<PAGE>
January 14, 1997
Dear Shareholder,
We are pleased to present you with the annual report for Strategic Global Income
Fund, Inc. (the "Fund") for the year ended November 30, 1996.
GENERAL MARKET OVERVIEW
- -------------------------------------------------------------------------------
Following a correction in U.S. Treasuries early in 1996, bond markets
worldwide performed well for the remainder of the fiscal year. In a global
environment characterized by ample liquidity, low short-term interest rates,
moderate growth and low inflation, most markets rose to, or close to, historic
highs, and yields compressed. Higher yielding markets, and emerging market debt
in particular, did especially well.
Fixed income markets worldwide were also helped by government efforts to
lower fiscal deficits. Tighter fiscal policies allow governments to pursue
easier monetary, lower interest rate policies. In our opinion, this combination
strongly contributed to bond performance in 1996.
PORTFOLIO REVIEW
- -------------------------------------------------------------------------------
The Fund's total return for the year ended November 30, 1996 was 17.50%
based on the Fund's net asset value and 20.80% based on the Fund's share price
on the New York Stock Exchange. During the twelve month period, the Fund made
distributions totaling $1.23 per share--an annualized yield of 8.53% based on
the Fund's net asset value on November 30, 1996 and 10.04% based on the Fund's
market price on the same day. As of November 30, 1996, the Fund's net asset
value per share was $14.42, while its share price on the New York Stock Exchange
was $12.25.
The Fund maintained substantial holdings in Europe to take advantage of the
highly favorable bond environment which prevailed throughout the year in most
European markets. One of the Fund's largest positions was in German bonds,
which profited from sustained low inflation. The Fund also benefited from its
Spanish and Italian bond holdings as yields on these bonds narrowed closer to
those prevailing in traditional, low inflation, core European countries like
Germany and France.
More recently, we increased the Fund's holdings in UK gilts. The gilt
market has lagged other markets this year, largely because the UK economic cycle
is further advanced than most other economies; in fact, the UK Treasury recently
had to increase its base lending rate and may need to do so again. Never-
STRATEGIC
GLOBAL INCOME
FUND, INC.
Percent of net assets as of November 30, 1996 (excluding cash collateral for
securities loaned)
[Pie Chart]
- --- Europe
- --- Australia, Canada & New Zealand
Poland
U.S. Treasures
Emerging Markets
Cash and Cash Equivalents
Other Assets (Net of Liabilities)
1
<PAGE>
ANNUAL REPORT
theless, we believe the Bank of England/Treasury will conduct responsible
monetary policies and will eventually manage inflation towards a long term
target of 2.5%. With yields of over 7.6%, UK bonds are presently the highest
yielding among the investment grade countries.
We reduced the Fund's holdings in Australia (4.38% of net assets as of
November 30, 1996), Canada (2.96%) and New Zealand (3.18%) as yields in these
markets met, then exceeded, our initial targets. While the immediate
macro-economic scenarios in these countries are mostly favorable, yields have
compressed to levels where they offer little compensation for any negative
surprises.
Finally, in an environment generally characterized by a rising U.S. dollar,
it was necessary to actively manage the Fund's currency exposure in its
European positions intermittently throughout the year. Presently, the Fund's
exposure to core European currencies such as the deutschemarke is very low (5.7%
as of December 31, 1996), while higher yielding currencies such as the
Italian lira (4.4% as of December 31, 1996) and the Polish Zloty (6.0%) have
somewhat higher exposures.
In Latin America, Mexico continued to stabilize after last year's liquidity
crisis, as the economy benefited greatly from strong trade performance. The
government successfully managed the peso moderately lower to protect it from
becoming overvalued again, and it did so without provoking capital flight
crisis. Although we anticipate some turbulence in the Mexican market due to next
year's municipal elections, we believe Mexican debt will continue to offer
attractive returns. As a consequence, we increased the Fund's exposure to U.S.-
denominated Mexican bonds, as well as peso-denominated Mexican Treasury bills.
Conversely, we reduced the Fund's exposure in Brazilian debt given our concern
over a number of issues, including the government's lack of fiscal policy
reform.
One final note: We recently reallocated the Fund's holdings in Polish bonds
to the investment grade sector, as Polish debt is now rated investment grade by
both Standard & Poor's and Moody's. This upgrade allows more room to increase
the Fund's position in non-investment grade debt. Presently at approximately 28%
of net assets as of November 30, 1996, we are currently looking to increase this
allocation closer to the 35% maximum allowed by the Fund's prospectus.
Additionally, in October, Russia received sovereign credit ratings on its
external debt of BB- from Standard & Poor's and BA2 from Moody's. While the Fund
presently owns no Russian debt, we anticipate substantial debt issuance by
Russian municipalities and companies in the coming year, and are directing more
of our research efforts to this country.
- --------------
FUND PROFILE
Goal:
High current income
secondarily capital
appreciation
Portfolio Manager:
Stuart Waugh
Mitchell Hutchins
Asset Management Inc.
Total Net Assets:
$309 million as of
November 30, 1996
Dividend Payment:
Monthly
2
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC. ANNUAL REPORT
OUTLOOK
With general bond yields generally at low levels and emerging market debt
yield spreads at historically narrow levels, risks are greater. Based on
what we know now, we see no obvious, strong threats to present valuations,
but neither do valuations offer much downside protection in the event of
negative surprises. For this reason, one of our most important tasks in the
coming year will be to identify and assess prospective risks to current
valuations. As always, we will manage the Fund through careful investment
selection so as to reduce risk, and we will seek to position the Fund to
enhance its income distributions where we can do so prudently.
Our ultimate objective in managing your investments is to help you
successfully meet your financial goals. We thank you for your continued
support, and welcome any comments or questions you may have.
Sincerely,
MARGO N. ALEXANDER STUART WAUGH
President, Vice President and Portfolio Manager,
Mitchell Hutchins Asset Management Inc. Strategic Global Income Fund, Inc.
3
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS November 30, 1996
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000)* Dates Rates Value
- -------- -------- -------- -----
<S> <C> <C> <C>
LONG-TERM DEBT SECURITIES - 78.83%
Argentina - 3.69%
US$ 13,230 Republic of Argentina(1)..................... 03/31/05 6.625%+ $11,394,338
-----------
Australia - 3.41%
4,900 New South Wales Treasury Corporation......... 12/01/01 12.000 4,810,953
6,000 Queensland Treasury Corporation Global Issue. 05/15/03 10.500 5,708,606
-----------
10,519,559
-----------
Brazil - 4.67%
US$ 6,700 Federal Republic of Brazil, DCB ............ 04/15/12 6.563+ 4,958,000
US$ 8,000 Federal Republic of Brazil, EI.............. 04/15/06 6.500+ 6,920,000
US$ 4,000 Federal Republic of Brazil, PAR............. 04/15/24 5.000# 2,535,000
-----------
14,413,000
-----------
Canada - 2.96%
6,562 Ontario Hydro Global......................... 04/11/08 8.600@ 2,241,342
27,000 Province of British Columbia Residual........ 01/09/12 8.590@ 6,900,300
-----------
9,141,642
-----------
Chile - 0.98%
US$ 3,000 Enersis S.A. ................................ 12/01/06 6.900 3,013,125
-----------
Denmark - 3.54%
58,423 Government of Denmark....................... 05/15/03 to 03/15/06 8.000 10,926,016
-----------
Germany - 7.12%
29,868 Federal Republic of Germany.................. 07/22/02 to 12/20/02 7.125 to 8.000 21,982,335
-----------
Italy - 4.37%
19,220,000 Republic of Italy(1).......................... 07/15/98 to 04/01/04 8.500 to 10.500 13,492,854
-----------
Mexico - 9.04%
US$ 3,000 Fifth Mexican Acceptance Corporation(6)...... 12/15/98 8.000** 877,593
US$ 5,000 Mexican Multi Year Refinance Loan
Participation (Salomon Brothers)(2)(6)..... 03/20/05 6.563+ 4,337,500
US$20,500 United Mexican States, DISC(3)............... 12/31/19 6.352 to 6.453+ 17,348,125
US$ 3,000 United Mexican States, PAR(4)................ 12/31/19 6.250 2,216,250
US$ 3,000 United Mexican States........................ 09/15/16 11.375 3,120,000
-----------
27,899,468
-----------
Morocco - 2.63%
US$ 5,000 Kingdom of Morocco Loan Participation,
Tranche A (JP Morgan)(2)(6)................ 01/01/09 6.375+ 4,062,500
US$ 5,000 Kingdom of Morocco Loan Participation,
Tranche A (Salomon Brothers)(2)(6)......... 01/01/09 6.375+ 4,062,500
-----------
8,125,000
-----------
</TABLE>
4
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000)* Dates Rates Value
- --------- ------------ ------------- -----------
<S> <C> <C> <C>
LONG-TERM DEBT SECURITIES - (concluded)
New Zealand - 3.18%
12,389Government of New Zealand................... 02/15/01 to 03/15/02 8.000 to 10.000% $ 9,831,386
------------
Panama - 2.43%
US$10,000 Republic of Panama, PDI..................... 07/17/16 6.750+ 7,512,500
------------
Philippines - 2.59%
US$ 3,000Republic of Philippines..................... 10/07/16 8.750 3,144,375
US$ 5,000Republic of Philippines, DCB................ 12/01/09 6.438+ 4,850,000
------------
7,994,375
------------
Poland - 3.72%
10,000Republic of Poland(6)....................... 10/12/01 12.000 2,845,621
US$10,000Republic of Poland PDI...................... 10/27/14 4.000# 8,625,000
------------
11,470,621
------------
South Africa - 0.93%
16,000Republic of South Africa.................... 08/31/10 13.000 2,871,169
------------
Spain - 5.02%
1,718,180Government of Spain......................... 03/25/00 to 02/28/01 10.100 to 12.250 15,491,919
------------
United Kingdom - 9.16%
14,839United Kingdom Gilt......................... 09/30/98 to 12/07/15 8.000 to 15.500 28,262,679
------------
United States - 5.72%
16,970U.S. Treasury Notes(1)...................... 08/31/98 to 07/15/06 5.626 to 8.500 17,653,808
------------
Venezuela - 3.67%
US$14,825Republic of Venezuela, PAR(5)............... 03/31/20 6.750 11,341,125
------------
Total Long-Term Debt Securities (cost-$221,789,218)......... 243,336,919
------------
SHORT-TERM DEBT SECURITIES - 12.00%
Australia - 0.97%
3,600New South Wales Treasury Corporation........ 04/01/97 12.500 2,988,150
------------
67,308 United Mexican States Cetes................. 12/05/96 to 10/02/97 27.000 to 28.750@ 7,659,015
------------
46,820Republic of Poland Treasury Bills........... 01/02/97 to 09/03/97 18.100 to 20.906@ 15,441,330
------------
11,000U.S. Treasury Bills(1)...................... 12/19/96 5.183 to 5.217@ 10,971,950
------------
Total Short-Term Debt Securities (cost-$37,520,476)......... 37,060,445
------------
</TABLE>
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
- ------ --------------- -------------- -------------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS-6.78%
US$10,000 Repurchase Agreement dated 11/29/96 with
First Chicago Corp, collaterized by
$10,385,000 U.S Treasury Bills due
04/03/97; proceeds: $10,004,708................ 12/02/96 5.650% $10,000,000
10,930 Repurchase Agreement dated 11/29/96 with
Salomon Brothers, Inc., collaterized by
$8,014,000 U.S Treasury Bonds, 11.750%
due 02/15/10; proceeds: $10,935,055............ 12/02/96 5.550 10,930,000
------------
Total Repurchase Agreements (cost--$20,930,000).............. 20,930,000
------------
Total Investments Before Investments of Cash Collateral
for Securities Loaned (cost--$280,239,694)................. 301,327,364
------------
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED-[copy illegible]
Repurchase Agreements-[copy illegible]
10,444 Repurchase Agreement dated 11/29/96 with
Citicorp Securities, Inc., collateralized by
$10,815,000 U.S. Treasury Bills, due
03/13/97; proceeds: $10,448,935
(cost--$10,444,000)................................ 12/02/96 5.670 10,444,000
------------
<CAPTION>
Number of
Shares(000)
- ----------
Money Market Fund-[copy illegible]
<S> <C>
14,321 Short Term Investment Company Liquid Assets Portfolio............................................ 14,320,769
112 Short Term Investment Company Prime Portfolio.................................................... 111,767
9,026 Temporary Investment Fund, Inc. ................................................................. 9,026,464
------------
Total Money Market Funds (cost--$23,459,000).............................................................. 23,459,000
------------
Total Investments of Cash Collateral for Securities Loaned (cost--$33,903,000)............................ 33,903,000
------------
Total Investments (cost--$314,142,694)--108.59%........................................................... 335,230,364
Liabilities in excess of other assets--(8.59)%............................................................ (26,516,793)
------------
Net Assets--100.00%....................................................................................... $308,713,571
============
</TABLE>
Note: The Portfolio of Investments is listed by the issuer's country of origin.
* In local currency unless otherwise indicated
** Non-income producing security
DCB -- Debt Conversion Bond
DISC-- Discount Bond
EI -- Eligible Interest Bond
PAR -- Par Bond
PDI -- Past Due Interest Bond
+ Reflects rate at November 30, 1996 on variable coupon rate instruments
# Reflects rate at November 30, 1996 on step coupon rate instruments
@ Yield to maturity for zero coupon bonds and discounted securities
(1) A portion of security was on loan at November 30, 1996
(2) Participation interest was acquired through the financial institution
indicated parenthetically
(3) With an additional 33,843,000 recoverable rights attached maturing on
06/30/03 with no market value
(4) With an additional 3,000,000 recoverable rights attached maturing on
06/30/03 with no market value
(5) With 85,375 oil warrants attached expiring on 04/15/20 with no market
value
(6) Illiquid securities representing 5.24% of net assets
6
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Unrealized
Contracts to Appreciation
Deliver In Exchange for Maturity Dates (Depreciation)
----------- ----------------- -------------------- --------------
<S> <C> <C> <C> <C>
Australian Dollars .................. 11,466,504 US$ 9,042,818 12/23/96 to 01/03/97 $ (288,483)
Australian Dollars .................. 13,598,000 US$ 10,712,113 12/20/96 to 01/08/97 (348,678)
Belgium Francs ...................... 204,059,200 US$ 6,690,466 09/30/97 111,719
Belgium Francs ...................... 170,000,000 US$ 5,537,820 07/14/97 155,528
British Pounds ...................... 3,500,000 US$ 5,472,600 01/13/97 (413,207)
British Pounds ...................... 3,500,000 US$ 5,447,400 12/03/96 (440,653)
British Pounds ...................... 3,096,681 US$ 4,995,706 12/30/96 to 12/31/96 (212,155)
British Pounds ...................... 5,581,847 US$ 8,528,772 01/13/97 (861,322)
Canadian Dollars .................... 4,951,700 US$ 3,642,161 02/24/97 (29,437)
Canadian Dollars .................... 8,148,000 US$ 5,989,415 03/24/97 (52,182)
Finnish Markkas ..................... 20,174,245 US$ 4,467,183 03/24/97 91,905
Finnish Markkas ..................... 73,046,199 US$ 16,021,244 12/23/96 to 03/24/97 179,390
German Deutchemarks ................. 4,958,548 US$ 3,250,548 12/06/96 24,695
German Deutchemarks ................. 9,480,000 US$ 6,227,051 12/02/96 61,197
Netherlands Guilders ................ 16,222,344 US$ 9,533,862 01/13/97 to 01/15/97 128,967
New Zealand Dollars ................. 6,570,000 US$ 4,664,700 12/09/96 (3,913)
New Zealand Dollars ................. 6,495,000 US$ 4,485,380 12/30/96 to 01/15/97 (115,927)
South African Rand .................. 10,459,429 US$ 2,231,821 12/23/96 (19,683)
Spanish Pesetas ..................... 700,721,875 US$ 5,401,803 10/15/97 35,031
Spanish Pesetas ..................... 417,509,729 US$ 3,311,217 12/02/96 91,117
U.S. Dollars ........................ 3,742,106 AUD 4,743,388 12/20/96 118,773
U.S. Dollars ........................ 6,556,143 AUD 8,302,211 12/23/96 to 01/03/97 201,440
U.S. Dollars ........................ 4,268,954 BEF 130,630,000 07/14/97 (147,157)
U.S. Dollars ........................ 3,689,516 CAD 4,951,700 02/24/97 (17,919)
U.S. Dollars ........................ 5,999,336 CAD 8,148,000 03/24/97 42,261
U.S. Dollars ........................ 6,246,705 DEM 9,480,000 12/02/96 (80,852)
U.S. Dollars ........................ 3,248,977 ESP 417,509,729 12/02/96 (28,876)
U.S. Dollars ........................ 4,397,272 FIM 20,174,245 03/24/97 (21,994)
U.S. Dollars ........................ 15,845,272 FIM 73,046,199 12/23/96 to 03/24/97 (3,419)
U.S. Dollars ........................ 3,173,409 GBP 1,955,066 01/13/97 115,601
U.S. Dollars ........................ 4,033,663 GBP 2,614,000 01/13/97 363,871
U.S. Dollars ........................ 5,801,613 GBP 3,500,000 12/03/96 86,440
U.S. Dollars ........................ 9,548,778 NLG 16,222,344 01/13/97 to 01/15/97 (143,882)
-----------
$(1,421,804)
===========
</TABLE>
- ----------------------
Currency Type Abbreviations:
AUD-Australian Dollars
BEF-Belgium Francs
CAD-Canadian Dollars
DEM-German Deutchemarks
ESP-Spanish Pesetas
FIM-Finnish Markkas
GBP-British Pounds
NLG-Netherlands Guilders
INVESTMENTS BY TYPE OF ISSUER (excluding investments of cash collateral for
securities loaned)
Percentage of Net Assets
------------------------
Long-term Short-term
--------- ----------
Government and other public issuers ................. 77.13% 12.00%
Repurchase Agreement ................................ -- 6.78
Other ............................................... 1.70 --
----- -----
78.83% 18.78%
===== =====
See accompanying notes to financial statements.
7
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES November 30, l996
Assets
Investments in securities, at value (cost - $314,142,694)........$335,230,364
Cash denominated in foreign currencies, at value
(cost - $3,190,462)............................................. 3,192,098
Interest receivable.............................................. 5,769,632
Receivables for investments and foreign currency sold............ 4,827,882
Gross unrealized appreciation on forward foreign
currency contracts............................................. 1,807,935
Receivable for foreign taxes withheld............................ 181,648
Deferred organizational expenses................................. 12,633
Other assets..................................................... 49,263
------------
Total assets..................................................... 351,071,455
------------
Liabilities
Collateral for securities loaned................................. 33,903,000
Payable for investments and foreign currency purchased........... 4,669,739
Gross unrealized depreciation on forward foreign
currency contracts.............................................. 3,229,739
Payable to investment adviser and administrator.................. 251,068
Accrued expenses and other liabilities........................... 304,338
------------
Total liabilities................................................ 42,357,884
------------
Net Assets
Capital stock--$0.001 par value; total authorized
shares--100,000,000; 21,407,128 shares issued
and outstanding................................................. 296,211,812
Distributions in excess of net investment income................. (1,303,221)
Accumulated net realized losses from investments................. (5,696,393)
Net unrealized appreciation of investments,
other assets, liabilities and forward contracts
denominated in foreign currencies............................... 19,501,373
------------
Net assets.......................................................$308,713,571
============
Net asset value per share........................................ $14.42
======
See accompanying notes to financial statements
8
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
STATEMENT OF OPERATIONS For the Year Ended November 30, 1996
Investment income:
Interest (net of foreign withholding taxes)...................... $27,620,625
------------
Expenses:
Investment advisory and administration........................... 2,954,304
Custody and accounting........................................... 259,889
Reports and notices to shareholders.............................. 138,784
Legal and audit fees............................................. 77,085
Transfer agency fees............................................. 44,068
Directors' fees and expenses..................................... 31,586
Amortization of organizational expenses.......................... 28,526
Other expenses................................................... 39,246
------------
3,573,488
------------
Net investment income............................................ 24,047,137
------------
Realized and unrealized gains (losses) from
investment activities:
Net realized gains from:
Investment transactions........................................ 5,031,635
Foreign currency transactions.................................. 378,118
Net change in unrealized appreciation/depreciation of:
Investments.................................................... 19,594,519
Other assets, liabilities and forward contracts
denominated in foreign currencies............................. (1,208,863)
------------
Net realized and unrealized gains from investment activities..... 23,795,409
------------
Net increase in net assets resulting from operations............. $47,842,546
============
See accompanying notes to financial statements
9
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended
November 30,
----------------------
1996 1995
---- ----
From operations:
Net investment income............................... $ 24,047,137 $ 25,573,399
Net realized gains (losses) from investment
transactions....................................... 5,03l,635 (9,801,966)
Net realized gains (losses) from
foreign currency transactions....................... 378,118 (245,668)
Net change in unrealized appreciation/depreciation
of investments..................................... 19,594,519 18,526,720
Net change in unrealized appreciation/depreciation
of other assets, liabilities and forward
contracts denominated in foreign currencies........ (1,208,863) (2,797,304)
------------ ------------
Net increase in net assets resulting
from operations.................................... 47,842,546 31,255,181
------------ ------------
Dividends and distributions to shareholders from:
Net investment income............................... (25,405,979) (23,868,947)
Net realized gains from
foreign currency transactions...................... (881,974) --
------------ ------------
(26,287,953) (23,868,947)
------------ ------------
Net increase in net assets.......................... 21,554,593 7,386,234
Net assets:
Beginning of period................................. 287,158,978 279,772,744
------------ ------------
End of period (including undistributed
net investment income of $559,478 at
November 30, 1995).............................. $308,713,571 $287,158,978
============ ============
See accompanying notes to financial statements
10
<PAGE>
NOTES TO FlNANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Strategic Global Income Fund, Inc. (the "Fund") was incorporated in the state of
Maryland on November 15, l991 and is registered with the Securities and Exchange
Commission as a closed-end, non-diversified management investment company.
Organizational costs have been deferred and are being amortized using the
straight line method over a period not to exceed 60 months from the date the
Fund commenced operations.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates. Following is a summary of
significant accounting policies:
Valuation and Accounting for Investments--Securities which are listed on stock
exchanges are valued at the last sale price on the day the securities are being
valued or, lacking any sales on such day, at the last available bid price. In
cases where securities are traded on more than one exchange, the securities are
generally valued on the exchange designated as the primary market by Mitchell
Hutchins Asset Management Inc. ("Mitchell Hutchins"), an affiliate and wholly
owned subsidiary of PaineWebber Incorporated ("PaineWebber") and the investment
adviser and administrator of the Fund. Securities traded in the over the-counter
("OTC") market and listed on The Nasdaq Stock Market Inc. (Nasdaq) are valued at
the last trade price on Nasdaq prior to the time of valuation; other OTC
securities are valued at the last bid price available in the OTC market prior to
the time of valuation. The amortized cost method of valuation generally is used
to value short-term debt instruments with sixty days or less remaining to
maturity. Securities and assets for which market quotations are not readily
available (including restricted securities subject to limitations as to their
sale) are valued at fair value as determined in good faith by a management
committee or under the direction of the Fund's Board of Directors. All
investments quoted in foreign currencies will be valued weekly in U.S. dollars
on the basis of foreign currency exchange rates prevailing at the time such
valuation is determined by the Fund's custodian.
Foreign currency exchange rates are generally determined prior to the close of
the New York Stock Exchange ("NYSE"). Occasionally events affecting the value of
foreign investments and such exchange rates occur between the time at which they
are determined and the close of the NYSE, which will not be reflected in the
computation of the Fund's net asset value. If events occur materially affecting
the value of such securities or currency exchange rates during such time period,
the securities will be valued at their fair value as determined in good faith by
or under the direction of the Fund's Board of Directors.
Repurchase Agreements--The Fund's custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a mark-to-market basis to ensure that the value, including
accrued interest, is at least equal to the repurchase price. In the event of
default of the obligation to repurchase, the Fund has the right to liquidate the
collateral and
11
<PAGE>
apply the proceeds in satisfaction of the obligation. Under certain
circumstances, in the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral may be subject to
legal proceedings. The Fund occasionally participates in joint repurchase
agreement transactions with other funds managed by Mitchell Hutchins.
Investment Transactions and Investment Income--Investment transactions are
recorded on trade date. Realized gains and losses from investment transactions
and foreign exchange transactions are calculated using the identified cost
method. Interest income is recorded on an accrual basis. Discounts are
accredited as adjustments to interest income and the identified cost of
investments.
Foriegn Currency Translation--The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:
(1) Market value of investment securities, other assets and
liabilities--at the exchange rates prevailing at the end of the period.
(2) Purchases and sales of investment securities, income and expenses--
at the rates of exchange prevailing on the respective dates of such
transactions.
Although the net assets and the market value of the Fund are presented at the
foreign exchange rates at the close of the period, the Fund does not generally
isolate the effect of fluctuations in foreign exchange rates from the effect of
the changes in market prices of securities. However, the Fund does isolate the
effect of fluctuations in foreign exchange rates when determining the gain or
loss upon the sale or maturity of foreign currency-denominated debt obligations
pursuant to U.S. federal income tax regulations. Certain foreign exchange
gains/losses included in realized and unrealized gains/losses are included in or
are a reduction of ordinary income in accordance with federal income tax
purposes.
Forward Foreign Currency Contracts--The Fund may enter into forward foreign
currency exchange contracts ("forward contracts") in connection with planned
purchases or sales of securities or to hedge the U.S. dollar value of portfolio
securities denominated in a particular currency.
The Fund has no specific limitation on the percentage of assets which may be
committed to such contracts. The Fund may enter into forward contracts or
maintain a net exposure to forward 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
securities in a segregated account in an amount not less than the value of its
total assets committed to the consummation of the forward contracts and not
covered as provided in (1) above, as marked to market daily.
Risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their forward contracts and
from
12
<PAGE>
unanticipated movements in the value of foreign currencies relative to the
U.S. dollar.
Fluctuations in the value of forward contracts are recorded for book
purposes as unrealized gains or losses by the Fund. Realized gains and
losses include net gains and losses recognized by the Fund on contracts
which have matured.
Dividends and Dirstributions--Dividends and distributions to shareholders are
recorded on the ex-dividend date. Dividends from net investment income and
distributions from realized capital gains are determined in accordance with
federal income tax regulations, which may differ from generally accepted
accounting principles. These "book/tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; temporary differences do not require
reclassifications.
COCENTRATION OF RISK
Investing in securities of foreign issuers and currency transactions may involve
certain considerations and risks not typically associated with investments in
the United States. These risks include revaluation of currencies, adverse
fluctuations in foreign currency values and possible adverse political, social
and economic developments, including those particular to a specific industry,
country or region, which could cause the securities and their markets to be less
liquid and prices more volatile than those of comparable U.S. companies and U.S.
government securities. These risks are greater with respect to securities of
issuers located in emerging market countries in which the Fund is authorized to
invest. The ability of the issuers of debt securities held by the Fund to meet
their obligations may be affected by economic and political developments
particular to specific industry, country or region.
INVESTMENT ADVISER AND ADMINISTRATOR
The Fund has an Investment Advisory and Administration Contract ("Advisory
Contract") with Mitchell Hutchins. In accordance with the Advisory Contract, the
Fund pays Mitchell Hutchins an investment advisory and administration fee, which
is accrued weekly and paid monthly, at the annual rate of 1.00% of the Fund's
average weekly net assets.
SECURITY LENDING
The Fund may lend up to 33 1/3% of its total assets to qualified institutions.
The loans are secured at all times by cash or U.S. government securities in an
amount at least equal to the market value of the securities loaned, plus accrued
interest, determined on a daily basis and adjusted accordingly. The Fund will
retain record ownership of loaned securities to exercise certain beneficial
rights, however, the Fund may bear the risk of delay in recovery of, or even
loss of rights in, the securities loaned should the borrower fail financially.
The Fund receives compensation, which is included in interest income, for
lending its securities from
13
<PAGE>
interest earned on the cash or U.S. government securities held as collateral,
net of fee rebates paid to the borrower plus reasonable administrative and
custody fees. The Fund's lending agent is PaineWebber, who received no
compensation from the Fund for the year ended November 30, 1996.
As of November 30, 1996, the Fund's custodian held cash and cash equivalents
having an aggregate value of $33,903,000 as collateral for portfolio securities
loaned having a market value of $32,822,080.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at November 30,
1996, was substantially the same as the cost of securities for financial
statement purposes.
At November 30, 1996, the components of net unrealized appreciation of
investments were as follows:
Gross appreciation (from investments having an excess of
value over cost) ........................................ $25,443,412
Gross depreciation (from investments having an excess of
cost over value) ........................................ (4,355,742)
-----------
Net unrealized appreciation of investments ............... $21,087,670
===========
For the year ended November 30, 1996, aggregate purchases and sales of
portfolio and securities, excluding short-term securities, were $267,032,695 and
$271,884,313, respectively.
CAPITAL STOCK
There are 100,000,000 shares of $0.001 par value capital stock authorized. Of
the 21,407,128 shares outstanding at November 30, 1996, Mitchell Hutchins
owned 8,034 shares.
FEDERAL TAX STATUS
The Fund intends to distribute substantially all of its taxable income and to
comply with the other requirements of the Internal Revenue Code applicable to
regulated investment companies. Accordingly, no provision for federal income
taxes is required. In addition, by distributing during each calendar year
substantially all of its net investment income, capital gains and certain other
amounts, if any, the Fund intends not to be subject to a federal excise tax.
At November 30, 1996, the Fund had a capital loss carryforward of $5,111,512
which will expire by November 30, 2003. To the extent that such losses are
used, as provided in the regulations, to offset future net realized capital
gains, it is probable that the gains will not be distributed.
To reflect reclassifications arising from permanent "book/tax" differences for
the year ended November 30, 1996, distributions in excess of net investment
income was increased by $503,857 and accumulated net realized losses was
decreased by $503,857.
14
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
For the Years Ended For the Period
November 30, February 3, 1992+
---------------------------------------------------- to
1996 1995 1994 1993 November 30, 1992
-------- -------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period............ $ 13.41 $ 13.07 $ 14.92 $ 13.47 $ 14.03
-------- -------- -------- -------- --------
Net investment income........................... 1.12 1.19 1.08 1.12 1.02
Net realized and unrealized gains (losses)
from investment and foreign currency
transactions................................... 1.12 0.27 (1.80) 1.51 (0.82)
-------- -------- -------- -------- --------
Total increase (decrease) from investment
operations.................................... 2.24 1.46 (0.72) 2.63 0.20
-------- -------- -------- -------- --------
Dividends from net investment income............ (1.19) (1.12) (0.82) (1.12) (0.70)
Distributions from net realized gains from
investment and foreign currency transactions... (0.04) -- (0.15) (0.06) (0.03)
Return of capital............................... -- -- (0.16) -- --
-------- -------- -------- -------- --------
Total dividends and distributions............... (1.23) (1.12) (1.13) (1.18) (0.73)
-------- -------- -------- -------- --------
Offering costs charged to capital............... -- -- -- -- (0.03)
-------- -------- -------- -------- --------
Net asset value, end of period.................. $ 14.42 $ 13.41 $ 13.07 $ 14.92 $ 13.47
======== ======== ======== ======== ========
Market value, end of period..................... $ 12.25 $ 11.25 $ 11.13 $ 14.25 $ 12.88
======== ======== ======== ======== ========
Total investment return (1)..................... 20.80% 11.81% (14.53)% 19.92% (9.67)%
======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period (000's).............. $308,714 $287,159 $279,773 $319,496 $288,251
Expenses to average net assets................. 1.21% 1.24% 1.27% 1.58%** 1.34%*
Net investment income to average net assets.... 8.14% 9.20% 8.01% 7.81%** 8.79%*
Portfolio turnover rate........................ 111% 121% 82% 111% 94%
</TABLE>
- ---------
* Annualized
** Includes 0.31% of interest expense relating to reverse repurchase
agreement transactions entered into during the fiscal year.
+ Commencement of operations
(1) Total investment return on market value is calculated assuming a purchase
of one share at market value on the first day of each period reported,
reinvestment of all dividends and distributions in accordance with the
Dividend Reinvestment Plan, and a sale at market value on the last day of
each period reported. Total investment return for period less than one
year has not been annualized. Total investment return does not reflect
brokerage commissions.
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Strategic Global Income Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Strategic Global Income Fund, Inc., including the portfolio of investments, as
of November 30, 1996, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at
November 30, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Strategic Global Income Fund, Inc. at November 30, 1996 and the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended and the financial highlights for each
of the indicated periods, in conformity with generally accepted accounting
principles.
New York, New York
January 22, 1997
16
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
TAX INFORMATION
We are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of the Fund's fiscal year end
(November 30, 1996) as to the federal tax status of distributions
received by shareholders during such fiscal year. Accordingly, we are
advising you that all dividends paid during the fiscal year by the Fund
were derived from net investment income and foreign currency gains both
of which are taxable as ordinary income.
Dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need
not be reported as taxable income. Some retirement trusts (e.g.,
corporate, Keogh and 403(b)(7) plans) may need this information for
their annual information reporting.
Since the Fund's fiscal year is not the calendar year, another
notification will be sent in respect of calendar 1996. The second
notification, which will reflect the amount to be used by calendar year
taxpayers on their federal income tax returns, will be made in
conjunction with Form 1099 DIV and will be mailed in January 1997.
Shareholders are advised to consult their own tax advisers with respect
to the tax consequences of their investment in the Fund.
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
GENERAL INFORMATION
THE FUND
Strategic Global Income Fund, Inc. (the "Fund") is a non-diversified, closed-end
management investment company whose shares trade on the New York Stock Exchange,
Inc. ("NYSE"). 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. The Fund's investment adviser and administrator is
Mitchell Hutchins Asset Management Inc., a wholly owned subsidiary of
PaineWebber Incorporated, which has approximately $44 billion in assets under
management as of December 31, 1996.
MANAGEMENT OF THE FUND
Stuart Waugh, a managing director and portfolio manager of Mitchell Hutchins
responsible for global fixed income and currency trading, is responsible for the
day-to-day management of the Fund's portfolio. He is also a vice president of
the Fund and of other investment companies for which Mitchell Hutchins serves as
investment adviser. Mr. Waugh has been employed by Mitchell Hutchins since 1983.
He is a portfolio manager of Global High Income Dollar Fund Inc., PaineWebber
Global Income Fund, PaineWebber Series Trust--Global Income Portfolio and
Strategic Income Fund Inc. with aggregate assets at December 31, 1996 of
approximately $1.6 billion. Other members of the Mitchell Hutchins' global
investing group provide input on market outlook, interest rate forecasts,
investment research and other considerations pertaining to the Fund's
investments.
SHAREHOLDER INFORMATION
The Fund's NYSE trading symbol is "SGL". Comparative net asset value and market
price information about the Fund is published weekly in The Wall Street Journal,
The New York Times and Barron's, as well as numerous other newspapers.
DISTRIBUTION POLICY
The Fund has established a Dividend Reinvestment Plan under which all
shareholders whose shares are registered in their own names, or in the name of
PaineWebber or its nominee, will have all dividends and other distributions on
their shares automatically reinvested in additional shares, unless such
shareholders elect to receive cash. Shareholders who elect to hold their shares
in the name of another broker or nominee should contact such broker or nominee
to determine whether, or how, they may participate in the Dividend Reinvestment
Plan. Additional shares acquired under the
18
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
DISTRIBUTION POLICY-(continued)
Dividend Reinvestment Plan will be purchased in the open market, on the NYSE or
otherwise, at prices that may be higher or lower than the net asset value per
share at the time of the purchase. The Fund will not issue any new shares in
connection with its Dividend Reinvestment Plan.
The Transfer Agent will serve as agent for the shareholders in administering the
Plan. After the Fund declares a dividend or determines to make a capital gain
distribution, the Transfer Agent will, as agent for the particpants, receive the
cash payment and use it to buy Fund shares in the open market, on the NYSE or
elsewhere, for the participants' accounts.
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- -----------------------------------------------------
DIRECTORS
E. Garrett Bewkes, Jr. Meyer Feldberg
Chairman
George W. Gowen
Margo N. Alexander Frederic V. Malek
Richard Q. Armstrong Carl W. Schafer
Richard Burt John R. Torell III
Mary C. Farrell
PRINCIPAL OFFICERS
Margo N. Alexander Julian F. Sluyters
President Vice President and Treasurer
Victoria E. Schonfeld Stuart Waugh
Vice President Vice President
Dianne E. O'Donnell
Vice President and Secretary
[COPY ILLEGIBLE]
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that from time to time the Fund may purchase shares of its
common stock in the open market at market prices.
This report is sent to the shareholders of the Fund for their information. It is
not a prospectus, circular or representation intended for the use in the
purchase or sale of shares of the Fund or of any securities mentioned in this
report.
<PAGE>
NOVEMBER 30, 1996
=============================
STRATEGIC
GLOBAL
INCOME
FUND, INC.
PaineWebber
(c) 1996 PaineWebber Incorporated
Member SIPC
