Global Small
Cap Fund Inc.
Semi-Annual Report
January 31, 1995
<PAGE>
- --------------------------------------------------------------------------------
March 15, 1995
Dear Shareholder,
The world continues to enjoy a phase of economic recovery, although central
banks worldwide have recently effected credit tightening policies in order to
check prospective inflation, a side-effect of vigorous economic expansion. In
the United States, the Federal Reserve raised interest rates six times in 1994
for a total increase of 2.5%. This and similar increases by foreign governments
caused volatility in global equity markets throughout 1994, and to a lesser
extent, during the six months ended January 31, 1995. The Federal Reserve
tightened another 0.5% on February 1, 1995, increasing the Federal Funds rate to
6.0%.
The Mexican Government's decision to devalue its currency in December 1994
initiated steep losses in the Mexican stock market. The peso's decline against
the dollar and the resulting Mexican stock market volatility produced a ripple
effect which spread to other Latin American markets. This sector, which had been
vulnerable since the Federal Reserve's first interest rate increase in February
1994, has stabilized following President Clinton's assistance proposal. While
the risk of investing in Mexico has increased considerably versus the potential
reward, we continue to view the long-term growth prospects of Latin America as
excellent.
PORTFOLIO REVIEW
During the six months ended January 31, 1995, Global Small Cap Fund Inc. ("the
Fund") was buffeted by two events: a correction in the relative strength of
cyclical stocks, and the panic-driven sell-off in the Brazilian stock market
following the Mexican government's devaluation of its currency. As a result, the
Fund's total return for the six months ended January 31, 1995 was (7.69)% based
on net asset value and (14.26)% based on the Fund's share price on the American
Stock Exchange. As of January 31, 1995, the Fund's net asset value was $11.52
per share, while the closing market price on the American Stock Exchange was
$9.63 per share.
Midway through the six month period, cyclical stocks, which are tied to a strong
economy, lost some of their appeal as investors formed a consensus that the
Federal Reserve's interest rate increases would finally stem the pace of
economic growth. Investors then rotated into "defensive" stocks, including the
food and beverage, drug, and financial sectors, which generally rise in a slower
economy. Meanwhile industries such as capital goods, electronics and mining
stocks--sectors in which the portfolio is heavily concentrated--were abandoned.
We believe this rotation is a temporary counter-trend within a more developed
trend of outperformance in cyclical stocks. Our long-term analysis of the world
economy points to significant pent-up demand in developing nations for capital
goods, commodities, and the raw materials and machinery needed for economic
expansion and infrastructure development. Demand for these products should
remain strong, and we believe that over time the Fund's cyclical tilt will be
significantly rewarded.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
The second principal factor affecting the Fund's performance was the influence
on the portfolio holdings of the Mexican stock market's sell-off during December
1994 and January 1995. Though the Fund had minimal exposure to Mexico (2.2% of
net assets as of January 31, 1995), its Brazilian holdings (20.8%) depreciated
when the Brazilian equity market fell in tandem with Mexico. Unlike the Mexican
slide, which was rooted in political and economic difficulties, the Brazilian
decline resulted chiefly from panic. Realizing that unexpected and severe
corrections sometimes occur even in the absence of an economic rationale, we are
holding firm and intend to weather the recent volatility. Brazil's stock market
is one of the least expensive in the world, and represents a comparatively
underdeveloped economy. Rather than be governed by near-term adversity, we
remain committed to the larger picture and to longer-term opportunity.
The portfolio continues to be well diversified, with investments in nine themes
across twenty-one countries. These are: biotechnology, micro-electronics, gold
mines, middle-class expansion, capital goods, oil services, infrastructure,
steel, and special situations. During the period, the Fund remained invested
primarily in global issues of companies with market capitalizations at the time
of investment of $1 billion or less. Representative holdings as of January 31,
1995 included Echo Bay Mines (2.1% of net assets), a Canadian mining company,
and Danieli & Company (1.8%), an Italian conglomerate involved chiefly in the
manufacturing of machinery.
Going forward, we are optimistic about the Fund's prospects. We believe the
stocks in the portfolio have strong growth characteristics and attractive
valuations, and should benefit from an expanding world economy.
We value you as a shareholder and as a client, and thank you for your continued
support. We welcome any comments or questions you may have.
Sincerely,
FRANK P.L. MINARD
Chairman,
Mitchell Hutchins Asset Management Inc.
- --------------------------------------------------------------------------------
2
<PAGE>
Global Small Cap Fund Inc.
- --------------------------------------------------------------------------------
Portfolio of Investments
January 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES--101.02%
- -------------------------------------------
COMMON STOCKS--69.94%
- -------------------------------------------
NUMBER OF
SHARES VALUE
- -------------- -----------
ARGENTINA--4.00%
- ---------------------------------------------------
REAL ESTATE--0.30%
46,469 Cresud SA Comercial
Bearer............... $ 130,107
-----------
UTILITY--3.70%
593,300 Comercial Del
Plata................ 1,619,628
-----------
Total Argentina Common Stocks........ 1,749,735
-----------
CANADA--4.80%
- ---------------------------------------------------
MINING--3.10%
100,000 Echo Bay Mines....... 912,500
10,000 Franco Nev Mining.... 447,046
-----------
1,359,546
-----------
TECHNOLOGY--1.70%
305,500 Battery
Technologies**....... 744,656
-----------
Total Canada Common Stocks........... 2,104,202
-----------
CHINA--0.03%
- ---------------------------------------------------
PHARMACEUTICALS--0.03%
32,000 Lizhu Pharm B
Shares--
(Shenzhen)........... 14,811
-----------
FINLAND--1.98%
- ---------------------------------------------------
CAPITAL GOODS--1.13%
200,000 Tampella AB OY**..... 495,359
-----------
NEWSPAPERS--0.85%
20,000 AAmulehti Yhtymae
Bearer............... 373,618
-----------
Total Finland Common Stocks.......... 868,977
-----------
FRANCE--4.19%
- ---------------------------------------------------
INDUSTRIAL HOLDINGS--1.50%
28,700 Dynaction............ 657,086
-----------
INFRASTRUCTURE--1.08%
10,000 Technip SA/Compagnie
Francaise............ 473,983
-----------
PHARMACEUTICALS--1.61%
8,750 Boiron............... 703,642
-----------
Total France Common Stocks........... 1,834,711
-----------
HONG KONG--2.66%
- ---------------------------------------------------
CONSUMER--0.80%
3,002,400 China Aerospace
International
Holding**............ $ 353,224
-----------
REAL ESTATE--0.66%
1,850,000 Ryoden Development... 287,007
-----------
RETAILING--1.20%
1,000,000 Dickson Concept
International,
Ltd.................. 526,826
-----------
Total Hong Kong Common Stocks........ 1,167,057
-----------
INDONESIA--1.31%
- ---------------------------------------------------
RESTAURANT--1.31%
199,000 International Nickel
Co................... 574,470
-----------
ITALY--1.67%
- ---------------------------------------------------
MACHINERY--1.67%
200,000 Danieli & Co. Di Risp
(Non Cv)............. 732,433
-----------
JAPAN--0.76%
- ---------------------------------------------------
RESTAURANT--0.76%
20,000 Rock Field Company... 331,775
-----------
MEXICO--2.17%
- ---------------------------------------------------
BUILDING MATERIALS--2.17%
400,000 Industrias Penoles... 950,427
-----------
NORWAY--2.12%
- ---------------------------------------------------
OIL SERVICE--2.12%
100,000 Transocean AS........ 927,640
-----------
PAKISTAN--0.50%
- ---------------------------------------------------
BANKING--0.50%
160,500 Bank of Punjab....... 219,190
-----------
POLAND--2.09%
- ---------------------------------------------------
INFRASTRUCTURE--2.09%
148,000 Mostostal Export
Bearer**............. 914,521
-----------
SINGAPORE--1.50%
- ---------------------------------------------------
ENGINEERING--1.50%
101,250 Jurong Engineering
Limited.............. 658,055
-----------
3
<PAGE>
Global Small Cap Fund Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCKS--(concluded)
- -------------------------------------------
NUMBER OF
SHARES VALUE
- -------------- -----------
SOUTH AFRICA--3.30%
- ---------------------------------------------------
MINING--3.30%
300,000 Deelkral Gold Mining
Co. Ltd.............. $ 311,736
100,000 East Rand Proprietary
Mines................ 112,469
100,000 Grootvlei Proprietary
Mines Ltd............ 201,711
100,000 Leslie Gold Mines
Ltd.................. 146,699
100,000 Randfontein Estates
Goldmines............ 672,372
-----------
Total South Africa Common Stocks..... 1,444,987
-----------
SWITZERLAND--2.29%
- ---------------------------------------------------
FOOD--1.21%
90 Lindt & Spruengli
Bearer............... 529,858
-----------
MACHINERY--1.08%
300 Daetwyler Holdings
BR................... 473,838
-----------
Total Switzerland Common Stocks...... 1,003,696
-----------
THAILAND--1.34%
- ---------------------------------------------------
ENGINEERING--1.34%
100,000 Christiani & Nielson
PCL.................. 585,774
-----------
TURKEY--1.23%
- ---------------------------------------------------
BANKING--0.88%
5,500,000 Yapi Kredi Bank...... 386,084
-----------
NEWSPAPER--0.35%
5,376,000 Medya Holdings AS.... 152,276
-----------
Total Turkey Common Stocks........... 538,360
-----------
UNITED STATES--32.00%
- ---------------------------------------------------
BIOTECHNOLOGY--4.84%
35,000 General Division..... 1,233,750
4,725 Genzyme Tissue Repair
Corp................. 22,444
75,000 Liposome Inc......... 862,500
-----------
2,118,694
-----------
COMPUTER SYSTEMS--2.04%
170,000 Maxtor
Corporation**........ 892,500
-----------
CONTAINERS & PACKAGING--2.87%
54,000 Continental Can
Inc.**............... 1,255,500
-----------
ELECTRONICS & INSTRUMENTATION--3.32%
100,000 RF Monolithics....... 837,500
60,000 Zenith Electronics
Corp.**.............. 615,000
-----------
1,452,500
-----------
FOODS--1.50%
60,000 Wholesome and Hearty
Foods Inc.**......... 660,000
-----------
MACHINERY--3.81%
40,000 Cincinnati
Milacron............. $ 920,000
46,700 Giddings & Lewis
Inc.................. 750,119
-----------
1,670,119
-----------
MINING--5.88%
100,000 Battle Mountain Gold
Co................... 887,500
50,000 Brush Wellman Inc.... 812,500
100,000 Hecla Mining Co.**... 875,000
-----------
2,575,000
-----------
MISCELLANEOUS--0.54%
50,000 Russia Fund.......... 237,500
-----------
OIL & GAS DRILLING--3.72%
200,000 Global Marine
Inc.**............... 750,000
180,000 Parker Drilling**.... 877,500
-----------
1,627,500
-----------
SOFTWARE--3.48%
400,000 Quarterdeck Office
Systems.............. 1,525,000
-----------
Total United States Common Stocks.... 14,014,313
-----------
Total Common Stocks
(cost--$36,910,593)................. 30,635,134
-----------
- --------------
PREFERRED STOCKS--22.29%
- --------------
BRAZIL--20.83%
- ---------------------------------------------------
BANKING--2.18%
38,280,000 Banco Nacional....... 955,862
-----------
BEVERAGE--1.85%
2,650,000 Brahma............... 803,508
-----------
CONSUMER DURABLES--6.18%
969,000,000 Forjas Taurus........ 656,754
507,000 Renner Herman........ 1,265,993
300,000,000 Refrigeracao Parna... 784,780
-----------
2,707,527
-----------
FOOD--2.13%
499,300,000 Perdigao Comercio.... 932,106
-----------
MACHINERY--5.66%
1,508,000 Brasmotor............ 528,966
2,621,000 Marco Polo........... 623,305
330,000 Trafo Equip
Electricos........... 529,727
1,318,000 Weg.................. 799,263
-----------
2,481,261
-----------
4
<PAGE>
Global Small Cap Fund Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PREFERRED STOCKS--(concluded)
- --------------
NUMBER OF
SHARES VALUE
- -------------- -----------
PAPER--0.66%
712,570 Melpaper............. $ 288,078
-----------
RETAILING--1.14%
3,000,000 Casa Anglo........... 499,405
-----------
UTILITY--1.03%
5,000,000 Paulista............. 386,445
1,040,000 Telecomunicacoes Do
Rio.................. 66,778
-----------
453,223
-----------
Total Brazil Preferred Stocks........ 9,120,970
-----------
GERMANY--0.97%
- ---------------------------------------------------
AUTOMOTIVE--0.97%
1,000 Porsche AG Non V
Prf.................. 426,355
-----------
INDONESIA--0.49%
- ---------------------------------------------------
PHARMACEUTICALS--0.49%
83,500 Squibb Corp Pfd Fgn
Reg'd................ 214,682
-----------
Total Preferred Stocks
(cost--$9,769,220).................. 9,762,007
-----------
WARRANTS--0.24%
- -------------------------------------------
NUMBER OF
SHARES VALUE
- -------------- -----------
HONG KONG--0.01%
- ---------------------------------------------------
CONSUMER--0.01%
600,480 China Aerospace
International Holding
Warrant Expiring
12/31/95*............ $ 7,608
-----------
ITALY--0.10%
- ---------------------------------------------------
MACHINERY--0.10%
50,000 Danieli & Co. Di Risp
Warrants Expiring
11/30/99*............ 43,449
-----------
THAILAND--0.13%
- ---------------------------------------------------
ENGINEERING--0.13%
30,000 Christiani & Nielson
PCL Expiring
9/30/98*............. 55,589
-----------
Total Warrants (cost--$170,610)...... 106,646
-----------
<TABLE>
- -------------------------------------------------------------------------------------------------------
LONG-TERM DEBT SECURITIES--0.34%
- -------------------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES
- ------------ -------- --------
<C> <S> <C> <C> <C>
ITALY--0.34%
$5,000 Danieli & Co. Di Risp (cost--$197,273)............. 01/01/00 7.250% 148,814
-----------
- -------------------------------------------------------------------------------------------------------
SHORT-TERM DEBT SECURITIES--6.82%
- -------------------------------------------------------------------------------------------------------
UNITED STATES--6.82%
3,000 U.S. Treasury Bills (cost--$2,985,660)............. 03/09/95 5.320@ 2,985,660
-----------
- -------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT--1.39%
- -------------------------------------------------------------------------------------------------------
610 Repurchase agreement dated 01/31/95 with Brown
Brothers Harriman & Co. collateralized by $593,222
U.S. Treasury Notes, 8.500% due 08/15/95; proceeds:
$610,091 (cost--$610,000).......................... 02/01/95 5.375 610,000
-----------
TOTAL INVESTMENTS (cost--$50,643,356)--101.02%................... 44,248,261
Liabilities in excess of other assets--(1.02)%................... (447,387)
-----------
NET ASSETS--100.00%..................................................................... $43,800,874
-----------
-----------
<FN>
- ------------
* Warrants were received as distributions.
** Non-income producing security.
@ Yield to maturity for zero coupon bonds.
</TABLE>
5
<PAGE>
<TABLE>
Global Small Cap Fund Inc.
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
January 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments, at value (cost--$50,643,356).................................... $44,248,261
Cash denominated in foreign currencies....................................... 2,550
Receivable for investments sold.............................................. 104,191
Interest and dividends receivable............................................ 94,717
Deferred organizational expenses and other assets............................ 147,657
-----------
Total assets.............................................................. 44,597,376
-----------
LIABILITIES
Payable for investments purchased............................................ 450,299
Payable to bank.............................................................. 67,222
Payable to affiliates........................................................ 38,535
Accrued expenses and other liabilities....................................... 240,446
-----------
Total liabilities......................................................... 796,502
-----------
NET ASSETS
Capital Stock, $0.001 par value; total authorized 4,000,000 shares;
3,801,667 shares issued and outstanding.................................... 53,704,130
Accumulated net investment loss.............................................. (718,665)
Accumulated net realized gains (losses) from investments, other assets and
liabilities................................................................ (2,790,717)
Net unrealized depreciation of investments, other assets, liabilities, and
forward contracts denominated in foreign currencies........................ (6,393,874)
-----------
Net assets................................................................ $43,800,874
-----------
-----------
NET ASSET VALUE PER SHARE....................................................... $11.52
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
<TABLE>
Global Small Cap Fund Inc.
- --------------------------------------------------------------------------------
Statement of Operations
For the Six Months Ended January 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest...................................................................... $ 52,280
Dividends (net of foreign withholding taxes).................................. 449,542
-----------
501,822
-----------
EXPENSES:
Investment advisory and administration fees................................... 259,919
Custody and accounting fees................................................... 135,094
Legal and audit fees.......................................................... 27,519
Reports and notices to shareholders........................................... 22,275
Amortization of organizational expenses....................................... 21,646
Transfer agency fees.......................................................... 5,085
Director's fees and expenses.................................................. 3,277
Other expenses................................................................ 8,592
-----------
Total expenses........................................................... 483,407
-----------
NET INVESTMENT INCOME............................................................ 18,415
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENT ACTIVITIES:
Net realized losses from:
Investment transactions.................................................... (1,077,388)
Foreign currency transactions.............................................. (1,695,500)
Net change in unrealized appreciation/depreciation of:
Investments................................................................ (2,358,138)
Other assets, liabilities and forward contracts denominated in foreign
currencies............................................................... 1,469,000
-----------
NET REALIZED AND UNREALIZED LOSSES FROM INVESTMENT ACTIVITIES.................... (3,662,026)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............................. $(3,643,611)
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
<TABLE>
Global Small Cap Fund Inc.
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<CAPTION>
For the Six
Months Ended For the Period
January 31, 1995 October 15, 1993+
(unaudited) to July 31, 1994
---------------- ------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income (loss)........................... $ 18,415 $ (204,103)
Net realized gains (losses) from:
Investment transactions............................. (1,077,388) 3,221,365
Foreign currency transactions....................... (1,695,500) (743,003)
Net change in unrealized appreciation/depreciation of:
Investments......................................... (2,358,138) (4,036,957)
Other asssets, liabilities and forward contracts
denominated in foreign currencies................. 1,469,000 (1,467,779)
---------------- ----------
Net decrease in net assets resulting from operations... (3,643,611) (3,230,477)
---------------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gains from investment transactions........ (3,029,168) --
---------------- ----------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from initial public offering (net of
underwriting discounts and commissions).............. -- 53,794,125
Offering costs charged to capital...................... -- (190,000)
---------------- ----------
Net proceeds from initial public offering.............. -- 53,604,125
---------------- ----------
Net increase (decrease) in net assets.................. (6,672,779) 50,373,648
NET ASSETS:
Beginning of period.................................... 50,473,653 100,005
---------------- ----------
End of period.......................................... $ 43,800,874 $ 50,473,653
---------------- ----------
---------------- ----------
</TABLE>
- ------------
+ Commencement of operations.
See accompanying notes to financial statements.
8
<PAGE>
Global Small Cap Fund Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements--(unaudited)
- --------------------------------------------------------------------------------
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Global Small Cap Fund Inc. (the "Fund") was incorporated in Maryland on June
22, 1993 as a closed-end, diversified management investment company. Prior to
commencing its operations on October 15, 1993, the Fund had no activities other
than organizational matters and the sale to Mitchell Hutchins Asset Management
Inc. ("Mitchell Hutchins"), which is a wholly owned subsidiary of PaineWebber
Incorporated ("PaineWebber"), of 6,667 shares of common stock for a total of
$100,005. Costs incurred in connection with the organization and initial
registration of the Fund were paid initially by Mitchell Hutchins; however, the
Fund has reimbursed Mitchell Hutchins for such costs. Organizational costs of
approximately $200,000 have been deferred and are being amortized on the
straight line method over a period not to exceed 60 months from the date the
Fund commenced operations. Offering costs of approximately $190,000 were charged
to capital upon receipt of the proceeds from the public offering of the Fund's
shares.
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
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 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 American Stock Exchange ("AMEX"). 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 AMEX 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.
9
<PAGE>
Global Small Cap Fund Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements--(continued)
- --------------------------------------------------------------------------------
Investment Transactions and Investment Income--Investment transactions are
recorded on 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 and dividend income is recorded
on the ex-dividend date, (except in the case of certain foreign dividends which
are recorded as soon after the ex-dividend date as the Fund becomes aware of
such dividend.)
Foreign Currency Translation--The books and records of the Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(1) market value of investment securities, other assets and
liabilities--at the exchange rates prevailing at the end of the period.
(2) purchases and sales of investment securities, income and
expenses--at the rates of exchange prevailing on the respective dates of
such transactions.
Although the net assets and the market values 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. 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 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.
10
<PAGE>
Global Small Cap Fund Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements--(continued)
- --------------------------------------------------------------------------------
Fluctuations in the value of forward contracts are recorded 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.
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 of 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 Agreement--The Fund may enter into reverse repurchase
agreements with banks and broker-dealers up to an aggregate value of not more
than 10% of its total assets. At January 31, 1995, 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--The Fund records dividends and
distributions to its shareholders on the ex-date. The amount of dividends and
distributions from net investment income and net realized capital gains 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 reclassifications. 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 monthly, at the annual rate
of 1.00% of its average weekly net assets. At January 31, 1995, the Fund owed
Mitchell Hutchins $38,535 for investment advisory and administration fees.
11
<PAGE>
Global Small Cap Fund Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements--(concluded)
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at January 31,
1995, was substantially the same as the cost of securities for financial
statement purposes.
At January 31, 1995, the components of net unrealized depreciation of
investment were as follows:
<TABLE>
<S> <C>
Gross appreciation (from investments having an excess of value
over cost).................................................. $ 2,577,762
Gross depreciation (from investments having an excess of cost
over value)................................................. (8,972,857)
-----------
Net unrealized depreciation of investments.................... $(6,395,095)
-----------
-----------
</TABLE>
For the six months ended January 31, 1995, total aggregate purchases and
sales of portfolio securities, excluding short-term securities, were $38,506,039
and $43,774,615 respectively.
CAPITAL STOCK
There are 4,000,000 shares of $0.001 par value capital stock authorized. Of
the 3,801,667 shares outstanding at January 31, 1995, Mitchell Hutchins owned
6,667 shares.
12
<PAGE>
Global Small Cap Fund Inc.
- --------------------------------------------------------------------------------
Quarterly Results of Operations--(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Realized and
Unrealized Gains Net Increase
(Losses) on (Decrease) in
Investments and Net Assets
Net Investment Foreign Currency Resulting From
Income (Loss) Transactions Operations
------------------- -------------------- ---------------------
Total Per Total Per Total Per
QUARTER ENDED (000) Share (000) Share (000) Share
- ------------------------------------- ------ ------- -------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
January 31, 1995..................... $ (17) $ (0.01) $ (7,141) $(1.88) $ (7,158) $ (1.89)
October 31, 1994..................... 35 0.01 3,479 0.92 3,514 0.93
------ ------- -------- ------ -------- -------
$ 18 $ 0.00 $ (3,662) $(0.96) $ (3,644) $ (0.96)
------ ------- -------- ------ -------- -------
------ ------- -------- ------ -------- -------
July 31, 1994........................ $ 63 $ 0.02 $ 731 $ 0.19 $ 794 $ 0.21
April 30, 1994....................... (110) (0.03) (13,108) (3.45) (13,218) (3.48)
January 31, 1994..................... (167) (0.04) 9,301 2.45 9,134 2.41
October 31, 1993*.................... 10 0.00 50 0.01 60 0.01
------ ------- -------- ------ -------- -------
$ (204) $ (0.05) $ (3,026) $(0.80) $ (3,230) $ (0.85)
------ ------- -------- ------ -------- -------
------ ------- -------- ------ -------- -------
<FN>
- ---------
* For the period October 15, 1993 (commencement of operations) to October 31,
1993.
</TABLE>
13
<PAGE>
Global Small Cap Fund Inc.
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
For the
Six Months Ended For the Period
January 31, 1995 October 15, 1993+
(unaudited) to July 31, 1994
---------------- ------------------
<S> <C> <C>
Net asset value, beginning of period...................... $ 13.28 $ 14.18
------ ------
Income from investment operations:
Net investment income (loss)........................... -- (0.05)
Net realized and unrealized losses from investments and
foreign currency transactions........................ (0.96) (0.80)
------ ------
Total loss from investment operations..................... (0.96) (0.85)
------ ------
Distributions from net realized gains from investments and
foreign currency transactions............................ (0.80) --
------ ------
Offering costs charged to capital......................... -- (0.05)
Net asset value, end of period............................ $ 11.52 $ 13.28
------ ------
------ ------
Market value, end of period............................... $ 9.63 $ 12.13
------ ------
------ ------
Total return (unaudited) (1).............................. (14.26)% (11.47)%
------ ------
------ ------
Ratios/Supplemental Data:
Net assets, end of period (000's)...................... 43,801 50,474
Ratio of expenses to average net assets................ 1.87%* 1.79%*
Ratio of net investment income (loss) to average net
assets............................................... 0.07%* (0.46)%*
Portfolio turnover rate................................ 78.05% 70.76%
</TABLE>
- ---------
* Annualized
+ Commencement of operations.
(1) Total return on market value is calculated assuming a purchase of one share
at market value on the first day of the 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 the period
reported. Total return information for periods less than one year is not
annualized. Total return does not reflect brokerage commissions.
14
<PAGE>
Global Small Cap Fund Inc.
- --------------------------------------------------------------------------------
General Information (unaudited)
- --------------------------------------------------------------------------------
THE FUND
Global Small Cap Fund Inc. (the "Fund") is a diversified, closed-end
management investment company whose shares trade on the American Stock Exchange
("AMEX"). The Fund's investment objective is long-term capital appreciation. The
Fund's investment adviser and administrator is Mitchell Hutchins Asset
Management Inc., a wholly owned subsidiary of PaineWebber Incorporated, which
has over $29.6 billion in assets under management.
SHAREHOLDER INFORMATION
The Fund's AMEX trading symbol is "GSG". 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
The Fund intends to pay dividends from its net investment income and net
short-term capital gain, if any, at least annually. The Fund anticipates
distributing substantially all of its net capital gain (the excess of net
long-term capital gain over net short-term capital loss) with the regular annual
dividend. The Fund also intends to distribute any net realized gains from
foreign currency transactions with such dividend. The Fund may make additional
distributions if necessary to avoid a 4% excise tax on certain undistributed
income and capital gains.
The Fund has established a Dividend Reinvestment Plan under which
stockholders will have all dividends and other distributions on their shares of
Common Stock automatically reinvested in additional shares of Common Stock
purchased in the open market, unless such stockholders elect to receive cash.
Stockholders who intend to hold their shares through any other broker or nominee
should contact such broker or nominee to determine whether, or how, they may
participate in the Dividend Reinvestment Plan. The Fund will not issue any new
shares of Common Stock in connection with its Dividend Reinvestment Plan.
15
<PAGE>
---------------------------------------
BOARD OF DIRECTORS
E. Garrett Bewkes, Jr., Chairman
John R. Torell III
William D. White
---------------------------------------
OFFICERS
Paul B. Guenther
President
Victoria E. Schonfeld
Vice President
Dianne E. O'Donnell
Vice President and Secretary
Julian F. Sluyters
Vice President and Treasurer
---------------------------------------
INVESTMENT ADVISER AND
ADMINISTRATOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
---------------------------------------
Notice is hereby given in accordance
with Section 23(c) of the Investment
Company Act of 1940 that from time to
time the Fund may purchase at market
prices shares of its common stock in
the open market.
The financial information included
herein is taken from the records of the
Fund without examination by independent
accountants who do not express an
opinion thereon.
This report is sent to the shareholders
of the Fund for their information. It
is not a prospectus, circular or
representation intended for use in the
purchase or sale of shares of the Fund
or of any securities mentioned in the
report.
(C) 1995 Paine Webber Incorporated
(Logo) Recycled
Paper
