STRATEGIC GLOBAL INCOME FUND INC, POS 8C, 1997-02-05

STRATEGIC GLOBAL INCOME FUND INC
POS 8C, 1997-02-05

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 5, 1997

SECURITIES ACT FILE NO. 33-60306
INVESTMENT COMPANY ACT FILE NO. 811-6475
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------

FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 4 [X]
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 8 [X]
(CHECK APPROPRIATE BOX OR BOXES)

---------------------
STRATEGIC GLOBAL INCOME
FUND, INC.
(Exact name of Registrant as specified in charter)
1285 Avenue of the Americas
New York, New York 10019
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code: (212) 713-2000
---------------------
DIANNE E. O'DONNELL, ESQ.
Vice President and Secretary
STRATEGIC GLOBAL INCOME FUND, INC.
1285 Avenue of the Americas
New York, New York 10019
(Name and address of agent for service)
---------------------
COPIES TO:

ROBERT A. WITTIE, ESQ. KEITH A. WELLER, ESQ.
JENNIFER R. GONZALEZ, ESQ. MITCHELL HUTCHINS ASSET
KIRKPATRICK & LOCKHART LLP MANAGEMENT INC.
1800 Massachusetts Avenue, N.W. 1285 Avenue of the Americas
Washington, D.C. 20036-1800 New York, New York 10019
-----------

If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box: [ X ]

It is proposed that this filing will become effective (check appropriate
box) [ x ] when declared effective pursuant to Section 8(c).

This Registration Statement relates to the registration of an
indeterminate number of shares solely for market-making transactions. Pursuant
to Rule 429, this Registration Statement relates to shares previously registered
on Form N-2 (File No. 33-44152).

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

STRATEGIC GLOBAL INCOME FUND, INC.
FORM N-2 CROSS REFERENCE SHEET

<TABLE>
<CAPTION>
PART A
ITEM NUMBER CAPTION PROSPECTUS CAPTION
----------- ------- ------------------
<S> <C> <C>
1 Outside Front Cover ....................... Outside Front Cover of Prospectus
2 Inside Front and Outside Back Cover Page .. Inside Front and Outside Back Cover
Page of Prospectus
3 Fee Table and Synopsis .................... Prospectus Summary; Fund Expenses
4 Financial Highlights ...................... Financial Highlights
5 Plan of Distribution ...................... The Offering
6 Selling Shareholders ...................... Inapplicable
7 Use of Proceeds ........................... Use of Proceeds
8 General Description of Registrant ......... The Fund; Trading History; Investment
Objectives and Policies; Other
Investment Practices; Special
Considerations and Risk Factors;
Description of Capital Stock
9 Management ................................ Management; Description of Capital
Stock
10 Capital Stock, Long-Term Debt and Other
Securities ................................ Other Investment Practices; Special
Considerations and Risk Factors,
Dividends and Other Distributions;
Dividend Reinvestment Plan;
Description of Capital Stock; Taxation
11 Defaults and Arrears on Senior ............ Inapplicable
Securities
12 Pending Legal Proceedings ................. Inapplicable
13 Table of Contents of the Statement of
Additional Information .................... Table of Contents of the Statement of
Additional Information
<CAPTION>

PART B STATEMENT OF
ITEM NUMBER CAPTION ADDITIONAL INFORMATION
----------- ------- ----------------------
<S> <C> <C>
14 Cover Page ................................ Cover Page of Statement of Additional
Information
15 Table of Contents ......................... Back Cover Page of Statement of
Additional Information
16 General Information and History ........... Inapplicable
17 Investment Objectives and Policies ........ Investment Policies and Restrictions;
Hedging and Related Income
Strategies; Other Investment
Practices (in the Prospectus)
18 Management ................................ Directors and Officers
19 Control Persons and Principal Holders
of Securities ............................. Control Persons and Principal Holders
of Securities
20 Investment Advisory and Other Services .... Investment Advisory Arrangements;
Additional Information; Custodian,
Transfer and Dividend Disbursing
Agent and Registrar (in the
Prospectus)
21 Practices ................................. Portfolio Transactions
22 Tax Status ................................ Taxes
23 Financial Statements ...................... Financial Statements
</TABLE>

<PAGE>

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.' No additional Shares of the Fund will be
issued in connection with this offering. 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 , 1997 was $ . 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, 1997 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 NOR HAS THE 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, 1997.

<PAGE>

<PAGE>
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)................................... None(1)
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 Expense on Borrowed Funds(3)............................................ 0.00%
Other Expenses................................................................... 0.21%
----
Total Annual Expenses....................................................... 1.21%
</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
- -------- ----------- ---------- ---------

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.

<PAGE>

<PAGE>
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.'

<TABLE>
<S> <C>
The Fund............................ Strategic Global Income Fund, Inc. ('Fund') is a non-diversified,
closed-end management investment company. See 'The Fund.'
The Offering........................ No additional shares of the Fund's Common Stock ('Shares') will be issued
in connection with this offering. 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 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 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
</TABLE>

<PAGE>

<TABLE>
<S> <C>
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 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 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
</TABLE>

<PAGE>

<TABLE>
<S> <C>
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 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.'
</TABLE>

<PAGE>

<TABLE>
<S> <C>
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 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 other
broker or 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
</TABLE>

<PAGE>

<TABLE>
<S> <C>
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.
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.
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.
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.
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
</TABLE>

<PAGE>

<TABLE>
<S> <C>
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 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.
Lending of Portfolio Securities. The Fund may lend its securities to
qualified broker-dealers or institutional investors in an amount up to
33 1/3% of the Fund's total assets. Lending securities enables the Fund to
earn additional income, but could result in a loss or delay in recovering
these securities.
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
</TABLE>

<PAGE>

<TABLE>
<S> <C>
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 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
</TABLE>

<PAGE>

<TABLE>
<S> <C>
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.'
</TABLE>

<PAGE>

<PAGE>
FINANCIAL HIGHLIGHTS

The table below provides selected per share data and ratios for a share of
the Fund for the each of 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, 1996, 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.

FOR THE PERIOD
FEBRUARY 3, 1992'D'
FOR THE YEARS ENDED NOVEMBER 30, TO NOVEMBER 30,
------------------------------------------ -------------------
1996 1995*** 1994 1993 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 investments 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
Ratio of expenses to average net
assets.............................. 1.21% 1.24% 1.27% 1.58%** 1.34%*
Ratio of 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>

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

`D' Commencement of operations.

(footnotes continued on next page)

<PAGE>

<PAGE>
(footnotes continued from previous page)

(1) Total investment return is calculated assuming a purchase of one share at
market value 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 and distributions 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.

------------------------
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 five fiscal years.

<TABLE>
<CAPTION>
TOTAL AMOUNT ASSET COVERAGE PER
OUTSTANDING $1,000 OF AVERAGE MARKET
AS OF INDEBTEDNESS AS OF VALUE PER $1,000 OF
SENIOR SECURITIES YEAR END OF FISCAL YEAR END OF FISCAL YEAR INDEBTEDNESS*
- ------------------------------------------- ---- ------------------ -------------------- -------------------
<S> <C> <C> <C> <C>
Reverse Repurchase Agreements 1992`D' $ 11,521,546 $ 26,018 $23,922
1993 0 0 $38,322
1994 0 0 0
1995 0 0 0
1996 0 0 0
</TABLE>

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

`D' 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.

<PAGE>

<PAGE>
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. No additional shares of the Fund
will be issued in connection with this offering. 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 , 1997, the closing price per Share was $ , the Fund's net asset
value per Share was $ and the discount to net asset value was ( )%.

<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>

02/28/95................................. $11.38 $ 9.75 $13.15 $12.27 (13.50)% (20.54)%
05/31/95................................. 11.13 9.88 13.19 12.07 (15.66) (18.19)
08/31/95................................. 11.63 10.88 13.48 12.95 (13.76) (16.02)
11/30/95................................. 11.63 11.13 13.39 13.20 (13.18) (15.72)
02/29/96................................. 12.63 11.25 14.05 13.44 (10.14) (16.29)
05/31/96................................. 12.13 11.38 13.66 13.68 (11.24) (16.85)
08/31/96................................. 12.00 11.13 13.75 13.63 (12.73) (18.38)
11/30/96................................. 12.25 11.75 14.31 14.06 (14.40) (16.43)
02/28/97.................................
</TABLE>

<PAGE>
<PAGE>
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 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 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 by Moody's and
comparable unrated securities are deemed medium grade, but Moody's considers
securities rated 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 by Moody's
or, if not rated by S&P or Moody's, determined by

<PAGE>
<PAGE>
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 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, 1996, the Fund had 95.9% of its
net assets in securities that received a rating from a nationally recognized
statistical rating organization ('NRSRO') and 4.1% 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) -- 58.3, AA/Aa -- 7.3%, A/A -- 1.9%, BBB/Baa -- 3.7%,
BB/Ba -- 10.0% and B/B -- 14.7%. It should be noted that this information
reflects the average composition of the Fund's assets as of the end of the
fiscal year ended November 30, 1996 and is not necessarily representative of the
Fund's assets as of any other time in that period, the current fiscal year or
any 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 the issuer (such as securities
issued by the Resolution Funding Corporation and the Tennessee Valley

<PAGE>
<PAGE>
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.

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

<PAGE>
<PAGE>
(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 without limit 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 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

<PAGE>
<PAGE>
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 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

<PAGE>
<PAGE>
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 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, floors and collars, 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

<PAGE>
<PAGE>
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 price 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 qualified dealers who
agree that the Fund may repurchase any OTC option it writes at a maximum price
to be calculated by a formula set forth in the option agreement. The cover for
an OTC option written subject to this procedure would be considered illiquid
only to the extent that the maximum repurchase price under the formula exceeds
the intrinsic value of the option.

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

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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 or upon demand and at a 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 securities, marked to market daily, with its custodian in connection
with the use of certain types of leverage could have an adverse effect on the
income earned and dividends paid by the Fund.

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 or upon
demand and at a price reflecting a market rate of interest. At the time the Fund
enters into a reverse repurchase agreement, an approved custodian segregates
cash or liquid securities,

marked to market daily, 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 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 in an amount, marked
to market daily, 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 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, 1996 and November 30, 1995, the Fund's
portfolio turnover rate was 111% and 121%, respectively.

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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.

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

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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.

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
which led to increases in interest rates 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

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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 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

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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 invest at least 65% of its total
assets, include securities rated BBB or higher by S&P or 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

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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, 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

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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 their 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.

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 28, 1997, Mitchell Hutchins
served as the investment adviser or sub-adviser to registered investment
companies with separate portfolios and aggregate assets of over $ 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, 1996, November 30, 1995 and November 30,
1994, the Fund's total expenses, stated as a percentage of average net assets,
were 1.21%, 1.24% and 1.27%, respectively.

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
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. He is a Chartered Financial Analyst. 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

<PAGE>
<PAGE>
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 other broker or 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 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 accounts, 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 or in the Transfer Agent's records. An election
to

<PAGE>
<PAGE>
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 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

<PAGE>
<PAGE>
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, 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
normally 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 ,
1997:

<TABLE>
<CAPTION>
AMOUNT OUTSTANDING
AMOUNT HELD BY EXCLUSIVE OF AMOUNT HELD
REGISTRANT OR FOR ITS BY REGISTRANT OR FOR ITS
TITLE OF CLASS AMOUNT AUTHORIZED ACCOUNT ACCOUNT
- ----------------------------------- ----------------- --------------------- ------------------------

<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.

There is no assurance that the board of directors will decide to undertake
Share 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 or special meeting, a proposal to amend the Fund's Articles of
Incorporation to so convert the Fund. Such amendment would provide that, upon
its adoption by the holders of at least a majority of the Fund's outstanding
Shares entitled to vote thereon, the Fund will convert from a closed-end to an
open-end investment company. If the Fund converted to an open-end investment
company, it would be able to 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. 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

<PAGE>
<PAGE>
(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.

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.

<PAGE>
<PAGE>
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.

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.................................................. 7
Directors and Officers................................................................. 15
Control Persons and Principal Holders of Securities.................................... 22
Investment Advisory Arrangements....................................................... 22
Portfolio Transactions................................................................. 23
Valuation of Shares.................................................................... 25
Taxes.................................................................................. 26
Additional Information................................................................. 28
Financial Statements................................................................... 30
</TABLE>

36
<PAGE>

<PAGE>
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 edged.' Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such 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 applies 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>

<PAGE>
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 pre-dominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.

BB. Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB - rating.

B. Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB - rating.

CCC. Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B - rating.

CC. The rating CC is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.

C. The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC - debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.

CI. The rating CI is reserved for income bonds on which no interest is
being paid.

D. Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.

A-2

<PAGE>

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.

r: The 'r' is attached to highlight derivative, hybrid, and certain other
obligations that S&P believes may experience high volatility or high variability
in expected returns due to non-credit risks. Examples of such obligations are:
securities whose principal or interest return is indexed to equities;
commodities, or currencies; certain swaps and options and interest only and
principal only mortgage securities.

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>

<PAGE>
__________________________________ __________________________________

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....................................................................................... 11
The Fund................................................................................................... 13
The Offering............................................................................................... 13
Use of Proceeds............................................................................................ 13
Trading History............................................................................................ 13
Investment Objectives and Policies......................................................................... 14
Other Investment Practices................................................................................. 19
Special Considerations and Risk Factors.................................................................... 23
Management................................................................................................. 28
Dividends and Other Distributions; Dividend Reinvestment Plan.............................................. 29
Taxation................................................................................................... 31
Description of Capital Stock............................................................................... 32
Custodian, Transfer and Dividend Disbursing Agent and Registrar............................................ 35
Further Information........................................................................................ 36
Appendix A................................................................................................. A-1
</TABLE>

'c'1997 PaineWebber Incorporated

STRATEGIC GLOBAL
INCOME FUND, INC.

COMMON STOCK

------------------------
PROSPECTUS
------------------------

PAINEWEBBER INCORPORATED

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

APRIL 1, 1997

__________________________________ __________________________________

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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, 1997. 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, 1997.

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 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

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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 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

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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 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

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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 or upon demand and at a 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, or liquid 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 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'. 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,

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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.

FUNDAMENTAL LIMITATIONS. The following 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 of the Fund or (b)
67% or more of such 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 following limitations or any of the Fund's
investment policies. Under the Fund's fundamental investment limitations, the
Fund may 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.

(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, other debt securities or
instruments, or participations or other interests therein 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.

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(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.

NON-FUNDAMENTAL LIMITATIONS. 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:

(1) 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.

(2) 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.

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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 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.

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. In addition, the Fund's ability to use Hedging Instruments will be limited
by tax considerations. See 'Taxes.'

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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 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

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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 or liquid 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
or liquid securities, marked to market daily 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 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

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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's portfolio, the Fund may sell a futures contract or a call option
thereon, or purchase a put option on that futures contract. If Mitchell Hutchins
wishes to lengthen the average duration of the Fund's portfolio, 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, obligations of
the United States or obligations that are fully guaranteed as to principal and
interest by the United States, 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

<PAGE>

<PAGE>
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 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

<PAGE>

<PAGE>
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 positive correlation to
the value of the currency being hedged. The risk that movements in the price of
the Hedging Instrument will not correlate perfectly with movements in the price
of the currency being hedged is magnified when this strategy is used.

The value of Hedging Instruments on foreign currencies depends on the value
of the underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of such Hedging Instruments, the
Fund could be disadvantaged by having to deal in the odd lot market (generally
consisting of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.

There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the Hedging Instruments until they reopen.

Settlement of hedging transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency. Thus,
the Fund might be required to accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.

<PAGE>

<PAGE>
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
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 liquid 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

<PAGE>

position being hedged by such contracts or (2) the Fund maintains cash 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 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, floors and collars. 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
contra party 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, floors and collars on
either an asset-based or liability-based basis, depending on whether it is
hedging its assets or its liabilities, and will usually enter into interest rate
swaps on a net basis, i.e., the two payment streams are netted out, with the
Fund receiving or paying as the case may be, only the net amount of the two
payments. Inasmuch as these interest rate protection transactions are entered
into for good faith hedging purposes, and inasmuch as segregated accounts will
be established with respect to such transactions, Mitchell Hutchins and the Fund
believe such obligations do not constitute senior securities and, accordingly,
will not treat them as being subject to its borrowing restrictions. The net
amount of the excess, if any, of the Fund's obligations over its entitlements
with respect to each interest rate swap will be accrued on a daily basis, and an
amount of cash or liquid securities, marked to market daily, 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.

<PAGE>

<PAGE>
DIRECTORS AND OFFICERS

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

<PAGE>

<TABLE>
<CAPTION>
POSITION WITH THE PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS; AGE* FUND DURING PAST FIVE YEARS
- ------------------------------------- -------------------- ------------------------------------------------------
<S> <C> <C>
E. Garrett Bewkes, Jr.**; 70 Director and Mr. Bewkes is a director of Paine Webber Group Inc.
Chairman of the ('PW Group') (holding company of PaineWebber and
Board of Directors Mitchell Hutchins). Prior to December 1995, he was a
consultant to PW Group. 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
BioTherapeutics, Inc. Mr. Bewkes is a director or
trustee of 29 investment companies for which Mitchell
Hutchins or PaineWebber serves as investment adviser.
Richard R. Burt; 50 Director Mr. Burt is chairman of International Equity Partners
1101 Connecticut Avenue, N.W. (international investments and consulting firm) (since
Washington, D.C. 20036 March 1994) and a partner of McKinsey & Company
(management consulting firm) (since 1991). He is also
a director of American Publishing Company and
Archer-Daniels-Midland Co. (agricultural commodities).
He was the chief negotiator in the Strategic Arms
Reduction Talks with the former Soviet Union
(1989-1991) and the U.S. Ambassador to the Federal
Republic of Germany (1985-1989). Mr. Burt is a
director or trustee of 28 investment companies for
which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Mary C. Farrell**; 47 Ms. Farrell is a managing director, senior investment
strategist and member of the Investment Policy
Committee of PaineWebber. Ms. Farrell joined
PaineWebber in 1982. She is a member of the Financial
Women's Association and Women's Economic Roundtable
and is employed as a regular panelist on Wall $treet
Week with Louis Rukeyser. She also serves on the Board
of Overseers of New York University's Stern School of
Business. Ms. Farrell is a director or trustee of 28
investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
POSITION WITH THE PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS; AGE* FUND DURING PAST FIVE YEARS
- ------------------------------------- -------------------- ------------------------------------------------------
<S> <C> <C>
Meyer Feldberg; 54 Director Mr. Feldberg is Dean and Professor of Management of
Columbia University the Graduate School of Business, Columbia University.
101 Uris Hall Prior to 1989, he was president of the Illinois
New York, NY 10027 Institute of Technology. Dean Feldberg is also a
director of KIII Communications Corporation, Federated
Department Stores, Inc. and New World Communications
Group Incorporated. Dean Feldberg is a director or
trustee of 28 investment companies for which Mitchell
Hutchins or PaineWebber serves as investment adviser.
George W. Gowen; 67 Director Mr. Gowen is a partner in the law firm of Dunnington,
666 Third Avenue Bartholow & Miller. Prior to May 1994, he was a
New York, NY 10017 partner in the law firm of Fryer, Ross & Gowen. Mr.
Gowen is a director of Columbia Real Estate
Investments, Inc. Mr. Gowen is a director or trustee
of 28 investment companies for which Mitchell Hutchins
or PaineWebber serves as investment adviser.
Frederic V. Malek; 60 Director Mr. Malek is chairman of Thayer Capital Partners
1455 Pennsylvania Avenue, N.W. (investment bank). From January 1992 to November 1992,
Suite 350 he was campaign manager of Bush-Quayle '92. From 1990
Washington, D.C. 20004 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. (management consulting and
computer related services), Automatic Data Processing,
Inc., CB Commercial Group, Inc. (real estate
services), Choice Hotels International (hotel and
hotel franchising), FPL Group, Inc., (electric
services), Integra, Inc. (bio-medical), Manor Care,
Inc. (health care), National Educational Corporation
and Northwest Airlines Inc. Mr. Malek is a director or
trustee of 28 investment companies for which Mitchell
Hutchins or PaineWebber serves as investment adviser.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
POSITION WITH THE PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS; AGE* FUND DURING PAST FIVE YEARS
- ------------------------------------- -------------------- ------------------------------------------------------
<S> <C> <C>
Carl W. Schafer; 61 Director Mr. Schafer is president of the Atlantic Foundation
P.O. Box 1164 (charitable foundation supporting mainly oceanographic
Princeton, NJ 08542 exploration and research). He is a director of Roadway
Express, Inc. (trucking), The Guardian Group of Mutual
Funds, Evans Systems, Inc (motor fuels, convenience
store and diversified company), Hidden Lake Gold Mines
Ltd., Electronic Clearing House, Inc. (financial
transactions processing), Wainoco Oil Corporation and
Nutraceutix, Inc. (biotechnology company). Prior to
January 1993, he was chairman of the Investment
Advisory Committee of the Howard Hughes Medical
Institute. Mr. Schafer is a director or trustee of 28
investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
John R. Torell III; 57 Director Mr. Torell is chairman of Torell Management, Inc.
767 Fifth Avenue (financial advisory firm), chairman of Telesphere
Suite 4605 Corporation (electronic provider of financial
New York, NY 10153 information) and a managing director of Zikha &
Company (merchant banking and private investment
company). He is the former chairman and chief
executive officer of Fortune Bancorp (1990 to 1994),
the former chairman, president and chief executive
officer of CalFed, Inc. (savings association) (1988 to
1989) and former president of Manufacturers Hanover
Corp. (bank) (prior to 1988). Mr. Torell is a director
of American Home Products Corp., New Colt Inc.
(armament manufacturer) and Volt Information Sciences
Inc. Mr. Torell is a director or trustee of 28
investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
POSITION WITH THE PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS; AGE* FUND DURING PAST FIVE YEARS
- ------------------------------------- -------------------- ------------------------------------------------------
<S> <C> <C>
Teresa M. Boyle; 38 Vice President Ms. Boyle is a first vice president 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 a
vice president of 29 investment companies for which
Mitchell Hutchins or PaineWebber serves as investment
adviser.
C. William Maher; 35 Vice President and Mr. Maher is a first vice president and a senior
Assistant Treasurer manager of the mutual fund finance division of
Mitchell Hutchins. Mr. Maher is a vice president and
assistant treasurer of 29 investment companies for
which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Dennis McCauley; 50 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 a vice president of 18 investment
companies for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Ann E. Moran; 39 Vice President and Ms. Moran is a vice president of Mitchell Hutchins.
Assistant Treasurer Ms. Moran is a vice president and assistant treasurer
of 29 investment companies for which Mitchell Hutchins
or PaineWebber serves as investment adviser.
Dianne E. O'Donnell; 44 Vice President and Ms. O'Donnell is a senior vice president and deputy
Secretary general counsel of Mitchell Hutchins. Ms. O'Donnell is
a vice president and secretary of 28 investment
companies for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
POSITION WITH THE PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS; AGE* FUND DURING PAST FIVE YEARS
- ------------------------------------- -------------------- ------------------------------------------------------
<S> <C> <C>
Emil Polito; 36 Vice President Mr. Polito is a senior vice president and director of
operations and control for Mitchell Hutchins. From
March 1991 to September 1993 he was director of the
Mutual Funds Sales Support and Service Center for
Mitchell Hutchins and PaineWebber. Mr. Polito is also
vice president of 29 investment companies for which
Mitchell Hutchins or PaineWebber serves as investment
adviser.
Victoria E. Schonfeld; 46 Vice President Ms. Schonfeld is a managing director and general
counsel of Mitchell Hutchins. Prior to May 1994, she
was a partner in the law firm of Arnold & Porter. Ms.
Schonfeld is a vice president of 29 investment
companies for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Paul H. Schubert; 34 Vice President and Mr. Schubert is a first vice president and a senior
Assistant Treasurer 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 a vice
president and assistant treasurer of 29 investment
companies for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Julian F. Sluyters; 36 Vice President and Mr. Sluyters is a senior vice president and the
Treasurer director of the mutual fund finance division of
Mitchell Hutchins. Mr. Sluyters is a vice president
and treasurer of 29 investment companies for which
Mitchell Hutchins or PaineWebber serves as investment
adviser.
Gregory K. Todd; 40 Vice President and Mr. Todd is a first vice president and senior
Assistant Secretary associate general counsel of Mitchell Hutchins. Prior
to 1993, he was a partner in the law firm of Shereff,
Friedman, Hoffman & Goodman. Mr. Todd is a vice
president and assistant secretary of nine investment
companies and vice president and secretary of one
investment company for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
</TABLE>

<PAGE>

- ------------
* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.
** Mrs. Alexander, Mr. Bewkes and Ms. Farrell are 'interested persons' of the
Fund, as defined in the 1940 Act, by virtue of their positions with Mitchell
Hutchins, PaineWebber and/or PW Group.

The Fund pays directors who are not 'interested persons' of the Fund $1,000
annually and $150 for each board meeting and for each separate meeting of a
board committee. Messrs. Feldberg and Torell serve as chairmen of the audit and
contract review committees of individual funds within the PaineWebber fund
complex and receive additional annual compensation aggregating $15,000 each from
the relevant funds. All directors are reimbursed for any expenses incurred in
attending meetings. Because Mitchell Hutchins performs substantially all of the
services necessary for the operation of the Fund, the Fund requires no
employees. No officer, director or employee of PaineWebber or Mitchell Hutchins
presently receives any compensation from the Fund for acting as a director or
officer.

<PAGE>

The table below includes certain information related to the compensation of
the Fund's current directors who held office with the Fund or other PaineWebber
funds during the last fiscal year.

COMPENSATION TABLE

<TABLE>
<CAPTION>
TOTAL
AGGREGATE COMPENSATION
COMPENSATION FROM THE
FROM THE FUND AND THE
NAME OF PERSON, POSITION FUND* COMPLEX**
- ----------------------------------------------------------------------------------- ------------ ------------

<S> <C> <C>
Richard Q. Armstrong,
Director***...................................................................... $ 839 $59,873
Richard R. Burt,
Director***...................................................................... $ 689 $51,173
Meyer Feldberg,
Director......................................................................... $5,173 $96,181
George W. Gowen,
Director......................................................................... $5,173 $92,431
Frederick V. Malek,
Director......................................................................... $5,173 $92,431
Carl W. Schafer,
Director***...................................................................... $ 839 $62,307
John R. Torell III,
Director***...................................................................... $ 839 $60,123
</TABLE>

- ------------
Only independent members of the board of directors are compensated by the Fund
and identified above; directors who are 'interested persons,' as defined in the
1940 Act, do not receive compensation.

* Represents fees paid to each director during the fiscal year ended November
30, 1996.

** Represents total compensation paid to each director by the Fund Complex
during the twelve months ended December 31, 1996; no fund within the complex
has a bonus, pension, profit sharing or retirement plan.

*** Elected as a director at a shareholder meeting held on April 11, 1996.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

As of March , 1997, Cede & Co. (the nominee for The Depository Trust
Company, a securities depository) owned of record of the Fund's Shares
or % 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 , 1997, 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').

<PAGE>

<PAGE>
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, 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, 1996, November 30, 1995, and
November 30, 1994, the Fund paid or accrued to Mitchell Hutchins $2,954,304,
$2,781,097, and $2,959,574, respectively, in investment advisory and
administration fees. For the fiscal years ended November 30, 1995 and November
30, 1994, Mitchell Hutchins (not the fund) paid BEA Associates, the Fund's
former investment sub-adviser, $481,638 and $739,893, 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 mutual funds ('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

<PAGE>

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 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. For the fiscal years ended November 30, 1996,
November 30, 1995 and November 30, 1994, the fund paid no commissions to FCMs.

<PAGE>

<PAGE>
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 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, 1996, November 30, 1995, and
November 30, 1994, 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

<PAGE>

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, 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

<PAGE>

('Income Requirement'); (2) the Fund must derive less than 30% of its gross
income each taxable year from the sale or other disposition of securities, or
any of the following, that were held for less than three months -- options,
futures or forward 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.

<PAGE>

<PAGE>
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. Gains from the disposition of foreign
currencies (except certain gains that may be excluded by future regulations),
and 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, forward currency contracts and foreign currency positions beyond the
time when it otherwise would be advantageous to do so, in order for the Fund to
continue to qualify as a RIC.

<PAGE>

<PAGE>
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 capital in excess of par will be
reduced. If tendered Shares are not retired, the Fund may hold, sell or

<PAGE>

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, 1996 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.

<PAGE>

<PAGE>
__________________________________ __________________________________

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...................................................................... 7
Directors and Officers..................................................................................... 15
Control Persons and Principal Holders of Securities........................................................ 22
Investment Advisory Arrangements........................................................................... 22
Portfolio Transactions..................................................................................... 23
Valuation of Shares........................................................................................ 25
Taxes...................................................................................................... 26
Additional Information..................................................................................... 29
Financial Statements....................................................................................... 30

'c'1997 PaineWebber Incorporated
</TABLE>

STRATEGIC GLOBAL
INCOME FUND, INC.

COMMON STOCK

------------------------
STATEMENT OF ADDITIONAL
INFORMATION
------------------------

PAINEWEBBER INCORPORATED

------------------------
APRIL 1, 1997

__________________________________ __________________________________

<PAGE>

PART C - OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

1. Financial Statements:

Included in Part A of the Registration Statement:

a. Financial Highlights

Included in Part B of the Registration Statement through
incorporation by reference from the Annual Report to the
Shareholders, previously filed with the Securities and Exchange
Commission through EDGAR on January 31, 1997 [File No. 33-60306]
[Accession No. 0000889812-97-000279]:

a. Report of Ernst & Young LLP, Independent Auditors, dated
January 22, 1997

b. Portfolio of Investments as of November 30, 1996

c. Statement of Assets and Liabilities as of November 30, 1996

d. Statement of Operations for the year ended November 30, 1996

e. Statement of Changes in Net Assets

f. Notes to Financial Statements

g. Financial Highlights

2. Exhibits:

a. Articles of Incorporation(1)

b. (i) Bylaws(2)

(ii) Amendment to Bylaws(3)

c. None

d. Inapplicable

e. Dividend Reinvestment Plan(4)

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

(1) Incorporated herein by reference to exhibit 1 to the Registration
Statement on Form N-2 filed November 22, 1991 (File No. 33-44152).

(2) Incorporated herein by reference to exhibit 2 to the Registration
Statement on Form N-2 filed November 22, 1991 (File No. 33-44152).

(3) Incorporated herein by reference to exhibit b(ii) to Post-Effective
Amendment No. 2 to the Registration Statement on Form N-2 filed January
27, 1995 (File No. 33-60306).

(4) Incorporated herein by reference to exhibit 9(c) to Pre-Effective
Amendment No. 2 to the Registration Statement on Form N-2 filed January
24, 1992 (File No. 33-44152).

II-1

<PAGE>

f. None
g. Investment Advisory and Administration Contract(5)
h. None(6)
i. None
j. Custodian Agreement(7)
k. Transfer Agency Agreement(8)
l. Opinion and Consent of Counsel(9)
m. None
n. Consent of the Independent Auditors (filed herewith)
o. None
p. Letter of Investment Intent(10)
q. None
r. Financial Data Schedule (filed herewith)

ITEM 25. MARKETING ARRANGEMENTS

Inapplicable.

ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

Not applicable to current Post-Effective Amendment; for expenses
incurred in connection with this Registration Statement; see Pre-Effective
Amendment No. 2 to the Fund's Registration Statement on Form N-2, SEC File No.
33-44152, filed January 24, 1992.

ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL

None.

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

(5) Incorporated herein by reference to exhibit 6(a) to Pre-Effective
Amendment No. 2 to the Registration Statement on Form N-2 filed January
24, 1992 (File No. 33-44152).

(6) The shares offered by the Prospectus will be offered in order to effect
over-the-counter secondary market transactions by PaineWebber in its
capacity as a dealer and secondary market maker and not pursuant to any
agreement with the Fund. Shares were originally issued in a public
offering pursuant to an Underwriting Agreement and certain related
documents, included as exhibits 7(a), (b) and (c) to Pre-Effective
Amendment No. 2 to the Registration Statement on Form N-2 filed January
24, 1992 (File No. 33-44152).

(7) Incorporated herein by reference to exhibit 9(a) to Pre-Effective
Amendment No. 2 to the Registration Statement on Form N-2 filed January
24, 1992 (File No. 33-44152).

(8) Incorporated herein by reference to exhibit 9(b) to Pre-Effective
Amendment No. 2 to the Registration Statement on Form N-2 filed January
24, 1992 (File No. 33-44152).

(9) Incorporated herein by reference to exhibit l to Pre-Effective Amendment
No. 1 to the Registration Statement on Form N-2 filed June 7, 1993 (File
No. 33-60306).

(10) Incorporated herein by reference to exhibit 14 to Pre-Effective
Amendment No. 2 to the Registration Statement on Form N-2 filed January
24, 1992 (File No. 33-44152).

II-2

<PAGE>

ITEM 28. NUMBER OF HOLDERS OF SECURITIES

<TABLE>
<CAPTION>
NUMBER OF RECORD
HOLDERS AS OF
TITLE OF CLASS JANUARY 31, 1997
<S> <C>

Common Stock, par value
$0.001 per share 942

</TABLE>

ITEM 29. INDEMNIFICATION

Incorporated by reference to Item 3 of Part II to Pre-Effective
Amendment No. 2 to the Registration Statement on Form N-2 filed January 24, 1992
(File No. 33-44152).

ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

See "Management of the Fund" in the Prospectus.

Mitchell Hutchins, a Delaware corporation, is a registered investment
adviser and is wholly owned by PaineWebber, which in turn is wholly owned by
Paine Webber Group Inc. Mitchell Hutchins is primarily engaged in the investment
advisory business. Information as to executive officers and directors of
Mitchell Hutchins is included in its Form ADV filed with the SEC (Registration
number 801-13219) and is incorporated herein by reference.

ITEM 31. LOCATION OF ACCOUNTS AND RECORDS

The accounts and records of the Registrant are maintained at the office
of the Registrant at 1285 Avenue of the Americas, New York, New York 10019, at
the office of its custodian, Brown Brothers Harriman & Co. ("Brown Brothers") at
40 Water Street, Boston, Massachusetts 02109, and at the office of the Trust's
transfer agent, PNC Bank, National Association, c/o PFPC Inc., 103 Bellevue
Parkway, Wilmington, Delaware 19809.

ITEM 32. MANAGEMENT SERVICES

None.

II-3

<PAGE>

Item 33. UNDERTAKINGS

The Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933:

(ii) To reflect in the prospectus any facts or events
arising after the effective date of the
registration statement (or the most recent
post-effective amendment thereof) which,
individually or in the aggregate, represent a
fundamental change in the information set forth in
the registration statement; and

(iii) To include any material information with respect to
the plan of distribution not previously disclosed
in the registration statement or any material
change to such information in the registration
statement.

(2) That for the purpose of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497 under the Securities Act shall
be deemed to be part of this registration statement as of the time it
was declared effective.

(3) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

(4) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.

(5) To send by first class mail or other means designed to ensure
equally prompt delivery, within two business days of receipt of a
written or oral request, any Statement of Additional Information.

II-4

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York, on the 5th day of February, 1997.

STRATEGIC GLOBAL INCOME FUND, INC.

By: /s/ Gregory K. Todd
-------------------------------
Gregory K. Todd
Vice President and Assistant Secretary

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment has been signed below by the following persons in the
capacities and on the dates indicated:

<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- -----
<S> <C> <C>

/s/ Margo N. Alexander President and Director Feb. 5, 1997
- ---------------------------- (Chief Executive Officer)
Margo N. Alexander *

/s/ E. Garrett Bewkes, Jr. Director and Chairman Feb. 5, 1997
- ---------------------------- of the Board of Directors
E. Garrett Bewkes, Jr. *

/s/ Richard Q. Armstrong Director Feb. 5, 1997
- ----------------------------
Richard Q. Armstrong *

/s/ Richard Burt Director Feb. 5, 1997
- ----------------------------
Richard Burt *

/s/ Mary C. Farrell Director Feb. 5, 1997
- ----------------------------
Mary C. Farrell *

/s/ Meyer Feldberg Director Feb. 5, 1997
- ----------------------------
Meyer Feldberg *

/s/ George W. Gowen Director Feb. 5, 1997
- ----------------------------
George W. Gowen *

/s/ Frederic V. Malek Director Feb. 5, 1997
- ----------------------------
Frederic V. Malek *

/s/ Carl W. Schafer Director Feb. 5, 1997
- ----------------------------
Carl W. Schafer *

/s/ John R. Torell III Director Feb. 5, 1997
- ----------------------------
John R. Torell III *

/s/ Julian F. Sluyters Vice President and Treasurer Feb. 5, 1997
- ---------------------------- (Chief Financial and Accounting
Julian F. Sluyters Officer)

</TABLE>

II-5

<PAGE>

SIGNATURES (CONTINUED)

* Signature affixed by Robert A. Wittie pursuant to power of attorney dated
May 21, 1996 and incorporated by reference from Post-Effective Amendment
No. 25 to the Registration Statement of PaineWebber RMA Tax-Free Fund, SEC
File No. 2-78310, filed June 27, 1996.

<PAGE>

STRATEGIC GLOBAL INCOME FUND, INC.

EXHIBIT INDEX

DOCUMENT DESCRIPTION

EXHIBIT
a. Articles of Incorporation incorporated herein by reference
to exhibit 1 to the Registration Statement on Form N-2
filed November 22, 1991 (File No. 33-44152)
b. (i) Bylaws incorporated herein by reference to exhibit 2 to
the Registration Statement on Form N-2 filed November 22,
1991 (File No. 33-44152)
(ii) Amendment to Bylaws incorporated herein by reference to
exhibit b(ii) to the Registration Statement on Form N-2
filed January 27, 1995 (File No. 33-44152)
c. None
d. Inapplicable
e. Dividend Reinvestment Plan incorporated herein by
reference to exhibit 9(c) to Pre-Effective Amendment No. 2
to the Registration Statement on Form
N-2 filed January 24, 1992 (File No. 33-44152)
f. None
g. Investment Advisory and Administration Contract
incorporated herein by reference to exhibit 6(a) to
Pre-Effective Amendment No. 2 to the Registration
Statement on Form N-2 filed January 24, 1992 (File No.
33-44152)
h. None
i. None
j. Custodian Agreement incorporated herein by reference to
exhibit 9(a) to Pre-Effective Amendment No. 2 to the
Registration Statement on Form N-2 filed January 24, 1992
(File No. 33-44152)
k. Transfer Agency Agreement incorporated herein by reference
to exhibit 9(b) to Pre-Effective Amendment No. 2 to the
Registration Statement on Form N-2 filed January 24, 1992
(File No. 33-44152)
1. Opinion and consent of counsel previously filed as exhibit l to
Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-2 filed June 7, 1993 (File No.
33-60306)
m. None
n. Consent of Ernst & Young LLP, Independent Auditors (filed
herewith)
o. None
p. Letter of Investment Intent incorporated herein by
reference to exhibit 14 to Pre-Effective Amendment No. 2
to the Registration Statement on Form N-2 filed January
24, 1992 (File No. 33-44152)
q. None
r. Financial Data Schedule (filed herewith)

STATEMENT OF DIFFERENCES

The dagger symbol shall be expressed as......................... 'D'
The copyright symbol shall be expressed as...................... 'c'

<PAGE>

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions 'Financial
Highlights' in the Prospectus and 'Auditors' in the Statement of Additional
Information and to the incorporation by reference of our report dated
January 22, 1997, in this Registration Statement (Form N-2 33-60306) of
Strategic Global Income Fund, Inc.

ERNST & YOUNG LLP
------------------
ERNST & YOUNG LLP

New York, New York
February 3, 1997

<PAGE>

<ARTICLE> 6

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 314,142,694
<INVESTMENTS-AT-VALUE> 335,230,364
<RECEIVABLES> 10,779,162
<ASSETS-OTHER> 5,061,929
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 351,071,455
<PAYABLE-FOR-SECURITIES> 4,669,739
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 37,688,145
<TOTAL-LIABILITIES> 42,357,884
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<PAID-IN-CAPITAL-COMMON> 296,211,812
<SHARES-COMMON-STOCK> 21,407,128
<SHARES-COMMON-PRIOR> 21,407,128
<ACCUMULATED-NII-CURRENT> (1,303,221)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5,696,393)
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<ACCUM-APPREC-OR-DEPREC> 19,501,373
<NET-ASSETS> 308,713,571
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 27,620,625
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<EXPENSES-NET> (3,573,488)
<NET-INVESTMENT-INCOME> 24,047,137
<REALIZED-GAINS-CURRENT> 5,409,753
<APPREC-INCREASE-CURRENT> 18,385,656
<NET-CHANGE-FROM-OPS> 47,842,546
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (25,405,979)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (881,974)
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 21,554,593
<ACCUMULATED-NII-PRIOR> 559,478
<ACCUMULATED-GAINS-PRIOR> (10,728,029)
<OVERDISTRIB-NII-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,573,488
<AVERAGE-NET-ASSETS> 295,430,450
<PER-SHARE-NAV-BEGIN> 13.41
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<PER-SHARE-GAIN-APPREC> 1.12
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<PER-SHARE-NAV-END> 14.42
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

<PAGE>