STRATEGIC GLOBAL INCOME FUND, INC.
SEMIANNUAL REPORT
MAY 31, 1999
PAINEWEBBER
c1999 PaineWebber Incorporated
Member SIPC
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC. SEMIANNUAL REPORT
[Sidebar]
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:
$262.4 million as of
May 31, 1999
DIVIDEND PAYMENTS:
Monthly
[End Sidebar]
July 15, 1999
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,
1999.
MARKET REVIEW
- -------------------------------------------------------------------------------
[Graphic Omitted]
Lower-rated credits outperformed higher-rated ones for the six-month period
ended May 31, 1999. Developed global bond markets, as measured by the Salomon
Brothers World Government Bond Index, gained 1.16% hedged into U.S. dollars. The
U.S. dollar appreciated over the period, resulting in a 3.62% loss for the Index
on an unhedged basis. Japanese bonds posted strong returns, rebounding sharply
from the fourth quarter, while European bonds posted moderately positive
returns. In contrast, U.S. Treasury bonds fell by 2.02% over the period.
Emerging market bond prices rebounded strongly: the JP Morgan Emerging Markets
Bond Index Plus (EMBI+) gained 3.19%. We attribute this outperformance to the
stabilization of Brazil's currency and foreign exchange reserves, the recovery
in oil prices--a large source of foreign exchange earnings and tax revenues in
many emerging markets--and economic stabilization in Asia.
OUTLOOK
- -------------------------------------------------------------------------------
[Graphic Omitted]
Emerging market debt valuations are still at historically attractive levels.
The prevailing high yields reflect a number of risks: the possibility that
Brazil's economy does not meet the IMF targets; and, yet to be determined, the
chance that G-7 governments may require emerging market borrowers to renegotiate
bondholder payments in any bilateral debt restructuring, as well as limit
bondholders' rights in the event of a default.
Despite these risks, however, most emerging market governments are pursuing
sound macroeconomic policies. Mexico cut spending to compensate for lost
revenues from oil production. Brazil passed legislation aimed at balancing its
budget and Asian economies have built up foreign currency reserves. The emerging
market bond sector would benefit from a strengthening worldwide economy and
broadening of the recovery in commodity prices. (These trends would improve the
balance of payments for most emerging market countries.)
1
<PAGE>
SEMIANNUAL REPORT
[Pie Chart]
Strategic Global
Income Fund, Inc.
Currency Exposure
66.3% US$ Denominated
33.7% Foreign Currency Unhedged
[End Pie Chart]
[Pie Chart]
Strategic Global
Income Fund, Inc.
Asset allocation
22.4% Noninvestment Grade Debt
6.20% Cash and Equivalents
1.70% Net Interest Receivable
69.7% Investment Grade DEbt
[End Pie Chart]
PORTFOLIO REVIEW
===============================================================================
PERFORMANCE
For the six-month period ended May 31, 1999, the Fund (symbol: SGL) lost
1.28% 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 lost 0.25% 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, 1999 the Fund's net asset value per share was $12.85, while its
share price on the New York Stock Exchange was $11.19. During the six-month
period ended May 31, 1999, the Fund paid dividends from net investment income
totaling $0.5347 per share. Based on the dividend paid in May and the Fund's
market price on May 31, 1999, the Fund's annualized market yield was 9.56%.**
HIGHLIGHTS
[graphic Omitted]
The Fund recently bought noninvestment grade emerging market debt--primarily
Brady bonds issued by Brazil, Mexico, Panama and the Philippines (13.0%).* The
latter three are solid BB-rated credits. We believe their creditworthiness will
improve if the recovery in world growth continues. Our investment in Brazilian
debt reflects our belief that the government initially will succeed in meeting
the fiscal targets specified in its IMF agreement and will be able to lower
interest rates over the next several quarters. Lower rates increase the chances
that Brazil can remain in compliance with IMF targets--if it can, we believe
Brazil's external debt will continue to gain value.
We sold the Fund's positions in Greek drachma Treasury bills as the Kosovo
War broke out. While we did not expect the war to directly threaten Greece, we
were concerned that Greek bondholders with large profits might liquidate if
fighting escalated. We are currently reevaluating Greek bonds.
In developed markets, we shifted our yield curve strategies in the United
Kingdom, where we adopted a bias to falling short rates and a normalizing curve,
and in Germany, where we adopted a bias to a flattening of the yield curve.
Otherwise, the Fund's strategy remained unchanged over the period. The Fund has
a shorter duration in Europe and Japan and a neutral position in the U.S.
relative to the Index.
- ---------------------
*Weightings represent percentages of portfolio assets as of May 31, 1999.
The Fund's portfolio is actively managed and its composition will vary over
time.
**The fund currently has a managed distribution policy under which regular
monthly dividends are paid at a rate based on net asset value.
2
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC. SEMIANNUAL REPORT
SHARE BUYBACKS
On September 16, 1998, the Fund announced a share buyback of up to 10% of its
outstanding shares in an effort to reduce the Fund's discount to its net asset
value and increase the return to shareholders. The Fund had repurchased 992,800
shares as of May 31, representing roughly 4.64% of the shares outstanding at the
onset of the program.
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 Review on
Strategic Global Income Fund, Inc. or another fund in the PaineWebber Family of
Funds,1 please contact your Financial Advisor.
Sincerely,
/s/MARGO ALEXANDER /s/BRIAN M. STORMS
- ------------------ ------------------
MARGO ALEXANDER BRIAN M. STORMS
Chairman and Chief Executive Officer President and Chief Operating Officer
Mitchell Hutchins Asset Management Inc. Mitchell Hutchins Asset Management Inc.
/s/STUART WAUGH
- ---------------
STUART WAUGH
Managing Director, Mitchell Hutchins 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, 1999, and reflects our views
at the time of its writing. Of course, these views may change in response to
changing circumstances. We encourage you to consult your Financial Advisor
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.
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS MAY 31, 1999 (unaudited)
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)* DATES RATES VALUE
-------- --------- --------- ---------
LONG-TERM DEBT SECURITIES--91.20%
<S> <C> <C> <C> <C>
Brazil--1.89%
US$ 8,681 Federal Republic of Brazil, DCB .................. 04/15/12 5.938% $ 4,948,170
-----------
Bulgaria--1.09%
US$ 5,000 Republic of Bulgaria, FLIRB 07/28/12 2.500# 2,850,000
-----------
Canada--3.95%
14,735 Government of Canada ............................. 03/01/01 to 09/01/01 7.000 to 7.500 10,362,328
-----------
Chile--1.01%
US$ 2,813 Empresa Nacional de Electricidad, S. A. .......... 04/01/09 to 02/01/37 7.325 to 8.500 2,659,915
-----------
France--1.10%
2,470 Government of France ............................. 10/25/25 6.00 2,893,151
-----------
Germany--5.25%
12,809 Federal Republic of Germany ...................... 09/20/01 to 01/04/28 4.000 to 8.250 13,769,336
-----------
Italy--2.58%
5,317 Republic of Italy ................................ 04/01/04 8.500 6,756,290
-----------
Japan--0.88%
US$ 2,330 Sony Corporation ................................. 03/04/03 6.125 2,313,648
-----------
Korea--2.05%
US$ 5,150 Republic of Korea ................................ 04/15/03 to 04/15/08 8.750 to 8.875 5,379,675
-----------
Mexico--8.22%
US$ 2,536 Coca Cola Femsa, S.A. de C.V. .................... 11/01/06 8.950 2,485,280
US$ 3,750 Mexican Multi Year Refinance Loan Participation
(Salomon Brothers)(2)(6) ....................... 03/20/05 6.063 3,103,125
US$ 3,755 Pemex Finance Limited ............................ 11/15/03 6.125 3,759,844
US$12,032 United Mexican States, DISC (3) .................. 12/31/19 5.875 9,986,560
US$ 3,000 United Mexican States, PAR (4) ................... 12/31/19 6.250 2,231,250
-----------
21,566,059
-----------
Morocco--3.99%
US$ 8,576 Kingdom of Morocco Loan Participation, Tranche A
(JP Morgan)(2)(6) .............................. 01/01/09 5.906 6,732,309
US$ 4,762 Kingdom of Morocco Loan Participation, Tranche A
(Salomon Brothers)(2)(6) ....................... 01/01/09 5.906 3,738,096
-----------
10,470,405
-----------
Netherlands--4.27%
9,793 Government of Netherlands ........................ 05/15/00 to 09/15/01 8.750 to 9.000 11,201,666
-----------
New Zealand--2.15%
9,423 Government of New Zealand ........................ 03/15/02 10.000 5,638,346
-----------
Panama--2.14%
US$ 2,896 Republic of Panama ............................... 04/01/29 9.375 2,838,080
US$ 3,882 Republic of Panama, PDI (7) ...................... 07/17/16 5.938 2,794,722
-----------
5,632,802
-----------
</TABLE>
4
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)* DATES RATES VALUE
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
LONG-TERM DEBT SECURITIES (concluded)
Philippines--2.27%
US$ 5,000 Republic of Philippines, FLIRB, Series B ......... 06/01/08 6.000% $ 4,600,000
US$ 1,390 Republic of Philippines .......................... 04/15/08 8.875 1,352,331
-----------
5,952,331
-----------
Poland--4.99%
20,011 Republic of Poland ............................... 06/12/02 to 02/12/03 12.000 5,125,896
US$13,000 Republic of Poland, PAR 10/27/24 3.000# 7,962,500
-----------
13,088,396
-----------
Russia--0.23%
US$ 289 Russian IAN @ .................................... 12/15/15 5.969 25,693
US$ 8,420 Russian Principal Loan (Chase Manhattan Bank) (2)(6)@ 12/20/20 5.969 589,400
-----------
615,093
-----------
Tunisia--1.11%
US$ 3,500 Banque Centrale de Tunisie ....................... 09/19/27 8.250 2,922,500
-----------
United Kingdom--11.28%
16,006 United Kingdom Gilt .............................. 07/14/00 to 07/12/11 6.500 to 13.000 29,591,111
-----------
United States--28.83%
1,825 Associates Corporation of North America .......... 11/01/03 5.750 1,779,399
3,740 CIT Group Incorporated ........................... 02/15/04 5.500 3,610,252
5,700 Clorox Corporation ............................... 07/15/01 8.800 6,008,513
NZD 2,325 Federal National Mortgage Association ............ 06/20/02 7.250 1,285,237
11,845 Federal National Mortgage Association ............ 04/15/03 to 05/15/08 5.750 to 6.000 11,753,640
6,000 Ford Motor Credit Corporation .................... 09/10/02 6.550 6,037,302
6,000 General Motors Acceptance Corporation ............ 11/10/03 5.750 5,835,672
2,700 Lear Corporation ................................. 05/15/05 7.960 2,637,911
26,735 U.S. Treasury Bonds(1) ........................... 08/31/00 to 2/15/29 4.625 to 6.500 26,433,814
10,633 U.S. Treasury Inflation Index Notes .............. 01/15/08 to 04/15/28 3.625 10,268,999
-----------
75,650,739
-----------
Venezuela--1.92%
US$ 2,808 Republic of Venezuela 09/15/27 9.250 1,804,140
US$ 4,825 Republic of Venezuela, PAR(5) 03/31/20 6.750 3,232,750
-----------
5,036,890
-----------
Total Long-Term Debt Securities (cost - $251,871,664) 239,298,851
----------
SHORT-TERM DEBT SECURITY--5.58%
Australia--0.91%
3,670 Australia Treasury Bill .......................... 07/15/99 4.630 (8) 2,384,052
---------
United States--4.67%
12,170 U.S. Treasury Notes .............................. 08/15/99 8.000 12,246,063
---------
Total Short-Term Debt Securities (cost -$15,005,405) ......... 14,630,115
---------
</TABLE>
5
STRATEGIC GLOBAL INCOME FUND, INC.
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATE RATE VALUE
-------- --------- --------- ---------
<S> <C> <C> <C>
REPURCHASE AGREEMENT--3.84%
$ 10,073 Repurchase agreement dated 05/28/99 with J.P. Morgan
Securities Incorporated, collateralized by $10,048,000
U.S. Treasury Notes, 5.375% due 06/30/00
(value-$10,274,482); proceeds: $10,078,361
(cost-$10,073,000) 06/01/99 4.790% $ 10,073,000
------------
Total Investments (cost-$276,950,069)-100.62% 264,001,966
Liabilities in excess of other assets-(0.62%) (1,631,026)
------------
Net Assets-100.00% $262,370,940
============
</TABLE>
- ---------------------
Note: The Portfolio of Investments is listed by the issuer's country of origin.
* In local currency unless otherwise indicated.
DCB Debt Conversion Bond.
DISC Discount Bond.
FLIRB Front-loaded Interest Reduction Bond.
IAN Interest Accrual Note.
PAR Par Bond.
PDI Past Due Interest Bond.
NZD New Zealand Dollars.
US$ United States Dollars.
Reflects rate at May 31, 1999 on variable coupon rate instruments.
# Reflects rate at May 31, 1999 on step coupon rate instruments.
@ Non-income producing security.
(1) Security, or portion thereof, was on loan at May 31, 1999.
(2) Participation interest was acquired through the financial institution
indicated parenthetically. (3) With an additional 17,818,000 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 24,125 oil warrants attached expiring on 04/15/20 with no market value.
(6) Illiquid securities representing 5.40% of net assets.
(7) Interest may be capitalized.
(8) Interest rate shown is discount rate at date of purchase.
See accompanying notes to financial statements
6
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
<TABLE>
<CAPTION>
FORWARD FOREIGN CURRENCY CONTRACTS
Unrealized
Appreciation
Contracts to Deliver In Exchange for Maturity Dates (Depreciation)
---------------- --------------- ------------ ----------
<S> <C> <C> <C> <C>
British Pounds ........................ 7,220,000 US$ 11,544,3120 6/08/99 to 06/28/99 $(20,049)
British Pounds ........................ 6,580,000 US$ 10,574,060 07/13/99 36,550
Canadian Dollars ...................... 5,952,000 US$ 4,099,174 06/07/99 57,237
Euros ........................ 6,230,000 US$ 6,597,134 06/24/99 99,833
Greek Drachmas ........................ 1,554,138,000 US$ 5,176,664 06/28/99 212,287
New Zealand Dollars ................... 5,000,000 US$ 2,513,500 07/06/99 (166,522)
New Zealand Dollars ................... 3,525,000 US$ 1,790,700 07/06/99 (98,715)
U.S. Dollars .......................... 20,645,137 EUR 19,375,0000 6/14/99 to 06/24/99 (442,884)
U.S. Dollars .......................... 5,083,368 GRD1,554,138,000 06/28/99 (118,991)
U.S. Dollars .......................... 12,900,105 JPY1,600,000,000 06/07/99 339,096
U.S. Dollars .......................... 2,455,000 NZD 5,000,000 07/06/99 225,022
U.S. Dollars .......................... 1,730,775 NZD 3,525,000 07/06/99 158,640
--------
$281,504
========
</TABLE>
- ---------------------------
Currency Type Abbreviation:
EUR - Euros
GRD - Greek Drachmas
JPY - Japanese Yen
NZD - New Zealand Dollars
US$ - United States Dollars
INVESTMENTS BY TYPE OF ISSUER
Percentage of Net Assets
----------------------------
Long-term Short-term
--------- ---------
Government and other public issuers .............. 77.06% 5.58%
Repurchase agreements ............................ -- 3.84
Financial ........................................ 7.58 --
Consumer Products ................................ 2.29 --
Oil/Gas .......................................... 1.43 --
Utilities--Electric & Water ...................... 1.01 --
Industrial ....................................... 0.95 --
Manufacturing .................................... 0.88 --
----- ----
91.20% 9.42%
===== ====
See accompanying notes to financial statements
7
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES MAY 31, 1999(unaudited)
ASSETS
<S> <C>
Investments in securities, at value (cost--$276,950,069) ............................................ $264,001,966
Investments of cash collateral for securities loaned, at value ..................................... 11,120,860
Interest receivable ................................................................................ 4,855,280
Unrealized appreciation on forward foreign currency contracts ...................................... 1,144,902
Other assets ....................................................................................... 21,492
------------
Total assets ....................................................................................... 281,144,500
------------
LIABILITIES
Payable for cash collateral for securities loaned .................................................. 11,120,860
Payable for investments purchased .................................................................. 6,209,117
Unrealized depreciation on forward foreign currency contracts ...................................... 863,398
Payable to affiliates .............................................................................. 229,505
Payable for shares of capital stock repurchased .................................................... 176,183
Accrued expenses and other liabilities ............................................................. 174,497
------------
Total liabilities .................................................................................. 18,773,560
------------
NET ASSETS
Capital stock - $0.001 par value; total authorized shares - 100,000,000; 20,414,328 shares issued and outstanding
283,442,385
Distributions in excess of net investment .......................................................... (5,672,913)
Accumulated net realized losses from investment and foreign currency transactions .................. (2,503,237)
Net unrealized depreciation of investments, other assets, liabilities and forward contracts
denominated in foreign currencies ................................................................ (12,895,295)
------------
Net assets ......................................................................................... $262,370,940
============
Net asset value per share .......................................................................... $ 12.85
============
</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, 1999
(UNAUDITED)
-------------
<S> <C>
INVESTMENT INCOME:
Interest (net of foreign withholding taxes of $16,656)) ............................................ $ 10,206,567
------------
EXPENSES:
Investment advisory and administration ............................................................. 1,388,589
Custody and accounting ............................................................................. 108,719
Reports and notices to shareholders ................................................................ 42,274
Legal and audit .................................................................................... 40,762
Transfer agency fees ............................................................................... 9,278
Directors' fees .................................................................................... 5,250
Other expenses ..................................................................................... 11,785
------------
1,606,657
------------
Net investment income .............................................................................. 8,599,910
------------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT TRANSACTIONS: NET
realized gains (losses) from:
Investment transactions .......................................................................... 309,215
Foreign currency transactions .................................................................... (2,323,475)
Net change in unrealized appreciation/depreciation of:
Investments ...................................................................................... (11,226,546)
Other assets, liabilities and forward contracts denominated in foreign currencies ................ 130,117
------------
NET REALIZED AND UNREALIZED LOSS FROM INVESTMENT ACTIVITIES ........................................ (13,110,689)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ............................................... $ (4,510,779)
============
</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 FOR THE
ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30,
(UNAUDITED) 1998
------------- ------------
FROM OPERATIONS:
<S> <C> <C>
Net investment income ....................................................................... $ 8,599,910 $ 19,868,456
Net realized gain on investment transactions ................................................ 309,215 3,457,367
Net realized losses from foreign currency transactions ...................................... (2,323,475) (2,344,342)
Net change in unrealized appreciation/depreciation of:
Investments ............................................................................... (11,226,546) (1,116,313)
Other assets, liabilities and forward contracts denominated in foreign currencies ......... 130,117 (341,222)
------------- -------------
Net increase (decrease) in net assets resulting from operations ............................. (4,510,779) 19,523,946
------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO STOCKHOLDERS FROM:
Net investment income ....................................................................... (11,138,742) (18,535,356)
Net realized gains from investment transactions ............................................. -- (10,578,170)
Paid in capital ............................................................................. -- (1,264,040)
------------- -------------
(11,138,742) (30,377,566)
------------- -------------
CAPITAL STOCK TRANSACTIONS:
Cost of shares repurchased .................................................................. (8,474,948) (3,019,634)
------------- -------------
Net decrease in net assets .................................................................. (24,124,469) (13,873,254)
NET ASSETS:
Beginning of period ......................................................................... 286,495,409 300,368,663
------------- -------------
End of period ............................................................................... $ 262,370,940 $ 286,495,409
============= =============
</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. The following is a summary of
significant accounting policies:
Valuation of investments--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 the Nasdaq prior to the time of valuation; other OTC
securities are valued at the last bid price available in the OTC market prior to
the time of valuation (other than short-term debt instruments that mature in 60
days or less). The amortized cost method of valuation generally is used to value
short-term debt instruments with sixty days or less remaining to maturity.
Securities and assets 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"), a wholly owned asset management subsidiary of PaineWebber
Incorporated ("PaineWebber") and the investment adviser and administrator of the
Fund. 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 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 materially
affecting the value of such securities or currency exchange rates occurred
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 investments and
foreign exchange transactions are calculated on 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; and (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 Fund's investments denominated in foreign currencies 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
reclassification.
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 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.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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, 1999, the Fund owed Mitchell Hutchins
$228,185 in investment advisory and administration fees.
SECURITY LENDING
The Fund may lend securities up to 331/3% 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, 1999, PaineWebber earned $4,575 in compensation as the Fund's
lending agent, and the Fund earned compensation of $13,728 net of fees, rebates
and expenses. At May 31, 1999, the Fund owed PaineWebber $1,320 for security
lending fees. PaineWebber also has been approved as a borrower under the Fund's
securities lending program.
As of May 31, 1999, the Fund's custodian held debt securities having an
aggregate value of $11,120,860 as collateral for portfolio securities loaned
having a market value of $10,610,939 which was invested in the following
repurchase agreement and money market funds:
<TABLE>
<CAPTION>
NUMBER OF
SHARES/
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
4,075 Janus Investment Fund ................................................... $ 4,075
509 Prime Portfolio ......................................................... 509
11,116,000 Repurchase Agreement with SGCowen Securities Corp. dated 05/28/99, 4.800%
due 06/01/99 (collateralized by $11,268,000 U.S. Treasury Notes, 5.750%
due 04/30/03, value 11,338,425) ........................................ 11,116,000
276 Temp Fund Portfolio ..................................................... 276
-----------
$11,120,860
===========
</TABLE>
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at May 31,
1999, was substantially the same as the cost of securities for financial
statement purposes.
<TABLE>
AtMay 31, 1999, the components of net unrealized depreciation of investments
were as follows:
<S> <C>
Gross appreciation (investments having an excess value over cost) ......... $ 3,149,082
Gross depreciation (investments having an excess of cost over value) ...... (16,097,185)
------------
Net unrealized depreciation of investments $(12,948,103)
============
</TABLE>
For the six months ended May 31, 1999, aggregate purchases and sales of
portfolio securities, excluding short-term
securities, were $71,075,307 and $70,950,957, respectively.
CAPITAL STOCK
There are 100,000,000 shares of $0.001 par value capital stock authorized. Of
the 20,414,328 shares outstanding at May 31, 1999 Mitchell Hutchins owned 10,356
shares.
For the six months ended May 31, 1999 and the period September 17, 1998
(commencement of repurchase program) through November 30, 1998, the Fund
repurchased 736,100 and 256,700 shares, respectively, of common stock at an
average market price per share of $11.43 and $11.70, respectively, and a
weighted average discount from net asset value of 13.78% and 12.76% per share,
respectively. At May 31, 1999 and November 30, 1998, included in paid-in-capital
is net the cost of $8,474,948 and $3,019,634, respectively, of common stock
repurchased.
FEDERAL INCOME 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>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each period is
presented below:
<TABLE>
<CAPTION>
For the
Six Months
Ended
May 31, For the Years Ended November 30,
1999 -------------------------------------------------------
(unaudited) 1998 1997 1996 1995 1994
--------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............. $ 13.55 $ 14 $ 14.42 $ 13.41 $ 13.07 $ 14.92
-------- ------- -------- -------- -------- --------
Net investment income ............................ 0.42 0.94 1.09 1.12 1.19 1.08
Net realized and unrealized gains (losses) from
investments and foreign currency ............... (0.66) (0.02) (0.36) 1.12 0.27 (1.80)
-------- ------- -------- -------- -------- --------
Net increase (decrease) from investment operations (0.24) 0.92 0.73 2.24 1.46 0.72
-------- ------- -------- -------- -------- --------
Dividends from net investment income ............. (0.53) (0.87) (0.96) (1.19) (1.12) (0.82)
Distributions from net realized gains from
investment and foreign currency transactions ... -- (0.49) (0.16) (0.04) -- (0.15)
Distributions from paid-in-capital ............... -- (0.06) -- -- -- (0.16)
-------- ------- -------- -------- -------- --------
Total dividends and distributions to shareholders (0.53) (1.42) (1.12) (1.23) (1.12) (1.13)
-------- ------- -------- -------- -------- --------
Net increase in net asset value resulting from
repurchase of capital stock .................... 0.07 0.02 -- -- -- --
-------- ------- -------- -------- -------- --------
Net asset value, end of period ................... $ 12.85 $ 13.55 $ 14.03 $ 14.42 $ 13.41 $ 13.07
======== ======= ======== ======== ======== ========
Market value, end of period ...................... $ 11.19 $ 11.75 $ 11.94 $ 12.25 $ 11.25 $ 11.13
======== ======= ======== ======== ======== ========
Total investment return (1) ...................... (0.25)% 10.66% 6.67% 20.80% 11.81% 14.53%
======== ======= ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period (000's) ................ $262,371 $286,495 $300,369 $308,714 $287,159 $279,773
Expenses to average net assets ................... 1.16%* 1.16% 1.20% 1.21% 1.24% 1.27%
Net investment income to average net assets ...... 6.19%* 6.82% 7.63% 8.14% 9.20% 8.01%
Portfolio turnover rate .......................... 29% 120% 134% 111% 121% 82%
</TABLE>
- ----------------
* Annualized
(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 a period 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 ("NYSE"). The Fund's primary investment objective is to achieve a
high level of current income; capital appreciation is 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 $58.3 billion in assets under
management as of June 30, 1999.
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 18, 1999. 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 LLPwas ratified as independent auditors for the Fund
for the fiscal year ended November 30, 1999.
PROPOSAL 1
<TABLE>
<CAPTION>
Shares Shares
Voted Withhold
For Authority
-------------- ------------
1. TO VOTE FOR OR AGAINST THE ELECTION OF:
<S> <C> <C>
Margo N. Alexander ..................................................... 19,635,357 709,522
Richard Q. Armstrong ................................................... 19,637,619 707,260
E. Garrett Bewkes, Jr .................................................. 19,625,211 719,668
Richard R. Burt ........................................................ 19,636,293 708,586
Mary C. Farrell ........................................................ 19,639,073 705,806
Meyer Feldberg ......................................................... 19,637,274 707,605
George W. Gowen ........................................................ 19,632,589 712,290
Frederic V. Malek ...................................................... 19,633,089 711,790
Carl W. Schafer ........................................................ 19,636,805 708,074
PROPOSAL 2
Shares Shares Shares
Voted Withhold Voted
For Authority Against
-------------- ------------ -----------
<C>
2. RATIFICATION OF THE SELECTION OF ERNST &YOUNG LLP AS INDEPENDENT
AUDITORS FOR THE FISCAL YEAR ENDING NOVEMBER 30, 1999 20,062,362 139,451 143,066
(Broker non-votes and abstentions are included within the "Shares Withhold Authority" totals.)
</TABLE>
16
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
GENERAL INFORMATION (continued)
YEAR 2000 RISKS
Like other funds and financial and business organizations around the world,
the Fund could be adversely affected if the computer systems used by its
investment adviser, other service providers and entities with computer systems
that are linked to Fund records do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Issue."
Mitchell Hutchins is taking steps that it believes are reasonably designed to
address the Year 2000 Issue with respect to the computer systems that it uses,
and to obtain satisfactory assurances that each of the Fund's other major
service providers is taking comparable steps. However, there can be no assurance
that these steps will be sufficient to avoid any adverse impact on the Fund.
DIVIDEND REINVESTMENT PLAN
The Fund 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,
unless such stockholders elect to receive cash. 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 or otherwise, at prices that may be higher or
lower than the net asset value per share 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 in connection with the Plan. There currently
is no charge to participants for reinvesting dividends or other distributions.
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>
STRATEGIC GLOBAL INCOME FUND, INC.
GENERAL INFORMATION (continued)
DISTRIBUTION POLICY
The Fund's board adopted a managed distribution policy in May 1998, which
means that the Fund will make regular monthly distributions at an annualized
rate equal to 8% of the Fund's net asset value, as determined as of the last
trading day during the first week of that month (usually a Friday, unless the
New York Stock Exchange is closed that Friday). Prior to May 13, 1998, the
Fund's distributions varied based on the Fund's net investment income and
realized capital gains or losses.
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
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. The Fund's board will annually reassess the
annualized percentage of net asset value at which the Fund's monthly
distributions will be made.
18
<PAGE>
DIRECTORS
E. Garrett Bewkes, Jr. Meyer Feldberg
Chairman George W. Gowen
Margo N. Alexander Frederic V. Malek
Richard Q. Armstrong Carl W. Schafer
Richard R. Burt Brian M. Storms
Mary C. Farrell
PRINCIPAL OFFICERS
Margo N. Alexander Paul H. Schubert
President Vice President and Treasurer
Victoria E. Schonfeld Dennis L. McCauley
Vice President Vice President
Dianne E. O'Donnell Stuart Waugh
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 of independent accountants 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.
