STRATEGIC GLOBAL INCOME FUND INC, 497, 1996-04-11

STRATEGIC GLOBAL INCOME FUND INC
497, 1996-04-11

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<PAGE> 1

STRATEGIC GLOBAL INCOME FUND, INC.

COMMON STOCK
------------------------

Strategic Global Income Fund, Inc. ("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; capital appreciation is
a secondary objective in the selection of investments. In seeking to achieve
these objectives, the Fund invests in a combination of fixed income securities
of the U.S. government, foreign governments, and their respective agencies,
instrumentalities and political subdivisions, and fixed income securities of
other U.S. and foreign issuers. The Fund invests in foreign fixed income
securities and may invest up to 35% of its total assets in fixed income
securities of issuers in Latin America. The Fund may invest up to 35% of its
total assets in lower grade U.S. and foreign fixed income securities, commonly
referred to as "junk bonds," which involve a high degree of risk and are
predominantly speculative. The Fund also may utilize leverage. SEE "SPECIAL
CONSIDERATIONS AND RISK FACTORS" AND "OTHER INVESTMENT PRACTICES -- LEVERAGE AND
BORROWING." There is no assurance that the Fund will achieve its investment
objectives.

The Fund's Shares are listed and traded on the New York Stock Exchange,
Inc. ("NYSE") under the symbol "SGL." Shares 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 of
the Shares on the NYSE on March 18, 1996 was $11.63. See "Trading History." The
Fund will not receive any proceeds from the sale of any Shares 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 April 1, 1996 has been filed with the Securities and Exchange Commission
("SEC") 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 1-800-852-4750.
------------------------
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 April 1, 1996.
<PAGE> 2

FUND EXPENSES

The following tables are intended to assist Fund investors in understanding
the various costs and expenses that an investor in the Fund will bear, directly
or indirectly.

<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of offering price).................... None1
Dividend Reinvestment Plan Fees................................... None
ANNUAL EXPENSES (AS A PERCENTAGE OF NET ASSETS ATTRIBUTABLE TO
COMMON SHARES)2
Investment Advisory and Administration Fees....................... 1.00%
Interest Payments on Borrowed Funds3.............................. 0.00%
Other Expenses.................................................... 0.24%
-----
Total Annual Expenses........................................ 1.24%
</TABLE>

- ------------
1 Prices for Shares traded in the OTC secondary market will reflect ordinary
dealer mark-ups.

2 See "Management" for additional information. "Other Expenses" have been
estimated based on expenses actually incurred during the Fund's last fiscal
year. The investment advisory and administration fees payable to Mitchell
Hutchins are higher than those paid by most funds.

3 The Fund may borrow money. See "Other Investment Practices -- Leverage and
Borrowing."

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:

<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
- ----------- ----------- ----------- -----------
<S> <C> <C> <C>
$13 $39 $68 $150
</TABLE>

This Example assumes that the percentage amounts listed under Annual
Expenses remain the same in the years shown. The above tables and the assumption
in the Example of a 5% annual return are required by regulations of the 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 Shares. 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 purchased by the Plan
agent at the market price in effect at that time, which may be at, above or
below net asset value.

THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES,
AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.

2
<PAGE> 3

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................... Strategic Global Income Fund, Inc. ("Fund") is a
non-diversified, closed-end management investment
company. See "The Fund."

The Offering............... Shares of the Fund's common stock ("Shares") 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, Inc. ("NYSE") at the time of sale. The
Shares are listed and traded on the NYSE under the
symbol "SGL." See "The Offering" and "Trading
History."

Investment Objectives...... The Fund's primary investment objective is to
achieve a high level of current income; capital
appreciation is a secondary objective in the
selection of investments. No assurance can be given
that the Fund's investment objectives will be
achieved.

The Fund normally invests at least 65% of its total
assets in a combination of the following types of
securities, all of which at the time of purchase
will be rated at least BBB by Standard & Poor's, a
division of The McGraw Hill Companies, Inc.,
("S&P") or Baa/baa by Moody's Investors Service,
Inc. ("Moody's") or, if not rated by S&P or
Moody's, determined by Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins") to be of
comparable quality: (1) debt securities issued or
guaranteed by the U.S. government or foreign
governments or their agencies, instrumentalities or
political subdivisions, or by central banks or
supranational organizations; (2) debt securities
issued or guaranteed by U.S. or foreign business
entities; (3) repurchase agreements involving any
of the foregoing securities; and (4) other fixed
income securities, including preferred stock and
mortgage- and other asset-backed securities of U.S.
or foreign business entities. Less than 50% of the
Fund's total assets will be invested in securities
that are rated BBB or Baa/baa or lower by S&P or
Moody's or that, if not rated by S&P or Moody's,
are determined by Mitchell Hutchins to be of
comparable quality.

Under normal circumstances the Fund invests in
securities, denominated in foreign currencies or
U.S. dollars, of issuers in at least three
countries. Up to 35% of the Fund's total assets may
be invested in securities of Latin American
issuers. No more than 40% of the Fund's total
assets normally will be invested in securities of
issuers in any one country (other than the United
States). The Fund is not

3
<PAGE> 4

limited to investments in the securities of any
countries or regions. No more than 25% of the
Fund's total assets may be invested in securities
issued by any government (other than the United
States government) or by any other single issuer.
At least 65% of the Fund's total assets will be
invested in income producing securities.

The Fund may invest up to 35% of its total assets
in fixed income securities of U.S. and foreign
issuers rated below BBB by S&P or Baa/baa by
Moody's or, if not rated by S&P or Moody's,
determined by Mitchell Hutchins to be of comparable
quality. Lower grade securities, commonly referred
to as "junk bonds," involve a high degree of risk
and are predominantly speculative.

The Fund's investments in securities of foreign
issuers include debt securities issued by foreign
governments or their agencies or instrumentalities
or by central banks ("Sovereign Debt"), "Brady
Bonds" and loan participations and assignments. The
Fund may invest without limitation in illiquid
securities.

The Fund may invest in "zero coupon" and other deep
discount securities of governmental or private
issuers. The Fund currently anticipates that zero
coupon securities will not exceed 20% of its total
assets. Zero coupon securities generally pay no
cash interest (or dividends in the case of
preferred stock) 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 its desired
tax treatment as a "regulated investment company,"
to include in its dividends all or a substantial
portion of the income attributable to its zero
coupon securities. The Fund might be required to
liquidate portfolio securities at a time that it
otherwise would not have done so in order to make
such dividends.

The Fund is authorized to borrow money (including
borrowings from banks and other entities, reverse
repurchase agreements and dollar rolls) for
investment purposes 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 Investment Company
Act of 1940 ("1940 Act") but reduced by any
liabilities and indebtedness not constituting
senior securities). The Fund is also authorized to
borrow up to an additional 5% of its total assets
(not including the amount borrowed) 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 use of
leverage will provide the opportunity for increased
net income but, at the same time, will involve
special risks. The Fund will only use leverage when
Mitchell

4
<PAGE> 5

Hutchins believes that such leverage will benefit
the Fund after taking such risks into
consideration.

The Fund may engage in securities lending and may
engage in certain hedging and related income
strategies. During unusual market conditions, the
Fund temporarily may hold up to all of its assets
in cash and high-grade money market instruments
that are denominated in U.S. dollars.

See "Investment Objectives and Policies," "Other
Investment Practices" and "Special Considerations
and Risk Factors."

Investment Adviser and
Administrator............ Mitchell Hutchins, a wholly owned subsidiary of
PaineWebber, serves as the Fund's investment
adviser and administrator. Mitchell Hutchins makes
investment decisions and places orders to buy, sell
or hold particular securities and supervises all
matters relating to the operation of the Fund.
Mitchell Hutchins provides investment advisory and
portfolio management services to investment
companies, pension funds and other institutional,
corporate and individual clients. The Fund pays
Mitchell Hutchins advisory and administration fees,
computed weekly and paid monthly, in an amount
equal to the annual rate of 1.00% of the Fund's
average weekly net assets. These fees are greater
than those paid by most funds. See "Management."

Dividends and Other
Distributions............ The Fund declares and pays monthly dividends from
its interest and dividend income. In addition, the
Fund may (but is not required to) distribute with
its monthly dividends all or a portion of any
realized net gains from foreign currency
transactions and net short-term capital gain, if
any. The Fund distributes annually to its
shareholders 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 realized net gains from foreign
currency transactions 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. If the
Fund's dividends exceed its taxable income in any
year, all or a portion of its dividends may be
treated as a return of capital to shareholders for
tax purposes. 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 dividends and other
distributions payable to shareholders whose Shares
are registered in their own names or in the name of
PaineWebber (or its nominee) are automatically
reinvested in additional Shares, unless such
shareholders elect to receive cash. Shares acquired
under the Plan are purchased in the

5
<PAGE> 6

open market, on the NYSE or otherwise, at prices
that may be higher or lower at the time of purchase
than the net asset value of the Shares.
Shareholders whose shares are held in the name of a
broker or nominee other than PaineWebber (or its
nominee) should contact such broker or other
nominee to determine whether, or how, they may
participate in the Plan. The Fund will not issue
any new shares in connection with the Plan. See
"Dividends and Other Distributions; Dividend
Reinvestment Plan."
Share Repurchases;
Conversion to Open-End
Fund..................... In recognition of the possibility that the Shares
might trade at a discount to net asset value and
that any such discount may not be in the best
interest of shareholders, 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 take action either to repurchase Shares in
the open market or to make a tender offer for
Shares at their net asset value. There can be no
assurance that the board of directors will, in
fact, decide to undertake either of these actions
or, if undertaken, that such repurchases or tender
offers will result in the Shares trading at a price
that is equal to or close to net asset value per
Share. The board of directors also will consider
from time to time whether it would be in the best
interests of the Fund and its shareholders to
convert the Fund to an open-end investment company.
See "Description of Capital Stock."
Special Considerations and
Risk Factors............. Risks of Foreign Securities. Investments in
foreign securities involve risks relating to
political and economic developments abroad, as well
as those that result from the differences between
the regulations to which U.S. and foreign issuers
are subject. These risks may include expropriation,
confiscatory taxation, withholding taxes on
interest, limitations on the use or transfer of
Fund assets, difficulty in obtaining or enforcing a
court judgment abroad, restrictions on the exchange
of currencies and political or social instability
or diplomatic developments. Moreover, individual
foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects
as growth of gross national product, rate of
inflation, capital reinvestment, resource
self-sufficiency and balance of payments positions.
Securities of many foreign issuers may be less
liquid and their prices more volatile than those of
securities of comparable U.S. issuers. These risks
are heightened for investments in smaller capital
markets, including Latin America.

6
<PAGE> 7

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.

Only a limited market, if any, currently exists for
hedging instruments relating to securities or
currencies in most Latin American and other small
capitalization markets. 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 small
capitalization markets.

Certain of the risks associated with international
investments and investing in smaller capital
markets are heightened for investments in Latin
American countries. Some of the currencies of Latin
American countries have experienced significant
devaluations relative to the U.S. dollar, and major
adjustments have been made in certain of such
currencies periodically or on a continuous basis.
Recently, Mexico experienced a severe currency
devaluation that led to increases in interest rates
and decreases in the value of bonds of Mexican
issuers, bonds including those held by the Fund. In
addition, governments of many Latin American
countries have exercised and continue to exercise
substantial influence over many aspects of the
private sector. In certain cases, the government
owns or controls many companies, including the
largest in the country. Accordingly, government
actions in the future could have a significant
effect on economic conditions in Latin American
countries, which could affect private sector
companies and the Fund, as well as the value of
securities in the Fund's portfolio.

Sovereign Debt. Investments in Sovereign Debt
involve special risks. The issuer of the debt or
the governmental authorities that control the
repayment of the debt may be unable or unwilling to
repay principal or interest when due in accordance
with the terms

7
<PAGE> 8

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 somewhat
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.

Lower Grade Debt Securities. The Fund may invest
up to 35% of its total assets in debt securities
rated below investment grade. These securities,
commonly known as junk bonds, are deemed by those
agencies to be predominantly speculative with
respect to the issuer's capacity to pay interest
and repay principal and to involve major risk
exposure to adverse conditions. 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
fluctuations in response to changes in interest
rates.

Market Price of Shares. Shares of closed-end
investment companies frequently trade at a discount
to their net asset values, and the Fund's Shares
have historically traded at a discount to their net
asset value. See "Trading History." There is a risk
that, for example, a Fund shareholder who sells his
Shares at a time when the Shares are trading at a
discount to net asset value could incur a loss of
capital even if the Fund's net asset value has not
declined since the shareholder purchased his
shares. This market risk is separate and distinct
from the risk that the Fund's net asset value may
decrease. Accordingly, the Shares are designed
primarily for long-term investors and should not be
viewed as a vehicle for trading purposes.

Non-Diversification. The Fund is "non-diversified"
as that term is defined in the 1940 Act. This means
that the Fund is not subject to the limitations
relating to holdings in the securities of a single
issuer to which "diversified" investment companies
are subject under the 1940 Act. As a result, 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
price of the Shares.

Other Factors. The value of the debt securities
held by the Fund, and thus the net asset value of
the Shares, generally will fluctuate inversely with
movements in interest rates. The Fund's
participation

8
<PAGE> 9

in the options and futures markets and in forward
currency contracts involves certain investment
risks and transaction costs.

Certain of the investment techniques that the Fund
may employ might expose the Fund to certain risks.
These techniques include purchasing restricted and
illiquid securities, zero coupon securities,
mortgage-backed securities and when-issued and
delayed delivery securities, entering into
repurchase agreements and lending portfolio
securities. Investors should consider the effects
of these techniques in evaluating an investment in
the Fund.

The Fund's Articles of Incorporation contain
provisions that could have the effect of limiting
(1) the ability of other entities or persons to
acquire control of the Fund, (2) the Fund's freedom
to engage in certain transactions or (3) the
ability of the Fund's directors or shareholders 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
shareholders 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
shareholder who owns beneficially more than 5% of
the Shares. 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 "Other Investment Practices," "Special
Considerations and Risk Factors" and "Description
of Capital Stock -- Certain Anti-Takeover
Provisions of the Articles of Incorporation."

Custodian, Transfer and
Dividend Disbursing Agent
and Registrar............ Brown Brothers Harriman & Co. serves as custodian
of the Fund's assets and employs subcustodians
outside the United States approved by the directors
of the Fund to provide custody of the Fund's
foreign assets. PNC Bank, National Association,
serves as transfer and dividend disbursing agent
and registrar. See "Custodian, Transfer and
Dividend Disbursing Agent and Registrar."

9
<PAGE> 10

FINANCIAL HIGHLIGHTS

The table below provides selected per share data and ratios for Shares of
the Fund 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 November 30, 1995, which are
incorporated by reference into the Fund's SAI, which can be obtained by
shareholders upon request. The financial statements and notes and the financial
information in the table below have been audited by Ernst & Young LLP,
independent auditors, whose report thereon also is included in the Annual Report
to Shareholders.

<TABLE>
<CAPTION>
FOR THE
PERIOD
FEBRUARY
3, 1992+
TO
FOR THE YEARS ENDED NOVEMBER 30, NOVEMBER
---------------------------------- 30,
1995*** 1994 1993 1992
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 13.07 $ 14.92 $ 13.47 $ 14.03
-------- -------- -------- --------
Net investment income................... 1.19 1.08 1.12 1.02
Net realized and unrealized gains
(losses) from investments and foreign
currency transactions................. 0.27 (1.80) 1.51 (0.82)
-------- -------- -------- --------
Total increase (decrease) from
investment operations................. 1.46 (0.72) 2.63 0.20
-------- -------- -------- --------
Dividends from net investment income.... (1.12) (0.82) (1.12) (0.70)
Distributions from net realized gains
from investment and foreign currency
transactions.......................... -- (0.15) (0.06) (0.03)
Return of capital....................... -- (0.16) -- --
-------- -------- -------- --------
Total dividends and distributions....... (1.12) (1.13) (1.18) (0.73)
-------- -------- -------- --------
Offering costs charged to capital....... -- -- -- (0.03)
-------- -------- -------- --------
Net asset value, end of period.......... $ 13.41 $ 13.07 $ 14.92 $ 13.47
======== ======== ======== ========
Market value, end of period............. $ 11.25 $ 11.13 $ 14.25 $ 12.88
======== ======== ======== ========
Total investment return (1)............. 11.81% (14.53)% 19.92% (9.67)%
======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period(000's)........ $287,159 $279,773 $319,496 $288,251
Ratio of expenses to average net
assets................................ 1.24% 1.27% 1.58%** 1.34%*
Ratio of net investment income to
average net assets.................... 9.20% 8.01% 7.81%** 8.79%*
Portfolio turnover rate................. 121% 82% 111% 94%
</TABLE>

- ------------
+ Commencement of operations.
(1) Total investment return is calculated assuming a purchase of one share of
common stock at the current market price on the first day of each period
reported and a sale at the current market price on the last day of each
period reported, and assuming reinvestment of dividends to common
stockholders at prices obtained under the Fund's Dividend Reinvestment Plan.
Returns do not reflect brokerage commissions and have not been annualized
for periods less than one year.
* Annualized.
** Includes 0.31% of interest expense relating to reverse repurchase agreement
transactions entered into during the fiscal year.
*** Effective August 15, 1995, the Fund terminated the sub-advisory contract
with BEA Associates and Mitchell Hutchins assumed responsibility for
management of the Fund's Latin American debt investments.

10
<PAGE> 11

The following information relates to each class of the Fund's "senior
securities," as defined under the 1940 Act, outstanding as of the end of its
last four fiscal years.

<TABLE>
<CAPTION>
ASSET
COVERAGE
PER
$1,000 AVERAGE
TOTAL OF MARKET
AMOUNT INDEBTEDNESS VALUE
OUTSTANDING AS OF PER
AS OF END OF $1,000
END OF FISCAL OF
SENIOR SECURITIES YEAR FISCAL YEAR YEAR INDEBTEDNESS*
- --------------------------------- ---- ----------- ------- -------
<S> <C> <C> <C> <C>
Reverse Repurchase Agreements 1992+ $11,521,546 $26,018 $23,922
1993 0 0 $38,322
1994 0 0 0
1995 0 0 0
</TABLE>

- ------------
+ Data reflects period from February 3, 1992 (commencement of operations)
through November 30, 1992.

* Calculated by multiplying $1,000 by the result obtained by dividing: (a) the
average market value of the Shares for each month during the fiscal year in
which the Fund had outstanding indebtedness; by (b) the average amount of
indebtedness outstanding in each such month.

11
<PAGE> 12

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 November 15, 1991 and commenced operations on
February 3, 1992. 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 Shares 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 Shares offered
pursuant to this Prospectus. Proceeds received by PaineWebber as a result of its
OTC secondary market sales of the Shares will be utilized by PaineWebber in
connection with its secondary market operations and for general corporate
purposes.

TRADING HISTORY

The Shares are listed and traded on the NYSE under the symbol "SGL." The
following table sets forth for the Shares 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. on the 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 Shares during the periods shown may be broader than is shown in this table.
On March 18, 1996, the closing price per Share was $11.63, the Fund's net asset
value per Share was $13.48 and the discount to net asset value was (13.8)%.

<TABLE>
<CAPTION>
(DISCOUNT) OR
PREMIUM TO
SALES PRICES NET ASSET VALUES NET ASSET VALUE
------------------ ---------------- ------------------
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
-------------------------------- ------- ------- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
02/28/94........................ $14.50 $13.875 $15.19 $15.13 (4.54)% (8.29)%
05/31/94........................ 13.875 11.625 14.55 13.33 (4.64) (12.79)
08/31/94........................ 12.375 11.50 13.60 13.03 (9.01) (11.74)
11/30/94........................ 11.375 11.00 13.31 12.97 (14.54) (15.19)
02/28/95........................ 11.375 9.75 13.15 12.27 (13.50) (20.54)
05/31/95........................ 11.125 9.875 13.19 12.07 (15.66) (18.19)
08/31/95........................ 11.625 10.875 13.48 12.95 (13.76) (16.02)
11/30/95........................ 11.625 11.125 13.39 13.20 (13.18) (15.72)
02/29/96........................ 12.625 11.25 14.05 13.44 (10.14) (16.29)
</TABLE>

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<PAGE> 13

The Shares have historically traded in the market at prices below net asset
value. See "Description of Capital Stock -- Share Repurchases and Tender Offers"
and "-- Conversion to Open-End Investment Company" as to methods that may be
undertaken by the Fund to reduce any discount.

INVESTMENT OBJECTIVES AND POLICIES

Investment Objectives and Primary Investments. The Fund's primary
investment objective is to achieve a high level of current income; capital
appreciation is a secondary investment objective. There can be no assurance that
the Fund will achieve these objectives.

Mitchell Hutchins selectively invests the Fund's assets in securities of
issuers in countries and in currency denominations where the combination of
fixed income market returns, the price appreciation potential of fixed income
securities and currency exchange rate movements presents opportunities for high
current income and, secondarily, capital appreciation. Fundamental economic
strength, credit quality and currency and interest rate trends are the principal
determinants of the various country, geographic and industry sector weightings
within the Fund's portfolio. Securities ordinarily will be considered to be
securities of an issuer in a given country if the securities are: (1) securities
that are issued or guaranteed by the government of that country or of any
political subdivision thereof, by an agency or instrumentality of any such
government or by that country's central bank; (2) securities of issuers that are
organized in that country; or (3) securities for which the principal trading
market is in that country.

The Fund normally invests at least 65% of its total assets in a combination
of the following types of securities, all of which at the time of purchase will
be rated at least BBB by S&P or Baa/baa by Moody's or, if not rated by S&P or
Moody's, determined by Mitchell Hutchins to be of comparable quality: (1) debt
securities issued or guaranteed by the U.S. government or foreign governments or
their agencies, instrumentalities or political subdivisions, or by central banks
or supranational organizations; (2) debt securities issued or guaranteed by U.S.
or foreign business entities; (3) repurchase agreements involving any of the
foregoing securities; and (4) other fixed income securities, including preferred
stock and mortgage- and other asset-backed securities of U.S. or foreign
business entities. Less than 50% of the Fund's total assets will be invested in
securities that are rated BBB or Baa/baa or lower by S&P or Moody's or that, if
not rated by S&P or Moody's, are determined by Mitchell Hutchins to be of
comparable quality. Fixed income securities rated BBB by S&P or Baa/baa by
Moody's and comparable unrated securities are deemed medium grade, but Moody's
considers securities rated Baa/baa to have speculative qualities. Changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity for such securities to make principal and interest payments than is the
case for higher grade securities.

Under normal circumstances the Fund invests in securities, denominated in
foreign currencies or U.S. dollars, of issuers in at least three countries. No
more than 40% of the Fund's total assets normally will be invested in securities
of issuers in any one country (other than the United States). The Fund is not
limited to investments in the securities of any countries or regions. No more
than 25% of the Fund's total assets may be invested in securities issued by any
government (other than the United States government) or by any other single
issuer. At least 65% of the Fund's total assets will be invested in income
producing securities.

The Fund may invest up to 35% of its total assets in fixed income
securities of U.S. and foreign issuers rated below BBB by S&P or Baa/baa by
Moody's or, if not rated by S&P or Moody's,

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<PAGE> 14

determined by Mitchell Hutchins to be of comparable quality. Lower grade
securities, commonly referred to as "junk bonds," involve a high degree of risk
and are predominantly speculative.

S&P and Moody's are private services that provide ratings of fixed income
securities. Credit ratings attempt to evaluate the safety of principal and
interest payments and do not evaluate the risk of fluctuations in market value.
It should be emphasized that ratings are general and are not absolute standards
of quality. Consequently, fixed income securities with the same maturity,
interest rate and rating may have different market prices. Also, rating agencies
may fail to make timely changes in credit ratings in response to subsequent
events, so that an issuer's financial condition may be better or worse than is
indicated by its rating.

Subsequent to purchase by the Fund, a security may cease to be rated or its
rating may be reduced below its rating at the time it was purchased by the Fund.
Mitchell Hutchins would consider such an event in determining whether the Fund
should continue to hold the security. In making such determination, Mitchell
Hutchins will consider such factors as its assessment of the credit quality of
the issuer of the security and the price at which the security could be sold.
Mitchell Hutchins will engage in an orderly disposition of downgraded securities
to the extent necessary to ensure that the Fund's holdings of securities rated
below BBB by S&P and Baa/baa by Moody's (or deemed to be of comparable quality)
do not exceed 35% of the Fund's total assets. See Appendix A for more
information about S&P and Moody's ratings.

Up to 35% of the Fund's total assets from time to time may be invested in
securities of Latin American issuers. The Fund defines Latin America to consist
of the following countries: Argentina, Bolivia, Brazil, Chile, Colombia, Costa
Rica, Cuba, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras,
Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay and Venezuela. The Fund's
holdings of Latin American fixed income securities may trade at substantial
discounts from face value. Some of these securities may be comparable to
securities rated as low as D by S&P or C by Moody's and may be non-performing
when purchased.

The value of the securities held by the Fund, and thus the net asset value
of the Shares of the Fund, generally will vary inversely to changes in
prevailing interest rates. Thus, if interest rates have increased from the time
a fixed income security was purchased, such security, if sold, might be sold at
a price less than its cost. Conversely, if interest rates have declined from the
time such a security was purchased, such security, if sold, might be sold at a
price greater than its cost.

During the fiscal year ended November 30, 1995, the Fund had 97.2% of its
net assets in securities that received a rating from a nationally recognized
statistical rating organization ("NRSRO") and 2.8% of its net assets in
securities that were not so rated. The Fund had the following percentages of its
net assets invested in rated securities: AAA/Aaa (including cash and cash
equivalents) -- 78.3%, AA/Aa -- 3.6%, A/A -- 0.2%, BBB/Baa -- 0%, BB/Ba -- 6.4%
and B/B -- 8.7%. It should be noted that this information reflects the average
composition of the Fund's assets during the 1995 fiscal year and is not
necessarily representative of the Fund's assets as of the end of that fiscal
year, the current fiscal year or any other time in the future.

U.S. Government Securities. The U.S. government securities in which the
Fund may invest include direct obligations of the U.S. Treasury (such as
Treasury bills, notes and bonds) and obligations issued or guaranteed by U.S.
government agencies and instrumentalities, including: securities that are
supported by the full faith and credit of the United States (such as Government
National Mortgage Association certificates), securities that are supported
primarily or solely by the creditworthiness of

14
<PAGE> 15

the issuer (such as securities issued by the Resolution Funding Corporation and
the Tennessee Valley Authority) and securities that are supported primarily or
solely by specific pools of assets and the creditworthiness of a U.S.
government-related issuer (such as mortgage-backed securities issued by the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation).

Foreign Securities. The Fund's investment policies are designed to enable
it to capitalize on unique investment opportunities presented throughout the
world and in international financial markets influenced by the increasing
interdependence of economic cycles and currency exchange rates. The relative
performance of various countries' debt securities markets historically has
reflected wide variations relating to the unique characteristics of each
country's economy. Year-to-year fluctuations in certain markets have been
significant, and negative returns have been experienced in various markets from
time to time. Mitchell Hutchins believes that over time investment in a
portfolio comprised of a combination of U.S. and foreign government and
corporate fixed income securities is less risky than a portfolio comprised
exclusively of foreign fixed income securities, and provides investors with the
potential to earn a higher return than a portfolio invested exclusively in U.S.
fixed income securities.

Foreign Government Securities. The foreign government securities in which
the Fund may invest generally consist of obligations supported by national,
state or provincial governments or similar political subdivisions. Foreign
government securities also include fixed income obligations of supranational
entities. Supranational entities include international organizations designated
or supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the Asian
Development Bank and the InterAmerican Development Bank.

Foreign government securities also include fixed income securities of
"quasi-governmental agencies" and fixed income securities denominated in
multinational currency units of an issuer in any one of the foregoing countries
(including supranational issuers). An example of a multinational currency unit
is the European Currency Unit. A European Currency Unit represents specified
amounts of the currencies of certain member states of the European Community.
Fixed income securities of quasi-governmental agencies are issued by entities
owned by either a national, state or equivalent government or are obligations of
a political unit that is not backed by the national government's full faith and
credit and general taxing powers. Foreign government securities also include
mortgage-related securities issued or guaranteed by national, state or
provincial governmental instrumentalities including quasi-governmental agencies.

Brady Bonds. The Fund may invest in so-called "Brady Bonds," which are
issued as part of a debt restructuring in which the bonds are issued in exchange
for cash and certain of the country's outstanding commercial bank loans. Brady
Bonds have been issued only relatively recently, and do not have a long payment
history. Brady Bonds are issued in various currencies (primarily the U.S.
dollar) and are actively traded in the OTC secondary market. The Fund may invest
in either collateralized or uncollateralized Brady Bonds. U.S.
dollar-denominated, collateralized Brady Bonds, which may be fixed rate par
bonds or floating rate discount bonds, are collateralized in full as to
principal by U.S. Treasury zero coupon bonds having the same maturity as the
bonds. Interest payments on collateralized Brady Bonds generally are
collateralized by cash or securities in an amount that is equal to 12 to 18
months of interest accruals.

15
<PAGE> 16

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. Many of the Brady Bonds and other Sovereign Debt in which the Fund
invests are likely to be acquired at a discount.

The Fund may invest up to 35% of its total assets in either collateralized
or uncollateralized Brady Bonds and is not limited with respect to the
percentage of its Brady Bond investments that must be issued by any specific
country.

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").
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, generally, 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. The lack of a liquid secondary market for
assignments and participations also may make it more difficult for the Fund to
assign a value to those securities for purposes of valuing the Fund's portfolio
and calculating its net asset value.

Indexed Commercial Paper. The Fund may invest in commercial paper which
typically is indexed to certain specific foreign currency exchange rates. The
terms of such commercial paper provide that its 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 obligation is outstanding. While
such commercial paper entails the risk of loss of principal, the potential for
realizing gains as a result of changes in foreign currency exchange rates
enables the Fund to hedge (or cross-hedge) against a

16
<PAGE> 17

decline in the U.S. dollar value of investments denominated in foreign
currencies while providing an attractive money market rate of return. The Fund
will purchase such commercial paper for hedging purposes only, not for
speculation. New forms of commercial paper continue to be developed. The Fund
may invest in such commercial paper to the extent consistent with its investment
objectives.

Convertible Securities. The Fund may invest up to 20% of its total assets
in convertible securities. A convertible security is a bond, debenture, note,
preferred stock or other security 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 paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities have unique investment
characteristics in that they generally (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities, (2) are
less subject to fluctuation in value than the underlying stock since they have
fixed income characteristics and (3) 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.

Mortgage-Backed Securities. The Fund may invest up to 20% of its total
assets in mortgage-backed securities, such as those issued by the Government
National Mortgage Association, the Federal National Mortgage Association, the
Federal Home Loan Mortgage Corporation or certain foreign issuers.
Mortgage-backed securities represent direct or indirect participations in, or
are secured by and payable from, mortgage loans secured by real property and
include single- and multi-class pass through securities and collateralized
mortgage obligations.

Asset-Backed Securities. The Fund may invest in asset-backed securities,
which have structural characteristics similar to mortgage-backed securities.
However, the underlying assets are not first lien mortgage loans or interests
therein, but include assets such as motor vehicle installment sales contracts,
other installment loan contracts, home equity loans, leases of various types of
real and personal property and receivables from revolving credit (credit card)
agreements. Such assets are securitized through the use of trusts and special
purpose corporations. Payments or distributions of principal and interest may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution unaffiliated
with the trust or corporation.

Zero Coupon Securities. The Fund may invest in "zero coupon" and other
deep discount securities of governmental or private issuers. The Fund currently
anticipates that zero coupon securities will not exceed 20% of its total assets.
Zero coupon securities generally pay no cash interest (or dividends in the case
of preferred stock) 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 will be 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 (or dividends in the case of preferred
stock) on a current basis.

Zero coupon securities having remaining terms to maturity of more than one
year will not be used for purposes of satisfying the Fund's policy of investing
at least 65% of its total assets in income producing securities. Federal tax law
requires that a holder of a zero coupon security accrue as income

17
<PAGE> 18

each year a portion of the original issue discount at which the security was
purchased, even though the holder receives no interest payment on the security
during the year. Federal tax law also requires that a company such as the Fund
that seeks to qualify for pass- through federal income tax treatment as a
regulated investment company distribute substantially all of its 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 its desired tax treatment, to include in its
dividends all or a substantial portion of the income attributable to its zero
coupon securities. The Fund might be required to liquidate portfolio securities
at a time that it otherwise would not have done so in order to make such
distributions. The Fund will not be able to purchase additional income-producing
securities with cash used to make such distributions, and as a result, its
current income ultimately may be reduced. See "Taxes" in the SAI.

OTHER INVESTMENT PRACTICES

Hedging and Related Income Strategies. The Fund may use options (both
exchange traded and OTC) and forward currency contracts to attempt to enhance
income 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 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 for hedging purposes. In addition, the Fund 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

18
<PAGE> 19

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 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 (1) the fact that skills needed to use hedging
instruments are different from those needed to select the Fund's securities, (2)
possible imperfect correlation, or even no correlation, between price movements
of hedging instruments and price movements of the investments being hedged, (3)
the fact that, while hedging strategies can reduce the risk of loss, they can
also reduce the opportunity for gain, or even result in losses, by offsetting
favorable priced movements in hedged investments and (4) 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.

Only a limited market, if any, currently exists for hedging instruments
relating to securities or currencies in most Latin American and other small
capitalization markets. 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 small capitalization 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.

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, purchased OTC options, repurchase agreements
maturing in more than seven days, certain IOs and POs and restricted securities
other than Rule 144A securities and commercial paper that Mitchell Hutchins has
determined are liquid pursuant to guidelines established by the Fund's board of
directors. To the extent the Fund invests in illiquid securities, the Fund may
not be able to readily liquidate such investments, and would have to sell other
investments if necessary to raise cash to meet its obligations. The lack of a
liquid secondary market for illiquid securities may make it more difficult for
the Fund to assign a value to those securities for purposes of valuing the
Fund's portfolio and calculating its net asset value. The Fund may invest
without limitation in purchased OTC options and cover for 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

19
<PAGE> 20

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.

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. 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.

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 declines in the market value of the underlying
securities and delays and costs to the Fund if the other party to a 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 minimal credit risks in accordance with guidelines established by the
Fund's board of directors.

Leverage and Borrowing. The Fund is authorized to borrow money (including
borrowings from banks and other entities, reverse repurchase agreements and
dollar rolls) for investment purposes 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 not constituting senior securities). The Fund is
also authorized to borrow up to an additional 5% of its total assets (not
including the amount borrowed) for temporary or emergency purposes, such as
clearance of portfolio transactions. Borrowing constitutes leverage, a
speculative technique. The use of leverage will provide the opportunity for
increased net income but, at the same time, will involve special risks. The Fund
will only use leverage when Mitchell Hutchins believes that such leverage will
benefit the Fund after taking such risks into consideration.

Leveraging exaggerates changes in the net asset value of the Shares and in
the yield on the Fund's portfolio, which may, in turn, result in increased
volatility of the market price of the Shares. Leverage also creates interest
expenses for the Fund, which can exceed the income from the assets obtained with
the proceeds. 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 shareholders 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

20
<PAGE> 21

use of certain types of leverage could have an adverse effect on the income
earned and dividends paid by the Fund.

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, the Fund sells
securities and agrees to repurchase them at a mutually agreed upon 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. Reverse
repurchase agreements are considered borrowings and, accordingly, are subject to
the Fund's 33 1/3% limitation on borrowings.

Dollar Rolls. Dollar rolls are transactions in which the Fund sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period, the Fund forgoes principal and
interest paid on the securities. The Fund is compensated by the difference
between the current sales price and the lower forward price for the future
purchase (often referred to as the "drop") as well as by the interest earned on
the cash proceeds of the initial sale. The Fund also may be compensated through
the receipt of fee income equivalent to a lower forward price. At the time the
Fund enters into a dollar roll, if required under policies of the SEC, the
Fund's custodian segregates cash or liquid, high-grade debt securities having a
value not less than the forward purchase price. Dollar rolls are considered
borrowings and, accordingly, are subject to the Fund's 33 1/3% limitation on
borrowings.

Lending of Portfolio Securities. The Fund may lend up to 33 1/3% of the
total value of its portfolio securities to broker-dealers or institutional
investors that Mitchell Hutchins deems qualified, but only when the borrower
maintains acceptable collateral with the Fund's custodian bank, marked to market
daily, in an amount at least equal to the market value of the securities loaned,
plus accrued interest and dividends. Acceptable collateral is limited to cash,
U.S. government securities and irrevocable letters of credit that meet certain
guidelines established by Mitchell Hutchins. 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 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

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<PAGE> 22

subscription rights, when regaining such rights is considered by Mitchell
Hutchins to be in the Fund's interest.

Portfolio Turnover. The Fund's portfolio turnover rate may vary greatly
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 securities in the portfolio during the year. A high turnover rate involves
correspondingly greater transaction costs, which will be borne directly by the
Fund, and increases the potential for short-term capital gains and taxes. For
the fiscal years ended November 30, 1995 and November 30, 1994, the Fund's
portfolio turnover rate was 121% and 82%, respectively.

Temporary and Defensive Investments. When Mitchell Hutchins believes
unusual circumstances warrant a defensive posture, the Fund temporarily may
commit all or any portion of its assets to cash or high-grade U.S.
dollar-denominated money market instruments, including repurchase agreements. In
addition, the Fund temporarily 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 pending investment. The Fund also may borrow money for temporary
or emergency purposes (e.g., clearance of transactions) in an amount not
exceeding 5% of the value of the Fund's total assets (not including the amount
borrowed).

Other Information. The Fund's investment objectives and certain investment
limitations as described in the SAI are fundamental policies that may not be
changed without shareholder approval. All other investment policies may be
changed by the Fund's board of directors without shareholder approval.

SPECIAL CONSIDERATIONS AND RISK FACTORS

Risks of Foreign Securities. Investments in foreign securities involve
risks relating to political and economic developments abroad, as well as those
that result from the differences between the regulations to which U.S. and
foreign issuers are subject. These risks may include expropriation, confiscatory
taxation, withholding taxes on interest, limitations on the use or transfer of
Fund assets, difficulty in obtaining or enforcing a court judgment abroad,
restrictions on the exchange of currencies and political or social instability
or diplomatic developments. Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments positions. Securities of many foreign
issuers may be less liquid and their prices more volatile than those of
securities of comparable U.S. issuers. These risks are often heightened for
investments in smaller capital markets, including Latin America.

In addition, substantial limitations may exist in certain countries with
respect to the Fund's ability to repatriate investment income, capital or the
proceeds of sales of securities by foreign investors. The Fund could be
adversely affected by delays in, or a refusal to grant, any required government
approval for repatriation of capital, as well as by the application to the Fund
of any restrictions on investments.

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<PAGE> 23

Many of the foreign securities held by the Fund will not be registered with
the SEC, nor will the issuers thereof be subject to SEC reporting requirements.
Accordingly, there may be less publicly available information concerning foreign
issuers of securities held by the Fund than is available concerning U.S.
companies. Foreign companies, and in particular, companies in smaller and
emerging capital markets, including Latin America, 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.
Transactions in foreign securities may be subject to less efficient settlement
practices. Legal remedies for defaults and disputes may have to be pursued in
foreign courts, whose procedures may differ substantially from those of U.S.
courts.

Additionally, because foreign securities ordinarily will be denominated in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates will affect the Fund's net asset value, the value of dividends and
interest earned, gains and losses realized on the sale of securities and net
investment income to be distributed to 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 intervention in the currency markets. Any of
these factors could adversely affect the Fund.

The costs attributable to foreign investing that the Fund must bear
frequently are higher than those attributable to domestic investing. For
example, the cost of maintaining custody of foreign securities exceeds custodian
costs for domestic securities, and transaction and settlement costs of foreign
investing also frequently are higher than those attributable to domestic
investing. Costs associated with the exchange of currencies also make foreign
investing more expensive than domestic investing. Investment income on certain
foreign securities in which the Fund may invest may be subject to foreign
withholding or other government taxes that could reduce the return of these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign tax to which the Fund
would be subject.

Latin American Securities and Economies. Latin American economies have
experienced considerable economic and political turmoil. Although there have
been significant improvements in recent years, most Latin American economies
continue to experience significant problems, including high inflation rates and
high interest rates. There is no assurance that efforts to control inflation and
interest rates will be successful. The emergence of the Latin American economies
and securities markets will require continued economic and fiscal discipline
which has been lacking at times in the past, as well as stable political and
social conditions. Recovery may also be influenced by international economic
conditions, particularly those in the United States, and by world prices for
oil, copper, wheat and other commodities.

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<PAGE> 24

and decreases in the value of bonds of Mexican issuers, including those held by
the Fund. In addition, governments of many Latin American countries have
exercised and continue to exercise substantial influence over many aspects of
the private sector. In certain cases, the government owns or controls many
companies, including the largest in the country. Accordingly, government actions
in the future could have a significant effect on economic conditions in Latin
American countries, which could affect private sector companies and the Fund, as
well as the value of securities in the Fund's portfolio.

Securities issuers in Latin America are not subject to the same accounting,
auditing and financial reporting standards as U.S. companies. In addition, most
Latin American countries have experienced substantial, and in some periods
extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative
effects on the economies and securities markets of certain Latin American
countries. In some Latin American countries inflation accounting rules require
companies that keep accounting records in the local currency, for both tax and
accounting purposes, to restate certain assets and liabilities on the company's
balance sheet in order to express items in terms of currency of constant
purchasing power. Inflation accounting may indirectly generate losses or profits
for certain Latin American companies.

Some Latin American countries prohibit or impose, or until recently have
imposed, substantial restrictions on investments in their capital markets by
foreign entities such as the Fund. As illustrations, certain countries may
require governmental approval prior to investments by foreign persons, or limit
the amount of investment by foreign persons in a particular company, or limit
the investment by foreign persons to only a specific class of a company's
securities that may have less advantageous terms than securities of the company
available for purchase by nationals. Certain countries may restrict investment
opportunities in issuers or industries deemed important to national interests.

Sovereign Debt. Investments in Sovereign Debt involve special risks. The
issuer of the debt or the governmental authorities that control the repayment of
the debt may be unable or unwilling to repay principal 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 somewhat 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. 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.

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

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<PAGE> 25

country's domestic economy or balance of trade may affect the willingness of
countries to service their Sovereign Debt. While Mitchell Hutchins seeks 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.

With respect to Sovereign Debt of Latin American issuers, investors should
be aware that certain Latin American countries are among the largest debtors to
commercial banks and foreign governments. At times certain Latin American
countries have declared moratoria on the payment of principal and interest on
external debt; such a moratorium is currently in effect in certain Latin
American countries.

Since 1982, certain countries, including Argentina, Brazil and Mexico, have
experienced difficulty in servicing these Sovereign Debt obligations on a timely
basis. Many such countries have entered into negotiations with foreign creditors
to restructure such Sovereign Debt and may enter into such negotiations in the
future. 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. There is no bankruptcy proceeding by which Sovereign Debt on
which a sovereign has defaulted may be collected in whole or in part.

Investors should also be aware that certain Sovereign Debt instruments in
which the Fund may invest involve great risk. Sovereign Debt issued by issuers
in Latin America or in other emerging markets generally is deemed to be the
equivalent in terms of quality to securities rated below investment grade by
Moody's and S&P. Such securities are regarded as predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligations and involve major risk exposure to
adverse conditions. Some of such Sovereign Debt, which may not be paying
interest currently or may be in payment default, may be comparable to securities
rated D by S&P or C by Moody's. The Fund may have difficulty disposing of
certain Sovereign Debt obligations because there may be a limited trading market
for such 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 lack of a liquid
secondary market may have an adverse impact on the market price of such
securities and the Fund's ability to dispose of particular issues 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 issuer. The lack of a
liquid secondary market for certain 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.

Interest Rate Sensitivity. The value of many of the securities held by the
Fund, and thus the net asset value of the shares of the Fund, generally will
vary inversely to changes in prevailing interest rates. Thus, if interest rates
have increased from the time a fixed income security was purchased, such
security, if sold, might be sold at a price less than its cost. Conversely, if
interest rates have declined from the time such a security was purchased, such
security, if sold, might be sold at a price greater than its cost. The average
maturity of the Fund's portfolio will vary based upon Mitchell Hutchins'
assessment of economic and market conditions. Certain of the securities in which
the Fund may invest, such as zero coupon securities and other deeply discounted
securities and mortgage- and asset-backed securities, have special yield
characteristics.

Lower Grade Securities. As noted above, the Fund may invest up to 35% of
its total assets in securities rated below investment grade. Investment grade
securities, in which the Fund normally will

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<PAGE> 26

invest at least 65% of its total assets, include securities rated BBB or higher
by S&P or Baa/baa or higher by Moody's or, if not rated by S&P or Moody's,
determined by Mitchell Hutchins to be of comparable quality. Securities rated
BBB or Baa, and comparable unrated 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 fixed income securities.
Fixed income 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
exposures to adverse conditions. The lower grade securities in which the Fund
may invest up to 35% of its total assets 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 principal or interest. See Appendix A for a more complete
description of S&P and Moody's ratings.

Lower grade fixed income securities generally offer a higher current 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 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 interest repayments as they come due. In addition,
the market for lower grade securities has expanded rapidly in recent years, and
its growth paralleled a long economic expansion. In the past, the prices of many
lower grade fixed income securities declined substantially, reflecting an
expectation that many issuers of such securities might experience financial
difficulties. As a result, the yield on lower grade fixed income securities rose
dramatically, but such higher yields did not reflect the value of the income
stream that holders of such securities expected. Rather, such higher yields
reflected the risk that holders of such securities could lose a substantial
portion of their value as a result of the issuers' financial restructuring or
default. There can be no assurance that substantial declines will not recur.

Lower grade fixed income 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. In addition, the market
for lower grade fixed income securities generally is thinner and less active
than that for higher rated securities, which would limit the Fund's ability to
sell such securities at fair value in response to changes in the economy or the
financial markets. The lack of a liquid secondary market for 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. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may also decrease the values and liquidity of
lower grade securities,

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<PAGE> 27

especially in a thinly traded market. It is the view of the staff of the SEC
that the market value of lower grade securities is more volatile than that of
higher quality securities.

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.

Although Mitchell Hutchins seeks 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 objectives and policies of the
Fund and consider their ability to assume the investment risks involved before
making an investment.

Special Characteristics of Mortgage-Backed Securities and Asset-Backed
Securities. The yield characteristics of mortgage-backed securities and
asset-backed securities differ from those of traditional debt securities. Among
the major differences are that interest and principal payments are made more
frequently, usually monthly, and that principal may be prepaid at any time
because the underlying mortgage loans or other obligations generally may be
prepaid at any time. As a result, if the securities are purchased at a premium,
a prepayment rate that is faster than expected will reduce yield to maturity,
while a prepayment rate that is slower than expected will have the opposite
effect of increasing yield to maturity. Conversely, if the securities are
purchased at a discount, faster than expected prepayments will increase, while
slower than expected prepayments will reduce, yield to maturity. In general,
prepayments are likely to be greater during a period of decreasing interest
rates and such prepayments are likely to be reinvested at lower interest rates
that the yield of the securities prepaid. Accelerated prepayments on securities
purchased at a premium also impose a risk of loss of principal because the
premium may not have been fully amortized at the time the principal is repaid in
full. Certain types of mortgage-backed securities, commonly known as
"collateralized mortgage obligations" or "CMOs", may be specially structured in
a manner that provides any of a wide variety of investment characteristics, such
as yield, effective maturity and interest rate sensitivity. As market conditions
change, however, and particularly during periods of rapid or unanticipated
changes in market interest rates, the attractiveness of the CMO classes and the
ability of the structure to provide the anticipated investment characteristics
may be significantly reduced. These changes can result in volatility in the
market value, and in some instances reduced liquidity, of the CMO class.

Market Price of Shares. Shares of closed-end investment companies
frequently trade at a discount to net asset value, and the Fund's Shares have
historically traded at a discount to net asset value. See "Trading History."
Whether investors will realize gains or losses upon the sale of Shares will not
depend directly upon changes in the Fund's net asset value, but will depend upon
whether the market price for the Shares at the time of sale is above or below
the original purchase price for the shares. The market price of the Shares 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 control of the Fund. There is a risk that,
for example, a shareholder who sells Shares of the Fund at a time when they are
trading at a discount could incur a loss of capital even if the Fund's net asset
value has not declined since the shareholder purchased the Shares. This market
risk is separate and distinct from the risk that the Fund's net asset value may
decrease. Accordingly, the Shares are designed primarily for long-term investors
and should not be viewed as a vehicle for trading purposes.

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<PAGE> 28

Non-Diversification. The Fund is "non-diversified," as defined in the 1940
Act. This means that the Fund is not subject to the limitations relating to
holdings in the securities of a single issuer to which "diversified" investment
companies are subject under the 1940 Act. The Fund may be subject to greater
risk with respect to its portfolio securities than an investment company that is
"diversified" as defined in the 1940 Act because changes in the financial
condition or market assessment of a single issuer may cause greater fluctuations
in the price of the Shares.

MANAGEMENT

The Fund's board of directors, as part of its overall management
responsibility, oversees various organizations responsible for the Fund's
day-to-day management. Mitchell Hutchins, the Fund's investment adviser and
administrator, makes and implements investment decisions and supervises all
aspects of the Fund's operations. Mitchell Hutchins is a Delaware corporation
whose principal business address is 1285 Avenue of the Americas, New York, New
York 10019 and is a wholly owned subsidiary of PaineWebber, which is in turn a
wholly owned subsidiary of PaineWebber Group Inc., a publicly held financial
services holding company. Mitchell Hutchins provides investment management and
portfolio management services to investment companies, pension funds and other
institutions, corporate and individual clients. Mitchell Hutchins is registered
with the SEC as a broker-dealer and investment adviser. As of February 29, 1996,
Mitchell Hutchins served as the investment adviser or sub-adviser to 32
registered investment companies with 66 separate portfolios and aggregate assets
of over $31.2 billion.

Investment advisory and administrative services are provided to the Fund by
Mitchell Hutchins pursuant to an Investment Advisory and Administration Contract
dated November 21, 1991 ("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; Mitchell Hutchins also supervises all matters relating to
the operation of the Fund and obtains for its corporate officers, clerical
staff, office space, office equipment and services. As compensation for its
services, Mitchell Hutchins receives from the Fund a fee, computed weekly and
paid monthly, in an amount equal to the annual rate of 1.00% of the Fund's
average weekly net assets. This fee is greater than the advisory and
administration fees paid by most funds.

The Fund incurs various other expenses in its operations, such as custody
and transfer agency fees, brokerage commissions, professional fees, expenses of
board and shareholder meetings, fees and expenses relating to registration of
its Shares, 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 November 30, 1995, November 30, 1994 and November 30,
1993, the Fund's total expenses, stated as a percentage of average net assets,
were 1.24%, 1.27% and 1.58%, respectively. Prior to August 15, 1995, BEA
Associates had served as the Fund's Latin American debt sub-adviser pursuant to
an investment sub-advisory contract which was terminated. For the fiscal year
ended November 30, 1995, BEA Associates received $481,638 for services provided
under such contract.

The Fund has no obligation to deal with any broker or group of brokers in
the execution of portfolio transactions. The Fund contemplates that, consistent
with the policy of obtaining the best net results, brokerage transactions may be
conducted through Mitchell Hutchins and its affiliates, including PaineWebber.
The Fund's board of directors has adopted procedures to ensure that all

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<PAGE> 29

brokerage commissions paid to Mitchell Hutchins and its affiliates are fair and
reasonable. See "Investment Advisory Arrangements" and "Brokerage Allocation and
Other Practices" in the SAI.

Stuart Waugh, a managing director and a portfolio manager of Mitchell
Hutchins has been responsible for global fixed income investments and currency
trading, is responsible for the day-to-day management of the Fund's portfolio
since its inception. He also is a Vice President of the Fund and of four other
investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser. Mr. Waugh has been employed by Mitchell Hutchins as a
portfolio manager for more than the last five years. Other members of Mitchell
Hutchins' global investment group provide input on market outlook, interest rate
forecasts, investment research and other considerations pertaining to the Fund's
investments.

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. The Fund declares and pays monthly
dividends from its interest and dividend income. In addition, the Fund may (but
is not required to) distribute with its monthly dividends all or a portion of
any realized net gains from foreign currency transactions and net short-term
capital gain, if any. The Fund distributes annually to its shareholders
substantially all of its realized net capital gain and any undistributed
realized net gains from foreign currency transactions 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. If the Fund's
dividends exceed its taxable income in any year, all or a portion of its
dividends may be treated as a return of capital to shareholders for tax
purposes.

The Fund may change its dividend and other distribution policy in the event
its experience indicates, or the board of directors for any other reason
determines, that changes are desirable.

Dividend Reinvestment Plan. Shareholders may affirmatively elect to
receive all dividends and other distributions in cash paid by check mailed
directly to the shareholders by PNC Bank, National Association ("Transfer
Agent"), as dividend disbursing agent. Under the Plan, shareholders not making
such election and whose Shares are registered in their own names or in the name
of PaineWebber (or its nominee) will receive all such distributions in
additional Shares. Shareholders whose Shares are held in the name of a broker or
nominee other than PaineWebber (or its nominee) should contact such broker or
other nominee to determine whether, or how, they may participate in the Plan.
The ability of such shareholders to participate in the Plan may change if their
Shares are transferred into the name of another broker or nominee.

The Transfer Agent serves as agent for the shareholders 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 in the open market, on the NYSE or
otherwise, for the participants' accounts. Such Shares may be purchased at
prices that may be higher or lower than the Fund's net asset value per Share at
the time of purchase. The number of Shares purchased with each distribution will
be equal to the result obtained by dividing the amount of the distribution by
the average price per Share (including applicable brokerage commissions) that
the

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<PAGE> 30

Transfer Agent was able to obtain in the open market. The Fund will not issue
any new Shares in connection with the Plan.

The Transfer Agent maintains all shareholder accounts in the Plan and
furnishes written confirmation of all transactions in the account, including
information needed by shareholders 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 shareholder's
proxy will include the Shares 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 in connection with the reinvestment of
distributions.

The automatic reinvestment of dividends and other distributions does not
relieve participants of any income tax that may be payable on such
distributions. See "Taxation."

All registered shareholders (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 future dividends and other
distributions in cash. A shareholder who has elected to participate in the Plan
may withdraw from the Plan at any time. There is no penalty for withdrawal from
the Plan, and shareholders who have previously withdrawn from the Plan may
rejoin it at any time. Changes in elections must be made in writing to the
Transfer Agent and should include the shareholder's name and address as they
appear on the share certificate. An election to withdraw from the Plan, until
such election is changed, will be deemed to be an election by a shareholder to
take all subsequent distributions in cash. An election is effective only for
distributions declared and having a record date at least ten days after the date
on which the election is received by the Transfer Agent.

Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan with
respect to any dividend or other distribution if notice of the change is sent to
Plan participants at least 30 days before the record date for such distribution.
The Plan also may be amended or terminated by the Transfer Agent by at least 30
days' written notice to all Plan participants. 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, Attn: Strategic Global
Income Fund, Inc.

TAXATION

The Fund intends to continue to qualify for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code so that it 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 shareholders.

Dividends from the Fund's investment company taxable income (whether
received in cash or reinvested in additional Shares) generally are taxable to
its shareholders as ordinary income. Distributions of the Fund's net capital
gain (whether received in cash or reinvested in additional Shares) are taxable
to its shareholders as long-term capital gain, regardless of how long they have
held their Shares. A participant in the Plan is treated as having received a
distribution in the amount of the

30
<PAGE> 31

cash used to purchase Shares on his behalf, including a pro rata portion of the
brokerage fees incurred by the Transfer Agent. An investor should be aware that
if Shares are purchased shortly before the record date for any dividend or other
distribution, the investor will pay full price for the Shares and could receive
some portion of the price back as a taxable distribution. Shareholders who are
not liable for tax on their income and whose Shares are not debt-financed are
not required to pay tax on dividends or other distributions they receive from
the Fund.

Dividends and other distributions declared by the Fund in October, November
or December of any year and payable to shareholders of record on a date in any
of those months will be deemed to have been paid by the Fund and received by the
shareholders 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 shareholders for the year in which that December 31 falls.

The Fund notifies its shareholders following the end of each calendar year
of the amounts of dividends and capital gain distributions paid (or deemed paid)
that year and of any portion of those dividends that qualifies for the corporate
dividends-received deduction. Under certain circumstances, the notice also will
specify the shareholder's share of any foreign taxes paid by the Fund, in which
event the shareholder would be required to include in his gross income his pro
rata share of those taxes, but might be entitled to claim a credit or deduction
for those taxes.

Upon a sale or exchange of Shares (including a sale pursuant to a Share
repurchase or tender offer by the Fund), a shareholder generally will recognize
a taxable gain or loss equal to the difference between his adjusted basis for
the Shares and the amount realized, which will be treated as a capital gain or
loss if the shares are capital assets in the shareholder's hands and will be a
long-term capital gain or loss if the Shares have been held for more than one
year. Notwithstanding this general rule, however, any loss realized on a sale or
exchange of Shares (1) will be treated as a long-term, rather than as a
short-term, capital loss to the extent of any capital gain distributions
received thereon, if the Shares were held for six months or less, and (2) will
be disallowed to the extent those Shares are replaced by other Shares 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 which event the basis of the replacement Shares
will be adjusted to reflect the disallowed loss.

The Fund is required to withhold 31% of all dividends, capital gain
distributions and repurchase proceeds payable to any individuals and certain
other non-corporate shareholders who do not provide the Fund with a correct
taxpayer identification number. Withholding at that rate also is required from
dividends and capital gain distributions payable to such shareholders who
otherwise are subject to backup withholding.

The foregoing is only a summary of some of the important federal tax
considerations generally affecting the Fund and its shareholders; see the SAI
for a further discussion. There may be other federal, state or local tax
considerations applicable to a particular investor. Prospective shareholders are
therefore urged to consult their tax advisers.

DESCRIPTION OF CAPITAL STOCK

The Fund is authorized to issue 100 million Shares of common stock, $.001
par value. The Shares have no preemptive, conversion, exchange or redemption
rights. Each Share has equal voting,

31
<PAGE> 32

dividend, distribution and liquidation rights. The Shares outstanding 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. The foregoing
description and the description below under "Certain Anti-Takeover Provisions of
the Articles of Incorporation" are subject to the provisions contained in the
Fund's Articles of Incorporation and Bylaws.

Under the rules of the NYSE applicable to listed companies, the Fund is
required to hold an annual meeting of shareholders in each year. If the Fund is
converted to an open-end investment company or if for any other reason the
Shares are no longer listed on the NYSE (or any other national securities
exchange the rules of which require annual meetings of shareholders), the Fund
may decide not to hold annual meetings of shareholders.

Any additional offerings of the Fund's Shares, if made, will require
approval of the Fund's board of directors and will be subject to the
requirements of the 1940 Act that Shares may not be sold at a price below then
current net asset value, exclusive of underwriting discounts and commissions,
except, among other things, in connection with an offering to existing
shareholders or with the consent of the holders of at least a majority of the
Fund's outstanding voting securities.

The following chart indicates the Fund's Shares outstanding as of March 18,
1996:

<TABLE>
<CAPTION>
AMOUNT OUTSTANDING
EXCLUSIVE OF AMOUNT
AMOUNT HELD BY HELD
REGISTRANT OR BY REGISTRANT OR FOR
FOR ITS ITS
TITLE OF CLASS AMOUNT AUTHORIZED ACCOUNT ACCOUNT
-------------------------- ----------------- ---------------- ----------------------
<S> <C> <C> <C>
Common Stock.............. 100,000,000 0 21,407,128
</TABLE>

Share Repurchases and Tender Offers. The Fund is a closed-end investment
company designed for long-term investment, and investors should not consider it
a trading vehicle. Shares of closed-end investment companies frequently trade at
a discount from net asset value, but may trade at a premium. The Fund cannot
predict whether its Shares will trade at, below or above net asset value in the
future. For information regarding the recent trading history of the Shares, see
"Trading History."

In recognition of the possibility that the Shares might trade at a discount
to net asset value and that any such discount may not be in the best interest of
shareholders, 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 its Shares in the open
market or to make a tender offer for its Shares at their net asset value. The
board currently intends at least annually to consider making open market
repurchases or tender offers, and at such times may consider such factors as the
market price of the Shares, the net asset value of the Shares, 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
the board believes 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. See "Additional
Information -- Share Repurchases and Tender Offers" in the SAI.

32
<PAGE> 33

There is no assurance that the board of directors will decide to undertake
Common Stock repurchases or tender offers or that these actions, if undertaken,
would result in the Shares trading at a price that is equal or close to net
asset value.

Although the board of directors believes that Share repurchases and tender
offers generally would have a favorable effect on the market price of the Fund's
shares, it should be recognized that the acquisition of Shares by the Fund 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. The Fund may incur debt to finance
repurchases and tender offers. Interest on any such borrowings will reduce the
Fund's net income.

Any tender offer made by the Fund will 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.
If a tender offer is made, notice will be provided to shareholders describing
the tender offer. The notice will contain information, including information
regarding the Fund's net asset value per Share, that shareholders should
consider in deciding whether or not to tender their Shares and instructions on
how to tender Shares. Tender offers will be governed by the conditions described
in the SAI.

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 interests of the
Fund and its shareholders to convert the Fund to an open-end investment company.
If the board of directors were to determine that such a conversion would be in
the best interests of the Fund and its shareholders and is consistent with the
1940 Act, the board would submit to the Fund's shareholders, at the next
succeeding annual 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 issue and offer for sale Shares of the Fund on a
continuous basis, 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 event, the Fund could be required to
liquidate portfolio securities to meet requests for redemption, its Shares would
no longer be listed on the NYSE and certain investment policies of the Fund
would require amendment in order to meet the liquidity requirements of an open-
end investment company.

In considering whether to propose that the Fund convert to an open-end
investment company, the board will consider various factors, including, without
limitation, the potential benefits and detriments to the Fund and its
shareholders of conversion, the potential alternatives and the benefits and
detriments associated therewith, and the feasibility of conversion given, among
other things, the Fund's investment objective and policies. In the event of a
conversion to an open-end investment company, the Fund may charge fees in
connection with the sale or redemption of its Shares. There can be no assurance
that the board will conclude that such a conversion is in the best interests of
the Fund or its stockholders. 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.

33
<PAGE> 34

If payment is made in securities, a shareholder may incur brokerage expenses in
converting these securities into cash.

Certain Anti-Takeover Provisions of the Articles of Incorporation. The
Fund presently has provisions in its Articles of Incorporation that have the
effect of limiting: (1) the ability of other entities or persons to acquire
control of the Fund; (2) the Fund's freedom to engage in certain transactions;
or (3) the ability of the Fund's directors or shareholders 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 at least 66 2/3% (which is higher than that required
under Maryland law or the 1940 Act) of the outstanding Shares is required
generally to authorize any of the following transactions or to amend the
provisions of the Articles of Incorporation relating to such transactions:

(1) merger, consolidation or statutory share exchange of the Fund with or
into any other corporation;

(2) issuance of any securities of the Fund to any person or entity for
cash;

(3) sale, lease or exchange of all or any substantial part of the assets of
the Fund to any entity or person (except assets having an aggregate
market value of less than $1,000,000); or

(4) sale, lease or exchange to the Fund, in exchange for securities of the
Fund, of any assets of any entity or person (except assets having an
aggregate fair market value of less than $1,000,000);

if such corporation, person or entity is directly, or indirectly through
affiliates, the beneficial owner of more than 5% of the outstanding Shares (a
"Principal Shareholder"). Such vote, however, would not be required 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, the affirmative vote of a
majority of the outstanding shares 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 shareholders 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 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 interests of the Fund and its shareholders.

34
<PAGE> 35

CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT AND REGISTRAR

The custodian for the Fund's securities and cash is Brown Brothers Harriman
& Co. ("Brown Brothers"), whose principal business address is 40 Water Street,
Boston, Massachusetts 02109. Brown Brothers employs foreign sub-custodians,
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 ("PNC Bank"), whose principal business
address is Broad and Chestnut Streets, Philadelphia, Pennsylvania 19110 serves
as transfer agent, dividend disbursing agent and registrar for the Shares
pursuant to the Transfer Agent Agreement between the Fund and PNC Bank. PNC Bank
has delegated the transfer agency service functions to its subsidiary, PFPC
Inc., whose principal business address is 400 Bellevue Parkway, Wilmington,
Delaware 19809.

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 Statement of Additional Information constitute a part.

35
<PAGE> 36

TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION

The Table of Contents for the SAI is as follows:

<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Investment Policies and Restrictions......................... 1
Hedging and Related Income Strategies........................ 8
Directors and Officers....................................... 16
Control Persons and Principal Holders of Securities.......... 21
Investment Advisory Arrangements............................. 21
Portfolio Transactions....................................... 22
Valuation of Shares.......................................... 24
Taxes........................................................ 25
Additional Information....................................... 28
Financial Statements......................................... 29
</TABLE>

36
<PAGE> 37

APPENDIX A

RATINGS

Description of Moody's Ratings for Corporate and Convertible Bonds,
Mortgage-Backed Securities and Asset-Backed Securities

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 edge." 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 issues.

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 protective
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 appear 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.

A-1
<PAGE> 38

DESCRIPTION OF S&P RATINGS FOR CORPORATE AND CONVERTIBLE DEBT, MORTGAGE-BACKED
SECURITIES AND ASSET-BACKED 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.

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,

A-2
<PAGE> 39

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.

DESCRIPTION OF SELECTED MOODY'S COMMERCIAL PAPER RATINGS

PRIME-1. Issuers (or related supporting institutions) assigned this
highest rating have a superior capacity for repayment of senior short-term
promissory obligations. Prime-1 repayment capacity will often be evidenced by
many of the following characteristics: leading market positions in well-
established industries; high rates of return on funds employed; conservative
capitalization structures with moderate reliance on debt and ample asset
protection; broad margins in earnings coverage of fixed financial charges and
high internal cash generation; well-established access to a range of financial
markets and assured sources of alternate liquidity.

PRIME-2. Issuers (or related supporting institutions) assigned this rating
have a strong ability for repayment of senior short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, may be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.

DESCRIPTION OF SELECTED S&P COMMERCIAL PAPER RATINGS

A. Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.

A-1. This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.

A-2. Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

A-3
<PAGE> 40

- ---------------------------------------------------
---------------------------------------------------
- ---------------------------------------------------
---------------------------------------------------

No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offering
made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Fund or
PaineWebber. This Prospectus does not constitute an offering by the Fund or by
PaineWebber in any jurisdiction in which such offering may not lawfully be made.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Expenses........................ 2
Prospectus Summary................... 3
Financial Highlights................. 10
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............................ 22
Management........................... 28
Dividends and Other Distributions;
Dividend Reinvestment Plan......... 29
Taxation............................. 30
Description of Capital Stock......... 31
Custodian, Transfer and Dividend
Disbursing Agent and Registrar..... 35
Further Information.................. 35
Table of Contents of Statement of
Additional Information............. 36
Appendix A........................... A-1
</TABLE>

1996 PaineWebber Incorporated

<TABLE>
<S> <C>
Recycled
(LOGO) Paper
</TABLE>

STRATEGIC GLOBAL
INCOME FUND, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
PAINEWEBBER INCORPORATED
------------------------
APRIL 1, 1996

STRATEGIC GLOBAL INCOME FUND, INC.

1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019

STATEMENT OF ADDITIONAL INFORMATION

Shares of the Fund's common stock ("Shares") 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 is not a prospectus and
should be read only in conjunction with the Fund's current Prospectus, dated
April 1, 1996. Capitalized terms not otherwise defined herein have the same
meaning as in the Prospectus. A copy of the Prospectus may be obtained by
contacting PaineWebber at 1285 Avenue of the Americas, New York, New York 10019,
or calling toll free 1-800-852-4750. This Statement of Additional Information is
dated April 1, 1996.

INVESTMENT POLICIES AND RESTRICTIONS

The following supplements the information contained in the Prospectus
concerning the Fund's investment policies and limitations.

U.S. GOVERNMENT SECURITIES. As discussed in the Prospectus, the U.S.
government securities in which the Fund may invest include direct obligations of
the U.S. Treasury. The Fund may invest in mortgage-backed securities issued or
guaranteed by Government National Mortgage Association ("GNMA"), the Federal
National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage
Corporation ("FHLMC") and representing undivided ownership interests in pools of
mortgages. The mortgages backing these securities include fixed and adjustable
rate mortgages. The U.S. government or the issuing agency guarantees the payment
of the interest on and principal of these securities. The guarantees do not
extend to the securities' value, however, which is likely to vary inversely with
fluctuations in interest rates, and the guarantees do not extend to the yield or
value of the Shares.

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
<PAGE> 42

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.

The Fund has no current intention of converting any convertible securities
it may own into equity or holding them as equity upon conversion, although it
may do so for temporary purposes. A convertible security may 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.

SPECIAL CHARACTERISTICS OF MORTGAGE-BACKED AND ASSET-BACKED
SECURITIES. Prepayments on a pool of mortgage loans are influenced by a variety
of economic, geographic, social and other factors, including changes in
mortgagors' housing needs, job transfers, unemployment, mortgagors' net equity
in the mortgaged properties and servicing decisions. Generally, however,
prepayments on fixed-rate mortgage loans will increase during a period of
falling interest rates and decrease during a period of rising interest rates.
Similar factors apply to prepayments on asset-backed securities but the
receivables underlying asset-backed securities generally are of a shorter
maturity and thus are less likely to experience substantial prepayments. Such
securities, however, often provide that for a specified time period the issuers
will replace receivables in the pool that are repaid with comparable
obligations. If the issuer is unable to do so, repayment of principal on the
asset-backed securities may commence at an earlier date. Mortgage-backed
securities and asset-backed securities may decrease in value as a result of
increases in interest rates and may benefit less than other fixed-income
securities from declining interest rates because of the risk of prepayment.

The rate of interest on mortgage-backed securities is lower than the
interest rates paid on the mortgages included in the underlying pool due to the
annual fees paid to the servicer of the mortgage pool for passing through
monthly payments to certificate holders and to any guarantor, such as GNMA, and
due to any yield retained by the issuer. Actual yield to the holder may vary
from the coupon rate, even if adjustable, if the mortgage-backed securities are
purchased or traded in the secondary market at a premium or discount. In
addition, there is normally some delay between the time the issuer receives
mortgage payments from the servicer and the time the issuer makes the payments
on the mortgage-backed securities, and this delay reduces the effective yield to
the holder of such securities.

The size of the primary issuance market, and active participation in the
secondary market by securities dealers and many types of investors, makes
government and government-related mortgage pass-through pools highly liquid.
Yields on pass-through securities are typically quoted by investment dealers and
vendors based on the maturity of the underlying instruments and the associated
average life assumption. The average life of pass-through pools varies with the
maturities of the underlying mortgage loans. A pool's term may be shortened by
unscheduled or early payments of principal on the underlying mortgages. Because
prepayment rates of individual pools vary widely, it is not possible to predict
accurately the average life of a particular pool. In the past, a common industry
practice has

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<PAGE> 43

been to assume that prepayments on pools of fixed rate 30-year mortgages would
result in a 12-year average life for the pool. At present, mortgage pools,
particularly those with loans with other maturities or different
characteristics, are priced on an assumption of average life determined for each
pool. In periods of declining interest rates, the rate of prepayment tends to
increase, thereby shortening the actual average life of a pool of
mortgage-related securities. Conversely, in periods of rising rates the rate of
prepayment tends to decrease thereby lengthening the actual average life of the
pool. However, these effects may not be present, or may differ in degree, if the
mortgage loans in the pools have adjustable interest rates or other special
payment terms, such as a prepayment charge. Actual prepayment experience may
cause the yield of mortgage-backed securities to differ from the assumed average
life yield. Reinvestment of prepayments may occur at lower interest rates than
the original investment, thus adversely affecting the yield of the Fund.
Accelerated prepayments on securities purchased at a premium also impose a risk
of loss of principal because the premium may not have been fully amortized at
the time the principal is prepaid in full.

Asset-backed securities present certain risks that are not presented by
other securities in which the Fund may invest. Automobile receivables generally
are secured by automobiles. Most issuers of automobile receivables permit the
loan servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
asset-backed securities. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws, the
trustee for the holders of the automobile receivables may not have a proper
security interest in the underlying automobiles. Therefore, there is the
possibility that recoveries on repossessed collateral may not, in some cases, be
available to support payments on these securities. Credit card receivables are
generally unsecured, and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Because asset-backed securities are relatively new, the market
experience in these securities is limited, and the market's ability to sustain
liquidity through all phases of the market cycle has not been tested.
Asset-backed securities are also subject to the risk of prepayment similar to
that described above with respect to mortgage-backed securities.

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. ("NASD"). 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.

Restricted 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

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<PAGE> 44

principally traded, but would not be freely marketable in the United States,
will not be considered illiquid.

The Fund's board of directors has the ultimate responsibility for
determining whether specific securities are liquid or illiquid. The board 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 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. The Fund maintains custody
of the underlying securities prior to their repurchase; thus, the obligation of
the bank or dealer to pay the repurchase price on the date agreed to is, in
effect, secured by such securities. If the value of these securities is less
than the repurchase price, plus any agreed-upon additional amount, the other
party to the agreement must 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 is 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
a repurchase agreement becomes insolvent. The Fund enters 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. Mitchell Hutchins will review and
monitor the creditworthiness of those institutions under the board's general
supervision.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. As stated in the Prospectus,
the Fund may purchase securities on a "when-issued" or delayed delivery basis. A
security purchased on a when-issued or delayed delivery basis is recorded as an
asset on the commitment date and is subject to changes in market value generally
based upon changes in the level of interest rates. Thus, upon delivery, its
market value may be higher or lower than its costs, and this may increase or
decrease the Fund's net asset value. 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 the security may
result in the Fund's incurring a loss or missing an opportunity to make an
alternative investment. The Fund purchases when-issued and delayed delivery
securities only with the intention of taking delivery, but may sell the

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<PAGE> 45

right to acquire the security prior to delivery if Mitchell Hutchins deems it
advantageous to do so, which may result in capital gain or loss to the Fund.

SHORT SALES "AGAINST THE BOX". If shareholders approve the proposed
changes to the Fund's fundamental limitations, as discussed below under
"Investment Limitations," the Fund may engage in short sales of securities it
owns or has the right to acquire at no added cost through conversion or exchange
of other securities it owns (short sales "against the box") to defer realization
of gains or losses for tax or other purposes. To make delivery to the purchaser
in a short sale, the executing broker borrows the securities being sold short on
behalf of the Fund, and the Fund is obligated to replace the securities borrowed
at a date in the future. When the Fund sells short, it will establish a margin
account with the broker effecting the short sale, and will deposit collateral
with the broker. In addition, the Fund will segregate with its custodian the
securities that could be used to cover the short sale. The Fund will incur
transaction costs, including interest expense, in connection with opening,
maintaining and closing short sales against the box. The Fund currently does not
intend to have obligations under short sales that at any time during the coming
year exceed 5% of the Fund's net assets.

The Fund might make a short sale "against the box" in order to hedge
against market risks when Mitchell Hutchins believes that the price of a
security may decline, thereby causing a decline in the value of a security owned
by the Fund or a security convertible into or exchangeable for a security owned
by the Fund, or when Mitchell Hutchins wants to sell a security that the Fund
owns at a current price, but also wishes to defer recognition of gain or loss
for federal income tax purposes. In such case, any loss in the Fund's long
position after the short sale should be reduced by a gain in the short position.
Conversely, any gain in the long position should be reduced by a loss in the
short position. The extent to which gains or losses in the long position are
reduced will depend upon the amount of the securities sold short relative to the
amount of the securities the Fund owns, either directly or indirectly, and in
the case where the Fund owns convertible securities, changes in the investment
values or conversion premiums of such securities.

INVESTMENT LIMITATIONS. The Fund has adopted certain investment
limitations which, like the Fund's investment objectives, may not be changed
without shareholder approval. Under the Fund's current fundamental investment
limitations, the Fund may not:

(1) issue senior securities (including borrowing money from banks and
other entities, reverse repurchase agreements and dollar rolls) in excess
of 33 1/3% of its total assets (including the amount of senior securities
issued but excluding 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 of the Fund's investments in such industry
to exceed 25% of the Fund's total assets, provided that this limitation
shall not apply with respect to investments in U.S. government securities;

(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 and forward contracts;

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<PAGE> 46

(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 make short sales and maintain short positions in
connection with its use of options, futures contracts, options on futures
contracts and forward contracts;

(6) purchase or sell real estate (including real estate limited
partnership interests), provided that the Fund may invest in securities
secured by real estate or interests therein or issued by companies that
invest in real estate or interests therein;

(7) purchase or sell commodities or commodity contracts, except that
the Fund 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.

The foregoing investment limitations, as well as the Fund's investment
objectives, cannot be changed without the affirmative vote of the lesser of (a)
more than 50% of the outstanding Shares or (b) 67% or more of the Shares present
at a shareholders' 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
foregoing limitations.

At the annual meeting of shareholders scheduled for April 11, 1996,
shareholders will be asked to approve changes to the Fund's fundamental
investment restrictions. If approved, the following investment restrictions will
supersede and replace the restrictions enumerated above.

The Fund will not:

(1) purchase any security if, as a result of that purchase, 25% or
more of the Fund's total assets would be invested in securities of issuers
having their principal business activities in the same industry, except
that this limitation does not apply to securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities or to municipal
securities.

The following interpretation applies to, but is not a part of, this
fundamental limitation: Mortgage- and asset-backed securities will not be
considered to have been issued by the same issuer by reason of the
securities having the same sponsor, and mortgage- and asset-backed
securities issued by a finance or other special purpose subsidiary that are
not guaranteed by the parent company will be considered to be issued by a
separate issuer from the parent company.

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<PAGE> 47

(2) issue senior securities or borrow money, except as permitted under
the 1940 Act and then not in excess of 33 1/3% of the Fund's total assets
(including the amount of the senior securities issued but reduced by any
liabilities not constituting senior securities) at the time of the issuance
or borrowing, 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.

(3) make loans, except through loans of portfolio securities or
through repurchase agreements, provided that for purposes of this
restriction, the acquisition of bonds, debentures or other debt securities
and investments in government obligations, commercial paper, certificates
of deposit, bankers' acceptances or similar instruments will not be
considered the making of a loan.

(4) engage in the business of underwriting securities of other
issuers, except to the extent that the Fund might be considered an
underwriter under the federal securities laws in connection with its
disposition of portfolio securities.

(5) purchase or sell real estate, except that investments in
securities of issuers that invest in real estate and investments in
mortgage-backed securities, mortgage participations or other instruments
supported by interests in real estate are not subject to this limitation,
and except that the Fund may exercise rights under agreements relating to
such securities, including the right to enforce security interests and to
hold real estate acquired by reason of such enforcement until that real
estate can be liquidated in an orderly manner.

(6) purchase or sell physical commodities unless acquired as a result
of owning securities or other instruments, except that the Fund may
purchase, sell or enter into financial options and futures, forward and
spot currency contracts, swap transactions and other financial contracts or
derivative instruments.

If the foregoing fundamental restrictions are approved by the Fund's
shareholders, the Fund would become subject to the non-fundamental investment
restrictions listed below. These non-fundamental restrictions would replace
certain of the Funds' current fundamental restrictions and would be in addition
to the non-fundamental policies and restrictions already described in this
Statement of Additional Information.

The following investment restrictions are not fundamental and may be
changed by the Fund's board of directors without shareholder approval.

The Fund will not:

- purchase securities on margin, except for short-term credit necessary for
clearance of portfolio transactions and except that the Fund may make
margin deposits in connection with its use of financial options and
futures, forward and spot currency contracts, swap transactions and other
financial contracts or derivative instruments.

- engage in short sales of securities or maintain a short position, except
that the Fund may (a) sell short "against the box" and (b) maintain short
positions in connection with its use of financial options and futures,
forward and spot currency contracts, swap transactions and other
financial contracts or derivative instruments.

- invest in oil, gas or mineral exploration or development programs or
leases, except that investments in securities of issuers that invest in
such programs or leases and investments in asset-backed securities
supported by receivables generated from such programs or leases are not
subject to this prohibition.

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<PAGE> 48

HEDGING AND RELATED INCOME STRATEGIES

GENERAL DESCRIPTION OF HEDGING STRATEGIES. 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 and forward currency contracts, to
attempt to hedge the Fund's portfolio. The Fund also may use options to attempt
to enhance income. Mitchell Hutchins also may attempt to hedge the Fund's
portfolio through the use of bond index futures contracts, interest rate futures
contracts and options thereon. The Fund may also use foreign currency futures
contracts (collectively, "futures contracts" or "futures") and options on
futures contracts in other circumstances 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
bond indices. 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.

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<PAGE> 49

The use of Hedging Instruments is subject to applicable regulations of the
SEC, the several options and futures exchanges upon which they are traded, the
CFTC and various state regulatory authorities. In addition, the Fund's ability
to use Hedging Instruments will be limited by tax considerations. See "Taxes."

In addition to the products, strategies and risks described below and in
the Prospectus, Mitchell Hutchins expects to discover additional opportunities
in connection with options, futures contracts, forward currency contracts and
other hedging techniques. These new opportunities may become available as
Mitchell Hutchins 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 and
currency 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

9
<PAGE> 50

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 or
futures contracts or (2) cash and short-term liquid 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 redemption requests or other current
obligations.

OPTIONS. The Fund may purchase put and call options, and write (sell)
covered put and call options, on debt securities, bond indices 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 covered put option 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

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<PAGE> 51

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.

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.

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 a futures contract or a call option thereon, or
purchase a put option on that futures contract. If Mitchell

11
<PAGE> 52

Hutchins wishes to lengthen the average duration of the Fund, the Fund may buy a
futures contract or a call option thereon, or sell a put option thereon.

The Fund may also write put options on interest rate 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 a call 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, and initial margin requirements might be increased generally in the
future by regulatory action.

Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures 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 to or from a futures
broker. 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 a call 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. Secondary markets for options on futures are currently in the
development stage, and the Fund will not trade options on futures on any
exchange or board of trade unless, in Mitchell Hutchins' opinion, the markets
for such options have developed sufficiently that the liquidity risks for such
options are not greater than the corresponding risks for futures.

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 related options position
due to the absence of a liquid secondary market or the imposition of price
limits, it could incur substantial losses. The Fund

12
<PAGE> 53

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 related options might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the futures and related options markets
are subject to daily variation margin calls and might be compelled to liquidate
futures or related 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
board without shareholder vote. Adoption of this guideline will not limit the
percentage of the Fund's assets at risk to 5%.

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.

13
<PAGE> 54

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 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 a hedging instrument 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

14
<PAGE> 55

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 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.

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.

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,

15
<PAGE> 56

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 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.

DIRECTORS AND OFFICERS

The directors and officers of the Fund, their ages, business addresses and
principal occupations during the past five years are:

<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS; AGE** WITH THE FUND DURING PAST FIVE YEARS
- ------------------------- --------------------- --------------------------------------------
<S> <C> <C>
E. Garrett Bewkes, Jr.; Director and Mr. Bewkes is a director of, and consultant
69* Chairman of the to, Paine Webber Group Inc. ("PW Group")
Board of Directors (holding company of PaineWebber and
Mitchell Hutchins). Prior to 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
Bio-Therapeutics, Inc. and a director or
trustee of 24 other investment companies
for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>

16
<PAGE> 57

<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS; AGE** WITH THE FUND DURING PAST FIVE YEARS
- ------------------------- --------------------- --------------------------------------------
<S> <C> <C>
Meyer Feldberg; 54 Director Mr. Feldberg is Dean and Professor of
Columbia University Management of the Graduate School of
101 Uris Hall Business, Columbia University. Prior to
New York, NY 10027 1989, he was president of the Illinois
Institute of Technology. Dean Feldberg is
also a director of AMSCO International
Inc., Federated Department Stores, Inc.,
and New World Communications Group
Incorporated and a director or trustee of
18 other investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
George W. Gowen; 66 Director Mr. Gowen is a partner in the law firm of
666 Third Avenue Dunnington, Bartholow & Miller. Prior to
New York, NY 10017 May 1994, he was a partner in the law firm
of Fryer, Ross & Gowen. Mr. Gowen is also
a director of Columbia Real Estate
Investments, Inc. and a director or
trustee of 14 other investment companies
for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Frederic V. Malek; 59 Director Mr. Malek is chairman of Thayer Capital
901 15th St., N.W. Partners (investment bank) and a
Suite 300 co-chairman and director of CB Commercial
Washington, D.C. 20005 Group Inc. (real estate). From January
1992 to November 1992, he was campaign
manager of Bush-Quayle '92. From 1990 to
1992 he was vice chairman and, from 1989
to 1990, he was president of Northwest
Airlines Inc., NWA Inc. (holding company
of Northwest Airlines Inc.) and Wings
Holdings Inc. (holding company of NWA
Inc.). Prior to 1989, he was employed by
the Marriott Corporation (hotels,
restaurants, airline catering and contract
feeding), where he most recently was an
executive vice president and president of
Marriott Hotels and Resorts. Mr. Malek is
also a director of American Management
Systems, Inc., Automatic Data Processing,
Inc., Avis, Inc., FPL Group, Inc., ICF
International, Manor Care, Inc., National
Education Corporation and Northwest
Airlines Inc. and a director or trustee of
14 other investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
</TABLE>

17
<PAGE> 58

<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS; AGE** WITH THE FUND DURING PAST FIVE YEARS
- ------------------------- --------------------- --------------------------------------------
<S> <C> <C>
Judith Davidson Moyers; 60 Director Mrs. Moyers is president of Public Affairs
Public Affairs Television Television, Inc., an educational
356 W. 58th Street consultant and a home economist. Mrs.
New York, N.Y. 10019 Moyers is also a director of Ogden
Corporation and a director or trustee of
14 other investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Margo N. Alexander; 49 President Mrs. Alexander is president, chief executive
officer and a director of Mitchell
Hutchins (since January 1995). Mrs.
Alexander is an executive vice president
and director of PaineWebber. Mrs.
Alexander is also a director or trustee of
eight investment companies and president
of 29 other investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Teresa M. Boyle; 37 Vice President Ms. Boyle is a first vice president and man-
ager -- 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 29 other investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Joan L. Cohen; 31 Vice President and Ms. Cohen is a vice president and attorney
Assistant Secretary of Mitchell Hutchins. Prior to December
1993, she was an associate at the law firm
of Seward & Kissel. Ms. Cohen is also a
vice president and assistant secretary of
24 other investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
C. William Maher; 34 Vice President and Mr. Maher is a first vice president and a
Assistant Treasurer senior manager of the mutual fund finance
division of Mitchell Hutchins. Mr. Maher
is also a vice president and assistant
treasurer of 29 other investment companies
for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>

18
<PAGE> 59

<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS; AGE** WITH THE FUND DURING PAST FIVE YEARS
- ------------------------- --------------------- --------------------------------------------
<S> <C> <C>
Dennis McCauley; 49 Vice President Mr. McCauley is a managing director 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 17
other investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Ann E. Moran; 38 Vice President and Ms. Moran is a vice president of Mitchell
Assistant Treasurer Hutchins. Ms. Moran is also a vice
president and assistant treasurer of 29
other investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Dianne E. O'Donnell; 43 Vice President and Ms. O'Donnell is a senior vice president and
Secretary deputy general counsel of Mitchell
Hutchins. Ms. O'Donnell is also a vice
president and secretary of 29 other
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Victoria E. Schonfeld; 45 Vice President Ms. Schonfeld is a managing director and
general counsel of Mitchell Hutchins. From
April 1990 to May 1994, she was a partner
in the law firm of Arnold & Porter. Ms.
Schonfeld is also a vice president of 29
other investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Paul H. Schubert; 33 Vice President and Mr. Schubert is a first vice president and a
Assistant Treasurer senior manager of the mutual fund finance
division of Mitchell Hutchins. From August
1992 to August 1994, he was a vice
president at 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 29 other
investment companies for which Mitchell
Hutchins or PaineWebber serves as invest-
ment adviser.
</TABLE>

19
<PAGE> 60

<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS; AGE** WITH THE FUND DURING PAST FIVE YEARS
- ------------------------- --------------------- --------------------------------------------
<S> <C> <C>
Julian F. Sluyters; 35 Vice President and Mr. Sluyters is a senior vice president and
Treasurer the director of the mutual fund finance
division of 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 29 other
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Gregory K. Todd; 39 Vice President and Mr. Todd is a first vice president and
Assistant Secretary associate general counsel of Mitchell
Hutchins. Prior to 1993, he was a partner
in the firm of Shereff, Friedman, Hoffman
& Goodman. Mr. Todd is also a vice
president and assistant secretary of 29
other investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Stuart Waugh; 40 Vice President Mr. Waugh is a managing director and a
portfolio manager of Mitchell Hutchins
responsible for global fixed income
investments and currency trading. Mr.
Waugh is also a vice president of four
other investment companies for which
Mitchell Hutchins serves as investment
adviser.
Keith A. Weller; 34 Vice President and Mr. Weller is a first vice president and
Assistant Secretary associate general counsel of Mitchell
Hutchins. From September 1987 to May 1995,
he was an attorney in private practice.
Mr. Weller is also a vice president and
assistant secretary of 23 other investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
</TABLE>

- ---------------
* Mr. Bewkes is an "interested person" of the Fund as defined in the 1940 Act
by virtue of his position with PW Group, PaineWebber or Mitchell Hutchins.

** Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.

The Fund pays each director who is not affiliated with or an interested
person of Mitchell Hutchins $3,000 annually and $500 per meeting of the board of
directors and its committees. The Fund also reimburses directors 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. In February 1996, the directors acted to establish the
size of the board to ten members. An election of all ten members of the board is

20
<PAGE> 61

scheduled for the April 11, 1996 annual meeting. The table below includes
certain information relating to the compensation of the Fund's directors.

COMPENSATION TABLE

<TABLE>
<CAPTION>
TOTAL
COMPENSATION
FROM THE
FUND AND THE
AGGREGATE FUND
COMPENSATION COMPLEX PAID
FROM THE TO
NAME OF PERSON, POSITION FUND* DIRECTORS+
- --------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Meyer Feldberg,
Director........................................................... $6,500 $106,375
George W. Gowen,
Director........................................................... 6,500 99,750
Frederic V. Malek,
Director........................................................... 6,500 99,750
Judith Davidson Moyers,
Director........................................................... 6,500 98,500
</TABLE>

- ---------------
* Represents fees paid to each director during the fiscal year ended November
30, 1995; the Fund does not have a pension or retirement plan.
+ Represents total compensation paid to each director during the calendar year
ended December 31, 1995.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

As of March 18, 1996, Cede & Co. (the nominee for The Depository Trust
Company, a securities depository) owned of record 20,831,032 of the Fund's
Shares or 97% of the outstanding Shares. To the knowledge of the Fund, no person
is the beneficial owner of 5% or more of its Shares.

As of March 18, 1996, the directors and officers of the Fund as a group
beneficially owned less than 1% of the outstanding Shares.

INVESTMENT ADVISORY ARRANGEMENTS

Mitchell Hutchins is the Fund's investment adviser and administrator
pursuant to a contract dated November 21, 1991 with the Fund ("Advisory
Contract"). Prior to August 15, 1995, BEA Associates had served as the Fund's
Latin American debt sub-adviser in accordance with an investment sub-advisory
contract dated November 21, 1991. Following the termination of the agreement
with BEA Associates, Mitchell Hutchins assumed management of the Latin American
debt portion of the Fund.

In addition to the payments to Mitchell Hutchins under the Advisory
Contract described in the Prospectus, the Fund pays certain other costs
including (1) brokerage and commission expenses, (2) federal, state, local and
foreign taxes, including issue and transfer taxes, incurred by or levied on the
Fund (3) interest charges on borrowings, (4) the organizational and offering
expenses of the Fund,

21
<PAGE> 62

whether or not advanced by Mitchell Hutchins, (5) fees and expenses of
registering the Fund's Shares under the appropriate federal securities laws and
of qualifying the Shares under applicable state securities laws, (6) fees and
expenses of listing and maintaining the listing of the Fund's Shares on any
national securities exchange, (7) expenses of printing and distributing reports
to shareholders, (8) costs of proxy solicitation, (9) charges and expenses of
the Fund's custodian and registrar, transfer and dividend disbursing agent, (10)
compensation of the Fund's officers, directors and employees who do not devote
any part of their time to the affairs of Mitchell Hutchins or its affiliates
other than the Fund, (11) legal and auditing expenses, (12) the cost of stock
certificates representing the Shares and (13) costs of stationery and supplies.

Under the Advisory Contract, Mitchell Hutchins will not be liable for any
error of judgement 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 fiscal years ended November 30, 1995, November 30, 1994 and
November 30, 1993, the Fund paid or accrued to Mitchell Hutchins $2,781,097,
$2,959,574 and $3,073,790, respectively, in investment advisory and
administration fees. For the same periods, Mitchell Hutchins paid BEA Associates
$481,638, $739,893 and $768,448, respectively.

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.

PORTFOLIO TRANSACTIONS

Subject to policies established by the board of directors, Mitchell
Hutchins is responsible for the execution of portfolio transactions and the
allocation of brokerage transactions for the Fund. The government and corporate
debt securities in which the Fund invests generally 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. With respect to portfolio securities traded on
the OTC market, the Fund will engage primarily in transactions with dealers
unless a better price or execution could be obtained by using a broker. 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 that time. In executing portfolio transactions, Mitchell Hutchins
seeks to obtain the best net results for the Fund, taking into account

22
<PAGE> 63

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. While Mitchell Hutchins generally seeks
competitive commission rates and dealer spreads, payment of the lowest
commission or spread is not necessarily consistent with obtaining the best net
results.

The Fund anticipates that its brokerage transactions involving securities
of companies headquartered in countries other than the United States will be
conducted primarily on the principal exchanges of such countries. Transactions
on foreign exchanges are usually subject to fixed commissions which are
generally higher than negotiated commissions on U.S. transactions. There is
generally less government supervision and regulation of exchanges and brokers in
foreign countries than in the United States.

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 or to dealers, or through brokers, who provide the
Fund with research, analysis, advice and similar services. In return for such
services, the Fund may pay to such 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 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.

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.

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.

The Fund has 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

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<PAGE> 64

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.

Investment decisions for the Fund and for other investment accounts managed
by Mitchell Hutchins are 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 the other
accounts. In that case, 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 accounts. 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 will 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 or its
affiliates not participate in or benefit from the sale to the Fund.

For the fiscal years ended November 30, 1995, 1994 and 1993, the Fund paid
no brokerage commissions and also did not direct any brokerage commissions to
brokers chosen because they provide research and analysis.

VALUATION OF SHARES

The net asset value of the Shares is determined weekly as of the close of
regular trading on the New York Stock Exchange ("NYSE") (currently 4:00 p.m.,
Eastern time) on the last day of the week on which the NYSE is open for trading.
The net asset value of the Shares also is determined monthly as of 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 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 outstanding at such time.

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 for
options and futures positions or any other securities and assets of the Fund are
not readily available, they are valued at fair value as determined in good faith
by or under the direction of the board of directors. 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,

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<PAGE> 65

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 the Nasdaq are valued at the last
available sale price on Nasdaq prior to the time of valuation; other OTC
securities and instruments are valued at the last available bid price prior to
the time of valuation. Securities and other assets for which market quotations
are not readily available (including restricted securities subject to
limitations as to their sale) are valued at fair value as determined in good
faith by or under the direction of the board of directors.

All securities and other assets quoted in foreign currencies 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.

TAXES

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 shareholders 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 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

25
<PAGE> 66

held for less than three months -- options, futures or forward 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 those 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.

A portion of the dividends from the Fund's investment company taxable
income (whether received in cash or reinvested in additional Shares) may be
eligible for the dividends-received deduction allowed to corporations. The
eligible portion may not exceed the aggregate dividends received by the Fund
from U.S. corporations. However, dividends received by a corporate shareholder
and deducted by it pursuant to the dividends-received deduction are subject
indirectly to the alternative minimum tax. The Fund does not expect a
significant part of its dividends to qualify for this deduction.

The Fund will be subject to a non-deductible 4% excise tax ("Excise Tax")
to the extent it does not 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 November 30 of that year, plus certain
other amounts.

Capital losses realized on the disposition of securities can be used only
to offset realized capital gains and cannot be used to reduce the Fund's
ordinary income. Thus, if the Fund realized a net capital loss in any year, the
amount the Fund would be required to distribute for that year to satisfy the
Distribution Requirement and avoid imposition of the Excise Tax would not be
decreased. The Fund would be able to carry over a net capital loss for eight
years and would be able to utilize the loss in any of those years only when, and
to the extent, that it realized net capital gains.

The Fund may acquire zero coupon securities issued with original issue
discount. As a holder of such securities, the Fund would have to include in its
gross income each taxable year the portion of the original issue discount that
accrues on the securities for the year, even if it receives no corresponding
payment on the securities during the year. Because the Fund annually must
distribute substantially all of its investment company taxable income, including
any original issue discount, to satisfy the Distribution Requirement and avoid
imposition of the Excise Tax, it 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 or net capital gain (the
excess of net long-term capital gain over net short-term capital loss). In
addition, any such gains may be realized on the disposition of securities held
for less than three months. Because of the Short-Short Limitation, any such
gains would reduce the Fund's ability to sell other securities, or certain
options, futures or forward currency contracts, held for less than three months
that it might wish to sell in the ordinary course of its portfolio management.

26
<PAGE> 67

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
Fund shareholders, 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 shareholders, and each shareholder 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 shareholders 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 expects that it normally
will not satisfy the 50%-of-assets test and that, as a result, it normally will
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 shareholders.

Hedging Strategies. The use of hedging strategies, such as writing
(selling) and purchasing options and futures contracts and entering into forward
currency contracts, involves complex rules that will determine for income tax
purposes the character and timing of recognition of the gains and losses the
Fund realizes in connection therewith. Income from the disposition of foreign
currencies, 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
contracts on foreign currencies, that are not directly related to the Fund's
principal business of investing in securities (or 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.

27
<PAGE> 68

ADDITIONAL INFORMATION

SHARE REPURCHASES AND TENDER OFFERS. As discussed in the Prospectus, the
Fund's board of directors may tender for its shares to reduce or eliminate the
discount to net asset value at which the Fund's Shares 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 Fund's
Shares from the NYSE (the NYSE having advised the Fund that it would consider
de-listing 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 roundlot holders falls below 1,200), or (b) impair the Fund's status as a RIC
under the Internal Revenue Code (which would eliminate the Fund's eligibility to
deduct distributions paid to its shareholders, thus causing its income to be
fully taxed at the corporate level in addition to the taxation of shareholders
on those distributions); (2) the Fund would not be able to liquidate portfolio
securities in an orderly manner and consistent with the Fund's investment
policies and objectives in order to repurchase its Shares; 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 shareholders if Shares were
repurchased. The board of directors may modify these conditions in light of
experience.

Any tender offer made by the Fund will 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 will be made and shareholders 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 will contain such
information as is prescribed by such laws and the rules and regulations
promulgated thereunder. When a tender offer is authorized to be made by the
Fund's board of directors, a shareholder wishing to accept the offer will be
required to tender all (but not less than all) of the shares owned by such
shareholder (or attributed to him for federal income tax purposes under section
318 of the Internal Revenue Code). The Fund will purchase all Shares tendered in
accordance with the terms of the offer unless it determines to accept none of
them (based upon one of the conditions set forth above). Each person tendering
shares will 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 will be paid directly by the
tendering shareholder and will not be deducted from the proceeds of the
purchase. The Fund's transfer agent will receive the fee as an offset to these
costs. The Fund expects the cost of effecting a tender offer will exceed the
aggregate of all service charges received from those who tender their shares.
Costs associated with the tender will be charged against capital.

Tendered Shares that have been accepted and purchased by the Fund will be
held in the treasury until retired by the board. If treasury Shares are retired,
common stock issued and outstanding and

28
<PAGE> 69

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.

AUDITORS. Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
serves as the Fund's independent auditors.

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 on 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 STATEMENTS

The Fund's Annual Report to Shareholders for the fiscal year ended November
30, 1995 is a separate document supplied with this Statement of Additional
Information, and the financial statements, accompanying notes and report of
independent auditors appearing therein are incorporated by reference in this
Statement of Additional Information.

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<PAGE> 70

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THE PROSPECTUS OR IN THIS STATEMENT OF
ADDITIONAL INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH 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 OFFERING BY THE
FUND OR BY PAINEWEBBER IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and
Restrictions....................... 1
Hedging and Related Income
Strategies......................... 8
Directors and Officers............... 16
Control Persons and Principal Holders
of Securities...................... 21
Investment Advisory Arrangements..... 21
Portfolio Transactions............... 22
Valuation of Shares.................. 24
Taxes................................ 25
Additional Information............... 28
Financial Statements................. 29
</TABLE>

1996 PaineWebber Incorporated
(LOGO)Recycled
Paper

STRATEGIC GLOBAL
INCOME FUND, INC.
COMMON STOCK
------------------------
STATEMENT OF ADDITIONAL
INFORMATION
------------------------
PAINEWEBBER INCORPORATED
------------------------
APRIL 1, 1996