-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TmfpXEE5Oi8Y9TZ1U1shJtG7vPgJaz0WiJ3EPij3+col940UqEZA7roFpwWA7b3X wCF4MhHQjjh2I8kFOaZ75Q== 0000889812-96-000011.txt : 19960111 0000889812-96-000011.hdr.sgml : 19960111 ACCESSION NUMBER: 0000889812-96-000011 CONFORMED SUBMISSION TYPE: N-2/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19960105 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLOBAL HIGH INCOME DOLLAR FUND INC CENTRAL INDEX KEY: 0000897996 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-2/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-64916 FILM NUMBER: 96501553 BUSINESS ADDRESS: STREET 1: 1285 AVENUE OF THE AMERICAS STREET 2: 16TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2127132000 MAIL ADDRESS: STREET 1: 1285 AVENUE OF THE AMERICAS STREET 2: 16TH FL CITY: NEW YORK STATE: NY ZIP: 10019 N-2/A 1 POST-EFFECTIVE AMENDMENT NO. 4 As filed with the Securities and Exchange Commission on January 5, 1996 Securities Act File No. 33-64916 Investment Company Act File No. 811-7540 =========================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________________ FORM N-2 Registration Statement Under the Securities Act of 1933 /X/ Pre-Effective Amendment No. / / Post-Effective Amendment No. 4 /X/ and Registration Statement Under the Investment Company Act of 1940 /X/ Amendment No. 6 /X/ (Check appropriate box or boxes) _____________________ GLOBAL HIGH INCOME DOLLAR FUND INC. (Exact name of Registrant as specified in charter) 1285 Avenue of the Americas New York, New York 10019 (Address of principal executive offices) Registrant's Telephone Number, including Area Code: (212) 713-2000 _____________________ DIANNE E. O'DONNELL, ESQ. Vice President and Secretary GLOBAL HIGH INCOME DOLLAR FUND INC. 1285 Avenue of the Americas New York, New York 10019 (Name and address of agent for service) _____________________ Copies to: ROBERT A. WITTIE, ESQ. GREGORY K. TODD, ESQ. MARK T. UYEDA, ESQ. MITCHELL HUTCHINS ASSET KIRKPATRICK & LOCKHART LLP MANAGEMENT INC. 1800 M Street, N.W. 1285 Avenue of the Americas Washington, D.C. 20036 New York, New York 10019 ___________ If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: [ X ] It is proposed that this filing will become effective (check appropriate box) [ x ] when declared effective pursuant to Section 8(c) This Registration Statement relates to the registration of an indeterminate number of shares solely for market-making transactions. =========================================================================== Global High Income Dollar Fund Inc. Form N-2 Cross Reference Sheet Part A Item Number Caption Prospectus Caption ----------- ------- ------------------ 1 Outside Front Cover . . . . Outside Cover of Prospectus 2 Inside Front and Outside . Inside Front and Outside Back Cover Page Back Cover Page of Prospectus 3 Fee Table and Synopsis . . Fund Expenses; Prospectus Summary 4 Financial Highlights . . . Financial Highlights 5 Plan of Distribution . . . Outside Front Cover; The Offering; Management of the Fund; Description of Capital Stock 6 Selling Shareholders . . . Not Applicable 7 Use of Proceeds . . . . . . Use of Proceeds; Investment Objectives and Policies; Other Investment Practices 8 General Description of . . Prospectus Summary; Registrant Trading History; The Fund; Investment Objectives and Policies; Other Investment Practices; Special Considerations and Risk Factors; Description of Capital Stock; Appendix A 9 Management . . . . . . . . Management of the Fund; Description of Capital Stock; Custodian, Transfer and Dividend Disbursing Agent and Registrar 10 Capital Stock, Long-Term Debt and Other Securities . Dividends and Other Distributions; Dividend Reinvestment Plan; Taxation; Description of Capital Stock 11 Defaults and Arrears on Senior Securities . . . . . Not Applicable 12 Legal Proceedings . . . . . Not Applicable 13 Table of Contents of the Statement of Additional Information . . Further Information Part B Statement of Item Number Caption Additional Information ----------- ------- ---------------------- 14 Cover Page . . . . . . . . Cover Page of Statement of Additional Information 15 Table of Contents . . . . . Outside Back Cover Page of Statement of Additional Information 16 General Information and History . . . . . . . . . . Not Applicable 17 Investment Objectives and Policies . . . . . . . . . Investment Policies and Restrictions; Strategic Transactions; Portfolio Transactions 18 Management . . . . . . . . Directors and Officers 19 Control Persons and Principal Holders of Securities . . . . . . . . Control Persons and Principal Holders of Securities 20 Investment Advisory and Other Services . . . . . . Directors and Officers; Investment Advisory Arrangements; Additional Information; Management of the Fund (in Prospectus); Custodian, Transfer and Dividend Disbursing Agent and Registrar (in Prospectus) 21 Brokerage Allocation and Other Practices . . . . . . Portfolio Transactions 22 Tax Status . . . . . . . . Taxation 23 Financial Statements . . . Financial Information GLOBAL HIGH INCOME DOLLAR FUND INC. COMMON STOCK ------------------------ Global High Income Dollar Fund Inc. (the 'Fund') is a non-diversified, closed-end management investment company. The Fund's primary investment objective is to achieve a high level of current income. As a secondary objective the Fund seeks capital appreciation, to the extent consistent with its primary objective. Under normal market conditions, the Fund invests at least 65% of its total assets in U.S. dollar-denominated debt securities of issuers located in emerging market countries, including Brady Bonds and zero coupon securities. The Fund may also invest up to 35% of its total assets in non-U.S. dollar-denominated debt securities (i) of issuers located in emerging market countries or (ii) of issuers not located in emerging market countries that are denominated in or indexed to the currencies of emerging market countries. Investment in debt securities of issuers located in emerging market countries involves special considerations that are not typically associated with investment in debt securities of issuers located in the United States. Substantially all of the Fund's assets may be invested in high yield, high risk (lower grade) debt securities that are predominantly speculative. The Fund may utilize leveraging techniques which will create the opportunity for increased net income but, at the same time, will involve special risks. THE FUND IS DESIGNED FOR INVESTORS WILLING TO ASSUME ADDITIONAL RISK IN RETURN FOR THE POTENTIAL FOR HIGH CURRENT INCOME. INVESTORS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN THE FUND. SEE 'OTHER INVESTMENT PRACTICES--LEVERAGE' AND 'SPECIAL CONSIDERATIONS AND RISK FACTORS.' No assurance can be given that the Fund will achieve its investment objectives. The Fund's common stock ('Common Stock') is listed and traded on the New York Stock Exchange, Inc. ('NYSE') under the symbol 'GHI.' The Common Stock may be offered pursuant to this Prospectus from time to time in order to effect over-the-counter ('OTC') secondary market sales by PaineWebber Incorporated ('PaineWebber') in its capacity as a dealer and secondary market-maker at negotiated prices related to prevailing market prices on the NYSE at the time of sale. The closing price for the Common Stock on the NYSE on February , 1996 was $ . See 'Trading History.' The Fund will not receive any proceeds from the sale of Common Stock offered pursuant to this Prospectus. Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins') serves as investment adviser and administrator of the Fund. This Prospectus concisely sets forth certain information an investor should know before investing, and should be retained for future reference. A Statement of Additional Information ('SAI') dated March , 1996 has been filed with the Securities and Exchange Commission and is incorporated by reference in its entirety into this Prospectus. A Table of Contents for the SAI is set forth as the last section of this Prospectus. A copy of the SAI can be obtained without charge by writing to the Fund, by contacting your PaineWebber investment executive or PaineWebber's correspondent firms or by calling toll-free (800) 852-4750. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ PAINEWEBBER INCORPORATED ------------------------ The date of this Prospectus is March , 1996. FUND EXPENSES The following tables are intended to assist investors in understanding the various costs and expenses that an investor in the Fund will bear, directly or indirectly. SHAREHOLDER TRANSACTION EXPENSES Sales Load (as a percentage of offering price)................... None(1) Dividend Reinvestment Plan Fees.................................. None ANNUAL EXPENSES (AS A PERCENTAGE OF NET ASSETS ATTRIBUTABLE TO COMMON STOCK)(2) Investment Advisory and Administration Fees...................... 1.25% Interest Payments on Borrowed Funds(3)........................... 0.00% Other Expenses................................................... 0.21% Total Annual Expenses....................................... 1.46%
- ------------------ (1) Prices for shares of Common Stock traded in the OTC secondary market will reflect ordinary dealer mark-ups. (2) See 'Management of the Fund' for additional information. The investment advisory and administration fees payable to Mitchell Hutchins are greater than the advisory and administration fees paid by most funds. 'Other Expenses' have been estimated based upon expenses actually incurred for the Fund's last fiscal year. (3) The Fund may borrow money. See 'Other Investment Practices--Leverage.' EXAMPLE An investor would directly or indirectly pay the following expenses on a $1,000 investment in the Fund, assuming (i) a 5% annual return and (ii) reinvestment of all dividends and other distributions at net asset value:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS - -------- ----------- ---------- --------- $15 $46 $80 $175
This Example assumes that the percentage amounts listed under Annual Expenses remain the same in the years shown (except that Annual Expenses have been reduced to reflect the completion of organization expense amortization after five years from commencement of investment operations). The above tables and the assumption in the Example of a 5% annual return and reinvestment at net asset value are required by regulation of the Securities and Exchange Commission ('SEC') applicable to all closed-end investment companies; the assumed 5% annual return is not a prediction of, and does not represent, the projected or actual performance of the Common Stock. In addition, while the Example assumes reinvestment of all dividends and other distributions at net asset value, participants in the Fund's Dividend Reinvestment Plan will receive shares of the Common Stock purchased by the Plan's agent at the market price in effect at that time, which may be at, above or below net asset value. THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES, AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN. 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by reference to the more detailed information included elsewhere in this Prospectus and in the Statement of Additional Information ('SAI'). Investors should carefully consider information set forth under the heading 'Special Considerations and Risk Factors.' The Fund................. Global High Income Dollar Fund Inc. (the 'Fund') is a non-diversified, closed-end management investment company. See 'The Fund.' The Offering............. Shares of the Fund's common stock ('Common Stock') may be offered pursuant to this Prospectus from time to time in order to effect over-the-counter ('OTC') secondary market sales by PaineWebber Incorporated ('PaineWebber') in its capacity as a dealer and secondary market-maker at negotiated prices related to prevailing market prices on the New York Stock Exchange ('NYSE') at the time of sale. The Common Stock is listed and traded on the NYSE under the symbol 'GHI.' See 'The Offering' and 'Trading History.' Investment Objectives and Policies............... The Fund's primary investment objective is to achieve a high level of current income. As a secondary objective the Fund seeks capital appreciation, to the extent consistent with its primary objective. The Fund is designed for investors willing to assume additional risk in return for the potential for high current income. The Fund is not intended to be a complete investment program, and there is no assurance that the Fund will achieve its investment objectives. Under normal market conditions, the Fund invests at least 65% of its total assets in U.S. dollar-denominated debt securities of issuers located in emerging market countries, including Brady Bonds (as defined herein) and zero coupon securities. The Fund may also invest up to 35% of its total assets in non-U.S. dollar-denominated debt securities (i) of issuers located in emerging market countries or (ii) of issuers not located in emerging market countries that are denominated in or indexed to the currencies of emerging market countries. The Fund's investment in debt securities consists of (i) debt securities issued or guaranteed by governments, their agencies, instrumentalities or political subdivisions located in emerging market countries, or by central banks located in emerging market countries (collectively, 'Sovereign Debt'); (ii) interests in issuers organized and operated for the purpose of securitizing or restructuring the investment characteristics of Sovereign Debt; and (iii) debt securities issued by banks and other business entities located in emerging market countries or issued by banks and other business entities not located in emerging market countries but denominated in or indexed to the currencies of emerging market countries.
3 As used in this Prospectus, emerging market countries generally include every country in the world other than the United States, Canada, Japan, Australia, New Zealand and most Western European countries. A list of the primary emerging market countries in which the Fund expects some or all of its investments to be made primarily is set forth on page 13. While the Fund generally is not restricted in the portion of its assets which may be invested in a single country or region, under normal conditions, the Fund's assets are invested in issuers located in at least three countries. Debt securities held by the Fund may take the form of bonds, notes, bills, debentures, convertible securities, warrants (as defined herein), bank debt obligations, short-term paper, loan participations, assignments and interests issued by entities organized and operated for the purpose of restructuring the investment characteristics of Sovereign Debt. Based on current market conditions and investment opportunities, it is anticipated that from time to time at least 50% of the Fund's assets will be invested in Brady Bonds (as defined herein), in U.S. dollar-denominated bonds sold in the United States ('Yankee bonds') and in other bonds denominated in U.S. dollars or other currencies and sold to investors outside the United States ('Eurobonds'). Many of the Brady Bonds and other Sovereign Debt instruments in which the Fund invests are likely to be acquired at a discount. Zero coupon securities of governmental or private issuers generally pay no cash interest to their holders prior to maturity. Accordingly, although the Fund will receive no payments on its zero coupon securities prior to their maturity or disposition, it will have income attributable to such securities, and it will be required, in order to maintain the desired tax treatment available to regulated investment companies under the federal income tax law, to include in its dividends the income attributable to its zero coupon securities. Such dividends will be paid from the cash assets of the Fund, from borrowings or by liquidating portfolio securities, if necessary, at a time that the Fund otherwise might not have done so. The risks associated with holding illiquid securities that are not readily marketable may be accentuated at such time. See 'Investment Objectives and Policies,' 'Other Investment Practices' and 'Special Considerations and Risk Factors.' Investment Adviser and Administrator.......... Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins'), a wholly owned asset management subsidiary of PaineWebber, serves as the Fund's investment adviser and administrator. Mitchell Hutchins provides investment advisory and portfolio management services to investment companies, pension funds and other institutional, corporate and individual clients. As of , 1996, total assets under Mitchell Hutchins' management were
4 approximately $ billion. As of that date, Mitchell Hutchins served as investment adviser or sub-adviser to registered investment companies with separate portfolios having aggregate assets of approximately $ billion. Of that amount, approximately $ billion represented assets of globally oriented registered investment companies. See 'Management of the Fund.' Dividends and Other Distributions.......... Dividends from the Fund's net investment income are declared and paid monthly. In addition, the Fund may (but is not required to) distribute with its monthly dividends all or a portion of any net realized gains from foreign currency transactions and net short-term capital gain, if any. The Fund distributes annually to its stockholders substantially all of its realized net capital gain (the excess of net long-term capital gain over net short-term capital loss) and any undistributed net foreign currency gains and net short-term capital gain. The Fund may make additional distributions if necessary to avoid a 4% excise tax on certain undistributed income and capital gain. See 'Dividends and Other Distributions; Dividend Reinvestment Plan' and 'Taxation.' Dividend Reinvestment Plan................... The Fund has established a Dividend Reinvestment Plan ('Plan') under which all stockholders whose shares of Common Stock are registered in their own names, or in the name of PaineWebber (or its nominee), have all dividends and other distributions on their shares of Common Stock automatically reinvested in additional shares of Common Stock, unless they elect to receive cash. Additional shares of Common Stock acquired under the Plan are purchased in the open market, on the NYSE or otherwise, at prices that may be higher or lower than the net asset value per share of Common Stock at the time of the purchase. Stockholders who hold their shares in the name of a broker or nominee other than PaineWebber (or its nominee) should contact such other broker or nominee to determine whether, or how, they may participate in the Plan. The Fund will not issue any new shares of Common Stock in connection with the Plan. See 'Dividends and Other Distributions; Dividend Reinvestment Plan.' Special Considerations and Risk Factors....... Investments in Emerging Market Securities. Investments in emerging market securities involve certain considerations not typically associated with investing in securities of U.S. companies, including (i) currency devaluations and other currency exchange rate fluctuations, (ii) political uncertainty and instability, including military coups, (iii) more substantial government involvement in the economy, (iv) higher rates of inflation, (v) less government supervision and regulation of the securities markets and participants in those markets, (vi) controls on foreign investment and limitations on repatriation of invested capital and on the Fund's ability to
5 exchange local currencies for U.S. dollars, and (vii) greater price volatility, substantially less liquidity and significantly smaller capitalization of securities markets. Interest and dividend income on emerging market securities may be subject to withholding and other taxes, which would reduce the yield on such securities to the Fund and which may not be recoverable by the Fund or its stockholders. In addition, because the Fund may invest up to 35% of its total assets in non-U.S. dollar-denominated securities, changes in foreign currency exchange rates will affect the Fund's net asset value, the value of interest and dividends earned and gains and losses realized on the sale of securities denominated in foreign currencies. The operating expense ratio of the Fund can be expected to be higher than that of an investment company investing in U.S. securities because certain expenses of investing in emerging market securities, such as custodial costs, are higher. Only a limited market, if any, currently exists for hedging instruments relating to securities or currencies in most emerging market countries. Accordingly, under present circumstances, the Fund does not anticipate that it normally will be able to effectively hedge its currency exposure or investment in such markets. Investments in Sovereign Debt. Investments in Sovereign Debt involve special risks. Foreign governmental issuers of debt or the governmental authorities that control the repayment of the debt may be unable or unwilling to repay principal or pay interest when due. In the event of default, there may be limited or no legal recourse in that, generally, remedies for defaults must be pursued in the courts of the defaulting party. Political conditions, especially a sovereign entity's willingness to meet the terms of its debt obligations, are of considerable significance. Also, there can be no assurance that the holders of commercial bank loans to the same sovereign entity may not contest payments to the holders of Sovereign Debt in the event of default under commercial bank loan agreements. In addition, there is no bankruptcy proceeding with respect to Sovereign Debt on which a sovereign has defaulted and the Fund may be unable to collect all or any part of its investment in a particular issue. A sovereign debtor's willingness or ability to repay principal or pay interest in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its foreign reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, the sovereign debtor's policy toward principal international lenders and the political constraints to which a sovereign debtor may be subject. Political changes or a deterioration of a country's domestic economy or balance of trade may also affect the willingness of countries to service their Sovereign Debt. Foreign
6 investment in certain Sovereign Debt is restricted or controlled to varying degrees, including requiring governmental approval for the repatriation of income, capital or proceeds of sales by foreign investors. These restrictions or controls may at times limit or preclude foreign investment in certain Sovereign Debt and increase the costs and expenses of the Fund. A substantial portion of the Sovereign Debt in which the Fund invests, including Brady Bonds, is issued as part of debt restructurings and such debt is to be considered speculative. There is a history of defaults with respect to commercial bank loans by public and private entities issuing Brady Bonds. All or a portion of the interest payments and/or repayment of principal with respect to Brady Bonds may be uncollateralized. Investments in Debt Securities. The value of the debt securities held by the Fund, and thus the net asset value per share of the Common Stock, generally will fluctuate with (i) changes in the perceived creditworthiness of the issuers of those securities, (ii) movements in interest rates, and (iii) changes in the relative values of the currencies in which the Fund's investments are denominated with respect to the U.S. dollar. The extent of the fluctuation of the Fund's net asset value will depend on various other factors, such as the average maturity of the Fund's investments, the extent to which the Fund engages in borrowing and other leveraging transactions, the extent to which the Fund holds instruments denominated in foreign currencies and the extent to which the Fund hedges its interest rate, credit and currency exchange rate risks. Many of the debt obligations in which the Fund invests, including Brady Bonds, will have long maturities. A longer average maturity generally is associated with a higher level of volatility in the market value of such securities in response to changes in market conditions. In addition, securities issued at a deep discount, such as certain types of Brady Bonds and zero coupon obligations in which the Fund may invest, are subject to greater fluctuations of market value in response to changes in interest rates than debt obligations of comparable maturities that were not issued at a deep discount. Investments in Lower Grade Securities. A substantial portion of the Fund's assets may be invested in debt securities, including Sovereign Debt such as Brady Bonds, that are rated below investment grade as determined by internationally recognized securities rating organizations, such as Moody's Investors Service, Inc. ('Moody's') or Standard & Poor's, a division of The McGraw Hill Companies, Inc. ('S&P'), or securities that are unrated but deemed by Mitchell Hutchins to be of comparable quality. Debt securities rated BBB by S&P or Baa by Moody's, and comparable unrated securities, are considered to be investment grade, although
7 such securities have speculative characteristics. Changes in economic conditions or other circumstances are more likely, in Moody's view, to lead to a weakened capacity for the issuers of such securities to make interest and principal payments than is the case for higher grade debt securities. Debt securities rated below investment grade are deemed by S&P and Moody's to be predominantly speculative with respect to the issuer's capacity to pay interest and repay principal and to involve major risk exposures to adverse conditions. The lower grade securities in which the Fund may invest may include securities having the lowest ratings assigned by S&P or Moody's and, together with comparable unrated securities, may include securities in default or that face the risk of default with respect to the payment of principal or interest. These securities are considered to have extremely poor prospects of ever attaining any real investment standing. Lower grade debt securities generally offer a higher yield than that available from higher grade issues with similar maturities. However, lower grade debt securities involve higher risks, in that they are especially subject to adverse changes in general economic conditions and in the industries in which the issuers are engaged, to changes in the financial condition of the issuers and to price fluctuation in response to changes in interest rates. During periods of economic downturn or rising interest rates, highly leveraged issuers may experience financial stress, which could adversely affect their ability to make payments of principal and interest on, and increase the possibility of default of, such debt securities. The market for lower grade debt securities generally is thinner and less active than that for higher quality securities. As a result, the Fund could find it more difficult to sell such securities when Mitchell Hutchins believes it advisable to do so or may be able to sell such securities only at prices lower than if such securities were more widely traded. Although Mitchell Hutchins attempts to minimize the speculative risks associated with investments in such securities through credit analysis, attention to current trends in interest rates and other factors and investments in a variety of securities, investors should carefully review the investment objectives and policies of the Fund and consider their ability to assume the investment risks involved before making an investment. Leverage. The Fund may utilize financial leverage with respect to 33 1/3% of its total assets through borrowing money for investment purposes, to pay dividends or to fund repurchases of its Common Stock. The Fund also may engage in leverage through securities lending. The Fund will only use leverage when Mitchell Hutchins believes that such leverage will benefit the Fund after taking
8 leverage risks into consideration. The Fund's net asset value and yield may be more volatile due to the Fund's use of leverage which may, in turn, result in increased volatility of the market price of the shares of Common Stock. The Fund expects that most of its leverage would be in the form of bank borrowings, reverse repurchase agreements and lending of portfolio securities. To the extent the income derived from leverage exceeds the interest and other expenses that the Fund will have to pay in connection with such leverage, the Fund's net income will be greater than if leverage were not used. Conversely, if the income obtained is not sufficient to cover the cost of the leverage, the net income of the Fund will be less than if leverage were not used, and therefore the amount available for distribution to stockholders will be reduced. The requirement that the Fund segregate a specified amount of cash or liquid, high grade debt securities with its custodian in connection with the use of certain types of leverage could have an adverse effect on the income earned and dividends paid by the Fund. Illiquid Securities. The Fund may invest without limitation in illiquid securities. The Fund may not be able readily to dispose of such securities at prices that approximate those at which the Fund could sell such securities if they were more widely traded and, as a result of such illiquidity, the Fund may have to sell other investments or engage in borrowing transactions if necessary to raise cash to meet its obligations. Non-Diversified Status. As a 'non-diversified' investment company, as defined by the Investment Company Act of 1940 ('1940 Act'), the Fund may be subject to greater risk with respect to its portfolio securities than an investment company that is 'diversified' because changes in the financial condition or market assessment of a single issuer may cause greater fluctuations in the net asset value of the Fund's shares. Anti-Takeover Provisions. The Fund's Articles of Incorporation contain provisions limiting (i) the ability of other entities or persons to acquire control of the Fund, (ii) the Fund's freedom to engage in certain transactions and (iii) the ability of the Fund's directors or stockholders to amend the Articles of Incorporation. These provisions of the Articles of Incorporation may be regarded as 'anti-takeover' provisions. These provisions could have the effect of depriving the stockholders of opportunities to sell their shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control of the Fund in a tender offer or similar transaction. See 'Investment Objectives and Policies,' 'Other Investment Practices,' 'Special Considerations and Risk Factors' and 'Description of Capital Stock.'
9 Market Price and Net Asset Value of Shares................. Shares of closed-end investment companies, including the Fund, frequently trade at a discount to their net asset values. See 'Trading History.' Whether investors will realize gains or losses upon the sale of shares of the Common Stock will not depend directly upon changes in the Fund's net asset value, but will depend upon whether the market price of the Common Stock at the time of sale is above or below the original purchase price for the shares. The market price of the Common Stock is determined by such factors as relative demand for and supply of such shares in the market, general market and economic conditions, changes in the Fund's net asset value and other factors beyond the control of the Fund. The Common Stock is designed primarily for long-term investors, and investors in the Common Stock should not view the Fund as a vehicle for short-term trading purposes. See 'Special Considerations and Risk Factors' and 'Description of Capital Stock.' Stock Repurchases and Tender Offers; Conversion to Open-End Fund................... In recognition of the possibility that the Common Stock might trade at a discount from net asset value and that any such discount may not be in the interest of stockholders, the Fund's Board of Directors, in consultation with Mitchell Hutchins, intends to review at least annually the possibility of open market Common Stock repurchases or tender offers at net asset value. There can be no assurance that the Board of Directors will decide to undertake either of these actions or that, if undertaken, such actions will result in the Common Stock trading at a price equal to or close to net asset value per share. The Board of Directors also may consider from time to time the conversion of the Fund to an open-end investment company. See 'Description of Capital Stock.'
10 FINANCIAL HIGHLIGHTS The table below provides selected per share data and ratios for the Common Stock for the periods shown. This information is supplemented by the financial statements and accompanying notes appearing in the Fund's Annual Report to Shareholders for the fiscal year ended October 31, 1995 which are incorporated by reference into the Fund's SAI and can be obtained by stockholders upon request. The financial statements and notes and the financial information in the table below have been audited by Price Waterhouse LLP, independent accountants, whose report thereon also is included in the Annual Report to Shareholders.
FOR THE YEARS ENDED FOR THE PERIOD OCTOBER OCTOBER 31, 8, 1993+ -------------------- TO 1995 1994 OCTOBER 31, 1993 -------- -------- ---------------------- Net asset value, beginning of period.... $ 12.83 $ 15.21 $ 15.00 -------- -------- ----------- Net investment income................... 1.34 1.43 0.04 Net realized and unrealized gains (losses) from investments and foreign currency transactions................. 0.21 (2.40) 0.17 -------- -------- ----------- Total increase (decrease) from investment operations................. 1.55 (0.97) 0.21 -------- -------- ----------- Dividends from net investment income.... (1.16) (1.34) -- Distributions of paid-in-capital........ (0.15) (0.07) -- -------- -------- ----------- Total dividends and distributions....... (1.31) (1.41) -- -------- -------- ----------- Net asset value, end of period.......... $ 13.07 $ 12.83 $ 15.21 -------- -------- ----------- -------- -------- ----------- Per share market value, end of period... $ 11.63 $ 11.50 $ 15.00 -------- -------- ----------- -------- -------- ----------- Total investment return (1)............. 13.65% (14.80)% 0.00% -------- -------- ----------- -------- -------- ----------- Ratios/Supplemental Data: Net assets, end of period (000's)....... $297,087 $291,752 $345,755 Expenses to average net assets.......... 1.46% 1.50% 1.41%* Net investment income to average net assets................................ 10.76% 10.40% 4.60%* Portfolio turnover rate................. 71% 51% 1%
- ------------------ * Annualized + Commencement of operations (1) Total investment return on market value is calculated assuming a purchase of one share at market value on the first day of each period reported, reinvestment of all dividends and other distributions in accordance with the Dividend Reinvestment Plan, and a sale at market value on the last day of each period reported. Total investment returns for periods of less than one year have not been annualized. 11 THE FUND The Fund is a non-diversified, closed-end management investment company and has registered as such under the 1940 Act. The Fund was incorporated under the laws of the State of Maryland on February 23, 1993 and commenced operations on October 8, 1993. The Fund's principal office is located at 1285 Avenue of the Americas, New York, New York 10019, and its telephone number is (212) 713-2000. THE OFFERING The Common Stock may be offered pursuant to this Prospectus from time to time in order to effect OTC secondary market sales by PaineWebber in its capacity as a dealer and secondary market-maker at negotiated prices related to prevailing market prices on the NYSE at the time of sale. Costs incurred in connection with this offering will be paid by PaineWebber. PaineWebber's principal offices are located at 1285 Avenue of the Americas, New York, New York 10019. Mitchell Hutchins is a wholly owned subsidiary of PaineWebber. USE OF PROCEEDS The Fund will not receive any proceeds from the sale of any Common Stock offered pursuant to this Prospectus. Proceeds received by PaineWebber as a result of its OTC secondary market sales of the Common Stock will be utilized by PaineWebber in connection with its secondary market operations and for general corporate purposes. TRADING HISTORY The Common Stock is listed and traded on the NYSE under the symbol 'GHI.' The following table sets forth for the Common Stock for each fiscal quarter within the two most recent fiscal years and each fiscal quarter since the beginning of the current fiscal year: (a) the per share high and low sales prices as reported by the NYSE; (b) the per share net asset values, based on the Fund's computation as of 4:00 p.m., Eastern time, on the second to last NYSE business day for the week corresponding to the dates on which the respective high and low sales prices were recorded; and (c) the discount or premium to net asset value represented by the high and low sales prices shown. The range of net asset values and of premiums and discounts for the Common Stock during the periods shown may be broader than is shown in this table. On February , 1996, the closing price per share on the NYSE was $ , the Fund's net asset value per share was $ and the discount to net asset value per share was %.
(DISCOUNT) OR NET ASSET PREMIUM TO SALES PRICES VALUES NET ASSET VALUE ---------------- ---------------- ---------------- QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW - ------------- ------ ------ ------ ------ ------ ------ 01/31/94..... $15.63 $14.25 $15.52 $15.31 0.71% (6.92)% 04/30/94..... 15.13 12.25 15.39 12.96 (1.69) (5.48) 07/31/94..... 13.75 11.13 13.18 12.53 4.32 (11.17) 10/31/94..... 12.88 11.25 12.82 12.86 0.47 (12.52) 01/31/95..... 11.88 10.00 12.77 11.82 (6.97) (15.40) 04/30/95..... 11.38 10.25 11.85 11.38 (3.97) (9.93) 07/31/95..... 12.13 10.75 13.06 12.33 (7.12) (12.81) 10/31/95..... 11.75 11.00 13.30 12.93 (11.65) (14.93) 01/31/96.....
See 'Description of Capital Stock--Stock Repurchases and Tender Offers' as to methods that may be undertaken by the Fund to reduce any discount. 12 INVESTMENT OBJECTIVES AND POLICIES The Fund's primary investment objective is to achieve a high level of current income. As a secondary objective the Fund seeks capital appreciation, to the extent consistent with its primary objective. The Fund is designed for investors willing to assume additional risk in return for the potential for high current income. The Fund is not intended to be a complete investment program and there is no assurance that the Fund will achieve its investment objectives. Under normal market conditions, the Fund invests at least 65% of its total assets in U.S. dollar-denominated debt securities of issuers located in emerging market countries, including Brady Bonds (as defined herein) and zero coupon securities. The Fund may also invest up to 35% of its total assets in non-U.S. dollar-denominated debt securities (i) of issuers located in emerging market countries or (ii) of issuers not located in emerging market countries that are denominated in or indexed to the currencies of emerging market countries. The Fund's investment in debt securities will consist of (i) debt securities issued or guaranteed by governments, their agencies, instrumentalities or political subdivisions located in emerging market countries, or by central banks located in emerging market countries (collectively, 'Sovereign Debt'); (ii) interests in issuers organized and operated for the purpose of securitizing or restructuring the investment characteristics of Sovereign Debt; and (iii) debt securities issued by banks and other business entities located in emerging market countries or issued by banks and other business entities not located in emerging market countries but denominated in or indexed to the currencies of emerging market countries. As used in this Prospectus, emerging market countries generally include every country in the world other than the United States, Canada, Japan, Australia, New Zealand and most Western European countries. Currently, investing in many emerging market countries may not be desirable or feasible, due to the lack of adequate custody arrangements for the Fund's assets, overly burdensome repatriation and similar restrictions, the lack of organized and liquid securities markets, unacceptable political risks or other reasons. The Fund expects its investments in emerging market securities to be made primarily in some or all of the following emerging market countries: Algeria Argentina Botswana Brazil Bulgaria Chile Colombia Costa Rica Czech Republic Dominican Republic Ecuador Ghana Greece Hungary India Indonesia Israel Ivory Coast Jamaica Jordan Kenya Korea Malaysia Mexico Morocco Nigeria Panama Peru Philippines Poland Portugal Russia Singapore South Africa Swaziland Thailand Trinidad & Tobago Turkey Uruguay Venezuela Zambia Zimbabwe As opportunities to invest in debt securities in other emerging market countries develop, the Fund expects to expand and further diversify the emerging market countries in which it invests. While the Fund generally is not restricted in the portion of its assets which may be invested in a single country or region, under normal conditions, the Fund's assets are invested in issuers located in at least three countries. 13 Debt securities held by the Fund may take the form of bonds, notes, bills, debentures, convertible securities, warrants (as defined herein), bank debt obligations, short-term paper, loan participations, assignments and interests issued by entities organized and operated for the purpose of restructuring the investment characteristics of Sovereign Debt. Based on current market conditions and investment opportunities, it is anticipated that from time to time at least 50% of the Fund's assets will be invested in Brady Bonds (as defined herein), in U.S. dollar-denominated bonds sold in the United States ('Yankee bonds') and in other bonds denominated in U.S. dollars or other currencies and sold to investors outside the United States ('Eurobonds'). The Fund is not subject to restrictions on the maturities of the debt securities it holds. Many of the Brady Bonds and other Sovereign Debt instruments in which the Fund invests are likely to be acquired at a discount. Pursuant to the Internal Revenue Code, the Fund is required to accrue a portion of any original issue discount with respect to such securities as income each year even though the Fund does not receive interest payments in cash during the year which reflect the discount so accrued. The Fund may also elect similar treatment for any market discount with respect to such securities. As a result, the Fund expects to make annual distributions of net investment income in amounts greater than the total amount of cash it actually receives. Such distributions may be made from the cash assets of the Fund, from borrowings or by liquidation of portfolio securities. Such liquidation of portfolio securities may be made at times or in market conditions or at market prices that may not be advantageous to the Fund. The risks associated with holding securities that are not readily marketable may be accentuated at such time. See 'Special Considerations and Risk Factors-Illiquid Securities' and 'Taxation.' The Fund may invest up to 35% of its total assets in non-U.S. dollar-denominated debt securities that may be denominated in the local currencies of emerging market countries, as well as in reserve currencies such as the British Pound Sterling, the Belgian Franc, the Canadian Dollar, the Deutsche Mark, the Dutch Guilder, the European Currency Unit, the French Franc, the Italian Lira, the Japanese Yen and the Swiss Franc. Although the Fund is permitted to engage in a wide variety of investment practices designed to hedge against currency exchange rate risks with respect to its holdings of non-U.S. dollar-denominated debt securities, the Fund may be limited in its ability to hedge against these risks. See 'Other Investment Practices-Strategic Transactions.' Mitchell Hutchins selectively invests the Fund's assets in securities of issuers in countries where the combination of fixed income market returns, the price appreciation potential of fixed income securities and, with respect to non-U.S. dollar-denominated securities, currency exchange rate movements present opportunities for high current income and, secondarily, capital appreciation. Assets are allocated among various countries based upon Mitchell Hutchins' analysis of credit risk of the universe of emerging market country issuers and the factors noted above. Emerging market country sovereign credit analysis includes an evaluation of the issuing country's total debt levels, currency reserve levels, net exports/imports, overall economic growth, level of inflation, currency fluctuation, political and social climate and payment history. Particular debt securities will be selected based upon credit risk analysis of potential issuers, the characteristics of the security and interest rate sensitivity of the various debt issues for a single issuer, analysis of volatility and liquidity of these particular debt instruments, and the tax implications of various instruments to the Fund. The debt securities in which the Fund may invest, including Brady Bonds, will not be required to meet a minimum rating standard and may not be rated by any internationally recognized securities rating organization. As of the end of the fiscal year ended October 31, 1995, the Fund had % of its dollar weighted average portfolio in debt securities that received a rating from an internationally recognized securities rating organization, and % of its dollar weighted average portfolio in debt securities that were not so rated. The Fund had the following percentages of its dollar weighted average portfolio invested in rated securities: AAA/Aaa (including cash items)--0%, AA/Aa-- %, A/A-- %, BBB/Baa-- %, BB/Ba-- %, and B/B-- %. It should be 14 noted that this information reflects the average composition of the Fund's assets as of the end of the fiscal year ended October 31, 1995 and is not necessarily representative of the Fund's assets as of any other time in that period, the current fiscal year or at any time in the future. BRADY BONDS The Fund may invest in Brady Bonds and other Sovereign Debt of countries that have restructured or are in the process of restructuring Sovereign Debt pursuant to the Brady Plan. 'Brady Bonds' are debt securities issued under the framework of the Brady Plan, an initiative announced by former U.S. Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to restructure their outstanding external commercial bank indebtedness. In restructuring its external debt under the Brady Plan framework, a debtor nation negotiates with its existing bank lenders as well as multilateral institutions such as the World Bank and the International Monetary Fund ('IMF'). The Brady Plan framework, as it has developed, contemplates the exchange of commercial bank debt for newly issued Brady Bonds. Brady Bonds may also be issued in respect of new money being advanced by existing lenders in connection with the debt restructuring. The World Bank and/or the IMF support the restructuring by providing funds pursuant to loan agreements or other arrangements which enable the debtor nation to collateralize the new Brady Bonds or to repurchase outstanding bank debt at a discount. Investors should recognize that Brady Bonds have been issued relatively recently, and accordingly do not have a long payment history. Agreements implemented under the Brady Plan generally are designed to achieve debt and debt-service reduction through specific options negotiated by a debtor nation with its creditors. As a result, the financial packages offered by each country differ. The types of options have included the exchange of outstanding commercial bank debt for bonds issued at 100% of face value of such debt, which carry a below-market stated rate of interest (generally known as par bonds), bonds issued at a discount from the face value of such debt (generally known as discount bonds), bonds bearing an interest rate which increases over time and bonds issued in exchange for the advancement of new money by existing lenders. Regardless of the stated face amount and stated interest rate of the various types of Brady Bonds, the Fund normally purchases Brady Bonds in secondary markets, as described below, in which the price and yield to the investor reflect market conditions at the time of purchase. Certain Brady Bonds have been collateralized as to principal due at maturity by U.S. Treasury zero coupon bonds with a maturity equal to the final maturity of such Brady Bonds. Collateral purchases are financed by the IMF, the World Bank and the debtor nations' reserves. In the event of a default with respect to collateralized Brady Bonds as a result of which the payment obligations of the issuer are accelerated, the U.S. Treasury zero coupon obligations held as collateral for the payment of principal will not be distributed to investors, nor will such obligations be sold and the proceeds distributed. The collateral will be held by the collateral agent to the scheduled maturity of the defaulted Brady Bonds, which will continue to be outstanding, at which time the face amount of the collateral will equal the principal payments which would have then been due on the Brady Bonds in the normal course. In addition, interest payments on certain types of Brady Bonds may be collateralized by cash or high grade securities in amounts that typically represent between 12 and 18 months of interest accruals on these instruments with the balance of the interest accruals being uncollateralized. Brady Bonds are often viewed as having three or four valuation components: (i) the collateralized repayment of principal, if any, at final maturity, (ii) the collateralized interest payments, if any, (iii) the uncollateralized interest payments, and (iv) any uncollateralized repayment of principal at maturity (these uncollateralized amounts constitute the 'residual risk'). In light of the residual risk of Brady Bonds and, among other factors, the history of defaults with respect to commercial bank loans by public and private entities of countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as speculative. The Fund may purchase Brady Bonds with no or limited collateralization, 15 and will be relying for payment of interest and (except in the case of principal collateralized Brady Bonds) principal primarily on the willingness and ability of the foreign government to make payment in accordance with the terms of the Brady Bonds. Brady Bonds generally are purchased and sold in secondary markets through U.S. securities dealers and other financial institutions and are generally maintained through European transnational securities depositories. Many of the Brady Bonds and other Sovereign Debt in which the Fund invests are likely to be acquired at a discount. See 'Taxation.' LOAN PARTICIPATIONS AND ASSIGNMENTS The Fund may invest in fixed and floating rate loans ('Loans') arranged through private negotiations between a foreign government and one or more financial institutions ('Lenders'). The Fund's investments in Loans are expected in most instances to be in the form of participations in Loans ('Participations') and assignments of all or a portion of Loans ('Assignments') from third parties. Participations typically will result in the Fund having a contractual relationship only with the Lender, not with the borrower. The Fund will have the right to receive payments of principal, interest and any fees to which it is entitled only from the Lender selling the Participation and only upon receipt by the Lender of the payments from the borrower. In connection with purchasing Participations, the Fund generally has no direct right to enforce compliance by the borrower with the terms of the loan agreement relating to the Loan ('Loan Agreement'), nor any rights of set-off against the borrower, and the Fund may not directly benefit from any collateral supporting the Loan in which it has purchased the Participation. As a result, the Fund will assume the credit risk of both the borrower and the Lender that is selling the Participation. In the event of the insolvency of the Lender selling a Participation, the Fund may be treated as a general creditor of the Lender and may not benefit from any set-off between the Lender and the borrower. The Fund will acquire Participations only if the Lender interpositioned between the Fund and the borrower is determined by Mitchell Hutchins to be creditworthy. When the Fund purchases Assignments from Lenders, the Fund will acquire direct rights against the borrower on the Loan. However, since Assignments are arranged through private negotiations between potential assignees and assignors, the rights and obligations acquired by the Fund as the purchaser of an Assignment may differ from, and be more limited than, those held by the assigning Lender. The Fund may have difficulty disposing of Assignments and Participations. Because there is no liquid market for such securities, the Fund anticipates that such securities could be sold only to a limited number of institutional investors. The lack of a liquid secondary market will have an adverse impact on the value of such securities and on the Fund's ability to dispose of particular Assignments or Participations when necessary to meet the Fund's liquidity needs or in response to a specific economic event, such as a deterioration in the creditworthiness of the borrower. STRUCTURED INVESTMENTS The Fund may invest a portion of its assets in interests in entities organized and operated solely for the purpose of securitizing or restructuring the investment characteristics of Sovereign Debt. This type of securitizing or restructuring involves the deposit with or purchase by a U.S. or foreign entity, such as a corporation or trust, of specified instruments (such as commercial bank loans or Brady Bonds) and the issuance by that entity of one or more classes of securities ('Structured Investments') backed by, or representing interests in, the underlying instruments. The cash flow on the underlying instruments may be apportioned among the newly issued Structured Investments to create securities with different investment characteristics such as varying maturities, payment priorities and interest rate provisions, and the extent of the payments made with respect to Structured Investments is dependent on the extent of the cash flow on the underlying instruments. Because Structured Investments of the 16 type in which the Fund anticipates it will invest typically involve no credit enhancement, their credit risk generally will be equivalent to that of the underlying instruments. The Fund is permitted to invest in a class of Structured Investments that is either subordinated or not subordinated to the right of payment of another class. Subordinated Structured Investments typically have higher yields and present greater risks than unsubordinated Structured Investments. Structured Investments are typically sold in private placement transactions, and there currently is no active trading market for Structured Investments. OTHER INVESTMENTS Zero Coupon Securities. The Fund may invest in 'zero coupon' and other deep discount securities of governmental or private issuers, including certain Brady Bonds. Zero coupon securities generally pay no cash interest to their holders prior to maturity. Accordingly, such securities usually are issued and traded at a deep discount from their face or par value and generally are subject to greater fluctuations of market value in response to changing interest rates than securities of comparable maturities and credit quality that pay cash interest on a current basis. Federal tax law requires that a holder of a zero coupon security accrue a portion of the original issue discount on the security as income each year, even though the holder receives no interest payment on the security during the year. Federal tax law also requires that companies such as the Fund which seek to qualify for pass-through federal income tax treatment as regulated investment companies distribute substantially all of their net investment income each year, including non-cash income. Accordingly, although the Fund will receive no payments on its zero coupon securities prior to their maturity or disposition, it will have income attributable to such securities and it will be required, in order to maintain the desired tax treatment, to include in its dividends an amount equal to the income attributable to its zero coupon securities. Such dividends will be paid from the cash assets of the Fund, from borrowings or by liquidation of portfolio securities, if necessary, at a time that the Fund otherwise might not have done so. To the extent the Fund is required to liquidate thinly traded securities, it may be able to sell such securities only at prices lower than if such securities were more widely traded. To the extent the proceeds from any such dispositions are used by the Fund to pay distributions, it will not be able to purchase additional income-producing securities with such proceeds, and as a result its current income ultimately may be reduced. See 'Taxation.' Private Placements. The Fund may invest in emerging market securities that are sold in private placement transactions between their issuers and their purchasers and that are neither listed on an exchange nor traded in the OTC secondary market. In many cases, privately placed securities will be subject to contractual or legal restrictions on transfer. As a result of the absence of a public trading market, privately placed securities may in turn be less liquid and more difficult to value than publicly traded securities. Although privately placed securities may be resold in privately negotiated transactions, the prices realized from the sales could, due to illiquidity, be less than those originally paid by the Fund or less than if such securities were more widely traded. In addition, issuers whose securities are not publicly traded may not be subject to the disclosure and other investor protection requirements that may be applicable if their securities were publicly traded. If any privately placed securities held by the Fund are required to be registered under the securities laws of one or more jurisdictions before being resold, the Fund may be required to bear the expenses of registration. Convertible Securities. The Fund may invest in convertible securities, which are bonds, debentures, notes, preferred stocks or other securities that may be converted into or exchanged for a specified amount of common stock of the same or a different issuer within a particular period of time at a specified price or formula. A convertible security entitles the holder to receive interest generally paid or accrued on debt or the dividend paid 17 on preferred stock until the convertible security matures or is redeemed, converted or exchanged. Convertible securities have unique investment characteristics in that they generally (i) have higher yields than common stocks, but lower yields than comparable non-convertible securities, (ii) are less subject to fluctuation in value than the underlying stock since they have fixed income characteristics, and (iii) provide the potential for capital appreciation if the market price of the underlying common stock increases. Most convertible securities currently are issued by U.S. companies, although a substantial Eurodollar convertible securities market has developed, and the markets for convertible securities denominated in local currencies are increasing. The Fund generally does not convert any convertible securities it may own into common stock or hold them as common stock, although it may do so for temporary purposes. Equity Securities. The Fund may acquire equity securities (including common stocks, rights and warrants for equity and fixed income securities) when attached to fixed income securities or as part of a unit including fixed income securities, or in connection with a conversion or exchange of fixed income securities. Warrants. The Fund may acquire warrants for equity securities, debt securities and commodities that are acquired as units with debt securities. Warrants are securities permitting, but not obligating, their holder to subscribe for other securities or commodities. Warrants do not carry with them the right to dividends or voting rights with respect to the securities that they entitle their holder to purchase, and they do not represent any rights in the assets of the issuer. As a result, warrants may be considered more speculative than certain other types of investments. In addition, the value of a warrant does not necessarily change with the value of the underlying securities and a warrant ceases to have value if it is not exercised prior to its expiration date. The Fund generally sells any common stock or commodity received upon the exercise of a warrant as promptly as practicable and in a manner that it believes will reduce its risk of a loss in connection with the sale. Investment in Other Investment Companies. The Fund may invest in other investment companies whose investment objectives and policies are consistent with those of the Fund. In accordance with the 1940 Act, the Fund may invest up to 10% of its total assets in securities of other investment companies. In addition, under the 1940 Act the Fund may not own more than 3% of the total outstanding voting stock of any investment company and not more than 5% of the value of the Fund's total assets may be invested in the securities of any investment company. If the Fund acquires shares in investment companies, stockholders would bear both their proportionate share of expenses in the Fund (including investment advisory and administrative fees) and, indirectly, the expenses of such investment companies (including investment advisory and administrative fees). Indexed Debt Securities. The Fund may invest in debt securities issued by banks and other business entities not located in emerging market countries that are indexed to certain specific foreign currency exchange rates. The terms of such securities provide that their principal amount is adjusted upwards or downwards (but not below zero) at maturity to reflect changes in the exchange rate between two currencies while the obligations are outstanding. While such securities offer the potential for an attractive rate of return, they also entail the risk of loss of principal. New forms of such securities continue to be developed. The Fund may invest in such securities to the extent consistent with its investment objectives. OTHER INVESTMENT PRACTICES STRATEGIC TRANSACTIONS The Fund may use options (both exchange-traded and OTC) and forward currency contracts to attempt to enhance income and realize gains and also may attempt to reduce the overall risk of its investments (hedge) by using options, futures contracts and forward currency contracts. Hedging strategies may also be used in an 18 attempt to manage the Fund's average duration, foreign currency exposure and other risks of the Fund's investments, which can affect fluctuations in the Fund's net asset value. The Fund's ability to use these strategies may be limited by market conditions, regulatory limits and tax considerations. There can be no assurance that the use of these strategies will succeed. The SAI contains further information on these strategies. The Fund may purchase and sell call and put options on bond indices and securities in which the Fund is authorized to invest for hedging purposes or to enhance income. The Fund also may purchase and sell interest rate futures contracts and options thereon, may purchase and sell covered straddles on securities, bond indices or currencies or options on futures contracts on securities or currencies. The Fund may enter into options, futures contracts and forward currency contracts under which up to 100% of the Fund's portfolio is at risk. The Fund may enter into forward currency contracts for the purchase or sale of a specified currency at a specified future date, either with respect to specific transactions or with respect to its portfolio positions. For example, when Mitchell Hutchins anticipates making a currency exchange transaction in connection with the purchase or sale of a security, the Fund may enter into a forward contract in order to set the exchange rate at which the transaction will be made. The Fund also may enter into a forward contract to sell an amount of a foreign currency approximating the value of some or all of the Fund's securities positions denominated in such currency. The Fund may use forward contracts in one currency or a basket of currencies to hedge against fluctuations in the value of another currency when Mitchell Hutchins anticipates there will be a correlation between the two and may use forward currency contracts to shift a Fund's exposure to foreign currency fluctuations from one country to another. The purpose of entering into these contracts is to minimize the risk to the Fund from adverse changes in the relationship between the U.S. and foreign currencies. The Fund may also purchase and sell foreign currency futures contracts, options thereon and options on foreign currencies to hedge against the risk of fluctuations in market value of foreign securities the Fund holds in its portfolio, or that it intends to purchase, resulting from changes in foreign exchange rates. In addition, the Fund may purchase and sell options on foreign currencies and use forward currency contracts to enhance income. The Fund may enter into interest rate protection transactions, including interest rate swaps, caps, collars and floors, to preserve a return or spread on a particular investment or portion of its portfolio, to protect against any increase in the price of securities the Fund anticipates purchasing at a later date or to effectively fix the rate of interest that it pays on one or more borrowings or series of borrowings. The Fund enters into interest rate protection transactions only with banks and recognized securities dealers believed by Mitchell Hutchins to present minimal credit risks in accordance with guidelines established by the Fund's Board of Directors. The Fund might not employ any of the strategies described above, and no assurance can be given that any strategy used will succeed. If Mitchell Hutchins incorrectly forecasts interest or currency exchange rates, market values or other economic factors in utilizing a strategy for the Fund, then the Fund would have been in a better position if it had not hedged at all. The use of these strategies involves certain special risks, including (i) the fact that skills needed to use hedging instruments are different from those needed to select the Fund's securities, (ii) possible imperfect correlation, or even no correlation, between price movements of hedging instruments and price movements of the investments being hedged, (iii) the fact that, while hedging strategies can reduce the risk of loss, they can also reduce the opportunity for gain, or even result in losses, by offsetting favorable priced movements in hedged investments, and (iv) the possible inability of the Fund to purchase or sell a portfolio security at a time that otherwise would be favorable for it to do so, or the possible need for the Fund to sell a portfolio security at a disadvantageous time, due to the need for the Fund to maintain 'cover' or to segregate securities in connection with hedging transactions and the possible inability of the Fund to close out or to liquidate its hedged position. 19 Only a limited market, if any, currently exists for hedging instruments relating to securities or currencies in most emerging market countries. Accordingly, under present circumstances, the Fund does not anticipate that it normally will be able to effectively hedge its currency exposure or investment in such markets. New financial products and risk management techniques continue to be developed. The Fund may use these instruments and techniques to the extent consistent with its investment objectives and regulatory and tax considerations. WHEN-ISSUED AND DELAYED DELIVERY SECURITIES The Fund may purchase securities on a 'when-issued' basis or may purchase or sell securities on a 'delayed delivery' basis, i.e., for issuance or delivery to the Fund later than the normal settlement date for such securities at a stated price and yield. The Fund generally would not pay for such securities or start earning interest on them until they are received. However, when the Fund undertakes a when-issued or delayed delivery obligation, it immediately assumes the risks of ownership, including the risk of price fluctuation. When the Fund agrees to purchase securities on a when-issued or delayed delivery basis, its custodian will set aside in a segregated account cash, U.S. government securities or other liquid, high grade debt securities, marked to market daily, in an amount at least equal to the amount of the commitment. Failure of the issuer to deliver a security purchased by the Fund on a when-issued or delayed delivery basis may result in the Fund's incurring a loss or missing an opportunity to make an alternative investment. Depending on market conditions, the Fund's when-issued and delayed delivery purchase commitments could cause its net asset value per share to be more volatile, because such securities may increase the amount by which the Fund's total assets, including the value of when-issued and delayed delivery securities held by the Fund, exceed its net assets. LEVERAGE The Fund is authorized to borrow money for investment purposes, to pay dividends or to fund repurchases of its Common Stock in an amount up to 33 1/3% of its total assets (including the amount of the borrowing and any other indebtedness representing 'senior securities' under the 1940 Act but reduced by any liabilities and indebtedness other than senior securities). The Fund also is authorized to borrow an additional 5% of its total assets without regard to the foregoing limitation for temporary or emergency purposes (such as clearance of portfolio transactions, the payment of dividends and share repurchases). Borrowing constitutes leverage, a speculative technique. The Fund will only use leverage when Mitchell Hutchins believes that such leverage will benefit the Fund after taking leverage risks into consideration. The net asset value of the Fund and the yield on its portfolio may be more volatile due to its use of leverage, which may, in turn, result in increased volatility of the market price of the shares of Common Stock. Leverage also creates interest expenses for the Fund, which will reduce the net income from its portfolio securities. To the extent the income derived from securities purchased with funds obtained through leverage exceeds the interest and other expenses that the Fund will have to pay in connection with such leverage, the Fund's net income will be greater than if leverage were not used. Conversely, if the income from the assets obtained through leverage is not sufficient to cover the cost of leverage, the net income of the Fund will be less than if leverage were not used, and therefore the amount available for distribution to stockholders will be reduced. The Fund expects that most of its leverage would be in the form of bank borrowings, reverse repurchase agreements and lending of portfolio securities. Reverse Repurchase Agreements. The Fund may leverage by entering into reverse repurchase agreements with the same parties with whom it may enter into repurchase agreements. Under a reverse repurchase agreement, 20 the Fund sells securities and agrees to repurchase them at a mutually agreed date and price. At the time the Fund enters into a reverse repurchase agreement, an approved custodian segregates cash or liquid high grade debt securities having a value not less than the repurchase price (including accrued interest). The market value of securities sold under reverse repurchase agreements typically is greater than the proceeds of the sale, and accordingly the market value of the securities sold is likely to be greater than the value of the securities in which the Fund invests those proceeds. Reverse repurchase agreements involve the risk that the buyer of the securities sold by the Fund might be unable to deliver them when the Fund seeks to repurchase. In the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, such buyer or its trustee or receiver may receive an extension of time to determine whether to enforce the Fund's obligation to repurchase the securities, and the Fund's use of the proceeds of the reverse repurchase agreement may effectively be restricted pending such decision. Lending of Portfolio Securities. The Fund is authorized to lend up to 33 1/3% the total value of its portfolio securities to broker-dealers or institutional investors that Mitchell Hutchins deems qualified, but only when the borrower maintains with the Fund's custodian bank collateral either in cash or money market instruments, marked to market daily, in an amount at least equal to the market value of the securities loaned, plus accrued interest and divdends. In determining whether to lend securities to a particular broker-dealer or institutional investor, Mitchell Hutchins will consider, and during the period of the loan will monitor, all relevant facts and circumstances, including the creditworthiness of the borrower. The Fund will retain authority to terminate any loans at any time. The Fund may pay reasonable administrative and custodial fees in connection with a loan and may pay a negotiated portion of the interest earned on the cash or money market instruments held as collateral to the borrower or placing broker. The Fund will receive reasonable interest on the loan or a flat fee from the borrower and amounts equivalent to any dividends, interest or other distributions on the securities loaned. The Fund will regain record ownership of loaned securities to exercise beneficial rights, such as voting and subscription rights and rights to dividends, interest or other distributions, when regaining such rights is considered to be in the Fund's interest. ILLIQUID SECURITIES The Fund may invest without limitation in illiquid securities. The term 'illiquid securities' for this purpose means securities that cannot be disposed of within seven days in the ordinary course of business at approximately the amount at which the Fund has valued the securities and includes, among other things, restricted securities (other than Rule 144A securities Mitchell Hutchins has determined are liquid pursuant to guidelines established by the Fund's Board of Directors) and repurchase agreements maturing in more than seven days. Illiquid restricted securities may be sold only in privately negotiated transactions or in public offerings with respect to which a registration statement is in effect under the Securities Act of 1933 ('1933 Act'). Such securities include those that are subject to restrictions contained in the securities laws of other countries. However, securities that are freely marketable in the country where they are principally traded, but would not be freely marketable in the United States, will not be considered illiquid. Where registration is required, the Fund may be obligated to pay all or part of the registration expenses and a considerable period may elapse between the time of the decision to sell and the time the Fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, the Fund might obtain a less favorable price than prevailed when it decided to sell. While certain restricted securities may be illiquid, not all restricted securities are illiquid. In recent years, a large institutional market has developed for certain securities that are not registered under the 1933 Act, including 21 private placements, repurchase agreements, commercial paper, foreign securities and corporate bonds and notes. These instruments are often restricted securities because the securities are sold in transactions not requiring registration. Institutional investors generally will not seek to sell these instruments to the general public, but instead will often depend either on an efficient institutional market in which such unregistered securities can be readily resold or on an issuer's ability to honor a demand for repayment. Therefore, the fact that there are contractual or legal restrictions on resale to the general public or certain institutions is not dispositive of the liquidity of such investments. REPURCHASE AGREEMENTS The Fund may use repurchase agreements. Repurchase agreements are transactions in which the Fund purchases securities from a bank or recognized securities dealer and simultaneously commits to resell the securities to the bank or dealer at an agreed-upon date and price reflecting a market rate of interest unrelated to the coupon rate or maturity of the purchased securities. Although repurchase agreements carry certain risks not associated with direct investments in securities, including possible decline in the market value of the underlying securities and delays and costs to the Fund if the other party to the repurchase agreement becomes bankrupt, the Fund intends to enter into repurchase agreements only with banks and dealers in transactions believed by Mitchell Hutchins to present minimum credit risks in accordance with guidelines established by the Fund's Board of Directors. DEFENSIVE AND TEMPORARY INVESTMENTS When Mitchell Hutchins believes unusual circumstances warrant a defensive posture, the Fund temporarily may commit all or any portion of its assets to cash (U.S. dollars or foreign currencies) or money market instruments of U.S. or foreign issuers, including repurchase agreements. In addition, the Fund may commit up to 35% of its assets to cash (U.S. dollars) or U.S. dollar-denominated money market instruments of U.S. issuers, including repurchase agreements, for liquidity purposes (such as clearance of portfolio transactions, the payment of dividends and expenses and share repurchases) or pendng investment. OTHER INFORMATION The Fund's investment objectives, its classification as a non-diversified investment company and certain investment limitations as described in the SAI are fundamental policies that may not be changed without stockholder approval. All other investment policies may be changed by the Fund's Board of Directors without stockholder approval. 22 SPECIAL CONSIDERATIONS AND RISK FACTORS INVESTMENTS IN EMERGING MARKET SECURITIES Investments in emerging market securities involve risks relating to political and economic developments abroad, as well as those that result from the differences between the regulations to which U.S. and emerging market issuers are subject. The economies of individual emerging market countries may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product, rate of inflation, currency depreciation, capital reinvestment, resource self-sufficiency and balance of payments position. Further, the economies of developing countries generally are heavily dependent upon international trade and, accordingly, have been and may continue to be adversely affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. These economies also have been and may continue to be adversely affected by economic conditions in the countries with which they trade. With respect to any emerging market country, there is the possibility of nationalization, expropriation or confiscatory taxation, political changes, governmental regulation, social instability or diplomatic developments (including war) which could affect adversely the economies of such countries or the value of the Fund's investments in those countries. Foreign investment in certain emerging market country debt securities is restricted or controlled to varying degrees. These restrictions or controls may at times limit or preclude foreign investment in certain emerging market country debt securities and increase the costs and expenses of the Fund. Certain emerging market countries require governmental approval prior to investments by foreign persons, limit the amount of investment by foreign persons in a particular issuer, limit the investment by foreign persons only to a specific class of securities of an issuer that may have less advantageous rights than the classes available for purchase by domiciliaries of the countries and/or impose additional taxes on foreign investors. Certain emerging market countries may also restrict investment opportunities in issuers in industries deemed important to national interests. Emerging market countries may require governmental approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, if a deterioration occurs in an emerging market country's balance of payments, the country could impose temporary restrictions on foreign capital remittances. The Fund could be adversely affected by delays in, or a refusal to grant, any required governmental approval for repatriation of capital, as well as by the application to the Fund of any restrictions on investments. Investing in local markets in emerging market countries may require the Fund to adopt special procedures, seek local government approvals or take other actions, each of which may involve additional costs to the Fund. No established secondary markets may exist for many of the emerging market country debt securities in which the Fund may invest. Reduced secondary market liquidity may have an adverse effect on market price and the Fund's ability to dispose of particular instruments when necessary to meet its liquidity requirements or in response to specific economic events such as a deterioration in the creditworthiness of the issuer. Reduced secondary market liquidity for certain emerging market country debt securities may also make it more difficult for the Fund to obtain accurate market quotations for purposes of valuing its portfolio and calculating its net asset value. Market quotations are generally available on many emerging country debt securities only from a limited number of dealers and may not necessarily represent firm bids of those dealers or prices for actual sales. 23 Disclosure and regulatory standards in many respects are less stringent in emerging market countries than in the U.S. and other major markets. There also may be a lower level of monitoring and regulation of emerging markets and the activities of investors in such markets, and enforcement of existing regulations has been extremely limited. Many of the emerging market securities held by the Fund are not registered with the SEC, nor are the issuers thereof subject to SEC reporting requirements. Accordingly, there may be less publicly available information concerning foreign issuers of securities held by the Fund than is available concerning U.S. companies. Foreign companies, and in particular, companies in smaller and emerging capital markets are not generally subject to uniform accounting, auditing and financial reporting standards or to other regulatory requirements comparable to those applicable to U.S. companies. The Fund's net investment income and/or capital gains from its foreign investment activities may be subject to non-U.S. withholding taxes. Additionally, because the Fund may invest up to 35% of its total assets in non-U.S. dollar-denominated securities, changes in foreign currency exchange rates will affect the Fund's net asset value, the value of dividends and interest earned, gains and losses realized on the sale of securities and net investment income to be distributed to shareholders by the Fund. If the value of a foreign currency rises against the U.S. dollar, the value of Fund assets denominated in such currency will increase; correspondingly, if the value of a foreign currency declines against the U.S. dollar, the value of Fund assets denominated in such currency will decrease. The exchange rates between the U.S. dollar and other currencies can be volatile and are determined by factors such as supply and demand in the currency exchange markets, international balances of payments, government intervention, speculation and other economic and political conditions. In addition, some foreign currency values may be volatile and there is the possibility of governmental controls on currency exchange or governmental intervention in currency markets. Any of these factors could affect the Fund. The costs attributable to foreign investing that the Fund must bear frequently are higher than those attributable to domestic investing; this is particularly true with respect to emerging capital markets. For example, the cost of maintaining custody of foreign securities exceeds custodian costs for domestic securities, and transaction and settlement costs of foreign investing also frequently are higher than those attributable to domestic investing. Costs associated with the exchange of currencies also make foreign investing more expensive than domestic investing. Investment income on certain foreign securities in which the Fund may invest may be subject to foreign withholding or other government taxes that could reduce the return of these securities. Tax treaties between the United States and foreign countries, however, may reduce or eliminate the amount of foreign taxes to which the Fund would be subject. Foreign markets also have different clearance and settlement procedures, and in certain markets there have been times when settlements have failed to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays in settlement could result in temporary periods when assets of the Fund are uninvested and no return is earned thereon. The inability of the Fund to make intended security purchases due to settlement problems could cause the Fund to miss attractive investment opportunities. Inability to dispose of a portfolio security due to settlement problems could result either in losses to the Fund due to subsequent declines in the value of such portfolio security or, if the Fund has entered into a contract to sell the security, could result in possible liability to the purchaser. 24 SOVEREIGN DEBT Investments in Sovereign Debt involve special risks. Certain emerging market countries have historically experienced, and may continue to experience, high rates of inflation, high interest rates, exchange rate fluctuations, large amounts of external debt, balance of payments and trade difficulties and extreme poverty and unemployment. The issuer of the debt or the governmental authorities that control the repayment of the debt may be unable or unwilling to repay principal or interest when due in accordance with the terms of such debt, and the Fund may have limited legal recourse in the event of default. Sovereign Debt differs from debt obligations issued by private entities in that, generally, remedies for defaults must be pursued in the courts of the defaulting party. Legal recourse is therefore limited. Political conditions, especially a sovereign entity's willingness to meet the terms of its debt obligations, are of considerable significance. Also, there can be no assurance that the holders of commercial bank loans to the same sovereign entity may not contest payments to the holders of Sovereign Debt in the event of default under commercial bank loan agreements. A sovereign debtor's willingness or ability to repay principal and pay interest in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its foreign reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, the sovereign debtor's policy toward principal international lenders and the political constraints to which a sovereign debtor may be subject. A country whose exports are concentrated in a few commodities could be vulnerable to a decline in the international price of such commodities. Increased protectionism on the part of a country's trading partners, or political changes in those countries, could also adversely affect its exports. Such events could diminish a country's trade account surplus, if any, or the credit standing of a particular local government or agency. Another factor bearing on the ability of a country to repay Sovereign Debt is the level of the country's international reserves. Fluctuations in the level of these reserves can affect the amount of foreign exchange readily available for external debt payments and, thus, could have a bearing on the capacity of the country to make payments on its Sovereign Debt. To the extent that a country has a current account deficit (generally when exports of merchandise and services are less than the country's imports of merchandise and services plus net transfers (e.g., gifts of currency and goods) to foreigners), it will need to depend on loans from foreign governments, multilateral organizations or private commercial banks, aid payments from foreign governments and inflows of foreign investment. The access of a country to these forms of external funding may not be certain, and a withdrawal of external funding could adversely affect the capacity of a government to make payments on its obligations. In addition, the cost of servicing debt obligations can be affected by a change in international interest rates since the majority of these obligations carry interest rates that are adjusted periodically based upon international rates. The occurrence of political, social or diplomatic changes in one or more of the countries issuing Sovereign Debt could adversely affect the Fund's investments. Political changes or a deterioration of a country's domestic economy or balance of trade may affect the willingness of countries to service their Sovereign Debt. Expropriation, confiscatory taxation, nationalization, political, economic or social instability or other similar developments, such as military coups, have occurred in the past in countries in which the Fund may invest and could adversely affect the Fund's assets should these conditions or events recur. While Mitchell Hutchins intends to manage the Fund's portfolio in a manner that will minimize the exposure to such risks, there can be no assurance that adverse political changes will not cause the Fund to suffer a loss of interest or principal on any of its holdings. 25 With respect to Sovereign Debt of emerging market issuers, investors should be aware that certain emerging market countries are among the largest debtors to commercial banks and foreign governments. At times certain emerging market countries have declared moratoria on the payment of principal and interest on external debt; such moratoria are currently in effect in certain Latin American countries. Since 1982, certain emerging market countries have experienced difficulty in servicing their Sovereign Debt on a timely basis which led to defaults on certain obligations and the restructuring of certain indebtedness. Restructuring arrangements have included, among other things, reducing and rescheduling interest and principal payments by negotiating new or amended credit agreements or converting outstanding principal and unpaid interest to Brady Bonds, and obtaining new credit to finance interest payments. Holders of Sovereign Debt, including the Fund, may be requested to participate in the rescheduling of such debt and to extend further loans to sovereign debtors. The interests of holders of Sovereign Debt could be adversely affected in the course of restructuring arrangements or by certain other factors referred to below. Furthermore, some of the participants in the secondary market for Sovereign Debt may also be directly involved in negotiating the terms of these arrangements and may therefore have access to information not available to other market participants. Obligations arising from past restructuring agreements may affect the economic performance and political and social stability of certain issuers of Sovereign Debt. There is no bankruptcy proceeding by which Sovereign Debt on which a sovereign has defaulted may be collected in whole or in part. Foreign investment in certain Sovereign Debt is restricted or controlled to varying degrees. These restrictions or controls may at times limit or preclude foreign investment in such Sovereign Debt and increase the costs and expenses of the Fund. Certain countries in which the Fund will invest require governmental approval prior to investments by foreign persons, limit the amount of investment by foreign persons in a particular issuer, limit the investment by foreign persons only to a specific class of securities of an issuer that may have less advantageous rights than the classes available for purchase by domiciliaries of the countries and/or impose additional taxes on foreign investors. Certain emerging market issuers may require governmental approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, if a deterioration occurs in a country's balance of payments, the country could impose temporary restrictions on foreign capital remittances. The Fund could be adversely affected by delays in, or a refusal to grant, any required governmental approval for repatriation of capital, as well as by the application to the Fund of any restrictions on investments. Investing in local markets may require the Fund to adopt special procedures, seek local government approvals or take other actions, each of which may involve additional costs to the Fund. INVESTMENTS IN DEBT SECURITIES The value of the debt securities held by the Fund, and thus the net asset value per share of the Common Stock, generally will fluctuate with (i) changes in the perceived creditworthiness of the issuers of those securities, (ii) movements in interest rates, and (iii) changes in the relative values of the currencies in which the Fund's investments are denominated with respect to the U.S. dollar. The extent of the fluctuation of the Fund's net asset value will depend on various other factors, such as the average maturity of the Fund's investments, the extent to which the Fund engages in borrowing and other leveraging transactions, the extent to which the Fund holds instruments denominated in foreign currencies and the extent to which the Fund hedges its interest rate, credit and currency exchange rate risks. Many of the debt obligations in which the Fund will invest, including Brady Bonds, have long maturities. A longer average maturity generally is associated with a higher level of volatility in the market value of such securities. In addition, securities issued at a deep discount, such as certain types of Brady Bonds and zero coupon obligations in which the Fund may invest, are subject to greater fluctuations of market value in response to changes in interest rates than debt obligations of comparable maturities that do not trade at such a discount. See 'Investment Objectives and Policies--Other Investments--Zero Coupon Securities.' 26 INVESTMENTS IN LOWER GRADE SECURITIES A substantial portion of the Fund's assets may be invested in debt securities, including Sovereign Debt such as Brady Bonds, that are rated below investment grade as determined by internationally recognized securities rating organizations, such as Moody's or S&P, or are unrated but deemed by Mitchell Hutchins to be of comparable quality. Debt securities rated BBB by S&P or Baa by Moody's, and comparable unrated securities, are considered to be investment grade, although such securities have speculative characteristics. Changes in economic conditions or other circumstances are more likely to lead to a weakened capacity of the issuers of such securities to make principal and interest payments than is the case for higher grade debt securities. Debt securities rated below BBB by S&P or below Baa by Moody's are deemed by S&P and Moody's to be predominantly speculative with respect to the issuer's capacity to pay interest and repay principal and may involve major risk exposure to adverse conditions. The lower grade securities in which the Fund may invest may include securities having the lowest ratings assigned by S&P or Moody's and, together with comparable unrated securities, may include securities in default or that face the risk of default with respect to the payment of principal or interest. These securities are considered to have extremely poor prospects of ever attaining any real investment standing. See Appendix A for a more complete description of S&P and Moody's ratings. The market for lower grade securities, including Sovereign Debt, generally is thinner and less active than for higher grade securities. Because there is no liquid secondary market for many of these securities, the Fund anticipates that such securities could be sold only to a limited number of dealers or institutional investors. The Fund could find it more difficult to sell such thinly traded securities when Mitchell Hutchins believes it advisable to do so or may be able to sell such securities only at prices lower than if such securities were more widely traded. The lack of a liquid secondary market for certain lower grade securities also may make it more difficult for the Fund to obtain accurate market quotations for purposes of valuing the Fund's portfolio and calculating its net asset value. Lower grade debt securities generally offer a higher yield than that available from higher grade issues. However, lower grade securities involve higher risks, in that they are especially subject to adverse changes in general economic conditions, and in the industries in which the issuers are engaged, to changes in the financial condition of the issuers and to price fluctuation in response to changes in interest rates. Issuers of lower grade securities are often highly leveraged and may not have available to them more traditional methods of financing. During periods of economic downturn or rising interest rates, highly leveraged issuers may experience financial stress which could adversely affect their ability to make payments of principal and interest and increase the possibility of default. The issuer's ability to service its debt obligations may also be adversely affected by specific developments affecting the issuer, such as the issuer's inability to meet specific projected business or revenue forecasts or the unavailability of additional financing. Similarly, certain emerging market governments that issue lower grade debt securities are among the largest debtors to commercial banks, foreign governments and supranational organizations such as the World Bank and may not be able or willing to make principal and/or interest repayments as they come due. Lower grade debt securities frequently have call or buy-back features which permit an issuer to call or repurchase the security from the Fund. If an issuer exercises these provisions in a declining interest rate market, the Fund may have to replace the security with a lower yielding security, resulting in a decreased return for investors. The risk of loss due to default by the issuer is also significantly greater for the holders of lower grade securities because such securities are generally unsecured and are often subordinated to other creditors of the issuer. To the extent the Fund is required to seek recovery upon a default in the payment of principal or interest on its portfolio holdings, the Fund may incur additional expenses and may have limited legal recourse in the event of a default. Debt securities issued by governments in emerging markets can differ from debt obligations 27 issued by private entities in that remedies from defaults generally must be pursued in the courts of the defaulting government, and legal recourse is therefore diminished. Although Mitchell Hutchins attempts to minimize the speculative risks associated with investments in lower grade securities through diversification, credit analysis and attention to current trends in interest rates and other factors, investors should carefully review the investment objectives and policies of the Fund and consider their ability to assume the investment risks involved before making an investment. ILLIQUID SECURITIES The Fund may invest without limitation in illiquid securities. To the extent the Fund invests in illiquid securities, it may not be able readily to dispose of such securities at prices that approximate those at which it could sell such securities if they were more widely traded; and, as a result of such illiquidity, the Fund may have to sell other investments or engage in borrowing transactions if necessary to raise cash to meet its obligations. The risks associated with these investments will be accentuated in situations in which the Fund's operations require cash, such as if the Fund tenders for its shares of Common Stock or when it pays dividends or other distributions, and could result in the Fund's borrowing to meet short-term cash requirements or incurring capital losses on the sale of these investments. The lack of a liquid secondary market may make it more difficult for the Fund to assign a value to those securities for purposes of valuing its portfolio and calculating its net asset value. ANTI-TAKEOVER PROVISIONS The Fund's Articles of Incorporation contain provisions limiting (i) the ability of other entities or persons to acquire control of the Fund, (ii) the Fund's freedom to engage in certain transactions, and (iii) the ability of the Fund's directors or stockholders to amend the Articles of Incorporation. These provisions of the Articles of Incorporation may be regarded as 'anti-takeover' provisions. These provisions could have the effect of depriving the stockholders of opportunities to sell their shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control of the Fund in a tender offer or similar transaction. The overall effect of these provisions is to render more difficult the accomplishment of a merger or the assumption of control by a stockholder who owns beneficially more than 5% of the Common Stock. They provide, however, the advantage of potentially requiring persons seeking control of the Fund to negotiate with its management regarding the price to be paid and facilitating the continuity of the Fund's management, investment objectives and policies. See 'Description of Capital Stock--Certain Anti-Takeover Provisions of the Articles of Incorporation.' MARKET PRICE OF SHARES Shares of closed-end investment companies, including the Fund, frequently trade at a discount to their net asset values. See 'Trading History.' Whether investors will realize gains or losses upon the sale of Common Stock will not depend directly upon changes in the Fund's net asset value, but will depend upon whether the market price of the Common Stock at the time of sale is above or below the original purchase price for the shares. The market price of the Common Stock is determined by such factors as relative demand for and supply of such shares in the market, general market and economic conditions, changes in the Fund's net asset value and other factors beyond the control of the Fund. Accordingly, the Common Stock is designed primarily for long-term investors, and investors in the Common Stock should not view the Fund as a vehicle for short-term trading purposes. 28 NON-DIVERSIFICATION The Fund is 'non-diversified,' as defined in the 1940 Act, but intends to continue to qualify as a 'regulated investment company' for federal income tax purposes. See 'Taxation' in the SAI. This means, in general, that more than 5% of the Fund's total assets may be invested in securities of an issuer but only if, at the close of each quarter of the Fund's taxable year, the aggregate amount of such holdings does not exceed 50% of the value of its total assets and no more than 25% of the value of its total assets is invested in the securities of a single issuer. To the extent the Fund's portfolio at times may include the securities of a smaller number of issuers than if it were 'diversified' (as defined in the 1940 Act), the Fund will at such times be subject to greater risk with respect to its portfolio securities than an investment company that invests in a broader range of securities, because changes in the financial condition or market assessment of a single issuer may cause greater fluctuations in the net asset value of the Fund's shares. MANAGEMENT OF THE FUND The overall management of the business and affairs of the Fund is vested with its Board of Directors. The Board of Directors approves all significant agreements between the Fund and persons or companies furnishing services to it, including the Fund's agreements with its investment adviser and administrator, custodian and transfer and dividend disbursing agent and registrar. The day-to-day operations of the Fund are delegated to its officers and to Mitchell Hutchins, subject to the Fund's investment objectives and policies and to general supervision by the Board of Directors. Subject to the supervision of the Fund's Board of Directors, investment advisory and administration services will be provided to the Fund by Mitchell Hutchins pursuant to an Investment Advisory and Administration Contract dated September 30, 1993 ('Advisory Contract'). Mitchell Hutchins' principal business address is 1285 Avenue of the Americas, New York, New York 10019. Mitchell Hutchins is a wholly owned subsidiary of PaineWebber, which is a wholly owned subsidiary of Paine Webber Group Inc., a publicly held financial services holding company. Mitchell Hutchins provides investment advisory and portfolio management services to investment companies, pension funds and other institutional, corporate and individual clients. As of , 1996, total assets under Mitchell Hutchins' management were approximately $ billion. As of that date, Mitchell Hutchins served as investment adviser or sub-adviser to registered investment companies with separate portfolios having aggregate assets of approximately $ billion. Of that amount, approximately $ billion represented assets of globally oriented registered investment companies. Pursuant to the Advisory Contract, Mitchell Hutchins provides a continuous investment program for the Fund and makes investment decisions and places orders to buy, sell or hold particular securities; Mitchell Hutchins also supervises all matters relating to the operation of the Fund and obtains for it corporate officers, clerical staff, office space, equipment and services. As compensation for its services, Mitchell Hutchins receives a fee, computed weekly and paid monthly, in an amount equal to the annual rate of 1.25% of the Fund's average weekly net assets. This fee is greater than the advisory and administration fees paid by most funds. The Fund incurs various other expenses in its operations, such as custody and transfer agency fees, brokerage commissions, professional fees, expenses of board and shareholder meetings, fees and expenses relating to registration of its Common Stock, taxes and governmental fees, fees and expenses of the directors, costs of obtaining insurance, expenses of printing and distributing shareholder materials, organizational expenses, including costs or losses to any litigation. For the fiscal years ended October 31, 1994 and 1995, the Fund's total expenses, stated as a percentage of average net assets, were 1.50% and 1.46%, respectively. 29 Stuart Waugh, a managing director of Mitchell Hutchins responsible for global fixed income and currency trading, is responsible for the day-to-day management of the Fund's portfolio. He is a portfolio manager of Strategic Global Income Fund, Inc., PaineWebber Global Income Fund, PaineWebber Strategic Income Fund, Small Cap Value Fund and PaineWebber Series Trust, which have aggregate assets of over $ billion. Mr. Waugh has been employed by Mitchell Hutchins as a portfolio manager for the last five years. Other members of Mitchell Hutchins' global investing group provide input on market outlook, geographic analysis and currencies and interest rate forecasts. Mitchell Hutchins investment personnel may engage in securities transactions for their own accounts pursuant to a code of ethics that establishes procedures for personal investing and restricts certain transactions. DIVIDENDS AND OTHER DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN DIVIDENDS AND OTHER DISTRIBUTIONS Dividends from the Fund's net investment income are declared and paid monthly. In addition, the Fund may (but is not required to) distribute with its monthly dividends all or a portion of any net realized gains from foreign currency transactions and net short-term capital gain, if any. The Fund distributes annually to its stockholders substantially all of its net realized capital gain (the excess of net long-term capital gain over net short-term capital loss) and any undistributed net foreign currency gains and net short-term capital gain. The Fund may make additional distributions if necessary to avoid a 4% excise tax on certain undistributed income and capital gain. The Fund anticipates that a monthly dividend may, from time to time, represent more or less than the amount of net investment income earned by the Fund in the period to which the dividend relates. In the latter case, any undistributed net investment income, net short-term capital gain and/or net realized gains from foreign currency transactions ('undistributed income') would be available to be included in future monthly dividends, which might otherwise have been reduced by reason of a decrease in the Fund's monthly net income. Undistributed income will be reflected in the Fund's net asset value, and correspondingly, distributions from undistributed income will reduce the Fund's net asset value. The dividend rate on the Common Stock will be adjusted from time to time and will vary as a result of the performance of the Fund. If the Fund's dividends and other distributions exceed its current and accumulated earnings and profits in any taxable year, which may result from currency-related losses, those distributions (to the extent of that excess) may be treated as a return of capital to shareholders for tax purposes. DIVIDEND REINVESTMENT PLAN The Fund has established the Plan under which all stockholders, whose shares of Common Stock are registered in their own names or in the name of PaineWebber (or its nominee), have all dividends and other distributions on their shares of Common Stock automatically reinvested in additional shares of Common Stock, unless they elect to receive cash. The Fund will not issue any new shares of Common Stock in connection with the Plan. Stockholders may affirmatively elect to receive all dividends and other distributions in cash paid by check mailed directly to them by PNC Bank, National Association ('Transfer Agent'), as dividend disbursing agent. Stockholders who intend to hold their shares through a broker or nominee other than PaineWebber (or its nominee) should contact such other broker or nominee to determine whether, or how, they may participate in the 30 Plan. The ability of such stockholders to participate in the Plan may change if their shares of Common Stock are transferred into the name of another broker or nominee. The Transfer Agent serves as agent for the stockholders in administering the Plan. After the Fund declares a dividend or determines to make another distribution, the Transfer Agent, as agent for the participants, receives the cash payment and uses it to buy shares of Common Stock in the open market, on the NYSE or otherwise, for the participants' accounts. Such shares may be purchased at prices that are higher or lower than the net asset value per share of the Common Stock at the time of purchase. The number of shares purchased with each distribution for a particular stockholder equals the result obtained by dividing the amount of the distribution payable to that stockholder by the average price per share (including applicable brokerage commissions) that the Transfer Agent was able to obtain in the open market. The Transfer Agent maintains all stockholder accounts in the Plan and furnishes written confirmations of all transactions in the accounts, including information needed by stockholders for personal and tax records. Shares in the account of each Plan participant are held by the Transfer Agent in non-certificated form in the name of the participant, and each stockholder's proxy includes those shares of Common Stock purchased pursuant to the Plan. There is no charge to participants for reinvesting dividends or other distributions. The Transfer Agent's fees for the handling of reinvestment of distributions are 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 shares of the Common Stock in connection with the reinvestment of distributions. The automatic reinvestment of dividends and other distributions in shares of Common Stock does not relieve participants of any income tax that may be payable on such distributions. See 'Taxation.' All registered holders of Common Stock (other than brokers and nominees) are mailed information regarding the Plan, including a form with which they may elect to terminate participation in the Plan and receive further dividends and other distributions in cash. A holder who has elected to participate in the Plan may terminate participation in the Plan at any time without penalty, and stockholders who have previously terminated participation in the Plan may rejoin it at any time. Changes in elections must be made in writing to the Transfer Agent and should include the stockholder's name and address as they appear on the share certificate. An election to terminate participation in the Plan, until such election is changed, will be deemed to be an election by a stockholder to take all subsequent distributions in cash. An election will be effective only for distributions declared and having a record date at least ten days after the date on which the election is received. Experience under the Plan may indicate that changes are desirable. Accordingly, the Fund reserves the right to amend or terminate the Plan with respect to any dividend or other distribution if notice of the change is sent to Plan participants at least 30 days before the record date for such distribution. The Plan also may be amended or terminated by the Transfer Agent by at least 30 days' written notice to all Plan participants. All correspondence concerning the Plan should be directed to the Transfer Agent at PNC Bank, National Association, c/o PFPC Inc., P.O. Box 8950, Wilmington, Delaware 19899. 31 TAXATION The Fund intends to continue to qualify for treatment as a regulated investment company ('RIC') under the Internal Revenue Code. For each taxable year that the Fund so qualifies, the Fund (but not its stockholders) will be relieved of federal income tax on that part of its investment company taxable income (consisting generally of net investment income, net short-term capital gain and net gains from certain foreign currency transactions) and net capital gain that is distributed to its stockholders. Dividends from the Fund's investment company taxable income (whether paid in cash or reinvested in additional Fund shares) are taxable to its stockholders as ordinary income to the extent of the Fund's earnings and profits. Distributions of the Fund's net capital gain (whether paid in cash or reinvested in additional Fund shares), when designated as such, are taxable to its stockholders as long-term capital gain, regardless of how long they have held their Fund shares. A participant in the Plan will be treated as having received a distribution in the amount of the cash used to purchase shares of Common Stock on his behalf, including a pro rata portion of the brokerage fees incurred by the Transfer Agent. Distributions by the Fund will not be eligible for the dividends-received deduction allowed to corporations. Distributions by the Fund in any year that exceed its current and accumulated earnings and profits generally may be applied by a stockholder against his basis for the shares and will be taxable to him only to the extent the distributions to him exceed his basis for the Common Stock. An investor should be aware that, if shares of Common Stock are purchased shortly before the record date for any dividend or capital gain distribution, the investor will pay full price for the shares and receive some portion of the price back as a taxable distribution. The Fund notifies its stockholders following the end of each calendar year of the amounts of dividends and capital gain distributions paid (or deemed paid) that year. Under certain circumstances, the notice also may specify a stockholder's share of any foreign taxes paid by the Fund. Upon a sale or exchange of shares of Common Stock (including a sale pursuant to a share repurchase or tender offer by the Fund), a stockholder will realize a taxable gain or loss equal to the difference between his adjusted basis for the shares and the amount realized. Any such gain or loss will be treated as a capital gain or loss if the shares are capital assets in the stockholder's hands and will be a long-term capital gain or loss if the shares have been held for more than one year; provided that any loss realized on a sale or exchange of shares of Common Stock that were held for six months or less also will be treated as long-term, rather than as short-term, capital loss to the extent of any capital gain distributions received thereon. A loss realized on a sale or exchange of shares of Common Stock will be disallowed to the extent those shares are replaced by other shares of Common Stock within a period of 61 days beginning 30 days before and ending 30 days after the date of disposition of the shares (which could occur, for example, as the result of participation in the Plan). In that event, the basis of the replacement shares will be adjusted to reflect the disallowed loss. The Fund may acquire zero coupon securities. As the holder of such securities, the Fund would have to include in its gross income the original issue discount that accrues on the securities during the taxable year, even if it receives no corresponding payment thereon during the year. Because the Fund annually must distribute substantially all of its investment company taxable income, including any accrued original issue discount, to satisfy the distribution requirement imposed on RICs and to avoid imposition of a 4% excise tax on certain undistributed income and gains, the Fund may be required in a particular year to distribute as a dividend an amount that is greater than the total amount of cash it actually receives. Those distributions will be made from the Fund's cash assets or from the proceeds of sales of portfolio securities, if necessary. The Fund may realize capital gains or losses from those sales, which would increase or decrease its investment company taxable income and/or net capital gain. In addition, any such gains may be realized on the disposition of securities held for less than 32 three months. Because of the requirement imposed on a RIC that it derive less than 30% of its gross income each taxable year from the sale or other disposition of securities or certain options, futures and forward currency contracts held for less than three months, any such gains would reduce the Fund's ability to sell any such assets that it might wish to sell in the ordinary course of its portfolio management. The Fund is required to withhold 31% of all dividends, capital gain distributions and repurchase proceeds payable to any individuals and certain other non-corporate stockholders who do not provide the Fund with a correct taxpayer identification number. The Fund also is required to withhold 31% of all dividends and capital gain distributions payable to such stockholders who otherwise are subject to backup withholding. The foregoing is only a summary of the important federal tax considerations generally affecting the Fund and its stockholders; see the SAI for a further discussion. There may be other federal, state or local tax considerations applicable to a particular investor. Prospective stockholders are therefore urged to consult their tax advisers. DESCRIPTION OF CAPITAL STOCK The Fund is authorized to issue 100 million shares of capital stock, $.001 par value, all of which is classified as Common Stock. Although it has no current intention of doing so, the Board of Directors of the Fund is authorized to classify and reclassify any unissued shares of capital stock from time to time by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or terms and conditions of redemption of such shares by the Fund. The description of the capital stock and the description under 'Description of Capital Stock--Certain Anti-Takeover Provisions of the Articles of Incorporation' are subject to the provisions contained in the Fund's Articles of Incorporation and Bylaws. COMMON STOCK Shares of the Common Stock have no preemptive, conversion, exchange or redemption rights. Each share has equal voting, dividend, distribution and liquidation rights. The outstanding shares of Common Stock are fully paid and nonassessable. Stockholders are entitled to one vote per share. All voting rights for the election of directors are noncumulative, which means that the holders of more than 50% of the shares can elect 100% of the directors then nominated for election if they choose to do so and, in such event, the holders of the remaining shares will not be able to elect any directors. Under the rules of the NYSE applicable to listed companies, the Fund is required to hold an annual meeting of stockholders in each year. If the rules of the NYSE no longer require annual meetings of stockholders or if the Fund is converted to an open-end investment company or if for any other reason the Fund's shares are no longer listed on the NYSE (or any other national securities exchange the rules of which require annual meetings of stockholders), the Fund may decide not to hold annual meetings of stockholders. See 'Description of Capital Stock--Stock Repurchases and Tender Offers.' Any additional offerings of the Common Stock, if made, will require approval of the Fund's Board of Directors and will be subject to the requirement of the 1940 Act that shares may not be sold at a price below the then-current net asset value, exclusive of underwriting discounts and commissions, except, among other things, in connection with an offering to existing stockholders or with the consent of a majority of the holders of the Fund's outstanding voting securities. 33 The following chart indicates the shares of the Common Stock outstanding as of October 31, 1995.
AMOUNT OUTSTANDING AMOUNT HELD BY EXCLUSIVE OF AMOUNT HELD REGISTRANT OR FOR ITS BY REGISTRANT OR FOR ITS TITLE OF CLASS AMOUNT AUTHORIZED ACCOUNT ACCOUNT - --------------- ----------------- --------------------- ------------------------ Common Stock... 100,000,000 0 22,736,667
COMMON STOCK REPURCHASES AND TENDER OFFERS In recognition of the possibility that the Common Stock might trade at a discount from net asset value and that any such discount may not be in the best interest of stockholders, the Fund's Board of Directors has determined that it will from time to time consider taking action to attempt to reduce or eliminate any discount. To that end, the Board may, in consultation with Mitchell Hutchins, from time to time consider action either to repurchase shares of the Common Stock in the open market or to make a tender offer for shares of the Common Stock at their net asset value. The Board currently intends at least annually to consider making such open market repurchases or tender offers and at such time may consider such factors as the market price of the Common Stock, the net asset value of the Common Stock, the liquidity of the assets of the Fund, whether such transactions would impair the Fund's status as a RIC, general economic conditions and such other events or conditions that may have a material effect on the Fund's ability to consummate such transactions. The Board may at any time, however, decide that the Fund should not repurchase shares or make a tender offer. The Fund may borrow to finance repurchases and tender offers. Interest on any such borrowings will reduce the Fund's net income. See 'Additional Information--Share Repurchases and Tender Offers' in the SAI. There is no assurance that repurchases or tender offers will result in the Common Stock trading at a price that is equal or close to its net asset value per share. Nevertheless, the fact that the Common Stock may be the subject of tender offers at net asset value from time to time may reduce the spread that might otherwise exist between the market price of the Common Stock and net asset value per share. In the opinion of Mitchell Hutchins, sellers may be less inclined to accept a significant discount if they have a reasonable expectation of being able to recover net asset value in conjunction with a possible tender offer. Although the Board of Directors believes that share repurchases and tender offers generally would have a favorable effect on the market price of the Common Stock, it should be recognized that the Fund's acquisition of shares of the Common Stock would decrease the Fund's total assets and therefore have the effect of increasing the Fund's expense ratio. Because of the nature of the Fund's investment objectives, policies and portfolio, under current market conditions Mitchell Hutchins anticipates that repurchases and tender offers generally should not have a material, adverse effect on the Fund's investment performance and that Mitchell Hutchins generally should not have any material difficulty in disposing of portfolio securities in order to consummate share repurchases and tender offers; however, this may not always be the case. Any tender offer made by the Fund for shares of the Common Stock generally would be at a price equal to the net asset value of the shares on a date subsequent to the Fund's receipt of all tenders. Each offer would be made, and the stockholders would be notified, in accordance with the requirements of the Securities Exchange Act of 1934 and the 1940 Act, either by publication or mailing or both. Each offering document would contain such information as is prescribed by such laws and the rules and regulations promulgated thereunder. Each person tendering shares would pay to the Fund's Transfer Agent a service charge to help defray certain costs, including the processing of tender forms, effecting payment, postage and handling. Any such service charge would be paid directly by the tendering stockholder and would not be deducted from the proceeds of the purchase. The Fund's Transfer Agent would receive the fee as an offset to these costs. The Fund expects that the 34 costs of effecting a tender offer would exceed the aggregate of all service charges received from those who tender their shares. Costs associated with the tender would be charged against capital. Tendered shares of Common Stock that have been accepted and purchased by the Fund will be held in the Fund's treasury until retired by the Board. If treasury shares are retired, Common Stock issued and outstanding and capital in excess of par will be reduced. If tendered shares are not retired, the Fund may hold, sell or otherwise dispose of the shares for any lawful corporate purpose as determined by the Board of Directors. CONVERSION TO OPEN-END INVESTMENT COMPANY The Fund's Board of Directors will consider from time to time whether it would be in the best interest of the Fund and its stockholders to convert the Fund to an open-end investment company. If the Board of Directors determines that such a conversion would be in the best interest of the Fund and its stockholders and is consistent with the 1940 Act, the Board will submit to the stockholders, at the next succeeding annual or special meeting, a proposal to amend the Fund's Articles of Incorporation to so convert the Fund. Such amendment would provide that, upon its adoption by the holders of at least a majority of the Fund's outstanding shares entitled to vote thereon, the Fund will convert from a closed-end to an open-end investment company. If the Fund converted to an open-end investment company, it would be able to continuously issue and offer for sale shares of the Common Stock, and each such share could be presented to the Fund at the option of the holder thereof for redemption at a price based on the then-current net asset value per share. In such an event, the Fund could be required to liquidate portfolio securities to meet requests for redemption, the Common Stock would no longer be listed on the NYSE and certain investment policies of the Fund would require amendment. In considering whether to propose that the Fund convert to an open-end investment company, the Board of Directors will consider whether various factors, including, without limitation, the potential benefits and detriments to the Fund and its stockholders of conversion, the potential alternatives and the benefits and detriments associated therewith, and the feasibility of conversion given, among other things, the Fund's investment objectives and policies. In the event of a conversion to an open-end investment company, the Fund may charge fees in connection with the sale or redemption of its shares. As an open-end investment company, the Fund may reserve the right to honor any request for redemption by making payment in whole or in part in securities chosen by the Fund and valued in the same way as they would be valued for purposes of computing the Fund's net asset value. If payment is made in securities, a stockholder may incur brokerage expenses in converting these securities into cash. CERTAIN ANTI-TAKEOVER PROVISIONS OF THE ARTICLES OF INCORPORATION The Fund presently has provisions in its Articles of Incorporation that have the effect of limiting (i) the ability of other entities or persons to acquire control of the Fund, (ii) the Fund's freedom to engage in certain transactions, and (iii) the ability of the Fund's directors or stockholders to amend the Articles of Incorporation. These provisions of the Articles of Incorporation may be regarded as 'anti-takeover' provisions. Under Maryland law and the Fund's Articles of Incorporation, the affirmative vote of the holders of at least a majority of the votes entitled to be cast is required for the consolidation of the Fund with another corporation, a merger of the Fund with or into another corporation (except for certain mergers in which the Fund is the successor), a statutory share exchange in which the Fund is not the successor, a sale or transfer of all or substantially all of the Fund's assets, the dissolution of the Fund and any amendment to the Fund's Articles of Incorporation. In addition, the affirmative vote of the holders of at least 66 2/3% (which is higher than that required under Maryland law or the 1940 Act) of the outstanding shares of the Fund's capital stock is required generally to authorize any 35 of the following transactions or to amend the provisions of the Articles of Incorporation relating to such transactions: (i) merger, consolidation or statutory share exchange of the Fund with or into any other corporation; (ii) issuance of any securities of the Fund to any person or entity for cash; (iii) sale, lease or exchange of all or any substantial part of the assets of the Fund to any entity or person (except assets having an aggregate market value of less than $1,000,000); or (iv) sale, lease or exchange to the Fund, in exchange for securities of the Fund, of any assets of any entity or person (except assets having an aggregate fair market value of less than $1,000,000) if such corporation, person or entity is directly, or indirectly through affiliates, the beneficial owner of more than 5% of the outstanding shares of the Fund (a 'Principal Shareholder'). A similar vote also would be required for any amendment of the Articles of Incorporation to convert the Fund to an open-end investment company by making any class of the Fund's capital stock a 'redeemable security,' as that term is defined in the 1940 Act. Such vote would not be required with respect to any of the foregoing transactions, however, when, under certain conditions, the Board of Directors approves the transaction, although in certain cases involving merger, consolidation or statutory share exchange or sale of all or substantially all of the Fund's assets or the conversion of the Fund to an open-end investment company, the affirmative vote of the holders of a majority of the outstanding shares of the Fund's capital stock would nevertheless be required. Reference is made to the Articles of Incorporation of the Fund, on file with the SEC, for the full text of these provisions. The provisions of the Articles of Incorporation described above and the Fund's right to repurchase or make a tender offer for its shares could have the effect of depriving the stockholders of opportunities to sell their shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control of the Fund in a tender offer or similar transaction. See 'Description of Capital Stock--Stock Repurchases and Tender Offers.' The overall effect of these provisions is to render more difficult the accomplishment of a merger or the assumption of control by a Principal Shareholder. They provide, however, the advantage of potentially requiring persons seeking control of the Fund to negotiate with its management regarding the price to be paid and facilitating the continuity of the Fund's management, investment objectives and policies. The Board of Directors of the Fund has considered the foregoing anti-takeover provisions and concluded that they are in the best interest of the Fund and its stockholders. 36 CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT AND REGISTRAR Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts 02109, serves as custodian of the Fund's assets. Brown Brothers Harriman & Co. employs foreign subcustodians approved by the Fund's Board of Directors, in accordance with applicable requirements under the 1940 Act, to provide custody of the Fund's foreign assets. PNC Bank, National Association, whose principal business address is Broad and Chestnut Streets, Philadelphia, Pennsylvania 19110, is the Fund's transfer and dividend disbursing agent and registrar. FURTHER INFORMATION Further information concerning these securities and the Fund may be found in the Registration Statement on file with the SEC of which this Prospectus and the Fund's SAI constitute a part. The Table of Contents for the SAI is as follows: Investment Policies and Restrictions................... 2 Strategic Transactions................................. 5 Directors and Officers................................. 14 Control Persons and Principal Holders of Securities.... 19 Investment Advisory Arrangements....................... 19 Portfolio Transactions................................. 21 Valuation of Common Stock.............................. 22 Taxation............................................... 23 Additional Information................................. 26 Financial Information.................................. 27
37 APPENDIX RATINGS DESCRIPTION OF MOODY'S RATINGS FOR CORPORATE AND CONVERTIBLE BONDS Aaa. Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as 'gilt edged.' Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issued. Aa. Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protection elements may be of greater amplitude or there may be other elements present which make the long-term risk appear somewhat larger than in Aaa securities. A. Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa. Bonds which are rated Baa are considered as medium grade obligations, (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appears adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba. Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B. Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa. Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca. Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C. Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Note: Moody's may apply numerical modifiers, 1, 2 and 3 in each generic rating classification from Aa to B. The modifier 1 indicates that the company ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the company ranks in the lower end of its generic rating category. DESCRIPTION OF S&P RATINGS FOR CORPORATE AND CONVERTIBLE DEBT SECURITIES AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA. Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. 38 A. Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB. Debt rated BBB is regarded as having adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than for debt in higher rated categories. BB, B, CCC, CC, C. Debt rated BB, B, CCC, CC and C is regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. BB. Debt rated BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating. B. Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating. CCC. Debt rated CCC has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating. CC. The rating CC is typically applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating. C. The rating C is typically applied to debt subordinated to senior debt which is assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued. CI. The rating CI is reserved for income bonds on which no interest is being paid. D. Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized. PLUS (+) OR MINUS (-). The ratings from 'AA' to 'CCC' may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. NR. 'NR' indicates that no public rating has been requested, that there is insufficient information on which to base a rating, or that S&P does not rate a particular type of obligation as a matter of policy. 39 - ------------------------------------------------ - ------------------------------------------------ NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR PAINEWEBBER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR BY PAINEWEBBER IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. ------------------------ TABLE OF CONTENTS
PAGE ---- Fund Expenses.............................. 2 Prospectus Summary......................... 3 Financial Highlights....................... 11 The Fund................................... 12 The Offering............................... 12 Use of Proceeds............................ 12 Trading History............................ 12 Investment Objectives and Policies......... 13 Other Investment Practices................. 18 Special Considerations and Risk Factors.... 23 Management of the Fund..................... 29 Dividends and Other Distributions; Dividend Reinvestment Plan............... 30 Taxation................................... 32 Description of Capital Stock............... 33 Custodian, Transfer and Dividend Disbursing Agent and Registrar........... 37 Further Information........................ 37 Appendix................................... 38
- ------------------------------------------------ - ------------------------------------------------ Copyright 1996 PaineWebber Incorporated Printed on Recycled Paper - ------------------------------------------------ - ------------------------------------------------ GLOBAL HIGH INCOME DOLLAR FUND INC. COMMON STOCK ------------- PROSPECTUS ------------- PAINEWEBBER INCORPORATED ------------- MARCH , 1996 - ------------------------------------------------ - ------------------------------------------------ GLOBAL HIGH INCOME DOLLAR FUND INC. 1285 Avenue of the Americas New York, New York 10019 STATEMENT OF ADDITIONAL INFORMATION Global High Income Dollar Fund Inc. (the 'Fund') is a non-diversified, closed-end management investment company. The Fund's primary investment objective is to achieve a high level of current income. As a secondary objective the Fund seeks capital appreciation, to the extent consistent with its primary objective. No assurance can be given that the Fund will be able to achieve its investment objectives. Shares of the Fund's common stock ('Common Stock') may be offered from time to time in order to effect over-the-counter ('OTC') secondary market sales by PaineWebber Incorporated ('PaineWebber') in its capacity as a dealer and secondary market-maker. PaineWebber may (but is not obligated) to make such a secondary market. Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins'), a wholly owned subsidiary of PaineWebber, serves as investment adviser and administrator of the Fund. This Statement of Additional Information ('SAI') is not a prospectus and should be read only in conjunction with the Fund's current Prospectus, dated March , 1996. Capitalized terms not otherwise defined herein have the same meaning as in the Prospectus. A copy of the Prospectus may be obtained by calling any PaineWebber investment executive or correspondent firm or by calling toll-free (800) 852-4750. The date of this Statement of Additional Information is March , 1996. INVESTMENT POLICIES AND RESTRICTIONS The following supplements the information contained in the Prospectus concerning the Fund's investment policies and limitations. CONVERTIBLE SECURITIES The value of a convertible security is a function of its 'investment value' (determined by its yield in comparison with the yields of other securities of comparable maturity and quality that do not have a conversion privilege) and its 'conversion value' (the security's worth, at market value, if converted into the underlying common stock). The investment value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also may have an effect on the convertible security's investment value. The conversion value of a convertible security is determined by the market price of the underlying common stock. If the conversion value is low relative to the investment value, the price of the convertible security is governed principally by its investment value. Generally the conversion value decreases as the convertible security approaches maturity. To the extent the market price of the underlying common stock approaches or exceeds the conversion price, the price of the convertible security will be increasingly influenced by its conversion value. A convertible security generally will sell at a premium over its conversion value by the extent to which investors place value on the right to acquire the underlying common stock while holding a fixed income security. A convertible security might be subject to redemption at the option of the issuer at a price established in the convertible security's governing instrument. If a convertible security held by the Fund is called for redemption, the Fund will be required to permit the issuer to redeem the security, convert it into the underlying common stock or sell it to a third party. Any of these actions could have an adverse effect on the Fund's ability to achieve its investment objectives. ILLIQUID SECURITIES Illiquid securities may, but do not necessarily, include certain restricted securities. To facilitate the increased size and liquidity of the institutional markets for unregistered securities, the Securities and Exchange Commission ('SEC') has adopted Rule 144A under the Securities Act of 1933 ('1933 Act'). Rule 144A establishes a 'safe harbor' from the registration requirements of the 1933 Act for resales of certain securities to qualified institutional buyers. Institutional markets for restricted securities have developed as a result of Rule 144A, providing both readily ascertainable values for restricted securities and the ability to liquidate an investment. Such markets include automated systems for the trading, clearance and settlement of unregistered securities of domestic and foreign issuers, such as the PORTAL System sponsored by the National Association of Securities Dealers, Inc. An insufficient number of qualified buyers interested in purchasing Rule 144A-eligible restricted securities held by the Fund, however, could affect adversely the marketability of such portfolio securities and the Fund might be unable to dispose of such securities promptly or at favorable prices. The Fund may sell OTC options and, in connection therewith, segregate assets or cover its obligations with respect to OTC options written by the Fund. The assets used as cover for OTC options written by the Fund will be considered illiquid unless the OTC options are sold to qualified dealers who agree that the Fund may repurchase any OTC option it writes at a maximum price to be calculated by a formula set forth in the option agreement. The cover for an OTC option written subject to this procedure would be considered illiquid only to the extent that the maximum repurchase price under the formula exceeds the intrinsic value of the option. 2 The Board of Directors has delegated the function of making day-to-day determinations of liquidity to Mitchell Hutchins pursuant to guidelines approved by the Board. Mitchell Hutchins will take into account a number of factors in reaching liquidity decisions, including but not limited to (1) the frequency of trades for the security, (2) the number of dealers that make quotes for the security, (3) the number of dealers that have undertaken to make a market in the security, (4) the number of other potential purchasers for the security and (5) the nature of the security and how trading is effected (e.g., the time needed to sell the security, how bids are solicited and the mechanics of transfer). Mitchell Hutchins will monitor the liquidity of restricted securities in the Fund's portfolio and report periodically on such decisions to the Board of Directors. REPURCHASE AGREEMENTS Repurchase agreements are transactions in which the Fund would purchase securities from a bank or recognized securities dealer and simultaneously commit to resell those securities to the bank or dealer at an agreed-upon date and price reflecting a market rate of interest unrelated to the coupon rate or maturity of the purchased securities. The Fund would maintain custody of the underlying securities prior to their repurchase; thus, the obligation of the bank or securities dealer to pay the repurchase price on the date agreed to would, in effect, be secured by such securities. If the value of such securities were less than the repurchase price, plus any agreed-upon additional amount, the other party to the agreement would be required to provide additional collateral so that at all times the collateral is at least equal to the repurchase price, plus any agreed-upon additional amount. The difference between the total amount to be received upon repurchase of the securities and the price which was paid by the Fund upon acquisition would be accrued as interest and included in the Fund's net investment income. Repurchase agreements carry certain risks not associated with direct investments in securities, including possible declines in the market value of the underlying securities and delays and costs to the Fund if the other party to the repurchase agreement becomes insolvent. The Fund intends to enter into repurchase agreements only with banks and dealers in transactions believed by Mitchell Hutchins to present minimal credit risks in accordance with guidelines established by the Fund's Board of Directors. Mitchell Hutchins will review and monitor the creditworthiness of such institutions under the Board's general supervision. INVESTMENT LIMITATIONS The following fundamental investment limitations cannot be changed without the affirmative vote of the lesser of (a) more than 50% of the outstanding shares of the Fund, or (b) 67% or more of such shares present at a stockholders' meeting if more than 50% of the outstanding shares are represented at the meeting in person or by proxy. If a percentage restriction is adhered to at the time of an investment or transaction, a later increase or decrease in percentage resulting from a change in values of portfolio securities or the amount of total assets will not be considered a violation of any of the following limitations or of any of the Fund's investment policies. The Fund may not: (1) issue senior securities (including borrowing money from banks and other entities and through reverse repurchase agreements) in excess of 33 1/3% of its total assets (including the amount of senior securities issued, but reduced by any liabilities and indebtedness not constituting senior securities), except that the Fund may borrow up to an additional 5% of its total assets (not including the amount borrowed) for temporary or emergency purposes; (2) make an investment in any one industry if the investment would cause the aggregate value of all investments in such industry to equal 25% or more of the Fund's total assets; provided that this limitation 3 does not apply to investments in securities issued or guaranteed by the U.S. government, its agencies or instrumentalities; (3) purchase securities on margin, except for short-term credits necessary for clearance of portfolio transactions and except that the Fund may make margin deposits in connection with its use of options, futures contracts, options on futures contracts, forward currency contracts and other financial instruments; (4) engage in the business of underwriting securities of other issuers, except to the extent that, in connection with the disposition of portfolio securities, the Fund may be deemed an underwriter under federal securities laws and except that the Fund may write options; (5) make short sales of securities or maintain a short position, except that the Fund may maintain short positions in connection with its use of options, futures contracts, options on futures contracts and forward currency contracts; (6) purchase or sell real estate (including real estate limited partnership interests), provided that the Fund may invest in securities secured by, or issued by companies that invest in, real estate or interest therein; (7) purchase or sell commodities or commodity contracts, except that the Fund may sell commodities received upon the exercise of warrants, may purchase or sell financial and currency futures contracts and options thereon, may purchase and sell forward contracts, may engage in transactions in foreign currencies and may purchase or sell options on foreign currencies; (8) invest in oil, gas or mineral-related programs or leases; or (9) make loans, except through loans of portfolio instruments and repurchase agreements, provided that for purposes of this restriction the acquisition of bonds, debentures or other debt instruments or interests therein and investment in government obligations, short-term commercial paper, certificates of deposit and bankers' acceptances shall not be deemed to be the making of a loan. 4 STRATEGIC TRANSACTIONS As discussed in the Prospectus, Mitchell Hutchins may use a variety of financial instruments ('Hedging Instruments'), including options, futures contracts (sometimes referred to as 'futures'), options on futures contracts, forward currency contracts and interest rate protection transactions, to attempt to hedge the Fund's portfolio. The Fund also may use options and forward currency contracts to attempt to enhance income and realize gains, and use foreign currency futures contracts and options on futures contracts for such other purposes to the extent permitted by the Commodity Futures Trading Commission ('CFTC'). Hedging strategies can be broadly categorized as 'short hedges' and 'long hedges.' A short hedge is a purchase or sale of a Hedging Instrument intended partially or fully to offset potential declines in the value of one or more investments held in the Fund's portfolio. Thus, in a short hedge the Fund takes a position in a Hedging Instrument whose price is expected to move in the opposite direction of the price of the investment being hedged. For example, the Fund might purchase a put option on a security to hedge against a potential decline in the value of that security. If the price of the security declined below the exercise price of the put, the Fund could exercise the put and thus limit its loss below the exercise price to the premium paid plus transaction costs. In the alternative, because the value of the put option can be expected to increase as the value of the underlying security declines, the Fund might be able to close out the put option and realize a gain to offset the decline in the value of the security. Conversely, a long hedge is a purchase or sale of a Hedging Instrument intended partially or fully to offset potential increases in the acquisition cost of one or more investments that the Fund intends to acquire. Thus, in a long hedge, the Fund takes a position in a Hedging Instrument whose price is expected to move in the same direction as the price of the prospective investment being hedged. For example, the Fund might purchase a call option on a security it intends to purchase in order to hedge against an increase in the cost of the security. If the price of the security increased above the exercise price of the call, the Fund could exercise the call and thus limit its acquisition to the exercise price plus the premium paid and transaction costs. Alternatively, the Fund might be able to offset the price increase by closing out an appreciated call option and realizing a gain. The Fund may purchase and write (sell) covered straddles on securities or indices of debt securities. A long straddle is a combination of a call and a put option purchased on the same security or on the same futures contract, where the exercise price of the put is less than or equal to the exercise price of the call. The Fund would enter into a long straddle when Mitchell Hutchins believes that it is likely that interest rates will be more volatile during the term of the option than the option pricing implies. A short straddle is a combination of a call and a put written on the same security where the exercise price of the put is less than or equal to the exercise price of the call. The Fund would enter into a short straddle when Mitchell Hutchins believes that it is unlikely that interest rates will be as volatile during the term of the options as the option pricing implies. Hedging Instruments on securities generally are used to hedge against price movements in one or more particular securities positions that the Fund owns or intends to acquire. Hedging Instruments on debt securities may be used to hedge either individual securities or broad fixed income market sectors. The use of Hedging Instruments is subject to applicable regulations of the SEC, the several options and futures exchanges upon which they are traded and the CFTC. In addition, the Fund's ability to use Hedging Instruments will be limited by tax considerations. See 'Taxation.' In addition to the products, strategies and risks described below and in the Prospectus, Mitchell Hutchins expects additional opportunities to develop in connection with options, futures contracts, forward currency contracts and other hedging techniques. These new opportunities may become available as Mitchell Hutchins 5 develops new techniques, as regulatory authorities broaden the range of permitted transactions and as new options, futures contracts, forward currency contracts or other techniques are developed. Mitchell Hutchins may utilize these opportunities to the extent that they are consistent with the Fund's investment objectives and permitted by the Fund's investment limitations and applicable regulatory authorities. SPECIAL RISKS OF HEDGING STRATEGIES The use of Hedging Instruments involves special considerations and risks, as described below. Risks pertaining to particular Hedging Instruments are described in the sections that follow. (1) Successful use of most Hedging Instruments depends upon Mitchell Hutchins' ability to predict movements of the overall securities, currencies and interest rate markets, which requires different skills than predicting changes in the prices of individual securities. While Mitchell Hutchins is experienced in the use of Hedging Instruments, there can be no assurance that any particular hedging strategy adopted will succeed. (2) There might be imperfect correlation, or even no correlation, between price movements of a Hedging Instrument and price movements of the investments being hedged. For example, if the value of a Hedging Instrument used in a short hedge increased by less than the decline in value of the hedged investment, the hedge would not be fully successful. Such a lack of correlation might occur due to factors unrelated to the value of the investments being hedged, such as speculative or other pressures on the markets in which Hedging Instruments are traded. The effectiveness of hedges using Hedging Instruments on indices will depend on the degree of correlation between price movements in the index and price movements in the securities being hedged. (3) Hedging strategies, if successful, can reduce risk of loss by wholly or partially offsetting the negative effect of unfavorable price movements in the investments being hedged. However, hedging strategies can also reduce opportunity for gain by offsetting the positive effect of favorable price movements in the hedged investments. For example, if the Fund entered into a short hedge because Mitchell Hutchins projected a decline in the price of a security in the Fund's portfolio, and the price of that security increased instead, the gain from that increase might be wholly or partially offset by a decline in the price of the Hedging Instrument. Moreover, if the price of the Hedging Instrument declined by more than the increase in the price of the security, the Fund could suffer a loss. In either such case, the Fund would have been in a better position had it not hedged at all. (4) As described below, the Fund might be required to maintain assets as 'cover,' maintain segregated accounts or make margin payments when it takes positions in Hedging Instruments involving obligations to third parties (i.e., Hedging Instruments other than purchased options). If the Fund were unable to close out its positions in such Hedging Instruments, it might be required to continue to maintain such assets or accounts to make such payments until the position expired or matured. These requirements might impair the Fund's ability to sell a portfolio security or make an investment at a time when it would otherwise be favorable to do so, or require that the Fund sell a portfolio security at a disadvantageous time. The Fund's ability to close out a position in a Hedging Instrument prior to expiration or maturity depends on the existence of a liquid secondary market or, in the absence of such a market, the ability and willingness of the other party to the transaction ('contra party') to enter into a transaction closing out the position. Therefore, there is no assurance that any hedging position can be closed out at a time and price that is favorable to the Fund. COVER FOR HEDGING STRATEGIES Transactions using Hedging Instruments, other than purchased options, expose the Fund to an obligation to another party. The Fund will not enter into any such transactions unless it owns either (1) an offsetting ('covered') position in securities, currencies or other options, futures contracts or forward currency contracts or 6 (2) cash and liquid short-term debt securities, with a value sufficient at all times to cover its potential obligations to the extent not covered as provided in (1) above. The Fund will comply with SEC guidelines regarding cover for hedging transactions and will, if the guidelines so require, set aside cash, U.S. government securities or other liquid, high-grade debt securities in a segregated account with its custodian in the prescribed amount. Assets used as cover or held in a segregated account cannot be sold while the position in the corresponding Hedging Instrument is open, unless they are replaced with similar assets. As a result, the commitment of a large portion of the Fund's assets to cover or segregated accounts could impede portfolio management or the Fund's ability to meet current obligations. OPTIONS The Fund may purchase put and call options, and write (sell) covered put and call options, on debt securities, on indices of debt securities and foreign currencies. The purchase of call options serves as a long hedge, and the purchase of put options serves as a short hedge. Writing covered put or call options can enable the Fund to enhance income by reason of the premiums paid by the purchasers of such options. However, if the market price of the security underlying a put option the Fund has written declines to less than the exercise price of the option, minus the premium received, the Fund would expect to suffer a loss. Writing covered call options serves as a limited short hedge, because declines in the value of the hedged investment would be offset to the extent of the premium received for writing the option. However, if the security appreciates to a price higher than the exercise price of the call option, it can be expected that the option will be exercised and the Fund will be obligated to sell the security at less than its market value. All or a portion of the assets used as cover for OTC options written by the Fund would be considered illiquid. The value of an option position will reflect, among other things, the current market value of the underlying investment, the time remaining until expiration, the relationship of the exercise price to the market price of the underlying investment, the historical price volatility of the underlying investment and general market conditions. Options normally have expiration dates of up to nine months. Options that expire unexercised have no value. The Fund may effectively terminate its right or obligation under an option by entering into a closing transaction. For example, the Fund may terminate its obligation under a call option that it had written by purchasing an identical call option; this is known as a closing purchase transaction. Conversely, the Fund may terminate a position in a put or call option it had purchased by writing an identical put or call option; this is known as a closing sale transaction. Closing transactions permit the Fund to realize profits or limit losses on an option position prior to its exercise or expiration. The Fund may purchase or write both exchange-traded and OTC options. Exchange markets for options on debt securities and foreign currencies exist but are relatively new, and these instruments are primarily traded on the OTC market. Exchange-traded options in the United States are issued by a clearing organization affiliated with the exchange on which the option is listed which, in effect, guarantees completion of every exchange-traded option transaction. In contrast, OTC options are contracts between the Fund and its contra party (usually a securities dealer or a bank) with no clearing organization guarantee. Thus, when the Fund purchases or writes an OTC option, it relies on the contra party to make or take delivery of the underlying investment upon exercise of the option. Failure by the contra party to do so would result in the loss of any premium paid by the Fund as well as the loss of any expected benefit of the transaction. Generally, the OTC debt and foreign currency options used by the Fund are European-style options. This means that the option is only exercisable immediately prior to its expiration. This is in contrast to American-style options, which are exercisable at any time prior to the expiration date of the option. 7 The Fund's ability to establish the close out positions in exchange-listed options depends on the existence of a liquid market. The Fund intends to purchase or write only those exchange-traded options for which there appears to be a liquid secondary market. However, there can be no assurance that such a market will exist at any particular time. Closing transactions can be made for OTC options only by negotiating directly with the contra party, or by a transaction in the secondary market if any such market exists. Although the Fund will enter into OTC options only with contra parties that are expected to be capable of entering into closing transactions with the Fund, there is no assurance that the Fund will in fact be able to close out an OTC option at a favorable price prior to expiration. In the event of insolvency of the contra party, the Fund might be unable to close out an OTC option position at any time prior to its expiration. If the Fund were unable to effect a closing transaction for an option it had purchased, it would have to exercise the option to realize any profit. The inability to enter into a closing purchase transaction for a covered call option written by the Fund could cause material losses because the Fund would be unable to sell the investment used as cover for the written option until the option expires or is exercised. The Fund may purchase and write put and call options on indices of debt securities in much the same manner as the more traditional options discussed above, except that index options may serve as a hedge against overall fluctuations in the debt securities market (or market sectors) rather than anticipated increases or decreases in the value of a particular security. FUTURES The Fund may purchase and sell interest rate futures contracts, bond index futures contracts and foreign currency futures contracts. The Fund may also purchase put and call options, and write covered put and call options, on futures in which it is allowed to invest. The purchase of futures or call options thereon can serve as a long hedge, and the sale of futures or the purchase of put options thereon can serve as a short hedge. Writing covered call options on futures contracts can serve as a limited short hedge, using a strategy similar to that used for writing covered call options on securities or indices. Similarly, writing covered put options on futures contracts can serve as a limited long hedge. Futures strategies also can be used to manage the average duration of the Fund's portfolio. If Mitchell Hutchins wishes to shorten the average duration of the Fund, the Fund may sell an interest rate futures contract or a call option thereon, or purchase a put option on that futures contract. If Mitchell Hutchins wishes to lengthen the average duration of the Fund, the Fund may buy an interest rate futures contract or a call option thereon, or sell a put option thereon. The Fund may also write put options on interest rate futures contracts while at the same time purchasing call options on the same futures contracts in order synthetically to create a long futures contract position. Such options would have the same strike prices and expiration dates. The Fund will engage in this strategy only when it is more advantageous to the Fund than is purchasing the futures contract. No price is paid upon entering into a futures contract. Instead, at the inception of a futures contract the Fund is required to deposit in a segregated account with its custodian, in the name of the futures broker through whom the transaction was effected, 'initial margin' consisting of cash, U.S. government securities or other liquid, high-grade debt securities, in an amount generally equal to 10% or less of the contract value. Margin must also be deposited when writing an option on a futures contract, in accordance with applicable exchange rules. Unlike margin in securities transactions, initial margin on futures contracts does not represent a borrowing, but rather is in the nature of a performance bond or good-faith deposit that is returned to the Fund at the termination of the transaction if all contractual obligations have been satisfied. Under certain circumstances, such as periods of high volatility, the Fund may be required by an exchange to increase the level of its initial margin payment. 8 Subsequent 'variation margin' payments are made to and from the futures broker daily as the value of the futures or written option position varies, a process known as 'marking to market.' Variation margin does not involve borrowing, but rather represents a daily settlement of the Fund's obligations with respect to an open futures or options position. When the Fund purchases an option on a future, the premium paid plus transaction costs is all that is at risk. In contrast, when the Fund purchases or sells a futures contract or writes an option thereon, it is subject to daily variation calls that could be substantial in the event of adverse price movements. If the Fund has insufficient cash to meet daily variation margin requirements, it might need to sell securities at a time when such sales are disadvantageous. Holders and writers of futures positions and options on futures can enter into offsetting closing transactions, similar to closing transactions on options, by selling or purchasing, respectively, an instrument identical to the instrument held or written. Positions in futures and options on futures may be closed only on an exchange or board of trade that provides a secondary market. The Fund intends to enter into futures transactions only on exchanges or boards of trade where there appears to be a liquid secondary market. However, there can be no assurance that such a market will exist for a particular contract at a particular time. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a future or related option can vary from the previous day's settlement price; once that limit is reached, no trades may be made that day at a price beyond the limit. Daily price limits do not limit potential losses because prices could move to the daily limit for several consecutive days with little or no trading, thereby preventing liquidation of unfavorable positions. If the Fund were unable to liquidate a futures or options position due to the absence of a liquid secondary market or the imposition of price limits, it could incur substantial losses. The Fund would continue to be subject to market risk with respect to the position. In addition, except in the case of purchased options, the Fund would continue to be required to make daily variation margin payments and might be required to maintain the position being hedged by the future or option or to maintain cash or securities in a segregated account. Certain characteristics of the futures market might increase the risk that movements in the prices of futures contracts or options might not correlate perfectly with movements in the prices of the investments being hedged. For example, all participants in the futures and options markets are subject to daily variation margin calls and might be compelled to liquidate futures or options positions whose prices are moving unfavorably to avoid being subject to further calls. These liquidations could increase price volatility of the instruments and distort the normal price relationship between the futures or options and the investments being hedged. Also, because initial margin deposit requirements in the futures market are less onerous than margin requirements in the securities markets, there might be increased participation by speculators in the futures markets. This participation also might cause temporary price distortions. In addition, activities of large traders in both the futures and securities markets involving arbitrage, 'program trading' and other investment strategies might result in temporary price distortions. GUIDELINE FOR FUTURES AND OPTIONS To the extent the Fund enters into futures contracts, options on futures positions and options on foreign currencies traded on a commodities exchange, which are not for bona fide hedging purposes (as defined by the CFTC), the aggregate initial margin and premiums on those positions (excluding the amount by which options are 'in-the-money') may not exceed 5% of the Fund's net assets. This guideline may be modified by the Fund's Board of Directors without a shareholder vote. Adoption of this guideline cannot be guaranteed to limit the percentage of the Fund's assets at risk to 5%. 9 FOREIGN CURRENCY HEDGING STRATEGIES--SPECIAL CONSIDERATIONS The Fund may use options and futures on foreign currencies, as described above, and foreign currency forward contracts, as described below, to hedge against movements in the values of the foreign currencies in which the Fund's securities are denominated. Such currency hedges can protect against price movements in a security that the Fund owns or intends to acquire that are attributable to changes in the value of the currency in which it is denominated. Such hedges do not, however, protect against price movements in the securities that are attributable to other causes. The Fund might seek to hedge against changes in the value of a particular currency when no Hedging Instruments on that currency are available or such Hedging Instruments are more expensive than certain other Hedging Instruments. In such cases, the Fund may hedge against price movements in that currency by entering into transactions using Hedging Instruments on other currencies, the values of which Mitchell Hutchins believes will have a high degree of positive correlation to the value of the currency being hedged. The risk that movements in the price of the Hedging Instrument will not correlate perfectly with movements in the price of the currency being hedged is magnified when this strategy is used. The value of Hedging Instruments on foreign currencies depends on the value of the underlying currency relative to the U.S. dollar. Because foreign currency transactions occurring in the interbank market might involve substantially larger amounts than those involved in the use of such Hedging Instruments, the Fund could be disadvantaged by having to deal in the odd lot market (generally consisting of transactions of less than $1 million) for the underlying foreign currencies at prices that are less favorable than for round lots. There is no systematic reporting of last sale information for foreign currencies or any regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Quotation information generally is representative of very large transactions in the interbank market and thus might not reflect odd-lot transactions where rates might be less favorable. The interbank market in foreign currencies is a global, round-the-clock market. To the extent the U.S. options or futures markets are closed while the markets for the underlying currencies remain open, significant price and rate movements might take place in the underlying markets that cannot be reflected in the markets for the Hedging Instruments until they reopen. Settlement of hedging transactions involving foreign currencies might be required to take place within the country issuing the underlying currency. Thus, the Fund might be required to accept or make delivery of the underlying foreign currency in accordance with any U.S. or foreign regulations regarding the maintenance of foreign banking arrangements by U.S. residents and might be required to pay any fees, taxes and charges associated with such delivery assessed in the issuing country. FORWARD CURRENCY CONTRACTS The Fund may enter into forward currency contracts to purchase or sell foreign currencies for a fixed amount of U.S. dollars or another foreign currency. Such transactions may serve as long hedges--for example, the Fund may purchase a forward currency contract to lock in the U.S. dollar price of a security denominated in a foreign currency that the Fund intends to acquire. Forward currency contract transactions may also serve as short hedges--for example, the Fund may sell a forward currency contract to lock in the U.S. dollar equivalent of the proceeds from the anticipated sale of a security denominated in a foreign currency. As noted above, the Fund may seek to hedge against changes in the value of a particular currency by using forward contracts on another foreign currency or a basket of currencies, the value of which Mitchell Hutchins believes will have a positive correlation to the values of the currency being hedged. In addition, the Fund may use forward currency contracts to shift exposure to foreign currency fluctuations from one country to another. For example, if the Fund owned securities denominated in a foreign currency and Mitchell Hutchins believes that 10 currency would decline relative to another currency, it might enter into a forward contract to sell an appropriate amount of the first foreign currency, with payment to be made in the second foreign currency. Transactions that use two foreign currencies are sometimes referred to as 'cross hedging.' Use of a different foreign currency magnifies the risk that movements in the price of hedging instruments will not correlate or will correlate unfavorably with the foreign currency being hedged. The cost to the Fund of engaging in forward currency contracts varies with factors such as the currency involved, the length of the contract period and the market conditions then prevailing. Because forward currency contracts are usually entered into on a principal basis, no fees or commissions are involved. When the Fund enters into a forward currency contract, it relies on the contra party to make or take delivery of the underlying currency at the maturity of the contract. Failure by the contra party to do so would result in the loss of any expected benefit of the transaction. As is the case with futures contracts, holders and writers of forward currency contracts can enter into offsetting closing transactions, similar to closing transactions on futures, by selling or purchasing, respectively, an instrument identical to the instrument held or written. Secondary markets generally do not exist for forward currency contracts, with the result that closing transactions generally can be made for forward currency contracts only by negotiating directly with the contra party. Thus, there can be no assurance that the Fund will in fact be able to close out a forward currency contract at a favorable price prior to maturity. In addition, in the event of insolvency of the contra party, the Fund might be unable to close out a forward currency contract at any time prior to maturity. In either event, the Fund would continue to be subject to market risk with respect to the position, and would continue to be required to maintain a position in securities denominated in the foreign currency or to maintain cash or securities in a segregated account. The precise matching of forward currency contract amounts and the value of the securities involved generally will not be possible because the value of such securities, measured in the foreign currency, will change after the foreign currency contract has been established. Thus, the Fund might need to purchase or sell foreign currencies in the spot (cash) market to the extent such foreign currencies are not covered by forward currency contracts. The projection of short-term currency market movements is extremely difficult, and the successful execution of a short-term hedging strategy is highly uncertain. LIMITATIONS ON THE USE OF FORWARD CURRENCY CONTRACTS The Fund may enter into forward currency contracts or maintain a net exposure to such contracts only if (1) the consummation of the contracts would not obligate the Fund to deliver an amount of foreign currency in excess of the value of the position being hedged by such contracts or (2) the Fund maintains cash, U.S. government securities or liquid, high-grade debt securities in a segregated account in an amount not less than the value of its total assets committed to the consummation of the contract and not covered as provided in (1) above, as marked to market daily. The Fund may use the following Hedging Instruments: OPTIONS ON DEBT SECURITIES AND CURRENCIES--A call option is a contract pursuant to which the purchaser of the option, in return for a premium, has the right to buy the security or currency underlying the option at a specified price at any time during the term, or upon the expiration, of the option. The writer of the call option, who receives the premium, has the obligation, upon exercise of the option, to deliver the underlying security or currency against payment of the exercise price. A put option is a similar contract that gives its purchaser, in return for a premium, the right to sell the underlying security or currency at a specified price during the option term or upon expiration. The writer of the put option, who receives the premium, has the obligation, upon 11 exercise, to buy the underlying security or currency at the exercise price. Options on debt securities are traded primarily in the OTC market rather than on any of the several options exchanges. OPTIONS ON INDICES OF DEBT SECURITIES--An index assigns relative values to the securities included in the index and fluctuates with changes in the market values of such securities. Index options operate in the same way as more traditional options except that exercises of index options are effected with cash payment and do not involve delivery of securities. Thus, upon exercise of an index option, the purchaser will realize and the writer will pay, an amount based on the difference between the exercise price and the closing price of the index. DEBT SECURITY INDEX FUTURES CONTRACTS--A debt security index futures contract is a bilateral agreement pursuant to which one party agrees to accept and the other party agrees to make delivery of an amount of cash equal to a specified dollar amount times the difference between the index value at the close of trading of the contract and the price at which the futures contract is originally struck. No physical delivery of the debt securities comprising the index is made; generally contracts are closed out prior to the expiration date of the contract. DEBT SECURITY AND CURRENCY FUTURES CONTRACTS--A debt security or currency futures contract is a bilateral agreement pursuant to which one party agrees to accept and the other party agrees to make delivery of the specific type of debt security or currency called for in the contract at a specified future time and at a specified price. OPTIONS ON FUTURES CONTRACTS--Options on futures contracts are similar to options on securities or currency, except that an option on a futures contract gives the purchaser the right, in return for the premium, to assume a position in a futures contract (a long position if the option is a call and a short position if the option is a put), rather than to purchase or sell a security or currency, at a specified price at any time during the option term. Upon exercise of the option, the delivery of the futures position to the holder of the option will be accomplished by delivery of the accumulated balance that represents the amount by which the market price of the futures contract exceeds, in the case of a call, or is less than, in the case of a put, the exercise price of the option on the future. The writer of an option, upon exercise, will assume a short position in the case of a call and a long position in the case of a put. FORWARD CURRENCY CONTRACTS--A forward currency contract involves an obligation to purchase or sell a specific currency at a specified future date, which may be any fixed number of days from the contract date agreed upon by the parties, at a price set at the time the contract is entered into. INTEREST RATE PROTECTION TRANSACTIONS--The Fund may enter into interest rate protection transactions, including interest rate swaps and interest rate caps, collars and floors. Interest rate swap transactions involve an agreement between two parties to exchange payments that are based, respectively, on variable and fixed rates of interest and that are calculated on the basis of a specified amount of principal (the 'notional principal amount') for a specified period of time. Interest rate cap and floor transactions involve an agreement between two parties in which the first party agrees to make payments to the counterparty when a designated market interest rate goes above (in the case of a cap) or below (in the case of a floor) a designated level on predetermined dates or during a specified time period. Interest rate collar transactions involve an agreement between two parties in which payments are made when a designated market interest rate either goes above a designated ceiling level or goes below a designated floor on predetermined dates or during a specified time period. The Fund expects to enter into interest rate protection transactions to preserve a return or spread on a particular investment or portion of its portfolio, to protect against any increase in the price of securities the Fund anticipates purchasing at a later date or to effectively fix the rate of interest that it pays on one or more borrowings or series of borrowings. The Fund intends to use these transactions as a hedge and not as a speculative investment. Interest rate protection transactions are subject to risks comparable to those described above with respect to other hedging strategies. 12 The Fund may enter into interest rate swaps, caps, collars and floors on either an asset-based or liability-based basis, depending on whether it is hedging its assets or its liabilities, and will usually enter into interest rate swaps on a net basis, i.e., the two payment streams are netted out, with the Fund receiving or paying as the case may be, only the net amount of the two payments. Inasmuch as these interest rate protection transactions are entered into for good faith hedging purposes, and inasmuch as segregated accounts will be established with respect to such transactions, Mitchell Hutchins and the Fund believe such obligations do not constitute senior securities and, accordingly, will not treat them as being subject to its borrowing restrictions. The net amount of the excess, if any, of the Fund's obligations over its entitlements with respect to each interest rate swap will be accrued on a daily basis and an amount of cash, U.S. government securities or other liquid, high-grade debt obligations having an aggregate net asset value at least equal to the accrued excess will be maintained in a segregated account by a custodian that satisfies the requirements of the Investment Company Act of 1940 ('1940 Act'). The Fund also will establish and maintain such segregated accounts with respect to its total obligations under any interest rate swaps that are not entered into on a net basis and with respect to any interest rate caps, collars and floors that are written by the Fund. The Fund will enter into interest rate protection transactions only with banks and recognized securities dealers or their affiliates believed by Mitchell Hutchins to present minimal credit risks in accordance with guidelines established by the Fund's Board of Directors. If there is a default by the other party to such a transaction, the Fund will have to rely on its contractual remedies (which may be limited by bankruptcy, insolvency or similar laws) pursuant to the agreements related to the transaction. The swap market has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. Caps, collars and floors are more recent innovations for which documentation is less standardized, and accordingly, they are less liquid than swaps. 13 DIRECTORS AND OFFICERS The directors and executive officers of the Fund, their business addresses and principal occupations during the past five years are:
POSITION WITH THE PRINCIPAL OCCUPATION(S) NAME, AGE AND ADDRESS* FUND DURING PAST FIVE YEARS - ----------------------------- --------- ------------------------------------ Richard Q. Armstrong; 60 Director Mr. Armstrong is chairman and 78 West Brother Drive principal of RQA Enterprises Greenwich, CT 06830 (management consulting firm) (since April 1991 and principal occupation since March 1995). Mr. Armstrong is also a director of Hi Lo Automotive, Inc. He was chairman of the board, chief executive officer and co-owner of Adirondack Beverages (producer and distributor of soft drinks and sparkling/still waters) (October 1993-March 1995). He was a partner of the New England Consulting Group (management consulting firm) (December 1992-September 1993). He was managing director of LVMH U.S. Corporation (U.S. subsidiary of the French luxury goods conglomerate, Luis Vuitton Moet Hennessey Corporation) (1987-1991) and chairman of its wine and spirits subsidiary, Schieffelin & Somerset Company (1987-1991). Mr. Armstrong is also a director or trustee of 5 other investment companies for which Mitchell Hutchins or PaineWebber serves as investment adviser. E. Garrett Bewkes, Jr.; 69** Director Mr. Bewkes is a director of Paine and Webber Group Inc. ('PW Group') Chairman (holding company of PaineWebber of the and Mitchell Hutchins) and a Board of consultant to PW Group. Prior to Directors 1988, he was chairman of the board, president and chief executive officer of American Bakeries Company. Mr. Bewkes is also a director of Interstate Bakeries Corporation and NaPro BioTherapeutics, Inc. and a director or trustee of 25 other investment companies for which Mitchell Hutchins or PaineWebber serves as investment adviser.
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POSITION WITH THE PRINCIPAL OCCUPATION(S) NAME, AGE AND ADDRESS* FUND DURING PAST FIVE YEARS - ----------------------------- --------- ------------------------------------ Richard R. Burt; 48 Director Mr. Burt is chairman of 1101 Connecticut Avenue, N.W. International Equity Partners Washington, D.C. 20036 (international investments and consulting firm) (since March 1994) and a partner of McKinsey & Company (management consulting firm) (since 1991). He is also a director of American Publishing Company. He was the chief negotiator in the Strategic Arms Reduction Talks with the former Soviet Union (1989-1991) and the U.S. Ambassador to the Federal Republic of Germany (1985-1989). Mr. Burt is also a director or trustee of other investment companies for which Mitchell Hutchins or PaineWebber serves as investment adviser. John R. Torell III; 56 Director Mr. Torell is chairman of Torell 767 Fifth Avenue Management, Inc. (financial Suite 4605 advisory firm) (since 1989), New York, NY 10153 chairman of Telesphere Corporation (financial information) and a partner of Zilkha & Company (merchant bank and investment company). Mr. Torell is also a director of American Home Products Corp., COLT's Manufacturing Company and Volt Information Sciences Inc. He is the former chairman and chief executive officer of Fortune Bancorp (1990-1991 and 1990-1994, respectively), the former chairman, president and chief executive officer of CalFed, Inc. (savings association) (1988 to 1989) and former president of Manufacturers Hanover Corp. (bank) (prior to 1988). Mr. Torell is a director or trustee of 9 other investment companies for which Mitchell Hutchins or PaineWebber serves as investment adviser. William D. White; 61 Director Mr. White is retired. From February P.O. Box 199 1989 through March 1994, he was Upper Black Eddy, PA 18972 president of the National League of Professional Baseball Clubs. Prior to 1989, he was a television sportscaster for WPIX-TV, New York. Mr. White is also a director or trustee of 10 other investment companies for which Mitchell Hutchins or PaineWebber serves as investment adviser.
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POSITION WITH THE PRINCIPAL OCCUPATION(S) NAME, AGE AND ADDRESS* FUND DURING PAST FIVE YEARS - ----------------------------- --------- ------------------------------------ Margo N. Alexander; 48 President Mrs. Alexander is president, chief executive officer and a director of Mitchell Hutchins. Mrs. Alexander is also a director and executive vice president of PaineWebber. Mrs. Alexander is also a director or trustee of other investment companies and president of 26 other investment companies for which Mitchell Hutchins or PaineWebber serves as investment adviser. Teresa M. Boyle; 37 Vice Ms. Boyle is a first vice president President and manager-- advisory administration of Mitchell Hutchins. Prior to November 1993, she was compliance manager of Hyperion Capital Management, Inc., an investment advisory firm. Prior to April 1993, Ms. Boyle was a vice president and manager--legal administration of Mitchell Hutchins. Ms. Boyle is also a vice president of 37 other investment companies for which Mitchell Hutchins or PaineWebber serves as investment adviser. Joan L. Cohen; 31 Vice Ms. Cohen is a vice president and President attorney of Mitchell Hutchins. and Prior to December 1993, she was an Assistant associate at the law firm of Secretary Seward & Kissel. Ms. Cohen is also a vice president and assistant secretary of 25 other investment companies for which Mitchell Hutchins or PaineWebber serves as investment adviser. C. William Maher; 34 Vice Mr. Maher is a first vice president President and a senior manager of the Fund and Administration Division of Assistant Mitchell Hutchins. Mr. Maher is Treasurer also a vice president and assistant treasurer of 37 other investment companies for which Mitchell Hutchins or PaineWebber serves as investment adviser. Dennis McCauley; 49 Vice Mr. McCauley is a managing director President and Chief Investment Officer--Fixed Income of Mitchell Hutchins. Prior to December 1994, he was Director of Fixed Income Investments of IBM Corporation. Mr. McCauley is also a vice president of 20 other investment companies for which Mitchell Hutchins or PaineWebber serves as investment adviser.
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POSITION WITH THE PRINCIPAL OCCUPATION(S) NAME, AGE AND ADDRESS* FUND DURING PAST FIVE YEARS - ----------------------------- --------- ------------------------------------ Ann E. Moran; 38 Vice Ms. Moran is a vice president of President Mitchell Hutchins. Ms. Moran is and also a vice president and Assistant assistant treasurer of 37 other Treasurer investment companies for which Mitchell Hutchins or PaineWebber serves as investment adviser. Dianne E. O'Donnell; 43 Vice Ms. O'Donnell is a senior vice President president and deputy general and counsel of Mitchell Hutchins. Ms. Secretary O'Donnell is also a vice president and secretary of 37 other investment companies for which Mitchell Hutchins or PaineWebber serves as investment adviser. Victoria E. Schonfeld; 45 Vice Ms. Schonfeld is a managing director President and general counsel of Mitchell Hutchins. From April 1990 to May 1994, she was a partner in the law firm of Arnold & Porter. Prior to April 1990, she was a partner in the law firm of Shereff, Friedman, Hoffman & Goodman. Ms. Schonfeld is also a vice president of 37 other investment companies for which Mitchell Hutchins or PaineWebber serves as investment adviser. Paul H. Schubert; 32 Vice Mr. Schubert is a first vice President president of Mitchell Hutchins. and From August 1992 to August 1994, Assistant he was a vice president at Treasurer BlackRock Financial Management, Inc. Prior to August 1992, he was an audit manager with Ernst & Young LLP. Mr. Schubert is also a vice president and assistant treasurer of 37 other investment companies for which Mitchell Hutchins or PaineWebber serves as investment adviser. Julian F. Sluyters; 35 Vice Mr. Sluyters is a senior vice President president and the director of the and mutual fund finance division of Treasurer Mitchell Hutchins. Prior to 1991, he was an audit senior manager with Ernst & Young LLP. Mr. Sluyters is also a vice president and treasurer of 37 other investment companies for which Mitchell Hutchins or PaineWebber serves as investment adviser.
17
POSITION WITH THE PRINCIPAL OCCUPATION(S) NAME, AGE AND ADDRESS* FUND DURING PAST FIVE YEARS - ----------------------------- --------- ------------------------------------ Gregory K. Todd; 39 Vice Mr. Todd is a first vice president President and associate general counsel of and Mitchell Hutchins. Prior to 1993, Assistant he was a partner in the law firm Secretary of Shereff, Friedman, Hoffman & Goodman. Mr. Todd is also a vice president and assistant secretary of 37 other investment companies for which Mitchell Hutchins or PaineWebber serves as investment adviser. Stuart Waugh; 40 Vice Mr. Waugh is a managing director and President a portfolio manager of Mitchell Hutchins responsible for global fixed income investments and currency trading. Mr. Waugh is also a vice president of other investment companies for which Mitchell Hutchins serves as investment adviser. Keith A. Weller; 34 Vice Mr. Weller is a first vice president President and associate general counsel of and Mitchell Hutchins. From September Assistant 1987 to March 1995, he was an Secretary attorney in private practice. Mr. Weller is also a vice president and assistant secretary of 24 other investment companies for which Mitchell Hutchins or PaineWebber serves as investment adviser.
- ------------------ * Unless otherwise indicated, the business address of each listed person is 1285 Avenue of the Americas, New York, New York 10019. ** Mr. Bewkes is an 'interested person' of the Fund, as defined in the 1940 Act, by reason of his position with PW Group. The Fund pays directors who are not 'interested persons' of the Fund $1,500 annually and $250 per meeting of the Board of Directors or any committee thereof. Directors also are reimbursed for any expenses incurred in attending meetings. Because Mitchell Hutchins performs substantially all of the services necessary for the operation of the Fund, the Fund requires no employees. No officer, director or employee of PaineWebber or Mitchell Hutchins presently receives any compensation from the Fund for acting as a director or officer. At a meeting of the Board of Directors held on November 29, 1995, the Board decided to expand itself from five to eleven directors. An election of all eleven nominees is scheduled to take place at the Fund's annual meeting of shareholders on , 1996. The table below includes certain information relating to the compensation of the Fund's directors. 18 COMPENSATION TABLE
PENSION OR TOTAL RETIREMENT COMPENSATION BENEFITS FROM THE AGGREGATE ACCRUED AS ESTIMATED FUND AND THE COMPENSATION PART OF ANNUAL FUND COMPLEX FROM THE THE FUND'S BENEFITS UPON PAID TO NAME OF PERSON, POSITION FUND* EXPENSES RETIREMENT DIRECTORS+ - ---------------------------------------------------- ------------ ---------- ------------- ------------ Richard Q. Armstrong, Director.......................................... $1,125 -- -- E. Garrett Bewkes, Jr. Director and chairman of the board of directors... -- -- -- -- Richard R. Burt, Director.......................................... $ 875 -- -- John R. Torell III, Director.......................................... $2,250 -- -- $ 39,000 William D. White, Director.......................................... $1,250 -- -- $ 35,500
- ------------------ * Represents fees paid to each director during the fiscal year ended October 31, 1995. + Represents total compensation paid to each director by the Fund Complex during the twelve months ended December 31, 1995. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES As of December 31, 1995, Cede & Co. (the nominee for The Depository Trust Company) owned of record 22,128,718 shares of the Common Stock or 97.3% of the outstanding Common Stock. To the knowledge of the Fund, no person is the beneficial owner of 5% or more of its Common Stock. As of , 1996, the directors and officers of the Fund beneficially owned less than 1% of the outstanding shares of Common Stock. INVESTMENT ADVISORY ARRANGEMENTS Mitchell Hutchins is the Fund's investment adviser and administrator pursuant to a contract dated September 30, 1993 with the Fund ('Advisory Contract'). Pursuant to the Advisory Contract, Mitchell Hutchins provides a continuous investment program for the Fund and makes investment decisions and places orders to buy, sell or hold particular securities. As administrator, Mitchell Hutchins supervises all matters relating to the operation of the Fund and obtains for it corporate, administrative and clerical personnel, office space, equipment and services, including arranging for the periodic preparation, updating, filing and dissemination of proxy materials, tax returns and reports to the Fund's Board of Directors, stockholders and regulatory authorities. In addition to the payments to Mitchell Hutchins under the Advisory Contract described in the Prospectus, the Fund pays certain other costs, including (1) the costs (including brokerage commissions) of securities purchased or sold by the Fund and any losses incurred in connection therewith; (2) expenses incurred on behalf of the Fund by Mitchell Hutchins; (3) organizational expenses of the Fund, whether or not advanced by Mitchell Hutchins; (4) filing fees and expenses relating to the registration and qualification of the Common Stock under federal and state securities laws; (5) fees and salaries payable to directors who are not interested persons of the Fund or Mitchell Hutchins; (6) all expenses incurred in connection with the directors' services, including travel 19 expenses; (7) taxes (including any income or franchise taxes) and governmental fees; (8) costs of any liability, uncollectible items of deposit and any other insurance or fidelity bonds; (9) any costs, expenses or losses arising out of a liability of or claims for damages or other relief asserted against the Fund for violation of any law; (10) legal, accounting and auditing expenses, including legal fees of special counsel for the independent directors; (11) charges of custodians, transfer agents and other agents; (12) costs of preparing share certificates; (13) expenses of printing and distributing reports to stockholders; (14) any extraordinary expenses (including fees and disbursements of counsel) incurred by the Fund; (15) fees, voluntary assessments and other expenses incurred in connection with membership in investment company organizations; (16) costs of mailing and tabulating proxies and costs of meetings of stockholders, the Board and any committees thereof; (17) the costs of investment company literature and other publications provided to directors and officers; (18) costs of mailing, stationery and communications equipment; (19) interest charges on borrowings; and (20) fees and expenses of listing and maintaining any listing of the Fund's shares on the New York Stock Exchange ('NYSE') or any other national securities exchange. The Advisory Contract was approved by the Fund's Board of Directors and by a majority of the directors who are not parties to the Advisory Contract or interested persons of any such party ('Independent Directors') on June 23, 1993 and by its initial stockholder on September 27, 1993. Unless sooner terminated, the Advisory Contract will continue automatically for successive annual periods, provided that such continuance is specifically approved at least annually (1) by a majority vote of the Independent Directors cast in person at a meeting called for the purpose of voting on such approval; and (2) by the Board of Directors or by vote of a majority of the outstanding voting securities of the Fund. Under the Advisory Contract, Mitchell Hutchins will not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the Advisory Contract, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of Mitchell Hutchins in the performance of its duties or from reckless disregard of its duties and obligations under the Advisory Contract. The Advisory Contract is terminable by vote of the Board of Directors or by the holders of a majority of the outstanding voting securities of the Fund, at any time without penalty, on 60 days' written notice to Mitchell Hutchins. The Advisory Contract may also be terminated by Mitchell Hutchins on 60 days' written notice to the Fund. The Advisory Contract terminates automatically upon its assignment. For the period October 8, 1993 (commencement of operations) to October 31, 1993, for the fiscal year ended October 31, 1994 and for the fiscal year ended October 31, 1995, the Fund paid or accrued to Mitchell Hutchins $237,527, $3,911,266 and $3,540,880, respectively, in investment advisory and administration fees. Mitchell Hutchins personnel may invest in securities for their own accounts pursuant to a code of ethics that describes the fiduciary duty owed to shareholders of the PaineWebber, PaineWebber/Kidder, Peabody and Mitchell Hutchins/Kidder, Peabody mutual funds (collectively, 'PW Funds') and other Mitchell Hutchins' advisory accounts by all Mitchell Hutchins' directors, officers and employees, establishes procedures for personal investing and restricts certain transactions. For example, employee accounts generally must be maintained at PaineWebber, personal trades in most securities require pre-clearance and short-term trading and participation in initial public offerings generally are prohibited. In addition, the code of ethics puts restrictions on the timing of personal investing in relation to trades by PW Funds and other Mitchell Hutchins advisory clients. 20 PORTFOLIO TRANSACTIONS Subject to policies established by the Board of Directors, Mitchell Hutchins is responsible for the execution of the Fund's portfolio transactions and the allocation of brokerage transactions. In executing portfolio transactions, Mitchell Hutchins seeks to obtain the best net results for the Fund, taking into account such factors as the price (including the applicable brokerage commission or dealer spread), size of the order, difficulty of execution and operational facilities of the firm involved. Generally, debt securities are traded on the OTC market on a 'net' basis without a stated commission through dealers acting for their own account and not as brokers. Prices paid to dealers generally include a 'spread,' which is the difference between the prices at which the dealer is willing to purchase and sell a specific security at the time. The Fund will have no obligation to deal with any broker or group of brokers in the execution of portfolio transactions. The Fund contemplates that, consistent with obtaining the best net results, brokerage transactions may be conducted through Mitchell Hutchins or any of its affiliates, including PaineWebber. The Fund's Board of Directors has adopted procedures in conformity with Rule 17e-1 under the 1940 Act to ensure that all brokerage commissions paid to Mitchell Hutchins or any of its affiliates are reasonable and fair. Specific provisions in the Advisory Contract authorize Mitchell Hutchins and any affiliate thereof which is a member of a national securities exchange to effect portfolio transactions for the Fund on such exchange and to retain compensation in connection with such transactions. Any such transactions will be effected and related compensation paid only in accordance with applicable SEC regulations. Transactions in futures contracts are executed through futures commission merchants ('FCMs') who receive brokerage commissions for their services. The Fund's procedures in selecting FCMs to execute the Fund's transactions in futures contracts, including procedures permitting the use of Mitchell Hutchins and its affiliates, are similar to those in effect with respect to brokerage transactions in securities. For the period October 8, 1993 (commencement of operations) to October 31, 1993, for the fiscal year ended October 31, 1994 and for the fiscal year ended October 31, 1995, the Fund paid no commissions to FCMs. Consistent with the Fund's interests and subject to the review of the Board of Directors, Mitchell Hutchins may cause the Fund to purchase and sell portfolio securities from and to dealers, or through brokers which provide the Fund with research, analysis, advice and similar services. In return for such services, the Fund may pay to those brokers a higher commission than may be charged by other brokers, provided that Mitchell Hutchins determines in good faith that such commission is reasonable in terms either of that particular transaction or of the overall responsibility of Mitchell Hutchins to the Fund and its other clients and that the total commissions paid by the Fund will be reasonable in relation to the benefits to the Fund over the long term. For purchases or sales with broker-dealer firms which act as principal, Mitchell Hutchins seeks best execution. Although Mitchell Hutchins may receive certain research or execution services in connection with these transactions, Mitchell Hutchins will not purchase securities at a higher price or sell securities at a lower price than would otherwise be paid if no weight was attributed to the services provided by the executing dealer. Moreover, Mitchell Hutchins will not enter into any explicit soft dollar arrangements relating to principal transactions and will not receive in principal transactions the types of services which could be purchased for hard dollars. Mitchell Hutchins may engage in agency transactions in OTC equity and debt securities in return for research and execution services. These transactions are entered into only in compliance with procedures ensuring that the transaction (including commissions) is at least as favorable as it would have been if effected directly with a market-maker that did not provide research or execution services. These procedures include Mitchell Hutchins receiving multiple quotes from dealers before executing the transaction on an agency basis. 21 Research services furnished by dealers or brokers with or through which the Fund effects securities transactions may be used by Mitchell Hutchins in advising other funds or accounts and, conversely, research services furnished to Mitchell Hutchins by dealers or brokers in connection with other funds or accounts Mitchell Hutchins advises may be used by Mitchell Hutchins in advising the Fund. Information and research received from such brokers or dealers will be in addition to, and not in lieu of, the services required to be performed by Mitchell Hutchins under the Advisory Contract. Investment decisions for the Fund and for other investment accounts managed by Mitchell Hutchins will be made independently of each other in the light of differing considerations for the various accounts. The same investment decision, however, may occasionally be made for the Fund and one or more of such accounts. In such cases, simultaneous transactions are inevitable. Purchases or sales are then averaged as to price and allocated between the Fund and such other account(s) as to amount according to a formula deemed equitable to the Fund and such account(s). While in some cases this practice could have a detrimental effect upon the price or value of the security as far as the Fund is concerned or upon its ability to complete its entire order, in other cases it is believed that coordination and the ability to participate in volume transactions will be beneficial to the Fund. The Fund will not purchase securities that are offered in underwritings in which Mitchell Hutchins or any of its affiliates is a member of the underwriting or selling group except pursuant to the procedures adopted by the Fund's Board of Directors in conformity with Rule 10f-3 under the 1940 Act. Among other things, these procedures require that the commission or spread paid in connection with such a purchase be reasonable and fair, that the purchase be at not more than the public offering price prior to the end of the first business day after the date of the public offering and that Mitchell Hutchins and its affiliates not participate in or benefit from the sale to the Fund. For the period October 8, 1993, (commencement of operations) to October 31, 1993, for the fiscal year ended October 31, 1994 and for the fiscal year ended October 31, 1995, Mitchell Hutchins did not direct any brokerage commissions to brokers chosen because they provided research and analysis. For the period October 8, 1993 (commencement of operations) to October 31, 1993, for the fiscal year ended October 31, 1994 and for the fiscal year ended October 31, 1995, the Fund paid no brokerage commissions. PORTFOLIO TURNOVER The Fund's portfolio turnover rate may vary from year to year and will not be a limiting factor when Mitchell Hutchins deems portfolio changes appropriate. The portfolio turnover rate is calculated by dividing the lesser of the Fund's annual sales or purchases of portfolio securities (exclusive of purchases or sales of securities whose maturities at the time of acquisition were one year or less) by the monthly average value of the long-term securities in the portfolio during the year. For the fiscal year ended October 31, 1994 and for the fiscal year ended October 31, 1995, the Fund's portfolio turnover rate was 51% and 71%, respectively. VALUATION OF COMMON STOCK The net asset value of the Common Stock will be determined weekly as of the close of regular trading on the NYSE on the last day of the week on which the NYSE is open for trading. The net asset value of the Common Stock also is determined monthly at the close of regular trading on the NYSE on the last day of the month on which the NYSE is open for trading. The net asset value per share of Common Stock is computed by dividing the value of the securities held by the Fund plus any cash or other assets (including interest and dividends accrued but not yet received and earned discount) minus all liabilities (including accrued expenses) by the total number of shares of Common Stock outstanding at such time. 22 When market quotations are readily available, the Fund's debt securities are valued based upon those quotations. When market quotations for options and futures positions held by the Fund are readily available, those positions will be valued based upon such quotations. Market quotations generally are not available for options traded in the OTC market. When market quotations are not readily available for any of the Fund's debt securities, such securities are valued based upon appraisals received from a pricing service using a computerized matrix system, or based upon appraisals derived from information concerning the security or similar securities received from recognized dealers in those securities. Notwithstanding the above, debt securities with maturities of 60 days or less generally are valued at amortized cost if their original term to maturity was 60 days or less, or by amortizing the difference between their fair value as of the 61st day prior to maturity and their maturity value if their original term to maturity exceeded 60 days, unless in either case the Board of Directors or its delegate determines that this does not represent fair value. Securities and other instruments that are listed on U.S. and foreign stock exchanges and for which market quotations are readily available are valued at the last sale price on the exchange on which the securities are traded, as of the close of business on the day the securities are being valued or, lacking any sales on such day, at the last bid price available. In cases where securities or other instruments are traded on more than one exchange, such securities or other instruments generally are valued on the exchange designated by Mitchell Hutchins under the direction of the Board of Directors as the primary market. Securities traded in the OTC market and listed on Nasdaq are valued at the last available sale price on Nasdaq prior to the time of valuation; other OTC equity securities and instruments are valued at the last available bid price prior to the time of valuation. Securities and other assets for which reliable 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 Board of Directors. All securities and other assets quoted in foreign currency and forward currency contracts are valued weekly in U.S. dollars on the basis of the foreign currency exchange rate 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 the NYSE. Occasionally, events affecting the value of foreign securities and such exchange rates occur between the time at which they are determined and the close of the NYSE, which events will not be reflected in a computation of the Fund's net asset value. If events materially affecting the value of such securities or assets or currency exchange rates occurred during such time period, the securities or assets would be valued at their fair value as determined in good faith by or under the direction of the Board of Directors. The foreign currency exchange transactions of the Fund conducted on a spot basis are valued at the spot rate for purchasing or selling currency prevailing on the foreign exchange market. Under normal market conditions this rate differs from the prevailing exchange rate by an amount generally less than one-tenth of one percent due to the costs of converting from one currency to another. TAXATION GENERAL In order to continue to qualify for treatment as a regulated investment company ('RIC') under the Internal Revenue Code, the Fund must distribute to its stockholders for each taxable year at least 90% of its investment company taxable income (consisting generally of net investment income, net short-term capital gain and net gains from certain foreign currency transactions) ('Distribution Requirement') and must meet several additional requirements. Among these requirements are the following: (1) the Fund must derive at least 90% of its gross income each taxable year from dividends, interest, payments with respect to securities loans and gains from the 23 sale or other disposition of securities or foreign currencies, or other income (including gains from options, futures or forward currency contracts) derived with respect to its business of investing in securities or those currencies ('Income Requirement'); (2) the Fund must derive less than 30% of its gross income each taxable year from the sale or other disposition of securities, or any of the following, that were held for less than three months--options, futures or forward currency contracts (other than those on foreign currencies), or foreign currencies (or options, futures or forward contracts thereon) that are not directly related to the Fund's principal business of investing in securities (or options and futures with respect to securities) ('Short-Short Limitation'); (3) at the close of each quarter of the Fund's taxable year, at least 50% of the value of its total assets must be represented by cash and cash items, U.S. government securities, securities of other RICs and other securities, with these other securities limited, in respect of any one issuer, to an amount that does not exceed 5% of the value of the Fund's total assets and that does not represent more than 10% of the issuer's outstanding voting securities; and (4) at the close of each quarter of the Fund's taxable year, not more than 25% of the value of its total assets may be invested in securities (other than U.S. government securities or the securities of other RICs) of any one issuer. Dividends and other distributions declared by the Fund in October, November or December of any year and payable to stockholders of record on a date in any of those months will be deemed to have been paid by the Fund and received by the stockholders on December 31 of that year if the distributions are paid by the Fund during the following January. Accordingly, those distributions will be taxed to the stockholders for the year in which that December 31 falls. The Fund will be subject to a nondeductible 4% excise tax ('Excise Tax') to the extent it fails to distribute by the end of any calendar year substantially all of its ordinary income for that year and capital gain net income for the one-year period ending on October 31 of that year, plus certain other amounts. For purposes of the Excise Tax, any ordinary income or capital gain net income retained by, and subject to federal income tax in the hands of, the Fund will be treated as having been distributed. FOREIGN TAXES Interest and dividends on foreign securities received by the Fund may be subject to income, withholding or other taxes imposed by foreign countries and U.S. possessions that would reduce the yield on those securities. Tax conventions between certain countries and the United States may reduce or eliminate these taxes, however, and many foreign countries do not impose taxes on capital gains in respect of investments by foreign investors. If more than 50% of the value of the Fund's total assets at the close of any taxable year consists of securities of foreign corporations, the Fund will be eligible to, and may, file an election with the Internal Revenue Service that will enable its stockholders, in effect, to receive the benefit of the foreign tax credit with respect to any foreign and U.S. possessions income taxes paid by the Fund for that year. Pursuant to the election, the Fund would treat those taxes as dividends paid to its stockholders and each stockholder would be required to (1) include in gross income, and treat as paid by him, his proportionate share of those taxes, (2) treat his share of those taxes and of any dividend paid by the Fund that represents income from foreign or U.S. possessions sources as his own income from those sources and (3) either deduct the taxes deemed paid by him in computing his taxable income or, alternatively, use the foregoing information in calculating the foreign tax credit against his federal income tax. If the Fund makes the election, it will report to its stockholders shortly after the end of each taxable year their respective shares of the Fund's income from sources within, and taxes paid to, foreign countries and U.S. possessions. Potential investors should note, however, that the Fund may not satisfy the above-referenced 50%-of-assets test and that, as a result, it may be unable to make the election, with the consequence that foreign and U.S. possessions taxes imposed on the Fund would not be deductible or creditable by its stockholders. 24 PASSIVE FOREIGN INVESTMENT COMPANIES The Fund may invest a portion of its assets in entities organized and operated solely for the purpose of restructuring the investment characteristics of debt securities issued or guaranteed by foreign governments. Certain of these investments may constitute investments in 'passive foreign investment companies' ('PFICs'). A PFIC is a foreign corporation that, in general, meets either of the following tests: (1) at least 75% of its gross income is passive or (2) an average of at least 50% of its assets produce, or are held for the production of, passive income. Under certain circumstances, a RIC that holds stock of a PFIC will be subject to federal income tax on a portion of any 'excess distribution' received on the stock or of any gain on disposition of the stock (collectively 'PFIC income'), plus interest thereon, even if the RIC distributes the PFIC income as a taxable dividend to its stockholders. The balance of the PFIC income will be included in the RIC's investment company taxable income and, accordingly, will not be taxable to it to the extent that income is distributed to its stockholders. If the Fund invests in a PFIC and elects to treat the PFIC as a 'qualified electing fund,' then in lieu of the foregoing tax and interest obligation, the Fund would be required to include in income each year its pro rata share of the qualified electing fund's annual ordinary earnings and net capital gain (the excess of net long-term capital gain over net short-term capital loss)--which most likely would have to be distributed to satisfy the Distribution Requirement and to avoid imposition of the Excise Tax--even if those earnings and gain were not received by the Fund. In most instances it will be very difficult, if not impossible, to make this election because of certain requirements thereof. Pursuant to proposed regulations, closed-end RICs whose net asset value is determined and published in a publication of general circulation at least weekly, such as the Fund, would be entitled to elect to 'mark-to-market' their stock in certain PFICs. 'Marking-to-market,' in this context, means recognizing as gain for each taxable year the excess, as of the end of that year, of the fair market value of such a PFIC's stock over the owner's adjusted basis in that stock (including mark-to-market gain for each prior year for which an election was in effect). HEDGING STRATEGIES The use of hedging strategies, such as writing (selling) and purchasing options and futures and entering into forward currency contracts, involves complex rules that will determine for income tax purposes the amount, character and timing of recognition of the gains or losses the Fund recognizes in connection therewith. These rules also may require the Fund to 'mark to market' (that is, treat as sold for their fair market value) at the end of each taxable year certain positions in its portfolio, which may cause the Fund to recognize income without receiving cash with which to make distributions necessary to satisfy the Distribution Requirement and to avoid imposition of the Excise Tax. In that event, the Fund might have to liquidate securities to enable it to make the required distributions, which would cause it to recognize gains or losses and might affect its ability to satisfy the Short-Short Limitation. Income from the disposition of foreign currencies (except certain gains therefrom that may be excluded by future regulations), and income from transactions in options, futures and forward currency contracts derived by the Fund with respect to its business of investing in securities or foreign currencies, will qualify as permissible income under the Income Requirement. However, income from the disposition of options and futures (other than those on foreign currencies) will be subject to the Short-Short Limitation if they are held for less than three months. Income from the disposition of foreign currencies, and options, futures and forward currency contracts on foreign currencies, that are not directly related to the Fund's principal business of investing in securities (or 25 options and futures with respect to securities) also will be subject to the Short-Short Limitation if they are held for less than three months. If the Fund satisfies certain requirements, any increase in value of a position that is part of a 'designated hedge' will be offset by any decrease in value (whether realized or not) of the offsetting hedging position during the period of the hedge for purposes of determining whether the Fund satisfies the Short-Short Limitation. Thus, only the net gain (if any) from the designated hedge will be included in gross income for purposes of that limitation. The Fund will consider whether it should seek to qualify for this treatment for its hedging transactions. To the extent the Fund does not qualify for this treatment, it may be forced to defer the closing out of certain options, futures and forward currency contracts beyond the time when it otherwise would be advantageous to do so in order for the Fund to continue to qualify as a RIC. ADDITIONAL INFORMATION SHARE REPURCHASES AND TENDER OFFERS As discussed in the Prospectus, the Fund's Board of Directors may tender for Common Stock to reduce or eliminate the discount to net asset value at which the Common Stock might trade. Even if a tender offer has been made, it will be the Board's announced policy, which may be changed by the Board, not to accept tenders or effect repurchases (or, if a tender offer has not been made, not to initiate a tender offer) if: (1) such transactions, if consummated, would (a) result in the delisting of the Common Stock from the NYSE (the NYSE having advised the Fund that it would consider delisting if the aggregate market value of the outstanding shares is less than $5,000,000, the number of publicly held shares falls below 600,000 or the number of round-lot holders falls below 1,200), or (b) impair the Fund's status as a RIC (which would eliminate its eligibility to deduct dividends paid to its stockholders, thus causing its income to be fully taxed at the corporate level in addition to the taxation of stockholders on distributions received from the Fund); (2) the Fund would not be able to liquidate portfolio securities in an orderly manner and consistent with the Fund's investment objectives and policies in order to repurchase the Common Stock; or (3) there is, in the Board's judgment, any material (a) legal action or proceeding instituted or threatened challenging such transactions or otherwise materially adversely affecting the Fund, (b) suspension of trading or limitation on prices of securities generally on the NYSE or any foreign exchange on which portfolio securities of the Fund are traded, (c) declaration of a banking moratorium by federal, state or foreign authorities or any suspension of payment by banks in the United States, New York State or foreign countries in which the Fund invests, (d) limitation affecting the Fund or the issuers of its portfolio securities imposed by federal, state or foreign authorities on the extension of credit by lending institutions or on the exchange of foreign currency, (e) commencement of war, armed hostilities or other international or national calamity directly or indirectly involving the United States or other countries in which the Fund invests or (f) other events or conditions that would have a material adverse effect on the Fund or its stockholders if Common Stock was repurchased. The Board of Directors may modify these conditions in light of experience. CUSTODIAN Brown Brothers Harriman & Co., serves as custodian of the Fund's assets held in the United States. Rules adopted under the 1940 Act permit the Fund to maintain its securities and cash in the custody of certain eligible banks and securities depositories. Pursuant to those rules, the Fund's portfolio of securities and cash, when invested in securities of foreign countries, is held by its subcustodians who are approved by the directors of the Fund in accordance with the rules of the SEC. Selection of the subcustodians is made by the directors of the Fund following a consideration of a number of factors, including, but not limited to, the reliability and financial 26 stability of the institution, the ability of the institution to capably perform custodial services for the Fund, the reputation of the institution in its national market and the political and economic stability of the countries in which the subcustodians will be located. In addition, the 1940 Act requires that foreign subcustodians, among other things, have shareholder equity in excess of $200 million, have no lien on the Fund's assets and maintain adequate and accessible records. INDEPENDENT ACCOUNTANTS Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036, serves as the Fund's independent accountants. LEGAL MATTERS The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W., Washington, D.C. 20036-1800, counsel to the Fund, has passed upon the legality of the shares offered by the Fund's Prospectus. Kirkpatrick & Lockhart LLP also acts as counsel to Mitchell Hutchins and PaineWebber in connection with other matters. FINANCIAL INFORMATION The Fund's Annual Report to Shareholders for the fiscal year ended October 31, 1995 is a separate document supplied with this SAI, and the financial statements, accompanying notes and report of independent accountants appearing therein are incorporated by reference in this SAI. 27 - ------------------------------------------------ - ------------------------------------------------ NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS OTHER THAN THOSE CONTAINED IN THE PROSPECTUS OR IN THIS STATEMENT OF ADDITIONAL INFORMATION AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR PAINEWEBBER. THE PROSPECTUS AND THIS STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH THE PROSPECTUS RELATES. THE PROSPECTUS AND THIS STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN OFFERING BY THE FUND OR BY PAINEWEBBER IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. ------------------------ TABLE OF CONTENTS
PAGE ---- Investment Policies and Restrictions.................. 2 Strategic Transactions................................ 5 Directors and Officers................................ 14 Control Persons and Principal Holders of Securities... 19 Investment Advisory Arrangements...................... 19 Portfolio Transactions................................ 21 Valuation of Common Stock............................. 22 Taxation.............................................. 23 Additional Information................................ 26 Financial Information................................. 27
- ------------------------------------------------ - ------------------------------------------------ Copyright 1996 PaineWebber Incorporated Printed on Recycled Paper - ------------------------------------------------ - ------------------------------------------------ GLOBAL HIGH INCOME DOLLAR FUND INC. COMMON STOCK ------------------------ STATEMENT OF ADDITIONAL INFORMATION ------------------------ PAINEWEBBER INCORPORATED ------------------------ MARCH , 1996 - ------------------------------------------------ - ------------------------------------------------ PART C -- OTHER INFORMATION Item 24. Financial Statements and Exhibits 1. Financial Statements: Included in Part A of the Registration Statement: a. Financial Highlights Included in Part B of the Registration Statement through incorporation by reference from the Annual Report to the Shareholders, previously filed with the Securities and Exchange Commission through EDGAR on January 5, 1996 [File No. 33-64916] [Accession No. 0000889812-96-000009]: a. Report of Price Waterhouse, LLP, Independent Accountants b. Portfolio of Investments as of October 31, 1995 c. Statement of Assets and Liabilities as of October 31, 1995 d. Statement of Operations for the year ended October 31, 1995 e. Statement of Changes in Net Assets f. Notes to Financial Statements g. Quarterly Results of Operations (unaudited) h. Financial Highlights 2. Exhibits: a. (i) Articles of Incorporation1/ (ii) Articles of Amendment2/ b. (i) Bylaws (filed herewith) (ii) Amendment to Bylaws (filed herewith) c. None d. Inapplicable e. Dividend Reinvestment Plan3/ f. None - ------------------- 1/ Incorporated by reference to exhibit 1(a) to the Registrant's initial Registration Statement on Form N-2 filed June 23, 1993 (File No. 33- 64916). 2/ Incorporated by reference to exhibit 1(b) to the Registrant's initial Registration Statement on Form N-2 filed June 23, 1993 (File No. 33- 64916). 3/ Incorporated by reference to exhibit 5 to Pre-Effective Amendment No. 2 to the Registrant's Registration Statement on Form N-2 filed September 30, 1993 (File No. 33-64916). II-1 g. Investment Advisory and Administration Contract4/ h. (i) Underwriting Agreement5/ (ii) Master Selected Dealer Agreement6/ i. None j. Custodian Agreement6/ k. Transfer Agency Agreement7/ l. Opinion and Consent of Counsel8/ m. None n. Consent of Independent Accountants (filed herewith) o. None p. Letter of Investment Intent9/ q. None r. Financial Data Schedule (filed herewith) Item 25. Marketing Arrangements Inapplicable. See note accompanying Item 24.2.h. Item 26. Other Expenses of Issuance and Distribution Not applicable to current Post-Effective Amendment; for expenses incurred in connection with this Registration Statement; see the Fund's Pre-Effective Amendment No. 2 to the Registration Statement on Form N-2, SEC File No. 33-64916, filed September 30, 1993. - ------------------- 4/ Incorporated by reference to exhibit g to Post-Effective Amendment No. 2 to the Registration Statement on Form N-2 filed November 23, 1994 (File No. 33-64916). 5/ The shares offered by the Prospectus will be offered in order to effect over-the-counter secondary market transactions by PaineWebber in its capacity as a dealer and secondary market maker and not pursuant to any agreement with the Fund. Shares were originally issued in a public offering pursuant to an Underwriting Agreement, included as exhibit h to Post-Effective Amendment No. 2 to the Registration Statement on Form N-2 filed November 23, 1994 (File No. 33-64916), and a related document, included as exhibit 8(b) to Pre- Effective Amendment No. 2 to the Registration Statement on Form N-2 filed September 30, 1993 (file No. 33-64916). 6/ Incorporated by reference to exhibit j to Post-Effective Amendment No. 2 to the Registration Statement on Form N-2 filed November 23, 1994 (File No. 33-64916). 7/ Incorporated by reference to exhibit k to Post-Effective Amendment No. 2 to the Registration Statement on Form N-2 filed November 23, 1994 (File No. 33-64916). 8/ Incorporated by reference to exhibit 12 to Pre-Effective Amendment No. 2 to the Registrant's Registration Statement on Form N-2 filed September 30, 1993 (File No. 33-64916). 9/ Incorporated by reference to exhibit 16 to Pre-Effective Amendment No. 2 to the Registrant's Registration Statement on Form N-2 filed September 30, 1993 (File No. 33-64916). II-2 Item 27. Persons Controlled by or Under Common Control None. Item 28. Number of Holders of Securities Number of Record Holders as of Title of Class January 3, 1996 -------------- ---------------- Common Stock, par value 796 $0.001 per share Item 29. Indemnification Incorporated by reference to Item 29 of Part C to Pre-Effective Amendment No. 2 to the Registration Statement on Form N-2 filed September 30, 1993 (File No. 33-64916). Item 30. Business and Other Connections of Investment Adviser See "Management of the Fund" in the Prospectus. Mitchell Hutchins, a Delaware corporation, is a registered investment adviser and is wholly owned by PaineWebber, which in turn is wholly owned by Paine Webber Group Inc. Mitchell Hutchins is primarily engaged in the investment advisory business. Information as to executive officers and directors of Mitchell Hutchins is included in its Form ADV filed with the SEC (Registration number 801-13219) and is incorporated herein by reference. Item 31. Location of Accounts and Records The accounts and records of the Trust are maintained at the office of the Fund's custodian at 40 Water Street, Boston, Massachusetts 62109, except that the Fund's corporate records (its articles of incorporation, by-laws and minutes of the meetings of its board of directors and shareholders) are maintained at the offices of Mitchell Hutchins at 1285 Avenue of the Americas, New York, New York 10019. Item 32. Management Services None. Item 33. Undertakings The Undertakings of the Registrant as set forth in the Fund's Post- Effective Amendment No. 3 to its Registration Statement on Form N-2, filed on January 11, 1995 (File No. 33-64916) are hereby revised as follows: The Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and II-3 (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That for the purpose of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497 under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (3) That for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (4) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (5) To send by first class mail or other means designed to ensure equally prompt delivery, within two business days of receipt of a written or oral request, any Statement of Additional Information. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the registrant has duly caused this Post- Effective Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, and the State of New York, on the second day of January, 1996. GLOBAL HIGH INCOME DOLLAR FUND INC. By: /s/ Gregory K. Todd --------------------------------------- Gregory K. Todd Vice President and Assistant Secretary Pursuant to the requirements of the Securities Act of 1933, this Post- Effective Amendment to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated: Signature Title Date /s/ Richard Q. Armstrong Director January 2, 1996 --------------------------- Richard Q. Armstrong* /s/ E. Garrett Bewkes, Jr. Director and Chairman January 2, 1996 --------------------------- of the Board of Directors E. Garrett Bewkes, Jr.** /s/ Richard R. Burt Director January 2, 1996 --------------------------- Richard R. Burt*** /s/ John R. Torell III Director January 2, 1996 --------------------------- John R. Torell III**** /s/ William D. White Director January 2, 1996 --------------------------- William D. White**** /s/ Margo N. Alexander President January 2, 1996 --------------------------- Margo N. Alexander***** /s/ Julian F. Sluyters Vice President and January 2, 1996 --------------------------- Treasurer (Principal Julian F. Sluyters Financial and Accounting Officer) ________________ *Signature affixed by Robert A. Wittie pursuant to power of attorney dated June 1, 1995, and incorporated by reference from Post-Effective Amendment No. 3 to the Registration Statement of PaineWebber Premier Tax-Free Income II-5 Fund, Inc. SEC No. 60596; filed December 1, 1995. **Signature affixed by Robert A. Wittie pursuant to power of attorney dated January 3, 1994, and incorporated by reference from Post-Effective Amendment No. 20 to the Registration Statement of PaineWebber Master Series, Inc., SEC No. 33-2524, filed February 28, 1994. ***Signature affixed by Robert A. Wittie pursuant to power of attorney dated December 12, 1995, and filed herewith. ****Signatures affixed by Robert A. Wittie pursuant to powers of attorney dated August 11, 1993, and incorporated by reference from Pre-Effective Amendment No. 1 to the Fund's Registration Statement on Form N-2, SEC No. 33-64916, filed August 11, 1993. *****Signature affixed by Robert A. Wittie pursuant to power of attorney dated May 8, 1995, and incorporated by reference from Post Effective Amendment No. 34 to the PaineWebber America Fund, Inc., SEC No. 2-78626, filed May 10, 1995. II-6 POWER OF ATTORNEY I, Richard R. Burt, Director of Triple A and Government Series - 1997, Inc., All-American Term Trust Inc., 2002 Target Term Trust Inc., Global Small Cap Fund Inc., Global High Income Dollar Fund Inc., Managed High Yield Fund Inc., PaineWebber Premier Tax-Free Income Fund Inc. (d/b/a Investment Grade Municipal Income Fund) and PaineWebber Premier Insured Municipal Income Fund Inc. (d/b/a Insured Municipal Income Fund Inc.) (collectively, the "Funds"), hereby constitute and appoint Victoria E. Schonfeld, Dianne E. O'Donnell, Gregory K. Todd, Joan L. Cohen, Elinor W. Gammon and Robert A. Wittie, and each of them singly, my true and lawful attorneys, with full power to them to sign for me, and in my capacity as Director for each of the Funds, any and all amendments to each of the particular registration statements of the Funds, and all instruments necessary or desirable in connection therewith, filed with the Securities and Exchange Commission, hereby ratifying and confirming my signature as it may be signed by said attorneys to any and all amendments to said registration statements. Pursuant to the requirements of the Securities Act of 1933, this instrument has been signed below by the following in the capacity and on the date indicated. Signature Title Date /s/Richard R. Burt Director 12/12/1995 ---------------------- Richard R. Burt II-7 GLOBAL HIGH INCOME DOLLAR FUND INC. EXHIBIT INDEX Exhibit Document Description ------- -------------------- a. (i) Articles of Incorporation [previously filed as exhibit 1(a) to the Registrant's initial Registration Statement on Form N-2 filed June 23, 1993 (File No. 33-64916)] (ii) Articles of Amendment [previously filed as exhibit 1(b) to the Registrant's initial Registration Statement on Form N-2 filed June 23, 1993 (File No. 33- 64916)] b. (i) Bylaws [filed herewith] (ii) Amendment to Bylaws [filed herewith] c. None d. Inapplicable e. Dividend Reinvestment Plan [previously filed as exhibit 5 to Pre-Effective Amendment No. 2 to the Registration Statement on Form N-2 filed September 30, 1993 (File No. 33-64916)] f. None g. Investment Advisory and Administration Contract [previously filed as exhibit g to Post-Effective Amendment No. 2 to the Registration Statement on Form N-2 filed November 23, 1994 (File No. 33-64916)] h. (i) Underwriting Agreement [previously filed as exhibit h to Post-Effective Amendment No. 2 to the Registration Statement on Form N-2 filed November 23, 1994 (File No. 33-64916)] (ii)Master Selected Dealer Agreement [previously filed as exhibit 8(b) to Pre-Effective Amendment No. 2 to the Registration Statement on Form N-2 filed September 30, 1993 (File No. 33-64916)] i. None j. Custodian Agreement [previously filed as exhibit j to Post-Effective Amendment No. 2 to the Registration Statement on Form N-2 filed November 23, 1994 (File No. 33-64916)] k. Transfer Agency Agreement [previously filed as exhibit k to Post-Effective Amendment No. 2 to the Registration Statement on Form N-2 filed November 23, 1994 (File No. 33-64916)] l. Opinion and consent of counsel [previously filed as exhibit 12 to Pre- Effective Amendment No. 2 to the Registration Statement on Form N-2 filed September 30, 1993 (File No. 33-64916)] m. None n. Consent of Independent Accountants [filed herewith] o. None p. Letter of Investment Intent [previously filed as exhibit 16 to Pre-Effective Amendment No. 2 to the Registration Statement on Form N-2 filed September 30, 1993 (File No. 33-64916)] q. None r. Financial Data Schedule [filed herewith] EX-99.B(I) 2 BYLAWS GLOBAL HIGH INCOME DOLLAR FUND INC. A Maryland Corporation BYLAWS As Amended June 23, 1993 TABLE OF CONTENTS Page ARTICLE I NAME OF CORPORATION, LOCATION OF OFFICES AND SEAL 1 Section 1. Name 1 Section 2. Principal Offices 1 Section 3. Seal 1 ARTICLE II STOCKHOLDERS 1 Section 1. Annual Meetings 1 Section 2. Special Meetings 1 Section 3. Notice of Meetings 2 Section 4. Quorum and Adjournment of Meetings 2 Section 5. Voting and Inspectors 3 Section 6. Validity of Proxies 3 Section 7. Stock Ledger and List of Stockholders 4 Section 8. Action Without Meeting 4 ARTICLE III BOARD OF DIRECTORS 4 Section 1. Powers 4 Section 2. Number and Term of Directors 4 Section 3. Election 5 Section 4. Vacancies and Newly Created Directorships 5 Section 5. Removal 6 Section 6. Chairman of the Board 6 Section 7. Annual and Regular Meetings 6 Section 8. Special Meetings 6 Section 9. Waiver of Notice 7 Section 10. Quorum and Voting 7 Section 11. Action Without a Meeting 7 Section 12. Compensation of Directors 7 ARTICLE IV COMMITTEES 7 Section 1. Organization 7 Section 2. Executive Committee 8 Section 3. Proceedings and Quorum 8 Section 4. Other Committees 8 ARTICLE V OFFICERS 8 Section 1. General 8 Section 2. Election, Tenure and Qualifications 8 Section 3. Vacancies and Newly Created Officers 9 Section 4. Removal and Resignation 9 Section 5. President 9 Section 6. Vice President 9 Section 7. Treasurer and Assistant Treasurers 10 Section 8. Secretary and Assistant Secretaries 10 Section 9. Subordinate Officers 10 Section 10. Remuneration 11 Section 11. Surety Bond 11 ARTICLE VI CAPITAL STOCK 11 Section 1. Certificates of Stock 11 Section 2. Transfer of Shares 12 Section 3. Stock Ledgers 12 Section 4. Transfer Agents and Registrars 12 Section 5. Fixing of Record Date 12 Section 6. Lost, Stolen or Destroyed Certificates 13 ARTICLE VII FISCAL YEAR AND ACCOUNTANT 13 Section 1. Fiscal Year 13 Section 2. Accountant 13 ARTICLE VIII CUSTODY OF SECURITIES 14 Section 1. Employment of a Custodian 14 Section 2. Termination of Custodian Agreement 14 Section 3. Other Arrangements 14 ARTICLE IX INDEMNIFICATION AND INSURANCE 14 Section 1. Indemnification of Officers, Directors, Employees and Agents 14 Section 2. Insurance of Officers, Directors, Employees and Agents 15 Section 3. Amendment 15 ARTICLE X AMENDMENTS 15 Section 1. General 15 Section 2. By Stockholders Only 15 - ii - BYLAWS OF GLOBAL HIGH INCOME DOLLAR FUND INC. (A MARYLAND CORPORATION) ARTICLE I NAME OF CORPORATION, LOCATION OF OFFICES AND SEAL Section 1. Name. The name of the Corporation is Global High Income Dollar Fund Inc. Section 2. Principal Offices. The principal office of the Corporation in the State of Maryland shall be located in the City of Baltimore. The Corporation may, in addition, establish and maintain such other offices and places of business as the Board of Directors may, from time to time, determine. Section 3. Seal. The corporate seal of the Corporation shall be circular in form and shall bear the name of the Corporation, the year of its incorporation, and the word "Maryland." The form of the seal shall be subject to alteration by the Board of Directors and the seal may be used by causing it or a facsimile to be impressed or affixed or printed or otherwise reproduced. Any officer or director of the Corporation shall have authority to affix the corporate seal of the Corporation to any document requiring the same. ARTICLE II STOCKHOLDERS Section 1. Annual Meetings. An annual meeting of stockholders shall be held as required and for the purposes prescribed by the Investment Company Act of 1940, as amended ("1940 Act"), and the laws of the State of Maryland and for the election of directors and the transaction of such other business as may properly come before the meeting. Except for the first fiscal year of the Corporation, the meeting shall be held annually at a time set by the Board of Directors at the Corporation's principal offices or at such other place within the United States as the Board of Directors shall select. Section 2. Special Meetings. Special meetings of stockholders may be called at any time by the Chairman of the Board, President, any Vice President, or by a majority of the Board of Directors, and shall be held at such time and place as may be stated in the notice of the meeting. Special meetings of the stockholders may be called by the Secretary upon the written request of the holders of shares entitled to not less than 25 percent of all the votes entitled to be cast at such meeting, provided that (1) such request shall state the purposes of such meeting and the matters proposed to be acted on, and (2) the stockholders requesting such meeting shall have paid to the Corporation the reasonably estimated cost of preparing and mailing the notice thereof, which the Secretary shall determine and specify to such stockholders. No special meeting shall be called upon the request of stockholders to consider any matter which is substantially the same as a matter voted upon at any special meeting of the stockholders held during the preceding twelve months, unless requested by the holders of a majority of all shares entitled to be voted at such meeting. Section 3. Notice of Meetings. The Secretary shall cause notice of the place, date and hour, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, to be mailed, postage prepaid, not less than ten nor more than ninety days before the date of the meeting, to each stockholder entitled to vote at such meeting at his or her address as it appears on the records of the Corporation at the time of such mailing. Notice shall be deemed to be given when deposited in the United States mail addressed to the stockholders as aforesaid. Notice of any stockholders' meeting need not be given to any stockholder who shall sign a written waiver of such notice whether before or after the time of such meeting, or to any stockholder who is present at such meeting in person or by proxy. Notice of adjournment of a stockholders' meeting to another time or place need not be given if such time and place are announced at the meeting. Irregularities in the notice of any meeting to, or the nonreceipt of any such notice by, any of the stockholders shall not invalidate any action otherwise properly taken by or at any such meeting. Section 4. Quorum and Adjournment of Meetings. The presence at any stockholders' meeting, in person or by proxy, of stockholders entitled to cast a majority of the votes shall be necessary and sufficient to constitute a quorum for the transaction of business. In the absence of a quorum, the holders of a majority of shares entitled to vote at the meeting and present in person or by proxy, or, if no stockholder entitled to vote is present in person or by proxy, any officer present entitled to preside or act as secretary of such meeting may adjourn the meeting without determining the date of the new meeting or from time to time without further notice to a date not more than 120 days after the original record date. Any business that might have been transacted at the meeting originally called may be transacted at any such adjourned meeting at which a quorum is present. Section 5. Voting and Inspectors. Except as otherwise provided in the Articles of Incorporation or by applicable law, at each stockholders' meeting, each stockholder shall be entitled to one vote for each share of stock of the Corporation validly issued and outstanding and standing in his or her name on the books of the Corporation on the record date fixed in accordance with Section 5 of Article VI hereof, either in person or by proxy appointed by instrument - 2 - in writing subscribed by such stockholder or his or her duly authorized attorney, except that no shares held by the Corporation shall be entitled to a vote. If no record date has been fixed, the record date for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders shall be the later of the close of business on the day on which notice of the meeting is mailed or the thirtieth day before the meeting, or, if notice is waived by all stockholders, at the close of business on the tenth day next preceding the day on which the meeting is held. Except as otherwise specifically provided in the Articles of Incorporation or these Bylaws or as required by provisions of the 1940 Act, all matters shall be decided by a vote of the majority of the votes validly cast. The vote upon any question shall be by ballot whenever requested by any person entitled to vote, but, unless such a request is made, voting may be conducted in any way approved by the meeting. At any meeting at which there is an election of Directors, the chairman of the meeting may, and upon the request of the holders of ten percent of the stock entitled to vote at such election shall, appoint two inspectors of election who shall first subscribe an oath or affirmation to execute faithfully the duties of inspectors at such election with strict impartiality and according to the best of their ability, and shall, after the election, make a certificate of the result of the vote taken. No candidate for the office of Director shall be appointed as an inspector. Section 6. Validity of Proxies. The right to vote by proxy shall exist only if the instrument authorizing such proxy to act shall have been signed by the stockholder or by his or her duly authorized attorney. Unless a proxy provides otherwise, it shall not be valid more than eleven months after its date. All proxies shall be delivered to the Secretary of the Corporation or to the person acting as Secretary of the meeting before being voted, who shall decide all questions concerning qualification of voters, the validity of proxies, and the acceptance or rejection of votes. If inspectors of election have been appointed by the chairman of the meeting, such inspectors shall decide all such questions. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by one of them unless at or prior to exercise of such proxy the Corporation receives a specific written notice to the contrary from any one of them. A proxy purporting to be executed by or on behalf of a stockholder shall be deemed valid unless challenged at or prior to its exercise. Section 7. Stock Ledger and List of Stockholders. It shall be the duty of the Secretary or Assistant Secretary of the Corporation to cause an original or duplicate stock ledger to be - 3 - maintained at the office of the Corporation's transfer agent. Such stock ledger may be in written form or any other form capable of being converted into written form within a reasonable time for visual inspection. Any one or more persons, each of whom has been a stockholder of record of the Corporation for more than six months next preceding such request, who owns in the aggregate 5% or more of the outstanding capital stock of the Corporation, may submit (unless the Corporation at the time of the request maintains a duplicate stock ledger at its principal office in Maryland) a written request to any officer of the Corporation or its resident agent in Maryland for a list of the stockholders of the Corporation. Within 20 days after such a request, there shall be prepared and filed at the Corporation's principal office in Maryland a list containing the names and addresses of all stockholders of the Corporation and the number of shares of each class held by each stockholder, certified as correct by an officer of the Corporation, by its stock transfer agent, or by its registrar. Section 8. Action Without Meeting. Any action required or permitted to be taken by stockholders at a meeting of stockholders may be taken without a meeting if (1) all stockholders entitled to vote on the matter consent to the action in writing, (2) all stockholders entitled to notice of the meeting but not entitled to vote at it sign a written waiver of any right to dissent, and (3) the consents and waivers are filed with the records of the meetings of stockholders. Such consent shall be treated for all purposes as a vote at the meeting. ARTICLE III BOARD OF DIRECTORS Section 1. Powers. Except as otherwise provided by operation of law, by the Articles of Incorporation, or by these Bylaws, the business and affairs of the Corporation shall be managed under the direction of and all the powers of the Corporation shall be exercised by or under authority of its Board of Directors. Section 2. Number and Term of Directors. Except for the initial Board of Directors, the Board of Directors shall consist of not fewer than three nor more than fifteen Directors, as specified by a resolution of a majority of the entire Board of Directors and at least one member of the Board of Directors shall be a person who is not an "interested person" of the Corporation, as that term is defined in the 1940 Act. All other directors may be interested persons of the Corporation if the requirements of Section 10(d) of the 1940 Act are met by the Corporation and its investment adviser. All acts done at any meeting of the Directors or by any person acting as a Director, so long as his or her successor shall not have been duly elected or appointed, shall, -4- notwithstanding that it be afterwards discovered that there was some defect in the election of the Directors or of such person acting as a Director or that they or any of them were disqualified, be as valid as if the Directors or such other person, as the case may be, had been duly elected and were or was qualified to be Directors or a Director of the Corporation. Each Director shall hold office until his or her successor is elected and qualified or until his or her earlier death, resignation or removal. Section 3. Election. At the first annual meeting of stockholders, Directors shall be elected by vote of the holders of a majority of the shares present in person or by proxy and entitled to vote thereon. Thereafter, except as otherwise provided in these Bylaws, the Directors shall be elected by the stockholders at a meeting held on a date fixed by the Board of Directors. A plurality of all the votes cast at a meeting at which a quorum is present is sufficient to elect a Director. Section 4. Vacancies and Newly Created Directorships. If any vacancies shall occur in the Board of Directors by reason of death, resignation, removal or otherwise, or if the authorized number of Directors shall be increased, the Directors then in office shall continue to act, and such vacancies (if not previously filled by the stockholders) may be filled by a majority of the Directors then in office, although less than a quorum, except that a newly created Directorship may be filled only by a majority vote of the entire Board of Directors; provided, however, that if the stockholders of any class of the Corporation's capital stock are entitled separately to elect one or more directors, a majority of the remaining directors, elected by that class (if any) may fill any vacancy among the number of directors elected by that class; provided further, however, that, at any time that there are stockholders of the corporation, immediately after filling such vacancy, at least two-thirds (2/3) of the Directors then holding office shall have been elected to such office by the stockholders of the Corporation. In the event that at any time, other than the time preceding the first annual stockholders' meeting, less than a majority of the Directors of the Corporation holding office at that time were elected by the stockholders, a meeting of the stockholders shall be held promptly and in any event within sixty days for the purpose of electing Directors to fill any existing vacancies in the Board of Directors, unless the Securities and Exchange Commission shall by order extend such period. Section 5. Removal. At any stockholders' meeting duly called, provided a quorum is present, the stockholders may remove any Director from office (either with or without cause) and may elect a successor or successors to fill any resulting vacancies for the unexpired terms of the removed Director or Directors. A majority of all votes represented at a meeting is sufficient to remove a Director for cause. Section 6. Chairman of the Board. The Board of Directors may, but shall not be required to, elect a Chairman of the Board. Any Chairman of the Board shall be elected from among the Directors of the Corporation and may hold such office only so long as he or -5- she continues to be a Director. The Chairman, if any, shall preside at all stockholders' meetings and at all meetings of the Board of Directors, and may be ex officio a member of all committees of the Board of Directors. The Chairman, if any, shall have such powers and perform such duties as may be assigned from time to time by the Board of Directors. Section 7. Annual and Regular Meetings. The annual meeting of the Board of Directors for choosing officers and transacting other proper business shall be held at such other time and place as the Board may determine. The Board of Directors from time to time may provide by resolution for the holding of regular meetings and fix their time and place within or outside the State of Maryland. Except as otherwise provided in the 1940 Act, notice of such annual and regular meetings need not be given, provided that notice of any change in the time or place of such meetings shall be sent promptly to each Director not present at the meeting at which such change was made, in the manner provided for notice of special meetings. Except as otherwise provided under the 1940 Act, members of the Board of Directors or any committee designated thereby may participate in a meeting of such Board or committee by means of a conference telephone or similar communications equipment that allows all persons participating in the meeting to hear each other at the same time. Section 8. Special Meetings. Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board, the President (or, in the absence or disability of the President, by any Vice President), the Treasurer or by two or more Directors, at the time and place (within or without the State of Maryland) specified in the respective notice or waivers of notice of such meetings. Notice of special meetings, stating the time and place, shall be (1) mailed to each Director at his or her residence or regular place of business at least three days before the day on which a special meeting is to be held or (2) delivered to him or her personally or transmitted to him or her by telegraph, telefax, telex, cable or wireless at least one day before the meeting. Section 9. Waiver of Notice. No notice of any meeting need be given to any Director who is present at the meeting or who waives notice of such meeting in writing (which waiver shall be filed with the records of such meeting), either before or after the time of the meeting. Section 10. Quorum and Voting. At all meetings of the Board of Directors, the presence of one half or more of the number of Directors then in office shall constitute a quorum for the transaction of business, provided that there shall be present at least two directors. In the absence of a quorum, a majority of the Directors present may adjourn the meeting, from time to time, until a quorum shall be present. The action of a majority of the -6- Directors present at a meeting at which a quorum is present shall be the action of the Board of Directors, unless concurrence of a greater proportion is required for such action by law, by the Articles of Incorporation or by these Bylaws. Section 11. Action Without a Meeting. Except as otherwise provided under the 1940 Act, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if a written consent to such action is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or committee. Section 12. Compensation of Directors. Directors shall be entitled to receive such compensation from the Corporation for their services as may from time to time be determined by resolution of the Board of Directors. ARTICLE IV COMMITTEES Section 1. Organization. By resolution adopted by the Board of Directors, the Board may designate one or more committees of the Board of Directors, including an Executive Committee. The Chairman of such committees shall be elected by the Board of Directors. Each committee must be comprised of two or more members, each of whom must be a Director and shall hold committee membership at the pleasure of the Board. The Board of Directors shall have the power at any time to change the members of such committees and to fill vacancies in the committees. The Board may delegate to these committees any of its powers, except the power to declare a dividend or distribution on stock, authorize the issuance of stock, recommend to stockholders any action requiring stockholders' approval, amend these Bylaws, approve any merger or share exchange which does not require stockholder approval, approve or terminate any contract with an "investment adviser" or "principal underwriter," as those terms are defined in the 1940 Act, or to take any other action required by the 1940 Act to be taken by the Board of Directors. Section 2. Executive Committee. Unless otherwise provided by resolution of the Board of Directors, when the Board of Directors is not in session, the Executive Committee, if one is designated by the Board, shall have and may exercise all powers of the Board of Directors in the management of the business and affairs of the Corporaton that may lawfully be exercised by an Executive Committee. The President shall automatically be a member of the Executive Committee. -7- Section 3. Proceedings and Quorum. In the absence of an appropriate resolution of the Board of Directors, each committee may adopt such rules and regulations governing its proceedings, quorum and manner of acting as it shall deem proper and desirable. In the event any member of any committee is absent from any meeting, the members thereof present at the meeting, whether or not they constitute a quorum, may appoint a member of the Board of Directors to act in the place of such absent member. Section 4. Other Committees. The Board of Directors may appoint other committees, each consisting of one or more persons, who need not be Directors. Each such committee shall have such powers and perform such duties as may be assigned to it from time to time by the Board of Directors, but shall not exercise any power which may lawfully be exercised only by the Board of Directors or a committee thereof. ARTICLE V OFFICERS Section 1. General. The officers of the Corporation shall be a President, a Secretary, and a Treasurer, and may include one or more Vice Presidents, Assistant Secretaries or Assistant Treasurers, and such other officers as may be appointed in accordance with the provisions of Section 9 of this Article. Section 2. Election, Tenure and Qualifications. The officers of the Corporation, except those appointed as provided in Section 9 of this Article V, shall be elected by the Board of Directors at its first meeting or such subsequent meetings as shall be held prior to its first annual meeting, and thereafter annually at its annual meeting. If any officers are not elected at any annual meeting, such officers may be elected at any subsequent regular or special meeting of the Board. Except as otherwise provided in this Article V, each officer elected by the Board of Directors shall hold office until the next annual meeting of the Board of Directors and until his or her successor shall have been elected and qualified. Any person may hold one or more offices of the Corporation except that no one person may serve concurrently as both President and Vice President. A person who holds more than one office in the Corporation may not act in more than one capacity to execute, acknowledge, or verify an instrument required by law to be executed, acknowledged, or verified by more than one officer. No officer need be a Director. Section 3. Vacancies and Newly Created Officers. If any vacancy shall occur in any office by reason of death, resignation, removal, disqualification or other cause, or if any new office shall be created, such vacancies or newly created offices may be filled by the Board of Directors at any regular or special meeting or, in the case of any office created pursuant to Section - 8 - 9 hereof, by any officer upon whom such power shall have been conferred by the Board of Directors. Section 4. Removal and Resignation. Any officer may be removed from office by the vote of a majority of the members of the Board of Directors given at a regular meeting or any special meeting called for such purpose, if the Board has determined the best interests of the Corporation will be served by removal of that officer. Any officer may resign from office at any time by delivering a written resignation to the Board of Directors, the President, the Secretary, or any Assistant Secretary. Unless otherwise specified therein, such resignation shall take effect upon delivery. Section 5. President. The President shall be the chief executive officer of the Corporation and, in the absence of the Chairman of the Board or if no Chairman of the Board has been elected, shall preside at all stockholders' meetings and at all meetings of the Board of Directors and shall in general exercise the powers and perform the duties of the Chairman of the Board. Subject to the supervision of the Board of Directors, the President shall have general charge of the business, affairs and property of the Corporation and general supervision over its officers, employees and agents. Except as the Board of Directors may otherwise order, the President may sign in the name and on behalf of the Corporation all deeds, bonds, contracts, or agreements. The President shall exercise such other powers and perform such other duties as from time to time may be assigned by the Board of Directors. Section 6. Vice President. The Board of Directors may from time to time elect one or more Vice Presidents who shall have such powers and perform such duties as from time to time may be assigned to them by the Board of Directors or the President. At the request of, or in the absence or in the event of the disability of, the President, the Vice President (or, if there are two or more Vice Presidents, then the senior of the Vice Presidents present and able to act) may perform all the duties of the President and, when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Section 7. Treasurer and Assistant Treasurers. The Treasurer shall be the principal financial and accounting officer of the Corporation and shall have general charge of the finances and books of account of the Corporation. Except as otherwise provided by the Board of Directors, the Treasurer shall have general supervision of the funds and property of the Corporation and of the performance by the Custodian of its duties with respect thereto. The Treasurer shall render to the Board of Directors, whenever directed by the Board, an account of the financial condition of the Corporation and of all transactions as Treasurer; and as soon as possible after the close of each - 9 - financial year the Treasurer shall make and submit to the Board of Directors a like report for such financial year. The Treasurer shall perform all acts incidental to the office of Treasurer, subject to the control of the Board of Directors. Any Assistant Treasurer may perform such duties of the Treasurer as the Treasurer or the Board of Directors may assign, and, in the absence of the Treasurer, may perform all the duties of the Treasurer. Section 8. Secretary and Assistant Secretaries. The Secretary shall attend to the giving and serving of all notices of the Corporation and shall record all proceedings of the meetings of the stockholders and Directors in books to be kept for that purpose. The Secretary shall keep in safe custody the seal of the Corporation, and shall have responsibility for the records of the Corporation, including the stock books and such other books and papers as the Board of Directors may direct and such books, reports, certificates and other documents required by law to be kept, all of which shall at all reasonable times be open to inspection by any Director. The Secretary shall perform such other duties which appertain to this office or as may be required by the Board of Directors. Any Assistant Secretary may perform such duties of the Secretary as the Secretary or the Board of Directors may assign, and, in the absence of the Secretary, may perform all the duties of the Secretary. Section 9. Subordinate Officers. The Board of Directors from time to time may appoint such other officers and agents as it may deem advisable, each of whom shall have such title, hold office for such period, have such authority and perform such duties as the Board of Directors may determine. The Board of Directors from time to time may delegate to one or more officers or agents the power to appoint any such subordinate officers or agents and to prescribe their respective rights, terms of office, authorities and duties. Any officer or agent appointed in accordance with the provisions of this Section 9 may be removed, either with or without cause, by any officer upon whom such power of removal shall have been conferred by the Board of Directors. Section 10. Remuneration. The salaries or other compensation of the officers of the Corporation shall be fixed from time to time by resolution of the Board of Directors in the manner provided by Section 10 of Article III, except that the Board of Directors may by resolution delegate to any person or group of persons the power to fix the salaries or other compensation of any subordinate officers or agents appointed in accordance with the provisions of Section 9 of this Article V. - 10 - Section 11. Surety Bond. The Board of Directors may require any officer or agent of the Corporation to execute a bond (including, without limitation, any bond required by the 1940 Act and the rules and regulations of the Securities and Exchange Commission promulgated thereunder) to the Corporation in such sum and with such surety or sureties as the Board of Directors may determine, conditioned upon the faithful performance of his or her duties to the Corporation, including responsibility for negligence and for the accounting of any of the Corporation's property, funds or securities that may come into his or her hands. ARTICLE VI CAPITAL STOCK Section 1. Certificates of Stock. The interest of each stockholder of the Corporation shall be evidenced by certificates for shares of stock in such form as the Board of Directors may from time to time authorize, provided, however, the Board of Directors may, in its discretion, authorize the issuance of non-certificated shares. No certificate shall be valid unless it is signed by the President or a Vice President and countersigned by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer of the Corporation and sealed with the seal of the Corporation, or bears the facsimile signatures of such officers and a facsimile of such seal. In case any officer who shall have signed any such certificate, or whose facsimile signature has been placed thereon, shall cease to be such an officer (because of death, resignation or otherwise) before such certificate is issued, such certificate may be issued and delivered by the Corporation with the same effect as if he or she were such officer at the date of issue. In the event that the Board of Directors authorizes the issuance of non-certificated shares of stock, the Board of Directors may, in its discretion and at any time, discontinue the issuance of share certificates and may, by written notice to the registered owners of each certificated share, require the surrender of share certificates to the Corporation for cancellation. Such surrender and cancellation shall not affect the ownership of shares of the Corporation. Section 2. Transfer of Shares. Shares of the Corporation shall be transferable on the books of the Corporation by the holder of record thereof in person or by his or her duly authorized attorney or legal representative (i) upon surrender and cancellation of a certificate or certificates for the same number of shares of the same class, duly endorsed or accompanied by proper instruments of assignment and transfer, with such proof of the authenticity of the signature as the Corporation or its agents may reasonably require, or (ii) as otherwise prescribed by the Board of Directors. The shares of stock of the Corporation - 11 - may be freely transferred, and the Board of Directors may, from time to time, adopt rules and regulations with reference to the method of transfer of the shares of stock of the Corporation. The Corporation shall be entitled to treat the holder of record of any share of stock as the absolute owner thereof for all purposes, and accordingly shall not be bound to recognize any legal, equitable or other claim or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise expressly provided by law or the statutes of the State of Maryland. Section 3. Stock Ledgers. The stock ledgers of the Corporation, containing the names and addresses of the stockholders and the number of shares held by them respectively, shall be kept at the principal offices of the Corporation or, if the Corporation employs a transfer agent, at the offices of the transfer agent of the Corporation. Section 4. Transfer Agents and Registrars. The Board of Directors may from time to time appoint or remove transfer agents and registrars of transfers for shares of stock of the Corporation, and it may appoint the same person as both transfer agent and registrar. Upon any such appointment being made all certificates representing shares of capital stock thereafter issued shall be countersigned by one of such transfer agents or by one of such registrars or by both and shall not be valid unless so countersigned. If the same person shall be both transfer agent and registrar, only one countersignature by such person shall be required. Section 5. Fixing of Record Date. The Board of Directors may fix in advance a date as a record date for the determination of the stockholders entitled to notice of or to vote at any stockholders' meeting or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or to receive payment of any dividend or other distribution or allotment of any rights, or to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, provided that (1) such record date shall be within ninety days prior to the date on which the particular action requiring such determination will be taken; (2) the transfer books shall not be closed for a period longer than twenty days; and (3) in the case of a meeting of stockholders, the record date shall be at least ten days before the date of the meeting. Section 6. Lost, Stolen or Destroyed Certificates. Before issuing a new certificate for stock of the Corporation alleged to have been lost, stolen or destroyed, the Board of Directors or any officer authorized by the Board may, in its discretion, require the owner of the lost, stolen or destroyed certificate (or his or her legal respresentative) to give the Corporation a - 12 - bond or other indemnity, in such form and in such amount as the Board or any such officer may direct and with such surety or sureties as may be satisfactory to the Board or any such officer, sufficient to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certficate. ARTICLE VII FISCAL YEAR AND ACCOUNTANT Section 1. Fiscal Year. The fiscal year of the Corporation shall be twelve calendar months ending at the time established by the Board of Directors. Section 2. Accountant. A. The Corporation shall employ an independent public accountant or a firm of independent public accountants as its Accountant to examine the accounts of the Corporation and to sign and certify financial statements filed by the Corporation. The Accountant's certificates and reports shall be addressed both to the Board of Directors and to the stockholders. The employment of the Accountant shall be conditioned upon the right of the Corporation to terminate the employment forthwith without any penalty by vote of a majority of the outstanding voting securities at any stockholders' meeting called for that purpose. B. A majority of the members of the Board of Directors who are not "interested persons" (as defined in the 1940 Act) of the Corporation shall select the Accountant at any meeting held within thirty days before or after the beginning of the fiscal year of the Corporation or before the annual stockholders' meeting in that year. The selection shall be submitted for ratification or rejection at the next succeeding annual stockholders' meeting. If the selection is rejected at that meeting, the Accountant shall be selected by majority vote of the Corporation's outstanding voting securities, either at the meeting at which the rejection occurred or at a subsequent meeting of stockholders called for the purpose of selecting an Accountant. C. Any vacancy occurring between annual meetings due to the resignation of the Accountant may be filled by the vote of a majority of the members of the Board of Directors who are not interested persons. - 13 - ARTICLE VIII CUSTODY OF SECURITIES Section 1. Employment of a Custodian. The Corporation shall place and at all times maintain in the custody of a Custodian (including any sub-custodian for the Custodian) all funds, securities and similar investments owned by the Corporation. The Custodian (and any sub-custodian) shall be a bank or trust company of good standing having an aggregate capital, surplus, and undivided profits of not less than fifty million dollars ($50,000,000) or such other financial institution or other entity as shall be permitted by rule or order of the Securities and Exchange Commission. The Custodian shall be appointed from time to time by the Board of Directors, which shall fix its remuneration. Section 2. Termination of Custodian Agreement. Upon termination of the agreement for services with the Custodian or inability of the Custodian to continue to serve, the Board of Directors shall promptly appoint a successor Custodian, but in the event that no successor Custodian can be found who has the required qualifications and is willing to serve, the Board of Directors shall call as promptly as possible a special meeting of the stockholders to determine whether the Corporation shall function without a Custodian or shall be liquidated. If so directed by resolution of the Board of Directors or by vote of the holders of a majority of the outstanding shares of stock of the Corporation, the Custodian shall deliver and pay over all property of the Corporation held by it as specified in such vote. Section 3. Other Arrangements. The Corporation may make such other arrangements for the custody of its assets (including deposit arrangements) as may be required by any applicable law, rule or regulation. ARTICLE IX INDEMNIFICATION AND INSURANCE Section 1. Indemnification of Officers, Directors, Employees and Agents. The Corporation shall indemnify its present and past directors, officers, employees and agents, and any persons who are serving or have served at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, or enterprise, to the full extent provided and allowed by Section 2-418 of the Annotated Corporations and Associations Code of Maryland concerning corporations, as amended from time to time, or any other applicable provisions of law. Notwithstanding anything herein to the contrary, no director, officer, investment adviser or principal underwriter of the Corporation shall be indemnified in violation of Sections 17(h) and (i) of the 1940 Act. Expenses - 14 - incurred by any such person in defending any proceeding to which he is a party by reason of service in the above-referenced capacities shall be paid in advance or reimbursed by the Corporation to the full extent permitted by law, including Sections 17(h) and (i) of the Investment Company Act of 1940. Section 2. Insurance of Officers, Directors, Employees and Agents. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against that person and incurred by that person in or arising out of his or her position, whether or not the Corporation would have the power to indemnify him or her against such liability. Section 3. Amendment. No amendment, alteration or repeal of this Article or the adoption, alteration or amendment of any other provision of the Articles of Incorporation or Bylaws inconsistent with this Article shall adversely affect any right or protection of any person under this Article with respect to any act or failure to act which occurred prior to such amendment, alteration, repeal or adoption. ARTICLE X AMENDMENTS Section 1. General. Except as provided in Section 2 of this Article X, all Bylaws of the Corporation, whether adopted by the Board of Directors or the stockholders, shall be subject to amendment, alteration or repeal, and new Bylaws may be made by the affirmative vote of a majority of either: (1) the holders of record of the outstanding shares of stock of the Corporation entitled to vote, at any annual or special meeting, the notice or waiver of notice of which shall have specified or summarized the proposed amendment, alteration, repeal or new Bylaw; or (2) a majority of the Directors, at any regular or special meeting the notice or waiver of notice of which shall have specified or summarized the proposed amendment, alteration, repeal or new Bylaw. Section 2. By Stockholders Only. No amendment of any section of these Bylaws shall be made except by the stockholders of the Corporation if the Bylaws provide that such section may not be amended, altered or repealed except by the stockholders. From and after the issue of any shares of the capital stock of the Corporation, no amendment, alteration or repeal of Article X shall be made except by the affirmative vote of the holders of either: (a) more than two-thirds of the Corporation's outstanding shares present at a meeting at which the holders of more than fifty percent of the outstanding shares are present in - 15 - person or by proxy, or (b) more than fifty-percent of the Corporation's outstanding shares. - 16 - EX-99.(B)(II) 3 AMENDEMENT TO BYLAWS Exhibit b(ii) AMENDMENT TO BY-LAWS GLOBAL HIGH INCOME DOLLAR FUND INC. CERTIFICATE OF VICE PRESIDENT AND ASSISTANT SECRETARY I, Joan L. Cohen, Vice President and Assistant Secretary of Global High Income Dollar Fund Inc. ("Fund"), hereby certify that, at a duly convened meeting of the Board of Directors of the Fund held on September 28, 1994, the Directors adopted the following resolution: RESOLVED, that the following language replace the second sentence and revise the first sentence of Article III, Section 6 of the Fund's by-laws: "The right to vote by proxy shall exist only if the proxy is authorized to act by (1) a written instrument dated not more than eleven months prior to the meeting and executed either by the stockholder or by his or her duly authorized attorney in fact (who may be so authorized by a writing or by any non-written means permitted by the laws of the State of Maryland) of (2) such electronic, telephonic, computerized or other alternative means as may be approved by a resolution adopted by the Directors." Dated: January 18, 1995 By: /s/ Joan L. Cohen ---------------------------------------- Joan L. Cohen Vice President and Assistant Secretary Global High Income Dollar Fund Inc. New York, New York (ss) Subscribed and sworn before me this 18th day of January, 1995. HIAM ARFA Notary Public, State of New York /s/ Hiam Arfa No. 01AR5026305 - --------------- Qualified in New York County Notary Public Commission Expires April 18, 1996 EX-99.N 4 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT N Consent of Independent Accountants We hereby consent to the incorporation by reference in the Prospectus and Statement of Additional Information constituting parts of this Post-Effective Amendment No. 4 to the Registration Statement on Form N-2 (the "Registration Statement") of our report dated December 20, 1995 relating to the financial statements and financial highlights appearing in the October 31, 1995 Annual Report to Shareholders of Global High Income Dollar Fund, Inc. which is also incorporated by reference into the Registration Statement. We also consent to the references to us under the headings "Financial Highlights" in the Prospectus and "Independent Accountants" in the Statement of Additional Information. PRICE WATERHOUSE LLP New York, New York January 3, 1996 EX-27 5 FINANCIAL DATA SCHEDULE
6 0000897996 PAINEWEBBER GLOBAL HIGH INCOME DOLLAR FUND 1000 12-MOS OCT-31-1995 NOV-01-1994 OCT-31-1995 294100 291644 10894 80 0 302618 4673 0 858 5531 0 335819 22737 0 0 (379) 0 (35600) (2753) 297087 0 34603 0 (4132) 30471 (20616) 25220 35075 0 (26228) 0 (3512) 0 0 0 5335 0 0 (2) (19605) 3541 0 4132 283270 12.83 1.34 0.21 (1.16) 0 (0.15) 13.07 1.46 0 0
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