter into interest rate protection
transactions to preserve a return or spread on a particular investment or
portion of its portfolio or to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date. The Fund will enter
into interest rate protection transactions only with banks and recognized
securities dealers believed by Mitchell Hutchins to present minimal credit
risks in accordance with guidelines established by the Fund's board of
directors.
Although the Fund might not employ all or any of the foregoing strategies,
its use of options, futures and forward currency contracts would involve
certain investment risks and transaction costs to which it might not be subject
were such strategies not employed. Such risks include (1) dependence on
Mitchell Hutchins' ability to predict movements in the prices of individual
securities, fluctuations in the general securities markets or market sectors
and movements in currency markets; (2) imperfect correlation between movements
in the price of options, currencies, futures contracts or options thereon and
movements in the price of the securities or currencies hedged or used for
cover; (3) the fact that skills and techniques needed to trade options, futures
contracts and options thereon or to use forward currency contracts are
different from those needed to select the securities in which the Fund invests;
(4) lack of assurance that a liquid secondary market will exist for any
particular option, futures contract or option thereon at any particular time;
(5) possible impediments to effective portfolio management or the ability to
meet current obligations caused by the segregation of a large percentage of the
Fund's assets to cover its obligations; and (6) the possible need to defer
closing out certain options, futures contracts and options thereon in order to
continue to qualify for the beneficial tax treatment afforded "regulated
investment companies" under the Internal Revenue Code. In the event that the
anticipated change in the price of the securities or currencies that are the
subject of such a strategy does not occur, it may be that the Fund would have
been in a better position had it not used such a strategy at all. See "Hedging
and Related Income Strategies" in the SAI.
When-Issued and Delayed Delivery Securities. The Fund may purchase securities
on a "when-issued" basis or may purchase or sell securities on a "delayed
delivery" basis, i.e., for issuance or delivery to the Fund later than the
normal settlement date for such securities at a stated price
23
<PAGE>
and yield. The Fund generally would not pay for such securities or start
earning interest on them until they are received. However, when the Fund
undertakes a when-issued or delayed delivery obligation, it immediately assumes
the risks of ownership, including the risk of price fluctuation. Failure of the
issuer to deliver a security purchased by the Fund on a when-issued or delayed
delivery basis may result in the Fund's incurring a loss or missing an
opportunity to make an alternative investment. Depending on market conditions,
the Fund's when-issued and delayed delivery purchase commitments could cause
its net asset value per Share to be more volatile, because such securities may
increase the amount by which the Fund's total assets, including the value of
when-issued and delayed delivery securities held by the Fund, exceed its net
assets.
Illiquid Securities. The Fund may invest up to 25% of the Fund's total assets
in illiquid securities. The Fund may not be able readily to dispose of such
securities at an amount that approximates that at which the Fund has valued
them and would have to sell other investments if necessary to raise cash to
meet its obligations. The term "illiquid securities" for this purpose means
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which the Fund has valued the
securities and includes, among other things, restricted securities other than
Rule 144A securities Mitchell Hutchins has determined are liquid pursuant to
guidelines established by the Fund's board of directors and repurchase
agreements maturing in more than seven days. The Fund may sell OTC options and
segregate assets or cover its obligations in connection therewith. The assets
used as cover for OTC options written by a Fund will be considered illiquid
unless the OTC options are sold to qualified dealers who agree that the Fund
may repurchase any OTC option it writes at a maximum price to be calculated by
a formula set forth in the option agreement. The cover for an OTC option
written subject to this procedure would be considered illiquid only to the
extent that the maximum repurchase price under the formula exceeds the
intrinsic value of the option.
Illiquid restricted securities may be sold only in privately negotiated
transactions or in public offerings with respect to which a registration
statement is in effect under the Securities Act of 1933 ("1933 Act"). Such
securities include those that are subject to restrictions contained in the
securities laws of other countries. However, securities that are freely
marketable in the country where they are principally traded, but would not be
freely marketable in the United States, will not be considered illiquid. Where
registration is required, the Fund may be obligated to pay all or part of the
registration expenses and a considerable period may elapse between the time of
the decision to sell and the time the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, the Fund might obtain a less favorable price
than prevailed when it decided to sell.
In recent years, a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including private
placements, repurchase agreements, commercial paper, foreign securities and
corporate bonds and notes. These instruments are often restricted securities
because the securities are sold in transactions not requiring registration.
Institutional investors generally will not seek to sell these instruments to
the general public, but instead will often depend either on an efficient
institutional market in which such unregistered securities can be readily
resold or on an issuer's ability to honor a demand for repayment. Therefore,
the fact that there are contractual or legal restrictions on resale to the
general public or certain institutions is not dispositive of the liquidity of
such investments.
24
<PAGE>
Repurchase Agreements. Repurchase agreements are transactions in which the
Fund purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated to
the coupon rate or maturity of the purchased securities. Repurchase agreements
carry certain risks not associated with direct investments in securities,
including possible decline in the market value of the underlying securities and
delays and costs to the Fund if the other party to the repurchase agreement
becomes insolvent. The Fund intends to enter into repurchase agreements only
with banks and dealers in transactions believed by Mitchell Hutchins to present
minimum credit risks in accordance with guidelines established by the Fund's
board of directors.
Borrowing and Reverse Repurchase Agreements. The Fund may, if and when market
conditions dictate, borrow money and may enter into reverse repurchase
agreements to finance repurchases of or tender offers for its Shares when the
Fund deems it desirable in order to avoid the untimely disposition of portfolio
securities; provided that the Fund will not purchase investment securities
while borrowings (including reverse repurchase agreements, but excluding
borrowings for the clearance of transactions) in excess of 5% of the value of
the Fund's total assets are outstanding. For these purposes, the Fund may
borrow and enter into reverse repurchase agreements to the maximum extent
permitted under the 1940 Act. The 1940 Act requires the Fund to maintain "asset
coverage" of not less than 300% of its "senior securities representing
indebtedness," as those terms are defined and used in the 1940 Act. In
addition, the Fund may not make any cash distributions to shareholders if,
after the distribution, there would be less than 300% asset coverage of a
senior security representing indebtedness for borrowings (excluding for this
purpose certain evidences of indebtedness made by a bank or other entity and
privately arranged, and not intended to be publicly distributed). The Fund also
may borrow money for temporary or emergency purposes (e.g., clearance of
transactions or payments of dividends to shareholders) in an amount not
exceeding 5% of the value of the Fund's total assets (not including the amount
borrowed). The Fund will not borrow for leverage.
Reverse repurchase agreements involve the sale of securities held by the Fund
to a bank or securities dealer subject to the Fund's agreement to repurchase
the securities at an agreed-upon date and price reflecting a market rate of in-
terest. While a reverse repurchase agreement is outstanding, the Fund will
maintain with its custodian in a segregated account cash, U.S. government secu-
rities or other liquid, high-grade debt obligations, marked to market daily, in
an amount at least equal to the Fund's obligations under the reverse repurchase
agreement.
Portfolio Turnover. The Fund's annual portfolio turnover rate may vary
greatly from year to year and will not be a limiting factor when Mitchell
Hutchins deems portfolio changes appropriate. The portfolio turnover rate is
calculated by dividing the lesser of the Fund's annual sales or purchases of
portfolio securities (exclusive of purchases or sales of securities whose
maturities at the time of acquisition were one year or less) by the monthly
average value of the securities in the portfolio during the year. A high
turnover rate (100% or more) involves correspondingly greater transaction
costs, which will be borne directly by the Fund, and increases the potential
for short-term capital gains and taxes. For the fiscal years ended October 31,
1994 and October 31, 1993, the Fund's portfolio turnover rates were 106.92% and
100.78%, respectively.
25
<PAGE>
Other Information. The Fund's investment objectives and certain investment
limitations as described in the SAI are fundamental policies that may not be
changed without shareholder approval. All other investment policies may be
changed by the Fund's board of directors without shareholder approval.
DIVIDENDS AND OTHER DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN
Dividends and Other Distributions. The Fund declares and pays quarterly
dividends from its net investment income each April, July, October and
December. In addition, the Fund may (but is not required to) distribute with
its first three quarterly dividends in each fiscal year all or a portion of any
realized net gains from foreign currency transactions and net short-term
capital gain, if any. The Fund distributes annually to its shareholders
substantially all of its realized net capital gain and any undistributed
realized net gains from foreign currency transactions and net short-term
capital gain. The Fund may make additional distributions if necessary to avoid
a 4% excise tax on certain undistributed income and capital gain.
The Fund anticipates that a quarterly dividend may, from time to time,
represent more or less than the amount of net investment income earned by the
Fund in the period to which the dividend relates. In the latter case, any
undistributed net investment income, realized net short-term capital gain
and/or realized net gains from foreign currency transactions ("undistributed
income") would be available to be included in future quarterly dividends, which
might otherwise have been reduced by reason of a decrease in the Fund's monthly
net income. Undistributed income will be reflected in the Fund's net asset
value, and correspondingly, distributions from undistributed income will reduce
the Fund's net asset value. The dividend rate on the Shares will be adjusted
from time to time and will vary as a result of the performance of the Fund.
If the Fund's dividends exceed its current and accumulated earnings and
profits in any taxable year, which may result from currency-related losses, its
dividends (to the extent of that excess) may be treated as a return of capital
to shareholders for tax purposes.
The Fund may change its dividend and other distribution policy in the event
the Fund's experience indicates, or the board of directors for any other reason
determines, that changes are desirable.
Dividend Reinvestment Plan. Shareholders may affirmatively elect to receive
all dividends and other distributions in cash paid by check mailed directly to
them by PNC Bank, National Association ("Transfer Agent"), as dividend
disbursing agent. Under the Fund's Dividend Reimbursement Plan ("Plan"),
shareholders not making such election and whose Shares are registered in their
own names or in the name of PaineWebber (or its nominee) will receive all such
distributions in additional Shares. Shareholders whose Shares are held in the
name of a broker or nominee other than PaineWebber (or its nominee) should
contact such broker or nominee to determine whether, or how, they may
participate in the Plan. The ability of such shareholders to participate in the
Plan may change if their Shares are transferred into the name of another broker
or nominee.
26
<PAGE>
The Transfer Agent serves as agent for the shareholders in administering the
Plan. Participants in the Plan will receive dividends and other distributions
in Shares acquired in one of two ways. First, whenever the market price of the
Shares equals or exceeds the net asset value thereof, as determined at the time
the Shares are valued for the purpose of determining the number of Shares
equivalent to the cash distribution, such Shares will be valued at the higher
of net asset value or 95% of the market price and will be issued directly by
the Fund to the Transfer Agent for the participants' accounts. Second, if the
net asset value per Share exceeds the market price of Shares at such time, or
if the Fund should declare a distribution payable only in cash, the Transfer
Agent will, as agent for the participants, receive the distribution in cash and
apply it to the purchase of Shares in the open market, on the NYSE or
elsewhere, for the participants' accounts. If, before the Transfer Agent has
completed its purchases, the market price exceeds the net asset value of a
Share, the average per Share purchase price paid by the Transfer Agent may
exceed the net asset value per Share, resulting in the acquisition of fewer
Shares than if the distribution had been paid in Shares issued by the Fund.
The Transfer Agent will maintain all shareholder accounts in the Plan and
will furnish written confirmations of all transactions in the account,
including information needed by shareholders for personal and tax records.
Shares in the account of each Plan participant will be held by the Transfer
Agent in non-certificated form in the name of the participant, and each
shareholder's proxy will include those Shares purchased pursuant to the Plan.
There is no charge to participants for reinvesting dividends and other
distributions. The Transfer Agent's fees for the handling of reinvestment of
distributions will be paid by the Fund. There will be no brokerage charges with
respect to Shares issued directly by the Fund as a result of dividends or other
distributions payable either in Shares or cash. However, each participant will
pay a pro rata share of brokerage commissions incurred with respect to the
Transfer Agent's open market purchases of Shares in connection with the
reinvestment of distributions.
Shareholders participating in the Plan may receive benefits not available to
shareholders who do not participate in the Plan. If the market price of Shares
is at or above the net asset value thereof, participants in the Plan will
receive newly issued Shares at a discount of up to 5% from the current market
value. If the market price is below the net asset value, and Shares are
purchased in the open market, the brokerage charge allocated to each
participant may be less than the brokerage charge that would be applicable to
the purchase by the participant for his own account of a small amount of Shares
equivalent to the number of Shares purchased for him under the Plan, because
the Transfer Agent will be purchasing Shares for all participants in blocks and
prorating the lower commissions thus available.
The automatic reinvestment of dividends and other distributions will not
relieve participants of any income tax that may be payable on such
distributions. See "Taxes."
All registered shareholders (other than brokers and nominees) are mailed in-
formation regarding the Plan, including a letter of instruction pursuant to
which they may elect to terminate participation in the Plan and receive future
dividends and other distributions in cash. A shareholder who is a participant
in the Plan may withdraw from the Plan at any time. There will be no penalty
for
27
<PAGE>
withdrawal from the Plan, and shareholders who have previously withdrawn from
the Plan may rejoin it at any time. Changes in elections must be made in writ-
ing to the Transfer Agent and should include the shareholder's name and address
as they appear on the share certificate. An election to withdraw from the Plan,
until such election is changed, will be deemed to be an election by a share-
holder to take all subsequent distributions in cash. An election will be effec-
tive only for distri butions declared and having a record date at least ten
days after the date on which the election is received.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan with
respect to any dividend or other distribution if notice of the change is sent
to Plan participants at least 30 days before the record date for such dividend
or other distribution. The Plan also may be amended or terminated by the
Transfer Agent by at least 30 days' written notice to all Plan participants.
All correspondence concerning the Plan should be directed to the Transfer Agent
at PNC Bank, National Association, c/o PFPC Inc., P.O. Box 8950, Wilmington,
Delaware 19899, Attn: Global Income Plus Fund, Inc.
TAXES
The Fund intends to continue to qualify for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code so that it will be
relieved of federal income tax on that part of its investment company taxable
income (consisting generally of net investment income, net short-term capital
gain and net gains from certain foreign currency transactions) and net capital
gain that is distributed to its shareholders.
Dividends from the Fund's investment company taxable income (whether paid in
cash or reinvested in additional Shares) are taxable to its shareholders as
ordinary income to the extent of the Fund's earnings and profits. Distributions
of the Fund's net capital gain (whether paid in cash or reinvested in
additional Shares), when designated as such, are taxable to its shareholders as
long-term capital gain, regardless of how long they have held their Shares. For
a participant in the Plan: (1) if Shares are issued thereunder to the Transfer
Agent (that is, when the market price of Shares equals or exceeds the net asset
value thereof at the time of valuation), the participant will be deemed to have
received a dividend or other distribution in an amount equal to the market
value on the payment date of the Shares credited to him, and (2) if Shares are
purchased in the open market (that is, when the net asset value of Shares
exceeds their market price at the relevant time), the participant will be
treated as having received a distribution in the amount of the cash used to
purchase Shares on his behalf, including a pro rata portion of the brokerage
fees incurred by the Transfer Agent. Distributions by the Fund in any year that
exceed its earnings and profits generally may be applied by a shareholder
against his basis for the Shares and will be taxable to him only to the extent
the distribution to him exceeds that basis. Shareholders who are not liable for
tax on their income and whose Shares are not debt- financed will not be
required to pay tax on dividends or other distributions they receive from the
Fund.
An investor should be aware that if Shares are purchased shortly before the
record date for any dividend or other distribution, the investor will pay full
price for the Shares and could receive some portion of the price back as a
taxable distribution. Dividends and other distributions declared by
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<PAGE>
the Fund in October, November or December of any year and payable to
shareholders of record on a date in any of those months will be deemed to have
been paid by the Fund and received by the shareholders on December 31 of that
year if the distributions are paid by the Fund during the following January.
Accordingly, those distributions will be taxed to shareholders for the year in
which that December 31 falls.
The Fund notifies its shareholders following the end of each calendar year of
the amounts of dividends and capital gain distributions paid (or deemed paid)
that year and of any portion of those dividends that qualifies for the
corporate dividends-received deduction (which is not expected to be
substantial). Under certain circumstances, the notice also will specify the
shareholder's share of any foreign taxes paid by the Fund, in which event the
shareholder would be required to include in his gross income his pro rata share
of those taxes but might be entitled to claim a credit or deduction for those
taxes.
Upon a sale or exchange of Shares (including a sale pursuant to a Share
repurchase or tender offer by the Fund), a shareholder generally will recognize
a taxable gain or loss equal to the difference between his adjusted basis for
the Shares and the amount realized. Any such gain or loss will be treated as a
capital gain or loss if the Shares are capital assets in the shareholder's
hands and will be a long-term capital gain or loss if the Shares have been held
for more than one year, provided that any loss realized on a sale or exchange
of Shares that were held for six months or less also will be treated as long-
term, rather than as short-term, capital loss to the extent of any capital gain
distributions received thereon. A loss realized on a sale or exchange of Shares
will be disallowed to the extent those Shares are replaced by other Shares
within a period of 61 days beginning 30 days before and ending 30 days after
the date of disposition of the Shares (which could occur, for example, as the
result of participation in the Plan). In that event, the basis of the
replacement Shares will be adjusted to reflect the disallowed loss.
The Fund may acquire zero coupon securities issued with original issue
discount. As the holder of such securities, the Fund would have to include in
its gross income the original issue discount that accrues on the securities
during the taxable year, even if it receives no corresponding payment on the
securities during the year. Because the Fund annually must distribute
substantially all of its investment company taxable income, including any
accrued original issue discount, to satisfy the distribution requirement
imposed on RICs and to avoid imposition of a 4% excise tax, the Fund may be
required in a particular year to distribute as a dividend an amount that is
greater than the total amount of cash it actually receives. Those distributions
will be made from the Fund's cash assets or from the proceeds of sales of
portfolio securities, if necessary. The Fund may realize capital gains or
losses from those sales, which would increase or decrease its investment
company taxable income and/or net capital gain. In addition, any such gains may
be realized on the disposition of securities held for less than three months.
Because of the requirement imposed on a RIC that it derive less than 30% of its
gross income each taxable year from the sale or other disposition of securities
or certain options, futures and forward currency contracts held for less than
three months, any such gains would reduce the Fund's ability to sell any such
assets that it might wish to sell in the ordinary course of its portfolio
management.
The Fund is required to withhold 31% of all dividends, capital gain
distributions and repurchase proceeds payable to any individuals and certain
other non-corporate shareholders who
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<PAGE>
do not provide the Fund with a correct taxpayer identification number.
Withholding at that rate from dividends and capital gain distributions also is
required for such shareholders who otherwise are subject to backup withholding.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting the Fund and its shareholders; see the SAI
for a further discussion. There may be other federal, state or local tax
considerations applicable to a particular investor. Prospective shareholders
are therefore urged to consult their tax advisers.
MANAGEMENT
The Fund's board of directors, as part of its overall management
responsibility, oversees various organizations responsible for the Fund's day-
to-day management. The Fund's investment adviser is Mitchell Hutchins, a
Delaware corporation whose principal business address is 1285 Avenue of the
Americas, New York, New York 10019. Mitchell Hutchins is a wholly owned
subsidiary of PaineWebber, which is in turn a wholly owned subsidiary of Paine
Webber Group Inc., a publicly held financial services holding company. Mitchell
Hutchins provides investment management and portfolio management services to
investment companies, pension funds and other institutions, corporate and
individual clients. Mitchell Hutchins is registered with the SEC as a broker-
dealer and investment adviser. As of January 31, 1995, Mitchell Hutchins served
as the investment adviser or sub-adviser to 36 registered investment companies
with 63 separate portfolios and aggregate assets of over $26.2 billion
including approximately $3.0 billion in global funds.
Investment advisory and administrative services are provided to the Fund by
Mitchell Hutchins pursuant to an Investment Advisory and Administration
Contract dated August 24, 1988 ("Advisory Contract"). Pursuant to the Advisory
Contract, Mitchell Hutchins provides a continuous investment program for the
Fund and makes decisions and places orders to buy, sell or hold particular
securities. Mitchell Hutchins also supervises all matters relating to the
operation of the Fund and has obtained for its corporate officers, clerical
staff, office space, office equipment and services. As compensation for its
services, Mitchell Hutchins receives from the Fund a monthly fee at an annual
rate of 0.85% of the Fund's average weekly net assets. This fee is higher than
that paid by most funds.
The Fund incurs various other expenses in its operations, such as custody and
transfer agency fees, brokerage commissions, professional fees, expenses of
board and shareholder meetings, fees and expenses relating to registration of
its Shares, taxes and governmental fees, fees and expenses of the directors,
costs of obtaining insurance, expenses of printing and distributing shareholder
materials and organizational expenses, including costs or losses to any
litigation. For the fiscal year ended October 31, 1994, the Fund's total
expenses, stated as a percentage of average net assets, were 1.10%.
The Fund has no obligation to deal with any broker or group of brokers in the
execution of portfolio transactions. The Fund contemplates that, consistent
with the policy of obtaining the best net results, brokerage transactions may
be conducted through Mitchell Hutchins and its affiliates, including
PaineWebber. The Fund's board of directors has adopted procedures to ensure
that all
30
<PAGE>
brokerage commissions paid to Mitchell Hutchins and its affiliates are fair and
reasonable. See "Investment Advisory Arrangements" and "Brokerage Allocation
and Other Practices" in the SAI.
Stuart Waugh, a managing director and portfolio manager of Mitchell Hutchins
responsible for global fixed income investments and currency trading, is
responsible for day-to-day management of the Fund's portfolio. He also is a
vice president of the Fund and of other investment companies for which Mitchell
Hutchins or PaineWebber serves as investment adviser. Mr. Waugh has been
employed by Mitchell Hutchins as a portfolio manager for the last six years. He
is a portfolio manager of Global High Income Dollar Fund Inc., Strategic Global
Income Fund, Inc., PaineWebber Global Growth and Income Fund, PaineWebber
Global Income Fund, PaineWebber Strategic Income Fund and PaineWebber Series
Trust--Global Income Portfolio with aggregate assets as of January 31, 1995 of
approximately $2 billion. Other members of Mitchell Hutchins' global investing
group provide input on market outlook, interest rate forecasts, investment
research and other considerations pertaining to the Fund's investments.
GENERAL INFORMATION
Organization. The Fund is authorized to issue 100 million Shares of common
stock, $.001 par value. The Shares have no preemptive, conversion, exchange or
redemption rights. Each Share has equal voting, dividend, distribution and
liquidation rights. The Shares outstanding are fully paid and nonassessable.
Shareholders are entitled to one vote per Share. All voting rights for the
election of directors are noncumulative, which means that the holders of more
than 50% of the Shares can elect 100% of the directors then nominated for
election if they choose to do so and, in such event, the holders of the
remaining Shares will not be able to elect any directors. The foregoing
description and the description below under "Certain Anti-Takeover Provisions
of the Articles of Incorporation" are subject to the provisions contained in
the Fund's Articles of Incorporation and By-laws.
Under the rules of the NYSE applicable to listed companies, the Fund is
required to hold an annual meeting of shareholders in each year. If as is being
recommended by the board of directors and Mitchell Hutchins, the Fund is
converted to an open-end investment company, or if for any other reason the
Shares are no longer listed on the NYSE (or any other national securities
exchange the rules of which require annual meetings of shareholders), the Fund
may decide not to hold annual meetings of shareholders.
Any additional offerings of the Fund's Shares, if made, will require approval
of the Fund's board of directors and will be subject to the requirements of the
1940 Act that Shares may not be sold at a price below the then current net
asset value, exclusive of underwriting discounts and commissions, except, among
other things, in connection with an offering to existing shareholders or with
the consent of the holders of at least a majority of the Fund's outstanding
voting securities.
The following chart indicates the Fund's Shares outstanding as of December
31, 1994.
<TABLE>
<CAPTION>
AMOUNT
OUTSTANDING
AMOUNT HELD BY EXCLUSIVE OF AMOUNT
REGISTRANT OR HELD BY REGISTRANT
TITLE OF CLASS AMOUNT AUTHORIZED FOR ITS ACCOUNT OR FOR ITS ACCOUNT
-------------- ----------------- --------------- -------------------
<S> <C> <C> <C>
Common Stock.............. 100,000,000 0 26,096,317
</TABLE>
31
<PAGE>
Conversion to Open-End Fund. The Fund is a closed-end investment company
designed for long-term investment, and investors should not consider it a
trading vehicle. Shares of closed-end investment companies frequently trade at
a discount from net asset value, but may trade at a premium. The Fund cannot
predict whether its Shares will trade at, below or above net asset value in the
future, but recently they have often traded at a discount from net asset value
of in excess of 10%. For further information regarding the recent trading
history of the Shares, see "Trading History."
In recognition of the possibility that the Shares might trade at a discount
from net asset value and that any such discount may not be in the interest of
shareholders, the Fund's board of directors, as a matter of policy, annually
considers, in consultation with Mitchell Hutchins, the possibility of taking
action to attempt to reduce or eliminate any discount. At its November, 1994
meeting, the board of directors, acting upon a recommendation from Mitchell
Hutchins, determined that it would recommend to the Fund's shareholders that
the Fund be converted to an open-end investment company. The board's decision
was made in light of the market discount at which the Fund's Shares had been
trading, and the conclusion of Mitchell Hutchins that the Fund's investment
policies and the nature of its portfolio would be compatible with operating the
Fund in open-end form.
At its meeting on February 15, 1995, the board of directors approved a
recommendation from Mitchell Hutchins that the conversion of the Fund to an
open-end investment company be implemented by means of the Reorganization. The
Fund's shareholders will be asked to vote on the Reorganization at their annual
meeting to be held on May 25, 1995. Approval of the Reorganization will require
the approval of a majority of the Fund's outstanding Shares. If approved, it is
anticipated that the Reorganization would become effective on or about June 30,
1995.
Upon the effective date of the Reorganization, each shareholder of the Fund
would automatically become a holder of Class A shares of Income Fund. Income
Fund's shares are not listed on the NYSE or otherwise traded in the secondary
markets, but as a series of an open-end investment company, Income Fund redeems
its outstanding Class A shares at net asset value. Under certain circumstances,
Income Fund may be required to liquidate portfolio securities to meet requests
for redemption. The expenses that are expected to be incurred by Income Fund
following the Reorganization, and certain of the investment and other policies
of Income Fund, differ from those of the Fund. While the investment objectives
and policies of the Fund and of Income Fund are substantially similar, certain
of the securities in which the Fund may invest would be incompatible with
Income Fund's policies, and the Fund would need to liquidate any such
investments prior to the effectiveness of the Reorganization. Information
regarding the differences between the Fund and Income Fund will be contained in
the prospectus/proxy statement that will be sent to the Fund's shareholders of
record as of the record date for the Fund's annual meeting. See "The Fund."
Share Repurchase and Tender Offers. In the event that the Fund is not
converted to an open-end investment company, the board may, in consultation
with Mitchell Hutchins, from time to time take action either to repurchase its
Shares in the open market or to make a tender offer for Shares
32
<PAGE>
at their net asset value. The board currently intends at least annually to
consider making open market repurchases or the making of a tender offer, and at
such times may consider such factors as the market price of the Shares, the net
asset value of the Shares, the liquidity of the assets of the Fund, whether
such transactions would impair the Fund's status as a RIC, general economic
conditions and such other events or conditions that the board believes may have
a material effect of the Fund's ability to consummate such transactions. The
board may at any time, however, decide that the Fund should not repurchase
Shares or make a tender offer.
There is no assurance that repurchases or tender offers will result in the
Shares trading at a price that is equal or close to net asset value. The Fund
anticipates that the market price of Shares will vary from net asset value from
time to time. The market price of the Shares will be determined by, among other
things, the relative demand for and supply of such Shares in the market, the
Fund's investment performance, the Fund's dividends and yield and investor
perception of the Fund's overall attractiveness as an investment as compared
with other investment alternatives. Nevertheless, the fact that the Shares may
be the subject of tender offers at net asset value from time to time may reduce
the spread that might otherwise exist between the market price of the Shares
and net asset value per Share. In the opinion of Mitchell Hutchins, sellers may
be less inclined to accept a significant discount if they have a reasonable
expectation of being able to recover net asset value in conjunction with a
possible tender offer.
Although the board of directors believes that Share repurchases and tenders
generally would have a favorable effect on the market price of the Shares, it
should be recognized that the acquisition of Shares by the Fund would decrease
the Fund's total assets and therefore have the effect of increasing the Fund's
expense ratio. Because of the nature of the Fund's investment objectives,
policies and portfolio, under current market conditions Mitchell Hutchins
anticipates that repurchases and tender offers generally should not have a
material adverse effect on the Fund's investment performance and that Mitchell
Hutchins generally should not have any material difficulty in disposing of
portfolio securities in order to consummate Share repurchases and tender
offers; however, this may not always be the case. The Fund may incur debt to
finance repurchases or tender offers. Interest on any such borrowing will
reduce the Fund's net income.
Any tender offer made by the Fund will be at a price equal to the net asset
value of the Shares on a date subsequent to the Fund's receipt of all tenders.
If a tender offer is made, notice will be provided to shareholders describing
the tender offer. The notice will contain information, including information
regarding the Fund's net asset value per Share, that shareholders should
consider in deciding whether or not to tender their Shares and instructions on
how to tender Shares. Tender offers will be governed by the conditions
described in the SAI.
In light of the fact that the Fund's ability to borrow is limited, the Fund
may be required to liquidate portfolio securities to purchase tendered Shares
and may not be able to purchase as many Shares as it would have purchased. In
such case the Fund may be required to sell portfolio securities for other than
investment purposes and may realize gains and losses. Gains realized on
securities held for less than three months may impair the Fund's ability to
retain its status as a RIC for federal income tax purposes, because of the
limitation that less than 30% of the Fund's gross income may be derived from
the sale or disposition of securities (and certain options, futures and forward
33
<PAGE>
currency contracts) held for less than three months; additionally, such gains
may reduce the ability of the Fund to sell other securities held for that
period that the Fund may wish to sell for investment reasons. See "Taxes" in
the SAI.
Certain Anti-Takeover Provisions of the Articles of Incorporation. The Fund
presently has provisions in its Articles of Incorporation which could have the
effect of limiting (1) the ability of other entities or persons to acquire
control of the Fund, (2) the Fund's freedom to engage in certain transactions
or (3) the ability of the Fund's directors or shareholders to amend the
Articles of Incorporation. These provisions of the Articles of Incorporation
may be regarded as "anti-takeover" provisions. Under Maryland law and the
Fund's Articles of Incorporation, the affirmative vote of the holders of a
majority of the votes entitled to be cast is required for the consolidation of
the Fund with another corporation, a merger of the Fund with or into another
corporation (except for certain mergers in which the Fund is the successor), a
statutory share exchange in which the Fund is not the successor, a sale or
transfer of all or substantially all of the Fund's assets, the dissolution of
the Fund and any amendment to the Fund's Articles of Incorporation. In
addition, the affirmative vote of 66 2/3% (which is higher than that required
under Maryland law or the 1940 Act) of the outstanding Shares is required
generally to authorize any of the following transactions or to amend the
provisions of the Articles of Incorporation relating to such transactions:
(1) merger, consolidation or statutory share exchange of the Fund with or
into any other corporation;
(2) issuance of any securities of the Fund to any person or entity for
cash;
(3) sale, lease or exchange of all or any substantial part of the assets
of the Fund to any entity or person (except assets having an aggregate
market value of less than $1,000,000); or
(4) sale, lease or exchange to the Fund, in exchange for the securities
of the Fund, of any assets of any entity or person (except assets having an
aggregate fair market value of less than $1,000,000);
if such corporation, person or entity is directly, or indirectly through
affiliates, the beneficial owner of more than 5% of the outstanding Shares.
Such vote, however, would not be required when, under certain conditions, the
board of directors approves the transaction, although in certain cases
involving merger, consolidation or statutory share exchange or sale of all or
substantially all of the Fund's assets, the affirmative vote of a majority of
the outstanding Shares would nevertheless be required. Reference is made to the
Articles of Incorporation of the Fund, on file with the SEC, for the full text
of these provisions.
The provisions of Articles of Incorporation described above and the Fund's
right to repurchase or make a tender offer for its Shares could have the effect
of depriving shareholders of opportunities to sell their Shares at a premium
over prevailing market prices by discouraging a third party from seeking to
obtain control of the Fund in a tender offer or similar transaction. The
overall effect of these provisions is to render more difficult the
accomplishment of a merger or the assumption of control by a shareholder who
owns beneficially more than 5% of the Shares. They provide, however, the
advantage of potentially requiring persons seeking control of the Fund to
negotiate with its management regarding the price to be paid and facilitating
the continuity of the Fund's management, investment objectives and policies.
The board of directors of the Fund has considered
34
<PAGE>
the foregoing anti-takeover provisions and concluded that they are in the best
interests of the Fund and its shareholders.
Custodian, Transfer Agent, Dividend Disbursing Agent and Registrar. The
custodian for the Fund's securities and cash is Brown Brothers Harriman & Co.
("Brown Brothers"), whose principal business address is 40 Water Street,
Boston, Massachusetts 02109. Brown Brothers employs foreign sub-custodians,
approved by the Fund's board of directors, in accordance with applicable
requirements under the 1940 Act, to provide custody of the Fund's foreign
assets. PNC Bank, National Association ("PNC Bank"), whose principal business
address is Broad and Chestnut Streets, Philadelphia, Pennsylvania 19110, serves
as transfer agent, dividend disbursing agent and registrar for the Shares
pursuant to the Transfer Agent Agreement between the Fund and PNC Bank. PNC
Bank has delegated the transfer agency service functions to its subsidiary,
PFPC Inc., whose principal business address is 400 Bellevue Parkway,
Wilmington, Delaware 19809.
35
<PAGE>
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
The table of contents of the SAI is as follows:
<TABLE>
<S> <C>
Investment Policies and Restrictions........................................ 1
Hedging and Related Income Strategies....................................... 6
Directors and Officers...................................................... 15
Control Persons and Principal Holders of Securities......................... 20
Taxes....................................................................... 20
Investment Advisory Arrangements............................................ 24
Portfolio Transactions...................................................... 24
Valuation of Shares......................................................... 27
Additional Information...................................................... 28
Financial Statements........................................................ 29
Appendix.................................................................... A-1
</TABLE>
36
<PAGE>
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- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION
AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
FUND OR PAINEWEBBER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
FUND OR BY PAINEWEBBER IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Expenses.............................................................. 2
Prospectus Summary......................................................... 3
Financial Highlights....................................................... 12
The Fund................................................................... 13
The Offering............................................................... 13
Use of Proceeds............................................................ 13
Trading History............................................................ 14
Investment Objectives and Policies......................................... 14
Dividends and Other Distributions; Dividend Reinvestment Plan.............. 26
Taxes...................................................................... 28
Management................................................................. 30
General Information........................................................ 31
Table of Contents of Statement of Additional Information................... 36
</TABLE>
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(C) 1995 PaineWebber Incorporated
Recycled Paper
LOGO
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- -------------------------------------------------------------------------------
GLOBAL INCOME PLUS FUND, INC.
Common Stock
----------
PROSPECTUS
----------
PAINEWEBBER INCORPORATED
----------
March 1, 1995
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- -------------------------------------------------------------------------------
<PAGE>
GLOBAL INCOME PLUS FUND, INC.
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
STATEMENT OF ADDITIONAL INFORMATION
Global Income Plus Fund, Inc. ("Fund") is a non-diversified closed-end
management investment company. The primary investment objective of the Fund is
to achieve a high level of current income; capital appreciation is a secondary
objective in the selection of investments. No assurance can be given that the
Fund will be able to achieve its investment objectives.
Shares of the Fund's common stock ("Shares") may be offered from time to
time in order to effect over-the-counter ("OTC") secondary market sales by
PaineWebber Incorporated ("PaineWebber") in its capacity as a dealer and sec-
ondary market-maker. PaineWebber intends (but is not obligated) to make such a
secondary market.
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly
owned subsidiary of PaineWebber, serves as investment adviser and
administrator of the Fund. This Statement of Additional Information is not a
prospectus and should be read only in conjunction with the Fund's current
Prospectus, dated March 1, 1995. Capitalized terms not otherwise defined
herein have the same meaning as in the Prospectus. A copy of the Prospectus
may be obtained by contacting PaineWebber at 1285 Avenue of the Americas, New
York, New York 10019, or calling 1-800-852-4750. This Statement of Additional
Information is dated March 1, 1995.
INVESTMENT POLICIES AND RESTRICTIONS
The following supplements the information contained in the Prospectus
concerning the Fund's investment policies and limitations.
U.S. Government Securities. As discussed in the Prospectus, the U.S.
government securities in which the Fund may invest include direct obligations
of the U.S. Treasury. The Fund may invest in mortgage-backed securities issued
or guaranteed by Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA") or Federal Home Loan Mortgage
Corporation ("FHLMC") and representing undivided ownership interests in pools
of mortgages. The mortgages backing these securities include fixed and
adjustable rate mortgages. The U.S. government or the issuing agency
guarantees the payment of the interest on and principal of these securities.
Those guarantees, however, do not provide assurance that an investor will
recover the originally anticipated yield on the securities that are purchased
at a premium or discount. Moreover, the guarantees do not extend to the
securities' value, which is likely to vary inversely with fluctuations in
interest rates, and the guarantees do not extend to the yield or value of the
Shares.
Special Characteristics of Mortgage-Backed Securities. Prepayments on a pool
of mortgage loans are influenced by a variety of economic, geographic, social
and other factors, including
<PAGE>
changes in mortgagors' housing needs, job transfers, unemployment, mortgagors'
net equity in the mortgaged properties and servicing decisions. Generally,
however, prepayments on fixed-rate mortgage loans will increase during a
period of falling interest rates and decrease during a period of rising
interest rates. Mortgage-backed securities may decrease in value as a result
of increases in interest rates and may benefit less than other fixed-income
securities from declining interest rates because of the risk of prepayment.
The rate of interest on mortgage-backed securities is lower than the
interest rates paid on the mortgages included in the underlying pool due to
the annual fees paid to the servicer of the mortgage pool for passing through
monthly payments to certificateholders and to any guarantor, such as GNMA, and
due to any yield retained by the issuer. Actual yield to the holder may vary
from the coupon rate, even if adjustable, if the mortgage-backed securities
are purchased or traded in the secondary market at a premium or discount. In
addition, there is normally some delay between the time the issuer receives
mortgage payments from the servicer and the time the issuer makes the payments
on the mortgage-backed securities, and this delay reduces the effective yield
to the holder of such securities.
The size of the primary issuance market, and active participation in the
secondary market by securities dealers and many types of investors, makes
government and government-related pass-through pools highly liquid. Yields on
pass-through securities are typically quoted by investment dealers and vendors
based on the maturity of the underlying instruments and the associated average
life assumption. The average life of pass-through pools varies with the
maturities of the underlying mortgage loans. A pool's term may be shortened by
unscheduled or early payments of principal on the underlying mortgages.
Because prepayment rates of individual pools vary widely, it is not possible
to predict accurately the average life of a particular pool. In the past, a
common industry practice has been to assume that prepayments on pools of fixed
rate 30-year mortgages would result in a 12-year average life for the pool. At
present, mortgage pools, particularly those with loans with other maturities
or different characteristics, are priced on an assumption of average life
determined for each pool. In periods of declining interest rates, the rate of
prepayment tends to increase, thereby shortening the actual average life of a
pool of mortgage-related securities. Conversely, in periods of rising rates,
the rate of prepayment tends to decrease, thereby lengthening the actual
average life of the pool. However, these effects may not be present, or may
differ in degree, if the mortgage loans in the pools have adjustable interest
rates or other special payment terms, such as a prepayment charge. Actual
prepayment experience may cause the yield of mortgage-backed securities to
differ from the assumed average life yield. Reinvestment of prepayments may
occur at lower interest rates than the original investment, thus adversely
affecting the yield of the Fund. Accelerated prepayments on securities
purchased at a premium also impose a risk of loss of principal because the
premium may not have been fully amortized at the time the principal is prepaid
in full.
Convertible Securities. The value of a convertible security is a function of
its "investment value" (determined by its yield in comparison with the yields
of other securities of comparable maturity and quality that do not have a
conversion privilege), and its "conversion value" (the security's worth, at
market value, if converted into the underlying common stock). The investment
value of a convertible security is influenced by changes in interest rates,
with investment value declining as interest rates increase and increasing as
interest rates decline. The credit standing of
2
<PAGE>
the issuer and other factors also may have an effect on the convertible
security's investment value. The conversion value of a convertible security is
determined by the market price of the underlying common stock. If the
conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value and
generally the conversion value decreases as the convertible security approaches
maturity. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. In addition,
a convertible security generally will sell at a premium over its conversion
value determined by the extent to which investors place value on the right to
acquire the underlying common stock while holding a fixed income security.
A convertible security may be subject to redemption at the option of the
issuer at a price established in the convertible security's governing
instrument. If a convertible security held by the Fund is called for
redemption, the Fund will be required to permit the issuer to redeem the
security, convert it into the underlying common stock or sell it to a third
party. Any of these actions could have an adverse effect on the Fund's ability
to achieve its investment objectives.
Yield Factors and Ratings. Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Ratings Group ("S&P") are private services that provide
ratings of the credit quality of debt obligations. The Fund uses these ratings
in connection with its determination as to whether to purchase, sell or hold a
security. It should be emphasized, however, that ratings are general and are
not absolute standards of quality. Consequently, securities with the same
maturity, interest rate and ratings may have different market prices. See the
Appendix to this Statement of Additional Information for a more complete
description of S&P's and Moody's securities ratings.
Illiquid Securities. The Fund may invest up to 25% of the Fund's total assets
in illiquid securities, as defined in the prospectus. Illiquid securities may,
but do not necessarily, include certain restricted securities. To facilitate
the increased size and liquidity of the institutional markets for unregistered
securities, the Securities and Exchange Commission ("SEC") adopted Rule 144A
under the Securities Act of 1933 ("1933 Act"). Rule 144A establishes a "safe
harbor" from the registration requirements of the 1933 Act for resales of cer-
tain securities to qualified institutional buyers. Institutional markets for
restricted securities have developed as a result of Rule 144A, providing both
readily ascertainable values for restricted securities and the ability to liq-
uidate an investment. Such markets include automated systems for the trading,
clearance and settlement of unregistered securities of domestic and foreign is-
suers, such as the PORTAL System sponsored by the National Association of Secu-
rities Dealers, Inc. ("NASD"). An insufficient number of qualified buyers in-
terested in purchasing Rule 144A-eligible restricted securities held by the
Fund, however, could adversely affect the marketability of such portfolio secu-
rities, and the Fund might be unable to dispose of such securities promptly or
at favorable prices.
The Fund's board of directors has delegated the function of making day-to-day
determinations of liquidity to Mitchell Hutchins, pursuant to guidelines
approved by the board. Mitchell Hutchins takes into account a number of factors
in reaching liquidity decisions, including but not limited to (1) the frequency
of trades for the security, (2) the number of dealers that make quotes for the
security, (3) the number of dealers that have undertaken to make a market in
the security, (4) the number of other potential purchasers for the security and
(5) the nature of the security and how
3
<PAGE>
trading is effected (e.g., the time needed to sell the security, how bids are
solicited and the mechanics of transfer). Mitchell Hutchins monitors the
liquidity of restricted securities in the Fund's portfolio and reports
periodically on such decisions to the board of directors.
Repurchase Agreements. Repurchase agreements are transactions in which the
Fund purchases securities from a bank or recognized securities dealer and si-
multaneously commits to resell the securities to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated to
the coupon rate or maturity of the purchased securities. The Fund maintains
custody of the underlying securities prior to their repurchase; thus, the obli-
gation of the bank or dealer to pay the repurchase price on the date agreed to
is, in effect, secured by such securities. If the value of these securities is
less than the repurchase price, plus any agreed-upon additional amount, the
other party to the agreement must provide additional collateral so that at all
times the collateral is at least equal to the repurchase price plus any agreed-
upon additional amount. The difference between the total amount to be received
upon repurchase of the securities and the price which was paid by the Fund upon
acquisition is accrued as interest and included in the Fund's net investment
income.
Repurchase agreements carry certain risks not associated with direct
investments in securities, including possible declines in the market value of
the underlying securities and delays and costs to the Fund if the other party
to a repurchase agreement becomes insolvent. The Fund enters into repurchase
agreements only with banks and dealers in transactions believed by Mitchell
Hutchins to present minimum credit risks in accordance with guidelines
established by the Fund's board of directors. Mitchell Hutchins will review and
monitor the creditworthiness of those institutions under the board's general
supervision.
When-Issued and Delayed Delivery Securities. As stated in the Prospectus, the
Fund may purchase securities on a "when-issued" or delayed delivery basis. A
security purchased on a when-issued or delayed delivery basis is recorded as an
asset on the commitment date and is subject to changes in market value
generally based upon changes in the level of interest rates. Thus, upon
delivery, its market value may be higher or lower than its costs and this may
increase or decrease the Fund's net asset value. When the Fund agrees to
purchase securities on a when-issued or delayed delivery basis, its custodian
will set aside in a segregated account cash, U.S. government securities or
other liquid, high-grade debt securities, marked to market daily, in an amount
at least equal to the amount of the commitment. Failure of the issuer to
deliver the security may result in the Fund's incurring a loss or missing an
opportunity to make an alternative investment. The Fund purchases when-issued
and delayed delivery securities only with the intention of taking delivery, but
may sell the right to acquire the security prior to delivery if Mitchell
Hutchins deems it advantageous to do so, which may result in capital gain or
loss to the Fund.
Lending of Portfolio Securities. Although it has no intention of doing so
during the current fiscal year, the Fund is authorized to lend up to 10% of the
total value of its portfolio securities to broker-dealers or institutional
investors that Mitchell Hutchins deems qualified, but only when the borrower
maintains with the Fund's custodian bank collateral either in cash or money
market instruments in an amount at least equal to the market value of the
securities loaned, plus accrued interest and dividends, determined on a daily
basis and adjusted accordingly. In determining whether to lend securities to a
particular broker-dealer or institutional investor, Mitchell Hutchins
4
<PAGE>
will consider, and during the period of the loan will monitor, all relevant
facts and circumstances, including the creditworthiness of the borrower. The
Fund will retain authority to terminate any loans at any time. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and may
pay a negotiated portion of the interest earned on the cash or money market
instruments held as collateral to the borrower or placing broker. The Fund will
receive reasonable interest on the loan or a flat fee from the borrower and
amounts equivalent to any dividends, interest or other distributions on the
securities loaned. The Fund will regain record ownership of loaned securities
to exercise beneficial rights, such as voting and subscription rights and
rights to dividends, interest or other distributions, when regaining such right
is considered by Mitchell Hutchins to be in the Fund's interest.
Investment Limitations. The Fund has adopted certain limitations which, like
the Fund's investment objectives, may not be changed without shareholder
approval. The Fund may not:
1. Issue senior securities, except that for purposes of this limitation
the Fund may borrow money from banks and other entities (a) for temporary
or emergency purposes and then in an amount not exceeding 5% of the value
of the Fund's total assets (not including the amount borrowed) and (b) in
connection with repurchases of, or tenders for, the Fund's Shares, but only
if after such borrowing there is asset coverage of at least 300% as defined
in the 1940 Act; provided that the Fund will not purchase securities while
borrowings (including reverse repurchase agreements, but excluding
borrowings for the clearance of transactions) in excess of 5% of the value
of the Fund's total assets are outstanding.
2. Make an investment in any one industry if the investment would cause
the value of all of the Fund's investments at the time of purchase in such
industry to be 25% or more of the total assets of the Fund taken at market
value; provided that this limitation shall not apply with respect to
investments in U.S. government securities.
3. Purchase securities on margin, except for short-term credits necessary
for clearance of portfolio transactions, and except that the Fund may make
margin deposits in connection with its use of options, futures contracts
and options on futures contracts.
4. Mortgage, pledge, hypothecate or in any manner transfer, as security
for indebtedness, any securities owned or held by the Fund, except as may
be necessary in connection with permitted borrowings; provided that this
does not apply to escrow, collateral or margin arrangements in connection
with the Fund's use of options, futures contracts and options on futures
contracts.
5. Underwrite securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Fund may be
deemed to be an underwriter under federal securities laws.
6. Make short sales of securities or maintain a short position, except
that the Fund may make short sales and maintain short positions in
connection with its use of options, futures contracts and options on
futures contracts.
7. Purchase or sell real estate, provided that the Fund may invest in
securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein.
5
<PAGE>
8. Purchase or sell commodities or commodity contracts, except that
consistent with the Fund's investment objectives the Fund may use financial
and currency futures instruments and options thereon for hedging purposes.
9. Invest in oil, gas or mineral-related programs or leases.
10. Make loans, except through loans of portfolio securities as described
herein and except through repurchase agreements, provided that for purposes
of this restriction the acquisition of portfolio securities consistent with
the Fund's investment objectives and policies shall not be deemed to be the
making of a loan.
The foregoing investment limitations, as well as the Fund's investment
objectives, cannot be changed without the affirmative vote of the lesser of (a)
more than 50% of the outstanding Shares of the Fund or (b) 67% or more of the
Shares present at a shareholders' meeting if more than 50% of the outstanding
Shares are represented at the meeting in person or by proxy. If a percentage
restriction is adhered to at the time of an investment or transaction, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total assets will not be considered a
violation of any of the foregoing limitations.
HEDGING AND RELATED INCOME STRATEGIES
General Description of Hedging Strategies. As discussed in the Prospectus,
Mitchell Hutchins may use a variety of financial instruments ("Hedging
Instruments"), including options, futures contracts (sometimes referred to as
"futures"), options on futures contracts, forward currency contracts and
interest rate protection transactions to attempt to hedge the Fund's portfolio.
The Fund also may use options to attempt to enhance income and realize gains.
Although it has no intention of doing so during the coming year, Mitchell
Hutchins also may attempt to hedge the Fund's portfolio through the use of
interest rate futures and options thereon. The Fund may also use foreign
currency futures contracts and options on futures contracts to attempt to
enhance income and realize gains to the extent permitted by the Commodity
Futures Trading Commission ("CFTC").
Hedging strategies can be broadly categorized as "short hedges" and "long
hedges." A short hedge is a purchase or sale of a Hedging Instrument intended
partially or fully to offset potential declines in the value of one or more
investments held in the Fund's portfolio. Thus, in a short hedge the Fund takes
a position in a Hedging Instrument whose price is expected to move in the
opposite direction of the price of the investment being hedged. For example,
the Fund might purchase a put option on a security to hedge against a potential
decline in the value of that security. If the price of the security declined
below the exercise price of the put, the Fund could exercise the put and thus
limit its loss below the exercise price to the premium paid plus transaction
costs. In the alternative, because the value of the put option can be expected
to increase as the value of the underlying security declines, the Fund might be
able to close out the put option and realize a gain to offset the decline in
the value of the security.
Conversely, a long hedge is a purchase or sale of a Hedging Instrument
intended partially or fully to offset potential increases in the acquisition
cost of one or more investments that the Fund intends to acquire. Thus, in a
long hedge the Fund takes a position in a Hedging Instrument whose
6
<PAGE>
price is expected to move in the same direction as the price of the prospective
investment being hedged. For example, the Fund might purchase a call option on
a security it intends to purchase in order to hedge against an increase in the
cost of the security. If the price of the security increased above the exercise
price of the call, the Fund could exercise the call and thus limit its
acquisition to the exercise price plus the premium paid and transaction costs.
Alternatively, the Fund might be able to offset the price increase by closing
out an appreciated call option and realizing a gain.
The Fund may purchase and write (sell) covered straddles on securities. A
long straddle is a combination of a call and a put option purchased on the same
security or on the same futures contract, where the exercise price of the put
is less than or equal to the exercise price of the call. The Fund would enter
into a long straddle when Mitchell Hutchins believes that it is likely that
interest rates will be more volatile during the term of the option than the
option pricing implies. A short straddle is a combination of a call and a put
written on the same security where the exercise price of the put is less than
or equal to the exercise price of the call. The Fund would enter into a short
straddle when Mitchell Hutchins believes that it is unlikely that interest
rates will be as volatile during the term of the option as the option pricing
implies.
Hedging Instruments on securities generally are used to hedge against price
movements in one or more particular securities positions that the Fund owns or
intends to acquire. Hedging Instruments on debt securities may be used to hedge
either individual securities or broad fixed income market sectors.
The use of Hedging Instruments is subject to applicable regulations of the
SEC, the several options and futures exchanges upon which they are traded, the
CFTC and various state regulatory authorities. In addition, the Fund's ability
to use Hedging Instruments will be limited by tax considerations. See "Taxes."
In addition to the products, strategies and risks described below and in the
Prospectus, Mitchell Hutchins expects to discover additional opportunities in
connection with options, futures contracts, forward currency contracts and
other hedging techniques. These new opportunities may become available as
Mitchell Hutchins develops new techniques, as regulatory authorities broaden
the range of permitted transactions and as new options, futures contracts,
forward currency contracts or other techniques are developed. Mitchell Hutchins
may utilize these opportunities to the extent that they are consistent with the
Fund's investment objectives and permitted by the Fund's investment limitations
and applicable regulatory authorities.
Special Risks of Hedging Strategies. The use of Hedging Instruments involves
special considerations and risks, as described below. Risks pertaining to
particular Hedging Instruments are described in the sections that follow.
(1) Successful use of most Hedging Instruments depends upon Mitchell
Hutchins' ability to predict movements of the overall securities and currency
markets, which requires different skills than predicting changes in the prices
of individual securities. While Mitchell Hutchins is experienced in the use of
Hedging Instruments, there can be no assurance that any particular hedging
strategy adopted will succeed.
7
<PAGE>
(2) There might be imperfect correlation, or even no correlation, between
price movements of a Hedging Instrument and price movements of the investments
being hedged. For example, if the value of a Hedging Instrument used in a short
hedge increased by less than the decline in value of the hedged investment, the
hedge would not be fully successful. Such a lack of correlation might occur due
to factors unrelated to the value of the investments being hedged, such as
speculative or other pressures on the markets in which Hedging Instruments are
traded.
(3) Hedging strategies, if successful, can reduce risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements in the
investments being hedged. However, hedging strategies can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if the Fund entered into a
short hedge because Mitchell Hutchins projected a decline in the price of a
security in the Fund's portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by a
decline in the price of the Hedging Instrument. Moreover, if the price of the
Hedging Instrument declined by more than the increase in the price of the
security, the Fund could suffer a loss. In either such case, the Fund would
have been in a better position had it not hedged at all.
(4) As described below, the Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in Hedging Instruments involving obligations to third parties (i.e.,
Hedging Instruments other than purchased options.) If the Fund were unable to
close out its positions in such Hedging Instruments, it might be required to
continue to maintain such assets or accounts to make such payments until the
position expired or matured. These requirements might impair the Fund's ability
to sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that the Fund sell a portfolio
security at a disadvantageous time. The Fund's ability to close out a position
in a Hedging Instrument prior to expiration or maturity depends on the
existence of a liquid secondary market or, in the absence of such a market, the
ability and willingness of the other party to the transaction ("contra party")
to enter into a transaction closing out the position. Therefore, there is no
assurance that any hedging position can be closed out at a time and price that
is favorable to the Fund.
Cover for Hedging Strategies. Transactions using Hedging Instruments, other
than purchased options, expose the Fund to an obligation to another party. The
Fund will not enter into any such transactions unless it owns either (1) an
offsetting ("covered") position in securities, currencies or other options or
futures contracts or (2) cash and short-term, liquid debt securities, with a
value sufficient at all times to cover its potential obligations to the extent
not covered as provided in (1) above. The Fund will comply with SEC guidelines
regarding cover for hedging transactions and will, if the guidelines so
require, set aside cash, U.S. government securities or other liquid, high-grade
debt securities in a segregated account with its custodian in the prescribed
amount.
Assets used as cover or held in a segregated account cannot be sold while the
position in the corresponding Hedging Instrument is open, unless they are
replaced with similar assets. As a result, the commitment of a large portion of
the Fund's assets to cover or segregated accounts could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
8
<PAGE>
Options. The Fund may purchase put and call options, and write (sell) covered
put and call options, on debt securities and foreign currencies. The purchase
of call options serves as a long hedge, and the purchase of put options serves
as a short hedge. Writing covered put or call options can enable the Fund to
enhance income by reason of the premiums paid by the purchasers of such
options. However, if the market price of the security underlying a covered put
option declines to less than the exercise price of the option, minus the
premium received, the Fund would expect to suffer a loss. Writing covered call
options serves as a limited short hedge, because declines in the value of the
hedged investment would be offset to the extent of the premium received for
writing the option. However, if the security appreciates to a price higher than
the exercise price of the call option, it can be expected that the option will
be exercised and the Fund will be obligated to sell the security at less than
its market value. All or a portion of the assets used as cover for OTC options
written by the Fund would be considered illiquid.
The value of an option position will reflect, among other things, the current
market value of the underlying investment, the time remaining until expiration,
the relationship of the exercise price to the market price of the underlying
investment, the historical price volatility of the underlying investment and
general market conditions. Options normally have expiration dates of up to nine
months. Options that expire unexercised have no value.
The Fund may effectively terminate its right or obligation under an option by
entering into a closing transaction. For example, the Fund may terminate its
obligation under a call option that it had written by purchasing an identical
call option; this is known as a closing purchase transaction. Conversely, the
Fund may terminate a position in a put or call option it had purchased by
writing an identical put or call option; this is known as a closing sale
transaction. Closing transactions permit the Fund to realize profits or limit
losses on an option position prior to its exercise or expiration.
The Fund may purchase or write both exchange-traded and OTC options. Exchange
markets for options on debt securities and foreign currencies exist but are
relatively new, and these instruments are primarily traded on the OTC market.
Exchange-traded options in the United States are issued by a clearing
organization affiliated with the exchange on which the option is listed which,
in effect, guarantees completion of every exchange-traded option transaction.
In contrast, OTC options are contracts between the Fund and its contra party
(usually a securities dealer or a bank) with no clearing organization
guarantee. Thus, when the Fund purchases or writes an OTC option, it relies on
the contra party to make or take delivery of the underlying investment upon
exercise of the option. Failure by the contra party to do so would result in
the loss of any premium paid by the Fund as well as the loss of any expected
benefit of the transaction.
Generally, the OTC debt and foreign currency options used by the Fund are
European-style options. This means that the option is only exercisable
immediately prior to its expiration. This is in contrast to American-style
options, which are exercisable at any time prior to the expiration date of the
option.
The Fund's ability to establish the close out positions in exchange-listed
options depends on the existence of a liquid market. The Fund intends to
purchase or write only those exchange-traded options for which there appears to
be a liquid secondary market. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for
9
<PAGE>
OTC options only by negotiating directly with the contra party, or by a
transaction in the secondary market if any such market exists. Although the
Fund will enter into OTC options only with contra parties that are expected to
be capable of entering into closing transactions with the Fund, there is no
assurance that the Fund will in fact be able to close out an OTC option at a
favorable price prior to expiration. In the event of insolvency of the contra
party, the Fund might be unable to close out an OTC option position at any time
prior to its expiration.
If the Fund were unable to effect a closing transaction for an option it had
purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call
option written by the Fund could cause material losses because the Fund would
be unable to sell the investment used as cover for the written option until the
option expires or is exercised.
Futures. The Fund may purchase and sell foreign currency futures contracts
and interest rate futures contracts, although the Fund does not intend to use
interest rate futures contracts during the coming year. The Fund may also
purchase put and call options, and write covered put and call options, on
futures in which it is allowed to invest. The purchase of futures or call
options thereon can serve as a long hedge, and the sale of futures or the
purchase of put options thereon can serve as a short hedge. Writing covered
call options on futures contracts can serve as a limited short hedge, using a
strategy similar to that used for writing covered call options on securities.
Similarly, writing covered put options on futures contracts can serve as a
limited long hedge.
Futures strategies also can be used to manage the average duration of the
Fund's portfolio. If Mitchell Hutchins wishes to shorten the average duration
of the Fund, the Fund may sell a futures contract or a call option thereon, or
purchase a put option on that futures contract. If Mitchell Hutchins wishes to
lengthen the average duration of the Fund, the Fund may buy a futures contract
or a call option thereon, or sell a put option thereon.
The Fund may also write put options on foreign currency futures contracts
while at the same time purchasing call options on the same futures contracts in
order synthetically to create a long futures contract position. Such options
would have the same strike prices and expiration dates. The Fund will engage in
this strategy only when it is more advantageous to the Fund than is purchasing
the futures contract.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract the Fund is required to deposit in a segregated
account with its custodian, in the name of the futures broker through whom the
transaction was effected, "initial margin" consisting of cash, U.S. government
securities or other liquid, high-grade debt securities, in an amount generally
equal to 10% or less of the contract value. Margin must also be deposited when
writing a call option on a futures contract, in accordance with applicable
exchange rules. Unlike margin in securities transactions, initial margin or
futures contracts does not represent a borrowing, but rather is in the nature
of a performance bond or good-faith deposit that is returned to the Fund at the
termination of the transaction if all contractual obligations have been
satisfied. Under certain circumstances, such as periods of high volatility, the
Fund may be required by an exchange to increase the level of its initial margin
payment, and initial margin requirements might be increased generally in the
future by regulatory action.
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<PAGE>
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking to market." Variation margin does not involve borrowing, but rather
represents a daily settlement of the Fund's obligations to or from a futures
broker. When the Fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when the Fund purchases
or sells a futures contract or writes a call option thereon, it is subject to
daily variation calls that could be substantial in the event of adverse price
movements. If the Fund has insufficient cash to meet daily variation margin
requirements, it might need to sell securities at a time when such sales are
disadvantageous.
Holders and writers of futures positions and options on futures can enter
into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument held or written. Positions in futures and options on futures may be
closed only on an exchange or board of trade that provides a secondary market.
The Fund intends to enter into futures transactions only on exchanges or boards
of trade where there appears to be a liquid secondary market. However, there
can be no assurance that such a market will exist for a particular contract at
a particular time.
Under certain circumstances, futures exchanges may establish daily limits on
the amount that the price of a future or related option can vary from the
previous day's settlement price; once that limit is reached, no trades may be
made that day at a price beyond the limit. Daily price limits do not limit
potential losses because prices could move to the daily limit for several
consecutive days with little or no trading, thereby preventing liquidation of
unfavorable positions.
If the Fund were unable to liquidate a futures or related options position
due to the absence of a liquid secondary market or the imposition of price
limits, it could incur substantial losses. The Fund would continue to be
subject to market risk with respect to the position. In addition, except in the
case of purchased options, the Fund would continue to be required to make daily
variation margin payments and might be required to maintain the position being
hedged by the future or option or to maintain cash or securities in a
segregated account.
Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or related options might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the futures and related options
markets are subject to daily variation margin calls and might be compelled to
liquidate futures or related options positions whose prices are moving
unfavorably to avoid being subject to further calls. These liquidations could
increase price volatility of the instruments and distort the normal price
relationship between the futures or options and the investments being hedged.
Also, because initial margin deposit requirements in the futures market are
less onerous than margin requirements in the securities markets, there might be
increased participation by speculators in the futures markets. This
participation also might cause temporary price distortions. In addition,
activities of large traders in both the futures and securities markets
involving arbitrage, "program trading" and other investment strategies might
result in temporary price distortions.
Guideline for Futures and Options. To the extent the Fund enters into futures
contracts, options on futures positions and options on foreign currencies
traded on a commodities exchange, which are not for bona fide hedging purposes
(as defined by the CFTC), the aggregate initial margin
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<PAGE>
and premiums on those positions (excluding the amount by which options are "in-
the-money") may not exceed 5% of the Fund's net assets. This guideline may be
modified by the Fund's board of directors without a shareholder vote. Adoption
of this guideline cannot be guaranteed to limit the percentage of the Fund's
assets at risk to 5%.
Foreign Currency Hedging Strategies--Special Considerations. The Fund may use
options and futures on foreign currencies, as described above, and foreign
currency forward contracts, as described below, to hedge against movements in
the values of the foreign currencies in which the Fund's securities are
denominated. Such currency hedges can protect against price movements in a
security that the Fund owns or intends to acquire that are attributable to
changes in the value of the currency in which it is denominated. Such hedges do
not, however, protect against price movements in the securities that are
attributable to other causes.
The Fund might seek to hedge against changes in the value of a particular
currency when no Hedging Instruments on that currency are available or such
Hedging Instruments are more expensive than certain other Hedging Instruments.
In such cases, the Fund may hedge against price movements in that currency by
entering into transactions using Hedging Instruments on other currencies, the
values of which Mitchell Hutchins believes will have a high degree of positive
correlation to the value of the currency being hedged. The risk that movements
in the price of the Hedging Instrument will not correlate perfectly with
movements in the price of the currency being hedged is magnified when this
strategy is used.
The value of Hedging Instruments on foreign currencies depends on the value
of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such Hedging
Instruments, the Fund could be disadvantaged by having to deal in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a
global, round-the-clock market. To the extent the U.S. options or futures
markets are closed while the markets for the underlying currencies remain open,
significant price and rate movements might take place in the underlying markets
that cannot be reflected in the markets for the Hedging Instruments until they
open.
Settlement of hedging transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency.
Thus, the Fund might be required to accept or make delivery of the underlying
foreign currency in accordance with any U.S. or foreign regulations regarding
the maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
Forward Currency Contracts. The Fund may enter into forward currency
contracts to purchase or sell foreign currencies for a fixed amount of U.S.
dollars or another foreign currency.
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<PAGE>
Such transactions may serve as long hedges--for example, the Fund may purchase
a forward currency contract to lock in the U.S. dollar price of a security
denominated in a foreign currency that the Fund intends to acquire. Forward
currency contract transactions may also serve as short hedges--for example, the
Fund may sell a forward currency contract to lock in the U.S. dollar equivalent
of the proceeds from the anticipated sale of a security denominated in a
foreign currency.
As noted above, the Fund may seek to hedge against changes in the value of a
particular currency by using forward contracts on another foreign currency or a
basket of currencies, the value of which Mitchell Hutchins believes will have a
positive correlation to the values of the currency being hedged. In addition,
the Fund may use forward currency contracts to shift exposure to foreign
currency fluctuations from one country to another. For example, if the Fund
owns securities denominated in a foreign currency and Mitchell Hutchins
believes that currency will decline relative to another currency, it might
enter into a forward contract to sell an appropriate amount of the first
foreign currency, with payment to be made in the second foreign currency.
Transactions that use two foreign currencies are sometimes referred to as
"cross hedging." Use of a different foreign currency magnifies the risk that
movements in the price of the Hedging Instrument will not correlate or will
correlate unfavorably with the foreign currency being hedged.
The cost to the Fund of engaging in forward currency contracts varies with
factors such as the currency involved, the length of the contract period and
the market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are involved.
When the Fund enters into a forward currency contract, it relies on the contra
party to make or take delivery of the underlying currency at the maturity of
the contract. Failure by the contra party to do so would result in the loss of
any expected benefit of the transaction.
As is the case with futures contracts, holders and writers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures, by selling or purchasing, respectively, an
instrument identical to the instrument held or written. Secondary markets
generally do not exist for forward currency contracts, with the result that
closing transactions generally can be made for forward currency contracts only
by negotiating directly with the contra party. Thus, there can be no assurance
that the Fund will in fact be able to close out a forward currency contract at
a favorable price prior to maturity. In addition, in the event of insolvency of
the contra party, the Fund might be unable to close out a forward currency
contract at any time prior to maturity. In either event, the Fund would
continue to be subject to market risk with respect to the position, and would
continue to be required to maintain a position in the securities or currencies
that are the subject of the hedge or to maintain cash or securities in a
segregated account.
The precise matching of forward currency contract amounts and the value of
the securities involved generally will not be possible because the value of
such securities, measured in the foreign currency, will change after the
foreign currency contract has been established. Thus, the Fund might need to
purchase or sell foreign currencies in the spot (cash) market to the extent
such foreign currencies are not covered by forward contracts. The projection of
short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.
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<PAGE>
Limitations on the Use of Forward Currency Contracts. The Fund may enter into
forward currency contracts or maintain a net exposure to such 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, U.S. government securities or
liquid, high-grade debt securities in a segregated account in an amount not
less than the value of its total assets committed to the consummation of the
contract and not covered as provided in (1) above, as marked to market daily.
Interest Rate Protection Transactions. The Fund may enter into interest rate
protection transactions, including interest rate swaps and interest rate caps,
collars and floors. Interest rate swap transactions involve an agreement
between two parties to exchange payments that are based, for example, on
variable and fixed rates of interest and that are calculated on the basis of a
specified amount of principal (the "notional principal amount") for a specified
period of time. Interest rate cap and floor transactions involve an agreement
between two parties in which the first party agrees to make payments to the
counterparty when a designated market interest rate goes above (in the case of
a cap) or below (in the case of a floor) a designated level on predetermined
dates or during a specified time period. Interest rate collar transactions
involve an agreement between two parties in which the first party makes
payments to the counterparty when a designated market interest rate goes above
a designated level on predetermined dates or during a specified time period,
and the counterparty makes payments to the first party when a designated market
interest rate goes below a designated level on predetermined dates or during a
specified time period.
The Fund expects to enter into interest rate protection transactions to
preserve a return or spread on a particular investment or portion of its
portfolio or to protect against any increase in the price of securities it
anticipates purchasing at a later date. The Fund intends to use these
transactions as a hedge and not as a speculative investment. Interest rate
protection transactions are subject to risks comparable to those described
above with respect to other hedging strategies.
The Fund may enter into interest rate swaps, caps, collars and floors on
either an asset-based or liability-based basis, depending on whether it is
hedging its assets or its liabilities, and will usually enter into interest
rate swaps on a net basis, i.e., the two payment streams are netted out, with
the Fund receiving or paying, as the case may be, only the net amount of the
two payments. Inasmuch as these interest rate protection transactions are
entered into for good faith hedging purposes, and inasmuch as segregated
accounts will be established with respect to such transactions, Mitchell
Hutchins and the Fund believe such obligations do not constitute senior
securities and, accordingly, will not treat them as being subject to the Fund's
borrowing restrictions. The net amount of the excess, if any, of the Fund's
obligations over its entitlements with respect to each interest rate swap will
be accrued on a daily basis and an amount of cash, U.S. government securities
or other liquid high grade debt obligations having an aggregate net asset value
at least equal to the accrued excess will be maintained in a segregated account
by a custodian that satisfies the requirements of the Investment Company Act of
1940 ("1940 Act"). The Fund also will establish and maintain such segregated
accounts with respect to its total obligations under any interest rate swaps
that are not entered into on a net basis and with respect to any interest rate
caps, collars and floors that are written by the Fund.
The Fund will enter into interest rate protection transactions only with
banks and recognized securities dealers believed by Mitchell Hutchins to
present minimal credit risks in accordance with
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<PAGE>
guidelines established by the Fund's board of directors. If there is a default
by the other party to such a transaction, the Fund will have to rely on its
contractual remedies (which may be limited by bankruptcy, insolvency or similar
laws) pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large number
of banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. Caps, collars and floors are more
recent innovations for which documentation is less standardized, and,
accordingly, they are less liquid than swaps.
DIRECTORS AND OFFICERS
The directors and officers of the Fund, their business addresses and
principal occupations during the past five years are:
<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS** THE FUND PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
------------------ --------------- ----------------------------------------------
<S> <C> <C>
E. Garrett Bewkes, Jr.; Director Mr. Bewkes is a director of Paine Webber
68*.................... and Chairman Group Inc. ("PW Group") (holding company
of the Board of of PaineWebber and Mitchell Hutchins) and
Directors a consultant to PW Group. Prior to 1988,
he was chairman of the board, president
and chief executive officer of American
Bakeries Company. Mr. Bewkes is also a
director of Interstate Bakeries
Corporation and a director or trustee of
26 other investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Paul B. Guenther; 54*... Director and Mr. Guenther is president and a director of
President PW Group and Mitchell Hutchins and a
director of PaineWebber. Mr. Guenther is
also president of 26, and director or
trustee of 17 other investment companies
for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Meyer Feldberg; 52...... Director Mr. Feldberg is Dean and Professor of
Columbia University Management of the Graduate School of
101 Uris Hall Business, Columbia University. Prior to
New York, NY 10027 1989, he was president of the Illinois
Institute of Technology. Dean Feldberg is
also a director of AMSCO International
Inc., Federated Department Stores, Inc.,
Inco Homes Corporation and New World
Communications Group Incorporated and a
director or trustee of 18 other investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS** THE FUND PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
------------------ ------------- ----------------------------------------------
<S> <C> <C>
George W. Gowen; 65..... Director Mr. Gowen is a partner in the law firm of
666 Third Avenue Dunnington, Bartholow & Miller. Prior to
New York, NY 10017 May 1994, he was a partner in the law firm
of Fryer, Ross & Gowen. Mr. Gowen is also
a director of Columbia Real Estate
Investments, Inc. and a director or
trustee of 16 other investment companies
for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Frederic V. Malek; 58... Director Mr. Malek is Chairman of Thayer Capital
901 15th St. N.W. Partners (investment bank) and a co-
Suite 300 chairman and director of CB Commercial
Washington, D.C. 20005 Group Inc. (real estate). From January
1992 to November 1992, he was campaign
manager of Bush-Quayle '92. From 1990-
1992, he was vice chairman and from 1989
to 1990, he was president of Northwest
Airlines Inc., NWA Inc. (holding company
of Northwest Airlines Inc.) and Wings
Holdings Inc. (holding company of NWA
Inc.). Prior to January 1989, he was
employed by the Marriott Corporation
(hotels, restaurants, airline catering and
contract feeding), where he most recently
was an executive vice president and
president of Marriott Hotels and Resorts.
Mr. Malek is also a director of American
Management Systems, Inc., Automatic Data
Processing, Inc., Avis, Inc., FPL Group,
Inc., ICF International, Manor Care, Inc.
and National Education Corporation and a
director or trustee of 16 other investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Frank P. L. Minard; 49*. Director Mr. Minard is chairman and a director of
Mitchell Hutchins, chairman of the board
of Mitchell Hutchins Institutional
Investors Inc. and a director of
PaineWebber. Prior to 1993, Mr. Minard was
managing director of Oppenheimer Capital
in New York and director of Oppenheimer
Capital Ltd. in London. Mr. Minard is also
a director or trustee of 39 other
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS** THE FUND PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
------------------ -------------- ----------------------------------------------
<S> <C> <C>
Judith Davidson Moyers; Director Mrs. Moyers is president of Public Affairs
59 ..................... Television, Inc., an educational
Public Affairs Televi- consultant and a home economist. Mrs.
sion Moyers is also a director of Columbia Real
356 W. 58th Street Estate Investments, Inc. and Ogden
New York, N.Y. 10019 Corporation and a director or trustee of
16 other investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Thomas F. Murray; 84.... Director Mr. Murray is a real estate and financial
400 Park Avenue consultant. Mr. Murray is also a director
New York, NY 10022 and chairman of American Continental
Properties, Inc., a trustee of Prudential
Realty Trust and a director or trustee of
16 other investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Teresa M. Boyle; 36..... Vice President Ms. Boyle is a first vice president and
manager--advisory administration of
Mitchell Hutchins. Prior to November 1993,
she was compliance manager of Hyperion
Capital Management, Inc., an investment
advisory firm. Prior to April 1993, Ms.
Boyle was a vice president and manager--
legal administration of Mitchell Hutchins.
Ms. Boyle is also a vice president of 26
other investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Joan L. Cohen; 30....... Vice President Ms. Cohen is a vice president and attorney
and Assistant of Mitchell Hutchins. Prior to December
Secretary 1993, she was an associate at the law firm
of Seward & Kissel. Ms. Cohen is also a
vice president and assistant secretary of
26 other investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Ellen R. Harris; 48..... Vice President Ms. Harris is chief domestic equity
strategist and a managing director of
Mitchell Hutchins. Ms. Harris is also a
vice president of 19 other investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS** THE FUND PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
------------------ ------------------- ----------------------------------------------
<S> <C> <C>
Ann E. Moran; 37........ Vice President Ms. Moran is a vice president of Mitchell
and Hutchins. Ms. Moran is also a vice
Assistant Treasurer president and assistant treasurer of 39
other investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Dianne E. O'Donnell; 42. Vice President Ms. O"Donnell is a senior vice president
and and senior associate general counsel of
Secretary Mitchell Hutchins. Ms. O'Donnell is also a
vice president and secretary of 39 other
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Victoria E. Schonfeld; Vice President Ms. Schonfeld is a managing director and
44..................... general counsel of Mitchell Hutchins. From
April 1990 to May 1994, she was a partner
in the law firm of Arnold & Porter. Prior
to April 1990, she was a partner in the
law firm of Shereff, Friedman, Hoffman &
Goodman. Ms. Schonfeld is also a vice
president of 39 other investment companies
for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Paul H. Schubert; 32.... Vice President Mr. Schubert is a vice president of
and Mitchell Hutchins. From August 1992 to
Assistant Treasurer August 1994, he was a vice president at
BlackRock Financial Management, L.P. Prior
to August 1992, he was an audit manager
with Ernst & Young LLP. Mr. Schubert is
also a vice president and assistant
treasurer of 39 other investment companies
for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Martha J. Slezak; 32.... Vice President Ms. Slezak is a vice president of Mitchell
and Hutchins. From September 1991 to April
Assistant Treasurer 1992, she was fundraising director for a
U.S. Senate campaign. Prior to September
1991, she was a tax manager with Arthur
Andersen & Co. Ms. Slezak is also a vice
president and assistant treasurer of 39
other investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS** THE FUND PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
------------------ ------------------- ----------------------------------------------
<S> <C> <C>
Julian F. Sluyters; 34.. Vice President Mr. Sluyters is a senior vice president and
and the director of the mutual fund finance
Treasurer division of Mitchell Hutchins. Prior to
1991, he was an audit senior manager with
Ernst & Young. Mr. Sluyters is also a vice
president and treasurer of 39 other
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Gregory K. Todd; 38..... Vice President Mr. Todd is a first vice president and
and associate general counsel of Mitchell
Assistant Secretary Hutchins. Prior to 1993, he was a partner
in the firm of Shereff, Friedman, Hoffman
& Goodman. Mr. Todd is also a vice
president and assistant secretary of 39
other investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Stuart Waugh; 39........ Vice President Mr. Waugh is a managing director and a
portfolio manager of Mitchell Hutchins
responsible for global fixed income
investments and currency trading. Mr.
Waugh is also a vice president of 5 other
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
- --------
* Messrs. Bewkes, Guenther and Minard are "interested persons" of the Fund as
defined in the 1940 Act by virtue of their positions with PW Group,
PaineWebber or Mitchell Hutchins.
** Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.
The Fund pays each director who is not affiliated with or an interested
person of Mitchell Hutchins $3,000 annually and $500 per meeting of the board
of directors and its committees. The Fund also reimburses directors for any
expenses incurred in attending meetings. Because Mitchell Hutchins performs
substantially all of the services necessary for the operation of the Fund, the
Fund requires no employees. No officer, director or employee of PaineWebber or
Mitchell Hutchins presently receives any compensation from the Fund for acting
as a director or officer.
19
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT ESTIMATED FROM THE
AGGREGATE BENEFITS ANNUAL FUND AND THE
COMPENSATION ACCRUED AS PART BENEFITS FUND
NAME OF FROM THE OF THE FUND'S UPON COMPLEX PAID
PERSON, POSITION FUND* EXPENSES RETIREMENT TO DIRECTORS*
- ---------------- ------------ --------------- ---------- -------------
<S> <C> <C> <C> <C>
E. Garrett Bewkes, Jr.
Director and Chairman
of the
Board of Directors -- --
Meyer Feldberg,
Director $8,250 $86,050
George W. Gowen
Director $7,250 $71,425
Paul B. Guenther,
Director and President -- --
Frederic V. Malek,
Director $8,250 $77,875
Frank P.L. Minard,
Director -- --
Judith Davidson Moyers,
Director $7,250 $71,125
Thomas F. Murray,
Director $7,750 $71,925
</TABLE>
- --------
*Represents fees paid to each director during the fiscal year ended October
31, 1994.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of January 31, 1995, Cede & Co. (the nominee of The Depository Trust
Company, a securities depository) owned of record 23,389,770 of the Fund's
Shares or 89.6% of the outstanding Shares. To the knowledge of the Fund, no
person is the beneficial owner of 5% or more of its Shares.
As of January 31, 1995, the directors and officers of the Fund as a group
beneficially owned less than 1% of the Fund's outstanding Shares.
TAXES
General. In order to continue to qualify for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code, the Fund must
distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of net investment
income, net short-term capital gain and net gains from certain foreign currency
transactions) ("Distribution Requirement") and must meet several additional
requirements. Among
20
<PAGE>
these requirements are the following: (1) the Fund must derive at least 90% of
its gross income each taxable year from dividends, interest, payments with
respect to securities loans and gains from the sale or other disposition of
securities or foreign currencies, or other income (including gains from
options, futures or forward currency contracts) derived with respect to its
business of investing in securities or those currencies ("Income Requirement");
(2) the Fund must derive less than 30% of its gross income each taxable year
from the sale or other disposition of securities, or any of the following, that
were held for less than three months--options or futures (other than those on
foreign currencies), or foreign currencies (or options, futures or forward
contracts thereon) that are not directly related to the Fund's principal
business of investing in securities (or options and futures with respect to
securities) ("Short-Short Limitation"); (3) at the close of each quarter of the
Fund's taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. government securities, securities of
other RICs and other securities, with those other securities limited, in
respect of any one issuer, to an amount that does not exceed 5% of the value of
the Fund's total assets and that does not represent more than 10% of the
issuer's outstanding voting securities; and (4) at the close of each quarter of
the Fund's taxable year, not more than 25% of the value of its total assets may
be invested in securities (other than U.S. government securities or the
securities of other RICs) of any one issuer.
A portion of the dividends from the Fund's investment company taxable income
(whether paid in cash or reinvested in additional Shares) may be eligible for
the dividends-received deduction allowed to corporations. The eligible portion
may not exceed the aggregate dividends received by the Fund from U.S.
corporations, which are not expected to be substantial. However, dividends
received by a corporate shareholder and deducted by it pursuant to the
dividends-received deduction are subject indirectly to the alternative minimum
tax.
Realized capital losses arising from the disposition of securities can be
used only to offset realized capital gains and cannot be used to reduce the
Fund's ordinary income. Thus, if the Fund realizes a net capital loss in any
year, the amount the Fund would be required to distribute for that year in
order to continue qualifying for treatment as a RIC would not be decreased. The
Fund would be able to carry over a net capital loss for eight years and would
be able to utilize the loss in one of those years only when, and to the extent,
that it realized capital gain.
The Fund will be subject to a non-deductible 4% excise tax ("Excise Tax") to
the extent it does not distribute by the end of any calendar year substantially
all of its ordinary income for that year and capital gain net income for the
one-year period ending October 31 of that year, plus certain other amounts. For
these purposes, any such income retained by, and subject to federal income tax
in the hands of, the Fund will be treated as having been distributed.
The Fund may acquire zero coupon securities issued with original issue
discount. As the holder of such securities, the Fund would have to include in
its gross income the original issue discount that accrues on the securities
during the taxable year, even if the Fund receives no corresponding payment on
the securities during the year. Because the Fund annually must distribute
substantially all of its investment company taxable income, including any
accrued original issue discount, in order to continue to satisfy the
Distribution Requirement and to avoid imposition of the Excise Tax, the Fund
may be required in a particular year to distribute as a dividend an amount that
is greater
21
<PAGE>
than the total amount of cash it actually receives. Those distributions will be
made from the Fund's cash assets or from the proceeds of sales of portfolio
securities, if necessary. The Fund may realize capital gains or losses from
those sales, which would increase or decrease the Fund's investment company
taxable income or net capital gain (the excess of net long-term capital gain
over net short-term capital loss). In addition, any such gains may be realized
on the disposition of securities held for less than three months. Because of
the Short-Short Limitation, any such gains would reduce the Fund's ability to
sell other securities, or certain options, futures or forward currency
contracts, held for less than three months that it might wish to sell in the
ordinary course of its portfolio management.
Foreign Taxes. Interest and dividends on foreign securities received by the
Fund may be subject to income, withholding or other taxes imposed by foreign
countries and U.S. possessions that would reduce the yield on those securities.
Tax conventions between certain countries and the United States may reduce or
eliminate these taxes, however, and many foreign countries do not impose taxes
on capital gains in respect of investments by foreign investors. If more than
50% of the value of the Fund's total assets at the close of any taxable year
consists of securities of foreign corporations, the Fund will be eligible to,
and may, file an election with the Internal Revenue Service that will enable
Fund shareholders, in effect, to receive the benefit of the foreign tax credit
with respect to any foreign and U.S. possessions income taxes paid by the Fund
for that year. Pursuant to the election, the Fund would treat those taxes as
dividends paid to its shareholders, and each shareholder would be required to
(1) include in gross income, and treat as paid by him, his proportionate share
of those taxes, (2) treat his share of those taxes and of any dividend paid by
the Fund that represents income from foreign or U.S. possessions sources as his
own income from those sources and (3) either deduct the taxes deemed paid by
him in computing his taxable income or, alternatively, use the foregoing
information in calculating the foreign tax credit against his federal income
tax. If the Fund makes the election, it will report to its shareholders shortly
after the end of each taxable year their respective shares of the Fund's income
from sources within, and taxes paid to, foreign countries and U.S. possessions.
Passive Foreign Investment Companies. The Fund may invest a portion of its
assets in the stock of "passive foreign investment companies" ("PFICs"). A PFIC
is a foreign corporation that, in general, meets either of the following tests:
(1) at least 75% of its gross income is passive or (2) an average of at least
50% of its assets produce, or are held for the production of, passive income.
Under certain circumstances, the Fund will be subject to federal income tax on
a portion of any "excess distribution" received on the stock of a PFIC or of
any gain on disposition of the stock (collectively "PFIC income"), plus
interest thereon, even if the Fund distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be included
in the Fund's investment company taxable income and, accordingly, will not be
taxable to it to the extent that income is distributed to its shareholders. If
the Fund invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund," then in lieu of the foregoing tax and interest obligation, the
Fund would be required to include in income each year its pro rata share of the
qualified electing fund's annual ordinary earnings and net capital gain--which
most likely would have to be distributed to satisfy the Distribution
Requirement and to avoid imposition of the Excise Tax--even if those earnings
and gain were not received by the Fund. In most instances it will be very
difficult, if not impossible, to make this election because of certain
requirements thereof.
22
<PAGE>
The "Tax Simplification and Technical Corrections Bill of 1993," passed in
May 1994 by the House of Representatives, would substantially modify the
taxation of U.S. stockholders of foreign corporations, including eliminating
the provisions described above dealing with PFICs and replacing them (and other
provisions) with a regulatory scheme involving entities called "passive foreign
corporations." Three similar bills were passed by Congress in 1991 and 1992 and
vetoed. It is unclear at this time whether, and in what form, the proposed
modifications may be enacted into law.
Pursuant to proposed regulations, closed-end RICs whose net asset value is
determined and published in a publication of general circulation at least
weekly, such as the Fund, would be entitled to elect to "mark-to-market" their
stock in certain PFICs. "Marking-to-market," in this context, means recognizing
as gain for each taxable year the excess, as of the end of that year, of the
fair market value of such a PFIC's stock over the owner's adjusted basis in
that stock (including mark-to-market gain for each prior year for which an
election was in effect).
Hedging Strategies. The use of hedging strategies, such as writing (selling)
and purchasing options and futures contracts and entering into forward currency
contracts, involves complex rules that will determine for income tax purposes
the character and timing of recognition of the gains or losses the Fund
realizes in connection therewith. These rules also may require the Fund to
"mark-to-market" (which, for these purposes means to treat as sold for their
fair market value) at the end of each taxable year certain positions in its
portfolio, which may cause the Fund to recognize income without receiving cash
with which to make distributions necessary to satisfy the Distribution
Requirement and to avoid imposition of the Excise Tax. In that event, the Fund
might have to liquidate securities to enable it to make the required
distributions, which would cause it to recognize gains or losses and might
affect its ability to satisfy the Short-Short Limitation.
Income from the disposition of foreign currencies, and income from
transactions in options, futures and forward currency contracts derived by the
Fund with respect to its business of investing in securities or foreign
currencies, will qualify as permissible income under the Income Requirement.
However, income from the disposition of options and futures (other than those
on foreign currencies) will be subject to the Short-Short Limitation if they
are held for less than three months. Income from the disposition of foreign
currencies, and options, futures and forward contracts on foreign currencies,
that are not directly related to the Fund's principal business of investing in
securities (or options and futures with respect to securities) also will be
subject to the Short-Short Limitation if they are held for less than three
months.
If the Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. The
Fund will consider whether it should seek to qualify for this treatment for its
hedging transactions. To the extent the Fund does not qualify for this
treatment, it may be forced to defer the closing out of certain options,
futures and forward currency contracts beyond the time when it otherwise would
be advantageous to do so, in order for the Fund to continue to qualify as a
RIC.
23
<PAGE>
INVESTMENT ADVISORY ARRANGEMENTS
Subject to the supervision of the Fund's board of directors, investment
advisory and administration services are provided to the Fund by Mitchell
Hutchins pursuant to an Investment Advisory and Administration Contract dated
August 24, 1988 ("Advisory Contract"). Pursuant to the Advisory Contract,
Mitchell Hutchins provides a continuous investment program for the Fund and
makes decisions and places orders to buy, sell or hold particular securities;
Mitchell Hutchins also supervises all matters relating to the operation of the
Fund and obtains for it corporate officers, clerical staff, office space,
equipment and services.
In addition to the payments to Mitchell Hutchins under the Advisory Contract
described in the Prospectus the Fund pays certain other costs, including (1)
brokerage and commission expenses, (2) federal, state, local and foreign taxes,
including issue and transfer taxes, incurred by or levied on the Fund, (3)
interest charges on borrowings, (4) the organizational and offering expenses of
the Fund, whether or not advanced by Mitchell Hutchins, (5) fees and expenses
of registering the Fund's shares under the appropriate federal securities laws
and of qualifying the shares under applicable state securities laws, (6) fees
and expenses of listing and maintaining the listing of the Fund's shares on any
national securities exchange, (7) expenses of printing and distributing reports
to shareholders, (8) costs of proxy solicitation, (9) charges and expenses of
the Fund's custodian and registrar, transfer and dividend disbursing agent,
(10) compensation of the Fund's officers, directors and employees who do not
devote any part of their time to the affairs of Mitchell Hutchins or its
affiliates other than the Fund, (11) legal and auditing expenses, (12) the cost
of stock certificates representing the Shares and (13) costs of stationery and
supplies.
Under the Advisory Contract, Mitchell Hutchins will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the performance of the Advisory Contract, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part
of Mitchell Hutchins in the performance of its duties or from reckless
disregard of its duties and obligations under the Advisory Contract. The
Advisory Contract is terminable by vote of the board of directors or by the
holders of a majority of the outstanding voting securities of the Fund, at any
time without penalty, on 60 days' written notice to Mitchell Hutchins. The
Advisory Contract may also be terminated by Mitchell Hutchins on 60 days'
written notice to the Fund. The Advisory Contract terminates automatically upon
its assignment.
During the fiscal years ended October 31, 1994, October 31, 1993 and October
31, 1992, the Fund paid or accrued to Mitchell Hutchins $2,056,155, $2,124,523
and $2,117,656, respectively, in investment advisory and administrative fees.
PORTFOLIO TRANSACTIONS
Subject to policies established by the board of directors, Mitchell Hutchins
is responsible for the execution of portfolio transactions and the allocation
of brokerage transactions for the Fund. The government and corporate debt
securities in which the Fund invests generally are traded on the OTC market on
a "net" basis without a stated commission, through dealers acting for their own
account and not as brokers. With respect to portfolio securities traded on the
OTC market, the Fund
24
<PAGE>
will engage primarily in transactions with dealers unless a better price or
execution could be obtained by using a broker. Prices paid to dealers generally
include a "spread," which is the difference between the prices at which the
dealer is willing to purchase and sell a specific security at that time. In
executing portfolio transactions, Mitchell Hutchins seeks to obtain the best
net results for the Fund, taking into account such factors as the price
(including the applicable brokerage commission or dealer spread), size of the
order, difficulty of execution and operational facilities of the firm involved.
While Mitchell Hutchins generally seeks competitive commission rates and dealer
spreads, payment of the lowest commission or spread is not necessarily
consistent with obtaining the best net results.
The Fund anticipates that its brokerage transactions involving securities of
companies headquartered in countries other than the United States will be
conducted primarily on the principal exchanges of such countries. Transactions
on foreign exchanges are usually subject to fixed commissions which are
generally higher than negotiated commissions on U.S. transactions. There is
generally less government supervision and regulation of exchanges and brokers
in foreign countries than in the United States.
The Fund has no obligation to deal with any broker or group of brokers in the
execution of portfolio transactions. The Fund contemplates that, consistent
with the policy of obtaining the best net results, brokerage transactions may
be conducted through Mitchell Hutchins or its affiliates, including
PaineWebber. The board of directors has adopted procedures in conformity with
Rule 17e-1 under the 1940 Act to ensure that all brokerage commissions paid to
Mitchell Hutchins and its affiliates are reasonable and fair. Specific
provisions in the Advisory Contract authorize Mitchell Hutchins and any of its
affiliates that are members of a national securities exchange to effect
portfolio transactions for the Fund on such exchange and to retain compensation
in connection with such transactions. Any such transactions will be effected
and related compensation paid only in accordance with applicable SEC
regulations.
Consistent with the Fund's interests and subject to the review of the board
of directors, Mitchell Hutchins may cause the Fund to purchase and sell
portfolio securities from and to dealers, or through brokers, who provide the
Fund with research, analysis, advice and similar services. In return for such
services, the Fund may pay to such brokers a higher commission than may be
charged by other brokers, provided that Mitchell Hutchins determines in good
faith that such commission is reasonable in terms either of that particular
transaction or of the overall responsibility of Mitchell Hutchins to the Fund
and its other clients and that the total commissions paid by the Fund will be
reasonable in relation to the benefits to the Fund over the long term. For
purchases or sales with broker-dealer firms which act as principal, Mitchell
Hutchins seeks best execution. Although Mitchell Hutchins may receive certain
research or execution services in connection with these transactions, Mitchell
Hutchins will not purchase securities at a higher price or sell securities at a
lower price than would otherwise be paid if no weight was attributed to the
research services provided by the executing dealer. Moreover, Mitchell Hutchins
will not enter into any explicit soft dollar arrangements relating to principal
transactions and will not receive in principal transactions the types of
services which could be purchased for hard dollars. Mitchell Hutchins may
engage in agency transactions in OTC equity and debt securities in return for
research and execution services. These transactions are entered into only in
compliance with procedures ensuring that the
25
<PAGE>
transaction (including commissions) is at least as favorable as it would have
been if effected directly with a market-maker that did not provide research or
execution services. These procedures include Mitchell Hutchins receiving
multiple quotes from dealers before executing the transaction on an agency
basis.
Research services furnished by dealers or brokers with or through which the
Fund effects securities transactions may be used by Mitchell Hutchins in
advising other funds or accounts and, conversely, research services furnished
to Mitchell Hutchins by dealers or brokers in connection with other funds or
accounts Mitchell Hutchins advises may be used by Mitchell Hutchins in advising
the Fund. Information and research received from such dealers and brokers will
be in addition to, and not in lieu of, the services required to be performed by
Mitchell Hutchins under the Advisory Contract.
Transactions in futures contracts are executed through futures commission
merchants ("FCMs") who receive brokerage commissions for their services. The
Fund's procedures in selecting FCMs to execute the Fund's transactions in
futures contracts, including procedures permitting the use of Mitchell Hutchins
and its affiliates, are similar to those in effect with respect to brokerage
transactions in securities.
Investment decisions for the Fund and for other investment accounts managed
by Mitchell Hutchins are made independently of each other in the light of
differing considerations for the various accounts. The same investment
decision, however, may occasionally be made for the Fund and one or more of
such accounts. In such cases, simultaneous transactions are inevitable.
Purchases or sales are then averaged as to price and allocated between the Fund
and such other account(s) as to amount according to a formula deemed equitable
to the Fund and such accounts. While in some cases this practice could have a
detrimental effect upon the price or value of the security as far as the Fund
is concerned or upon its ability to complete its entire order, in other cases
it is believed that coordination and the ability to participate in volume
transactions will be beneficial to the Fund.
The Fund will not purchase securities that are offered in underwritings in
which Mitchell Hutchins or any of its affiliates is a member of the
underwriting or selling group except pursuant to the procedures adopted by the
Fund's board of directors in conformity with Rule 10f-3 under the 1940 Act.
Among other things, these procedures will require that the commission or spread
paid in connection with such a purchase be reasonable and fair; that the
purchase be at not more than the public offering price prior to the end of the
first business day after the date of the public offering; and that Mitchell
Hutchins or its affiliates not participate in or benefit from the sale to the
Fund.
During the Fund's fiscal year ended October 31, 1994, Mitchell Hutchins did
not direct any portfolio transactions to brokers chosen because they provide
research and analysis. During the fiscal years ended October 31, 1994, October
31, 1993 and October 31, 1992, the Fund paid no brokerage or FCM commissions.
26
<PAGE>
VALUATION OF SHARES
The net asset value of the Shares is determined weekly as of the close of
regular trading on the NYSE (currently 4:00 p.m., eastern time) on the last day
of the week on which the NYSE is open for trading. The net asset value of the
Shares also is determined monthly as of the close of regular trading on the
NYSE on the last day of the month on which the NYSE is open for trading. The
net asset value per Share is computed by dividing the value of the securities
held by the Fund plus any cash or other assets (including interest and
dividends accrued but not yet received and earned discount) minus all
liabilities (including accrued expenses) by the total number of Shares
outstanding at such time.
When market quotations are readily available, the Fund's debt securities are
valued based upon those quotations. When market quotations for options and
futures positions held by the Fund are readily available, those positions are
valued based upon such quotations. Market quotations generally are not
available for options traded in the OTC market. When market quotations for
options and futures positions or any other securities and assets of the Fund
are not readily available, they are valued at fair value as determined in good
faith by or under the direction of the board of directors. When market
quotations are not readily available for any of the Fund's debt securities,
such securities are valued based upon appraisals received from a pricing
service using a computerized matrix system, or based upon appraisals derived
from information concerning the security or similar securities received from
recognized dealers in those securities. Notwithstanding the above, debt
securities with maturities of 60 days or less generally are valued at amortized
cost if their original term to maturity was 60 days or less, or by amortizing
the difference between their fair value as of the 61st day prior to maturity
and their maturity value if their original term to maturity exceeded 60 days,
unless in either case the board of directors or its delegate determines that
this does not represent fair value.
Securities and other instruments that are listed on U.S. and foreign stock
exchanges and for which market quotations are readily available are valued at
the last sale price on the exchange on which the securities are traded, as of
the close of business on the day the securities are being valued or, lacking
any sales on such day, at the last bid price available. In cases where
securities or other instruments are traded on more than one exchange, such
securities or other instruments generally are valued on the exchange designated
by Mitchell Hutchins under the direction of the board of directors as the
primary market. Securities traded in the OTC market and listed on NASDAQ are
valued at the last available sale price on NASDAQ prior to the time of
valuation; other OTC securities and instruments are valued at the last
available bid price available prior to the time of valuation. Securities and
other 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 or under the direction of the board
of directors.
All securities and other assets quoted in foreign currency and forward
currency contracts are valued weekly in U.S. dollars on the basis of the
foreign currency exchange rate prevailing at the time such valuation is
determined by the Fund's custodian. Foreign currency exchange rates are
generally determined prior to the close of the NYSE. Occasionally, events
affecting the value of foreign securities and such exchange rates occur between
the time at which they are determined and the close of the NYSE, which events
will not be reflected in a computation of the Fund's net
27
<PAGE>
asset value. If events materially affecting the value of such securities or
assets or currency exchange rates occurred during such time period, the
securities or assets would be valued at their fair value as determined in good
faith by or under the direction of the board of directors. The foreign currency
exchange transactions of the Fund conducted on a spot basis are valued at the
spot rate for purchasing or selling currency prevailing on the foreign exchange
market. Under normal market conditions this rate differs from the prevailing
exchange rate by an amount generally less than one-tenth of one percent due to
the costs of converting from one currency to another.
ADDITIONAL INFORMATION
Share Repurchases and Tender Offers. As discussed in the Prospectus, the
Fund's board of directors may tender for its shares to reduce or eliminate the
discount to net asset value at which the Fund's shares might trade. Even if a
tender offer has been made, it will be the board's announced policy, which may
be changed by the board, not to accept tenders or effect repurchases (or, if a
tender offer has not been made, not to initiate a tender offer) if (1) such
transactions, if consummated, would (a) result in the delisting of the Fund's
shares from the NYSE (the NYSE having advised the Fund that it would consider
delisting if the aggregate market value of the outstanding shares is less than
$5,000,000, the number of publicly held shares falls below 600,000 or the
number of round-lot holders falls below 1,200), or (b) impair the Fund's status
as a RIC under the Internal Revenue Code (which would eliminate the Fund's
eligibility to deduct dividends paid to its shareholders, thus causing the
Fund's income to be fully taxed at the corporate level in addition to the
taxation of shareholders upon dividends received from the Fund); (2) the Fund
would not be able to liquidate portfolio securities in an orderly manner and
consistent with the Fund's investment policies and objectives in order to
repurchase its shares; or (3) there is, in the board's judgment, any material
(a) legal action or proceeding instituted or threatened challenging such
transactions or otherwise materially adversely affecting the Fund, (b)
suspension of trading or limitation on prices of securities generally on the
NYSE or any foreign exchange on which portfolio securities of the Fund are
traded, (c) declaration of a banking moratorium by federal, state or foreign
authorities or any suspension of payment by banks in the United States, New
York State or foreign countries in which the Fund invests, (d) limitation
affecting the Fund or the issuers of its portfolio securities imposed by
federal, state or foreign authorities on the extension of credit by lending
institutions or on the exchange of a foreign currency, (e) commencement of war,
armed hostilities or other international or national calamity directly or
indirectly involving the United States or other countries in which the Fund
invests or (f) other events or conditions that would have a material adverse
effect on the Fund or its shareholders if shares were repurchased. The board of
directors may modify these conditions in light of experience.
Any tender offer made by the Fund will be made and shareholders notified in
accordance with the requirements of the Securities Exchange Act of 1934 and the
1940 Act, either by publication or mailing or both. Each offering document will
contain such information as is prescribed by such laws and the rules and
regulations promulgated thereunder. When a tender offer is authorized to be
made by the Fund's board of directors, a shareholder wishing to accept the
offer will be required to tender all (but not less than all) of the shares
owned by such shareholder (or attributed to him for federal income tax purposes
under section 318 of the Internal Revenue Code). The Fund will
28
<PAGE>
purchase all shares tendered in accordance with the terms of the offer unless
it determines to accept none of them (based upon one of the conditions set
forth above). Each person tendering shares will pay to the Fund's transfer
agent a service charge to help defray certain costs, including the processing
of tender forms, effecting payment, postage and handling. Any such service
charge will be paid directly by the tendering shareholder and will not be
deducted from the proceeds of the purchase. The Fund's transfer agent will
receive the fee as an offset to these costs. The Fund expects the cost of
effecting a tender offer will exceed the aggregate of all service charges
received from those who tender their shares. Costs associated with the tender
will be charged against capital.
Tendered shares that have been accepted and purchased by the Fund will be
held in the treasury until retired by the board. If treasury shares are
retired, common stock issued and outstanding and capital in excess of par will
be reduced. If tendered shares are not retired, the Fund may hold, sell or
otherwise dispose of the shares for any lawful corporate purpose as determined
by the board of directors.
Experts. Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New
York 10036 serves as the Fund's independent accountants.
Legal Matters. The law firm of Kirkpatrick & Lockhart, 1800 M Street, N.W.,
Washington, D.C. 20036-5891, counsel to the Fund, has passed upon the legality
of the Shares offered by the Fund's Prospectus. Kirkpatrick & Lockhart also
acts as counsel to Mitchell Hutchins and PaineWebber in connection with other
matters.
FINANCIAL STATEMENTS
The Fund's audited financial statements for the fiscal year ended October 31,
1994 follow.
29
<PAGE>
Global Income Plus Fund, Inc.
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of Global Income Plus Fund, Inc.
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 Global Income Plus Fund, Inc. (the
"Fund") at October 31, 1994, 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 five years in the
period then ended 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, 1994 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 13, 1994
30
<PAGE>
Global Income Plus Fund, Inc.
- --------------------------------------------------------------------------------
Portfolio of Investments
October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)* DATES RATES VALUE
---------- -------------------- ---------------- -----------
<C> <S> <C> <C> <C>
LONG-TERM DEBT SECURITIES--84.23%
AUSTRALIA--6.67%
New South Wales Treasury
$ 12,278 Corp. .................. 07/01/99 to 12/01/01 11.500 to 12.000% $ 9,657,128
Queensland Treasury
7,200 Corp. Global Issue...... 08/15/01 to 05/15/03 10.500 to 12.000 5,595,082
-----------
15,252,210
-----------
CANADA--5.18%
3,356 Government of Canada.... 06/01/08 to 06/01/21 9.750 to 10.000 2,615,676
2,500 Hydro Quebec............ 05/15/03 10.250 1,875,162
Ontario Hydro Global
11,671 Bonds................... 04/11/07 to 04/11/11 10.502 to 10.551@ 2,230,834
Ontario Hydro Global
6,155 Bonds................... 02/06/02 8.625 4,403,677
Province of British
5,111 Columbia Residual Bonds. 01/09/12 9.061 to 9.115@ 723,638
-----------
11,848,987
-----------
DENMARK--6.44%
85,930 Government of Denmark... 11/15/96 to 11/15/00 9.000 14,717,661
-----------
FINLAND--3.25%
Republic of Finland
33,000 Housing Bond............ 03/15/02 10.750 7,442,398
-----------
FRANCE--3.14%
37,050 Government of France.... 04/25/03 to 10/25/19 8.500 7,176,878
-----------
GERMANY--7.63%
Federal Republic of
26,370 Germany................. 01/22/96 to 01/04/24 6.250 to 8.875 17,436,371
-----------
IRELAND--3.76%
5,300 Republic of Ireland..... 07/15/01 9.000 8,604,021
-----------
MEXICO--2.53%
Grupo Embotellador de
US$ 1,000 Mexico, S.A. de C.V. ... 11/19/97 10.750 1,036,250
US$ 6,000 Petroleos Mexicanos..... 12/01/23 8.625 4,740,000
-----------
5,776,250
-----------
NEW ZEALAND--2.25%
Government of New
6,020 Zealand................. 07/15/97 10.000 3,802,575
International Bank for
Reconstruction and
2,020 Development(1).......... 07/25/97 12.500 1,345,884
-----------
5,148,459
-----------
PHILIPPINES--1.35%
US$ 5,000 Republic of Philippines. 12/01/17 5.250+ 3,081,250
-----------
SPAIN--10.89%
3,023,860 Government of Spain..... 04/15/96 to 08/30/03 10.900 to 13.450 24,905,207
-----------
SWEDEN--2.77%
41,200 Government of Sweden.... 06/15/01 13.000 6,345,178
-----------
</TABLE>
31
<PAGE>
Global Income Plus Fund, Inc.
- --------------------------------------------------------------------------------
Portfolio of Investments -- (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)* DATES RATES VALUE
---------- -------------------- --------------- ------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT SECURITIES--(CONCLUDED)
TURKEY--3.44%
US$ 9,000 Republic of Turkey...... 06/15/99 9.000% $ 7,875,000
------------
UNITED KINGDOM--7.07%
9,508 United Kingdom Gilt..... 01/22/97 to 06/10/03 8.000 to 13.250 16,160,696
------------
UNITED STATES--16.07%
2,000 American Life Holdings.. 09/15/04 11.250 2,000,000
2,000 Chancellor Broadcasting. 10/01/04 12.500 2,000,000
2,000 Color Tile Inc. ........ 12/15/01 10.750 1,795,000
2,000 Continental Cablevision. 09/15/05 8.875 1,790,000
2,000 County Seat Holdings.... 10/01/01 12.000 1,965,000
2,500 K-III Communications.... 05/01/02 10.625 2,500,000
2,000 Kloster Cruise LTD...... 05/01/03 13.000 1,930,000
2,000 Owens Illinois.......... 04/01/99 10.250 2,020,000
2,000 Pamida Inc. ............ 03/15/03 11.750 1,970,000
3,000 Penn Traffic............ 04/15/05 9.625 2,685,000
Petroleos PSC
2,500 Properties, L.P. (2).... 06/01/02 12.500 2,450,000
2,000 Plitt Theaters Inc. .... 06/15/04 10.875 1,960,000
2,500 Reeves Industries....... 07/15/02 11.000 2,500,000
2,000 Reliance Group Holdings. 11/15/00 9.000 1,840,000
1,450 Rohr Inc. .............. 05/15/03 11.625 1,464,500
2,000 Specialty Equipment Inc. 12/01/03 11.375 1,970,800
Stone Container Corp.
2,000 First Management........ 10/01/02 10.750 1,975,000
2,000 Transtexas Gas Corp. ... 09/01/00 10.500 1,927,500
------------
36,742,800
------------
VENEZUELA--1.79%
Bariven Petroleos de
US$ 4,800 Venezuela, S.A. ........ 03/17/02 10.625 4,086,000
------------
TOTAL LONG-TERM DEBT SECURITIES
(cost--$196,932,940)...............
192,599,366
------------
SHORT-TERM DEBT SECURITIES--3.55%
AUSTRALIA--0.50%
New South Wales Treasury
1,500 Corp.................... 04/01/95 12.100 1,135,053
------------
UNITED STATES--3.05%
7,000 U.S. Treasury Bills..... 11/17/94 4.675@ 6,985,790
------------
TOTAL SHORT-TERM DEBT SECURITIES
(cost--$8,167,123).................
8,120,843
------------
</TABLE>
32
<PAGE>
Global Income Plus Fund, Inc.
- --------------------------------------------------------------------------------
Portfolio of Investments -- (concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)* DATES RATES VALUE
---------- -------- -------- ------------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENT--2.71%
$ 6,207 Repurchase Agreement dated
10/31/94, with Daiwa Securities
(America), Inc. collateralized by
$5,705,000 U.S. Treasury Bonds,
9.125% due 05/15/09; proceeds:
$6,207,819 (cost-$6,207,000)...... 11/01/94 4.750% $ 6,207,000
------------
TOTAL INVESTMENTS (cost-$211,307,063)--90.49%. 206,927,209
Other assets in excess of liabilities--9.51%.. 21,739,016
------------
NET ASSETS--(applicable to 26,096,317 shares;
equivalent to $8.76 per share)--100.00%...... $228,666,225
============
</TABLE>
- --------
Note: The Portfolio of Investments is listed by the issuer's country of origin.
*--In local currency unless otherwise indicated.
@--Yield to maturity for zero coupon bonds.
(1)--"Supranational" security denominated in New Zealand Dollars.
(2)--With an additional 2,500,000 warrants attached, expiring on 06/01/97.
+--Reflects rate at October 31, 1994 on step coupon rate instrument.
FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT TO IN EXCHANGE APPRECIATION
DELIVER FOR MATURITY DATES (DEPRECIATION)
------------- ------------- -------------------- --------------
<S> <C> <C> <C> <C>
Australian Dollars...... 4,480,681 US$ 3,304,054 02/03/95 $ (17,444)
Belgian Francs.......... 225,800,000 US$ 6,882,048 11/18/94 (413,054)
Belgian Francs.......... 115,000,000 US$ 3,749,991 01/27/95 28,815
British Pounds.......... 8,960,000 US$14,669,312 01/30/95 31,183
Danish Kronas........... 22,952,605 US$ 3,895,554 01/23/95 5,086
Finnish Markkas......... 35,503,057 US$ 7,023,496 11/07/94 (674,958)
Greek Drachmas.......... 3,269,920,067 US$13,532,557 01/26/95 to 02/24/95 (70,721)
Irish Punts............. 3,574,120 US$ 5,539,886 11/17/94 (202,726)
Spanish Pesetas......... 603,462,000 US$ 4,618,762 11/17/94 (194,595)
Spanish Pesetas......... 318,929,978 US$ 2,535,819 01/26/95 2,276
Spanish Pesetas......... 2,950,973,022 US$23,401,655 11/17/94 to 01/27/95 (94,035)
-----------
$(1,600,173)
===========
</TABLE>
TOTAL INVESTMENTS BY TYPE OF ISSUER
<TABLE>
<CAPTION>
LONG-TERM SHORT-TERM
--------- ----------
<S> <C> <C>
Government and other public issuers........................ 63.26% 3.55%
Retail..................................................... 4.75 --
Media/Entertainment........................................ 4.45 --
Petroleum/Energy........................................... 4.70 --
Financial institutions..................................... 2.27 2.71
Industrial................................................. 1.98 --
Other...................................................... 2.82 --
----- ----
84.23% 6.26%
===== ====
</TABLE>
See accompanying notes to financial statements
33
<PAGE>
Global Income Plus Fund, Inc.
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost--$211,307,063)........ $206,927,209
Cash............................................................ 953
Cash denominated in foreign currencies (cost--$9,289,195)....... 9,346,705
Interest receivable............................................. 8,244,589
Receivable for investments sold................................. 23,207,962
Unrealized appreciation on forward foreign currency contracts... 67,360
Receivable for foreign taxes withheld........................... 156,264
Other assets.................................................... 12,880
------------
Total assets................................................... 247,963,922
------------
LIABILITIES
Payable for investments purchased............................... 17,242,138
Unrealized depreciation on forward foreign currency contracts... 1,667,533
Payable to affiliates........................................... 165,934
Accrued expenses and other liabilities.......................... 222,092
------------
Total liabilities.............................................. 19,297,697
------------
NET ASSETS
Capital stock, $0.001 par value; total authorized 100,000,000
shares; 26,096,317 shares issued and outstanding............... 236,223,899
Distributions in excess of net investment income................ (1,500,681)
Accumulated net realized losses from investments................ (64,708)
Net unrealized depreciation of investments, other assets, lia-
bilities and forward contracts denominated in foreign curren-
cies........................................................... (5,992,285)
------------
Net assets..................................................... $228,666,225
============
Net asset value per share...................................... $8.76
=====
</TABLE>
See accompanying notes to financial statements
34
<PAGE>
Global Income Plus Fund, Inc.
- --------------------------------------------------------------------------------
Statement of Operations
For the Year Ended October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest......................................................... $ 20,550,291
------------
EXPENSES:
Investment advisory and administration fees...................... 2,056,155
Custody and accounting fees...................................... 336,909
Legal and audit fees............................................. 91,228
Reports and notices to shareholders.............................. 90,000
Transfer agency fees............................................. 59,201
Directors' fees and expenses..................................... 27,513
Other expenses................................................... 10,996
------------
Total expenses.................................................. 2,672,002
------------
NET INVESTMENT INCOME............................................. 17,878,289
------------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVITIES:
Net realized gains (losses) from:
Investment transactions......................................... 953,493
Foreign currency transactions................................... (8,562,455)
Net change in unrealized appreciation/depreciation of:
Investments..................................................... (14,651,040)
Other assets, liabilities and forward contracts denominated in
foreign currencies............................................. (1,693,860)
------------
NET REALIZED AND UNREALIZED LOSSES FROM INVESTMENT ACTIVITIES..... (23,953,862)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. $ (6,075,573)
============
</TABLE>
See accompanying notes to financial statements
35
<PAGE>
Global Income Plus Fund, Inc.
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
OCTOBER 31,
--------------------------
1994 1993
---- ----
<S> <C> <C>
FROM OPERATIONS:
Net investment income............................. $ 17,878,289 $ 19,378,225
Net realized gains from investment transactions... 953,493 3,922,900
Net realized losses from foreign currency transac-
tions............................................ (8,562,455) (930,910)
Net change in unrealized appreciation/depreciation
of investments................................... (14,651,040) 10,130,739
Net change in unrealized appreciation/depreciation
of other assets, liabilities and forward con-
tracts denominated in foreign currencies......... (1,693,860) 1,667,410
------------ ------------
Net increase (decrease) in net assets resulting
from operations.................................. (6,075,573) 34,168,364
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................. (11,326,858) (21,138,017)
Net realized gains from investment transactions... (4,906,663) (1,320,474)
Paid in capital................................... (6,334,574) --
------------ ------------
(22,568,095) (22,458,491)
------------ ------------
Net increase (decrease) in net assets............. (28,643,668) 11,709,873
NET ASSETS:
Beginning of period............................... 257,309,893 245,600,020
------------ ------------
End of period (including (distributions in excess
of)/undistributed net investment income of
($1,500,681) and $4,001,781, respectively)....... $228,666,225 $257,309,893
============ ============
</TABLE>
See accompanying notes to financial statements
36
<PAGE>
Global Income Plus Fund, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Global Income Plus Fund, Inc. (the "Fund") was incorporated in Maryland on
July 13, 1988 as a closed-end, non-diversified management investment company.
Valuation of Investments--Securities which are listed on U.S. and foreign
stock exchanges are valued at the last sale prices 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 valued on the exchange designated by Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins"), which is a wholly owned subsidiary of
PaineWebber Incorporated ("PaineWebber"), as the primary market. Securities
traded in the over-the-counter ("OTC") market and listed on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") are
valued at the last trade 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. The amortized cost method of valuation 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, or under the
direction of, the Fund's board of directors. All investments quoted in foreign
currencies are valued weekly 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. The ability of the issuers of the debt securities held by
the Fund to meet their obligations may be affected by economic and political
developments, including those particular to a specific industry, country or
region.
Foreign currency exchange rates are generally determined prior to the close
of the New York Stock Exchange, Inc. ("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 would not be
reflected in the computation of the Fund's net asset value. If events
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 Fund's board
of directors.
Investment Transactions and Investment Income--Investment transactions are
recorded on the trade date. Realized gains and losses on 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.
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:
37
<PAGE>
Global Income Plus Fund, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements -- (continued)
- --------------------------------------------------------------------------------
(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.
Although the net assets of the Fund are presented at the foreign exchange
rates at the close 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. Pursuant to federal income tax regulations,
certain foreign exchange gains/losses included in realized and unrealized
gain/loss are included in or are a reduction of ordinary income for federal
income tax purposes. Foreign security and currency transactions may involve
certain considerations and risks not typically associated with investing in
U.S. companies and U.S. government securities. These risks include revaluation
of currencies and future adverse political and economic developments, which
could cause securities and their markets to be less liquid and prices more
volatile than those of comparable U.S. companies and U.S. government
securities.
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 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, U.S. government securities or liquid, high-
grade debt 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 upon 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.
38
<PAGE>
Global Income Plus Fund, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements -- (continued)
- --------------------------------------------------------------------------------
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.
Reverse Repurchase Agreements--The Fund may enter into reverse repurchase
agreements with banks and broker-dealers up to an aggregate value of not more
than 5% of its total assets. At October 31, 1994, the Fund had no reverse
repurchase agreements outstanding.
Federal Tax Status--The Fund intends to distribute 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.
Dividends and Distributions to Shareholders--Dividends and distributions to
shareholders are recorded on the ex-dividend date. During the year ended
October 31, 1994, the Fund adopted Statement of Position 93-2, "Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies". Accordingly, 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. Dividends and distributions which exceed net investment
income and net realized capital gains for financial reporting purposes but not
for tax purposes are reported as dividends in excess of net investment income
or distributions in excess of net realized capital gains. To the extent they
exceed net investment income and net realized capital gains for tax purposes,
they are reported as distributions of paid-in-capital.
INVESTMENT ADVISER AND ADMINISTRATOR
The Fund has entered into an Investment Advisory and Administration Contract
("Advisory Contract") with Mitchell Hutchins. In accordance with the Advisory
Contract, the Fund pays Mitchell Hutchins an investment advisory and
administration fee, which is accrued weekly and paid
39
<PAGE>
Global Income Plus Fund, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements -- (concluded)
- --------------------------------------------------------------------------------
monthly, at the annual rate of 0.85% of its average weekly net assets. At
October 31, 1994, the Fund owed Mitchell Hutchins $165,934 for investment
advisory and administration fees.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at October 31,
1994, was substantially the same as the cost of securities for financial
statement purposes.
At October 31, 1994 the components of net unrealized depreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (from investments having an excess of value
over cost)....................................................... $ 2,935,300
Gross depreciation (from investments having an excess of cost over
value)........................................................... (7,315,154)
-----------
Net unrealized depreciation of investments........................ $(4,379,854)
===========
</TABLE>
For the year ended October 31, 1994, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $212,417,957 and
$198,831,472, respectively.
FEDERAL INCOME TAX STATUS
To reflect reclassifications arising from permanent "book/tax" differences as
of October 31, 1993, paid in capital was decreased by $1,339, accumulated net
realized gain/loss was increased by $3,526,873 and accumulated undistributed
net investment income was decreased by $3,525,534. To reflect reclassifications
arising from permanent "book/tax" differences for the year ended October 31,
1994, accumulated net realized gain/loss was increased by $8,528,359 and
undistributed net investment income was decreased by $8,528,359. Permanent
"book/tax" differences were primarily attributable to foreign currency losses.
CAPITAL STOCK
There are 100,000,000 shares of $0.001 par value capital stock authorized. Of
the 26,096,317 shares outstanding at October 31, 1994 Mitchell Hutchins owned
10,753 shares.
40
<PAGE>
Global Income Plus Fund, Inc.
- --------------------------------------------------------------------------------
Quarterly Results of Operations -- (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET REALIZED AND
UNREALIZED GAINS NET INCREASE
(LOSSES) ON (DECREASE)
INVESTMENTS AND IN NET ASSETS
NET INVESTMENT FOREIGN CURRENCY RESULTING FROM
INCOME TRANSACTIONS OPERATIONS
----------------------------------- ----------------
TOTAL PER TOTAL PER TOTAL PER
QUARTER ENDED (000) SHARE (000) SHARE (000) SHARE
- ------------- -------- ---------------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
October 31, 1994......... $ 4,805 $ 0.18 $ (2,497) $ (0.10) $ 2,308 $ 0.08
July 31, 1994............ 4,602 0.18 (5,443) (0.21) (841) (0.03)
April 30, 1994........... 4,291 0.17 (20,507) (0.78) (16,216) (0.61)
January 31, 1994......... 4,180 0.16 4,493 0.17 8,673 0.33
-------- ------ --------- ------- -------- ------
Totals................. $ 17,878 $ 0.69 $ (23,954) $ (0.92) $ (6,076) $(0.23)
======== ====== ========= ======= ======== ======
October 31, 1993......... $ 4,574 $ 0.18 $ 5,511 $ 0.21 $ 10,085 $ 0.39
July 31, 1993............ 5,139 0.20 2,860 0.11 7,999 0.31
April 30, 1993........... 5,163 0.19 6,875 0.26 12,038 0.45
January 31, 1993......... 4,502 0.17 (456) (0.01) 4,046 0.16
-------- ------ --------- ------- -------- ------
Totals................. $ 19,378 $ 0.74 $ 14,790 $ 0.57 $ 34,168 $ 1.31
======== ====== ========= ======= ======== ======
</TABLE>
41
<PAGE>
Global Income Plus Fund, Inc.
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share of common stock outstanding throughout each of the
periods is presented below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED OCTOBER 31,
---------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................ $ 9.86 $ 9.41 $ 9.62 $ 9.86 $ 9.16
-------- -------- -------- -------- --------
Income from investment op-
erations:
Net investment income.... 0.69 0.74 0.85 0.91 1.00
Net realized and
unrealized gains (loss-
es) from investments and
foreign currency trans-
actions................. (0.92) 0.57 (0.20) 0.02 0.67
-------- -------- -------- -------- --------
Total income (loss) from
investment operations.... (0.23) 1.31 0.65 0.93 1.67
-------- -------- -------- -------- --------
Less dividends and
distributions from:
Net investment income.... (0.44) (0.81) (0.72) (1.17) (0.97)
Net realized gains from
investments and foreign
currency transactions... (0.19) (0.05) (0.14) -- --
Paid in capital.......... (0.24) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and dis-
tributions............... (0.87) (0.86) (0.86) (1.17) (0.97)
-------- -------- -------- -------- --------
Net asset value, end of
period................... $ 8.76 $ 9.86 $ 9.41 $ 9.62 $ 9.86
======== ======== ======== ======== ========
Per share market value,
end of period............ $ 7.75 $ 9.50 $ 9.75 $ 9.75 $ 9.375
======== ======== ======== ======== ========
Total return (1).......... (9.89)% 6.21% 9.14% 17.35% 24.32%
======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period
(000's).................. $228,666 $257,310 $245,600 $242,205 $243,171
Expenses to average net
assets................... 1.10% 1.50%** 1.12% 1.13% 1.27%
Net investment income to
average net assets....... 7.39% 7.75%** 8.60% 9.50% 10.61%
Portfolio turnover rate... 106.92% 100.78% 85.60% 53.80% 127.84%
</TABLE>
- --------
(1) Total return on market value is calculated assuming a purchase of one share
at market value on the first day of each period reported, reinvestment of
all dividends and capital gain distributions in accordance with the
Dividend Reinvestment Plan, and a sale at market value on the last day of
each period reported.
** Includes 0.38% of interest expense relating to reverse repurchase agreement
transactions entered into during the fiscal year.
42
<PAGE>
Global Income Plus Fund, Inc.
- --------------------------------------------------------------------------------
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, 1994) as to the federal tax status of distributions received by
shareholders during such fiscal year. Accordingly, we are advising you that the
following distributions paid during the fiscal year by the Fund were derived
from the following sources:
<TABLE>
<CAPTION>
PER SHARE DATA:
---------------
<S> <C>
Net investment income.......................................... $0.4375
Short-term capital gains (taxable as ordinary income).......... $0.0635
Long-term capital gains........................................ $0.1245
</TABLE>
Additionally, the Fund paid a nontaxable distribution of $0.2393 per share to
shareholders during the fiscal year.
Dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need not
be reported as taxable income. Some retirement 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 in respect of calendar 1994. The second 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 1995. Shareholders are advised to consult their own tax
advisers with respect to the tax consequences of their investment in the Fund.
43
<PAGE>
Global Income Plus Fund, Inc.
- --------------------------------------------------------------------------------
General Information
- --------------------------------------------------------------------------------
THE FUND
Global Income Plus Fund, Inc. (the "Fund") is a non-diversified, closed-end
management investment company whose shares trade on the New York Stock
Exchange, Inc. ("NYSE"). The Fund's primary investment objective is to achieve
a high level of current income; capital appreciation is a secondary objective
in the selection of investments. The Fund's investment adviser and
administrator is Mitchell Hutchins Asset Management Inc., a wholly owned
subsidiary of PaineWebber Incorporated, which has over $35.3 billion in assets
under management.
MANAGEMENT OF THE FUND
Stuart Waugh, a managing director and portfolio manager of Mitchell Hutchins
responsible for global fixed income and currency trading, is responsible for
the day-to-day management of the Fund's portfolio. He is also a vice president
of the Fund and of other investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser. Mr. Waugh has been employed by
Mitchell Hutchins as a portfolio manager for the last five years. He is a
portfolio manager of Global High Income Dollar Fund Inc., Strategic Global
Income Fund, Inc., PaineWebber Strategic Income Fund and PaineWebber Series
Trust--Global Income Portfolio with aggregate assets as of September 30, 1994
of approximately $2.3 billion. Other members of the Mitchell Hutchins" global
investing group provide input on market outlook, interest rate forecasts,
investment research and other considerations pertaining to the Fund's
investments.
SHAREHOLDER INFORMATION
The Fund's NYSE trading symbol is "GLI". Weekly comparative net asset value
and market price information about the Fund is published each Monday in The
Wall Street Journal and New York Times and each Saturday in Barron's, as well
as numerous other newspapers.
DISTRIBUTION POLICY
Under current policies of the Fund's board of directors, shareholders may
elect to receive all dividends and other distributions in cash paid by check
mailed directly to the shareholders by the dividend disbursing agent. Under the
Fund's Dividend Reinvestment Plan (the "Plan"), shareholders not making such
election and whose shares are registered in their own names will receive all
such distributions in additional shares. Participants in the Plan will receive
dividends and other distributions in Fund shares acquired in one of two ways.
First, whenever the market price of Fund shares equals or exceeds the net asset
value thereof, as determined at the time the shares are valued for the purpose
of determining the number of shares equivalent to the cash distribution, such
shares will be valued at the higher of net asset value or 95% of the market
price and will be issued directly by the Fund to the transfer agent for the
participant's accounts. Second, if the net
44
<PAGE>
Global Income Plus Fund, Inc.
- --------------------------------------------------------------------------------
General Information -- (concluded)
- --------------------------------------------------------------------------------
asset value per share exceeds the market price of Fund shares at such time, or
if the Fund should declare a distribution payable only in cash, the transfer
agent will, as agent for the participants, receive the distribution in cash and
apply it to the purchase of Fund shares in the open market, on the NYSE or
elsewhere, for the participants' accounts. Shareholders whose shares are held
in the name of a broker or nominee should contact such broker or nominee to
determine whether, or how, they may participate in the Plan.
45
<PAGE>
APPENDIX
RATINGS
DESCRIPTION OF MOODY'S RATINGS FOR CORPORATE AND CONVERTIBLE BONDS AND
MORTGAGE-BACKED SECURITIES
Aaa. Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than in Aaa
securities.
A. Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa. Bonds which are rated Baa are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
NOTE: Moody's may apply numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa to B. The modifier 1 indicates that the company
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the company
ranks in the lower end of its generic rating category.
DESCRIPTION OF S&P RATINGS FOR CORPORATE AND CONVERTIBLE DEBT AND MORTGAGE-
BACKED SECURITIES
AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
A-1
<PAGE>
AA. Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB. Debt rated BBB is regarded as having adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC, C. Debt rated BB, B, CCC, CC and C is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
BB. Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B. Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: "NR" indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
DESCRIPTION OF SELECTED MOODY'S COMMERCIAL PAPER RATINGS
PRIME-1. Issuers (or supporting institutions) assigned this highest rating
have a superior ability for repayment of senior short-term debt obligations.
Prime-1 repayment ability will often be evidenced by the following
characteristics: leading market positions in well established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; well
established access to a range of financial markets and assured sources of
alternate liquidity.
A-2
<PAGE>
PRIME-2. Issuers (or supporting institutions) assigned this rating have a
strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
DESCRIPTION OF SELECTED S&P COMMERCIAL PAPER RATINGS
A. Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1. This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2. Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THE PROSPECTUS OR IN THIS STATEMENT OF
ADDITIONAL INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR PAINEWEBBER. THE PROSPECTUS AND
THIS STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN OFFERING BY THE
FUND OR BY PAINEWEBBER IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and Restrictions....................................... 1
Hedging and Related Income Strategies...................................... 6
Directors and Officers..................................................... 15
Control Persons and Principal Holders of Securities........................ 20
Taxes...................................................................... 20
Investment Advisory Arrangements........................................... 24
Portfolio Transactions..................................................... 24
Valuation of Shares........................................................ 27
Additional Information..................................................... 28
Financial Statements....................................................... 29
Appendix................................................................... A-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(C) 1995 PaineWebber Incorporated
Recycled Paper
LOGO
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
GLOBAL INCOME PLUS FUND, INC.
Common Stock
-----------
STATEMENT OF
ADDITIONAL INFORMATION
-----------
PAINEWEBBER INCORPORATED
-----------
March 1, 1995
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
