<PAGE>
RCM
STRATEGIC
GLOBAL
GOVERNMENT
FUND
SEMI-ANNUAL
REPORT
JULY 31, 1997
<PAGE>
CHAIRMAN'S LETTER TO SHAREHOLDERS
- ---------------------------------
PHOTO
Dear Shareholders:
During the second quarter and fiscal year-to-date, your Fund's
investment portfolio produced a total return (income plus
capital appreciation) on net asset value that exceeded the
total return on U.S. mortgage
securities and the Salomon Brothers World Government Bond Index. During the six
months ended July 31, the total return on net asset value was 6.4%. A total
return of 7.2% was achieved, calculated on a basis that includes the change in
the price of the Fund's shares (NYSE symbol: RCS). Net investment income of
$15.3 million or approximately $0.50 per share was earned in the first six
months of fiscal 1997 in comparison with $14.9 million ($0.49 per share) during
a comparable period last year. At the end of July, the effective annualized
dividend yield calculated as a percent of your Fund's stock price was 8.12% and
exceeded the current income return available on seven-year maturity U.S.
Treasury securities by over two percent per annum.
This year, your Fund's results have benefited from investments in Latin America
as well as from significant portfolio allocations into higher yielding
international debt securities and Canada in particular. At quarter end,
approximately 26% of your Fund's duration (a measurement of bond price
volatility) resulted from investments in Latin American debt markets. Developed
European country positions and the sum of United States and Canadian positions
contributed nearly equally to portfolio price volatility. Your Fund's
international investments are effectively "hedged" against adverse movements in
foreign exchange rates.
On a personal note, I would like to inform you that I resigned as principal of
the Fund's investment advisor at the end of last June, and that your Board of
Directors has appointed me to the Board and wishes that I continue to serve our
shareholders as Chairman. As a co-founder and former head of the fixed income
department of RCM Capital Management, L.L.C., I look forward to continuing to
apply my experience and expertise, developed over twenty-five years in the
investment management business, toward achieving your Fund's investment
objectives and performance goals.
Respectfully,
[SIG]
Gary W. Schreyer
CHAIRMAN
AUGUST 15, 1997
<PAGE>
FUND HIGHLIGHTS
- ---------------
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
PERIOD ENDED* 7/31/97 4/30/97 1/31/97 10/31/96 7/31/96
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total investment income $ 8,756 $ 8,766 $ 7,848 $ 8,116 $ 8,584
Total investment income per share 0.29 0.29 0.25 0.27 0.28
Net investment income 7,619 7,679 6,687 7,038 7,503
Net investment income per share 0.25 0.25 0.22 0.23 0.25
Net realized and unrealized gain (loss) 10,310 (4,200) 8,577 11,186 (3,998)
Net realized and unrealized gain (loss) per share 0.33 (0.14) 0.28 0.37 (0.13)
Net asset value at end of period 12.12 11.76 11.87 11.62 11.24
Market price at end of period 10.94 10.63 10.63 10.00 9.75
Total return on market price 5.03% 2.09% 8.86% 4.86% 3.62%
Total return on net asset value 5.15% 1.14% 4.66% 5.69% 1.30%
Dividend from net investment income $ 0.22 $ 0.22 $ 0.26 $ 0.22 $ 0.22
Effective dividend yield** 8.12% 8.36% 8.36% 8.88% 9.11%
</TABLE>
<TABLE>
<CAPTION>
KEY CHARACTERISTICS 7/31/97
- -------------------------------------------------
<S> <C>
MONTHLY DIVIDEND PER SHARE $ 0.074
EFFECTIVE DIVIDEND YIELD** 8.12%
MARKET PRICE PER SHARE $ 10.94
NET ASSET VALUE PER SHARE $ 12.12
DURATION 4.9 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. ("RCS" OR THE "FUND") is a closed-end
bond fund currently investing in three major regions: 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 its Latin American
investments, the securities in the Fund's portfolio currently are all rated at
least investment-grade. The Fund's investments were 100% denominated in U.S.
dollars throughout the six-month period ended July 31, 1997.
The GOAL 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
the shares of the Fund 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 U.S. and Canadian bonds during the Fund's first
quarter was dominated by the Federal Reserve Board's raising of its target Fed
funds rate by 1/4 of 1% as a precaution against potential inflation. This
increase caused U.S. rates to rise initially. However, in the Fund's second
quarter, rates declined as a result of benign inflation and international
capital flows that continued to favor the U.S. dollar. Overall, U.S. interest
rates were down between 1/4 and 1/2 of 1%. Short-term European interest rates
rose approximately 1/3 of 1% with accelerating economic growth and the weakness
of the German currency leading to concerns that the German central bank would
have to raise official short-term interest rates. Longer-term rates declined by
approximately 1/4 of 1% in parallel with those of the United States. Latin
America had a solid six months, with rates declining by as much as a full 1%.
Economic and policy fundamentals have been very supportive of these bond markets
while the search for yield by global investors has benefited Latin America, the
largest market for emerging country debt.
2
<PAGE>
FUND MANAGERS' DISCUSSION AND ANALYSIS
- --------------------------------------
FUND PERFORMANCE for RCS was outstanding. In addition to maintaining its
consistent income stream, the Fund benefited from lower overall interest rates
globally. For the six months ended July 31, total return on net asset value and
stock market price was 6.4% and 7.2%, respectively. For performance comparisons,
RCS uses three indices that 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 had returns of 4.8%, 4.4% and 12.8%,
respectively.
The INTEREST RATE OUTLOOK of RCM Capital Management, L.L.C. ("RCM"), RCS'
investment manager, through year-end for the United States and Canada
anticipates a gradual increase in short-term interest rates and continued
economic strength, with GDP growth in excess of 3%. RCM doesn't expect interest
rates in Europe to shift sustainably to higher levels as domestic demand in
Europe has failed to follow growing export strength. RCM expects Latin American
interest rates to decline in response to general credit improvement and global
demand.
PORTFOLIO COMPOSITION at July 31, 1997, consisted of North American, developed
European and Latin American positions. As a percentage of the Fund's sensitivity
to interest rates (i.e., duration), U.S. and Canada positions represented 39%,
European positions 35% and Latin American positions 26% of the portfolio. During
the six-month period ended July 31, 1997, Canadian positions were increased by
approximately 8%, while Swiss positions were eliminated in response to general
interest rate volatility in Europe. Brazilian positions, representing 10% of
total duration at fiscal year-end, were sold due to concerns over the country's
economic and currency policies. The Brazil proceeds were reallocated to U.S.
GNMA mortgages and smaller Latin American positions in Colombia and Panama
bonds. Overall, RCS' investments averaged an AA credit rating, ranging from a
high of AAA to a low of BB. Approximately 83% of the Fund's total investments
were AAA rated. Latin American positions contributed all of the Fund's lower
rated holdings, approximately 14% of total investments. The average effective
maturity of RCS' investments was approximately 9.4 years. Portfolio duration was
4.9 years at July 31, 1997, which was unchanged from fiscal year-end.
3
<PAGE>
INVESTMENTS IN SECURITIES AND NET ASSETS
- ----------------------------------------------------------
JULY 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
COUNTRY/ PRINCIPAL VALUE
CURRENCY (000's) DESCRIPTION (US$)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENTS IN DEBT SECURITIES - 118.3%*
ARGENTINA - 6.5%
USD Republic of Argentina
15,000 5.50%, Step-Up Coupon, 03/31/23 $ 11,362,500
4,000 8.38%, 12/20/03 4,124,000
4,000 9.25%, 02/23/01 4,214,000
4,000 10.95%, 11/01/99 4,346,000
-------------
Total Argentina 24,046,500
-------------
COLOMBIA - 1.1%
USD 4,000 Republic of Colombia, 7.63%, 02/15/07 4,004,000
-------------
MEXICO - 6.5%
USD United Mexican States
5,000 6.25%, 12/31/19 4,112,500
6,000 9.75%, 02/06/01 6,426,000
7,000 11.38%, 09/15/16 8,330,000
4,326 11.50%, 05/15/26 5,262,579
-------------
Total Mexico 24,131,079
-------------
PANAMA - 3.0%
USD 8,217 Panama PDI, 4.00% with 2.6875%
Interest Capitalization, 07/17/16 7,148,789
4,000 Republic of Panama, 7.88%, 02/13/02, 144A** 4,040,000
-------------
Total Panama 11,188,789
-------------
UNITED STATES - 101.2%
USD MORTGAGE-BACKED SECURITIES - 81.8%
124,950 FHLMC 7.50%, 2025 - 2026 127,226,510
21,180 FNMA 7.50%, 2026 - 2027 21,539,603
32,388 GNMA 7.50%, 2006 - 2027 32,980,364
18,507 FHLMC 8.00%, 2023 - 2025 19,124,603
4,736 GNMA 8.00%, 2016 - 2022 4,956,814
682 GNMA 8.50%, 2016 - 2023 714,513
49,000 FNMA 7.50%, 2027 TBA 49,820,750
29,000 GNMA 7.50%, 2027 TBA 29,520,840
</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.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
4
<PAGE>
INVESTMENTS IN SECURITIES AND NET ASSETS
- ----------------------------------------------------------
JULY 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
COUNTRY/ PRINCIPAL VALUE
CURRENCY (000's) DESCRIPTION (US$)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
USD MORTGAGE-BACKED SECURITIES - (CONTINUED)
10,317 FHA Project Pool 56, 7.43%, 11/01/22 $ 10,591,813
5,939 FHA Project Pool 144 S, 7.43%, 06/01/24 6,053,885
-------------
Total Mortgage-Backed Securities 302,529,695
-------------
USD COLLATERALIZED MORTGAGE OBLIGATIONS - 19.4%
DLJ Mortgage Acceptance Corp.
1,000 Series 1994-MF11, Class A2 8.10%, 06/18/04 1,049,727
4,850 Series 1994-MF11, Class A3 8.10%, 06/18/04 5,039,453
Federal Home Loan Mortgage Corp.
17,932 Series 1667, Class PE 6.00%, 03/15/08 17,667,923
22,786 Series 1665, Class N 6.50%, 01/15/24 22,230,907
G E Capital Mortgage Services, Inc.
4,382 Series 1994-12, Class B1 6.00%, 04/25/09 4,194,470
22,000 Series 1994-10, Class A15 6.50%, 03/25/24 21,498,125
-------------
Total Collateralized Mortgage Obligations 71,680,605
-------------
TOTAL INVESTMENTS -- (COST $418,277,105) 437,580,668
-------------
Payable for Investments Purchased - (21.3%) (78,842,813)
Payable for Investments Sold on a Forward Commitment Basis, net - (24.8%)+ (91,645,459)
Other Assets Less Liabilities - 27.8% 102,867,861
-------------
NET ASSETS -- 100.0% $ 369,960,257
-------------
-------------
</TABLE>
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 Dollars
+ On a forward commitment basis, the Fund has agreed to sell the following U.S.
Treasury securities - (Note 1):
<TABLE>
<CAPTION>
PRINCIPAL VALUE
CURRENCY (000's) DESCRIPTION (US$)
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
USD $ 10,800 U.S. Treasury Bonds 7.13%, 02/15/23 $ 11,821,464
USD 28,500 U.S. Treasury Bonds 6.25%, 08/15/23 28,102,425
USD 48,200 U.S. Treasury Bonds 6.88%, 08/15/25 51,492,542
--------- ------------
$ 87,500 (Proceeds $87,055,942) $ 91,416,431
--------- ------------
--------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
5
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------
JULY 31, 1997 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value - (Note 1)
(cost $418,277,105) $ 437,580,668
Cash equivalents - (Note 1) 4,139,733
Receivable for investments sold 87,055,959
Receivable on interest rate swap contracts, net - (Note 1) 6,248,405
Interest receivable 6,209,487
-----------------
Total Assets 541,234,252
-----------------
LIABILITIES:
Payable for investments purchased 78,842,813
Investments sold on a forward commitment basis, net - (Note 1) 91,645,459
Deferred fee income 86,659
Payable for:
Investment management fees - (Note 2) 297,264
Printing and postage expenses 203,074
Administration fees - (Note 2) 83,794
Custodial fees 52,715
Professional fees 47,054
Other expenses 15,163
-----------------
Total Liabilities 171,273,995
-----------------
NET ASSETS $ 369,960,257
-----------------
----------
NET ASSETS CONSIST OF:
Paid-in capital - (Note 3) $ 380,711,199
Undistributed net investment income 606,452
Accumulated net realized loss on investments, interest rate swaps, and forward commitments (32,547,777)
Net unrealized appreciation on investments, interest rate swaps and forward commitments 21,190,383
-----------------
NET ASSETS $ 369,960,257
-----------------
----------
NET ASSET VALUE PER SHARE
(30,515,800 shares outstanding) $ 12.12
-----------------
----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
6
<PAGE>
STATEMENT OF OPERATIONS
- ---------------------------------
FOR THE SIX MONTHS ENDED JULY 31, 1997 (UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest $ 16,741,545
Fee income - (Note 1) 780,135
-----------------
Total investment income 17,521,680
-----------------
Expenses:
Investment management fees - (Note 2) 1,706,843
Administration fees - (Note 2) 152,545
Printing and postage expenses 117,143
Custodial fees 97,326
Professional fees 75,663
Insurance expense 20,524
Directors' fees and expenses 19,781
Registration and filing fees 16,502
Transfer agent fees 9,396
Other expenses 8,407
-----------------
Total expenses 2,224,130
-----------------
Net investment income 15,297,550
-----------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on investments, interest rate swaps and forward commitments 3,037,036
Net change in unrealized appreciation on investments, interest rate swaps and forward
commitments 3,072,808
-----------------
Net realized and unrealized gain 6,109,844
-----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 21,407,394
-----------------
----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
7
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JULY 31, 1997 YEAR ENDED
(UNAUDITED) JANUARY 31, 1997
------------------- -------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 15,297,550 $ 28,665,312
Net realized gain (loss) on:
Investments, interest rate swaps, and forward commitments 3,037,036 7,367,886
Net change in unrealized appreciation (depreciation) on investments,
interest rate swaps, and forward commitments 3,072,808 (1,204,734)
------------------- -------------------
Net increase in net assets resulting from operations 21,407,394 34,828,464
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income - (Note 1) (13,549,015) (28,013,272)
------------------- -------------------
Net increase in net assets 7,858,379 6,815,192
NET ASSETS:
Beginning of period 362,101,878 355,286,686
------------------- -------------------
End of period* $ 369,960,257 $ 362,101,878
------------------- -------------------
------------------- -------------------
* Includes undistributed (distributions in excess of)
net investment income $ 606,452 $ (1,142,083)
------------------- -------------------
------------------- -------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
8
<PAGE>
STATEMENT OF CASH FLOWS
- ---------------------------------
FOR THE SIX MONTHS ENDED JULY 31, 1997 (UNAUDITED)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income received $ 13,559,404
Operating expenses paid (2,196,282)
Purchase of long-term portfolio investments (351,948,937)
Proceeds from disposition of long-term portfolio investments 352,917,094
-----------------
Net cash provided by operating activities 12,331,279
-----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from dollar roll transactions 814,100
Dividends paid from net investment income (13,549,015)
-----------------
Net cash used in financing activities (12,734,915)
-----------------
Net decrease in cash (403,636)
Cash and equivalents at beginning of year 4,543,369
-----------------
Cash and equivalents at end of year $ 4,139,733
-----------------
-----------
RECONCILIATION OF RESULTS FROM OPERATIONS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 21,407,394
Decrease in investments and foreign currency (10,889,248)
Net realized gain on investments and forward commitments (3,037,036)
Net unrealized appreciation on investments (8,138,933)
Change in:
Receivable for investments sold 34,059,642
Net unrealized appreciation on interest rate swaps (1,759,230)
Interest receivable (2,285,329)
Payable for investments purchased 10,135,313
Payable for investments sold on a forward commitment basis (27,181,761)
Accrued expenses 20,467
-----------------
Net cash provided by operating activities $ 12,331,279
-----------------
-----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
RCM Strategic Global Government Fund, Inc. (the "Fund") commenced investment
operations on February 24, 1994, as a non-diversified, closed-end management
investment company and is registered under the Investment Company Act of 1940,
as amended. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
SECURITIES VALUATIONS: Investment securities are stated at market value or, in
the absence of market value, at fair value as determined by or under the
direction of the Fund's Board of Directors. Over-the-counter securities are
valued on the basis of the most recent bid price. Investments in U.S. government
securities (other than short-term securities) are valued at the average of the
most recent bid and ask prices in the over-the-counter market. Investments that
mature in sixty days or less are valued at amortized cost which approximates
market value.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME: Security transactions are
recorded as of the date of purchase, sale or maturity. Realized gains and losses
on security transactions are determined on an identified cost basis. Interest
income, foreign taxes and expenses are accrued daily. Fees from dollar roll
transactions are recognized daily on a straight-line basis over the term of the
contract. The Fund accretes discount and amortizes premium to par value on
securities.
FOREIGN CURRENCY TRANSLATIONS: The records of the Fund are maintained in U.S.
dollars. Foreign currencies, investments and other assets and liabilities, if
any, are translated into U.S. dollars at current exchange rates. Purchases and
sales of foreign securities and income and expenses are translated on the
respective dates of such transactions. Net realized currency gains and losses
arise from trade and settlement date gains and losses, sales of forward foreign
currency contracts, and foreign currency transactions. The Fund does
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
not isolate the portion of unrealized foreign currency exchange fluctuation on
investments. Such unrealized fluctuations are included in net unrealized
appreciation or depreciation on investments.
FORWARD FOREIGN CURRENCY CONTRACTS: A forward foreign currency contract
("Forward") is an agreement between two parties to buy or sell currency at a set
price on a future date. The Fund may enter into Forwards in order to hedge
foreign currency risk associated with its portfolio securities or for other risk
management or investment purposes. The net U.S. dollar value of foreign currency
underlying all contractual commitments held by the Fund on each day is
determined by using the appropriate current or forward exchange rate. Realized
gains or losses on Forwards include net gains or losses on contracts that have
matured or which the Fund has terminated by entering into an offsetting closing
transaction. Unrealized appreciation or depreciation of Forwards is included in
the Statement of Assets and Liabilities and is carried on a net basis. The Fund
could be exposed to risk of loss if the counterparty is unable to meet the terms
of the contract or if the value of the currency changes unfavorably. As of July
31, 1997, there were no open Forwards.
FORWARD COMMITMENTS: The Fund may enter into forward sale commitments in which
the Fund agrees on trade date to make delivery against payment for securities on
a delayed delivery basis. The price and interest rate of such securities are
fixed at trade date. The Fund enters into forward sale commitments to manage its
portfolio duration. Realized gains and losses of forward sale commitments are
recognized at the time such transactions are closed by an offsetting purchase.
At July 31, 1997, there were $91,416,431 of forward sale commitments outstanding
and a payable for forward commitments closed but unsettled of $229,028.
The Fund enters into dollar rolls in which the Fund sells securities for
delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type, same or similar interest rate and maturity)
securities on a specified future date. During the roll period, the Fund forgoes
principal and interest paid on the securities. The Fund accounts for dollar
rolls as financing transactions. Dollar rolls enhance the Fund's yield by
earning a spread between the yield on the underlying mortgage securities and
short-term
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
interest rates. The fee income earned for the period on these transactions was
$780,135. At July 31, 1997, there were $78,842,813 in dollar roll commitments on
liquid mortgage pass-throughs outstanding.
INTEREST RATE SWAPS: The Fund enters into interest rate swaps for hedging, risk
management and other investment purposes. Interest rate swaps involve the
exchange of commitments to pay or receive interest - e.g., an exchange of
floating rate payments for fixed rate payments. If forecasts of interest rates
and other market factors are incorrect, investment performance will diminish
compared to what performance would have been if these investment techniques were
not used. Even if the forecasts are correct, there are risks that the positions
may correlate imperfectly with the asset or liability being hedged, a liquid
secondary market may not always exist, or a counterparty to a transaction may
not perform. The Fund records, as an increase or decrease to interest income,
the net amount due or owed by the Fund on each periodic payment. The market
valuations represent the net present value of all future cash settlement amounts
based on implied forward interest rates.
As of July 31, 1997, the Fund had the following outstanding interest rate swap
agreements denominated in U.S. dollars:
<TABLE>
<CAPTION>
COUNTER-
NOTIONAL PARTY SWAP UNREALIZED
AMOUNT CREDIT TERMINATION MATURITY RATE APPRECIATION
(000'S) RATING COUNTRY DATE DATE RECEIVED RATE PAID (DEPRECIATION)
- ------------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C> <C> <C> <C>
$ 25,000 A Belgium 1/4/99 1/3/04 6.05% 3.50%+ $1,163,300
25,000 AAA Canada 6/20/99 6/20/04 5.95% 3.89%+ 367,625
50,000 AAA Canada 1/4/99 1/3/04 6.05% 3.60%+ 601,650
25,000 A Finland 1/4/99 1/3/02 5.82% 3.75%+ 682,100
75,000 AA Germany 1/4/99 1/3/02 5.42% 3.45%+ 2,108,700
25,000 AAA The Netherlands 1/4/99 1/3/02 5.38% 3.37%+ 600,300
25,000 A The Netherlands 1/4/99 1/3/02 5.38% 3.37%+ 610,700
70,000 AA United States 3/1/98 3/1/98 5.69%* 5.49% 114,030
------------------------------------------------------------------------------------------
$ 320,000 $6,248,405
------------------------------------------------------------------------------------------
</TABLE>
* FLOATING RATE BASED ON 1-MONTH LIBOR (LONDON INTERBANK OFFERED RATE).
+ FLOATING RATE BASED ON THE COUNTRY'S INTERBANK OFFERED RATE.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVERSE REPURCHASE AGREEMENTS: The Fund enters into reverse repurchase
agreements with qualified counterparties as determined by or under the direction
of the Fund's Board of Directors. A reverse repurchase agreement involves a sale
by the Fund of securities that it holds with an agreement by the Fund to
repurchase the same securities at an agreed-upon price and date. Interest on the
value of reverse repurchase agreements issued and outstanding is based upon
competitive market rates at the time of issuance. At July 31, 1997, the Fund had
no open reverse repurchase agreements outstanding.
LEVERAGE: Forward sale commitments, dollar rolls, interest rate swaps, reverse
repurchase agreements and other transactions may involve leverage. In order to
limit leverage, the Fund segregated $170,259,244 in high credit quality, liquid
investments against outstanding obligations, resulting in no net leverage at
July 31, 1997.
FEDERAL INCOME TAXES: It is the policy of the Fund to comply with the
requirements for qualification as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended. It is also the intention of the Fund
to make distributions of substantially all of its taxable income and net
realized capital gains to its shareholders. Therefore, no federal income tax
provision is required. As of July 31, 1997, the Fund had capital loss carryovers
of $16,648,019 and $18,629,658 which will expire on January 31, 2003 and January
31, 2004, respectively.
DISTRIBUTIONS TO SHAREHOLDERS: The Fund distributes to its holders of common
stock monthly dividends of net investment income. Net realized capital gains, in
excess of capital loss carryovers, if any, will be distributed to the
stockholders at least annually. The Fund records all distributions to
stockholders on the ex-dividend date. Income and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. Any differences are primarily due to
differing treatments for losses deferred, accounting for foreign currency,
original issue discount accretion and excise tax regulations.
CASH EQUIVALENTS: The Fund considers investments in money market funds to be
cash equivalents.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES, ADMINISTRATOR AND RELATED PARTIES
RCM Capital Management, L.L.C. ("RCM"), the investment manager, furnishes
investment advice to the Fund and receives a fee, at the annualized rate of
0.95% of the Fund's average daily net assets. State Street Bank and Trust
Company (the "Administrator") serves as the Fund's administrator and receives a
fee of 0.10% on the first $250 million of the Fund's average daily net assets,
0.05% on the next $250 million and 0.02% on amounts thereafter. No principal,
officer or employee of the investment manager or any affiliate thereof will
receive any compensation from the Fund for serving as an officer or director of
the Fund. The Fund pays each of its directors who is not a principal, officer or
employee of the investment manager or any affiliate thereof an annual fee of
$6,000 plus $1,000 for each meeting attended.
3. CAPITAL SHARES
At July 31, 1997, there were 500,000,000 shares of common stock authorized at
$0.00001 par value and 30,515,800 shares outstanding.
4. PURCHASES AND SALES OF SECURITIES
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies, short-term securities, dollar rolls, and
forward commitments, for the six months ended July 31, 1997 aggregated
$12,270,063 and $28,529,162, respectively. Purchases and proceeds from sales of
obligations of the U.S. government and its agencies, other than short-term
securities and dollar rolls, for the six months ended July 31, 1997, aggregated
$72,631,248 and $22,968,127, respectively. At July 31, 1997, the aggregate cost
of investments for federal income tax purposes was $422,268,521. Gross
unrealized appreciation and depreciation of investments aggregated $16,496,956
and $1,184,809, respectively, resulting in net unrealized appreciation of
$15,312,147 at July 31, 1997.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------
5. FINANCIAL HIGHLIGHTS
Supplementary data for a share outstanding are presented for the periods
indicated:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED 2/24/94*
7/31/97 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 0.50 0.94 0.96 0.83
Net realized and unrealized gain (loss) 0.19 0.21 0.72 (1.71)
----------- ---------- ---------- ---------
Net increase (decrease) in net assets
resulting from operations 0.69 1.15 1.68 (0.88)
Distributions:
Net investment income (0.44) (0.92) (0.89) (0.75)
Offering costs -- -- -- (0.02)
----------- ---------- ---------- ---------
Net asset value, end of period $ 12.12 $ 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 7.22%+ 13.57% 16.21% (17.21)%+
Total return based on net asset value 6.35%+ 11.72% 17.07% (6.68)%+
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 369,960 $ 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 8.51%++ 8.21% 8.50% 7.79%(A)++
Portfolio turnover 12%+ 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%.
15
<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.
16
<PAGE>
CORPORATE INFORMATION
- -----------------------------
DIRECTORS
Gary W. Schreyer, CHAIRMAN
William A. Hasler
Francis E. Lundy
James M. Whitaker
OFFICERS
Richard W. Ingram
PRESIDENT, 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
RCM Capital Management, L.L.C.
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
RCM Capital Management, L.L.C. is an institutional money manager headquartered
in San Francisco with approximately $30 billion in managed assets, including
approximately $10 billion in fixed income securities. 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 RCM DIRECTLY
AT (415) 954-5400.
INVESTMENT MANAGER:
RCM CAPITAL MANAGEMENT, L.L.C.
FOUR EMBARCADERO CENTER
SAN FRANCISCO, CALIFORNIA 94111
