<PAGE>
Global Small Cap Fund Inc. Semiannual Report
March 23, 1999
Global Small Cap Fund Inc.
FUND PROFILE
Goal:
Long-term capital
appreciation
Portfolio Manager/Subadviser:
Ralph Layman,
GE Investment Management Inc.
Total Net Assets:
$61.5 million as of
January 31, 1999
Dividend Payments:
Annually, if any
Dear Shareholder,
We are pleased to present you with the semiannual report for the Global Small
Cap Fund Inc. (the "Fund") for the six-month period ended January 31, 1999.
Market Review
Equity markets produced mixed results during the six-month period ended January
31, 1999. Performance leaders, as measured by the Morgan Stanley Capital
International (MSCI) World Index, were Finland, up 33%; Hong Kong, up 33%;
Singapore, up 28%; the United States, up 15%; and Australia, up 12%. Conversely,
many European markets weakened, reflecting anticipation of slower growth in the
region. The worst performing markets were Austria, down 25%; Norway, down 21%;
Mexico, down 15%; Denmark, down 8%; and the Netherlands, also down 8%. Many
Asian markets rose after performing weakly in the prior six-month period. For
the six-month period, the MSCI World Index gained 9.31%.
Portfolio Review
Global Small Cap Fund Inc.
Top Ten Countries(1)
United States 21.37%
Finland 9.01%
Canada 8.21%
Sweden 6.67%
Israel 6.05%
Ireland 5.94%
United Kingdom 5.50%
Switzerland 5.40%
Italy 4.73%
Netherlands 3.11%
Performance
For the six-month period ended January 31, 1999, the Fund (Amex symbol: GSG)
lost 11.47% based on changes in the Fund's net asset value (assuming, for
illustration only, that the dividend was reinvested at the net asset value on
the payable date) and lost 11.82% based on changes in its share price on the
American Stock Exchange (assuming the dividend was reinvested under the Dividend
Reinvestment Plan). At January 31, 1999 the Fund's net asset value per share was
$16.18, while its share price on the American Stock Exchange was $13.13.
Portfolio Highlights
Markets around the world were extremely volatile during the six months ended
January 31, 1999. The Fund's underperformance during this period was driven
almost completely by its overweighting and stock selection in Europe -- a market
that had performed very well prior to this period. Some of the Fund's holdings
- -- among them Finnlines (2.2%(1)), Scandic Hotels (2.0%(1)) and Konecranes
International (0.8%(1)) -- have not completely recovered from losses last fall,
even though their fundamentals remain reasonable. Strong performances in the
portfolio during this period included: Cognizant Technology Solutions - U.S.
(3.2%(1)); New Dimension Software - Israel (2.3%(1)); and Esat Telecom Group -
Ireland (4.2%(1)).
(1) All weightings represent percentages of net assets as of January 31, 1999.
The Fund is actively managed and all holdings are subject to change.
1
<PAGE>
GLOBAL SMALL Semiannual Report
CAP FUND INC.
Top Ten Stocks(1)
Esat Telecom Group PLC 4.2%
Tieto Corp. 3.7%
Cognizant Technology
Solutions 3.2%
DII Group Inc. 2.5%
CMAC Investment Corp. 2.4%
New Dimension Software Ltd. 2.3%
IHC Caland NV 2.2%
Finnlines OY 2.2%
CGI Groupe 2.2%
Montupet 2.1%
In the U.S., relatively strong growth, low interest rates and low inflation
continued to fuel the stock market, although large-capitalization stocks still
outperformed smaller-cap stocks. Latin America continued to struggle as Brazil
worked through its fiscal problems, and the region's woes spilled over into
global equity markets.
Toward the end of the period, Asian stock markets showed signs of bottoming as
the region anticipated economic growth returning. Japan's stock market
strengthened during the period, but was still held back by weak fundamentals.
Relative valuation levels of Japanese stocks were near historic lows but
companies lacked catalysts to help fuel their growth prospects and future stock
values.
OUTLOOK
With interest rates and inflation low around the world, and strong demand for
equities in many parts of the world, we could see sustained positive
stock-market performance in 1999. Small-cap stocks have not yet recovered from
their weakness in 1998 -- their valuations are extremely low relative to large
caps. We think that small-cap stocks look attractive on a relative-value basis.
We continue to focus on companies with attractive fundamentals relative to their
three- to five-year growth prospects. Companies within Europe still seem
attractive to us, and we expect to maintain an overweighted position in the
region. We remain cautious about the long-term prospects of the Japanese economy
without corporate and government restructuring. There has been much talk but
little action so far. In the rest of the world, we continue to look
opportunistically for companies that best meet our valuation and growth
parameters.
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.
(1) All weightings represent percentages of net assets as of January 31, 1999.
The Fund is actively managed and all holdings are subject to change.
2
<PAGE>
Global Small Cap Fund Inc.
For quarterly information on a fund in the PaineWebber Family of Funds,(2)
please contact your Financial Advisor.
Sincerely,
/s/ Margo Alexander
MARGO ALEXANDER
President and Chief Executive Officer
Mitchell Hutchins Asset Management Inc.
/s/ Ralph Layman
RALPH LAYMAN
Portfolio Manager
Global Small Cap Fund Inc.
(2) 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 the six-month period ended January 31, 1999, and reflects the
views of the subadviser at the time of writing this report. Of course, these
views may change in response to changing circumstances. We encourage you to
consult your Financial Advisor regarding your personal investment program.
3
<PAGE>
GLOBAL SMALL CAP FUND INC.
PORTFOLIO OF INVESTMENTS JANUARY 31, 1999 (unaudited)
Number of
Shares Value
- ---------- ---------
COMMON STOCKS--97.05%
Australia--0.46%
Oil--0.46%
287,986 Novus Petroleum........................................ $ 281,832
---------
Canada--8.21%
Home Furniture--1.03%
41,146 Dorel Industries*...................................... 637,319
---------
Household Products--1.16%
27,571 Intertape Polymer Group Inc............................ 712,365
---------
Pharmaceutical--0.90%
13,000 Biovail Corporation International (1)*................. 551,688
---------
Specialized Services--1.98%
51,000 Trojan Technologies Inc.*.............................. 1,217,910
---------
Telecommunications--3.14%
48,081 Bell Canada International Inc.*........................ 607,023
56,000 CGI Groupe Inc.*....................................... 1,323,000
---------
1,930,023
---------
Total Canada Common Stocks......................................... 5,049,305
---------
Chile--0.24%
Beverages--0.24%
6,000 Vina Concha Y Toro SA ADR*............................. 146,250
---------
Denmark--1.24%
Electronics--1.24%
19,964 Memory Card Technology................................. 763,150
---------
Finland--9.01%
Computer Software & Services--3.69%
52,800 Tieto Corp............................................. 2,266,370
---------
Electrical Equipment--0.80%
14,956 Konecranes International............................... 493,036
---------
Food--0.62%
48,840 Raison Group PLC....................................... 383,080
---------
Gaming--1.19%
81,733 Rapala Normark Corp.................................... 733,989
---------
Household Products--0.56%
13,678 Hackman................................................ 342,066
---------
Transportation--2.15%
41,548 Finnlines OY (1)....................................... 1,322,431
---------
Total Finland Common Stocks........................................ 5,540,972
---------
France--3.06%
Automobiles--2.07%
30,900 Montupet............................................... $1,275,058
----------
Computer Software & Services--0.50%
2,832 Transiciel S.A......................................... 309,050
----------
Oil Equipment & Services--0.49%
9,801 Coflexip S.A. Spoorit ADR*............................. 298,931
----------
Total France Common Stocks......................................... 1,883,039
----------
Germany--0.46%
Consumer Goods--0.46%
10,000 Vossloh AG*............................................ 284,187
----------
Hong Kong--2.75%
Consumer Goods--0.25%
80,000 Li & Fung Ltd. ........................................ 154,863
----------
Electronics--2.06%
20,000 IDT International Ltd. ................................ 2,581
340,000 Vtech Holdings......................................... 1,268,067
----------
1,270,648
----------
Food--0.44%
809,000 Four Seasons Mercantile Holdings....................... 268,838
----------
Total Hong Kong Common Stocks...................................... 1,694,349
----------
Hungary--0.61%
Food Processing--0.61%
9,346 Pick Szeged RT......................................... 377,586
----------
India--0.95%
Computer Software & Services--0.95%
26,000 Pentafour Software*.................................... 574,888
200 Pentafour Software..................................... 4,659
----------
579,547
----------
Ireland--5.94%
Airlines--0.84%
15,000 Ryanair Holdings ADR*.................................. 513,750
---------
Telecommunications--4.21%
53,313 Esat Telecom Group PLC*................................ 2,592,345
----------
Transportation--0.89%
42,044 Irish Continental Group PLC............................ 549,625
----------
Total Ireland Common Stocks........................................ 3,655,720
----------
4
<PAGE>
GLOBAL SMALL CAP FUND INC.
Number of
Shares Value
- --------- -------
COMMON STOCKS--(continued)
Israel--6.05%
Computer Software & Services--4.60%
21,000 Formula Systems Ltd.*.................................. $ 486,712
29,035 New Dimension Software Ltd.*........................... 1,400,938
63,891 Tecnomatix Technologies Ltd. (1)*...................... 942,392
----------
2,830,042
----------
Electronics--1.45%
21,372 Orbotech Ltd.*......................................... 893,617
----------
Total Israel Common Stocks......................................... 3,723,659
----------
Italy--4.73%
Banks--0.62%
15,417 Banco Popolare Di Bergamo.............................. 383,804
----------
Machinery (Diversified)--1.07%
200,000 Riva Finanziaria....................................... 657,041
----------
Miscellaneous--0.82%
111,555 STA Azionaria.......................................... 507,241
----------
Publishing--1.73%
471,463 Poligrafici Editor S.P.A............................... 1,061,152
----------
Textiles--0.49%
120,000 Ittierre Holdings...................................... 301,466
----------
Total Italy Common Stocks.......................................... 2,910,704
----------
Japan--1.38%
Chemicals--0.49%
7,500 Fujimi Inc............................................. 303,866
----------
Consumer Goods--0.89%
5,000 Fancl Corp............................................. 547,390
----------
Total Japan Common Stocks.......................................... 851,256
----------
Korea--2.39%
Electronic Components & Instrumentation--0.73%
5,768 Dae Duck Electronics Co.*.............................. 446,713
----------
Machinery (Diversified)--0.96%
57,929 Medison Co.*........................................... 594,081
----------
Textiles--0.70%
18,000 Younggone Corp.*....................................... 432,000
----------
Total Korea Common Stocks.......................................... 1,472,794
----------
Netherlands--3.11%
Computer Software & Services--0.10%
2,853 ICT Automatisering N.V................................. $ 58,377
----------
Consumer Goods--0.85%
16,693 Airspray N.V........................................... 521,833
----------
Oil Equipment & Services--2.16%
31,574 IHC Caland N.V......................................... 1,331,584
----------
Total Netherlands Common Stocks.................................... 1,911,794
----------
Norway--2.22%
Computer Software & Services--0.93%
47,365 Merkantildata Asa...................................... 573,144
----------
Telecommunications--1.29%
22,561 Netcom Asa*............................................ 789,004
----------
Total Norway Common Stocks......................................... 1,362,148
----------
Portugal--1.25%
Banks--1.25%
43,282 Espirito Santo Financial Holdings SA (1)*.............. 770,961
---------
Singapore--1.76%
Communication Equipment--1.76%
550,000 Datacraft Asia......................................... 1,083,500
----------
Spain--1.85%
Banks--0.91%
19,578 Banco De Valencia*..................................... 556,382
----------
Food-- 0.94%
60,000 Telepizza*............................................. 579,061
----------
Total Spain Common Stocks.......................................... 1,135,443
----------
5
<PAGE>
GLOBAL SMALL CAP FUND INC.
Number of
Shares Value
- --------- ----------
COMMON STOCKS--(continued)
Sweden--6.67%
Auto Parts--0.98%
43,800 Haldex AB (1).......................................... $ 604,483
----------
Computer Software & Services--0.57%
40,743 Mandator AB............................................ 350,453
----------
Financial Services--1.01%
46,500 OM Gruppen AB (1)...................................... 620,852
----------
Hotels--2.00%
40,000 Scandic Hotels AB...................................... 1,232,460
----------
Machinery (Diversified)--1.38%
44,202 Custos AB (1)(2)....................................... 845,531
----------
Telecommunications--0.73%
10,938 Netcom Systems AB...................................... 449,355
----------
Total Sweden Common Stocks......................................... 4,103,134
----------
Switzerland--5.40%
Banks--1.19%
395 BK Sarasin & Cie....................................... 731,223
----------
Electrical Equipment--1.16%
9,652 Gretag Imaging Holdings*............................... 716,074
----------
Food--1.67%
5,025 Barry Callebaut AG..................................... 1,029,641
----------
Life Insurance--0.66%
484 Helvetia Patria Holdings............................... 403,533
----------
Manufacturing--0.72%
17,000 Mettler Toledo International Inc.*..................... 445,209
----------
Total Switzerland Common Stocks.................................... 3,325,680
----------
Thailand--0.44%
Food--0.44%
78,000 Pizza Public Co Ltd.................................... 273,053
----------
United Kingdom--5.50%
Brewery--0.44%
67,400 Vaux Group............................................. 270,645
----------
Computer Software & Services--0.30%
35,014 Autonomy Corp.*........................................ 187,325
----------
Employment--1.78%
97,311 Select Appointments Holdings........................... 1,092,187
----------
United Kingdom--(concluded)
Engineering & Construction--1.92%
118,499 Jarvis................................................. $1,179,834
----------
Insurance--0.30%
19,009 United Assurance Group PLC*............................ 183,006
----------
Retail--0.76%
354,265 Electron Boutique...................................... 467,869
----------
Total United Kingdom Common Stocks................................. 3,380,866
----------
United States--21.37%
Computer Software & Services--5.16%
5,000 Aris Corp.*............................................ 60,625
50,000 Cognizant Technology Solutions*........................ 1,943,750
5,400 Documentum Inc.*....................................... 125,887
30,000 Medical Manager Corp.*................................. 1,042,500
----------
3,172,762
----------
Computer Services--0.98%
20,000 Zebra Technologies Corp................................ 603,750
----------
Consumer Goods--0.63%
20,000 Littelfuse Inc.*....................................... 385,000
----------
Drugs & Medicine--1.76%
14,000 Amerisource Health Corp.*.............................. 1,085,000
----------
Electronics--2.46%
53,392 DII Group Inc.*........................................ 1,514,998
----------
Employment--0.52%
15,000 Interim Services Inc.*................................. 318,750
----------
Engineering & Construction--0.95%
14,000 Jacobs Engineering Group Inc.*......................... 587,125
----------
Financial--2.16%
10,000 Healthcare Financial Partners Inc.*.................... 308,125
16,400 Medallion Financial Corp............................... 326,975
20,100 Profit Recovery Group International Inc.*.............. 693,450
----------
1,328,550
----------
Insurance--2.42%
34,000 CMAC Investment Corp................................... 1,491,750
----------
Marketing & Advertising--1.15%
10,578 Catalina Marketing Corp.*.............................. 706,082
----------
Retail--0.42%
23,000 Maxwell Shoe Inc.*..................................... 258,750
----------
6
<PAGE>
GLOBAL SMALL CAP FUND INC.
Number of
Shares Value
- ----------- ---------
COMMON STOCKS--(concluded)
United States--(concluded)
Retail--Specialty--1.73%
20,000 Barnes & Noble Inc.*.................................... $ 748,750
35,000 Hines Horticulture Inc.*................................ 312,812
----------
1,061,562
----------
Specialized Services--0.89%
30,000 International Telecomm Data Systems Inc.* ............. 547,500
----------
Telecommunications--0.14%
1,500 Tut Systems Inc.*...................................... 83,063
----------
Total United States Common Stocks.................................. 13,144,642
----------
Total Common Stocks (cost--$44,714,881)............................ 59,705,571
----------
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Date Rate
----------- ---------- -----------
<S> <C> <C> <C>
REPURCHASE AGREEMENT--4.23%
$ 2,601 Repurchase Agreement dated 01/29/99
with State Street Bank & Trust Company,
collateralized by $1,835,000 U.S. Treasury
Bonds, 8.875% due 08/15/17;
(value--$2,658,100); proceeds:
$2,601,993 (cost--$2,601,000) 02/01/99 4.580% 2,601,000
-----------
Total Investments (cost--$47,315,881)--101.28........................................................ 62,306,571
Liabilities in excess of other assets--(1.28)%....................................................... (786,316)
-----------
Net Assets--100.00%.................................................................................. $61,520,255
===========
</TABLE>
- ---------------------
ADR American Depository Receipt
* Non-income producing security.
(1) Security, or a portion thereof, was on loan at January 31, 1999.
(2) With an additional 44,202 recoverable rights attached maturing on 2/26/99
with no market value.
See accompanying notes to financial statements
7
<PAGE>
GLOBAL SMALL CAP FUND INC.
STATEMENT OF ASSETS AND LIABILITIES JANUARY 31, 1999 (unaudited)
Assets
<TABLE>
<CAPTION>
<S> <C>
Investments, at value (cost--$47,315,881)........................................................ $62,306,571
Investments of cash collateral for securities loaned, at value (cost--$3,222,061)................ 3,222,061
Cash and cash denominated in foreign currencies (cost--$444,045)................................. 444,177
Receivable for investments sold.................................................................. 129,209
Dividends and interest receivable................................................................ 51,501
Deferred organizational expenses and other assets................................................ 3,201
-----------
Total assets 66,156,720
-----------
Liabilities
Collateral for securities loaned................................................................. 3,222,061
Payable for investments purchased................................................................ 1,127,030
Payable to affiliates............................................................................ 53,775
Accrued expenses and other liabilities........................................................... 233,599
----------
Total liabilities................................................................................ 4,636,465
----------
Net Assets
Capital Stock--$0.001 par value; 100,000,000 shares authorized; 3,801,667 shares
issued and outstanding......................................................................... 51,089,515
Accumulated net investment loss.................................................................. (391,375)
Accumulated net realized loss from investment transactions....................................... (4,047,425)
Net unrealized appreciation of investments and other assets and liabilities
denominated in foreign currencies.............................................................. 14,869,540
-----------
Net assets....................................................................................... $61,520,255
===========
Net asset value per share........................................................................ $16.18
===========
</TABLE>
See accompanying notes to financial statements
8
<PAGE>
GLOBAL SMALL CAP FUND INC.
STATEMENT OF OPERATIONS
For the Six
Months Ended
January 31, 1999
(unaudited)
------------
Investment income:
Dividends (net of foreign withholding taxes of $6,980)............. $ 96,854
Interest........................................................... 45,418
----------
142,272
----------
Expenses:
Investment advisory and administration............................. 302,855
Custody and accounting............................................. 60,928
Legal and audit.................................................... 40,492
Reports and notices to shareholders................................ 31,450
Transfer agency fees and expenses.................................. 8,942
Amortization of organizational expenses............................ 7,955
Directors' fees and expenses....................................... 5,250
Other expenses .................................................... 26,584
----------
484,456
----------
Net investment loss ............................................... (342,184)
----------
Realized and unrealized losses from investment
transactions:
Net realized losses from:
Investment transactions ......................................... (4,018,009)
Foreign currency transactions ................................... (29,065)
Net change in unrealized appreciation/depreciation of:
Investments ..................................................... (3,671,136)
Other assets and liabilities denominated in foreign currencies .. (121,002)
-----------
Net realized and unrealized loss from investment transactions ..... (7,839,212)
-----------
Net decrease in net assets resulting from operations ..............$(8,181,396)
============
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, 1999 Year Ended
(unaudited) July 31, 1998
--------- ---------
<S> <C> <C>
From operations:
Net investment loss............................................................. $ (342,184) $ (214,725)
Net realized gains (losses) from investment and
foreign currency transactions ................................................ (4,047,074) 7,350,415
Net change in unrealized appreciation/depreciation of investments,
other assets and liabilities denominated in foreign currencies ............... (3,792,138) 438,411
------------ ----------
Net increase (decrease) in net assets resulting from operations (8,181,396) 7,574,101
Distributions to shareholders from:
Net realized gains from investment transactions (2,601,481) --
----------- ----------
Net increase (decrease) in net assets (10,782,877) 7,574,101
Net assets:
Beginning of period ............................................................ 72,303,132 64,729,031
----------- -----------
End of period .................................................................. $61,520,255 $72,303,132
=========== ============
</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 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 Asset
Management Inc. ("Mitchell Hutchins"), the adviser and a wholly owned subsidiary
of PaineWebber Incorporated, 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 (unaudited)
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 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.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
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. At January 31, 1999, the
Fund owed Mitchell Hutchins $52,784 in investment advisory and administration
fees.
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 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. For the six months
ended January 31, 1999, the Fund earned $12,049 for lending its securities and
PaineWebber earned $4,016 as the Fund's lending agent. At January 31, 1999, the
Fund owed PaineWebber $991 for security lending fees.
As of January 31, 1999, the Fund's custodian held cash and cash equivalents
having an aggregate value of $3,222,061 as collateral for portfolio securities
loaned having a market value of $3,007,468. The Fund invested the cash
collateral in the following:
<TABLE>
<CAPTION>
Number of
Shares Value
----------- -------------
<S> <C>
1,548,214 Janus Investment Money Market Fund ......................... $1,548,214
1,399,734 Liquid Assets Money Market Portfolio ....................... 1,399,734
274,113 TempFund Money Market Portfolio ............................ 274,113
----------
$3,222,061
==========
</TABLE>
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at January 31,
1999 was substantially the same as the cost of securities for financial
statement purposes.
At January 31, 1999, the components of the net unrealized appreciation of
investments were as follows:
<TABLE>
<CAPTION>
<S> <C>
Gross appreciation (investments having an excess of value over cost) ..... $17,442,130
Gross depreciation (investments having an excess of cost over value) .... (2,451,440)
-----------
Net unrealized appreciation of investments ............................... $14,990,690
============
</TABLE>
For the six months ended January 31, 1999, aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $11,858,769 and
$16,090,920, 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.
CAPITAL STOCK
There are 100,000,000 shares of $ 0.001 par value common stock authorized. Of
the 3,801,667 shares outstanding at January 31, 1999, Mitchell Hutchins owned
7,026 shares.
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 October 15, 1993
January 31, 1999 For the Years Ended July 31, to
----------------------------------------
(unaudited) 1998 1997 1996 1995 July 31, 1994
------------- ---------- -------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ....... $ 19.02 $ 17.03 $ 12.64 $ 11.61 $ 13.28 $ 14.18
--------- --------- --------- --------- --------- ----------
Net investment income (loss) ............... (0.09) (0.06) (0.02) (0.01) 0.08 (0.05)
Net realized and unrealized gains
(losses) from investments and foreign
currencies ................................ (2.07) 2.05 4.41 1.04 (0.95) (0.80)
--------- --------- --------- --------- --------- --------
Total increase (decrease) from
investment operations ..................... (2.16) 1.99 4.39 1.03 (0.87) (0.85)
Distributions from net realized gains
from investments ........................... (0.68) -- -- -- (0.80) --
Offering costs charged to additional
paid-in capital ......................... -- -- -- -- -- (0.05)
--------- --------- --------- --------- --------- --------
Net asset value, end of period ............ $ 16.18 $ 19.02 $ 17.03 $ 12.64 $ 11.61 $ 13.28
========= ========= ========= ========= ========= ========
Market value, end of period ............... $ 13.13 $ 15.69 $ 14.50 $ 10.38 $ 9.25 $ 12.13
========= ========= ========= ========= ========= ========
Total investment return (1) (11.61)% 8.19% 39.69% 12.22% (17.64)% (14.46)%
========= ========= ========= ========= ========= ========
Ratios/Supplemental Data:
Net assets, end of period (000's) ......... $ 61,520 $ 72,303 $ 64,729 $ 48,068 $ 44,137 $ 50,474
Expenses to average net assets ............ 1.60%* 1.37% 1.53% 1.76% 1.69% 1.79%*
Net investment income (loss) to
average net assets ....................... (1.13)%* (0.31)% (0.14)% (0.10)% 0.62% (0.46)%*
Portfolio turnover rate ................... 20% 65% 50% 64% 187% 71%
</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.
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 $60.3 billion in assets under management at February 28, 1999.
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 $78.6 billion in assets as
of February 28, 1999.
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 19, 1998.
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, 1999.
Proposal 1
<TABLE>
<CAPTION>
Shares Voted For Shares Withhold Authority
-------------------- -------------------------------
<S> <C> <C>
1. To vote for or against the election of:
Margo N. Alexander 3,588,678 54,816
Richard Q. Armstrong 3,590,678 52,816
E. Garrett Bewkes, Jr. 3,586,233 57,261
Richard R. Burt 3,590,228 53,266
Mary C. Farrell 3,587,903 55,591
Meyer Feldberg 3,589,578 53,916
George W. Gowen 3,589,728 53,766
Frederic V. Malek 3,588,578 54,916
Carl W. Schafer 3,588,978 54,516
</TABLE>
Proposal 2
<TABLE>
<CAPTION>
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, 1999. 3,614,721 9,372 19,400
</TABLE>
(Broker non-votes and abstentions are included within the "Shares Withhold
Authority" and "Shares Abstain" totals.)
16
<PAGE>
The Fund's board of directors amended the Fund's bylaws to require that the Fund
receive notice of board nominations or proposals that any shareholder wishes to
be considered at an annual or special shareholder meeting. This notice will give
Fund management an opportunity to inform shareholders of and respond to those
nominations and proposals.
The amended bylaws require that the Fund receive notice of a nomination or
proposal for an annual meeting at least 120 days in advance of the anniversary
of the date that the Fund's proxy statement for the previous year's annual
meeting was first released to shareholders. For a special shareholder meeting,
the Fund must receive notice within seven days of the date on which notice of
the special meeting is first given to shareholders. In order to make a
nomination or proposal to be considered at the 1999 annual meeting of
shareholders, the Fund must receive notice of that nomination or proposal no
later than June 1, 1999.
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.
Similarly, the Fund could be adversely affected by investments in securities of
issuers, or by dependence on related trading systems, that encounter similar
date-related processing difficulties. 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. The Fund is unable to predict what impact, if any, the Year 2000 Issue
may have on the issuers of the securities in which it invests or on related
trading systems. An issuer's or trading systems ability to address the Year 2000
Issue may be a function of the degree of technological sophistication and the
degree of due diligence being applied.
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
17
<PAGE>
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 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.
Chairman
Margo N. Alexander
Richard Q. Armstrong
Richard R. Burt
Mary C. Farrell
Meyer Feldberg
George W. Gowen
Frederic V. Malek
Carl W. Schafer
PRINCIPAL OFFICERS
Margo N. Alexander
President
Victoria E. Schonfeld
Vice President
Dianne E. O'Donnell
Vice President and Secretary
Paul H. Schubert
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>
SEMIANNUAL REPORT
GLOBAL SMALL
CAP FUND INC.
JANUARY 31, 1999
PaineWebber
(Copyright) 1999 PaineWebber Incorporated
Member SIPC
