<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC. SEMIANNUAL REPORT
July 15, 1998
Dear Shareholder,
We are pleased to present you with the semiannual report for the Strategic
Global Income Fund, Inc. (the "Fund") for the six-month period ended May 31,
1998.
STRATEGIC GLOBAL
INCOME FUND, INC.
FUND PROFILE
-- GOAL:
High current income; secondarily capital appreciation
-- PORTFOLIO MANAGER:
Stuart Waugh, Mitchell Hutchins Asset Management Inc.
-- TOTAL NET ASSETS:
$292.5 million as of May 31, 1998
-- DIVIDEND PAYMENTS:
Monthly
GENERAL MARKET OVERVIEW
Developed global bond markets, as measured by the Salomon Brothers World
Government Bond Indices, returned 2.33% unhedged and 5.55% hedged into U.S.
dollars. As measured by the Salomon Brothers Treasury Index, U.S. Treasurys
returned 4.12%. Currency changes exerted a mildly positive impact on the
performance of European markets and a negative impact on returns of
Australian, Canadian and Japanese bonds.
Emerging market debt, as reflected in the JP Morgan EMBI+, gained 5.38% for
the period. After a strong start, performance slipped as concerns grew over
the depth of economic contraction in Asia and its consequences for the
creditworthiness of emerging-market issuers. Russian debt lost 9.9% in May as
capital exited the local Treasury bill market, causing a decline in foreign
reserves.
STRATEGIC GLOBAL
INCOME FUND, INC.
CURRENCY EXPOSURE AS PERCENT
OF NET ASSETS, MAY 31, 1998*
U.S.-DOLLAR DENOMINATED 59.6%
FOREIGN CURRENCY UNHEDGED 33.5%
FOREIGN CURRENCY HEDGED 6.9%
*Positions subject to change
PORTFOLIO REVIEW
PERFORMANCE--
For the six-month period ended May 31, 1998, the Fund (symbol: SGL) returned
3.78% based on changes in the Fund's net asset value (assuming, for
illustration only, that dividends were reinvested at the net asset value on
the payable dates) and 8.49% based on changes in its share price on the New
York Stock Exchange (assuming dividends were reinvested under the Dividend
Reinvestment Plan).
At May 31, 1998 the Fund's net asset value per share was $13.66, while its
share price on the New York Stock Exchange was $12.06. During the six-month
period ended May 31, 1998, the Fund paid dividends totaling $0.54 per share,
or approximately nine cents per share per month.
PORTFOLIO HIGHLIGHTS--
We reduced the Fund's exposure to noninvestment-grade, emerging-market debt
from about 20% to 17% by eliminating positions in Brazil and Panama and
reducing holdings in Bulgaria and Venezuela. As of May 31, 1998, the Fund
still had positions in Mexico (9.5% of net assets), Morocco (3.0%), Venezuela
(2.2%), Russia (1.6%) and Bulgaria (1.1%).
We maintained the Fund's strategy in developed markets throughout the period.
In the U.S. our exposure consisted primarily of intermediate-maturity
Treasury and investment-grade bonds. We avoided longer maturity bonds since
they offered historically low risk premiums.
The Fund remained underweighted in Europe relative to the indices. We
concentrated holdings in intermediate maturities of Germany, Holland and the
United Kingdom, and maintained neutral duration in these core markets. German
and Dutch bonds performed about the same as the indices. U.K. gilts lagged as
the Bank of England raised short-term interest rates amid reports of wage
gains, strong credit demand and strong housing.
1
<PAGE>
SEMIANNUAL REPORT
STRATEGIC GLOBAL INCOME FUND, INC.
ASSET ALLOCATION AS PERCENT
OF NET ASSETS, MAY 31, 1998*
INVESTMENT GRADE DEBT 74.5%
NONINVESTMENT GRADE DEBT 17.4%
CASH AND CASH EQUIVALENTS 6.3%
NET INTEREST RECEIVABLE 1.8%
*Allocations subject to change
GOING FORWARD
The Asian crisis is now clearly impacting the U.S.: net exports subtracted
more than 2% from first quarter gross domestic product. There seems little
reason for the Federal Reserve to change policy, and we do not expect to
change our strategy in the U.S. As investors gain confidence that conditions
remain favorable for bonds, we believe they will seek longer-maturity
securities to get higher returns, and the intermediate sector of the U.S.
market thus will outperform.
Because European monetary policies have kept interest rates low for so long,
we believe the new European Central Bank is unlikely to allow rates to go any
lower. Monetary policy should favor a stable currency and we have increased
the Fund's European currency exposure (excluding U.K. sterling) to around 27%
of net assets at May 31, 1998. While we may vary this exposure depending on
macro-economic developments and technical analysis, we generally favor
European currencies.
We hope to take advantage of volatility in emerging market debt to add to
existing holdings and build new positions in Mexico and Poland, which have
stable or improving credit profiles.
NEW DISTRIBUTION POLICY
On May 13, 1998 the Fund's Board of Director adopted a managed distribution
policy, which means that the Fund will make regular monthly distributions at
an annualized rate equal to 8% of the Fund's net asset value, determined on
the last trading day during the first week of the month (usually a Friday,
unless the New York Stock Exchange is closed that Friday). The $0.0923
dividend declared on May 13 was the first distribution declared under this
policy. Previously the Fund's distributions varied based on the Fund's net
investment income and realized capital gains or losses. Under the new
policy, distributions will be set annually by the Fund's Board. To the extent
that the Fund's taxable income in any fiscal year exceeds the aggregate
amount distributed based on a fixed percentage of its net asset value, the
Fund would distribute that excess near the end of the fiscal year. If the
aggregate amount distributed by the Fund (based on a fixed percentage of its
net asset value) exceeds its taxable income, the amount of that excess would
constitute a return of capital for tax purposes.
Monthly distributions based on a fixed percentage of the Fund's net asset
value may require the fund to make multiple distributions of long-term
capital gains during a single fiscal year, and the Fund intends to apply to
the Securities and Exchange Commission to enable this change.
2
<PAGE>
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.
For a quarterly FUND PROFILE on the Strategic Global Income Fund, Inc. or a
fund in the PaineWebber Family of Funds,1 please contact your investment
executive.
Sincerely,
/s/ MARGO ALEXANDER /s/ STUART WAUGH
- --------------------- -----------------------------------------------------
MARGO ALEXANDER STUART WAUGH
President Managing Director,
Mitchell Hutchins Mitchell Hutchins Asset Management Inc.
Asset Management Inc. Portfolio Manager, Strategic Global Income Fund, Inc.
This letter is intended to assist shareholders in understanding how the Fund
performed during the six-month period ended May 31, 1998, 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.
(1) Mutual funds are sold by prospectus only. The prospectuses for the funds
contain more complete information regarding risks, charges and expenses, and
should be read carefully before investing.
3
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS MAY 31, 1998(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)* DATES RATES VALUE
- ------------- -------------------- ----------------- -------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT SECURITIES--87.33%
BULGARIA--1.12%
US$ 5,000 Republic of Bulgaria, FLIRB... 07/28/12 2.250%# $ 3,287,500
-------------
CHILE--0.64%
US$ 1,850 Empresa Nacional de
Electricidad, S.A........... 02/01/37 7.325 1,859,918
-------------
GERMANY--6.36%
29,098 Federal Republic of Germany... 09/20/01 to 11/11/04 7.125 to 8.250 18,602,511
-------------
GREECE--1.60%
1,441,200 Republic of Hellenic.......... 03/21/00 to 03/21/02 9.200 to 9.800 4,691,506
-------------
HUNGARY--1.60%
993,990 Government of Hungary......... 02/12/00 to 08/24/00 16.000 to 18.500 4,695,043
-------------
ITALY--1.45%
6,295,000 Republic of Italy............. 04/01/04 8.500 4,227,215
-------------
JAPAN--2.72%
US$ 2,330 Sony Corporation(1)........... 03/04/03 6.125 2,336,177
US$ 5,500 Nomura Asset Securities
Corporation................. 03/15/30 6.590 5,625,469
-------------
7,961,646
-------------
MEXICO--9.52%
US$ 2,536 Coca-Cola Femsa, S.A. de
C.V......................... 11/01/06 8.950 2,627,930
US$ 4,375 Mexican Multi Year Refinance
Loan Participation (Salomon
Brothers)(2)(6)............. 03/20/05 6.625+ 3,994,944
US$ 10,300 United Mexican States(1)...... 01/15/07 to 09/15/16 8.625 to 11.375 10,723,156
US$ 8,787 United Mexican States,
DISC(3)..................... 12/31/19 6.477 to 6.594+ 8,012,689
US$ 3,000 United Mexican States,
PAR(4)...................... 12/31/19 6.250 2,497,500
-------------
27,856,219
-------------
MOROCCO--3.05%
US$ 5,255 Kingdom of Morocco Loan
Participation, Tranche A (JP
Morgan)(2)(6)............... 01/01/09 6.563+ 4,568,592
US$ 5,000 Kingdom of Morocco Loan
Participation, Tranche A
(Salomon Brothers)(2)(6).... 01/01/09 6.563+ 4,346,900
-------------
8,915,492
-------------
NETHERLANDS--3.95%
20,910 Government of Netherlands..... 09/15/01 to 01/15/06 6.000 to 8.750 11,545,205
-------------
NEW ZEALAND--1.90%
9,423 Government of New
Zealand(1).................. 03/15/02 10.000 5,567,078
-------------
POLAND--7.20%
US$ 3,650 Republic of Poland, PAR....... 10/27/24 3.000# 2,372,500
US$ 9,350 Republic of Poland, PDI....... 10/27/14 4.000# 8,432,578
12,420 Republic of Poland............ 02/12/00 14.000 3,211,198
30,011 Republic of Poland(6)......... 02/12/03 12.000 7,041,873
-------------
21,058,149
-------------
</TABLE>
4
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)* DATES RATES VALUE
- ------------- -------------------- ----------------- -------------
<C> <S> <C> <C> <C>
</TABLE>
LONG-TERM DEBT SECURITIES--(CONCLUDED)
<TABLE>
<C> <S> <C> <C> <C>
RUSSIA--1.64%
US$ 8,420 Russian Principal Loan (Chase
Manhattan Bank)(2)(6)....... 12/15/20 6.719%+ $ 4,715,200
US$ 147 Russian IAN................... 12/15/15 6.719+ 96,013
-------------
4,811,213
-------------
SPAIN--1.50%
584,180 Government of Spain........... 03/25/00 12.250 4,379,724
-------------
SWEDEN--2.34%
43,500 Kingdom of Sweden............. 06/15/01 to 05/05/03 10.250 to 13.000 6,844,585
-------------
UNITED KINGDOM--11.00%
16,846 United Kingdom Gilt........... 07/14/00 to 12/07/15 8.000 to 13.000 32,177,472
-------------
UNITED STATES--27.55%
NZD 2,325 Federal National Mortgage
Association................. 06/20/02 7.250 1,239,387
6,000 Ford Motor Credit
Corporation................. 09/10/02 6.550 6,091,242
6,000 General Motors Acceptance
Corporation................. 01/22/03 5.875 5,938,278
3,000 Philip Morris Companies
Incorporated................ 07/15/05 7.000 3,094,713
6,300 U.S. Treasury Inflation Index
Bonds....................... 04/15/28 3.625 6,270,472
55,420 U.S. Treasury Notes(1)........ 08/15/99 to 02/15/08 5.500 to 8.000 57,946,673
-------------
80,580,765
-------------
VENEZUELA--2.19%
US$ 2,808 Republic of Venezuela......... 09/15/27 9.250 2,360,489
US$ 4,825 Republic of Venezuela,
PAR(1)(5)................... 03/31/20 6.750 4,034,906
-------------
6,395,395
-------------
Total Long-Term Debt Securities
(cost--$254,819,656)......................... 255,456,636
-------------
SHORT-TERM SECURITIES--3.37%
NORWAY--1.12%
24,165 Kingdom of Norway............. 01/31/99 9.000 3,287,487
-------------
GRAND CAYMAN--2.25%
JPY 911,812 State Street Bank Time
Deposit..................... 06/29/98 0.450 6,583,479
-------------
Total Short-term Securities
(cost--$9,954,388)........................... 9,870,966
-------------
</TABLE>
5
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATE RATE VALUE
- ------------- -------------------- ----------------- -------------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENTS--6.69%
$ 9,000 Repurchase Agreement dated
5/29/98 with Dresdner Bank
AG, collateralized by
$8,030,000 U.S. Treasury
Bonds, 8.750% due 11/15/08
(value $9,180,699);
proceeds: $9,004,140........ 06/01/98 5.520% $ 9,000,000
10,562 Repurchase Agreement dated
5/29/98 with First Chicago
Corp., collateralized by
$10,460,000 U.S. Treasury
Notes, 6.375% due 03/31/01
(value $10,773,800);
proceeds: $10,566,876....... 06/01/98 5.540 10,562,000
-------------
Total Repurchase Agreements
(cost--$19,562,000).......................... 19,562,000
-------------
Total Investments
(cost--$284,336,044)--97.39%................. 284,889,602
Other assets in excess of liabilities--2.61%... 7,624,434
-------------
Net Assets--100.00%............................ $ 292,514,036
-------------
-------------
</TABLE>
- -----------------
Note: The Portfolio of Investments is listed by the issuer's country of origin
* In local currency unless otherwise indicated
DISC Discount Bond
FLIRB Front-loaded Interest Reduction Bond
IAN Interest Accrual Note
JPY Japanese Yen
NZD New Zealand Dollars
PAR Par Bond
PDI Past Due Interest Bond
+ Reflects rate at May 31, 1998 on variable coupon rate instrument
# Reflects rate at May 31, 1998 on step up coupon rate instrument
(1) Security, or portion thereof, was on loan at May 31, 1998
(2) Participation interest was acquired through the financial institution
indicated parenthetically
(3) With an additional 12,826,000 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 an additional 24,125 oil warrants attached expiring on 04/15/20 with
no market value
(6) Illiquid securities representing 8.43% 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>
07/13/98 to
British Pounds................ 7,490,000 US$ 12,289,619 08/06/98 $ 80,198
British Pounds................ 5,260,000 US$ 8,589,054 07/27/98 18,025
British Pounds................ 5,146,500 US$ 8,607,161 07/01/98 204,879
Netherlands Guilders.......... 8,000,000 US$ 3,921,569 09/28/98 (56,429)
German Deutschemarks.......... 27,450,000 US$ 14,935,524 06/02/98 (448,660)
06/15/98 to
German Deutschemarks.......... 19,802,211 US$ 11,106,034 10/02/98 8,006
German Deutschemarks.......... 7,045,000 US$ 3,955,865 06/15/98 7,538
German Deutschemarks.......... 6,263,000 US$ 3,447,080 06/25/98 (62,980)
06/08/98 to
New Zealand Dollars........... 8,465,000 US$ 4,727,345 06/22/98 197,803
Polish Zloties................ 12,700,195 US$ 3,535,000 08/28/98 37,893
Swedish Kronas................ 50,000,000 US$ 6,443,299 07/17/98 55,062
06/02/98 to
U.S. Dollars.................. 28,328,786 DEM 50,577,145 06/26/98 33,516
06/15/98 to
U.S. Dollars.................. 11,056,374 DEM 19,802,211 10/02/98 41,654
U.S. Dollars.................. 9,934,055 DEM 17,625,000 06/15/98 (51,738)
U.S. Dollars.................. 3,511,059 DEM 6,263,000 06/25/98 (999)
U.S. Dollars.................. 3,991,049 GBP 2,446,500 07/01/98 6,291
U.S. Dollars.................. 4,021,919 NLG 8,000,000 09/28/98 (43,921)
-------------
$ 26,138
-------------
-------------
</TABLE>
- -----------------
CURRENCY TYPE ABBREVIATIONS:
DEM--German Deutschemarks
GBP--British Pounds
NLG--Netherlands Guilders
INVESTMENTS BY TYPE OF ISSUER
<TABLE>
<CAPTION>
PERCENTAGE OF NET
ASSETS
----------------------
LONG-TERM SHORT-TERM
--------- ----------
<S> <C> <C>
Government and other public issuers......................... 79.83% 1.12%
Repurchase agreements....................................... -- 6.69
Other....................................................... 7.50 2.25
--------- -----
87.33% 10.06%
--------- -----
--------- -----
</TABLE>
See accompanying notes to financial statements
7
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES MAY 31, 1998(UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost--$284,336,044).... $ 284,889,602
Investments of cash collateral for securities loaned, at
value (cost--$33,133,544)................................. 33,133,544
Cash........................................................ 10,546
Interest receivable......................................... 6,836,558
Receivables for investments and foreign currency sold....... 6,720,268
Unrealized appreciation on forward foreign currency
contracts................................................. 690,865
Receivable for foreign taxes withheld....................... 254,318
Other assets................................................ 47,710
-------------
Total assets................................................ 332,583,411
-------------
LIABILITIES:
Collateral for securities loaned............................ 33,133,544
Payables for investments and foreign currency purchased..... 5,700,191
Unrealized depreciation on forward foreign currency
contracts................................................. 664,727
Payable to affiliates....................................... 259,019
Accrued expenses and other liabilities...................... 311,894
-------------
Total liabilities........................................... 40,069,375
-------------
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............ (3,654,897)
Accumulated net realized losses from investment and foreign
currency transactions..................................... (455,456)
Net unrealized appreciation of investments, other assets,
liabilities and forward contracts denominated in foreign
currencies................................................ 423,382
-------------
Net assets.................................................. $ 292,514,036
-------------
-------------
Net asset value per share................................... $13.66
-------------
-------------
</TABLE>
See accompanying notes to financial statements
8
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS
ENDED
MAY 31, 1998
(UNAUDITED)
------------
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $11,749,282
------------
EXPENSES:
Investment advisory and administration...................... 1,473,376
Custody and accounting...................................... 123,174
Reports and notices to shareholders......................... 47,975
Legal and audit fees........................................ 41,675
Transfer agency fees........................................ 15,941
Directors' fees............................................. 5,250
Other expenses.............................................. 20,521
------------
1,727,912
------------
NET INVESTMENT INCOME....................................... 10,021,370
------------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT
ACTIVITIES:
Net realized gains (losses) from:
Investment transactions................................. 1,618,106
Foreign currency transactions........................... (1,369,167)
Net change in unrealized appreciation/depreciation of:
Investments............................................. 1,158,802
Other assets, liabilities and forward contracts
denominated in foreign currencies....................... (394,089)
------------
NET REALIZED AND UNREALIZED GAIN FROM INVESTMENT
ACTIVITIES................................................ 1,013,652
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $11,035,022
------------
------------
</TABLE>
See accompanying notes to financial statements
9
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED FOR THE YEAR
MAY 31, 1998 ENDED
(UNAUDITED) NOVEMBER 30, 1997
-------------------- --------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income............................. $10,021,370 $23,274,230
Net realized gains from investment transactions... 1,618,106 15,899,310
Net realized losses from foreign currency
transactions.................................... (1,369,167) (3,753,279)
Net change in unrealized appreciation/depreciation
of:
Investments..................................... 1,158,802 (21,692,914)
Other assets, liabilities and forward contracts
denominated in foreign currencies............... (394,089) 1,850,210
-------------------- --------------------
Net increase in net assets resulting from
operations...................................... 11,035,022 15,577,557
-------------------- --------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................. (11,555,567) (20,467,355)
Net realized gains from investment transactions... (7,334,082) (3,455,110)
-------------------- --------------------
(18,889,649) (23,922,465)
-------------------- --------------------
Net decrease in net assets........................ (7,854,627) (8,344,908)
NET ASSETS:
Beginning of period............................... 300,368,663 308,713,571
-------------------- --------------------
End of period..................................... $292,514,036 $300,368,663
-------------------- --------------------
-------------------- --------------------
</TABLE>
See accompanying notes to financial statements
10
<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.
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 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.
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.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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") to attempt to enhance income,
in connection with planned purchases or sales of securities and to hedge the
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 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
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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 a 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 May 31, 1998, the Fund owed Mitchell Hutchins
$250,560 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 regain 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 six months
ended May 31, 1998, PaineWebber earned $20,083 as the Fund's lending agent. At
May 31, 1998, the Fund owed PaineWebber $8,459 for security lending fees.
As of May 31, 1998, the Fund's custodian held cash and cash equivalents having
an aggregate value of $33,133,544 as collateral for portfolio securities loaned
having a market value of $31,042,612.
As of May 31, 1998 the Fund invested the above cash collateral in the
following Money Market Funds and Repurchase Agreements:
<TABLE>
<CAPTION>
NUMBER OF
SHARES/
PRINCIPAL
AMOUNT
------------
<C> <S> <C>
97,269 Liquid Assets Portfolio..................................... $ 97,269
126,775 Prime Portfolio............................................. 126,775
500 TempFund Portfolio.......................................... 500
12,909,000 Morgan (J.P.) & Company Incorporated Repurchase Agreement,
5.460%, due 06/01/98, (collateralized by $13,168,000 U.S. 12,909,000
Treasury Notes, 4.750% due 10/31/98, value $13,168,000)...
10,000,000 Societe Generale Repurchase Agreement, 5.550%, due 06/01/98,
(collateralized by $10,025,000 U.S. Treasury Notes, 5.875% 10,000,000
due 11/15/05, value $10,200,438)..........................
10,000,000 Union Bank Switzerland, Incorporated Repurchase Agreement,
5.550%, due 06/01/98, (collateralized by $8,700,000 U.S. 10,000,000
Treasury Bonds, 7.125% due 02/15/23, value $10,200,750)...
------------
$ 33,133,544
------------
------------
</TABLE>
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at May 31, 1998,
was substantially the same as the cost of securities for financial statement
purposes.
At May 31, 1998, the components of net unrealized appreciation of investments
were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of value
over cost)................................................ $ 7,188,475
Gross depreciation (investments having an excess of cost
over value)............................................... (6,634,917)
------------
Net unrealized appreciation of investments.................. $ 553,558
------------
------------
</TABLE>
For the six months ended May 31, 1998, aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $172,709,268 and
$149,178,670, 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, 1998, Mitchell Hutchins owned 9,442
shares.
FEDERAL TAX STATUS
The Fund intends to distribute substantially all of its taxable income and to
comply with the other requirements of the Internal Revenue Code applicable to
regulated investment companies. Accordingly, no provision for federal income
taxes is required. In addition, by distributing during each calendar year
substantially all of its net investment income, capital gains and certain other
amounts, if any, the Fund intends not to be subject to a federal excise tax.
14
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each period is
presented below:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED FOR THE YEARS ENDED NOVEMBER 30,
MAY 31, 1998 ---------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 14.03 $ 14.42 $ 13.41 $ 13.07 $ 14.92 $ 13.47
------ --------- --------- --------- --------- ---------
Net investment income................... 0.47 1.09 1.12 1.19 1.08 1.12
Net realized and unrealized gains
(losses) from investments and foreign
currency............................... 0.04 (0.36) 1.12 0.27 (1.80) 1.51
------ --------- --------- --------- --------- ---------
Net increase (decrease) from investment
operations............................. 0.51 0.73 2.24 1.46 (0.72) 2.63
------ --------- --------- --------- --------- ---------
Dividends from net investment income.... (0.54) (0.96) (1.19) (1.12) (0.82) (1.12)
Distributions from net realized gains
from investment and foreign currency
transactions........................... (0.34) (0.16) (0.04) -- (0.15) (0.06)
Distribution from paid in capital....... -- -- -- -- (0.16) --
------ --------- --------- --------- --------- ---------
Total dividends and distributions to
shareholders........................... (0.88) (1.12) (1.23) (1.12) (1.13) (1.18)
------ --------- --------- --------- --------- ---------
Net asset value, end of period.......... $ 13.66 $ 14.03 $ 14.42 $ 13.41 $ 13.07 $ 14.92
------ --------- --------- --------- --------- ---------
------ --------- --------- --------- --------- ---------
Market value, end of period............. $ 12.06 $ 11.94 $ 12.25 $ 11.25 $ 11.13 $ 14.25
------ --------- --------- --------- --------- ---------
------ --------- --------- --------- --------- ---------
Total investment return(1).............. 8.49% 6.67% 20.80% 11.81% (14.53)% 19.92%
------ --------- --------- --------- --------- ---------
------ --------- --------- --------- --------- ---------
Ratios/Supplemental Data:
Net assets, end of period (000's)....... $292,514 $300,369 $308,714 $287,159 $279,773 $319,496
Expenses to average net assets.......... 1.17%* 1.20% 1.21% 1.24% 1.27% 1.58%**
Net investment income to average net
assets................................. 6.80%* 7.63% 8.14% 9.20% 8.01% 7.81%**
Portfolio turnover rate................. 51% 134% 111% 121% 82% 111%
</TABLE>
- -----------------
* Annualized
** 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 at market value on
the first day of each period 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 period reported. Total
investment return for periods of less than one year has not been annualized.
Total investment return does not reflect brokerage commissions.
15
<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., an asset management
subsidiary of PaineWebber Incorporated, which has approximately $53 billion in
assets under management as of June 30, 1998.
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.
An annual meeting of shareholders of the Fund was held on March 19, 1998. 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, 1998.
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.............................................................................. 19,771,896 749,969
Richard Q. Armstrong............................................................................ 19,771,896 749,967
E. Garrett Bewkes, Jr........................................................................... 19,769,760 752,100
Richard R. Burt................................................................................. 19,772,896 748,964
Mary C. Farrell................................................................................. 19,772,549 749,311
Meyer Feldberg.................................................................................. 19,772,560 749,300
George W. Gowen................................................................................. 19,772,640 749,400
Frederic V. Malek............................................................................... 19,769,896 751,964
Carl W. Schafer................................................................................. 19,770,896 750,964
</TABLE>
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, 1998................................ 19,899,839 147,734 474,287
</TABLE>
(Broker non-votes and abstentions are included within the "Shares Withhold
Authority" totals.)
16
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
GENERAL INFORMATION-(CONCLUDED)
DIVIDEND REINVESTMENT PLAN
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.
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.
17
<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>
MAY 31, 1998
----------------------------------------
STRATEGIC
GLOBAL
INCOME
FUND, INC.
SEMIANNUAL REPORT
PAINEWEBBER
- -C-1998 PaineWebber Incorporated
Member SIPC
