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
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Strategic Global Income Fund, Inc.
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(Exact name of registrant as specified in charter)
51 West 52nd Street, New York, New York 10019-6114
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(Address of principal executive offices) (Zip code)
Mark F. Kemper, Esq.
UBS Global Asset Management (Americas) 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: May 31, 2006
ITEM 1. REPORTS TO STOCKHOLDERS.
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[LOGO OF UBS] UBS Global Asset
Management
STRATEGIC GLOBAL
INCOME FUND, INC.
SEMIANNUAL REPORT
MAY 31, 2006
STRATEGIC GLOBAL INCOME FUND, INC.
July 14, 2006
DEAR SHAREHOLDER,
We are pleased to present you with the semiannual report for Strategic Global
Income Fund, Inc. (the "Fund") for the six-month period ended May 31, 2006.
PERFORMANCE
Over the six-month period ended May 31, 2006, the Fund returned 5.44% on a net
asset value basis, compared with the 3.89% median net asset value return for the
Fund's peer group, the Lipper Global Income Funds, and the 3.76% return for the
Fund's benchmark, the Strategic Global Income Fund Index* (the "Index"). On a
market price basis, the Fund returned 16.14% over the six-month period, compared
with its Lipper peer group's median market price return of 6.41% over the same
timeframe. (For more performance information, please refer to "Performance at a
Glance" on page 6.)
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STRATEGIC GLOBAL INCOME FUND, INC.
INVESTMENT GOALS:
Primarily, high level of current income; secondarily, capital appreciation.
PORTFOLIO MANAGEMENT:
Portfolio management team, including Uwe Schillhorn
UBS Global Asset Management (Americas) Inc.
COMMENCEMENT:
February 3, 1992
NYSE SYMBOL:
SGL
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During the reporting period, the Fund continued not to use leverage--the
investing of borrowed money. The use of leverage can magnify the effect of both
gains and losses and can create a wider range of returns for a fund and within a
fund's peer group over time.
AN INTERVIEW WITH PORTFOLIO MANAGER UWE SCHILLHORN
Q. WHAT LED TO THE FUND'S OUTPERFORMANCE OF ITS LIPPER PEER GROUP ON A MARKET
PRICE BASIS?
A. Many factors can affect whether investors are willing to pay more or less for
a fund than the net asset value (NAV) of the shares, and hence,
* The Fund's benchmark has been changed from the Citigroup World Government Bond
Index to a new, proprietary benchmark based upon a blend of two separate
indices. The new benchmark, the Strategic Global Income Fund Index, is compiled
by the Fund's advisor based upon two other unmanaged indices, namely 67%
Citigroup World Government Bond Index (broadly representing global sovereign
bonds) and 33% J.P. Morgan Emerging Markets Bond Index -- Global (representing
debt securities issued in developing countries). We believe the new benchmark
more closely reflects the Fund's current investment strategies.
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1
STRATEGIC GLOBAL INCOME FUND, INC.
whether a fund trades at a premium or a discount. At the beginning of the
reporting period, the Fund traded at a rather significant discount of
approximately 8% to its underlying NAV. As the period progressed, the Fund
moved from trading at a discount to trading at a premium.
The Fund's solid NAV performance during a challenging period for
international fixed income markets may have had an effect on the Fund's
market price during the semiannual period. However, the Fund's management
team ultimately 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 SEMIANNUAL
PERIOD?
A. Economies around the world were generally quite strong over the reporting
period. In the United States, GDP growth bounced back to 5.6% quarter over
quarter growth to start 2006 after a lackluster finish to 2005. Unemployment
continued to improve, finishing the period at 4.6%, down from 5.0% in
November 2005. Against this backdrop, the US Federal Reserve Board (the
"Fed") continued its tightening campaign, raising short-term interest rates
four times during the reporting period, and once more after the period ended
to bring the federal funds rate to 5.25%. (The federal funds rate is the
interest rate banks charge each other for overnight loans.)
International economies also strengthened during the reporting period,
though at a lesser rate than in the US. The European Central Bank raised its
key rates once during the reporting period and once shortly thereafter. In
Japan, bank lending increased dramatically in anticipation of the Bank of
Japan increasing interest rates from zero--another sign of the continuing
recovery in Japan's economy. The Reserve Bank of Australia also raised
interest rates during the period.
Q. HOW DID THE WORLD'S BOND MARKETS PERFORM OVER THE SIX-MONTH REPORTING PERIOD?
A. In light of the global tightening in monetary policies, it's no surprise that
interest rates also rose during the reporting period. In the US, Treasury
yields increased across the board, with the yield curve remaining
exceptionally flat by most measures. As yields rose, prices on existing bond
issues fell. This was generally the case throughout developed markets during
the period. Emerging market debt, on the other hand, posted solid returns
over much of the past six months, before reversing direction in the month of
May. The recent downturn notwithstanding, the Fund held large positions in
Brazilian and Argentine government bonds throughout the entire reporting
period, and our exposure to
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2
STRATEGIC GLOBAL INCOME FUND, INC.
both countries was beneficial to performance. Latin America has made solid
economic progress in recent years, and as those economies have improved,
debt from the region has become more attractive, and has appreciated as a
result.
Q. HOW DID YOU POSITION THE PORTFOLIO FROM A DURATION STANDPOINT?
A. During the period, our duration stance was slightly below our neutral target,
reflecting our conviction that interest rates would continue to rise.
Duration, which measures a fund's sensitivity to interest rate changes, is a
key part of our active management strategy, especially during periods of
changing interest rates such as the reporting period. As of our last
report, the Fund's modified duration was 4.5%. (Modified duration is the
change in the Fund's NAV, expressed as a percentage, expected in response to
each 1% change in the yield of the portfolio's holdings.) Our target neutral
stance is 5.0%, which would indicate a belief that global interest rates
were likely to remain fairly stable. We maintained our short position
throughout the period, finishing the six months slightly shorter, at 4.3%.
Q. WHAT WAS YOUR CURRENCY STRATEGY DURING THE PERIOD?
A. From a currency standpoint, we found the Swedish krona, Swiss franc, Japanese
yen and a number of other Southeast Asian currencies, including the Thai
baht, to be particularly attractive in terms of relative valuations. The US
dollar weakened throughout the period, and although we increased our
exposure somewhat, we maintained an underweight position in the US cash
market over the entirety of the past six months. Other currencies that our
research indicated were overvalued included the Canadian dollar, the euro
and the British pound. Our currency analysis was fairly accurate, and our
positioning helped the Fund's returns on a net asset value basis during the
period.
Q. WHICH HOLDINGS OR STRATEGIES GENERATED STRONG RESULTS OVER THE PERIOD?
A. As previously mentioned, the Fund's exposure to emerging markets debt,
despite the pullback in May, had a positive impact on performance. The
economies of Latin America, which have been particularly solid over the past
several quarters, continued to expand in concert, with certain countries in
the region exceeding growth expectations. We found this region to be quite
attractive given its recent strength. Argentina represented the Fund's
largest overweight position versus the Index at period end, and our position
there benefited performance.
For years, inflation in Argentina spiraled out of control, eventually leading
to an significant depreciation of the country's currency.
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3
STRATEGIC GLOBAL INCOME FUND, INC.
Beginning in 2001, however, the government has taken significant steps to
restructure debt and stabilize its currency to the point where the economy
is now on much more stable footing. Ecuador and Brazil have also shown signs
of improvement, and although our positions there are not as significant,
they did help Fund performance.
Q. WHAT IS YOUR OUTLOOK FOR THE GLOBAL ECONOMY AND THE FIXED INCOME MARKETS?
A. Our analysis indicates that global economic growth is steady and relatively
strong at this point. We anticipate US GDP growth to continue at a
trend-like pace and for economies in the Eurozone and Japan to continue
improving. We believe that given this strength, global monetary policy is
still somewhat accommodative, with some room left for interest rates to rise
before reflecting a more neutral policy. That said, we believe bond yields
in most developed markets are below equilibrium, meaning that prices could
continue to slide in the coming months. In what could prove to be a
challenging environment for fixed income investors in the months ahead,
active management and tactical duration exposure is likely to play a
significant role in performance.
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4
STRATEGIC GLOBAL INCOME FUND, INC.
We thank you for your continued support and welcome any comments or questions
you may have. For additional information regarding your fund, 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 (Americas) Inc.
/s/ Uwe Schillhorn
Uwe Schillhorn, CFA
Portfolio Management Team Member
Strategic Global Income Fund, Inc.
Executive Director
UBS Global Asset Management (Americas) Inc.
This letter is intended to assist shareholders in understanding how the Fund
performed during the six-month period ended May 31, 2006. The views and opinions
in the letter were current as of July 14, 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.
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5
STRATEGIC GLOBAL INCOME FUND, INC.
PERFORMANCE AT A GLANCE (UNAUDITED)
AVERAGE ANNUAL RETURNS FOR PERIODS ENDED 5/31/06
TOTAL RETURNS 6 MONTHS 1 YEAR 5 YEARS 10 YEARS
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STRATEGIC GLOBAL INCOME FUND, INC.
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Net asset value* 5.44% 5.17% 10.92% 8.68%
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Market price* 16.14% (2.92)% 12.04% 11.16%
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LIPPER GLOBAL INCOME FUNDS MEDIAN**
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Net asset value* 3.89% 5.19% 12.86% 7.84%
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Market price* 6.41% 4.38% 14.38% 11.34%
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STRATEGIC GLOBAL INCOME FUND, INC. INDEX*+ 3.76% 2.04% 9.53% 7.89%
===================================================================================================
* Past performance does not predict future performance. The return and value of
an investment will fluctuate so that an investor's Fund shares, when sold,
may be worth more or less than their original cost. Fund net asset value
("NAV") return assumes, for illustration only, that dividends/distributions
were reinvested at the NAV on the payable dates. Fund 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 the deduction of taxes that a shareholder would pay
on Fund dividends/distributions or brokerage commissions and taxes on the
sale of Fund 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 peer
group.
+ An unmanaged index compiled by the Advisor, constructed as follows: 33%
J.P. Morgan Emerging Markets Bond Index Global Index and 67% Citigroup World
Government Bond Index.
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6
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO STATISTICS (UNAUDITED)
CHARACTERISTICS* 5/31/06 11/30/05 5/31/05
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Net Asset Value $11.62 $11.47 $11.96
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Market Price $11.78 $10.56 $13.15
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12-Month Dividends/Distributions $0.9431 $1.9059 $2.0656
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Monthly Dividend/Distribution
at Period-End $0.0792 $0.0767 $0.1005
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Net Assets (mm) $212.2 $209.4 $218.4
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Weighted Average Maturity 7.81 yrs. 8.39 yrs. 7.66 yrs.
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Modified Duration 4.3% 4.5% 4.5%
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CURRENCY EXPOSURE** 5/31/06 11/30/05 5/31/05
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US Dollar Denominated 45.0% 39.3% 65.8%
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Non US Dollar Denominated 55.0 60.7 34.2
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TOTAL 100.0% 100.0% 100.0%
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CREDIT QUALITY** 5/31/06 11/30/05 5/31/05
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AAA 32.8% 30.2% 31.9%
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AA 1.0 1.1 2.8
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A 11.0 10.6 13.4
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BBB 7.4 16.5 11.8
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BB 13.2 11.5 10.5
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B 9.7 7.4 9.5
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CCC 5.2 5.1 3.9
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Non-Rated 13.0 9.3 8.7
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Cash Equivalents 8.2 8.4 6.0
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Other assets, less liabilities (1.5) (0.1) 1.5
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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.
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7
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO STATISTICS (UNAUDITED)
TOP 10 COUNTRIES
(OTHER THAN SHORT
TERM INVESTMENTS)* 5/31/06 11/30/05 5/31/05
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United States 22.3% United States 24.5% United States 28.7%
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Argentina 13.1 Argentina 10.8 Germany 10.7
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Germany 11.3 Germany 10.0 Argentina 9.4
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Malaysia 6.0 Brazil 7.1 Brazil 6.9
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France 4.8 Russia 6.5 Russia 6.5
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Brazil 4.6 Malaysia 5.8 France 3.8
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Mexico 3.0 France 4.7 Mexico 3.8
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Qatar 3.0 Qatar 3.3 Malaysia 2.9
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Ecuador 2.4 Poland 2.2 Austria 2.6
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Netherlands 2.4 Ecuador 1.8 Italy 2.4
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TOTAL 72.9% 76.7% 77.7%
==========================================================================================
* Weightings represent percentages of net assets of the entire Fund as of the
dates indicated. The Fund's portfolio is actively managed and its composition
will vary over time.
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8
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS -- MAY 31, 2006 (UNAUDITED)
FACE
AMOUNT VALUE
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BONDS -- 93.19%
US BONDS -- 22.25%
US CORPORATE BONDS -- 9.00%
Bank One Corp.
7.875%, due 08/01/10 ............................................ $ 2,000,000 $ 2,161,654
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 2,060,292
Fortune Brands, Inc.
5.375%, due 01/15/16 ............................................ 2,000,000 1,888,626
General Electric Capital Corp.
6.000%, due 06/15/12 ............................................ 2,000,000 2,031,980
General Motors Acceptance Corp.
6.125%, due 09/15/06 ............................................ 1,000,000 996,473
6.875%, due 09/15/11 ............................................ 1,000,000 939,420
HSBC Finance Corp.
6.750%, due 05/15/11 ............................................ 2,000,000 2,082,258
Kraft Foods, Inc.
5.250%, due 06/01/07 ............................................ 1,000,000 995,360
Miller Brewing Co., 144A
5.500%, due 08/15/13 ............................................ 1,000,000 968,860
Residential Capital Corp.
6.125%, due 11/21/08 ............................................ 2,000,000 1,978,246
Time Warner Cos., Inc.
7.480%, due 01/15/08 ............................................ 1,000,000 1,026,216
Washington Mutual Preferred Funding Delaware, 144A +*
6.534%, due 03/15/11 ............................................ 1,000,000 961,270
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19,090,655
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ASSET-BACKED SECURITIES -- 4.70%
Conseco Finance Securitizations Corp., 00-1, Class A4
7.620%, due 05/01/31 ............................................ 63,090 63,104
Conseco Finance Securitizations Corp., 00-2, Class A4
8.480%, due 12/01/30 ............................................ 586,868 589,919
Conseco Finance Securitizations Corp., 00-5, Class A5
7.700%, due 02/01/32 ............................................ 5,000,000 4,980,023
Green Tree Financial Corp., 99-1, Class A5
6.110%, due 09/01/23 ............................................ 2,546,819 2,535,649
New York City Tax Lien, 04-AA, Class C, 144A
3.960%, due 12/11/17 ............................................ 833,002 785,528
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9
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS -- MAY 31, 2006 (UNAUDITED)
FACE
AMOUNT VALUE
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ASSET-BACKED SECURITIES -- (CONCLUDED)
Providian Gateway Master Trust, 04-AA, Class D, 144A +
6.931%, due 03/15/11 ............................................ $ 1,000,000 $ 1,012,656
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9,966,879
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COMMERCIAL MORTGAGE-BACKED SECURITIES -- 2.80%
Bear Stearns Commercial Mortgage Securities, 05-LXR1,
Class K, 144A +
6.931%, due 09/15/18 ............................................ 1,000,000 999,960
Commercial Mortgage Acceptance Corp., 97-ML1, Class D +
6.957%, due 12/15/30 ............................................ 977,000 998,682
Commercial Mortgage Pass-Through Certificates,
01-FL5A, Class E, 144A +
6.581%, due 11/15/13 ............................................ 517,851 517,851
Commercial Mortgage Pass-Through Certificates,
01-FL5A, Class F, 144A +
5.689%, due 11/15/13 ............................................ 1,000,000 1,000,000
DLJ Commercial Mortgage Corp., 99-CG1, Class A1A
6.080%, due 03/10/32 ............................................ 401,948 402,256
Four Times Square Trust, 00-4TS, Class A1, 144A
7.690%, due 04/15/15 ............................................ 734,787 766,320
Morgan Stanley Dean Witter Capital I, 00-LIF2, Class A2
7.200%, due 10/15/33 ............................................ 1,000,000 1,050,675
Nomura Asset Securities Corp., 98-D6, Class A1A
6.280%, due 03/15/30 ............................................ 217,540 218,117
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5,953,861
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MORTGAGE-BACKED SECURITIES -- 2.44%
Countrywide Alternative Loan Trust, 05-J2, Class 2A1
7.500%, due 12/25/34 ............................................ 373,533 372,139
Federal Home Loan Mortgage Corp. +
4.619%, due 12/01/34 ............................................ 2,998,256 2,928,368
Federal Home Loan Mortgage Corp., 3033, Class 0I, IO (a)
5.500%, due 10/15/22 ............................................ 1,352,817 86,521
Federal National Mortgage Association +
4.931%, due 02/01/35 ............................................ 1,809,150 1,789,344
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5,176,372
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US GOVERNMENT OBLIGATIONS -- 3.31%
US Treasury Bonds
6.250%, due 08/15/23 ............................................ 385,000 422,989
6.250%, due 05/15/30 ............................................ 1,650,000 1,858,055
8.500%, due 02/15/20 ............................................ 220,000 287,564
8.875%, due 02/15/19 ............................................ 1,830,000 2,431,184
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10
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS -- MAY 31, 2006 (UNAUDITED)
FACE
AMOUNT VALUE
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US GOVERNMENT OBLIGATIONS -- (CONCLUDED)
US Treasury Notes
3.875%, due 02/15/13 ............................................ $ 445,000 $ 414,737
4.125%, due 05/15/15 ............................................ 435,000 404,091
4.625%, due 02/29/08 ............................................ 390,000 387,212
4.750%, due 05/15/14 ............................................ 835,000 815,593
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7,021,425
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Total US Bonds ..................................................... 47,209,192
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INTERNATIONAL BONDS -- 70.94%
INTERNATIONAL CORPORATE BONDS -- 13.32%
ARGENTINA -- 2.93%
Banco de Galicia y Buenos Aires
5.000%, due 01/01/14 ++ ......................................... $ 4,340,000 3,656,450
8.190%, due 01/01/10 + .......................................... 2,000,000 1,980,000
11.000%, due 01/01/19 ++ ........................................ 551,906 578,122
------------
6,214,572
------------
BRAZIL -- 0.56%
Barclays Bank PLC Inflation Credit-Linked Note, 144A +
0.000%, due 05/17/45 ............................................ BRL 2,530,000 1,195,692
------------
GERMANY -- 1.28%
Landwirtschaftliche Rentenbank
5.750%, due 01/21/15 ............................................ AUD 3,705,000 2,717,071
------------
MALAYSIA -- 6.00%
Johor Corp.
0.000%, due 07/31/09 @ .......................................... MYR 6,600,000 2,017,626
1.000%, due 07/31/12 ............................................ 35,840,000 10,709,556
------------
12,727,182
------------
MEXICO -- 0.52%
PEMEX Project Funding Master Trust
8.625%, due 02/01/22 ............................................ $ 1,000,000 1,115,000
------------
NETHERLANDS -- 1.53%
HSBK Europe BV, 144A
7.750%, due 05/13/13 ............................................ $ 430,000 434,300
TuranAlem Finance BV
7.750%, due 04/25/13, 144A ...................................... 770,000 762,300
7.875%, due 06/02/10 ............................................ 770,000 781,550
8.500%, due 02/10/15 ............................................ 1,250,000 1,259,375
------------
3,237,525
------------
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11
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS -- MAY 31, 2006 (UNAUDITED)
FACE
AMOUNT VALUE
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PHILIPPINES -- 0.36%
National Power Corp.
9.625%, due 05/15/28 ............................................ $ 700,000 $ 756,700
------------
UKRAINE -- 0.14%
NAK Naftogaz Ukrainy
8.125%, due 09/30/09 ............................................ $ 300,000 290,625
------------
Total International Corporate Bonds ................................ 28,254,367
------------
FOREIGN GOVERNMENT BONDS -- 55.27%
ARGENTINA -- 10.05%
Republic of Argentina +
2.000%, due 02/04/18, NGB ....................................... ARS 7,750,000 3,349,858
3.000%, due 04/30/13 ............................................ $ 710,000 508,005
4.889%, due 08/03/12 (b) ........................................ 16,150,000 13,210,700
5.830%, due 12/31/33, DISC ...................................... ARS 11,130,000 4,246,440
------------
21,315,003
------------
AUSTRIA -- 1.71%
Republic of Austria
3.800%, due 10/20/13, 144A ...................................... EUR 1,885,000 2,402,917
5.875%, due 07/15/06 ............................................ 950,000 1,221,298
------------
3,624,215
------------
BELGIUM -- 0.75%
Government of Belgium
5.750%, due 03/28/08 ............................................ EUR 1,200,000 1,601,032
------------
BRAZIL -- 4.08%
Brazil Real Credit-Linked Note
14.481%, due 01/05/10 @ ......................................... $ 4,708,301 2,747,473
15.558%, due 01/03/07 @ ......................................... 2,089,419 1,921,324
18.870%, due 01/05/10 ........................................... BRL 4,250,000 1,058,097
Federal Republic of Brazil
11.000%, due 01/11/12 ........................................... $ 1,930,000 2,296,700
Federal Republic of Brazil, EXIT Bond
6.000%, due 09/15/13 ............................................ 625,000 624,687
------------
8,648,281
------------
ECUADOR -- 2.42%
Republic of Ecuador ++
9.000%, due 08/15/30 ............................................ $ 5,230,000 5,133,245
------------
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12
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS -- MAY 31, 2006 (UNAUDITED)
FACE
AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------
EL SALVADOR -- 1.02%
Republic of El Salvador
7.750%, due 01/24/23 ............................................ $ 560,000 $ 593,600
8.250%, due 04/10/32 ............................................ 1,480,000 1,565,100
------------
2,158,700
------------
FINLAND -- 1.79%
Government of Finland
5.000%, due 07/04/07 ............................................ EUR 2,350,000 3,067,613
5.750%, due 02/23/11 ............................................ 530,000 739,323
------------
3,806,936
------------
FRANCE -- 4.76%
French Treasury Note
3.500%, due 07/12/09 ............................................ EUR 1,569,000 2,006,896
Government of France
3.750%, due 04/25/21 ............................................ 1,940,000 2,369,771
4.000%, due 04/25/13 ............................................ 900,000 1,164,631
4.250%, due 04/25/19 ............................................ 385,000 500,739
5.000%, due 10/25/16 ............................................ 1,015,000 1,407,749
5.500%, due 04/25/07 ............................................ 2,020,000 2,639,780
------------
10,089,566
------------
GERMANY -- 10.06%
Bundesobligation
3.250%, due 04/17/09 ............................................ EUR 3,075,000 3,911,730
3.500%, due 10/10/08 ............................................ 3,150,000 4,038,884
Deutsche Bundesrepublik
3.750%, due 01/04/15 ............................................ 660,000 834,673
4.750%, due 07/04/34 ............................................ 315,000 434,897
5.000%, due 07/04/12 ............................................ 1,665,000 2,269,510
6.000%, due 01/04/07 ............................................ 6,715,000 8,744,701
6.250%, due 01/04/24 ............................................ 360,000 577,629
6.500%, due 07/04/27 ............................................ 315,000 529,030
------------
21,341,054
------------
HUNGARY -- 1.07%
Republic of Hungary
7.500%, due 11/12/20 ............................................ HUF 435,000,000 2,271,684
------------
INDONESIA -- 1.14%
Indonesia Government Credit-Linked Note, 144A
11.000%, due 10/15/14 ........................................... IDR 3,650,000,000 369,690
Republic of Indonesia, 144A
6.750%, due 03/10/14 ............................................ $ 270,000 267,300
- --------------------------------------------------------------------------------
13
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS -- MAY 31, 2006 (UNAUDITED)
FACE
AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------
INDONESIA--(CONCLUDED)
7.500%, due 01/15/16 ............................................ $ 850,000 $ 875,500
8.500%, due 10/12/35 ............................................ 830,000 897,396
------------
2,409,886
------------
MEXICO -- 2.43%
United Mexican States
7.500%, due 04/08/33 ............................................ $ 2,500,000 2,618,750
8.000%, due 12/19/13 ............................................ MXN 23,500,000 1,962,363
8.300%, due 08/15/31 ............................................ $ 510,000 580,890
------------
5,162,003
------------
NETHERLANDS -- 0.84%
Government of Netherlands
4.000%, due 01/15/37 ............................................ EUR 650,000 794,721
5.750%, due 02/15/07 ............................................ 755,000 984,374
------------
1,779,095
------------
PERU -- 2.05%
Republic of Peru
8.375%, due 05/03/16 ............................................ $ 280,000 302,400
9.125%, due 02/21/12 ............................................ 710,000 782,775
9.875%, due 02/06/15 ............................................ 2,780,000 3,262,330
------------
4,347,505
------------
POLAND -- 2.36%
Republic of Poland
5.750%, due 06/24/08 ............................................ PLN 15,060,000 5,017,730
------------
QATAR -- 2.97%
State of Qatar
9.500%, due 05/21/09, 144A ...................................... $ 770,000 848,925
9.750%, due 06/15/30 ............................................ 3,870,000 5,456,700
------------
6,305,625
------------
RUSSIA -- 2.22%
Russian Federation
5.000%, due 03/31/30 ++ ......................................... $ 480,000 511,800
5.000%, due 03/31/30, 144A ++ ................................... 1,536,462 1,638,253
Russian Gazprom Credit-Linked Note, 144A
8.110%, due 01/18/07 ............................................ RUB 24,400,000 914,739
Russian Ruble Credit-Linked Note, 144A
7.580%, due 10/09/07 ............................................ 43,800,000 1,642,842
------------
4,707,634
------------
- --------------------------------------------------------------------------------
14
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS -- MAY 31, 2006 (UNAUDITED)
FACE
AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------
SLOVAKIA -- 0.53%
Republic of Slovakia
4.800%, due 04/14/09 ............................................ SKK 33,000,000 $ 1,123,840
------------
TURKEY -- 1.64%
Republic of Turkey
8.000%, due 02/14/34 ............................................ $ 930,000 924,187
9.000%, due 06/30/11 ............................................ 770,000 836,413
Republic of Turkey Credit-Linked Note
0.000%, due 02/11/10 @, 144A .................................... 1,800,000 1,411,632
15.000%, due 02/10/10 ........................................... TRY 500,000 312,043
------------
3,484,275
------------
UKRAINE -- 0.89%
ING Bank NV Credit-Linked Note
7.790%, due 02/16/11, 144A ...................................... RUB 39,300,000 1,458,051
11.890%, due 12/30/09 ........................................... UAH 2,070,000 436,702
------------
1,894,753
------------
VENEZUELA -- 0.49%
Republic of Venezuela
5.375%, due 08/07/10 ............................................ $ 1,080,000 1,036,800
------------
Total Foreign Government Bonds ..................................... 117,258,862
------------
SOVEREIGN/SUPRANATIONAL BONDS -- 2.35%
Eurofima
6.000%, due 01/28/14 ............................................ AUD 3,720,000 2,783,830
Inter-American Development Bank
8.000%, due 01/26/16 ............................................ MXN 20,700,000 1,666,249
International Bank for Reconstruction & Development
1.000%, due 02/20/13 ............................................ AUD 1,000,000 539,928
------------
4,990,007
------------
Total International Bonds .......................................... 150,503,236
------------
Total Bonds (Cost $196,067,695) .................................... 197,712,428
------------
NUMBER OF
RIGHTS
---------
RIGHTS -- 0.02%
MEXICO -- 0.02%
United Mexican States Value Recovery
Rights, Series D, Expiration Date 06/30/06 (c) .................. 1,615,000 10,013
United Mexican States Value Recovery Rights,
Series E, Expiration Date 06/30/07 (c) .......................... 1,615,000 41,182
------------
Total Rights (Cost $0) ............................................. 51,195
------------
- --------------------------------------------------------------------------------
15
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS -- MAY 31, 2006 (UNAUDITED)
NUMBER OF
WARRANTS VALUE
- -------------------------------------------------------------------------------------------------------
WARRANTS -- 0.12%
ARGENTINA -- 0.12%
Republic of Argentina, expires 12/15/35 (d)
(Cost $58,980) .................................................. 10,000,000 $ 254,354
------------
FACE
AMOUNT
----------
SHORT-TERM INVESTMENTS -- 8.19%
UNITED STATES -- 0.14%
US GOVERNMENT OBLIGATIONS -- 0.14%
US Treasury Bills **
yield of 4.26%, due 07/06/06 (e) ................................ $ 300,000 298,668
------------
SHARES
----------
OTHER -- 8.05% ***
UBS Supplementary Trust -- US Cash Management
Prime Fund, 5.068% ** ........................................... 17,068,417 17,068,417
------------
Total Short-Term Investments (Cost $17,367,179) .................... 17,367,085
------------
Total Investments (Cost $213,493,854) -- 101.52% ................... 215,385,062
Liabilities, in excess of cash and other assets -- (1.52%) ......... (3,219,301)
------------
Net Assets -- 100.00% .............................................. $212,165,761
============
- --------------------------------------------------------------------------------
16
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS -- MAY 31, 2006 (UNAUDITED)
NOTES TO SCHEDULE OF INVESTMENTS
Note: The Portfolio of Investments is listed by the issuer's country of
origin.
+ Floating rate securities -- The interest rates shown are the current
rates as of May 31, 2006.
++ Step Bonds --- Coupon rate increases in increments to maturity. Rate
disclosed is as of May 31, 2006. Maturity date disclosed is the
ultimate maturity date.
@ Reflects annualized yield at May 31, 2006 on zero coupon bonds.
* Perpetual bond security. The maturity date reflects the next call
date.
** Interest rate reflects yield at May 31, 2006.
*** Security is issued by a fund that is advised by the advisor of the
Fund.
(a) Security is illiquid. This security amounted to $86,521 or 0.04% of
net assets.
(b) Bond interest in default.
(c) Rights do not currently accrue income. Quarterly income, if any, will
vary based on several factors including oil exports, prices and
inflation.
(d) Security represents an equity claim linked to Argentina's Gross
Domestic Product.
(e) This security was delivered to futures contract merchant 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 May 31, 2006, the value of these securities
amounted to $21,359,086 or 10.07% 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 of interest being received and cause the yield to
increase.
ARS Argentina Peso
AUD Australian Dollar
BRL Brazilian Real
DISC Discount Bond
EUR Euro
EXIT Bond A long-term bond with a low interest rate, often issued by a less
developed country, that gives the buyer the right of exemption from
taking part in any subsequent rescheduling.
HUF Hungarian Forint
IDR Indonesian Rupiah
MXN Mexican Peso
MYR Malaysian Ringgit
NGB National Guaranteed Bonds
PLN Polish Zloty
RUB Russian Ruble
SKK Slovakia Koruna
TRY New Turkish Lira
UAH Ukraine Hryvnia
- --------------------------------------------------------------------------------
17
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS -- MAY 31, 2006 (UNAUDITED)
FORWARD FOREIGN CURRENCY CONTRACTS
Strategic Global Income Fund, Inc. had the following open forward foreign
currency contracts as of May 31, 2006:
UNREALIZED
CONTRACTS TO IN MATURITY APPRECIATION/
DELIVER EXCHANGE FOR DATES (DEPRECIATION)
- --------------------------------------------------------------------------------------------------------
Argentina Peso 1,500,000 USD 491,562 06/20/06 $ 7,999
- --------------------------------------------------------------------------------------------------------
Argentina Peso 1,000,000 USD 321,802 06/20/06 (573)
- --------------------------------------------------------------------------------------------------------
Australian Dollar 8,295,000 USD 6,333,233 11/27/06 111,347
- --------------------------------------------------------------------------------------------------------
Brazilian Real 10,900,000 USD 4,587,696 07/21/06 (52,965)
- --------------------------------------------------------------------------------------------------------
British Pound 4,765,000 USD 9,010,853 11/27/06 71,316
- --------------------------------------------------------------------------------------------------------
Canadian Dollar 19,250,000 USD 17,291,558 11/27/06 (271,280)
- --------------------------------------------------------------------------------------------------------
Colombian Peso 5,230,000,000 USD 2,059,055 06/08/06 (40,994)
- --------------------------------------------------------------------------------------------------------
Euro 9,960,000 USD 12,865,033 11/27/06 (41,600)
- --------------------------------------------------------------------------------------------------------
Mexican Peso 20,000,000 USD 1,761,059 06/26/06 501
- --------------------------------------------------------------------------------------------------------
New Turkish Lira 4,136,447 USD 2,474,248 04/27/07 55,997
- --------------------------------------------------------------------------------------------------------
Ukraine Hryvnia 2,070,000 USD 366,372 05/18/09 (23,312)
- --------------------------------------------------------------------------------------------------------
United States Dollar 18,387,064 CHF 21,810,000 11/27/06 (146,618)
- --------------------------------------------------------------------------------------------------------
United States Dollar 2,200,252 COP 5,230,000,000 06/08/06 (100,203)
- --------------------------------------------------------------------------------------------------------
United States Dollar 18,442,564 JPY 1,993,300,000 11/27/06 (284,347)
- --------------------------------------------------------------------------------------------------------
United States Dollar 19,915,631 SEK 143,520,000 11/27/06 223,678
- --------------------------------------------------------------------------------------------------------
United States Dollar 8,992,322 SGD 14,055,000 11/27/06 (8,675)
- --------------------------------------------------------------------------------------------------------
United States Dollar 9,171,908 THB 350,000,000 11/27/06 (7,389)
- --------------------------------------------------------------------------------------------------------
United States Dollar 2,693,876 TRY 4,136,447 04/27/07 (275,626)
- --------------------------------------------------------------------------------------------------------
Total net unrealized depreciation on forward foreign currency contracts $(782,744)
========================================================================================================
CURRENCY TYPE ABBREVIATIONS:
CHF Swiss Franc
COP Colombian Peso
JPY Japanese Yen
SEK Swedish Krona
SGD Singapore Dollar
THB Thailand Baht
TRY New Turkish Lira
USD United States Dollar
- --------------------------------------------------------------------------------
18
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS -- MAY 31, 2006 (UNAUDITED)
FUTURES CONTRACTS
Strategic Global Income Fund, Inc. had the following open futures contracts as
of May 31, 2006:
EXPIRATION CURRENT UNREALIZED
DATE PROCEEDS VALUE APPRECIATION
- -------------------------------------------------------------------------------------------------------------
US INTEREST RATE FUTURES
SALE CONTRACTS:
10 Year US Treasury Note,
61 contracts September 2006 $6,419,053 $6,400,234 $18,819
=============================================================================================================
The segregated aggregate market value of investments pledged to cover margin
requirements for the open futures contracts at May 31, 2006 was $298,668.
- --------------------------------------------------------------------------------
19
STRATEGIC GLOBAL INCOME FUND, INC.
PORTFOLIO OF INVESTMENTS -- MAY 31, 2006
INDUSTRY DIVERSIFICATION
AS A PERCENT OF NET ASSETS
AS OF MAY 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
Bonds
US Bonds
US Corporate Bonds
Beverages ................................................... 0.46%
Commercial Banks ............................................ 1.02
Consumer Finance ............................................ 2.36
Diversified Financial Services .............................. 1.93
Food Products ............................................... 0.47
Household Durables .......................................... 0.89
Media ....................................................... 0.48
Thrifts & Mortgage Finance .................................. 1.39
------
Total US Corporate Bonds ................................. 9.00
Asset-Backed Securities ........................................ 4.70
Commercial Mortgage-Backed Securities .......................... 2.80
Mortgage-Backed Securities ..................................... 2.44
US Government Obligations ...................................... 3.31
------
Total US Bonds ........................................... 22.25
International Bonds
International Corporate Bonds
Commercial Banks ............................................ 6.30
Diversified Financial Services .............................. 6.00
Electric Utilities .......................................... 0.36
Oil & Gas ................................................... 0.66
------
Total International Corporate Bonds ...................... 13.32
Foreign Government Bonds ....................................... 55.27
Sovereign/SupraNational Bonds .................................. 2.35
------
Total International Bonds ................................ 70.94
Total bonds .......................................................... 93.19
Rights ............................................................... 0.02
Warrants ............................................................. 0.12
Short-term investments ............................................... 8.19
------
Total investments .................................................... 101.52
Liabilities, in excess of cash and other assets ...................... (1.52)
------
Net assets ........................................................... 100.00%
======
See accompanying notes to financial statements
- --------------------------------------------------------------------------------
20
STRATEGIC GLOBAL INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES -- MAY 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS:
Investments in securities of unaffiliated issuers, at value
(cost - $196,425,437) $198,316,645
- ----------------------------------------------------------------------------------------------
Investments in securities of a related entity, at value
(cost - $17,068,417) 17,068,417
- ----------------------------------------------------------------------------------------------
Total investments (cost - $213,493,854) 215,385,062
- ----------------------------------------------------------------------------------------------
Foreign currency, at value (cost - $206,314) 212,472
- ----------------------------------------------------------------------------------------------
Receivable for investments sold 104,008
- ----------------------------------------------------------------------------------------------
Interest receivable 3,220,177
- ----------------------------------------------------------------------------------------------
Due from broker 887,234
- ----------------------------------------------------------------------------------------------
Unrealized appreciation on forward foreign currency contracts 470,838
- ----------------------------------------------------------------------------------------------
Unrealized appreciation on swap agreements 37,525
- ----------------------------------------------------------------------------------------------
Variation margin receivable 15,259
- ----------------------------------------------------------------------------------------------
Other assets 33,326
- ----------------------------------------------------------------------------------------------
Total assets 220,365,901
- ----------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 6,662,901
- ----------------------------------------------------------------------------------------------
Unrealized depreciation on forward foreign currency contracts 1,253,582
- ----------------------------------------------------------------------------------------------
Payable for investment advisor and administrator 178,370
- ----------------------------------------------------------------------------------------------
Director's fees payable 2,533
- ----------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 102,754
- ----------------------------------------------------------------------------------------------
Total liabilities 8,200,140
- ----------------------------------------------------------------------------------------------
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 (4,786,418)
- ----------------------------------------------------------------------------------------------
Accumulated net realized gain from investment transactions 8,394,298
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures, swaps, forward
foreign currency transactions and other assets and liabilities
denominated in foreign currencies 1,189,071
- ----------------------------------------------------------------------------------------------
Net assets $212,165,761
- ----------------------------------------------------------------------------------------------
Net asset value per share $11.62
==============================================================================================
See accompanying notes to financial statements
- --------------------------------------------------------------------------------
21
STRATEGIC GLOBAL INCOME FUND, INC.
STATEMENT OF OPERATIONS
For the Six
Months Ended
May 31, 2006
(unaudited)
- ------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest income net of foreign withholding taxes of $1,199 $5,329,624
- ------------------------------------------------------------------------------------
Dividend income from affiliated fund 480,809
- ------------------------------------------------------------------------------------
Securities lending income - net 121
- ------------------------------------------------------------------------------------
Total income 5,810,554
- ------------------------------------------------------------------------------------
EXPENSES:
Investment advisory and administration fees 1,063,396
- ------------------------------------------------------------------------------------
Custody and accounting fees 85,072
- ------------------------------------------------------------------------------------
Reports and notices to shareholders 54,533
- ------------------------------------------------------------------------------------
Professional fees 44,998
- ------------------------------------------------------------------------------------
Transfer agency fees 13,553
- ------------------------------------------------------------------------------------
Listing expenses 11,810
- ------------------------------------------------------------------------------------
Directors' fees 11,714
- ------------------------------------------------------------------------------------
Other expenses 14,772
- ------------------------------------------------------------------------------------
Total expenses 1,299,848
- ------------------------------------------------------------------------------------
Net investment income 4,510,706
- ------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVITIES:
Net realized gain from:
- ------------------------------------------------------------------------------------
Investment transactions 3,751,136
- ------------------------------------------------------------------------------------
Futures 745,993
- ------------------------------------------------------------------------------------
Foreign currency transactions 3,977,106
- ------------------------------------------------------------------------------------
Swap agreements 88,602
- ------------------------------------------------------------------------------------
Net change in unrealized appreciation/(depreciation) of:
- ------------------------------------------------------------------------------------
Investments (1,901,150)
- ------------------------------------------------------------------------------------
Futures 36,270
- ------------------------------------------------------------------------------------
Swap agreements 16,142
- ------------------------------------------------------------------------------------
Other assets, liabilities and forward foreign currency transactions 80,701
- ------------------------------------------------------------------------------------
Net realized and unrealized gains from investment activities 6,794,800
- ------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $11,305,506
====================================================================================
See accompanying notes to financial statements
- --------------------------------------------------------------------------------
22
STRATEGIC GLOBAL INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Six
Months Ended For the
May 31, 2006 Year Ended
(unaudited) November 30, 2005
- ---------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $4,510,706 $9,768,670
- ---------------------------------------------------------------------------------------------
Net realized gain from investment transactions 3,751,136 10,392,415
- ---------------------------------------------------------------------------------------------
Net realized gain (loss) from futures and foreign
currency transactions 4,723,099 (5,438,490)
- ---------------------------------------------------------------------------------------------
Net realized gain from swap agreements 88,602 4,402
- ---------------------------------------------------------------------------------------------
Net change in unrealized appreciation/(depreciation) of:
- ---------------------------------------------------------------------------------------------
Investments (1,901,150) (11,621,929)
- ---------------------------------------------------------------------------------------------
Futures 36,270 (17,451)
- ---------------------------------------------------------------------------------------------
Swap agreements 16,143 21,383
- ---------------------------------------------------------------------------------------------
Other assets, liabilities and forward foreign
currency transactions 80,700 1,556,031
- ---------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 11,305,506 4,665,031
- ---------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (8,543,305) (21,270,333)
- ---------------------------------------------------------------------------------------------
Net realized gains -- (11,450,111)
- ---------------------------------------------------------------------------------------------
Return of capital -- (2,079,056)
- ---------------------------------------------------------------------------------------------
Total dividends and distributions to shareholders (8,543,305) (34,799,500)
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 2,762,201 (30,134,469)
- ---------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 209,403,560 239,538,029
- ---------------------------------------------------------------------------------------------
End of period $212,165,761 $209,403,560
- ---------------------------------------------------------------------------------------------
Distributions in excess of net investment income $(4,786,418) $(753,819)
=============================================================================================
See accompanying notes to financial statements
- --------------------------------------------------------------------------------
23
STRATEGIC GLOBAL INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- MAY 31, 2006 (UNAUDITED)
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Strategic Global Income Fund, Inc. (the "Fund") was incorporated in Maryland on
November 15, 1991 and is registered with the Securities and Exchange Commission
as a closed-end, non-diversified management investment company. The Fund's
shares trade on the New York Stock Exchange ("NYSE"). The Fund's primary
investment objective is to achieve a high level of current income. As a
secondary objective, the Fund seeks capital appreciation, to the extent
consistent with its primary objective.
In the normal course of business the Fund enters into contracts that contain a
variety of representations that provide general indemnification for certain
liabilities. The Fund's maximum exposure under these arrangements is unknown as
this would involve future claims that may be made against the Fund that have not
yet occurred. However, the Fund has not had prior claims or losses pursuant to
these contracts and expects the risk of losses to be remote.
The preparation of financial statements in accordance with US generally accepted
accounting principles requires the Fund's management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates. The following is a
summary of significant accounting policies:
VALUATION OF INVESTMENTS--The Fund calculates its net asset value based on the
current market value, where available, for its portfolio securities. The Fund
normally obtains market values for its securities from independent pricing
sources and broker-dealers. Independent pricing sources may use reported last
sale prices, current market quotations or valuations from computerized "matrix"
systems that derive values based on comparable securities. A matrix system
incorporates parameters such as security quality, maturity and coupon, and/or
research and evaluations by its staff, including review of broker-dealer market
price quotations, if available, in determining the valuation of the portfolio
securities. Securities traded in the over-the-counter ("OTC") market and listed
on The Nasdaq Stock Market, Inc. ("NASDAQ") normally are valued at the NASDAQ
Official Closing Price. Other OTC securities are valued at the last bid price
on the valuation date available prior to valuation. Securities which are listed
on US and foreign stock exchanges normally are valued at the last sale price on
the day the securities are valued or, lacking any sales on such day, at the last
available bid price. In cases where securities are traded on more than one
exchange, the securities are valued on the exchange designated as the primary
market by UBS Global Asset Management (Americas) Inc., the investment advisor
- --------------------------------------------------------------------------------
24
STRATEGIC GLOBAL INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- MAY 31, 2006 (UNAUDITED)
and administrator of the Fund. If a market value is not available from an
independent pricing source for a particular security, that security is valued at
fair value as determined in good faith by or under the direction of the Fund's
board of directors (the "Board"). All investments quoted in foreign currencies
will be valued weekly in US dollars on the basis of the foreign currency
exchange rates. Foreign currency exchange rates are generally determined as of
the close of the NYSE. Occasionally, events affecting the value of foreign
investments and such exchange rates occur between the time at which they are
determined and the close of the NYSE, which will not be reflected in the
computation of the Fund's net asset value. If events materially affecting the
value of such securities or currency exchange rates occur during such time
periods, the securities will be 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 day or less remaining to maturity, unless
the Board determines that this does not represent fair value.
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 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 were valued at their fair
value as determined in good faith by or under the direction of the Board.
Effective November 1, 2005, the Fund began using the foreign currency exchange
rates determined as of the close of regular trading on the NYSE.
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 are maintained in US 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 trading on the
NYSE. For purposes of calculating the US dollar equivalent value of non-US
dollar denominated obligation, foreign
- --------------------------------------------------------------------------------
25
STRATEGIC GLOBAL INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- MAY 31, 2006 (UNAUDITED)
currency amounts are translated into US dollars on the following basis: (1)
market value of investment securities and other assets and liabilities - at the
exchange rates prevailing at the end of the Fund's fiscal period; and (2)
purchases and sales of investment securities and income and expenses - at the
rates of exchange prevailing on the respective dates of such transactions.
Although the net assets and the market value of the Fund's portfolio are
presented at the foreign exchange rates at the end of the Fund's fiscal period,
the Fund does not generally isolate the effect of fluctuations in foreign
exchange rates from the effect of the changes in market prices of securities.
However, the Fund does isolate the effect of fluctuations in foreign exchange
rates when determining the gain or loss upon the sale or maturity of foreign
currency-denominated securities pursuant to US federal income tax regulations.
Certain foreign exchange gains and losses included in realized and unrealized
gains and losses are included in or are a reduction of ordinary income in
accordance with US federal income tax regulations.
FORWARD FOREIGN CURRENCY CONTRACTS--The Fund may enter into forward foreign
currency exchange contracts ("forward contracts") in connection with planned
purchases or sales of securities or to hedge the US dollar value of portfolio
securities denominated in a particular currency. The Fund may also use forward
contracts to enhance income.
The Fund has no specific limitation on the percentage of assets which may be
committed to such forward contracts. The Fund may enter into forward contracts
or maintain a net exposure to forward contracts only if (1) the consummation of
the contracts would not obligate the Fund to deliver an amount of foreign
currency in excess of the value of the position being hedged by such forward
contracts or (2) the Fund identifies cash or liquid securities in an amount not
less than the value of its 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
US dollar.
Fluctuations in the value of forward contracts are recorded for book purposes as
unrealized gains or losses by the Fund. Realized gains and losses include net
gains and losses recognized by the Fund on contracts which have been sold or
matured.
- --------------------------------------------------------------------------------
26
STRATEGIC GLOBAL INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- MAY 31, 2006 (UNAUDITED)
FUTURES CONTRACTS--The Fund may use financial futures contracts for hedging
purposes and to adjust exposure to US and foreign fixed income markets in
connection with a reallocation of the Fund's assets or to manage the average
duration of the Fund. However, imperfect correlations between futures contracts
and the related securities or markets, or market disruptions, do not normally
permit full control of these risks at all times. Using financial futures
contracts involves various market risks. The maximum amount at risk from the
purchase of a futures contract is the contract value.
Upon entering into a financial futures contract, the Fund is required to deliver
to a broker an amount of cash and/or liquid securities equal to a certain
percentage of the contract amount. This amount is known as the "initial margin".
Subsequent payments, known as "variation margin," are made or received by the
Fund each day, depending on the daily fluctuations in the value of the
underlying financial futures contract. Such variation margin is recorded for
financial statement purposes on a daily basis as an unrealized gain or loss on
futures until the financial futures contract is closed, at which time the net
gain or loss is reclassified to realized gain or loss on futures.
SWAP AGREEMENTS--Total return swap agreements involve commitments to pay
interest in exchange for a market-linked return based on a notional amount. To
the extent the total return of the security or index underlying the transaction
exceeds or falls short of the offsetting interest rate obligation, the Fund will
receive a payment from or make a payment to the counterparty, respectively.
Total return swaps are marked-to-market daily, and the change, if any, is
recorded as unrealized appreciation or depreciation in the Statement of
Operations. Periodic payments received or made at the end of each measurement
period, but prior to termination, are recorded as realized gains or losses in
the Statement of Operations.
At May 31, 2006, the Fund had outstanding a total return swap contract with the
following terms:
PAYMENTS PAYMENTS
NOTIONAL TERMINATION MADE BY THE RECEIVED BY UNREALIZED
AMOUNT DATE FUND THE FUND APPRECIATION
- ---------------------------------------------------------------------------------------
RUB 24,400,000 10/09/07 $917,001^ 7.58%# $37,525
=======================================================================================
^ Payment made on 09/27/05 to fully fund swap.
# Rate is equal to total return on OAO Gazprom 7.58% bond, due 10/09/07.
RUB Russian Ruble
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
- --------------------------------------------------------------------------------
27
STRATEGIC GLOBAL INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- MAY 31, 2006 (UNAUDITED)
return of capital is determined in accordance with US federal income tax
regulations, which may differ from US generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification.
CONCENTRATION OF RISK
Investing in securities of foreign issuers and currency transactions may involve
certain considerations and risks not typically associated with investments in
the United States. These risks include revaluation of currencies, adverse
fluctuations in foreign currency values and possible adverse political, social
and economic developments, including those particular to a specific industry,
country or region, which could cause the securities and their markets to be less
liquid and prices more volatile than those of comparable US companies and US
government securities. These risks are greater with respect to securities of
issuers located in emerging market countries in which the Fund invests. The
ability of the issuers of debt securities held by the Fund to meet their
obligations may be affected by economic and political developments particular to
a specific industry, country or region.
INVESTMENT ADVISOR AND ADMINISTRATOR AND OTHER TRANSACTIONS WITH RELATED
ENTITIES
UBS Global Asset Management (US) Inc. ("UBS Global AM--US") served as the Fund's
investment advisor and administrator until April 1, 2006. On April 1, 2006, the
Fund's Investment Advisory and Administration Agreement ("Advisory Contract")
was transferred from UBS Global AM--US to UBS Global Asset Management (Americas)
Inc. ("UBS Global AM--Americas"). The transfer of the Advisory Contract between
sister companies occurred in connection with an internal reorganization
involving UBS Global AM--US and UBS Global AM--Americas. The Fund's Board of
Directors approved the transfer of the Advisory Contract effective April 1,
2006. All of the personnel of UBS Global AM--US who previously provided
investment advisory services to the Fund continue to provide investment advisory
services to the Fund as employees of UBS Global AM--Americas. UBS Global
AM--Americas has the same contractual rights and responsibilities under the
Advisory Contract as those previously held by UBS Global AM--US. UBS Global
AM--US and UBS Global AM--Americas are both indirect wholly owned subsidiaries
of
- --------------------------------------------------------------------------------
28
STRATEGIC GLOBAL INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- MAY 31, 2006 (UNAUDITED)
UBS AG. In accordance with the Advisory Contract, the Fund paid UBS Global
AM--Americas (and UBS Global AM--US for periods prior to April 1, 2006) an
investment advisory and administration fee, which is accrued weekly and paid
monthly, at the annual rate of 1.00% of the Fund's average weekly net assets. At
May 31, 2006 the Fund owed UBS Global AM--Americas $178,370 in investment
advisory fees.
The Fund invests in shares of UBS Supplementary Trust--US Cash Management Prime
Fund ("Supplementary Trust"). Supplementary Trust is a Fund managed by UBS
Global AM--Americas.
The Fund pays no management fees to Supplementary Trust. Distributions from the
Supplementary Trust are reflected as dividend income on the Statement of
Operations.
Amounts relating to this investment for the year ended May 31, 2006, are
summarized as follows:
% OF
SALES DIVIDEND NET
FUND PURCHASES PROCEEDS INCOME VALUE ASSETS
- ---------------------------------------------------------------------------------------
UBS Supplementary Trust --
US Cash Management
Prime Fund $46,653,945 $46,942,268 $480,809 $17,068,417 8.05%
=======================================================================================
ADDITIONAL INFORMATION REGARDING COMPENSATION TO AFFILIATE OF A BOARD MEMBER
Effective March 1, 2005, Professor Meyer Feldberg accepted the position of
senior advisor to Morgan Stanley, resulting in his becoming an interested
director of the Fund. The Fund has been informed that Professor Feldberg's role
at Morgan Stanley does not involve matters directly affecting any UBS funds. UBS
Global AM--Americas (or UBS Global AM--US for periods prior to April 1, 2006)
may execute Fund portfolio transactions through Morgan Stanley based on that
firm's ability to provide best execution of the transactions. For the six months
ended May 31, 2006, the Fund purchased or sold certain securities (e.g., fixed
income securities) in principal trades with Morgan Stanley having an aggregate
value of $2,977,350. Morgan Stanley received compensation in connection with
these trades, which may have been in the form of a "mark-up" or "mark-down" of
the price of the securities, a fee from the issuer for maintaining a commercial
paper program, or some other form of compensation. Although the precise amount
of this compensation is not generally known by UBS Global AM--Americas (or UBS
Global AM--US for periods prior to April 1, 2006), UBS Global AM--Americas (or
UBS Global AM--US for periods prior to
- --------------------------------------------------------------------------------
29
STRATEGIC GLOBAL INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- MAY 31, 2006 (UNAUDITED)
April 1, 2006) believes that under normal circumstances it represents a small
portion of the total value of the transactions.
SECURITIES LENDING
The Fund may lend securities up to 331/3% of its total assets to qualified
broker-dealers or institutional investors. The loans are secured at all times by
cash, cash equivalents or US government securities in an amount at least equal
to the market value of the securities loaned, plus accrued interest and
dividends, determined on a daily basis and adjusted accordingly. The Fund will
regain ownership of loaned securities to exercise certain beneficial rights;
however, the Fund may bear the risk of delay in recovery of, or even loss of
rights in, the securities loaned should the borrower fail financially. The Fund
receives compensation for lending its securities from interest or dividends
earned on the cash, cash equivalents or US government securities held as
collateral, net of fee rebates paid to the borrower plus reasonable
administrative and custody fees. UBS Financial Services, Inc., an indirect
wholly owned subsidiary of UBS AG, and other affiliated broker-dealers have been
approved as borrowers under the Fund's securities lending program. UBS
Securities LLC is the Fund's lending agent. For the six months ended May 31,
2006, UBS Securities LLC earned $46 in compensation as the Fund's lending agent.
At May 31, 2006, the Fund owed UBS Securities LLC $46 in compensation as the
Fund's lending agent. At May 31, 2006, the Fund did not have any securities on
loan.
CAPITAL STOCK
There are 100,000,000 shares of $0.001 par value common stock authorized and
18,258,828 shares outstanding at May 31, 2006. For the six months ended May 31,
2006 and the year ended November 30, 2005, the Fund did not repurchase any
shares of common stock.
PURCHASE AND SALES OF SECURITIES
For the six months ended May 31, 2006, aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $69,305,841 and
$61,517,900, 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
- --------------------------------------------------------------------------------
30
STRATEGIC GLOBAL INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- MAY 31, 2006 (UNAUDITED)
and certain other amounts, if any, the Fund intends not to be subject to a
federal excise tax.
The tax character of distributions paid during the fiscal year ended November
30, 2005 was as follows:
DISTRIBUTIONS PAID FROM:
- ----------------------------------------------------------------------------------------
Ordinary income $22,834,397
- ----------------------------------------------------------------------------------------
Net realized long-term capital gains 9,886,047
- ----------------------------------------------------------------------------------------
Return of capital 2,079,056
- ----------------------------------------------------------------------------------------
$34,799,500
========================================================================================
At November 30, 2005, the components of accumulated earnings on a tax basis were
comprised of net unrealized appreciation of $1,348,953.
The tax character of distributions paid and components of accumulated earnings
(deficit) on a tax basis for the current fiscal year will be calculated after
the Fund's fiscal year ended November 30, 2006.
The difference between book-basis and tax-basis net unrealized appreciation of
investments is attributable to premium amortization adjustments and wash sales.
For federal income tax purposes, which was substantially the same for book
purposes, the tax cost of investments and components of net unrealized
appreciation of investments at May 31, 2006 were as follows:
Tax cost of investments $213,493,854
========================================================================================
Gross appreciation (investments having an excess of value over cost) 7,436,178
- ----------------------------------------------------------------------------------------
Gross depreciation (investments having an excess of cost over value) (5,544,970)
- ----------------------------------------------------------------------------------------
Net unrealized appreciation of investments $1,891,208
========================================================================================
To reflect reclassifications arising from permanent "book/tax" differences for
the year ended November 30, 2005, accumulated undistributed net investment
income was increased by $7,023,584, 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 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.
- --------------------------------------------------------------------------------
31
STRATEGIC GLOBAL INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
Selected data for a share of common stock outstanding thoughout each period is
presented below:
FOR THE SIX
MONTHS ENDED FOR THE YEARS ENDED NOVEMBER 30,
MAY 31, 2006 -----------------------------------------------------
(UNAUDITED) 2005 2004 2003 2002(+) 2001
- -----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $11.47 $13.12 $12.93 $12.15 $11.99 $11.92
- -----------------------------------------------------------------------------------------------------------------
Net investment income 0.25 0.54 0.54 0.53 0.52 0.72
- -----------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gains (losses) from
investments and foreign
currency transactions 0.37 (0.28) 0.94 1.53 0.83 0.55
- -----------------------------------------------------------------------------------------------------------------
Net increase from investment
operations 0.62 0.26 1.48 2.06 1.35 1.27
- -----------------------------------------------------------------------------------------------------------------
Dividends from net investment
income and net realized
gains from foreign currency
transactions (0.47)(2) (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 (0.47) (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 PERIOD $11.62 $11.47 $13.12 $12.93 $12.15 $11.99
- -----------------------------------------------------------------------------------------------------------------
MARKET PRICE PER SHARE, END
OF PERIOD $11.78 $10.56 $14.60 $14.44 $12.84 $11.40
- -----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN(1) 16.14% (17.37)% 10.89% 23.18% 24.39% 25.34%
- -----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $212,166 $209,404 $239,538 $236,102 $221,928 $218,962
- -----------------------------------------------------------------------------------------------------------------
Expenses to average net assets 1.22%* 1.22% 1.16% 1.19% 1.18% 1.19%
- -----------------------------------------------------------------------------------------------------------------
Net investment income to
average net assets 4.24%* 4.43% 4.21% 4.15% 4.37% 5.94%
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover 35% 113% 189% 49% 51% 29%
=================================================================================================================
- --------------------------------------------------------------------------------
32
STRATEGIC GLOBAL INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
* Annualized
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 period reported and
a sale at the current market price on the last day of each period 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 or the deduction of taxes that a
shareholder would pay on Fund dividends/distributions or a sale of Fund
shares.
2 The actual sources of the Fund's fiscal year 2006 dividends/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. Shareholders will be informed on the tax characteristics of
dividends/distributions after the close of the 2006 fiscal year.
+ 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.
- --------------------------------------------------------------------------------
33
STRATEGIC GLOBAL INCOME FUND, INC.
TAX INFORMATION (UNAUDITED)
Dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need not be
reported as taxable income. Some retirement trusts (e.g., corporate, Keogh and
403(b)(7) plans) may need this information for their annual reporting. Since the
Fund's fiscal year is not the calendar year, another notification will be sent
in respect of calendar year 2006. The second notification, which will reflect
the amount to be used by calendar year taxpayers on their federal income tax
returns, will be made in conjunction with Form 1099 DIV and will be mailed in
January 2007. Shareholders are advised to consult their own tax advisors with
respect to the tax consequences of their investment in the Fund.
- --------------------------------------------------------------------------------
34
STRATEGIC GLOBAL INCOME FUND, INC.
GENERAL INFORMATION (UNAUDITED)
THE FUND
The Fund Strategic Global Income Fund, Inc. (the "Fund") is a non-diversified,
closed-end management investment company whose shares trade on the New York
Stock Exchange ("NYSE"). The Fund's primary investment objective is to achieve a
high level of current income. As a secondary objective, the Fund seeks capital
appreciation to the extent consistent with its primary objective. The Fund's
investment advisor and administrator is UBS Global Asset Management (Americas)
Inc. ("UBS Global AM"), an indirect wholly owned asset management subsidiary of
UBS AG, which had over $77.8 billion in assets under management as of March 31,
2006.
The Fund's NYSE trading symbol is "SGL." Comparative net asset value and market
price information about the fund is published weekly in various media.
SHAREHOLDER MEETING INFORMATION
An annual meeting of shareholders of the Fund was held on February 3, 2006. At
the meeting, Richard Q. Armstrong, David J. Beaubien, Alan S. Bernikow, Richard
R. Burt, Meyer Feldberg, Bernard H. Garil and Heather R. Higgins were elected to
serve as board members until the next annual meeting of shareholders or until
their successors are duly elected and qualified or until they retire, resign or
are earlier removed. The shares were voted as indicated below:
SHARES
SHARES WITHHOLD
TO VOTE FOR OR WITHHOLD AUTHORITY IN THE ELECTION OF: VOTED FOR AUTHORITY
- ------------------------------------------------------------------------------------
Richard Q. Armstrong 14,878,524.620 474,976.786
- ------------------------------------------------------------------------------------
David J. Beaubien 14,882,891.468 470,609.938
- ------------------------------------------------------------------------------------
Richard R. Burt 14,886,397.291 467,104.115
- ------------------------------------------------------------------------------------
Meyer Feldberg 14,889,686.468 463,814.928
- ------------------------------------------------------------------------------------
Alan S. Bernikow 14,887,797.291 465,704.115
- ------------------------------------------------------------------------------------
Bernard H. Garil 14,890,560.468 462,940.938
- ------------------------------------------------------------------------------------
Heather R. Higgins 14,878,975.468 474,525.938
- ------------------------------------------------------------------------------------
The Fund is not aware of any broker non-votes. (Broker non-votes are shares held
in street name for which the broker indicates that instructions have not been
received from the beneficial owners or other persons entitled to vote and for
which the broker does not have discretionary voting authority.)
- --------------------------------------------------------------------------------
35
STRATEGIC GLOBAL INCOME FUND, INC.
GENERAL INFORMATION (UNAUDITED)
QUARTERLY FORM N-Q PORTFOLIO SCHEDULE
The Fund will file its complete schedule of portfolio holdings with the
Securities and Exchange Commission ("SEC") for the first and third quarters of
each fiscal year on Form N-Q. The Fund's Forms N-Q are available on the SEC's
Web site at http://www.sec.gov. The Fund's Forms N-Q may be reviewed and copied
at the SEC's Public Reference Room in Washington, D.C. Information on the
operation of the SEC's Public Reference Room may be obtained by calling
1-800-SEC 0330. Additionally, you may obtain copies of Forms N-Q from the Fund
upon request by calling 1-800-647 1568.
PROXY VOTING POLICIES, PROCEDURES AND RECORD
You may obtain a description of the Fund's (1) proxy voting policies, (2) proxy
voting procedures and (3) information regarding how the Fund voted any proxies
related to portfolio securities during the 12-month period ended June 30, 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 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.
- --------------------------------------------------------------------------------
36
STRATEGIC GLOBAL INCOME FUND, INC.
GENERAL INFORMATION (UNAUDITED)
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 also may be amended or terminated by the transfer agent by at least 30
days' written notice to all Plan participants. Additional information regarding
the Plan may be obtained from, and all correspondence concerning the Plan should
be directed to, the transfer agent at PFPC Inc., P.O. Box 43027, Providence,
Rhode Island 02940-3027. For further information regarding the Plan, you may
also contact the transfer agent directly at 1-800-331 1710.
DISTRIBUTION POLICY
The Fund's Board adopted a managed distribution policy in May 1998, which was
revised effective January 2000 and again in May 2005. Pursuant to the policy as
in effect from January 2000 through early May 2005, the Fund made regular
monthly distributions at an annualized rate equal to 10% of the Fund's net asset
value, as determined as of the last trading day during the first week of that
month (usually a Friday unless the NYSE is closed that Friday). The Board
approved reducing the annualized rate
- --------------------------------------------------------------------------------
37
STRATEGIC GLOBAL INCOME FUND, INC.
GENERAL INFORMATION (UNAUDITED)
for distribution pursuant to the policy from 10% to 8% effective beginning with
the June 2005 monthly distribution. From May 31, 1998 through January 2000, the
Fund's managed distribution was 8% of the Fund's net asset value as determined
as of the last trading day during the first week of the month. Prior to May 31,
1998, the Fund's distributions varied based on the Fund's net investment income
and realized capital gains or losses. The Fund's Board may change or terminate
the managed distribution policy at any time; any such change or termination may
have an adverse effect on the market price for the Fund's shares.
To the extent that the Fund's taxable income in any fiscal year exceeds the
aggregate amount distributed based on a fixed percentage of its net asset value,
the Fund would make an additional distribution in the amount of that excess near
the end of the fiscal year. To the extent that the aggregate amount distributed
by the Fund (based on a percentage of its net assets) exceeds its current and
accumulated earnings and profits, the amount of that excess would constitute a
return of capital for tax purposes.
Monthly distributions based on a fixed percentage of the Fund's net asset value
may require the Fund to make multiple distributions of long-term capital gains
during a single fiscal year. The Fund has received exemptive relief from the
Securities and Exchange Commission that enables it to do so. The Fund's Board
will reassess the annualized percentage of net assets at which the Fund's
monthly distributions will be made no less frequently than annually.
- --------------------------------------------------------------------------------
38
STRATEGIC GLOBAL INCOME FUND, INC.
BOARD APPROVAL OF INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENT (UNAUDITED)
BACKGROUND--At a meeting of the board of Strategic Global Income Fund, Inc. (the
"Fund") on February 8, 2006, the members of the board, including the board
members 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 transfer of the current Investment Advisory and Administration
Agreement between the Fund and UBS Global Asset Management (US) Inc. ("UBS
Global AM") to UBS Global Asset Management (Americas) Inc. ("UBS Global
Americas"), an affiliate of UBS Global AM. The board received information and
materials about the proposed transfer both at its November 2005 meeting and at
its February 2006 meeting. In considering the approval of the transfer of the
Investment Advisory and Administration Agreement (such transfer referred to as
the "New Investment Advisory and Administration Agreement"), the board reviewed
a memorandum from UBS Global AM explaining the reasons for the proposed
transfer, including that the transfer would result in management efficiencies
and eliminate the duplication of functions that had resulted from having two
registered investment advisors, UBS Global AM and UBS Global Americas, providing
investment advisory services to the UBS funds. The board also reviewed material
provided by UBS Global AM on UBS Global Americas, including that the current
portfolio manager for the Fund would not change as a result of the transfer from
UBS Global AM to UBS Global Americas. The board also noted management's
explanation that any expenses resulting from the transfer would be borne by UBS
Global AM, and not the Fund. The board also received and reviewed a draft of an
opinion to be provided by Dechert LLP, counsel to the Fund, that the proposed
transfer would not be considered an "assignment" of the existing investment
advisory contract under the Investment Company Act of 1940, as amended, because
(1) there would be no change of actual control of the investment adviser to the
Fund; (2) there would be no change of management of the investment advisor to
the Fund; (3) the nature, quality and extent of the investment advisory services
provided by UBS Global AM under the current Investment Advisory and
Administration Agreement would not change as a result of the transfer; (4) the
transfer would not result in any change in the fundamental investment processes,
investment strategies or investment techniques currently employed by UBS Global
AM portfolio managers or other investment professionals in providing services to
the Fund; and (5) there would be no change to any of the material terms of the
Investment Advisory and Administration Agreements as a result of the transfer.
The board took note of its knowledge of UBS Global AM and its affiliates,
including UBS Global Americas, and the current Investment
- --------------------------------------------------------------------------------
39
STRATEGIC GLOBAL INCOME FUND, INC.
BOARD APPROVAL OF INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENT (UNAUDITED)
Advisory and Administration Agreement for the Fund, including the extensive
materials it had reviewed at its annual contract renewal meeting in the summer
of 2005 for the Fund, and noted that it had at that time received a memorandum
from its independent legal counsel discussing, among other things, the duties of
board members in considering approval of advisory and administration agreements.
In its consideration of the approval of the New Investment Advisory and
Administration Agreement, the board considered the following factors:
NATURE, EXTENT AND QUALITY OF THE SERVICES UNDER THE NEW INVESTMENT ADVISORY AND
ADMINISTRATION AGREEMENT--The board took note that at its last annual contract
renewal meeting for the Fund, in connection with its review of the Fund's
advisory and administration agreements, it had received and considered extensive
information regarding the nature, extent and quality of management services
generally provided to the Fund by UBS Global AM under the Investment Advisory
and Administration Agreement, and a description of the administrative and other
services rendered to the Fund and its shareholders by UBS Global AM and UBS
Global AM's role in coordinating providers of other services to the Fund,
including custody, accounting and transfer agency services. The board considered
management's explanation that UBS Global Americas would provide identical
services under the New Investment Advisory and Administration Agreement as were
provided by UBS Global AM under the current Investment Advisory and
Administration Agreement. The board's evaluation of the services to be provided
by UBS Global Americas to the Fund 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 investment management and other capabilities
and the quality of administrative and other services, and considered that based
on the materials presented to them these services would remain the same. The
board also considered, based on its knowledge of UBS Global AM and UBS Global
Americas, the financial resources available to UBS Global Americas and its
parent organization, UBS AG, one of the leading financial services companies in
the world.
The board concluded that, overall, it was satisfied with the nature, extent and
quality of services expected to be provided to the Fund under the New Investment
Advisory and Administration Agreement.
MANAGEMENT FEES--The board noted that the current contractual management fee for
the Fund under the current Investment Advisory and Administration Agreement was
not proposed to be changed under the
- --------------------------------------------------------------------------------
40
STRATEGIC GLOBAL INCOME FUND, INC.
BOARD APPROVAL OF INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENT (UNAUDITED)
New Investment Advisory and Administration Agreement. The board also considered
that at its most recent annual contract renewal meeting during the summer of
2005 it had received and reviewed information on the contractual management fee
payable by the Fund to UBS Global AM, including information on management fees
paid by comparable funds. The board recognized that the current fee
arrangements would not change as a result of the transfer.
Taking all of the above into consideration, the board determined that the
proposed contractual management fee was reasonable in light of the nature,
extent and quality of the services proposed to be provided to the Fund under the
New Investment Advisory and Administration Agreement.
FUND PERFORMANCE--The board took into consideration the reports on Fund
performance received by the board at each meeting and the more extensive review
and discussion of Fund performance at its most recent annual contract renewal
meeting. The board also noted that the transfer would not result in any change
in the fundamental investment processes, investment strategies or investment
techniques of the Fund and that no changes in the current Fund personnel
overseeing Fund management were proposed or anticipated as a result of the
transfer.
Based on its prior review and the more updated performance information provided,
the board concluded that the Fund's investment performance was satisfactory.
ADVISOR PROFITABILITY--As UBS Global Americas would be a new advisor to the
Fund, profitability of UBS Global Americas in providing services to the Fund was
not a primary factor considered by the board. The board did note that at its
most recent annual contract renewal meeting it received and considered a
profitability analysis of UBS Global AM and its affiliates in providing services
to the Fund and had determined at that time that UBS Global AM's profitability
was considered not excessive in light of the nature, extent and quality of the
services provided to the Fund. The board also recognized that the management fee
would not change as a result of the transfer and the services provided to the
Fund by UBS Global Americas would be identical to those currently provided by
UBS Global AM, making the profitability data received at its last contract
renewal meeting still of some relevance. UBS Global AM also noted management's
explanation that a significant benefit of the transfer of the Investment
Advisory and Administration Agreement to UBS Global Americas was to reduce a
regulatory capital requirement imposed on UBS Global AM, which was expected to
permit the eventual transfer of certain financial assets owned
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41
STRATEGIC GLOBAL INCOME FUND, INC.
BOARD APPROVAL OF INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENT (UNAUDITED)
by UBS Global AM to satisfy regulatory requirements to other parts of UBS AG for
other corporate purposes.
ECONOMIES OF SCALE--The board noted that it had previously considered whether
economies of scale in the provision of services to the Fund would be passed
along to the shareholders during its most recent consideration of the annual
renewal of the Investment Advisory and Administration Agreement and did not see
the need to reconsider this factor again in the context of the transfer of the
agreement to a sister investment advisor.
OTHER BENEFITS TO UBS GLOBAL AMERICAS--The board considered other benefits
received by UBS Global Americas and its affiliates as a result of its proposed
relationship with the Fund, including the potential opportunity to offer
additional products and services to Fund shareholders. The board also considered
the benefits to be realized when certain assets of UBS Global AM were freed from
certain regulatory requirements and were available to be paid as a dividend from
one part of UBS AG to another part of UBS AG for such purposes as UBS AG deemed
appropriate.
In light of the costs of providing investment management, administrative and
other services to the Fund and UBS Global America's expected ongoing commitment
to the Fund, the profits and other ancillary benefits that UBS Global Americas
and its affiliates received or would receive were considered reasonable.
In light of all of the foregoing, the board approved the New Investment Advisory
and Administration Agreement for the Fund.
No single factor reviewed by the board was identified by the board as the
principal factor in determining whether to approve the New Investment Advisory
and Administration Agreement. The Independent Directors were advised by separate
independent legal counsel throughout the process. The board discussed the
proposed approval of the New Investment Advisory and Administration Agreement in
a private session with their independent legal counsel at which no
representatives of UBS Global AM or UBS Global Americas were present.
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42
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43
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44
DIRECTORS
Richard Q. Armstrong Meyer Feldberg
Chairman
Bernard H. Garil
David J. Beaubien
Heather R. Higgins
Alan S. Bernikow
Richard R. Burt
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 (Americas) Inc.
51 West 52nd Street
New York, New York 10019-6114
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that from time to time the Fund may purchase shares of its
common stock in the open market at market prices.
This report is sent to the shareholders of the Fund for their information. It is
not a prospectus, circular or representation intended for the use in the
purchase or sale of shares of the Fund or of any securities mentioned in this
report.
The financial information included herein is taken from the records of the Fund
without examination by independent registered accountants who do not express an
opinion thereon.
(C) 2006 UBS Global Asset Management (Americas) Inc. All rights reserved.
[LOGO OF UBS] UBS
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PRESORTED
STANDARD
U.S. POSTAGE
PAID
COMPUTERSHARE
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UBS GLOBAL ASSET MANAGEMENT (AMERICAS) INC.
51 West 52nd Street
New York, New York 10019-6114
ITEM 2. CODE OF ETHICS.
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Form N-CSR disclosure requirement not applicable to this filing of a semi-annual
report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
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Form N-CSR disclosure requirement not applicable to this filing of a semi-annual
report.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
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Form N-CSR disclosure requirement not applicable to this filing of a semi-annual
report.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
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Form N-CSR disclosure requirement not applicable to this filing of a semi-annual
report.
ITEM 6. SCHEDULE OF INVESTMENTS.
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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.
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Form N-CSR disclosure requirement not applicable to this filing of a semi-annual
report.
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.
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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.
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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, Mr.
Richard Burt, care of the Secretary of the registrant at UBS Global Asset
Management (Americas) 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.
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(a) (1) Code of Ethics - Form N-CSR disclosure requirement not applicable to
this filing of a semi-annual report.
(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: August 4, 2006
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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: August 4, 2006
--------------
By: /s/ Thomas Disbrow
------------------
Thomas Disbrow
Vice President and Treasurer
Date: August 4, 2006
--------------