<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC. ANNUAL REPORT
January 15, 1999
- -------------------------------------------------------
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:
$286.5 million as of November 30, 1998
- - DIVIDEND PAYMENTS:
Monthly
- -------------------------------------------------------
Dear Shareholder,
We are pleased to present you with the annual report for the Strategic Global
Income Fund, Inc. (the "Fund") for the fiscal year ended November 30, 1998.
MARKET OVERVIEW
- -------------------------------------------------------------------------------
Government bond markets in developed countries were prime beneficiaries of
the "flight to quality" that dominated the past year as investors put safety
ahead of most other concerns. Fears of financial stresses from the collapse
of emerging stock and bond markets drove down yields in virtually all
developed markets to levels not seen in decades.
After the sell-off of October 1997, emerging debt markets recovered from
January through May 1998, but fell again when Russia defaulted on its
domestic debt in August. Liquidity dried up and selling became indiscriminate
as hedge funds sold to meet margin calls and open-end mutual funds sold in
anticipation of redemptions. Because of its closed-end structure, the Fund
was not forced to sell securities at disadvantageous prices.
As measured by the Salomon Brothers World Government Bond Index (WGBI),
developed nations' bond markets gained 12.52% on a currency-hedged basis for
the 12 months ended November 30, 1998. Emerging market debt, as measured by
the JP Morgan Emerging Market Bond Index Plus, lost 9.13% over the same
period. The best performing markets in the WGBI were the United States and
Japan; and European markets such as Germany, France and the United Kingdom.
PORTFOLIO REVIEW
- -------------------------------------------------------------------------------
Performance
For the fiscal year ended Novem-ber 30, 1998, the Fund (NYSE symbol: SGL)
gained 7.15% 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 gained 10.66% based on changes in its share price on
the New York Stock Exchange (assuming dividends were reinvested under the
Dividend Reinvestment Plan).
At November 30, 1998, the Fund's net asset value per share was $13.55, while
its share price on the New York Stock Exchange was $11.75. During the fiscal
year ended November 30, 1998, the Fund paid dividends from net investment
income totaling $0.8663 per share, or about eight cents per share per month.
The Fund also paid $0.0589 per share from paid-in capital, $0.0846 per share
from short-term capital gains and $0.4109 per share from long-term capital
gains.
During the fiscal year the Fund's Board of Directors adopted a managed
distribution policy, which means that the Fund pays regular monthly dividends
at an annualized rate based on the Fund's net asset value. For more
information on how this policy works, please see "Distribution Policy" in the
General Information section at the back of this book. (This change was
announced in the semiannual report dated July 15, 1998.)
- -------------------------------------
EDGAR REPRESENTATION OF GRAPHIC DATA:
STRATEGIC GLOBAL INCOME FUND, INC.
<TABLE>
<CAPTION>
Currency Exposure(1)
<S> <C>
U.S.-dollar denominated 56.9%
Foreign currency unhedged 31.2%
Foreign currency hedged 11.9%
</TABLE>
- -------------------------------------
(1) All weightings represent percentages of net assets as of November 30, 1998,
unless noted otherwise. The Fund is actively managed and all holdings are
subject to change.
1
<PAGE>
- -------------------------------------
EDGAR REPRESENTATION OF GRAPHIC DATA:
STRATEGIC GLOBAL INCOME FUND, INC.
<TABLE>
<CAPTION>
Asset Allocation(1)
<S> <C>
Investment grade debt 69.8%
Noninvestment grade debt 16.4%
Cash and cash equivalents 11.7%
Net interest receivable 2.1%
</TABLE>
- -------------------------------------
SHARE REPURCHASES
On September 16, 1998, the Fund announced that its Board of Directors had
authorized the Fund to repurchase up to 10% of its outstanding shares of
common stock. The goals of this repurchase program are to reduce the Fund's
discount to its net asset value and to increase its return to shareholders.
Share repurchases began on September 17 and have continued in fiscal year
1999.
HIGHLIGHTS
We maintained the Fund's strategy in developed markets throughout the fiscal
year. Our exposure in the United States consisted primarily of
intermediate-maturity Treasury and investment-grade bonds. These instruments
did well during the volatile August-October 1998 period. The Fund remained
underweighted in Europe relative to the indices, its holdings concentrated in
intermediate maturities of Germany, Holland and the United Kingdom. The
Fund's allocation to emerging markets averaged about 25% over the course of
the fiscal year.
OUTLOOK
- -------------------------------------------------------------------------------
Worldwide imbalances of investment capital -- caused by over-investment in
some regions and excess leverage in others-- are returning to equilibrium.
The most apparent remaining imbalance is the negative U.S. savings rate.
Additionally, Brazil's balance of payments and fiscal problems are not over.
U.S. economic growth is likely to slow because of: continued slowing in
manufacturing due to weak exports; and slower consumer spending as the
negative savings rate turns positive. Inflation is likely to increase, but
the weaker economy should hold it in check. The economy seems vulnerable to a
stock market correction -- the only foreseeable event that could sustain the
"flight-to-quality" bid for Treasurys.
Europe is likely to produce steady, low growth with little inflation. The
European Central Bank is concerned with economic stability and is unlikely to
change interest rates. The euro is likely to remain stable against the U.S.
dollar.
Low growth appears likely for the Asian economies, though their financial
markets are stabilizing. Interest rates are already low. Risks include social
unrest in Indonesia and Malaysia, devaluations in China or Hong Kong, and
further recession in Japan.
The Fund has taken a neutral duration stance in the United States. The Fund
has taken a short stance in Europe because low risk premiums already price in
a favorable environment for bonds. We may increase the Fund's exposure to
Asia if conditions warrant in 1999. Emerging-market bonds are very
attractively priced, but the problems in Brazil could hurt the entire sector.
We are holding off raising the Fund's emerging market exposure
(1) All weightings represent percentages of net assets as of November 30, 1998,
unless noted otherwise. The Fund is actively managed and all holdings are
subject to change.
2
<PAGE>
until Brazil's situation stabilizes.
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 a fund in the Paine Webber Family of funds,(2) 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 fiscal year ended November 30, 1998, and reflects our
views at the time of 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.
(2) 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 NOVEMBER 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)* DATES RATES VALUE
- ------------- -------------------- ----------------- -------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT SECURITIES--86.23%
BRAZIL--1.65%
US$ 7,183 Federal Republic of Brazil,
C........................... 04/15/14 8.000%+ $ 4,723,139
-------------
BULGARIA--1.06%
US$ 5,000 Republic of Bulgaria, FLIRB... 07/28/12 2.500# 3,025,000
-------------
CANADA--3.56%
14,735 Government of Canada.......... 03/01/01 to 09/01/01 7.000 to 7.500 10,188,138
-------------
CHILE--0.59%
US$ 1,850 Empresa Nacional de
Electricidad, S. A.......... 02/01/37 7.325 1,695,497
-------------
FRANCE--1.16%
16,200 Government of France.......... 10/25/25 6.000 3,328,853
-------------
GERMANY--7.68%
31,953 Federal Republic of Germany... 09/20/01 to 01/04/28 5.625 to 8.250 22,016,161
-------------
GREECE--1.93%
1,540,000 Republic of Hellenic.......... 03/21/02 to 03/26/08 8.600 to 9.200 5,521,741
-------------
ITALY--2.61%
10,295,000 Republic of Italy............. 04/01/04 8.500 7,483,817
-------------
JAPAN--0.83%
US$ 2,330 Sony Corporation.............. 03/04/03 6.125 2,373,869
-------------
KOREA--2.63%
US$ 7,640 Republic of Korea............. 04/15/03 to 04/15/08 8.750 to 8.875 7,535,788
-------------
MEXICO--5.32%
US$ 2,536 Coca Cola Femsa, S.A. de
C.V......................... 11/01/06 8.950 2,536,000
US$ 4,063 Mexican Multi Year Refinance
Loan Participation (Salomon
Brothers) (1)(2)............ 03/20/05 6.563+ 3,331,250
US$ 8,787 United Mexican States, DISC
(3)......................... 12/31/19 6.039 to 6.116+ 7,051,568
US$ 3,000 United Mexican States, PAR
(4)......................... 12/31/19 6.250 2,310,000
-------------
15,228,818
-------------
MOROCCO--3.97%
US$ 9,005 Kingdom of Morocco Loan
Participation, Tranche A
(JP Morgan) (1)(2).......... 01/01/09 6.063+ 7,305,306
US$ 5,000 Kingdom of Morocco Loan
Participation, Tranche A
(Salomon Brothers) (1)(2)... 01/01/09 6.063+ 4,056,250
-------------
11,361,556
-------------
NETHERLANDS--4.39%
21,582 Government of Netherlands..... 05/15/00 to 09/15/01 8.750 to 9.000 12,567,756
-------------
NEW ZEALAND--1.98%
9,423 Government of New Zealand..... 03/15/02 10.000 5,672,122
-------------
</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>
POLAND--5.05%
20,011 Republic of Poland (1)........ 06/12/02 to 02/12/03 12.000% $ 5,847,177
US$ 13,000 Republic of Poland, PAR....... 10/27/24 3.000# 8,628,750
-------------
14,475,927
-------------
RUSSIA--0.20%
US$ 148 Russian IAN................... 12/15/15 6.625+ 18,095
US$ 8,420 Russian Principal Loan (Chase
Manhattan Bank) (1)(2)...... 12/15/20 6.625+ 568,350
-------------
586,445
-------------
SPAIN--1.63%
595,500 Government of Spain........... 01/31/08 6.000 4,662,759
-------------
SWEDEN--1.25%
24,000 Kingdom of Sweden............. 06/15/01 13.000 3,594,992
-------------
UNITED KINGDOM--14.38%
21,031 United Kingdom Gilt........... 07/14/00 to 12/07/15 8.000 to 13.000 41,207,252
-------------
UNITED STATES--22.74%
1,825 Associates Corporation of
North America............... 11/01/03 5.750 1,837,985
NZD 2,325 Federal National Mortgage
Association................. 06/20/02 7.250 1,273,999
11,845 Federal National Mortgage
Association................. 04/15/03 5.750 12,183,992
6,000 Ford Motor Credit
Corporation................. 09/10/02 6.550 6,188,418
6,000 General Motors Acceptance
Corporation................. 11/10/03 5.750 6,017,022
3,000 Philip Morris Companies
Incorporated................ 07/15/05 7.000 3,174,315
10,633 U.S. Treasury Inflation Index
Notes....................... 01/15/08 to 04/15/28 3.625 10,568,753
22,855 U.S. Treasury Notes........... 08/31/00 to 11/15/27 4.625 to 6.500 23,894,685
-------------
65,139,169
-------------
VENEZUELA--1.62%
US$ 2,808 Republic of Venezuela......... 09/15/27 9.250 1,551,420
US$ 4,825 Republic of Venezuela, PAR
(5)......................... 03/31/20 6.750 3,088,000
-------------
4,639,420
-------------
Total Long-Term Debt Securities
(cost--$248,635,863)......................... 247,028,219
-------------
SHORT-TERM DEBT SECURITIES--4.34%
UNITED STATES--4.34%
12,170 U.S. Treasury Notes
(cost--$12,557,738)......... 08/15/99 8.000 12,443,825
-------------
</TABLE>
5
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- ------------- -------------------- ----------------- -------------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENTS--7.33%
$ 3,000 Repurchase Agreement dated
11/30/98 with Dresdner Bank
AG, collateralized by
$2,852,000 U.S. Treasury
Notes, 6.625% due 06/30/01
(value-$3,060,344);
proceeds: $3,000,433........ 12/01/98 5.200% $ 3,000,000
-------------
9,000 Repurchase Agreement dated
11/30/98 with Morgan
Stanley, Dean Witter &
Company, collateralized by
$6,790,000 U.S. Treasury
Bonds, 8.125% due 05/15/21
(value-$9,183,475);
proceeds: $9,001,275........ 12/01/98 5.100 9,000,000
-------------
9,000 Repurchase Agreement dated
11/30/98 with Salomon Smith
Barney, Inc., collateralized
by $8,683,000 U.S. Treasury
Notes, 5.625% due 12/31/02
(value-$9,184,016);
proceeds: $9,001,313........ 12/01/98 5.250 9,000,000
-------------
Total Repurchase Agreements
(cost--$21,000,000).......................... 21,000,000
-------------
Total Investments
(cost--$282,193,601)--97.90%................. 280,472,044
Other assets in excess of liabilities--2.10%... 6,023,365
-------------
Net Assets--100.00%............................ $ 286,495,409
-------------
-------------
</TABLE>
- -----------------
Note: The Portfolio of Investments is listed by the issuer's country of origin.
* In local currency unless otherwise indicated
C Capitalization Bond
DISC Discount Bond
FLIRB Front-loaded Interest Reduction Bond
IAN Interest Accrual Note
NZD New Zealand Dollars
PAR Par Bond
US$ United States Dollars
+ Reflects rates at November 30, 1998 on variable coupon rate instruments
# Reflects rates at November 30, 1998 on step coupon rate instruments
(1) Illiquid securities representing 7.37% of net assets.
(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 24,125 oil warrants attached expiring on 04/15/20 with no market
value
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>
12/02/98 to
British Pounds................ 11,000,000 US$ 18,274,850 01/04/99 $ 139,144
British Pounds................ 5,260,000 US$ 8,721,080 12/29/98 55,448
British Pounds................ 4,815,000 US$ 7,965,936 12/16/98 28,330
12/07/98 to
British Pounds................ 4,535,000 US$ 7,627,660 12/16/98 150,266
12/02/98 to
German Deutschemarks.......... 29,639,750 US$ 17,726,806 02/12/99 251,511
German Deutschemarks.......... 11,059,000 US$ 6,730,980 12/02/98 210,920
German Deutschemarks.......... 5,645,500 US$ 3,366,958 02/12/99 37,017
New Zealand Dollars........... 8,525,000 US$ 4,304,200 07/06/99 (182,935)
New Zealand Dollars........... 6,531,000 US$ 3,507,865 12/14/98 70,273
02/22/99 to
Polish Zloties................ 29,829,702 US$ 7,708,592 02/24/99 (723,371)
Swedish Kronas................ 25,300,000 US$ 3,180,390 04/19/99 61,600
U.S. Dollars.................. 3,600,000 AUD 2,320,200 12/28/98 (58,139)
12/02/98 to
U.S. Dollars.................. 31,117,750 DEM 18,693,961 02/12/99 (347,854)
U.S. Dollars.................. 13,338,000 DEM 8,100,160 12/02/98 (236,469)
U.S. Dollars.................. 5,500,000 GBP 9,072,800 12/02/98 278
U.S. Dollars.................. 11,105,000 NLG 5,777,836 12/28/98 36,714
U.S. Dollars.................. 6,531,000 NZD 3,530,659 12/14/98 (93,066)
U.S. Dollars.................. 8,525,000 NZD 4,185,775 07/06/99 301,360
U.S. Dollars.................. 12,700,195 PLN 3,277,047 02/24/99 369,553
-------------
$ 70,580
-------------
-------------
</TABLE>
- -----------------
CURRENCY TYPE ABBREVIATIONS:
AUD Australian Dollars
DEM German Deutchemarks
GBP British Pounds
NLG Netherlands Guilders
NZD New Zealand Dollars
PLN Polish Zloties
US$ United States Dollars
INVESTMENTS BY TYPE OF ISSUER
<TABLE>
<CAPTION>
PERCENTAGE OF NET
ASSETS
----------------------
LONG-TERM SHORT-TERM
--------- ----------
<S> <C> <C>
Government and other public issuers......................... 77.91% 4.34%
Repurchase agreements....................................... -- 7.33
Financial................................................... 4.90 --
Tobacco..................................................... 1.11 --
Industrial.................................................. 0.89 --
Manufacturing............................................... 0.83 --
Utilities--Electric & Water................................. 0.59 --
--------- -----
86.23% 11.67%
--------- -----
--------- -----
</TABLE>
See accompanying notes to financial statements
7
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES NOVEMBER 30, 1998
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost--$282,193,601).... $ 280,472,044
Interest receivable......................................... 4,860,402
Unrealized appreciation on forward foreign currency
contracts................................................. 1,712,414
Receivables for investments and foreign currency sold....... 1,439,117
Receivable for foreign taxes withheld....................... 280,086
Other assets................................................ 47,602
-------------
Total assets................................................ 288,811,665
-------------
LIABILITIES:
Unrealized depreciation on forward foreign currency
contracts................................................. 1,641,834
Payable to affiliates....................................... 235,775
Payable for shares of capital stock repurchased............. 120,412
Accrued expenses and other liabilities...................... 318,235
-------------
Total liabilities........................................... 2,316,256
-------------
NET ASSETS:
Capital stock--$0.001 par value; total authorized
shares--100,000,000; 21,150,428 shares issued and
outstanding............................................... 291,917,333
Distributions in excess of net investment income............ (3,134,081)
Accumulated net realized losses from investment
transactions.............................................. (488,977)
Net unrealized depreciation of investments, other assets,
liabilities and forward contracts denominated in foreign
currencies................................................ (1,798,866)
-------------
Net assets.................................................. $ 286,495,409
-------------
-------------
Net asset value per share................................... $13.55
-------------
-------------
</TABLE>
See accompanying notes to financial statements
8
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
NOVEMBER 30,
1998
------------
<S> <C>
INVESTMENT INCOME:
Interest (net of foreign withholding taxes)................. $23,254,288
------------
EXPENSES:
Investment advisory and administration...................... 2,913,068
Custody and accounting...................................... 244,533
Reports and notices to shareholders......................... 88,255
Legal and audit fees........................................ 83,806
Transfer agency fees........................................ 21,919
Directors' fees............................................. 12,142
Other expenses.............................................. 22,109
------------
3,385,832
------------
NET INVESTMENT INCOME....................................... 19,868,456
------------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT
TRANSACTIONS:
Net realized gains (losses) from:
Investment transactions................................. 3,457,367
Foreign currency transactions........................... (2,344,342)
Net change in unrealized appreciation/depreciation of:
Investments............................................. (1,116,313)
Other assets, liabilities and forward contracts
denominated in foreign currencies....................... (341,222)
------------
NET REALIZED AND UNREALIZED LOSS FROM INVESTMENT
TRANSACTIONS.............................................. (344,510)
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $19,523,946
------------
------------
</TABLE>
See accompanying notes to financial statements
9
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED NOVEMBER 30,
-------------------------------------------
1998 1997
-------------------- --------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income............................. $ 19,868,456 $ 23,274,230
Net realized gains from investment transactions... 3,457,367 15,899,310
Net realized losses from foreign currency
transactions.................................... (2,344,342) (3,753,279)
Net change in unrealized appreciation/depreciation
of:
Investments..................................... (1,116,313) (21,692,914)
Other assets, liabilities and forward contracts
denominated in foreign currencies............... (341,222) 1,850,210
-------------------- --------------------
Net increase in net assets resulting from
operations...................................... 19,523,946 15,577,557
-------------------- --------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................. (18,535,356) (20,467,355)
Net realized gains from investment transactions... (10,578,170) (3,455,110)
Paid in capital................................... (1,264,040) --
-------------------- --------------------
(30,377,566) (23,922,465)
-------------------- --------------------
CAPITAL STOCK TRANSACTIONS:
Cost of shares repurchased........................ (3,019,634) --
-------------------- --------------------
Net decrease in net assets........................ (13,873,254) (8,344,908)
NET ASSETS:
Beginning of year................................. 300,368,663 308,713,571
-------------------- --------------------
End of year....................................... $ 286,495,409 $ 300,368,663
-------------------- --------------------
-------------------- --------------------
</TABLE>
See accompanying notes to financial statements
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Strategic Global Income Fund, Inc. (the "Fund") was incorporated in the state
of Maryland on November 15, 1991 and is registered with the Securities and
Exchange Commission as a closed-end, non-diversified management investment
company.
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 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 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 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
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 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
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
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 November 30, 1998, the Fund owed Mitchell Hutchins
$235,491 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 year ended
November 30, 1998, PaineWebber earned $33,713 as the Fund's lending agent. In
addition, the Fund earned compensation of $99,515 net of fees, rebates and
expenses, from securities lending transactions. At November 30, 1998, the Fund
owed PaineWebber $284 for security lending fees. At November 30, 1998 there were
no securities on loan. PaineWebber also has been approved as a borrower under
the Fund's securities lending program.
BANK LINE OF CREDIT
The Fund may participate with other funds managed by Mitchell Hutchins in a
$200 million committed credit facility ("Facility") to be utilized for temporary
financing until the settlement of sale or purchase of portfolio securities, the
repurchase of shares of the Fund and other temporary or emergency purposes. In
connection therewith, the Fund has agreed to pay a commitment fee, pro rata,
based on the relative asset size of the funds in the Facility. Interest is
charged to the Fund at rates based on prevailing market rates in effect at the
time of borrowings. For the year ended November 30, 1998, the Fund did not
borrow under the Facility.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at November 30,
1998, was substantially the same as the cost of securities for financial
statement purposes.
At November 30, 1998, the components of net unrealized depreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of value
over cost)................................................ $ 1,037,345
Gross depreciation (investments having an excess of cost
over value)............................................... (2,758,902)
------------
Net unrealized depreciation of investments.................. $ (1,721,557)
------------
------------
</TABLE>
For the year ended November 30, 1998, aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $325,951,399 and
$298,324,137, respectively.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
CAPITAL STOCK
There are 100,000,000 shares of $0.001 par value capital stock authorized. Of
the 21,150,428 shares outstanding at November 30, 1998, Mitchell Hutchins owned
9,887 shares.
For the period September 17, 1998 (commencement of repurchase program) through
November 30, 1998, the Fund repurchased 256,700 shares of capital stock at an
average market price per share of $11.70 and a weighted average discount from
net asset value of 12.76% per share. At November 30, 1998, paid-in-capital is
net the cost of $3,019,634 of capital stock reacquired.
FEDERAL TAX STATUS
The Fund intends to distribute substantially all of its taxable income and to
comply with the other requirements of the Internal Revenue Code applicable to
regulated investment companies. Accordingly, no provision for federal income
taxes is required. In addition, by distributing during each calendar year
substantially all of its net investment income, capital gains and certain other
amounts, if any, the Fund intends not to be subject to a federal excise tax.
To reflect reclassifications arising from permanent "book/tax" differences for
the year ended November 30, 1998, undistributed net investment income was
decreased by $1,082,441 accumulated net realized gains from investment
transactions were increased by $2,346,481 and capital stock was decreased by
$1,264,040. Permanent book/tax differences are primarily attributable to foreign
currency gains/losses.
14
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each year is
presented below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED NOVEMBER 30,
---------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year...... $ 14.03 $ 14.42 $ 13.41 $ 13.07 $ 14.92
--------- --------- --------- --------- ---------
Net investment income................... 0.94 1.09 1.12 1.19 1.08
Net realized and unrealized gains
(losses) from investments and foreign
currency............................... (0.02) (0.36) 1.12 0.27 (1.80)
--------- --------- --------- --------- ---------
Net increase (decrease) from investment
operations............................. 0.92 0.73 2.24 1.46 (0.72)
--------- --------- --------- --------- ---------
Dividends from net investment income.... (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)
Distribution from paid in capital....... (0.06) -- -- -- (0.16)
--------- --------- --------- --------- ---------
Total dividends and distributions to
shareholders........................... (1.42) (1.12) (1.23) (1.12) (1.13)
--------- --------- --------- --------- ---------
Net increase in net asset value
resulting from repurchase of capital
stock.................................. 0.02 -- -- -- --
--------- --------- --------- --------- ---------
Net asset value, end of year............ $ 13.55 $ 14.03 $ 14.42 $ 13.41 $ 13.07
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Market value, end of year............... $ 11.75 $ 11.94 $ 12.25 $ 11.25 $ 11.13
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total investment return (1)............. 10.66% 6.67% 20.80% 11.81% (14.53)%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratios/Supplemental Data:
Net assets, end of year (000's)......... $286,495 $300,369 $308,714 $287,159 $279,773
Expenses to average net assets.......... 1.16% 1.20% 1.21% 1.24% 1.27%
Net investment income to average net
assets................................. 6.82% 7.63% 8.14% 9.20% 8.01%
Portfolio turnover rate................. 120% 134% 111% 121% 82%
</TABLE>
- -----------------
(1) Total investment return is calculated assuming a purchase at market value on
the first day of each year reported, reinvestment of all dividends and
distributions in accordance with the Fund's Dividend Reinvestment Plan, and a
sale at market value on the last day of each year reported. Total investment
return does not reflect brokerage commissions.
15
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Strategic Global Income Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Strategic Global Income Fund, Inc., including the portfolio of investments, as
of November 30, 1998, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned at November 30, 1998, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Strategic Global Income Fund, Inc. at November 30, 1998 and the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the indicated periods, in conformity with generally accepted accounting
principles.
[ERNST & YOUNG SIGNATURE]
New York, New York
January 20, 1999
16
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
TAX INFORMATION (UNAUDITED)
We are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of the Fund's fiscal year end (November
30, 1998) as to the federal tax status of distributions received by shareholders
during such fiscal year. Accordingly, we are advising you that the Fund made
distributions during the fiscal year of $0.8663 taxable as ordinary income,
$0.0589 from paid-in capital, $0.0846 from short-term capital gains, and $0.4109
from long-term capital gains.
Dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need not
be reported as taxable income. Some retirement trusts (e.g., corporate, Keogh
and 403(b)(7) plans) may need this information for their annual information
reporting.
Since the Fund's fiscal year is not the calendar year, another notification
will be sent in respect of calendar 1998. The second notification, which will
reflect the amount to be used by calendar year taxpayers on their federal income
tax returns, will be made in conjunction with Form 1099 DIV and will be mailed
in January 1999. Shareholders are advised to consult their own tax advisers with
respect to the tax consequences of their investment in the Fund.
17
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
GENERAL INFORMATION(UNAUDITED)
THE FUND
Strategic Global Income Fund, Inc. (the "Fund") is a non-diversified,
closed-end management investment company whose shares trade on the New York
Stock Exchange, Inc. ("NYSE"). The Fund's primary investment objective is to
achieve a high level of current income; capital appreciation is a secondary
objective in the selection of investments. The Fund's investment adviser and
administrator is Mitchell Hutchins Asset Management Inc., a wholly owned asset
management subsidiary of PaineWebber Incorporated, which had approximately $57.1
billion in assets under management as of December 31, 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 and NEW YORK TIMES and BARRON'S, as well as numerous other publications.
The Fund's board of directors amended the Fund's bylaws to require that the
Fund receive notice of board nominations or proposals that any shareholder
wishes to be considered at an annual or special shareholder meeting. This notice
will give Fund management an opportunity to inform shareholders of and respond
to those nominations and proposals. The amendment will be effective for meetings
that occur after the Fund's 1999 annual meeting.
The amended bylaws require that the Fund receive notice of a nomination or
proposal for an annual meeting at least 120 days in advance of the anniversary
of the date that the Fund's proxy statement for the previous year's annual
meeting was first released to shareholders. For a special shareholder meeting,
the Fund must receive notice within seven days of the date on which notice of
the special meeting is first given to shareholders. In order to make a
nomination or proposal to be considered at the 2000 annual meeting of
shareholders, the Fund must receive notice of that nomination or proposal no
later than October 1, 1999.
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 entitities 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.
EUROPEAN CURRENCY UNIFICATION
Several European countries adopted a single currency, the euro, on January 1,
1999. Countries participating in the Economic and Monetary Union caused their
exchange rates to become irrevocably fixed on that date. The countries
participating are Austria, Belgium, Finland, France, Germany, Ireland, Italy,
Luxembourg, the Netherlands, Portugal and Spain. A newly created European
Central Bank (ECB) is attempting to manage monetary policy for this region.
18
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
GENERAL INFORMATION (CONTINUED)
Pre-existing national currencies will continue to be valid until they are
replaced by euro coins and bank notes, which is expected to occur by sometime in
2002. These changes may significantly impact European capital markets, and
related risks may increase volatility in world capital markets. This, in turn,
may impact the Fund's share price.
Risks related to the euro include the following: potential increased
volatility in exchange rates, especially between European countries that are
participating in the new currency and those that are not (including the United
Kingdom, Sweden and Denmark); unanticipated expenses incurred in accommodating
the new currency; investor uncertainty resulting in asset shifts away from the
affected currencies; disputes concerning the enforceability of contracts; and
interest rate and exchange rate volatility as the new ECB and market
participants search for a common understanding of policy targets and
instruments.
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 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 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.
The transfer agent's fees for handling the reinvestment of distributions are
paid by the Fund. However, each participant pays a pro rata share of brokerage
commissions incurred with respect to the transfer agent's open market purchases
of 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.
19
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
GENERAL INFORMATION (CONCLUDED)
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.
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
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 has applied to the Securities
and Exchange Commission to enable this change. The Fund's board will annually
reassess the annualized percentage of net assets at which the Fund's monthly
distributions will be made.
20
<PAGE>
- -------------------------------------------------------------------------------
DIRECTORS
E. Garrett Bewkes, Jr.
CHAIRMAN
Margo N. Alexander
Richard Q. Armstrong
Richard R. Burt
Mary C. Farrell
Meyer Feldberg
George W. Gowen
Frederic V. Malek
Carl W. Schafer
PRINCIPAL OFFICERS
Margo N. Alexander
PRESIDENT
Victoria E. Schonfeld
VICE PRESIDENT
Dianne E. O'Donnell
VICE PRESIDENT AND SECRETARY
Paul H. Schubert
VICE PRESIDENT AND TREASURER
Stuart Waugh
VICE PRESIDENT
Dennis McCauley
VICE PRESIDENT
INVESTMENT ADVISER AND
ADMINISTRATOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
NOTICE IS HEREBY GIVEN IN ACCORDANCE WITH SECTION 23(c) OF THE INVESTMENT
COMPANY ACT OF 1940 THAT FROM TIME TO TIME THE FUND MAY PURCHASE SHARES OF
ITS COMMON STOCK IN THE OPEN MARKET AT MARKET PRICES.
THIS REPORT IS SENT TO THE SHAREHOLDERS OF THE FUND FOR THEIR INFORMATION. IT
IS NOT A PROSPECTUS, CIRCULAR OR REPRESENTATION INTENDED FOR THE USE IN THE
PURCHASE OR SALE OF SHARES OF THE FUND OR OF ANY SECURITIES MENTIONED IN THIS
REPORT.
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
ANNUAL REPORT
November 30, 1998
[LOGO]
- -c- 1999 PaineWebber Incorporated
Member SIPC
