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Strategic Global Income Fund, Inc. – Fund Commentary

Performance Review

During the third quarter of 2012, the Fund posted a net asset value total return of 6.33% and a market price total return of 6.18%. On a net asset value basis, the Fund outperformed its benchmark, the Strategic Global Benchmark (the “Index”), 1 which returned 4.23% for the quarter.

The Fund's spread sector exposures drove its outperformance during the third quarter. 2 In particular, the Fund's allocations to corporate credit (both investment grade and high yield), emerging markets debt, CMBS and MSB were additive for results. Overall, duration positioning did not meaningfully impact performance.

In terms of the Fund's high yield exposure, both security selection and sector allocation were positive for results. The Fund benefited from its positioning in a wide array of industries, including gaming, paper, transportation, energy, technology and financials. We tactically adjusted our high yield allocation during the quarter, increasing exposure to individual securities in which we have strong fundamental views.

In terms of the Fund's emerging markets debt exposure, the Fund's allocation to US dollar-denominated bonds was beneficial for results. In contrast to their weak results during the prior three months, our allocations to higher risk countries like Argentina and Venezuela contributed to performance throughout the third quarter. The Fund's quasi-sovereign bonds in the Middle East and in Russia also boosted performance. 3 Our overweight to local currencies (that is, investments denominated in the local emerging markets currency) was also rewarded, especially in September when they rallied sharply following the Fed's unveiling of QE3, its latest quantitative easing initiative. In particular, allocations to the Indian rupee, the Nigerian naira and the Ghanaian cedi enhanced the Fund's results. Detracting somewhat from performance during the quarter were the Fund's underweights to high quality US dollar-denominated debt from Brazil, Mexico and Panama.

Outlook

Economic growth in the US has moderated in recent months. While accommodative monetary policy by the Fed and other central banks should be supportive, it cannot mask the fact that economic conditions around the globe are deteriorating. Within the US fixed income market, we envision a "tug of war" of sorts. On one hand, the financial system is full of liquidity, as the Fed's near-zero interest rate policy is driving investors to riskier assets in order to generate higher returns. On the other hand, weakening fundamentals could test investors' resolve. Against this backdrop, we expect to see periods of volatility, especially in light of the ongoing European sovereign debt crisis and weaker growth in China, as well as uncertainties surrounding the political landscape post the November election and rapidly approaching "fiscal cliff."

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