STRATEGIC GLOBAL INCOME FUND, INC. ANNUAL REPORT
Dear Shareholder,
We are pleased to present you with the annual report for Strategic Global Income
Fund, Inc. (the "Fund") for the fiscal year ended November 30, 1999.
MARKET REVIEW
================================================================================
[GRAPHIC OMITTED]
Resurgent global economic growth put upward pressure on interest rates in
most developed countries during the fiscal year ended November 30, 1999,
resulting in only modest bond returns for the twelve month period. The Salomon
Smith Barney World Government Bond Index (WGBI) returned only 1.05% on a
currency-hedged basis for the 12 months ended November 30, 1999. As the dollar
strengthened overall against currencies represented in the Index (the yen's
strength was exceptional), the WGBI lost 2.10% on an unhedged basis.
Emerging market bonds were the best performers last year, gaining 16.52% as
measured by the JP Morgan Emerging Market Bond Index Plus (EMBI+). These markets
saw a return of investor confidence after the sharp sell-off in the wake of the
Russian debt crisis of 1998. The improving world economic growth and higher
commodity prices are especially helpful to many of these natural resource based
economies.
The performance of the world's economies improved considerably in the last
six months of the fiscal year. The United States, an engine of growth for
several years, continued to perform exceptionally well and will almost certainly
achieve a record for the longest expansion in February 2000. European economies,
which were slow to rebound from the slump caused by the emerging markets crisis,
have picked up strongly in recent months led by a sharp rebound in export orders
and improving employment conditions. Japan's economy also recovered from crisis
conditions in 1998, helped by massive government spending and the Bank of
Japan's zero interest rate policy.
- -----------------------
STRATEGIC GLOBAL
INCOME FUND, INC.
FUND PROFILE
INVESTMENT GOALS:
Primarily, high current
income; secondarily,
capital appreciation
PORTFOLIO MANAGER:
Stuart Waugh,
Mitchell Hutchins
Asset Management Inc.
COMMENCEMENT:
February 3, 1992
NYSE SYMBOL:
SGL
DIVIDEND PAYMENTS:
Monthly
- -----------------------
1
<PAGE>
ANNUAL REPORT
PORTFOLIO REVIEW
================================================================================
[GRAPHIC OMITTED]
AVERAGE ANNUAL TOTAL RETURNS (%), PERIODS ENDED 11/30/991
Since Inception
1 Yr. 5 Yrs. 2/3/92
- --------------------------------------------------------------------------------
Net Asset Value Return(2) 0.51 8.28 7.17
Market Price Return(3) -6.41 8.38 5.17
SSB World Government Bond Index(4) -2.10 6.53 7.71
JPM Emerging Market Bond Index Plus 16.52 13.82 N/A
- --------------------------------------------------------------------------------
- ----------
1 Returns do not reflect any commissions and are not representative of the
performance of an individual investment. The Fund's share price and
investment return will vary so that an investor's shares may be worth more or
less than their original cost. Past performance is no guarantee of future
results.
2 NAV return assumes, for illustration only, that dividends were reinvested at
the net asset value on the payable dates.
3 Market price return assumes dividends were reinvested under the Dividend
Reinvestment Plan.
4 Unhedged, in $U.S. dollar terms.
Share Price, Dividend and Yield,(5) 11/30/99
- --------------------------------------------
Net Asset Value $12.56
Market Price $10.00
12-Mo. Dividend $1.0435
Market Yield(6) 10.21%
IPO Yield(7) 6.81%
- --------------------------------------------
5 Prices and yields will vary.
6 Market yield is calculated by multiplying the November distribution by 12 and
dividing by the Fund's closing price on November 30, 1999.
7 IPO yield is calculated by multiplying the November distribution by 12 and
dividing by the initial public offering price. Portfolio Positioning
PORTFOLIO POSITIONING
From January 1999 we positioned the Fund for a growth recovery. We kept
duration (a measure of a bond fund's sensitivity to interest rates) between four
and four-and-a-half years, more than a year underweighted relative to the WGBI.
We maintained exposure in TIPS (Treasury Inflation-Protection Securities). We
underweighted European and Japanese markets because they offered low yields.
Combined, these strategies helped to mitigate the negative impact of rising
yields in developed markets during the fiscal year.
We substantially increased the Fund's allocation to noninvestment grade,
emerging market debt early in the year and added selectively in the second half.
This allocation decision added substantial value to the Fund's relative
performance against the WGBI.
ASSET ALLOCATION* 11/30/99 5/31/99 11/30/98
- --------------------------------------------------------------------------------
Investment Grade Debt 71.8% 70.9% 71.3%
Noninvestment Grade Debt 28.2 22.8 16.8
Cash 0.0 6.3 11.9
- --------------------------------------------------------------------------------
Total 100.0 100.0 100.0
* Weightings represent percentages of portfolio assets as of November 30, 1999,
unless indicated otherwise. The Fund's portfolio is actively managed and its
composition will vary over time.
2
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC. ANNUAL REPORT
OUTLOOK AND STRATEGY
================================================================================
[GRAPHIC OMITTED]
We have extended the Fund's duration after the recent back-up in yields by
roughly 1/3rd of a year to over 4.6 years, still a significant underweight
globally.
CHARACTERISTICS* 11/30/99 5/31/99 11/30/98
- --------------------------------------------------------------------------------
Weighted Average Maturity (years) 9.1 yrs 9.1 yrs 8.1 yrs
Weighted Average Duration (est.) 4.3 yrs 4.3 yrs 4.2 yrs
Net Assets ($mm) $247.9 $262.4 $286.5
- --------------------------------------------------------------------------------
The Fund's global duration underweight derives primarily from its zero-weight
in Japanese Government Bonds (JGB). We expect to maintain this zero-weight
exposure. Not only does the Japanese Ministry of Finance plan to issue an
overwhelming supply of JGB in 2000, any recovery in Japan should be accompanied
by some "normal" inflation and expectations of monetary tightening. Yet the JGB
yield curve continues to price in only deflation.
The Fund is slightly overweight duration in the United States and underweight
duration in Europe. Although market yields in the United States and Europe are
becoming more attractive, we have not seen the convergence of circumstances that
would lead us to expect significant price upside. Therefore, we have not made up
for the underweight position in Japan with substantial overweight positions in
these markets.
CURRENCY EXPOSURE* 11/30/99 5/31/99 11/30/98
- --------------------------------------------------------------------------------
U.S. Dollar 59.5% 66.3% 56.9%
Foreign Currency 40.5 33.7 43.1
Total 100.0 100.0 100.0
- --------------------------------------------------------------------------------
The Fund presently has an approximately 30% weight in the euro, 6.5% weight
in UK sterling, 5.0% weight in commodity currencies, 2.0% in Korean won and 0%
in yen. The massive and accelerating U.S. current account deficit heightens the
risk of a reversal of the dollar's appreciation in the long term and increases
its vulnerability to a correction in the U.S. market. Nevertheless, in the short
term, our view on the dollar is more balanced, and we intend to adjust the
Fund's currency exposures based on macroeconomic and technical developments.
* Weightings represent percentages of portfolio assets as of November 30, 1999,
unless indicated otherwise. The Fund's portfolio is actively managed and its
composition will vary over time.
3
<PAGE>
ANNUAL REPORT
The Fund presently holds about 30% in noninvestment grade debt, close to the 35%
maximum allowed by prospectus. These investments are primarily in emerging
market credits that we believe have reasonable chances of receiving upgrades
this year (Mexico, Trinidad and Tobago, and Turkey). The Fund also owns some
lower rated credits like Brazil, which have high yields and where we believe the
credit outlook is stable in the short term.
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 a fund in the PaineWebber Family of Funds,(8) 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 fiscal year ended November 30,1999, 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.
8 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.
4
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)* DATES RATES VALUE
-------- --------- --------- ----------
<S> <C> <C> <C>
LONG-TERM DEBT SECURITIES--89.24%
BRAZIL--1.14%
US$ 4,221 Federal Republic of Brazil, DCB ................... 04/15/12 7.000%+ $2,822,794
-----------
BULGARIA--1.41%
US$ 5,000 Republic of Bulgaria, FLIRB ....................... 07/28/12 2.750# 3,500,000
-----------
CANADA--2.21%
7,935 Government of Canada .............................. 09/01/01 7.000 5,480,199
-----------
EL SALVADOR--1.53%
US$ 3,830 Republic of El Salvador (6)(9) .................... 08/15/06 9.500 3,791,700
-----------
GERMANY--9.26%
23,250 Federal Republic of Germany ....................... 07/15/03 to 07/04/09 3.250 to 6.500 22,959,992
-----------
HUNGARY--1.12%
700,000 Government of Hungary ............................. 06/12/01 13.500 2,781,749
-----------
ITALY--2.46%
5,317 Republic of Italy ................................. 04/01/04 8.500 6,102,696
-----------
JAPAN--0.93%
US$ 2,330 Sony Corporation .................................. 03/04/03 6.125 2,290,865
-----------
KOREA--2.18%
US$ 5,150 Republic of Korea ................................. 04/15/03 to 04/15/08 8.750 to 8.875 5,400,238
-----------
MEXICO--9.07%
US$ 2,536 Coca Cola Femsa, S.A. de C.V ...................... 11/01/06 8.950 2,516,980
US$ 3,438 Mexican Multi Year Refinance Loan Participation
(Salomon Brothers)(2)(6) 03/20/05 6.063+ 3,119,531
US$ 3,755 Pemex Finance Limited ............................. 11/15/03 6.125 3,636,718
US$12,032 United Mexican States, DISC (3).................... 12/31/19 6.933 to 6.943+ 10,888,960
US$ 3,000 United Mexican States, PAR (4) .................... 12/31/19 6.250 2,321,250
-----------
22,483,439
-----------
MOROCCO--4.17%
US$ 7,147 Kingdom of Morocco Loan Participation, Tranche A
(JP Morgan) (2)(6) 01/01/09 6.844+ 6,325,433
US$ 4,524 Kingdom of Morocco Loan Participation, Tranche A
(Salomon Brothers) (2)(6) 01/01/09 6.844+ 4,003,571
-----------
10,329,004
-----------
NETHERLANDS--5.31%
13,012 Government of Netherlands ......................... 09/15/01 to 01/15/28 5.500 to 8.750 13,165,951
-----------
NEW ZEALAND--0.94%
4,250 Government of New Zealand ......................... 03/15/02 10.000 2,331,403
-----------
</TABLE>
5
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)* DATES RATES VALUE
-------- --------- --------- ----------
<S> <C> <C> <C>
LONG-TERM DEBT SECURITIES (concluded)
Panama--1.64%
US$ 2,896 Republic of Panama ................................ 04/01/29 9.375% $2,722,240
US$ 1,806 Republic of Panama, PDI (7) ....................... 07/17/16 6.500+ 1,343,489
-----------
4,065,729
-----------
Philippines--2.52%
US$ 6,129 Republic of Philippines ........................... 10/21/24 9.500 6,242,999
-----------
Poland--3.44%
20,011 Republic of Poland ................................ 06/12/02 to 02/12/03 12.000 4,507,428
US$ 6,500 Republic of Poland, PAR ........................... 10/27/24 3.500# 4,030,000
-----------
8,537,428
-----------
Russia--0.47%
US$ 289 Russian IAN (1)(9) ................................ 12/15/15 6.063+ 44,148
US$ 8,420 Russian Principal Loan
(Chase Manhattan Bank) (1)(2)(6) 12/15/20 6.063+ 1,115,650
-----------
1,159,798
-----------
Trinidad & Tobago--1.84%
US$ 4,500 Republic of Trinidad & Tobago (6)(9) .............. 10/01/09 9.875 4,550,265
-----------
Tunisia--1.50%
US$ 4,500 Banque Centrale de Tunisie ........................ 09/19/27 8.250 3,723,750
-----------
Turkey--0.91%
US$ 2,215 Republic of Turkey ................................ 11/05/04 11.875 2,262,069
-----------
United Kingdom--10.33%
15,030 United Kingdom Gilt ............................... 08/27/02 to 12/07/03 6.500 to 10.000 25,612,128
-----------
United States--22.89%
1,825 Associates Corporation of North America ........... 11/01/03 5.750 1,751,591
3,740 CIT Group Incorporated ............................ 02/15/04 5.500 3,530,654
5,700 Clorox Corporation ................................ 07/15/01 8.800 5,899,614
NZD 2,325 Federal National Mortgage Association ............. 06/20/02 7.250 1,188,126
5,920 Federal National Mortgage Association ............. 05/15/08 6.000 5,620,904
2,735 FMR Corporation (9) ............................... 06/15/29 7.570 2,694,404
6,000 Ford Motor Credit Corporation ..................... 09/10/02 6.550 5,959,644
6,000 General Motors Acceptance Corporation ............. 11/10/03 5.750 5,743,086
2,700 Lear Corporation (9) .............................. 05/15/05 7.960 2,611,551
3,200 MGM Grand Incorporated ............................ 02/01/05 6.950 2,980,288
6,775 U.S. Treasury Bonds ............................... 11/15/27 6.125 6,455,308
10,633 U.S. Treasury Inflation Index Notes ............... 01/15/08 to 04/15/28 3.625 9,939,819
2,394 Wells Fargo Company ............................... 09/03/02 6.500 2,379,861
-----------
56,754,850
-----------
Venezuela--1.97%
US$ 2,808 Republic of Venezuela ............................. 09/15/27 9.250 1,776,060
US$ 4,825 Republic of Venezuela, PAR (5) .................... 03/31/20 6.750 3,112,125
-----------
4,888,185
-----------
Total Long-Term Debt Securities (cost-- $234,056,007).......... 221,237,231
-----------
</TABLE>
6
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)* DATES RATES VALUE
-------- --------- --------- ----------
<S> <C> <C> <C>
SHORT-TERM DEBT SECURITies--8.10%
Australia--2.41%
9,385 Australia Treasury Bill ........................... 12/09/99 4.750%(8) $ 5,976,967
------------
Germany--2.62%
6,445 Federal Republic of Germany ....................... 12/17/99 4.250 6,483,996
------------
Netherlands--1.66%
3,999 Government of Netherlands ......................... 05/15/00 9.000 4,118,240
------------
United States--1.41%
3,500 Federal Home Loan Bank ............................ 08/09/00 5.710 3,492,513
------------
Total Short-Term Debt Securities (cost--$21,228,894)........... 20,071,716
------------
Total Investments (cost--$255,284,901)--97.34%................. 241,308,94
Other assets in excess of other liabilities--2.66%............. 6,606,269
------------
Net Assets--100.00%............................................ $247,915,216
============
</TABLE>
Note: The Portfolio of Investments is listed by the issuer's country of origin.
* In local currency unless otherwise indicated.
DCB Debt Conversion Bond.
DISC Discount Bond.
FLIRB Front-loaded Interest Reduction Bond.
IAN Interest Arrears Note.
NZD New Zealand Dollars.
PAR Par Bond.
PDI Past Due Interest Bond.
US$ United States Dollars.
+ Reflects rate at November 30, 1999 on variable coupon rate instruments.
# Reflects rate at November 30, 1999 on step coupon rate instruments.
(1) Non-income producing security.
(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 9.24% of net assets.
(7) Interest may be capitalized.
(8) Interest rate shown is discount rate at date of purchase.
(9) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
See accompanying notes to financial statements
7
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
FORWARD FOREIGN CURRENCY CONTRACTS
Unrealized
Contracts to Appreciation
Deliver In Exchange for Maturity Dates (Depreciation)
------------ --------------- -------------- ------------
British Pounds ... 2,675,000 US$ 4,299,528 12/08/99 $ 32,555
British Pounds ... 3,815,000 US$ 6,140,929 02/29/00 52,189
U.S. Dollars ..... 3,309,058 EUR 3,140,000 12/06/99 (149,469)
U.S. Dollars ..... 1,787,614 EUR 1,709,000 02/22/00 (57,728)
U.S. Dollars ..... 4,909,213 KRW 5,703,290,000 01/26/00 10,598
---------
$(111,855)
=========
- ----------
Currency Type Abbreviation:
EUR - Euros
KRW - Korean Won
US$ - United States Dollars
INVESTMENTS BY TYPE OF ISSUER
Percentage of Net Assets
---------------------------
Long-term Short-term
--------- ----------
Government and other public issuers ................ 72.30% 8.10%
Financial .......................................... 9.95 --
Consumer Products .................................. 2.38 --
Oil/Gas ............................................ 1.47 --
Gaming ............................................. 1.20 --
Industrial ......................................... 1.02 --
Manufacturing ...................................... 0.92 --
----- -----
89.24% 8.10%
===== =====
See accompanying notes to financial statements
8
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES NOVEMBER 30, 1999
ASSETS
Investments in securities, at value (cost--$255,284,901) ........ $241,308,947
Cash denominated in foreign currencies, at value (cost--$10,243) 10,180
Interest receivable ............................................. 4,713,155
Receivables for investments and foreign currency sold ........... 2,490,269
Unrealized appreciation on forward foreign currency contracts ... 95,342
Other assets .................................................... 21,365
------------
Total assets .................................................... 248,639,258
------------
LIABILITIES
Unrealized depreciation on forward foreign currency contracts ... 207,197
Payable to affiliates ........................................... 206,326
Due to custodian ................................................ 53,349
Accrued expenses and other liabilities .......................... 257,170
------------
Total liabilities ............................................... 724,042
------------
NET ASSETS
Capital stock - $0.001 par value; total authorized shares -
100,000,000; 19,730,628 shares issued and outstanding ......... 264,838,391
Distributions in excess of net investment income ................ (29,651)
Accumulated net realized losses from investment transactions .... (2,574,803)
Net unrealized depreciation of investments, other assets,
liabilities and forward contracts denominated in
foreign currencies ............................................ (14,318,721)
------------
Net assets ...................................................... $247,915,216
============
Net asset value per share ....................................... $ 12.56
=======
See accompanying notes to financial statements
9
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
STATEMENT OF OPERATIONS
FOR THE
YEAR
ENDED
NOVEMBER 30, 1999
-----------------
INVESTMENT INCOME:
Interest (net of foreign withholding taxes of $18,689) ........... $19,693,773
-----------
EXPENSES:
Investment advisory and administration ........................... 2,669,363
Custody and accounting ........................................... 201,581
Reports and notices to shareholders .............................. 95,755
Legal and audit .................................................. 90,599
Transfer agency fees ............................................. 23,036
Directors' fees .................................................. 10,500
Other expenses ................................................... 30,376
-----------
3,121,210
-----------
Net investment income ............................................ 16,572,563
-----------
REALIZED AND UNREALIZED LOSSES FROM INVESTMENT TRANSACTIONS:
Net realized losses from:
Investment transactions ........................................ (1,979,656)
Foreign currency transactions .................................. (3,570,431)
Net change in unrealized depreciation of:
Investments .................................................... (12,254,397)
Other assets, liabilities and forward contracts
denominated in foreign currencies ............................ (265,458)
-----------
NET REALIZED AND UNREALIZED LOSS FROM INVESTMENT ACTIVITIES ...... (18,069,942)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ............. $(1,497,379)
===========
See accompanying notes to financial statements
10
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the
Year Ended
November 30,
-----------------------------
1999 1998
------------- -------------
<S> <C> <C>
From operations:
Net investment income .................................................................. $ 16,572,563 $ 19,868,456
Net realized gains (losses) on investment transactions ................................. (1,979,656) 3,457,367
Net realized losses from foreign currency transactions ................................. (3,570,431) (2,344,342)
Net change in unrealized depreciation of:
Investments .......................................................................... (12,254,397) (1,116,313)
Other assets, liabilities and forward contracts denominated in foreign currencies .... (265,458) (341,222)
------------- -------------
Net increase (decrease) in net assets resulting from operations ........................ (1,497,379) 19,523,946
------------- -------------
Dividends and distributions to stockholders from:
Net investment income .................................................................. (10,003,872) (18,535,356)
Net realized gains from investment transactions ........................................ -- (10,578,170)
Paid in capital ........................................................................ (11,342,923) (1,264,040)
------------- -------------
(21,346,795) (30,377,566)
------------- -------------
Capital stock transactions:
Cost of shares repurchased ............................................................. (15,736,019) (3,019,634)
------------- -------------
Net decrease in net assets ............................................................. (38,580,193) (13,873,254)
Net Assets:
Beginning of year ...................................................................... 286,495,409 300,368,663
------------- -------------
End of year ............................................................................ $ 247,915,216 $ 286,495,409
============= =============
</TABLE>
See accompanying notes to financial statements
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Strategic Global Income Fund, Inc. (the "Fund") was incorporated in the State
of Maryland on November 15, 1991 and is registered with the Securities and
Exchange Commission as a closed-end, non-diversified management investment
company.
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--The Fund calculates its net asset value based on
the current market value, where available, for its portfolio securities. The
Fund normally obtains market quotations for its securities from independent
pricing services and broker-dealers. Independent pricing services use last
reported sale prices, current market quotations or valuations from computerized
"matrix" systems that derive values based on comparable securities. A matrix
system incorporates parameters such as security quality, maturity and coupon,
and/or research and evaluations by its staff, including review of broker-dealer
market price quotations, if available, in determining the valuation of the
portfolio securities. Securities traded in the over-the-counter ("OTC") market
and listed on The Nasdaq Stock Market, Inc. ("Nasdaq") normally are valued at
the last sale price on Nasdaq prior to valuation. Other OTC securities are
valued at the last bid price available prior to valuation. Securities which are
listed on U.S. and foreign stock exchanges normally are valued at the last sale
price on the day the securities are 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 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 investment adviser and administrator of the Fund. If a
market value is not available from an independent pricing source for a
particular security, that security is valued at fair value as determined in good
faith by or under the direction of the Fund's board of directors (the "board").
The amortized cost method of valuation, which approximates market value,
generally is used to value short-term debt instruments with sixty days or less
remaining to maturity, unless the board determines that this does not represent
fair value. All investments quoted in foreign currencies are valued based on 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 regular trading on the New York Stock Exchange ("NYSE"). Occasionally events
affecting the value of foreign investments and such exchange rates occur between
the time at which they are determined and the close of the NYSE, which will not
be reflected in the computation of the Fund's net asset value on that day. If
events occur materially affecting the value of such securities or currency
exchange rates during such time period, the securities will be valued at their
fair value as determined in good faith by or under the direction of the Fund's
board.
REPURCHASE AGREEMENTS--The Fund's custodian takes possession of the
collateral pledged for investments in repurchase agreements. The underlying
collateral is valued daily on a mark-to-market basis to ensure that the value,
including accrued interest, is at least equal to the repurchase price. In the
event of default of the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral may be subject to legal proceedings. The Fund occasionally
participates in joint repurchase agreement transactions with other funds managed
by Mitchell Hutchins.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS~
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date. Realized gains and losses from 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.
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
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS~
securities of issuers located in emerging market countries in which the Fund
invests. 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, 1999, the Fund owed Mitchell Hutchins
$206,326 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 year ended
November 30, 1999, PaineWebber earned $6,602 in compensation as the Fund's
lending agent, and the Fund earned compensation of $19,809 net of fees, rebates
and expenses. At November 30, 1999, there were no securities on loan.
PaineWebber also has been approved as a borrower under the Fund's securities
lending program.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at November 30,
1999, was substantially the same as the cost of securities for financial
statement purposes.
At November 30, 1999, the components of net unrealized depreciation of
investments were as follows:
Gross appreciation (investments having an
excess value over cost) ................................. $ 5,338,674
Gross depreciation (investments
having an excess of cost over value) .................... (19,314,628)
------------
Net unrealized depreciation of investments ................ $(13,975,954)
============
For the year ended November 30, 1999, aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $135,269,716 and
$147,444,842, respectively.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
CAPITAL STOCK
There are 100,000,000 shares of $0.001 par value capital stock authorized. Of
the 19,730,628 shares outstanding at ~November 30, 1999, Mitchell Hutchins owned
10,866 shares.
For the year ended November 30, 1999, the Fund repurchased 1,419,800 shares
of common stock at an average market price per share of $11.02 and a weighted
average discount from net asset value of 14.88% per share.
For the period September 17, 1998 (commencement of repurchase program)
through November 30, 1999, the Fund repurchased 1,676,500 shares of common stock
at an average market price per share of $11.13 and a weighted average discount
from net asset value of 14.54% per share. At November 30, 1999, paid-in-capital
was reduced by the cost of $18,755,653 of capital 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.
To reflect reclassifications arising from permanent "book/tax" differences
for the year ended November 30, 1999, distributions in excess of net investment
income was increased by $7,878,662, accumulated net realized gains from
investment transactions were increased by $3,464,261 and capital stock was
decreased by $11,342,923. Permanent book/tax differences are primarily
attributable to foreign currency losses and distributions in excess of net
investment income.
At November 30, 1999, the Fund had a net capital loss carryforward of
$1,988,585 which is available as a reduction, to the extent provided in the
regulations, of future net realized capital gains and will expire by November
30, 2007. To the extent that such losses are used to offset future capital
gains, it is probable that the gains so offset will not be distributed.
15
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each year is
presented below:
<TABLE>
<CAPTION>
For the Years Ended November 30,
------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................................ $ 13.55 $ 14.03 $ 14.42 $ 13.41 $ 13.07
-------- -------- -------- -------- --------
Net investment income ............................................. 0.81@ 0.94 1.09 1.12 1.19
Net realized and unrealized gains (losses) from
investments and foreign currency ................................ (0.89)@ (0.02) (0.36) 1.12 0.27
-------- -------- -------- -------- --------
Net increase (decrease) from investment operations ................ (0.08) 0.92 0.73 2.24 1.46
-------- -------- -------- -------- --------
Dividends from net investment income .............................. (0.48) (0.87) (0.96) (1.19) (1.12)
Distributions from net realized gains from
investment and foreign currency transactions .................... -- (0.49) (0.16) (0.04) --
Distributions from paid-in-capital ................................ (0.56) (0.06) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions to shareholders ................. (1.04) (1.42) (1.12) (1.23) (1.12)
-------- -------- -------- -------- --------
Net increase in net asset value resulting from
repurchase of capital stock ..................................... 0.13 0.02 -- -- --
-------- -------- -------- -------- --------
Net asset value, end of year ...................................... $ 12.56 $ 13.55 $ 14.03 $ 14.42 $ 13.41
======== ======== ======== ======== ========
Market value, end of year ......................................... $ 10.00 $ 11.75 $ 11.94 $ 12.25 $ 11.25
======== ======== ======== ======== ========
Total investment return (1) ....................................... (6.41)% 10.66% 6.67% 20.80% 11.81%
======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of year (000's) ................................... $247,915 $286,495 $300,369 $308,714 $287,159
Expenses to average net assets .................................... 1.17% 1.16% 1.20% 1.21% 1.24%
Net investment income to average net assets ....................... 6.21% 6.82% 7.63% 8.14% 9.20%
Portfolio turnover rate ........................................... 58% 120% 134% 111% 121%
</TABLE>
@ Calculated using average shares outstanding for the year.
(1) Total investment return is calculated assuming a purchase at market value on
the first day of each period reported, reinvestment of all dividends and
distributions in accordance with the Fund's Dividend Reinvestment Plan, and
a sale at market value on the last day of each year reported. Total
investment return does not reflect brokerage commissions.
16
<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, 1999, 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 auditing standards generally
accepted in the United States. 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 securities owned at November
30, 1999, 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, 1999 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.
New York, New York
January 14, 2000
17
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
TAX INFORMATION (unaudited)
We are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of the Fund's fiscal year end (November
30, 1999) 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 $0.4873 taxable as ordinary income and
$0.5562 from paid-in capital.
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 1999. 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 2000. Shareholders are advised to consult their own tax advisers with
respect to the tax consequences of their investment in the Fund.
18
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
GENERAL INFORMATION (unaudited)
THE FUND
Strategic Global Income Fund, Inc. (the "Fund") is a non-diversified,
closed-end management investment company whose shares trade on the New York
Stock Exchange, Inc. ("NYSE"). The Fund's primary investment objective is to
achieve a high level of current income; capital appreciation is a secondary
objective in the selection of investments. The Fund's investment adviser and
administrator is Mitchell Hutchins Asset Management Inc., a wholly owned asset
management subsidiary of PaineWebber Incorporated, which had approximately $67
billion in assets under management as of December 31, 1999.
The Fund may invest in other investment companies whose investment objectives
and policies are consistent with those of the Fund. In accordance with the
Investment Company Act of 1940, as amended, the Fund may purchase the securities
of other investment companies if immediately thereafter not more than (i) 3% of
the total outstanding voting stock of any such company is owned by the Fund,
(ii) 5% of the Fund's total assets, taken at market value, would be invested in
any one such company, (iii) 10% of Fund's total assets, taken at market value,
would be invested in such securities, and (iv) the Fund, together with other
investment companies having the same investment adviser and companies controlled
by such companies, owns not more than 10% of the total outstanding stock of any
one closed-end investment company. If the Fund acquires shares in other
investment companies, stockholders would bear both their proportionate share of
expenses in the Fund (including investment advisory and administrative fees)
and, indirectly, the expenses of such investment companies (including investment
advisory and administrative fees).
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.
At a meeting held on December 17, 1999, the Fund's board of directors adopted
several amendments to the Fund's bylaws. The bylaws were amended to specify
that, under normal circumstances, a director or officer of the Fund will serve
as Chairman of stockholder meetings. The Chairman has the power to decide the
order of business at stockholder meetings and is able to adopt and enforce
procedures that govern action by meeting participants. The amendments clarify
that the Chairman has the power to adjourn stockholder meetings. The amendments
also increase the percentage of outstanding shares necessary for stockholders to
call a special stockholders meeting from 25% to a majority of the shares that
would be entitled to vote at the meeting.
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."
19
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
GENERAL INFORMATION (unaudited)
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 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.
Additional information regarding the Plan may be obtained from, and all
correspondence concerning the Plan should be directed to, the transfer agent at
PNC Bank, National Association, c/o PFPC Inc., P.O. Box 8950, Wilmington,
Delaware 19899.
20
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
GENERAL INFORMATION (unaudited) (concluded)
DISTRIBUTION POLICY
Effective January 2000, the Fund's board has revised the Fund's managed
distribution policy. The Fund will make regular monthly distributions at an
annualized rate equal to 10% of the Fund's net assets value, as determined as of
the last day on which the NYSE is open for trading during the first week of the
month (usually a Friday, unless the NYSE is closed that Friday). Prior to
January 2000, the Fund's managed distribution was 8% of the Fund's net assets
value as determined as of the last trading day during the first week of the
month. 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 received an exemptive order
from the Securities and Exchange Commission to permit this. The Fund's board
will annually reassess the annualized percentage of net assets at which the
Fund's monthly distributions will be made.
21
<PAGE>
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<PAGE>
DIRECTORS
E. Garrett Bewkes, Jr. Meyer Feldberg
George W. Gowen
CHAIRMAN
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.
51 West 52nd Street
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, 1999
PAINEWEBBER
(c) 2000 PaineWebber Incorporated
Member SIPC
All rights reserved.
