UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Mark F. Kemper, Esq.
UBS Global Asset Management
51 West 52nd Street
New York, NY 10019-6114
(Name and address of agent for service)
Copy to:
Jack W. Murphy, Esq.
Dechert LLP
1775 I Street, N.W.
Washington, DC 20006-2401
Registrant’s telephone number, including area code: 212-882 5000
Date of fiscal year end: November 30
Date of reporting period: November 30, 2006
Item 1. Reports to Stockholders.
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Strategic Global Income
Fund, Inc.
Annual Report
November 30, 2006
Strategic Global Income Fund, Inc.
January 15, 2007
Dear shareholder, We are pleased to present you with the annual report for Strategic Global Income Fund, Inc. (the “Fund”) for the fiscal ended year November 30, 2006. Performance Over the fiscal year ended November 30, 2006, the Fund returned 11.89% on a net asset value basis, compared with the 9.24% median net asset value return for the Fund’s peer group, the Lipper Global Income Funds, and the 10.00% return for the Fund’s benchmark, the Strategic Global Income Fund Index* (the “Index”). (In contrast, the Fund’s prior benchmark, the Citigroup World Government Bond Index, returned 9.35%.) On a market price basis, the Fund returned 19.70% over the 12-month period, compared with its Lipper peer group’s median market price return of 16.80% over the same time period. (For more on performance, please refer to “Performance at a glance” on page 6 and the remainder of this letter.) Over the period, the Fund did not use leverage. The use of leverage can increase the Fund’s volatility by magnifying both its gains and losses. In addition, it can lead to a wider range of returns for a fund and within a fund’s peer group over time. | Strategic Global Income Fund, Inc. | |||
Investment goals: | ||||
Primarily, high level of current income; secondarily, capital appreciation. | ||||
Portfolio management: | ||||
Portfolio management team, including Uwe Schillhorn UBS Global Asset Management (Americas) Inc. | ||||
Commencement: | ||||
February 3, 1992 | ||||
NYSE symbol: | ||||
SGL | ||||
Distribution payments: | ||||
Monthly | ||||
Strategic Global Income Fund, Inc.
An Interview with portfolio manager Uwe Schillhorn | |
Q. | How would you describe the global economic environment during the fiscal year? |
A. | After a prolonged period of overall solid growth, the US economy weakened during the reporting period. Gross domestic product (or GDP—the market value of all goods and services produced within a country in a given period of time) increased a sharp 5.6% in the first quarter of 2006, its largest gain in nearly three years. However, second quarter GDP growth was 2.6%, and the final figure for third quarter GDP was 2.0%. This more moderate expansion was attributed to several factors, including the delayed impact of rising short-term interest rates, high oil prices and the cooling of the once red-hot housing market. Internationally, growth rates in more developed countries, such as those in the Eurozone and Japan, were positive, albeit not as strong as their US counterparts. In contrast, emerging market countries as a whole experienced strong growth. The rapidly expanding economies in China and India have triggered ongoing solid demand for oil and commodities—both of which are exported by many emerging market countries. This, as a result, has helped to boost the economies of countries such as Russia, Brazil and Venezuela. |
Q. | How did the world’s bond markets perform over the twelve-month reporting period? |
A. | The global bond markets overcame a number of challenges and posted positive results during the reporting period. In the US, the Federal Reserve Board (the “Fed”) raised short-term rates during the first five meetings it held during the period. The European Central Bank increased rates a total of five times during the period, and Japan instituted its first rate hike in six years. In addition, fears of inflation persisted due to high oil prices. However, the global bond markets rallied in the second half of the period, largely triggered by the Fed pausing from its two year tightening campaign following its last hike in June 2006. Riskier asset classes, such as emerging market debt, generated superior results during the reporting period. Continued improvements in emerging market fundamentals and high commodity prices aided the asset class as a whole. In addition, given relatively low global interest rates, demand for higher yielding emergi ng market debt was strong throughout much of the period. |
Q. | How did you position the portfolio from a duration standpoint? |
A. | Duration, which measures a fund’s sensitivity to interest rate changes, is a key part of our active management strategy. This is especially true |
Strategic Global Income Fund, Inc.
during times of fluctuating interest rates, such as we experienced during the reporting period. The portfolio’s current neutral duration target, which we would strive to achieve when we believe global interest rates are fairly stable, is 5.0%. As the fiscal year began, the Fund’s modified duration was 4.5%. (Modified duration is a measure of the price sensitivity of a bond or portfolio to interest rate movements.) This conservative stance was a result of our belief that interest rates would rise over the period. Based on our ongoing analysis, we maintained this view throughout the reporting period and, at the end of November 2006, the Fund’s duration was 4.0%. Overall, the Fund’s duration positioning did not materially impact performance over the period. | |
Q. | What currency strategies enhanced results during the period? |
A. | As we anticipated, the US dollar weakened over the reporting period and, as such, the Fund’s underweight position in the US cash market versus the benchmark enhanced results. Among the developed countries, we found the euro, Swedish krona, Swiss franc, and Japanese yen to be attractive as we expect Eurozone expansion as well as economic recovery in Japan to continue. We therefore maintained overweight positions in these currencies. In the emerging markets countries, we favored the currencies of Brazil and Russia, as well as Argentina’s, where we saw opportunity in the recovery that followed the partial restructuring of that country’s debt. Following a period of weakness, we found the Turkish lira and South African rand to be attractively valued and added exposure to these currencies. Overall, our currency positioning was beneficial to the Fund’s returns on a net asset value basis during the period. |
Q. | Which holdings or strategies generated strong results over the period? |
A. | In addition to the positive contributions from our currency positioning, we found investments outside the US to be relatively more attractive, and the Fund’s exposure to emerging market debt enhanced results. In particular, the Fund benefited from its exposures in Argentina and Turkey. Our proactive positioning in Ecuador also benefited performance. For some time we held an overweight position in Ecuador. After a recent round of elections we eliminated this position, which was helpful as its bond prices subsequently weakened. We viewed this decline as an opportunity to again add these bonds to the portfolio and again held an overweight position to Ecuador at the end of the period. Overall, this positioning enhanced performance. |
Strategic Global Income Fund, Inc.
Q. | Were there any particular strategies that didn’t work well for the Fund? |
A. | As mentioned, our currency strategy in general was a positive contributor to the Fund’s performance. However, the Fund’s underweight positions in the Canadian dollar and Great Britain pound detracted from results, as they performed well versus the US dollar. An underweight in Venezuelan emerging market debt also hurt performance, as their bonds performed well during the period. In general, this oil-rich country strengthened its balance sheet due to high oil prices and solid demand from China and India. However, given the risky political environment, we did not feel a larger weighting in Venezuela was warranted and we elected to pursue opportunities elsewhere. |
Q. | What is your outlook on the global economy and fixed income markets? |
A. | From an economic perspective, we feel that US growth will likely continue to moderate and be closer to its historical average in 2007. Elsewhere, we believe it is likely that developed European countries will strengthen and Japan will continue to rebound. Against this backdrop, we feel that yields will rise and, therefore, anticipate maintaining a shorter than neutral duration for the Fund. We believe the growth prospects for emerging markets countries remain favorable given positive fundamentals, including improving balance sheets and low default rates, coupled with improved domestic consumption. Should investor demand remain strong, we would expect emerging market debt to be well supported in 2007. In terms of the currency markets, we believe it is likely that the US dollar could continue to weaken. As of January 2007, however, the dollar has already declined by approximately 18% from its peak in early 2002 (as measured by the decline in the Federal Reserve’s Broad Dollar Index), so some depreciation has already taken place. |
Strategic Global Income Fund, Inc.
We thank you for your continued support, and welcome any comments or questions you may have. For additional information on the UBS family of funds, please contact your financial advisor or visit us at www.ubs.com/globalam-us.
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President
Strategic Global Income Fund, Inc.
Head of the Americas
UBS Global Asset Management (Americas) Inc.
![](https://capedge.com/proxy/N-CSR/0001209286-07-000025/schillhorn.jpg)
Portfolio Management Team Member
Strategic Global Income Fund, Inc.
Executive Director
UBS Global Asset Management (Americas) Inc.
This letter is intended to assist shareholders in understanding how the Fund performed during the fiscal year ended November 30, 2006. The views and opinions in the letter were current as of January 15, 2007. They are not guarantees of performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and we reserve the right to change our views about individual securities, sectors and markets at any time. As a result, the views expressed should not be relied upon as a forecast of the Fund’s future investment intent. We encourage you to consult your financial advisor regarding your personal investment program.
Strategic Global Income Fund, Inc.
Performance at a glance (unaudited) |
Average annual total returns for periods ended 11/30/06 |
Net asset value returns | 1 year | 5 years | 10 years | ||||||
Strategic Global Income Fund, Inc.# | 11.89 | % | 10.94 | % | 8.29 | % | |||
Lipper Global Income Funds Median† | 9.24 | % | 12.76 | % | 7.46 | % | |||
Market price returns | |||||||||
Strategic Global Income Fund, Inc.# | 19.70 | % | 10.94 | % | 10.28 | % | |||
Lipper Global Income Funds Median† | 16.80 | % | 13.71 | % | 10.65 | % | |||
Strategic Global Income Fund Index* | 10.00 | % | 10.29 | % | 7.38 | % | |||
Citigroup World Government Index** | 9.35 | % | 8.25 | % | 5.35 | % | |||
Past performance does not predict future performance. The return and value of an investment will fluctuate so that an investor’s shares, when sold, may be worth more or less than their original cost.
Strategic Global Income Fund, Inc.
Portfolio statistics (unaudited)
Characteristics* | 11/30/06 | 05/31/06 | 11/30/05 | ||||||
Net asset value | $11.85 | $11.62 | $11.47 | ||||||
Market price | $11.67 | $11.78 | $10.56 | ||||||
12-month dividends/distributions | $0.9319 | $0.9431 | $1.9059 | ||||||
Monthly dividend/distribution at period-end | $0.0773 | $0.0792 | $0.0767 | ||||||
Net assets (mm) | $216.4 | $212.2 | $209.4 | ||||||
Weighted average maturity | 6.41 yrs | 7.81 yrs | 8.39 yrs | ||||||
Modified duration† | 4.0% | 4.3% | 4.5% | ||||||
Currency exposure** | 11/30/06 | 05/31/06 | 11/30/05 | ||||||
US dollar denominated | 47.7% | 45.0% | 39.3% | ||||||
Non-US dollar denominated | 52.3 | 55.0 | 60.7 | ||||||
Total | 100.0% | 100.0% | 100.0% | ||||||
Credit quality** | 11/30/06 | 05/31/06 | 11/30/05 | ||||||
AAA | 27.3% | 32.8% | 30.2% | ||||||
AA | 3.2 | 1.0 | 1.1 | ||||||
A | 4.0 | 11.0 | 10.6 | ||||||
BBB | 5.8 | 7.4 | 16.5 | ||||||
BB | 11.6 | 13.2 | 11.5 | ||||||
B | 7.2 | 9.7 | 7.4 | ||||||
CCC | 3.9 | 5.2 | 5.1 | ||||||
D | 0.6 | 0.0 | 0.0 | ||||||
Non-rated | 16.2 | 12.9 | 9.0 | ||||||
Equity/preferred | 4.6 | 0.1 | 0.3 | ||||||
Cash equivalents | 12.5 | 8.2 | 8.4 | ||||||
Other assets, less liabilities | 3.1 | (1.5) | (0.1) | ||||||
Total | 100.0% | 100.0% | 100.0% | ||||||
Strategic Global Income Fund, Inc.
Portfolio statistics (unaudited) (concluded)
Top 10 countries (other than | |||||||||||||
short term investments)* | 11/30/06 | 05/31/06 | 11/30/05 | ||||||||||
United States | 19.4 | % | United States | 22.3 | % | United States | 24.5 | % | |||||
Argentina | 12.8 | Argentina | 13.1 | Argentina | 10.8 | ||||||||
Germany | 11.9 | Germany | 11.3 | Germany | 10.0 | ||||||||
Malaysia | 6.4 | Malaysia | 6.0 | Brazil | 7.1 | ||||||||
Turkey | 5.8 | France | 4.8 | Russia | 6.5 | ||||||||
France | 4.6 | Brazil | 4.6 | Malaysia | 5.8 | ||||||||
Brazil | 2.9 | Mexico | 3.0 | France | 4.7 | ||||||||
Russia | 2.7 | Qatar | 3.0 | Qatar | 3.3 | ||||||||
Ecuador | 2.0 | Ecuador | 2.4 | Poland | 2.2 | ||||||||
Kazakhstan | 1.6 | Netherlands | 2.4 | Ecuador | 1.8 | ||||||||
Total | 70.1 | % | 72.9 | % | 76.7 | % | |||||||
* | Weightings represent percentages of net assets of the entire Fund as of the dates indicated. The Fund’s portfolio is actively managed and its composition will vary over time. |
Strategic Global Income Fund, Inc.
Portfolio of investments—November 30, 2006
Face | ||||||
amount | Value | |||||
Bonds—81.98% | ||||||
US bonds—19.42% | ||||||
US corporate bonds—7.64% | ||||||
Bank One Corp. | ||||||
7.875%, due 08/01/10 | $ | 2,000,000 | $ | 2,188,344 | ||
C.S. First Boston USA, Inc. | ||||||
6.500%, due 01/15/12 | 2,000,000 | 2,123,184 | ||||
Fortune Brands, Inc. | ||||||
5.375%, due 01/15/16 | 2,000,000 | 1,925,310 | ||||
General Electric Capital Corp. | ||||||
6.000%, due 06/15/12 | 2,000,000 | 2,092,944 | ||||
GMAC LLC | ||||||
6.875%, due 09/15/11 | 1,000,000 | 1,029,568 | ||||
HSBC Finance Corp. | ||||||
6.750%, due 05/15/11 | 2,000,000 | 2,133,324 | ||||
Kraft Foods, Inc. | ||||||
5.250%, due 06/01/07 | 1,000,000 | 999,272 | ||||
Residential Capital Corp. | ||||||
6.125%, due 11/21/08 | 2,000,000 | 2,022,710 | ||||
Time Warner Cos., Inc. | ||||||
7.480%, due 01/15/08 | 1,000,000 | 1,023,890 | ||||
Washington Mutual Preferred Funding Delaware, 144A1,2 | ||||||
6.534%, due 03/15/11 | 1,000,000 | 991,590 | ||||
Total US corporate bonds (cost $16,745,168) | 16,530,136 | |||||
Asset-backed securities—5.80% | ||||||
Conseco Finance Securitizations Corp., | ||||||
00-2, Class A4 | ||||||
8.480%, due 12/01/30 | 157,112 | 157,255 | ||||
Conseco Finance Securitizations Corp., | ||||||
00-5, Class A5 | ||||||
7.700%, due 02/01/32 | 3,946,581 | 3,940,790 | ||||
First Franklin Mortgage Loan Asset-Backed Certificates, | ||||||
06-FFA, Class B2, 144A3 | ||||||
6.000%, due 09/25/26 | 5,500,000 | 5,078,047 | ||||
Green Tree Financial Corp., | ||||||
99-1, Class A5 | ||||||
6.110%, due 09/01/23 | 2,058,219 | 2,074,699 | ||||
New York City Tax Lien, | ||||||
04-AA, Class C, 144A | ||||||
3.960%, due 12/11/17 | 308,462 | 295,208 | ||||
Strategic Global Income Fund, Inc.
Portfolio of investments—November 30, 2006
Face | |||||||||
amount | Value | ||||||||
Bonds—(continued) | |||||||||
US bonds—(continued) | |||||||||
Asset-backed securities—(concluded) | |||||||||
Providian Gateway Master Trust, | |||||||||
04-AA, Class D, 144A1 | |||||||||
7.170%, due 03/15/11 | $ | 1,000,000 | $ | 1,004,688 | |||||
Total asset-backed securities (cost $12,610,928) | 12,550,687 | ||||||||
Commercial mortgage-backed securities—1.83% | |||||||||
Bear Stearns Commercial Mortgage Securities, | |||||||||
05-LXR1, Class K, 144A1 | |||||||||
7.170%, due 09/15/18 | 1,000,000 | 1,001,650 | |||||||
Commercial Mortgage Acceptance Corp., | |||||||||
97-ML1, Class D1 | |||||||||
7.054%, due 12/15/30 | 977,000 | 1,001,551 | |||||||
DLJ Commercial Mortgage Corp., | |||||||||
99-CG1, Class A1A | |||||||||
6.080%, due 03/10/32 | 211,942 | 212,113 | |||||||
Four Times Square Trust, | |||||||||
00-4TS, Class A1, 144A | |||||||||
7.690%, due 04/15/15 | 657,970 | 687,989 | |||||||
Morgan Stanley Dean Witter Capital I, | |||||||||
00-LIF2, Class A2 | |||||||||
7.200%, due 10/15/33 | 1,000,000 | 1,059,098 | |||||||
Total commercial mortgage-backed securities (cost $4,137,828) | 3,962,401 | ||||||||
Mortgage-backed securities—0.91% | |||||||||
Countrywide Alternative Loan Trust, | |||||||||
05-J2, Class 2A1 | |||||||||
7.500%, due 12/25/34 | 290,084 | 293,519 | |||||||
Federal Home Loan Mortgage Corp., | |||||||||
3033, Class OI, IO4 | |||||||||
5.500%, due 10/15/22 | 1,112,387 | 54,222 | |||||||
Federal National Mortgage Association1 | |||||||||
4.916%, due 02/01/35 | 1,620,361 | 1,615,281 | |||||||
Total mortgage-backed securities (cost $1,992,441) | 1,963,022 | ||||||||
US government obligations—3.24% | |||||||||
US Treasury Bonds | |||||||||
4.500%, due 02/15/365 | 1,895,000 | 1,876,198 | |||||||
6.250%, due 08/15/23 | 190,000 | 224,645 | |||||||
Strategic Global Income Fund, Inc.
Portfolio of investments—November 30, 2006
Face | |||||||||
amount | Value | ||||||||
Bonds—(continued) | |||||||||
US bonds—(concluded) | |||||||||
US government obligations—(concluded) | |||||||||
8.125%, due 08/15/21 | $ | 1,410,000 | $ | 1,928,175 | |||||
8.750%, due 08/15/20 | 375,000 | 530,684 | |||||||
US Treasury Notes | |||||||||
3.875%, due 02/15/13 | 445,000 | 431,859 | |||||||
4.125%, due 05/15/15 | 435,000 | 425,128 | |||||||
4.750%, due 05/15/14 | 835,000 | 850,884 | |||||||
4.875%, due 08/31/08 | 455,000 | 456,635 | |||||||
5.125%, due 06/30/11 | 290,000 | 298,020 | |||||||
Total US government obligations (cost $6,851,533) | 7,022,228 | ||||||||
Total US bonds (cost $42,337,898) | 42,028,474 | ||||||||
International bonds—62.56% | |||||||||
International corporate bonds—12.69% | |||||||||
Argentina—2.13% | |||||||||
Banco de Galicia y Buenos Aires | |||||||||
5.000%, due 01/01/143 | 4,340,000 | 3,992,800 | |||||||
11.000%, due 01/01/193 | 565,704 | 620,860 | |||||||
4,613,660 | |||||||||
Brazil—0.69% | |||||||||
Barclays Bank PLC Inflation Credit-Linked Note, 144A1 | |||||||||
0.000%, due 05/17/45 | BRL | 2,530,000 | 1,495,914 | ||||||
Germany—0.97% | |||||||||
Landwirtschaftliche Rentenbank | |||||||||
6.000%, due 09/15/09 | AUD | 2,680,000 | 2,097,558 | ||||||
Kazakhstan —1.61% | |||||||||
Kazkommerts International BV, 144A | |||||||||
8.000%, due 11/03/15 | $ | 600,000 | 620,250 | ||||||
TuranAlem Finance BV | |||||||||
7.875%, due 06/02/10 | 770,000 | 795,025 | |||||||
8.500%, due 02/10/15 | 1,250,000 | 1,293,750 | |||||||
TuranAlem Finance BV, 144A | |||||||||
7.750%, due 04/25/13 | 770,000 | 781,550 | |||||||
3,490,575 | |||||||||
Strategic Global Income Fund, Inc.
Portfolio of investments—November 30, 2006
Face | ||||||||||||
amount | Value | |||||||||||
Bonds—(continued) | ||||||||||||
International bonds—(continued) | ||||||||||||
International corporate bonds—(concluded) | ||||||||||||
Malaysia—6.37% | ||||||||||||
Johor Corp. | ||||||||||||
1.000%, due 07/31/09 | MYR | 6,600,000 | $ | 2,043,118 | ||||||||
1.000%, due 07/31/12 | 38,240,000 | 11,732,006 | ||||||||||
13,775,124 | ||||||||||||
Russia—0.43% | ||||||||||||
Russian Gazprom Credit-Linked Note,144A | ||||||||||||
8.110%, due 01/18/07 | RUB | 24,400,000 | 931,444 | |||||||||
United Kingdom—0.49% | ||||||||||||
SABMiller PLC, 144A | ||||||||||||
6.500%, due 07/01/16 | $ | 1,000,000 | 1,059,857 | |||||||||
Total international corporate bonds (cost $24,764,485) | 27,464,132 | |||||||||||
Foreign government bonds—48.65% | ||||||||||||
Argentina—9.25% | ||||||||||||
Republic of Argentina | ||||||||||||
2.000%, due 03/15/141 | ARS | 3,600,000 | 1,424,060 | |||||||||
2.000%, due 03/15/241 | 2,600,000 | 678,040 | ||||||||||
3.000%, due 04/30/131 | $ | 710,000 | 538,890 | |||||||||
5.590%, due 08/03/121 | 13,300,000 | 9,489,550 | ||||||||||
11.750%, due 04/07/096 | 4,000,000 | 1,200,000 | ||||||||||
Republic of Argentina, DISC1 | ||||||||||||
5.830%, due 12/31/33 | ARS | 6,630,000 | 2,991,757 | |||||||||
Republic of Argentina, NGB1 | ||||||||||||
2.000%, due 02/04/18 | 7,750,000 | 3,692,951 | ||||||||||
20,015,248 | ||||||||||||
Australia—0.46% | ||||||||||||
Commonwealth of Australia | ||||||||||||
8.750%, due 08/15/08 | AUD | 1,200,000 | 987,085 | |||||||||
Austria—1.16% | ||||||||||||
Republic of Austria,144A | ||||||||||||
3.800%, due 10/20/13 | EUR | 1,885,000 | 2,518,718 | |||||||||
Strategic Global Income Fund, Inc.
Portfolio of investments—November 30, 2006
Face | ||||||
amount | Value | |||||
Bonds—(continued) | ||||||
International bonds—(continued) | ||||||
Foreign government bonds—(continued) | ||||||
Belgium—0.75% | ||||||
Government of Belgium | ||||||
5.750%, due 03/28/08 | EUR | 1,200,000 | $ | 1,630,050 | ||
Brazil—2.22% | ||||||
Brazil Real Credit-Linked Note,144A | ||||||
12.120%, due 01/05/10 | $ | 4,708,301 | 3,464,455 | |||
18.870%, due 01/05/10 | BRL | 4,250,000 | 1,327,247 | |||
4,791,702 | ||||||
Ecuador—1.97% | ||||||
Republic of Ecuador3 | ||||||
10.000%, due 08/15/30 | $ | 4,565,000 | 4,256,862 | |||
El Salvador—1.08% | ||||||
Republic of El Salvador | ||||||
7.750%, due 01/24/23 | $ | 2,040,000 | 2,346,000 | |||
Finland—0.35% | ||||||
Government of Finland | ||||||
5.750%, due 02/23/11 | EUR | 530,000 | 759,005 | |||
France—4.57% | ||||||
French Treasury Note | ||||||
3.500%, due 07/12/09 | EUR | 1,569,000 | 2,071,360 | |||
Government of France | ||||||
3.750%, due 04/25/21 | 1,940,000 | 2,555,622 | ||||
4.000%, due 04/25/13 | 410,000 | 553,713 | ||||
4.250%, due 04/25/19 | 385,000 | 534,950 | ||||
5.000%, due 10/25/16 | 1,015,000 | 1,484,928 | ||||
5.500%, due 04/25/07 | 2,020,000 | 2,693,539 | ||||
9,894,112 | ||||||
Germany—10.92% | ||||||
Bundesobligation | ||||||
3.250%, due 04/17/09 | EUR | 4,100,000 | 5,383,844 | |||
Deutsche Bundesrepublik | ||||||
3.500%, due 10/10/08 | 3,150,000 | 4,161,273 | ||||
Strategic Global Income Fund, Inc.
Portfolio of investments—November 30, 2006
Face | ||||||
amount | Value | |||||
Bonds—(continued) | ||||||
International bonds—(continued) | ||||||
Foreign government bonds—(continued) | ||||||
Germany—(concluded) | ||||||
3.750%, due 01/04/15 | EUR | 660,000 | $ | 879,849 | ||
4.750%, due 07/04/34 | 1,100,000 | 1,676,730 | ||||
5.000%, due 07/04/12 | 1,665,000 | 2,352,869 | ||||
6.000%, due 01/04/07 | 4,775,000 | 6,337,668 | ||||
6.250%, due 01/04/24 | 360,000 | 620,821 | ||||
6.500%, due 07/04/27 | 1,220,000 | 2,214,730 | ||||
23,627,784 | ||||||
Hungary—1.42% | ||||||
Republic of Hungary | ||||||
5.500%, due 02/12/14 | HUF | 325,000,000 | 1,525,268 | |||
7.000%, due 06/24/09 | 306,000,000 | 1,550,804 | ||||
3,076,072 | ||||||
Indonesia—1.04% | ||||||
Indonesia Government Credit-Linked Note,144A | ||||||
11.000%, due 10/15/14 | IDR | 3,650,000,000 | 406,219 | |||
Republic of Indonesia,144A | ||||||
7.250%, due 04/20/15 | $ | 270,000 | 288,900 | |||
7.500%, due 01/15/16 | 510,000 | 555,900 | ||||
8.500%, due 10/12/35 | 830,000 | 1,004,300 | ||||
2,255,319 | ||||||
Italy—1.23% | ||||||
Buoni Poliennali Del Tesoro | ||||||
5.250%, due 08/01/11 | EUR | 1,890,000 | 2,665,418 | |||
Lebanon—0.26% | ||||||
Republic of Lebanon | ||||||
8.250%, due 04/12/21 | $ | 600,000 | 562,500 | |||
Netherlands—1.11% | ||||||
Government of Netherlands | ||||||
4.000%, due 01/15/37 | EUR | 650,000 | 883,218 | |||
5.000%, due 07/15/11 | 370,000 | 517,837 | ||||
5.750%, due 02/15/07 | 755,000 | 1,003,844 | ||||
2,404,899 | ||||||
Strategic Global Income Fund, Inc.
Portfolio of investments—November 30, 2006
Face | ||||||
amount | Value | |||||
Bonds—(continued) | ||||||
International bonds—(continued) | ||||||
Foreign government bonds—(concluded) | ||||||
Poland—1.56% | ||||||
Republic of Poland | ||||||
5.750%, due 06/24/08 | PLN | 9,560,000 | $ | 3,374,363 | ||
Russia—2.31% | ||||||
Russian Federation | ||||||
5.000%, due 03/31/303 | $ | 1,380,000 | 1,569,750 | |||
5.000%, due 03/31/30, 144A3 | 1,536,462 | 1,747,726 | ||||
Russian Ruble Credit-Linked Note, 144A | ||||||
7.580%, due 10/09/07 | RUB | 43,800,000 | 1,684,680 | |||
5,002,156 | ||||||
Turkey—5.81% | ||||||
Republic of Turkey | ||||||
7.000%, due 09/26/16 | $ | 1,800,000 | 1,815,750 | |||
9.000%, due 06/30/11 | 370,000 | 409,035 | ||||
9.500%, due 01/15/14 | 860,000 | 995,450 | ||||
11.500%, due 01/23/12 | 750,000 | 915,375 | ||||
14.000%, due 01/19/11 | TRY | 3,120,000 | 1,972,977 | |||
19.409%, due 07/16/087 | 2,500,000 | 1,252,623 | ||||
20.280%, due 08/13/087 | 7,000,000 | 3,464,970 | ||||
Republic of Turkey Credit-Linked Note | ||||||
0.000%, due 02/11/10, 144A7 | $ | 1,800,000 | 1,414,476 | |||
15.000%, due 02/10/10 | TRY | 500,000 | 326,741 | |||
12,567,397 | ||||||
Ukraine—0.69% | ||||||
ING Bank NV Credit-Linked Note, 144A | ||||||
7.900%, due 02/16/11 | RUB | 39,300,000 | 1,496,779 | |||
Venezuela—0.49% | ||||||
Republic of Venezuela | ||||||
5.375%, due 08/07/10 | $ | 1,080,000 | 1,054,080 | |||
Total foreign government bonds (cost $101,162,779) | 105,285,594 | |||||
Strategic Global Income Fund, Inc.
Portfolio of investments—November 30, 2006
Face | ||||||
amount | Value | |||||
Bonds—(concluded) | ||||||
International bonds—(concluded) | ||||||
Sovereign/supranational bonds—1.22% | ||||||
European Investment Bank | ||||||
5.750%, due 09/15/09 (cost $2,499,537) | AUD | 3,370,000 | $ | 2,627,558 | ||
Total international bonds (cost $127,426,801) | 135,377,239 | |||||
Total bonds (cost $169,764,699) | 177,405,713 | |||||
Number of | ||||||
rights | ||||||
Rights8—0.01% | ||||||
Mexico—0.01% | ||||||
United Mexican States Value Recovery Rights, | ||||||
Series E, expiration date 06/30/07 (cost $0) | 1,615,000 | 34,722 | ||||
Number of | ||||||
warrants | ||||||
Warrants—1.42% | ||||||
Argentina—1.42% | ||||||
Republic of Argentina, expires 12/15/359 (cost $2,095,346) | 83,600,000 | 3,064,158 | ||||
Face | ||||||
amount | ||||||
Short-term investments—12.45% | ||||||
US government obligations—0.05% | ||||||
US treasury bills, | ||||||
5.12%, due 01/04/0710,11 | $ | 100,000 | 99,538 | |||
Shares | ||||||
Other12—12.40% | ||||||
UBS Supplementary Trust—U.S. Cash | ||||||
Management Prime Fund, 5.346%10 | 26,831,581 | 26,831,581 | ||||
Total short-term investments (cost $26,931,099) | 26,931,119 | |||||
Strategic Global Income Fund, Inc.
Portfolio of investments—November 30, 2006
Number of | ||||||
contracts | Value | |||||
Options purchased13—0.15% | ||||||
Call options—0.11% | ||||||
5 Year US treasury note futures, strike at USD 105.5, | ||||||
expiration February 2007 | 251 | $ | 247,079 | |||
Put options—0.04% | ||||||
5 Year US treasury note futures, strike at USD 105.5, | ||||||
expiration February 2007 | 251 | 82,359 | ||||
Total options purchased (cost $317,367) | 329,438 | |||||
Shares | ||||||
Investment of cash collateral from securities loaned—0.85% | ||||||
UBS Private Money Market Fund LLC14 (cost $1,829,250) | 1,829,250 | 1,829,250 | ||||
Total investments (cost $200,937,761)—96.86% | 209,594,400 | |||||
Cash and other assets, less liabilities—3.14% | 6,803,995 | |||||
Net assets—100.00% | $ | 216,398,395 | ||||
Strategic Global Income Fund, Inc.
Portfolio of investments—November 30, 2006
12 | Investment in a fund that is advised by the advisor of the Fund. The advisor does not earn a management fee from the Trust. |
Income | |||||||||||||||
Purchases | Sales | earned from | |||||||||||||
during the | during the | affiliate for | |||||||||||||
Security | Value at | year ended | year ended | Value at | the year ended | ||||||||||
description | 11/30/05 | 11/30/06 | 11/30/06 | 11/30/06 | 11/30/06 | ||||||||||
UBS Supplementary | |||||||||||||||
Trust—U.S. Cash | |||||||||||||||
Management Prime Fund | $17,356,740 | $115,872,231 | $106,397,390 | $26,831,581 | $1,023,223 | ||||||||||
Net income | |||||||||||||||
Purchases | Sales | earned from | |||||||||||||
during the | during the | affiliate for | |||||||||||||
Security | Value at | year ended | year ended | Value at | the year ended | ||||||||||
description | 11/30/05 | 11/30/06 | 11/30/06 | 11/30/06 | 11/30/06 | ||||||||||
UBS Private Money | |||||||||||||||
Market Fund LLC | $— | $8,870,030 | $7,040,780 | $1,829,250 | $794 | ||||||||||
144A | Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At November 30, 2006, the value of these securities amounted to $29,857,587 or 13.80% of net assets. | |
IO | Interest Only—This security entitles the holder to receive interest from an underlying pool of mortgages. The risk associated with this security is related to the speed of the principal paydowns. High prepayments would result in a smaller amount of interest being received and cause the yield to decrease. Low prepayments would result in a greater amount of interest being received and cause the yield to increase. | |
ARS | Argentina Peso | |
AUD | Australian Dollar | |
BRL | Brazilian Real | |
DISC | Discount Bond | |
EUR | Euro | |
HUF | Hungarian Forint | |
IDR | Indonesian Rupiah | |
MYR | Malaysian Ringgit | |
NGB | National Guaranteed Bonds | |
PLN | Polish Zloty | |
RUB | Russian Ruble | |
TRY | New Turkish Lira |
Strategic Global Income Fund, Inc.
Portfolio of investments—November 30, 2006
Forward foreign currency contracts
Strategic Global Income Fund, Inc. had the following open forward foreign currency contracts as of November 30, 2006:
Unrealized | |||||||||||||
Contracts to | In | Maturity | appreciation/ | ||||||||||
deliver | exchange for | dates | (depreciation) | ||||||||||
Australian Dollar | 8,295,000 | USD | 6,343,186 | 05/29/07 | $(167,163 | ) | |||||||
Brazilian Real | 8,200,000 | USD | 3,731,513 | 01/26/07 | (16,776 | ) | |||||||
Canadian Dollar | 19,250,000 | USD | 16,879,968 | 05/29/07 | (64,150 | ) | |||||||
Czech Koruna | 189,280,000 | USD | 8,779,017 | 05/29/07 | (317,928 | ) | |||||||
Euro | 10,815,000 | USD | 13,972,007 | 05/29/07 | (459,974 | ) | |||||||
Great Britain Pound | 8,970,000 | USD | 17,023,311 | 05/29/07 | (614,928 | ) | |||||||
New Turkish Lira | 8,950,000 | USD | 5,764,895 | 01/26/07 | (268,814 | ) | |||||||
New Turkish Lira | 4,136,447 | USD | 2,474,248 | 04/27/07 | (221,883 | ) | |||||||
Ukraine Hryvnia | 2,070,000 | USD | 366,372 | 05/18/09 | (19,675 | ) | |||||||
United States Dollar | 3,757,159 | BRL | 8,200,000 | 01/26/07 | (8,870 | ) | |||||||
United States Dollar | 16,786,364 | CHF | 20,475,000 | 05/29/07 | 569,786 | ||||||||
United States Dollar | 1,983,690 | INR | 90,000,000 | 01/26/07 | 21,424 | ||||||||
United States Dollar | 25,448,125 | JPY | 2,933,100,000 | 05/29/07 | 480,188 | ||||||||
United States Dollar | 19,371,529 | SEK | 135,530,000 | 05/29/07 | 617,627 | ||||||||
United States Dollar | 9,107,993 | SGD | 14,055,000 | 05/29/07 | 105,622 | ||||||||
United States Dollar | 5,892,034 | TRY | 8,950,000 | 01/26/07 | 141,675 | ||||||||
United States Dollar | 2,693,876 | TRY | 4,136,447 | 04/27/07 | 2,255 | ||||||||
United States Dollar | 372,973 | UAH | 2,070,000 | 05/18/09 | 13,073 | ||||||||
United States Dollar | 3,983,958 | ZAR | 30,000,000 | 01/26/07 | 179,989 | ||||||||
Total net unrealized depreciation on forward foreign currency contracts | $(28,522 | ) | |||||||||||
Currency type abbreviations: | ||
BRL | Brazilian Real | |
CHF | Swiss Franc | |
INR | Indian Rupee | |
JPY | Japanese Yen | |
SEK | Swedish Krona | |
SGD | Singapore Dollar | |
TRY | New Turkish Lira | |
UAH | Ukraine Hryvnia | |
USD | United States Dollar | |
ZAR | South African Rand |
Strategic Global Income Fund, Inc.
Portfolio of investments—November 30, 2006
Futures contracts
Strategic Global Income Fund, Inc. had the following open futures contracts as of November 30, 2006:
Number of | Buy | Expiration | Current | Unrealized | |||||||||
contracts | contracts | date | Cost | value | appreciation | ||||||||
60 | 10 Year US treasury note | March 2007 | $6,455,850 | $6,551,250 | $95,400 | ||||||||
Number of | Sale | Expiration | Current | Unrealized | |||||||||
contracts | contracts | date | Proceeds | value | depreciation | ||||||||
66 | 5 Year US treasury note | March 2007 | $6,994,570 | $7,006,313 | $(11,743) | ||||||||
Strategic Global Income Fund, Inc.
Portfolio of investments—November 30, 2006
Industry diversification | |||
As a percentage of net assets | |||
As of November 30, 2006 (unaudited) | |||
Bonds: | |||
US bonds: | |||
US corporate bonds: | |||
Commercial banks | 1.01 | % | |
Consumer finance | 1.46 | ||
Diversified financial services | 1.96 | ||
Food products | 0.46 | ||
Household durables | 0.89 | ||
Media | 0.47 | ||
Thrifts & mortgage finance | 1.39 | ||
Total US corporate bonds | 7.64 | ||
Asset-backed securities | 5.80 | ||
Commercial mortgage-backed securities | 1.83 | ||
Mortgage-backed securities | 0.91 | ||
US government obligations | 3.24 | ||
Total US bonds | 19.42 | ||
International bonds: | |||
International corporate bonds: | |||
Beverages | 0.49 | ||
Commercial banks | 5.41 | ||
Diversified financial services | 6.36 | ||
Oil & gas | 0.43 | ||
Total international corporate bonds | 12.69 | ||
Foreign government bonds | 48.65 | ||
Sovereign/Supranational bonds | 1.22 | ||
Total international bonds | 62.56 | ||
Total bonds | 81.98 | ||
Rights | 0.01 | ||
Warrants | 1.42 | ||
Short-term investments | 12.45 | ||
Options | 0.15 | ||
Investment of cash collateral for securities loaned | 0.85 | ||
Total investments | 96.86 | ||
Derivatives | 0.12 | ||
Cash and other assets, less liabilities | 3.02 | ||
Net assets | 100.00 | % | |
Strategic Global Income Fund, Inc.
Statement of assets and liabilities — November 30, 2006
Assets: | ||||||
Investments in securities of unaffiliated issuers, at value | ||||||
(cost–$172,276,930)* | $180,933,569 | |||||
Investments in securities of affiliated issuers, at value | ||||||
(cost–$28,660,831) | 28,660,831 | |||||
Total investments (cost–$200,937,761) | 209,594,400 | |||||
Cash | 354 | |||||
Foreign currency, at value (cost–$617,129) | 618,474 | |||||
Receivable for investments sold | 13,550,998 | |||||
Interest receivable | 2,659,483 | |||||
Due from broker | 2,487,234 | |||||
Unrealized appreciation on forward foreign currency contracts | 2,131,639 | |||||
Unrealized appreciation on swap agreements | 205,640 | |||||
Variation margin receivable | 7,232 | |||||
Other assets | 13,073 | |||||
Total assets | 231,268,527 | |||||
Liabilities: | ||||||
Payable for investments purchased | 10,529,061 | |||||
Unrealized depreciation on forward foreign currency contracts | 2,160,161 | |||||
Payable to investment advisor and administrator | 169,867 | |||||
Cash collateral from securities loaned | 1,829,250 | |||||
Director’s fees payable | 7,101 | |||||
Accrued expenses and other liabilities | 174,692 | |||||
Total liabilities | 14,870,132 | |||||
Net assets: | ||||||
Capital stock–$0.001 par value; 100,000,000 shares | ||||||
authorized; 18,258,828 shares issued and outstanding | 206,099,102 | |||||
Distributions in excess of net investment income | (4,104,799 | ) | ||||
Accumulated net realized gain from investment transactions | 5,425,107 | |||||
Net unrealized appreciation of investments, futures, swaps, | ||||||
forward foreign currency transactions and other assets and liabilities | ||||||
denominated in foreign currencies | 8,978,985 | |||||
Net assets | 216,398,395 | |||||
Net asset value per share | $11.85 | |||||
* Includes $1,876,198 of investments in securities on loan, at value. |
Strategic Global Income Fund, Inc.
Statement of operations
For the | ||||
year ended | ||||
November 30, 2006 | ||||
Investment income: | ||||
Interest income, net of foreign withholding taxes of $2,349 | ||||
(includes $1,023,223 earned from an affiliated entity) | $12,011,411 | |||
Net securities lending income (all of which was earned | ||||
from an affiliated entity) | 794 | |||
Total income | 12,012,205 | |||
Expenses: | ||||
Investment advisory and administration fees | 2,122,640 | |||
Custody and accounting fees | 169,813 | |||
Professional fees | 105,336 | |||
Reports and notices to shareholders | 99,112 | |||
Transfer agency fees | 28,148 | |||
Directors’ fees | 25,914 | |||
Listing fees | 23,686 | |||
Insurance expenses | 13,674 | |||
Other expenses | 21,360 | |||
Total expenses | 2,609,683 | |||
Net investment income | 9,402,522 | |||
Realized and unrealized gains from investment activities: | ||||
Net realized gain from: | ||||
Investments | 5,791,134 | |||
Futures | 1,047,950 | |||
Swap agreements | 122,921 | |||
Forward foreign currency contracts and foreign currency transactions | 1,623,832 | |||
Net change in unrealized appreciation/(depreciation) of: | ||||
Investments | 4,905,635 | |||
Futures | 101,108 | |||
Swap agreements | 184,257 | |||
Other assets and liabilities denominated in foreign currency and | ||||
forward foreign currency contracts | 830,877 | |||
Net realized and unrealized gains from investment activities | 14,607,714 | |||
Net increase in net assets resulting from operations | $24,010,236 | |||
Strategic Global Income Fund, Inc.
Statement of changes in net assets
For the years ended November 30, | ||||||
2006 | 2005 | |||||
From operations: | ||||||
Net investment income | $9,402,522 | $9,768,670 | ||||
Net realized gain from investments | 5,791,134 | 10,392,415 | ||||
Net realized gain (loss) from futures and foreign | ||||||
currency transactions | 2,671,782 | (5,438,490 | ) | |||
Net realized gain from swap agreements | 122,921 | 4,402 | ||||
Net change in unrealized appreciation/(depreciation) of: | ||||||
Investments | 4,905,635 | (11,621,929 | ) | |||
Futures | 101,108 | (17,451 | ) | |||
Swap agreements | 184,257 | 21,383 | ||||
Other assets and liabilities denominated in foreign | ||||||
currency and forward foreign currency contracts | 830,877 | 1,556,031 | ||||
Net increase in net assets resulting from operations | 24,010,236 | 4,665,031 | ||||
Dividends and distributions to shareholders from: | ||||||
Net investment income | (15,159,402 | ) | (21,270,333 | ) | ||
Net realized gains | (1,855,999 | ) | (11,450,111 | ) | ||
Return of capital | — | (2,079,056 | ) | |||
Total dividends and distributions to shareholders | (17,015,401 | ) | (34,799,500 | ) | ||
Net increase (decrease) in net assets | 6,994,835 | (30,134,469 | ) | |||
Net assets: | ||||||
Beginning of year | 209,403,560 | 239,538,029 | ||||
End of year | $216,398,395 | $209,403,560 | ||||
Distributions in excess of net investment income | $(4,104,799 | ) | $(753,819 | ) | ||
Strategic Global Income Fund, Inc.
Notes to financial statements—November 30, 2006
Organization and significant accounting policies
Strategic Global Income Fund, Inc. (the “Fund”) was incorporated in Maryland on November 15, 1991 and is registered with the Securities and Exchange Commission, as a closed-end, non-diversified management investment company. The Fund’s shares trade on the New York Stock Exchange (“NYSE”). The Fund’s primary investment objective is to achieve a high level of current income. As a secondary objective, the Fund seeks capital appreciation, to the extent consistent with its primary objective.
In the normal course of business the Fund enters into contracts that contain a variety of representations that provide general indemnification for certain liabilities. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of losses to be remote.
The preparation of financial statements in accordance with US generally accepted accounting principles requires the Fund’s 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 values for its securities from independent pricing sources and broker-dealers. Independent pricing sources may use 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 NASDAQ Official Closing Price. Other OTC securities are valued at the last bid price on the valuation date available prior to valuation. Securities which are listed on US 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
Strategic Global Income Fund, Inc.
Notes to financial statements—November 30, 2006
the exchange designated as the primary market by UBS Global Asset Management (Americas) Inc., the investment advisor 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”). Various factors may be reviewed in order to make a good faith determination of a security’s fair value. These factors include, but are not limited to, fundamental analytical data relating to the investment; the nature and duration of restrictions on disposition of the securities; and the evaluation of forces which influence the market in which the securities are purchased and sold. All investments quoted in foreign currencies will be valued weekly in US Dollars on the basis of the foreign currency exchange rates determined as of the close of regular trading on the NYSE. Occasionally, events affecting the value of the foreign investments occur between the time at which they are determined and the close of the NYSE, which will not otherwise be reflected in the computation of the Fund’s net asset value. If events materially affecting the value of such securities occur during such time periods, the securities are valued at their fair value as determined in good faith by or under the direction of the Board. The amortized cost method of valuation, which approximates market value, generally is used to value short-term debt investments with sixty days or less remaining to maturity, unless the Board determines that this does not represent fair value.
In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement on Financial Accounting Standards No. 157, “Fair Value Measurements” (“FAS 157”). This standard clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. As of November 30, 2006, the Fund does not believe the adoption of FAS 157 will impact the amounts reported in the financial statements, however, additional disclosures will be required about the inputs used to develop the measurements of fair value and the effect of certain of the measurements reported in the “Statement of operations” for a fiscal period.
Investment transactions and investment income—Investment transactions are recorded on the trade date. Realized gains and losses from investment and foreign exchange transactions are calculated using
Strategic Global Income Fund, Inc.
Notes to financial statements—November 30, 2006
the identified cost method. Interest income is recorded on an accrual basis. Discounts are accreted and premiums are amortized as adjustments to interest income and the identified cost of investments.
Foreign currency translation—The Fund uses the foreign currency exchange rates determined as of the close of regular trading on the NYSE. For purposes of calculating the US dollar equivalent value of a non-US dollar denominated obligation, foreign currency amounts are translated into US dollars on the following basis: (1) market value of investment securities and other assets and liabilities – at the exchange rates prevailing at the end of the Fund’s fiscal period; and (2) purchases and sales of investment securities and income and expenses – at the rates of exchange prevailing on the respective dates of such transactions.
Although the net assets and the market value of the Fund’s portfolio are presented at the foreign exchange rates at the end of the Fund’s fiscal 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 securities pursuant to US federal income tax regulations. Certain foreign exchange gains and losses included in realized and unrealized gains and losses are included in or are a reduction of ordinary income in accordance with US federal income tax regulations.
Forward foreign currency contracts—The Fund may enter into forward foreign currency exchange contracts (“forward contracts”) in connection with planned purchases or sales of securities or to hedge the US dollar value of portfolio securities denominated in a particular currency. The Fund may also use forward contracts to enhance income.
The Fund has no specific limitation on the percentage of assets which may be committed to such forward 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 forward contracts or (2) the Fund identifies cash or liquid securities in an amount not less than the value of its assets committed to the consummation of the forward contracts and not covered as provided in (1) above, as marked-to-market daily.
Strategic Global Income Fund, Inc.
Notes to financial statements—November 30, 2006
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 US 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 been sold or matured.
Futures contracts—The Fund may use financial futures contracts for hedging purposes and to adjust exposure to US and foreign fixed income markets in connection with a reallocation of the Fund’s assets or to manage the average duration of the Fund. However, imperfect correlations between futures contracts and the related securities or markets, or market disruptions, do not normally permit full control of these risks at all times. Using financial futures contracts involves various market risks. The maximum amount at risk from the purchase of a futures contract is the contract value.
Upon entering into a financial futures contract, the Fund is required to deliver to a broker an amount of cash and/or liquid securities equal to a certain percentage of the contract amount. This amount is known as the “initial margin”. Subsequent payments, known as “variation margin,” are made or received by the Fund each day, depending on the daily fluctuations in the value of the underlying financial futures contract. Such variation margin is recorded for financial statement purposes on a daily basis as an unrealized gain or loss on futures until the financial futures contract is closed, at which time the net gain or loss is reclassified to realized gain or loss on futures.
Total return swap agreements—Total return swap agreements involve commitments to pay interest in exchange for a market-linked return based on a notional amount. To the extent the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the Fund will receive a payment from or make a payment to the counterparty, respectively. Total return swaps are marked-to-market daily, and the change, if any, is recorded as unrealized appreciation or depreciation in the “Statement of operations”. Periodic payments received or made at the end of each measurement period, but prior to termination, are recorded as realized gains or losses in the “Statement of operations”.
Strategic Global Income Fund, Inc.
Notes to financial statements—November 30, 2006
At November 30, 2006, the Fund had outstanding a total return swap contract with the following terms:
Payments | ||||||||||||
Notional | Termination | Payments made | received | Unrealized | ||||||||
amount | date | by the Fund | by the Fund | appreciation | ||||||||
RUB 24,400,000 | 10/09/07 | $917,001^ | # | $61,105 | ||||||||
Currency type abbreviation: | ||
RUB | Russian Ruble | |
^ | Payment made on 09/27/05 to fully fund swap. | |
# | Payments to be received are equal to total return on OAO Gazprom 7.58% bond, due 10/09/07. |
Credit default swap agreements—Credit default swap agreements involve commitments to pay interest and principal in the event of a default of a security or a credit event. As a purchaser of credit default protection, the Fund would make periodic payments to the counterparty, and the counterparty would make payments only upon the occurrence of a default or credit event.
If no default or credit event occurs, the Fund will lose its periodic stream of payments over the term of the contract. However, if a default or credit event occurs, the Fund would receive full notional value for a reference obligation that may have little or no value. Credit default swaps may involve greater risks than if the Fund had invested in the reference obligation directly. Credit default swaps are subject to general market risk, liquidity risk, and credit risk.
At November 30, 2006, the Fund had outstanding credit default swap contracts with the following terms:
Payments | |||||||||||||
Notional | Termination | Payments made | received | Unrealized | |||||||||
amount | date | by the Fund | by the Fund | appreciation | |||||||||
USD 2,110,000 | 06/20/16 | 3.06% | * | $ | 80,375 | ||||||||
USD 1,600,000 | 09/20/16 | 1.90 | ** | 64,160 | |||||||||
$ | 144,535 | ||||||||||||
Strategic Global Income Fund, Inc.
Notes to financial statements—November 30, 2006
The Fund accrues for interim payments on swap contracts on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swap contracts on the “Statement of assets and liabilities”. Once interim payments are settled in cash, the net amount is recorded as realized gain/loss on swaps, in addition to realized gain/loss recorded upon termination of swap contracts on the “Statement of operations”. Fluctuations in the value of swap contracts are recorded for financial statement purposes as unrealized appreciation or depreciation of swaps.
Dividends and distributions—Dividends and distributions to shareholders are recorded on the ex-dividend date. The amount of dividends from net investment income and distributions from net realized capital gains and/or return of capital is determined in accordance with US federal income tax regulations, which may differ from US 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 US companies and US 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 particular to a specific industry, country or region.
Investment advisor and administrator and other transactions with related entities
UBS Global Asset Management (US) Inc. (“UBS Global AM—US”) served as the Fund’s investment advisor and administrator until April 1, 2006. On April 1, 2006, the Fund’s Investment Advisory and Administration Agreement (“Advisory Contract”) was transferred from UBS Global AM—US to UBS
Strategic Global Income Fund, Inc.
Notes to financial statements—November 30, 2006
Global Asset Management (Americas) Inc. (“UBS Global AM—Americas”). The transfer of the Advisory Contract between sister companies occurred in connection with an internal reorganization involving UBS Global AM—US and UBS Global AM—Americas. The Fund’s Board of Directors approved the transfer of the Advisory Contract effective April 1, 2006. All of the personnel of UBS Global AM—US who previously provided investment advisory services to the Fund continue to provide investment advisory services to the Fund as employees of UBS Global AM—Americas. UBS Global AM—Americas has the same contractual rights and responsibilities under the Advisory Contract as those previously held by UBS Global AM—US. UBS Global AM—US and UBS Global AM—Americas are both indirect wholly owned subsidiaries of UBS AG. In accordance with the Advisory Contract, the Fund paid UBS Global AM—Americas (and UBS Global AM—US for periods prior to April 1, 2006) 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, 2006, the Fund owed UBS Global AM—Americas $169,867 in investment advisory and administration fees.
The Fund invests in shares of UBS Supplementary Trust—U.S. Cash Management Prime Fund (“Supplementary Trust”). Supplementary Trust is a Fund managed by UBS Global AM—Americas. Supplementary Trust does not pay a management fee to UBS Global AM—Americas, but incurs other expenses in its operations as a fund. Distributions from Supplementary Trust are reflected as interest income on the “Statement of operations”. Amounts relating to this investment for the year ended November 30, 2006, are summarized as follows:
% of | ||||||||||||
Sales | Interest | net | ||||||||||
Fund | Purchases | proceeds | income | Value | assets | |||||||
UBS Supplementary Trust—U.S.Cash Management Prime Fund | $115,872,231 | $106,397,390 | $1,023,223 | $26,831,581 | 12.40% | |||||||
The Fund also invests in shares of UBS Private Money Market Fund LLC (“Private Money Market Fund”). Private Money Market Fund is a money market fund managed by UBS Global AM—Americas and is offered as a cash management option primarily in connection with the short term investment of cash collateral from securities loaned. The advisor does earn a management fee from Private Money Market Fund. Amounts relating
Strategic Global Income Fund, Inc.
Notes to financial statements—November 30, 2006
to those investments at November 30, 2006 and for the fiscal year then ended are summarized as follows:
Security | % of | |||||||||
Sales | lending | net | ||||||||
Fund | Purchases | proceeds | income | Value | assets | |||||
UBS Private Money Market Fund LLC | $8,870,030 | $7,040,780 | $794 | $1,829,250 | 0.85% | |||||
Additional information regarding compensation to affiliate of a board member
Effective March 1, 2005, Professor Meyer Feldberg accepted the position of senior advisor to Morgan Stanley, resulting in his becoming an interested director of the Fund. The Fund has been informed that Professor Feldberg’s role at Morgan Stanley does not involve matters directly affecting any UBS funds. UBS Global AM—Americas (or UBS Global AM—US for periods prior to April 1, 2006) may execute Fund portfolio transactions through Morgan Stanley based on that firm’s ability to provide best execution of the transactions. For the year ended November 30, 2006, the Fund purchased or sold certain securities (e.g., fixed income securities) in principal trades with Morgan Stanley having an aggregate value of $7,620,312. Morgan Stanley received compensation in connection with these trades, which may have been in the form of a “mark-up” or “mark-down” of the price of the securities, a fee from the issuer for maintaining a commercial paper program, or some other form of compensation. Although the precise amount of this compensation is not generally known by UBS Global AM—Americas (or UBS Global AM—US for periods prior to April 1, 2006), UBS Global AM—Americas (or UBS Global AM—US for periods prior to April 1, 2006) believes that under normal circumstances it represents a small portion of the total value of the transactions.
Restricted securities
The Fund may invest in securities that are subject to legal or contractual restrictions on resale. Frequently, these securities may be resold in transactions exempt from registration or to the public if the securities are registered. Disposal of these securities may involve time-consuming negotiations and expense, and prompt sale at an acceptable price may be difficult. Information regarding restricted securities is included at the end of the Fund’s “Portfolio of investments.”
Strategic Global Income Fund, Inc.
Notes to financial statements—November 30, 2006
Securities lending
The Fund may lend securities up to 33 1/3% of its total assets to qualified broker-dealers or institutional investors. The loans are secured at all times by cash, cash equivalents or US government securities in an amount at least equal to the market value of the securities loaned, plus accrued interest and dividends, determined on a daily basis and adjusted accordingly. The Fund will regain 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 for lending its securities from interest or dividends earned on the cash, cash equivalents or US government securities held as collateral, net of fee rebates paid to the borrower plus reasonable administrative and custody fees. UBS Financial Services, Inc., an indirect wholly owned subsidiary of UBS AG, and other affiliated broker-dealers have been approved as borrowers under the Fund’s securities lending program. UBS Securities LLC is the Fund’s lending agent. For the year ended November 30, 2006, UBS Securities LLC earned $273 in compensation as the Fund’s lending agent. At November 30, 2006, the Fund owed UBS Securities LLC $25 in compensation as the Fund’s lending agent.
Capital stock
There are 100,000,000 shares of $0.001 par value common stock authorized and 18,258,828 shares outstanding at November 30, 2006. For the year ended November 30, 2006 and the year ended November 30, 2005, the Fund did not repurchase or issue any shares of common stock.
Purchases and sales of securities
For the year ended November 30, 2006, aggregate purchases and sales of portfolio securities, excluding short-term securities, were $139,460,366 and $163,450,190 respectively.
Federal tax status
The Fund intends to distribute substantially all of its taxable income and to comply with the other requirements of the Internal Revenue Code applicable to regulated investment companies. Accordingly, no provision for federal income taxes is required. In addition, by distributing during each calendar year substantially all of its net investment income, realized capital gains and certain other amounts, if any, the Fund intends not to be subject to a federal excise tax.
Strategic Global Income Fund, Inc.
Notes to financial statements—November 30, 2006
The tax character of distributions paid during the fiscal years ended November 30, 2006 and November 30, 2005 were as follows:
Distributions paid from: | 2006 | 2005 | ||||
Ordinary income | $ | 15,745,694 | $ | 22,834,397 | ||
Net realized long-term capital gains | 1,269,707 | 9,886,047 | ||||
Return of capital | — | 2,079,056 | ||||
$ | 17,015,401 | $ | 34,799,500 | |||
At November 30, 2006, the components of accumulated earnings on a tax basis were as follows:
Undistributed long-term capital gain | $ | 4,075,473 | ||
Undistributed ordinary income | 1,706,822 | |||
Accumulated realized capital and other losses | (2,445,157 | ) | ||
Net unrealized appreciation | 6,962,153 | |||
Total accumulated earnings | $ | 10,299,291 | ||
For federal income tax purposes, the tax cost of investments and components of net unrealized appreciation of investments at November 30, 2006 were as follows:
Tax cost of investments | $ | 202,494,944 | ||
Gross appreciation (investments having an excess of value over cost) | 10,820,342 | |||
Gross depreciation (investments having an excess of cost over value) | (3,720,886 | ) | ||
Net unrealized appreciation of investments | $7,099,456 | |||
The difference between book-basis and tax-basis net unrealized appreciation of investments is attributable to premium amortization adjustments and wash sales.
To reflect reclassifications arising from permanent “book/tax” differences for the year ended November 30, 2006, accumulated undistributed net investment income was increased by $2,992,190, accumulated net realized gain from investment activities was decreased by $1,722,484, and capital stock was decreased by $1,269,706. These differences were primarily due to tax treatment of foreign currency transactions, paydown gains and losses, adjustments for certain debt obligations and the reclassification of the tax character of distributions.
On July 13, 2006, FASB released FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 provides guidance
Strategic Global Income Fund, Inc.
Notes to financial statements—November 30, 2006
for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. At this time, management is evaluating the implications of FIN 48, and its impact on the financial statements has not yet been determined.
Strategic Global Income Fund, Inc.
Financial highlights
Selected data for a share of common stock outstanding throughout each year is presented below:
For the years ended November 30, | |||||||||||||||
2006 | 2005 | 2004 | 2003 | 2002† | |||||||||||
Net asset value, beginning of the year | $11.47 | $13.12 | $12.93 | $12.15 | $11.99 | ||||||||||
Net investment income@ | 0.51 | 0.54 | 0.54 | 0.53 | 0.52 | ||||||||||
Net realized and unrealized gains (losses) from investments and foreign currency transactions | 0.80 | (0.28 | ) | 0.94 | 1.53 | 0.83 | |||||||||
Net increase from investment operations | 1.31 | 0.26 | 1.48 | 2.06 | 1.35 | ||||||||||
Dividends from net investment income and net realized gains from foreign currency transactions | (0.83 | ) | (1.17 | ) | (1.29 | ) | (0.78 | ) | (0.57 | ) | |||||
Distribution from net realized gains from investment transactions | (0.10 | ) | (0.63 | ) | — | (0.33 | ) | (0.22 | ) | ||||||
Distributions from paid-in-capital | — | (0.11 | ) | — | (0.17 | ) | (0.40 | ) | |||||||
Total dividends and distributions to shareholders | (0.93 | ) | (1.91 | ) | (1.29 | ) | (1.28 | ) | (1.19 | ) | |||||
Net asset value, end of year | $11.85 | $11.47 | $13.12 | $12.93 | $12.15 | ||||||||||
Market price per share, end of year | $11.67 | $10.56 | $14.60 | $14.44 | $12.84 | ||||||||||
Total investment return1 | 19.70 | % | (17.37 | )% | 10.89 | % | 23.18 | % | 24.39 | % | |||||
Ratios/supplemental data: | |||||||||||||||
Net assets, end of year (000’s) | $216,398 | $209,404 | $239,538 | $236,102 | $221,928 | ||||||||||
Expenses to average net assets | 1.23 | % | 1.22 | % | 1.16 | % | 1.19 | % | 1.18 | % | |||||
Net investment income to average net assets | 4.43 | % | 4.43 | % | 4.21 | % | 4.15 | % | 4.37 | % | |||||
Portfolio turnover rate | 74 | % | 113 | % | 189 | % | 49 | % | 51 | % | |||||
Strategic Global Income Fund, Inc.
Report of Ernst &Young LLP, independent registered public accounting firm
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. (the “Fund”), including the portfolio of investments, as of November 30, 2006, 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 five years in the period then ended. 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 the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Fund’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of November 30, 2006, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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, 2006, 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 five years in the period then ended, in conformity with US generally accepted accounting principles.
New York, New York
January 9, 2007
Strategic Global Income Fund, Inc.
Tax information (unaudited)
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 reporting. Since the Fund’s fiscal year is not the calendar year, another notification will be sent in respect of calendar year 2006. 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 2007. Shareholders are advised to consult their own tax advisors with respect to the tax consequences of their investment in the Fund.
The foreign taxes paid represent taxes incurred by the Fund on income received by the Fund from foreign sources. Foreign taxes paid may be included in taxable income with an offsetting deduction from gross income or may be taken as a credit for taxes paid to foreign governments. You should consult your tax advisor regarding the appropriate treatment of foreign taxes paid.
Strategic Global Income Fund, Inc.
General information (unaudited)
The Fund
Strategic Global Income Fund, Inc. (the “Fund”) is a non-diversified, closed-end management investment company whose shares trade on the New York Stock Exchange (“NYSE”). The Fund’s primary investment objective is to achieve a high level of current income. As a secondary objective, the Fund seeks capital appreciation to the extent consistent with its primary objective. The Fund’s investment advisor and administrator is UBS Global Asset Management (Americas) Inc. (“UBS Global AM”), an indirect wholly owned asset management subsidiary of UBS AG.
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 various media.
Quarterly Form N-Q portfolio schedule
The Fund will file its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the SEC’s Web site at http://www.sec.gov. The Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the SEC’s Public Reference Room may be obtained by calling 1-800-SEC 0330. Additionally, you may obtain copies of Forms N-Q from the Fund upon request by calling 1-800-647 1568.
Proxy voting policies, procedures and record
You may obtain a description of the Fund’s (1) proxy voting policies, (2) proxy voting procedures and (3) information regarding how the Fund voted any proxies related to portfolio securities during the 12-month period ended June 30 for which an SEC filing has been made without charge, upon request by contacting the Fund directly at 1-800-647 1568, online on the Fund’s Web site: www.ubs.com/ubsglobalam-proxy, or on the EDGAR Database on the SEC’s Web site (http://www.sec.gov).
Dividend reinvestment plan
The Fund’s Board has established a Dividend Reinvestment Plan (the “Plan”) under which all shareholders whose shares are registered in their own names, or in the name of UBS Financial Services Inc. or its nominee, will have all dividends and other distributions on their shares of common stock automatically reinvested in additional shares, unless such shareholders elect to receive cash. Shareholders who elect to hold their shares in the
Strategic Global Income Fund, Inc.
General information (unaudited)
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 shareholders to participate in the Plan may change if their shares are transferred into the name of another broker or nominee.
A shareholder may elect not to participate in the Plan or may terminate participation in the Plan at any time without penalty, and shareholders 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 shareholder’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 shareholder 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. Investors should consider whether continued participation in the dividend reinvestment plan is appropriate for them when the Fund’s market price exceeds its net asset value; a portion of a dividend may represent a return of capital, which would be reinvested in the Fund at a premium to net asset value. The number of shares of common stock purchased with each dividend will be equal to the result obtained by dividing the amount of the dividend payable to a particular shareholder 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.
Experience under the Plan may indicate that changes are desirable. Accordingly, the Fund reserves the right to amend or terminate the Plan with respect to any dividend or other distribution if notice of the change
Strategic Global Income Fund, Inc.
General information (unaudited)
is sent to Plan participants at least 30 days before the record date for such distribution. The Plan also may be amended or terminated by the transfer agent by at least 30 days’ written notice to all Plan participants. Additional information regarding the Plan may be obtained from, and all correspondence concerning the Plan should be directed to, the transfer agent at PFPC Inc., P.O. Box 43027. Providence, Rhode Island 02940-3027. For further information regarding the Plan, you may also contact the transfer agent directly at 1-800-331 1710.
Distribution policy
The Fund’s Board adopted a managed distribution policy in May 1998, which was revised effective January 2000 and again in May 2005. Pursuant to the policy as in effect from January 2000 through early May 2005, the Fund made regular monthly distributions at an annualized rate equal to 10% of the Fund’s net asset value, as determined as of the last trading day during the first week of that month (usually a Friday unless the NYSE is closed that Friday). The Board approved reducing the annualized rate for distribution pursuant to the policy from 10% to 8% effective beginning with the June 2005 monthly distribution. From May 31, 1998 through January 2000, the Fund’s managed distribution was 8% of the Fund’s net asset value as determined as of the last trading day during the first week of the month. Prior to May 31, 1998, the Fund’s distributions varied based on the Fund’s net investment income and realized capital gains or losses. The Fund’s Board may change or terminate the managed distribution policy at any time; any such change or termination may have an adverse effect on the market price for the Fund’s shares.
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 make an additional distribution in the amount of that excess near the end of the fiscal year. To the extent that the aggregate amount distributed by the Fund (based on a percentage of its net assets) exceeds its current and accumulated earnings and profits, the amount of that excess would constitute a return of capital for tax purposes.
Monthly distributions based on a fixed percentage of the Fund’s net asset value may require the Fund to make multiple distributions of long-term capital gains during a single fiscal year. The Fund has received exemptive relief from the Securities and Exchange Commission that enables it to do so. The Fund’s Board will reassess the annualized percentage of net assets at which the Fund’s monthly distributions will be made no less frequently than annually.
Strategic Global Income Fund, Inc.
Board approval of advisory and administration agreement (unaudited)
Background—At a meeting of the board of Strategic Global Income Fund, Inc. (the “Fund”) on July 19, 2006, the members of the board, including the directors who are not “interested persons” of the Fund (“Independent Directors”), as defined in the Investment Company Act of 1940, as amended (the “1940 Act”), considered and approved the continuance of the Investment Advisory and Administration Contract between UBS Global Asset Management (Americas) Inc. (“UBS Global AM”) and the Fund. In preparing for the meeting, the board members had requested and received extensive information from UBS Global AM to assist them, including performance and expense information for other investment companies with similar investment objectives. The board received and considered a variety of information about UBS Global AM, as well as the advisory and administrative arrangements for the Fund. The Independent Directors discussed the materials initially provided by management prior to the scheduled board meeting in a session with their independent legal counsel and requested, and received from management, supplemental materials to assist them in their consideration of the Investment Advisory and Administration Contract. The board received materials detailing the administrative services provided to the Fund by UBS Global AM, which include providing accounting and financial analysis, ensuring that all financial and tax regulatory reporting requirements were met, certifying required Securities and Exchange Commission documentation and monitoring the performance of the Fund’s service providers.
The Independent Directors also met for several hours the evening before the board meeting and met again after management’s presentation was completed to review the disclosure that had been made to them at the meeting. At all of these sessions the Independent Directors met in session with their independent legal counsel. The Independent Directors also received a memorandum from their independent legal counsel discussing the duties of board members in considering approval of advisory and administration agreements.
In its consideration of the approval of the Investment Advisory and Administration Contract, the board considered the following factors:
Nature, extent and quality of the services under the advisory and administration agreement—The board received and considered information regarding the nature, extent and quality of management services provided to the Fund by UBS Global AM and its predecessor,
Strategic Global Income Fund, Inc.
Board approval of advisory and administration agreement (unaudited)
UBS Global Asset Management (US) Inc., under the Investment Advisory and Administration Contract (and a predecessor agreement) during the past year. The board also received a description of the administrative and other services rendered to the Fund and its shareholders by UBS Global AM. The board considered the nature, extent and quality of administrative and shareholder services performed by UBS Global AM and its affiliates. The board also considered the resources devoted to, and the record of compliance with the Fund’s compliance policies and procedures. The board noted that it received information at regular meetings throughout the year regarding the services rendered by UBS Global AM concerning the management of the Fund’s affairs and UBS Global AM’s role in coordinating providers of other services to the Fund, including custody, accounting and transfer agency services. The board’s evaluation of the services provided by UBS Global AM took into account the board’s knowledge and familiarity gained as board members of funds in the UBS New York fund complex, including the scope and quality of UBS Global AM’s investment management and other capabilities and the quality of its administrative and other services. The board observed that the scope of services provided by UBS Global AM had expanded over time as a result of regulatory and other developments, including maintaining and monitoring its own and the Fund’s expanded compliance programs.
The board had available to it the qualifications, backgrounds and responsibilities of the Fund’s senior personnel at UBS Global AM and had received information regarding the portfolio manager responsible for the portfolio management of the Fund and recognized that the Fund’s senior personnel at UBS Global AM report to the board regularly, some at every board meeting, and that at each regular meeting the board receives a detailed report on the Fund’s performance. The board also considered, based on its knowledge of UBS Global AM and its affiliates, the financial resources available to UBS Global AM and its parent organization, UBS AG. In that regard, the board received extensive financial information regarding UBS Global AM and noted that it was a wholly owned, indirect subsidiary of one of the largest financial services firms in the world. It was also noted that UBS Global AM had well over $100 billion in assets under management and was part of the UBS Global Asset Management Division, which had over $600 billion of assets under management worldwide.
The board reviewed how transactions in Fund assets are effected. The board also reviewed the Fund’s brokerage policies and practices, the standards
Strategic Global Income Fund, Inc.
Board approval of advisory and administration agreement (unaudited)
applied in seeking best execution, policies and practices regarding soft dollars, the use of a broker affiliated with UBS Global AM and the existence of quality controls applicable to brokerage allocation procedures. In addition, UBS Global AM also reported to the board on, among other things, its disaster recovery plans and portfolio manager compensation plan.
The board concluded that, overall, it was satisfied with the nature, extent and quality of services provided (and expected to be provided) to the Fund under the Investment Advisory and Administration Contract.
Management fees and expense ratios—The board reviewed and considered the contractual management fee (“Contractual Management Fee”) payable by the Fund to UBS Global AM in light of the nature, extent and quality of the management and administrative services provided by UBS Global AM. The board also reviewed and considered any fee waiver and/or expense reimbursement arrangements currently in place for the Fund and considered the actual fee rate (after taking any waivers and reimbursements into account) (“Actual Management Fee”). Additionally, the board received and considered information comparing the Fund’s Contractual Management Fee, Actual Management Fee and overall expenses with those of funds in a group of funds selected and provided by Lipper, Inc. (“Lipper”), an independent provider of investment company data (the “Expense Group”).
The board also received information on UBS Global AM’s standard institutional account fees for accounts of a similar investment type to the Fund. The board noted that, in general, these fees were lower than the Contractual Management Fee and Actual Management Fee for the Fund, but also noted management’s explanation that comparisons with such accounts may be of limited relevance given the different structures and regulatory requirements of funds versus such accounts and the differences in the levels of services required by funds and such accounts. The board also received information on fees charged to other funds managed by UBS Global AM.
The comparative Lipper information showed that the Fund’s Contractual Management Fee and Actual Management Fee were in the fifth quintile, while its total expenses were in the third quintile in the Fund’s Expense Group for the comparison periods utilized in the Lipper report (with the first quintile representing that fifth of the funds in the Expense Group
Strategic Global Income Fund, Inc.
Board approval of advisory and administration agreement (unaudited)
with the lowest level of fees or expenses, as applicable, and the fifth quintile representing that fifth of the funds in the Expense Group with the highest level of fees or expenses, as applicable). The board noted management’s explanation that the Fund, unlike many in its Expense Group, has a dedicated component of its investment portfolio invested in emerging market debt and high yield instruments, adding greater complexity to the portfolio management team’s analysis of potential investments and which, therefore, can be more costly to manage than funds that invest predominantly in investment grade instruments.
Taking all of the above into consideration, including that the Fund’s total expenses were in the third quintile, the board determined that the management fee was reasonable in light of the nature, extent and quality of the services provided to the Fund under the Investment Advisory and Administration Contract.
Fund performance—The board received and considered performance information of the Fund compared to other funds (the “Performance Universe”) selected by Lipper over the one-, three-, five- and ten-year periods and since inception, ended April 30, 2006. The board was provided with a description of the methodology Lipper used to determine the similarity of the Fund with the funds included in its Performance Universe. The board noted that it had received information throughout the year at periodic intervals with respect to the Fund’s performance, including with respect to the Fund’s benchmark index.
The comparative Lipper information showed that the Fund’s performance was in the second quintile for the one-year period, the fourth quintile for the three- and five-year periods and the first quintile for the ten-year period (with the first quintile representing that fifth of the funds in the Performance Universe with the highest performance and the fifth quintile representing that fifth of the funds in the Performance Universe with the lowest performance). Management explained that the Fund, which has a lower risk profile than a number of other funds in its Performance Universe because it does not utilize leverage, may underperform its peers during a strong market, and outperform its peers on corrections in the market. In addition, management also noted to the board that taking into account the volatility of the Performance Universe’s returns, the Fund’s return for each of the comparison periods was close to that of its
Strategic Global Income Fund, Inc.
Board approval of advisory and administration agreement (unaudited)
Performance Universe’s mean return. Based on its review, the board concluded that the Fund’s investment performance was satisfactory.
Adviser profitability—The board received and considered a profitability analysis of UBS Global AM and its affiliates in providing services to the Fund. The board also received profitability information with respect to the UBS fund complex as a whole. In addition, the board received information with respect to UBS Global AM’s allocation methodologies used in preparing this profitability data. UBS Global AM’s profitability was considered not excessive in light of the nature, extent and quality of the services provided to the Fund.
Economies of scale—The board received and considered information from management regarding whether it has achieved economies of scale with respect to the management of the Fund, whether the Fund has appropriately benefited from any economies of scale, and whether there is potential realization of further economies of scale. The board considered whether economies of scale in the provision of services to the Fund were being passed along to shareholders. The board also considered whether alternative fee structures (such as breakpoints) would be more appropriate or reasonable taking into consideration economies of scale or other efficiencies.
In conducting its review, the board noted that the Fund’s Contractual Management Fee did not contain any breakpoints. Further, the board noted that advisory agreements of closed-end funds usually do not contain breakpoints. Management informed the board that the Fund, as a closed-end investment company, was not expected to materially increase in size; thus, UBS Global AM would not benefit from economies of scale. The board members considered whether economies of scale could be realized because UBS Global AM advises other similar funds, and, based on their experience, the board accepted UBS Global AM’s explanation that significant economies of scale would not be realized because the nature of the market in which the Fund invests did not provide significant savings.
Other benefits to UBS Global AM—The board considered other benefits received by UBS Global AM and its affiliates as a result of its relationship with the Fund, including the opportunity to offer additional products and services to Fund shareholders.
Strategic Global Income Fund, Inc.
Board approval of advisory and administration agreement (unaudited)
In light of the costs of providing investment management, administrative and other services to the Fund and UBS Global AM’s ongoing commitment to the Fund, the profits and other ancillary benefits that UBS Global AM and its affiliates received were considered reasonable.
In light of all of the foregoing, the board approved the Investment Advisory and Administration Contract to continue for another year.
In making its decision, the board identified no single factor as being determinative in approving the Investment Advisory and Administration Contract. The Independent Directors were advised by separate independent legal counsel throughout the entire process. The board discussed the proposed continuance of the Investment Advisory and Administration Contract in a private session with their independent legal counsel at which no representatives of UBS Global AM were present.
Strategic Global Income Fund, Inc.
Supplemental information (unaudited)
Board of Directors & Officers
The Fund is governed by a Board of Directors which oversees the Fund’s operations. Each director serves until the next annual meeting of shareholders or until his or her successor is elected and qualified, or until he or she resigns or is otherwise removed. Officers are appointed by the directors and serve at the pleasure of the Board. The table below shows, for each director and officer, his or her name, address and age, the position held with the Fund, the length of time served as a director and officer of the Fund, the director’s or officer’s principal occupations during the last five years, the number of funds in the UBS fund complex overseen by the director or for which a person served as an officer, and other directorships held by the director.
Interested Director | ||||||
Term of | ||||||
Position(s) | office† and | |||||
held with | length of | Principal occupation(s) | ||||
Name, address, and age | Fund | time served | during past 5 years | |||
Meyer Feldberg††; 64 Morgan Stanley 1585 Broadway 33rd Floor New York, NY 10036 | Director | Since 1992 | Professor Feldberg is Dean Emeritus and Sanford Bernstein Professor of Leadership and Ethics at Columbia Business School, although on a two year leave of absence. He is also a senior advisor to Morgan Stanley (financial services) (since March 2005). Prior to July 2004, he was Dean and Professor of Management of the Graduate School of Business at Columbia University (since 1989). |
Strategic Global Income Fund, Inc.
Supplemental information (unaudited)
Number of portfolios in fund complex | ||
overseen by director | Other directorships held by director | |
Professor Feldberg is a director or trustee of 29 investment companies (consisting of 48 portfolios) for which UBS Global AM or one of its affiliates serves as investment advisor, sub-advisor or manager. | Professor Feldberg is also a director of Primedia Inc. (publishing), Federated Department Stores, Inc. (operator of department stores), Revlon, Inc. (cosmetics), and SAPPI, Ltd. (producer of paper). |
Strategic Global Income Fund, Inc.
Supplemental information (unaudited)
Independent Directors | ||||||
Term of | ||||||
Position(s) | office† and | |||||
held with | length of | Principal occupation(s) | ||||
Name, address, and age | Fund | time served | during past 5 years | |||
Richard Q. Armstrong; 71 c/o Willkie Farr & Gallagher LLP 787 Seventh Avenue New York, NY 10019-6099 | Director and Chairman of the Board of Directors | Since 1996 (Director) Since 2004 (Chairman of the Board of Directors) | Mr. Armstrong is chairman and principal of R.Q.A. Enterprises (management consulting firm) (since April 1991 and principal occupation since March 1995). | |||
Alan S. Bernikow; 65 207 Benedict Ave. Staten Island, NY 10314 | Director | Since 2006 | Mr. Bernikow is a consultant on non-management matters for the firm of Deloitte & Touche (international accounting and consulting firm) (since June 2003). Previously, he was Deputy Chief Executive Officer at Deloitte & Touche. | |||
Richard R. Burt; 59 1275 Pennsylvania Ave., N.W. Washington, D.C. 20004 | Director | Since 1996 | Mr. Burt is chairman of Diligence Inc. (information and risk management firm) and IEP Advisors (international investments and consulting firm). | |||
Bernard H. Garil; 66 6754 Casa Grande Way Delray Beach, FL 33446 | Director | Since 2006 | Mr. Garil is retired (since 2001). He was a Managing Director at PIMCO Advisory Services (from 1999 to 2001) where he served as President of closed-end funds and Vice-President of the variable insurance product funds advised by OpCap Advisors (until 2001). |
Strategic Global Income Fund, Inc.
Supplemental information (unaudited)
Number of portfolios in fund complex | ||||||
overseen by director | Other directorships held by director | |||||
Mr. Armstrong is a director or trustee of 16 investment companies (consisting of 36 portfolios) for which UBS Global AM or one of its affiliates serves as investment advisor, sub-advisor or manager. | None | |||||
Mr. Bernikow is a director or trustee of 16 investment companies (consisting of 36 portfolios) for which UBS Global AM or one of its affiliates serves as investment advisor, sub-advisor or manager. | Mr. Bernikow is also a director of Revlon, Inc. (cosmetics) (and serves as the chair of its audit committee), a director of Mack-Cali Realty Corporation (real estate investment trust) (and serves as the chair of its audit committee) and a director of the Casual Male Retail Group, Inc. (menswear). | |||||
Mr. Burt is a director or trustee of 16 investment companies (consisting of 36 portfolios) for which UBS Global AM or one of its affiliates serves as investment advisor, sub-advisor or manager. | Mr. Burt is also a director of The Central European Fund, Inc., The Germany Fund, Inc., The New Germany Fund, Inc., IGT, Inc. (provides technology to gaming and wagering industry) and The Protective Group, Inc. (produces armor products). | |||||
Mr. Garil is a director or trustee of 16 investment companies (consisting of 36 portfolios) for which UBS Global AM or one of its affiliates serves as investment advisor, sub-advisor or manager. | Mr. Garil is also a director of OFI Trust Company (commercial trust company) and a trustee for the Brooklyn College Foundation, Inc. (charitable foundation). |
Strategic Global Income Fund, Inc.
Supplemental information (unaudited)
Independent Directors (concluded) | ||||||
Term of | ||||||
Position(s) | office† and | |||||
held with | length of | Principal occupation(s) | ||||
Name, address, and age | Fund | time served | during past 5 years | |||
Heather R. Higgins; 47 255 E. 49th St., Suite 23D New York, NY 10017 | Director | Since 2006 | Ms. Higgins is the President and Director of The Randolph Foundation (charitable foundation) (since 1991). Ms. Higgins also serves on the boards of several non-profit charitable groups, including the Independent Women’s Forum (chairman), the Philanthropy Roundtable (vice chairman) and the Hoover Institution (executive committee). |
Strategic Global Income Fund, Inc.
Supplemental information (unaudited)
Number of portfolios in fund complex | ||||||
overseen by director | Other directorships held by director | |||||
Ms. Higgins is a director or trustee of 16 investment companies (consisting of 36 portfolios) for which UBS Global AM or one of its affiliates serves as investment advisor, sub-advisor or manager. | None |
Strategic Global Income Fund, Inc.
Supplemental information (unaudited)
Officers | ||||||
Term of | Principal occupation(s) during | |||||
Position(s) | office† and | past 5 years; number of portfolios | ||||
Name, address, | held with | length of | in fund complex for which person | |||
and age | Fund | time served | serves as officer | |||
Joseph Allessie*; 41 | Vice President and Assistant Secretary | Since 2005 | Mr. Allessie is a director and deputy general counsel at UBS Global Asset Management (US) Inc. and UBS Global AM (collectively, “UBS Global AM—Americas region”) (since 2005). Prior to joining UBS Global AM—Americas region, he was senior vice president and general counsel of Kenmar Advisory Corp. (from 2004 to 2005). Prior to that Mr. Allessie was general counsel and secretary of GAM USA Inc., GAM Investments, GAM Services, GAM Funds, Inc. and the GAM Avalon Funds (from 1999 to 2004). Mr. Allessie is a vice president and assistant secretary of 20 investment companies (consisting of 92 portfolios) for which UBS Global AM—Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. | |||
Rose Ann Bubloski*; 38 | Vice President and Assistant Treasurer | Since 2006 | Ms. Bubloski is an associate director and a senior manager (since 2003) of the US mutual fund treasury administration department of UBS Global AM—Americas region. Ms. Bubloski is vice president and assistant treasurer of 20 investment companies (consisting of 92 portfolios) for which UBS Global AM—Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. |
Strategic Global Income Fund, Inc.
Supplemental information (unaudited)
Officers (continued) | ||||||
Term of | Principal occupation(s) during | |||||
Position(s) | office† and | past 5 years; number of portfolios | ||||
Name, address, | held with | length of | in fund complex for which person | |||
and age | Fund | time served | serves as officer | |||
Thomas Disbrow*; 40 | Vice President and Treasurer | Since 2000 (Vice President) Since 2004 (Treasurer) | Mr. Disbrow is a director (since 2001), and head of the US mutual fund treasury administration department (since September 2006) of UBS Global AM—Americas region. Mr. Disbrow is a vice president and treasurer and/or principal accounting officer of 20 investment companies (consisting of 92 portfolios) for which UBS Global AM—Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. | |||
Michael J. Flook*; 41 | Vice President and Assistant Treasurer | Since 2006 | Mr. Flook is an associate director and a senior manager of the US mutual fund treasury administration department of UBS Global AM—Americas region (since 2006). Prior to joining UBS Global AM—Americas region, he was a senior manager with The Reserve (asset management firm) from May 2005 to May 2006. Prior to that he was a senior manager with PFPC Worldwide since October 2000. Mr. Flook is a vice president and assistant treasurer of 20 investment companies (consisting of 92 portfolios) for which UBS Global AM—Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. |
Strategic Global Income Fund, Inc.
Supplemental information (unaudited)
Officers (continued) | ||||||
Term of | Principal occupation(s) during | |||||
Position(s) | office† and | past 5 years; number of portfolios | ||||
Name, address, | held with | length of | in fund complex for which person | |||
and age | Fund | time served | serves as officer | |||
Mark F. Kemper**; 48 | Vice President and Secretary | Since 2004 | Mr. Kemper is general counsel of UBS Global AM—Americas region (since 2004). Mr. Kemper also is a managing director of UBS Global AM—Americas region (since 2006). He was deputy general counsel of UBS Global Asset Management (Americas) Inc. (“UBS Global AM—Americas”) from July 2001 to July 2004. He has been secretary of UBS Global AM—Americas since 1999 and assistant secretary of UBS Global Asset Management Trust Company since 1993. Mr. Kemper is secretary of UBS Global AM—Americas region (since 2004). Mr. Kemper is vice president and secretary of 20 investment companies (consisting of 92 portfolios) for which UBS Global AM—Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. | |||
Joanne M. Kilkeary*; 38 | Vice President and Assistant Treasurer | Since 2004 | Ms. Kilkeary is an associate director (since 2000) and a senior manager (since 2004) of the US mutual fund treasury administration department of UBS Global AM—Americas region. Ms. Kilkeary is a vice president and assistant treasurer of 20 investment companies (consisting of 92 portfolios) for which UBS Global AM—Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. |
Strategic Global Income Fund, Inc.
Supplemental information (unaudited)
Officers (continued) | |||||||
Term of | Principal occupation(s) during | ||||||
Position(s) | office† and | past 5 years; number of portfolios | |||||
Name, address, | held with | length of | in fund complex for which person | ||||
and age | Fund | time served | serves as officer | ||||
Tammie Lee*; 35 | Vice President and Assistant Secretary | Since 2005 | Ms. Lee is a director and associate general counsel of UBS Global AM—Americas region (since 2005). Prior to joining UBS Global AM—Americas region, she was vice president and counsel at Deutsche Asset Management/Scudder Investments from 2003 to 2005. Prior to that she was assistant vice president and counsel at Deutsche Asset Management/Scudder Investments from 2000 to 2003. Ms. Lee is a vice president and assistant secretary of 20 investment companies (consisting of 92 portfolios) for which UBS Global AM—Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. | ||||
Joseph McGill*; 44 | Vice President and Chief Compliance Officer | Since 2004 | Mr. McGill is a managing director (since 2006) and chief compliance officer (since 2003) at UBS Global AM—Americas region. Prior to joining UBS Global AM—Americas region, he was assistant general counsel at J.P. Morgan Investment Management (from 1999 to 2003). Mr. McGill is a vice president and chief compliance officer of 20 investment companies (consisting of 92 portfolios) for which UBS Global AM—Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. |
Strategic Global Income Fund, Inc.
Supplemental information (unaudited)
Officers (continued) | ||||||
Term of | Principal occupation(s) during | |||||
Position(s) | office† and | past 5 years; number of portfolios | ||||
Name, address, | held with | length of | in fund complex for which person | |||
and age | Fund | time served | serves as officer | |||
John Penicook**; 48 | Vice President | Since 2002 | Mr. Penicook is a managing director (since 2000) and global head of fixed income (since 2002) of UBS Global AM—Americas region. Mr. Penicook is a vice president of three investment companies (consisting of three portfolios) for which UBS Global AM—Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. | |||
Eric Sanders*; 41 | Vice President and Assistant Secretary | Since 2005 | Mr. Sanders is a director and associate general counsel of UBS Global AM—Americas region (since 2005). From 1996 until June 2005, he held various positions at Fred Alger & Company, Incorporated, the most recent being assistant vice president and associate general counsel. Mr. Sanders is a vice president and assistant secretary of 20 investment companies (consisting of 92 portfolios) for which UBS Global AM—Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. |
Strategic Global Income Fund, Inc.
Supplemental information (unaudited)
Officers (continued) | ||||||
Term of | Principal occupation(s) during | |||||
Position(s) | office† and | past 5 years; number of portfolios | ||||
Name, address, | held with | length of | in fund complex for which person | |||
and age | Fund | time served | serves as officer | |||
Andrew Shoup*; 50 | Vice President and Chief Operating Officer | Since 2006 | Mr. Shoup is a managing director and senior member of the Global Treasury Administration department of UBS Global AM—Americas region (since July 2006). Prior to joining UBS Global AM—Americas region, he was Chief Administrative Officer for the Legg Mason Partner Funds (formerly Smith Barney, Salomon Brothers, and CitiFunds mutual funds) from November 2003 to July 2006. Prior to that, he held various positions with Citigroup Asset Management and related companies with their domestic and offshore mutual funds since 1993. Additionally, he has worked for another mutual fund complex as well as spending eleven years in public accounting. Mr. Shoup is a vice president of 20 investment companies (consisting of 92 portfolios) for which UBS Global AM—Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. |
Strategic Global Income Fund, Inc.
Supplemental information (unaudited)
Officers (continued) | ||||||
Term of | Principal occupation(s) during | |||||
Position(s) | office† and | past 5 years; number of portfolios | ||||
Name, address, | held with | length of | in fund complex for which person | |||
and age | Fund | time served | serves as officer | |||
Kai R. Sotorp**; 47 | President | Since 2006 | Mr. Sotorp is the Head of the Americas for UBS Global Asset Management (since 2004); a member of the UBS Group Managing Board (since 2003) and a member of the UBS Global Asset Management Executive Committee (since 2001). Prior to his current role, Mr. Sotorp was Head of UBS Global Asset Management—Asia Pacific (2002–2004), covering Australia, Japan, Hong Kong, Singapore and Taiwan; Head of UBS Global Asset Management (Japan) Ltd. (2001–2004) and Representative Director and President of UBS Global Asset Management (Japan) Ltd. (2000–2004); and member of the board of Mitsubishi Corp.—UBS Realty Inc. (2000–2004). Mr. Sotorp is president of 20 investment companies (consisting of 92 portfolios) for which UBS Global Asset Management—Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. | |||
Uwe Schillhorn**; 42 | Vice President | Since 2004 | Mr. Schillhorn is an executive director, and head of emerging markets debt (since 2004) of UBS Global AM—Americas region. Mr. Schillhorn is a vice president of two investment companies (consisting of two portfolios) for which UBS Global AM—Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. |
Strategic Global Income Fund, Inc.
Supplemental information (unaudited)
Officers (concluded) | ||||||
Term of | Principal occupation(s) during | |||||
Position(s) | office† and | past 5 years; number of portfolios | ||||
Name, address, | held with | length of | in fund complex for which person | |||
and age | Fund | time served | serves as officer | |||
Keith A. Weller*; 45 | Vice President and Assistant Secretary | Since 1995 | Mr. Weller is an executive director and senior associate general counsel of UBS Global AM—Americas region (since 2005) and has been an attorney with affiliated entities since 1995. Mr. Weller is a vice president and assistant secretary of 20 investment companies (consisting of 92 portfolios) for which UBS Global AM—Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. |
Strategic Global Income Fund, Inc.
New York Stock Exchange certifications (unaudited)
Strategic Global Income Fund, Inc. (the “Fund”) is listed on the New York Stock Exchange (“NYSE”). As a result, it is subject to certain corporate governance rules and related interpretations issued by the exchange. Pursuant to those requirements, the Fund must include information in this report regarding certain certifications. The Fund’s president and treasurer have filed certifications with the SEC regarding the quality of the Fund’s public disclosure. Those certifications were made pursuant to Section 302 of the Sarbanes-Oxley Act (“Section 302 Certifications”). The Section 302 Certifications are filed as exhibits to the Fund’s annual report on Form N-CSR, which includes a copy of the Fund’s annual report along with other information about the Fund. After the Fund’s 2006 annual meeting of shareholders, it filed a certification with the NYSE on February 28, 2006 stating that its president was unaware of any violation of the NYSE’s Corporate Governance listing standards.
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Directors | ||
Richard Q. Armstrong | Meyer Feldberg | |
Chairman | ||
Bernard H. Garil | ||
Alan S. Bernikow | ||
Heather R. Higgins | ||
Richard R. Burt | ||
Principal Officers | ||
Kai R. Sotorp | John Penicook | |
President | Vice President | |
Mark F. Kemper | Uwe Schillhorn | |
Vice President and Secretary | Vice President | |
Thomas Disbrow | ||
Vice President and Treasurer | ||
Investment Advisor and Administrator | ||
UBS Global Asset Management (Americas) Inc. | ||
51 West 52nd Street | ||
New York, New York 10019-6114 |
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.
© 2007 UBS Global Asset Management (Americas) Inc.
All rights reserved.
![](https://capedge.com/proxy/N-CSR/0001209286-07-000025/ubs_logo.jpg)
PRESORTED STANDARD U.S. POSTAGE PAID COMPUTERSHARE |
UBS Global Asset Management (Americas) Inc.
51 West 52nd Street
New York, New York 10019-6114
Item 2. Code of Ethics.
The registrant has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions pursuant to Section 406 of the Sarbanes-Oxley Act of 2002. (The registrant has designated the code of ethics adopted pursuant to Sarbanes-Oxley as a “Code of Conduct” to lessen the risk of confusion with its separate code of ethics adopted pursuant to Rule 17j-1 under the Investment Company Act of 1940, as amended.)
Item 3. Audit Committee Financial Expert.
The registrant’s Board has determined that the following person serving on the registrant’s Audit Committee is an “audit committee financial expert” as defined in item 3 of Form N-CSR: Alan S. Bernikow. Mr. Bernikow is independent as defined in Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
(a) | Audit Fees: | |
For the fiscal years ended November 30, 2006 and November 30, 2005, the aggregate Ernst & Young LLP (E&Y) audit fees for professional services rendered to the registrant were approximately $53,500 and $51,400, respectively. | ||
Fees included in the audit fees category are those associated with the annual audits of financial statements and services that are normally provided in connection with statutory and regulatory filings. | ||
(b) | Audit-Related Fees: | |
In each of the fiscal years ended November 30, 2006 and November 30, 2005, the aggregate audit-related fees billed by E&Y for services rendered to the registrant that are reasonably related to the performance of the audits of the financial statements, but not reported as audit fees, were approximately $3,773 and $3,712, respectively. | ||
Fees included in the audit-related category are those associated with (1) the reading and providing of comments on the 2006 and 2005 semiannual financial statements, and (2) review of the consolidated 2005 and 2004 report on the profitability of the UBS Funds to UBS Global Asset Management (US) Inc. and its affiliates to assist the board members in their annual advisory/administration contract reviews. | ||
There were no audit-related fees required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X during the fiscal years indicated above. | ||
(c) | Tax Fees: | ||
In each of the fiscal years ended November 30, 2006 and November 30, 2005, the aggregate tax fees billed by E&Y for professional services rendered to the registrant were approximately $4,150 and $14,480, respectively. | |||
Fees included in the tax fees category comprise all services performed by professional staff in the independent accountant’s tax division except those services related to the audits. This category comprises fees for tax return preparation and review of excise tax calculations. | |||
There were no tax fees required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X during the fiscal years indicated above. | |||
(d) | All Other Fees: | ||
In each of the fiscal years ended November 30, 2006 and November 30, 2005, there were no fees billed by E&Y for products and services, other than the services reported in Item 4(a)-(c) above, rendered to the registrant. | |||
Fees included in the all other fees category would consist of services related to internal control reviews, strategy and other consulting, financial information systems design and implementation, consulting on other information systems, and other tax services unrelated to the registrant. | |||
There were no “all other fees” required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X during the fiscal years indicated above. | |||
(e) | (1) | Audit Committee Pre-Approval Policies and Procedures: | |
The registrant’s Audit Committee (“audit committee”) has adopted an “Audit Committee Charter (Amended and Restated as of May 12, 2004-Revised as of November 6, 2006)” (the “charter”). The charter contains the audit committee’s pre-approval policies and procedures. Reproduced below is an excerpt from the charter regarding pre-approval policies and procedures: |
The [audit] Committee shall: | ||
... | ||
2. | Pre-approve (a) all audit and permissible non-audit services1 to be provided to the Fund and (b) all permissible non-audit services to be provided by the Fund’s independent auditors to UBS Global [Asset Management (Americas) Inc. (“UBS Global AM”)] and any Covered Service Providers, if the engagement relates directly to the operations and financial reporting of the Fund. In carrying out this responsibility, the Committee shall seek periodically from UBS Global [AM] and from the independent auditors a list of such audit and permissible non-audit services that can be expected to be rendered to the Fund, UBS Global [AM] or any Covered Service Providers by the Fund’s independent auditors, and an estimate of the fees sought to be paid in connection with such services. The Committee may delegate its responsibility to pre-approve any such audit and permissible non-audit services to a sub-committee consisting of the Chairperson of the Committee and two other members of the Committee as the Chairperson, from time to |
time, may determine and appoint, and such sub-committee shall report to the Committee, at its next regularly scheduled meeting after the sub-committee’s meeting, its decision(s). From year to year, the Committee shall report to the Board whether this system of pre-approval has been effective and efficient or whether this Charter should be amended to allow for pre-approval pursuant to such policies and procedures as the Committee shall approve, including the delegation of some or all of the Committee’s pre-approval responsibilities to other persons (other than UBS Global [AM] or the Fund’s officers). | ||
1 The Committee will not approve non-audit services that the Committee believes may taint the independence of the auditors. Currently, permissible non-audit services include any professional services (including tax services) that are not prohibited services as described below, provided to the Fund by the independent auditors, other than those provided to the Fund in connection with an audit or a review of the financial statements of the Fund. Permissible non-audit services may not include: (i) bookkeeping or other services related to the accounting records or financial statements of the Fund; (ii) financial information systems design and implementation; (iii) appraisal or valuation services, fairness opinions or contribution-in-kind reports; (iv) actuarial services; (v) internal audit outsourcing services; (vi) management functions or human resources; (vii) broker or dealer, investment adviser or investment banking services; (viii) legal services and expert services unrelated to the audit; and (ix) any other service the Public Company Accounting Oversight Board determines, by regulation, is impermissible. | ||
Pre-approval by the Committee of any permissible non-audit services is not required so long as: (i) the aggregate amount of all such permissible non-audit services provided to the Fund, UBS Global [AM] and any service providers controlling, controlled by or under common control with UBS Global [AM] that provide ongoing services to the Fund (“Covered Service Providers”) constitutes not more than 5% of the total amount of revenues paid to the independent auditors (during the fiscal year in which the permissible non-audit services are provided) by (a) the Fund, (b) its investment adviser and (c) any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the Fund during the fiscal year in which the services are provided that would have to be approved by the Committee; (ii) the permissible non-audit services were not recognized by the Fund at the time of the engagement to be non-audit services; and (iii) such services are promptly brought to the attention of the Committee and approved by the Committee (or its delegate(s)) prior to the completion of the audit. |
(e) (2) | Services approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X: | |
Audit-Related Fees: |
There were no amounts that were approved by the audit committee pursuant to the de minimis exception for the fiscal years ended November 30, 2006 and November 30, 2005 on behalf of the registrant. | ||
There were no amounts that were required to be approved by the audit committee pursuant to the de minimis exception for the fiscal years ended November 30, 2006 and November 30, 2005 on behalf of the registrant’s service providers that relate directly to the operations and financial reporting of the registrant. | ||
Tax Fees: | ||
There were no amounts that were approved by the audit committee pursuant to the de minimis exception for the fiscal years ended November 30, 2006 and November 30, 2005 on behalf of the registrant. | ||
There were no amounts that were required to be approved by the audit committee pursuant to the de minimis exception for the fiscal years ended November 30, 2006 and November 30, 2005 on behalf of the registrant’s service providers that relate directly to the operations and financial reporting of the registrant. | ||
All Other Fees: | ||
There were no amounts that were approved by the audit committee pursuant to the de minimis exception for the fiscal years ended November 30, 2006 and November 30, 2005 on behalf of the registrant. | ||
There were no amounts that were required to be approved by the audit committee pursuant to the de minimis exception for the fiscal years ended November 30, 2006 and November 30, 2005 on behalf of the registrant’s service providers that relate directly to the operations and financial reporting of the registrant. |
(f) | According to E&Y, for the fiscal year ended November 30, 2006, the percentage of hours spent on the audit of the registrant’s financial statements for the most recent fiscal year that were attributed to work performed by persons who are not full-time, permanent employees of E&Y was 0%. | |
(g) | For the fiscal years ended November 30, 2006 and November 30, 2005, the aggregate fees billed by E&Y of $370,073 and $71,692, respectively, for non-audit services rendered on behalf of the registrant (“covered”), its investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and any entity controlling, controlled by, or under common control with the adviser (“non-covered”) that provides ongoing services to the registrant for each of the last two fiscal years of the registrant is shown in the table below: |
2006 | 2005 | ||||
Covered Services | $7,923 | $18,192 | |||
Non-Covered Services | 362,150 | 53,500 |
(h) | The registrant’s audit committee was not required to consider whether the provision of non- audit services that were rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under |
common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence. |
Item 5. Audit Committee of Listed Registrants.
The registrant has a separately designated standing audit committee (the “Audit Committee”) established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. The Audit Committee is comprised of the following board members: Mr. Armstrong, Mr. Bernikow, Mr. Burt, Mr. Garil and Ms. Higgins.
Item 6. Schedule of Investments.
Included as part of the report to shareholders filed under Item 1 of this form.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
The registrant’s Board of Directors believes that the voting of proxies on securities held by the registrant is an important element of the overall investment process. As such, the Board has delegated the responsibility to vote such proxies to the registrant’s advisor. Following is a summary of the proxy voting policy of the advisor.
CORPORATE GOVERNANCE PHILOSOPHY, VOTING GUIDELINES AND POLICY SUMMARY
The proxy voting policy of UBS Global Asset Management (Americas) Inc. (“UBS Global AM”) is based on its belief that voting rights have economic value and must be treated accordingly. Generally, UBS Global AM expects the boards of directors of companies issuing securities held by its clients to act as stewards of the financial assets of the company, to exercise good judgment and practice diligent oversight with the management of the company. While there is no absolute set of rules that determines appropriate corporate governance under all circumstances and no set of rules will guarantee ethical behavior, there are certain benchmarks, which, if substantial progress is made toward, give evidence of good corporate governance. UBS Global AM may delegate to an independent proxy voting and research service the authority to exercise the voting rights associated with certain client holdings. Any such delegation shall be made with the direction that the votes be exercised in accordance with UBS Global AM’s proxy voting policy.
When UBS Global AM’s view of a company’s management is favorable, UBS Global AM generally supports current management initiatives. When UBS Global AM’s view is that changes to the management structure would probably increase shareholder value, UBS Global AM may not support existing management proposals. In general, UBS Global AM (1) opposes proposals which act to entrench management; (2) believes that boards should be independent of company management and composed of persons with requisite skills, knowledge and experience; (3) opposes structures which impose financial constraints on changes in control; (4) believes remuneration should be commensurate with responsibilities and performance; and (5) believes that appropriate steps should be taken to ensure the independence of auditors.
UBS Global AM has implemented procedures designed to identify whether it has a conflict of interest in voting a particular proxy proposal, which may arise as a result of its or its affiliates’ client relationships, marketing efforts or banking and broker/dealer activities. To address such conflicts, UBS Global AM has imposed information barriers between it and its affiliates who conduct banking, investment banking and broker/dealer activities and has implemented procedures to prevent business, sales and marketing issues from influencing our proxy votes. Whenever UBS Global AM is aware of a conflict with respect to a particular proxy, its appropriate local corporate governance committee is required to review and agree to the manner in which such proxy is voted.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
(a) (1) | Name – Uwe Schillhorn | |
Title – Vice President | ||
Length of Service – Since 2004 |
Business Experience Last 5 Years – Mr. Schillhorn is an executive director and head of emerging markets debt (since 2004) of UBS Global AM. Mr. Schillhorn is a vice president of two investment companies (consisting of two portfolios) for which UBS Global AM or one of its affiliates serves as investment advisor, sub-advisor or manager. | |
Information is as of – January 29, 2007 |
(a) (2) (i) | Portfolio Manager | |
Uwe Schillhorn | ||
(a) (2) (ii) | (A) Registered Investment Companies |
The portfolio manager is responsible for two additional Registered Investment Companies having $470,906,000 in total assets as of November 30, 2006.
(a) (2) (ii) | (B) Other Pooled Investment Vehicles |
The portfolio manager is responsible for four other pooled investment vehicles having $936,637,425 in total assets as of November 30, 2006.
(a) (2) (ii) | (C) Other Accounts |
The portfolio manager is responsible for seventeen other accounts having $2,882,367,207 in total assets as of November 30, 2006.
(a) (2) (iii) | Accounts with respect to which an advisory fee is based on the performance of the account. | |
None |
(a) (2) (iv) | Conflicts. |
(a) (3) | Compensation. |
(a) (4) | Dollar Range of Securities of Registrant Beneficially Owned by Portfolio Manager. | |
None |
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
There were no purchases made by or on behalf of the Registrant or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended, of shares of the Registrant’s equity securities made in the period covered by this report.
Item 10. Submission of Matters to a Vote of Security Holders.
The registrant’s Board has established a Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee will consider nominees recommended by shareholders if a vacancy occurs among those board members who are not “interested persons” as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended. In order to recommend a nominee, a shareholder should send a letter to the chairperson of the Nominating and Corporate Governance Committee, Richard R. Burt, care of the Secretary of the registrant at UBS Global Asset Management, 51 West 52nd Street, New York, New York 10019-6114, and indicate on the envelope “Nominating and Corporate Governance Committee.” The shareholder’s letter should state the nominee’s name and should include the nominee’s resume or curriculum vitae, and must be accompanied by a written consent of the individual to stand for election if nominated for the Board and to serve if elected by shareholders.
Item 11. Controls and Procedures.
(a) | The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended) are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document. | |
(b) | The registrant’s principal executive officer and principal financial officer are aware of no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940, as amended) that occurred during the registrant’s |
last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. | ||
Item 12. Exhibits. | ||
(a) | (1) Code of Ethics as required pursuant to Section 406 of the Sarbanes-Oxley Act of 2002 (and designated by registrant as a “Code of Conduct”) is incorporated by reference herein from Exhibit EX-99.CODE ETH to the registrant’s Report on Form N-CSR filed February 5, 2004 (Accession Number: 0001206774-04-000032)(SEC File No. 811-06475). | |
(a) | (2) Certifications of principal executive officer and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 is attached hereto as Exhibit EX-99.CERT. | |
(a) | (3) Written solicitation to purchase securities under Rule 23c-1 under the Investment Company Act of 1940 sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons – The registrant has not engaged in such a solicitation during the period covered by this report. | |
(b) | Certifications of principal executive officer and principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is attached hereto as Exhibit EX-99.906CERT. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Strategic Global Income Fund, Inc.
By: | /s/ Kai R. Sotorp | |
Kai R. Sotorp | ||
President | ||
Date: | January 29, 2007 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ Kai R. Sotorp | |
Kai R. Sotorp | ||
President | ||
Date: | January 29, 2007 | |
By: | /s/ Thomas Disbrow | |
Thomas Disbrow | ||
Vice President and Treasurer | ||
Date: | January 29, 2007 |