<PAGE>
GLOBAL SMALL CAP FUND INC.
SUPPLEMENT TO PROSPECTUS DATED JANUARY 27, 1995
The following amends the information appearing under the caption "Management" on
page 16 of the Prospectus:
GE Investment Management Incorporated ("GEIM") now serves as sub-
adviser for Global Small Cap Fund Inc. ("Fund") pursuant to an interim
sub-advisory agreement ("Interim Agreement") between Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins") and GEIM that was approved by the Fund's
board of directors. Under the Interim Agreement, GEIM makes and implements all
investment decisions with respect to the Fund's portfolio. Under its existing
Investment Advisory and Administration Contract with the Fund, Mitchell Hutchins
supervises the activities of GEIM with respect to the Fund and continues to
supervise all other aspects of the Fund's operations. Mitchell Hutchins (not
the Fund) pays GEIM for its services under the Interim Agreement at the annual
rate of 0.50% of the Fund's average daily net assets. The Interim Agreement
will continue in effect for the shorter of 120 days from March 23, 1995 (the
date of the Interim Agreement) or the date that a new sub-advisory contract is
approved by the Fund's shareholders.
GEIM is located at 3003 Summer Street, P.O. Box 7900, Stamford
Connecticut 06904 and is a wholly owned subsidiary of General Electric Company.
GEIM is a registered investment adviser, and its principal officers and
directors serve in similar capacities with respect to General Electric
Investment Corporation ("GEIC"), also a registered investment adviser and a
wholly owned subsidiary of General Electric Company. GEIM and GEIC together
provide investment management services to various institutional accounts with
total assets of approximately $45.8 billion as of February 28, 1995.
The Fund's board of directors expects to call a special meeting of the
shareholders of the Fund prior to the termination of the Interim Agreement.
The following replaces the fifth paragraph appearing under the caption
"Management" on page 19:
Effective March 23, 1995, Ralph R. Layman became the individual
primarily responsible for the day-to-day management of the Fund's portfolio.
Mr. Layman is an executive vice president and a senior investment manager of
GEIM and GEIC. From 1989 to 1991, Mr. Layman served as executive vice
president, partner and portfolio manager of Northern Capital Management Co. and,
prior thereto, served as vice president and portfolio manager of Templeton
Investment Counsel.
Dated: March 23, 1995
<PAGE>
Rule 497(e)
Registration No. 811-7814
GLOBAL SMALL CAP FUND INC.
COMMON STOCK
------------------------
Global Small Cap Fund Inc. (the 'Fund') is a diversified, closed-end
management investment company. The Fund's investment objective is long-term
capital appreciation. To seek to achieve this objective, the Fund normally
invests primarily in equity securities of small capitalization ('small cap')
companies located throughout the world including, but not limited to, Asia,
Europe, the Far East, the Middle East, North Africa, and the Americas. For
purposes of the foregoing, small cap companies are companies that, at the time
of investment, have market capitalizations of $1 billion or less. No assurance
can be given that the Fund will achieve its investment objective.
Investment in the Fund involves special considerations and risks that are
not normally present in investments in funds that invest solely in the
securities of U.S. issuers. The Fund may invest in equity securities of foreign
companies located in emerging market countries. Many foreign securities markets
are characterized by a relatively small number of equity issues and low trading
volumes, resulting in comparatively greater price volatility and less liquidity.
See 'Special Considerations and Risk Factors.'
The Fund's common stock ('Common Stock') is listed and traded on the
American Stock Exchange, Inc. ('Amex') under the symbol 'GSG'. The Common Stock
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 secondary market-maker at
negotiated prices related to prevailing market prices on the Amex at the time of
sale. The closing price for the Common Stock on the Amex on January 13, 1995 was
$10.00. See 'Trading History'. The Fund will not receive any proceeds from the
sale of the Common Stock offered pursuant to this Prospectus.
Mitchell Hutchins Asset Management Inc. serves as investment adviser and
administrator of the Fund. This Prospectus concisely sets forth certain
information an investor should know before investing, and should be retained for
future reference. A Statement of Additional Information ('SAI') dated January
27, 1995 has been filed with the Securities and Exchange Commission and is
incorporated by reference in its entirety into this Prospectus. A Table of
Contents for the SAI is set forth as the last section of this Prospectus. A copy
of the SAI can be obtained without charge by writing to the Fund or by calling
toll-free (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
SECURITIES 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.
------------------
PAINEWEBBER INCORPORATED
------------------
The date of this Prospectus is January 27, 1995.
<PAGE>
FUND EXPENSES
The following tables are intended to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear, directly or
indirectly.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
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 STOCK)(2)
Investment Advisory and Administration Fees................ 1.00%
Interest Payments on Borrowed Funds(3)..................... 0.00%
Other Expenses............................................. 0.79%
----
Total Annual Expenses................................. 1.79%
----
----
</TABLE>
- ------------------
(1) Prices for shares of Common Stock traded in the OTC market will reflect
ordinary dealer mark-ups.
(2) See 'Management of the Fund' for additional information. The investment
advisory and administration fees payable to Mitchell Hutchins are greater
than the advisory and administration fees paid by most funds. 'Other
Expenses' have been estimated based upon expenses actually incurred for the
period from October 15, 1993 (commencement of operations) to July 31, 1994.
(3) The Fund may borrow money for temporary or emergency purposes. See 'Other
Investment Practices-- Defensive Investments.'
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 distributions at net asset value:
<TABLE>
<CAPTION>
ONE TEN
YEAR THREE YEARS FIVE YEARS YEARS
- ------- ----------- ---------- -------
<S> <C> <C> <C>
$18 $ 56 $ 97 $ 211
</TABLE>
This Example assumes that the percentage amounts listed under Annual
Expenses remain the same in the years shown (except that Annual Expenses have
been reduced to reflect the completion of organization expense amortization
after five years from the commencement of investment operations). The above
tables and the assumption in the Example of a 5% annual return and reinvestment
at net asset value are required by regulation 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 Common Stock. 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 will receive
shares of the Common Stock purchased by the Plan Agent at the market price in
effect at that time, which may be at, above or below net asset value.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION 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 the more detailed
information included elsewhere in this Prospectus and in the Statement of
Additional Information ('SAI'). Investors should carefully consider information
set forth under the heading 'Special Considerations and Risk Factors.'
<TABLE>
<S> <C>
The Fund......................... Global Small Cap Fund Inc. (the 'Fund') is
a diversified, closed-end management
investment company. See 'The Fund.'
The Offering..................... Shares of the Fund's common stock ('Common
Stock') 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 secondary
market-maker at negotiated prices
related to prevailing market prices on
the American Stock Exchange, Inc.
('Amex') at the time of sale. The Common
Stock is listed and traded on the Amex
under the symbol 'GSG.' See 'The
Offering' and 'Trading History.'
Investment Objective and
Policies....................... The Fund's investment objective is
long-term capital appreciation. To seek to
achieve this objective, the Fund
normally invests at least 65% of its
total assets in equity securities of
small capitalization ('small cap')
companies located throughout the world
including, but not limited to, Asia,
Europe, the Far East, the Middle East,
North Africa, and the Americas. For
purposes of the foregoing, 'small cap'
companies are companies that, at the
time of investment, have market
capitalizations of $1 billion or less.
While the Fund is not restricted in the
portion of its assets which may be
invested in a single country or region,
it is anticipated that, in normal market
conditions, the Fund's assets will be
invested in issuers in at least three
countries. In managing the Fund's
portfolio, Mitchell Hutchins seeks to
identify those small cap companies, both
in the United States and abroad, which
are likely to benefit from long-term
trends as they develop in the global
economy. 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
interdependency of economic cycles and
currency exchange rates. The Fund may
invest up to 35% of its total assets in
other securities, including equity
securities of companies with higher
market capitalizations and in debt
securities. It may invest up to 25% of
its assets in convertible debt
securities of domestic and foreign
issuers and up to 10% of its assets in
non-convertible debt securities of
domestic and foreign issuers, including
debt obligations of the U.S. government,
foreign governments or their agencies or
instrumentalities. The Fund may engage
in hedging strategies to
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
attempt to reduce the overall risk of
its investment portfolio, including
foreign currency transactions in an
attempt to manage the Fund's foreign
currency exposure. No assurance can be
given that the Fund will achieve its
objective.
Investment Adviser and
Administrator.................. Mitchell Hutchins Asset Management Inc.
('Mitchell Hutchins'), a wholly owned
asset management subsidiary of
PaineWebber, serves as the Fund's
investment adviser and administrator.
Mitchell Hutchins provides investment
advisory and portfolio management
services to investment companies,
pension funds and other institutional,
corporate and individual clients. As of
December 31, 1994, total assets under
Mitchell Hutchins' management were
approximately $34.3 billion. As of that
date, Mitchell Hutchins served as
investment adviser or sub-adviser to 29
registered investment companies with 55
separate portfolios having aggregate
assets of approximately $22.0 billion.
Of that amount, approximately $1.8
billion represented assets of registered
investment companies investing primarily
in U.S. and foreign equity securities.
See 'Management of the Fund.'
Dividends and Other
Distributions.................. The Fund distributes as dividends all of
its net investment income and net
short-term capital gain, if any, at
least annually. The Fund distributes
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 distributes 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
gain. See 'Dividends and Other
Distributions; Dividend Reinvestment
Plan' and 'Taxation.'
Dividend Reinvestment
Plan........................... The Fund has established a Dividend
Reinvestment Plan ('Plan') under which all
stockholders whose shares of Common
Stock are registered in their names, or
in the name of PaineWebber or its
nominee, have all dividends and other
distributions on their shares of Common
Stock automatically reinvested in
additional shares of Common Stock,
unless such stockholders elect to
receive cash. Additional shares of
Common Stock acquired under the Plan are
purchased in the open market, on the
Amex or otherwise at prices that may be
higher or lower than the net asset value
per share at the time of the purchase.
Stockholders who intend to hold their
shares 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
Fund will not issue any new shares of
Common Stock in connection with the
Plan. See 'Dividends and Other
Distributions; Dividend Reinvestment
Plan.'
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Special Considerations and
Risk Factors................... Investments in Small Cap Companies. Small
cap companies may be more vulnerable than
larger companies to adverse business or
economic developments. Small cap
companies may also have limited product
lines, markets or financial resources.
Securities of such companies may be less
liquid and more volatile than securities
of larger companies or the market
averages in general and therefore may
involve greater risk than investing in
larger companies. In addition, small cap
companies may not be well-known to the
investing public, may not have
institutional ownership and may have
only cyclical, static or moderate growth
prospects.
Investments in Foreign
Securities. Investments in foreign
securities involve risks relating to
political, social and economic
developments abroad and to the
differences between the regulations to
which U.S. and foreign issuers and
markets are subject. Individual foreign
economies also may differ favorably or
unfavorably from the U.S. economy.
Interest and dividend income on foreign
securities may be subject to non-U.S.
withholding and other taxes that, if not
recoverable by the Fund, may reduce the
Fund's return. In addition, substantial
limitations may exist in certain
countries with respect to the Fund's
ability to repatriate investment,
capital or the proceeds of sales of
securities. Further, changes in foreign
currency exchange rates will affect the
Fund's net asset value, the value of
interest and dividends earned and gains
and losses realized on the sale of
securities denominated in foreign
currencies. Foreign securities may be
traded on non-U.S. securities exchanges
or markets. Securities of many foreign
issuers are less liquid and their prices
more volatile than securities of
comparable U.S. issuers. These risks are
often heightened for investments in
emerging markets. The smaller
capitalization and lower trading volume
of certain of those securities markets
may result in greater market volatility
and illiquidity of such foreign
securities as compared to securities of
U.S. small cap companies that are traded
on U.S. markets. Accounting, auditing
and financial reporting standards in
many countries may, in some instances,
be less rigorous than such standards in
the United States, and less information
may be available to investors investing
in countries other than the United
States than is available to investors
investing in the United States. There is
also generally less governmental
regulation of the securities markets in
most other countries than in the United
States. The operating expense ratio of
the Fund can be expected to be higher
than that of an investment company
investing exclusively in U.S. securities
because certain expenses of investing in
foreign securities, such as transaction,
settlement and custodial costs, are
higher.
Illiquid Securities. The Fund may invest
up to 20% of its net assets in illiquid
securities. The Fund may not be readily
able to dispose of such
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
securities at an amount that
approximates that at which the Fund has
valued them. Illiquid securities
include, 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.
Hedging Strategies. The Fund's use of
hedging strategies involves certain
special risks, including (1) the fact
that skills needed to use hedging
instruments are different from those
needed to select the Fund's securities,
(2) possible imperfect correlation, or
even no correlation, between price
movements of hedging instruments and
price movements of the investments being
hedged, (3) the fact that, while hedging
strategies can reduce the risk of loss,
they can also reduce the opportunity for
gain, or even result in losses, by
offsetting favorable price movements in
hedged investments and (4) the possible
inability of a Fund to purchase or sell
a portfolio security at a time that
otherwise would be favorable for it to
do so, or the possible need for the Fund
to sell a portfolio security at a
disadvantageous time, due to the need
for it to maintain 'cover' or to
segregate securities in connection with
hedging transactions and the possible
inability of the Fund to close out or to
liquidate its hedged position. Hedging
strategies are also subject to the risk
that, if Mitchell Hutchins incorrectly
forecasts interest or currency exchange
rates, market values or other economic
factors in utilizing a strategy for the
Fund, it would have been in a better
position had it not hedged at all.
Because the Fund intends to use options
and futures for risk management
purposes, the Fund may enter into
options and futures that approximate
(but do not exceed) the full value of
its portfolio, at which point up to 100%
of the Fund's portfolio assets would be
subject to hedging strategies and the
risks associated therewith.
Anti-Takeover Provisions. The Fund's
Articles of Incorporation contain
provisions 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 and (3) the ability of the
Fund's directors or stockholders 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 stockholders 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
stockholder who owns beneficially more
than 5% of the Common Stock. They
provide, however, the advantage of
potentially requiring persons seeking
control of the Fund to negotiate with
its management
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
regarding the price to be paid and
facilitating the continuity of the
Fund's management, investment objective
and policies.
See 'Investment Objective and Policies,'
'Other Investment Practices,' 'Special
Considerations and Risk Factors,'
'Taxation' and 'Description of Capital
Stock.'
Market Price and Net Asset
Value 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.'
Whether investors will realize gains or
losses upon the sale of shares of the
Common Stock will not depend upon the
Fund's net asset value, but will depend
entirely upon whether the market price
of the Common Stock at the time of sale
is above or below the original purchase
price for the shares. The market price
of the Common Stock 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 Common Stock is designed
primarily for long-term investors, and
investors in the Common Stock should not
view the Fund as a vehicle for trading
purposes. See 'Special Considerations
and Risk Factors' and 'Description of
Capital Stock.'
Common Stock Repurchases and
Tender Offers; Conversion to
Open-End Fund.................. In recognition of the possibility that the
Common Stock might trade at a discount
from net asset value, the Fund's board
of directors, in consultation with
Mitchell Hutchins, intends to review at
least annually the possibility of open
market repurchases of Common Stock and
tender offers for Common Stock at net
asset value. There can be no assurance
that the board of directors will decide
to undertake either of these actions or
that, if undertaken, such actions will
result in the Common Stock trading at a
price equal to or close to net asset
value per share. The board of directors
also may consider from time to time the
conversion of the Fund to an open-end
investment company. See 'Description of
Capital Stock.'
</TABLE>
7
<PAGE>
FINANCIAL HIGHLIGHTS
The table below provides selected per share data and ratios for the Common
Stock for the period shown. This information is supplemented by the financial
statements and accompanying notes appearing in the SAI, which can be obtained by
stockholders upon request. The financial statements and notes and the financial
information in the table below have been audited by Ernst & Young LLP,
independent auditors, whose report thereon also is included in the SAI.
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 15, 1993+
TO JULY 31, 1994
-----------------
<S> <C>
Net asset value, beginning of period................... $ 14.18
-------
Income from investment operations:
Net investment loss.................................. (0.05)
Net realized and unrealized losses from investment
and foreign currency transactions................. (0.80)
-------
Total loss from investment operations.................. (0.85)
-------
Less dividends and distributions:
Dividends from net investment income................. --
Distributions from net realized gains from investment
and foreign currency transactions................. --
-------
Total dividends and distributions...................... --
-------
Offering costs charged to capital...................... (0.05)
-------
Net asset value, end of period......................... $ 13.28
-------
-------
Market value, end of period............................ $ 12.13
-------
-------
Total return(1)........................................ (19.13)%
-------
-------
Ratios/Supplemental Data:
Net assets, end of period (000's).................... $50,474
Ratio of expenses to average net assets.............. 1.79%*
Ratio of net investment loss to average net assets... (0.46)%*
Portfolio turnover rate.............................. 70.76%
</TABLE>
- ------------------
+ Commencement of operations.
(1) Total return on market value is calculated assuming a purchase of one share
of the Common Stock at market value on the first day of the period reported,
reinvestment of all dividends and other distributions in accordance with the
Plan, and a sale at market value on the last day of the period reported.
Total return information for periods of less than one year is not
annualized. Total return does not reflect brokerage commission.
* Annualized.
8
<PAGE>
THE FUND
The Fund is a diversified, closed-end management investment company and has
registered as such under the Investment Company Act of 1940 ('1940 Act'). The
Fund was incorporated under the laws of the State of Maryland on June 22, 1993
and commenced investment operations on October 15, 1993. 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.
THE OFFERING
The Common Stock 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 Amex 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 Common Stock
offered pursuant to this Prospectus. Proceeds received by PaineWebber as a
result of its OTC secondary market sales of the Common Stock will be utilized by
PaineWebber in connection with its secondary market operations and for general
corporate purposes.
TRADING HISTORY
The Common Stock is listed and traded on the Amex under the symbol 'GSG.'
The following table sets forth for the Common Stock for each quarterly period
since the commencement of the Fund's operations: (a) the per share high and low
sales prices as reported by the Amex; (b) the per share net asset values, based
on the Fund's computation as of 4:00 p.m. on the last Amex 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 Common Stock during the periods
shown may be broader than is shown in this table. On January 13, 1995, the
closing price per share of Common Stock was $10.00, the Fund's net asset value
per share was $11.86 and the discount to net asset value was (15.68)%.
<TABLE>
<CAPTION>
(DISCOUNT) OR
NET ASSET PREMIUM TO
SALES PRICES VALUES NET ASSET VALUE
----------------- --------------- ----------------
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
- ------------- ------- -------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
10/31/93*.... $15.875 $ 15.00 $14.20 $14.18 11.80% 5.78%
1/31/94...... 17.125 14.625 16.83 14.65 1.75 (0.17)
4/30/94...... 16.625 12.125 16.56 13.85 0.39 (12.45)
7/31/94...... 13.000 11.625 14.02 13.28 (7.28) (12.46)
10/31/94..... 12.875 11.625 14.67 13.98 (12.24) (16.85)
</TABLE>
- ------------------
* For the period October 15, 1993 (commencement of operations) to October 31,
1993.
See 'Description of Capital Stock--Common Stock Repurchases and Tender
Offers' as to methods that may be undertaken by the Fund to reduce any discount.
9
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is long-term capital appreciation. The Fund
normally invests primarily in equity securities of small capitalization ('small
cap') companies located throughout the world including, but not limited to,
Asia, Europe, the Far East, the Middle East, North Africa, and the Americas. For
purposes of the foregoing, 'small cap' companies are companies that, at the time
of investment, have market capitalizations of $1 billion or less.
Under normal market conditions, the Fund invests at least 65% of its total
assets in equity securities of small cap companies located throughout the world.
While the Fund is not restricted in the portion of its assets which may be
invested in a single country or region, it is anticipated that, in normal market
conditions, the Fund's assets will be invested in issuers in at least three
countries. In managing the Fund's portfolio, Mitchell Hutchins seeks to identify
those small cap companies, both in the United States and abroad, likely to
benefit from long-term trends as they develop in the global economy. 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 interdependency of economic cycles and
currency exchange rates.
Mitchell Hutchins believes that, over time, investment in a composite of
securities of U.S. and foreign small cap companies is less risky than portfolios
comprised exclusively of securities of one country's small cap companies and
provides investors with potential to earn a higher return than portfolios
invested exclusively in U.S. small cap securities.
The term 'equity securities,' as used in this Prospectus, includes common
stocks, convertible and non-convertible preferred stock (whether or not voting
stock), and limited partnership interests.
The Fund may invest up to 35% of its total assets in other securities,
including equity securities of companies with higher market capitalizations and
in debt securities. It may invest up to 25% of its assets in convertible debt
securities of domestic and foreign issuers and up to 10% of its assets in
non-convertible debt securities of domestic and foreign issuers, including
obligations issued or guaranteed by the U.S. or foreign governments, their
agencies or instrumentalities. The Fund will not invest more than 5% of its net
assets in debt securities rated below investment grade. See 'Special
Considerations and Risk Factors--Investments in Debt Securities.'
OTHER INVESTMENT PRACTICES
Hedging Strategies. The Fund may engage in hedging strategies transactions
to attempt to reduce the overall risk of its investment portfolio, including
foreign currency transactions in an attempt to manage the Fund's foreign
currency exposure and other risks of the Fund's investments that can affect
fluctuations in its net asset value. The Fund's ability to use these strategies
may be limited by market conditions, regulatory limits and tax considerations.
The SAI contains further information on these strategies.
The Fund may enter into forward currency contracts, buy or sell foreign
currency futures contracts, write covered call options and buy put and call
options on securities, foreign currencies and such futures contracts. In
addition, the Fund may buy or sell interest rate futures contracts and stock
index futures contracts, purchase put and call options or write covered call
options on such contracts, and write covered call options and buy put and call
options on stock indexes. The Fund may write covered put options on securities,
foreign currencies and futures contracts. Because the Fund intends to use
options and futures for risk management purposes, the Fund
10
<PAGE>
may enter into options and futures that approximate (but do not exceed) the full
value of its portfolio, at which point up to 100% of the Fund's portfolio assets
would be subject to hedging strategies and the risks associated therewith.
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 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 contract in order to set the exchange rate at which the transaction will
be made. The Fund also may enter into a forward contract to sell an amount of a
foreign currency approximating the value of some or all of the Fund's securities
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 purpose of
entering into these contracts is to minimize the risk to the Fund from adverse
changes in the relationship between the U.S. dollar and foreign currencies.
The Fund might not employ any of the strategies described above, and there
can be no assurance that any strategy used will succeed. If Mitchell Hutchins
incorrectly forecasts interest or currency exchange rates, market values or
other economic factors in utilizing a strategy for the Fund, then it would have
been in a better position had it not hedged at all. The use of these strategies
involves certain special risks, including (1) the fact that skills needed to use
hedging instruments are different from those needed to select the Fund's
securities, (2) possible imperfect correlation, or even no correlation, between
price movements of hedging instruments and price movements of the investments
being hedged, (3) the fact that, while hedging strategies can reduce the risk of
loss, they can also reduce the opportunity for gain, or even result in losses,
by offsetting favorable price movements in hedged investments and (4) the
possible inability of a Fund to purchase or sell a portfolio security at a time
that otherwise would be favorable for it to do so, or the possible need for the
Fund to sell a portfolio security at a disadvantageous time, due to the need for
it to maintain 'cover' or to segregate securities in connection with hedging
transactions and the possible inability of the Fund to close out or to liquidate
its hedged position.
New financial products and risk management techniques continue to be
developed. The Fund may use these instruments and techniques to the extent
consistent with its investment objective and regulatory and federal tax
considerations.
Convertible Securities. The Fund may invest up to 25% of its assets in
convertible debt securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed 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
dividends 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 because they have
fixed income characteristics, and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases. While
no securities investment is without some risk, investments in convertible
securities generally entail less risk than the issuer's common stock, although
the extent to which such risk is reduced depends in large measure upon the
degree to which the convertible security sells above its value as a fixed income
security.
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Illiquid Securities. The Fund may invest up to 20% of its net assets in
illiquid securities. 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. Limited partnership interests
determined to be illiquid under this definition will be included in this
limitation. The lack of a liquid secondary market for illiquid securities may
make it more difficult for the Fund to assign a value to those securities for
purposes of valuing the Fund's portfolio and calculating its net asset value.
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.
While certain restricted securities may be illiquid, not all restricted
securities are illiquid. 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.
U.S. and Foreign Government Securities. The Fund may invest up to 10% of
its assets in non-convertible debt securities, including but not limited to U.S.
government and foreign government securities. The U.S. government securities in
which the Fund may invest include direct obligations of the U.S. government
(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 government and
securities that are supported primarily or solely by the creditworthiness of the
issuer.
The foreign government securities in which the Fund may invest generally
consist of obligations issued by national, state or provincial governments or
their political subdivisions or agencies ('Sovereign Debt'). Foreign government
securities also include debt obligations of supranational entities, which
include international organizations designated or supported by governmental
entities to promote economic reconstruction or development, international
banking institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the World Bank), the
Asian Development Bank and the Inter-American 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
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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.
Repurchase Agreements. The Fund may use repurchase agreements. Repurchase
agreements are transactions in which a 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. Although 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 bankrupt, 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.
Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements with banks and broker-dealers up to an aggregate value of 10% of its
total assets. Such agreements involve the sale of securities held by the Fund
subject to its agreement to repurchase the securities at an agreed-upon date and
price reflecting a market rate of interest. Such agreements are considered to be
borrowings and may be entered into only for temporary or emergency purposes.
While a reverse repurchase agreement is outstanding, the Fund will maintain with
its custodian, in a segregated account, cash, U.S. government securities or
other liquid, high-grade debt obligations, marked to market daily, in an amount
at least equal to its obligations under the reverse repurchase agreement.
Defensive Investments. When Mitchell Hutchins believes unusual
circumstances warrant a defensive posture, the Fund temporarily may commit all
or any portion of its assets to cash (U.S. dollars or foreign currencies) or
money market instruments of U.S. or foreign issuers, including repurchase
agreements. The Fund also may engage in short sales of securities 'against the
box' to defer realization of gains and losses for tax or other purposes. The
Fund also may borrow money for temporary or emergency purposes (e.g., clearance
of transactions or payments of dividends to stockholders) in an amount not
exceeding 10% of the value of the Fund's total assets (not including the amount
borrowed). The Fund will not purchase securities while borrowings (including
reverse repurchase agreements) in excess of 5% of the value of its total assets
are outstanding.
Other Information. The Fund's investment objective and the investment
limitations as described in the SAI are fundamental policies that may not be
changed without stockholder approval. All other investment policies may be
changed by the Fund's board of directors without stockholder approval.
SPECIAL CONSIDERATIONS AND RISK FACTORS
Investments in Small Cap Companies. Small cap companies may be more
vulnerable than larger companies to adverse business or economic developments.
Small cap companies may also have limited product lines, markets or financial
resources. Securities of such companies may be less liquid and more volatile
than securities of larger companies or the market averages in general and
therefore may involve greater risk than investing in larger companies. In
addition, small cap companies may not be well-known to the investing public, may
not have institutional ownership and may have only cyclical, static or moderate
growth prospects.
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Investments in Foreign Securities. 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 and markets are subject. These risks may include expropriation,
confiscatory taxation, limitations on the use or transfer of Fund assets 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. companies. These risks are
often heightened for investments in emerging capital markets.
In addition, substantial limitations may exist in certain countries with
respect to the Fund's ability to repatriate investment income, capital or the
proceeds of sales of securities by foreign investors. The Fund could be
adversely affected by delays in, or a refusal to grant, any required government
approval for repatriation of capital, as well as by the application to the Fund
of any restrictions on investments.
The securities markets of many of the emerging countries in which the Fund
may invest are substantially smaller, less developed, less liquid and more
volatile than the securities markets of the United States and other more
developed countries. Disclosure and regulatory standards in many respects are
less stringent 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 has been
extremely limited.
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, and in particular, companies in smaller and
emerging markets 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. The Fund's net investment income and/or
capital gains from its foreign investment activities may be subject to non-U.S.
withholding taxes that, if not recoverable by the Fund, may reduce the Fund's
return.
Additionally, because foreign securities ordinarily will be denominated in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates will affect the Fund's net asset value, the value of dividends and
interest earned, gains and losses realized on the sale of securities and net
investment income to be distributed to stockholders 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 can be volatile and are determined by factors such
as supply and demand in the currency exchange markets, international balances of
payments, government intervention, speculation and other economic and political
conditions. Any of these factors could 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
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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.
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. For purposes of the Fund's
investment policies, ADRs and EDRs are deemed to have the same classification as
the underlying securities they represent. Thus, an ADR or EDR evidencing
ownership of common stock will be treated as common stock.
Brokerage commissions, custodial services and other costs relating to
investment in foreign markets generally are more expensive than in the United
States; this is particularly true with respect to emerging capital markets.
Foreign markets also have different clearance and settlement procedures, and in
certain markets there have been times when settlements have failed to keep pace
with the volume of securities transactions, making it difficult to conduct such
transactions. Delays in settlement could result in temporary periods when assets
of the Fund are uninvested and no return is earned thereon. The inability of the
Fund to make intended security purchases due to settlement problems could cause
the Fund to miss attractive investment opportunities. Inability to dispose of a
portfolio security due to settlement problems could result either in losses to
the Fund due to subsequent declines in the value of such portfolio security or,
if the Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser.
Investments in Debt Securities. The Fund may invest up to 25% of its
assets in convertible debt securities of domestic and foreign issuers and up to
10% of its assets in non-convertible debt securities of domestic and foreign
issuers. The value of the debt securities held by the Fund generally will
fluctuate with (i) movements in interest rates, (ii) changes in the relative
values of the currencies in which the Fund's investments are denominated with
respect to the U.S. dollar and (iii) changes to the perceived creditworthiness
of the issuers of those securities. The market value of debt securities
generally varies inversely with interest rate changes. The extent of the
fluctuation will depend on various other factors, such as the average maturity
of the Fund's debt securities, the extent to which the Fund holds debt
securities denominated in foreign currencies and the extent to which the Fund
engages in hedging strategies. Substantially all of the Fund's investments in
debt securities (including foreign government securities and convertible debt
securities) will be rated at least investment grade by Standard & Poor's Ratings
Group ('S&P') (BBB or better) or Moody's Investors Service, Inc. ('Moody's) (Baa
or better) or, if unrated by either, determined by Mitchell Hutchins to be of
comparable quality. Moody's considers securities rated Baa to have speculative
characteristics. In addition, in the opinion of S&P, changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
for securities rated BBB to make principal and interest payments than is the
case for higher-rated securities. The Fund may also invest up to 5% of its net
assets in debt securities rated as low as B+ by S&P or B1 by Moody's. These
securities 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 exposure to adverse conditions. The Fund is also permitted to
purchase debt securities that are not rated by S&P or Moody's 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. In the
event that, due to a downgrade of one or more debt securities, an amount in
excess of 5% of the Fund's net assets is held in securities
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rated below investment grade and comparable unrated securities, Mitchell
Hutchins will engage in an orderly disposition of such securities to the extent
necessary to ensure that the Fund's holdings of such securities do not exceed 5%
of the Fund's net assets. Ratings of debt securities represent the rating
agencies' opinions regarding their quality, are not a guarantee of quality and
may be reduced after the Fund has acquired the security. Mitchell Hutchins would
consider such an event in determining whether the Fund should continue to hold
the security. Credit ratings attempt to evaluate the safety of principal and
interest payments and do not evaluate the risk of fluctuations in market value.
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 the rating indicates. See the SAI for more information
about S&P's and Moody's ratings.
Investment by the Fund in Sovereign Debt involves special risks. The issuer
of the debt or the governmental authorities that control the repayment of the
debt may be unable or unwilling to repay principal and/or interest when due in
accordance with the terms of such debt, and the Fund may have limited legal
recourse in the event of a default. Sovereign Debt differs 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
diminished. 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 debt issued by the
same sovereign entity may not contest payments to the holders of Sovereign Debt
in the event of default under commercial bank loan agreements.
Anti-Takeover Provisions. The Fund's Articles of Incorporation contain
provisions 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
and (3) the ability of the Fund's directors or stockholders 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 the stockholders 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 stockholder who
owns beneficially more than 5% of the Common Stock. 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. See
'Description of Capital Stock--Certain Anti-Takeover Provisions of the Articles
of Incorporation.'
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.' Whether investors will realize gains or
losses upon the sale of Common Stock will not depend upon the Fund's net asset
value, but will depend entirely upon whether the market price of the Common
Stock at the time of sale is above or below the original purchase price for the
shares. The market price of the Common Stock 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.
Accordingly, the Common Stock is designed primarily for long-term investors, and
investors in the Common Stock should not view the Fund as a vehicle for trading
purposes.
MANAGEMENT OF THE FUND
The overall management of the business and affairs of the Fund is vested
with its board of directors. The board of directors approves all significant
agreements between the Fund and persons or companies furnishing services to it,
including the Fund's agreements with its investment adviser and administrator,
custodian and
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transfer and dividend disbursing agent and registrar. The day-to-day operations
of the Fund are delegated to its officers and to Mitchell Hutchins subject to
the Fund's investment objective and policies and to general supervision by the
board of directors.
Subject to the supervision of the Fund's board of directors, investment
advisory and administration services will be provided to the Fund by Mitchell
Hutchins pursuant to an Investment Advisory and Administration Contract dated
October 6, 1993 ('Advisory Contract'). Mitchell Hutchins' 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 a wholly owned
subsidiary of Paine Webber Group Inc., a publicly held financial services
holding company. Mitchell Hutchins provides investment advisory and portfolio
management services to investment companies, pension funds and other
institutional, corporate and individual clients. As of December 31, 1994, total
assets under Mitchell Hutchins' management were approximately $34.3 billion. As
of that date, Mitchell Hutchins served as investment adviser or sub-adviser to
29 registered investment companies with 55 separate portfolios having aggregate
assets of approximately $22.0 billion. Of that amount, approximately $1.8
billion represented assets of registered investment companies investing
primarily in U.S. and foreign equity securities.
Pursuant to the Advisory Contract, Mitchell Hutchins provides a continuous
investment program for the Fund and makes investment 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. As compensation
for its services, Mitchell Hutchins receives a fee, computed weekly and paid
monthly, in an amount equal to the annual rate of 1.00% of the Fund's average
weekly net assets. This fee is greater than the advisory and administration fees
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 stockholder meetings, fees and expenses relating to registration of
the Common Stock, taxes and governmental fees, fees and expenses of the
directors, costs of obtaining insurance, expenses of printing and distributing
stockholder materials and organizational expenses, including costs or losses to
any litigation. For the fiscal period ended July 31, 1994, the Fund's total
expenses, stated as a percentage of net assets, were 1.79%.
Frank Jennings, a managing director of Mitchell Hutchins, is responsible
for the day-to-day management of the Fund's portfolio. Mr. Jennings is managing
director of global equities for Mitchell Hutchins. Mr. Jennings is the primary
portfolio manager for three other global equity funds with aggregate assets of
approximately $564 million as of December 31, 1994. He also is a Vice President
of the Fund and other investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser. Prior to December 1992, Mr. Jennings
served as Managing Director of Global Investments for AIG Global Investors.
Other members of Mitchell Hutchins' international and domestic equities
groups provide input on market outlook, interest rate forecasts, and other
considerations pertaining to global equity investments.
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DIVIDENDS AND OTHER DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN
Dividends and Other Distributions. The Fund distributes as dividends all
of its net investment income and net short-term capital gain, if any, at least
annually. The Fund distributes substantially all of its net capital gain with
the regular annual dividend. The Fund also distributes 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 gain.
The Fund may change its distribution policy in the event its experience
indicates, or the board of directors for any other reason determines, that
changes are desirable.
Dividend Reinvestment Plan. The Fund has established the Plan under which
all stockholders whose shares of Common Stock are registered in their own names
or in the name of PaineWebber or its nominee, have all dividends and other
distributions on their shares of Common Stock automatically reinvested in
additional shares of Common Stock, unless such stockholders elect to receive
cash. The Fund will not issue any new shares of Common Stock in connection with
the Plan. Stockholders 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.
Stockholders who intend to hold their shares 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
stockholders to participate in the Plan may change if their shares of the Common
Stock are transferred into the name of another broker or nominee.
The Transfer Agent will serve as agent for the stockholders in
administering the Plan. After the Fund declares a dividend or determines to make
a capital gain distribution, the Transfer Agent will, as agent for the
participants, receive the cash payment and use it to buy shares of Common Stock
in the open market, on the Amex or otherwise, for the participants' accounts.
Such shares may be purchased at prices that may be higher or lower than the net
asset value per share of the Common Stock at the time of purchase. The number of
shares purchased with each distribution will be equal to the result obtained by
dividing the amount of the distribution payable to a particular stockholder by
the average price per share (including applicable brokerage commission) that the
Transfer Agent was able to obtain in the open market. The Transfer Agent will
maintain all stockholder accounts in the Plan and furnish written confirmations
of all transactions in the accounts, including information needed by
stockholders 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 stockholder's proxy will include those shares
of Common Stock purchased pursuant to the Plan.
There is no charge to participants for reinvesting dividends or other
distributions. The Transfer Agent's fees for the handling of reinvestment of
distributions will be paid by the Fund. 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 of the Common Stock in connection with
the reinvestment of distributions.
The automatic reinvestment of dividends and other distributions in shares
of Common Stock will not relieve participants of any income tax that may be
payable on such distributions. See 'Taxation.'
A holder who has elected to participate in the Plan may terminate
participation in the Plan at any time without penalty, and stockholders who have
previously terminated participation in the Plan may rejoin it at any time.
Changes in elections must be made in writing to the Transfer Agent and should
include the stockholder's name and address as they appear on the share
certificate. An election to terminate participation in the Plan, until such
election is changed, will be deemed to be an election by a stockholder to take
all subsequent distributions in cash. An election will be effective only for
distributions declared and having a record date at least ten days after the date
on which the election is received.
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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 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.
TAXATION
The Fund intends to continue to qualify for treatment as a regulated
investment company ('RIC') under the Internal Revenue Code. For each taxable
year that the Fund so qualifies, the Fund (but not its stockholders) 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 stockholders.
Dividends from the Fund's investment company taxable income (whether paid
in cash or reinvested in additional Fund shares) are taxable to its stockholders
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 Fund shares), when designated as such, are taxable to its
stockholders as long-term capital gain, regardless of how long they have held
their Fund shares. A participant in the Plan will be treated as having received
a distribution in the amount of the cash used to purchase shares of Common Stock
on his behalf, including a pro rata portion of the brokerage fees incurred by
the Transfer Agent.
An investor should be aware that, if shares of Common Stock are purchased
shortly before the record date for any distribution, the investor will pay full
price for the shares and could receive some portion of the price back as a
taxable dividend or capital gain distribution.
The Fund notifies its stockholders following the end of each calendar year
of the amounts of dividends and capital gain distributions paid (or deemed paid)
that year. Under certain circumstances, the notice also may specify a
stockholder's share of any foreign taxes paid by the Fund.
Upon a sale or exchange of shares of Common Stock (including a sale
pursuant to a share repurchase or tender offer by the Fund), a stockholder will
realize 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
stockholder'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 of Common Stock 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 of Common Stock will be disallowed to the extent
those shares are replaced by other shares of Common Stock 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 is required to withhold 31% of all dividends, capital gain
distributions and repurchase proceeds payable to any individuals and certain
other non-corporate stockholders who do not provide the Fund with a correct
taxpayer identification number. The Fund also is required to withhold 31% of all
dividends and capital gain distributions paid to such stockholders who otherwise
are subject to backup withholding.
The foregoing is only a summary of the important federal tax considerations
generally affecting the Fund and its stockholders; see the SAI for a further
discussion. There may be other federal, state or local tax
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<PAGE>
considerations applicable to a particular investor. Prospective stockholders are
therefore urged to consult their tax advisers.
DESCRIPTION OF CAPITAL STOCK
The Fund is authorized to issue 100 million shares of capital stock, $.001
par value, all of which currently is classified as Common Stock. Although it has
no current intention of doing so, the board of directors of the Fund is
authorized to classify and reclassify any unissued shares of capital stock from
time to time by setting or changing the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or terms and conditions
of redemption of such shares by the Fund. The description of the capital stock
and the description under 'Description of Capital Stock--Certain Anti-Takeover
Provisions of the Articles of Incorporation' are subject to the provisions
contained in the Fund's Articles of Incorporation and Bylaws.
Common Stock. Shares of the Common Stock have no preemptive, conversion,
exchange or redemption rights. Each share has equal voting, dividend,
distribution and liquidation rights. The outstanding shares of Common Stock are
fully paid and nonassessable. Stockholders 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.
Under the rules of the Amex applicable to listed companies, the Fund will
be required to hold an annual meeting of stockholders in each year. If the rules
of the Amex no longer require annual meetings of stockholders or if the Fund is
converted to an open-end investment company or if for any other reason the
Fund's shares are no longer listed on the Amex (or any other national securities
exchange the rules of which require annual meetings of stockholders), the Fund
may decide not to hold annual meetings of stockholders. See 'Common Stock
Repurchases and Tender Offers.'
Any additional offerings of the Common Stock, if made, will require
approval of the Fund's board of directors and will be subject to the requirement
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 stockholders or
with the consent of a majority of the holders of the Fund's outstanding voting
securities.
The following chart indicates the shares of the Common Stock outstanding as
of November 15, 1994:
<TABLE>
<CAPTION>
AMOUNT OUTSTANDING
AMOUNT HELD BY EXCLUSIVE OF
REGISTRANT OR FOR AMOUNT
ITS HELD BY REGISTRANT
TITLE OF CLASS AMOUNT AUTHORIZED ACCOUNT OR FOR ITS ACCOUNT
- --------------- ----------------- ------------------ ------------------
<S> <C> <C> <C>
Common Stock... 100,000,000 0 3,801,667
</TABLE>
Common Stock Repurchases and Tender Offers. In recognition of the
possibility that the Common Stock might trade at a discount from net asset value
and that any such discount may not be in the interest of stockholders, the
Fund's board of directors has determined that it will from time to time consider
taking action to attempt to reduce or eliminate any discount. To that end, the
board may, in consultation with Mitchell Hutchins, from time to time consider
action either to repurchase shares of the Common Stock in the open market or to
make a tender offer for shares of the Common Stock at their net asset value. The
board currently intends at least annually to consider making such open market
repurchases or tender offers and at such times may consider such factors as the
market price of the Common Stock, the net asset value of the Common Stock, the
liquidity of the
20
<PAGE>
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 may
have a material effect on 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. The Fund may borrow to finance repurchases and
tender offers. Interest on any such borrowings will reduce the Fund's net
income.
There is no assurance that repurchases or tender offers will result in the
Common Stock trading at a price that is equal or close to its net asset value
per share. Nevertheless, the fact that the Common Stock 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 Common Stock 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 tender
offers generally would have a favorable effect on the market price of the Common
Stock, it should be recognized that the Fund's acquisition of shares of the
Common Stock 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 objective, 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.
Any tender offer made by the Fund for shares of the Common Stock generally
would 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. Each offer would be made, and
the stockholders would be 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 would contain such information as is
prescribed by such laws and the rules and regulations promulgated thereunder.
Each person tendering shares would 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 would be paid
directly by the tendering stockholder and would not be deducted from the
proceeds of the purchase. The Fund's Transfer Agent would receive the fee as an
offset to these costs. The Fund expects that the costs of effecting a tender
offer would exceed the aggregate of all service charges received from those who
tender their shares. Costs associated with the tender would be charged against
capital.
Tendered shares of Common Stock that have been accepted and purchased by
the Fund will be held in the Fund's 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.
Conversion to Open-End Investment Company. The Fund's board of directors
will consider from time to time whether it would be in the best interest of the
Fund and its stockholders to convert the Fund to an open-end investment company.
If the board of directors determines that such a conversion would be in the best
interest of the Fund and its stockholders and is consistent with the 1940 Act,
the board will submit to the stockholders, at the next succeeding annual or
special meeting, a proposal to amend the Fund's Articles of Incorporation to so
convert the Fund. Such amendment would provide that, upon its adoption by the
holders of at least a majority of the Fund's outstanding shares entitled to vote
thereon, the Fund will convert from a closed-end to an open-end investment
company. If the Fund converted to an open-end investment company, it would be
able to continuously issue and offer for sale shares of the Common Stock, and
each such share could be presented to the Fund at the option of the holder
thereof for redemption at a price based on the then current net asset value per
share. In such
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<PAGE>
event, the Fund could be required to liquidate portfolio securities to meet
requests for redemption, the Common Stock would no longer be listed on the Amex
and certain investment policies of the Fund would require amendment.
In considering whether to propose that the Fund convert to an open-end
investment company, the board of directors will consider whether various
factors, including, without limitation, the potential benefits and detriments to
the Fund and its stockholders of conversion, the potential alternatives and the
benefits and detriments associated therewith, and the feasibility of conversion
given, among other things, the Fund's investment objective and policies. In the
event of a conversion to an open-end investment company, the Fund may charge
fees in connection with the sale or redemption of its shares. As an open-end
investment company, the Fund may reserve the right to honor any request for
redemption by making payment in whole or in part in securities chosen by the
Fund and valued in the same way as they would be valued for purposes of
computing the Fund's net asset value. If payment is made in securities, a
stockholder may incur brokerage expenses in converting these securities into
cash.
Certain Anti-Takeover Provisions of the Articles of Incorporation. The
Fund presently has provisions in its Articles of Incorporation that 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 stockholders 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 at least 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 the holders of at least 66 2/3% (which is higher than
that required under Maryland law or the 1940 Act) of the outstanding shares of
the Fund's capital stock 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 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 of
the Fund (a 'Principal Shareholder'). A similar vote also would be required for
any amendment of the Articles of Incorporation to convert the Fund to an
open-end investment company by making any class of the Fund's capital stock a
'redeemable security,' as that term is defined in the 1940 Act. Such vote would
not be required with respect to any of the foregoing transactions, however,
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 or the
conversion of the Fund to an open-end investment company, the affirmative vote
of the holders of a majority of the outstanding shares of the Fund's capital
stock 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.
22
<PAGE>
The provisions of the 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 the stockholders 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. See
'Description of Capital Stock--Common Stock Repurchases and Tender Offers.' The
overall effect of these provisions is to render more difficult the
accomplishment of a merger or the assumption of control by a Principal
Shareholder. 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 objective and policies. The board of directors of the Fund has
considered the foregoing anti-takeover provisions and concluded that they are in
the best interest of the Fund and its stockholders.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT AND REGISTRAR
Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts
02109, serves as custodian of the Fund's assets. Brown Brothers Harriman & Co.
employs foreign subcustodians 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, whose principal
business address is Broad and Chestnut Streets, Philadelphia, Pennsylvania
19110, is the Fund's transfer and dividend disbursing agent and registrar.
FURTHER INFORMATION
Further information concerning these securities and the Fund may be found
in the Registration Statement of which this Prospectus and the Fund's SAI
constitute a part, on file with the SEC.
The Table of Contents for the SAI is as follows:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and Restrictions........................ 1
Hedging Strategies.......................................... 6
Directors and Officers...................................... 13
Control Persons and Principal Holders of Securities......... 16
Investment Advisory Arrangements............................ 17
Portfolio Transactions...................................... 18
Valuation of Common Stock................................... 19
Taxation.................................................... 20
Additional Information...................................... 22
Financial Statements........................................ 23
Appendix A.................................................. A-1
Appendix B.................................................. B-1
<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 INFORMATION OR
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>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Expenses............................. 2
Prospectus Summary........................ 3
Financial Highlights...................... 8
The Fund.................................. 9
The Offering.............................. 9
Use of Proceeds........................... 9
Trading History........................... 9
Investment Objective and Policies......... 10
Other Investment Practices................ 10
Special Considerations and Risk Factors... 13
Management of the Fund.................... 16
Dividends and Other Distributions;
Dividend Reinvestment Plan.............. 18
Taxation.................................. 19
Description of Capital Stock.............. 20
Custodian, Transfer and Dividend
Disbursing Agent and Registrar.......... 23
Further Information....................... 23
</TABLE>
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(COPYRIGHT)1995 PaineWebber Incorporated
[LOGO] Recycled
Paper
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GLOBAL SMALL CAP
FUND INC.
COMMON STOCK
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P R O S P E C T U S
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PAINEWEBBER INCORPORATED
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JANUARY 27, 1995
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