<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC. ANNUAL REPORT
January 15, 1998
Dear Shareholder,
We are pleased to present you with the annual report for Strategic Global Income
Fund, Inc. for the year ended November 30, 1997.
- --------------------------------------------------------------------------------
STRATEGIC GLOBAL INCOME FUND, INC.
FUND PROFILE
[GRAPHIC] GOAL: High current income; secondarily capital appreciation
[GRAPHIC] PORTFOLIO MANAGER/ADVISER:
Stuart Waugh, Mitchell Hutchins Asset Management Inc.
[GRAPHIC] TOTAL NET ASSETS:
$300.4 million
(as of 11/30/97)
[GRAPHIC] DIVIDEND PAYMENTS:
Monthly
- --------------------------------------------------------------------------------
GENERAL MARKET OVERVIEW
- --------------------------------------------------------------------------------
[GRAPHIC] Despite a sharp sell-off in October, emerging market debt
outperformed bonds in developed markets during the year ended November 30, 1997.
The J.P. Morgan Emerging Market Bond Index Plus returned 10.6% during the same
period, compared to the Salomon Brothers World Government Bond Index, which
returned -0.3%. The strong U.S. dollar substantially decreased the Salomon Index
returns. On a local currency (or currency-hedged) basis, the Index returned
9.1%, which compared favorably with the 7.6% return of the Lehman Brothers
Aggregate Bond Index.
PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
[GRAPHIC] The Fund's total return for the year ended November 30, 1997 was 5.3%
based on the Fund's net asset value and 6.7% based on the Fund's share price on
the New York Stock Exchange. During the year, the Fund made distributions
totaling $1.12 per share--an annualized yield of 8.0% based on the 11/30/97 net
asset value of $14.03, and 9.4% on the Fund's market price on the same day.
INVESTMENT STRATEGY
- --------------------------------------------------------------------------------
[GRAPHIC] Through most of the fiscal year, we maintained close to 30% of net
assets in non-investment grade emerging market debt. In October, we reduced that
exposure from roughly 28% to 19% and invested the proceeds in U.S. Treasury
securities. We sold emerging market debt not because of concerns over the Asian
currency crisis, but because the securities had reached our price targets. This
re-allocation helped the Fund as the Asian crisis hurt emerging market debt in
October.
We also are reducing the Fund's holdings in Australia, New Zealand and
Canada. Yields in these markets are historically low and because of the Asian
crisis we presently feel less comfortable in small markets of countries running
large current account deficits.
We maintained approximately one-third of the Fund's net assets in
1
<PAGE>
ANNUAL REPORT
European bonds during the second half of the fiscal year. These holdings were
primarily concentrated in U.K. Gilts and German government bonds. The general
convergence of yields among European government markets, which began with wide
differences in 1995, continued through the year. As a consequence, peripheral
markets such as Spain, Italy and Sweden presently offer little yield premium
over core European bond markets like Germany and the Netherlands. The reason is
that investors now discount a high probability of a broad currency unification
whereby bonds of most European governments will be paid in a common currency.
So, with the exception of the U.K. and Sweden (which will not participate in the
currency unification) European yields reflected no large differences. Therefore,
we invested primarily in Germany, which we perceive to offer the safest
prospective returns, and in U.K. Gilts, which still offered some yield premium
compared to the rest of Europe (although this premium was reduced in the second
half of the year). While the Fund continues to hold some small positions in
Italian, Spanish and Swedish bonds, we will be less active in these government
markets if currency unification goes ahead as presently envisioned.
We managed the Fund's currency exposure actively over the second half of
the year, varying total exposure between 20% and 33% of net assets. The Fund's
primary concentrations were in German marks and British pounds. In managing
currency risk, we will continue to base our decisions on an evolving balance of
macro-economic and technical developments.
OUTLOOK
- --------------------------------------------------------------------------------
[GRAPHIC] The available evidence presents no indication of upward price
pressures globally. This lack of inflation is supportive of present valuations
in global treasury markets. However, valuations are likely to be influenced by
the Asian crisis's cyclical impact.
Fears over default or devaluation in Asia have engendered risk aversion in
the global fixed income markets. Together with prospective deflationary
pressures emanating from the Asian devaluations, this risk aversion has
generated strong appreciation in developed world treasury markets. So, while the
Asian crisis created some deflationary/recessionary impulses on the one hand, it
has also produced some stimulus to economic activity in the form of lower market
rates in the OECD countries (Organization for Economic Cooperation and
Development). Particularly in the U.S., the interplay between these
countervailing forces will be highly relevant for bond prices.
Tight monetary policy, strong relative growth domestically and strong
support from the U.S. Treasury all have engendered a strong appreciation in the
U.S. dollar in the last two years. While these influences are not diminishing,
other forces may come into play this year. Especially important is the large and
2
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC. ANNUAL REPORT
growing current account deficit in the U.S. The rest of the world and especially
the Asian economies are highly competitive now. When foreigners no longer want
to finance this current account deficit, the dollar appreciation will end.
On the positive side, emerging market debt generally should benefit from:
- - Continued low interest rates and benign monetary policy in the Group of 7
industrialized nations.
- - Continued domestic support for economic reform among government leaders in
the emerging markets.
- - Current account improvement and near-term economic stabilization in Asia.
On the negative side, emerging market debt is vulnerable to:
- - Continued deterioration in commodity prices (especially oil for Mexico,
Venezuela and Russia).
- - Deterioration in current accounts of most Latin American countries.
- - Heavy external financing needs of Argentina and Brazil in 1998, even after
the recent measures Brazil adopted to tighten fiscal and monetary policy.
- - Liquidity/solvency problems in the Asian emerging market banking sectors.
We are evaluating when to increase our emerging market exposure again. In
addition to increasing the Fund's yield, emerging market debt could offer highly
competitive returns if world growth and commodity prices stabilize. Any
re-allocation to emerging market debt is likely to come from U.S. Treasury
securities or German and Dutch government bonds.
Our ultimate objective in managing your investment 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 Portfolio Manager
Mitchell Hutchins Strategic Global Income Fund Inc.
Asset Management Inc.
This letter is intended to help shareowners understand how the Fund performed
during the past year, and reflects our views at the time we are writing this
report. Of course, these views may change in response to changing circumstances.
We encourage you to consult your investment executive regarding your personal
investment program.
3
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY
(000) DATES INTEREST RATES VALUE
- ------------- -------------------- ----------------- -------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT SECURITIES--77.49%
ARGENTINA--0.06%
US$ 202 Republic of Argentina......... 03/31/05 6.688%+ $ 178,416
-------------
AUSTRALIA--1.35%
4,900 New South Wales Treasury
Corporation................. 12/01/01 12.000 4,056,581
-------------
BULGARIA--1.04%
US$ 4,390 Republic of Bulgaria,
IAB(1)...................... 07/28/11 6.688+ 3,127,875
-------------
CANADA--1.39%
14,000 Province of British Columbia
Residual.................... 01/09/12 8.590@ 4,174,390
-------------
CHILE--1.00%
US$ 3,000 Empresa Nacional de
Electricidad, S.A........... 02/01/37 7.325 3,000,699
-------------
GERMANY--10.11%
49,043 Federal Republic of Germany... 07/22/02 to 07/04/07 6.000 to 8.000 30,371,964
-------------
ITALY--2.03%
9,475,000 Republic of Italy............. 02/01/99 to 04/01/04 8.500 to 9.500 6,101,870
-------------
MEXICO--6.09%
US$ 2,536 Coca Cola Femsa, S.A. de
C.V......................... 11/01/06 8.950 2,574,040
US$ 3,000 Fifth Mexican Acceptance
Corporation(6).............. 12/15/98 8.000** 165,583
US$ 839 Hylsa......................... 09/15/07 9.250 826,415
US$ 4,688 Mexican Multi Year Refinance
Loan Participation (Salomon
Brothers)(2)(6)............. 03/20/05 6.625+ 4,271,484
US$ 8,787 United Mexican States,
DISC(3)..................... 12/31/19 6.617 to 6.693+ 8,007,154
US$ 3,000 United Mexican States,
PAR(4)...................... 12/31/19 6.250 2,433,750
-------------
18,278,426
-------------
MOROCCO--2.19%
US$ 2,755 Kingdom of Morocco Loan
Participation, Tranche A
(JP Morgan)(2)(6)........... 01/01/09 6.656+ 2,334,863
US$ 5,000 Kingdom of Morocco Loan
Participation, Tranche A
(Salomon Brothers)(2)(6).... 01/01/09 6.656+ 4,237,500
-------------
6,572,363
-------------
NETHERLANDS--2.42%
12,770 Government of Netherlands..... 09/15/01 8.750 7,270,799
-------------
NEW ZEALAND--4.19%
18,253 Government of New
Zealand(1).................. 03/15/02 10.000 12,569,513
-------------
PANAMA--1.40%
US$ 4,562 Republic of Panama............ 09/30/27 8.875 4,208,445
-------------
</TABLE>
4
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY
(000) DATES INTEREST RATES VALUE
- ------------- -------------------- ----------------- -------------
<C> <S> <C> <C> <C>
</TABLE>
LONG-TERM DEBT SECURITIES--(CONCLUDED)
<TABLE>
<C> <S> <C> <C> <C>
POLAND--5.02%
37,301 Republic of Poland(6)......... 10/12/01 to 02/12/03 12.000% $ 7,784,890
US$ 8,600 Republic of Poland, PDI....... 10/27/14 4.000# 7,288,500
-------------
15,073,390
-------------
RUSSIA--0.90%
US$ 3,000 City of St. Petersburg........ 06/18/02 9.500 2,715,000
-------------
SPAIN--1.51%
584,180 Government of Spain........... 03/25/00 12.250 4,532,150
-------------
SWEDEN--2.27%
43,500 Kingdom of Sweden............. 06/15/01 to 05/05/03 10.250 to 13.000 6,801,562
-------------
UNITED KINGDOM--9.05%
13,775 United Kingdom Gilt........... 07/14/00 to 12/07/15 8.000 to 13.000 27,194,381
-------------
UNITED STATES--22.47%
NZD 2,325 Federal National Mortgage
Association................. 06/20/02 7.250 1,421,815
6,000 Ford Motor Credit
Corporation................. 09/10/02 6.550 6,009,612
13,900 U.S. Treasury Inflation Index
Notes....................... 01/15/07 3.375 13,952,521
44,670 U.S. Treasury Notes(1)........ 05/31/99 to 05/15/07 6.500 to 6.750 46,119,357
-------------
67,503,305
-------------
VENEZUELA--3.00%
US$ 5,608 Republic of Venezuela......... 09/15/27 9.250 4,907,000
US$ 4,825 Republic of Venezuela,
PAR(1)(5)................... 03/31/20 6.750 4,113,312
-------------
9,020,312
-------------
Total Long-Term Debt Securities
(cost--$233,335,909)......................... 232,751,441
-------------
SHORT-TERM DEBT SECURITIES--3.93%
DENMARK--2.28%
44,167 Government of Denmark......... 11/15/98 9.000 6,855,866
-------------
UNITED STATES--1.65%
5,000 U.S. Treasury Bills........... 01/22/98 5.160@ 4,962,650
-------------
Total Short-Term Debt Securities
(cost--$11,839,292).......................... 11,818,516
-------------
REPURCHASE AGREEMENTS--16.98%
12,745 Repurchase Agreement dated
11/28/97 with Citicorp
Securities, Inc.,
collateralized by
$10,680,000 U.S. Treasury
Bonds, 7.625% due 02/15/25
(value $13,002,900);
proceeds: $12,751,033....... 12/01/97 5.680 12,745,000
12,745 Repurchase Agreement dated
11/28/97 with Dresdner Bank
AG, collateralized by
$11,951,000 U.S. Treasury
Bonds, 6.625% due 02/15/27
(value $12,999,939);
proceeds: $12,751,033....... 12/01/97 5.680 12,745,000
12,748 Repurchase Agreement dated
11/28/97 with First Chicago
Corp., collateralized by
$13,360,000 U.S. Treasury
Bills, due 05/28/98 (value
$13,005,960); proceeds:
$12,754,055................. 12/01/97 5.700 12,748,000
</TABLE>
5
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- ------------- -------------------- ----------------- -------------
<C> <S> <C> <C> <C>
</TABLE>
REPURCHASE AGREEMENTS--(CONCLUDED)
<TABLE>
<C> <S> <C> <C> <C>
$ 12,745 Repurchase Agreement dated
11/28/97 with Salomon
Brothers, Inc.,
collateralized by
$12,801,000 U.S. Treasury
Notes, 5.875% due 02/28/99
(value $13,006,200);
proceeds: $12,751,054....... 12/01/97 5.700% $ 12,745,000
-------------
Total Repurchase Agreements
(cost--$50,983,000).......................... 50,983,000
-------------
Total Investments Before Investments of Cash
Collateral for Securities Loaned
(cost--$296,158,201)......................... 295,552,957
-------------
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED--7.22%
REPURCHASE AGREEMENTS--2.48%
5,000 Repurchase Agreement dated
11/28/97 with B.T. Alex
Brown, collateralized by
$4,420,000 U.S. Treasury
Bonds, 7.500% due 11/15/16
(value $5,100,680);
proceeds: $5,002,375........ 12/01/97 5.700 5,000,000
-------------
2,453 Repurchase Agreement dated
11/28/97 with Union Bank
Switzerland, Inc.,
collateralized by $2,018,000
U.S. Treasury Bonds, 10.000%
due 05/15/10 (value
$2,502,320); proceeds:
$2,454,165.................. 12/01/97 5.700 2,453,000
-------------
Total Repurchase Agreements
(cost--$7,453,000)........................... 7,453,000
-------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- -------------
<C> <S> <C>
MONEY MARKET FUNDS--4.74%
12,786,370 Liquid Assets Portfolio....... 12,786,370
1,354,798 Prime Portfolio............... 1,354,798
90,401 TempFund Portfolio............ 90,401
-------------
Total Money Market Funds (cost--$14,231,569)... 14,231,569
-------------
Total Investments of Cash Collateral for
Securities Loaned (cost--$21,684,569)........ 21,684,569
-------------
Total Investments
(cost--$317,842,770)--105.62%................ 317,237,526
Liabilities in excess of other
assets--(5.62)%.............................. (16,868,863)
-------------
Net Assets--100.00%............................ $ 300,368,663
-------------
-------------
</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
DISC Discount Bond
IAB Interest Arrears Bonds
NZD New Zealand Dollars
PAR Par Bond
PDI Past Due Interest Bond
+ Reflects rate at November 30, 1997 on variable coupon rate instruments
# Reflects rate at November 30, 1997 on step up coupon rate instruments
@ Yield to maturity for zero coupon bonds and discounted securities
(1) Security, or portion thereof, was on loan at November 30, 1997
(2) Participation interest was acquired through the financial institution
indicated parenthetically
(3) With an additional 12,826,000 recoverable rights 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 24,125 oil warrants attached expiring on 04/15/20 with no market value
(6) Illiquid securities representing 6.26% of net assets
6
<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>
01/27/98 to
Australian Dollars............ 10,115,000 US$ 7,499,234 02/27/98 $ 590,386
Australian Dollars............ 6,700,000 US$ 4,877,935 12/10/97 302,839
Australian Dollars............ 3,000,000 US$ 2,109,300 03/03/98 56,024
12/18/97 to
British Pounds................ 10,771,450 US$ 17,601,850 01/12/98 (571,035)
British Pounds................ 3,850,000 US$ 6,183,100 01/05/98 (319,553)
Czech Korunas................. 164,916,461 US$ 4,725,443 04/29/98 (62,377)
German Deutschemarks.......... 8,240,000 US$ 5,248,742 01/21/98 577,275
German Deutschemarks.......... 3,600,000 US$ 2,042,669 12/22/97 1,737
German Deutschemarks.......... 3,492,000 US$ 1,980,827 12/22/97 1,123
Italian Lira.................. 12,525,000,000 US$ 7,073,434 02/27/98 (170,661)
12/15/97 to
New Zealand Dollars........... 11,940,000 US$ 7,660,074 12/19/97 300,285
New Zealand Dollars........... 7,328,000 US$ 4,587,328 01/13/98 75,272
New Zealand Dollars........... 2,000,000 US$ 1,236,000 01/14/98 4,115
Polish Zloties................ 19,550,000 US$ 5,124,240 03/02/98 (403,043)
Spanish Pesetas............... 292,574,254 US$ 2,098,209 02/10/98 136,553
Swedish Kronas................ 75,158,403 US$ 9,897,252 01/14/98 170,352
U.S. Dollars.................. 5,927,480 AUD 8,115,000 02/27/98 (386,150)
U.S. Dollars.................. 4,631,107 AUD 6,700,000 12/10/97 (56,011)
U.S. Dollars.................. 8,233,806 CAD 11,720,000 12/05/97 (2,152)
U.S. Dollars.................. 4,782,405 CZK 164,916,461 04/29/98 5,415
U.S. Dollars.................. 4,900,387 DEM 8,240,000 01/21/98 (228,920)
U.S. Dollars.................. 2,067,183 DEM 3,600,000 12/22/97 (26,251)
U.S. Dollars.................. 2,024,348 DEM 3,492,000 12/22/97 (44,644)
U.S. Dollars.................. 2,022,790 ESP 292,574,254 02/10/98 (61,134)
U.S. Dollars.................. 6,421,030 GBP 3,850,000 01/05/98 81,623
U.S. Dollars.................. 3,672,525 GBP 2,300,000 12/18/97 212,177
U.S. Dollars.................. 4,693,398 ITL 8,037,000,000 02/27/98 (41,419)
U.S. Dollars.................. 5,323,929 PLN 19,550,000 03/02/98 203,354
U.S. Dollars.................. 3,172,823 SEK 25,093,403 01/14/98 71,440
-------------
$ 416,620
-------------
-------------
</TABLE>
- -----------------
CURRENCY TYPE ABBREVIATIONS:
AUD--Australian Dollars
CAD--Canadian Dollars
CZK--Czech Korunas
DEM--German Deutschemarks
ESP--Spanish Pesetas
GBP--British Pounds
ITL--Italian Lira
PLN--Polish Zloties
SEK--Swedish Kronas
7
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
INVESTMENTS BY TYPE OF ISSUER
<TABLE>
<CAPTION>
PERCENTAGE OF NET
ASSETS
----------------------
LONG-TERM SHORT-TERM
--------- ----------
<S> <C> <C>
Government and other public issuers......................... 73.36% 3.93%
Repurchase agreements....................................... -- 16.98
Investments of cash collateral for securities loaned........ -- 7.22
Other....................................................... 4.13 --
--------- -----
77.49% 28.13%
--------- -----
--------- -----
</TABLE>
See accompanying notes to financial statements
8
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES NOVEMBER 30, 1997
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(cost--$245,175,201).................. $ 244,569,957
Repurchase Agreements
(cost--$50,983,000)................... 50,983,000
Investments of Cash Collateral for
Securities Loaned
(cost--$21,684,569)................... 21,684,569
Cash denominated in foreign currencies,
at value (cost--$5,643,927)........... 5,643,927
Receivables for investments and foreign
currency sold......................... 9,804,042
Interest receivable..................... 5,575,922
Unrealized appreciation on forward
foreign currency contracts............ 2,789,970
Other assets............................ 21,538
-------------
Total assets............................ 341,072,925
-------------
LIABILITIES:
Collateral for securities loaned........ 21,684,569
Payables for investments and foreign
currency purchased.................... 16,068,260
Unrealized depreciation on forward
foreign currency contracts............ 2,373,350
Payable to affiliates................... 254,673
Accrued expenses and other
liabilities........................... 323,410
-------------
Total liabilities....................... 40,704,262
-------------
NET ASSETS:
Capital stock--$0.001 par value; total
authorized shares--100,000,000;
21,407,128 shares issued and
outstanding........................... 296,201,007
Distributions in excess of net
investment income..................... (2,120,700)
Accumulated net realized gains from
investment transactions............... 6,629,687
Net unrealized depreciation of
investments, other assets, liabilities
and forward contracts denominated in
foreign currencies.................... (341,331)
-------------
Net assets.............................. $ 300,368,663
-------------
-------------
Net asset value per share............... $14.03
-------------
-------------
</TABLE>
See accompanying notes to financial statements
9
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
NOVEMBER 30,
1997
------------
<S> <C>
INVESTMENT INCOME:
Interest (net of foreign withholding
taxes)................................ $26,941,222
------------
EXPENSES:
Investment advisory and
administration........................ 3,049,141
Custody and accounting.................. 290,353
Reports and notices to shareholders..... 150,867
Legal and audit fees.................... 81,217
Transfer agency fees.................... 63,321
Directors' fees......................... 12,395
Amortization of organizational
expenses.............................. 12,633
Other expenses.......................... 7,065
------------
3,666,992
------------
NET INVESTMENT INCOME................... 23,274,230
------------
REALIZED AND UNREALIZED GAINS (LOSSES)
FROM INVESTMENT ACTIVITIES:
Net realized gains (losses) from:
Investment transactions............. 15,899,310
Foreign currency transactions....... (3,753,279)
Net change in unrealized
appreciation/depreciation of:
Investments......................... (21,692,914)
Other assets, liabilities and
forward contracts denominated in
foreign currencies.................. 1,850,210
------------
NET REALIZED AND UNREALIZED LOSS FROM
INVESTMENT ACTIVITIES................. (7,696,673)
------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS....................... $15,577,557
------------
------------
</TABLE>
See accompanying notes to financial statements
10
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
NOVEMBER 30,
---------------------------------------
1997 1996
------------------ ------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income................... $ 23,274,230 $ 24,047,137
Net realized gains from investment
transactions.......................... 15,899,310 5,031,635
Net realized gains (losses) from foreign
currency transactions................. (3,753,279) 378,118
Net change in unrealized
appreciation/depreciation of:
Investments........................... (21,692,914) 19,594,519
Other assets, liabilities and forward
contracts denominated in foreign
currencies............................ 1,850,210 (1,208,863)
------------------ ------------------
Net increase in net assets resulting
from operations....................... 15,577,557 47,842,546
------------------ ------------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income................... (20,467,355) (25,405,979)
Net realized gains from investment
transactions.......................... (3,455,110) --
Net realized gains from foreign currency
transactions.......................... -- (881,974)
------------------ ------------------
(23,922,465) (26,287,953)
------------------ ------------------
Net increase (decrease) in net assets... (8,344,908) 21,554,593
NET ASSETS:
Beginning of year....................... 308,713,571 287,158,978
------------------ ------------------
End of year............................. $ 300,368,663 $ 308,713,571
------------------ ------------------
------------------ ------------------
</TABLE>
See accompanying notes to financial statements
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 OF 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 asset management 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 sixty 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 and/or illiquid securities subject to limitations as to
their sale) are valued at fair value as determined in good faith under the
direction of the Fund's board of directors ("board"). All investments quoted in
foreign currencies will be valued weekly in U.S. dollars on the basis of the
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 board.
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.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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
regulations.
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
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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. At November 30, 1997, the Fund owed Mitchell Hutchins
$252,072 in investment advisory and administration fees.
SECURITY LENDING
The Fund may lend securities 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. For the year ended
November 30, 1997, PaineWebber earned $40,149 as the Fund's lending agent. At
November 30, 1997, the Fund owed PaineWebber $2,601 for security lending.
As of November 30, 1997, the Fund's custodian held cash and cash equivalents
having an aggregate value of $21,684,569 as collateral for portfolio securities
loaned having a market value of $19,938,157.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at November 30,
1997, was substantially the same as the cost of securities for financial
statement purposes.
At November 30, 1997, the components of net unrealized depreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of value
over cost)................................................ $ 9,814,262
Gross depreciation (investments having an excess of cost
over value)............................................... (10,419,506)
------------
Net unrealized depreciation of investments.................. $ (605,244)
------------
------------
</TABLE>
For the year ended November 30, 1997, aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $339,555,831 and
$323,406,167, respectively.
CAPITAL STOCK
There are 100,000,000 shares of $0.001 par value capital stock authorized. Of
the 21,407,128 shares outstanding at November 30, 1997, Mitchell Hutchins owned
8,729 shares.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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.
To reflect reclassifications arising from permanent "book/tax" differences for
the year ended November 30, 1997, undistributed net investment income was
decreased by $3,624,354, accumulated net realized gains from investment
transactions were increased by $3,635,159 and capital stock was decreased by
$10,805. Permanent book/tax differences are primarily attributable to foreign
currency gains/losses.
15
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each year is
presented below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED NOVEMBER 30,
---------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year...... $ 14.42 $ 13.41 $ 13.07 $ 14.92 $ 13.47
--------- --------- --------- --------- ---------
Net investment income................... 1.09 1.12 1.19 1.08 1.12
Net realized and unrealized gains
(losses) from investments and foreign
currency............................... (0.36) 1.12 0.27 (1.80) 1.51
--------- --------- --------- --------- ---------
Net increase (decrease) from investment
operations............................. 0.73 2.24 1.46 (0.72) 2.63
--------- --------- --------- --------- ---------
Dividends from net investment income.... (0.96) (1.19) (1.12) (0.82) (1.12)
Distributions from net realized gains
from investment and foreign currency
transactions........................... (0.16) (0.04) -- (0.15) (0.06)
Distribution from paid in capital....... -- -- -- (0.16) --
--------- --------- --------- --------- ---------
Total dividends and distributions to
shareholders........................... (1.12) (1.23) (1.12) (1.13) (1.18)
--------- --------- --------- --------- ---------
Net asset value, end of year............ $ 14.03 $ 14.42 $ 13.41 $ 13.07 $ 14.92
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Market value, end of year............... $ 11.94 $ 12.25 $ 11.25 $ 11.13 $ 14.25
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total investment return(1).............. 6.67% 20.80% 11.81% (14.53)% 19.92%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratios/Supplemental Data:
Net assets, end of year (000's)......... $300,369 $308,714 $287,159 $279,773 $319,496
Expenses to average net assets.......... 1.20% 1.21% 1.24% 1.27% 1.58%**
Net investment income to average net
assets................................. 7.63% 8.14% 9.20% 8.01% 7.81%**
Portfolio turnover rate................. 134% 111% 121% 82% 111%
</TABLE>
- -----------------
** Includes 0.31% of interest expense relating to reverse repurchase agreement
transactions entered into during the fiscal year.
(1) Total investment return is calculated assuming a purchase of one share at
market value on the first day of each year reported, reinvestment of all
dividends and distributions in accordance with the Fund's Dividend
Reinvestment Plan, and a sale at market value on the last day of each year
reported. Total investment return does not reflect brokerage commissions.
16
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Strategic Global Income Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Strategic Global Income Fund, Inc., including the portfolio of investments, as
of November 30, 1997, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned at November 30, 1997, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Strategic Global Income Fund, Inc. at November 30, 1997 and the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the indicated periods, in conformity with generally accepted accounting
principles.
[ERNST & YOUNG SIGNATURE]
New York, New York
January 23, 1998
17
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
TAX INFORMATION (UNAUDITED)
We are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of the Fund's fiscal year end (November
30, 1997) as to the federal tax status of distributions received by shareholders
during such fiscal year. Accordingly, we are advising you that the Fund made
distributions during the fiscal year of $0.9561 derived from net investment
income (taxable as ordinary income) and $0.1614 from long term capital gains.
Dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need not
be reported as taxable income. Some retirement trusts (e.g., corporate, Keogh
and 403(b)(7) plans) may need this information for their annual information
reporting.
Since the Fund's fiscal year is not the calendar year, another notification
will be sent in respect of calendar 1997. The second notification, which will
reflect the amount to be used by calendar year taxpayers on their federal income
tax returns, will be made in conjunction with Form 1099 DIV and will be mailed
in January 1998. Shareholders are advised to consult their own tax advisers with
respect to the tax consequences of their investment in the Fund.
18
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
GENERAL INFORMATION(UNAUDITED)
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 $47.5 billion in
assets under management as of December 31, 1997.
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.
The Fund's board has amended the Fund's investment policy of normally
investing at least 65% of its total assets in certain types of securities rated
at least BBB by Standard & Poor's, Baa by Moody's Investors Service or, if not
rated by them, determined by Mitchell Hutchins to be of comparable quality. This
investment policy now provides that at least 65% of the Fund's total assets will
consist of such securities or receivables from the sale of such securities.
An annual meeting of shareholders of the Fund was held on March 27, 1997. At
the meeting, Margo N. Alexander, Richard Q. Armstrong, E. Garrett Bewkes, Jr.,
Richard R. Burt, Mary C. Farrell, Meyer Feldberg, George W. Gowen, Frederic V.
Malek, and Carl W. Schafer, were elected to serve as directors until the next
annual meeting of shareholders, or until their successors are elected and
qualified; and Ernst & Young LLP was ratified as independent auditors for the
Fund for the fiscal year ended November 30, 1997.
PROPOSAL 1
<TABLE>
<CAPTION>
SHARES SHARES
VOTED WITHHOLD
FOR AUTHORITY
---------------- --------------
<S> <C> <C>
1. To vote for or against the election of:
Margo N. Alexander.............................................................................. 19,125,908 1,035,973
Richard Q. Armstrong............................................................................ 19,133,616 1,028,265
E. Garrett Bewkes, Jr........................................................................... 19,121,891 1,039,990
Richard R. Burt................................................................................. 19,130,293 1,031,588
Mary C. Farrell................................................................................. 19,135,703 1,026,178
Meyer Feldberg.................................................................................. 19,135,075 1,026,806
George W. Gowen................................................................................. 19,113,933 1,047,948
Frederic V. Malek............................................................................... 19,124,222 1,037,659
Carl W. Schafer................................................................................. 19,130,888 1,030,993
</TABLE>
19
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
GENERAL INFORMATION-(CONCLUDED)
PROPOSAL 2
<TABLE>
<CAPTION>
SHARES SHARES SHARES
VOTED WITHHOLD VOTED
FOR AUTHORITY AGAINST
----------- ----------- ---------
<S> <C> <C> <C>
2. Ratification of the selection of Ernst & Young LLP as independent auditors for the fiscal
year ending November 30, 1997................................................................ 19,319,978 28,331 713,572
</TABLE>
(BROKER NON-VOTES AND ABSTENTIONS ARE INCLUDED WITHIN THE "SHARES WITHHOLD
AUTHORITY" TOTALS.)
DISTRIBUTION POLICY
The Fund's Board of Directors has established a Dividend Reinvestment Plan
(the "Plan") under which all common stockholders 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 of common stock, unless such common stockholders elect to
receive cash. Common stockholders 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 Plan. The ability of such
stockholders to participate in the Plan may change if their shares are
transferred into the name of another broker or nominee.
A stockholder may elect not to participate in the Plan or may terminate
participation in the Plan at any time without penalty, and stockholders who have
previously terminated participation in the Plan may rejoin it at any time.
Changes in elections must be made in writing to the Fund's transfer agent and
should include the stockholder's name and address as they appear on that share
certificate or in the transfer agent's records. An election to terminate
participation in the Plan, until such election is changed, will be deemed an
election by a stockholder to take all subsequent distributions in cash. An
election will be effective only for distributions declared and having a record
date at least ten days after the date on which the election is received.
Additional shares of common stock acquired under the Plan will be purchased in
the open market, on the NYSE, at prices that may be higher or lower than the net
asset value per share of the common stock at the time of the purchase. The
number of shares of common stock purchased with each dividend will be equal to
the result obtained by dividing the amount of the dividend payable to a
particular stockholder 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 of common stock in connection
with the Plan. There is no charge to participants for reinvesting dividends or
other distributions. The transfer agent's fees for handling the reinvestment of
distributions will be 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 common stock in connection with the
reinvestment of distributions. The automatic reinvestment of dividends and other
distributions in shares of common stock does not relieve participants of any
income tax that may be payable on such distributions. See "Tax Information."
Additional information regarding the Plan may be obtained from, and 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.
20
<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.
THIS REPORT IS SENT TO THE SHAREHOLDERS OF THE FUND FOR THEIR INFORMATION. IT IS
NOT A PROSPECTUS, CIRCULAR OR REPRESENTATION INTENDED FOR THE USE IN THE
PURCHASE OR SALE OF SHARES OF THE FUND OR OF ANY SECURITIES MENTIONED IN THIS
REPORT.
<PAGE>
NOVEMBER 30, 1997
----------------------------------------
STRATEGIC
GLOBAL
INCOME
FUND, INC.
ANNUAL REPORT
PAINEWEBBER
- -C-1998 PaineWebber Incorporated
Member SIPC
