<PAGE>
GLOBAL SMALL CAP FUND INC. SEMIANNUAL REPORT
March 23, 1998
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, 1998.
GENERAL MARKET OVERVIEW
- ------------------------------------------------------------------------------
The most dramatic event of the period was the sharp selloff in Asian
markets due to economic and currency problems in many key countries.
Positive performance by most European equity markets helped to offset
some of the negative Asian impact. Italy (+26%) and Portugal (+21%)
posted the most impressive returns on the Continent, followed by Spain
(+19%) and the United Kingdom (+13%). Some of the poorer performing Asian
markets during the period included Malaysia (-64%), Hong Kong (-43%),
Singapore (-36%) and Japan (-21%).
PORTFOLIO REVIEW
- ------------------------------------------------------------------------------
For the six-month period ended January 31, 1998, the Fund (symbol: GSG)
declined 2.64% based on changes in its net asset value. The Fund declined
4.31% based on changes in its share price on the American Stock Exchange.
Over the same period the Morgan Stanley Capital International World
Index, one of the Fund's benchmarks, fell l.4%. The small cap benchmark,
The Salomon Brothers Extended Market Index, fell 1.7%.
During the six months, the Fund's underweighting in the U.S. and its
overweighting in Asia ex-Japan caused the Fund to underperform its
benchmarks. However, we were favorably impacted by our overweighting in
Continental Europe, our underweighting in Japan, and by the positive
performance of our stock selections in nearly all regions.
In October we began to reduce the Fund's exposure to Asia in anticipation
of further weakening economic conditions. This reduction contributed
favorably to our investment results for the period.
As of January 31, 1998, the Fund's net assets were allocated as follows:
Continental Europe (60.0%), United States (17.4%), select Emerging
Markets (8.5%), Pacific Rim (7.5%) and other (6.6%).
GLOBAL SMALL
CAP FUND INC.
Top five countries
as percent of net assets,
January 31, 1998*
United States 17.4%
Sweden 11.8%
United Kingdom 9.0%
Italy 8.8%
Finland 7.3%
* Allocations are subject to change.
1
<PAGE>
SEMIANNUAL REPORT
GLOBAL SMALL CAP FUND INC.
FUND PROFILE
Goal:
Long-term capital
appreciation
Portfolio:
Manager/Subadviser:
Ralph Layman,
GE Investment
Management Inc.
Total Net Assets:
$63.0 million as of
January 31, 1998
Dividend Payments:
Annually, if any
GLOBAL SMALL
CAP FUND INC.
Top five holdings
as percent of net assets,
January 31, 1998*
Jarvis 3.9%
CMAC Investment Corp 3.4%
Finnlines OY 3.0%
IHC Caland N.V. 2.6%
Airtours PLC 2.5%
* Holdings are subject to change.
OUTLOOK
- ------------------------------------------------------------------------------
GE Investment Management ("GEIM"), subadviser of the Fund, believes a
focus on stock selection (rather than country allocations) will be
crucial to good performance in 1998. When selecting stocks, GEIM employs
a fundamental, bottom-up approach, choosing companies that are attractive
based on their price-to-cash earnings ratios compared to their projected
future growth rates. Utilizing this investment philosophy, GEIM is
finding many interesting opportunities around the world.
Although the Asian economic and currency crisis has moderated in recent
weeks, we remain concerned about its potential impact on companies in the
global marketplace.
In Europe, growth prospects, interest rate conditions and companies'
restructuring efforts are favorable for the outlook of equity
investments. Additionally, most of Europe appears to be on target to
achieve economic union by January 1, 1999.
The U.S. has enjoyed strong performance over the past three years, which
could be sustained if inflation stays under control, corporate profits
remain strong and the economy shows no signs of weakening.
We remain very cautious on Japan, given its unresolved economic problems
and the uncertainty in neighboring countries. Our opinion could change,
however, if the Japanese government announces concrete action plans that
could positively affect the country's economic direction.
Latin American markets, many of which have performed well over the past
year, remain vulnerable to the spillover effect of any future problems in
Asia. Nonetheless, their fundamentals have improved markedly over the
past few years.
2
<PAGE>
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.
For a quarterly Fund Profile on Global Small Cap Fund Inc. or a fund in
the PaineWebber Family of Funds(1), please contact your investment
executive.
/s/ Margo N. Alexander /s/ Ralph Layman
MARGO N. ALEXANDER RALPH LAYMAN
President Portfolio Manager
Mitchell Hutchins Asset Global Small Cap Fund Inc.
Management Inc.
(1) Mutual funds are sold by prospectus only. The prospectuses for the
funds contain more complete information regarding risks, charges and
expenses, and should be read carefully before investing.
This letter is intended to assist shareholders in understanding how the
Fund performed during during the six-month period ended January 31, 1998,
and reflects our views at the time we are writing this report. Of course,
these views may change in response to changing circumstances. We
encourage you to consult your investment executive regarding your
personal investment program.
3
<PAGE>
GLOBAL SMALL CAP FUND INC.
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (unaudited)
Number of
Shares Value
- ------------- -----------
COMMON STOCK--95.62%
Argentina--0.88%
Retail--Food Chains--0.88%
13,500 Disco SA ADR................................ $ 553,500
-----------
Australia--2.34%
Beverages--1.04%
177,545 BRL Hardy................................... 657,170
-----------
Computer Software & Services--0.74%
350,000 Ci Technologies Group Ltd. ................. 470,218
-----------
Oil--0.56%
131,155 Novus Petroleum............................. 350,611
-----------
Total Australia Common Stocks.............................. 1,477,999
-----------
Austria--1.15%
Steel--1.15%
12,052 Boehler Uddeholm Bearer..................... 724,496
-----------
Canada--3.33%
Home Furniture--0.76%
20,573 Dorel Industries Inc........................ 480,496
-----------
Household Products--0.94%
27,571 Intertape Polymer Group Inc................. 589,015
-----------
Telecommunications--1.63%
65,174 Bell Canada International Inc............... 1,026,490
-----------
Total Canada Common Stocks................................. 2,096,001
-----------
Denmark--3.88%
Computer Software & Services--1.53%
35,000 Olicom (1).................................. 962,500
-----------
Electronics--0.94%
19,964 Memory Card Technology...................... 591,979
-----------
Entertainment--1.41%
19,386 Martin Gruppen (1).......................... 888,642
-----------
Total Denmark Common Stocks................................ 2,443,121
-----------
Finland--7.30%
Computer Software & Services--1.51%
8,800 TT Tieto OY................................. 951,874
-----------
Electrical Equipment--0.81%
14,956 Konecranes International.................... 512,289
-----------
Number of
Shares Value
- ------------- -----------
Finland--(concluded)
Food--1.24%
4,884 Raison Tehtaat.............................. $ 783,631
-----------
Household Products--0.73%
13,678 Hackman .................................... 456,184
-----------
Transportation--3.01%
45,700 Finnlines OY (1)............................ 1,899,034
-----------
Total Finland Common Stocks................................ 4,603,012
-----------
France--2.31%
Auto Parts--0.50%
4,562 Bertrand Faure Ex Ebf....................... 312,176
-----------
Electronics--0.69%
1,450 Le Carbone Lorraine......................... 436,817
-----------
Engineering & Construction--0.38%
2,300 Technip SA/Campagnie Francaise.............. 238,705
-----------
Oil Well Equipment & Services--0.74%
9,801 Coflexip S.A. Spoorit ADR................... 465,547
-----------
Total France Common Stocks................................. 1,453,245
-----------
Germany--2.87%
Consumer Goods--Miscellaneous--0.46%
5,000 Vossloh AG.................................. 289,317
-----------
Electronics--1.60%
80,000 Rofin-Sinar Technologies Inc. .............. 1,010,000
-----------
Machinery (Diversified)--0.25%
6,000 Pfeiffer Vacuum Technology ADR.............. 160,500
-----------
Oil Equipment & Supplies--0.56%
15,000 Turbon International........................ 352,094
-----------
Total Germany Common Stocks................................ 1,811,911
-----------
Greece--1.48%
Transportation--1.48%
74,375 Attica Enterprises.......................... 932,955
-----------
Hong Kong--3.72%
Electronics--2.06%
480,000 Vtech Holdings.............................. 1,296,626
-----------
Food--0.53%
809,000 Four Seasons Mercantile Holdings............ 331,986
-----------
4
<PAGE>
GLOBAL SMALL CAP FUND INC.
Number of
Shares Value
- ------------- -----------
COMMON STOCK--(continued)
Hong Kong--(concluded)
Hardware & Tools--1.13%
240,000 Johnson Electric Holdings................... $ 713,455
-----------
Total Hong Kong Common Stocks.............................. 2,342,067
-----------
Ireland--2.35%
Airlines--0.59%
15,000 Ryanair Holdings ADR........................ 371,250
-----------
Transportation--1.76%
77,359 Irish Continental Group PLC................. 1,110,942
-----------
Total Ireland Common Stocks................................ 1,482,192
-----------
Israel--5.30%
Computer Software & Services--4.61%
21,000 Formula Systems Ltd. ....................... 540,107
328,565 Geo Interactive Media Group................. 826,029
25,000 Memco Software Ltd. ........................ 453,125
29,035 New Dimensions Software Ltd. ............... 745,836
13,000 Tecnomatix Technologies Ltd. ............... 341,250
-----------
2,906,347
-----------
Electronics--0.69%
14,000 Orbotech Ltd ............................... 435,750
-----------
Total Israel Common Stocks................................. 3,342,097
-----------
Italy--8.75%
Airlines--2.05%
100,000 Aeroporti Di Roma........................... 1,289,252
-----------
Banks--0.50%
15,417 Banca Popolare Di Bergamo................... 316,487
-----------
Household Furniture & Appliances--1.55%
40,000 Industrie Natuzzi Spa ADR................... 980,000
-----------
Machinery (Diversified)--1.30%
200,000 Riva Finanziaria............................ 818,924
-----------
Miscellaneous--0.88%
22,311 Safilo...................................... 555,537
-----------
Oil & Gas--1.88%
279,000 ERGSpa...................................... 1,186,396
-----------
Textiles--0.59%
120,000 Ittierre Holdings........................... 369,512
-----------
Total Italy Common Stocks.................................. 5,516,108
-----------
Number of
Shares Value
- ------------- -----------
Mexico--1.70%
Auto Parts--0.46%
45,000 San Luis Corporacion (1).................... $ 287,472
-----------
Pharmaceutical--1.24%
40,000 Grupo Casa Autrey ADR....................... 782,500
-----------
Total Mexico Common Stocks................................. 1,069,972
-----------
Netherlands--3.94%
Computer Software & Services--1.30%
48,000 DOCdata..................................... 818,387
-----------
Oil Equipment & Services--2.64%
31,000 IHC Caland N.V.............................. 1,666,707
-----------
Total Netherlands Common Stocks........................... 2,485,094
-----------
Norway--0.87%
Oil Equipment & Services--0.87%
10,000 Petroleum Geo-Services...................... 549,863
-----------
Portugal--1.27%
Banks--1.27%
35,756 Espirito Santo Financial Holdings SA (1).... 800,040
-----------
Singapore--1.20%
Communication Equipment--1.20%
350,000 Datacraft Asia.............................. 756,000
-----------
South Africa--0.58%
Retail--0.58%
382,297 Metro Cash & Carry.......................... 367,705
-----------
Spain--1.45%
Insurance--0.42%
5,000 Catalana Occidente.......................... 262,463
-----------
Paper & Forest Products--0.76%
11,443 Miquel Y Costas Miquel...................... 482,012
-----------
Retail--Specialty--0.27%
5,000 Adolfo Dominguez............................ 167,461
-----------
Total Spain Common Stocks.................................. 911,936
-----------
5
<PAGE>
Number of
Shares Value
- ------------- -----------
COMMON STOCK--(continued)
Sweden--11.75%
Auto Parts--0.80%
36,500 Haldex AB...................................... $ 504,001
-----------
Capital Equipment--1.60%
40,826 Assa Abloy AB.................................. 1,006,670
-----------
Computer Systems--3.42%
120,000 Partnertech AB................................. 798,905
35,000 Prosolvia AB................................... 1,359,249
-----------
2,158,154
-----------
Electronic Components & Instrumentation--1.21%
55,000 Allgon AB...................................... 762,844
-----------
Engineering & Construction--1.15%
37,528 Spectra Physics AB............................. 724,086
-----------
Financial Services--1.00%
15,500 OM Gruppen AB.................................. 630,617
-----------
Hotels--1.59%
40,000 Scandic Hotels AB.............................. 1,006,029
-----------
Telecommunications--0.98%
26,655 Netcom Systems AB.............................. 616,169
-----------
Total Sweden Common Stocks................................. 7,408,570
-----------
Switzerland--0.26%
Machine Tools--0.26%
200 Saurer Ag Arbon................................ 164,979
-----------
Thailand--0.19%
Food--0.19%
78,000 Pizza Public Co Ltd............................ 121,251
-----------
Turkey--0.41%
Beverages--0.41%
1,670,000 Efes Sinai Yatirim Holdings.................... 257,687
-----------
United Kingdom--8.98%
Employment--1.07%
70,000 Select Appointments Holdings................... 674,223
-----------
Engineering & Construction--3.89%
325,000 Jarvis......................................... 2,451,201
-----------
Number of
Shares Value
- ------------- -----------
United Kingdom--(concluded)
Leisure--2.46%
225,000 Airtours PLC................................... $1,553,733
-----------
Manufacturing--1.56%
63,122 Bodycote International PLC..................... 984,096
-----------
Total United Kingdom Common Stocks......................... 5,663,253
-----------
United States--17.36%
Computer Services--0.88%
20,000 Zebra Technologies Corp........................ 555,000
-----------
Computer Software & Services--1.34%
5,000 Aris Corp...................................... 133,125
15,000 CCC Information Services Group, Inc............ 328,125
16,000 Medical Manager Corp........................... 380,000
-----------
841,250
-----------
Consumer Goods--0.86%
20,000 Littelfuse Inc................................. 540,000
-----------
Electrical Equipment--0.78%
12,500 Harman International Industries Inc............ 489,062
-----------
Employment--0.57%
15,000 Interim Services Inc........................... 358,125
-----------
Engineering & Construction--0.60%
14,000 Jacobs Engineering Group Inc................... 377,125
-----------
Entertainment--0.46%
25,000 Metromedia International Group Inc............. 292,188
-----------
Insurance--3.36%
34,000 CMAC Investment Corp........................... 2,120,750
-----------
Machinery (Diversified)--1.64%
92,000 ITEQ Inc....................................... 1,035,000
-----------
Marketing & Advertising--0.50%
6,400 Catalina Marketing Corp........................ 312,400
-----------
Oil & Gas--0.63%
22,000 Swift Energy Co................................ 396,000
-----------
Oil Equipment & Services--0.47%
25,000 IRI International Corp......................... 298,438
-----------
Pharmaceutical--0.99%
17,000 Watson Pharmaceuticals, Inc.................... 624,750
-----------
6
<PAGE>
GLOBAL SMALL CAP FUND INC.
Number of
Shares Value
- ------------- -----------
COMMON STOCK--(concluded)
United States--(concluded)
Retail--1.88%
27,350 Costco Companies Inc........................... $1,186,306
-----------
Retail--Apparel--1.25%
20,000 Claire's Stores Inc............................ 355,000
10,000 Jones Apparel Group Inc........................ 435,000
-----------
790,000
-----------
Retail--Specialty--1.01%
20,000 Barnes & Noble Inc............................. 636,250
-----------
Telecommunications--0.14%
5,000 Corsair Communications Inc..................... 88,750
-----------
Total United States Common Stocks.......................... 10,941,394
-----------
Total Common Stock (cost--$44,629,447)..................... 60,276,448
-----------
Number of
Warrants Value
- -------- -----------
WARRANTS--0.01%
Hong Kong--0.01%
Food--0.01%
206,800 Four Seasons Mercantile Holdings
(cost--$11,948).............................. $ 6,656
-----------
Number of
Rights
- ----------
STOCK RIGHTS--0.97%
Hungary--0.97%
Food Processing--0.97%
9,346 Pick Szeged Ord Bearer
(cost--$571,165)............................. 610,043
-----------
-----------
Principal
Amount Maturity Interest
(000) Date Rate
- ------------ -------- --------
REPURCHASE AGREEMENT--3.35%
$2,110 Repurchase Agree-
ment dated 01/30/98 with
State Street Bank & Trust
Company, collateralized
by $1,845,000 U.S. Trea-
sury Bonds, 7.250% due
05/15/16; (value
$2,157,617); proceeds:
$2,110,962 (cost--
$2,110,000)............. 02/02/98 5.470% 2,110,000
-----------
Number of
Shares
---------
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED--4.58%
Money Market Funds--4.58%
2,829,087 Liquid Assets Portfolio........................ 2,829,087
47,612 Prime Portfolio................................ 47,612
9,432 TempCash Portfolio............................. 9,432
-----------
Total Investments of Cash Collateral for
Securities Loaned (cost--$2,886,131)..................... 2,886,131
-----------
Total Investments (cost--$50,208,691)--104.53%............. 65,889,278
Liabilities in excess of other assets--(4.53)%............. (2,854,409)
-----------
Net Assets--100.00%........................................ $63,034,869
-----------
-----------
- --------------------
ADR American Depositary Receipt
(1) Security, or a portion thereof, was on loan at January 31, 1998.
7
<PAGE>
GLOBAL SMALL CAP FUND INC.
STATEMENT OF ASSETS AND LIABILITIES JANUARY 31, 1998 (unaudited)
<TABLE>
<S> <C>
Assets
Investments, at value (cost--$50,208,691) ......................................................... $ 65,889,278
Cash denominated in foreign currencies (cost--$33,787) ............................................ 33,944
Cash .............................................................................................. 4,424
Receivable for investments sold ................................................................... 365,992
Dividends and interest receivable ................................................................. 57,137
Deferred organizational expenses and other assets ................................................. 29,417
------------
Total assets ...................................................................................... 66,380,192
------------
Liabilities
Collateral for securities loaned .................................................................. 2,886,131
Payable for investments purchased ................................................................. 257,687
Payable to affiliates ............................................................................. 52,831
Accrued expenses and other liabilities ............................................................ 148,674
------------
Total liabilities ................................................................................. 3,345,323
------------
Net Assets
Capital Stock--$0.001 par value; 100,000,000 shares authorized; 3,801,667 shares issued
and outstanding ................................................................................. 51,415,510
Accumulated net investment loss ................................................................... (396,160)
Accumulated net realized loss from investment and foreign currency transactions ................... (3,663,320)
Net unrealized appreciation of investments and other assets and liabilities denominated
in foreign currencies ........................................................................... 15,678,839
------------
Net assets ........................................................................................ $ 63,034,869
============
Net asset value per share ......................................................................... $ 16.58
============
</TABLE>
See accompanying notes to financial statements
8
<PAGE>
GLOBAL SMALL CAP FUND INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Six
Months Ended
January 31, 1998
(unaudited)
-----------
<S> <C>
Investment income:
Dividends (net of foreign withholding taxes of $9,425) ........................................ $ 121,367
Interest ...................................................................................... 39,046
-----------
160,413
-----------
Expenses:
Investment advisory and administration ........................................................ 322,607
Custody and accounting ........................................................................ 49,386
Legal and audit ............................................................................... 25,530
Amortization of organizational expenses ....................................................... 21,909
Reports and notices to shareholders ........................................................... 19,588
Transfer agency fees and expenses ............................................................. 7,299
Directors' fees and expenses .................................................................. 5,650
Other expenses ................................................................................ 2,245
-----------
454,214
-----------
Net investment loss ........................................................................... (293,801)
-----------
Realized and unrealized gains (losses) from investment transactions:
Net realized gains (losses) from:
Investments ................................................................................. 1,175,976
Foreign currency transactions ............................................................... (31,909)
Net change in unrealized appreciation/depreciation of:
Investments ................................................................................. (2,550,315)
Other assets and liabilities denominated in foreign currencies .............................. 5,887
-----------
Net realized and unrealized loss from investment transactions ................................. (1,400,361)
-----------
Net decrease in net assets resulting from operations .......................................... $(1,694,162)
===========
</TABLE>
See accompanying notes to financial statements
9
<PAGE>
GLOBAL SMALL CAP FUND INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six
Months Ended For the
January 31, 1998 Year Ended
(unaudited) July 31, 1997
------------- -------------
<S> <C> <C>
From operations:
Net investment loss ............................................................. $ (293,801) $ (80,070)
Net realized gains (losses) from:
Investments ................................................................... 1,175,976 3,538,337
Foreign currency transactions ................................................. (31,909) (99,568)
Net change in unrealized appreciation/depreciation of:
Investments ................................................................... (2,550,315) 13,303,647
Other assets and liabilities denominated in foreign currencies ................ 5,887 (1,115)
------------ ------------
Net increase (decrease) in net assets resulting from operations ................. (1,694,162) 16,661,231
Net assets:
Beginning of period ............................................................. 64,729,031 48,067,800
------------ ------------
End of period ................................................................... $ 63,034,869 $ 64,729,031
============ ============
</TABLE>
See accompanying notes to financial statements
10
<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. Organizational
costs have been deferred and are being amortized using the straight-line
method over a period 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 Asset Management Inc. ("Mitchell
Hutchins"), an asset management subsidiary of PaineWebber Incorporated
("PaineWebber") and investment adviser and administrator of the Fund, or
GE Investment Management Incorporated ("GEIM"), the subadviser 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, which
approximates market value, generally 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
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. 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.
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.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Investment Transactions and Investment Income--Investment transactions
are recorded on the trade date. Realized gains and losses from
investments and foreign exchange transactions are calculated on 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 becomes aware of such dividends). Interest income is
recorded on an accrual basis. Discounts are accreted and premiums are
amortized as adjustments to interest income and the identified cost of
investments.
Foreign Currency Translation--The books and records of the Fund are
maintained in U.S. dollars 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. Net realized foreign
currency gain/loss is treated as ordinary income for income tax purposes.
Dividends and Distributions--Dividends and distributions to
shareholders are recorded on the ex-date. The amount of dividends and
distributions is 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.
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 management group. Securities of such
companies may be less liquid and more volatile than securities of larger
companies or 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.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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. At January 31, 1998 the
Global Small Cap Fund owed Mitchell Hutchins $52,156 in investment
advisory and administrative fees.
SECURITIES LENDING
The Fund may lend securities 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 securities from interest
earned on the cash or U.S. government securities held as collateral, net
of fee rebates paid to the borrowers plus reasonable administrative and
custody fees. The Fund's lending agent is PaineWebber, which received
$4,424 in compensation from the Fund for the six months ended January 31,
1998. At January 31, 1998 the Global Small Cap Fund owed PaineWebber $675
in security lending fees.
As of January 31, 1998, the Fund's custodian held cash and cash
equivalents having an aggregate value of $2,886,131 as collateral for
portfolio securities loaned having a market value of $2,824,741.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at
January 31, 1998 was substantially the same as the cost of securities for
financial statement purposes.
At January 31, 1998, the components of the net unrealized appreciation
of investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of value over cost) ............ $ 18,320,609
Gross depreciation (investments having an excess of cost over value) ........... (2,640,022)
------------
Net unrealized appreciation of investments ...................................... $ 15,680,587
============
</TABLE>
For the six months ended January 31, 1998, aggregate purchases and
sales of portfolio securities, excluding short-term securities, were
$23,595,221 and $24,318,540, respectively.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 $94,963 of net realized currency losses arising after October 31,
1996. Such losses are treated for tax purposes as arising on August 1,
1997.
At July 31, 1997, the Fund had a net capital loss carryforward of
$4,798,332 which expires as follows: $110,750 in 2003 and $4,687,582 in
2004.
CAPITAL STOCK
At January 31, 1998, Mitchell Hutchins owned 6,667 shares of the Fund.
14
<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 For the Years Ended July 31, October 15, 1993+
January 31, 1998 ------------------------------------ to
(unaudited) 1997 1996 1995 July 31, 1994
------------ ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..................... $ 17.03 $ 12.64 $ 11.61 $ 13.28 $ 14.18
------------ ---------- ---------- ---------- ----------
Net investment income (loss) ............................. (0.08) (0.02) (0.01) 0.08 (0.05)
Net realized and unrealized gains (losses) from
investments and foreign currencies ....................... (0.37) 4.41 1.04 (0.95) (0.80)
------------ ---------- ---------- ---------- ----------
Total increase (decrease) from investment operations ..... (0.45) 4.39 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 ........................... $ 16.58 $ 17.03 $ 12.64 $ 11.61 $ 13.28
============ ========== ========== ========== ==========
Market value, end of period .............................. $ 13.88 $ 14.50 $ 10.38 $ 9.25 $ 12.13
============ ========== ========== ========== ==========
Total investment return (1) .............................. (4.31)% 39.69% 12.22% (17.64)% (14.46)%
============ ========== ========== ========== ==========
Ratios/Supplemental Data:
Net assets, end of period (000's) ........................ $ 63,035 $ 64,729 $ 48,068 $ 44,137 $ 50,474
Expenses to average net assets ........................... 1.41%* 1.53% 1.76% 1.69% 1.79%*
Net investment income (loss) to average net assets ....... (0.91)%* (0.14)% (0.10)% 0.62% (0.46)%*
Portfolio turnover rate .................................. 38% 50% 64% 187% 71%
Average commission rate paid (2) ......................... $ 0.0327 $ 0.0204 -- -- --
</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 of each period
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 brokerage commissions. Total investment return 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.
15
<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., an asset management subsidiary of
PaineWebber Incorporated, which has over $51 billion in assets under
management at February 28, 1998. The Fund's subadviser is GE Investment
Management Incorporated, a wholly owned subsidiary of General Electric
Company, which, together with General Electric Investment Corporation,
also a registered investment adviser and a wholly owned subsidiary of
General Electric Company, manages over $69 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 Saturday in Barron's, as well as in numerous other newspapers.
An annual meeting of shareholders of the Fund was held on November 20,
1997. At the meeting, Margo N. Alexander, Richard Q. Armstrong, E.
Garrett Bewkes, Jr., Richard R. Burt, Mary C. Farrell, Meyer Feldberg,
George W. Gowen, Frederic V. Malek and Carl W. Schafer were elected to
serve as directors until the next annual meeting of shareholders, or
until their successors are elected and qualified; and Ernst & Young LLP
was ratified as independent auditors for the Fund for the fiscal year
ended July 31, 1998.
<TABLE>
<CAPTION>
Proposal 1
Shares Voted For Shares Withhold Authority
---------------- -------------------------
<S> <C> <C>
1. To vote for or against the election of:
Margo N. Alexander 3,507,593 55,743
Richard Q. Armstrong 3,506,351 56,985
E. Garrett Bewkes, Jr. 3,501,936 61,400
Richard R. Burt 3,508,151 55,185
Mary C. Farrell 3,507,726 55,610
Meyer Feldberg 3,508,168 55,168
George W. Gowen 3,504,601 58,735
Frederic V. Malek 3,504,884 58,452
Carl W. Schafer 3,505,901 57,435
<CAPTION>
Proposal 2
Shares Voted For Shares Against Shares Abstain
---------------- -------------- --------------
<S> <C> <C> <C>
2. Ratification of the selection of
Ernst & Young LLP as the Fund's
independent auditors for the
fiscal year ending July 31, 1998. 3,518,949 9,608 34,780
</TABLE>
(Broker non-votes and abstentions are included within the "Shares
Withhold Authority" and "Shares Abstain" totals.)
16
<PAGE>
YEAR 2000 RISKS
Like other funds and financial and business organizations around the
world, the Fund could be adversely affected if the computer systems used
by its investment adviser, sub-adviser and other service providers and
entities with computer systems that are linked to Fund records do not
properly process and calculate date-related information and data from and
after January 1, 2000. This is commonly known as the "Year 2000 Issue."
The adviser/administrator is taking steps that it believes are
reasonably designed to address the Year 2000 Issue with respect to the
computer systems that it uses, and to obtain satisfactory assurances that
each of the Fund's other major service providers is taking comparable
steps. However, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the Fund.
DISTRIBUTION POLICY
The Fund intends to pay dividends from its net investment income and
net capital gain, if any, at least annually. 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's Board of Directors has established a Dividend Reinvestment
Plan (the "Plan") under which all common stockholders whose shares are
registered in their own names, or in the name of PaineWebber or its
nominee, will have all dividends and other distributions on their shares
automatically reinvested in additional shares of common stock, unless
such common stockholders elect to receive cash. Common stockholders who
elect to hold their shares in the name of another broker or 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 are transferred into
the name of another broker or nominee.
A stockholder may elect not to participate in the Plan or 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 Fund's transfer agent and should include the stockholder's name and
address as they appear on that share certificate or in the transfer
agent's records. An election to terminate participation in the Plan,
until such election is changed, will be deemed 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.
Additional shares of common stock acquired under the Plan will be
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 of the common
stock at the time of the purchase. The number of shares of common stock
purchased with each dividend will be equal to the result obtained by
dividing the amount of the dividend payable to a particular stockholder
by the average price per share (including applicable brokerage
commissions) that the transfer agent was able to obtain in the open
market. The Fund will not issue any new shares of common stock in
connection with the Plan. There is no charge to participants for
reinvesting dividends or other distributions. The
17
<PAGE>
transfer agent's fees for handling the reinvestment of distributions
will be paid by the Fund. However, each participant pays a pro rata share
of brokerage commissions incurred with respect to the transfer agent's
open market purchases of common stock in connection with the reinvestment
of distributions. The automatic reinvestment of dividends and other
distributions in shares of common stock does not relieve participants of
any income tax that may be payable on such distributions. Dividends from
the Fund's investment company taxable income (whether received 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 received 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 commissions incurred by the transfer agent.
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. Additional information regarding the Plan may be obtained
from, and 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.
18
<PAGE>
- ------------------------------------------------------------------------------
BOARD OF DIRECTORS
E. Garrett Bewkes, Jr. Meyer Feldberg
Chairman
Margo N. Alexander George W. Gowen
Richard Q. Armstrong Frederic V. Malek
Richard R. Burt Carl W. Schafer
Mary C. Farrell
OFFICERS
Margo N. Alexander Dianne E. O'Donnell
President Vice President and Secretary
Victoria E. Schonfeld Paul H. Schubert
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 shares
of its common stock in the open market at market prices.
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
(Copyright)1998 PaineWebber Incorporated
Member SIPC
GLOBAL SMALL
CAP FUND INC.
JANUARY 31, 1998
SEMIANNUAL REPORT
