<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC. SEMIANNUAL REPORT
July 15, 2000
Dear Shareholder,
We are pleased to present you with the semiannual report for Strategic Global
Income Fund, Inc. ("the Fund") for the six-month period ended May 31, 2000.
MARKET REVIEW
Developed bond markets, as measured by the Salomon Smith Barney World Government
Bond Index (WGBI) gained 3.63% on a U.S. dollar, currency-hedged basis over the
six-month period ended May 31, 2000. Because of the general strength of the U.S.
dollar over the period, developed bond markets lost 2.58% measured in U.S.
dollars on an unhedged basis.
Emerging market debt outperformed developed market bonds during the reporting
period, as it had during most of the previous year. As measured by the J.P.
Morgan Emerging Market Bond Index Plus (EMBI+), emerging markets gained 6.91%.
High returns on defaulted Soviet debt exerted a strong influence on the EMBI+
return over the six-month period; Latin credits averaged more modest returns.
Over the period, growth prospects improved for most of the worlds developed
economies. Unemployment rates trended down and capacity utilization rates
trended higher. Growing resource constraints combined with higher commodity
prices, most notably oil, caused modest acceleration of inflation rates.
In government bond markets in Europe and the United States, yield curves
flattened considerably as short-term interest rates rose significantly while
long-term yields fell. Another consequence of strong economic growth was rapid
improvement in government fiscal balances at the same time that private credit
demand was robust. In Europe and the United States this caused supply/demand
dynamics to improve in favor of government securities. As a result, the yield
spread of corporate bonds compared to government bonds widened over the period.
----------------------------------------
Strategic Global Income Fund, Inc.
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>
SEMIANNUAL REPORT STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO REVIEW
AVERAGE ANNUAL TOTAL RETURNS, PERIODS ENDED 5/31/00
Net Asset Value Returns+ Fund Lipper Median*
--------------------------------------------------------------------------------
6 Months 1.29% -0.24%
1 Year 3.13 0.37
5 Years 7.61 4.87
Since Inception 2/3/92 6.89 5.38
--------------------------------------------------------------------------------
Market Price Returns+ Fund Lipper Median*
--------------------------------------------------------------------------------
6 Months 3.51% -1.34%
1 Year -2.88 -6.36
5 Years 8.39 4.10
Since Inception 2/3/92 5.28 2.88
--------------------------------------------------------------------------------
+ Past performance is no guarantee of future results. The Fund's share price
and investment return will vary so that an investors shares may be worth
more or less than their original cost. NAV and market price returns for
periods of one year or less are cumulative. NAV return assumes, for
illustration only, that dividends were reinvested at the net asset value on
the payable dates. Market price return assumes dividends were reinvested
under the Dividend Reinvestment Plan. Returns do not reflect any
commissions and are not representative of the performance of an individual
investment.
* Lipper Global Income Funds Median. Lipper Peer Group data calculated by
Lipper Inc.; used with permission. Lipper total return methodology compares
a funds NAV (or market price in the case of market price returns) at the
beginning and end of a period, with the result being expressed as a percent
change of the beginning net asset value (or market price). The new net
asset value (or market price) is adjusted to reflect the compounding effect
of reinvesting income dividends as well as capital gains distributions, if
any. Distributions are reinvested on the ex-dividend date at the
ex-dividend NAV (or market price on the pay date). Lipper total returns do
not reflect any commissions. The Lipper Median is the return of the fund
that places in the middle of the peer group.
Share Price, Dividend and Yield 5/31/00++
--------------------------------------------------------------------------------
Market Price $ 9.75
Net Asset Value $ 12.13
6-Month Dividend $0.6029
May 2000 Dividend $0.1023
Market Yield 12.59%
NAV Yield 10.12%
IPO Yield 8.18%
--------------------------------------------------------------------------------
+ Market yield is calculated by multiplying the current months distribution by
12 and dividing by the month-end market price. NAV yield is calculated by
multiplying the current months distribution by 12 and dividing by the month-
end net asset value. IPO yield is calculated by multiplying the current months
distribution by 12 and dividing by the initial public offering price. Prices
and yields will vary.
2
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC. SEMI ANNUAL REPORT
PORTFOLIO POSITIONING
During the period our investment outlook and strategy remained unchanged, and
there were few significant changes to the portfolio. Several of the Funds
holdings reached predefined sell-price targets and we reduced those positions.
We lowered the Funds exposure to Europe by about seven percentage points and
raised its U.S. exposure about the same amount. Portfolio credit quality
increased slightly as a result of reducing the Funds position in Mexico and
investing in Malaysia, which has a higher credit rating.
PORTFOLIO CHARACTERISTICS
<TABLE>
<CAPTION>
Asset Allocation* 5/31/00 11/30/99
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Grade Debt 70.0% Investment Grade Debt 69.9%
Noninvestment Grade Debt 23.3 Noninvestment Grade Debt 27.4
Cash & Equivalents 1.0 Cash & Equivalents 0.0
Other Assets in Excess of Liabilities 5.7 Other Assets in Excess of Liabilities 2.7
----------------------------------------------------------------------------------------------------
Total 100.0 Total 100.0
</TABLE>
Currency Exposure* 5/31/00 11/30/99
--------------------------------------------------------------------------------
U.S. Dollar 64.3% 59.5%
Foreign Currency 35.7 40.5
--------------------------------------------------------------------------------
Total 100.0 100.0
Characteristics* 5/31/00 11/30/99
--------------------------------------------------------------------------------
Weighted Average Maturity 8.8 yrs. 9.1 yrs.
Weighted Average Duration 4.5 yrs. 4.3 yrs.
Net Assets ($mm) $232.7 $247.9
--------------------------------------------------------------------------------
OUTLOOK
================================================================================
GLOBAL ECONOMY
We believe the scenario most likely to develop over the next 12 months is for
the U.S. economy to slow modestly while overseas economies continue to
accelerate. Inflation pressures appear to remain controlled, although mild wage
pressures are emerging in the United States.
If inflation remains low, then continued growth need not imply much higher bond
yields in the United States and Europe. In Japan, however, we believe deflation
must end for growth to normalize. Japan's fiscal stimulus program is likely to
require continued massive bond issuance, which would likely exert upward
pressure on bond yields.
* Weightings represent percentages of net assets as of the dates indicated. The
Funds portfolio is actively managed and its composition will vary over time.
3
<PAGE>
SEMIANNUAL REPORT STRATEGIC GLOBAL INCOME FUND, INC.
DURATION STRATEGY AND MARKET ALLOCATION
Presently, the Fund's global duration is roughly 4.3 year--shorter than the
WGBI. This setting primarily reflects the Funds lack of exposure in the Japanese
government bond market.
Duration in the U.S. remains slightly longer than in the WGBI. Fund duration in
the U.K. is short, based on extreme valuations in longer maturity bonds and also
in Europe, based on our belief that the European Central Bank must continue to
raise rates at this stage in Europe's business cycle. The Fund has no exposure
to Japanese government bonds.
CURRENCY STRATEGY
The Fund's exposure to the euro hurt absolute performance over the semiannual
period. Prospects for euro appreciation looked good to us last fall. We believed
the euro would appreciate based on an outlook for accelerating cyclical growth
in Europe, a deteriorating U.S. current-account deficit and increasing
volatility in the U.S. equity markets. Although each of these trends did develop
in the ensuing months, the euro weakened nevertheless.
Cyclically, Europe is recovering--its economy doesn't appear vulnerable to
financial shocks nor does it have a current-account deficit. Based on many
traditional measures, the euro is undervalued and should recover. The Funds
exposure to the euro and related currencies was about 24.3% as of period-end. We
don't want to hedge substantially more unless we are convinced the currency will
continue to fall, because we believe a reversal in the euro from present levels
could be substantial and quick.
CREDIT AND EMERGING MARKET STRATEGY
After the crisis of 1998, the emerging market debt sector has enjoyed a period
of steadily appreciating prices with relatively few episodes of price
correction. Credit developments generally have been positive. Brazil has
achieved the targets specified in its International Monetary Fund program.
Mexico's macroeconomic performance has remained stable enough to earn an
investment grade rating from Moody's, and higher oil prices have contributed to
improved balance of payments performance for many countries within the sector.
However, present valuations are not without risks. We believe such risks include
the escalating civil war in Colombia and related risks to the Andean region. The
continuing recession in Argentina--and the lack of policy responses available to
the government to prevent further deterioration in its fiscal accounts--
ultimately threatens the country's ability to continue to meet its debt
obligations, especially in the context of rising U.S. interest rates.
The overall global recovery with as yet only moderate inflation continues to
present a favorable background for the emerging market debt sector. We continue
to maintain core holdings in stable or improving credits such as Brazil, Morocco
and Mexico, although we reduced positions in Mexican sovereign debt after price
appreciation.
4
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC. SEMIANNUAL REPORT
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,(1) please contact your Financial Advisor.
Sincerely,
/s/ MARGO ALEXANDER /s/ BRIAN M. STORMS
MARGO ALEXANDER BRIAN M. STORMS
Chairman and Chief Executive Officer President and Chief Operating Officer
Mitchell Hutchins Asset Management Inc. Mitchell Hutchins Asset Management Inc.
/s/ STUART WAUGH
STUART WAUGH
Portfolio Manager
Strategic Global Income Fund, Inc.
This letter is intended to assist shareholders in understanding how the Fund
performed during the six-month period ended May 31, 2000, and reflects our views
at the time of its writing. Of course, these views may change in response to
changing circumstances. We encourage you to consult your Financial Advisor
regarding your personal investment program.
(1) Mutual funds are sold by prospectus only. The prospectuses for the funds
contain more complete information regarding risks, charges and expenses,
and should be read carefully before investing.
5
<PAGE>
Strategic Global Income Fund, Inc.
Portfolio of Investments May 31, 2000 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000)* Dates Rates Value
----------- -------------------- -------------- ------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT SECURITIES -- 85.51%
Brazil -- 1.54%
US$ 1,500 Federal Republic of
Brazil.................. 05/15/27 10.125% $ 1,128,750
US$ 3,421 Federal Republic of
Brazil, DCB............. 04/15/12 7.437+ 2,446,015
------------
3,574,765
------------
Bulgaria -- 1.44%
US$ 5,000 Republic of Bulgaria,
FLIRB................... 07/28/12 2.750# 3,362,500
------------
Canada -- 2.30%
7,935 Government of Canada..... 09/01/01 7.000 5,343,342
------------
El Salvador -- 1.26%
US$ 2,870 Republic of El
Salvador(6)............. 08/15/06 9.500 2,941,750
------------
Germany -- 3.41%
9,250 Federal Republic of
Germany................. 02/17/04 to 07/04/09 3.250 to 4.000 7,945,270
------------
Hungary -- 1.11%
700,000 Government of Hungary.... 06/12/01 13.500 2,587,202
------------
Italy -- 2.36%
5,317 Republic of Italy........ 04/01/04 8.500 5,496,091
------------
Korea -- 1.24%
US$ 2,885 Republic of Korea........ 04/15/08 8.875 2,892,213
------------
Malaysia -- 1.93%
US$ 2,516 Petroliam Nasional
Berhad.................. 10/15/26 7.625 2,099,350
US$ 2,390 Republic of Malaysia..... 05/01/09 8.750 2,392,390
------------
4,491,740
------------
Mexico -- 8.91%
US$ 1,690 Coca Cola Femsa, S.A. de
C.V. ................... 11/01/06 8.950 1,622,400
US$ 3,125 Mexican Multi-Year
Refinance Loan
Participation
(Salomon Brothers)(2)(6). 03/20/05 7.000+ 2,968,750
US$ 3,505 Pemex Finance Limited.... 11/15/03 6.125 3,393,358
US$ 1,065 United Mexican States.... 05/15/26 11.500 1,193,865
US$ 9,382 United Mexican States,
DISC(3)................. 12/31/19 7.603 to 7.313+ 9,176,769
US$ 3,000 United Mexican States,
PAR(4).................. 12/31/19 6.250 2,385,000
------------
20,740,142
------------
Morocco -- 3.37%
US$ 4,566 Kingdom of Morocco Loan
Participation, Tranche A
(JP Morgan)(2)(6)....... 01/01/09 7.750+ 4,040,862
US$ 4,286 Kingdom of Morocco Loan
Participation, Tranche A
(Salomon Brothers)(2)(6). 01/01/09 7.750+ 3,792,857
------------
7,833,719
------------
</TABLE>
6
<PAGE>
Strategic Global Income Fund, Inc.
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000)* Dates Rates Value
----------- -------------------- --------------- ------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT SECURITIES (continued)
Netherlands -- 5.32%
13,012 Government of
Netherlands............ 09/15/01 to 01/15/28 5.500 to 8.750% $ 12,377,194
------------
Panama -- 1.72%
US$ 4,384 Republic of Panama...... 04/01/29 9.375 4,004,784
------------
Poland -- 2.93%
20,011 Republic of Poland...... 06/12/02 to 02/12/03 12.000 4,137,693
US$ 3,060 Republic of Poland, PDI. 10/27/14 6.000# 2,677,500
------------
6,815,193
------------
Russia -- 1.01%
US$ 289 Russian IAN(1).......... 12/15/15 6.906+ 78,164
US$ 8,420 Russian Principal Loan
(Chase
Manhattan)(1)(2)(6).... 12/15/20 6.906+ 2,262,875
------------
2,341,039
------------
Trinidad & Tobago -- 1.95%
US$ 4,500 Republic of Trinidad &
Tobago................. 10/01/09 9.875 4,545,000
------------
Tunisia -- 1.66%
US$ 4,500 Banque Centrale de
Tunisie................ 09/19/27 8.250 3,870,000
------------
Turkey -- 0.53%
US$ 1,194 Republic of Turkey...... 11/05/04 11.875 1,225,343
------------
United Kingdom -- 9.20%
13,515 United Kingdom Gilt..... 08/27/02 to 12/07/03 6.500 to 10.000 21,407,031
------------
United States -- 30.18%
3,740 CIT Group Incorporated.. 02/15/04 5.500 3,432,793
5,700 Clorox Corporation...... 07/15/01 8.800 5,795,025
6,050 Federal National
Mortgage Association... 09/15/09 6.625 5,692,421
2,735 FMR Corporation......... 06/15/29 7.570 2,490,272
6,000 Ford Motor Credit
Corporation............ 09/10/02 6.550 5,864,040
6,000 General Motors
Acceptance Corporation. 11/10/03 5.750 5,629,248
2,182 HSBC Capital Funding,
LLP.................... 06/30/30! 10.176 2,196,408
2,700 Lear Corporation........ 05/15/05 7.960 2,485,450
3,200 MGM Grand Incorporated.. 02/01/05 6.950 2,933,658
3,533 National Australia Bank. 05/19/10 7.434+ 3,517,900
2,825 U.S. Treasury Bonds..... 02/15/29 5.250 2,467,463
13,368 U.S. Treasury Inflation
Index Notes............ 07/15/02 to 04/15/28 3.625 12,974,538
12,495 U.S. Treasury Notes..... 05/15/05 to 11/15/27 6.125 to 6.750 12,407,436
2,394 Wells Fargo Company..... 09/03/02 6.500 2,340,578
------------
70,227,230
------------
</TABLE>
---------
! Maturity date shown is callable date for perpetual rewriting securities.
7
<PAGE>
Strategic Global Income Fund, Inc.
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000)* Dates Rates Value
---------- -------- -------- ------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT SECURITIES (concluded)
Venezuela -- 2.14%
US$ 2,808 Republic of Venezuela............... 09/15/27 9.250% $ 1,749,384
US$ 4,825 Republic of Venezuela, PAR(5)....... 03/31/20 6.750 3,220,688
------------
4,970,072
------------
Total Long-Term Debt Securities (cost --
$213,083,518)................................. 198,991,620
------------
SHORT-TERM DEBT SECURITIES -- 8.04%
Germany -- 2.67%
6,677 Federal Republic of Germany......... 09/15/00 3.250 6,212,495
------------
Spain -- 1.72%
4,285 Kingdom of Spain.................... 01/31/01 5.000 4,005,706
------------
United States -- 3.65%
3,500 Federal Home Loan Bank.............. 08/09/00 5.710 3,493,910
5,000 Federal Home Loan Mortgage
Corporation Discount Note.......... 06/09/00 6.572@ 4,993,257
------------
8,487,167
------------
Total Short-Term Debt Securities (cost --
$18,805,198).................................. 18,705,368
------------
REPURCHASE AGREEMENT -- 0.71%
1,657 Repurchase Agreement dated 5/31/00
with Dresdner Bank, collateralized
by $1,661,000 U.S. Treasury Notes,
6.000% due 08/15/00 (value --
$1,690,234); proceeds: $1,657,292
(cost -- $1,657,000)............... 06/01/00 6.350 1,657,000
------------
Total Investments (cost -- $233,545,716) --
94.26%........................................ 219,353,988
Other assets in excess of other liabilities --
5.74%.......................................... 13,366,847
------------
Net Assets -- 100.00%........................... $232,720,835
============
</TABLE>
---------
Note:The Portfolio of Investments is listed by the issuer's country of origin.
*In local currency unless otherwise indicated.
!Maturity date shown is callable date for perpetual rewriting securities.
DCBDebt Conversion Bond.
DISCDiscount Bond.
FLIRBFront-loaded Interest Reduction Bond.
IANInterest Accrual Note.
PARPar Bond.
PDIPast Due Interest Bond.
US$United States Dollars.
+Reflects rate at May 31, 2000 on variable coupon rate instruments.
#Reflects rate at May 31, 2000 on step coupon rate instruments.
@Interest rate shown is discount rate at date of purchase.
(1)Non-income producing security.
(2)Participation interest was acquired through the financial institution
indicated parenthetically.
(3)With an additional 14,433 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 6.88% of net assets.
8
<PAGE>
Strategic Global Income Fund, Inc.
FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Unrealized
Appreciation
Contracts to Deliver In Exchange For Maturity Dates (Depreciation)
-------------------- --------------- -------------------- --------------
<S> <C> <C> <C> <C>
British
Pounds.. 6,599,000 US$ 10,426,816 06/27/00 $ 543,479
British
Pounds.. 2,741,000 US$ 4,063,697 08/30/00 (47,135)
British
Pounds.. 2,675,000 US$ 4,326,813 06/08/00 321,802
Euros.... 6,182,000 US$ 5,977,994 06/14/00 201,178
Euros.... 6,170,000 US$ 5,757,227 06/01/00 (3,702)
Polish
Zloty... 16,000,000 US$ 3,468,008 06/08/00 (166,206)
U.S.
Dollars. 6,870,854 GBP 4,575,000 06/08/00 to 08/30/00 (14,157)
U.S.
Dollars. 16,687,252 EUR 18,184,000 06/01/00 to 08/01/00 315,389
U.S.
Dollars. 5,915,077 EUR 6,610,000 06/08/00 259,173
U.S.
Dollars. 6,151,708 EUR 6,182,000 06/14/00 (374,893)
U.S.
Dollars. 7,908,749 JPY 860,732,644 06/08/00 to 06/19/00 108,142
U.S.
Dollars. 3,015,307 JPY 323,844,000 07/24/00 21,927
----------
$1,164,997
==========
</TABLE>
---------
Currency Type Abbreviations:
GBP- British Pounds
EUR- Euros
JPY- Japanese Yen
US$- 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........................ 65.92% 8.04%
Repurchase Agreement....................................... -- 0.71
Financial.................................................. 13.68 --
Consumer Products.......................................... 2.49 --
Oil/Gas.................................................... 1.46 --
Gaming..................................................... 1.26 --
Industrial................................................. 0.70 --
----- ----
85.51% 8.75%
===== ====
</TABLE>
See accompanying notes to financial statements
9
<PAGE>
Strategic Global Income Fund, Inc.
Statement of Assets and Liabilities May 31, 2000 (unaudited)
<TABLE>
<S> <C>
Assets
Investments in securities, at value (cost -- $233,545,716)....... $219,353,988
Cash............................................................. 8,479,014
Interest receivable.............................................. 4,293,147
Unrealized appreciation on forward currency contracts............ 1,771,090
Other assets..................................................... 15,475
------------
Total assets..................................................... 233,912,714
------------
Liabilities
Unrealized depreciation on forward currency contracts............ 606,093
Payable for shares of capital stock repurchased.................. 170,919
Payable to affiliates............................................ 196,253
Accrued expenses and other liabilities........................... 218,614
------------
Total liabilities................................................ 1,191,879
------------
Net Assets
Capital stock -- $0.001 par value; total authorized shares --
100,000,000; 21,407,128 shares issued and 19,181,428 shares
outstanding..................................................... 259,264,956
Distributions in excess of net investment income................. (3,973,170)
Accumulated net realized losses from investment transactions..... (9,302,165)
Net unrealized depreciation of investments, other assets,
liabilities and forward contracts denominated in foreign
currencies...................................................... (13,268,786)
------------
Net assets....................................................... $232,720,835
============
Net asset value per share........................................ $12.13
============
</TABLE>
See accompanying notes to financial statements
10
<PAGE>
Strategic Global Income Fund, Inc.
Statement of Operations
<TABLE>
<CAPTION>
For the
Six Months
Ended
May 31, 2000
(unaudited)
------------
<S> <C>
Investment Income:
Interest (net of foreign withholding taxes of $418)................ $ 9,270,191
-----------
Expenses:
Investment advisory and administration............................. 1,215,857
Custody and accounting............................................. 111,291
Legal and audit.................................................... 54,995
Reports and notices to shareholders................................ 51,253
Transfer agency fees............................................... 11,367
Directors' fees.................................................... 5,250
Other expenses..................................................... 21,208
-----------
1,471,221
-----------
Net Investment Income.............................................. 7,798,970
-----------
Realized and unrealized gains (losses) from investment activities:
Net realized gains (losses) from:
Investment transactions........................................... 20,626
Foreign currency transactions..................................... (6,747,988)
Net change in unrealized appreciation/depreciation of:
Investments....................................................... (215,774)
Other assets, liabilities and forward contracts denominated in
foreign currencies............................................... 1,265,709
-----------
Net realized and unrealized loss from investment activities........ (5,677,427)
-----------
Net increase in net assets resulting from operations............... $ 2,121,543
===========
</TABLE>
See accompanying notes to financial statements
11
<PAGE>
Strategic Global Income Fund, Inc.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the
Six Months
Ended For the Year
May 31, 2000 Ended
(unaudited) November 30, 1999
------------ -----------------
<S> <C> <C>
From operations:
Net investment income........................... $ 7,798,970 $ 16,572,563
Net realized gains (losses) on investment
transactions................................... 20,626 (1,979,656)
Net realized losses from foreign currency
transactions................................... (6,747,988) (3,570,431)
Net change in unrealized
appreciation/depreciation of:
Investments.................................... (215,774) (12,254,397)
Other assets, liabilities and forward contracts
denominated in foreign currencies............. 1,265,709 (265,458)
------------ ------------
Net increase (decrease) in net assets resulting
from operations................................ 2,121,543 (1,497,379)
------------ ------------
Dividends and distributions to stockholders
from:
Net investment income........................... (11,742,489) (10,003,872)
Paid in capital................................. -- (11,342,923)
------------ ------------
(11,742,489) (21,346,795)
------------ ------------
Capital stock transactions:
Cost of shares repurchased...................... (5,573,435) (15,736,019)
------------ ------------
Net decrease in net assets...................... (15,194,381) (38,580,193)
Net Assets:
Beginning of period............................. 247,915,216 286,495,409
------------ ------------
End of period................................... $232,720,835 $247,915,216
============ ============
</TABLE>
See accompanying notes to financial statements
12
<PAGE>
Notes to Financial Statements (unaudited)
Organization and Significant Accounting Policies
Strategic Global Income Fund, Inc. (the "Fund") was incorporated in the State
of Maryland on November 15, 1991 and is registered with the Securities and Ex-
change Commission as a closed-end, non-diversified management investment compa-
ny.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and assump-
tions that affect the reported amounts and disclosures in the financial state-
ments. 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
last 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 val-
ued 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 pri-
mary 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 mar-
ket 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 am-
ortized 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 be-
tween the time at which they are determined and the close of the NYSE, which
will not be reflected in the computation of the Fund's net asset value on that
day. If events materially affecting the value of such securities or currency
exchange rates occur 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 ac-
crued interest, is at least equal to the repurchase price. In the event of de-
fault of the obligation to repurchase, the Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation. Under cer-
tain circumstances, in the event of default or bankruptcy by the other party to
the agreement, realization and/or retention of the collateral
13
<PAGE>
Notes to Financial Statements (unaudited)
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 re-
corded on the trade date. Realized gains and losses from investments and for-
eign exchange transactions are calculated on the identified cost method. Inter-
est income is recorded on an accrual basis. Discounts are accreted as adjust-
ments 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 pre-
sented 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 deter-
mining the gain or loss upon the sale or maturity of foreign currency-denomi-
nated 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 fed-
eral 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 main-
tain 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 pro-
vided in (1) above, as marked to market daily.
Risks may arise upon entering into forward contracts from the potential in-
ability 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 dis-
tributions from realized capital gains are determined in accordance with fed-
eral income tax regulations, which may differ from generally accepted account-
ing 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 fed-
eral tax-basis treatment; temporary differences do not require reclassifica-
tion.
14
<PAGE>
Notes to Financial Statements (unaudited)
Concentration of Risk
Investing in securities of foreign issuers and currency transactions may in-
volve certain considerations and risks not typically associated with invest-
ments in the United States. These risks include revaluation of currencies, ad-
verse fluctuations in foreign currency values and possible adverse political,
social and economic developments, including those particular to a specific in-
dustry, 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. compa-
nies and U.S. government securities. These risks are greater with respect to
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 par-
ticular to a specific industry, country or region.
Investment Adviser and Administrator
The Fund has an Investment Advisory and Administration Contract ("Advisory
Contract") with Mitchell Hutchins. In accordance with the Advisory Contract,
the Fund pays Mitchell Hutchins an investment advisory and administration fee,
which is accrued weekly and paid monthly, at the annual rate of 1.00% of the
Fund's average weekly net assets. At May 31, 2000, the Fund owed Mitchell
Hutchins $196,253 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 se-
curities in an amount at least equal to the market value of the securities
loaned, plus accrued interest, determined on a daily basis and adjusted accord-
ingly. The Fund will regain record ownership of loaned securities to exercise
certain beneficial rights, however, the Fund may bear the risk of delay in re-
covery 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 bor-
rower plus reasonable administrative and custody fees. For the six months ended
May 31, 2000, PaineWebber earned $57 in compensation as the Fund's lending
agent, and the Fund earned compensation of $171 net of fees, rebates and ex-
penses. At May 31, 2000, there were no securities on loan. PaineWebber 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 May 31, 2000,
was substantially the same as the cost of securities for financial statement
purposes.
At May 31, 2000, the components of net unrealized depreciation of investments
were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess value over
cost)......................................................... $ 4,351,523
Gross depreciation (investments having an excess of cost over
value)........................................................ (18,543,251)
------------
Net unrealized depreciation of investments..................... $(14,191,728)
============
</TABLE>
For the period ended May 31, 2000, aggregate purchases and sales of portfolio
securities, excluding short-term securities, were $54,493,247 and $69,156,237,
respectively.
Capital Stock
There are 100,000,000 shares of $0.001 par value capital stock authorized. Of
the 19,181,428 shares outstanding at May 31, 2000, Mitchell Hutchins owned
11,525 shares.
15
<PAGE>
Notes to Financial Statements (unaudited)
For the six months ended May 31, 2000, the Fund repurchased 549,200 shares of
common stock at an average market price per share of $10.09 and a weighted av-
erage discount from net asset value of 18.17% per share.
For the period September 17, 1998 (commencement of repurchase program) through
May 31, 2000, the Fund repurchased 2,225,700 shares of common stock at an aver-
age market price per share of $10.87 and a weighted average discount from net
asset value of 15.40% per share. At May 31, 2000, paid-in-capital was reduced
by the cost of $24,329,090 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 sub-
stantially 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.
At November 30, 1999, the Fund had a net capital loss carry 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 these gains will not be distributed.
16
<PAGE>
Strategic Global Income Fund, Inc.
Financial Highlights
Selected data for a share of common stock outstanding throughout each period is
presented below:
<TABLE>
<CAPTION>
For the
Six Months
Ended For the Years Ended November 30,
May 31, 2000 -------------------------------------------------
(unaudited) 1999 1998 1997 1996 1995
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 12.56 $ 13.55 $ 14.03 $ 14.42 $ 13.41 $ 13.07
-------- -------- -------- -------- -------- --------
Net investment income... 0.41 0.81@ 0.94 1.09 1.12 1.19
Net realized and
unrealized gains
(losses) from
investments and
foreign currency....... (0.30) (0.89)@ (0.02) (0.36) 1.12 0.27
-------- -------- -------- -------- -------- --------
Net increase (decrease)
from investment
operations............. 0.11 (0.08) (0.92) 0.73 2.24 1.46
-------- -------- -------- -------- -------- --------
Dividends from net
investment income...... (0.60) (0.48) (0.87) (0.96) (1.19) (1.12)
Distributions from net
realized gains from
investment
transactions........... -- -- (0.49) (0.16) (0.04) --
Distributions from paid-
in-capital............. -- (0.56) (0.06) -- -- --
-------- -------- -------- -------- -------- --------
Total dividends and
distributions to
stockholders........... (0.60) (1.04) (1.42) (1.12) (1.23) (1.12)
-------- -------- -------- -------- -------- --------
Net increase in net
asset value resulting
from repurchase of
common stock........... 0.06 0.13 0.02 -- -- --
-------- -------- -------- -------- -------- --------
Net asset value, end of
period................. $ 12.13 $ 12.56 $ 13.55 $ 14.03 $ 14.42 $ 13.41
======== ======== ======== ======== ======== ========
Market value, end of
period................. $ 9.75 $ 10.00 $ 11.75 $ 11.94 $ 12.25 $ 11.25
======== ======== ======== ======== ======== ========
Total investment return
(1).................... 3.51% (6.41)% 10.66% 6.67% 20.80% 11.81%
======== ======== ======== ======== ======== ========
Ratios/Supplemental
data:
Net assets, end of
period (000's)......... $232,721 $247,915 $286,495 $300,369 $308,714 $287,159
Expenses to average net
assets................. 1.21%* 1.17% 1.16% 1.20% 1.21% 1.24%
Net investment income to
average net assets..... 6.41%* 6.21% 6.82% 7.63% 8.14% 9.20%
Portfolio turnover rate. 26% 58% 120% 134% 111% 121%
</TABLE>
---------
* Annualized.
@ 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 period reported. Total
investment return does not reflect brokerage commissions. Total investment
return for periods of less than one year has not been annualized.
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 Ex-
change, 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 $68.5 billion
in assets under management as of June 30, 2000.
Shareholder Information
The Fund's NYSE trading symbol is "SGL." Comparative net asset value and mar-
ket price information about the Fund is published weekly in The Wall Street
Journal, New York Times and Barron's, as well as numerous other publications.
An annual meeting of shareholders of the Fund was held on May 25, 2000. At the
meeting, Margo N. Alexander, Richard Q. Armstrong, E. Garrett Bewkes, Jr.,
Richard R. Burt, Mary C. Farrell, Meyer Feldberg, George W. Gowen, Frederic V.
Malek, Carl W. Schafer and Brian M. Storms were elected to serve as directors
until the next annual meeting of shareholders, or until their successors are
elected and qualified; Ernst & Young LLP was ratified as independent auditors
for the Fund for the fiscal year ended November 30, 2000; and a shareholder
proposal to urge the Fund's board to promptly conduct a tender offer for at
least 20% of the Fund's outstanding shares at net asset value was not approved.
Proposal 1
<TABLE>
<CAPTION>
Shares
Shares Voted Withhold
For Authority
-------------- -------------
<S> <C> <C>
1. To vote for or against the election of:
Margo N. Alexander................................. 17,126,108.580 1,295,896.689
Richard Q. Armstrong............................... 17,121,639.580 1,300,365.689
E. Garrett Bewkes, Jr. ............................ 17,096,657.580 1,325,347.689
Richard R. Burt.................................... 17,130,921.580 1,291,083.689
Mary C. Farrell.................................... 17,127,434.580 1,294,570.689
Meyer Feldberg..................................... 17,138,087.535 1,283,917.734
George W. Gowen.................................... 17,102,898.580 1,319,106.689
Frederic V. Malek.................................. 17,115,453.580 1,306,551.689
Carl W. Shafer..................................... 17,120,513.580 1,301,491.689
Brian M. Storms.................................... 17,127,146.580 1,294,858.689
</TABLE>
18
<PAGE>
Strategic Global Income Fund, Inc.
Proposal 2
<TABLE>
<CAPTION>
Shares Shares Shares
Voted Withhold Voted
For Authority Against
-------------- ----------- -----------
<S> <C> <C> <C>
2. Ratification of the selection of
Ernst & Young LLP as independent
auditors for the fiscal year ending
November 30, 2000..................... 17,703,831.252 299,048.676 419,125.341
</TABLE>
Proposal 3
<TABLE>
<CAPTION>
Shares
Shares Voted Voted Shares Voted Broker
For Abstain Against Non-Votes
------------- ----------- ------------- ----------
<S> <C> <C> <C> <C>
3. To vote for or against
the shareholder proposal
regarding a tender offer.. 3,234,434.194 536,797.514 4,617,664.561 10,033,109
</TABLE>
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 dis-
tributions on their shares automatically reinvested in additional shares, un-
less such stockholders elect to receive cash. Stockholders who elect to hold
their shares in the name of another broker or nominee should contact such bro-
ker 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 par-
ticipation 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 par-
ticipation in the Plan, until such election is changed, will be deemed an elec-
tion by a stockholder to take all subsequent distributions in cash. An election
will be effective only for distributions declared and having a record date at
least ten days after the date on which the election is received.
Additional shares of common stock acquired under the Plan will be purchased in
the open market, on the NYSE or otherwise, at prices that may be higher or
lower than the net asset value per share at the time of the purchase. The num-
ber of shares of common stock purchased with each dividend will be equal to the
result obtained by dividing the amount of the dividend payable to a particular
stockholder by the average price per share (including applicable brokerage com-
missions) 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 auto-
matic 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 corre-
spondence concerning the Plan should be directed to, the transfer agent at PFPC
Inc., P.O. Box 8950, Wilmington, Delaware 19899.
19
<PAGE>
Strategic Global Income Fund, Inc.
Distribution Policy
Effective January 2000, the Fund's board has revised the Fund's managed dis-
tribution 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 val-
ue, the Fund would distribute the 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 distribution will be made.
20
<PAGE>
DIRECTORS
E. Garrett Bewkes, Jr. Meyer Feldberg
Chairman George W. Gowen
Margo N. Alexander Frederic V. Malek
Richard Q. Armstrong Carl W. Schafer
Richard R. Burt Brian M. Storms
Mary C. Farrell
PRINCIPAL OFFICERS
Margo N. Alexander Paul H. Schubert
President Vice President and Treasurer
Dianne E. O'Donnell Dennis L. McCauley
Vice President and Secretary Vice President
Stuart Waugh
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.
The financial information included herein is taken from the records of the Fund
without examination by independent accountants who do not express an opinion
thereon.
This report is sent to the shareholders of the Fund for their information. It is
not a prospectus, circular or representation intended for the use in the
purchase or sale of shares of the Fund or of any securities mentioned in this
report.
<PAGE>
---------------------------
STRATEGIC
GLOBAL
INCOME
FUND, INC.
SEMIANNUAL REPORT
MAY 31, 2000
[LOGO]
(C)2000 PaineWebber Incorporated
Member SIPC
All rights reserved.
