<PAGE>
GLOBAL SMALL CAP FUND INC. SEMIANNUAL REPORT
March 17, 1997
Dear Shareholder,
We are pleased to present you with the semiannual report for Global Small Cap
Fund Inc. (the "Fund") for the six months ended January 31, 1997.
GENERAL MARKET OVERVIEW
(GRAPHIC OMITTED)
Despite July's market correction and volatility brought about by the market's
increasing sensitivity to interest rates and the market's anticipation of
future economic growth around the world, nearly all of the major equity markets
showed strong performance during the six-month period ended January 31, 1997.
The highest stock market returns were achieved in Europe, led by Finland, which
returned 38%; Sweden, 28%; Norway, 28%; and Spain, 27%.
Hong Kong and the U.S.were also very strong, returning 21% and 25%,
respectively. Conversely, Japan struggled throughout the period, ending with
a return of (22)%.
PORTFOLIO REVIEW
(GRAPHIC OMITTED)
The Fund experienced strong performance during the six-month period, turning in
a total year-to-date return through January 31, 1997 of 18.04% based on the
Fund's net asset value, and 14.46% based on the Fund's share price on the
American Stock Exchange.
Performance was driven by strong stock selection, especially in Continental
Europe and the U.S. Another important factor behind performance was the Fund's
significant underweighted position in Japan, a stance taken as a result of the
lack of growth in that market and more attractive opportunities elsewhere in
the world.
As of January 31, 1997, the Fund continued to be heavily weighted in Con-
tinental Europe (45.84% of net assets), Asia Pacific (21.57%) and in select
emerging markets (18.47%).
GLOBAL SMALL CAP FUND INC.
FUND PROFILE
(GRAPHIC ARROW) GOAL:
Long-term capital appreciation
(GRAPHIC ARROW) PORTFOLIO MANAGER:
Ralph Layman,
GE Investment Management
(GRAPHIC ARROW) TOTAL NET ASSETS:
$56.7 million as of
January 31, 1997
(GRAPHIC ARROW) DIVIDEND PAYMENT:
Annually
1
<PAGE>
SEMIANNUAL REPORT GLOBAL SMALL CAP FUND INC.
GLOBAL SMALL
CAP FUND INC.
Top Ten Countries as a
percentage of net assets
as of January 31, 1997
United States 21.17%
Sweden 12.33%
Finland 10.34%
United Kingdom 7.60%
Italy 7.54%
Hong Kong 6.11%
Indonesia 5.02%
Netherlands 3.93%
Germany 3.91%
Australia 3.50%
OUTLOOK
(GRAPHIC OMITTED)
Going forward, GE Investment Management ("GEIM"), sub adviser of the Fund,
believes 1997 will be a year in which focus on stock selection will be
crucial to good performance. When selecting stocks in which to invest, GEIM
employs an approach that focuses on fundamental, bottom-up stock selection,
choosing companies which are attractive based on their price-to-cash earnings
ratio compared to their projected future growth rate. In line with this
investment philosophy, GEIM is finding many interesting opportunities around
the world:
In the U.S., indications are that inflation is under control. In fact,
most economic indicators reported in the month of January pointed toward a
slowing economy in 1997. These included slowing manufacturing output, declining
housing starts and increased unemployment. However, it remains to be seen if
company earnings can continue to surprise on the upside.
Europe remains one of the most attractive areas of the world for us to
invest. European monetary union appears likely, not as much from the economic
reality as from the strength of political wills.
Japan will continue to struggle. Faced with continued pressure from the
bank bailout and stretched government finances, it will be difficult for Japan
to make significant progress toward an economic recovery.
Latin America began 1997 on an extremely positive note. Overall economic
growth, expected to range from 4%-5%, could go as high as 6%. Inflation seems
to be under control. Political risk remains the overriding concern in the
region.
Our ultimate objective in managing your investments is to help you
successfully meet your financial goals. We thank you for your continued support
and welcome any comments or questions you may have.
Sincerely,
/s/ MARGO N. ALEXANDER /s/ RALPH LAYMAN
MARGO N. ALEXANDER RALPH LAYMAN
President, Portfolio Manager,
Mitchell Hutchins Asset Management Inc. Global Small Cap Fund Inc.
2
<PAGE>
GLOBAL SMALL CAP FUND INC.
PORTFOLIO OF INVESTMENTS JANUARY 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------- -----------
<S> <C>
COMMON STOCKS - 96.41%
ARGENTINA - 0.64%
Services - 0.64%
13,500 Disco SA ADR................................................ $ 364,500
-----------
AUSTRALIA - 3.49%
Consumer Goods - 0.45%
106,000 BRL Hardy................................................... 255,500
-----------
Energy - 0.54%
130,000 Novus Petroleum............................................. 307,399
-----------
Entertainment - 1.21%
525,000 Southern Star Group......................................... 688,787
-----------
Retail - 0.23%
100,000 Rebel Sport Limited......................................... 131,960
-----------
Services - 1.06%
521,812 AAPC Limited................................................ 298,520
175,000 Burns Philip & Company, Limited............................. 300,343
-----------
598,863
-----------
Total Australia Common Stocks.......................................... 1,982,509
-----------
AUSTRIA - 1.49%
Iron & Steel - 1.49%
12,052 Boehler Uddeholm Bearer..................................... 842,578
-----------
CHILE - 0.45%
Retail - 0.45%
9,600 Santa Isabel SA ADR......................................... 258,000
-----------
CROATIA - 2.27%
Pharmaceuticals - 2.27%
75,565 Pliva DD** GDR.............................................. 1,284,605
-----------
FINLAND - 10.34%
Capital Equipment - 2.60%
48,000 Konecranes International.................................... 1,476,348
-----------
Consumer Goods - 1.36%
13,678 Hackman..................................................... 347,776
4,884 Raison Tehtaat.............................................. 423,616
-----------
771,392
-----------
Financial Services - 1.49%
26,550 Komercni Bank AS** GDR...................................... 842,963
-----------
Manufacturing - 1.31%
38,888 Valmet Corporation.......................................... 741,574
-----------
</TABLE>
3
<PAGE>
GLOBAL SMALL CAP FUND INC.
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------- -----------
COMMON STOCKS -- (CONTINUED)
<S> <C>
FINLAND (CONCLUDED)
Newspaper & Publishing - 1.30%
20,000 Aamulehti Yhtymae Bearer.................................... $ 738,174
-----------
Transportation/Marina - 2.28%
51,600 Finnlines OY................................................ 1,290,820
-----------
Total Finland Common Stocks............................................ 5,861,271
-----------
FRANCE - 1.98%
Capital Equipment - 0.98%
5,300 Technip SA/Campagnie Francaise.............................. 556,632
-----------
Electronics - 0.52%
1,450 Le Carbone Lorraine......................................... 293,807
-----------
Energy - 0.48%
9,801 Coflexip S.A. Spoorit ADR*.................................. 271,978
-----------
Total France Common Stocks............................................. 1,122,417
-----------
GERMANY - 3.92%
Auto Parts - 0.88%
35,000 Kolbenschmidt AG............................................ 498,533
-----------
Materials - 1.65%
7,078 SGL Carbon AG............................................... 935,916
-----------
Office Equipment - 0.62%
15,000 Turbon International AG..................................... 349,370
-----------
Consumer Goods - 0.77%
4,600 Adidas AG................................................... 435,591
-----------
Total Germany Common Stocks............................................ 2,219,410
-----------
HONG KONG - 6.11%
Consumer Goods - 2.11%
1,034,000 Four Seasons Mercantile Holdings............................ 587,121
200,000 Johnson Electric Holdings................................... 609,111
-----------
1,196,232
-----------
Electronics - 1.50%
480,000 Vtech Holdings.............................................. 851,723
-----------
Photo Equipment - 0.39%
715,000 China Hk Photo.............................................. 223,755
-----------
Retail - 2.11%
1,100,000 Giordano International Limited.............................. 617,499
1,490,000 Yue Yuen Industries......................................... 576,848
-----------
1,194,347
-----------
Total Hong Kong Common Stocks.......................................... 3,466,057
-----------
</TABLE>
4
<PAGE>
GLOBAL SMALL CAP FUND INC.
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------- -----------
COMMON STOCKS -- (CONTINUED)
<S> <C>
HUNGARY - 1.04%
Food Processing - 1.04%
9,346 Pick Szeged Ord Bearer...................................... $ 587,071
-----------
INDIA - 1.75%
Energy, Reserves & Production - 1.75%
50,000 BSES GDR.................................................... 992,500
-----------
INDONESIA - 5.03%
Building Materials - 0.55%
280,000 Mulia Industrindo........................................... 312,158
-----------
Capital Equipment - 3.06%
491,000 Astra International......................................... 1,735,129
-----------
Financial Services - 0.90%
390,000 Panin Bank.................................................. 508,625
-----------
Transportation - 0.52%
226,667 Steady Safe................................................. 293,227
-----------
Total Indonesia Common Stocks.......................................... 2,849,139
-----------
IRELAND - 1.01%
Transportation/Marina - 1.01%
76,769 Irish Continental Group PLC................................. 574,637
-----------
ISRAEL - 1.27%
Computer Software & Services - 0.54%
16,000 Memco Software Ltd.*........................................ 308,000
-----------
Retail - 0.73%
26,493 Blue Square Israel Ltd* ADR................................. 413,953
-----------
Total Israel Common Stocks............................................. 721,953
-----------
ITALY - 7.55%
Auto Parts - 0.98%
39,200 Brembo Spa*................................................. 554,130
-----------
Capital Equipment - 2.60%
110,000 Carraro Spa................................................. 559,784
155,000 Gildemeister Italiana....................................... 486,371
100,000 Riva Finanziaria Spa........................................ 426,875
-----------
1,473,030
-----------
Consumer Goods - 2.73%
50,000 Industrie Natuzzi Spa*...................................... 1,150,000
100,000 Pagnossin Spa*.............................................. 395,807
-----------
1,545,807
-----------
Electronics - 0.56%
25,000 Saes Getters Spa ADR........................................ 318,750
-----------
</TABLE>
5
<PAGE>
GLOBAL SMALL CAP FUND INC.
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------- -----------
COMMON STOCKS -- (CONTINUED)
<S> <C>
ITALY (CONCLUDED)
Optical - 0.68%
22,311 Safilo...................................................... $ 388,169
-----------
Total Italy Common Stocks.............................................. 4,279,886
-----------
JAPAN - 3.18%
Agriculture, Food & Beverage - 0.42%
5,700 Hokuto Corp................................................. 239,763
-----------
Auto Parts - 0.43%
12,100 Royal Limited............................................... 245,503
-----------
Capital Equipment - 0.73%
25,000 Canon Chemicals Incorporated................................ 412,388
-----------
Financial Services - 0.38%
10,000 Shinki Co Ltd............................................... 216,091
-----------
Photo Equipment - 0.38%
7,200 Nihon Jumbo Company......................................... 216,751
-----------
Retail - 0.84%
10,400 Circle K Japan Company Ltd.................................. 475,203
-----------
Total Japan Common Stocks.............................................. 1,805,699
-----------
KOREA - 1.04%
Beverages - 0.48%
9,840 Cho Sun Brewery Company Ltd................................. 271,880
-----------
Telecommunications - 0.56%
515 Korea Mobile Telecom Corporation............................ 319,717
-----------
Total Korea Common Stocks.............................................. 591,597
-----------
NETHERLANDS - 3.93%
Energy - 3.21%
31,000 IHC Caland NV............................................... 1,820,354
-----------
Food Processing - 0.72%
2,833 Nutricia Verenigde Bedrijven................................ 407,027
-----------
Total Netherlands Common Stocks........................................ 2,227,381
-----------
NEW ZEALAND - 0.31%
Agriculture, Food & Beverage - 0.31%
233,895 Wrightson Limited........................................... 175,498
-----------
NORWAY - 1.23%
Capital Equipment - 0.47%
25,000 Sensonor A/S................................................ 266,195
-----------
Oil & Gas - 0.76%
10,000 Petroleum Geo-Services*..................................... 433,629
-----------
Total Norway Common Stocks............................................. 699,824
-----------
</TABLE>
6
<PAGE>
GLOBAL SMALL CAP FUND INC.
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------- -----------
COMMON STOCKS -- (CONTINUED)
<S> <C>
PHILIPPINES - 1.63%
Beverages - 1.63%
230,000 San Miguel Corporation Class B.............................. $ 925,237
-----------
SINGAPORE - 1.49%
Consumer Goods - 0.63%
113,000 Want Want Holdings.......................................... 354,820
-----------
Oil & Gas - 0.86%
100,000 Far East Levingston......................................... 490,126
-----------
Total Singapore Common Stocks.......................................... 844,946
-----------
SOUTH AFRICA - 0.50%
Retail - 0.50%
75,000 Metro Cash & Carry.......................................... 283,717
-----------
SPAIN - 0.57%
Paper Products - 0.57%
11,443 Miquel Y Costas Miquel...................................... 322,233
-----------
SWEDEN - 12.34%
Auto Parts - 4.52%
48,204 Autoliv AB.................................................. 2,087,633
36,500 Garphyttan.................................................. 473,974
-----------
2,561,607
-----------
Capital Equipment - 1.23%
37,115 Assa Abloy AB............................................... 697,303
-----------
Financial Services - 2.73%
20,000 Kinnevik Investments........................................ 576,063
32,300 OM Gruppen AB............................................... 972,730
-----------
1,548,793
-----------
Medical Supplies - 1.00%
28,700 Getinge Industries AB....................................... 564,976
-----------
Services - 2.02%
26,655 Netcom Systems AB*.......................................... 486,056
40,000 Scandic Hotels AB........................................... 657,567
-----------
1,143,623
-----------
Transportation - 0.84%
39,500 Linjebuss AB................................................ 474,733
-----------
Total Sweden Common Stocks............................................. 6,991,035
-----------
SWITZERLAND - 0.65%
Specialty Retail - 0.65%
2,689 Tag Heuer................................................... 367,189
-----------
</TABLE>
7
<PAGE>
GLOBAL SMALL CAP FUND INC.
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------- -----------
COMMON STOCKS -- (CONTINUED)
<S> <C>
THAILAND - 0.74%
Financial Services - 0.16%
100,500 Siam City Bank PLC.......................................... $ 88,243
-----------
Services - 0.58%
75,000 Siam Makro Public Company................................... 329,988
-----------
Total Thailand Common Stocks........................................... 418,231
-----------
UNITED KINGDOM - 7.60%
Capital Equipment - 1.82%
10,000 Eidos....................................................... 149,015
325,000 Jarvis...................................................... 885,275
-----------
1,034,290
-----------
Medical, Hospital, Commercial Services - 0.49%
160,749 Takare PLC.................................................. 275,470
-----------
Services - 5.29%
127,000 Airtours PLC................................................ 1,780,564
70,000 Capita Group PLC............................................ 637,077
350,000 Cordiant PLC................................................ 583,240
-----------
3,000,881
-----------
Total United Kingdom Common Stocks..................................... 4,310,641
-----------
UNITED STATES - 12.86%
Apparel, Textiles - 1.51%
10,000 Jones Apparel Group Incorporated*........................... 342,500
10,000 Nine West Group, Incorporated*.............................. 516,250
-----------
858,750
-----------
Capital Equipment - 2.16%
10,000 Jacob Engineering Group Incorporated........................ 277,500
80,000 Rofin-Sinar Technologies Incorporated....................... 950,000
-----------
1,227,500
-----------
Computer Hardware - 0.93%
20,000 Zebra Technologies Corporation*............................. 530,000
-----------
Computer Software & Services - 0.39%
40,000 Document Sciences Corporation*.............................. 222,500
-----------
Consumer Goods - 1.85%
25,000 Cannondale Corporation*..................................... 581,250
10,000 Littlefuse Incorporated*.................................... 467,500
-----------
1,048,750
-----------
Information & Computer Services - 0.63%
6,400 Catalina Marketing Corporation*............................. 356,800
-----------
</TABLE>
8
<PAGE>
GLOBAL SMALL CAP FUND INC.
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------- -----------
COMMON STOCKS -- (CONCLUDED)
<S> <C>
UNITED STATES (CONCLUDED)
Medical Providers - 0.54%
8,500 FHP International Corporation*.............................. $ 308,125
-----------
Other Insurance - 2.08%
34,000 CMAC Investment Corporation................................. 1,181,500
-----------
Retail - 1.28%
27,350 Price Costco, Incorporated**................................ 728,194
-----------
Services - 0.46%
17,250 Vanguard Cellular Systems Incorporated...................... 258,750
-----------
Specialty Retail - 1.03%
10,000 Barnes & Noble Incorporated*................................ 311,250
15,000 General Nutrition Companies Incorporated.................... 271,875
-----------
583,125
-----------
Total United States Common Stocks...................................... 7,303,994
-----------
Total Common Stocks (cost - $42,632,601)............................... 54,673,755
-----------
PREFERRED STOCKS - 0.69%
BRAZIL - 0.69%
Home Appliances - 0.69%
1,508,000 Brasmotor* (cost - $428,914)................................ 389,403
-----------
WARRANTS - 0.06%
HONG KONG - 0.06%
Consumer Goods - 0.06%
206,800 Four Seasons Mercantile Holdings (cost - $11,948)........... 34,692
-----------
<CAPTION>
PRINCIPAL
AMOUNT
- ---------
<S> <C>
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED - 8.01%
MONEY MARKET FUNDS - 8.01%
$2,234,887 Liquid Assets Portfolio..................................... 2,234,887
7 Prime Portfolio............................................. 7
2,237,613 TempCash Portfolio.......................................... 2,237,613
70,193 TempFund Portfolio.......................................... 70,193
-----------
Total Money Market Funds (cost - $4,542,700)........................... 4,542,700
-----------
</TABLE>
9
<PAGE>
GLOBAL SMALL CAP FUND INC.
<TABLE>
<CAPTION>
PRINCIPAL MATURITY INTEREST
AMOUNT DATE RATE VALUE
- --------- ---------- -------- -----------
<S> <C> <C> <C>
REPURCHASE AGREEMENT - 0.28%
$160,000 Repurchase Agreement dated 01/31/97 with State
Street Bank & Trust Company, collateralized by
$165,175 U.S. Treasury Bonds, 5.250% due 12/31/97;
proceeds $160,071 (cost - $160,000)............... 02/03/97 5.300% $ 160,000
-----------
Total Investments (cost - $47,776,163) - 105.45%............. 59,800,550
Liabilities in excess of other assets - (5.45)%.............. (3,089,748)
-----------
Net Assets 100.00%........................................... $56,710,802
-----------
-----------
</TABLE>
- ------------
* Non-income producing security
** Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
ADR American Depositary Receipt
GDR Global Depositary Receipt
See accompanying notes to financial statements
10
<PAGE>
GLOBAL SMALL CAP FUND INC.
STATEMENT OF ASSETS AND LIABILITIES JANUARY 31, 1997 (UNAUDITED)
<TABLE>
<S> <C>
Assets
Investments, at value (cost - $47,776,163)..................... $59,800,550
Cash denominated in foreign currencies (cost - $1,736,252)..... 1,701,471
Cash........................................................... 338
Receivable for investments sold................................ 167,233
Dividends and interest receivable.............................. 75,306
Deferred organizational expenses and other assets.............. 31,479
------------
Total assets................................................... 61,776,377
------------
Liabilities
Payable for investments purchased.............................. 278,809
Payable to affiliates.......................................... 47,753
Collateral for securities loaned............................... 4,542,700
Accrued expenses and other liabilities......................... 196,313
------------
Total liabilities.............................................. 5,065,575
------------
Net Assets
Common stock, $0.001 par value; 3,801,667 shares
issued and outstanding (100,000,000 shares authorized)........ 3,802
Additional paid-in-capital..................................... 51,563,257
Accumulated net investment loss................................ (345,760)
Accumulated net realized losses from investment transactions... (6,493,904)
Net unrealized appreciation of investments and other assets and
liabilities denominated in foreign currencies................. 11,983,407
------------
Net assets..................................................... $56,710,802
------------
------------
Net asset value per share...................................... $14.92
------------
------------
</TABLE>
See accompanying notes to financial statements
11
<PAGE>
GLOBAL SMALL CAP FUND INC.
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JANUARY 31,
1997 (UNAUDITED)
<TABLE>
<S> <C>
Investment income:
Dividends (net of foreign withholding taxes of $10,880)........................................... $ 177,646
Interest.......................................................................................... 35,465
----------
213,111
----------
Expenses:
Investment advisory and administration............................................................ 264,494
Custody and accounting............................................................................ 84,314
Legal and audit................................................................................... 29,230
Reports and notices to shareholders............................................................... 25,758
Amortization of organizational expenses........................................................... 21,909
Transfer agency fees and expenses................................................................. 18,769
Directors' fees and expenses...................................................................... 3,277
Other expenses.................................................................................... 11,701
----------
459,452
----------
Net investment loss............................................................................... (246,341)
----------
Realized and unrealized gains (losses) from investment transactions:
Net realized gains from:
Investment transactions...................................................................... 1,821,966
Foreign currency transactions................................................................ 4,705
Net change in unrealized appreciation/depreciation of:
Investments.................................................................................. 7,097,131
Other assets and liabilities denominated in foreign currencies............................... (34,459)
----------
Net realized and unrealized gains from investment transactions.................................... 8,889,343
----------
Net increase in net assets resulting from operations.............................................. $8,643,002
----------
----------
</TABLE>
See accompanying notes to financial statements
12
<PAGE>
GLOBAL SMALL CAP FUND INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
ENDED FOR THE
JANUARY 31, YEAR ENDED
1997 JULY 31,
(UNAUDITED) 1996
------------ ------------
<S> <C> <C>
From operations:
Net investment loss................................ $ (246,341) $ (43,603)
Net realized gains (losses) from:
Investment transactions....................... 1,821,966 523,875
Foreign currency transactions................. 4,705 (82,912)
Net change in unrealized appreciation/depreciation
of:
Investments................................... 7,097,131 3,542,207
Other assets and liabilities denominated in
foreign currencies.......................... (34,459) (9,152)
------------ ------------
Net increase in net assets resulting from
operations........................................ 8,643,002 3,930,415
Net Assets:
Beginning of period................................ 48,067,800 44,137,385
------------ ------------
End of period...................................... $56,710,802 $48,067,800
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements
13
<PAGE>
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 and is registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended, as a closed-end, diversified
management investment company. Prior to commencing 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'), a wholly owned
subsidiary of PaineWebber Incorporated ('PaineWebber'), of 6,667 shares of
common stock for a total of $100,005. Organizational costs have been deferred
and are being amortized using the straight-line method over the period of
benefit, not to exceed 60 months from the date the Fund commenced operations.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates. The following is a summary of
significant accounting policies:
Valuation of Investments--Securities that are listed on U.S. and foreign stock
exchanges are valued at the last sale price 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
generally valued on the exchange designated by Mitchell Hutchins, or GE
Investment Management Incorporated ('GEIM'), the sub-adviser to the Fund, as the
primary market. Securities traded in the over-the-counter ('OTC') market and
listed on The Nasdaq Stock Market, Inc. ('Nasdaq') are valued at the last
available sale price on Nasdaq prior to the time of valuation; other OTC
securities are valued at the last bid price available prior to valuation. The
amortized cost method of valuation, which approximates market value, is used to
value debt obligations with sixty days or less remaining to maturity unless the
Fund's board of directors determines that this does not represent fair value.
Securities, including limited partnership interests, 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 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, unless the board of directors
determines that this does not represent fair value. Foreign currency exchange
rates are generally determined prior to the close of trading on 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 investments or currency exchange rates occur 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.
14
<PAGE>
Investment Transactions and Investment Income--Investment transactions are
recorded on the trade date. Realized gains and losses from investment and
foreign exchange transactions are calculated using the identified cost basis.
Dividend income and other distributions are recorded on the ex-dividend date
('ex-date') (except for certain dividends from foreign securities that are
recorded as soon after the ex-date as the Fund, using reasonable diligence,
becomes aware of such dividends). Interest income is recorded on an accrual
basis.
Foreign Currency Translation--The books and records of the Fund are maintained
in U.S. dollars as follows: (1) the foreign currency market value of investment
securities and other assets and liabilities stated in foreign currencies are
translated at the exchange rates prevailing at the end of the period; and (2)
purchases, sales, income and expenses are translated at the rate of exchange
prevailing on the respective dates of such transactions. The resulting exchange
gains and losses are included in the Statement of Operations.
The Fund does not generally isolate the effect of fluctuations in foreign
exchange rates from the effects of the fluctuations in market price of
investment securities. However, the Fund does isolate the effect of fluctuations
in foreign exchange rates when determining the realized gain or loss upon the
sale or maturity of foreign currency denominated debt obligations pursuant to
federal income tax regulations; such amount is categorized as foreign exchange
gain or loss for both financial reporting and income tax reporting purposes.
Repurchase Agreements--The Fund's custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a mark-to-market basis to ensure that the value, including
accrued interest, is at least equal to the repurchase price. In the event of
default of the obligation to repurchase, the Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation. Under
certain circumstances, in the event of default or bankruptcy by the other party
to the agreement, realization and/or retention of the collateral may be subject
to legal proceedings. The Fund occasionally participates in joint repurchase
agreement transactions with other funds managed by Mitchell Hutchins.
Dividends and Distributions--Dividends and distributions to shareholders are
recorded on the ex-date. The amount of dividends and distributions are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These 'book/tax' differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions that
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.
15
<PAGE>
CONCENTRATION OF RISK
Investing in securities of foreign issuers and currency transactions may involve
certain considerations and risks not typically associated with investments in
the United States. These risks include revaluation of currencies, adverse
fluctuations in foreign currency values and possible adverse political, social
and economic developments, including those particular to a specific industry,
country or region, which could cause the securities and their markets to be less
liquid and prices more volatile than those of comparable U.S. companies and U.S.
government securities. These risks are greater with respect to securities of
issuers located in emerging market countries in which this Fund is authorized to
invest.
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, and may be dependent on a
relatively small managment group. 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.
The ability of the issuers of debt securities held by the Fund to meet their
obligations may be affected by economic and political developments particular to
a specific industry, country or region.
INVESTMENT ADVISER AND ADMINISTRATOR
The Fund has an Investment Advisory and Administration Contract ('Advisory
Contract') with Mitchell Hutchins under which Mitchell Hutchins serves as
investment adviser and administrator of the Fund. In accordance with the
Advisory Contract, the Fund pays Mitchell Hutchins an investment advisory and
administration fee, which is computed weekly and payable monthly, at an annual
rate of 1.00% of the Fund's average weekly net assets.
Mitchell Hutchins has a separate Sub-Advisory Agreement ('Sub-Advisory
Agreement') with GEIM. In accordance with the Sub-Advisory Agreement, Mitchell
Hutchins (not the Fund) pays GEIM a fee at an annual rate of 0.50% of the Fund's
average weekly net assets.
SECURITIES LENDING
The Fund may lend up to 33 1/3% of its total assets to qualified institutions.
The loans are secured at all times by cash or U.S. government securities in an
amount at least equal to the market value of the securities loaned, plus accrued
interest and dividends, determined on a daily basis and adjusted accordingly.
The Fund will regain record ownership of loaned securities to exercise certain
beneficial rights, however, the Fund may bear the risk of delay in recovery of,
or even loss of rights in, the securities loaned should the borrower fail
financially. The Fund receives compensation, which is included in interest
income, for lending its
16
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securities from interest earned on the cash or U.S. government securities held
as collateral, net of fee rebates paid to the borrower plus reasonable
administrative and custody fees. The Fund's lending agent is PaineWebber Global
Security Lending, a wholly owned subsidiary of PaineWebber, who received no
compensation from the Fund.
As of January 31, 1997, the Fund's custodian held cash and cash equivalents
having an aggregate value of $4,542,700 as collateral for portfolio securities
loaned having a market value of $4,410,822.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at January 31,
1997 was substantially the same as the cost of securities for financial
statement purposes.
At January 31, 1997, the components of the net unrealized appreciation of
investments were as follows:
Gross appreciation (investments having
an excess of value over cost)..... $ 14,651,737
Gross depreciation (investments having
an excess of cost over value)..... (2,627,350)
------------
Net unrealized appreciation of
investments....................... $ 12,024,387
------------
------------
For the year ended January 31, 1997, aggregate purchases and sales of portfolio
securities, excluding short-term securities, were $11,249,542 and $11,332,226,
respectively.
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.
In accordance with U.S. Treasury regulations, the Fund has elected to defer
$1,191,736 of net realized capital losses and $66,873 of net realized currency
losses arising after October 31, 1995. Such losses are treated for tax purposes
as arising on August 1, 1996.
At July 31, 1996, the Fund had a net capital loss carryforward of $7,119,784
which expires as follows: $2,432,202 in 2003 and $4,687,582 in 2004.
CAPITAL STOCK
At January 31, 1997, Mitchell Hutchins owned 6,667 shares of the Fund.
17
<PAGE>
GLOBAL SMALL CAP FUND INC.
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each period is
presented below:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE PERIOD
MONTHS ENDED OCTOBER 15,
JANUARY 31, FOR THE YEARS ENDED JULY 31, 1993+
1997 ---------------------------------- TO
(UNAUDITED) 1996 1995 JULY 31, 1994
------------------ ------------------ -------------- ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period...................... $ 12.64 $ 11.61 $ 13.28 $ 14.18
---------- ---------- ---------- ----------
Net investment income (loss).............................. (0.06) (0.01) 0.08 (0.05)
Net realized and unrealized gains (losses) from
investments............................................. 2.34 1.04 $ (0.95) (0.80)
---------- ---------- ---------- ----------
Total income (loss) from investment operations............ 2.28 1.03 (0.87) (0.85)
---------- ---------- ---------- ----------
Distributions from net realized gains from investments.... -- -- (0.80) --
---------- ---------- ---------- ----------
Offering costs charged to additional paid-in capital...... -- -- -- (0.05)
---------- ---------- ---------- ----------
Net asset value, end of period............................ $ 14.92 $ 12.64 $ 11.61 $ 13.28
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Market value, end of period............................... $ 11.88 $ 10.38 $ 9.25 $ 12.13
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Total investment return (1)............................... 14.46% 12.22% (17.64)% (14.46)%
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Ratios/Supplemental Data:
Net assets, end of period (000's)......................... $ 56,711 $ 48,068 $ 44,137 $ 50,474
Expenses to average net assets............................ 1.74%* 1.76% 1.69% 1.79%*
Net investment income (loss) to average
net assets.............................................. (0.93)%* (0.10)% 0.62% (0.46)%*
Portfolio turnover........................................ 22% 64% 187% 71%
Average commission rate paid.............................. $ 0.0298 -- -- --
</TABLE>
- ------------------
+ Commencement of operations
* Annualized
(1) Total investment return is calculated assuming a purchase of common stock at
the current market price on the first day and a sale at the current market
price on the last day of each period reported. Dividends and distributions,
if any, are assumed for purposes of this calculation to be reinvested at
prices obtained under the Fund's dividend reinvestment plan. Total
investment return does not reflect sales charges or brokerage commissions.
Total investment returns for periods of less than one year have not been
annualized.
(2) Effective for fiscal years beginning on or after September 1, 1995, the Fund
is required to disclose the average commission rate paid per share of common
stock investments purchased or sold.
18
<PAGE>
GLOBAL SMALL CAP FUND INC.
GENERAL INFORMATION
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 $44.4
billion in assets under management. The Fund's sub-adviser is GE Investment
Management Incorporated, a wholly owned subsidiary of General Electric Company,
which, together with General Electric Investment Corporation, also a wholly
owned subsidiary of General Electric Company, manages over $56.7 billion in
assets.
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, each Sunday in the New York Times and each Monday 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.
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BOARD OF DIRECTORS
E. Garrett Bewkes, Jr. Meyer Feldberg
Chairman
George W. Gowen
Margo N. Alexander
Frederic V. Malek
Richard Q. Armstrong
Carl W. Schafer
Richard R. Burt
John R. Torell III
Mary C. Farrell
OFFICERS
Margo N. Alexander Dianne E. O'Donnell
President Vice President and Secretary
Victoria E. Schonfeld Julian F. Sluyters
Vice President Vice President and Treasurer
INVESTMENT ADVISER
AND ADMINISTRATOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
INVESTMENT SUB-ADVISER
GE Investment Management Incorporated
3003 Summer Street
Stamford, Connecticut 06904
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 the use in the
purchase or sale of shares of the Fund or of any securities mentioned in this
report.
<PAGE>
[PAINEWEBBER LOGO]
(C)1997 PaineWebber Incorporated
Member SIPC
JANUARY 31, 1997
GLOBAL SMALL
CAP FUND INC.
SEMIANNUAL REPORT
