UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-06475
-----------------------------------------------------
Strategic Global Income Fund, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
51 West 52nd Street, New York, New York 10019-6114
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Mark F. Kemper, Esq.
UBS Global Asset Management (US) Inc.
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, 2005
ITEM 1. REPORTS TO STOCKHOLDERS.
- ---------------------------------
[LOGO OF UBS] UBS Global Asset
Management
STRATEGIC GLOBAL INCOME FUND, INC.
ANNUAL REPORT
NOVEMBER 30, 2005
STRATEGIC GLOBAL INCOME FUND, INC.
January 10, 2006
DEAR SHAREHOLDER,
We are pleased to present you with the annual report for Strategic Global Income
Fund, Inc. (the "Fund") for the fiscal year ended November 30, 2005.
PERFORMANCE
For the twelve-month period, the Fund returned 1.85% on a net asset value basis,
compared with the median return of 1.89% generated by the Lipper Global Income
Funds closed-end fund peer group and the -6.33% return of the Citigroup World
Government Bond Index (the "Index"). On a market price basis, the Fund declined
17.37% over the twelve-month period, versus the market price decline of 10.37%
for the Lipper median. This discrepancy between market price and NAV performance
is in large part the result of the Fund's shares moving from trading at a
premium to NAV to trading at a discount to NAV. (For more on the Fund's
performance, please refer to "Performance at a Glance" on page 5.)
Over the period, the Fund did not use leverage. Leverage magnifies net asset
value returns on both the upside and on the downside, creating a wider range of
returns within the Fund's peer group.
- --------------------------------------------------------------------------------
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 (US) Inc.
COMMENCEMENT:
February 3, 1992
NYSE SYMBOL:
SGL
- --------------------------------------------------------------------------------
AN INTERVIEW WITH PORTFOLIO MANAGER UWE SCHILLHORN
Q: WHY IS THE FUND CURRENTLY TRADING AT A DISCOUNT?
A: As discussed above, the Fund's shares moved from trading at a premium to NAV
to trading at a discount to NAV over the reporting period. Many factors can
affect whether investors are willing to pay more or less for a fund than the
net asset value of the shares. During the reporting period, interest rates
rose, while the Fund's managed distribution rate was lowered. Although the
Fund continued to trade at a premium for several weeks after the
distribution rate was lowered, both of those factors may have had an effect
on the Fund's market price over the period.
As evidence of the range of factors that can affect a fund's price,
especially during volatile market periods, please note that over the six
months ended November 30, 2005, the Fund's peer group (as represented by the
Lipper Closed-End Global Income Funds) moved from trading at an average of
around a 2.5% discount to NAV to a wider discount of around 7.4% below NAV.
- --------------------------------------------------------------------------------
1
STRATEGIC GLOBAL INCOME FUND, INC.
Ultimately, the Fund's management team is unable to predict whether the Fund
will trade at a discount or a premium, as there are many external factors
that influence market trading.
Q: HOW WOULD YOU DESCRIBE THE GLOBAL ECONOMIC ENVIRONMENT DURING THE FISCAL
YEAR?
A: Global economic expansion continued during the fiscal year although, among
G-10 countries, much of this expansion was concentrated in the US, as Japan
and the Eurozone (the group of countries using the euro as their common
currency) continued to lag. (The G-10, or Group of 10, is an organization of
financial representatives from major industrialized nations who meet
throughout the year to discuss economic and monetary issues.)
The US economy faced a number of challenges during the reporting period,
including record high energy prices, natural disasters, rising interest
rates, a mixed job market and geopolitical events. Despite these issues, the
economy proved to be surprisingly resilient, posting four consecutive
quarters of 3%-4% gross domestic product (GDP) growth. Similarly, the US
dollar did well against both the euro and the yen over the reporting period.
Overseas, the economic landscape looked different. There were few signs of
any meaningful economic recovery in the core European Monetary Union (EMU)
countries. Outside the EMU zone, countries such as Sweden even saw interest
rate cuts within the reporting period, while data from the United Kingdom
clearly pointed to a slowdown in the domestic economy. Toward the end of the
year, structural reform became an important theme for some countries, as
elections in Germany and Japan focused investors on future prospects.
Emerging markets were the exception to this growth trend outside of the US,
with many countries within the asset class continuing to outperform the
growth rates of their industrialized counterparts.
Q: HOW DID THE WORLD'S BOND MARKETS PERFORM OVER THE TWELVE-MONTH REPORTING
PERIOD?
A: Developed bond markets, as measured by the Index, returned -6.33% on an
unhedged basis, and 4.87% on a currency hedged basis measured in US dollars.
Emerging markets debt, as measured by the JP Morgan Emerging Markets Bond
Index-Global (EMBI-G), returned 11.45% during the same period. The EMBI-G
consists of US dollar-denominated securities.
Q: HOW DID YOU POSITION THE PORTFOLIO FROM A DURATION STANDPOINT?
A: As the reporting period began, the Fund's modified duration was 4.0%.
(Modified duration is the change in price, expressed as a percentage,
expected in response to each 1% change in the yield of the portfolio's
holdings.) Since we believed that interest rates could move decisively higher
as the year began, we shortened the portfolio's modified duration at the
beginning of 2005, positioning the portfolio to take advantage of a rising
rate environment. However, interest
- --------------------------------------------------------------------------------
2
STRATEGIC GLOBAL INCOME FUND, INC.
rate increases remained subdued, so we managed through this interest rate
environment by re-extending the portfolio's modified duration starting in
the second quarter. Throughout the period, the Fund's modified duration
remained relatively high, ending the period at 4.5%.
Q: WHAT OTHER STRATEGIC TRANSACTIONS OCCURRED OVER THE REPORTING PERIOD?
A: We eliminated the Fund's position in British bonds. We also established
positions in the short end of the yield curve in Turkey and Russia,
increased an existing position in Poland, and established new positions in
Slovakian koruna- and Ukrainian hryvnia-denominated bonds. In general, the
attractiveness of investments in Eastern Europe has been driven by our view
that, as convergence to Western Europe progresses, higher growth and overall
improved fundamentals should result in strong returns on those investments.
In Turkey, for example, our investment thesis at the start of the year
reflected this view. Our view on Turkish bonds evolved, however, as the
country moved along its path toward EU accession, and as our research
indicated that the benefits of this potential historic event were already
accounted for in the securities' prices. This led to a reduction in exposure
to Turkish bonds.
Q: WHAT WAS YOUR CURRENCY STRATEGY DURING THE PERIOD?
A: We continued to seek opportunities in local markets where fundamentals were
favorable and interest rates relatively high. The Fund's allocations to
various currencies fluctuated, but at the end of November 2005, 39% of the
Fund's holdings were in US dollars, 14% in euros and 11% in Japanese yen.
The remainder included allocations among various currencies, including the
Argentine peso, Brazilian real, Malaysian ringgit, Thai baht, and Swedish
krona. As we mentioned earlier, the US dollar remained surprisingly strong
despite a number of headwinds, gaining over 10% against both the euro and
the yen. Elsewhere, a number of emerging markets currencies found strength
on the back of high commodity prices, and, in the early part of the fiscal
year, relatively high interest rates, which encouraged appreciation through
carry trade, a strategy through which investors take advantage of "cheap"
financing at the short end of the US fixed income market to fund long
positions in higher-yielding assets in their home or other foreign markets.
This carry trade became less attractive in the early part of 2005 as US
Treasury yields rose. Among the Asian-block currencies, China's expected
currency revaluation in July was small enough that it didn't cause much of a
ripple effect throughout other regional currencies, as was anticipated.
Q: WHICH HOLDINGS OR STRATEGIES GENERATED STRONG RESULTS OVER THE PERIOD?
A: The biggest story for the Fund over the course of the fiscal year was our
over-weight position to Argentina. ("Overweight" or "underweight" refers to
how much of a particular sector or country the Fund holds versus its
representative benchmark index.) In the second quarter, the partial
restructuring of debt by Argentina, which defaulted during the country's
recent financial crisis, closed a
- --------------------------------------------------------------------------------
3
STRATEGIC GLOBAL INCOME FUND, INC.
difficult period for the country. This restructuring improved the prospects
for servicing currently outstanding debt, which in turn helped investor
sentiment. As a result, a large share of the Fund's performance for the year
came from its positions in Argentina. We also maintained an overweight
position to Malaysia, which resulted from investment in a very attractive
bond from the province of Johor.
Q: WERE THERE ANY PARTICULAR STRATEGIES THAT DIDN'T WORK WELL FOR THE FUND?
A: We held an underweight position to Brazil during the fiscal year because we
believed that portion of Fund assets would be better deployed against
Argentine bonds. While our Argentine position paid off handsomely, being
underweight to Brazil was still a drag on Fund performance, as Brazilian debt
also performed well during the period. Also, credit events in the first half
of 2005 led to a spread widening in lower-rated securities within the
portfolio. As we previously discussed, the US dollar recovered some of the
ground it lost against the euro in 2004, and this correction in the dollar's
fortunes had a negative impact on the euro-denominated securities held in the
portfolio.
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.
Sincerely,
/s/ W. Douglas Beck
W. Douglas Beck, CFA
President
Strategic Global Income Fund, Inc.
Executive Director
UBS Global Asset Management (US) Inc.
/s/ Uwe Schillhorn
Uwe Schillhorn, CFA
Portfolio Management Team Member
Strategic Global Income Fund, Inc.
Executive Director
UBS Global Asset Management (US) Inc.
This letter is intended to assist shareholders in understanding how the Fund
performed during the fiscal year ended November 30, 2005. The views and opinions
in the letter were current as of January 10, 2006. 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.
* Mutual funds are sold by prospectus only. You should read it carefully and
consider a fund's investment objectives, risks, charges, expenses and other
important information contained in the prospectus before investing.
Prospectuses for most of our funds can be obtained from your financial
advisor, by calling UBS Funds at 800-647 1568, or by visiting our Web site
at www.ubs.com/globalam-us.
- --------------------------------------------------------------------------------
4
STRATEGIC GLOBAL INCOME FUND, INC.
PERFORMANCE AT A GLANCE (UNAUDITED)
AVERAGE ANNUAL RETURNS FOR PERIODS ENDED 11/30/05
NET ASSET VALUE RETURNS* 6 MONTHS 1 YEAR 5 YEARS 10 YEARS
- -----------------------------------------------------------------------------------------------------------
Strategic Global Income Fund, Inc. -0.25% 1.85% 10.80% 8.82%
===========================================================================================================
Lipper Global Income Funds Median** 1.44% 1.89% 12.45% 7.89%
===========================================================================================================
MARKET PRICE RETURNS*
- -----------------------------------------------------------------------------------------------------------
Strategic Global Income Fund, Inc. -16.43% -17.37% 11.98% 10.37%
===========================================================================================================
Lipper Global Income Funds Median** -2.86% -10.37% 13.84% 10.29%
===========================================================================================================
* 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. NAV return assumes,
for illustration only, that dividends/distributions were reinvested at the
net asset value on the payable dates. Market price returns assume that
dividends/distributions were reinvested under the Dividend Reinvestment
Plan.
NAV and market price returns for periods of less than one year have not
been annualized. Returns do not reflect taxes paid on dividends/
distributions or brokerage commissions and taxes paid on the sale of shares.
** Lipper peer group data calculated by Lipper Inc.; used with permission.
The Lipper median is the return of the fund that places in the middle of
the Lipper Global Income Funds peer group.
- --------------------------------------------------------------------------------
5
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO STATISTICS (UNAUDITED)
CHARACTERISTICS* 11/30/05 5/31/05 11/30/04
- --------------------------------------------------------------------------------------------------------
Net Asset Value $11.47 $11.96 $13.12
- --------------------------------------------------------------------------------------------------------
Market Price $10.56 $13.15 $14.60
- --------------------------------------------------------------------------------------------------------
12-Month Dividends/Distributions $1.9059 $2.0656 $1.2859
- --------------------------------------------------------------------------------------------------------
Monthly Dividend/Distribution
at Period-End $0.0767 $0.1005 $0.1089
- --------------------------------------------------------------------------------------------------------
Net Assets (mm) $209.4 $218.4 $239.5
- --------------------------------------------------------------------------------------------------------
Weighted Average Maturity 8.39 yrs. 7.66 yrs. 6.63 yrs.
- --------------------------------------------------------------------------------------------------------
Modified Duration+ 4.5% 4.5% 4.0%
- --------------------------------------------------------------------------------------------------------
CURRENCY EXPOSURE** 11/30/05 5/31/05 11/30/04
- --------------------------------------------------------------------------------------------------------
U.S. Dollar Denominated 39.3% 65.8% 53.2%
- --------------------------------------------------------------------------------------------------------
Non-U.S. Dollar Denominated 60.7 34.2 46.8
- --------------------------------------------------------------------------------------------------------
TOTAL 100.0% 100.0% 100.0%
========================================================================================================
CREDIT QUALITY** 11/30/05 5/31/05 11/30/04
- --------------------------------------------------------------------------------------------------------
AAA 30.2% 31.9% 35.3%
- --------------------------------------------------------------------------------------------------------
AA 1.1 2.8 5.5
- --------------------------------------------------------------------------------------------------------
A 10.6 13.4 11.5
- --------------------------------------------------------------------------------------------------------
BBB 16.5 11.8 13.7
- --------------------------------------------------------------------------------------------------------
BB 11.5 10.5 11.4
- --------------------------------------------------------------------------------------------------------
B 7.4 9.5 9.2
- --------------------------------------------------------------------------------------------------------
CCC 5.1 3.9 4.0
- --------------------------------------------------------------------------------------------------------
Non-Rated 9.3 8.7 3.4
- --------------------------------------------------------------------------------------------------------
Cash Equivalents 8.4 6.0 3.5
- --------------------------------------------------------------------------------------------------------
Other assets, less liabilities (0.1) 1.5 2.5
- --------------------------------------------------------------------------------------------------------
TOTAL 100.0% 100.0% 100.0%
========================================================================================================
* Prices and other characteristics will vary over time.
** Weightings represent percentages of net assets as of the dates indicated.
The Fund's portfolio is actively managed and its composition will vary over
time. Credit quality ratings shown are based on those assigned by Standard
& Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"), to
individual portfolio holdings. S&P is an independent ratings agency.
+ Modified duration is the change in price, expressed as a percentage,
expected in response to each 1% change in the yield of the portfolio's
holdings.
- --------------------------------------------------------------------------------
6
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO STATISTICS (UNAUDITED)
TOP 10 COUNTRIES* 11/30/05 5/31/05 11/30/04
- -------------------------------------------------------------------------------------------------------
United States** 24.5% United States** 28.7% United States** 26.8%
- -------------------------------------------------------------------------------------------------------
Argentina 10.8 Germany 10.7 Germany 9.6
- -------------------------------------------------------------------------------------------------------
Germany 10.0 Argentina 9.4 Brazil 6.9
- -------------------------------------------------------------------------------------------------------
Brazil 7.1 Brazil 6.9 Russia** 6.1
- -------------------------------------------------------------------------------------------------------
Russia 6.5 Russia** 6.5 Argentina 5.2
- -------------------------------------------------------------------------------------------------------
Malaysia 5.8 France 3.8 Italy 5.1
- -------------------------------------------------------------------------------------------------------
France 4.7 Mexico 3.8 France 4.6
- -------------------------------------------------------------------------------------------------------
Qatar 3.3 Malaysia 2.9 Mexico 4.3
- -------------------------------------------------------------------------------------------------------
Poland 2.2 Austria 2.6 Canada 3.0
- -------------------------------------------------------------------------------------------------------
Ecuador 1.8 Italy 2.4 United Kingdom 2.8
- -------------------------------------------------------------------------------------------------------
TOTAL 76.7% 77.7% 74.4%
=======================================================================================================
* Weightings represent percentages of net assets as of the dates indicated.
The Fund's portfolio is actively managed and its composition will vary over
time.
** Excludes cash, cash equivalents and other assets in excess of liabilities.
- --------------------------------------------------------------------------------
7
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS -- NOVEMBER 30, 2005
FACE
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
BONDS -- 91.33%
U.S. BONDS -- 24.53%
U.S. CORPORATE BONDS -- 8.90%
Bank One Corp.
7.875%, due 08/01/10 ................................................. $ 2,000,000 $ 2,219,368
Bombardier Capital, Inc., 144A
6.125%, due 06/29/06 ................................................. 1,000,000 1,000,000
C.S. First Boston USA, Inc.
6.500%, due 01/15/12 ................................................. 2,000,000 2,136,648
General Electric Capital Corp.
6.000%, due 06/15/12 ................................................. 2,000,000 2,095,088
General Motors Acceptance Corp.
6.125%, due 09/15/06 ................................................. 1,000,000 964,703
6.875%, due 09/15/11 ................................................. 1,000,000 903,526
Hertz Corp.
7.625%, due 08/15/07 ................................................. 1,000,000 1,035,156
HSBC Finance Corp.
6.750%, due 05/15/11 ................................................. 2,000,000 2,148,766
Kraft Foods, Inc.
5.250%, due 06/01/07 ................................................. 1,000,000 1,005,245
Miller Brewing Co., 144A
5.500%, due 08/15/13 ................................................. 1,000,000 1,012,603
Time Warner Cos., Inc.
7.480%, due 01/15/08 ................................................. 1,000,000 1,046,355
Viacom, Inc.
6.625%, due 05/15/11 ................................................. 2,000,000 2,073,184
Washington Mutual, Inc.
5.625%, due 01/15/07 ................................................. 1,000,000 1,006,992
------------
18,647,634
------------
ASSET-BACKED SECURITIES -- 5.95%
Conseco Finance Securitizations Corp., 00-1, Class A4
7.620%, due 05/01/31 ................................................. 337,734 339,586
Conseco Finance Securitizations Corp., 00-2, Class A4
8.480%, due 12/01/30 ................................................. 1,103,738 1,118,999
Conseco Finance Securitizations Corp., 00-5, Class A4
7.470%, due 02/01/32 ................................................. 805,747 812,145
Conseco Finance Securitizations Corp., 00-5, Class A5
7.700%, due 02/01/32 ................................................. 5,000,000 4,981,499
Green Tree Financial Corp., 99-1, Class A5
6.110%, due 09/01/23 ................................................. 3,000,000 3,015,982
New York City Tax Lien, 04-AA, Class C, 144A
3.960%, due 12/11/17 ................................................. 1,237,085 1,178,855
- --------------------------------------------------------------------------------
8
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS -- NOVEMBER 30, 2005
FACE
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES -- (CONCLUDED)
Providian Gateway Master Trust, 04-AA, Class D, 144A +
5.970%, due 03/15/11 ................................................. $ 1,000,000 $ 1,016,200
------------
12,463,266
------------
COMMERCIAL MORTGAGE-BACKED SECURITIES -- 3.32%
Bear Stearns Commercial Mortgage Securities, 00-WF2, Class A2
7.320%, due 10/15/32 ................................................. 1,000,000 1,083,474
Bear Stearns Commercial Mortgage Securities, 05-LXR1
6.070%, due 09/15/18 ................................................. 1,000,000 1,000,000
Commercial Mortgage Pass-Through Certificates, 01-FL5A, Class E, 144A +
5.620%, due 11/15/13 ................................................. 598,658 598,446
Commercial Mortgage Pass-Through Certificates, 01-FL5A, Class F, 144A +
4.754%, due 11/15/13 ................................................. 1,000,000 991,108
DLJ Commercial Mortgage Corp., 99-CG1, Class A1A
6.080%, due 03/10/32 ................................................. 579,727 586,067
Four Times Square Trust, 00-4TS, Class A1, 144A
7.690%, due 04/15/15 ................................................. 816,886 865,969
Merrill Lynch Mortgage Investors, Inc., 96-C2, Class A3
6.960%, due 11/21/28 ................................................. 370,089 372,844
Morgan Stanley Dean Witter Capital I, 00-LIF2, Class A2
7.200%, due 10/15/33 ................................................. 1,000,000 1,079,063
Nomura Asset Securities Corp., 98-D6, Class A1A
6.280%, due 03/15/30 ................................................. 374,173 377,113
------------
6,954,084
------------
MORTGAGE-BACKED SECURITIES -- 2.84%
Countrywide Alternative Loan Trust, 05-J2, Class 2A1
7.500%, due 04/25/35 ................................................. 516,183 520,937
Federal Home Loan Mortgage Corp.
4.606%, due 12/01/34 + ............................................... 3,302,071 3,264,837
5.500%, due 10/15/22,IO (a) .......................................... 1,546,408 125,800
Federal National Mortgage Association +
4.945%, due 02/01/35 ................................................. 2,042,254 2,031,169
------------
5,942,743
------------
U.S. GOVERNMENT OBLIGATIONS -- 3.52%
U.S. Treasury Bonds
6.250%, due 05/15/30 ................................................. 1,750,000 2,119,756
8.000%, due 11/15/21 ................................................. 465,000 629,730
8.750%, due 05/15/17 ................................................. 2,145,000 2,913,429
- --------------------------------------------------------------------------------
9
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS -- NOVEMBER 30, 2005
FACE
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS -- (CONCLUDED)
U.S. Treasury Notes
4.750%, due 05/15/14 ................................................. $ 1,675,000 $ 1,700,582
------------
7,363,497
------------
Total U.S. Bonds ........................................................ 51,371,224
------------
INTERNATIONAL BONDS -- 66.80%
INTERNATIONAL CORPORATE BONDS -- 10.83%
ARGENTINA -- 2.14%
Banco de Galicia y Buenos Aires
4.000%, due 01/01/14 ++ .............................................. $ 2,370,000 1,996,725
7.190%, due 01/01/10 + ............................................... 2,000,000 1,940,000
11.000%, due 01/01/19 ++ ............................................. 538,445 550,560
------------
4,487,285
------------
GERMANY -- 1.22%
Landwirtschaftliche Rentenbank
5.750%, due 01/21/15 ................................................. AUD 3,500,000 2,555,109
------------
MALAYSIA -- 5.82%
Johor Corp.
0.000%, due 07/31/09 @ ............................................... MYR 6,600,000 1,939,121
1.000%, due 07/31/12 (b) ............................................. 35,840,000 10,245,421
------------
12,184,542
------------
MEXICO -- 0.58%
PEMEX Project Funding Master Trust
8.625%, due 02/01/22 ................................................. $ 1,000,000 1,220,000
------------
PHILIPPINES -- 1.07%
National Power Corp.
9.875%, due 03/16/10 ................................................. $ 2,030,000 2,233,000
------------
Total International Corporate Bonds ..................................... 22,679,936
------------
FOREIGN GOVERNMENT BONDS -- 54.39%
ARGENTINA -- 8.42%
Republic of Argentina
3.000%, due 04/30/13 + ............................................... $ 710,000 577,230
4.005%, due 08/03/12 +(c) ............................................ 12,610,000 9,898,850
5.830%, due 12/31/33 @ ............................................... ARS 18,410,000 7,152,979
------------
17,629,059
------------
AUSTRIA -- 1.64%
Republic of Austria
3.800%, due 10/20/13 ................................................. EUR 1,885,000 2,296,344
5.875%, due 07/15/06 ................................................. 950,000 1,141,563
------------
3,437,907
------------
- --------------------------------------------------------------------------------
10
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS -- NOVEMBER 30, 2005
FACE
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
BRAZIL -- 7.09%
Brazil Real Credit-Linked Notes
13.507%, due 01/05/10 @ .............................................. $ 4,708,301 $ 2,699,552
15.430%, due 01/03/07 @ .............................................. 2,089,419 1,762,763
15.833%, due 07/03/06 @ .............................................. BRL 6,235,000 2,578,888
18.870%, due 01/05/10 ................................................ 4,250,000 1,039,394
Federal Republic of Brazil
6.000%, due 09/15/13 ................................................. $ 666,667 654,167
12.500%, due 01/05/16 ................................................ BRL 4,750,000 2,015,543
Federal Republic of Brazil, PAR +(b)
6.000%, due 04/15/24 ................................................. $ 4,320,000 4,093,200
------------
14,843,507
------------
ECUADOR -- 1.81%
Republic of Ecuador ++
9.000%, due 08/15/30 ................................................. $ 4,140,000 3,798,450
------------
EL SALVADOR -- 1.48%
Republic of El Salvador
7.750%, due 01/24/23 ................................................. $ 1,600,000 1,744,000
8.250%, due 04/10/32 ................................................. 1,230,000 1,343,775
------------
3,087,775
------------
FINLAND -- 1.71%
Government of Finland
5.000%, due 07/04/07 ................................................. EUR 2,350,000 2,867,335
5.750%, due 02/23/11 ................................................. 530,000 703,007
------------
3,570,342
------------
FRANCE -- 4.73%
Government of France
4.000%, due 04/25/13 ................................................. EUR 900,000 1,109,068
4.250%, due 04/25/19 ................................................. 385,000 484,944
5.000%, due 10/25/16 ................................................. 1,015,000 1,357,255
5.500%, due 04/25/07 (b) ............................................. 2,490,000 3,044,369
7.250%, due 04/25/06 ................................................. 1,680,000 2,015,553
French Treasury Notes
3.500%, due 07/12/09 ................................................. 1,569,000 1,882,303
------------
9,893,492
------------
GERMANY -- 8.80%
Bundesobligation
3.250%, due 04/17/09 ................................................. EUR 3,075,000 3,659,192
3.500%, due 10/10/08 ................................................. 3,150,000 3,774,196
- --------------------------------------------------------------------------------
11
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS -- NOVEMBER 30, 2005
FACE
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
GERMANY -- (CONCLUDED)
Deutsche Bundesrepublik
3.750%, due 01/04/15 ................................................. EUR 660,000 $ 798,667
4.750%, due 07/04/34 ................................................. 500,000 687,119
6.000%, due 01/04/07 (b) ............................................. 6,715,000 8,192,251
6.250%, due 01/04/24 ................................................. 510,000 800,715
6.500%, due 07/04/27 ................................................. 315,000 520,157
------------
18,432,297
------------
INDONESIA -- 1.24%
Republic of Indonesia
7.500%, due 01/15/16, 144A ........................................... $ 850,000 875,500
8.500%, due 10/12/35, 144A ........................................... 830,000 888,100
Indonesia Government Credit-Linked Notes, 144A
11.000%, due 10/15/14 ................................................ IDR 3,650,000,000 308,991
13.150%, due 01/15/12 ................................................ 5,454,000,000 530,426
------------
2,603,017
------------
ITALY -- 0.81%
Buoni Poliennali Del Tesoro
4.750%, due 03/15/06 ................................................. EUR 1,435,000 1,702,048
------------
MEXICO -- 0.68%
United Mexican States
8.300%, due 08/15/31 ................................................. $ 1,118,000 1,419,860
------------
NETHERLANDS -- 1.06%
Government of Netherlands
4.000%, due 01/15/37 ................................................. EUR 1,060,000 1,297,185
5.750%, due 02/15/07 ................................................. 755,000 921,978
------------
2,219,163
------------
POLAND -- 2.21%
Republic of Poland
5.750%, due 06/24/08 ................................................. PLN 15,060,000 4,625,524
------------
QATAR -- 3.29%
State of Qatar
9.750%, due 06/15/30 ................................................. $ 4,610,000 6,891,950
------------
RUSSIA -- 6.46%
Russian Federation
5.000%, due 03/31/30 ++ .............................................. $ 2,980,000 3,333,875
5.000%, due 03/31/30, 144A ++ ........................................ 4,536,462 5,075,167
12.750%, due 06/24/28 ................................................ 1,490,000 2,711,800
Russian Gazprom Credit-Linked Notes, 144A
8.110%, due 01/18/07 ................................................. RUB 24,400,000 862,707
- --------------------------------------------------------------------------------
12
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS -- NOVEMBER 30, 2005
FACE
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
RUSSIA -- (CONCLUDED)
Russian Ruble Credit-Linked Notes, 144A
7.580%, due 10/09/07 ................................................. RUB 43,800,000 $ 1,547,870
------------
13,531,419
------------
SLOVAKIA -- 0.51%
Republic of Slovakia
4.800%, due 04/14/09 ................................................. SKK 33,000,000 1,070,390
------------
TURKEY -- 1.65%
Republic of Turkey
8.000%, due 02/14/34 ................................................. $ 330,000 349,800
Turkish Credit-Linked Notes
13.264%, due 05/09/07 @ .............................................. TRY 4,390,000 2,680,259
15.000%, due 02/10/10 ................................................ 500,000 425,728
------------
3,455,787
------------
UKRAINE -- 0.22%
ING Bank NV Credit-Linked Notes
11.890%, due 12/30/09 ................................................ UAH 2,070,000 459,726
------------
VENEZUELA -- 0.58%
Republic of Venezuela
7.650%, due 04/21/25 ................................................. $ 650,000 637,975
9.375%, due 01/13/34 ................................................. 500,000 575,000
------------
1,212,975
------------
Total Foreign Government Bonds .......................................... 113,884,688
------------
SOVEREIGN/SUPRANATIONAL BONDS -- 1.58%
Eurofima
6.000%, due 01/28/14 ................................................. AUD 3,720,000 2,781,504
European Investment Bank
6.000%, due 08/14/13 ................................................. 700,000 525,186
------------
3,306,690
------------
Total International Bonds ............................................... 139,871,314
------------
Total Bonds (Cost $189,145,634) ......................................... 191,242,538
------------
NUMBER OF
RIGHTS
---------
RIGHTS -- 0.03%
MEXICO -- 0.03%
United Mexican States Value Recovery Rights,
Series D, Expiration Date 06/30/06 (d) ............................... 1,615,000 31,977
United Mexican States Value Recovery Rights,
Series E, Expiration Date 06/30/07 (d) ............................... 1,615,000 40,375
------------
Total Rights (Cost $0)................................................... 72,352
------------
- --------------------------------------------------------------------------------
13
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS -- NOVEMBER 30, 2005
NUMBER OF
WARRANTS VALUE
- ----------------------------------------------------------------------------------------------------------------
WARRANTS -- 0.27%
ARGENTINA -- 0.27%
Republic of Argentina, expires 12/15/35 (Cost $206,277) ................. 41,189,080 $ 555,436
------------
FACE
AMOUNT
--------
SHORT-TERM INVESTMENTS -- 8.43%
UNITED STATES -- 0.14%
U.S. GOVERNMENT OBLIGATIONS -- 0.14%
U.S. Treasury Bills **
3.337%, due 01/05/06 (e) ............................................. $ 300,000 298,931
------------
SHARES
--------
OTHER -- 8.29% *
UBS Supplementary Trust -- U.S. Cash Management Prime Fund, 4.132% ** ... 17,356,740 17,356,740
------------
Total Short-Term Investments (Cost $17,655,771) ......................... 17,655,671
------------
Total Investments (Cost $207,007,682) -- 100.06% ........................ 209,525,997
Liabilities, in excess of cash and other assets -- (0.06%) .............. (122,437)
------------
Net Assets -- 100.00% ................................................... $209,403,560
============
- --------------------------------------------------------------------------------
14
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS -- NOVEMBER 30, 2005
Note: The Portfolio of Investments is listed by the issuer's country of origin.
+ Variable rate security- the rate disclosed is that in effect as of
November 30, 2005.
++ Step Bonds- Coupon rate increases in increments to maturity. Rate
disclosed is as of November 30, 2005. Maturity date disclosed is the
ultimate maturity date.
@ Reflects annualized yield at November 30, 2005 on zero coupon bonds.
* Security is issued by a fund that is advised by a related entity of UBS
Global Asset Management (US) Inc., Strategic Global Income Fund, Inc.'s
advisor.
** Interest rate reflects yield at November 30, 2005.
(a) Security is illiquid. This security amounted to $125,800 or 0.06% of net
assets.
(b) All or a portion of these securities have been pledged to cover open
forward foreign currency contracts.
(c) Bond interest in default.
(d) Rights do not currently accrue income. Quarterly income, if any, will
vary based on several factors including oil exports, prices and
inflation.
(e) This security was pledged to cover margin requirements for futures
contracts.
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, 2005, the value of these securities
amounted to $16,751,942 or 8.00% 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 principle 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 being
received and cause the yield to increase.
ARS Argentina Peso
AUD Australian Dollar
BRL Brazilian Real
EUR Euro
IDR Indonesian Rupiah
MYR Malaysian Ringgit
PAR Par Bond
PLN Polish Zloty
RUB Russian Ruble
SKK Slovakia Koruna
TRY New Turkish Lira
UAH Ukraine Hryvnia
- --------------------------------------------------------------------------------
15
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS -- NOVEMBER 30, 2005
FORWARD FOREIGN CURRENCY CONTRACTS
Strategic Global Income Fund, Inc. had the following open forward foreign
currency contracts as of November 30, 2005:
UNREALIZED
CONTRACTS TO IN MATURITY APPRECIATION/
DELIVER EXCHANGE FOR DATES (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Canadian Dollar 9,865,000 USD 8,330,518 05/26/06 $(165,046)
- -------------------------------------------------------------------------------------------------------------
British Pound 4,765,000 USD 8,201,137 05/26/06 (41,334)
- -------------------------------------------------------------------------------------------------------------
Euro 9,970,000 USD 11,777,960 05/26/06 (90,938)
- -------------------------------------------------------------------------------------------------------------
New Zealand Dollar 18,150,000 USD 12,251,250 05/26/06 (319,944)
- -------------------------------------------------------------------------------------------------------------
New Turkish Lira 4,136,447 USD 2,474,248 04/27/07 (269,820)
- -------------------------------------------------------------------------------------------------------------
United States Dollar 16,866,445 CHF 21,810,000 05/26/06 (8,555)
- -------------------------------------------------------------------------------------------------------------
United States Dollar 23,293,114 JPY 2,702,700,000 05/26/06 (229,432)
- -------------------------------------------------------------------------------------------------------------
United States Dollar 18,883,199 SEK 153,020,000 05/26/06 316,733
- -------------------------------------------------------------------------------------------------------------
United States Dollar 8,328,395 SGD 14,055,000 05/26/06 40,479
- -------------------------------------------------------------------------------------------------------------
United States Dollar 8,480,737 THB 350,000,000 05/26/06 (41,859)
- -------------------------------------------------------------------------------------------------------------
United States Dollar 2,693,876 TRY 4,136,447 04/27/07 50,192
- -------------------------------------------------------------------------------------------------------------
Total net unrealized depreciation on forward foreign currency contracts $(759,524)
=============================================================================================================
CURRENCY TYPE ABBREVIATIONS:
CHF Swiss Franc
JPY Japanese Yen
SEK Swedish Krona
SGD Singapore Dollar
THB Thailand Baht
TRY New Turkish Lira
USD United States Dollar
FUTURES CONTRACTS
Strategic Global Income Fund, Inc. had the following open futures contracts as
of November 30, 2005:
EXPIRATION CURRENT UNREALIZED
DATE PROCEEDS VALUE DEPRECIATION
- --------------------------------------------------------------------------------------------------------------
INDEX FUTURES SALES CONTRACTS:
30 Year U.S. Treasury Bond, 144 contracts March 2006 $16,115,049 $16,132,500 $(17,451)
==============================================================================================================
The segregated aggregate market value of investments pledged to cover margin
requirements for the open futures contracts at November 30, 2005 was $298,931.
- --------------------------------------------------------------------------------
16
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS -- NOVEMBER 30, 2005
INDUSTRY DIVERSIFICATION
AS A PERCENT OF NET ASSETS
AS OF NOVEMBER 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
Bonds
U.S. Bonds
U.S. Corporate Bonds
Beverages .................................................. 0.48%
Commercial Banks ........................................... 1.06
Consumer Finance ........................................... 2.37
Diversified Financial Services ............................. 2.05
Food Products .............................................. 0.48
Media ...................................................... 1.49
Road & Rail ................................................ 0.49
Thrifts & Mortgage Finance ................................. 0.48
------
Total U.S. Corporate Bonds ............................... 8.90
Asset-Backed Securities ....................................... 5.95
Commercial Mortgage-Backed Securities ......................... 3.32
Mortgage-Backed Securities .................................... 2.84
U.S. Government Obligations ................................... 3.52
------
Total U.S. Bonds ......................................... 24.53
International Bonds
International Corporate Bonds
Commercial Banks ........................................... 3.36
Electric Utilities ......................................... 1.07
Oil & Gas .................................................. 0.58
Real Estate ................................................ 5.82
------
Total International Corporate Bonds ...................... 10.83
Foreign Government Bonds ...................................... 54.39
Sovereign/SupraNational Bonds ................................. 1.58
------
Total International Bonds ................................ 66.80
Total Bonds ......................................................... 91.33
Rights ........................................................ 0.03
Warrants ...................................................... 0.27
Short-Term Investments ........................................ 8.43
------
Total Investments ................................................... 100.06
Liabilities, in excess of cash and other assets ..................... (0.06)
------
Net Assets .......................................................... 100.00%
------
See accompanying notes to financial statements
- --------------------------------------------------------------------------------
17
STRATEGIC GLOBAL INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES -- NOVEMBER 30, 2005
- --------------------------------------------------------------------------------
ASSETS:
Investments in securities of unaffiliated issuers, at value
(cost - $189,650,942) $192,169,257
- -----------------------------------------------------------------------------------------------------
Investments in securities of a related entity, at value
(cost - $17,356,740) 17,356,740
- -----------------------------------------------------------------------------------------------------
Foreign currency, at value (cost - $6,036) 6,043
- -----------------------------------------------------------------------------------------------------
Receivable for investments sold 373,546
- -----------------------------------------------------------------------------------------------------
Interest receivable 3,152,186
- -----------------------------------------------------------------------------------------------------
Due from broker 1,596,180
- -----------------------------------------------------------------------------------------------------
Unrealized appreciation on forward foreign currency contracts 407,404
- -----------------------------------------------------------------------------------------------------
Unrealized appreciation on swap agreements 48,486
- -----------------------------------------------------------------------------------------------------
Variation margin receivable 41,326
- -----------------------------------------------------------------------------------------------------
Other assets 4,096
- -----------------------------------------------------------------------------------------------------
Total assets 215,155,264
- -----------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 4,252,711
- -----------------------------------------------------------------------------------------------------
Unrealized depreciation on forward foreign currency contracts 1,166,928
- -----------------------------------------------------------------------------------------------------
Payable for investment advisor and administrator 168,317
- -----------------------------------------------------------------------------------------------------
Unrealized depreciation on swap agreements 27,103
- -----------------------------------------------------------------------------------------------------
Director's fees payable 3,232
- -----------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 133,413
- -----------------------------------------------------------------------------------------------------
Total liabilities 5,751,704
- -----------------------------------------------------------------------------------------------------
NET ASSETS:
Capital Stock - $0.001 par value; 100,000,000 shares authorized;
18,258,828 shares issued and outstanding 207,368,810
- -----------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (753,819)
- -----------------------------------------------------------------------------------------------------
Accumulated net realized loss from investment transactions (168,539)
- -----------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures, swaps, forward foreign
currency contracts and other assets and liabilities denominated in
foreign currencies 2,957,108
- -----------------------------------------------------------------------------------------------------
Net assets $209,403,560
- -----------------------------------------------------------------------------------------------------
Net asset value per share $11.47
=====================================================================================================
See accompanying notes to financial statements
- --------------------------------------------------------------------------------
18
STRATEGIC GLOBAL INCOME FUND, INC.
STATEMENT OF OPERATIONS
For the
Year Ended
November 30, 2005
- -----------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest income net of foreign withholding taxes of $4,803 $12,096,580
- -----------------------------------------------------------------------------------------------------
Affiliated interest 359,822
- -----------------------------------------------------------------------------------------------------
Total Income 12,456,402
- -----------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory and administration fees 2,206,533
- -----------------------------------------------------------------------------------------------------
Custody and accounting fees 176,524
- -----------------------------------------------------------------------------------------------------
Professional fees 105,307
- -----------------------------------------------------------------------------------------------------
Reports and notices to shareholders 89,299
- -----------------------------------------------------------------------------------------------------
Transfer agency fees 25,054
- -----------------------------------------------------------------------------------------------------
Listing fees 23,685
- -----------------------------------------------------------------------------------------------------
Directors' fees 16,318
- -----------------------------------------------------------------------------------------------------
Other expenses 45,012
- -----------------------------------------------------------------------------------------------------
Total expenses 2,687,732
- -----------------------------------------------------------------------------------------------------
Net investment income 9,768,670
- -----------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM
INVESTMENT ACTIVITIES:
Net realized gain (loss) from:
- -----------------------------------------------------------------------------------------------------
Investment transactions 10,392,415
- -----------------------------------------------------------------------------------------------------
Futures 41,920
- -----------------------------------------------------------------------------------------------------
Foreign currency transactions (5,480,410)
- -----------------------------------------------------------------------------------------------------
Swap agreements 4,402
- -----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation/(depreciation) of:
- -----------------------------------------------------------------------------------------------------
Investments (11,621,929)
- -----------------------------------------------------------------------------------------------------
Futures (17,451)
- -----------------------------------------------------------------------------------------------------
Swap agreements 21,383
- -----------------------------------------------------------------------------------------------------
Other assets, liabilities and forward foreign currency transactions 1,556,031
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized losses from investment activities (5,103,639)
- -----------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $4,665,031
=====================================================================================================
See accompanying notes to financial statements
- --------------------------------------------------------------------------------
19
STRATEGIC GLOBAL INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended November 30,
------------------------------------
2005 2004
- -----------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $9,768,670 $ 9,936,485
- -----------------------------------------------------------------------------------------------------------------
Net realized gain from investment transactions 10,392,415 11,990,912
- -----------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from futures and foreign
currency transactions (5,438,490) 19,450,049
- -----------------------------------------------------------------------------------------------------------------
Net realized gain from swap agreements 4,402 -
- -----------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation/(depreciation) of:
- -----------------------------------------------------------------------------------------------------------------
Investments (11,621,929) (14,265,005)
- -----------------------------------------------------------------------------------------------------------------
Futures (17,451) -
- -----------------------------------------------------------------------------------------------------------------
Swap agreements 21,383 -
- -----------------------------------------------------------------------------------------------------------------
Other assets, liabilities and forward foreign currency transactions 1,556,031 (197,265)
- -----------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 4,665,031 26,915,176
- -----------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (21,270,333) (23,479,026)
- -----------------------------------------------------------------------------------------------------------------
Net realized gains (11,450,111) -
- -----------------------------------------------------------------------------------------------------------------
Return of capital (2,079,056) -
- -----------------------------------------------------------------------------------------------------------------
Total dividends and distributions to shareholders (34,799,500) (23,479,026)
- -----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (30,134,469) 3,436,150
- -----------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 239,538,029 236,101,879
- -----------------------------------------------------------------------------------------------------------------
End of year $209,403,560 $239,538,029
- -----------------------------------------------------------------------------------------------------------------
Undistributed (distributions in excess of) net investment income ($753,819) $ 5,623,316
=================================================================================================================
See accompanying notes to financial statements
- --------------------------------------------------------------------------------
20
STRATEGIC GLOBAL INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
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 may enter into contracts that contain
a variety of representations or 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 U.S. 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
U.S. and foreign stock exchanges normally are valued at the last sale price on
the day the securities are valued or, lacking any sales on such day, at the last
available bid price. In cases where securities are traded on more than one
exchange, the securities are valued on the exchange designated as the primary
market by UBS Global Asset Management (US) Inc. ("UBS Global AM"), the
investment advisor and administrator of the Fund. UBS Global AM is an indirect
wholly owned asset management subsidiary of UBS AG, an internationally
diversified organization with headquarters in Zurich and Basel, Switzerland and
operations in many areas of the financial services industry. If a market value
is not available from an independent pricing source for a particular
- --------------------------------------------------------------------------------
21
STRATEGIC GLOBAL INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
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"). All
investments quoted in foreign currencies will be valued weekly in U.S. dollars
on the basis of the foreign currency exchange rates prevailing at the time of
such valuation.
Effective November 1, 2005, the Fund began using the foreign currency exchange
rates determined as of the close of regular trading on the NYSE.
Prior to November 1, 2005, foreign currency exchange rates were generally
determined prior to the close of the NYSE. Occasionally, events affecting the
value of foreign investments and such exchange rates could have occurred between
the time at which they were determined and the close of the NYSE, which would
not have been reflected in the computation of the Fund's net asset value. If
events materially affecting the value of such securities or currency exchange
rates occurred during such time periods, the securities would have been 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 instruments with sixty days or less
remaining to maturity, unless the Board determines that this does not represent
fair value.
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 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--Prior to November 1, 2005, the books and records
of the Fund were maintained in U.S. dollars using the WM/Reuters closing spot
rates as of 4:00 pm London time. Effective November 1, 2005, the Fund began
using the foreign currency exchange rates determined as of the close of regular
trading on the NYSE. For purposes of calculating the U.S. equivalent value of
non-U.S. dollar denominated obligations, foreign currency amounts are translated
into U.S. 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 U.S. federal income tax regulations.
Certain foreign exchange gains and losses
- --------------------------------------------------------------------------------
22
STRATEGIC GLOBAL INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
included in realized and unrealized gains and losses are included in or are a
reduction of ordinary income in accordance with U.S. 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 U.S. 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 total assets committed to the consummation of the
forward contracts and not covered as provided in (1) above, as marked-to-market
daily.
Risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their forward contracts and
from unanticipated movements in the value of foreign currencies relative to the
U.S. dollar.
Fluctuations in the value of forward contracts are recorded for book purposes as
unrealized gains or losses by the Fund. Realized gains and losses include net
gains and losses recognized by the Fund on contracts which have been sold or
matured.
FUTURES CONTRACTS--The Fund may use financial futures contracts for hedging
purposes and to adjust exposure to U.S. 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 pledge
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.
SWAP AGREEMENTS--Total return swap agreements involve commitments to pay
interest in exchange for a market-linked return based on a notional amount.
- --------------------------------------------------------------------------------
23
STRATEGIC GLOBAL INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
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.
At November 30, 2005, the Fund had outstanding total return swap contracts with
the following terms:
PAYMENTS UNREALIZED
NOTIONAL TERMINATION PAYMENTS MADE RECEIVED APPRECIATION/
AMOUNT DATES BY THE FUND BY THE FUND (DEPRECIATION)
- --------------------------------------------------------------------------------------------
RUB 24,400,000 10/09/07 $917,001^ 7.58%# $(15,979)
- --------------------------------------------------------------------------------------------
IDR 8,800,000,000 10/15/14 $750,092^^ 11.00%## $48,486
============================================================================================
^ Payment made on 09/27/05 to fully fund the swap.
^^ Payment made on 10/07/05 to fully fund the swap.
# Rate is equal to the total return on the OAO Gazprom 7.58% bond, due
10/09/07.
## Rate is equal to the total return on the Republic of Indonesia 11.00%
bond, due 10/15/14.
CURRENCY TYPE ABBREVIATIONS:
IDR Indonesian Rupiah
RUB Russian Ruble
Credit default swap agreements involve commitments to pay interest and principal
in the event of a default of a security. The Fund makes payments to the
counterparty semi-annually, and the Fund would receive payments only upon the
occurrence of a credit event. Credit default 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 during each
measurement period, but prior to termination, are recorded as realized gains or
losses in the Statement of Operations.
At November 30, 2005, 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 DEPRECIATION
- ---------------------------------------------------------------------------------------
USD 2,500,000 10/20/07 1.50% 0.00%* $(11,124)
=======================================================================================
* Payment by the counterparty will be made upon the occurrence of a negative
credit event with respect to the Republic of Argentina bond, coupon 8.28%,
due 12/31/33.
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
- --------------------------------------------------------------------------------
24
STRATEGIC GLOBAL INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
is determined in accordance with U.S. federal income tax regulations, which may
differ from U.S. generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification.
CONCENTRATION OF RISK
Investing in securities of foreign issuers and currency transactions may involve
certain considerations and risks not typically associated with investments in
the United States. These risks include revaluation of currencies, adverse
fluctuations in foreign currency values and possible adverse political, social
and economic developments, including those particular to a specific industry,
country or region, which could cause the securities and their markets to be less
liquid and prices more volatile than those of comparable U.S. companies and
U.S. government securities. These risks are greater with respect to securities
of issuers located in emerging market countries in which the Fund 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
The Board has approved an investment advisory and administration contract
("Advisory Contract") with UBS Global AM, under which UBS Global AM serves
as investment advisor and administrator of the Fund. In accordance with the
Advisory Contract, the Fund pays UBS Global AM 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. The Fund invests in shares of
the UBS Supplementary Trust -- U.S. Cash Management Prime Fund ("Supplementary
Trust"). Supplementary Trust is a business trust managed by UBS Global Asset
Management (Americas) Inc., an affiliate of UBS Global AM.
The Fund pays no management fees to Supplementary Trust. Distributions from
Supplementary Trust are reflected as interest income on the Statement of
Operations.
Amounts relating to those investments for the year ended November 30, 2005, are
summarized as follows:
SALES INTEREST % OF
FUND PURCHASES PROCEEDS INCOME VALUE NET ASSETS
- --------------------------------------------------------------------------------------------------------
UBS Supplementary Trust --
U.S. Cash Management
Prime Fund $157,485,815 $146,089,540 $359,822 $17,356,740 8.29%
========================================================================================================
- --------------------------------------------------------------------------------
25
STRATEGIC GLOBAL INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
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 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, 2005, the Fund purchased and sold certain securities
(e.g., fixed income securities) in principal trades with Morgan Stanley having
an aggregate value of $1,052,680. 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, UBS Global AM believes that under normal circumstances it represents
a small portion of the total value of the transactions.
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, 2005. For the years ended November
30, 2005 and November 30, 2004, the Fund did not repurchase any shares of common
stock.
For the period September 17, 1998 (commencement of repurchase program) through
November 30, 2001, the Fund repurchased 3,148,300 shares of common stock at an
average market price per share of $10.74 and a weighted average discount from
net asset value of 12.54%. At November 30, 2005, paid-in-capital has been
reduced by the cost of $34,013,476 of capital stock repurchased since
commencement of the repurchase program.
PURCHASES AND SALES OF SECURITIES
For the year ended November 30, 2005, aggregate purchases and sales of portfolio
securities, excluding short-term securities, were $233,414,759 and $268,551,949,
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.
- --------------------------------------------------------------------------------
26
STRATEGIC GLOBAL INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
The tax character of distributions paid during the fiscal years ended November
30, 2005 and November 30, 2004, respectively were as follows:
DISTRIBUTIONS PAID FROM: 2005 2004
- -------------------------------------------------------------------------------------------------
Ordinary income $22,834,397 $23,479,026
- -------------------------------------------------------------------------------------------------
Net realized long-term capital gains 9,886,047 -
- -------------------------------------------------------------------------------------------------
Return of capital 2,079,056 -
=================================================================================================
$34,799,500 $23,479,026
=================================================================================================
At November 30, 2005, the components of accumulated earnings on a tax basis were
as follows:
Net unrealized appreciation $1,348,953
- -------------------------------------------------------------------------------------------------
Total accumulated earnings $1,348,953
=================================================================================================
During the current fiscal year, the Fund had no capital loss carry-forwards to
offset current year gains.
For federal income tax purposes, the tax cost of investments and components of
net unrealized appreciation of investments at November 30, 2005 were as follows:
Tax cost of investments $208,177,044
=================================================================================================
Gross appreciation (investments having an excess of value over cost) 6,335,654
- -------------------------------------------------------------------------------------------------
Gross depreciation (investments having an excess of cost over value) (4,986,701)
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments $1,348,953
=================================================================================================
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, 2005, accumulated undistributed net investment
income was increased by $7,203,584, accumulated net realized gain from
investment activities was decreased by $5,124,528 and capital stock was
decreased by $2,079,056.
These differences were primarily due to the tax treatment of foreign currency
transactions, paydown gains and losses, adjustments for certain debt obligations
and the reclassification of the tax character of distributions, including return
of capital.
- --------------------------------------------------------------------------------
27
STRATEGIC GLOBAL INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
Selected data for a share of common stock outstanding thoughout each year is
presented below:
FOR THE YEARS ENDED NOVEMBER 30,
------------------------------------------------------------
2005 2004 2003 2002+ 2001
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $ 13.12 $ 12.93 $ 12.15 $ 11.99 $ 11.92
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income# 0.54 0.54 0.53 0.52 0.72
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains (losses) from investments
and foreign currency transactions (0.28) 0.94 1.53 0.83 0.55
- --------------------------------------------------------------------------------------------------------------------------------
Net increase from investment operations 0.26 1.48 2.06 1.35 1.27
- --------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income and net realized gains
from foreign currency transactions (1.17) (1.29) (0.78) (0.57) (0.55)
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains from
investment transactions (0.63) - (0.33) (0.22) -
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from paid-in-capital (0.11) - (0.17) (0.40) (0.66)
- --------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions to shareholders (1.91) (1.29) (1.28) (1.19) (1.21)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase in net asset value resulting from repurchase
of common stock - - - - 0.01
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 11.47 $ 13.12 $ 12.93 $ 12.15 $ 11.99
- --------------------------------------------------------------------------------------------------------------------------------
MARKET PRICE PER SHARE, END OF YEAR $ 10.56 $ 14.60 $ 14.44 $ 12.84 $ 11.40
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN(1) (17.37)% 10.89% 23.18% 24.39% 25.34%
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) $209,404 $239,538 $236,102 $221,928 $218,962
- --------------------------------------------------------------------------------------------------------------------------------
Expenses to average net assets 1.22% 1.16% 1.19% 1.18% 1.19%
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income to average net assets 4.43% 4.21% 4.15% 4.37% 5.94%
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 113% 189% 49% 51% 29%
================================================================================================================================
- --------------------------------------------------------------------------------
28
STRATEGIC GLOBAL INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
# Calculated using the average monthly shares outstanding for the period.
1 Total investment return is calculated assuming a $10,000 purchase of common
stock at the current market price on the first day of each year reported and
a sale at the current market price on the last day of each year reported, and
assuming reinvestment of dividends and other distributions at prices obtained
under the Fund's Dividend Reinvestment Plan. Total investment return does not
reflect brokerage commissions. Returns do not reflect the deduction of taxes
that a shareholder would pay on Fund dividends/distributions or sale of Fund
shares.
+ As required, effective as of December 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide, Audits of Investment
Companies, and began amortizing premiums on debt securities for financial
statement reporting purposes only. The effect of this change for the year
ended November 30, 2002 was to decrease net investment income per share by
$0.06, increase net realized and unrealized gains from investment and foreign
currency activities per share by $0.06, and decrease the ratio of net
investment income to average net assets from 4.82% to 4.37%. Per share ratios
and supplemental data for periods prior to December 1, 2001 have not been
restated to reflect this change in presentation.
- --------------------------------------------------------------------------------
29
STRATEGIC GLOBAL INCOME FUND, INC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
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, 2005, 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, 2005, 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, 2005, 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 U.S. generally
accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
January 9, 2006
- --------------------------------------------------------------------------------
30
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 (US) Inc. ("UBS Global
AM"), an indirect wholly owned asset management subsidiary of UBS AG, which had
over $50.2 billion in assets under management as of September 30, 2005.
SHAREHOLDER INFORMATION
The Fund's NYSE trading symbol is "SGL." Comparative net asset value and market
price information about the Fund is published weekly in The Wall Street Journal
and Barron's, as well as in numerous other publications.
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 AND 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, 2005
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 name of another broker or nominee should
contact such broker or nominee to determine whether, or how, they may
participate
- --------------------------------------------------------------------------------
31
STRATEGIC GLOBAL INCOME FUND, INC.
GENERAL INFORMATION (UNAUDITED)
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 is sent to Plan
participants at least 30 days before the record date for such distribution. The
Plan may also 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.
- --------------------------------------------------------------------------------
32
STRATEGIC GLOBAL INCOME FUND, INC.
GENERAL INFORMATION (UNAUDITED)
DISTRIBUTION POLICY
The Fund's Board adopted a managed distribution policy in May 1998, which was
revised effective January 2000 and again 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 distributions 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, after taking into account relevant factors, including the expected tax
treatment of distributions; 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 fixed percentage of its net asset value) exceeds its
current and accumulated earnings and profits, the amount of that excess would
constitute a return of capital or net realized capital gains for tax purposes.
From time to time, the Fund may project that a portion of a monthly distribution
may consist of a return of capital based on information available at that time.
Such an estimate is subject to change based on the Fund's investment experience
during the remainder of its fiscal year. The actual sources of the Fund's
distributions may be net investment income, net realized capital gains, return
of capital or a combination of the foregoing and may be subject to retroactive
recharacterization at the end of the Fund's fiscal year based on tax
regulations. The actual amounts attributable to each of the sources will be
reported to each shareholder in January of a year on Form 1099-DIV.
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.
- --------------------------------------------------------------------------------
33
STRATEGIC GLOBAL INCOME FUND, INC.
GENERAL INFORMATION (UNAUDITED)
BOARD APPROVAL OF ADVISORY AND ADMINISTRATION AGREEMENT
BACKGROUND--At a meeting of the board of Strategic Global Income Fund, Inc.
(the "Fund") on July 20, 2005, 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, considered and
approved the continuance of the Advisory and Administration Agreement for the
Fund. In preparing for the meeting, the board members had requested and
received information from UBS Global Asset Management (US) Inc. ("UBS Global
AM") to assist them, including performance and expense information for other
investment companies with similar investment objectives to the Fund. 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 Advisory and Administration Agreement.
Subsequently, the Chairman of the board and independent legal counsel to the
Independent Directors met with management representatives to discuss generally
how information would be provided at the board meeting. 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 Advisory and Administration Agreement, the board, including the Independent
Directors, 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
under the Advisory and Administration 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 noted that information
received at regular meetings throughout the year related to 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
- --------------------------------------------------------------------------------
34
STRATEGIC GLOBAL INCOME FUND, INC.
GENERAL INFORMATION (UNAUDITED)
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 and the portfolio management
team primarily responsible for the day-to-day portfolio management of the Fund
and recognized that these persons report to the board regularly, some at every
board meeting. 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.
The board reviewed how transactions in Fund assets are effected. In conducting
its review, the board had available UBS Global AM's brokerage policies and
practices, the standards applied in seeking best execution, UBS Global AM's soft
dollar policies and practices, the use of a broker affiliated with UBS Global AM
and the existence of quality controls applicable to brokerage allocation
procedures. In addition, management 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
Advisory and Administration Agreement.
FUND PERFORMANCE--The board received and considered performance information of
the Fund compared to other funds (the "Performance Universe") selected by
Lipper, Inc. ("Lipper"), an independent provider of investment company data,
over the one-, three-, five- and ten-year periods and since inception, ended May
31, 2005. The board was provided with a description of the methodology Lipper
used to determine the similarity of the Fund with the funds included in the
Performance Universe. The board also noted that it had received information
throughout the year at periodic intervals with respect to the Fund's
performance.
The comparative Lipper information showed that the Fund's performance as
compared against the Performance Universe was in the third quintile for the
one-year period, the fourth quintile for the three- and five-year period and the
first quintile for the ten-year period and since inception. The board in its
review noted that a number of other funds in the Performance Universe utilized
leverage, allowing for amplified returns during a prolonged bull market, but
with an increased level of risk. Management explained that the Fund, which has a
lower risk profile, may underperform its peers during a strong market, and
outperform its peers on corrections in the market; this was shown by the Fund's
outperformance for the ten-year period and since inception. The board noted that
the Fund has outperformed
- --------------------------------------------------------------------------------
35
STRATEGIC GLOBAL INCOME FUND, INC.
GENERAL INFORMATION (UNAUDITED)
its peer group for the ten-year period and since inception. Based on its review,
the board concluded that the Fund's investment performance was satisfactory.
MANAGEMENT FEES AND EXPENSE RATIO--The board reviewed and considered the
contractual advisory and administration fee (the "Contractual Management Fee")
payable by the Fund to UBS Global AM in light of the nature, extent and quality
of the advisory and administrative services provided by UBS Global AM. The board
also reviewed and considered the actual fee rate (the "Actual Management
Fee") paid by the Fund.
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 (the "Expense
Group").
In connection with its consideration of the Fund's management fees, the board
also received information on an affiliate of UBS Global AM's standard
institutional account fees for accounts of a similar investment type to the
Fund. The board noted that 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 mutual funds
versus such accounts, the differences in the levels of services required by
mutual funds and such accounts and the memorandum provided by the Fund's legal
counsel discussing court decisions regarding the limited usefulness of such
comparisons.
The comparative Lipper information showed that the Fund's Contractual Management
Fee and Actual Management Fee were in the fifth and third quintile,
respectively, in its Expense Group (i.e., sixth and fourth, respectively, out of
eight for the periods included in the Lipper report). In addition, the board
also noted that the Fund's total expenses were in the second quintile in its
Expense Group.
Taking all of the above into consideration, the board determined that the
Contractual Management Fee was reasonable in light of the nature, extent and
quality of the services provided to the Fund under the Advisory and
Administration Agreement.
ADVISOR 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 New
York 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
- --------------------------------------------------------------------------------
36
STRATEGIC GLOBAL INCOME FUND, INC.
GENERAL INFORMATION (UNAUDITED)
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.
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 Advisory and
Administration Agreement to continue for another year.
In making its decision, the board identified no single factor as being
determinative in approving the Advisory and Administration Agreement. The
Independent Directors were advised by separate independent legal counsel
throughout the entire process. The board discussed the proposed continuance of
the Advisory and Administration Agreement in a private session with their
independent legal counsel at which no representatives of UBS Global AM were
present.
- --------------------------------------------------------------------------------
37
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 DIRECTORS
Term of
Position(s) Office+ and
Name, Address, Held with Length of Principal Occupation(s)
and Age Fund Time Served During Past 5 Years
- ----------------------------------------------------------------------------------------------------------------
Margo N. Alexander++; 58 Director Since 1996 Mrs. Alexander is retired. She was an
c/o UBS Global executive vice president of UBS Financial
Asset Management Services Inc. (from March 1984 to December
51 W 52nd Street 2002). She was chief executive officer
New York, NY 10019 (from January 1995 to October 2000),
a director (from January 1995 to September
2001) and chairman (from March 1999
to September 2001) of UBS Global AM
(formerly known as Mitchell Hutchins
Asset Management Inc.)
Meyer Feldberg+++; 63 Director Since 1996 Professor Feldberg is Dean Emeritus and
Morgan Stanley Sanford Bernstein Professor of Leadership
1585 Broadway and Ethics at Columbia Business School,
33rd Floor although on a two year leave of absence.
New York, NY 10036 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).
- --------------------------------------------------------------------------------
38
STRATEGIC GLOBAL INCOME FUND, INC.
SUPPLEMENTAL INFORMATION (UNAUDITED)
Number of
Portfolios in Fund Complex Other Directorships
Overseen by Director Held by Director
- ----------------------------------------------------------------------------------------------------------------
Mrs. Alexander is a director or trustee of 16 None
investment companies (consisting of 33 portfolios)
for which UBS Global AM or one of its affiliates
serves as investment advisor, sub-advisor
or manager.
Professor Feldberg is a director or trustee of Professor Feldberg is also a director of Primedia Inc.
30 investment companies (consisting of (publishing), Federated Department Stores, Inc. (operator
47 portfolios) for which UBS Global AM or one of department stores), Revlon, Inc. (cosmetics) and
of its affiliates serves as investment advisor, SAPPI, Ltd. (producer of paper).
sub-advisor or manager.
- --------------------------------------------------------------------------------
39
STRATEGIC GLOBAL INCOME FUND, INC.
SUPPLEMENTAL INFORMATION (UNAUDITED)
INDEPENDENT DIRECTORS
Term of
Position(s) Office+ and
Name, Address, Held with Length of Principal Occupation(s)
and Age Fund Time Served During Past 5 Years
- ----------------------------------------------------------------------------------------------------------------
Richard Q. Armstrong; 70 Director 1996 Mr. Armstrong is chairman and principal
c/o Willkie Farr & (Since 1996) of R.Q.A. Enterprises (management
Gallagher LLP Chairman consulting firm) (since April 1991 and
787 Seventh Avenue of the Board principal occupation since March 1995).
New York, NY 10019-6099 of Directors
(Since 2004)
David J. Beaubien; 71 Director 2001 Mr. Beaubien is retired (since 2003).
84 Doane Road He was chairman of Yankee Environmental
Ware, MA 01082 Systems, Inc., a manufacturer of
meteorological measuring systems
(since 1991).
Richard R. Burt; 58 Director 1996 Mr. Burt is chairman of Diligence Inc.
1275 Pennsylvania Ave., (information and risk management
N.W. Washington, D.C. firm) and IEP Advisors (international
20004 investments and consulting firm).
William D. White; 72 Director 2001 Mr. White is retired (since 1994).
P.O. Box 199
Upper Black Eddy, PA 18972
- --------------------------------------------------------------------------------
40
STRATEGIC GLOBAL INCOME FUND, INC.
SUPPLEMENTAL INFORMATION (UNAUDITED)
Number of
Portfolios in Fund Complex Other Directorships
Overseen by Director Held by Director
- ----------------------------------------------------------------------------------------------------------------
Mr. Armstrong is a director or trustee of 16 None
investment companies (consisting of 33 portfolios)
for which UBS Global AM or one of its affiliates
serves as investment advisor, sub-advisor or
manager.
Mr. Beaubien is a director or trustee of 16 Mr. Beaubien is also a director of IEC Electronics, Inc.,
investment companies (consisting of 33 portfolios) a manufacturer of electronic assemblies.
for which UBS Global AM or one of its affiliates
serves as investment advisor, sub-advisor or
manager.
Mr. Burt is a director or trustee of 16 investment Mr. Burt is also a director of The Central European Fund,
companies (consisting of 33 portfolios) for which Inc., The Germany Fund, Inc., The New Germany Fund, Inc.,
UBS Global AM or one of its affiliates serves as IGT, Inc. (provides technology to gaming and wagering
investment advisor, sub-advisor or manager. industry) and The Protective Group, Inc. (produces
armor products). He is also a director or trustee
of funds in the Scudder Mutual Funds Family (consisting
of 52 portfolios).
Mr. White is a director or trustee of 16 investment None
companies (consisting of 33 portfolios) for which
UBS Global AM or one of its affiliates serves as
investment advisor, sub-advisor or manager.
- --------------------------------------------------------------------------------
41
STRATEGIC GLOBAL INCOME FUND, INC.
SUPPLEMENTAL INFORMATION (UNAUDITED)
OFFICERS
Term of Principal Occupation(s)
Position(s) Office+ and During Past 5 Years;
Name, Address, Held with Length of Number of Portfolios in Fund Complex
and Age the Fund Time Served for which Person Serves as Officer
- ----------------------------------------------------------------------------------------------------------------
Joseph Allessie*; 40 Vice President 2005 Mr. Allessie is a director and deputy general
and Assistant counsel at UBS Global Asset Management (US)
Secretary Inc. ("UBS Global AM") and UBS Global Asset
Management (Americas) Inc. ("UBS Global
AM--Americas," and together with 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). Such entities are
affiliates of UBS Global AM--Americas
region. Prior to joining GAM, Mr. Allessie was
regulatory officer to the State of New Jersey,
Department of Law and Public Safety, Bureau
of Securities (from 1993 to 1999). Mr. Allessie
is a vice president and assistant secretary of
20 investment companies (consisting of
86 portfolios) for which UBS Global AM--
Americas region or one of its affiliates
serves as investment advisor, sub-advisor
or manager.
W. Douglas Beck*; 38 President 2005 Mr. Beck is an executive director and head
of product development and management
for UBS Global AM--Americas region (since
2002). From March 1998 to November 2002,
he held various positions at Merrill Lynch, the
most recent being first vice president and
co-manager of the managed solutions group.
Mr. Beck is president of 20 investment
companies (consisting of 86 portfolios) for
which UBS Global AM--Americas region
or one of its affiliates serves as investment
advisor, sub-advisor or manager, and was
vice president of such investment companies
from 2003 to 2005.
- --------------------------------------------------------------------------------
42
STRATEGIC GLOBAL INCOME FUND, INC.
SUPPLEMENTAL INFORMATION (UNAUDITED)
OFFICERS (CONTINUED)
Term of Principal Occupation(s)
Position(s) Office+ and During Past 5 Years;
Name, Address, Held with Length of Number of Portfolios in Fund Complex
and Age the Fund Time Served for which Person Serves as Officer
- ----------------------------------------------------------------------------------------------------------------
Thomas Disbrow*; 39 Vice President 2000 Mr. Disbrow is a director, head of retail mutual
(Since 2000) fund operations and co-head of the mutual
and Treasurer fund finance department of UBS Global AM--
(Since 2004) Americas region. Mr. Disbrow is a vice
president and treasurer of 16 investment
companies (consisting of 33 portfolios) and
vice president and assistant treasurer of four
investment companies (consisting of 53
portfolios) for which UBS Global AM or one
of its affiliates serves as investment advisor,
sub-advisor or manager.
Mark F. Kemper**; 47 Vice President 2004 Mr. Kemper is general counsel of UBS Global
and Secretary AM--Americas region (since July 2004).
Mr. Kemper also is an executive director of
UBS Global AM--Americas region. He was
deputy general counsel of 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 86 portfolios) for which UBS
Global AM--Americas region or one of its
affiliates serves as investment advisor,
sub-advisor or manager.
Joanne M. Kilkeary*; 37 Vice President 2004 Ms. Kilkeary is an associate director (since 2000)
and Assistant and a senior manager (since 2004) of the
Treasurer mutual fund finance department of UBS
Global AM--Americas region. Ms. Kilkeary is
a vice president and assistant treasurer of
16 investment companies (consisting of
33 portfolios) for which UBS Global AM--
Americas region or one of its affiliates serves
as investment advisor, sub-advisor or manager.
- --------------------------------------------------------------------------------
43
STRATEGIC GLOBAL INCOME FUND, INC.
SUPPLEMENTAL INFORMATION (UNAUDITED)
OFFICERS (CONTINUED)
Term of Principal Occupation(s)
Position(s) Office+ and During Past 5 Years;
Name, Address, Held with Length of Number of Portfolios in Fund Complex
and Age the Fund Time Served for which Person Serves as Officer
- ----------------------------------------------------------------------------------------------------------------
Tammie Lee*; 34 Vice President 2005 Ms. Lee is a director and associate general
and Assistant counsel of UBS Global AM--Americas region
Secretary (since November 2005). Prior to joining UBS
Global AM--Americas region, she was vice
president and counsel at Deutsche Asset
Management/Scudder Investments from April
2003 to October 2005. Prior to that she
was assistant vice president and counsel at
Deutsche Asset Management/Scudder
Investments from July 2000 to March 2003.
Prior to joining Deutsche Asset Management/
Scudder Investments, she was assistant
counsel at First Investors Corporation from
August 1996 to June 2000. Ms. Lee is a vice
president and assistant secretary of 20
investment companies (consisting of 86
portfolios) for which UBS Global AM--
Americas region or one of its affiliates
serves as investment advisor, sub-advisor
or manager.
Joseph T. Malone*; 38 Vice President 2004 Mr. Malone is a director and co-head of the
and Assistant mutual fund finance department of UBS
Treasurer Global AM--Americas region. From August
2000 through June 2001, he was the
controller at AEA Investors Inc. Mr. Malone
is vice president and assistant treasurer of
16 investment companies (consisting of 33
portfolios) and vice president, treasurer and
principal accounting officer of four investment
companies (consisting of 53 portfolios) for
which UBS Global AM--Americas region or
one of its affiliates serves as investment
advisor, sub-advisor or manager.
- --------------------------------------------------------------------------------
44
STRATEGIC GLOBAL INCOME FUND, INC.
SUPPLEMENTAL INFORMATION (UNAUDITED)
OFFICERS (CONTINUED)
Term of Principal Occupation(s)
Position(s) Office+ and During Past 5 Years;
Name, Address, Held with Length of Number of Portfolios in Fund Complex
and Age the Fund Time Served for which Person Serves as Officer
- ----------------------------------------------------------------------------------------------------------------
Joseph McGill*; 43 Vice President 2004 Mr. McGill is an executive director and
and Chief chief compliance officer at UBS Global AM--
Compliance Americas region (since 2003). Prior to joining
Officer UBS Global AM he was assistant general
counsel, J.P. Morgan Investment Management
(from 1999-2003). Mr. McGill is a vice
president and chief compliance officer of
20 investment companies (consisting of
86 portfolios) for which UBS Global AM--
Americas region or one of its affiliates serves
as investment advisor, sub-advisor or manager.
John Penicook**; 47 Vice President 2002 Mr. Penicook is a managing director and
global head of fixed income 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*; 40 Vice President 2005 Mr. Sanders is a director and associate general
and Assistant counsel of UBS Global AM--Americas region
Secretary (since July 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 86
portfolios) for which UBS Global AM--
Americas region or one of its affiliates
serves as investment advisor, sub-advisor
or manager.
- --------------------------------------------------------------------------------
45
STRATEGIC GLOBAL INCOME FUND, INC.
SUPPLEMENTAL INFORMATION (UNAUDITED)
OFFICERS (CONCLUDED)
Term of Principal Occupation(s)
Position(s) Office+ and During Past 5 Years;
Name, Address, Held with Length of Number of Portfolios in Fund Complex
and Age the Fund Time Served for which Person Serves as Officer
- ----------------------------------------------------------------------------------------------------------------
Uwe Schillhorn**; 41 Vice President 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.
Keith A. Weller*; 44 Vice President 1995 Mr. Weller is an executive director and senior
and Assistant associate general counsel of UBS Global
Secretary AM--Americas region. Mr. Weller is a
vice president and assistant secretary of 20
investment companies (consisting of 86
portfolios) for which UBS Global AM--
Americas region or one of its affiliates
serves as investment advisor, sub-advisor
or manager.
* This person's business address is 51 West 52nd Street, New York, New York
10019-6114.
** This person's business address is One North Wacker Drive, Chicago, IL 60606.
+ 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. Each Director who has attained the age of seventy-two
(72) years will be subject to retirement on the last day of the month in
which he or she attains such age. Officers are appointed by the directors
and serve at the pleasure of the Board.
++ Mrs. Alexander is deemed an "interested person" of the fund as defined in
the Investment Company Act because an immediate family member is an employee
of an affiliate of UBS Global AM.
+++ Professor Feldberg is deemed an "interested person" of the Fund as defined
in the Investment Company Act because he is a senior advisor to Morgan
Stanley, a financial services firm with which the Fund may conduct
transactions.
- --------------------------------------------------------------------------------
46
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 were filed as
exhibits to the Fund's annual report on Form N-CSR, which included a copy of
this annual report along with other information about the Fund. After the
Fund's 2005 annual meeting of shareholders, it filed a certification with the
NYSE on March 30, 2005 stating that its president was unaware of any violation
of the NYSE's Corporate Governance listing standards.
- --------------------------------------------------------------------------------
47
(This page has been left blank intentionally)
- --------------------------------------------------------------------------------
48
DIRECTORS
Richard Q. Armstrong
Chairman
Margo N. Alexander
David J. Beaubien
Richard R. Burt
Meyer Feldberg
William D. White
PRINCIPAL OFFICERS
W. Douglas Beck 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 (US) 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 use in the purchase or
sale of shares of the Fund or of any securities mentioned in this report.
(C) 2006 UBS Global Asset Management (US) Inc.
All rights reserved.
[LOGO OF UBS] UBS ---------------
FIRST CLASS
PRESORT
UBS GLOBAL ASSET MANAGEMENT (US) INC. U.S. POSTAGE
51 West 52nd Street PAID
New York, New York 10019-6114 COMPUTERSHARE
---------------
Return Service Requested
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: Richard Q. Armstrong. Mr. Armstrong 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, 2005 and November 30,
2004, the aggregate Ernst & Young LLP (E&Y) audit fees for
professional services rendered to the registrant were
approximately $51,400 and $47,300, 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, 2005 and November
30, 2004, 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 $3,712 and $3,500,
respectively.
Fees included in the audit-related category are those associated
with (1) the reading and providing of comments on the 2005 and
2004 semiannual financial statements, and (2) review of the
consolidated 2004 and 2003 report on the profitability of the UBS
Funds to UBS Global Asset Management (US) Inc. ("UBS Global AM")
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, 2005 and November
30, 2004, the aggregate tax fees billed by E&Y for professional
services rendered to the registrant were approximately $11,980
and $11,300, 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, 2005 and November
30, 2004, 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)" (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
services(1) 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 [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, 2005 and November 30, 2004
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, 2005 and November 30,
2004 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, 2005 and November 30, 2004
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, 2005 and November 30,
2004 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, 2005 and November 30, 2004
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, 2005 and November 30,
2004 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, 2005, 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, 2005 and November 30, 2004,
the aggregate fees billed by E&Y of $980,354 and $1,961,232,
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:
2005 2004
---- ----
Covered Services $ 15,692 $ 14,800
Non-Covered Services 964,662 1,946,432
(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. Beaubien, Mr. Burt, and Mr. White.
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 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.
- --------------------------------------------------------------------------
Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
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 Burt, care of the Secretary of the
registrant at UBS Global Asset Management (US) Inc., 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/ W. Douglas Beck
-------------------
W. Douglas Beck
President
Date: January 17, 2006
----------------
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/ W. Douglas Beck
-------------------
W. Douglas Beck
President
Date: January 17, 2006
----------------
By: /s/ Thomas Disbrow
------------------
Thomas Disbrow
Vice President and Treasurer
Date: January 17, 2006
----------------