<PAGE>
RCM
STRATEGIC
GLOBAL
GOVERNMENT
FUND
QUARTERLY
REPORT
OCTOBER 31, 1997
<PAGE>
CHAIRMAN'S LETTER TO SHAREHOLDERS
- ---------------------------------
PHOTO
Dear Shareholders:
For the third quarter ended October 31, 1997, the RCM Strategic Global
Government Fund, Inc.(NYSE symbol: RCS) earned $0.25 per share of net investment
income. The net asset value per share declined approximately $0.33, ending the
quarter at $11.79 per share, largely as a result of the Fund's investments in
Western Hemisphere emerging market debt. Although the Fund's investment manager,
Dresdner RCM Global Investors LLC ("Dresdner RCM" formerly, RCM Capital
Management, L.L.C.), avoided investing Fund assets in Southeast Asia, emerging
market debt interest rates rose dramatically across the board as investors
reacted to the Asian financial crisis by redeploying funds into higher-quality
securities.
RCS has continued to invest predominantly in high-quality securities. Fund
assets at October 31, 1997, are rated, on average, AA by at least one of the two
major credit-rating agencies. In addition, the Fund's investment policies
stipulate that the the Fund may not invest more than 20% of its total assets in
emerging market debt securities. Dresdner RCM is confident in the quality of the
Fund's investments in emerging market securities and intends to maintain
positions in Argentina, Mexico and Panama as part of a strategy to achieve RCS'
primary objective of generating a high level of income.
Through the first three quarters of this fiscal year, the Fund's total return on
net asset value and market price was 5% and 9%, respectively. Over the same
period, the Fund has distributed approximately $0.67 per share to each
shareholder. Your Board of Directors is pleased that RCS' market price discount
to net asset value has recently diminished from levels that have characterized
past quarters, and we continue to monitor the discount closely.
Lastly, I am pleased to report that, in October 1997, the Board of Directors
appointed me President of the Fund, a position I previously held from RCS'
inception until bank regulatory requirements prompted my resignation in
connection with Dresdner Bank's acquisition of RCM Capital Management, L.L.C. in
June 1996. Your Board of Directors and your investment manager very much
appreciate your confidence in the Fund and we look forward to continued success
in achieving RCS' investment objectives.
Sincerely,
[SIG]
Gary W. Schreyer
CHAIRMAN AND PRESIDENT
DECEMBER 15, 1997
<PAGE>
FUND HIGHLIGHTS
- ---------------
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
PERIOD ENDED* 10/31/97 7/31/97 4/30/97 1/31/97 10/31/96
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total investment income $ 8,613 $ 8,756 $ 8,766 $ 7,848 $ 8,116
Total investment income per share 0.28 0.29 0.29 0.25 0.27
Net investment income 7,466 7,619 7,679 6,687 7,038
Net investment income per share 0.25 0.25 0.25 0.22 0.23
Net realized and unrealized gain (loss) (10,984) 10,310 (4,200) 8,577 11,186
Net realized and unrealized gain (loss) per share (0.36) 0.33 (0.14) 0.28 0.37
Net asset value at end of period 11.79 12.12 11.76 11.87 11.62
Market price at end of period 10.94 10.94 10.63 10.63 10.00
Total return on market price 1.98% 5.03% 2.09% 8.86% 4.86%
Total return on net asset value (0.80)% 5.15% 1.14% 4.66% 5.69%
Dividend from net investment income $ 0.22 $ 0.22 $ 0.22 $ 0.26 $ 0.22
Effective dividend yield** 8.12% 8.12% 8.36% 8.36% 8.88%
</TABLE>
<TABLE>
<CAPTION>
KEY CHARACTERISTICS 10/31/97
- -------------------------------------------------
<S> <C>
MONTHLY DIVIDEND PER SHARE $ 0.074
EFFECTIVE DIVIDEND YIELD** 8.12%
MARKET PRICE PER SHARE $ 10.94
NET ASSET VALUE PER SHARE $ 11.79
DURATION 4.3 YEARS
AVERAGE CREDIT QUALITY AA
</TABLE>
* IN THOUSANDS EXCEPT PER SHARE DATA.
** LAST MONTHLY DIVIDEND DIVIDED BY MARKET PRICE AND ANNUALIZED.
1
<PAGE>
FUND MANAGERS' DISCUSSION AND ANALYSIS
- --------------------------------------
RCM STRATEGIC GLOBAL GOVERNMENT FUND, INC. is a closed-end bond fund investing
exclusively in three separate investment sectors: the United States, developed
foreign markets, and emerging markets. Currently, the Fund invests in issuers
located in North America (United States and Canada), Europe and, to a lesser
extent, Latin America. Under normal market conditions, the Fund invests at least
65% of its assets in U.S. or foreign government-issued securities. The
investments in the United States are predominantly in mortgage-related
securities. Excluding Latin American investments all of the portfolio securities
in the Fund currently are rated at least investment grade. The Fund's
investments were 100% denominated in U.S. dollars throughout the three-month
period ended October 31, 1997.
The primary INVESTMENT OBJECTIVE of RCS is to generate a level of income that is
higher than that generated by high-quality, intermediate-term U.S. debt
securities. As a secondary objective, RCS seeks to maintain volatility in the
net asset value of its shares comparable to that of high-quality,
intermediate-term U.S. debt securities. In addition, the Fund seeks capital
appreciation to the extent consistent with its other investment objectives.
The MARKET ENVIRONMENT for bonds worldwide was overshadowed and then directly
impacted by the currency crisis in Asia. The crisis arose from a long-standing
combination of heavy capital flows, rapid development funded by weak financial
institutions, and policies that failed to promote adequate market reform. World
bond markets were generally forced to reassess credit risk. Risk premiums
increased on bonds ranging from emerging markets to the highest quality U.S.
corporate bonds. In particular, and despite improving fundamentals in the
securities held by RCS, Latin American debt securities experienced adverse
credit-spread increases of as much as 2%. Changes in credit risk prompted a
flight to quality bolstering U.S. Treasuries. As a result, U.S. Treasury 10-year
bond rates declined by approximately 0.2% for the three months ended October 31,
1997. Unlike U.S. Treasuries, 10-year government bond rates in Europe increased
by 0.1%.
2
<PAGE>
FUND MANAGERS' DISCUSSION AND ANALYSIS
- --------------------------------------
FUND PERFORMANCE for RCS was affected by the interest rate increases in Europe
and Latin America. The quarter's total return on net asset value was -0.8%,
while the Fund's market price returned 2.0%. For performance comparisons, RCS
uses three indices that it believes are representative of its primary market
sectors of mortgages, developed foreign, and emerging market debt. The Salomon
Brothers Mortgage Security Index, the Salomon Brothers World Government Bond
Index and the J.P. Morgan Emerging Market Bond Index produced returns of 2.1%,
2.1% and -8.7%, respectively.
The INTEREST RATE OUTLOOK of Dresdner RCM has been modified as a result of the
Asian events. These events are likely to reduce U.S. gross domestic product
("GDP") by at least 0.5% in 1998, and generally are expected to lower inflation
worldwide. If U.S. GDP growth slows to 2.5%, the pressure to raise short-term
rates in the United States may be mitigated, setting a better tone for rates in
1998. Dresdner RCM believes that the outlook for European interest rates remains
fairly stable, with growth picking up marginally but inflation pressures staying
benign. Dresdner RCM continues to expect interest rate volatility as the cycle
of credit contagion may yet affect other countries in Asia and Eastern Europe.
However, Dresdner RCM believes the most likely scenario involves an improvement
in credit spreads (including emerging markets) next year.
PORTFOLIO COMPOSITION at October 31, 1997, was comprised of North American,
European and Latin American positions. During the three-month period ended
October 31, 1997, there were no significant changes in the overall composition
of the Fund by region. Holdings of Latin American issues were modified with
positions in Colombia and Mexico sold in favor of Panama and U.S. mortgages.
Overall, RCS' investments averaged an AA credit rating, ranging from a high of
AAA to a low of BB. Approximately 85% of the Fund's total investments were rated
AAA. Latin American positions contributed all of the Fund's lower rated
holdings, approximately 13% of total investments. The average effective maturity
of RCS' investments was approximately 9.7 years. Portfolio duration was 4.3
years at October 31, 1997. U.S. and Canada positions contributed 30% of the
Fund's duration (i.e., sensitivity to interest rates), while European and Latin
American positions contributed 42% and 28%, respectively, to the Fund's
duration.
3
<PAGE>
INVESTMENTS IN SECURITIES AND NET ASSETS
- ----------------------------------------------------------
OCTOBER 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
COUNTRY/ PRINCIPAL VALUE
CURRENCY (000's) DESCRIPTION (US$)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENTS IN DEBT SECURITIES - 121.2%*
ARGENTINA - 6.1%
USD Republic of Argentina
15,000 5.50%, Step-Up Coupon, 03/31/23 $ 10,237,500
4,000 8.38%, 12/20/03 3,520,000
5,000 9.75%, 09/19/27 4,175,000
4,000 10.95%, 11/01/99 4,050,000
----------------
Total Argentina 21,982,500
----------------
MEXICO - 5.0%
USD United Mexican States
6,000 9.75%, 02/06/01 6,150,000
7,000 11.38%, 09/15/16 7,385,000
4,326 11.50%, 05/15/26 4,628,820
----------------
Total Mexico 18,163,820
----------------
PANAMA - 4.3%
USD Republic of Panama
4,000 7.88%, 02/13/02, 144A** 3,820,000
13,518 8.88%, 09/30/27 11,632,239
----------------
Total Panama 15,452,239
----------------
UNITED STATES - 105.8%
USD MORTGAGE-BACKED SECURITIES - 85.8%
122,547 FHLMC 7.50%, 2025 - 2026 125,310,486
20,605 FNMA 7.50%, 2026 - 2027 21,059,369
32,011 GNMA 7.50%, 2006 - 2027 32,763,393
17,663 FHLMC 8.00%, 2023 - 2025 18,311,889
4,618 GNMA 8.00%, 2016 - 2022 4,856,445
658 GNMA 8.50%, 2016 - 2023 691,583
57,915 FNMA 7.50%, 2027 TBA 59,185,076
29,000 GNMA 7.50%, 2027 TBA 29,671,640
10,289 FHA Project Pool 56, 7.43%, 11/01/22 10,564,211
5,919 FHA Project Pool 144 S, 7.43%, 06/01/24 6,054,381
----------------
Total Mortgage-Backed Securities 308,468,473
----------------
</TABLE>
* PERCENTAGE OF NET ASSETS.
** SECURITY PURCHASED PURSUANT TO RULE 144A OF THE SECURITIES ACT OF 1933 AND
MAY BE RESOLD ONLY TO QUALIFIED INSTITUTIONAL BUYERS.
4
<PAGE>
INVESTMENTS IN SECURITIES AND NET ASSETS
- ----------------------------------------------------------
OCTOBER 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
COUNTRY/ PRINCIPAL VALUE
CURRENCY (000's) DESCRIPTION (US$)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
USD COLLATERALIZED MORTGAGE OBLIGATIONS - 20.0%
DLJ Mortgage Acceptance Corp.
1,000 Series 1994-MF11, Class A2 8.10%, 06/18/04 $ 1,052,188
4,850 Series 1994-MF11, Class A3 8.10%, 06/18/04 5,052,525
Federal Home Loan Mortgage Corp.
17,932 Series 1667, Class PE 6.00%, 03/15/08 17,824,828
22,786 Series 1665, Class N 6.50%, 01/15/24 22,309,235
G E Capital Mortgage Services, Inc.
4,311 Series 1994-12, Class B1 6.00%, 04/25/09 4,157,086
22,000 Series 1994-10, Class A15 6.50%, 03/25/24 21,651,094
----------------
Total Collateralized Mortgage Obligations 72,046,956
----------------
TOTAL INVESTMENTS -- (COST $422,640,751) 436,113,988
----------------
Payable for Investments Purchased - (24.6%) (88,541,791)
Payable for Investments Sold on a Forward Commitment Basis, net - (28.5%)+ (102,590,388)
Other Assets Less Liabilities - 31.9% 114,728,592
----------------
NET ASSETS -- 100.0% $ 359,710,401
----------------
-------------
</TABLE>
<TABLE>
<S> <C>
TERMS
FHA -- Federal Housing Administration
FHLMC -- Federal Home Loan Mortgage Corporation
FNMA -- Federal National Mortgage Association
GNMA -- Government National Mortgage Association
TBA -- To Be Announced, Standard Settlement
USD -- United States Dollar
</TABLE>
+ On a forward commitment basis, the Fund has agreed to sell the following U.S.
Treasury securities:
<TABLE>
<CAPTION>
PRINCIPAL VALUE
CURRENCY (000's) DESCRIPTION (US$)
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
USD $ 32,250 U.S. Treasury Bonds 6.25%, 08/15/23 $ 32,328,368
USD 8,200 U.S. Treasury Bonds 6.50%, 11/15/26 8,563,178
USD 3,050 U.S. Treasury Bonds 6.88%, 08/15/25 3,312,209
USD 51,100 U.S. Treasury Bonds 7.13%, 02/15/23 56,807,359
--------- ------------
$ 94,600 (Proceeds $97,609,739) $101,011,114
--------- ------------
--------- ------------
</TABLE>
5
<PAGE>
SUPPLEMENTAL_ INFORMATION
INTEREST RATE SWAPS
An interest rate swap is a financial contract that typically involves an
exchange of obligations by two parties. For example, the Fund may exchange with
another party their respective rights to receive fixed interest rate payments
for floating interest rate payments. RCS will usually enter into interest rate
swaps on a net basis, which means that the two payment streams (one from the
Fund and one to the Fund) are netted out, with the Fund receiving or paying only
the net amount of the two payments.
Beginning in 1995, Dresdner RCM sought to find a more efficient way to hold
foreign bonds in developed countries such as Germany and The Netherlands, while
minimizing currency risk. Dresdner RCM found, in U.S. dollar-denominated
interest rate swaps, a way to help RCS achieve its goals. First, swaps allow RCS
to benefit from stable or declining foreign interest rates. Second, they produce
income. Third, they avoid foreign currency exchange risk, since all interest
payments and any future gains or losses are in U.S. dollars.
As of October 31, 1997, the Fund had the following outstanding interest rate
swap agreements at the following rates:
<TABLE>
<CAPTION>
COUNTER-
NOTIONAL PARTY SWAP
AMOUNT CREDIT TERMINATION MATURITY RATE UNREALIZED
(000'S) RATING COUNTRY DATE DATE RECEIVED RATE PAID APPRECIATION
- -----------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C> <C> <C> <C>
$ 25,000 A Belgium 1/4/99 1/3/04 6.05% 3.50%+ $ 739,100
25,000 AAA Canada 6/20/99 6/20/04 5.95% 3.89%+ 636,525
50,000 AAA Canada 1/4/99 1/3/04 6.05% 3.60%+ 1,519,550
25,000 A Finland 1/4/99 1/3/02 5.82% 3.75%+ 396,500
75,000 AA Germany 1/4/99 1/3/02 5.42% 3.45%+ 858,300
25,000 AAA The Netherlands 1/4/99 1/3/02 5.38% 3.37%+ 255,175
25,000 A The Netherlands 1/4/99 1/3/02 5.38% 3.37%+ 260,200
70,000 AA United States 3/1/98 3/1/98 5.66%* 5.49% 58,590
------------------------------------------------------------------------------------------
$ 320,000 $4,723,940
------------------------------------------------------------------------------------------
</TABLE>
* FLOATING RATE BASED ON 1-MONTH LIBOR (LONDON INTERBANK OFFERED RATE).
+ FLOATING RATE BASED ON THE COUNTRY'S INTERBANK OFFERED RATE.
6
<PAGE>
FINANCIAL_ HIGHLIGHTS
Supplementary data for a share outstanding are presented for the periods
indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED 2/24/94*
10/31/97 YEAR ENDED YEAR ENDED THROUGH
(UNAUDITED) 1/31/97 1/31/96 1/31/95**
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 11.87 $ 11.64 $ 10.85 $ 12.50
----------- ---------- ---------- ---------
Net investment income 0.75 0.94 0.96 0.83
Net realized and unrealized gain (loss) (0.17) 0.21 0.72 (1.71)
----------- ---------- ---------- ---------
Net increase (decrease) in net assets
resulting from operations 0.58 1.15 1.68 (0.88)
Distributions:
Net investment income (0.66) (0.92) (0.89) (0.75)
Offering costs -- -- -- (0.02)
----------- ---------- ---------- ---------
Net asset value, end of period $ 11.79 $ 11.87 $ 11.64 $ 10.85
----------- ---------- ---------- ---------
Market price, end of period $ 10.938 $ 10.625 $ 10.25 $ 9.625
----------- ---------- ---------- ---------
Total return based on market price 9.34%+ 13.57% 16.21% (17.21)%+
Total return based on net asset value 5.50%+ 11.72% 17.07% (6.68)%+
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000s) $ 359,710 $ 362,102 $ 355,287 $ 331,166
Ratio of expenses to average net assets 1.24%++ 1.25% 1.20% 1.15%(a)++
Ratio of net investment income to average net assets 8.36%++ 8.21% 8.50% 7.79%(a)++
Portfolio turnover 18%+ 59% 96% 158%+
</TABLE>
* COMMENCEMENT OF INVESTMENT OPERATIONS.
** AUDITED BY PRIOR AUDITORS.
+ NOT ANNUALIZED.
++ ANNUALIZED.
(a) RATIOS INCLUDE CERTAIN ORDINARY OPERATING EXPENSE WAIVERS. WITHOUT SUCH
WAIVERS, THE RATIO OF EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN 1.24%
AND THE RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS WOULD HAVE
BEEN 7.71%.
7
<PAGE>
DIVIDEND REINVESTMENT PLAN
- -----------------------------------
Under the Fund's Dividend Reinvestment Plan (the "Plan"), a stockholder whose
shares of common stock are registered in his or her own name will have all
distributions from the Fund reinvested automatically by State Street Bank and
Trust Company (the "Plan Agent") as agent under the Plan, unless the stockholder
elects to receive cash. Distributions with respect to shares registered in the
name of a broker-dealer or other nominee (that is, in "street name") will be
reinvested by the broker or nominee in additional shares under the Plan, unless
that service is not provided by the broker or nominee or the stockholder elects
to receive distributions in cash.
When the market price of the common stock is equal to or exceeds the net asset
value per share of the common stock on the dividend payment date, Plan
participants will be issued shares of common stock valued at the net asset value
most recently determined or, if the net asset value is less than 95% of the then
current market price of the common stock, at 95% of the market value.
If the market price of the common stock is less than the net asset value of the
common stock, or if the Fund declares a dividend or capital gains distribution
payable only in cash, a broker-dealer not affiliated with the Fund's principal
underwriter, as purchasing agent for Plan participants (the "Purchasing Agent"),
will buy common stock in the open market for the participants' accounts. If the
market price exceeds the net asset value of shares before the Purchasing Agent
has completed its purchases, the Purchasing Agent is permitted to cease
purchasing shares and the Fund may issue the remaining shares.
Plan participants are subject to no charge for reinvesting dividends and capital
gains distributions. The Plan Agent's fees for handling the reinvestment of
dividends and capital gains distributions will be paid by the Fund. No brokerage
charges apply with respect to shares of common stock issued directly by the
Fund. Each Plan participant will, however, bear a proportionate share of
brokerage commissions incurred with respect to open market purchases made in
connection with the reinvestment of dividends or capital gains distributions.
Plan participants may terminate their participation in the Plan by giving
written notice to the Plan Agent. The Fund reserves the right to amend or
terminate the Plan. To obtain a full description of the Plan or to obtain any
other information about the Plan, please contact State Street Bank and Trust
Company, P.O. Box 8209, Boston, Massachusetts 02266-8209 or call (800) 426-5523.
8
<PAGE>
CORPORATE INFORMATION
- -----------------------------
DIRECTORS
Gary W. Schreyer, CHAIRMAN AND PRESIDENT
William A. Hasler
Francis E. Lundy
James M. Whitaker
OFFICERS
Richard W. Ingram
CHIEF FINANCIAL OFFICER AND ASSISTANT TREASURER
John E. Pelletier
VICE PRESIDENT AND ASSISTANT SECRETARY
Elizabeth A. Keeley
VICE PRESIDENT AND ASSISTANT SECRETARY
Caroline M. Hirst
SECRETARY AND TREASURER
INDEPENDENT AUDITORS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, Massachusetts 02109
INVESTMENT MANAGER
Dresdner RCM Global Investors LLC
Four Embarcadero Center
San Francisco, California 94111
PORTFOLIO MANAGERS
Eamonn F. Dolan
Stephen Kim
Jack L. Bernard
Mark E. Raaberg
ADMINISTRATOR, CUSTODIAN AND
TRANSFER AGENT
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
(800) 426-5523
COUNSEL
Ropes & Gray
One International Place
Boston, Massachusetts 02110-2624
Dresdner RCM Global Investors LLC is an institutional money manager
headquartered in San Francisco with approximately $60 billion in managed assets,
including approximately $14 billion in fixed income securities. Dresdner RCM has
over 20 years of experience in active fixed income investment management for
corporate retirement plans, endowments, foundations, insurance companies,
nuclear decommissioning trusts and select individuals.
<PAGE>
RCM STRATEGIC GLOBAL
GOVERNMENT FUND, INC.
MARKET PRICES FOR RCS SHARES ARE PUBLISHED DAILY IN THE WALL STREET JOURNAL AS
"RCM STRATG," IN THE NEW YORK TIMES AS "RCMSTGLFD," AND IN LOCAL NEWSPAPERS IN
THE NEW YORK STOCK EXCHANGE LISTINGS. NET ASSET VALUE IS PUBLISHED WEEKLY AND
APPEARS EACH MONDAY IN THE WALL STREET JOURNAL AND IN THE NEW YORK TIMES UNDER
THE CAPTION "CLOSED-END BOND FUNDS." THE WEEKLY NET ASSET VALUE IS ALSO
AVAILABLE EACH SATURDAY IN BARRON'S.
THIS REPORT IS SENT TO THE SHAREHOLDERS OF RCS FOR THEIR INFORMATION. THE
FINANCIAL INFORMATION INCLUDED HEREIN IS TAKEN FROM THE RECORDS OF THE FUND.
THIS IS NOT A PROSPECTUS, CIRCULAR OR REPRESENTATION INTENDED FOR USE IN THE
PURCHASE OR SALE OF SHARES OF THE FUND OR OF ANY SECURITIES MENTIONED IN THE
REPORT. IF YOU WOULD LIKE A COPY OF THE MOST RECENT ANNUAL REPORT (INCLUDING
AUDITED FINANCIAL STATEMENTS), PLEASE CONTACT YOUR BROKER OR CALL DRESDNER RCM
DIRECTLY AT (415) 954-5400.
INVESTMENT MANAGER:
DRESDNER RCM GLOBAL INVESTORS LLC
FOUR EMBARCADERO CENTER
SAN FRANCISCO, CALIFORNIA 94111
