<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC. SEMIANNUAL REPORT
July 15, 1997
Dear Shareholder,
We are pleased to present you with the semiannual report for Strategic Global
Income Fund, Inc. for the six months ended May 31, 1997.
GENERAL MARKET OVERVIEW
- --------------------------------------------------------------------------------
After a selloff in March, global bond markets recovered as the U.S. economy
slowed from the torrid pace established in the first quarter and growth in
Europe and Japan picked up only modestly.
Currency moves proved more significant for U.S. investors in foreign bonds.
The yen appreciated against all currencies as expanding Japanese trade surpluses
have become a concern for the U.S. government. On the other hand, most European
currencies weakened as uncertainties surrounding the European Economic and
Monetary Union (EMU) weighed heavily on market sentiment. Such currency moves
have produced negative U.S. dollar returns for most European bond markets
year-to-date.
PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
Strategic Global Income Fund's total return for the six months ended May 31,
1997 was 2.42% based on the Fund's net asset value and 5.82% based on the Fund's
share price on the New York Stock Exchange. During the six-month period, the
Fund made distributions totaling $0.57 per share--an annualized yield of 8.03%
based on the Fund's net asset value on May 31, 1997 and 9.21% based on the
Fund's market price on the same day. As of May 31, 1997, the Fund's net asset
value per share was $14.19, while its share price on the New York Stock Exchange
was $12.38.
The Fund's level of trading was relatively high during this semiannual period.
In investment grade markets, the Fund increased its exposure to New Zealand
government bonds (5.1% of net assets as of May 31, 1997), Hungarian Forints
(1.7%), Polish Zlotys (6.5%) and U.S. Treasuries (12.0%). In Latin America
(24.2%), the Fund moved holdings from Brazilian bonds (0.9%) to Argentinean
bonds (4.5%). The Fund also took advantage of several attractively priced new
issues by Mexican corporations, which appreciated sharply once trading started.
The level of hedging/currency management was also relatively high during the
period. As of May 31, 1997
STRATEGIC GLOBAL
INCOME FUND, INC.
FUND PROFILE
GOAL:
High current income,
secondarily capital
appreciation
PORTFOLIO MANAGER/ADVISER:
Stuart Waugh,
MH Asset Management Inc.
TOTAL NET ASSETS:
$303.8 million as of
May 31, 1997
DIVIDEND PAYMENT:
Monthly
1
<PAGE>
SEMIANNUAL REPORT
<TABLE>
<S> <C>
the Fund's exposure to European currency was 21%. (However, this exposure
varied widely throughout the period.) Recently, the Fund added a position in STRATEGIC GLOBAL
Yen-denominated deposits of approximately 5% of net assets. We believe Japan's INCOME FUND, INC.
growing trade surplus and stabilizing economy should contribute to a stronger
Yen over the next 12 months. Top Five Countries
(As of May 31, 1997)
OUTLOOK U.S. 12.0%
- -------------------------------------------------------------------------------- ------------------
Prospects for stable U.S. interest rates should have a positive impact on Mexico 11.4%
valuation of emerging market debt. With the exception of Brazil, domestic ----------------
fundamentals in the major Latin economies should continue to support valuations
of their external debt. On the other hand, if the U.S. experiences a resurgence United Kingdom 8.1%
of strong economic growth, the prospect of future Federal Reserve Board -------------
tightening increases dramatically and emerging market debt would likely
underperform. Poland 6.5%
----------
The victory of the Socialist party in the recent French election presents Italy 5.9%
complications for unifying Europe's currencies. The economic traditions of the -------
French Socialists appear to conflict with the German version of economic policy
under a unified currency. How the conflict resolves itself is at present
unclear. The Fund is underweighted in European bonds relative to the Salomon
Brothers World Government Bond Index; its holdings there consist primarily of UK
Gilts, German Bunds and Italian Government bonds. The new government in the UK
has made the Bank of England independent--which we believe should lower UK risk
premiums over time. Additionally, since the UK has never agreed to join the
currency union, Gilts are unlikely to be directly affected by conflicts over
unification. Italian bonds should benefit if unification goes ahead; if
unification fails, Italian economic activity should be weak enough to support
Italian bond yields around their current levels.
</TABLE>
Our ultimate objective in managing your investments is to help you
successfully meet your financial goals. We thank you for your continued support,
and welcome any comments or questions you may have.
Sincerely,
/s/ MARGO N. ALEXANDER /s/ STUART WAUGH
- ----------------------------------- -----------------------------------
MARGO N. ALEXANDER STUART WAUGH
President, Vice President and Portfolio
Mitchell Hutchins Manager, Strategic Global
Asset Management Inc. Income Fund, Inc.
2
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS MAY 31, 1997(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000)* MATURITY DATES INTEREST RATES VALUE
- ------------ -------------------- ----------------- --------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT SECURITIES--81.97%
ARGENTINA--4.52%
US$ 3,255 Republic of Argentina(1)...... 01/30/17 11.375% $ 3,560,156
US$ 7,750 Republic of Argentina......... 03/31/05 6.750+ 7,227,155
US$ 3,467 Republic of Argentina, DISC... 03/31/23 6.875+ 2,959,951
--------------
13,747,262
--------------
AUSTRALIA--5.20%
4,900 New South Wales Treasury
Corporation................. 12/01/01 12.000 4,483,281
13,539 Queensland Treasury
Corporation Global Issue.... 08/14/01 to 05/15/03 8.000 to 10.500 11,321,161
--------------
15,804,442
--------------
BRAZIL--0.87%
US$ 4,000 Federal Republic of Brazil,
PAR......................... 04/15/24 5.250# 2,635,000
--------------
BULGARIA--0.98%
US$ 4,390 Republic of Bulgaria,
IAB(1)...................... 07/28/11 6.563+ 2,987,966
--------------
CANADA--2.85%
3,820 Government of Canada.......... 09/01/01 7.000 2,900,373
6,562 Ontario Hydro Global.......... 04/11/08 8.600@ 2,216,193
14,000 Province of British Columbia
Residual.................... 01/09/12 8.590@ 3,533,278
--------------
8,649,844
--------------
CHILE--0.98%
US$ 3,000 Empresa Nacional de
Electricidad, S.A. ......... 02/01/37 7.325 2,961,486
--------------
DENMARK--1.84%
32,670 Government of Denmark......... 05/15/03 8.000 5,594,988
--------------
GERMANY--5.36%
24,853 Federal Republic of Germany... 07/22/02 to 11/11/04 7.125 to 8.000 16,280,510
--------------
HUNGARY--0.35%
203,000 Government of Hungary......... 04/12/99 16.500 1,075,511
--------------
ITALY--5.88%
28,775,000 Republic of Italy............. 07/15/98 to 04/01/04 8.500 to 10.500 17,871,228
--------------
MEXICO--9.75%
US$ 3,500 Altos Hornos de Mexico........ 04/30/02 to 04/30/04 11.375 to 11.875 3,718,125
US$ 3,000 Coca Cola Femsa............... 11/01/06 8.950 3,007,500
US$ 3,015 Copamex Industrias, S.A....... 04/30/04 11.375 3,248,662
US$ 3,000 Fifth Mexican Acceptance
Corporation(6).............. 12/15/98 8.000** 617,505
US$ 5,000 Mexican Multi Year Refinance
Loan Participation
(Salomon Brothers)(2)(6).... 03/20/05 6.438+ 4,700,000
US$13,100 United Mexican States,
DISC(3)..................... 12/31/19 6.352 to 6.867+ 12,076,628
US$ 3,000 United Mexican States,
PAR(4)...................... 12/31/19 6.250 2,261,250
--------------
29,629,670
--------------
</TABLE>
3
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000)* MATURITY DATES INTEREST RATES VALUE
- ------------ -------------------- ----------------- --------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT SECURITIES--(CONCLUDED)
MOROCCO--2.95%
US$ 5,000 Kingdom of Morocco Loan
Participation, Tranche A
(JP Morgan)(2)(6)........... 01/01/09 6.813%+ $ 4,478,150
US$ 5,000 Kingdom of Morocco Loan
Participation, Tranche A
(Salomon Brothers)(2)(6).... 01/01/09 6.813+ 4,478,150
--------------
8,956,300
--------------
NEW ZEALAND--5.10%
20,469 Government of New Zealand..... 02/15/01 to 03/15/02 8.000 to 10.000 15,485,793
--------------
PANAMA--3.97%
US$13,872 Republic of Panama, PDI(1).... 07/17/16 6.563+ 12,068,937
--------------
PHILIPPINES--1.59%
US$ 5,000 Republic of Philippines,
DCB......................... 12/01/09 6.375+ 4,818,750
--------------
POLAND--6.53%
33,751 Republic of Poland(6)......... 10/12/01 to 06/12/02 12.000 8,388,240
US$13,600 Republic of Poland, PDI(1).... 10/27/14 4.000# 11,458,000
--------------
19,846,240
--------------
SPAIN--2.99%
1,168,180 Government of Spain........... 04/30/99 to 03/25/00 9.400 to 12.250 9,077,829
--------------
UNITED KINGDOM--8.12%
13,732 United Kingdom Gilt........... 09/30/98 to 07/12/11 7.250 to 15.500 24,676,397
--------------
UNITED STATES--9.68%
29,130 U.S. Treasury Notes........... 05/31/99 to 02/28/01 5.625 to 8.500 29,415,248
--------------
VENEZUELA--2.46%
US$ 9,825 Republic of Venezuela,
PAR(1)(5)................... 03/31/20 6.750 7,479,281
--------------
Total Long-Term Debt Securities
(cost--$237,182,483)....................... 249,062,682
--------------
SHORT-TERM DEBT SECURITIES--5.25%
HUNGARY--1.34%
722,400 Government of Hungary......... 03/21/98 to 05/17/98 23.500 to 24.000 4,060,639
--------------
MEXICO--1.63%
45,393 United Mexican States Cetes... 02/04/98 23.400@ 4,972,265
--------------
UNITED STATES--2.28%
7,000 U.S. Treasury Bills(1)........ 08/28/97 4.950@ 6,918,631
--------------
Total Short-Term Debt Securities
(cost--$16,189,351)........................ 15,951,535
--------------
</TABLE>
4
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)* DATES RATES VALUE
- ------------ -------------------- ----------------- --------------
<C> <S> <C> <C> <C>
CERTIFICATES OF DEPOSIT--4.71%
JAPAN--4.71%
398,937 Morgan Guaranty Trust
Company..................... 06/30/97 0.350% $ 3,426,555
1,265,980 Swiss Bank Corp............... 06/23/97 0.360 10,873,782
--------------
Total Certificates of Deposit
(cost--$14,338,384)........................ 14,300,337
--------------
REPURCHASE AGREEMENT--1.58%
$ 4,794 Repurchase Agreement dated
05/30/97 with
Salomon Brothers, Inc.,
collaterized by $4,870,000
U.S. Treasury Notes, 5.875%
due 02/15/00;
proceeds: $4,796,177
(cost--$4,794,000).......... 06/02/97 5.450 4,794,000
--------------
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES
LOANED--13.68%
REPURCHASE AGREEMENT--4.51%
13,700 Repurchase Agreement dated
05/30/97 with
UBS, Inc., collaterized by
$12,232,000
U.S. Treasury Bonds, 8.125%
due 08/15/21;
proceeds: $13,706,302
(cost--$13,700,000)......... 06/02/97 5.520 13,700,000
--------------
<CAPTION>
NUMBER OF
SHARES
(000)
- ------------
<C> <S> <C> <C> <C>
MONEY MARKET FUNDS--9.17%
14,178 Liquid Assets Portfolio.................................................. 14,177,723
9,661 Prime Portfolio.......................................................... 9,661,307
4,030 TempFund Portfolio....................................................... 4,029,564
--------------
Total Money Market Funds (cost--$27,868,594)............................................ 27,868,594
--------------
Total Investments of Cash Collateral for Securities Loaned (cost--$41,568,594).......... 41,568,594
--------------
Total Investments (cost--$314,072,812)--107.19%......................................... 325,677,148
Liabilities in excess of other assets--(7.19)%.......................................... (21,839,189)
--------------
Net Assets--100.00%..................................................................... $ 303,837,959
--------------
--------------
</TABLE>
- -----------------
Note: The Portfolio of Investments is listed by the issuer's country of origin
* In local currency unless otherwise indicated
** Non-Income producing security
DCB--Debt Conversion Bond
DISC--Discount Bond
IAB--Interest Arrears Bonds
PAR--Par Bond
PDI--Past Due Interest Bond
+ Reflects rate at May 31, 1997 on variable coupon rate instruments
# Reflects rate at May 31, 1997 on step coupon rate instruments
@ Yield to maturity for zero coupon bonds and discounted securities
(1) Security, or portion thereof, was on loan at May 31, 1997
(2) Participation interest was acquired through the financial institution
indicated parenthetically
(3) With an additional 20,154,000 recoverable rights attached maturing on
06/30/03 with no market value
(4) With an additional 3,000,000 recoverable rights attached maturing on
06/30/03 with no market value
(5) With 49,125 oil warrants attached expiring on 04/15/20 with no market value
(6) Illiquid securities representing 7.46% of net assets
5
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS TO IN EXCHANGE MATURITY APPRECIATION
DELIVER FOR DATES (DEPRECIATION)
--------------- ---------------- -------------------- ---------------
<S> <C> <C> <C> <C> <C>
Australian Dollars....... 11,800,000 US$ 9,083,469 06/03/97 to 09/03/97 $ 88,798
Australian Dollars....... 6,700,000 US$ 5,228,010 07/10/97 124,339
Australian Dollars....... 4,970,000 US$ 3,866,660 08/13/97 81,599
Belgium Francs........... 204,059,200 US$ 6,690,466 09/30/97 907,757
Belgium Francs........... 170,000,000 US$ 5,537,820 07/14/97 720,294
British Pounds........... 3,355,202 US$ 5,425,093 06/09/97 (62,116)
British Pounds........... 2,850,000 US$ 4,690,245 08/26/97 35,739
Canadian Dollars......... 4,150,000 US$ 2,984,924 07/23/97 (20,253)
German Deutchemarks...... 8,240,000 US$ 5,248,742 01/21/98 428,196
Italian Liras............ 12,887,155,200 US$ 7,594,260 06/12/97 (7,092)
Italian Liras............ 9,500,000,000 US$ 5,698,108 06/30/97 97,030
Italian Liras............ 3,025,000,000 US$ 1,757,750 06/30/97 (25,366)
New Zealand Dollars...... 8,700,000 US$ 6,090,000 06/12/97 92,079
New Zealand Dollars...... 7,328,000 US$ 5,114,944 06/10/97 62,378
New Zealand Dollars...... 5,240,000 US$ 3,625,320 06/19/97 to 08/29/97 15,632
Spanish Pesetas.......... 1,155,408,325 US$ 8,633,664 08/20/97 to 02/10/98 660,048
U.S. Dollars............. 3,088,206 AUD 4,050,000 06/03/97 (1,902)
U.S. Dollars............. 6,195,138 BEF 204,059,200 09/30/97 (412,429)
U.S. Dollars............. 5,415,561 BEF 170,000,000 07/14/97 (598,035)
U.S. Dollars............. 3,033,293 CAD 4,150,000 07/23/97 (28,116)
U.S. Dollars............. 4,900,387 DEM 8,240,000 01/21/98 (79,841)
---------------
$ 2,078,739
---------------
---------------
</TABLE>
- ---------------
CURRENCY TYPE ABBREVIATIONS:
AUD--Australian Dollars
BEF--Belgium Francs
CAD--Canadian Dollars
DEM--German Deutchemarks
See accompanying notes to financial statements
6
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES MAY 31, 1997(UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(cost--$314,072,812).................. $ 325,677,148
Cash denominated in foreign currencies,
at value (cost--$15,046,387).......... 14,964,355
Receivables for investments and foreign
currency sold......................... 11,335,551
Interest receivable..................... 5,582,557
Gross unrealized appreciation on forward
foreign currency contracts............ 3,313,889
Other assets............................ 73,343
-------------
Total assets............................ 360,946,843
-------------
LIABILITIES:
Collateral for securities loaned........ 41,568,594
Payable for investments and foreign
currency purchased.................... 13,744,226
Gross unrealized depreciation on forward
foreign currency contracts............ 1,235,150
Payable to investment adviser and
administrator......................... 257,567
Accrued expenses and other
liabilities........................... 303,347
-------------
Total liabilities....................... 57,108,884
-------------
NET ASSETS:
Capital stock--$0.001 par value; total
authorized shares--100,000,000;
21,407,128 shares issued and
outstanding........................... 296,211,812
Distributions in excess of net
investment income..................... (1,643,949)
Accumulated net realized losses from
investments........................... (4,075,160)
Net unrealized appreciation of
investments, other assets, liabilities
and forward contracts denominated in
foreign currencies.................... 13,345,256
-------------
Net Assets.............................. $ 303,837,959
-------------
-------------
Net asset value per share............... $14.19
-------------
-------------
</TABLE>
See accompanying notes to financial statements
7
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
MAY 31, 1997
(UNAUDITED)
------------
<S> <C>
INVESTMENT INCOME:
Interest (net of foreign withholding
taxes)................................ $13,682,447
------------
EXPENSES:
Investment advisory and
administration........................ 1,518,397
Custody and accounting.................. 140,828
Reports and notices to shareholders..... 64,295
Legal and audit......................... 34,207
Transfer agency fees.................... 30,300
Directors' fees......................... 15,707
Amortization of organizational
expenses.............................. 14,185
Other expenses.......................... 3,193
------------
1,821,112
------------
NET INVESTMENT INCOME................... 11,861,335
------------
REALIZED AND UNREALIZED GAINS (LOSSES)
FROM INVESTMENT ACTIVITIES:
Net realized gains (losses) from:
Investment transactions............. 5,912,442
Foreign currency transactions....... (4,291,209)
Net change in unrealized
appreciation/depreciation of:
Investments......................... (9,483,334)
Other assets, liabilities and
forward contracts denominated in
foreign currencies.................. 3,327,217
------------
NET REALIZED AND UNREALIZED LOSSES FROM
INVESTMENT ACTIVITIES................. (4,534,884)
------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS....................... $ 7,326,451
------------
------------
</TABLE>
See accompanying notes to financial statements
8
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED FOR THE YEAR
MAY 31, 1997 ENDED
(UNAUDITED) NOVEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income................... $ 11,861,335 $ 24,047,137
Net realized gains from investment
transactions.......................... 5,912,442 5,031,635
Net realized gains (losses) from foreign
currency transactions................. (4,291,209) 378,118
Net change in unrealized
appreciation/depreciation of:
Investments........................... (9,483,334) 19,594,519
Other assets, liabilities and forward
contracts denominated in foreign
currencies............................ 3,327,217 (1,208,863)
------------------ ------------------
Net increase in net assets resulting
from operations....................... 7,326,451 47,842,546
------------------ ------------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income................... (12,202,063) (25,405,979)
Net realized gains from foreign currency
transactions.......................... -- (881,974)
------------------ ------------------
(12,202,063) (26,287,953)
------------------ ------------------
Net increase (decrease) in net assets... (4,875,612) 21,554,593
NET ASSETS:
Beginning of period..................... 308,713,571 287,158,978
------------------ ------------------
End of period........................... $ 303,837,959 $ 308,713,571
------------------ ------------------
------------------ ------------------
</TABLE>
See accompanying notes to financial statements
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Strategic Global Income Fund, Inc. (the "Fund") was incorporated in the state
of Maryland on November 15, 1991 and is registered with the Securities and
Exchange Commission as a closed-end, non-diversified management investment
company. Organizational costs have been deferred and are being amortized using
the straight line method over a period not to exceed 60 months from the date the
Fund commenced operations.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates. Following is a summary of
significant accounting policies:
VALUATION AND ACCOUNTING FOR INVESTMENTS--Securities which are listed on stock
exchanges are valued at the last sale price on the day the securities are being
valued or, lacking any sales on such day, at the last available bid price. In
cases where securities are traded on more than one exchange, the securities are
generally valued on the exchange designated as the primary market by Mitchell
Hutchins Asset Management Inc. ("Mitchell Hutchins"), an affiliate and wholly
owned subsidiary of PaineWebber Incorporated ("PaineWebber") and the investment
adviser and administrator of the Fund. Securities traded in the over-the-counter
("OTC") market and listed on The Nasdaq Stock Market Inc. ("Nasdaq") are valued
at the last trade price on Nasdaq prior to the time of valuation; other OTC
securities are valued at the last bid price available in the OTC market prior to
the time of valuation (other than short-term debt instruments that mature in 60
days or less). The amortized cost method of valuation generally is used to value
short-term debt instruments with sixty days or less remaining to maturity.
Securities and assets for which market quotations are not readily available
(including restricted securities subject to limitations as to their sale) are
valued at fair value as determined in good faith by a management committee under
the direction of the Fund's board of directors. All investments quoted in
foreign currencies will be valued weekly in U.S. dollars on the basis of foreign
currency exchange rates prevailing at the time such valuation is determined by
the Fund's custodian.
Foreign currency exchange rates are generally determined prior to the close of
the New York Stock Exchange ("NYSE"). Occasionally events affecting the value of
foreign investments and such exchange rates occur between the time at which they
are determined and the close of the NYSE, which will not be reflected in the
computation of the Fund's net asset value on that day. If events occur
materially affecting the value of such securities or currency exchange rates
during such time period, the securities will be valued at their fair value as
determined in good faith by or under the direction of the Fund's board of
directors.
REPURCHASE AGREEMENTS--The Fund's custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a mark-to-market basis to ensure that the value, including
accrued interest, is at least equal to the repurchase price. In the event of
default of the obligation to repurchase, the Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation. Under
certain circumstances, in the event of default or bankruptcy by the other party
to the agreement, realization and/ or retention of the collateral may be subject
to legal proceedings. The Fund occasionally participates in joint repurchase
agreement transactions with other funds managed by Mitchell Hutchins.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date. Realized gains and losses from investment
transactions and foreign exchange transactions are calculated using the
identified cost method. Interest income is recorded on an accrual basis.
Discounts are accreted as adjustments to interest income and the identified cost
of investments.
FOREIGN CURRENCY TRANSLATION--The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis: (1) Market value of investment securities, other assets and
liabilities--at the exchange rates prevailing at the end of the period. (2)
Purchases and sales of investment securities, income and expenses--at the rates
of exchange prevailing on the respective dates of such transactions.
Although the net assets and the market value of the Fund are presented at the
foreign exchange rates at the close of the period, the Fund does not generally
isolate the effect of fluctuations in foreign exchange rates from the effect of
the changes in market prices of securities. However, the Fund does isolate the
effect of fluctuations in foreign exchange rates when determining the gain or
loss upon the sale or maturity of foreign currency-denominated debt obligations
pursuant to U.S. federal income tax regulations. Certain foreign exchange
gains/losses included in realized and unrealized gains/losses are included in or
are a reduction of ordinary income in accordance with federal income tax
purposes.
FORWARD FOREIGN CURRENCY CONTRACTS--The Fund may enter into forward foreign
currency exchange contracts ("forward contracts") in connection with planned
purchases or sales of securities or to hedge the U.S. dollar value of portfolio
securities denominated in a particular currency.
The Fund has no specific limitation on the percentage of assets which may be
committed to such contracts. The Fund may enter into forward contracts or
maintain a net exposure to forward contracts only if (1) the consummation of the
contracts would not obligate the Fund to deliver an amount of foreign currency
in excess of the value of the position being hedged by such contracts or (2) the
Fund maintains cash, U.S. government securities or liquid securities in a
segregated account in an amount not less than the value of its total assets
committed to the consummation of the forward contracts and not covered as
provided in (1) above, as marked to market daily.
Risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their forward contracts and
from unanticipated movements in the value of foreign currencies relative to the
U.S. dollar.
Fluctuations in the value of forward contracts are recorded for book purposes
as unrealized gains or losses by the Fund. Realized gains and losses include net
gains and losses recognized by the Fund on contracts which have matured.
DIVIDENDS AND DISTRIBUTIONS--Dividends and distributions to shareholders are
recorded on the ex-dividend date. Dividends from net investment income and
distributions from realized capital gains are determined in accordance with
federal income tax regulations, which may differ from generally accepted
accounting principles. These "book/tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; temporary differences do not require
reclassifications.
CONCENTRATION OF RISK
Investing in securities of foreign issuers and currency transactions may
involve certain considerations and risks not typically associated with
investments in the United States. These risks include revaluation of currencies,
adverse
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
fluctuations in foreign currency values and possible adverse political, social
and economic developments, including those particular to a specific industry,
country or region, which could cause the securities and their markets to be less
liquid and prices more volatile than those of comparable U.S. companies and U.S.
government securities. These risks are greater with respect to securities of
issuers located in emerging market countries in which the Fund is authorized to
invest. The ability of the issuers of debt securities held by the Fund to meet
their obligations may be affected by economic and political developments
particular to specific industry, country or region.
INVESTMENT ADVISER AND ADMINISTRATOR
The Fund has an Investment Advisory and Administration Contract ("Advisory
Contract") with Mitchell Hutchins. In accordance with the Advisory Contract, the
Fund pays Mitchell Hutchins an investment advisory and administration fee, which
is accrued weekly and paid monthly, at the annual rate of 1.00% of the Fund's
average weekly net assets.
SECURITY LENDING
The Fund may lend up to 33 1/3% of its total assets to qualified institutions.
The loans are secured at all times by cash or U.S. government securities in an
amount at least equal to the market value of the securities loaned, plus accrued
interest, determined on a daily basis and adjusted accordingly. The Fund will
retain record ownership of loaned securities to exercise certain beneficial
rights, however, the Fund may bear the risk of delay in recovery of, or even
loss of rights in, the securities loaned should the borrower fail financially.
The Fund receives compensation, which is included in interest income, for
lending its securities from interest earned on the cash or U.S. government
securities held as collateral, net of fee rebates paid to the borrower plus
reasonable administrative and custody fees. The Fund's lending agent is
PaineWebber, who received $9,432 from the Fund for the six months ended May 31,
1997.
As of May 31, 1997, the Fund's custodian held cash and cash equivalents having
an aggregate value of $41,568,594 as collateral for portfolio securities loaned
having a market value of $38,521,752.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at May 31, 1997,
was substantially the same as the cost of securities for financial statement
purposes.
At May 31, 1997, the components of net unrealized appreciation of investments
were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of value
over cost)................................................ $ 18,462,701
Gross depreciation (investments having an excess of cost
over value)............................................... (6,858,365)
------------
Net unrealized appreciation of investments.................. $ 11,604,336
------------
------------
</TABLE>
For the six months ended May 31, 1997, aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $155,494,070 and
$103,964,226, respectively.
CAPITAL STOCK
There are 100,000,000 shares of $0.001 par value capital stock authorized. Of
the 21,407,128 shares outstanding at May 31, 1997, Mitchell Hutchins owned 8,351
shares.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
FEDERAL TAX STATUS
The Fund intends to distribute substantially all of its taxable income and to
comply with the other requirements of the Internal Revenue Code applicable to
regulated investment companies. Accordingly, no provision for federal income
taxes is required. In addition, by distributing during each calendar year
substantially all of its net investment income, capital gains and certain other
amounts, if any, the Fund intends not to be subject to a federal excise tax.
At November 30, 1996, the Fund had a capital loss carryforward of $5,111,512
which will expire by November 30, 2003. To the extent that such losses are used,
as provided in the regulations, to offset future net realized capital gains, it
is probable that the gains will not be distributed.
13
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD IS
PRESENTED BELOW:
<TABLE>
<CAPTION>
FOR THE
FOR THE PERIOD
SIX MONTHS FEBRUARY 3,
ENDED FOR THE YEARS ENDED NOVEMBER 30, 1992+ TO
MAY 31, 1997 --------------------------------------------- NOVEMBER 30,
(UNAUDITED) 1996 1995 1994 1993 1992
--------------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $14.42 $ 13.41 $ 13.07 $ 14.92 $ 13.47 $14.03
------ --------- --------- --------- --------- ------
Net investment income................... 0.55 1.12 1.19 1.08 1.12 1.02
Net realized and unrealized gains
(losses) from investment and foreign
currency............................... (0.21) 1.12 0.27 (1.80) 1.51 (0.82)
------ --------- --------- --------- --------- ------
Net increase (decrease) from investment
operations............................. 0.34 2.24 1.46 (0.72) 2.63 0.20
------ --------- --------- --------- --------- ------
Dividends from net investment income.... (0.57) (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 to
shareholders........................... (0.57) (1.23) (1.12) (1.13) (1.18) (0.73)
------ --------- --------- --------- --------- ------
Offering costs charged to capital....... -- -- -- -- -- (0.03)
------ --------- --------- --------- --------- ------
Net asset value, end of period.......... $14.19 $ 14.42 $ 13.41 $ 13.07 $ 14.92 $13.47
------ --------- --------- --------- --------- ------
------ --------- --------- --------- --------- ------
Market value, end of period............. $12.38 $ 12.25 $ 11.25 $ 11.13 $ 14.25 $12.88
------ --------- --------- --------- --------- ------
------ --------- --------- --------- --------- ------
Total investment return(1).............. 5.82% 20.80% 11.81% (14.53)% 19.92% (9.67)%
------ --------- --------- --------- --------- ------
------ --------- --------- --------- --------- ------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's)....... $303,838 $308,714 $287,159 $279,773 $319,496 $288,251
Expenses to average net assets.......... 1.20%* 1.21% 1.24% 1.27% 1.58%** 1.34%*
Net investment income to average net
assets................................. 7.81%* 8.14% 9.20% 8.01% 7.81%** 8.79%*
Portfolio turnover rate................. 46% 111% 121% 82% 111% 94%
</TABLE>
- -----------------
* Annualized.
** Includes 0.31% of interest expense relating to reverse repurchase agreement
transactions entered into during the fiscal year.
+ Commencement of operations.
(1) Total investment return on market value is calculated assuming a purchase
of one share at market value on the first day of each period reported,
reinvestment of all dividends and distributions in accordance with the
Dividend Reinvestment Plan, and a sale at market value on the last day of
each period reported. Total investment return for periods less than one year
has not been annualized. Total investment return does not reflect brokerage
commissions.
14
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
GENERAL INFORMATION
THE FUND
Strategic Global Income Fund, Inc. ("the Fund") is a non-diversified,
closed-end management investment company whose shares trade on the New York
Stock Exchange, Inc. ("NYSE"). The Fund's primary investment objective is to
achieve a high level of current income; capital appreciation is a secondary
objective in the selection of investments. The Fund's investment adviser and
administrator is Mitchell Hutchins Asset Management Inc., a wholly owned
subsidiary of PaineWebber Incorporated, which has approximately $44.1 billion in
assets under management as of June 30, 1997.
MANAGEMENT OF THE FUND
Stuart Waugh, a managing director and portfolio manager of Mitchell Hutchins
responsible for global fixed income and currency trading, is responsible for the
day-to-day management of the Fund's portfolio. He is also a vice president of
the Fund and of other investment companies for which Mitchell Hutchins serves as
investment adviser. Mr. Waugh has been employed by Mitchell Hutchins since 1983.
He is a portfolio manager of Global High Income Dollar Fund Inc., PaineWebber
Global Income Fund, PaineWebber Series Trust--Global Income Portfolio and
Strategic Income Fund Inc. with aggregate assets at June 30, 1997 of
approximately $1.5 billion. Other members of the Mitchell Hutchins' global
investing group provide input on market outlook, interest rate forecasts,
investment research and other considerations pertaining to the Fund's
investments.
SHAREHOLDER INFORMATION
The Fund's NYSE trading symbol is "SGL". Comparative net asset value and
market price information about the Fund is published weekly in THE WALL STREET
JOURNAL, THE NEW YORK TIMES and BARRON'S, as well as numerous other newspapers.
DISTRIBUTION POLICY
The Fund has established a Dividend Reinvestment Plan under which all
shareholders whose shares are registered in their own names, or in the name of
PaineWebber or its nominee, will have all dividends and other distributions on
their shares automatically reinvested in additional shares, unless such
shareholders elect to receive cash. Shareholders who elect to hold their shares
in the name of another broker or nominee should contact such broker or nominee
to determine whether, or how, they may participate in the Dividend Reinvestment
Plan. Additional shares acquired under the Dividend Reinvestment Plan will be
purchased in the open market, on the NYSE or otherwise, at prices that may be
higher or lower than the net asset value per share at the time of the purchase.
The Fund will not issue any new shares in connection with its Dividend
Reinvestment Plan.
The Transfer Agent will serve as agent for the shareholders in administering
the Plan. After the Fund declares a dividend or determines to make a capital
gain distribution, the Transfer Agent will, as agent for the participants,
receive the cash payment and use it to buy Fund shares in the open market, on
the NYSE or elsewhere, for the participants' accounts.
15
<PAGE>
- -----------------------------------------
DIRECTORS
E. Garrett Bewkes, Jr. Mary C. Farrell
CHAIRMAN Meyer Feldberg
Margo N. Alexander George W. Gowen
Richard Q. Armstrong Frederic V. Malek
Richard R. Burt Carl W. Schafer
PRINCIPAL OFFICERS
Margo N. Alexander Paul H. Schubert
PRESIDENT VICE PRESIDENT AND TREASURER
Victoria E. Schonfeld Stuart Waugh
VICE PRESIDENT VICE PRESIDENT
Dianne E. O'Donnell Dennis McCauley
VICE PRESIDENT AND SECRETARY VICE PRESIDENT
INVESTMENT ADVISER AND
ADMINISTRATOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
NOTICE IS HEREBY GIVEN IN ACCORDANCE WITH SECTION 23(c) OF THE INVESTMENT
COMPANY ACT OF 1940 THAT FROM TIME TO TIME THE FUND MAY PURCHASE SHARES OF ITS
COMMON STOCK IN THE OPEN MARKET AT MARKET PRICES.
THE FINANCIAL INFORMATION INCLUDED HEREIN IS TAKEN FROM THE RECORDS OF THE FUND
WITHOUT EXAMINATION BY INDEPENDENT AUDITORS WHO DO NOT EXPRESS AN OPINION
THEREON.
THIS REPORT IS SENT TO THE SHAREHOLDERS OF THE FUND FOR THEIR INFORMATION. IT IS
NOT A PROSPECTUS, CIRCULAR OR REPRESENTATION INTENDED FOR THE USE IN THE
PURCHASE OR SALE OF SHARES OF THE FUND OR OF ANY SECURITIES MENTIONED IN THIS
REPORT.
<PAGE>
[Logo]
- -C-1997 PaineWebber Incorporated
Member SIPC
MAY 31, 1997
SEMIANNUAL REPORT
STRATEGIC
GLOBAL
INCOME
FUND, INC.
