Strategic Global Income Fund, Inc. (the "Fund") (NYSE: SGL) is a non-diversified, closed-end management investment company seeking a high level of current income as a primary objective and capital appreciation as a secondary objective through investments in US and foreign debt securities.

Fund Commentary for the second quarter of 2014 from UBS Global Asset Management (Americas) Inc. (“UBS Global AM”), the Fund’s investment advisor

Market Review

The global fixed income market again generated positive results during the second quarter. The yield on the US 10-year Treasury fell from 2.73% to 2.53% over the period amid mixed economic data, geopolitical issues and several flights to quality. At its meetings in April and June 2014, the Federal Reserve Board (the "Fed") announced that it would further taper its purchases of longer-term Treasuries and agency mortgage-backed securities. In each case, the Fed said it planned to pare its purchases by a total of $10 billion per month. In its official statement following its June meeting the Fed said, "Information received since the Federal Open Market Committee met in April indicates that growth in economic activity has rebounded in recent months. Labor market indicators generally showed further improvement. The unemployment rate, though lower, remains elevated. Household spending appears to be rising moderately and business fixed investment resumed its advance, while the recovery in the housing sector remained slow." All told, global government bond markets gained 2.27% over the quarter, as measured by the Citigroup World Government Bond Index. From a currency perspective, the Canadian dollar, British pound and Japanese yen were the best performing currencies, while the Swedish krona, Norwegian krone and euro were the worst-performing currencies.

Sector Overview

Most US spread sectors 1 generated positive returns during the second quarter. Spread sectors were supported by declining long-term yields and overall solid demand from investors looking to generate incremental yield. Among the strongest performers were investment grade and high yield corporate bonds and mortgage-backed securities ("MBS"). Commercial mortgage-backed securities ("CMBS") and asset-backed securities ("ABS") also posted positive results during the quarter.

The emerging markets debt asset class was the best-performing segment of the bond market during the quarter. The segment benefited from strong investor demand, declining US Treasury yields and some signs of stabilization in China's economy. As measured by the J.P. Morgan Emerging Markets Bond Index Global (EMBI Global), US dollar-denominated debt posted a 5.43% return over the three months, whereas local currency emerging markets debt, as measured by the J.P. Morgan Government Bond Index-Emerging Markets Global Diversified (GBI-EM Global Diversified), posted a 4.02% return during the same time period.

Performance Review

During the second quarter of 2014, the Fund posted a net asset value total return of 3.26% and a market price total return of 3.16%. On a net asset value total return basis, the Fund slightly underperformed its benchmark, the Strategic Global Benchmark (the “Index”), 2 which returned 3.31% over the quarter.

The Fund's spread sector exposure was a positive for performance during the second quarter. Security selection and a substantial overweight allocation to investment grade corporate bonds—both financials and industrials—contributed to performance. An overweight to high yield corporate bonds was also beneficial as was an overweight to, and security selection in, CMBS. Elsewhere, overweights to agency MBS and collateralized loan obligations ("CLOs") contributed to performance. On the downside, an underweight to non-U.S. bond markets detracted from results.

We tactically adjusted the Fund's duration over the period, but remained shorter than that of the benchmark. This detracted from performance as rates largely declined during the second quarter. The Fund's yield curve positioning was also a negative for performance during the quarter. From a currency perspective, an underweight position to the Japanese yen detracted from performance, as the currency strengthened relative to the US dollar, while an out-of-index allocation to certain emerging markets currencies was rewarded.

From an emerging markets debt perspective, an underweight versus the benchmark detracted from performance. In addition, a short duration in the asset class, along with an allocation to Ghana local debt, dragged on results. On the upside, the Fund's allocations to Brazilian local debt, as well as to Venezuelan, Belarusian and Russian U.S. dollar-denominate debt, contributed to performance.


We believe that the US economy remains on a positive trajectory, as the housing market continues to improve and unemployment slowly declines. In addition, consumer spending has been solid. While the European economy is still weak, there have been some signs of stabilization, in part due to ongoing support from the European Central bank. Japan's economy has shown signs of recent strength, although it is too early to tell if the Bank of Japan's high accommodative monetary policy will lead to a sustainable expansion and an end to its lengthy deflationary cycle. Elsewhere, while growth in China has moderated, we feel that the country can avoid a hard landing for its economy.

We feel that the generally positive economic backdrop will be supportive for spread sectors and that we could see some additional spread tightening. However, if growth accelerates, we could see interest rates move higher, which would negatively impact the overall fixed income market. We are also closely monitoring a potential investor rotation from fixed income to equities. Given these potential headwinds, we expect to maintain the Fund's short duration.

Many emerging markets countries are experiencing growth well above their major developed country counterparts, although the former are not immune to global developments. We expect to see emerging market growth rates moderate somewhat in 2014, based on lower exports to developed markets. However, advantages in terms of growth and relatively low fiscal deficits are favorable for debt dynamics in emerging markets on a longer-term horizon. That said, in the short-term we are less favorable on the asset class and feel that volatility within the asset class could remain elevated in the near term due to market uncertainty and investor risk aversion. But overall we continue to have a positive long-term outlook for emerging market investments. Solid fundamental data, stable reserves, a stronger fiscal situation and lower indebtedness are signs of such strengths, especially for emerging market sovereigns, quasi-sovereigns and currencies.
Portfolio statistics as of June 30, 20143
Top ten countries (bond holdings only)4 Percentage of net assets
United States 46.0 %
United Kingdom 5.7  
Brazil 4.8  
Russia 3.2  
Italy 2.6  
France 2.4  
Belgium 2.3  
Mexico 2.2  
Venezuela 1.9  
Germany 1.9  
Total 73.0  

Top ten currency breakdown (includes all securities and other instruments) 5
  Percentage of net assets  
United States Dollar   69.0 %
Euro   16.5  
Australian Dollar   3.3  
British Pound   2.7  
Brazilian Real   2.3  
New Zealand Dollar   0.9  
Mexican Peso   0.9  
Swedish Krona   0.9  
Russian Ruble   0.7  
Nigerian Naira   0.5  
Credit quality6 Percentage of net assets  
AAA   4.8 %
US Treasury7   3.7  
US Agency7,8   7.0  
AA   8.4  
A   9.8  
BBB   20.2  
BB   13.7  
B   8.3  
CCC and Below   1.1  
Non-rated   20.7  
Cash and other assets, less liabilities   2.3  
Total     100.0  

Net asset value per share9 $ 10.67  
Market price per share9 $ 9.35  
NAV distribution rate (DR)9   4.99 %
Market distribution rate (DR)9   5.70 %
Duration10 5.1 yrs
Weighted average maturity 8.3 yrs

1 A spread sector refers to non-government fixed income sectors, such as investment grade or high yield bonds, commercial mortgage-backed securities (CMBS), etc.

2 The Strategic Global Benchmark is an unmanaged index compiled by the advisor, constructed as follows: 67% Citigroup World Government Bond Index (WGBI) and 33% JP Morgan Emerging Markets Bond Index Global (EMBI Global). Investors should note that indices do not reflect the deduction of fees or expenses.

3 The Fund’s portfolio is actively managed, and its portfolio composition will vary over time.

4 Excludes exposures obtained via derivatives (e.g., swaps).

5 Forward foreign currency contracts are reflected at unrealized appreciation/depreciation; this may not align with the risk exposure described in the portfolio commentary section which reflects forward foreign currency contracts based on contract notional amount. As of the most recent period end, June 30, 2014, the Fund maintained a risk exposure to non-US dollar currencies equal to approximately 20% of the Fund.

6 Credit quality ratings shown in the table are based on those assigned by Standard & Poor’s Financial Services LLC, a part of McGraw-Hill Financial (“S&P”), to individual portfolio holdings. S&P is an independent ratings agency. Rating reflected represents S&P individual debt issue credit rating. While S&P may provide a credit rating for a bond issuer (e.g., a specific company or country); certain issues, such as some sovereign debt, may not be covered or rated and therefore are reflected as non-rated for the purposes of this table. Credit ratings range from AAA, being the highest, to D, being the lowest, based on S&P’s measures; ratings of BBB or higher are considered to be investment grade quality. Unrated securities do not necessarily indicate low quality. Further information regarding S&P’s rating methodology may be found on its website at Please note that any references to credit quality made in the commentary preceding the table may reflect ratings based on multiple providers (not just S&P) and thus may not align with the data represented in this table.

7 S&P downgraded long-term US government debt on August 5, 2011 to AA+. Other rating agencies continue to rate long-term US government debt in their highest ratings categories. The Fund’s aggregate exposure to AA rated debt as of June 30, 2014 would include the percentages indicated above for AA, US Treasury and US Agency debt but has been broken out into three separate categories to facilitate understanding.

8 Includes agency debentures and agency mortgage-backed securities.

9 Net asset value (NAV), market price and distribution rates will fluctuate. NAV distribution rate (DR) is calculated by multiplying the current month’s regular monthly distribution by 12 and dividing by the month-end net asset value. Market distribution rate (DR) is calculated by multiplying the current month’s regular monthly distribution by 12 and dividing by the month-end market price.

10 Duration is a measure of price sensitivity of a fixed income investment or portfolio (expressed as % change in price) to a 1 percentage point (i.e., 100 basis points) change in interest rates, accounting for optionality in bonds such as prepayment risk and call/put features.

Any performance information reflects the deduction of the Fund’s fees and expenses, as indicated in its shareholder reports, such as investment advisory and administration fees, custody fees, exchange listing fees, etc. It does not reflect any transaction charges that a shareholder may incur when (s)he buys or sells shares (e.g., a shareholder’s brokerage commissions).

Disclaimers Regarding Fund Commentary - The Fund Commentary is intended to assist shareholders in understanding how the Fund performed during the period noted. Views and opinions were current as of the date of this press release. 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 the Fund and UBS Global AM reserve the right to change 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.

Past performance does not predict future performance. The return and value of an investment will fluctuate so that an investor's shares, when sold, may be worth more or less than their original cost. Any Fund net asset value ("NAV") returns cited in a Fund Commentary assume, for illustration only, that dividends and other distributions, if any, were reinvested at the NAV on the payable dates. Any Fund market price returns cited in a Fund Commentary assume that all dividends and other distributions, if any, were reinvested at prices obtained under the Fund's Dividend Reinvestment Plan. 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 and other distributions, if any, or on the sale of Fund shares.

Investing in the Fund entails specific risks, such as interest rate, credit and the risks associated with investing in the securities of non-US issuers, including those located in emerging market countries. The value of the Fund's investments in foreign securities may fall due to adverse political, social and economic developments abroad and due to decreases in foreign currency values relative to the US dollar. Further detailed information regarding the Fund, including a discussion of principal objectives, principal investment strategies and principal risks, may be found in the fund overview located at . You may also request copies of the fund overview by calling the Closed-End Funds Desk at 888-793 8637.

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